SOURCE: Northern States Financial Corporation

Northern States Financial Corporation

November 10, 2009 16:00 ET

Northern States Financial Corporation Reports Third Quarter Results

WAUKEGAN, IL--(Marketwire - November 10, 2009) - Northern States Financial Corporation (NASDAQ: NSFC), holding company for NorStates Bank, an FDIC-insured financial institution, today reported that several factors contributed to a net loss for the third quarter of 2009 of $17,742,000, or $4.42 per share. This compares with a loss for the third quarter of 2008 of $2,781,000, or $.68 per share. The major factors affecting net income were increased provisions to the allowance for loan and lease losses, write-downs to securities, FDIC insurance premiums and the creation of a deferred tax asset valuation allowance.

During the quarter ended September 30, 2009, the Company recorded a provision to its allowance for loan and lease losses totaling $12.8 million, of which $8.3 million was specifically allocated for a $10.4 million loan relationship consisting of thirteen commercial loans and leases. This loan relationship was placed on nonaccrual status during the quarter as the loans and leases payments became past due amid allegations of possible fraud. The Company also recognized a write-down for impairment of $2.4 million to its investment in collateralized debt obligations during the quarter after analyzing credit issues continuing to affect the underlying financial institutions that issued the debt. To date, the Company's investment in collateralized debt obligation has been written down to $779,000 from a book value of $10.9 million.

At September 30, 2009 the Company had a deferred tax asset of $15.1 million. Per accounting rules, the Company was required to create a deferred tax asset valuation allowance at September 30, 2009 totaling $9.2 million. The effect of this valuation allowance was that the Company's tax expense increased $9.2 million during the third quarter of 2009 to $3.7 million. This was a noncash event and the Company expects that it will be able use the entire valuation allowance in the future to lower tax expense.

The Company had 2009 third quarter core earnings before income taxes of $1.1 million. These core earnings are earnings that were not related to the provision for loan losses, impairment write-downs to securities or sales of other real estate owned. The Company believes "core earnings" illustrates the Company's ability to generate earnings absent of asset quality issues and one-time accounting adjustments.

Year to Date 2009

The Company recognized provisions for loan losses of $18.2 million and a one-time noncash write-off of goodwill of $9.5 million during the first nine months of 2009, which contributed to a loss of $31.0 million, or $7.77 per share, compared with a loss of $1.7 million, or $.42 per share, for the same nine months of 2008. The noncash creation of the $9.2 million deferred tax asset valuation allowance caused year to date 2009 taxes to increase by this amount. Impairment write-downs to securities totaled $3.1 million during the nine months ended September 30, 2009. Contributing to the loss during the first nine months of 2009 were losses of $1.6 million on the sale of other real estate owned. FDIC insurance expense totaled $1.1 million during the first nine months of 2009, an increase of $1.0 million compared with the same time period of 2008. Core earnings before the provision for loan losses, impairment losses to securities, write-down of goodwill, sales of other real estate owned and income taxes for the first three quarters of 2009 were $2.5 million. The Company believes "core earnings" shows the Company's generation of earnings absent asset quality issues and one-time accounting adjustments.

Total assets were $628.1 million at September 30, 2009, decreasing $12.6 million from total assets of $640.7 million at December 31, 2008 with the decrease mainly attributable to the $9.2 million deferred tax asset valuation allowance taken in the third quarter of 2009. Loans totaled $449.7 million at September 30, 2009, decreasing $31.1 million from loans of $480.8 million at December 31, 2008 due in part to $23.0 million in loans that were revalued down by $6.2 million to $16.8 million and transferred to other real estate owned. The balance of the decrease is due to lower borrower demands attributed to the poor economy and to stricter loan underwriting. The Company had increases to securities available for sale of $20.8 million as the Company sought to increase yields while maintaining liquidity. Other real estate owned also increased from year-end 2008 by $10.9 million primarily due to the transfer of $16.8 million from loans.

Deposits totaled $520.1 million at September 30, 2009, increasing $19.3 million from $500.8 million at December 31, 2008 due to growth to core NOW accounts and CDARs time deposits (a reciprocal agreement where NorStates Bank places certain customers' larger time deposits with other independent financial institutions allowing the Bank's customers to maximize FDIC insurance coverage). Since year-end 2008, the Company has reduced its wholesale brokered time deposits by $36.6 million and also paid off its Federal Home Loan Bank advances that had totaled $20.0 million.

Nonperforming loans and leases were $46.6 million at September 30, 2009 as compared with $37.1 million at year-end 2008, an increase of 26 percent, as borrowers experienced cash flow difficulties due to the poor economy and falling real estate values. Nonperforming loans consist of nonaccrual loans that no longer earn interest as well as accruing loans that are 90 days or more past due and in the process of collection.

Impaired loans totaled $49.9 million at September 30, 2009, an increase of $6.1 million from $43.8 million at December 31, 2008. The Company considers a loan to be impaired if it believes that all principal and interest will not be collected under the contractual terms of the note and includes nonaccrual loans as well as restructured loans. The Company has $14.3 million of its allowance for loan and lease losses allocated to its impaired loans at September 30, 2009. The Company's allowance for loan and lease losses to total loans and leases ratio was 5.19 percent at September 30, 2009.

On October 20, 2009, the board of directors of the Northern States Financial Corporation determined that there would be no cash dividend on December 1, 2009 due to the reduced earnings of the Company in 2009.

The Company has notified Department of the Treasury of its intent to suspend its quarterly dividend payments on its Fixed Rate Cumulative Perpetual Preferred Stock, Series A issued under the U.S. Department of the Treasury's TARP Capital Purchase Program. During the deferral period, the Company may not pay any dividends to its common stockholders until all unpaid dividends on the preferred stock are fully paid.

The Company has also notified the trustee that holds the Company's junior subordinated debentures relating to its outstanding trust preferred securities that the Company will defer its regular quarterly interest payments on the junior subordinated debentures. Under the terms of the debentures, the Company has the right to defer the payment of interest on the subordinated debentures at any time, for a period up to 20 consecutive quarters without default. During the deferral period, the Company may not pay any dividends on its common or preferred stock.

About Northern States Financial Corporation

Northern States Financial Corporation is the holding company for NorStates Bank, a full-service commercial bank with eight branches in Lake County, Illinois. NorStates Bank is the successor to financial institutions dating to 1919. NorStates Bank serves the populations of northeastern Illinois and southeastern Wisconsin.

Forward-Looking Information

Statements contained in this news release that are not historical facts may constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), which involve significant risks and uncertainties. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by the use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "plan," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted. The Company undertakes no obligation to update these forward-looking statements in the future. Factors that could have a material adverse effect on the operations and could affect the outlook or future prospects of the Company and its subsidiaries include, but are not limited to, the potential for further deterioration in the credit quality of the Company's loan and lease portfolios, a continued increase in nonperforming loans, uncertainty regarding the Company's ability to ultimately recover on loans currently on nonaccrual status, unanticipated changes in interest rates, general economic conditions, increasing regulatory compliance burdens or potential legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the Company's loan or investment portfolios, deposit flows, competition, demand for loan products and financial services in the Company's market area, and changes in accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements.

             NORTHERN STATES FINANCIAL CORPORATION
                      KEY PERFORMANCE DATA
                ($ 000's, except per share data)

                                      Sept. 30,      Dec. 31,
                                        2009           2008
                                      ---------      ---------

Total Assets                           $628,145       $640,719
Total Loans and Leases                  449,669        480,812
Total Deposits                          520,153        500,821
Total Stockholders' Equity               48,766         61,614
Nonperforming Loans and Leases           46,590         37,066
Nonperforming Loans and Leases to
  Total Loans and Leases                  10.36%          7.71%
Impaired Loans and Leases               $49,985        $43,756
Book Value per Share                      $7.75         $15.13
Number of Shares Outstanding          4,072,255      4,072,255


             NORTHERN STATES FINANCIAL CORPORATION
                      KEY PERFORMANCE DATA
                ($ 000's, except per share data)

Quarter ended September 30:             2009           2008
                                      ---------      ---------
Loss                                  ($ 17,742)       ($2,781)
Basic Earnings (Loss) Per Share          ($4.42)        ($ .68)
Return on Average Assets                 (11.19%)        (1.72%)
Return on Average Equity                (108.77%)       (16.18%)
Efficiency Ratio                         133.57%         89.09%
Yield on Interest
  Earning Assets                           4.91%          5.89%
Cost of Interest
  Bearing Liabilities                      1.91%          2.50%
Net Interest Spread                        3.00%          3.39%
Net Yield on Interest
  Earning Assets                           3.32%          3.80%

Nine months ended September 30:         2009           2008
                                      ---------      ---------
Loss                                   ($31,030)       ($1,730)
Basic Earnings (Loss) Per Share          ($7.77)         ($.42)
Return on Average Assets                  (6.45%)         (.36%)
Return on Average Equity                 (57.38%)        (3.22%)
Efficiency Ratio                         190.36%         72.33%
Yield on Interest
  Earning Assets                           5.00%          6.02%
Cost of Interest
  Bearing Liabilities                      2.11%          2.75%
Net Interest Spread                        2.89%          3.27%
Net Yield on Interest
  Earning Assets                           3.22%          3.72%


NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ 000s) (Unaudited)

                                              September 30,  December 31,
                                                  2009           2008
                                              -------------  -------------
      Assets
Cash and due from banks                       $      13,538  $      14,108
Interest bearing deposits in financial
 institutions - maturities less than
 90 days                                                949            242
Federal funds sold                                   21,302          7,518
                                              -------------  -------------
  Total cash and cash equivalents                    35,789         21,868
Securities available for sale                       123,962        103,194
Loans and leases                                    449,669        480,812
Less: Allowance for loan and lease losses           (23,345)       (10,402)
                                              -------------  -------------
  Loans and leases, net                             426,324        470,410
Federal Home Loan Bank stock                          1,801          1,757
Office buildings and equipment, net                   9,824          9,916
Other real estate owned                              21,461         10,575
Goodwill                                                  0          9,522
Core deposit intangible assets                          578            926
Accrued interest receivable and other assets          8,406         12,551
                                              -------------  -------------
  Total assets                                $     628,145  $     640,719
                                              =============  =============

      Liabilities and Stockholders' Equity
Liabilities
Deposits
  Demand - noninterest bearing                $      59,047  $      57,313
  Interest bearing                                  461,106        443,508
                                              -------------  -------------
    Total deposits                                  520,153        500,821
Securities sold under repurchase agreements          42,416         42,574
Federal Home Loan Bank advance                            0         20,000
Subordinated debentures                              10,000         10,000
Advances from borrowers for taxes and
 insurance                                              444          1,011
Accrued interest payable and other
 liabilities                                          6,366          4,699
                                              -------------  -------------
  Total liabilities                                 579,379        579,105

Stockholders' Equity
Common stock                                          1,789          1,789
Preferred stock                                      16,611              0
Warrants                                                681              0
Additional paid-in capital                           11,584         11,584
Retained earnings                                    25,405         56,082
Treasury stock, at cost                              (9,280)        (9,280)
Accumulated other comprehensive income                1,976          1,439
                                              -------------  -------------
  Total stockholders' equity                         48,766         61,614
                                              -------------  -------------
    Total liabilities and stockholders'
     equity                                   $     628,145  $     640,719
                                              =============  =============


NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three and nine months ended September 30, 2009 and 2008
($ 000s, except per share data) (Unaudited)

                                 Three months ended     Nine months ended
                                Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------
Interest income
  Loans (including fee income)  $   6,187  $   7,287  $  18,620  $  21,585
  Securities
    Taxable                         1,093      1,544      3,464      5,137
    Exempt from federal
     income tax                        87        121        273        347
  Federal funds sold and other          8          8         20         91
                                ---------  ---------  ---------  ---------
    Total interest income           7,375      8,960     22,377     27,160
                                ---------  ---------  ---------  ---------
Interest expense
  Time deposits                     1,831      2,263      6,115      7,541
  Other deposits                      306        396      1,050      1,288
  Repurchase agreements and
   federal funds purchased            162        279        489        922
  Federal Home Loan Bank
   advances                             4        137         52        289
  Subordinated debentures             109        137        349        433
                                ---------  ---------  ---------  ---------
    Total interest expense          2,412      3,212      8,055     10,473
                                ---------  ---------  ---------  ---------
Net interest income                 4,963      5,748     14,322     16,687
Provision for loan and lease
 losses                            12,825      5,146     18,244      8,129
                                ---------  ---------  ---------  ---------
Net interest income after
 provision for loan and lease
 losses                            (7,862)       602     (3,922)     8,558
                                ---------  ---------  ---------  ---------
Noninterest income
  Service fees on deposits            638        672      1,753      1,953
  Trust income                        182        188        590        619
  Net gains (loss) on sales of
   other real estate owned             42          0     (1,594)         0
  Impairment loss on
   securities                      (2,424)    (2,180)    (3,052)    (2,180)
  Other operating income              320        319        881        863
                                ---------  ---------  ---------  ---------
    Total noninterest income       (1,242)    (1,001)    (1,422)     1,255
                                ---------  ---------  ---------  ---------
Noninterest expense
  Salaries and employee
   benefits                         2,109      2,127      6,286      6,432
  Occupancy and equipment, net        556        580      1,872      1,801
  Data processing                     472        415      1,345      1,278
  FDIC insurance                      324         24      1,080         98
  Legal                               308        144        942        304
  Audit and professional              244        260        695        997
  Write-down of goodwill                0          0      9,522          0
  Amortization of intangibles         116        116        348        348
  Other real estate owned
   expense                            178         27        442         75
  Other operating expenses            663        536      2,024      1,645
                                ---------  ---------  ---------  ---------
    Total noninterest expense       4,970      4,229     24,556     12,978
                                ---------  ---------  ---------  ---------
Income (loss) before income
 taxes                            (14,074)    (4,628)   (29,900)    (3,165)
Provision for income taxes          3,668     (1,847)     1,130     (1,435)
                                ---------  ---------  ---------  ---------
Net (loss) income               $ (17,742) $  (2,781) $ (31,030) $  (1,730)
                                =========  =========  =========  =========

Earnings per share              $   (4.42) $   (0.68) $   (7.77) $   (0.42)

Contact Information

  • For Additional Information, Contact:
    Scott Yelvington
    Executive Vice President
    (847) 244-6000 Ext. 201
    Websites: www.nsfc.com
    www.nsfc.net