News

Northern States Financial Corporation Reports Income after Recapitalization

August 1, 2014

Waukegan, Illinois, August 1, 2014 – Northern States Financial Corporation (OTCQB-NSFC), today reported net income of $367,000 for the second quarter of 2014. Highlighting the quarter was a successful $25 million recapitalization of the Company, which was completed on April 30, 2014, through which the Company was able to retire its TARP obligations with the United States Department of the Treasury and to pay the deferred interest relating to its outstanding trust preferred securities. Consolidated income available to common stockholders of the Company for the three months ended June 30, 2014 totaled $16.1 million, or $0.18 per share based on 87,604,088 outstanding shares of the Company as of June 30, 2014. The amount of consolidated income available to common stockholders was due primarily to the Company's accounting for the recapitalization transaction, as well as earnings from the Company's wholly owned banking subsidiary, NorStates Bank. Stockholders' equity at June 30, 2014 was approximately $32 million, or $0.37 per share. The Company also continued to carry approximately $26 million in a valuation allowance on its deferred tax assets.

The results of operations for the quarter ended June 30, 2014 of NorStates Bank were highlighted by net income of $391,000. The Bank's core earnings were approximately $100,000 per month following the recapitalization, an increase accomplished primarily by deploying the increased available liquidity from the recapitalization. A net gain on the sale of bank owned properties also contributed to net income for the second quarter. The Bank's cost of funds was 10 basis points for the second quarter of 2014.

Total assets of NorStates Bank were $408 million at the end of the second quarter. The Bank's leveraged capital ratio as of June 30, 2014 was 10.39%. Asset quality, as represented by the Bank's non-performing asset ratio, improved from 111% as of March 31, 2014 to 81% as of June 30, 2014. The allowance for loan and lease losses as a percent of total loans and leases of NorStates Bank stood at 3.98% as of June 30, 2014, and no provision for loan losses was made in the second quarter of 2014.

"The successful recapitalization effort completed in April has allowed us to deploy excess liquidity into increasing our securities investments and loan generation, which has had an immediate impact on earnings," stated President and Chief Executive Officer, Scott Yelvington. "Further reduction in expenses related to the recapitalization and lower non-performing assets have had an additional positive impact on earnings, and we expect that to continue. This has been a seminal quarter in our Company's history, and we are excited about the future. A healthy, profitable NorStates Bank will help enhance economic growth in the communities we serve."

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.

For Additional Information, Contact:

Scott Yelvington, President and Chief Executive Officer (847) 244-6000 Ext. 201

Websites: www.nsfc.com www.nsfc.net


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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 Bank conducts its operations, including the real estate market in Illinois, and other factors beyond the Bank'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 and statement to reflect new information or subsequent events or circumstances.