FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
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, MI 49854
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (906) 341-8401
-----------
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 ____
As of July 31, 1998, there were outstanding 2,374,949 shares of the registrant's
common stock, no par value.
1
<PAGE>
INDEX
Page
Number(s)
Part I. Financial Information (unaudited):
Item 1.
Consolidated Financial Statements 3-6
Notes to Consolidated Financial Statements 7-8
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Item 3.
Quantitative and Qualitative Disclosure About Market Risk 13
Part II. Other Information
Item 4.
Submission of Matters to a Vote of Security Holders 14
Item 6.
Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE>
PART I - FINANCIAL INFORMATION (Unaudited)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets
(In thousands of dollars)
<TABLE>
June 30, December 31,
ASSETS 1998 1997
------ -----
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 18,733 $ 9,338
Federal funds sold 4,011 1,805
--------- ---------
Total cash and cash equivalents 22,744 11,143
Securities available for sale - stated at fair value 12,367 10,103
Loans, net of unearned income 383,586 372,519
Allowance for loan losses (5,884) (5,600)
--------- ---------
Net loans 377,702 366,919
Premises and equipment 18,443 17,477
Other assets 13,305 15,792
--------- ---------
TOTAL ASSETS $ 444,561 $ 421,434
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing deposits $ 37,543 $ 33,354
Interest bearing deposits 336,573 327,195
--------- ---------
Total deposits 374,116 360,549
Federal funds purchased and securities sold under
agreement to repurchase 1,966 1,195
Other borrowings 27,076 19,628
Other liabilities 3,643 3,470
--------- ---------
TOTAL LIABILITIES 406,801 384,842
--------- ---------
Shareholders' Equity
Common stock - No par value
Authorized - 6,000,000 shares
Issued and outstanding - 2,369,811 and 2,379,490
shares at June 30, 1998 and December 31, 1997
respectively 19,245 19,916
Retained earnings 18,526 16,679
Other Comprehensive Income - Unrealized loss on securities
available for sale - net of tax (11) (3)
--------- ---------
Total shareholders's equity 37,760 36,592
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 444,561 $ 421,434
========= =========
</TABLE>
3
<PAGE>
Consolidated Condensed Statements of Income (unaudited)
(In thousands of dollars)
<TABLE>
Three months ended Six Months ended
June 30 June 30
1998 1997 1998 1997
------ ------ ------ -----
Interest Income
<S> <C> <C> <C> <C>
Loans, including fees $ 9,489 $ 8,716 $ 18,350 $ 16,583
Securities
Taxable 178 299 397 574
Exempt from federal taxation 3 10 4 16
Other 145 59 247 129
---------- ---------- ---------- ----------
Total interest income 9,815 9,084 18,998 17,302
Interest expense
Deposits 4,096 3,600 8,073 6,929
Borrowed funds 317 302 593 634
---------- ---------- ---------- ----------
Total interest expense 4,413 3,902 8,666 7,563
---------- ---------- ---------- ----------
Net interest income 5,402 5,182 10,332 9,739
Provision for loan losses 425 242 675 348
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 4,977 4,940 9,657 9,391
Noninterest income
Service charges on deposit accounts 401 284 710 522
Gains on sale of loans 32 11 55 21
Securities gains 0 0 44 0
Other 283 69 449 172
---------- ---------- ---------- ----------
Total noninterest income 716 364 1,258 715
Noninterest expense
Salaries and employee benefits 1,568 1,531 3,208 3,032
Furniture and equipment expense 333 329 658 663
Occupancy expense 265 204 508 464
Other 1,830 1,721 3,280 3,129
---------- ---------- ---------- ----------
Total noninterest expense 3,996 3,785 7,654 7,288
---------- ---------- ---------- ----------
Income before income tax 1,697 1,519 3,261 2,818
Provision for income tax 380 413 794 727
---------- ---------- ---------- ----------
Net income $ 1,317 $ 1,106 $ 2,467 $ 2,091
========== ========== ========== ----------
Weighted average common shares outstanding 2,375,670 2,376,704 2,378,112 2,373,522
========== ========== ========== ==========
</TABLE>
<TABLE>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings per common share $ 0.55 $ 0.54 $ 0.47 $ 0.46 $ 1.04 $ 1.01 $ 0.88 $ 0.87
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
4
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity (unaudited)
(In thousands of dollars)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------ ------ ------ -----
<S> <C> <C> <C> <C>
Balance - beginning of period $ 37,471 $ 34,219 $ 36,589 $ 32,386
Comprehensive income:
Net income for period 1,317 1,106 2,467 2,091
Net change in unrealized gain (loss) on
securities available for sale (5) 218 (5) 70
-------- -------- -------- --------
Total comprehensive income 1,312 1,324 2,462 2,161
Cash dividends (312) (288) (619) (574)
Issuance of common stock 129 115 281 1,397
Common stock retired (840) (207) (953) (207)
-------- -------- -------- --------
$ 37,760 $ 35,163 $ 37,760 $ 35,163
======== ======== ======== ========
</TABLE>
5
<PAGE>
Consolidated Statements of Cash Flows (unaudited)
(In thousands of dollars)
<TABLE>
Six Months Ended
June 30, June 30,
1998 1997
------ -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES .......................... $ 6,799 $ 10,168
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest bearing deposits with banks ....... 0 438
Purchase of securities available for sale ................ (4,000) (830)
Proceeds from sales of securities available for sale ..... 0 5,847
Proceeds from maturities, calls, or paydowns of securities
available for sale .................................. 1,000 353
Net increase in loans .................................... (11,067) (18,471)
Purchase of premises and equipment ....................... (1,626) (3,240)
Net cash provided in acquisitions ........................ 0 32
-------- --------
Net cash used in investing activities ............... (15,693) (15,871)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ................................. 13,567 20,955
Net increase (decrease) in federal funds purchased and
securities sold under agreement to repurchase ................. 771 (4,900)
Proceeds from borrowings ................................. 10,500 6,000
Payment on notes payable ................................. (3,052) (10,508)
Proceeds from issuance of common stock ................... 281 1,190
Retirement of common stock ............................... (953) 0
Payment of dividends ..................................... (619) (574)
-------- --------
Net cash from financing activities ................... 20,495 12,163
-------- --------
Net increase (decrease) in cash and cash equivalents .......... 11,601 6,460
Cash and cash equivalents at beginning of period .............. 11,143 12,164
-------- --------
Cash and cash equivalents at end of period .................... $ 22,744 $ 18,624
======== ========
</TABLE>
6
<PAGE>
NORTH COUNTRY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The unaudited condensed consolidated financial statements of North Country
Financial Corporation (the "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ending June 30, 1998, and the six month
period ending June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1997.
Note 2 - Accounting Changes
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers. It also amends SFAS No.
94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special
disclosure requirements for previously unconsolidated subsidiaries. The
statement is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. This Statement need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. The statement is not expected to have an effect on the financial
position or operating results of the Registrant , but may require additional
disclosure in the financial statements. The Registrant will implement this
statement with the December 31, 1998 annual report.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all derivative
financial instruments be recognized as either assets or liabilities in the
statement of financial position. Derivative financial instruments not designated
as hedges will be measured at fair value with changes in fair value being
recognized in earnings in the period of change. If a derivative is designated as
a hedge, the accounting for changes in fair value will depend on the specific
exposure being hedged. The statement is effective for fiscal years beginning
after June 15, 1999. Management, at this time, cannot determine the effect
adoption of this statement may have on the financial statements of the
Registrant as the effect is dependent of the amount and nature of derivatives
and hedges held at the time of adoption of the statement.
7
<PAGE>
Note 3 - Allowance for Loan Losses
Activity in the allowance for loan losses for the six months ended June 30, 1998
and 1997, are summarized as follows:
<TABLE>
(In thousands of dollars)
June 30, June 30,
1998 1997
<S> <C> <C>
Balance at beginning of period $ 5,600 $ 4,591
Charge-offs (441) (257)
Recoveries 50 81
Transferred from purchase of U.P. Financial 0 298
Provision for loan loss 675 348
Total $ 5,884 $ 5,061
======= =======
</TABLE>
Information regarding impaired loans follows:
(In thousands of dollars)
<TABLE>
June 30, December 31,
1998 1997
<S> <C> <C>
Average investment in impaired loans $ 7,052 $ 6,710
Balance of impaired loans $ 7,014 $ 6,933
</TABLE>
Note 4 - Other Borrowings
Other borrowings consists of the following at June 30, 1998 and December 31,
1997 (In thousands of dollars)
<TABLE>
June 30, December 31,
1998 1997
<S> <C> <C>
Other Borrowings
Federal Home Loan bank advances (6) at various
rates with various maturities (see annual
financial statements) $ 13,851 $ 16,115
Federal Home Loan Bank, fixed-rate advance
at 5.49%, putable June 23, 2002 10,000 0
Farmers Home Administration, $2,000,000 fixed
rate line agreement maturing August 24, 2024,
interest payable at 1% 1,938 1,938
Note payable to NBD Bank, $500,000 fixed rate
line agreement maturing November 20, 1998,
interest payable at 7.39% 500 0
Notes payable to South Range State Bank's
former stockholders, maturing in three equal
annual installments beginning February 1,
1997. Interest payable at 5.2% 787 1,575
---------- ----------
Total Other Borrowings $ 27,076 $ 19,628
========== ==========
</TABLE>
The Federal Home Loan Bank borrowings are collateralized by a blanket collateral
agreement on the Registrant's residential mortgage loans. Prepayment of the
advances is subject to the provisions and conditions of the credit policy of the
Federal Home Loan Bank of Indianapolis in effect as of December 31, 1997 and
June 30, 1998. Borrowings other than Federal Home Loan Bank are not subject to
prepayment penalties.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis of financial condition and results of
operations provides additional information to assess the consolidated condensed
financial statements of the Registrant and its wholly-owned subsidiaries through
the second quarter of 1998. The discussion should be read in conjunction with
those statements and their accompanying notes.
The Registrant is not aware of any market or institutional trends, events, or
circumstances that will have or are reasonably likely to have a material effect
on liquidity, capital resources, or results of operations except as discussed
herein. Also, the Registrant is not aware of any current recommendations by
regulatory authorities which will have such effect if implemented.
Highlights
Year to date consolidated net income was $2,467,000 through June 30, 1998
compared to $2,091,000 for the same period in 1997. Earnings per share increased
from $0.88 for the six months ended June 30, 1997, to $1.04 for the same period
in 1998.
Financial Condition
Loans
Through the second quarter of 1998, loan balances increased by $11.1 million.
The loan to deposit ratio has decreased from 101.8% at December 31, 1997, to
101.0% at June 30, 1998. Management believes loans provide the most attractive
earning asset yield available to the Registrant and that trained personnel and
controls are in place to successfully manage a growing portfolio. Accordingly,
management intends to continue to maintain loans at the highest level which is
consistent with maintaining adequate liquidity. As shown in the table below, the
loan mix remains relatively constant for the quarter ended June 30, 1998
compared to December 31, 1997.
Management is aware of the risk associated with an increase in average balances
of loans but believes that the current level in the allowance for loan losses is
adequate. At June 30, 1998 the allowance for loan losses was equal to 1.53% of
total loans outstanding compared to 1.50% at December 31, 1997.
Commercial real estate loans have increased by $2.6 million through the second
quarter of 1998 to $88,639,000 at June 30, 1998. Through the second quarter of
1998, loans to general commercial businesses decreased by $1,524,000 to
$94,107,000. Commercial leases increased $11.0 million to $22,049,000 at June
30, 1998 and governmental leases decreased $3.9 million to $50,322,000.
Residential, 1-4 family mortgages increased by $0.3 million to $95,842,000.
Consumer loans have decreased $2.0 million through the second quarter of 1998 to
$24,784,000. Construction loans have decreased $3.1 million to $7,843,000 at
June 30, 1998.
<TABLE>
June 30, December 31,
1998 % of Total 1997 % of Total
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Loans (in thousands)
Commercial real estate $ 88,639 23.1% $ 86,052 23.1%
Commercial, financial, and agricultural 94,107 24.6% 95,631 25.7%
Leases:
Commercial 22,049 5.7% 11,094 3.0%
Governmental 50,322 13.1% 46,464 12.5%
1-4 family residential real estate 95,842 25.0% 95,543 25.6%
Consumer 24,784 6.5% 26,795 7.2%
Construction 7,843 2.0% 10,940 2.9%
------------- -------- ------------ --------
Total $ 383,586 100.0% $ 372,519 100.0%
============= ======== ============ ========
</TABLE>
9
<PAGE>
Credit Quality
Management analyzes the allowance for loan losses in detail on a monthly basis
to ensure that the losses inherent in the portfolio are properly recognized. The
Registrant's success in maintaining excellent credit quality is demonstrated in
its historical charge-off percentage. Charge-offs for the six month period ended
June 30, 1998 have increased $183,000 from the same period in 1997. This is
mainly the result of an increase in commercial and industrial loan charge-offs
to $314,000 for the period. Accordingly, the provision for loan losses was
increased from $348,000 in the period ended June 30, 1997 to $675,000 for the
same period in 1998.
The table presented below shows the balances of nonaccrual loans, loans 90 or
more days past due, and renegotiated loans as of June 30, 1998, and December 31,
1997.
(In thousands of dollars)
<TABLE>
June 30, December 31,
1998 1997
<S> <C> <C>
Nonaccrual loans $ 1,480 $ 1,956
Loans 90 days or more past due 665 $ 698
Renegotiated loans 0 0
</TABLE>
Investments
Available for sale securities increased $2.26 million through the second quarter
of 1998 due to the purchase of $4 million, the call of $1 million, and the sale
of $0.75 million of securities. The mix of the portfolio remained relatively
unchanged from December 31, 1997. The primary use of the portfolio is to provide
a source of liquidity and pledging for certain repurchase agreements and
regulatory requirements. Most of the portfolio is invested in U.S. Treasury and
agency securities which have little credit risk and are highly liquid. There are
no securities classified as held to maturity.
Deposits
Total deposits through the second quarter have increased $13.6 million. Interest
bearing deposit balances increased through June 30, 1998, continuing a trend
from 1997.
Borrowings
The Registrant's branching network is a relatively high cost network in
comparison to peers. Accordingly, the Registrant uses alternative funding
sources to provide funds for lending activities. Other borrowings increased by
$7.4 million through the second quarter (refer to the table presented in Note 4
to the second quarter financial statements above for the composition of the
increase). At June 30, 1998, $23.8 million of the total borrowings were from the
Federal Home Loan Bank of Indianapolis. Alternative sources of funding can be
obtained at interest rates which are competitive with, or lower than, retail
deposit rates and with inconsequential administrative costs.
Liquidity
The Registrant's sources of liquidity include principal payments on loans and
investments, sales of securities available for sale, deposits from customers,
borrowings from the Federal Home Loan Bank, other bank borrowings, and the
issuance of common stock. The Registrant has ready access to significant sources
of liquidity on an almost immediate basis. Management anticipates no difficulty
in maintaining liquidity at the levels necessary to conduct the Registrant's
day-to-day business activities.
10
<PAGE>
Results of Operations
Net Interest Income
Net interest income through June 30, 1998 increased by 6.1%, compared to the
same period one year ago. The net interest margin, on a fully tax equivalent
basis at June 30, 1998 was 5.65%, compared to 5.64% for all of 1997. The net
yield on interest earning assets reflects the competitive nature of the
Registrant's market. Interest income from loans represented 96.6% of total
interest income through the second quarter of 1998 compared to 95.7% for the
same period of 1997. In all cases, the total amount of interest income and the
yield on total earning assets is strongly influenced by lending activities.
Provision for Loan Losses
The Registrant maintains the allowance for loan losses at a level believed by
management to be adequate to cover losses inherent in the portfolio. The
Registrant records a provision for loan losses necessary to maintain the
allowance at that level after considering factors such as loan charge-offs and
recoveries, changes in the mix of loans in the portfolio, loan growth, and other
economic factors. The provision for loan losses was increased $327,000 for the
six months ended June 30, 1998 over the amount of the provision during the same
period in 1997 as a result of the Registrant's desire to maintain an adequate
percentage of allowance to loans.
Noninterest Income
Service charges on deposit accounts increased $188,000 through the second
quarter of 1998 vs. the second quarter of 1997 due mainly to an increased focus
on non-interest sources of income. Gains on sales of loans has increased to
$34,000 through the second quarter of 1998 vs. $9,000 through the second quarter
of 1997 due to an increase in loan sale activity. Securities gains were $44,000
through the second quarter of 1998. There were no security gains or losses in
the same period in 1997. The proceeds from the security sales were used to fund
loans in the Registrant's growing loan portfolio. Other noninterest income
increased $277,000 through the second quarter of 1998 vs. the second quarter of
1997 due mainly to an increase in insurance commissions and the sale of excess
land at one of the Registrant's offices.
Noninterest Expenses
Noninterest expense showed an increase of 5.0% through June 30, 1998 compared to
the same period of 1997. The increase is consistent with the Registrant's asset
growth. Salary expense increased by $176,000 during the six months ended June
30, 1998 over the same period in 1997. Much of the increase in salaries was due
to the Registrant's staffing of branches that opened in the second quarter of
1998. Occupancy expense decreased by $39,000 from the June 30, 1997 six month
period compared with the same period in 1998. Other noninterest expense
increased by $151,000 for this same period. While the changes in non-interest
expense were expected, a primary objective of management is to hold the rate of
increase in this category below future asset growth. Management believes that
significant efficiencies can be obtained and is increasing the level of
management emphasis in this area.
Federal Income Tax
The provision for income taxes was 24.3% of income before income tax through
June 30, 1998 compared to 25.8% through June 30, 1997. The difference between
these rates and the federal corporate income tax rate of 34% is primarily due to
tax-exempt interest earned on loans, leases, and investments. The effective tax
rate has decreased as tax-exempt income has become a larger portion of total
interest income.
Interest Rate Risk
Management actively manages the Registrant's interest rate risk. In relatively
low interest rate environments which have been in place the last few years,
borrowers have generally tried to extend the maturities and repricing periods on
their loans and place deposits in demand or very short term accounts. Management
has taken various actions to offset the imbalance which those tendencies would
otherwise create. Management writes commercial and real estate loans at variable
rates or, if necessary, fixed rate loans for relatively short terms. Management
has also offered products that
11
<PAGE>
give customers an incentive to accept longer term deposits. Management can also
manage interest rate risk with the maturity periods of securities purchased,
selling securities available for sale, and borrowing funds with targeted
maturity periods. The Registrant is slightly asset sensitive in the cumulative
net asset (liability) funding gap for 1 - 365 days since December 31, 1997.
Capital Resources
It is the policy of the Registrant to maintain capital at a level consistent
with both safe and sound operations and proper leverage to generate an
appropriate return on shareholders' equity. The capital ratios of the Registrant
exceed the regulatory guidelines for well capitalized institutions. The table
below shows the Registrant's capital, in thousands of dollars, and capital
ratios at June 30, 1998 and 1997.
<TABLE>
June 30, 1998
Required Required Actual Actual
$ % $ %
<S> <C> <C> <C> <C>
Tier 1 risk adjusted capital ratio 13,064 4.00% 29,907 9.12%
Total risk adjusted capital ratio 26,128 8.00% 31,365 10.29%
Tier 1 leverage ratio 17,031 4.00% 29,907 7.28%
Tier 1 capital 31,420
Tier 2 capital 4,162
Total risk based capital 35,453
Total risk weighted assets 344,493
Average total assets 431,810
</TABLE>
<TABLE>
June 30, 1997
Required Required Actual Actual
$ % $ %
<S> <C> <C> <C> <C>
Tier 1 risk adjusted capital ratio 12,538 4.00% 28,431 9.07%
Total risk adjusted capital ratio 25,077 8.00% 32,363 10.32%
Tier 1 leverage ratio 16,137 4.00% 28,431 7.05%
Tier 1 capital 28,431
Tier 2 capital 3,932
Total risk based capital 32,363
Total risk weighted assets 313,457
Average total assets 403,429
</TABLE>
Year 2000 Issue
The Registrant has identified the resolution of the Year 2000 issue as a
priority item. During 1997 and the first six months of 1998, the Registrant has
committed resources, mainly manpower, to the task of identifying the scope of
the Year 2000 issue and formulating a plan and taking actions with the goal that
all impacted systems will be compliant by the end of 1998.
Because the Registrant has outsourced virtually all of its data processing,
management has begun the process of contacting all related vendors, requesting
written confirmation that their respective products are Year 2000 compliant.
Vendor assertions will be tested during 1998 so that the Registrant should have
time to react to any problems.
The Registrant has also begun contacting significant commercial customers
regarding their status on the Year 2000 issue in an effort to avoid any negative
impact on the quality of the loan portfolio.
12
<PAGE>
Because of the outsourcing utilized by the Registrant, the addressing of the
Year 2000 Issue is not expected to materially impact the Registrant's results of
operations and capital resources. Nevertheless, the inability of the Registrant
to successfully address Year 2000 issues could result in interruption in the
Registrant's business and have a material adverse impact on the Registrant's
results of operation.
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 Registrant 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 and expectations of the Registrant, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Registrant's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Registrant and the subsidiaries include,
but are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Registrant's market area and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Registrant and its business, including additional
factors that could materially affect the Registrant's financial results, is
included in the Registrant's filings with the Securities and Exchange
Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Registrant has not experienced any material changes to its market risk
position from that disclosed in the Registrant's 1997 Form 10-K Annual Report.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
At the date hereof, there were no material pending legal proceedings, other than
routine litigation incidental to the business of banking, to which the
Registrant or any of its subsidiaries is a party of or which any of its
properties is the subject.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of shareholders of the Registrant was held on
April 14, 1998 ("Annual Meeting")
(c) At the Annual Meeting, three directors were elected for terms
expiring in 2001 and shareholders approved the change of the
Registrant's name to North Country Financial Corporation.
The vote was as follows:
<TABLE>
ABSTAIN
FOR AGAINST (Including Broker Nonvotes)
<S> <C> <C> <C>
Director Nominees:
Stanley J. Gerou II 1,516,303 2,344
Thomas G. King 1,517,047 1,600
John Lindroth 1,517,409 1,238
Change in Name 1,421,027 70,600
</TABLE>
Item 5. Other Information.
None.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report:
Number Exhibit
27 Financial Data Schedule. Filed herewith.
The following documents are filed as part of Part I, Item 1 of this report:
Consolidated Balance Sheets - June 30, 1998 (Unaudited) and December 31, 1997
(Audited)
Consolidated Statements of Income - Three months ended June 30, 1998
and 1997 and Six months ended June 30, 1998 and 1998
(Unaudited)
Consolidated Statement of Changes in Shareholders' Equity - Three months
ended June 30, 1998 and 1997 and Six Months ended June 30, 1998 and 1997
(Unaudited)
Consolidated Statement of Cash Flows - Six months ended June 30, 1998 and 1997
(Unaudited)
Notes to consolidated financial statements - June 30, 1998
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 to be signed on its behalf by the undersigned hereunto duly
authorized.
NORTH COUNTRY FINANCIAL CORPORATION
/s/ Ronald G. Ford
Ronald G. Ford
(Chief Executive Officer)
/s/ Michael L. Roarty
Michael L. Roarty
(Executive Vice President and Chief
Financial Officer)
Dated: August ___, 1998
16
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<PERIOD-END> JUN-30-1998
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