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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
______________________________
COMMISSION FILE NUMBER 0 - 19300
NORTHERN STATES FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 36-3449727
(State of incorporation) (I.R.S. Employer
Identification No.)
1601 North Lewis Avenue
Waukegan, Illinois 60085
(847) 244-6000
(Address, including zip code, and telephone number, including
area code, of principal executive office)
______________________________
Securities registered pursuant to Section 12(g) of the Act
Name of each exchange on
Title of each class which registered
---------------------------- ------------------------
Common Stock $2.00 par value NASDAQ Small-Cap Market
Cover Page 1 of 2
Page 1 of 88 Pages
Exhibit Index Appears on Page 29
1
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting shares held by nonaffiliates of
the Registrant is $98,967,520, as of March 20, 1998. Solely for the purpose
of this computation, it has been assumed that executive officers and
directors of the Registrant are "affiliates" and that the last price known to
management was a sale on March 17, 1998, of $160.00 per share.
889,373 shares of common stock were outstanding as of March 20, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Parts II and IV are incorporated by reference from the
Registrant's 1997 Annual Report to Stockholders; and a portion of Part III is
incorporated by reference from the Registrant's Proxy Statement dated March
23, 1998, for the Annual Meeting of Stockholders to be held April 23, 1998.
Except for those portions of the 1997 Annual Report incorporated by
reference, the Annual Report is not deemed filed as part of this Report.
Cover Page 2 of 2
2
INDEX
PART I PAGE NO.
- ------ --------
Item 1 Business 4
Item 2 Properties 14
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote
of Security Holders 14
PART II
- -------
Item 5 Market for the Registrant's Common Stock
and Related Stockholder Matters 15
Item 6 Selected Financial Data 15
Item 7 Management's Discussion and Analysis
of Financial Condition and
Results of Operations 15
Item 7A Quantitative and Qualitative Disclosures
about Market Risk 15
Item 8 Financial Statements and Supplementary Data 16
Item 9 Changes in and Disagreements with
Accountants on Accounting
and Financial Disclosure 16
PART III
- --------
Item 10 Directors and Executive Officers of the
Registrant 17
Item 11 Executive Compensation 17
Item 12 Security Ownership of Certain Beneficial
Owners and Management 17
Item 13 Certain Relationships and Related
Transactions 17
PART IV
- -------
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 18
Signatures 19
3
PART I
ITEM 1. BUSINESS
THE COMPANY
OVERVIEW
Northern States Financial Corporation (the "Registrant" or the
"Company") is a bank holding company organized in 1984 under the laws of
Delaware, for the purpose of becoming the parent bank holding company of the
Bank of Waukegan (the "Bank"). In 1984, the Company acquired Northern States
Trust Company (the "Trust Company"). On January 1, 1992, the Trust Company's
accounts and operations were assumed by the Bank. By combining the
operations of the Trust Company and the Bank's Trust Department, the Company
provides more efficient and effective service to its trust customers. During
1994, the Trust Company charter was surrendered and the Trust Company was
liquidated. In 1991, the Registrant acquired First Federal Bank, fsb ("First
Federal" or the "Thrift").
The Registrant is registered under the Bank Holding Company Act of 1956,
as amended, and owns all the outstanding stock of the Bank and First Federal.
At December 31, 1997, the Company had 438 registered stockholders of record,
889,373 shares of Common Stock outstanding, and total consolidated assets of
approximately $459 million. Aside from the stock of the Bank, First Federal
and cash, the Registrant has no other substantial assets.
As a large, community-oriented, independent banking organization in the
Waukegan-Gurnee area in the State of Illinois, the Company is well positioned
to take advantage of the growth in Waukegan-Gurnee and its surrounding
communities. The Company has continuously served the community since 1919
when First Federal was chartered; complemented by the Bank when it was
chartered in 1962. The Company's local management, coupled with its long
record of service, has allowed it to compete successfully in the banking
market. The Company operates traditional community and savings banks with
conveniently located facilities and a professional staff.
The Registrant, Bank and First Federal have no material patents,
trademarks, licenses or franchises except the corporate franchises which
permit them to engage in banking and trust practices pursuant to law.
The following table shows loans and deposits of the Bank and First
Federal as of December 31, 1997 (in thousands of dollars):
Loans Deposits
-------- ---------
Bank of Waukegan $177,537 $260,429
First Federal Bank, fsb 63,349 88,395
4
The principal business of the Registrant, operating through the Bank and
First Federal, consists of attracting deposits and securities sold under
repurchase agreements from the general public, making commercial loans, loans
secured by residential and commercial real estate and consumer loans, and
operating a trust business.
SUBSIDIARY OPERATIONS
THE BANK OF WAUKEGAN
The Bank of Waukegan was chartered as a state bank in 1962 and is
located in Waukegan, Illinois. Waukegan is located approximately 37 miles
north of Chicago, Illinois and has a population of approximately 70,000. At
December 31, 1997 the Bank of Waukegan had total assets of approximately
$349.1 million, deposits of approximately $260.4 million and stockholder's
equity of approximately $45.5 million. The Bank has two banking offices
located in Waukegan and one office located in Antioch, Illinois.
The Bank provides services to individuals, businesses and local
governmental units in northeastern Illinois and southeastern Wisconsin.
The Bank's full service banking business includes the customary consumer
and commercial products and services which banks provide, including the
following: demand, savings, time, securities sold under repurchase
agreements, individual retirement accounts; commercial, consumer and real
estate lending, including installment loans, student loans, lines of credit
and overdraft checking; safe deposit operations; trust services; and a
variety of additional services tailored to the needs of individual customers,
such as the acquisition of U.S. Treasury notes and bonds, the sale of
traveler's checks, money orders, cashier's checks and foreign currency,
direct deposit, and other special services.
Commercial and consumer loans are made to corporations, partnerships and
individuals, primarily on a secured basis. Commercial lending focuses on
business, capital, construction, inventory and real estate. The installment
loan department of the Bank makes direct and indirect loans to consumers and
commercial customers. The mortgage division originates and services
commercial and residential mortgages.
The Bank's trust department acts as executor, administrator, trustee,
conservator, guardian, custodian and agent.
At December 31, 1997, the Trust Department had assets under management
or custodial arrangements of approximately $197 million. Its office is
located in Waukegan, Illinois.
5
FIRST FEDERAL BANK
First Federal, headquartered in Waukegan, Illinois was incorporated in
Illinois in 1919 as Waukegan Building and Loan Association, a state chartered
mutual savings and loan association. It converted to a federally chartered
mutual savings and loan association in 1934 and changed its name to First
Federal Savings & Loan Association of Waukegan.
In 1990, First Federal converted to a federal mutual savings bank and
changed its name to First Federal Bank, fsb. First Federal is a member of
the Federal Home Loan Bank System and its deposit accounts are insured by the
Federal Deposit Insurance Corporation ("FDIC").
First Federal had total assets of approximately $109.7 million, deposits
of approximately $88.4 million, and stockholder's equity of approximately
$14.1 million at December 31, 1997. First Federal's market area is comprised
of sections of northeastern Illinois, including Waukegan and Gurnee, and is
situated in the center of the Chicago-Milwaukee corridor.
First Federal operates as a traditional savings institution. Its
business consists primarily of acquiring retail savings and checking
deposits, originating residential and nonresidential real estate mortgage
loans for both its portfolio and sale into the secondary market, and
investing in government and other debt securities. First Federal has two
offices located in Waukegan, Illinois and one office located in Gurnee,
Illinois.
On December 16, 1997 the Company's Board of Directors announced that it
had approved the merger of its two wholly owned subsidiaries, Bank of
Waukegan and First Federal Bank, fsb. The Bank of Waukegan will be the
surviving entity in the merger. The proposed merger is subject to the
receipt of various bank regulatory approvals. Subject to regulatory
approval, the merger will become effective during the second quarter of 1998.
COMPANY OPERATING STRATEGY
Corporate policy, strategy and goals are established by the Board of
Directors of the Company. Pursuant to the Company's philosophy, operational
and administrative policies for the Bank and Thrift are also established by
the Company. Within this framework, both subsidiaries focus on providing
personalized services and quality products to customers to meet the needs of
the communities in which they operate.
As part of its community banking approach, the Company encourages the
officers of both institutions to actively participate in community
organizations. In addition, within credit and rate of return parameters, the
Company attempts to ensure that each institution meets the credit needs of
the community. In addition, the Bank (and the Thrift to a lesser extent)
invests in local municipal securities.
6
LENDING ACTIVITIES
GENERAL - Both banks provide a range of commercial and retail lending
services to corporations, partnerships and individuals, including, but not
limited to, commercial business loans, commercial and residential real estate
construction and mortgage loans, consumer loans, revolving lines of credit
and letters of credit. The installment loan departments of each bank make
direct and indirect loans to consumers and commercial customers. The
mortgage departments originate and service commercial and residential
mortgages. The majority of commercial mortgages are originated by the Bank,
while the Thrift originates most of the residential mortgages.
Each bank aggressively markets its services to qualified lending
customers in both the commercial and consumer sectors. The Bank's commercial
lending officers actively solicit the business of new companies entering the
surrounding market as well as long-standing members of the business
community. Through personalized professional service and competitive
pricing, the Bank has been successful in attracting new commercial lending
customers. At the same time, the Bank actively advertises its consumer loan
products and continually attempts to make its lending officers more
accessible.
COMMERCIAL LOANS - The Bank seeks new commercial loans in its market area
and much of the increase in these loans in recent years can be attributed to
the successful solicitation of new business. The Bank's areas of emphasis
include, but are not limited to, loans to manufacturers, building
contractors, developers, business services companies and retailers. The Bank
provides a wide range of commercial business loans, including lines of credit
for working capital purposes and term loans for the acquisition of equipment
and other purposes. Collateral for these loans generally includes accounts
receivable, inventory, equipment and real estate. Loans may be made on an
unsecured basis where warranted by the overall financial condition of the
borrower. Terms of commercial business loans generally range from one to
five years. The majority of the Bank's commercial business loans have
floating interest rates or reprice within one year. The primary repayment
risk for commercial loans is the failure of the business due to economic or
financial factors. In most cases, the Bank has collateralized these loans
and/or taken personal guarantees to help assure repayment.
Both the Bank and the Thrift regularly provide financing to developers
who have demonstrated a favorable record of performance for the construction
of homes. Sales of these homes have remained very strong in Lake County due
to the growth in population.
MORTGAGE BANKING - The Thrift conducts a mortgage origination operation
through its mortgage division. Since 1991, the Thrift began to fund
conforming long-term residential mortgage loans and selling them in the
secondary market with servicing retained. The Bank will also originate
residential mortgages. As a result of such actions, the Thrift has built its
mortgage servicing portfolio to approximately $64.9 million at December 31,
1997. Management believes that the retention of mortgage servicing provides
First Federal with a relatively steady source of fee income as compared to
fees generated solely from mortgage origination operations, while maintaining
the customer relationship.
7
CONSUMER LENDING - The Company's consumer lending departments provide all
types of consumer loans including motor vehicle, home improvement, home
equity, student loans, unsecured loans and small personal credit lines.
TRUST DEPARTMENT - The Bank's trust department has been providing trust
services to the community for over 10 years. Currently, the Bank has over
$197 million of trust assets and provides a full complement of trust services
for individuals and corporations including land trust services.
To build on the trust department's mainstay of personal trust
administration, the trust department's focus is in two major areas: (i)
investment management for individuals and (ii) administration and investment
services for employee benefit plans.
COMPETITION
The Registrant and its subsidiaries encounter significant competition in
all of their activities. The Chicago metropolitan area and suburban Lake
County have a high density of financial institutions, many of which are
significantly larger and have substantially greater financial resources than
the Company and its subsidiaries, and all of which are competitors of the
Company and its subsidiaries to varying degrees. The Registrant and its
subsidiaries are subject to competition from various financial institutions,
including state and national banks, state and federal savings associations,
credit unions, certain non-banking consumer lenders, and other companies or
firms, including brokerage houses and mortgage brokers, that provide similar
services in northeastern Illinois. In total, there are 22 financial
institutions located in the Waukegan-Gurnee area, including the Company's two
subsidiaries. These financial institutions consist of 9 banks, 6 savings
associations and 7 credit unions. The Company also competes with money funds
and with insurance companies with respect to its individual retirement
accounts.
Competition may increase as a result of the continuing reduction in the
effective restrictions on the interstate operations of financial
institutions. The Registrant and its subsidiaries face additional
competition for deposits from short-term money market mutual funds and other
corporate and government securities funds. Since the elimination of federal
interest rate controls on deposits, the competition from other financial
institutions for deposits has increased.
The primary factors influencing competition for deposits are interest
rates, service, and convenience of office locations. The Company competes
for loans principally through the range and quality of the services it
provides, interest rate and loan fee terms. The Company believes that its
long-standing presence in the community and personal service philosophy
enhances its ability to compete favorably in attracting and retaining
individual and business customers. The Company actively solicits
deposit-related clients and competes for deposits by offering customers
personal attention, professional service and competitive interest rates.
8
EMPLOYEES
The Registrant and its subsidiaries employed 111 full-time and 30
part-time employees as of December 31, 1997. None of the Registrant's
employees is represented by any collective bargaining group. The Company
offers a variety of employee benefits and management considers its employee
relations to be good.
GOVERNMENTAL MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings and growth of the Company are affected not only by general
economic conditions, but also by the fiscal and monetary policies of the
federal government and its agencies. In particular, the Federal Reserve Board
regulates monetary and credit conditions and interest rates in order to
influence general economic conditions, primarily through open-market
operations in U.S. Government securities, varying the discount rate on bank
borrowings, and setting reserve requirements against bank deposits.
These policies have a significant influence on overall growth and
distribution of the Company's loans, investments and deposits, and affect
interest rates charged on loans and earned on investments or paid for
deposits.
The monetary policies of the Federal Reserve Board are expected to
continue their substantial influence on the operating results of banks.
The general effect, if any, of such policies upon the future business
and earnings of the Company and its subsidiaries cannot accurately be
predicted.
SUPERVISION AND REGULATION
Financial institutions and their holding companies are extensively
regulated under federal and state laws. As a result, the business, financial
condition and prospects of the Company, the Bank and First Federal can be
materially affected not only by management decisions and general economic
conditions, but also by applicable statutes and regulations and other
regulatory pronouncements and policies promulgated by regulatory agencies
with jurisdiction over the Company, the Bank and First Federal, such as the
Board of Governors of the Federal Reserve System ("FRB"), the Office of
Thrift Supervision (the "OTS"), the Federal Deposit Insurance Corporation
("FDIC") and the Illinois Office of Banks and Real Estate (the "Office").
Such statutes, regulations and other pronouncements and policies are intended
to protect depositors and the FDIC's deposit insurance funds, not to protect
stockholders.
9
The Company and its subsidiaries are "affiliates" within the meaning of
the Federal Reserve Act so that the Bank and First Federal are subject to
certain restrictions with respect to loans to the Company and certain other
transactions with the Company or involving its securities.
The Company is a bank holding company subject to the Bank Holding
Company Act of 1956, as amended (the "Act"), and to regulation by the FRB.
The Act limits the activities which may be engaged in by bank holding
companies and their nonbank subsidiaries, with certain exceptions, to those
so closely related to banking or managing or controlling banks as to be a
proper incident thereto. Also, under the Act and the FRB's regulations, a
bank holding company, as well as certain of its subsidiaries, are prohibited
from engaging in certain tie-in arrangements in connection with any extension
of credit or provision of any property or services.
The Act also prohibits bank holding companies from acquiring
substantially all the assets of or owning more than 5% of the voting shares
of any bank or nonbanking company, which is not already majority owned,
without the prior approval of the FRB. Beginning September 29, 1995 the
Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") permits an adequately capitalized and adequately managed
bank holding company to acquire, with FRB approval, a bank located in a state
other than the bank holding company's home state, without regard to whether
the transaction is permitted under any state law, except that a host state
may establish by statute the minimum age of its banks (up to a maximum of 5
years) subject to acquisition by out-of-state bank holding companies. The
FRB may not approve the acquisition if the applicant bank holding company,
upon consummation, would control more that 10% of total U.S. insured
depository institution deposits or more than 30% of the host state's total
insured depository institution deposits. Effective as of September 29, 1994,
the Interstate Act permits a bank, with the approval of the appropriate
Federal bank regulatory agency, to establish a de novo branch in a state,
other than the bank's home state, in which the bank does not presently
maintain a branch if the host state has enacted a law that applies equally to
all banks and expressly permits all out-of-state banks to branch de novo into
the host state. Commencing June 1, 1997, banks having different home states
may, with approval of the appropriate Federal bank regulatory agency, merge
across state lines, unless the home state of a participating bank has
opted-out. The Interstate Act permits, as of September 29, 1995, any bank
subsidiary of a bank holding company to receive deposits, renew time
deposits, close loans, service loans and receive payments on loans and other
obligations as agent for a bank or thrift affiliate, whether such affiliate
is located in a different state or in the same state. Illinois law allows
the Bank to establish branches anywhere in the state.
The Illinois Bank Holding Company Act permits Illinois bank holding
companies to acquire control of banks in any state and permits bank holding
companies whose principal place of business is in another state to acquire
control of Illinois banks or bank holding companies upon satisfactory
application to the Office. In reviewing any such application, the Office
will review, among other things, compliance by the applicant with the
requirements of the Community Reinvestment Act (the "CRA") and other
information designed to determine such banks' abilities to meet community
credit needs.
10
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") amended the Act to authorize the FRB to allow bank holding
companies to acquire any savings association (whether healthy, failed or
failing) and removed "tandem operations" restrictions, which previously
prohibited savings associations from being operated in tandem with a bank
holding company's other subsidiaries. As a result, bank holding companies
now have expanded opportunities to acquire savings associations.
Under FIRREA, an insured depository institution which is commonly
controlled with another insured depository institution shall generally be
liable for any loss incurred, or reasonably anticipated to be incurred, by
the FDIC in connection with the default of such commonly controlled
institution, or for any assistance provided by the FDIC to such commonly
controlled institution, which is in danger of default. The term "default" is
defined to mean the appointment of a conservator or receiver for such
institution. Such liability is subordinated in right of payment to deposit
liabilities, secured obligations, any other general or senior liability and
any obligation subordinated to depositors and or other general creditors,
other than obligations owed to any affiliate of the depository institution
(with certain exceptions) and any obligations to stockholders in such
capacity.
The Bank is subject to regulation the FDIC, as well as by the Office.
First Federal is primarily regulated by the OTS.
Under the Illinois Banking Act (the "IBA"), the Bank is permitted to
declare and pay dividends in amounts up to the amount of its accumulated net
profits provided that it shall retain in its surplus at least one-tenth of
its net profits since the date of the declaration of its most recent previous
dividend until such additions to surplus, in the aggregate, equal at least
the paid-in capital of the Bank. In no event may the Bank, while it continues
its banking business, pay dividends in excess of its net profits then on hand
(after deductions for losses and bad debts).
Under the FDIC's risk-based insurance assessment system, each insured
depository institution is placed in one of nine risk categories based on its
level of capital and other relevant information. Each insured depository
institution's insurance assessment rate is then determined by the risk
category in which it has been classified by the FDIC. Under the assessment
schedule applicable for the second semi-annual assessment period of 1997 to
BIF-insured institutions (such as the Bank) and to SAIF-insured institutions
(such as First Federal), assessment rates ranged from 0% to 0.27% of
deposits. In addition, the Bank and First Federal are subject to "FICO
assessments" to repay obligations issued by a federally chartered corporation
to provide financing for resolving the thrift crises of the 1980s. The FICO
assessment rate applicable to BIF-assessable deposits is limited by law to
20% of the rate applicable to SAIF-assessable deposits. Currently, the FICO
assessment rate applicable to BIF-assessable deposits is 1.26 basis points,
and the rate applicable to SAIF-assessable deposits is 6.30 basis points.
11
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the bank regulatory and funding provisions
of the Federal Deposit Insurance Act and made revisions to several other
federal banking statutes. In general, FDICIA subjects depository
institutions to significantly increased regulation and supervision. Among
other things, FDICIA requires federal bank regulatory authorities to take
"prompt corrective action" with respect to depository institutions that do
not meet minimum capital requirements, and imposes certain restrictions upon
depository institutions which meet minimum capital requirements but are not
"well capitalized" for purposes of FDICIA. FDICIA and the regulations
adopted under it establish five capital categories as follows, with the
category for any institution determined by the lowest of any of these ratios:
Tier 1 Total
Leverage Ratio Risked-Based Ratio Risked-Based Ratio
Well Capitalized 5% or above 6% or above 10% or above
Adequately
Capitalized 4% or above* 4% of above 8% or above
Undercapitalized Less than 4% Less than 4% Less than 8%
Significantly
Undercapitalized Less than 3% Less than 3% Less than 6%
Ratio of
Tangible Equity
to Total Assets
Critically Undercapitalized 2% or below
*3% for banks with the highest CAMEL (supervisory) rating.
An insured depository institution may be deemed to be in a capital
category that is lower than is indicated by its capital ratios if it receives
an unsatisfactory rating by its examiners with respect to its assets,
management, earnings or liquidity.
12
Under FDICIA, a bank that is not well capitalized is generally
prohibited from accepting or renewing brokered deposits and offering interest
rates on deposits significantly higher than the prevailing rate in its normal
market area or nationally (depending upon where the deposits are solicited);
in addition, "pass through" insurance coverage may not be available for
certain employee benefit accounts.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to limitations on growth and are required to submit a capital
restoration plan, which must be guaranteed by the institution's parent
company. Institutions that fail to submit an acceptable plan, or that are
significantly undercapitalized, are subject to a host of more drastic
regulatory restrictions and measures.
The Bank and First Federal are considered "well capitalized" according
to FDICIA guidelines.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions or depository institutions' holding companies
relating to internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, a maximum ratio of classified assets to capital,
minimum earnings sufficient to absorb losses and other standards as they deem
appropriate. Many regulations implementing these directives have been
adopted by the agencies
BUSINESS-STATISTICAL DISCLOSURE
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and the Results of Operations" on Pages 11
through 26 of the 1997 Annual Report to Stockholders (filed as Exhibit 13,
pages 23 through 38 of this report) is incorporated herein by reference.
13
ITEM 2. PROPERTIES
The Bank conducts its operations through its main office and two
branches. The Company's office is located in the main office of the Bank.
All of such offices are owned by the Bank and are located in Lake County,
Illinois. The Bank believes that its current facilities are adequate for the
conduct of its business.
First Federal conducts its business through its main office and two
branch offices. All offices are located in Lake County and have drive-up
facilities. First Federal believes that its facilities are adequate to meet
its present and immediately foreseeable needs.
The following table sets forth information relating to each of such
offices:
Bank of Waukegan:
Main Office: Trust Department:
1601 North Lewis Avenue 1601 North Lewis Avenue
Waukegan, Illinois 60085 Waukegan, Illinois 60085
Branches:
3233 Grand Avenue 40220 N. Route 59
Waukegan, Illinois 60085 Antioch, Illinois 60002
First Federal Bank, fsb:
Main Office:
216 Madison Street
Waukegan, Illinois 60085
Branches:
1428 N. Lewis Avenue 5384 Grand Avenue
Waukegan, Illinois 60085 Gurnee, Illinois 60031
ITEM 3. LEGAL PROCEEDINGS
Due to the nature of their business, the Registrant and its subsidiaries
are often subject to various legal actions. These legal actions, whether
pending or threatened, arise through the normal course of business and are
not considered unusual or material.
Currently, no material legal procedures are pending which involve the
Registrant, the Bank, or First Federal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information set forth under the captions "Stock Market Information";
"Price Summary"; and "Cash Dividends" on Page 46 of the 1997 Annual Report to
Stockholders (filed as Exhibit 13, page 58 of this report) is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Consolidated
Financial Data" on Page 10 of the 1997 Annual Report to Stockholders (filed
as Exhibit 13, page 22 of this report) is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on Pages 11
through 26 of the 1997 Annual Report to Stockholders (filed as Exhibit 13,
pages 23 through 38 of this report) is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The information set forth under the caption "Qunatitative and
Qualitative Disclosures about Market Risk" on Pages 26 and 27 of the 1997
Annual Report to Stockholders (filed as Exhibit 13, pages 38 and 39 of this
report) is incorporated herein by reference.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Registrant and the
Independent Auditors' Report as set forth on the following pages of the 1997
Annual Report to Stockholders (filed as Exhibit 13, to this report) are
incorporated herein by reference:
Annual Report
to Stockholders
Page
---------------
Independent Auditors' Report 28
Consolidated Balance Sheets as of
December 31, 1997 and 1996 29
Consolidated Statements of Income for the
Years ended December 31, 1997, 1996 and 1995 30
Consolidated Statements of Cash Flows for the
Years ended December 31, 1997, 1996 and 1995 31
Consolidated Statements of Stockholders'
Equity for the Years ended
December 31, 1997, 1996 and 1995 32
Notes to the Consolidated Financial Statements 33
Parent Company only financial statements 45
The portions of the 1997 Annual Report to Stockholders which are not
specifically incorporated by reference as a part of this Form 10-K are not
deemed to be a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS - The information with respect to Directors of the Registrant set
forth under the caption "Directors and Executive Management" on page 2 of the
Registrant's Proxy Statement, dated March 23, 1998, relating to the April 23,
1998 Annual Meeting of Stockholders is incorporated herein by reference.
EXECUTIVE OFFICERS - The Company's only executive officers are Mr. Fred
Abdula, the President of the Company, and Mr. Kenneth W. Balza, the Vice
President and Treasurer of the Company. The information with respect to Mr.
Abdula and Mr. Balza is set forth under the caption "Directors and Executive
Management" on page 2 of the Registrant's Proxy Statement, dated March 23,
1998, relating to the April 23, 1998 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" and
"Summary Compensation Table" on page 5 of the Registrant's Proxy Statement,
dated March 23, 1998, relating to the April 23, 1998 Annual Meeting of Stock
holders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" on page 4 of the Registrant's Proxy
Statement, dated March 23, 1998, relating to the April 23, 1998 Annual
Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Compensation Committee
Interlocks and Insider Participation" on pages 8 and 9 of the Registrant's
Proxy Statement, dated March 23, 1998, relating to the April 23, 1998 Annual
Meeting of Stockholders is incorporated herein by reference.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
All financial statements of the Registrant are incorporated herein by
reference as set forth under Item 8, Part II of this report on Form
10-K.
2. FINANCIAL STATEMENT SCHEDULES Not applicable
3. EXHIBITS (Numbered in accordance with Item 601 of Regulation S-K)
The following exhibits are filed as part of this report:
3-A Articles of Incorporation of the Company, as amended
to date. (Filed with Registrant's annual report on Form 10-K
for the year ended December 31, 1994 Commission
File 0-19300 and incorporated here by reference.)
3-B Bylaws of the Company, as amended to date. (Filed with
Registrant's annual report on Form 10-K for the year ended
December 31, 1994 Commission File 0-19300 and incorporated here
by reference.)
10 1992 Northern States Omnibus Incentive Plan. (Filed with
Registrant's annual report on Form 10-K for the year ended
December 31, 1994 Commission File 0-19300 and incorporated here
by reference.)
11 Statement of Computation of per share earnings. Contained in
Notes 1 and 14 to the consolidated financial statements, pages
34 and 44, 1997 Annual Report to Stockholders (filed as Exhibit
13 to this report) is incorporated by reference.
13 Copy of the Company's Annual Report to Stockholders for the year
ended December 31, 1997. This exhibit, except for portions
thereof that have been specifically incorporated by reference
into this report, is furnished for the information of the
Commission and shall not be deemed "filed" as part hereof.
21 List of Subsidiaries.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of the
year ended December 31, 1997.
(c) Exhibit List and Index
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized, on this 20th day
of March 1998.
NORTHERN STATES FINANCIAL CORPORATION
(Registrant)
Fred Abdula,
Chairman of the Board
and President
/s/ Fred Abdula (Principal Executive Officer)
- -------------------------------------
Thomas M. Nemeth,
Assistant Vice President
(Principal Financial Officer and
/s/ Thomas M. Nemeth Principal Accounting Officer)
- -------------------------------------
19
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. Each director
of the Registrant, whose signature appears below, hereby appoints Fred Abdula
and Thomas M. Nemeth and each of them severally, as his attorney-in-fact, to
sign in his name and on his behalf, as a director of the Registrant, and to
file with the Commission any and all Amendments to this Report on Form 10-K,
on this 20th day of March 1998.
Fred Abdula, Director /s/ Fred Abdula
--------------------------
Kenneth W. Balza, Director /s/ Kenneth W. Balza
--------------------------
Jack H. Blumberg, Director /s/ Jack H. Blumberg
--------------------------
Frank Furlan, Director /s/ Frank Furlan
--------------------------
Harry S. Gaples, Director /s/ Harry S. Gaples
--------------------------
Laurance A. Guthrie, Director /s/ Laurance A. Guthrie
--------------------------
James A. Hollensteiner, Director /s/ James A. Hollensteiner
--------------------------
Raymond M. Mota, Director /s/ Raymond M. Mota
--------------------------
Helen Rumsa, Director /s/ Helen Rumsa
--------------------------
Frank Ryskiewicz, Director /s/ Frank Ryskiewicz
--------------------------
Henry G. Tewes, Director /s/ Henry G. Tewes
--------------------------
Arthur J. Wagner, Director /s/ Arthur J. Wagner
--------------------------
20
NORTHERN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
EXHIBIT INDEX
Exhibits Page(s)
- -------- ---------
3-A Articles of Incorporation of the Company,
as amended to date.
(Filed with Registrant's annual report on
Form 10-K for the year ended December 31, 1994
Commission File 0-19300 and incorporated here
by reference.)
3-B Bylaws of the Company, as amended to date.
(Filed with Registrant's annual report on
Form 10-K for the year ended December 31, 1994
Commission File 0-19300 and incorporated here by
reference.)
10 1992 Northern States Omnibus Incentive Plan.
(Filed with Registrant's annual report on
Form 10-K for the year ended December 31, 1994
Commission File 0-19300 and incorporated here by
reference.)
11 Statement of Computation of per share earnings.
Contained in Notes 1 and 14 to the consolidated
financial statements, pages 34 and 44, 1997 Annual
Report to Stockholders (filed as Exhibit 13 to
this report) is incorporated by reference. 46 and 56
13 Copy of the Company's Annual Report to
Stockholders for the year ended December 31,
1997. This exhibit, except for portions thereof
that have been specifically incorporated by
reference into this Report, is furnished for the
information of the Commission and shall not be
deemed "filed" as part hereof. 22
21 List of Subsidiaries. 59
27 Financial Data Schedule.
21