Stewardship Financial Corporation Announces Fourth Quarter and Year End 2018 Results

Stewardship Financial Corporation (NASDAQ:SSFN), parent company of Atlantic Stewardship Bank, today announced earnings for the fourth quarter and full year ended December 31, 2018. Net income for the three months and year ended December 31, 2018 was reported at $1.8 million, or $0.20 per share, and $8.0 million, or $0.93 per share, respectively. For the three months and year ended December 31, 2017, net income was $48,000, or $0.01 per share, and $3.9 million, or $0.50 per share, respectively. Both the three months and year ended December 31, 2017 were impacted by a charge of $1.4 million as a result of the enactment of the Tax Cuts and Jobs Act (“Tax Act”) in December 2017.

Commenting on the annual results, Stewardship Financial Corporation’s President and Chief Executive Officer, Paul Van Ostenbridge indicated, “2018 was another profitable year for the Corporation with positive growth in loans and continued excellent credit metrics. Our ongoing efforts remain focused on the fundamentals of our business, including low-cost deposit gathering and organic loan growth with disciplined underwriting standards.”

Operating ResultsNet interest income of $7.1 million and $28.2 million was reported for the three months and year ended December 31, 2018, respectively. Such represented an improvement over the $6.8 million and $26.4 million realized in the comparable prior year periods. The increase was primarily a result of increased interest income on loans due to both higher average balances and loan yields, partially offset by increased interest expense. With four interest rate increases during 2018, management increased rates on several accounts and offered special rates to attract new deposits which contributed to higher funding costs. Reflective of the current interest rate environment, net interest margin has remained relatively stable for the last several quarters. Net interest margins of 3.11% and 3.14% for the three months and year ended December 31, 2018, respectively, were relatively flat to the prior year periods. Van Ostenbridge stated, "Despite a challenging interest rate environment and navigating our intensely competitive market, we continue to appropriately price both loans and deposits. With respect to loans, we will not sacrifice our strong underwriting guidelines simply for the sake of loan growth."

For both the three months and year ended December 31, 2018, the Corporation recorded reversals of the allowance for loan losses resulting in negative provisions for loan losses of $10,000 and $1.6 million, respectively. This compared to positive provisions for loan losses of $75,000 and $655,000 for the three months and year ended December 31, 2017, respectively. Notwithstanding the growth in the loan portfolio, the negative loan loss provisions reflected, in part, net recoveries of previously charged off loan balances of $32,000 and $779,000 for the three months and year ended December 31, 2018, respectively. In addition, the negative provisions for loan losses reflected the continued improvement in the economic conditions and overall real estate climate in the primary business markets in which the Corporation operates.

For the three months and year ended December 31, 2018, noninterest income was $996,000 and $3.4 million, respectively, compared to $850,000 and $3.3 million in the equivalent prior year periods. In connection with the establishment of a Small Business Administration ("SBA") department in late 2017, noninterest income for the three months and year ended December 31, 2018 included $64,000 and $193,000, respectively, of gains from the sale of the guaranteed portion of newly originated SBA loans. The three months and year ended December 31, 2018 also included $217,000 and $80,000, respectively, of mark-to-market adjustments of a CRA investment which is classified as an equity security. Such security has been owned for years for Community Reinvestment Act ("CRA") purposes, but in connection with the adoption of ASU 2016-01, equity securities now require a quarterly mark-to-market through the income statement. Offsetting these increases, for the three months and year ended December 31, 2018, the Corporation realized $192,000 and $186,000, respectively, of losses on calls and sales of securities primarily due to the sale of approximately $2.0 million of the above mentioned CRA investment during the year ended December 31, 2018. In addition, gain on sales of mortgage loans were $70,000 for the year ended December 31, 2018 compared to gains of $178,000 realized in the prior year.

Noninterest expenses were $5.7 million and $22.1 million for the three months and year ended December 31, 2018, respectively, compared to $5.1 million and $20.3 million in the same prior year periods. Increases in salaries and employee benefits represents an increase in staff to support the Corporation's operations and continued growth, including costs associated with the establishment of the previously mentioned SBA Lending Department. Additionally, advertising expenses for the year ended December 31, 2018 included certain costs associated with the launch of a new and improved website (ASBnow.bank) in the fall.

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 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 state 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 months and year ended December 31, 2018, the effective tax rate was 29.0% and 27.3%, respectively. As noted previously, the prior year periods reflected $1.4 million of additional tax expenses due to the revaluation of the Corporation's net deferred tax asset as a result of the reduction in the corporate Federal tax rate.

Balance Sheet / Financial ConditionAt December 31, 2018, total assets of $955.6 million reflected a $26.9 million increase from assets of $928.8 million at December 31, 2017. Loans, which represent 76% of totals assets, contributed $22.8 million to the asset growth. The loan portfolio, during 2018, reflected greater prepayment activity than was experienced during 2017.

At December 31, 2018, total deposits were $782.1 million, showing net growth of $18.0 million since December 31, 2017. The Corporation reported net growth of $1.9 million in noninterest-bearing accounts and $16.1 million in interest-bearing accounts.

The Corporation continued to maintain capital levels in excess of the regulatory requirements and was categorized as "well-capitalized." The Tier 1 leverage ratio was 9.33% at December 31, 2018 compared to 8.88% at December 31, 2017. The total risk based capital ratios at December 31, 2018 and 2017 were 14.39% 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)

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

Selected Financial Condition Data:
Cash and cash equivalents	$	16,823		$	10,839		$	13,529		$	22,178		$	21,270
Securities available for sale	108,811			109,764			112,594			106,467			109,259
Securities held to maturity	62,308			62,227			58,471			51,894			52,442
Other equity investments	1,648			3,661			3,694			3,706			3,756
FHLB stock	3,965			3,552			3,087			3,039			3,715
Loans held for sale	—			—			607			—			370
Loans receivable:
Loans receivable, gross	733,787			729,475			722,148			708,169			711,720
Allowance for loan losses	(7,926		)	(7,904		)	(8,353		)	(8,445		)	(8,762		)
Other, net	(457		)	(483		)	(484		)	(448		)	(397		)
Loans receivable, net	725,404			721,088			713,311			699,276			702,561
Bank owned life insurance	21,636			21,498			21,360			21,222			21,084
Other assets	15,035			15,484			15,034			14,659			14,309
Total assets	$	955,630		$	948,113		$	941,687		$	922,441		$	928,766


Noninterest-bearing deposits	$	174,717		$	190,303		$	188,343		$	178,572		$	172,861
Interest-bearing deposits	607,374			596,263			603,718			593,644			591,238
Total deposits	782,091			786,566			792,061			772,216			764,099
Other borrowings	65,700			56,800			46,700			48,760			63,760
Subordinated debentures and
subordinated notes	23,382			23,366			23,350			23,333			23,317
Other liabilities	4,307			3,462			3,388			3,760			3,925
Total liabilities	875,480			870,194			865,499			848,069			855,101
Shareholders' equity	80,150			77,919			76,188			74,372			73,665
Total liabilities and shareholders' equity	$	955,630		$	948,113		$	941,687		$	922,441		$	928,766

Gross loans to deposits	93.82		%	92.74		%	91.17		%	91.71		%	93.14		%

Equity to assets	8.39		%	8.22		%	8.09		%	8.06		%	7.93		%

Shares outstanding	8,680,388			8,678,454			8,676,843			8,674,890			8,652,804
Book value per share	$	9.23		$	8.98		$	8.78		$	8.57		$	8.51

Asset Quality Data:
Nonaccrual loans	$	1,544		$	1,271		$	1,283		$	1,136		$	1,194
Loans past due 90 days or more and
accruing	—			—			—			—			—
Total nonperforming loans	1,544			1,271			1,283			1,136			1,194
Other real estate owned	—			—			—			—			—
Total nonperforming assets	$	1,544		$	1,271		$	1,283		$	1,136		$	1,194

Nonperforming loans to total loans	0.21		%	0.17		%	0.18		%	0.16		%	0.17		%
Nonperforming assets to total assets	0.16		%	0.13		%	0.14		%	0.12		%	0.13		%
Allowance for loan losses to total gross
loans	1.08		%	1.08		%	1.16		%	1.19		%	1.23		%


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

	For the three months ended						For the year ended
	December 31,						December 31,
	2018			2017			2018			2017
Selected Operating Data:
Interest income	$	9,377		$	8,463		$	35,999		$	32,230
Interest expense	2,247			1,628			7,836			5,858
Net interest income	7,130			6,835			28,163			26,372
Provision for loan losses	(10		)	75			(1,615		)	655
Net interest income after provision for loan losses	7,140			6,760			29,778			25,717
Noninterest income:
Fees and service charges	628			533			2,228			2,111
Bank owned life insurance	138			141			552			526
Gain (loss) on calls and sales of securities	(192		)	—			(186		)	1
Gain on sales of mortgage loans	27			55			70			178
Gain on sales of SBA loans	64			—			193			—
Gain on sale of other real estate owned	—			—			—			13
Gain on equity investments	217			—			80			—
Miscellaneous	114			121			480			478
Total noninterest income	996			850			3,417			3,307
Noninterest expenses:
Salaries and employee benefits	3,200			2,888			12,636			11,455
Occupancy, net	430			414			1,701			1,630
Equipment	191			176			746			673
Data processing	496			442			1,947			1,811
Advertising	159			171			715			700
FDIC insurance premium	77			86			277			322
Charitable contributions	355			240			910			615
Bank-card related services	142			130			533			551
Other real estate owned, net	—			—			—			24
Miscellaneous	609			521			2,680			2,520
Total noninterest expenses	5,659			5,068			22,145			20,301
Income before income tax expense	2,477			2,542			11,050			8,723
Income tax expense	718			2,494			3,020			4,776
Net income	$	1,759		$	48		$	8,030		$	3,947

Weighted avg. no. of diluted common shares	8,679,304			8,648,191			8,672,840			7,906,791
Diluted earnings per common share	$	0.20		$	0.01		$	0.93		$	0.50

Return on average common equity	8.86		%	0.26		%	10.54		%	5.86		%

Return on average assets	0.73		%	0.02		%	0.86		%	0.45		%

Yield on average interest-earning assets	4.09		%	3.82		%	4.02		%	3.83		%
Cost of average interest-bearing liabilities	1.31		%	0.97		%	1.17		%	0.91		%
Net interest rate spread	2.78		%	2.85		%	2.85		%	2.92		%

Net interest margin	3.11		%	3.09		%	3.14		%	3.13		%


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

	For the three months ended
	December 31,			September 30,			June 30,			March 31,			December 31,
	2018			2018			2018			2018			2017
Selected Operating Data:
Interest income	$	9,377		$	9,215		$	8,868		$	8,539		$	8,463
Interest expense	2,247			2,013			1,860			1,716			1,628
Net interest income	7,130			7,202			7,008			6,823			6,835
Provision for loan losses	(10		)	(490		)	(780		)	(335		)	75
Net interest and dividend income after provision for loan losses	7,140			7,692			7,788			7,158			6,760
Noninterest income:
Fees and service charges	628			542			551			507			533
Bank owned life insurance	138			138			138			138			141
Gain (loss) on calls and sales of securities	(192		)	—			—			6			—
Gain on sales of mortgage loans	27			12			9			22			55
Gain on sales of SBA loans	64			70			59			—			—
Gain (loss) on equity investments	217			(34		)	(29		)	(74		)	—
Miscellaneous	114			109			131			126			121
Total noninterest income	996			837			859			725			850
Noninterest expenses:
Salaries and employee benefits	3,200			3,198			3,129			3,109			2,888
Occupancy, net	430			426			403			442			414
Equipment	191			186			188			181			176
Data processing	496			489			478			484			442
Advertising	159			192			207			157			171
FDIC insurance premium	77			66			70			64			86
Charitable contributions	355			180			195			180			240
Bank-card related services	142			133			131			127			130
Miscellaneous	609			684			703			684			521
Total noninterest expenses	5,659			5,554			5,504			5,428			5,068
Income before income tax expense	2,477			2,975			3,143			2,455			2,542
Income tax expense	718			813			842			647			2,494
Net income	$	1,759		$	2,162		$	2,301		$	1,808		$	48


Weighted avg. no. of diluted common shares	8,679,304			8,677,445			8,675,868			8,658,506			8,648,191
Diluted earnings per common share	$	0.20		$	0.25		$	0.27		$	0.21		$	0.01

Return on average common equity	8.86		%	11.14		%	12.32		%	9.92		%	0.26		%

Return on average assets	0.73		%	0.90		%	0.99		%	0.80		%	0.02		%

Yield on average interest-earning assets	4.09		%	4.04		%	3.99		%	3.94		%	3.82		%
Cost of average interest-bearing liabilities	1.31		%	1.18		%	1.12		%	1.04		%	0.97		%
Net interest rate spread	2.78		%	2.86		%	2.87		%	2.90		%	2.85		%

Net interest margin	3.11		%	3.16		%	3.16		%	3.15		%	3.09		%


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

	For the three months ended December 31, 2017			For the year ended December 31, 2017

Net income	$	48		$	3,947
Impact of Tax Act	1,420			1,420
Adjusted net income	$	1,468		$	5,367

Weighted avg. no. of diluted common shares	8,648,191			7,906,791
Adjusted diluted earnings per common share	$	0.17		$	0.68

Adjusted return on average common equity	7.82		%	7.96		%

Adjusted return on average assets	0.63		%	0.61		%