NORTH COUNTRY FINANCIAL CORP - 10-K Annual Report

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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, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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.)

130 South Cedar Street, Manistique, Michigan 49854
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (800) 200-7032

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. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
--- ---

The aggregate market value of the common stock held by non-affiliates of the
Registrant, based on a per share price of $8.00 as of June 30, 2002, was $52.2
million. As of March 14, 2003, there were outstanding 7,019,152 shares of the
Corporation's Common Stock (no par value).

Documents Incorporated by Reference: Portions of the Corporation's 2002 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 May 22, 2003 are incorporated by reference into Part III
of this Report.

PART I

ITEM 1: BUSINESS

North Country Financial Corporation (the "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 Corporation owns all of the outstanding
stock of its banking subsidiary, North Country Bank and Trust (the "Bank"). The
Corporation also owns eight non-bank subsidiaries: First Manistique Agency, an
insurance agency which sells annuities as well as life and health insurance;
First Rural Relending Company, a relending company for nonprofit organizations;
North Country Financial Group, a broker of loans and leases including 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, an entity 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
Bank represents the principal asset of the Corporation. The Corporation 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 Corporation 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 Corporation 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 Corporation 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 Corporation 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 Corporation 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 Corporation 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.

1

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 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. On July 13, 2001, North Country Bank and Trust sold
the fixed assets and deposits of the St. Ignace and Mackinaw Island branches to
Central Savings Bank in exchange for cash. On November 9, 2001, North Country
Bank and Trust sold the fixed assets and deposits of the Curtis and Naubinway
branches to State Savings Bank in exchange for cash. On November 22, 2002, North
Country Bank and Trust sold the fixed assets and deposits of the Menominee
branch to Stephenson National Bank and Trust in exchange for cash.

The Bank has 16 branch offices located in the Upper Peninsula of Michigan and 10
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, Houghton, Baraga, Ontonagon,
Marquette, Luce, Alger, Chippewa and Charlevoix counties. The Bank provides
drive-in convenience at 19 branch locations and has automated teller machines
operating at 13 locations. The Bank has no foreign offices.

The Corporation is headquartered in Manistique, Michigan. The executive offices
and mailing address of the Corporation are located at 130 South Cedar Street,
Manistique, Michigan 49854.

FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Corporation intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies or expectations of the Corporation, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Corporation's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors that could cause actual results to differ from the
results in forward-looking statements include, but are not limited to:

o General economic conditions, either nationally or in the state(s) in
which the Corporation does business;

o Legislation or regulatory changes which affect the business in which the
Corporation is engaged;

o Changes in the interest rate environment which increase or decrease
interest rate margins;

o Restrictions and requirements imposed on the Corporation and the Bank by
formal action against them by bank regulatory agencies;

o Failure or inability of the Bank to comply with the terms of the Cease
and Desist Order applicable to it;

o 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;

2

o Significant increases in competition in the banking and financial
services industry resulting from industry consolidation, regulatory
changes and other factors, as well as action taken by particular
competitors;

o The ability of borrowers to repay loans;

o The effects on liquidity of unusual decreases in deposits;

o Changes in consumer spending, borrowing, and saving habits;

o Technological changes;

o Acquisitions and unanticipated occurrences which delay or reduce the
expected benefits of acquisitions;

o Difficulties in hiring and retaining qualified management and banking
personnel;

o The Corporation's ability to increase market share and control expenses;

o The effect of compliance with legislation or regulatory changes;

o The effect of changes in accounting policies and practices;

o Changes required to attain and maintain regulatory capital levels
required by bank regulatory agencies, and the extent to which additional
capital is available at a feasible cost;

o The costs and effects of unanticipated litigation and of unexpected or
adverse outcomes in such litigation; and

o 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.

These risks and uncertainties should be considered in evaluating forward-looking
statements. Further information concerning the Corporation and its business,
including additional factors that could materially affect the Corporation's
financial results, is included in the Corporation's filings with the Securities
and Exchange Commission ("SEC"). 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.

OPERATIONS

The principal business the Corporation is engaged in, through the Bank, is 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. Funds for the Bank's operation are also
provided by Internet deposits and through borrowings from the Federal Home Loan
Bank ("FHLB") system, proceeds from the sale of loans and mortgage-backed and
other securities, funds from repayment of outstanding loans and earnings from
operations. Earnings depend primarily upon the difference between (i) revenues
from loans, investments, and other interest-bearing assets and (ii) expenses
incurred in payment of interest on deposit accounts and borrowings, maintaining
an adequate allowance for loan losses, and general operating expenses.

3

GENERAL DEVELOPMENTS

The principal source of revenue for the Corporation is interest and fees on
loans and investment income. The sources of income for the three most recent
years are as follows (in thousands):

COMPETITION

Banking is a highly competitive business. The Bank competes for loans and
deposits with other banks, savings and loan associations, credit unions,
mortgage bankers, and investment firms in the scope and type of services
offered, pricing of loans, interest rates paid on deposits, and number and
location of branches, among other things. The Bank also faces competition for
investors' funds from mutual funds and corporate and government securities.

The Bank competes for loans principally through interest rates and loan fees,
the range and quality of the services it provides and the locations of its
branches. The Bank also utilizes its ability to sell loans in the secondary
market. In addition, the Bank actively solicits deposit-related clients and
competes for deposits by offering depositors a variety of savings accounts,
checking accounts and other services.

EMPLOYEES

As of March 14, 2003, the Corporation and its subsidiaries employed, in the
aggregate, 142 employees equating to 138 full-time equivalents. None of the
Corporation's employees are covered by a collective bargaining agreement with
the Corporation and management believes that its relationship with its employees
is satisfactory.

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 has also financed commercial and governmental leases
throughout the country. Leases were originated by the Corporation's subsidiary,
North Country Financial Group, and unrelated entities. In March 2003, the
Corporation made a decision to cease the operations of North Country Financial
Group. This was done in order to refocus the Corporation's lending efforts to
loans in its immediate market area; decrease the size of certain segments of the
loan portfolio; and diversify the loan portfolio. The Corporation may pursue new
lease opportunities through unrelated entities, where the credit quality and
rate of return on the transactions fit its strategies. The Bank reviews the
credit quality of each lease before entering into a financing agreement. The
Bank accounts for these transactions as loans.

4

The Bank supports the service industry, with its hospitality and related
businesses as well as gaming, forestry, restaurants, farming, fishing, and many
other activities important to growth in Michigan. The economy of the Bank's
market areas is affected by summer and winter tourism activities.

The Bank's most prominent concentration in the loan portfolio relates to
commercial loans to entities within the hospitality and tourism industry. This
concentration represented $86.8 million or 32.1% of the commercial loan
portfolio at December 31, 2002. No material portions of the Bank's deposits have
been received from a single person, industry, group, or geographical location.

The Bank is a member of the FHLB. The FHLB provides an additional source of
liquidity and long-term funds. Membership in the FHLB has provided 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 and demand deposit accounts in its local branching
network and through the Internet CD network. The Bank also utilizes brokered
deposits to fund liquidity requirements.

The Bank has a secondary borrowing line of credit available to respond to
deposit fluctuations and temporary loan demands. This line is available to the
Bank on a collateralized basis.

As of December 31, 2002, 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 Corporation'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 (Federal
Reserve Board) under the Bank Holding Company Act, as amended (BHCA). The Bank
is subject to regulation and examination by the Michigan Office of Financial and
Insurance Services (OFIS) and the Federal Deposit Insurance Corporation (FDIC).

5

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 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 if
warranted by the particular circumstances or risk profiles of individual banking
organizations.

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 risk-based capital ratio
must meet or exceed 10% and the leverage ratio must meet or exceed 5%. As of
December 31, 2002, the Corporation and the Bank are undercapitalized.
Information pertaining to the Corporation's capital plan is contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the caption "Capital and Regulatory" in the Corporation's 2002
Annual Report, and is incorporated here by reference.

6

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.

In 1999, Congress enacted the Gramm-Leach-Bliley Act (the "Act"), which
eliminated certain barriers to and restrictions on affiliations between banks
and securities firms, insurance companies and other financial service
organizations. Among other things, the Act repealed certain Glass-Steagall Act
restrictions on affiliations between banks and securities firms, and amended the
BHCA to permit bank holding companies that qualify as "financial holding
companies" to engage in a broad list of "financial activities," and any
non-financial activity that the Federal Reserve Board, in consultation with the
Secretary of the Treasury, determines is "complementary" to a financial activity
and poses no substantial risk to the safety and soundness of depository
institutions or the financial system. The Act treats lending, insurance
underwriting, insurance company portfolio investment, financial advisory,
securities underwriting, dealing and market-making, and merchant banking
activities as financial in nature for this purpose. 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 Corporation has determined not to
request certification as a financial holding company at this time. The
Corporation may reconsider this determination in the future.

In October 2001, the Bank was notified by the FDIC that it is a "troubled
institution" within the meaning of FDIC regulations. As a troubled institution,
the Bank is required to notify the FDIC 30 days prior to the addition or
replacement of a Board member and the employment or changes in responsibilities
of a senior executive officer.

In September, 2002, a regularly-scheduled safety and soundness examination of
the Bank was conducted by its principal regulators, the OFIS and the FDIC.
Following the completion of the regularly scheduled safety and soundness
examination of the Bank by the FDIC and the OFIS, and the Bank's receipt of the
related Joint Report of Examination ("Report"), the FDIC and the OFIS, with the
consent of the Bank, on March 26, 2003, entered a formal Cease and Desist Order
(the "Order") under Federal and state banking laws.

Additional information pertaining to the Order is contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the caption "Capital and Regulatory" in the Corporation's 2002 Annual Report,
and is incorporated here by reference.

7

MONETARY POLICY

The earnings and business of the Corporation and the Bank depends on interest
rate differentials. In general, the difference between the interest rates paid
by the Bank to obtain its deposits and other borrowings, and the interest rates
received, by the Bank on loans extended to its customers and on securities held
in the Bank's portfolio, comprises the major portion of the Bank's earnings.
These rates are highly sensitive to many factors that are beyond the control of
the Bank, and accordingly, its earnings and growth will be subject to the
influence of economic conditions generally, both domestic and foreign, including
inflation, recession and unemployment, and also the monetary policies of the
Federal Reserve Board. The Federal Reserve Board implements national monetary
policies designed to curb inflation, combat recession, and promote growth
through, among other means, its open-market dealings in US government
securities, by adjusting the required level of reserves for financial
institutions subject to reserve requirements, through adjustments to the
discount rate applicable to borrowings by banks that are members of the Federal
Reserve System, and by adjusting the Federal Funds Rate, the rate charged in the
interbank market for purchase of excess reserve balances. In addition,
legislative and economic factors can be expected to have an ongoing impact on
the competitive environment within the financial services industry. The nature
and timing of any future changes in such policies and their impact on the Bank
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 daily average 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 Corporation's
2002 Annual Report, and is incorporated here 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
Corporation's 2002 Annual Report, and is incorporated here by reference.

8

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):

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, 2002 (fully
taxable equivalent, in thousands):

- ----------
(1) Weighted average yield includes the effect of tax-equivalent
adjustments using a 34% tax rate.

9

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):

Included in loan totals for December 31, 2002, 2001, and 2000 are $4.1 million,
$6.4 million, and $6.6 million of 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, 2002, based on scheduled principal
repayments (in thousands).

10

C. Risk Elements

The following table presents a summary of nonperforming assets and problem loans
as of December 31 (in thousands):

Canadian loans totaling $650,000 were included in the nonaccrual category as of
December 31, 2002.

11

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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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.

V. Deposits

At December 31, 2002, $2.9 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, 2002 (in thousands):

3 months or less $ 7,516
Over 3 months through 6 months 4,742
Over 6 months through 12 months 14,285
Over 12 months 10,843
--------
Total $ 37,386
========

VI. Return on Equity and Assets

Selected financial data of the Corporation is contained in the Corporation's
2002 Annual Report, under the caption "Selected Financial Data," and is
incorporated here by reference.

See Item 6 of this Form 10-K, "Selected Financial Data"

13

VII. Financial Instruments with Off-Balance Sheet Risk

The Corporation 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 Corporation'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 Corporation
follows the same credit policy to make such commitments as it uses for
on-balance-sheet items.

The Corporation had the following fixed and variable rate commitments
outstanding at December 31 (in thousands):

Fixed rates on unused lines of credit and loan commitments ranged from 5.75% to
18.00% at December 31, 2002.

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.

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ITEM 2: PROPERTIES

The Corporation's headquarters are located at 130 South Cedar Street,
Manistique, Michigan 49854. The headquarters location is owned by the
Corporation and not subject to any mortgage.

The Bank conducts business from 26 offices at locations described below in Grand
Traverse, Otsego, Wexford, Manistee, Antrim, Leelanau, Emmet, Schoolcraft,
Menominee, Delta, Dickinson, Houghton, Baraga, Ontonagon, Marquette, Luce,
Alger, Chippewa and Charlevoix counties. 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 218 South Mitchell Street
Gaylord, MI 49735 Cadillac, MI 49601
Otsego County Wexford County

Kaleva Mancelona
14429 Wouski Avenue 625 North Williams Street
Kaleva, MI 49645 Mancelona, MI 49659
Manistee County Antrim Country

Glen Arbor Alanson
6545 Western 6230 River Street
Glen Arbor, MI 49636 Alanson, MI 49706
Leelanau County Emmet County

Petoskey Manistique
3890 Charlevoix Avenue 130 South Cedar Street
Petoskey, MI 49770 Manistique, MI 49854
Emmet County Schoolcraft County

Escanaba Stephenson
837 North Lincoln Road 245 Menominee Street
Escanaba, MI 49829 Stephenson, MI 49887
Delta County Menominee County

15

South Range Iron Mountain
47 Trimountain Avenue 1890 South Stephenson Avenue
South Range, MI 49963 Iron Mountain, MI 49801
Houghton County Dickinson County

Calumet Ripley
56730 Calumet Avenue, Suite L 106 Royce Road
Calumet, MI 49913 Hancock, MI 49930
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 Presque Isle Marquette Main
1400 Presque Isle 300 North McClellan Street
Marquette, MI 49855 Marquette, MI 49855
Marquette County Marquette County

Munising Newberry Main
301 East Superior Street 414 Newberry Avenue
Munising, MI 49862 Newberry, MI 49868
Alger County Luce County

Boyne City Ishpeming
128 Water Street 1334 US 41 West
Boyne City, MI 49712 Ishpeming, MI 49849
Charlevoix County Marquette County

Sault Cascade Sault Main
4250 I-75 Business Spur 138 Ridge Street
Sault Ste. Marie, MI 49783 Sault Ste. Marie, MI 49783
Chippewa County 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 26 branch
locations, 9 are leased and 17 are owned.

The Corporation leases space at 1860 Blake Street, Denver, Colorado 80202 and
805A Main, Blue Springs, Missouri 64015.

The Corporation owns office buildings in Newberry, Manistique, and Traverse
City, Michigan, which had been utilized for administrative office space. These
buildings are listed for sale.

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ITEM 3: LEGAL PROCEEDINGS

As the date hereof, except for the Order referred to below, there were no
material pending legal proceedings, other than routine litigation incidental to
the business of banking to which the Corporation or any of its subsidiaries is a
party or of which any of its properties is the subject. Information pertaining
to the Order is contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the caption "Capital and Regulatory"
in the Corporation's 2002 Annual Report, and is incorporated here by reference.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of fiscal 2002 to a vote of
the Corporation's stockholders.

EXECUTIVE OFFICERS OF THE CORPORATION

The sole executive officer of the Corporation is listed below. The executive
officer serves at the pleasure of the Board of Directors and is 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 CORPORATION'S COMMON STOCK AND RELATED STOCK HOLDER MATTERS

Market information pertaining to the Corporation's common stock is contained
under the caption "Market Information" in the Corporation's 2002 Annual Report,
and is incorporated herein by reference.

The Corporation had 1,867 shareholders of record as of January 31, 2003.

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The holders of the Corporation's common stock are entitled to dividends when, as
and if declared by the Board of Directors of the Corporation out of funds
legally available for that purpose. Dividends had been paid on a quarterly basis
until the fourth quarter in 2002. In determining dividends, the Board of
Directors considers the earnings, capital requirements and financial condition
of the Corporation and its subsidiary bank, along with other relevant factors.
The Corporation's principal source of funds for cash dividends is the dividends
paid by the subsidiary Bank. The ability of the Corporation and the Bank to pay
dividends is subject to regulatory restrictions and requirements. In the fourth
quarter of 2002, the Corporation suspended payment of a dividend and the
Corporation's and Bank's Boards of Directors adopted resolutions providing for
prior regulatory approval of the declaration or payment of any dividend by the
Corporation or the Bank. Further, the Order prohibits the Bank from declaring or
paying dividends without the prior written consent of the OFIS and FDIC.

The cash dividends declared, by quarter for 2002 and 2001, are included in the
Corporation's 2002 Annual Report under the caption "Comparative Highlights" and
are incorporated here by reference.

ITEM 6: SELECTED FINANCIAL DATA

Selected financial data of the Corporation is contained in the Corporation's
2002 Annual Report, under the caption "Selected Financial Data," and is
incorporated here by reference.

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

Incorporated by reference to the Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Corporation's 2002 Annual
Report to Shareholders.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Incorporated by reference to the Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Corporation's 2002 Annual
Report to Shareholders.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Incorporated by reference to the Corporation's Consolidated Financial Statements
for the years ended December 31, 2002, 2001 and 2000 in the Corporation's 2002
Annual Report to Shareholders.

18

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE

A change in the Corporation's independent public accountants occurred during
2002. The change has been reported on Form 8-Ks filed during 2002.

On August 28, 2002, Wipfli Ullrich Bertelson LLP ("Wipfli") resigned as the
independent auditor of the Corporation's financial statements for the year
ending December 31, 2002. The reason for the decision to resign was solely the
Corporation's desire to outsource internal audit, regulatory compliance, and
financial reporting services to Wipfli, which would preclude Wipfli from serving
as the Corporation's independent auditor.

Wipfli's report on the Corporation's financial statements for the year ended
December 31, 2001, and prior thereto, did not contain any adverse opinion nor
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles.

During the Corporation's two most recent fiscal years, and for the interim
periods following December 31, 2001, through the date of Wipfli's resignation,
there had been no disagreements with Wipfli on any matter of accounting
principles or practices, financial statement disclosures, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Wipfli,
would have caused Wipfli to make a reference to the subject matter of the
disagreements in connection with its reports.

The Corporation provided Wipfli with a copy of the Form 8-K disclosure and
Wipfli furnished a letter addressed to the SEC stating Wipfli agreed with the
foregoing statements. A copy of Wipfli's letter to the SEC was filed as Exhibit
16.1 to the report on Form 8-K dated August 28, 2002.

The firm of Rehmann Robson of Saginaw, Michigan, had initially been engaged to
perform the audit of the Corporation's financial statements for the fiscal year
ending December 31, 2002.

On November 11, 2002, Rehmann Robson resigned as the independent auditor of the
Corporation's financial statements for the year ending December 31, 2002.

Rehmann Robson did not audit any year-end financial statements included on Form
10-K nor review any quarterly reports of the Corporation on Form 10-Q.

The Corporation provided Rehmann Robson with a copy of the disclosure regarding
Rehmann Robson and Rehmann Robson furnished a letter addressed to the SEC
stating Rehmann Robson agrees with the foregoing statements regarding Rehmann
Robson. A copy of Rehmann Robson's letter to the SEC was filed as Exhibit 16.1
to the report on Form 8-K dated November 11, 2002.

As noted on Form 8-K dated December 16, 2002, the firm of Plante & Moran, PLLC
of Grand Rapids, Michigan, was engaged to perform an audit of the Corporation's
financial statements for the year ending December 31, 2002.

19

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION

The information set forth under the captions "Information About Directors and
Nominees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Corporation's definitive Proxy Statement for its May 29, 2003, Annual Meeting of
Shareholders (the "Proxy Statement"), a copy of which will be filed with the SEC
prior to the meeting date, is incorporated here by reference.

ITEM 11: EXECUTIVE COMPENSATION

Information relating to compensation of the Corporation's executive officers and
directors is contained under the captions "Remuneration of Directors" and
"Executive Compensation," in the Corporation's Proxy Statement and is
incorporated here by reference.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Information relating to security ownership of certain beneficial owners and
management is contained under the caption "Beneficial Ownership of Common Stock"
in the Corporation's Proxy Statement and is incorporated here by reference.

The following table provides information as of December 31, 2002 with respect to
compensation plans (including individual compensation arrangements) under which
equity securities of the Corporation are authorized for issuance. All such
compensation plans were previously approved by security holders.

EQUITY COMPENSATION PLAN INFORMATION

20

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 Corporation's Proxy Statement and is incorporated here by reference.

PART IV

ITEM 14 - CONTROLS AND PROCEDURES

As of April 8, 2003, an evaluation was performed under the supervision of and
with the participation of the Corporation's management, including the President
and Chief Executive Officer, of the effectiveness of the design and operation of
the Corporation's disclosure controls and procedures. Based on that evaluation,
the Corporation's management, including the President and Chief Executive
Officer, concluded that the Corporation's disclosure controls and procedures
were effective as of April 8, 2003. There have been no significant changes in
the Corporation's internal controls or in other factors that could significantly
affect internal controls subsequent to April 8, 2003

21

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT 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 Reports
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Income for the years ended December 31,
2002, 2001,
and 2000
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 2002, 2001, and 2000
Consolidated Statements of Cash Flows for the years ended December
31, 2002, 2001, and 2000
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 that follows the signature and
certification pages of this report.

The Corporation will furnish a copy of any exhibits listed on the Exhibit
Index to any shareholder of the Corporation without charge upon written request
of the Shareholders' Relations Department, North Country Financial Corporation,
130 South Cedar Street, Manistique, Michigan 49854.

(b) Reports on Form 8-K

The following Form 8-K filings occurred subsequent to the third quarter of 2002:

o Form 8-K dated November 11, 2002, announced the resignation of Rehmann
Robson as the Corporation's certifying accountant.

o Form 8-K dated December 16, 2002, announced the appointment of Plante &
Moran, PLLC as the Corporation's certifying accountant.

o Form 8-K dated April 5, 2003, disclosure of the Order to Cease and Desist
entered by the Federal Deposit Insurance Corporation and the Michigan
Office of Financial and Insurance Services, with the consent of the Bank.

22

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, dated April 14,
2003.

NORTH COUNTRY FINANCIAL CORPORATION

/s/ Sherry L. Littlejohn
- -----------------------------------------------------
Sherry L. Littlejohn
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on April 14, 2003, by the following persons on
behalf of the Corporation and in the capacities indicated. Each director of the
Corporation, whose signature appears below, hereby appoints Sherry L. Littlejohn
and John D. Lindroth, and each of them severally, as his attorney-in-fact, to
sign in his name and on his behalf, as a director of the Corporation, and to
file with the Commission any and all Amendments to this Report on Form 10-K.

Signature

/s/ Sherry Littlejohn
- --------------------------------------
Sherry Littlejohn - President
Chief Executive Officer, and Director
(principal executive, financial, and accounting officer)

/s/ Dennis Bittner /s/ Bernard A. Bouschor
- --------------------------------- --------------------------------------
Dennis Bittner - Director Bernard A. Bouschor - Director

/s/ Stanley J. Gerou II /s/ John D. Lindroth
- --------------------------------- --------------------------------------
Stanley J. Gerou II - Director John D. Lindroth - Director

/s/ Steve Madigan /s/ Spencer Shunk
- --------------------------------- --------------------------------------
Steve Madigan - Director Spencer Shunk - Director

23

NORTH COUNTRY FINANCIAL CORPORATION
CERTIFICATION

I, Sherry L. Littlejohn, certify that:

1. I have reviewed this annual report on Form 10-K of North Country Financial
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

4/14/03 /s/Sherry L. Littlejohn
- --------- ------------------------------------------------------
Date SHERRY L. LITTLEJOHN,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(principal executive officer and principal financial officer)

24

EXHIBIT INDEX

25

10.7 Amended and Restated Employment Agreement dated December 21,
2001 between the Corporation and Ronald G. Ford, incorporated
herein by reference to Exhibit 10.7 of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 2001.

10.8 Consulting Agreement dated September 15, 1999 between the
Corporation and Ronald G. Ford, incorporated herein by
reference to exhibit 10.1 of the Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999.

10.9 Amended and Restated Consulting Agreement dated December 21,
2001 between the Corporation and Ronald G. Ford, incorporated
herein by reference to Exhibit 10.9 of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 2001.

10.10 Employment Agreement dated September 30, 2000 between the
Corporation and Sherry L. Littlejohn, incorporated herein by
reference to exhibit 10 of the Corporation's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2000.

10.11 North Country Financial Corporation Supplemental Executive
Retirement Plan, incorporated herein by reference to exhibit
10.6 of the Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999.

10.12 Consulting Agreement effective January 15, 2003, between the
Bank and W. Fitzgerald Consulting, LLC.

10.13 Chairman Agreement dated April 12, 2002, between the
Corporation and Ronald G. Ford, incorporated herein by
reference to Exhibit 10.1 of the Corporation's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002.

13 2002 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 Corporation.

23 Consent of Independent Public Accountants.

99.1 Certification Pursuant to 18 U.S.C. Section 1350.

99.2 Order to Cease and Desist entered by the Federal Deposit
Insurance Corporation and the Michigan Office of Financial and
Insurance Services with the consent of the Bank, incorporated
herein by reference to exhibit 99.1 of the Corporation's
Current Report on Form 8-K filed April 11, 2003.