STEWARDSHIP FINANCIAL CORP (Form: 10KSB, Received: 03/31/1999 11:23:44)

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

(Mark One)

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998

|_| TRANSITION REPORT PURSUANT TO SECTION 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
(Name of small business issuer as specified in its charter)

           New Jersey                                         22-3351447
  (State of other jurisdiction                             (I.R.S. employer
of incorporation or organization)                         identification no.)

  630 Godwin Avenue, Midland Park, NJ                           07432
(Address of principal executive offices)                      (Zip Code)

Issuer's telephone number, including area code (201) 444-7100

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act:

Common Stock, no par value
(Title of class)

(Title of class)

Indicate by check mark whether the Issuer: (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |_|

The aggregate market value of the voting stock held by non-affiliates of the Issuer, as of March 19, 1999 was $22,319,096.

The number of shares outstanding of the Issuer's Common Stock, no par value, outstanding as of March 19, 1999 was 993,623.

For the fiscal year ended December 31, 1998, the Issuer had total revenues of $13,328,000.

DOCUMENTS INCORPORATED BY REFERENCE

Item 6      Management's Discussion         Registrant's Annual Report to
            and Analysis or Plan of         Shareholders under the
            Operation                       caption "Management's
                                            Discussion and Analysis
                                            of Financial Condition and
                                            Results of Operations"

Item 7      Financial Statements            Registrant's Annual Report to
                                            Shareholders under the
                                            caption "Consolidated
                                            Statements of Financial
                                            Condition"

Item 9      Directors and Executive         Proxy Statement for 1999
            Officers of the Company;        Annual Meeting of
            Compliance with Section         Shareholders under the caption,
            16(a) of the Exchange Act       "Compliance with Section 16(a) of
                                            the Securities Exchange Act of
                                            1934," to be filed no later than
                                            April 30, 1999

Item 10     Executive Compensation          Proxy Statement for 1999
                                            Annual Meeting of
                                            Shareholders under the caption,
                                            "Compensation Committee on
                                            Report on Executive Compensation,"
                                            to be filed no later than
                                            April 30, 1999

Item 11     Security Ownership of           Proxy Statement for 1999
            Certain Beneficial Owners       Annual Meeting of Shareholders
            and Management                  under the caption, "Stock
                                            Ownership of Management and
                                            Principal Stockholders," to be
                                            filed no later than
                                            April 30, 1999

Item 12     Certain Relationships and       Proxy Statement for 1999
            Related Transactions            Annual Meeting of Shareholders
                                            under the caption, "Interest of
                                            Management and Others in
                                            Certain Transactions," to be
                                            filed no later than
                                            April 30, 1999

Part I

Item 1 - Description of Business

General

Stewardship Financial Corporation (the "Corporation" or "Registrant") is a one-bank holding company incorporated under the laws of the State of New Jersey in January, 1995 to serve as a holding company for Atlantic Stewardship Bank (the "Bank"). The Corporation was organized at the direction of the Board of Directors of the Bank for the purpose of acquiring all of the capital stock of the Bank (the "Acquisition"). Pursuant to the New Jersey Banking Act of 1948, as amended (the "Banking Act"), and pursuant to approval of the shareholders of the Bank, the Corporation acquired the Bank and became its holding company on November 22, 1996. As part of the Acquisition, shareholders of the Bank received one share of common stock, no par value ("Common Stock") of the Corporation for each outstanding share of the common stock of the Bank. The only significant activity of the Corporation is ownership and supervision of the Bank. The Corporation's main office is located at 630 Godwin Avenue, Midland Park, Bergen County, New Jersey 07432.

The Bank is a commercial bank formed under the laws of the State of New Jersey on April 26, 1984. The Bank operates from its main office at 630 Godwin Avenue, Midland Park, New Jersey, and its four branches located at 386 Lafayette Avenue, Hawthorne, New Jersey, 190 Franklin Avenue, Ridgewood, New Jersey, 30 Franklin Turnpike, Waldwick, New Jersey, and 87 Berdan Avenue, Wayne, New Jersey. The Bank operates ATM machines at its Midland Park, Ridgewood, Waldwick, and Wayne branches. The Bank plans on opening its fifth branch located at 311 Valley Road, Wayne, New Jersey during April 1999.

The Corporation is subject to the supervision and regulation of the Board of Governors of the Federal Reserve System (the "FRB"). The Bank's deposits are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits. The operations of the Corporation and the Bank are subject to the supervision and regulation of the FRB, FDIC and the New Jersey Department of Banking and Insurance (the "Department"). The principal executive offices of the Corporation are located at 630 Godwin Avenue, Midland Park, New Jersey 07432, and the telephone number is (201) 444-7100.

Business of the Corporation

The Corporation's primary business is the ownership and supervision of the Bank. The Corporation, through the Bank, conducts a traditional commercial banking business, and offers services including personal and business checking accounts and time deposits, money market accounts and regular savings accounts. The Corporation structures its specific services and charges in a manner designed to attract the business of the small and medium sized business and professional community as well as that of individuals residing, working and shopping in its Bergen and Passaic County, New Jersey trade area. The Corporation engages in a wide range of lending activities and offers commercial, consumer, mortgage, home equity and personal loans. Stewardship Investment Corp. is a wholly-owned nonbank subsidiary of the Bank, whose primary business is to own and manage the Bank's investment portfolio.

In addition, in forming the Bank, the members of the Board of Directors envisioned a community-based institution which would serve the local communities surrounding its branches, while also providing a return to its shareholders. This vision has been reflected in the Bank's tithing policy, under which the Bank tithes 10% of its pre-tax profits to worthy Christian charities.

Service Area

The Corporation's service area primarily consists of the Bergen and Passaic County, New Jersey market, although the Corporation makes loans throughout New Jersey. The Corporation operates its main office in Midland Park, New Jersey and four existing branch offices in Hawthorne, Ridgewood, Waldwick, and Wayne, New Jersey.

Competition

The Corporation operates in a highly competitive environment in competing for deposits and loans with commercial banks, thrifts and other financial institutions, many of which have greater financial resources than the Corporation. Many large financial institutions in New York City and other parts of New Jersey compete for the business of New Jersey residents located in the Corporation's service area. Certain of these institutions have significantly higher lending limits than the Corporation and provide services to their customers which the Corporation does not offer.

Management believes the Corporation is able to compete on a substantially equal basis with its competitors because it provides responsive personalized services through management's knowledge and awareness of the Corporation's service area, customers and business.

Employees

At December 31, 1998, the Corporation employed 57 full-time employees and 34 part-time employees. None of these employees is covered by a collective bargaining agreement and the Corporation believes that its employee relations are good.

Supervision and Regulation

Bank holding companies and banks are extremely regulated under both federal and state law. These laws and regulations are intended to protect depositors, not stockholders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in the applicable law or regulation may have a material effect on the business and prospects of the Corporation and the Bank.

Bank Holding Company Regulation

GENERAL. As a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"), the Corporation is subject to the regulation and supervision of the FRB. The Corporation is required to file with the FRB annual reports and other information regarding its business operations and those of its subsidiaries are limited to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries or engaging in any other activity which the FRB determines to be so closely related to banking or managing or controlling banks as to be properly incident thereto.

The BHCA requires, among other things, the prior approval of the FRB in any case where a bank holding company proposes to (i) acquire all or substantially all of the assets of any other bank, (ii) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank (unless it owns a majority of such bank's voting shares), or (iii) merge or consolidate with any other bank holding company. The FRB will not approve any acquisition, merger, or consolidation that would have a substantially anti-competitive effect, unless the anti-competitive impact of the proposed transaction is clearly outweighed by a greater public interest in meeting the convenience and needs of the community to be served. The FRB also considers capital adequacy and other financial and managerial resources and future prospects of the companies and the banks concerned, together with the convenience and needs of the community to be served, when reviewing acquisitions or mergers.

Additionally, the BHCA prohibits a bank holding company, with certain limited exceptions, from (i) acquiring or retaining direct or indirect ownership or control of more than 5% of the outstanding voting stock of any company which is not a bank or bank holding company, or (ii) engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or performing services for its subsidiaries; unless such non-banking business is determined by the FRB to be so closely related to banking or managing or controlling banks as to be properly incident thereto. In making such determinations, the FRB is required to weigh the expected benefits to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices.

There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the FDIC insurance funds in the event the depository institution becomes in danger of default. Under a policy of the FRB with respect to bank holding company operations, a bank holding company is required to serve to commit resources to support such institutions in circumstances where it might not do so absent such policy. The FRB also has the authority under the BHCA to require a bank holding company to terminate any activity or to relinquish control of a non-bank subsidiary upon the FRB's determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company.

CAPITAL ADEQUACY GUIDELINES FOR BANK HOLDING COMPANIES. The FRB has adopted risk-based capital guidelines for bank holding companies. The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

The risk-based guidelines apply on a consolidated basis to bank holding companies with consolidated assets of $150 million or more. For bank holding companies with less than $150 million in consolidated assets, the guidelines will be applied on a bank-only basis unless: (a) the parent bank holding company is engaged in non-bank activity involving significant leverage, or (b) the parent company has a significant amount of outstanding debt that is held by the general public. The minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) is 8%. At least 4% of the total capital is required to be "Tier I" capital, consisting of common stockholders' equity and certain preferred stock, less certain goodwill items and other intangible assets. The remainder, "Tier II Capital," may consist of (a) the allowance for loan losses of up to 1.25% of risk-weighted assets, (b) excess of qualifying preferred stock, (c) hybrid capital instruments, (d) debt, (e) mandatory convertible securities, and (f) qualifying subordinated debt. Total capital is the sum of Tier I and Tier II capital less reciprocal holdings of other banking organizations' capital instruments, investments in unconsolidated subsidiaries and any other deductions as determined by the FRB (determined on a case-by-case basis or as a matter of policy after formal rule-making).

Bank holding company assets are given risk-weights of 0%, 20%, 50%, and 100%. In addition, certain off-balance sheet items are given similar credit conversion factors to convert them to asset equivalent amounts to which an appropriate risk-weight will apply. These computations result in the total risk-weighted assets. Most loans are assigned to the 100% risk category, except for performing first mortgage loans fully secured by residential property which carry a 50% risk-weighing. Most investment securities ( including, primarily, general obligation claims of states or other political subdivisions of the United States) are assigned to the 20% category, except for municipal or state revenue bonds, which have a 50% risk-weight, and direct obligations of the U.S. treasury or obligations backed by the full faith and credit of the U.S. Government, which have a 0% risk-weight. In converting off-balance sheet items, direct credit substitutes including general guarantees and standby letters of credit backing nonfinancial obligations, and undrawn commitments (including commercial credit lines with an initial maturity or more than one year) have a 50% risk-weighing. Short term commercial letters of credit have a 20% risk-weighing and certain short-term unconditionally concelable commitments have a 0% risk-weighing.

In addition to the risk-based capital guidelines, the FRB has adopted a minimum Tier I capital (leverage) ratio, under which a bank holding company must maintain a minimum level of Tier I capital to average total consolidated assets of at least 3% in the case of a bank holding company that has the highest regulatory examination rating and is not contemplating significant growth or expansion. All other bank holding companies are expected to maintain a leverage ratio of at least 100 to 200 basis points above the stated minimum.

Bank Regulation

As a New Jersey-chartered commercial bank, the Bank is subject to the regulation, supervision, and control of the Department. As a FDIC-insured institution, the Bank is subject to

regulation, supervision and control by the FDIC, an agency of the federal government. The regulations of the FDIC and the Department impact virtually all activities of the Bank, including the minimum level of capital the Bank must maintain, the ability of the Bank to pay dividends, the ability of the Bank to expand through new branches or acquisitions, and various other matters.

INSURANCE OF DEPOSITS. The Bank's deposits are insured up to a maximum of $100,000 per depositor under the BIF. The FDIC has established a risk-based assessment system for all insured depository institutions. Under this system, the FDIC has established an insurance premium assessment system based upon: (i) the probability that the insurance fund will incur a loss with respect to the institution; (ii) the likely amount of the loss; and (iii) the revenue needs of the insurance fund. In compliance with this mandate, FDIC has developed a matrix that sets the assessment premium for a particular institution in accordance with its capital level and overall rating by the primary regulatory. Under the matrix as currently in effect, the assessment rate ranges from 0 to 31 basis points of assessed deposits.

DIVIDEND RIGHTS. Under the Banking Act, a Bank may declare and pay dividends only if, after payment of the dividend, the capital stock of the Bank will be unimpaired and either the Bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the Bank's surplus.

RECENT LEGISLATION. On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the "Deposit Act") became law. The primary purpose of the Deposit Act is to recapitalize the Savings Association Insurance Fund of the FDIC (the "SAIF") by charging all SAIF member institutions a one-time special assessment. The Deposit Act will lead to equalization of the deposit insurance assessments between BIF and SAIF insured institutions, and will also separate out from insurance assessments payments required for debt service and principal repayment on bonds issued by the Federal Finance Corporation ("FICO") in the mid-1980s to fund a portion of the thrift bailout. Under the Deposit Act, BIF-insured institutions like the Bank will be required to pay a portion of the obligations owed under the FICO bonds. SAIF institutions will be required to pay 6.4 basis points on assessed deposits while BIF institutions will only be required to pay 1.3 basis points on assessed deposits. This disparity will stay in effect until such time as the Federal thrift and commercial bank charters are merged and the deposit insurance funds are thereafter merged.

On September 29, 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act (the "Interstate Act") was enacted. The Interstate Act generally enhanced the ability of bank holding companies to conduct their banking business across state borders. The Interstate Act had two main provisions. The first provision generally provided that commencing on September 29, 1995, bank holding companies could have acquired banks located in any state regardless of the provisions of state law. These acquisitions are subject to certain restrictions, including caps on the total percentage of deposits that a bank holding company may control both nationally and in any single state. New Jersey law currently allows interstate acquisitions by bank holding companies whose home state has "reciprocal" legislation which would allow acquisitions by New Jersey based holding companies.

The second major provision of the Interstate Act permitted, beginning on June 1, 1997, banks located in different states to merge and continue to operate as a single institution in more than one state. States could have, by legislation passed before June 1, 1997, opted out of the interstate bank merger provisions of the Interstate Act. In addition, states could have elected to opt in and allow interstate bank mergers prior to June 1, 1997.

A final provision of the Interstate Act permitted banks located in one state to establish new branches in another state without obtaining a separate bank charter in that state, but only if the state in which the branch was located had adopted legislation specifically allowing interstate de novo branching.

In April, 1996, the New Jersey legislature passed legislation which would permit interstate bank mergers prior to June 1, 1997, provided that the home state of the institution acquiring the New Jersey institution permits interstate mergers prior to June 1, 1997. In addition, the legislation permitted an out-of-state institution to acquire an existing branch of a New Jersey-based institution, and thereby conduct a business in New Jersey. The legislation has enhanced competition in

the New Jersey marketplace as bank holding companies located outside of New Jersey became freer to acquire institutions located within the state of New Jersey.

Item 2. Description of Property

The Corporation conducts its business through its main office located at 630 Godwin Avenue, Midland Park, New Jersey, and its four branch offices. A fifth branch located at 311 Valley Road, Wayne, New Jersey will be opened in April, 1999. The following table sets forth certain information regarding the Corporation's properties as of December 31, 1997.

                                     Leased                     Date of Lease
Location                            or Owned                     Expiration
--------                            --------                     ----------

630 Godwin Avenue                     Owned                          --
Midland Park, NJ

386 Lafayette Avenue                  Owned                          --
Hawthorne, NJ

190 Franklin Avenue                   Leased                      10/31/07
Ridgewood, NJ

30 Franklin Turnpike                  Leased                      03/31/02
Waldwick, NJ

87 Berdan Avenue                      Leased                      08/31/99
Wayne, NJ

311 Valley Road                       Leased                      11/30/03
Wayne, NJ

Item 3 - Legal Proceedings

The Corporation and the Bank are periodically parties to or otherwise involved in legal proceedings arising in the normal course of business, such as claims to enforce liens, claims involving the making and servicing of real property loans, and other issues incident to the Bank's business. Management does not believe that there is any pending or threatened proceeding against the Corporation or the Bank which, if determined adversely, would have a material effect on the business or financial position of the Corporation or the Bank.

Item 4 - Submission of Matters to a Vote of Security Holders

No matters were submitted for a vote of the Registrant's shareholders during the fourth quarter of fiscal 1998.

Part II

Item 5 - Market for the Common Equity and Related Stockholder Matters

Commencing in November 1997, the Company's Common Stock began trading on the NASDAQ Bulletin Board under the symbol "SSFN". As of December 31, 1998, there were 695 stockholders of record of the Common stock.

The following table sets forth the quarterly high and low bid prices of the Common Stock as reported on the NASDAQ Bulletin Board for the quarterly periods presented. The Common Stock of the Company is thinly traded, and the prices below reflect inter-dealer prices, without retail markup, markdown or commissions, and may not reflect actual transactions, as such. The stock prices and cash dividends set forth below also reflect adjustments related to a two-for-one stock split completed in 1997, and a 5% stock dividend paid on June 1, 1998.

                                       Bid
                               ---------------------
                                                             Cash
                                High           Low         Dividend
                               ------         ------       --------
Year Ended December 31, 1998
Fourth quarter                 $27.00         $26.00         $0.07
Third quarter                   26.50          25.50          0.07
Second quarter                    N/A            N/A          0.07
First quarter                     N/A            N/A          0.07

Fourth quarter                    N/A            N/A           --
Third quarter                     N/A            N/A          0.11
Second quarter                    N/A            N/A           --
First quarter                     N/A            N/A          0.11

----------

N/A indicated no regularly published bid prices available.

The Corporation may pay dividends as declared from time to time by the Corporation's Board of Directors out of funds legally available therefore, subject to certain restrictions. Since dividends from the Bank will be the Corporation's main source of income, any restriction on the Bank's ability to pay dividends will act as a restriction on the Corporation's ability to pay dividends. Under the Banking Act, no cash dividend may be paid by the Bank unless, following the payment of such dividend, the capital stock of the Bank will be unimpaired and the Bank will have a surplus of no less than 50% of its capital stock or, if not, the payment of such dividend will not reduce the surplus of the Bank. In addition, the Bank cannot pay dividends in such amounts as would reduce its capital below the regulatory imposed minimums.

During fiscal 1998, the Corporation paid quarterly cash dividends of $0.07 per share for an annual dividend payout ratio of 16.70%. During fiscal 1997, the Corporation paid semi-annual cash dividends of $0.11 per share for an annual dividend payout ratio of 15.16%.

Item 6 - Management's Discussion and Analysis or Plan of Operation

The information required by this item is incorporated by reference from page 14 of the Registrant's Annual Report to Shareholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Item 7 - Financial Statements

The information required by this item is incorporated by reference from page 30 of the Registrant's Annual Report to Shareholders under the caption "Consolidated Statements of Financial Condition"

Item 8 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Part III

Item 9 - Directors and Executive Officers of the Corporation; Compliance with
Section 16(a) of the Exchange Act

Information concerning directors and executive officers will be included in the definitive Proxy Statement for the Corporation's 1999 Annual Meeting of Shareholders under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934," which is incorporated herein by reference. It is expected that such Proxy Statement will be filed with the Securities and Exchange Commission no later than April 30, 1999.

The following table sets forth information about each significant employee of the Corporation who is not also a director.

                                                    Principal Occupation
Name, Age and Position       Officer Since (1)     During Past Five Years
----------------------       -----------------     ----------------------

Julie E. Holland, 39,              1997            Vice President, Accounting
Vice President                                     Atlantic Stewardship Bank
                                                   April, 1997
                                                   Assistant Vice President,
                                                   Accounting
                                                   Atlantic Stewardship Bank
                                                   March, 1995
                                                   Assistant Controller,
                                                   Accounting,
                                                   Atlantic Stewardship Bank
                                                   May, 1994

M. Bernard Joustra, 62,            1991            Vice President,
Vice President                                     Commercial Lending,
                                                   Atlantic Stewardship Bank

(1) Includes prior service as an officer of the Bank.

Item 10 - Executive Compensation

Information concerning executive compensation will be included in the definitive Proxy Statement for the Corporation's 1999 Annual Meeting of Shareholders under the caption "Executive Compensation," which is incorporated herein by reference. It is expected that such Proxy Statement will be filed with the Securities and Exchange Commission no later than April 30, 1999.

Item 11 - Security Ownership of Certain Beneficial Owners and Management

Information concerning security ownership of certain beneficial owners and management will be included in the definitive Proxy Statement for the Corporation's 1999 Annual Meeting of Shareholders under the caption "Stock Ownership of Management and Principal Stockholders," which is incorporated herein by reference. It is expected that such Proxy Statement will be filed with the Securities and Exchange Commission no later than April 30, 1999.

Item 12 - Certain Relationships and Related Transactions

Information concerning certain relationships and related transactions will be included in the definitive Proxy Statement for the Corporation's 1999 Annual Meeting of Shareholders under the caption "Interest of Management and Others in Certain Transactions," which is incorporated herein by reference. It is expected that such Proxy Statement will be filed with the Securities and Exchange Commission no later than April 30, 1999.

Item 13 - Exhibits, Lists and Reports on Form 8-K

(a) Exhibits

Exhibit
Number               Description of Exhibits
------               -----------------------
3(i)                 Certificate of Incorporation of the Corporation (1)
3(ii)                Bylaws of the Corporation (1)
10(i)*               1995 Incentive Stock Option Plan (1)
10(ii)*              1995 Stock Option Plan for Non-Employee Directors (1)
10(iii)*             1995 Employee Stock Purchase Plan (2)
10(iv)*              Stock Bonus Plan (2)
10(v)                Stewardship Financial Corporation Dividend Reinvestment
                     Plan (3)
10(vi)*              Stewardship Financial Corporation Director Stock Plan (4)
10(vii)*             Amended and Restated 1995 Stock Option Plan filed herewith
10(viii)*            Amended and Restated Director Stock Plan filed herewith
13                   Annual Report to Shareholders for the year ended
                     December 31, 1998
21                   Subsidiaries of the Registrant (1)
23                   Consent of KPMG LLP
27                   Financial Data Schedule

----------

(1) Incorporated by reference from Exhibits 5(B)(3)(i), 5(B)(3)(ii),
5(B)(3)(iii), 5(B)(10)(a), 5(B)(10)(b), 5(B)(21), from the Corporation's Registration Statement on Form 8-B, Registration No. 0-21855, filed December 10, 1996.

(2) Incorporated by reference from Exhibits 4(c) to 23(d) from the Corporation's Registration Statement on Form S-8, Registration No. 333-20793, filed January 31, 1997.

(3) Incorporated by reference from Exhibit 4(a) from the Corporation's Registration Statement on Form S-3, Registration No. 333-20699, filed January 30, 1997.

(4) Incorporated by reference from Exhibit 4(a) from the Corporation's Registration Statement on Form S-8, Registration No. 333-31245, filed July 11, 1997.

* Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K None.

STEWARDSHIP FINANCIAL CORPORATION

INDEX TO EXHIBITS

Exhibit
Number               Description of Exhibits
------               -----------------------

3(i)                 Certificate of Incorporation of the Corporation (1)
3(ii)                Bylaws of the Corporation (1)
10(i)                1995 Incentive Stock Option Plan (1)
10(ii)               1995 Stock Option Plan for Non-Employee Directors (1)
10(iii)              1995 Employee Stock Purchase Plan (2)
10(iv)               Stock Bonus Plan (2)
10(v)                Stewardship Financial Corporation Dividend Reinvestment
                     Plan (3)
10(vi)               Stewardship Financial Corporation Director Stock Plan (4)
10(vii)              Amended and Restated 1995 Stock Option Plan filed herewith
10(viii)             Amended and Restated Director Stock Plan filed herewith
13                   Annual Report to Shareholders for the year ended
                     December 31, 1998
21                   Subsidiaries of the Registrant (1)
23                   Consent of KPMG LLP
27                   Financial Data Schedule

----------

(2) Incorporated by reference from Exhibits 4(c) to 23(d) from the Corporation's Registration Statement on Form S-8, Registration No. 333-20793, filed January 31, 1997.

(3) Incorporated by reference from Exhibit 4(a) from the Corporation's Registration Statement on Form S-3, Registration No. 333-20699, filed January 30, 1997.

(4) Incorporated by reference from Exhibit 4(a) from the Corporation's Registration Statement on Form S-8, Registration No. 333-31245, filed July 11, 1997.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

By:   /s/ Paul Van Ostenbridge
     -----------------------------------
               Paul Van Ostenbridge
               Chief Executive Officer
               Dated: March 29, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

        Name                              Title                    Date
        ----                              -----                    ----
/s/ Paul Van Ostenbridge           Chief Executive Officer    March 29, 1999
---------------------------
Paul Van Ostenbridge

/s/ Julie E. Holland               Principal Financial        March 29, 1999
---------------------------        Officer and Principal
Julie E. Holland                   Accounting Officer


/s/ William Almroth                Director                   March 29, 1999
---------------------------
William Almroth

/s/ Harold Dyer                    Director                   March 29, 1999
---------------------------
Harold Dyer

/s/ Edward Fylstra                 Secretary and Director     March 29, 1999
---------------------------
Edward Fylstra

/s/ William Hanse                  Director                   March 29, 1999
---------------------------
William Hanse

/s/ Margo Lane                     Director                   March 29, 1999
---------------------------
Margo Lane

/s/ Arie Leegwater                 Chairman of the Board      March 29, 1999
---------------------------        and Director
Arie Leegwater

/s/ John L. Steen                  Vice Chairman of the       March 29, 1999
---------------------------        Board and Director
John L. Steen

/s/ Robert J. Turner               Director                   March 29, 1999
---------------------------
Robert J. Turner

/s/ William J. VanderEems          Director                   March 29, 1999
---------------------------
William J. VanderEems

FINANCIAL CORPORATION

AMENDED AND RESTATED 1995 STOCK OPTION PLAN
(As of November 17, 1998)

Section 1. Purpose

The purpose of the Stewardship Financial Corporation 1995 Stock Option Plan
(the "Plan") is to enable Stewardship Financial Corporation (the "Corporation")
to attract, retain and motivate its key executive employees and to enable key executive employees to participate in the long-term growth of the Corporation by providing for or increasing the proprietary interests of such persons in the Corporation thereby assisting the Corporation to achieve its long-range goals.

Section 2. Definitions

Capitalized terms not specifically defined elsewhere herein shall have the following meaning:

"Act" means the Securities Exchange Act of 1934, as amended from time to time, and regulations promulgated thereunder.

"Board" means the Board of Directors of the Corporation.

"Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder.

"Committee" means the Stock Option Committee of the Board (or any successor committee of the Board responsible for administering the Plan), which shall consist of two or more directors, each of whom shall be a "disinterested person" within the meaning of Rule 16b-3(c) under the Act, to administer the Plan and perform the functions set forth herein.

"Common Stock" or "Stock" means the common stock, no par value, of the Corporation.

"Corporation" means Stewardship Financial Corporation and any present or future subsidiary corporations of Stewardship Financial Corporation (as defined in Section 424 of the Code) or any successor to such corporations.

"Disability" means total disability as determined in accordance with the terms of the Corporation's long-term disability plan (or, if the Corporation has no such plan, its retirement plan) as in effect from time to time; provided, however, with respect to a Participant who has been granted an Incentive Stock Option such term shall have the meaning set forth in Section 422(c)(6) of the Code.

"Fair Market Value" means, with respect to shares of Common Stock, the fair market value as determined by the Committee in good faith and in a manner established by the Committee from time to time; provided, however, that if the shares of Common Stock are last sale reported over the counter securities, then the "fair market value" of such shares on any date shall be the average of the high and low prices reported in the consolidated reporting system, or the average of the bid and asked prices (if the shares of Common Stock are over the counter securities), on the business day immediately preceding the date in question, as reported on the NASDAQ system.

"Incentive Stock Option" means an option to purchase shares of Common Stock a Participant under the Plan which is intended to meet the requirements of
Section granted to 422 of the Code.

"Non-Qualified Stock Option" means an option to purchase shares of Common Stock granted to a Participant under the Plan which is not intended to be an Incentive Stock Option.

"Option" means an Incentive Stock Option or a Non-Qualified Stock Option.

"Participant" means a person selected by the Committee to receive an Option under the Plan.

"Plan" means the Stewardship Financial Corporation 1995 Stock Option Plan.

"Retirement" means termination of employment in accordance with the retirement provisions of any retirement or pension plan maintained by the Corporation or any of its subsidiaries.

Section 3. Administration

(a) The Plan shall be administered by the Committee. Among other things, the Committee shall have authority, subject to the terms of the Plan to grant Options, to determine the individuals to whom and the time or times at which Options may be granted, and to determine the terms and conditions of any Option granted hereunder, and the exercise price thereof.

(b) Subject to the other provisions of the Plan, the Committee shall have authority to adopt, amend, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall from time to time consider advisable, to interpret the provisions of the Plan and any Option and to decide all disputes arising in connection with the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option agreement in the manner and to the extent it shall deem appropriate to carry the Plan into effect, in its sole and absolute discretion. The Committee's decision and interpretations shall be final and binding. Any

action of the Committee with respect to the administration of the Plan shall be taken pursuant to a majority vote or by the unanimous written consent of its members.

(c) The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent.

Section 4. Eligibility and Participation

Executive officers and other key employees of the Corporation (including executive officers and key employees who are directors) who are from time to time responsible for the management, growth and protection of the business of the Corporation, shall be eligible to participate in the Plan. The Participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine in its sole discretion the numbers of shares to be covered by the Option or Options granted to each Participant. Options intended to qualify as Incentive Stock Options shall be granted only to persons who are eligible to receive such options under Section 422 of the Code.

Section 5. Shares of Stock Available for Options

(a) The maximum number of shares of Common Stock which may be issued and purchased pursuant to Options granted under the Plan is 22,500, subject to the adjustments as provided in Section 5 and Section 7, to the extent applicable. If an Option granted under this Plan expires or terminates before exercise or is forfeited for any reason, without a payment in the form of Common Stock being granted to the Participant, the shares of Common Stock subject to such Option, to the extent of such expiration, termination or forfeiture, shall again be available for subsequent Option grant under the Plan. Shares of Common Stock issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

(b) In the event that the Committee determines, in its sole discretion, that any stock dividend, stock split, reverse stock split or combination, extraordinary cash dividend, creation of a class of equity securities, recapitalization, reclassification, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below Fair Market Value, or other similar transaction affects the Common Stock such that an adjustment is required in order to preserve the benefits or potential benefits intended to be granted or made available under the Plan to Participants, the Committee shall have the right to proportionately and appropriately adjust equitably any or all of (i) the maximum number and kind of shares of Common Stock in respect of which Options may be granted under the Plan to Participants, (ii) the number and kind of shares of Common Stock subject to outstanding Options held by Participants, and (iii) the exercise price with respect to any Options held by Participants, without changing the aggregate purchase price as to which

such Options remain exercisable, and if considered appropriate, the Committee may make provision for a cash payment with respect to any outstanding Options held by a Participant, provided that no adjustment shall be made pursuant to this Section if such adjustment would cause the Plan to fail to comply with
Section 422 of the Code or with Rule 16b-3 of the Act. No fractional Shares shall be issued on account of any such adjustment.

(c) Any adjustments under this Section will be made by the Committee, whose determination as to what adjustments, if any, will be made and the extent thereof will be final, binding and conclusive.

Section 6. Options

(a) Subject to Federal and state statutes then applicable and the provisions of the Plan, the Committee may grant Incentive Stock Options and Non-Qualified Stock Options and determine the number of shares to be covered by each Option, the Option price therefor, the term of the Option, and the other conditions and limitations applicable to the exercise of the Option. The terms and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code. Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted to the Committee under the Plan be so exercised, so as to disqualify the Plan, or without the consent of the Participant, any Incentive Stock Option granted under the Plan pursuant to Section 422 of the Code.

(b) The Option price per share of Common Stock purchasable under an Option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant. If the Participant owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Corporation or any subsidiary or parent corporation of the Corporation and an Incentive Stock Option is granted to such Participant, the Option price shall be not less than 110% of Fair Market Value of the Common Stock on the date of grant.

(c) No Option shall be exercisable more than ten (10) years after the date the Option is granted. If a Participant owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Corporation or any subsidiary or parent corporation of the Corporation and an Incentive Stock Option is granted to such Participant, such Option shall not be exercisable after the expiration of five (5) years from the date of grant.

(d) No shares of Common Stock shall be delivered pursuant to any exercise of an Option until payment in full of the Option price therefor is received by the Corporation.

Such payment may be made in whole or in part in cash or by certified or bank check or, to the extent permitted by the Committee at or after the grant of the Option, by delivery of shares of Common Stock owned by the Participant valued at their Fair Market Value on the date of delivery, or such other lawful consideration as the Committee may determine.

(e) Unless otherwise determined by the Committee at the time of grant of an Option, in the event a Participant's employment with the Corporation terminates by reason of death or Disability, any Option granted to such Participant which is then outstanding may be exercised at any time prior to the expiration of the term of such Option or within twelve (12) months following the Participant's termination of employment by reason of death or Disability, whichever period is shorter.

(f) Unless otherwise determined by the Committee at the time of grant of an Option, in the event the Participant's employment with the Corporation terminates for any reason other than death or Disability, any Option granted to such Participant which is then outstanding may be exercised at any time prior to the expiration of the term of such Option, or in the case of the Participant's termination of employment for reasons other than death, Disability or Retirement, within one (1) month of such termination, or in the case of the Participant's Retirement, within three (3) months of such Retirement, whichever period is shorter.

(g) No Option shall be transferable by the Participant otherwise than by will or by the laws of descent and distribution, and all Options shall be exercisable during the Participant's lifetime only by the Participant or the Participant's appointed guardian or legal representative. A Participant shall notify the Committee in writing in the event that he disposes of Common Stock acquired upon exercise of an Incentive Stock Option within the two-year period following the date the Incentive Stock Option was granted or within the one-year period following the date he received Common Stock upon the exercise of an Incentive Stock Option and shall comply with any other requirements imposed by the Corporation in order to enable the Corporation to secure the related income tax deduction to which it will be entitled in such event under the Code.

(h) The Committee may in its sole discretion, (i) accelerate the date or dates on which all or any particular Option or Options granted under the Plan may be exercised or (ii) extend the dates during which all or any particular Option or Options granted under the Plan may be exercised; provided, however, that no such extension shall be permitted if it would cause the Plan to fail to comply with Section 422 of the Code or with Rule 16b-3 of the Act.

(i) The aggregate Fair Market Value of shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant who is an employee of the Corporation during one calendar year
(under all plans of the Corporation and its parent and subsidiary corporations) shall not exceed the sum of One Hundred Thousand Dollars ($100,000.00). Such aggregate Fair Market Value shall be determined as of the date such Option is granted.

Section 7. General Provisions Applicable to Options

(a) Notwithstanding any other provision of the Plan, in order to qualify for the exemption provided by Rule 16b-3 of the Act, any Common Stock acquired by a Participant subject to Section 16 of the Act (a "Section 16 Participant") upon exercise of an Option may not be sold for six (6) months after the date of grant of the Option. The Committee shall have no authority to take any action if the authority to take such action, or the taking of such action, would disqualify the Plan from the exemption provided by Rule 16b-3 of the Act.

(b) Each Option under the Plan shall be evidenced by a writing delivered to the Participant specifying the terms and conditions thereof and containing such other terms and conditions not inconsistent with the provisions of the Plan as the Committee considers necessary or advisable to achieve the purposes of the Plan or comply with applicable tax and regulatory laws and accounting principles.

(c) Each Option may be granted alone, in addition to or in relation to any other Option. The terms of each Option need not be identical, and the Committee need not treat Participants uniformly. Except as otherwise provided by the Plan or a particular Option, any determination with respect to an Option may be made by the Committee at the time of grant or at any time thereafter.

(d) In the event of a consolidation, reorganization, merger or sale of all or substantially all of the assets of the Corporation in each case in which outstanding shares of Common Stock are exchanged for securities, cash or other property of any other corporation or business entity or in the event of a liquidation of the Corporation, the committee of the board of directors of any corporation assuming the obligations of the Corporation, may, in its discretion, take any one or more of the following actions, as to outstanding options: (i) provide that such options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), provided that any such options substituted for Incentive Stock Options shall meet the requirements of Section 424(a) of the Code, (ii) upon written notice to the Participants, provide that all unexercised options will terminate immediately prior to the consummation of such transaction unless exercised (to the extent then exercisable) by the Participant within a specified period following the date of such notice, (iii) in the event of a merger under the terms of which holders of the Common Stock of the Corporation will receive upon consummation thereof a cash payment for each share surrendered in the merger (the "Merger Price"), make or provide for a cash payment to the Participants equal to the difference between (A) the Merger Price times the number of shares of Common Stock subject to such outstanding Options (to the extent then exercisable at prices not in excess of the Merger Price) and (B) the aggregate exercise price of all such outstanding Options in exchange for the termination of such Options, and (iv) provide that all or any outstanding Options shall become exercisable in full immediately prior to such event.

(e) The Committee may grant Options under the Plan in substitution for options held by employees of another corporation who become employees of the Corporation, or a subsidiary of the Corporation, as the result of a merger or consolidation of the employing corporation with the Corporation or a subsidiary of the Corporation, or as a result of the acquisition by the Corporation, or one of its subsidiaries, of property or stock of the employing corporation. The Corporation may direct that substitute options be granted on such terms and conditions as the Committee considers appropriate in the circumstances.

(f) The Participant shall pay to the Corporation, or make provision satisfactory to the Committee for payment of, any taxes required by law to be withheld in respect of Options under the Plan no later than the date of the event creating the tax liability. In the Committee's sole discretion, a Participant (other than a Section 16 Participant, who shall be subject to the following sentence) may elect to have such tax obligations paid, in whole or in part, in shares of Common Stock, including shares retained from the Option creating the tax obligation. With respect to Section 16 Participants, upon the issuance of shares of Common Stock in respect of an Option, such number of shares issuable shall be reduced by the number of shares necessary to satisfy such Section 16 Participant's federal, and where applicable, state withholding tax obligations. For withholding tax purposes, the value of the shares of Common Stock shall be the Fair Market Value on the date the withholding obligation is incurred. The Corporation may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the Participant.

(g) For purposes of the Plan, the following events shall not be deemed a termination of employment of a Participant:

(i) a transfer to the employment of the Corporation from a subsidiary or from the Corporation to a subsidiary, or from one subsidiary to another, or

(ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Corporation, if the Participant's right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing.

For purposes of the Plan, employees of a subsidiary of the Corporation shall be deemed to have terminated their employment on the date on which such subsidiary ceases to be a subsidiary of the Corporation.

(h) The Committee may at any time, and from time to time, amend, modify or terminate the Plan or any outstanding Option held by a Participant, including substituting therefor another Option of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Non-Qualified Stock Option, provided that the Participant's consent to each action shall be required unless the

Committee determines that the action, taking into account any related action, would not materially and adversely affect the Participant.

Section 8. Miscellaneous

(a) No person shall have any claim or right to be granted an Option, and the grant of an Option shall not be construed as giving a Participant the right to continued employment. The Corporation expressly reserves the right at any time to dismiss a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Option.

(b) Nothing contained in the Plan shall prevent the Corporation from adopting other or additional compensation arrangements for its employees.

(c) Subject to the provisions of the applicable Option, no Participant shall have any rights as a shareholder (including, without limitation, any rights to receive dividends, or non cash distributions with respect to such shares) with respect to any shares of Common Stock to be distributed under the Plan until he or she becomes the holder thereof.

(d) Notwithstanding anything to the contrary expressed in this Plan, any provisions hereof that vary from or conflict with any applicable Federal or State securities laws (including any regulations promulgated thereunder) shall be deemed to be modified to conform to and comply with such laws.

(e) No member of the Board of Directors or the Committee shall be liable for any action or determination taken or granted in good faith with respect to this Plan nor shall any member of the Board of Directors or the Committee be liable for any agreement issued pursuant to this Plan or any grants under it. Each member of the Board of Directors and the Committee shall be indemnified by the Corporation against any losses incurred in such administration of the Plan, unless his action constitutes serious and willful misconduct.

(f) The Plan shall be effective upon its approval by the shareholders of the Corporation. Prior to such approval, Options may be granted under the Plan expressly subject to such approval.

(g) The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that no amendment shall be granted without shareholder approval if such approval is necessary to comply with any applicable tax laws or regulatory requirement, including any requirements for exemptive relief under Section 16(b) of the Act.

(h) Options may not be granted under the Plan after the tenth anniversary of its effective date, but then outstanding Options may extend beyond such date.

(i) To the extent that State laws shall not have been preempted by any laws of the United States, the Plan shall be construed, regulated, interpreted and administered according to the other laws of the State of New Jersey

FINANCIAL CORPORATION

DIRECTOR STOCK PLAN
(As amended and restated through January 19, 1999)

1. Purpose. This Director Stock Plan (the "Plan") is intended to permit members of the Boards of Directors ("Directors") of Stewardship Financial Corporation (the "Company"), Atlantic Stewardship Bank (the "Bank") and any subsidiaries ("the Subsidiaries") which the Company may, directly or indirectly through the Bank, from time to time own or establish, to receive any Board of Directors' fees to which they may otherwise be entitled pursuant to policies adopted by their respective Boards of Directors ("Directors' Fees") in shares of the Company's Common Stock, no par value (the "Common Stock") rather than in cash.

2. Administration. The Stock Compensation Committee of the Board of Directors of the Company (the "Committee") shall supervise and administer the Plan. Subject to the provisions of the Plan, the Committee shall have the authority to take any and all actions necessary to implement and interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, and to make all other determinations necessary and advisable in administering the Plan. All such determinations shall be final and binding upon all persons. A quorum of the Committee shall consist of a majority of its members and the Committee may act by vote of a majority of its members at a meeting at which a quorum is present, or without a meeting by a written consent to the action taken signed by all members of the Committee. The Committee may request advice or assistance or employ such other persons as are necessary for the proper administration of the Plan.

3. Eligible Participants. All members of the Boards of Directors of the Company, the Bank or any Subsidiaries are eligible to participate in the Plan, to the extent they are eligible to receive Directors' Fees.

4. Election to Participate. Each Director may elect to participate in the Plan effective on the first day of any month following the date he or she makes such election by notifying the Committee in writing of such election to participate and authorizing the Committee to pay any and all Directors' Fees such Director would otherwise be entitled to receive in shares of Common Stock as determined pursuant to Section 5 hereof. A Director who is participating in the Plan may, at any time, withdraw from the Plan by delivering to the Committee a written notice of withdrawal. Such notice of withdrawal shall be effective 10 days after its receipt by the Committee. From and after the date of such effective withdrawal, any Directors' Fees to which such Director may be entitled will be paid in cash.

5. Distribution of Shares. Not later than the last business day of each calendar month in which a participating Director is entitled to receive Directors' Fees, the Company shall deliver to each participating Director, in lieu of such fees, the number of whole and fractional shares of Common Stock which such Directors' Fees would entitle such

Director to purchase based upon the fair market value of such shares on the day of the Board of Directors meeting for that month. For purposes of this Plan, the term "fair market value" means the fair market value as determined by the Committee in good faith and in a manner established by the Committee from time to time taking into account such factors as the Committee shall deem appropriate. Shares to be distributed under this Plan may either be issued directly from the Company's authorized but unissued shares or shares which have been purchased in one or more transactions on the open market at the direction of the Committee. In the event shares are purchased in the open market, the Company will be responsible for paying any and all brokerage or other transactional fees incurred in connection with such purchases.

6. Tax and Securities Law Implications of the Plan: Holding Period

(a) Each Director participating in the Plan will be responsible to pay any and all federal, state and local taxes due in connection with the acquisition of shares of Common Stock hereunder in the same manner as if such participating Director had received their Directors' Fees in cash. Each such participating Director will receive a Form 1099 from the Company indicating the value of director fees paid in Common Stock.

(b) The shares of common stock issued under the Plan will have been registered under the Securities Act of 1933, as amended and under applicable state securities laws. However, participating Directors may be deemed to be "affiliates" of the Company, and may therefore be subject to any and all restrictions on transfers imposed upon affiliates.

(c) In order to comply with Securities and Exchange Commission Rule 16b-3 under the Securities Exchange Act of 1934, as amended, each share of Common Stock issued pursuant to this Plan must be held by a participating Director, and may not be transferred by such participating Director, for a period of six (6) months from its date of issuance. In order to ensure compliance with this provision, the Company will ensure that stop transfer orders are place on its stock transfer books with regard to such shares.

7. Rights to Continued Service on the Board of Directors. Nothing provided in this Plan shall be deemed to enlarge or otherwise affect any rights a participating Director may have to continue to serve on the Board of Directors of the Company, the Bank or any Subsidiary.

8. Amendment or Termination of the Plan. The Board of Directors of the Company may elect, at any time and from time to time, to amend, modify or terminate the Plan in any respect. Upon such termination, a participating Director shall have no further rights to acquire shares of the Common Stock hereunder.

9. Governing Law. The Plan and all transactions hereunder shall be governed by and construed in accordance with the substantive law of the State of New Jersey.

10. Indemnification of the Committee. Service on the Committee shall constitute service as a Director of the Company so that members of the Committee shall be entitled to such rights of indemnification and reimbursement, and such limitations on liability, as are Directors of the Company pursuant to the terms of the Company's Certificate of Incorporation and Bylaws.

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STEWARDSHIP FINANCIAL CORPORATION
AND SUBSIDIARY

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Annual Report 1998

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Stewardship Financial Corporation, is the holding company for Atlantic Stewardship Bank, a full-service, independent commercial bank, established in 1985. The bank is dedicated to meeting the financial needs of businesses and residents in northern New Jersey. This commitment is evidenced by our reputation for offering superior customer service while keeping pace with current technological standards in all phases of operations. We appreciate the value of all our customers and accept our responsibility to treat each one fairly and respectfully.

The bank employs a sound investment strategy to safeguard assets, provide adequate capital growth and recognize Shareholders with a proper return. To carry our success into the next century, we continue to devote the resources needed to advance and expand our line of products and services.

In addition to our obligation to our clients and Shareholders, we recognize our responsibilities as an employer. The bank provides a supportive, professional environment for our associates, in which they are encouraged to work together as a team as well as develop their individual talents and are recognized for their accomplishments.

In accordance with our bank charter, we are pleased to tithe or share ten percent of our pre-tax profits with Christian and local charities.

Table of Contents

Financial Highlights .....................................................   2-3
With Gratitude ...........................................................     4
Board of Directors .......................................................     5
Shareholders' Message ....................................................   6-7
Our Tithing Program ......................................................   8-9
Lending Products .........................................................    10
B.e.a.c.h. Committee .....................................................    11
Bank Officers ............................................................    11
Shareholder Information ..................................................    12
Selected Financial Data ..................................................    13
Management's Discussion and Analysis of Financial Condition
  and results of operations .............................................. 14-28
Independent Auditor's Report .............................................    29
Consolidated Statements of Financial Condition ...........................    30
Consolidated Statements of Income ........................................    31
Consolidated Statements of Changes in Stockholders' Equity ...............    32
Consolidated Statements of Cashflows .....................................    33
Notes to Consolidated Financial Statements ............................... 34-51

Financial Highlights

                                                 1998       1997        % Change
                                              ---------------------------------
                                                     (Dollars in thousands,
                                                   except per share amounts)
For the Year Ended December 31
Net Income                                    $  1,647    $  1,463        12.6
Average Shares outstanding                         985         973         1.2
Per common share:
  Basic net income                                1.67        1.50        11.3
  Diluted net income                              1.65        1.50        10.0
Cash dividends declared                           0.27        0.23        17.4
Book value at year end                           13.68       12.19        12.2

Balance Sheet Data at December 31
Total assets                                   185,970     149,732        24.2
Deposits                                       170,721     136,215        25.3
Loans                                          123,163     100,790        22.2
Stockholders' equity                            13,549      11,926        13.6
Allowance for loan losses                        1,542       1,462         5.5

Consolidated Ratios
Return on average assets                          0.98%       1.07%       (8.4)
Return on average equity                         12.94%      13.12%       (1.4)
Tier 1 capital to average assets (leverage)       7.16%       7.75%       (7.6)
Tier 1 capital to risk-adjusted assets           10.62%      11.41%       (6.9)
Total capital to risk-adjusted assets            11.87%      12.67%       (6.3)

"As a result of contributions like yours, the YMCA is more fully able to provide essential programs to help build strong kids, strong families, strong communities, as well as instill the core values of caring, honesty, respect and responsibility.

We are most appreciative of your thoughtfulness and support, and we invite you to stop by the YMCA to see for yourself our continuing mission of service."

Richard J. Claydon, Chief Executive Officer

Ridgewood YMCA Ridgewood, NJ

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Atlantic Stewardship Bank, subsidiary of the Stewardship Financial Corporation is known for its unique Tithing Program. The Discipleship House in Paterson, NJ is one example of the program's recipients. Pictured above, William Vander Eems, Director (left) and Alma Baxter, Assistant Secretary and Hawthorne Branch Manager, present a check to Reverend John Algera from Madison Avenue Christian Reformed Church of Paterson and Arthur Jackson, Director of the new Discipleship House. The newly refurbished house serves as a transition home for those who are re-establishing themselves in society.

[GRAPHICAL REPRESENTATION OF CHART--TOTAL ASSETS]

[GRAPHICAL REPRESENTATION OF CHART--RETURN ON ASSETS]

[GRAPHICAL REPRESENTATION OF CHART--TOTAL EARNINGS PER SHARE]

[GRAPHICAL REPRESENTATION OF CHART--TITHE]

[GRAPHICAL REPRESENTATION OF CHART--RETURN ON EQUITY]

[GRAPHICAL REPRESENTATION OF CHART--NET INCOME]

With Gratitude

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Herman de Waal Malefyt

The Stewardship Financial Corporation and its subsidiary, the Atlantic Stewardship Bank, were truly blessed to have had Herman de Waal Malefyt serve as a Director. Director de Waal Malefyt, who passed away in October, 1998, was an original organizer of the Atlantic Stewardship Bank. He served faithfully on several of the Board of Directors' Committees, including Audit, Human Resources, and Loan.

Director de Waal Malefyt and his family owned and operated Skyline Greenhouses, Inc. in Ramsey, New Jersey. He was active in his community, serving the Midland Park Christian Reformed Church, as well as sitting on boards for a number of charitable and school organizations.

Director de Waal Malefyt's thorough familiarity with the bank's market area, as well as his wisdom, insight, and compassion made him a trusted and valuable member of our Board. We are grateful to him for his vision and for helping to chart the course for the Atlantic Stewardship Bank and Stewardship Financial Corporation. He will be missed by the Board of Directors, bank associates and the community.

Board of Directors

of Stewardship Financial Corporation and Atlantic Stewardship Bank

[PHOTO]

OUR BOARD OF DIRECTORS

Arie Leegwater, Chairman
Owner, Arie Leegwater Associates

William M. Almroth
Retired

Harold Dyer
Retired

Edward Fylstra, Secretary
Managing Partner, Fylstra, Wright & Co.

William C. Hanse
Partner, Hanse & Hanse

Margo Lane
Corporate Communications Manager
Garden State Paper
Corporate Secretary, Lane Electric, Inc.

John L. Steen, Vice Chairman
President, Steen Sales, Inc.
President, Dutch Valley Throwing Co., Inc.

Robert J. Turner
President, The Turner Group

William J. Vander Eems
President, William Van Der Eems, Inc.

Paul Van Ostenbridge
President and Chief Executive Officer
Atlantic Stewardship Bank

OUR BUSINESS
DEVELOPMENT BOARDS

BERGEN BOARD

Samuel Braen
William Braunius
William R. Cook
Paul D. Heerema
Bartel Leegwater
Paul Ruitenberg
William Soodsma
Margaret Stanley
Samuel J. Steen
Kathryn Stiles
Russel Teschon, Esq.

PASSAIC/MORRIS BOARD

Donald De Bruin
Frederick Everett
Brian Hanse, Esq.
Garret Hoogerhyde
Ruth Kuiken
William Monaghan, Esq.
Ronald Steiginga
Charles Sybesma
Abe Van Wingerden
Ralph Wiegers

"On behalf of the Board of Trustees, the staff and, most importantly, our 'special' workers, I want to sincerely thank the Atlantic Stewardship Bank for its generous donation from the bank's 1998 Annual Tithe. Your donation and continued personal commitment to the Foundation are a testimony to Atlantic Stewardship Bank's care for the less fortunate."

Frank Brescia, Executive Director

Foundation for the Handicapped Wayne, NJ

Message to the Shareholders

Dear Shareholders and Friends:

The Stewardship Financial Corporation and its subsidiary, the Atlantic Stewardship Bank experienced strong growth in earnings and assets this past year.

The consolidated earnings for 1998 were a record high of $1.6 million or $1.67 per share, compared to $1.5 million or $1.50 per share in 1997. This was an increase of 12.6% in income and 11.3% in earnings per share over the previous year. Diluted earnings per share were $1.65 in 1998 compared to $1.50 in 1997. The higher earnings are attributable to the solid gains in core consumer and commercial banking business. We experienced exceptionally heightened activity in our Residential Mortgage Department, which had a positive impact on earnings.

Cash dividends paid in the amount of $.27 per share were 17.4% higher than the $.23 paid per share during the previous year. The company also paid its first stock dividend on June 1, 1998 in the amount of 5%.

Shareholder's Equity grew to $13.5 million, representing a 13.4% increase over the $11.9 million reported a year earlier.

Stewardship Financial Corporation's total assets reached $186.0 million as of December 31, 1998, compared to $149.7 million on December 31, 1997, representing a 24.2% increase. The bank's total deposits were $170.7 million at year end--a 25.3% increase over the $136.2 million at year end 1997. The substantial increase in deposits was attributable to the popularity of our Premium Growth Account (PGA), which is a tiered money market account, as well as the deposit growth in our new branch markets in Waldwick and Ridgewood. Total loans, net of allowances for loan losses were $121.5 million as of December 31, 1998 for an increase of 22.5% over the $99.2 million reported a year earlier.

Business Development Boards

Our Business Development Board has always played an important role in strengthening our ties to the community. This past year, the original Business Development Board was divided into two, with several new members appointed. The Bank is pleased to now have a Bergen County Board and a Passaic/Morris County Board specializing in their respective markets. We are grateful to have such outstanding Board Members helping to promote the Bank's services in the community.

Phone Banking

We were pleased to introduce our Phone Banking service to customers this past year. Customers are now given the opportunity to access their accounts by telephone, twenty-four hours a day. The exclusive telephone line enables accountholders to complete all of their basic banking tasks such as account inquiries, balance transfers and loan payments from the convenience of their office or home.

Expanding Branch Network

We are excited to announce the development of a second branch in the Township of Wayne, NJ. The new branch will be located at 311 Valley Road in the Valley Brooke Shopping Center. This location will introduce our services to a new market in Wayne, where our community style of banking has been well received. The new branch is scheduled to open in April, 1999 and will offer full service banking, safe deposit boxes and an automatic teller machine.

[PHOTO]

Paul Van Ostenbridge, President and Chief Executive Officer and Arie Leegwater, Chairman of the Board, assist with food packages delivered to Paterson, New Jersey residences through the Hispanic Multi Purpose Center of Paterson. The food program was coordinated by Anita Osorio and Maria Magda O'Keefe, Executive Director of the Center.

"Thank you for your wonderful generosity during 1998. Every penny went to finance Eva's Kitchen and Sheltering Programs. Feeding the hungry and sheltering the homeless is our mission, and we serve people of all faiths.

In helping me to help them, you share in the spiritual merits of Eva's Village in a special way.

Thank you and God bless you
for your kindness."

Reverend John Catoir,
Executive Director

Eva's Village
Paterson, NJ

"Your most generous gift to our Home was a profound act of faith in action. I must say, the Atlantic Stewardship Bank really lends credence to the policy of tithing.

Thank you for being an
outstanding example and
leader in the community.
The interest and concern
of friends like you is truly
a source of encouragement
for all of us who work here.
Your commitment is
exemplary of the faith
that binds all of us
together in Christ.
Be assured that your
contribution will be put
to good use in the
operations of our Home.
Blessings and good
health be with you and
the other good folks at
your bank in the days
and years ahead."

Andrew Lee,
Executive Director/CEO

Holland Christian
Home Assn.
North Haledon, NJ

Year 2000 Preparation

The Year 2000 presents businesses throughout the world with an unprecedented challenge due to certain computer restrictions. Fortunately, the banking industry began addressing the situation early on and is in the forefront of preparing for this event. Regulatory authorities have been closely reviewing each bank's progress to avoid potential processing delays. The Federal Deposit Insurance Corporation states that the Year 2000 issue will not affect customer's deposit insurance coverage.

The Atlantic Stewardship Bank began addressing Year 2000 concerns in 1997, when a special Technology Committee was established. The Committee has dedicated itself to addressing all computer-related limitations. The Bank's internal systems are being tested in addition to all related systems. As a result of the Year 2000 date change, a major investment in new computer hardware was made to support updated software systems.

The Technology Committee is confident it is on target to meet the technological challenges of the Year 2000.

Tithing

Thanks to our loyal Shareholders, dedicated Bank Associates, and an expanding customer base, we were able to increase our Tithing Program in 1998. The Bank is pleased to share 10% of our profits with Christian missions, health care facilities and schools. A total of $215,000 was distributed among these worthy organizations; a 14% increase over the previous year's giving. The Bank also offers strong support to local civic groups.

Bank Associates delivering the Tithe checks were able to see first-hand the dedicated and loving efforts of these fine Christians who work tirelessly as ambassadors of Christ. It has been a true blessing and a privilege to assist these organizations with their financial needs.

We offer our sincere thanks to our Shareholders for the continued support which enables us to help the community financially and share our profits with others. We would also like to acknowledge all of our Associates who worked together to make 1998 such a tremendous success.

We look forward to another productive year.

Very truly yours,

Arie Leegwater Paul Van Ostenbridge Chairman of the Board of Directors President and Chief Executive Officer

Giving Back: Tithing in 1998

WE ARE PLEASED TO ASSIST THE FOLLOWING
CHARITIES THROUGH OUR 1998 TITHE DISTRIBUTION:

* Africa Inland Mission American Red Cross, Bergen County Chapter
* Bessie Green Community
* Bethany Christian Services
* Bethlehem Ministries
* Calvary Temple School
* Calvin College
* Cary Christian Center, Inc.
* Christian Health Care Center
* Christian Reformed World Relief Committee
* Christian School International Foundation
* CLEAR
* CUMAC-ECHO
* Dawn Treader School
* Discipleship House
* Eastern Christian Children's Retreat
* Eastern Christian School Association
* Eastern Home Mission Board
* Ebenezer Netherlands Reformed School
* Elim Christian School Emergency Services of Ridgewood
* Eva's Village Fellowship Homes, Wayne
* Florence Christian Home Foundation for the Handicapped
* Good Shepherd Mission
* Goshen Christian School
* Hawthorne Christian Academy
* Holland Christian Home Homebound Pilots Foundation Kilbarchen Paterson Orphanage
* Lord's Day Alliance Love Fund, Inc.
* Luke Society Midland Park Ambulance Corps
* Netherlands Reformed Christian School New Jersey Community Loan Fund
* Operation Double Harvest/Haiti
* Paterson Habitat for Humanity
* Ridgewood YMCA
* Ron Hutchcraft Ministries
* Saint Anthony's School
* Salvation Army
* Siena Village
* Star of Hope Ministries
* Touch the World Ministries Valley Hospital Waldwick Ambulance Corps Wayne Memorial First Aid Squad William F. Mawhinney Ambulance Corps
* Wyckoff Family YMCA

[PHOTO]

Bank Chairman, Arie Leegwater (left) and Assistant Secretary, Louise Rohner
(right), present a donation to representatives of the Midland Park Love Fund. The Love Fund is a special friend to those in need in the community.

"Thank you very much for Atlantic Stewardship Bank's generous gift to Africa Inland Mission. We do appreciate your including our ministry in your tithing program.
AIM appreciates your leadership and the good service that ASB continues to give to our missionaries.

The Lord Bless You."

Ted Barnett, Ed.D,
U.S. Director

Africa Inland Mission International, Inc. Pearl River, NY

[PHOTO]

John L. Steen, (center) Vice Chairman of the Bank's Board of Directors presents a new school bus to Eastern Christian School Association. Accepting the Tithe donation on behalf of the school are Superintendent Gil Kitchen and student James Rohner.

IN ADDITION, THE BANK HAS PROVIDED SUPPORT
THROUGHOUT 1998 TO THE FOLLOWING ORGANIZATIONS:

* Advent Charities Albert Payson Terhune Elementary School American Cancer Society Bergen County American Heart Association American Legion, Midland Park
* Baptist Haiti Mission Bergen County Community Blood Services Bergen County Foster Care Parents Association Bergen County Housing Coalition Bergen Pines County Hospital Boy Scouts of America Boy Scouts of America--Passaic Valley Council Boys & Girls Club of Hawthorne Boys & Girls Club of Paterson Calvin Coolidge School
* Calvin Theological Seminary
* Cathedral Choir Center for Food Action Cerebral Palsy Center
* Christian Homes for Children
* Christian Overcomers Coleman School Community High School Community Learning Center of Wyckoff Computer Enabling Program Cooperative Nursery School of Ridgewood
* Corner Closet Cystic Fibrosis Deborah Hospital Downtown for the Holidays, Ridgewood
* Eastern Home Mission Board Emergency Services Forum School Foundation for Free Enterprise Free Public Library, Waldwick Friends of the Hermitage Friends of the Louis Bay 2nd Library Friends of the Midland Park Library
* Friends of the Reformed Church Home
* Friendship Ministries Friendship Pregnancy Center
* Gideons International Passaic Valley Camp
* Gideons International Ramapo Camp Girl Scout Council of Bergen County
* Grace Counseling Ministries Hawthorne Baseball/Softball Association Hawthorne Caballeros Hawthorne Centennial Committee Hawthorne Chamber of Commerce Hawthorne Chamber Symphony Hawthorne Community Library Foundation Hawthorne Cubs Hawthorne Education Foundation Hawthorne Family Fun Day Picnic Hawthorne Girl Scouts Hawthorne High School Hawthorne Hurricanes Hawthorne PBA Local 200 Hawthorne Rotary Club Hawthorne Special Rec Hawthorne Volunteer Fire Department Highland Community Association, Waldwick
* Hispanic Multi-Purpose Center Ho-Ho-Kus Chamber of Commerce Hugh O'Brian Youth Foundation
* Interchurch Softball League JFK Elementary School Julie A. Traphagen School Keith Van Hook Fund Kids Day America Lenni-Lenape Girl Scouts Leukemia Society of America, Inc.
* Life Advocates
* Little Sisters of the Poor
* Metropolitan Youth for Christ Midland Park Baseball Association, Inc. Midland Park High School
Midland Park/Ho-Ho-Kus PBA
Midland Park Lions Club
Midland Park PTA
Midland Park Volunteer Fire Company Mohawk Athletic Club
Muscular Dystrophy Association
* New Jersey Family Policy Council Northeast Urban Church Planting North Jersey Chorus Opera in the Park, Ridgewood
* Our Lady of the Consolation School
* Our Lady of the Magnificat School
* Our Lady of Mount Carmel School Paterson Chamber of Commerce Paterson Coalition for Housing, Inc. Pompton Falls Fire Department
Prison Fellowship Ministries
* Reformed Church Home Ridgewood Baseball Association Ridgewood Chamber of Commerce Ridgewood Emergency Services Ridgewood First Night/Fourth of July Ridgewood High School Ridgewood Historical Society Ridgewood PBA Ridgewood Public Library Ridgewood Public Education Foundation Ridgewood Rotary
* St. Joseph's Home for the Elderly
* St. Peter's Haven SHARE, Inc. Shelter Our Sisters
Special Olympics
Spectrum for Living Development, Inc. Stars Vocational
* Strategic Prayer Command
* Sunshine Christian Academy The Depot
* The Fig Orchard Torpedoes Soccer Club Tri-County Chamber of Commerce
* Unity Christian Reformed Church After-School Program Waldwick Education Foundation Waldwick Fire Department Waldwick High School Booster Club Waldwick High School & Home Association Waldwick PBA Wayne Adult Community Center, Inc. Wayne General Hospital
Wayne Hills High School
Wayne Library
Wayne Little League
Wayne Police Athletic League
Wayne Township Public Schools
Wayne Valley All School
Wayne Valley Band Parents Association Wayne Volunteer Fire Company
West Bergen Mental Health Clinic
* Westminster Theological Seminary
* World for Christ
* Women Who Raise the Roof Wyckoff/Midland Park Rotary YM-YWHA of North Jersey
* Youthnet Ministries

* Denotes Christian Charity

[PHOTO]

(left to right) Marina Rizzi, Assistant Branch Manager in Wayne, joins Robert Giannetti, Asst. Vice President and Wayne Branch Manager, in donating a gift from the Bank to Frank Brescia and Sylvia Motichka of The Foundation for the Handicapped of Wayne, NJ. The Foundation employs handicapped individuals to offer services to businesses in need of mail preparation or light assembly work.

"To a child without hope of parents, to a couple praying to become a family, we are-- you are--the instrument of Jesus' love. Think of it:

Today, right now, a mother is
holding her baby because
you cared--and the only
tears she is shedding are
tears of joy.

Your love has helped make a
family happen--and we are
so thankful that YOU
CARED.

Nancy Dykstra-Powers
Director

Bethany Christian
Services
Hawthorne, NJ

Lending Products

The Bank offers a complete line of lending products to assist commercial customers and consumers. The Commercial Lending Division can assist businesses with Lines of Credit, Letters of Credit, Commercial Loans, Equipment Loans, Term Loans and Commercial Mortgages.

Customers can arrange financing in a variety of ways to meet their individual needs. We are pleased to offer Home Equity Loans, Home Equity Lines of Credit, Residential Mortgages, Automobile Loans, Installment Loans and Credit Cards at some of the lowest rates in the country.

In addition, Atlantic Stewardship introduced a new Construction Real Estate Lending Division in 1998. The division offers Construction Mortgages to both residential and commercial customers and has been well received in our local communities.

Our lending territory for these products is restricted to the section of Northern New Jersey surrounding the bank.

[PHOTO]

Bernie Joustra, Vice President of Lending (right) discussing business strategies with Nick Verduin and Steven Verduin of Verduin Machinery Company, Inc., Paterson, New Jersey.

[PHOTO]

David Van Lenten, Assistant Vice President in charge of Construction Lending
(left), with Suzanne and Richard Kucharski reviewing plans for their new home.

[LOGO]

"We gratefully acknowledge your generous donation towards the work of the Waldwick Volunteer Ambulance Corps. It is with the faithful support of concerned people such as yourselves that we are able to continue the important work of helping people in Waldwick. God Bless You All!"

Carmella Morey, Secretary

Waldwick Volunteer Ambulance Corps Waldwick, NJ

"Your recent donation will be used to expand the programs we offer to our special children and young adults. Such thoughtfulness is greatly appreciated."

Steven Krapes, Ed.D., Director

The Forum School Waldwick, NJ

Bank Officers

Paul Van Ostenbridge
President and Chief Executive Officer

Julie E. Holland
Vice President and Treasurer

M. Bernard Joustra
Vice President

James S. Donado
Assistant Vice President

Robert A. Giannetti
Assistant Vice President

Elizabeth M. Lamb
Assistant Vice President

Dennis R. Murley
Assistant Vice President

Cynthia Perrotta
Assistant Vice President

Richard D. Powers
Assistant Vice President

Raymond J. Santhouse
Assistant Vice President

Gail K. Tilstra
Assistant Vice President

David J. Van Lenten
Assistant Vice President

Alma M. Baxter
Assistant Secretary

Ellie King
Assistant Secretary

Kristine Rasile
Assistant Secretary

Louise H. Rohner
Assistant Secretary

David A. Struck
Assistant Secretary

Marie E. McCall
Assistant Treasurer

Jennifer Heller
Administrative Assistant

Leigh Knorr
Administrative Assistant

Grace Lobbregt
Administrative Assistant

Jean M. Schaver
Administrative Assistant

Our B.E.A.C.H. Committee

[PHOTO]

Mary Beth Steiginga and Jennifer Heller, chairperson of the B.E.A.C.H. Committee, help package food containers generously donated by customers to benefit several local food pantries.

Atlantic Stewardship Bank associates volunteer their own time to extend our policy of community investment beyond superb customer service and financial assistance. Since its inception, the bank's B.E.A.C.H. Committee (Bank Employees Assisting CHarities) has devoted countless hours and seemingly unlimited energy and enthusiasm to operate a number of programs to benefit our surrounding communities. Their enthusiasm often seems contagious as they enlist the support of fellow co-workers and customers for projects such as food drives and holiday gift collections; demonstrating again and again their commitment to the practice of "Stewardship."

[PHOTO]

Jennifer Heller, Ellie King and Jean Schaver, members of the Bank's B.E.A.C.H. Committee, help prepare Christmas ornaments to be used as part of the Committee's Wish Tree Program. Customers helped by bringing in gifts for Bethlehem Ministries of Paterson and needy students at Monthaven School in New York.

"We are grateful for Atlantic Stewardship Bank and its unique policy of tithing. ...we know you pray for our ministry as well as giving financially. Your prayers and gifts are a reflection of God's special love. We pray for your success in banking. May the Lord who loves us so much bless all of you with the good gifts He desires to give."

Nell Hartog, Assistant Treasurer

The Florence Christian Home Wayne, NJ

Shareholder Information

The Annual Shareholders' Meeting for Stewardship Financial Corporation will be held at the main office, 630 Godwin Avenue, Midland Park, New Jersey, on Tuesday, May 11, 1999, at 7:00 P.M. The Corporation had 695 shareholders of record on December 31, 1998.

Dividend Reinvestment Plan

A total of 529 shareholders currently participate in the Corporation's Shareholder Reinvestment Plan, representing 723,329 or 76 percent of all shares outstanding. Participants in the Plan reinvest dividends to purchase new shares of stock at 95 percent of the market value, based on the most recent trade. Shareholders interested in signing up for the Dividend Reinvestment Plan may request the Plan Membership Form from Corporate Services at (201)444-7100, extension 7118.

Dividend

Stewardship Financial Corporation will provide a copy of the Annual Report on Form 10K, free of charge, to any Shareholder upon written request, including the financial statements and schedules which have been filed with the Securities and Exchange Commission. Requests should be addressed to Stewardship Financial Corporation, Attn: Ellie King, Assistant Secretary, 630 Godwin Avenue, Midland Park, NJ 07432-1405.

Recent History of Dividends Paid

The Board of Directors of the Stewardship Financial Corporation is pleased to pay, on February 1, 1999, a quarterly dividend to Shareholders of Record on January 15, 1999, in the amount of $0.09 per share. Future dividends will be paid in May, August, November and February, subject to Board approval.

November 2, 1998                   $.07
August 3, 1998                     $.07
June 1, 1998                       5% stock dividend
May 1, 1998                        $.07
February 2, 1998                   $.07
September 30, 1997                 $.11
March 28, 1997                     $.11

Dividends have been restated to reflect a two-for-one stock split completed in 1997 and the 5% stock dividend paid June 1, 1998.

[PHOTO]

Richard Schuurman (right), of the Bank's Business Marketing Division, presents a Tithe donation to the Salvation Army. Major Fred Trask and Lorraine Walker were pleased to accept on behalf of their many volunteers.

"The Atlantic Stewardship Bank's donation to Siena Village at Wayne means a great deal more to us than the generosity of the amount. The idea that, in these days of materialism and self-seeking, a bank would base its financial philosophy on the idea that we should `use our gifts to serve others' provides a spiritual gift far more valuable. We are forever grateful to all of you for the quality and quantity of both great gifts.

We believe that the Atlantic Stewardship Bank-- whose generosity benefits us and many other worthy endeavors --more than merits whatever support we can give; we love to sing your praises.

Again, thank you and all the members of your organization for your generous support of Siena Village. We will continue to use your generosity in ways best calculated to administer God's grace in its various forms."

Sister Alice Matthew, O.P.

Siena Village,
Wayne, NJ

                                        STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
                                    CONSOLIDATED FINANCIAL SUMMARY OF SELECTED FINANCIAL DATA

                                                                                        DECEMBER 31,
                                                         -------------------------------------------------------------------------
                                                            1998            1997            1996            1995           1994
                                                         ---------       ---------       ---------       ---------       ---------
                                                                      (Dollars in thousands, except per share amounts)
EARNINGS SUMMARY:
 Net interest income ...............................     $   7,495       $   6,451       $   5,703       $   5,203       $   4,597
 Provision for loan losses .........................          (200)           (120)           (155)           (150)           (295)
                                                         ---------       ---------       ---------       ---------       ---------
 Net interest income after provision for loan losses         7,295           6,331           5,548           5,053           4,302
 Noninterest income ................................         1,008             753             664             466             369
 Noninterest expense ...............................         5,858           5,024           4,327           3,904           3,187
                                                         ---------       ---------       ---------       ---------       ---------
 Income before income tax expense ..................         2,445           2,060           1,885           1,615           1,484
 Income tax expense ................................           798             597             568             471             482
                                                         ---------       ---------       ---------       ---------       ---------
 Net income ........................................     $   1,647       $   1,463       $   1,317       $   1,144       $   1,002
                                                         =========       =========       =========       =========       =========
COMMON SHARE DATA: (1)
 Basic net income ..................................     $    1.67       $    1.50       $    1.37       $    1.20       $    1.08
 Diluted net income ................................          1.65            1.50            1.37            1.20            1.08
 Cash dividends declared ...........................          0.27            0.23            0.20            0.17            0.14
 Book Value at year end ............................         13.68           12.19           10.77            9.56            8.29
 Average shares outstanding ........................           985             973             962             952             929
 Shares outstanding at year end ....................           990             978             967             956             945
 Dividend payout ratio .............................         16.70%          15.16%          14.56%          14.20%          13.17%

SELECTED CONSOLIDATED RATIOS:
 Return on average assets ..........................          0.98%           1.07%           1.10%           1.10%           1.13%
 Return on average stockholders' equity ............         12.94%          13.12%          13.55%          13.54%          13.51%
 Average stockholders' equity as
  a percentage of average total assets .............          7.55%           8.19%           8.12%           8.14%           8.39%
 Tier-I capital leverage (2) .......................          7.16%           7.75%           7.80%           7.57%           8.64%
 Tier-I risk based capital (3) .....................         10.62%          11.41%          12.40%          12.13%          13.79%
 Total risk based capital (3) ......................         11.87%          12.67%          13.65%          13.38%          15.04%
 Allowance for loan loss to year-end loans .........          1.25%           1.45%           1.64%           1.63%           1.79%
 Non-performing loans to year-end loans ............          0.45%           0.69%           1.10%           1.61%           1.32%

SELECTED YEAR-END BALANCES:
 Total assets ......................................     $ 185,970       $ 149,732       $ 128,621       $ 113,120       $  91,978
 Total loans, net of allowance for loan loss .......       121,508          99,205          80,848          70,976          59,490
 Total deposits ....................................       170,721         136,215         115,825         101,789          82,576
 Stockholders' equity ..............................        13,549          11,926          10,407           9,151           7,834

(1) Common share data has been restated to reflect a 2 for 1 stock split completed in September, 1997, and a 5% stock dividend paid June 1, 1998.

(2) As a percentage of average quarterly assets.

(3) As a percentage of total risk-weighted assets.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section provides an analysis of the Stewardship Financial Corporation's (the "Corporation") consolidated financial condition and results of operations for the years ended December 31, 1998, 1997 and 1996. The analysis should be read in conjunction with the related audited consolidated financial statements and the accompanying notes presented elsewhere herein.

BUSINESS OF STEWARDSHIP FINANCIAL CORPORATION

The Corporation, organized in January, 1995, as a business corporation under the laws of the State of New Jersey, was established by the Board of Directors of Atlantic Stewardship Bank (the "Bank") to become a holding company for the Bank. The shareholders of the Bank approved the holding company formation at the annual meeting in 1996. After obtaining approval and submitting appropriate applications, the Corporation, on November 22, 1996, acquired all of the shares of the Bank in exchange for its own shares, on a share per share basis. The Bank, and its subsidiary, Stewardship Investment Corp., is now the wholly-owned subsidiary of the Corporation.

The Corporation has its main office located in Midland Park, Bergen County, New Jersey and operates four branches located in Ridgewood and Waldwick, Bergen County, New Jersey and Hawthorne and Wayne, Passaic County, New Jersey. The Corporation conducts a general commercial and retail banking business encompassing a wide range of traditional deposit and lending functions along with the other customary banking services. Stewardship Investment Corporation is a wholly-owned nonbank subsidiary of Atlantic Stewardship Bank, whose primary business is to own and manage the Bank's investment portfolio.

EARNINGS SUMMARY

The Corporation reported net income of $1.6 million, or $1.67 per share, for the year ended December 31, 1998, an increase of $184,000, or 12.6%, above the $1.5 million recorded for 1997. Earnings for 1997 had increased $146,000, or 11.1%, over the 1996 earnings of $1.3 million. Earnings have increased in both years as a result of increases in net interest income and noninterest income offset by increases in noninterest expense.

The return on average assets decreased in 1998 to 0.98% from 1.07% in 1997 and 1.10% in 1996. The return on average equity decreased to 12.94% in 1998 from 13.12% in 1997 and 13.55% in 1996.

RESULTS OF OPERATIONS

NET INTEREST INCOME

The Corporation's principal source of revenue is the net interest income derived from the Bank, which represents the difference between the interest earned on assets and interest paid on funds acquired to support those assets. Net interest income is affected by the balances and mix of interest-earning assets and interest-bearing liabilities, changes in their corresponding yields and costs, and by the volume of interest-earning assets funded by noninterest-bearing deposits. The Corporation's principal interest-earning assets are loans made to businesses and individuals, investment securities, and federal funds sold.

In 1998, net interest income increased to $7.5 million from $6.5 million in 1997, an increase of $1.0 million, or 16.2%. This was caused by an increase of $7.7 million, or 25.4%, in net average interest-earning assets (average interest-earning assets less average interest-bearing liabilities) partially offset by a decrease in interest rates on interest-earning assets (32 basis points) and an increase in interest rates on interest-bearing liabilities(8 basis points).

Interest income, on a tax equivalent basis, increased $2.0 million, or 19.6%, during 1998 to $12.5 million from $10.5 million earned during 1997. The increase was due to an increase in the average volume of interest-earning assets offset by a decrease in yields on interest-earning assets. Yields decreased primarily due to market pressure on loan rates. Average interest-earning assets increased $31.5 million in 1998, or 24.5%, over the 1997 amount with average loans attributing to $17.6 million of the increase due primarily to the Corporation's increased competitiveness within the marketplace.

Interest expense increased $1.0 million, or 26.8%, during 1998 to $4.8 million. The increase was due to an increase in average interest-bearing liabilities of $23.8 million, or 24.2%, to $121.8 million during 1998 and to a rise in interest rates paid on interest-bearing liabilities. Yields on interest-bearing liabilities increased to 3.96% during 1998 from 3.88% during 1997. Contributing to this increase was a change in the mix of interest-bearing products. The Corporation continued to offer a tiered money market account carrying market yields. This product has been successful in attracting new funds into the Corporation. Despite this move toward higher yielding instruments, the Corporation was able to maintain its balances in noninterest-bearing demand deposits. Average noninterest-bearing demand deposits increased $6.9 million, or 26.4%, to $33.1 million during 1998.

In 1997, net interest income increased to $6.5 million from $5.7 million in 1996, an increase of $748,000, or 13.1%. Interest income, on a tax equivalent basis, increased $1.2 million, or 13.2%, during 1997 to $10.5 million from $9.2 million earned in 1996. The increase was due primarily to an increase in the average volume of interest-earning assets offset by a decrease in yields on interest-earning assets. Average interest-earning assets increased $15.5 million in 1997, or 13.7%, over the 1996 amount. Interest expense increased $454,000, or 13.6%, during 1997. This increase can be attributed to an increase in rates on interest-bearing liabilities and an increase in average volume of interest-bearing liabilities. Average demand deposits continued to grow during 1997 and increased $4.5 million, or 21.0%, over the 1996 average balances.

The following table reflects the components of the Corporation's net interest income for the years ended December 31, 1998, 1997 and 1996 presented herein,
(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% and compliance with Section 291 of the Internal Revenue Code for 1998, 1997 and 1996. This was accomplished by adjusting this income upward to make it equivalent to the level of taxable income required to earn the same amount after taxes.

                                                      1998                           1997                          1996
                                        -----------------------------   -----------------------------   ----------------------------
                                                              AVERAGE                         AVERAGE                        AVERAGE
                                                   INTEREST   RATES                INTEREST    RATES               INTEREST   RATES
                                         AVERAGE    INCOME/   EARNED/    AVERAGE    INCOME/    EARNED/  AVERAGE     INCOME/  EARNED/
                                         BALANCE    EXPENSE    PAID      BALANCE    EXPENSE     PAID    BALANCE     EXPENSE   PAID
                                        --------    -------    ----     --------    -------     ----    --------    ------    ----
                                                                 (Dollars in thousands)
ASSETS
Interest-earning assets:
Loans (1) ............................  $108,667    $ 9,437    8.68%    $ 91,022    $ 8,052     8.85%   $ 76,751    $6,926     9.02%
Taxable investment securities ........    26,996      1,656    6.13       21,498      1,388     6.46      20,650     1,319     6.39
Tax-exempt investment
 securities (2) ......................     9,751        621    6.37        9,511        660     6.94       8,896       631     7.09
Other interest-earning assets ........    14,450        788    5.45        6,369        357     5.61       6,633       360     5.43
                                        --------    -------             --------    -------             --------    ------
Total interest-earning assets ........   159,864     12,502    7.82      128,400     10,457     8.14     112,930     9,236     8.18
                                                    -------                         -------                         ------
Net-interest-earning assets:
Allowance for loan losses ............    (1,523)                         (1,407)                         (1,249)
Other assets .........................    10,275                           9,183                           8,161
                                        --------                        --------                        --------
Total assets .........................  $168,616                        $136,176                        $119,842
                                        ========                        ========                        ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand
 deposits ............................  $ 55,195    $ 1,898    3.44%    $ 29,856    $   774     2.59%   $ 23,150    $  485     2.10%
Savings deposits .....................    20,914        473    2.26       21,219        480     2.26      20,353       458     2.25
Time deposits ........................    45,142      2,424    5.37       45,427      2,470     5.44      42,625     2,329     5.46
Borrowing ............................       572         31    5.42        1,570         80     5.10       1,695        78     4.60
                                        --------    -------             --------    -------             --------    ------
Total interest-bearing liabilities ...   121,823      4,826    3.96       98,072      3,804     3.88     887,823     3,350     3.81
                                                    -------                         -------                         ------

on-interest-bearing liabilities:
Demand deposits ......................    33,051                           26,158                          21,626
Other liabilities ....................     1,010                              792                             668
Stockholders' equity .................    12,732                           11,154                           9,725
                                        --------                         --------                        --------
Total liabilities and stockholders'
 equity ..............................  $168,616                         $136,176                        $119,842
                                        ========                         ========                        ========
Net interest income
 (taxable equivalent basis) ..........              $ 7,676                          $ 6,653                         $5,886
                                                    =======                          =======                         ======
Net interest spread

 (taxable equivalent basis) ..........                          3.86%                            4.26%                         4.37%
                                                                ====                             ====                          ====
Net yield on interest-earning
 assets (taxable equivalent
 basis) (3) ..........................                          4.80%                            5.18%                         5.21%
                                                                ====                             ====                          ====
----------
(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. Tax equivalent
     adjustments are based on a marginal tax rate of 34% and the provisions of
     Section 291 of the Internal Revenue Code.

(2)  The tax equivalent adjustments are based on a marginal tax rate of 34% and
     the provisions of Section 291 of the Internal Revenue Code.

(3)  Net interest income (taxable equivalent basis) divided by average
     interest-earning assets.

The following table analyzes net interest income in terms of changes in the volume of interest-earning assets and interest-bearing liabilities and changes in yields earned and rates paid on such assets and liabilities on a tax equivalent basis. The table reflects the extent to which changes in the Corporation's interest income and interest expense are attributable to changes in volume (changes in volume multiplied by prior rate) and changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been allocated proportionately to changes due to volume and changes due to rate.

                                                  1998 VERSUS 1997                 1997 VERSUS 1996
                                           -----------------------------    -----------------------------
                                           INCREASE (DECREASE)              INCREASE (DECREASE)
                                            DUE TO CHANGE IN                 DUE TO CHANGE IN
                                                 AVERAGE                          AVERAGE
                                           -------------------              ------------------
                                            VOLUME      RATE       NET       VOLUME      RATE        NET
                                           -------    --------   -------    -------    -------    -------
                                                                  (In thousands)
Interest income:
 Loans .................................   $ 1,535    $  (150)   $ 1,385    $ 1,265    $  (139)   $ 1,126
 Taxable investment securities .........       340        (72)       268         55         14         69
 Tax-exempt investment securities ......        16        (55)       (39)        43        (14)        29
 Federal funds sold ....................       441        (10)       431        (15)        12         (3)
                                           -------    -------    -------    -------    -------    -------
  Total interest-earning assets ........     2,332       (287)     2,045      1,348       (127)     1,221
                                           -------    -------    -------    -------    -------    -------

Interest expense:
 Interest-bearing demand deposits ......   $   812    $   312    $ 1,124    $   159    $   130   $    289
 Savings deposits ......................        (7)         0         (7)        20          2         22
 Time deposits .........................       (15)       (31)       (46)       152        (11)       141
 Borrowings ............................       (54)         5        (49)        (6)         8          2
                                           -------    -------    -------    -------    -------    -------
  Total interest-bearing liability .....       736        286      1,022        325        129        454
                                           -------    -------    -------    -------    -------    -------
Net change in net interest income ......   $ 1,596    $  (573)   $ 1,023    $ 1,023    $  (256)   $   767
                                           =======    =======    =======    =======    =======    =======

PROVISION FOR LOAN LOSSES

The Corporation maintains an allowance for loan losses considered by management to be adequate to cover the inherent risk of loss associated with its loan portfolio. On an ongoing basis, management analyzes the adequacy of this allowance by considering the nature and volume of the Corporation's loan activity, financial condition of the borrower, fair market value of underlying collateral, and changes in general market conditions. Additions to the allowance for loan losses are charged to operations in the appropriate period. Actual loan losses, net of recoveries, serve to reduce the allowance. The appropriate level of the allowance for loan losses is based on estimates, and ultimate losses may vary from current estimates.

The loan loss provision totaled $200,000 in 1998 representing a 66.7% increase from the 1997 provision of $120,000. The 1997 provision decreased 22.6% from the 1996 provision of $155,000.

NONINTEREST INCOME

Noninterest income increased $255,000, or 33.9%, to $1.0 million during the year ended December 31, 1998, when compared with $753,000 during the 1997 period. The increase in noninterest income resulted primarily from an increase in fees and service charges on deposit accounts of $139,000 to $702,000 for the year ended December 31, 1998 due to an expanding customer base. Gain on sales of mortgage loans increased $110,000 to $156,000 for 1998 due to an increase in the volume of loans originated for sale.

Noninterest income increased by $89,000, or 13.4%, to $753,000 during the year ended December 31, 1997, when compared with $664,000 during the 1996 period. The increase resulted primarily from an increase in fees and service charges partially offset by a volume related decrease in gain on sales of mortgage loans.

NONINTEREST EXPENSE

Although management is committed to containing noninterest expense, the continued growth of the Corporation has caused noninterest expense to increase by $834,000, or 16.6%, to $5.9 million for the year ended December 31,1998, compared to $5.0 million for the same period in 1997. Salaries and employee benefits, the major component of noninterest expense, increased $343,000, or 13.8%. The increase was due primarily to the full year effect of staffing the new branches in Waldwick and Ridgewood and general merit and salary increases. Increases in occupancy, equipment and data processing totaling $163,000 were due to the full year effect of the installation during 1997 of an ATM network and the opening of the two new branches. Miscellaneous expense increased $305,000 due primarily to an increase in consulting fees of $111,000 and auditing expense of $37,000. Management enhanced the internal audit program used by the bank during 1998 and utilized outside consultants to continue to improve the data processing network.

In accordance with its By-laws to tithe ten percent (10%) of its pre-tax profits to various charities, the Corporation had charitable contributions totaling $215,000 for the year ended December 31, 1998, an increase of $26,000, or 13.8%, over the same period in 1997.

Noninterest expense increased $697,000, or 16.1%, to $5.0 million for the year ended December 31, 1997, compared to $4.3 million for the same period in 1996. Increases in salaries and employee benefits, equipment, data processing, stationery and supplies and miscellaneous expense were caused primarily by the installation of an ATM network, the opening of new branches in Waldwick and Ridgewood, and staffing additions in the operations area, new business development and new branches.

FINANCIAL CONDITION

Total assets at December 31, 1998 were $186.0 million, an increase of $36.2 million, or 24.2%, over the $149.7 million at December 31, 1997. This increase in assets reflects, among other things, a $22.3 million increase in net loans held for portfolio, a $7.5 million increase in securities available for sale and $4.3 million increase in cash and cash equivalents.

LOAN PORTFOLIO

The Corporation's loan portfolio at December 31, 1998, net of allowance for loan losses, totaled $121.5 million, an increase of $22.3 million, or 22.5%, over the $99.2 million at December 31, 1997. During 1998, the Corporation experienced strong volume of new loan originations. Increases continued to occur in most loan categories and were caused by the commitment to competitively price products, the continued "fallout" of the small business customer from the mergers of other financial institutions in the Corporation's market area and the retention of residential mortgages. Commercial real estate mortgage loans consisting of $46.4 million, or 37.7% of the total portfolio, comprised the largest portion of the loan portfolio. This represented an increase of $11.3 million from $35.0 million, or 34.8% of the total portfolio at December 31, 1997. Residential mortgage and installment loans increased $4.5 million and $5.6 million, respectively. Mortgage loans held for sale totaled $793,000 at December 31, 1998 and consisted of 1-4 family mortgage loans. It is the policy of the Corporation to offer certain competitive mortgage products which are immediately sold to specific investors, servicing released. This allows the Corporation to continue to maintain a competitive mortgage product line, recognize other fee income, and maintain liquidity requirements. The Corporation's loans are made primarily to businesses and individuals located in the State of New Jersey. The Corporation has not made loans to borrowers outside the United States.

At December 31, 1998, there were no concentrations of loans exceeding 10% of total loans outstanding. Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other related conditions. The Corporation's lending activities are concentrated in loans secured by real estate located in northern New Jersey and therefore collectibility of the loan portfolio is susceptible to changes in real estate market conditions in the northern New Jersey market.

The following table sets forth the classification of the Corporation's loans by major category at the end of the last three years:

                                                                       DECEMBER 31,
                                        ---------------------------------------------------------------------------
                                                1998                       1997                       1996
                                        --------------------      ---------------------      ----------------------
                                         AMOUNT      PERCENT       AMOUNT       PERCENT       AMOUNT        PERCENT
                                        --------     -------      --------      -------      --------       -------
                                                                  (Dollars in thousands)
Real estate mortgage:
 Residential ........................   $ 24,784       20.1%       $20,305        20.1%       $15,257         18.5%
 Commercial .........................     46,375       37.7%        35,035        34.8%        26,797         32.6%
Commercial loans ....................     18,995       15.4%        17,826        17.7%        17,403         21.1%

Consumer loans:
 Installment (1) ....................     29,290       23.8%        23,659        23.5%        18,892         22.9%
 Home equity ........................      3,593        2.9%         3,551         3.5%         3,838          4.7%
 Other ..............................        126        0.1%           414         0.4%           136          0.2%
                                        --------      -----       --------       -----        -------        -----
Total loans .........................    123,163      100.0%       100,790       100.0%        82,323        100.0%

Less: Allowance for loan losses .....      1,542                     1,462                      1,353
   Deferred loan fees ...............        113                       123                        122
                                        --------                  --------                    -------
Net loans ...........................   $121,508                   $99,205                    $80,848
                                        ========                   =======                    =======

(1) Includes automobile, home improvement, second mortgages and unsecured loans.

The following table sets forth certain categories of loans as of December 31, 1998 by contractual maturity:

                                       AFTER 1 YEAR
                            WITHIN      BUT WITHIN      AFTER
                            1 YEAR        5 YEARS      5 YEARS        TOTAL
                           --------      --------      --------      --------
                                              (In thousands)

Real estate mortgage ...   $  2,738      $ 15,591      $ 52,830      $ 71,159
Commercial .............      8,345         9,394         1,256        18,995
Consumer ...............      1,208        13,738        18,063        33,009
                           --------      --------      --------      --------
Total loans ............   $ 12,291      $ 38,723      $ 72,149      $123,163
                           ========      ========      ========      ========

The following table sets forth the dollar amount of all loans due one year or more after December 31, 1998, which have predetermined interest rates or floating or adjustable interest rates:

                                            FLOATING OR
                            PREDETERMINED   ADJUSTABLE
                                RATES          RATES           TOTAL
                             --------        --------        --------
                                          (In thousands)

Real estate mortgage ...     $ 34,875        $ 33,546        $ 68,421
Commercial .............        4,819           5,831          10,650
Consumer ...............       26,908           4,893          31,801
                             --------        --------        --------
Total ..................     $ 66,602        $ 44,270        $110,872
                             ========        ========        ========

ASSET QUALITY

The Corporation's principal earning asset is its loan portfolio. Inherent in the lending function is the risk of deterioration in a borrower's ability to repay loans under existing loan agreements. Management realizes that because of this risk, reserves are maintained to absorb potential loan losses. In determining the adequacy of the allowance for loan losses, management of the Corporation considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with general economic and real estate market conditions. Although management attempts to establish a reserve sufficient to offset potential losses in the portfolio, changes in economic conditions, regulatory policies and borrower's performance could require future changes to the allowance.

The Corporation utilizes a two tier approach by (1) identifying problem loans and allocating specific loss allowances on such loans and (2) establishing a general valuation allowance on the remainder of its loan portfolio. The Corporation maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential problem loans. Such a system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition of the borrowers. Allocation of specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of underlying collateral. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loss experience, composition of loan portfolio, current economic conditions and management's judgment.

NONPERFORMING ASSETS

Nonperforming assets include nonaccrual loans, restructured loans, loans past due 90 days or more and accruing, other real estate owned and nonaccrual investments. The Corporation's loans are generally placed in a nonaccrual status when they become past due in excess of 90 days as to payment of principal and interest. Interest previously accrued on these loans and not yet paid is charged against income during the current period. Interest earned thereafter is only included in income to the extent that it is received in cash. Loans past due 90 days or more and accruing represent those loans which are sufficiently collateralized and management believes all interest and principal owed will be collected. Restructured loans are loans which have been renegotiated to permit a borrower, who has incurred adverse financial circumstances, to continue to perform. Management can reduce the contractual interest rates to below market rates or make significant concessions to the terms of the loan in order for the borrower to continue to make payments. Other real estate owned was sold during 1998.

The following table sets forth certain information regarding the Corporation's nonperforming assets as of December 31 of each of the preceding three years:

                                                                            DECEMBER 31,
                                                                  --------------------------------
                                                                   1998         1997         1996
                                                                  ------       ------       ------
                                                                       (Dollars in thousands)
Nonaccrual loans: (1)
  Commercial real estate ...................................      $ --         $   40       $ --
  Commercial ...............................................        --           --             95
  Consumer .................................................           4         --           --
                                                                  ------       ------       ------
   Total nonaccrual loans ..................................           4           40           95
                                                                  ------       ------       ------

Loans past due ninety days or more and accruing:
  Commercial ...............................................          64         --            550
  Consumer .................................................        --              4         --
                                                                  ------       ------       ------
   Total loans past due ninety days or more and accruing ...          64            4          550
                                                                  ------       ------       ------

Restructured loans:
  Commercial ...............................................         480          612          131
   Consumer .................................................       --             40          130
                                                                  ------       ------       ------
   Total restructured loans ................................         480          652          261
                                                                  ------       ------       ------

Total nonperforming loans ..................................      $  548       $  696       $  906
                                                                  ======       ======       ======

Other real estate owned, net ...............................        --            229          229
                                                                  ------       ------       ------

Total nonperforming assets .................................      $  548       $  925       $1,135
                                                                  ======       ======       ======

Nonaccrual loans to total gross loans ......................        --  %        0.04%        0.12%

Nonperforming loans to total gross loans ...................        0.45%        0.69%        1.10%

Nonperforming loans to total assets ........................        0.29%        0.47%        0.70%

Nonperforming assets to total assets .......................        0.29%        0.62%        0.88%

Allowance for loan losses to nonperforming loans ...........      281.53%      209.96%      149.27%

(1) At December 31, 1998, 1997 and 1996, there were no restructured loans classified as nonaccrual.

There were no loans, 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 nonaccrual, past due or restructured at a future date.

The following table sets forth, for the years ended December 31, 1998, 1997 and 1996, the historical relationships among the amount of loans outstanding, the allowance for loan losses, the provision for loan losses, the amount of loans charged off and the amount of loan recoveries:

                                                             1998          1997           1996
                                                            -------       -------        -------
                                                                   (Dollars in thousands)
Balance at beginning of period .......................      $ 1,462       $ 1,353        $ 1,177

Loans charged off:
 Commercial ..........................................          113             2              2
 Consumer ............................................            7            17             10
                                                            -------       -------        -------
  Total loans charged off ............................          120            19             12
                                                            -------       -------        -------

Recoveries of loans previously charged off:
 Commercial real estate ..............................         --               1              5
 Commercial ..........................................         --               4             28
 Consumer ............................................         --               3           --
                                                            -------       -------        -------
  Total recoveries of loans previously charged off ...            0             8             33
                                                            -------       -------        -------

Net loans charged off (recovered) ....................          120            11            (21)

Provisions charged to operations .....................          200           120            155
                                                            -------       -------        -------


Balance at end of period .............................      $ 1,542       $ 1,462        $ 1,353
                                                            =======       =======        =======

Net charge offs (recoveries) during the period
 to average loans outstanding during the period ......         0.11%       (0.01%)         (0.03%)
                                                            =======       =======        =======

Balance of allowance for loan losses at the
 end of year to gross year end loans .................         1.25%         1.45%          1.64%
                                                            =======       =======        =======

The following table sets forth the allocation of the allowance for loan losses
at the dates indicated by category loans:

                                                  1998                         1997                         1996
                                        --------------------------   -------------------------     ------------------------
                                                        PERCENT                     PERCENT                      PERCENT
                                        AMOUNT        TO TOTAL (1)   AMOUNT       TO TOTAL (1)     AMOUNT      TO TOTAL (1)
                                        ------        ------------   ------       ------------     ------      ------------
                                                                    (Dollars in thousands)
Real estate--residential                $  195            20.1%       $  175          20.1%         $  148         18.5%
Real estate--commercial                    479            37.7%          404          34.8%            360         32.6%
Commercial                                 479            15.4%          576          17.7%            587         21.1%
Consumer                                   389            26.8%          307          27.4%            258         27.8%
                                        ------           -----        ------         -----          ------        -----
 Total allowance for loan losses        $1,542           100.0%       $1,462         100.0%         $1,353        100.0%
                                        ======           =====        ======         =====          ======        =====

(1) Represents percentage of loan balance in category to total gross loans.

INVESTMENT PORTFOLIO

The Corporation maintains an investment portfolio to enhance its yields and to provide a secondary source of liquidity. The portfolio is comprised of U.S. Treasury securities, U.S. Government and Agency obligations, mortgage-backed securities, and state and political subdivision obligations and has been classified as held to maturity or available for sale. Investments in debt securities that the Corporation has the positive intent and the ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. All other securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses reported in a separate component of stockholders' equity. Securities in the available for sale category may

be held for indefinite periods of time and include securities that management intends to use as part of its Asset/Liability strategy or that may be sold in response to changes in interest rates, changes in prepayment risks, the need to provide liquidity, the need to increase regulatory capital or similar factors. Because of the strong growth in deposits, the Corporation followed a policy of replacing all matured and called issues and purchased net new securities totaling $9.8 million. Securities available for sale increased to $18.6 million at December 31, 1998, from $11.0 million at December 31, 1997, a increase of $7.5 million, or 68.2%. Securities held to maturity increased $2.2 million, or 11.0%, to $22.5 million at December 31, 1998 from $20.2 million at December 31, 1997.

The following table sets forth the classification of the Corporation's investment securities by major category at the end of the last three years:

                                                                  DECEMBER 31,
                                       -----------------------------------------------------------------
                                                1998                  1997                  1996
                                       -------------------    -------------------    -------------------
                                        AMOUNT     PERCENT    AMOUNT      PERCENT    AMOUNT      PERCENT
                                       -------     -------    -------     -------    -------     -------
                                                            (Dollars in thousands)
Securities available for sale:
  U.S. Treasury .................      $ 3,280       17.6%    $ 2,977       26.9%    $ 3,586       31.4%
  U.S. Government agencies ......        8,205       44.2%      1,454       13.2%      1,049        9.2%
  Obligations of state and
    political subdivisions ......          533        2.9%        275        2.5%        268        2.3%
  Mortgage-backed securities ....        6,560       35.3%      6,341       57.4%      6,531       57.1%
                                       -------      -----     -------      -----     -------      -----
Total ...........................      $18,578      100.0%    $11,047      100.0%    $11,434      100.0%
                                       =======      =====     =======      =====     =======      =====
Securities held to maturity:
  U.S. Treasury .................      $   948        4.2%    $ 1,948        9.6%    $ 2,193       11.0%
  U.S. Government agencies ......        7,123       31.6%      7,736       38.1%      6,357       31.8%
  Obligations of state and
    political subdivisions ......       12,359       54.9%      8,479       41.9%      8,930       44.6%
  Mortgage-backed securities ....        2,083        9.3%      2,119       10.4%      2,523       12.6%
                                       -------      -----     -------      -----     -------      -----
Total ...........................      $22,513      100.0%    $20,282      100.0%    $20,003      100.0%
                                       =======      =====     =======      =====     =======      =====

The following table sets forth the maturity distribution and weighted average
yields (calculated on the basis of stated yields to maturity, considering
applicable premium or discount) of the Corporation's securities available for
sale as of December 31, 1998:

                                                                      AFTER 1 YEAR   AFTER 5 YEARS
                                                          WITHIN       BUT WITHIN     BUT WITHIN       AFTER
                                                          1 YEAR        5 YEARS        10 YEARS       10 YEARS        TOTAL
                                                         -------        -------        -------        -------        -------
                                                                                (Dollars in thousands)
U.S. Treasury:
  Carrying value ...................................     $   706        $ 2,574        $  --          $  --          $ 3,280
  Yield ............................................        6.01%          5.84%          --             --             5.88%
U.S. Government agencies:
  Carrying value ...................................         497          3,504          2,891          1,313          8,205
  Yield ............................................        5.32%          5.92%          6.16%          6.60%          6.08%
Obligations of state and political subdivisions: ...
  Carrying value ...................................        --              533           --             --              533
  Yield ............................................        --             4.11%          --             --             4.11%
Mortgage-backed securities:
  Carrying value ...................................        --              164          1,062          5,334          6,560
  Yield ............................................        --             6.68%          5.88%          6.21%          6.17%
                                                         -------        -------        -------        -------        -------
Total carrying value ...............................     $ 1,203        $ 6,775        $ 3,953        $ 6,647        $18,578
                                                         =======        =======        =======        =======        =======
Weighted average yield .............................        5.73%          5.77%         6.08%          6.29%          6.02%
                                                         =======        =======        =======        =======        =======

The following table sets forth the maturity distribution and weighted average yields (calculated on the basis of stated yields to maturity, considering applicable premium or discount) of the Corporation's securities held to maturity as of December 31, 1998:

                                                                     AFTER 1 YEAR    AFTER 5 YEARS
                                                          WITHIN      BUT WITHIN       BUT WITHIN       AFTER
                                                          1 YEAR        5 YEARS         10 YEARS       10 YEARS       TOTAL
                                                         -------        -------         -------        -------       -------
                                                                             (Dollars in thousands)
U.S. Treasury:
  Carrying value ...................................     $   200        $   748         $  --          $  --         $   948
  Yield ............................................        6.08%          5.79%           --             --            5.85%
U.S. Government agencies:
  Carrying value ...................................          10          4,769           2,344           --           7,123
  Yield ............................................        7.35%          6.00%           6.14%          --            6.05%
Obligations of state and political subdivisions: ...
  Carrying value ...................................       2,091          5,985           4,283           --          12,359
  Yield ............................................        4.24%          4.35%           4.11%          --            4.25%
Mortgage-backed securities:
  Carrying value ...................................        --             --               502          1,581         2,083
  Yield ............................................        --             --              6.09%          8.12%         6.16%
                                                         -------        -------         -------        -------       -------
Total carrying value ...............................     $ 2,301        $11,502         $ 7,129        $ 1,581       $22,513
                                                         =======        =======         =======        =======       =======
Weighted average yield .............................        4.42%          5.12%           4.92%          8.12%         5.06%
                                                         =======        =======         =======        =======       =======

DEPOSITS

Corporation deposits at December 31, 1998 totaled $170.7 million, an increase of $34.5 million, or 25.3%, over the comparable period of 1997, when deposits totaled $136.2 million. The Corporation attributes this increase to competitive products and services and changes in the Corporation's marketplace, including changes of ownership among some of the Corporation's competitors. These changes have made customer relationships with some competitors unstable and have provided the Corporation with an opportunity to attract new depositors. The opening of the two new branch locations and the successfulness of the tiered money market product also contributed to the growth in deposits.

The following table sets forth the classification of the Corporation's deposits by major category as of December 31 of each of the preceding years:

                                                                         DECEMBER 31,
                                       ---------------------------------------------------------------------------------
                                                1998                         1997                          1996
                                       ------------------------       ----------------------      ----------------------
                                        AMOUNT          PERCENT        AMOUNT        PERCENT       AMOUNT        PERCENT
                                       --------          -----        --------        -----       --------        -----
                                                                     (Dollars in thousands)
Noninterest-bearing demand .........   $ 39,234           23.0%       $ 29,428         21.6%      $ 25,136         21.7%
Interest-bearing demand ............     66,384           38.9%         38,027         27.9%        23,992         20.7%
Savings deposit ....................     21,044           12.3%         20,418         15.0%        20,885         18.0%
Time deposits ......................     44,059           25.8%         48,342         35.5%        45,812         39.6%
                                       --------          -----        --------        -----       --------        -----
Total ..............................   $170,721          100.0%       $136,215        100.0%      $115,825        100.0%
                                       ========          =====        ========        =====       ========        =====

As of December 31, 1998, the aggregate amount of outstanding time deposits issued in amounts of $100,000 or more, broken down by time remaining to maturity, was as follows (in thousands):

Three months or less ........................   $  881
Four months through six months ..............    1,734
Seven months through twelve months ..........      687
Over twelve months ..........................    2,616
                                                ------
Total .......................................   $5,918
                                                ======

MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and rates. The Corporation's market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. Management actively monitors and manages its interest rate risk exposure.

The Corporation's profitability is affected by fluctuations in interest rates. A sudden and substantial increase in interest rates may adversely impact the Corporation's earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Corporation monitors the impact of changes in interest rates on its net interest income using several tools. One measure of the Corporation's exposure to differential changes in interest rates between assets and liabilities is shown in the Corporation's Maturity and Repricing Analysis under the Interest Rate Sensitivity caption below.

The Corporation's primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Corporation's net interest income and capital, while structuring the asset-liability structure to obtain the maximum yield-cost spread on that structure. The Corporation relies primarily on its asset-liability structure to control interest rate risk.

The Corporation continually evaluates interest rate risk management opportunities, including the use of derivative financial instruments. Management believes that hedging instruments currently available are not cost effective, and therefore, has focused its efforts on increasing the Corporation's yield-cost spread through retail growth opportunities.

The following table shows the Corporation's financial instruments that are sensitive to changes in interest rates, categorized by expected maturity, and the instruments' fair values at December 31, 1998. Market rate sensitive instruments are generally defined as on and off balance sheet derivatives and other financial instruments. For assets, expected maturities are based upon contractual maturity and contractual repayments of principal. For deposit products with no stated maturities, balances are identified as core/noncore deposits based on historical averages. Core deposits are noninterest sensitive and are placed in the "thereafter" category. Noncore deposits are considered interest sensitive and are placed in the "1999" category.

                                   AVERAGE
                                   INTEREST                                                                                  FAIR
                                     RATE      1999        2000       2001      2002       2003    THEREAFTER  BALANCE(1)    VALUE
                                    ------    ------      ------     ------     -----      -----   ----------  ---------    -------
                                                                    (Dollars in thousands)
INTEREST-SENSITIVE ASSETS:
 Federal funds sold ...............  4.79%    $ 4,575    $    --     $   --    $   --    $    --    $    --     $ 4,575     $ 4,575
 Commercial paper .................  5.04%      4,941         --         --        --         --         --       4,941       4,941
 Interest-bearing due from banks ..  5.45%        104         --         --        --         --         --         104         104
 Loans:
  Real estate mortgage ............  8.27%      6,196      4,959      5,930     5,681     11,160     37,233      71,159      71,846
  Commercial ......................  9.17%      9,899      2,158      4,837       814        661        626      18,995      18,996
  Consumer ........................  7.92%      5,557      4,424      4,242     2,945      3,906     11,935      33,009      33,022
 Mortgage loans held for sale .....  6.30%        793         --         --        --         --         --         793         793
 Investment securities(1) .........  5.39%     10,012      4,688      4,214     4,014      4,609     14,111      41,648      41,892

INTEREST-SENSITIVE LIABILITIES
 Savings ..........................  2.25%      1,697         --         --        --         --     19,347      21,044      21,044
 Interest-bearing .................  1.94%     15,313         --         --        --         --     51,071      66,384      66,384
 Time deposits ....................  5.22%     27,828     11,851      2,455     1,399        125        401      44,059      44,462
 Repurchase agreements ............  5.24%        662         --         --        --         --         --         662         662

(1) Includes securities held to maturity, securities available for sale and FHLB-NY stock

INTEREST RATE SENSITIVITY

Interest rate movements and deregulation of interest rates have made managing the Corporation's interest rate sensitivity increasingly important. The Corporation attempts to maintain stable net interest margins by generally

matching the volume of assets and liabilities maturing, or subject to repricing, by adjusting interest rates to market conditions, and by developing new products. The difference between the volume of assets and liabilities that reprice in a given period is the interest sensitivity gap. A "positive" gap results when more assets than liabilities mature or are repricing in a given time frame. Conversely, a "negative" gap results when there are more liabilities than assets maturing or repricing during a given period of time. The smaller the gap, the less the effect of the market volatility on net interest income. During a period of rising interest rates, an institution with a negative gap position would not be in as favorable a position, as compared to an institution with a positive gap, to invest in higher yielding assets. This may result in yields on its assets increasing at a slower rate than the increase in its costs of interest-bearing liabilities than if it had a positive gap. During a period of falling interest rates, an institution with a negative gap would experience a repricing of its assets at a slower rate than its interest-bearing liabilities which consequently may result in its net interest income growing at a faster rate than an institution with a positive gap position.

The following table sets forth the estimated maturity/repricing structure of the Corporation's interest-earning assets and interest-bearing liabilities as of December 31, 1998. Except as stated below, the amounts of assets or liabilities shown which reprice or mature during a particular period were determined in accordance with the contractual terms of each asset or liability. For example, the table does not assume any prepayment of fixed-rate loans or mortgage-backed securities. The table does not necessarily indicate the impact of general interest rate movements on the Corporation's net interest income because the repricing of certain categories of assets and liabilities, for example, prepayments of loans and withdrawal of deposits, is beyond the Corporation's control. As a result, certain assets and liabilities indicated as repricing within a period may in fact reprice at different times and at different rate levels.

                                                                     MORE THAN
                                                                    THREE MONTHS
                                                    THREE MONTHS       THROUGH          AFTER       NONINTEREST
                                                      OR LESS          ONE YEAR        ONE YEAR       SENSITIVE        TOTAL
                                                      --------         --------        --------       --------        --------
                                                                           (Dollars in thousands)
ASSETS:
  Loans:
    Real estate mortgage ..........................   $  4,120         $  6,715        $ 60,324       $     --        $ 71,159
    Commercial ....................................     14,444            1,674           2,877             --          18,995
    Consumer ......................................      5,314            4,569          23,126             --          33,009
  Mortgage loans held for sale ....................        793               --              --             --             793
  Investment securities (1) .......................      4,152            8,344          29,152             --          41,648
  Federal funds sold ..............................      4,575               --              --             --           4,575
  Other assets ....................................      4,945              100              --         10,746          15,791
                                                      --------         --------        --------       --------        --------
      Total assets ................................   $ 38,343         $ 21,402        $115,479       $ 10,746        $185,970
                                                      --------         --------        --------       --------        --------
SOURCE OF FUNDS:
  Savings deposits ................................   $     --         $ 21,044        $     --       $     --        $ 21,044
  Interest-bearing ................................     66,384               --              --             --          66,384
  Time deposits ...................................      9,032           18,796          16,231             --          44,059
  Repurchase agreements ...........................        100              562              --             --             662
  Other liabilities ...............................         --               --              --         40,272          40,272
  Stockholders' equity ............................         --               --              --         13,549          13,549
                                                      --------         --------        --------       --------        --------
      Total source of funds .......................   $ 75,516         $ 40,402        $ 16,231       $ 53,821        $185,970
                                                      --------         --------        --------       --------        --------
  Interest rate sensitivity gap ...................   $(37,173)        $(19,000)       $ 99,248       $(43,075)
                                                      ========         ========        ========       ========
  Cumulative interest rate sensitivity gap ........   $(37,173)        $(56,173)       $ 43,075       $     --
                                                      ========         ========        ========       ========
  Ratio of GAP to total assets ....................      (20.0%)          (10.2%)          53.4%         (23.2%)
                                                      ========         ========        ========       ========
  Ratio of cumulative GAP assets to
    total assets ..................................      (20.0%)          (30.2%)          23.2%            --
                                                      ========         ========        ========       ========

(1) Includes securities held to maturity, securities available for sale and FHLB-NY stock.

LIQUIDITY

The Corporation's primary sources of funds are deposits, amortization and prepayments of loans and mortgage-backed securities, maturities of investment securities and funds provided by 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 loan 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. These activities are summarized below:

                                                                       YEAR ENDED DECEMBER 31,
                                                             --------------------------------------
                                                              1998             1997          1996
                                                             -------         -------        -------
                                                                         (in thousands)
Cash and cash equivalents--beginning ......................  $12,672         $10,955        $ 7,465
Operating activities:
  Net income ..............................................    1,647           1,463          1,317
  Adjustments to reconcile net income to net cash
    provided by operating activities ......................      289             202            550
                                                             -------         -------        -------
Net cash provided by operating activities .................    1,936           1,665          1,867
Net cash used in investing activities .....................  (32,243)        (19,139)       (12,408)
Net cash provided by financing activities .................   34,634          19,191         14,031
                                                             -------         -------        -------
Net increase (decrease) in cash and cash equivalents ......    4,327           1,717          3,490
                                                             -------         -------        -------
Cash and cash equivalents--ending .........................  $16,999         $12,672        $10,995
                                                             =======         =======        =======

Cash was generated by operating activities in each of the above periods. The primary source of cash from operating activities during each period was 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 December 31, 1998, the Corporation has outstanding loan commitments of $6.4 million and unused lines and letters of credit totaling $19.7 million. Certificates of deposit scheduled to mature in one year or less, at December 31, 1998, totaled $28.2 million. Management believes that a significant portion of such deposits will remain with the Corporation.

CAPITAL

The Corporation is subject to capital adequacy guidelines promulgated by the Board of Governors of the Federal Reserve System ("FRB"). The FRB has issued regulations to define the adequacy of capital based upon the sensitivity of assets and off-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. The FRB has also issued leverage capital adequacy standards. Under these standards, in addition to the risk-based capital ratios, a corporation must also compute a ratio of Tier 1 capital (using the risk-based capital definition) to total quarterly

average assets. The following table reflects the Corporation's capital ratios at December 31, 1998. The Bank Federal regulator has promulgated substantially similar capital regulations applicable to the Bank.

                                     ----------------------------------
                                     REQUIRED       ACTUAL       EXCESS
                                     ----------------------------------
      Risk-based capital:
        Tier 1 ....................    4.00%        10.62%        6.62%
        Total .....................    8.00%        11.87%        3.87%
      Leverage ratio* .............    3.00%         7.16%        4.16%

----------

* The minimum leverage ratio set by the FRB is 3.00%. Institutions which are not "top-rated" will be expected to maintain a ratio of approximately 100 to 200 basis points above this ratio.

YEAR 2000 COMPLIANCE

Stewardship Financial Corporation established a Year 2000 Compliance Committee during 1997, which includes officers from all operating areas. The objectives of the committee are to ensure that the Corporation will be prepared for the new Millennium. The Corporation, under the guidance from the FFIEC established five phases to follow to provide a Year 2000 self assessment and action plan. The first phase, Awareness, was completed by March, 1998 and included an inventory of all hardware and software used within the organization and a list of vendors and companies providing service to the Corporation. The second phase, Assessment, was substantially completed by September, 1998 and included an evaluation of all hardware and software with the determination of Y2K compliant status and a schedule of when and how the item would be made compliant. The third phase, Renovation, is currently being completed. During the first six months of 1999, remaining noncompliant hardware and software is scheduled to be replaced and/or upgraded. The fourth phase, Validation, is the testing of all mission critical hardware, software, and equipment. Initial testing of the core processing system was completed in the fourth quarter 1998. A second phase of testing to include vendor interfacing will be completed in March and April 1999. The final phase, Implementation, requires the monitoring and development of business resumptive and contingency plans and will be completed during the second quarter of 1999. The Corporation will utilize an independent third party to verify results of testing and documentation of contingency plans.

In addition to the Year 2000 self assessment and action plan, Management is evaluating risk inherent in customers' financial positions based on their reliance on equipment and vendors affected by the century date change. Management has utilized questionnaires and direct visits to determine and quantify risk within the lending portfolio. As of December 31, 1998, no material risks pertaining to Year 2000 were quantified. Management continues to monitor and to the extent a customer's financial position is weakened as a result of the century date change, credit quality could be affected.

The Corporation has developed a budget for Year 2000 costs which includes hardware and software replacement and upgrades, consulting and testing expense and a reallocation of human resource expense. Total cost is estimated at $350,000 with $100,000 expensed to date. It is not anticipated that this will materially affect the performance of the Corporation in the future.

While the Corporation continues to be reliant on third party processing, management has a plan in place which helps identify potential weaknesses. Management is concentrating on these mission critical areas in final testing and in developing strong business resumption plans. Management is confident that it is on target to meet the technological challenges of the Year 2000.

KPMG LLP [LOGO]

New Jersey Headquarters
150 J.F.K. Parkway
Short Hills, New Jersey 07078

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Stewardship Financial Corporation:

We have audited the accompanying consolidated statements of financial condition of Stewardship Financial Corporation and subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statement based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of Stewardship Financial Corporation and subsidiary as of December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998 in conformity with generally accepted accounting principles

KPMG LLP

January 27, 1999

                                        STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                                                  DECEMBER 31,
                                                                                      -----------------------------------
                                                                                           1998                   1997
                                                                                      -----------------------------------
ASSETS
   Cash and due from banks .........................................................  $  7,379,000           $  4,348,000
   Commercial paper and interest-bearing due from banks ............................     5,045,000              3,099,000
   Federal funds sold ..............................................................     4,575,000              5,225,000
                                                                                      -----------------------------------
    Cash and cash equivalents ......................................................    16,999,000             12,672,000
   Securities available for sale (note 2) ..........................................    18,578,000             11,047,000
   Securities held to maturity; estimated fair value
    of $ 22,757,000 (1998) and $20,535,000 (1997) (note 3) .........................    22,513,000             20,282,000
   FHLB-NY stock, at cost ..........................................................       557,000                510,000
   Loans, net of allowance for loan losses of $1,542,000 (1998)
    and $1,462,000 (1997) (notes 4 and 5) ..........................................   121,508,000             99,205,000
   Mortgage loans held for sale ....................................................       793,000                756,000
   Premises and equipment, net (note 6) ............................................     2,484,000              2,724,000
   Accrued interest receivable .....................................................     1,229,000              1,029,000
   Intangible assets, net of accumulated amortization of $284,000 and
    $222,000 at December 31, 1998 and 1997 respectively ............................       465,000                528,000
   Other real estate owned, net (note 5) ...........................................            --                229,000
   Other assets (note 13) ..........................................................       844,000                750,000
                                                                                      -----------------------------------
      Total assets .................................................................  $185,970,000           $149,732,000
                                                                                      ===================================
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
   Deposits: (note 7)
    Noninterest-bearing ............................................................  $ 39,234,000           $ 29,428,000
    Interest-bearing ...............................................................   131,487,000            106,787,000
                                                                                      -----------------------------------
      Total deposits ...............................................................   170,721,000            136,215,000
    Securities sold under agreements to repurchase (note 8) ........................       662,000                533,000
    Accrued expenses and other liabilities .........................................     1,038,000              1,058,000
                                                                                      -----------------------------------
      Total liabilities ............................................................   172,421,000            137,806,000

Commitments and contingencies (note 14)                                                         --                     --


STOCKHOLDERS' EQUITY (note 9 and 15)
   Common stock, no par value; 5,000,000 shares authorized;
    990,284 and 931,888 shares issued and outstanding at
    December 31, 1998 and 1997, respectively .......................................     6,645,000              5,229,000
   Retained earnings ...............................................................     6,867,000              6,637,000
   Accumulated other comprehensive income ..........................................        37,000                 60,000
                                                                                      -----------------------------------
      Total Stockholders' equity ...................................................    13,549,000             11,926,000
                                                                                      -----------------------------------
      Total liabilities and Stockholders' equity ...................................  $185,970,000           $149,732,000
                                                                                      ===================================

See accompanying notes to consolidated financial statements.

                                        STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME

                                                                                YEARS ENDED DECEMBER 31,
                                                                    ----------------------------------------------------
                                                                         1998                1997                 1996
                                                                    ----------------------------------------------------
INTEREST INCOME:
   Loans .........................................................  $ 9,430,000          $ 8,039,000         $ 6,923,000
   Securities held to maturity:
    Taxable ......................................................      782,000              750,000             697,000
    Nontaxable ...................................................      432,000              458,000             438,000
   Securities available for sale .................................      929,000              683,000             635,000
   Other interest-earning assets .................................      747,000              325,000             360,000
                                                                    ----------------------------------------------------
      Total interest income ......................................   12,320,000           10,255,000           9,053,000
                                                                    ----------------------------------------------------
INTEREST EXPENSE:
   Deposits (note 7) .............................................    4,794,000            3,724,000           3,271,000
   Borrowed money ................................................       31,000               80,000              79,000
                                                                    ----------------------------------------------------
      Total interest expense .....................................    4,825,000            3,804,000           3,350,000
                                                                    ----------------------------------------------------
   Net interest income before provision for loan losses ..........    7,495,000            6,451,000           5,703,000
   Provision for loan losses (note 4) ............................      200,000              120,000             155,000
                                                                    ----------------------------------------------------
   Net interest income after provision for loan losses ...........    7,295,000            6,331,000           5,548,000
                                                                    ----------------------------------------------------
NONINTEREST INCOME:
   Fees and service charges ......................................      702,000              563,000             512,000
   Gain/(Loss) on calls and sales of securities, net .............       22,000                   --              (4,000)
   Gain on sales of mortgage loans ...............................      156,000               46,000              52,000
   Miscellaneous .................................................      128,000              144,000             104,000
                                                                    ----------------------------------------------------
      Total noninterest income ...................................    1,008,000              753,000             664,000
                                                                    ----------------------------------------------------
NONINTEREST EXPENSE:
   Salaries and employee benefits (note 10) ......................    2,828,000            2,485,000           2,116,000
   Occupancy, net (note 14) ......................................      400,000              348,000             288,000
   Equipment .....................................................      411,000              356,000             232,000
   Data processing ...............................................      309,000              253,000             219,000
   Advertising ...................................................      139,000              175,000              97,000
   FDIC insurance premium ........................................       22,000               18,000              49,000
   Amortization of intangible assets .............................       62,000               67,000              81,000
   Other real estate owned expense ...............................      (25,000)             (19,000)             10,000
   Charitable contributions ......................................      215,000              189,000             151,000
   Stationery and supplies .......................................      199,000              159,000             200,000
   Miscellaneous .................................................    1,298,000              993,000             884,000
                                                                    ----------------------------------------------------
      Total noninterest expenses .................................    5,858,000            5,024,000           4,327,000
                                                                    ----------------------------------------------------
   Income before income tax expense ..............................    2,445,000            2,060,000           1,885,000
   Income tax expense (note 13) ..................................      798,000              597,000             568,000
                                                                    ----------------------------------------------------
   Net income ....................................................  $ 1,647,000          $ 1,463,000         $ 1,317,000
                                                                    ====================================================
   Basic earnings per share (note 12) ............................        $1.67                $1.50               $1.37
                                                                    ====================================================
   Diluted earnings per share (note 12) ..........................        $1.65                $1.50               $1.37
                                                                    ====================================================
   Cash dividends per share ......................................        $0.27                $0.23               $0.20
                                                                    ====================================================
   Weighted average number of common shares
    outstanding (note 12) ........................................      984,842              972,983             962,368
                                                                    ====================================================
   Weighted average number of diluted common
    shares outstanding (note 12) .................................      996,302              976,258             962,368
                                                                    ====================================================

See accompanying notes to consolidated financial statements.

                                   STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                                                YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
                                                      -------------------------------------------------------------------
                                                                                               ACCUMULATED
                                                            COMMON STOCK                          OTHER
                                                      ----------------------       RETAINED   COMPREHENSIVE
                                                       SHARES        AMOUNT        EARNINGS       INCOME         TOTAL
                                                      -------------------------------------------------------------------
Balance--December 31, 1995 .......................... 910,883      $4,866,000     $4,270,000     $  15,000    $ 9,151,000
 Cash dividends paid ($.20 per share) ...............      --              --       (192,000)           --       (192,000)
 Issuance of common stock ...........................   9,622         125,000             --            --        125,000
 Comprehensive income:
 Net income for the year
  ended December 31, 1996 ...........................      --              --      1,317,000            --      1,317,000
 Unrealized holding gains on securities
  available for sale arising during the period
   (net of tax of $4,000) ...........................      --              --             --         6,000          6,000
                                                                                                              -----------
 Total comprehensive income                                                                                     1,323,000
                                                      -------------------------------------------------------------------
Balance--December 31, 1996 .......................... 920,505      $4,991,000     $5,395,000     $  21,000    $10,407,000
 Cash dividends paid ($.23 per share) ...............      --              --       (221,000)           --       (221,000)
 Issuance of common stock ...........................  11,383         200,000             --            --        200,000
 Issuance of stock options at discount ..............      --          38,000             --            --         38,000
 Comprehensive income:
 Net income for the year
  ended December 31, 1997 ...........................      --              --      1,463,000            --      1,463,000
 Unrealized holding gains on securities
  available for sale arising during the period
   (net of tax of $24,000) ..........................      --              --             --        39,000         39,000
                                                                                                              -----------
 Total comprehensive income                                                                                     1,502,000
                                                      -------------------------------------------------------------------
Balance--December 31, 1997 .......................... 931,888      $5,229,000     $6,637,000     $  60,000    $11,926,000
 Cash dividends paid ($.27 per share) ...............      --              --       (269,000)           --       (269,000)
 5% Stock Dividend ..................................  46,614       1,142,000     (1,148,000)           --         (6,000)
 Common stock issued under stock plans ..............  11,782         274,000             --            --        274,000
 Comprehensive income:
 Net income for the year
  ended December 31, 1998 ...........................      --              --      1,647,000            --      1,647,000
 Unrealized holding losses on securities
  available for sale arising during the period
   (net of tax credit of $12,000) ...................      --              --             --       (23,000)       (23,000)
                                                                                                              -----------
 Total comprehensive income .........................                                                           1,624,000
                                                      -------------------------------------------------------------------
Balance--December 31, 1998 ..........................  990,284      6,645,000      6,867,000        37,000    $13,549,000
                                                      ===================================================================

See accompanying notes to consolidated financial statements

                                        STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                YEARS ENDED DECEMBER 31,
                                                                    ----------------------------------------------------
                                                                        1998                 1997               1996
                                                                    ----------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 1,647,000          $ 1,463,000         $ 1,317,000
Adjustments to reconcile net income to
 net cash provided by operating activities:
  Depreciation and amortization of premises and equipment .........     395,000              320,000             229,000
  Provision for losses on investment securities ...................          --                   --               1,000
  Amortization of premiums and accretion of discounts, net ........      37,000               51,000              56,000
  Accretion of deferred loan fees .................................     (53,000)             (53,000)            (65,000)
  Provision for loan losses .......................................     200,000              120,000             155,000
  Provision for losses on other real estate .......................          --                   --              20,000
  Originations of mortgage loans held for sale .................... (12,817,000)          (4,604,000)         (4,955,000)
  Proceeds from sale of mortgage loans ............................  12,936,000            4,131,000           5,121,000
  Gain on sale of loans ...........................................    (156,000)             (46,000)            (52,000)
  Issuance of stock options at discount ...........................          --               38,000                  --
  Loss on retirement of fixed assets ..............................          --                2,000                  --
  Deferred income tax benefit .....................................     (32,000)            (105,000)           (132,000)
  Amortization of intangible assets ...............................      63,000               67,000              81,000
  Increase in accrued interest receivable .........................    (200,000)            (149,000)            (44,000)
  Increase in other assets ........................................     (64,000)              (8,000)            (34,000)
  (Decrease)/increase in other liabilities ........................     (20,000)             438,000             169,000
                                                                    ----------------------------------------------------
    Net cash provided by operating activities .....................   1,936,000            1,665,000           1,867,000
                                                                    ----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of securities available for sale ........................ (12,391,000)          (1,884,000)         (3,299,000)
 Proceeds from maturities and principal repayments
  on securities available for sale ................................   3,717,000            2,313,000           1,726,000
 Proceeds from calls on securities available for sale .............   1,101,000                   --                  --
 Purchase of securities held to maturity .......................... (13,966,000)          (4,241,000)         (5,930,000)
 Proceeds from maturities and principal repayments on
  securities held to maturity .....................................   5,576,000            3,257,000           4,312,000
 Proceeds from calls of securities held to maturity ...............   6,150,000              675,000           1,235,000
 Purchase of FHLB-NY stock ........................................     (48,000)             (59,000)           (114,000)
 Net increase in loans ............................................ (22,449,000)         (18,424,000)         (9,962,000)
 Sale of other real estate owned ..................................     229,000                   --                  --
 Additions to premises and equipment ..............................    (162,000)            (776,000)           (376,000)
                                                                    ----------------------------------------------------
    Net cash used in investing activities ......................... (32,243,000)         (19,139,000)        (12,408,000)
                                                                    ----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net increase in noninterest-bearing deposits .....................   9,806,000            4,292,000           2,174,000
 Net increase in interest-bearing deposits ........................  24,700,000           16,098,000          11,863,000
 Net increase/(decrease) in securities sold under agreement
  to repurchase ...................................................     129,000           (1,178,000)             61,000
 Cash dividends paid on common stock ..............................    (275,000)            (221,000)           (192,000)
 Issuance of common stock .........................................     274,000              200,000             125,000
                                                                    ----------------------------------------------------
    Net cash provided by financing activities .....................  34,634,000           19,191,000          14,031,000
                                                                    ----------------------------------------------------
Net increase in cash and cash equivalents .........................   4,327,000            1,717,000           3,490,000
Cash and cash equivalents--beginning ..............................  12,672,000           10,955,000           7,465,000
                                                                    ----------------------------------------------------
Cash and cash equivalents--ending ................................. $16,999,000          $12,672,000         $10,955,000
                                                                    ====================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the year for interest ...........................   4,924,000            3,771,000           3,276,000
 Cash paid during the year for income taxes .......................     823,000              711,000             692,000

See accompanying notes to consolidated financial statements

STEWARDSHIP FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Stewardship Financial Corporation, ("the Corporation") and its wholly owned subsidiary, Atlantic Stewardship Bank, ("the Bank"). Atlantic Stewardship Bank includes its wholly owned subsidiary, Stewardship Investment Corp. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Certain prior period amounts have been reclassified to conform to the current presentation.

BASIS OF CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION

The consolidated financial statements of the Corporation have been prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the statements of financial condition and revenues and expenses during the reporting periods. Actual results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and due from banks, commercial paper, interest-bearing deposits in other banks and federal funds sold. Generally, federal funds are sold for one day periods.

SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY

The Corporation classifies its securities as securities held to maturity or securities available for sale. Investments in debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as securities held to maturity and are carried at cost, adjusted for amortization of premium and accretion of discount, which are recognized as adjustments to income, on a level yield basis. All other securities are classified as securities available for sale. Securities available for sale may be sold prior to maturity in response to changes in interest rates or prepayment risk, for asset/liability management purposes, or other similar factors. These securities are carried at fair value with unrealized holding gains or losses reported in a separate component of stockholders' equity, net of the related tax effects. Realized gains or losses on sales of securities are based upon the specific identification method.

FEDERAL HOME LOAN BANK OF NEW YORK STOCK

As a condition of membership, the Corporation is required to maintain shares of stock in the Federal Home Loan Bank of New York (FHLB-NY) based on the Corporation's level of residential mortgage loans and mortgage-backed securities or outstanding advances from the FHLB-NY, whichever is larger. Such shares are carried at cost.

MORTGAGE LOANS HELD FOR SALE

Mortgage loans held for sale are reported at the lower of cost or market on an aggregate basis. Mortgage loans held for sale are carried net of deferred fees which are recognized as income at the time the loans are sold to permanent

investors. Gains or losses on the sale of mortgage loans held for sale are recognized at the settlement date and are determined by the difference between the net proceeds and the amortized cost.

LOANS

Loans are carried at the principal amount outstanding, net of unearned discounts and deferred loan fees and costs. Interest on loans is accrued and credited to interest income as earned.

The accrual of interest income is discontinued on a loan when certain factors indicate reasonable doubt as to the collectability of principal and interest. At the time a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed against interest income in the current period. Interest collections on nonaccrual loans are generally credited to interest income when received. Such loans are restored to an accrual status only if the loan is brought contractually current and the borrower has demonstrated an ability to make future payments of principal and interest.

The Corporation defined the population of impaired loans to include nonaccrual loans and loans more than 90 days past due. Impaired loans are individually assessed to determine that the loan's carrying value is not in excess of the fair value of the collateral or the present value of the loan's expected future cash flows.

Loan fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans. The deferred fees and costs are recorded as an adjustment to loans outstanding.

ALLOWANCE FOR LOAN LOSSES

An allowance for loan losses is maintained at a level considered adequate to absorb inherent loan losses. Management of the Corporation, in determining the provision for loan losses, considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with general economic and real estate market conditions.

The Corporation utilizes a two tier approach: (1) identification of problem loans and the establishment of specific loss allowances on such loans; and (2) establishment of general allowances on the remainder of its loan portfolio based on historical loss experience and other economic data management believes relevant. The Corporation maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential problem loans. Such system takes into consideration, among other things, delinquency status, size of loans, types of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of loan portfolio, current economic conditions and management's judgment.

Although management believes that adequate specific and general loan losses are established, actual losses are dependent upon future events and, as such, further additions to the level of the specific and general loan loss allowance may be necessary.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for loan losses. Such agencies may require the Corporation to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination.

CONCENTRATION OF RISK

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.

PREMISES AND EQUIPMENT

Land is stated at cost. Buildings and improvements and furniture, fixtures and equipment are stated at cost, less accumulated depreciation computed on the straight-line method over the estimated lives of each type of asset.

Estimated useful lives are ten to forty years for buildings and improvements and three to twenty-five years for furniture, fixtures and equipment. Leasehold improvements are stated at cost less accumulated amortization computed on the straight-line method over the shorter of the term of the lease or useful life. Significant renewals and improvements are capitalized. Maintenance and repairs are charged to operations as incurred. Rental income is netted against occupancy costs in the consolidated statements of income.

OTHER REAL ESTATE OWNED

Other real estate owned (OREO) consists of foreclosed property and is carried at the lower of cost or fair value less estimated selling costs. When a property is acquired, the excess of the carrying amount over fair value, if any, is charged to the allowance for loan losses. Subsequent adjustments to the carrying value are recorded in an allowance for OREO and charged to OREO expense. Operating results for OREO, including rental income, operating expenses, and gains and losses realized from the sale of property owned, are also recorded in OREO expense.

INCOME TAXES

The Corporation accounts for taxes under the asset/liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

STOCK OPTION PLAN

The corporation applies the "intrinsic value based method" as described in APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation. Accordingly, no compensation cost has been recognized for the stock option plan.

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 the 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.

All share and per share amounts have been restated to reflect the 2 for 1 stock split in September 1997 and a 5% stock dividend paid June 1, 1998.

INTANGIBLE ASSETS

Intangible assets are comprised of goodwill and core deposit intangibles. Goodwill represents the excess of the fair value of liabilities assumed over the fair value of tangible assets acquired through a purchase acquisition completed in 1995 and amounted to $358,000 and $391,000 at December 31, 1998 and December 31, 1997, respectively, and is amortized on a straight-line method over a period of fifteen years.

The core deposit intangible represents the intangible value of depositor relationships resulting from deposit liabilities assumed in the same acquisition. The core deposit intangible amounted to $107,000 and $137,000 at December 31, 1998 and December 31, 1997, respectively, and is amortized on an accelerated basis over a period of twelve years.

NOTE 2. SECURITIES AVAILABLE FOR SALE

The following is a summary of the contractual maturities of securities available for sale:

                                                                        DECEMBER 31, 1998
                                          ------------------------------------------------------------------------------
                                                                         GROSS UNREALIZED
                                              AMORTIZED           ------------------------------              CARRYING
                                                COST                GAINS                LOSSES                 VALUE
                                          ------------------------------------------------------------------------------
U.S. Treasury:
  Within one year ......................  $      702,000         $     4,000             $     --         $      706,000
  After one but within five years ......       2,501,000              73,000                   --              2,574,000
                                          ------------------------------------------------------------------------------
                                               3,203,000              77,000                   --              3,280,000
                                          ------------------------------------------------------------------------------
U.S. Government agencies:
  Within one year ......................         498,000                  --                1,000                497,000
  After one but within five years ......       3,499,000              11,000                6,000              3,504,000
  After five years .....................       4,216,000              13,000               25,000              4,204,000
                                          ------------------------------------------------------------------------------
                                               8,213,000              24,000               32,000              8,205,000
                                          ------------------------------------------------------------------------------
Obligations of state and political
 subdivisions:
  After one but within five years ......         524,000               9,000                   --                533,000
Mortgage-backed securities:
  After one but within five years ......         162,000               2,000                   --                164,000
  After five years .....................       6,416,000              37,000               57,000              6,396,000
                                          ------------------------------------------------------------------------------
                                               6,578,000              39,000               57,000              6,560,000
                                          ------------------------------------------------------------------------------
                                          $   18,518,000         $   149,000             $ 89,000         $   18,578,000
                                          ==============================================================================


                                                                        DECEMBER 31, 1997
                                          ------------------------------------------------------------------------------
                                                                         GROSS UNREALIZED
                                              AMORTIZED           ------------------------------              CARRYING
                                                COST                GAINS                LOSSES                 VALUE
                                          ------------------------------------------------------------------------------
U.S. Treasury:
  Within one year ......................  $      752,000           $      --              $    --         $      752,000
  After one but within five years ......       2,209,000              16,000                   --              2,225,000
                                          ------------------------------------------------------------------------------
                                               2,961,000              16,000                   --              2,977,000
                                          ------------------------------------------------------------------------------
U.S. Government agencies:
  Within one year ......................         550,000                  --                2,000                548,000
  After one but within five years ......         650,000                  --                   --                650,000
  After five years .....................         251,000               5,000                   --                256,000
                                          ------------------------------------------------------------------------------
                                               1,451,000               5,000                2,000              1,454,000
                                          ------------------------------------------------------------------------------
Obligations of state and political
 subdivisions:
  After five years .....................         272,000               3,000                   --                275,000
Mortgage-backed securities:
  After one but within five years ......         319,000               2,000                   --                321,000
  After five years .....................       5,948,000              95,000               23,000              6,020,000
                                          ------------------------------------------------------------------------------
                                               6,267,000              97,000               23,000              6,341,000
                                          ------------------------------------------------------------------------------
                                          $   10,951,000           $ 121,000             $ 25,000         $   11,047,000
                                          ==============================================================================

Issuers may have the right to call or prepay obligations with or without call or prepayment penalties. This might cause actual maturities to differ from the contractual maturities summarized above.

Cash proceeds realized from calls of securities available for sale for the year ended December 31, 1998 were $1,101,000. No cash proceeds were realized from calls of securities available for sale for the years ended December 31, 1997 and 1996. No gains or losses were realized on calls during 1998, 1997 and 1996.

There were no securities available for sale pledged to secure public deposits at December 31, 1998 and 1997. See Note 8 to financial statements regarding securities pledged as collateral for securities sold under agreements to repurchase.

NOTE 3. SECURITIES HELD TO MATURITY

The following is a summary of the contractual maturities of securities held to maturity:

                                                                          DECEMBER 31, 1998
                                            ------------------------------------------------------------------------------
                                                                           GROSS UNREALIZED
                                                CARRYING            ------------------------------              ESTIMATED
                                                 VALUE                GAINS                LOSSES               FAIR VALUE
                                            ------------------------------------------------------------------------------
  U.S. Treasury:
    Within one year ......................   $     200,000           $   2,000              $    --         $      202,000
    After one but within five years ......         748,000              29,000                   --                777,000
                                            ------------------------------------------------------------------------------
                                                   948,000              31,000                   --                979,000
                                            ------------------------------------------------------------------------------
  U.S. Government agencies:
    Within one year ......................          10,000                  --                   --                 10,000
    After one but within five years ......       4,769,000              22,000                8,000              4,783,000
    After five years .....................       2,344,000              14,000                2,000              2,356,000
                                            ------------------------------------------------------------------------------
                                                 7,123,000              36,000               10,000              7,149,000
                                            ------------------------------------------------------------------------------
  Obligations of state and political
   subdivisions:
    Within one year ......................       2,091,000              12,000                   --              2,103,000
    After one but within five years ......       5,985,000             106,000                3,000              6,088,000
    After five years .....................       4,283,000              63,000                5,000              4,341,000
                                            ------------------------------------------------------------------------------
                                                12,359,000             181,000                8,000             12,532,000
                                            ------------------------------------------------------------------------------
  Mortgage-backed securities:
    After five years .....................       2,083,000              22,000                8,000              2,097,000
                                            ------------------------------------------------------------------------------
                                             $  22,513,000           $ 270,000              $26,000         $   22,757,000
                                            ==============================================================================


                                                                          DECEMBER 31, 1997
                                            ------------------------------------------------------------------------------
                                                                           GROSS UNREALIZED
                                                CARRYING            ------------------------------              ESTIMATED
                                                 VALUE                GAINS                LOSSES               FAIR VALUE
                                            ------------------------------------------------------------------------------
  U.S. Treasury:
    Within one year ......................   $   1,498,000           $      --              $    --         $    1,498,000
    After one but within five years ......         450,000               5,000                   --                455,000
                                            ------------------------------------------------------------------------------
                                                 1,948,000               5,000                   --              1,953,000
                                            ------------------------------------------------------------------------------
  U.S. Government agencies:
    After one but within five years ......       4,912,000              12,000                7,000              4,917,000
    After five years .....................       2,824,000              36,000                   --              2,860,000
                                            ------------------------------------------------------------------------------
                                                 7,736,000              48,000                7,000              7,777,000
                                            ------------------------------------------------------------------------------
  Obligations of state and political
   subdivisions:
    Within one year ......................       3,491,000              22,000                1,000              3,512,000
    After one but within five years ......       3,936,000              88,000                   --              4,024,000
    After five years .....................       1,052,000              22,000                   --              1,074,000
                                            ------------------------------------------------------------------------------
..........................................       8,479,000             132,000                1,000              8,610,000
                                            ------------------------------------------------------------------------------
  Mortgage-backed securities:
    After five years .....................       2,119,000              76,000                   --              2,195,000
                                            ------------------------------------------------------------------------------
                                            $   20,282,000           $ 261,000              $ 8,000         $   20,535,000
                                            ==============================================================================

Issuers may have the right to call or prepay obligations with or without call or prepayment penalties. This might cause actual maturities to differ from the contractual maturities summarized above.

Cash proceeds from calls of securities held to maturity amounted to $6,150,000, $675,000 and $1,235,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Gains totaling $22,000 and no losses were realized from calls for the year ended December 31, 1998. There were no realized gains or losses from calls for the year ended December 31, 1997. Gross gains totaling $2,000 and gross losses totaling $6,000 were realized on calls during the year ended December 31, 1996.

The carrying value of securities pledged to secure treasury tax and loan deposits and public deposits approximated $699,000 and $700,000 at December 31, 1998 and 1997 respectively. See also Note 8 to financial statements regarding securities pledged as collateral for securities sold under agreements to repurchase.

NOTE 4. LOANS

The loan portfolio consisted of the following:

                                                                                     DECEMBER 31,
                                                             -------------------------------------------------------
                                                                  1998                                     1997
                                                             -------------------------------------------------------
Mortgage:
 Residential ..............................................  $   24,784,000                            $  20,305,000
 Commercial ...............................................      46,375,000                               35,035,000
Commercial ................................................      18,995,000                               17,826,000
Equity ....................................................       3,593,000                                3,551,000
Installment ...............................................      29,290,000                               23,659,000
Other .....................................................         126,000                                  414,000
                                                             -------------------------------------------------------
   Total loans ............................................     123,163,000                              100,790,000
                                                             -------------------------------------------------------
Less: Deferred loan fees ..................................         113,000                                  123,000
  Allowance for loan losses ...............................       1,542,000                                1,462,000
                                                             -------------------------------------------------------
 ..........................................................       1,655,000                                1,585,000
                                                             -------------------------------------------------------
Loans, net ................................................  $  121,508,000                            $  99,205,000
                                                             =======================================================

At December 31, 1998, 1997 and 1996, loans serviced by the Corporation for the benefit of others totaled approximately $5,390,000, $4,774,000, and $2,802,000, respectively.

Activity in the allowance for loan losses is summarized as follows:

                                                                                     DECEMBER 31,
                                                              ------------------------------------------------------
                                                                    1998                1997                1996
                                                              ------------------------------------------------------
Balance, beginning ........................................   $   1,462,000         $ 1,353,000          $ 1,177,000
Provision charged to operations ...........................         200,000             120,000              155,000
Recoveries of loans charged off ...........................              --               8,000               33,000
Loans charged off .........................................        (120,000)            (19,000)             (12,000)
                                                              ------------------------------------------------------
Balance, ending ...........................................   $   1,542,000         $ 1,462,000          $ 1,353,000
                                                              ======================================================

The Corporation has entered into lending transactions in the ordinary course of business with directors, executive officers and principal stockholders of the Corporation and their affiliates on the same terms as those prevailing for comparable transactions with other borrowers. At December 31, 1998 and 1997, these loans aggregated approximately $1,191,000 and $1,370,000, respectively. During the year ended December 31, 1998, new loans totaling $400,000 were granted and repayments totaled approximately $479,000. The loans, at December 31, 1998, were current as to principal and interest payments, and do not involve more than normal risk of collectability.

NOTE 5. NONPERFORMING ASSETS

Nonperforming assets include the following:

                                                                                   DECEMBER 31,
                                                              ------------------------------------------------------
                                                                    1998                                    1997
                                                              ------------------------------------------------------
Nonaccrual loans                                               $      4,000                              $    40,000
Loans past due ninety days or more and accruing                      64,000                                    4,000
Restructured loans                                                  480,000                                  652,000
                                                              ------------------------------------------------------
   Total nonperforming loans                                        548,000                                  696,000

Other real estate owned                                                  --                                  269,000
Less allowance for other real estate owned                               --                                   40,000
                                                              ------------------------------------------------------
                                                                         --                                  229,000
                                                              ------------------------------------------------------
Total nonperforming assets                                     $    548,000                              $   925,000
                                                              ======================================================

The following information is presented for assets classified as nonaccrual and restructured:

                                                                                YEAR ENDED DECEMBER 31,
                                                              ------------------------------------------------------
                                                                  1998                 1997                1996
                                                              ------------------------------------------------------
Income that would have been recorded under
  contractual terms                                             $    58,000          $   76,000           $   39,000
Less interest income received                                        46,000              67,000               25,000
                                                              ------------------------------------------------------
Lost income on nonperforming assets at year end                 $    12,000          $    9,000           $   14,000
                                                              ======================================================

Impaired loans consisted of the following:

                                                                                     DECEMBER 31,
                                                              ------------------------------------------------------
                                                                    1998                                    1997
                                                              ------------------------------------------------------
Impaired Loans
  With related allowance for loan loss                          $    64,000                               $   40,000
  Without related allowance for loan loss                             4,000                                    4,000
                                                              ------------------------------------------------------
Total impaired loans                                            $    68,000                               $   44,000
                                                              ======================================================
Related allowance for possible credit losses                    $     3,000                               $   40,000
                                                              ======================================================
Average investment in impaired loans                            $    65,000                               $   37,000
                                                              ======================================================
Interest recognized on impaired loans                           $     5,000                               $    1,000
                                                              ======================================================

NOTE 6. PREMISES AND EQUIPMENT, NET

                                                                      DECEMBER 31,
                                                            -------------------------------
                                                                1998                1997
                                                            -------------------------------

Land ....................................................   $  576,000           $  576,000
Buildings and improvements ..............................    1,433,000            1,433,000
Leasehold improvements ..................................      379,000              380,000
Furniture, fixtures and equipment .......................    1,854,000            1,698,000
                                                            -------------------------------
                                                             4,242,000            4,087,000
Less accumulated depreciation and amortization ..........    1,758,000            1,363,000
                                                            -------------------------------
Total premises & equipment, net .........................   $2,484,000           $2,724,000
                                                            ===============================

NOTE 7. DEPOSITS

                                                       DECEMBER 31, 1998                       DECEMBER 31, 1997
                                                ---------------------------------------------------------------------
                                                WEIGHTED                                 WEIGHTED
                                                 AVERAGE                                  AVERAGE
                                                  RATE             AMOUNT                  RATE             AMOUNT
                                               ----------------------------------------------------------------------

 Noninterest-bearing demand .................        0%         $ 39,234,000                  0%         $ 29,428,000

 NOW accounts ...............................     1.35%           19,991,000               2.00%           16,054,000
 Money market accounts ......................     2.20%           46,393,000               4.13%           21,973,000
                                               ----------------------------------------------------------------------
 Total interest-bearing demand ..............     1.94%           66,384,000               3.23%           38,027,000

 Statement savings and clubs ................     2.25%           19,311,000               2.25%           18,539,000
 Business savings ...........................     2.25%            1,733,000               2.25%            1,879,000
                                                ---------------------------------------------------------------------
Total savings ...............................    2.25%            21,044,000               2.25%           20,418,000

 IRA investment and variable rate savings ...     5.28%            9,593,000               5.50%            9,399,000
 Money market certificates ..................     5.20%           34,466,000               5.45%           38,943,000
                                               ----------------------------------------------------------------------
 Total certificates of deposit ..............     5.22%           44,059,000               5.46%           48,342,000
                                               ----------------------------------------------------------------------

 Total interest-bearing deposits ............     3.09%          131,487,000               4.05%          106,787,000
                                               ----------------------------------------------------------------------
 Total deposits .............................     2.38%         $170,721,000               3.18%         $136,215,000
                                               ======================================================================

Certificates of deposit with balances of $100,000 or more at December 31, 1998 and 1997, totaled approximately $5,918,000 and $6,411,000, respectively. Interest on certificates of deposit with balances of $100,000 or more totaled $236,000, $316,000, and $174,000 for the years ended December 31, 1998, 1997 and 1996, respectively.

The scheduled maturities of certificates of deposit were as follows:

DECEMBER 31,

                                                1998                 1997
                                            -------------------------------

One year or less .......................    $28,219,000         $25,635,000
After one to three years ...............     14,306,000          21,164,000
After three years ......................      1,534,000           1,543,000
                                            -------------------------------
                                            $44,059,000         $48,342,000
                                            ===============================

NOTE 8. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE

At December 31, 1998, 1997 and 1996, securities sold under agreements to repurchase were collateralized by U. S. Treasury securities having a carrying value of approximately $1,703,000, $2,208,000, and $2,216,000, respectively. These securities were maintained in a separate safekeeping account within the Corporation's control.

                                                                                     DECEMBER 31,
                                                                   -------------------------------------------------
                                                                    1998                 1997                1996
                                                                   -------------------------------------------------

Balance ........................................................   $662,000            $533,000           $1,711,000
Weighted average interest rate .................................       5.24%               5.45%                4.67%
Average length of maturity .....................................   273 days            365 days          14-365 days
Maximum amount outstanding at any month end during
 the year ......................................................   $662,000          $3,553,000           $2,398,000
Average amount outstanding during the year .....................   $572,000          $1,569,000           $1,695,000
Average interest rate during the year ..........................       5.37%               5.10%                4.63%

NOTE 9. REGULATORY CAPITAL REQUIREMENTS

FDIC regulations require banks to maintain minimum levels of regulatory capital. Under the regulations in effect at December 31, 1998, the Bank was required to maintain (i) a minimum leverage ratio of Tier 1 capital to total adjusted assets of 4.0% and (ii) minimum ratios of Tier 1 and total capital to risk-weighted assets of 4.0% and 8.0%, respectively. The Corporation has had substantially similar capital regulations promulgated by the Board of Governors of the Federal Reserve System.

Under its prompt corrective action regulations, the FDIC is required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on the institution's financial statements. The regulations establish a framework for the classification of savings institutions into five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Generally, an institution is considered well capitalized if it has a leverage (Tier 1) capital ratio of at least 5.0%; a Tier 1 risk-based capital ratio of at least 6.0%; and a total risk-based capital ratio of at least 10.0%.

The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the FDIC about capital components, risk weightings and other factors.

Management believes that, as of December 31, 1998, the Bank and the Corporation have met all capital adequacy requirements to which they are subject. Further, the most recent FDIC notification categorized the Bank as a well capitalized institution under the prompt corrective action regulations. There have been no conditions or events since that notification that management believes have changed the Bank's capital classification.

The following is a summary of the Bank's actual capital amounts and ratios as of December 31, 1998 and 1997, compared to the FDIC minimum capital adequacy requirements and the FDIC requirements for classification as a well capitalized institution:

                                                                                      FDIC REQUIREMENTS
                                                                       -------------------------------------------------
                                                                          MINIMUM CAPITAL            FOR CLASSIFICATION
                                               BANK ACTUAL                   ADEQUACY                AS WELL CAPITALIZED
                                        -----------------------        --------------------       ----------------------
                                          AMOUNT         RATIO         AMOUNT         RATIO         AMOUNT         RATIO
                                        -----------------------        --------------------       ----------------------

DECEMBER 31, 1998
Leverage (Tier 1) capital ...........   13,017,000       7.15%        7,287,000       4.00%        9,109,000       5.00%
Risk-based capital:
 Tier 1 .............................   13,017,000      10.60%        4,914,000       4.00%        7,371,000       6.00%
 Total ..............................   14,553,000      11.85%        9,828,000       8.00%       12,285,000      10.00%

DECEMBER 31, 1997

Leverage (Tier 1) capital ...........   11,308,000       7.73%        7,287,000       4.00%        9,109,000       5.00%
Risk-based capital:
 Tier 1 .............................   11,308,000      11.38%        4,914,000       4.00%        7,371,000       6.00%
 Total ..............................   12,552,000      12.64%        9,828,000       8.00%       12,285,000      10.00%

NOTE 10. BENEFIT PLANS

The Corporation has a noncontributory profit sharing plan covering all eligible employees. Contributions are determined by the Corporation's Board of Directors on an annual basis. Total profit sharing plan expense for the years ended December 31, 1998, 1997 and 1996 amounted to approximately $117,000, $101,000 and $95,000, respectively.

The Corporation also has a 401(k) plan which covers all eligible employees. Participants may elect to contribute up to 15% of their salaries, not to exceed the applicable limitations as per the Internal Revenue Code. The Corporation, on an annual basis, may elect to match 50% of the participant's first 5% contribution. Total 401(k) expense for the years ended December 31, 1998, 1997 and 1996 amounted to approximately $26,000, $24,000 and $23,000, respectively.

During 1996, the Corporation adopted an Employee Stock Purchase Plan which allows all eligible employees to authorize a specific payroll deduction from his or her base compensation. On a semiannual basis, the fiduciary will purchase shares for each participant. The Corporation may, at its discretion, contribute an amount (not to exceed 10% of fair market value of the shares purchased) toward the purchase of the shares, thereby reducing the purchase price to all participating employees below the fair market value of the shares. Total stock purchases amounted to 828 and 796 shares during 1998 and 1997, respectively.

NOTE 11. STOCK-BASED COMPENSATION

At December 31, 1998, the Corporation had four types of stock award programs referred to as the Employee Stock Bonus Plan, the Director Stock Plan, an 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 employees of the Corporation by providing them with a bonus in the form of shares of the common stock of the Corporation. The Corporation granted 180 and 985 shares during 1998 and 1997, respectively.

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 issued 2,206 and 1,038 shares during 1998 and 1997, respectively.

The Employee Stock Option Plan provides for options to purchase shares of Common Stock to be issued to key employees of the Corporation at the discretion of the Stock Option Committee. The committee has the authority to determine the terms and conditions of the options granted, the exercise price thereof, and whether the options are incentive or non-statutory options. The Employee Stock Option Plan has reserved 47,250 shares of common stock for issuance. The options were issued with an exercise price which represented market price of the stock at the date of grant. Options are exercisable starting one year from the date of the grant and expire ten years from the date of grant and are subject to a vesting schedule. A summary of the status of the qualified stock options as of December 31, 1998 and 1997 and changes during the years then ended on those dates is presented below:

                                                            1998                                    1997
                                                -------------------------------------------------------------------
                                                               WEIGHTED-                                WEIGHTED-
                                                                AVERAGE                                  AVERAGE
                                                               EXERCISE                                 EXERCISE
                                                SHARES           PRICE                   SHARES           PRICE
                                                -------------------------------------------------------------------

Outstanding at beginning of year .............  12,600             $17.62                    --                 --
Granted ......................................   2,100              20.00                12,600             $17.62
Exercised ....................................      --                 --                    --                 --
Forfeited ....................................      --                 --                    --                 --
                                                -------------------------------------------------------------------
Outstanding at end of year ...................  14,700             $17.96                12,600             $17.62
Options exercisable at year end ..............   2,520                                       --
Weighted-average fair value of options
 granted during the year .....................   $5.83                                    $5.51

The following table summarizes information about the qualified employee stock options outstanding at December 31, 1998:

                                                                   OPTIONS OUTSTANDING
                                    ---------------------------------------------------------------------------------
                                      NUMBER               WEIGHTED-AVG.            WEIGHTED-               NUMBER
                                    OUTSTANDING              REMAINING               AVERAGE              EXERCISABLE
                                    AT 12/31/98          CONTRACTUAL LIFE        EXERCISE PRICE           AT 12/31/98
                                    ---------------------------------------------------------------------------------

Range of Exercise Prices:

 $17-19 ..........................    12,600                   8.42                  $17.62                  2,520
 $20-22 ..........................     2,100                   9.17                   20.00                    --
                                    ---------------------------------------------------------------------------------
 $17-22 ..........................    14,700                   8.53                  $17.96                  2,520
                                    =================================================================================

The Stock Option Plan for non-employee Directors has also reserved 47,250 shares of common stock for issuance. During 1997 each participant was granted the option to purchase 4,295 shares of common stock. No option may be exercised more than ten years after the date of its grant. The options were issued with an exercise price of $16.74, 95% of the fair market value on the date the options were granted. As a result of the discount, $38,000 was charged to noninterest expense for 1997. No options were exercised during the years ended 1998 and 1997.

The Corporation applies APB 25 in accounting for the Plans. Consistent with SFAS 123, if compensation cost for the Plans was included, the Corporation's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data). There were no options granted in 1996:

                                                                    1998                 1997                1996
                                                                -------------------------------------------------------
NET INCOME:
 As reported ...............................................     $1,647,000          $1,463,000           $1,317,000
 Pro forma .................................................      1,640,000           1,325,000            1,317,000

EARNINGS PER SHARE:
 As reported Basic earnings per share ......................     $     1.67          $     1.50           $     1.37
 As reported Diluted earnings per share ....................           1.65                1.50                 1.37
 Pro forma Basic earnings per share ........................           1.67                1.35                 1.37
 Pro forma Diluted earnings per share ......................           1.65                1.35                 1.37

Weighted average fair value of options granted
 during year ...............................................     $     5.83          $     4.82                   --

The fair value of options granted for employees is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions used:

                                                             EMPLOYEE               EMPLOYEE              NONEMPLOYEE
                                                           STOCK OPTIONS          STOCK OPTIONS          STOCK OPTIONS
                                                               1998                   1997                   1997
                                                          --------------------------------------------------------------
Dividend yield ..........................................      1.12%                  1.15%                  1.15%
Expected volatility .....................................     16.24%                 14.10%                 14.10%
Risk-free interest rate .................................      5.58%                  6.64%                  6.01%
Expected Life ...........................................   7 years                7 years                5 years
Fair value at grant date ................................     $5.83                  $5.51                  $4.62

NOTE 12: EARNINGS PER SHARE

The following reconciles the income available to common shareholders (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted earnings per share for 1998, 1997 and 1996:

                                                                                1998             1997              1996
                                                                            ------------------------------------------------
Net income ..............................................................    $1,647,000       $1,463,000        $1,317,000
                                                                            ------------------------------------------------
Income available to common stockholders, basic and diluted ..............     1,647,000        1,463,000         1,317,000
                                                                            ================================================
Weighted average common shares outstanding--basic .......................       984,842          972,983           962,368
Effect of dilutive securities--stock options ............................        11,460            3,275                --
                                                                            ------------------------------------------------
Weighted average common shares outstanding--diluted .....................       996,302          976,258           962,368
                                                                            ================================================

NOTE 13. INCOME TAXES

The components of income taxes (benefit) are summarized as follows:

                                                                                        YEARS ENDED DECEMBER 31,
                                                                              --------------------------------------------
                                                                                 1998             1997              1996
                                                                              --------------------------------------------
Current tax expense:
 Federal .................................................................... $ 683,000        $ 556,000         $ 564,000
 State ......................................................................   160,000          147,000           136,000
                                                                              --------------------------------------------
                                                                                843,000          703,000           700,000
Deferred tax benefit:
 Federal ....................................................................   (38,000)         (90,000)         (104,000)
 State ......................................................................    (7,000)         (16,000)          (28,000)
                                                                              --------------------------------------------
                                                                                (45,000)        (106,000)         (132,000)
                                                                              --------------------------------------------
                                                                              $ 798,000        $ 597,000         $ 568,000
                                                                              ============================================

The following table presents a reconciliation between the reported income taxes and the income taxes which would be computed by applying the normal federal income tax rate (34%) to income before income taxes:

                                                                                        YEARS ENDED DECEMBER 31,
                                                                              --------------------------------------------
                                                                                 1998             1997              1996
                                                                              --------------------------------------------
Federal income tax .......................................................... $ 831,000        $ 646,000         $ 641,000
Add (deduct) effect of:
 State income taxes, net of federal income tax effect .......................   101,000           87,000            71,000
 Nontaxable interest income .................................................  (172,000)        (151,000)         (142,000)
 Other items, net ...........................................................    38,000           15,000            (2,000)
                                                                              --------------------------------------------
Effective federal income taxes .............................................. $ 798,000        $ 597,000         $ 568,000
                                                                              ============================================

The tax effects of existing temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

                                                                                              DECEMBER 31,
                                                                              --------------------------------------------
                                                                                 1998                               1997
                                                                              --------------------------------------------
Deferred tax assets:
 Allowance for loan losses .................................................. $ 616,000                          $ 584,000
 Allowance for losses on investments ........................................     6,000                              6,000
 Allowance for OREO losses ..................................................       --                              16,000
 Core deposit intangible amortization .......................................    25,000                             20,000
 Nonaccrual loan interest ...................................................    14,000                             14,000
 Depreciation ...............................................................    22,000                                --
 Other ......................................................................    13,000                             15,000
                                                                              --------------------------------------------
                                                                                696,000                            655,000
                                                                              --------------------------------------------
Deferred tax liabilities:
 Depreciation ...............................................................       --                               2,000
 Unrealized gain on securities available for sale ...........................    23,000                            215,000
 Deferred state tax                                                                 --                               2,000
                                                                              --------------------------------------------
                                                                                 23,000                            219,000
                                                                              --------------------------------------------
Net deferred tax assets ..................................................... $ 673,000                          $ 436,000
                                                                              ============================================

The Corporation has determined that it is not required to establish a valuation reserve for the deferred tax asset, since it is more likely than not that the deferred tax asset will be principally realized through carrybacks to taxable income in prior years. The Corporation's conclusion that it is more likely than not that the deferred tax asset will be realized is based on a history of growth in earnings and the prospects for continued growth.

NOTE 14. COMMITMENTS AND CONTINGENCIES

The Corporation is 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 financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. The contract or notional amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

At December 31, 1998, the Corporation had mortgage commitments to extend credit aggregating approximately $2.7 million at fixed rates averaging 6.53% and $346,000 floating rate loans. Of these loans, $1.9 million fixed and $346,000 floating were committed for sale to investors. Commercial, installment and home equity loan commitments of approximately $1.7 million were extended with floating rates currently averaging 8.24% and $1.7 million were extended at fixed interest rates averaging 7.64%. All commitments were due to expire within approximately 90 days.

At December 31, 1997, the Corporation had mortgage commitments to extend credit aggregating approximately $435,000 at fixed interest rates averaging 7.24% and $305,000 floating rate loans. Of these loans, $190,000 fixed and $305,000 floating were committed for sale to investors. Commercial, installment and home equity loan commitments of approximately $768,000 were extended with floating interest rates currently averaging 8.99% and $2.7 million were extended at fixed interest rates averaging 8.71%.

Additionally, at December 31, 1998, the Corporation was committed for approximately $19.4 million of unused lines of credit, consisting of $7.0 million relating to a home equity line of credit program and an unsecured line of credit program (cash reserve), $3.6 million relating to credit cards, and $8.8 million relating to commercial and construction lines of credit. Amounts drawn on the unused lines of credit are predominantly assessed interest at rates which fluctuate with the base rate.

Commitments under standby and commercial letters of credit aggregated approximately $287,000 at December 31, 1998, all of which expire within approximately one year. Should any letter of credit be drawn on, the interest rate charged on the resulting note would fluctuate with the Corporation's base rate.

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 or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management's credit evaluation of the counter-party. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties.

Standby and commercial letters of credit are conditional commitments issued by the Corporation to guarantee payment or performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Corporation obtains collateral supporting those commitments for which collateral is deemed necessary.

Rentals under long-term operating lease for branch offices amounted to approximately $141,000, $79,000, and $46,000 during the years ended December 31, 1998, 1997, and 1996, respectively. At December 31, 1998, the minimum rental commitments on the noncancellable leases with an initial term of one year and expiring thereafter is as follows:

YEAR ENDING                    MINIMUM
DECEMBER 31                     RENT
-----------                   --------
   1999 ..................... $145,000
   2000 .....................  117,000
   2001 .....................  118,000
   2002 .....................   96,000
   2003 .....................   90,000
Thereafter ..................  234,000
                               -------
                              $800,000
                              ========

The Corporation is also subject to litigation which arises primarily in the ordinary course of business. In the opinion of management the ultimate disposition of such litigation should not have a material adverse effect on the financial position of the Corporation.

NOTE 15. DIVIDEND LIMITATION

The Corporation's ability to pay cash dividends is based on its ability to receive cash from its bank subsidiary. New Jersey law provides that no dividend shall be paid by the Bank on its capital stock unless, following the payment of such dividend, the capital stock of the Bank will be unimpaired, and the Bank will have a surplus of not less than 50% of its capital stock, or if not, the payment of such dividend will not reduce the surplus of the Bank. At December 31, 1998, this restriction did not result in any effective limitation in the manner in which the Bank is currently operating.

NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 (SFAS No. 107) Disclosures About Fair Value of Financial Instruments, requires that the Corporation disclose the estimated fair value of its financial instruments whether or not recognized in the consolidated balance sheet. Fair value estimates, methods and assumptions are set forth below for the Corporation's financial instruments.

                                                                                    DECEMBER 31,
                                                            -------------------------------------------------------------
                                                                      1998                               1997
                                                            --------------------------        ---------------------------
                                                            CARRYING         ESTIMATED        CARRYING          ESTIMATED
                                                             AMOUNT         FAIR VALUE         AMOUNT          FAIR VALUE
                                                            --------------------------        ---------------------------
                                                                               (Dollars in thousands)
Financial assets:
 Cash and cash equivalents ................................  $16,999          $16,999           $12,672          $12,672
 Securities available for sale ............................   18,578           18,578            11,047           11,047
 Securities held to maturity ..............................   22,513           22,757            20,282           20,535
 FHLB-NY stock ............................................      557              557               510              510
 Net loans ................................................  121,508          122,209            99,205           99,512
Mortgage loans held for sale ..............................      793              793               756              756

Financial liabilities:

 Deposits .................................................  170,721          171,124           136,215          136,513
 Securities sold under agreements to repurchase ...........      662              662               533              533

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

CASH AND CASH EQUIVALENTS

The carrying amount approximates fair value.

SECURITIES AVAILABLE FOR SALE

All securities available for sale are actively traded and have been valued using quoted market prices.

SECURITIES HELD TO MATURITY

All securities held to maturity are actively traded and have been valued using quoted market prices.

FHLB-NY STOCK

The carrying amount approximates fair value.

NET LOANS

Fair values are estimated for portfolios of loan with similar financial characteristics. Loans are segregated by type such as residential and commercial mortgages, commercial and other installment. The fair value of loans is estimated by discounting cash flows using estimated market discount rates which reflect the credit and interest rate risk inherent in the loans.

MORTGAGE LOANS HELD FOR SALE

Loans in this category have been committed for sale to investors at the current carrying amount.

DEPOSITS

The fair value of deposits, with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW and money market accounts, is equal to the amount payable on demand as of December 31, 1998. The fair value of the certificates of deposit is based on the discounted value of cash flows. The discount rate is estimated using market discount rates which reflect interest rate risk inherent in the certificates of deposit.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The carrying value approximates fair value due to the relatively short time before maturity.

COMMITMENTS TO EXTEND CREDIT

The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counter parties, and at December 31, 1998 and 1997 were not material.

LIMITATIONS

The preceding fair value estimates were made at December 31, 1998 and 1997, based on pertinent market data and relevant information on the financial instruments. These estimates do not include any premium or discount that could result from an offer to sell at one time the Corporation's entire holdings of a particular financial instrument or category thereof. Since no market exists for a substantial portion of the Corporation's financial instruments, fair value estimates were necessarily based on judgements with respect to future expected loss experience, current economic conditions, risk assessments of various financial instruments, and other factors. Given the subjective nature of these estimates, the uncertainties surrounding them and the matters of significant judgement that must be applied, these fair value estimates cannot be calculated with precision. Modifications in such assumptions could meaningfully alter these estimates.

Since these fair value approximations were made solely for on and off balance sheet financial instruments at December 31, 1998 and 1997, no attempt was made to estimate the value of anticipated future business. Furthermore, certain tax implications related to the realization of unrealized gains and losses could have a substantial impact on these fair value estimates and have not been incorporated into the estimates.

NOTE 17. PARENT COMPANY ONLY

The Corporation, formed in November, 1996, owns one subsidiary, Atlantic Stewardship Bank. The earnings of the bank are recognized by the Corporation using the equity method of accounting. Accordingly, the bank dividends paid reduce the Corporation's investment in the subsidiary. The following information should be read in conjunction with the other notes to the consolidated financial statements. Condensed financial statements of the Corporation at December 31, 1998 and 1997 are presented below:

CONDENSED STATEMENTS OF FINANCIAL CONDITION                                           YEARS ENDED DECEMBER 31,
                                                                               -------------------------------------
                                                                                    1998                      1997
                                                                               -------------------------------------
     ASSETS
     Cash and due from banks ..............................................    $     25,000             $     20,000
     Investment in subsidiary .............................................      13,520,000               11,896,000
                                                                               -------------------------------------
        Total assets ......................................................    $ 13,545,000             $ 11,916,000
                                                                               =====================================
     LIABILITIES AND STOCKHOLDERS' EQUITY
     Other liabilities ....................................................    $     (4,000)            $    (10,000)
     Stockholders' equity .................................................      13,549,000               11,926,000
                                                                               -------------------------------------
        Total liabilities and Stockholders' equity ........................    $ 13,545,000             $ 11,916,000
                                                                               =====================================


CONDENSED STATEMENTS OF INCOME                                                        YEARS ENDED DECEMBER 31,
                                                                               -------------------------------------
                                                                                    1998                      1997
                                                                               -------------------------------------
     Dividend income ......................................................    $     35,000             $     83,000
     Other income .........................................................           6,000                    1,000
     Other expenses .......................................................         (59,000)                 (99,000)
                                                                               -------------------------------------
     Income before income tax benefit and undistributed
       earnings of subsidiary .............................................         (18,000)                 (15,000)
     Income tax benefit ...................................................         (18,000)                 (20,000)
                                                                               -------------------------------------
     Net income before undistributed earnings of subsidiary ...............              --             $      5,000
     Equity in undistributed earnings of subsidiary .......................       1,647,000                1,458,000
                                                                               -------------------------------------
     Net income ...........................................................    $  1,647,000             $  1,463,000
                                                                               =====================================

CONDENSED STATEMENTS OF CASH FLOWS                                                    YEARS ENDED DECEMBER 31,
                                                                               -------------------------------------
                                                                                    1998                      1997
                                                                               -------------------------------------
     Cash flows from operating activities:
      Net income ..........................................................    $  1,647,000             $  1,463,000
      Adjustments to reconcile net income to
       net cash provided by operating activities:
        Equity in undistributed earnings of subsidiary ....................      (1,647,000)              (1,458,000)
        Issuance of stock options at a discount ...........................              --                   38,000
        Increase/(decrease) in other liabilities ..........................           6,000                   (9,000)
                                                                               -------------------------------------
         Net cash provided by operating activities ........................           6,000                   34,000
     Cash flows from financing activities:
       Cash dividends paid on common stock ................................        (275,000)                (221,000)
       Issuance of common stock ...........................................         274,000                  200,000
                                                                               -------------------------------------
         Net cash provided by financing activities ......................            (1,000)                 (21,000)
     Net increase in cash and cash equivalents ............................           5,000                   13,000
     Cash and cash equivalents--beginning .................................          20,000                    7,000
                                                                               -------------------------------------
     Cash and cash equivalents--ending ....................................    $     25,000            $      20,000
                                                                               =====================================

                                                                             50

NOTE 18. RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Account Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), was issued by the Financial Accounting Standards Board in June 1998. SFAS No. 133 standardizes the accounting for derivative instruments including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the statement of financial position at fair value.

The Corporation must adopt SFAS No. 133 by January 1, 2000 however, early adoption is permitted. On adoption, the provisions of SFAS No. 133 must be applied prospectively. The Corporation anticipates that the adoption of SFAS No. 133 will not have a material impact on financial statements.

On October 9, 1998 the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held-for-Sale by a Mortgage Banking Enterprise." SFAS No. 134 changes the way mortgage banking firms account for certain securities and other interests they retain after securitizing mortgage loans that were held for sale. This statement is effective for fiscal quarters beginning after December 15, 1998. Early application is permitted. The adoption of this statement by the Corporation is not expected to have a material effect on the financial statements of the Corporation.

NOTE 19. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table contains quarterly financial data for the years ended December 31, 1998 and 1997 (dollars in thousands).

                                                                 FIRST       SECOND        THIRD       FOURTH
                                                                QUARTER      QUARTER      QUARTER      QUARTER        TOTAL
                                                             -------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998:
Interest income ...........................................  $  2,865      $  3,034     $  3,178     $  3,243    $  12,320
Interest expense ..........................................     1,107         1,178        1,297        1,243        4,825
                                                             -------------------------------------------------------------
 Net interest income before provision for loan losses .....     1,758         1,856        1,881        2,000        7,495
Provision for loan losses .................................        40            30           20          110          200
                                                             -------------------------------------------------------------
 Net interest income after provision for loan losses ......     1,718         1,826        1,861        1,890        7,295
Noninterest income ........................................       215           297          228          268        1,008
Noninterest expense .......................................     1,367         1,524        1,467        1,500        5,858
                                                             -------------------------------------------------------------
 Net income before income tax expense .....................       566           599          622          658        2,445
Federal and state income tax expense ......................       184           197          202          215          798
                                                             -------------------------------------------------------------
Net income ................................................  $    382      $    402     $    420     $    443     $  1,647
                                                             =============================================================
Basic earnings per share ..................................  $   0.39      $   0.41     $   0.43     $   0.44     $   1.67
                                                             =============================================================
Diluted earnings per share ................................  $   0.39      $   0.40     $   0.42     $   0.44     $   1.65
                                                             =============================================================
YEAR ENDED DECEMBER 31, 1997:

Interest income ...........................................  $  2,361      $  2,502     $  2,631     $  2,761    $  10,255
Interest expense ..........................................       859           914          983        1,048        3,804
                                                             -------------------------------------------------------------
 Net interest income before provision for loan losses .....     1,502         1,588        1,648        1,713        6,451
Provision for loan losses .................................        30            30           30           30          120
                                                             -------------------------------------------------------------
 Net interest income after provision for loan losses ......     1,472         1,558        1,618        1,683        6,331
Noninterest income ........................................       168           195          184          206          753
Noninterest expense .......................................     1,160         1,259        1,288        1,317        5,024
                                                             -------------------------------------------------------------
 Net income before income tax expense .....................       480           494          514          572        2,060
Federal and state income tax expense ......................       143           148          122          184          597
                                                             -------------------------------------------------------------
Net income ................................................  $    337      $    346     $    392     $    388   $    1,463
                                                             =============================================================
Basic earnings per share ..................................  $   0.35      $   0.35     $   0.40     $   0.40   $     1.50
                                                             =============================================================
Diluted earnings per share ................................  $   0.35      $   0.35     $   0.40     $   0.40   $     1.50
                                                             =============================================================

Atlantic Stewardship
Branch Locations

Call: 201-444-7100

HEADQUARTERS:
MIDLAND PARK
630 Godwin Avenue
Raymond J. Santhouse
Branch Manager & Assistant Vice President Louise Rohner
Assistant Branch Manager & Assistant Secretary

HAWTHORNE
386 Lafayette Avenue
Alma M. Baxter
Branch Manager & Assistant Secretary
Grace Lobbregt
Assistant Branch Manager & Administrative Assistant

RIDGEWOOD
190 Franklin Avenue
Jennifer L. Heller
Branch Manager & Administrative Assistant Joyce Dykstra
Assistant Branch Manager

WALDWICK
30 Franklin Turnpike
Kristine Rasile
Branch Manager & Assistant Secretary

WAYNE
87 Berdan Avenue
Robert A. Giannetti
Branch Manager & Assistant Vice President Maria Rizzi
Assistant Branch Manager

311 Valley Road
Leigh Knorr
Branch Manager & Administrative Assistant

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Stewardship Financial Corporation:

We consent to incorporation by reference in registration statement Nos. 333-20699 on Form S-3, 333-20793 and 333-31245 on Form S-8 of Stewardship Financial Corporation of our report dated January 27, 1999, relating to the consolidated statements of financial condition of Stewardship Financial Corporation and subsidiary as of December 31, 1998, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, which report is incorporated by reference in the December 31, 1998 annual report on form 10-KSB of Stewardship Financial Corporation

                                              /s/KPMG LLP
                                              -----------
                                                 KPMG LLP




Short Hills, New Jersey
March 25, 1999

ARTICLE 9

This schedule contains summary information extracted from the registrant's audited December 31, 1998 year end financial statements and is qualified in its entirety by reference to such financial statements.


PERIOD TYPE	YEAR
FISCAL YEAR END	DEC 31 1998
PERIOD END	DEC 31 1998
CASH	7,379,000
INT BEARING DEPOSITS	5,045,000
FED FUNDS SOLD	4,575,000
TRADING ASSETS	0
INVESTMENTS HELD FOR SALE	18,578,000
INVESTMENTS CARRYING	22,513,000
INVESTMENTS MARKET	22,757,000
LOANS	121,508,000
ALLOWANCE	1,542,000
TOTAL ASSETS	185,970,000
DEPOSITS	170,721,000
SHORT TERM	662,000
LIABILITIES OTHER	1,038,000
LONG TERM	0
PREFERRED MANDATORY	0
PREFERRED	0
COMMON	990,284
OTHER SE	13,549,000
TOTAL LIABILITIES AND EQUITY	185,970,000
INTEREST LOAN	9,430,000
INTEREST INVEST	2,143,000
INTEREST OTHER	747,000
INTEREST TOTAL	12,320,000
INTEREST DEPOSIT	4,794,000
INTEREST EXPENSE	4,825,000
INTEREST INCOME NET	7,495,000
LOAN LOSSES	200,000
SECURITIES GAINS	22,000
EXPENSE OTHER	5,858,000
INCOME PRETAX	2,445,000
INCOME PRE EXTRAORDINARY	1,647,000
EXTRAORDINARY	0
CHANGES	0
NET INCOME	1,647,000
EPS PRIMARY	1.67
EPS DILUTED	1.65
YIELD ACTUAL	4.80
LOANS NON	4,000
LOANS PAST	64,000
LOANS TROUBLED	480,000
LOANS PROBLEM	0
ALLOWANCE OPEN	1,462,000
CHARGE OFFS	120,000
RECOVERIES	0
ALLOWANCE CLOSE	1,542,000
ALLOWANCE DOMESTIC	1,542,000
ALLOWANCE FOREIGN	0
ALLOWANCE UNALLOCATED	0