10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2012

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 000-31957

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland	32-0135202
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

100 S. Second Avenue, Alpena, Michigan 49707

(Address of principal executive offices)        (Zip Code)

Registrant’s telephone number, including area code: (989) 356-9041

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x ..

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Common Stock, Par Value $0.01	Outstanding at November 9, 2012
(Title of Class)	2,884,049 shares

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 2012

INDEX

	PAGE
PART I – FINANCIAL INFORMATION
ITEM 1  -  UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheet at September 30, 2012 and December 31, 2011	3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2012 and September 30, 2011	4
Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2012	5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and September 30, 2011	6
Notes to Unaudited Consolidated Financial Statements	7
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
ITEM 3 – QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK	32
ITEM 4  - CONTROLS AND PROCEDURES	33
Part II  -  OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS	34
ITEM 1A - RISK FACTORS	34
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	34
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES	34
ITEM 4 – MINE SAFETY DISCLOSURES	34
ITEM 5 - OTHER INFORMATION	34
ITEM 6 - EXHIBITS	34
Section 302 Certifications
Section 906 Certifications

When used in this Form 10-Q or future filings by First Federal of Northern Michigan Bancorp, Inc. (the “Company”) with the Securities and Exchange Commission ("SEC"), in the Company's press releases or other public or stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated or projected.

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

2

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheet

	September 30, 2012			December 31, 2011
	(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks	$	3,249,826		$	2,713,701
Overnight deposits with FHLB		35,934			35,797
Total cash and cash equivalents		3,285,760			2,749,498
Securities AFS		52,483,641			53,048,503
Securities HTM		2,395,000			2,435,000
Loans held for sale		1,041,454			-
Loans receivable, net of allowance for loan losses of $1,683,731 and $1,517,695 as of September 30, 2012 and December 31, 2011, respectively		138,373,228			140,883,591
Foreclosed real estate and other repossessed assets		2,287,858			3,407,939
Federal Home Loan Bank stock, at cost		3,266,100			3,266,100
Premises and equipment		5,730,687			5,845,881
Accrued interest receivable		1,119,332			1,148,500
Intangible assets		187,962			334,855
Prepaid FDIC premiums		627,164			758,733
Deferred tax asset		1,194,873			387,065
Other assets		2,941,641			2,779,124
Total assets	$	214,934,700		$	217,044,789
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits	$	158,675,753		$	150,649,073
Advances from borrowers for taxes and insurance		210,174			128,028
Federal Home Loan Bank Advances		25,000,000			34,500,000
REPO Sweep Accounts		4,245,047			5,592,326
Accrued expenses and other liabilities		1,511,098			1,606,568
Total liabilities		189,642,072			192,475,995
Stockholders' equity:
Common stock ($0.01 par value 20,000,000 shares authorized 3,191,799 shares issued)		31,918			31,918
Additional paid-in capital		23,853,891			23,852,702
Retained earnings		3,583,678			2,980,176
Treasury stock at cost (307,750 shares)		(2,963,918	)		(2,963,918	)
Unearned compensation		-			(556	)
Accumulated other comprehensive income		787,059			668,472
Total stockholders' equity		25,292,628			24,568,794
Total liabilities and stockholders' equity	$	214,934,700		$	217,044,789

See accompanying notes to consolidated financial statements

3

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Statement of Income

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2012			2011			2012			2011
	(Unaudited)						(Unaudited)
Interest income:
Interest and fees on loans	$	1,995,749		$	2,196,300		$	6,047,447		$	6,786,817
Interest and dividends on investments
Taxable		136,100			151,190			423,308			380,407
Tax-exempt		38,438			39,735			116,240			120,074
Interest on mortgage-backed securities		142,309			200,442			486,153			583,510
Total interest income		2,312,596			2,587,667			7,073,148			7,870,808
Interest expense:
Interest on deposits		249,442			381,124			793,620			1,226,252
Interest on borrowings		144,584			183,030			491,872			523,785
Total interest expense		394,026			564,154			1,285,492			1,750,037
Net interest income		1,918,570			2,023,513			5,787,656			6,120,771
Provision for loan losses		234,005			(67,079	)		1,188,588			(18,959	)
Net interest income after provision for loan losses		1,684,565			2,090,592			4,599,068			6,139,730
Non-interest income:
Service charges and other fees		205,592			197,267			563,084			542,986
Mortgage banking activities		441,445			218,671			876,090			637,116
Net loss on sale of premises and equipment		(698	)		(544	)		(698	)		(544	)
Net loss on real estate owned and other repossessed assets		(9,993	)		(7,937	)		(80,098	)		(54,368	)
Net gain on sale of investment securities		47,017			-			47,017			-
Other		119,519			61,845			234,961			186,447
Total non-interest income		802,882			469,302			1,640,356			1,311,637
Non-interest expense:
Compensation and employee benefits		1,243,598			1,128,911			3,692,139			3,457,099
FDIC Insurance Premiums		47,190			54,061			141,314			176,448
Advertising		29,005			30,924			111,489			87,763
Occupancy		239,900			264,703			719,148			802,398
Amortization of intangible assets		29,646			73,113			146,893			219,338
Service bureau charges		73,495			69,383			229,149			224,881
Professional services		89,559			108,471			297,403			329,619
Other		324,903			595,594			1,183,209			1,495,664
Total non-interest expense		2,077,296			2,325,160			6,520,744			6,793,210
Income (loss) before income tax expense or benefit		410,151			234,734			(281,320	)		658,157
Income tax expense (benefit)		137,375			-			(884,822	)		-
Net income	$	272,776		$	234,734		$	603,502		$	658,157
Other comprehensive income:
Net income	$	272,776		$	234,734		$	603,502		$	658,157
Change in unrealized gain on available-for-sale securities, net of tax		(48,099	)		283,537			118,587			623,264
Comprehensive income	$	224,677		$	518,271		$	722,089		$	1,281,421
Per share data:
Net income per share	$	0.09		$	0.08		$	0.21		$	0.23
Basic	$	0.09		$	0.08		$	0.21		$	0.23
Diluted
Weighted average number of shares outstanding
Basic		2,884,049			2,884,049			2,884,049			2,884,049
Including dilutive stock options	$	-		$	-		$	-		$	-
Dividends per common share	$	-		$	-		$	-		$	-

See accompanying notes to consolidated financial statements.

4

First Federal of Northern Michigan Bancorp Inc. and Subsidiaries

Consolidated Statement of Changes in Stockholders' Equity (Unaudited)

														Accumulated
						Additional								Other
	Common		Treasury			Paid-in			Unearned			Retained		Comprehensive
	Stock		Stock			Capital			Compensation			Earnings		Income		Total
Balance at December 31, 2011	$	31,918	$	(2,963,918	)	$	23,852,702		$	(556	)	$	2,980,176	$	668,472	$	24,568,794
Cash paid in lieu of fractional shares		-		-			(20	)		-			-		-		(20	)
Stock Options/MRP shares expensed		-		-			1,210			556			-		-		1,766
Net income for the period		-		-			-			-			603,502		-		603,502
Change in unrealized gain on available-for-sale securities (net of tax of $61,090)		-		-			-			-			-		118,587		118,587
Balance at September 30, 2012	$	31,918	$	(2,963,918	)	$	23,853,891		$	0		$	3,583,678	$	787,059	$	25,292,628

See accompanying notes to the consolidated financial statements.

5

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Statement of Cash Flows

	For Nine Months Ended
	September 30,
	2012			2011
	(Unaudited)
Cash Flows from Operating Activities:
Net income	$	603,502		$	658,157
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		378,619			525,446
Provision for loan loss		1,188,588			(18,959	)
Amortization and accretion on securities		371,770			209,583
Gain on sale of investment securities		(47,017	)		-
Stock-based compensation		1,766			67,695
Gain on sale of loans held for sale		(393,692	)		(255,770	)
Originations of loans held for sale		(26,174,538	)		(18,479,727	)
Proceeds from sale of loans held for sale		25,526,776			18,118,749
Loss on sale of fixed assets		698			544
Loss on sale of real estate owned and other repossessed assets		80,098			54,368
Net change in:
Accrued interest receivable		29,168			60,267
Other assets		(223,607	)		(461,249	)
Prepaid FDIC insurance premiums		131,569			164,363
Deferred income tax (benefit) expense		(807,808	)		328,808
Accrued expenses and other liabilities		(95,492	)		27,381
Net cash provided by operating activities		570,400			999,656
Cash Flows from Investing Activities:
Net decrease in loans (loans originated, net of principal payments)		47,965			12,853,481
Proceeds from maturity and sale of available-for-sale securities		16,906,748			9,390,032
Proceeds from sale of property and equipment		425			1,780
Purchase of securities		(16,446,962	)		(23,407,417	)
Purchase of premises and equipment		(117,655	)		(213,638	)
Proceeds from sale of real estate owned and other repossed assets		2,313,794			1,317,766
Proceeds from sale of Federal Home Loan Bank Stock		-			509,300
Net cash provided by investing activities		2,704,315			451,304
Cash Flows from Financing Activities:
Net increase (decrease) in deposits		8,026,680			(2,650,956	)
Net (decrease) increase in Repo Sweep accounts		(1,347,279	)		3,244,869
Net increase in advances from borrowers		82,146			91,723
Advances  from Federal Home Loan Bank and notes payable		32,250,000			8,350,000
Repayments of Federal Home Loan Bank advances and notes payable		(41,750,000	)		(4,350,000	)
Net cash (used for) provided by financing activities		(2,738,453	)		4,685,636
Net increase in cash and cash equivalents		536,262			6,136,596
Cash and cash equivalents at beginning of period		2,749,498			1,962,657
Cash and cash equivalents at end of period	$	3,285,760		$	8,099,253
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest	$	1,322,705		$	1,783,848
Income taxes		-			-
Transfers of loans to foreclosed real estate and repossessed assets		1,273,811			3,013,142

See accompanying notes to the consolidated financial statements.

6

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements are not included herein. The interim financial statements should be read in conjunction with the financial statements of First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries and the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011.

All adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of financial position, results of operations and cash flows, have been made. The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

Note 2— PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of First Federal of Northern Michigan Bancorp, Inc., First Federal of Northern Michigan (the “Bank”), and the Bank’s wholly owned subsidiaries, Financial Services & Mortgage Corporation (“FSMC”) and FFNM Agency. FSMC invests in real estate, which includes leasing, selling, developing, and maintaining real estate properties. The main activity of FFNM Agency is to collect the stream of income associated with the sale of the Blue Cross/Blue Shield override business to the Grotenhuis Group. All significant intercompany balances and transactions have been eliminated in the consolidation.

Note 3—SECURITIES

Investment securities have been classified according to management’s intent. The carrying value and estimated fair value of securities are as follows:

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	10,700	$	76	$	-		$	10,776
Municipal obligations		7,806		377		(11	)		8,172
Corporate bonds & other obligations		1,147		12		-			1,159
Mortgage-backed securities		31,635		783		(42	)		32,376
Equity securities		3		-		(2	)		1
Total	$	51,291	$	1,248	$	(55	)	$	52,484
Securities Held to Maturity
Municipal obligations	$	2,395	$	227	$	-		$	2,622

7

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	14,756	$	108	$	(1	)	$	14,863
Municipal obligations		6,927		361		(12	)		7,276
Mortgage-backed securities		30,350		603		(44	)		30,909
Equity securities		3		-		(2	)		1
Total	$	52,036	$	1,072	$	(59	)	$	53,049
Securities Held to Maturity
Municipal obligations	$	2,435	$	230	$	-		$	2,665

The amortized cost and estimated market value of securities at September 30, 2012, by contract maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities with no specified maturity date are separately stated.

	September 30, 2012
	Amortized Cost		Market Value
	(in thousands)
Available For Sale:
Due in one year or less	$	1,847	$	1,859
Due after one year through five years		15,513		15,798
Due in five year through ten years		1,967		2,030
Due after ten years		326		420
Subtotal		19,653		20,107
Equity securities		3		1
Mortgage-backed securities		31,635		32,376
Total	$	51,291	$	52,484
Held To Maturity:
Due in one year or less	$	90	$	91
Due after one year through five years		430		461
Due in five year through ten years		660		726
Due after ten years		1,215		1,344
Total	$	2,395	$	2,622

At September 30, 2012 and December 31, 2011, securities with a carrying value and fair value of $41,891,000 and $31,085,000, respectively, were pledged to secure certain deposit accounts, FHLB advances and our line of credit at the Federal Reserve.

Gross proceeds from the sale of securities for the nine-months ended September 30, 2012 and 2011 were $1,553,000 and $0, respectively, resulting in gross gains of $54,000 and $0, respectively and gross losses of $7,000 and $0, respectively.

8

The following is a summary of temporarily impaired investments that have been impaired for less than and more than twelve months as of September 30, 2012 and December 31, 2011:

	September 30, 2012
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		<12 months			Fair Value		> 12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	-	$	-		$	-	$	-
Municipal obligations		584		(11	)		-		-
Mortgage-backed securities		624		(11	)		1,160		(31	)
Equity securities		-		-			1		(2	)
Total	$	1,208	$	(22	)	$	1,161	$	(33	)
Held to Maturity:
Municipal obligations	$	-	$	-		$	-	$	-
	December 31, 2011
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		<12 months			Fair Value		> 12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	1,999	$	(1	)	$	-	$	-
Municipal obligations		646		(12	)		-		-
Mortgage-backed securities		8,137		(27	)		1,458		(17	)
Equity securities		-		-			1		(2	)
Total	$	10,782	$	(40	)	$	1,459	$	(19	)
Held to Maturity:
Municipal notes	$	-	$	-		$	-	$	-

The unrealized losses on the securities held in the portfolio are not considered other than temporary and have not been recognized into income. This decision is based on the Company’s ability and intent to hold any potentially impaired security until maturity. The performance of the security is based on the contractual terms of the agreement, the extent of the impairment and the financial condition and credit quality of the issuer. The decline in market value is considered temporary and a result of changes in interest rates and other market variables.

9

Note 4—LOANS

The following table sets forth the composition of our loan portfolio by loan type at the dates indicated.

	At September 30,			At December 31,
	2012			2011
	(in thousands)
Real estate loans:
Residential mortgage	$	65,552		$	66,599
Commercial loans:
Secured by real estate		53,568			54,202
Other		8,414			7,002
Total commercial loans		61,982			61,204
Consumer loans:
Secured by real estate		11,562			13,395
Other		1,275			1,477
Total consumer loans		12,837			14,872
Total gross loans	$	140,371		$	142,675
Less:
Net deferred loan fees		(314	)		(273	)
Allowance for loan losses		(1,684	)		(1,518	)
Total loans, net	$	138,373		$	140,884

The following table illustrates the contractual aging of the recorded investment in past due loans by class of loans as of September 30, 2012 and December 31, 2011:

Contractual Aging of Recorded Balance in Past Due Loans by Class of Loan
As of September 30, 2012
													Recorded
													Investment > 90
	30 - 59 Days		60 - 89 Days		Greater than 90		Total				Total Financing		Days and
	Past Due		Past Due		Days		Past Due		Current		Receivables		Accruing
	( in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	314	$	487	$	-
Commercial Real Estate - other		1,055		29		425		1,509		51,572		53,081		-
Commercial - non real estate		5		-		-		5		8,409		8,414		-
Consumer:
Consumer - Real Estate		149		9		112		270		11,292		11,562		-
Consumer - Other		5		5		16		26		1,249		1,275		15
Residential:
Residential		2,098		916		1,243		4,257		61,295		65,552		201
Total	$	3,312	$	959	$	1,969	$	6,240	$	134,131	$	140,371	$	216
As of December 31, 2011
													Recorded
					Greater than								Investment > 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Financing		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Receivables		Accruing
	( in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	91	$	264	$	-
Commercial Real Estate - other		3,808		339		245		4,392		49,546		53,938		-
Commercial - non real estate		46		29		-		75		6,927		7,002		-
Consumer:
Consumer - Real Estate		394		34		128		556		12,839		13,395		-
Consumer - Other		5		25		-		30		1,447		1,477		-
Residential:
Residential		3,055		1,501		1,969		6,525		60,074		66,599		238
Total	$	7,308	$	1,928	$	2,515	$	11,751	$	130,924	$	142,675	$	238

The Bank uses an eight tier risk rating system to grade its commercial loans. The grade of a loan may change during the life of the loans. The risk ratings are described as follows:

10

Risk Grade 1 (Excellent) - Prime loans based on liquid collateral, with adequate margin or supported by strong financial statements. Probability of serious financial deterioration is unlikely. High liquidity, minimum risk, strong ratios, and low handling costs are common to these loans. This classification also includes all loans secured by certificates of deposit or cash equivalents.

Risk Grade 2 (Good) - Desirable loans of somewhat less stature than Grade 1, but with strong financial statements. Probability of serious financial deterioration is unlikely. These loans possess a sound repayment source (and/or a secondary source). These loans represent less than the normal degree of risk associated with the type of financing contemplated.

Risk Grade 3 (Satisfactory) - Satisfactory loans of average risk – may have some minor deficiency or vulnerability to changing economic conditions, but still fully collectible. There may be some minor weakness but with offsetting features or other support readily available. These loans present a normal degree of risk associated with the type of financing. Actual and projected indicators and market conditions provide satisfactory assurance that the credit shall perform in accordance with agreed terms.

Risk Grade 4 (Acceptable) - Loans considered satisfactory, but which are of slightly “below average” credit risk due to financial weaknesses or uncertainty. The loans warrant a somewhat higher than average level of monitoring to insure that weaknesses do not advance. The level of risk is considered acceptable and within normal underwriting guidelines, so long as the loan is given the proper level of management supervision.

Risk Grade 4.5 (Monitored) - Loans are considered “below average” and monitored more closely due to some credit deficiency that poses additional risk but is not considered adverse to the point of being a “classified” credit. Possible reasons for additional monitoring may include characteristics such as temporary negative debt service coverage due to weak economic conditions; borrower may have experienced recent losses from operations, declining equity and/or increasing leverage, or marginal liquidity that may affect long-term sustainability. Loans of this grade have a higher degree of risk and warrant close monitoring to insure against further deterioration. In any tables presented subsequently, Risk Grade 4.5 credits are included with Risk Grade 4 credits.

Risk Grade 5 (Other Assets Especially Mentioned) (OAEM) - Loans which possess some credit deficiency or potential weakness, which deserve close attention, but which do not yet warrant substandard classification. Such loans pose unwarranted financial risk that, if not corrected, could weaken the loan and increase risk in the future.

Risk Grade 6 (Substandard) - Loans are “substandard” whose full, final collectability does not appear to be a matter of serious doubt, but which nevertheless portray some form of well defined weakness that requires close supervision by Bank management. The noted weaknesses involve more than normal banking risk. One or more of the following characteristics may be exhibited in loans classified Substandard: (1) Loans possess a defined credit weakness and the likelihood that the loan shall be paid from the primary source of repayment is uncertain; (2) Loans are not adequately protected by the current net worth and/or paying capacity of the obligor; (3) primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment such as collateral liquidation or guarantees; (4) distinct possibility that the Bank shall sustain some loss if deficiencies are not corrected; (5) unusual courses of action are needed to maintain a high probability of repayment; (6) the borrower is not generating enough cash flow to repay loan principal, however, continues to make interest payments; (7) the Bank is forced into a subordinated or unsecured position due to flaws in documentation; (8) loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to normal loan terms; (9) the Bank is contemplating foreclosure or legal action due to the apparent deterioration in the loan; or (10) there is a significant deterioration in the market conditions and the borrower is highly vulnerable to these conditions.

Grade 7 (Doubtful) - Loans have all the weaknesses of those classified Substandard. Additionally, however, these weaknesses make collection or liquidation in full, based on existing conditions, improbable. Loans in this category are typically not performing in conformance with established terms and conditions. Full repayment is considered “Doubtful”, but extent of loss is not currently determinable.

11

Risk Grade 8 (Loss) - Loans are considered uncollectible and of such little value, that continuing to carry them as an asset on the Bank’s financial statements is not feasible.

The following table presents the risk category of loans by class of loans based on the most recent analysis performed as of September 30, 2012 and December 31, 2011:

As of September 30, 2012
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	-
3		-		12,070		2,223
4		314		29,987		5,782
5		-		2,736		-
6		173		8,288		409
7		-		-		-
8		-		-		-
Total	$	487	$	53,081	$	8,414
As of December 31, 2011
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	7
3		-		10,911		2,178
4		91		31,926		4,512
5		-		1,078		-
6		173		10,023		305
7		-		-		-
8		-		-		-
Total	$	264	$	53,938	$	7,002

For residential real estate and other consumer credit the Company also evaluates credit quality based on the aging status of the loan and by payment activity. Loans 60 or more days past due are monitored by the collection committee.

The following tables present the risk category of loans by class based on the most recent analysis performed as of September 30, 2012 and December 31, 2011:

As of September 30, 2012			As of  December 31, 2011
	(dollars in thousands)
	Residential			Residential
Grade			Grade
Pass	$	63,796	Pass	$	63,941
Special Mention		-	Special Mention		-
Substandard		1,756	Substandard		2,658
Total	$	65,552	Total	$	66,599

12

As of September 30, 2012
	(dollars in thousands)
	Consumer -
	Real Estate		Consumer - Other
Performing	$	11,440	$	1,259
Nonperforming		122		16
Total	$	11,562	$	1,275
As of December 31, 2011
	(dollars in thousands)
	Consumer -
	Real Estate		Consumer - Other
Performing	$	13,248	$	1,473
Nonperforming		147		4
Total	$	13,395	$	1,477

The following table presents the recorded investment in non-accrual loans by class as of September 30, 2012 and December 31, 2011:

	As of
	September 30, 2012		December 31, 2011
	(dollars in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		975		356
Commercial		-		-
Consumer:
Consumer - real estate		122		152
Consumer - other		1		-
Residential:
Residential		1,556		2,420
Total	$	2,827	$	3,101

The key features of the Company’s loan modifications are determined on a loan-by-loan basis. Generally, our restructurings have related to interest rate reductions and loan term extensions. In the past the Company has granted reductions in interest rates, payment extensions and short-term payment forbearances as a means to maximize collectability of troubled credits. The Company’s loan modifications are typically short-term in nature, although the Company would consider a long-term modification to ensure the long-term collectability of the credit. At a minimum, a borrower must make at least six consecutive timely payments before the Company would consider a return of a restructured loan to accruing status in accordance with Federal Deposit Insurance Corporation guidelines regarding restoration of credits to accrual status.

The Bank has classified approximately $3.1 million of its impaired loans as troubled debt restructurings as of September 30, 2012, as noted in the table below:

For the Three Months Ended
September 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Contracts		Investments		Investment
			(dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-
Commercial Real Estate - Other		-		-		-
Commercial - non real estate		2		1,914		1,454
Residential		-		-		-

13

For the Nine Months Ended
September 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Contracts		Investments		Investment
			(dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-
Commercial Real Estate - Other		-		-		-
Commercial - non real estate		4		3,542		3,052
Residential		-		-		-

The following table represents troubled debt restructurings that have subsequently defaulted for the nine-month period ended September 30, 2012. There were no such defaults during the three-month period ended September 30, 2012:

Troubled Debt Restructurings	Number of
That Subsequently Defaulted	Contracts		Recorded Investment
			(dollars in thousands)
Commercial Real Estate - Construction		-	$	-
Commercial Real Estate - Other		1		55
Commercial - non real estate		-		-
Residential		-		-

For the majority of the Bank’s impaired loans, the Bank will apply the observable market price methodology. However, the Bank may also utilize a measurement incorporating the present value of expected future cash flows discounted at the loan’s effective rate of interest. To determine observable market price, collateral asset values securing an impaired loan are periodically evaluated. Maximum time of re-evaluation is every 12 months. In this process, third party evaluations are obtained and heavily relied upon. Until such time that updated evaluations are received, the Bank may discount the collateral value used.

The Bank uses the following guidelines, as stated in policy, to determine when to realize a charge-off, whether a partial or full loan balance. A charge down in whole or in part is realized when unsecured consumer loans, credit card credits and overdraft lines of credit reach 90 days delinquency. At 120 days delinquency, secured consumer loans are charged down to the value of collateral, if repossession of the collateral is assured and/or in the process of repossession. Consumer mortgage loan deficiencies are charged down upon the sale of the collateral or sooner upon the recognition of collateral deficiency. Commercial credits are charged down at 90 days delinquency, unless an established and approved work-out plan is in place or litigation of the credit will likely result in recovery of the loan balance. Upon notification of bankruptcy, unsecured debt is charged off. Additional charge-offs may be realized as further unsecured positions are recognized.

14

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2012 and December 31, 2011:

							For the Three Months Ended				For the Nine  Months Ended
Impaired Loans							September 30,				September 30,
As of September 30, 2012							2012				2012
							Average		Interest		Average		Interest
	Unpaid Principal		Recorded		Related		Recorded		Income		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized		Investment		Recognized
	(dollars in thousands)						(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-		173		-
Commercial Real Estate - Other		3,446		2,963		-		3,206		35		3,309		107
Consumer - Real Estate		31		26		-		29		-		31		-
Consumer - Other		2		1		-		3		-		4		-
Residential		1,831		1,511		-		1,657		-		1,666		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		-		-
Commercial Real Estate - Other		2,151		2,148		175		2,167		20		2,175		61
Consumer - Real Estate		96		96		21		96		-		96		-
Consumer - Other		-		-		-		-		-		-		-
Residential		45		45		5		45		-		45		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	5,597	$	5,111	$	175	$	5,373	$	55	$	5,484	$	168
Consumer - Real Estate	$	127	$	122	$	21	$	125	$	-	$	127	$	-
Consumer - Other	$	2	$	1	$	-	$	3	$	-	$	4	$	-
Residential	$	1,876	$	1,556	$	5	$	1,702	$	-	$	1,711	$	-
							For the Three Months Ended				For the Nine Months Ended
Impaired Loans							September 30,				September 30,
As of December 31, 2011							2011				2011
							Average		Interest		Average		Interest
	Unpaid Principal		Recorded		Related		Recorded		Income		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		286		-		286		-
Commercial Real Estate - Other		626		626		-		883		-		470		-
Consumer - Real Estate		171		152		-		83		-		71		-
Consumer - Other		0		0		-		6		-		10		-
Residential		2,017		1,640		-		1,967		-		1,899		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		687		-
Commercial Real Estate - Other		1,337		1,128		85		781		10		939		31
Consumer - Real Estate		-		-		-		10		-		72		-
Consumer - Other		-		-		-		-		-		-		-
Residential		813		780		199		675		-		875		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	286	$	-	$	973	$	-
Commercial Real Estate - Other	$	1,963	$	1,754	$	85	$	1,664	$	10	$	1,409	$	31
Consumer - Real Estate	$	171	$	152	$	-	$	93	$	-	$	143	$	-
Consumer - Other	$	-	$	-	$	-	$	6	$	-	$	10	$	-
Residential	$	2,830	$	2,420	$	199	$	2,642	$	-	$	2,774	$	-

The ALLL has a direct impact on the provision expense. An increase in the ALLL is funded through recoveries and provision expense.

15

Activity in the allowance for loan and lease losses was as follows for the quarter and year ended September 30, 2012 and December 31, 2011, respectively:

Allowance for Credit Losses and Recorded Investment in Financing Receivables
For the Three Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	-	$	770		$	40	$	140		$	15		$	808		$	-	$	1,773
Charge-offs		-		(138	)		-		(17	)		(20	)		(166	)		-	$	(341	)
Recoveries		-		2			-		6			3			7			-	$	18
Provision		35		(13	)		36		1			36			139			-	$	234
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	0	$	1,684
For the Nine Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	10	$	393		$	53	$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-		(265	)		-		(54	)		(29	)		(724	)		-	$	(1,072	)
Recoveries		-		10			-		14			8			17			-	$	49
Provision		25		483			23		24			9			625			-	$	1,189
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	0	$	1,684
Loan Balances Individually Evaluated for Impairment
As of September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	175		$	-	$	-		$	21		$	5		$	-	$	201
Ending balance: loans collectively evaluated for impairment	$	35	$	446		$	76	$	130		$	13		$	783		$	-	$	1,483
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-	$	-		$	-		$	-		$	-	$	-
Financing Receivables: Ending Balance	$	487	$	53,081		$	8,414	$	11,561		$	1,276		$	65,552		$	-	$	140,371
Ending balance: individually evaluated for impairment	$	173	$	2,573		$	-	$	174		$	1		$	1,556		$	-	$	4,477
Ending balance: loans collectively evaluated for impairment	$	314	$	50,508		$	8,414	$	11,387		$	1,275		$	63,996		$	-	$	135,894
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-	$	-		$	-		$	-		$	-	$	-

16

For the Three Months Ended September 30, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	164		$	1,062		$	152		$	218		$	22		$	573		$	-	$	2,191
Charge-offs		-			(210	)		-			(63	)		(1	)		(221	)		-	$	(495	)
Recoveries		-			-			-			4			1			20			-	$	25
Provision		(141	)		(234	)		(68	)		35			(3	)		344			-	$	(67	)
Ending Balance	$	23		$	618		$	84		$	194		$	19		$	716		$	-	$	1,654
For the Nine Months Ended September 30, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	535		$	1,281		$	192		$	228		$	59		$	536		$	-	$	2,831
Charge-offs		(94	)		(328	)		(6	)		(147	)		(19	)		(625	)		-	$	(1,219	)
Recoveries		-			3			-			27			8			23			-	$	61
Provision		(418	)		(338	)		(102	)		86			(29	)		782			-	$	(19	)
Ending Balance	$	23		$	618		$	84		$	194		$	19		$	716		$	-	$	1,654
Loan Balances Individually Evaluated for Impairment
As of September 30, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-		$	27		$	-		$	2		$	-		$	189		$	-	$	218
Ending balance: loans collectively evaluated for impairment	$	23		$	591		$	84		$	192		$	19		$	527		$	-	$	1,436
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-		$	-		$	-	$	-
Financing Receivables: Ending Balance	$	261		$	54,434		$	7,380		$	14,147		$	1,410		$	65,582		$	-	$	143,214
Ending balance: individually evaluated for impairment	$	173		$	1,658		$	-		$	90		$	5		$	2,625		$	-	$	4,551
Ending balance: loans collectively evaluated for impairment	$	88		$	52,777		$	7,380		$	14,057		$	1,405		$	62,957		$	-	$	138,664
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-		$	-		$	-	$	-

Note 5—DIVIDENDS

We are dependent primarily upon the Bank for earnings and funds to pay dividends on common stock. The payment of dividends also is subject to legal and regulatory restrictions. Any payment of dividends in the future will depend, in large part, on the Bank's earnings, capital requirements, financial condition and other factors considered by the Board of Directors.

Note 6 – STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted FASB ASC 718-10, “Shareholder Based Payments”, which requires that the grant-date fair value of awarded stock options be expensed over the requisite service period. The Company’s 1996 Stock Option Plan (the “1996 Plan”), which was approved by shareholders, permits the grant of share options to purchase shares of common stock to its employees and directors for up to 127,491 shares of common stock (retroactively adjusted for the exchange ratio applied in the Company’s 2005 stock offering and related second-step conversion). The Company’s 2006 Stock-Based Incentive Plan (the “2006 Plan”), which was approved by shareholders, permits the award of up to 242,740 shares of common stock of which the maximum number to be granted as Stock Options is 173,386 and the maximum to be granted as Restricted Stock Awards is 69,354. Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. These option awards generally vest based on five years of continual service and have ten-year contractual terms. Certain options provide for accelerated vesting if there is a change in control (as defined in the Plans).

17

During the three and nine months ended September 30, 2012 the Company awarded no shares under the 2006 Stock-Based Incentive Plan. Shares issued under the 2006 Plan and exercised pursuant to the exercise of stock options may be either authorized but unissued shares or reacquired shares held by the Company as treasury stock.

Stock Options - A summary of option activity under the Plan during the nine months ended September 30, 2012 is presented below:

						Weighted-Average
				Weighted-		Remaining
				Average		Contractual Term		Aggregate
Options	Shares			Exercise Price		(Years)		Intrinsic Value
Outstanding at January 1, 2012		182,682		$	9.47		4.3	$	-
Granted		-			N/A
Exercised		-			N/A
Forfeited or expired		(15,312	)	$	8.82
Oustanding at September 30, 2012		167,370		$	9.48		3.8	$	-
Options Exercisable at September 30, 2012		167,370		$	9.48		3.8	$	-

The aggregate intrinsic value of outstanding options shown in the table above represents the total pretax intrinsic value (i.e. the difference between the Company’s closing stock price of $3.96 on September 30, 2012 and the exercise price times the number of shares) that would have been received by the option holder had all option holders exercised their options on September 30, 2012. This amount changes based on the fair market value of the stock.

As of September 30, 2012 there was no unrecognized compensation cost related to nonvested options under the Plans. The total fair value of shares vested during the nine months ended September 30, 2012 was $4,052.

A summary of the status of the Company’s nonvested options as of September 30, 2012, and changes during the nine months ended September 30, 2012, is presented below:

				Weighted-Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2012		1,240		$	2.19
Granted		-			N/A
Vested		(1,240	)	$	2.19
Forfeited		-			N/A
Nonvested at September 30, 2012		-			N/A

Restricted Stock Awards - As of September 30, 2012 there was no unrecognized compensation cost related to nonvested restricted stock awards under the Plans.

18

Note 7 – COMMITMENTS TO EXTEND CREDIT

The Company is a party to credit-related 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, standby letters of credit, and commercial lines of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheet. The Company’s exposure to credit loss is represented by the contracted amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At September 30, 2012, the Company had outstanding commitments to originate loans of $33.7 million. These commitments include the following:

	As of
	September 30, 2012
	(dollars in thousands)
Commitments to grant loans	$	20,090
Unfunded commitments under lines of credit		13,221
Commercial and standby letters of credit		404

Note 8 – FAIR VALUE MEASUREMENTS

The fair value of financial assets and liabilities recorded at fair value is categorized in three levels. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. These levels are as follows:

Level 1 — Valuations based on quoted prices in active markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 — Valuations of assets and liabilities traded in less active dealer or broker markets. Valuations include quoted prices for similar assets and liabilities traded in the same market; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

Level 3 — Assets and liabilities with valuations that include methodologies and assumptions that may not be readily observable, including option pricing models, discounted cash flow models, yield curves and similar techniques. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities, but in all cases are corroborated by external data, which may include third-party pricing services.

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, and the valuation techniques used by the Company to determine those fair values.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at September 30, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2012
	(dollars in thousands)
Assets
Investment securities- available-for-sale:
US Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	10,776	$	-	$	10,776
Municipal obligations		-		8,172		-		8,172
Corporate bonds & other obligations				1,159				1,159
Mortgage-backed securities		-		32,376		-		32,376
Equity securities		-		1		-		1
Total investment securities - available-for-sale	$	-	$	52,484	$	-	$	52,484

19

Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2011
	(dollars in thousands)
Assets
Investment securities- available-for-sale:
US Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	14,863	$	-	$	14,863
Municipal obligations		-		7,276		-		7,276
Mortgage-backed securities		-		30,909		-		30,909
Equity securities		-		1		-		1
Total investment securities - available-for-sale	$	-	$	53,049	$	-	$	53,049

Fair value measurements of U.S. Government agencies and mortgage backed securities use pricing models that vary and may consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures.

There were no transfers between Levels 1 and 2 of the fair value hierarchy from December 31, 2011 to September 30, 2012. For the available for sale securities, the Company obtains fair value measurements from an independent third-party service.

The Company has assets that, under certain conditions, are subject to measurement at fair value on a nonrecurring basis. At September 30, 2012 and December 31, 2011, such assets consist primarily of impaired loans and other real estate owned. The Corporation has estimated the fair values of these assets using Level 3 inputs, specifically discounted cash flow projections.

20

Assets Measured at Fair Value on a Nonrecurring Basis at September 30, 2012
	Balance at September 30, 2012		Quoted Prices in  Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
Impaired loans accounted for under FASB ASC 310-10	$	3,380		-		-	$	3,380
Other real estate owned -residential mortgages	$	823		-		-	$	823
Other Real estate owned - commercial	$	344		-		-	$	344
Other Repossessed Assets	$	1,121					$	1,121
Total assets at fair value on a non-recurring basis							$	5,668

Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2011
	Balance at December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
Impaired loans accounted for under FASB ASC 310-10	$	1,927		-		-	$	1,927
Other real estate owned -residential mortgages	$	1,087		-		-	$	1,087
Other Real estate owned - commercial	$	1,015		-		-	$	1,015
Other repossessed assets	$	1,307					$	1,307
Total assets at fair value on a non-recurring basis							$	5,336

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash and Cash Equivalents - The carrying amounts of cash and short-term instruments approximate fair values.

Investment Securities - Fair value for the Bank’s investment securities was determined using the market value in active markets, where available. When not available, fair values are estimated using the fair value hierarchy. In the fair value hierarchy, Level 2 fair values are determined using observable inputs other than Level 1 market prices, such as quoted prices for similar assets. Level 3 values are determined using unobservable inputs, such as discounted cash flow projections.

Loans Receivable - For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (e.g., one- to four-family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial, and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Loans Held For Sale - Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices.

Federal Home Loan Bank Stock - The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

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Deposit Liabilities - The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Home Loan Bank Advances - The estimated fair value of the fixed and variable rate Federal Home Loan Bank advances are estimated by discounting the related cash flows using the rates currently available for similarly structured borrowings with similar maturities.

REPO Sweep Accounts - The fair values disclosed for REPO Sweeps are equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).

Accrued Interest - The carrying amounts of accrued interest approximate fair value.

22

The estimated fair values and related carrying or notional amounts of the Company’s financial instruments are as follows:

September 30, 2012	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	3,286	$	3,286	$	-	$	-	$	3,286
Securities available for sale		52,484		-		52,484		-		52,484
Securities held to maturity		2,395		-		2,622		-		2,622
Loans and loans held for sale - Net		139,414		-		-		144,718		144,718
Federal Home Loan Bank stock		3,266		-		3,266		-		3,266
Accrued interest receivable		1,119		-		1,119		-		1,119
Financial liabilities:
Customer deposits		158,676		-		159,727		-		159,727
Federal Home Loan Bank advances		25,000		-		25,314		-		25,314
REPO sweep accounts		4,245		-		4,245		-		4,245
Accrued interest payable		111		-		111		-		111

December 31, 2011	Carrying Value		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	2,749	$	2,749
Securities available for sale		53,049		53,049
Securities held to maturity		2,435		2,665
Loans and loans held for sale - Net		140,884		146,018
Federal Home Loan Bank stock		3,266		3,266
Accrued interest receivable		1,149		1,149
Financial liabilities:
Customer deposits		150,649		151,693
Federal Home Loan Bank advances		34,500		34,827
REPO sweep accounts		5,592		5,592
Accrued interest payable		148		148

Note 9 – RECENT ACCOUNTING PRONOUNCEMENTS

ASC Topic 220: Comprehensive Income: Presentation of Comprehensive Income. On June 16, 2011, the FASB issued Accounting Standards Update (ASU) 2011-05. This ASU is intended to increase the prominence of other comprehensive income in financial statements. The new guidance does not change whether items are reported in net income or in other comprehensive income or whether and when items of other comprehensive income are reclassified to net income. ASU 2011-05 eliminates the option in current U.S. generally accepted accounting principles that permits the presentation of other comprehensive income in the statement of changes in equity. The new guidance in the ASU requires that an entity report comprehensive income in either a single continuous statement that presents the components of net income or a separate but consecutive statement. The new guidance is to be applied retrospectively and early adoption is permitted. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted this pronouncement as of the interim period ended June 30, 2012. The adoption of this pronouncement did not have a material impact on the Company’s financial statements.

23

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

AND SUBSIDIARIES

PART Ι - FINANCIAL INFORMATION

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion compares the consolidated financial condition of the Company at September 30, 2012 and December 31, 2011, and the results of operations for the three- and nine-month periods ended September 30, 2012 and 2011. This discussion should be read in conjunction with the interim financial statements and footnotes included herein.

OVERVIEW

The Company operates as a community-oriented financial institution that accepts deposits from the general public in the communities surrounding its 8 full-service banking centers. The deposited funds, together with funds generated from operations and borrowings, are used by the Company to originate loans. The Company’s principal lending activity is the origination of mortgage loans for the purchase or refinancing of one-to-four family residential properties. The Company also originates commercial and multi-family real estate loans, construction loans, commercial loans, automobile loans, home equity loans and lines of credit, and a variety of other consumer loans.

For the quarter ended September 30, 2012, the Company reported net income of $273,000, or $0.09 per share, compared to $235,000 or $0.08 per share, for the year earlier period, an increase in earnings of $38,000. For the nine months ended September 30, 2012, net income was $604,000, or $0.21 per share, compared to $658,000, or $0.23 per share, for the nine months ended September 30, 2011.

Total assets decreased by $2.1 million, or 1.0%, to $214.9 million at September 30, 2012 from $217.0 million at December 31, 2011. Investment securities available-for-sale decreased by $565,000, or 1.1%, from December 31, 2011 to September 30, 2012. Net loans receivable decreased $2.5 million, or 1.8%, during that same time period. Foreclosed real estate and other repossessed assets decreased by $1.1 million from December 31, 2011 to September 30, 2012. Total deposits increased $8.0 million, or 5.3% from December 31, 2011 to September 30, 2012 while REPO sweep accounts decreased by $1.3 million, or 24.1%, and Federal Home Loan Bank advances decreased by $9.5 million or 27.5% from December 31, 2011 to September 30, 2012. Equity increased by $724,000, or 3.0%, to $25.3 million during the nine-month period ended September 30, 2012.

CRITICAL ACCOUNTING POLICIES

As of September 30, 2012, there have been no changes in the critical accounting policies as disclosed in the Company’s Form 10-K for the year ended December 31, 2011. The Company’s critical accounting policies are described in the Management’s Discussion and Analysis and financial sections of its 2011 Annual Report. Management believes its critical accounting policies relate to the Company’s allowance for loan losses, valuation of deferred tax assets and mortgage servicing rights.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2012 AND DECEMBER 31, 2011

ASSETS: Total assets decreased $2.1 million, or 1.0%, to $214.9 million at September 30, 2012 from $217.0 million at December 31, 2011. During that nine-month period the following changes occurred: investment securities available for sale decreased $565,000, or 1.1%, to $52.5 million; cash and cash equivalents increased $536,000 or 19.5% to $3.3 million; and net loans receivable decreased $2.5 million, or 1.8%, to $138.4 million. Mortgage loans decreased by $1.0 million despite our efforts to continue to grow this portfolio by retaining in our portfolio certain high-quality 10- and 15-year fixed rate residential mortgages as opposed to selling them in the secondary market. In addition, our consumer loan portfolio, consisting mainly of home equity loans, decreased by $2.0 million and our commercial loans increased by $778,000.

24

LIABILITIES: Deposits increased $8.0 million, or 5.3%, to $158.7 million at September 30, 2012 from $150.6 million at December 31, 2011. We experienced increases in the following deposit products as we continued our focus on growing core deposits: $2.5 million in money market accounts; $6.8 million in non-interest bearing checking accounts; $1.5 million in savings deposit accounts; and $1.5 million in NOW accounts. Offsetting these increases were decreases in the following: our certificates of deposit decreased by $1.8 million and our liquid certificates of deposit (from which customers can take a penalty–free withdrawal with seven days advance written notice) decreased by $2.5 million during this time period as we lowered interest rates on those products in step with the market. During this same time period, REPO sweep accounts decreased $1.3 million or 24.1% to $4.2 million due primarily to timing of our customers’ cash needs. FHLB advances decreased $9.5 million, or 27.5%, to $25.0 million at September 30, 2012 from $34.5 million at December 31, 2011 due mainly to increases in our deposit base.

EQUITY: Stockholders’ equity increased to $25.3 million at September 30, 2012 from $24.6 million at December 31, 2011, an increase of $724,000. The increase in stockholders’ equity was mainly attributable to net income for the nine-month period of $604,000 and an increase of $119,000 in the unrealized gain on available for sale securities net of tax from $668,000 at December 31, 2011 to $787,000 at September 30, 2012.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

General: Net income increased by $38,000 to $273,000 for the three months ended September 30, 2012 from $235,000 for the same period ended September 30, 2011.

Interest Income: Interest income was $2.3 million for the three months ended September 30, 2012, compared to $2.6 million for the comparable period in 2011. The decrease in interest income was due primarily to two factors: a decrease in the average balance of our interest-earning assets resulting from a decrease in the size of our loan portfolio and a decrease in the yield on interest-earning assets due primarily to lower market interest rates. The average balance of non-mortgage loans decreased $5.1 million quarter over quarter, as we continued to experience a decline in loan originations due to economic conditions in our market areas. The average balance of mortgage loans increased $2.3 million period over period as we have continued to retain certain 10- and 15-year mortgages in our loan portfolio. The declines in loan portfolios were partially offset by an increase in average balances of AFS investment securities of $3.6 million fro the 2012 period versus the 2011 period. In addition to declines in our loan portfolios, the average yield on our interest-earning assets declined 49 basis points from 5.08% for the three-month period ended September 30, 2011 to 4.59% for the same period in 2012.

Interest Expense: Interest expense was $394,000 for the three-month period ended September 30, 2012, compared to $564,000 for the same period in 2011. The decrease in interest expense for the three-month period was due in part to a $10.7 million decrease in the average balance of our interest-bearing liabilities and a decrease in our overall cost of funds of 32 basis points period over period. Most notably, the average balance of our certificates of deposit decreased $6.5 million from the three-month period ended September 30, 2011 to the same period in 2012 and the cost of those deposits decreased 48 basis points period over period. In addition, the average balance of our FHLB advances decreased $3.5 million from the three-month period ended September 30, 2011 to the same period in 2012 and the cost of our FHLB advances decreased 20 basis points period over period.

25

The following table sets forth information regarding the changes in interest income and interest expense of the Bank during the periods indicated.

	Quarter ended September 30, 2012
	Compared to
	Quarter ended September 30, 2011
	Increase (Decrease) Due to:
	Volume			Rate			Total
	(dollars in thousands)
Interest-earning assets:
Loans receivable	$	(41	)	$	(160	)	$	(201	)
Investment securities		1			(85	)	$	(84	)
Other investments		(10	)		20		$	10
Total interest-earning assets		(50	)		(225	)		(275	)
Interest-bearing liabilities:
Money Market/NOW accounts		1			(16	)		(15	)
Certificates of Deposit		(32	)		(85	)		(117	)
Deposits		(31	)		(101	)		(132	)
Borrowed funds		(14	)		(24	)		(38	)
Total interest-bearing liabilities		(45	)		(125	)		(170	)
Change in net interest income	$	(5	)	$	(100	)	$	(105	)

Net Interest Income: Net interest income remained relatively steady at $1.9 million (a slight decrease of $105,000) for the three-month period ended September 30, 2012 as compared to the same period in 2011. For the three months ended September 30, 2012, average interest-earning assets decreased $1.9 million, or 1.0%, to $201.0 million when compared to the same period in 2011. Average interest-bearing liabilities decreased $10.7 million, or 5.9%, to $170.8 million for the quarter ended September 30, 2012 from $181.5 million for the quarter ended September 30, 2011 as we experienced a shift from interest-bearing to non-interest bearing deposits during this time period. The yield on average interest-earning assets decreased to 4.59% for the three month period ended September 30, 2012 from 5.08% for the same period ended in 2011. The cost of average interest-bearing liabilities decreased to 0.91% from 1.23% for the three-month periods ended September 30, 2012 and September 30, 2011, respectively. The net interest margin decreased 17 basis points to 3.81% for the three-month period ended September 30, 2012 from 3.98% for same period in 2011.

Provision for Loan Losses: The allowance for loan losses is established through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

26

The provision for loan losses for the three-month period ended September 30, 2012 was $234,000 as compared to income of $67,000 for the prior year period. Prior to 2012, our provision for loan losses was based on an eight-quarter rolling average of actual net charge-offs adjusted for environmental factors for each segment of loans in our portfolio. Management has decided that eight quarters is no longer reflective of the inherent loss in the loan portfolios. In 2012, we began moving towards a twelve-quarter rolling average of actual net charge-offs by adding an additional quarter of net charge-offs each quarter in 2012. By the end of 2012 we will be using a twelve-quarter rolling average. The provision was based on management’s review of the components of the overall loan portfolio, the status of non-performing loans and various subjective factors.

Non-Interest Income: Non-interest income increased to $803,000 for the three months ended September 30, 2012 from $469,000 for the three months ended September 30, 2011, related primarily to an increase of $223,000 in mortgage banking activities income period over period as mortgage origination activity picked up in the latter part of 2012. Additionally, gain on sale of investments increased by $47,000 period over period as we sold municipal bonds for credit reasons during the quarter ended September 30, 2012. Lastly, other income increased by $58,000 for the three months ended September 30, 2012 compared to the same period in 2011, mainly as the result of a $65,000 settlement of a lawsuit related to a troubled credit.

Non-Interest Expense: Non-interest expense was $2.1 million for the three-month period ended September 30, 2012 as compared to $2.3 million for the same period in 2011. Compensation and employee benefit expense increased by $115,000 period over period due in part to the addition of a commercial lender and Treasury Management professional in late 2011 and due to increased lender commissions as a result of increased mortgage originations period over period. In addition, amortization of intangible assets expense was $43,000 lower period over period and other expenses decreased by $271,000 due mostly to reduced expenses associated with problem loans and bank-owned properties. In addition we experienced decreases in occupancy of $25,000 and professional services of $19,000 during the three months ended September 30, 2012 as compared to the same period in 2011.

Income Taxes: During the first quarter of 2012 management determined that it was more likely than not than the Deferred Tax Assets would be utilized in future years, therefore it reduced the valuation allowance against its Deferred Tax Assets by $866,000. For the three-month period ended September 30, 2012, the Company earned $410,000 of pre-tax profit which resulted in $137,000 in income tax expense, as compared to no federal income tax expense for the same period in 2011, as the income tax expense incurred during the period reduced the Deferred Tax Asset.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

General: Net income decreased by $54,000 to $604,000 for the nine months ended September 30, 2012 from $658,000 for the same period ended September 30, 2011. The decrease in earnings period over period was primarily attributable an increase in provision for loan losses of $1.2 million for the nine months ended September 30, 2012 as compared to income of $19,000 for the same period in 2011. The increased provision was partially offset by an increase in non-interest income of $328,000 and a decrease in non-interest expenses of $272,000 period over period.

Interest Income: Interest income was $7.1 million for the nine months ended September 30, 2012, compared to $7.9 million for the comparable period in 2011. This decrease of $798,000, or 10.1%, in interest income was due in large part to decreases of $8.9 million in average balances of mortgage loans period over period. In addition, the average yield on interest earning assets decreased 51 basis points to 4.70% for the nine-month period ended September 30, 2012 as compared to 5.21% for the same period in 2011.

Interest Expense: Interest expense was $1.3 million for the nine-month period ended September 30, 2012 compared to $1.8 million for the same period in 2011. The decrease in interest expense was due primarily to decreases in the average balance of and interest rates on our certificates of deposits period over period. We experienced a $6.8 million decrease in the average balance of certificates of deposits for the nine months ended September 30, 2012 when compared to the same period in 2011 and the average rate on those deposits decreased 50 basis points to 1.26% for the nine-month period ended September 30, 2012 as compared to the year-earlier period. In addition, our cost of funds relating to our FHLB advances decreased 25 basis points to 1.97% nine-month period over nine-month period.

27

The following table sets forth information regarding the changes in interest income and interest expense of the Bank during the periods indicated.

	Nine Months ended September 30, 2012
	Compared to
	Nine Months ended September 30, 2011
	Increase (Decrease) Due to:
	Volume			Rate			Total
	(dollars in thousands)
Interest-earning assets:
Loans receivable	$	(391	)	$	(348	)	$	(739	)
Investment securities		1,810			(1,878	)		(68	)
Other investments		(34	)		43			9
Total interest-earning assets		1,385			(2,183	)		(798	)
Interest-bearing liabilities:
Money Market/NOW accounts		(4	)		(59	)		(63	)
Certificates of Deposit		(105	)		(265	)		(370	)
Deposits		(109	)		(324	)		(433	)
Borrowed funds		35			(67	)		(32	)
Total interest-bearing liabilities		(74	)		(391	)		(465	)
Change in net interest income	$	1,459		$	(1,792	)	$	(333	)

Net Interest Income: Net interest income decreased by $333,000 to $5.8 million for the nine-month period ended September 30, 2012 compared to the same period in 2011. For the nine months ended September 30, 2012, average interest-earning assets decreased $1.0 million, or 0.5%, when compared to the same period in 2011. Average interest-bearing liabilities decreased $5.6 million, or 3.1%, for the same period. The yield on average interest-earning assets decreased to 4.70% for the nine months ended September 30, 2012 from 5.21% for the same period ended in 2011. The average cost of interest-bearing liabilities decreased to 0.98% from 1.30% for the nine month periods ended September 30, 2012 and September 30, 2011, respectively. The net interest rate margin decreased 21 basis points to 3.84% for the nine-month period ended September 30, 2012, from 4.05% for the same period in 2011.

Delinquent Loans and Nonperforming Assets: Nonperforming assets decreased by $1.4 million from December 31, 2011 to September 30, 2012 due primarily to sales of bank-owned properties during the nine months ended September 30, 2012.

28

	September 30,			December 31,
	2012			2011
	(Dollars in thousands)
Total non-accrual loans	$	2,827		$	3,101
Accrual loans delinquent 90 days or more:
One- to four-family residential		201			238
Other real estate loans		0			0
Construction		0			0
Purchased Out-of-State		0			0
Commerical		-			0
Consumer & other		15			-
Total accrual loans delinquent 90 days or more	$	216		$	238
Total nonperforming loans (1)		3,043			3,339
Total real estate owned-residential mortgages (2)		823			1,087
Total real estate owned-Commercial (2)		344			1,015
Total real estate owned-Consumer & other repossessed assets (2)		1,121			1,306
Total nonperforming assets	$	5,331		$	6,747
Total nonperforming loans to loans receivable		2.17	%		2.35	%
Total nonperforming assets to total assets		2.48	%		3.11	%

(1) All of the Bank's loans delinquent more than 90 days are classified as nonperforming.

(2) Represents the net book value of property acquired by the Bank through foreclosure or deed in lieu of foreclosure. Upon acquisition, this property is recorded at the lower of its fair market value or the principal balance of the related loan.

Provision for Loan Losses: The provision for loan losses was $1.2 million for the nine-month period ended September 30, 2012 as compared to income of $19,000 for the comparable period in 2011. As discussed above in the discussion for the three-month period ended September 30, 2012, our provision for loan losses is based on an eleven-quarter rolling average of actual net charge-offs adjusted for various environmental factors for each pool of loans in our portfolio. During the nine-month period ended September 30, 2012, we added specific reserves of approximately $170,000 on two commercial credit relationships, one of which was reclassified as Troubled Debt Restructurings, had net charge-offs of approximately $250,000 on commercial credits, increased the general reserve factor applied to the entire portfolio of residential mortgages as a result of increased charge-off history in 2012, and increased our general reserve pool for special mention and substandard commercial credits based on the inherent increased risk in those credits. The provision was based on management’s review of the components of the overall loan portfolio, the status of non-performing loans and various subjective factors.

29

The following table sets forth our delinquent and non-accrual loans at the dates indicated:

				Delinquent
	Portfolio			Loans			Non-Accrual
	Balance			Over 90 Days			Loans
	(dollars in thousands)
At September 30, 2012
Real estate loans:
Construction	$	1,092		$	-		$	173
One - to four - family		64,947			201			1,556
Commercial Mortgages		53,081			-			975
Home equity lines of credit/ Junior liens		11,562			-			122
Commercial loans		8,414			-			-
Consumer loans		1,275			15			1
Total gross loans		140,371			216			2,827
Less:
Net deferred loan fees.		(314	)		(1	)		(3	)
Allowance for loan losses		(1,684	)		-			(76	)
Total loans, net	$	138,373		$	215		$	2,748
At December 31, 2011
Real estate loans:
Construction	$	762		$	-		$	173
One - to four - family		66,101			282			2,420
Commercial Mortgages		53,938			82			356
Home equity lines of credit/Junior liens		13,395			-			148
Commercial loans		7,002			-			-
Consumer loans		1,477			2			4
Total gross loans		142,675			366			3,101
Less:
Net deferred loan fees		(273	)		(1	)		(7	)
Allowance for loan losses		(1,518	)		-			(261	)
Total loans, net	$	140,884		$	365		$	2,833

Non-Interest Income: Non-interest income was $1.6 million for the nine-month period ended September 30, 2012, an increase of $329,000 or 25.1%, from the same period in 2011. The nine-month results in 2012 reflected an increase of $239,000 in mortgage banking activities due to sustained low mortgage rates which have increased refinance activity and also as a result of a small uptick in home sales in our markets, $47,000 gain on sale of investments as a result of the sale of municipal bond due to credit concerns, and a $49,000 increase in other income mainly as the result of receiving settlement proceeds on a lawsuit related to a troubled credit.

Non-Interest Expense: Non-interest expense decreased to $6.5 million for the nine months ended September 30, 2012 from $6.8 million for the nine months ended September 30, 2011. For the nine-month period ended September 30, 2012 we reduced other expense by $312,000 mainly related to lower costs associated with problem loans and bank-owned properties. Period over period we also experienced decreases in occupancy costs of $83,000 due mainly to decreases in depreciation expense and equipment maintenance, amortization of intangible assets of $72,000 and FDIC premiums of $35,000 due in part to improvement in our risk profile. These decreases were partially offset by an increase in compensation and employee expense of $235,000, as we added a commercial lender and Treasury Management professional and as lender commissions increased due to increased mortgage origination activity.

Income Taxes: A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized. At March 31, 2012, management evaluated the Company’s valuation allowance related to its deferred tax asset. An analysis of the deferred tax asset was made to determine the utilization of those tax benefits based upon projected future taxable income. Based upon management’s determination and in accordance with the generally accepted accounting principles, management concluded that the utilization of this asset was “more likely than not.” Accordingly, at March 31, 2012, $866,000 of the valuation allowance was credited to income tax expense. Among the criteria that management considered in evaluating the deferred tax asset were: improved core profitability of the Bank in 2010 and 2011; substantial improvement over the past two years in non-performing assets, which were driving losses in prior years; and positive forecast for taxable income looking forward over the next three years. A valuation allowance of $2.2 million remains on $3.4 million of the current deferred tax asset at September 30, 2012.

30

The valuation of deferred tax assets is a subjective calculation. Management reviewed several factors in determining the value of deferred tax assets the Company expects to realize over the next three years, including:

· For the three months ended September 30, 2012, we had pre-tax income of $410,000, and fully expect that trend to continue in future quarters.

· The level of our non-performing assets has decreased from $7.9 million at September 30, 2011 to $6.7 million at December 31, 2011 to $5.3 million at September 30, 2012. We expect that trend to continue, which will have a positive impact on earnings in future quarters.

· We sold our two largest pieces of REO property at the end of 2011, therefore future earnings will not be burdened with carrying costs on those properties.

As of September 30, 2012 the Company had a net operating loss carryforward for tax purposes of approximately $10.0 million and related deferred tax asset of $3.4 million. The Company will continue to evaluate the future benefits from these carryforwards and at such time as it becomes “more likely than not” that they would be utilized prior to expiration, the Company will recognize the additional benefits as an adjustment to the valuation allowance. The net operating loss carryforwards expire twenty years from the date they originated. These carryforwards, if not utilized, will expire in the year 2031.

LIQUIDITY

The Company’s current liquidity position is more than adequate to fund expected asset growth. The Company’s primary sources of funds are deposits, FHLB advances, proceeds from principal and interest payments, prepayments on loans and mortgage-backed and investment securities and sale of long-term fixed-rate mortgages into the secondary market. While maturities and scheduled amortization of loans and mortgage-backed securities are a predictable source of funds, deposit flows, mortgage prepayments and sale of mortgage loans into the secondary market are greatly influenced by general interest rates, economic conditions and competition.

Liquidity represents the amount of an institution’s assets that can be quickly and easily converted into cash without significant loss. The most liquid assets are cash, short-term U.S. Government securities, U.S. Government agency securities and certificates of deposit. The Company is required to maintain sufficient levels of liquidity as defined by OCC regulations. This requirement may be varied at the direction of the OCC. Regulations currently in effect require that the Bank must maintain sufficient liquidity to ensure its safe and sound operation. The Company’s objective for liquidity is to be above 20% of total assets. Liquidity as of September 30, 2012 was $53.8 million, or 43.1%, compared to $44.6 million, or 39.9%, at December 31, 2011. The levels of these assets are dependent on the Company’s operating, financing, lending and investing activities during any given period. The liquidity calculated by the Company includes additional borrowing capacity available with the FHLB. This borrowing capacity is based on pledged collateral. As of September 30, 2012, the Bank had unused borrowing capacity totaling $35.8 million at the FHLB based on the pledged collateral.

The Company intends to retain in its portfolio certain originated residential mortgage loans (primarily adjustable rate, balloon and shorter-term fixed-rate mortgage loans) and to generally sell the remainder in the secondary market. The Bank will from time to time participate in or originate commercial real estate loans, including real estate development loans. During the nine month period ended September 30, 2012 the Company originated $36.7 million in residential mortgage loans, of which $10.5 million were retained in portfolio while the remainder were sold in the secondary market or are being held for sale. This compares to $23.0 million in originations during the first nine months of 2011 of which $4.5 million were retained in portfolio. The Company also originated $14.4 million of commercial loans and $1.5 million of consumer loans in the first nine months of 2011 compared to $10.5 million of commercial loans and $1.2 million of consumer loans for the same period in 2011. Of total loans receivable, excluding loans held for sale, mortgage loans comprised 46.7% and 45.8%, commercial loans 44.2% and 43.3% and consumer loans 9.2% and 10.9% at September 30, 2012 and December 31, 2011, respectively.

31

Deposits are a primary source of funds for use in lending and for other general business purposes. At September 30, 2012 deposits funded 73.8% of the Company’s total assets compared to 69.4% at December 31, 2011. Certificates of deposit scheduled to mature in less than one year at September 30, 2012 totaled $39.3 million. Management believes that a significant portion of such deposits will remain with the Bank. The Bank monitors the deposit rates offered by competition in the area and sets rates that take into account the prevailing market conditions along with the Bank’s liquidity position. Moreover, management believes that the growth in assets is not expected to require significant in-flows of liquidity. As such, the Bank does not expect to be a significant market leader in rates paid for liabilities.

Borrowings may be used to compensate for seasonal or other reductions in normal sources of funds or for deposit outflows at more than projected levels. Borrowings may also be used on a longer-term basis to support increased lending or investment activities. At September 30, 2012 the Company had $25.0 million in FHLB advances. FHLB borrowings as a percentage of total assets were 11.6% at September 30, 2012 as compared to 15.9% at December 31, 2011. The Company has sufficient available collateral to obtain additional advances of $35.8 million as of September 30, 2012.

CAPITAL RESOURCES

Stockholders’ equity at September 30, 2012 was $25.3 million, or 11.8% of total assets, compared to $24.6 million, or 11.3% of total assets, at December 31, 2011 (See “Consolidated Statement of Changes in Stockholders’ Equity”). The Bank is subject to certain capital-to-assets requirements in accordance with OCC regulations. The Bank exceeded all regulatory capital requirements at September 30, 2012. The following table summarizes the Bank’s actual capital with the regulatory capital requirements and with requirements to be “Well Capitalized” under prompt corrective action provisions, as of September 30, 2012:

						Regulatory					Minimum to be
	Actual					Minimum					Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
Tier 1 (Core) capital ( to adjusted assets)	$	22,117		10.36	%	$	8,540		4.00	%	$	10,675		5.00	%
Total risk-based capital ( to risk- weighted assets)	$	23,800		17.40	%	$	10,941		8.00	%	$	13,676		10.00	%
Tier 1 risk-based capital ( to risk weighted assets)	$	22,117		16.17	%	$	5,470		4.00	%	$	8,206		6.00	%
Tangible Capital ( to tangible assets)	$	22,117		10.36	%	$	3,203		1.50	%	$	4,270		2.00	%

ITEM 3 - QUANTITATIVE AND QUALITITIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

32

ITEM 4 - CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d–15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms and in timely alerting them to material information relating to the Company (or its consolidated subsidiaries) required to be included in its periodic SEC filings.

There has been no change in the Company’s internal control over the financial reporting during the Company’s third quarter of fiscal year 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

33

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 2012

PART II – OTHER INFORMATION

Item 1 -	Legal Proceedings:
	There are no material legal proceedings to which the Company is a party or of which any of its property is subject. From time to time the Company is a party to various legal proceedings incident to its business.

Item 1A -	Risk Factors:
	Not applicable to smaller reporting companies

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds:

(a)	Not applicable
(b)	Not applicable
(c)	Not applicable

Item 3 -	Defaults upon Senior Securities:
	Not applicable.

Item 4 -	Mine Safety Disclosures
	Not applicable.

Item 5 - Other Information:

(a)	Not applicable
(b)	There was no material change to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by the Form 10-Q.

Item 6 - Exhibits:

Exhibit 31.1 Certification by Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 Certification by Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 Statement of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2 Statement of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS XBRL	Taxonomy Extension Schema
101.SCH	XBRL Taxonomy Extension Calculation Linkbase
101.CAL	XBRL Taxonomy Extension Label Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

34

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 2012

SIGNATURES

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

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
	By:	/s/Michael W. Mahler
		Michael W. Mahler
		Chief Executive Officer
		Date:November 14, 2012

By:	/s/Amy E. Essex
	Amy E. Essex, Chief Financial Officer
	(Principal Financial and Accounting Officer)
	Date: November 14, 2012

35

EX-31.1

Exhibit 31.1

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 2012

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael W. Mahler, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of First Federal of Northern Michigan Bancorp, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;

(4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 14, 2012	/s/ Michael W. Mahler
Dated	Michael W. Mahler
	Chief Executive Officer

EX-31.2

Exhibit 31.2

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 2012

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Amy E. Essex, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of First Federal of Northern Michigan Bancorp, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;

(4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 14, 2012	/s/ Amy E. Essex
Dated	Amy E. Essex
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

STATEMENT FURNISHED PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002,

The undersigned, Michael W. Mahler, is the Chief Executive Officer of First Federal of Northern Michigan Bancorp, Inc. (the “Company”).

This statement is being furnished in connection with the filing by the Company of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (the “Report”).

By execution of this statement, I certify that to the best of my knowledge:

A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

A signed original of this written statement required by Section 906 has been provided to First Federal of Northern Bancorp, Inc. and will be retained by First Federal of Northern Michigan Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

November 14, 2012	/s/ Michael W. Mahler
Dated	Michael W. Mahler

EX-32.2

EXHIBIT 32.2

STATEMENT FURNISHED PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002,

The undersigned, Amy E. Essex, is the Chief Financial Officer of First Federal of Northern Michigan Bancorp, Inc. (the “Company”).

This statement is being furnished in connection with the filing by the Company of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (the “Report”).

By execution of this statement, I certify that to the best of my knowledge:

A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 ; and

B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

A signed original of this written statement required by Section 906 has been provided to First Federal of Northern Bancorp, Inc. and will be retained by First Federal of Northern Michigan Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

November 14, 2012	/s/ Amy E. Essex
Dated	Amy E. Essex

XML

STOCK-BASED COMPENSATION (Summary of Status of Nonvested Options and Changes) (Details) (USD $)	9 Months Ended
	Sep. 30, 2012
Nonvested shares
Beginning balance	1,240
Granted
Vested	(1,000)
Forfeited
Ending balance	240
Nonvested, weighted average grant date fair value
Beginning balance	$ 2.19
Vested	$ 2.26
Ending balance	$ 1.92

XML

LOANS (Debt Restructurings Defaulted) (Details) (Troubled Debt Restructuring [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Commercial Real Estate - other [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts	1	1
Recorded Investment	$ 55	$ 55
Commercial Real Estate - construction [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts
Recorded Investment
Commercial - non real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts
Recorded Investment
Residential [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts
Recorded Investment

XML

SECURITIES (Summary of Temporarily Impaired Investments Impaired) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Investments Unrealized Gain Loss Positions [Line Items]
Available-for-Sale, Fair Value Unrealized Losses less than 12 months	$ 1,208	$ 10,782
Available-for-Sale, Gross Unrealized Losses less than 12 months	(22)	(40)
Available-for-Sale, Fair Value Unrealized Losses longer than 12 months	1,161	1,459
Available-for-Sale, Gross Unrealized Losses longer than 12 months	33	19
U.S. Government and agency obligations [Member]
Investments Unrealized Gain Loss Positions [Line Items]
Available-for-Sale, Fair Value Unrealized Losses less than 12 months		1,999
Available-for-Sale, Gross Unrealized Losses less than 12 months		(1)
Available-for-Sale, Fair Value Unrealized Losses longer than 12 months
Available-for-Sale, Gross Unrealized Losses longer than 12 months
Municipal Obligations [Member]
Investments Unrealized Gain Loss Positions [Line Items]
Available-for-Sale, Fair Value Unrealized Losses less than 12 months	584	646
Available-for-Sale, Gross Unrealized Losses less than 12 months	(11)	(12)
Available-for-Sale, Fair Value Unrealized Losses longer than 12 months
Available-for-Sale, Gross Unrealized Losses longer than 12 months
Held-to-Maturity, Fair Value Unrealized Losses less than 12 months
Held-to-Maturity, Gross Unrealized Losses less than 12 months
Held-to-Maturity, Fair Value Unrealized Losses longer than 12 months
Held-to-Maturity, Gross Unrealized Losses longer than 12 months
Mortgage-backed securities [Member]
Investments Unrealized Gain Loss Positions [Line Items]
Available-for-Sale, Fair Value Unrealized Losses less than 12 months	624	8,137
Available-for-Sale, Gross Unrealized Losses less than 12 months	(11)	(27)
Available-for-Sale, Fair Value Unrealized Losses longer than 12 months	1,160	1,458
Available-for-Sale, Gross Unrealized Losses longer than 12 months	31	17
Equity Securities [Member]
Investments Unrealized Gain Loss Positions [Line Items]
Available-for-Sale, Fair Value Unrealized Losses less than 12 months
Available-for-Sale, Gross Unrealized Losses less than 12 months
Available-for-Sale, Fair Value Unrealized Losses longer than 12 months	1	1
Available-for-Sale, Gross Unrealized Losses longer than 12 months	$ 2	$ 2

XML

FAIR VALUE MEASUREMENTS (Assets Measured at Fair Value on Nonrecurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Impaired loans accounted for under FASB ASC 310-10 [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	$ 3,380	$ 1,927
Other real estate owned -residential mortgages [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	823	1,087
Commercial Real Estate - other [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	344	1,015
Other Repossessed Assets [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	1,121	1,307
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Impaired loans accounted for under FASB ASC 310-10 [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Other real estate owned -residential mortgages [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Commercial Real Estate - other [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Other Repossessed Assets [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets
Significant Other Observable Inputs (Level 2) [Member] | Impaired loans accounted for under FASB ASC 310-10 [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets
Significant Other Observable Inputs (Level 2) [Member] | Other real estate owned -residential mortgages [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets
Significant Other Observable Inputs (Level 2) [Member] | Commercial Real Estate - other [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets
Significant Other Observable Inputs (Level 2) [Member] | Other Repossessed Assets [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets
Significant Unobservable Inputs (Level 3) [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	5,668	5,336
Significant Unobservable Inputs (Level 3) [Member] | Impaired loans accounted for under FASB ASC 310-10 [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	3,380	1,927
Significant Unobservable Inputs (Level 3) [Member] | Other real estate owned -residential mortgages [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	823	1,087
Significant Unobservable Inputs (Level 3) [Member] | Commercial Real Estate - other [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	344	1,015
Significant Unobservable Inputs (Level 3) [Member] | Other Repossessed Assets [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	$ 1,121	$ 1,307

XML

STOCK-BASED COMPENSATION (Additional Information) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average remaining contractual term, outstanding	3 years 11 months 23 days	4 years 3 months 18 days
Closing stock price	$ 3.96
Unrecognized compensation cost, stock option	$ 0
Total fair value of vested shares, stock option	4,052
Unrecognized compensation cost, restricted stock	$ 0
Stock Option Plan 1996 [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant of awards, authorized number of shares	127,491
Stock Incentive Plan 2006 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options, vesting period	5 years
Weighted average remaining contractual term, outstanding	10 years
Stock Incentive Plan 2006 [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant of awards, authorized number of shares	242,740
Stock Incentive Plan 2006 [Member] | Stock Options [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant of awards, authorized number of shares	173,386
Stock Incentive Plan 2006 [Member] | Restricted Stock [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant of awards, authorized number of shares	69,354

XML

PRINCIPLES OF CONSOLIDATION

9 Months Ended

Sep. 30, 2012

PRINCIPLES OF CONSOLIDATION [Abstract]

PRINCIPLES OF CONSOLIDATION

Note 2- PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of First Federal of Northern Michigan Bancorp, Inc., First Federal of Northern Michigan (the "Bank"), and the Bank's wholly owned subsidiaries, Financial Services & Mortgage Corporation ("FSMC") and FFNM Agency. FSMC invests in real estate, which includes leasing, selling, developing, and maintaining real estate properties. The main activity of FFNM Agency is to collect the stream of income associated with the sale of the Blue Cross/Blue Shield override business to the Grotenhuis Group. All significant intercompany balances and transactions have been eliminated in the consolidation.

XML

FAIR VALUE MEASUREMENTS (Estimated Fair Values and Related Carrying or Notional Amounts of Financial Instruments) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and cash equivalents	$ 3,286
Securities available for sale
Securities held to maturity
Loans and loans held for sale - Net
Federal Home Loan Bank stock
Accrued interest receivable
Financial liabilities:
Customer deposits
Federal Home Loan Bank advances
REPO sweep accounts
Accrued interest payable
Fair Value, Inputs, Level 2 [Member]
Financial assets:
Cash and cash equivalents
Securities available for sale	52,484
Securities held to maturity	2,622
Loans and loans held for sale - Net
Federal Home Loan Bank stock	3,266
Accrued interest receivable	1,119
Financial liabilities:
Customer deposits	159,727
Federal Home Loan Bank advances	25,314
REPO sweep accounts	4,245
Accrued interest payable	111
Fair Value, Inputs, Level 3 [Member]
Financial assets:
Cash and cash equivalents
Securities available for sale
Securities held to maturity
Loans and loans held for sale - Net	144,718
Federal Home Loan Bank stock
Accrued interest receivable
Financial liabilities:
Customer deposits
Federal Home Loan Bank advances
REPO sweep accounts
Accrued interest payable
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Financial assets:
Cash and cash equivalents	3,286	2,749
Securities available for sale	52,484	53,049
Securities held to maturity	2,395	2,435
Loans and loans held for sale - Net	139,414	140,884
Federal Home Loan Bank stock	3,266	3,266
Accrued interest receivable	1,119	1,149
Financial liabilities:
Customer deposits	158,676	150,649
Federal Home Loan Bank advances	25,000	34,500
REPO sweep accounts	4,245	5,592
Accrued interest payable	111	148
Estimate of Fair Value, Fair Value Disclosure [Member]
Financial assets:
Cash and cash equivalents	3,286	2,749
Securities available for sale	52,484	53,049
Securities held to maturity	2,622	2,665
Loans and loans held for sale - Net	144,718	146,018
Federal Home Loan Bank stock	3,266	3,266
Accrued interest receivable	1,119	1,149
Financial liabilities:
Customer deposits	159,727	151,693
Federal Home Loan Bank advances	25,314	34,827
REPO sweep accounts	4,245	5,592
Accrued interest payable	$ 111	$ 148

XML

LOANS (Risk Category of Loans by Class of Loans Based on Most Recent Analysis Performed) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	$ 140,371	$ 142,675	$ 143,214
Commercial Real Estate - construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	487	264
Commercial Real Estate - construction [Member] | Loan Grade One To Two [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross
Commercial Real Estate - construction [Member] | Loan Grade Three [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross
Commercial Real Estate - construction [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	314	91
Commercial Real Estate - construction [Member] | Loan Grade Five [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross
Commercial Real Estate - construction [Member] | Loan Grade Six [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	173	173
Commercial Real Estate - construction [Member] | Loan Grade Seven [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross
Commercial Real Estate - construction [Member] | Loan Grade Eight [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross
Commercial Real Estate - other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	53,081	53,938
Commercial Real Estate - other [Member] | Loan Grade One To Two [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross
Commercial Real Estate - other [Member] | Loan Grade Three [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	12,070	10,911
Commercial Real Estate - other [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	29,987	31,926
Commercial Real Estate - other [Member] | Loan Grade Five [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	2,736	1,078
Commercial Real Estate - other [Member] | Loan Grade Six [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	8,288	10,023
Commercial Real Estate - other [Member] | Loan Grade Seven [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross
Commercial Real Estate - other [Member] | Loan Grade Eight [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross
Commercial - non real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	8,414	7,002	7,380
Commercial - non real estate [Member] | Loan Grade One To Two [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross		7
Commercial - non real estate [Member] | Loan Grade Three [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	2,223	2,178
Commercial - non real estate [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	5,782	4,512
Commercial - non real estate [Member] | Loan Grade Five [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross
Commercial - non real estate [Member] | Loan Grade Six [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	409	305
Commercial - non real estate [Member] | Loan Grade Seven [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross
Commercial - non real estate [Member] | Loan Grade Eight [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross

XML

LOANS (Additional Information) (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Risk-rating system to grade loan	8
Trouble debt restructuring, impaired loan	$ 3.1
Impaired loans, maximum time of re-evaluation	Maximum time of re-evaluation is every 12 months.
Unsecured Debt [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	90 days
Secured Debt [Member] | Consumer Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	120 days
Secured Debt [Member] | Commercial loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	90 days

XML

LOANS (Risk Category of Loans by Class Based on Most Recent Analysis Performed) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	$ 140,371	$ 142,675	$ 143,214
Residential [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	65,552	66,599	65,582
Residential [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	63,796	63,941
Residential [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross
Residential [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	1,756	2,658
Consumer - Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	11,562	13,395	14,147
Consumer - Real Estate [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	11,440	13,248
Consumer - Real Estate [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	122	147
Consumer - Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	1,275	1,477
Consumer - Other [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	1,259	1,473
Consumer - Other [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	$ 16	$ 4

XML

LOANS (Recorded Investment in Non-Accrual Loans by Class) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans	$ 2,827	$ 3,101
Commercial Real Estate - construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans	173	173
Commercial Real Estate - other [Member]
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans	975	356
Consumer - Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans	122	152
Consumer - Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans	1
Residential [Member]
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans	$ 1,556	$ 2,420

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BASIS OF FINANCIAL STATEMENT PRESENTATION

9 Months Ended

Sep. 30, 2012

BASIS OF FINANCIAL STATEMENT PRESENTATION [Abstract]

BASIS OF FINANCIAL STATEMENT PRESENTATION

Note 1-BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements are not included herein. The interim financial statements should be read in conjunction with the financial statements of First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries and the notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2011.

All adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of financial position, results of operations and cash flows, have been made. The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

XML

LOANS (Impaired Loans Classified as Troubled Debt Restructurings) (Details) (Troubled Debt Restructuring [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Commercial Real Estate - construction [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts
Pre-modification outstanding recorded investments
Post-modification outstanding recorded investment
Commercial Real Estate - other [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts
Pre-modification outstanding recorded investments
Post-modification outstanding recorded investment
Commercial - non real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	2	4
Pre-modification outstanding recorded investments	1,914	3,542
Post-modification outstanding recorded investment	1,454	3,052
Residential [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts
Pre-modification outstanding recorded investments
Post-modification outstanding recorded investment

XML

COMMITMENTS TO EXTEND CREDIT (Additional Information) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments to grant loans	$ 20,090
Loans outstanding commitments	33,700
Unfunded commitments under lines of credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loans outstanding commitments	13,221
Commercial And Standbys Letter Of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loans outstanding commitments	$ 404

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Consolidated Balance Sheet (USD $)	Sep. 30, 2012	Dec. 31, 2011
Cash and cash equivalents:
Cash on hand and due from banks	$ 3,249,826	$ 2,713,701
Overnight deposits with FHLB	35,934	35,797
Total cash and cash equivalents	3,285,760	2,749,498
Securities AFS	52,483,641	53,048,503
Securities HTM	2,395,000	2,435,000
Loans held for sale	1,041,454
Loans receivable, net of allowance for loan losses of $1,683,731 and $1,517,695 as of September 30, 2012 and December 31, 2011, respectively	138,373,228	140,883,591
Foreclosed real estate and other repossessed assets	2,287,858	3,407,939
Federal Home Loan Bank stock, at cost	3,266,100	3,266,100
Premises and equipment	5,730,687	5,845,881
Accrued interest receivable	1,119,332	1,148,500
Intangible assets	187,962	334,855
Prepaid FDIC premiums	627,164	758,733
Deferred tax asset	1,194,873	387,065
Other assets	2,941,641	2,779,124
Total assets	214,934,700	217,044,789
Liabilities:
Deposits	158,675,753	150,649,073
Advances from borrowers for taxes and insurance	210,174	128,028
Federal Home Loan Bank Advances	25,000,000	34,500,000
REPO Sweep Accounts	4,245,047	5,592,326
Accrued expenses and other liabilities	1,511,098	1,606,568
Total liabilities	189,642,072	192,475,995
Stockholders' equity:
Common stock ($0.01 par value 20,000,000 shares authorized 3,191,799 shares issued)	31,918	31,918
Additional paid-in capital	23,853,891	23,852,702
Retained earnings	3,583,678	2,980,176
Treasury stock at cost (307,750 shares)	(2,963,918)	(2,963,918)
Unearned compensation		(556)
Accumulated other comprehensive income	787,059	668,472
Total stockholders' equity	25,292,628	24,568,794
Total liabilities and stockholders' equity	$ 214,934,700	$ 217,044,789

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Consolidated Statement of Changes in Stockholders' Equity (Parenthetical) (USD $)	9 Months Ended
	Sep. 30, 2012
Consolidated Statement of Changes in Stockholders' Equity [Abstract]
Change in unrealized gain on available-for-sale securities, tax	$ 61,090

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LOANS (Activity in Allowance for Loan and Lease Losses) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Allowance for credit losses:
Beginning Balance	$ 1,773	$ 2,191	$ 1,518	$ 2,831
Charge-offs	(341)	(495)	(1,071)	(1,219)
Recoveries	18	25	49	61
Provision	234	(67)	1,188	(19)
Ending Balance	1,684	1,654	1,684	1,654
Commercial Construction [Member]
Allowance for credit losses:
Beginning Balance		164	10	535
Charge-offs				(94)
Recoveries
Provision	35	(141)	25	(418)
Ending Balance	35	23	35	23
Commercial Real Estate [Member]
Allowance for credit losses:
Beginning Balance	770	1,062	393	1,281
Charge-offs	(138)	(210)	(265)	(328)
Recoveries	2		10	3
Provision	(13)	(234)	483	(338)
Ending Balance	621	618	621	618
Commercial - non real estate [Member]
Allowance for credit losses:
Beginning Balance	40	152	53	192
Charge-offs				(6)
Recoveries
Provision	36	(68)	23	(102)
Ending Balance	76	84	76	84
Consumer - Real Estate [Member]
Allowance for credit losses:
Beginning Balance	140	218	146	228
Charge-offs	(17)	(63)	(54)	(147)
Recoveries	6	4	14	27
Provision	1	35	24	86
Ending Balance	130	194	130	194
Consumer [Member]
Allowance for credit losses:
Beginning Balance	15	22	46	59
Charge-offs	(20)	(1)	(29)	(19)
Recoveries	3	1	8	8
Provision	36	(3)	9	(29)
Ending Balance	34	19	34	19
Residential [Member]
Allowance for credit losses:
Beginning Balance	808	573	870	536
Charge-offs	(166)	(221)	(723)	(625)
Recoveries	7	20	17	23
Provision	139	344	624	782
Ending Balance	788	716	788	716
Unallocated Financing Receivables [Member]
Allowance for credit losses:
Beginning Balance
Charge-offs
Recoveries
Provision
Ending Balance

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SECURITIES (Carrying Value and Estimated Fair Value of Securities) (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	$ 51,291,000	$ 52,036,000
Available for Sale, Gross Unrealized Gains	1,248,000	1,072,000
Available for Sale, Gross Unrealized Losses	(55,000)	(59,000)
Available for Sale, Market Value	52,483,641	53,048,503
Held to Maturity, Amortized Cost	2,395,000
Held to maturity market value, Total	2,622,000
U.S. Government and agency obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	10,700,000	14,756,000
Available for Sale, Gross Unrealized Gains	76,000	108,000
Available for Sale, Gross Unrealized Losses		(1,000)
Available for Sale, Market Value	10,776,000	14,863,000
Municipal Obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	7,806,000	6,927,000
Available for Sale, Gross Unrealized Gains	377,000	361,000
Available for Sale, Gross Unrealized Losses	(11,000)	(12,000)
Available for Sale, Market Value	8,172,000	7,276,000
Held to Maturity, Amortized Cost	2,395,000	2,435,000
Held To Maturity Securities Gross Unrealized Gains	227,000	230,000
Held to Maturity, Gross Unrealized Losses
Held to maturity market value, Total	2,622,000	2,665,000
Corporate bonds & other obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	1,147,000
Available for Sale, Gross Unrealized Gains	12,000
Available for Sale, Gross Unrealized Losses
Available for Sale, Market Value	1,159,000
Mortgage-backed securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	31,635,000	30,350,000
Available for Sale, Gross Unrealized Gains	783,000	603,000
Available for Sale, Gross Unrealized Losses	(42,000)	(44,000)
Available for Sale, Market Value	32,376,000	30,909,000
Equity Securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	3,000	3,000
Available for Sale, Gross Unrealized Gains
Available for Sale, Gross Unrealized Losses	(2,000)	(2,000)
Available for Sale, Market Value	$ 1,000	$ 1,000

XML

LOANS (Loans Individually Evaluated For Impairment) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment	$ 201		$ 218
Ending balance: loans collectively evaluated for impairment	1,483		1,436
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	140,371	142,675	143,214
Ending balance: individually evaluated for impairment	4,477		4,551
Ending balance: collectively evaluated for impairment	135,894
Commercial Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment	35		23
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	487		261
Ending balance: individually evaluated for impairment	173		173
Ending balance: collectively evaluated for impairment	314		88
Ending balance: loans acquired with deteriorated credit quality
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment	175		27
Ending balance: loans collectively evaluated for impairment	446		591
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	53,081	54,434	54,434
Ending balance: individually evaluated for impairment	2,573		1,658
Ending balance: collectively evaluated for impairment	50,508		52,777
Ending balance: loans acquired with deteriorated credit quality
Commercial Non Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment	76		84
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	8,414	7,002	7,380
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment	8,414		7,380
Ending balance: loans acquired with deteriorated credit quality
Consumer Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment			2
Ending balance: loans collectively evaluated for impairment	130		192
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	11,562	13,395	14,147
Ending balance: individually evaluated for impairment	174		90
Ending balance: collectively evaluated for impairment	11,387		14,057
Ending balance: loans acquired with deteriorated credit quality
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment	21
Ending balance: loans collectively evaluated for impairment	13		19
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	1,276		1,410
Ending balance: individually evaluated for impairment	1		5
Ending balance: collectively evaluated for impairment	1,275		1,405
Ending balance: loans acquired with deteriorated credit quality
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment	5		189
Ending balance: loans collectively evaluated for impairment	783		527
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	65,552	66,599	65,582
Ending balance: individually evaluated for impairment	1,556		2,625
Ending balance: collectively evaluated for impairment	63,996		62,957
Ending balance: loans acquired with deteriorated credit quality
Unallocated Financing Receivables [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment			138,664
Ending balance: loans acquired with deteriorated credit quality

XML

SECURITIES (Additional Information) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
SECURITIES [Abstract]
Securities pledge as collateral, carrying value	$ 41,891,000		$ 31,085,000
Gross proceeds from sales of securities	1,553,000	0
Gross gains from sale of securities	54,000	0
Gross losses from sale of securities	$ 7,000	$ 0

XML

Consolidated Statement of Cash Flows (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash Flows from Operating Activities:
Net income	$ 603,502	$ 658,157
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	378,619	525,446
Provision for loan loss	1,188,588	(18,959)
Amortization and accretion on securities	371,770	209,583
Gain on sale of investment securities	(47,017)
Stock-based compensation	1,766	67,695
Gain on sale of loans held for sale	(393,692)	(255,770)
Originations of loans held for sale	(26,174,538)	(18,479,727)
Proceeds from sale of loans held for sale	25,526,776	18,118,749
Loss on sale of fixed assets	698	544
Loss on sale of real estate owned and other repossessed assets	80,098	54,368
Net change in:
Accrued interest receivable	29,168	60,267
Other assets	(223,607)	(461,249)
Prepaid FDIC insurance premiums	131,569	164,363
Deferred income tax (benefit) expense	(807,808)	328,808
Accrued expenses and other liabilities	(95,492)	27,381
Net cash provided by operating activities	570,400	999,656
Cash Flows from Investing Activities:
Net decrease in loans (loans originated, net of principal payments)	47,965	12,853,481
Proceeds from maturity and sale of available-for-sale securities	16,906,748	9,390,032
Proceeds from sale of property and equipment	425	1,780
Purchase of securities	(16,446,962)	(23,407,417)
Purchase of premises and equipment	(117,655)	(213,638)
Proceeds from sale of real estate owned and other repossed assets	2,313,794	1,317,766
Proceeds from sale of Federal Home Loan Bank Stock		509,300
Net cash provided by investing activities	2,704,315	451,304
Cash Flows from Financing Activities:
Net increase (decrease) in deposits	8,026,680	(2,650,956)
Net (decrease) increase in Repo Sweep accounts	(1,347,279)	3,244,869
Net increase in advances from borrowers	82,146	91,723
Advances from Federal Home Loan Bank and notes payable	32,250,000	8,350,000
Repayments of Federal Home Loan Bank advances and notes payable	(41,750,000)	(4,350,000)
Net cash (used for) provided by financing activities	(2,738,453)	4,685,636
Net increase in cash and cash equivalents	536,262	6,136,596
Cash and cash equivalents at beginning of period	2,749,498	1,962,657
Cash and cash equivalents at end of period	3,285,760	8,099,253
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	1,322,705	1,783,848
Cash paid during the period for income taxes
Transfers of loans to foreclosed real estate and repossessed assets	$ 1,273,811	$ 3,013,142

XML

Consolidated Balance Sheet (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Consolidated Balance Sheet [Abstract]
Allowance for loan losses	$ 1,683,731	$ 1,517,695
Common stock, par value per share	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	3,191,799	3,191,799
Treasury stock, shares	307,750	307,750

XML

SECURITIES (Tables)

9 Months Ended

Sep. 30, 2012

SECURITIES [Abstract]

Carrying Value and Estimated Fair Value of Securities

September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	10,700	$	76	$	-		$	10,776
Municipal obligations		7,806		377		(11	)		8,172
Corporate bonds & other obligations		1,147		12		-			1,159
Mortgage-backed securities		31,635		783		(42	)		32,376
Equity securities		3		-		(2	)		1
Total	$	51,291	$	1,248	$	(55	)	$	52,484
Securities Held to Maturity
Municipal obligations	$	2,395	$	227	$	-		$	2,622

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	14,756	$	108	$	(1	)	$	14,863
Municipal obligations		6,927		361		(12	)		7,276
Mortgage-backed securities		30,350		603		(44	)		30,909
Equity securities		3		-		(2	)		1
Total	$	52,036	$	1,072	$	(59	)	$	53,049
Securities Held to Maturity
Municipal obligations	$	2,435	$	230	$	-		$	2,665

Amortized Cost and Estimated Market Value of Securities by Contract Maturity

	September 30, 2012
	Amortized Cost		Market Value
	(in thousands)
Available For Sale:
Due in one year or less	$	1,847	$	1,859
Due after one year through five years		15,513		15,798
Due in five year through ten years		1,967		2,030
Due after ten years		326		420
Subtotal		19,653		20,107
Equity securities		3		1
Mortgage-backed securities		31,635		32,376
Total	$	51,291	$	52,484
Held To Maturity:
Due in one year or less	$	90	$	91
Due after one year through five years		430		461
Due in five year through ten years		660		726
Due after ten years		1,215		1,344
Total	$	2,395	$	2,622

Summary of Temporily Impaired Investments Impaired

September 30, 2012
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		12 months			Fair Value		12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	-	$	-		$	-	$	-
Municipal obligations		584		(11	)		-		-
Mortgage-backed securities		624		(11	)		1,160		(31	)
Equity securities		-		-			1		(2	)
Total	$	1,208	$	(22	)	$	1,161	$	(33	)
Held to Maturity:
Municipal obligations	$	-	$	-		$	-	$	-
	December 31, 2011
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		12 months			Fair Value		12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	1,999	$	(1	)	$	-	$	-
Municipal obligations		646		(12	)		-		-
Mortgage-backed securities		8,137		(27	)		1,458		(17	)
Equity securities		-		-			1		(2	)
Total	$	10,782	$	(40	)	$	1,459	$	(19	)
Held to Maturity:
Municipal notes	$	-	$	-		$	-	$	-

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 09, 2012
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Entity Registrant Name	FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
Entity Central Index Key	0001128227
Trading Symbol	FFNM
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,884,049

XML

LOANS (Tables)

9 Months Ended

Sep. 30, 2012

LOANS [Abstract]

Composition of Loan Portfolio by Loan Type

	At September 30,			At December 31,
	2012			2011
	(in thousands)
Real estate loans:
Residential mortgage	$	65,552		$	66,599
Commercial loans:
Secured by real estate		53,568			54,202
Other		8,414			7,002
Total commercial loans		61,982			61,204
Consumer loans:
Secured by real estate		11,562			13,395
Other		1,275			1,477
Total consumer loans		12,837			14,872
Total gross loans	$	140,371		$	142,675
Less:
Net deferred loan fees		(314	)		(273	)
Allowance for loan losses		(1,684	)		(1,518	)
Total loans, net	$	138,373		$	140,884

Contractual Aging of Recorded Investment in Past Due Loans by Class Loans

Contractual Aging of Recorded Balance in Past Due Loans by Class of Loan
As of September 30, 2012
													Recorded
													Investment > 90
	30 - 59 Days		60 - 89 Days		Greater than 90		Total				Total Financing		Days and
	Past Due		Past Due		Days		Past Due		Current		Receivables		Accruing
	( in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	314	$	487	$	-
Commercial Real Estate - other		1,055		29		425		1,509		51,572		53,081		-
Commercial - non real estate		5		-		-		5		8,409		8,414		-
Consumer:
Consumer - Real Estate		149		9		112		270		11,292		11,562		-
Consumer - Other		5		5		16		26		1,249		1,275		15
Residential:
Residential		2,098		916		1,243		4,257		61,295		65,552		201
Total	$	3,312	$	959	$	1,969	$	6,240	$	134,131	$	140,371	$	216
As of December 31, 2011
													Recorded
					Greater than								Investment > 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Financing		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Receivables		Accruing
	( in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	91	$	264	$	-
Commercial Real Estate - other		3,808		339		245		4,392		49,546		53,938		-
Commercial - non real estate		46		29		-		75		6,927		7,002		-
Consumer:
Consumer - Real Estate		394		34		128		556		12,839		13,395		-
Consumer - Other		5		25		-		30		1,447		1,477		-
Residential:
Residential		3,055		1,501		1,969		6,525		60,074		66,599		238
Total	$	7,308	$	1,928	$	2,515	$	11,751	$	130,924	$	142,675	$	238

Risk Category of Loans by Class of Loans Based on Most Recent Analysis Performed

As of September 30, 2012
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	-
3		-		12,070		2,223
4		314		29,987		5,782
5		-		2,736		-
6		173		8,288		409
7		-		-		-
8		-		-		-
Total	$	487	$	53,081	$	8,414
As of December 31, 2011
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	7
3		-		10,911		2,178
4		91		31,926		4,512
5		-		1,078		-
6		173		10,023		305
7		-		-		-
8		-		-		-
Total	$	264	$	53,938	$	7,002

Risk Category of Loans by Class Based on Most Recent Analysis Performed

As of September 30, 2012			As of December 31, 2011
	(dollars in thousands)
	Residential			Residential
Grade			Grade
Pass	$	63,796	Pass	$	63,941
Special Mention		-	Special Mention		-
Substandard		1,756	Substandard		2,658
Total	$	65,552	Total	$	66,599

As of September 30, 2012
	(dollars in thousands)
	Consumer -
	Real Estate		Consumer - Other
Performing	$	11,440	$	1,259
Nonperforming		122		16
Total	$	11,562	$	1,275
As of December 31, 2011
	(dollars in thousands)
	Consumer -
	Real Estate		Consumer - Other
Performing	$	13,248	$	1,473
Nonperforming		147		4
Total	$	13,395	$	1,477

Recorded Investment in Non-Accrual Loans by Class

As of
	September 30, 2012		December 31, 2011
	(dollars in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		975		356
Commercial		-		-
Consumer:
Consumer - real estate		122		152
Consumer - other		1		-
Residential:
Residential		1,556		2,420
Total	$	2,827	$	3,101

Troubled Debt Restructurings on Financing Receivables

For the Three Months Ended
September 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Contracts		Investments		Investment
			(dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-
Commercial Real Estate - Other		-		-		-
Commercial - non real estate		2		1,914		1,454
Residential		-		-		-

For the Nine Months Ended
September 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Contracts		Investments		Investment
			(dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-
Commercial Real Estate - Other		-		-		-
Commercial - non real estate		4		3,542		3,052
Residential		-		-		-

Debt Restructurings Defaulted

Troubled Debt Restructurings	Number of
That Subsequently Defaulted	Contracts		Recorded Investment
			(dollars in thousands)
Commercial Real Estate - Construction		-	$	-
Commercial Real Estate - Other		1		55
Commercial - non real estate		-		-
Residential		-		-

Loans Individually Evaluated for Impairment by Class of Loans

							For the Three Months Ended				For the Nine Months Ended
Impaired Loans							September 30,				September 30,
As of September 30, 2012							2012				2012
							Average		Interest		Average		Interest
	Unpaid Principal		Recorded		Related		Recorded		Income		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized		Investment		Recognized
	(dollars in thousands)						(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-		173		-
Commercial Real Estate - Other		3,446		2,963		-		3,206		35		3,309		107
Consumer - Real Estate		31		26		-		29		-		31		-
Consumer - Other		2		1		-		3		-		4		-
Residential		1,831		1,511		-		1,657		-		1,666		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		-		-
Commercial Real Estate - Other		2,151		2,148		175		2,167		20		2,175		61
Consumer - Real Estate		96		96		21		96		-		96		-
Consumer - Other		-		-		-		-		-		-		-
Residential		45		45		5		45		-		45		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	5,597	$	5,111	$	175	$	5,373	$	55	$	5,484	$	168
Consumer - Real Estate	$	127	$	122	$	21	$	125	$	-	$	127	$	-
Consumer - Other	$	2	$	1	$	-	$	3	$	-	$	4	$	-
Residential	$	1,876	$	1,556	$	5	$	1,702	$	-	$	1,711	$	-
							For the Three Months Ended				For the Nine Months Ended
Impaired Loans							September 30,				September 30,
As of December 31, 2011							2011				2011
							Average		Interest		Average		Interest
	Unpaid Principal		Recorded		Related		Recorded		Income		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		286		-		286		-
Commercial Real Estate - Other		626		626		-		883		-		470		-
Consumer - Real Estate		171		152		-		83		-		71		-
Consumer - Other		0		0		-		6		-		10		-
Residential		2,017		1,640		-		1,967		-		1,899		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		687		-
Commercial Real Estate - Other		1,337		1,128		85		781		10		939		31
Consumer - Real Estate		-		-		-		10		-		72		-
Consumer - Other		-		-		-		-		-		-		-
Residential		813		780		199		675		-		875		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	286	$	-	$	973	$	-
Commercial Real Estate - Other	$	1,963	$	1,754	$	85	$	1,664	$	10	$	1,409	$	31
Consumer - Real Estate	$	171	$	152	$	-	$	93	$	-	$	143	$	-
Consumer - Other	$	-	$	-	$	-	$	6	$	-	$	10	$	-
Residential	$	2,830	$	2,420	$	199	$	2,642	$	-	$	2,774	$	-

Schedule of Activity in Allowance for Loan and Lease Losses and Individually Evaluated for Impairment

Allowance for Credit Losses and Recorded Investment in Financing Receivables
For the Three Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	-	$	770		$	40	$	140		$	15		$	808		$	-	$	1,773
Charge-offs		-		(138	)		-		(17	)		(20	)		(166	)		-	$	(341	)
Recoveries		-		2			-		6			3			7			-	$	18
Provision		35		(13	)		36		1			36			139			-	$	234
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	0	$	1,684
For the Nine Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	10	$	393		$	53	$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-		(265	)		-		(54	)		(29	)		(724	)		-	$	(1,072	)
Recoveries		-		10			-		14			8			17			-	$	49
Provision		25		483			23		24			9			625			-	$	1,189
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	0	$	1,684
Loan Balances Individually Evaluated for Impairment
As of September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	175		$	-	$	-		$	21		$	5		$	-	$	201
Ending balance: loans collectively evaluated for impairment	$	35	$	446		$	76	$	130		$	13		$	783		$	-	$	1,483
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-	$	-		$	-		$	-		$	-	$	-
Financing Receivables: Ending Balance	$	487	$	53,081		$	8,414	$	11,561		$	1,276		$	65,552		$	-	$	140,371
Ending balance: individually evaluated for impairment	$	173	$	2,573		$	-	$	174		$	1		$	1,556		$	-	$	4,477
Ending balance: loans collectively evaluated for impairment	$	314	$	50,508		$	8,414	$	11,387		$	1,275		$	63,996		$	-	$	135,894
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-	$	-		$	-		$	-		$	-	$	-

For the Three Months Ended September 30, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	164		$	1,062		$	152		$	218		$	22		$	573		$	-	$	2,191
Charge-offs		-			(210	)		-			(63	)		(1	)		(221	)		-	$	(495	)
Recoveries		-			-			-			4			1			20			-	$	25
Provision		(141	)		(234	)		(68	)		35			(3	)		344			-	$	(67	)
Ending Balance	$	23		$	618		$	84		$	194		$	19		$	716		$	-	$	1,654
For the Nine Months Ended September 30, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	535		$	1,281		$	192		$	228		$	59		$	536		$	-	$	2,831
Charge-offs		(94	)		(328	)		(6	)		(147	)		(19	)		(625	)		-	$	(1,219	)
Recoveries		-			3			-			27			8			23			-	$	61
Provision		(418	)		(338	)		(102	)		86			(29	)		782			-	$	(19	)
Ending Balance	$	23		$	618		$	84		$	194		$	19		$	716		$	-	$	1,654
Loan Balances Individually Evaluated for Impairment
As of September 30, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-		$	27		$	-		$	2		$	-		$	189		$	-	$	218
Ending balance: loans collectively evaluated for impairment	$	23		$	591		$	84		$	192		$	19		$	527		$	-	$	1,436
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-		$	-		$	-	$	-
Financing Receivables: Ending Balance	$	261		$	54,434		$	7,380		$	14,147		$	1,410		$	65,582		$	-	$	143,214
Ending balance: individually evaluated for impairment	$	173		$	1,658		$	-		$	90		$	5		$	2,625		$	-	$	4,551
Ending balance: loans collectively evaluated for impairment	$	88		$	52,777		$	7,380		$	14,057		$	1,405		$	62,957		$	-	$	138,664
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-		$	-		$	-	$	-

XML

Consolidated Statement of Income (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest income:
Interest and fees on loans	$ 1,995,749	$ 2,196,300	$ 6,047,447	$ 6,786,817
Interest and dividends on investments
Taxable	136,100	151,190	423,308	380,407
Tax-exempt	38,438	39,735	116,240	120,074
Interest on mortgage-backed securities	142,309	200,442	486,153	583,510
Total interest income	2,312,596	2,587,667	7,073,148	7,870,808
Interest expense:
Interest on deposits	249,442	381,124	793,620	1,226,252
Interest on borrowings	144,584	183,030	491,872	523,785
Total interest expense	394,026	564,154	1,285,492	1,750,037
Net interest income	1,918,570	2,023,513	5,787,656	6,120,771
Provision for loan loss	234,005	(67,079)	1,188,588	(18,959)
Net interest income after provision for loan losses	1,684,565	2,090,592	4,599,068	6,139,730,000
Non-interest income:
Service charges and other fees	205,592	197,267	563,084	542,986
Mortgage banking activities	441,445	218,671	876,090	637,116
Net loss on sale of premises and equipment	(698)	(544)	(698)	(544)
Net loss on real estate owned and other repossessed assets	(9,993)	(7,937)	(80,098)	(54,368)
Net gain on sale of investment securities	47,017		47,017
Other	119,519	61,845	234,961	186,447
Total non-interest income	802,882	469,302	1,640,356	1,311,637
Non-interest expense:
Compensation and employee benefits	1,243,598	1,128,911	3,692,139	3,457,099
FDIC Insurance Premiums	47,190	54,061	141,314	176,448
Advertising	29,005	30,924	111,489	87,763
Occupancy	239,900	264,703	719,148	802,398
Amortization of intangible assets	29,646	73,113	146,893	219,338
Service bureau charges	73,495	69,383	229,149	224,881
Professional services	89,559	108,471	297,403	329,619
Other	324,903	595,594	1,183,209	1,495,664
Total non-interest expense	2,077,296	2,325,160	6,520,744	6,793,210
Income (loss) before income tax expense or benefit	410,151	234,734	(281,320)	658,157
Income tax expense (benefit)	137,375		(884,822)
Net income	272,776	234,734	603,502	658,157
Other comprehensive income:
Net income	272,776	234,734	603,502	658,157
Change in unrealized gain on available-for-sale securities, net of tax	(48,099)	283,537	118,587	623,264
Comprehensive income	$ 224,677	$ 518,271	$ 722,089	$ 1,281,421
Net income per share
Basic	$ 0.09	$ 0.08	$ 0.21	$ 0.23
Diluted	$ 0.09	$ 0.08	$ 0.21	$ 0.23
Weighted average number of shares outstanding
Basic	2,884,049	2,884,049	2,884,049	2,884,049
Including dilutive stock options
Dividends per common share

XML

DIVIDENDS

9 Months Ended

Sep. 30, 2012

DIVIDENDS [Abstract]

DIVIDENDS

Note 5-DIVIDENDS

We are dependent primarily upon the Bank for earnings and funds to pay dividends on common stock. The payment of dividends also is subject to legal and regulatory restrictions. Any payment of dividends in the future will depend, in large part, on the Bank's earnings, capital requirements, financial condition and other factors considered by the Board of Directors.

XML

LOANS

9 Months Ended

Sep. 30, 2012

LOANS [Abstract]

LOANS

Note 4-LOANS

The following table sets forth the composition of our loan portfolio by loan type at the dates indicated.

	At September 30,			At December 31,
	2012			2011
	(in thousands)
Real estate loans:
Residential mortgage	$	65,552		$	66,599
Commercial loans:
Secured by real estate		53,568			54,202
Other		8,414			7,002
Total commercial loans		61,982			61,204
Consumer loans:
Secured by real estate		11,562			13,395
Other		1,275			1,477
Total consumer loans		12,837			14,872
Total gross loans	$	140,371		$	142,675
Less:
Net deferred loan fees		(314	)		(273	)
Allowance for loan losses		(1,684	)		(1,518	)
Total loans, net	$	138,373		$	140,884

The following table illustrates the contractual aging of the recorded investment in past due loans by class of loans as of September 30, 2012 and December 31, 2011:

Contractual Aging of Recorded Balance in Past Due Loans by Class of Loan
As of September 30, 2012
													Recorded
													Investment > 90
	30 - 59 Days		60 - 89 Days		Greater than 90		Total				Total Financing		Days and
	Past Due		Past Due		Days		Past Due		Current		Receivables		Accruing
	( in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	314	$	487	$	-
Commercial Real Estate - other		1,055		29		425		1,509		51,572		53,081		-
Commercial - non real estate		5		-		-		5		8,409		8,414		-
Consumer:
Consumer - Real Estate		149		9		112		270		11,292		11,562		-
Consumer - Other		5		5		16		26		1,249		1,275		15
Residential:
Residential		2,098		916		1,243		4,257		61,295		65,552		201
Total	$	3,312	$	959	$	1,969	$	6,240	$	134,131	$	140,371	$	216
As of December 31, 2011
													Recorded
					Greater than								Investment > 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Financing		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Receivables		Accruing
	( in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	91	$	264	$	-
Commercial Real Estate - other		3,808		339		245		4,392		49,546		53,938		-
Commercial - non real estate		46		29		-		75		6,927		7,002		-
Consumer:
Consumer - Real Estate		394		34		128		556		12,839		13,395		-
Consumer - Other		5		25		-		30		1,447		1,477		-
Residential:
Residential		3,055		1,501		1,969		6,525		60,074		66,599		238
Total	$	7,308	$	1,928	$	2,515	$	11,751	$	130,924	$	142,675	$	238

The Bank uses an eight tier risk rating system to grade its commercial loans. The grade of a loan may change during the life of the loans. The risk ratings are described as follows:

Risk Grade 1 (Excellent) - Prime loans based on liquid collateral, with adequate margin or supported by strong financial statements. Probability of serious financial deterioration is unlikely. High liquidity, minimum risk, strong ratios, and low handling costs are common to these loans. This classification also includes all loans secured by certificates of deposit or cash equivalents.

Risk Grade 2 (Good) - Desirable loans of somewhat less stature than Grade 1, but with strong financial statements. Probability of serious financial deterioration is unlikely. These loans possess a sound repayment source (and/or a secondary source). These loans represent less than the normal degree of risk associated with the type of financing contemplated.

Risk Grade 3 (Satisfactory) - Satisfactory loans of average risk - may have some minor deficiency or vulnerability to changing economic conditions, but still fully collectible. There may be some minor weakness but with offsetting features or other support readily available. These loans present a normal degree of risk associated with the type of financing. Actual and projected indicators and market conditions provide satisfactory assurance that the credit shall perform in accordance with agreed terms.

Risk Grade 4 (Acceptable) - Loans considered satisfactory, but which are of slightly "below average" credit risk due to financial weaknesses or uncertainty. The loans warrant a somewhat higher than average level of monitoring to insure that weaknesses do not advance. The level of risk is considered acceptable and within normal underwriting guidelines, so long as the loan is given the proper level of management supervision.

Risk Grade 4.5 (Monitored) - Loans are considered "below average" and monitored more closely due to some credit deficiency that poses additional risk but is not considered adverse to the point of being a "classified" credit. Possible reasons for additional monitoring may include characteristics such as temporary negative debt service coverage due to weak economic conditions; borrower may have experienced recent losses from operations, declining equity and/or increasing leverage, or marginal liquidity that may affect long-term sustainability. Loans of this grade have a higher degree of risk and warrant close monitoring to insure against further deterioration. In any tables presented subsequently, Risk Grade 4.5 credits are included with Risk Grade 4 credits.

Risk Grade 5 (Other Assets Especially Mentioned) (OAEM) - Loans which possess some credit deficiency or potential weakness, which deserve close attention, but which do not yet warrant substandard classification. Such loans pose unwarranted financial risk that, if not corrected, could weaken the loan and increase risk in the future.

Risk Grade 6 (Substandard) - Loans are "substandard" whose full, final collectability does not appear to be a matter of serious doubt, but which nevertheless portray some form of well defined weakness that requires close supervision by Bank management. The noted weaknesses involve more than normal banking risk. One or more of the following characteristics may be exhibited in loans classified Substandard: (1) Loans possess a defined credit weakness and the likelihood that the loan shall be paid from the primary source of repayment is uncertain; (2) Loans are not adequately protected by the current net worth and/or paying capacity of the obligor; (3) primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment such as collateral liquidation or guarantees; (4) distinct possibility that the Bank shall sustain some loss if deficiencies are not corrected; (5) unusual courses of action are needed to maintain a high probability of repayment; (6) the borrower is not generating enough cash flow to repay loan principal, however, continues to make interest payments; (7) the Bank is forced into a subordinated or unsecured position due to flaws in documentation; (8) loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to normal loan terms; (9) the Bank is contemplating foreclosure or legal action due to the apparent deterioration in the loan; or (10) there is a significant deterioration in the market conditions and the borrower is highly vulnerable to these conditions.

Grade 7 (Doubtful) - Loans have all the weaknesses of those classified Substandard. Additionally, however, these weaknesses make collection or liquidation in full, based on existing conditions, improbable. Loans in this category are typically not performing in conformance with established terms and conditions. Full repayment is considered "Doubtful", but extent of loss is not currently determinable.

Risk Grade 8 (Loss) - Loans are considered uncollectible and of such little value, that continuing to carry them as an asset on the Bank's financial statements is not feasible.

The following table presents the risk category of loans by class of loans based on the most recent analysis performed as of September 30, 2012 and December 31, 2011:

As of September 30, 2012
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	-
3		-		12,070		2,223
4		314		29,987		5,782
5		-		2,736		-
6		173		8,288		409
7		-		-		-
8		-		-		-
Total	$	487	$	53,081	$	8,414
As of December 31, 2011
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	7
3		-		10,911		2,178
4		91		31,926		4,512
5		-		1,078		-
6		173		10,023		305
7		-		-		-
8		-		-		-
Total	$	264	$	53,938	$	7,002

For residential real estate and other consumer credit the Company also evaluates credit quality based on the aging status of the loan and by payment activity. Loans 60 or more days past due are monitored by the collection committee.

The following tables present the risk category of loans by class based on the most recent analysis performed as of September 30, 2012 and December 31, 2011:

As of September 30, 2012			As of December 31, 2011
	(dollars in thousands)
	Residential			Residential
Grade			Grade
Pass	$	63,796	Pass	$	63,941
Special Mention		-	Special Mention		-
Substandard		1,756	Substandard		2,658
Total	$	65,552	Total	$	66,599

As of September 30, 2012
	(dollars in thousands)
	Consumer -
	Real Estate		Consumer - Other
Performing	$	11,440	$	1,259
Nonperforming		122		16
Total	$	11,562	$	1,275
As of December 31, 2011
	(dollars in thousands)
	Consumer -
	Real Estate		Consumer - Other
Performing	$	13,248	$	1,473
Nonperforming		147		4
Total	$	13,395	$	1,477

The following table presents the recorded investment in non-accrual loans by class as of September 30, 2012 and December 31, 2011:

	As of
	September 30, 2012		December 31, 2011
	(dollars in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		975		356
Commercial		-		-
Consumer:
Consumer - real estate		122		152
Consumer - other		1		-
Residential:
Residential		1,556		2,420
Total	$	2,827	$	3,101

The key features of the Company's loan modifications are determined on a loan-by-loan basis. Generally, our restructurings have related to interest rate reductions and loan term extensions. In the past the Company has granted reductions in interest rates, payment extensions and short-term payment forbearances as a means to maximize collectability of troubled credits. The Company's loan modifications are typically short-term in nature, although the Company would consider a long-term modification to ensure the long-term collectability of the credit. At a minimum, a borrower must make at least six consecutive timely payments before the Company would consider a return of a restructured loan to accruing status in accordance with Federal Deposit Insurance Corporation guidelines regarding restoration of credits to accrual status.

The Bank has classified approximately $3.1 million of its impaired loans as troubled debt restructurings as of September 30, 2012, as noted in the table below:

For the Three Months Ended
September 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Contracts		Investments		Investment
			(dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-
Commercial Real Estate - Other		-		-		-
Commercial - non real estate		2		1,914		1,454
Residential		-		-		-

For the Nine Months Ended
September 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Contracts		Investments		Investment
			(dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-
Commercial Real Estate - Other		-		-		-
Commercial - non real estate		4		3,542		3,052
Residential		-		-		-

The following table represents troubled debt restructurings that have subsequently defaulted for the nine-month period ended September 30, 2012. There were no such defaults during the three-month period ended September 30, 2012:

Troubled Debt Restructurings	Number of
That Subsequently Defaulted	Contracts		Recorded Investment
			(dollars in thousands)
Commercial Real Estate - Construction		-	$	-
Commercial Real Estate - Other		1		55
Commercial - non real estate		-		-
Residential		-		-

For the majority of the Bank's impaired loans, the Bank will apply the observable market price methodology. However, the Bank may also utilize a measurement incorporating the present value of expected future cash flows discounted at the loan's effective rate of interest. To determine observable market price, collateral asset values securing an impaired loan are periodically evaluated. Maximum time of re-evaluation is every 12 months. In this process, third party evaluations are obtained and heavily relied upon. Until such time that updated evaluations are received, the Bank may discount the collateral value used.

The Bank uses the following guidelines, as stated in policy, to determine when to realize a charge-off, whether a partial or full loan balance. A charge down in whole or in part is realized when unsecured consumer loans, credit card credits and overdraft lines of credit reach 90 days delinquency. At 120 days delinquency, secured consumer loans are charged down to the value of collateral, if repossession of the collateral is assured and/or in the process of repossession. Consumer mortgage loan deficiencies are charged down upon the sale of the collateral or sooner upon the recognition of collateral deficiency. Commercial credits are charged down at 90 days delinquency, unless an established and approved work-out plan is in place or litigation of the credit will likely result in recovery of the loan balance. Upon notification of bankruptcy, unsecured debt is charged off. Additional charge-offs may be realized as further unsecured positions are recognized.

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2012 and December 31, 2011:

							For the Three Months Ended				For the Nine Months Ended
Impaired Loans							September 30,				September 30,
As of September 30, 2012							2012				2012
							Average		Interest		Average		Interest
	Unpaid Principal		Recorded		Related		Recorded		Income		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized		Investment		Recognized
	(dollars in thousands)						(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-		173		-
Commercial Real Estate - Other		3,446		2,963		-		3,206		35		3,309		107
Consumer - Real Estate		31		26		-		29		-		31		-
Consumer - Other		2		1		-		3		-		4		-
Residential		1,831		1,511		-		1,657		-		1,666		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		-		-
Commercial Real Estate - Other		2,151		2,148		175		2,167		20		2,175		61
Consumer - Real Estate		96		96		21		96		-		96		-
Consumer - Other		-		-		-		-		-		-		-
Residential		45		45		5		45		-		45		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	5,597	$	5,111	$	175	$	5,373	$	55	$	5,484	$	168
Consumer - Real Estate	$	127	$	122	$	21	$	125	$	-	$	127	$	-
Consumer - Other	$	2	$	1	$	-	$	3	$	-	$	4	$	-
Residential	$	1,876	$	1,556	$	5	$	1,702	$	-	$	1,711	$	-
							For the Three Months Ended				For the Nine Months Ended
Impaired Loans							September 30,				September 30,
As of December 31, 2011							2011				2011
							Average		Interest		Average		Interest
	Unpaid Principal		Recorded		Related		Recorded		Income		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		286		-		286		-
Commercial Real Estate - Other		626		626		-		883		-		470		-
Consumer - Real Estate		171		152		-		83		-		71		-
Consumer - Other		0		0		-		6		-		10		-
Residential		2,017		1,640		-		1,967		-		1,899		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		687		-
Commercial Real Estate - Other		1,337		1,128		85		781		10		939		31
Consumer - Real Estate		-		-		-		10		-		72		-
Consumer - Other		-		-		-		-		-		-		-
Residential		813		780		199		675		-		875		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	286	$	-	$	973	$	-
Commercial Real Estate - Other	$	1,963	$	1,754	$	85	$	1,664	$	10	$	1,409	$	31
Consumer - Real Estate	$	171	$	152	$	-	$	93	$	-	$	143	$	-
Consumer - Other	$	-	$	-	$	-	$	6	$	-	$	10	$	-
Residential	$	2,830	$	2,420	$	199	$	2,642	$	-	$	2,774	$	-

The ALLL has a direct impact on the provision expense. An increase in the ALLL is funded through recoveries and provision expense.

Activity in the allowance for loan and lease losses was as follows for the quarter and year ended September 30, 2012 and December 31, 2011, respectively:

Allowance for Credit Losses and Recorded Investment in Financing Receivables
For the Three Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	-	$	770		$	40	$	140		$	15		$	808		$	-	$	1,773
Charge-offs		-		(138	)		-		(17	)		(20	)		(166	)		-	$	(341	)
Recoveries		-		2			-		6			3			7			-	$	18
Provision		35		(13	)		36		1			36			139			-	$	234
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	0	$	1,684
For the Nine Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	10	$	393		$	53	$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-		(265	)		-		(54	)		(29	)		(724	)		-	$	(1,072	)
Recoveries		-		10			-		14			8			17			-	$	49
Provision		25		483			23		24			9			625			-	$	1,189
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	0	$	1,684
Loan Balances Individually Evaluated for Impairment
As of September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	175		$	-	$	-		$	21		$	5		$	-	$	201
Ending balance: loans collectively evaluated for impairment	$	35	$	446		$	76	$	130		$	13		$	783		$	-	$	1,483
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-	$	-		$	-		$	-		$	-	$	-
Financing Receivables: Ending Balance	$	487	$	53,081		$	8,414	$	11,561		$	1,276		$	65,552		$	-	$	140,371
Ending balance: individually evaluated for impairment	$	173	$	2,573		$	-	$	174		$	1		$	1,556		$	-	$	4,477
Ending balance: loans collectively evaluated for impairment	$	314	$	50,508		$	8,414	$	11,387		$	1,275		$	63,996		$	-	$	135,894
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-	$	-		$	-		$	-		$	-	$	-

For the Three Months Ended September 30, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	164		$	1,062		$	152		$	218		$	22		$	573		$	-	$	2,191
Charge-offs		-			(210	)		-			(63	)		(1	)		(221	)		-	$	(495	)
Recoveries		-			-			-			4			1			20			-	$	25
Provision		(141	)		(234	)		(68	)		35			(3	)		344			-	$	(67	)
Ending Balance	$	23		$	618		$	84		$	194		$	19		$	716		$	-	$	1,654
For the Nine Months Ended September 30, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	535		$	1,281		$	192		$	228		$	59		$	536		$	-	$	2,831
Charge-offs		(94	)		(328	)		(6	)		(147	)		(19	)		(625	)		-	$	(1,219	)
Recoveries		-			3			-			27			8			23			-	$	61
Provision		(418	)		(338	)		(102	)		86			(29	)		782			-	$	(19	)
Ending Balance	$	23		$	618		$	84		$	194		$	19		$	716		$	-	$	1,654
Loan Balances Individually Evaluated for Impairment
As of September 30, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-		$	27		$	-		$	2		$	-		$	189		$	-	$	218
Ending balance: loans collectively evaluated for impairment	$	23		$	591		$	84		$	192		$	19		$	527		$	-	$	1,436
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-		$	-		$	-	$	-
Financing Receivables: Ending Balance	$	261		$	54,434		$	7,380		$	14,147		$	1,410		$	65,582		$	-	$	143,214
Ending balance: individually evaluated for impairment	$	173		$	1,658		$	-		$	90		$	5		$	2,625		$	-	$	4,551
Ending balance: loans collectively evaluated for impairment	$	88		$	52,777		$	7,380		$	14,057		$	1,405		$	62,957		$	-	$	138,664
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-		$	-		$	-	$	-

XML

SECURITIES (Amortized Cost and Estimated Market Value of Securities by Contract Maturity) (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale amortized cost, Due in one year or less	$ 1,847,000
Available for Sale amortized cost, Due after one year through five years	15,513,000
Available for Sale amortized cost, Due in five year through ten years	1,967,000
Available for Sale amortized cost, Due after ten years	326,000
Available for Sale amortized cost, Subtotal	19,653,000
Available for Sale, Amortized Cost	51,291,000	52,036,000
Held to Maturity, Due in one year or less	90,000
Held to Maturity amortized cost, Due after one year through five years	430,000
Held to Maturity amortized cost, Due in five year through ten years	660,000
Held to Maturity amortized cost, Due after ten years	1,215,000
Held to Maturity, Amortized cost	2,395,000
Available for sale market value, Due in one year or less	1,859,000
Available for sale market value, Due after one year through five years	15,798,000
Available for sale market value, Due in five year through ten years	2,030,000
Available for sale market value, Due after ten years	420,000
Available for sale market value, Subtotal	20,107,000
Available for Sale, Market Value	52,483,641	53,048,503
Held to maturity market value, Due in one year or less	91,000
Held to maturity market value, Due after one year through five years	461,000
Held to maturity market value, Due in five year through ten years	726,000
Held to maturity market value, Due after ten years	1,344,000
Held to maturity market value, Total	2,622,000
Equity Securities [Member]
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale, Amortized Cost	3,000	3,000
Available for Sale, Market Value	1,000	1,000
Mortgage-backed securities [Member]
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale, Amortized Cost	31,635,000	30,350,000
Available for Sale, Market Value	$ 32,376,000	$ 30,909,000

XML

STOCK-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2012

STOCK-BASED COMPENSATION [Abstract]

Summary of Stock Option Activity under Plan

			Weighted-Average
				Weighted-		Remaining
				Average		Contractual Term		Aggregate
Options	Shares			Exercise Price		(Years)		Intrinsic Value
Outstanding at January 1, 2012		182,682		$	9.47		4.3	$	-
Granted		-			N/A
Exercised		-			N/A
Forfeited or expired		(15,312	)	$	8.82
Oustanding at September 30, 2012		167,370		$	9.48		3.8	$	-
Options Exercisable at September 30, 2012		167,370		$	9.48		3.8	$	-

Summary of Status of Nonvested Options and Changes

				Weighted-Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2012		1,240		$	2.19
Granted		-			N/A
Vested		(1,240	)	$	2.19
Forfeited		-			N/A
Nonvested at September 30, 2012		-			N/A

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2012

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS

Note 8 - FAIR VALUE MEASUREMENTS

The fair value of financial assets and liabilities recorded at fair value is categorized in three levels. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. These levels are as follows:

Level 1 - Valuations based on quoted prices in active markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuations of assets and liabilities traded in less active dealer or broker markets. Valuations include quoted prices for similar assets and liabilities traded in the same market; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

Level 3 - Assets and liabilities with valuations that include methodologies and assumptions that may not be readily observable, including option pricing models, discounted cash flow models, yield curves and similar techniques. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities, but in all cases are corroborated by external data, which may include third-party pricing services.

The following table presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, and the valuation techniques used by the Company to determine those fair values.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at September 30, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2012
	(dollars in thousands)
Assets
Investment securities- available-for-sale:
US Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	10,776	$	-	$	10,776
Municipal obligations		-		8,172		-		8,172
Corporate bonds & other obligations				1,159				1,159
Mortgage-backed securities		-		32,376		-		32,376
Equity securities		-		1		-		1
Total investment securities - available-for-sale	$	-	$	52,484	$	-	$	52,484

Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2011
	(dollars in thousands)
Assets
Investment securities- available-for-sale:
US Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	14,863	$	-	$	14,863
Municipal obligations		-		7,276		-		7,276
Mortgage-backed securities		-		30,909		-		30,909
Equity securities		-		1		-		1
Total investment securities - available-for-sale	$	-	$	53,049	$	-	$	53,049

Fair value measurements of U.S. Government agencies and mortgage backed securities use pricing models that vary and may consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures.

There were no transfers between Levels 1 and 2 of the fair value hierarchy from December 31, 2011 to September 30, 2012. For the available for sale securities, the Company obtains fair value measurements from an independent third-party service.

The Company has assets that, under certain conditions, are subject to measurement at fair value on a nonrecurring basis. At September 30, 2012 and December 31, 2011, such assets consist primarily of impaired loans and other real estate owned. The Corporation has estimated the fair values of these assets using Level 3 inputs, specifically discounted cash flow projections.

Assets Measured at Fair Value on a Nonrecurring Basis at September 30, 2012
	Balance at September 30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
Impaired loans accounted for under ASC 310-10	$	3,380		-		-	$	3,380
Other real estate owned -residential mortgages	$	823		-		-	$	823
Other Real estate owned - commercial	$	344		-		-	$	344
Other Repossessed Assets	$	1,121					$	1,121
Total assets at fair value on a non-recurring basis							$	5,668

Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2011
	Balance at December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
Impaired loans accounted for under FASB ASC 310-10	$	1,927		-		-	$	1,927
Other real estate owned -residential mortgages	$	1,087		-		-	$	1,087
Other Real estate owned - commercial	$	1,015		-		-	$	1,015
Other repossessed assets	$	1,307					$	1,307
Total assets at fair value on a non-recurring basis							$	5,336

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash and Cash Equivalents - The carrying amounts of cash and short-term instruments approximate fair values.

Investment Securities - Fair value for the Bank's investment securities was determined using the market value in active markets, where available. When not available, fair values are estimated using the fair value hierarchy. In the fair value hierarchy, Level 2 fair values are determined using observable inputs other than Level 1 market prices, such as quoted prices for similar assets. Level 3 values are determined using unobservable inputs, such as discounted cash flow projections.

Loans Receivable - For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (e.g., one- to four-family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial, and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Loans Held For Sale - Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices.

Federal Home Loan Bank Stock - The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

Deposit Liabilities - The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Home Loan Bank Advances - The estimated fair value of the fixed and variable rate Federal Home Loan Bank advances are estimated by discounting the related cash flows using the rates currently available for similarly structured borrowings with similar maturities.

REPO Sweep Accounts - The fair values disclosed for REPO Sweeps are equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).

Accrued Interest - The carrying amounts of accrued interest approximate fair value.

The estimated fair values and related carrying or notional amounts of the Company's financial instruments are as follows:

September 30, 2012	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	3,286	$	3,286	$	-	$	-	$	3,286
Securities available for sale		52,484		-		52,484		-		52,484
Securities held to maturity		2,395		-		2,622		-		2,622
Loans and loans held for sale - Net		139,414		-		-		144,718		144,718
Federal Home Loan Bank stock		3,266		-		3,266		-		3,266
Accrued interest receivable		1,119		-		1,119		-		1,119
Financial liabilities:
Customer deposits		158,676		-		159,727		-		159,727
Federal Home Loan Bank advances		25,000		-		25,314		-		25,314
REPO sweep accounts		4,245		-		4,245		-		4,245
Accrued interest payable		111		-		111		-		111

December 31, 2011	Carrying Value		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	2,749	$	2,749
Securities available for sale		53,049		53,049
Securities held to maturity		2,435		2,665
Loans and loans held for sale - Net		140,884		146,018
Federal Home Loan Bank stock		3,266		3,266
Accrued interest receivable		1,149		1,149
Financial liabilities:
Customer deposits		150,649		151,693
Federal Home Loan Bank advances		34,500		34,827
REPO sweep accounts		5,592		5,592
Accrued interest payable		148		148

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STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2012

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

Note 6 - STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted FASB ASC 718-10, "Shareholder Based Payments", which requires that the grant-date fair value of awarded stock options be expensed over the requisite service period. The Company's 1996 Stock Option Plan (the "1996 Plan"), which was approved by shareholders, permits the grant of share options to purchase shares of common stock to its employees and directors for up to 127,491 shares of common stock (retroactively adjusted for the exchange ratio applied in the Company's 2005 stock offering and related second-step conversion). The Company's 2006 Stock-Based Incentive Plan (the "2006 Plan"), which was approved by shareholders, permits the award of up to 242,740 shares of common stock of which the maximum number to be granted as Stock Options is 173,386 and the maximum to be granted as Restricted Stock Awards is 69,354. Option awards are granted with an exercise price equal to the market price of the Company's stock at the date of grant. These option awards generally vest based on five years of continual service and have ten-year contractual terms. Certain options provide for accelerated vesting if there is a change in control (as defined in the Plans).

During the three and nine months ended September 30, 2012 the Company awarded no shares under the 2006 Stock-Based Incentive Plan. Shares issued under the 2006 Plan and exercised pursuant to the exercise of stock options may be either authorized but unissued shares or reacquired shares held by the Company as treasury stock.

Stock Options - A summary of option activity under the Plan during the nine months ended September 30, 2012 is presented below:

						Weighted-Average
				Weighted-		Remaining
				Average		Contractual Term		Aggregate
Options	Shares			Exercise Price		(Years)		Intrinsic Value
Outstanding at January 1, 2012		182,682		$	9.47		4.3	$	-
Granted		-			N/A
Exercised		-			N/A
Forfeited or expired		(15,312	)	$	8.82
Oustanding at September 30, 2012		167,370		$	9.48		3.8	$	-
Options Exercisable at September 30, 2012		167,370		$	9.48		3.8	$	-

The aggregate intrinsic value of outstanding options shown in the table above represents the total pretax intrinsic value (i.e. the difference between the Company's closing stock price of $3.96 on September 30, 2012 and the exercise price times the number of shares) that would have been received by the option holder had all option holders exercised their options on September 30, 2012. This amount changes based on the fair market value of the stock.

As of September 30, 2012 there was no unrecognized compensation cost related to nonvested options under the Plans. The total fair value of shares vested during the nine months ended September 30, 2012 was $4,052.

A summary of the status of the Company's nonvested options as of September 30, 2012, and changes during the nine months ended September 30, 2012, is presented below:

				Weighted-Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2012		1,240		$	2.19
Granted		-			N/A
Vested		(1,240	)	$	2.19
Forfeited		-			N/A
Nonvested at September 30, 2012		-			N/A

Restricted Stock Awards - As of September 30, 2012 there was no unrecognized compensation cost related to nonvested restricted stock awards under the Plans.

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COMMITMENTS TO EXTEND CREDIT

9 Months Ended

Sep. 30, 2012

COMMITMENTS TO EXTEND CREDIT [Abstract]

COMMITMENTS TO EXTEND CREDIT

Note 7 - COMMITMENTS TO EXTEND CREDIT

The Company is a party to credit-related 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, standby letters of credit, and commercial lines of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheet. The Company's exposure to credit loss is represented by the contracted amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At September 30, 2012, the Company had outstanding commitments to originate loans of $33.7 million. These commitments include the following:

	As of
	September 30, 2012
	(dollars in thousands)
Commitments to grant loans	$	20,090
Unfunded commitments under lines of credit		13,221
Commercial and standby letters of credit		404

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RECENT ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Sep. 30, 2012

RECENT ACCOUNTING PRONOUNCEMENTS [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

Note 9 - RECENT ACCOUNTING PRONOUNCEMENTS

ASC Topic 220: Comprehensive Income: Presentation of Comprehensive Income. On June 16, 2011, the FASB issued Accounting Standards Update (ASU) 2011-05. This ASU is intended to increase the prominence of other comprehensive income in financial statements. The new guidance does not change whether items are reported in net income or in other comprehensive income or whether and when items of other comprehensive income are reclassified to net income. ASU 2011-05 eliminates the option in current U.S. generally accepted accounting principles that permits the presentation of other comprehensive income in the statement of changes in equity. The new guidance in the ASU requires that an entity report comprehensive income in either a single continuous statement that presents the components of net income or a separate but consecutive statement. The new guidance is to be applied retrospectively and early adoption is permitted. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted this pronouncement as of the interim period ended June 30, 2012. The adoption of this pronouncement did not have a material impact on the Company's financial statements.

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LOANS (Loans Individually Evaluated for Impairment by Class of Loans) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Commercial loans [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded
Recorded Investment, With no related allowance recorded
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded
Interest Income Recognized, With no related allowance recorded
Unpaid Principal Balance, With a specific allowance recorded
Recorded Investment, With a specific allowance recorded
Related Allowance, With a specific allowance recorded
Average Recorded Investment, With a specific allowance recorded
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total
Recorded Investment, total
Related Allowance, total
Average Recorded Investment, total
Interest Income Recognized, total
Commercial Real Estate - construction [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	1,589		1,589		1,589
Recorded Investment, With no related allowance recorded	173		173		173
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	173	286	173	286
Interest Income Recognized, With no related allowance recorded
Unpaid Principal Balance, With a specific allowance recorded
Recorded Investment, With a specific allowance recorded
Related Allowance, With a specific allowance recorded
Average Recorded Investment, With a specific allowance recorded				687
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total	1,589		1,589		1,589
Recorded Investment, total	173		173		173
Related Allowance, total
Average Recorded Investment, total	173	286	173	973
Interest Income Recognized, total
Commercial Real Estate - other [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	3,446		3,446		626
Recorded Investment, With no related allowance recorded	2,963		2,963		626
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	3,206	883	3,309	470
Interest Income Recognized, With no related allowance recorded	35		107
Unpaid Principal Balance, With a specific allowance recorded	2,151		2,151		1,337
Recorded Investment, With a specific allowance recorded	2,148		2,148		1,128
Related Allowance, With a specific allowance recorded	175		175		85
Average Recorded Investment, With a specific allowance recorded	2,167	781	2,175	939
Interest Income Recognized, With a specific allowance recorded	20	10	61	31
Unpaid Principal Balance, total	5,597		5,597		1,963
Recorded Investment, total	5,111		5,111		1,754
Related Allowance, total	175		175		85
Average Recorded Investment, total	5,373	1,664	5,484	1,409
Interest Income Recognized, total	55	10	168	31
Consumer - Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	31		31		171
Recorded Investment, With no related allowance recorded	26		26		152
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	29	83	31	71
Interest Income Recognized, With no related allowance recorded
Unpaid Principal Balance, With a specific allowance recorded	96		96
Recorded Investment, With a specific allowance recorded	96		96
Related Allowance, With a specific allowance recorded	21		21
Average Recorded Investment, With a specific allowance recorded	96	10	96	72
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total	127		127		171
Recorded Investment, total	122		122		152
Related Allowance, total	21		21
Average Recorded Investment, total	125	93	127	143
Interest Income Recognized, total
Consumer - Other [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	2		2
Recorded Investment, With no related allowance recorded	1		1
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	3	6	4	10
Interest Income Recognized, With no related allowance recorded
Unpaid Principal Balance, With a specific allowance recorded
Recorded Investment, With a specific allowance recorded
Related Allowance, With a specific allowance recorded
Average Recorded Investment, With a specific allowance recorded
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total	2		2
Recorded Investment, total	1		1
Related Allowance, total
Average Recorded Investment, total	3	6	4	10
Interest Income Recognized, total
Residential [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	1,831		1,831		2,017
Recorded Investment, With no related allowance recorded	1,511		1,511		1,640
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	1,657	1,967	1,666	1,899
Interest Income Recognized, With no related allowance recorded
Unpaid Principal Balance, With a specific allowance recorded	45		45		813
Recorded Investment, With a specific allowance recorded	45		45		780
Related Allowance, With a specific allowance recorded	5		5		199
Average Recorded Investment, With a specific allowance recorded	45	675	45	875
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total	1,876		1,876		2,830
Recorded Investment, total	1,556		1,556		2,420
Related Allowance, total	5		5		199
Average Recorded Investment, total	1,072	2,642	1,711	2,774
Interest Income Recognized, total

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2012

FAIR VALUE MEASUREMENTS [Abstract]

Assets and Liabilities Measured at Fair Value on Recurring Basis

Assets and Liabilities Measured at Fair Value on a Recurring Basis at September 30, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2012
	(dollars in thousands)
Assets
Investment securities- available-for-sale:
US Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	10,776	$	-	$	10,776
Municipal obligations		-		8,172		-		8,172
Corporate bonds & other obligations				1,159				1,159
Mortgage-backed securities		-		32,376		-		32,376
Equity securities		-		1		-		1
Total investment securities - available-for-sale	$	-	$	52,484	$	-	$	52,484

Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2011
	(dollars in thousands)
Assets
Investment securities- available-for-sale:
US Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	14,863	$	-	$	14,863
Municipal obligations		-		7,276		-		7,276
Mortgage-backed securities		-		30,909		-		30,909
Equity securities		-		1		-		1
Total investment securities - available-for-sale	$	-	$	53,049	$	-	$	53,049

Assets Measured at Fair Value on Nonrecurring Basis

Assets Measured at Fair Value on a Nonrecurring Basis at September 30, 2012
	Balance at September 30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
Impaired loans accounted for under ASC 310-10	$	3,380		-		-	$	3,380
Other real estate owned -residential mortgages	$	823		-		-	$	823
Other Real estate owned - commercial	$	344		-		-	$	344
Other Repossessed Assets	$	1,121					$	1,121
Total assets at fair value on a non-recurring basis							$	5,668

Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2011
	Balance at December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
Impaired loans accounted for under FASB ASC 310-10	$	1,927		-		-	$	1,927
Other real estate owned -residential mortgages	$	1,087		-		-	$	1,087
Other Real estate owned - commercial	$	1,015		-		-	$	1,015
Other repossessed assets	$	1,307					$	1,307
Total assets at fair value on a non-recurring basis							$	5,336

Estimated Fair Values and Related Carrying or Notional Amounts of Financial Instruments

September 30, 2012	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	3,286	$	3,286	$	-	$	-	$	3,286
Securities available for sale		52,484		-		52,484		-		52,484
Securities held to maturity		2,395		-		2,622		-		2,622
Loans and loans held for sale - Net		139,414		-		-		144,718		144,718
Federal Home Loan Bank stock		3,266		-		3,266		-		3,266
Accrued interest receivable		1,119		-		1,119		-		1,119
Financial liabilities:
Customer deposits		158,676		-		159,727		-		159,727
Federal Home Loan Bank advances		25,000		-		25,314		-		25,314
REPO sweep accounts		4,245		-		4,245		-		4,245
Accrued interest payable		111		-		111		-		111

December 31, 2011	Carrying Value		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	2,749	$	2,749
Securities available for sale		53,049		53,049
Securities held to maturity		2,435		2,665
Loans and loans held for sale - Net		140,884		146,018
Federal Home Loan Bank stock		3,266		3,266
Accrued interest receivable		1,149		1,149
Financial liabilities:
Customer deposits		150,649		151,693
Federal Home Loan Bank advances		34,500		34,827
REPO sweep accounts		5,592		5,592
Accrued interest payable		148		148

XML

LOANS (Composition of Loan Portfolio by Loan Type) (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	$ 140,371,000	$ 142,675,000	$ 143,214,000
Net deferred loan fees	(314,000)	(273,000)
Allowance for loan losses	(1,683,731)	(1,517,695)
Total loans, net	138,373,228	140,883,591
Residential [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	65,552,000	66,599,000	65,582,000
Commercial loans Secured by real estate [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	53,568,000	54,202,000
Commercial - non real estate [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	8,414,000	7,002,000	7,380,000
Commercial loans [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	61,982,000	61,204,000
Consumer - Real Estate [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	11,562,000	13,395,000	14,147,000
Consumer - Other [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	1,275,000	1,477,000
Consumer Loans [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	$ 12,837,000	$ 14,872,000

XML

FAIR VALUE MEASUREMENTS (Assets and Liabilities Measured at Fair Value on Recurring Basis) (Details) (Available-for-sale Securities [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	$ 52,484	$ 53,049
US Treasury securities and obligations of U.S. government corporations and agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	10,776	14,863
Municipal Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	8,172	7,276
Corporate bonds and other obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	1,159
Mortgage-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	32,376	30,909
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	1	1
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | US Treasury securities and obligations of U.S. government corporations and agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Municipal Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Corporate bonds and other obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Mortgage-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	52,484	53,049
Significant Other Observable Inputs (Level 2) [Member] | US Treasury securities and obligations of U.S. government corporations and agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	10,776	14,863
Significant Other Observable Inputs (Level 2) [Member] | Municipal Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	8,172	7,276
Significant Other Observable Inputs (Level 2) [Member] | Corporate bonds and other obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	1,159
Significant Other Observable Inputs (Level 2) [Member] | Mortgage-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	32,376	30,909
Significant Other Observable Inputs (Level 2) [Member] | Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	1	1
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Significant Unobservable Inputs (Level 3) [Member] | US Treasury securities and obligations of U.S. government corporations and agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Significant Unobservable Inputs (Level 3) [Member] | Municipal Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Significant Unobservable Inputs (Level 3) [Member] | Corporate bonds and other obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Significant Unobservable Inputs (Level 3) [Member] | Mortgage-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Significant Unobservable Inputs (Level 3) [Member] | Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets

XML

Consolidated Statement of Changes in Stockholders' Equity (USD $)	Total	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Unearned Compensation	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]
Balance at Dec. 31, 2011	$ 24,568,794	$ 31,918	$ (2,963,918)	$ 23,852,702	$ (556)	$ 2,980,176	$ 668,472
Cash paid in lieu of fractional shares	(20)			(20)
Stock Options/MRP shares expensed	1,766			1,210	556
Net income	603,502					603,502
Change in unrealized gain on available-for-sale securities (net of tax of $61,090)	118,587						118,587
Balance at Sep. 30, 2012	$ 25,292,628	$ 31,918	$ (2,963,918)	$ 23,853,891		$ 3,583,678	$ 787,059

XML

SECURITIES

9 Months Ended

Sep. 30, 2012

SECURITIES [Abstract]

SECURITIES

Note 3-SECURITIES

Investment securities have been classified according to management's intent. The carrying value and estimated fair value of securities are as follows:

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	10,700	$	76	$	-		$	10,776
Municipal obligations		7,806		377		(11	)		8,172
Corporate bonds & other obligations		1,147		12		-			1,159
Mortgage-backed securities		31,635		783		(42	)		32,376
Equity securities		3		-		(2	)		1
Total	$	51,291	$	1,248	$	(55	)	$	52,484
Securities Held to Maturity
Municipal obligations	$	2,395	$	227	$	-		$	2,622

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	14,756	$	108	$	(1	)	$	14,863
Municipal obligations		6,927		361		(12	)		7,276
Mortgage-backed securities		30,350		603		(44	)		30,909
Equity securities		3		-		(2	)		1
Total	$	52,036	$	1,072	$	(59	)	$	53,049
Securities Held to Maturity
Municipal obligations	$	2,435	$	230	$	-		$	2,665

The amortized cost and estimated market value of securities at September 30, 2012, by contract maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities with no specified maturity date are separately stated.

	September 30, 2012
	Amortized Cost		Market Value
	(in thousands)
Available For Sale:
Due in one year or less	$	1,847	$	1,859
Due after one year through five years		15,513		15,798
Due in five year through ten years		1,967		2,030
Due after ten years		326		420
Subtotal		19,653		20,107
Equity securities		3		1
Mortgage-backed securities		31,635		32,376
Total	$	51,291	$	52,484
Held To Maturity:
Due in one year or less	$	90	$	91
Due after one year through five years		430		461
Due in five year through ten years		660		726
Due after ten years		1,215		1,344
Total	$	2,395	$	2,622

At September 30, 2012 and December 31, 2011, securities with a carrying value and fair value of $41,891,000 and $31,085,000, respectively, were pledged to secure certain deposit accounts, FHLB advances and our line of credit at the Federal Reserve.

Gross proceeds from the sale of securities for the nine-months ended September 30, 2012 and 2011 were $1,553,000 and $0, respectively, resulting in gross gains of $54,000 and $0, respectively and gross losses of $7,000 and $0, respectively.

The following is a summary of temporarily impaired investments that have been impaired for less than and more than twelve months as of September 30, 2012 and December 31, 2011:

	September 30, 2012
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		12 months			Fair Value		12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	-	$	-		$	-	$	-
Municipal obligations		584		(11	)		-		-
Mortgage-backed securities		624		(11	)		1,160		(31	)
Equity securities		-		-			1		(2	)
Total	$	1,208	$	(22	)	$	1,161	$	(33	)
Held to Maturity:
Municipal obligations	$	-	$	-		$	-	$	-
	December 31, 2011
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		12 months			Fair Value		12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	1,999	$	(1	)	$	-	$	-
Municipal obligations		646		(12	)		-		-
Mortgage-backed securities		8,137		(27	)		1,458		(17	)
Equity securities		-		-			1		(2	)
Total	$	10,782	$	(40	)	$	1,459	$	(19	)
Held to Maturity:
Municipal notes	$	-	$	-		$	-	$	-

The unrealized losses on the securities held in the portfolio are not considered other than temporary and have not been recognized into income. This decision is based on the Company's ability and intent to hold any potentially impaired security until maturity. The performance of the security is based on the contractual terms of the agreement, the extent of the impairment and the financial condition and credit quality of the issuer. The decline in market value is considered temporary and a result of changes in interest rates and other market variables.

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LOANS (Contractual Aging of Recorded Investment in Past Due Loans by Class of Loans) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	$ 3,312	$ 7,308
60-89 Days past due	959	1,928
Greater than 90 days past due	1,969	2,515
Total past due	6,240	11,751
Current	134,131	130,924
Total financing receivables	140,371	142,675	143,214
Recorded investment > 90 days and accruing	216	238
Commercial Real Estate - construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due
60-89 Days past due
Greater than 90 days past due	173	173
Total past due	173	173
Current	314	91
Total financing receivables	487	264
Recorded investment > 90 days and accruing
Commercial Real Estate - other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	1,055	3,808
60-89 Days past due	29	339
Greater than 90 days past due	425	245
Total past due	1,509	4,392
Current	51,572	49,546
Total financing receivables	53,081	53,938
Recorded investment > 90 days and accruing
Commercial - non real estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	5	46
60-89 Days past due		29
Greater than 90 days past due
Total past due	5	75
Current	8,409	6,927
Total financing receivables	8,414	7,002	7,380
Recorded investment > 90 days and accruing
Consumer - Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	149	394
60-89 Days past due	9	34
Greater than 90 days past due	112	128
Total past due	270	556
Current	11,292	12,839
Total financing receivables	11,562	13,395	14,147
Recorded investment > 90 days and accruing
Consumer - Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	5	5
60-89 Days past due	5	25
Greater than 90 days past due	16
Total past due	26	30
Current	1,249	1,447
Total financing receivables	1,275	1,477
Recorded investment > 90 days and accruing	15
Residential [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	2,098	3,055
60-89 Days past due	916	1,501
Greater than 90 days past due	1,243	1,969
Total past due	4,257	6,525
Current	61,295	60,074
Total financing receivables	65,552	66,599	65,582
Recorded investment > 90 days and accruing	$ 201	$ 238

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STOCK-BASED COMPENSATION (Summary of Option Activity under Plan) (Details) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Stock options, outstanding:
Beginning balance	182,682
Granted
Exercised
Forfeited or expired	(15,312)
Ending balance	167,370	182,682
Options Exercisable, Ending balance	167,370
Weighted average exercise price:
Beginning Balance	$ 9.47
Forfeited or expired	$ 8.82
Ending Balance	$ 9.48	$ 9.47
Weighted average exercise price, exercisable	$ 9.48
Weighted average remaining contractual term (years)
Weighted average remaining contractual term, outstanding	3 years 11 months 23 days	4 years 3 months 18 days
Weighted average remaining contractual term, options exercisable	3 years 11 months 23 days
Aggregate intrinsic value
Aggregate intrinsic value outstanding, beginning balance
Aggregate intrinsic value outstanding, ending balance
Aggregate intrinsic value, exercisable

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COMMITMENTS TO EXTEND CREDIT (Tables)

9 Months Ended

Sep. 30, 2012

COMMITMENTS TO EXTEND CREDIT [Abstract]

Outstanding Commitments to Originate Loans

As of
	September 30, 2012
	(dollars in thousands)
Commitments to grant loans	$	20,090
Unfunded commitments under lines of credit		13,221
Commercial and standby letters of credit		404