Northern States Financial 2007 Earnings Increase 42 Percent

Growth in Net Interest Income and Loans Dividends Increased

WAUKEGAN, Ill., March 7 /PRNewswire-FirstCall/ -- Northern States Financial Corporation (NASDAQ:NSFC), holding company for NorStates Bank, today reported earnings for 2007 of $4,388,000, or $1.05 per share, compared with $3,092,000, or $.72 per share for 2006, an increase of 41.9 percent. On a per share basis, 2007's earnings increased 45.8 percent over 2006. The increase in earnings was attributable to the Company's improved net interest income that was $2.4 million greater in 2007 than in 2006. Loan growth and higher yields earned on the Company's investment securities contributed to the increase to net interest income. The growth in net income was also enhanced by a decrease in noninterest expense of $473,000 in 2007.

As previously reported, during 2007 the Company concentrated on increasing profitability by restructuring its balance sheet and by focusing on increasing net interest income while containing costs. Loans, the highest earning asset of the Company, increased $62.0 million at year-end 2007 to $435.7 million as compared with $373.7 million at year-end 2006. Average yields earned on taxable investment securities in 2007 increased 104 basis points to 4.43 percent compared with 3.39 percent in 2006. The Company's investment securities portfolio was $153.3 million at December 31, 2007, decreasing $125.8 million from year-end 2006. Efforts made to contain costs included lowering deposit rates, which contributed to an expected decline in combined deposits and borrowings totaling $73.1 million during 2007. Noninterest expense decreased $473,000 during 2007 as the Company reduced staff. The net effect of the restructuring was that, although the Company's assets declined $71.9 million or 10 percent in 2007, profitability increased by $1.3 million or 42 percent.

For the three months ended December 31, 2007, net income was $1,231,000, or $.29 per share, compared with $916,000, or $.22 per share for the fourth quarter of 2006, an increase of 34 percent or $315,000, equal to $.07 per share.

During the fourth quarter 2007, the Company expensed $539,000 as a provision for loan losses due to an increase of $3.8 million to nonperforming loans at December 31, 2007 to $12.0 million as compared with $8.2 million at year-end 2006, a 46 percent increase. The growth in nonperforming loans in 2007 resulted from $3.5 million in construction loans becoming impaired as borrowers experienced difficulties selling the completed properties.

On December 3, 2007, the Company paid an increased cash dividend of $.37 per share to stockholders as compared with $.35 per share on December 1, 2006. Total cash dividends for 2007 were $.72 per share as compared with dividends of $.65 per share in 2006. Based on the closing price of the Company's stock on December 31, 2007 of $22.00 per share, this represents a dividend yield of approximately 3.3 percent.

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

Statements contained in this news release that are not historical facts may constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), which involve significant risks and uncertainties. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by the use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "plan," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted. The Company undertakes no obligation to update these forward-looking statements in the future. Factors that could have a material adverse effect on the operations and could affect the outlook or future prospects of the Company and its subsidiaries include, but are not limited to, the potential for further deterioration in the credit quality of the Company's loan and lease portfolios, and uncertainty regarding the Company's ability to ultimately recover on the surety bonds relating to equipment lease pools and other nonaccrual and restructured loans, unanticipated changes in interest rates, general economic conditions, increasing regulatory compliance burdens or potential legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the Company's loan or investment portfolios, the effect of continuing margin pressure on the Company's earnings, deposit flows, competition, demand for loan products and financial services in the Company's market area, and changes in accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements.

NORTHERN STATES FINANCIAL CORPORATION
KEY PERFORMANCE DATA
($ 000's, except per share data)

Year ended December 31: 2007 2006

Net Income $4,388 $3,092
Basic Earnings Per Share $1.05 $ .72
Return on Average Assets .66% .44%
Return on Average Equity 6.06% 4.36%
Efficiency Ratio 71.93% 81.30%
Yield on Interest
Earning Assets 6.16% 5.52%
Cost of Interest
Bearing Liabilities 3.78% 3.63%
Net Interest Spread 2.38% 1.89%
Net Yield on Interest
Earning Assets 2.96% 2.41%

Quarter ended December 31: 2007 2006

Net Income $1,231 $916
Basic Earnings Per Share $ .29 $ .22
Return on Average Assets .76% .52%
Return on Average Equity 6.71% 5.23%
Efficiency Ratio 61.64% 80.31%
Yield on Interest
Earning Assets 6.45% 5.61%
Cost of Interest
Bearing Liabilities 3.60% 3.94%
Net Interest Spread 2.85% 1.67%
Net Yield on Interest
Earning Assets 3.44% 2.24%

NORTHERN STATES FINANCIAL CORPORATION
KEY PERFORMANCE DATA
($ 000's, except per share data)

Dec. 31, Dec. 31,
2007 2006

Total Assets $638,156 $710,009
Total Loans and Leases 435,734 373,715
Total Deposits 480,959 522,596
Total Stockholders' Equity 73,454 71,463
Nonperforming Loans and Leases 11,982 8,182
Nonperforming Loans and Leases to
Total Loans and Leases 2.75% 2.19%
Restructured Loans $0 $1,477
Other Real Estate Owned 2,857 2,983
Book Value per Share $17.58 $16.88
Number of Shares Outstanding 4,178,105 4,233,105

NORTHERN STATES FINANCIAL CORPORATION
DIVIDEND HISTORY

June 1 December 1 Total

2002 $.53 $.53 $1.06
2003 .54 .54 1.08
2004 .55 .55 1.10
2005 .55 .07 .62
2006 .30 .35 .65
2007 .35 .37 .72

NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
(In thousands of dollars) (Unaudited)

Assets 2007 2006

Cash and due from banks $14,273 $19,023
Interest bearing deposits in financial
institutions - maturities less than 90 days 180 885
Federal funds sold 9,181 10,078
Total cash and cash equivalents 23,634 29,986
Securities available for sale 153,277 279,056
Loans and leases 435,734 373,715
Less: Allowance for loan and lease losses (4,606) (7,162)
Loans and leases, net 431,128 366,553
Federal Home Loan Bank stock 1,445 1,445
Office buildings and equipment, net 9,198 9,394
Other real estate owned 2,857 2,983
Goodwill 9,522 9,522
Core deposit intangible assets 1,390 1,854
Accrued interest receivable and other assets 5,705 9,216
Total assets $638,156 $710,009

Liabilities and Stockholders' Equity
Liabilities
Deposits
Demand - noninterest bearing $60,015 $58,530
Interest bearing 420,944 464,066
Total deposits 480,959 522,596
Securities sold under repurchase agreements 66,797 86,775
Federal Home Loan Bank advances 0 11,500
Subordinated debentures 10,000 10,000
Advances from borrowers for taxes and insurance 1,066 794
Accrued interest payable and other liabilities 5,880 6,881
Total liabilities 564,702 638,546

Stockholders' Equity
Common stock 1,789 1,789
Additional paid-in capital 11,584 11,584
Retained earnings 66,983 65,603
Accumulated other comprehensive income (loss) 300 (1,552)
Treasury stock, at cost (7,202) (5,961)
Total stockholders' equity 73,454 71,463
Total liabilities and stockholders' equity $638,156 $710,009

NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Twelve and three months ended December 31, 2007 and 2006
(In thousands of dollars, except per share data) (Unaudited)

Twelve months ended Three months ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2007 2006 2007 2006
Interest income
Loans (including fee
income) $27,789 $26,897 $7,334 $6,628
Securities
Taxable 9,509 8,730 2,247 2,428
Exempt from federal
income tax 311 235 97 65
Federal funds sold
and other 812 771 61 194
Total interest
income 38,421 36,633 9,739 9,315
Interest expense
Time deposits 12,112 12,341 2,907 3,255
Other deposits 3,607 4,155 766 1,094
Repurchase agreements
and federal funds
purchased 3,456 3,278 736 1,040
Federal Home Loan Bank
advances 205 259 0 67
Subordinated debentures 680 662 174 172
Total interest
expense 20,060 20,695 4,583 5,628
Net interest income 18,361 15,938 5,156 3,687
Provision for loan
and lease losses 81 0 539 0
Net interest income
after provision for
loan and lease losses 18,280 15,938 4,617 3,687
Noninterest income
Service fees on
deposits 2,847 2,541 754 697
Trust income 794 753 183 170
Net gains on sales
of other real estate
owned (8) 613 0 551
Other operating income 1,405 1,439 305 253
Total noninterest
income 5,038 5,346 1,242 1,671
Noninterest expense
Salaries and employee
benefits 8,600 8,903 2,054 2,217
Occupancy and
equipment, net 2,309 2,210 518 528
Data processing 1,564 1,565 348 375
Legal 439 436 68 189
Audit and other
professional 1,145 1,168 228 257
Amortization of core
deposit intangible
asset 464 464 116 116
Printing and supplies 403 423 100 99
Other operating
expenses 1,906 2,134 512 522
Total noninterest
expense 16,830 17,303 3,944 4,303
Income (loss) before
income taxes 6,488 3,981 1,915 1,055
Income tax expense
(benefit) 2,100 889 684 139
Net income $4,388 $3,092 $1,231 $916

Earnings per share $1.05 $0.72 $0.29 $0.22

First Call Analyst:
FCMN Contact:

Source: Northern States Financial Corporation

CONTACT: Fred Abdula, Chairman of the Board of Northern States Financial
Corporation, +1-847-244-6000, Ext. 238

Web site: http://www.norstates.com/
http://www.nsfc.net/

2008-03-07 16:34:04 0307500 PRNEWSWIRE