10-Q 1 form10q-76753_asb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2006 ( ) 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 -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-3351447 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 630 Godwin Avenue, Midland Park, NJ 07432 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (201) 444-7100 (Registrant's telephone number, including area code) -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by a checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [_] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer[_] Accelerated filer [_] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X] The number of shares outstanding, net of treasury stock, of the Issuer's Common Stock, no par value, as of May 5, 2006 was 4,759,295. Stewardship Financial Corporation INDEX PAGE NUMBER ------ PART I - CONSOLIDATED FINANCIAL INFORMATION ------------------------------------------------------------------------------- ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Financial Condition at March 31, 2006 (Unaudited) and December 31, 2005 ...............1 Consolidated Statements of Income for the Three Months ended March 31, 2006 and 2005 (Unaudited) ..................2 Consolidated Statements of Cash Flows for the Three Months ended March 31, 2006 and 2005 (Unaudited) ..................3 Consolidated Statement of Changes in Stockholders' Equity for the Three Months ended March 31, 2006 and 2005 (Unaudited) ..................................................4 Notes to Consolidated Financial Statements (Unaudited) .......5 - 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .........................................12 - 20 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ......................................20 ITEM 4 - CONTROLS AND PROCEDURES .......................................20 PART II - OTHER INFORMATION ------------------------------ ITEM 1A. RISK FACTORS ....................................................21 ITEM 6 - EXHIBITS .........................................................21 SIGNATURES ................................................................22 --------- EXHIBIT INDEX .........................................................23 -26 ------------- Stewardship Financial Corporation and Subsidiary Consolidated Statements of Financial Condition (Unaudited)
March 31, December 31, 2006 2005 ------------------------------- Assets Cash and due from banks $ 10,907,000 $ 13,158,000 Other interest-earning assets 239,000 870,000 ------------------------------- Cash and cash equivalents 11,146,000 14,028,000 Securities available for sale 63,124,000 64,167,000 Securities held to maturity; estimated fair value of $35,708,000 (2006) and $37,475,000 (2005) 36,117,000 37,817,000 FHLB--NY stock, at cost 1,678,000 1,939,000 Loans, net of allowance for loan losses of of $ 3,920,000 (2006) and $3,847,000 (2005) 341,841,000 341,976,000 Mortgage loans held for sale 521,000 2,041,000 Premises and equipment, net 6,656,000 6,464,000 Accrued interest receivable 2,422,000 2,432,000 Intangible assets, net of accumulated amortization of $620,000 (2006) and $610,000 (2005) 130,000 140,000 Bank owned life insurance 8,290,000 8,210,000 Other assets 4,640,000 3,513,000 ------------------------------- Total assets $ 476,565,000 $ 482,727,000 =============================== Liabilities and stockholders' equity Liabilities Deposits: Noninterest-bearing $ 90,786,000 $ 93,924,000 Interest-bearing 309,771,000 310,204,000 ------------------------------- Total deposits 400,557,000 404,128,000 Other borrowings 24,693,000 30,486,000 Subordinated debentures 7,217,000 7,217,000 Securities sold under agreements to repurchase 6,106,000 4,731,000 Accrued expenses and other liabilities 3,841,000 2,781,000 ------------------------------- Total liabilities 442,414,000 449,343,000 --------------------------------- Stockholders' equity Common stock, no par value; 10,000,000 shares authorized; 4,787,889 shares issued and outstanding at March 31, 2006 and December 31, 2005. 28,228,000 28,211,000 Treasury stock, 28,981 and 39,581 shares outstanding at March 31, 2006 and December 31, 2005, respectively (411,000) (556,000) Retained earnings 7,377,000 6,647,000 Accumulated other comprehensive loss (1,043,000) (918,000) ------------------------------- Total stockholders' equity 34,151,000 33,384,000 ------------------------------- Total liabilities and stockholders' equity $ 476,565,000 $ 482,727,000 ===============================
See notes to unaudited consolidated financial statements. 1 Stewardship Financial Corporation and Subsidiary Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, ------------------------------- 2006 2005 ------------------------------- Interest income: Loans $ 5,974,000 $ 4,787,000 Securities held to maturity Taxable 241,000 224,000 Non-taxable 118,000 144,000 Securities available for sale Taxable 637,000 500,000 Non-taxable 7,000 8,000 Other interest-earning assets 7,000 26,000 ------------------------------- Total interest income 6,984,000 5,689,000 ------------------------------- Interest expense: Deposits 1,777,000 975,000 Borrowed money 530,000 312,000 ------------------------------- Total interest expense 2,307,000 1,287,000 ------------------------------- Net interest income before provision for loan losses 4,677,000 4,402,000 Provision for loan losses 50,000 150,000 ------------------------------- Net interest income after provision for loan losses 4,627,000 4,252,000 ------------------------------- Noninterest income: Fees and service charges 695,000 585,000 Bank owned life insurance 80,000 -- Gain on sales of mortgage loans 50,000 18,000 Miscellaneous 45,000 46,000 ------------------------------- Total noninterest income 870,000 649,000 ------------------------------- Noninterest expenses: Salaries and employee benefits 1,621,000 1,438,000 Occupancy, net 314,000 251,000 Equipment 242,000 193,000 Data processing 294,000 271,000 Advertising 87,000 131,000 FDIC insurance premium 13,000 12,000 Amortization of intangible assets 10,000 10,000 Charitable contributions 181,000 165,000 Stationery and supplies 76,000 70,000 Merchant processing 242,000 170,000 Bank-card related services 121,000 105,000 Miscellaneous 577,000 499,000 ------------------------------- Total noninterest expenses 3,778,000 3,315,000 ------------------------------- Income before income tax expense 1,719,000 1,586,000 Income tax expense 610,000 582,000 ------------------------------- Net income $ 1,109,000 $ 1,004,000 =============================== Basic earnings per share $0.23 $0.21 =============================== Diluted earnings per share $0.23 $0.21 =============================== Weighted average number of common shares outstanding 4,754,856 4,722,439 =============================== Weighted average number of diluted common shares outstanding 4,809,776 4,783,456 ================================
Share data has been restated to reflect a 4 for 3 stock split that occurred July, 2005 and a 5% stock dividend paid November 15, 2005. See notes to unaudited consolidated financial statements. 2 Stewardship Financial Corporation and Subsidiary Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, ---------------------------- 2006 2005 ---------------------------- Cash flows from operating activities: Net income $ 1,109,000 $ 1,004,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment 178,000 168,000 Amortization of premiums and accretion of discounts, net 79,000 117,000 Accretion of deferred loan fees (29,000) (45,000) Provision for loan losses 50,000 150,000 Originations of mortgage loans held for sale (3,419,000) (2,366,000) Proceeds from sale of mortgage loans 4,989,000 1,722,000 Gain on sale of loans (50,000) (18,000) Deferred income tax benefit (10,000) (60,000) Amortization of intangible assets 10,000 9,000 Nonqualified stock option expense 17,000 -- Increase in bank owned life insurance (80,000) -- Decrease (increase) in accrued interest receivable 10,000 (42,000) Increase in other assets (1,039,000) (7,000) Increase in other liabilities 1,060,000 146,000 ------------ ------------ Net cash provided by operating activities 2,875,000 778,000 ------------ ------------ Cash flows from investing activities: Purchase of securities available for sale (2,093,000) (962,000) Proceeds from maturities and principal repayments on securities available for sale 2,902,000 1,768,000 Purchase of securities held to maturity (679,000) (617,000) Proceeds from maturities and principal repayments on securities held to maturity 2,331,000 1,422,000 Purchase of FHLB-NY stock 261,000 Net decrease (increase) in loans 114,000 (7,020,000) Additions to premises and equipment (370,000) (102,000) ------------ ------------ Net cash provided by (used in) investing activities 2,466,000 (5,511,000) ------------ ------------ Cash flows from financing activities: Net decrease in noninterest-bearing deposits (3,138,000) (7,733,000) Net (decrease) increase in interest-bearing deposits (433,000) 11,781,000 Net increase (decrease) in securities sold under agreements to repurchase 1,375,000 (192,000) Net decrease in short term borrowings (5,400,000) (7,500,000) Payments on long term borrowings (393,000) (381,000) Cash dividends paid on common stock (379,000) (303,000) Purchase of treasury stock (103,000) -- Exercise of stock options -- 10,000 Issuance of common stock 248,000 194,000 ------------ ------------ Net cash used in financing activities (8,223,000) (4,124,000) ------------ ------------ Net decrease in cash and cash equivalents (2,882,000) (8,857,000) Cash and cash equivalents - beginning 14,028,000 24,792,000 ------------ ------------ Cash and cash equivalents - ending $ 11,146,000 $ 15,935,000 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the year for interest 1,980,000 1,323,000 Cash paid during the year for income taxes 200,000 --
See notes to unaudited consolidated financial statements. 3 Stewardship Financial Corporation and Subsidiary Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
For the Period Ended March 31, 2006 --------------------------------------------------------------------------------------------- Accumulated Other Comprehensive Common Stock Treasury Stock Retained Loss, Shares Amount Shares Amount Earnings Net Total --------------------------------------------------------------------------------------------- Balance -- January 1, 2006 4,787,889 $ 28,211,000 (39,581) $ (556,000) $ 6,647,000 $ (918,000) $ 33,384,000 Dividends Paid -- -- -- -- (379,000) -- (379,000) Common stock issued under Dividend Reinvestment Plan 15,396 211,000 211,000 Common stock issued under stock plans 2,574 37,000 37,000 Repurchase common stock -- -- (7,370) (103,000) -- -- (103,000) Stock options earned 17,000 17,000 Comprehensive income: Net income for the three months ended March 31, 2006 -- -- -- -- 1,109,000 -- 1,109,000 Unrealized holding losses on securities available for sale arising during the period (net tax benefit of $78,000) -- -- -- -- -- (125,000) (125,000) ------------- Total comprehensive income, net of tax 984,000 --------------------------------------------------------------------------------------------- Balance -- March 31, 2006 4,787,889 $ 28,228,000 (28,981) $ (411,000) $ 7,377,000 $ (1,043,000) $ 34,151,000 =============================================================================================
For the Period Ended March 31, 2005 ------------------------------------------------------------------------- Accumulated Other Comprehensive Common Stock Retained Loss, Shares Amount Earnings Net Total ------------------------------------------------------------------------- Balance -- January 1, 2005 3,365,983 $ 23,893,000 $ 6,746,000 $ (17,900) $ 30,460,000 Dividends Paid -- -- (303,000) -- (303,000) Common stock issued uner Dividend Reinvestment Plan 8,705 171,000 171,000 Common stock issued under stock plans 1,147 23,000 -- -- 23,000 Exercise of stock options 1,104 10,000 -- -- 10,000 Comprehensive income: Net income for the three months ended March 31, 2005 -- -- 1,004,000 -- 1,004,000 Unrealized holding losses on securities available for sale arising during the period (net tax benefit of $332,000) -- -- -- (532,000) (532,000) ------------- Total comprehensive income, net of tax 472,000 ------------------------------------------------------------------------- Balance -- March 31, 2005 3,376,939 $ 24,097,000 $ 7,447,000 $ (711,000) $ 30,833,000 =========================================================================
See notes to unaudited consolidated financial statements. 4 Stewardship Financial Corporation and Subsidiary Notes to Consolidated Financial Statements March 31, 2006 (Unaudited) Note 1. Summary of Significant Accounting Policies Certain information and footnote disclosures normally included in the unaudited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2005. 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"). The 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 accounting principles generally accepted in the United States of America. 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. Share-based Payment Cost On January 1, 2006, the Corporation adopted Statement of Financial Accounting Standards No. 123 (revised 2004) "Share-Based Payment" ("SFAS No. 123(R)") under the applied modified perspective method. With limited exceptions, SFAS No. 123(R) requires public companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award and to recognize such cost over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). Prior to the adoption of SFAS No. 123(R), and in accordance with the provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Corporation accounted for share-based payments under the recognition and measurement principles of Accounting Principle Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB Opinion No. 25") and related interpretations. At March 31, 2006, the Corporation had four types of stock award programs referred to as the Employee Stock Bonus Plan, the Director Stock Plan, and Employee Stock Option Plan and a Stock Option Plan for Non-Employee Directors. The Employee Stock Bonus Plan is intended to provide incentives which will retain highly competent key management by providing them with a bonus in the form of shares of common stock of the Corporation. The Corporation did not grant shares during the first quarter of 2005 or 2006. 5 The Director Stock Plan permits members of the Board of Directors of the Bank to receive any monthly Board of Directors' fees in shares of the Corporation's common stock, rather than in cash. The Corporation recorded $16,000 and $5,000 in directors expense for the quarter ended March 31, 2006 and 2005, respectively. The Employee Stock Option Plan provides for options to purchase shares of Common Stock to be issued to employees of the Corporation at the discretion of the Compensation Committee of the Board of Directors. There were no options granted during the quarters ended March 31, 2006 and 2005. Options outstanding as of March 31, 2006 were 72,370 shares with a weighted average exercise price of $6.33, a weighted average remaining contractual life of 2.74 years and an aggregate intrinsic value of $165,000. All options were fully vested as of December 31, 2005. There were no options exercised during the first quarter of 2006 and 1,545 shares exercised during the first quarter of 2005. The 2001 Stock Option Plan for Non-Employee Directors provided for options to purchase shares of common stock to be issued to Directors of the Corporation. In accordance with the provisions of SFAS No. 123(R), the Corporation recorded $17,000 of director's compensation expense for share-based payments in the first quarter of 2006, with a related income tax benefit of $7,000. This expense relates to non-qualified stock options that were outstanding but not yet vested as of January 1, 2006. Due to the relatively small amount of compensation expense, basic and diluted earnings per share, income before income tax expense, net income, cash flow from operations and cash flow from financing activities were not significantly impacted. There was no activity in the Corporation's director stock option plan for the quarters ended March 31, 2006 and 2005. Options outstanding as of March 31, 2006 were 43,398 shares with a weighted average exercise price of $7.47, a weighted average remaining contractual life of 0.62 years and an aggregate intrinsic value of $136,000. As of March 31, 2006, there was approximately $7,000 of total unrecognized compensation costs related to nonvested stock options. These costs are expected to be recognized over the next quarter. The following table sets forth the pro forma net income and earnings per share for the first quarter of 2005 as if the fair value based method set forth in SFAS No. 123(R) had been applied to all share-based arrangements. Three Months Ended March 31, 2005 -------------- Net Income: Net income as reported $ 1,004,000 Stock-based compensation expense included in net Income, net of related tax effects 5,000 Total stock-based compensation expense determined Under fair value based method for all awards, Net of related tax effects (21,000) ------------- Pro forma net income $ 988,000 ============= Earnings per share: As reported basic earnings per share $ 0.21 As reported diluted earnings per share 0.20 Pro forma basic earnings per share 0.20 Pro form diluted earnings per share 0.20 Share data has been restated to reflect a 4 for 3 stock dividend issued July, 2005 and a 5% stock dividend paid in November 15, 2005. There were no stock options awarded during the first quarter of 2006 and 2005. The fair value of options granted for Directors is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions used: Director Director Stock Options Stock Options 2001 2005 ---- ---- Dividend yield 1.62% 1.79% Expected volatility 39.76% 33.19% Risk-free interest rate 6.65% 4.34% Expected life 7 years 5 years Fair value at grant date $ 2.94 $ 4.50 Note 2. Basis of presentation The interim unaudited consolidated financial statements included herein have been prepared in accordance with instructions for Form 10-Q 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 accounting principles generally accepted in the United States of America. 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 three months ended March 31, 2006 are not necessarily indicative of the results which may be expected for the entire year. All share and per share amounts have been restated for stock splits and stock dividends. 6 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 market value of the Corporation's securities available for sale as of March 31, 2006 and December 31, 2005. 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.
March 31, 2006 ------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------------------------------------------------- U.S. Treasury securities $ 500,000 $ -- $ 2,000 $ 498,000 U.S. government-sponsored agencies 33,196,000 -- 729,000 32,467,000 Obligations of state and political subdivisions 1,367,000 -- 35,000 1,332,000 Mortgage-backed securities 28,673,000 6,000 899,000 27,780,000 Community Reinvestment Act Fund 1,083,000 -- 36,000 1,047,000 ------------------------------------------------------- $ 64,819,000 $ 6,000 $ 1,701,000 $ 63,124,000 ======================================================= December 31, 2005 ------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Carrying Cost Gains Losses Value ------------------------------------------------------- U.S. Treasury securities $ 501,000 $ -- $ 5,000 $ 496,000 U.S. government-sponsored agencies 33,140,000 -- 662,000 32,478,000 Obligations of state and political subdivisions 2,068,000 -- 37,000 2,031,000 Mortgage-backed securities 28,880,000 8,000 777,000 28,111,000 Community Reinvestment Act Fund 1,071,000 -- 20,000 1,051,000 ------------------------------------------------------- $ 65,660,000 $ 8,000 $ 1,501,000 $ 64,167,000 =======================================================
On a quarterly basis, the Corporation makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security is impaired on an other-than-temporary basis. The Corporation considers many factors including the length of time the security has had a market value less than the cost basis; the intent and ability of the Corporation to hold the security for a period of time sufficient for a recovery in value; and recent events specific to the issuer or industry. Management considers the impairment of these securities to be temporary. Mortgage-backed securities are comprised primarily of government agencies such as the Government National Mortgage Association ("GNMA") and government-sponsored agencies such as the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). Note 4. Securities Held to Maturity The following table sets forth the carrying value and estimated market value of the Corporation's securities held to maturity as March 31, 2006 and December 31, 2005. Securities held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts.
March 31, 2006 ------------------------------------------------------- Gross Gross Estimated Carrying Unrecognized Unrecognized Market Value Gains Losses Value ------------------------------------------------------- U.S. Treasury securities $ 1,003,000 $ -- $ 3,000 $ 1,000,000 U.S. government-sponsored agencies 12,004,000 -- 185,000 11,819,000 Obligations of state and political subdivisions 14,743,000 16,000 133,000 14,626,000 Mortgage-backed securities 8,367,000 42,000 146,000 8,263,000 ------------------------------------------------------- $ 36,117,000 $ 58,000 $ 467,000 $ 35,708,000 ======================================================= December 31, 2005 ------------------------------------------------------- Gross Gross Carrying Unrecognized Unrecognized Market Value Gains Losses Value ------------------------------------------------------- U.S. Treasury securities $ 1,004,000 $ 2,000 $ 1,000 $ 1,005,000 U.S. government-sponsored agencies 12,113,000 1,000 180,000 11,934,000 Obligations of state and political subdivisions 15,747,000 27,000 128,000 15,646,000 Mortgage-backed securities 8,953,000 60,000 123,000 8,890,000 ------------------------------------------------------- $ 37,817,000 $ 90,000 $ 432,000 $ 37,475,000 =======================================================
On a quarterly basis, the Corporation makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security is impaired on an other-than-temporary basis. The Corporation considers many factors including the length of time the security has had a market value less than the cost basis; the intent and ability of the Corporation to hold the security for a period of time sufficient for a recovery in value; and recent events specific to the issuer or industry. Management considers the impairment of these securities to be temporary. Mortgage-backed securities are comprised primarily of government agencies such as the Government National Mortgage Association ("GNMA") and government-sponsored agencies such as the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). 7 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 Bergen, Passaic and Morris counties, New Jersey. The following table sets forth the composition of loans as of the periods indicated. March 31, December 31, 2006 2005 -------------------------------- Mortgage Residential $ 45,650,000 $ 45,604,000 Commercial 159,068,000 163,309,000 Commercial 68,592,000 65,011,000 Equity 19,270,000 20,271,000 Installment 53,157,000 51,540,000 Other 449,000 506,000 ---------------------------------- Total loans 347,183,000 346,241,000 ---------------------------------- Less: Deferred loan fees 425,000 418,000 Allowance for loan losses 3,920,000 3,847,000 ---------------------------------- 4,345,000 4,265,000 ---------------------------------- Loans, net $ 341,841,000 $ 341,976,000 ================================== Note 6. Allowance for loan losses Three Months Ended March 31, 2006 2005 ----------------------------------- Balance, beginning of period $ 3,847,000 $ 3,299,000 Provision charged to operations 50,000 150,000 Recoveries of loans charged off 23,000 2,000 Loans charged off - (13,000) ----------------------------------- Balance, end of period $ 3,920,000 $ 3,438,000 =================================== 8 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, loans more than 90 days past due and restructured loans. The following table sets forth information regarding the impaired loans as of the periods indicated. March 31, December 31, 2006 2005 -------------------------------- Impaired loans With related allowance for loan losses $ 7,000 $ 152,000 Without related allowance for loan losses 177,000 320,000 ------------- ------------- Total impaired loans $ 184,000 $ 472,000 ============= ============= Related allowance for loan losses $ 7,000 $ 29,000 ============= ============= 9 Stewardship Financial Corporation and Subsidiary Notes to Consolidated Financial Statements Continued (Unaudited) Note 8. Recent Accounting Pronouncements In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140." (SFAS No. 156). SFAS No. 156 requires the recognition of servicing assets or servicing liabilities each time an entity undertakes an obligation to service a financial asset; requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; and, permits an entity to choose either to (1) amortize servicing assets or servicing liabilities in proportion to and over the period of estimated net servicing income or net servicing loss and assess servicing assets or servicing liabilities for impairment or increased obligation based on fair value at each reporting date; or, (2) measure servicing assets or servicing liabilities at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur. At its initial adoption, SFAS No. 156 permits a one-time reclassification of available for sale securities to trading securities provided that the available for sale securities are identified in some manner as offsetting exposure to changes in fair value of servicing assets or servicing liabilities subsequently being measured at fair value. SFAS No. 156 requires separate financial statement presentation of servicing assets and servicing liablities subsequently measured at fair value and requires additional disclosures for all separately recognized servicing assets and servicing liablilities. SFAS No. 156 is effective for the Corporation on January 1, 2007. The Corporation does not expect the adoption of SFAS No. 156 to have a significant impact on the consolidated financial statements, results of operation or liquidity of the Corporation. Note 9. 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. The following is a reconciliation of the calculation of basic and diluted earnings per share. Three Months Ended March 31, 2006 2005 ---- ---- Net income $1,109 $1,004 Weighted average common shares 4,755 4,722 Effect of dilutive stock options 55 61 ------ ------ Total weighted average common dilutive shares 4,810 4,783 Basic earnings per share $ 0.23 $ 0.21 Diluted earnings per share $ 0.23 $ 0.21 All share and per share amounts have been restated to reflect a 4 for 3 stock split issued July, 2005 and a 5% stock dividend paid November 15, 2005. 10 Note 10. Comprehensive Income Total comprehensive income includes net income and other comprehensive income which is comprised of unrealized holding gains and losses on securities available for sale, net of taxes. The Corporation's total comprehensive income for the three months ended March 31, 2006 and 2005 was $984,000 and $472,000, 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 and losses on securities available for sale during the applicable period of time. 11 Stewardship Financial Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations This Form 10-Q 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 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. As used in this Form 10-Q, "we" and "us" and "our" refer to Stewardship Financial Corporation and its consolidated subsidiary, Atlantic Stewardship Bank, depending on the context. Critical Accounting Policies and Estimates ------------------------------------------ "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as disclosures found elsewhere in this Form 10-Q, are based upon the Corporation's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Corporation's Audited Consolidated Financial Statements for the year ended December 31, 2005 included in our Annual Report on Form 10-K for the year ended December 31, 2005, as supplemented by this report, contains a summary of the Corporation's significant accounting policies. Management also believes the Corporation's policy with respect to the methodology for the determination of the allowance for loan losses involves a higher degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations. The Audit Committee and the Board of Directors periodically review this critical policy and its application. The allowance for loan losses is based upon management's evaluation of the adequacy of the allowance, including an assessment of known and inherent risks in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectibility may not be assured, the existence and estimated net realizable value of any underlying collateral and guarantees securing the loans, and current economic and market conditions. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the 12 Corporation's allowance for loan losses. Such agencies may require the Corporation to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Corporation's loans are secured by real estate in the State of New Jersey. Accordingly, the collectibility of a substantial portion of the carrying value of the Corporation's loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate values decline or the northern New Jersey area experience an adverse economic shock. Future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Corporation's control. Financial Condition ------------------- Total assets decreased by $6.2 million, or 1.3%, from $482.7 million at December 31, 2005 to $476.6 million at March 31, 2006. Cash and cash equivalents decreased $2.9 million, securities held to maturity decreased $1.7 million and securities available for sale decreased $1.0 million. Net loans decreased $135,000, as a result of the Corporation selling participations totaling approximately $7.1 million of commercial mortgages. The proceeds from these loan participations and the principal payments in the investment portfolio were used to lower the Corporation's dependence on Federal Home Loan Bank borrowings. The composition of the loan portfolio is basically unchanged at March 31, 2006 when compared with the portfolio at December 31, 2005. Deposits totaled $400.6 million at March 31, 2006, a decrease of $3.6 million, or 0.9%, from $404.1 million at December 31, 2005. Noninterest-bearing deposits decreased $3.1 million, or 3.3%, to $90.8 million at March 31, 2006 and interest-bearing deposits decreased $433,000, or 0.1%, to $309.8 million at March 31, 2006. The Corporation experienced a normal cyclical decline in the business checking products during the first quarter of 2006 and operated in an extremely competitive market for attracting deposits. The Corporation opened its tenth branch in Montville, Morris County, New Jersey in February 2006 and this new market is helping obtain a strong core deposit base. The Corporation has received approvals to begin the building of our new Wyckoff branch, which is anticipated to open in the second quarter of 2007. The Corporation is also looking at several new deposit products for introduction in the second quarter to help provide attractive services to existing and new customers that will fund the loan growth anticipated in the second quarter of 2006. The challenges of the rising interest rate environment and the strong competitive market for deposits is expected to continue for the remainder of the year and will require the Corporation to continue to look at a blend of new deposit products and borrowings in order to fund the balance sheet. 13 Results of Operations --------------------- Three Months Ended March 31, 2006 and 2005 ------------------------------------------ General ------- The Corporation reported net income of $1.1 million, or $0.23 diluted earnings per share for the three months ended March 31, 2006, compared to $1.0 million, or $0.21 diluted earnings per share for the same period in 2005. The $105,000 increase was primarily caused by increases in net interest income and noninterest income and a decrease in the provision for loan loss, partially offset by an increase in noninterest expense. Net interest income ------------------- Net interest income increased $275,000, or 6.2%, for the three months ended March 31, 2006 as compared with the corresponding period in 2005. The increase was primarily due to an increase in average net interest-earning assets and a decrease in the net interest margin. Total interest income on a tax equivalent basis increased $1.3 million, or 22.2%, primarily due to an increase in the average earning assets and an increase in yields on interest-earning assets. Due to an increase in yields in the loan and investment portfolio and a shift in assets into loans, tax equivalent yields on interest earning assets increased 44 basis points from 5.87% for the three months ended March 31, 2005 to 6.31% for the same period in 2006. The average balance of interest-earning assets increased $54.3 million, or 13.6%, from $398.3 million for the three months ended March 31, 2005 to $452.6 million for the same period in 2006, primarily caused by strong loan demand and an increase in taxable investment securities. The Corporation continued to experience an increase in loan demand which caused loans on average to increase $51.9 million to an average of $348.7 million for the three months ended March 31, 2006, from an average of $296.8 million for the comparable period in 2005. Taxable investment securities increased $8.6 million to an average of $86.6 million as the Corporation deployed short-term assets into securities. Interest paid on deposits and borrowed money increased by $1.0 million, or 79.3%, due to an increase in deposits as compared to the same period in 2005 and an increase in rates paid on deposits. The average balance of total interest-bearing deposits and borrowed money increased to $355.0 million for the three months ended March 31, 2006 from $303.2 million for the comparable 2005 period, primarily as a result of the Corporation's expanding customer base and new product offerings. Yields on deposits and borrowed money increased from 1.70% for the three month period ended March 31, 2005 to 2.64% for the comparable period in 2006. Rising short-term interest rates and an extremely competitive market has caused the Corporation to raise yields on deposits in order to fund the asset base. 14 The following table reflects the components of the Corporation's net interest income for the quarters ended March 31, 2006 and 2005 including, (1) average assets, liabilities, and stockholders' equity, (2) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, and (4) net yield on interest-earning assets. Nontaxable income from investment securities and loans is presented on a tax-equivalent basis assuming a statutory tax rate of 34%. This was accomplished by adjusting non-taxable income upward to make it equivalent to the level of taxable income required to earn the same amount after taxes.
Analysis of Net Interest Income (Unaudited) For the Three Months Ended March 31, 2006 2005 ------------------------------------ ----------------------------------- Average Average Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid ------- ------- ---- ------- ------- ---- (Dollars in thousands) Assets Interest-earning assets: Loans (1) $ 348,697 $ 5,974 6.9% $ 296,764 $ 4,787 6.54% Taxable investment securities (1) 86,645 879 4.11 78,030 724 3.76 Tax-exempt investment securities (1) (2) 16,817 181 4.36 19,471 224 4.67 Other interest-earning assets 483 7 5.88 4,058 26 2.60 --------- --------- --------- --------- Total interest-earning assets 452,642 7,041 6.31 398,323 5,761 5.87 --------- --------- Non-interest-earning assets: Allowance for loan losses (3,965) (3,392) Other assets 31,972 26,651 --------- --------- Total assets $ 480,649 $ 421,582 ========= ========= Liabilities and Stockholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits $ 118,775 $ 407 1.39% $ 131,792 $ 320 0.98% Savings deposits 44,674 64 0.58 50,127 74 0.60 Time deposits 144,849 1,306 3.66 90,455 581 2.60 Repurchase agreements 5,635 55 3.96 3,404 18 2.14 FHLB borrowing 33,784 353 4.24 20,206 172 3.45 Subordinated debenture 7,255 122 6.82 7,258 122 6.82 --------- --------- --------- --------- Total interest-bearing liabilities 354,972 2,307 2.64 303,242 1,287 1.70 --------- --------- Non-interest-bearing liabilities: Demand deposits 88,953 85,324 Other liabilities 2,717 1,924 Stockholders' equity 34,007 31,092 --------- --------- Total liabilities and stockholders' equity $ 480,649 $ 421,582 ========= ========= Net interest income (taxable equivalent basis) $ 4,734 $ 4,474 Tax Equivalent adjustment (57) (72) --------- --------- Net interest income 4,677 4,402 Net interest spread (taxable equivalent basis) 3.67% 4.16% ========= ========= Net yield on interest-earning assets (taxable equivalent basis) (3) 4.24% 4.56% ========= =========
----------------- (1) For purpose of these calculations, nonaccruing loans are included in the average balance. Fees are included in loan interest. Loans and total interest-earning assets are net of unearned income. Securities are included at amortized cost. (2) The tax equivalent adjustments are based on a marginal tax rate of 34%. (3) Net interest income (taxable equivalent basis) divided by average interest-earning assets. 15 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 losses associated with its loan portfolio, after giving consideration to changes in general market conditions, current charge-off experience, level of nonperforming loans and the nature and volume of the Corporation's loan activity. The allowance for loan losses is based on estimates, and provisions are charged to operations during the period in which such additions are deemed necessary. The provision charged to operations totaled $50,000 and $150,000 during the three months ended March 31, 2006 and 2005, respectively. The decrease in the provision was primarily due to the unchanged balance in the loan portfolio caused by the loan participations completed during the first quarter and the improved asset quality. See "Asset Quality" section for a 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 $221,000, or 34.1%, from $649,000 for the three month period ended March 31, 2005 to $870,000 for the comparable period in 2006. Income derived from the merchant credit card processing program increased $76,000 due to an expanding merchant base and deposit related fees increased $32,000 for the three month period ended March 31, 2006 compared to the same period for 2005 due to the implementation of an overdraft protection program which was offered to customers beginning March 1, 2006. This program provides eligible customers with an overdraft line available for check writing and ATM, ACH, and Debit card transactions. The Bank purchased bank owned life insurance in April, 2005 which contributed $80,000 to noninterest income during the first quarter of 2006. In addition, the increase in mortgage activity allowed the Corporation to improve the volume of loans held for sale and realize additional income of $32,000. Noninterest expense ------------------- Noninterest expense increased by approximately $463,000, or 14.0%, to $3.8 million for the three months ended March 31, 2006, compared to $3.3 million for the same 2005 period. Salaries and employee benefits, the major component of noninterest expense, increased $183,000, or 12.7%, during the three months ended March 31, 2006. This increase was due to general increases for merit and performance and increases in staffing to support the new Montville branch, the lending department and the executive administration. Occupancy and equipment expense increased $112,000, or 25.2%, primarily to support the new Montville branch and the newly relocated Waldwick branch which opened in the fall of 2005. Advertising expense decreased $44,000 during the period ended March 31, 2006 as the Corporation had a strong marketing program in 2005 to support new product offerings. The increase in the merchant card 16 processing business caused merchant processing expense to increase $72,000 in the first quarter of 2006 as compared to the first quarter of 2005. Income taxes ------------ Income tax expense totaled $610,000 for the three months ended March 31, 2006, for an effective tax rate of 35.5%. For the three months ended March 31, 2005, income tax expense totaled $582,000, for an effective tax rate of 36.7%. The effective tax rate has decreased due to the effect of the tax deferred status of the bank owned life insurance income. 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 borrowers' 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:
03/31/06 12/31/05 09/30/05 06/30/05 --------- --------- --------- --------- (Dollars in Thousands) Nonaccrual loans: (1) $ 184 $ 472 $ 316 $ 202 Loans past due 90 days or more: (2) 5 55 26 7 Restructured loans: -- -- -- -- --------- --------- --------- --------- Total nonperforming loans $ 189 $ 527 $ 342 $ 209 ========= ========= ========= ========= Allowance for loan losses $ 3,920 $ 3,847 $ 3,714 $ 3,570 ========= ========= ========= ========= Nonaccrual loans to total loans 0.05% 0.14% 0.09% 0.06% Nonperforming loans to total loans 0.06% 0.15% 0.10% 0.07% Nonperforming loans to total assets 0.04% 0.11% 0.07% 0.05% Allowance for loan losses to total loans 1.13% 1.11% 1.14% 1.13%
(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, 2006 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. 17 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 in northern New Jersey. Market Risk ----------- The Corporation's primary exposure to market risk arises from changes in market interest rates ("interest rate risk"). The Corporation's profitability is largely dependent upon its ability to manage interest rate risk. Interest rate risk can be defined as the exposure of the Corporation's net interest income to adverse movements in interest rates. Although the Corporation manages other risks, such as credit and liquidity risk, in the normal course of its business, management considers interest rate risk to be its most significant market risk and it could potentially have the largest material effect on the Corporation's financial condition. The Corporation manages its interest rate risk by utilizing an asset/liability simulation model and by measuring and managing its interest sensitivity gap. Interest sensitivity gap is determined by analyzing the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within the same period of time. The Asset Liability Committee reviews and discusses these measurements on a monthly basis. The Corporation does not have any material exposure to foreign currency exchange rate risk or commodity price risk. The Corporation did not enter into any market sensitive instruments for trading purposes nor did it engage in any hedging transactions utilizing derivative financial instruments during the three months ended March 31, 2006. The Corporation is, however, a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These instruments, which include commitments to extend credit and standby letters of credit, involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statement of condition. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates and may require collateral from the borrower if deemed necessary by the Corporation. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party up to a stipulated amount and with specified terms and conditions. Commitments to extend credit and standby letters of credit are not recorded on the Corporation's consolidated balance sheet until the instrument is exercised. Capital Adequacy ---------------- The Corporation is subject to capital adequacy guidelines promulgated by the Board of Governors of the Federal Reserve System ("FRB"). The Bank is subject to similar capital adequacy requirements imposed by the Federal Deposit Insurance Corporation. The FRB has issued regulations to define the adequacy of capital based upon the sensitivity of assets and off- 18 balance sheet exposures to risk factors. Four categories of risk weights (0%, 20%, 50%, and 100%) were established to be applied to different types of balance sheet assets and off-balance sheet exposures. The aggregate of the risk-weighted items (risk-based assets) is the denominator of the ratio, the numerator is risk-based capital. Under the regulations, risk-based capital has been classified into two categories. Tier 1 capital includes common and qualifying perpetual preferred stockholders' equity less goodwill. Tier 2 capital includes mandatory convertible debt, allowance for loan losses, subject to certain limitations, and certain subordinated and term debt securities. Total qualifying capital consists of Tier 1 capital and Tier 2 capital; however, the amount of Tier 2 capital may not exceed the amount of Tier 1 capital. At March 31, 2006, the minimum risk-based capital requirements to be considered adequately capitalized were 4% for Tier 1 capital and 8% for total capital. Federal banking regulators have also adopted leverage capital guidelines to supplement the risk-based measures. The leverage ratio is determined by dividing Tier 1 capital as defined under the risk-based guidelines by average total assets (non risk-adjusted) for the preceding quarter. At March 31, 2006 the minimum leverage ratio requirement to be considered well capitalized was 4%. The following table reflects the Corporation's capital ratios at March 31, 2006. Required Actual Excess -------- ------ ------ Risk-based Capital Tier 1 4.00% 12.36% 8.36% Total 8.00% 13.47% 5.47% Leverage Ratio 4.00% 9.01% 5.01% Liquidity and Capital Resources ------------------------------- The Corporation's primary sources of funds are deposits, repayments 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. The primary source of cash from operating activities is net income. Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments, such as federal funds sold. The Corporation anticipates that it will have sufficient funds available to meet its current loan commitments. At March 31, 2006, the Corporation has outstanding loan commitments of $28.1 million and unused lines and letters of credit totaling $95.0 million. Certificates of deposit scheduled to mature in one year or less, at March 31, 2006, totaled $54.2 million. Management believes that a significant portion of such deposits will remain with the Corporation. Cash and cash equivalents decreased $2.9 million 19 during the first three months of 2006. Net operating and investing activities provided $2.9 million and $2.5 million, respectively, and financing activities used $8.2 million. The Corporation had an available overnight line of credit with the FHLB-NY for a maximum amount of $41.6 million at March 31, 2006. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Disclosure about quantitative and qualitative market risk is located in the Market Risk section of Management's Discussion and Analysis of Financial Condition and Results of Operations. ITEM 4. Controls and Procedures The Corporation's management, with the participation of the Corporation's chief executive officer and principal accounting officer, has evaluated the effectiveness of the Corporation's disclosure controls and procedures as of March 31, 2006. Based on this evaluation, the Corporation's chief executive officer and principal accounting officer concluded that the Corporation disclosure controls and procedures are effective for recording, processing, summarizing and reporting the information the Corporation is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC's rules and forms. Such evaluation did not identify any change in the Corporation's internal control over financial reporting that occurred during the quarter ended March 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting. 20 Stewardship Financial Corporation Part II -- Other Information Item 1A. Risk Factors ------------ There have been no material changes in risk factors described in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2005. Item 6. Exhibits ------- (a) Exhibits See Exhibit Index following this report. 21 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Stewardship Financial Corporation Date: May 15, 2006 By: /s/ Paul Van Ostenbridge -------------- ----------------------------------------- Paul Van Ostenbridge President and Chief Executive Officer (authorized officer on behalf of registrant) Date: May 15, 2006 By: /s/ Julie E. Holland -------------- ----------------------------------------- Julie E. Holland Senior Vice President and Treasurer (principal accounting officer) 22 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------ ----------- 31.1 Certification of Paul Van Ostenbridge required by Rule 13a-14(a) or Rule 15d-14(a) 31.2 Certification of Julie Holland required by Rule 13a-14(a) or Rule 15d-14(a) 32.1 Certification of Paul Van Ostenbridge and Julie Holland required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 23