SOURCE: Northern States Financial Corporation

Northern States Financial Corporation

February 24, 2010 16:10 ET

Northern States Financial Reports 2009 Financial Results

WAUKEGAN, IL--(Marketwire - February 24, 2010) - Northern States Financial Corporation (NASDAQ: NSFC), holding company for NorStates Bank, an FDIC-insured financial institution, reported a net loss for 2009 of $33,823,000, or $8.52 per share, compared with a net loss for 2008 of $9,273,000 or $2.26 per share. The Company reported a fourth quarter 2009 net loss of $2,793,000, or $0.75 per share, compared with a fourth quarter 2008 net loss of $7,543,000, or $1.85 per share.

Despite these losses, the capital levels of NorStates Bank at December 31, 2009, continue to exceed federal banking agencies' requirements. The Bank's leverage ratio of Tier 1 capital to average assets was 8.3 percent. The Company's pretax core earnings for fourth quarter 2009 were $2.1 million, improving from $1.5 million for the fourth quarter of 2008, reflecting the increased net interest spread of 3.01 percent as compared with 2.46 percent. Core earnings were earnings that were not related to the provision for loan losses, impairment write-downs to securities, gains (losses) on sales of securities or other real estate owned, and write-downs of goodwill or 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 or transactions.

The Company's net loss for 2009 of $33.8 million was due in part to asset quality issues resulting from continuing weak economic factors such as falling real estate values and local unemployment rates in excess of 10 percent. During 2009, the Company had provisions for loan and lease losses of $22.8 million and write-downs to other real estate owned of $1.7 million. Falling real estate prices caused the Company to recognize $1.4 million in losses on sales of other real estate owned in 2009. The Company also had write-downs to its securities portfolio during 2009 of $3.1 million due to credit issues affecting the underlying entities issuing the securities. Asset quality problems also contributed to legal expenses increasing to $1.3 million for 2009, $815,000 higher than in 2008.

Other items affecting 2009's net loss were the one-time noncash write-off of $9.5 million of goodwill. During 2009, the Company also created a deferred tax asset valuation allowance of $11.9 million that increased 2009 income tax expense by that amount. The deferred tax allowance was a noncash event based on uncertainties as to the Company realizing tax benefits. Management believes that with improvement to the overall economy and stabilization of future earnings that it may be able to realize these tax benefits in the future.

During 2009, the Company had gains of $3.9 million on sales of its securities as the Company managed its capital position. Salary and employee expenses were reduced by $343,000, or 4.2 percent, in 2009 as staff levels were carefully managed and no bonuses were paid. The Company expects salaries expense to decline approximately 10 percent in 2010 as executive compensation and directors' fees have been reduced significantly.

The Company had 2009 core earnings before income taxes of $4.6 million. These core earnings are earnings that were not related to the provision for loan losses, impairment write-downs to securities, gains (losses) on sales of securities or other real estate owned, and write-downs of goodwill or of other real estate owned.

Management's strategy of repositioning NorStates Bank balance sheet resulted in the reduction of total assets by $16.7 million to $624.0 million at December 31, 2009 as compared with total assets of $640.7 million at December 31, 2008. Loans totaled $431.3 million at December 31, 2009, decreasing $49.5 million from loans of $480.8 million at December 31, 2008. Loan charge-offs, transfers of loans to other real estate owned and lower borrower demand attributed to the weak economy and to stricter loan underwriting also contributed to the decrease in loans during 2009. Securities available for sale increased $30.2 million during 2009 as the Company sought to increase yields while maintaining liquidity.

Deposits totaled $517.2 million at December 31, 2009, increasing $16.4 million, or 3.3 percent 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). During 2009, the Company reduced its wholesale brokered time deposits by $42.0 million and also paid off its $20.0 million Federal Home Loan Bank advances.

Nonperforming loans and leases were $41.6 million at December 31, 2009 as compared with $37.1 million at year-end 2008, an increase of 12 percent, as borrowers experienced cash flow difficulties due to the weak economy and falling real estate values. Nonperforming loans consisted of nonaccrual loans that no longer earn interest as well as accruing loans that were 90 days or more past due and in the process of collection. Nonperforming loans were the major component of impaired loans, which totaled $56.3 million at December 31, 2009.

For the three months ended December 31, 2009, the Company showed a net loss of $2,793,000, or $0.75 per share, compared with a loss of $7,543,000, or $1.85 per share for the fourth quarter of 2008. During the fourth quarter of 2009, the Company realized gains of $3.9 million on the sale of $70.4 million of securities and a gain of $162,000 on the sale of other real estate owned. Offsetting the gains on the sales of securities and other real estate owned during the fourth quarter were a provision for loan losses of $4.5 million, a $2.7 million increase to the deferred tax asset valuation allowance that increased income tax expense and a write-down to other real estate owned of $1.7 million.

On February 10, 2010, Kenneth W. Balza and James A. Hollensteiner, two long-time directors of Northern States Financial Corporation and NorStates Bank, notified the Company's Board of Directors of their decision to serve the remainder of their current terms and retire from the Board of Directors of the Company and the Bank immediately following the Company's 2010 annual meeting of stockholders. Accordingly, Messrs. Balza and Hollensteiner will not be nominated for reelection at the annual meeting. Chairman of the Board, Fred Abdula stated, "We thank Mr. Balza and Mr. Hollensteiner for their many years of service and contributions while serving on the Board of Directors and wish them well with their retirement. They will be missed."

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 Company's 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)

Year ended December 31:                   2009           2008
                                        -------         ------
Net Income                             ($33,823)       ($9,273)
Basic Earnings Per Share                 ($8.52)        ($2.26)
Return on Average Assets                  -5.28%         -1.43%
Return on Average Equity                 -50.88%        -13.09%
Yield on Interest Earning Assets           4.91%          5.74%
Cost of Interest Bearing Liabilities       1.99%          2.68%
Net Interest Spread                        2.92%          3.06%
Net Yield on Interest Earning Assets       3.22%          3.49%

Quarter ended December 31:                2009           2008
                                         ------         ------
Net Income                              ($2,793)       ($7,543)
Basic Earnings Per Share                 ($ .75)        ($1.85)
Return on Average Assets                  -1.75%         -4.49%
Return on Average Equity                 -22.51%        -43.96%
Yield on Interest Earning Assets           4.65%          4.93%
Cost of Interest Bearing Liabilities       1.64%          2.47%
Net Interest Spread                        3.01%          2.46%
Net Yield on Interest Earning Assets       3.24%          2.82%




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

                                       Dec. 31,       Dec. 31,
                                         2009           2008
                                      ---------      ---------
Total Assets                           $624,025       $640,719
Total Loans and Leases                  431,286        480,812
Total Deposits                          517,236        500,821
Total Stockholders' Equity               42,036         61,614
Nonperforming Loans and Leases           41,619         37,066
Impaired Loans                           56,254         43,756
Nonperforming Loans and Leases to
 Total Loans and Leases                    9.65%          7.71%
Other Real Estate Owned                  19,198         10,575
Book Value per Share                      $6.10         $15.13
Number of Common Shares Outstanding   4,072,255      4,072,255




                  NORTHERN STATES FINANCIAL CORPORATION
                            DIVIDEND HISTORY

                            June 1       December 1      Total           
                            ------       ----------      -----

                  2004      $  .55       $      .55      $1.10
                  2005         .55              .07        .62
                  2006         .30              .35        .65
                  2007         .35              .37        .72
                  2008         .40              .00        .40
                  2009         .00              .00        .00




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

                                                  December 31, December 31,
                                                      2009         2008
                                                  -----------  -----------
    Assets
Cash and due from banks                           $    10,646  $    14,108
Interest bearing deposits in financial
 institutions - maturities less than 90 days            2,760          242
Federal funds sold                                     20,788        7,518
                                                  -----------  -----------
  Total cash and cash equivalents                      34,194       21,868
Securities available for sale                         133,421      103,194
Loans and leases                                      431,286      480,812
Less: Allowance for loan and lease losses             (18,027)     (10,402)
                                                  -----------  -----------
  Loans and leases, net                               413,259      470,410
Federal Home Loan Bank stock                            1,801        1,757
Office buildings and equipment, net                     9,719        9,916
Other real estate owned                                19,198       10,575
Goodwill                                                    0        9,522
Core deposit intangible assets                            462          926
Accrued interest receivable and other assets           11,971       12,551
                                                  -----------  -----------
  Total assets                                    $   624,025  $   640,719
                                                  ===========  ===========

    Liabilities and Stockholders' Equity
Liabilities
Deposits
  Demand - noninterest bearing                    $    58,001  $    57,313
  Interest bearing                                    459,235      443,508
                                                  -----------  -----------
    Total deposits                                    517,236      500,821
Securities sold under repurchase agreements            49,364       42,574
Federal Home Loan Bank advance                              0       20,000
Subordinated debentures                                10,000       10,000
Advances from borrowers for taxes and insurance           898        1,011
Accrued interest payable and other liabilities          4,491        4,699
                                                  -----------  -----------
  Total liabilities                                   581,989      579,105

Stockholders' Equity
Common stock (Par value $.40 per share, authorized
 6,500,000 shares, issued 4,472,255 at December 31,
 2009 and 2008)                                         1,789        1,789
Preferred stock (Par value $.40 per share,
 authorized 1,000,000 shares, issued 17,211 shares
 with liquidation amounts of $1,000.00 per share at
 December 31, 2009)                                    16,641            0
Warrants (584,084 issued and outstanding at
 December 31, 2009)                                       681            0
Additional paid-in capital                             11,584       11,584
Retained earnings                                      22,367       56,082
Treasury stock, at cost (400,000 shares at
 December 31, 2009 and 2008)                           (9,280)      (9,280)
Accumulated other comprehensive income                 (1,746)       1,439
                                                  -----------  -----------
  Total stockholders' equity                           42,036       61,614
                                                  -----------  -----------
    Total liabilities and stockholders' equity    $   624,025  $   640,719
                                                  ===========  ===========




NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Twelve and three months ended December 31, 2009 and 2008
($ 000s, except per share data) (Unaudited)

                                Twelve months ended    Three months ended
                                Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31,
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------
Interest income
  Loans (including fee income)  $  24,409  $  27,820  $   5,789  $   6,235
  Securities
    Taxable                         4,541      6,490      1,077      1,353
    Exempt from federal income
     tax                              357        452         84        105
  Federal funds sold and other         31        112         11         21
                                ---------  ---------  ---------  ---------
    Total interest income          29,338     34,874      6,961      7,714
                                ---------  ---------  ---------  ---------
Interest expense
  Time deposits                     7,739     10,081      1,624      2,540
  Other deposits                    1,348      1,687        298        399
  Repurchase agreements and
   federal funds purchased            593      1,110        104        188
  Federal Home Loan Bank advances      52        347          0         58
  Subordinated debentures             455        570        106        137
                                ---------  ---------  ---------  ---------
    Total interest expense         10,187     13,795      2,132      3,322
                                ---------  ---------  ---------  ---------
Net interest income                19,151     21,079      4,829      4,392
Provision for loan and lease
 losses                            22,778     13,663      4,534      5,534
                                ---------  ---------  ---------  ---------
Net interest income after
 provision for loan and lease
 losses                            (3,627)     7,416        295     (1,142)
                                ---------  ---------  ---------  ---------
Noninterest income
  Service fees on deposits          2,395      2,571        642        618
  Trust income                        760        798        170        179
  Net gains (loss) on sales of
   other real estate owned         (1,432)         0        162          0
  Net gains on sales of
   securities                       3,908         40      3,908          0
  Impairment loss on securities    (3,052)   (10,541)         0     (8,361)
  Other operating income            1,205      1,087        324        264
                                ---------  ---------  ---------  ---------
    Total noninterest income        3,784     (6,045)     5,206     (7,300)
                                ---------  ---------  ---------  ---------
Noninterest expense
  Salaries and employee benefits    7,739      8,082      1,453      1,650
  Occupancy and equipment, net      2,330      2,433        458        632
  Data processing                   1,847      1,705        502        427
  FDIC insurance                    1,376        222        296        124
  Legal                             1,278        463        336        159
  Audit and professional              883      1,263        188        266
  Write-down of goodwill            9,522          0          0          0
  Amortization of intangibles         464        464        116        116
  Write-down of other real
   estate owned                     1,722         44      1,722         44
  Other operating expenses          2,992      2,253        526        533
                                ---------  ---------  ---------  ---------
    Total noninterest expense      30,153     16,929      5,597      3,951
                                ---------  ---------  ---------  ---------
Income before income taxes        (29,996)   (15,558)       (96)   (12,393)
Provision for income taxes          3,827     (6,285)     2,697     (4,850)
                                ---------  ---------  ---------  ---------
Net (loss) income               $ (33,823) $  (9,273) $  (2,793) $  (7,543)
                                =========  =========  =========  =========

Earnings per share              $   (8.52) $   (2.26) $   (0.75) $   (1.85)

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