-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M+XRjHDPsWSir1auWm9V92t6O5yzNkb0UFpr9FzaB/eB31Mwpnqz1yqBisTz/bfN pibQeW1b2k2MKqVtHBg6fA== /in/edgar/work/0000892712-00-000180/0000892712-00-000180.txt : 20001114 0000892712-00-000180.hdr.sgml : 20001114 ACCESSION NUMBER: 0000892712-00-000180 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH COUNTRY FINANCIAL CORP CENTRAL INDEX KEY: 0000036506 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 382062816 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20167 FILM NUMBER: 758876 BUSINESS ADDRESS: STREET 1: 3530 NORTH COUNTRY DR STREET 2: PO BOX 369 CITY: TRAVERSE CITY STATE: MI ZIP: 49684 BUSINESS PHONE: 9063418401 MAIL ADDRESS: STREET 1: 130 S CEDER ST STREET 2: P O BOX 369 CITY: MANISTIQUE STATE: MI ZIP: 49854 FORMER COMPANY: FORMER CONFORMED NAME: FIRST MANISTIQUE CORP DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from <> to <> Commission file number: 0-20167 NORTH COUNTRY FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) MICHIGAN 38-2062816 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3530 NORTH COUNTRY DRIVE, TRAVERSE CITY, MI 49684 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (231) 929-5600 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 periods 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 October 31, 2000, there were outstanding 6,981,310 shares of the registrant's common stock, no par value. NORTH COUNTRY FINANCIAL CORPORATION INDEX PART 1. FINANCIAL INFORMATION Page No. Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 2000 (Unaudited) and December 31, 1999 1 Condensed Consolidated Statements of Income - Three and Nine Months Ended September 30, 2000 (Unaudited) and September 30, 1999 (Unaudited) 2 Condensed Consolidated Statements of Changes in Shareholders' Equity - Three and Nine Months Ended September 30, 2000 (Unaudited) and September 30, 1999 (Unaudited) 3 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2000 (Unaudited) and September 30, 1999 (Unaudited) 4-5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) September 30, December 31, 2000 1999 (Unaudited) ASSETS Cash and due from banks $ 25,125 $ 26,160 Federal funds sold 3,427 0 --------- --------- Total cash and cash equivalents 28,552 26,160 Interest-bearing deposits in other financial institutions 0 679 Securities available for sale 45,474 43,343 Total loans 537,709 466,621 Allowance for loan losses (8,511) (6,863) --------- --------- 529,198 459,758 Premises and equipment 18,693 19,118 Other assets 22,299 19,384 --------- --------- Total assets $644,216 $568,442 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing $ 48,370 $ 43,606 Interest-bearing 478,942 419,392 --------- --------- Total deposits 527,312 462,998 Borrowings 54,593 46,878 Accrued expenses and other liabilities 7,020 5,296 --------- --------- Total liabilities 588,925 515,172 --------- --------- Guaranteed preferred beneficial interests in the Corporation's subordinated debentures 12,450 12,450 Shareholders' equity Preferred stock, no par value, 500,000 shares authorized, no shares outstanding Common stock, no par value, 18,000,000 shares authorized, 6,965,669 and 7,000,176 issued and outstanding at September 30, 2000 and December 31, 1999 15,899 16,418 Retained earnings 27,144 25,058 Accumulated other comprehensive deficit (202) (656) --------- --------- Total shareholders' equity 42,841 40,820 --------- --------- Total liabilities and shareholders' equity $644,216 $568,442 ========= ========= See accompanying notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) (Unaudited) Three months ended Nine months ended September 30, September 30, 2000 1999 2000 1999 Interest income Interest and fees on loans $13,024 $10,201 $36,848 $29,546 Interest on securities Taxable 934 414 2,508 767 Tax-exempt 162 65 506 94 Other interest income 141 111 332 303 ------- ------- ------- ------- Total interest income 14,261 10,791 40,194 30,710 ------- ------- ------- ------- Interest expense Deposits 6,503 4,711 17,646 13,386 Borrowings 990 416 2,908 1,033 Subordinated debentures 292 156 846 403 ------- ------- ------- ------- Total interest expense 7,785 5,283 21,400 14,822 ------- ------- ------- ------- Net interest income 6,476 5,508 18,794 15,888 Provision for loan losses 2,500 213 4,375 639 ------- ------- ------- ------- Net interest income after provision for loan losses 3,976 5,295 14,419 15,249 ------- ------- ------- ------- Other income Service fees 491 529 1,474 1,421 Gain on sales of securities 61 0 110 0 Net gain on sale of branches 0 430 292 430 Fee income generated by mortgage subsidiary 1,121 0 1,121 0 Other operating income 174 264 1,223 636 ------- ------- ------- ------- Total other income 1,847 1,223 4,220 2,487 ------- ------- ------- ------- Other expenses Salaries and employee benefits 2,858 1,761 6,335 4,763 Occupancy and equipment 708 642 2,212 1,894 Other 2,022 1,888 5,770 5,237 ------- ------- ------- ------- Total other expenses 5,588 4,291 14,317 11,894 ------- ------- ------- ------- Income before provision (credit) for income taxes 235 2,227 4,322 5,842 Provision (credit) for income taxes (94) 500 581 1,267 ------- ------- ------- ------- Net income $ 329 $ 1,727 $ 3,741 $ 4,575 ======= ======= ======= ======= Basic earnings per common share $ 0.05 $ 0.25 $ 0.54 $ 0.65 ======= ======= ======= ======= Diluted earnings per common share $ 0.05 $ 0.24 $ 0.53 $ 0.64 ======= ======= ======= ======= Dividends declared per common share $ 0.14 $ 0.05 $ 0.24 $ 0.14 ======= ======= ======= ======= See accompanying notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Dollars in thousands) (Unaudited) Three months ended Nine months ended September 30, September 30, 2000 1999 2000 1999 Balance - beginning of period $ 43,268 $ 39,035 $ 40,820 $ 39,469 Net income for period 329 1,727 3,741 4,575 Net unrealized gain (loss) on securities available for sale 270 (2) 454 (121) --------- -------- -------- -------- Total comprehensive income 599 1,725 4,195 4,4554 Dividends declared (999) (323) (1,655) (963) Issuance of common stock 87 105 289 309 Common stock retired (114) (399) (808) (3,126) --------- -------- -------- -------- Balance - end of period $ 42,841 $ 40,143 $ 42,841 $ 40,143 ========= ======== ======== ======== See accompanying notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Nine months ended September 30, 2000 1999 Cash flows from operating activities Net income $ 3,741 $ 4,575 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 1,761 1,706 Provision for loan losses 4,375 639 Gain on sales of securities (110) 0 Gain on sale of premises and equipment (271) (348) Net gain on sale of branches (292) (430) Change in other assets (2,593) (822) Change in other liabilities 682 804 -------- -------- Net cash provided by operating activities 7,293 6,124 -------- -------- Cash flows from investing activities Net decrease in interest-bearing deposits in other financial institutions 679 0 Purchase of securities available for sale (26,027) (23,634) Proceeds from sales of securities available for sale 23,576 0 Proceeds from maturities, calls or paydowns of securities available for sale 1,221 3,663 Net increase in loans (73,823) (35,680) Purchase of premises and equipment (1,203) (2,206) Proceeds from sales of premises and equipment 815 407 Net cash paid for sale of branches (4,540) (10,001) Net cash received for net liabilities assumed in acquisitions 14,169 15,504 -------- -------- Net cash used in investing activities (65,133) (51,947) -------- -------- Cash flows from financing activities Net increase in deposits 54,023 41,886 Proceeds from borrowings 65,000 26,000 Payment on borrowings (57,285) (12,125) Proceeds from issuance of common stock 289 309 Retirement of common stock (808) (3,126) Net proceeds from the issuance of guaranteed preferred beneficial interests in the Corporation's subordinated debentures 0 11,882 Payment of cash dividends (987) (963) -------- -------- Net cash provided by financing activities 60,232 63,863 -------- -------- Net change in cash and cash equivalents 2,392 18,040 Cash and cash equivalents at beginning of period 26,160 22,641 -------- -------- Cash and cash equivalents at end of period $28,552 $40,681 ======== ======== See accompanying notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Dollars in thousands) (Unaudited) Nine months ended September 30, 2000 1999 Supplemental disclosures of cash flow information Cash paid for: Interest $19,819 $14,813 Income taxes 2,025 491 Assets and liabilities acquired in acquisitions: Premises and equipment, net 194 286 Core deposit intangibles and goodwill 954 1,680 Other assets 219 0 Deposits 15,149 17,463 Other liabilities 387 7 Assets and liabilities divested in branch sales: Loans 8 0 Premises and equipment, net 31 65 Acquisition intangibles 0 370 Deposits 4,858 10,866 Other liabilities 13 0 See accompanying notes to condensed consolidated financial statements. 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 nine month period ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The unaudited consolidated financial statements and footnotes thereto should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. 2.FUTURE ACCOUNTING CHANGES In June 1999, 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 Balance Sheet. 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, 2000. Management, at this time, cannot determine the effect adoption of this Statement may have on the consolidated financial statements of the Registrant as the effect is dependent on the amount and nature of derivatives and hedges held at the time of adoption of the Statement. 3.EARNINGS PER SHARE The factors used in the earnings per share computation follow. (In thousands, except per share data) Three months Nine months ended ended September 30, September 30, 2000 1999 2000 1999 Basic earnings per common share: Net income $ 329 $1,727 $3,741 $4,575 Weighted average common shares outstanding 6,965 7,015 6,980 7,040 ------ ------ ------ ------ Basic earnings per common share $ 0.05 $ 0.25 $ 0.54 $ 0.65 ====== ====== ====== ====== Diluted earnings per common share: Net income $ 329 $1,727 $3,741 $4,575 Weighted average common shares outstanding for basic earnings per common share 6,965 7,015 6,980 7,040 Add: Dilutive effect of assumed exercises of stock options 10 58 17 84 Add: Dilutive effect of directors' deferred stock compensation 57 5 57 7 Average shares and dilutive potential ------ ------ ------ ------ common shares 7,032 7,078 7,054 7,131 ------ ------ ------ ------ Diluted earnings per common share $ 0.05 $ 0.24 $ 0.53 $ 0.64 ====== ====== ====== ====== 4.INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities available for sale as of September 30, 2000 and December 31, 1999 are as follows (in thousands): September 30, 2000 December 31, 1999 Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value U.S. Treasury securities and obligations of U.S. Government agencies and corporations $10,924 $10,507 $ 9,863 $ 9,392 Obligations of states and political subdivisions 16,538 16,668 16,356 16,210 Corporate securities 4,052 4,195 3,049 3,008 Mortgage-related securities 14,267 14,104 15,070 14,733 -------- ------- ------- ------- Total investment securities available for sale $45,781 $45,474 $44,338 $43,343 5.ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses for the nine months ended September 30, 2000 and 1999, are summarized as follows (in thousands): September 30, September 30, 2000 1999 Balance at beginning of period $ 6,863 $ 6,112 Charge-offs (2,827) (573) Recoveries 100 75 Provision for loan losses 4,375 639 ------- ------- $ 8,511 $ 6,253 ======= ======= Information regarding impaired loans follows (in thousands): As of and As of and for the nine for the year months ended ended September 30, December 31, 2000 1999 Average investment in impaired loans $ 9,420 $ 6,128 Balance of impaired loans 17,633 5,604 6.BORROWINGS Borrowings consist of the following at September 30, 2000 and December 31, 1999 (in thousands): September 30, December 31, 2000 1999 Federal Home Loan Bank advances at various rates with various maturities (see annual financial statements as referenced in Note 1) $ 52,782 $ 45,067 Farmers Home Administration, $2,000,000 fixed rate note payable maturing August 24, 2024, interest payable at 1% 1,811 1,811 -------- -------- $ 54,593 $ 46,878 ======== ======== The Federal Home Loan Bank borrowings are collateralized by a blanket collateral agreement on the Registrant's residential mortgage loans, U.S. Government and agency securities, and Federal Home Loan Bank stock. 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 September 30, 2000. Borrowings other than Federal Home Loan Bank advances are not subject to prepayment penalties. 7.CURRENT EVENTS On August 1, 2000, the Registrant acquired American Financial Mortgage Corp., a Michigan based mortgage company, through a stock purchase. Total assets acquired and liabilities assumed were $303,000 and $343,000, respectively. The transaction resulted in goodwill of $290,000. The acquisition of American Financial Mortgage Corp. allows the Registrant to offer a wider range of mortgage loan products through secondary market relationships established by the mortgage company. This acquisition is also viewed as a source of noninterest income to the Registrant. In August 2000, the Registrant opened a branch office in Cadillac in Michigan's Lower Peninsula. The office provides a full range of financial services. The Registrant anticipates opening a branch office in Boyne City, also in Michigan's Lower Peninsula, in 2001. The following discussion and analysis of financial condition and results of operations provides additional information to assess the condensed consolidated financial statements of the Registrant and its wholly- owned subsidiaries through the third quarter of 2000. 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. 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. Financial Highlights: Year-to-date consolidated net income was $3.7 million through September 30, 2000 compared to $4.6 million for the same period in 1999. Diluted earnings per share were $0.53 for the nine months ended September 30, 2000 compared to $0.64 for the same period in 1999. The provision for loss losses increased substantially on a year-to-date basis from $639,000 for the nine months ended September 30, 1999 to $4.4 million for the nine months ended September 30, 2000. The loan portfolio continues a significant growth trend with gross loans increasing $71.1 million or 15.2% since December 31, 1999. Loan growth remains focused in the commercial lending and leasing areas. The loan growth in 2000 has been funded primarily through increases in the deposit portfolio and borrowings. Deposits have increased $64.3 million or 13.9% since December 31, 1999, with the primary area of growth being interest-bearing demand accounts. Borrowings have increased $7.7 million or 16.5% from December 31, 1999 to September 30, 2000. Financial Condition: Cash and Cash Equivalents: Cash and cash equivalents increased $2.4 million or 9.1% through the third quarter of 2000. The increase was largely funded by increases in deposits and borrowings as discussed more fully below, and is available for growth in the Bank's loan and investment portfolios. Investment Securities: Available for sale securities remained fairly stable from December 31, 1999 to September 30, 2000 with an increase of $2.1 million or 4.9%. Investment securities are maintained at a level in which interest rate risk is managed through diversification of the balance sheet. Management has utilized its available capacity to borrow additional funds at the Federal Home Loan Bank in order to match the pricing and maturity of investment security purchases. Loans: Through the third quarter of 2000, loan balances increased by $71.1 million or 15.2%. 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 a high level while maintaining adequate liquidity. As shown in the table below, the overall loan mix remains relatively constant with an increase in commercial and governmental leases as a percent of total loans for the nine months ended September 30, 2000 compared to December 31, 1999. Following is a summary of the loan mix at September 30, 2000 and December 31, 1999 (in thousands): September 30, % of December 31, % of 2000 Total 1999 Total Loans: Commercial real estate $ 91,841 17.1% $ 79,000 16.9% Commercial, financial, and agricultural 209,335 38.9 179,592 38.5 Leases: Commercial 41,222 7.7 22,541 4.8 Governmental 53,085 9.9 48,148 10.3 1-4 family residential real estate 116,635 21.7 107,751 23.1 Consumer 13,553 2.5 17,051 3.7 Construction 12,038 2.2 12,538 2.7 -------- ------ -------- ------ $537,709 100.0% $466,621 100.0% ======== ====== ======== ====== The allowance for loan losses is maintained by management at a level considered to be adequate to cover probable losses related to specifically identified loans, as well as probable losses inherent in the balance of the loan portfolio. At September 30, 2000 and December 31, 1999, the allowance for loan losses was equal to 1.6% and 1.5%, respectively, of total loans outstanding. 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 reserved for in the allowance for loan losses. The Registrant's success in maintaining strong credit quality is demonstrated in its historical charge-off experience. Net charge-offs to gross loans outstanding was 0.5% and 0.1% for the nine months ended September 30, 2000 and 1999, respectively. Charge-offs for the nine month period ended September 30, 2000 increased $2.3 million from the same period in 1999. The increase was primarily due to one loan charge-off totaling $1.5 million; other than this specific loan, the charge-off level is considered to be manageable. To compensate for the increased charge-offs and increased levels of non-performing loans as described below, the provision for loan losses was increased $3.7 million from $639,000 for the nine month period ended September 30, 1999 to $4.4 million for the same period in 2000. The table presented below shows the balance of non- performing loans - which include nonaccrual loans and loans 90 or more days past due and still accruing - as of September 30, 2000 and December 31, 1999 (in thousands): September 30, December 31, 2000 1999 Nonaccrual loans $10,542 $ 95 Loans 90 days or more past due and still accruing 6,933 2,452 Nonaccrual loans have increased $10.4 million from December 31, 1999 to September 30, 2000 while loans 90 days or more past due and still accruing have increased by $4.5 million during that same time period. At September 30, 2000, loans to two commercial borrowers represented $9.3 million of the $10.5 million of nonaccrual loans. Management is working with the borrowers and does not anticipate charge-offs on these specific loans at this time; however, as a precautionary measure the provision for loan losses has been increased during the quarter ended September 30, 2000. The remaining increase in nonaccrual loans of $1.1 million relates to loans to twelve borrowers with individual balances less than $200,000. Included in the September 30, 2000 totals for loans 90 days or more past due and still accruing are loans to two commercial borrowers totaling $5.4 million. One of these loans has an 80% guarantee from the USDA for both principal and interest; management is working with both borrowers on bringing the loans current. Management continues to monitor the situation on the non-performing loans and has taken various actions to reduce the level of non- performing loans. Non-performing loans to total gross loans were 3.2% and 0.5% at September 30, 2000 and December 31, 1999, respectively. Deposits: Total deposits through the third quarter have increased $64.3 million or 13.9%. While both noninterest-bearing and interest-bearing deposit balances increased, the majority of the growth, $59.6 million, relates to interest-bearing deposit balances. Of the total increase, $10.3 million represents the net increase due to branch acquisitions and divestitures as disclosed in the Condensed Consolidated Statements of Cash Flows. The remaining growth is attributed to the branch network as well as from the issuance of brokered deposits. 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 and to grow the Bank's investment portfolio as described above. At September 30, 2000, $52.8 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 minimal administrative costs. Guaranteed Preferred Beneficial Interests in the Corporation's Subordinated Debentures: Consistent with the Registrant's strategic plan, the Registrant completed a private offering in May 1999 of Capital, or Trust Preferred, securities in the amount of $12,450,000. The proceeds were used to support the Registrant's capital position allowing for future growth and increased common shareholder value. Under regulatory guidelines, such securities are eligible as regulatory capital, as defined, subject to certain limitations. Shareholder's Equity: Total shareholder's equity increased $2.0 million from December 31, 1999 to September 30, 2000. The increase primarily resulted from net income of $3.7 million offset by the repurchase of common stock of $808,000 and dividends declared of $1.7 million. The Registrant will continue to selectively repurchase common stock as opportunities arise. Results of Operations: Net Interest Income: Net interest income for the quarter ended September 30, 2000 increased by $1.0 million or 18.3% compared to the same period one year ago. The increase in net interest income was largely the result of an increase in the loan volume for the third quarter of 2000 compared to the third quarter of 1999. The net interest margin, on a fully taxable equivalent basis, for the quarter ended September 30, 2000 was 4.71%, compared to 5.11% for the same period of 1999. The net interest margin has been impacted by the current economic conditions as well as the competitive nature of the Registrant's market. Overall, as interest rates increased, the Registrant was not able to increase its lending rates at the same rate as the increases experienced in the cost of funds; therefore, margins were squeezed. Interest income from loans represented 91.3% of total interest income for the third quarter of 2000 compared to 94.5% for the same period of 1999. For both periods, the total interest income and the yield on total earning assets are strongly influenced by lending activities. Net interest income for the nine months ended September 30, 2000 increased by $2.9 million or 18.3% compared to the same period in 1999. The net interest margin, on a fully taxable equivalent basis for the nine months ended September 30, 2000 decreased from 5.14% for the same period in 1999 to 4.80% for the same reasons mentioned in the preceding paragraph. Interest income from loans represented 91.7% of total interest income through the third quarter of 2000 compared to 96.2% for the same period of 1999. Provision for Loan Losses: The allowance for loan losses is maintained at a level 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 increased by $2.3 million and $3.7 million for the quarter ended and nine month period ended September 30, 2000, respectively, compared to the same periods in 1999. This is due primarily to increased net charge-off and non-performing loan levels as previously discussed. Management continues to fund the allowance at a rate consistent with its analysis of problem credits, also considering changes in the size and mix of its loan portfolio. Other Income: Other income increased by $624,000 for the quarter ended September 30, 2000 compared to the same period in 1999. The increase was primarily due to fee income generated by the Registrant's mortgage subsidiary totaling $1.1 million for the quarter ended September 30, 2000 offset by a $430,000 net gain on the sale of branches for the quarter ended September 30, 1999. As discussed in the Notes to the Condensed Consolidated Financial Statements, the mortgage subsidiary was acquired by the Registrant during the third quarter of 2000. Other income increased by $1.7 million for the nine months ended September 30, 2000 compared to the same period one year ago. The increase was primarily due to the fee income generated by the mortgage subsidiary as discussed above. Other Expenses: Other expenses increased $1.3 million or 30.2% for the quarter ended September 30, 2000 compared to the same period of 1999. Salary expense increased by $1.1 million or 62.3% during the third quarter of 2000 compared to the third quarter of 1999. This increase is due to commission expense of $1.0 million paid by the mortgage subsidiary directly related to the fee income described above. Occupancy expense increased by $66,000 or 10.3% for the third quarter of 2000 compared to the same period in 1999. Other noninterest expense increased by $134,000 or 7.1% for the third quarter of 2000 compared to the same period in 1999. Other expenses increased $2.4 million or 20.4% for the nine months ended September 30, 2000 compared to the same period of 1999. Salary expense increased by $1.6 million or 33.0% through the third quarter of 2000 compared to the same period in 1999 for the reason noted above. Occupancy expense increased by $318,000 or 16.8% through the third quarter of 2000 compared to the same period in 1999. Other noninterest expense increased by $533,000 or 10.2% through the third quarter of 2000 compared to the same period in 1999. The increases in occupancy expense and other noninterest expense are not attributable to specific occurrences but rather resulted from multiple factors. Federal Income Tax: The credit for income taxes was 40% of pretax income for the quarter ended September 30, 2000 compared to a provision for income taxes of 22.5% for the quarter ended September 30, 1999. For the nine months ended September 30, 2000, the provision for income taxes was 13.4% of pretax income compared to 21.7% for the same period in 1999. The difference between the effective tax rate 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 percentage 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 experienced during the past several 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. Commercial and real estate loans are written at variable rates or, if necessary, fixed rates for relatively short terms. Products have also been offered to 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. As of September 30, 2000, the Registrant had a cumulative asset gap position of approximately $42 million within the one-year timeframe. This position suggests that if the market interest rates increase in the next twelve months, the Registrant has the potential to earn more net interest income. Conversely, if market interest rates decline in the next twelve months, the Registrant has the potential to earn less net interest income. Management believes that it is properly positioned against significant changes in rates without severely altering operating results. 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. 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 minimum guidelines. The table below shows a summary of the Registrant's capital position in comparison to regulatory requirements. Tier I Tier I Total Capital to Capital to Capital to Average Risk Weighted Risk Weighted Assets Assets Assets Regulatory minimum 4.0% 4.0% 8.0% The Registrant September 30, 2000 7.5% 9.8% 11.1% December 31, 1999 8.4% 11.8% 13.0% The capital levels include adjustment for the Capital, or Trust Preferred, Securities issued in May 1999, subject to certain limitations. Federal Reserve guidelines limit the amount of cumulative preferred securities which can be included in Tier I capital to 25% of total Tier I capital. As of September 30, 2000, all of the $12,450,000 of Capital Securities were available as Tier I capital of the Registrant. As previously noted, the Capital Securities will be used to support the Registrant's current capital position allowing for future growth. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed as part of this report Number Exhibit 10 Employment Agreement dated September 30, 2000 between North Country Financial Corporation and Sherry L. Littlejohn 27 Financial Data Schedule. (b) There were no reports filed on Form 8-K during the quarter ended September 30, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTH COUNTRY FINANCIAL CORPORATION ----------------------------------- (Registrant) 11/9/00 /s/ Ronald G. Ford - -------- ---------------------- Date RONALD G. FORD, CHAIRMAN AND CEO 11/9/00 /s/ Kristine E. Hoefler - -------- ------------------------- Date KRISTINE E. HOEFLER, EXECUTIVE VICE PRESIDENT AND CFO EX-10 2 0002.txt EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into this 30th day of September, 2000 by and between NORTH COUNTRY FINANCIAL CORPORATION, a Michigan corporation (the "Company"), and SHERRY LITTLEJOHN (the "Executive"). RECITALS The Executive is employed by the Company as its Chief Operating Officer and serves as a Director of the Company. The Company desires to continue to employ the Executive pursuant to the terms of this Employment Agreement and the Executive desires to continue to be employed by the Company in accordance with the terms and provisions contained herein. NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements contained herein, the parties hereto hereby agree as follows. 1. Employment. (a) The Company hereby employs the Executive, and the Executive hereby accepts employment, on the terms and subject to the conditions contained herein. (b) During the Employment Term as defined in Section 2, below, the Executive shall serve as the President and Chief Operating Officer (jointly the "COO") of the Company, faithfully and to the best of the Executive's ability, subject to the direction of the Board of Directors and, in such capacity, shall supervise, manage and administer the operations, business and affairs of the Company and shall perform such duties and exercise such power and authority as may from time to time be delegated to the Executive by the Board of Directors consistent with the Executive's status as COO. During the Employment Term, the Executive shall also serve as a Director of the Company (for so long as the Executive shall be nominated and elected to fill such position). Executive may receive whatever additional compensation for serving in such Director related capacity(ies) as may be determined from time to time by the Company's Board of Directors. During the Employment Term, the Executive shall also serve as the COO of North Country Bank and Trust (the "Bank") and as a Director of the Bank (for so long as the Executive shall be nominated and elected to fill such position). In addition, the Executive shall serve as an officer and/or director of such subsidiaries of the Company as may be designated by their Boards of Directors and/or shareholders. Executive may receive whatever additional compensation for serving in such Director and Officer related capacity(ies) as may be determined from time to time by the Company's Board of Directors. (c) During the Employment Term, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of her business time, efforts and skills to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Term, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not materially interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. 2. Employment Term. The term of the employment of Executive under this Agreement (the "Employment Term") shall commence as of the date hereof and shall continue, unless sooner terminated under Section 7 hereof, until September 30th, 2003. At the end of each day of the Employment Term, this Agreement shall be automatically extended for one (1) day unless either the Company or the Executive shall have given written notice to the other at least thirty (30) days prior thereto that the Employment Term shall not be so extended. 3. Salary. (a) During the Employment Term, Executive shall be paid a salary at the rate of Two Hundred Fifty and 00/100 Dollars $250,000.00 per annum (the "Annual Base Salary"), payable in equal installments in accordance with the Company's customary payroll practices in effect from time to time. (b) Executive's Annual Base Salary shall be reviewed at least annually by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") and may be increased at any time and from time to time as the Board of Directors, in its sole discretion, shall deem appropriate taking into account the Compensation Committee's recommendation. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to Executive under this Agreement. Annual Base Salary shall not be reduced at any time during the Employment Term. Annual Base Salary is subject to income and employment tax withholding and all amounts in this Agreement are stated prior to any such deductions. 4. Bonus and Long-Employment Term Incentives. (a) In addition to Annual Base Salary, Executive shall be eligible to receive, for each fiscal year ending during the Employment Term, any annual bonus (the "Annual Bonus") determined in accordance with any Company bonus plan adopted by the Board of Directors as in effect from time to time (the "Bonus Plan"). (b) Executive shall be eligible to participate in those long-term incentive plans available to senior executives of the Company, including the 2000 Stock Incentive Plan, or any successors thereto, in an amount and on such terms as shall be determined by the Compensation Committee . Executive shall also be eligible to participate in the Company's Supplemental Executive Retirement Plan in accordance with its terms. 5. Benefits. Subject to the application of any applicable anti-discrimination rules, the Executive shall be entitled to participate in all employee benefit plans, programs, practices or arrangements of the Company in which other senior executives of the Company are eligible to participate from time to time, including, without limitation, any qualified or non- qualified pension, profit sharing and savings plans, any death benefit and disability benefit plans, and any medical, dental, health and welfare plans on terms and conditions at least as favorable as provided to other senior executives of the Company. Notwithstanding the foregoing, (a) the Company with provide the Executive with the use of an automobile of her choice with a retail value up to $50,000 (the "Automobile") and (b) the Executive will be entitled to four (4) weeks of vacation per year (and, to the extent the full amount of vacation time is not taken, the Executive may only carry over vacation time to a subsequent year to the extent approved by the Compensation Committee). The Automobile shall be owned by the Company or the Bank and shall be replaced when it is approximately two years old. While the Executive is employed by the Company, the Company shall be responsible for all expenses associated with the automobile, including repairs, gasoline (while the auto is being used for business purposes) and customary insurance coverage. Subsequent to the Executive's termination from employment with the Company, if "auto benefits" are extended to the Executive pursuant to this Agreement, the Executive shall be responsible for all expenses associated with the Automobile, including repairs and gasoline, other than customary insurance coverage which shall be purchased by the owner of the Automobile. 6. Expenses. The Company shall pay or reimburse the Executive for all reasonable out-of-pocket expenses incurred by her in the course of performing her duties for the Company in accordance with the Company's reimbursement policies as in effect from time to time. Executive shall keep accurate records and receipts of such expenditures and shall submit such accounts and proof thereof as may from time to time be required in accordance with such expense account or reimbursement policies that the Company may establish for its employees generally. 7. Termination of Employment. During the Employment Term, the Executive's employment hereunder may be terminated under any of the following circumstances: (a) Death or Disability. The Executive's employment hereunder shall terminate automatically upon the Executive's death during the Employment Term. If the Company determines in good faith that a Disability of the Executive has occurred during the Employment Term (pursuant to the definition of Disability set forth below), the Company may give to the Executive written notice in accordance with Section 7(d) of this Agreement of its intention to terminate the Executive's employment hereunder. In such event, the Executive's employment with the Company shall terminate effective on the thirtieth (30th) day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" means a condition rendering the Executive unable, by reason of a medically determinable physical or mental impairment, to perform her duties with the Company or the Bank, which condition, in the opinion of a physician selected by the Company's Board of Directors, is expected to have a duration of more than 90 consecutive days. (b) Termination by Company. The Company may terminate the Executive's employment for Cause or without Cause. For purposes of this Agreement, "Cause" means (i) the willful commission by the Executive of a criminal or other act that causes or will probably cause substantial economic damage to the Company, the Bank or an affiliate, (ii) the commission by the Executive of an act of fraud in the performance of her duties on behalf of the Company, the Bank or an affiliate, (iii) the continuing willful failure of the Executive to perform her duties to the Company, the Bank or an affiliate (other than any such failure resulting from the Executive's incapacity due to physical or mental illness) after written notice therefor (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to the Executive; or (iv) the order of a federal or state bank regulatory agency or a court of competent jurisdiction requiring the Executive's termination of employment. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company, the Bank or an affiliate. The term "affiliate" means a corporation or other business entity that is controlled by, controlling or under common control with the Company. (c) Good Reason Termination. The Executive may voluntarily terminate her employment hereunder for Good Reason. "Good Reason" means, without the Executive's written consent, the material breach by the Company or the Bank of any provision of this Agreement, or, if in anticipation of or after the occurrence of a Change in Control, the occurrence of one or more of the following during the Employment Term: (i) a material diminution of or interference with the Executive's duties and responsibilities with the Company or the Bank immediately prior to the Change in Control, including, but not limited to a material demotion of the Executive, a material reduction in the number or seniority of other Company personnel reporting, directly or indirectly, to the Executive, or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Executive; or (ii) the assignment to the Executive by the Company or the Bank of duties inconsistent with the Executive's position, duties, responsibilities and status immediately prior to the Change in Control; or (iii) a change in the principal workplace of the Executive to a location outside of a 50-mile radius from Manistique, Michigan or Traverse City, Michigan; or (iv) any failure by the Company or the Bank to continue in effect any qualified plan, welfare benefit or incentive plan or arrangement in which the Executive is participating immediately prior to the Change in Control or to reduce or eliminate the Executive's participation in, or remuneration or benefits under, any such plans or arrangements; or (v) if this Agreement does not become, by operation of law, an obligation of any successor to the Company, any failure by a successor to the Company to expressly assume this Agreement; or (vi) a voluntary termination by the Executive for any reason or no reason during the ninety (90) day period commencing on the date six (6) months after the Change in Control. For purposes of this Agreement, Change in Control has the same meaning as in the Company's 2000 Stock Incentive Plan, as the same may be amended from time to time. Notwithstanding the foregoing, prior to a Change in Control, Executive will not have "Good Reason" to terminate her employment with the Company unless (i) the Executive complies with the requirements of subsection (d) hereof and (ii) within the ten (10) day period after the Board of Directors receives the Notice of Termination, as defined in Section 7(d), below, the Company has not reasonably cured the situation which is the basis for the Executive's claim of Good Reason to terminate. The Executive's continued employment or failure to give Notice of Termination will not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. After the occurrence of a Change in Control, any good faith determination by the Executive that there is Good Reason shall be conclusive and binding on the Company and its successors. (d) Notice of Termination. Any purported termination of employment shall be communicated by Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which (i) indicates the specific termination provision in this Agreement relied upon; (ii) if applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii) indicates the Termination Date. "Termination Date" shall mean in the case of the Executive's death, her date of death, or in all other cases of termination by the Company, the date specified in the Notice of Termination; provided, however, that the date specified in the Notice of Termination shall be at least thirty (30) days after the date the Notice of Termination is given to the Executive, provided, further, that in the case of Disability, the Executive shall not have returned to the full-time performance of her duties during such period of at least thirty (30) days. In the case of the Executive's Good Reason Termination, the "Termination Date" shall be no earlier than thirty (30) days after written notice by the Executive to the Company, unless the Company agrees to an earlier Termination Date. 8. Obligations Upon Termination. (a) Termination by the Company for Cause or Voluntary Termination by the Executive. If the Executive's employment with the Company is terminated by the Company for Cause or if the Executive voluntarily leaves the Company's employ other than for Good Reason, the Company will pay and/or provide the Executive with the following: (i) the Executive's Annual Base Salary through the Termination Date, and (ii) all benefits to which the Executive is entitled under any benefit plans set forth in Section 5 hereof in accordance with the terms of such plans through the Termination Date. (b) Termination by Reason of Disability or Death. If the Executive's employment with the Company is terminated during the Employment Term by reason of the Executive's Disability or death, the Company will pay and/or provide the Executive or the Executive's legal representative, as the case may be, with the following: (i) the Executive's Annual Base Salary as then in effect through the Termination Date (ii) a fraction of any Annual Bonus paid to the Executive for the fiscal year preceding the Termination Date determined by multiplying the prior year's Annual Bonus (if any) by a fraction, the numerator of which shall equal the number of days during such fiscal year preceding the Termination Date, and the denominator of which shall equal three hundred sixty-five (365) and (iii) all benefits to which the Executive is entitled under any benefit plans set forth in Section 5 hereof in accordance with the terms of such plans through the Termination Date. Payment of the amount set forth in subparagraph (ii) hereof shall be made within thirty (30) days after the Termination date. (c) Good Reason Termination or Termination by the Company Without Cause. If the Executive terminates her employment hereunder for Good Reason, or the Company terminates the Executive's employment without Cause, the Company shall provide the following payments and/or benefits to the Executive: (i) twelve (12) quarterly payments to the Executive, each in an amount equal to twenty-five percent (25%) of her Annual Base Salary (or, if the termination occurs after a Change in Control, the greater of the Executive's Annual Base Salary before or after the Change in Control), commencing on a date which is no later than ten (10) business days after compliance with subsection (d) hereof; and (ii) for the three years following the Termination Date, medical and dental benefits to the Executive and/or the Executive's spouse and dependents at the Company's expense in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies applicable generally to other peer executives who are active employees and their spouse and dependents as in effect from time to time thereafter; provided, however, that (1) if the Executive becomes reemployed with another employer and is eligible to receive medical or other benefits under another employer provided plan, the medical and other benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility, and (2) that if the Executive and/or the Executive's spouse qualifies for coverage by Medicare or any successor program, the Company may require that the Executive and/or the Executive's spouse fully participate in Medicare and pay the premiums therefor personally. If, after a Change in Control, (a)the Executive terminates her employment hereunder for Good Reason or (b) the Company terminates the Executive's employment without Cause, the Company shall provide the following payments and/or benefits to the Executive in addition to those provided in subparagraphs (i) and (ii), above: (iii) outplacement services up to a maximum amount of 15% of the Executive's Annual Base Salary (or, if the termination occurs after a Change in Control, the greater of the Executive's Annual Base Salary before or after the Change in Control) plus travel expense reimbursement for job search travel of up to $5,000; and (iv) the same or similar (in nature and quantity) counseling services that may be available to employees of the Company pursuant to any Company "Employee Assistance Program" that may be in existence at the time of the Executive's termination from employment with the Company. (v) a cash payment, payable within 90 days of the end of each calendar year during which the Executive is receiving payments under this Section 8(c), equal to the amounts that the Company would have contributed to its qualified retirement plan and the Supplemental Executive Retirement Plan for the Executive's account during that calendar year if the Executive had continued in the Company's employ for the three-year period beginning on the Termination Date and had earned the Annual Base Salary (or, if the termination occurs after a Change in Control, the greater of the Executive's Annual Base Salary before or after the Change in Control) and a bonus equal to the bonus earned by the Executive for the fiscal year ending immediately prior to the year in which the Change of Control occurs. (d) Release of Claims. Notwithstanding the foregoing, the Company will not pay to the Executive, and the Executive will not have any right to receive any payments or benefits described in Sections 8(b) and (c), above, unless and until the Executive or her legal representative (in the case of the Executive's death or if the Executive is disabled such that she is unable to consent) executes, and there shall be effective following any statutory period for revocation, a release, in a form reasonably acceptable to the Company, that irrevocably and unconditionally releases, waives, and fully and forever discharges the Company and its past and current shareholders, members of the Board of Directors, officers, employees, and agents from and against any and all claims, liabilities, obligations, covenants, rights, demands and damages of any nature whatsoever, whether known or unknown, anticipated or unanticipated, relating to or arising out of the Executive's employment with the Company, including without limitation claims arising under the Age Discrimination in Employment Act of 1977, as amended, Title VII of the Civil Rights Act of 1974, as amended, the Civil Rights Act of 1991, as amended, the Equal Pay Act, as amended, and any other federal, state, or local law or regulation. (e) Withholding, Waiver of Vacation Pay and Other Issues. Payments to be made to Executive under this Section 8 will be reduced by any applicable income or employment taxes which are required by be withheld under applicable law, and all amounts are stated before any such deduction. Furthermore, none of the payments under this Section 8 shall be included as compensation for purposes of any pension, deferred compensation or welfare benefit plan or program of the Company. Finally, in consideration of all of the payments to be made under this Section 8 to the Executive by the Company pursuant to this Agreement, the Executive hereby waives any claim she may have for accrued and unpaid vacation pay as of the Termination Date. 9. Obligations of Executive During and After the Employment Term. (a) Competition. Executive agrees that while employed by the Company, and for the three- year period following the Termination Date, she shall not, either directly or indirectly as an agent, stockholder, employee, officer, director, trustee, partner, member, proprietor or otherwise, render advice or assistance to (other than on behalf of the Company) or be employed by or render services to any person, company, business entity, or other organization which is engaged in the business of commercial banking within a sixty (60) mile radius of any branch office of the Bank or any other affiliated entity of the Company. The Company, Bank and any other affiliated entity of the Company are hereafter referred to as the "Company Affiliated Group." (b) Solicitation of Employees. The Executive agrees that while employed by the Company and for the three-year period following the Termination Date, she will not, directly or indirectly, induce, solicit, entice or procure any person who is an employee of the Company Affiliated Group, or has been such an employee within the three months preceding such contact by Executive, to terminate his or her employment with the Company Affiliated Group so as to accept employment with any person, company, business entity, or other organization whatsoever in which the Executive owns, directly or indirectly, at least a 5% equity interest or from which the Executive receives compensation. (c) Solicitation of Customers. The Executive agrees that while employed by the Company and for the three-year period following the Termination Date, she will not, directly or indirectly, contact any customer or prospective customer of the Company Affiliated Group with whom the Executive has had contact on behalf of the Company Affiliated Group during the two-year period preceding the Termination Date or any customer or prospective customer about whom the Executive has obtained confidential information in connection with the Executive's services to the Company Affiliated Group during such two-year period so as to cause or attempt to cause such customer or prospective customer of the Company Affiliated Group not to do business or to reduce such customer's business with the Company Affiliated Group or divert any business from the Company Affiliated Group. (d) Confidentiality Agreement. During the Employment Term and after the Executive's termination of employment with the Company, the Executive shall not make any Unauthorized Disclosure. For purposes of this Agreement, "Unauthorized Disclosure" shall mean use by the Executive or disclosure by the Executive without the consent of the Board of Directors of the Company to any person, other than use or disclosure that is reasonably necessary or appropriate in connection with the performance by the Executive of her duties as an executive of the Company or as may be legally required (provided the provisions of Section 9(c) hereof are complied with), of any confidential information obtained by the Executive while in the employ of the Company, including, but not limited to, confidential information with respect to any of the Company's customers, suppliers, contractors, methods of operation, services, products, mechanisms, databases, processes, programs and access codes (the "Confidential Information"); provided, however, that Confidential Information shall not include the use or disclosure by the Executive, without consent, of any information known generally to the public (other than as a result of disclosure by her in violation of this Section 9(d)). (e) Return of Company Property. The Executive agrees that all memoranda, notes, records, papers, financial models, mechanisms, programs, flow charts, work papers, source codes, computer codes, designs, software, data and other documents and all copies thereof relating to the operations or business of the Company, some of which may be prepared by her, and all objects associated therewith (such as samples) in any way obtained by her in connection with the performance of her duties hereunder shall be the exclusive property of the Company. The Executive shall not, except for the Company's use, copy or duplicate any of the aforementioned, not remove them from the Company's facilities, nor use any information concerning them, in each case, except for the Company's benefit, either during her employment or thereafter. The Executive agrees that she will deliver the original and all copies of all of the aforementioned that may be in her possession to the Company on termination of her employment, or at any other time on the request of the Board of Directors of the Company. (f) Notice by Executive to Company. If the Executive is requested or becomes legally required or compelled (by oral questions, interrogatories, requests for information or documents, subpoena, civil or criminal investigative demand, or similar process) or is required by a governmental body to make any disclosure that is prohibited or otherwise constrained by this Agreement, the Executive will provide the Company with prompt notice of such request so that it may seek an appropriate protective order or other appropriate remedy. Subject to the foregoing, the Executive may furnish that portion (and only that portion) of the Confidential Information that the Executive is legally compelled or is otherwise required to disclose or else stand liable for contempt or suffer other material censure or material penalty. (g) Enforcement of Covenants. The Executive recognizes that irreparable and incalculable injury will result to the Company Affiliated Group, its businesses or properties in the event of her breach of any of the restrictions imposed by this Section 9. The Executive therefore agrees that, in the event of any such actual, impending or threatened breach, the Company or any affiliate thereof will be entitled, in addition to any other remedies and damages, to temporary and permanent injunctive relief (without the necessity of posting a bond or other security) restraining the violation, or further violation, of such restrictions by the Executive and by any other person or entity for whom the Executive may be acting or who is acting for the Executive or in concert with the Executive. 10. Exclusive Remedy. The payments, severance benefits and severance protections provided to the Executive pursuant to this Agreement are to be paid and provided in lieu of any severance payments, severance benefits and severance protections provided in any other plan or policy of the Company. 11. Excise Tax Payments. Notwithstanding anything contained in this Agreement to the contrary, in the event that any payment or distribution to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, her employment with the Company (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1996, as amended (the "Code")), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any interest and penalties, are collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. The Company shall pay the Gross-Up Payment to the Executive, or to the taxing authorities on behalf of the Executive, at the time when the Excise Tax is required to be paid to the taxing authorities. Calculation of the Gross-Up Payment shall be made by the Company's independent certified public accounting firm engaged by the Company immediately prior to the Change in Control and shall be subject to the Executive's review and consent at least ten (10) days prior to the date on which an Excise Tax payment must be made hereunder. 12. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. 13. Legal Fees and Expenses. If any legal proceeding is necessary to enforce or interpret the terms of this Agreement, or to recover damages for breach hereof, Executive, if the prevailing party, shall be entitled to recover from the Company reasonable attorneys' fees and necessary costs and disbursements incurred in such litigation, in addition to any other relief to which she may be entitled. 14. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the Company and the Executive or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party, delivered by overnight courier, or by certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Sherry L. Littlejohn 517 West Avenue B Newberry, MI 49868 If to the Company: North Country Financial Corporation 333 East State Street Traverse City, Michigan 49684 Attention: Chairman - Compensation Committee or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. By way of example and not by wary of limitation, if any payments provided for hereunder are found to be beyond limits permissible to be paid by the Company or the Bank by statute or regulation, it is intended that the payments shall be made to the maximum of any such lesser amount as is permissible to be paid by the Company or the Bank. (d) The Executive's or Company's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (e) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. Other than the terms of all qualified, welfare benefit and compensation plans and awards in which the Executive participates, it is expressly agreed that the terms and conditions of this Agreement supersede and control any conflicting or contrary provision contained in any other agreement(s), understandings and arrangements, oral or written, between the parties hereto regarding the subject matter of this Agreement, including that Management Continuity Agreement dated May 22, 1996, as amended, between the Company and the Executive . IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. NORTH COUNTRY FINANCIAL CORPORATION By: /s/ Wesley W. Hoffman ----------------------------------------- Wesley W. Hoffman, Compensation Committee Chairman and Authorized Signatory EXECUTIVE By: /s/ Sherry L. Littlejohn ------------------------------------------ Sherry L. Littlejohn EX-27 3 0003.txt
9 1,000 9-MOS DEC-31-2000 SEP-30-2000 25,125 0 3,427 0 45,474 0 0 537,709 8,511 644,216 527,312 0 7,020 54,593 0 0 15,899 26,942 644,216 36,848 3,014 332 40,194 17,646 21,400 18,794 4,375 110 14,317 4,322 4,322 0 0 3,741 .54 .53 4.80 10,542 6,933 0 0 6,863 2,827 100 8,511 8,511 0 2,277
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