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Northern States Financial Corporation Reports Fourth Quarter 2017 Earnings

WAUKEGAN, Ill., Feb. 21, 2018 (GLOBE NEWSWIRE) -- Northern States Financial Corporation (OTC PINK: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 SheetDecember 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 endedDecember 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
AverageYield/ AverageYield/ AverageYield/ AverageYield/ AverageYield/
balanceRate balanceRate balanceRate balanceRate balanceRate
Earning assets
Loans$310,4264.52%$302,2664.73%$290,3074.42%$289,0854.37%$283,0294.40%
Securities taxable 65,0821.91 68,2861.95 71,5431.86 75,3611.88 81,3821.73
Securities tax-exempt 00.00 00.00 00.00 00.00 2835.65
Interest-bearing deposits 89,3461.41 74,8881.19 70,2991.01 73,0510.88 86,0560.67
Total earning assets 464,8543.55% 445,4403.71% 432,1493.44% 437,4973.36% 450,7503.21%
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$70,0970.10%$69,3730.10%$67,1120.10%$63,8700.11%$73,4670.08%
Money market deposits 53,7860.05 52,5260.05 50,6820.05 48,3220.05 55,0720.05
Savings deposits 91,3820.01 92,3960.01 92,3600.01 90,6260.01 89,4000.01
Time deposits 77,1710.51 73,1530.40 70,8980.30 85,0140.29 86,6550.28
Other borrowings 38,2520.95 32,4381.09 31,7411.03 37,7370.82 35,6130.84
Total interest-bearing liabilities 330,6880.26% 319,8860.24% 312,7930.21% 325,5690.20% 340,2070.19%
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%

Source:Northern States Financial Corporation