Northern States Financial Corporation Reports Third Quarter Earnings

WAUKEGAN, IL--(Marketwired - Nov 3, 2014) - Northern States Financial Corporation (OTCQB: NSFC), holding company for NorStates Bank, an FDIC insured financial institution, today reported third quarter 2014 net income of $283,000. Per share book value at September 30, 2014 was $0.37.

The financial results at NorStates Bank (the "Bank") showed third quarter earnings of $363,000 and year to date earnings of $603,000. The Bank made no provision to the allowance for loan and lease losses during the third quarter of 2014. Management believed as of September 30, 2014, the allowance for loan and lease losses was adequate at 3.9% of total loans.

Total assets for Northern States Financial Corporation (the "Company") were $423 million at September 30, 2014, an increase of 7.9% from year-end 2013. While current loan volume was steady during the third quarter, overall loans did decline, and the increase in assets was mainly attributable to an increase to securities available for sale. The Bank's third quarter net interest margin was 3.00% with the cost of funds of 0.09%. The leverage capital ratio was 10.27%. 

In regards to asset quality, the Company's 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, have shown a reduction of $7.6 million from December 31, 2013 to September 30, 2014. However, during the third quarter of 2014, NPAs increased $7.9 million. This increase during the third quarter was primarily due to downgrading previously identified credits to NPA status, which included placing 2 credits totaling $8.7 million on nonaccrual status and classifying a credit totaling $1.3 million as a troubled debt restructuring. Partially offsetting these downgrades was a $1.4 million credit upgraded to performing from nonaccrual status and the sale of $521,000 of other real estate owned. Management does not consider these third quarter events to be a negative trend in regards to ongoing credit quality. Management anticipates a substantial decrease in NPAs in the fourth quarter of 2014 and the first quarter of 2015 as a result of credit remediation and asset sales.

"Our efforts to reduce expenses and increase income continue to have a positive effect on earnings," stated Scott Yelvington, President and Chief Executive Officer. "However, our primary focus remains on the reduction of non-performing assets which will be essential to achieving our earnings goals."

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
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2014 and December 31, 2013				September 30,				December 31,
(In thousands of dollars) (Unaudited)				2014				2013
		Assets
Cash and due from banks				$	4,272			$	5,235
Interest bearing deposits in financial institutions - maturities less than 90 days					40,908				42,350
	Total cash and cash equivalents				45,180				47,585
Interest bearing deposits in financial institutions - maturities of 90 days or greater					9,971				9,227
Securities available for sale					117,447				92,407
Securities held to maturity (fair value $14,917 at September 30, 2014)					14,968				0
Loans and leases, net of deferred fees					213,031				225,295
Less: Allowance for loan and lease losses					(8,407	)			(9,130	)
	Loans and leases, net				204,624				216,165
Federal Home Loan Bank stock					931				931
Office buildings and equipment, net					8,041				8,262
Other real estate owned					18,933				14,357
Accrued interest receivable					1,196				1,101
Other assets					1,931				2,377
	Total assets			$	423,222			$	392,412
		Liabilities and Stockholders' Equity
Liabilities
Deposits
	Demand - noninterest bearing			$	71,285			$	71,970
	Interest bearing				286,520				275,159
		Total deposits			357,805				347,129
Securities sold under repurchase agreements					20,100				16,213
Subordinated debentures					10,310				10,310
Advances from borrowers for taxes and insurance					445				1,119
Accrued interest payable and other liabilities					2,502				7,987
		Total liabilities			391,162				382,758
Stockholders' Equity
Common stock					878				1,789
Preferred stock					0				17,198
Warrants (584,084 issued and outstanding at December 31, 2013)					0				681
Additional paid-in capital					32,088				7,326
(Accumulated deficit) retained earnings					4,713				(10,993	)
Treasury stock, at cost					(4,674	)			(4,674	)
Accumulated other comprehensive income, net					(945	)			(1,673	)
	Total stockholders' equity				32,060				9,654
		Total liabilities and stockholders' equity		$	423,222			$	392,412

NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and nine months ended September 30, 2014 and 2013
(In thousands of dollars, except per share data) (Unaudited)					Three months ended								Nine months ended
					September 30,				September 30,				September 30,				September 30,
					2014				2013				2014				2013
Interest income
	Loans (including fee income)				$	2,319			$	2,868			$	7,230			$	9,181
	Securities
		Taxable				619				333				1,367				1,053
		Exempt from federal income tax				5				22				22				70
	Federal funds sold and other					36				38				118				117
			Total interest income			2,979				3,261				8,737				10,421
Interest expense
	Time deposits					63				81				196				263
	Other deposits					23				23				67				67
	Repurchase agreements and federal funds purchased					0				0				1				1
	Subordinated debentures					54				61				171				180
			Total interest expense			140				165				435				511
Net interest income						2,839				3,096				8,302				9,910
Provision for loan and lease losses						0				500				0				2,500
Net interest income after provision for loan and lease losses						2,839				2,596				8,302				7,410
Noninterest income
	Service fees on deposits					408				425				1,198				1,206
	Gain on sale of securities					0				0				78				1,749
	Net gain (loss) on sale of other real estate owned					4				10				389				103
	Other operating income					438				415				1,257				1,202
			Total noninterest income			850				850				2,922				4,260
Noninterest expense
	Salaries and employee benefits					1,566				1,440				4,500				4,234
	Occupancy and equipment, net					537				554				1,653				1,769
	Data processing					528				484				1,457				1,420
	Legal					49				175				229				478
	FDIC insurance					131				223				558				662
	Audit and other professional					126				257				352				615
	Printing and supplies expense					40				41				116				144
	Write-down of other real estate owned					82				130				233				1,555
	Other real estate owned expense					117				179				605				401
	Loan and collection					(124	)			(187	)			(8	)			(193	)
	Other operating expenses					354				383				1,177				1,242
			Total noninterest expense			3,406				3,679				10,872				12,327
Net income (loss) before income taxes						283				(233	)			352				(657	)
Income tax expense						0				31				0				31
Net income (loss)						283				(264	)			352				(688	)
	Discount on redemption of preferred stock					0				0				(15,733	)			0
	Dividends to preferred stockholders					0				261				366				773
	Accretion of discount on preferred stock					0				38				13				113
Net income (loss) available to common stockholders					$	283			$	(563	)		$	15,706			$	(1,574	)
Basic income (loss) per average outstanding share					$	0.00			$	(0.13	)		$	0.31			$	(0.37	)
Diluted income (loss) per average outstanding share					$	0.00			$	(0.13	)		$	0.31			$	(0.37	)
Basic income (loss) per end of period share					$	0.00			$	(0.13	)		$	0.18			$	(0.37	)