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United StatesSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



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FORM 10-Q

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ending September 30, 2002

OR

|     |  |                                                                                          
|---- |  | -----------------------------------------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________



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NORTHERN STATES FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)

|                                  |  |                                  |  |                                                
|--------------------------------- |  | -------------------------------- |  | -----------------------------------------------
|Delaware
(State of Incorporation) |  | 0-19300
(Commission
File Number) |  | 36-3449727
(I.R.S. Employer
Identification No.)

1601 North Lewis Avenue
Waukegan, Illinois 60085
(847) 244-6000
(Address, including zip code, and telephone number, including
area code, of principal executive office)



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, (or for 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: XXX      NO:

4,328,155 shares of common stock were outstanding
as of September 30, 2002





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TABLE OF CONTENTS



|                              |                                                                                               |                                                       |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | INDEPENDENT ACCOUNTANTS REPORT                      
|                              |                                                                                               | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES REPORT                                            
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                              | ITEM 3. DEFAULTS 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                                                                                   
|SECTION 302 CERTIFICATIONS   
|Exhibit 99.1 Certification   



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NORTHERN STATES FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
SEPTEMBER 30, 2002
INDEX

|                                       |                                                                                               |  |             |    | 
|-------------------------------------- | --------------------------------------------------------------------------------------------- |  | ----------- | -- | 
|                                       |                                                                                               |  | Page Number |   
|                                      
|PART I. FINANCIAL INFORMATION          |                                                                                               |  |             |   
|                                      
|                                       | Item 1. Financial Statements                                                                  |  |             |    | 
|                                      
|                                       | Independent Accountants Report                                                               |  |             | 2  | 
|                                      
|                                       | Condensed Consolidated Financial Statements and Notes                                         |  |             | 3  | 
|                                      
|                                       | Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |  |             | 8  | 
|                                      
|                                       | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  |             | 17 | 
|                                      
|                                       | Item 4. Disclosure Controls and Procedures Report                                             |  |             | 19 | 
|                                      
|PART II. OTHER INFORMATION             |                                                                                               |  |             |   
|                                      
|                                       | Item 1. Legal Proceedings                                                                     |  |             | 19 | 
|                                      
|                                       | Item 2. Changes in Securities and Use of Proceeds                                             |  |             | 19 | 
|                                      
|                                       | Item 3. Defaults upon Senior Securities                                                       |  |             | 19 | 
|                                      
|                                       | Item 4. Submission of Matters to a Vote of Security Holders                                   |  |             | 19 | 
|                                      
|                                       | Item 5. Other Information                                                                     |  |             | 19 | 
|                                      
|                                       | Item 6. Exhibits and Reports on Form 8-K                                                      |  |             | 19 | 
|                                      
|                                       | Signatures                                                                                    |  |             | 20 | 
|                                      
|SECTION 302 CERTIFICATIONS             |                                                                                               |  | 21          |   
|                                      
|EXHIBIT 99.1 Section 906 Certification |                                                                                               |  | 23          |   

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INDEPENDENT ACCOUNTANTS REPORT

Board of Directors and Stockholders
Northern States Financial Corporation
Waukegan, Illinois

We have reviewed the condensed consolidated balance sheet of NORTHERN
STATES FINANCIAL CORPORATION as of September 30, 2002 and the condensed
consolidated statements of income for the three and nine month periods ended
September 30, 2002 and 2001 and the condensed consolidated statements of cash
flows for the nine month periods ended September 30, 2002 and 2001. These
financial statements are the responsibility of the Companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States
of America, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express such
an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with accounting principles generally accepted in the United States
of America.

/s/ Crowe, Chizek and Company LLP

Oak Brook, Illinois
November 1, 2002

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NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2002 and December 31, 2001
(In thousands of dollars) (Unaudited)

|                                                                                   |                                 |                                            |         |               |         |   |              |         |         | 
|---------------------------------------------------------------------------------- | ------------------------------- | ------------------------------------------ | ------- | ------------- | ------- | - | ------------ | ------- | ------- | 
|                                                                                   |                                 |                                            |         | September 30, |         |   | December 31, |        
|                                                                                   |                                 | Assets                                     |         | 2002          |         |   | 2001         |        
|                                                                                   |                                 |                                            |         |               |         |  
|Cash and due from banks                                                            |                                 | $                                          | 16,809  |               |         | $ | 18,172       |        
|Interest bearing deposits in financial institutions -
maturities less than 90 days |                                 |                                            | 201     |               |         |   | 143          |        
|Federal funds sold                                                                 |                                 |                                            | 18,478  |               |         |   | 16,000       |        
|                                                                                   |                                 |                                            |         |               |         |  
|                                                                                   | Total cash and cash equivalents |                                            |         | 35,488        |         |   |              | 34,315  |        
|Securities available for sale                                                      |                                 |                                            | 216,511 |               |         |   | 213,982      |        
|Loans and leases                                                                   |                                 |                                            | 360,406 |               |         |   | 326,680      |        
|Less: Allowance for loan losses                                                    |                                 |                                            | (3,663  | )             |         |   | (3,822       | )      
|                                                                                   |                                 |                                            |         |               |         |  
|                                                                                   | Loans, net                      |                                            |         | 356,743       |         |   |              | 322,858 |        
|Federal Home Loan Bank stock                                                       |                                 |                                            | 1,712   |               |         |   | 1,647        |        
|Office buildings and equipment, net                                                |                                 |                                            | 5,488   |               |         |   | 5,576        |        
|Other real estate owned                                                            |                                 |                                            | 2,022   |               |         |   | 2,022        |        
|Accrued interest receivable and other assets                                       |                                 |                                            | 4,922   |               |         |   | 6,838        |        
|                                                                                   |                                 |                                            |         |               |         |  
|                                                                                   | Total assets                    |                                            | $       | 622,886       |         |   | $            | 587,238 |        
|                                                                                   |                                 |                                            |         |               |         |  
|                                                                                   |                                 | Liabilities and Stockholders Equity       |         |               |         |   |              |         |         | 
|Liabilities                                                                        |                                 |                                            |         |               |         |   |              |        
|Deposits                                                                           |                                 |                                            |         |               |         |   |              |        
|                                                                                   | Demand  noninterest bearing    |                                            | $       | 45,623        |         |   | $            | 48,092  |        
|                                                                                   | Interest bearing                |                                            |         | 412,550       |         |   |              | 358,940 |        
|                                                                                   |                                 |                                            |         |               |         |  
|                                                                                   |                                 | Total deposits                             |         |               | 458,173 |   |              |         | 407,032 | 
|Securities sold under repurchase agreements
and other short-term borrowings        |                                 |                                            | 75,893  |               |         |   | 86,170       |        
|Federal Home Loan Bank advances                                                    |                                 |                                            | 6,500   |               |         |   | 10,000       |        
|Advances from borrowers for taxes and insurance                                    |                                 |                                            | 184     |               |         |   | 743          |        
|Accrued interest payable and other liabilities                                     |                                 |                                            | 4,830   |               |         |   | 6,964        |        
|                                                                                   |                                 |                                            |         |               |         |  
|                                                                                   |                                 | Total liabilities                          |         |               | 545,580 |   |              |         | 510,909 | 
|                                                                                   |                                 |                                            |         |               |         |  
|Stockholders
EquityCommon stock                                                   |                                 |                                            | 1,789   |               |         |   | 1,788        |        
|Additional paid-in capital                                                         |                                 |                                            | 11,584  |               |         |   | 11,551       |        
|Retained earnings                                                                  |                                 |                                            | 66,519  |               |         |   | 63,110       |        
|Accumulated other comprehensive income (loss), net                                 |                                 |                                            | 1,167   |               |         |   | (120         | )      
|Treasury stock, at cost                                                            |                                 |                                            | (3,753  | )             |         |   | 0            |        
|                                                                                   |                                 |                                            |         |               |         |  
|                                                                                   | Total stockholders equity      |                                            |         | 77,306        |         |   |              | 76,329  |        
|                                                                                   |                                 |                                            |         |               |         |  
|                                                                                   |                                 | Total liabilities and stockholders equity |         | $             | 622,886 |   |              | $       | 587,238 | 
|                                                                                   |                                 |                                            |         |               |         |  

The accompanying notes are an integral part of these condensed consolidated
financial statements.

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NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three months and nine months ended September 30, 2002 and 2001
(In thousands of dollars, except per share data) (Unaudited)

|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        |  |               |        |        |  |        | 
|--------------------------------------------------- | --------------------------------------------------- | - | ------------------------- | ----- | ------------------ | ----- | ----- | ----------------- |  | ----- | ------------- | ------ |  | ------------- | ------ | ------ |  | ------ | 
|                                                    |                                                     |   |                           |       | Three months ended |       |       | Nine months ended | 
|                                                    |                                                     |   |                           |       |                    |       |       |                   | 
|                                                    |                                                     |   |                           |       | September 30,      |       |       | September 30,     |  |       | September 30, |        |  | September 30, |       
|                                                    |                                                     |   |                           |       | 2002               |       |       | 2001              |  |       | 2002          |        |  | 2001          |       
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        |  |               |       
|Interest income                                     |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        |  |               |        |       
|                                                    | Loans (including fee income)                        |   | $                         | 5,418 |                    |       | $     | 6,311             |  |       | $             | 16,438 |  |               | $      | 19,411 | 
|                                                    | SecuritiesTaxable                                   |   |                           | 1,986 |                    |       |       | 2,500             |  |       |               | 6,599  |  |               |        | 7,557  | 
|                                                    | Exempt from federal income tax                      |   |                           | 100   |                    |       |       | 157               |  |       |               | 332    |  |               |        | 488    | 
|                                                    | Interest bearing deposits in financial institutions |   |                           | 0     |                    |       |       | 3                 |  |       |               | 2      |  |               |        | 6      | 
|                                                    | Federal funds sold                                  |   |                           | 116   |                    |       |       | 140               |  |       |               | 224    |  |               |        | 670    | 
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|                                                    |                                                     |   | Total interest income     |       |                    | 7,620 |       |                   |  | 9,111 |               |        |  | 23,595        |        |        |  | 28,132 | 
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|Interest expense                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        |  |               |        |       
|                                                    | Time deposits                                       |   |                           | 1,993 |                    |       |       | 2,844             |  |       |               | 5,648  |  |               |        | 9,005  | 
|                                                    | Other deposits                                      |   |                           | 513   |                    |       |       | 763               |  |       |               | 1,512  |  |               |        | 2,499  | 
|                                                    | Other borrowings                                    |   |                           | 574   |                    |       |       | 942               |  |       |               | 1,824  |  |               |        | 3,282  | 
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|                                                    |                                                     |   | Total interest expense    |       |                    | 3,080 |       |                   |  | 4,549 |               |        |  | 8,984         |        |        |  | 14,786 | 
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|Net interest income                                 |                                                     |   | 4,540                     |       |                    |       | 4,562 |                   |  |       | 14,611        |        |  |               | 13,346 |       
|Provision for loan losses                           |                                                     |   | 75                        |       |                    |       | 0     |                   |  |       | 225           |        |  |               | 0      |       
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|Net interest income after provision for
loan losses |                                                     |   | 4,465                     |       |                    |       | 4,562 |                   |  |       | 14,386        |        |  |               | 13,346 |       
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|Noninterest income                                  |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        |  |               |        |       
|                                                    | Service fees on deposits                            |   |                           | 536   |                    |       |       | 442               |  |       |               | 1,532  |  |               |        | 1,191  | 
|                                                    | Trust income                                        |   |                           | 141   |                    |       |       | 154               |  |       |               | 504    |  |               |        | 519    | 
|                                                    | Net gains on sales of securities                    |   |                           | 0     |                    |       |       | 273               |  |       |               | 8      |  |               |        | 587    | 
|                                                    | Mortgage banking income                             |   |                           | 71    |                    |       |       | 59                |  |       |               | 200    |  |               |        | 152    | 
|                                                    | Other operating income                              |   |                           | 166   |                    |       |       | 172               |  |       |               | 509    |  |               |        | 492    | 
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|                                                    |                                                     |   | Total noninterest income  |       |                    | 914   |       |                   |  | 1,100 |               |        |  | 2,753         |        |        |  | 2,941  | 
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|Noninterest
expense 
Salaries and employee benefits |                                                     |   | 1,670                     |       |                    |       | 1,602 |                   |  |       | 4,988         |        |  |               | 4,728  |       
|                                                    | Occupancy and equipment, net                        |   |                           | 327   |                    |       |       | 320               |  |       |               | 1,005  |  |               |        | 1,024  | 
|                                                    | Data processing                                     |   |                           | 124   |                    |       |       | 134               |  |       |               | 429    |  |               |        | 407    | 
|                                                    | Legal                                               |   |                           | 143   |                    |       |       | 27                |  |       |               | 283    |  |               |        | 84     | 
|                                                    | Other operating expenses                            |   |                           | 565   |                    |       |       | 528               |  |       |               | 1,675  |  |               |        | 1,603  | 
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|                                                    |                                                     |   | Total noninterest expense |       |                    | 2,829 |       |                   |  | 2,611 |               |        |  | 8,380         |        |        |  | 7,846  | 
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|Income before income taxes                          |                                                     |   | 2,550                     |       |                    |       | 3,051 |                   |  |       | 8,759         |        |  |               | 8,441  |       
|Provision for income taxes                          |                                                     |   | 865                       |       |                    |       | 1,020 |                   |  |       | 2,980         |        |  |               | 2,773  |       
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|Net income                                          |                                                     | $ | 1,685                     |       |                    | $     | 2,031 |                   |  | $     | 5,779         |        |  | $             | 5,668  |       
|                                                    |                                                     |   |                           |       |                    |       |       |                   |  |       |               |        | 
|                                                   
|Basic earnings per share                            |                                                     | $ | 0.39                      |       |                    | $     | 0.46  |                   |  | $     | 1.31          |        |  | $             | 1.27   |       
|                                                   
|Diluted earnings per share                          |                                                     | $ | 0.39                      |       |                    | $     | 0.45  |                   |  | $     | 1.31          |        |  | $             | 1.27   |       
|                                                   
|Comprehensive income                                |                                                     | $ | 1,867                     |       |                    | $     | 2,741 |                   |  | $     | 7,066         |        |  | $             | 7,615  |       

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NORTHERN STATES FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2002 and 2001
(In thousands of dollars)(Unaudited)

|                                                 |                                                                            |                                                                     |                                                                             |                                    |          |                   |         |       |               |        |         |  
|------------------------------------------------ | -------------------------------------------------------------------------- | ------------------------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------- | -------- | ----------------- | ------- | ----- | ------------- | ------ | ------- | -
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          | Nine months ended |        
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          |                   |        
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          | September 30,     |         |       | September 30, |       
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          | 2002              |         |       | 2001          |       
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          |                   |         |       |               |       
|Cash flows from operating activities             |                                                                            |                                                                     |                                                                             |                                    |          |                   |         |      
|                                                 | Net income                                                                 |                                                                     | $                                                                           | 5,779                              |          |                   | $       | 5,668 |              
|                                                 | Adjustments to reconcile net income to net cash from
operating activities: |                                                                     |                                                                             |                                    |          |                   |         |       |              
|                                                 |                                                                            | Depreciation                                                        |                                                                             |                                    | 274      |                   |         |       | 329           |       
|                                                 |                                                                            | Net gains on sales of securities                                    |                                                                             |                                    | (8       | )                 |         |       | (587          | )     
|                                                 |                                                                            | Federal Home Loan Bank stock dividends                              |                                                                             |                                    | (65      | )                 |         |       | (83           | )     
|                                                 |                                                                            | Provision for loan losses                                           |                                                                             |                                    | 225      |                   |         |       | 0             |       
|                                                 |                                                                            | Deferred loan fees                                                  |                                                                             |                                    | 227      |                   |         |       | 4             |       
|                                                 |                                                                            | Amortization of mortgage servicing rights                           |                                                                             |                                    | 17       |                   |         |       | 29            |       
|                                                 |                                                                            | Net change in interest receivable                                   |                                                                             |                                    | 809      |                   |         |       | 607           |       
|                                                 |                                                                            | Net change in interest payable                                      |                                                                             |                                    | (1,970   | )                 |         |       | (1,206        | )     
|                                                 |                                                                            | Net change in other assets                                          |                                                                             |                                    | 276      |                   |         |       | 254           |       
|                                                 |                                                                            | Net change in other liabilities                                     |                                                                             |                                    | (151     | )                 |         |       | 42            |       
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          |                   |        
|                                                 |                                                                            |                                                                     |                                                                             | Net cash from operating activities |          |                   | 5,413   |       |               |        | 5,057   |  
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          |                   |        
|Cash flows from investing activities             |                                                                            |                                                                     |                                                                             |                                    |          |                   |         |      
|                                                 |                                                                            | Proceeds from maturities and calls of securities available for sale |                                                                             |                                    | 410,234  |                   |         |       | 480,005       |       
|                                                 |                                                                            | Proceeds from sales of securities available for sale                |                                                                             |                                    | 4,436    |                   |         |       | 778           |       
|                                                 |                                                                            | Purchases of securities available for sale                          |                                                                             |                                    | (415,090 | )                 |         |       | (498,425      | )     
|                                                 |                                                                            | Change in loans made to customers                                   |                                                                             |                                    | (34,337  | )                 |         |       | (18,842       | )     
|                                                 |                                                                            | Property and equipment expenditures                                 |                                                                             |                                    | (186     | )                 |         |       | (180          | )     
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          |                   |        
|                                                 |                                                                            |                                                                     |                                                                             | Net cash from investing activities |          |                   | (34,943 | )     |               |        | (36,664 | )
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          |                   |        
|Cash flows from financing activities             |                                                                            |                                                                     |                                                                             |                                    |          |                   |         |      
|                                                 |                                                                            | Net increase (decrease) in:                                         |                                                                             |                                    |          |                   |         |       |               |       
|                                                 |                                                                            |                                                                     | Deposits                                                                    |                                    |          | 51,141            |         |       |               | 37,769 |        
|                                                 |                                                                            |                                                                     | Securities sold under repurchase agreements
and other short-term borrowings |                                    |          | (10,277           | )       |       |               | (5,075 | )      
|                                                 |                                                                            |                                                                     | Advances from borrowers for taxes and insurance                             |                                    |          | (559              | )       |       |               | (421   | )      
|                                                 |                                                                            | Federal Home Loan Bank advances                                     |                                                                             |                                    | 6,500    |                   |         |       | 10,000        |       
|                                                 |                                                                            | Repayment of Federal Home Loan Bank advances                        |                                                                             |                                    | (10,000  | )                 |         |       | (10,000       | )     
|                                                 |                                                                            | Net proceeds from exercise of stock options                         |                                                                             |                                    | 21       |                   |         |       | 8             |       
|                                                 |                                                                            | Purchases of treasury stock                                         |                                                                             |                                    | (3,753   | )                 |         |       | 0             |       
|                                                 |                                                                            | Dividends paid                                                      |                                                                             |                                    | (2,370   | )                 |         |       | (2,142        | )     
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          |                   |        
|                                                 |                                                                            |                                                                     |                                                                             | Net cash from financing activities |          |                   | 30,703  |       |               |        | 30,139  |  
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          |                   |        
|Net change in cash and cash equivalents          |                                                                            |                                                                     | 1,173                                                                       |                                    |          |                   | (1,468  | )    
|Cash and cash equivalents at beginning of period |                                                                            |                                                                     | 34,315                                                                      |                                    |          |                   | 31,187  |      
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          |                   |        
|Cash and cash equivalents at end of period       |                                                                            | $                                                                   | 35,488                                                                      |                                    |          | $                 | 29,719  |      
|                                                 |                                                                            |                                                                     |                                                                             |                                    |          |                   |        

The accompanying notes are an integral part of these condensed consolidated
financial statements.

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##### Table of Contents



NORTHERN STATES FINANCIAL
CORPORATION

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

September 30, 2002

(Dollar amounts in thousands, except
per share data)

(Unaudited)

Note 1  Basis of Presentation

The accompanying interim condensed consolidated financial statements are
prepared without audit and reflect all adjustments which are of a normal and
recurring nature and, in the opinion of management, are necessary to present
interim financial statements of Northern States Financial Corporation (the
Company) in accordance with accounting principles generally accepted in the
United States of America. The interim financial statements do not purport to
contain all the necessary financial disclosures covered by accounting principles
generally accepted in the United States of America that might otherwise be
necessary for complete financial statements.

To prepare financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided, and future results could differ. The allowance for loan losses and
status of contingencies are particularly subject to change.

The interim condensed financial statements should be read in conjunction
with the audited financial statements and accompanying notes (or notes
thereto) of the Company for the years ended December 31, 2001, 2000 and 1999.
The results of operations for the three and nine month periods ended September
30, 2002, are not necessarily indicative of the results to be expected for the
full year.

Net income was utilized to calculate both basic and diluted earnings per
share for all periods presented. Information regarding weighted average shares
utilized in computing basic and diluted earnings per share is as follows:

|                                                          |  |                    |           |  |                   |  |           |               |  |  |               |  |  |  |           | 
|--------------------------------------------------------- |  | ------------------ | --------- |  | ----------------- |  | --------- | ------------- |  |  | ------------- |  |  |  | --------- | 
|                                                          |  | Three months ended |           |  | Nine months ended | 
|                                                          |  |                    |           |  |                   | 
|                                                          |  | September 30,      |           |  | September 30,     |  |           | September 30, |  |  | September 30, | 
|                                                          |  | 2002               |           |  | 2001              |  |           | 2002          |  |  | 2001          | 
|                                                          |  |                    |           |  |                   |  |           |               |  |  |               | 
|Average outstanding common shares                         |  |                    | 4,343,148 |  |                   |  | 4,461,755 |               |  |  | 4,414,895     |  |  |  | 4,461,755 | 
|Effect of stock options                                   |  |                    | 0         |  |                   |  | 6,252     |               |  |  | 0             |  |  |  | 6,068     | 
|                                                          |  |                    |           |  |                   |  |           |               |  |  |               | 
|Average outstanding shares for
diluted earnings per share |  |                    | 4,343,148 |  |                   |  | 4,468,007 |               |  |  | 4,414,895     |  |  |  | 4,467,823 | 
|                                                          |  |                    |           |  |                   |  |           |               |  |  |               | 

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##### Table of Contents



NORTHERN STATES FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2002

(Dollar amounts in thousands, except per share data)

(Unaudited)

On April 17, 2002 it was announced that the Northern States Financial
Corporations Board of Directors had approved a stock repurchase program that
allows the Company to purchase up to 200,000 shares of Northern States Financial
Corporation stock either in open market or private transactions. At September
30, 2002, 144,100 shares of treasury stock had been purchased that the Company
carries at cost.

Information related to stockholders equity was as follows:

|                              |  |               |           |  |              |   |           | 
|----------------------------- |  | ------------- | --------- |  | ------------ | - | --------- | 
|                              |  | September 30, |           |  | December 31, |  
|                              |  | 2002          |           |  | 2001         |  
|                              |  |               |           |  |              |  
|Par value per share           |  | $             | 0.40      |  |              | $ | 0.40      | 
|Authorized shares             |  |               | 6,500,000 |  |              |   | 6,500,000 | 
|Issued and outstanding shares |  |               | 4,328,155 |  |              |   | 4,469,755 | 

Note 2  Commitments, Off-Balance Sheet Risk and Contingencies

At September 30, 2002 and December 31, 2001, the contract amount of the
Companys off-balance sheet commitments were as follows:

|                                                      |               |       |       |               |         |   |              |        |         | 
|----------------------------------------------------- | ------------- | ----- | ----- | ------------- | ------- | - | ------------ | ------ | ------- | 
|                                                      |               |       |       | September 30, |         |   | December 31, |       
|                                                      |               |       |       | 2002          |         |   | 2001         |       
|                                                      |               |       |       |               |         |   |              |       
|Unused lines of credit and commitments to make loans: |               |       |       |               |         |   |              |       
|                                                      | Fixed rate    |       | $     | 20,282        |         |   | $            | 10,446 |        
|                                                      | Variable rate |       |       | 90,056        |         |   |              | 89,831 |        
|                                                      |               |       |       |               |         |   |             
|                                                      |               | Total |       | $             | 110,338 |   |              | $      | 100,277 | 
|                                                      |               |       |       |               |         |   |             
|Standby letters of credit                             |               | $     | 5,298 |               |         | $ | 4,730        |       

Since many commitments to make loans expire without being used, the amounts
above do not necessarily represent future cash commitments. Collateral obtained
upon exercise of the commitments is determined using managements credit
evaluation of the borrower, and may include commercial and residential real
estate and other business and consumer assets.

The Company also has Community Reinvestment Act (CRA) investment
commitments outstanding of $954. The commitment is to be funded over seven
years.

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NORTHERN STATES FINANCIAL CORPORATION




MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion focuses on the consolidated financial condition of
the Northern States Financial Corporation (the Company) at September 30, 2002
and the consolidated results of operations for the three and nine month periods
ended September 30, 2002, compared to the same periods of 2001. The purpose of
this discussion is to provide a better understanding of the condensed
consolidated financial statements and the operations of its subsidiary, the Bank
of Waukegan (the Bank). This discussion should be read in conjunction with the
interim condensed consolidated financial statements and notes thereto included
herein.

The statements contained in managements discussion and analysis that are
not historical facts are forward-looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. The Company
cautions readers of this report that a number of important factors could cause
the Companys actual results subsequent to September 30, 2002 to differ
materially from those expressed in any such forward-looking statements.

FINANCIAL CONDITION

The consolidated total assets for the Company were $622.9 million at
September 30, 2002, increasing $35.6 million from the Companys year-end,
December 31, 2001.

The Company had $18.5 million in federal fund sold at September 30, 2002,
as compared to $16.0 million at December 31, 2001. The Company on a daily basis
invests excess cash into federal funds sold. Federal funds sold is a source of
liquidity to the Company and fluctuates from day to day.

The fair value of securities at September 30, 2002 was $216.5 million
increasing by $2.5 million from the previous year-end. The increase to the fair
value of the securities portfolio is the result of increases to the gross
unrealized gains caused by market rate changes. At September 30, 2002, the
Companys securities showed net unrealized gains of $1.9 million as compared to
net unrealized losses of $200,000 at December 31, 2001, a shift of $2.1 million.
The amortized cost of the Companys investment portfolio remained relatively
unchanged from year-end increasing slightly to $214.6 million at September 30,
2001 compared to $214.2 million at December 31, 2001. The mix of securities
remains substantially unchanged from year-end with the carrying value of
securities issued by U.S. Government agencies and corporations accounting for
95% of the Companys securities portfolio at September 30, 2002 as compared to
92% at the previous year-end. Although the prime lending interest rate did not
change during the nine months ended September 30, 2002, Treasury note rates
showed much volatility during the time period with interest rates generally
decreasing. The decreased interest rates had the effect of increasing the fair
value of the portfolio. As interest rates declined issuers of callable
securities had the opportunity to call the security by issuing a new security at
the lower rates. During the first nine months of 2002, securities totaling
$191.4 million were called. At September 30, 2002 U.S. Government agency
securities with the carrying value of $175.9 million either have call provisions
or mature within 90 days. If rates continue to decline it is expected that more
securities will be called.

The Companys loan portfolio at September 30, 2002 was $360.4 million, an
increase of $33.7 million from December 31, 2001. Real estate-mortgage loans
increased $30.0 million. Real estate-constuction

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##### Table of Contents



NORTHERN STATES FINANCIAL CORPORATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

loans and home equity loans were $6.2 million and $4.5 million more than at the
previous year-end. During the first nine months of 2002 two large real estate
loans were made, one for $7.0 million for an apartment building complex and
another for $6.4 million for a motel. Home equity loans remain popular with
consumers as the interest paid on the loan may be used as a tax deduction.

At September 30, 2002, deposits at the Company increased $51.1 million from
December 31, 2001. The major increase was in time deposits, $100,000 and over,
which increased $49.4 million from year-end. Public time deposits, $100,000 and
over increased $34.2 million while large CDs from commercial and retail
depositors increased $11.8 million and $3.4 million. The Company is located in
the county seat and accepts deposits from local municipalities. Property taxes
were collected in June and September 2002 and resulted in public entities
investing their funds into time deposits. Many of the public time deposits,
$100,000 and over require pledging of the Companys investment portfolio as
security for the deposit.

Securities sold under repurchase agreements (repurchase agreements) and
other short-term borrowings at the Company decreased $10.2 million from December
31, 2001 to $75.9 million at September 30, 2002 as commercial repurchase
agreement customers drew down balances for business purposes. These funds mainly
consist of repurchase agreements that are offered through an overnight
repurchase agreement product and a term product with maturities from 7 days to
one year. Commercial customers have increasingly placed their funds into
repurchase agreements as repurchase agreements provide the commercial customer
with added security for their funds in the form of an investment that is pledged
by the Company. As of September 30, 2002 securities carried at $196.5 million
were pledged to secure repurchase agreements and public deposits. Repurchase
agreements also provide a source of funds to the Company that do not increase
reserve requirements with the Federal Reserve Bank or create an expense relating
to FDIC insurance and, therefore, are less costly to the Company.

On September 30, 2002 the Company had a term advance from the Federal Home
Loan Bank in the amount of $6.5 million. This borrowing has decreased $3.5
million from December 31, 2001 as deposits have increased.

Total stockholders equity increased $977,000 during the nine months ended
September 30, 2002. The increase is the result of net income of $5.8 million,
plus the adjustment in the valuation allowance for the market value of
securities available for sale, net of tax, of $1.3 million, plus $21,000 due to
the exercise of 2,500 stock options pursuant to the Omnibus Incentive Plan on
January 1, 2002 and $13,000 in tax benefits derived from the exercise of the
options. At September 30, 2002 no stock options remained outstanding. These
increases were partially offset by the repurchase of 144,100 shares of the
Companys common stock as treasury stock for $3.8 million and payment of cash
dividends of $2.4 million on June 1, 2002.

The tier 1 capital to average asset ratio at September 30, 2002 was 12.98%
and the total capital to asset ratio, on a risk adjusted basis, amounted to
18.10%, exceeding the minimum required to be capitalized under prompt corrective
action regulations, which minimums are 5.00% and 10.00%. Book value per share,
was $17.86 at September 30, 2002 as compared to $17.08 at December 31, 2001. On
September 30, 2002, the Company and its subsidiary were in compliance with all
applicable regulatory capital requirements.

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##### Table of Contents



NORTHERN STATES FINANCIAL CORPORATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

NET INCOME

The consolidated net income for the quarter ended September 30, 2002 was
$1,685,000, a decrease of $346,000 compared to net income of $2,031,000 for the
same period the previous year. The annualized return on average assets was 1.10%
for the quarter, a decrease from a return on average assets for the same quarter
the previous year of 1.44%. The consolidated net income for the nine months
ended September 30, 2002 was $5,779,000, an increase of $111,000 over the first
nine months of 2001. The annualized return on average assets for the first nine
months of 2002 was 1.32%, down from the return on average assets for the same
period the previous year of 1.38%.

NET INTEREST INCOME

Net interest income, the difference between interest income earned on
average interest earning assets and interest expense on average interest bearing
liabilities, declined by $22,000 during the three months ended September 30,
2002 compared to the same three months in 2001. One of the largest factors
attributing to this decline was the placement of lease pools totaling $11.3
million on nonaccrual status at June 30, 2002. Prior to being placed on
nonaccrual status the Company had been recognizing interest income of $290,000
per quarter on these leases.

Change in interest rates is an important factor affecting net interest
income. During the third quarter of 2002 the prime lending rate remained
unchanged at 4.75%, while the one and two-year Treasury note rates showed
volatility. The one-year Treasury note rate declined from 2.01% at June 30, 2002
to 1.45% at September 30, 2002 and the two-year note rate decreased 117 basis
points from June 30, 2002 ending the quarter at 1.73%. These declines in market
interest rates impacted the rates earned on the Companys taxable investments
during the third quarter of 2002. As indicated in Table 1, Analysis of Average
Balance and Tax Equivalent Rates for the Three Months ended September 30, 2002
and 2001, the average rate earned on taxable securities for the third quarter
of 2002 was 3.86%. During the second quarter of 2002 the average rate earned on
taxable securities was 4.63%. The reason this average rate decreased during the
third quarter is that many of the taxable securities had been called or matured
as interest rates declined. During the third quarter of 2002 securities totaling
$237.1 million were called or matured and were replaced by the Company with
lower yielding securities.

Table 1, Analysis of Average Balance and Tax Equivalent Rates for the
Three Months ended September 30, 2002 and 2001, shows that net yield on
interest earning assets was 3.15% during the third quarter of 2002 compared to
3.47% for the same period last year. The contributing factors to this decline to
the net yield during the third quarter of 2002 as compared to 2001, were the
lost lease interest income and the lower income earned on securities as they
were called and were discussed above. Table 2, Analysis of Average Balance and
Tax Equivalent Rates for the Nine Months ended September 30, 2002 and 2001,
shows that the net interest yield on earning assets during the first nine months
of 2002 was 3.54% compared to 3.47% for the same period last year. This
indicates that prior to the third quarter of 2002 the Companys net interest
margin had improved compared to the previous year. The reason for this

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NORTHERN STATES FINANCIAL CORPORATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

TABLE 1

NORTHERN STATES FINANCIAL CORPORATION
ANALYSIS OF AVERAGE BALANCE AND TAX EQUIVALENT RATES
For the Three Months Ended September 30, 2002 and 2001  Rates are Annualized
($ 000s)

|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       |  |  |      |       |  
|------------------------------------ | ----------------------------------------------- | ---------------------------------------------------- | - | ------- | ------- |  | -------- | ----- | ----- | ---- |  | ---- | ------- | - | ------- | -------- | ------- |  | ---- | ----- | ----- |  |  | ---- | ----- | -
|                                     |                                                 |                                                      |   | 2002    |         |  | 2001     |      
|                                     |                                                 |                                                      |   |         |         |  |          |      
|                                     |                                                 |                                                      |   | Average |         |  |          |       |       |      |  |      |         |   | Average |          |         |  |      |       |       |  |  |     
|                                     |                                                 |                                                      |   | Balance |         |  | Interest |       |       | Rate |  |      | Balance |   |         | Interest |         |  | Rate |      
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |      
|Assets                               |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       |  |  |     
|                                     | Loans (1)(2)(3)                                 |                                                      | $ | 344,025 |         |  | $        | 5,429 |       |      |  | 6.31 | %       |   | $       | 319,622  |         |  | $    | 6,326 |       |  |  | 7.92 | %    
|                                     | Taxable securities                              |                                                      |   | 207,179 |         |  |          | 1,986 |       |      |  | 3.86 | %       |   |         | 187,950  |         |  |      | 2,500 |       |  |  | 5.35 | %    
|                                     | Securities exempt from
Federal income taxes (2) |                                                      |   | 9,080   |         |  |          | 151   |       |      |  | 6.87 | %       |   |         | 13,556   |         |  |      | 238   |       |  |  | 7.15 | %    
|                                     | Interest bearing deposits in
banks              |                                                      |   | 144     |         |  |          | 0     |       |      |  | 0.00 | %       |   |         | 200      |         |  |      | 3     |       |  |  | 6.00 | %    
|                                     | Federal funds sold                              |                                                      |   | 26,548  |         |  |          | 116   |       |      |  | 1.75 | %       |   |         | 16,858   |         |  |      | 140   |       |  |  | 3.32 | %    
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |      
|                                     |                                                 | Interest earning assets                              |   |         | 586,976 |  |          |       | 7,682 |      |  |      | 5.25    | % |         |          | 538,186 |  |      |       | 9,207 |  |  |      | 6.86  | %
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       | 
|                                     | Noninterest earning assets                      |                                                      |   | 23,323  |         |  |          |       |       |      |  |      |         |   |         | 25,234   |         |  |      |       |       |  |  |      |      
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       | 
|                                     |                                                 | Average assets                                       |   | $       | 610,299 |  |          |       |       |      |  |      |         |   |         | $        | 563,420 |  |      |       |       |  |  |      |       |  
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       | 
|Liabilities and stockholders
equity |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       |  |  |     
|                                     | NOW deposits                                    |                                                      | $ | 48,700  |         |  |          | 121   |       |      |  | .99  | %       |   | $       | 43,871   |         |  |      | 188   |       |  |  | 1.71 | %    
|                                     | Money market deposits                           |                                                      |   | 47,621  |         |  |          | 211   |       |      |  | 1.77 | %       |   |         | 45,082   |         |  |      | 356   |       |  |  | 3.16 | %    
|                                     | Savings deposits                                |                                                      |   | 48,236  |         |  |          | 181   |       |      |  | 1.50 | %       |   |         | 43,900   |         |  |      | 219   |       |  |  | 2.00 | %    
|                                     | Time deposits                                   |                                                      |   | 250,207 |         |  |          | 1,993 |       |      |  | 3.19 | %       |   |         | 220,901  |         |  |      | 2,844 |       |  |  | 5.15 | %    
|                                     | Other borrowings                                |                                                      |   | 86,464  |         |  |          | 574   |       |      |  | 2.66 | %       |   |         | 79,011   |         |  |      | 942   |       |  |  | 4.77 | %    
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |      
|                                     |                                                 | Interest bearing
Liabilities                         |   |         | 481,228 |  |          |       | 3,080 |      |  |      | 2.56    | % |         |          | 432,765 |  |      |       | 4,549 |  |  |      | 4.20  | %
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       | 
|                                     | Demand deposits                                 |                                                      |   | 46,825  |         |  |          |       |       |      |  |      |         |   |         | 45,999   |         |  |      |       |       |  |  |      |      
|                                     | Other noninterest bearing
liabilities           |                                                      |   | 5,528   |         |  |          |       |       |      |  |      |         |   |         | 8,592    |         |  |      |       |       |  |  |      |      
|                                     | Stockholders equity                            |                                                      |   | 76,718  |         |  |          |       |       |      |  |      |         |   |         | 76,064   |         |  |      |       |       |  |  |      |      
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       | 
|                                     |                                                 | Average liabilities and
Stockholders equity         |   | $       | 610,299 |  |          |       |       |      |  |      |         |   |         | $        | 563,420 |  |      |       |       |  |  |      |       |  
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       | 
|                                     |                                                 | Net interest income                                  |   |         |         |  |          | $     | 4,602 |      |  |      |         |   |         |          |         |  |      | $     | 4,658 |  |  |      |       |  
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       | 
|                                     |                                                 | Net yield on interest
Earning assets                 |   |         |         |  |          |       |       |      |  |      | 3.15    | % |         |          |         |  |      |       |       |  |  |      | 3.47  | %
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       | 
|                                     |                                                 | Interest bearing
liabilities to
earning assets ratio |   |         |         |  |          |       |       |      |  |      | 82.25   | % |         |          |         |  |      |       |       |  |  |      | 80.60 | %
|                                     |                                                 |                                                      |   |         |         |  |          |       |       |      |  |      |         |   |         |          |         |  |      |       |       | 



|(1) - |  | Interest income on loans includes loan origination fees of $104 and $98
for the three months ended September 30, 2002 and 2001.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------
|     
|(2) - |  | Tax-exempt income is reflected on a fully tax equivalent basis utilizing
a 34% rate.                                           
|     
|(3) - |  | Non-accrual loans are included in average loans.                                                                               

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NORTHERN STATES FINANCIAL CORPORATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

TABLE 2

NORTHERN STATES FINANCIAL CORPORATION
ANALYSIS OF AVERAGE BALANCE AND TAX EQUIVALENT RATES
For the Nine Months Ended September 30, 2002 and 2001- Rates are Annualized
($ 000s)

|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        |  |  |      |       |  
|------------------------------------ | ----------------------------------------------- | ---------------------------------------------------- | - | ------- | ------- |  | -------- | ------ | ------ | ---- |  | ---- | ------- | - | ------- | -------- | ------- |  | ---- | ------ | ------ |  |  | ---- | ----- | -
|                                     |                                                 |                                                      |   | 2002    |         |  | 2001     |       
|                                     |                                                 |                                                      |   |         |         |  |          |       
|                                     |                                                 |                                                      |   | Average |         |  |          |        |        |      |  |      |         |   | Average |          |         |  |      |        |        |  |  |     
|                                     |                                                 |                                                      |   | Balance |         |  | Interest |        |        | Rate |  |      | Balance |   |         | Interest |         |  | Rate |       
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |       
|Assets                               |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        |  |  |     
|                                     | Loans (1)(2)(3)                                 |                                                      | $ | 333,501 |         |  | $        | 16,475 |        |      |  | 6.59 | %       |   | $       | 312,016  |         |  | $    | 19,461 |        |  |  | 8.32 | %    
|                                     | Taxable securities                              |                                                      |   | 198,281 |         |  |          | 6,599  |        |      |  | 4.45 | %       |   |         | 179,068  |         |  |      | 7,557  |        |  |  | 5.64 | %    
|                                     | Securities exempt from
Federal income taxes (2) |                                                      |   | 9,782   |         |  |          | 503    |        |      |  | 7.03 | %       |   |         | 13,802   |         |  |      | 740    |        |  |  | 7.24 | %    
|                                     | Interest bearing deposits in
banks              |                                                      |   | 168     |         |  |          | 2      |        |      |  | 1.59 | %       |   |         | 174      |         |  |      | 6      |        |  |  | 4.60 | %    
|                                     | Federal funds sold                              |                                                      |   | 17,808  |         |  |          | 224    |        |      |  | 1.68 | %       |   |         | 20,014   |         |  |      | 670    |        |  |  | 4.46 | %    
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |       
|                                     |                                                 | Interest earning assets                              |   |         | 559,540 |  |          |        | 23,803 |      |  |      | 5.68    | % |         |          | 525,074 |  |      |        | 28,434 |  |  |      | 7.23  | %
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        | 
|                                     | Noninterest earning assets                      |                                                      |   | 25,347  |         |  |          |        |        |      |  |      |         |   |         | 23,956   |         |  |      |        |        |  |  |      |      
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        | 
|                                     |                                                 | Average assets                                       |   | $       | 584,887 |  |          |        |        |      |  |      |         |   |         | $        | 549,030 |  |      |        |        |  |  |      |       |  
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        | 
|Liabilities and stockholders
equity |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        |  |  |     
|                                     | NOW deposits                                    |                                                      | $ | 46,708  |         |  |          | 336    |        |      |  | .96  | %       |   | $       | 44,963   |         |  |      | 690    |        |  |  | 2.05 | %    
|                                     | Money market deposits                           |                                                      |   | 48,721  |         |  |          | 649    |        |      |  | 1.78 | %       |   |         | 41,398   |         |  |      | 1,098  |        |  |  | 3.54 | %    
|                                     | Savings deposits                                |                                                      |   | 47,314  |         |  |          | 527    |        |      |  | 1.49 | %       |   |         | 43,602   |         |  |      | 711    |        |  |  | 2.17 | %    
|                                     | Time deposits                                   |                                                      |   | 224,145 |         |  |          | 5,648  |        |      |  | 3.36 | %       |   |         | 210,793  |         |  |      | 9,005  |        |  |  | 5.70 | %    
|                                     | Other borrowings                                |                                                      |   | 87,846  |         |  |          | 1,824  |        |      |  | 2.77 | %       |   |         | 79,917   |         |  |      | 3,282  |        |  |  | 5.48 | %    
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |       
|                                     |                                                 | Interest bearing
liabilities                         |   |         | 454,734 |  |          |        | 8,984  |      |  |      | 2.63    | % |         |          | 420,673 |  |      |        | 14,786 |  |  |      | 4.69  | %
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        | 
|                                     | Demand deposits                                 |                                                      |   | 46,513  |         |  |          |        |        |      |  |      |         |   |         | 44,285   |         |  |      |        |        |  |  |      |      
|                                     | Other noninterest bearing
liabilities           |                                                      |   | 6,694   |         |  |          |        |        |      |  |      |         |   |         | 9,490    |         |  |      |        |        |  |  |      |      
|                                     | Stockholders equity                            |                                                      |   | 76,946  |         |  |          |        |        |      |  |      |         |   |         | 74,582   |         |  |      |        |        |  |  |      |      
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        | 
|                                     |                                                 | Average liabilities and
Stockholders equity         |   | $       | 584,887 |  |          |        |        |      |  |      |         |   |         | $        | 549,030 |  |      |        |        |  |  |      |       |  
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        | 
|                                     |                                                 | Net interest income                                  |   |         |         |  |          | $      | 14,819 |      |  |      |         |   |         |          |         |  |      | $      | 13,648 |  |  |      |       |  
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        | 
|                                     |                                                 | Net yield on interest
Earning assets                 |   |         |         |  |          |        |        |      |  |      | 3.54    | % |         |          |         |  |      |        |        |  |  |      | 3.47  | %
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        | 
|                                     |                                                 | Interest bearing
liabilities to
Earning assets ratio |   |         |         |  |          |        |        |      |  |      | 81.37   | % |         |          |         |  |      |        |        |  |  |      | 80.23 | %
|                                     |                                                 |                                                      |   |         |         |  |          |        |        |      |  |      |         |   |         |          |         |  |      |        |        | 



|(1) - |  | Interest income on loans includes loan origination fees of $314 and $293
for the nine months ended September 30, 2002 and 2001.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------
|     
|(2) - |  | Tax-exempt income is reflected on a fully tax equivalent basis utilizing
a 34% rate.                                           
|     
|(3) - |  | Non-accrual loans are included in average loans.                                                                               

12



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##### Table of Contents



NORTHERN STATES FINANCIAL CORPORATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

is the stabilization of the prime lending rate in 2002 that kept loan rates
constant while deposit rates continued to decline. This is in comparison to the
prime rate during the first nine months of 2001when the prime rate declined
seven times dropping from 9.50% at the beginning of 2001 to 6.00% by September
30, 2001.

ASSET QUALITY AND THE PROVISION FOR LOAN LOSSES

Management, with the concurrence of the Board of Directors, after carefully
reviewing the adequacy of the allowance for loan losses and the levels of
nonperforming and impaired loans and leases, found that a $75,000 provision for
loan losses was necessary for the three months ended September 30, 2002. For the
first nine months of 2002 a provision for loan losses of $225,000 was found to
be necessary. The reviews of the adequacy of the allowance for loan losses
during the nine months ended September 30, 2001 showed that the allowance was
adequate and no provision for loan losses was made.

At September 30, 2002, the allowance for loan losses was $3,663,000 or
1.02% of loans and leases as compared to $3,822,000 or 1.17% of loans and leases
at December 31, 2001. During the first nine months of 2002, $392,000 in loans
were charged off through the allowance compared to $1,055,000 during the same
period last year. Recoveries of loans previously charged off were $8,000 during
the first three quarters of 2002 compared to $102,000 during the same period in
2001.

Nonperforming loans, which include loans and leases on nonaccrual status
and those 90 days or more past due and still accruing, were $25.8 million at
September 30, 2002 or 7.16% of loans and leases. Nonperforming loan totals
increased from $17.4 million at December 31, 2001 at which time nonperforming
loans were 5.32% of loans and leases. At September 30, 2002 the largest credits
past due were lease pools totaling $11.3 million that were placed on non-accrual
status at June 30, 2002 and one loan totaling $10.6 million for real estate
development that became past due greater than 90 days during the quarter. The
$11.3 million in lease pools had been purchased from an investment-banking house
and are secured by equipment and carry a surety bond. Northern States is in the
process of collecting on these leases from the surety. The borrower of the $10.6
million loan for real estate development is waiting for municipal approval to
construct commercial and condominium units on the land that secures the loan.
The appraised value of the land securing this loan is $12.3 million and the loan
is further secured by letters of credit totaling $1.8 million issued by
independent financial institutions. Of the remaining $4.0 million in
nonperforming loans, $3.3 million are secured by real estate with the remaining
loans primarily secured by business assets. Impaired loans at September 30, 2002
were $13.8 million, which includes the $11.3 million in leases, increasing from
$3.4 million at December 31, 2001. The amount of the allowance for loan losses
allocated for impaired loans was $1.4 million at September 30, 2002 increasing
from $585,000 from year-end 2001.

Management and the Board of Directors analyze the adequacy of the allowance
for loan losses at least quarterly. Loans judged to be impaired, loans with
probable incurred loss exposure, loans that are no longer accruing interest, and
historical net loan loss percentages are reviewed in the analysis of the
allowance for loan losses. Based on management and the Board of Directors
analysis, the allowance for loan losses at September 30, 2002 is adequate to
cover probable incurred credit losses.

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##### Table of Contents



NORTHERN STATES FINANCIAL CORPORATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Other real estate owned, a non-performing asset, at September 30, 2002 was
$2,022,000 and remained unchanged from December 31, 2001. One piece of property
accounts for approximately 88 percent of the total of other real estate owned.
The property was acquired by the Bank through the receipt of a deed in lieu of
foreclosure in 1987. The parcel consists of approximately 525,000 square feet of
land situated on Lake Michigan in Waukegan, Illinois. During the second quarter
of 2002, a purchase agreement on the property was entered into with earnest
money received. The purchase agreement will expire by year-end if not executed
or renewed.

NONINTEREST INCOME

Noninterest income for the three months ended September 30, 2002 was
$914,000 as compared to $1,100,000 for the three months ended September 30,
2001, a decrease of $186,000. During the third quarter of 2001 the Company sold
equity securities that netted a gain of $273,000. When excluding this one-time
gain from the third quarter 2001, noninterest income for the third quarter of
2002 would show an increase of $87,000 over the same quarter last year. Service
fees on deposits increased $94,000 as compared to the same quarter last year as
the result of increases to services fees on some deposit products and increased
overdraft fee income. Income from mortgage banking activities increased $12,000
as declining home mortgage rates increased the number of mortgages refinanced as
compared to the third quarter of 2001. Much of trust fee income is tied to the
performance of stocks held in trusts and with the drops in stock values during
the three months ended September 30, 2002, trust fee income consequently
declined by $13,000. Other operating income during the third quarter of 2002 was
also $6,000 less as compared to last year.

For the first nine months of 2002, noninterest income was $2,753,000 as
compared to $2,941,000 for the same period of 2001, a decrease of $188,000.
During the first nine months of 2002 the Company sold $4.4 million of securities
classified as available for sale and realized gains of $8,000. Most of the
Companys mortgage-backed securities, consisting of many small issues that were
no longer cost effective to administer, were sold. An U.S. Government agency
security with an amortized cost of $1.0 million was also sold at a small gain.
During the same time period of 2001 three equity securities were sold that
netted a gain of $587,000. When excluding these one-time gains on the sales of
the securities, noninterest income was $391,000 greater than last year. Service
fees on deposits increased $341,000 as compared to the same nine-month period
last year with most of the increase attributable to greater overdraft fee
income. On January 1, 2002 the Company increased overdraft charges by 25% and in
February 2002 the Company began a new overdraft marketing program to compete
with the payday lending operations that have proliferated the past couple years.
Mortgage banking income increased $48,000 during the nine months ended September
30, 2002. Lower home mortgage rates contributed to increased volumes of table
funded loans originated by the mortgage banking area which totaled $12.9
million during the first nine months of 2002 compared to $9.5 million last year.
Trust income for the nine months ended September 30, 2002 declined by $15,000 as
much of the trust fees are tied to performances of stocks held in the trusts.
Other noninterest income increased $17,000 from last year as loan fees from
merchant credit card services increased.

14



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##### Table of Contents



NORTHERN STATES FINANCIAL CORPORATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

NONINTEREST EXPENSES

Noninterest expenses were $2,829,000 during the three months ended
September 30, 2002 an increase of $218,000 from the same quarter last year. The
Companys efficiency ratio, noninterest expenses divided by the sum of net
interest income and noninterest income, was 51.87% for the third quarter of 2002
as compared to 46.11% for the same quarter of 2001.

The Company showed growth of $68,000 in salaries and employee benefits
expenses during the third quarter of 2002 compared to the same period last year,
an increase of 4.24%. The increase to salaries and employee benefits is
attributable to annual salary increases.

Occupancy expenses for the third quarter of 2002 were $327,000, $7,000
greater when compared to the third quarter of 2001. Most of the increased
expense was the result of increases to real estate taxes.

Data processing expense during the three months ended September 30, 2002
was $124,000, a decrease of $10,000 from the same quarter last year. Data
processing expense decreased as updates were required to our customer
information file during the third quarter 2001.

Legal expenses increased $116,000 during the third quarter 2002 as compared
to last year. The increase is mainly attributable to litigation expense related
to the $11.3 million in lease pools that are classified as nonperforming loans.
The leases carry a surety bond and Northern States is in the process of
collecting on these leases from the surety.

Miscellaneous other operating expenses increased $37,000 during the three
months ended September 30, 2002 compared to the same three months last year.
Printing expenses increased $16,000 due to price increases and greater orders of
forms. Audit expenses also increased $12,000 during the period as increased
auditing of the Companys data processing function was performed.

During the nine months ended September 30, 2002, total noninterest expenses
were $8,380,000 or $534,000 greater than during the same period last year. The
Companys efficiency ratio for the first nine months of 2002 was 48.26% as
compared to 48.17% for same period of 2001.

Salaries and employee benefit expenses increased 5.50% or $260,000 during
the nine months ended September 30, 2002 as compared to the same period last
year. Regular salary expense during the first three-quarters of 2002 showed
increases of $181,000 and was due primarily to regular annual salary increases.
Increases to the Companys stock price during the first nine months of 2002
increased expenses relating to stock appreciation rights by $33,000 when
compared to the same period last year. As of September 30, 2002 all stock appreciation rights had been exercised.
Group insurance expenses increased $19,000 over the previous year due to premium
increases. With the increases to regular salaries, FICA expense also increased
by $14,000. With increased volumes of table funded loans originated by the
mortgage banking area during 2002, commissions relating to these activities
increased $11,000 from the same period last year.

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##### Table of Contents



NORTHERN STATES FINANCIAL CORPORATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Occupancy expenses were $19,000 less during the first nine months of 2002
when compared to the same period of 2001. Although real estate taxes increased
$21,000 and maintenance expenses for building and equipment increased $15,000
during the first nine months of 2002, these increases were offset by a decline
in depreciation expense of $56,000 as fixed assets became fully depreciated.

Data processing expense was $22,000 greater during the first nine months of
2002 when compared to the same period of 2001. The increase is the result of
contractual yearly increases and expenses related to the continued growth of the
Banks Internet banking product.

Legal expenses increased $199,000 during the three-quarters ended September
30, 2002 as compared to last year as the levels of the Companys nonperforming
loans increased during 2002.

Miscellaneous other operating expenses were $72,000 more for the nine
months ended September 30, 2002 than they were the same period last year. Audit
expenses increased $46,000 during the period due to more auditing of the
Companys operations including the data processing function. Correspondent bank
service charges increased $30,000 from last due to the decline in interest
rates. The correspondent banks that the Company uses to clear checks and
securities base their charges on activities processed less a credit for balances
kept in accounts with them. As interest rate levels dropped in 2002 compared to
2001 the credit on these balances have declined with the resultant increase to
correspondent bank service charges.

FEDERAL AND STATE INCOME TAXES

For the three months ended September 30, 2002 and 2001, the Companys
provisions for federal and state income taxes were $865,000 and $1,020,000,
which as a percentage of pretax earnings was 33.92% and 33.43%. The tax rate has
increased in part because interest income from securities, exempt from federal
income tax, has declined during 2002 as it is becoming increasingly difficult to
replace these securities as they mature with bank qualified tax advantaged
securities. For the nine months ended September 30, 2002, the Companys
provision for federal and state taxes was $2,980,000 or 34.02% of pretax
earnings as compared to $2,773,000 or 32.85% of pretax earnings for the nine
months ended September 30, 2001.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board (FASB) released
statement, SFAS No. 146 entitled Accounting for Costs Associated with Exit or
Disposal Activities. This statement provides clarification to corporations
discontinuing a line of business as to what costs should be expensed. The SFAS
No. 146 becomes effective after December 31, 2002. It is expected that the
statement will not have a material impact on the Company.

In October of 2002, the Financial Accounting Standards Board (FASB)
released a new statement, SFAS No. 147 entitled Acquisitions of Certain
Financial Institutions, allowing financial institutions meeting certain
criteria to reclassify unidentifiable intangible asset balances to goodwill and
cease amortization beginning as of January 1, 2002. SFAS No. 147 does not have
an impact on the Company.

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##### Table of Contents



NORTHERN STATES FINANCIAL CORPORATION




QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

The Companys primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. Interest rate risk (IRR) is the exposure of a
banking organizations financial condition to adverse movements in interest
rates. Accepting this risk can be an important source of profitability and
stockholder value, however excessive levels of IRR can pose a significant threat
to the Companys earnings and capital base. Accordingly, effective risk
management that maintains IRR at prudent levels is essential to the Companys
safety and soundness.

Evaluating a financial institutions exposure to changes in interest rates
includes assessing both the adequacy of the management process used to control
IRR and the organizations quantitative level of exposure. When assessing the
IRR management process, the Company seeks to ensure that appropriate policies,
procedures, management information systems and internal controls are in place to
maintain IRR at prudent levels with consistency and continuity. Evaluating the
quantitative level of IRR exposure requires the Company to assess the existing
and potential future effects of changes in interest rates on its consolidated
financial condition, including capital adequacy, earnings, liquidity, and, where
appropriate, asset quality.

The Federal Reserve Board, together with the Office of the Comptroller of
the Currency and the Federal Deposit Insurance Corporation, adopted a Joint
Agency Policy Statement on Interest-Rate Risk, effective June 26, 1996. The
policy statement provides guidance to examiners and bankers on sound practices
for managing IRR, which will form the basis for ongoing evaluation of the
adequacy of IRR management at supervised institutions. The policy emphasizes the
need for active board of director and management oversight and a comprehensive
risk-management process that effectively identifies, measures, and controls IRR.
Several techniques might be used by an institution to minimize IRR. One approach
is to periodically analyze its assets and liabilities and make future financing
and investment decisions based on payment streams, interest rates, contractual
maturities and estimated sensitivity to actual or potential changes in market
interest rates. Such activities fall under the broad definition of
asset/liability management. The Companys primary measurement tool used by
management is to shock the balance sheet by decreasing rates 2% and increasing
rates 2% using computer simulation to show the effect of rate changes on the
fair value of the Companys financial instruments.

Several ways an institution can manage IRR include: selling existing
assets or repaying certain liabilities or matching repricing periods for new
assets and liabilities by shortening terms of new loans or investments.
Financial institutions are also subject to prepayment risk in falling rate
environments. For example, a debtor may prepay other financial assets so that
the debtor may refinance their obligations at new, lower rates. Prepayments of
assets carrying higher rates reduce the Companys interest income and overall
asset yields. A large portion of an institutions liabilities may be short term
or due on demand, while most of its assets may be invested in long-term loans or
investments. Accordingly, the Company seeks to have in place sources of cash to
meet short-term demands. By increasing deposits, borrowing, or selling assets
the Company can obtain these funds.

Table 3, Effect of Interest Shocks on Financial Instruments, compares
information about the current fair value of the Companys financial instruments
at June 30, 2002 and December 31, 2001. Table 3 shows the effects of interest
rate shocks of decreasing rates 2% and increasing rates 2% on the fair value of
the Companys financial instruments. The computer simulation model that is used
to do the interest rate shocks and calculates the effect on the fair value of
the Companys balance sheet takes into consideration maturity and repricing
schedules of the various assets and liabilities. June 30, 2002 is used in Table
3 as it has the most recent data made available from the computer simulation
model.

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##### Table of Contents



NORTHERN STATES FINANCIAL CORPORATION

QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

TABLE 3
NORTHERN STATES FINANCIAL CORPORATION
EFFECT OF INTEREST SHOCKS ON FINANCIAL INSTRUMENTS
As of June 30, 2002 and December 31, 2001
($000s)

|                       |                                                                             |  |                             |         |  |         |   |         |       |  |   |         | 
|---------------------- | --------------------------------------------------------------------------- |  | --------------------------- | ------- |  | ------- | - | ------- | ----- |  | - | ------- | 
|                       |                                                                             |  | Fair Value at June 30, 2002 |        
|                       |                                                                             |  |                             |        
|                       |                                                                             |  | Down 2%                     |         |  | Current |   |         | Up 2% | 
|                       |                                                                             |  |                             |         |  |         |   |         |       | 
|Assets                 |                                                                             |  |                             |         |  |         |   |         |       |  |   |        
|                       | Cash and cash equivalents                                                   |  | $                           | 45,307  |  |         | $ | 45,304  |       |  | $ | 45,301  | 
|                       | Securities available for sale                                               |  |                             | 205,122 |  |         |   | 201,041 |       |  |   | 195,782 | 
|                       | Loans                                                                       |  |                             | 346,264 |  |         |   | 332,288 |       |  |   | 319,459 | 
|                       | Federal Home Loan Bank stock                                                |  |                             | 1,691   |  |         |   | 1,691   |       |  |   | 1,691   | 
|                       | Accrued interest receivable                                                 |  |                             | 4,014   |  |         |   | 4,014   |       |  |   | 4,014   | 
|                      
|Financial liabilities: |                                                                             |  |                             |         |  |         |   |         |       |  |   |        
|                       | Deposits                                                                    |  | $                           | 429,438 |  |         | $ | 426,641 |       |  | $ | 424,023 | 
|                       | Securities sold under repurchase agreements
And other short-term borrowings |  |                             | 77,633  |  |         |   | 77,245  |       |  |   | 76,826  | 
|                       | Federal Home Loan Bank term advances                                        |  |                             | 6,534   |  |         |   | 6,483   |       |  |   | 6,466   | 
|                       | Advances from borrowers for taxes and insurance                             |  |                             | 589     |  |         |   | 589     |       |  |   | 589     | 
|                       | Accrued interest payable                                                    |  |                             | 2,867   |  |         |   | 2,867   |       |  |   | 2,867   | 

|                       |                                                                             |  |                                 |         |  |         |   |         |       |  |   |         | 
|---------------------- | --------------------------------------------------------------------------- |  | ------------------------------- | ------- |  | ------- | - | ------- | ----- |  | - | ------- | 
|                       |                                                                             |  | Fair Value at December 31, 2001 |        
|                       |                                                                             |  |                                 |        
|                       |                                                                             |  | Down 2%                         |         |  | Current |   |         | Up 2% | 
|                       |                                                                             |  |                                 |         |  |         |   |         |       | 
|Assets                 |                                                                             |  |                                 |         |  |         |   |         |       |  |   |        
|                       | Cash and cash equivalents                                                   |  | $                               | 34,317  |  |         | $ | 34,315  |       |  | $ | 34,313  | 
|                       | Securities available for sale                                               |  |                                 | 218,779 |  |         |   | 213,982 |       |  |   | 201,848 | 
|                       | Loans and leases                                                            |  |                                 | 336,441 |  |         |   | 333,465 |       |  |   | 311,431 | 
|                       | Federal Home Loan Bank stock                                                |  |                                 | 1,647   |  |         |   | 1,647   |       |  |   | 1,647   | 
|                       | Accrued interest receivable                                                 |  |                                 | 4,592   |  |         |   | 4,592   |       |  |   | 4,592   | 
|                      
|Financial liabilities: |                                                                             |  |                                 |         |  |         |   |         |       |  |   |        
|                       | Deposits                                                                    |  | $                               | 428,176 |  |         | $ | 409,012 |       |  | $ | 402,148 | 
|                       | Securities sold under repurchase agreements
and other short-term borrowings |  |                                 | 87,008  |  |         |   | 86,246  |       |  |   | 85,502  | 
|                       | Federal Home Loan Bank term advances                                        |  |                                 | 10,088  |  |         |   | 10,000  |       |  |   | 9,914   | 
|                       | Advances from borrowers for taxes and insurance                             |  |                                 | 743     |  |         |   | 743     |       |  |   | 743     | 
|                       | Accrued interest payable                                                    |  |                                 | 4,916   |  |         |   | 4,916   |       |  |   | 4,916   | 

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##### Table of Contents



NORTHERN STATES FINANCIAL CORPORATION




DISCLOSURE CONTROLS AND PROCEDURES REPORT

Within the 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with the participation of Northern
States Financial Corporations management, including our Chairman of the Board
and President and Vice President and Treasurer, of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934). Based on their evaluation, our
Chairman of the Board and President and Vice President and Treasurer have
concluded that the Companys disclosure controls and procedures are, to the best
of their knowledge, effective to ensure that information required to be
disclosed by Northern States Financial Corporation in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. Subsequent to the date of their evaluation, there were no significant
changes in Northern States Financial Corporations internal controls or in other
factors that could significantly affect these controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.

NORTHERN STATES FINANCIAL CORPORATION







ITEM 1. LEGAL PROCEEDINGS

The Company and its subsidiary are involved as plaintiff or defendant in
various legal actions arising in the formal course of their business. While the
ultimate outcome of the various legal proceedings involving the Company and its
subsidiary cannot be predicted with certainty, it is the opinion of management,
after consultation with counsel, that the resolution of these legal actions
should not have a material effect on the Companys consolidated financial
position or results of operations.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None




ITEM 3. DEFAULTS 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

Exhibit 99.1 Certification

19



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to sign on its behalf by the undersigned
hereunto duly authorized, on this 12th day of November 2002.

|                                      |  |                   |  |  |  |     |                                                                       
|------------------------------------- |  | ----------------- |  |  |  | --- | ----------------------------------------------------------------------
|NORTHERN STATES FINANCIAL CORPORATION
|(Registrant)                         
|                                     
|                                     
|Date:                                 |  | November 12, 2002 |  |  |  | By: | /s/ Fred Abdula                                                       
|                                      |  |                   |  |  |  |     | Fred Abdula
     Chairman of the Board of
     Directors and President
|                                     
|Date:                                 |  | November 12, 2002 |  |  |  | By: | /s/ Thomas M. NemethThomas M. Nemeth
     Vice President and Treasurer

20



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##### Table of Contents






NORTHERN STATES FINANCIAL
CORPORATION

I, Fred Abdula, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Northern States Financial Corporation;                                                                                                                                                                                                                                
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                 
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                      



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
the quarterly report; and                                                                                                                           
|
| | (c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent functions):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls, and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |        |  |                   |  |  |     |                                                                                      
| | ------ |  | ----------------- |  |  | --- | -------------------------------------------------------------------------------------
| | Dated: |  | November 12, 2002 |  |  | By: | /s/ Fred AbdulaFred Abdula
     Chairman of the Board of
     Directors and President

21



---



##### Table of Contents



NORTHERN STATES FINANCIAL
CORPORATION

I, Thomas M. Nemeth, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Northern States Financial Corporation;                                                                                                                                                                                                                                
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                 
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                      



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
the quarterly report; and                                                                                                                           
|
| | (c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent functions):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls, and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |        |  |                   |  |  |     |                                                                       
| | ------ |  | ----------------- |  |  | --- | ----------------------------------------------------------------------
| | Dated: |  | November 12, 2002 |  |  | By: | /s/ Thomas
M. NemethThomas M. Nemeth
     Vice President and Treasurer

22