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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, 2000
[ ] 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 jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
Preferred Share Purchase Rights
(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 $6.81 as of March 1, 2001, was $47.8
million. As of March 1, 2001, there were outstanding 7,017,931 shares of the
Corporation's Common Stock (no par value).
Documents Incorporated by Reference: Portions of the Corporation's 2000 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 17, 2001 are incorporated by reference into Part
III of this Report.
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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 eight 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;
NCB Real Estate Company, which owns several properties used by the Bank; North
Country Mortgage Company LLC and American Financial Mortgage Corporation,
entities engaged in the business of mortgage lending and brokering; and North
Country Employee Leasing Company, a company that leases employees to North
Country Bank and Trust. The latter three entities are new to the Registrant in
2000. 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.
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. 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. First Northern acquired Newberry State Bank on December 8, 1994,
in exchange for cash. On September 15, 1995, First Northern acquired the fixed
assets and assumed the deposits of the Rudyard branch of First of America Bank,
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. 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. 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. On June 16, 2000, North
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Country Bank and Trust acquired the fixed assets and assumed the deposits of the
Glen Arbor and Alanson branches of Old Kent Bank, 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 Traverse City, Michigan at the address above. The
Bank has 20 branch offices located in the Upper Peninsula of Michigan and nine
branch offices located in Michigan's Lower Peninsula. The Bank maintains offices
in Grand Traverse, Otsego, Wexford, Manistee, Antrim, Leelanau, Emmet,
Schoolcraft, Menominee, Delta, Dickinson, Hougton, Baraga, Ontonagon, Marquette,
Luce, Alger, Mackinac, and Chippewa counties. The Bank provides drive-in
convenience at 20 branch locations and has automatic teller machines operating
at 14 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 increase or
decrease 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;
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- 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):
2000 1999 1998
---- ---- ----
Interest and fees on loans $50,063 $40,457 $37,284
Investment income 4,105 1,670 467
Other interest income 515 422 747
Noninterest income 6,853 3,538 2,651
EMPLOYEES
As of March 1, 2001, the Corporation and its subsidiaries employed in the
aggregate 200 employees equating to 175 full-time equivalents.
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.
The Corporation continues to offer its premium-based certificate of deposit
program. Customers can elect to receive one of several products in place of cash
interest payments on term certificates. The Corporation offers firearms, golf
clubs, various other sporting equipment, and
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grandfather clocks under these programs. The most successful and long-standing
of the programs is the firearm program, which is offered to sports enthusiasts
nationally. Under this program, the Corporation records the cost of the product
given as a discount from the face amount of the certificate of deposit and
recognizes interest expense on the effective interest method over the life of
the certificate.
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.
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 attractive rate advances as well as 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 brokered deposits
to attract certificates of deposits in denominations of $100,000 or more.
The Bank uses federal funds purchased from correspondent banks to respond to
deposit fluctuations and temporary loan demands.
As of December 31, 2000, the Bank had no material risks relative 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.
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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,
2000 and 1999, the most recent notification
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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, 2000 and 1999.
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, then 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 limits on
the transfer and use by financial institutions of nonpublic, personal
information about their customers.
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. On June 1, 2000, the federal bank regulatory agencies
issued final regulations implementing the Act's consumer privacy protections.
Among other things, the new privacy regulations give customers the right to "opt
out" of having their nonpublic, personal information shared by a financial
institution with nonaffiliated third parties, bars financial institutions from
disclosing customer account numbers
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or other such access codes to nonaffiliated third parties for direct marketing
purposes and requires annual disclosure by financial institutions of their
policies and procedures for protecting customers' nonpublic, personal
information. Full compliance with the new privacy regulations is mandatory as of
July 1, 2001.
On January 5, 2000, Michigan passed legislation repealing and replacing the 1969
Banking Code. The new law, effective March 1, 2000, eliminated barriers to the
use of new technologies in bank operations, created new powers for state banks,
extended the timeframe for regulatory examinations to up to 18 months, allowed
de novo branching in Michigan by out-of-state national banks, and specified that
a state bank has the same tax exemptions as savings and loan associations
(currently all personal property owned by, and mortgages and securities held by
a savings and loan association are tax exempt). Among other things, the new
powers authorized under the "Banking Law of 1999" include the ability to engage
in the sale of insurance, to own stock in a "bankers bank" that provides trust
services or other services authorized by the state commissioner, to purchase or
hold real property for bank use, and to exercise any other powers granted by
order or declaratory ruling of the state commissioner.
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
2000 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 2000 Annual Report, and is incorporated herein by reference.
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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):
2000 1999 1998
---- ---- ----
U.S. Treasury and federal agencies $10,882 $9,392 $3,513
State and political subdivisions 15,542 16,210 1,021
Corporate securities 4,740 3,008 1,290
Mortgage-related securities 40,902 14,733 2,852
------ ------ -----
TOTAL $72,066 $43,343 $8,676
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Included in the December 31, 2000 investment securities available for sale are
$5.5 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, 2000 (fully
taxable equivalent, in thousands):
1 Year or Less 1-5 Years 5-10 Years Over 10 Years
-------------- --------- ---------- -------------
U.S. Treasury and federal agencies $2,967 $7,915
State and political subdivisions $51 $239 7,176 8,076
Corporate securities 232 1,984 497 2,027
Mortgage-related securities 40,902
Weighted average yield (1) 5.72% 7.39% 8.30% 7.75%
(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):
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Commercial, financial and
agricultural $308,421 $258,592 $219,027 $181,683 $141,555
Real estate - construction 9,208 12,539 11,923 10,940 13,897
Real estate - mortgage 113,834 107,750 97,415 95,543 80,592
Consumer 13,059 17,051 23,160 26,795 31,156
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2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Leases 97,167 70,689 60,195 57,558 47,686
-------- ------ ------ ------ ------
TOTAL $541,689 $466,621 $411,720 $372,519 $314,886
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Included in loan totals for December 31, 2000, 1999, and 1998 are $6.6 million,
$6.5 million, and $4.1 of loans to Canadian obligators.
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, 2000, 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,
Financial and Real Estate Real Estate
Agricultural Construction Mortgage Consumer Leases
------------ ------------ -------- -------- ------
In one year or less $71,657 $8,289 $1,979 $3,012 $10,324
After one year but within five
years:
Variable interest rates 133,881 --- 2,153 82 1,602
Fixed interest rates 33,481 919 11,678 9,521 37,178
After five years:
Variable interest rates 42,313 --- 93,583 38 2,492
Fixed interest rates 27,089 --- 4,441 406 45,571
-------- ------ ------- --- ------
TOTAL $308,421 $9,208 $113,834 $13,059 $97,167
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C. Risk Elements
The following table presents a summary of non-performing assets and problem
loans as of December 31 (in thousands):
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Nonaccrual loans $10,547 $95 $2,174 $1,956 $49
Interest income that would
have been recorded for
nonaccrual loans
under original
terms 413 3 207 93 ---
Interest income recorded
during
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2000 1999 1998 1997 1996
---- ---- ---- ---- ----
period for
nonaccrual loans 143 --- --- --- ---
Accruing loans
past due 90 days or more 3,117 2,452 1,238 698 68
Restructured loans not
included above 3,654 --- --- --- ---
Included in nonaccrual loans as of December 31, 2000 are $2.4 million of
commercial loans to Canadian obligors.
In March 2001, the Corporation received full payment of $6.9 million for a
commercial loan that was on nonaccrual at December 31, 2000. This loan is
included in the totals in the above table.
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):
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2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Balance of allowance for loan
losses at beginning of period $6,863 $6,112 $5,600 $4,591 $3,137
Loans charged off:
Commercial, financial and
agricultural 1,284 405 406 351 1,012
Real estate - construction -- -- -- -- --
Real estate - mortgage 328 74 31 37 8
Consumer 263 329 368 413 357
Leases 1,553 -- -- -- --
----- --- --- --- ---
TOTAL LOANS CHARGED OFF 3,428 808 805 801 1,377
----- --- --- --- -----
Recoveries of loans previously
charged off:
Commercial, financial and
agricultural 66 9 47 2 67
Real estate - construction -- -- -- -- --
Real estate - mortgage 9 10 -- 7 --
Consumer 69 83 70 77 55
Leases -- -- -- 27 --
--- --- --- --- ---
TOTAL RECOVERIES 144 102 117 113 122
--- --- --- --- ---
Net loans charged off 3,284 706 688 688 1,255
Provisions charged to expense 5,875 1,457 1,200 1,398 2,424
Allowance from acquisitions -- -- -- 299 285
----- ----- ----- ----- -----
BALANCE AT END OF PERIOD $9,454 $6,863 $6,112 $5,600 $4,591
===== ===== ===== ===== =====
Ratio of net charge-offs during
period to average loans
outstanding 0.7% 0.2% 0.2% 0.2% 0.4%
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.
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2000 1999 1998 1997 1996
----------------- ----------------- ----------------- ----------------- ---------------
Amount % Amount % Amount % Amount % Amount %
------ ------- ------ ------- ------ ------- ------ ------- ------ -----
Commercial,
financial and
agricultural $3,407 56.9% $2,443 55.4% $1,789 53.2% $2,873 48.8% $2,356 45.0%
Real estate -
construction -- 1.7% 114 2.7% 65 2.9% -- 2.9% -- 4.4%
Real estate -
mortgage 136 21.0% 835 23.1% 622 23.7% 99 25.6% 81 25.6%
Consumer 371 2.4% 326 3.7% 229 5.6% 416 7.2% 341 9.9%
Leases 1,507 18.0% 1,049 15.1% 880 14.6% 350 15.5% 27 15.1%
Unallocated 4,033 N/A 2,096 N/A 2,507 N/A 1,862 N/A 1,526 N/A
----- --- ----- --- ----- --- ----- --- ----- ---
TOTAL $9,454 100% $6,863 100% $6,112 100% $5,600 100% $4,591 100%
====== ==== ===== ==== ===== ==== ===== ==== ===== ====
V. Deposits
At December 31, 2000, $3.7 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, 2000 (in thousands):
3 months or less $22,468
Over 3 months through 6 months 19,656
Over 6 months through 12 months 10,989
Over 12 months 28,014
------
Total $81,127
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VI. Return on Equity and Assets
Selected financial data of the Registrant is contained in the Corporation's 2000
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):
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2000 1999
--------------------------------- ---------------------------
Fixed Variable Fixed Variable
----- -------- ----- --------
Outstanding letters of credit --- $14,601 --- $ 14,425
Unused lines of credit $12,225 73,491 $9,294 73,939
Loan commitments outstanding 6,585 33,074 7,127 45,420
Fixed rates on unused lines of credit and loan commitments ranged from 6.25% to
18% at December 31, 2000.
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 29 offices at locations described below in Grand
Traverse, Otsego, Wexford, Manistee, Antrim, Leelanau, Emmet, Schoolcraft,
Menominee, Delta, Dickinson, Hougton, Baraga, Ontonagon, 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 Traverse City
------------- -------------
3530 North Country Drive 333 East State Street
Traverse City, MI 49684 Traverse City, MI 49684
Grand Traverse County Grand Traverse County
Gaylord Cadillac
------- --------
145 North Otsego Avenue 220 South Mitchell Street
Gaylord, MI 49735 Cadillac, MI 49601
Otsego County Wexford County
Kaleva Mancelona
------ ---------
14429 Wuoksi Avenue 625 North Williams Street
Kaleva, MI 49645 Mancelona, MI 49659
Manistee County Antrim County
Glen Arbor Alanson
---------- -------
6545 Western 6230 River Street
Glen Arbor, Mi 49636 Alanson, MI 49706
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Leelanau County Emmet 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 L'anse
------- ------
1175 Calumet Avenue 117 US Highway 41
Calumet, MI 49913 L'anse, MI 49946
Houghton County Baraga County
Ontonagon Marquette Main
--------- --------------
601 River Street 300 North McClellan Street
Ontonagon, MI 49953 Marquette, MI 49855
Ontonagon County Marquette County
Marquette Presque Isle Newberry Main
---------------------- -------------
1400 Presque Isle 414 Newberry Avenue
Marquette, MI 49855 Newberry, MI 49868
Marquette 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
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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 29 branch
locations, 8 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.
American Financial Mortgage Corporation leases an office building located at
1011 Noteware Drive, Traverse City, Michigan 49686.
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 2000 to a vote of
the Registrant's stockholders.
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 2000 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 2000 Annual Report, and
is incorporated herein by reference.
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17
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 declared by quarter for 2000 and 1999 is included in the
Corporation's 2000 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 2000
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 2000 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
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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, 2000 (in thousands):
Principal/Notional Amount Maturing in:
Fair Value
2001 2002 2003 2004 2005 Thereafter Total 12/31/00
---- ---- ---- ---- ---- ---------- ----- --------
Rate Sensitive Assets
- ---------------------
Fixed interest rate
securities $283 $55 $56 $1,545 $567 $69,560 $72,066 $72,066
Average interest rate 5.36 5.50 5.50 6.97 7.71 7.47 7.45
Fixed interest rate loans 56,990 27,604 28,608 20,719 18,323 49,999 202,244 195,873
Average interest rate 8.13 8.82 8.87 8.65 8.38 7.88 8.35
Variable interest rate
loans 75,359 32,269 40,862 38,549 37,181 115,225 339,445 339,445
Average interest rate 10.47 10.40 10.42 10.26 10.29 10.14 10.30
Other assets 4,180 4,180 4,180
Average interest rate 8.35 8.35
Total rate sensitive assets $136,812 $59,927 $69,526 $60,813 $56,071 $234,784 $617,935 $611,564
Rate Sensitive Obligations
- --------------------------
Savings, money market and
interest-bearing demand $241,787 $241,787 $241,787
Average interest rate 4.86 4.86
Time deposits 155,459 $60,399 $9,150 $13,210 $692 $707 239,617 239,301
Average interest rate 6.41 6.88 6.32 6.76 6.10 5.66 6.54
Federal funds purchased 1,800 1,800 1,800
Average interest rate 7.00 7.00
Fixed interest rate
borrowings 686 734 788 1,987 881 4,159 9,235 8,311
Average interest rate 6.25 6.28 6.30 6.42 6.30 5.00 5.73
Variable interest rate-
borrowings 60,000 60,000 62,170
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Fair Value
2001 2002 2003 2004 2005 Thereafter Total 12/31/00
---- ---- ---- ---- ---- ---------- ----- --------
Average interest rate 5.75 5.75
Subordinated debentures 12,450 12,450 12,450
Average interest rates 9.26 9.26
Total rate sensitive
obligations $399,732 $61,133 $9,938 $15,197 $1,573 $77,316 $564,889 $565,819
There have been no material changes in the Corporation's annual net maturity
levels of interest-earning assets and interest-bearing obligations as well as
the net fair value of those assets and liabilities from December 31, 1999 to
December 31, 2000.
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, 2000, 1999 and 1998 in the Corporation's 2000
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 12, 2001, is hereby
incorporated by reference.
The following are the executive officers of the Corporation. The executive
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.
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20
Name Age Position
- ---- --- --------
Ronald G. Ford 53 Chairman and Chief Executive Officer
Sherry L. Littlejohn 41 President and Chief Operating Officer
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 12, 2001, 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 12, 2001, 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 12, 2001, 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, 2000 and 1999
Consolidated Statements of Income for the years ended December 31,
2000, 1999, and 1998
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the years ended December
31, 2000, 1999, and 1998
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21
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
Kristine Hoefler, 3530 North Country Drive, Traverse City, Michigan 49684.
(b) Reports on Form 8-K
During the fourth quarter of 2000, the Registrant filed a Current Report on Form
8-K dated November 3, 2000 with respect to Item 9 of Form 8-K.
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22
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 28, 2001.
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 28, 2001, 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,
Sherry L. Littlejohn and Michael C. Henricksen, 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 /s/ Michael C. Henricksen
- -------------------------------------------- -------------------------------------------
Ronald G. Ford - Director, Chairman Michael C. Henricksen - Director
and Chief Executive Officer
(Principal Executive Officer)
/s/ Sherry L. Littlejohn
- -------------------------------------------- -------------------------------------------
Sherry L. Littlejohn - Director, President, Wesley W. Hoffman - Director
Chief Operating Officer and Treasurer
(Principal Financial and Accounting Officer)
- -------------------------------------------- -------------------------------------------
Paul Arsenault - Director Thomas G. King - Director
/s/ John D. Lindroth
- -------------------------------------------- -------------------------------------------
Bernard A. Bouschor - Director John D. Lindroth - Director
/s/ Stanley J. Gerou /s/ John P. Miller
- -------------------------------------------- -------------------------------------------
Stanley J. Gerou - Director John P. Miller - Director
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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.
4.1 Rights Agreement dated as of June 21, 2000 between the
Registrant and Registrar and Transfer Company, as Rights
Agent, which includes as Exhibit A the attachment to the
Certificate of Amendment, as Exhibit B the Form of Right
Certificate, and as Exhibit C the Summary of Rights to
Purchase Preferred Shares, incorporated herein by reference to
exhibit 4 of the Registrant's Current Report on Form 8-K filed
on July 31, 2000.
4.2 Certain borrowings and guaranteed preferred beneficial
interests in the Registrant's subordinated debentures are
described in Notes 9 and 13 of the Registrant's Notes to
Consolidated Financial Statements. The Registrant agrees to
furnish to the Commission, upon request, copies of any
instruments defining the rights of holders of any such
securities.
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, incorporated herein
by reference to exhibit 10.2 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999.
10.3 North Country Financial Corporation Stock Compensation Plan,
incorporated herein by reference to exhibit 10.3 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
10.4 North Country Financial Corporation 1997 Directors' Stock
Option Plan, incorporated herein by reference to exhibit 10.4
of the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999.
10.5 North Country Financial Corporation 2000 Stock Incentive Plan,
incorporated herein by reference to exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000.
10.6 Employment Agreement dated July 3, 2000 between the Registrant
and Ronald G. Ford, incorporated herein by reference to
exhibit 10 of the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000.
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10.7 Consulting Agreement dated September 15, 1999 between the
Registrant 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.
10.8 Employment Agreement dated September 30, 2000 between the
Registrant and Sherry L. Littlejohn, incorporated herein by
reference to exhibit 10 of the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2000.
10.9 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.
10.10 Lease Agreement commencing March 1, 2000, by and among C.
Ronald Dufina, Mary McCourt Dufina and North Country Bank &
Trust, incorporated herein by reference to exhibit 10.13 of
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999.
13 2000 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.
23