================================================================================
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 June 30, 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 August 8, 1997, was 463,363.
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
================================================================================
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION
INDEX
PAGE
NUMBER
------
PART I - CONSOLIDATED FINANCIAL INFORMATION
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
at June 30, 1997 and December 31, 1996 (Unaudited) .............. 1
Consolidated Statements of Income for the Six
Months ended June 30, 1997 and 1996 (Unaudited) ................. 2
Consolidated Statements of Income for the Three
Months ended June 30, 1997 and 1996 (Unaudited) ................. 3
Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1997 and 1996 (Unaudited) ................. 4
Consolidated Statement of Changes in Stockholders'
Equity for the Six Months ended
June 30, 1997 (Unaudited) ....................................... 5
Notes to Consolidated Financial Statements (Unaudited) ........... 6 - 10
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................................... 11 - 17
PART II - OTHER INFORMATION
ITEM 1 THRU ITEM 6 ..................................................... 18 - 19
SIGNATURES ............................................................. 20
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 7,109,407 $ 4,786,342
Interest-bearing due from banks 216,238 219,098
Federal funds sold 5,500,000 5,950,000
---------------------------
Cash and cash equivalents 12,825,645 10,955,440
Securities available for sale 10,906,988 11,434,354
Securities held to maturity; estimated fair value
of $20,332,581 (1997) and $20,195,917 (1996) 20,137,379 20,002,689
FHLB-NY stock, at cost 509,600 450,800
Loans, net of allowance for loan losses of
of $1,397,642 (1997) and $1,352,508 (1996) 89,499,702 80,847,769
Mortgage loans held for sale - 236,754
Premises and equipment, net 2,484,122 2,306,098
Accrued interest receivable 995,994 880,558
Intangible assets, net of accumulated amortization of
$190,463 (1997) and $154,773 (1996) 559,517 595,207
Other real estate owned, net 229,302 229,302
Other assets 641,322 681,559
---------------------------
Total assets $138,789,571 $128,620,530
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 28,469,255 $ 25,135,689
Interest-bearing 95,256,672 90,689,057
---------------------------
Total deposits 123,725,927 115,824,746
Securities sold under agreements to repurchase 3,152,617 1,711,419
Accrued expenses and other liabilities 832,087 676,980
---------------------------
Total liabilities 127,710,631 118,213,145
---------------------------
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 5,967,971 5,395,454
Net unrealized gain on securities available for sale 31,549 21,185
---------------------------
Total stockholders' equity 11,078,940 10,407,385
---------------------------
Total liabilities and stockholders' equity $138,789,571 $128,620,530
===========================
</TABLE>
See notes to unaudited consolidated financial statements.
1
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Interest income:
Loans $ 3,782,137 $ 3,364,599
Securities held to maturity
Taxable 374,116 370,775
Non-taxable 231,978 222,919
Securities available for sale 357,538 277,636
Other interest-earning assets 116,395 133,450
---------------------------
Total interest income 4,862,164 4,369,379
---------------------------
Interest expense:
Deposits 1,720,125 1,571,522
Borrowed money 52,021 43,321
---------------------------
Total interest expense 1,772,146 1,614,843
---------------------------
Net interest income 3,090,018 2,754,536
Provision for loan losses 60,000 80,000
---------------------------
Net interest income after provision for loan losses 3,030,018 2,674,536
---------------------------
Noninterest income:
Fees and service charges 288,888 248,740
Gain on sales of mortgage loans 12,335 33,234
Miscellaneous 62,991 41,551
---------------------------
Total noninterest income 364,214 323,525
---------------------------
Noninterest expenses:
Salaries and employee benefits 1,193,403 1,006,394
Occupancy, net 154,053 146,040
Equipment 164,490 126,889
Data processing 123,749 112,895
Advertising 74,525 33,493
FDIC insurance premium 8,621 8,039
Amortization of intangible assets 35,690 40,403
Other real estate owned expense (9,726) 16,118
Charitable contributions 109,899 110,579
Stationery and supplies 83,704 89,825
Miscellaneous 481,059 402,529
---------------------------
Total noninterest expenses 2,419,467 2,093,204
---------------------------
Income before income taxes 974,765 904,857
Income taxes 291,658 288,850
---------------------------
Net income $ 683,107 $ 616,007
===========================
Net income per common share $1.48 $1.35
Dividends per common share $0.24 $0.21
Weighted average number of common shares outstanding 461,835 456,684
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Interest income:
Loans $ 1,953,006 $ 1,690,378
Securities held to maturity
Taxable 195,447 205,551
Non-taxable 117,209 109,820
Securities available for sale 176,895 120,048
Other interest-earning assets 59,015 90,565
---------------------------
Total interest income 2,501,572 2,216,362
---------------------------
Interest expense:
Deposits 882,401 805,041
Borrowed money 31,240 21,178
---------------------------
Total interest expense 913,641 826,219
---------------------------
Net interest income 1,587,931 1,390,143
Provision for loan losses 30,000 50,000
---------------------------
Net interest income after provision for loan losses 1,557,931 1,340,143
---------------------------
Noninterest income:
Fees and service charges 142,571 135,257
Gain on sales of mortgage loans 7,496 13,327
Miscellaneous 45,750 28,953
---------------------------
Total noninterest income 195,817 177,537
---------------------------
Noninterest expenses:
Salaries and employee benefits 619,265 516,059
Occupancy, net 81,964 68,459
Equipment 101,797 63,402
Data processing 59,575 56,793
Advertising 47,453 18,416
FDIC insurance premium 4,449 4,020
Amortization of intangible assets 17,845 20,202
Other real estate owned expense (6,128) (2,649)
Charitable contributions 53,774 58,841
Stationery and supplies 41,542 66,169
Miscellaneous 237,811 208,942
---------------------------
Total noninterest expenses 1,259,347 1,078,654
---------------------------
Income before income taxes 494,401 439,026
Income taxes 148,402 133,508
---------------------------
Net income $ 345,999 $ 305,518
===========================
Net income per common share $0.75 $0.67
===========================
Weighted average number of common shares outstanding 463,055 457,874
===========================
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
<TABLE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 683,107 $ 616,007
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of premises and equipment 147,506 121,200
Gain on call of investment securities -- (1,825)
Amortization of premiums and accretion of discounts, net 25,950 29,017
Accretion of deferred loan fees (28,338) (36,701)
Provision for loan losses 60,000 80,000
Provision for losses on other real estate -- 20,000
Originations of mortgage loans held for sale (1,012,100) (3,572,300)
Proceeds from sale of mortgage loans 1,261,189 3,603,134
Gain on sale of loans (12,335) (33,234)
Loss on sale of fixed assets 1,609 --
Deferred income tax benefit (77,267) (86,151)
Amortization of intangibles 35,690 40,403
Increase in accrued interest receivable (115,436) (79,540)
Decrease in other assets 147,797 48,175
Increase in other liabilities 155,107 124,666
---------------------------
Net cash provided by operating activities 1,272,479 872,851
---------------------------
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 783,960 518,489
Purchase of securities held to maturity (638,488) (2,386,772)
Proceeds from maturities and principal repayments
on securities held to maturity 388,176 2,587,688
Proceeds from call on securities held to maturity 100,000 570,388
Purchase of FHLB-NY stock (58,800) (113,600)
Net increase in loans (8,683,595) (4,512,944)
Additions to premises and equipment (363,946) (79,523)
---------------------------
Net cash used in investing activities (8,722,737) (4,417,049)
---------------------------
Cash flows from financing activities:
Net increase (decrease) in noninterest-bearing deposits 3,333,566 (510,750)
Net increase in interest-bearing deposits 4,567,615 9,050,371
Net increase (decrease) in securities sold under agreements to repurchase 1,441,198 (108,744)
Cash dividends paid on common stock (110,590) (95,643)
Sale of common stock 88,674 57,768
---------------------------
Net cash provided by financing activities 9,320,463 8,393,002
---------------------------
Net increase in cash and cash equivalents 1,870,205 4,848,804
Cash and cash equivalents - beginning 10,955,440 7,465,531
---------------------------
Cash and cash equivalents - ending $12,825,645 $12,314,335
===========================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 1,741,266 $ 1,744,926
Cash paid during the year for income taxes 403,400 285,203
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
<TABLE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1997
--------------------------------------------------------------
NET UNREALIZED
GAIN ON
COMMON STOCK SECURITIES
--------------------- RETAINED AVAILABLE
SHARES AMOUNT EARNINGS FOR SALE TOTAL
--------------------------------------------------------------
<S> <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)
Issuance of Common Stock 2,803 88,674 -- -- 88,674
Net income for the six months
ended June 30, 1997 -- -- 683,107 -- 683,107
Net unrealized gain on securities
available for sale -- -- -- 10,364 10,364
-------------------------------------------------------------
Balance -- June 30, 1997 463,055 $5,079,420 $5,967,971 $31,549 $11,078,940
=============================================================
</TABLE>
See notes to unaudited consolidated financial statements.
5
<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 six
months ended June 30, 1997 are not necessarily indicative of the results which
may be expected for the entire year.
6
<PAGE>
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 June 30, 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.
JUNE 30, 1997
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
-------------------------------------------------
U.S. Treasury securities $ 3,461,641 $ 2,526 $ 9,597 $ 3,454,570
U.S. Government agencies 801,502 4,825 6,090 800,237
Obligations of state and
political subdivisions 273,291 65 -- 273,356
Mortgage-backed securities 6,320,767 86,439 28,381 6,378,825
-------------------------------------------------
$10,857,201 $ 93,855 $44,068 $10,906,988
=================================================
DECEMBER 31, 1996
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
-------------------------------------------------
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
=================================================
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 June 30, 1997 and December
31, 1996. Securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts.
JUNE 30, 1997
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
-------------------------------------------------
U.S. Treasury securities $ 2,195,497 $ 1,202 $ 3,691 $ 2,193,008
U.S. Government agencies 6,232,744 16,386 28,286 6,220,844
Obligations of state and
political subdivisions 9,395,483 135,549 2,728 9,528,304
Mortgage-backed securities 2,313,655 76,770 -- 2,390,425
-------------------------------------------------
$20,137,379 $229,907 $34,705 $20,332,581
=================================================
DECEMBER 31, 1996
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
-------------------------------------------------
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
=================================================
7
<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.
JUNE 30, DECEMBER 31,
1997 1996
----------------------------
Mortgage
Residential $18,570,141 $15,257,401
Commercial 31,115,661 26,796,619
Commercial 16,660,119 17,402,697
Equity 3,742,970 3,837,733
Installment 20,756,623 18,891,809
Other 172,446 136,172
----------------------------
Total loans 91,017,960 82,322,431
----------------------------
Less: Deferred loan fees 120,616 122,154
Allowance for loan losses 1,397,642 1,352,508
----------------------------
1,518,258 1,474,662
----------------------------
Loans, net $89,499,702 $80,847,769
============================
NOTE 6. ALLOWANCE FOR LOAN LOSSES
SIX MONTHS ENDED JUNE 30,
----------------------------
1997 1996
----------------------------
Balance, beginning of period $ 1,352,508 $ 1,176,822
Provision charged to operations 60,000 80,000
Recoveries of loans charged off 2,426 7,453
Loans charged off 17,292 4,586
----------------------------
Balance, end of period $ 1,397,642 $ 1,259,689
============================
8
<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.
JUNE 30, DECEMBER 31,
1997 1996
---------------------------
Impaired loans
With related allowance for loan loss $571,646 $774,921
Without related allowance for loan loss -- --
Total impaired loans $571,646 $774,921
---------------------------
Related allowance for loan losses $202,278 $155,742
===========================
9
<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 formas 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 date) to conform with SFAS No. 128.
FASB Statement No. 130, Reporting Comprehensive Income (SFAS No. 130)
established standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 does not require
a specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement. SFAS No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional-paid-in-capital in the equity section of
a statement of financial position. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required.
10
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets increased by $10.2 million, or 7.9%, from $128.6 million at
December 31, 1996 to $138.8 million at June 30, 1997. The increase in assets
reflects, among other things, increases in net loans of $8.7 million and cash
and due from banks of $2.3 million. The composition of the loan portfolio is
basically unchanged at June 30, 1997 when compared with the portfolio at
December 31, 1996.
Total deposits increased $7.9 million, or 6.8%, to $123.7 million at June
30, 1997 from $115.8 million at December 31, 1996. Interest-bearing deposits
increased $4.6 million, or 5.0%, to $95.3 million at June 30, 1997, and
noninterest-bearing deposits, increased $3.3 million, or 13.3%, to $28.5 million
at June 30, 1997. The increase in noninterest-bearing deposits resulted
primarily from a general increase in balances being maintained in existing
accounts, the popularity of the Corporation's century checking account, which
offers service charge free checking through the year 2000, and increased
activity with the Corporation's business advantage account which offers free
checking to low maintenance business accounts. The increase in interest-bearing
deposits resulted from the popularity of the Corporation's new Premier Growth
Account. This is 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 continue to bring in both new customers
and new money from existing customers looking for higher yields on investments.
The Corporation's primary focus during the past six 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, bringing the Corporation's total number of offices to four. The
Corporation has successfully installed ATM machines at three branch locations
and provides both customers and noncustomers with convenient access to banking
24 hours a day with no fees. The Waldwick branch held its grand opening
celebration on May 16, 1997 and has shown strong core deposit growth.
The Corporation has signed a lease 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.
11
<PAGE>
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
offering will provide the Corporation with additional noninterest income and
continue to provide a full service and wide mix of products to our existing and
potential customers.
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.
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
SIX MONTHS ENDED JUNE 30, 1997
General
The Corporation reported net income of $683,000, or $1.48 per share for the
six months ended June 30, 1997 compared to $616,000 or $1.35 per share for the
same period in 1996. The $67,000 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 $335,000, or 12.2%, for the six months ended
June 30, 1997 as compared with the corresponding period in 1996. The increase
was primarily due to an increase in average net interest-earning assets.
Total interest income increased $493,000, or 11.3%, primarily due to an
increase in the average volume of interest-earning assets. The average balance
of interest-earning assets increased $13.2 million, or 12.2%, from $108.8
million for the six months ended June 30, 1996 to $122.0 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 $11.3 million to an
average $85.6 million for the six months ended June 30, 1997, from an average
$74.4 million for the comparable period in 1996.
Interest paid on deposits and borrowed money increased $157,000, or 9.7%,
due primarily to an increase in the average volume of total interest-bearing
deposits as yields remained relatively steady. The average balance of total
interest-bearing deposits increased to $90.6 million for the six months ended
June 30, 1997 from $82.9 million for the comparable 1996 period, primarily as a
result of the Corporation's expanding customer base.
12
<PAGE>
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 $60,000 and $80,000 during the
six months ended June 30, 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 $41,000, or 12.6%, to $364,000 during the
six months ended June 30, 1997 when compared with $324,000 during the 1996
period. Contributing to this increase was a $40,000 increase in deposit-related
fees and service charges caused by an increased deposit base, offset by a
decrease of $21,000 in gain on sale of mortgage loans due primarily to the
decrease in loans sold during the first half of 1997 compared to the similar
period in 1996. The Corporation continues to originate mortgage loans for sale
to investors.
Noninterest expenses
Noninterest expenses increased by approximately $326,000, or 15.6%, to $2.4
million for the six months ended June 30, 1997, compared to $2.1 million for the
same 1996 period. Salaries and employee benefits, the major component of
noninterest expenses, increased $187,000, or 18.6%, during the six months ended
June 30, 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 and equipment expense increased $48,000, or 20.2%,
due to computer system enhancements installed during the second quarter of 1996.
Increases in advertising resulted primarily from the marketing costs of new
products and the opening of the new Waldwick branch. Partially offsetting these
expenses, other real estate expense decreased $26,000 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.
13
<PAGE>
Income taxes
Income tax expense totaled $292,000 and $289,000 during the six months
ended June 30, 1997 and 1996, respectively.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997
General
The Corporation reported net income of $346,000, or $.75 per share for the
three months ended June 30, 1997 compared to $306,000 or $.67 per share for the
same period in 1996. The $40,000 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 $198,000, or 14.2%, for the three months
ended June 30, 1997 as compared with the corresponding period in 1996. The
increase was primarily due to an increase in average net interest-earning
assets.
Total interest income increased $285,000, or 12.9%, primarily due to an
increase in the average volume of interest-earning assets. The average balance
of interest-earning assets increased $13.3 million, or 11.9%, from $111.6
million for the three months ended June 30, 1996 to $124.9 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 $12.5 million to an
average $88.0 million for the three months ended June 30, 1997, from an average
$75.5 million for the comparable period in 1996.
Interest paid on deposits and borrowed money increased $87,000, or 10.6%,
due primarily to an increase in the average volume of total interest-bearing
deposits and to higher rates paid on the new money market product. The average
balance of total interest-bearing deposits increased to $92.6 million for the
three months ended June 30, 1997 from $84.8 million for the comparable 1996
period, primarily as a result of the Corporation's expanding customer base.
Provision for loan losses
The provision charged to operations totaled $30,000 and $50,000 during the
three months ended June 30, 1997 and 1996, respectively. See "Asset Quality"
section for summary of allowance for loan losses and nonperforming assets.
14
<PAGE>
Noninterest income
Noninterest income increased by $18,000, or 10.3%, to $196,000 during the
three months ended June 30, 1997 when compared with $178,000 during the 1996
period. Contributing to this increase was a $7,000 increase in deposit-related
fees and service charges caused by an increased deposit base, a $4,000 recovery
on previously written off investment, and a $7,000 reversal of a 1996
miscellaneous reserve, offset by a volume-related decrease of $6,000 in gain on
sale of mortgage loans.
Noninterest expenses
Noninterest expenses increased by approximately $181,000, or 16.8%, to $1.3
million for the three months ended June 30, 1997, compared to $1.1 million for
the same 1996 period. Salaries and employee benefits, the major component of
noninterest expenses, increased $103,000, or 20.0%, during the three months
ended June 30, 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 and equipment expenses increased $41,000, or
34.3%, due to the increased cost of maintaining the computer system enhancements
installed in 1996 and the ATM network installed during the first half of 1997.
With the establishment of the Waldwick office, net occupancy expense increased
$14,000, or 19.7%. Increases in advertising resulted primarily from the
marketing costs of new products and the opening of the new Waldwick branch.
Income taxes
Income tax expense totaled $148,000 and $134,000 during the three months
ended June 30, 1997 and 1996, respectively.
15
<PAGE>
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:
06/30/97 03/31/97 12/31/96 09/30/96
-------- -------- -------- --------
(Dollars in Thousands)
Nonaccrual loans: (1) $ 40 $ 40 $ 95 $ 95
Loans past due 90 days or more: (2) 532 540 550 560
Restructured loans: 246 253 261 271
------ ------ ------ ------
Total nonperforming loans 818 833 906 926
Other real estate 229 229 229 229
------ ------ ------ ------
Total nonperforming assets $1,047 $1,062 $1,135 $1,155
====== ====== ====== ======
Allowance for loan losses $1,398 $1,372 $1,353 $1,292
====== ====== ====== ======
Nonaccrual loans to total loans 0.04% 0.05% 0.12% 0.12%
Nonperforming loans to total loans .90% .99% 1.10% 1.18%
Nonperforming loans to total assets .59% .65% .70% .75%
Nonperforming assets to total assets .75% .82% .88% .94%
Allowance for loan losses to
total loans 1.54% 1.63% 1.64% 1.65%
Allowance for loan losses to
non-performing loans 170.90% 164.74% 149.27% 139.54%
- ----------
(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 June 30, 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 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 within the Corporation's New Jersey
market area.
16
<PAGE>
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 increased $1.9 million during the first six months of 1997, as
financing activities and operating activities provided $9.3 million and $1.3
million, respectively, offset by investing activities using $8.7 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 June 30, 1997 the Bank's capital ratios were as follows:
Required Actual Excess
-------- ------ ------
Risk-based Capital
Tier 1 4.00% 12.08% 8.08%
Total 8.00% 13.34% 5.34%
Leverage Ratio 3.00% 7.93% 4.93%
17
<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
The Annual Meeting of Shareholders of Stewardship Financial Corporation was
held on May 12, 1997 at 7:00 P.M. Total number of shares outstanding as of March
31, 1997 (Record Date) was 463,055. Total number of shares represented at the
meeting was 343,952. The meeting was held for the purpose of considering and
voting upon the following matters:
Proposal 1 -- Election of Directors
The election of twelve persons named below to serve as directors of
the Bank for the ensuing year.
TOTAL # OF SHARES
---------------------------
DIRECTOR VOTED FOR WITHHELD
-------- --------- --------
William M. Almroth 343,952 --
Herman deWaal Malefyt 343,952 --
Harold Dyer 343,952 --
Edward Flystra 343,752 200
William C. Hanse 343,202 750
Margo Lane 343,872 80
Arie Leegwater 343,314 638
John L. Steen 343,902 50
Robert J. Turner 343,952 --
William J. Vander Eems 343,952 --
Paul Van Ostenbridge 343,952 --
18
<PAGE>
Proposal 2 -- Amendments to the Certificate of Incorporation
309,795 shares voted for, 31,437 shares were withheld, and 2,720
shares abstained in the vote to approve the amendments to the Stewardship
Financial Corporation's Certificate of Incorporation. The amendments
included (a) to classify the Board of Directors into three classes; (b) to
prevent removal of directors by stockholders without cause; and (c) to
require the affirmative vote to 80% of the outstanding common stock of the
Company for approval of a merger, consolidation, or disposition of
substantially all of the assets of the Company unless approved by a
majority of the directors and to further require an affirmative vote of 80%
of the outstanding common stock to amend this super-majority voting
position.
ITEM. 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
Exhibit 27 -- Financial Data Schedule
(b) Reports
None
19
<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: August 13, 1997 By: /s/ PAUL VAN OSTENBRIDGE
----------------------------------
Paul Van Ostenbridge
President and Chief Executive
Officer
Date: August 13, 1997 By: /s/ JULIE E. HOLLAND
----------------------------------
Julie E. Holland
Vice President and
Treasurer
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted
from the registrant's unaudited June 30, 1997 interim
financial statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,109,407
<INT-BEARING-DEPOSITS> 216,238
<FED-FUNDS-SOLD> 5,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,906,988
<INVESTMENTS-CARRYING> 20,137,379
<INVESTMENTS-MARKET> 20,332,581
<LOANS> 90,897,344
<ALLOWANCE> 1,397,642
<TOTAL-ASSETS> 138,789,571
<DEPOSITS> 123,725,927
<SHORT-TERM> 3,152,617
<LIABILITIES-OTHER> 832,087
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 11,078,940
<TOTAL-LIABILITIES-AND-EQUITY> 138,789,751
<INTEREST-LOAN> 3,782,137
<INTEREST-INVEST> 963,632
<INTEREST-OTHER> 116,395
<INTEREST-TOTAL> 4,862,164
<INTEREST-DEPOSIT> 1,720,125
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 3,090,018
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,419,467
<INCOME-PRETAX> 974,765
<INCOME-PRE-EXTRAORDINARY> 683,107
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 683,107
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.48
<YIELD-ACTUAL> 5.30
<LOANS-NON> 40,000
<LOANS-PAST> 532,000
<LOANS-TROUBLED> 246,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,352,508
<CHARGE-OFFS> 17,292
<RECOVERIES> 2,426
<ALLOWANCE-CLOSE> 1,397,642
<ALLOWANCE-DOMESTIC> 1,397,642
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
