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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 September 30, 2000
( ) TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21855
STEWARDSHIP FINANCIAL CORPORATION
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(Name of small business issuer as specified in its charter)
New Jersey 22-3351447
------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
630 Godwin Avenue, Midland Park, NJ 07432
--------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(201) 444-7100
---------------------------
(Issuer's telephone number)
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(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 November 1, 2000 was 1,645,747.
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 September 30, 2000 and December 31, 1999 (Unaudited) ....... 1
Consolidated Statements of Income for the Nine
Months ended September 30, 2000 and 1999 ( Unaudited) ......... 2
Consolidated Statements of Income for the Three
Months ended September 30, 2000 and 1999 ( Unaudited) ......... 3
Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 2000 and 1999 (Unaudited) .......... 4
Consolidated Statement of Changes in Stockholders'
Equity for the Nine Months ended September 30, 2000
(Unaudited) ................................................... 5
Notes to Consolidated Financial Statements (Unaudited) ........ 6 - 11
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................ 12 - 17
ITEM III - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ................................................ 17
PART II - OTHER INFORMATION
ITEM 1 THRU ITEM 6 ..................................................... 18
SIGNATURES ............................................................. 19
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,667,000 $ 7,724,000
Commercial paper and interest-bearing due from banks 505,000 546,000
Federal funds sold 5,225,000 8,625,000
-----------------------------
Cash and cash equivalents 14,397,000 16,895,000
Securities available for sale 17,640,000 16,802,000
Securities held to maturity; estimated fair value
of $22,054,000 (2000) and $20,437,000 (1999) 22,335,000 20,862,000
FHLB-NY stock, at cost 770,000 663,000
Loans, net of allowance for loan losses of
of $2,123,000 (2000) and $1,874,000 (1999) 160,975,000 142,196,000
Mortgage loans held for sale 505,000 -
Premises and equipment, net 2,925,000 2,694,000
Accrued interest receivable 1,413,000 1,253,000
Intangible assets, net of accumulated amortization of
$380,000 (2000) and $341,000 (1999) 370,000 409,000
Other assets 1,392,000 1,298,000
-----------------------------
Total assets $222,722,000 $203,072,000
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 44,846,000 $ 41,359,000
Interest-bearing 157,426,000 143,808,000
-----------------------------
Total deposits 202,272,000 185,167,000
Securities sold under agreements to repurchase 1,459,000 1,173,000
Accrued expenses and other liabilities 1,648,000 1,446,000
-----------------------------
Total liabilities 205,379,000 187,786,000
-----------------------------
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Common stock, no par value; 5,000,000 shares authorized;
1,721,812 and 1,679,628 shares issued outstanding at
June 30, 2000 and December 31, 1999, respectively 9,314,000 8,760,000
Retained earnings 8,357,000 6,932,000
Accumulated other comprehensive loss (328,000) (406,000)
-----------------------------
Total stockholders' equity 17,343,000 15,286,000
-----------------------------
Total liabilities and stockholders' equity $222,722,000 $203,072,000
=============================
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------------
2000 1999
-----------------------------------------------
<S> <C> <C>
Interest income:
Loans $ 9,774,000 $8,128,000
Securities held to maturity
Taxable 451,000 410,000
Non-taxable 407,000 411,000
Securities available for sale 845,000 733,000
Other interest-earning assets 425,000 256,000
-----------------------------------------------
Total interest income 11,902,000 9,938,000
-----------------------------------------------
Interest expense:
Deposits 4,202,000 3,365,000
Borrowed money 51,000 43,000
-----------------------------------------------
Total interest expense 4,253,000 3,408,000
-----------------------------------------------
Net interest income before provision for loan losses 7,649,000 6,530,000
Provision for loan losses 300,000 230,000
-----------------------------------------------
Net interest income after provision for loan losses 7,349,000 6,300,000
-----------------------------------------------
Noninterest income:
Fees and service charges 774,000 612,000
Gain on sales of mortgage loans 28,000 79,000
Miscellaneous 134,000 114,000
-----------------------------------------------
Total noninterest income 936,000 805,000
-----------------------------------------------
Noninterest expenses:
Salaries and employee benefits 2,648,000 2,368,000
Occupancy, net 421,000 364,000
Equipment 358,000 340,000
Data processing 337,000 271,000
Advertising 130,000 141,000
FDIC insurance premium 28,000 18,000
Amortization of intangible assets 39,000 42,000
Charitable contributions 218,000 224,000
Stationery and supplies 144,000 173,000
Miscellaneous 1,296,000 1,061,000
-----------------------------------------------
Total noninterest expenses 5,619,000 5,002,000
-----------------------------------------------
Income before income tax expense 2,666,000 2,103,000
Income tax expense 901,000 683,000
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Net income $ 1,765,000 $1,420,000
===============================================
Basic earnings per share $1.03 $0.86
===============================================
Diluted earnings per share $1.02 $0.85
===============================================
Weighted average number of common shares outstanding 1,708,271 1,650,965
===============================================
Weighted average number of diluted common
shares outstanding 1,724,235 1,674,752
===============================================
</TABLE>
Share data has been restated to reflect a 5% stock dividend payable
November 15, 2000.
See notes to unaudited consolidated financial statements.
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------------------
2000 1999
--------------------------------------------------
<S> <C> <C>
Interest income:
Loans $3,488,000 $2,854,000
Securities held to maturity
Taxable 152,000 128,000
Non-taxable 135,000 131,000
Securities available for sale 285,000 251,000
Other interest-earning assets 144,000 87,000
-------------------------------------------------
Total interest income 4,204,000 3,451,000
-------------------------------------------------
Interest expense:
Deposits 1,517,000 1,173,000
Borrowed money 18,000 19,000
-------------------------------------------------
Total interest expense 1,535,000 1,192,000
-------------------------------------------------
Net interest income before provision for loan losses 2,669,000 2,259,000
Provision for loan losses 100,000 80,000
-------------------------------------------------
Net interest income after provision for loan losses 2,569,000 2,179,000
-------------------------------------------------
Noninterest income:
Fees and service charges 256,000 204,000
Gain on sales of mortgage loans 17,000 21,000
Miscellaneous 33,000 25,000
-------------------------------------------------
Total noninterest income 306,000 250,000
-------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 895,000 825,000
Occupancy, net 151,000 134,000
Equipment 126,000 94,000
Data processing 114,000 100,000
Advertising 34,000 46,000
FDIC insurance premium 10,000 6,000
Amortization of intangible assets 13,000 14,000
Charitable contributions 79,000 94,000
Stationery and supplies 51,000 62,000
Miscellaneous 419,000 329,000
-------------------------------------------------
Total noninterest expenses 1,892,000 1,704,000
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Income before income tax expense 983,000 725,000
Income tax expense 338,000 238,000
-------------------------------------------------
Net income $ 645,000 $ 487,000
=================================================
Basic earnings per share $0.37 $0.29
=================================================
Diluted earnings per share $0.37 $0.29
=================================================
Weighted average number of common shares outstanding 1,719,064 1,661,112
=================================================
Weighted average number of diluted common
shares outstanding 1,733,650 1,686,807
=================================================
</TABLE>
Share data has been restated to reflect a 5% stock dividend payable November 15,
2000.
See notes to unaudited consolidated financial statements.
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
2000 1999
-------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,765,000 $ 1,420,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of premises and equipment 344,000 337,000
Amortization of premiums and accretion of discounts, net 20,000 53,000
Accretion of deferred loan fees (29,000) (22,000)
Provision for loan losses 300,000 230,000
Originations of mortgage loans held for sale (3,262,000) (6,155,000)
Proceeds from sale of mortgage loans 2,785,000 6,677,000
Gain on sale of mortgage loans (28,000) (79,000)
Deferred income tax benefit (107,000) (94,000)
Amortization of intangibles 39,000 42,000
(Increase) decrease in accrued interest receivable (160,000) 35,000
Decrease in other assets (36,000) (58,000)
Increase in other liabilities 202,000 554,000
-----------------------------------------
Net cash provided by operating activities 1,833,000 2,940,000
-----------------------------------------
Cash flows from investing activities:
Purchase of securities available for sale (1,404,000) (5,441,000)
Proceeds from maturities and principal repayments
on securities available for sale 710,000 2,929,000
Proceeds from calls and sales of securities available
for sale - 2,971,000
Purchase of securities held to maturity (2,816,000) (4,298,000)
Proceeds from maturities and principal repayments
on securities held to maturity 1,307,000 2,983,000
Proceeds from call on securities held to maturity
- 3,203,000
Purchase of FHLB-NY stock (107,000) (105,000)
Net increase in loans (19,051,000) (18,551,000)
Additions to premises and equipment (575,000) (479,000)
-----------------------------------------
Net cash used in investing activities (21,936,000) (16,788,000)
-----------------------------------------
Cash flows from financing activities:
Net increase in noninterest-bearing deposits 3,487,000 942,000
Net increase in interest-bearing deposits 13,618,000 7,312,000
Net increase in securities sold under agreements to
repurchase 286,000 2,300,000
Cash dividends paid on common stock (340,000) (276,000)
Common stock issued under stock plans 554,000 442,000
-----------------------------------------
Net cash provided by financing activities 17,605,000 10,720,000
-----------------------------------------
Net decrease in cash and cash equivalents (2,498,000) (3,128,000)
Cash and cash equivalents - beginning 16,895,000 16,999,000
-----------------------------------------
Cash and cash equivalents - ending $ 14,397,000 $ 13,871,000
=========================================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 4,079,000 $ 3,416,000
Cash paid during the year for income taxes 993,000 735,000
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED SEPTEMBER 30, 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 - - (340,000) - (340,000)
5% Stock dividend (payable November 1, 2000) 81,991
Common stock issued under stock plans 18,416 323,000 - - 323,000
Exercise of stock options 21,759 231,000 231,000
Comprehensive income:
Net income for the nine months
ended September 30, 2000 - - 1,765,000 - 1,765,000
Unrealized holding gain on securities
available for sale arising during the period
(net of tax of $21,000) - - - 78,000 78,000
-------------
Total comprehensive income, net of tax 1,843,000
--------------------------------------------------------------------------------
Balance -- September 30, 2000 1,721,812 $9,314,000 $8,357,000 $(328,000) $17,343,000
================================================================================
</TABLE>
Data has been restated to reflect a 5% stock dividend payable on November 15,
2000.
See notes to unaudited consolidated financial statements.
<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 the nine
months ended September 30, 2000 are not necessarily indicative of the results
which may be expected for the entire year.
<PAGE>
This Form 10-QSB contains certain "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, and may be
identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated," and "potential." Examples of forward looking
statements include, but are not limited to, estimates with respect to the
financial condition, results of operations and business of Stewardship Financial
Corporation that are subject to various factors which could cause actual results
to differ materially from these estimates. These factors include: changes in
general, economic, and market conditions, legislative and regulatory conditions,
or the development of an interest rate environment that adversely affects
Stewardship Financial Corporation's interest rate spread or other income
anticipated from operations and investments. As used in this Form 10-QSB, "we"
and "us" and "our" refer to Stewardship Financial Corporation and its
consolidated subsidiary, Atlantic Stewardship Bank, depending on the context.
<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 September 30, 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>
September 30, 2000
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,001,000 $ - $ 7,000 $ 1,994,000
U.S. Government agencies 9,478,000 13,000 441,000 9,050,000
Obligations of state and political
subdivisions 1,062,000 2,000 4,000 1,060,000
Mortgage-backed securities 5,630,000 21,000 115,000 5,536,000
---------------------------------------------------------------------
$18,171,000 $36,000 $567,000 $17,640,000
=====================================================================
<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 September 30, 2000 and December
31, 1999. Securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts.
<TABLE>
<CAPTION>
September 30, 2000
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 749,000 $ - $ 6,000 $ 743,000
U.S. Government agencies 6,581,000 2,000 186,000 6,397,000
Obligations of state and political
subdivisions 13,281,000 34,000 124,000 13,191,000
Mortgage-backed securities 1,724,000 15,000 16,000 1,723,000
---------------------------------------------------------------------
$22,335,000 $51,000 $ 332,000 $22,054,000
=====================================================================
<CAPTION>
December 31, 1999
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost 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>
<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.
September 30, December 31,
2000 1999
-------------------------------------
Mortgage
Residential $ 34,227,000 $ 31,716,000
Commercial 62,588,000 53,609,000
Commercial 26,815,000 21,838,000
Equity 5,976,000 4,742,000
Installment 33,413,000 32,110,000
Other 202,000 175,000
-------------------------------------
Total loans 163,221,000 144,190,000
-------------------------------------
Less: Deferred loan fees 123,000 120,000
Allowance for loan losses 2,123,000 1,874,000
-------------------------------------
2,246,000 1,994,000
-------------------------------------
Loans, net $160,975,000 $142,196,000
=====================================
NOTE 6. ALLOWANCE FOR LOAN LOSSES
Nine Months Ended September 30,
2000 1999
-------------------------------------
Balance, beginning of period $1,874,000 $1,542,000
Provision charged to operations 300,000 230,000
Recoveries of loans charged off 22,000
5,000
Loans charged off (56,000) (33,000)
-------------------------------------
Balance, end of period $2,123,000 $1,761,000
=====================================
<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.
September 30, December 31,
2000 1999
------------------------------
Impaired loans
With related allowance for loan losses $765,000 $ -
Without related allowance for loan losses 129,000 -
------------- -------------
Total impaired loans $894,000 $ -
============= =============
Related allowance for loan losses $172,000 $ -
============= =============
<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 15,964
and 23,787 shares at September 30, 2000 and 1999, respectively.
All share and per share amounts have been restated to reflect a 5% stock
dividend payable November 1, 2000.
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, 2000 and 1999 was $1.8 million and $1.1
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
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
establishes accounting and reporting standards for derivative instruments and
for hedging activities. SFAS No. 133 supersedes the disclosure requirements in
SFAS No. 80, 105, and 119. This statement was to be effective for periods after
June 15, 1999. SFAS 137 extended the adoption date of SFAS 133 to fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to
have a material impact on the financial position or results of operations.
11
<PAGE>
Item II. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FINANCIAL CONDITION
Total assets increased by $19.7 million, or 9.7%, from $203.1 million at
December 31, 1999 to $220.3 million at September 30, 2000. Net loans increased
$18.8 million and securities held to maturity increased $1.5 million. The
composition of the loan portfolio is basically unchanged at September 30, 2000
when compared with the portfolio at December 31, 1999.
Total deposits totaled $202.3 million at September 30, 2000, an increase of
$17.1 million, or 9.2% from $185.2 million at December 31, 1999.
Interest-bearing deposits increased $13.6 million, or 9.5%, to $157.4 million at
September 30, 2000, and noninterest-bearing deposits increased $3.5 million, or
8.4%, to $44.8 million at September 30, 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 nine 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 introduced its website and began the installation
of an internet banking product for customers. The product is offered through an
external service bureau which supports the product, provides necessary security
and internal controls, and assists in regulatory compliance. The Corporation
purchased land for its new branch to be located in Pequannock, Morris County,
New Jersey with an expected opening date in the first Quarter 2001. Management
believes that the product and branch network will continue to 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
NINE MONTHS ENDED SEPTEMBER 30, 2000
General
The Corporation reported net income of $1.8 million, or $1.03 basic earnings per
share for the nine months ended September 30, 2000 compared to $1.4 million,
or .86 basic earnings per share for the same period in 1999. The $345,000
increase 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 $1.1 million, or 17.1%, for the nine months ended
September 30, 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.
12
<PAGE>
Total interest income increased $2.0 million, or 19.8%, 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 $24.0 million, or 13.6%, from $176.5 million for the nine months ended
September 30, 1999 to $200.5 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 $19.4 million to an average $151.5 million for the
nine months ended September 30, 2000, from an average $132.1 million for the
comparable period in 1999.
Interest paid on deposits and borrowed money increased by $845,000, or 24.8%,
due primarily to an increase in average deposits and 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 $149.6 million
for the nine months ended September 30, 2000 from $133.1 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 3.39% for the period ended September 30, 1999 to
3.76% 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 $300,000 and $230,000 during the
nine months ended September 30, 2000 and 1999. The increase in the provision was
due to the general increase in the loans outstanding and an increase in
nonperforming loans. 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 $131,000, or 16.3%, to $936,000 for the nine months
ended September 30, 2000, compared to $805,000 for the same period in 1999.
Deposit related fees increased $162,000 offset by a decrease of $51,000 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.
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Noninterest expense
Noninterest expense increased by approximately $617,000, or 12.3%, to $5.6
million for the nine months ended September 30, 2000, compared to $5.0 million
for the same 1999 period. Salaries and employee benefits, the major component of
noninterest expense, increased $280,000, or 11.8%, during the nine months ended
September 30, 2000. This increase was due to the full year 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 $141,000, or 14.5%
due to the full year effect of the new Wayne Valley branch. Miscellaneous
expenses increased $235,000, or 22.1% due to the necessary support of the
general growth of the Corporation.
Income taxes
Income tax expense totaled $901,000 and $683,000 during the nine months ended
September 30, 2000 and 1999, respectively.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000
General
The Corporation reported net income of $645,000, or $0.37 basic earnings per
share for the three months ended September 30, 2000, compared to $487,000, or
$0.29 basic earnings per share for the same period in 1999. The $158,000
increase was primarily caused by an increase in net interest income, partially
offset by increases in noninterest expense.
Net interest income
Net interest income increased $410,000, or 18.1%, for the three months ended
September 30, 2000 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.
Total interest income increased $753,000, or 21.8%, 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 $23.2
million, or 12.7%, from $183.7 million for the three months ended September 30,
1999 to $206.9 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 loans on average to increase
$21.3 million to an average $158.5 million for the three months ended September
30, 2000, from an average $137.2 million for the comparable period in 1999.
Interest paid on deposits and borrowed money increased $343,000, or 28.8%, due
primarily to an increase in cost of funds as customers shifted from lower
yielding deposits into longer term certificates of deposit. The average balance
of total interest-bearing deposits increased to $154.6 million for the three
months ended September 30, 2000 from $136.6 million for the comparable
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1999 period, primarily as a result of the Corporation's expanding customer base
and the popularity of an 18 month certificate of deposit program.
Provision for loan losses
The provision charged to operations totaled $100,000 and $80,000 during the
three months ended September 30, 2000 and 1999. See "Asset Quality" section for
summary of allowance for loan losses and nonperforming assets.
Noninterest income
Noninterest income increased $56,000, or 22.4%, to $306,000 during the three
months ended September 30, 2000 when compared with $250,000 during the 1999
period. Contributing to this increase was an increase of $52,000 in
deposit-related fees and service charges caused by the increased deposit base.
Noninterest expense
Noninterest expense increased $188,000, or 11.0%, to $1.9 million for the three
months ended September 30, 2000, compared to $1.7 million for the same 1999
period. Salaries and employee benefits, the major component of noninterest
expense, increased $70,000, or 8.5%, during the three months ended September 30,
2000. The increase was due primarily to additions to staff in the lending and
deposit operations areas and general increases for merit and performance.
Miscellaneous expenses increased $90,000, or 27.4% due to the necessary support
of the general growth of the Corporation and additions in consulting expense
being utilized to provide strategic planning consulting.
Income taxes
Income tax expense totaled $338,000 and $238,000 during the three months ended
September 30, 2000 and 1999, respectively.
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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>
09/30/00 06/30/00 03/31/00 12/31/99
-------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Nonaccrual loans: (1) $ 765 $ 766 $ 564 $ -
Loans past due 90 days or more: (2) 129 8 - -
Restructured loans: 21 22 23 25
-------- -------- -------- --------
Total nonperforming loans $ 915 $ 796 $ 587 $ 25
======== ======== ======== ========
Allowance for loan losses $2,123 $2,072 $1,964 $1,874
======== ======== ======== ========
Nonaccrual loans to total loans 0.47% 0.49% 38% -%
Nonperforming loans to total loans 0.56% 0.51% 0.39% 0.02%
Nonperforming loans to total assets 0.41% 0.36% 0.28% 0.01%
Allowance for loan losses to total loans 1.30% 1.32% 1.32% 1.30%
</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 September 30, 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.
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.
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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 $2.5 million during the first nine months of 2000, as
financing activities and operating activities provided $17.6 million and $1.8
million, respectively, offset by investing activities using $21.9 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 September 30, 2000 the Corporation's capital ratios were as follows:
Required Actual Excess
-------- ------ ------
Risk-based Capital
Tier 1 4.00% 11.11% 7.11%
Total 8.00% 12.36% 4.36%
Leverage Ratio 3.00% 7.83% 4.83%
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.
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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
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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: October 14, 2000 By: /s/ PAUL VAN OSTENBRIDGE
--------------------------------- -----------------------------------
Paul Van Ostenbridge
President and Chief Executive
Officer
Date: October 14, 2000 By: /s/ JULIE E. HOLLAND
--------------------------------- -----------------------------------
Julie E. Holland
Vice President and Treasurer
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