SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 8-B
FOR REGISTRATION OF SECURITIES OF
CERTAIN SUCCESSOR ISSUERS
FILED PURSUANT TO SECTION 12(b) OR 12 (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
STEWARDSHIP FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
NEW JERSEY 22-3351447
- ----------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
630 Godwin Avenue, Midland Park, NJ 07432
- ----------------------------------- -----------------------
(Address of Principal Executive (Zip Code)
Offices)
Securities to be registered pursuant to Section 12(b) of the Act:
================================================================================
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
================================================================================
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
- --------------------------------------------------------------------------------
(Title of Class)
- --------------------------------------------------------------------------------
(Title of Class)
<PAGE>
ITEM 1. GENERAL INFORMATION
a) The Registrant was organized in January, 1995 as a business corporation
under the laws of the State of New Jersey.
b) The Registrant's fiscal year end is December 31.
ITEM 2. TRANSACTION OF SUCCESSION
a) Atlantic Stewardship Bank
b) The Registrant was established by the Board of Directors of Atlantic
Stewardship Bank (the "Bank") to become a holding company for the Bank. Pursuant
to the New Jersey Banking Act of 1948, as amended (the "Banking Act"), and
pursuant to the approval of the shareholders of the Bank, the Registrant
acquired all of the shares of the Bank in exchange for its own shares, on a
share per share basis. The Bank is now the wholly-owned subsidiary of the
Company.
ITEM 3. SECURITIES TO BE REGISTERED
1) The Registrant's Certificate of Incorporation authorizes 5,000,000
shares of common stock, no par value.
2) 460,013 outstanding shares as of November 22, 1996
3) None
ITEM 4. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Capital Structure
The Registrant's certificate of incorporation provides for an authorized
capitalization consisting of 5,000,000 shares of common stock, without par
value. The Registrant has 460,013 shares of common stock outstanding, leaving
739,987 shares of authorized common stock available to be issued when and if the
Board of Directors of the Registrant determines it is advisable to do so. Under
New Jersey law, the Board of Directors is generally empowered to issue
authorized common stock without shareholder approval.
Dividend Rights
The holders of the Registrant's common stock are entitled to dividends,
when, as, and if declared by the Registrant's Board of Directors, subject to the
restrictions imposed by New Jersey law. The only statutory limitation applicable
to the Registrant is that dividends may not be paid if the Registrant is
insolvent.
-2-
<PAGE>
However, as a practical matter, unless the Registrant expands its activities,
its only source of income will be the earnings of the Bank. Under the Banking
Act, dividends may be paid only if, after the payment of the dividend, the
capital stock of the Bank will be unimpaired and either the Bank will have a
surplus of not less than 50% of its capital stock or the payment of the dividend
will not reduce the Bank's surplus.
Voting Rights
Each share of the Common Stock is entitled to one vote per share.
Cumulative voting is not permitted. Under New Jersey corporate law, the
affirmative vote of a majority of the votes cast is required to approve any
merger, consolidation or disposition of substantially all of the Registrant's
assets.
Preemptive Rights
Under New Jersey law, shareholders may have preemptive rights if these
rights are provided in the certificate of incorporation. The Certificate of
Incorporation of the Registrant does not provide for preemptive rights.
Appraisal Rights
Under New Jersey law, dissenting shareholders of the Registrant will have
appraisal rights (subject to the broad exception set forth in the next sentence)
upon certain mergers or consolidations. Appraisal rights are not available in
any such transaction if shares of the corporation are listed for trading on a
national securities exchange or held of record by more than 1,000 holders. In
addition, appraisal rights are not available to shareholders of an acquired
corporation if, as a result of the transaction, shares of the acquired
corporation are exchanged for any of the following: (i) cash; (ii) any
securities listed on a national securities exchange or held of record by more
than 1,000 holders; or (iii) any combination of the above. New Jersey law also
provides that a corporation may grant appraisal rights in other types of
transactions or regardless of the consideration received by providing for such
rights in its Certificate of Incorporation. The Registrant's Certificate of
Incorporation does not provide appraisal rights beyond those called for under
New Jersey law.
Directors
Under New Jersey law and the Registrant's Certificate of Incorporation, the
Registrant is to have a minimum of 3 directors and a maximum of 25, with the
number of directors at
-3-
<PAGE>
any given time to be fixed by the Board of Directors. The Registrant currently
has eleven directors.
Indemnification
The Certificate of Incorporation of the Registrant provides that the
Registrant will indemnify any person who was or is a party to any threatened,
pending or completed action, whether civil or criminal, administrative or
investigative by reason of the fact that such person is or was a director or
officer of the Registrant, or is or was serving as a director or officer of any
other entity at the request of the Registrant against expenses, judgments, fines
and amounts paid in settlement incurred by such person in connection with such
action, provided that the director or officer acted in good faith in a manner he
reasonably believed to be in or not opposed to the best interest of the
Registrant and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In addition, in the event
that such action is in the name of the Registrant, a director or officer may not
be indemnified if he is found liable to the Registrant unless a court determines
that, despite the finding of liability, the officer or director is fairly and
reasonably entitled to indemnification.
Limitation of Liability
The Certificate of Incorporation of the Registrant contains provisions
which may limit the liability of any director or officer of the Registrant to
the Registrant or its shareholders for damages for an alleged breach of any duty
owed to the Registrant or its shareholders. This limitation will not relieve an
officer or director from liability based on any act or omission (i) which was in
breach of such person's duty of loyalty to the Registrant or its shareholders;
(ii) which was not in good faith or involved a knowing violation of law; or
(iii) which resulted in receipt by such officer or director of an improper
personal benefit. These provisions are explicitly permitted by New Jersey law.
Shareholders Protection Act
A provision of New Jersey law, the New Jersey Shareholders Protection Act
(the "Shareholders Act") prohibits certain transactions involving an "interested
stockholder" and a company. An "interested stockholder" is generally defined as
one who is the beneficial owner, directly or indirectly, of ten percent or more
of the voting power of the outstanding stock of the corporation. The
Shareholders Act prohibits certain business combinations between an interested
stockholder and a New Jersey corporation subject to the Shareholders Act for a
period of five years after the date the interested stockholder acquired his
-4-
<PAGE>
stock, unless the transaction was approved by the corporation's board of
directors prior to the time the interested stockholder acquired their shares.
After the five year period expires, the prohibition on business combinations
with an interested stockholder continues unless certain conditions are met. The
conditions include (i) that the business combination is approved by the Board of
Directors of the target corporation; (ii) that the business combination is
approved by a vote of two-thirds of the voting stock not owned by the interested
shareholder; and (iii) that the shareholders of the corporation receive a price
in accordance with a fair price formula set forth in the statute. The
Shareholders Act as applicable to the Registrant could inhibit unsolicited
offers to acquire the Registrant.
Restrictions on Acquisition of the Registrant
The Certificate of Incorporation of the Registrant permits the Board of
Directors, consistent with their fiduciary duty and as already permitted by
statute, to consider, in connection with any proposed acquisition of the
corporation, any fact which the Board of Directors deems relevant, including the
impact of such an acquisition of the Registrant on its employees and the
communities which the Registrant serves. This provision, along with the
provisions of the Shareholders Act described above could have the effect of
delaying, deferring or preventing a change in control of the Registrant.
ITEM 5. FINANCIAL STATEMENTS AND EXHIBITS
(A)
(1) Annual Report of Atlantic Stewardship Bank on Form F-2 for the year
ended December 31, 1995.
(2) Quarterly Report of Atlantic Stewardship Bank on Form F-4 for the
quarter ended September 30, 1996.
(B)
(1) Plan of Acquisition of All the Outstanding Shares of Atlantic
Stewardship Bank by Stewardship Financial Corporation.
(3) (i) Certificate of Incorporation of Stewardship Financial
Corporation.
(ii) Amendment to Certificate of Incorporation of
Stewardship Financial Corporation
(iii) By-laws of Stewardship Financial Corporation
(10) (a) 1995 Stock Option Plan.
(b) 1995 Stock Option Plan for Non-Employee Directors.
-5-
<PAGE>
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule.
-6-
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized.
STEWARDSHIP FINANCIAL CORP.
By /s/ Paul Van Ostenbridge
----------------------------
Paul Van Ostenbridge
Date: November 6, 1996
-7-
<PAGE>
ANNUAL REPORT ON FORM F-2
OF
ATLANTIC STEWARDSHIP BANK
<PAGE>
FORM F-2
ANNUAL REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31,1995
---------------------
26390
(FDIC Certificate No.)
Atlantic Stewardship Bank
(Exact name of bank as specified in its charter)
New Jersey
(State of other jurisdiction of incorporation or organization)
630 Godwin Avenue
Midland Park, New Jersey 07432
(Address of principal executive offices)
22-2499582
(I.R.S. Employer Identification No.)
201-444-7100
(Bank's telephone number, including area code)
None
(Securities registered under section 12(b) of the Act)
Common Stock, par value $5.00 per share
(Securities registered under section 12(g) of the Act)
Indicate by check mark if disclosure of delinquent filers pursuant to item 10 is
not contained herein, and will not be contained, to the best of bank's
knowledge, in definitive proxy or information statements incorporated by
reference in part III of the Form F-2 or any amendment of this form F-2. |X|
Indicate by check mark if whether the bank (1) has filed all reports required to
be filed by section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months ( or for such shorter period that the bank was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No __
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 25, 1996 was $11,386,025.
The number of shares outstanding of the registrant's Common Stock, $5.00 par
value, outstanding as of March 25, 1996 was 455,441.
<PAGE>
Documents Incorporated by Reference
Portions of the Proxy Statement for the 1996 Annual Meeting of Shareholders are
incorporated by reference on the pages listed below.
Form F-2 Item Document Incorporated by Reference Page(s)
- ------------- ---------------------------------- -------
Part I Item 4 Proxy Statement for the 1996
Annual Meeting of Shareholders
under the caption Stock
Ownership of Management and
Principal Shareholders ........................... 16-17
Part III Item 9 Proxy Statement for the 1996
Annual Meeting of Shareholders
under the caption Proposal 1 -
Election of Directors ............................ 13-15
Part III Item 10 Proxy Statement for the 1996
Annual Meeting of Shareholders
under the caption Management
Remuneration ..................................... 18
<PAGE>
TABLE OF CONTENTS
PAGE
PART I NUMBER
------
Item I - Business ................................................ 1-7
Item 2 - Properties .............................................. 7
Item 3 - Legal Proceedings ....................................... 7
Item 4 - Security Ownership of Certain Beneficial
Owners and Management ................................. 8
PART II
Item 5 - Market for the Bank's Common Stock and Related
Security Holder Matters ............................... 8
Item 6 - Selected Financial Data ................................. 9
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 10-24
Item 8 - Financial Statements and Supplementary Data ............. 25-47
PART III
Item 9 - Directors and Principal Officers of the Bank ............ 48
Item 10 - Management Compensation and Transactions ................ 48
PART IV
Item 11 - Exhibits, Financial Statement Schedules,
and Reports on Form F-3 ............................... 49-50
SIGNATURES ............................................................. 51
<PAGE>
Part I
Item 1 - Business
General
Atlantic Stewardship Bank (the "Bank") is a commercial bank formed under
the laws of New Jersey on April 26, 1984. The Bank received its Certificate of
Authority to transact business from the Commissioner of the New Jersey
Department of Banking on September 20, 1984 and the Bank commenced operations on
September 29, 1985.
The Bank's main branch and administrative headquarters are located at 630
Godwin Avenue, Midland Park, New Jersey 07432. In addition, the Bank maintains
branches in Hawthorne and Wayne, New Jersey. See Item 3. "Properties".
Services
The Bank conducts a traditional commercial banking and retail community
banking business, and offers a full range of traditional deposit and lending
services. Commercial services provided by the Bank include real estate mortgage
loans, term loans, revolving credit arrangements, lines of credit, business
checking and savings accounts and certificates of deposit, as well as night
depository, wire transfer and collection services. The Bank also offers a full
range of consumer banking services, including checking, savings, NOW and money
market accounts, certificates of deposit, individual retirement accounts,
holiday clubs, secured and unsecured installment loans, credit cards, mortgage
loans, safe deposit boxes, wire transfers, collection services, money orders and
travelers checks. Although the Bank does not currently operate any automated
teller machines ("ATM") at its branch sites, it does issue ATM access cards
which serve for both debit and point of sale transactions. The Bank is a member
of Exchange, Plus, Nyce and American Express ATM networks. The Bank continues to
explore the cost/benefit of introducing an ATM at one of its branch sites. Bank
deposits are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit
Insurance Corporation ("FDIC") up to its applicable limits. The Bank structures
its specific services and charges in a manner designed to attract small and
medium-sized businesses, the professional community and individuals residing,
working and shopping in the Bergen and Passaic Counties, New Jersey area. The
Bank does not presently have any trust powers and, therefore, does not offer any
trust services.
The Bank has sought to increase its loan portfolio while maintaining its
traditional underwriting standards. Since December 31, 1994, the Bank's total
loan portfolio has increased by approximately $11.6 million. The Bank seeks to
maintain a loan to deposit ratio of between 65% to 72%. In commercial lending,
the Bank offers
1
<PAGE>
loans for equipment and working capital needs. As part of an ongoing program to
improve services to small and medium-sized businesses, the Bank is a participant
in the Small Business Administration (SBA) as an approved lender. The SBA, a
government agency, provides lending guarantees to qualified borrowers to help
businesses obtain financing for expansion and improvement. The Bank periodically
supports the community by bidding on tax anticipation notes, bond anticipation
notes and long-term municipal bonds for local governments. The Bank also has
developed an alliance with the City of Paterson, Passaic County, New Jersey
participating in its Small Business Loan Program. This program operates under
the City's Department of Community Development which encourages banks to lend to
new small businesses in the City and offers a limited guaranty. The Bank also
participates in multi-bank credit arrangements in order to take part in loans
for amounts which are in excess of the Bank's legal lending limit. In the
mortgage arena, the Bank was an active participant in the State of New Jersey
First Time Homebuyers Program which offered attractively price fixed rate
mortgages to new homebuyers. The majority of the residential mortgage loans are
originated by the Bank for resale in the secondary market in order to provide
liquidity. During 1995, the Bank introduced its own credit card program which is
receiving strong reception from its customer base. The popularity is
attributable to its attractive interest rates. The credit cards have no annual
fee for customers banking with Atlantic Stewardship Bank and are priced at 2.49%
over The Wall Street Journal prime rate. The interest adjusts twice a year and
is currently 11.24%.
In addition to the traditional deposit products for a community bank, the
Bank continues to see popularity with the Power Certificate of Deposit. The
Power Certificate of Deposit, issued for maturities of between 24 and 60 months,
proved to be very attractive to savers since it provides investors the option to
increase the interest rate and add to the principal one time during the
Certificate's term. Beginning in 1996, the Bank began to offer the Power
Certificate of Deposits as products available for IRA's.
On March 10, 1995, the Bank was successful in purchasing certain assets and
assuming the deposit account liabilities of the Wayne branch of Carteret Federal
Savings Bank from Penn Federal Savings Bank which had simultaneously purchased
such deposits from the Resolution Trust Corporation. The Bank maintained the
Carteret Branch until April, 1995 when it moved the depositors to the Bank's
existing Wayne Branch.
On January 17, 1995, the Bank's Board of Directors adopted the Plan of
Acquisition of all the Outstanding Stock of Atlantic Stewardship Bank by
Stewardship Financial Corporation (the "Plan".) Although the Board originally
intended to propose the Plan to the Bank's shareholders at the 1995 Annual
Meeting, certain regulatory considerations required that a shareholder vote on
the Plan be delayed until the 1996 Annual Meeting. The Plan provides for the
transfer and contribution of all of the Bank's stock by the shareholders to the
Holding Company solely in exchange for the stock of the Holding Company pursuant
to the terms of the New Jersey Banking Act of 1948. The Holding Company will
then be the sole shareholder of the Bank. All shares of common
2
<PAGE>
stock of the Bank will be exchanged for shares in the Holding Company on a one
for one basis. The Board of Directors of the Bank believes that the bank holding
company structure offers greater flexibility in undertaking the Bank's current
and future activities. In addition, The Board believes that the holding company
structure may provide the Board with additional means of protecting the rights
of shareholders in the case of an unsolicited takeover-bid. Although the Holding
Company's Amended and Restated Certificate of Incorporation does not currently
contain any defensive provisions, shareholders may be asked to approve such
provisions in the future. Consummation of the transactions contemplated by the
Plan is subject to several conditions, including the non-objection of the Board
of Governors of the Federal Reserve System and an affirmative vote of the
holders of two-thirds of the outstanding shares of common stock of the Bank.
The Bank believes it offers competitive rates for its services, thereby
enabling consumers and business entities in the service area to avail themselves
of the bank's credit and non-credit services.
As of December 31, 1995, the Bank had 35 fulltime and 27 parttime
employees. None of the Bank's employees are represented by any collective
bargaining agreements. The Bank believes that its relations with its employees
are good.
Subsidiaries
The Bank has one subsidiary, Stewardship Investment Corp. The business of
the subsidiary is maintaining, holding and managing a majority of the Bank's
investment portfolio. The Bank is not currently a subsidiary of any other
entity.
Competition
The Bank is located in an extremely competitive environment. The Bank's
trade area is already serviced by major regional banks, large thrift
institutions and a variety of credit unions. In addition, several of the major
money center banks have acquired institutions in New Jersey and are providing
services to the area. Most of the Bank's competitors have substantially more
capital and therefore greater lending limits than the Bank. The Bank's
competitors generally have established positions in the trade area and have
greater resources than the Bank with which to pay for advertising, physical
facilities, personnel and interest on deposited funds. To distinguish itself
from its competition, the Bank offers an alternative community oriented style of
banking. As an example of the Bank's commitment to its community, the Bank has
incorporated a commitment into its By-laws to tithe ten percent (10%) of its
pre-tax profits to various Christian charities, hospitals, missions and schools
in addition to assisting local charities.
3
<PAGE>
The Bank believes that the following attributes have made the Bank
attractive to local business people and residents.
o Direct and easy access to the Bank's management by members of the
community, whether during or after business hours.
o Local conditions and needs are taken into account by the Bank
when deciding loan applications and making other business
decisions affecting members of the community.
o Responsiveness of the Bank's personnel for requests for
information and services by depositors and others.
o Depositors' funds are invested back into the community.
o Positive involvement of the Bank and its personnel in the
community affairs of Bergen County.
Supervision and Regulation
As a New Jersey-chartered commercial bank, the Bank is subject to the
regulation, supervision, and control of the New Jersey Department of Banking
(the "Department"). As a Federal Deposit Insurance Corporation ("FDIC") insured
institution, the Bank is subject to regulation, supervision and control by the
FDIC, an agency of the federal government. The regulations of the FDIC and the
Department impact virtually all activities of the Bank, including the minimum
level of capital the Bank must maintain, the ability of the Bank to pay
dividends, the ability of the Bank to expand through new branches or
acquisitions, and various other matters. The Bank is also subject to numerous
federal state and local laws regulating the taking of deposits, the extension of
credit, and the provision of banking services, including federal regulations
governing disclosure of credit terms to borrowers (Truth-In-Lending Act),
discrimination among credit customers (Equal Credit Opportunity Act) and
permissible credit collection practices (Fair Credit Reporting Act). Additional
federal legislation to which the Bank is subject includes rules concerning
customers' rights and liabilities arising from the use of automated teller
machines (Regulation E of the Electronic Funds Transfer Act) and regulations
limiting the "float" the Bank may maintain on check deposits.
Capital Adequacy Guidelines
The Bank is subject to capital adequacy guidelines promulgated by the FDIC.
The FDIC has issued regulations to define the adequacy of capital based upon the
sensitivity of assets and off-balance sheet exposures to risk factors. Four
categories of risk weights (0%, 20%, 50% and 100%) were established to be
applied to different types of balance sheet assets and off-balance sheet
exposures. The aggregate of the risk
4
<PAGE>
weighted items (risk-based assets) is the denominator of the ratio, the
numerator of which is a newly defined risk-based capital. Under the regulations,
risk-based capital has been classified into two categories. Tier 1 capital
includes common and qualifying perpetual preferred stockholders' equity, less
goodwill. Tier 2 capital includes mandatory convertible debt, allowance for loan
losses, subject to certain limitations, and certain subordinated and term debt
securities. Total qualifying capital consists of Tier 1 capital and Tier 2
capital; however, the amount of Tier 2 capital may not exceed the amount of Tier
1 capital in the computation of total qualifying capital. The minimum capital
ratio required under the above formula was 4% for Tier 1 capital ratio and 8%
for total qualifying capital. The Bank at December 31, 1995 maintained a Tier 1
capital ratio of 12.13% and total qualifying capital of 13.38%.
The FDIC has also issued leverage capital adequacy standards. Under these
standards, in addition to the risk-based capital ratios, a bank must also
maintain a ratio of Tier 1 capital (using the risk-based capital definition) to
total assets of at least 3%. Institutions which are not "top-rated" will be
expected to maintain a ratio 100 to 200 basis points above this ratio. The
Bank's leverage ratio at December 31, 1995 was 7.57%.
Dividend Restrictions
Under the New Jersey Banking Act of 1948, as amended, the Bank may pay
dividends only out of retained earnings, and out of surplus to the extent that
surplus exceeds 50% of stated capital. In addition, the Bank cannot pay a
dividend in such amount as would reduce its capital below the regulatory imposed
minimums. The power to declare and issue dividends in the stock of the Bank, as
set forth in the Certificate of Incorporation, is subject to the oversight and
approval of the Commissioner of Banking for the State of New Jersey.
Recent Legislation
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act (the "Interstate Act") was enacted. The Interstate Act generally
enhances the ability of bank holding companies to conduct their banking business
across state borders. The Interstate Act has two main provisions. The first
provision generally provides that commencing on September 29, 1995, bank holding
companies may acquire banks located in any state regardless of the provisions of
state law. These acquisitions are subject to certain restrictions, including
caps on the total percentage of deposits that a bank holding company may control
both nationally and in any single state. New Jersey law currently allows
interstate acquisitions by bank holding companies whose home state has
"reciprocal" legislation which would allow acquisitions by New Jersey based
holding companies.
The second major provision of the Interstate Act permits, beginning on June
1, 1997, banks located in different states to merge and continue to operate as a
single
5
<PAGE>
institution in more than one state. States may, by legislation passed before
June 1, 1997, opt out of the interstate bank merger provisions of the Interstate
Act. In addition, states may elect to opt in and allow interstate bank mergers
prior to June 1, 1997.
A final provision of the Interstate Act permits banks located in one state
to establish new branches in another state without obtaining a separate bank
charter in that state, but only if the state in which the branch is located has
adopted legislation specifically allowing interstate de novo branching.
It is unclear at this time whether New Jersey will opt out of the
interstate bank merger provisions of the Interstate Act or opt in at a date
earlier than June 1, 1997, or whether New Jersey will permit interstate de novo
branching. Although it is impossible to predict the impact of the Interstate Act
at this time, it will most likely enhance competition in the New Jersey
marketplace as bank holding companies located outside of New Jersey become freer
to acquire institutions located in New Jersey. The ability to operate acquired
New Jersey banks as part of an existing bank charter rather than as a separately
chartered institution may make interstate banking more cost-efficient, and may
lead to additional acquisitions in New Jersey by out-of-state institutions.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted in December, 1991 and effected a major restructuring of
the federal regulatory framework applicable to depository institutions. The
FDICIA was primarily designed to provide additional financing for the FDIC by
increasing its borrowing ability. The FDIC was given the authority to increase
deposit insurance premiums to repay any such borrowing. In addition, the FDICIA
identifies capital standard categories for financial institutions: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. FDICIA imposes progressively
more restrictive constraints on operations, management and capital distributions
depending on the category in which an institution is classified. Pursuant to
FDICIA, undercapitalized institutions must submit recapitalization plans, and a
holding company controlling a failing institution must guarantee such
institution's compliance with its plan. As of December 31, 1995, the Bank was
deemed "well capitalized" under the regulations of the Federal Deposit Insurance
Corporation implementing FDICIA.
FDICIA also requires the various regulatory agencies to prescribe certain
non-capital standards for safety and soundness relating generally to operations
and management, asset quality and executive compensation, and permits regulatory
action against a financial institution that does not meet such standards. The
federal bank regulatory agencies have proposed regulations implementing these
provisions, but have not yet formally adopted these standards.
The deposits of the Bank are insured up to applicable limits by the FDIC.
Accordingly, the Bank is subject to deposit insurance assessments to maintain
the Bank Insurance Fund ("BIF") of the FDIC. Pursuant to FDICIA, the FDIC
established a risk-based insurance assessment system. This approach is designed
to ensure that a banking
6
<PAGE>
institution's insurance assessment is based on three factors: the probability
that the applicable insurance fund will incur a loss from the institution; the
likely amount of the loss; and the revenue needs of the insurance fund.
On October 1, 1992, the FDIC adopted final regulations implementing a
transitional risk-based assessment system and increasing the deposit insurance
rate for certain members of BIF. The purpose of these regulations is to restore
the reserve ratio for BIF to the statutorily mandated reserve ratio of 1.25% of
insured deposits.
Under the risk-based assessment system, each institution will be assigned
to one of nine assessment risk classifications based on its capital ratios and
supervisory evaluations. Initially, the lowest risk institutions will only pay
the statutory required minimum premium of $2,000 while the highest risk
institutions have been assessed at the rate of 0.27% of domestic deposits. Each
institution's classification under the system is re-examined semiannually. The
bulk of the Bank's deposits are insured by the FDIC's Bank Insurance Fund
("BIF"). However, certain deposits purchased by the Bank in 1995 are insured by
FDIC but require higher premiums paid to the Savings Association Insurance Fund
(SAIF).
Item 2 - Properties
The Bank owns the building in which its main branch and administrative
headquarters are located in Midland Park, New Jersey. The building consists of
9,660 square feet. The Bank owns this property free of any liens, mortgages or
encumbrances.
The Bank also owns the building in which its branch is located, in
Hawthorne, Passaic County, New Jersey. The building consists of 2,000 square
feet, and is also owned free of any liens, mortgages or encumbrances.
The branch, in Wayne, Passaic County, New Jersey is a leased facility in a
retail/professional building and consists of 1,800 square feet. The lease was
negotiated in 1994 as a five year lease with two five year renewal options.
Item 3 - Legal Proceedings
From time to time, the Bank may be a plaintiff or defendant in various
legal proceedings in the normal course of business. The Bank is not presently a
defendant in any legal proceeding and, to the knowledge of the Bank, there are
no threatened actions or proceedings which would have a material adverse effect
on the financial position or results of operations of the Bank.
7
<PAGE>
Item 4 - Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
Bank's proxy statement for its 1996 Annual Meeting of Shareholders at pages
16-17 under the caption Stock Ownership of Management and Principal
Shareholders.
Part II
Item 5 - Market for the Bank's Common Stock and Related Security Holder Matters
The Bank had 576 shareholders of record as of December 31, 1995. There is
no established trading market for the common stock of the Bank. Since 1990, the
Bank has paid regular dividends, semi-annually each year, except for 1991 when
the Bank paid a dividend only in March. The amount of future dividends will be
determined by the Board of Directors based upon the recommendation of the
Board's Executive Committee. In determining the appropriate amount of future
dividends, the Executive Committee will review the Bank's performance and
consider, among other things, expected growth, operations and the ongoing
funding needs.
8
<PAGE>
Item 6 - Selected Financial Data
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Earnings Summary:
Net interest income .................. $ 5,203 $ 4,597 $ 3,943 $ 2,983 $ 2,067
Provisions for possible loan losses .. (150) (295) (398) (275) (187)
--------- --------- --------- --------- ---------
Net interest income after provision
for possible loan losses ........... $ 5,053 $ 4,302 $ 3,545 $ 2,708 $ 1,880
Noninterest income ................... 466 369 474 348 237
Noninterest expense .................. 3,904 3,187 2,736 2,265 1,637
--------- --------- --------- --------- ---------
Income before income taxes ........... 1,615 1,484 1,283 791 480
Income tax expense ................... 471 482 375 271 187
--------- --------- --------- --------- ---------
Net income ........................... $ 1,144 $ 1,002 $ 908 $ 520 $ 293
========= ========= ========= ========= =========
Per Share Data:
Net income ........................... $ 2.53 $ 2.27 $ 2.33 $ 1.43 $ 0.97
Cash dividends declared .............. 0.36 0.30 0.20 0.15 0.05
Book value ........................... 20.09 17.41 15.92 13.65 12.52
Financial Ratios:
Return on average assets ............. 1.10% 1.13% 1.16% 0.77% 0.57%
Return on average Stockholders' equity 13.54% 13.51% 15.66% 1.07% 8.16%
Average Stockholders' equity as a
percentage of average total assets . 8.14% 8.39% 7.40% 6.95% 6.93%
Tier-one capital leverage (1) ........ 7.57% 8.64% 8.15% 6.91% 6.58%
Tier-one risk based capital (2) ...... 12.13% 13.79% 12.77% 11.50% 11.17%
Total risk based capital (2) ......... 13.38% 15.04% 14.27% 12.70% 12.27%
Dividend ratio ....................... 14.20% 13.17% 8.52% 10.15% 5.13%
Selected Year-end Balances:
Total assets ......................... $ 113,120 $ 91,978 $ 83,798 $ 75,499 $ 58,805
Total deposits ....................... 101,789 82,576 76,195 68,985 54,291
Stockholders' equity ................. 9,151 7,834 6,809 5,217 3,846
Shares outstanding ................... 455 450 428 382 307
</TABLE>
(1) As a percentage of average quarterly assets
(2) As a percentage of total risk-weighted assets
9
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
This section provides an analysis of the Bank's consolidated financial condition
and results of operations for the years ended December 31, 1995, 1994 and 1993.
The analysis should be read in conjunction with the related audited consolidated
financial statements and the accompanying notes presented elsewhere herein.
Business of Atlantic Stewardship Bank
The Bank is organized under the laws of the State of New Jersey. The Bank has
its main office located in Midland Park, Bergen County, New Jersey and operates
two branches located in Hawthorne and Wayne, Passaic County, New Jersey. The
Bank conducts a general commercial and retail banking business encompassing a
wide range of traditional deposit and lending functions along with the other
customary banking services. Stewardship Investment Corp. is a wholly-owned
nonbank subsidiary of Atlantic Stewardship Bank, whose primary business is to
own and manage the investment portfolio.
Earnings Summary
The Bank reported net income of $1.1 million, or $2.53 per share for the year
ended December 31, 1995, an increase of $142,000, or 14.2%, above the $1.0
million recorded for 1994. Earnings for 1994 had increased $94,000, or 10.4%,
over the 1993 earnings of $908,000. Earnings have increased in both years as a
result of increases in net interest income and decreases in the provision for
possible loan losses offset by increases in noninterest expense.
The return on average assets decreased in 1995 to 1.10% from 1.13% in 1994 and
1.16% in 1993. The return on average equity increased to 13.54% in 1995 from
13.51% in 1994 which was a decrease from 15.66% in 1993.
Results of Operations
Net Interest Income
The Bank's principal source of revenue is its net interest income, which
represents the difference between the interest earned on assets and interest
paid on funds acquired to support those assets. Net interest income is affected
by the balances and mix of interest-earning assets and interest-bearing
liabilities and changes in their corresponding yields and costs, and by the
volume of interest-earning assets funded by noninterest-bearing deposits. The
Bank's principal interest-earning assets are loans made to businesses and
individuals, investment securities, and federal funds sold.
In 1995, net interest income increased to $5.2 million from $4.6 million in
1994, an increase of $606,000, or 13.2%. This was caused by an increase of $3.1
million, or 17.9%, in net average interest-earning assets (average
interest-earning assets less average interest-bearing liabilities) and an
increase in interest rates on interest-earning assets (38 basis points)
partially offset by an increase in interest rates on interest-bearing
liabilities (85 basis points).
Interest income, on a tax equivalent basis, increased $1.5 million, or 23.4%,
during 1995 to $8.0 million from $6.5 million earned during 1994. The increase
was due primarily to an increase in the average volume of interest-earning
assets and an increase in yields on interest-earning assets. Average
interest-earning assets increased $14.6 million in 1995, or 17.7%, over the 1994
amount with average loans attributing to $9.2 million of the increase.
10
<PAGE>
Interest expense increased $972,000, or 54.0%, during 1995 to $2.8 million. The
increase was due to an increase in average interest-bearing liabilities of $11.6
million, or 17.7%, to $76.8 million during 1995 and to a rise in interest rates
paid on interest-bearing liabilities. The increase in average interest-bearing
liabilities can be attributed to the purchase of the deposits of a branch of the
Carteret Federal Savings Bank from the Resolution Trust Corporation on March 10,
1995. These deposits provided the liquidity necessary to fund the loan growth
during 1995. Yields on interest-bearing liabilities increased to 3.61% during
1995, from 2.76% during 1994. Contributing to this increase was a general rise
in interest rates paid on term instruments as well as a change in the mix of
interest-bearing products. Depositors, attracted by more competitive term
interest rates, redeployed funds from interest-bearing demand and savings
deposits and locked into higher yielding term deposits. Despite this move toward
higher yielding instruments, the Bank was able to maintain its balances in
noninterest-bearing demand deposits. Average noninterest-bearing demand deposits
increased $2.6 million, or 17.0%, to $18.0 million during 1995.
In 1994, net interest income increased to $4.6 million from $3.9 million in
1993, an increase of $654,000, or 16.6%. Interest income, on a tax equivalent
basis, increased $667,000, or 11.5%, during 1994 to $6.5 million from $5.8
million earned in 1993. The increase was due primarily to an increase in the
average volume of interest-earning assets partially offset by a decline in
yields on interest-earning assets. Average interest-earning assets increased
$9.3 million in 1994, or 12.7%, over the 1993 amount. Interest expense decreased
nominally, by $6,000, or 0.3%, during 1994, even though there was an increase of
$5.8 million in average interest-bearing liabilities. A decrease in rates on
interest-bearing liabilities significantly reduced the effect of the
volume-related increase in interest expense. Despite declining interest rates,
the mix of interest-bearing deposit products was maintained. Average demand
deposits continued to grow during 1994 and increased $2.7 million, or 21.7%,
over the 1993 average balances.
The following table reflects the components of the Bank's net interest income
for the years ended December 31, 1995, 1994 and 1993 presented. herein, (1)
average assets, liabilities, and stockholders' equity, (2) interest income
earned on interest-earning assets and interest expense paid on interest-bearing
liabilities, (3) average yields earned on interest-earning assets and average
rates paid on interest-bearing liabilities, and (4) net yield on
interest-earning assets. Nontaxable income from investment securities and loans
is presented on a tax-equivalent basis assuming a statutory tax rate of 34% for
1995, 1994 and 1993. This was accomplished by adjusting this income upward to
make it equivalent to the level of taxable income required to earn the same
amount after taxes.
11
<PAGE>
<TABLE>
<CAPTION>
---------------------------------- ------------------------------ ------------------------------
1995 1994 1993
---------------------------------- ------------------------------ ------------------------------
Average Average Average
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid Balance Expense Paid
-------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans(1) ............... $ 64,612 $ 6,040 9.35% $ 55,371 $ 4,960 8.96% $ 50,083 $ 4,482 8.95%
Taxable investment
securities ........... 17,575 1,120 6.37 13,883 803 5.78 11,761 723 6.15
Tax-exempt investment
securities(2) ........ 8,992 462 5.14 9,505 549 5.78 9,087 524 5.77
Other interest-earning
assets ............... 6,032 355 5.89 3,801 152 4.00 2,319 68 2.93
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total interest-earning
assets ............... 97,211 7,977 8.21 82,560 6,464 7.83 73,250 5,797 7.91
-------- -------- -------- --------
Net interest-earning assets:
Allowance for possible
loan losses .......... (1,127) (989) (832)
Other assets ........... 7,711 6,887 6,013
-------- -------- --------
Total assets ........... $103,795 $ 88,458 $ 78,431
======== ======== ========
Liabilities and Stockholders' equity
Interest-bearing liabilities:
Interest-bearing demand
deposits ............. $ 20,813 $ 446 2.14% $ 21,363 $ 441 2.06% $ 20,382 $ 475 2.33%
Savings deposits ....... 19,839 448 2.26 19,667 440 2.24 16,933 446 2.63
Time deposits .......... 34,552 1,797 5.20 23,544 892 3.79 21,762 871 4.00
Borrowing .............. 1,645 80 4.86 721 26 3.61 459 13 2.83
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities .......... 76,849 2,771 3.61 65,295 1,799 2.76 59,536 1,805 3.03
-------- -------- --------
Noninterest-bearing liabilities:
Demand deposits ........ 18,028 15,408 12,662
Other liabilities ...... 468 335 432
Stockholders' equity ... 8,450 7,420 5,801
-------- -------- --------
Total liabilities and
Stockholders' equity . $103,795 $ 88,458 $ 78,431
======== ======== ========
Net interest income
(taxable equivalent
basis) .............. $ 5,206 $ 4,665 $ 3,992
======== ======== ========
Net interest spread
(taxable equivalent
basis) .............. 4.60% 5.07% 4.88%
======== ======== ========
Net yield on interest-earning assets
(taxable equivalent
basis)(3) .......... 5.36% 5.65% 5.45%
======== ======== ========
</TABLE>
(1) For purpose of these calculations, nonaccruing loans are included in the
average balance. Fees are included in loan interest. Loans and total
interest-earning assets are net of unearned income. Tax equivalent
adjustments are based on a marginal tax rate of 34% and the provisions of
Section 291 of the Internal Revenue Code.
(2) The tax equivalent adjustments are based on a marginal tax rate of 34% and
the provisions of Section 291 of the Internal Revenue Code.
(3) Net interest income (taxable equivalent basis) divided by average
interest-earning assets.
12
<PAGE>
The following table analyzes net interest income in terms of changes in the
volume of interest-earning assets and interest-bearing liabilities and changes
in yields earned and rates paid on such assets and liabilities on a tax
equivalent basis. The table reflects the extent to which changes in the Bank's
interest income and interest expense are attributable to changes in volume
(changes in volume multiplied by prior rate) and changes in rate (changes in
rate multiplied by prior year volume). Changes attributable to the combined
impact of volume and rate have been allocated proportionately to changes due to
volume and changes due to rate.
<TABLE>
<CAPTION>
1995 Versus 1994 1994 Versus 1993
----------------------------- ----------------------------
(In thousands)
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans ................................. $ 856 $ 224 $ 1,080 $ 474 $ 4 $ 478
Taxable investment securities ......... 229 88 317 125 (45) 80
Tax-exempt investment securities ...... (29) (58) (87) 24 1 25
Federal funds sold .................... 113 90 203 54 30 84
------- ------- ------- ------- ------- -------
Total interest-earning assets .... 1,169 344 1,513 677 (10) 667
------- ------- ------- ------- ------- -------
Interest expense:
Interest-bearing demand deposits ...... $ (12) $ 17 $ 5 $ 22 $ (56) $ (34)
Savings deposits ...................... 4 4 8 66 (72) (6)
Time deposits ......................... 504 401 905 69 (48) 21
Borrowings ............................ 42 12 54 9 4 13
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 538 434 972 166 (172) (6)
------- ------- ------- ------- ------- -------
Net change in net interest income .......... $ 631 $ (90) $ 541 $ 511 $ 162 $ 673
======= ======= ======= ======= ======= =======
</TABLE>
Provision for Possible Loan Losses
The Bank maintains an allowance for possible loan losses considered by
management to be adequate to cover the inherent risks of future loss associated
with its loan portfolio. On an ongoing basis, management analyzes the adequacy
of this allowance by considering the nature and volume of the Bank's loan
activity, financial condition of the borrower, fair market value of underlying
collateral, and changes in general market conditions. Additions to the allowance
for possible loan losses are charged to operations in the appropriate period.
Actual loan losses, net of recoveries, serve to reduce the allowance. The
appropriate level of the allowance for possible loan losses is based on
estimates, and ultimate losses may vary from current estimates.
The loan loss provision totaled $150,000 in 1995, representing a 49.2% decline
from the 1994 provision of $295,000. The 1994 provision declined 25.9% from the
1993 provision of $398,000.
Noninterest Income
Noninterest income increased $97,000, or 26.1%, to $466,000 during the year
ended December 31, 1995, when compared with $370,000 during the 1994 period. The
increase in noninterest income resulted primarily from an increase in fees and
service charges of $89,000 to $365,000 for the year ended December 31, 1995, due
to the expanding customer base. Gain on sales of mortgage loans declined $27,000
to $25,000 for 1995 due to a decline in the volume of loans originated for sale.
This decline was offset by increases in miscellaneous income.
Noninterest income decreased by $104,000, or 22.0%, to $370,000 during the year
ended December 31, 1994, when compared with $474,000 during the 1993 period. The
decrease resulted primarily because of a decrease of $90,000 in gain on sales of
mortgage loans caused by lower sales during 1994.
13
<PAGE>
Noninterest Expense
Although management is committed to containing noninterest expense, the growth
of the Bank has caused noninterest expense to increase by $717,000, or 22.5%, to
$3.9 million for the year ended December 31, 1995, compared to $3.2 million for
the same period in 1994. Salaries and employee benefits, the major component of
noninterest expense increased $292,000, or 18.1%. Approximately $122,000 of this
increase can be directly attributed to the full year of operation of the Wayne,
New Jersey branch and the deposit acquisition from the Resolution Trust
Corporation. The remaining increase was due primarily to the full year effect of
1994 staff increases in the operations' areas of the Bank, and general merit and
salary increases. Increases in occupancy, equipment, data processing,
miscellaneous, and stationery and supplies have been caused by the full year of
operations of the branch in Wayne, the deposit acquisition, and the general
growth of the deposit base.
The acquisition of deposits from the Resolution Trust Corporation caused the
Bank to record goodwill and core deposit intangibles totaling $772,000. The
amortization of these intangibles resulted in $74,000 in expense for the first
time during 1995.
In accordance with its By-laws to tithe ten percent (10%) of its pre-tax profits
to various charities, the Bank had charitable contributions totaling $142,000
for the year ended December 31, 1995, an increase of $17,000, or 13.9%, over the
same period in 1994.
Offsetting these increases in noninterest expense was a reduction in FDIC
insurance premium of $69,000 to $103,000 for the period ended December 31, 1995,
compared with $172,000 for the same period in 1994. This was a result of the
reduction in premiums assessed by the FDIC.
Noninterest expense increased $451,000, or 16.5%, to $3.2 million for the year
ended December 31, 1994, compared to $2.7 million for the same period in 1993.
Increases in salaries and employee benefits, occupancy, equipment, advertising,
FDIC insurance premium, and miscellaneous expense were caused primarily by the
general growth of the Bank. Start up costs totaling $48,000 were incurred in
1994 to open the branch location in Wayne, New Jersey.
The efficiency ratio measures gross operating expense as a percentage of
fully-taxable equivalent net interest income and other noninterest income
without taking into account security gains and losses and other nonrecurring
items. The Bank's efficiency ratio increased to 71.5% for the year ended
December 31, 1995, compared with 68.9% and 70.6% for the years ended December
31, 1994 and 1993, respectively. This increase was due primarily to the expenses
incurred in the deposit acquisition from the Resolution Trust Corporation and
the costs of operating the Wayne branch during its first full year of operation.
The Bank continues to monitor the efficiency ratio and looks for ways to control
expenses.
Financial Condition
Total assets at December 31, 1995, were $113.1 million, an increase of $21.1
million, or 23.0%, over the $92.0 million at December 31, 1994. This increase in
assets reflects, among other things, an $11.5 million increase in net loans held
for portfolio, a $4.4 million increase in securities held to maturity, and a
$2.6 million increase in federal funds sold.
Loan Portfolio
The Bank's loan portfolio at December 31, 1995, net of allowance for possible
loan losses, totaled $71.0 million, an increase of $11.5 million, or 19.3%, over
$59.5 million at December 31, 1994. During 1995, the Bank experienced a steady
volume of new loan originations. Increases occurred in all loan categories and
were caused by competitively priced products, a slightly improved economy in New
Jersey, an expanded market base, and the "fallout" of the small business
customer from the mergers of other financial institutions in the
14
<PAGE>
Bank's market area. Commercial real estate mortgage loans consisting of $23.3
million, or 32.2% of the total portfolio, comprised the largest portion of the
loan portfolio. This represented an increase of $3.7 million from $19.6 million,
or 32.2% of the total portfolio at December 31, 1994. Residential mortgage
loans, commercial loans and installment loans increased $3.6 million, $1.7
million and $1.9 million, respectively. The Bank's loans are made primarily to
businesses and individuals located in northern New Jersey. The bank has not made
loans to borrowers outside the United States.
At December 31, 1995, there were no concentrations, other than a geographic
concentration in northern New Jersey, of loans exceeding 10% of total loans
outstanding. Loan concentrations are considered to exist when there are amounts
loaned to a multiple number of borrowers engaged in similar activities which
would cause them to be similarly impacted by economic or other related
conditions.
The following table sets forth the classification of the Bank's loans by major
category at the end of the last three years:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage:
Residential ............. $ 14,422 19.9% $ 10,793 17.8% $ 8,181 15.4%
Commercial .............. 23,264 32.2% 19,585 32.2% 17,161 32.3%
Commercial loans ........... 15,593 21.6% 13,899 22.9% 12.873 24.3%
Consumer loans:
Installment (1) ......... 14,831 20.5% 12,922 21.3% 11,238 21.2%
Home equity ............. 4,052 5.6% 3,479 5.7% 3.455 6.5%
Other ................... 146 0.2% 50 0.1% 146 0.3%
--------- --------- --------- --------- -------- ---------
Total loans ................ 72,308 100.0% 60,728 100.0% 53,054 100.0%
Less: Allowance for possible
loan losses .......... 1,177 1,088 994
Deferred fees ........ 155 150 140
--------- --------- --------
Net loans .................. $ 70,976 $ 59,490 $ 51,920
========= ========= ========
(1) Includes automobile, home improvement, second mortgages and unsecured
loans.
</TABLE>
The following table sets forth certain categories of loans as of December 31,
1995 by contractual maturity:
After 1 Year
Within but within After
1 Year 5 years 5 Years Total
-------- -------- -------- --------
(Dollars in thousands)
Real estate mortgage ............... $ 889 $ 16,277 $ 20,520 $ 37,686
Commercial ......................... 5,896 8,531 1,166 15,593
Consumer ........................... 182 5,543 13,304 19,029
-------- -------- -------- --------
Total .............................. $ 6,967 $ 30,351 $ 34,990 $ 72,308
======== ======== ======== ========
15
<PAGE>
The following table sets forth the dollar amount of all loans due one year or
more after December 31, 1995, which have predetermined interest rates or
floating or adjustable interest rates:
Floating or
Predetermined Adjustable
Rates Rates Total
--------- --------- ---------
(Dollars in thousands)
Real estate mortgage .............. $ 22,292 $ 14,505 $ 36,797
Commercial ........................ 4,963 4,734 9,697
Consumer .......................... 14,656 4,191 18,847
--------- --------- ---------
Total ............................. $ 41,911 $ 23,430 $ 65,341
Asset Quality
The Bank's principal earning asset is its loan portfolio. Inherent in the
lending function is the risk of deterioration in a borrower's ability to repay
loans under existing loan agreements. Management realizes that because of this
risk, reserves are maintained to absorb potential loan losses. In determining
the adequacy of the allowance for possible loan losses, management of the Bank
considers the risks inherent in its loan portfolio and changes in the nature and
volume of its loan activities, along with general economic and real estate
market conditions.
The Bank utilizes a two tier approach by (1) identifying problem loans and
allocating specific loss allowances on such loans and (2) establishing a general
allowance on the remainder of its loan portfolio. The Bank maintains a loan
review system which allows for a periodic review of its loan portfolio and the
early identification of potential problem loans. Such system takes into
consideration, among other things, delinquency status, size of loans, type of
collateral and financial condition of the borrowers. Allocation of specific loan
loss allowances are established for identified loans based on a review of such
information and/or appraisals of underlying collateral. General loan loss
allowances are based upon a combination of factors including, but not limited
to, actual loss experience, composition of loan portfolio, current economic
conditions and management's judgment.
Nonperforming Assets
Nonperforming assets include nonaccrual loans, restructured loans, loans past
due 90 days or more and accruing, other real estate owned and nonaccrual
investments. The Bank's loans are generally placed in a nonaccrual status when
they become past due in excess of 90 days as to payment of principal and
interest. Interest previously accrued on these loans and not yet paid is charged
against income during the current period. Interest earned thereafter is only
included in income to the extent that it is received in cash. Loans past due 90
days or more and accruing represent those loans which are sufficiently
collateralized and management believes all interest and principal owed will be
collected. Restructured loans are loans which have been renegotiated to permit a
borrower, who has incurred adverse financial circumstances, to continue to
perform. Management can reduce the contractual interest rates to below market
rates or make significant concessions to the terms of the loan in order for the
borrower to continue to make payments. Other real estate owned consists of one
property which the Bank acquired by deed in lieu of foreclosure. Other real
estate owned is carried at lower of cost or fair value less estimated selling
costs. Fair value is defined as the amount reasonably expected to be received in
a current sale between a willing seller (the Bank) and a willing buyer.
Nonaccrual investments consist of a taxable municipal bond which has been
downgraded from the original AAA rating by Standard & Poors to a BB rating
(predominantly speculative with respect to the capacity to pay interest and
repay principal in accordance with the terms of the obligation). Because of this
uncertainty, management has marked the bond to its fair value and placed it in a
nonaccrual status.
16
<PAGE>
The following table sets forth certain information regarding the Bank's
nonperforming assets as of December 31 of each of the preceding three years:
<TABLE>
<CAPTION>
December 31
--------------------------------
1995 1994 1993
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans:(1)
Commercial real estate ............................. $ 194 $ 194 $ 635
Commercial ......................................... 139 203 208
Consumer ........................................... -- 6 49
-------- -------- --------
Total nonaccrual loans ........................ 333 403 892
-------- -------- --------
Loans past due ninety days or more and accruing:
Commercial real estate ............................. 174 -- --
Consumer ........................................... 590 230 17
-------- -------- --------
Total loans past due ninety days or more and
accruing ................................. 764 230 17
-------- -------- --------
Restructured loans:
Commercial ......................................... 6 54 --
Consumer ........................................... 63 116 12
-------- -------- --------
Total restructured loans ...................... 69 170 12
-------- -------- --------
Total nonperforming loans ............................... $ 1,166 $ 803 $ 921
-------- -------- --------
Nonaccrual investments .................................. $ 8 $ 14 $ 78
Other real estate owned, net ............................ 249 269 --
-------- -------- --------
Total nonperforming assets .............................. $ 1,423 $ 1,086 $ 999
======== ======== ========
Nonaccrual loans to total gross loans ................... 0.46% 0.66% 1.68%
Nonperforming loans to total gross loans ................ 1.61% 1.32% 1.74%
Nonperforming loans to total assets ..................... 1.03% 0.87% 1.10%
Nonperforming assets to total assets .................... 1.26% 1.18% 1.19%
Allowance for possible loan losses to nonperforming loans 100.90% 135.58% 107.93%
</TABLE>
(1) Approximately $238,000, $302,000 and $356,000 nonaccrual loans had been
restructured at December 31, 1995, 1994 and 1993, respectively.
There were no loans at December 31, 1995, other than those included in the above
table, where the Bank was aware of any credit conditions of any borrowers that
would indicate a strong possibility of the borrowers not complying with the
present terms and conditions of repayment and which may result in such loans
being included as nonaccrual, past due or restructured at a future date.
17
<PAGE>
The following table sets, for the years ended December 31, 1995, 1994 and 1993,
the historical relationships among the amount of loans outstanding, the
allowance for possible loan losses, the provision for possible loan losses, the
amount of loans charged off and the amount of loan recoveries:
<TABLE>
<CAPTION>
December 31
--------------------------------
1995 1994 1993
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period .......................... $ 1,088 $ 994 $ 658
Loans charged off:
Commercial ......................................... 59 201 62
Consumer ........................................... 2 -- --
-------- -------- --------
Total loans charged off ....................... 61 201 62
-------- -------- --------
Provisions charged to operations ........................ 150 295 398
-------- -------- --------
Balance at end of period ................................ $ 1,177 $ 1,088 $ 994
======== ======== ========
Net charge offs (recoveries) during the period
to average loans outstanding during the period ..... 0.10% 0.36% 0.12%
======== ======== ========
Balance of allowance for possible loan losses at the
end of year to gross year end loans ................ 1.63% 1.79% 1.87%
======== ======== ========
</TABLE>
The following table sets forth the allocation of the allowance for possible loan
losses at the dates indicated by category loans:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ----------------------- -----------------------
Percent Percent Percent
Amount to Total(1) Amount to Total(1) Amount to Total(1)
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate - residential ...... $ 91 19.9% $ 78 17.8% $ 32 15.4%
Real estate - commercial ....... 403 32.2% 406 32.2% 531 32.3%
Commercial ..................... 530 21.6% 454 22.9% 328 24.3%
Consumer ....................... 153 26.3% 150 27.1% 103 28.0%
-------- -------- -------- -------- -------- --------
Total allowance for possible
loan losses ............... $ 1,177 100.0% $ 1,088 100.0% $ 994 100.0%
======== ======== ======== ======== ======== ========
</TABLE>
(1) Represents percentage of loan balance in category to total gross loans.
18
<PAGE>
Investment Portfolio
The Bank maintains an investment portfolio to enhance its yields and to provide
a secondary source of liquidity. The portfolio is comprised of U.S. Treasury
securities, U.S. Government and Agency obligations, mortgage-backed securities,
and state and political subdivision obligations. Statement of Financial
Accounting Standards No. 115 (SFAS No. 115) "Accounting for Certain Investments
in Debt and Equity Securities," established standards of financial accounting
and reporting for investments in equity securities that have readily
determinable fair values and of all investments in debt securities. These debt
securities are to be classified into one of three categories: held to maturity,
available for sale, or trading. Investments in debt securities that the Bank has
the positive intent and the ability to hold to maturity are classified as held
to maturity securities and reported at amortized cost. Debt and equity
securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading securities and are reported at fair
value, with the unrealized holding gains and losses included in earnings. Debt
and equity securities not classified as trading securities nor as held to
maturity securities shall be classified as available for sale securities and
reported at fair value, with unrealized holding gains or losses reported in a
separate component of stockholders' equity.
In accordance with SFAS No. 115, the investment portfolio is divided into
securities held to maturity and securities available for sale. The Bank has the
positive intent and the ability to hold its securities held to maturity until
their contractual maturity dates. Securities in the available for sale category
may be held for indefinite periods of time and include securities that
management intends to use as part of its Asset/Liability strategy or that may be
sold in response to changes in interest rates, changes in prepayment risks, the
need to provide liquidity, or similar factors. Securities held to maturity
increased $4.4 million, or 28.7%, to $19.6 million at December 31, 1995, from
$15.3 million at December 31, 1994. Securities available for sale increased to
$9.9 million at December 31, 1995, from $8.7 million at December 31, 1994, an
increase of $1.2 million, or 13.4%. At December 31, 1995, the majority of the
securities available for sale portfolio was comprised of mortgage-backed
securities which are subject to prepayment risk.
The following table sets forth the classification of the Bank's investment
securities by major category at the end of the last three years:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------
1995 1994 1993
------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury .............. $ 2,372 24.0% $ 4,216 48.4% $ 5,188 47.3%
U.S. Government agencies ... 790 8.0% 887 10.2% 1,084 9.9%
Obligations of state and
political subdivisions ... 269 2.7% -- -- -- --
Mortgage-backed securities . 6,450 65.3% 3,614 41.4% 4,687 42.8%
-------- -------- -------- -------- -------- --------
Total ................. $ 9,881 100.0% $ 8,717 100.0% 10,959 100.0%
======== ======== ======== ======== ======== ========
Securities held to maturity:
U.S. Treasury .............. $ 2,741 13.9% $ 747 4.9% $ -- --
U.S. Government agencies ... 4,918 25.0% 2,313 15.1% -- --
Obligations of state and
political subdivisions ... 8,976 45.8% 9,367 61.4% 9,292 92.1%
Mortgage-backed securities . 3,014 15.3% 2,843 18.6% -- --
Marketable equity securities -- -- -- -- 800 7.9%
-------- -------- -------- -------- -------- --------
Total ................. $ 19,649 100.0% $ 15,270 100.0% $ 10,092 100.0%
======== ======== ======== ======== ======== ========
</TABLE>
19
<PAGE>
The following table sets forth the maturity distribution and weighted average
yields (calculated on the basis of stated yields to maturity, considering
applicable premium or discount) of the Bank's securities available for sale as
of December 31, 1995:
<TABLE>
<CAPTION>
After 1 Year After 5 Years
Within but within but within After
1 Year 5 years 10 years 10 Years Total
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury:
Carrying value ....... $ 758 $ 1,614 $ -- $ -- $ 2,372
Yield ................ 6.64% 5.89% -- -- 6.13%
U.S. Government agencies
Carrying value ....... -- 790 -- -- 790
Yield ................ -- 5.58% -- -- 5.58%
Obligations of state and
political subdivisions:
Carrying value ....... -- -- 269 -- 269
Yield ................ -- -- 4.47% -- 4.47%
Mortgage-backed securities:
Carrying value ....... -- 189 164 6,097 6,450
Yield ................ -- 7.51% 8.54% 6.77% 6.84%
-------- -------- -------- -------- --------
Total carrying value . $ 758 $ 2,593 $ 433 $ 6,097 $ 9,881
======== ======== ======== ======== ========
Weighted average yield 6.64% 5.91% 6.01% 6.77% 6.50%
======== ======== ======== ======== ========
</TABLE>
The following table sets forth the maturity distribution and weighted average
yields (calculated on the basis of stated yields to maturity, considering
applicable premium or discount) of the Bank's securities held to maturity as of
December 31, 1995:
<TABLE>
<CAPTION>
After 1 Year After 5 Years
Within but within but within After
1 Year 5 years 10 years 10 Years Total
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury:
Carrying value ....... $ 1,497 $ 1,244 $ -- $ -- $ 2,741
Yield ................ 5.97% 5.76% -- -- 5.87%
U.S. Government agencies
Carrying value ....... -- 2,774 2,144 -- 4,918
Yield ................ -- 6.07% 7.17% -- 6.55%
Obligations of state and
political subdivisions
Carrying value ....... 2.247 6,174 555 -- 8.976
Yield ................ 4.66% 5.21% 5.73% -- 5.10%
Mortgage-backed securities
Carrying value ....... -- -- -- 3,014 3,014
Yield ................ -- -- -- 6.38% 6.38%
-------- -------- -------- -------- --------
Total carrying value . $ 3,744 $ 10,192 $ 2,699 $ 3,014 $ 19,649
======== ======== ======== ======== ========
Weighted average yield 5.18% 5.51% 6.87% 6.38% 5.77%
======== ======== ======== ======== ========
</TABLE>
20
<PAGE>
Deposits
Bank deposits at December 31, 1995, totaled $101.8 million, an increase of $19.2
million, or 23.3%, over the comparable period of 1994, when deposits totaled
$82.6 million. The Bank attributes this increase to the purchase of deposits
from the Resolution Trust Corporation, the expansion of the Bank's marketplace
with the Wayne branch and changes in the Bank's marketplace, including mergers
among some of the Bank's competitors. These mergers have made customer
relationships with some competitors unstable and have provided the bank with an
opportunity to attract new depositors.
The following table sets forth the classification of the Bank's deposits by
major category as of December 31 of each of the preceding years:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------
1995 1994 1993
------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 22,962 22.6% $ 17,313 21.0% $ 14,519 19.1%
Interest-bearing demand .. 21,761 21.4% 20,413 24.7% 21,545 28.3%
Savings deposit .......... 18,766 18.4% 20,737 25.1% 17,967 23.6%
Time deposits ............ 38,300 37.6% 24,113 29.2% 22,164 29.0%
-------- -------- -------- -------- -------- --------
Total ................. $101,789 100.0% $ 82,576 100.0% $ 76,195 100.0%
======== ======== ======== ======== ======== ========
</TABLE>
As of December 31,1995, the aggregate amount of outstanding time deposits issued
in amounts of $100,000 or more, broken down by time remaining to maturity, was
as follows (in thousands):
Three months or less .......................... $ 852
Four months through six months ................ 534
Seven months through twelve months ............ 1,139
Over twelve months ............................ 1,130
------
Total .................................... $3,655
======
Interest Rate Sensitivity
Interest rate movements and deregulation of interest rates have made managing
the Bank's interest rate sensitivity increasingly important. The Bank attempts
to maintain stable net interest margins by generally matching the volume of
assets and liabilities maturing, or subject to repricing, by adjusting interest
rates to market conditions, and by developing new products. The difference
between the volume of assets and liabilities that reprice in a given period is
the interest sensitivity gap. A "positive" gap results when more assets than
liabilities mature or are repricing in a given time frame. Conversely, a
"negative" gap results when there are more liabilities than assets maturing or
repricing during a given period of time. The smaller the gap, the less the
effect of the market volatility on net interest income. During a period of
rising interest rates, an institution with a negative gap position would not be
in as favorable a position, as compared to an institution with a positive gap,
to invest in higher yielding assets. This may result in yields on its assets
increasing at a slower rate than the increase in its costs of interest-bearing
liabilities than if it had a positive gap. During a period of falling interest
rates, an institution with a negative gap would experience a repricing of its
assets at a slower rate than its interest-bearing liabilities which,
consequently may result in its net interest income growing at a faster rate than
an institution with a positive gap position.
21
<PAGE>
The following table sets forth the estimated maturity/repricing structure of the
Bank's interest-earning assets and interest-bearing liabilities as of December
31, 1995. Except as stated below, the amounts of assets or liabilities shown
which reprice or mature during a particular period were determined in accordance
with the contractual terms of each asset or liability. For example, the table
does not assume any prepayment of fixed-rate loans or mortgage-backed
securities. For purposes of this report, the Bank has assumed that savings and
interest-bearing source of funds will reprice at a rate of 20% in three months
or less, 20% in more than three months through one year, and 60% in after one
year. The table does not necessarily indicate the impact of general interest
rate movements on the Bank's net interest income because the repricing of
certain categories of assets and liabilities; for example, prepayments of loans
and withdrawal of deposits, is beyond the Bank's control. As a result, certain
assets and liabilities indicated as repricing within a period may in fact
reprice at different times and at different rate levels.
<TABLE>
<CAPTION>
More than
Three Months
Three Months through After Non-interest
or Less One Year One Year Sensitive Total
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Loans:
Real estate mortgage ... $ 6,149 $ 3,343 $ 28,194 $ -- $ 37,686
Commercial ............. 9,710 529 5,354 -- 15,593
Consumer ............... 4,159 214 14,656 -- 19,029
Mortgage loans held for sale 350 -- -- -- 350
Investment securities(1) .... 8,914 5,618 15,335 -- 29,867
Federal funds sold .......... 3,050 -- -- -- 3,050
Other assets ................ -- -- -- 7,545 7,545
-------- -------- -------- -------- --------
Total assets ........... $ 32,332 $ 9,704 $ 63,539 $ 7,545 $113,120
-------- -------- -------- -------- --------
Source of funds:
Savings ..................... $ 3,753 $ 3,753 $ 11,260 $ -- $ 18,766
Interest-bearing ............ 4,352 4,352 13,057 -- 21,761
Time deposits ............... 5,944 12,683 19,673 -- 38,300
Repurchase agreements ....... 955 695 -- -- 1,650
Other liabilities ........... -- -- -- 23,492 23,492
Stockholders' equity ........ -- -- -- 9,151 9,151
-------- -------- -------- -------- --------
Total source of funds .. $ 15,004 $ 21,483 $ 43,990 $ 32,643 $113,120
-------- -------- -------- -------- --------
Interest rate sensitivity gap $ 17,328 $(11,779) $ 19,549 $(25,098)
======== ========= ======== ========
Cumulative interest rate
sensitivity gap ........... $ 17,328 $ 5,549 $ 25,098 $ --
======== ========= ======== ========
Ratio of GAP to total assets 15.3% (10.4%) 17.3% (22.2%)
======== ========= ======== ========
Ratio of cumulative GAP assets to
total assets .............. 15.3% 4.9% 22.2% --
======== ========= ======== ========
</TABLE>
(1) Includes securities held to maturity, securities available for sale and
investments required by law.
22
<PAGE>
Liquidity
The Bank's primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities, maturities of investment securities and
funds provided by operations. While scheduled loan and mortgage-backed
securities amortization and maturities of investment securities are a relatively
predictable source of funds, deposit flow and prepayments on loan and
mortgage-backed securities are greatly influenced by market interest rates,
economic conditions, and competition.
The Bank's liquidity, represented by cash and cash equivalents, is a product of
its operating, investing and financing activities. These activities are
summarized below:
Year Ended December 31
---------------------------------
1995 1994 1993
------- ------- -------
(In thousands)
Cash and cash equivalents beginning ..... $ 4,741 $ 7,561 $ 4,182
Operating activities:
Net income ......................... 1,144 1,002 908
Adjustments to reconcile net income
to net cash provided by operating
activities ....................... (715) 429 423
------- ------- -------
Net cash provided by operating activities 429 1,431 1,331
Net cash used in investing activities ... (17,248) (11,764) (5,229)
Net cash provided by financing activities 19,543 7,513 7,277
------- ------- -------
Net (decrease) increase in cash and cash
equivalents ........................... 2,724 (2,820) 3,379
------- ------- -------
Cash and cash equivalents - ending ...... $ 7,465 $ 4,741 $ 7,561
======= ======= =======
Cash was generated by operating activities in each of the above periods. The
primary source of cash from operating activities during each period was net
income.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as federal funds sold. The Bank anticipates that it will have sufficient
funds available to meet its current loan commitments. At December 31, 1995, the
Bank has outstanding loan commitments of $2.0 million and unused lines and
letters of credit totaling $10.9 million. Certificates of deposit scheduled to
mature in one year or less, at December 31, 1995, totaled $18.6 million.
Management believes that a significant portion of such deposits will remain with
the Bank.
23
<PAGE>
Capital
The Bank is subject to capital adequacy guidelines promulgated by the Federal
Deposit Insurance Corporation (FDIC). The FDIC has issued regulations to define
the adequacy of capital based upon the sensitivity of assets and off-balance
sheet exposures to risk factors. Four categories of risk weights (0%, 20%, 50%
and 100%) were established to be applied to different types of balance sheet
assets and off-balance sheet exposures. The aggregate of the risk weighted items
(risk-based assets) is the denominator of the ratio, the numerator of which is a
newly defined risk-based capital. Under the regulations, risk-based capital has
been classified into two categories. Tier 1 capital includes common and
qualifying perpetual preferred stockholders' equity less goodwill. Tier 2
capital includes mandatory convertible debt, allowance for possible loan losses
subject to certain limitations, and certain subordinated and term debt
securities. Total qualifying capital consists of Tier 1 capital and Tier 2
capital; however, the amount of Tier 2 capital may not exceed the amount of Tier
l capital. The FDIC has also issued leverage capital adequacy standards. Under
these standards, in addition to the risk-based capital ratios, a bank must also
compute a ratio of Tier 1 capital (using the risk-based capital definition) to
total quarterly average assets. The following table reflects the Bank's capital
ratios at December 31, 1995:
---------------------------------
Required Actual Excess
---------------------------------
Risk-based capital
Tier ............................... 4.00% 12.13% 8.13%
Total .............................. 8.00% 13.38% 5.38%
Leverage ratio* ......................... 3.00% 7.57% 4.57%
* The minimum leverage ratio set by the FDIC is 3.00%. Institutions which are
not "top rated" will be expected to maintain a ratio of approximately 100 to
200 basis points above this ratio.
24
<PAGE>
Item 8 - Financial Statements and Supplementary Data
25
<PAGE>
[Letterhead of Peat Marwick LLP]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Atlantic Stewardship Bank:
We have audited the accompanying consolidated statement of financial condition
of Atlantic Stewardship Bank and subsidiary as of December 31, 1995, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
accompanying consolidated statement of financial condition of Atlantic
Stewardship Bank and subsidiary as of December 31, 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the two year period ended December 31, 1994 were
audited by other auditors whose report thereon, dated January 24, 1995,
expressed an opinion qualified for the effects, if any, as might have been
determined to be necessary had they been able to obtain an understanding of the
internal control structure of the outside computer service organization and
included an explanatory paragraph that discussed the change in the Bank's method
of accounting for certain investments in debt and equity securities.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Atlantic
Stewardship Bank and subsidiary as of December 31, 1995, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
February 28,1996
26
<PAGE>
[Letterhead of Atlantic Stewardship Bank]
February 28, 1996
MANAGEMENT RESPONSIBILITY STATEMENT
Management of Atlantic Stewardship Bank and subsidiary is responsible for the
preparation of the consolidated financial statements and all other financial
information included in this report. The consolidated financial statements were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis. All consolidated financial information included in the
report agrees with the consolidated financial statements. In preparing the
consolidated financial statements, management makes informed estimates and
judgments, with consideration given to materiality, about the expected results
of various events and transactions.
Management maintains a system of internal accounting control that includes
personnel selection, appropriate division of responsibilities, and format
procedures and policies consistent with high standards of accounting and
administrative practice. Consideration has been given to the necessary balance
between the costs of systems of internal control and the benefits derived.
Management reviews and modifies its system of accounting and internal control in
light of changes in conditions and operations as well as in response to
recommendations from the independent certified public accountants. Management
believes the accounting and internal control systems provide reasonable
assurance that assets are safeguarded and financial information is reliable.
The Board of Directors is responsible for determining that management fulfills
its responsibilities in the preparation of consolidated financial statements and
the control of operations. The Board appoints the independent certified public
accountant. The Board meets with management and the independent certified public
accountants, approves the overall scope of audit work and related fee
arrangements, and reviews audit reports and findings.
/s/Paul Van Ostenbridge
-----------------------------
Paul Van Ostenbridge
President and Chief Executive Officer
/s/Julie E. Holland
-----------------------------
Julie E. Holland
Assistant Vice President and
Assistant Treasurer
27
<PAGE>
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks .................................. $ 4,415,531 $ 4,291,467
Federal funds sold ....................................... 3,050,000 450,000
------------ ------------
Cash and cash equivalents ........................... 7,465,531 4,741,467
Securities available for sale (note 3) ................... 9,881,267 8,716,836
Securities held to maturity; estimated fair value
of $20,291,878 (1995) and $15,642,389 (1994) (note 4) 19,648,898 15,270,309
Investments required by law .............................. 337,200 --
Loans, net of allowance for possible loan losses
of $1,176,822 (1995) and $1,068,486 (1994) (note 5) . 70,975,852 59,490,477
Mortgage loans held for sale ............................. 350,389 --
Premises and equipment, net (note 7) ..................... 2,160,260 2,208,200
Accrued interest receivable .............................. 836,689 708,927
Intangible assets, net of accumulated amortization of
$73,967 at December 31, 1995 (note 2) ............... 698,013 --
Other real estate owned, net (note 6) .................... 249,302 269,302
Other assets ............................................. 516,710 572,432
------------ ------------
Total assets ........................................ $113,120,111 $ 91,977,950
============ ============
Liabilities and Stockholders' equity
Liabilities
Deposits: (note 8)
Noninterest-bearing ...................................... $ 22,961,834 $ 17,313,596
Interest-bearing ......................................... 78,826,708 65,262,782
------------ ------------
Total deposits ...................................... 101,788,542 82,576,378
Securities sold under agreements to repurchase (note 9) .. 1,650,049 1,255,854
Accrued expenses and other liabilities ................... 530,769 311,874
------------ ------------
Total liabilities ................................... 103,969,360 84,144,106
------------ ------------
Commitments and contingencies (note 13)
Stockholders' equity (note 11)
Common stock $5.00 par value; 1,200,000 shares authorized;
455,441 and 449,988 shares issued and outstanding at
December 31, 1995 and 1994, respectively ................. 2,277,207 2,249,941
Surplus ....................................................... 2,588,330 2,516,218
Retained earnings ............................................. 4,269,933 3,288,000
Net unrealized gain (loss) on securities available for sale ... 15,281 (220,315)
------------ ------------
Total Stockholders' equity .......................... 9,150,751 7,833,844
------------ ------------
Total liabilities and Stockholders' equity .......... $113,120,111 $ 91,977,950
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Loans ...................................................... $ 6,037,199 $ 4,952,478 $ 4,482,262
Securities held to maturity
Taxable ............................................... 586,226 176,203 723,024
Nontaxable ............................................ 461,817 488,140 474,776
Securities available for sale .............................. 533,536 626,648 --
Other interest-earning assets .............................. 355,408 152,559 67,977
------------ ------------ ------------
Total interest income ................................. 7,974,186 6,396,028 5,748,039
------------ ------------ ------------
Interest expense:
Deposits ................................................... 2,691,622 1,773,019 1,792,172
Borrowed money ............................................. 79,666 26,360 12,986
------------ ------------ ------------
Total interest expense ..................................... 2,771,288 1,799,379 1,805,158
------------ ------------ ------------
Net interest income ........................................ 5,202,898 4,596,649 3,942,881
Provision for possible loan losses ......................... 150,000 295,000 398,000
------------ ------------ ------------
Net interest income after provision for possible loan losses 5,052,898 4,301,649 3,544,881
------------ ------------ ------------
Noninterest income:
Fees and service charges ................................... 364,519 275,429 257,306
(Loss) gain on sales of securities available for sale, net . (9,819) -- 668
Gain on sales of mortgage loans ............................ 24,526 51,265 141,578
Miscellaneous .............................................. 87,119 43,108 74,534
------------ ------------ ------------
Total noninterest income .............................. 466,345 369,802 474,086
------------ ------------ ------------
Noninterest expense:
Salaries and employee benefits ............................. 1,908,846 1,616,664 1,405,051
Occupancy, net ............................................. 254,882 151,840 126,086
Equipment .................................................. 179,967 147,724 121,529
Data processing ............................................ 207,191 153,649 138,849
Advertising ................................................ 68,948 77,298 49,421
FDIC insurance premium ..................................... 102,596 171,737 152,036
Amortization of intangible assets .......................... 73,967 -- --
Other real estate owned expense ............................ 30,697 27,259 --
Charitable contributions ................................... 141.799 124,458 110,418
Stationery and supplies .................................... 150,109 126,429 110,744
Miscellaneous .............................................. 784,763 589,685 521,581
------------ ------------ ------------
Total noninterest expenses ............................ 3,903,765 3,186,743 2,735,715
------------ ------------ ------------
Income before income taxes ................................. 1,615,478 1,484,708 1,283,252
Income taxes ............................................... 471,067 482,209 374,937
------------ ------------ ------------
Net income ................................................. $ 1,144,411 $ 1,002,499 $ 908,315
============ ============ ============
Net income per common share ................................ $ 2.53 $ 2.27 $ 2.33
============ ============ ============
Dividends per common share ................................. $ 0.36 $ 0.30 $ 0.20
============ ============ ============
Weighted average number of common shares outstanding ....... 452,625 441,258 389,792
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
29
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Net Unrealized Loss on
----------------------
Common Stock Marketable Securities
----------------------- Retained Equity Available
Shares Par Value Surplus Earnings Securities for Sale Total
------- ----------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1992 ...... 382,217 $ 1,911,085 $1,797,469 $ 1,586,610 $(78,157) $ -- $ 5,217,007
Dividends paid ($.20 per share) . (77,420) (77,420)
Sale of common stock ............ 45,514 227,570 455,140 -- -- -- 682,710
Net income for the year
ended December 31, 1993 ....... -- -- -- 908,315 -- -- 908,315
Net unrealized gain on marketable
equity securities ............. -- -- -- -- 78,157 -- 78,157
------- ----------- ---------- ----------- -------- -------- -----------
Balance -- December 31, 1993 ...... 427,731 2,138,655 2,252,609 2,417,505 -- -- 6,808,769
======= =========== ========== =========== ======== ======== ===========
Dividends paid ($.30 per share) . -- -- -- (132,004) -- -- (132,004)
Sale of common stock ............ 22,257 111,286 263,609 -- -- -- 374,895
Net income for the year
ended December 31, 1994 ....... -- -- -- 1,002,499 -- -- 1,002,499
Net unrealized loss on securities
available for sale ............ -- -- -- -- -- (220,315) (220,315)
------- ----------- ---------- ----------- -------- -------- -----------
Balance -- December 31, 1994 ...... 449,988 2,249,941 2,516,2l8 3,288,000 -- (220,315) 7,833,844
======= =========== ========== =========== ======== ======== ===========
Dividends paid ($.36 per share) . -- -- -- (162,478) -- -- (162,478)
Sale of common stock ............ 5,453 27,266 72,112 -- -- -- 99,378
Net income for the year
ended December 31, 1995 ....... -- -- -- 1,144,411 -- -- 1,144,411
Net unrealized gain on securities
available for sale ............ -- -- -- -- -- 235,596 235,596
------- ----------- ---------- ----------- -------- -------- -----------
Balance -- December 31, 1995 ....... 455,441 $ 2,277,207 $2,588,330 $ 4,269,933 $ -- $ 15,28l $ 9,150,751
======= =========== ========== =========== ======== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements
30
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................. $ 1,144,411 $ 1,002,499 $ 908,315
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of premises and equipment ........... 201,300 147,375 118,510
Loss (Gain) on sale of investment securities ...................... 9,819 -- (668)
Provision for (recovery of) losses on investment securities ....... 5,984 20,830 (28,250)
Amortization of premiums and accretion of discounts, net .......... 31,925 85,776 107,017
Accretion of deferred loan fees ................................... (86,730) (71,794) (23,543)
Provision for possible loan losses ................................ 150,000 295,000 398,000
Provision for possible losses on other real estate ................ 20,000 -- --
Originations of mortgage loans held for sale ...................... (2,744,150) (3,343,100) (9,407,372)
Proceeds from sale of mortgage loans .............................. 2,418,287 3,687,005 9,472,310
Gain on sale of loans ............................................. (24,526) (51,265) (141,578)
Loss on retirement of fixed assets ................................ -- 2,702 --
Premium paid on deposit acquisition ............................... (771,980) -- --
Deferred income tax benefit ....................................... (91,063) (52,843) (142,413)
Amortization of intangible assets ................................. 73,967 -- --
(Increase) decrease in accrued interest receivable ................ (127,762) (141,159) 19,827
Decrease (increase) in other assets ............................... 639 (24,443) 15,479
Increase (decrease) in other liabilities .......................... 218,895 (125,270) 34,885
------------ ------------ ------------
Net cash provided by operating activities .................... 429,016 1,431,313 1,330,519
------------ ------------ ------------
Cash flows from investing activities:
Purchase of securities available for sale .............................. (3,920,292) (746,664) --
Proceeds from maturities and principal repayments
on securities available for sale ..................................... 682,404 2,403,994 --
Proceeds from sales and calls on securities available for sale ......... 3,161,480 1,000,000 --
Purchase of securities held to maturity ................................ (9,825,052) (6,573,618) (4,880,836)
Proceeds from maturities and principal repayments on
securities held to maturity .......................................... 4,192,454 513,251 2,726,068
Proceeds from sales and calls of securities held to maturity ........... 500,000 -- 6,404,914
Purchase of investments required by law ................................ (337,200) -- --
Net increase in loans .................................................. (11,548,645) (8,062,588) (9,379,593)
Additions to premises and equipment .................................... (153,360) (297,945) (99,705)
------------ ------------ ------------
Net cash used in investing activities ............................. (17,248,211) (11,763,570) (5,229,152)
------------ ------------ ------------
Cash flows from financing activities
Net increase in noninterest-bearing deposits ........................... 5,492,149 2,794,751 2,262,387
Net increase in interest-bearing deposits .............................. 4,841,650 3,586,209 4,947,777
Net increase (decrease) in securities sold
under agreement to repurchase ........................................ 394,195 889,090 (538,045)
Purchase of deposits ................................................... 8,878,365
Cash dividends paid on common stock .................................... (162,478) (132,004) (77,420)
Sale of common stock ................................................... 99,378 374,895 682,710
------------ ------------ ------------
Net cash provided by financing activities ......................... 19,543,259 7,512,941 7,277,409
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ................... 2,724,064 (2,819,316) 3,378,776
Cash and cash equivalents - beginning .................................. 4,741,467 7,560,783 4,182,007
------------ ------------ ------------
Cash and cash equivalents - ending ..................................... $ 7,465,531 $ 4,741,467 $ 7,560,783
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest ................................. 2,463,809 1,846,229 1,821,420
Cash paid during the year for income taxes ............................. 479,520 691,740 455,159
Supplemental schedule of noncash investing activities:
Transfer of securities held to maturity to securities available for sale 744,791 800,000 10,958,786
Transfer of loan to other real estate owned ............................ -- 269,302 --
</TABLE>
See accompanying notes to consolidated financial statements
31
<PAGE>
Notes to Consolidated Financial Statements
Note 1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Atlantic
Stewardship Bank and its wholly owned subsidiary, Stewardship Investment Corp.,
collectively ("the Bank"). All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Certain prior period amounts have been reclassified to conform to the current
presentation. The consolidated financial statements of the Bank have been
prepared in conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
dates of the statements of financial condition and revenues and expenses during
the reporting periods. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant changes
relate to the determination of the allowance for possible loan losses.
Management believes that the allowance for possible loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance for possible loan losses may be necessary based on
changes in economic conditions in the market area.
Cash and cash equivalents
Cash and cash equivalents include cash and due from banks and federal funds
sold. Generally, federal funds are sold for one day periods.
Securities available for sale and held to maturity
Effective January 1, 1994, the Bank adopted Statement of Financial Accounting
Standards No. 115, (SFAS No. 115) "Accounting for Certain Investments in Debt
and Equity Securities." SFAS No. 115 requires the classification of securities
into one of three investment categories: securities held to maturity, securities
available for sale, or trading securities. Pursuant to SFAS No. 115, investments
in debt securities that the Bank has the positive intent and ability to hold to
maturity are classified as securities held to maturity and are carried at cost,
adjusted for amortization of premium and accretion of discount, which are
recognized as adjustments to income, on a level yield basis. Debt and equity
securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading securities and reported at fair
value, with unrealized holding gains and losses included in earnings. All other
securities are classified as securities available for sale. Securities available
for sale may be sold prior to maturity in response to changes in interest rates
or prepayment risk, for asset/liability management purposes, or other similar
factors. These securities are carried at fair value with unrealized holding
gains or losses reported in a separate component of stockholders' equity, net of
the related tax effects. Realized gains or losses on sales of securities are
based upon the specific identification method.
Mortgage loans held for sale
Mortgage loans held for sale are reported at lower of cost or market on an
aggregate basis. Mortgage loans held for sale are carried net of deferred fees
which are recognized as income at the time the loans are sold to permanent
investors. Gains or losses on the sale of mortgage loans held for sale are
recognized at the settlement date and are determined by the difference between
the net proceeds and the amortized cost.
32
<PAGE>
Loans
Loans are carried at the principle amount outstanding, net of unearned discounts
and deferred loan fees and costs. Interest on loans is accrued and credited to
interest income as earned.
The accrual of interest income is discontinued on a loan when certain factors
indicate reasonable doubt as to the collectability of principal and interest. At
the time a loan is placed on nonaccrual status, previously accrued and
uncollected interest is reversed against interest income in the current period.
Interest collections on nonaccrual loans are generally credited to interest
income when received. Such loans are restored to an accrual status only if the
loan is brought contractually current and the borrower has demonstrated an
ability to make future payments of principal and interest.
On January 1, 1995, the Bank adopted Statement of Financial Accounting Standards
No.114, (SFAS No.114) "Accounting by Creditors for Impairment of a Loan" and
SFAS No. 118 "Accounting by Creditors for Impairment of a Loan Income
Recognition and Disclosures." These statements address the accounting for
impaired loans and specify how allowances for possible loan losses related to
these impaired loans are calculated. The Bank defined the population of impaired
loans to include nonaccrual loans, loans more than 90 days past due and
restructured loans. Adoption of these new standards had no effect on the level
of the allowance for possible loan losses or operating results for the period
ended December31, 1995. SFAS No. 114 also provides that impaired loans should
remain in the loan portfolio until the Bank takes possession of the collateral
at which time they are reclassified to other real estate owned for financial
reporting purposes.
Loan fees collected and certain costs incurred related to loan originations are
deferred and amortized as an adjustment to interest income over the life of the
related loans. The deferred fees and costs are recorded as an adjustment to
loans outstanding.
Allowances for possible loan losses
An allowance for possible loan losses is maintained at a level considered
adequate to absorb future loan losses. Management of the Bank, in determining
the provision for possible loan losses, considers the risks inherent in its loan
portfolio and changes in the nature and volume of its loan activities, along
with general economic and real estate market conditions.
The Bank utilizes a two tier approach: (1) identification of problem loans and
the establishment of specific loss allowances on such loans; and (2)
establishment of general allowances on the remainder of its loan portfolio based
on historical loss experience and other economic data management believes
relevant. The Bank maintains a loan review system which allows for a periodic
review of its loan portfolio and the early identification of potential problem
loans. Such system takes into consideration, among other things, delinquency
status, size of loans, types of collateral and financial condition of the
borrowers. Specific loan loss allowances are established for identified loans
based on a review of such information and/or appraisals of the underlying
collateral. General loan loss allowances are based upon a combination of factors
including, but not limited to, actual loan loss experience, composition of loan
portfolio, current economic conditions and management's judgment.
Although management believes that adequate specific and general loan losses are
established, actual losses are dependent upon future events and, as such,
further additions to the level of the specific and general loan loss allowance
may be necessary.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for possible loan
losses. Such agencies may require the Bank to recognize additions to the
allowance for possible loan losses based on their judgments about information
available to them at the time of their examination.
33
<PAGE>
Concentration of risk
The Bank's lending activities are concentrated in loans secured by real estate
located in northern New Jersey.
Land is stated at cost. Buildings and improvements and furniture, fixtures and
equipment are stated at cost, less accumulated depreciation computed on the
straight-line method over the estimated lives of each type of asset. Estimated
useful lives are ten to forty years for buildings and improvements and three to
twenty-five years for furnishings and equipment. Leasehold improvements are
stated at cost less accumulated amortization computed on the straight-line
method over the shorter of the term of the lease or useful life. Significant
renewals and improvements are capitalized. Maintenance and repairs are charged
to operations as incurred. Rental income is netted against occupancy costs in
the consolidated statements of income.
Other real estate owned
Other real estate owned (OREO) consists of foreclosed property and is carried at
the lower of cost or fair value less estimated selling costs. When a property is
acquired, the excess of the carrying amount over fair value, if any, is charged
to the allowance for possible loan losses. Subsequent adjustments to the
carrying value are recorded in an allowance for OREO and charged to OREO
expense. Operating results for OREO, including rental income, operating
expenses, and gains and losses realized from the sale of property owned, are
also recorded in OREO expense.
Income taxes
Effective January 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109, (SFAS No. 109) "Accounting for Income Taxes." Under SFAS No.
109, deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Net income per common share
Net income per common share is calculated by dividing net income by the weighted
average number of common shares outstanding during the period.
Intangible assets
Intangible assets are comprised of goodwill and core deposit intangibles.
Goodwill represents the excess of the fair value of liabilities assumed over the
fair value of tangible assets acquired through a purchase acquisition and
amounted to $475,981 at December 31, 1995, and is amortized on a straight-line
method over a period of fifteen years.
The core deposit intangible represents the intangible value of depositor
relationships resulting from deposit liabilities assumed in the acquisition. The
core deposit intangible amounted to $222,032 at December 31, 1995, and is
amortized on an accelerated basis over a period approximating ten years.
34
<PAGE>
Interest rate risk
The Bank is principally engaged in the business of attracting deposits from the
general public and using these deposits, together with borrowings and other
funds, to make loans secured by real estate, commercial and consumer loans and
to invest in investment and mortgage-backed securities. The potential for
interest rate risk exists as a result of the shorter duration of the Bank's
interest-sensitive liabilities compared to the generally longer duration of
interest-sensitive assets. In a rising rate environment, liabilities will
reprice faster than assets, thereby reducing the market value of long-term
assets and net interest income. The opposite effect occurs in a falling rate
environment. For this reason, management regularly monitors the maturity
structure of the Bank's assets and liabilities in order to measure its level of
interest rate risk and plan for future volatility.
Note 2. PURCHASE OF DEPOSITS
On March 10, 1995, the Bank purchased certain assets and assumed the deposit
account liabilities of a branch of Carteret Federal Savings Bank from the
Resolution Trust Corporation. The deposit liabilities assumed amounted to
$8,878,365 and assets received consisted primarily of cash amounting to
$8,091,642. The fair value of liabilities assumed exceeded the fair value of
tangible assets acquired by $771,980. This was allocated to core deposit premium
and goodwill of $268,000 and $503,980, respectively.
35
<PAGE>
Note 3. SECURITIES AVAILABLE FOR SALE
The following is a summary of the contractual maturities of securities available
for sale:
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------------------
Gross Unrealized
Amortized ----------------------------- Carrying
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury:
Within one year ........................... $ 749,794 $ 8,111 $ -- $ 757,905
After one but within five years ........... 1,595,170 18,606 -- 1,613,776
---------- ---------- ---------- ----------
2,344,964 26,717 -- 2,371,681
---------- ---------- ---------- ----------
U.S. Government Agencies:
After one but within five years ........... 800,000 625 10,191 790,434
Obligations of state and political
subdivisions:
After five years ......................... 275,913 -- 7,242 268,671
Mortgage-backed securities:
After one but within five years .......... 185,712 3,730 -- 189,442
After five years ......................... 6,252,908 44,735 36,604 6,261,039
---------- ---------- ---------- ----------
6,438,620 48,465 36,604 6,450,481
---------- ---------- ---------- ----------
$9,859,497 $ 75,807 $ 54,037 $9,881,267
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------------------------
Gross Unrealized
Amortized ----------------------------- Carrying
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury:
Within one year ........................... $ 449,695 $ 817 $ 4,315 $ 446,197
After one but within five years ........... 3,883,436 4,317 117,958 3,769,795
---------- ---------- ---------- ----------
4,333,131 5,134 122,273 4,215,992
---------- ---------- ---------- ----------
U.S. Government agencies:
After one but within five years ........... 800,000 -- 45,605 754,395
After five years .......................... 131,611 922 -- 132,533
---------- ---------- ---------- ----------
931,611 922 45,605 886,928
---------- ---------- ---------- ----------
Mortgage-backed securities:
After one but within five years ........... 251,313 492 3,016 248,789
After five years .......................... 3,560,753 1,466 197,092 3,365,127
---------- ---------- ---------- ----------
3,812,066 1,958 200,108 3,613,916
---------- ---------- ---------- ----------
$9,076,808 $ 8,014 $ 367,986 $8,716,836
========== ========== ========== ==========
</TABLE>
Issuers may have the right to call or prepay obligations with or without call or
prepayment penalties. This might cause actual maturities to differ from the
contractual maturities summarized above.
Cash proceeds from sale and calls of securities available for sale amounted to
$3,161,480 and $1,000,000 for the year ended December 31, 1995 and 1994,
respectively. Gross gains of $10,331 and gross losses of $20,150 were realized
on sales and calls during 1995. No gains or losses were realized on sales and
calls during 1994.
The carrying value of securities pledged to secure public deposits approximated
$102,000 and $98,000 at December 31, 1995 and 1994, respectively. See Note 9 to
financial statements regarding securities pledged is collateral for securities
sold under agreements to repurchase.
The Financial Accounting Standards Board allowed for a one time reclassification
of securities under SFAS No. 115, "Accounting for Certain investments in Debt
and Equity Securities" during December, 1995. On December 20, 1995, the Bank
transferred $744,791 securities from the securities held to maturity portfolio
to the securities available for sale portfolio. Unrealized gains on these
securities totaled $17,261 at the time of the transfer.
36
<PAGE>
Note 4. SECURITIES HELD TO MATURITY
The following is a summary of the contractual maturities of securities held to
maturity:
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------------
Gross Unrealized
Carrying ----------------------------- Estimated
Value Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury
Within one year ............... $ 1,496,642 $ 2,241 $ 813 $ 1,498,070
After one but within five years 1,244,272 6,876 -- 1,251,148
------------ ------------ ------------ ------------
2,740,914 9,117 813 2,749,218
------------ ------------ ------------ ------------
U.S. Government agencies
After one but within five years 2,774,226 11,584 8,777 2,777,033
After five years .............. 2,144,249 73,684 -- 2,217,933
------------ ------------ ------------ ------------
4,918,475 85,268 8,777 4,994,966
------------ ------------ ------------ ------------
Obligations of state and political
subdivisions:
Within one year ............... 2,246,897 72,303 4,366 2,314,834
After one but within five years 6,174,204 364,974 3,383 6,535,795
After five years .............. 554,637 45,442 1,728 598,351
------------ ------------ ------------ ------------
8,975,738 482,719 9,477 9,448,980
------------ ------------ ------------ ------------
Mortgage-backed securities:
After five years .............. 3,013,771 84,943 -- 3,098,714
------------ ------------ ------------ ------------
$ 19,648,898 $ 662,047 $ 19,067 $ 20,291,878
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------------------------
Gross Unrealized
Carrying ----------------------------- Estimated
Value Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury:
After one but within five years $ 747,347 $ -- $ 17,463 $ 729,884
U.S. Government agencies
Within one year ............... 199,904 -- 1,656 198,248
After one but within five years 1,419,342 281 30,548 1,389,075
After five years .............. 693,177 2,799 1,111 694,865
------------ ------------ ------------ ------------
2,312,423 3,080 33,315 2,282,188
------------ ------------ ------------ ------------
Obligations of state and political
subdivisions:
Within one year ............... 1,531,284 46,170 4,174 1,573,280
After one but within five years 6,922,549 357,882 16,560 7,263,871
After five years .............. 913,634 83,453 1,168 995,919
------------ ------------ ------------ ------------
9,367,467 487,505 21,902 9,833,070
------------ ------------ ------------ ------------
Mortgage-backed securities:
After five years .............. 2,843,072 6,059 51,884 2,797,247
------------ ------------ ------------ ------------
$ 15,270,309 $ 496,644 $ 124,564 $ 15,642,389
============ ============ ============ ============
</TABLE>
Issuers may have the right to call or prepay obligations with or without call or
prepayment penalties. This might cause actual maturities to differ from the
contractual maturities summarized above.
Cash proceeds from calls of securities held to maturity amounted to $500,000 for
the year ended December 31, 1995. There were no calls during the year ended
December 31, 1994. Proceeds from sales and calls of securities held to maturity
for the year ended December 31, 1993, amounted to $6,404,914. No gains or losses
were realized on sales and calls during 1995 and 1994. Gross gains of $88,212
and gross losses of $87,544 were realized on sales during the year ended
December 31, 1993.
The carrying value of securities pledged to secure treasury tax and loan
deposits approximated $499,000 and $497,000 at December 31, 1995 and 1994,
respectively. See also Note 9 to financial statements regarding securities
pledged as collateral for securities sold under agreements to repurchase.
37
<PAGE>
Note 5. LOANS
The loan portfolio consisted of the following:
December 31
---------------------------
1995 1994
----------- -----------
Mortgage:
Residential .................................. $14,421,777 $10,793,324
Commercial ................................... 23,264,126 19,584,950
Commercial ..................................... 15,592,705 13,899,331
Equity ......................................... 4,052,244 3,478,706
Installment .................................... 14,830,764 12,922,184
Other .......................................... 146,553 50,207
----------- -----------
Total loans ................................ 72,308,169 60,728,702
----------- -----------
Less: Deferred loan fees ....................... 155,495 149,739
Allowance for possible loan losses ......... 1,176,822 1,088,486
----------- -----------
1,332,317 1,238,225
----------- -----------
Loans, net ..................................... $70,975,852 $59,490,477
=========== ===========
At December 31, 1995, 1994 and 1993, loans serviced by the Bank for the benefit
of others totaled approximately $2,349,000, $2,463,000 and $1,914,000,
respectively.
Activity in the allowance for possible loan losses is summarized as follows:
December 31
---------------------------------------
1995 1994 1993
----------- ----------- -----------
Balance, beginning ................... $ 1,088,486 $ 993,986 $ 658,295
Provision charged to operations ...... 150,000 295,000 398,000
Recoveries of loans charged off ...... 120 -- 191
Loans charged off .................... (61,784) (200,500) (62,500)
----------- ----------- -----------
Balance,ending ....................... $ 1,176,822 $ 1,088,486 $ 993,986
=========== =========== ===========
The Bank has entered into lending transactions in the ordinary course of
business with directors, executive officers and principal stockholders of the
Bank and their affiliates on the same terms as those prevailing for comparable
transactions with other borrowers. At December 31, 1995 and 1994, these loans
aggregated approximately $1,744,000 and $1,803,000, respectively. During the
year ended December 31, 1995, new loans totaling $755,000 were granted and
repayments totaled approximately $814,000. The loans, at December 31, 1995, were
current as to principal and interest payments, and do not involve more than
normal risk of collectability.
38
<PAGE>
Note 6. NONPERFORMING ASSETS
Nonperforming assets include the following:
December 31
-------------------------
1995 1994
---------- ----------
Nonaccrual loans ................................. $ 332,800 $ 403,171
Loans past due ninety days or more and accruing .. 764,351 230,000
Restructured loans ............................... 69,125 169,656
---------- ----------
Total nonperforming loans ................... 1,166,276 802,827
Other real estate owned .......................... 269,302 269,302
Less allowance for other real estate owned ....... 20,000 --
---------- ----------
249,302 269,302
Nonaccrual investments ........................... 7,541 13,525
---------- ----------
Total nonperforming assets ....................... $1,423,119 $1,085,654
========== ==========
At December 31, 1995 and 1994, approximately $238,000 and $302,000 of nonaccrual
loans had been restructured.
The following information is presented for assets classified as nonaccrual and
restructured:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Income that would have been recorded under
contractual terms ........................... $ 44,000 $ 63,000 $ 80,000
Less interest income received ................. 31,000 29,000 16,000
---------- ---------- ----------
Lost income on nonperforming assets at year end $ 13,000 $ 34,000 $ 64,000
========== ========== ==========
</TABLE>
The activity in the allowance for OREO in 1995 consisted of a provision of
$20,000. Impaired loans consisted of the following:
December 31
1995
----------
Impaired loans
With related allowance for credit loss ................. $1,097,151
Without related allowance for credit loss ............. --
----------
Total impaired loans ........................................ $1,097,151
----------
Related allowance for possible credit losses ................ $ 225,135
----------
Average investment in impaired loans ........................ $1,114,865
----------
Interest recognized on impaired loans ....................... $ 106,907
==========
39
<PAGE>
Note 7. PREMISES AND EQUIPMENT, NET
December 31
---------------------------
1995 1994
----------- -----------
Land ........................................... $ 575,655 $ 575,655
Buildings and improvements ..................... 1,409,929 1,397,579
Leasehold improvements ......................... 213,457 146,917
Furniture, fixtures and equipment .............. 790,551 716,081
----------- -----------
2,989,592 2,836,232
Less accumulated depreciation and amortization . 829,332 628,032
----------- -----------
Total premises and equipment, net .............. $ 2,160,260 $ 2,208,200
=========== ===========
Note 8. DEPOSITS
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------
1995 1994
----------------------------------------------------------
Weighted Weighted
Average Average
Rate Amount Rate Amount
---- ------------- ---- ------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand ............. 0% $ 22,961,834 0% $ 17,313,596
NOW accounts ........................... 2.00% 12,074,565 2.00% 10,624,428
Money market accounts .................. 2.33% 9,686,882 2.55% 9,789,058
---- ------------- ---- ------------
Total interest-bearing demand ....... 2.15% 2l,761,447 2.26% 20,413,486
Statement savings and clubs ............ 2.25% 17,636.833 2.25% 18,840,618
Business savings ....................... 2.25% 1,128,774 2.25% 1,896,025
---- ------------- ---- ------------
Total savings ....................... 2.25% 18,765,607 2.25% 20,736,643
IRA investment and variable rate savings 5.62% 7,164,153 4.18% 4,525,606
Certificates of deposit ................ 5.49% 31,045,501 4.16% 19,497,047
Public funds ........................... 3.35% 90,000 2.60% 90,000
---- ------------- ---- ------------
Total certificates of deposit ....... 5.51% 38,299,654 4.16% 24,112,653
---- ------------- ---- ------------
Total interest-bearing deposits ........ 3.81% 78,826,708 2.96% 65,262,782
Total deposits ......................... 2.95% $ 101,788,542 2.34% $ 82,576,378
==== ============= ==== ============
</TABLE>
Certificates of deposit with balances of $100,000 or more at December 31, 1995
and 1994, totaled approximately $3,655,000 and $1,996,000, respectively.
Interest on certificates of deposit with balances of $100,000 or more totaled
$163,385, $57,941 and $66,570 for the years ended December 31, 1995, 1994 and
1993 respectively.
The scheduled maturities of certificates of deposit were as follows:
December 31
----------------------------------
1995 1994
------------ ------------
One year or less ................... $ 18,626,586 $ 13,687,835
After one to three years ........... 14,567,957 7,598,905
After three years .................. 5,105,111 2,825,913
------------ ------------
$ 38,299,654 $ 24,112,653
============ ============
40
<PAGE>
Note 9. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
At December 31, 1995, 1994 and 1993 securities sold under agreements to
repurchase were collateralized by U.S. Treasury securities having a carrying
value of approximately $2,486,000, $l,518,000 and $1,500,000, respectively.
These securities were maintained in a separate safekeeping account within the
Bank's control.
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance .......................................... $ 1,650,049 $ 1,255,854 $ 366,764
Weighted average interest rate ................... 4.67% 4.45% 3.11%
Average length of maturity ....................... 60-367 days 14-182 days 30-182 days
Maximum amount outstanding at any month end during
the period ..................................... $ 1,844,000 $ 1,256,000 $ 906,000
Average amount outstanding during the period ..... $ 1,627,371 $ 720,557 $ 459,398
Average interest rate during the period .......... 4.84% 3.67% 2.83%
</TABLE>
Note 10. CAPITAL REQUIREMENTS (UNAUDITED)
Regulations provide that the Bank must adhere to three minimum capital
requirements. The regulations require a minimum Tier 1 capital of at least 4% of
risk-weighted assets, total capital of at least 8% of risk-weighted assets, and
a leverage capital ratio of at least 3% of adjusted average assets. At December
31, 1995, the Bank's Tier l capital, total capital and leverage capital ratios
were as follows:
Required Actual Excess
-------- ------ ------
Risk-based capital:
Tier 1 .......................... 4.00% 12.13% 8.13%
Total ........................... 8.00% 13.38% 5.38%
Leverage ratio .................. 3.00% 7.57% 4.57%
41
<PAGE>
Note 11. BENEFIT PLANS
The Bank has a noncontributory profit sharing plan covering all eligible
employees. Contributions are determined by the Bank's Board of Directors on an
annual basis. Total profit sharing plan expense for the years ended December 31,
1995, 1994 and 1993 amounted to approximately $83,400 and $85,500 and $81,200,
respectively.
The Bank also has a 401(k) plan which covers all eligible employees.
Participants may elect to contribute up to 15% of their salaries, not to exceed
the applicable limitations as per the Internal Revenue Code. The Bank, on an
annual basis, may elect to match 50% of the participant's first 5% contribution.
Total 401(k) expense for the years ended December 31, 1995, 1994 and 1993
amounted to approximately $21,800, $18,800 and $5,200, respectively.
During 1995, the shareholders approved an Employee Stock Purchase Plan which
allows all eligible employees to authorize a specific payroll deduction front
his or her base compensation. On a quarterly basis, the fiduciary will purchase
shares for each participant. The Bank may, at its discretion, contribute an
amount (not to exceed 10% of fair market value of the shares purchased) toward
the purchase of the shares, thereby reducing the purchase price to all
participating employees below the fair market value of the shares. The Bank did
not implement this plan in 1995, but anticipates its initial offering in the
second quarter of 1996.
Also approved by the shareholders in 1995, was an Employee Stock Option Plan and
a Stock Option Plan for nonemployee directors. The Employee Stock Option Plan
provides for options to purchase shares of Common Stock to be issued to key
employees of the Bank at the discretion of the Stock Option Committee. The
committee has the authority to determine the terms and conditions of the options
granted, the exercise price thereof, and whether the options are incentive or
nonstatutory options. No options have been granted under this plan. The Stock
Option Plan for nonemployee directors has reserved 22,500 shares of common stock
for issuance. Each participant will automatically receive an option to purchase
2,045 shares of common stock effective as of the date such participant commences
his service on the Board of Directors. No option may be exercised more than ten
years after the date of its grant. The purchase price of the shares of common
stock subject to these options will be 95% of the fair market value on the date
such option is granted, and the Bank will recognize compensation expense for the
5% discount from fair market value. This plan has not yet become effective and
therefore no options have been granted.
42
<PAGE>
Note 12. INCOME TAXES
The components of income taxes (benefit) are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense:
Federal ............................................... $ 463,527 $ 426,190 $ 452,882
State ................................................. 98,603 108,862 64,468
---------- ---------- ----------
562,130 535,052 517,350
Deferred tax benefit:
Federal ............................................... 1,681 (52,843) (142,413)
State ................................................. (92,744) -- --
---------- ---------- ----------
(91,063) (52,843) (142,413)
Income taxes ............................................... $ 471,067 $ 482,209 $ 374,937
========== ========== ==========
</TABLE>
The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate (34%) to income before income taxes:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Federal income tax ......................................... $ 549,263 $ 504,801 $ 436,306
Add (deduct) effect of:
State income taxes, net of federal income tax effect .. 3,867 71,849 42,549
Nontaxable interest income ............................ (96,698) (104,651) (94,827)
Other items, net ...................................... 14,635 10,210 (9,091)
---------- ---------- ----------
Income taxes .......................................... $ 471,067 $ 482,209 $ 374,937
========== ========== ==========
</TABLE>
The tax effects of existing temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses .................... $ 470,430 $ 341,934
Allowance for possible losses on investments .......... 13,823 14,562
Allowance for possible OREO losses .................... 8,600 --
Core deposit intangible amortization .................. 13,364 --
Nonaccrual loan interest .............................. 19,699 27,200
Unrealized (gain) loss on securities available for sale (6,488) 139,657
Other ................................................. 1,336 1,052
---------- ----------
520,764 524,405
---------- ----------
Deferred tax liabilities:
Depreciation .......................................... 82,809 62,900
Deferred state tax .................................... 31,532 --
---------- ----------
114,341 62,900
---------- ----------
Net deferred tax assets ............................... $ 406,423 $ 461,505
========== ==========
</TABLE>
The Bank has determined that it is not required to establish a valuation reserve
for the deferred tax asset, since it is more likely than not that the deferred
tax asset will be principally realized through carryback to taxable income in
prior years. The Bank's conclusion that it is "more likely than not" that the
deferred tax asset will be realized is based on a history of growth in earnings
and the prospects for continued growth.
43
<PAGE>
Note 13. COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
financial statements. The contract or notional amounts of those instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
At December 31, 1995, the Bank had mortgage commitments to extend credit
aggregating approximately $204,000 at fixed interest rates averaging 6.66%.
Commercial, installment and home equity loan commitments of approximately
$1,515,000 were extended with floating interest rates which fluctuate with the
prime rate, and $292,000 were extended at fixed interest rates averaging 8.00%.
All commitments were due to expire within 90 days.
Additionally, at December 31, 1995, the Bank was committed for approximately
$10,799,000 of unused lines of credit, consisting of $4,614,000 relating to a
home equity line of credit program and an unsecured line of credit program (cash
reserve), $499,000 relating to credit cards, and $5,686,000 relating to
commercial lines of credit. Amounts drawn on the unused lines of credit are
predominantly assessed interest at rates which fluctuate with the prime rate.
Commitments under standby letters of credit aggregated approximately $126,000 at
December 31, 1995, all of which expire within one year. Should any letter of
credit be drawn on, the interest rate charged on the resulting note would
fluctuate with the Bank's prime rate.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the counter-party. Collateral held varies, but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Bank obtains collateral
supporting those commitments for which collateral is deemed necessary.
44
<PAGE>
Rentals under a long term operating lease for a branch office amounted to
approximately $43,400 and $2,900 during the years ended December 31, 1995 and
1994 respectively. At December 31, 1995, the minimum rental commitments on the
noncancellable lease with an initial term of one year or more and expiring
through 1999 are as follows:
Year Ending Minimum
December 31 Rent
----------- ---------
1996 $ 33,300
1997 34.200
1998 34,200
1999 22,800
---------
$ 124,500
=========
The Bank is also subject to litigation which arises primarily in the ordinary
course of business. In the opinion of management the ultimate disposition of
such litigation should not have a material adverse effect on the financial
position or results of operations of the Bank.
Note 14. DIVIDEND LIMITATIONS
No dividend shall be paid by the Bank on its capital stock unless, following the
payment of each such dividend, the capital stock of the Bank will be unimpaired,
and the Bank will have a surplus of not less than 50% of its capital stock, or,
if not, the payment of such dividend will not reduce the surplus of the Bank.
Note 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS No. 107) "Disclosures
About Fair Value of Financial Instruments," requires that the Bank disclose the
estimated fair value of its financial instruments whether or not recognized in
the consolidated balance sheet. Fair value estimates, methods and assumptions
are set forth below for the Bank's financial instruments.
December 31, 1995
-----------------
Carrying Estimated
Amount Fair Value
------ ----------
Financial assets:
Cash and cash equivalents ...................... 7,466 7,466
Securities available for sale .................. 9,881 9,881
Securities held to maturity .................... 19,649 20,292
Investments required by law .................... 337 337
Net loans(l) ................................... 71,326 72,674
Accrued interest receivable .................... 837 837
Financial liabilities
Deposits ....................................... 101,789 101,983
Securities sold under agreements to repurchase . 1,650 1,650
(1) Net loans include mortgage loans held for sale.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and cash equivalents
The carrying amount approximates fair value.
45
<PAGE>
Securities available for sale
All securities available for sale are actively traded and have been valued using
quoted market prices.
Securities held to maturity
All securities held to maturity are actively traded and have been valued using
quoted market prices.
Investments required by law
The carrying amount approximates fair value.
Net loans
Fair loans are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as residential and
commercial mortgages, commercial and other installment. The fair value of loans
is estimated by discounted cash flows using estimated market discount rates
which reflect the credit and interest rate risk inherent in the loans.
Accrued interest receivable
The carrying amount approximates fair value.
Deposits
The fair value of deposits, with no stated maturity, such as noninterest-bearing
demand deposits, savings, NOW and money market accounts, is equal to the amount
payable on demand as of December 31, 1995. The fair value of the certificates of
deposit is based on the discounted value of cash flows. The discount rate is
estimated using market discount rates which reflect interest rate risk inherent
in the certificates of deposit.
Securities sold under agreements to repurchase
The carrying value approximates fair value due to the relatively short time
before maturity.
Commitments to extend credit
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the counter parties, and at
December 31, 1995 approximates the contract amount.
Limitations
The preceding fair value estimates were made at December 31, 1995, based on
pertinent market data and relevant information on the financial instruments.
These estimates do not include any premium or discount that could result from an
offer to sell at one time the Bank's entire holdings of a particular financial
instrument or category thereof. Since no market exists for a substantial portion
of the Bank's financial instruments, fair value estimates were necessarily based
on judgments with respect to future expected loss experience, current economic
conditions, risk assessments of various financial instruments, and other
factors. Given the subjective nature of these estimates, the uncertainties
surrounding them and the matters of significant judgment that must be applied,
these fair value estimates cannot be calculated with precision. Modifications in
such assumptions could meaningfully alter these estimates.
Since these fair value approximations were made solely for on and off balance
sheet financial instruments at December 31, 1995, no attempt was made to
estimate the value of anticipated future business. Furthermore, certain tax
implications related to the realization of unrealized gains and losses could
have a substancial impact on these fair value estimates and have not been
incorporated into the estimates.
46
<PAGE>
Note 16. RECENT ACCOUNTING PRONOUNCEMENTS
In March, 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Goodwill is included in the scope of SFAS No. 121 while
core deposit intangibles and mortgage servicing rights are specifically
excluded. SFAS No. 121 is effective for fiscal years beginning after December
15, 1995 and will not have a material effect on the Bank's consolidated
financial condition or results of operations.
In May, 1995, the FASB issued Statement of Financial Accounting Standards No.
122 (SFAS No. 122), "Accounting for Mortgage Servicing Rights." This statement
requires recognition of the rights to service mortgage loans for others, whether
those rights were acquired through purchase or origination. SFAS No. 122 also
requires that capitalized mortgage servicing rights be evaluated for impairment
based on the fair value of those rights with impairment recognized through a
valuation allowance. SFAS No. 122 is effective for the fiscal years beginning
after December 15, 1995 and will not have a material effect on the Bank's
consolidated financial condition or results of operation.
In October 1995, FASB issued Statement of Financial Accounting Standards No. 123
(SFAS No. 123), "Accounting for Stock-Based Compensation." This statement
establishes financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 encourages all entities to adopt the
"fair values based method" of accounting for employee stock compensation plans.
However, SFAS No. 123 also allows an entity to continue to measure compensation
cost under such plans using the "intrinsic value based method." The accounting
requirements of this statement are effective for transactions entered into in
fiscal years that begin after December 15, 1995. The Bank anticipates accounting
for compensation cost under the intrinsic value based method and must provide
pro forma disclosures for all awards granted in fiscal years that begin after
December 15, 1995. Such disclosures include net income and earnings per share as
if the fair values based method of accounting had been applied.
47
<PAGE>
Part III
Item 9 - Directors and Principal Officers of the Bank
The information required by this item is incorporated by reference from the
Bank's proxy statement for its 1996 Annual Meeting of Shareholders at pages
13-15 under the caption Proposal 1 - Election of Directors.
Item 10 - Management Compensation and Transactions
The information required by this item is incorporated by reference from the
Bank's proxy statement for its 1996 Annual Meeting of Shareholders at page 18
under the caption Management Remuneration.
Part IV
Item 11 - Exhibits, Financial Statement Schedules, and Reports on Form F-3
(a)(1) Financial Statements
The below listed consolidated financial statements and report of
independent public accountants of Atlantic Stewardship Bank and
subsidiary are filed as Part of this Annual Report.
Report of Independent Public Accountants
Management Responsibility Statement
Consolidated Statements of Financial Condition at
December 31, 1995 and 1994
Consolidated Statements of Income for the Years Ended
December 31, 1995,1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
All schedules required to be filed by item 8 of this Form F-2 are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
48
<PAGE>
(b) Reports on Form F-3
The Bank has not filed any reports on Form F-3 during the last
quarter of 1995.
(c) List of Exhibits
(1) Certificates of Incorporation (Incorporated by reference from the
Bank's original registration statement on Form F-1, Exhibit
1(a).)
Bylaws (Incorporated by reference from the Bank's original
registration statement on Form F-1, Exhibit 1(b).)
(3ii) Profit Sharing and Trust Summary Plan Description (Incorporated by
reference from the Bank's original registration on Form F-1, Exhibit
4(a).)
401(k) Plan (Incorporated by reference from the Bank's original
registration statement on Form F-I, Exhibit 4(b).)
1995 Stock Option Plan for Non-Employee Directors (Incorporated by
reference from the Bank's Proxy Statement for its 1995 Annual Meeting
of Shareholders.)
1995 Employee Stock Option Plan (Incorporated by reference from the
Bank's Proxy Statement for its 1995 Annual Meeting of Shareholders.)
(9) List of Subsidiaries
49
<PAGE>
Exhibit 9
List of Subsidiaries
Stewardship Investment Corporation
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the bank has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By:/s/ Arie Leegwater
----------------------------
Chairman of the Board
Dated: March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Arie Leegwater Chairman of the Board
and Director March 28, 1996
/s/ Paul Van Ostenbridge President and Chief
Executive Officer and
Director March 28, 1996
/s/ Robert J. Zuidema Vice President and Treasurer
(Principal Financial
Officer and Principal
Accounting Officer) March 28, 1996
/s/ Harold Dyer Director March 28, 1996
/s/ Herman deWaal Malefyt Director March 28, 1996
/s/ Edward Fylstra Director March 28, 1996
/s/ Margo Lane Director March 28, 1996
/s/ William J. Vander Eems Director March 28, 1996
<PAGE>
QUARTERLY REPORT ON FORM F-4
FOR THE QUARTER ENDED
SEPTEMBER 30, 1996
OF
ATLANTIC STEWARDSHIP BANK
<PAGE>
FORM F-4
QUARTERLY REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
-------------------
26390
(FDIC Certificate No.)
Atlantic Stewardship Bank
(Exact name of bank as specified in its charter)
New Jersey
(State of other jurisdiction of
incorporation or organization)
22-2499582
(IRS Employer Identification No.)
630 Godwin Avenue
Midland Park, New Jersey 07432
(Address of principal executive offices)
201-444-7100
(Bank's telephone number, including area code)
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the bank (1) has filed all reports required to be
filed by section 13 of the Securities Exchange Act of 1934 during the preceding
12 months ( or for such shorter period that the bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the bank's classes of
common stock, as of the latest practical date:
Common Stock, par value $5.00 per share, 460,013 at November 14, 1996.
<PAGE>
Atlantic Stewardship Bank
INDEX
PAGE
NUMBER
------
PART I - CONSOLIDATED FINANCIAL INFORMATION
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
at September 30, 1996 and December 31, 1995 (Unaudited) .......... 1
Consolidated Statements of Income for the Nine
Months ended September 30, 1996 and 1995 ( Unaudited) ............ 2
Consolidated Statements of Income for the Three
Months ended September 30, 1996 and 1995 ( Unaudited) ............ 3
Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1996 and 1995 (Unaudited) ............. 4
Consolidated Statement of Changes in Stockholders'
Equity for the Nine Months ended September 30, 1996 and
1995 (Unaudited) ................................................. 5
Notes to Consolidated Financial Statements ....................... 6-9
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ................................................ 10-17
PART II - OTHER INFORMATION
ITEM 1 THRU ITEM 6 ..................................................... 18
SIGNATURES ............................................................. 19
<PAGE>
Atlantic Stewardship Bank and Subsidiary
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Assets
Cash and due from banks $ 5,759,956 $ 4,415,531
Federal funds sold 5,550,000 3,050,000
------------- ------------
Cash and cash equivalents 11,309,956 7,465,531
Securities available for sale 11,344,975 9,881,267
Securities held to maturity; estimated fair value
of $18,354,956 (1996) and $20,291,878 (1995) 18,275,690 19,648,898
Investments carried by law 450,800 337,200
Loans, net of allowance for possible loan losses of
of $ 1,292,269 (1996) and $1,176,822 (1995) 77,063,797 70,975,852
Mortgage loans held for sale -- 350,389
Premises and equipment, net 2,230,345 2,160,260
Accrued interest receivable 846,916 836,689
Intangible assets, net of accumulated amortization of
$134,571 (1996) and $73,967 (1995) 637,409 698,013
Other real estate owned, net 229,302 249,302
Other assets 557,041 516,710
------------- ------------
Total assets $ 122,946,231 $113,120,111
============= ============
Liabilities and stockholders' equity
Liabilities
Deposits:
Noninterest-bearing $ 23,224,723 $ 22,961,834
Interest-bearing 87,421,923 78,826,708
------------- ------------
Total deposits 110,646,646 101,788,542
Securities sold under agreements to repurchase 1,492,217 1,650,049
Accrued expenses and other liabilities 817,527 530,769
------------- ------------
Total liabilities 112,956,390 103,969,360
------------- ------------
Commitments and contingencies -- --
Stockholders' equity
Common stock:
Par value $5.00; 1,200,000 shares authorized; 460,013 (1996)
and 455,441 (1995) issued and outstanding 2,300,067 2,277,207
Surplus 2,683,201 2,588,330
Undivided profits 5,028,738 4,269,933
Net unrealized loss (gain) on securities available for sale (22,165) 15,281
------------- ------------
Total stockholders' equity 9,989,841 9,150,751
------------- ------------
Total liabilities and stockholders' equity $ 122,946,231 $113,120,111
============= ============
</TABLE>
See notes to unaudited consolidated financial statements.
1
<PAGE>
Atlantic Stewardship Bank and Subsidiary
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Interest income:
Loans $ 5,114,144 $ 4,426,920
Securities held to maturity
Taxable 556,823 399,418
Non-taxable 330,520 346,975
Securities available for sale 455,317 374,628
Other interest-earning assets 225,304 277,865
----------- -----------
Total interest income 6,682,108 5,825,806
----------- -----------
Interest expense:
Deposits 2,413,491 1,944,562
Borrowed money 61,168 57,634
----------- -----------
Total interest expense 2,474,659 2,002,196
----------- -----------
Net interest income 4,207,449 3,823,610
Provision for possible loan losses 110,000 120,000
----------- -----------
Net interest income after provision for possible loan losses 4,097,449 3,703,610
----------- -----------
Non-interest income:
Fees and service charges 375,650 263,642
Gain (loss) on calls/sales of investment securities (3,766) (8,015)
Gain on sale of mortgage loans 42,387 11,221
Miscellaneous 92,682 55,649
----------- -----------
Total non-interest income 506,953 322,497
----------- -----------
Non-interest expenses:
Salaries and employee benefits 1,548,479 1,426,375
Occupancy, net 214,942 195,016
Equipment 181,650 140,936
Data processing 155,538 159,203
Advertising 63,823 41,430
FDIC insurance premium 48,797 90,094
Amortization of intangible assets 60,604 35,233
Other real estate owned expense 13,555 31,005
Charitable contributions 163,127 99,622
Stationery and supplies 142,626 118,725
Miscellaneous 636,041 551,513
----------- -----------
Total noninterest expenses 3,229,182 2,889,152
----------- -----------
Income before income taxes 1,375,220 1,136,955
Income taxes 424,619 361,666
----------- -----------
Net income $ 950,601 $ 775,289
=========== ===========
Net income per common share $ 2.08 $ 1.72
=========== ===========
Dividends per common share $ 0.42 $ 0.36
=========== ===========
Weighted average number of common shares outstanding 457,100 451,826
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements
2
<PAGE>
Atlantic Stewardship Bank and Subsidiary
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Interest income:
Loans $ 1,749,545 $ 1,525,098
Securities held to maturity
Taxable 186,048 172,266
Non-taxable 107,601 113,272
Securities available for sale 177,681 135,006
Other interest-earning assets 91,854 107,262
----------- -----------
Total interest income 2,312,729 2,052,904
----------- -----------
Interest expense:
Deposits 841,969 731,488
Borrowed money 17,847 20,552
----------- -----------
Total interest expense 859,816 752,040
----------- -----------
Net interest income 1,452,913 1,300,864
Provision for possible loan losses 30,000 30,000
----------- -----------
Net interest income after provision for possible loan losses 1,422,913 1,270,864
----------- -----------
Noninterest income:
Fees and service charges 126,910 88,404
Gain (loss) on calls/sales of investment securities (5,591) 3,850
Gain on sales of mortgage loans 9,153 6,624
Miscellaneous 52,956 8,568
----------- -----------
Total noninterest income 183,428 107,446
----------- -----------
Noninterest expenses:
Salaries and employee benefits 542,085 477,781
Occupancy, net 68,902 65,467
Equipment 54,761 45,577
Data processing 48,048 51,012
Advertising 30,330 12,880
FDIC insurance premium 40,759 (987)
Amortization of intangible assets 20,201 15,100
Other real estate owned expense (2,563) 19,877
Charitable contributions 52,548 26,215
Stationery and supplies 52,801 25,823
Miscellaneous 228,106 184,122
----------- -----------
Total noninterest expenses 1,135,978 922,867
----------- -----------
Income before income taxes 470,363 455,443
Income taxes 135,769 152,442
----------- -----------
Net income $ 334,594 $ 303,001
=========== ===========
Net income per common share $ 0.73 $ 0.67
=========== ===========
Weighted average number of common shares outstanding 457,100 452,743
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
Atlantic Stewardship Bank and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 950,601 $ 775,289
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization of premises and equipment 178,191 151,200
(Gain) Loss on call/sale of investment securities 3,765 11,865
Amortization of premiums and accretion of discounts, net 42,547 34,411
Accretion of deferred loan fees (48,032) (65,188)
Provision for possible loan losses 110,000 120,000
Provision for possible losses on other real estate 20,000 20,000
Amortization of intangibles 60,604 35,233
Originations of mortgage loans held for sale (4,078,800) (1,146,150)
Proceeds from sale of mortgage loans 4,475,187 957,371
Gain on sale of loans (42,387) (11,221)
Premium paid on deposit acquisition -- (771,980)
Deferred income tax (benefit) (100,160) (25,795)
(Increase) decrease in accrued interest receivable (10,227) (90,993)
Increase in other assets 79,575 (901)
Increase in other liabilities 286,758 333,319
------------ ------------
Net cash provided by (used in) operating activities 1,927,622 326,460
------------ ------------
Cash flows from investing activities:
Purchase of securities available for sale (2,297,599) (3,077,441)
Proceeds from maturities and
principal repayments on securities available for sale 749,128 550,898
Proceeds from sales and calls on securities available for sale 0 2,414,643
Purchase of securities held to maturity (3,659,637) (7,843,724)
Proceeds from maturities and
principal repayments on securities held to maturity 4,041,040 2,461,026
Proceeds from call on securities held to maturity 969,453 --
Purchase of investments required by law (113,600) --
Net increase in loans (6,149,913) (7,155,261)
Additions to premises and equipment (248,276) (99,401)
------------ ------------
Net cash used in investing activities (6,709,404) (12,749,260)
------------ ------------
Cash flows from financing activities
Net increase in noninterest-bearing deposits 262,889 2,759,075
Net increase in interest-bearing deposits 8,595,215 4,622,668
Net decrease in securities sold under agreements to repurchase (157,832) 531,198
Net purchase of deposits -- 8,878,365
Cash dividends paid on common stock (191,796) (162,478)
Sale of common stock 117,731 95,655
------------ ------------
Net cash provided by financing activities 8,626,207 16,724,483
------------ ------------
Net increase in cash and cash equivalents 3,844,425 4,301,683
Cash and cash equivalents - beginning 7,465,531 4,741,467
------------ ------------
Cash and cash equivalents - ending $ 11,309,956 $ 9,043,150
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 2,484,018 $ 1,049,467
Cash paid during the year for income taxes 320,526 353,120
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
Atlantic Stewardship Bank and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
For the Period Ended September 30, 1996
---------------------------------------------------------------------
Net
Unrealized
Loss on
Securities
Common Stock Undivided Available
Shares Par Value Surplus Profits for Sale Total
------- ---------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1995 455,441 $2,277,207 $2,588,330 $ 4,269,933 $ 15,281 $ 9,150,751
Dividends Paid -- -- -- (191,796) -- (191,796)
Sale of Common Stock 4,572 22,860 94,871 -- -- 117,731
Net Income for the nine months
ended September 30, 1996 -- -- -- 950,601 -- 950,601
Net unrealized loss on securities
available for sale -- -- -- -- (37,446) (37,446)
------- ---------- ---------- ----------- -------- -----------
Balance -- September 30, 1996 460,013 $2,300,067 $2,683,201 $ 5,028,738 $(22,165) $ 9,989,841
======= ========== ========== =========== ======== ===========
<CAPTION>
For the Period Ended September 30, 1995
---------------------------------------------------------------------
Net
Unrealized
Loss on
Securities
Common Stock Undivided Available
Shares Par Value Surplus Profits for Sale Total
------- ---------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1994 449,988 $2,249,941 $2,516,218 $ 3,288,000 $(220,315) $ 7,833,844
Dividends Paid -- -- -- (162,478) -- (162,478)
Sale of Common Stock 5,304 26,522 69,133 -- -- 95,655
Net Income for the nine months
ended September 30, 1995 -- -- -- 775,289 -- 775,289
Net change in unrealized loss on
securities available for sale -- -- -- -- 219,764 219,764
------- ---------- ---------- ----------- -------- -----------
Balance -- September 30, 1995 455,292 $2,276,463 $2,585,351 $ 3,900,811 $ (551) $ 8,762,074
======= ========== ========== =========== ======== ===========
</TABLE>
5
<PAGE>
Atlantic Stewardship Bank and Subsidiary
Notes to Unaudited Consolidated Financial Statements
Note 1. Principles of consolidation
The consolidated financial statements include the accounts of Atlantic
Stewardship Bank and its wholly owned subsidiary, Stewardship Investment Corp.,
collectively ("the Bank"). All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Certain prior period amounts have been reclassified to conform to the current
presentation. The consolidated financial statements of the Bank have been
prepared in conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
dates of the statements of financial condition and revenues and expenses during
the reporting periods. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant
changes relate to the determination of the allowance for possible loan losses.
Management believes that the allowance for possible loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance for possible loan losses may be necessary based on
changes in economic conditions in the market area.
Note 2. Basis of presentation
The interim unaudited consolidated financial statements included
herein have been prepared in accordance with instructions for Form F-4 and the
rules and regulations of the Federal Deposit Insurance Corporation (FDIC) and,
therefore, do not include information or footnotes necessary for a complete
presentation of consolidated financial condition, results of operations, and
cash flows in conformity with generally accepted accounting principles. However,
all adjustments, consisting only of normal recurring adjustments, which in the
opinion of management are necessary for a fair presentation of the consolidated
financial statements, have been included. The results of operations for nine
months ended September 30, 1996 are not necessarily indicative of the results
which may be expected for the entire year.
6
<PAGE>
Atlantic Stewardship Bank and Subsidiary
Notes to Unaudited Consolidated Financial Statements Continued
Note 3. Securities Available for Sale
The following table sets forth the amortized cost and carrying value
of the Bank's securities available for sale as of September 30, 1996 and
December 31, 1995. In accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", securities available for sale are carried at estimated fair value.
September 30, 1996
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
----------- -------- -------- -----------
U.S. Treasury securities $3,332,016 $ 2,655 $ 10,721 $ 3,323,950
U.S. Government agencies 1,051,989 258 10,666 1,041,581
Obligations of state and
political subdivisions 274,617 -- 8,351 266,266
Mortgage-backed securities 6,724,145 47,124 58,091 6,713,178
----------- -------- -------- -----------
$11,382,767 $ 50,037 $ 87,829 $11,344,975
=========== ======== ======== ===========
December 31, 1995
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
----------- -------- -------- -----------
U.S. Treasury securities $2,344,964 $ 26,717 $ -- $ 2,371,681
U.S. Government agencies 800,000 625 10,191 790,434
Obligations of state and
political subdivisions 275,913 -- 7,242 268,671
Mortgage-backed securities 6,438,620 48,465 36,604 6,450,481
----------- -------- -------- -----------
$9,859,497 $ 75,807 $ 54,037 $ 9,881,267
=========== ======== ======== ===========
Note 4. Securities Held to Maturity
The following table sets forth the carrying value and estimated fair
value of the Bank's securities held to maturity as September 31, 1996 and
December 31, 1995. Securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts.
September 31, 1996
----------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Cost Gains Losses Value
----------- -------- -------- -----------
U.S. Treasury securities $1,942,098 $ 1,059 $ 14,615 $ 1,928,542
U.S. Government agencies 5,754,136 3,950 89,685 5,668,401
Obligations of state and
political subdivisions 7,984,959 139,192 15,159 8,108,992
Mortgage-backed securities 2,594,497 54,744 220 2,649,021
----------- -------- -------- -----------
$18,275,690 $198,945 $119,679 $18,354,956
=========== ======== ======== ===========
December 31, 1995
----------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Cost Gains Losses Value
----------- -------- -------- -----------
U.S. Treasury securities $2,740,914 $ 9,117 $ 813 $ 2,749,218
U.S. Government agencies 4,918,475 85,268 8,777 4,994,966
Obligations of state and
political subdivisions 8,975,738 482,719 9,477 9,448,980
Mortgage-backed securities 3,013,771 84,943 -- 3,098,714
----------- -------- -------- -----------
$19,648,898 $662,047 $ 19,067 $20,291,878
=========== ======== ======== ===========
7
<PAGE>
Atlantic Stewardship Bank and Subsidiary
Notes to Unaudited Consolidated Financial Statements Continued
Note 5. Loans
The Bank's primary market area for lending is the small and medium
sized business and professional community as well as the individuals residing,
working and shopping in Bergen and Passaic counties, New Jersey. The following
tables set forth the composition of loans as of the periods indicated.
September 30, December 31,
1996 1995
----------- -----------
Mortgage
Residential $13,680,111 $14,421,777
Commercial 25,685,268 23,264,126
Commercial 17,031,408 15,592,705
Equity 4,254,143 4,052,244
Installment 17,739,290 14,830,764
Other 81,935 146,553
----------- -----------
Total loans 78,472,155 72,308,169
----------- -----------
Less: Deferred loan fees 116,089 155,495
Allowance for possible loan losses 1,292,269 1,176,822
----------- -----------
1,408,358 1,332,317
----------- -----------
Loans, net $77,063,797 $70,975,852
=========== ===========
Note 6. Allowance for possible loan losses
Nine Months Ended September 30,
1996 1995
----------- -----------
Balance, beginning of period $ 1,176,822 $ 1,088,486
Provision charged to operations 110,000 120,000
Recoveries of loans charged off 11,829 750
Loans charged off (6,382) (62,534)
----------- -----------
Balance, end of period $ 1,292,269 $ 1,146,702
=========== ===========
8
<PAGE>
Atlantic Stewardship Bank and Subsidiary
Notes to Unaudited Consolidated Financial Statements Continued
Note 7. Loan Impairment
Under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan"
as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures", the Bank has defined the population of
impaired loans to include all nonaccrual loans and loans more than 90 days past
due. Effective January 1, 1995, the Bank adopted both SFAS 114 & 118 which
established new requirements for the calculation of certain components of the
allowance for possible loan losses. Adoption of these new standards had no
effect on the level of the allowance for possible loan losses, recognition of
interest income or operating results for the nine months ended, September 30,
1996. The following table sets forth information regarding the impaired loans.
September 30,
1996
-------------
Impaired loans
With related allowance for credit loss $ 655,000
Without related allowance for credit loss --
-------------
Total impaired loans $ 655,000
=============
Related allowance for possible credit losses $ 164,500
=============
Note 8. Net income per share
Net income per common share is calculated by dividing net income by
the weighted average number of common shares outstanding during the period.
Note 9. Recent Accounting Pronouncements
In May, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 122 (SFAS No. 122), Accounting
for Mortgage Servicing Rights." This statement requires recognition of the
rights to service mortgage loans for others, whether those rights were acquired
through purchase or origination. SFAS No. 122 also requires that capitalized
mortgage servicing rights be evaluated for impairment based on the fair value of
those rights with impairment recognized through a valuation allowance. SFAS No.
122 is effective for the fiscal years beginning after December 15, 1995. Since
the Bank has not sold any mortgages with servicing retained during the first
nine months of 1996, the adoption of SFAS 121 has had no impact on the Bank's
consolidated financial condition or results of operation.
In October 1995, FASB issued Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."
This statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 encourages all entities to
adopt the "fair values based method" of accounting for employee stock
compensation plans. However, SFAS No. 123 also allows an entity to continue to
measure compensation cost under such plans using the "intrinsic value based
method." The accounting requirements of this statement are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The Bank anticipates accounting for compensation cost under the intrinsic value
based method and must provide pro forma disclosures for all awards granted in
fiscal years that begin after December 15, 1995. Such disclosures include net
income and earnings per share as if the fair values based method of accounting
had been applied. As of September 30, 1996, the stock compensation plans have
not been activated, therefore, no disclosure is necessary.
9
<PAGE>
Atlantic Stewardship Bank
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition
Total assets increased by $9.8 million, or 8.7%, from $113.1 million at December
31, 1995 to $122.9 million at September 30, 1996. The increase in assets
reflects, among other things, increases in net loans of $6.1 million, federal
funds sold of $2.5 million, and securities available for sale of $1.5 million.
The composition of the loan portfolio is basically unchanged at September 30,
1996 when compared with the portfolio at December 31, 1995.
Total deposits increased $8.8 million, or 8.7%, to $110.6 million at September
30, 1996 from $101.8 million at December 31, 1995. Interest-bearing deposits
increased $8.6 million, or 10.9%, to $87.4 million at September 30, 1996, and
noninterest-bearing deposits, increased $0.3 million, or 1.1%, to $23.2 million
at September 30, 1996.
The Bank's primary focus during the first nine months of 1996 was to prepare for
and complete a core computer conversion which occurred on April 25, 1996.
Although maintaining an outsourcing relationship, the conversion required much
effort from the Bank in understanding, training, and utilizing the benefits of
the new system. During the third quarter of 1996, the Bank concentrated its
efforts on a PC Based Teller and Platform System designed to provide more
efficient service to our customers and to provide better tracking and cross
selling tools. This new software should allow the Bank to begin to assess the
offering of electronic banking services as well as new deposit and loan
products. The Bank will begin to explore the introduction of telephone and PC
banking in the near future.
The Bank has undergone an analysis of the implementation of ATM machines at each
of the branch locations. The Bank has offered ATM cards to its customer base for
the past two years and has grown to over 1,000 cards issued. Because of the
changes in the ATM industry, the Bank has made a commitment to provide machines
for customer and noncustomer use. The Bank has ordered the ATM equipment and
anticipates installation in the first quarter of 1997. This continues to show
the Bank's commitment to provide customers with extended banking hours.
10
<PAGE>
The Bank has also entered into lease negotiations to establish a branch site in
Ridgewood, Bergen County, New Jersey. Applications have been filed and approved
by the State of New Jersey and the FDIC. Management believes this site to be a
good extension of our market as Ridgewood is a contiguous town with Midland
Park, where the Bank's administrative headquarters is located. It is anticipated
that the lease will be signed and a target opening date established when the
construction on the building has begun. In addition, the Board is exploring
other areas in Northern New Jersey for future branching activities.
At the Annual Shareholder Meeting, held on April 30, 1996, the shareholders
approved the formation of a Holding Company, Stewardship Financial Corporation.
The Commissioner of the Department of Banking , State of New Jersey approved the
plan on March 19, 1996. The Stewardship Financial Corporation (the Holding
Company) completed the necessary notice with the Federal Reserve Bank of New
York under the Bank Holding Company Act of 1956, as amended, to acquire 100
percent of the outstanding stock of Atlantic Stewardship Bank and thereby become
a bank holding company with respect to Atlantic Stewardship Bank. The Federal
Reserve Bank of New York advised the Holding Company on July 19, 1996, that
there was no objection to the notice. The Holding Company will be established
effective November 22, 1996.
The Holding Company structure will maximize the Bank's flexibility in
undertaking its current and future operations. In addition, the Holding Company
structure makes available a variety of means to assist the Holding Company Board
in acting in the best interests of shareholders in the face of an unsolicited
takeover bid which are not available to the Bank. Although the Holding Company's
Certificate of Incorporation does not currently contain any defensive
provisions, shareholders may be asked to approve such provisions at the next
annual meeting in the Spring of 1997.
Results of Operations
Nine Months Ended September 30, 1996
General
The Bank reported net income of $951,000, or $2.08 per share for the nine months
ended September 30, 1996 compared to $775,000 or $1.72 per share for the same
period in 1995. The $176,000 increase in net income was primarily caused by
increases in net interest income and noninterest income and a decrease in the
provision for possible loan losses, partially offset by increases in noninterest
expense.
11
<PAGE>
Net interest income
Net interest income increased $384,000, or 10.0%, for the nine months ended
September 30, 1996 as compared with the corresponding period in 1995. The
increase was primarily due to an increase in average net interest-earning assets
offset by a decline in the interest rate spread.
Total interest income increased $856,000, or 14.7%, primarily due to an increase
in the average volume of interest-earning assets offset by a decrease in the
yields earned on most interest-earning asset categories. The average balance of
interest-earning assets increased $16.4 million, or 17.3%, from $95.0 million
for the nine months ended September 30, 1995 to $111.4 million for the same
period in 1996, primarily being funded by an increase to the bank's average
deposit base. The Bank experienced an increase in loan demand which allowed
loans on average to increase $11.3 million to an average $76.1 million for the
nine months ended September 30, 1996, from an average $64.8 million for the
comparable period in 1995.
Interest paid on deposits and borrowed money increased $472,000, or 23.6%, due
primarily to an increase in the average volume of total interest-bearing
deposits and to higher rates paid on time deposit categories. Average costs for
interest-bearing liabilities increased to 3.83% for the nine months ended
September 30, 1996 from 3.57% for the nine months ended September 30, 1995. The
average balance of total interest-bearing deposits increased to $84.5 million
for the nine months ended September 30, 1996 from $73.4 million for the
comparable 1995 period, primarily as a result of the Bank's expanding customer
base.
Provision for possible loan losses
The Bank maintains an allowance for possible loan losses at a level considered
by management to be adequate to cover the inherent risks associated with its
loan portfolio, after giving consideration to changes in general market
conditions and in the nature and volume of the Bank's loan activity. The
allowance for possible loan losses is based on estimates, and ultimate losses
may vary from the current estimates. Additions to the allowance for possible
loan losses are charged to operations during the period in which such additions
are deemed necessary.
The provision charged to operations totaled $110,000 and $120,000 during the
nine months ended September 30, 1996 and 1995, respectively. See "Asset Quality"
section for summary of allowance for loan losses and nonperforming assets. The
Bank monitors its loan portfolio and intends to continue to provide for loan
loss reserves based on its ongoing periodic review of the loan portfolio and
general market conditions.
12
<PAGE>
Noninterest income
Noninterest income increased by $184,000, or 57.2%, to $507,000 during the nine
months ended September 30, 1996 when compared with $322,000 during the 1995
period. Contributing to this increase was a $112,000 increase in deposit-related
fees and service charges caused by the increased deposit base, a $40,000
reversal of a prior year accrual for miscellaneous expenses which will not be
incurred, and an increase of $31,000 in gain on sale of mortgage loans. This
gain was due primarily to the increase in loans originated and sold during the
first quarter of 1996 compared to the similar period in 1995.
Noninterest expenses
Noninterest expenses increased by approximately $340,000, or 11.8%, to $3.2
million for the nine months ended September 30, 1996, compared to $2.9 million
for the same 1995 period. Salaries and employee benefits, the major component of
noninterest expenses, increased $122,000, or 8.6%, during the nine months ended
September 30, 1996. This increase is due primarily to several new positions
created in the accounting and operations area. Equipment and data processing
expense increased $37,000, or 12.3%, due to the computer software conversion.
Amortization of intangibles increased $25,000 over the 1995 period because the
1995 period was only a partial period. Other real estate expense contained an
additional $20,000 expense to an established valuation reserve to reduce the
carrying value of the other real estate property. Partially offsetting these
expenses was a reduction of $41,000 in FDIC insurance premiums.
Income taxes
Income tax expense totaled $425,000 and $362,000 during the nine months ended
September 30, 1996 and 1995, respectively.
13
<PAGE>
Results of Operations
Three Months Ended September 30, 1996
General
The Bank reported net income of $335,000, or $0.73 per share for the three
months ended September 30, 1996 compared to $303,000 or $0.67 per share for the
same period in 1995. The $32,000 increase in net income was primarily caused by
increases in net interest income and noninterest income, partially offset by an
increase in noninterest expense.
Net interest income
Net interest income increased $152,000, or 11.7%, for the three months ended
September 30, 1996 as compared with the corresponding period in 1995. The
increase was primarily due to an increase in average net interest-earning
assets.
Total interest income increased $260,000, or 12.7%, primarily due to an increase
in the average volume of interest-earning assets. The average balance of
interest-earning assets increased $14.5 million, or 14.3%, from $101.0 million
for the three months ended September 30, 1995 to $115.2 million for the same
period in 1996, primarily being funded by an increase to the bank's average
deposit base. The Bank experienced an increase in loan demand which allowed
loans on average to increase $11.3 million to an average $78.0 million for the
three months ended September 30, 1996, from an average $66.6 million for the
comparable period in 1995.
Interest paid on deposits and borrowed money increased $108,000, or 14.3%, due
primarily to an increase in the average volume of total interest-bearing
deposits and to higher rates paid on time deposit categories. The average
balance of total interest-bearing deposits increased $9.4 million to $87.4
million for the three months ended September 30, 1996 from $78.0 million for the
comparable 1995 period, primarily as a result of the Bank's expanding customer
base.
Provision for possible loan losses
The provision charged to operations totaled $30,000 for both of the three months
ended June 30, 1996 and 1995, respectively. See "Asset Quality" section for
summary of allowance for loan losses and nonperforming assets. The Bank monitors
its loan portfolio and intends to continue to provide for loan loss reserves
based on its ongoing periodic review of the loan portfolio and general market
conditions.
14
<PAGE>
Noninterest income
Noninterest income increased by $76,000, or 70.7%, to $183,000 during the three
months ended September 30, 1996 when compared with $107,000 during the 1995
period. Contributing to this increase was a $39,000 increase in deposit-related
fees and service charges and a $40,000 reversal of a prior year accrual for
miscellaneous expenses which will not be incurred. In addition, the Bank
continued to experience an increase in the volume of mortgage loans originated
and sold which resulted in a $3,000 increase in the gain on sale of mortgage
loans.
Noninterest expenses
Noninterest expenses increased by approximately $213,000, or 23.1%, to $1.1
million for the three months ended September 30, 1996, compared to $923,000 for
the same 1995 period. Salaries and employee benefits, the major component of
noninterest expenses, increased $64,000, or 13.5%, during the three months ended
September 30, 1996 due primarily to new positions in the accounting and
operations department. FDIC insurance premium increased $42,000 during the three
months ended September 30, 1996. This increase was due to the Bank receiving a
refund of FDIC insurance premiums totaling $52,000 in 1995 and the Bank being
assessed a special Savings Association Insurance Fund (SAIF) Assessment of
$37,000 on September 30, 1996. The SAIF assessment, incurred under the Deposit
Insurance Funds Act of 1996, was calculated based on the deposits purchased from
the Resolution Trust Corporation in March, 1995. Advertising, stationery and
supplies, and miscellaneous expense increased $88,000 or 39.7% due to the
continued growth of the bank and a special advertising mailing to a local
community.
Income taxes
Income tax expense totaled $136,000 and $152,000 during the three months ended
September 30, 1996 and 1995, respectively.
Asset Quality
The Bank's principal earning assets are its loans to businesses and individuals
located in the State of New Jersey. Inherent in the lending function is the risk
of deterioration in the borrower's ability to repay their loans under their
existing loan agreements. Risk elements include nonaccrual loans, past due and
restructured loans, potential problem loans, loan concentrations, nonaccrual
investments and other real estate owned. The
15
<PAGE>
following table shows the composition of nonperforming assets at the end of the
last four quarters:
09/30/96 06/30/96 03/31/96 12/31/95
------- ------- -------- --------
(Dollars in Thousands)
Nonaccrual Loans: (1) $ 95 $ 95 $ 95 $ 333
Loans past due 90 days or more: (2) 560 685 680 764
Restructured Loans: 271 148 151 69
------ ------ ------ ------
Total Nonperforming loans 926 928 926 1,066
Nonaccrual investments -- -- 7 8
Other real estate 229 229 229 249
------ ------ ------ ------
Total Nonperforming assets $1,155 $1,157 $1,162 $1,423
====== ====== ====== ======
Allowance for Loan losses $1,292 $1,260 $1,208 $1,177
====== ====== ====== ======
Nonaccrual loans to total loans 0.12% 0.12% 0.13% 0.46%
Nonperforming loans to total loans 1.18% 1.21% 1.26% 1.61%
Nonperforming loans to total assets .75% .76% .81% 1.03%
Nonperforming assets to total assets .94% .98% 1.01% 1.26%
Allowance for loan losses to total
loans 1.65% 1.64% 1.65% 1.63%
Allowance for loan losses to non-
performing loans 139.54% 135.74% 130.49% 100.90%
(1) Generally represents loans as to which the payment of interest or principal
is in arrears for a period of more than 90 days. Interest previously accrued on
these loans and not yet paid is reversed and charged against income during the
current period. Interest earned thereafter is only included in income to the
extent that it is received in cash.
(2) Represents loans as to which payments of interest or principal are
contractually past due 90 days or more but which are currently accruing income
at the contractually stated rates. A determination is made to continue accruing
income on those loans which are sufficiently collateralized and on which
management believes all interest and principal owed will be collected.
There were no loans at September 30,1996, other than those included in the above
table, where the Bank was aware of any credit conditions of any borrowers that
would indicate a strong possibility of the borrowers not complying with the
present terms and conditions of repayment and which may result in such loans
being included as non-accrual, past due or restructured at a future date.
At September 30, 1996, there were no concentrations, other than a geographic
concentration in northern New Jersey, of loans exceeding 10% of total loans
outstanding. Loan concentrations are considered to exist when there are amounts
loaned to a multiple
16
<PAGE>
number of borrowers engaged in similar activities that would cause them to be
similarly impacted by economic or other related conditions.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities, maturities of investment securities and
funds provided from operations. While scheduled loan and mortgage-backed
securities amortization and maturities of investment securities are a relatively
predictable source of funds, deposit flow and prepayments on loans and
mortgage-backed securities are greatly influenced by market interest rates,
economic conditions and competition.
The Bank's liquidity, represented by cash and cash equivalents, is a product of
its operating, investing and financing activities. Cash and cash equivalents
increased approximately $3.8 million during the first nine months of 1996, as
financing activities provided $8.6 million, operating activities provided $1.9
million, and investing activities used $6.7 million.
Liquidity management is a daily and long-term function of business management.
Excess liquidity is generally invested in short-term investments, such as
federal funds.
As of September 30, 1996 the Bank's capital ratios were as follows:
Required Actual Excess
-------- ------ ------
Risk-based Capital
Tier 1 4.00% 12.32% 8.32%
Total 8.00% 13.57% 5.57%
Leverage Ratio 3.00% 7.69% 4.69%
17
<PAGE>
Atlantic Stewardship Bank
Part II -- Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form F-3
(a) Exhibits
None
(b) Reports
None
18
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Bank has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Atlantic Stewardship Bank
Date: November 14, 1996 By: /s/ Paul Van Ostenbridge
------------------------------- ----------------------------
Paul Van Ostenbridge
President and Chief Executive
Officer
Date: November 14, 1996 By: /s/ Julie E. Holland
------------------------------- ----------------------------
Julie E. Holland
Assistant Vice President and
Treasurer
19
PLAN OF ACQUISITION
OF ALL THE OUTSTANDING STOCK
OF ATLANTIC STEWARDSHIP BANK
BY
STEWARDSHIP FINANCIAL CORPORATION
THIS PLAN OF ACQUISITION (the "Plan") is entered into as of this 17th
day of January, 1995, by ATLANTIC STEWARDSHIP BANK, a commercial bank organized
under the laws of the State of New Jersey, with its principal office at 630
Godwin Avenue, Midland Park, New Jersey 07432, (the "Bank") and STEWARDSHIP
FINANCIAL CORPORATION, a corporation organized under the laws of the state of
New Jersey, with its principal office at 630 Godwin Avenue, Midland Park, New
Jersey 07432 ("CORP").
WHEREAS, the Bank is desirous of forming a bank holding company
because it believes that the holding company will provide it with future
flexibility in undertaking the Bank's current activities and future new
activities and assist the Bank in remaining an independent institution, if the
Board determines that remaining independent is in the best interests of the Bank
and its shareholders; and
WHEREAS, the Bank's Board of Directors has determined that the
formation of a holding company is in the best interest of the Bank's
shareholders; and
WHEREAS, CORP was formed under the New Jersey Business Corporation Act
on behalf of the Bank at the direction of the Bank's Board of Directors; and
<PAGE>
WHEREAS, N.J.S. 17:9A-355 et seq. authorizes a New Jersey corporation
and a state-chartered bank to enter into a plan of acquisition to exchange
shares in the bank for shares in the holding company, to submit the plan to the
New Jersey Department of Banking for approval and implement the plan if it is
approved by the bank's shareholders, subject to the right of the bank's
shareholders to dissent and receive the fair value of their shares; and
WHEREAS, the Boards of Directors of the Bank and CORP have adopted
this Plan pursuant to the provisions of N.J.S. 17:9A-357.
NOW, THEREFORE, the parties hereto agree as follows:
1.0 PLAN OF ACQUISITION REQUIRED BY SECTION 17:9A-357.
1.1 Name of Acquiring Corporation The name and the address of the
acquiring corporation is: Stewardship Financial Corporation, 630 Godwin Avenue,
Midland Park, New Jersey 07432.
1.2 Name of Participating Bank. The name and address of the
participating bank is: Atlantic Stewardship Bank, 630 Godwin Avenue, Midland
Park, New Jersey 07432.
1.3 Names and Address of Directors The names and addresses of the
members of the Board of Directors of CORP are:
Name Address
William M. Almroth 630 Godwin Avenue
Midland Park, NJ 07432
-2-
<PAGE>
Herman dewaal Malefyt 630 Godwin Avenue
Midland Park, NJ 07432
Harold Dyer 630 Godwin Avenue
Midland Park, NJ 07432
Edward Fylstra 630 Godwin Avenue
Midland Park, NJ 07432
William C. Hanse, Esq. 630 Godwin Avenue
Midland Park, NJ 07432
Margo Lane 630 Godwin Avenue
Midland Park, NJ 07432
Arie Leegwater 630 Godwin Avenue
Midland Park, NJ 07432
John L. Steen 630 Godwin Avenue
Midland Park, NJ 07432
Robert J. Turner 630 Godwin Avenue
Midland Park, NJ 07432
William J. Vander Eems 630 Godwin Avenue
Midland Park, NJ 07432
Paul Van Ostenbridge 630 Godwin Avenue
Midland Park, NJ 07432
Clarence Wiegers 630 Godwin Avenue
Midland Park, NJ 07432
1.4 Shares of Other Banks Owned by CORP. CORP does not own any shares
of capital stock of any other bank.
1.5 Terms and Conditions of Acquisition. The terms and conditions of
the acquisition are the terms set forth in Sections 2, 3, 5, and 6 hereof.
1.6 Effective Date. The effective date shall be the date determined
under Section 7 hereof.
1.7 Other Provisions. There are no other provisions of the Plan except
as set forth herein.
-3-
<PAGE>
2.0 CAPITALIZATION; TERMS OF ACQUISITION.
2.1 Capitalization of CORP. CORP is authorized to issue 5,000,000
shares of capital stock without nominal or par value ("Common Stock"). CORP
shall not issue any of its shares of Common Stock prior to the Effective Date.
2.2 Capitalization of the Bank. The Bank is authorized to issue
1,200,000 shares of common stock, par value $5.00 per share (the "Bank Common
Stock"). As of December 31, 1994, 449,988 shares were issued and outstanding.
There are no securities of the Bank issued and outstanding which are convertible
into shares of the Bank Common Stock and there are no outstanding options to
purchase shares of the Bank Common Stock granted to officers or employees of the
Bank or to any other person.
2.3 Terms of Exchange. Upon the Effective Date, each share of the Bank
Common stock shall be converted into one share of Common Stock, subject to the
rights of dissenting shareholders as provided in Section 4 hereof.
3.0 MODE OF CARRYING INTO EFFECT THE PLAN OF EXCHANGE.
3.1 Exchange Effective Immediately Upon the Effective Date, each
certificate representing shares of the Bank Common Stock shall by virtue of the
Plan, and without any action on the part of the holder thereof, be deemed to
represent the same number of shares of Common Stock, and shall no longer
represent the Bank Common Stock. As set forth in Section 4
-4-
<PAGE>
hereof, after the Effective Date any dissenting shareholder who complies with
the requirements of N.J.S. 17:9A-360 et seq. shall have only the rights accorded
dissenting shareholders and such stockholder certificates shall not be deemed to
represent shares of Common Stock or the Bank Common Stock.
3.2 Issuance of Shares of Bank to CORP. Upon the Effective Date, the
Bank shall issue to CORP one share of its Common Stock, par value $5.00 per
share, for each share of Bank common stock outstanding on the Effective Date.
3.3 Means of Effecting Exchange of Certificates of Bank Stock for
Certificates in CORP. Upon or immediately after the Effective Date, the Bank
shall notify each Bank stockholder of record on the Effective Date (except a
holder who is a dissenting shareholder as provided in Section 4 hereof) of the
procedure by which certificates representing the Bank Common Stock may be
exchanged for certificates of Common Stock. The Bank shall act as exchange agent
in effecting the exchange of certificates. After receipt of such notification,
each holder shall be obligated to surrender the certificates representing the
Bank Common Stock for exchange into certificates of Common Stock as promptly as
possible.
4.0 DISSENTING SHAREHOLDER.
Any shareholder of the Bank who desires to dissent from the
transactions contemplated by the Plan shall have the right to dissent by
complying with all of the requirements set forth in N.J.S. 17:9A-360 et seq.,
and, if the transactions
-5-
<PAGE>
contemplated by the Plan are consummated, shall be entitled to be paid the fair
value of his shares in accordance with those provisions.
5.0 CONDITIONS FOR CONSUMMATION OF THE PLAN AND RIGHT OF THE BANK TO
TERMINATE THE PLAN PRIOR TO CONSUMMATION.
5.1 Conditions for Consummation. Consummation of the Plan is
conditioned upon the following:
(a) Approval of the Plan by the Commissioner of Banking of the
State of New Jersey;
(b) Approval of the Plan by the holders of two-thirds (2/3) or
more of the outstanding Bank Common Stock entitled to vote;
(c) The non-objection of the Board of Governors of the Federal
Reserve System to a notification by CORP of its acquisition of Bank;
(d) The Bank's Board of Directors not terminating the Plan prior
to the Effective Date as permitted by Section 5.2 hereof.
5.2 Right of Bank to Terminate Plan Prior to the Effective Date.
At any time prior to the Effective Date, the Board of Directors of the Bank may
terminate the Plan if in the judgment of the Board of Directors the consummation
of the Plan is inadvisable for any reason. To terminate the Plan the Bank's
Board of Directors shall adopt a resolution terminating the Plan and in the
event such termination occurs after the shareholders of the Bank have voted on
the Plan, promptly give written notice
-6-
<PAGE>
that the Plan has been terminated to the shareholders of the Bank. Upon the
adoption of the Board resolution, the Plan shall be of no further force or
effect and the Bank and CORP shall not be liable to each other, to any
shareholder of the Bank or to any other person by reason of the Plan or the
termination thereof. Without limiting the reasons for which the Bank's Board may
terminate the Plan, the Board may terminate the Plan if:
(a) The number of shareholders dissenting from the Plan and
demanding payment of the fair value of their shares would in the judgment of the
Board render the Plan inadvisable; or
(b) The Bank or CORP fails to receive, or fails to receive in
form and substance satisfactory to the Bank or CORP, any permit, license or
qualification from any federal or state authority required in connection with
the consummation of the Plan.
6.0 EXPENSES.
The Bank and CORP will each bear their own expenses, if any, in
connection with the Plan if the Plan is consummated. If the Plan is not
consummated, the Bank will bear all of the expenses incurred by the Bank and by
CORP in connection with the Plan. Without limiting the foregoing, if the Plan is
not consummated the Bank shall bear and pay all attorneys, accountants, and
printing fees and all licensing fees incurred in connection with the Plan and
the formation of CORP.
-7-
<PAGE>
7.0 EFFECTIVE DATE.
The Plan shall become effective upon a date selected by the
mutual agreement in writing of the parties hereto (the "Effective Date"). The
date so selected shall be within a reasonable period after the conditions set
forth in Section 5.1 have been complied with and the Bank has received any
approvals or consents without which it might terminate the Plan under Section
5.2. At least one week prior to the agreed upon effective date, the Plan shall
be filed with the Department of Banking of the State of New Jersey together with
the writing specifying the Effective Date and a certification by the president
or a vice president of the Bank that the Bank's shareholders have approved the
Plan.
IN WITNESS WHEREOF, the Boards of Directors of Atlantic
Stewardship Bank and Stewardship Financial Corporation have authorized the
execution of the Plan and caused the Plan to be executed as of the date first
written above.
ATTEST: ATLANTIC STEWARDSHIP BANK
/s/EDWARD FYLSTRA By:/s/PAUL VAN OSTENBRIDGE
- ------------------------- ---------------------
Paul Van Ostenbridge,
President and Chief
Executive Officer
ATTEST: STEWARDSHIP FINANCIAL CORP.
/s/EDWARD FYLSTRA By:/s/PAUL VAN OSTENBRIDGE
- ------------------------- ---------------------
Paul Van Ostenbridge,
President and Chief
Executive Officer
-8-
CERTIFICATE OF INCORPORATION
OF
STEWARDSHIP FINANCIAL CORPORATION
THIS IS TO CERTIFY THAT, there is hereby organized a corporation under and
by virtue of N.J.S.A. 14A:1-1 et seq., the "New Jersey Business Corporation
Act."
ARTICLE I
Corporate Name
The name of the Corporation shall be Stewardship Financial Corporation.
ARTICLE II
Registered Office and Registered Agent
The address of the Corporation's registered office is:
Stewardship Financial Corporation
630 Godwin Avenue
Midland Park, New Jersey 07432
The name of the registered agent at that address is:
Paul Van Ostenbridge
ARTICLE III
Initial Board of Directors and Number of Directors
(a) The number of directors shall be governed by the Bylaws of the
Corporation. The number of directors constituting the initial Board of Directors
shall be twelve (12). The names and addresses of the initial Board of Directors
are as follows:
William M. Almroth 630 Godwin Avenue
Midland Park, NJ 07432
Herman dewaal Malefyt 630 Godwin Avenue
Midland Park, NJ 07432
Harold Dyer 630 Godwin Avenue
Midland Park, NJ 07432
Edward Fylstra 630 Godwin Avenue
Midland Park, NJ 07432
William C. Hanse, Esq. 630 Godwin Avenue
Midland Park, NJ 07432
<PAGE>
Margo Lane 630 Godwin Avenue
Midland Park, NJ 07432
Arie Leegwater 630 Godwin Avenue
Midland Park, NJ 07432
John L. Steen 630 Godwin Avenue
Midland Park, NJ 07432
Robert J. Turner 630 Godwin Avenue
Midland Park, NJ 07432
William J. Vander Eems 630 Godwin Avenue
Midland Park, NJ 07432
Paul Van Ostenbridge 630 Godwin Avenue
Midland Park, NJ 07432
Clarence Wiegers 630 Godwin Avenue
Midland Park, NJ 07432
(b) The Board of Directors shall be divided into three (3) classes, as
nearly identical in number as the then total number of directors constituting
the entire board permits, with the term of office of one class expiring each
year. At the first annual meeting of stockholders, directors of the first class
shall be elected to hold office for a term expiring at the next succeeding
annual meeting, directors of the second class shall be elected to hold office
for a term expiring at the second succeeding annual meeting and directors of the
third class shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Any vacancies in the Board of Directors for any
reason, and any directorships resulting from any increase in the number of
directors, may be filled by the Board of Directors, acting by a majority of the
directors then in office, although less than a quorum, and any directors so
chosen shall hold office until the next election of the class for which such
directors shall have been chosen and until their successors shall be elected and
qualified. At each annual meeting of stockholders the successors to the class of
directors whose term shall then expire shall be elected to hold office for a
term expiring at the third succeeding annual meeting.
(c) None of the present or future directors of the Corporation may be
removed without cause by the shareholders of the Corporation. The term "cause"
as used herein is defined to mean (i) conviction of the director of a felony,
(ii) declaration by order of a court that the director is of unsound mind; (iii)
gross abuse of trust which is proven by clear and convincing evidence to have
been committed in bad faith. The Board of Directors shall have the power to
remove directors and to suspend
-2-
<PAGE>
directors pending a final determination that cause exists for removal.
ARTICLE IV
Corporate Purpose
The purpose for which the Corporation is organized is to engage in any
activities for which corporations may be organized under the New Jersey Business
Corporation Act.
ARTICLE V
Capital Stock
The Corporation is authorized to issue 5,000,000 shares of common stock.
ARTICLE VI
Limitation of Liability
Subject to the following, a director or officer of the Corporation shall
not be personally liable to the Corporation or its shareholders for damages for
breach of any duty owed to the Corporation or its shareholders. The preceding
sentence shall not relieve a director or officer from liability for any breach
of duty based upon an act or omission (i) in breach of such person's duty of
loyalty to the Corporation or its shareholders, (ii) not in good faith or
involving a knowing violation of law, or (iii) resulting in receipt by such
person of an improper personal benefit. If the New Jersey Business Corporation
Act is amended to authorize corporate action further eliminating or limiting the
personal liability of directors or officers, then the liability of a director or
officer or both of the Corporation shall be eliminated or limited to the fullest
extent permitted by the New Jersey Business Corporation Act as so amended. Any
amendment to this Certificate of Incorporation, or change in law which
authorizes this paragraph shall not adversely affect any then existing right or
protection of a director or officer of the Corporation.
ARTICLE VII
Indemnification
The Corporation shall indemnify its officers, directors, employees and
agents and former officers, directors, employees and agents, and any other
persons serving at the request of the Corporation as an officer, director,
employee or agent of another corporation, association, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees, judgments, fines and amounts paid in settlement) incurred in connection
with any pending or threatened action, suit, or proceeding, whether civil,
criminal, administrative or investigative, with respect to which such officer,
director,
-3-
<PAGE>
employee, agent or other person is a party, or is threatened to be made a party,
to the full extent permitted by the New Jersey Business Corporation Act. The
indemnification provided herein (i) shall not be deemed exclusive of any other
right to which any person seeking indemnification may be entitled under any
by-law, agreement, or vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
any other capacity, and (ii) shall inure to the benefit of the heirs, executors,
and the administrators of any such person. The Corporation shall have the power,
but shall not be obligated, to purchase and maintain insurance on behalf of any
person or persons enumerated above against any liability asserted against or
incurred by them or any of them arising out of their status as corporate
directors, officers, employees, or agents whether or not the Corporation would
have the power to indemnify them against such liability under the provisions of
this article.
The Corporation shall, from time to time, reimburse or advance to any
person referred to in this article the funds necessary for payment of expenses,
including attorneys' fees, incurred in connection with any action, suit or
proceeding referred to in this article, upon receipt of a written undertaking by
or on behalf of such person to repay such amount(s) if a judgment or other final
adjudication adverse to the director or officer establishes that the director's
or officer's acts or omissions (i) constitute a breach of the director's or
officer's duty of loyalty to the corporation or its shareholders, (ii) were not
in good faith, (iii) involved a knowing violation of law, (iv) resulted in the
director or officer receiving an improper personal benefit, or (v) were
otherwise of such a character that New Jersey law would require that such
amount(s) be repaid.
ARTICLE VIII
Advance Notice of Nomination of Directors
Advance notice of nomination for the election of directors, other than by
the Board of Directors or a committee thereof, shall be given within the time
and in the manner provided in the Corporation's By-laws.
ARTICLE IX
Certain Required Votes of Shareholders
(a) No merger, consolidation, nor any action which would result in the
disposition of all or substantially all of the assets of the Corporation shall
be valid unless first approved by the affirmative vote, cast in person or by
proxy, of the holders of record of eighty percent (80%) of the outstanding
shares of the capital stock of the Corporation entitled to vote thereon;
provided, however, that if any such action has been approved prior to the vote
of shareholders by a majority of the
-4-
<PAGE>
Corporation's Board of Directors, the affirmative vote of the holders of a
majority of the outstanding shares of capital stock then entitled to vote on
such matters shall be required.
(b) This Article IX may not be amended except by the affirmative vote, cast
in person or by proxy, of the holders of record of eighty percent (80%) of the
outstanding shares of the capital stock of the corporation entitled to vote
thereon.
ARTICLE X
Power of Board to Oppose Certain Transactions
(a) The Board of Directors may, if it deems it advisable, oppose a tender
or other offer for the Corporation's securities, whether the offer is in cash
or in the securities of a corporation or otherwise, or any other proposed
Business Combination (as defined below). When considering whether to oppose an
offer, the Board of Directors may, but is not legally obligated to, consider any
relevant factors; by way of illustration, but not limitation, the Board of
Directors may, but shall not be legally obligated to, consider any and all of
the following:
(1) Whether the offer price is acceptable based on the historical and
present operating results or financial condition of the corporation, or
based on the current value of the corporation in a freely negotiated
transaction.
(2) Whether a more favorable price could be obtained for the
Corporation's securities in the future.
(3) The impact which an acquisition of the Corporation would have on
the employees, creditors, customers and suppliers of the corporation and
any subsidiary and on the communities which they serve.
(4) The reputation and business practices of the offeror and its
management and affiliates as they would affect the employees, creditors,
customers and suppliers of the Corporation and its subsidiaries and the
future value of the Corporation's stock.
(5) The value of the securities, if any, which the offeror is offering
in exchange for the Corporation's securities, based on an analysis of the
worth of the Corporation as compared to the corporation or other entity
whose securities are being offered.
(6) Any antitrust or other legal and regulatory issues that are raised
by the offer.
-5-
<PAGE>
(7) Any other relevant factors, including the longterm as well as the
short-term interests of the Corporation and its shareholders, whether or
not such other factors are monetary or non-monetary in nature, or are
shareholder or non-shareholder considerations.
(b) If the Board of Directors determines that an offer should be rejected,
it may take any lawful action to accomplish its purpose including, but not
limited to, any or all of the following: advising shareholders not to accept the
offer; litigation against the offeror; filing complaints with all governmental
and regulatory authorities; acquiring the Corporation's securities; selling or
otherwise issuing authorized but unissued securities or treasury stock or
granting options with respect thereto; establishing employee stock ownership
plans; and obtaining a more favorable offer from another individual or entity.
(c) "Business Combination" as used herein shall mean any of the following
proposed transactions, when entered into by the Corporation or a subsidiary of
the Corporation with, or upon a proposal by or on behalf of, a related entity or
person:
(i) the merger or consolidation of the Corporation or any subsidiary
of the corporation;
(ii) the sale, exchange, transfer or other disposition (in one or a
series of transactions) of substantially all of the assets of the
Corporation or any subsidiary of the Corporation; or
(iii) any offer for the exchange of securities of another entity for
the securities of the Corporation.
(d) Nothing contained herein shall be deemed to limit or restrict the
powers of the Board of Directors, or to enlarge the duties of the Board of
Directors, as provided in Section 14A:6-1(2) of the New Jersey Business
Corporation Act or otherwise in New Jersey law, or to create director liability
for taking any action authorized hereunder.
ARTICLE XI
Name and Address of Incorporator
The name and address of the incorporator is:
Robert A. Schwartz, Esq.
McCarter & English
Four Gateway Center
100 Mulberry Street
P.O. Box 652
Newark, New Jersey 07101-0652
-6-
<PAGE>
IN WITNESS WHEREOF, I, the incorporator of the above named Corporation,
being over eighteen years of age, have signed this Certificate of Incorporation
on the 19th day of January, 1995.
/s/ROBERT A. SCHWARTZ
---------------------
ROBERT A. SCHWARTZ
-7-
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
STEWARDSHIP FINANCIAL CORPORATION
TO: The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-2(4) and Section
14A:9-4(3), Corporations, General, of the New Jersey Statutes, the undersigned
corporation executes the following Certificate of Amendment to its Certificate
of Incorporation:
1. The name of the corporation is STEWARDSHIP FINANCIAL CORPORATION.
2. The corporation has not yet issued any shares of its voting stock.
3. The following amendments to the Certificate of Incorporation were
approved by the directors on January 16, 1996:
RESOLVED, that Article III of the Certificate of Incorporation of
Stewardship Financial Corporation be amended so that subparagraphs (b) and (c)
thereof are removed in their entirety. As amended, Article III shall read in its
entirety as follows:
ARTICLE III
Initial Board of Directors and Number of Directors
The number of directors shall be governed by the Bylaws of the
Corporation. The number of directors constituting the initial Board of Directors
shall be twelve (12). The names and addresses of the initial Board of Directors
are as follows:
William M. Almroth 630 Godwin Avenue
Midland Park, NJ 07432
<PAGE>
Herman dewaal Malefyt 630 Godwin Avenue
Midland Park, NJ 07432
Harold Dyer 630 Godwin Avenue
Midland Park, NJ 07432
Edward Fylstra 630 Godwin Avenue
Midland Park, NJ 07432
William C. Hanse, Esq. 630 Godwin Avenue
Midland Park, NJ 07432
Margo Lane 630 Godwin Avenue
Midland Park, NJ 07432
Arie Leegwater 630 Godwin Avenue
Midland Park, NJ 07432
John L. Steen 630 Godwin Avenue
Midland Park, NJ 07432
Robert J. Turner 630 Godwin Avenue
Midland Park, NJ 07432
William J. Vander Eems 630 Godwin Avenue
Midland Park, NJ 07432
Paul Van Ostenbridge 630 Godwin Avenue
Midland Park, NJ 07432
Clarence Wiegers 630 Godwin Avenue
Midland Park, NJ 07432
FURTHER RESOLVED, Article IX of the Certificate of Incorporation of
Stewardship Financial Corporation is deleted in its entirety.
-2-
<PAGE>
IN WITNESS WHEREOF, said corporation has made this certificate under
the hands of its president and secretary this day of January, 1996
ATTEST: STEWARDSHIP FINANCIAL CORPORATION
/s/EDWARD FLYSTRA By:/s/PAUL VAN OSTENBRIDGE
- ----------------------------- -------------------------------
Edward Flystra, Secretary Paul Van Ostenbridge, President
-3-
BY-LAWS
OF
STEWARDSHIP FINANCIAL CORPORATION
ARTICLE I
Law, Certificate of Incorporation and By-Laws
Section 1. These By-laws are subject to the Certificate of
Incorporation of the Corporation. In these Bylaws, reference to law, Certificate
of Incorporation and By-laws mean the law of the State of New Jersey and any
other applicable laws governing the operations of the Corporation, the
provisions of the Certificate of Incorporation as in effect from time to time
and the provisions of these By-laws in effect from time to time.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings, Inc. Except as otherwise provided in
these By-laws, all meetings of the stockholders shall be held at such dates,
time and places, within or without the State of New Jersey, as shall be
determined by the Board or Chief Executive Officer and as shall be stated in the
notice of the meeting or in waivers of notice thereof. If the place of any
meeting is not so fixed, it shall be held at the registered office of the
Corporation in the State of New Jersey.
Section 2. Annual Meeting. The annual meeting of stockholders for the
election of directors and the transaction of such other business as properly may
be brought before the meeting
<PAGE>
shall be held on such date after the close of the Corporation's fiscal year as
the Board may from time to time determine.
Section 3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, may be called by the Board or the Chief Executive
Officer and shall be called by the Chief Executive Officer or the Secretary upon
the written request of a majority of the holders of the outstanding shares of
the corporation entitled to vote. The request shall state the date, time, place
and purpose or purposes of the proposed meetings.
Section 4. Notice of Meetings. Except as otherwise required or
permitted by law, whenever the stockholders are required or permitted to take
any action at a meeting, written notice thereof shall be given, stating the
place, date and time of the meeting and, unless it is the annual meeting, by or
at whose direction it is being issued. The notice also shall designate the place
where the list of stockholders provided for in Section 8 of this Article II is
available for examination, unless such list is kept at the place where the
meeting is to be held. Notice of a special meeting also shall state the purpose
or purposes for which the meeting is called. A copy of the notice of any meeting
shall be delivered personally or shall be mailed, not less than ten (10) nor
more than sixty (60) days before the date of the meeting, to each stockholder of
record entitled to vote at the meeting. If mailed, the notice shall be given
when deposited in the United States mail, postage prepaid, and shall be directed
to each stockholder at his address as it
-2-
<PAGE>
appears on the record of stockholders, or to such other address which such
stockholder may have furnished by written request to the Secretary of the
Corporation. Notice of any meeting of stockholders shall be deemed waived by any
stockholder who attends the meeting, except when the stockholder attends the
meeting for the express purpose of objecting at the beginning thereof to the
transaction of any business because the meeting is not lawfully called or
convened. Notice need not be given to any stockholder who submits, either before
or after the meeting, a signed waiver of notice. Unless the Board, after the
adjournment of a meeting, shall fix a new record date for the adjourned meeting,
or unless the adjournment is for more than thirty (30) days, notice of an
adjourned meeting need not be given if the place, date and time to which the
meeting shall be adjourned is announced at the meeting at which the adjournment
is taken.
Section 5. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, at all meetings of stockholders
the holders of a majority of the outstanding shares of the Corporation entitled
to vote at the meeting shall be present in person or by proxy in order to
constitute a quorum for the transaction of business.
Section 6. Voting. Except as otherwise provided by the Certificate of
Incorporation, at any meeting of the stockholders every stockholder of record
having the right to vote thereat shall be entitled to one vote for every share
of stock standing in his name as of the record date and entitling him to
-3-
<PAGE>
so vote. A stockholder may vote in person or by proxy. Except as otherwise
provided by law or by the Certificate of Incorporation, any corporate action to
be taken by a vote of the stockholders, other than the election of directors,
shall be authorized by not less than a majority of the votes cast at a meeting
by the stockholders present in person or by proxy and entitled to vote thereon.
Directors shall be elected as provided in Section 2 of Article III of these
By-laws. Written ballots shall not be required for voting on any matter unless
ordered by the Chairman of the meeting.
Section 7. Proxies. Every proxy shall be executed in writing by the
stockholder or by his attorney-in-fact.
Section 8. List of Stockholders. At least ten (10) days before every
meeting of stockholders, a list of stockholders (including their addresses)
entitled to vote at the meeting and their record holdings as of the record date
shall be open for examination by any stockholder, for any purpose germane to the
meeting, during ordinary business hours, at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list also shall be kept at and throughout the meeting.
Section 9. Conduct of Meetings. At each meeting of the stockholders,
the Chairman of the Board or, in his absence, the President, shall act as
Chairman of the meeting. The Secretary or, in his absence, any person appointed
by the
-4-
<PAGE>
Chairman of the meeting shall act as Secretary of the meeting and shall keep the
minutes thereof. The order of business at all meetings of the stockholders shall
be as determined by the Chairman of the meeting.
Section 10. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action which may be
taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed, in person or by
proxy, by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take the action at a
meeting at which all shares entitled to vote thereon were present and voted in
person or by proxy and shall be delivered to the Corporation in accordance with
the laws of the State of New Jersey. Every written consent shall bear the date
of signature of each stockholder signing the consent. In no event shall any
corporate action referred to in any consent be effective unless written consents
signed by a sufficient number of stockholders to take action are duly delivered
to the Corporation within sixty (60) days of the earliest dated consent
delivered in accordance with the laws of the State of New Jersey. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not
-5-
<PAGE>
consented in writing, but who were entitled to vote on the matter.
ARTICLE III
Board of Directors
Section 1. Number of Board Members. The Board shall consist of not
less than one nor more than 25 directors. The number of directors may be reduced
or increased from time to time by action of a majority of the entire Board, but
no decrease may shorten the term of an incumbent director. When used in these
By-laws, the phrase "entire Board" means the total number of directors which the
Corporation would have if there were no vacancies.
Section 2. Election and Term. Except as otherwise provided by law or
by the By-laws, directors shall be elected at each annual meeting of the
stockholders. The persons receiving a plurality of the votes cast shall be so
elected. Subject to his earlier death or resignation each director shall hold
office until his successor shall have been duly elected and shall have
qualified.
Section 3. Resignations. Any director may resign at any time by giving
written notice of his resignation to the Corporation. A resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified herein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
-6-
<PAGE>
Section 4. Vacancies. Any vacancy in the Board arising from an
increase in the number of directors or otherwise may be filled by the vote of a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director. Subject to his earlier death or resignation, each
director so elected shall hold office until his successor shall have been duly
elected and shall have qualified. Directors appointed to fill vacancies on the
Board shall be placed in a class in a manner designed to keep equality between
the classes, to the extent possible.
Section 5. Place of Meetings. Except as otherwise provided in these
By-laws, all meetings of the Board shall be held at such places, within or
without the State of New Jersey, as the Board determines from time to time.
Section 6. Annual Meeting. The annual meeting of the Board shall be
held either (a) without notice immediately after the annual meeting of
stockholders and in the same place, or (b) as soon as practicable after the
annual meeting of stockholders on such date and at such time and place as the
Board determines.
Section 7. Regular Meetings. Regular meetings of the Board shall be
held on such dates and at such places and times as the Board determines. Notice
of regular meetings need not be given, except as otherwise required by law.
Section 8. Special Meetings. Special meetings of the Board may be
called by or at the direction of the Chief Executive Officer, and shall be
called by the Chief Executive Officer or
-7-
<PAGE>
the Secretary upon the written request of a majority of the directors. The
request shall state date, time, place and purpose or purposes of the proposed
meeting.
Section 9. Notice of Meetings. Notice of each special meeting of the
Board (and of each annual meeting held pursuant to subdivision (b) of Section 6
of this Article III) shall be given, not later than 24 hours before the meeting
is scheduled to commence, by the Chief Executive Officer or the Secretary and
shall state the place, date and time of the meeting. Notice of each meeting may
be delivered to a director by hand or given to a director orally (whether by
telephone or in person) or mailed or telegraphed to a director at his residence
or usual place of business, provided, however, that if notice of less than 72
hours is given it may not be mailed. If mailed, the notice shall be deemed to
have been given when deposited in the United States mail, postage prepaid, and
if telegraphed, the notice shall be deemed to have been given when the contents
of the telegram immediately be dispatched. Notice of any meeting need not be
given to any director who shall submit, either before or after the meeting, a
signed waiver of notice or who shall attend the meeting, except if such director
shall attend for the express purpose of objecting at the beginning thereof to
the transaction of any business because the meeting is not lawfully called or
convened. Notice of any adjourned meeting including the place, date and time of
the new meeting, shall be given to all directors not present at the time of the
adjournment, as well as to the
-8-
<PAGE>
other directors unless the place, date and time of the new meeting is announced
at the adjourned meeting.
Section 10. Quorum. Except as otherwise provided by law or in these
By-laws, at all meetings of the Board a majority of the entire Board shall
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board. A majority of the directors present, whether or not a quorum
is present, may adjourn any meeting to another place, date and time.
Section 11. Conduct of Meetings. At each meeting of the Board, the
Chief Executive Officer or, in his absence, a director chosen by a majority of
the directors present, shall act as Chairman of the meeting. The Secretary of,
in his absence, any person appointed by the Chairman of the meeting, shall act
as Secretary of the meeting and keep the minutes thereof. The order of business
at all meetings of the Board shall be as determined by the Chairman of the
meeting.
Section 12. Committee of the Board. The Board, by resolution adopted
by a majority of the entire Board, may designate an executive committee and
other committees, each consisting of one (1) or more directors. Each committee
(including the members thereof) shall serve at the pleasure of the Board and
shall keep minutes of its meetings and report the same to the Board. The Board
may designate one or more directors as alternate members of any committee.
Alternate members may
-9-
<PAGE>
replace any absent or disqualified member or members at any meeting of a
committee. In addition, in the absence or disqualification of a member of a
committee, if no alternate member has been designated by the Board, the members
present at any meeting and not disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint another member of the Board to act
at the meeting in the place of the absent or disqualified member.
Section 13. Operation of Committees. A majority of all the members of
a committee shall constitute a quorum for the transaction of business, and the
vote of a majority of all the members of a committee present at a meeting at
which a quorum is present shall be the act of the committee. Each committee
shall adopt whatever other rules of procedure it determines for the conduct of
its activities.
Section 14. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board. The compensation of directors may be on such
basis as is determined by the Board. Any director may waive compensation for any
meeting. Any director may waive compensation for any meeting. Any director
receiving compensation under these provisions shall not be barred from serving
the Corporation in any other capacity and receiving compensation and
reimbursement from reasonable expenses for such other services.
-10-
<PAGE>
Section 15. Written Consent to Action in Lieu of a Meeting. Any action
required or permitted to be taken at any meeting of the Board or of any
committee may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 16. Meetings Held Other Than in Person. Members of the Board
or any committee may participate in a meeting of the Board or committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at the
meeting.
Section 17. Interested Directors and Officers.
(a) No contract or transaction between the Corporation and one or more
of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of the Corporation's directors or officers are directors or officers, or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the board or committee thereof which authorizes the contract or
transaction, or solely because the director's or officer's votes are counted for
such purpose, if any one of the following is true:
-11-
<PAGE>
(1) The material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
are known to the board of directors or the committee, and the board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
are known to the shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the shareholders;
or
(3) The contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified, by the board of directors, a
committee thereof, or the shareholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
ARTICLE IV
Officers
Section 1. Executive Officers, etc. The executive officers of the
Corporation shall be a President, a Secretary and a Treasurer. The Board also
may elect or appoint a Chairman of
-12-
<PAGE>
the Board, one or more Vice Presidents (any of whom may be designated as
Executive Vice Presidents or otherwise), and any other officers it deems
necessary or desirable for the conduct of the business of the Corporation, each
of whom shall have such powers and duties as the Board determines.
Section 2. Duties.
(a) The Chairman of the Board of Directors. The Chairman of the Board
shall preside at all meetings of the stockholders and the Board, and shall be an
ex officio a member of all committees established.
(b) The President. The President shall have general management of the
business and affairs of the Corporation, subject to the control of the Board,
and shall have such other powers and duties as the Board assigns to him.
(c) The Vice President. The Vice President or, if there shall be more
than one, the Vice Presidents, if any, in the order of their seniority or in any
other order determined by the Board, shall perform, in the absence or disability
of the President, the duties and exercise the powers of the President and shall
have such other powers and duties as the Board or the President assigns to him
or to them.
(d) The Secretary. Except as otherwise provided in these By-laws or as
directed by the Board, the Secretary shall attend all meetings of the
stockholders and the Board; shall record the minutes of all proceedings in books
to be kept for that purpose; shall give notice of all meetings of the
-13-
<PAGE>
stockholders and special meetings of the Board; and shall keep in safe custody
the seal of the Corporation and, when authorized by the Board, shall affix the
same to any corporate instrument. The Secretary shall have such other powers and
duties as the Board or the President assigns to him.
(e) The Treasurer. Subject to the control of the Board, the Treasurer
shall have the care and custody of the corporate funds and the books relating
thereto; shall perform all other duties incident to the office of Treasurer; and
shall have such other powers and duties as the Board or the President assigns to
him.
(f) Election; Removal. Subject to his earlier death, resignation or
removal as hereinafter provided, each officer shall hold his office until his
successor shall have been duly elected and shall have qualified. Any officer may
be removed at any time, with or without cause, by the Board.
Section 3. Resignations. Any officer may resign at any time by giving
written notice of his resignation to the Corporation. A resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified herein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
Section 4. Vacancies. If an office becomes vacant for any reason, the
Board or the stockholders may fill the vacancy,
-14-
<PAGE>
and each officer so elected shall serve for the remainder of his predecessor's
term.
ARTICLE V
Provisions Relating to Stock
Certificates and Stockholders
Section 1. Certificates. Certificates for the Corporation's capital
stock shall be in such form as required by law and as approved by the Board.
Each certificate shall be signed in the name of the Corporation by the Chairman,
if any, or the President or any Vice President and by the Secretary, the
Treasurer or any Assistant Secretary or any Assistant Treasurer and shall bear
the seal of the Corporation or a facsimile thereof. If any certificate is
countersigned by a transfer agent or registered by a registrar, other than the
Corporation or its employees, the signature of any officer of the Corporation
may be a facsimile signature. In case any officer, transfer agent or registrar
who shall have signed or whose facsimile signature was placed on any certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued nevertheless by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 2. Lost Certificates, etc. The Corporation may issue a new
certificate for shares in place of any certificate theretofore issued by it,
alleged to have been lost, mutilated, stolen or destroyed and the Board may
require the
-15-
<PAGE>
owner of the lost, mutilated, stolen or destroyed certificate, or his legal
representatives, to make an affidavit of that fact and to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation on account of the alleged loss, mutilation, theft
or destruction of the certificate or the issuance of a new certificate.
Section 3. Transfers of Shares. Transfers of shares shall be
registered on the books of the Corporation maintained for that purpose after due
presentation of the stock certificates therefor appropriately indorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
Section 4. Record Date.
The Board may fix a record date for the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof. The record date fixed for such purpose shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board and shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting. If the Board does not fix a record date for
such purpose, the record date for such purpose shall be at the close of business
on the day next preceding the day on which notice is given and, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
-16-
<PAGE>
The Board may fix a record date for the purpose of determining
stockholders entitled to consent to action in writing in lieu of a meeting. The
record date fixed for such purpose shall not precede the date upon which the
resolution fixing the record date is adopted by the Board and shall not be more
than ten (10) days after the adoption of such resolution fixing the record date.
If the Board does not fix a record date, the record date for the purpose of
determining stockholders entitled to consent to action in writing in lieu of a
meeting when no prior action by the Board is required by the laws of the State
of New Jersey or these By-laws, shall be the first date on which a signed
written consent with respect to the action taken or proposed to be taken is
delivered to the Corporation in accordance with the laws of the State of New
Jersey. If the Board does not fix a record date and prior action by the Board is
required by the laws of the State of New Jersey or these By-laws, the date for
determining stockholders entitled to consent to action in writing in lieu of a
meeting shall be at the close of business on the day on which the Board adopts
the resolution taking such prior action.
The Board may fix a record date for the purpose of determining the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or for the purpose of any other action. The record
date fixed for such purpose shall not precede the date upon which the resolution
fixing the record date is adopted and shall be no more than sixty
-17-
<PAGE>
(60) days prior to such action. If the Board does not fix a record date, the
record date for determining the stockholders for any such purpose shall at the
close of business on the date on which the Board adopts the resolution relating
thereto.
ARTICLE VI
General Provisions
Section 1. Dividends, etc. To the extent permitted by law, the Board
shall have full power and discretion, subject to the provisions of the
Certificate of Incorporation and the terms of any other corporate document or
instrument binding upon the Corporation, to determine the amount of any
dividends or distributions which shall be declared and paid or made.
Section 2. Seal. The Corporation's seal shall be in such form as is
required by law and as shall be approved by the Board.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board.
Section 4. Voting Shares in Other Corporations. Unless otherwise
directed by the Board, shares in other corporations which are held by the
Corporation shall be represented and voted only by the Chief Executive Officer
or by a proxy or proxies appointed by him.
Section 5. Mission Statement. The mission of the Corporation is to
operate a viable business through which to bear witness to Jesus Christ. We
believe that Jesus Christ is the Lord, and that God raised him from the dead and
that he will
-18-
<PAGE>
enable us in unity and oneness of spirit to carry out the mission of the
Corporation.
ARTICLE VII
Amendments
These By-laws may be made, altered or repealed by the Board, subject
to the right of the stockholders to alter or repeal any by-law made by the
Board.
-19-
STEWARDSHIP FINANCIAL CORPORATION
1995 STOCK OPTION PLAN
Section 1. Purpose
The purpose of the Stewardship Financial Corporation 1995 Stock Option
Plan (the "Plan") is to enable Stewardship Financial Corporation (the
"Corporation") to attract, retain and motivate its key executive employees and
to enable key executive employees to participate in the long-term growth of the
Corporation by providing for or increasing the proprietary interests of such
persons in the Corporation thereby assisting the Corporation to achieve its
long-range goals.
Section 2. Definitions
Capitalized terms not specifically defined elsewhere herein shall have
the following meaning:
"Act" means the Securities Exchange Act of 1934, as amended from time
to time, and regulations promulgated thereunder.
"Board" means the Board of Directors of the Corporation.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated thereunder.
"Committee" means the Stock Option Committee of the Board (or any
successor committee of the Board responsible for administering the Plan), which
shall consist of two or more directors, each of whom shall be a "disinterested
person" within the meaning of Rule 16b-3(c) under the Act, to administer the
Plan and perform the functions set forth herein.
<PAGE>
"Common Stock" or "Stock" means the common stock, no par value, of the
Corporation.
"Corporation" means Stewardship Financial Corporation and any present
or future subsidiary corporations of Stewardship Financial Corporation (as
defined in Section 424 of the Code) or any successor to such corporations.
"Disability" means total disability as determined in accordance with
the terms of the Corporation's long-term disability plan (or, if the Corporation
has no such plan, its retirement plan) as in effect from time to time; provided,
however, with respect to a Participant who has been granted an Incentive Stock
Option such term shall have the meaning set forth in Section 422(c)(6) of the
Code.
"Fair Market Value" means, with respect to shares of Common Stock, the
fair market value as determined by the Committee in good faith and in a manner
established by the Committee from time to time; provided, however, that if the
shares of Common Stock are last sale reported over the counter securities, then
the "fair market value" of such shares on any date shall be the average of the
high and low prices reported in the consolidated reporting system, or the
average of the bid and asked prices (if the shares of Common Stock are over the
counter securities), on the business day immediately preceding the date in
question, as reported on the NASDAQ system.
"Incentive Stock Option" means an option to purchase shares of Common
Stock a Participant under the Plan which is intended to meet the requirements of
Section granted to 422 of the Code.
2
<PAGE>
"Non-Qualified Stock Option" means an option to purchase shares of
Common Stock granted to a Participant under the Plan which is not intended to be
an Incentive Stock Option.
"Option" means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" means a person selected by the Committee to receive an
Option under the Plan.
"Plan" means the Stewardship Financial Corporation 1995 Stock Option
Plan.
"Retirement" means termination of employment in accordance with the
retirement provisions of any retirement or pension plan maintained by the
Corporation or any of its subsidiaries.
Section 3. Administration
(a) The Plan shall be administered by the Committee. Among other
things, the Committee shall have authority, subject to the terms of the Plan to
grant Options, to determine the individuals to whom and the time or times at
which Options may be granted, and to determine the terms and conditions of any
Option granted hereunder, and the exercise price thereof.
(b) Subject to the other provisions of the Plan, the Committee shall
have authority to adopt, amend, alter and repeal such administrative rules,
guidelines and practices governing the operation of the Plan as it shall from
time to time consider advisable, to interpret the provisions of the Plan and any
Option and to decide all disputes arising in connection with the Plan. The
Committee may correct any defect or supply any omission or reconcile any
3
<PAGE>
inconsistency in the Plan or in any option agreement in the manner and to the
extent it shall deem appropriate to carry the Plan into effect, in its sole and
absolute discretion. The Committee's decision and interpretations shall be final
and binding. Any action of the Committee with respect to the administration of
the Plan shall be taken pursuant to a majority vote or by the unanimous written
consent of its members.
(c) The Committee may employ such legal counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may rely
upon any opinion received from any such counsel or consultant and any
computation received from any such consultant or agent.
Section 4. Eligibility and Participation
Executive officers and other key employees of the Corporation
(including executive officers and key employees who are directors) who are from
time to time responsible for the management, growth and protection of the
business of the Corporation, shall be eligible to participate in the Plan. Only
employees with the title of Vice President or above shall be eligible to be
Participants. The Participants under the Plan shall be selected from time to
time by the Committee, in its sole discretion, from among those eligible, and
the Committee shall determine in its sole discretion the numbers of shares to be
covered by the Option or Options granted to each Participant. Options intended
to qualify as Incentive Stock Options shall be granted only to persons who are
eligible to receive such options under Section 422 of the Code.
4
<PAGE>
Section 5. Shares of Stock Available for Options
(a) The maximum number of shares of Common Stock which may be issued
and purchased pursuant to Options granted under the Plan is 22,500, subject to
the adjustments as provided in Section 5 and Section 7, to the extent
applicable. If an Option granted under this Plan expires or terminates before
exercise or is forfeited for any reason, without a payment in the form of Common
Stock being granted to the Participant, the shares of Common Stock subject to
such Option, to the extent of such expiration, termination or forfeiture, shall
again be available for subsequent Option grant under the Plan. Shares of Common
Stock issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) In the event that the Committee determines, in its sole
discretion, that any stock dividend, stock split, reverse stock split or
combination, extraordinary cash dividend, creation of a class of equity
securities, recapitalization, reclassification, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below Fair
Market Value, or other similar transaction affects the Common Stock such that an
adjustment is required in order to preserve the benefits or potential benefits
intended to be granted or made available under the Plan to Participants, the
Committee shall have the right to proportionately and appropriately adjust
equitably any or all of (i) the maximum number and kind of shares of Common
Stock in respect of which Options may be granted under the Plan to Participants,
(ii) the number and kind of shares of Common Stock subject to outstanding
Options held by Participants, and (iii) the exercise price with respect to any
Options held by Participants, without changing the aggregate purchase price as
to which such Options remain exercisable, and if considered appropriate, the
5
<PAGE>
Committee may make provision for a cash payment with respect to any outstanding
Options held by a Participant, provided that no adjustment shall be made
pursuant to this Section if such adjustment would cause the Plan to fail to
comply with Section 422 of the Code or with Rule 16b-3 of the Act. No fractional
Shares shall be issued on account of any such adjustment.
(c) Any adjustments under this Section will be made by the Committee,
whose determination as to what adjustments, if any, will be made and the extent
thereof will be final, binding and conclusive.
Section 6. Options
(a) Subject to Federal and state statutes then applicable and the
provisions of the Plan, the Committee may grant Incentive Stock Options and
Non-Qualified Stock Options and determine the number of shares to be covered by
each Option, the Option price therefor, the term of the Option, and the other
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code. Anything in the Plan to the contrary notwithstanding,
no term of the Plan relating to Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted to the
Committee under the Plan be so exercised, so as to disqualify the Plan, or
without the consent of the Participant, any Incentive Stock Option granted under
the Plan pursuant to Section 422 of the Code.
(b) The Option price per share of Common Stock purchasable under an
Option shall not be less than 100% of the Fair Market Value of the Common Stock
on the date of grant. If the Participant owns or is deemed to own (by reason of
the attribution rules applicable under
6
<PAGE>
Section 424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Corporation or any subsidiary or parent corporation of
the Corporation and an Incentive Stock Option is granted to such Participant,
the Option price shall be not less than 110% of Fair Market Value of the Common
Stock on the date of grant.
(c) No Option shall be exercisable more than ten (10) years after the
date the Option is granted. If a Participant owns or is deemed to own (by reason
of the attribution rules of Section 424(d) of the Code) more than 10% of the
total combined voting power of all classes of stock of the Corporation or any
subsidiary or parent corporation of the Corporation and an Incentive Stock
Option is granted to such Participant, such Option shall not be exercisable
after the expiration of five (5) years from the date of grant.
(d) No shares of Common Stock shall be delivered pursuant to any
exercise of an Option until payment in full of the Option price therefor is
received by the Corporation. Such payment may be made in whole or in part in
cash or by certified or bank check or, to the extent permitted by the Committee
at or after the grant of the Option, by delivery of shares of Common Stock owned
by the Participant valued at their Fair Market Value on the date of delivery, or
such other lawful consideration as the Committee may determine.
(e) Unless otherwise determined by the Committee at the time of grant
of an Option, in the event a Participant's employment with the Corporation
terminates by reason of death or Disability, any Option granted to such
Participant which is then outstanding may be exercised at any time prior to the
expiration of the term of such Option or within twelve (12) months following the
Participant's termination of employment by reason of death or Disability,
whichever period is shorter.
7
<PAGE>
(f) Unless otherwise determined by the Committee at the time of grant
of an Option, in the event the Participant's employment with the Corporation
terminates for any reason other than death or Disability, any Option granted to
such Participant which is then outstanding may be exercised at any time prior to
the expiration of the term of such Option, or in the case of the Participant's
termination of employment for reasons other than death, Disability or
Retirement, within one (1) month of such termination, or in the case of the
Participant's Retirement, within three (3) months of such Retirement, whichever
period is shorter.
(g) No Option shall be transferable by the Participant otherwise than
by will or by the laws of descent and distribution, and all Options shall be
exercisable during the Participant's lifetime only by the Participant or the
Participant's appointed guardian or legal representative. A Participant shall
notify the Committee in writing in the event that he disposes of Common Stock
acquired upon exercise of an Incentive Stock Option within the two-year period
following the date the Incentive Stock Option was granted or within the one-year
period following the date he received Common Stock upon the exercise of an
Incentive Stock Option and shall comply with any other requirements imposed by
the Corporation in order to enable the Corporation to secure the related income
tax deduction to which it will be entitled in such event under the Code.
(h) The Committee may in its sole discretion, (i) accelerate the date
or dates on which all or any particular Option or Options granted under the Plan
may be exercised or (ii) extend the dates during which all or any particular
Option or Options granted under the Plan may be exercised; provided, however,
that no such extension shall be permitted if it would cause the Plan to fail to
comply with Section 422 of the Code or with Rule 16b-3 of the Act.
8
<PAGE>
(i) The aggregate Fair Market Value of shares of Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by a
Participant who is an employee of the Corporation during one calendar year
(under all plans of the Corporation and its parent and subsidiary corporations)
shall not exceed the sum of One Hundred Thousand Dollars ($100,000.00). Such
aggregate Fair Market Value shall be determined as of the date such Option is
granted.
Section 7. General Provisions Applicable to Options
(a) Notwithstanding any other provision of the Plan, in order to
qualify for the exemption provided by Rule 16b-3 of the Act, any Common Stock
acquired by a Participant subject to Section 16 of the Act (a "Section 16
Participant") upon exercise of an Option may not be sold for six (6) months
after the date of grant of the Option. The Committee shall have no authority to
take any action if the authority to take such action, or the taking of such
action, would disqualify the Plan from the exemption provided by Rule 16b-3 of
the Act.
(b) Each Option under the Plan shall be evidenced by a writing
delivered to the Participant specifying the terms and conditions thereof and
containing such other terms and conditions not inconsistent with the provisions
of the Plan as the Committee considers necessary or advisable to achieve the
purposes of the Plan or comply with applicable tax and regulatory laws and
accounting principles.
(c) Each Option may be granted alone, in addition to or in relation to
any other Option. The terms of each Option need not be identical, and the
Committee need not treat Participants uniformly. Except as otherwise provided by
the Plan or a particular Option, any
9
<PAGE>
determination with respect to an Option may be made by the Committee at the time
of grant or at any time thereafter.
(d) In the event of a consolidation, reorganization, merger or sale of
all or substantially all of the assets of the Corporation in each case in which
outstanding shares of Common Stock are exchanged for securities, cash or other
property of any other corporation or business entity or in the event of a
liquidation of the Corporation, the committee of the board of directors of any
corporation assuming the obligations of the Corporation, may, in its discretion,
take any one or more of the following actions, as to outstanding options: (i)
provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such options substituted for Incentive Stock Options
shall meet the requirements of Section 424(a) of the Code, (ii) upon written
notice to the Participants, provide that all unexercised options will terminate
immediately prior to the consummation of such transaction unless exercised (to
the extent then exercisable) by the Participant within a specified period
following the date of such notice, (iii) in the event of a merger under the
terms of which holders of the Common Stock of the Corporation will receive upon
consummation thereof a cash payment for each share surrendered in the merger
(the "Merger Price"), make or provide for a cash payment to the Participants
equal to the difference between (A) the Merger Price times the number of shares
of Common Stock subject to such outstanding Options (to the extent then
exercisable at prices not in excess of the Merger Price) and (B) the aggregate
exercise price of all such outstanding Options in exchange for the termination
of such Options, and (iv) provide that all or any outstanding Options shall
become exercisable in full immediately prior to such event.
10
<PAGE>
(e) The Committee may grant Options under the Plan in substitution for
options held by employees of another corporation who become employees of the
Corporation, or a subsidiary of the Corporation, as the result of a merger or
consolidation of the employing corporation with the Corporation or a subsidiary
of the Corporation, or as a result of the acquisition by the Corporation, or one
of its subsidiaries, of property or stock of the employing corporation. The
Corporation may direct that substitute options be granted on such terms and
conditions as the Committee considers appropriate in the circumstances.
(f) The Participant shall pay to the Corporation, or make provision
satisfactory to the Committee for payment of, any taxes required by law to be
withheld in respect of Options under the Plan no later than the date of the
event creating the tax liability. In the Committee's sole discretion, a
Participant (other than a Section 16 Participant, who shall be subject to the
following sentence) may elect to have such tax obligations paid, in whole or in
part, in shares of Common Stock, including shares retained from the Option
creating the tax obligation. With respect to Section 16 Participants, upon the
issuance of shares of Common Stock in respect of an Option, such number of
shares issuable shall be reduced by the number of shares necessary to satisfy
such Section 16 Participant's federal, and where applicable, state withholding
tax obligations. For withholding tax purposes, the value of the shares of Common
Stock shall be the Fair Market Value on the date the withholding obligation is
incurred. The Corporation may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to the Participant.
(g) For purposes of the Plan, the following events shall not be deemed
a termination of employment of a Participant:
11
<PAGE>
(i) a transfer to the employment of the Corporation from a
subsidiary or from the Corporation to a subsidiary, or from one
subsidiary to another, or
(ii) an approved leave of absence for military service or
sickness, or for any other purpose approved by the Corporation, if the
Participant's right to re-employment is guaranteed either by a statute
or by contract or under the policy pursuant to which the leave of
absence was granted or if the Committee otherwise so provides in
writing.
For purposes of the Plan, employees of a subsidiary of the Corporation
shall be deemed to have terminated their employment on the date on which such
subsidiary ceases to be a subsidiary of the Corporation.
(h) The Committee may at any time, and from time to time, amend,
modify or terminate the Plan or any outstanding Option held by a Participant,
including substituting therefor another Option of the same or a different type,
changing the date of exercise or realization, and converting an Incentive Stock
Option to a Non-Qualified Stock Option, provided that the Participant's consent
to each action shall be required unless the Committee determines that the
action, taking into account any related action, would not materially and
adversely affect the Participant.
Section 8. Miscellaneous
(a) No person shall have any claim or right to be granted an Option,
and the grant of an Option shall not be construed as giving a Participant the
right to continued employment. The Corporation expressly reserves the right at
any time to dismiss a Participant
12
<PAGE>
free from any liability or claim under the Plan, except as expressly provided in
the applicable Option.
(b) Nothing contained in the Plan shall prevent the Corporation from
adopting other or additional compensation arrangements for its employees.
(c) Subject to the provisions of the applicable Option, no Participant
shall have any rights as a shareholder (including, without limitation, any
rights to receive dividends, or non cash distributions with respect to such
shares) with respect to any shares of Common Stock to be distributed under the
Plan until he or she becomes the holder thereof.
(d) Notwithstanding anything to the contrary expressed in this Plan,
any provisions hereof that vary from or conflict with any applicable Federal or
State securities laws (including any regulations promulgated thereunder) shall
be deemed to be modified to conform to and comply with such laws.
(e) No member of the Board of Directors or the Committee shall be
liable for any action or determination taken or granted in good faith with
respect to this Plan nor shall any member of the Board of Directors or the
Committee be liable for any agreement issued pursuant to this Plan or any grants
under it. Each member of the Board of Directors and the Committee shall be
indemnified by the Corporation against any losses incurred in such
administration of the Plan, unless his action constitutes serious and willful
misconduct.
(f) The Plan shall be effective upon its approval by the shareholders
of the Corporation. Prior to such approval, Options may be granted under the
Plan expressly subject to such approval.
13
<PAGE>
(g) The Board may amend, suspend or terminate the Plan or any portion
thereof at any time, provided that no amendment shall be granted without
shareholder approval if such approval is necessary to comply with any applicable
tax laws or regulatory requirement, including any requirements for exemptive
relief under Section 16(b) of the Act.
(h) Options may not be granted under the Plan after the tenth
anniversary of its effective date, but then outstanding Options may extend
beyond such date.
(i) To the extent that State laws shall not have been preempted by any
laws of the United States, the Plan shall be construed, regulated, interpreted
and administered according to the other laws of the State of New Jersey.
14
STEWARDSHIP FINANCIAL CORPORATION
1995 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
SECTION 1. Purpose
The Stewardship Financial Corporation 1995 Stock Option Plan For
Non-Employee Directors (the "Plan") is hereby established to foster and promote
the long-term success of Stewardship Financial Corporation (the "Corporation")
and its shareholders by providing directors who are not employees with an equity
interest in the Corporation. The Plan will assist the Corporation in attracting
and retaining the highest quality of experienced persons as directors and in
aligning the interests of non-employee directors of the Corporation more closely
with the interests of the Corporation's shareholders.
SECTION 2. Definitions
Capitalized terms not specifically defined elsewhere herein shall have the
following meanings:
"Act" shall mean the Securities Exchange Act of 1934, as amended from time
to time, and the rules and regulations promulgated thereunder.
"Board" shall mean the Board of Directors of the Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated thereunder.
"Committee" shall mean a committee of the Board, which shall consist of two
(2) or more directors of the Board to administer the Plan and perform the
functions set forth herein.
<PAGE>
"Common Stock" or "Stock" shall mean the common stock, no par value, of the
Corporation.
"Corporation" shall mean Stewardship Financial Corporation and any present
or future subsidiary corporations of Stewardship Financial Corporation. (as
defined in Section 424 of the Code) or any successor to such corporations.
"Disability" shall mean permanent and total disability which if the
Non-Employee Director were an employee of the Corporation would be treated as a
total disability under the term of the Corporation's long-term disability plan
for employees as in effect from time to time.
"Fair Market Value" means, with respect to shares of Common Stock, the fair
market value as determined by the Committee in good faith and in a manner
established by the Committee from time to time; provided, however, if the shares
of Common Stock are last sale reported over the counter securities, then the
"fair market value" of such shares on any date shall be the average of the high
and low prices reported in the consolidated reporting system, or the average of
the bid and asked prices (if the shares of Common Stock are over the counter
securities), on the business day immediately preceding the date in question, as
reported on the NASDAQ system.
"Non-Employee Director" shall mean a member of the Board who is not a
common law employee of the Corporation.
"Plan" shall mean the Stewardship Financial Corporation 1995 Stock Option
Plan for Non-Employee Directors.
2
<PAGE>
"Stock Option" or "Option" shall mean a right to purchase Common Stock of
the Corporation granted to a Non-Employee Director pursuant to the Plan which is
not intended to be an incentive stock option under Section 422 of the Code.
SECTION 3. Administration
(a) The Plan shall be administered by the Committee which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. Any action of the Committee with respect to the administration of the Plan
shall be taken by a majority vote, or by unanimous written consent of its
members.
(b) Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(i) to construe and interpret the Plan and the Stock Options granted
thereunder and to establish, amend and revoke rules, regulations, guidelines and
practices for the administration of the Plan as it shall from time to time
consider advisable, including, but not limited to, correcting any defect or
supplying any omission, or reconciling any inconsistency in the Plan or in any
Stock Option, in the manner and to the extent it shall deem necessary or
advisable to make the Plan fully effective; provided, however, that the
Committee shall have no discretion with respect to designating (x) the recipient
of a Stock Option, (y) the number of shares of Common Stock that are subject to
a Stock Option, or (z) the exercise price for a Stock Option. All decisions and
determinations by the Committee in the exercise of this power shall be final and
binding upon the Corporation and the Non-Employee Directors; and
3
<PAGE>
(ii) to exercise such powers and to perform such acts as are deemed
necessary or advisable to promote the best interests of the Corporation with
respect to the Plan.
(c) The Committee may employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent.
SECTION 4. Eligibility and Participation
Each Non-Employee Director of the Corporation shall participate in the
Plan.
SECTION 5. Common Stock Subject to Plan
(a) The maximum number of shares of Common Stock that may be made subject
to Stock Options granted pursuant to the Plan is 22,500, subject to the
adjustments pursuant to Section 9. The Corporation shall reserve such number of
shares of Common Stock for the purposes of the Plan, out of its authorized but
unissued Common Stock or out of Common Stock held in the Corporation's treasury,
or partly out of each, as shall be determined by the Board. No fractional shares
of Common Stock shall be issued with respect to Stock Options granted under the
Plan.
(b) If any Stock Option in respect of shares of Common Stock expires or is
canceled without having been fully exercised, the number of shares subject to
such Stock Option but as to which such Stock Option was not exercised prior to
its expiration or cancellation may again be available for the grant of Stock
Options under the Plan.
4
<PAGE>
SECTION 6. Grant of Stock Options
(a) On the date upon which a Non-Employee Director is first appointed or
elected a member of the Corporation's Board of Directors, he shall receive the
grant of a Non-Qualified Stock Option to purchase 2,045 shares of Common Stock.
Stock Options granted to Non-Employee Directors shall be immediately
exercisable. All Stock Options granted under the Plan shall be non-statutory
options not entitled to special tax treatment under Section 422 of the Code.
(b) The grant of any Stock Option shall be evidenced by a written agreement
which shall state the number of shares of Common Stock that are subject to the
Stock Option, the exercise price, the term of the Stock Option, and other terms,
as the Committee may deem appropriate, that are not inconsistent with
requirements of this Plan.
SECTION 7. Terms and Conditions
(a) The purchase price of the shares of Common Stock subject to each Stock
Option shall be 95% of the Fair Market Value of such Common Stock on the day
such Stock Option is granted. All Stock Options shall have a term of five (5)
years from the date of grant, subject to earlier termination pursuant to the
terms set forth herein. (b) In the event a Non-Employee Director's membership on
the Board ceases by reason of his Disability or death, all Stock Options then
held and exercisable by such Non-Employee Director may be exercised by the
Non-Employee Director or his executor or administrator at any time prior to the
expiration of the stated term of such Stock Option, or within one (1) year
following his cessation of Board membership, whichever period is shorter.
5
<PAGE>
(c) In the event a Non-Employee Director's membership on the Board ceases
for any reason other than death, Disability or as provided in Section 7(d)
herein, all Stock Options then held and exercisable by such Non-Employee
Director may be exercised at any time prior to the expiration of the stated term
of such Stock Option, or within a period of three (3) months from the date of
such cessation of Board membership, whichever period is shorter.
(d) In the event an Non-Employee Director's membership on the Board ceases
on or after he has attained age 70, any Stock Options then held and exercisable
by such Non-Employee Director may be exercised at any time prior to the
expiration of the term of the Stock Options or within three (3) years following
his cessation of Board membership, whichever is shorter.
(e) If an Non-Employee Director becomes an employee of the Corporation or
any of its subsidiaries, the Non-Employee Director shall be treated as
continuing in service for purposes of this Plan, but shall not be eligible to
receive future grants hereunder while an employee. If the Non-Employee
Director's services as an employee terminates without his again becoming an
Non-Employee Director, the provisions of this Section 7 shall apply as if such
termination of employment were the termination of the Non-Employee Director's
membership on the Board.
(f) Except as otherwise provided in this Section 7, no Stock Option under
the Plan shall be assignable or transferable by the Non-Employee Director, and
any attempted disposition thereof shall be null and void and of no effect.
Nothing in this Section 7 shall prevent transfers by will or by the applicable
laws of descent and distribution. During the life of a Non-Employee Director, a
Stock Option shall be exercisable only by such Non-Employee Director or the
Non-Employee Director's appointed guardian or legal representative.
6
<PAGE>
SECTION 8. Exercise of Option
(a) Any Stock Option may be exercised in whole or in part at any time
subsequent to such Stock Option becoming exercisable, during the term of such
Stock Option; provided, however, that each partial exercise shall be for whole
shares of Common Stock only.
(b) Options may be exercised by written notice of exercise accompanied by
payment of the exercise price in full for the purchased shares of Common Stock
in cash or by certified or cashier's check payable to the Corporation, or,
unless otherwise prohibited by the terms of the grant agreement, by surrender to
the Corporation of shares of Stock already owned by the Non-Employee Director
based on the Fair Market Value of the Stock on the date the Option is exercised;
(c) In the event that the Stock Option or portion thereof shall be
exercised pursuant to Section 7 by any person or persons other than the
Non-Employee Director, appropriate proof of the right of such person or persons
to exercise the Stock Option or portion thereof; and
(d) Full payment to the Corporation of all amounts which, under federal,
state or local law, it is required to withhold upon exercise of the Stock
Option.
SECTION 9. Capital Adjustments and Corporate Reorganizations
(a) If, through or as a result of any merger, consolidation, sale of all or
substantially all of the assets of the Corporation, reorganization,
recapitalization, reclassification, stock dividend, stock split, split up,
spin-off, combination, exchange of shares, reverse stock split, or other similar
transaction, (i) the outstanding shares of Common Stock are increased or
deceased or are exchanged for a different number or kind of shares or other
securities of the Corporation,
7
<PAGE>
or (ii) additional shares or new or different shares or other securities of the
Corporation or other non-cash assets are distributed with respect to such shares
of Common Stock or other securities, an appropriate and proportionate adjustment
shall automatically be made in (x) the maximum number and kind of shares of
Common Stock reserved for issuance under the Plan, (y) the number and kind of
shares or other securities subject to the outstanding Options under the Plan,
and (z) the purchase price for each share of Common Stock subject to any then
outstanding Options under the Plan, without changing the aggregate purchase
price (except for any change resulting from rounding off of share quantities or
price) as to which such Options remain exercisable, provided that no adjustment
shall be made pursuant to this Section 9 if such adjustment would cause the Plan
to fail to comply with Rule 16b-3 of the Act. No fractional shares will be
issued under the Plan on account of any such adjustment.
(b) In the event of a consolidation, merger, reorganization or sale of all
or substantially all of the assets of the Corporation in which outstanding
shares of Common Stock are exchanged for securities, cash or other property of
any other corporation or business entity or in the event of a liquidation of the
Corporation (collectively an "Extraordinary Event"), the following rules shall
apply: (i) holders of Options shall continue to have the right to exercise their
unexercised but currently exercisable Options on or before the day before the
date of consummation of the Extraordinary Event, (ii) if any Option holders
shall not have exercised their Options on or before the date of such
consummation and if, under the terms of the Extraordinary Event holders of the
Common Stock of the Corporation will receive upon consummation thereof payment
in cash, securities or other property (the "Event Payment") for each share
surrendered in the Extraordinary Event (the "Event Price"), then an Event
Payment
8
<PAGE>
equal to the difference between (A) the Event Price times the number of shares
of Common Stock subject to each Non-Employee Director's outstanding Options (to
the extent then exercisable at prices not in excess of the Event Price) and (B)
the aggregate exercise price of all such outstanding Options shall be made to
each Non-Employee Director in exchange for the termination of such Options,
(iii) notwithstanding the foregoing provisions of clause (ii), if the
Extraordinary Event involves an exchange by the acquiring party solely of its
voting securities in a reorganization pursuant to which holders of the
Corporation's Common Stock will not recognize gain or loss on the exchange of
such securities until such holders dispose of the new voting securities acquired
in such exchange, then the acquiring party shall have the right to provide that
such Options shall be assumed, or equivalent options shall be substituted by the
acquiring or succeeding corporation (or an affiliate thereof); provided that the
Non-Employee Director shall not, as a result of such provision, be required to
recognize gain or loss on the exchange of Options, (iv) in no event shall the
operation of the foregoing provisions be permitted to cause the Non-Employee
Director or the Plan to fail to comply with Rule 16b-3 of the Act, and (v) in
the unlikely event any Options shall remain outstanding after giving effect to
the foregoing provisions such Options shall terminate on the date the
Extraordinary Event is consummated.
SECTION 10. General Provisions Applicable to Options
(a) Notwithstanding any other provision of the Plan, in order to qualify
for the exemption provided by Rule 16b-3 under the Act, any Common Stock
acquired by a Non-Employee Director upon exercise of an Option may not be sold
for six (6) months after the date
9
<PAGE>
of grant of the Option. The Committee shall have no authority to take any action
if the authority to take such action, or the taking of such action, would
disqualify the Plan from the exemption provided by Rule 16b-3 under the Act.
(b) Upon the issuance of shares of Common Stock in respect of an Option
exercised by a Non-Employee Director, such number of shares issuable shall be
reduced by the number of shares necessary to satisfy such Non-Employee
Director's federal, and where applicable, state withholding tax obligations. For
withholding tax purposes, the value of the shares of Common Stock shall be the
Fair Market Value on the date the withholding obligation is incurred. The
Corporation may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Non-Employee Director.
SECTION 11. Other Provisions
(a) The validity, interpretation and administration of the Plan and any
rules, regulations, determinations or decisions made thereunder, and the rights
of any and all persons having or claiming to have any interest therein or
thereunder, shall be determined exclusively in accordance with the laws of the
State of New Jersey, to the extent such state laws are not preempted by any laws
of the United States.
(b) As used herein, the masculine gender shall include the feminine gender.
(c) The headings in the Plan are for reference purposes only and shall not
affect the meaning or interpretation of the Plan.
(d) All notices or other communications made or given pursuant to this Plan
shall be in writing and shall be sufficiently made or given if hand-delivered or
mailed by certified mail,
10
<PAGE>
addressed to any Non-Employee Director at the address contained in the records
of the Corporation, or to the Corporation at its principal office.
(e) Nothing in this Plan or in any Stock Option granted hereunder shall
confer upon any Non-Employee Director any right to continue to serve as a
director of the Corporation or shall interfere with or restrict in any way the
right, which right is hereby expressly reserved, to remove any Non-Employee
Director as a director in accordance with the by-laws and certificate of
incorporation of the Corporation and applicable law.
(f) The obligation of the Corporation to sell or deliver shares of Common
Stock with respect to Stock Options granted under the Plan shall be subject to
all applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(g) The Plan is intended to comply with Rule 16b-3 promulgated under the
Act and is further intended to be administered in the manner specified in
paragraph (c)(2)(ii) of that Rule, and the Committee shall interpret and
administer the provisions of the Plan or any Stock Option in a manner consistent
therewith. Any provisions inconsistent with such Rule and paragraph shall be
inoperative and shall not affect the validity of the Plan.
(h) All expenses and costs incurred in connection with the operation of the
Plan shall be borne by the Corporation.
(i) The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Corporation. Nothing in this Plan shall be
construed to limit the right of the Corporation to establish, alter or terminate
any other forms of incentives, benefits or
11
<PAGE>
compensation for directors of the Corporation, including, without limitation,
conditioning the right to receive other incentives, benefits or compensation on
a director not participating in this Plan; or to grant or assume options
otherwise than under this Plan in connection with any proper corporate purpose,
including, without limitation, the grant or assumption of stock options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock, or assets of any corporation, firm or
association.
(j) Holders of Stock Options under the Plan shall have no rights as
shareholders of the Corporation unless and until certificates for shares of
Common Stock are registered in their names in satisfaction of a properly
exercised Stock Option.
(k) The terms of the Plan shall be binding upon the Corporation, the
Non-Employee Directors and their successors and assigns.
SECTION 12. Amendment or Termination of the Plan
The Board may not terminate, suspend, amend or modify the Plan without
approval by the Corporation's shareholders. The termination or any modification
or amendment of the Plan shall not, without the consent of a Non-Employee
Director, affect his rights under an Option previously granted to him. The Plan
shall not be amended more than once every six months, other than to comport with
changes in the Code.
12
<PAGE>
SECTION 13. Effective Date and Term of the Plan
The Plan shall be effective on the date it is first approved by the
Shareholders of the Corporation. Options may not be granted under the Plan after
the tenth anniversary of its adoption, but then outstanding Options may extend
beyond such date.
13
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
Atlantic Stewardship Bank.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from
the Registrant's unaudited September 30, 1996 Interim financial
statements and audited December 31, 1995 year end financial
statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1996 DEC-31-1995
<CASH> 5,559,956 4,415,531
<INT-BEARING-DEPOSITS> 200,000 0
<FED-FUNDS-SOLD> 5,550,000 3,050,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 11,344,975 9,881,267
<INVESTMENTS-CARRYING> 18,275,690 19,648,898
<INVESTMENTS-MARKET> 18,354,956 20,291,878
<LOANS> 78,356,066 72,152,674
<ALLOWANCE> 1,292,269 1,176,822
<TOTAL-ASSETS> 122,946,231 113,120,111
<DEPOSITS> 110,646,646 101,788,542
<SHORT-TERM> 1,492,217 1,650,049
<LIABILITIES-OTHER> 817,527 530,769
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 10,012,006 9,135,470
<OTHER-SE> (22,165) 15,281
<TOTAL-LIABILITIES-AND-EQUITY> 122,946,231 113,120,111
<INTEREST-LOAN> 5,114,144 6,037,199
<INTEREST-INVEST> 1,342,660 1,581,579
<INTEREST-OTHER> 225,304 355,408
<INTEREST-TOTAL> 6,682,108 7,974,186
<INTEREST-DEPOSIT> 2,413,491 2,691,622
<INTEREST-EXPENSE> 2,474,659 2,771,288
<INTEREST-INCOME-NET> 4,207,449 5,202,898
<LOAN-LOSSES> 110,000 150,000
<SECURITIES-GAINS> (3,766) (9,819)
<EXPENSE-OTHER> 3,229,182 3,903,765
<INCOME-PRETAX> 1,375,220 1,615,478
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 950,601 1,144,411
<EPS-PRIMARY> 2.08 2.53
<EPS-DILUTED> 2.08 2.53
<YIELD-ACTUAL> 5.05 5.36
<LOANS-NON> 95,000 332,800
<LOANS-PAST> 560,000 764,351
<LOANS-TROUBLED> 271,119 69,125
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,176,822 1,088,486
<CHARGE-OFFS> 6,382 61,784
<RECOVERIES> 11,829 120
<ALLOWANCE-CLOSE> 1,292,269 1,176,822
<ALLOWANCE-DOMESTIC> 1,292,269 1,176,822
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
