<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2004

                                       OR

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

                     For the transition period from <> to <>

                         Commission file number: 0-20167

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

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

 130 SOUTH CEDAR STREET, MANISTIQUE, MI                    49854
(Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code:  (906) 341-7125

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes [X]  No[ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                                 Yes[ ]  No [X]

As of October 31, 2004, there were outstanding 7,019,152 shares of the
registrant's common stock, no par value.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                                      INDEX

<TABLE>
<CAPTION>
                                                                                                                        Page No.
                                                                                                                        --------
<S>                                                                                                                     <C>
PART 1.         Financial Information

      Item 1.        Financial Statements

                     Condensed Consolidated Balance Sheets -
                        September 30, 2004 (Unaudited) and December 31, 2003...........................................      1

                     Condensed Consolidated Statements of Operations - Three
                       And Nine Months Ended September 30, 2004 (Unaudited) and
                       September 30, 2003 (Unaudited)..................................................................      2

                     Condensed Consolidated Statements of Changes in Shareholders'
                       Equity - Three and Nine Months Ended September 30, 2004
                       (Unaudited) and September 30, 2003 (Unaudited)..................................................      3

                     Condensed Consolidated Statements of Cash Flows -
                       Nine Months Ended September 30, 2004 (Unaudited) and
                       September 30, 2003 (Unaudited)..................................................................      4

                     Notes to Condensed Consolidated Financial
                       Statements (Unaudited)..........................................................................      5

      Item 2.        Management's Discussion and Analysis of Financial
                       Condition and Results of Operations.............................................................     14

      Item 3.        Quantitative and Qualitative Disclosures About Market Risk........................................     26

      Item 4.        Controls and Procedures...........................................................................     27

PART II.        Other Information

      Item 1.        Legal Proceedings.................................................................................     30

      Item 6.        Exhibits and Reports on Form 8-K..................................................................     35

SIGNATURES.............................................................................................................     36
</TABLE>

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                     September 30,      December 31,
                                                                         2004              2003
                                                                         ----              ----
                                                                      (Unaudited)
<S>                                                                  <C>                <C>
ASSETS
      Cash and due from banks                                          $   8,210         $   7,433
      Federal funds sold                                                  12,318            15,600
                                                                       ---------         ---------
           Cash and cash equivalents                                      20,528            23,033

      Interest-bearing deposits in other financial institutions            6,126             6,048
      Securities available for sale                                       67,502            84,774
      Federal Home Loan Bank stock                                         4,704             4,544

      Total loans                                                        221,595           297,846
           Allowance for loan losses                                     (10,720)          (22,005)
                                                                       ---------         ---------
      Net loans                                                          210,875           275,841

      Premises and equipment                                              10,927            13,747
      Other real estate held for sale                                      4,650             4,356
      Other assets                                                         6,840            10,196
                                                                       ---------         ---------

           Total assets                                                $ 332,152         $ 422,539
                                                                       =========         =========

LIABILITIES AND SHAREHOLDERS' EQUITY
      Liabilities:
           Non-interest-bearing deposits                               $  23,036         $  26,179
           Interest-bearing deposits                                     200,074           279,615
                                                                       ---------         ---------
                Total deposits                                           223,110           305,794

           Borrowings                                                     85,595            87,026
           Subordinated debentures                                        12,450            12,450
           Other liabilities                                               4,526             6,569
                                                                       ---------         ---------
                Total liabilities                                        325,681           411,839
      Shareholders' equity:
           Preferred stock - No par value:
             Authorized 500,000 shares, no shares outstanding                -0-               -0-
           Common stock - No par value:
             Authorized - 18,000,000 shares
             Issued and outstanding - 7,019,152                           16,175            16,175
           Accumulated deficit                                           (10,530)           (6,502)
           Accumulated other comprehensive income                            826             1,027
                                                                       ---------         ---------

                Total shareholders' equity                                 6,471            10,700
                                                                       ---------         ---------

           Total liabilities and shareholders' equity                  $ 332,152         $ 422,539
                                                                       =========         =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                                                              1.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars in Thousands, Except per Share Data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           Three Months Ended              Nine Months Ended
                                                              September 30,                  September 30,
                                                           2004           2003           2004           2003
                                                           ----           ----           ----           ----
<S>                                                      <C>            <C>            <C>            <C>
Interest income:
      Interest and fees on loans:
           Taxable                                       $  3,341       $  4,387       $ 11,206       $ 15,099
           Tax-exempt                                         276            328            919          1,179
      Interest on securities:
           Taxable                                            612            387          1,884          1,599
           Tax-exempt                                          42             55            128            187
      Other interest income                                   137            161            400            473
                                                         --------       --------       --------       --------
           Total interest income                            4,408          5,318         14,537         18,537
                                                         --------       --------       --------       --------

Interest expense:
      Deposits                                              1,246          2,101          4,289          6,779
      Borrowings                                            1,302          1,198          3,554          3,610
      Subordinated debentures                                 -0-            123            356            368
                                                         --------       --------       --------       --------
           Total interest expense                           2,548          3,422          8,199         10,757
                                                         --------       --------       --------       --------

Net interest income                                         1,860          1,896          6,338          7,780
Provision for loan losses                                       0              0              0              0
                                                         --------       --------       --------       --------
Net interest income after provision for loan losses         1,860          1,896          6,338          7,780
                                                         --------       --------       --------       --------
Other income:
      Service fees                                            225            362            805          1,205
      Loan and lease fee income                                 4             17             13             55
      Net security gains                                      -0-             44            -0-            235
      Net gains on sale of loans                               11             20             31            126
      Other                                                   627            109            744            878
                                                         --------       --------       --------       --------
           Total other income                                 867            552          1,593          2,499
                                                         --------       --------       --------       --------

Other expenses:
      Salaries and employee benefits                        1,302          1,442          4,155          4,475
      Furniture and equipment expense                         247            337            819          1,058
      Occupancy expense                                       193            325            740          1,075
      Data processing                                         282            370            985          1,157
      Accounting, legal, and consulting fees                  419            722          1,397          2,388
      Loan and deposit expense                                296            560          1,389          1,468
      Telephone                                                83            352            315          1,049
      Advertising                                               9             29             52            173
      Other                                                   657            623          2,107          2,231
                                                         --------       --------       --------       --------
           Total other expenses                             3,488          4,760         11,959         15,074
                                                         --------       --------       --------       --------

Loss before provision for income taxes                       (761)        (2,312)        (4,028)        (4,795)
Provision for income taxes                                    -0-            650            -0-          2,329
                                                         --------       --------       --------       --------
Net loss                                                 $   (761)      $ (2,962)      $ (4,028)      $ (7,124)
                                                         ========       ========       ========       ========
Loss per common share:
      Basic                                              $   (.10)      $   (.42)      $   (.57)      $  (1.01)
                                                         ========       ========       ========       ========
      Diluted                                            $   (.10)      $   (.42)      $   (.57)      $  (1.01)
                                                         ========       ========       ========       ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                                                              2.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                 Three Months Ended             Nine Months Ended
                                                     September 30,                September 30,
                                               2004            2003           2004            2003
                                               ----            ----           ----            ----
<S>                                           <C>            <C>            <C>            <C>
Balance, beginning of period                  $  5,885       $ 16,339       $ 10,700       $ 20,503

Net loss for period                               (761)        (2,962)        (4,028)        (7,124)
Net unrealized gain (loss) on securities
  available for sale                             1,347           (517)          (201)          (519)
                                              --------       --------       --------       --------
      Total comprehensive income (loss)            586         (3,479)        (4,229)        (7,643)

Dividends declared                                 -0-            -0-            -0-            -0-
                                              --------       --------       --------       --------

Balance, end of period                        $  6,471       $ 12,860       $  6,471       $ 12,860
                                              ========       ========       ========       ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                                                              3.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                  Nine Months Ended
                                                                                                     September 30,
                                                                                                2004            2003
                                                                                                ----            ----
<S>                                                                                           <C>             <C>
Increase (decrease) in cash and cash equivalents:

      Cash flows from operating activities:
           Net loss                                                                           $  (4,028)      $  (7,124)
           Adjustments to reconcile net loss to
             net cash provided by (used in) operating activities:
                Depreciation and amortization                                                     1,295           2,256
                Provision for impairment of intangible assets                                       -0-              60
                Provision for impairment of other real estate held for sale                          92             220
                Gain on sales of securities                                                         -0-            (235)
                Loss on sales of premises, equipment, and other real estate                          98             192
                FHLB stock dividend                                                                (160)           (113)
                Change in other assets                                                            3,109           6,682
                Change in other liabilities                                                      (2,043)           (856)
                                                                                              ---------       ---------
      Net cash provided by (used in) operating activities                                        (1,637)          1,082
                                                                                              ---------       ---------

      Cash flows from investing activities:
           Net (increase) in interest-bearing deposits in other financial institutions              (78)         (1,340)
           Purchase of securities available for sale                                            (21,910)        (70,680)
           Proceeds from sales of securities available for sale                                     -0-          35,308
           Proceeds from maturities, calls, or paydowns of securities available for sale         38,768          10,246
           Net decrease in loans                                                                 59,813         103,396
           Purchase of premises and equipment                                                       (87)            (41)
           Proceeds from sales of premises, equipment, and other real estate                      6,741           3,845
                                                                                              ---------       ---------
      Net cash provided by investing activities                                                  83,247          80,734
                                                                                              ---------       ---------

      Cash flows from financing activities:
           Net decrease in deposits                                                             (82,684)       (102,684)
           Proceeds from issuance of debt                                                           125             -0-
           Principal payments on borrowings                                                      (1,556)           (398)
                                                                                              ---------       ---------
      Net cash used in financing activities                                                     (84,115)       (103,082)
                                                                                              ---------       ---------

Net change in cash and cash equivalents                                                          (2,505)        (21,266)
Cash and cash equivalents at beginning of period                                                 23,033          43,792
                                                                                              ---------       ---------

Cash and cash equivalents at end of period                                                    $  20,528       $  22,526
                                                                                              =========       =========

Supplemental cash flow information:

Cash paid (refunded) for:
      Interest                                                                                $   8,405       $  11,367
      Income taxes                                                                                  -0-          (3,203)

Noncash investing activities - Transfers of foreclosures from loans to other real estate          5,153           2,741
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                                                              4.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation

      The unaudited condensed consolidated financial statements of North Country
      Financial Corporation (the "Corporation") have been prepared in accordance
      with generally accepted accounting principles for interim financial
      information and the instructions to Form 10-Q and Rule 10-01 of Regulation
      S-X. Accordingly, they do not include all of the information and footnotes
      required by generally accepted accounting principles for complete
      financial statements. In the opinion of management, all adjustments
      (consisting of normal recurring accruals) considered necessary for a fair
      presentation have been included. Operating results for the nine-month
      period ended September 30, 2004, are not necessarily indicative of the
      results that may be expected for the year ending December 31, 2004. The
      unaudited consolidated financial statements and footnotes thereto should
      be read in conjunction with the audited consolidated financial statements
      and footnotes thereto included in the Corporation's Annual Report on Form
      10-K for the year ended December 31, 2003.

      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,
      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.

      In order to properly reflect some categories of other income and other
      expenses, reclassifications of expense and income items have been made to
      prior period numbers. The "net" other income and other expenses was not
      changed due to these reclassifications.

      Allowance for Loan Losses

      The allowance for loan losses includes specific allowances related to
      commercial loans, which were 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 present
      value of future 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.

      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. The allowance does not include the
      effects of expected losses related to future events or future changes in
      economic conditions. This evaluation is inherently subjective since it
      requires material estimates that may be susceptible to significant change.
      Loans are charged against the allowance for loan losses when management
      believes the collectibility of the principal is unlikely. In addition,
      various regulatory agencies periodically review the allowance for loan
      losses. These agencies may require additions to the allowance for loan
      losses based on their judgments of collectibility.

      In management's opinion, the allowance for loan losses is adequate to
      cover probable losses relating to specifically identified loans, as well
      as probable losses inherent in the balance of the loan portfolio as of the
      balance sheet date.

      Stock Option Plans

      The Corporation sponsors three stock option plans. One plan was approved
      during 2000 and applies to officers, employees, and nonemployee directors.
      A total of 500,000 shares were made available for grant under this plan.
      The other two plans, one for officers and employees and the other for
      nonemployee directors, were approved in 1997. A total of 600,000 shares
      were made available for grant under these plans. Options under all of the
      plans expire ten years after the grant date and are granted at the
      discretion of a committee of the

                                                                              5.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

      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 determines the vesting of
      the options when they are granted as established under the plan.

      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 nine months ended
      September 30, 2003. There were no options granted in 2004.

<TABLE>
<CAPTION>
                                         September 30,
                                             2003
                                             ----
<S>                                      <C>
Dividend yield                               0.00%
Risk-free interest rate                      1.25%
Weighted average expected life (years)        7.0
Expected volatility                         29.85%
</TABLE>

      The weighted average fair value of options granted as of their grant date,
      using the assumptions shown above, was computed at $.75 per share for
      options granted in 2003.

      The Corporation accounts for stock options using the intrinsic value
      method. For all options granted, the intrinsic value was zero; therefore,
      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 nine months ended September 30,
      2004 and September 30, 2003 (dollars in thousands, except per share data)
      as follows:

<TABLE>
<CAPTION>
                                                                September 30,        September 30,
                                                                   2004                  2003
                                                                   ----                  ----
<S>                                                           <C>                   <C>
Net loss:

  As reported                                                 $        (4,028)      $        (7,124)
  Total stock-based compensation expense
    determined under fair value-based method, net of tax                  -0-                   (35)
                                                              ---------------       ---------------
  Pro forma                                                   $        (4,028)      $        (7,159)
                                                              ===============       ===============

Loss per share - Basic:

  As reported                                                 $          (.10)      $         (1.01)
                                                              ===============       ===============

  Pro forma                                                   $          (.10)      $         (1.02)
                                                              ===============       ===============

Loss per share - Diluted:

  As reported                                                 $          (.10)      $         (1.01)
                                                              ===============       ===============

  Pro forma                                                   $          (.10)      $         (1.02)
                                                              ===============       ===============
</TABLE>

2.    RECENT ACCOUNTING PRONOUNCEMENTS

      In December 2002, the Financial Accounting Standards Board (FASB) issued
      Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting
      for Stock-Based Compensation - Transition and Disclosure," as an amendment
      to SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 148
      provides alternative methods of transition for a voluntary change to the
      fair value-based method of accounting for stock-based employee
      compensation. The adoption of this change had no material impact on the
      Corporation.

                                                                              6.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

3.    EARNING (LOSS) PER SHARE

      Earnings (loss) per share are based upon the weighted average number of
      shares outstanding.

       The following shows the computation of basic and diluted (loss) per share
      for the three months and nine months ended September 30, 2004 and 2003
      (dollars in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                 Three Months Ended                     Nine Months Ended
                                                                    September 30,                          September 30,
                                                          2004                    2003               2004                2003
                                                          ----                    ----               ----                ----
<S>                                                  <C>                    <C>                <C>                 <C>
Basic (loss) per common share:
   Net (loss)                                        $           (761)      $         (2,962)  $         (4,028)   $         (7,124)
                                                     ================       ================   ================    ================
   Weighted average common shares outstanding                   7,019                  7,019              7,019               7,019
                                                     ================       ================   ================    ================
     Basic (loss) per common share                   $           (.10)      $           (.42)  $           (.57)   $          (1.01)
                                                     ================       ================   ================    ================
Diluted (loss) per common share:

   Net (loss)                                        $           (761)      $         (2,962)  $         (4,028)   $         (7,124)
                                                     ================       ================   ================    ================
   Weighted average common shares outstanding
     for basic (loss) per common share                          7,019                  7,019              7,019               7,019
   Add:  Dilutive effect of assumed exercise
     of stock options                                             -0-                    -0-                -0-                 -0-
                                                     ----------------       ----------------   ----------------    ----------------
   Add:  Dilutive effect of directors' deferred
      stock compensation                                          -0-                    -0-                -0-                 -0-
     Average shares and dilutive potential
       common shares                                            7,019                  7,019              7,019               7,019
                                                     ================       ================   ================    ================

        Diluted (loss) per common share              $           (.10)      $           (.42)  $           (.57)   $          (1.01)
                                                     ================       ================   ================    ================
</TABLE>

4.    INVESTMENT SECURITIES

      The amortized cost and estimated fair value of investment securities
      available for sale as of September 30, 2004 and December 31, 2003, are as
      follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                  September 30, 2004           December 31, 2003
                                             Amortized      Estimated      Amortized      Estimated
                                                Cost        Fair Value        Cost        Fair Value
                                                ----        ----------        ----        ----------
<S>                                          <C>            <C>            <C>            <C>
U.S. Agencies                                 $29,953        $29,942        $36,017        $36,225
Obligations of states and political
  subdivisions                                  3,711          4,053          3,772          4,105
Corporate securities                              667            689            666            708
Mortgage-related securities                    32,345         32,818         43,292         43,736
                                              -------        -------        -------        -------
   Total securities available for sale        $66,676        $67,502        $83,747        $84,774
                                              =======        =======        =======        =======
</TABLE>

      The amortized cost and estimated fair value of investment securities
      pledged at September, 30, 2004 amount to $62.3 million and $62.8 million,
      respectively. These securities are pledged to secure Federal Home Loan
      Bank borrowings, and Treasury Tax and Loan deposits.

                                                                              7.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

5.    LOANS

      The composition of loans at September 30, 2004 and December 31, 2003
      (dollars in thousands):

<TABLE>
<CAPTION>
                                                   September 30,   December 31,
                                                       2004           2003
                                                       ----           ----
<S>                                                <C>             <C>
Commercial real estate                               $ 39,742        $ 39,571
Commercial, financial, and agricultural               134,393         203,393
One- to - four family residential real estate          44,365          51,120
Consumer                                                2,646           3,195
Construction                                              449             567
                                                     --------        --------

   Total loans                                       $221,595        $297,846
                                                     ========        ========
</TABLE>

      LOANS - ALLOWANCE FOR LOAN LOSSES

      An analysis of the allowance for loan losses for the nine months ended
      September 30, 2004, and 2003 (dollars in thousands):

<TABLE>
<CAPTION>
                                    September 30,    September 30,
                                        2004            2003
                                        ----            ----
<S>                                 <C>              <C>
Balance at beginning of period        $ 22,005         $ 24,908
Recoveries on loans                        633            2,053
Loans charged off                      (11,918)          (5,312)
                                      --------         --------

   Balance at end of period           $ 10,720         $ 21,649
                                      ========         ========
</TABLE>

      The allowance for loan losses was significantly impacted by loan charge
      offs in the first nine months of 2004. The corporation completed the sale
      of $25.2 million of loans, primarily nonperforming, during the first
      quarter of 2004 which resulted in a previously allocated specific reserve
      on these loans being recognized as a charge off. This specific reserve
      charge off amounted to $7.4 million.

      The aggregate amount of nonperforming residential and consumer loans was
      approximately $469,000 and $2,047,000 at September 30, 2004 and December
      31, 2003, respectively. Nonperforming loans are those which are
      contractually past due 90 days or more as to interest or principal
      payments, on nonaccrual status, or loans, the terms of which have been
      renegotiated to provide a reduction or deferral of interest or principal.
      The interest income recorded and that which would have been recorded had
      residential and consumer nonaccrual and renegotiated loans been current,
      or not troubled, are not material to the consolidated financial statements
      for the nine months ended September 30, 2004 and 2003.

                                                                              8.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

      LOANS - IMPAIRED LOANS

      A loan is considered impaired based on current information and events, if
      it is probable that the Corporation will be unable to collect the
      scheduled payments of principal or interest when due according to the
      contractual terms of the loan agreement.

      The following is a summary of impaired loans and their effect on interest
      income (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                         Valuation Reserve
                                                                                         -----------------
                                                      September 30,  December 31,  September 30,   December 31,
                                                          2004           2003          2004            2003
                                                          ----           ----          ----            ----
<S>                                                   <C>            <C>           <C>             <C>
Balances, at period end
     Impaired loans with valuation reserve              $ 3,845        $39,993        $ 2,230        $ 5,350
     Impaired loans with no valuation reserve             6,160          3,834              -              -
                                                        -------        -------        -------        -------
                Total impaired loans                    $10,005        $43,827        $ 2,230        $ 5,350
                                                        =======        =======        =======        =======

     Impaired loans on nonaccrual basis                 $ 6,862        $36,646        $   377        $ 4,720
     Impaired loans on accrual basis                      3,143          7,181          1,853            630
                                                        -------        -------        -------        -------
                Total impaired loans                    $10,005        $43,827        $ 2,230        $ 5,350
                                                        =======        =======        =======        =======

Average investment in impaired loans                    $12,907        $46,700
Interest income recognized during impairment                961          1,307
Interest  income that would have been recognized
   on an accrual basis                                      646          2,793
Cash-basis interest income recognized                       771            718
</TABLE>

      LOANS - RELATED PARTIES

      The Bank, in the ordinary course of 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 for
      the nine months ended September 30, 2004, and the year ended December 31,
      2003, is summarized below (dollars in thousands).

<TABLE>
<CAPTION>
                                                                  September 30,    December 31,
                                                                      2004             2003
                                                                      ----             ----
<S>                                                               <C>              <C>
Loans outstanding beginning of period                               $  6,514         $ 10,987
New loans                                                                330              -0-
Repayment                                                               (465)          (4,480)
Increase related to new executive officers and directors                 -0-               98
Decrease related to retired executive officers and directors
or change in related party interests                                  (5,621)             (91)
                                                                    --------         --------

   Loans outstanding, end of period                                 $    758         $  6,514
                                                                    ========         ========
</TABLE>

      There were no loans to related parties classified at September 30, 2004
      and December 31, 2003, respectively.

                                                                              9.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

6.    BORROWINGS

      Borrowings consist of the following at September 30, 2004 and December 31,
      2003 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                          September 30,   December 31,
                                                                              2004            2003
                                                                              ----            ----
<S>                                                                       <C>             <C>
Federal Home Loan Bank advances at rates ranging from 4.35% to 7.59%
   with maturities from less than one year to seven years                    $83,986        $85,475
Farmers Home Administration, fixed rate note payable, maturing August
   24, 2024, interest payable at 1%                                            1,484          1,551
Director loans, fixed rate notes payable, maturing May 1, 2006,
   interest payable at 3%                                                        125            -0-
                                                                             -------        -------
Borrowings outstanding, end of period                                        $85,595        $87,026
                                                                             =======        =======
</TABLE>

      The Federal Home Loan Bank borrowings are collateralized at September 30,
      2004 by the following: a collateral agreement of the Corporation's one-
      to- four family residential real estate loans and commercial real estate
      leases with a book value of approximately $57.9 million.; U.S. government
      agency and mortgage-backed securities with an amortized cost and estimated
      fair value of $61.3 million and $61.7 million respectively; an
      interest-bearing deposit in the amount of $6.1 million; and Federal Home
      Loan Bank stock owned by the Bank totaling $4.7 million. Prepayment of the
      advances is subject to the provisions and conditions of the credit policy
      of the Federal Home Loan Bank of Indianapolis in effect as of September
      30, 2004.

      The U.S.D.A. Rural Development borrowing is collateralized by loans
      totaling $494 thousand originated and held by the Corporation's wholly
      owned subsidiary, First Rural Relending, and an assignment of a demand
      deposit account in the amount of $1.1 million, and guaranteed by the
      Corporation.

7.    STOCK OPTION PLANS

      A summary of stock option transactions for the nine months ended September
      30, 2004 and the year ended December 31, 2003, is as follows:

<TABLE>
<CAPTION>
                                                        Number of Shares
                                                 ----------------------------
                                                 September 30,   December 31,
                                                     2004            2003
                                                     ----            ----
<S>                                              <C>             <C>
Outstanding shares at beginning of year             549,732          772,397
Granted during the period                               -0-           50,000
Expired during the period                           (14,000)        (272,665)
                                                   --------        ---------
Outstanding shares at end of period                 535,732          549,732
                                                   ========        =========
Weighted average exercise price per share
  at end of period                                 $  14.02        $   13.94
                                                   ========        =========
Shares available for grant at end of period         372,238          358,238
                                                   ========        =========
</TABLE>

                                                                             10.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

      Options granted in 2003 were granted at a price of $2.95 per share. These
      same options expired in 2003 as a result of the grantee's resignation.
      Under these plans, options expire ten years after the date of grant.

      Following is a summary of the options outstanding and exercisable at
      September 30, 2004:

<TABLE>
<CAPTION>
                                            Weighted
                                             Average           Weighted
                                            Remaining           Average
   Exercise                                Contractual         Exercise
  Price Range            Number             Life-Years           Price
  -----------            ------             ----------           -----
<S>                      <C>               <C>               <C>
 $7.80 - $12.00          249,800                  4.58       $       9.18
$15.00 - $20.33          285,932                  3.30              18.26
                        --------           -----------       ------------

                         535,732                  3.90       $      14.02
                        ========           ===========       ============
</TABLE>

8.    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 consolidated 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 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                             September 30,    December 31,
                                                  2004            2003
                                                  ----            ----
<S>                                          <C>              <C>
Commitments to extend credit:
   Fixed rate                                    $   488        $ 3,870
   Variable rate                                   8,685         73,651
Standby letters of credit - Variable rate         17,849         14,498
Credit card commitments - Fixed rate               3,047          3,381
                                                 -------        -------

                                                 $30,069        $95,400
                                                 =======        =======
</TABLE>

      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.

                                                                             11.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

      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. For expanded discussion on the Corporation's legal
      proceedings, see Part II, Item 1, "Legal Proceedings" in this report.

      Concentration of Credit Risk

      The Bank grants commercial, residential, agricultural, and consumer loans
      throughout its markets, primarily Michigan. The Bank's most prominent
      concentration in the loan portfolio relates to commercial loans to
      entities within the hospitality and tourism industry. This concentration
      represents $54.8 million, or 31.2% of the commercial loan portfolio at
      September 30, 2004. The remainder of the commercial loan portfolio is
      diversified in such categories as gaming, petroleum, forestry, and
      agriculture. Due to the diversity of the Bank's locations, the ability of
      debtors of residential and consumer loans to honor their obligations is
      not tied to any particular economic locality

9.    SUBSEQUENT EVENTS

      Subsequent to September 30, 2004, the Corporation mailed a definitive
      proxy statement to shareholders of record as of October 15, 2004. This
      proxy statement was mailed in connection with a special meeting of the
      shareholders to be held on November 18, 2004. This special meeting is
      being held to seek shareholder approval for the following proposals: stock
      purchase agreement which results in a $30 million recapitalization; a
      contemplated 20:1 reverse stock split; corporate name change; and approval
      of amendments to a stock incentive plan. The definitive proxy statement
      filed with the Securities and Exchange Commission on October 18, 2004
      gives detailed information concerning these shareholder proposals

                                                                             12.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

The following discussion will cover results of operations, asset quality,
financial position, liquidity, interest rate sensitivity, and capital resources
for the periods indicated. The information included in this discussion is
intended to assist readers in their analysis of, and should be read in
conjunction with, the consolidated financial statements and related notes and
other supplemental information presented elsewhere in this report. This
discussion should be read in conjunction with the consolidated financial
statements and footnotes contained in the Corporation's Annual Report and Form
10-K for the year-ended December 31, 2003. Throughout this discussion, the term
"Bank" refers to North Country Bank and Trust, the principal banking subsidiary
of the Corporation.

Forward-Looking Statements

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

      -     Impact of restrictions related to the trust preferred securities
            issued by the Corporation's subsidiary;

      -     Liquidity of the Corporation and the Bank;

      -     Difficulties in raising capital on acceptable terms;

      -     Impact of continued operating losses;

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

      -     Failure or inability of the Bank to comply with the terms of the
            Cease and Desist Order (the "Order") applicable to it;

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

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

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

      -     Changes in securities markets with respect to the market value of
            financial assets and the level of volatility in certain markets such
            as foreign exchange;

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

      -     The ability of borrowers to repay loans;

      -     The effects on liquidity of unusual decreases in deposits;

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

      -     Technological changes;

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

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

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

      -     The effect of compliance with legislation or regulatory changes;

      -     The effect of changes in accounting policies and practices;

      -     The costs and effects of existing and future litigation and of
            adverse outcomes in such litigation;

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

                                                                             13.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

Commission. All forward-looking statements contained in this report are based
upon information presently available and the Corporation assumes no obligation
to update any forward-looking statements.

FINANCIAL OVERVIEW

In March 2003, the Bank entered into a formal Cease and Desist Order (the
"Order") under Federal and State banking laws. As a result of this Order, the
Bank initiated significant management and operational changes along with balance
sheet strategies to comply with the Order. The Bank experienced substantial
adverse publicity as a result of the public notice of this Order and from the
reported financial condition of the Bank. This negative publicity resulted in
substantial deposit runoff. The Bank also incurred an inordinate amount of legal
and accounting fees, along with consulting costs during 2003 in its attempt to
address the financial and operational deficiencies which led to the issuance of
the Order. During the first six months of 2004 the Bank has shown continued
progress in addressing the commercial and operational deficiencies detailed in
the Order, however, high operational costs along with a low net interest margin
resulted in continued losses. The Order is discussed in more detail in the
Consolidated Notes to the Financial Statements and later in Management's
Discussion, under the heading "Capital and Regulatory".

Year-to-date consolidated net loss was $4.0 million through September 30, 2004,
compared to a net loss of $7.1 million for the same period in 2003. Basic loss
per share was $.57 for the nine months ended September 30, 2004, compared to a
loss per share of $1.01 for the same period in 2003. There was no provision for
loan losses for the nine months ended September 30, 2004 and 2003. Total assets
declined $90.4 million from December 31, 2003 to September 30, 2004. The loan
portfolio continued to experience declines through the third quarter of 2004,
decreasing $76.3 million from December 31, 2003 to September 30, 2004. Deposits
have decreased $82.7 million since December 31, 2003.

FINANCIAL CONDITION

CASH AND CASH EQUIVALENTS

Cash and cash equivalents decreased $2.5 million through the third quarter of
2004. This was due to a decreased need to maintain liquidity after funding
branch sales and deposit maturities. See further discussion of the change in
cash and cash equivalents in the Liquidity section of this discussion.

INVESTMENT SECURITIES

Available-for-sale securities decreased $17.3 million, or 20.4%, from December
31, 2003 to September 30, 2004, with the balance on September 30, 2004 totaling
$67.5 million. The decrease in investments during the first nine months of 2004
was due to a combination of maturities, calls, and paydowns of agencies and
mortgage related securities. Investment securities are utilized in an effort to
manage interest rate risk and liquidity. As of September 30, 2004, investment
securities with an estimated fair value of $62.8 million were pledged for
purposes of securing Treasury Tax and Loan deposits and FHLB advances.

                                                                             14.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

LOANS

Through the first nine months of 2004, loan balances decreased by 76.3 million,
or 25.6% from December 31, 2003 balances of $297.8 million. As planned, the Bank
continues to decrease certain segments of its loan portfolio through tightened
underwriting and credit practices and controls. The Bank completed the sale of
$25.2 million of loans on March 31, 2004. This sale was composed of primarily
non-performing loans and resulted in a reduction in non-accrual loans of $17.5
million and a total reduction in non-performing loans of $18.5 million. This
loan sale also reduced concentration exposure in the hotel and tourism industry.
Enhancements to the loan approval process and exception reporting further
provide for a more effective management of risk in the loan portfolio.
Management continues to actively manage the loan portfolio seeking to identify
and resolve problem assets at an early stage. Management believes a properly
positioned loan portfolio provides the most attractive earning asset yield
available to the Corporation and, with changes to the loan approval process and
exception reporting, management can effectively manage the risk in the loan
portfolio. As shown in the table below, most segments of the loan portfolio
declined in the first six months of 2004. Management intends to increase lending
activities in its market for mortgage, consumer and commercial loan products
while concentrating on loan quality, industry concentration issues and
competitive pricing.

Following is a summary of the loan portfolio at September 30, 2004 and December
31, 2003 (dollars in thousands):

<TABLE>
<CAPTION>
                                                 September 30,       % of         December 31,        % of
                                                     2004            Total            2003            Total
                                                     ----            -----            ----            -----
<S>                                              <C>               <C>            <C>               <C>
Commercial real estate                             $ 39,742            17.9%        $ 39,571            13.3%
Commercial, financial, and agricultural             134,393            60.7          203,393            68.3
One-to- four family residential real estate          44,365            20.0           51,120            17.1
Consumer                                              2,646             1.2            3,195             1.1
Construction                                            449              .2              567              .2
                                                   --------        --------         --------        --------

     Total loans                                   $221,595           100.0%        $297,846           100.0%
                                                   ========        ========         ========        ========
</TABLE>

Following is a table showing the significant industry types in the commercial
loan portfolio as of September 30, 2004 and December 31, 2003 (dollars in
thousands):

<TABLE>
<CAPTION>
                                            September 30, 2004                               December 31, 2003
                                            ------------------                               -----------------
                                                Percent of        Percent of                     Percent of          Percent of
                             Outstanding        Commercial      Shareholders'  Outstanding       Commercial        Shareholders'
                               Balance             Loans            Equity       Balance           Loans               Equity
                             -----------        ----------      -------------  -----------       ----------        -------------
<S>                          <C>                <C>             <C>            <C>               <C>               <C>
Hospitality and tourism       $   54,780            31.4%           846.6%      $   76,131             31.3%           711.5%
Gaming                            14,932             8.6%           230.8%          22,317              9.2            208.6%
Other                            104,423            60.0%         1,633.2%         144,516             59.5          1,350.7%
                              ----------           -----       ----------       ----------       ----------          -------
  Total Commercial Loans      $  174,135           100.0%                       $  242,964            100.0%
                              ==========           =====                        ==========       ==========
</TABLE>

Management has made considerable progress in reducing concentrations of
hospitality and tourism loans, which reduced exposure to this economic segment
and lowered overall loan portfolio risk. Management expects further reduction in
concentrations of hospitality and tourism loans through a combination of new
loans in other industries and paydowns and maturities of current portfolio loans
in this sector.

CREDIT QUALITY

The allowance for loan losses is maintained by management at a level considered
to be adequate to cover probable losses related to specifically identified
loans, as well as losses inherent in the balance of the loan portfolio. At
September 30, 2004, the allowance for loan losses decreased to 4.84% of total
loans outstanding from 7.39% at

                                                                             15.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

December 31, 2003. The decrease of the allowance as a percentage of total loans
is due to the reduction of the reserve from charge off activity which was
partially offset by a decrease in loans outstanding from December 31, 2003 to
September 30, 2004. Although the reserve as a percentage of loans outstanding
has decreased, all other coverage ratios show significant improvement due to the
reduction in nonperforming loans.

<TABLE>
<CAPTION>

                                            September 30,     December 31,
                                                 2004             2003
                                                 ----             ----
<S>                                         <C>               <C>
NONPERFORMING ASSETS:
Nonaccrual Loans                               $ 6,862           $38,660
Loans past due 90 days or more                     143               241
Restructured Loans                                   0             7,181
                                               -------           -------
   Total nonperforming loans                     7,005            46,082
Other real estate owned                          4,650             4,356
                                               -------           -------
   Total nonperforming assets                  $11,655           $50,438
                                               =======           =======
Nonperforming loans as a% of loans                3.16%            15.47%
                                               -------           -------
Nonperforming assets as a% of assets              3.51%            11.94%
                                               -------           -------
RESERVE FOR LOAN LOSSES:
At period end                                  $10,720           $22,005
                                               -------           -------
As a% of loans                                    4.84%             7.39%
                                               -------           -------
As a% of nonperforming loans                    153.03%            47.75%
                                               -------           -------
As a% of nonaccrual loans                       156.22%            56.92%
                                               =======           =======
</TABLE>

Management analyzes the allowance for loan losses in detail on a monthly basis
to determine whether the losses inherent in the portfolio are properly reserved
for. Net charge-offs to average loans outstanding amounted to 4.45% for the nine
months ended September 30, 2004. Net charge-offs for the nine-month period ended
September 30, 2004, were $11.3 million compared to $3.3 million for the same
period in 2003. Charge offs during the first six months of 2004 include $7.4
million of charge offs incurred as a result of the sale of $25.2 million of
primarily nonperforming loans. The sale of these nonperforming loans did not
result in any gain or loss since the total reduced carrying value was previously
recognized as a specific reserve allocation. The Corporation did not recognize a
provision for loan losses for the nine months ended September 30, 2004 and
September 30, 2003.

Following is the allocation of the allowance for loan losses as of September 30,
2004 and December 31, 2003 (dollars in thousands):

<TABLE>
<CAPTION>
                                                               September 30,    December 31,
                                                                   2004             2003
                                                               -------------    ------------
<S>                                                            <C>              <C>
Commercial, financial and agricultural loans                     $ 4,228          $11,222
One- to four-family residential real estate loans                    105              280
Reserve allocation based upon historical loss rate                 2,812
Specific reserve on loans sold in first quarter of 2004              -0-            7,425
Unallocated                                                        3,575            3,078
                                                                 -------          -------

Totals                                                           $10,720          $22,005
                                                                 =======          =======
</TABLE>

                                                                             16.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

The following ratios assist management in the determination of the Corporation's
credit quality (dollars in thousands):

<TABLE>
<CAPTION>
                                                              September 30,         December 31,
                                                                 2004                   2003
                                                                 ----                   ----
<S>                                                           <C>                   <C>
Allowance to total loans, at period end                              4.84%                 7.39%
Average loans outstanding, for the nine month period
     and year end respectively                                $   253,414           $   361,144
Net charge-offs to average outstanding loans                         4.45%                  .80%
Nonperforming loans to gross loans                                   3.16%                15.47%
</TABLE>

Total non-performing loans decreased $32.8 million since December 31, 2003,
after the net charge-offs of $11.2 million which have been recognized through
September 30, 2004. Contributing to the significant reduction in non-performing
loans was the sale of $25.2 million in loans of which $18.5 million were
non-performing.

Management continues to address market issues impacting its loan customer base.
In conjunction with the Corporation's senior lending staff and the bank
regulatory examinations, management intensified the review of the Corporation's
loans, related collateral evaluations, and the overall lending process during
2003 and for the first nine months of 2004. The Corporation also utilized a loan
review consultant in 2003 and 2004 to perform a review of the loan portfolio.
The opinion of this consultant upon completion of the independent review
provided findings similar to management on the overall adequacy of the reserve.

As part of the process of resolving problem credits, the Corporation may acquire
ownership of collateral which secured such credits. The following table
represents the activity in other real estate (dollars in thousands):

<TABLE>
<CAPTION>
                                               September 30,    September 30,
                                                   2004              2003
                                                   ----              ----
<S>                                            <C>              <C>
Balance at beginning of period                    $ 4,356           $ 5,409
Other real estate transferred from loans            5,153             4,304
Write-downs of other real estate                      (92)             (848)
Other real estate sold                             (4,767)           (4,545)
                                                  -------           -------
   Balance at end of period                       $ 4,650           $ 4,320
                                                  =======           =======
</TABLE>

During the first nine months of 2004, the Corporation received real estate in
lieu of loan payments of $5.2 million of which $1.5 occurred in the third
quarter. Other real estate is initially valued at the lower of cost or the fair
value less selling costs. After the initial receipt, management periodically
reevaluates the recorded balance. Any additional reductions in the fair value
result in a write-down of other real estate. Write-downs on other real estate
may be recorded based on subsequent valuations of current realizable fair
values.

DEPOSITS

The Corporation had a reduction in total deposits of $82.7 million, or 27%, in
the first nine months of 2004. Due to the reduction in the loan portfolio,
management was able, over the last nine months, to reduce its reliance on
brokered and noncore certificates of deposits over $100,000. Brokered deposits
decreased by $30.0 million during the first nine months of 2004, while
certificates of deposit over $100,000 showed a decrease of $2.8 million during
the first nine months of 2004 to $15.8 million at September 30, 2004. The
Corporation's other deposit categories decreased by $49.9 million in the first
nine months of 2004. Contributing to the decrease in deposits for the nine month
period was the sale of five branch offices with deposits of $26.5 million.

                                                                             17.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

BORROWINGS

The Corporation has used alternative funding sources to provide long-term,
stable sources of funds. Total borrowings amounted to $85.6 million at September
30, 2004 of which $84.0 million were from the Federal Home Loan Bank of
Indianapolis (FHLB). The FHLB borrowings carry fixed interest rates and stated
maturities ranging through 2011. Fixed rate borrowings totaling $80 million are
callable quarterly at the option of the FHLB and can also be converted to
variable rates, at the option of the FHLB, should rates rise above certain index
levels. These borrowings are secured by a blanket collateral agreement on the
Bank's residential mortgage loans and specific assignment of other assets.
Management does not anticipate increasing the FHLB borrowings in the near
future. In 2004 the Corporation borrowed $125 thousand in total from several of
its directors. The borrowings, considering the financial condition of the
Corporation, were at favorable terms.

SUBORDINATED DEBENTURES

In 1999, the Corporation's business trust subsidiary, North Country Capital
Trust, completed a private offering of its trust preferred securities, in the
amount of $12,450,000. The proceeds from the sale of the trust preferred
securities were used by North Country Capital Trust to purchase a like amount of
subordinated debentures of the Corporation. Under regulatory guidelines, the
amount of such trust preferred securities is eligible as regulatory capital, as
defined, subject to certain limitations. The Board of Directors of the
Corporation adopted a resolution to apply for the deferment of interest payment
on the Corporation's subordinated debentures, which fund quarterly distributions
on the trust preferred securities. The governing documents allow for such a
deferral of payments for up to 20 quarters. Management has deferred the
quarterly payments beginning with the November 14, 2002 payment and it is
expected that interest will continue to be deferred during the pendency of the
Order and until the Board of Directors believes it is prudent to resume
payments. As of September 30, 2004, the balance of deferred interest payable
amounted to $1,078,000.

SHAREHOLDERS' EQUITY

Total shareholders' equity decreased $4.2 million from December 31, 2003 to
September 30, 2004. The decrease represents the net loss of $4.0 million and a
decrease in the net unrealized gain on securities of $.2 million for the nine
months ended September 30, 2004. The declaration of dividends is contingent on a
variety of factors, including satisfaction of requirements in the Order and
receipt of approval by the Federal Reserve Bank of Chicago. The Board of
Directors does not anticipate declaring any dividends in the near future.

RESULTS OF OPERATIONS

OVERVIEW

The Corporation incurred a loss of $4.2 million for the first nine months of
2004 compared to a loss of $7.1 million for the same period in 2003. The
reduction in loss for 2004 is primarily from decreases in all categories of
other expense due to the combination of cost savings from branches sold and
closed along with significant reductions in accounting, legal and professional
services.

For the quarter ended September 30, 2004, the Corporation lost $.8 million
compared to $3.0 million in the third quarter of 2003. This reduced lost for the
quarter is due to a variety of factors including cost reduction due to branch
closures and sales along with reductions in accounting, legal and consulting due
to less reliance on external professionals.

NET INTEREST INCOME

Net interest income before the provision for loan losses for the nine months
ended September 30, 2004, decreased by $1.4 million, or 18.5% compared to the
same period one year ago. The decrease in loan volume was offset by the decrease
in deposit volume, this loss in margin interest, combined with the positive
impact of a reduction in nonaccrual loans, and a continued low interest rate
environment have resulted in an overall decline in net interest

                                                                             18.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

income. Net interest income, before provision for loan losses for the three
months ending September 30, 2004, showed a decrease of $36,000 compared to the
third quarter in 2003.

PROVISION FOR LOAN LOSSES

The Corporation records a provision for loan losses at a level it believes is
necessary to maintain the allowance at an adequate 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. There was no provision
for loan losses for the nine months ended September 30, 2004 and 2003.
Management continues to monitor the loan portfolio for changes which may impact
the required allowance for loan losses.

OTHER INCOME

Other income decreased by $906,000 for the nine months ended September 30, 2004
compared to the nine months ended September 30, 2003. Service fees decreased
$400,000, while loan and lease income declined $42,000. The decline in service
fees is primarily due to the significant decline in deposits from September 30,
2003 to September 30, 2004. Other income was positively impacted in the first
nine months of 2004 from a gain of $258,000 on the sale of a limited partnership
interest, and a net gain from the sale of five branch offices amounting to
$204,000. Other income for the nine months ended September 30, 2004 included
$36,000 of gains due to foreign exchange activities compared to $541,000 of
gains recorded for the same period in 2003.

Other income for the third quarter of 2004 increased by $315,000 compared to the
third quarter of 2003. Service fees declined $137,000 due primarily to the
decrease in deposit accounts and balances. The third quarter of 2004 benefited
by gains of $473,000 from the sale of three branch offices.

The following table details other income for the three and nine months ended
September 30, 2004 and 2003 (dollars in thousands):

<TABLE>
<CAPTION>
                                Three Months Ended      % Increase   Nine Months Ended      % Increase
                                   September 30,        (Decrease)      September 30,       (Decrease)
                                 2004        2003       2004-2003     2004       2003       2004-2003
                                 ----        ----       ---------     ----       ----       ---------
<S>                             <C>         <C>         <C>          <C>         <C>        <C>
Service fees                    $  225      $  362        (37.8%)    $  805      $1,205       (33.2%)
Loan and lease fee income            4          17        (76.4%)        13          55       (76.4%)
Net gains on sale of loans          11          20          (45%)        31         126       (75.4%)
Other                              627         109        475.2%        744         878       (15.3%)
                                ------      ------        -----      ------      ------       -----
   Subtotal                        867         508        (70.7%)     1,593       2,264       (29.6%)
                                ------      ------        -----      ------      ------       -----
Net Securities gains                 -          44          N/A           -         235         N/A
                                ------      ------        -----      ------      ------       -----
   Total other income           $  867      $  552         57.1%     $1,593      $2,499       (36.3%)
                                ======      ======        =====      ======      ======       =====
</TABLE>

OTHER EXPENSES

Other expenses decreased $3,115,000 for the nine months ended September 30,
2004, compared to the same period of 2003. Salaries, commissions, and related
benefits decreased by $320,000 during the first nine months of 2004 compared to
the same period in 2003. During the first nine months of 2004, the Corporation
recognized the cost of closing five branch offices which amounted to $452,000.
The Corporation has taken action, since the fall of 2003, to reduce reliance on
external accounting and consulting services which has resulted in a reduction in
accounting, legal, and consulting fees of $991,000 when comparing the nine
months ended September 30, 2004 to the same period in 2003. Another area of
significant expense reduction is telephone expense which decreased by $734,000
from the nine months ended September 30, 2003 when compared to the same period
in 2004. Telephone expense decreased primarily because of the reduction in the
number of branch offices. The Corporation has also reduced

                                                                             19.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

costs in most other areas of expense due primarily to the branch sale and
closures. These expense reductions are expected to continue as a result of lower
costs associated with nonperforming assets and less overhead due to the
previously discussed branch closings.

Other expenses decreased $1.3 million in the third quarter of 2004 compared to
the same period in 2003. This decrease was primarily due to decreased expenses
related to occupancy, furniture, equipment, and telephone expenses due to
closures and sales of branch offices. The reduction in accounting, legal, and
consulting fees of $303,000 was due to the added expertise of new management
which places less reliance on external sources. The decrease in loan and deposit
expenses in the third quarter of 2004 compared to the same period in 2003 was
due to the reduction in costs related to problem loan administration. These loan
collection costs are expected to show further reductions in future periods due
to lower levels of nonperforming loans.

The following table details other expense for the three and nine months ended
September 30, 2004 and 2003 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                Increase                                Increase
                                        September 30,           (Decrease)        September 30,         (Decrease)
                                      2004         2003         2004-2003       2004        2003        2004-2003
                                      ----         ----         ---------       ----        ----        ---------
<S>                                  <C>          <C>           <C>           <C>          <C>          <C>
Salaries and employee benefits       $ 1,302      $ 1,442         (9.7%)      $ 4,155      $ 4,475         (7.2%)
Furniture and equipment expense          247          337        (26.7%)          819        1,058        (22.6%)
Occupancy expense                        193          325        (40.6%)          740        1,075        (31.2%)
Data processing                          282          370        (23.8%)          985        1,157        (14.9%)
Accounting, legal,
  and consulting fees                    419          722        (42.0%)        1,397        2,388        (41.5%)
Loan and deposit expense                 296          560        (47.1%)        1,389        1,468         (5.4%)
Telephone                                 83          352        (76.4%)          315        1,049         70.0%
Advertising                                9           29        (69.0%)           52          173         70.0%
Other                                    657          623          5.5%         2,107        2,231         (5.6%)
                                     -------      -------        -----        -------      -------        -----
  Total other expense                $ 3,488      $ 4,760        (26.7%)      $11,959      $15,074        (20.7%)
                                     =======      =======        =====        =======      =======        =====
</TABLE>

FEDERAL INCOME TAXES

The income tax provision of $2.3 million for the nine months ended September 30,
2003 was the result of an addition to the valuation allowance provided against
the deferred tax asset. This provision increased the valuation allowance to $9.3
million at September 30, 2003. The Corporation's current year net loss carryover
may expire prior to its utilization; therefore, no tax credit is being recorded
in anticipation of a future tax benefit from the use of loss or credit
carryovers.

LIQUIDITY

As a result of the Corporation's 2003 annual and nine month 2004 results, and
the constraints of the Order, sources of liquidity, such as lines of credit from
correspondent banks, additional borrowings from the Federal Home Loan Bank,
brokered deposits, and the issuance of stock, which were historically available,
are currently not short-term sources of liquidity. The liquidity issues faced,
the Corporation's actions taken to address them, and the liquidity plan for 2004
are discussed below.

The Corporation is dependent upon its primary operating subsidiary, the Bank,
for sources of cash to fund its operating needs. As a result of the Order, and
the restrictions placed upon the Bank as it relates to payment of dividends, the
Corporation faces a short-term liquidity crisis. Early in the second quarter,
the parent company addressed the immediate cash needs of day-to-day operations
and payment of legal and professional costs by borrowing $125,000 in total, from
members of its board of directors. This $125,000 was advanced to the Corporation
over a three month period. The terms of these borrowings, considering the
financial condition of the

                                                                             20.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

Corporation, were favorable as compared to prevailing borrowing opportunities
offered elsewhere. The Corporation is exploring additional areas for cash
infusion into the corporation, including the sale of stock or the investment in
the Corporation by a third party.

During the first nine months of 2004, the Corporation decreased cash and cash
equivalents by $2.5 million. As shown on the Corporation's condensed
consolidated statement of cash flows, liquidity was primarily impacted from cash
provided by investing activities. In the first nine months of 2004, the
Corporation funded the reduction of deposits of $82.7 million primarily through
the balance sheet reductions of loans, $59.8 million, and investments, $17.3
million. These asset reductions allowed the Corporation to maintain adequate
liquidity and provide the necessary funding for branch sales along with
maturities of brokered and other time deposits. The Corporation had adequate
liquidity as of September 30, 2004.

As of September 30, 2004, the Corporation has suspended eight quarterly payments
of interest on its subordinated debentures that fund quarterly distributions on
the trust preferred securities issued by its trust subsidiary, North Country
Capital Trust. The debenture agreement allows for suspension of payments for up
to 20 quarterly payments.

The Corporation's liquidity plan for 2004 includes strategies to increase core
deposits in the Corporation's local markets. New products and advertising
commenced in 2004, with a goal of increasing core deposits to reduce the
dependency on noncore deposits. The Corporation's liquidity plan for the
remainder of 2004 calls for augmenting local deposit growth efforts with
Internet CD funding to the extent necessary. There is no assurance that Internet
CDs will be available in adequate amounts or at economically feasible pricing,
however, the Bank's experience with Internet CDs has thus far shown them to be a
reliable and cost effective alternative source of funds.

During the fourth quarter of 2002, the unsecured lines of credit the Corporation
had with two correspondent banks were closed by those banks. In the first
quarter of 2003, the Corporation established a secondary borrowing arrangement
with the Federal Reserve Bank collateralized by loans.

CAPITAL AND REGULATORY

During the first nine months of 2004, capital decreased by $4.2 million, as a
result of the net loss of $4.0 million and the decrease in the unrealized gain
on securities available for sale of $.2 million. This compares to a decrease in
capital during the same period in the previous year of $7.6 million, resulting
primarily from a net loss, and changes in the unrealized gain on securities
available for sale.

As a bank holding 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. As of September
30, 2004, the Corporation, and as of December 31, 2003, the Corporation and the
Bank, were undercapitalized. See discussions on the following pages of the
regulatory requirements and the Corporation's plans for increasing its capital
ratios.

                                                                             21.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

The following table details sources of capital for the periods indicated:

<TABLE>
<CAPTION>
                                             September 30,     December 31,
                                                 2004             2003
                                                 ----             ----
<S>                                          <C>               <C>
CAPITAL STRUCTURE
Long-term debt (1)                             $  12,450        $  12,450
Shareholders' equity                               6,471           10,700
                                               ---------        ---------
Total capitalization                           $  18,921        $  23,150
                                               ---------        ---------
Tangible capital                               $  17,900        $  21,557
                                               ---------        ---------

INTANGIBLE ASSETS
Core deposit premium                           $     517        $   1,067
Other identifiable intangibles                       504              526
                                               ---------        ---------
Total intangibles                              $   1,021        $   1,593
                                               ---------        ---------

RISK-BASED CAPITAL
Tier I capital:
   Shareholders' equity                        $   6,471        $  10,700
Net unrealized (gains) losses on
   available for sale securities                    (826)          (1,027)
   Minority interest                               1,641            2,785
   Less: Intangibles                              (1,021)          (1,593)
                                               ---------        ---------
     Total tier I capital                      $   6,265        $  10,865
                                               ---------        ---------
Tier II capital:
   Allowable reserve for loan losses           $   3,056        $   4,016
   Qualifying long-term debt                       3,209            6,849
                                               ---------        ---------
     Total tier II capital                         6,265           10,865
                                               ---------        ---------
     Total capital                             $  12,530        $  21,730
                                               =========        =========
Risk-adjusted assets                           $ 236,803        $ 303,284
                                               =========        =========

Capital ratios:
   Tier I capital to risk weighted assets           2.65%            3.58%
   Total capital to risk weighted assets            5.29%            7.16%
   Tier I capital to average assets                 1.82%            2.48%
</TABLE>

(1) Long-term debt consists of the Corporation's subordinated debentures.

Regulatory capital is not the same as shareholders' equity reported in the
accompanying condensed consolidated financial statements. Certain assets cannot
be considered assets for regulatory purposes, such as acquisition intangibles.

                                                                             22.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

Presented below is a summary of the capital position in comparison to generally
applicable regulatory requirements:

<TABLE>
<CAPTION>
                                                                          Tier I             Tier I                 Total
                                                                        Capital to         Capital to            Capital to
                                                                          Average         Risk-Weighted         Risk-Weighted
                                                                          Assets             Assets                Assets
                                                                          ------             ------                ------
<S>                                                                     <C>               <C>                   <C>
Regulatory minimum for capital adequacy purposes                           4.00%              4.00%                  8.00%

The Corporation:
     September 30, 2004                                                    1.82%              2.65%                  5.29%
     December 31, 2003                                                     2.48%              3.58%                  7.16%

The Bank:
     September 30, 2004                                                    5.44%              7.93%                  9.22%
     December 31, 2003                                                     4.81%              6.93%                  8.26%
</TABLE>

The regulatory capital levels shown above include certain amounts of trust
preferred securities issued by the Corporation's business trust subsidiary in
1999. Federal Reserve guidelines limit the amount of trust preferred securities
and cumulative preferred stock which can be included in Tier I capital to 25% of
total Tier I capital. As of September 30, 2004 and December 31, 2003, $1,566,000
and $2,785,000, respectively, of the $12,450,000 of trust preferred securities
were available as Tier I capital of the Corporation.

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

In September 2002, a regularly-scheduled safety and soundness examination of the
Bank was conducted by its principal regulators, the Michigan Office of Financial
and Insurance Services ("OFIS") and the FDIC. During the course of that
examination, the FDIC, the OFIS, and the Federal Reserve Bank of Chicago ("FRB")
requested that the Corporation and the Bank take certain actions, including
suspending the payment of dividends and conserving the liquidity of the
Corporation.

In response to the concerns expressed by the regulators, the Board of Directors
of the Corporation and the Bank adopted resolutions providing for prior
regulatory approval of the declaration or payment of any dividend by the
Corporation or the Bank, and suspension of interest payments by the Corporation
in connection with its trust preferred securities. The agreements relating to
the trust preferred securities allow for the suspension of payments for up to 20
quarters. Therefore, the suspension of the interest payments does not violate
the agreement. However, while interest payments are suspended, no dividends can
be paid on the Corporation's common stock, and certain other restrictions apply.
These other restrictions include a prohibition on the sale of assets except in
the ordinary course of business or in immaterial amounts. Those restrictions may
adversely impact the ability of the Corporation and the Bank to take certain
restructuring steps unless waivers can be obtained from the holders of the trust
preferred securities. There can be no assurance that such waivers will be given.

Following the completion of the 2002 regularly-scheduled safety and soundness
examination of the Bank by the FDIC and the OFIS, and the Bank's receipt of the
related Joint Report of Examination ("Report"), the FDIC and the OFIS, with the
consent of the Bank, on March 26, 2003, entered a formal Cease and Desist Order
(the "Order") under Federal and State banking laws. The Order was reported on
the Corporation's Form 8-K filed on April 9, 2003 and is available on the FDIC
website, www.FDIC.Gov. The Order became effective on April 5, 2003, and will
remain in effect until modified or terminated by action of the FDIC and the
OFIS. The Order identified deficiencies in the Bank's policies and procedures,
including its directorate and management personnel and practices, credit
underwriting, credit administration, and policies regarding asset/liability
management, liquidity, funds management and investments, and its compliance with
all applicable laws and regulations, including Regulations O and U of the Board
of Governors of the Federal Reserve System (the "Board"), the FDIC Rules and
Regulations, and the Michigan Banking Code of 1999. The Order also requires the
Bank to maintain specified capital ratios during the life of the Order.

                                                                             23.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

The Order requires the Bank and its directors to take specific steps, within the
time specified in the Order, to address the operational deficiencies, including
certain violations of law and regulations, identified by the FDIC and the OFIS
in the Order and the Report. Among other things, the Bank must establish, and
submit to the FDIC and the OFIS for comment, written plans (i) to reduce the
Bank's risk position with respect to certain classified loans identified in the
Report or any subsequent Report of Examination during the life of the Order,
(ii) to reduce identified loan concentrations, (iii) to reduce and collect
delinquent loans, (iv) to eliminate the classified amounts of loans to
directors, executive officers, principal shareholders of the Bank and their
respective related interests, (v) to address the Bank's relationship of volatile
liabilities to temporary investments, rate sensitivity objectives, and
asset/liability management, (vi) setting forth the Bank's strategic plan,
including financial goals and strategies to maintain adequate capital and
liquidity, to reduce problem loans, and to attract and keep qualified
management, (vii) covering the policies and procedures for review and approval
of reimbursement of customer entertainment and business development expenses of
the Bank's directors, officers and employees, (viii) for a realistic budget for
calendar year 2003 and each subsequent year during the life of the Order,
including strategies to improve the Bank's net interest margin, (ix) to reduce
the Bank's portfolio of other real estate owned as a result of foreclosure or
surrender of collateral for loans, and (x) to address procedures for the
directors to monitor, and management to implement, the requirements of the
Order.

Further actions the Bank must take within periods specified in the Order include
correcting all deficiencies noted in the Report with respect to certain
categories of loans, and all technical exceptions and all violations of law
noted in the Report. The Bank's loan committee, which must include at least
three outside directors who are independent of management and any principal
shareholder, is required to meet at least monthly, and to act with respect to
specified categories of loans and loan applications, including all such
applications involving directors and executive officers of the Bank and their
respective related interests. The Bank's Board of Directors is required to
review and revise the Bank's written loan policy, to submit the revised policy
to the FDIC and OFIS for review and comment, and to conduct an annual review of
the policy. The Bank's Board of Directors is also required to review and revise
the Bank's investment policy, and to submit the revised policy for comment to
the FDIC and the OFIS. The Order mandates the Bank's Board of Directors (i) to
adopt resolutions acknowledging the Bank's designation as a troubled institution
by the FDIC, (ii) to review all agreements for the provision of goods and
services between the Bank and any of its current or former directors, officers,
or employees, and their respective related interests, and to determine whether
such agreements remain in the best interest of the Bank, and (iii) to seek
restitution from Ronald G. Ford of all amounts paid by the Bank pursuant to the
Chairman Agreement entered into as of April 12, 2002, between Mr. Ford and the
Corporation. The Order also requires the Bank to submit to the FDIC and the OFIS
written reports regarding its progress under the Order, signed by each director
of the Bank, every three months following the effective date of the Order.

The Order further requires the Bank and its directors to take the following
specific steps, again within time periods specified in the Order. For the
calendar quarters ending March 31, 2003, and June 30, 2003, the Bank must have a
ratio of Tier 1 capital average assets ("Tier 1 Capital Ratio") equal to at
least 6.4%. Commencing with the calendar quarter ending September 30, 2003, and
for each calendar quarter thereafter, the Bank must have a Tier 1 Capital Ratio
equal to at least 8.0%. If the Bank's Tier 1 Capital Ratio is below the required
percentage for any such quarter, the Bank must take steps to bring its Tier 1
Capital Ratio to the required level within 60 days. The Order also requires the
Bank to maintain its total risk-based capital ratio at 10.0% or greater for each
calendar quarter ending after the effective date of the Order. If the Bank's
total risk-based capital ratio for any such quarter is less than 10.0%, the Bank
must take steps to bring its total risk-based capital ratio to the required
level within 60 days. Addressing the requirements of the Order, carrying out the
objectives of the strategic plan, and attempting to return the Corporation to
profitability required the strengthening of the executive management team.
During 2003, the Corporation added management with experience in turnaround
situations, loan portfolio, credit and problem loan administration, and
financial management expertise commensurate with the issues the Corporation must
address. The addition of management may increase expense in the short term.
However, the additional management expertise was needed in order to help the
Corporation resolve many of its issues more quickly, and improve customer
service and financial performance.

                                                                             24.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (Continued)

The Corporation has attempted to address each of the matters identified in the
Order. Progress in correcting administrative and management deficiencies has
been made. The Bank has adopted new policies for liquidity, investment and asset
liability management. In regards to its lending functions, practices related to
credit underwriting, credit administration and problem loan management were
revamped and current practices and procedures are believed to be operating
within the requirements of the Order. Most of the above changes were initiated
by a new management team, which was put in place, as a requirement of the Order,
during the second half of 2003. Although improvements have been made and
continue to be made from the actions initiated by this new management team in a
relatively short time frame, completion of certain matters noted in the Order
will require further actions by the Corporation and the Bank.

Since the entry of the Order, and as of September 30, 2004, the Bank has not
been in compliance with the minimum capital ratios specified in the Order. There
can be no assurance that the Corporation can take steps in the time limits
prescribed by the Order to restore the Bank's capital ratios to the required
levels, and it has not done so as of the date of this report. Noncompliance with
the minimum capital requirements and/or other requirements of the Order may
impact the ability of the Corporation and the Bank to remain as ongoing
operating entities.

                                                                             25.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

In general, the Corporation attempts to manage interest rate risk by investing
in a variety of assets which afford it an opportunity to reprice assets and
increase interest income at a rate equal to or greater than the interest expense
associated with repricing liabilities.

Interest rate risk is the exposure of the Corporation to adverse movements in
interest rates. The Corporation derives its income primarily from the excess of
interest collected on its interest-earning assets over the interest paid on its
interest-bearing obligations. The rates of interest the Corporation earns on its
assets and owes on its obligations generally are established contractually for a
period of time. Since market interest rates change over time, the Corporation 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 Corporation's earnings and capital base. Accordingly,
effective risk management that maintains interest rate risk at prudent levels is
essential to the Corporation's safety and soundness.

Loans are the most significant earning asset. Management offers commercial and
real estate loans priced at interest rates which fluctuate with various indices
such as the prime rate or rates paid on various government issued securities. In
addition the Corporation generally prices loans so it has an opportunity to
reprice the loan within 12 to 36 months.

The Corporation also has investment securities with a June 30, 2004 market value
of $64.6 million, of which $34.4 million are mortgage-backed securities
providing for scheduled monthly principal and interest payments as well as
unanticipated prepayments of principal. These cash flows are then reinvested
into other earning assets at current market rates.

The Corporation also has federal funds sold to correspondent banks as well as
other interest-bearing deposits with correspondent banks. These funds are
generally repriced on a daily basis.

The Corporation offers deposit products with a variety of terms ranging from
deposits whose interest rates can change on a weekly basis to certificates of
deposit with repricing terms of up to five years.

Beyond general efforts to shorten the 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 other strategies. Also, the rate of
interest rate changes can impact the actions taken since the rate environment
affects borrowers and depositors differently.

Exposure to interest rate risk is reviewed on a regular basis. 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 of interest rate changes on net interest income and to structure the
composition of the balance sheet to minimize interest rate risk and 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
maturity and repricing analysis and interest rate sensitivity analysis.

The difference between repricing assets and liabilities for a specific period is
referred to as the gap. An excess of repricable assets over liabilities is
referred to as a positive gap. An excess of repricable liabilities over assets
is referred to as a negative gap. The cumulative gap is the summation of the gap
for all periods to the end of the period for which the cumulative gap is being
measured.

Assets and liabilities scheduled to reprice are reported in the following time
frames. Those instruments with a variable interest rate tied to an index and
considered immediately repricable are reported in the 1- to 90-day time frame.
The estimates of principal amortization and prepayments are assigned to the
following time frames.

                                                                             26.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                                                                             27.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                   ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

The following is the Corporation's repricing opportunities at September 30, 2004
(dollars in thousands):

<TABLE>
<CAPTION>
                                            1 - 90       91 - 365        >1 - 5         Over 5
                                             Days          Days           Years          Years        Total
                                             ----          ----           -----          -----        -----
<S>                                        <C>           <C>            <C>            <C>           <C>
Interest-earning assets:
   Loans                                   $121,274      $  7,696       $ 38,404       $ 54,222      $221,596
   Securities (1)                             7,869         7,049         21,332         35,956        72,206
   Other                                     18,444             0              0              0        18,444
                                           --------      --------       --------       --------      --------

   Total interest-earning assets            147,587        14,745         59,736         90,178       312,246
                                           --------      --------       --------       --------      --------

Interest-bearing obligations:
   Savings deposits                          71,181             0              0              0        71,181
   Time deposits                             28,360        47,986         51,793            753       128,892
   Borrowings                                     0            67         14,317         71,211        85,595
   Subordinated debentures                   12,450             0              0              0        12,450
                                           --------      --------       --------       --------      --------

   Total interest-bearing obligations       111,991        48,053         66,110         71,964       298,118
                                           --------      --------       --------       --------      --------

Gap                                        $ 35,596      $(33,308)      $ (6,374)      $ 18,214      $ 14,128
                                           ========      ========       ========       ========      ========

Cumulative gap                             $ 35,596      $  2,288       $ (4,086)      $ 14,128
                                           ========      ========       ========       ========
</TABLE>

(1) Includes Federal Home Loan Bank Stock

The above analysis indicates that at September 30, 2004, the Corporation had a
cumulative asset sensitivity gap position of $2.3 million within the one-year
time frame. The Corporation's cumulative asset sensitive gap suggests that if
market interest rates increase in the next twelve months, the Corporation's net
interest income could increase. Conversely, if market interest rates decrease
over the next twelve months, the above GAP position suggests the Corporation's
net interest income would decrease.

At December 31, 2003, the Corporation had a cumulative asset sensitivity gap
position of $37.5 million within the one-year time frame. The Corporation's
cumulative asset sensitivity gap suggested that if market interest rates
increased in the next twelve months, the Corporation had the potential to earn
more net interest income. Conversely, if market interest rates continued to
decrease over a twelve-month period, the December 31, 2003 gap position
suggested the Corporation's net interest income would decrease.

The change in the gap position from December 31, 2003 to September 30, 2004 is a
result of the decreases experienced in the loans and deposits with a greater
dollar amount of the loan portfolio reductions in the one-year time frame than
the deposit reductions. A limitation of the traditional gap analysis is that it
does not consider the timing or magnitude of noncontractual repricing or
expected prepayments. In addition, the gap analysis treats savings, NOW, and
money market accounts as repricing within 90 days, while experience suggests
that these categories of deposits are actually comparatively resistant to rate
sensitivity.

The borrowings in the gap analysis include FHLB advances as fixed-rate advances.
A significant portion of these advances give the FHLB the option to convert from
a fixed-rate advance to an adjustable rate advance with quarterly repricing at
three-month LIBOR Flat. The exercise of this conversion feature by the FHLB
would impact the repricing dates currently assumed in the analysis.

The Corporation's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk and foreign exchange risk. The Corporation has no
market risk sensitive instruments held for trading purposes. The Corporation has
limited agricultural-related loan assets and therefore has minimal significant
exposure to changes in commodity prices. Any impact that changes in foreign
exchange rates and commodity prices would have on interest rates are assumed to
be insignificant.

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 Corporation's interest rate risk management process seeks
to ensure that appropriate policies, procedures, management information systems,
and internal

                                                                             28.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                   ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

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 Corporation assesses the existing and potential future effects of
changes in interest rates on its financial condition, including capital
adequacy, earnings, liquidity, and asset quality.

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 obligations, and economic and competitive conditions; potential
changes in lending, investing, and deposit strategies; customer preferences; and
other factors.

FOREIGN EXCHANGE RISK

In addition to managing interest rate risk, management also actively manages
risk associated with foreign exchange. 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 funds in Canadian
commercial loans and securities. As of September 30 2004, the Corporation had
excess Canadian assets of $2.1 million (or $1.7 million in U.S. dollars).
Management believes the exposure to short-term foreign exchange risk is minimal
and at an acceptable level for the Corporation.

OFF-BALANCE-SHEET RISK

Derivative financial instruments include 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 and involve to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the condensed 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.

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.

IMPACT OF INFLATION AND CHANGING PRICES

The accompanying condensed consolidated 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.

                                                                             29.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                   ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

As of September 30, 2004, an evaluation was performed under the supervision of
and with the participation of the Corporation's management, including the
President and Chief Executive Officer, and the Chief Financial Officer, of the
effectiveness of the design and operation of the Corporation's disclosure
controls and procedures. Based on that evaluation, the Corporation's management,
including the President and Chief Executive Officer, concluded that the
Corporation's disclosure controls and procedures were effective in timely
alerting them to material information relating to the Corporation (including its
consolidated subsidiaries) required to be included in the Corporation's periodic
SEC filings as of September 30, 2004.

There was no change in the Corporation's internal control over financial
reporting that occurred during the Corporation's fiscal quarter ended September
30, 2004 that has materially affected, or is reasonably likely to materially
affect, the Corporation's internal control over financial reporting.

                                                                             30.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Corporation and its subsidiaries are subject to routine litigation
incidental to the business of banking. In addition, the Corporation or the Bank
are subject to the Order referred to below, and the litigation and arbitration
described below. Information regarding the Order is contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the caption "Capital and Regulatory" in this report, and is incorporated here by
reference. The litigation and arbitration that is not routine and incidental to
the business of banking is described below. The securities litigation,
shareholder's derivative action against current and former directors, and the
Ford arbitration discussed below were previously described in the Corporation's
Annual Report on Form 10-K for the year ended December 31, 2003, and Quarterly
Reports on Form 10-Q for the quarters ended March 31 and June 30, 2004.

Securities Litigation

In an action styled Lanctot v. Littlejohn, et al., filed in the U.S. District
Court for the Western District of Michigan on June 13, 2003, a shareholder of
the Corporation brought a class action against the Corporation, its former
chairman, chief executive officer and director, Ronald G. Ford, and its former
chief executive officer and director, Sherry L. Littlejohn, for alleged
violations of Federal securities laws.

In another action styled Rosen v. North Country Financial Corporation, et al.,
filed in the U.S. District Court for the Western District of Michigan on June
23, 2003, a former shareholder of the Corporation has brought a class action
against the Corporation, its former chairman, chief executive officer and
director, Ronald G. Ford, and its former chief executive officer and director,
Sherry L. Littlejohn, for alleged violations of Federal securities laws.

On September 2, 2003, pursuant to 15 U.S.C. Section 78-u-4(a)(3)(B), plaintiff
Charles Lanctot filed a motion requesting the Court to consolidate the two
securities class action cases (Lanctot and Rosen) under the caption In re North
Country Financial Corporation Securities Litigation, to appoint him as "Lead
Plaintiff" in the consolidated cases, and to approve the selection of his
counsel as "Lead Plaintiff's Counsel." In an Order dated September 29, 2003, the
Court among other things consolidated the Lanctot and Rosen actions, designated
Charles D. Lanctot and John F. Stevens as "Lead Plaintiffs," and designated
"Co-Lead Counsel" and "Liaison Counsel" for the class.

On December 1, 2003, the plaintiffs filed their Corrected Consolidated Amended
Class Action Complaint ("Amended Complaint"), which adds John F. Stevens as a
plaintiff. The Amended Complaint, which demands a jury trial, is brought on
behalf of all persons, subject to certain exceptions, who purchased the
Corporation's common stock during the period from November 13, 2000, through
April 15, 2003. It alleges that the Corporation and the individual defendants
violated section 10(b) of the Securities Exchange Act of 1934 (the "Exchange
Act") and Rule 10b-5 of the Securities and Exchange Commission (the "SEC")
issued under the Exchange Act, by disseminating materially false and misleading
statements and/or concealing material adverse facts concerning the financial
condition and operations of the Corporation, with knowledge, or in reckless
disregard, of the materially false and misleading character thereof. The Amended
Complaint also alleges violations of Section 20 of the Exchange Act by the
individual defendants, by reason of their control, at relevant times, of the
Corporation. Among other things, the Amended Complaint is based upon allegations
of deficiencies in the Corporation's policies and procedures for safe and sound
operation, including its directorate and management personnel and practices,
credit underwriting, credit administration, and policies regarding
asset/liability management, liquidity, funds management, and investments, and
its compliance with all applicable laws and regulations, including Regulations O
and U of the Board of Governors of the Federal Reserve System (the "Board"), the
Federal Deposit Insurance Corporation ("FDIC") Rules and Regulations, and the
Michigan Banking Code of 1999. The Amended Complaint further alleges that the
Corporation's acquisition of American Financial Mortgage, which had an
"unusually large number of defaulted loans . . . which triggered the attention
of banking regulators"; that a Cease and Desist Order, dated March 26, 2002,
which is attached as Exhibit 1 to the Amended Complaint, demonstrates how
defendants made "false statements" in public filings and other communications,
and were required to take "corrective actions;" that various public filings were
"false because the Company's operations resulted in an excessive level of
adversely classified assets, delinquent loans, and nonaccrual loans as well as
an inadequate level of capital protection for the kind and quality of assets
held;" that, "according to former employees, loans for Company insiders and
their related entities were often approved regardless of the quality of the
loan;" and, that the Corporation incorrectly attributed its performance to the
World Trade Center disaster and other factors impacting tourism and hospitality
businesses,

                                                                             31.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                     PART II - OTHER INFORMATION (Continued)

instead of disclosing "insider loans," a "disproportionately high loan
concentration" in the hospitality industry, and information about the
Corporation's banking practices and loan loss reserves. The Amended Complaint
seeks certification of a class consisting of all persons who purchased the
common stock of the Corporation on the open market between the dates noted
above, compensatory damages on a joint and several basis against all defendants,
including the Corporation, plus interest and costs, including attorney's fees
and expert's fees.

On January 23, 2004, the Corporation and the other defendants filed their Joint
Motion to Dismiss the Corrected Consolidated Amended Class Action Complaint,
principally based on the ground that plaintiffs have not adequately plead that
the Corporation, through its officers and directors, acted with the intent to
defraud the investing public under the standard articulated in Helwig v. Vencor,
Inc., 251 F.3d 540 (6th Cir. 2001), cert. dismissed, 536 U.S. 935, 122 S.Ct.
2616 (2002). During the pendency of the motion to dismiss, a stay of "all
discovery and other proceedings" automatically is imposed under 15 U.S.C.
Section 78u-4(b)(3)(B). Plaintiffs filed their Brief in Opposition to
Defendants' Motion to Dismiss on March 8, 2004. Defendants filed a reply brief
in support of their Motion to Dismiss on March 23, 2004. The Court scheduled an
oral argument on the Motion to Dismiss for May 17, 2004.

Shortly before the hearing on the Motion to Dismiss, Plaintiffs, the Corporation
and the individual Defendants and their insurer reached a settlement in
principle of all claims asserted in the consolidated actions. On June 18, 2004,
the parties submitted to the Court their Stipulation of Settlement, which
describes in detail the terms and conditions of the settlement. The parties have
submitted two Revised and Amended Stipulations of Settlement, the most recent of
which was filed with the Court on July 16, 2004.

On August 16, 2004, the Court granted conditional approval of the settlement as
set forth in the Revised and Amended Stipulation of Settlement. On October 15,
2004, the Court preliminarily certified a class for purposes of settlement only,
approved a form of notice of hearing to be distributed to class members, and
scheduled a hearing concerning final approval of the settlement. As modifed by a
Stipulated Order entered on October 29, 2004, the plaintiffs were allowed to
mail notice of the proposed settlement to members of the class. Members of the
class are permitted to opt out of the class by written request postmarked no
later than November 29, 2004. Members of the class who have not opted out and
who file written notice no later than November 24, 2004, may object to approval
of the settlement at the hearing concerning final approval before the Court. The
hearing concerning final approval of the settlement by the Court is scheduled
for December 1, 2004.

Completion of the settlement is conditional upon satisfaction of a number of
matters set forth in the Revised and Amended Stipulation of Settlement, and
further proceedings in the Court. At this time, there can be no assurance that
all the conditions set forth in the Revised and Amended Stipulation of
Settlement will be satisfied. Failure to satisfy any of the conditions would
terminate the settlement and return the parties and the Court to a determination
upon Defendants' Motion to Dismiss the consolidated actions.

Shareholder's Derivative Litigation

In an action styled Virginia M. Damon Trust v. North Country Financial
Corporation, Nominal Defendant, and Dennis Bittner, Bernard A. Bouschor, Ronald
G. Ford, Sherry L. Littlejohn, Stanley J. Gerou II, John D. Lindroth, Stephen
Madigan, Spencer Shunk, Michael Henrickson, Glen Tolksdorf, and Wesley Hoffman,
filed in the U.S. District Court for the Western District of Michigan on July 1,
2003, a shareholder of the Corporation has brought a shareholder's derivative
action under Section 27 of the Exchange Act against the Corporation and certain
of its current and former directors and senior executive officers. The
Complaint, which demands a jury trial, is brought on behalf of the Corporation
against the individual defendants. It alleges that the individual defendants
have caused loss and damage to the Corporation through breaches of their
fiduciary duties of oversight and supervision by failing (i) adequately to
safeguard the assets of the Corporation, (ii) to ensure that adequate
administrative, operating, and internal controls were in place and implemented,
(iii) to ensure that the Corporation was operated in accordance with
legally-prescribed procedures, and (iv) to oversee the audit process to ensure
that the Corporation's assets were properly accounted for and preserved. The
Complaint further alleges that the individual defendants violated Section 14(a)
of the Exchange Act by making materially false and misleading statements in the
proxy statement mailed to shareholders in connection with the annual meeting of
the Corporation held May 29, 2000, and the adoption by the shareholders at that
meeting of the Corporation's 2000 Stock Incentive Plan. The Complaint also
alleges that Mr. Ford and Ms. Littlejohn, through a series of compensation
arrangements, stock options, and employment agreements obtained by them through
improper means resulting from the offices they held with the Corporation,
received

                                                                             32.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                     PART II - OTHER INFORMATION (Continued)

excessive compensation, to the injury of the Corporation. Among other things,
the Complaint is based upon allegations of material misstatements or omissions
in filings made by the Corporation with the SEC, and deficiencies in the
Corporation's policies and procedures for safe and sound operation, including
its directorate and management personnel and practices, credit underwriting,
credit administration, and policies regarding asset/liability management,
liquidity, funds management, and investments, and its compliance with all
applicable laws and regulations, including Regulations O and U of the Board,
FDIC Rules and Regulations, and the Michigan Banking Code of 1999. The Complaint
seeks (i) rescission of the approval of the 2000 Stock Incentive Plan and return
of all stock and options granted under the Plan, (ii) a declaration that the
individual defendants breached their fiduciary duty to the Corporation, (iii) an
order to the individual defendants to account to the Corporation for all losses
and/or damages by reason of the acts and omissions alleged, (iv) an order to
each of the individual defendants to remit to the Corporation all salaries and
other compensation received for periods during which they breached their
fiduciary duties, (v) compensatory damages in favor of the Corporation, (vi)
injunctive relief, and (vii) interest, costs, and attorney's and expert's fees.

By letter dated September 17, 2003, and expressly without prejudice to the
argument that any such written demand is not required, plaintiff's counsel
purported to make a written demand that the Corporation pursue a number of
indicated putative claims against: (1) present and former officers and directors
of the Corporation who also are the individual defendants in the Damon action,
and (2) the certified public accounting firm of Wipfli, Ullrich, Bertelson, LLP.

On September 18, 2003, the Corporation filed a motion to dismiss the Damon
action because plaintiff did not satisfy the mandatory precondition, under
Section 493a of the Michigan Business Corporation Act ("MBCA"), M.C.L. Section
450.1493a, for filing a shareholder derivative action that the shareholder must
first have submitted a written demand that the Corporation pursue in its own
right the claims asserted by the shareholder (the plaintiff here). Certain of
the individual defendants in the Damon action filed their own motion to dismiss
on November 25, 2003, in which motion the other individual defendants later
joined. The plaintiff filed an Opposition to both motions to dismiss on January
9, 2004, and on January 30, 2004, the defendants filed reply briefs in support
of their motions to dismiss.

On March 22, 2004, the Court issued an Opinion and Order granting in part and
denying in part the motions to dismiss in the Damon case. The Court dismissed
the Section 14(a) claim against all of the defendants as barred by the statute
of limitations and, as further grounds, dismissed that claim as to those who
were not directors at the time of the mailing of the proxy statement. The Court
has permitted the plaintiff to proceed with its breach of fiduciary duty claims
against the Directors on the grounds that the plaintiff cured its procedural
failings by subsequently transmitting a demand letter as required by Section 493
of the MBCA.

On April 19, 2004, the Court entered an Order Granting Stipulation to Grant
Plaintiff Leave to File Amended Complaint and to Grant Related Relief to All
Parties. On May 14, 2004, the plaintiff filed an Amended Complaint and,
thereafter, all Defendants timely filed Answers to the Amended Complaint. In its
Answer, the Corporation averred that the plaintiff's claims are asserted for and
on behalf of the Corporation, that the plaintiff does not assert any claims
against the Corporation and, therefore, the Corporation properly should be
realigned as a plaintiff in the action.

During the above described proceedings, on November 11, 2003, the Corporation
filed a motion, as permitted by section 495 of the MBCA, M.C.L. Section
450.1495, requesting the Court to appoint a disinterested person to conduct a
reasonable investigation of the claims made by the plaintiff and to make a good
faith determination whether the maintenance of the derivative action is in the
best interests of the Corporation. After additional written submissions to the
Court by the defendants and the plaintiff concerning the issues presented by
this motion, and after several conferences with the Court, on May 20, 2004, the
Court entered an Order adopting the parties' written stipulations concerning the
appointment of a disinterested person and the manner of conducting the
investigation of the claims made by the plaintiff and making recommendations as
to whether the maintenance of the derivative action is in the best interests of
the Corporation.

On July 14, 2004, the Court convened a settlement conference among counsel for
all parties and counsel for the individual defendants' insurer. Although a
settlement was not achieved, at the direction of the Court, the parties'
respective counsel agreed to continue settlement discussions.

                                                                             33.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                     PART II - OTHER INFORMATION (Continued)

By Order of the Court dated November 2, 2004, the report of the disinterested
person was timely filed with the Corporation on October 23, 2004, and the action
was stayed until November 22, 2004. The Corporation is currently evaluating the
report of the disinterested person.

On August 27, 2004, a second shareholder's derivative action, styled Virginia M.
Damon Trust v. Wipfli Ullrich Bertelson, LLP, and North Country Financial
Corporation, Nominal Defendant, was filed in the Michigan Circuit Court for
Grand Traverse County by the same shareholder which brought the derivative
action discussed above. The complaint, which demands a jury trial, is brought on
behalf of the Corporation against Wipfli Ullrich Bertelson, LLP ("Wipfli") under
the Michigan Accountant Liability statute, M.C.L. 600.2962. It alleges that
Wipfli damaged the Corporation by (i) failing to conduct and oversee, with the
due care and competence required of professional accountants, the annual audit
of the Corporation's financial statements for its fiscal years ending December
31, 2000 and December 31, 2001, (ii) failing to provide, with requisite due care
and competence, the internal audit, regulatory compliance, and financial
reporting services Wipfli had agreed to provide the Corporation after August 28,
2002, when Wipfli resigned as its auditors to undertake such consulting
services, (iii) failing to exercise due care and competence required to ensure
that the Corporation's financial statements conformed to applicable regulatory
accounting principles ("RAP") and generally accepted accounting principles
("GAAP"), (iv) failing to make full disclosure that the Corporation's
administrative, operating, and internal controls were inadequate to prevent loss
and damage to its assets, and (v) failing to conduct a diligent and careful
"review" of the Corporation's quarterly financial statements during its fiscal
years 2000 and 2001 and the first and second quarters of 2002.

The complaint further alleges that Wipfli undertook in writing (i) to provide
professional services, including auditing services, accounting services for
preparation of audited financial statements, advice regarding financial
statement disclosure, and preparation of annual reports for regulators,
including the annual report required by section 36 of the Federal Deposit
Insurance Act, and (ii) to ensure that the Corporation had sufficient systems in
place to determine whether it was in compliance with RAP and other regulations
of the FDIC and the OFIS. The complaint alleges that Wipfli (i) failed to
conduct its audits of the Corporation's financial statements in accordance with
generally accepted auditing standards ("GAAS"), (ii) negligently represented
that the Corporation's audited annual financial statements for the year ended
December 31, 2000 were fairly presented in all material respects, (iii)
negligently conducted reviews of the Corporation's quarterly financial
statements for the interim quarters of 2000, 2001 and 2002, and (iii)
negligently audited the Corporation's financial statements for the fiscal years
2000 and 2001 by failing to obtain or review sufficient documentation, failing
to limit the scope of the audit in light of such failure to obtain or review
sufficient documentation, failing to verify the accuracy of information obtained
from the Corporation for the audit, failing to limit the scope of the audit in
light of such failure to verify the accuracy of the information obtained from
the Corporation, and substantially underestimating the Corporation's liabilities
and misrepresenting its solvency.

The complaint also alleges that Wipfli is a party responsible for the
Corporation's liability in any securities fraud action arising out of a material
overstatement of its financial results. The complaint claims contribution and
indemnification from Wipfli on behalf of the Corporation under the Private
Securities Litigation Reform Act of 1995 for any liability it may incur in any
such securities fraud action.

On October 12, 2004, Wipfli removed the second shareholder's derivative action
to the U.S. District Court for the Western District of Michigan. By stipulation
between the respective counsel for the Corporation and the plaintiff, the
Corporation has been granted until December 10, 2004, to file its first response
to the Complaint.

Employment Agreement Arbitration

On September 16, 2003, Ronald G. Ford, the former chairman and chief executive
officer and a current director of the Corporation, initiated an arbitration
proceeding with the American Arbitration Association ("AAA") against the
Corporation seeking monetary damages for alleged breach by the Corporation of
his Amended and Restated Employment Agreement, Chairman Agreement, and Amended
and Restated Consulting Agreement, each with the Corporation. The Corporation
has denied the alleged breach and asserted a counterclaim to recover all amounts
paid to Mr. Ford under the Chairman Agreement, as required by the Cease and
Desist Order entered by the FDIC and the OFIS, in addition to other amounts.

                                                                             34.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                     PART II - OTHER INFORMATION (Continued)

On March 19, 2004, at the request of Mr. Ford, AAA reactivated the arbitration
proceeding. Pursuant to its procedures, on June 17, 2004, AAA appointed an
arbitrator to preside over the adjudication of these claims and counterclaims.

On July 13, 2004, the arbitrator convened a scheduling conference at which the
arbitrator adopted the parties' stipulation to stay the arbitration until the
conclusion in the Damon action of the court-appointed disinterested person's
investigation and recommendations concerning the claims of the Virginia M. Damon
Trust, asserted in the name and on behalf of the Corporation, against the
Corporation's former and present officers and directors, including Mr. Ford. At
a further conference held on October 27, 2004, the arbitrator adopted the
parties' stipulation to stay the arbitration until another conference, scheduled
for November 18, 2004.

Litigation of the types involved in the actions described above can be complex,
time-consuming, and often protracted. The Corporation has incurred and
anticipates that it will continue to incur substantial additional expense for
legal and other professional fees as a result of the filing and defense of these
actions. At this stage of the proceedings, the Corporation cannot accurately
assess the impact which these proceedings will have on the Corporation. An
ultimate determination of any of these actions adverse to the Corporation could
have a material adverse effect on the Corporation's financial condition and
operations.

                                                                             35.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

    Exhibit 3.1      Articles of Incorporation, as amended, incorporated herein
                     by reference to exhibit 3.1 of the Corporation's Quarterly
                     Report on Form 10-Q for the quarter ended September 30,
                     1999.

    Exhibit 3.2      Amended and Restated Bylaws, incorporated herein by
                     reference to exhibit 3.1 of the Corporation's Quarterly
                     Report on Form 10-Q for the quarter ended September 30,
                     2001.

    Exhibit 10.1     Stock Purchase Agreement between Registrant and NCFC
                     Recapitalization, LLC, dated August 10, 2004, incorporated
                     by reference to Exhibit 10.2 to Registrant's Form 8-K filed
                     August 13, 2004.

    Exhibit 10.2     Amendment to Stock Purchase Agreement between Registrant
                     and NCFC Recapitalization, LLC, dated September 28, 2004,
                     incorporated by reference to Exhibit 10.1 to Registrant's
                     Form 8-K filed October 4, 2004.

    Exhibit 10.3     Amendment to Rights Agreement between Registrant and
                     Registrar and Transfer Company dated August 9, 2004,
                     incorporated by reference to Exhibit 10.1 to Registrant's
                     Form 8-K filed August 13, 2004.

    Exhibit 31.1     Rule 13a-14(a) Certification of Chief Executive Officer

    Exhibit 31.2     Rule 13a-14(a) Certification of Chief Financial Officer

    Exhibit 32.1     Section 1350 Certification of Chief Executive Officer

    Exhibit 32.2     Section 1350 Certification of Chief Financial Officer

                                                                             36.

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                 NORTH COUNTRY FINANCIAL CORPORATION
                                 -----------------------------------
                                              (Registrant)

                                 By:  /s/ C. James Bess
                                    --------------------------------------------
November 15, 2004
-----------------                     C. JAMES BESS
Date                                  PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                      (principal executive officer)


                                 By: /s/ Ernie R. Krueger
                                    --------------------------------------------

                                     ERNIE R. KRUEGER
                                     VICE PRESIDENT AND CONTROLLER
                                     (principal accounting officer)

                                                                             37.

<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.                            DESCRIPTION
-----------                            -----------
<S>            <C>
Exhibit 3.1    Articles of Incorporation, as amended, incorporated herein
               by reference to exhibit 3.1 of the Corporation's Quarterly
               Report on Form 10-Q for the quarter ended September 30,
               1999.

Exhibit 3.2    Amended and Restated Bylaws, incorporated herein by
               reference to exhibit 3.1 of the Corporation's Quarterly
               Report on Form 10-Q for the quarter ended September 30,
               2001.

Exhibit 10.1   Stock Purchase Agreement between Registrant and NCFC
               Recapitalization, LLC, dated August 10, 2004, incorporated by
               reference to Exhibit 10.2 to Registrant's Form 8-K filed August
               13, 2004.

Exhibit 10.2   Amendment to Stock Purchase Agreement between Registrant and
               NCFC Recapitalization, LLC, dated September 28, 2004,
               incorporated by reference to Exhibit 10.1 to Registrant's Form
               8-K filed October 4, 2004.

Exhibit 10.3   Amendment to Rights Agreement between Registrant and Registrar
               and Transfer Company dated August 9, 2004, incorporated by
               reference to Exhibit 10.1 to Registrant's Form 8-K filed August
               13, 2004.

Exhibit 31.1   Rule 13a-14(a) Certification of Chief Executive Officer

Exhibit 31.2   Rule 13a-14(a) Certification of Chief Financial Officer

Exhibit 32.1   Section 1350 Certification of Chief Executive Officer

Exhibit 32.2   Section 1350 Certification of Chief Financial Officer
</TABLE>