Mackinac Financial Corp/MI – ‘10-K’ for 12/31/98

As of:  Wednesday, 3/31/99   ·   For:  12/31/98   ·   Accession #:  926044-99-45   ·   File #:  0-20167

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Annual Report   —   Form 10-K
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         91    358K 
 2: EX-27       Financial Data Schedule (Pre-XBRL)                     2±     7K 

10-K   —   Annual Report
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 FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------

 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 For the fiscal year ended December 31, 1998

OR
 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________

Commission file number 0-20167

 NORTH COUNTRY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

      MICHIGAN                                      38-2062816
(State of other jurisdiction of                      (I.R.S. Employer   
  incorporation or organization)                       Identification No.)

130 South Cedar Street, Manistique, Michigan 49854
 (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (906) 341-8401

Securities registered pursuant to Section 12(b) of the Act: None

 Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
 -----------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes _X_ No ____                              

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by  reference in Part III of this Form 10-K or any  amendments  to
this Form 10-K. |X|                                                             

The  aggregate  market value of the voting and  non-voting  common stock held by
non-affiliates  of the  Registrant,  based on a per share  price of $25.00 as of
March 1, 1999, was  $161,373,424  (common stock,  no par value).  As of March 1,
1999, there were outstanding  7,097,837 shares of the Company's Common Stock (no
par value).                                                                     

Documents  Incorporated  by  Reference:  Portions of the  Company's  1998 Annual
Report  to  Shareholders  are  incorporated  by  reference  into Part II of this
Report.                                                                         

Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held April 20, 1999 are  incorporated  by reference  into Part III of this
Report.                                                                         

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PART I

ITEM 1:  Business                                                               

North  Country  Financial   Corporation  (the  "Registrant"  or  "Company")  was
incorporated  under the laws of the state of Michigan on December 16, 1974.  The
Company changed its name from "First  Manistique  Corporation" to "North Country
Financial  Corporation"  on  April  14,  1998.  The  Registrant  owns all of the
outstanding  stock of its  banking  subsidiary,  North  Country  Bank and  Trust
("Bank").  The Registrant also owns all of the outstanding  stock of two nonbank
subsidiaries: First Manistique Agency, an insurance agency which sells annuities
as well as life and  health  insurance  and First  Rural  Relending  Company,  a
nonprofit  relending  company.  The Bank  represents the principal  asset of the
Registrant.  The  Registrant  and its  subsidiary  bank are  engaged in a single
industry segment,  commercial banking, broadly defined to include commercial and
retail  banking  and trust  activities  along  with other  permitted  activities
closely  related  to  banking,  namely  credit  life  and  accident  and  health
insurance.                                                                      

The Registrant  became a registered  bank holding company under the Bank Holding
Company Act of 1956, as amended (the "Act"),  on April 1, 1976, when it acquired
First  Northern Bank and Trust ("First  Northern").  On May 1, 1986,  Manistique
Lakes Bank merged with First  Northern,  with the survivor being First Northern.
The Registrant  acquired all of the outstanding  stock of the Bank of Stephenson
on  February  8,  1994,  in  exchange  for cash and  common  stock.  The Bank of
Stephenson was operated as a separate banking subsidiary of the Registrant until
September 30, 1995,  when it was merged into First  Northern with First Northern
being the survivor. First Northern acquired a substantial portion of the banking
assets and assumed a substantial  portion of the banking liabilities of Newberry
State Bank on December 8, 1994, in exchange for cash.  First  Northern  acquired
the fixed  assists and assumed  the  deposits of the Rudyard  Branch of First of
America  Bank on  September  15,  1995,  in exchange  for cash.  The  Registrant
acquired all of the outstanding  stock of South Range State Bank ("South Range")
on January 31, 1996, in exchange for cash and notes.  On August 12, 1996,  First
Northern and South Range changed their names to North Country Bank and Trust and
North Country Bank, respectively. The Registrant acquired all of the outstanding
stock of UP Financial Inc., the parent holding company of First National Bank of
Ontonagon  ("Ontonagon").  Upon completion of the latter acquisition,  Ontonagon
was merged into North  Country Bank with North  Country Bank being the survivor.
North  Country  Bank  was  operated  as a  separate  banking  subsidiary  of the
Registrant  until March 10, 1998, when it was merged into North Country Bank and
Trust with North Country Bank and Trust being the survivor.                     

The Bank is engaged in the general commercial banking business, providing a full
range of loan and deposit  products.  These banking services  include  customary
retail and commercial banking services, including checking and savings accounts,
time deposits,  interest bearing transaction accounts,  safe deposit facilities,
real estate mortgage lending,  commercial  lending,  commercial and governmental
lease financing, direct and indirect consumer financing, and trust services.    

The principal source of revenue for the Registrant is interest and fees on loans
and  investments.  The sources of income for the three most recent  years are as
follows:                                                                        

                                                                [Download Table]
                                               1998         1997         1996     
                                               ----         ----         ----     
                                                                                  
Interest and fees on loans................. $37, 283,850  $34,525,569  $26,785,141
Investment income..........................      717,122    1,065,458    1,501,589
Other interest income......................      496,987      373,010      437,396
Noninterest income.........................    2,650,903    1,638,216    1,360,453

The Bank's  primary  market areas are the areas within a radius of 30 miles from
its various offices, primarily in the Upper Peninsula of Michigan. The Bank also
has  branch  offices  in  Traverse  City  and in  Gaylord  in  Michigan's  Lower
Peninsula.  North  Country  Bank  and  Trust  is  headquartered  in  Manistique,
Michigan.  The  executive  offices and mailing  address are located at 130 South
Cedar Street, Manistique, Michigan 49854. North Country Bank and Trust maintains
offices in Schoolcraft,  Delta,  Machinac,  Luce, Alger,  Menominee,  Dickinson,
Marquette,  Baraga,  Chippewa,  Houghton, Iron, Gogebic,  Ontonagon,  Otsego and
Grand Traverse Counties. North Country Bank and Trust operates 30 branch        

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offices, provides drive-in convenience at 21 branch locations, and has automatic
teller machines  operating at 16 locations.  North Country Bank and Trust has no
foreign offices.                                                                

As of December 31, 1998, the North Country Bank and Trust employs  approximately
161 full-time employees.                                                        

Banking is a highly  competitive  business.  The Bank  competes  primarily  with
financial  institutions  in its  market  areas for loans  and  deposits.  In its
market,  namely the Upper  Peninsula of Michigan,  the Bank maintains the second
largest deposit base, or  approximately  15% of the deposit market share.  There
are approximately 20 banking and savings  institutions and 31 credit unions with
offices in the Upper Peninsula of Michigan.                                     

In addition to other banks,  the Bank also  competes for loans and deposits with
savings  and loan  associations,  credit  unions,  investment  firms,  and large
national retailers,  and competes for deposits with money market funds. In order
to successfully  compete,  management has developed a sales and service culture,
stresses and rewards quality customer service,  and designs products to meet the
needs of the  customer.  The Bank also utilizes its ability to sell loans in the
secondary market.                                                               

The  Bank  makes  mortgage,  commercial,  and  installment  loans  to  customers
primarily  in the Upper  Peninsula  of  Michigan.  Fees may be charged for these
services.  Historically,  the Bank has  predominantly  sold its secondary market
conforming  residential  mortgage loans.  The Bank also finances  commercial and
governmental  leases  throughout  the  country.  The  leases are  originated  by
unrelated  entities and the Bank reviews the credit quality of each lease before
entering into a financing agreement.                                            

The Registrant is a party to financial  instruments with off-balance  sheet risk
in the normal course of business to meet financial needs of its customers. These
financial instruments include commitments to make loans, unused lines of credit,
and standby letters of credit.  The Registrant's  exposure to credit loss in the
event of  nonperformance  by the  other  party to the  financial  instrument  is
represented  by the  contractual  amount of those  instruments.  The  Registrant
follows  the  same  credit  policy  to make  such  commitments  as it  uses  for
on-balance-sheet items.                                                         

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

                                                        [Enlarge/Download Table]
                                                       1998                      1997           
                                                Fixed         Variable    Fixed         Variable
                                                                                                
Outstanding Letter of Credit................                 $14,869    $2,214                  
Unused Lines of Credit...................... $ 2,782         $63,452    $2,964         $20,311  
Loan Commitments Outstanding................ $11,235         $53,372                   $19,652  

Fixed rates on unused  lines of credit  ranged  from 9% to 18% at  December  31,
1998.                                                                           

Since many  commitments to make loans expire without being used, the amount does
not necessarily  represent  future cash  commitments.  Collateral  obtained upon
exercise of the commitment is determined using management's credit evaluation of
the borrower and may include real estate,  vehicles,  business assets, deposits,
and other items.                                                                

The Bank supports the growth of the service industry, with its year round resort
and related businesses,  gaming, forestry,  restaurants,  farming,  fishing, and
many other activities important to growth in the Upper and Lower Peninsula.  The
economy of the market areas of the Bank is affected by summer and winter tourism
activities  and,  accordingly,   the  Bank  experiences  seasonal  consumer  and
commercial  deposit  growth,  with  substantial  growth  increases  from  May to
September.                                                                      

There are no  material  concentrations  of credit to,  nor have  other  material
portions of the Bank's  deposits been received from, a single person,  industry,
or group.                                                                       

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In 1993,  North  Country  Bank and Trust  joined the  Federal  Home Loan Bank of
Indianapolis.  The Federal Home Loan Bank of Indianapolis provides an additional
source of liquidity  and  long-term  funds.  Membership in the Federal Home Loan
Bank also  provides  access to additional  advantageous  lending  programs.  The
Community   Investment   Program   makes   advances   to  be  used  for  funding
community-oriented  mortgage lending,  and the Affordable Housing Program grants
advances to fund lending for  long-term low and moderate  income owner  occupied
and affordable rental housing at subsidized interest rates.                     

The Bank  regularly  assesses its ability to raise funds through the issuance of
certificates  of deposit in  denominations  of $100,000 or more in the local and
regional market area and has established  conservative  guidelines for the total
funding to be provided by these deposits. The Bank is also using the Internet to
attract  certifictes  of deposits in  denominations  of $100,000 or more.  These
large  denomination  deposits were  slightly  more than 6% of total  deposits at
December 31, 1998. The Bank also uses federal funds purchased from correspondent
banks and the  Federal  Reserve  Bank to  respond to  deposit  fluctuations  and
temporary loan demands.                                                         

As of December 31,  1998,  the Bank had no material  risks  attendant to foreign
sources.  See "Interest Rate and Foreign  Exchange Risk  Management"  section in
Management's  Discussion  and Analysis for details on the  Registrant's  foreign
account  activity.  Compliance  with federal,  state,  and local statutes and/or
ordinances relating to the protection of the environment is not expected to have
a material effect upon the Bank's capital expenditures, earnings, or competitive
position.                                                                       

SUPERVISION AND REGULATION

     The following is a summary of certain  statutes and  regulations  affecting
the Company and the Bank.  This  summary is  qualified  in its  entirety by such
statutes and regulations.  A change in applicable laws or regulations may have a
material effect on the Company, the Bank and the business of the Company and the
Bank.                                                                           

General                                                                         

     Financial   institutions  and  their  holding   companies  are  extensively
regulated  under  federal and state law.  Consequently,  the growth and earnings
performance  of the Company and the Bank can be affected not only by  management
decisions and general economic conditions, but also by the statutes administered
by,  and the  regulations  and  policies  of,  various  governmental  regulatory
authorities.  Those  authorities  include,  but are not limited to, the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), the FDIC,
the Commissioner of the Michigan Financial Institutions Bureau ("Commissioner"),
the Internal Revenue Service,  and state taxing authorities.  The effect of such
statutes,  regulations and policies can be significant,  and cannot be predicted
with a high degree of certainty.                                                

     Federal and state laws and  regulations  generally  applicable to financial
institutions and their holding companies regulate, among other things, the scope
of business, investments,  reserves against deposits, capital levels relative to
operations,   lending  activities  and  practices,  the  nature  and  amount  of
collateral for loans, the establishment of branches, mergers, consolidations and
dividends.  The system of supervision  and regulation  applicable to the Company
and  the  Bank  establishes  a  comprehensive  framework  for  their  respective
operations  and is intended  primarily for the  protection of the FDIC's deposit
insurance  funds,  the  depositors  of the Bank,  and the  public,  rather  than
shareholders of the Bank or the Company.                                        

     Federal law and regulations  establish  supervisory standards applicable to
the  lending  activities  of  the  Bank,  including  internal  controls,  credit
underwriting,  loan documentation and loan-to-value  ratios for loans secured by
real property.                                                                  

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The Company                                                                     

     General.  The Company is a bank holding company and, as such, is registered
with,  and subject to  regulation  by, the Federal  Reserve Board under the Bank
Holding  Company Act, as amended (the  "BHCA").  Under the BHCA,  the Company is
subject to periodic examination by the Federal Reserve Board, and is required to
file with the Federal Reserve Board periodic  reports of its operations and such
additional information as the Federal Reserve Board may require.                

     In accordance with Federal Reserve Board policy, the Company is expected to
act as a source of  financial  strength to the Bank and to commit  resources  to
support the Bank in circumstances  where the Company might not do so absent such
policy.  In  addition,  if the  Commissioner  deems  the  Bank's  capital  to be
impaired,  the  Commissioner  may  require  the Bank to restore its capital by a
special  assessment  upon the  Company as the Bank's  sole  shareholder.  If the
Company were to fail to pay any such assessment, the directors of the Bank would
be required, under Michigan law, to sell the shares of the Bank's stock owned by
the Company to the highest bidder at either a public or private  auction and use
the proceeds of the sale to restore the Bank's capital.                         

     Investments and Activities.  In general, any direct or indirect acquisition
by the  Company  of any  voting  shares of any bank  which  would  result in the
Company's  direct or indirect  ownership or control of more than 5% of any class
of voting shares of such bank,  and any merger or  consolidation  of the Company
with  another  bank  company,  will  require the prior  written  approval of the
Federal  Reserve  Board  under the BHCA.  In  acting on such  applications,  the
Federal Reserve Board must consider various statutory  factors,  including among
others,  the effect of the  proposed  transaction  on  competition  in  relevant
geographic and product markets, and each party's financial condition, managerial
resources,  and record of  performance  under the  Community  Reinvestment  Act.
Effective  September 29, 1995, bank holding  companies may acquire banks located
in any state in the United States without regard to geographic  restrictions  or
reciprocity   requirements   imposed  by  state  law,  but  subject  to  certain
conditions,  including  limitations on the aggregate amount of deposits that may
be held by the acquiring company and all of its insured  depository  institution
affiliates.                                                                     

     The merger or  consolidation  of an existing bank subsidiary of the Company
with another bank, or the  acquisition by such a subsidiary of assets of another
bank, or the assumption of liability by such a subsidiary to pay any deposits in
another bank, will require the prior written approval of the responsible Federal
depository institution regulatory agency under the Bank Merger Act, based upon a
consideration of statutory  factors similar to those outlined above with respect
to the BHCA. In addition, in certain such cases an application to, and the prior
approval of, the Federal  Reserve  Board under the BHCA and/or the  Commissioner
under the Michigan Banking Code, may be required.                               

     With certain limited  exceptions,  the BHCA prohibits any bank company from
engaging,  either directly or indirectly  through a subsidiary,  in any activity
other  than  managing  or  controlling  banks  unless the  proposed  non-banking
activity is one that the Federal  Reserve Board has  determined to be so closely
related to banking or managing or controlling  banks as to be a proper  incident
thereto.  Under current  Federal  Reserve Board  regulations,  such  permissible
non-banking  activities  include  such  things as  mortgage  banking,  equipment
leasing,  securities  brokerage,  and consumer and  commercial  finance  company
operations.  As a result of recent amendments to the BHCA, well- capitalized and
well-managed  bank  holding  companies  may engage de novo in  certain  types of
non-banking  activities  without  prior  notice to, or approval  of, the Federal
Reserve Board,  provided that written notice of the new activity is given to the
Federal  Reserve  Board within 10 business days after the activity is commenced.
If a bank  company  wishes to engage in a  non-banking  activity by  acquiring a
going concern,  prior notice and/or prior  approval will be required,  depending
upon the activities in which the company to be acquired is engaged,  the size of
the company to be acquired and the  financial  and  managerial  condition of the
acquiring bank company.                                                         

     In  evaluating  a  proposal  to  engage  (either  de  novo or  through  the
acquisition of a going concern) in a non-banking  activity,  the Federal Reserve
Board will consider  various  factors,  including among others the financial and
managerial  resources of the bank company,  and the relative public benefits and
adverse  effects  which may be expected to result  from the  performance  of the
activity by an  affiliate of the bank  company.  The Federal  Reserve  Board may
apply  different  standards to  activities  proposed to be commenced de novo and
activities commenced by acquisition, in whole or in part, of a going concern.   

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     Capital  Requirements.  The Federal  Reserve  Board uses  capital  adequacy
guidelines  in its  examination  and  regulation of bank holding  companies.  If
capital falls below minimum guidelines,  a bank company may, among other things,
be  denied  approval  to  acquire  or  establish  additional  banks or  non-bank
businesses.                                                                     

     The Federal  Reserve  Board's  capital  guidelines  establish the following
minimum  regulatory  capital  requirements  for bank  holding  companies:  (i) a
leverage capital requirement expressed as a percentage of total assets, and (ii)
a  risk-based  requirement  expressed  as a  percentage  of total  risk-weighted
assets. The leverage capital  requirement  consists of a minimum ratio of Tier 1
capital (which consists principally of shareholders'  equity) to total assets of
3% for the most highly rated  companies,  with minimum  requirements of 4% to 5%
for all others. The risk- based requirement consists of a minimum ratio of total
capital to total risk-weighted  assets of 8%, of which at least one-half must be
Tier 1 capital.                                                                 

     The risk-based and leverage standards presently used by the Federal Reserve
Board are minimum  requirements,  and higher  capital levels will be required if
warranted by the particular circumstances or risk profiles of individual banking
organizations.  For example,  Federal  Reserve  Board  regulations  provide that
additional  capital  may be required to take  adequate  account of,  among other
things,  interest  rate risk and the risks  posed by  concentrations  of credit,
nontraditional activities or securities trading activities. Further, any banking
organization  experiencing or anticipating  significant growth would be expected
to maintain capital ratios,  including  tangible capital positions (i.e., Tier 1
capital less all intangible assets),  well above the minimum levels. The Federal
Reserve Board has not advised the Company of any specific minimum Tier 1 Capital
leverage ratio applicable to it.                                                

     Dividends.  The Company is a  corporation  separate and  distinct  from the
Bank. Most of the Company's revenues are received by it in the form of dividends
paid  by  the  Bank.  Thus,  the  Company's  ability  to  pay  dividends  to its
shareholders  is  indirectly  limited by  statutory  restrictions  on the Bank's
ability  to  pay  dividends.  See  "SUPERVISION  AND  REGULATION  - The  Bank  -
Dividends."  Further, the Federal Reserve Board has issued a policy statement on
the  payment  of  cash  dividends  by  bank  holding  companies.  In the  policy
statement,  the Federal  Reserve  Board  expressed  its view that a bank company
experiencing earnings weaknesses should not pay cash dividends exceeding its net
income or which can only be funded  in ways  that  weakened  the bank  company's
financial health, such as by borrowing.  Additionally, the Federal Reserve Board
possesses  enforcement  powers over bank holding  companies  and their  non-bank
subsidiaries  to  prevent or remedy  actions  that  represent  unsafe or unsound
practices or  violations  of applicable  statutes and  regulations.  Among these
powers is the ability to  proscribe  the payment of  dividends by banks and bank
holding companies. Similar enforcement powers over the Bank are possessed by the
FDIC. The "prompt  corrective  action"  provisions of federal law and regulation
authorizes the Federal Reserve Board to restrict the payment of dividends by the
Company for an insured bank which fails to meet specified capital levels.       

     In addition to the restrictions on dividends imposed by the Federal Reserve
Board,  the Michigan  Business  Corporation  Act provides that  dividends may be
legally declared or paid only if after the  distribution a corporation,  such as
the Company,  can pay its debts as they come due in the usual course of business
and its total assets equal or exceed the sum of its liabilities  plus the amount
that would be needed to satisfy the preferential  rights upon dissolution of any
holders of  preferred  stock  whose  preferential  rights are  superior to those
receiving the  distribution.  The Company is authorized to issue preferred stock
but it has no current plans to issue any such preferred stock.                  

The Bank                                                                        

     General.  The  Bank is a  Michigan  banking  corporation  and  its  deposit
accounts are insured by the Bank  Insurance  Fund (the "BIF") of the FDIC.  As a
BIF-insured  Michigan  chartered  bank, the Bank is subject to the  examination,
supervision,  reporting and enforcement requirements of the Commissioner, as the
chartering  authority for Michigan banks,  and the FDIC, as administrator of the
BIF.  These  agencies and the federal and state laws  applicable to the Bank and
its operations,  extensively  regulate  various aspects of the banking  business
including,   among  other  things,  permissible  types  and  amounts  of  loans,
investments and other activities, capital adequacy, branching, interest rates on
loans and on deposits,  the  maintenance  of  non-interest  bearing  reserves on
deposit accounts, and the safety and soundness of banking practices.            

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     Deposit Insurance. As an FDIC-insured institution,  the Bank is required to
pay deposit  insurance  premium  assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance  premiums,  based upon
their  respective  levels of  capital  and  results of  supervisory  evaluation.
Institutions  classified  as  well-capitalized  (as  defined  by the  FDIC)  and
considered  healthy pay the lowest premium while institutions that are less than
adequately  capitalized  (as defined by the FDIC) and  considered of substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.        

     The Federal Deposit  Insurance Act ("FDIA")  requires the FDIC to establish
assessment  rates at levels which will maintain the Deposit  Insurance Fund at a
mandated  reserve  ratio of not less than 1.25% of estimated  insured  deposits.
Accordingly,  the FDIC established the schedule of BIF insurance assessments for
the first semi-annual assessment period of 1998, ranging from 0% of deposits for
institutions in the lowest risk category to .27% of deposits for institutions in
the highest risk category.                                                      

     The FDIC may  terminate  the deposit  insurance  of any insured  depository
institution if the FDIC determines, after a hearing, that the institution or its
directors have engaged or are engaging in unsafe or unsound  practices,  or have
violated any applicable  law,  regulation,  order,  or any condition  imposed in
writing by, or written  agreement with, the FDIC, or if the institution is in an
unsafe or unsound  condition to continue  operations.  The FDIC may also suspend
deposit  insurance  temporarily  during  the  hearing  process  for a  permanent
termination of insurance if the institution has no tangible capital.            

     Commissioner  Assessments.  Michigan banks are required to pay  supervisory
fees to the Commissioner to fund the operations of the Commissioner.  The amount
of  supervisory  fees paid by a bank is based upon the bank's total  assets,  as
reported to the Commissioner.                                                   

     FICO  Assessments.  Pursuant to federal  legislation  enacted September 30,
1996,  the Bank, as a member of the BIF, is subject to  assessments to cover the
payments on outstanding  obligations of the Financing Corporation ("FICO"). FICO
was created in 1987 to finance the  recapitalization  of the Federal Savings and
Loan Insurance  Corporation,  the predecessor to the FDIC's Savings  Association
Insurance  Fund (the "SAIF") which insures the deposits of thrift  institutions.
Until  January 1, 2000,  the FICO  assessments  made against BIF members may not
exceed  20% of the  amount  of  FICO  assessments  made  against  SAIF  members.
Currently,  SAIF members pay FICO  assessments at a rate equal to  approximately
0.063% of deposits  while BIF members  pay FICO  assessments  at a rate equal to
approximately  0.013% of deposits.  Between  January 1, 2000 and the maturity of
the  outstanding  FICO  obligations  in 2019,  BIF members and SAIF members will
share the cost of the  interest  on the FICO  bonds on a pro rata  basis.  It is
estimated that FICO  assessments  during this period will be less than 0.025% of
deposits                                                                        

     Capital  Requirements.  The  FDIC has  established  the  following  minimum
capital standards for  state-chartered,  FDIC-insured  non-member banks, such as
the Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital
to total assets of 3% for the most highly-rated banks with minimum  requirements
of 4% to 5% for all others, and a risk-based capital requirement consisting of a
minimum  ratio of total  capital to total  risk-weighted  assets of 8%, at least
one-half of which must be Tier 1 capital. Tier 1 capital consists principally of
shareholders'  equity.  These  capital  requirements  are minimum  requirements.
Higher   capital  levels  will  be  required  if  warranted  by  the  particular
circumstances  or risk profiles of individual  institutions.  For example,  FDIC
regulations provide that higher capital may be required to take adequate account
of, among other things, interest rate risk and the risks posed by concentrations
of credit,  nontraditional  activities or securities  trading  activities.  As a
condition to regulatory approval of the Bank's formation,  the Bank was required
to have an  initial  capitalization  sufficient  to  provide  a ratio  of Tier 1
capital to total estimated assets of at least 8% at the end of the third year of
operation.                                                                      

     Federal law provides  the federal  banking  regulators  with broad power to
take  prompt  corrective  action to resolve  the  problems  of  undercapitalized
institutions.  The extent of the  regulators'  powers  depends  on  whether  the
institution  in  question  is  "well  capitalized,"   "adequately  capitalized,"
"undercapitalized,"    "significantly    undercapitalized,"    or    "critically
undercapitalized."  Federal  regulations  define  these  capital  categories  as
follows:                                                                        

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                                                                [Download Table]
                                Total          Tier 1                               
                                Risk-Based     Risk-Based                           
                                Capital Ratio  Capital Ratio  Leverage Ratio        
                                                                                    
Well capitalized                10% or above   6% or above    5% or above           
Adequately capitalized           8% or above   4% or above    4% or above           
Undercapitalized                Less than 8%   Less than 4%   Less than 4%          
Significantly undercapitalized  Less than 6%   Less than 3%   Less than 3%          
Critically undercapitalized               --             --   A ratio of tangible   
                                                              equity to total assets
                                                              of 2% or less         

     As of  December  31,  1998,  each of the  Bank's  ratios  exceeded  minimum
requirements for the well capitalized category.                                 

     Depending  upon the capital  category to which an  institution is assigned,
the regulators' corrective powers include: requiring the submission of a capital
restoration plan; placing limits on asset growth and restrictions on activities;
requiring  the  institution  to  issue   additional   capital  stock  (including
additional  voting  stock)  or to be  acquired;  restricting  transactions  with
affiliates;  restricting  the interest rate the institution may pay on deposits;
ordering a new election of directors of the  institution;  requiring that senior
executive  officers or directors be dismissed;  prohibiting the institution from
accepting deposits from correspondent banks; requiring the institution to divest
certain  subsidiaries;  prohibiting  the  payment of  principal  or  interest on
subordinated debt; and ultimately, appointing a receiver for the institution.   

     In  general,  a  depository  institution  may be  reclassified  to a  lower
category  than is indicated  by its capital  levels if the  appropriate  federal
depository  institution  regulatory  agency  determines  the  institution  to be
otherwise  in an unsafe or  unsound  condition  or to be engaged in an unsafe or
unsound  practice.  This could include a failure by the  institution,  following
receipt  of a  less-than-satisfactory  rating  on its  most  recent  examination
report, to correct the deficiency.                                              

     Dividends.  Under  Michigan  law, the Bank is  restricted as to the maximum
amount  of  dividends  it may pay on its  common  stock.  The  Bank  may not pay
dividends  except out of net profits after deducting its losses and bad debts. A
Michigan state bank may not declare or pay a dividend  unless the bank will have
a surplus  amounting  to at least 20% of its  capital  after the  payment of the
dividend.  If the Bank has a surplus less than the amount of its capital, it may
not  declare or pay any  dividend  until an amount  equal to at least 10% of net
profits for the preceding one-half year (in the case of quarterly or semi-annual
dividends) or full-year (in the case of annual  dividends) has been  transferred
to surplus. A Michigan state bank may, with the approval of the Commissioner, by
vote of  shareholders  owning 2/3 of the stock  eligible  to vote  increase  its
capital  stock by a  declaration  of a stock  dividend,  provided that after the
increase  the  bank's  surplus  equals at least  20% of its  capital  stock,  as
increased.  The Bank may not declare or pay any  dividend  until the  cumulative
dividends on preferred  stock (should any such stock be issued and  outstanding)
have been paid in full. The Bank's  Articles of  Incorporation  do not authorize
the  issuance  of  preferred  stock and there are no current  plans to seek such
authorization.                                                                  

     Federal law generally  prohibits a depository  institution  from making any
capital distribution  (including payment of a dividend) or paying any management
fee  to  its  company  if  the  depository   institution   would  thereafter  be
undercapitalized.  The FDIC may prevent an insured bank from paying dividends if
the  bank is in  default  of  payment  of any  assessment  due to the  FDIC.  In
addition,  the FDIC may prohibit  the payment of dividends by the Bank,  if such
payment is determined,  by reason of the financial  condition of the Bank, to be
an unsafe and unsound banking practice.                                         

     Insider  Transactions.  The Bank is subject to certain restrictions imposed
by the  Federal  Reserve Act on any  extensions  of credit to the Company or its
subsidiaries,  on investments in the stock or other securities of the Company or
its  subsidiaries  and the  acceptance  of the stock or other  securities of the
Company or its  subsidiaries  as collateral for loans.  Certain  limitations and
reporting  requirements  are also placed on  extensions of credit by the Bank to
its  directors  and  officers,  to directors and officers of the Company and its
subsidiaries, to principal shareholders of the Company,                         

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and  to  "related   interests"  of  such   directors,   officers  and  principal
shareholders. In addition, federal law and regulations may affect the terms upon
which any person  becoming a  director  or officer of the  Company or one of its
subsidiaries  or a principal  shareholder  of the Company may obtain credit from
banks with which the Bank maintains a correspondent relationship.               

     Safety and Soundness  Standards.  The federal banking agencies have adopted
guidelines to promote the safety and soundness of federally  insured  depository
institutions.  These  guidelines  establish  standards  for  internal  controls,
information  systems,   internal  audit  systems,  loan  documentation,   credit
underwriting,  interest  rate  exposure,  asset growth,  compensation,  fees and
benefits,  asset quality and earnings.  In general, the guidelines prescribe the
goals to be achieved in each area, and each  institution will be responsible for
establishing its own procedures to achieve those goals. If an institution  fails
to  comply  with  any  of  the  standards  set  forth  in  the  guidelines,  the
institution's  primary federal regulator may require the institution to submit a
plan for achieving and  maintaining  compliance.  The preamble to the guidelines
states that the agencies expect to require a compliance plan from an institution
whose  failure to meet one or more of the  standards is of such severity that it
could  threaten  the safe and sound  operation  of the  institution.  Failure to
submit an acceptable  compliance plan, or failure to adhere to a compliance plan
that has been accepted by the appropriate  regulator,  would constitute  grounds
for further enforcement action.                                                 

     State Bank Activities. Under federal law and FDIC regulations, FDIC-insured
state  banks are  prohibited,  subject to  certain  exceptions,  from  making or
retaining  equity  investments  of a  type,  or  in  an  amount,  that  are  not
permissible   for  a  national  bank.   Federal  law,  as  implemented  by  FDIC
regulations,  also prohibits  FDIC-insured  state banks and their  subsidiaries,
subject to certain  exceptions,  from engaging as principal in any activity that
is not permitted for a national bank or its subsidiary, respectively, unless the
bank meets, and continues to meet, its minimum regulatory  capital  requirements
and the FDIC  determines the activity  would not pose a significant  risk to the
deposit insurance fund of which the bank is a member.  Impermissible investments
and activities must be divested or  discontinued  within certain time frames set
by the FDIC in accordance with federal law. These restrictions are not currently
expected to have a material impact on the operations of the Bank.               

     Consumer  Protection Laws. The Bank's business includes making a variety of
types of loans to  individuals.  In making these  loans,  the Bank is subject to
State usury and regulatory  laws and to various  federal  statutes,  such as the
Equal  Credit  Opportunity  Act,  the Fair Credit  Reporting  Act,  the Truth in
Lending Act, the Real Estate  Settlement  Procedures  Act, and the Home Mortgage
Disclosure  Act, and the  regulations  promulgated  thereunder,  which  prohibit
discrimination, specify disclosures to be made to borrowers regarding credit and
settlement  costs,  and regulate the mortgage loan  servicing  activities of the
Bank,  including  the  maintenance  and  operation  of escrow  accounts  and the
transfer of mortgage loan servicing.  In receiving deposits, the Bank is subject
to extensive  regulation under State and federal law and regulations,  including
the Truth in Savings Act, the Expedited Funds Availability Act, the Bank Secrecy
Act, the Electronic  Funds Transfer Act, and the Federal Deposit  Insurance Act.
Violation of these laws could result in the  imposition of  significant  damages
and fines upon the Bank and its directors and officers.                         

     Branching  Authority.  Michigan banks, such as the Bank, have the authority
under  Michigan  law to  establish  branches  anywhere in the State of Michigan,
subject to receipt of all required regulatory  approvals (including the approval
of the Commissioner and the FDIC).                                              

     Effective  June 1, 1997 (or earlier if expressly  authorized  by applicable
state law), the Riegle-Neal  Interstate Banking and Branching  Efficiency Act of
1994 (the "IBBEA") allows banks to establish  interstate branch networks through
acquisitions of other banks,  subject to certain  conditions,  including certain
limitations  on the  aggregate  amount  of  deposits  that  may be  held  by the
surviving bank and all of its insured  depository  institution  affiliates.  The
establishment  of de novo  interstate  branches or the acquisition of individual
branches  of a  bank  in  another  state  (rather  than  the  acquisition  of an
out-of-state  bank in its  entirety)  is allowed  by IBBEA only if  specifically
authorized by state law. The legislation  allowed individual states to "opt-out"
of interstate branching authority by enacting  appropriate  legislation prior to
June 1, 1997.                                                                   

     Michigan  did not opt out of IBBEA,  and now permits both U.S. and non-U.S.
banks to  establish  branch  offices in  Michigan.  The  Michigan  Banking  Code
permits, in appropriate circumstances and with the approval of the              

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Commissioner, (i) the acquisition of all or substantially all of the assets of a
Michigan-chartered  bank by an FDIC- insured bank,  savings bank, or savings and
loan association  located in another state,  (ii) the acquisition by a Michigan-
chartered  bank of all or  substantially  all of the  assets of an  FDIC-insured
bank,  savings bank or savings and loan  association  located in another  state,
(iii) the consolidation of one or more Michigan-chartered banks and FDIC-insured
banks,  savings banks or savings and loan  associations  located in other states
having laws  permitting  such  consolidation,  with the  resulting  organization
chartered by Michigan,  (iv) the  establishment by a foreign bank, which has not
previously  designated any other state as its home state under the International
Banking Act of 1978, of branches located in Michigan,  and (v) the establishment
or  acquisition of branches in Michigan by  FDIC-insured  banks located in other
states,  the District of Columbia or U.S.  territories or  protectorates  having
laws  permitting   Michigan-chartered   banks  to  establish  branches  in  such
jurisdiction. Further, the Michigan Banking Code permits, upon written notice to
the  Commissioner,  (i) the acquisition by a  Michigan-chartered  bank of one or
more  branches (not  comprising  all or  substantially  all of the assets) of an
FDIC-insured  bank,  savings  bank or savings  and loan  association  located in
another state,  the District of Columbia,  or a U.S.  territory or protectorate,
(ii) the establishment by Michigan-chartered  banks of branches located in other
states,  the District of Columbia,  or U.S.  territories or  protectorates,  and
(iii) the consolidation of one or more Michigan-chartered banks and FDIC-insured
banks,  savings banks or savings and loan associations  located in other states,
with the resulting organization chartered by one of such other states.          

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SELECTED STATISTICAL INFORMATION

The following statistical information is presented in response to the Securities
and  Exchange  Commission's  "Guide 3  Statistical  Disclosures  by Bank Holding
Companies."                                                                     

I.       A&B Distribution of Assets, Liabilities, and Stockholders' Equity      

         The following table details the key components of net interest  income,
         the average daily balance sheet for each year--including the components
         of earning  assets and  supporting  liabilities--the  related  interest
         income on a fully tax equivalent basis and interest expense, as well as
         the average rates earned and paid on these assets and liabilities.  The
         following table sets forth average  consolidated balance sheet data and
         average  yield  and rate data on a tax  equivalent  basis for the years
ended December 31:                                            

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                                                        [Enlarge/Download Table]
                                                                         Year ended December 31,                               
                                                  1998                           1997                           1996           
                                      Average              Yield/    Average             Yield/    Average               Yield/
                                      Balance    Interest  Rate      Balance   Interest   Rate     Balance    Interest   Rate  
                                                                                                                               
Assets:                                                                                                                        
Interest earnings assets:                                                                                                      
  Loans(1)(2)(3)                      $403,563   $39,206   9.71%   $352,079    $35,567   10.10%   $277,464   $27,675    9.97%  
  Taxable investment securities          7,577       686   9.05%     14,801      1,030    6.96%     22,164     1,422    6.42%  
  Nontaxable investment securities(2)    1,000        47   4.70%        900         53    5.89%      1,344       121    9.00%  
  Other investments                      9,776       497   5.08%      7,009        373    5.32%     10,356       437    4.22%  
                                     ---------    ------   -----   --------    -------    -----   --------   -------    -----  
Total                                  421,916    40,436   9.58%    374,789     37,023    9.88%    311,328    29,655    9.53%  

Noninterest earning assets:                                                                                                    
  Cash and due from banks               17,128                       11,800                         13,056                     
  Premises & equipment - net            17,994                       15,797                         13,172                     
  Other assets                          15,687                       13,266                         10,688                     
  Less:  Allowance from loan loss       (6,178)                      (4,999)                        (3,815)                    
                                      --------                     --------                       --------                     
Total                                  466,547                      410,653                        344,429                     
                                       =======                     ========                       ========                     

LIABILITIES &                                                                                                                  
STOCKHOLDERS' EQUITY Interest bearing liabilities:                                                                             
  Savings deposits                     209,864     7,271   3.46%    156,167      5,593    3.58%    148,412     5,391    3.63%  
  Time deposits                        150,685     9,259   6.14%    159,244      9,040    5.68%    114,585     6,233    5.44%  
  Short-term and other borrowings       22,247     1,285   5.78%     21,604      1,265    5.86%     14,864     1,050    7.06%  
                                     ---------   -------   -----   --------    -------    -----   --------     -----    -----  
Total                                  382,796    17,815   4.65%    337,015     15,898    4.72%    277,861    12,674    4.56%  

Non-interest bearing liabilities:                                                                                              
  Demand deposits                       41,393                       35,285                         32,194                     
  Other liabilities                      1,521                        1,993                          3,406                     
  Stockholders' equity                  40,837                       36,360                         30,968                     
                                      --------                     --------                        -------                     
Total                                  466,547                      410,653                        344,429                     
                                       =======                      =======                        =======                     

Net interest income                               22,621                        21,125                        16,981           
Rate spread                                                4.93%                          5.15%                         4.96%  
Net interest margin                                        5.36%                          5.64%                         5.45%  

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(1)      For purposes of these computations,  non-accruing loans are included in
the daily average loan amounts outstanding.                   
(2)      The amount of interest income on  nontaxable  investment securities and
loans has been adjusted to its fully tax equivalent.          
(3)      Interest income on loans includes loan fees.                           

I.C      Interest Income and Expense Volume and Rate Change                     

         An analysis of the changes in net interest income from period-to-period
         is presented  in the  following  table.  The  analysis  highlights  the
         relative  effect of the changes in  interest  income and expense due to
         changes in the average balances of earning assets and  interest-bearing
liabilities and changes in interest rates.                    

                                                        [Enlarge/Download Table]
                                    Analysis of Changes in Net Interest Income                                             
                                               For Year Ended December 31                                                  
                                        (Fully taxable equivalent, in thousands)                                           

                                                     1998 Compared to 1997                     1997 Compared to 1996       
                                                    -----------------------                    ---------------------       
                                                           Amount of                                 Amount of             
                                                      Increase(Decrease)                         Increase(Decrease)        
                                                          Due to (1)                                 Due to (1)            
                                                         ------------                               -----------            
                                            Volume         Rate            Net        Volume         Rate            Net   
                                            ------        ------          -----       ------        ------          ----   
                                                                                                                           
ASSETS:                                                                                                                    
Interest earnings assets:                                                                                                  
  Loans (2)                                   $  5,043     $  (1,404)     $  3,639   $  7,527      $    365       $  7,892 
  Taxable investment securities                   (596)          252          (344)      (525)          133           (392)
  Nontaxable investment                                                                                                    
    Securities (2)                                   5           (11)           (6)       (62)           (6)           (68)
   Other investments                               141           (17)          124       (331)          267            (64)
                                              --------     ---------      --------   --------      --------       -------- 
Total interest earning assets                    4,593        (1,180)        3,413      6,609           759          7,368 
                                              --------     ---------      --------   --------      --------       -------- 

LIABILITIES &                                                                                                              
STOCKHOLDERS' EQUITY Interest bearing liabilities:                                                                         
  Savings deposits                            $  1,866     $    (188)     $  1,678   $    274      $    (72)      $    202 
  Time deposits                                   (502)          721           219      2,522           285          2,807 
  Short-term and other borrowingss                  37           (17)           20        344          (129)           215 
                                              --------     ---------      --------   --------      --------       -------- 
Total interest bearing liabilities            $  1,401     $     516      $  1,917   $  3,140      $     84       $  3,224 
                                              --------     ---------      --------   --------      --------       -------- 
Net change in net interest income             $  3,192     $  (1,696)     $  1,496   $  3,469      $    675       $  4,144 
                                              ========     =========      ========   ========      ========       ======== 

(1)      The change in interest  due to both rate and volume has been  allocated
         to volume and rate changes in  proportion  to the  relationship  of the
absolute dollar amounts of the change in each.                

(2)      The  amount of  interest  income  on  nontaxable  loans and  investment
securities has been adjusted to its fully taxable equivalent. 

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II.A.    Investment Portfolio                                                   

     The following table presents the carrying value of investment securities at
each respective year end.                                                       

                                                        [Enlarge/Download Table]
                                  Investment Securities                                 
                                    As of December 31,                                  
                                      (In thousands)                                    
                                                         AVAILABLE FOR SALE             
                                                         ------------------             
                                            1998                1997            1996    
                                            ----                ----            ----    
                                                                                        
U.S. Treasury and federal agency          $    4,692          $    7,743     $    12,569
State and political subdivisions               1,021                 830             917
Other securities                          $    2,852               1,530           1,705
                                          ----------          ----------     -----------
TOTAL                                     $    8,565          $   10,103     $    15,191
                                          ==========          ==========     ===========

II.B.    Relative Maturities and Weighted Average Interest Rates                

         The following  table presents the maturity  schedule of securities held
         and the weighted average yield of those securities,  as of December 31,
         1998.  Mortgaged  backed  securities are included with other securities
         stratified by maturity dates.  Registrant  holds no securities with one
         issuer in which the aggregate  carrying value of the securities exceeds
ten percent of stockholders' equity.                          

                                                        [Enlarge/Download Table]
                            Maturities of Investment Securities                                
                                  As of December 31, 1998                                      
                         (Fully taxable equivalent, in thousands)                              

                                                                                       WEIGHTED
                          U.S. TREASURY               STATE & POLITICAL     OTHER      AVERAGE 
                        & FEDERAL AGENCY                SUBDIVISIONS     SECURITIES   YIELD (1)
                        ----------------               --------------    ----------  ----------
                                                                                               
One year or less             503                             -0-              -0-      4.59%   
One through five years       -0-                             -0-              -0-          -   
Five through 10 years      3,532                             -0-              -0-      6.85%   
Over 10 years                657                           1,021            2,852      7.71%   

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

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III.A.   Type of Loans                                                          

         The  following   table  sets  forth  the  major   categories  of  loans
         outstanding  for each  category at December 31 for each year  indicated
(in thousands).                                               

                                                        [Enlarge/Download Table]
                               1998          1997          1996           1995         1994 
                               ----          ----          ----           ----         ---- 
                                                                                            
Commercial, financial,                                                                      
     and agricultural        $219,027   $   181,683   $   141,555   $   107,054    $  94,515
Real estate - construction     11,924        10,940        13,897         2,235        1,283
Real estate - mortgage         97,415        95,543        80,592        58,434       58,797
Consumer                       23,160        26,795        31,156        29,918       28,574
Leases                         60,194        57,558        47,686        23,867           --
                            ---------  ------------  ------------  ------------  -----------
TOTAL                        $411,720   $   372,519   $   314,886   $   221,508     $183,169
                             ========   ===========   ===========   ===========     ========

     Included in the above  totals are  approximately  $4.1  million of loans to
Canadian obligors.                                                              

     To the extent the Company  utilizes lease financing for its customers,  the
leases are accounted for as loans.                                              

III.B.   Maturities and Sensitivities of Loans to Changes in Interest Rates     

         The  following  table  presents the  remaining  maturity of total loans
         outstanding  for the  categories  shown at December 31, 1998,  based on
         scheduled  principal  repayments.  The  amounts  due after one year are
       classified according to the sensitivity to changes in interest rates.

                                                        [Enlarge/Download Table]
                                  Maturity and Rate Sensitivity of Selected Loans                  
                                              As of December 31, 1998                              
                                                  (In Thousands)                                   

                                                                Commercial, Financial              
                                                                   and Agricultural    Construction
                                                                                                   
In one year or less..............................                      $  52,068          $  8,178 
After one year but within five years                                                               
     Variable interest rates.....................                         71,446             1,331 
     Fixed interest rates........................                         50,662             2,415 
After five years:                                                                                  
     Variable interest rates.....................                         30,294                -- 
     Fixed interest rates........................                         14,557                -- 
                                                                       ---------        ---------- 
Total............................................                       $219,027           $11,924 
                                                                        ========           ======= 

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III.C.   Risk Elements                                                          

The following table presents a summary of non-performing assets.      

                                                        [Enlarge/Download Table]
                                                As of December 31,                                     
                                                  (In thousands)                                       
                                      Non-Performing Assets and Problem Loans                          

                                                          1998            1997    1996      1995   1994
                                                          ----            ----    ----      ----   ----
                                                                                                       
Nonaccrual loans                                       $2,174          $1,956   $  49   $   579   none 
Accruing loans past due 90 days or more                 1,238             698      68     1,439    142 
Restructured loans                                       none            none    none      none   none 
Interest income that would have been                                                                   
recorded under original terms                             207              93    none      none   none 
Interest income recorded during period                   none            none    none      none   none 

III.D.   Other Interest Bearing Assets.                                         

None                                                          

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IV.A.    Summary of Loan Loss Experience.                                       

         Additional  information  relative to the  allowance  for loan losses is
         presented in the following  table.  This table summarizes loan balances
         at the end of each period and daily  average  balances,  changes in the
         allowance for loan losses arising from loans charged off, recoveries on
         loans  previously  charged off by loan  category,  and additions to the
         allowance  for loan  losses  through  provisions  charged  to  expense.
         Factors  which  influence  management's  judgment  in  determining  the
         provision for loan losses each period  include  establishing  specified
         loss allowances for selected loans (including  large loans,  nonaccrual
         loans,  and  problem  and  delinquent   loans)  and   consideration  of
historical loss information and local economic conditions.    

                                                        [Enlarge/Download Table]
                           Additional Information Relative to Allowance for Loan Losses                              
                                                As of December 31,                                                   
                                                  (In Thousands)                                                     

                                                       1998             1997             1996       1995       1994  
                                                       ----             ----             ----       ----       ----  
                                                                                                                     
Balance of allowance for                                                                                             
     possible loan losses of                                                                                         
     beginning of period                            $   5,600        $   4,591        $   3,137  $   2,350  $     917

Loans charged off:                                                                                                   
Commercial, financial, and                                                                                           
     agricultural                                         406              351            1,012         90         92
Real estate-construction                                    -                -                -          -          -
Real estate-mortgage                                       31               37                8          -         34
Consumer                                                  368              413              357        252        149
Leases                                                      -                -                -         98          -
                                                    ---------        ---------        ---------  ---------  ---------
      TOTAL LOANS CHARGED OFF                             805              801            1,377        440        275
                                                    ---------        ---------        ---------  ---------  ---------
Recoveries of loans previously                                                                                       
     charged off:                                                                                                    
Commercial, financial and                                                                                            
     agricultural                                          48                2               67        336          9
Real estate-construction                                    -                -                -          -          -
Real estate-mortgage                                        -                7                -         22          -
Consumer                                                   70               77               55         98          4
Leases                                                      -               27                -          -          -
                                                    ---------        ---------        ---------  ---------  ---------
      TOTAL RECOVERIES                                    118              113              122        456        193
                                                    ---------        ---------        ---------  ---------  ---------
Net loans charged off                                     687              688            1,255       (16)         82
Provisions charged to expense                           1,199            1,398            2,424        771        330
Allowance from acquisitions                                 -              299              285         -       1,185
                                                    ---------        ---------        ---------  ---------  ---------
     BALANCE AT END OF PERIOD                       $   6,112        $   5,600        $   4,591  $   3,137  $   2,350
                                                    =========        =========        =========  =========  =========
Total loans outstanding at end of period             $411,720         $372,519         $314,996   $221,507   $183,169
Average total loans outstanding for                                                                                  
     the year                                        $403.563         $352,079         $277,464   $202,570   $137,444
Ratio of net charge-offs during period                                                                               
     to average loans outstanding                       0.17%            0.20%            0.45%     -0.01%      0.96%

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IV.B.    Allocation of Allowance for Loan Losses                                

         The  allocation  of the  allowance  for loan losses for the years ended
December 31 is shown on the following table.                  

                                                        [Enlarge/Download Table]
                                                             Allocation of the Allowance for Loan Losses                        
                                                                          As of December 31,                                    
                                                                            (In Thousands)                                      
                                   1998                   1997                 1996                 1995             1994       
                                  ------                 ------               ------               ------           -----       
                                     % of Loans            % of Loans            % of Loans           % of Loans      % of Loans
                                     In Each               in Each               in Each              in Each            in Each
                                     Category              Category              Category             Category          Category
                                     to Total              to Total              to Total             to Total          to Total
                        Amount        Loans     Amount     Loans    Amount       Loans    Amount      Loans     Amount     Loans
                                                                                                                                
Commercial, financial,                                                                                                          
    and agricultural    $  1,789       53.2%    $ 2,873     48.8%   $  2,356     45.0%    $  583      48.3%     $  655     51.6%
Real estate-                                                                                                                    
    construction              65        2.9%          -      2.9%          -      4.4%         -       1.0%          -      0.7%
Real estate-mortgage         622       23.7%         99     25.6%         81     25.6%        59      26.4%        270     32.1%
Consumer                     229        5.6%        416      7.2%        341      9.9%       112      13.5%        125     15.6%
Leases                       880       14.6%        350     15.5%        287     15.1%        23      10.8%          -        - 
Unallocated                2,507         N/A      1,862       N/A      1,526       N/A     2,360       N/A       1,300       N/A
                        --------      ------    -------    ------   --------      ----     -----      ----      ------      ----
                        $  6,112      100.0%    $ 5,600    100.0%   $  4,591      100%     $3,137     100%      $2,350      100%
                        ========      ======    =======    ======   ========      ====     ======     ====      ======      ====

V.       Deposits.                                                              

         The following table  represents the maturities of time  certificates of
deposits and other time deposits of $100,000 or more.         

                                                                [Download Table]
                                 Maturity of COD's Greater than
                                            $100,000           
                                    As of December 31, 1998    
                                         (In Thousands)        
                                                               
3 months or less                          $  6,966             
Over 3 months through 6 months               4,019             
Over 6 months through 12 months              6,698             
Over 12 months                               7,936             
                                          --------             
Total                                      $25,619             
                                          ========             

   Approximately $6.4 million of total deposits are from Canadian customers.

VI.  Return on Equity and Assets                                                

The various ratios are disclosed in Item 6, "Selected financial Data."

VII. Short-Term Borrowings                                                      

     The  Company's   short-term   borrowings  consist  only  of  federal  funds
     purchased.  Following  are the  balances of federal  funds  purchased as of
December 31 of each year shown.                                       

                                                                [Download Table]
  1998                           1997                      1996   
  ----                           ----                      ----   
                                                                  
$   -0-                       $ 1,195,000              $ 5,000,000

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ITEM 2:  Properties                                                             

The Registrant conducts business from 30 banking and administrative  offices. Of
these, 21 are owned in fee simple covering approximately 95,000 square feet, and
nine are leased  covering  approximately  15,000 square feet.  The  Registrant's
headquarters,  which were  remodeled  in 1996,  are  located at 130 South  Cedar
Street,  Manistique,  Michigan  49854.  This  facility  is used for  centralized
support services and corporate administration. Other owned and leased properties
are banking branches. All of the facilities are believed to be in good condition
and adequate to meet the Registrant's present needs.                            

ITEM 3:  Legal Proceedings                                                      

As the date hereof, there were no material pending legal proceedings, other than
routine litigation incidental to the business of banking to which the Registrant
or any of its  subsidiaries  is a party of or which any of its properties is the
subject.                                                                        

ITEM 4:  Submission of Matters to a Vote of Security Holders                    

No matters were submitted  during the fourth quarter of fiscal 1998 to a vote of
the Registrant's stockholders.                                                  

ADDITIONAL ITEM - EXECUTIVE OFFICERS                                            

                                                                [Download Table]
         Name          Age               Position                        
                                                                         
Ronald G. Ford          51  Chairman, President and C.E.O. of Registrant,
                            Director of North Country Bank and Trust, and
                            Director of Registrant                       
John Lindroth           43  Vice Chairman and Director of North Country  
                            Bank and Trust and Director of the Registrant
Michael C. Henricksen   56  Chairman and Director of the Registrant and  
                            Director of North Country Bank and Trust     
Thomas G. King          46  Vice Chairman and Director of the Registrant 
                            and Director of North Country Bank and Trust 
Sherry L. Littlejohn    38  President and C.O.O. of North Country Bank   
                            and Trust and Executive Vice President of the
                            Registrant                                   

The foregoing  officers  serve at the pleasure of the Board of Directors and are
appointed by the Board annually.  There are no  arrangements  or  understandings
between  any  officer  and any other  person  pursuant  to which the officer was
elected.                                                                        

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS                       

The  discussions  in this  Report  on Form 10-K and the  documents  incorporated
herein by reference  which are not  statements  of  historical  fact  (including
statements  in the future tense and those which include terms such as "believe,"
"will,"  "expect," and  "anticipate")  contain  forward-looking  statements that
involve  risks and  uncertainties.  The Company's  actual  future  results could
materially  differ from those discussed.  Factors that could cause or contribute
to such differences  include, but are not limited to, acceptance of new products
and services,  the  Company's  future  lending and  collection  experience,  the
effects of  acquisitions,  competition from other  institutions,  changes in the
banking industry and its regulation,  needs for technological  change, and other
factors  including  those  discussed  in Item 1 above in this  Report and in the
Management's  Discussion  and  Analysis  in Item 7, as well as  those  discussed
elsewhere in this Report and the documents incorporated herein by reference.    

 PART II

ITEM 5: Market for Registrant's Common Stock and Related Security Holder Matters

There is no active  market  for the  Registrant's  common  stock and there is no
published  information  with respect to its market price.  There are  occasional
direct sales by shareholders of which the Registrant's  common stock has sold at
a premium to book value. From January 1, 1997,  through December 31, 1998, there
were, so far as the Registrant's  management  knows,  approximately 178 sales of
shares of the  Registrant's  common  stock,  involving a total of  approximately
183,265  shares.  The  price  was  reported  to  management  in  most  of  these
transactions,  and  management  has no way of  confirming  the prices which were
reported.  During this period, the highest price known to be paid was $23.00 per
share in the last quarter of 1998,  and the lowest price was $11.00 in the first
quarter of 1997. To the knowledge of  management,  the last sale of common stock
occurred on March 17,  1999,  at a price of $25.00.  As of March 1, 1999,  there
were 1,816 shareholders of record of the Registrant's common stock.             

The  following  table sets  forth the range of high and low sales  prices of the
Registrant's  common  stock  during  1997 and 1998,  based on  information  made
available to management. Although management is not aware of any transactions at
higher or lower prices,  there may have been  transactions at prices outside the
ranges  listed in the table.  All share prices  reflect the 3-for-1  stock split
effective August 25, 1998.                                                      

                                                                [Download Table]
                                  Sales Price Per Share                  
                        1998                                 1997        
                        ----                                 ----        
                 High           Low                   High           Low 
                                                                         
First Quarter   $19.00        $16.34                 $11.00        $11.00
Second Quarter  $20.67        $19.06                 $12.34        $11.67
Third Quarter   $22.00        $20.67                 $16.34        $15.67
Fourth Quarter  $23.00        $22.00                 $16.34        $16.34

The holders of the Registrant's  common stock are entitled to dividends when, as
and if declared by the Board of Directors of the Registrant out of funds legally
available for that purpose.  Dividends have been paid on a quarterly  basis.  In
determining  dividends,  the Board of Directors considers the earnings,  capital
requirements and financial  condition of the Registrant and its subsidiary bank,
along with other relevant  factors.  The Registrant's  principal source of funds
for cash dividends is the dividends paid by the subsidiary  bank. The ability of
the Registrant and the subsidiary bank to pay dividends is subject to regulatory
restrictions and requirements.                                                  

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The following  table  presents cash  dividends paid by quarter for 1998 and 1997
(as adjusted to reflect the 3-for-1 stock split effective August 25, 1998):     

                                                                [Download Table]
                          Dividends Paid        
                    1998                   1997 
                                                
First Quarter   $  .0438                $  .0408
Second Quarter     .0446                   .0417
Third Quarter      .0450                   .0425
Fourth Quarter     .0450                   .0429

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ITEM 6:  Selected Financial Data                                                

                                                        [Enlarge/Download Table]
For the Year ended December 31,                                                                      
(In thousands except per share data)                                                                 

                                           1998         1997          1996         1995        1994  
                                           ----         ----          ----         ----        ----  
                                                                                                     
  Interest income                      $  38,498    $  35,964     $  28,724    $  22,100   $  13,798 
  Interest expense                       (17,815)     (15,898)      (12,674)      (9,561)     (6,053)
                                       ---------   ----------    ----------    ---------   --------- 
  Net interest income                     20,683       20,066        16,050       12,539       7,745 

  Net security gains (losses)                 44          (60)           (8)         (10)         75 
  Provision for loan losses               (1,199)      (1,398)       (2,424)        (771)       (330)
  Other income                             2,606        1,698         1,368        1,373       1,037 
  Other expenses                         (16,603)     (14,797)      (11,609)      (9,368)     (6,101)
                                       ---------   ----------   -----------    ---------   --------- 
  Income before income taxes               5,531        5,509         3,377        3,754       2,426 

  Cumulative effect of change                                                                        
   in accounting for income taxes                                                                 13 
  Provisions for income taxes               (970)      (1,403)         (543)      (1,084)       (458)
                                      ----------   ----------    ----------    ---------   --------- 
  Net income                          $    4,561   $    4,106    $    2,834    $   2,670   $   1,968 
                                      ==========   ==========    ==========    =========   ========= 

Per Share Data:                                                                                      
  Net income - Basic                  $     0.65   $     0.58    $     0.43   $     0.42   $    0.38 
  Net income - Diluted                      0.64         0.57          0.43         0.42        0.38 
  Cash dividends                            0.17         0.16          0.14         0.14        0.07 
  Book value                                5.54         5.13          4.60         3.96        3.57 

Ratios based on net income:                                                                          
  Return on average equity                11.18%       11.29%         9.15%       11.65%      14.26% 
  Return on average assets                 0.98%        1.00%         0.82%        1.00%       1.01% 
  Dividend payout ratio                   27.43%       28.79%        32.11%       31.97%      17.77% 
  Shareholders' average equity                                                                       
  as a percent of average assets           8.75%        8.85%         8.99%        8.57%       7.11% 

Financial Condition:                                                                                 
  Assets                                 471,381      421,434       367,160      282,791     253,098 
  Loans                                  411,720      372,519       314,886      221,507     183,168 
  Securities                               8,565       10,103        15,191       25,645      35,796 
  Deposits                               404,961      360,549       305,939      244,407     223,436 
  Other borrowings                        23,270       19,628        20,441       10,087       3,552 
  Shareholders' equity                    39,469       36,592        32,386       25,006      22,483 

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ITEM 7:  Management's Discussion and Analysis of Financial Condition and Results
of Operations                                                 

Incorporated  by reference to the  Management's  Discussion  and Analysis in the
Company's 1998 Annual Report to Shareholders and contained in Exhibit 13 to this
Report on Form 10-K.                                                            

ITEM 7A:  Quantitative and Qualitative Disclosures About Market Risk            

The  Company's  primary  market risk  exposure  is interest  rate risk and, to a
lesser extent, liquidity risk and foreign exchange risk. The Company has limited
agricultural-related  loan assets and therefore has minimal significant exposure
to changes in commodity  prices.  Any impact that  changes in foreign  exchanges
rates and  commodity  prices  would  have on  interest  rates are  assumed to be
insignificant.                                                                  

Interest  rate risk is the  exposure of the  Company's  financial  condition  to
adverse  movements in interest rates.  The Company derives its income  primarily
from the excess of interest  collected on its  interest-earning  assets over the
interest  paid on its  interest-bearing  liabilities.  The rates of interest the
Company  earns  on  its  assets  and  owes  on  its  liabilities  generally  are
established  contractually  for a period of time.  Since market  interest  rates
change  over time,  the Company is exposed to lower  profitability  if it cannot
adapt to interest rate changes. Accepting interest rate risk can be an important
source  of  profitability  and  shareholder  value;  however,  excess  levels of
interest rate risk could pose a significant threat to the Company's earnings and
capital base.  Accordingly,  effective risk management  that maintains  interest
rate risk at prudent levels is essential to the Company's safety and soundness. 

Evaluating the exposure to changes in interest rates includes assessing both the
adequacy of the process used to control  interest rate risk and the quantitative
level of exposure.  The Company's interest rate risk management process seeks to
ensure that appropriate policies, procedures, management information systems and
internal  controls are in place to maintain interest rate risk at prudent levels
with  consistency  and  continuity.  In  evaluating  the  quantitative  level of
interest  rate risk the Company  assesses  the  existing  and  potential  future
effects of changes  in  interest  rates on its  financial  condition,  including
capital adequacy, earnings, liquidity and asset equity.                         

The table below measures current maturity levels of interest-earning  assets and
interest-bearing liabilities, along with average stated rates and estimated fair
values at December 31, 1998:                                                    

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                                                        [Enlarge/Download Table]
                     Principal/Notional Amount Maturing in:                                                              
                                                                                                                   Fair  
                                                                                                                  Value  
                                   1999          2000        2001     2002          2003    Thereafter   Total   12/31/98
                                                                        (In thousands)                                   
                                                                                                                         
Rate Sensitive Assets                                                                                                    
Federal funds sold               $   6,048            -            -       -            -        -      $ 6,048   $ 6,048
  Average interest rate               5.1%            -            -       -            -        -         5.1%          
Fixed interest rate                                                                                                      
  securities                           502                                                   8,063        8,565     8,565
  Average interest rate                 0%            -            -       -            -     7.3%         6.4%          
Equity securities                    3,145            -            -       -            -        -        3,145     3,145
  Average interest rate               8.3%            -            -       -            -        -         8.3%          
Fixed interest rate loans           37,250       19,707       21,701  40,727            -   61,232      180,607   182,682
  Average interest rate               8.7%         8.5%         8.8%    8.0%            -     7.0%         8.2%          
Variable interest rate loans        35,527       14,724        9,498  17,642       28,275  125,447      231,113   231,927
  Average interest rate               9.4%         9.5%         9.4%    9.2%         9.1%     8.6%         8.9%          

Rate Sensitive Liabilities                                                                                               
Savings, money market                                                                                                    
  and interest-bearing                                                                                                   
  demand                          $213,792            -            -       -            -        -      213,792   213,792
  Average interest rate               1.8%            -            -       -            -        -         1.8%          
Time deposits                      106,043       26,484       12.846   3,710            -        -      149,093   150,466
  Average interest rate               5.4%         5.8%         5.8%    5.6%            -        -         5.7%          
Fixed interest rate other                                                                                                
  borrowings                           604          643          686     736          789    6,026        9,482     8,592
  Average interest rate               5.9%         5.9%         5.9%    5.9%         5.9%     5.9%         5.9%          
Variable interest rate -                                                                                                 
  other borrowings                   3,788            -            -       -            -   10,000       13,788    13,788
  Average interest rate               5.2%            -            -       -            -     5.5%         5.4%          

In  addition  to changes in  interest  rates,  the level of future net  interest
income  is also  dependent  on a number of  variables,  including:  the  growth,
composition  and  levels  of  loans,  deposits,  and other  earning  assets  and
interest-bearing  liabilities  economic and  competitive  conditions;  potential
changes in lending, investing and deposit strategies;  customer preferences; and
other factors.                                                                  

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ITEM 8:  Financial Statements                                                   

Incorporated by reference to the Registrant's  Consolidated Financial Statements
for the years ended  December  31,  1998,  1997 and 1996 in the  Company's  1998
Annual Report to Shareholders and contained in Exhibit 13 to this Report on Form
10-K.                                                                           

ITEM 9:  Changes in and Disagreements With Accountants and Financial Disclosure 

There have been no disagreements with Accountants.                              

PART III

ITEM 10:  Directors and Executive Officers of the Registrant                    

The  information  set forth on page 2,  under  the  caption  "Information  About
Directors and Director Nominees" of the Registrant's  definitive Proxy Statement
dated March 1, 1999, is hereby incorporated by reference.                       

ITEM 11:  Executive Compensation                                                

Information relating to compensation of the Registrant's  executive officers and
directors  is  contained  on pages 3 - 7, under the  captions  "Remuneration  of
Directors"  and  "Compensation  of  Executive  Officers,"  in  the  Registrant's
definitive  Proxy Statement  dated March 1, 1999, and is incorporated  herein by
reference.                                                                      

ITEM 12:  Security Ownership of Certain Beneficial Owners and Management        

Information  relating to security  ownership  of certain  beneficial  owners and
management is contained on page 8, under the caption "Ownership of Common Stock"
in the  Registrant's  definitive  Proxy  Statement  dated March 1, 1999,  and is
incorporated herein by reference.                                               

ITEM 13:  Certain Relationships and Related Transactions                        

Information  relating  to certain  relationships  and  related  transactions  is
contained on page 7, under the caption  "Indebtedness of and  Transactions  With
Management" in the Registrant's  definitive Proxy Statement dated March 1, 1999,
and is incorporated herein by reference.                                        

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 PART IV

ITEM 14 - Exhibits, Financial Statements, Schedules, and Reports on Form 8-K    

(a)      Financial Statements.                                                  

        1. The following documents are filed as part of Item 8 of this report:

Report of Independent Auditors              
                Consolidated Balance Sheets as of December 31, 1998 and 1997
                  Consolidated Statements of Income for the years ended December
31, 1998, 1997, and 1996                    
                  Consolidated Statements of Changes in Shareholders  Equity for
     the years ended December 31, 1998, 1997, and 1996
                  Consolidated   Statements  of Cash  Flows for the years  ended
December 31, 1998, 1997, and 1996           
Notes to Consolidated Financial Statements  

         2.       Schedules to the consolidated financial statements required by
                  Article 9 of Regulation S-X are not required under the related
                  instructions  or are  inapplicable,  and  therefore  have been
omitted.                                    

         3.       The  following  exhibits  are  filed  as part of this  report:
                  Reference  is made to the  exhibit  index  which  follows  the
signature page of this report.              

                  The Registrant  will furnish a copy of any exhibits  listed on
                  the Exhibit Index to any shareholder of the Registrant without
                  charge upon  written  request of Sherry L.  Littlejohn,  First
                  Manistique Corporation,  130 South Cedar Street, P.O. Box 369,
Manistique, Michigan 49854.                 

(b)      Reports on Form 8-K                                                    

         During  the last  quarter of the period  covered  by this  report,  the
Registrant filed no Current Reports on Form 8-K.              

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SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, dated March 19, 1999. 

         NORTH COUNTRY FINANCIAL CORPORATION

/s/ Ronald G. Ford        
Ronald G. Ford            
          Chairman and Chief Executive Officer
   (Principal Executive Officer)

/s/ Sherry L. Littlejohn  
Sherry L. Littlejohn      
                           Executive Vice President, Chief Operating Officer and
Treasurer                 
                  (Principal Financial and Accounting Officer)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed  below on March 19,  1999,  by the  following  persons on
behalf of the Registrant and in the capacities  indicated.  Each director of the
Registrant,  whose signature  appears below,  hereby appoints Ronald G. Ford and
Michael C. Henricksen,  and each of them severally, as his attorney-in-fact,  to
sign in his name and on his behalf, as a director of the Registrant, and to file
with the Commission any and all Amendments to this Report on Form 10-K.         

Signature                                   

/s/ Stanley J. Gerou II                                                         
Stanley J. Gerou II - Director                  C. Ronald Dufina - Director     

/s/ Thomas G. King                                                              
Thomas G. King - Director                       Michael C. Henricksen - Director

/s/ John Lindroth                               /s/ John P. Miller              
John Lindroth - Director                        John P. Miller - Director       

                                  /s/ Ronald G. Ford
Charles B. Beaulieu - Director                  Ronald G. Ford - Director       

                                     /s/ Sherry Littlejohn
Bernard A. Bouschor - Director                  Sherry Littlejohn - Director    

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 EXHIBIT INDEX
Number    Exhibit                                                               

3(a)      Amendment to Restated Articles of  Incorporation.  Previously filed as
          an  Exhibit to the  Registrant's  Registration  statement  on Form S-2
 (Registration No. 333-06017). Here incorporated by reference.

3(b)      Restated Articles of Incorporation.  Previously filed as an exhibit to
          Registrant's Report on Form 10-K for the year ended December 31, 1995.
Here incorporated by reference.                             

3(c)      Amended and  Restated  Bylaws.  Previously  filed as an exhibit to the
          Registrant's Report on Form 10-K for the year ended December 31, 1995.
Here incorporated by reference.                             

4(a)      Dividend  Reinvestment  Plan.  Previously  filed as an  exhibit to the
          Registrant's  Registration  Statement  on Form F-3  (Registration  No.
033-61533). Here incorporated by reference.                 

4(b)      A specimen stock certificate of the Registrant's Common Stock filed as
          exhibit   to   Registrant's   Registration   Statement   on  Form  S-2
 (Registration No. 333-06017). Here incorporated by reference.

10(a)     Stock Option Plan.  Previously  filed in the  Registrant's  definitive
          proxy statement for its annual meeting of shareholders  held April 21,
1994. Here incorporated by reference.                       

10(b)     North  Country  Financial   Corporation  Executive  and  Board  Member
          Restricted Stock Plan. Previously filed in the Registrant's definitive
          proxy statement for its annual meeting of shareholders  held April 18,
1995. Here incorporated by reference.                       

10(c)     Employment Contract between North Country Bank and Trust and Ronald G.
          Ford.  Previously  filed as an exhibit to Registrant's  Report on Form
          10-K for the year  ended  December  31,  1995.  Here  incorporated  by
reference.                                                  

10(d)     Amendment to Employment  Contract between North Country Bank and Trust
          and Ronald G.  Ford.  Previously  filed as an exhibit to  Registrant's
          Report  on Form  10-K for the  year  ended  December  31,  1996.  Here
incorporated by reference.                                  

10(e)     Deferred Compensation, Deferred Stock, and Current Stock Purchase Plan
          for  Nonemployee  Directors.  Previously  filed  in  the  Registrant's
          definitive proxy statement for its annual meeting of shareholders held
April 23, 1996. Here incorporated by reference.             

10(f)     North  Country   Financial   Corporation  Stock   Compensation   Plan.
          Previously  filed as an exhibit to the  Registrant's  definitive proxy
          statement for its annual meeting of  shareholders to be held April 15,
1997. Here incorporated by reference.                       

10(g)     North Country Financial Corporation 1997 Directors' Stock Option Plan.
          Previously  filed  as an  exhibit  to  Registrant's  definitive  proxy
          statement for its annual meeting of shareholders  held April 15, 1997.
Here incorporated by reference.                             

13        1998 Annual Report to  Shareholders.  This  exhibit,  except for those
          portions  expressly  incorporated  by  reference  in this  filing,  is
          furnished  for  the   information   of  the  Securities  and  Exchange
Commission and is not deemed "filed" as part of this filing.

21        Subsidiaries of the Registrant.  Filed herewith.                      

23.       Consent of Independent Public Accountants.                            

27        Financial  Data  Schedule  -  year  ended  December  31,  1998.  Filed
herewith.                                                   

-27-

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EXHIBIT 13                                                                      

 North

 Country

 Financial

 Corporation

1998

Annual

Report

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Mission Statement                                                               

 NORTH COUNTRY FINANCIAL CORPORATION
NORTH COUNTRY BANK AND TRUST
 FIRST NORTHERN SERVICES CORPORATION
 FIRST MANISTIQUE AGENCY CORPORATION
 FIRST RURAL RELENDING CORPORATION
 NCB REAL ESTATE COMPANY

 MISSION STATEMENT

NORTH  COUNTRY BANK AND TRUST OR PRECEDENT  HAS BEEN AN  INDEPENDENT  BANK SINCE
1934. OUR MISSION IS TO SERVE OUR TRADING AREA WITH QUALITY  FINANCIAL  SERVICES
AND PRODUCTS.  TO PROVIDE FOR PROFITABILITY WHICH WILL ENHANCE THE LIFESTYLES OF
OUR CUSTOMERS,  SHAREHOLDERS  AND  EMPLOYEES.  TO CONTINUE TO GROW, AND MAINTAIN
EXCELLENCE AND PROVIDE OUR TRADING AREA WITH INNOVATIVE BANKING SERVICES.       

AS AN INDEPENDENT COMMUNITY BANK, WE WILL STRIVE TO FOSTER ECONOMIC VITALITY AND
CIVIC WELL BEING IN THE  COMMUNITIES  WE SERVE.  IT IS OUR BELIEF  THAT A STRONG
COMMUNITY  IS A  PREREQUISITE  TO A STRONG  BANK.  BASED ON OUR BELIEF THAT AS A
"COMMUNITY" BANK WE BEST SERVE OUR SHAREHOLDERS,  CUSTOMERS AND COMMUNITIES,  IT
IS OUR INTENTION TO MAINTAIN THE INDEPENDENCE OF NORTH COUNTRY BANK AND TRUST.  

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                                                               Table of Contents

Table of Contents                                                               

To Our Shareholders............................................................1

Comparative Highlights.........................................................2

Five Year Comparisons..........................................................3

Report of Independent Auditors.................................................6

Consolidated Balance Sheets....................................................7

Consolidated Statements of Income..............................................8

Consolidated Statements of Changes in Shareholders' Equity.....................9

Consolidated Statements of Cash Flows.........................................10

Notes to Consolidated Financial Statements....................................13

Selected Financial Data.......................................................43

Management's Discussion and Analysis of Financial                               
  Condition and Results of Operations.........................................44

Directors.....................................................................56

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To Our Shareholders                                                             

Dear Shareholder:                                                     

     Growth is a proud  tradition of North Country  Financial  Corporation.  For
     another  consecutive  year,  assets,  deposits,  net  loans,  shareholders'
     equity,  book  value  per  share,  net  income  and  dividends  paid to our
shareholders have all increased.                                      

     The market  value of your North  Country  Financial  Corporation  stock has
     increased almost 32.95% during the last year. The continued appreciation of
     your stock brings us one step closer to our long-term goal of 18% return on
beginning equity.                                                     

     We continue to be a leader in the financial  industry in Northern Michigan.
     Internally, we have continued to improve the efficiency of our consolidated
     loan  administration  and credit  departments.  To provide  more  effective
     customer  service,  we have  improved  our  central  call  center  and have
     provided our call center professionals with superior training to assist any
     customer.  Personal bankers and  relationship  bankers are in place at each
     office to give  customers  personalized  service  for all  their  financial
needs.                                                                

     Externally,  we have expanded our current business operations once again in
     1998 to include two new  branches,  located in Escanaba  and  Gaylord.  Our
     market presence will be further expanded early in 1999 with the addition of
     two new branch  acquisitions in the lower peninsula.  In addition to branch
     expansion,  we continue to seek new business opportunities that will result
     in increased  market share,  value added  services for our  customers,  and
increased shareholder value.                                          

     On March 10,  1998,  North  Country  Bank and North  Country Bank and Trust
     merged.  All offices  across the Upper  Peninsula  were named North Country
     Bank and Trust.  Our  shareholders  voted in 1998 to change the corporation
     name to North Country  Financial to more closely  identify the  corporation
     with  its  bank  subsidiary   North  Country  Bank  and  Trust.   This  was
particularly important as we continue to expand our market area.      

     On behalf of the Board of Directors,  we express our  appreciation  to you,
     our shareholders,  for your continued  confidence.  Together we can achieve
the extraordinary.                                                    

_______________________      __________________________      _________________
  Ronald G. Ford               Michael C. Henricksen          Thomas G. King
President and C.E.O.                  Chairman                 Vice-Chairman

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                                                          Comparative Highlights

                                                                [Download Table]
BALANCE SHEET STATISTICS       1998          1997        % Change
                                                                 
Assets                       $471,380,858  $421,434,370    11.85%
Deposits                      404,961,333   360,548,685    12.32 
Net Loans                     405,608,135   366,919,003    10.54 
Shareholders' Equity           39,469,365    36,592,073     7.86 
Shares of Stock Outstanding     7,130,760     7,138,470    (0.11)
Book Value per Share                 5.54          5.13     7.99 
                                                                [Download Table]
OPERATING STATISTICS                                        
                                                            
Total Income                $41,148,862  $37,602,253   9.43%
Total Operating Expenses     35,617,742   32,093,177  10.98 
Net Income                    4,561,190    4,105,659  11.10 
Basic Earnings Per Share           0.65         0.58  12.07 
Diluted Earnings Per Share         0.64         0.57  12.28 

DIVIDEND SUMMARY                                              
(Cash Dividend paid per Common Share)                         

                                                                [Download Table]
Quarter Ending                                                         
                                                                       
   March 31                                   .04                   .04
   June 30                                    .04                   .04
   September 30                               .04                   .04
   December 31                                .05                   .04

     The  above  summary   should  be  read  in  connection   with  the  related
consolidated financial statements and notes included elsewhere in this report.  

BUSINESS OF THE CORPORATION                                           

     North Country  Financial  Corporation is a registered  bank holding company
formed under the Bank Holding  Company Act of 1956,  as amended.  The  principal
assets of the Corporation are its ownership of all the outstanding capital stock
of North Country Bank and Trust,  Manistique,  Michigan, First Manistique Agency
Corporation,   First  Northern  Services  Corporation,   First  Rural  Relending
Corporation and NCB Real Estate  Company.  The subsidiary bank is engaged in the
commercial banking business and provides a full range of banking services. First
Manistique  Agency is  engaged  in the  selling  of  insurance.  First  Northern
Services operates a real estate appraisal  business.  First Rural Relending is a
non profit lending corporation.  NCB Real Estate Company owns several properties
used by North Country Bank & Trust.                                             

FORM 10-K                                                             

     A copy of the Annual Report to the  Securities  and Exchange  Commission on
Form 10-K is available  without charge by writing  Shirley Young,  North Country
Financial Corporation, P.O. Box 369, Manistique, Michigan 49854.                

MARKET SUMMARY                                                        

     The common stock of North Country Financial  Corporation has been traded in
private  sales since October  1976.  The  Corporation  has  approximately  1,786
shareholders of record, as of January 22, 1999.                                 

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Five Year Comparisons                                                           
ASSETS                                  
                    Total assets on a consolidated  basis increased by 11.85% in
[GRAPHIC OMITTED]   1998 to a record  $471,380,858.  Total assets have increased
                    over $218,000,000  since the end of 1994, an increase of 86%
in four years.                          

LOANS                                   
                    Total net loans  increased  10.54% to  $405,608,135 in 1998.
                    Loan  demand is strong  and our  primary  lending  objective
[GRAPHIC OMITTED]   continues  to  be  one  of  selecting  the  highest  quality
                    credits.  Total loan losses have  remained at an  acceptable
                    level,  and we continue  to  maintain a loan loss  allowance
                    above regulatory  guidelines.  The allowance for loan losses
                    totaled  $6,112,334  at the end of 1998, an increase of over
                    $500,000   over  1997.  We  expect  strong  loan  demand  to
                    continue,  with the majority  being  commercial and business
           loans, which represent 67.8% of the loan portfolio.

DEPOSITS                                
                    Total deposits increased by 12.32% to $404,961,333. In 1998,
[GRAPHIC OMITTED]   we paid our  depositors  interest  of more than  $16,500,000
  which goes back into our regional economy.

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                                                           Five Year Comparisons

INVESTMENT SECURITIES                   
                    Our portfolio of debt and equity securities decreased 15.22%
[GRAPHIC OMITTED]   during  1998 to  $8,565,282.  This  decrease is based on our
                    strategy  to  employ  more  of our  resources  in  the  loan
                    portfolio  in order to maximize  the  earnings on our assets
and the  return  to the  shareholder.   

SHAREHOLDERS' EQUITY                    
                    During 1998,  $2,877,292 was added to shareholders'  equity,
[GRAPHIC OMITTED]   increasing   total  equity  by  7.86%.  In  addition,   cash
                    dividends of $0.17 per share,  or  $1,251,224,  were paid to
                    our shareholders, an increase of 5.86% over 1997. Book value
                    per share increased to $5.54 compared to $5.13 at the end of
1997.                                   

NET INCOME                              
                    Net income for 1998 was $4,561,190. Basic earnings per share
[GRAPHIC OMITTED]   increased  to $0.65  in 1998  from  $0.58 in 1997,  a 12.07%
increase.                               

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Report of Independent Auditors                                                  

INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS OF THE
 NORTH COUNTRY FINANCIAL CORPORATION
MANISTIQUE, MICHIGAN

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                                                  Report of Independent Auditors

INDEPENDENT AUDITOR'S REPORT

Board of Directors and Shareholders                                             
North Country Financial Corporation                                             
Manistique, Michigan                                                            

We have audited the  accompanying  consolidated  balance sheets of North Country
Financial Corporation and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated  statements of income, changes in shareholders' equity, and
cash  flows  for the  years  then  ended.  These  financial  statements  are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial  statements based on our audits.  The consolidated
statements  of income,  changes in  shareholders'  equity and cash flows for the
year ended December 31, 1996,  were audited by other auditors whose report dated
February 14, 1997, expressed an unqualified opinion on those statements.        

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.          

In our opinion, the 1998 and 1997 financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of North  Country
Financial  Corporation  and  Subsidiaries  at December 31, 1998 and December 31,
1997,  and the  results of their  operations  and their cash flows for the years
then ended in conformity with generally accepted accounting principles.         

                                              /s/ Wipfli Ullrich Bertelson LLP
                                          Wipfli Ullrich Bertelson LLP

January 29, 1999                                                                
Appleton, Wisconsin                                                             

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Consolidated Balance Sheets                                                     

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997

                                                        [Enlarge/Download Table]

                                                           ASSETS                               
                                                                      1998             1997     
                                                                                                
Cash and due from banks                                           $  16,592,703   $   9,338,168 
Federal funds sold                                                    6,047,743       1,805,000 
                                                                  -------------   ------------- 
     Cash and cash equivalents                                       22,640,446      11,143,168 

Investment securities available for sale - Stated at fair value       8,565,282      10,102,893 

Total loans                                                         411,720,469     372,518,549 
     Allowance for loan losses                                       (6,112,334)     (5,599,546)
                                                                  -------------   ------------- 
Net loans                                                           405,608,135     366,919,003 

Premises and equipment                                               17,938,058      17,477,345 
Other assets                                                         16,628,937      15,791,961 
                                                                  -------------   ------------- 
TOTAL ASSETS                                                      $ 471,380,858   $ 421,434,370 
                                                                  =============   ============= 

                      LIABILITIES AND SHAREHOLDERS' EQUITY                                      
Liabilities:                                                                                    
     Non-interest-bearing deposits                                $  42,076,502   $  33,353,597 
     Interest-bearing deposits                                      362,884,831     327,195,088 
                                                                  -------------   ------------- 
     Total deposits                                                 404,961,333     360,548,685 

     Short-term borrowings                                                  -0-       1,195,000 
     Other borrowings                                                23,270,161      19,628,178 
     Other liabilities                                                3,679,999       3,470,434 
                                                                  -------------   ------------- 
         Total liabilities                                          431,911,493     384,842,297 
                                                                  -------------   ------------- 
Shareholders' equity:                                                                           
     Preferred stock - No par value:                                                            
        Authorized  500,000 shares,                                                             
          no shares outstanding                                                                 
     Common stock - No par value:                                                               
        Authorized - 18,000,000 shares                                                          
        Issued and outstanding - 7,130,760                                                      
          and 7,138,470 shares                                                                  
          at December 31, 1998 and 1997, respectively                19,436,025      19,916,026 
     Retained earnings                                               19,989,247      16,679,281 
     Accumulated other comprehensive income (deficit)                    44,093          (3,234)
                                                                 --------------   ------------- 
         Total shareholders' equity                                  39,469,365      36,592,073 
                                                                 --------------   ------------- 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                       $  471,380,858     421,434,370 
                                                                 ==============   ============= 

See accompanying notes to consolidated financial statements.

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                                               Consolidated Statements of Income

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1998, 1997 and 1996

                                                        [Enlarge/Download Table]
                                                       1998             1997          1996     
Interest income:                                                                               
                                                                                               
     Interest and fees on loans                      $ 37,283,850  $ 34,525,569   $ 26,785,141 
     Interest on investment securities:                                                        
         Taxable                                          685,870     1,030,414      1,421,952 
         Tax-exempt                                        31,252        35,044         79,637 
     Other interest income                                496,987       373,010        437,396 
                                                     ------------  ------------   ------------ 
         Total interest income                         38,497,959    35,964,037     28,724,126 
                                                     ------------  ------------   ------------ 
Interest expense:                                                                              
     Deposits                                          16,530,463    14,633,670     11,647,491 
     Short-term borrowings                                  1,552        33,062         21,511 
     Other borrowings                                   1,283,214     1,231,323      1,005,083 
                                                     ------------  ------------   ------------ 
         Total interest expense                        17,815,229    15,898,055     12,674,085 
                                                     ------------  ------------   ------------ 
Net interest income                                    20,682,730    20,065,982     16,050,041 
Provision for loan losses                               1,199,725     1,398,201      2,424,480 
                                                     ------------  ------------   ------------ 
Net interest income after provision for loan losses    19,483,005    18,667,781     13,625,561 
                                                     ------------  ------------   ------------ 
Other income:                                                                                  
     Service fees                                       1,478,376     1,220,028        757,909 
     Net security gains (losses)                           44,504       (60,163)        (7,899)
     Other operating income                             1,128,023       478,351        610,443 
                                                     ------------  ------------   ------------ 
         Total other income                             2,650,903     1,638,216      1,360,453 
                                                     ------------  ------------   ------------ 
Other expenses:                                                                                
     Salaries and employee benefits                     6,567,566     5,898,110      5,130,808 
     Occupancy expense                                  2,426,418     2,212,311      1,921,540 
     Other operating expenses                           7,608,804     6,686,500      4,556,182 
                                                     ------------  ------------   ------------ 
         Total other expenses                          16,602,788    14,796,921     11,608,530 
                                                     ------------  ------------   ------------ 
Income before provision for income taxes                5,531,120     5,509,076      3,377,484 
Provision for income taxes                                969,930     1,403,417        543,300 
                                                     ------------  ------------   ------------ 
Net income                                           $  4,561,190  $  4,105,659   $  2,834,184 
                                                     ============  ============   ============ 
Earnings per share:                                                                            
     Basic                                           $       0.65  $       0.58   $       0.43 
                                                     ============  ============   ============ 
     Diluted                                         $       0.64  $       0.57   $       0.43 
                                                     ============  ============   ============ 

See accompanying notes to consolidated financial statements.

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Consolidated Statements of                                                      
Changes in Shareholders' Equity                                                 

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996

                                                        [Enlarge/Download Table]
                                                                               Accumulated                
                                  Shares of                                       Other                   
                                   Common        Common          Retained     Comprehensive               
                                    Stock         Stock          Earnings   Income (Deficit)  Total       
                                                                                                          
Balance, January 1, 1996            6,320,691   $13,195,269   $11,831,455    $(19,847)        $25,006,877 
Net income                                                      2,834,184                       2,834,184 
Other comprehensive                                                                                       
  deficit:                                                                                                
     Net unrealized loss on                                                                               
     securities available for                                                                             
     sale                                                                    (229,681)           (229,681)
                                                                                              ----------- 
Total comprehensive income                                                                      2,604,503 
Cash dividends ($.14 per                                                                                  
  share)                                                         (910,003)                       (910,003)
Issuance of common stock              770,511     5,684,185                                     5,684,185 
                                 ------------   -----------    ----------    ----------       ----------- 
Balance, December 31,                                                                                     
  1996                              7,091,202    18,879,454    13,755,636    (249,528)         32,385,562 
Net income                                                      4,105,659                       4,105,659 
Other comprehensive                                                                                       
  income:                                                                                                 
     Net unrealized gain on                                                                               
     securities available for                                                                             
     sale                                                                     246,294             246,294 
                                                                                              ----------- 
Total comprehensive income                                                                      4,351,953 
Cash dividends ($.16                                                                                      
  per share)                                                   (1,182,014)                     (1,182,014)
Issuance of common stock              104,439     1,868,178                                     1,868,178 
Retirement of common                                                                                      
  stock                               (57,171)     (831,606)                                     (831,606)
                                 ------------   -----------    ----------    ----------       ----------- 
Balance, December 31,                                                                                     
  1997                              7,138,470    19,916,026    16,679,281      (3,234)         36,592,073 
Net income                                                      4,561,190                       4,561,190 
Other comprehensive                                                                                       
  income:                                                                                                 
     Net unrealized gain on                                                                               
       securities available for                                                                           
       sale                                                                    47,327              47,327 
                                                                                              ----------- 
Total comprehensive income                                                                      4,608,517 
Cash dividends ($.17                                                                                      
  per share)                                                   (1,251,224)                     (1,251,224)
Issuance of common stock               87,667     1,316,638                                     1,316,638 
Retirement of common                                                                                      
  stock                               (95,377)   (1,796,639)                                   (1,796,639)
                                 ------------   -----------   -----------    --------         ----------- 
Balance, December 31,                                                                                     
1998                                7,130,760   $19,436,025   $19,989,247    $ 44,093         $39,469,365 
                                 ============   ===========   ===========    ========         =========== 

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows                                           

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996

                                                        [Enlarge/Download Table]
                                                        1998           1997          1996    
Increase (decrease) in cash and cash equivalents:                                            
  Cash flows from operating activities:                                                      
                                                                                             
     Net income                                      $4,561,190   $ 4,105,659   $  2,834,184 
                                                     ----------   -----------   ------------ 
     Adjustments to reconcile net income to                                                  
      net cash provided by operating                                                         
       activities:                                                                           
       Provision for loan losses                      1,199,725     1,398,201      2,424,480 
       Credit for deferred income taxes                (269,982)     (322,707)      (404,200)
       Provision for depreciation and net                                                    
         amortization                                 2,073,285     1,988,487      2,433,469 
       Proceeds from loan sales                      21,525,436     6,803,965      6,121,420 
       Loans originated for sale                    (21,415,349)   (6,745,114)    (6,076,247)
       (Gains) losses on sales of:                                                           
         Loans held for sale                           (110,087)      (58,851)      (45,173) 
         Securities                                     (44,504)       60,163         7,899  
         Premises, equipment and other real estate     (102,787)       27,624        10,000  
       Change in other assets                         1,783,700     1,029,093      (699,274) 
       Change in other liabilities                      185,184      (163,100)      316,778  
                                                     ----------   -----------   -----------  
         Total adjustments                            4,824,621     4,017,761     4,089,152  
                                                     ----------   -----------   -----------  
     Net cash provided by operating activities        9,385,811     8,123,420     6,923,336  
                                                     ----------   -----------   -----------  
     Cash flows from investing activities:                                                   
       Net decrease in interest-bearing deposits                                             
         in other financial institutions                    -0-       534,622     2,231,458  
       Payment for purchases of securities:                                                  
         Available for sale                          (7,419,512)   (2,114,281)   (7,595,025) 
         Equity                                        (110,922)     (843,500)   (1,625,800) 
       Proceeds from sale of securities:                                                     
         Available for sale                           3,810,310     9,824,063    11,542,876  
         Equity                                          10,000       327,300           -0-  
       Proceeds from maturities of securities:                                               
         Available for sale                           2,329,647     2,173,899     9,224,050  
         Held to maturity                                   -0-           -0-       835,049  
       Net increase in loans                        (40,349,652)  (38,423,930)  (67,589,084) 
       Proceeds from sale of premises, equipment,                                            
         and other real estate                        1,364,248       434,693        69,000  
       Capital expenditures                          (2,526,058)   (3,496,436)   (2,795,067) 
       Net cash provided from acquisitions                  -0-        32,054       723,993  
                                                     ----------   -----------   -----------  
     Net cash used in investment activities         (42,891,939)  (31,551,516)  (54,978,550) 
                                                     ----------   -----------   -----------  

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Consolidated Statements of Cash Flows (Continued)                               

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1998, 1997 and 1996

                                                        [Enlarge/Download Table]

                                                   1998             1997            1996     
     Cash flows from financing activities:                                                   
                                                                                             
       Net increase in deposits                 $  44,412,648   $  27,169,826   $ 27,962,963 
       Net increase (decrease) in short-term                                                 
         borrowings                                (1,195,000)     (3,805,000)     5,000,000 
       Proceeds from other borrowings              10,500,000       7,842,577     10,293,013 
       Principal payments on other borrowings      (6,858,017)     (8,655,178)    (2,302,820)
       Proceeds from issuance of common stock       1,191,638       1,868,178      5,684,185 
       Retirement of common stock                  (1,796,639)       (831,606)           -0- 
       Dividends paid                              (1,251,224)     (1,182,014)      (910,003)
                                                -------------   -------------   ------------ 
     Net cash provided by financing activities     45,003,406      22,406,783     45,727,338 
                                                -------------   -------------   ------------ 
Net increase (decrease) in cash and cash                                                     
  equivalents                                      11,497,278      (1,021,313)    (2,327,876)
Cash and cash equivalents at beginning             11,143,168      12,164,481     14,492,357 
                                                -------------   -------------   ------------ 
Cash and cash equivalents at end                $  22,640,446   $  11,143,168   $ 12,164,481 
                                                =============   =============   ============ 
Supplemental cash flow information:                                                          

Cash paid during the year for:                                                               
   Interest                                     $  18,077,148   $  15,561,189   $ 12,547,840 
   Income taxes                                     1,241,050       1,955,760      1,214,508 

Noncash investing and financing activities:                                                  

Transfer of foreclosures from loans to                                                       
  other real estate                                   460,795         356,856            -0- 
Issuance of notes payable to South Range                                                     
  State Bank's former shareholders                        -0-             -0-      2,362,851 


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Consolidated Statements of Cash Flows (Continued)                               

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1998, 1997 and 1996

                                                                [Download Table]
                                                       1997          1996   
                                                                            
Assets and liabilities acquired in acquisitions:                            
   Interest-bearing deposits                      $       -0-   $ 1,088,000 
   Premises and equipment                             969,437     1,409,480 
   Acquisition intangibles                          2,099,287     1,584,000 
   Loans - Net                                     19,954,774    26,760,657 
   Securities                                       4,488,326     3,800,350 
   Other assets                                       134,863       673,454 
   Deposits                                       (27,440,283)  (32,868,918)
   Other liabilities                                 (238,458)     (808,165)

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements                                      

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                             

The   accounting   policies  of  North  Country   Financial   Corporation   (the
"Corporation")  and  Subsidiaries   conform  to  generally  accepted  accounting
principles and prevailing  practices  within the banking  industry.  Significant
accounting policies are summarized below.                                       

Principles of Consolidation                                                     

The consolidated  financial  statements  include the accounts of the Corporation
and its wholly owned  subsidiaries,  North  Country  Bank & Trust (the  "Bank"),
Rural Relending, and other minor subsidiaries, after elimination of intercompany
transactions  and accounts.  During 1998,  North  Country  Bank, a  wholly-owned
subsidiary of the Corporation, was merged into the Bank.                        

Nature of Operations                                                            

The  Corporation's  and the Bank's revenues,  operating  income,  and assets are
primarily  from the banking  industry.  Rural  Relending  is in the  business of
generating loans for commercial  entities.  Loan customers are mainly located in
Michigan's Upper Peninsula. In addition, a significant portion of its commercial
loan portfolio  consists of leases to commercial  and government  entities which
are secured by equipment and vehicles. These leases are dispersed geographically
throughout the country.                                                         

Use of Estimates in the Preparation of Financial Statements                     

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.                                              

Cash and Cash Equivalents                                                       

For purposes of reporting cash flows, cash and cash equivalents  include cash on
hand,  non-interest-bearing  deposits in correspondent  banks, and federal funds
sold. Generally, federal funds are purchased and sold for one-day periods.      

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NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                 

Investment Securities                                                           

The  Corporation's  investment  securities  are classified in two categories and
accounted for as follows:                                                       

       Securities  available for sale - Securities available for sale consist of
       investment  securities  not  classified as  securities  held to maturity.
       These securities are stated at fair value.  Unrealized  holding gains and
       losses,  net of tax, on  securities  available  for sale are  reported as
       accumulated other comprehensive  income within shareholders' equity until
realized.                                                         

       Securities  held to  maturity  -  Investment  securities  for  which  the
       Corporation  has the positive  intent and ability to hold to maturity are
       reported at cost,  adjusted for amortization of premiums and accretion of
       discounts,  which are  recognized  in interest  income using the interest
method over the period to maturity.                               

Gains  and  losses  on  the  sale  of  securities  are   determined   using  the
specific-identification method.                                                 

Loans Held for Sale                                                             

Loans held for sale represent  originations of fixed-rate,  first mortgage loans
recorded at cost.  The loans are sold at fair value  shortly  after  origination
based on an agreement with an outside mortgage company.                         

Interest Income and Fees on Loans                                               

Interest  on loans is accrued  and  credited  to income  based on the  principal
amount  outstanding.  The accrual of interest on loans is discontinued  when, in
the opinion of  management,  there is an  indication  that the  borrower  may be
unable to meet payments as they become due. Upon such discontinuance, all unpaid
accrued interest is reversed.  Loan-origination fees are credited to income when
received,  as  capitalization  of the fees and  related  costs  would not have a
material effect on the overall consolidated financial statements.               

Allowance for Loan Losses                                                       

The allowance for loan losses includes specific allowances related to commercial
loans which have been judged to be impaired.  A loan is impaired when,  based on
current  information,  it is probable that the Corporation  will not collect all
amounts due in  accordance  with the  contractual  terms of the loan  agreement.
These specific  allowances are based on discounted cash flows of expected future
payments using the loan's initial  effective  interest rate or the fair value of
the collateral if the loan is collateral dependent.                             

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Notes to Consolidated Financial Statements                                      

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                 

The  Corporation  continues to maintain a general  allowance for loan losses for
loans not considered impaired.  The allowance for loan losses is maintained at a
level which management believes is adequate to provide for possible loan losses.
Management  periodically  evaluates  the  adequacy  of the  allowance  using the
Corporation's  past  loan  loss  experience,  known  and  inherent  risks in the
portfolio,  composition of the portfolio, current economic conditions, and other
factors.  This evaluation is inherently  subjective  since it requires  material
estimates that may be susceptible to significant change.                        

Other Real Estate                                                               

Other real estate is carried at the lower of cost or fair value,  less estimated
sales costs.                                                                    

Premises and Equipment                                                          

Premises  and  equipment  are stated at cost.  Maintenance  and repair costs are
charged to expense as incurred.  Gains or losses on  disposition of premises and
equipment are reflected in income. Depreciation is computed on the straight-line
method and is based on the estimated useful lives of the assets.                

Acquisition Intangibles                                                         

The  Corporation's  intangible  assets  include  the value of  ongoing  customer
relationships  (core deposits) and the excess of cost over the fair value of net
assets acquired (goodwill) arising from the purchase of a financial  institution
and the acquisition of certain assets and the assumption of certain  liabilities
of other  financial  institutions.  Core deposit  intangibles  are  amortized to
income over a 10-year period on an accelerated  basis, and goodwill is amortized
on a straight-line basis over periods ranging from 15 to 25 years.              

Advertising Costs                                                               

Advertising costs are expensed as incurred.                                     

Earnings Per Common Share                                                       

Basic  earnings per common share is net income  divided by the weighted  average
number of common  shares  outstanding  during the period.  Diluted  earnings per
common share includes the dilutive effect of additional  potential common shares
issuable under stock options.  Earnings and dividends per share are restated for
all stock splits through the date of issue of the financial statements.         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                 

Comprehensive Income                                                            

Comprehensive  income  consists  of net  income and other  comprehensive  income
(deficit).  Other  comprehensive  income (deficit) includes unrealized gains and
losses on  securities  available  for sale  which are  recognized  as a separate
component of equity,  accumulated  other  comprehensive  income  (deficit).  The
accounting standard that requires reporting  comprehensive  income first applies
for 1998, with prior information restated to be comparable.                     

Income Taxes                                                                    

Deferred  income taxes have been provided under the liability  method.  Deferred
tax assets and liabilities are determined based upon the difference  between the
financial  statement and tax bases of assets and  liabilities as measured by the
enacted tax rates which will be in effect when these differences are expected to
reverse. Deferred tax expense (benefit) is the result of changes in the deferred
tax asset and liability.                                                        

Off-Balance-Sheet Financial Instruments                                         

In  the  ordinary   course  of  business,   the  Corporation  has  entered  into
off-balance-sheet  financial  instruments  consisting of  commitments  to extend
credit,  commitments  under  credit  card  arrangements,  commercial  letters of
credit, and standby letters of credit.  Such financial  instruments are recorded
in the consolidated financial statements when they become payable.              

Future Accounting Change                                                        

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting for Derivative
Instruments and Hedging Activities." This statement  establishes  accounting and
reporting standards for derivative instruments and for hedging activities.  This
statement  requires an entity to recognize all  derivatives  as either assets or
liabilities  in the balance sheet and measure those  instruments  at fair value.
The  accounting  for  changes in the fair value of a  derivative  depends on the
intended use of the derivative and the resulting  designation.  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
consolidated  financial  statements of the  Corporation  as the  accounting  for
derivatives is dependent on the amount and nature of derivatives in place at the
time of adoption.                                                               

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Notes to Consolidated Financial Statements                                      

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                 

Reclassifications                                                               

Certain amounts in the 1997 and 1996 consolidated financial statements have been
reclassified to conform to the 1998 presentation.                               

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Notes to Consolidated Financial Statements                                      

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLES                                       

Effective  January 1, 1998,  the  Corporation  adopted SFAS No. 130,  "Reporting
Comprehensive  Income,"  which was issued in June 1997. In accordance  with this
statement,  the Corporation reports those items defined as comprehensive  income
in the statement of changes in  shareholders'  equity.  The adoption of SFAS No.
130 did not have an impact on the Corporation's financial position or results of
operations.                                                                     

Effective  January 1, 1998, the  Corporation  adopted SFAS No. 131,  "Disclosure
About  Segments of an Enterprise and Related  Information,"  which was issued in
June 1997. This statement  establishes  new standards for reporting  information
about  operating  segments  in annual  and  interim  financial  statements.  The
standard also requires descriptive  information about the way operating segments
are  determined,  the products and services  provided by the  segments,  and the
nature of differences between reportable segment measurements and those used for
the consolidated  enterprise.  The disclosure  requirements had no impact on the
Corporation's financial position or results of operations.                      

NOTE 3 - ACQUISITIONS                                                           

During  the  period  of  1996  through  1998,  the  Corporation   completed  two
acquisitions. The acquisitions have been accounted for under the purchase method
of accounting.  Accordingly,  the assets, liabilities, and results of operations
are included in the Corporation's  consolidated  financial  statements as of and
subsequent to the respective  acquisition  dates.  Following is a summary of the
acquisitions.  Note 9 provides information regarding acquisition intangibles and
the amortization thereof.  Additional  information regarding assets acquired and
liabilities assumed is presented on the accompanying  consolidated statements of
cash flows.                                                                     

                                                        [Enlarge/Download Table]
                                                                  Assets                  
                                                                 Acquired       Resulting 
                                                  Acquisition   (Excludes      Acquisition
                                                     Cost       Intangibles)   Intangibles
                                                               (In Thousands)             
                                                                                          
On February 4, 1997, acquired 100% of the                                                 
outstanding stock of U.P. Financial, Inc. in                                              
exchange for cash                               $    4,298      $    29,763    $    2,099 

On January 31, 1996, acquired 100% of the                                                 
outstanding stock of South Range State Bank in                                            
exchange for cash and notes                          4,310           35,623         1,584 

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Notes to Consolidated Financial Statements                                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - RESTRICTIONS ON CASH AND CASH EQUIVALENTS                              

Cash and cash equivalents in the amount of $6,643,000 are restricted at December
31, 1998, to meet the reserve requirements of the Federal Reserve System.       

NOTE 5 - INVESTMENT SECURITIES                                                  

The amortized cost and estimated fair value of investment  securities  available
for sale as of December 31 are as follows:                                      

                                                        [Enlarge/Download Table]
                                                           1998                        

                                                    Gross          Gross               
                                  Amortized      Unrealized    Unrealized   Estimated  
                                    Cost            Gains         Losses    Fair Value 
                                                                                       
U.S. Treasury securities and                                                           
  obligations of U.S. government                                                       
  agencies and corporations       $  4,645,681  $    47,473    $     933   $  4,692,221
Obligations of states and                                                              
  political subdivisions               999,922       20,968          -0-      1,020,890
Mortgage-related securities          2,852,872          -0-          701      2,852,171
                                  ------------  -----------    ---------   ------------
Total investment securities                                                            
  available for sale              $  8,498,475  $    68,441    $   1,634   $  8,565,282
                                  ============  ===========    =========   ============

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - INVESTMENT SECURITIES (CONTINUED)                                      

                                                        [Enlarge/Download Table]
                                                           1997                        

                                                    Gross          Gross               
                                  Amortized      Unrealized    Unrealized   Estimated  
                                    Cost            Gains         Losses     Fair Value
                                                                                       
U.S. Treasury securities and                                                           
  obligations of U.S. government                                                       
  agencies and corporations       $  7,758,368  $     6,394    $  22,292   $ 7,742,470 
Obligations of states and                                                              
  political subdivisions               833,248          509        3,826       829,931 
Mortgage-related securities            394,081          575        2,354       392,302 
Other securities                     1,122,096       16,094          -0-     1,138,190 
                                  ------------  -----------    ---------   ----------- 
Total investment securities                                                            
  available for sale              $ 10,107,793  $    23,572    $  28,472   $10,102,893 
                                  ============  ===========    =========   =========== 

Included  in  other  assets  are  equity  securities   totaling  $3,145,222  and
$3,044,300 at December 31, 1998 and 1997,  respectively.  Equity  securities are
reported at the lower of cost or market.                                        

Following  is a summary  of the  proceeds  from sales of  investment  securities
available  for sale,  as well as gross  gains  and  losses  for the years  ended
December 31:                                                                    

                                                        [Enlarge/Download Table]
                                                   1998          1997           1996   
                                                                                       
Proceeds from sale of investment securities  $  3,810,310  $  10,151,363  $  11,542,876
Gross gains on sales                               65,255            -0-         30,905
Gross losses on sales                              20,751         60,163         38,804

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - INVESTMENT SECURITIES (CONTINUED)                                      

The amortized cost and estimated fair value of investment  securities  available
for sale at  December  31,  1998,  by  contractual  maturity,  are shown  below.
Contractual  maturities will differ from expected  maturities  because borrowers
may have  the  right  to call or  prepay  obligations  with or  without  call or
prepayment penalties.                                                           

                                                                [Download Table]
                                                                   Amortized      
Estimated                                                                         
                                                                     Cost     Fair
Value                                                                             
                                                                                  
     Due after one month through three months  $    503,441  $    502,509         
     Due after five years through ten years       3,521,476     3,532,401         
     Due after ten years                          1,620,686     1,678,201         
                                               ------------  ------------         
                                                  5,645,603     5,713,111         

     Mortgage-related securities                  2,852,872     2,852,171         
                                               ------------  ------------         
     Total                                     $  8,498,475  $  8,565,282         
                                               ============  ============         

The carrying  value of securities  pledged to secure public  deposits,  treasury
deposits, and repurchase agreements was $1,002,800 and $3,595,938 as of December
31, 1998 and 1997, respectively.                                                

NOTE 6 - LOANS                                                                  

The composition of loans at December 31 follows:                                

                                                                [Download Table]
                                             1998              1997    
                                                                       
Commercial, financial, and agricultural  $  219,026,672  $  181,682,624
Commercial and governmental leases           60,194,795      57,557,615
1-4 family residential real estate           97,415,442      95,542,880
Consumer                                     23,159,913      26,795,585
Construction                                 11,923,647      10,939,845
                                         --------------  --------------
Total loans                              $  411,720,469  $  372,518,549
                                         ==============  ==============

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - LOANS (CONTINUED)                                                      

An analysis  of the  allowance  for loan losses for the years ended  December 31
follows:                                                                        

                                                                [Download Table]
                                  1998          1997             1996    
                                                                         
Balance, January 1           $  5,599,546   $  4,590,938   $   3,137,315 
Allowance from acquisitions           -0-        299,295         285,000 
Provision for loan losses       1,199,725      1,398,201       2,424,480 
Recoveries on loans               118,408        112,712         121,890 
Loans charged off                (805,345)      (801,600)     (1,377,747)
                             ------------   ------------   ------------- 
Balance, December 31         $  6,112,334   $  5,599,546   $   4,590,938 
                             ============   ============   ============= 

Information regarding impaired loans follows:                                   

                                                                [Download Table]
                                                  1998         1997      
                                                                         
Year-end loans with allowance for loan losses                            
      allocated                                $  6,072,978  $  6,933,060
Amount of the allowance allocated                   873,014       923,014
                                                        [Enlarge/Download Table]
                                                        1998           1997      1996    
                                                                                         
Average investment in impaired loans during                                              
      the year                                $  6,155,323    $  6,709,911   $  2,914,955
Interest income recognized during impairment       667,599         223,500         99,215
Cash-basis interest income recognized              301,840         212,699         98,098

The subsidiary bank in the ordinary  course of banking  business grants loans to
the Corporation's  executive officers and directors including their families and
firms in which they are principal owners.  Activity in such loans during 1998 is
summarized below.                                                               

Substantially  all loans to executive  officers and  directors  were made on the
same terms, including interest rates and collateral,  as those prevailing at the
time for comparable  transactions  with others and did not involve more than the
normal risk of collectibility or present other unfavorable features.            

                                                                [Download Table]
                                                      
Loans outstanding, January 1, 1998    $    12,638,848 
New loans                                  11,879,836 
Repayment                                 (12,114,768)
                                      --------------- 
Loans outstanding, December 31, 1998  $    12,403,916 
                                      =============== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - PREMISES AND EQUIPMENT                                                 

Details of premises and equipment at December 31 follow:                        

                                                                [Download Table]
                                                        1998           1997   
                                                                              
Land                                              $   1,679,904  $   1,643,792
Buildings and improvements                           14,787,615     14,284,318
Furniture, fixtures, and equipment                    9,224,753      7,929,563
                                                  -------------  -------------
Totals                                               25,692,272     23,857,673
Less - Accumulated depreciation and amortization      7,754,214      6,380,328
                                                  -------------  -------------
Net book value                                    $  17,938,058  $  17,477,345
                                                  =============  =============

Depreciation  and  amortization  of premises and equipment  charged to operating
expenses  amounted to $1,381,015 in 1998,  $1,222,939 in 1997 and  $1,436,612 in
1996.                                                                           

NOTE 8 - OTHER REAL ESTATE                                                      

Included in other assets is other real estate totaling  $449,537 and $397,861 at
December 31, 1998 and 1997,  respectively.  There is no allowance  for losses on
other real estate.  Other real estate  expenses  totaled  $87,139,  $104,408 and
$9,489 for 1998, 1997, and 1996, respectively.                                  

NOTE 9 - ACQUISITION INTANGIBLES                                                

Intangible  assets,  which were acquired  through  acquisitions,  consist of the
following as of December 31 (net of amortization):                              

                                                                [Download Table]
                                     1998          1997   
                                                          
Goodwill                       $   3,571,067  $  3,904,720
Core deposit intangible            2,338,354     2,794,364
                               -------------  ------------
Total acquisition intangibles  $   5,909,421  $  6,699,084
                               =============  ============

Amortization  expense  related  to the  acquisition  intangibles  was  $789,663,
$719,071  and $593,220 for the years ended  December 31, 1998,  1997,  and 1996,
respectively.                                                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - DEPOSITS                                                              

The distribution of deposits at December 31 is as follows:                      

                                                        [Enlarge/Download Table]
                                                                    1998          1997      
                                                                                            
Non-interest-bearing demand deposits                         $   42,076,502  $    33,353,597
Savings, money market, and interest-bearing demand deposits     213,791,523      159,279,613
Time deposits                                                   149,093,308      167,915,475
                                                             --------------  ---------------
Total deposits                                               $  404,961,333  $   360,548,685
                                                             ==============  ===============

Time deposits of $100,000 or more were  $25,619,255  and $26,827,133 at December
31, 1998 and 1997,  respectively.  Interest expense on time deposits of $100,000
or more was  $1,543,612,  $1,606,273 and $1,085,714 for the years ended December
31, 1998, 1997, and 1996, respectively.                                         

NOTE 11 - SHORT-TERM BORROWINGS                                                 

Short-term  borrowings  consist of federal  funds  purchased  of  $1,195,000  at
December 31, 1997. There were no short-term borrowings at December 31, 1998.    

NOTE 12 - OTHER BORROWINGS                                                      

Other borrowings consist of the following at December 31:                       

                                                                [Download Table]
                                                                    1998  1997      
                                                                                    
Federal Home Loan Bank:                                                             
     Fixed-rate advance at 7.37%, maturing April 15, 2004    $   159,731  $  186,049
     Fixed-rate advance at 7.59%, maturing May 17, 2004          281,657     327,828
     Fixed-rate advance at 6.50%, maturing October 17, 2005    2,535,401   2,778,351
     Fixed-rate advance at 7.06%, maturing May 15, 2006        4,630,742   4,822,898
     Fixed-rate advance at 5.96%, maturing June 29, 1998                   2,000,000
     Fixed-rate advance at 5.97%, maturing July 28, 1998                   2,000,000
     Fixed-rate advance at 5.98%, maturing August 27, 1998                 1,000,000
     Adjustable-rate advance, maturing May 20, 1999,                                
       5.20% and 5.82% at December 31, 1998 and 1997           3,000,000   3,000,000
     Adjustable-rate advance, maturing June 23, 2008,                               
       5.49% at December 31, 1998                             10,000,000            
                                                              ----------  ----------
                                                              20,607,531  16,115,126

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - OTHER BORROWINGS (CONTINUED)                                          

                                                                [Download Table]
                                                             1998          1997     
                                                                                    
Farmers Home Administration:                                                        
   $2,000,000 fixed-rate line of credit agreement with                              
   Farmers Home Administration, maturing August 24,                                 
   2024, interest payable at 1%                          $  1,874,857  $   1,937,740

Other borrowings:                                                                   
   Unsecured variable rate notes payable to South Range                             
   State Bank's former stockholders, maturing in three                              
   equal annual installments beginning February 1,                                  
   1997, 5.04% at December 31, 1998 and 1997                  787,773      1,575,312
                                                         ------------  -------------
Total other borrowings                                   $ 23,270,161  $  19,628,178
                                                         ============  =============

Maturities of other borrowings outstanding at December 31, 1998, are as follows:

                                                                [Download Table]
                         
1999        $   4,392,165
2000              642,792
2001              686,079
2002              734,547
2003              788,567
Thereafter     16,026,011
            -------------
            $  23,270,161
            =============

The Federal Home Loan Bank borrowings are collateralized by a blanket collateral
agreement on the Bank's residential  mortgage loans, U.S.  Government and agency
securities,  and  by the  Federal  Home  Loan  Bank  stock  owned  by the  Bank.
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, 1998. The Farmers Home  Administration  borrowing is collateralized
by loans totaling  $1,693,308,  originated and held by the Corporation's  wholly
owned subsidiary, Rural Relending, and guaranteed by the Corporation.           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - INCOME TAXES                                                          

The  components of the federal income tax provision for the years ended December
31 follow:                                                                      

                                                                [Download Table]
                                       1998           1997            1996    
                                                                              
Current tax expense               $   1,239,912   $  1,726,124   $    947,500 
Deferred tax credit                    (269,982)      (322,707)      (404,200)
                                  -------------   ------------   ------------ 
Total provision for income taxes  $     969,930   $  1,403,417   $    543,300 
                                  =============   ============   ============ 

Included in the total  provision  for income  taxes are  expenses  (credits)  of
$15,131, $(20,455) and $(2,686) for the years ended December 31, 1998, 1997, and
1996, respectively, related to security transactions.                           

Deferred  income taxes are provided for the  temporary  differences  between the
financial  reporting and tax bases of the Corporation's  assets and liabilities.
The major components of net deferred tax assets at December 31 are as follows:  

                                                                [Download Table]
                                                          1998             1997   
                                                                                  
Deferred tax assets:                                                              
    Allowance for loan losses                         $  1,844,183   $  1,679,962 
    Deferred compensation                                  366,290        285,274 
    Unrealized loss on securities available for sale           -0-          1,666 
                                                      ------------   ------------ 
    Total deferred tax assets                            2,210,473      1,966,902 
                                                      ------------   ------------ 

Deferred tax liabilities:                                                         
    Depreciation                                          (777,689)      (742,041)
    Intangibles                                           (285,986)      (389,711)
    Unrealized gain on securities available for sale       (22,714)           -0- 
             Other                                         (43,332)           -0- 
                                                      ------------   ------------ 
             Total deferred tax liabilities             (1,129,721)    (1,131,752)
                                                      ------------   ------------ 
    Net deferred tax asset                            $  1,080,752   $    835,150 
                                                      ============   ============ 

A summary of the  source of  differences  between  income  taxes at the  federal
statutory  rate and the provision for income taxes for the years ended  December
31 follows:                                                                     

                                                        [Enlarge/Download Table]
                                                  1998         1997           1996     
                                                                                       
Tax expense at statutory rate                 $ 1,880,581   $ 1,873,086   $  1,148,345 
Increase (decrease) in taxes resulting from:                                           
    Tax-exempt interest                        (1,127,726)     (603,836)      (539,365)
    Other                                         217,075       134,167        (65,680)
                                              -----------   -----------   ------------ 
Provision for income taxes                    $   969,930   $ 1,403,417   $    543,300 
                                              ===========   ===========   ============ 

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NOTE 14 - RETIREMENT PLAN                                                       

The Corporation has established a 401(k) profit-sharing plan. Employees who have
completed  one  year of  service  and  attained  the age of 18 are  eligible  to
participate in the plan. Eligible employees can elect to have a portion,  not to
exceed 15%, of their annual  compensation  paid into the plan. In addition,  the
Corporation may make discretionary  contributions into the plan. Retirement plan
contribution  expense  charged to  operations  totaled  $200,267,  $105,267  and
$120,126 for 1998, 1997, and 1996, respectively.                                

NOTE 15 - DEFERRED COMPENSATION PLANS                                           

As an  incentive  to  retain  key  members  of  management  and  directors,  the
Corporation has two deferred compensation plans.                                

Benefits  under one of the plans is based on the number of years the key members
have served the  Corporation.  A liability is recorded on a present  value basis
and discounted  using current market rates.  The liability may change  depending
upon changes in long-term interest rates. The liability at December 31, 1998 and
1997,  for vested  benefits  under  this  plan,  was  $1,098,267  and  $841,236,
respectively.  The  Corporation  maintains life  insurance  policies on the plan
participants.  Death benefits received from the life insurance  policies will be
used to offset the obligations under the plan. The cash surrender value of these
policies was $899,087 and $781,040 at December 31, 1998 and 1997, respectively. 

The  Corporation  sponsors a deferred  stock  compensation  plan for  directors.
Directors  are  allowed  to defer  their  director's  fees  under the plan.  The
deferred  compensation is computed as stock  equivalents as the  compensation is
earned.  Directors receive the deferred compensation in the form of common stock
upon retirement.  The liability  relating to this plan was $219,100 and $141,700
at December 31, 1998 and 1997, respectively.                                    

Deferred compensation expense for the plans was $316,041,  $175,000 and $105,950
for 1998, 1997, and 1996, respectively.                                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - SHAREHOLDERS' EQUITY                                                  

Earnings  per  share  are  based  upon the  weighted  average  number  of shares
outstanding,  restated to reflect the  three-for-one  stock splits on August 25,
1998 and April 29, 1996.  The following  shows the  computation of the basic and
diluted earnings per share for the years ended December 31:                     

                                                                [Download Table]
                                                      Weighted                 
                                                      Average                  
                                                     Number of     Earnings Per
                                        Net Income     Shares           Share  
                                                                               
1998                                                                           
Earnings per share - Basic              $ 4,561,190     7,038,909    $  0.65   
                                                                     =======   
Effect of stock options - Net                              64,693              
Effect of deferred stock compensation                      16,614              
                                       ------------   -----------              
Earnings per share - Diluted            $ 4,561,190     7,120,216    $  0.64   
                                       ============   ===========    =======   

1997                                                                           
Earnings per share - Basic              $ 4,105,659     7,131,354    $  0.58   
                                                                     =======   
Effect of stock options - Net                              11,700              
Effect of deferred stock compensation                      12,723              
                                       ------------   -----------              
Earnings per share - Diluted            $ 4,105,659     7,155,777    $  0.57   
                                       ============   ===========    =======   

1996                                                                           
Earnings per share - Basic              $ 2,834,184     6,544,878    $  0.43   
                                                                     =======   
Effect of stock options - Net                              37,326              
Effect of deferred stock compensation                       5,601              
                                       ------------   -----------              
Earnings per share - Diluted            $ 2,834,184     6,587,805    $  0.43   
                                        ===========   ===========    =======   

Effective  August 25, 1998 and April 29,  1996,  the Board of  Directors  of the
Corporation approved three-for-one stock splits. All references to the number of
shares of common stock in the  consolidated  financial  statements and footnotes
thereto have been restated for these stock splits.                              

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - SHAREHOLDERS' EQUITY (CONTINUED)                                      

The  Corporation  is  subject  to  various   regulatory   capital   requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements   can   initiate   certain   mandatory--and   possibly   additional
discretionary--actions  by regulators  that, if undertaken,  could have a direct
material effect on the Corporation's  consolidated  financial statements.  Under
capital adequacy  guidelines and the regulatory  framework for prompt corrective
action,  the  Corporation  must meet specific  capital  guidelines  that involve
quantitative  measures of the  Corporation's  assets,  liabilities,  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Corporation's capital amounts and classification are also subject to qualitative
judgments  by the  regulators  about  components,  risk  weightings,  and  other
factors.                                                                        

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital to  risk-weighted  assets and of Tier I
capital to average  assets.  Management  believes,  as of December 31, 1998, the
Corporation meets all capital adequacy requirements to which it is subject.     

As of December 31, 1998, the most recent  notification  from the Federal Deposit
Insurance Corporation  categorized the subsidiary bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events  since that  notification  that  management  believes  have  changed  the
subsidiary bank's category.                                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - SHAREHOLDERS' EQUITY (CONTINUED)                                      

The Corporation's  actual and required capital amounts and ratios as of December
31 are as follows:                                                              

                                                        [Enlarge/Download Table]
                                                                                                    To Be Well           
                                                                                                 Capitalized Under       
                                                                        For Capital              Prompt Corrective       
                                                Actual               Adequacy Purposes           Action Provisions       
                                      Amount           Ratio  Amount                  Ratio  Amount                 Ratio
1998                                                                                                                     
                                                                                                                         
Total capital (to risk-                                                                                                  
  weighted assets):                                                                                                      
                                                              Greater than or                                            
   Consolidated                       $37,881,000      10.7%  equal to $28,397,000    8.0%             N/A               
   North Country Bank                                         Greater than or                Greater than or             
    & Trust                           $37,083,000      10.9%  equal to $27,160,000    8.0%   equal to $33,950,000   10.0%

Tier I capital (to risk- weighted assets):                                                                               
                                                              Greater than or                                            
   Consolidated                       $33,423,000      9.4%   equal to $14,199,000    4.0%             N/A               
                                                              Greater than or                Greater than or             
   North Country Bank & Trust         $32,816,000      9.7%   equal to $13,580,000    4.0%   equal to $20,370,000    6.0%

Tier I capital (to average assets):                                                                                      
                                                              Greater than or                                            
   Consolidated                       $33,423,000      7.2%   equal to $18,532,000    4.0%             N/A               
                                                              Greater than or                Greater than or             
   North Country Bank & Trust         $32,816,000      7.2%   equal to $18,360,000    4.0%   equal to $22,950,000    5.0%

1997                                                                                                                     
Total capital (to risk-                                                                                                  
  weighted assets):                                                                                                      
                                                              Greater than or                                            
   Consolidated                       $33,794,000     10.8%   equal to $24,954,000    8.0%             N/A               
                                                              Greater than or                Greater than or             
   North Country Bank & Trust         $27,909,000     11.1%   equal to $20,158,000    8.0%   equal to $25,197,000   10.0%
                                                              Greater than or                Greater than or             
   North Country Bank                 $ 6,169,000     10.6%   equal to $4,649,000     8.0%   equal to $5,812,000    10.0%

Tier I capital (to risk- weighted assets):                                                                               
                                                              Greater than or                                            
   Consolidated                       $29,895,000      9.6%   equal to $12,477,000    4.0%             N/A               
                                                              Greater than or                Greater than or             
   North Country Bank & Trust         $24,739,000      9.8%   equal to $10,079,000    4.0%   equal to $15,118,000    6.0%
                                                              Greater than or                Greater than or             
   North Country Bank                 $ 5,441,000      9.4%   equal to $2,324,000     4.0%   equal to $3,487,000     6.0%

Tier I capital (to average assets):                                                                                      
                                                              Greater than or                                            
   Consolidated                       $29,895,000      7.2%   equal to $16,684,000    4.0%             N/A               
                                                              Greater than or                Greater than or             
   North Country Bank & Trust         $24,739,000      7.3%   equal to $13,504,000    4.0%   equal to $16,880,000    5.0%
                                                              Greater than or                Greater than or             
   North Country Bank                 $ 5,441,000      7.1%   equal to $3,074,000     4.0%   equal to $3,843,000     5.0%

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NOTE 16 - SHAREHOLDERS' EQUITY (CONTINUED)                                      

The Bank is restricted by banking regulations from making dividend distributions
above  prescribed  amounts.  At  December  31,  1998,  the Bank  could have paid
$9,829,000 of additional  dividends to the Corporation  without prior regulatory
approval.                                                                       

NOTE 17 - STOCK OPTION PLANS                                                    

The  Corporation  adopted two stock option  plans in 1997,  one for officers and
employees and one for nonemployee directors. A total of 600,000 shares were made
available  for grant  under  these  plans.  The  Corporation  also  sponsors  an
additional  employee and director  stock option plan. A total of 148,500  shares
were made available for grant under this plan.                                  

Options  under all of the plans are granted at the  discretion of a committee of
the  Corporation's  Board  of  Directors.  Options  to  purchase  shares  of the
Corporation's  stock are  granted at a price  equal to the  market  price of the
stock at the date of grant. The committee, within guidelines of no less than six
months and no greater than ten years, as established under the plans, determines
the vesting of the options when they are granted.                               

The fair value of each option  granted is  estimated on the grant date using the
Black-Scholes  methodology.  The following  assumptions  were made in estimating
fair value for options granted for the years ended December 31:                 

                                                                [Download Table]
                                                     1998            1997
                                                                         
Dividend yield                                      1.00%           1.25%
Risk-free interest rate                             4.72%           5.14%
Weighted average expected life (years)              7.0             7.0  
Expected volatility                                10.04%          11.45%

The weighted average fair value of options granted as of their grant date, using
the assumptions shown above, was computed at $0.39 per share for options granted
in 1998 and $0.37 per share for options granted in 1997. No options were granted
in 1996.                                                                        

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - STOCK OPTION PLANS (CONTINUED)                                        

No compensation  cost has been recognized for the plans. Had  compensation  cost
been  determined  on the basis of fair value,  net income and earnings per share
would have been reduced for the years ended December 31, as follows:            

                                                                [Download Table]
                                  1998            1997   
Net income:                                              
                                                         
    As reported                $  4,561,190  $  4,105,659
                               ============  ============
    Pro forma                  $  4,550,149  $  4,100,889
                               ============  ============
Earnings per share - Basic:                              

    As reported                $       0.65  $       0.58
                               ============  ============
    Pro forma                  $       0.65  $       0.57
                               ============  ============
Earnings per share - Diluted:                            

             As reported       $       0.64  $       0.57
                               ============  ============
             Pro forma         $       0.63  $       0.57
                               ============  ============

Following is a summary of stock option transactions for the years ended December
31:                                                                             

                                                        [Enlarge/Download Table]
                                                            Number of Shares               
                                                1998               1997               1996 
                                                                                           
Outstanding at beginning of year                  198,759             75,600        108,000
Granted during the year                           163,200            153,309               
Exercised during the year (at prices                                                       
  ranging from $3.67 to $15.00 per share)         (30,064)           (30,150)      (32,400)
                                           --------------      -------------   ----------- 
Outstanding at end of year                        331,895            198,759        75,600 
                                           ==============      =============   =========== 
Weighted average exercise price per share                                                  
  at end of year                           $        16.97      $       12.51   $      4.14 
                                           ==============      =============   =========== 
Available for grant at end of year                883,491          1,046,691           -0- 
                                           ==============      =============   =========== 

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NOTE 17 - STOCK OPTION PLANS (CONTINUED)                                        

Options granted during 1998 were granted at prices of $19.00 and $20.33. Options
granted in 1997 were granted at a price of $15.00.  Under these  plans,  options
expire ten years after the date of grant.                                       

Following is a summary of the options outstanding at December 31, 1998:         

                                                                [Download Table]
                          Outstanding Options               Exercisable Options 
                                Weighted                                        
                                 Average       Weighted                 Weighted
                                Remaining       Average                  Average
   Exercise                     Contractual    Exercise                 Exercise
  Price Range    Number         Life-Years       Price    Number         Price  
                                                                                
$4.17 to $15.00  168,695         8.1           $  13.07  168,695        $ 13.07 
  $19.00          13,200         9.3              19.00      -0-            -0- 
  $20.33         150,000         9.5              20.33      -0-            -0- 
                 -------         ---           --------  -------        ------- 
                 331,895         8.8           $  16.97  168,695        $ 13.07 
                 =======         ===           ========  =======        ======= 

NOTE 18 - OTHER COMPREHENSIVE INCOME (DEFICIT)                                  

Other  comprehensive  income  (deficit)  components  and  related  taxes were as
follows:                                                                        

                                                        [Enlarge/Download Table]
                                                       1998           1997       1996  
                                                                                       
     Unrealized holding gains and (losses) on                                          
       available for sale securities                $ 116,212  $ 313,010    $ (355,901)
     Less reclassification adjustments for gains                                       
           and (losses) later recognized in income     44,504    (60,163)       (7,899)
                                                    ---------  ---------    ---------- 
         Net unrealized gains and (losses)             71,708    373,173      (348,002)
         Tax effect                                    24,381    126,879      (118,321)
                                                    ---------  ---------    ---------- 

Other comprehensive income (deficit)                $  47,327  $ 246,294    $ (229,681)
                                                    =========  =========    ========== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - SEGMENT INFORMATION                                                   

North  Country  Financial  Corporation,   through  the  branch  network  of  its
subsidiary,  North  Country  Bank & Trust,  provides a broad range of  financial
services to  individuals  and  companies in northern  Michigan.  These  services
include demand, time and savings deposits;  lending and lease financing;  credit
card  servicing;  ATM processing and cash  management.  While the  Corporation's
chief  decision  makers monitor the revenue  streams of the various  Corporation
products and  services,  operations  are managed and  financial  performance  is
evaluated on a  Corporation-wide  basis.  Accordingly,  all of the Corporation's
banking  operations  are  considered  by  management  to be  aggregated  in  one
reportable operating segment.                                                   

NOTE 20 - COMMITMENTS, CONTINGENCIES, AND CREDIT RISK                           

Financial Instruments With Off-Balance-Sheet Risk                               

The Corporation is a party to financial instruments with  off-balance-sheet risk
in the normal course of business to meet the financing  needs of its  customers.
These  financial  instruments  include  commitments to extend credit and standby
letters of credit.  Those instruments  involve, to varying degrees,  elements of
credit risk in excess of the amount recognized in the balance sheets.           

The Corporation's exposure to credit loss, in the event of nonperformance by the
other party to the financial  instrument  for  commitments  to extend credit and
standby  letters of credit,  is represented by the  contractual  amount of those
instruments. The Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.        
These commitments at December 31 are as follows:                                

                                                                [Download Table]
                                   1998          1997     
                                                          
Commitments to extend credit  $ 128,059,000  $  39,992,000
Standby letters of credit        14,869,000      2,214,000
Credit card commitments           2,782,000      2,935,000
                              -------------  -------------
                              $ 145,710,000  $  45,141,000
                              =============  =============

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (CONTINUED)               

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash  requirements.  The Corporation  evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,  if
deemed  necessary  by the  Corporation  upon  extension  of credit,  is based on
management's  credit  evaluation  of the party.  Collateral  held varies but may
include accounts  receivable;  inventory;  property,  plant, and equipment;  and
income-producing commercial properties.                                         

Standby letters of credit are conditional  commitments issued by the Corporation
to guarantee the  performance of a customer to a third party.  Those  guarantees
are primarily issued to support public and private borrowing  arrangements.  The
credit risk  involved in issuing  letters of credit is  essentially  the same as
that involved in extending loan  facilities to customers.  The  commitments  are
structured to allow for 100% collateralization on all standby letters of credit.

Credit  card   commitments  are  commitments  on  credit  cards  issued  by  the
Corporation's subsidiary and serviced by other companies.  These commitments are
unsecured.                                                                      

Contingencies                                                                   

In the normal course of business,  the  Corporation is involved in various legal
proceedings.  In the opinion of  management,  any liability  resulting from such
proceedings  would  not  have a  material  adverse  effect  on the  consolidated
financial statements.                                                           

Concentration of Credit Risk                                                    

The Corporation's subsidiary banks grant residential,  commercial, agricultural,
and consumer loans throughout  Michigan's Upper Peninsula.  Due to the diversity
of locations, the ability of debtors to honor their contracts is not tied to any
particular economic sector.                                                     

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Notes to Consolidated Financial Statements                                      

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS                                   

Fair value  estimates,  methods,  and  assumptions  are set forth  below for the
Corporation's financial instruments:                                            

     Cash and cash equivalents - The carrying values approximate the fair values
for these assets.                                                     

     Investment securities - Fair values are based on quoted market prices where
     available.  If a  quoted  market  price  is not  available,  fair  value is
estimated using quoted market prices for similar securities.          

     Loans - Fair values are  estimated  for  portfolios  of loans with  similar
     financial characteristics. Loans are segregated by type such as commercial,
     residential  mortgage,  and  other  consumer.  The  fair  value of loans is
     calculated  by  discounting  scheduled  cash  flows  using  discount  rates
reflecting the credit and interest rate risk inherent in the loan.    

     The methodology in determining fair value of nonaccrual loans is to average
     them into the blended interest rate at 0% interest.  This has the effect of
     decreasing  the  carrying  amount  below  the  risk-free  rate  amount  and
therefore discounts the estimated fair value.                         

     Impaired  loans are  measured at the  estimated  fair value of the expected
     future cash flows at the loan's  effective  interest rate or the fair value
     of the collateral for loans which are collateral dependent.  Therefore, the
     carrying values of impaired loans approximate the estimated fair values for
these assets.                                                         

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Notes to Consolidated Financial Statements                                      

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)                       

     Deposit  liabilities - The fair value of deposits with no stated  maturity,
     such as  non-interest-bearing  demand deposits and savings, is equal to the
     amount  payable  on  demand  at the  reporting  date.  The  fair  value  of
     certificates  of deposit is based on the  discounted  value of  contractual
     cash flows  applying  interest  rates  currently  being  offered on similar
certificates.                                                         

     Short-term and other  borrowings - Rates currently  available for debt with
     similar terms and remaining  maturities are used to estimate the fair value
     of existing  debt.  The fair value of  borrowed  funds due on demand is the
amount payable at the reporting date.                                 

     Off-balance-sheet  instruments - The fair value of commitments is estimated
     using the fees currently charged to enter into similar  agreements,  taking
     into account the remaining  terms of the agreements,  the current  interest
     rates, and the present  creditworthiness of the counterparties.  Since this
amount is immaterial, no amounts for fair value are presented.        

The following table presents  information for financial  instruments at December
31:                                                                             

                                                        [Enlarge/Download Table]
                                                  1998                      1997            

                                      Carrying        Estimated     Carrying      Estimated 
                                       Amount         Fair Value     Amount       Fair Value
                                                              (In Thousands)                
Financial assets:                                                                           
                                                                                            
     Cash and cash equivalents        $  22,640      $   22,640     $  11,143      $ 11,143 
     Investment securities               11,711          11,711        13,147        13,147 

     Total loans                        411,720                       372,519               
     Allowance for loan losses           (6,112)                       (5,600)              
                                      ---------      ----------     ---------      -------- 
         Net loans                      405,608         414,609       366,919       374,057 
                                      ---------      ----------     ---------      -------- 
Total financial assets                $ 439,959      $  448,960     $ 391,209      $398,347 
                                      =========      ==========     =========      ======== 
Financial liabilities:                                                                      
     Deposits                         $ 404,961      $  406,334     $ 360,549      $361,138 
     Short-term and other borrowings     23,270          22,380        20,823        19,146 
                                      ---------      ----------     ---------      -------- 
Total financial liabilities           $ 428,231      $  428,714     $ 381,372     $ 380,284 
                                      =========      ==========     =========      ======== 

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Notes to Consolidated Financial Statements                                      

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)                       

Limitations - Fair value estimates are made at a specific point in time based on
relevant  market  information and  information  about the financial  instrument.
These  estimates  do not reflect any premium or discount  that could result from
offering for sale at one time the Corporation's  entire holdings of a particular
financial instrument.  Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience,  current  economic  conditions,  risk
characteristics  of various  financial  instruments,  and other  factors.  These
estimates  are  subjective  in nature and involve  uncertainties  and matters of
significant judgment and therefore cannot be determined with precision.  Changes
in assumptions could  significantly  affect the estimates.  Fair value estimates
are based on existing on- and  off-balance-sheet  financial  instruments without
attempting to estimate the value of anticipated future business and the value of
assets  and  liabilities   that  are  not  considered   financial   instruments.
Significant  assets and liabilities that are not considered  financial assets or
liabilities include premises and equipment, other assets, and other liabilities.
In addition,  the tax ramifications related to the realization of the unrealized
gains and losses can have a significant  effect on fair value estimates and have
not been considered in the estimates.                                           

NOTE 22 - SUPPLEMENTARY INCOME STATEMENT INFORMATION                            

Details of other operating expenses in the consolidated statements of income are
as follows for the years ended December 31:                                     

                                                                [Download Table]
                                               1998       1997        1996   
                                                                             
Forms and supplies                        $ 391,093  $   498,635  $   538,863
Amortization of acquisition intangibles     789,663      719,071      593,220
Legal and consulting fees                   553,078      448,324      371,344
Data processing                           1,566,382      853,841      245,722
Telephone                                   656,354      304,760      213,775
Courier costs                               546,473      162,117      103,229
Other                                     3,105,761    3,699,752    2,490,029
                                         ----------  -----------  -----------
                                         $7,608,804  $ 6,686,500  $ 4,556,182
                                         ==========  ===========  ===========

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Notes to Consolidated Financial Statements                                      

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23 - PARENT COMPANY ONLY FINANCIAL STATEMENTS                              

BALANCE SHEETS
December 31, 1998 and 1997

                                                        [Enlarge/Download Table]
                                     ASSETS                                          

                                                                1998          1997   
                                                                                     
Cash and cash equivalents                                   $   999,979  $  1,152,760
Investment in subsidiaries                                   38,802,583    36,789,622
Other assets                                                  1,057,482       789,668
                                                            -----------  ------------
TOTAL ASSETS                                                $40,860,044  $ 38,732,050
                                                            ===========  ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY                           

Liabilities:                                                                         
     Accrued expenses                                       $   602,906  $    564,665
     Other borrowings                                           787,773     1,575,312
                                                            -----------  ------------
     Total liabilities                                        1,390,679     2,139,977

Total shareholders' equity                                   39,469,365    36,592,073
                                                            -----------  ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                  $40,860,044  $ 38,732,050
                                                            ===========  ============

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Notes to Consolidated Financial Statements                                      

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)                  

STATEMENTS OF INCOME
 Years Ended December 31, 1998, 1997, and 1996

                                                        [Enlarge/Download Table]
                                                  1998          1997             1996   
Income:                                                                                 
                                                                                        
     Dividends received from subsidiaries     $  3,250,000   $  4,377,878   $   400,000 
     Net security losses                               -0-        (41,888)          -0- 
     Other                                          31,809          9,317         3,600 
                                              ------------   ------------   ----------- 
         Total income                            3,281,809      4,345,307       403,600 
                                              ------------   ------------   ----------- 
Expenses:                                                                               
     Salaries and benefits                         142,329        270,038       152,365 
     Interest                                       95,272        123,191       254,077 
     Other                                         595,284        398,325       352,638 
                                              ------------   ------------   ----------- 
         Total expenses                            832,885        791,554       759,080 
                                              ------------   ------------   ----------- 
Income (loss) before credit for income                                                  
  taxes and equity in undistributed net                                                 
  income of subsidiaries                         2,448,924      3,553,753      (355,480)
Credit for income taxes                           (146,632)      (258,964)     (120,863)
                                              ------------   ------------   ----------- 
Income (loss) before equity in undistributed                                            
  net income of subsidiaries                     2,595,556      3,812,717      (234,617)
Equity in undistributed net income of                                                   
 subsidiaries                                    1,965,634        292,942     3,068,801 
                                              ------------   ------------   ----------- 
Net income                                    $  4,561,190   $  4,105,659   $ 2,834,184 
                                              ============   ============   =========== 

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Notes to Consolidated Financial Statements                                      

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)                  

STATEMENTS OF CASH FLOWS
 Years Ended December 31, 1998, 1997, and 1996

                                                        [Enlarge/Download Table]
                                                                  1998          1997       1996         
Increase (decrease) in cash and cash equivalents:                                                       
     Cash flows from operating activities:                                                              
                                                                                                        
        Net income                                           $  4,561,190   $  4,105,659   $  2,834,184 
                                                             ------------   ------------   ------------ 
         Adjustments to reconcile net income to net                                                     
           cash provided by (used in) operating activities:                                             
              Loss on sale of equity securities                       -0-         41,888            -0- 
              Gain on sale of premise and equipment               (31,600)           -0-            -0- 
              Provision for depreciation and                                                            
                amortization                                        4,872            -0-          8,000 
              Equity in undistributed net income                                                        
                of subsidiaries                                (1,965,634)      (292,942)    (3,068,801)
              Change in other assets                             (111,636)      (487,485)      (120,599)
              Change in accrued expenses                           38,241        402,536        162,129 
                                                             ------------   ------------   ------------ 
                  Total adjustments                            (2,065,757)      (336,003)    (3,019,271)
                                                             ------------   ------------   ------------ 
     Net cash provided by (used in) operating                                                           
       activities                                               2,495,433      3,769,656       (185,087)
                                                             ------------   ------------   ------------ 
     Cash flows from investing activities:                                                              
         Investment in subsidiaries                                   -0-     (4,052,914)    (4,810,280)
         Payment for purchase of equity                                                                 
           securities                                            (110,922)           -0-       (359,188)
         Proceeds from sales of equity                                                                  
           securities                                              10,000        317,300            -0- 
         Proceeds from sale of premise and equipment              100,000            -0-            -0- 
         Capital expenditures                                      (3,528)           -0-            -0- 
                                                             ------------   ------------   ------------ 
     Net cash used in investing activities                         (4,450)    (3,735,614)    (5,169,468)
                                                             ============   ============   ============ 

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Notes to Consolidated Financial Statements                                      

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)                  

STATEMENTS OF CASH FLOWS (CONTINUED)
 Years Ended December 31, 1998, 1997, and 1996

                                                        [Enlarge/Download Table]
                                               1998          1997           1996      
     Cash flows from financing activities:                                            
                                                                                      
         Proceeds from other borrowings     $      -0-   $        -0-   $   5,262,851 
         Principal payments on other                                                  
           borrowings                         (787,539)      (787,539)     (2,900,000)
         Proceeds from issuance of                                                    
           common stock                      1,191,638      1,868,178       5,684,185 
         Retirement of common stock         (1,796,639)      (831,606)            -0- 
         Dividends paid                     (1,251,224)    (1,182,014)       (910,003)
                                            ----------   ------------    ------------ 
     Net cash provided by (used in)                                                   
           financing activities             (2,643,764)      (932,981)      7,137,033 
                                            ----------   ------------    ------------ 
Net increase (decrease) in cash and                                                   
  cash equivalents                            (152,781)      (898,939)      1,782,478 

Cash and cash equivalents at beginning       1,152,760      2,051,699         269,221 
                                            ----------   ------------   ------------- 
Cash and cash equivalents at end            $  999,979    $ 1,152,760   $   2,051,699 
                                            ==========   ============   ============= 

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                                                         Selected Financial Data

NORTH COUNTRY FINANCIAL CORPORATION AND SUBSIDIARIES

 SELECTED FINANCIAL DATA
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                           Year ended December 31,                  
                                   1998         1997           1996           1995              1994
                                              (Thousands of dollars, except per share amounts)      
                                                                                                    
Interest income                  $  38,498   $  35,964      $  28,724      $   22,100     $  13,798 
Interest expense                   (17,815)    (15,898)       (12,674)         (9,561)       (6,053)
                                 ---------   ---------      ---------      ----------     --------- 
     Net interest income            20,683      20,066         16,050          12,539         7,745 
Net security gains (losses)             45         (60)            (8)            (19)           75 
Other income                         2,606       1,698          1,368           1,373         1,037 
Provision for loan losses           (1,200)     (1,398)        (2,424)           (771)         (330)
Other expenses                     (16,603)    (14,797)       (11,609)         (9,368)       (6,101)
                                 ---------   ---------      ---------      ----------      -------- 
     Income before income taxes      5,531       5,509          3,377           3,754         2,426 
Provision for income taxes            (970)     (1,403)          (543)         (1,084)         (458)
                                 ---------   ---------      ---------      ----------     --------- 
     Net income                  $   4,561   $   4,106      $   2,834      $    2,670     $   1,968 
                                 =========   =========      =========      ==========     ========= 

Total assets                     $ 471,381   $ 421,434      $ 367,160      $  282,791     $ 253,098 
Long term liabilities               23,270      19,628         20,441          10,088         3,553 

Total equity                        39,469      36,592         32,386          25,007        22,483 

Per Share Data:  *                                                                                  
     Net income                  $    0.65   $    0.58      $    0.43      $     0.42     $    0.38 
     Cash dividends              $    0.17   $    0.16      $    0.14      $     0.14     $    0.07 

* Adjusted  for 3 for 1 stock  splits on May 1, 1994,  April 29, 1996 and August
25, 1998                                                                        

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Management's Discussion and Analysis of                                         
Financial Condition and Results of Operations                                   

 NORTH COUNTRY FINANCIAL CORPORATION

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

HIGHLIGHTS                                                                      

For North Country Financial Corporation ("the Corporation"),  1998 was a year of
continued growth.  The Corporation grew  approximately 12 percent.  During 1998,
the  Corporation  added two new  offices  in  Escanaba  and  Gaylord.  Plans are
currently  under way to continue the expansion  into new and  developing  market
areas by adding additional branches in 1999 .                                   

At December 31, 1998,  the  Corporation  had total  assets of $471  million,  an
increase of $50 million from  December 31,  1997.  The current year  increase in
assets represents 100% growth generated internally.  In 1997, the acquisition of
U.P.  Financial  had  accounted for  approximately  54% of the growth,  with the
remaining 46% being generated internally. During 1998, outstanding loan balances
increased 10.52% or $39 million to $412 million. Of the total increase in loans,
$37 million,  or 94.87% came from an increase in the  commercial,  financial and
agricultural loan portfolios.                                                   

The growth in 1998  continues the trend which has  developed  over the past four
years.  From 1994 through  1998,  assets grew by a total of $218 million or 86%,
with approximately 36% of this growth occurring due to acquisitions.  During the
same  period,  loans  grew over  124%,  with  nearly  55% of this  growth  being
internally generated.                                                           

Earnings have also  continued to increase from 1997 to 1998. Net income was $4.6
million, $4.1 million, and $2.8 million for 1998, 1997, and 1996,  respectively.
Return on average shareholders' equity was 11.18%, 12.06%, and 10.12%, for 1998,
1997, and 1996,  respectively.  The decrease in return on average  shareholders'
equity is mainly attributable to the Corporation  purchasing its own stock in an
effort to increase  shareholders'  value.  Basic and diluted  earnings per share
have continued to increase  during this  three-year  period.  Basic earnings per
share were  $0.65 in 1998,  $0.58 in 1997,  and $0.43 in 1996,  an  increase  of
12.07% from 1997 and 51.16% from 1996. This significant increase in earnings per
share is a result of growth in earnings  with a small  decrease  in  outstanding
stock due to the buy back of stock.  In prior years,  the Corporation has issued
stock for acquisitions.  The consolidated  operations of the Corporation in 1998
provided improved profitability through more efficient operations.              

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                                         Management's Discussion and Analysis of
                                   Financial Condition and Results of Operations

Growth remains an important element of the Corporation's  strategy and selective
bank  and  branch  acquisitions  may  continue  to  occur.  However,  management
anticipates  the rate of asset  growth  in the next few years  will be  somewhat
slower  than  recently  experienced.   The  Corporation's  banking  offices  are
currently located in Michigan's Upper Peninsula and northern Lower Peninsula, an
area which  covers a large  geographic  area and has a low  population  density.
Because  of  the  nature  of  this  market  area,  the  cost  of  operating  the
Corporation's  banking network is higher than the average for banking  companies
the same size as the Corporation.  Management's primary focus in the near future
is to increase the operating efficiency of its banking network by increasing the
average deposit level per branch,  increasing lending capabilities in each local
market, and closely monitoring and controlling operating costs.                 

FINANCIAL CONDITION                                                             

Loans                                                                           

Loans represented 87.34% of total assets at the end of 1998,  compared to 88.39%
at the end of 1997. The loan to deposit ratio decreased  slightly  dropping from
103.32% at December 31, 1997 to 101.67% at December 31, 1998.  Loans provide the
most attractive  earning asset yield available to the Corporation and management
believes that the trained  personnel  and controls are in place to  successfully
manage a growing loan portfolio. Accordingly,  management intends to continue to
maintain  loans at the  highest  level  which  is  consistent  with  maintaining
adequate liquidity.                                                             

Following is a summary of the Corporation's loan balances at December 31:       

                                                                [Download Table]
                                                                Percent
                                             1998        1997    Change
                                                                       
Commercial real estate                   $  82,207  $  86,052   (4.47) 
Commercial, financial, and agricultural    136,820     95,631   43.07  
Leases:                                                                
    Commercial                              20,097     11,094   81.15  
    Governmental                            40,098     46,464  (13.70) 
1 - 4 family residential real estate        97,415     95,543    1.96  
Consumer                                    23,160     26,795  (13.57) 
Construction                                11,923     10,940    8.99  
                                         ---------  ---------  ------- 
    Total                                $ 411,720  $ 372,519   10.52% 
                                         =========  =========  ======= 

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Management's Discussion and Analysis of                                         
Financial Condition and Results of Operations                                   

The  Corporation  has  five  major  categories  of  lending   activities.   Four
categories,  commercial real estate,  commercial,  residential real estate,  and
consumer,  are  generally  with  customers in  Michigan,  primarily in the Upper
Peninsula.  The fifth major lending line,  commercial and governmental  leasing,
takes place on a nationwide  basis.  As shown in the table above,  the amount of
outstanding  loans  increased  in the  commercial  loan and  commercial  leasing
categories in 1998.  Management  feels these categories will continue to grow in
the future, with the level of consumer lending continuing to decrease.          

The  Corporation  finances  commercial and  governmental  leases  throughout the
country.  Management  visits  all  originators  twice  a year  to  review  their
operations and credit  controls.  Management is working to diversify its sources
of lease paper.  Management  closely reviews the credit quality of each proposed
lease  before  entering  into a financing  agreement.  Such  reviews may include
visits to major equipment vendors which produce the equipment to be leased or to
the lease customers, including governmental organizations.  The lease agreements
are  strictly  financing;  while the  Corporation  has access to the  underlying
equipment  as  collateral,  there is no  interest in the  residual  value to the
equipment. As illustrated in the table above, most of the leasing activity is to
state and local  governmental  units,  including Native American  organizations.
Management  continues to  aggressively  pursue  leases.  The makeup of the lease
portfolio has remained  substantially  the same from 1995 through 1997. In 1998,
commercial leases increased significantly as the Corporation pursued business in
this lending  arena.  Commercial  leases at December 31, 1998 were 4.9% of total
loans compared to 3.0% in 1997. Interest income from certain of the governmental
leases is exempt from federal income taxes.                                     

For the year,  commercial  loans  increased by $37.34 million or by 20.55%.  The
most  prominent  type of  financing  remains  hospitality  and  tourism  related
industries.  Tourism related financing  represents $60.27 million,  or 27.5%, of
the  commercial  loan  portfolio.  The growth  represents  a continual  business
development by the  Relationship  Bankers and their ability to penetrate  growth
markets such as Marquette and Sault Ste. Marie.  The rest of the commercial loan
portfolio is diversified in such categories as gaming, forestry, and farming.   

Real estate lending on 1-4 family residences makes up the second largest portion
of the loan  portfolio.  This past year,  real estate  loans grew by 1.96% or by
$1.87 million to $97.42 million. Approximately 79% of these loans are adjustable
rate products that have an annual  interest  adjustment.  These loans  typically
have a maximum  adjustment of two percentage points annually and five percentage
points over the life of the loan.  The  Corporation  has  increased its mortgage
banking  activities in 1998 to maintain adequate  asset/liability  risk factors.
Loans made and sold to the secondary  market totaled $21.42 million  compared to
$6.75  million in 1997.  These  loans are sold but  servicing  is retained as it
provides  the  Corporation  with a source of  noninterest  income and a means of
maintaining customer contact.                                                   

The other large portion of the loan portfolio is consumer loans. This segment of
the loan portfolio  represents $23.16 million dollars of the loan portfolio.  In
1998,  consumer  loans dropped by $3.64 million or 13.57%.  This  represents the
direction  management  has  taken to  minimize  risk  associated  with  consumer
lending.  Underwriting  standards  have become more strict to insure that credit
risk is minimized.                                                              

This past year,  the  Allowance  for  Loan/Lease  Losses  reached 1.48% or $6.11
million.  This  represents a continual  effort by  management to provide for any
loan/lease losses that may occur.  Management's direction will be to continually
focus on the Allowance so that the Corporation is properly reserved for the risk
associated with the loan portfolio.                                             

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                                         Management's Discussion and Analysis of
                                   Financial Condition and Results of Operations

As  mentioned in previous  reports,  the  Corporation  entered into a Settlement
Agreement  outside of the Bankruptcy Court proceedings on November 21, 1996 with
Resort  Funding,  Inc.  ("RFI").  Since this time covenants and payments on this
credit have occurred as agreed. Taking in consideration the modest interest rate
(3%) for the 24 months  remaining,  and the fact that payments are interest only
with the  principal  due in two  years,  the loan to RFI has a present  value of
$3,257,939  as of December  31,  1998.  The Bank has  allocated  $423,489 of its
Allowance for Loan and Lease towards this credit.  The financial strength of RFI
was substantially upgraded in 1997 when a creditor converted $25 million of debt
into stock of RFI. This gave RFI approximately  $31 million of equity,  reducing
1997  year-end  debt-to-equity  ratio of 27:1,  down to 3:1. As of December  31,
1998,  RFI has  maintained  its  repayment  schedule  as  agreed  and has  shown
significant  improvement  in the overall  financial  condition  of the  Company.
Management continues to monitor the credit regularly.                           

The Corporation's  success in maintaining  credit quality is demonstrated in the
following table:                                                                

                                                                [Download Table]
                                                   1998      1997        1996 
                                                                              
Allowance to total loans at end of year            1.48%      1.50%      1.46%
Net charge-offs                                 $   687   $    689   $  1,256 
Net charge-offs to average outstanding loans       0.17%      0.20%      0.45%
Net charge-offs to beginning allowance balance    12.28%     15.01%     40.03%
Nonaccrual loans                                  2,174      1,956        -0- 
    Loans 90 days or more delinquent                                          
      (excluding nonaccrual loans)              $ 1,238   $    698   $     68 

Management  analyzes the  allowance for loan losses in detail on a monthly basis
to ensure that losses  inherent in the  portfolio  are properly  recognized.  In
addition to the input of lending  officers,  management  uses an  external  loan
review contractor to examine large commercial real estate, lease, and commercial
loan  relationships.  An internal loan review function is also in place,  with a
primary  objective of reviewing loans below the scope  established by management
for the external contractor.                                                    

Investments                                                                     

During 1998, the Corporation's total investments  decreased $1.53 million,  from
$10.10  million to $8.57  million.  This decrease was primarily the result of an
increase in the  Corporation's  outstanding  loans.  Because of the higher yield
associated  with funds  invested  in loans (as  discussed  above),  management's
desire is to maintain a minimum balance in the investment portfolio.  The amount
to be  maintained  will be the minimum  which will allow us to meet our pledging
requirements.  Most of the  portfolio  is invested in U.S.  Treasury  and agency
securities, which have little credit risk and are highly liquid. The Corporation
classifies  all  securities  as  available  for sale,  in order to maximize  our
ability to react to changing market conditions.                                 

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Deposits                                                                        

Deposit growth has been a key element of the Corporation's  expansion  strategy.
Total deposits at December 31, 1998, were $404.96  million,  compared to $360.55
million at the end of 1997.  Additional  growth has occurred at branch locations
opened in 1997 and 1998. The most  significant  impact on the growth of deposits
is in the savings,  money market and  interest-bearing  demand deposit category.
This increase is directly attributable to the newly offered "Preferred Checking"
account,  which as of December  31,  1998,  paid  interest at a rate of 5.25% on
balances over  $10,000.  Deposits  over  $100,000  consist  primarily of stable,
governmental  balances,  and  balances  from  retail  customers.  There  were no
brokered  deposits at December 31, 1998,  and management has no current plans to
solicit such deposits.                                                          

The  Corporation  is  constantly  looking for stable  sources of  deposits.  One
innovative  approach  is  the  premium-based  certificate  of  deposit  program.
Customers can elect to receive one of several products in place of cash payments
for interest on term certificates.  The Corporation offers firearms, golf clubs,
diamond  jewelry,  and  grandfather  clocks  under  these  programs.   The  most
successful and  long-standing of the programs is the firearm  program,  which is
offered to sportsmen nationally. Under this program, the Corporation records the
cost of the product given as a discount from the face amount of the  certificate
of deposit and recognizes interest expense on the effective interest method over
the life of the certificate.  Total  certificates of deposits  outstanding under
this program were approximately  $1.63 million and $2.61 million at December 31,
1998 and 1997, respectively.                                                    

Another  nontraditional source of deposits is the Corporation's CANSAVE program.
CANSAVE accounts are savings  accounts  denominated in Canadian  dollars.  These
accounts  are  offered in the Sault Ste.  Marie  banking  offices  and had total
balances of $6.4 million in U.S. dollars at December 31, 1998. Such accounts are
available  only to Canadian  citizens who are  attracted to such accounts due to
very low interest rates paid by domestic Canadian banks.                        

Borrowings                                                                      

As previously  discussed,  the  Corporation's  branching network is a relatively
high cost network in  comparison  to peer banking  companies.  Accordingly,  the
Corporation  continues to use  alternative  funding sources to provide funds for
lending activities.  Other borrowings increased in 1998 with a balance of $23.27
million at the end of 1998,  compared to $19.63 million in 1997. At December 31,
1998,  $20.61 million of the borrowings  were from the Federal Home Loan Bank of
Indianapolis. From time-to-time,  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. Management anticipates that
such  borrowings  will continue to be a significant  part of the overall funding
mix of the Corporation.                                                         

Liquidity                                                                       

The Corporation's  sources of liquidity include principal  payments on loans and
investments,  sales of securities  available  for sale,  sales of loans held for
sale, deposits from customers, borrowings from the Federal Home Loan Bank, other
bank  borrowings,  and the issuance of common stock.  The  Corporation 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 Corporation's day-to-day business activities.          

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RESULTS OF OPERATIONS                                                           

Summary                                                                         

Earnings have  continued to increase from 1997 to 1998 as a direct result of the
Corporation's asset growth. Net income was $4.6 million,  $4.1 million, and $2.8
million for 1998, 1997, and 1996,  respectively.  Net income for 1998 was 11.10%
greater than in 1997,  while  assets grew by 11.85% over the same period.  Basic
earnings  per share were  $0.65 in 1998,  $0.58 in 1997,  and $0.43 in 1996,  an
increase of 12.07% in 1998. The increase in basic earnings per share is a result
of  the  combination  of  the  Corporation's   continued   earnings  growth  and
improvements in operations in 1998,  particularly at locations acquired over the
past several years, and the repurchase of Corporation stock during 1998.        

Net interest  income is the primary  source of earnings  growth,  increasing  to
$20.68 million in 1998, from $20.07 million and $16.05 million in 1997 and 1996,
respectively.  The majority of this increase is  attributable to the increase in
volume in the lending  arena  coupled with a decease in overall  deposit  rates.
Noninterest income kept pace with the asset growth in 1998, increasing 61.82% to
$2.65  million.  A  significant  increase  in service fee income from demand and
savings  products and an increase in gains on the sales of loans and investments
accounted for the growth in 1998.  This is a significant  improvement  over 1997
where  noninterest  income  increased  only  slightly  in  comparison  to  1996.
Management feels income from noninterest  sources will become a more significant
component  of the  Corporation's  earnings due to the  expectation  that the net
interest  margin  may  begin  to  decrease  in the  future  due  to  competitive
pressures.  As a result of this expectation,  management  instituted policies in
1997 designed to maximize fees collected for services provided to customers.    

The  increase  in  noninterest  expense to $16.60  million  in 1998 from  $14.80
million and $11.61 million in 1997 and 1996, only slightly  exceeded total asset
growth.  The increase in noninterest  expense was 12.20% compared to total asset
growth of  11.85%.  In 1997,  noninterest  expense  increased  27.47%  over 1996
compared  to total  asset  growth of 14.78%.  Management  continues  to focus on
reducing  noninterest  expense in an effort to  improve  the  efficiency  of the
Corporation's operations.                                                       

Net Interest Income                                                             

The Corporation  continues to emphasize the lending function as a primary source
of interest  income.  The  decreasing  rates in the lending  arena in 1998 had a
significant  impact on the  Corporation's  net interest  income and net interest
margin.  Net interest income as a percentage of total interest income was 53.7%,
55.8%, and 55.9%, in 1998, 1997, and 1996, respectively. Net interest margin was
5.34%, 5.63%, and 5.45%, for the same periods.                                  

Interest income from loans represented  96.85% of total interest income in 1998,
compared  to 96.00% in 1997,  and 93.25% in 1996.  The total  amount of interest
income and the yield on total earning assets is heavily  impacted by the results
from lending activities. The yield on earning assets was 9.52%, 9.86%, and 9.53%
in 1998, 1997, and 1996,  respectively.  This decrease was directly attributable
to the declining rates in the lending area,  with the yield on loans  decreasing
from 10.10% in 1997 to 9.71% in 1998.                                           

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Total interest  expense was $17.82  million in 1998,  compared to $15.90 million
and $12.67  million in 1997 and 1996,  for an increase of 12.06%  since 1997 and
40.56%  since 1996.  While other  sources of funding are  beginning to become an
important  part of the  Corporation's  funding  strategy,  interest  expense  on
deposits still  represented  92.79% of total interest expense in 1998. The yield
on  interest-bearing  liabilities was 4.65%, 4.73%, and 4.56% in 1998, 1997, and
1996, respectively.                                                             

While  overall  cost  of  funds  decreased,  reflective  of the  declining  rate
environment,  the  costing  side  of the  balance  sheet  has  not  declined  in
proportion  to that of the  earning  side.  This is  apparent  in the  continued
decrease or shrinking of the net interest  margin.  In response to the declining
net  interest  margin,  the  Corporation  intends  to  continue  to focus on the
origination of higher yielding loan products,  in addition to reviewing  current
rates paid on deposit products in an effort to reduce interest expense.  Both of
the above  mentioned  steps  would  lead to an  improved  interest  margin  and,
correspondingly, improved profitability.                                        

Provision for Loan Losses                                                       

The  Corporation  maintains the allowance for loan losses at a level  considered
adequate to cover losses inherent in the portfolio.  The  Corporation  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 more
fully described in Note 1 to the accompanying consolidated financial statements.
The  reduction in the  provision  for loan losses to $1.20  million in 1998 is a
result of stable net charge-offs  and overall  improvement in the quality of the
loan portfolio.  The decrease in the provision for loan losses, to $1.40 million
in 1997 from $2.42 million in 1996,  was  primarily a result of  settlement  and
restructuring  of loans with the Bennett Funding Group  (discussed  above).  The
allowance for loan losses decreased in 1998 to 1.48% of total loans, compared to
1.50% at December 31, 1997.                                                     

Noninterest Income                                                              

Noninterest income was $2.65 million,  $1.64 million, and $1.36 million in 1998,
1997, and 1996,  respectively.  The principal  source of  noninterest  income is
service charges on deposit  accounts.  In 1998, such fees were $1.48 million,  a
21.18%  increase  over the amount  recorded  in 1997.  In 1998,  fees on deposit
accounts kept pace with overall asset growth.  This is an improvement  over past
years  since  the  institutions  acquired  had  lower  fee  structures  than the
Corporation.  In 1997, management put into place controls and procedures to help
ensure the Corporation  maximizes its fees for services  rendered.  The increase
noted above is the realization of these changes.                                

Noninterest Expense                                                             

Noninterest  expense has steadily increased from 1996 through 1998. The increase
since 1997 in this  category  was 11.36% for salaries and benefits and 9.67% for
occupancy  expenses.  These  increases  were less than the  Corporation's  asset
growth,  over the same period,  with a downward trend for annual  increases over
the three-year  period ending December 31, 1998. While annual increases in these
expenses are expected,  a primary objective of management is to hold the rate of
increase in these categories below future asset growth. Management believes that
significant  efficiencies have been obtained with further improvements coming in
the future as management continues its outsourcing of back room operations.     

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The Corporation  underwent a significant internal  restructuring process in 1997
and 1998.  Management  not only reduced total  full-time  equivalents by 50, but
also centralized  three key departments of the  Corporation's  sales and service
environment:  the credit  department,  the  operations  department  and the call
center.  The  result is a more  focused  and  effective  team built to serve its
customer's  needs. As a result of this process,  the Corporation will be able to
provide better customer service and have more  cost-effective  operations.  This
transition has effectively  reduced total operating  expenses of the Corporation
in comparison to asset growth.                                                  

The application of purchase  accounting to  acquisitions  created two intangible
assets, the core deposit  intangible and goodwill,  which are being amortized as
described in the notes to the consolidated  financial  statements.  This expense
did not  exist  prior  to the  acquisitions.  The  amortization  of  acquisition
intangibles  was $0.80  million in 1998,  compared to $0.72  million in 1997 and
$0.59 million in 1996.                                                          

Federal Income Taxes                                                            

The  provision  for income taxes is 17.54% of income  before income tax in 1998,
compared  to 25.47% in 1997 and 16.09% in 1996.  The  difference  between  these
rates and the  federal  corporate  income  tax rate of 34% is  primarily  due to
tax-exempt interest earned on loans and investments.                            

INTEREST RATE AND FOREIGN EXCHANGE RATE RISK MANAGEMENT                         

Management  actively  manages  the  Corporation's  interest  rate  risk.  In the
relatively  low interest rate  environment  which has 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.  In general,  management tries to write
commercial  and real  estate  loans at  variable  rates or, when forced to offer
fixed rates due to competitive pressures,  write fixed rate loans for relatively
short terms.  Conversely,  management  has attempted to offer  deposit  products
designed to steer  depositors to longer  periods.  Management has generally been
successful,  with  approximately  65% of  loans  repricing  within  one year and
approximately 29% of certificates of deposit maturing over one year.            

Beyond  general  efforts to shorten  loan  pricing  periods  and extend  deposit
maturities,  management can manage interest rate risk by the maturity periods of
securities purchased, selling securities available for sale, and borrowing funds
with targeted  maturity periods,  among others.  Also, the rate of interest rate
changes can impact the actions taken since the speed of change  affects  various
borrowers and depositors differently.                                           

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Presented below is the  Corporation's GAP table at December 31, 1998. This table
treats all money market  accounts  (approximately  $52  million) as  immediately
repriceable. Management considers the GAP acceptable.                           

                                                        [Enlarge/Download Table]
                                                               GAP Table                                  
                                                              (In Thousands)                              
                               1 - 90    91 - 180   181 - 365      1 - 2      2 - 5     Over 5            
                                Days       Days       Days         Years      Years     Years      Total  
Earning assets                                                                                            
                                                                                                          
Federal funds sold            $  6,048                                                             $ 6,048
Securities                         504   $  3,001   $      1       $      2   $      6  $  5,051     8,565
Loans                          168,027     41,039     57,887         19,664     62,331    62,772   411,720
                              --------   --------   --------       --------   --------  --------   -------
Total earning assets           174,579     44,040     57,888         19,666     62,337    67,823   426,333

Interest-bearing liabilities                                                                              

Savings, NOW, and                                                                                         
  money market                                                                                            
  accounts                     170,981                                                    42,811   213,792
Certificates of deposit         35,582     35,755     33,986         26,489     16,556       725   149,093
Other borrowings                13,788      3,274        267            579      2,012     3,350    23,270
                              --------   --------   --------       --------   --------  --------   -------
Total interest-bearing                                                                                    
  liabilities                  220,351     39,029     34,253         27,068     18,568    46,886   386,155
                              ========   ========   ========       ========   ========  ========  ========
GAP                           $(45,772)  $  5,011   $ 23,635       $ (7,402)  $ 43,769  $ 20,937  $ 40,178
                              ========   ========   ========       ========   ========  ========  ========
Cumulative GAP                $(45,772)  $(40,761)  $(17,126)      $(24,528)  $ 19,241  $ 40,178  $ 40,178
                              ========   ========   ========       ========   ========  ========  ========

The Corporation provides foreign exchange services,  makes loans to, and accepts
deposits from,  Canadian customers primarily at its banking office in Sault Ste.
Marie,  Michigan.  To protect  against  foreign  exchange risk, the  Corporation
monitors  the volume of  Canadian  deposits it takes in and then  invests  these
Canadian  deposits in Canadian  commercial  loans.  As of December 31, 1998, the
Corporation had excess Canadian  liabilities of  approximately  $6.5 million (or
$4.2 million in U.S. dollars). Management anticipates this spread to decrease in
early 1999 as the Canadian loans are expected to increase  faster than deposits.
Management feels the exposure to short-term foreign exchange risk is minimal and
at an acceptable level for the Corporation.                                     

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                      

A derivative  financial  instrument  includes futures,  forwards,  interest rate
swaps,   option   contracts  and  other  financial   instruments   with  similar
characteristics.   The  Corporation  currently  does  not  enter  into  futures,
forwards,  swaps or options.  However,  the  Corporation  is party to  financial
instruments with off-balance-sheet risk in the normal course of business to meet
the  financing  needs of its  customers.  These  financial  instruments  include
commitments to extend credit and standby  letters of credit.  These  instruments
involve to varying degrees,  elements of credit and interest rate risk in excess
of the amount  recognized in the  consolidated  balance  sheets.  Commitments to
extend  credit  are  agreements  to lend to a  customer  as long as  there is no
violation of any condition  established in the contract.  Commitments  generally
have fixed  expiration  dates and may require  collateral  from the  borrower if
deemed necessary by the  Corporation.  Standby letters of credit are conditional
commitments issued by the Corporation to guarantee the performance of a customer
to a third  party  up to a  stipulated  amount  and  with  specified  terms  and
conditions.                                                                     

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Commitments  to extend credit and standby  letters of credit are not recorded as
an asset or liability by the Corporation until the instrument is exercised.     

The Corporation's  exposure to market risk is reviewed on a regular basis by the
Asset/Liability  Committee.  Interest  rate risk is the  potential  of  economic
losses  due to future  interest  rate  changes.  These  economic  losses  can be
reflected as a loss of future net interest  income and/or a loss of current fair
market values. The objective is to measure the effect on net interest income and
to adjust the balance sheet to minimize the inherent risk while at the same time
maximize  income.  Management  realizes  certain risks are inherent and that the
goal is to identify and minimize the risks. Tools used by management include the
standard GAP report and a simulation  model.  The Corporation has no market risk
sensitive  instruments held for trading purposes. At December 31, 1998 and 1997,
it appears the Corporation's market risk is reasonable.                         

CAPITAL                                                                         

It is the policy of the  Corporation to maintain  capital at a level  consistent
with  both  safe and  sound  operations  and  proper  leverage  to  generate  an
appropriate  return on shareholders'  equity.  Capital formation has been key to
the Corporation's  growth.  During 1998, the Corporation raised $1.19 million in
capital through the issuance of common stock. Net income exceeded cash dividends
by $3.31 million in 1998,  $2.92 million in 1997,  and $1.92 million in 1996. In
addition, $373,000, $355,000, and $254,000 of the cash dividends were reinvested
in the Corporation through the dividend  reinvestment program in 1998, 1997, and
1996,  respectively.  The issuance of shares,  retained income, and the dividend
reinvestment  program  increased  shareholder's  equity by $2.88  million  since
December 31, 1997 and $7.08 million since December 31, 1996. Management believes
that significant demand for the Corporation's  common stock exists in its market
area, and that the capital required to take advantage of expansion opportunities
is available  in the local  market,  to the extent that such  capital  cannot be
internally generated.                                                           

As a banking company,  the Corporation is required to maintain certain levels of
capital  under  government   regulation.   There  are  several  measurements  of
regulatory capital and the Corporation is required to meet minimum  requirements
under each  measurement.  The Federal banking  regulators have also  established
capital  classifications  beyond the minimum  requirements in order to risk-rate
deposit  insurance  premiums and to provide trigger points for prompt corrective
action in the event an institution becomes financially troubled.                

Regulatory  capital  is not the same as  shareholders'  equity  reported  in the
accompanying  consolidated  financial  statements.   Certain  assets  cannot  be
considered  assets  for  regulatory  purposes.  The  Corporation's   acquisition
intangibles are examples of such assets.                                        

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Presented below is a summary of the Corporation's  consolidated capital position
in comparison to regulatory requirements:                                       

                                                                [Download Table]
                                                        Tier 1           
                                                      Risk-Based   Total 
                                            Leverage    Capital   Capital
                                              Ratio      Ratio     Ratio 
                                                                         
Regulatory minimum                            4.0%       4.0%       8.0% 
Regulatory designation as well-capitalized    5.0%       6.0%      10.0% 

The Corporation:                                                         
    December 31, 1998                         7.2%       9.4%      10.7% 
    December 31, 1997                         7.2%       9.6%      10.8% 

ISSUED BUT NOT YET ADOPTED ACCOUNTING POLICIES                                  

See  Note  1  to  the  accompanying  consolidated  financial  statements  for  a
discussion  of  accounting  pronouncements  issued by the  Financial  Accounting
Standards Board which the Corporation is not required to implement until periods
subsequent to December 31, 1998.                                                

IMPACT OF INFLATION AND CHANGING PRICES                                         

The  accompanying  financial  statements  have been prepared in accordance  with
generally  accepted  accounting  principles,  which require the  measurement  of
financial  position and results of  operations  in  historical  dollars  without
considering the change in the relative  purchasing  power of money over time due
to inflation.  The impact of inflation is reflected in the increased cost of the
Corporation's  operations.   Nearly  all  the  assets  and  liabilities  of  the
Corporation  are  financial,  unlike  industrial or commercial  companies.  As a
result,  the  Corporation's  performance  is  directly  impacted  by  changes in
interest rates,  which are indirectly  influenced by inflationary  expectations.
The  Corporation's  ability to match the interest  sensitivity  of its financial
assets  to the  interest  sensitivity  of its  financial  liabilities  tends  to
minimize  the  effect  of  changes  in  interest  rates  on  the   Corporation's
performance.  Changes  in  interest  rates do not  necessarily  move to the same
extent as changes in the price of goods and services.                           

NEW DEVELOPMENTS                                                                

As  briefly  mentioned  in the  Letter  to  the  Shareholders,  the  Corporation
continues to seek and develop new and existing  business  opportunities.  In the
coming year,  the  Corporation  will be engaging in the  following  exciting new
developments:                                                                   

     The Corporation  will be completing a Trust Preferred Stock offering in the
     amount of $15 million. Amounts raised through this offering will be used to
support capital and growth of the Corporation.                        

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     The  Corporation  will also  finalize the formation of a new company in the
     Denver, Colorado area known as North Country Securities,  Inc. This company
     will  primarily  be involved in the offering of  municipal  securities  and
municipal lease financing.                                            

     Completion of two branch  acquisitions  will also be finalized in 1999. The
     addition  of  the  Kaleva  and   Mancelona   branches   will  increase  the
Corporation's deposit base by approximately $20,000,000.              

     Finally,  the Corporation  will be entering into a partnership with a newly
     formed  banking  institution  located in Grand Rapids,  Michigan.  As a 20%
     shareholder  in this new  venture,  the  Corporation  will  benefit  in the
long-term growth and earnings this investment can provide.            

YEAR 2000 COMPLIANCE                                                            

Because many computerized systems use only two digits to record the year in date
fields (for  example,  the year 1998 is recorded as 98), such systems may not be
able to accurately  process dates ending in the year 2000 and after. The effects
of the issue  will vary from  system to  system  and may  adversely  affect  the
ability  of a  financial  institution's  operations  as well as its  ability  to
prepare financial statements.                                                   

Corporation  management  has developed and the Board of Directors has approved a
comprehensive  Year 2000  Compliance  Plan.  The plan  consists of five  phases:
awareness,   assessment,   renovation,   validation  and   implementation.   The
Corporation  has an internal  task force to assess Year 2000  compliance  by the
Corporation, its vendors, and major deposit and loan customers. In addition, the
Bank has been  contacting  commercial  borrowers  about Year 2000  compliance to
avoid any negative impact on the quality of the loan portfolio.                 

To  date,  the  Corporation  has  spent  approximately  $225,000  on  Year  2000
compliance and expect to spend an additional $500,000 to complete this work.    

The  Corporation  presently  anticipates  that it will  complete  its Year  2000
assessment and remediation by April of 1999. However,  there can be no assurance
that  the  Corporation   will  be  successful  in  implementing  its  Year  2000
remediation  plan  according  to the  anticipated  schedule.  In  addition,  the
Corporation may be adversely  affected by the inability of other companies whose
systems interact with the Corporation to become Year 2000 compliant.            

The Bank's core  processing  applications  are provided by a third party vendor,
LASCO  Development   Corporation   (LASCO).  The  Corporation  receives  regular
correspondence  from  LASCO  which  documents  the  status  of their  Year  2000
compliance.  The  Corporation  has been  advised  that LASCO  software  has been
successfully tested for Year 2000 compliance.                                   

Although the Corporation  expects its internal systems to be Year 2000 compliant
as  described  above,  the  Corporation  has  prepared a  contingency  plan that
specifies what it plans to do if important  internal or external systems are not
Year 2000 compliant in a timely manner.                                         

Management  does  not  anticipate  that  the  Corporation  will  incur  material
operating  expenses  or be  required to invest  heavily in  additional  computer
system  improvements to be Year 2000 compliant.  Nevertheless,  the inability of
the  Corporation  to  successfully  address  Year 2000  issues  could  result in
interruptions in the  Corporation's  business and have a material adverse effect
on the Corporation's results of operations.                                     

55. 

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Officers and Directors                                                          

 NORTH COUNTRY FINANCIAL CORPORATION
 Michael C. Henricksen, Chairman
 Thomas G. King, Vice Chairman
 Ronald G. Ford, President and Chief Executive Officer
 Sherry L. Littlejohn, Executive Vice President, Chief Operating Officer
and Treasurer 
 Paulette M. Demers, Secretary

NORTH COUNTRY FINANCIAL CORPORATION BOARD OF DIRECTORS

 CHARLES B. BEAULIEU
Owner, Beaulieu's Funeral Home

C. RONALD DUFINA
Balsam Shop, Inc., Ramas, Inc., HRD, Inc., Island Leasing, Inc.,
 Mackinac Island Hospitality, Inc.

RONALD G. FORD
 President and Chief Executive Officer, North Country Financial Corporation,
 First Manistique Agency Corporation, First Northern Services Corporation,
 First Rural Relending Corporation
Chairman and Chief Executive Officer, North Country Bank and Trust

 STANLEY J. GEROU II
 Owner, Days Inn & Comfort Inn (Munising),
Gerou Excavating

 MICHAEL C. HENRICKSEN
 Owner, Satellite Services

THOMAS G. KING
 President of Top of Lake Investment Company

JOHN D. LINDROTH
President, Superior State Agency, Inc.

JOHN P. MILLER
Owner, Peoples Store Co., Inc.

 BERNARD A. BOUSCHOR
Tribal Chairman, Sault Tribe of Chippewa Indians

SHERRY L. LITTLEJOHN
 President and Chief Operating Officer, North Country Bank and Trust

 56.

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                                                          Officers and Directors

NORTH COUNTRY BANK AND TRUST
Chairman, Ronald G. Ford, President and Chief Executive Officer,
North Country Financial Corporation,
First Manistique Agency Corporation, First Northern Services Corporation
 First Rural Relending Corporation; Chief Executive Officer,
North Country Bank and Trust
 Vice Chairman, John D. Lindroth, President, Superior State Agency, Inc.
Sherry L. Littlejohn, President and Chief Operating Officer,
North Country Bank and Trust
 Robert Arfstrom, Owner, Arfstrom Pharmacy
 Paul W. Arsenault, Owner, Concepts Consulting
 Bernard A. Bouscher, Tribal Chairman, Sault Tribe of Chippewa Indians
C. Ronald DuFina, Balsam Shop, Inc., Ramas, Inc., HRD, Inc.,
Island Leasing, Inc., 
 Mackinac Island Hospitality, Inc.
 Stanley J. Gerou II, Owner, Days Inn & Comfort Inn (Munising), Gerou Excavating
Michael C. Henricksen, Owner, Satellite Services
 Wesley Hoffman, Attorney, (Partner in the law firm of Barstow, Selsor, Hoffman)
 G. David Jukuri, Owner, Century 21 Agency
Thomas G. King, Owner, President of Top of Lake Investment Company
John P. Miller, Owner, Peoples Store Co., Inc.
 Richard A. Paidl, Manager- Stephenson Marketing Association

 FIRST MANISTIQUE AGENCY CORPORATION
 Ronald G. Ford, President & CEO
Sherry L. Littlejohn, Executive Vice President & COO
 Paulette M. Demers, Secretary-Treasurer

 FIRST NORTHERN SERVICES CORPORATION
 Ronald G. Ford, President & CEO
Sherry L. Littlejohn, Executive Vice President & COO
 Paulette M. Demers, Secretary-Treasurer

 FIRST RURAL RELENDING CORPORATION
 Ronald G. Ford, President & CEO
Sherry L. Littlejohn, Executive Vice President & COO
 Paulette M. Demers, Secretary-Treasurer

 NCB REAL ESTATE COMPANY
 Ronald G. Ford, President & CEO
Sherry L. Littlejohn, Executive Vice President & COO
 Paulette M. Demers, Secretary-Treasurer

COMMUNITY BANK BOARD DIRECTORS

Sault Ste. Marie
  Carol Brawley                  Edward Graves                Theodore Haapala
Anthony Bosbous                                              Timothy Lukenda

Copper Country
Robert Nara                   Lawrence Julio                Glen Tolksdorf
Dell Harma                    John Hawley                    Steve Vairo
57. 

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FINANCIAL AFFILIATES
North Country Bank and Trust
 Sherry L. Littlejohn, President and Chief Operating Officer
906-341-8401 or 1-800-236-2219

 SHAREHOLDER INFORMATION
 For information or to assist with questions, please
contact Shirley Young at
906-341-8401 or 1-800-236-2219

DIVIDEND REINVESTMENT PLAN
 Shareholders may acquire additional shares of
 North Country Financial Corporation stock free of
service charges. For information, please contact
 Shirley Young
906-341-8401 or 1-800-236-2219

STOCK TRANSFER AGENT
 For questions regarding transfer of stock, please
contact Shirley Young at 906-341-8401 or 1-800-236-2219 or
Registrar & Transfer Company at 1-800-866-1340

 EXECUTIVE OFFICES
130 South Cedar Street
P.O. Box 369
Manistique, Michigan 49854
906-341-8401

 WORLD WIDE WEB SITE
 http://www.ncbt.com

58. 

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Exhibit 21 - Subsidiaries of Registrant                                         

North County Bank and Trust - 100% owned                      
Incorporated as a Michigan Banking Corporation                
130 South Cedar Street                                        
Manistique, MI 49854                                          

First Manistique Agency - 100% owned                          
Incorporated as a Michigan Corporation                        
130 South Cedar Street                                        
Manistique, MI 49854                                          

First Rural Relending Company- 100% owned                     
Incorporated as a Michigan Corporation                        
130 South Cedar Street                                        
Manistique, MI 49854                                          

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Exhibit 23 - Consent of Independent Public Accountants                          

Indepedent Auditor's Consent

We consent to the  incorporation by reference in the  Registration  Statement on
Form S-3 (No.  33-61533) of North  Country  Financial  Corporation  (f/k/a First
Manistique  Corporation)  of our report dated January 29, 1999,  relating to the
consolidated   balance  sheet  of  North  Country   Financial   Corporation  and
Subsidiares as of December 31, 1998, and the related consolidated  statements of
income, changes in shareholders' equity, and cash flows for the year then ended,
which report is included in the December 31, 1998, annual report on Form 10-K of
North Country Financial  Corporation and to the continued  reference to our firm
as experts in the prospectus which is a part of the Registration Statement.     

/s/Wipfli Ullrich Bertelson LLP                                                 

Wipfli Ullrich Bertelson LLP                                                    

Appleton, Wisconsin                                                             
March 29, 1999                                                                  

::ODMA\PCDOCS\GRR\250218\4                                                      

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		8/24/24		56
		6/23/08		55
		4/15/04		55
		1/1/00		7
		6/15/99		47
		5/20/99		55
		4/20/99		1					DEF 14A
Filed on:		3/31/99							10-Q
		3/29/99		91
		3/19/99		27
		3/17/99		20
		3/1/99		1		25
		1/29/99		37		91
		1/22/99		33
For Period End:		12/31/98		1		91
		8/25/98		20		74
		4/14/98		2					DEF 14A,  PRE 14A
		3/10/98		2		32
		1/1/98		49		53
		12/31/97		25		84			10-K405
		6/1/97		9
		4/15/97		28					DEF 14A
		2/14/97		37
		2/4/97		49
		2/1/97		56
		1/1/97		20
		12/31/96		25		84			10-K405,  10-K405/A
		11/21/96		78
		9/30/96		7					10-Q
		8/12/96		2
		4/29/96		59		74
		4/23/96		28
		1/31/96		2		49			8-K
		12/31/95		28					10-K405,  8-K/A,  DEF 14A,  PRE 14A
		9/30/95		2					10-Q
		9/29/95		5
		9/15/95		2
		4/18/95		28					DEF 14A
		12/8/94		2
		5/1/94		74
		4/21/94		28
		2/8/94		2
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