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Northern States Financial Corporation Reports Second Quarter 2017 Loss Due to Write-downs in Connection with OREO Sales

WAUKEGAN, Ill., July 24, 2017 (GLOBE NEWSWIRE) -- Northern States Financial Corporation (OTC PINK:NSFC) (the “Company”), the holding company of NorStates Bank (the “Bank”), today reported a second quarter 2017 loss of $1,448,000 as compared with net income of $370,000 for the first quarter 2017. The second quarter 2017 loss was due to the Bank recognizing $3,109,000 in write-downs on properties which have been carried for several quarters as other real estate owned (“OREO”). The effected properties are primarily under agreements to sell and the sales are expected to be completed in the third quarter. Generally Accepted Accounting Principles requires the Company to recognize these write-downs in the second quarter. Per share book value at June 30, 2017 was $0.64, compared to $0.65 at March 31, 2017.

Scott Yelvington, President and Chief Executive Officer stated, “We were able to increase our net interest income and non-interest income, as well as loans, in the second quarter. However, in an effort to substantially reduce non-performing assets ('NPAs'), we decided to enter into contracts on several OREO properties representing almost 75% of the $10 million OREO balance. While the one-time write-downs are painful, we believe that the associated expense reduction and resulting effect on NPAs was appropriate at this time. Unfortunately, by the accounting rules, we need to recognize the write-down loss this quarter. The sales of these properties will reduce the OREO balance by $5.5 million in the third quarter of 2017 with no additional loss incurred.” Yelvington continued, “Regrettably, the OREO loss obfuscated what was a steady increase in loans, core deposits and core earnings.”

Some highlights of continued financial improvement during the second quarter of 2017 included the following:

  • Non-performing assets (“NPAs”), consisting of nonaccrual loans, ninety days or more past due loans still accruing, loans considered troubled debt restructurings and other real estate owned, decreased by $3.2 million from December 31, 2016 to June 30, 2017. NPAs less trouble debt restructurings to total assets decreased to 2.27% at June 30, 2017 from 2.76% at December 31, 2016. At June 30, 2017, the allowance for loan and lease losses to total loans and leases ratio was 1.92%, down slightly from 1.94% at March 31, 2017.
  • Average loans increased by $35.8 million for the second quarter of 2017 compared with the second quarter of 2016. Loan interest income increased $232 thousand for the second quarter of 2017 compared to the second quarter of 2016. The increased loan interest income contributed to a net interest margin for the second quarter of 2017 of 3.29%.
  • Core deposits consisting of personal and business non-time deposits increased $7.6 million from December 31, 2016. Core deposits growth assisted the Company in maintaining a low cost of funds during the second quarter of 2017 at 15 basis points with the Bank’s cost of funds at 8 basis points.
  • Excluding the OREO write-downs, the Company’s pretax income for the second quarter of 2017 was $661,000 as compared with pretax income of $532,000 for the first quarter of 2017, and the Bank’s pretax income for the second quarter of 2017 was $782,000 as compared with pretax income of $645,000 for the first quarter of 2017.

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, inflation, 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 interim periods or for the entire year 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.


NORTHERN STATES FINANCIAL CORPORATION
($000s, except per share data) (Unaudited)
Key Performance Data
June 30, March 31, December 31, September 30, June 30,
For the quarter ended 2017 2017 2016 2016 2016
Net income available to common stockholders$ (1,448) $ 370 $ 983 $ 483 $ 354
Basic income (loss) per average outstanding share (0.02) 0.00 0.01 0.01 0.00
Diluted income (loss) per average outstanding share (0.02) 0.00 0.01 0.01 0.00
Return on average assets (1.19)% 0.30% 0.78% 0.38% 0.29%
Return on average equity (9.77)% 2.52% 6.85% 3.38% 2.50%
Yield on interest-earning assets 3.44% 3.36% 3.21% 3.17% 3.20%
Cost of interest-bearing liabilities 0.21% 0.20% 0.19% 0.18% 0.19%
Net interest spread 3.23% 3.16% 3.02% 2.99% 3.01%
Net interest margin 3.29% 3.21% 3.07% 3.03% 3.06%
Net charged-off (recovered) loans$ (1) $ 56 $ 54 $ (407) $ 168
Net charged-off loans to average loans (annualized) 0.00% 0.08% 0.08% (0.60)% 0.26%
June 30, March 31, December 31, September 30, June 30,
2017 2017 2016 2016 2016
Total stockholders' equity$ 57,795 $ 59,047 $ 58,460 $ 57,258 $ 56,868
Book value per common share$ 0.64 $ 0.65 $ 0.65 $ 0.65 $ 0.65
Common shares outstanding 90,345,174 90,345,174 90,345,174 87,604,088 87,604,088
June 30, March 31, December 31, September 30, June 30,
2017 2017 2016 2016 2016
Nonperforming assets
Loans on nonaccrual status$ 3,407 $ 2,878 $ 2,990 $ 3,054 $ 3,465
Loans 90 days or more past due, still accruing 537 140 309 0 0
Loan troubled debt restructurings 4,969 5,309 5,465 5,584 5,415
Total nonperforming loans 8,913 8,327 8,764 8,638 8,880
Other real estate owned 6,935 10,174 10,236 10,958 11,418
Total nonperforming assets$ 15,848 $ 18,501 $ 19,000 $ 19,596 $ 20,298
Nonperforming assets excluding trouble debt
restructurings$ 10,879 $ 13,192 $ 13,535 $ 14,012 $ 14,883
Nonperforming loans to total assets 1.86% 1.68% 1.79% 1.70% 1.78%
Nonperforming assets to total assets 3.30% 3.74% 3.88% 3.85% 4.06%
Nonperforming assets excluding trouble debt
restructurings to total assets 2.27% 2.67% 2.76% 2.76% 2.98%
Allowance for loan and lease losses to total loans 1.92% 1.94% 1.97% 2.10% 2.05%


NORTHERN STATES FINANCIAL CORPORATION
($000s, except per share data) (Unaudited)
Condensed Consolidated Balance Sheet June 30, March 31, December 31, September 30, June 30,
2017 2017 2016 2016 2016
Assets
Cash and due from banks$ 4,431 $ 4,853 $ 4,552 $ 5,491 $ 4,965
Interest bearing deposits in financial institutions -
maturities less than 90 days 37,956 47,132 41,179 61,013 66,743
Total cash and cash equivalents 42,387 51,985 45,731 66,504 71,708
Interest bearing deposits in financial institutions -
maturities of 90 days or greater 26,774 30,510 29,233 33,880 31,049
Securities available for sale 56,272 59,640 63,180 71,341 69,689
Securities held to maturity 12,856 12,926 12,996 13,360 13,428
Loans and leases, net of deferred fees 294,901 290,801 289,594 274,281 264,244
Less: Allowance for loan and lease losses (5,648) (5,647) (5,703) (5,757) (5,425)
Loans and leases, net 289,253 285,154 283,891 268,524 258,819
Federal Home Loan Bank stock 492 335 931 931 931
Office buildings and equipment, net 8,630 8,674 8,525 8,425 8,519
Other real estate owned 6,935 10,174 10,236 10,958 11,418
Accrued interest receivable 1,165 1,255 1,247 1,297 1,173
Bank owned life insurance 10,743 10,675 10,597 10,520 10,439
Deferred tax asset, net 23,159 22,202 22,436 21,461 21,479
Other assets 1,242 1,055 985 1,252 1,112
Total assets$ 479,908 $ 494,585 $ 489,988 $ 508,453 $ 499,764
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing deposits$ 107,470 $ 106,096 $ 100,870 $ 99,245 $ 102,097
Interest-bearing deposits 277,249 290,899 289,940 314,834 307,334
Total deposits 384,719 396,995 390,810 414,079 409,431
Securities sold under repurchase agreements 22,331 22,820 25,901 23,686 18,015
Subordinated debentures 10,310 10,310 10,310 10,310 10,310
Advances from borrowers for taxes and insurance 2,137 2,820 1,902 510 2,195
Accrued interest payable and other liabilities 2,616 2,593 2,605 2,610 2,945
Total liabilities 422,113 435,538 431,528 451,195 442,896
Stockholders' Equity
Common stock 906 906 906 878 878
Deferred compensation (1,050) (1,155) (1,260) 0 0
Additional paid-in capital 34,019 34,019 34,019 32,088 32,088
Retained earnings 24,230 25,678 25,308 28,858 28,375
Treasury stock, at cost (182) (182) (182) (4,674) (4,674)
Accumulated other comprehensive income (loss), net (128) (219) (331) 108 201
Total stockholders' equity 57,795 59,047 58,460 57,258 56,868
Total liabilities and stockholders' equity$ 479,908 $ 494,585 $ 489,988 $ 508,453 $ 499,764
Common shares outstanding 90,345,174 90,345,174 90,345,174 87,604,088 87,604,088
Book value per common share$ 0.64 $ 0.65 $ 0.65 $ 0.65 $ 0.65


NORTHERN STATES FINANCIAL CORPORATION
($000s, except per share data) (Unaudited)
Condensed Consolidated Statement of Income
For the quarter endedJune 30, March 31, December 31, September 30, June 30,
2017 2017 2016 2016 2016
Interest income
Loans (including fee income)$ 3,195 $ 3,148 $ 3,103 $ 3,010 $ 2,963
Securities
Taxable 334 357 353 378 377
Exempt from federal income tax 0 0 3 3 3
Federal funds sold and other 177 160 145 163 130
Total interest income 3,706 3,665 3,604 3,554 3,473
Interest expense
Time deposits 54 61 61 67 68
Other deposits 26 25 23 21 24
Repurchase agreements and federal funds purchased 0 1 1 0 0
Subordinated debentures 82 76 74 68 66
Total interest expense 162 163 159 156 158
Net interest income 3,544 3,502 3,445 3,398 3,315
Provision for loan and lease losses 0 0 0 (75) 0
Net interest income after provision for
loan and lease losses 3,544 3,502 3,445 3,473 3,315
Noninterest income
Service fees on deposits 384 380 403 398 320
Gain on sale of securities 0 0 0 0 104
Net gain (loss) on sale of other real estate owned (12) (4) 68 (7) 126
Bank owned life insurance income 69 78 78 80 82
Other operating income 436 395 424 419 416
Total noninterest income 877 849 973 890 1,048
Noninterest expense
Salaries and employee benefits 1,910 1,945 2,593 1,787 1,861
Occupancy and equipment, net 515 486 557 490 520
Data processing 466 456 490 325 427
Legal 62 23 72 28 81
FDIC insurance 60 30 45 76 118
Audit and other professional 231 181 169 125 151
Printing and supplies expense 38 51 42 44 45
Write-down of other real estate owned 3,109 0 55 487 126
Other real estate owned expense 164 330 164 92 171
Other operating expenses 314 317 326 297 309
Total noninterest expense 6,869 3,819 4,513 3,751 3,809
Net income before income taxes (2,448) 532 (95) 612 554
Income tax expense (1,000) 162 (1,078) 129 200
Net income$ (1,448) $ 370 $ 983 $ 483 $ 354
Average common shares outstanding 90,345,174 90,345,174 87,961,621 87,604,088 87,604,088
Basic income per average outstanding share$ (0.02) $ 0.00 $ 0.01 $ 0.01 $ 0.00
Diluted income per average outstanding share$ (0.02) $ 0.00 $ 0.01 $ 0.01 $ 0.00


NORTHERN STATES FINANCIAL CORPORATION
($000s, except per share data) (Unaudited)
June 30, March 31, December 31, September 30, June 30,
2017 2017 2016 2016 2016
Loans
Commercial$ 26,355 $ 27,462 $ 28,179 $ 14,977 $ 12,556
Real estate-construction 30,866 26,534 26,975 22,255 17,531
Real estate-mortgage 1-4 family 48,658 50,533 48,593 47,826 49,530
Real estate-mortgage 5+ family 61,714 59,331 59,272 56,179 49,321
Real estate-mortgage commercial 118,271 118,917 115,514 121,491 123,717
Home equity 8,526 7,428 10,411 10,955 10,965
Installment 899 892 949 873 893
Deferred loan fees (388) (296) (299) (275) (269)
Total loans$ 294,901 $ 290,801 $ 289,594 $ 274,281 $ 264,244
June 30, March 31, December 31, September 30, June 30,
2017 2017 2016 2016 2016
Deposits
Demand - noninterest bearing$ 107,470 $ 106,096 $ 100,870 $ 99,245 $ 102,097
Demand - interest bearing 69,326 64,951 70,127 78,310 75,389
Money market accounts 49,709 50,161 48,231 56,921 54,297
Savings 92,735 91,861 90,095 88,578 88,813
Time, over $250,000 12,355 30,651 26,510 33,613 29,332
Time, $250,000 and under 53,124 53,275 54,977 57,412 59,503
Time, brokered 0 0 0 0 0
Total deposits$ 384,719 $ 396,995 $ 390,810 $ 414,079 $ 409,431


NORTHERN STATES FINANCIAL CORPORATION
($000s, except per share data) (Unaudited)
2Q 2017 1Q 2017 4Q 2016 3Q 2016 2Q 2016
Average Yield/ Average Yield/ Average Yield/ Average Yield/ Average Yield/
balance Rate balance Rate balance Rate balance Rate balance Rate
Earning assets
Loans$ 290,307 4.42% $ 289,085 4.37% $ 283,029 4.40% $ 269,395 4.49% $ 254,545 4.67%
Securities taxable 71,543 1.86 75,361 1.88 81,382 1.73 84,128 1.81 88,592 1.70
Securities tax-exempt 0 0.00 0 0.00 283 5.65 295 6.78 295 5.42
Interest-bearing deposits 70,299 1.01 73,051 0.88 86,056 0.67 96,358 0.68 92,069 0.56
Total earning assets 432,149 3.44% 437,497 3.36% 450,750 3.21% 450,176 3.17% 435,501 3.20%
Non interest earning assets 53,124 53,678 53,461 53,823 55,761
Total assets$ 485,273 $ 491,175 $ 504,211 $ 503,999 $ 491,262
Interest-bearing liabilities
Interest-bearing demand deposits$ 67,112 0.10% $ 63,870 0.11% $ 73,467 0.08% $ 75,295 0.06% $ 72,646 0.09%
Money market deposits 50,682 0.05 48,322 0.05 55,072 0.05 56,168 0.05 52,475 0.05
Savings deposits 92,360 0.01 90,626 0.01 89,400 0.01 89,082 0.01 89,415 0.01
Time deposits 70,898 0.30 85,014 0.29 86,655 0.28 91,003 0.29 89,727 0.30
Other borrowings 31,741 1.03 37,737 0.82 35,613 0.84 30,669 0.89 26,040 1.01
Total interest-bearing liabilities. 312,793 0.21% 325,569 0.20% 340,207 0.19% 342,217 0.18% 330,303 0.19%
Demand deposits 107,571 101,689 102,406 100,066 98,491
Other liabilities 5,621 5,201 4,175 4,547 5,932
Stockholders' equity 59,288 58,716 57,423 57,169 56,536
Total liabilities and stockholders' equity$ 485,273 $ 491,175 $ 504,211 $ 503,999 $ 491,262
Cost of funds (including demand deposits) 0.15% 0.15% 0.14% 0.14% 0.15%
Net interest spread 3.23% 3.16% 3.02% 2.99% 3.01%
Net interest margin 3.29% 3.21% 3.07% 3.03% 3.06%


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

Source:Northern States Financial Corporation