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Northern States Financial Reports 2008 Financial Results
Despite Growth in Net Interest Income, Company Reports Loss; Bank Continues to Be Well-Capitalized
Northern States Financial Corporation (NASDAQ: NSFC), holding company for NorStates Bank, an FDIC-insured financial institution, reported that, despite a 15 percent increase to its net interest income for 2008, increases to its provision for loan losses and the required write-down of several of its investment securities resulted in the Company recording a net loss for 2008.
"We believe we have taken the necessary steps to be proactive and conservative in order to address the extraordinary economic conditions we, like so many financial institutions nationwide, are facing," says NorStates Bank's President Scott Yelvington. "Our loan losses stem from business and economic conditions that have caused some of our loan customers to have difficulties in making payments while at the same time the values of real estate used as collateral for these loans have declined. The economy also caused us to recognize some losses on our investment securities."
The Company's net loss for 2008 was $9,273,000, or $2.26 per share, as compared with 2007 earnings of $4,388,000, or $1.05 per share. The loss for 2008 resulted from increases to nonperforming loans and declining values of real estate serving as collateral for these loans as the Company recognized provisions for loan and lease losses of $13.7 million. Nonperforming loans totaled $37.1 million at year-end 2008 as compared with $12.0 million at year-end 2007. The increase to nonperforming loans was attributable to the decline in the economy. Write-downs to the Company's investment securities totaling $10.5 million also contributed significantly to the 2008 loss.
The Company incurred impairment losses of $2.0 million on Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) preferred stock that were purchased earlier in 2008 for just over $2.0 million. This preferred stock became impaired when the U.S. Treasury took over FNMA and FHLMC, suspended dividend payments and began to restructure these entities. At December 31, 2008, the Company's carrying value of the FNMA and FHLMC preferred stock was $43,000.
In addition, the Company recognized a loss on securities of $8.5 million on bonds consisting of Collateralized Debt Obligations (CDOs). The loss on the CDOs was due to impairment caused by defaults and deferral of payments by the financial institutions and insurance companies that issued the debt underlying the securities. The Company based its write-down of the CDOs on cash flow analysis, as the fair value of these securities is not readily determinable by the market. At December 31, 2008, the carrying value of these CDOs after the write-down was $2.3 million.
The fair value of the remaining Company's investment securities of $100.9 million at December 31, 2008 was $2.4 million over their cost.
The Company's asset levels remained stable during 2008 as compared with 2007. Assets at year-end 2008 were $640.7 million as compared with $638.2 million at year-end 2007. Loans and leases increased $45.1 million during 2008 while investments in securities declined $50.1 million. Generally, the Company earns higher yields on its loans than on its securities portfolio. The Company's deposits increased $19.9 million during 2008 while borrowings declined $4.2 million. The increases to loans during 2008, while rates paid on deposits and borrowings declined, had a positive effect on net interest income in 2008.
For the three months ended December 31, 2008, the Company posted a loss of $7,543,000, or $1.85 per share, compared with net income of $1,231,000, or $.29 per share for the fourth quarter of 2007. During the fourth quarter of 2008, the Company realized an impairment loss on securities of $8.4 million. Contributing to the fourth quarter 2008 loss was a $5.5 million provision for loan losses as compared with $539,000 during the same quarter of 2007 due to increased levels of nonperforming loans. During the fourth quarter 2008, $1.1 million of loan interest income was reversed as the Company placed nonperforming loans on nonearning status.
The capital levels of NorStates Bank at December 31, 2008, continued to exceed federal banking agencies' requirements to be considered "Well Capitalized." The Bank's leverage ratio of Tier 1 capital to average assets was 7.70 percent while its Tier 1 capital to total assets and total capital to assets ratios, on a risk-adjusted basis, were 9.19 percent and 10.45 percent, respectively, at December 31, 2008, exceeding the required regulatory levels of 5.00 percent, 6.00 percent and 10.00 percent in order to be "Well Capitalized" for capital adequacy purposes.
Subsequent to year-end, the Company was identified by the US Treasury as a viable bank holding company and was the recipient of $17.2 million through the US Treasury's TARP Capital Purchase Program. This has further enhanced the Company's capital position and provides additional funds to be deployed throughout Lake County, Illinois by the Company's NorStates Bank subsidiary to spur local economic recovery.
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: 2008 2007
-------- --------
Net Income ($ 9,273) $ 4,388
Basic Earnings Per Share ($ 2.26) $ 1.05
Return on Average Assets -1.43% .66%
Return on Average Equity -13.09% 6.06%
Yield on Interest
Earning Assets 5.74% 6.16%
Cost of Interest
Bearing Liabilities 2.68% 3.78%
Net Interest Spread 3.06% 2.38%
Net Yield on Interest
Earning Assets 3.49% 2.96%
Quarter ended December 31: 2008 2007
-------- --------
Net Income ($ 7,543) $ 1,231
Basic Earnings Per Share ($ 1.85) $ 0.29
Return on Average Assets -4.49% .76%
Return on Average Equity -43.96% 6.71%
Yield on Interest
Earning Assets 4.93% 6.45%
Cost of Interest
Bearing Liabilities 2.47% 3.60%
Net Interest Spread 2.46% 2.85%
Net Yield on Interest
Earning Assets 2.82% 3.44%
NORTHERN STATES FINANCIAL CORPORATION
KEY PERFORMANCE DATA
($ 000's, except per share data)
Dec. 31, Dec. 31,
2008 2007
---------- ----------
Total Assets $ 640,719 $ 638,156
Total Loans and Leases 480,812 435,734
Total Deposits 500,821 480,959
Total Stockholders� Equity 61,614 73,454
Nonperforming Loans and Leases 37,066 11,982
Impaired Loans 43,756 10,742
Nonperforming Loans and Leases to Total Loans and
Leases 7.71% 2.75%
Other Real Estate Owned 10,575 2,857
Book Value per Share $ 15.13 $ 17.58
Number of Shares Outstanding 4,072,255 4,178,105
NORTHERN STATES FINANCIAL CORPORATION
DIVIDEND HISTORY
June 1 December 1 Total
------ ---------- -----
2003 $ .54 $ .54 $1.08
2004 .55 .55 1.10
2005 .55 .07 .62
2006 .30 .35 .65
2007 .35 .37 .72
2008 .40 .00 .40
NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ 000s) (Unaudited)
December 31, December 31,
2008 2007
------------ ------------
Assets
Cash and due from banks $ 14,108 $ 14,273
Interest bearing deposits in financial
institutions - maturities less than 90 days 242 180
Federal funds sold 7,518 9,181
------------ ------------
Total cash and cash equivalents 21,868 23,634
Securities available for sale 103,194 153,277
Loans and leases 480,812 435,734
Less: Allowance for loan and lease losses (10,402) (4,606)
------------ ------------
Loans and leases, net 470,410 431,128
Federal Home Loan Bank stock 1,757 1,445
Office buildings and equipment, net 9,916 9,198
Other real estate owned 10,575 2,857
Goodwill 9,522 9,522
Core deposit intangible assets 926 1,390
Accrued interest receivable and other assets 12,551 5,705
------------ ------------
Total assets $ 640,719 $ 638,156
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits
Demand - noninterest bearing $ 57,313 $ 60,015
Interest bearing 443,508 420,944
------------ ------------
Total deposits 500,821 480,959
Securities sold under repurchase agreements 42,574 66,797
Federal Home Loan Bank advance 20,000 0
Subordinated debentures 10,000 10,000
Advances from borrowers for taxes and insurance 1,011 1,066
Accrued interest payable and other liabilities 4,699 5,880
------------ ------------
Total liabilities 579,105 564,702
Stockholders' Equity
Common stock (Par value $0.40 per share,
authorized 6,500,000 shares, issued 4,472,255
shares at December 31, 2008 and 2007) 1,789 1,789
Additional paid-in capital 11,584 11,584
Retained earnings 56,082 66,983
Treasury stock, at cost (400,000 shares in 2008
and 294,150 in 2007) (9,280) (7,202)
Accumulated other comprehensive income (loss) 1,439 300
------------ ------------
Total stockholders' equity 61,614 73,454
------------ ------------
Total liabilities and stockholders'
equity $ 640,719 $ 638,156
============ ============
NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Twelve and three months ended December 31, 2008 and 2007
($ 000s, except per share data) (Unaudited)
Twelve months ended Three months ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007
-------- -------- -------- ---------
Interest income
Loans (including fee income) $ 27,820 $ 27,789 $ 6,235 $ 7,334
Securities
Taxable 6,490 9,509 1,353 2,247
Exempt from federal income tax 452 311 105 97
Federal funds sold and other 112 812 21 61
-------- -------- -------- ---------
Total interest income 34,874 38,421 7,714 9,739
-------- -------- -------- ---------
Interest expense
Time deposits 10,081 12,112 2,540 2,907
Other deposits 1,687 3,607 399 766
Repurchase agreements and
federal funds purchased 1,110 3,456 188 736
Federal Home Loan Bank advances 347 205 58 0
Subordinated debentures 570 680 137 174
-------- -------- -------- ---------
Total interest expense 13,795 20,060 3,322 4,583
-------- -------- -------- ---------
Net interest income 21,079 18,361 4,392 5,156
Provision for loan and lease losses 13,663 81 5,534 539
-------- -------- -------- ---------
Net interest income after provision
for loan and lease losses 7,416 18,280 (1,142) 4,617
-------- -------- -------- ---------
Noninterest income
Service fees on deposits 2,571 2,847 618 754
Trust income 798 794 179 183
Gain (loss) on sales of other
real estate owned 0 (8) 0 0
Gain (loss) on sale of
securities 40 0 0 0
Impairment loss on securities (10,541) 0 (8,361) 0
Other operating income 1,087 1,405 264 305
-------- -------- -------- ---------
Total noninterest income (6,045) 5,038 (7,300) 1,242
-------- -------- -------- ---------
Noninterest expense
Salaries and employee benefits 8,082 8,600 1,650 2,054
Occupancy and equipment, net 2,433 2,309 632 518
Data processing 1,705 1,564 427 348
Legal 463 439 159 68
Audit and professional 1,263 1,145 266 228
Amortization of intangible
assets 464 464 116 116
Printing and supplies 306 403 76 100
Write-down of other real estate
owned 44 0 44 0
Other operating expenses 2,169 1,906 581 512
-------- -------- -------- ---------
Total noninterest expense 16,929 16,830 3,951 3,944
-------- -------- -------- ---------
Income before income taxes (15,558) 6,488 (12,393) 1,915
Provision for income taxes (6,285) 2,100 (4,850) 684
-------- -------- -------- ---------
Net income $ (9,273) $ 4,388 $ (7,543) $ 1,231
======== ======== ======== =========
Earnings per share $ (2.26) $ 1.05 $ (1.85) $ 0.29
Contact:
For Additional Information, Contact:
Scott Yelvington
Executive Vice President
(847) 244-6000 Ext. 201
Websites: www.NorStatesBank.com
www.nsfc.net
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