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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, 2003
[ ] 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 $2.20 as of June 30, 2003, was
$15,442,134 million. As of March 14, 2004, 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 2003 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 18, 2004 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 four non-bank subsidiaries: First Manistique Agency,
presently active, 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,
presently inactive, and North Country Capital Trust, a statutory business trust
which was formed solely for the issuance of trust preferred securities. The Bank
also has four non-bank subsidiaries: 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. During 2003,
the Bank closed branch locations at Glen Arbor, Ishpeming, L'Anse and Petoskey.
The Bank currently has 14 branch offices located in the Upper Peninsula of
Michigan and 8 branch offices located in Michigan's Lower Peninsula. The Bank
maintains offices in Alger, Antrim, Charlevoix, Chippewa, Delta, Dickinson,
Emmet, Grand Traverse, Houghton, Luce, Manistee, Marquette, Menominee,
Ontonagon, Otsego, Schoolcraft, and Wexford counties. The Bank provides drive-in
convenience at 17 branch locations and has automated teller machines operating
at 12 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.
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.
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.
2
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. 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 February 29, 2004, the Corporation and its subsidiaries employed, in the
aggregate, 120 employees equating to 117 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; however, during 2002 and 2003 residential loans have been
retained. The Bank has 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.
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 $76.1 million or 31.3% of the commercial loan
portfolio at December 31, 2003. 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.
3
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 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, 2003, 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).
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. The Corporation does not
presently have significant assets available for this purpose. 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
4
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%.
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 2003
Annual Report, and is incorporated here by reference.
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 does not qualify as a financial holding company at this time.
Additional information pertaining to Supervision and Regulation 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 2003
Annual Report, and is incorporated here by reference.
5
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
2003 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 2003 Annual Report, and is incorporated here by reference.
6
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):
2003 2002 2001
------------------------------------------------------------------
U.S. Treasury and federal agencies $36,225 $ -0- $ 3,128
State and political subdivisions 4,105 5,632 5,418
Corporate securities 708 11,264 8,571
Mortgage-related securities 43,736 51,059 44,768
------------------------------------------------------------------
TOTAL $84,774 $67,955 $61,885
==================================================================
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, 2003 (fully
taxable equivalent, in thousands):
1 Year or Less 1-5 Years 5-10 Years Over 10 Years TOTAL
-----------------------------------------------------------------
U.S. Treasury and federal agencies $ -0- $36,225 $ -0- $ -0- $36,225
State and political subdivisions 60 306 495 3,244 4,105
Corporate securities 166 542 -0- -0- 708
Mortgage-related securities 2,645 41,091 -0- -0- 43,736
-----------------------------------------------------------------
TOTAL $2,871 $78,164 $ 495 $3,244 $84,774
=================================================================
Weighted average yield (1) 4.54% 3.19% 4.27% 4.47% 3.85%
(1) Weighted average yield includes the effect of tax-equivalent adjustments
using a 34% tax rate.
7
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):
2003 2002 2001 2000 1999
---------------------------------------------------------------------------
Commercial real estate $ 39,571 $ 61,556 $ 77,892 $ 90,635 $ 79,000
Commercial, financial and
agricultural 203,393 290,371 319,403 314,953 250,281
1-4 family residential real estate 51,120 74,366 93,574 113,834 107,750
Consumer 3,195 5,706 9,516 13,059 17,051
Construction 567 3,044 4,027 9,208 12,539
---------------------------------------------------------------------------
TOTAL $297,846 $435,043 $504,412 $541,689 $466,621
===========================================================================
Included in loan totals for December 31, 2003, 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, 2003, based on scheduled principal
repayments (in thousands).
Commercial, 1-4 Family
Commercial Financial and Residential
Real Estate Agricultural Real Estate Consumer Construction
--------------------------------------------------------------------------------
In one year or less $18,318 $39,123 $1,948 $814 $2,462
After one year but within five
years:
Variable interest rates 3,512 113,929 7,612 0 0
Fixed interest rates 33,057 50,941 7,580 4,892 582
After five years:
Variable interest rates 2,704 51,666 17,739 0 0
Fixed interest rates 3,965 34,712 39,487 0 0
---------------------------------------------------------------------------
TOTAL $61,556 $290,371 $74,366 $5,706 $3,044
===========================================================================
8
C. Risk Elements
The following table presents a summary of nonperforming assets and problem loans
as of December 31 (in thousands):
2003 2002 2001 2000 1999
------------------------------------------------------------------------------
Nonaccrual loans $38,660 $26,814 $ 4,015 $10,547 $ 95
Interest income that would
have been recorded for
nonaccrual loans
under original
terms 2,793 1,653 1,597 1,478 3
Interest income recorded
during period for
nonaccrual loans 1,307 1,120 1,521 1,125 0
Accruing loans
past due 90 days or more 241 401 4,878 3,117 2,452
Restructured loans not
included above 7,181 11,155 16,151 3,654 0
9
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):
2003 2002 2001 2000 1999
-------------------------------------------------------------------------
Balance of allowance for loan
losses at beginning of period $24,908 $10,444 $9,454 $6,863 $6,112
Loans charged off:
Commercial, financial and
agricultural 5,068 11,925 2,385 2,837 405
Real estate -- construction -0- -0- -0- -0- -0-
Real estate -- mortgage 1,683 504 320 328 74
Consumer 205 141 253 263 329
-------------------------------------------------------------------------
Total loans charged off 6,956 12,570 2,958 3.428 808
-------------------------------------------------------------------------
Recoveries of loans previously
charged off:
Commercial, financial and
agricultural 2,926 314 640 66 9
Real estate -- construction -0- -0- -0- -0- -0-
Real estate -- mortgage 931 3 20 9 10
Consumer 196 59 88 69 83
-------------------------------------------------------------------------
Total recoveries 4,053 376 748 144 102
-------------------------------------------------------------------------
Net loans charged off 2,903 12,194 2,210 3,284 706
Provisions charged to expense -0- 26,658 3,200 5,875 1,457
-------------------------------------------------------------------------
Balance at end of period $22,005 $24,908 $10,444 $9,454 $6,863
=========================================================================
Ratio of net charge-offs during
period to average loans
outstanding .80% 1.6% 0.5% 0.7% 0.2%
10
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.
2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
---------------------------------------------------------------------------------------------------------------
Commercial,
financial and
agricultural $11,222 73.0% $22,703 80.9% $ 9,136 78.7% $4,914 74.9% $3,492 70.5%
Real estate-
construction -0- 0.2% -0- 0.7% -0- 0.8% -0- 1.7% 114 2.7%
1-4 family
residential
real estate 280 17.2% 2,110 17.1% 1,191 18.6% 136 21.0% 835 23.1%
Consumer -0- 1.1% 95 1.3% 152 1.9% 371 2.4% 326 3.7%
Specific reserve
on loans sold
subsequent to
year end 7,425 8.5% -0- -0- -0- -0-
---------------------------------------------------------------------------------------------------------------
Unallocated 3,078 N/A -0- N/A 774 N/A 4,033 N/A 2,096 N/A
---------------------------------------------------------------------------------------------------------------
TOTAL $22,005 100% $24,908 100% $11,253 100% $9,454 100% $6,863 100%
===============================================================================================================
V. Deposits
Deposit information is contained in Note 11 of the Annual Report.
VI. Return on Equity and Assets
Selected financial data of the Corporation is contained in the Corporation's
2003 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"
VII. Financial Instruments with Off-Balance Sheet Risk
Information relative to commitments, contingencies, and credit risk are
discussed in Note 22 of the Corporation's 2003 Annual Report and is hereby
incorporated by reference.
11
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 22 offices at the following locations:
ALANSON MANCELONA SAULT CASCADE
6230 River Street 625 North Williams Street 4250 I-75 Business Spur
Alanson, MI 49706 Mancelona, MI 49659 Sault Ste. Marie, MI 49783
EMMET COUNTY ANTRIM COUNTRY CHIPPEWA COUNTY
BOYNE CITY MANISTIQUE SAULT MAIN
128 Water Street 130 South Cedar Street 138 Ridge Street
Boyne City, MI 49712 Manistique, MI 49854 Sault Ste. Marie, MI 49783
CHARLEVOIX COUNTY SCHOOLCRAFT COUNTY CHIPPEWA COUNTY
CADILLAC MARQUETTE MAIN SOUTH RANGE
218 South Mitchell Street 300 North McClellan Street 47 Trimountain Avenue
Cadillac, MI 49601 Marquette, MI 49855 South Range, MI 49963
WEXFORD COUNTY MARQUETTE COUNTY HOUGHTON COUNTY
CALUMET MARQUETTE PRESQUE ISLE STEPHENSON
56730 Calumet Avenue, Ste. L 1400 Presque Isle 245 Menominee Street
Calumet, MI 49913 Marquette, MI 49855 Stephenson, MI 49887
HOUGHTON COUNTY MARQUETTE COUNTY MENOMINEE COUNTY
ESCANABA MUNISING TRAVERSE CITY
837 North Lincoln Road 301 East Superior Street 333 East State Street
Escanaba, MI 49829 Munising, MI 49862 Traverse City, MI 49684
DELTA COUNTY ALGER COUNTY GRAND TRAVERSE COUNTY
GAYLORD NEWBERRY MAIN TRAVERSE CITY
145 North Otsego Avenue 414 Newberry Avenue 3530 North Country Drive
Gaylord, MI 49735 Newberry, MI 49868 Traverse City, MI 49684
OTSEGO COUNTY LUCE COUNTY GRAND TRAVERSE COUNTY
IRON MOUNTAIN ONTONAGON
1890 South Stephenson Avenue 601 River Street
Iron Mountain, MI 49801 Ontonagon, MI 49953
DICKINSON COUNTY ONTONAGON COUNTY
KALEVA RIPLEY
14429 Wouski Avenue 106 Royce Road
Kaleva, MI 49645 Hancock, MI 49930
MANISTEE COUNTY HOUGHTON 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 22 branch
locations, 16 are owned and 6 are leased.
12
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are subject to routine litigation
incidental to the business of banking. In addition, the Corporation or the
Bank are subject to the Order referred to below, and the litigation and
arbitration described below. Information regarding the Order is contained
in "Management's Discussion and Analysis of Financial Condition and Results
of Operations" under the caption "Capital Adequacy" in the Corporation's 2003
Annual Report, and is incorporated here by reference. The litigation and
arbitration that is not routine and incidental to the business of banking is
described below.
In an action styled Lanctot v. Littlejohn, et al., filed in the U.S. District
Court for the Western District of Michigan on June 13, 2003, a shareholder of
the Corporation brought a class action against the Corporation, its former
chairman and chief executive officer and current director, Ronald G. Ford, and
its former chief executive officer and director, Sherry L. Littlejohn, for
alleged violations of Federal securities laws.
In another action styled Rosen v. North Country Financial Corporation, et al.,
filed in the U.S. District Court for the Western District of Michigan on June
23, 2003, a former shareholder of the Corporation has brought a class action
against the Corporation, its former chairman and chief executive officer and
current director, Ronald G. Ford, and its former chief executive officer and
director, Sherry L. Littlejohn, for alleged violations of Federal securities
laws.
On September 2, 2003, pursuant to 15 U.S.C. ss. 78-u-4(a)(3)(B), plaintiff
Charles Lanctot filed a motion requesting the Court to consolidate the two
securities class action cases (Lanctot and Rosen) under the caption In re North
Country Financial Corporation Securities Litigation, to appoint him as "Lead
Plaintiff" in the consolidated cases, and to approve the selection of his
counsel as "Lead Plaintiff's Counsel." In an Order dated September 29, 2003, the
Court among other things consolidated the Lanctot and Rosen actions, designated
Charles D. Lanctot and John F. Stevens as "Lead Plaintiffs," and designated
"Co-Lead Counsel" and "Liaison Counsel" for the class.
On December 1, 2003, the plaintiffs filed their Corrected Consolidated Amended
Class Action Complaint ("Amended Complaint"), which adds John F. Stevens as a
plaintiff. The Amended Complaint, which demands a jury trial, is brought on
behalf of all persons, subject to certain exceptions, who purchased the
Corporation's common stock during the period from November 13, 2000, through
April 15, 2003. It alleges that the Corporation and the individual defendants
violated section 10(b) of the Securities Exchange Act of 1934 (the "Exchange
Act") and Rule 10b-5 of the Securities and Exchange Commission (the "SEC")
issued under the Exchange Act, by disseminating materially false and misleading
statements and/or concealing material adverse facts concerning the financial
condition and operations of the Corporation, with knowledge, or in reckless
disregard, of the materially false and misleading character thereof. The Amended
Complaint also alleges violations of Section 20 of the Exchange Act by the
individual defendants, by reason of their control, at relevant times, of the
Corporation. Among other things, the Amended Complaint is based upon allegations
of deficiencies in the Corporation's policies and procedures for safe and sound
operation, including its directorate and management personnel and practices,
credit underwriting, credit administration, and policies regarding
asset/liability management, liquidity, funds management, and investments, and
its compliance with all applicable laws and regulations, including Regulations O
and U of the Board of Governors of the Federal Reserve System (the "Board"), the
Federal Deposit Insurance Corporation ("FDIC") Rules and Regulations, and the
Michigan Banking Code of 1999. The Amended Complaint further alleges that the
Corporation's acquisition of American Financial Mortgage, which had an
"unusually large number of defaulted loans . . . which triggered the attention
of banking regulators;" that a Cease and Desist Order, dated March 26, 2002,
which is attached as Exhibit 1 to the Amended Complaint, demonstrates how
defendants made "false statements" in public
13
filings and other communications, and were required to take "corrective
actions;" that various public filings were "false because the Company's
operations resulted in an excessive level of adversely classified assets,
delinquent loans, and nonaccrual loans as well as an inadequate level of capital
protection for the kind and qualify of assets held;" that, "according to former
employees, loans for Company insiders and their related entities were often
approved regardless of the quality of the loan;" and, that the Corporation
incorrectly attributed its performance to the World Trade Center disaster and
other factors impacting tourism and hospitality businesses, instead of
disclosing "insider loans," a "disproportionately high loan concentration" in
the hospitality industry, and information about the Corporation's banking
practices and loan loss reserves. The Amended Complaint seeks certification of a
class consisting of all persons who purchased the common stock of the
Corporation on the open market between the dates noted above, compensatory
damages on a joint and several basis against all defendants, including the
Corporation, plus interest and costs, including attorney's fees and expert's
fees.
On January 23, 2004, the Corporation and the other defendants filed their Joint
Motion to Dismiss the Corrected Consolidated Amended Class Action Complaint,
principally based on the ground that plaintiffs have not adequately plead that
the Corporation, through its officers and directors, acted with the intent to
defraud the investing public under the standard articulated in Helwig v. Vencor,
Inc., 251 F.3d 540 (6th Cir. 2001), cert. dismissed, 536 U.S. 935, 122 S.Ct.
2616 (2002). During the pendency of the motion to dismiss, a stay of "all
discovery and other proceedings" automatically is imposed under 15 U.S.C.ss.
78u-4(b)(3)(B). Plaintiffs filed their Brief in Opposition to Defendants' Motion
to Dismiss on March 8, 2004. Defendants filed a reply brief in support of their
Motion to Dismiss on March 23, 2004. The Court has scheduled an oral argument on
the Motion to Dismiss for March 30, 2004.
Shareholder's Derivative Litigation
In an action styled Virginia M. Damon Trust v. North Country Financial
Corporation, Nominal Defendant, and Dennis Bittner, Bernard A. Bouschor, Ronald
G. Ford, Sherry L. Littlejohn, Stanley J. Gerou II, John D. Lindroth, Stephen
Madigan, Spencer Shunk, Michael Henrickson, Glen Tolksdorf, and Wesley Hoffman,
filed in the U.S. District Court for the Western District of Michigan on July 1,
2003, a shareholder of the Corporation has brought a shareholder's derivative
action under Section 27 of the Exchange Act against the Corporation and certain
of its current and former directors and senior executive officers. The
Complaint, which demands a jury trial, is brought on behalf of the Corporation
against the individual defendants. It alleges that the individual defendants
have caused loss and damage to the Corporation through breaches of their
fiduciary duties of oversight and supervision by failing (i) adequately to
safeguard the assets of the Corporation, (ii) to ensure that adequate
administrative, operating, and internal controls were in place and implemented,
(iii) to ensure that the Corporation was operated in accordance with
legally-prescribed procedures, and (iv) to oversee the audit process to ensure
that the Corporation's assets were properly accounted for and preserved. The
Complaint further alleges that the individual defendants violated Section 14(a)
of the Exchange Act by making materially false and misleading statements in the
proxy statement mailed to shareholders in connection with the annual meeting of
the Corporation held May 29, 2000, and the adoption by the shareholders at that
meeting of the Corporation's 2000 Stock Incentive Plan. The Complaint also
alleges that Mr. Ford and Ms. Littlejohn, through a series of compensation
arrangements,
14
stock options, and employment agreements obtained by them through improper means
resulting from the offices they held with the Corporation, received excessive
compensation, to the injury of the Corporation. Among other things, the
Complaint is based upon allegations of material misstatements or omissions in
filings made by the Corporation with the SEC, and deficiencies in the
Corporation's policies and procedures for safe and sound operation, including
its directorate and management personnel and practices, credit underwriting,
credit administration, and policies regarding asset/liability management,
liquidity, funds management, and investments, and its compliance with all
applicable laws and regulations, including Regulations O and U of the Board,
FDIC Rules and Regulations, and the Michigan Banking Code of 1999. The Complaint
seeks (i) rescission of the approval of the 2000 Stock Incentive Plan and return
of all stock and options granted under the Plan, (ii) a declaration that the
individual defendants breached their fiduciary duty to the Corporation, (iii) an
order to the individual defendants to account to the Corporation for all losses
and/or damages by reason of the acts and omissions alleged, (iv) an order to
each of the individual defendants to remit to the Corporation all salaries and
other compensation received for periods during which they breached their
fiduciary duties, (v) compensatory damages in favor of the Corporation, (vi)
injunctive relief, and (vii) interest, costs, and attorney's and expert's fees.
On September 18, 2003, the Corporation filed a motion to dismiss the Damon
action because plaintiff did not satisfy the mandatory precondition, under
Section 493a of the Michigan Business Corporation Act ("MBCA"), M.C.L.ss.
450.1493a, for filing a shareholder derivative action that the shareholder must
first have submitted a written demand that the Corporation pursue in its own
right the claims asserted by the shareholder (the plaintiff here). Certain of
the individual defendants in the Damon action filed their own motion to dismiss
on November 25, 2003, in which motion the other individual defendants later
joined. The plaintiff filed an Opposition to both motions to dismiss on January
9, 2004, and on January 30, 2004, the defendants filed reply briefs in support
of their motions to dismiss.
By letter dated September 17, 2003, and expressly without prejudice to the
argument that any such written demand is not required, plaintiff's counsel
purported to make a written demand that the Corporation pursue a number of
indicated putative claims against: (1) present and former officers and directors
of the Corporation who also are the individual defendants in the Damon action,
and (2) the certified public accounting firm of Wipfli, Ullrich, Bertelson, LLP.
The MBCA grants the Corporation ninety (90) days in which to respond to a proper
written demand. On November 11, 2003, the Corporation filed a motion, as
permitted by section 495 of the MBCA, M.C.L.ss. 450.1495, requesting the Court
to appoint a disinterested person to conduct a reasonable investigation of the
claims made by the plaintiff and to make a good faith determination whether the
maintenance of the derivative action is in the best interests of the
Corporation. On January 9, 2004, the plaintiff filed a Supplemental Response to
the Corporation's motion to dismiss, requesting that the Court appoint two
persons other than the one nominated by the Corporation, to act as a
disinterested person for such purpose. Following an in camera conference and
telephone conference held by the Court, plaintiff is understood to have
withdrawn its objection to the individual nominated by the Corporation in its
motion to the Court for appointment as a disinterested person. The parties,
through their respective counsel, are currently negotiating a stipulated form of
order to be entered by the Court making the appointment of the disinterested
person. It is anticipated that the disinterested person, once
15
appointed, will complete his investigation of the claims made by the plaintiff
and will make his good faith determination whether the maintenance of the
derivative action is in the best interests of the Corporation within 120 days of
his appointment.
On March 22, the Court issued an Opinion and Order granting in part and denying
in part the motions to dismiss in the Damon case. The Court dismissed the
Section 14(a) claim against all of the defendants as barred by the statute of
limitations and, as further grounds, dismissed that claim as to those who were
not directors at the time of the mailing of the proxy statement. The Court has
permitted the plaintiff to proceed with its breach of fiduciary duty claims
against the Directors on the grounds that the plaintiff cured its procedural
failings by subsequently transmitting a demand letter as required by Section 493
of the MBCA. However, the Court has asked that by April 16, 2004, the parties
submit additional briefs on the question of whether the Court should exercise
"supplemental jurisdiction" over the state law breach of fiduciary duty claims
or, by implication, whether these claims should be dismissed without prejudice
for pursuit in an appropriate state court.
Employment Agreement Arbitration
On September 16, 2003, Ronald G. Ford, the former chairman and chief executive
officer and a current director of the Corporation, initiated an arbitration
proceeding with the American Arbitration Association against the Corporation
seeking monetary damages for alleged breach by the Corporation of his Amended
and Restated Employment Agreement, Chairman Agreement, and Amended and Restated
Consulting Agreement, each with the Corporation. The Corporation has denied the
alleged breach and asserted a counterclaim to recover all amounts paid to Mr.
Ford under the Chairman Agreement, as required by the Cease and Desist Order
entered by the FDIC and the OFIS, in addition to other amounts. On March 19,
2004, at the request of Mr. Ford, the American Arbitration Association
reactivated the arbitration proceeding, and the parties are in the process of
selecting an arbitrator. The Corporation intends to defend the arbitration.
Litigation of the types involved in the actions described above can be complex,
time-consuming, and often protracted. The Corporation has incurred and
anticipates that it will continue to incur substantial additional expense for
legal and other professional fees as a result of the filing and defense of these
actions. At this stage of the proceedings, the Corporation cannot accurately
assess the impact which these proceedings will have on the Corporation. An
ultimate determination of any of these actions adverse to the Corporation could
have a material adverse effect on the Corporation's financial condition and
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of fiscal 2003 to a vote of
the Corporation's shareholders.
16
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Corporation are listed below. 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.
Name Age Position
- ---- --- --------
C. James Bess 66 President and Chief Executive Officer
Jani Blake 44 Executive Vice President and Chief Operating Officer
Kelly George 36 Senior Vice President and Chief Lending Officer
Joseph Petterson 57 Executive Vice President and Chief Financial Officer
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market information pertaining to the Corporation's common stock is contained
under the caption "Market Information" in the Corporation's 2003 Annual Report,
and is incorporated herein by reference.
The Corporation had 1,805 shareholders of record as of March 9, 2004.
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 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.
17
The cash dividends declared, by quarter for 2003 and 2002, are included in the
Corporation's 2003 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
2003 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 2003 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 2003 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, 2003, 2002 and 2001 in the Corporation's 2003
Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING 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
18
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 agreed 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. Subsequently, Plante
& Moran, PLLC was engaged to also perform an audit on the Corporation's
financial statements for the year ending December 31, 2003.
ITEM 9A. CONTROLS AND PROCEDURES
As of December 13, 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, and Chief Financial 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, and Chief Financial Officer
concluded that the Corporation's disclosure controls and procedures were
effective as of December 31, 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 December 31, 2003.
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 18, 2004, 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.
The Corporation has a separately designated standing Audit Committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The members of the Audit Committee consist of Dennis Bittner, Stephen Madigan
and Spencer Shunk. The Board of Directors has determined that it does not have a
member of the Audit Committee that is qualified as an audit committee financial
expert, as that term is defined in the rules of the Securities and Exchange
Commission. The Board of Directors of the Corporation believes that the Audit
Committee members have the overall business acumen to participate as a member of
the Audit Committee, based upon many years of direct business experience.
The Corporation has adopted a code of ethics that applies to all of the
directors, officers and employees, including the principal executive officer,
principal financial officer, principal accounting officer or controller, and
persons performing similar functions. The code of ethics is filed as Exhibit 14
to this report.
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, 2003 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.
20
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
remaining available for
future issuance under
Number of securities to be Weighted average equity compensation
issued upon exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (a)
- ----------------------------------------------------------------------------------------------------------
(a) (b) (c)
Equity compensation
plans approved by
security 549,732 $ 13.94 358,238
Equity compensation
plans not approved by
security holders -0- -0- -0-
-------------------------- -------------------- -------------------------
Total 549,732 $ 13.94 358,238
========================== ==================== =========================
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. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information relating to principal accountant fees and services is contained
under the caption "Principal Accountant Fees and Services" in the Corporation's
Proxy Statement and is incorporated here by references.
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, 2003 and 2002
Consolidated Statements of Income for the years ended December 31,
2003, 2002, and 2001
Consolidated Statements of Changes in Shareholders' Equity for the
years ended
21
December 31, 2003, 2002, and 2001
Consolidated Statements of Cash Flows for the years ended December
31, 2003, 2002, and 2001
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
Forms 8-K filed since 3rd quarter 10-Q Filing:
- Form 8-K dated November 16, 2003 announced the signing of a letter of
intent that included a non-binding offer by another entity to purchase
all of the common stock of the Corporation. The Form 8-K further
announced the withdrawal of the non-binding offer and subsequent
voidance of the letter of intent on November 19, 2003.
- Form 8-K dated February 17, 2004 announced the earnings for the year
ended December 31, 2003.
- Form 8-K dated February 17, 2004 announced the Corporation's entrance
into a Definitive Agreement to sell two branch offices, located in
Alanson, Michigan and Mancelona, Michigan.
- Form 8-K/A dated February 17, 2004, amending the earnings results for
the year ended December 31, 2003.
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 March 24,
2004.
NORTH COUNTRY FINANCIAL CORPORATION
/s/ C. James Bess
- -----------------------------------------------------
C. James Bess
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 24, 2004, 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 C. James Bess 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/ C. James Bess /s/ Ernie R. Krueger
- -------------------------------------- -------------------------------
C. James Bess -- President Vice President / Controller
Chief Executive Officer, and Director (principal accounting officer)
/s/ Joseph E. Petterson
- --------------------------------------
Joseph E. Petterson
Executive Vice President and Chief
Financial Officer
(chief financial officer)
/s/ Dennis Bittner /s/ Bernard A. Bouschor
- -------------------------------------- -------------------------------
Dennis Bittner -- Director Bernard A. Bouschor -- Director
/s/ Stanley J. Gerou II /s/ Steve Madigan
- -------------------------------------- -------------------------------
Stanley J. Gerou II -- Director Steve Madigan -- Director
/s/ John Lindroth /s/ Spence Shunk
- -------------------------------------- -------------------------------
John Lindroth -- Director Spence Shunk -- Director
23
EXHIBIT INDEX
Number Exhibit
3.1 Articles of Incorporation, as amended, incorporated herein by reference
to exhibit 3.1 of the Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999.
3.2 Amended and Restated Bylaws, incorporated herein by reference to
exhibit 3.1 of the Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001.
4.1 Rights Agreement dated as of June 21, 2000 between the Corporation 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 Corporation's Current Report on Form 8-K filed on July
31, 2000.
4.2 Certain borrowings and guaranteed preferred beneficial interests in the
Corporation's subordinated debentures are described in Notes 12 and 17
of the Corporation's Notes to Consolidated Financial Statements. The
Corporation 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 Corporation'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 Corporation'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 Corporation'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 Corporation'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 Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
10.6 Employment Agreement dated July 3, 2000 between the Corporation and
Ronald G. Ford, incorporated herein by reference to exhibit 10 of the
Corporation's Quarterly Report on Form 10-Q for the quarter ended June
30, 2000.
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., incorporated herein by reference to
Exhibit 10.12 of the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002.
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.
10.14 Employment agreement dated August 1, 2003, between the Corporation and
C. James Bess, incorporated herein by reference to Exhibit 10.1 of the
Corporation's 10-Q for the quarter ended June 30, 2003.
10.15 Employment agreement dated August 18, 2003 between the Corporation and
Joseph E. Petterson, incorporated herein by reference to Exhibit 10.1
of the Corporation's 10-Q for the quarter ended September 30, 2003.
10.16 Employment agreement dated September 1, 2003 between the Corporation
and Jani Blake, incorporated herein by reference to Exhibit 10.2 of the
Corporation's 10-Q for the quarter ended September 30, 2003.
10.17 Employment agreement dated September 3, 2003 between the Corporation
and Kelly W. George, incorporated herein by reference to Exhibit 10.3
of the Corporation's 10-Q for the quarter ended September 30, 2003.
13 2003 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.
14 Conflict of Interest -- Code of Ethics
21 Subsidiaries of the Corporation.
23.1 Consent of Independent Public Accountants - Plante & Moran, PLLC
23.2 Consent of Independent Public Accountants - Wipfli Ulrich Bertelson LLP
31 Rule 13(a)-- 14 (a) Certification
32.1 Section 1350 Chief Executive Officer Certification
32.2 Section 1350 Chief Financial Officer Certification
99.1 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.