Stewardship Financial 8K Results of Operations and Financial Condition | SSFN 24 Feb 17



For immediate release		Contact:
		Claire M. Chadwick
		EVP and Chief Financial Officer
		630 Godwin Avenue
		Midland Park, NJ 07432
		P: 201-444-7100

PRESS RELEASE

Stewardship Financial Corporation Reports Earnings for

Fourth Quarter and Year Ended December 31, 2016

Midland Park, NJ - February 23, 2017 - Stewardship Financial Corporation (NASDAQ:SSFN), parent company of Atlantic Stewardship Bank, today reported results for the fourth quarter and full year ended December 31, 2016. For the three months ended December 31, 2016, the Corporation reported net income available to common shareholders of $1.3 million, or $0.22 per diluted common share, compared with $1.1 million, or $0.17 per diluted common share, for the three months ended December 31, 2015. Net income available to common shareholders for the year ended December 31, 2016, of $4.7 million, or $0.78 per diluted common share, represented a 26% increase over the $3.7 million, or $0.62 per diluted common share, earned for the year ended December 31, 2015.

In commenting on the performance, Paul Van Ostenbridge, Stewardship Financial Corporation’s President and Chief Executive Officer, stated, “We are proud to demonstrate our continuing ability to improve earnings. Specifically, for 2016, we achieved 14.7% of growth in our loan portfolio while keeping expenses relatively flat.”

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Balance Sheet / Financial Condition

Total assets of $795.5 million at December 31, 2016 reflected an increase when compared with $717.9 million of assets at December 31, 2015. Since December 31, 2015, a $77.6 million increase in gross loans receivable was the result of new loan originations net of normal principal amortization and payoffs. “We are encouraged by the momentum resulting from robust loan production in 2016 but remain vigilant to ensure that loans meet our prudent underwriting standards,” Van Ostenbridge stated.

Deposit balances totaled $658.9 million at December 31, 2016, compared with $604.8 million a year earlier reflecting $54.2 million, or 9.0%, in growth. In addition, in order to fund loan growth and manage interest rate risk, other borrowings increased $19.2 million to $59.2 million at December 31, 2016. Van Ostenbridge noted, “The combination of the increase in deposits as well as the appropriate use of low-cost borrowings is important to our ability to cost-effectively fund the growth we experienced in our loan portfolio.”

Regulatory capital levels at December 31, 2016, continue to remain strong, with a Tier 1 leverage ratio of 7.65% and total risk based capital ratio of 13.10%, far exceeding the regulatory requirements of 4% and 8%, respectively, to be considered a “well capitalized” institution.

Operating Results

Net interest income of $5.9 million and $22.6 million was reported for the three months and year ended December 31, 2016, respectively, compared with $5.4 million and $21.8 million for the same periods in 2015. The net interest margin was 3.18% for both the current three months and year ended December 31, 2016, compared with 3.18% and 3.30% for the three months and year ended December 31, 2015, respectively. In general, the net interest rate spread and net interest margin for the current year periods reflect an overall

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Stewardship Financial Corporation, continued February 23, 2017

decline in loan interest rates - a result of the historically low market rates in the current environment. The current year net interest income and margin includes the impact of the $16.6 million of Subordinated Notes issued in August 2015 and the subsequent redemption of preferred stock. When compared with the year ended December 31, 2015, the cost of the Subordinated Notes added a total of $781,000 of interest expense to the current year. However, such increase, on an after-tax basis, is less than the dividends that would have accrued on the preferred stock. The rate on the preferred stock would have been 4.56% until March 1, 2016, when the dividend rate on the preferred stock would have increased and become fixed at 9%.

For the three months ended December 31, 2016, the Corporation reported noninterest income of $937,000 compared with $855,000 for the equivalent prior year period. Noninterest income for the year ended December 31, 2016, was $3.4 million compared with $3.5 million for 2015. The year ended December 31, 2016, included a $44,000 increase in income due to the purchase of an additional $2.0 million of bank owned life insurance. In addition, gain on sales of mortgage loans were $164,000 for the year ended December 31, 2016, compared with gains of $141,000 realized in the prior year. Offsetting these increases, was a $106,000 decrease for the year ended December 31, 2016, due to the fact that noninterest income included only $63,000 of gains on calls and sales of securities, which is below the $169,000 recognized in the prior year. In addition, the year ended December 31, 2016, included only $36,000 of gains on sales of OREO compared with $83,000 of gains during the year ended December 31, 2015.

Noninterest expenses for the three months and year ended December 31, 2016 totaled $5.0 million and $19.9 million, respectively, relatively consistent with the $4.9 million and $20.2 million incurred for the comparable prior year periods. The Corporation continues to appropriately control expenses. Increases in various expenses were offset by decreases in other expenses. A decrease in occupancy expense is partially

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Stewardship Financial Corporation, continued February 23, 2017

attributable to the consolidation of two branches in Hawthorne, NJ. A decrease in OREO expense is directly related to the decline in foreclosures and OREO properties. An increase in miscellaneous expense is reflective of higher audit and consulting expenses.

Asset Quality

Both the current year and the prior year period results were positively impacted by the Corporation recording negative provisions for loan losses, reflective of the ongoing analysis that demonstrates constant improvement of credit quality. Results for the three months and year ended December 31, 2016 included negative provisions of $300,000 and $1.4 million, respectively, compared with negative provisions for loan losses of $275,000 and $1.4 million for the comparable prior year periods. The recording of negative provisions for loan losses and the decline in the allowance coverage ratio are directly attributable to improved credit quality metrics of the portfolio and the reduction in the estimated level of allowance for loan losses required. Nonperforming loans continue to decline and were just $606,000, or 0.10% of total loans at December 31, 2016, compared with $1.9 million, or 0.36%, at December 31, 2015. Total nonperforming assets of $1.0 million, which includes other real estate owned, also showed continued improvement and represented just 0.13% of total assets at December 31, 2016, compared with 0.38% at December 31, 2015. The allowance for loan losses represented 1.31% of total gross loans at December 31, 2016, compared with 1.68% a year earlier.

In general, Van Ostenbridge concluded, “While we remain conservative with respect to managing risks, we are progressive in adapting to the needs of an evolving customer base. We believe in our efforts to build relationships and continue our focus on being a community-oriented / customer focused financial institution.”

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About Stewardship Financial Corporation

Stewardship Financial Corporation’s subsidiary, Atlantic Stewardship Bank, has 11 banking offices in Midland Park, Hawthorne, Montville, North Haledon, Pequannock, Ridgewood, Waldwick, Wayne (2), Westwood and Wyckoff, NJ. 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 $8.8 million.

We invite you to visit our website at www.asbnow.com 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,
	2016			2016			2016			2016			2015

Selected Financial Condition Data:
Cash and cash equivalents	$	11,680		$	21,025		$	13,901		$	13,319		$	10,910
Securities available for sale	98,583			103,546			98,533			97,637			93,354
Securities held to maturity	52,330			54,179			65,666			62,427			60,738
FHLB Stock	3,515			2,425			2,650			2,608			2,608
Loans held for sale	773			300			581			783			1,522
Loans receivable:
Loans receivable, gross	604,083			552,106			537,638			528,011			526,477
Allowance for loan losses	(7,905		)	(8,150		)	(8,388		)	(8,540		)	(8,823		)
Other, net	(226		)	(110		)	(25		)	(64		)	(98		)
Loans receivable, net	595,952			543,846			529,225			519,407			517,556
Other real estate owned, net	401			834			834			1,013			880
Bank owned life insurance	16,558			16,439			16,320			14,212			14,111
Other assets	15,743			15,333			14,877			15,251			16,209
Total assets	$	795,535		$	757,927		$	742,587		$	726,657		$	717,888

Non-interest bearing deposits	$	169,306		$	172,072		$	160,461		$	154,201		$	147,828
Interest-bearing deposits	489,624			474,012			466,008			458,225			456,925
Total deposits	658,930			646,084			626,469			612,426			604,753
Other borrowings	59,200			35,000			40,000			40,000			40,000
Subordinated debentures and subordinated notes	23,252			23,235			23,219			23,203			23,186
Other liabilities	2,766			2,040			2,213			1,836			2,376
Total liabilities	744,148			706,359			691,901			677,465			670,315
Shareholders' equity	51,387			51,568			50,686			49,192			47,573
Total liabilities and shareholders' equity	$	795,535		$	757,927		$	742,587		$	726,657		$	717,888

Gross loans to deposits	91.68		%	85.45		%	85.82		%	86.22		%	87.06		%

Equity to assets	6.46		%	6.80		%	6.83		%	6.77		%	6.63		%

Book value per share	$	8.39		$	8.43		$	8.29		$	8.05		$	7.82

Asset Quality Data:
Nonaccrual loans	$	606		$	929		$	949		$	2,304		$	1,882
Loans past due 90 days or more and accruing	—			—			—			—			—
Total nonperforming loans	606			929			949			2,304			1,882
Other real estate owned	401			834			834			1,013			880
Total nonperforming assets	$	1,007		$	1,763		$	1,783		$	3,317		$	2,762

Nonperforming loans to total loans	0.10		%	0.17		%	0.18		%	0.44		%	0.36		%
Nonperforming assets to total assets	0.13		%	0.23		%	0.24		%	0.46		%	0.38		%
Allowance for loan losses to gross loans	1.31		%	1.48		%	1.56		%	1.62		%	1.68		%

Stewardship Financial Corporation

Selected Consolidated Financial Information

(dollars in thousands, except per share amounts)

(unaudited)



	For the three months ended December 31,						For the year ended December 31,
	2016			2015			2016			2015

Selected Operating Data:
Interest income	$	7,000		$	6,643		$	27,085		$	25,609
Interest expense	1,103			1,198			4,513			3,826
Net interest income	5,897			5,445			22,572			21,783
Provision for loan losses	(300		)	(275		)	(1,350		)	(1,375		)
Net interest income after provision for loan losses	6,197			5,720			23,922			23,158
Noninterest income:
Fees and service charges	564			558			2,159			2,135
Bank owned life insurance	119			103			447			403
Gain on calls and sales of securities	1			17			63			169
Gain on sales of mortgage loans	94			24			164			141
Gain on sales of other real estate owned	30			30			36			83
Other	129			123			542			562
Total noninterest income	937			855			3,411			3,493
Noninterest expenses:
Salaries and employment benefits	2,735			2,719			10,980			10,900
Occupancy, net	396			422			1,598			1,739
Equipment	156			159			609			655
Data processing	481			467			1,915			1,847
FDIC insurance premium	21			106			317			423
Other	1,213			1,027			4,483			4,615
Total noninterest expenses	5,002			4,900			19,902			20,179
Income before income tax expense	2,132			1,675			7,431			6,472
Income tax expense	784			614			2,695			2,272
Net income	1,348			1,061			4,736			4,200
Dividends on preferred stock	—			—			—			456
Net income available to common shareholders	$	1,348		$	1,061		$	4,736		$	3,744

Weighted avg. no. of diluted common shares	6,119,693			6,086,249			6,109,983			6,077,657
Diluted earnings per common share	$	0.22		$	0.17		$	0.78		$	0.62

Return on average common equity	10.40		%	8.89		%	9.43		%	8.14		%

Return on average assets	0.69		%	0.58		%	0.63		%	0.60		%

Yield on average interest-earning assets	3.77		%	3.87		%	3.81		%	3.87		%
Cost of average interest-bearing liabilities	0.80		%	0.92		%	0.85		%	0.77		%
Net interest rate spread	2.97		%	2.95		%	2.96		%	3.10		%

Net interest margin	3.18		%	3.18		%	3.18		%	3.30		%

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,
	2016			2016			2016			2016			2015

Selected Operating Data:
Interest income	$	7,000		$	6,657		$	6,979		$	6,449		$	6,643
Interest expense	1,103			1,113			1,124			1,173			1,198
Net interest income	5,897			5,544			5,855			5,276			5,445
Provision for loan losses	(300		)	(250		)	(450		)	(350		)	(275		)
Net interest income after provision for loan losses	6,197			5,794			6,305			5,626			5,720
Noninterest income:
Fees and service charges	564			536			530			529			558
Bank owned life insurance	119			120			107			101			103
Gain on calls and sales of securities	1			6			32			24			17
Gain on sales of mortgage loans	94			33			19			18			24
Gain on sales of other real estate owned	30			—			6			—			30
Other	129			128			138			147			123
Total noninterest income	937			823			832			819			855
Noninterest expenses:
Salaries and employment benefits	2,735			2,788			2,742			2,715			2,719
Occupancy, net	396			400			404			398			422
Equipment	156			155			148			150			159
Data processing	481			485			477			472			467
FDIC insurance premium	21			100			90			106			106
Other	1,213			1,071			1,138			1,061			1,027
Total noninterest expenses	5,002			4,999			4,999			4,902			4,900
Income before income tax expense	2,132			1,618			2,138			1,543			1,675
Income tax expense	784			583			776			552			614
Net income	$	1,348		$	1,035		$	1,362		$	991		$	1,061

Weighted avg. no. of diluted common shares	6,119,693			6,115,987			6,111,729			6,092,351			6,086,249
Diluted earnings per common share	$	0.22		$	0.17		$	0.22		$	0.16		$	0.17

Return on average common equity	10.40		%	8.06		%	11.05		%	8.21		%	8.89		%

Return on average assets	0.69		%	0.54		%	0.74		%	0.55		%	0.58		%

Yield on average interest-earning assets	3.77		%	3.68		%	4.02		%	3.79		%	3.87		%
Cost of average interest-bearing liabilities	0.80		%	0.83		%	0.86		%	0.90		%	0.92		%
Net interest rate spread	2.97		%	2.85		%	3.16		%	2.89		%	2.95		%

Net interest margin	3.18		%	3.07		%	3.38		%	3.11		%	3.18		%

Stewardship Financial (SSFN) Inactive 8-KResults of Operations and Financial Condition