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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, 2000
( ) 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 2, 2000 was 1,626,160.
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, 2000 and December 31, 1999 (Unaudited) ......... 1
Consolidated Statements of Income for the Three
Months ended March 31, 2000 and 1999 ( Unaudited) ........... 2
Consolidated Statements of Income for the Three
Months ended March 31, 2000 and 1999 ( Unaudited) ........... 3
Consolidated Statement of Changes in Stockholders'
Equity for the Three Months ended
March 31, 2000 (Unaudited) .................................. 4
Notes to Consolidated Financial Statements (Unaudited) ...... 5-10
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ......................................... 11-14
ITEM III - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK ................................. 14
PART II - OTHER INFORMATION
ITEM 1 THRU ITEM 6 .................................................. 15
SIGNATURES .......................................................... 16
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
March 31, DECEMBER 31,
2000 1999
------------ --------------
<S> <C> <C>
ASSETS
Cash and due from banks ................................. $ 7,619,000 $ 7,724,000
Commercial paper and interest-bearing due from banks .... 1,029,000 546,000
Federal funds sold ...................................... 8,525,000 8,625,000
------------- -------------
Cash and cash equivalents ........................ 17,173,000 16,895,000
Securities available for sale ........................... 17,689,000 16,802,000
Securities held to maturity; estimated fair value
of $ 21,164,000 (2000) and $20,437,000 (1999) ....... 21,680,000 20,862,000
FHLB-NY stock, at cost .................................. 770,000 663,000
Loans, net of allowance for loan losses of
of $ 1,964,000 (2000) and $1,874,000 (1999) ......... 146,505,000 142,196,000
Mortgage loans held for sale ............................ 177,000 --
Premises and equipment, net ............................. 2,616,000 2,694,000
Accrued interest receivable ............................. 1,245,000 1,253,000
Intangible assets, net of accumulated amortization of
$354,000 (2000) and $341,000 (1999) ................. 396,000 409,000
Other assets ............................................ 1,371,000 1,298,000
------------- -------------
Total assets ..................................... $ 209,622,000 $ 203,072,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing ................................. $ 44,975,000 $ 41,359,000
Interest-bearing .................................... 145,944,000 143,808,000
------------- -------------
Total deposits .................................. 190,919,000 185,167,000
Securities sold under agreements to repurchase .......... 1,150,000 1,173,000
Accrued expenses and other liabilities .................. 1,609,000 1,446,000
------------- -------------
Total liabilities ............................... 193,678,000 187,786,000
------------- -------------
Commitments and contingencies ........................... -- --
STOCKHOLDERS' EQUITY
Common stock, no par value; 5,000,000 shares authorized;
1,621,256 and 1,599,646 shares issued outstanding at
March 31, 2000 and December 31, 1999, respectively . 9,035,000 8,760,000
Retained earnings ....................................... 7,346,000 6,932,000
Accumulated other comprehensive loss: ................... (437,000) (406,000)
------------- -------------
Total stockholders' equity ...................... 15,944,000 15,286,000
------------- -------------
Total liabilities and stockholders' equity ...... $ 209,622,000 $ 203,072,000
============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
1
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
-----------------------
2000 1999
---------- ----------
Interest income:
Loans ......................................... $3,048,000 $2,558,000
Securities held to maturity
Taxable ..................................... 140,000 148,000
Non-taxable ................................. 135,000 137,000
Securities available for sale ................. 276,000 242,000
Other interest-earning assets ................. 137,000 116,000
---------- ----------
Total interest income .................... 3,736,000 3,201,000
---------- ----------
Interest expense:
Deposits ...................................... 1,303,000 1,102,000
Borrowed money ................................ 16,000 13,000
---------- ----------
Total interest expense ................... 1,319,000 1,115,000
---------- ----------
Net interest income before provision for loan losses 2,417,000 2,086,000
Provision for loan losses .......................... 90,000 75,000
---------- ----------
Net interest income after provision for loan losses 2,327,000 2,011,000
---------- ----------
Noninterest income:
Fees and service charges ...................... 235,000 190,000
Gain on sales of mortgage loans ............... 7,000 42,000
Miscellaneous ................................. 25,000 35,000
---------- ----------
Total noninterest income ................ 267,000 267,000
---------- ----------
Noninterest expenses:
Salaries and employee benefits ................ 866,000 741,000
Occupancy, net ................................ 139,000 110,000
Equipment ..................................... 113,000 116,000
Data processing ............................... 107,000 91,000
Advertising ................................... 37,000 53,000
FDIC insurance premium ........................ 9,000 6,000
Amortization of intangible assets ............. 13,000 14,000
Charitable contributions ...................... 70,000 62,000
Stationery and supplies ....................... 47,000 48,000
Miscellaneous ................................. 408,000 369,000
---------- ----------
Total noninterest expenses ............... 1,809,000 1,610,000
---------- ----------
Income before income tax expense ................... 785,000 668,000
Income tax expense ................................. 259,000 214,000
========== ==========
Net income ......................................... $ 526,000 $ 454,000
========== ==========
Basic earnings per share ........................... $ 0.33 $ 0.29
========== ==========
Diluted earnings per share ......................... $ 0.32 $ 0.29
========== ==========
Weighted average number of common shares outstanding 1,615,865 1,563,064
========== ==========
Weighted average number of diluted common
shares outstanding ............................ 1,634,780 1,588,968
========== ==========
Share data has been restated to reflect a 3 for 2 stock split completed July 1,
1999 and a 5% stock dividend paid on October 27, 1999.
See notes to unaudited consolidated financial statements.
2
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 526,000 $ 454,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of premises and equipment 108,000 124,000
Amortization of premiums and accretion of discounts, net 8,000 25,000
Accretion of deferred loan fees ........................ (9,000) (6,000)
Provision for loan losses .............................. 90,000 75,000
Originations of mortgage loans held for sale ........... (748,000) (3,318,000)
Proceeds from sale of mortgage loans ................... 578,000 3,749,000
Gain on sale of mortgage loans ......................... (7,000) (42,000)
Deferred income tax benefit ............................ (2,000) (36,000)
Amortization of intangibles ............................ 13,000 14,000
Decrease in accrued interest receivable ................ 7,000 20,000
Increase in other assets ............................... (52,000) (17,000)
Increase in other liabilities .......................... 163,000 339,000
------------ ------------
Net cash provided by operating activities .......... 675,000 1,381,000
------------ ------------
Cash flows from investing activities:
Purchase of securities available for sale .................... (1,153,000) (1,095,000)
Proceeds from maturities and principal repayments
on securities available for sale .......................... 221,000 1,339,000
Proceeds from calls and sales of securities available for sale -- 1,250,000
Purchase of securities held to maturity ...................... (1,143,000) (2,884,000)
Proceeds from maturities and principal repayments
on securities held to maturity ............................ 312,000 933,000
Proceeds from call on securities held to maturity ............ -- 1,700,000
Purchase of FHLB-NY stock .................................... (108,000) (105,000)
Net increase in loans ........................................ (4,389,000) (5,736,000)
Additions to premises and equipment .......................... (29,000) (247,000)
------------ ------------
Net cash used in investing activities .................. (6,289,000) (4,845,000)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in noninterest-bearing deposits ...... 3,616,000 (2,679,000)
Net increase in interest-bearing deposits .................... 2,136,000 1,315,000
Net decrease in securities sold under agreements to repurchase (23,000) (100,000)
Cash dividends paid on common stock .......................... (112,000) (89,000)
Common stock issued under stock plans ........................ 275,000 90,000
------------ ------------
Net cash provided by (used in) financing activities .... 5,892,000 (1,463,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents .............. 278,000 (4,927,000)
Cash and cash equivalents - beginning ............................. 16,895,000 16,999,000
============ ============
Cash and cash equivalents - ending ................................ $ 17,173,000 $ 12,072,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest ....................... $ 1,320,000 $ 1,161,000
Cash paid during the year for income taxes ................... 50,000 50,000
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Stewardship Financial Corporation and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
For the Period Ended March 31, 2000
------------------------------------------------------------------------
Accumulated
Other
Common Stock Retained Comprehensive
Shares Amount Earnings Loss Total
--------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance -- December 31, 1999 ................... 1,599,646 $ 8,760,000 $ 6,932,000 $ (406,000) $ 15,286,000
Dividends Paid ................................. -- -- (112,000) -- (112,000)
Common stock issued under stock plans .......... 5,784 107,000 -- -- 107,000
Exercise of stock options ...................... 15,826 168,000 168,000
Comprehensive income:
Net income for the three months
ended March 31, 2000 .................... -- -- 526,000 -- 526,000
Unrealized holding loss on securities
available for sale arising during the period
(net of tax benefit of $18,000) ............ -- -- -- (31,000) (31,000)
------------
Total comprehensive income, net of tax ......... 495,000
============ ============ ============ ============ ============
Balance -- March 31, 2000 ...................... 1,621,256 $ 9,035,000 $ 7,346,000 $ (437,000) $ 15,944,000
============ ============ ============ ============ ============
</TABLE>
Data has been restated to reflect a 3 for 2 stock split completed July 1, 1999
and a 5% stock dividend payable on October 27, 1999.
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, 2000 are not necessarily indicative of the results which
may be expected for the entire year.
5
<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 March 31, 2000 and December
31, 1999. 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.
<TABLE>
<CAPTION>
March 31, 2000
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ........... $ 2,001,000 $ -- $ 19,000 $ 1,982,000
U.S. Government agencies ........... 9,206,000 4,000 524,000 8,686,000
Obligations of state and political
subdivisions .................. 1,065,000 -- 13,000 1,052,000
Mortgage-backed securities ......... 6,125,000 20,000 176,000 5,969,000
----------- ----------- ----------- -----------
$18,397,000 $ 24,000 $ 732,000 $17,689,000
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ........... $ 2,001,000 $ -- $ 11,000 $ 1,990,000
U.S. Government agencies ........... 8,248,000 -- 520,000 7,728,000
Obligations of state and political
subdivisions .................. 862,000 -- 9,000 853,000
Mortgage-backed securities ......... 6,350,000 24,000 143,000 6,231,000
----------- ----------- ----------- -----------
$17,461,000 $ 24,000 $ 683,000 $16,802,000
=========== =========== =========== ===========
</TABLE>
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, 2000 and
December 31, 1999. Securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts.
<TABLE>
<CAPTION>
March 31, 2000
-----------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ........... $ 749,000 $ -- $ 14,000 $ 735,000
U.S. Government agencies ........... 6,589,000 -- 255,000 6,334,000
Obligations of state and political
subdivisions .................. 13,010,000 19,000 258,000 12,771,000
Mortgage-backed securities ......... 1,332,000 12,000 20,000 1,324,000
=========== =========== =========== ===========
$21,680,000 $ 31,000 $ 547,000 $21,164,000
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ........... $ 749,000 $ -- $ 11,000 $ 738,000
U.S. Government agencies ........... 5,847,000 -- 235,000 5,612,000
Obligations of state and political
subdivisions .................. 12,870,000 24,000 210,000 12,684,000
Mortgage-backed securities ......... 1,396,000 13,000 6,000 1,403,000
=========== =========== =========== ===========
$20,862,000 $ 37,000 $ 462,000 $20,437,000
=========== =========== =========== ===========
</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 sets forth the composition of loans as of the periods indicated.
March 30, December 31,
2000 1999
------------ -------------
Mortgage
Residential ................... $ 31,785,000 $ 31,716,000
Commercial .................... 56,719,000 53,609,000
Commercial ......................... 22,925,000 21,838,000
Equity ............................. 4,687,000 4,742,000
Installment ........................ 32,413,000 32,110,000
Other .............................. 69,000 175,000
------------ ------------
Total loans ................ 148,598,000 144,190,000
------------ ------------
Less: Deferred loan fees .......... 129,000 120,000
Allowance for loan losses ... 1,964,000 1,874,000
------------ ------------
2,093,000 1,994,000
------------ ------------
Loans, net $146,505,000 $142,196,000
============ ============
NOTE 6. ALLOWANCE FOR LOAN LOSSES
Three Months Ended March 30,
---------------------------
1999 1999
------------ ------------
Balance, beginning of period ......... $ 1,874,000 $ 1,542,000
Provision charged to operations ...... 90,000 75,000
Recoveries of loans charged off ...... -- 10,000
Loans charged off .................... 0 (11,000)
----------- -----------
Balance, end of period ............... $ 1,964,000 $ 1,616,000
=========== ===========
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,
2000 1999
-------- ------------
Impaired loans
With related allowance for loan losses .... $564,000 $ --
Without related allowance for loan losses . -- --
======== ======
Total impaired loans .......................... $564,000 $ --
======== ======
Related allowance for loan losses ............. $136,000 $ --
======== ======
Impaired loans at March 31, 2000 included two nonaccrual loans to one commercial
borrower totaling $564,000. The loans are secured by commercial real estate.
8
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTE 8. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the average
daily number of common shares outstanding during the period. Common stock
equivalents are not included in the calculation.
Diluted earnings per share is computed similar to that of basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all potential
dilutive common shares were issued. Potential dilutive securities totaled 22,654
and 16,966 shares at September 30, 1999 and 1998, respectively.
All share and per share amounts have been restated to reflect a 3 for 2 stock
split paid in July, 1999 and a 5% stock dividend paid on October 27, 1999.
NOTE 9. COMPREHENSIVE INCOME
Total comprehensive income includes net income and other comprehensive income
which is comprised of unrealized holding gains and lossess on securities
available for sale, net of taxes. The Corporation's total comprehensive income
for the nine months ended September 30, 1999 and 1998 was $1.1 million and $1.3
million, respectively. The difference between the Corporation's net income and
total comprehensive income for these periods relates to the change in the net
unrealized holding gains or losses on securities available for sale during the
applicable period of time.
NOTE 10. RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), was issued by the Financial
Accounting Standards Board in June, 1998. SFAS No. 133 standardizes the
accounting for derivative instruments including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments in the statement of financial position at fair value.
As issued in June, 1998, the Corporation must adopt SFAS No. 133 by January 1,
2000, however, early adoption is permitted. On adoption, the provisions of SFAS
No. 133 must be applied prospectively. The Corporation anticipates that the
adoption of SFAS No. 133 will not have a material impact on financial
statements. With the issuance of Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Intsruments and Hedging Activities - Deferral of
the Effective Date of FASB No. 133", the effective date of SFAS No. 133 has been
deferred to all fiscal years beginning after June 15, 2000.
9
<PAGE>
On October 9, 1998 the FASB issued Statement of Financial Accounting Standards
No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held-for-Sale by a Mortgage Banking Enterprise"
(SFAS No. 134). SFAS No. 134 changes the way mortgage banking firms account for
certain securities and other interests they retain after securitizing mortgage
loans that were held for sale. This statement is effective for fiscal quarters
beginning after December 15, 1998. Early application was permitted. The adoption
of this statement by the Corporation did not have a material effect on the
financial statements of the Corporation.
10
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets increased by $6.6 million, or 3.2%, from $203.1 million at December
31, 1999 to $209.6 million at March 31, 2000. Net loans increased $4.3 million
and securities held to maturity and securities available for sale both increased
$800,000 each. The composition of the loan portfolio is basically unchanged at
March 31, 2000 when compared with the portfolio at December 31, 1999.
Total deposits totaled $190.9 million at March 31, 2000, an increase of $5.8
million, or 3.1% from $185.2 million at December 31, 1999. Interest-bearing
deposits increased $2.1 million, or 1.5%, to $145.9 million at March 31, 2000,
and noninterest-bearing deposits increased $3.6 million, or 8.7%, to $45.0
million at March 31, 2000. The increase in deposits can be attributed to an
overall marketing effort to attract additional certificates of deposit and
noninterest-bearing accounts.
The Corporation's primary focus during the first three months was to continue to
concentrate on developing the market base in Wayne, Passaic County, New Jersey
and to concentrate marketing efforts toward increasing noninterest-bearing
deposits. The Corporation also began to develop its website and began the
installation of an internet banking product for customers. The product will be
offered through an external service bureau which supports the product, provides
necessary security and internal controls, and assists in regulatory compliance.
It is anticipated that the product will be in beta testing during the second
quarter of 2000 with rollout to our customer base in third quarter 2000.
Management believes that this will enhance the delivery channels being offered
to existing and new customers which will allow us to continue to provide strong
personalized customer service.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
General
The Corporation reported net income of $526,000, or $0.33 basic earnings per
share for the three months ended March 31, 2000 compared to $454,000, or $.29
basic earnings per share for the same period in 1999. The $72,000 increase was
primarily caused by increases in net interest income, partially offset by
increases in noninterest expense.
Net interest income
Net interest income increased $331,000, or 15.9%, for the three months ended
March 31, 2000 as compared with the corresponding period in 1999. The increase
was primarily due to an increase in average net interest-earning assets and an
increase in net interest margin.
11
<PAGE>
Total interest income increased $535,000, or 16.7%, primarily due to an increase
in the average volume of interest-earning assets and an increase in yields on
earning assets. The average balance on interest-earning assets increased $19.9
million, or 11.5%, from $173.4 million for the three months ended March 31, 1999
to $193.3 million for the same period in 2000, 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 net loans on average to
increase $17.2 million to an average $144.7 million for the three months ended
March 31, 2000, from an average $127.4 million for the comparable period in
1999.
Interest paid on deposits and borrowed money decreased by $204,000, or 18.3%,
due primarily to an increase in cost of funds as customers redeployed funds into
certificates of deposit products. The average balance of total interest-bearing
deposits increased to $144.6 million for the three months ended March 31, 2000
from $131.0 million for the comparable 1999 period, primarily as a result of the
Corporation's expanding customer base and the certificate of deposit promotions.
Yields on deposits and borrowed money increased from 3.42% for the period ended
March 31, 1999 to 3.64% for the comparable period in 2000 .
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 are charged to
operations during the period in which such additions are deemed necessary.
The provision charged to operations totaled $90,000 and $75,000 during the three
months ended March 31, 2000 and 1999. The increase in the provision was due to
the general increase in the loans outstanding. 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 remained flat at $267,000 for March 31, 2000 and 1999.
Deposit related fees increased $45,000 offset by a decrease of $35,000 in gain
on sale of mortgage loans due primarily to a decrease in loans originated and
sold during 2000 compared to the similar period in 1999.
Noninterest expense
Noninterest expense increased by approximately $199,000, or 12.4%, to $1.8
million for the three months ended March 31, 2000, compared to $1.6 million for
the same 1999 period. Salaries and employee benefits, the major component of
noninterest expense, increased $125,000, or 16.9%, during the three months ended
March 31, 2000. This increase was due to
12
<PAGE>
the full quarter effect of additions to staff for the Wayne Valley branch,
deposit operations, accounting, and data processing departments and general
increases for merit and performance. Occupancy, equipment, and data processing
expense increased $42,000, or 13.3% due to the full quarter effect of the new
Wayne Valley branch. Miscellaneous expenses increased $39,000, or 10.6% due to
the necessary support of the general growth of the Corporation.
Income taxes
Income tax expense totaled $259,000 and $214,000 during the three months ended
March 31, 2000 and 1999, 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:
<TABLE>
<CAPTION>
03/31/00 12/31/99 09/30/99 06/30/99
-------- --------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Nonaccrual loans: (1) ..................... $ 564 $ -- $ 4 $ 4
Loans past due 90 days or more: (2) ....... -- -- -- 1
Restructured loans: ....................... 23 25 26 27
-------- --------- -------- --------
Total nonperforming loans ............ $ 587 $ 25 $ 30 $ 32
======== ========= ======== ========
Allowance for loan losses ................. $ 1,964 $ 1,874 $ 1,761 $ 1,676
======== ========= ======== ========
Nonaccrual loans to total loans 0.38% -- % -- % -- %
Nonperforming loans to total loans ........ 0.39% 0.02% 0.02% 0.02%
Nonperforming loans to total assets ....... 0.28% 0.01% 0.02% 0.02%
Allowance for loan losses to total loans .. 1.32% 1.30% 1.24% 1.23%
</TABLE>
- ----------------
(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, 2000, 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.
13
<PAGE>
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 increased $278,000 during the first three months of 2000, as
investing activities used $6.3 million, offset by financing activities and
operating activities providing cash and cash equivalents totaling $5.9 million
and $0.7 million, respectively.
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, 2000 the Corporation's capital ratios were as follows:
Required Actual Excess
-------- ------ ------
Risk-based Capital
Tier 1 4.00% 10.96% 6.96%
Total 8.00% 12.21% 4.21%
Leverage Ratio 3.00% 7.64% 4.64%
ITEM III QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During 2000, there have been no significant changes in the Corporation's
assessment of market risk as reported in Item 6. of the Corporation's Form
10-KSB.
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
The Annual Meeting of Shareholders of Stewardship Financial
Corporation was held on May 9, 2000 at 7:00 P.M. Total number of
shares outstanding as of March 31, 2000 (Record Date) was 1,620,963.
Total number of shares represented at the meeting was 1,197,598. The
meeting was held for the purpose of considering and voting on the
following matter:
Election of Directors
The election of three persons named below to serve as directors
of the Corporation for three year terms
Total # of Shares
---------------------
Director Voted for Witheld
-------- --------- -------
Robert J. Turner 1,136,730 60,868
William J. Vander Eems 1,197,598 --
Paul Van Ostenbridge 1,197,598 --
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 15, 2000 BY: /s/ PAUL VAN OSTENBRIDGE
------------------------ ----------------------------------
Paul Van Ostenbridge
President and Chief Executive
Officer
DATE: May 15, 2000 BY: /s/ JULIE E. HOLLAND
------------------------ ----------------------------------
Julie E. Holland
Vice President and Treasurer
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the registrant's
unaudited September 30, 1999 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-31-2000
<PERIOD-END> MAR-30-2000
<CASH> 7,619,000
<INT-BEARING-DEPOSITS> 1,029,000
<FED-FUNDS-SOLD> 8,525,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,689,000
<INVESTMENTS-CARRYING> 21,680,000
<INVESTMENTS-MARKET> 21,164,000
<LOANS> 148,469,000
<ALLOWANCE> 1,964,000
<TOTAL-ASSETS> 209,622,000
<DEPOSITS> 190,919,000
<SHORT-TERM> 1,150,000
<LIABILITIES-OTHER> 1,609,000
<LONG-TERM> 0
0
0
<COMMON> 1,621,256
<OTHER-SE> 15,944,000
<TOTAL-LIABILITIES-AND-EQUITY> 209,622,000
<INTEREST-LOAN> 3,048,000
<INTEREST-INVEST> 551,000
<INTEREST-OTHER> 137,000
<INTEREST-TOTAL> 3,736,000
<INTEREST-DEPOSIT> 1,303,000
<INTEREST-EXPENSE> 1,319,000
<INTEREST-INCOME-NET> 2,417,000
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,809,000
<INCOME-PRETAX> 785,000
<INCOME-PRE-EXTRAORDINARY> 785,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 526,000
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 5.13
<LOANS-NON> 564,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,874,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,964,000
<ALLOWANCE-DOMESTIC> 1,964,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
