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Northern States Financial Corporation Reports Fourth Quarter 2017 Earnings

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WAUKEGAN, Ill., Feb. 21, 2018 (GLOBE NEWSWIRE) -- Northern States Financial Corporation (OTC:NSFC) (the "Company"), holding company for NorStates Bank (the "Bank"), an FDIC insured financial institution, today reported a fourth quarter 2017 loss of $6.3 million (a loss of $0.07 per share).  The Company had a net loss of $6.4 million for the year 2017 compared to net income of $2.1 million for the year 2016.  The loss in the fourth quarter of 2017 reflects the year-end 2017 adjustment to the Company's Deferred Tax Asset ("DTA") due to the Tax Cuts and Jobs Act of 2017, which resulted in a reduction in the DTA by $6.9 million.  The reduction reflects the estimated amount of DTA that would not be recaptured with the new federal corporate income tax rate being reduced from 34% to 21%.  Income tax increased to $7.4 million in the fourth quarter of 2017 primarily as a result of the adjustment to the DTA.  Future income taxes are expected to be reduced significantly due to the change in the federal corporate income tax rate.

Aside from the one-time DTA adjustment and its effect on income tax expense in the fourth quarter, the other major impact to 2017 earnings was the $3.1 million expense for the write-down of other real estate owned in the second quarter.  While both of these one-time events negatively impacted 2017 earnings, core earnings (income before taxes and single non-recurring expense events) continued to increase each quarter in 2017.

A positive effect to earnings was the increase to total loans by over 6% at year-end 2017 compared to year-end 2016.  The Company's loan to deposit ratio stands at 77% at year-end 2017.  Loan yields increased from 4.40% in the fourth quarter of 2016 to 4.52% in the fourth quarter of 2017.  Average loan balances increased from $283.0 million in the fourth quarter of 2016 to $310.4 million in the fourth quarter of 2017. Total earning assets yields increased from 3.21% in the fourth quarter of 2016 to 3.55% in the fourth quarter of 2017.  Average noninterest-earning assets decreased from $53.5 million in the fourth quarter of 2016 to $44.9 million in the fourth quarter of 2017.

Total deposits increased a modest 2% at year-end 2017 compared to year-end 2016; however non-interest bearing deposits increased 15% between these two dates.  Total core deposits (deposits less time and public deposits) increased 6% from year-end 2017 compared to year-end 2016.  Cost of funds increased to 0.17% in the fourth quarter of 2017 from 0.14% in the fourth quarter of 2016.  At the Bank level, the cost of funds was 0.11% in the fourth quarter of 2017.

Credit quality was negatively affected by the need to classify two substantial legacy credits in the fourth quarter of 2017.  The non-performing loans increased approximately $9.0 million to $17.8 million at December 31, 2017 compared to $8.8 million at December 31, 2016.  The Company was able to use unallocated reserves from the allowance for loan and lease losses to cover potential loss exposure.  Other real estate owned decreased $8.2 million, or 80%, to $2.0 million at December 31, 2017 compared to December 31, 2016.

"While we were disappointed with some legacy credit issues in the fourth quarter, we were encouraged with our continued increase in demand deposits, solid loan growth and core earnings," stated Scott Yelvington, President and Chief Executive Officer of the Company.  "We intend to continue our focus on improving credit and increasing earnings in 2018."

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

This release may contain forward-looking statements that are subject to risks and uncertainties.  Such risks and uncertainties may include, but are not necessarily limited to, fluctuations in interest rates, credit risk, inflation, changes in government regulations, general economic conditions, competition within the business areas in which the Company conducts its operations including the real estate market in Illinois, and other factors beyond the Company's control.  Such risks and uncertainties could cause actual results for subsequent periods to differ materially from those expressed or implied by any forward-looking statement.  Readers should not place undue reliance on the forward-looking statements, which reflect management's beliefs, expectations and assumptions only as of the date hereof.  The Company undertakes no obligation to update statements to reflect new information or subsequent events or circumstances.

For Additional Information, Contact:

Scott Yelvington, President and Chief Executive Officer: (847) 775-8200 Ext. 1201
Websites:    www.nsfc.com   www.nsfc.net

                   
NORTHERN STATES FINANCIAL CORPORATION  
($000s, except per share data) (Unaudited)  
Key Performance Data  
 
  December 31,   September 30,   June 30,   March 31,   December 31,
For the quarter ended   2017       2017       2017       2017       2016  
 
Net income (loss) available to common stockholders $ (6,266 )   $ 963     $ (1,448 )   $ 370     $ 983  
Basic income (loss) per average outstanding share   (0.07 )     0.01       (0.02 )     0.00       0.01  
Diluted income (loss) per average outstanding share   (0.07 )     0.01       (0.02 )     0.00       0.01  
Return on average assets   (4.92) %     0.78 %     (1.19 )%     0.30 %     0.78 %
Return on average equity   (42.46) %     6.62 %     (9.77 )%     2.52 %     6.85 %
Yield on interest-earning assets   3.55 %     3.71 %     3.44 %     3.36 %     3.21 %
Cost of interest-bearing liabilities   0.26 %     0.24 %     0.21 %     0.20 %     0.19 %
Net interest spread   3.29 %     3.47 %     3.23 %     3.16 %     3.02 %
Net interest margin   3.37 %     3.54 %     3.29 %     3.21 %     3.07 %
Net charged-off (recovered) loans $ (1 )   $ (1,172 )   $ (1 )   $ 56     $ 54  
Net charged-off loans to average loans (annualized)   0.00 %     (1.55) %     0.00 %     0.08 %     0.08 %
 
  December 31,   September 30,   June 30,   March 31,   December 31,
    2017       2017       2017       2017       2016  
 
Total stockholders' equity $ 52,474     $ 58,859     $ 57,795     $ 59,047     $ 58,460  
Book value per common share $ 0.57     $ 0.65     $ 0.64     $ 0.65     $ 0.65  
Common shares outstanding   92,252,244       90,345,174       90,345,174       90,345,174       90,345,174  
 
  December 31,   September 30,   June 30,   March 31,   December 31,
    2017       2017       2017       2017       2016  
Nonperforming assets  
Loans on nonaccrual status $ 12,545     $ 3,444     $ 3,407     $ 2,878     $ 2,990  
Loans 90 days or more past due, still accruing   434       561       537       140       309  
Loan troubled debt restructurings   4,783       4,845       4,969       5,309       5,465  
Total nonperforming loans   17,762       8,850       8,913       8,327       8,764  
Other real estate owned   2,039       2,217       6,935       10,174       10,236  
Total nonperforming assets $ 19,801     $ 11,067     $ 15,848     $ 18,501     $ 19,000  
 
Nonperforming assets excluding trouble debt restructurings $ 15,018     $ 6,222     $ 10,879     $ 13,192     $ 13,535  
Nonperforming loans to total assets   3.58 %     1.74 %     1.86 %     1.68 %     1.79 %
Nonperforming assets to total assets   3.99 %     2.18 %     3.30 %     3.74 %     3.88 %
Nonperforming assets excluding trouble debt restructurings to total assets   3.03 %     1.22 %     2.27 %     2.67 %     2.76 %
Allowance for loan and lease losses to total loans   2.22 %     2.20 %     1.92 %     1.94 %     1.97 %
                                       


NORTHERN STATES FINANCIAL CORPORATION  
($000s, except per share data) (Unaudited)  
Condensed Consolidated Balance Sheet December 31,     September 30,     June 30,     March 31,     December 31,
    2017       2017       2017       2017       2016  
Assets  
Cash and due from banks $ 4,323     $ 4,557     $ 4,431     $ 4,853     $ 4,552  
Interest bearing deposits in financial institutions - maturities less than 90 days   59,062       61,682       37,956       47,132       41,179  
Total cash and cash equivalents   63,385       66,239       42,387       51,985       45,731  
Interest bearing deposits in financial institutions - maturities of 90 days or greater   28,492       24,592       26,774       30,510       29,233  
Securities available for sale   50,570       53,190       56,272       59,640       63,180  
Securities held to maturity   12,714       12,786       12,856       12,926       12,996  
Loans and leases, net of deferred fees   307,448       310,209       294,901       290,801       289,594  
Less: Allowance for loan and lease losses   (6,821     (6,820     (5,648     (5,647     (5,703 )
Loans and leases, net   300,627       303,389       289,253       285,154       283,891  
Federal Home Loan Bank stock   492       492       492       335       931  
Office buildings and equipment, net   8,443       8,419       8,630       8,674       8,525  
Other real estate owned   2,039       2,217       6,935       10,174       10,236  
Accrued interest receivable   1,224       1,358       1,165       1,255       1,247  
Bank owned life insurance   10,886       10,816       10,743       10,675       10,597  
Deferred tax asset, net   15,693       23,041       23,159       22,202       22,436  
Other assets   1,360       1,426       1,242       1,055       985  
Total assets $ 495,925     $ 507,965     $ 479,908     $ 494,585     $ 489,988  
Liabilities and Stockholders' Equity                                      
Liabilities  
Deposits  
Noninterest-bearing deposits $ 115,619     $ 112,821     $ 107,470     $ 106,096     $ 100,870  
Interest-bearing  deposits   283,027       296,462       277,249       290,899       289,940  
Total deposits   398,646       409,283       384,719       396,995       390,810  
Securities sold under repurchase agreements   29,012       26,062       22,331       22,820       25,901  
Subordinated debentures   10,310       10,310       10,310       10,310       10,310  
Advances from borrowers for taxes and insurance   2,897       957       2,137       2,820       1,902  
Accrued interest payable and other liabilities   2,586       2,494       2,616       2,593       2,605  
Total liabilities   443,451       449,106       422,113       435,538       431,528  
Stockholders' Equity   
Common stock   927       906       906       906       906  
Deferred compensation   (2,542     (945     (1,050     (1,155     (1,260 )
Additional paid-in capital   35,700       34,019       34,019       34,019       34,019  
Retained earnings   18,927       25,193       24,230       25,678       25,308  
Treasury stock, at cost   (241     (182     (182     (182     (182 )
Accumulated other comprehensive income (loss), net   (297     (132     (128     (219     (331 )
Total stockholders' equity   52,474       58,859       57,795       59,047       58,460  
Total liabilities and stockholders' equity $ 495,925     $ 507,965     $ 479,908     $ 494,585     $ 489,988  
                                       
Common shares outstanding   92,252,244       90,345,174       90,345,174       90,345,174       90,345,174  
Book value per common share $ 0.57     $ 0.65     $ 0.64     $ 0.65     $ 0.65  
                                       


NORTHERN STATES FINANCIAL CORPORATION  
($000s, except per share data) (Unaudited)  
 
Condensed Consolidated Statement of Income  
For the quarter ended December 31,   September 30,     June 30,   March 31,     December 31,
    2017       2017       2017       2017       2016  
Interest income   
Loans (including fee income) $ 3,496     $ 3,566     $ 3,195     $ 3,148     $ 3,103  
Securities  
Taxable   312       333       334       357       353  
Exempt from federal income tax   0       0       0       0       3  
Federal funds sold and other   314       223       177       160       145  
Total interest income   4,122       4,122       3,706       3,665       3,604  
Interest expense                                      
Time deposits   99       74       54       61       61  
Other deposits   27       26       26       25       23  
Repurchase agreements and federal funds purchased   1       1       0       1       1  
Subordinated debentures   90       87       82       76       74  
Total interest expense   217       188       162       163       159  
Net interest income   3,905       3,934       3,544       3,502       3,445  
Provision for loan and lease losses   0       0       0       0       0  
Net interest income after provision for loan and lease losses   3,905       3,934       3,544       3,502       3,445  
Noninterest income                                      
Service fees on deposits   387       373       384       380       403  
Net gain on sale of other assets   0       68       0       0       0  
Net gain (loss) on sale of other real estate owned   3       (51     (12     (4     68  
Bank owned life insurance income   70       72       69       78       78  
Other operating income   397       352       436       395       424  
Total noninterest income   857       814       877       849       973  
Noninterest expense  
Salaries and employee benefits   1,993       1,953       1,910       1,945       2,593  
Occupancy and equipment, net   450       475       515       486       557  
Data processing   427       488       466       456       490  
Legal   29       54       62       23       72  
FDIC insurance   30       60       60       30       45  
Audit and other professional   236       150       231       181       169  
Printing and supplies expense   54       32       38       51       42  
Write-down of other real estate owned   194       0       3,109       0       55  
Other real estate owned expense   (58     103       164       330       164  
Other operating expenses   271       344       314       317       326  
Total noninterest expense   3,626       3,659       6,869       3,819       4,513  
Net income before income taxes   1,136       1,089       (2,448     532       (95 )
Income tax expense   7,402       126       (1,000     162       (1,078 )
Net income (loss) $ (6,266 )   $ 963     $ (1,448 )   $ 370     $ 983  
                                       
Average common shares outstanding   91,886,314       90,345,174       90,345,174       90,345,174       87,961,621  
Basic income per average outstanding share $ (0.07 )   $ 0.01     $ (0.02 )   $ 0.00     $ 0.01  
Diluted income per average outstanding share $ (0.07 )   $ 0.01     $ (0.02 )   $ 0.00     $ 0.01  
                                       


NORTHERN STATES FINANCIAL CORPORATION  
($000s, except per share data) (Unaudited)  
 
  December 31,     September 30,     June 30,     March 31,     December 31,
    2017       2017       2017       2017       2016  
Loans  
Commercial   $ 26,493     $ 26,530     $ 26,355     $ 27,462     $ 28,179  
Real estate-construction     38,661       37,843       30,866       26,534       26,975  
Real estate-mortgage 1-4 family     49,717       47,760       48,658       50,533       48,593  
Real estate-mortgage 5+ family     77,200       75,605       61,714       59,331       59,272  
Real estate-mortgage commercial     105,488       112,803       118,271       118,917       115,514  
Home equity     8,518       8,468       8,526       7,428       10,411  
Installment     1,691       1,572       899       892       949  
Deferred loan fees     (320     (372     (388     (296     (299 )
Total loans   $ 307,448     $ 310,209     $ 294,901     $ 290,801     $ 289,594  
 
  December 31,     September 30,     June 30,     March 31,     December 31,
    2017       2017       2017       2017       2016  
Deposits  
Demand - noninterest bearing $ 115,619     $ 112,821     $ 107,470     $ 106,096     $ 100,870  
Demand - interest bearing   61,288       73,491       69,326       64,951       70,127  
Money market accounts   53,347       54,060       49,709       50,161       48,231  
Savings   89,876       92,363       92,735       91,861       90,095  
Time, over $250,000   26,892       24,270       12,355       30,651       26,510  
Time, $250,000 and under   51,624       52,278       53,124       53,275       54,977  
Total deposits $ 398,646     $ 409,283     $ 384,719     $ 396,995     $ 390,810  
                                       


NORTHERN STATES FINANCIAL CORPORATION  
($000s, except per share data) (Unaudited)  
 
  4Q 2017    3Q 2017    2Q 2017    1Q 2017    4Q 2016   
  Average Yield/   Average Yield/   Average Yield/   Average Yield/   Average Yield/  
  balance Rate   balance Rate   balance Rate   balance Rate   balance Rate  
Earning assets  
Loans $ 310,426 4.52 % $ 302,266 4.73 % $ 290,307 4.42 % $ 289,085 4.37 % $ 283,029 4.40 %
Securities taxable   65,082 1.91     68,286 1.95     71,543 1.86     75,361 1.88     81,382 1.73  
Securities tax-exempt   0 0.00     0 0.00     0 0.00     0 0.00     283 5.65  
Interest-bearing deposits   89,346 1.41     74,888 1.19     70,299 1.01     73,051 0.88     86,056 0.67  
Total earning assets   464,854 3.55 %   445,440 3.71 %   432,149 3.44 %   437,497 3.36 %   450,750 3.21 %
Non interest earning assets   44,855     48,475     53,124     53,678     53,461  
Total assets $ 509,709   $ 493,915   $ 485,273   $ 491,175   $ 504,211  
 
Interest-bearing liabilities  
Interest-bearing demand deposits $ 70,097 0.10 % $ 69,373 0.10 % $ 67,112 0.10 % $ 63,870 0.11 % $ 73,467 0.08 %
Money market deposits   53,786 0.05     52,526 0.05     50,682 0.05     48,322 0.05     55,072 0.05  
Savings deposits   91,382 0.01     92,396 0.01     92,360 0.01     90,626 0.01     89,400 0.01  
Time deposits   77,171 0.51     73,153 0.40     70,898 0.30     85,014 0.29     86,655 0.28  
Other borrowings   38,252 0.95     32,438 1.09     31,741 1.03     37,737 0.82     35,613 0.84  
Total interest-bearing liabilities   330,688 0.26 %   319,886 0.24 %   312,793 0.21 %   325,569 0.20 %   340,207 0.19 %
Demand deposits   115,391     111,545     107,571     101,689     102,406  
Other liabilities   4,607     4,295     5,621     5,201     4,175  
Stockholders' equity   59,023     58,189     59,288     58,716     57,423  
Total liabilities and stockholders' equity $ 509,709   $ 493,915   $ 485,273   $ 491,175   $ 504,211  
 
Cost of funds (including demand deposits)   0.17 %   0.17 %   0.15 %   0.15 %   0.14 %
 
Net interest spread   3.29 %   3.47 %   3.23 %   3.16 %   3.02 %
Net interest margin   3.37 %   3.54 %   3.29 %   3.21 %   3.07 %

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