<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 June 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 Identification No.)
    incorporation or organization)

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

Registrant's telephone number, including area code: (800) 200-7032

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 June 30, 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 I.       Financial Information

     Item 1.      Financial Statements

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

                  Condensed Consolidated Statements of Operations - Three and Six
                    Months Ended June 30, 2004 (Unaudited) and
                    June 30, 2003 (Unaudited)........................................................        2

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

                  Condensed Consolidated Statements of Cash Flows -
                    Six Months Ended June 30, 2004 (Unaudited) and
                    June 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..............................................       12

     Item 3.      Quantitative and Qualitative Disclosures About Market Risk.........................       25

     Item 4.      Controls and Procedures............................................................       29

PART II.      Other Information

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

     Item 6.      Exhibits and Reports on Form 8-K...................................................       34

     SIGNATURES......................................................................................       35
</TABLE>

<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION
                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                    June 30,    December 31,
                                                                                      2004          2003
                                                                                   -----------  ------------
                                                                                   (Unaudited)
<S>                                                                                <C>          <C>
ASSETS
  Cash and due from banks                                                           $   5,707    $   7,433
  Federal funds sold                                                                    9,333       15,600
                                                                                    ---------    ---------
     Cash and cash equivalents                                                         15,040       23,033

  Interest-bearing deposits in other financial institutions                            15,726        6,048
  Securities available for sale                                                        64,552       84,774
  Federal Home Loan Bank stock                                                          4,652        4,544

  Total loans                                                                         233,032      297,846
     Allowance for loan losses                                                        (10,850)     (22,005)
                                                                                    ---------    ---------
  Net loans                                                                           222,182      275,841


  Premises and equipment                                                               12,430       13,747
  Other real estate held for sale                                                       3,557        4,356
  Other assets                                                                          6,903       10,196
                                                                                    ---------    ---------

     Total assets                                                                   $ 345,042    $ 422,539
                                                                                    =========    =========
LIABILITIES AND SHAREHOLDERS' EQUITY
  Liabilities:
     Non-interest-bearing deposits                                                  $  21,477    $  26,179
     Interest-bearing deposits                                                        214,169      279,615
                                                                                    ---------    ---------
     Total deposits                                                                   235,646      305,794

  Borrowings:                                                                          86,637       87,026
  Subordinated debentures                                                              12,450       12,450
  Other liabilities                                                                     4,424        6,569
                                                                                    ---------    ---------
     Total liabilities                                                                339,157      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                                                               (9,769)      (6,502)
     Accumulated other comprehensive income (loss)                                       (521)       1,027
                                                                                    ---------    ---------

         Total shareholders' equity                                                     5,885       10,700
                                                                                    ---------    ---------

     Total liabilities and shareholders' equity                                     $ 345,042    $ 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         Six Months Ended
                                                           June 30,                  June 30,
                                                        2004       2003          2004        2003
                                                        ----       ----          ----        ----
<S>                                                   <C>        <C>            <C>        <C>
Interest income:
  Interest and fees on loans:
     Taxable                                          $ 4,069    $ 5,071        $ 7,865    $ 10,712
     Tax-exempt                                           324        429            643         851
  Interest on securities:
     Taxable                                              574        520          1,272       1,212
     Tax-exempt                                            43         66             86         132
  Other interest income                                   143        160            263         312
                                                      -------    -------        -------    --------
     Total interest income                              5,153      6,246         10,129      13,219
                                                      -------    -------        -------    --------
Interest expense:
  Deposits                                              1,378      2,133          3,043       4,678
  Borrowings                                            1,189      1,213          2,370       2,412
  Subordinated debentures                                 119        123            238         245
                                                      -------    -------        -------    --------
     Total interest expense                             2,686      3,469          5,651       7,335
                                                      -------    -------        -------    --------

Net interest income                                     2,467      2,777          4,478       5,884
Provision for loan losses                                 -0-        -0-            -0-         -0-
                                                      -------    -------        -------    --------
Net interest income after provision for loan losses     2,467      2,777          4,478       5,884
                                                      -------    -------        -------    --------
Other income:
  Service fees                                            287        413            580         843
  Loan and lease fee income                                 4         11              9          38
  Net security gains                                      -0-        214            -0-         191
  Net gains on sale of loans                                8         51             20         106
  Gain on sale of property and equipment                   37         94             85         113
  Other                                                    18        356            371         769
                                                      -------    -------        -------    --------
     Total other income                                   354      1,139          1,065       2,060
                                                      -------    -------        -------    --------
Other expense:
  Salaries and employee benefits                        1,354      1,356          2,853       3,033
  Furniture and equipment expense                         235        355            493         721
  Occupancy expense                                       279        351            626         750
  Data processing                                         348        380            703         787
  Accounting, legal, and consulting fees                  572        836            978       1,666
  Loan and deposit expense                                600        334          1,093         908
  Telephone                                                19        364            232         697
  Advertising                                              26         95             43         144
  Other                                                   988      1,143          1,789       1,721
                                                      -------    -------        -------    --------
     Total other expense                                4,421      5,214          8,810      10,427
                                                      -------    -------        -------    --------

Loss before provision for income taxes                 (1,600)    (1,298)        (3,267)     (2,483)
Provision for income taxes                                -0-      1,359            -0-       1,679
                                                      -------    -------        -------    --------
Net loss                                              $(1,600)   $(2,657)       $(3,267)   $ (4,162)
                                                      =======    =======        =======    ========

Loss per common share:
  Basic                                               $  (.23)   $  (.38)       $  (.47)   $   (.59)
                                                      =======    =======        =======    ========
  Diluted                                             $  (.23)   $  (.38)       $  (.47)   $   (.59)
                                                      =======    =======        =======    ========
</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         Six Months Ended
                                                           June 30,                  June 30,
                                                        2004       2003          2004        2003
                                                        ----       ----          ----        ----
<S>                                                   <C>       <C>             <C>        <C>
Balance, beginning of period                          $ 9,371   $ 18,896        $10,700    $ 20,503

Net loss for period                                    (1,600)    (2,657)        (3,267)     (4,162)
Net unrealized gain (loss) on securities
 available for sale                                    (1,886)       100         (1,548)         (2)
                                                      -------    -------        -------    --------
     Total comprehensive income (loss)                 (3,486)    (2,557)        (4,815)     (4,164)

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

Balance, end of period                                $ 5,885   $ 16,339        $ 5,885    $ 16,339
                                                      =======    =======        =======    ========
</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>
                                                                                              Six Months Ended
                                                                                                  June 30,
                                                                                              2004        2003
                                                                                              ----        ----
<S>                                                                                         <C>         <C>
Increase (decrease) in cash and cash equivalents:

   Cash flows from operating activities:
     Net loss                                                                               $ (3,267)   $ (4,162)
     Adjustments to reconcile net loss to net cash
       provided by (used in) operating activities:
          Depreciation and amortization                                                          914       1,455
          Provision for impairment of intangible assets                                          -0-          60
          Provision for impairment of other real estate held for sale                             22         216
          Gain on sales of securities                                                            -0-        (191)
          (Gain) loss on sales of premises, equipment, and other real estate                     (33)       (113)
          FHLB stock dividend                                                                   (108)        (58)
          Change in other assets                                                               3,120       3,306
          Change in other liabilities                                                         (2,145)       (826)
                                                                                            --------    --------
     Net cash provided by (used in) operating activities                                      (1,497)       (313)
                                                                                            --------    --------
   Cash flows from investing activities:
     Net (increase) decrease in interest-bearing deposits in other financial institutions     (9,678)     (9,827)
     Purchase of securities available for sale                                               (10,000)        -0-
     Proceeds from sales of securities available for sale                                     20,000       6,543
     Proceeds from maturities, calls or paydowns of securities available for sale              8,494       6,131
     Net decrease in loans                                                                    49,997      71,858
     Purchase of premises and equipment                                                          (19)        (30)
     Proceeds from sales of premises, equipment, and other real estate                         5,247       2,459
                                                                                            --------    --------
   Net cash provided by investing activities                                                  64,041      77,134
                                                                                            --------    --------
   Cash flows from financing activities:
     Net decrease in deposits                                                                (70,148)    (84,046)
     Proceeds from issuance of debt                                                              100         -0-
     Principal payments on borrowings                                                           (489)       (332)
                                                                                            --------    --------
   Net cash used in financing activities                                                     (70,537)    (84,378)
                                                                                            --------    --------

Net change in cash and cash equivalents                                                       (7,993)     (7,557)
Cash and cash equivalents at beginning of period                                              23,033      43,792
                                                                                            --------    --------

Cash and cash equivalents at end of period                                                  $ 15,040    $ 36,235
                                                                                            ========    ========
Supplemental cash flow information:

Cash paid (refunded) for:
     Interest                                                                               $  5,929    $  7,854
     Income taxes                                                                                -0-        (500)

Noncash investing activities - Transfers of foreclosures from loans to other real estate       3,662       1,865
</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 six month
      period ended June 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.

      Allowance for Loan Losses

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

      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
      in 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 are granted at the discretion of a committee of the Corporation's
      Board of Directors. Options to purchase shares of the Corporation's stock
      are granted at a price equal to the market price of the stock at the date
      of grant. The committee determines the vesting of the options when they
      are granted as established under the plan.

                                                                              5.
<PAGE>

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

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      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 six months ended June
      30, 2003. There were no options granted in 2004.

<TABLE>
<CAPTION>
                                           June 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 six months ended June 30, 2004
      and 2003 as follows (dollars in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                        June 30,
                                                                   2004           2003
                                                                   ----           ----
                                                                 June 30,       June 30,
                                                                   2004           2003
                                                                   ----           ----
<S>                                                              <C>            <C>
Net Loss:
     As reported                                                 $ (3,267)      $ (4,162)
                                                                                ========
     Total stock-based compensation expense determined under
       fair value-based method, net of tax                            -0-            (23)
                                                                 --------       --------

Pro forma                                                        $ (3,267)      $ (4,185)
                                                                 ========       ========
Loss per share - Basic:

     As reported                                                 $   (.47)      $   (.59)
                                                                 ========       ========

     Pro forma                                                   $   (.47)      $   (.60)
                                                                 ========       ========
Loss per share - Diluted:

     As reported                                                 $   (.47)      $   (.59)
                                                                 ========       ========
</TABLE>

2.    RECENT ACCOUNTING PRONOUNCEMENT

      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.    EARNINGS (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 earnings (loss)
      per share for the three and six months ended June 30, 2004 and 2003
      (dollars in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                  Three Months Ended    Six Months Ended
                                                                       June 30,            June 30,
                                                                   2004      2003       2004      2003
                                                                   ----      ----       ----      ----
<S>                                                               <C>       <C>        <C>       <C>
Basic (loss) per common share:
     Net (loss)                                                   $(1,600)  $(2,657)   $(3,267)  $(4,162)
                                                                  =======   =======    =======   =======
     Weighted average common shares outstanding                     7,019     7,019      7,019     7,019
                                                                  =======   =======    =======   =======

        Basic (loss) per common share                             $  (.23)  $  (.38)   $  (.47)  $  (.59)
                                                                  =======   =======    =======   =======
Diluted (loss) per common share:

     Net (loss)                                                   $  (.23)  $  (.38)   $  (.47)  $  (.59)
                                                                  =======   =======    =======   =======
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                              $  (.23)  $  (.38)   $  (.47)  $  (.59)
                                                                  =======   =======    =======   =======
</TABLE>

4.    INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                                   June 30, 2004           December 31, 2003
                                                                Amortized   Estimated     Amortized    Estimated
                                                                   Cost    Fair Value       Cost      Fair Value
                                                                   ----    ----------       ----      ----------
<S>                                                             <C>        <C>            <C>         <C>
US Agencies                                                      $26,018     $25,621       $36,017      $36,225
Obligations of states and political subdivisions                   3,711       3,855         3,772        4,105
Corporate securities                                                 666         695           666          708
Mortgage-related securities                                       34,678      34,381        43,292       43,736
                                                                 -------     -------       -------      -------

     Total securities available for sale                         $65,073     $64,552        83,747      $84,774
                                                                 =======     =======       =======      =======
</TABLE>

      The amortized cost and estimated fair value of investment securities
      pledged at June 30, 2004 amount to $55.7 million and $55.0 million,
      respectively. These securities are pledged to secure Federal Home Loan
      Bank borrowings, and Treasury Tax and Loan deposits and borrowings.
                                                                              7.
<PAGE>

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

5.    LOANS

      The composition of loans at June 30, 2004 and December 31, 2003 is as
      follows (dollars in thousands):

<TABLE>
<CAPTION>
                                             June 30,       December 31,
                                               2004             2003
                                               ----             ----
<S>                                          <C>            <C>
Commercial real estate                       $ 33,061        $  39,571
Commercial, financial, and agricultural       152,091          203,393
One-to-four-family residential real estate     44,457           51,120
Consumer                                        2,678            3,195
Construction                                      745              567
                                             --------        ---------

     Total loans                             $233,032        $ 297,846
                                             ========        =========
</TABLE>

An analysis of the allowance for loan losses for the six months ended June 30,
2004, and 2003 is as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                          June 30,
                                    2004             2003
                                    ----             ----
<S>                               <C>               <C>
Balance at beginning of period    $22,005           $24,908
Recoveries on loans                   344               137
Loans charged off                 (11,499)           (1,713)
                                  -------           -------

Balance at end of period          $10,850           $23,332
                                  =======           =======
</TABLE>

      The allowance for loan losses was significantly impacted by loan charge
      offs in the first six 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 $523,000 and $2,047,000 at June 30, 2004 and December 31,
      2003, respectively. Nonperforming loans are those which are contractually
      90 days or more past due 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 six months ended June 30, 2004 and 2003. The nonperforming commercial
      loans are reflected in the information regarding impaired loans.

      Information regarding impaired loans as of June 30, 2004 and December 31,
      2003 is as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                               June 30,    December 31,
                                                 2004         2003
                                                 ----         ----
<S>                                            <C>         <C>
Total impaired loans                            $8,789      $43,827
Impaired loans with a valuation allowance        8,265       39,993
Impaired loans on nonaccrual                     8,789       36,646
Valuation allowance related to impaired loans      906        7,648
</TABLE>

      The average investment in impaired loans was approximately $25.0 million
      and $46.7 million for the six months ended June 30, 2004 and the year
      ended December 31, 2003, respectively.

                                                                              8.
<PAGE>

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

5.    LOANS (CONTINUED)

      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 is
      summarized below (dollars in thousands):

<TABLE>
<CAPTION>
                                                                           June 30,  December 31,
                                                                             2004        2003
                                                                             ----         ----
<S>                                                                        <C>       <C>
Loans outstanding beginning of period                                      $6,514      $10,987
New loans                                                                      40          -0-
Repayment                                                                    (331)      (4,480)
Increase related to new executive officers and directors                      -0-           98
Decrease related to retired executive officers and directors                  -0-          (91)
                                                                           ------       ------

Loans outstanding end of period                                            $6,223       $6,514
                                                                           ======       ======
</TABLE>

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

6.    BORROWINGS

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

<TABLE>
<CAPTION>
                                                                                  June 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                             $84,986       $85,475
Farmers' Home Administration, fixed rate note payable, maturing
    August 24, 2024, interest payable at 1%                                         1,551         1,551
Director loans, fixed rate notes payable, maturing May 1, 2006
    interest payable at 3%                                                            100           -0-
                                                                                  -------       -------
Borrowings outstanding end of period                                              $86,637       $87,026
                                                                                  =======       =======
</TABLE>

      The Federal Home Loan Bank borrowings are collateralized at June 30, 2004,
      by the following: a collateral agreement on the Corporation's one- to
      four-family residential real estate loans with a book value of
      approximately $39.0 million; commercial real estate leases with a book
      value of approximately $13.2 million; U.S. government agency and
      mortgage-backed securities with an amortized cost and estimated fair value
      of $54.7 million and $54.0 million, respectively; an interest-bearing
      deposit in the amount of $15.7 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 June 30, 2004.

      The U.S.D.A. Rural Development borrowing is collateralized by loans
      totaling $670 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 $1.0 million, and guaranteed by the
      Corporation.

                                                                              9.
<PAGE>

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

7.    STOCK OPTION PLANS

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

<TABLE>
<CAPTION>
                                                                                Number of Shares
                                                                            June 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>

      Options granted in 2003 were granted at a price of $2.95 per share. These
      same options terminated 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 June
      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         4.65       $ 9.18
$15.00 - $20.33                       285,932         3.72       $18.26
                                      -------         ----       ------

Total options outstanding             535,732         4.07       $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.

                                                                             10.
<PAGE>

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

8.    COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (CONTINUED)

      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>
                                                                             June 30,  December 31,
                                                                               2004        2003
                                                                               ----        ----
<S>                                                                          <C>       <C>
Commitments to extend credit:
     Fixed rate                                                               $   847    $ 3,870
     Variable rate                                                              5,935     73,651
Standby letters of credit - Variable rate                                      18,771     14,498
Credit card commitments - Fixed rate                                            3,184      3,381
                                                                              -------    -------

                                                                              $28,737    $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.

      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 market, 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 $45.9 million, or 24.8%, of the commercial loan portfolio at
      June 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.

                                                                             11.
<PAGE>

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

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 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

                                                                             12.
<PAGE>

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

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 $3.3 million through June 30, 2004,
compared to net loss of $4.2 million for the same period in 2003. Basic loss per
share was $.47 for the six months ended June 30, 2004, compared to a loss of
$.59 for the same period in 2003. There was no provision for loan losses for the
six months ended June 30, 2004 and 2003. Total assets declined $22.1 million
from December 31, 2003 to June 30, 2004. The loan portfolio declined $64.8
million in the first six months of 2004, from December 31, 2003 balances of
$297.8 million. Deposits have declined $70.1 million since December 31, 2003.

FINANCIAL CONDITION

CASH AND CASH EQUIVALENTS

Cash and cash equivalents decreased $8.0 million through the first six months of
2004. This was due to a decreased need to maintain liquidity, after funding
pending branch sales and deposit maturities during the quarter. See further
discussion of the change in cash and cash equivalents in the Liquidity section.

INVESTMENT SECURITIES

Available-for-sale securities decreased $20.2 million, or 23.9%, from December
31, 2003 to June 30, 2004, with the balance on June 30, 2004, totaling $64.6
million. The decrease during the first quarter 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 June 30, 2004, investment securities with an estimated fair
value of $55.0 million were pledged.

LOANS

Through the first six months of 2004, loan balances decreased by $64.8 million,
or 21.8% 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

                                                                             13.
<PAGE>



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

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 June 30, 2004 and December 31,
2003 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                  June 30,   Percent of      December 31  Percent of
                                                                    2004        Total           2003         Total
                                                                    ----        -----           ----         -----
<S>                                                               <C>        <C>             <C>          <C>
Commercial real estate                                            $ 33,061      14.2%         $ 39,571       13.3%
Commercial, financial, and agricultural                            152,091      65.3           203,393       68.3
One-to-four family residential real estate                          44,457      19.1            51,120       17.1
Consumer                                                             2,678       1.1             3,195        1.1
Construction                                                           745        .3               567         .2
                                                                  --------     -----          --------      -----

Total loans                                                       $233,032     100.0%         $297,846      100.0%
                                                                  ========     =====          ========      =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                       June 30, 2004                                December 31, 2004
                                                        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                 $  45,932          24.8%          780.5%       $ 76,131            31.3%            711.5%
Gaming                                     19,344          10.5           328.7%         22,317             9.2             208.6%
Other                                     119,876          64.7         2,037.0%        144,516            59.5           1,350.7%
                                        ---------         -----         -------        --------           -----           -------
     Total Commercial Loans             $ 185,152         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 reductions
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 June
30, 2004, the allowance for loan losses decreased to 4.66% of total loans
outstanding from 7.39% at December 31, 2003.

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 4.19% compared to
1.47 % for the six months ended June 30, 2004 and 2003, respectively. Net
charge-offs for the six-month period ended June 30, 2004 amounted to $11,155,000
compared to $1,576,000 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 non-performing loans. The sale of these
non-performing 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 six months
ended June 30, 2004, and June 30, 2003.

                                                                             14.
<PAGE>

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

The table below shows period end balances of non-performing assets (dollars in
thousands):

<TABLE>
<CAPTION>
                                        June 30,   December 31,
                                          2004        2003
                                        --------    -------
<S>                                     <C>        <C>
NONPERFORMING ASSETS:
Nonaccrual Loans                        $  8,789    $38,660
Loans past due 90 days or more               -0-        241
Restructured Loans                         4,473      7,181
                                        --------    -------
   Total nonperforming loans              13,262     46,082
Other real estate owned                    3,557      4,356
                                        --------    -------
   Total nonperforming assets           $ 16,819    $50,438
                                        ========    =======
Nonperforming loans as a % of loans         5.69%     15.47%
                                        --------    -------
Nonperforming assets as a % of assets       4.87%     11.94%
                                        --------    -------
RESERVE FOR LOAN LOSSES:

At period end                           $ 10,850    $22,005
                                        --------    -------
As a % of loans                             4.66%      7.39%
                                        --------    -------
As a % of nonperforming loans              81.81%     47.75%
                                        --------    -------
As a % of nonaccrual loans                123.45%     56.92%
                                        ========    =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                     June 30,   December 31,
                                                                       2004         2003
                                                                       ----         ----
<S>                                                                  <C>        <C>
Commercial financial and agricultural loans                          $ 3,893      $11,222
One-to-four family residential real estate loans                         125          280
Reserve allocation based upon historical loss rate                     2,926          N/A
Specific reserve on loans sold in first quarter of 2004                  -0-        7,425
Unallocated                                                            3,906        3,078
                                                                     -------      -------

Totals                                                               $10,850      $22,005
                                                                     =======      =======
</TABLE>

The following ratios assist management in the determination of the Corporation's
credit quality:

<TABLE>
<CAPTION>
                                                                   Six Months Ended     Twelve Months Ended
                                                                       June 30,            December 31,
                                                                         2004                  2003
                                                                         ----                  ----
<S>                                                                <C>                  <C>
Allowance to total loans                                                  4.66%                 7.39%
Average loans outstanding, for the six month period and year end
respectively                                                          $266,059              $361,144

Net charge-offs to average outstanding loans                              4.19%                 0.80%
Nonperforming loans to gross loans                                        5.69%                15.47%
</TABLE>

Total nonperforming loans decreased $32.8 million since December 31, 2003, after
the net charge-offs of $11.2 million which have been recognized through June 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 half of 2004. The Corporation also utilized a loan review
consultant in 2003 and 2004 to perform a review of the loan

                                                                             15.
<PAGE>

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

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 Corporation carries this
collateral in other real estate.

The following table represents the activity in other real estate for the six
months of 2004 (dollars in thousands):

<TABLE>
<S>                                                           <C>
Balance at December 31, 2003                                  $4,356
Other real estate transferred from loans                       3,662
Other real estate sold/written down                           (4,461)
                                                              ------

Balance at June 30, 2004                                      $3,557
                                                              ======
</TABLE>

During the first six months of 2004, the Corporation received real estate in
lieu of loan payments of $3.7 million. Other real estate is initially valued at
the lower of cost or the fair value less selling costs. After the initial
receipt, management periodically re-evaluates the recorded balance. Any
additional reduction in the fair value results in a write-down of other real
estate. Write-downs on other real estate may be recorded based on subsequent
evaluations of current realizable fair values.

DEPOSITS

The Corporation had a reduction in total deposits of $70.1 million, or 22.9%, in
the first six months of 2004. Due to the reduction in the loan portfolio,
management was able, over the last six 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 six months of 2004, while
certificates of deposit over $100,000 showed a decrease of $1.9 million during
the first half of 2004 to $16.4 million at June 30, 2004. The Corporation's
other deposit categories decreased by $38.2 million in the first six months of
2004. Contributing to the decrease in deposits for the six month period was the
sale of two branch offices with deposits of $12.1 million.

BORROWINGS

The Corporation has used alternative funding sources to provide long-term,
stable sources of funds. Total borrowings amounted to $86.6 million at June 30,
2004 of which $85.0 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 the
second quarter of 2004 the corporation borrowed $100 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 payments
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

                                                                             16.
<PAGE>

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

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 June 30, 2004, the balance of deferred interest payable amounted
to $956,000.

SHAREHOLDERS' EQUITY

Total shareholders' equity decreased $4.8 million from December 31, 2003 to June
30, 2004. The decrease is comprised of a net loss of $3.3 million and a decrease
in the net unrealized gain on securities of $1.5 million. The Board of Directors
does not anticipate declaring any dividends in the near future. The declaration
of dividends is contingent on a variety of factors to include satisfaction of
requirements in the Order.

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income before provision for loan losses for the six months ended
June 30, 2004, decreased by $1.4 million, or 23.9% compared to the same period
one year ago. The decrease in loan volume offset by the decrease in deposit
volume, combined with the impact of nonaccrual loans, and a continued low
interest rate environment have resulted in the decline in net interest income.
Net interest income, before provision for loan losses for the three months
ending June 30, 2004, showed a decrease of $310 million compared to the second
quarter in 2003. This decrease can be attributed to the downsizing of the Bank.

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 six months ended June 30, 2004 and June 30, 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 $995,000 for the six months ended June 30, 2004
compared to the six months ended June 30, 2003. Service fees decreased $263,000,
while loan and lease income declined $29,000. The decline in service fees is
primarily due to the significant decline in deposits from June 30, 2003 to June
30, 2004. Other income was positively impacted in the first half of 2004 from a
gain of $258,000 on the sale of a limited partnership interest. Other income for
the six months ended June 30, 2003 included $541,000 of gains due to foreign
exchange activities.

Other income for the second quarter of 2004 declined by $785,000 compared to the
second quarter of 2003. Service fees declined $126,000, due primarily to the
decrease in deposit accounts and balances. The second quarter of 2003 also
benefited by gains in foreign exchange activity, which provided income of
$248,000, along with gains on the sale of fixed assets of $97,000.

                                                                             17.
<PAGE>

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

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

<TABLE>
<CAPTION>
                                       For the Three Months Ended       % Increase     For the Six Months Ended        % Increase
                                                 June 30,               (Decrease)             June 30,                (Decrease)
                                           2004            2003          2004-2003       2004            2003          2004-2003
                                           ----            ----          ---------       ----            ----          ---------
<S>                                       <C>             <C>           <C>              <C>             <C>           <C>
Service fees                              $  287          $  413           (30.5)        $  580          $  843           (31.1)
Loan and lease fee income                      4              11           (63.6)             9              38           (76.3)
Net gains on sale of loans                     8              51           (84.3)            20             106           (81.1)
Gain  on sale of property and equipment       37              94           (60.6)            85             113           (24.8)
Other                                         18             356           (94.8)           371             769           (51.8)
                                          ------          ------           -----         ------          ------           -----
   Subtotal                                  354             925           (61.7)         1,065           1,869           (43.0)
                                          ------          ------           -----         ------          ------           -----
Net securities gains                         -0-             214             N/A            -0-             191             N/A
                                          ------          ------           -----         ------          ------           -----
   Total other income                     $  354          $1,139           (68.9)        $1,065          $2,060           (48.3)
                                          ======          ======           =====         ======          ======           =====
</TABLE>

OTHER EXPENSES

Other expenses decreased $1,617,000 for the six months ended June 30, 2004,
compared to the same period in 2003. Salaries, commissions, and related benefits
decreased by $180,000 during the first six months of 2004 compared to the first
six months of 2003. During the first half of 2004, the Corporation recognized
the cost of the planned closing of five branch offices. The total cost
associated with these branch office closings amounted to $438,000 and is
included in other operating expenses. The Corporation also recognized a loss of
$254,000 in 2004 from the sale of two branch offices. The Corporation has taken
action, since the fall of 2003, to reduce reliance on external accounting and
consulting services. The Corporation has also reduced costs in most other areas
of expense. These expense reductions are expected to continue as a result of
lower costs associated with non-performing assets and less overhead due to the
previously discussed branch closings.

Other expenses decreased $793,000 in the second quarter of 2004 compared to the
same period in 2003. This decrease was primarily due to decreased expenses
related to occupancy, furniture, and equipment due to closures and sales of
branch offices. The reduction in accounting, legal, and consulting fees of
$264,000 was due to the added expertise of new management which places less
reliance on external sources. The increase in loan and deposit expenses in the
second quarter of 2004 compared to the same period in 2003 was due to the costs
related to problem loan administration. These loan collection costs are expected
to decrease in future periods due to lower levels of nonperforming loans.

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

                                                                             18.
<PAGE>


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

<TABLE>
<CAPTION>
                                        Three Months Ended    % Increase   Six Months Ended      % Increase
                                              June 30,        (Decrease)        June 30,         (Decrease)
                                         2004        2003     2004-2003    2004        2003      2004-2003
                                         ----        ----     ---------    ----        ----      ---- ----
<S>                                     <C>         <C>       <C>         <C>         <C>        <C>
Salaries and employee benefits          $ 1,354     $ 1,356        -0-    $ 2,853     $ 3,033       (5.9)
Furniture and equipment expense             235         355      (33.8)       493         721      (31.6)
Occupancy expense                           279         351      (20.5)       626         750      (16.5)
Data processing                             348         380       (8.4)       703         787      (10.7)
Accounting, legal and consulting fees       572         836      (31.6)       978       1,666      (41.3)
Loan and deposit expense                    600         334       79.6      1,093         908       20.0
Telephone                                    19         364      (94.8)       232         697      (66.7)
Advertising                                  26          95      (72.6)        43         144      (70.1)
Other                                       988       1,143      (13.6)     1,789       1,721        4.0
                                        -------     -------      -----    -------     -------      -----
   Total other expense                  $ 4,421     $ 5,214      (15.2)   $ 8,810     $10,427      (15.5)
                                        =======     =======      =====    =======     =======      =====
</TABLE>

FEDERAL INCOME TAXES

The income tax provision of $1.7 million for the six months ended June 30, 2003
was the result of an addition to the valuation allowance provided against the
deferred tax asset. This provision increases the valuation allowance to $8.7
million at June 30, 2003, from $7.0 million at December 31, 2002. The
Corporation's current year net losses are currently anticipated to more likely
than not expire prior to their utilization; therefore, no tax credit is being
recorded in anticipation of a future tax benefit from the use of loss
carryovers.

LIQUIDITY

As a result of the Corporation's 2003 annual and six 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 will be advanced to the
Corporation over a three month period. The terms of these borrowings,
considering the financial condition of the 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 six months of 2004, the Corporation decreased cash and cash
equivalents by $8.0 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 six months of 2004, the
Corporation funded the reduction of deposits of $70.1 million primarily through
the balance sheet reductions of loans, $50.0 million, and investments, $20.2
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 June 30, 2004. Early in the third quarter of 2004 the Bank will
increase its liquidity by increasing deposits through a

                                                                             19.
<PAGE>

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

combination of existing branch markets and by offering and obtaining Internet
CDs in order to fund the branch sales occurring later this year.

As of June 30, 2004, the Corporation has suspended seven 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 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 six months of 2004, capital decreased by $4.8 million, as a
result of the net loss of $3.3 million and the decrease in the unrealized gain
on securities available for sale of $1.5 million. This compares to a decrease in
capital during the same period in the previous year of $4.2 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 June 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.

                                                                             20.
<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>
                                            June 30,    December 31,
                                              2004         2003
                                              ----         ----
<S>                                         <C>          <C>
CAPITAL STRUCTURE
Long-term debt (1)                          $  12,450    $  12,450
Shareholders' equity                            5,885       10,700
                                            ---------    ---------
Total capitalization                        $  18,335    $  23,150
                                            ---------    ---------
Tangible capital                            $  17,232    $  21,557
                                            ---------    ---------
INTANGIBLE ASSETS
Core deposit premium                        $     591    $   1,067
Other identifiable intangibles                    512          526
                                            ---------    ---------
Total intangibles                           $   1,103    $   1,593
                                            ---------    ---------

RISK-BASED CAPITAL
Tier I capital:
   Shareholders' equity                     $   5,885    $  10,700
Net unrealized (gains) losses on
  available for sale securities                   521       (1,027)
   Minority interest                            1,865        2,785
   Less: intangibles                           (1,103)      (1,593)
                                            ---------    ---------
     Total Tier I capital                   $   7,168    $  10,865
                                            ---------    ---------
Tier II Capital:
   Allowable reserve for loan losses        $   3,075    $   4,016
   Qualifying long-term debt                    4,093        6,849
                                            ---------    ---------
     Total Tier II capital                      7,168       10,865
                                            ---------    ---------
     Total capital                          $  14,336    $  21,730
                                            =========    =========
Risk-adjusted assets                        $ 239,225    $ 303,284
                                            =========    =========
Capital ratios:
   Tier I Capital to risk weighted assets        2.91%        3.58%
   Total Capital to risk weighted assets         5.82%        7.16%
   Tier I Capital to average assets              1.94%        2.48%
</TABLE>

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

                                                                             21.
<PAGE>


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

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.

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            4.0%          4.0                8.0%

The Corporation:
     June 30, 2004
     December 31, 2003                                      1.9%          2.9%               5.8%

The Bank:
     June 30, 2004                                          5.2%          7.8%               9.1%
     December 31, 2003                                      4.8%          6.9%               8.3%
</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 June 30, 2004 and December 31, 2003, $1,865,000 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

                                                                             22.
<PAGE>

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

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.

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.

                                                                             23.
<PAGE>

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

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.

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 June 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.

                                                                             24.
<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.

                                                                             25.
<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION

 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

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

<TABLE>
<CAPTION>
                                           1-90     91 - 365      2-5       Over 5
                                           Days       Days       Years       Years       Total
                                           ----       ----       -----       -----       -----
<S>                                      <C>        <C>         <C>         <C>        <C>
Interest-earning assets:
    Loans                                $123,000   $ 11,549    $ 40,520    $ 57,963   $233,032
    Securities (1)                          5,604         66      26,467      37,067     69,204
    Other                                  25,059        -0-         -0-         -0-     25,059
                                         --------   --------    --------    --------   --------

    Total interest-earning assets         153,663     11,615      66,987      95,030    327,295
                                         --------   --------    --------    --------   --------
    Interest-bearing obligations:
    Savings deposits                       78,719        -0-         -0-         -0-     78,719
    Time deposits                          13,268     68,331      53,109         742    135,450
    Borrowings                              1,067        -0-      14,359      71,211     86,637
    Subordinated debentures                12,450        -0-         -0-         -0-     12,450
                                         --------   --------    --------    --------   --------

    Total interest-bearing obligations    105,504     68,331      67,468      71,953    313,256
                                         --------   --------    --------    --------   --------

Gap                                      $ 48,159   $(56,716)   $   (481)   $ 23,077   $ 14,039
                                         ========   ========    ========    ========   ========

Cumulative gap                           $ 48,159   $ (8,557)   $ (9,038)   $ 14,039
                                         ========   ========    ========    ========
</TABLE>

(1)   Includes Federal Home Loan Bank Stock

The above analysis indicates that at June 30, 2004, the Corporation had a
cumulative liability sensitivity gap position of $8.6 million within the
one-year time frame. The Corporation's cumulative liability sensitive gap
suggests that if market interest rates increase in the next twelve months, the
Corporation's net interest income could be reduced. Conversely, if market
interest rates decrease over the next twelve months, the above GAP position
suggests the Corporation's net interest income would increase.

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 June 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

                                                                             26.
<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION

 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

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 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 offices 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 June 30 2004, the Corporation had excess
Canadian assets of $1.9 million (or $1.5 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

                                                                             27.
<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION

 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

Corporation's performance. Changes in interest rates do not necessarily move to
the same extent as changes in the price of goods and services.

                                                                             28.
<PAGE>

                       NORTH COUNTRY FINANCIAL CORPORATION

                         ITEM 4. CONTROLS AND PROCEDURES

As of June 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 as of June 30,
2004

                                                                             29.
<PAGE>




                           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,
shareholders' derivative litigation, 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.

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 and chief executive officer and current director, Ronald G. Ford, and
its former chief executive officer and director, Sherry L. Littlejohn, for
alleged violations of Federal securities laws.

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

On September 2, 2003, pursuant to 15 U.S.C. 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 qualify of assets
held;" that, "according to former employees, loans for Company insiders and
their related entities were often approved regardless of the quality of the
loan;" and, that the Corporation incorrectly attributed its performance to the
World Trade Center disaster and other factors impacting tourism and hospitality
businesses, instead of disclosing "insider loans," a "disproportionately high
loan concentration" in the hospitality industry, and

                                                                             30.
<PAGE>


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.

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 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

                                                                             31.
<PAGE>

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.
The Michigan Business Corporation Act ("MBCA") grants the Corporation ninety
(90) days in which to respond to a proper written demand.

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 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. Under the terms of the Court's May 20, 2004 order, the
court-appointed disinterested person must complete his investigation and submit
his report and recommendation no later than October 18, 2004.

The court-appointed disinterested person has retained independent counsel and,
with the assistance of his counsel, has submitted a budget to the court and
commenced his investigation, which thus far has included requesting, receiving
and reviewing certain documents and receiving written submissions from and
interviewing the attorneys representing the plaintiff, the Corporation and the
individual defendants, and interviewing the Corporation's CEO, the Corporation's
outside general counsel and representatives of an accounting firm previously
retained by the Corporation. During the week of July 19, 2004, the
court-appointed disinterested person and his counsel will review additional
documents at the Corporation's headquarters and will commence interviews of the
individual defendants (who are represented by counsel during this process).

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.

                                                                             32.
<PAGE>

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.

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. The
arbitrator has scheduled another conference with the parties to take place on
October 27, 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.

                                                                             33.
<PAGE>

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 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.

(b) The following Form 8-K filings were made during the quarter for which this
report is filed:

   -  Form 8-K dated May 17, 2004, issuance of a press release announcing the
      closing of four branch offices.

   -  Form 8-K dated June 23, 2004, issuance of a press release announcing the
      conditional settlement of class action securities litigation.

   -  Form 8-K dated July 12, 2004, issuance of a press release announcing
      earnings for the quarter and six months ended June 30, 2004.

                                                                             34.
<PAGE>

                                    SIGNATURE

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)

8/2/04                              By: /s/ C. James Bess
--------                                ----------------------------------------
Date                                    C. JAMES BESS,
                                        PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                        (principal executive)

                                    By: /s/ Ernie R. Krueger
                                        ----------------------------------------
                                        ERNIE R. KRUEGER,
                                        VICE PRESIDENT / CONTROLLER
                                        (principal accounting officer)

                                                                             35.
<PAGE>

                                 Exhibit Index

<TABLE>
<CAPTION>
  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 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>

                                                                             36.