Business & Finance
Business and Finance
Business and Finance 
Wed, November 11, 2009
Tue, November 10, 2009
Northern States Financial Corporation Reports Third Quarter Results
WAUKEGAN, IL--(Marketwire - November 10, 2009) - Northern States Financial Corporation (
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)