Thanks a lot both.

Here is the few lines from Remote-Server's /usr/local/etc/ssh/sshd_config:

+++++++++++++++++++++++++++++++++++++++++++++++++++++++
# $OpenBSD: sshd_config,v 1.73 2005/12/06 22:38:28 reyk Exp $

# This is the sshd server system-wide configuration file. See
# sshd_config(5) for more information.

# This sshd was compiled with PATH=/usr/bin:/bin:/usr/sbin:/sbin:/usr/local/bin

# The strategy used for options in the default sshd_config shipped with
# OpenSSH is to specify options with their default value where
# possible, but leave them commented. Uncommented options change a
# default value.

#Port 22
#Protocol 2,1
#AddressFamily any
#ListenAddress 0.0.0.0
#ListenAddress ::

# HostKey for protocol version 1
#HostKey /usr/local/etc/ssh_host_key
# HostKeys for protocol version 2
#HostKey /usr/local/etc/ssh_host_rsa_key
#HostKey /usr/local/etc/ssh_host_dsa_key

# Lifetime and size of ephemeral version 1 server key
#KeyRegenerationInterval 1h
#ServerKeyBits 768

# Logging
# obsoletes QuietMode and FascistLogging
#SyslogFacility AUTH
#LogLevel INFO

# Authentication:

#LoginGraceTime 2m
#PermitRootLogin yes
#StrictModes yes
#MaxAuthTries 6

#RSAAuthentication yes
#PubkeyAuthentication yes
#AuthorizedKeysFile .ssh/authorized_keys

# For this to work you will also need host keys in /usr/local/etc/ssh_known_hosts
#RhostsRSAAuthentication no
# similar for protocol version 2
#HostbasedAuthentication no
# Change to yes if you don't trust ~/.ssh/known_hosts for
# RhostsRSAAuthentication and HostbasedAuthentication
#IgnoreUserKnownHosts no
# Don't read the user's ~/.rhosts and ~/.shosts files
#IgnoreRhosts yes

# To disable tunneled clear text passwords, change to no here!
#PasswordAuthentication yes
#PermitEmptyPasswords no

++++++++++++++++++++++++++++++++++++++++++++++++++

Also, running "sftp -v rmt_srvr" produces the following lines:
++++++++++++++++++++++++++++++++++++++++++++++++++

debug1: SSH2_MSG_KEXINIT sent
debug1: SSH2_MSG_KEXINIT received
debug1: kex: server->client aes128-ctr hmac-md5 none
debug1: kex: client->server aes128-ctr hmac-md5 none
debug1: Peer sent proposed langtags, ctos:
debug1: Peer sent proposed langtags, stoc:
debug1: We proposed langtags, ctos: i-default
debug1: We proposed langtags, stoc: i-default
debug1: SSH2_MSG_KEX_DH_GEX_REQUEST sent
debug1: expecting SSH2_MSG_KEX_DH_GEX_GROUP
debug1: dh_gen_key: priv key bits set: 123/256
debug1: bits set: 997/2048
debug1: SSH2_MSG_KEX_DH_GEX_INIT sent
debug1: expecting SSH2_MSG_KEX_DH_GEX_REPLY
debug1: Host 'sbdevsvr59' is known and matches the RSA host key.
debug1: Found key in /home/testuser/.ssh/known_hosts:14
debug1: bits set: 1005/2048
debug1: ssh_rsa_verify: signature correct
debug1: newkeys: mode 1
debug1: SSH2_MSG_NEWKEYS sent
debug1: expecting SSH2_MSG_NEWKEYS
debug1: newkeys: mode 0
debug1: SSH2_MSG_NEWKEYS received
debug1: done: ssh_kex2.
debug1: send SSH2_MSG_SERVICE_REQUEST
debug1: got SSH2_MSG_SERVICE_ACCEPT
debug1: Authentications that can continue: publickey,password,keyboard-interactive
debug1: Next authentication method: publickey
debug1: Trying private key: /home/testuser/.ssh/id_rsa
debug1: Trying public key: /home/testuser/.ssh/id_dsa
debug1: Authentications that can continue: publickey,password,keyboard-interactive
debug1: Next authentication method: keyboard-interactive
debug1: Authentications that can continue: publickey,password,keyboard-interactive
debug1: Next authentication method: password
testuser@rmt_srvr's password:
++++++++++++++++++++++++++++++++++++++++++++++++

Moreover, both permissions are as you've specified.

Thanks again.