Luxury Expenditure Policy

This policy fulfills the requirements under the American Recovery and Reinvestment Act of 2009 (ARRA) enacted February 17, 2009 prohibiting excessive or luxury expenditures by Northern State Bank (the “Company”). ARRA requires each recipient of funds under the Capital Purchase Program (CPP) of the Troubled Assets Relief Program (TARP) to have in place a company-wide policy regarding excessive or luxury expenditures, as identified by the Secretary of the Department of the U.S. Treasury.

The Company prohibits excessive or luxury expenditures on entertainment and events, office or facility renovations, aviation or other transportation services or other activities or events that are not reasonable expenditures for conferences, staff development, reasonable performance incentives or other similar measure conducted in the normal course of business operations of the Company.

Renovations:

Renovations of facilities and office spaces should be relative to the approved current strategic plan, and tracked within the expenditure policy of the Company. An exception to this can be allowed if management must deal with an emergency situation, such as an act of nature, and the expenditure is necessary to make the facility operation for customer use. At no time should renovations be done that would have the appearance of being extraordinary, or excessive from a shareholder perspective.

Entertainment:

Entertainment is defined as an activity that an employee or executive would use corporate funds for business development purposes relating to a current customer(s) or prospective customer(s) or to further enhance the Company’s marketing efforts.

Our expectation is that all expenses incurred by the Company would be for company purposes, and used to drive business to the Company. Occasional events such as taking customers/prospect would find pleasurable is a necessary part of the Company’s marketing efforts and is not deemed as “entertainment” or a violation of this Policy. These expenses should be documented and detailed as to the benefit derived by the Company.

Conferences:

We encourage our staff to attend conferences that are appropriate educational opportunities. These conferences should be related to the financial services industry and have a direct correlation to their job. At times it may be appropriate that a spouse would travel to these conferences with Company attendees. In those cases Bank will be financially responsible for paying reasonable expenses incurred in connection with spousal travel to conferences. Typically these conferences are sponsored by vendors, banking associations, or other industry related entities.

This policy would EXCLUDE reward conferences whether paid for by the Company or other venders as a violation of this policy if the purpose is meant to be a reward, or would have no value of education to the employee or executive.

Holiday Parties:

We feel that holiday parties are part of an employee appreciation process. Holiday parties will be local in geographic nature, and should not cost the Company more than an average day’s payroll per employee, on average. Events and parties focused on customers for the purpose of attracting their business will not fall under this section of the Policy.

Board Retreats:

Board retreats should only be used for educational purposes, and should be kept in consideration, and looked at in the same view and discretion, as all other expenses. Board education is a vital part of maintaining, and keeping a dynamic director base, and this policy does not limit or restrict a retreat that is focused on strategic planning or education.

Transportation Services:

Transportation for Company staff to outlying locations, including bank locations, conferences, business development purposes and merger and acquisition research, should be conducted in the most cost appropriate way for the Company. The accounting department will maintain, when appropriate, an analysis of trips to determine which mode of transportation is the most appropriate for the Company and its Shareholders. Modes of Transportation to be used for the analysis, for example, may consist of vehicle, commercial air service and private air service. A determination of transportation analysis will factor in cost, efficiency and timeliness of travel.

Administration of Policy:

The Chief Financial Officer is responsible for the day-to-day administration of this policy, and the Chief Financial Officer is responsible for the overall adherence to this Policy. Strict adherence to this policy is mandated for all Company Employees. Violation of this policy shall be promptly reported to the Board of Directors.