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FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
( ) TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-21855
STEWARDSHIP FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Name of small business issuer as specified in its charter)
NEW JERSEY 22-3351447
- -------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
630 GODWIN AVENUE, MIDLAND PARK, NJ 07432
- ---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(201) 444-7100
-----------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the Issuer's Common Stock, no par
value, outstanding as of May 7, 1997, was 463,055.
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
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<PAGE>
STEWARDSHIP FINANCIAL CORPORATION
INDEX
PAGE
NUMBER
------
PART I - CONSOLIDATED FINANCIAL INFORMATION
- ---------------------------------------------
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
at March 31, 1997 and December 31, 1996 (Unaudited) .......... 1
Consolidated Statements of Income for the Three
Months ended March 31, 1997 and 1996 (Unaudited) ............. 2
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1997 and 1996 (Unaudited) ............. 3
Consolidated Statement of Changes in Stockholders'
Equity for the Three Months ended
March 31, 1997 (Unaudited) ................................... 4
Notes to Consolidated Financial Statements (Unaudited) ....... 5-9
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................................... 10-14
PART II - OTHER INFORMATION
- -----------------------------
ITEM 1 THRU ITEM 6 .................................................... 15
SIGNATURES ............................................................ 16
- ----------
<PAGE>
<TABLE>
<CAPTION>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
March 31, December 31,
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from banks ................................. $ 4,893,855 $ 4,786,342
Interest-bearing due from banks ......................... 205,750 219,098
Federal funds sold ...................................... 4,050,000 5,950,000
------------ ------------
Cash and cash equivalents ............................. 9,149,605 10,955,440
Securities available for sale ........................... 11,385,093 11,434,354
Securities held to maturity; estimated fair value
of $ 20,462,783 (1997) and $20,195,917 (1996) ......... 20,380,006 20,002,689
FHLB-NY stock, at cost .................................. 509,600 450,800
Loans, net of allowance for loan losses
of $1,372,719 (1997) and $1,352,508 (1996) ............ 82,946,307 80,847,769
Mortgage loans held for sale ............................ -- 236,754
Premises and equipment, net ............................. 2,293,502 2,306,098
Accrued interest receivable ............................. 944,076 880,558
Intangible assets, net of accumulated amortization of
$172,618 (1997) and $154,773 (1996) ................... 577,362 595,207
Other real estate owned, net ............................ 229,302 229,302
Other assets ............................................ 670,165 681,559
------------ ------------
Total assets ..................................... $129,085,018 $128,620,530
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing ................................... $ 24,724,759 $ 25,135,689
Interest-bearing ...................................... 90,777,901 90,689,057
------------ ------------
Total deposits .................................. 115,502,660 115,824,746
Securities sold under agreements to repurchase .......... 1,962,407 1,711,419
Accrued expenses and other liabilities .................. 915,294 676,980
------------ ------------
Total liabilities ............................... 118,380,361 118,213,145
------------ ------------
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY
Common stock, no par value; 5,000,000 shares authorized;
463,055 and 460,252 shares issued outstanding at
March 31, 1997 and December 31, 1996, respectively .... 5,079,420 4,990,746
Retained earnings ....................................... 5,621,972 5,395,454
Net unrealized gain on securities available for sale .... 3,265 21,185
------------ ------------
Total stockholders' equity ...................... 10,704,657 10,407,385
------------ ------------
Total liabilities and stockholders' equity ...... $129,085,018 $128,620,530
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Interest income:
Loans ................................................ $1,829,131 $1,674,221
Securities held to maturity
Taxable ............................................ 178,669 165,224
Non-taxable ........................................ 114,769 113,099
Securities available for sale ........................ 180,643 157,588
Other interest-earning assets ........................ 57,380 42,885
---------- ----------
Total interest income ........................... 2,360,592 2,153,017
---------- ----------
Interest expense:
Deposits ............................................. 837,724 766,481
Borrowed money ....................................... 20,781 22,143
---------- ----------
Total interest expense .......................... 858,505 788,624
---------- ----------
Net interest income .................................... 1,502,087 1,364,393
Provision for loan losses .............................. 30,000 30,000
---------- ----------
Net interest income after provision for loan losses .... 1,472,087 1,334,393
---------- ----------
Noninterest income:
Fees and service charges ............................. 146,317 113,483
Gain on call of investment securities ................ -- 1,825
Gain on sales of mortgage loans ...................... 4,839 19,907
Miscellaneous ........................................ 17,241 10,773
---------- ----------
Total noninterest income ....................... 168,397 145,988
---------- ----------
Noninterest expenses:
Salaries and employee benefits ....................... 574,138 490,335
Occupancy, net ....................................... 72,089 77,581
Equipment ............................................ 62,693 63,487
Data processing ...................................... 64,174 56,102
Advertising .......................................... 27,072 15,077
FDIC insurance premium ............................... 4,172 4,019
Amortization of intangible assets .................... 17,845 20,201
Other real estate owned expense ...................... (3,598) 18,767
Charitable contributions ............................. 56,125 51,738
Stationery and supplies .............................. 42,162 23,656
Miscellaneous ........................................ 243,248 193,587
---------- ----------
Total noninterest expenses ...................... 1,160,120 1,014,550
---------- ----------
Income before income taxes ............................. 480,364 465,831
Income taxes ........................................... 143,256 155,342
---------- ----------
Net income ............................................. $ 337,108 $ 310,489
========== ==========
Net income per common share ............................ $0.73 $0.68
Weighted average number of common shares outstanding ... 460,601 455,522
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
--------------------------
1997 1996
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 337,108 $ 310,489
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of premises and equipment ... 60,921 60,600
Gain on call of investment securities ..................... -- (1,825)
Amortization of premiums and accretion of discounts, net .. 13,360 15,746
Accretion of deferred loan fees ........................... (12,934) (21,083)
Provision for loan losses ................................. 30,000 30,000
Provision for losses on other real estate ................. -- 20,000
Originations of mortgage loans held for sale .............. (347,000) (1,577,400)
Proceeds from sale of mortgage loans ...................... 588,593 1,871,307
Gain on sale of loans ..................................... (4,839) (19,907)
Loss on sale of fixed assets .............................. 1,609 --
Deferred income tax benefit ............................... (66,550) (65,218)
Amortization of intangibles ............................... 17,845 20,201
Increase in accrued interest receivable ................... (63,518) (55,291)
Decrease (increase) in other assets ....................... 128,543 (25,384)
Increase in other liabilities ............................. 238,314 143,146
---------- -----------
Net cash provided by operating activities ............. 921,452 705,381
---------- -----------
Cash flows from investing activities:
Purchase of securities available for sale ...................... (250,044) (1,000,775)
Proceeds from maturities and principal repayments
on securities available for sale ............................. 266,354 262,889
Purchase of securities held to maturity ........................ (486,040) (489,732)
Proceeds from maturities and principal repayments
on securities held to maturity ............................... 100,168 868,721
Proceeds from call on securities held to maturity .............. -- 250,000
Purchase of FHLB-NY stock ...................................... (58,800) (113,600)
Net increase in loans .......................................... (2,115,604) (952,245)
Additions to premises and equipment ............................ (90,307) (45,977)
---------- -----------
Net cash used in investing activities ..................... (2,634,273) (1,220,719)
---------- -----------
Cash flows from financing activities:
Net decrease in noninterest-bearing deposits ................... (410,930) (3,991,574)
Net increase in interest-bearing deposits ...................... 88,844 4,399,577
Net increase in securities sold under agreements to repurchase . 250,988 708,430
Cash dividends paid on common stock ............................ (110,590) (95,642)
Sale of common stock ........................................... 88,674 57,775
---------- -----------
Net cash (used in) provided by financing activities ....... (93,014) 1,078,566
---------- -----------
Net (decrease) increase in cash and cash equivalents ............. (1,805,835) 563,228
Cash and cash equivalents -- beginning ........................... 10,955,440 7,465,531
---------- -----------
Cash and cash equivalents -- ending .............................. $ 9,149,605 $ 8,028,759
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest ......................... $ 934,919 $ 813,131
Cash paid during the year for income taxes ..................... 25,000 15,000
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period Ended March 31, 1997
--------------------------------------------------------------
Net Unrealized
Gain/(Loss) on
Common Stock Securities
------------------- Retained Available for
Shares Amount Earnings Sale Total
------ ------ -------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1996 ............ 460,252 $4,990,746 $5,395,454 $ 21,185 $10,407,385
Dividends Paid .......................... -- -- (110,590) -- (110,590)
Sale of Common Stock .................... 2,803 88,674 -- -- 88,674
Net income for the three months
ended March 31, 1997 .................. -- -- 337,108 -- 337,108
Net unrealized loss on securities
available for sale .................... -- -- -- (17,920) (17,920)
------- ---------- ---------- -------- -----------
Balance -- March 31, 1997 ............... 463,055 $5,079,420 $5,621,972 $ 3,265 $10,704,657
======= ========== ========== ======== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Stewardship
Financial Corporation, ("the Corporation") and its wholly owned subsidiary,
Atlantic Stewardship Bank ("the Bank"). Atlantic Stewardship Bank includes its
wholly owned subsidiary, Stewardship Investment Corp. 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 Corporation 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 loan losses. Management
believes that the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions to the
allowance for 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 10-QSB and the rules
and regulations of the Securities and Exchange Commission ("SEC") 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 three
months ended March 31, 1997 are not necessarily indicative of the results which
may be expected for the entire year.
5
<PAGE>
<TABLE>
<CAPTION>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTE 3. SECURITIES AVAILABLE FOR SALE
The following table sets forth the amortized cost and carrying value of the
Corporation's securities available for sale as of March 31, 1997 and December
31, 1996. 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.
March 31, 1997
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
----------- -------- -------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities .............. $ 3,482,426 $ 1,083 $ 27,781 $ 3,455,728
U.S. Government agencies .............. 1,051,645 99 7,005 1,044,739
Obligations of state and political
subdivisions ........................ 273,734 -- 3,620 270,114
Mortgage-backed securities ............ 6,572,525 79,900 37,913 6,614,512
----------- -------- -------- -----------
$11,380,330 $ 81,082 $ 76,319 $11,385,093
=========== ======== ======== ===========
December 31, 1996
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
----------- -------- -------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities .............. $ 3,583,058 $ 6,637 $ 4,205 $ 3,585,490
U.S. Government agencies .............. 1,051,853 4,425 6,875 1,049,403
Obligations of state and political
subdivisions ........................ 274,185 -- 6,099 268,086
Mortgage-backed securities ............ 6,492,349 76,344 37,318 6,531,375
----------- -------- -------- -----------
$11,401,445 $ 87,406 $ 54,497 $11,434,354
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
NOTE 4. SECURITIES HELD TO MATURITY
The following table sets forth the carrying value and estimated fair value
of the Corporation's securities held to maturity as March 31, 1997 and December
31, 1996. Securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts.
March 31, 1997
-----------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----------- -------- -------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities .............. $ 2,194,209 $ 816 $ 12,287 $ 2,182,738
U.S. Government agencies .............. 6,344,491 2,890 89,883 6,257,498
Obligations of state and political
subdivisions ........................ 9,404,766 124,602 15,213 9,514,155
Mortgage-backed securities ............ 2,436,540 71,852 - 2,508,392
----------- -------- -------- -----------
$20,380,006 $200,160 $117,383 $20,462,783
=========== ======== ======== ===========
December 31, 1996
-----------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----------- -------- -------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities .............. $ 2,192,913 $ 3,254 $ 2,396 $ 2,193,771
U.S. Government agencies .............. 6,356,268 24,194 30,556 6,349,906
Obligations of state and political
subdivisions ........................ 8,930,671 147,777 16,460 9,061,988
Mortgage-backed securities ............ 2,522,837 67,928 513 2,590,252
----------- -------- -------- -----------
$20,002,689 $243,153 $ 49,925 $20,195,917
=========== ======== ======== ===========
</TABLE>
6
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTE 5. LOANS
The Corporation'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 the Bergen and Passaic counties, New Jersey area. The
following table set forth the composition of loans as of the periods indicated.
March 31, December 31,
1997 1996
----------- -----------
Mortgage
Residential ................................. $15,485,444 $15,257,401
Commercial .................................. 28,812,007 26,796,619
Commercial .................................... 16,357,818 17,402,697
Equity ........................................ 3,973,248 3,837,733
Installment ................................... 19,570,443 18,891,809
Other ......................................... 239,971 136,172
----------- -----------
Total loans ........................... 84,438,931 82,322,431
----------- -----------
Less: Deferred loan fees ...................... 119,905 122,154
Allowance for loan losses ............... 1,372,719 1,352,508
----------- -----------
1,492,624 1,474,662
----------- -----------
Loans, net .............................. $82,946,307 $80,847,769
=========== ===========
NOTE 6. ALLOWANCE FOR LOAN LOSSES
Three Months Ended March 31,
----------------------------
1997 1996
---------- ----------
Balance, beginning of period .................. $1,352,508 $1,176,822
Provision charged to operations ............... 30,000 30,000
Recoveries of loans charged off ............... 1,674 1,537
Loans charged off ............................. (11,463) --
---------- ----------
Balance, end of period ........................ $1,372,719 $1,208,359
========== ==========
7
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTE 7. LOAN IMPAIRMENT
The Corporation has defined the population of impaired loans to include all
nonaccrual loans and loans more than 90 days past due. The following table sets
forth information regarding the impaired loans as of the periods indicated.
March 31, December 31,
1997 1996
-------- --------
Impaired loans
With related allowance for loan loss ....... $580,000 $774,921
Without related allowance for loan loss .... -- --
-------- --------
Total impaired loans ........................... $580,000 $774,921
======== ========
Related allowance for loan losses .............. $152,000 $155,742
======== ========
8
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
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
FASB Statement No. 128, Earnings Per Share (SFAS No. 128) supersedes APB
Opinion No. 15, Earnings Per Share, and specifies the computation, presentation,
and disclosure requirements for earnings per share (EPS) for entities with
publicly held common stock or potential common stock. SFAS No. 128 was issued to
simplify the computation of EPS and to make the U.S. standard more compatible
with the EPS standards of other countries and that of the International
Accounting Standards Committee (IASC). It replaces Primary EPS and Fully Diluted
EPS with Basic EPS and Diluted EPS, respectively. It also requires dual
presentation of Basic EPS and Diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the Basic EPS computation to the numerator
and denominator of the Diluted EPS computation.
Basic EPS, unlike primary EPS, excludes all dilution while Diluted EPS,
like Fully Diluted EPS, reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. For many entities Basic EPS will be higher than
Primary EPS and Diluted EPS will be approximately the same as Fully Diluted EPS.
SFAS No. 128 is applicable to all entities that have issued common stock or
potential common stock (e.g. options, warrants, convertible securities,
contingent stock agreements, etc.) if those securities trade in a public market
either on a stock exchange (domestic or foreign) or in the over-the-counter
market, including securities quoted locally or regionally. This Statement also
applies to an entity that has made a filing or is in the process of filing with
a regulatory agency in preparation for the sale of those securities in a public
market. However, SFAS No. 128 does not require presentation of EPS for
investment companies or in statements of wholly-owned subsidiaries.
SFAS No. 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted (although pro forma EPS disclosure in the footnotes for periods prior
to required adoption is permitted). After adoption, all prior period EPS data
presented shall be restated (including interim financial statements summaries of
earnings and selected financial data) to conform with SFAS No. 128.
9
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Total assets increased by $464,000, or 0.4%, from $128.6 million at December 31,
1996 to $129.1 million at March 31, 1997. The increase in assets reflects, among
other things, increases in net loans of $2.1 million offset by a decrease in
federal funds sold of $1.9 million. The composition of the loan portfolio is
basically unchanged at March 31, 1997 when compared with the portfolio at
December 31, 1996.
Total deposits decreased $322,000, or 0.3%, to $115.5 million at March 31, 1997
from $115.8 million at December 31, 1996. Interest-bearing deposits increased
$89,000, or 0.1%, to $90.8 million at March 31, 1997, and noninterest-bearing
deposits, decreased $411,000, or 1.6%, to $24.7 million at March 31, 1997. The
decrease in noninterest-bearing deposits resulted primarily from the seasonal
effect of the first quarter on many of the Corporation's commercial depositors.
The Corporation's primary focus during the past three months was to begin to
implement a plan to install Automated Teller Machines (ATM) at each of its
branch locations and to open a new branch location in Waldwick, Bergen County,
New Jersey. The first ATM was installed in the Wayne, Passaic County, New Jersey
branch on April 10, 1997. This provides both customers and noncustomers with
convenient access to banking 24 hours a day with no fees. The Waldwick branch
has received all appropriate regulatory approval and has its grand opening
celebration scheduled for May 16, 1997. This branch offers a good location and
provides a strong extension to the Corporation's marketplace in northern New
Jersey. The branch will offer full service capabilities as well as an ATM
facility.
The Corporation has also continued lease negotiations to establish a branch site
in Ridgewood, Bergen County, New Jersey. Approvals have been received from the
State of New Jersey and the FDIC and it is anticipated that the building will be
completed and ready for occupancy in the fourth quarter of 1997. Management
believes this site to be a good extension of the Corporation's market as
Ridgewood is a contiguous town with Midland Park, where the Corporation's
administrative headquarters is located.
The Corporation also entered into a joint venture with Diversified Tax Shelters,
Inc., a division of the Turner Group, to offer Deferred Annuities, Long Term
Care Insurance, and Life Insurance. The Corporation will receive commissions for
all contracts sold at the branches. It is anticipated that this will help fill
the needs of our deposit base and continue to provide a full service and wide
mix of products to our existing and potential customers.
10
<PAGE>
The Corporation is also beginning to offer a new money market product designed
to be competitive with brokerage money market accounts. It is designed for the
larger balance customer and offers tiered rates based on the balance maintained
within the account. It is anticipated that this product will bring in both new
customers and new money from existing customers looking for higher yields on
investments. The Corporation is also beginning to install a telephone banking
product which is anticipated to be available to customers in the third quarter
of 1997. Again, this product is being made available to customers to provide
them the flexibility of making loan payments, transferring funds between
existing accounts, and providing account balance and history inquiry twenty four
hours a day.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
- ---------------------------------
General
- -------
The Corporation reported net income of $337,000, or $.73 per share for the three
months ended March 31, 1997 compared to $310,000 or $.68 per share for the same
period in 1996. The $27,000 increase in net income was primarily caused by
increases in net interest income and noninterest income, partially offset by
increases in noninterest expense.
Net interest income
- -------------------
Net interest income increased $138,000, or 10.1%, for the three months ended
March 31, 1997 as compared with the corresponding period in 1996. 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 $208,000, or 9.6%, 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 reflecting lower market
rates of interest. The average balance of interest-earning assets increased
$13.3 million, or 12.6%, from $105.8 million for the three months ended March
31, 1996 to $119.1 million for the same period in 1997, primarily being funded
by an increase to the Corporation's average deposit base. The Corporation
continued to experience an increase in loan demand which allowed loans on
average to increase $10.0 million to an average $83.0 million for the three
months ended March 31, 1997, from an average $73.0 million for the comparable
period in 1996.
Interest paid on deposits and borrowed money increased $70,000, or 8.9%, due
primarily to an increase in the average volume of total interest-bearing
deposits and to slightly higher rates paid on time deposit categories. Average
costs for interest-bearing liabilities increased to 3.85% for the three months
ended March 31, 1997 from 3.83% for the three months ended March 31, 1996. The
average balance of total interest-bearing deposits
11
<PAGE>
increased to $88.6 million for the three months ended March 31, 1997 from $80.9
million for the comparable 1996 period, primarily as a result of the
Corporation's expanding customer base.
Provision for loan losses
- -------------------------
The Corporation maintains an allowance for 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 Corporation's loan activity. The allowance
for loan losses is based on estimates, and ultimate losses may vary from the
current estimates. Additions to the allowance for loan losses are charged to
operations during the period in which such additions are deemed necessary.
The provision charged to operations totaled $30,000 during both three months
ended March 31, 1997 and 1996, respectively. See "Asset Quality" section for
summary of allowance for loan losses and nonperforming assets. The Corporation
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.
Noninterest income
- ------------------
Noninterest income increased by $22,000, or 15.4%, to $168,000 during the three
months ended March 31, 1997 when compared with $146,000 during the 1996 period.
Contributing to this increase was a $33,000 increase in deposit-related fees and
service charges caused by an increased deposit base, offset by a decrease of
$15,000 in gain on sale of mortgage loans due primarily to the decrease in loans
sold during the first quarter of 1997 compared to the similar period in 1996.
Noninterest expenses
- --------------------
Noninterest expenses increased by approximately $146,000, or 14.3%, to $1.2
million for the three months ended March 31, 1997, compared to $1.0 million for
the same 1996 period. Salaries and employee benefits, the major component of
noninterest expenses, increased $84,000, or 17.1%, during the three months ended
March 31, 1997. This increase was due primarily to additions to staff in the
operations area and the new Waldwick branch and general increases for merit and
performance. Data processing increased $8,000, or 14.4%, due to computer system
enhancements installed during the second quarter of 1996. Other increases in
advertising and stationery resulted primarily from the anticipated marketing
costs of new products and the opening of the new Waldwick branch. Partially
offsetting these expenses, other real estate expense decreased $22,000 as the
first quarter of 1996 contained an additional $20,000 expense to an established
valuation reserve to reduce the carrying value of the other real estate
property. The other real estate property is currently fully rented with an
option to purchase.
12
<PAGE>
Income taxes
- ------------
Income tax expense totaled $143,000 and $155,000 during the three months ended
March 31, 1997 and 1996, respectively.
ASSET QUALITY
- -------------
The Corporation's principal earning assets are its loans to businesses and
individuals located in northern 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 and other
real estate owned. The following table shows the composition of nonperforming
assets at the end of the last four quarters:
03/31/97 12/31/96 09/30/96 06/30/96
-------- -------- -------- --------
(Dollars in Thousands)
Nonaccrual loans: (1) $ 40 $ 95 $ 95 $ 95
Loans past due 90 days or more: (2) 540 550 560 685
Restructured loans: 253 261 271 148
------ ------ ------ ------
Total nonperforming loans 833 906 926 928
Other real estate 229 229 229 229
------ ------ ------ ------
Total nonperforming assets $1,062 $1,135 $1,155 $1,157
====== ====== ====== ======
Allowance for loan losses $1,372 $1,353 $1,292 $1,260
====== ====== ====== ======
Nonaccrual loans to total loans 0.05% 0.12% 0.12% 0.12%
Nonperforming loans to total loans .99% 1.10% 1.18% 1.21%
Nonperforming loans to total assets .65% .70% .75% .76%
Nonperforming assets to total assets .82% .88% .94% .98%
Allowance for loan losses to total
loans 1.63% 1.64% 1.65% 1.64%
Allowance for loan losses to
non-performing loans 164.74% 149.27% 139.54% 135.74%
- ------------
(1) Generally represents loans to which the payments of interest or principal
are 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 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 March 31, 1997, other than those included in the above
table, where the Corporation 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
13
<PAGE>
conditions of repayment and which may result in such loans being included as
non-accrual, past due or restructured at a future date.
The Corporation's lending activities are concentrated in loans secured by real
estate located in northern New Jersey. Accordingly, the collectibility of a
substantial portion of the Corporation's loan portfolio is susceptible to
changes in real estate market conditions.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Corporation'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 Corporation's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. Cash and cash
equivalents decreased $1.8 million during the first three months of 1997, as
investing activities used $2.6 million and financing activities used $0.1
million, offset by operating activities providing $0.9 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 March 31, 1997 the Bank's capital ratios were as follows:
Required Actual Excess
-------- ------ ------
Risk-based Capital
Tier 1 4.00% 12.41% 8.41%
Total 8.00% 13.66% 5.66%
Leverage Ratio 3.00% 8.03% 5.03%
14
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Corporation is 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 of the Corporation.
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 8K
-------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports
None
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Corporation caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
STEWARDSHIP FINANCIAL CORPORATION
DATE: May 9, 1997 BY: /s/ PAUL VAN OSTENBRIDGE
------------------------- -----------------------------------
Paul Van Ostenbridge
President and Chief Executive
Officer
DATE: May 9, 1997 BY: /s/ JULIE E. HOLLAND
------------------------- -----------------------------------
Julie E. Holland
Assistant Vice President and
Treasurer
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE REGISTRANT'S
UNAUDITED MARCH 31, 1997 INTERIM FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,893,855
<INT-BEARING-DEPOSITS> 205,750
<FED-FUNDS-SOLD> 4,050,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,385,093
<INVESTMENTS-CARRYING> 20,380,006
<INVESTMENTS-MARKET> 20,462,783
<LOANS> 84,319,026
<ALLOWANCE> 1,372,719
<TOTAL-ASSETS> 129,085,018
<DEPOSITS> 115,502,660
<SHORT-TERM> 1,962,407
<LIABILITIES-OTHER> 915,294
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 10,704,657
<TOTAL-LIABILITIES-AND-EQUITY> 129,085,018
<INTEREST-LOAN> 1,829,131
<INTEREST-INVEST> 474,081
<INTEREST-OTHER> 57,380
<INTEREST-TOTAL> 2,360,592
<INTEREST-DEPOSIT> 837,724
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 1,502,087
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,160,120
<INCOME-PRETAX> 480,364
<INCOME-PRE-EXTRAORDINARY> 337,108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 337,108
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
<YIELD-ACTUAL> 5.31
<LOANS-NON> 40,000
<LOANS-PAST> 540,000
<LOANS-TROUBLED> 253,258
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,352,508
<CHARGE-OFFS> 11,463
<RECOVERIES> 1,674
<ALLOWANCE-CLOSE> 1,372,719
<ALLOWANCE-DOMESTIC> 1,372,719
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
