FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 0-20167
NORTH COUNTRY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2062816
(State of other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
3530 North Country Drive, Traverse City, Michigan 49684
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (231) 929-5600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
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 such shorter period that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for
the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form 10-K or any amendments to this
Form 10-K. [ ]
The aggregate market value of the common stock held by
non-affiliates of the Registrant, based on a per share
price of $14.00 as of March 21, 2000, was $87.1
million. As of March 21, 2000, there were outstanding
6,995,067 shares of the Corporation's Common Stock (no
par value).
Documents Incorporated by Reference: Portions of the
Corporation's 1999 Annual Report to Shareholders are
incorporated by reference into Parts I and II of this
Report.
Portions of the Corporation's Proxy Statement for the
Annual Meeting of Shareholders to be held April 18,
2000 are incorporated by reference into Part III of
this Report.
PART I
ITEM 1: BUSINESS
General
North Country Financial Corporation (the
"Registrant" or "Corporation") was incorporated under
the laws of the state of Michigan on December 16, 1974.
The Corporation changed its name from "First Manistique
Corporation" to "North Country Financial Corporation"
on April 14, 1998. The Registrant owns all of the
outstanding stock of its banking subsidiary, North
Country Bank and Trust (the "Bank"). The Registrant
also owns all of the outstanding stock of five nonbank
subsidiaries: First Manistique Agency, an insurance
agency which sells annuities as well as life and health
insurance; First Rural Relending Company, a nonprofit
relending company; North Country Financial Group, a
corporation which provides tax-exempt lease/purchase
financing to municipalities; North Country Capital
Trust, a statutory business trust which was formed
solely for the issuance of trust preferred securities;
and NCB Real Estate Company, which owns several
properties used by the Bank. The Bank represents the
principal asset of the Registrant. The Registrant and
its subsidiary Bank are engaged in a single industry
segment, commercial banking, broadly defined to include
commercial and retail banking activities along with
other permitted activities closely related to banking,
namely credit life and accident and health insurance.
The Registrant became a registered bank holding
company under the Bank Holding Company Act of 1956, as
amended, on April 1, 1976, when it acquired First
Northern Bank and Trust ("First Northern"). On May 1,
1986, Manistique Lakes Bank merged with First Northern,
with the survivor being First Northern. The Registrant
acquired all of the outstanding stock of the Bank of
Stephenson on February 8, 1994, in exchange for cash
and common stock. The Bank of Stephenson was operated
as a separate banking subsidiary of the Registrant
until September 30, 1995, when it was merged into First
Northern with First Northern being the survivor. First
Northern acquired a substantial portion of the banking
assets and assumed a substantial portion of the banking
liabilities of Newberry State Bank on December 8, 1994,
in exchange for cash. First Northern acquired the
fixed assets and assumed the deposits of the Rudyard
branch of First of America Bank on September 15, 1995,
in exchange for cash. The Registrant acquired all of
the outstanding stock of South Range State Bank ("South
Range") on January 31, 1996, in exchange for cash and
notes. On August 12, 1996, First Northern and South
Range changed their names to North Country Bank and
Trust and North Country Bank, respectively. On
February 4, 1997, the Registrant acquired all of the
outstanding stock of UP Financial Inc., the parent
holding company of First National Bank of Ontonagon
("Ontonagon"). Ontonagon was merged into North Country
Bank with North Country Bank being the survivor. North
Country Bank was operated as a separate banking
subsidiary of the Registrant until March 10, 1998, when
it was merged into North Country Bank and Trust with
North Country Bank and Trust being the survivor. On
June 25, 1999, North Country Bank and Trust acquired
the fixed assets and assumed the deposits of the Kaleva
and Mancelona branches of Huntington National Bank in
exchange for cash. On July 23, 1999, North Country
Bank and Trust sold the fixed assets and deposits of
the Rudyard and Cedarville branches to Central Savings
Bank in exchange
for cash. On January 14, 2000, North
Country Bank and Trust sold the fixed assets and
deposits of the Garden branch to First Bank, Upper
Michigan in exchange for cash.
The Corporation is headquartered in Traverse City,
Michigan. The executive offices and mailing address of
the Corporation are located at 3530 North Country
Drive, Traverse City, Michigan 49684.
The Bank is headquartered in Manistique, Michigan.
The Bank has 22 branch offices located in the Upper
Peninsula of Michigan and five branch offices located
in Michigan's Lower Peninsula. The Bank maintains
offices in Grand Traverse, Otsego, Manistee, Antrim,
Emmet, Schoolcraft, Menominee, Delta, Dickinson,
Hougton, Ontonagon, Baraga, Marquette, Luce, Alger,
Mackinac, and Chippewa counties. The Bank provides
drive-in convenience at 20 branch locations and has
automatic teller machines operating at 12 locations.
The Bank has no foreign offices.
The Bank is engaged in the general commercial
banking business, providing a full range of loan and
deposit products. These banking services include
customary retail and commercial banking services,
including checking and savings accounts, time deposits,
interest bearing transaction accounts, safe deposit
facilities, real estate mortgage lending, commercial
lending, commercial and governmental lease financing,
and direct and indirect consumer financing.
Forward-Looking Statements
The discussions in this Report on Form 10-K and
the documents incorporated herein by reference which
are not statements of historical fact (including
statements in the future tense and those which include
terms such as "believe," "will," "expect," and
"anticipate") contain forward-looking statements that
involve risks and uncertainties. The Corporation's
actual future results could materially differ from
those discussed. Factors that might cause actual
results to differ from the results discussed in forward-
looking statements include, but are not limited to:
* General economic conditions, either nationally or
the state in which the Corporation does business;
* Legislation or regulatory changes which adversely
affect the businesses in which the Corporation is
engaged;
* Changes in the interest rate environment which
reduce interest rate margins;
* Changes in securities markets with respect to the
market value of financial assets and the level of
volatility in certain markets such as foreign exchange;
* Significant increases in competition in the
banking and financial services industry resulting from
industry consolidation, regulatory changes and other
factors, as well as actions taken by particular
competitors;
* Changes in consumer spending, borrowing and
savings habits;
* Technological changes;
* Acquisitions and unanticipated occurrences which
delay or reduce the expected benefits of acquisitions;
* The Corporation's ability to increase market share
and control expenses;
* The effect of compliance with legislation or
regulatory changes;
* The effect of changes in accounting policies and
practices;
* The costs and effects of unanticipated litigation
and of unexpected or adverse outcomes in such
litigation; and
* The factors discussed in Item 1 in this Report and
in the Management's Discussion and Analysis in Item 7,
as well as those discussed elsewhere in this Report and
the documents incorporated herein by reference.
All forward-looking statements contained in this
report are based upon information presently available
and the Corporation assumes no obligation to update any
forward-looking statements.
Principal Sources of Revenue
The principal source of revenue for the Registrant
is interest and fees on loans and investment income.
The sources of income for the three most recent years
are as follows (in thousands):
1999 1998 1997
Interest and fees on loans $40,457 $37,284 $34,526
Investment income 1,670 717 1,065
Other interest income 422 497 373
Noninterest income 3,538 2,651 1,638
Employees
As of December 31, 1999, the Corporation and its
subsidiaries employed in the aggregate approximately
180 employees, of which approximately 160 are full-time
employees.
Competition
Banking is a highly competitive business. In
addition to other banks, the Bank also competes for
loans and deposits with savings and loan associations,
credit unions, investment firms, and large national
retailers, and competes for deposits with money market
funds. In order to successfully compete, management
has developed a sales and service culture, stresses and
rewards quality customer service, and designs products
to meet the needs of the customer. The Bank also
utilizes its ability to sell loans in the secondary
market.
Business
The Bank makes mortgage, commercial, and
installment loans to customers throughout Michigan.
Fees may be charged for these services. Historically,
the Bank has predominantly sold its conforming
residential mortgage loans in the secondary market.
The Bank also finances commercial and governmental
leases throughout the country; the leases are
originated by unrelated entities or the Registrant's
subsidiary, North Country Financial Group. The Bank
reviews the credit quality of each lease before
entering into a financing agreement.
The Bank supports the growth of the service
industry, with its year round resort and related
businesses, gaming, forestry, restaurants, farming,
fishing, and many other activities important to growth
in Michigan. The economy of the market areas of the
Bank is affected by summer and winter tourism
activities and, accordingly, the Bank experiences
seasonal consumer and commercial deposit growth, with
substantial growth increases from May to September.
There are no material concentrations of credit to,
nor have material portions of the Bank's deposits been
received from, a single person, industry, group, or
geographical location.
The Bank is a member of the Federal Home Loan Bank
of Indianapolis. The Federal Home Loan Bank of
Indianapolis provides an additional source of liquidity
and long-term funds. Membership in the Federal Home
Loan Bank also provides access to additional
advantageous lending programs. The Community
Investment Program makes advances to be used for
funding community-oriented mortgage lending, and the
Affordable Housing Program grants advances to fund
lending for long-term low and moderate income owner
occupied and affordable rental housing at subsidized
interest rates.
The Bank regularly assesses its ability to raise
funds through the issuance of certificates of deposit
in denominations of $100,000 or more in the local and
regional market area and has established conservative
guidelines for the total funding to be provided by
these deposits. The Bank also uses the Internet to
attract certificates of deposits in denominations of
$100,000 or more. These large denomination deposits
approximated 7.6% of total deposits at December 31,
1999.
The Bank also uses federal funds purchased from
correspondent banks and the Federal Reserve Bank to
respond to deposit fluctuations and temporary loan
demands.
As of December 31, 1999, the Bank had no material
risks attendant to foreign sources. See the "Interest
Rate Risk" and "Foreign Exchange Risk" sections in
Management's Discussion and Analysis of Financial
Condition and Results of Operation for details on the
Registrant's foreign account activity.
Compliance with federal, state, and local statutes
and/or ordinances relating to the protection of the
environment is not expected to have a material effect
upon the Bank's capital expenditures, earnings, or
competitive position.
Supervision and Regulation
As a registered bank holding company, the
Corporation is subject to regulation and examination by
the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") under the Bank Holding
Company Act, as amended (the "BHCA"). The Bank is
subject to regulation and examination by the Michigan
Financial Institutions Bureau and the FDIC.
Under the BHCA, the Corporation is subject to
periodic examination by the Federal Reserve Board, and
is required to file with the Federal Reserve Board
periodic reports of its operations and such additional
information as the Federal Reserve Board may require.
In accordance with Federal Reserve Board policy, the
Corporation is expected to act as a source of financial
strength to the Bank and to commit resources to support
the Bank in circumstances where the Corporation might
not do so absent such policy. In addition, there are
numerous federal and state laws and regulations which
regulate the activities of the Corporation, the Bank
and the nonbank subsidiaries, including requirements
and limitations relating to capital and reserve
requirements, permissible investments and lines of
business, transactions with affiliates, loan limits,
mergers and acquisitions, issuances of securities,
dividend payments, inter-affiliate liabilities,
extensions of credit and branch banking.
Federal banking regulatory agencies have
established capital adequacy rules which take into
account risk attributable to balance sheet assets and
off-balance sheet activities. All banks and bank
holding companies must meet a minimum total risk-based
capital ratio of 8%, of which at least one-half must be
comprised of core capital elements defined as Tier 1
capital (which consists principally of shareholders'
equity). The federal banking agencies also have
adopted leverage capital guidelines which banking
organizations must meet. Under these guidelines, the
most highly rated banking organizations must meet a
minimum leverage ratio of at least 3% Tier 1 capital to
total assets, while lower rated banking organizations
must maintain a ratio of at least 4% to 5%. Failure to
meet minimum capital requirements can initiate certain
mandatory - and possible additional discretionary -
actions by regulators that, if undertaken, could have a
direct material effect on the consolidated financial
statements. The risk-based and leverage standards
presently used by the Federal Reserve Board are minimum
requirements, and higher capital levels will be
required it warranted by the particular circumstances
or risk profiles of individual banking organizations.
The Federal Reserve Board has not advised the
Corporation of any specific minimum Tier 1 capital
leverage ratio applicable to it.
Federal law provides the federal banking
regulators with broad power to take prompt corrective
action to resolve the problems of undercapitalized
institutions. The extent of the regulators' power
depends on whether the institution in question is "well
capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized,"
or "critically undercapitalized." To be well
capitalized under the regulatory framework, the Tier 1
capital ratio must meet or exceed 6%, the total capital
ratio must meet or exceed 10% and the leverage ratio
must meet or exceed 5%. At December 31, 1999 and 1998,
the most recent notification from the Federal Reserve
categorized the Corporation as well capitalized under
the regulatory framework for prompt corrective action.
There are no conditions or events since that
notification that management believes have changed the
Corporation's category. The Bank's risk-based
capital and leverage ratios meet or exceed the defined
minimum requirements, and the Bank has been deemed well
capitalized as of December 31, 1999 and 1998.
Current federal law provides that adequately
capitalized and managed bank holding companies from any
state may acquire banks and bank holding companies
located in any other state, subject to certain
conditions. Banks are permitted to create interstate
branching networks in states that do not "opt out" of
interstate branching.
The laws and regulations to which the Corporation
is subject are constantly under review by Congress,
regulatory agencies and state legislatures. On
November 12, 1999, President Clinton signed important
legislation passed by Congress to overturn Depression-
era restrictions on affiliations by banking
organizations. This comprehensive legislation,
referred to as the Gramm-Leach-Bliley Act (the "Act"),
eliminates certain barriers to and restrictions on
affiliations between banks and securities firms,
insurance companies and other financial services
organizations. The Act provides for a new type of
"financial holding company" structure under which
affiliations among these entities may occur, subject to
the regulation of the Federal Reserve Board and
regulation of affiliates by the functional regulators,
including the Securities and Exchange Commission and
state insurance regulators. In addition, the Act
permits certain non-banking financial and financially
related activities to be conducted by operating
subsidiaries of a national bank. Under the Act, a bank
holding company may become certified as a financial
holding company by filing a notice with the Federal
Reserve Board, together with a certification that the
bank holding company meets certain criteria, including
capital, management and Community Reinvestment Act
requirements. The Act contains a number of provisions
allocating regulatory authority among the Federal
Reserve Board, other banking regulators, the Securities
and Exchange Commission and state insurance regulators.
In addition, the Act imposes strict new privacy
disclosure and "opt out" requirements regarding the
ability of financial institutions to share personal non-
public customer information with third parties.
Other important provisions of the Act permit
merchant banking and venture capital activities, and
insurance underwriting, to be conducted by a subsidiary
of a financial holding company, and municipal
securities underwriting activities to be conducted
directly by a national bank or by its subsidiary.
Under the Act, a financial holding company may engage
in a broad list of "financial activities," and any non-
financial activity that the Federal Reserve Board
determines is "complementary" to a financial activity
and poses no substantial risk to the safety and
soundness of depository institutions or the financial
system.
While certain provisions of the Act became
effective on November 12, 1999, other provisions are
subject to delayed effective dates, and in some cases,
will be implemented only upon the adoption by federal
regulatory agencies of rules prescribed by the Act.
The earnings and business of the Corporation and
the Bank are also affected by the general economic and
political conditions in the United States and abroad
and by the monetary and fiscal policies of various
federal agencies. The Federal Reserve Board impacts
the competitive conditions under which the Corporation
operates by determining the cost of funds obtained from
money market sources for lending and investing and by
exerting influence on interest rates and credit
conditions. In addition, legislative and economic
factors can be expected
to have an ongoing impact on the competitive environment
within the financial services industry. The impact of
fluctuating economic conditions and federal regulatory
policies on the future profitability of the Corporation
and its subsidiaries cannot be predicted with certainty.
Selected Statistical Information
I. Distribution of Assets, Obligations, and
Shareholders' Equity; Interest Rates and Interest
Differential
The key components of net interest income, the
average daily balance sheet for each year - including
the components of earning assets and supporting
obligations - the related interest income on a fully
tax equivalent basis and interest expense, as well as
the average rates earned and paid on these assets and
obligations is contained under the caption
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the
Registrant's 1999 Annual Report, and is incorporated
herein by reference.
An analysis of the changes in net interest income
from period-to-period and the relative effect of the
changes in interest income and expense due to changes
in the average balances of earning assets and interest-
bearing obligations and changes in interest rates is
contained under the caption "Management's Discussion
and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1999 Annual Report, and
is incorporated herein by reference.
II. Investment Portfolio
A. Investment Portfolio Composition
The following table presents the carrying value of
investment securities available for sale as of December
31 (in thousands):
1999 1998 1997
U.S. Treasury and federal agencies $ 9,392 $3,513 $7,743
State and political subdivisions 16,210 1,021 830
Corporate securities 3,008 1,290 1,138
Mortgage-related securities 14,733 2,852 392
------- ------- -------
TOTAL $43,343 $8,676 $10,103
Included in the December 31, 1999 investment
securities available for sale are $6.2 million of White
Mountain Apache Tribe Revenue Bonds Series 1999B.
B. Relative Maturities and Weighted Average
Interest Rates
The following table presents the maturity schedule
of securities held and the weighted average yield of
those securities, as of December 31, 1999 (fully
taxable equivalent, in thousands):
1 Year or Less 1-5 Years 5-10 Years Over 10 Years
U.S. Treasury and
federal agencies $2,844 $6,548
State and political
subdivisions $115 $ 585 $7,085 $8,425
Corporate securities 111 1,457 500 940
Mortgage-related
securities 22 14,711
Weighted average
yield (1) 8.20% 7.04% 8.09% 7.45%
(1) Weighted average yield includes the effect
of tax-equivalent adjustments using a 34% tax
rate.
III. Loan Portfolio
A. Type of Loans
The following table sets forth the major
categories of loans outstanding for each category at
December 31 (in thousands):
1999 1998 1997 1996 1995
Commercial, financial
and agricultural $258,592 $219,027 $181,683 $141,555 $107,054
Real estate - construction 12,539 11,923 10,940 13,897 2,235
Real estate - mortgage 107,751 97,415 95,543 80,592 58,434
Consumer 17,051 23,160 26,795 31,156 29,918
Leases 70,689 60,195 57,558 47,686 23,867
-------- -------- -------- -------- --------
TOTAL $466,622 $411,720 $372,519 $314,886 $221,508
Included in the December 31, 1999 totals are
approximately $6.5 million of commercial loans and
$100,000 of real estate mortgage loans to Canadian
obligors.
To the extent the Corporation utilizes lease
financing for its customers, the leases are accounted
for as loans.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table presents the remaining
maturity of total loans outstanding for the categories
shown at December 31, 1999, based on scheduled
principal repayments (in thousands). The amounts due
after one year are classified according to the
sensitivity to changes in interest rates.
Commercial, Real Estate
Financial and Construction
Agricultural
In one year or less $98,545 $11,463
After one year but within five years:
Variable interest rates 46,645 ---
Fixed interest rates 50,731 1,076
After five years:
Variable interest rates 52,656 ---
Fixed interest rates 10,015 ---
TOTAL $258,592 $12,539
C. Risk Elements
The following table presents a summary of non-
performing assets and problem loans as of December 31
(in thousands):
1999 1998 1997 1996 1995
Nonaccrual loans $ 95 $2,174 $1,956 $ 49 $ 579
Accruing loans past
due 90 days or more 2,452 1,238 698 68 1,439
Restructured loans --- --- --- --- ---
Interest income that
would have been recorded
under original terms 3 207 93 --- ---
Interest income
recorded during period --- --- --- --- ---
IV. Summary of Loan Loss Experience
A. Analysis of the Allowance for Loan Losses
Changes in the allowance for loan losses arise
from loans charged off, recoveries on loans previously
charged off by loan category, and additions to the
allowance for loan losses through provisions charged to
expense. Factors which influence management's judgment
in determining the provision for loan losses include
establishing specified loss allowances for selected
loans (including large loans, nonaccrual loans, and
problem and delinquent loans) and consideration of
historical loss information and local economic
conditions. The following table presents information
relative to the allowance for loan losses for the years
ended December 31 (in thousands):
1999 1998 1997 1996 1995
Balance of allownce
for loan losses at
beginning of period $6,112 $5,600 $4,591 $3,137 $2,350
Loans charged off:
Commercial, financial
and agricultural 405 406 351 1,012 90
Real estate - construction -- -- -- -- --
Real estate - mortgage 74 31 37 8 --
Consumer 329 368 413 357 252
Leases -- -- -- -- --
TOTAL LOANS
CHARGED OFF 808 805 801 1,377 440
Recoveries of loans
previously charged off:
Commercial, financial
and agricultural 9 48 2 67 336
Real estate - construction -- -- -- -- --
Real estate - mortgage 10 -- 7 -- 22
Consumer 83 70 77 55 98
Leases -- -- 27 -- --
TOTAL RECOVERIES 102 118 113 122 456
Net loans charged off 706 687 688 1,255 (16)
Provisions charged to
expense 1,457 1,199 1,398 2,424 771
Allowance from
acquisitions -- -- 299 285 --
BALANCE AT END OF
PERIOD $6,863 $6,112 $5,600 $4,591 $3,137
Ratio of net charge-offs
during period to average
loans outstanding 0.16% 0.17% 0.20% 0.45% -0.01%
B. Allocation of Allowance for Loan Losses
The allocation of the allowance for loan losses
for the years ended December 31 is shown on the
following table (in thousands). The percentages shown
represent the percent of each loan category to total
loans.
1999 1998 1997 1996 1995
Amount % Amount % Amount % Amount % Amount %
Commercial,
financial and
agricutural $2,443 55.4% $1,789 53.2% $2,873 48.8% $2,356 45.0% $ 583 48.3%
Real estate -
construction 114 2.7% 65 2.9% -- 2.9% -- 4.4% -- 1.0%
Real estate -
mortgage 835 23.1% 622 23.7% 99 25.6% 81 25.6% 592 6.4%
Consumer 326 3.7% 229 5.6% 416 7.2% 341 9.9% 112 13.5%
Leases 1,049 15.1% 880 14.6% 350 15.5% 27 15.1% 23 10.8%
Unallocated 2,096 N/A 2,507 N/A 1,862 N/A 1,526 N/A 2,360 N/A
TOTAL $6,863 100% $6,112 100% $5,600 100% $4,591 100% $3,137 100%
V. Deposits
At December 31, 1999, approximately $5.6 million
of total deposits are from Canadian customers.
The following table presents the maturities of
certificates of deposits and other time deposits of
$100,000 or more as of December 31, 1999 (in thousands):
3 months or less $ 5,123
Over 3 months through 6 months 3,979
Over 6 months through 12 months 7,708
Over 12 months 18,500
Total $35,310
VI. Return on Equity and Assets
Selected financial data of the Registrant is
contained in the Corporation's 1999 Annual Report and
is incorporated herein by reference.
See Item 6, "Selected Financial Data."
VII. Financial Instruments with Off-Balance Sheet Risk
The Registrant is a party to financial instruments
with off-balance sheet risk in the normal course of
business to meet financial needs of its customers.
These financial instruments include commitments to make
loans, unused lines of credit, and standby letters of
credit. The Registrant's exposure to credit loss in
the event of nonperformance by the other party to the
financial instrument is represented by the contractual
amount of those instruments. The Registrant follows
the same credit policy to make such commitments as it
uses for on-balance-sheet items.
The Registrant had the following fixed and
variable rate commitments outstanding at December 31
(in thousands):
1999 1998
Fixed Variable Fixed Variable
Outstanding letters of credit --- $14,425 --- $14,869
Unused lines of credit $9,294 73,939 $2,782 63,452
Loan commitments outstanding 7,127 45,420 11,235 53,372
Fixed rates on unused lines of credit and loan
commitments ranged from 5.15% to 18% at December 31, 1999.
Since many commitments to make loans expire
without being used, the amount does not necessarily
represent future cash commitments. Collateral obtained
upon exercise of the commitment is determined using
management's credit evaluation of the borrower and may
include real estate, vehicles, business assets,
deposits, and other items.
ITEM 2: PROPERTIES
The Registrant's headquarters are located at 3530
North Country Drive, Traverse City, Michigan 49684.
The headquarters location is owned by the Registrant
and not subject to any mortgage.
The Bank conducts business from 27 offices at
locations described below in Grand Traverse, Otsego,
Manistee, Antrim, Emmet, Schoolcraft, Menominee, Delta,
Dickinson, Hougton, Ontonagon, Baraga, Marquette, Luce,
Alger, Mackinac, and Chippewa counties. The
Corporation continually reviews the possibility of
applying for additional branch locations, depending on
management's assessment of market and economic
conditions, the availability of locations, and the
proximity of branches of competing institutions. The
following table lists each of the Bank's offices.
Traverse City Gaylord
3530 North Country Drive 145 North Otsego Avenue
Traverse City, MI 49684 Gaylord, MI 49735
Grand Traverse County Otsego County
Kaleva Mancelona
14429 Wuoksi Avenue 625 North Williams Street
Kaleva, MI 49645 Manxwlona, MI 49659
Manistee County Antrim County
Petoskey Manistique
3890 Charlevoix Avenue 130 South Cedar Street
Petoskey, MI 49770 Manistique, MI 49854
Emmet County Schoolcraft County
Menominee Stephenson
1111 10th Street 245 Menominee Street
Menominee, MI 49858 Stephenson, MI 49887
Menominee County Menominee County
Escanaba Iron Mountain
837 North Lincoln Road 1890 South Stephenson Avenue
Escanaba, MI 49829 Iron Mountain, MI 49801
Delta County Dickinson County
South Range Ripley
47 Trimountain Avenue 106 Royce Road
South Range, MI 49963 Franklin Township, MI 49930
Houghton County Houghton County
Calumet Houghton
1175 Calumet Avenue 524 Sheldon Avenue
Calumet, MI 49913 Houghton, MI 49931
Houghton County Houghton County
Ontonagon L'anse
601 River Street 117 US Highway 41
Ontonagon, MI 49953 L'anse, MI 49946
Ontonagon County Baraga County
Marquette Main Marquette Presque Isle
300 North McClellan Street 1400 Presque Isle
Marquette, MI 49855 Marquette, MI 49855
Marquette County Marquette County
Newberry Main Newberry Hill
414 Newberry Avenue 2001 South Newberry Avenue
Newberry, MI 49868 Newberry, MI 49868
Luce County Luce County
Munising Curtis
301 East Superior Street 415 Main Street
Munising, MI 49862 Curtis, MI 49820
Alger County Mackinac County
Naubinway St. Ignace
US Highway 2 430 North State Street
Naubinway, MI 49762 St. Ignace, MI 49781
Mackinac County Mackinac County
Mackinac Island Sault Main
21 Hoban Street 138 Ridge Street
Mackinac Island, MI 49781 Sault Ste. Marie, MI 49783
Mackinac County Chippewa County
Sault Cascade
4250 I-75 Business Spur
Sault Ste. Marie, MI 49783
Chippewa County
All of the above locations are designed for use
and operation as a bank, are well maintained, and are
suitable for current operations. Of the 27 branch
locations, 6 are leased and 21 are owned.
North Country Financial Group leases space in a
professional office building located at 1860 Blake
Street, Denver, Colorado 80202.
ITEM 3: LEGAL PROCEEDINGS
As the date hereof, there were no material pending
legal proceedings, other than routine litigation
incidental to the business of banking to which the
Registrant or any of its subsidiaries is a party of or
which any of its properties is the subject.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth
quarter of fiscal 1999 to a vote of the Registrant's
stockholders.
Additional Item - Executive Officers
Name Age Position
Ronald G. Ford 52 Chairman and Chief Executive Officer
Sherry L. Littlejohn 39 President and Chief Operating Officer
The foregoing officers serve at the pleasure of
the Board of Directors and are appointed by the Board
annually. There are no arrangements or understandings
between any officer and any other person pursuant to
which the officer was elected.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCK HOLDER MATTERS
Market information pertaining to the Registrant's
common stock is contained under the caption "Market
Information" in the Registrant's 1999 Annual Report,
and is incorporated herein by reference.
The number of common shareholders of the
Registrant is contained under the caption "Market
Summary" on page 2 in the Registrant's 1999 Annual
Report, and is incorporated herein by reference.
The holders of the Registrant's common stock are
entitled to dividends when, as and if declared by the
Board of Directors of the Registrant out of funds
legally available for that purpose. Dividends have
been paid on a quarterly basis. In determining
dividends, the Board of Directors considers the
earnings, capital requirements and financial condition
of the Registrant and its subsidiary bank, along with
other relevant factors. The Registrant's principal
source of funds for cash dividends is the dividends
paid by the subsidiary bank. The ability of the
Registrant and the subsidiary bank to pay dividends is
subject to regulatory restrictions and requirements.
The cash dividends paid by quarter for 1999 and
1998 is included in the Corporation's 1999 Annual
Report under the caption "Comparative Highlights" and
is incorporated herein by reference.
ITEM 6: SELECTED FINANCIAL DATA
Selected financial data of the Registrant is
contained in the Corporation's 1999 Annual Report and
is incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference to the Management's
Discussion and Analysis in the Corporation's 1999
Annual Report to Shareholders.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Corporation's primary market risk exposure is
interest rate risk and, to a lesser extent, liquidity
risk and foreign exchange risk. The Corporation has no
market risk sensitive instruments held for trading
purposes. The Corporation has limited agricultural-
related loan assets and therefore has minimal
significant exposure to changes in commodity prices.
Any impact that changes in foreign exchanges rates and
commodity prices would have on interest rates are
assumed to be insignificant.
Interest rate risk is the exposure of the
Corporation's financial condition to adverse movements
in interest rates. The Corporation derives its income
primarily from the excess of interest collected on its
interest-earning assets over the interest paid on its
interest-bearing obligations. The rates of interest
the Corporation earns on its assets and owes on its
obligations generally are established contractually for
a period of time. Since market interest rates change
over time, the Corporation is exposed to lower
profitability if it cannot adapt to interest rate
changes. Accepting interest rate risk can be an
important source of profitability and shareholder
value; however, excess levels of interest rate risk
could pose a significant threat to the Corporation's
earnings and capital base. Accordingly, effective risk
management that maintains interest rate risk at prudent
levels is essential to the Corporation's safety and
soundness.
Evaluating the exposure to changes in interest
rates includes assessing both the adequacy of the
process used to control interest rate risk and the
quantitative level of exposure. The Corporation's
interest rate risk management process seeks to ensure
that appropriate policies, procedures, management
information systems and internal controls are in place
to maintain interest rate risk at prudent levels with
consistency and continuity. In evaluating the
quantitative level of interest rate risk, the
Corporation assesses the existing and potential future
effects of changes in interest rates on its financial
condition, including capital adequacy, earnings,
liquidity and asset equity.
The table below measures current maturity levels
of interest-earning assets and interest-bearing
obligations, along with average stated rates and
estimated fair values at December 31, 1999 (in
thousands):
Principal/Notional Amount Maturing in:
Fair Value
2000 2001 2002 2003 2004 Thereafter Total 12/31/99
Rate Sensitive
Assets
Interest-bearing
deposits $679 $679 $679
Average
interest rate 2.7% 2.7%
Fixed interest
rate securities $226 $136 $146 $146 $1,613 $41,076 $43,343 $43,343
Average
interest rate 5.4% 5.4% 5.4% 5.4% 6.5% 7.0% 7.0%
Federal Home
Loan Bank Stock $3,034 $3,034 $3,034
Average
interest rate 8.0% 8.0%
Fixed interest
rate loans $57,909 $1,968 $22,206 $24,669 $17,388 $65,174 $189,315 $183,620
Average
interest rate 8.2% 8.1% 8.5% 8.9% 8.5% 8.1% 8.3%
Variable interest
rate loans $73,676 $1,443 $22,422 $31,794 $25,801 $122,171 $277,307 $277,891
Average
interest rate 9.3% 9.3% 8.5% 9.2% 9.1% 9.2% 9.2%
Rate Sensitive
Obligations
Savings, money
market and
interest-bearing
demand $267,027 $267,027 $267,027
Average
interest rate 3.8% 3.8%
Time deposits $103,794 $3,517 $24,414 $16,284 $3,269 $1,087 $152,365 $152,001
Average
interest rate 5.4% 5.1% 5.6% 5.5% 5.4% 5.6% 5.4%
Fixed interest
rate borrowings $17,643 $686 $734 $790 $1,986 $5,039 $26,878 $25,729
Average
interest rate 6.0% 6.3% 6.3% 6.3% 6.4% 5.2% 5.9%
Variable interest
rate-borrowings $20,000 $20,000 $20,000
Average
interest rate 5.6% 5.6%
Subordinated
debentures $12,450 $12,450 $12,450
Average
interest rates 8.6% 8.6%
In addition to changes in interest rates, the
level of future net interest income is also dependent
on a number of variables, including: the growth,
composition and levels of loans, deposits, and other
earning assets and interest-bearing obligations, and
economic and competitive conditions; potential changes
in lending, investing and deposit strategies; customer
preferences; and other factors.
ITEM 8: FINANCIAL STATEMENTS
Incorporated by reference to the Registrant's
Consolidated Financial Statements for the years ended
December 31, 1999, 1998 and 1997 in the Corporation's
1999 Annual Report to Shareholders.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information set forth under the caption
"Election of Directors" of the Registrant's definitive
Proxy Statement dated March 8, 2000, is hereby
incorporated by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information relating to compensation of the
Registrant's executive officers and directors is
contained under the captions "Remuneration of
Directors" and "Executive Compensation," in the
Registrant's definitive Proxy Statement dated March 8,
2000, and is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information relating to security ownership of
certain beneficial owners and management is contained
under the caption "Beneficial Ownership of Common
Stock" in the Registrant's definitive Proxy Statement
dated March 8, 2000, and is incorporated herein by
reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and
related transactions is contained under the caption
"Indebtedness of and Transactions With Management" in
the Registrant's definitive Proxy Statement dated March
8, 2000, and is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Financial Statements.
1. The following documents are filed as part of
Item 8 of this report:
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income for the
years ended December 31, 1999, 1998, and 1997
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for
the years ended December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
2. Schedules to the consolidated financial
statements required by Article 9 of
Regulation S-X are not required under the
related instructions or are inapplicable, and
therefore have been omitted.
3. The following exhibits are filed as part of
this report:
Reference is made to the exhibit index which
follows the signature page of this report.
The Registrant will furnish a copy of any exhibits
listed on the Exhibit Index to any shareholder of the
Registrant without charge upon written request of
Sherry L. Littlejohn, 3530 North Country Drive,
Traverse City, Michigan 49684.
(b) Reports on Form 8-K
During the last quarter of the period covered by
this report, the Registrant filed no Current Reports on
Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized, dated March 27, 2000.
NORTH COUNTRY FINANCIAL CORPORATION
/s/ Ronald G. Ford
- --------------------------
Ronald G. Ford
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below
on March 27, 2000, by the following persons on behalf
of the Registrant and in the capacities indicated. Each
director of the Registrant, whose signature appears
below, hereby appoints Ronald G. Ford and Sherry L.
Littlejohn, and each of them severally, as his attorney-
in-fact, to sign in his name and on his behalf, as a
director of the Registrant, and to file with the
Commission any and all Amendments to this Report on Form
10-K.
Signature
/s/ Ronald G. Ford
- ---------------------------------- -------------------------------
Ronald G. Ford - Director, Chairman Stanley J. Gerou - Director
and Chief Executive Officer
(Principal Executive Officer)
/s/ Sherry L. Littlejohn /s/ Michael C. Henricksen
- ---------------------------------- -------------------------------
Sherry L. Littlejohn - Director, President, Michael C. Henricksen - Director
Chief Operating Officer and Treasurer
/s/ Kristine E. Hoefler /s/ Wesley Hoffman
- ---------------------------------- -------------------------------
Kristine E. Hoefler - Chief Financial Wesley Hoffman - Director
Officer (Principal Financial and
Accounting Officer)
- ---------------------------------- -------------------------------
Paul Arsenault - Director Thomas G. King - Director
/s/ John Lindroth
- --------------------------------- -------------------------------
Bernard A. Bouschor - Director John Lindroth - Director
/s/ John P. Miller
- --------------------------------- -------------------------------
C. Ronald Dufina - Director John P. Miller - Director
EXHIBIT INDEX
Number Exhibit
3.1 Articles of Incorporation, as amended,
incorporated herein by reference to exhibit 3.1 of the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999.
3.2 Bylaws, as amended, incorporated herein by
reference to exhibit 3.2 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999.
10.1 Stock Option Plan, incorporated by reference
to the Registrant's definitive proxy
statement for its annual meeting of
shareholders held April 21, 1994.
10.2 Deferred Compensation, Deferred Stock, and
Current Stock Purchase Plan for Nonemployee
Directors.
10.3 North Country Financial Corporation Stock
Compensation Plan.
10.4 North Country Financial Corporation 1997
Directors' Stock Option Plan.
10.5 North Country Financial Corporation 2000
Stock Incentive Plan
10.6 Employment Contract dated July 1, 1994
between North Country Bank and Trust and
Ronald G. Ford, incorporated herein by
reference to exhibit 10(c) of the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995.
10.7 Amendment to Employment Contract dated July
26, 1996 between North Country Bank and Trust
and Ronald G. Ford, incorporated herein by
reference to exhibit 10(d) of the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996.
10.8 Second Amendment to Employment Agreement
dated August 18, 1999, between the
Corporation and Ronald G. Ford, incorporated
herein by reference to exhibit 10.2 of the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999.
10.9 Consulting Agreement dated September 15, 1999
between the Corporation and Ronald G. Ford,
incorporated herein by reference to exhibit
10.1 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30,
1999.
10.10 Management Continuity Agreement dated
May 22, 1996 between the Corporation and
Sherry Littlejohn incorporated herein by
reference to exhibit 10.3 of the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999.
10.11 First Amendment to Employment Contract
dated August 18, 1999 between the Corporation
and Sherry Littlejohn, incorporated herein by
reference to exhibit 10.4 of the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999.
10.12 North Country Financial Corporation
Supplemental Executive Retirement Plan,
incorporated herein by reference to exhibit
10.6 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30,
1999.
10.13 Lease Agreement commencing March 1,
2000, by and among C. Ronald Dufina, Mary
McCourt Dufina and North Country Bank &
Trust.
13 1999 Annual Report to Shareholders. This
exhibit, except for those portions expressly
incorporated by reference in this filing, is
furnished for the information of the
Securities and Exchange Commission and is not
deemed "filed" as part of this filing.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule - year ended December 31, 1999.
MW379878_6.DOC