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U.S. Securities and Exchange CommissionWashington, D.C. 20549

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FORM 10-QSB

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended December 31, 2001

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
|--- | --------------------------------------------------------------------------------

For the transition period from  to

Commission File No. 000-25231

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Northern Star Financial, Inc.(Exact name of registrant as specified in its charter)

Minnesota(State of Incorporation)

41-1912467(IRS Employer ID#)1650 Madison Avenue
Mankato, MN 56001(Address of principal executive offices)


507-387-2265(Issuer's Telephone Number, Including Area Code)

Check
whether the issuer (1) filed all reports required to be filed by Sections 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes /x/    No / /

State
the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date.

Class: Common Stock, par value $.01 per share  Outstanding shares at December 31, 2001: 479,506

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Northern Star Financial, Inc. and Subsidiary

Northern Star Financial, Inc.  Index to Form 10-QSB  December 31, 2001

|                              |  |         |  |                                                                                                              
|----------------------------- |  | ------- |  | -------------------------------------------------------------------------------------------------------------
|PART I. FINANCIAL INFORMATION
|                              |  | Item 1. |  | Summary Financial Data                                                                                       
|                              |  |         |  | Consolidated Statements of Financial Condition at December 31, 2001 (unaudited) and June 30, 2001 (audited)  
|                              |  |         |  | Unaudited Consolidated Statements of Operations for the three and six months ended December 31, 2001 and 2000
|                              |  |         |  | Unaudited Consolidated Statement of Cash Flows for the three and six months ended December 31, 2001 and 2000 
|                              |  |         |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                             
|                              |  | Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        
|PART II. OTHER INFORMATION   
|                              |  | Item 1. |  | Legal Proceedings                                                                                            
|                              |  | Item 2. |  | Changes in Securities                                                                                        
|                              |  | Item 3. |  | Default upon Senior Securities                                                                               
|                              |  | Item 4. |  | Submission of Matters to a Vote of Security Holders                                                          
|                              |  | Item 5. |  | Other Information                                                                                            
|                              |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                             
|SIGNATURES                    |  |        

2

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Northern Star Financial, Inc. Financial Data Summary

The following table summarizes certain historical financial data of Northern Star Financial and its subsidiary on a consolidated basis as of and for the three and
six months ended December 31, 2001 and 2000. You should read this table in conjunction with our financial statements and related notes appearing elsewhere in this document.

|                                                                    |  | For The Three Months
Ended December 31, |         | As of and For The Six Months
Ended December 31, |  
|------------------------------------------------------------------- |  | --------------------------------------- | ------- | ----------------------------------------------- | -
|
|
|Statement of Income:                                                |  |                                         |         |                                                 |  
|Interest income                                                     |  | $                                       | 705,167 |                                                 | $
|Interest expense                                                    |  |                                         | 478,117 |                                                 |  
|                                                                    |  |                                         |         |                                                 |  
|Net interest income                                                 |  |                                         | 227,050 |                                                 |  
|Provision for loan losses                                           |  |                                         | 38,900  |                                                 |  
|Other non-interest income                                           |  |                                         | 205,708 |                                                 |  
|Non-interest expense                                                |  |                                         | 455,557 |                                                 |  
|                                                                    |  |                                         |         |                                                 |  
|Income (loss) before income tax expense                             |  |                                         | (61,699 | )                                               |  
|Income tax expense (benefit)                                        |  |                                         |        |                                                 |  
|                                                                    |  |                                         |         |                                                 |  
|Net income (loss)                                                   |  | $                                       | (61,699 | )                                               | $
|                                                                    |  |                                         |         |                                                 |  
|Balance Sheet:                                                      |  |                                         |         |                                                 |  
|Assets                                                              |  |                                         |         |                                                 |  
|Allowance for loan losses                                           |  |                                         |         |                                                 |  
|Deposits                                                            |  |                                         |         |                                                 |  
|Stockholders' equity                                                |  |                                         |         |                                                 |  
|Per Share Data:                                                     |  |                                         |         |                                                 |  
|Net income (loss)basic                                             |  | $                                       | (0.13   | )                                               | $
|Net income (loss)diluted                                           |  | $                                       | (0.13   | )                                               | $
|Book value                                                          |  |                                         |         |                                                 |  
|Other Data                                                          |  |                                         |         |                                                 |  
|Average shares outstanding  basic                                  |  |                                         | 479,506 |                                                 |  
|Average shares outstanding  diluted                                |  |                                         | 479,506 |                                                 |  
|Financial Ratios:                                                   |  |                                         |         |                                                 |  
|Equity to assets                                                    |  |                                         |         |                                                 |  
|Return on average assets                                            |  |                                         |         |                                                 |  
|Return on average stockholders' equity                              |  |                                         |         |                                                 |  
|Net interest margin                                                 |  |                                         |         |                                                 |  
|Tier 1 leverage ratio                                               |  |                                         |         |                                                 |  
|Tier 1 capital to risk-weighted assets                              |  |                                         |         |                                                 |  
|Total capital to risk-weighted assets                               |  |                                         |         |                                                 |  
|Asset Quality Ratios:                                               |  |                                         |         |                                                 |  
|Nonperforming assets to total assets                                |  |                                         |         |                                                 |  
|Nonperforming assets to total loans and and other real estate owned |  |                                         |         |                                                 |  
|Allowance for loan losses to total loans                            |  |                                         |         |                                                 |  

3

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Northern Star Financial, Inc. and SubsidiaryConsolidated Statements of Financial Condition

|                                                                                                  |                                            | December 31, 2001 |            | June 30, 2001 |  
|------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------------- | ---------- | ------------- | -
|
|ASSETS                                                                                            |                                           
|Cash and due from banks                                                                           |                                            | $                 | 1,318,025  |               | $
|Federal funds sold                                                                                |                                            |                   | 921,000    |               |  
|Securities available for sale, at fair value                                                      |                                            |                   | 9,942,032  |               |  
|Federal Home Loan Bank stock, at cost                                                             |                                            |                   | 238,800    |               |  
|Loans held for sale                                                                               |                                            |                   | 831,422    |               |  
|Loans receivable, net of allowance for loan and lease losses of $557,353 and $234,989             |                                            |                   | 30,778,281 |               |  
|Accrued interest receivable                                                                       |                                            |                   | 367,471    |               |  
|Property and equipment, net of depreciation                                                       |                                            |                   | 587,696    |               |  
|Other assets                                                                                      |                                            |                   | 47,922     |               |  
|                                                                                                  |                                            |                   |            |               |  
|                                                                                                  | Total Assets                               |                   | $          | 45,032,649    |  
|                                                                                                  |                                            |                   |            |               |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                              |                                           
|Liabilities:                                                                                      |                                            |                   |            |               |  
|Demand deposits                                                                                   |                                            | $                 | 2,913,080  |               | $
|NOW accounts                                                                                      |                                            |                   | 876,957    |               |  
|Savings and money market                                                                          |                                            |                   | 9,640,684  |               |  
|Time deposits                                                                                     |                                            |                   | 22,473,483 |               |  
|                                                                                                  |                                            |                   |            |               |  
|                                                                                                  | Total deposits                             |                   |            | 35,904,204    |  
|Notes Payable and other borrowings                                                                |                                            |                   | 5,275,000  |               |  
|Convertible subordinated notes payable                                                            |                                            |                   | 1,000,000  |               |  
|Accrued interest payable and other                                                                |                                            |                   | 381,619    |               |  
|                                                                                                  |                                            |                   |            |               |  
|                                                                                                  | Total Liabilities                          |                   |            | 42,560,823    |  
|                                                                                                  |                                            |                   |            |               |  
|Shareholders' Equity:                                                                             |                                            |                   |            |               |  
|Common Stock, $.01 par value, 15,000,000 shares authorized; 479,506 shares issued and outstanding |                                            |                   | 4,795      |               |  
|Undesignated stock, par value $.01per share; 5,000,000 shares authorized, no shares issued        |                                            |                   |           |               |  
|Additional paid in capital                                                                        |                                            |                   | 4,158,504  |               |  
|Accumulated deficit                                                                               |                                            |                   | (1,649,548 | )             |  
|Unearned stock compensation                                                                       |                                            |                   | (14,002    | )             |  
|Accumulated other comprehensive income (loss)                                                     |                                            |                   | (27,923    | )             |  
|                                                                                                  |                                            |                   |            |               |  
|                                                                                                  | Total Shareholders' Equity                 |                   |            | 2,471,826     |  
|                                                                                                  |                                            |                   |            |               |  
|                                                                                                  | Total Liabilities and Shareholders' Equity |                   | $          | 45,032,649    |  
|                                                                                                  |                                            |                   |            |               |  

See
Notes to Consolidated Financial Statement

4

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Northern Star Financial, Inc. and SubsidiaryUnaudited Consolidated Statements of Operations

|                                                           |                                        | For the Three Months
Ended December 31,           |         | For the Six Months
Ended December 31, |        
|---------------------------------------------------------- | -------------------------------------- | ------------------------------------------------- | ------- | ------------------------------------- | -------
|
|Interest income                                            |                                        |                                                   |         |                                       |        
|                                                           | Loans receivable                       |                                                   | $       | 535,534                               |        
|                                                           | Securities available for sale          |                                                   |         | 152,858                               |        
|                                                           | Federal funds sold                     |                                                   |         | 16,775                                |        
|                                                           |                                        |                                                   |         |                                       |        
|                                                           |                                        | Total interest income                             |         |                                       | 705,167
|                                                           |                                        |                                                   |         |                                       |        
|Interest expense                                           |                                        |                                                   |         |                                       |        
|                                                           | Deposits                               |                                                   |         | 398,770                               |        
|                                                           | Borrowed funds                         |                                                   |         | 79,347                                |        
|                                                           |                                        |                                                   |         |                                       |        
|                                                           |                                        | Total interest expense                            |         |                                       | 478,117
|                                                           |                                        |                                                   |         |                                       |        
|                                                           | Net interest income                    |                                                   |         | 227,050                               |        
|                                                           | Provision for loan losses              |                                                   |         | 38,900                                |        
|                                                           |                                        |                                                   |         |                                       |        
|                                                           |                                        | Net interest income after provision for loan loss |         |                                       | 188,150
|                                                           |                                        |                                                   |         |                                       |        
|Noninterest income                                         |                                        |                                                   |         |                                       |        
|                                                           | Other fees and service charges         |                                                   |         | 40,135                                |        
|                                                           | Gain on sale of securities             |                                                   |         | 53,534                                |        
|                                                           | Gain on sale of loans                  |                                                   |         | 112,039                               |        
|                                                           |                                        |                                                   |         |                                       |        
|                                                           |                                        | Total noninterest income                          |         |                                       | 205,708
|                                                           |                                        |                                                   |         |                                       |        
|Noninterest expense                                        |                                        |                                                   |         |                                       |        
|                                                           | Compensation and employee benefits     |                                                   |         | 202,817                               |        
|                                                           | Board fees                             |                                                   |         | 27,250                                |        
|                                                           | Occupancy                              |                                                   |         | 39,379                                |        
|                                                           | Legal and accounting                   |                                                   |         | 27,600                                |        
|                                                           | Printing & supplies                    |                                                   |         | 21,492                                |        
|                                                           | Property and equipment depreciation    |                                                   |         | 19,768                                |        
|                                                           | Data processing                        |                                                   |         | 22,374                                |        
|                                                           | Other                                  |                                                   |         | 94,877                                |        
|                                                           |                                        |                                                   |         |                                       |        
|                                                           |                                        | Total noninterest expense                         |         |                                       | 455,557
|                                                           |                                        |                                                   |         |                                       |        
|Loss Before income Tax Benefit and Discontinued Operations |                                        |                                                   | (61,699 | )                                     |        
|                                                           | Income Tax Benefit                     |                                                   |         |                                      |        
|                                                           |                                        |                                                   |         |                                       |        
|Loss from Continuing Operations                            |                                        |                                                   | (61,699 | )                                     |        
|                                                           | Loss from Discontinued Operations      |                                                   |         |                                      |        
|                                                           |                                        |                                                   |         |                                       |        
|Net Loss                                                   |                                        | $                                                 | (61,699 | )                                     | $      
|                                                           |                                        |                                                   |         |                                       |        
|Net Loss per Common Share                                  |                                        |                                                   |         |                                       |        
|                                                           | Basic from Continuing Operations       |                                                   | $       | (0.13                                 | )      
|                                                           | Basic from Discontinued Operations     |                                                   |         | (0.00                                 | )      
|                                                           |                                        |                                                   |         |                                       |        
|                                                           | Basic (loss) per share of common stock |                                                   | $       | (0.13                                 | )      
|                                                           |                                        |                                                   |         |                                       |        

See
Notes to Consolidated Financial Statements

5

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Northern Star Financial, Inc. and SubsidiaryUnaudited Consolidated Statements of Cash Flows

|                                                   |                                                                                           | For the Three Months
Ended December 31,                      |                                                | For the Six Months
Ended December 31, |           
|-------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------------------------- | ------------------------------------- | ----------
|
|Cash flows from operating activities:              |                                                                                           |                                                              |                                                |                                       |           
|                                                   | Net (loss)                                                                                |                                                              | $                                              | (61,699                               | )         
|                                                   | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                                              |                                                |                                       |           
|                                                   |                                                                                           | Depreciation                                                 |                                                |                                       | 24,976    
|                                                   |                                                                                           | Loss on disposition of joint venture                         |                                                |                                       |          
|                                                   |                                                                                           | Provision for loan losses                                    |                                                |                                       | 38,900    
|                                                   |                                                                                           | Net amortization and accretion of bond premium and discounts |                                                |                                       | (3,296    
|                                                   |                                                                                           | Deferred loan fees and costs, net                            |                                                |                                       | (23,660   
|                                                   |                                                                                           | Earned stock compensation                                    |                                                |                                       | 1,000     
|                                                   |                                                                                           | Gain on sale of available for sale securities                |                                                |                                       | (53,534   
|                                                   |                                                                                           | (Increase) decrease in:                                      |                                                |                                       |           
|                                                   |                                                                                           |                                                              | Loans held for sale                            |                                       |           
|                                                   |                                                                                           |                                                              | Accrued interest receivable                    |                                       |           
|                                                   |                                                                                           |                                                              | Other assets                                   |                                       |           
|                                                   |                                                                                           | Increase (decrease) in:                                      |                                                |                                       |           
|                                                   |                                                                                           |                                                              | Accrued interest payable and other liabilities |                                       |           
|                                                   |                                                                                           |                                                              |                                                |                                       |           
|                                                   |                                                                                           | Net cash provided by (used in) operating activities          |                                                |                                       | (2,382    
|                                                   |                                                                                           |                                                              |                                                |                                       |           
|Cash flows from investing activities:              |                                                                                           |                                                              |                                                |                                       |           
|                                                   | Purchases of available-for-sale securities                                                |                                                              |                                                | (3,220,073                            | )         
|                                                   | Proceeds from maturities of available-for-sale securities                                 |                                                              |                                                | 1,130,056                             |           
|                                                   | Proceeds from sales of available-for-sale securities                                      |                                                              |                                                | 5,014,146                             |           
|                                                   | Purchase of FHLB stock                                                                    |                                                              |                                                | (80,000                               | )         
|                                                   | Investment in joint venture                                                               |                                                              |                                                |                                      |           
|                                                   | Loan origination's and principal payments on loans, net                                   |                                                              |                                                | (5,366,817                            | )         
|                                                   | Purchase of property and equipment                                                        |                                                              |                                                | (42,228                               | )         
|                                                   |                                                                                           |                                                              |                                                |                                       |           
|                                                   |                                                                                           | Net cash used in investing activities                        |                                                |                                       | (2,564,916
|                                                   |                                                                                           |                                                              |                                                |                                       |           
|Cash flows from financing activities:              |                                                                                           |                                                              |                                                |                                       |           
|                                                   | Net increase in non-interest bearing demand and savings deposit accounts                  |                                                              |                                                | 1,533,347                             |           
|                                                   | Net (decrease) increase in time deposits                                                  |                                                              |                                                | (265,656                              | )         
|                                                   | Proceeds from borrowings                                                                  |                                                              |                                                | 1,500,000                             |           
|                                                   |                                                                                           |                                                              |                                                |                                       |           
|                                                   |                                                                                           | Net cash provided by financing activities                    |                                                |                                       | 2,767,691 
|                                                   |                                                                                           |                                                              |                                                |                                       |           
|Net increase (decrease) in cash and due from banks |                                                                                           |                                                              | 206,524                                        |                                       |           
|Cash and due from banks, beginning                 |                                                                                           |                                                              | 1,111,501                                      |                                       |           
|                                                   |                                                                                           |                                                              |                                                |                                       |           
|Cash and due from banks, ending                    |                                                                                           | $                                                            | 1,318,025                                      |                                       | $         
|                                                   |                                                                                           |                                                              |                                                |                                       |           

See Notes to Consolidated Financial Statements

6

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2001  (Unaudited)

Note 1: PRINCIPLES OF CONSOLIDATION

The unaudited consolidated financial statements as of and for the six month period ended December 31, 2001 and 2000 include the accounts of Northern Star
Financial, Inc. (the "Company") and its wholly owned subsidiary Northern Star Bank (the "Bank"). All significant inter-company accounts and transactions have been eliminated in consolidation.

Note 2: BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information. Accordingly, they do not include all information and disclosures required by generally accepted accounting principles for complete financial
statements. The accompanying consolidated financial statements do not purport to contain all the necessary financial disclosures required by generally accepted accounting principles that might
otherwise be necessary in the circumstances and should be read with the fiscal 2001 consolidated financial statements and notes of Northern Star Financial, Inc. and Subsidiary included in their
annual report as of and for the year ended June 30, 2001.

In
the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentations have been included. The results of operations for the
three and six month periods ended December 31, 2001 and 2000, are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

Note 3: EARNINGS PER SHARE

The earnings per share amounts were computed using the weighted average number of shares outstanding during the periods presented. For the three and six month
periods ended December 31, 2001 and 2000 the weighted average number of shares outstanding for basic and diluted earnings per share computation were 479,506 and 427,600 respectively. Potential
common shares related to stock options, warrants, and convertible subordinated notes payable were not included in the calculation of diluted earnings per share because they were
anti-dilutive.

7

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Note 4: COMPREHENSIVE (LOSS)

|                                                                     |                                  | For the Six Months
Ended December 31, |  
|-------------------------------------------------------------------- | -------------------------------- | ------------------------------------- | -
|
|Accumulated other comprehensive (loss) is composed of the following: |                                  |                                       |  
|Unrealized Gains (Losses) on Securities                              |                                  |                                       |  
|                                                                     | Beginning Balance                |                                       | $
|                                                                     | Current-period change net of tax |                                       |  
|                                                                     |                                  |                                       |  
|                                                                     | Ending Balance                   |                                       | $
|                                                                     |                                  |                                       |  
|Comprehensive (Loss) consists of the following:                      |                                  |                                       |  
|                                                                     | Net loss                         |                                       | $
|                                                                     | Other comprehensive income       |                                       |  
|                                                                     |                                  |                                       |  
|                                                                     | Comprehensive (loss)             |                                       | $
|                                                                     |                                  |                                       |  

8

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS

Northern Star Financial, Inc. is the bank holding company of Northern Star Bank (the "Bank"). Since the principal business of the Company is the Bank, the
following discussion pertains mainly to the Bank.

This
report contains "forward-looking statements" as defined in section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended,
which includes statements such as projections, plans and objectives and assumptions about the future, and such forward looking statements are subject to the safe harbor created by these sections. Many
factors could cause the actual results, amounts or events to differ materially from those the Company expects to achieve or occur, such as changes in competition, market interest rates, economic
conditions and regulations. Although the Company has based its plans and projections on certain assumptions, there can be no assurances that its assumptions will be correct, or that its plans and
projections can be achieved.

Consolidated
total assets at December 31, 2001 were approximately $45 million, which represents an increase of $5.9 million, or 15.1%, above the comparable level at June 30, 2001. The
increase in total assets was directly attributable to a $3.1 million, or a 9.4%, increase in total deposits combined with a $2.4 million, or 83%, increase in short term borrowings as compared to June
30, 2001. The growth in deposits is primarily the result of a $1.4 million, or 98.3%, increase in demand deposit accounts, and a $2.04 million, or 26.8% increase in savings and money market accounts.
The increase in savings and money markets accounts resulted from the Company offering deposit rates at or slightly above the rates offered by a majority of its competitors in its immediate market
area, the intent of which was to attract new customers while providing funding for projected loan growth.

In
September 2001, the Company raised $1 million through the sale of convertible subordinated unsecured notes. The notes were issued for a three-year term and bear interest at the rate
of eight percent per annum payable quarterly. Investors in the notes were granted the right to covert their investment into shares of Northern Star Financial, Inc. common stock at the rate of $10.50
per share at any time prior to maturity. Related parties (directors) purchased $600,000 of these notes. The net loss for the six months ending December 31, 2001 equaled $457,504 compared to a net loss
of $98,687 for the six months ending December 31, 2000. Northern Star Bank established a banking office in St. Cloud, Minnesota during the first quarter of the fiscal year ending June 30, 2002. As a
result, a direct comparison of the results of operations during these time periods may not be meaningful.

Net Interest Income

Interest income for the second quarter of the fiscal year ending June 30, 2002 increased by $78 thousand, or 12.4%, over the same quarter of 2001. The net
interest margin of 2.13% for the second quarter of fiscal year 2002 decreased from 3.04% for the second quarter of 2001. Further, loan yields have decreased at a faster rate than deposit rates. For
the first six months of fiscal year 2002, interest income increased by $222 thousand, or 19%, over the same period one year ago. The net interest margin of 1.98% for the first six months of fiscal
year 2002 decreased from 3.24% over the same period one year ago. Improvement in interest income was the result of the higher volume of loans. Conversely, the decline in the net interest margin
resulted primarily from the impact of increases in deposits being invested in securities and federal funds sold during a lower interest rate environment that existed during the second quarter and
first half of fiscal year 2002 as compared to that which existed during the second quarter and first half of fiscal year 2001.

Average
interest bearing deposits for the three months ended December 31, 2001 increased by $10.4 million, or 45.2%, compared to the prior fiscal year quarter. The average rate paid on
interest bearing accounts decreased from 6.30% in the second quarter of fiscal year 2001 to 4.79% for the second quarter of fiscal year 2002. The average rate paid on certificates of deposits
decreased, from

9

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6.79% for the first six months of fiscal year 2001 to 6.05% for the same quarter of fiscal year 2002. For the first six months of fiscal year 2002, average deposits increased $11.04 million, or
46.7%, compared to the first six months of fiscal year 2001. The average rate paid on savings, money market and checking accounts during the first six months of fiscal year 2002 was 2.61% compared to
3.11% for the first six months of fiscal year 2001.

Average
non-interest bearing deposits have not kept pace with the growth in interest bearing deposits from a year ago. Average non-interest bearing deposits make up 5.48% of average
total deposits for the first six months of fiscal year 2002 as compared to 7.21% for the first six months of fiscal year 2001. This has contributed to the decline in net interest margin. Average
certificates of deposit for the second quarter and the first six months of fiscal year 2002 were 66.6% of average deposits, compared to 65.1% for the same period of fiscal year 2001.

Noninterest Income

Noninterest income is derived primarily from service charges on deposit accounts, gains on the sale of securities, and earnings on loan sales. Non-interest income
for the second quarter increased by $176 thousand, or 587%, compared to the same quarter of fiscal year 2001. The increase is due to an increase in the volume of loans sold on the secondary market.
For the first six months of fiscal year 2002, non-interest income increased $208 thousand, or 350%, compared to the first six months of 2001. The increases are consistent with the growth in average
interest bearing demand deposits and savings accounts combined with premiums and fee income from residential mortgage activity. Residential
mortgage loans originated for sale increased $8.03 million, or 602%, compared to the first six months of fiscal year 2001. For the first six months of fiscal year 2002, income from gain on sale of
residential mortgage loans increased $119 thousand, or 541%, compared to the first six months of 2001. The increase in mortgage loan activity is attributable to the decline in mortgage lending
interest rates that has resulted in an increase in the origination of new loans.

Noninterest Expenses

The Company's noninterest expenses were $455,557 (or 4.1% of average assets on an annualized basis) during the three-month period ending December 31, 2001 and
$798,213 (or 3.7% of average assets on an annualized basis) for the six-month period ending December 31, 2001. The second quarter increase of nearly $113 thousand in noninterest expenses over first
quarter levels is attributed to increases in expenses associated with higher volumes of residential mortgage lending, problem loan resolution expense, and to the expansion of the Company's banking
activities into the St. Cloud market. Non-interest expenses for the quarter ended December 31, 2001 increased by $174 thousand, or 61.9%, compared to the prior fiscal years quarter at which time
noninterest expenses were 3.7% of average assets.

For
the second quarter, salary and employee benefits expense increased $93 thousand, or 84.7%. Occupancy expense increased $17 thousand, or 72.6%, depreciation expense increased $3
thousand, or 17.3%, compared to the prior year.

For
the first six months of fiscal year 2002, non-interest expense increased $264 thousand, or 49.5%, compared to the first six months of fiscal year 2001 at which time noninterest
expenses were 3.8% of average assets. The increase in non-interest expense results primarily from increases in salary and benefits, occupancy, both of which are a function of our new St. Cloud
location.

Year
to date, salary and employee benefits expense increased $144 thousand, or 66.3%, occupancy expense increased $33 thousand, or 78.4%, depreciation expense increased $3 thousand, or
8.2% while accounting expenses decreased $4 thousand, or 21.7%, compared to the equivalent six month period in the prior fiscal year.

10

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Salary
and employee benefits expense increased as a result of the addition of certain staff lending positions in the Mankato office as well as staffing positions associated with the St.
Cloud bank expansion. These additions to staff were combined with general merit increases in salaries and increased employee benefit costs. The increase in occupancy and depreciation expenses occurred
primarily as a result of the addition of the St. Cloud banking facility combined with other general upgrades in equipment and technology.

Income Taxes

The effective tax rate for the Company and the Bank was 0% for the three months and six months ended December 31, 2001 because the expected future tax benefit of
the net operating loss amounting to approximately $183 thousand is fully reduced by a deferred tax asset valuation allowance in accordance with generally accepted accounting principles.

Liquidity and Investment Portfolio

Liquidity is a bank's ability to meet possible deposit withdrawals, to meet loan commitments and increased loan demand, and to take advantage of other investment
opportunities as they arise. The Bank's liquidity practices are defined in both the Asset and Liability Policy and the Investment Policy. These policies define acceptable liquidity measures in terms
of ratios to total assets, deposits, liabilities and capital.

The
Company's primary source of liquidity is from cash on hand, deposit growth, borrowings and dividends from the Bank. The Company's primary uses of liquidity are associated with its
loan growth and operating expenses.

The
Bank's liquidity is managed on a daily basis by maintaining cash, federal funds sold, and short-term investments at levels commensurate with the estimated requirements for loan
demand and fluctuations in deposits. Loan demand and deposit fluctuations are affected by a number of factors, including economic conditions, seasonality of the borrowing and deposit bases, and the
general level of interest rates.

At
December 31, 2001 liquidity was considered adequate, and funds available in the local deposit market and scheduled maturities of investments are considered sufficient to meet
long-term liquidity needs. Compared to fiscal year 2001 liquidity decreased in fiscal year 2002 as a result of the growth in the loan and securities portfolio.

Cash
and due from banks and federal funds sold totaled $2.2 million as of December 31, 2001. Liquid assets were lower than anticipated at December 31, 2001 due to greater than expected
residential loan financing demand.

At
present the Company's primary sources of liquidity are from maturing securities, deposit growth and interest on loans. In addition, the Bank has offered special time deposits at
slightly higher than market
rates in order to attract new deposits to fund its growth in loans and investments. The Bank has several ways of providing liquidity in addition to special deposit campaigns, which offer rates
slightly higher than local market rates yet less than national market rates. At December 31, 2001, the Bank had unused federal funds lines of credit totaling $2 million. The Bank also has access to
borrowings from the Federal Home Loan Bank based upon the value of collateral (investments and loans). Management believes these sources of secondary liquidity are adequate to meet any cash demands
that may arise.

Deposits

Total deposits were $35.9 million at the period ending December 31, 2001, which was an increase of $3.09 million over the prior fiscal year ending June 30, 2001.
Deposit balances held in the Bank's tiered money market accounts equaled $5.3 million at December 31, 2001. This is an account in which

11

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the terms provide a floating rate of interest. The rate offered on this account has been attractive and Bank's customers have held funds in this deposit product rather than locking into a specific
maturity. New customers continue to find this deposit account attractive due to the immediate availability of their funds versus a time certificate bearing a future maturity.

As
of December 31, 2001, demand deposits equaled $2.9 million. These Bank transaction accounts have significant changes in daily balances, mainly due to deposits held by commercial
companies. Commercial company deposit accounts have greater balance fluctuations than other types of deposits because of their comparatively higher levels of activity. The low interest rate
environment over the past few years and the increased competition from the financial services industry has made it more difficult to attract new deposits at favorable rates. The Bank continually
monitors competitors' rates, strives to be competitive in pricing deposits, and has offered attractive time deposit rates to raise funds during periods of high loan growth.

Loans

Net loans receivable, including loans held for sale, equaled $31.6 million at December 31, 2001. The Bank continues to emphasize commercial and real estate
lending. At December 31, 2001, 15% of the loans held for investment were commercial and agricultural loans and 45% were residential real estate and construction loans. The Bank consumer loan portfolio
equaled 38.7% of the total loan portfolio at December 31, 2001. Average loans for the three months ended December 31, 2001 increased by 8.4 million, or 39% compared to the prior year quarter. For the
first six months of fiscal year 2002, average loans increased $7.2 million, or 36%, compared to the first six months of fiscal year 2001. This increase has been the result of the Bank's efforts to
increase total interest earning assets.

Allowance for Loan Losses

The allowance for loan losses equaled $557,353 at fiscal quarter ending December 31, 2001. This amount is equal to 1.79% of loan receivables as of the period end.
The provision for loan losses for the three and six months ended December 31, 2001 was $39 thousand and $333 thousand compared with $20 thousand and $40 thousand for the three and six months ended
December 31, 2000. The year-to-date rate of increase in the provision for loan losses is higher than the increase in the growth rate of gross loans during the first six months of fiscal year 2002 as
compared to the first six months of fiscal year 2001. The primary reason for the increase in this ratio is the $295 thousand of loans classified as doubtful or loss during the first quarter of fiscal
year 2002 and their related specific reserves.

At
fiscal quarter ending December 31, 2001, the Bank had 4 loans totaling approximately $318 thousand classified as substandard and $289 in loans classified as doubtful or loss.

The
allowance for loan losses is reviewed on a monthly basis, based upon an allocation for each loan category, plus an allocation for any outstanding loans which have been classified by
regulators or internally for the "Watch List". Each loan that has been classified is individually analyzed for the risk involved with a specific reserve allocation assigned according to the risk
assessment. Since the bank's inception, there have been $20 thousand in loan receivables charged off and, $5 thousand in charge off recoveries. Northern Star Bank has developed policies and procedures
for evaluating the overall quality of its credit portfolio and the timely identification of potential problem loans. Management's judgment as to the adequacy of the allowance is based upon a number of
assumptions about future events that it believes to be reasonable, but which may or may not be valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance
for credit losses or that additional increases in the credit loss allowance will not be required.

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Capital Resources

Pursuant to regulations under the FDIC Improvement Act of 1991 (FDICIA), five capital levels were prescribed as applicable for banks, ranging from
well-capitalized to critically under-capitalized. Banks are required to maintain a minimum total risk-based capital ratio of eight percent (8%). At December 31, 2001, the Bank was considered "well
capitalized."

Consolidated
equity decreased $509.8 thousand from June 30, 2001 to December 31, 2001. Consolidated equity represented 5.49% and 7.62% of consolidated assets at December 31, 2001 and
June 30, 2001, respectively. Equity capital of Northern Star Bank increased by $1 million from an offering of convertible debentures during the first quarter of fiscal year 2002. Consolidated
year-to-date capital reductions totaled $457.5 thousand resulting from the year-to-date operating losses that incurred
largely as a result of declining net interest margin and the $271 thousand provision made to the Bank's allowance for loan and lease losses during the first quarter of fiscal year 2002. The total
risk-based capital ratio for the Company's wholly owned subsidiary, Northern Star Bank was 12.37% at December 31, 2001 compared to 12.25% at June 30, 2001. The Bank's leverage capital ratio was 8.39%
at December 31, 2001 versus 8.00% at June 30, 2001. The capital ratios are in excess of the regulatory minimums for a well-capitalized bank.

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AVERAGE BALANCES, YIELDS AND RATES

The following table sets forth, for the three and six months ended December 31, 2001 and 2000, the weighted average yields earned, the weighted average
rates paid, the interest rate spread and the net yield on earning assets and interest-bearing liabilities, on an annualized basis.

|                                                                                 |                                            | For the Three Months Ended         |          
|-------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------------------- | ---------
|
|
|Assets                                                                           |                                            |                                    |          
|                                                                                 | Loans receivable                           |                                    | $        
|                                                                                 | Investment securities                      |                                    |          
|                                                                                 | Federal funds sold                         |                                    |          
|                                                                                 |                                            |                                    |          
|                                                                                 |                                            | Total interest-earning assets      |          
|                                                                                 | Non-interest-earning assets                |                                    |          
|                                                                                 |                                            |                                    |          
|                                                                                 |                                            | Total assets                       |          
|                                                                                 |                                            |                                    |          
|Liabilities and Stockholders' Equity                                             |                                            |                                    |          
|                                                                                 | Interest Bearing Deposits                  |                                    | $        
|                                                                                 | Other liabilities                          |                                    |          
|                                                                                 |                                            |                                    |          
|                                                                                 |                                            | Total interest-bearing liabilities |          
|                                                                                 |                                            |                                    |          
|                                                                                 | Non-interest-bearing liabilities           |                                    |          
|                                                                                 |                                            |                                    |          
|                                                                                 | Total liabilities                          |                                    |          
|Stockholders' Equity                                                             |                                            |                                    | 2,585,613
|                                                                                 | Total liabilities and stockholders' equity |                                    | $        
|                                                                                 |                                            |                                    |          
|Net Interest Spread                                                              |                                            |                                    |          
|Net Interest Income/Margin                                                       |                                            |                                    |          
|                                                                                 |                                            |                                    |          
|Ratio of average interest-earning assets To average interest-bearing liabilities |                                            |                                    | 1.09     

14

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|                                                                                 |                                            | For the Three Months Ended         |          
|-------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------------------- | ---------
|
|
|Assets                                                                           |                                            |                                    |          
|                                                                                 | Loans receivable                           |                                    | $        
|                                                                                 | Investment securities                      |                                    |          
|                                                                                 | Federal funds sold                         |                                    |          
|                                                                                 |                                            |                                    |          
|                                                                                 |                                            | Total interest-earning assets      |          
|                                                                                 | Non-interest-earning assets                |                                    |          
|                                                                                 |                                            |                                    |          
|                                                                                 |                                            | Total assets                       |          
|                                                                                 |                                            |                                    |          
|Liabilities and Stockholders' Equity                                             |                                            |                                    |          
|                                                                                 | Interest Bearing Deposits                  |                                    | $        
|                                                                                 | Other liabilities                          |                                    |          
|                                                                                 |                                            |                                    |          
|                                                                                 |                                            | Total interest-bearing liabilities |          
|                                                                                 |                                            |                                    |          
|                                                                                 | Non-interest-bearing liabilities           |                                    |          
|                                                                                 |                                            |                                    |          
|                                                                                 |                                            | Total liabilities                  |          
|Stockholders' Equity                                                             |                                            |                                    | 2,704,137
|                                                                                 | Total liabilities and stockholders' equity |                                    | $        
|                                                                                 |                                            |                                    |          
|Net Interest Spread                                                              |                                            |                                    |          
|Net Interest Income/Margin                                                       |                                            |                                    |          
|                                                                                 |                                            |                                    |          
|Ratio of average interest-earning assets to average interest-bearing liabilities |                                            |                                    | 1.08     

15

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INVESTMENT PORTFOLIO

Contractual maturities and yields on our investments (all available for sale) are summarized in the following table. Expected maturities may differ from
contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

|                  |  | December 31, 2001 |  
|----------------- |  | ----------------- | -
|
|US Agencies & MBS |  | $                 | 
|Corporate Bonds   |  |                   | 
|Mutual Funds      |  |                   | 
|                  |  |                   |  
|                  |  | $                 | 
|                  |  |                   |  

LOAN PORTFOLIO

Total gross loans outstanding at December 31, 2001, including loans held for sale, was $31,965,515. The following table summarized the composition of the
loan portfolio as of December 31, 2001 and June 30, 2001.

|                                |  | December 31, 2001 |            | June 30, 2001 |       
|------------------------------- |  | ----------------- | ---------- | ------------- | ------
|
|Commercial & Agricultural       |  | $                 | 4,895,814  |               | 15.32 
|Real Estateconstruction        |  |                   | 2,301,537  |               | 7.20  
|Real Estatemortgages           |  |                   | 12,141,047 |               | 37.98 
|Consumer Loans                  |  |                   | 12,356,595 |               | 38.66 
|Lease Financing                 |  |                   | 270,522    |               | 0.84  
|                                |  |                   |            |               |       
|Total loans                     |  | $                 | 31,965,515 |               | 100.00
|                                |  |                   |            |               |       
|Net Deferred Loans fees/(costs) |  |                   | 201,541    |               |       
|Less: Allowance for Loan Loss   |  |                   | (557,353   | )             |       
|                                |  |                   |            |               |       
|Total Net Loans                 |  | $                 | 31,609,703 |               |       
|                                |  |                   |            |               |       

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MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES

The information in the following table is based on the contractual maturities of individual loans, including loans which, may be subject to renewal at their
contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity. Actual repayments of loans may differ from maturities
reflected below because borrowers have the right to repay obligations with our without prepayment penalties. The following table summarizes loan maturities, by type at December 31, 2001 and
June 30, 2001.

|                                   |                         | As of December 31, 2001
|---------------------------------- | ----------------------- | -----------------------
|
|Commercial & Agricultural          |                         | $                      
|Real Estateconstruction           |                         |                        
|Real Estatemortgages              |                         |                        
|Consumer Loans                     |                         |                        
|Lease Financing                    |                         |                        
|                                   |                         |                        
|Total                              |                         | $                      
|                                   |                         |                        
|Loans maturing after one year with |                         |                        
|                                   | Fixed Interest Rate     |                        
|                                   | Floating Interest Rates |                        

|                                   |                         | As of June 30, 2001
|---------------------------------- | ----------------------- | -------------------
|
|Commercial & Agricultural          |                         | $                  
|Real Estateconstruction           |                         |                    
|Real Estatemortgages              |                         |                    
|Consumer loans                     |                         |                    
|Lease Financing                    |                         |                    
|                                   |                         |                    
|Total                              |                         | $                  
|                                   |                         |                    
|Loans maturing after one year with |                         |                    
|                                   | Fixed Interest Rate     |                    
|                                   | Floating Interest Rates |                    

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PROVISION AND ALLOWANCE FOR LOAN LOSSES

The Company has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential credit
problems. Additions to the allowance for loan losses will be made periodically to maintain the allowance at the appropriate level based on management's analysis of the potential risk in the loan
portfolio.

At
December 31, 2001, the allowance for loan losses was $557,353 or 1.79% of $31,134,092 in loan receivables (net of loans held for sale). The provision for loan losses was made
primarily as a result of management's assessment of impaired loans and general loan loss risk as the Bank's loan portfolio increases.

|                                                                                          |  | Six Months Ended
December 31, 2001 |         | Year Ended
June 30, 2001 |  
|----------------------------------------------------------------------------------------- |  | ---------------------------------- | ------- | ------------------------ | -
|Balance at Beginning of Period                                                            |  | $                                  | 234,989 |                          | $
|Charge-offs                                                                               |  |                                    | (11,114 | )                        |  
|Recoveries                                                                                |  |                                    | 178     |                          |  
|Net Charge-offs                                                                           |  |                                    | (10,936 | )                        |  
|Provision charged to operations                                                           |  |                                    | 333,300 |                          |  
|                                                                                          |  |                                    |         |                          |  
|Balance at End of Period                                                                  |  | $                                  | 557,353 |                          | $
|                                                                                          |  |                                    |         |                          |  
|Ratio of net charge-offs during the period to average loans outstanding during the period |  |                                    | 0.06    | %                        |  

At
December 31, 2001 and June 30, 2001 the allowance was allocated as follows:

|                          |  | December 31, 2001 |         | June 30, 2001 |       
|------------------------- |  | ----------------- | ------- | ------------- | ------
|
|Commercial & Agricultural |  | $                 | 54,272  |               | 15.32 
|Real Estateconstruction  |  |                   | 17,262  |               | 7.20  
|Real Estatemortgages     |  |                   | 66,616  |               | 37.98 
|Consumer loans            |  |                   | 417,175 |               | 38.66 
|Lease Financing           |  |                   | 2,028   |               | 0.84  
|                          |  |                   |         |               |       
|Total                     |  | $                 | 557,353 |               | 100.00
|                          |  |                   |         |               |       

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DEPOSITS

The following is a table of deposits by category at December 31, 2001 and June 30, 2001.

|                                  |  | As of December 31, 2001 |           
|--------------------------------- |  | ----------------------- | ----------
|
|Demand Deposit                    |  | $                       | 2,913,080 
|Now                               |  |                         | 876,957   
|Savings                           |  |                         | 9,640,684 
|Time Accounts less than $100,000  |  |                         | 19,020,694
|Time Accounts of $100,000 or more |  |                         | 3,452,789 
|                                  |  |                         |           
|Total Deposits                    |  | $                       | 35,904,204
|                                  |  |                         |           

|                                  |  | As of June 30, 2001 |           
|--------------------------------- |  | ------------------- | ----------
|
|Demand Deposit                    |  | $                   | 1,468,846 
|Now                               |  |                     | 657,420   
|Savings                           |  |                     | 7,603,740 
|Time Accounts less than $100,000  |  |                     | 19,202,472
|Time Accounts of $100,000 or more |  |                     | 3,884,586 
|                                  |  |                     |           
|Total Deposits                    |  | $                   | 32,817,064
|                                  |  |                     |           

Maturity
distribution of time deposits of $100,000 and over are as follows:

|                                  |  | As of December 31, 2001
|--------------------------------- |  | -----------------------
|
|Time Accounts of $100,000 or more |  | $                      
|                                  |  |                        

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PART II  OTHER INFORMATION

|        |  |                                                                                                                                                                                                         |                                                   
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------
|Item 1. |  | Legal Proceedings                                                                                                                                                                                      
|        |  | There are no pending legal proceedings to which Northern Star Financial, Inc. or its subsidiaries are parties in other than nonmaterial legal proceedings occurring in the ordinary course of business.
|Item 2. |  | Changes in Securities                                                                                                                                                                                  
|        |  | None                                                                                                                                                                                                   
|Item 3. |  | Default Upon Senior Securities                                                                                                                                                                         
|        |  | None                                                                                                                                                                                                   
|Item 4. |  | Submission of Matters to a Vote of Security Holders.                                                                                                                                                   
|        |  | None                                                                                                                                                                                                   
|Item 5. |  | Other Information                                                                                                                                                                                      
|        |  | None                                                                                                                                                                                                   
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                                                                       
|        |  | a)                                                                                                                                                                                                      | Exhibits                                          
|        |  |                                                                                                                                                                                                         | Exhibit 99.1 Press Release dated February 14, 2002
|        |  | b)                                                                                                                                                                                                      | Reports                                           
|        |  |                                                                                                                                                                                                         | None                                              

20

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|                        |  | NORTHERN STAR FINANCIAL, INC.
|----------------------- |  | -----------------------------
|Date: February 14, 2002 |  | By:                          
|Date: February 14, 2002 |  | By:                          

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