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Northern States Financial Corporation Reports Income After Recapitalization

WAUKEGAN, IL -- (Marketwired) -- 08/01/14 -- 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.

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.



NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2014 and December 31, 2013
(In thousands of dollars) (Unaudited)

                                               June 30,       December 31,
                                                 2014             2013
                                           ---------------  ---------------
  Assets
Cash and due from banks                    $         5,627  $         5,235
Interest bearing deposits in financial
 institutions - maturities less than 90
 days                                               33,162           42,350
                                           ---------------  ---------------
  Total cash and cash equivalents                   38,789           47,585
Interest bearing deposits in financial
 institutions - maturities of 90 days or
 greater                                             8,483            9,227
Securities available for sale                      116,363           92,407
Securities held to maturity (fair value
 $7,017 at June 30, 2014)                            7,001                0
Loans and leases, net of deferred fees             215,307          225,295
Less: Allowance for loan and lease losses           (8,570)          (9,130)
                                           ---------------  ---------------
  Loans and leases, net                            206,737          216,165
Federal Home Loan Bank stock                           931              931
Office buildings and equipment, net                  8,021            8,262
Other real estate owned                             19,012           14,357
Accrued interest receivable                          1,147            1,101
Other assets                                         1,435            2,377
                                           ---------------  ---------------
  Total assets                             $       407,919  $       392,412
                                           ===============  ===============
    Liabilities and Stockholders' Equity
Liabilities
Deposits
  Demand - noninterest bearing             $        71,318  $        71,970
  Interest bearing                                 273,608          275,159
                                           ---------------  ---------------
    Total deposits                                 344,926          347,129
Securities sold under repurchase
 agreements                                         16,601           16,213
Subordinated debentures                             10,310           10,310
Advances from borrowers for taxes and
 insurance                                           1,328            1,119
Accrued interest payable and other
 liabilities                                         2,738            7,987
                                           ---------------  ---------------
    Total liabilities                              375,903          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              4,430          (10,993)
Treasury stock, at cost                             (4,674)          (4,674)
Accumulated other comprehensive income,
 net                                                  (706)          (1,673)
                                           ---------------  ---------------
  Total stockholders' equity                        32,016            9,654
                                           ---------------  ---------------
    Total liabilities and stockholders'
     equity                                $       407,919  $       392,412
                                           ===============  ===============



NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and six months ended June 30, 2014 and 2013
(In thousands of dollars, except per share data) (Unaudited)

                                  Three months ended     Six months ended
                                  June 30,   June 30,   June 30,   June 30,
                                    2014       2013       2014       2013
                                 ---------  ---------  ---------  ---------
Interest income
  Loans (including fee income)   $   2,427  $   3,132  $   4,911  $   6,313
  Securities
    Taxable                            488        287        748        720
    Exempt from federal income
     tax                                 6         23         17         48
  Federal funds sold and other          44         44         82         79
                                 ---------  ---------  ---------  ---------
    Total interest income            2,965      3,486      5,758      7,160
                                 ---------  ---------  ---------  ---------
Interest expense
  Time deposits                         66         85        133        182
  Other deposits                        21         23         44         44
  Repurchase agreements and
   federal funds purchased               1          0          1          1
  Subordinated debentures               58         60        117        119
                                 ---------  ---------  ---------  ---------
    Total interest expense             146        168        295        346
                                 ---------  ---------  ---------  ---------
Net interest income                  2,819      3,318      5,463      6,814
Provision for loan and lease
 losses                                  0      1,600          0      2,000
                                 ---------  ---------  ---------  ---------
Net interest income after
 provision for loan and lease
 losses                              2,819      1,718      5,463      4,814
                                 ---------  ---------  ---------  ---------
Noninterest income
  Service fees on deposits             403        404        790        781
  Gain on sale of securities             0        411         78      1,749
  Net gain on sale of other real
   estate owned                        373         83        385         93
  Other operating income               434        415        819        787
                                 ---------  ---------  ---------  ---------
    Total noninterest income         1,210      1,313      2,072      3,410
                                 ---------  ---------  ---------  ---------
Noninterest expense
  Salaries and employee benefits     1,495      1,374      2,934      2,794
  Occupancy and equipment, net         477        628      1,116      1,215
  Data processing                      451        476        929        936
  Legal                                 42        168        180        303
  FDIC insurance                       205        214        427        439
  Audit and other professional          97        138        226        358
  Prinitng and supplies expense         43         46         76        103
  Write-down of other real
   estate owned                        158          0        151      1,425
  Other real estate owned
   expense                             181        183        488        222
  Loan and collection                  113        (75)       116         (6)
  Other operating expenses             400        423        823        859
                                 ---------  ---------  ---------  ---------
    Total noninterest expense        3,662      3,575      7,466      8,648
                                 ---------  ---------  ---------  ---------
Net income (loss) before income
 taxes                                 367       (544)        69       (424)
Income tax expense                       0          0          0          0
                                 ---------  ---------  ---------  ---------
Net income (loss)                      367       (544)        69       (424)
                                 ---------  ---------  ---------  ---------
  Discount on redemption of
   preferred stock                 (15,733)         0    (15,733)         0
  Dividends to preferred
   stockholders                          0        258        366        512
  Accretion of discount on
   preferred stock                       0         38         13         75
                                 ---------  ---------  ---------  ---------
Net income (loss) available to
 common stockholders             $  16,100  $    (840) $  15,423  $  (1,011)
                                 =========  =========  =========  =========

Basic income (loss) per average
 outstanding share               $    0.26  $   (0.20) $    0.47  $   (0.24)
Diluted income (loss) per
 average outstanding share       $    0.26  $   (0.20) $    0.47  $   (0.24)

Basic income (loss) per end of
 period share                    $    0.18  $   (0.20) $    0.18  $   (0.24)

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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