Northern States Financial Corporation Reports 2014 Financial Results

WAUKEGAN, IL--(Marketwired - Mar 19, 2015) - Northern States Financial Corporation (OTCQB: NSFC), holding company for NorStates Bank (the "Bank"), today reported net income available to common stockholders for 2014 of $15,564,000 or $0.26 per share compared with a net loss for 2013 of $2,771,000 or $0.65 per share. A significant portion of the Northern States Financial Corporation's (the "Company") net income for 2014 resulted from the discount recognized on the redemption of its preferred stock in the second quarter of 2014. Per share book value at December 31, 2014 was $0.37.

For the three months ended December 31, 2014, the Company showed a net loss of $142,000 as compared with a net loss of $1,197,000 for the fourth quarter of 2013.

The financial results at the Bank showed 2014 earnings of $543,000 and a fourth quarter net loss of $60,000. The fourth quarter loss resulted from the disposition of non-performing assets totaling $4.9 million at a loss of $440,000 as the Bank continued its efforts to increase its overall asset quality. The Bank's December 31, 2014 leverage capital ratio was 9.88%.

Total assets for the Company were $422 million at December 31, 2014, increasing 7.5% from year-end 2013. During 2014, the Company's capital and deposits increased $22.7 million and $9.6 million, respectively with capital increasing $21.8 million due to the successful April 2014 capital raise. Since the capital raise, management has continued to work to reposition the Company's balance sheet.

In regard to asset quality, the Company's non-performing assets ("NPAs"), consisting of nonaccrual loans, loans ninety or more days past due, still accruing, loans considered troubled debt restructurings and other real estate owned, totaled $37.5 million at December 31, 2014, a reduction of $19.1 million or 34% from $56.6 million at December 31, 2013. Management anticipates continued decreases in NPAs in 2015 as a result of credit remediation and asset sales.

"2014 was a transformative year for the Company and the Bank," stated Scott Yelvington, President and Chief Operating Officer. "A successful capital raise has breathed new life into our organization. We remain focused on the reduction of non-performing assets and were pleased with the $10.0 million reduction in the fourth quarter. Further reductions, cost containment and our ability to deploy liquidity in a disciplined and prudent manner will enhance profitability in the coming quarters."

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 and statement to reflect new information or subsequent events or circumstances.

NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 2014 and 2013
(In thousands of dollars) (Unaudited)				2014				2013
	Assets
Cash and due from banks				$	8,258			$	5,235
Interest bearing deposits in financial institutions - maturities less than 90 days					26,727				42,350
	Total cash and cash equivalents				34,985				47,585
Interest bearing deposits in financial institutions - maturities of 90 days or greater					8,483				9,227
Securities available for sale					121,368				92,407
Securities held to maturity (fair value $16,449 at December 31, 2014)					16,305				0
Loans and leases, net of deferred fees					219,049				225,295
Less: Allowance for loan and lease losses					(6,541	)			(9,130	)
	Loans and leases, net				212,508				216,165
Federal Home Loan Bank stock					931				931
Office buildings and equipment, net					7,957				8,262
Other real estate owned					16,514				14,357
Accrued interest receivable					1,158				1,101
Other assets					1,814				2,377
	Total assets			$	422,023			$	392,412
		Liabilities and Stockholders' Equity
Liabilities
Deposits
	Demand - noninterest bearing			$	79,378			$	71,970
	Interest bearing				277,352				275,159
		Total deposits			356,730				347,129
Securities sold under repurchase agreements					18,447				16,213
Subordinated debentures					10,310				10,310
Advances from borrowers for taxes and insurance					1,485				1,119
Accrued interest payable and other liabilities					2,718				7,987
		Total liabilities			389,690				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					4,571				(10,993	)
Treasury stock, at cost					(4,674	)			(4,674	)
Accumulated other comprehensive loss, net					(530	)			(1,673	)
	Total stockholders' equity				32,333				9,654
		Total liabilities and stockholders' equity		$	422,023			$	392,412

NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve and three months ended December 31, 2014 and 2013
(In thousands of dollars, except per share data) (Unaudited)
					Twelve months ended								Three months ended
Years ended December 31,					December 31, 2014				December 31, 2013				December 31, 2014				December 31, 2013
Interest income
	Loans (including fee income)				$	9,855			$	12,267			$	2,625			$	3,086
	Securities
		Taxable				2,050				1,413				683				360
		Exempt from federal income tax				28				92				6				22
	Federal funds sold and other					158				166				40				49
			Total interest income			12,091				13,938				3,354				3,517
Interest expense
	Time deposits					262				338				66				75
	Other deposits					91				92				24				25
	Repurchase agreements and federal funds purchased					2				2				1				1
	Subordinated debentures					225				240				54				60
			Total interest expense			580				672				145				161
Net interest income						11,511				13,266				3,209				3,356
Provision for loan and lease losses						0				3,400				0				900
Net interest income after provision for loan and lease losses						11,511				9,866				3,209				2,456
Noninterest income
	Service fees on deposits					1,575				1,661				377				455
	Gain on sale of securities					94				1,749				16				0
	Net gain (loss) on sale of other real estate owned					(51	)			88				(440	)			(15	)
	Other operating income					1,657				1,608				400				406
			Total noninterest income			3,275				5,106				353				846
Noninterest expense
	Salaries and employee benefits					6,226				5,680				1,726				1,446
	Occupancy and equipment, net					2,145				2,284				492				515
	Data processing					2,136				1,883				679				463
	Legal					303				634				74				156
	FDIC insurance					693				884				135				222
	Audit and other professional					446				697				94				82
	Printing and supplies expense					165				193				49				49
	Write-down of other real estate owned					259				1,736				26				181
	Other real estate owned expense					632				814				27				413
	Other operating expenses					1,571				1,733				402				684
			Total noninterest expense			14,576				16,538				3,704				4,211
Net income (loss) before income taxes						210				(1,566	)			(142	)			(909	)
Income tax expense						0				17				0				(14	)
Net income (loss)						210				(1,583	)			(142	)			(895	)
	Discount on redemption of preferred stock					(15,883	)			0				0				0
	Dividends to preferred stockholders					516				1,037				0				264
	Accretion of discount on preferred stock					13				151				0				38
Net income (loss) available to common stockholders					$	15,564			$	(2,771	)		$	(142	)		$	(1,197	)
Basic income (loss) per average outstanding share					$	0.26			$	(0.65	)		$	(0.00	)		$	(0.28	)
Diluted income (loss) per average outstanding share					$	0.26			$	(0.65	)		$	(0.00	)		$	(0.28	)

NORTHERN STATES FINANCIAL CORPORATION
KEY PERFOMANCE DATA
($ 000s, except per share data)
Year ended December 31:		2014				2013
Net Income		$	15,564			$	(2,771	)
Basic earnings per share		$	0.26			$	(0.65	)
Diluted earnings per share		$	0.26			$	(0.65	)
Return on average assets			3.81	%			-0.68	%
Return on average equity			61.27	%			-20.66	%
Yield on interest earning assets			3.17	%			3.54	%
Cost of interest bearing liabilities			0.19	%			0.21	%
Net interest spread			2.98	%			3.33	%
Net interest margin			3.02	%			3.37	%
Net charged-off loans		$	2,589			$	14,997
Net charged-off loans to average loans			1.19	%			5.90	%
Quarter ended:		Dec. 31, 2014				Sep. 30, 2014				Dec. 31, 2013
Net income		$	(142	)		$	283			$	(1,197	)
Basic earnings per share		$	(0.00	)		$	0.00			$	(0.28	)
Diluted earnings per share		$	(0.00	)		$	0.00			$	(0.28	)
Return on average assets			-0.13	%			0.27	%			-1.17	%
Return on average equity			-1.75	%			3.50	%			-42.16	%
Yield on interest earning assets			3.39	%			3.10	%			3.55	%
Cost of interest bearing liabilities			0.18	%			0.18	%			0.20	%
Net interest spread			3.21	%			2.92	%			3.35	%
Net interest margin			3.24	%			2.96	%			3.39	%
Net charged-off loans		$	1,866			$	163			$	6,542
Net charged-off loans to average loans annualized			3.45	%			0.30	%			11.05	%
		Dec. 31, 2014				Dec. 31, 2013
Total Stockholders' Equity		$	32,333			$	9,654
Deferred tax asset			25,566				27,157
Deferred tax asset valuation allowance			(25,183	)			(26,071	)
Book Value per Share		$	0.37			$	2.26
Number of Common Shares Outstanding			87,604,088				4,270,755

				Dec. 31, 2014				Dec. 31, 2013
Assets				$	422,023			$	392,412
Loans
	Commercial				14,239				13,929
	Real estate-construction				11,600				18,963
	Real estate-mortgage 1-4 family				30,546				29,285
	Real estate-mortgage 5+ family				32,968				29,019
	Real estate-mortgage commercial				119,669				119,897
	Home equity				9,131				13,020
	Installment				1,069				1,247
	Deferred loan fees				(173	)			(65	)
		Total loans			219,049				225,295
Deposits
	Demand-noninterest bearing			$	79,378			$	71,970
	Demand-interest bearing				61,313				60,815
	Money market accounts				51,046				52,490
	Savings				77,789				73,907
	Time, $100,000 and over				37,483				33,226
	Time, under $100,000				49,471				54,721
	Time, brokered				250				0
		Total deposits			356,730				347,129
Nonperforming assets (NPAs)
	Nonaccrual loans			$	16,551			$	19,062
	90 days or more past due, still accruing				1,126				776
	Trouble debt restructurings				3,288				22,437
		Total nonperforming loans			20,965				42,275
	Other real estate owned				16,514				14,357
		Total NPAs			37,479				56,632
NPAs excluding troubled debt restructurings					34,191				34,195
Nonperforming loans to total loans					9.57	%			18.76	%
NPAs to total assets					8.88	%			14.43	%
NPAs excluding troubled debt restructurings to total assets					8.10	%			8.71	%