SOURCE: Northern States Financial Corporation

Northern States Financial Corporation

August 03, 2009 16:05 ET

Northern States Financial Corporation Reports Second Quarter Results

WAUKEGAN, IL--(Marketwire - August 3, 2009) - Northern States Financial Corporation (NASDAQ: NSFC), holding company for NorStates Bank, an FDIC-insured financial institution, today reports that the continuing faltering economy and the weakening of financial markets has resulted in a one-time charge of $9.5 million to goodwill. The goodwill write-off occurred as goodwill was deemed impaired as general market conditions negatively affected bank stock prices and the Company's earnings. The goodwill write-off was a one-time accounting, noncash transaction with no affect on regulatory capital or liquidity and was not tax deductible.

The goodwill had been booked by the Company mainly primarily as a result of its 2004 acquisition of First State Bank of Round Lake. The goodwill write-off totally eliminates goodwill from the Company's balance sheet and did not affect either the Company's liquidity or its regulatory capital. The capital levels of the Company's subsidiary, NorStates Bank, at June 30, 2009, continued to exceed federal banking agencies' requirements to be considered "well capitalized." The Bank's Tier 1 capital to total assets ratio and total capital to assets ratio, on a risk adjusted basis, were 10.92 percent and 14.61 percent, respectively, at June 30, 2009, as compared with the respective "well capitalized" regulatory minimum levels of 5.00 percent and 10.00 percent.

The $9.5 million write-off of goodwill combined with a provision for loan losses of $3.7 million an impairment charge of $628,000 taken on collateralized debt obligation securities and an additional $304,000 special assessment for FDIC insurance resulted in the Company reporting a loss of $11.8 million, or $2.97 per share, for the second quarter ended June 30, 2009 compared with a loss of $150,000, or $.04 per share, for the like quarter of 2008. Without the combined $9.5 million goodwill write-off, the $628,000 impairment charge on securities and the $304,000 special FDIC insurance assessment, the Company would have had a loss for the second quarter of 2009 of $1.7 million or $.49 per share.

For the six months ended June 30, 2009, the Company had a loss of $13.3 million, or $3.35 per share, compared with earnings of $1.1 million, or $.25 per share, for the first half of 2008. In addition to the one-time write-off of the goodwill of $9.5 million, the provision for loan losses of $5.4 million contributed to the loss during the first half of 2009 as compared with a provision of $3.0 million for the same period of 2008. The increased provision during the first half of 2009 was attributable to continued declines in real estate values and the poor economic climate that continues to affect the Bank's borrowers.

Other factors contributing to the Company's loss for the first half of 2009 were net losses on the sale of other real estate owned that were acquired through foreclosure, decreases to net interest income, increased FDIC premiums and impairment charges on securities. The Company had losses on the sale of other real estate owned during the first half of 2009 totaling $1.6 million. This was primarily due to the sale of a luxury home for $4.2 million during the six months of 2009 that had a carrying value of $5.9 million at year-end 2008, resulting in a $1.7 million loss on the sale.

Net interest income decreased $1.5 million during the first half of 2009 to $9.4 million as compared with $10.9 million for the same period of 2008. The decrease to net interest income was attributable to increases to loans classified on nonaccrual status where loan interest was not recognized as income. Nonaccrual loans increased to $48.0 million at June 30, 2009, an increase of $11.4 million from December 31, 2008 nonaccrual loan levels of $36.6 million. The Company's FDIC premiums for the first six months of 2009 totaled $756,000 and included a special assessment of $304,000 during the second quarter of 2009. This compares with FDIC premiums of $74,000 during the first six months of 2008. An impairment charge of $628,000 on collateral debt obligation securities resulted from defaults and deferrals of payments from the financial institutions backing those securities.

Total assets were $633.3 million at June 30, 2009, decreasing by $7.4 million from total assets of $640.7 million at December 31, 2008. The majority of the decrease was attributable to the $9.5 million reduction in goodwill. Federal funds sold increased $23.3 million from year-end as the Company increased its liquidity. Loans totaled $474.0 million at June 30, 2009, decreasing $6.8 million from loans of $480.8 million at December 31, 2008 due to lower borrower demands attributed to the poor economy. The Company had decreases to securities available for sale of $8.2 million, primarily from maturities. Other real estate owned also decreased $4.6 million primarily due to the sale of a luxury home that had a carrying value of $5.9 million at December 31, 2008.

Deposits totaled $500.7 million at June 30, 2009 and were relatively unchanged from $500.8 million at December 31, 2008, despite a decrease of $14.9 million in wholesale brokered time deposits. The Company also reduced its Federal Home Loan Bank advances to $10.0 million at June 30, 2009 from $20.0 million at December 31, 2008.

Nonperforming loans and leases were $50.3 million at June 30, 2009 as compared with $37.1 million at year-end 2008, an increase of 35 percent as borrowers experienced cash flow difficulties due to the poor economy and fell behind on their payments. 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 $61.6 million at June 30, 2009, an increase of $17.8 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 $8.7 million of its allowance for loan and lease losses allocated to its impaired loans at June 30, 2009 as there have been reductions to the values of the real estate used to secure the impaired loans.

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)



Quarter ended June 30:                   2009           2008
                                       --------       --------
Loss                                   ($11,831)         ($150)
Basic Earnings (Loss) Per Share          ($2.97)         ($.04)
Return on Average Assets                  (7.33%)         (.09%)
Return on Average Equity                 (56.83%)         (.83%)
Efficiency Ratio                         288.85%         64.73%
Yield on Interest Earning Assets           4.85%          5.96%
Cost of Interest Bearing Liabilities       2.10%          2.65%
Net Interest Spread                        2.75%          3.31%
Net Yield on Interest Earning Assets       3.09%          3.75%


Six months ended June 30:                2009           2008
                                       --------       --------
Net Income (Loss)                      ($13,288)        $1,051
Basic Earnings Per Share                 ($3.35)          $.25
Return on Average Assets                  (4.12%)          .33%
Return on Average Equity                 (35.19%)         2.88%
Efficiency Ratio                         213.38%         66.31%
Yield on Interest Earning Assets           5.04%          6.09%
Cost of Interest Bearing Liabilities       2.21%          2.88%
Net Interest Spread                        2.83%          3.21%
Net Yield on Interest Earning Assets       3.16%          3.68%






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


                                      June 30,       Dec. 31,
                                        2009           2008
                                      ---------      ---------
Total Assets                           $633,265       $640,719
Total Loans and Leases                  474,044        480,812
Total Deposits                          500,709        500,821
Total Stockholders' Equity               64,667         61,614
Nonperforming Loans and Leases           50,032         37,066
Nonperforming Loans and Leases to
 Total Loans and Leases                   10.55%          7.71%
Impaired Loans and Leases               $61,648        $43,756
Book Value per Share                     $11.65         $15.13
Number of Shares Outstanding          4,072,255      4,072,255






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

                                                  June 30,    December 31,
                                                    2009          2008
                                                ------------  ------------
      Assets
Cash and due from banks                         $     13,148  $     14,108
Interest bearing deposits in financial
 institutions - maturities less than 90 days           1,176           242
Federal funds sold                                    30,901         7,518
                                                ------------  ------------
   Total cash and cash equivalents                    45,225        21,868
Securities available for sale                         94,948       103,194
Loans and leases                                     474,044       480,812
Less: Allowance for loan and lease losses            (14,861)      (10,402)
                                                ------------  ------------
   Loans and leases, net                             459,183       470,410
Federal Home Loan Bank stock                           1,801         1,757
Office buildings and equipment, net                    9,753         9,916
Other real estate owned                                6,015        10,575
Goodwill                                                   0         9,522
Core deposit intangible assets                           694           926
Accrued interest receivable and other assets          15,646        12,551
                                                ------------  ------------
   Total assets                                 $    633,265  $    640,719
                                                ============  ============

      Liabilities and Stockholders' Equity
Liabilities
Deposits
   Demand - noninterest bearing                 $     54,359  $     57,313
   Interest bearing                                  446,350       443,508
                                                ------------  ------------
      Total deposits                                 500,709       500,821
Securities sold under repurchase agreements           41,397        42,574
Federal Home Loan Bank advance                        10,000        20,000
Subordinated debentures                               10,000        10,000
Advances from borrowers for taxes and insurance          847         1,011
Accrued interest payable and other liabilities         5,645         4,699
                                                ------------  ------------
   Total liabilities                                 568,598       579,105

Stockholders' Equity
Common stock                                           1,789         1,789
Preferred stock                                       16,581             0
Warrants                                                 681             0
Additional paid-in capital                            11,584        11,584
Retained earnings                                     43,392        56,082
Treasury stock, at cost                               (9,280)       (9,280)
Accumulated other comprehensive income                   (80)        1,439
                                                ------------  ------------
   Total stockholders' equity                         64,667        61,614
                                                ------------  ------------
      Total liabilities and stockholders'
       equity                                   $    633,265  $    640,719
                                                ============  ============






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

                                 Three months ended     Six months ended
                                June 30,   June 30,   June 30,    June 30,
                                  2009       2008       2009        2008
                                ---------  ---------  ---------  ----------
Interest income
   Loans (including fee income) $   5,999  $   7,052  $  12,433  $   14,298
   Securities
      Taxable                       1,117      1,705      2,371       3,593
      Exempt from federal
       income tax                      88        111        186         226
   Federal funds sold and other         9         13         12          83
                                ---------  ---------  ---------  ----------
      Total interest income         7,213      8,881     15,002      18,200
                                ---------  ---------  ---------  ----------
Interest expense
   Time deposits                    2,029      2,452      4,284       5,278
   Other deposits                     324        413        744         892
   Repurchase agreements and
    federal funds purchased           156        233        327         643
   Federal Home Loan Bank
    advances                           21         90         48         152
   Subordinated debentures            117        137        240         296
                                ---------  ---------  ---------  ----------
      Total interest expense        2,647      3,325      5,643       7,261
                                ---------  ---------  ---------  ----------
Net interest income                 4,566      5,556      9,359      10,939
Provision for loan and lease
 losses                             3,715      2,720      5,419       2,983
                                ---------  ---------  ---------  ----------
Net interest income after
 provision for loan and lease
 losses                               851      2,836      3,940       7,956
                                ---------  ---------  ---------  ----------
Noninterest income
   Service fees on deposits           577        647      1,115       1,281
   Trust income                       236        218        408         431
   Net gains (loss) on sales of
    other real estate owned            37          0     (1,636)          0
   Impairment loss on
    securities                       (628)         0       (628)          0
   Other operating income             323        251        561         544
                                ---------  ---------  ---------  ----------
      Total noninterest income        545      1,116       (180)      2,256
                                ---------  ---------  ---------  ----------
Noninterest expense
   Salaries and employee
    benefits                        2,076      2,089      4,177       4,305
   Occupancy and equipment, net       584        587      1,316       1,221
   Data processing                    482        424        873         863
   FDIC insurance                     604         32        756          74
   Legal                              395         76        634         160
   Audit and professional             180        385        451         737
   Write-down of goodwill           9,522          0      9,522           0
   Amortization of intangible
    assets                            116        116        232         232
   Other operating expenses           804        610      1,625       1,157
                                ---------  ---------  ---------  ----------
      Total noninterest expense    14,763      4,319     19,586       8,749
                                ---------  ---------  ---------  ----------
Income (loss) before income
 taxes                            (13,367)      (367)   (15,826)      1,463
Provision for income taxes         (1,536)      (217)    (2,538)        412
                                ---------  ---------  ---------  ----------
Net (loss) income               $ (11,831) $    (150) $ (13,288) $    1,051
                                =========  =========  =========  ==========

Contact Information

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