Stewardship Financial Corporation Announces Earnings For The Third Quarter of 2018

Stewardship Financial Corporation (NASDAQ:SSFN), parent company of Atlantic Stewardship Bank, today announced results for the three and nine months ended September 30, 2018. The Corporation reported net income of $2.2 million, or $0.25 per share, and $6.3 million, or $0.72 per share, for the three and nine months ended September 30, 2018, respectively, compared to $1.6 million, or $0.19 per share, and $3.9 million, or $0.51 per share, for the corresponding prior year periods.

Stewardship Financial Corporation’s President and Chief Executive Officer Paul Van Ostenbridge, stated, “We are pleased to report another profitable quarter for the Corporation. Results reflected a continued positive trend in the organic growth of both loans and deposits.”

Operating ResultsFor the three and nine months ended September 30, 2018, the Corporation reported net interest income of $7.2 million and $21.0 million, respectively, demonstrating continued improvement over the $6.8 million and $19.5 million realized in the equivalent prior year periods. Net interest income continues to benefit from a steady growth in assets that is being primarily driven by loan growth. Reflective of the current interest rate environment for the last several quarters, net interest margin continues to be relatively stable. "The Corporation has not participated in some of the unsustainable local competitive pricing pressures," noted Van Ostenbridge.

For both the three and nine months ended September 30, 2018, the Corporation recorded reversals of the allowance for loan losses resulting in negative provisions for loan losses of $490,000 and $1.6 million, respectively. This compares to positive provisions for loan losses of $20,000 and $580,000 for the three and nine months ended September 30, 2017, respectively. Notwithstanding the growth in the loan portfolio, the negative loan loss provisions reflect, in part, net recoveries of previously charged off loan balances of $41,000 and $747,000 for the three and nine months ended September 30, 2018, respectively. In addition, the negative provisions for loan losses reflect the continued improvement in the economic conditions and overall real estate climate in the primary business markets in which the Corporation operates. Van Ostenbridge commented, "Our allowance for loan losses to gross loans of 1.08% at September 30, 2018 is in line with peers."

Noninterest income for the three and nine months ended September 30, 2018 was $837,000 and $2.4 million, respectively, compared to $845,000 and $2.5 million in the same prior year periods. In connection with the establishment of a Small Business Administration ("SBA") department in late 2017, noninterest income for the three and nine months ended September 30, 2018 included $70,000 and $129,000, respectively, of gains from the sale of the guaranteed portion of newly originated SBA loans. Offsetting these gains, the three and nine months ended September 30, 2018 reflected $34,000 and $137,000, respectively, of negative mark to market adjustments of a CRA investment which is classified as an equity security. Such security has been owned for years for CRA purposes, but under accounting rules enacted earlier in 2018, equity securities now require a quarterly mark to market through the income statement.

For the three and nine months ended September 30, 2018, noninterest expenses were $5.6 million and $16.5 million, respectively, compared to $5.0 million and $15.2 million in the comparable prior year periods. An increase in salaries and employee benefits is partially attributable to the costs associated with the establishment of the previously mentioned SBA Lending Department - fully staffed with experienced employees. Certain costs associated with the recent launch of a new and improved website (ASBnow.bank) are also included in noninterest expenses for the three and nine months ended September 30, 2018. Van Ostenbridge noted, "Additional expense is incurred to support continued growth in the balance sheet, but management remains committed to appropriately controlling our expenses.”

Results for the current year periods included the impact of a reduction in the Federal corporate income tax rate from 35% to 21% effective January 1, 2018 as a result of the enactment of the Tax Cuts and Jobs Act (“Tax Act”). Partially offsetting the lower Federal corporate income tax rate was the enactment of legislation by the State of New Jersey in July of 2018, which increased the corporate income tax rate to 11.5% from 9% for taxable income of $1.0 million or more retroactively to January 1, 2018. For the current three and nine month periods the effective tax rate was 27.3% and 26.9%, respectively, compared to an effective tax rate of 37.2% and 36.9% for the three and nine months ended September 30, 2017, respectively.

Balance Sheet / Financial ConditionAt September 30, 2018, total assets of $948.1 million reflected a $19.3 million increase from assets of $928.8 million at December 31, 2017. The growth in assets was primarily driven by organic loan originations which contributed to an $18.5 million increase in net loans. During the first nine months of 2018, the loan portfolio reflected unusually high prepayment activity.

At September 30, 2018, total deposits were $786.6 million, showing net growth of $22.5 million since December 31, 2017. The Corporation reported net growth of $17.4 million in noninterest-bearing accounts and $5.0 million in interest-bearing accounts.

The Corporation's regulatory capital levels all remain above the levels considered to be "well capitalized" under the applicable regulations. The Tier 1 leverage ratio was 9.21% at September 30, 2018 compared to 8.88% at December 31, 2017. The total risk based capital ratio at September 30, 2018 and December 31, 2017 were 14.34% and 14.29%, respectively.

About Stewardship Financial CorporationStewardship Financial Corporation’s subsidiary, the Atlantic Stewardship Bank, has 12 banking offices in Midland Park, Hawthorne, Montville, Morristown, North Haledon, Pequannock, Ridgewood, Waldwick, Wayne (2), Westwood and Wyckoff, New Jersey. The Bank is known for tithing 10% of its pre-tax profits to Christian and local charities. To date, the Bank’s tithe donations total over $10.1 million. We invite you to visit our website at www.ASBnow.bank for additional information.

The information disclosed in this document 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,” “plan,” “estimate,” 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 the 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 the Corporation’s interest rate spread or other income anticipated from operations and investments.

Stewardship Financial Corporation
Selected Consolidated Financial Information
(dollars in thousands, except per share amounts)
(unaudited)

	September 30,			June 30,			March 31,			December 31,			September 30,
	2018			2018			2018			2017			2017

Selected Financial Condition Data:
Cash and cash equivalents	$	10,839		$	13,529		$	22,178		$	21,270		$	17,213
Securities available for sale	109,764			112,594			106,467			109,259			111,973
Securities held to maturity	62,227			58,471			51,894			52,442			53,323
Other equity investments	3,661			3,694			3,706			3,756			3,760
FHLB stock	3,552			3,087			3,039			3,715			3,919
Loans held for sale	—			607			—			370			688
Loans receivable:
Loans receivable, gross	729,475			722,148			708,169			711,720			691,953
Allowance for loan losses	(7,904		)	(8,353		)	(8,445		)	(8,762		)	(8,614		)
Other, net	(483		)	(484		)	(448		)	(397		)	(422		)
Loans receivable, net	721,088			713,311			699,276			702,561			682,917
Bank owned life insurance	21,498			21,360			21,222			21,084			20,943
Other assets	15,484			15,034			14,659			14,309			15,958
Total assets	$	948,113		$	941,687		$	922,441		$	928,766		$	910,694


Noninterest-bearing deposits	$	190,303		$	188,343		$	178,572		$	172,861		$	171,609
Interest-bearing deposits	596,263			603,718			593,644			591,238			569,352
Total deposits	786,566			792,061			772,216			764,099			740,961
Other borrowings	56,800			46,700			48,760			63,760			68,760
Subordinated debentures and subordinated notes	23,366			23,350			23,333			23,317			23,301
Other liabilities	3,462			3,388			3,760			3,925			3,564
Total liabilities	870,194			865,499			848,069			855,101			836,586
Shareholders' equity	77,919			76,188			74,372			73,665			74,108
Total liabilities and shareholders' equity	$	948,113		$	941,687		$	922,441		$	928,766		$	910,694

Gross loans to deposits	92.74		%	91.17		%	91.71		%	93.14		%	93.39		%

Equity to assets	8.22		%	8.09		%	8.06		%	7.93		%	8.14		%

Shares outstanding	8,678,454			8,676,843			8,674,890			8,652,804			8,645,316
Book value per share	$	8.98		$	8.78		$	8.57		$	8.51		$	8.57

Asset Quality Data:
Nonaccrual loans	$	1,271		$	1,283		$	1,136		$	1,194		$	806
Loans past due 90 days or more and accruing	—			—			—			—			—
Total nonperforming loans	1,271			1,283			1,136			1,194			806
Other real estate owned	—			—			—			—			—
Total nonperforming assets	$	1,271		$	1,283		$	1,136		$	1,194		$	806

Nonperforming loans to total loans	0.17		%	0.18		%	0.16		%	0.17		%	0.12		%
Nonperforming assets to total assets	0.13		%	0.14		%	0.12		%	0.13		%	0.09		%
Allowance for loan losses to total gross loans	1.08		%	1.16		%	1.19		%	1.23		%	1.24		%

Stewardship Financial Corporation
Selected Consolidated Financial Information
(dollars in thousands, except per share amounts)
(unaudited)

	For the three months ended						For the nine months ended
	September 30,						September 30,
	2018			2017			2018			2017
Selected Operating Data:
Interest income	$	9,215		$	8,400		$	26,622		$	23,767
Interest expense	2,013			1,577			5,589			4,230
Net interest income	7,202			6,823			21,033			19,537
Provision for loan losses	(490		)	20			(1,605		)	580
Net interest income after provision for loan losses	7,692			6,803			22,638			18,957
Noninterest income:
Fees and service charges	542			524			1,600			1,578
Bank owned life insurance	138			141			414			385
Gain on calls and sales of securities	—			1			6			1
Gain on sales of mortgage loans	12			68			43			123
Gain on sales of SBA loans	70			—			129			—
Gain on sale of other real estate owned	—			—			—			13
Miscellaneous	75			111			229			357
Total noninterest income	837			845			2,421			2,457
Noninterest expenses:
Salaries and employee benefits	3,198			2,843			9,436			8,567
Occupancy, net	426			414			1,271			1,216
Equipment	186			173			555			497
Data processing	489			444			1,451			1,369
Advertising	192			182			556			529
FDIC insurance premium	66			50			200			236
Charitable contributions	180			130			555			375
Bank-card related services	133			137			391			421
Other real estate owned, net	—			—			—			24
Miscellaneous	684			663			2,071			1,999
Total noninterest expenses	5,554			5,036			16,486			15,233
Income before income tax expense	2,975			2,612			8,573			6,181
Income tax expense	813			972			2,302			2,282
Net income	$	2,162		$	1,640		$	6,271		$	3,899

Weighted avg. no. of diluted common shares	8,677,445			8,643,737			8,670,662			7,656,942
Diluted earnings per common share	$	0.25		$	0.19		$	0.72		$	0.51

Return on average common equity	11.14		%	8.83		%	11.13		%	8.02		%

Return on average assets	0.90		%	0.71		%	0.90		%	0.60		%

Yield on average interest-earning assets	4.04		%	3.80		%	3.99		%	3.83		%
Cost of average interest-bearing liabilities	1.18		%	0.94		%	1.12		%	0.89		%
Net interest rate spread	2.86		%	2.86		%	2.87		%	2.94		%

Net interest margin	3.16		%	3.09		%	3.15		%	3.15		%

Stewardship Financial Corporation
Selected Consolidated Financial Information
(dollars in thousands, except per share amounts)
(unaudited)

	For the three months ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2018			2018			2018			2017			2017
Selected Operating Data:
Interest income	$	9,215		$	8,868		$	8,539		$	8,463		$	8,400
Interest expense	2,013			1,860			1,716			1,628			1,577
Net interest income	7,202			7,008			6,823			6,835			6,823
Provision for loan losses	(490		)	(780		)	(335		)	75			20
Net interest and dividend incomeafter provision for loan losses	7,692			7,788			7,158			6,760			6,803
Noninterest income:
Fees and service charges	542			551			507			533			524
Bank owned life insurance	138			138			138			141			141
Gain on calls and sales of securities	—			—			6			—			1
Gain on sales of mortgage loans	12			9			22			55			68
Gain on sales of SBA loans	70			59			—			—			—
Miscellaneous	75			102			52			121			111
Total noninterest income	837			859			725			850			845
Noninterest expenses:
Salaries and employee benefits	3,198			3,129			3,109			2,888			2,843
Occupancy, net	426			403			442			414			414
Equipment	186			188			181			176			173
Data processing	489			478			484			442			444
Advertising	192			207			157			171			182
FDIC insurance premium	66			70			64			86			50
Charitable contributions	180			195			180			240			130
Bank-card related services	133			131			127			130			137
Miscellaneous	684			703			684			521			663
Total noninterest expenses	5,554			5,504			5,428			5,068			5,036
Income before income tax expense	2,975			3,143			2,455			2,542			2,612
Income tax expense	813			842			647			2,494			972
Net income	$	2,162		$	2,301		$	1,808		$	48		$	1,640


Weighted avg. no. of diluted commonshares	8,677,445			8,675,868			8,658,506			8,648,191			8,643,737
Diluted earnings per common share	$	0.25		$	0.27		$	0.21		$	0.01		$	0.19

Return on average common equity	11.14		%	12.32		%	9.92		%	0.26		%	8.83		%

Return on average assets	0.90		%	0.99		%	0.80		%	0.02		%	0.71		%

Yield on average interest-earning assets	4.04		%	3.99		%	3.94		%	3.82		%	3.80		%
Cost of average interest-bearing liabilities	1.18		%	1.12		%	1.04		%	0.97		%	0.94		%
Net interest rate spread	2.86		%	2.87		%	2.90		%	2.85		%	2.86		%

Net interest margin	3.16		%	3.16		%	3.15		%	3.09		%	3.09		%

Stewardship Financial Corporation
Non-GAAP Reconciliation
(dollars in thousands, except per share amounts)
(unaudited)

	For the three
	months ended,
	December 31,
	2017


Net income	$	48
Impact of Tax Act	1,420
Adjusted net income	$	1,468

Weighted avg. no. of diluted common shares	8,648,191
Adjusted diluted earnings per common share	$	0.17

Adjusted return on average common equity	7.82		%

Adjusted return on average assets	0.63		%