10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the Fiscal Year Ended December 31, 2012

OR

 ¨  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 For the transition period from _______________ to ______________________

Commission File Number: 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 Number)
100 S. Second Avenue, Alpena, Michigan	49707
(Address of Principal Executive Offices)	Zip Code

(989) 356-9041

(Registrant's telephone number)

Securities Registered Pursuant to Section 12(b) of the Act:

Common Stock, par value $.01 per share	The Nasdaq Stock Market LLC
(Title of Class)	(Name of Exchange of Which Registered)

Securities Registered Pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-know seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨.   NO x.

Indicate by check mark if the registrant in not required to file reports pursuant to Section 13 or 15(d) of the Act.

YES ¨.   NO x.

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past twelve 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or nay amendments to this Form 10-K.  x.

Indicate by check mark whether the registrant is a large 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 by Rule 12b-2 of the Exchange Act). YES ¨.   NO x.

The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the last sale price on June 30, 2012 ($3.75 per share) was $9.0 million.

As of March 29, 2013, there were issued and outstanding 2,884,049 shares of the registrant's common stock.

DOCUMENTS INCORPORATED BY REFERENCE

1. Proxy Statement for the 2013 Annual Meeting of Stockholders (Parts I and III).

2. Annual Report to Shareholders for the Year Ended December 31, 2012 (Part II).

TABLE OF CONTENTS

PART I
ITEM 1	BUSINESS	3
ITEM 1A	RISK FACTORS	32
ITEM 1B	UNRESOLVED STAFF COMMENTS	33
ITEM 2	PROPERTIES	33
ITEM 3	LEGAL PROCEEDINGS	33
ITEM 4	MINE SAFETY DISCLOSURES	33
PART II
ITEM 5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	33
ITEM 6	SELECTED FINANCIAL DATA	34
ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34
ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	34
ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	34
ITEM 9A	CONTROLS AND PROCEDURES	34
ITEM 9B	OTHER INFORMATION	35
PART III
ITEM 10	DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	35
ITEM 11	EXECUTIVE COMPENSATION	35
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BEENFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	35
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	35
ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES	36
PART IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	36
	SIGNATURES	37

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PART I

ITEM 1.          BUSINESS

Private Securities Litigation Reform Act Safe Harbor Statement

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1955, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” ”expect,” “will,” “may,” and words of similar meaning. These forward-looking statements include, but are not limited to:

· statements of our goals, intentions and expectations;

· statements regarding our business plans, prospects, growth and operating strategies;

· statements regarding the asset quality of our loan and investment portfolios; and

· estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Form 10-K.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

· general economic conditions, either nationally or in our market areas, that are worse than expected;

· competition among depository and other financial institutions;

· inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

· adverse changes in the securities markets;

· changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

· our ability to enter new markets successfully and capitalize on growth opportunities;

· our ability to successfully integrate acquired entities;

· changes in consumer spending, borrowing and savings habits;

· changes in accounting policies and practices, as may be adopted by the regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

· changes in our organization, compensation and benefit plans;

· changes in our financial condition or results or operations that reduce capital available to pay dividends;

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· regulatory changes or actions; and

· changes in the financial condition or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different

from the results indicated by these forward-looking statements.

First Federal of Northern Michigan Bancorp, Inc.

First Federal of Northern Michigan Bancorp, Inc. is a Maryland corporation that owns all of the outstanding shares of common stock of First Federal of Northern Michigan. At December 31, 2012, First Federal of Northern Michigan Bancorp, Inc. had consolidated assets of $213.8 million, deposits of $158.4 million and stockholders’ equity of $24.4 million. As of December 31, 2012, First Federal of Northern Michigan Bancorp, Inc. had 2,884,049 shares of common stock issued and outstanding. First Federal of Northern Michigan Bancorp, Inc.’s executive offices are located at 100 South Second Avenue, Alpena, Michigan 49707. Its phone number at that address is (800) 498-0013.

The Company maintains a website at www.first-federal.com that includes important information on our Company, including a list of our products and services, branch locations and current financial information. In addition, we make available, without charge, through our website, a link to our filings with the SEC, including copies of annual reports on Form 10-K, quarterly reports in Form 10-Q, current reports in Form 8-K, and amendments to these filings, if any. Information on our website should not be considered a part of this Annual Report.

First Federal of Northern Michigan

First Federal of Northern Michigan is a full-service, community-oriented savings bank that provides financial services to individuals, families and businesses from eight full-service facilities located in Alpena, Cheboygan, Emmet, Iosco, Otsego, Montmorency and Oscoda Counties, Michigan. First Federal of Northern Michigan was chartered in 1957, and reorganized into the mutual holding company structure in 1994. In 2000, First Federal of Northern Michigan became the wholly owned subsidiary of Alpena Bancshares, Inc., our predecessor company, and in April 2005 we completed our “second step” mutual-to-stock conversion and formed our current ownership structure.

First Federal of Northern Michigan’s business consists primarily of accepting deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in one- to four-family residential mortgage loans, commercial real estate loans, commercial business loans, consumer loans and in investment securities and mortgage-backed securities.

First Federal of Northern Michigan’s executive offices are located at 100 South Second Avenue, Alpena, Michigan 49707. Its phone number at that address is (800) 498-0013.

Market Area and Competition

First Federal of Northern Michigan conducts operations through its main office in Alpena, Michigan, which is located in the northeastern lower peninsula of Michigan, and through its seven other branch offices in Michigan. The population of Alpena County, from which the majority of our deposits are drawn, has decreased approximately 5.4% since 2000, and currently is approximately 30,000. The population of our primary market area, which includes Alpena County and seven surrounding counties, was estimated to be approximately 179,000 in 2011, a decrease of less than 1% from approximately 180,000 according to the 2010 census. Median household income for the counties which comprised our market area in 2011 ranged from approximately $31,500 - $48,000, which represented moderate increases from 2010 levels in most counties in our market area. Median household income for our entire market area was below the national level of $50,054 and below the Michigan level of $48,879 in all counties in our market area, reflecting the largely rural nature of our market area and the absence of more densely populated urban and suburban areas. Household income levels are not expected to increase substantially in our market area in the near future. The unemployment rate in our primary market, Alpena County, was 9.6% for December 2012, but ranged from 11.1% - 16.5% across the rest of our primary market area, as compared to 7.6% nationally and 8.9% for Michigan (all numbers not seasonally adjusted).

Alpena is the largest city located in the northeastern lower peninsula of Michigan. This area has long been associated with agricultural, wood and concrete industries. Tourism has also been a major industry in our primary market area. All of these industries tend to be seasonal and are strongly affected by state and national economic conditions.

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Major employers in our primary market area include various public schools and governmental agencies, Alpena Regional Medical Center, Besser Company (a manufacturer of concrete products equipment), Lafarge Corporation (an international limestone mining and cement producer), Panel Processing (a peg board manufacturer), Treetops Sylvan Resort (an operator of resort properties), Garland Resort (an operator of resort properties and golf courses), Otsego Memorial Hospital, Decorative Panels International (a hardboard manufacturer), OMNI Metalcraft Corp. (a diversified manufacturer), and various other small companies.

As of December 31, 2012, First Federal of Northern Michigan was the only thrift institution headquartered in our market area. We encounter strong competition both in attracting deposits and in originating real estate and other loans. Our most direct competition for deposits has historically come from commercial banks, other savings institutions, and credit unions in our market area. Competition for loans comes from such financial institutions. We expect continued strong competition in the foreseeable future, including the “super-regional” banks currently in our markets, from internet banks, and from credit unions in many of our markets. We compete for savings deposits by offering depositors a high level of personal service and a wide range of competitively priced financial products. We compete for real estate loans primarily on the basis of the interest rates and fees we charge and through advertising. Strong competition for deposits and loans may limit our ability to grow and may adversely affect our profitability in the future.

Lending Activities

General. The largest part of our loan portfolio is mortgage loans secured by one- to four-family residential real estate. In recent years, we have sold into the secondary mortgage market most of the fixed-rate conventional one- to four-family mortgage loans that we originate that have terms of 15 years or more. We retain the servicing on a majority of the mortgage loans that we sell. To a lesser extent, we also originate commercial loans, commercial real estate loans and consumer loans. At December 31, 2012, we had total loans of $141.0 million, of which $66.5 million, or 47.2% were one- to four-family residential real estate mortgage loans, $54.7 million, or 38.8% were commercial real estate loans, and $8.1 million, or 5.7%, were commercial loans. Other loans consisted primarily of home equity loans, which totaled $10.4 million, or 7.4% of total loans, and other consumer loans which totaled $1.3 million, or 0.9% of total loans.

One- to Four-Family Residential Real Estate Lending. Our primary lending activity consists of originating one- to four-family owner-occupied residential mortgage loans, virtually all of which are collateralized by properties located in our market area. We also originate one- to four-family loans that pay interest only during the initial construction period (which generally does not exceed twelve months) and then pay interest and principal for the remainder of the loan term. We generally sell into the secondary mortgage market most of our one- to four-family fixed-rate mortgage loans with terms of 15 years or more and retain the loan servicing on a majority of these mortgage loans. One- to four-family residential mortgage loans are underwritten and originated according to policies and guidelines established by the secondary mortgage market agencies and approved by our Board of Directors. We utilize existing liquidity, deposits, loan repayments, and Federal Home Loan Bank advances to fund new loan originations.

We currently offer fixed rate one- to four-family residential mortgage loans with terms ranging from 15 to 30 years. One- to four-family residential mortgage loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option. The average length of time that our one- to four-family residential mortgage loans remain outstanding varies significantly depending upon trends in market interest rates and other factors. In recent years, the average maturity of our mortgage loans has decreased significantly because of the declining trend in market interest rates and the unprecedented volume of refinancing activity resulting from such interest rate decreases. Accordingly, estimates of the average length of one- to four-family loans that remain outstanding cannot be made with any degree of certainty.

Originations of fixed rate mortgage loans are regularly monitored and are affected significantly by the level of market interest rates, our interest rate gap position, and loan products offered by our competitors. Our fixed rate mortgage loans amortize on a monthly basis with principal and interest due each month. To make our loan portfolio less interest rate sensitive, fixed-rate loans originated with terms greater than 15 years are generally underwritten to secondary mortgage market standards and sold. Fixed-rate loans with terms of 15 years or less are either sold into the secondary market or, in some cases, retained in our portfolio. Adjustable rate mortgage loans are generally underwritten to secondary mortgage market standards, but are retained in our loan portfolio.

We have in the past originated some fixed-rate loans that are generally amortized over 15 years but that have “balloon payments” that are due upon the maturity of the loan in five years. As a general rule, we no longer originate this type of mortgage loan. Upon maturity, existing balloon mortgage loans are either underwritten as fixed-rate loans and sold in the secondary mortgage market or rewritten as adjustable rate mortgages at current market rates. While the majority of our balloon mortgage loans amortize over 15 years, some amortize over 10 or 30 years, and a limited number amortize over five years.

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Our one- to four-family residential mortgage loans customarily include due-on-sale clauses, which are provisions giving us the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the underlying real property serving as security for the loan. Due-on-sale clauses are an important means of adjusting the rates on our fixed-rate mortgage loan portfolio, and we have generally exercised our rights under these clauses.

Regulations limit the amount that a savings institution may lend relative to the appraised value of the real estate securing the loan, as determined by an appraisal at the time of loan origination. Such regulations permit a maximum loan-to-value ratio of 100% for residential property and 90% for all other real estate loans. Our lending policies limit the maximum loan-to-value ratio on fixed-rate loans without private mortgage insurance to 80% of the lesser of the appraised value or the purchase price of the property serving as collateral for the loan.

Generally, we make one- to four-family real estate loans with typical loan-to-value ratios of up to 90%. However, for one- to four-family real estate loans with loan-to-value ratios of between 80% and 90%, we may require the borrower to purchase private mortgage insurance. In 2005 we began making 80/20 loans and interest-only loans subject to Board-approved dollar limits to limit risk exposure. In late 2007 these products were eliminated; however, at December 31, 2012 approximately $376,000 of these products remained in our portfolio. We require fire and casualty insurance, flood insurance when applicable, as well as title insurance, on all properties securing real estate loans made by us.

Commercial Real Estate Lending. We also originate commercial real estate loans. At December 31, 2012, we had a total of 176 loans secured primarily by commercial real estate properties, unimproved vacant land and, to a limited extent, multifamily properties. Our commercial real estate loans are secured by income-producing properties such as office buildings, retail buildings, restaurants and motels. A majority of our commercial real estate loans are secured by properties located in our primary market area, although at December 31, 2012 we did have $6.9 million in commercial real estate loans located outside of Michigan. We have originated commercial construction loans that are originated as permanent loans but are interest-only during the initial construction period, which generally does not exceed nine months. At December 31, 2012, our commercial real estate loans, totaled $54.7 million, or 38.8% of our total loans, and had an average principal balance of approximately $333,000. The terms of each loan are negotiated on a case-by-case basis, although such loans typically amortize over 15 years and have a three- or five-year balloon feature. An origination fee of 0.5% to 1.0% is generally charged on commercial real estate loans. We generally make commercial real estate loans up to 75% of the appraised value of the property securing the loan.

At December 31, 2012, our largest commercial real estate relationship consisted of one loan having a total principal balance of $2.4 million, which was performing according to its repayment terms as of December 31, 2012. This loan relationship is secured by a single piece of commercial real estate and is also our largest single commercial real estate loan.

Commercial real estate loans generally carry higher interest rates and have shorter terms than those on one- to four-family residential mortgage loans. However, loans secured by commercial real estate generally involve a greater degree of credit risk than one- to four-family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the business or the related real estate property. If the cash flow from the business operation is reduced, the borrower’s ability to repay the loan may be impaired. This may be particularly true in the early years of the business operation when the risk of failure is greatest. Many of our commercial real estate loans have been made to borrowers whose business operations are untested, which increases our risk.

Consumer and Other Loans. We originate a variety of consumer and other loans, including loans secured by savings accounts, new and used automobiles, mobile homes, boats, recreational vehicles, and other personal property. As of December 31, 2012, consumer and other loans totaled $11.7 million, or 8.3% of our total loan portfolio. At such date, $310,000, or 0.2% of our consumer loans, were unsecured. As of December 31, 2012, home equity loans totaled $10.4 million, or 7.4% of our total loan portfolio, and automobile loans totaled $750,000, or 0.5% of our total loan portfolio. We originate automobile loans directly to our customers and have no outstanding agreements with automobile dealerships to generate indirect loans.

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Our procedures for underwriting consumer loans include an assessment of an applicant’s credit history and the ability to meet existing obligations and payments on the proposed loan. Although an applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral security, if any, to the proposed loan amount.

Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that tend to depreciate rapidly, such as automobiles, mobile homes, boats and recreational vehicles. In addition, the repayment of consumer loans depends on the borrower’s continued financial stability, as repayment is more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy than a single family mortgage loan.

Commercial Loans. At December 31, 2012, we had $8.1 million in commercial loans which amounted to 5.7% of total loans. We make commercial loans primarily in our market area to a variety of professionals, sole proprietorships and small businesses. Commercial lending products include term loans and revolving lines of credit. The maximum amount of a commercial loan is our loans-to-one-borrower limit, which was $3.7 million at December 31, 2012. Such loans are generally used for longer-term working capital purposes such as purchasing equipment or furniture. Commercial loans are made with either adjustable or fixed rates of interest. Variable rates are generally based on the prime rate, as published in The Wall Street Journal, plus a margin. Fixed rate commercial loans are set at a margin above the Federal Home Loan Bank comparable advance rate.

When making commercial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities of the borrower, the projected cash flows of the business and the value of the collateral. Commercial loans are generally secured by a variety of collateral, primarily accounts receivable, inventory and equipment, and are supported by personal guarantees. Depending on the collateral used to secure the loans, commercial loans are typically made in amounts of up to 75% of the value of the collateral securing the loan.

Commercial loans generally have greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial loans generally are made on the basis of the borrower’s ability to repay the loan from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. If the cash flow from the business operation is reduced, the borrower’s ability to repay the loan may be impaired. This may be particularly true in the early years of the business operation when the risk of failure is greatest. Moreover, any collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. We seek to minimize these risks through our underwriting standards. At December 31, 2012, our largest commercial loan was a $1.4 million commercial loan collateralized by construction and paving equipment. At December 31, 2012, the outstanding balance was $1.2 million and the loan was performing according to its repayment terms.

Construction Loans. We originate construction loans to local home builders in our market area, generally with whom we have an established relationship, and to individuals engaged in the construction of their residences. We also originate loans for the construction of commercial buildings and, to an extent, participate in construction loan projects originated by other lenders. Our construction loans totaled $3.2 million, or 2.3% of our total loan portfolio, at December 31, 2012.

Our construction loans to home builders are repaid on an interest-only basis for the term of the loan (which is generally six to 12 months), with interest calculated on the amount disbursed to the builders based upon a percentage of completion of construction. These loans typically have a maximum loan-to-value ratio of 80%, based on the appraised value. Interest rates are fixed during the construction phase of the loan. Loans to builders are made on either a pre-sold or speculative (unsold) basis. Most of our construction loans to individuals who intend to occupy the completed dwelling are originated via a “one-step closing” process, whereby the construction phase and end-financing are handled with one loan closing. Prior to funding a construction loan, we require an appraisal of the property from a qualified appraiser approved by us, and all appraisals are reviewed by us.

Construction lending exposes us to greater credit risk than permanent mortgage financing because of the inherent difficulty in estimating both a property’s value at completion of the project and the estimated cost of the project. If the estimate of construction costs is inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value upon completion is inaccurate, the value of the property may be insufficient to assure full repayment. Projects may also be jeopardized by disagreements between borrowers and builders and by the failure of builders to pay subcontractors. Loans to builders to construct homes for which no purchaser has been identified carry more risk because the repayment of the loan depends on the builder’s ability to sell the property prior to the time that the construction loan is due. We have attempted to minimize these risks by, among other things, limiting our residential construction lending primarily to residential properties in our market area and generally requiring personal guarantees from the principals of corporate borrowers.

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

	At December 31,
	2012						2011						2010						2009						2008
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
							(dollars in thousands)
Real estate loans:
Residential Mortgages:
1-4 Family Mortgages	$	63,867			45.3	%	$	64,177			45.0	%	$	68,298			42.7	%	$	77,851			44.4	%	$	87,179			44.1	%
Purchased Mortgage In-State		1,711			1.3	%		1,924			1.3	%		3,243			2.0	%		3,342			1.9	%		3,802			1.9	%
Purchased Mortgage Out-of-State		-			0.0	%		-			0.0	%		-			0.0	%		-			0.0	%		358			0.2	%
1-4 Familly Construction		962			0.7	%		498			0.3	%		156			0.1	%		427			0.2	%		1,025			0.5	%
Home Equity/Junior Liens		10,409			7.4	%		13,395			9.4	%		16,547			10.3	%		18,732			10.7	%		22,303			11.3	%
Nonresidential Mortgages:
Nonresidential		40,992			29.1	%		44,020			30.9	%		43,580			27.3	%		43,446			24.8	%		42,526			21.5	%
Purchased Nonresidential In-State		4,553			3.2	%		2,130			1.5	%		4,232			2.6	%		3,894			2.2	%		257			0.1	%
Purchased Nonresidential Out-of-State		6,882			4.9	%		7,788			5.5	%		9,928			6.2	%		8,428			4.8	%		3,141			1.6	%
Nonresidential Construction		1,458			1.0	%		91			0.1	%		1,498			0.9	%		2,816			1.6	%		6,635			3.3	%
Purchased Construction In-State		615			0.4	%		-			0.0	%		-						-			0.0	%		-			0.0	%
Purchased Construction Out-of-State		173			0.1	%		173			0.1	%		1,772			1.1	%		3,792			2.2	%		9,781			4.9	%
Non real estate loans:
Commercial Loans		7,769			5.5	%		6,621			4.6	%		7,382			4.6	%		7,035			4.0	%		15,816			8.0	%
Purchased Commerical Loans In-State		333			0.2	%		381			0.3	%		1,466			0.9	%		2,838			1.6	%		1,804			0.9	%
Consumer and other loans		1,258			0.9	%		1,477			1.0	%		2,118			1.3	%		2,553			1.6	%		3,564			1.7	%
Total Loans	$	140,982			100.00	%	$	142,675			100.00	%	$	160,220			100.00	%	$	175,154			100.00	%	$	198,191			100.00	%
Other items:
Deferred loan origination costs		15						14						31						12						13
Deferred loan origination fees		(335	)					(287	)					(276	)					(287	)					(287	)
Allowance for loan losses		(1,750	)					(1,518	)					(2,831	)					(3,660	)					(5,647	)
Total loans, net	$	138,912					$	140,884					$	157,144					$	171,219					$	192,270

Loan Portfolio Maturities and Yield.  The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2012. Demand loans, loans having no stated repayment or maturity, and overdraft loans are reported as being due in one year or less.

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						Purchased Mortgage					Purchased Mortgage					1-4 Family
	1-4 Family Mortgage					In-State					Out-of State					Construction
			Weighted					Weighted					Weighted					Weighted
			Average					Average					Average					Average
	Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate
	(dollars in thousands)
Due During the Years Ending December 31,
2013	$	278		6.03	%	$	-		0.00	%	$	-		0.00	%	$	938		3.35	%
2014		338		7.03	%		-		0.00	%		-		0.00	%		24		1.44	%
2015		68		7.91	%		-		0.00	%		-		0.00	%		-		0.00	%
2016 to 2017		577		6.57	%		-		0.00	%		-		0.00	%		-		0.00	%
2018 to 2022		7,209		5.75	%		-		0.00	%		-		0.00	%		-		0.00	%
2023 to 2027		21,943		4.88	%		30		5.83	%		-		0.00	%		-		0.00	%
2028 and beyond		33,454		5.78	%		1,681		3.40	%		-		0.00	%		-		0.00	%
Total	$	63,867		5.48	%	$	1,711		3.44	%	$	-		0.00	%	$	962		3.30	%

											Purchased Nonresidential					Purchased Nonresidential
	Home Equity/Junior Liens					Nonresidential					In-State					Out-of-State
			Weighted					Weighted					Weighted					Weighted
			Average					Average					Average					Average
	Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate
	(dollars in thousands)
Due During the Years Ending December 31,
2013	$	26		7.35	%	$	10,370		6.23	%	$	209		6.34	%	$	2,030		5.58	%
2014		114		6.84	%		4,774		5.93	%		1,788		5.12	%		-		0.00	%
2015		213		7.24	%		4,709		6.70	%		57		7.58	%		1,643		4.56	%
2016 to 2017		677		7.77	%		17,216		5.56	%		1,467		4.82	%		-		0.00	%
2018 to 2022		4,843		5.81	%		1,332		6.22	%		-		0.00	%		-		0.00	%
2023 to 2027		4,536		4.44	%		1,554		6.79	%		1,032		5.83	%		-		0.00	%
2028 and beyond		-		0.00	%		1,037		6.28	%		-		0.00	%		3,209		5.74	%
Total	$	10,409		5.38	%	$	40,992		5.99	%	$	4,553		5.27	%	$	6,882		5.41	%

	Nonresidential					Purchased Construction					Purchased Construction
	Construction					In-State					Out-of-State					Commercial Loans
			Weighted					Weighted					Weighted					Weighted
			Average					Average					Average					Average
	Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate
	(dollars in thousands)
Due During the Years Ending December 31,
2013	$	1,458		3.34	%	$	615		4.56	%	$	-		0.00	%	$	2,117		5.46	%
2014		-		0.00	%		-		0.00	%		173		9.38	%		774		5.59	%
2015		-		0.00	%		-		0.00	%		-		0.00	%		1,360		5.59	%
2016 to 2017		-		0.00	%		-		0.00	%		-		0.00	%		3,518		5.47	%
2018 to 2022		-		0.00	%		-		0.00	%		-		0.00	%		-		0.00	%
2023 to 2027		-		0.00	%		-		0.00	%		-		0.00	%		-		0.00	%
2028 and beyond		-		0.00	%		-		0.00	%		-		0.00	%		-		0.00	%
Total	$	1,458		3.34	%	$	615		4.56	%	$	173		9.38	%	$	7,769		5.50	%

	Purchased Commercial					Purchased Commercial					Consumer
	Loans In-State					Loans Out-of State					& Other Loans					Total
			Weighted					Weighted					Weighted					Weighted
			Average					Average					Average					Average
	Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate
	(dollars in thousands)
Due During the Years Ending December 31,
2013	$	333		6.34	%	$	-		0.00	%	$	18		8.33	%	$	18,392		5.64	%
2014		-		0.00	%		-		0.00	%		73		8.21	%		8,058		5.86	%
2015		-		0.00	%		-		0.00	%		111		9.13	%		8,161		6.15	%
2016 to 2017		-		0.00	%		-		0.00	%		542		5.56	%		23,997		5.59	%
2018 to 2022		-		0.00	%		-		0.00	%		494		8.02	%		13,878		5.90	%
2023 to 2027		-		0.00	%		-		0.00	%		20		5.50	%		29,115		4.95	%
2028 and beyond		-		0.00	%		-		0.00	%		-		0.00	%		39,381		5.69	%
Total	$	333		6.34	%	$	-		0.00	%	$	1,258		7.03	%	$	140,982		5.57	%

9

Fixed- and Adjustable-Rate Loans. The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at December 31, 2012 that are contractually due after December 31, 2013.

	Due After December 31, 2013
	Fixed		Adjustable		Total
	(dollars in thousands)
Residential Mortgages:
1-4 Family Mortgages	$	37,124	$	26,465	$	63,589
Purchased Mortgage In-State		-		1,711		1,711
1-4 Family Construction		24		-		24
Home Equity/Junior Liens		4,214		6,169		10,383
Nonresidential Mortgages:
Nonresidential		18,229		12,393		30,622
Purchased Nonresidential In-State		3,312		1,032		4,344
Purchased Nonresidential Out-of-State		2,353		2,499		4,852
Purchased Construction Out-of-State		-		173		173
Non real estate loans:
Commercial Loans		3,997		1,655		5,652
Purchased Commerical Loans In-State		-		-		-
Consumer and other loans		992		248		1,240
Total Loans	$	70,245	$	52,345	$	122,590

Loan Originations, Purchases, Sales and Servicing. While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon borrower demand, market interest rates, borrower preference for fixed- versus adjustable-rate loans, and the interest rates offered on each type of loan by other lenders in our market area. These lenders include competing banks, savings banks, credit unions, internet lenders, mortgage banking companies and life insurance companies that may also actively compete for local commercial real estate loans. Loan originations are derived from a number of sources, including real estate agent referrals, existing customers, borrowers, builders, attorneys, our directors, walk-in customers and our own sales force. Upon receiving a loan application, we obtain a credit report and employment verification to verify specific information relating to the applicant’s employment, income, and credit standing. In the case of a real estate loan, we obtain a determination of value of the real estate intended to collateralize the proposed loan. Our residential mortgage officers have residential mortgage lending authority up to $150,000.  While certain Senior Bank Officers have residential lending limits up to $400,000, the Officer Loan Committee generally approves residential loans from $150,000 to $500,000, while requests over $500,000 must be approved by the Board of Directors.  Secured consumer lending limits by officer range from $25,000 to $50,000, while certain Senior Bank Officers have secured consumer lending limits up to $150,000.  For secured commercial loans, the limits range from $100,000 to $400,000.  Senior Loan Committee generally approves secured commercial loans from $400,000 to $500,000, while requests over $500,000 must be approved by the Board of Directors.

A commercial commitment letter specifies the terms and conditions of the proposed loan including the amount of the loan, interest rate, amortization term, a brief description of the required collateral, and required insurance coverage. Commitments are typically issued for 15-day periods. The borrower must provide proof of fire and casualty insurance on the property serving as collateral, which must be maintained during the full term of the loan. A title insurance policy is required on all real estate loans. At December 31, 2012, we had outstanding loan commitments of $22.6 million, including unfunded commitments under lines of credit and commercial and standby letters of credit.

Our loan origination and sales activity may be adversely affected by a rising interest rate environment that typically results in decreased loan demand, while declining interest rates may stimulate increased loan demand. Accordingly, the volume of loan originations, the mix of fixed- and adjustable-rate loans, and the profitability of this activity can vary from period to period. One- to four-family residential mortgage loans are generally underwritten to investor guidelines, and closed on standard investor documents. We currently sell loans to Freddie Mac and the Federal Home Loan Bank (the “FHLB”). If such loans are sold, the sales are conducted using standard investor purchase contracts and master commitments as applicable. The majority of one- to four-family mortgage loans that we have sold to investors have been sold on a non-recourse basis, whereby foreclosure losses are generally the responsibility of the purchaser and not First Federal of Northern Michigan.

We are a qualified loan servicer for both Freddie Mac and the FHLB. Our policy has historically been to retain the servicing rights for all conforming loans sold, and to continue to collect payments on the loans, maintain tax escrows and applicable fire and flood insurance coverage, and supervise foreclosure proceedings if necessary. We retain a portion of the interest paid by the borrower on the loans as consideration for our servicing activities.

10

We require appraisals of real property securing loans. Appraisals are performed by independent appraisers, who are approved by our Board of Directors annually. We require fire and extended coverage insurance in amounts adequate to protect our principal balance. Where appropriate, flood insurance is also required. Private mortgage insurance is required for most residential mortgage loans with loan-to-value ratios greater than 80%.

Loan Origination Fees and Costs. In addition to interest earned on loans, we generally receive fees in connection with loan originations. Such loan origination fees, net of costs to originate, are deferred and amortized using an interest method over the contractual life of the loan. Fees deferred are recognized into income immediately upon prepayment or subsequent sale of the related loan. At December 31, 2012, we had $320,000 of net deferred loan origination fees. Such fees vary with the volume and type of loans and commitments made and purchased, principal repayments, and competitive conditions in the mortgage markets, which in turn respond to the demand and availability of money. In addition to loan origination fees, we also generate other income through the sales and servicing of mortgage loans, late charges on loans, and fees and charges related to deposit accounts. We recognized fees and service charges of $760,000, $730,000 and $804,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

To the extent that originated loans are sold with servicing retained, we capitalize a mortgage servicing asset at the time of the sale in accordance with applicable accounting standards (FASB ASC 860, “Transfers and Servicing ”). The capitalized amount is amortized thereafter (over the period of estimated net servicing income) as a reduction of servicing fee income. The unamortized amount is fully charged to income when loans are prepaid. Originated mortgage servicing rights with an amortized cost of $1.0 million were included on our balance sheet at December 31, 2012. At December 31, 2012 we established a valuation reserve of $20,000 against the value of our rights to service 20 year fixed-rate loans which we have sold to Freddie Mac.

Origination, Purchase and Sale of Loans.  The table below shows our loan originations, purchases, sales, and repayments of loans for the periods indicated.

	Years Ended December 31,
	2012			2011			2010
	(dollars in thousands)
Loans receivable at beginning of period	$	142,675		$	160,220		$	175,154
Originations:
Real estate:
Residential 1-4 family		52,387			38,150			47,838
Commercial and Multi-family		18,182			12,941			14,841
Consumer		2,040			2,113			3,660
Total originations		72,609			53,204			66,339
Loan purchases:
Commercial		6,538			1,000			-
Total loan purchases		6,538			1,000			-
Loan sales		(36,529	)		(28,353	)		(42,151	)
Transfer of loans to foreclosed assets		(1,823	)		(3,459	)		(2,080	)
Repayments		(42,488	)		(39,937	)		(37,042	)
Total loans receivable at end of period	$	140,982		$	142,675		$	160,220

11

Delinquent Loans, Other Real Estate Owned and Classified Assets

Collection Procedures. Our general collection procedures provide that when a commercial loan becomes 10 days past due and when a mortgage or consumer loan become 15 days past due, a computer-generated late charge notice is sent to the borrower requesting payment. If delinquency continues, a second delinquent notice is mailed when the loan continues past due for 30 days. If a loan becomes 60 days past due, the loan becomes subject to possible legal action. We will generally send a “due and payable” letter upon a loan becoming 60 days delinquent. This letter grants the borrower 30 days to bring the account paid to date prior to the start of any legal action. If not paid, foreclosure proceedings are initiated after this 30-day period. To the extent required by regulations of the Department of Housing and Urban Development (“HUD”), generally within 30 days of delinquency, a Section 160 HUD notice is given to the borrower which provides access to consumer counseling services. General collection procedures may vary with particular circumstances on a loan by loan basis. Also, collection procedures for Freddie Mac serviced loans follow the Freddie Mac guidelines which are different from our general procedures.

Loans Past Due and Non-Performing Assets. Loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collection of additional interest is doubtful or when extraordinary efforts are required to collect the debt. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income.

Real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is deemed real estate owned (“REO”) until such time as it is sold. In general, we consider collateral for a loan to be “in-substance” foreclosed if: (i) the borrower has little or no equity in the collateral; (ii) proceeds for repayment of the loan can be expected to come only from the operation or sale of the collateral; and (iii) the borrower has either formally or effectively abandoned control of the collateral, or retained control of the collateral but is unlikely to be able to rebuild equity in the collateral or otherwise repay the loan in the foreseeable future. Cash flow attributable to in-substance foreclosures is used to reduce the carrying value of the collateral.

When collateral, other than real estate, securing commercial and consumer loans is acquired as a result of delinquency or other reasons, it is classified as Other Repossessed Assets (“ORA”) and recorded at the lower of cost or fair market value until it is disposed of.

When collateral is acquired or otherwise deemed REO/ORA, it is recorded at the lower of the unpaid principal balance of the related loan or its estimated net realizable value. This write down is recorded against the allowance for loan losses. Periodic future valuations are performed by management, and any subsequent decline in fair value is charged to operations. At December 31, 2012, we held $1.3 million in properties that were classified REO and $1.1 million in assets classified as ORA.

12

Delinquent Loans. The following table sets forth certain information with respect to our loan portfolio delinquencies at the dates indicated.

	At December 31,
	2012			2011			2010			2009			2008
	(dollars in thousands)
Non-Accrual Loans:
Residential Mortgage	$	1,810		$	2,420		$	3,114		$	2,944		$	1,876
Commercial Mortgage		821			356			1,148			2,204			4,002
Purchased Mortgage Out-of-State		2,030			-			-			-			-
Construction		-			-			-			1,433			3,469
Purchased Construction Out-of-State		173			173			1,772			2,113			1,980
Commercial		-			-			-			96			535
Consumer and other		29			152			206			157			90
Total non-accrual loans	$	4,863		$	3,101		$	6,240		$	8,947		$	11,952
Accrual loans delinquent 90 days or more:
Residential Mortgage		61			238			282			89			128
Commercial Mortgage		-			-			82			2,696			72
Construction		-			-			-			-			-
Purchased Construction Out-of-State		-			-			-			-			-
Commercial		-			-			-			-			-
Consumer and other		6			-			2			54			17
Total accrual loans delinquent 90 days or more	$	67		$	238		$	366		$	2,839		$	217
Total nonperforming loans (1)	$	4,930		$	3,339		$	6,606		$	11,786		$	12,169
Real Estate Owned and Other Repossessed Assets:
Residential Mortgage		957			1,086			494			584			686
Commercial Mortgage		309			1,015			2,304			2,985			882
Construction		-			-			-			-			-
Commercial		-			-			-			-			-
Consumer and other		1,121			1,307			20			11			70
Total real estate owned and other repossessed assets (2)	$	2,387		$	3,408		$	2,818		$	3,580		$	1,638
Total nonperforming assets	$	7,317		$	6,747		$	9,424		$	15,366		$	13,807
Total nonperforming loans to total loans receivable		3.50	%		2.37	%		4.12	%		6.73	%		6.14	%
Total nonperforming assets to total assets		3.42	%		3.11	%		4.37	%		6.58	%		5.57	%

(1) All of our loans delinquent 90 days or more are classified as nonperforming.

(2) Represents the net book value of property acquired by us 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.

13

Nonperforming Assets. The following table sets forth the amounts and categories of our non-performing assets at the dates indicated.

	Loan Delinquent For
	60-89 Days				90 Days and Over				Total
	Number		Amount		Number		Amount		Number		Amount
	(dollars in thousands)
At December 31, 2012
Residential Mortgages		11	$	796		10	$	1,198		21	$	1,994
Commercial Mortgages		1		540		3		282		4		822
Construction		-		-		1		173		1		173
Commercial		-		-		-		-		-		-
Consumer		1		5		3		19		4		24
Total		13	$	1,341		17	$	1,672		30		3,013
At December 31, 2011
Residential Mortgages		16	$	1,501		23	$	1,969		39	$	3,470
Commercial Mortgages		3		339		1		245		4		584
Construction		-		-		1		173		1		173
Commercial		1		29		-		-		1		29
Consumer		6		59		5		128		11		187
Total		26	$	1,928		30	$	2,515		56		4,443
At December 31, 2010
Residential Mortgages		23	$	2,056		34	$	2,434		57	$	4,490
Commercial Mortgages		3		488		8		784		11		1,272
Construction		-		-		2		1,772		2		1,772
Commercial		1		6		-		-		1		6
Consumer		10		122		9		207		19		329
Total		37	$	2,672		53	$	5,197		90		7,869
At December 31, 2009
Residential Mortgages		22	$	1,819		23	$	1,719		45	$	3,538
Commercial Mortgages		7		1,125		12		3,705		19		4,830
Construction		2		1,255		1		290		3		1,545
Commercial		3		402		1		80		4		482
Consumer		14		226		14		135		28		361
Total		48	$	4,827		51	$	5,929		99		10,756
At December 31, 2008
Residential Mortgages		26	$	2,513		13	$	766		39	$	3,279
Commercial Mortgages		8		1,359		6		5,879		14		7,238
Construction		-		-		2		1,980		2		1,980
Commercial		1		95		1		72		2		167
Consumer		26		155		10		66		36		221
Total		61	$	4,122		32	$	8,763		93		12,885

Interest income that would have been recorded for the year ended December 31, 2012, had non-accruing loans been current according to their original terms amounted to $889,000. Interest of $218,000 was recognized on these impaired loans prior to placing them on non-accrual status, and is included in net income for the year ended December 31, 2012.

Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets such as debt and equity securities and real estate held for sale considered by the Office of the Comptroller of the Currency (OCC) to be of lesser quality as “substandard,” “doubtful,” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the savings institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets that do not expose the savings institution to risk sufficient to warrant classification in one of the aforementioned categories, but which possess some weaknesses, are required to be designated “special mention” by management. Loans designated as special mention are generally loans that, while current in required payments, have exhibited some potential weaknesses that, if not corrected, could increase the level of risk in the future.

14

The allowance for loan losses represents amounts that have been established to recognize losses inherent in the loan portfolio that are both probable and reasonably estimable at the date of the financial statements. When we classify problem assets as loss, we charge-off such amount. Our determination as to the classification of our assets and the amount of our loss allowances are subject to review by our regulatory agencies, which can order the establishment of additional loss allowances. Management regularly reviews our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of management’s review of our assets at December 31, 2012, classified assets consisted of substandard assets of $13.0 million. There were no assets classified as doubtful or loss at December 31, 2012.

We classify our assets pursuant to criteria similar to the classification structure provided in the OCC regulations. The following table sets forth the aggregate amount of our internally classified assets at the dates indicated.

	At December 31,
	2012		2011		2010		2009		2008
	(dollars in thousands)
Substandard assets	$	13,008	$	16,435	$	15,974	$	18,141	$	19,409
Doubtful assets		-		-		-		-		-
Loss assets		-		-		-		-		-
Total classified assets	$	13,008	$	16,435	$	15,974	$	18,141	$	19,409

Allowance for Loan Losses. We provide for loan losses based on the allowance method. Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to it. Additions to the allowance for loan losses are provided by charges to income based on various factors which, in management’s judgment, deserve current recognition in estimating probable losses. Management regularly reviews the loan portfolio and makes provisions for loan losses in order to maintain the allowance for loan losses in accordance with accounting principles generally accepted in the United States of America. The allowance for loan losses consists of amounts specifically allocated to non-performing loans and other criticized or classified loans (if any) as well as general allowances determined for each major loan category. Commercial loans and loans secured by commercial real estate are evaluated individually for impairment. Other smaller-balance, homogeneous loan types, including loans secured by one- to four-family residential real estate and consumer installment loans, are evaluated for impairment on a collective basis. After we establish a provision for loans that are known to be non-performing, criticized or classified, we calculate percentage loss factors to apply to the remaining categories within the loan portfolio to estimate probable losses inherent in these categories of the portfolio. When the loan portfolio increases, therefore, the percentage calculation results in a higher dollar amount of estimated probable losses than would be the case without the increase, and when the loan portfolio decreases, the percentage calculation results in a lower dollar amount of estimated probable losses than would be the case without the decrease. These percentage loss factors are determined by management based on our historical loss experience and credit concentrations for the applicable loan category, which may be adjusted to reflect our evaluation of levels of, and trends in, delinquent and non-accrual loans, trends in volume and terms of loans, and local economic trends and conditions.

We consider commercial and commercial real estate loans and construction loans to be riskier than one- to four-family residential mortgage loans. Commercial and commercial real estate loans have greater credit risks compared to one- to four-family residential mortgage loans, as they typically involve large loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy. Construction loans have greater credit risk than permanent mortgage financing because of the inherent difficulty in estimating both a property’s value at completion of the project and the estimated cost of the project. If the estimate of construction costs is inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value upon completion is inaccurate, the value of the property may be insufficient to assure full repayment. Projects also may be jeopardized by disagreements between borrowers and builders and by the failure of builders to pay subcontractors. Loans to builders to construct homes for which no purchaser has been identified carry more risk because the repayment of the loan depends on the builder’s ability to sell the property prior to the time that the construction loan is due. The increased risk characteristics associated with commercial real estate and land loans and construction loans are considered by management in the evaluation of the allowance for loan losses and generally result in a larger loss factor applied to these segments of the loan portfolio in developing an estimate of the required allowance for loan losses. We intend to increase our originations of commercial and commercial real estate loans, and we intend to retain these loans in our portfolio. Because these loans entail significant additional credit risks compared to one- to four-family residential mortgage loans, an increase in our origination (and retention in our portfolio) of these types of loans would, in the absence of other offsetting factors, require us to make additional provisions for loan losses.

15

The carrying value of loans is periodically evaluated and the allowance is adjusted accordingly. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, our regulatory agencies periodically review the allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

Analysis of the Allowance for Loan Losses.  The following table sets forth the activity on our allowance for loan losses for the periods indicated.

	For the Years Ended December 31,
	2012			2011			2010			2009			2008
	(dollars in thousands)
Allowance at beginning of period	$	1,518		$	2,831		$	3,660		$	5,647		$	4,013
(Charge-offs):
Real Estate:
Residential Mortgages		(840	)		(1,119	)		(258	)		(362	)		(342	)
Nonresidential Real Estate:
Commercial Mortgages		(265	)		(334	)		(198	)		(4,903	)		(2,023	)
Purchased In-State		-			-			-			(2,482	)		-
Purchased Out-of-State		-			(93	)		(314	)		-			-
Construction		-			-			(751	)		-			-
Purchased In-State		-			-			-			-			-
Purchased Out-of-State		-			-			(262	)		-			-
Non Real Estate Loans:
Commercial		-			(6	)		-			(246	)		(331	)
Consumer and other		(131	)		(192	)		(319	)		(254	)		(141	)
Total charge offs		(1,236	)		(1,744	)		(2,102	)		(8,247	)		(2,837	)
Recoveries:
Real Estate:
Residential Mortgages		65			25			2			-			-
Nonresidential Real Estate:
Commercial Mortgages		10			79			85			-			-
Construction		-			-			60			-			-
Non Real Estate Loans:
Commercial		-			1			-						-
Consumer and other		26			42			25			64			50
Total recoveries		101			147			172			64			50
Net (charge offs) recoveries		(1,135	)		(1,597	)		(1,930	)		(8,183	)		(2,787	)
Provision for loan losses		1,367			284			1,101			6,196			4,421
Balance at end of year	$	1,750		$	1,518		$	2,831		$	3,660		$	5,647
Ratios:
Net Charge-offs to average loans outstanding (annualized)		0.79	%		1.02	%		1.14	%		4.58	%		1.40	%
Allowance for loan loss to non-performing loans at end of period		35.50	%		45.46	%		87.70	%		31.05	%		46.40	%
Allowance for loan losses to total loans at end of period		1.24	%		1.06	%		1.98	%		2.09	%		2.85	%

Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category, the total loan balances by category, and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

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	At December 31
	2012					2011					2010
	Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans
	(dollars in thousands)
Residential Mortgages:
1 - 4 family residential	$	894		45.3	%	$	858		45.0	%	$	519		42.7	%
Purchased Mortgages In-State		12		1.3	%		12		1.3	%		17		2.0	%
Purchased Mortgages Out-of-State		-		0.0	%		-		0.0	%		-		0.0	%
1 - 4 family construction		-		0.7	%		-		0.3	%		-		0.1	%
Home Equity & Junior Liens		99		7.4	%		146		9.4	%		228		10.3	%
Nonresidential Mortgages:
Nonresidential		453		29.1	%		320		30.9	%		967		27.3	%
Purchased Nonresidential In-State		50		3.2	%		16		1.5	%		94		2.6	%
Purchased Nonresidential Out-of-State		76		4.9	%		57		5.5	%		220		6.2	%
Construction		57		1.0	%		3		0.1	%		245		0.9	%
Purchased Construction In-State		-		0.4	%		-		0.0	%		-		0.0	%
Purchased Construction Out-of-State		7		0.1	%		7		0.1	%		290		1.1	%
Non Real Estate Loans:
Commercial		66		5.5	%		50		4.6	%		192		4.6	%
Purchased Commercial In-State		3		0.2	%		3		0.3	%		-		0.9	%
Purchased Commercial Out-of-State		-		0.0	%		-		0.0	%		-		0.0	%
Consumer		33		0.9	%		46		1.0	%		59		1.3	%
Total	$	1,750		100.0	%	$	1,518		100.0	%	$	2,831		100.0	%

	At December 31
	2009					2008
	Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans
	(dollars in thousands)
Residential Mortgages:
One to four family residental	$	634		44.4	%	$	967		44.0	%
Purchased Mortgages In-State		12		1.9	%		11		1.9	%
Purchased Mortgages Out-of-State		-		0.0	%		1		0.2	%
1 - 4 family construction		3		0.2	%		5		0.5	%
Home Equity & Junior Liens		214		10.7	%		231		11.3	%
Nonresidential Mortgages:
Nonresidential		1,055		24.9	%		1,768		21.5	%
Purchased Nonresidential In-State		140		2.2	%		3		0.1	%
Purchased Nonresidential Out-of-State		175		4.8	%		14		1.6	%
Construction		647		1.6	%		7		3.3	%
Purchased Construction In-State		-		0.0	%		-		0.0	%
Purchased Construction Out-of-State		350		2.2	%		740		4.9	%
Non Real Estate Loans:
Commercial		316		4.0	%		1,795		8.0	%
Purchased Commercial In-State		73		1.6	%		18		0.9	%
Purchased Commercial Out-of-State		-		0.0	%		32		0.0	%
Consumer		41		1.5	%		55		1.8	%
Total	$	3,660		100.0	%	$	5,647		100.0	%

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Mortgage Banking Activities

Our mortgage banking activities involve the origination and subsequent sale into the secondary mortgage market of one- to four-family residential mortgage loans. When loans are sold into the secondary market, we generally retain the rights to service those loans thereby maintaining our customer relationships. We intend to use these customer relationships to cross-sell additional products and services. Loans that we sell are originated using the same personnel and the same underwriting policies as loans that we maintain in our portfolio. The decision whether to sell a loan is dependent upon the type of loan product and the term of the loan. In recent years, we have sold most of our fixed-rate one- to four-family residential loans with maturities of 15 years or greater, and have retained servicing on most of these loans. For a brief period we sold some mortgage loans servicing-released to be able to offer additional products to our customers, however, we currently do not sell loans servicing-released.

Mortgage servicing involves the administration and collection of home loan payments. When we acquire mortgage servicing rights through the origination of mortgage loans and the subsequent sale of those loans with servicing rights retained, we allocate a portion of the total cost of the mortgage loans to the mortgage servicing rights based on their relative fair value. As of December 31, 2012, we were servicing loans sold to third parties totaling $140.6 million, and the mortgage servicing rights associated with such loans had a book value, net of valuation reserve, at such date of $1.0 million. Generally, the value of mortgage servicing rights increases as interest rates rise and decreases as interest rates fall, because the estimated life and estimated income from the underlying loans increase with rising interest rates and decrease with falling interest rates.

Insurance Brokerage Activities

In March 2003, we acquired InsuranCenter of Alpena (“ICA”), a licensed insurance agency, to increase and diversify our sources of non-interest income. In April 2008, ICA sold to a non-related third party the rights to service certain health insurance contracts and collect commissions on the contracts written through the local Chambers of Commerce. This sale resulted in a nominal gain to us, but reduced health insurance revenues. The sale also reduced non-interest expenses and amortization of intangibles.

On February 27, 2009, we sold the majority of the assets of ICA. We retained the residual income stream associated with the April 2008 sale of its wholesale Blue Cross/Blue Shield override business to the third party. We continue to collect the residual revenue stream associated with this sale through FFNM Agency, the successor company to ICA.

See “-Subsidiary Activity” for a further discussion of ICA and FFNM Agency.

Real Estate Development Activities

On a limited basis, we have purchased real estate for development through our subsidiary Financial Services & Mortgage Corporation. See "—Subsidiary Activity" for a discussion of our real estate development subsidiary, Financial Services & Mortgage Corporation. The last such purchase was a 37 acre lot which we purchased in 1994 for $130,000. As of December 31, 2012, we had sold all 43 lots comprising this property

Investment Activities

Our investment securities portfolio is comprised of U.S. Government, state agency and municipal obligations, and mortgage-backed securities, of which $50.8 million, or 95.6%, was available-for-sale and $2.3 million, or 4.4%, of the total portfolio was classified as held-to-maturity. At December 31, 2012, we had no investments in unrated securities. At December 31, 2012, $16.5 million, or 31.7% of our investment portfolio was scheduled to mature in less than five years, and $35.5 million, or 68.3%, was scheduled to mature in over five years. At December 31, 2012, $1.9 million, or 3.8% of our investment portfolio was scheduled to mature in less than one year.

At December 31, 2012, we held U.S. Government and state agency obligations and municipal obligations classified as available-for-sale, with a fair market value of $20.0 million. While these securities generally provide lower yields than other investments such as mortgage-backed securities, our current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity purposes, as collateral for borrowings, and for prepayment protection.

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We invest in mortgage-backed securities in order to: generate positive interest rate spreads with minimal administrative expense; lower credit risk as a result of the guarantees provided by Ginnie Mae and, to a lesser extent, Fannie Mae and Freddie Mac; supplement local loan originations; reduce interest rate risk exposure; and increase liquidity. Our mortgage-backed securities portfolio consists of pass-through certificates. At December 31, 2012, the fair market value of mortgage-backed securities totaled $29.6 million, or 55.8% of total investments. All of our pass-through certificates are insured or guaranteed by Freddie Mac, Ginnie Mae or Fannie Mae. Our policy is to hold mortgage-backed securities as available for sale.

We have interests in pools of single-family mortgages in which the principal and interest payments are passed from the mortgage originators, through intermediaries (generally government-sponsored agencies) that pool and repackage loans and sell the participation interest in the form of securities, to investors. These government-sponsored agencies include Freddie Mac, Ginnie Mae, or Fannie Mae. The underlying pool of mortgages can be comprised of either fixed-rate mortgage loans or adjustable-rate mortgage loans. The interest rate risk characteristics of the underlying pool of mortgages, i.e., fixed-rate or adjustable rate, are shared by the investors in that pool.

Our investment policy also permits investment in corporate debt obligations. Although corporate bonds may offer higher yields than U.S. Treasury or agency securities of comparable duration, corporate bonds also have a higher risk of default due to possible adverse changes in the creditworthiness of the issuer.

We are required under federal regulations to maintain a minimum amount of liquid assets that may be invested in specified short term securities and certain other investments. We generally have maintained a portfolio of liquid assets that exceeds regulatory requirements. Liquidity levels may be increased or decreased depending upon the yields on investment alternatives and upon management’s judgment as to the attractiveness of the yields then available in relation to other opportunities and its expectation of the level of yield that will be available in the future, as well as management’s projections as to the short term demand for funds to be used in our loan origination and other activities.

FASB ASC 320-10 requires that, at the time of purchase, we designate a security as held to maturity, available for sale, or trading, depending on our ability and intent. Securities available for sale are reported at fair value. As of December 31, 2012, all of our investment securities were designated as available for sale except for $2.3 million in municipal bond investments designated as held to maturity.

Investment Securities Portfolio.  The following table sets forth the composition of our investment securities portfolio at the dates indicated.

	At December 31,
	2012				2011				2010
	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
	(dollars in thousands)
Debt Securities:
U.S. Government and agency obligations	$	9,181	$	9,247	$	14,756	$	14,863	$	4,518	$	4,562
Municipal obligations		12,758		13,328		9,362		9,941		7,395		7,641
Corporate bonds and other obligations		1,135		1,150		-		-		-		-
Mortgage-backed securities:
Pass-through securities:
Fannie Mae		6,486		6,587		4,984		4,990		296		306
Freddie Mac		4,045		4,110		3,981		3,974		1,078		1,095
Ginnie Mae		18,370		18,911		21,385		21,945		24,310		24,291
Total debt securities		51,975		53,333		54,468		55,713		37,597		37,895
Marketable equity securities Common stock		3		1		3		1		3		1
Total equity securities		3		1		3		1		3		1
Total investment securities	$	51,978	$	53,334	$	54,471	$	55,714	$	37,600	$	37,896

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Portfolio Maturities and Yields.  The composition and maturities of the investment securities portfolio at December 31, 2012 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have not been adjusted to a tax-equivalent basis.

	At December 31, 2012
						More than One Year					More than Five Years
	One Year or Less					Through Five years					Through Ten Years					More than Ten Years					Total Securities
			Weighted					Weighted					Weighted					Weighted							Weighted
	Amortized		Average			Amortized		Average			Amortized		Average			Amortized		Average			Amortized		Fair		Average
	Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield			Cost		Value		Yield
	(dollars in thousands)
Debt Securities:
U.S. Government and agency securities	$	-		0.00	%	$	8,182		2.01	%	$	999		2.19	%	$	-		0.00	%	$	9,181	$	9,247		2.03	%
Municipal obligations		1,947		2.36	%		5,119		3.13	%		4,266		3.09	%		1,426		4.78	%		12,758		13,328		3.18	%
Corporate bonds and other obligations		-		0.00	%		1,135		0.00	%		-		0.00	%		-		0.00	%		1,135		1,150		0.00	%
Mortgage-backed securities
Fannie Mae		-		0.00	%		-		0.00	%		6,486		2.91	%		-		0.00	%		6,486		6,587		2.91	%
Freddie Mac		39		4.00	%		6		1.63	%		2,975		2.75	%		1,024		0.00	%		4,045		4,110		2.82	%
Ginnie Mae		-		0.00	%		48		3.41	%		17		3.35	%		18,305		3.85	%		18,370		18,911		3.84	%
Total debt securities		1,986					14,491					14,743					20,755					51,976		53,333
Marketable equity securities:
Common Stock		-		0.00	%		-		0.00	%		-		0.00	%		3		0.00	%		3		1		0.00	%
Total investment securities	$	1,986				$	14,491				$	14,743				$	20,758				$	51,979	$	53,334

Sources of Funds

General. Deposits are the major source of our funds for lending and other investment purposes. We generate deposits from our eight full-service offices in Alpena, Mio, Cheboygan, Oscoda, Lewiston, Alanson and Gaylord. In addition to deposits, we derive funds from borrowings, proceeds from the settlement of loan sales, the amortization and prepayment of loans and mortgage-backed securities, the maturity of investment securities, and operations. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are influenced significantly by general interest rates and market conditions. Borrowings are used on a short-term basis to compensate for reductions in the availability of funds from other sources or on a longer term basis for general business purposes. We currently are managing liquidity levels and loan funding primarily through secondary mortgage market sales and Federal Home Loan Bank advances.

Deposits. We generate deposits primarily from our market area by offering a broad selection of deposit instruments including NOW accounts, regular savings, money market deposits, term certificate accounts and individual retirement accounts. Deposit account terms vary according to the minimum balance required, the period of time during which the funds must remain on deposit, and the interest rate, among other factors. The rate of interest which we must pay is not established by regulatory authority. The asset/liability committee regularly evaluates our internal cost of funds, surveys rates offered by competing institutions, reviews the cash flow requirements for lending and liquidity, and executes rate changes when deemed appropriate. We have sought to decrease the risk associated with changes in interest rates by offering competitive rates on some deposit accounts and by pricing certificates of deposit to provide customers with incentives to choose certificates of deposit with longer maturities. We also attract non-interest bearing commercial deposit accounts from our commercial borrowers and offer a competitive non-deposit sweep product that is not insured by the FDIC. In recent periods, we generally have not obtained funds through brokers or through a solicitation of funds outside our market area. At December 31, 2012 we had $2.6 million in brokered deposits from CDAR’s and ICS sweep program. We offer a limited amount of certificates of deposit in excess of $100,000 which may have negotiated rates. Future liquidity needs are expected to be satisfied through the both the use of Federal Home Loan Bank borrowings, as necessary, and through growth in deposits. Management does not generally plan on paying above-market rates on deposit products, although from time-to-time we may do so as liquidity needs dictate.

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The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.

	At December 31,
	2012								2011								2010
						Weighted								Weighted								Weighted
			Percent			Average					Percent			Average					Percent			Average
	Amount		of Total			Interest Rate			Amount		of Total			Interest Rate			Amount		of Total			Interest Rate
	(dollars in thousands)
Non-interest-bearing	$	21,067		13.30	%		NA		$	12,609		8.36	%		NA		$	10,349		6.65	%		NA
NOW accounts		19,531		12.33	%		0.21	%		18,602		12.35	%		0.21	%		16,935		10.89	%		0.39	%
Passbook		19,867		12.55	%		0.05	%		17,873		11.86	%		0.05	%		16,785		10.80	%		0.05	%
Money market accounts		24,687		15.59	%		0.22	%		23,193		15.40	%		0.22	%		27,172		17.48	%		1.21	%
Time deposits that mature:
Less than 12 months		39,161		24.73	%		0.85	%		38,503		25.56	%		1.08	%		52,059		33.49	%		2.47	%
Within 12-36 months		28,701		18.13	%		1.33	%		32,580		21.63	%		1.60	%		24,371		15.68	%		2.79	%
Beyond 36 months		5,336		3.37	%		2.10	%		7,290		4.84	%		2.21	%		7,795		5.01	%		3.30	%
Jumbo		-		0.00	%		0.00	%		-		0.00	%		0.00	%		-		0.00	%		0.00	%
Total deposits	$	158,350		100.00	%		0.68	%	$	150,650		100.00	%		0.87	%	$	155,466		100.00	%		1.89	%

Time Deposit Rates. The following table sets forth time deposits classified by rates as of the dates indicated (see Note 7 to our consolidated financial statements contained within Exhibit 13 for a more detailed breakdown by rate range):

	At December 31,
Rate	2012		2011		2010
	(dollars in thousands)
0.50 percent to 0.99 percent	$	42,698	$	38,802	$	9,852
1.00 percent to 1.99 percent		15,962		18,343		35,119
2.00 percent to 2.99 percent		10,746		16,057		26,573
3.00 percent to 3.99 percent		3,398		4,078		8,718
4.00 percent to 4.99 percent		394		1,092		3,488
5.00 percent to 8.99 percent		-		-		475
	$	73,198	$	78,372	$	84,225

Time Deposit Maturities. The following table sets forth the amount and maturities of time deposits at December 31, 2012.

			1 - Less		2 - Less		3 - Less		5 years
	Less Than		than 2		than 3		than 5		and
Rate	One Year		Years		Years		Years		Greater		Total
	(dollars in thousands)
0.50 percent to 0.99 percent	$	30,190	$	10,916	$	1,563	$	29	$	-	$	42,698
1.00 percent to 1.99 percent		3,514		3,540		953		7,831		124		15,962
2.00 percent to 2.99 percent		3,296		1,458		3,961		459		1,572		10,746
3.00 percent to 3.99 percent		1,899		424		484		-		591		3,398
4.00 percent to 4.99 percent		261		-		46		87		-		394
5.00 percent to 8.99 percent		-		-		-		-		-		-
	$	39,160	$	16,338	$	7,007	$	8,406	$	2,287	$	73,198

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As of December 31, 2012, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was $26.0 million. The following table sets forth the maturity of those certificates as of December 31, 2012.

	Certificates of Deposit
Maturity Period	in excess of $100,000
	(dollars in thousands)
Three months or less	$	6,369
Three through six months		4,433
Six through twelve months		5,850
Over twelve months		9,341
Total	$	25,993

Borrowings. Our borrowings consist primarily of advances from the Federal Home Loan Bank of Indianapolis. At December 31, 2012, we had access to additional Federal Home Loan Bank advances of up to $36.0 million, based upon pledged collateral. The following table sets forth information concerning balances and interest rates on our Federal Home Loan Bank advances and other borrowings at the dates and for the periods indicated.

	Years Ended December 31,
	2012			2011			2010
	(dollars in thousands)
Balance at end of period	$	26,358		$	34,500		$	29,000
Average balance during period		31,260			31,217			38,187
Maximum outstanding at any month end		35,600			36,200			45,825
Weighted average interest rate at end of period		1.46	%		2.30	%		2.23	%
Average interest rate during period		1.88	%		2.16	%		2.86	%

Subsidiary Activity

First Federal of Northern Michigan Bancorp, Inc.’s only direct subsidiary is First Federal of Northern Michigan (the Bank).

First Federal of Northern Michigan has two wholly owned subsidiaries and these have been consolidated in the financial statements and all inter-company balances and transactions have been eliminated in consolidation.

One subsidiary, Financial Services & Mortgage Corporation, leases, sells, develops and maintains real estate properties. For reporting purposes, Financial Services & Mortgage Corporation is included in our banking segment. As of December 31, 2012, First Federal of Northern Michigan’s investment in Financial Services & Mortgage Corporation was $140,000. The primary asset of the subsidiary was an investment in land and real estate but as of December 31, 2011 all real estate had been sold. See "Real Estate Development Activities.” Financial Services & Mortgage Corporation is not currently a party to any agreement that is material to First Federal of Northern Michigan Bancorp, Inc. on a consolidated basis.

First Federal of Northern Michigan’s second subsidiary, FFNM Agency, Inc., collects the residual income stream associated with the April 2008 sale of the Company’s wholesale health insurance override business to a third party. FFNM Agency is the successor company to the InsuranCenter of Alpena (“ICA”). On February 27, 2009, we sold the majority of the assets of ICA.

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Personnel

As of December 31, 2012, First Federal of Northern Michigan had 69 full-time and 23 part-time employees. None of the Bank's employees is represented by a collective bargaining group. The Bank believes its relationship with its employees to be good. First Federal of Northern Michigan Bancorp, Inc., FFNM Agency, Inc. and FSMC have no separate employees.

SUPERVISION AND REGULATION

General

First Federal of Northern Michigan is a federally chartered savings bank, and as such is regulated and supervised by the Office of Comptroller of the Currency and the Federal Deposit Insurance Corporation. This regulation and supervision establishes a comprehensive framework of activities in which a financial institution may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s deposit insurance funds and depositors. Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. After completing an examination, the federal agency critiques the financial institution’s operations and assigns its rating (known as an institution’s CAMELS). Under federal law, an institution may not disclose its CAMELS rating to the public. First Federal of Northern Michigan also is a member of, and owns stock in, the Federal Home Loan Bank of Indianapolis, which is one of the twelve regional banks in the Federal Home Loan Bank System. First Federal of Northern Michigan also is regulated to a lesser extent by the Board of Governors of the Federal Reserve System, governing reserves to be maintained against deposits and other matters. The Comptroller of the Currency examines First Federal of Northern Michigan and prepares reports for the consideration of its board of directors on any operating deficiencies.

Any change in these laws or regulations, whether by the Federal Deposit Insurance Corporation, the Comptroller of the Currency, or Congress, could have a material adverse impact on us and our operations.

As a savings and loan holding company, First Federal of Northern Michigan Bancorp, Inc. is required to comply with the rules and regulations of the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) and to file certain reports with and is subject to examination by the Federal Reserve Board. First Federal of Northern Michigan Bancorp, Inc. is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act’) significantly changed the bank regulatory structure and affected the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act eliminated our former primary federal regulator, the Office of Thrift Supervision, and requires First Federal of Northern Michigan to be regulated by the Office of the Comptroller of the Currency (the primary federal regulator for national banks). The Dodd-Frank Act also authorizes the Federal Reserve Board to supervise and regulate all savings and loan holding companies like First Federal of Northern Michigan Bancorp, Inc., in addition to bank holding companies which it regulates. As a result, the Federal Reserve Board’s regulations applicable to bank holding companies, including holding company capital requirements, apply to savings and loan holding companies like First Federal of Northern Michigan Bancorp, Inc., unless an exemption exists. These capital requirements are substantially similar to the capital requirements currently applicable to First Federal of Northern Michigan, as described in “–Federal Banking Regulation–Capital Requirements.” The Dodd-Frank Act also requires the Federal Reserve Board to set minimum capital levels for bank holding companies that are as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital are restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. Bank holding companies with assets of less than $500 million are exempt from these capital requirements. Under the Dodd-Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets.

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The legislation also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives. The Dodd-Frank Act also authorizes the payment of interest on commercial checking accounts, effective July 21, 2011.

The Dodd-Frank Act also creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as First Federal of Northern Michigan, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.

The legislation also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and non-interest bearing transaction accounts had unlimited deposit insurance through December 31, 2012. Lastly, the Dodd-Frank Act increases stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

Federal Banking Regulation

Business Activities. A federal savings bank derives its lending and investment powers from the Home Owners’ Loan Act, and the regulations of the Office of the Comptroller of the Currency (“OCC”). Under these laws and regulations, First Federal of Northern Michigan may invest in mortgage loans secured by residential and commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other loans and assets. First Federal of Northern Michigan also may establish subsidiaries that may engage in activities not otherwise permissible for First Federal of Northern Michigan directly, including real estate investment, securities brokerage and insurance agency services.

Capital Requirements. OCC regulations require savings banks to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for institutions receiving the highest CAMELS rating) and an 8% risk-based capital ratio. The prompt corrective action standards discussed below, in effect, establish a minimum 2% tangible capital standard.

The risk-based capital standard for savings banks requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, assigned by the OCC capital regulation based on the risks inherent in the type of asset. Core capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, allowance for loan and lease losses up to a maximum of 1.25% of risk-weighted assets, and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

Additionally, a savings association that retains credit risk in connection with an asset sale may be required to maintain regulatory capital because of the recourse back to the savings association. In assessing an institution’s capital adequacy, the OCC takes into consideration not only thee numeric factors but also qualitative factors as well, and has the authority to establish higher capital requirements for individual associations where necessary.

On June 6, 2012, the OCC and the other federal bank regulatory agencies issued a series of proposed rules to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (“Basel III”). The proposed rules would apply to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more, and top-tier savings and loan holding companies (“banking organizations”). Among other things, the proposed rules establish a new common equity tier 1 minimum capital requirement and a higher minimum tier 1 capital requirement, and assign higher risk weightings (150%) to exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property. The proposed rules also limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of a specified amount of common equity tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements. The proposed rules indicated that the final rules would become effective on January 1, 2013, and the changes set forth in the final rules would be phased in from January 1, 2013 through January 1, 2019. However, the federal bank regulatory agencies have recently indicated that, due to the volume of public comments received, the implementation of the final rule would be delayed past January 1, 2013.

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At December 31, 2012, First Federal of Northern Michigan’s capital exceeded all applicable requirements. The following table sets forth the Bank’s capital position at December 31, 2012 and 2011, as compared to the minimum capital requirements.

	At December 31,
	2012					2011
			Percent					Percent
	Amount		of Assets			Amount		of Assets
	(dollars in thousands)
Equity capital	$	23,304		11.0	%	$	23,735		11.0	%
Tangible Capital Requirement:
Tangible capital level		22,015		10.3	%		22,334		10.4	%
Requirement		3,197		1.5	%		3,232		1.5	%
Excess		18,822		8.8	%		19,102		8.9	%
Core Capital Requirement:
Core capital level		22,015		10.3	%		22,334		10.4	%
Requirement		8,526		4.0	%		8,618		4.0	%
Excess		13,494		6.3	%		13,716		6.4	%
Risk-based Capital Requirement:
Risk-based capital level		23,723		17.4	%		23,568		17.2	%
Requirement		10,930		8.0	%		10,961		8.0	%
Excess		12,793		9.3	%		12,607		9.2	%

Loans to One Borrower. A federal savings bank generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus on an unsecured basis. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2012, First Federal of Northern Michigan was in compliance with the loans-to-one-borrower limitations.

Qualified Thrift Lender Test. As a federal savings bank, First Federal of Northern Michigan is subject to a qualified thrift lender, or “QTL,” test. Under the QTL test, First Federal of Northern Michigan must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine months of the most recent 12-month period.

A savings bank that fails the QTL test must operate under specified restrictions. The Dodd-Frank Act made noncompliance with the QTL test potentially subject to agency enforcement action for a violation of law. At December 31, 2012, First Federal of Northern Michigan maintained approximately 76.1% of its portfolio assets in qualified thrift investments, and therefore satisfied the QTL test.

Capital Distributions. Office of the Comptroller of the Currency regulations govern capital distributions by a federal savings bank, which include cash dividends, stock repurchases and other transactions charged to the institution’s capital account. A savings bank must file an application for approval of a capital distribution if:

· the total capital distributions for the applicable calendar year exceed the sum of the savings bank’s net income for that year to date plus the savings bank’s retained net income for the preceding two years;

· the savings bank would not be at least adequately capitalized following the distribution;

· the distribution would violate any applicable statute, regulation, agreement or Office of the Comptroller of the Currency-imposed condition; or

· the savings bank is not eligible for expedited treatment of its filings.

Liquidity. A federal savings bank is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation.

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Community Reinvestment Act and Fair Lending Laws. All savings banks have a responsibility under the Community Reinvestment Act and related regulations of the Office of the Comptroller of the Currency to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of a federal savings bank, the Office of the Comptroller of the Currency is required to assess the savings bank’s record of compliance with the Community Reinvestment Act. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. A savings bank’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in regulatory restrictions on its activities. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of the Comptroller of the Currency, as well as other federal regulatory agencies and the Department of Justice. First Federal of Northern Michigan received an “Outstanding” Community Reinvestment Act rating in its two most recent federal examinations.

Transactions with Related Parties. A federal savings bank’s authority to engage in transactions with its “affiliates” is limited by Office of the Comptroller of the Currency regulations and Regulation W of the Federal Reserve Board, which implements Sections 23A and 23B of the Federal Reserve Act. The term “affiliates” for these purposes generally means any company that controls or is under common control with an institution. First Federal of Northern Michigan Bancorp, Inc. and its non-savings institution subsidiaries will be affiliates of First Federal of Northern Michigan. In general, transactions with affiliates must be on terms that are as favorable to the savings bank as comparable transactions with non-affiliates. In addition, certain types of these transactions are restricted to an aggregate percentage of the savings bank’s capital. Collateral in specified amounts must usually be provided by affiliates in order to receive loans from the savings bank. In addition, Office of the Comptroller of the Currency regulations prohibit a savings bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary.

First Federal of Northern Michigan’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of First Federal of Northern Michigan’s capital. In addition, extensions of credit in excess of certain limits must be approved by First Federal of Northern Michigan’s board of directors.

Enforcement. The Office of the Comptroller of the Currency has primary enforcement responsibility over federal savings banks and has the authority to bring enforcement action against all “institution-affiliated parties,” including stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the savings bank, receivership, conservatorship or the termination of deposit insurance. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The Federal Deposit Insurance Corporation also has the authority to recommend to the Director of the Office of the Comptroller of the Currency that enforcement action be taken with respect to a particular savings bank. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take action under specified circumstances.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate risk exposure, asset growth, compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan.

Insurance of Deposit Accounts.The Dodd-Frank Act permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008.  Also, under the Dodd-Frank Act, noninterest-bearing checking accounts had unlimited deposit insurance through December 31, 2012.

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On November 12, 2009, the FDIC approved a final rule requiring insured depository institutions to prepay, on December 31, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012.   Estimated assessments for the fourth quarter of 2009 and for all of 2010 were based upon the assessment rate in effect on September 30, 2009, with three basis points added for the 2011 and 2012 assessment rates.  In addition, a 5% annual growth in the assessment base was assumed.  Prepaid assessments are to be applied against the actual quarterly assessments until exhausted, and may not be applied to any special assessments that may occur in the future.  Any unused prepayments will be returned to the institution on June 30, 2013.  We recorded the pre-payment as a prepaid expense, which will be amortized to expense over three years. Based on our deposit and assessment rate as of September 30, 2009, our prepayment amount was $1.4 million. As of December 31, 2012 the prepaid balance was $583,000.

Effective April 1, 2011, the FDIC implemented a requirement of the Dodd-Frank Act to revise its assessment system to base it on each institution’s total assets less tangible capital of each institution instead of deposits.  The FDIC also revised its assessment schedule so that it ranges from 2.5 basis points for the least risky institutions to 45 basis points for the riskiest.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The Bank does not believe that it is taking or is subject to any action, condition or violation that could lead to termination of its deposit insurance.

All FDIC-insured institutions are required to pay a pro rata portion of the interest due on obligations issued by the Financing Corporation (“FICO”) for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the Federal Savings and Loan Insurance Corporation.  The bonds issued by the FICO are due to mature in 2017 through 2019.  For the quarter ended December 31, 2012, the annualized FICO assessment was equal to 1.00 cents for each $100 in domestic deposits maintained at an institution.  Assessments related to the FICO bond obligations were not subject to the December 31, 2009 prepayment.

For the year ended December 31, 2012, the Bank paid $189,000 related to the FICO bonds and deposit insurance assessments.  Deposit insurance assessments were prepaid in December 2009, for calendar years 2010 through 2012.

Prompt Corrective Action. The “prompt corrective action” provisions of the FDIA create a statutory framework that applies a system of both discretionary and mandatory supervisory actions indexed to the capital level of FDIC-insured depository institutions. These provisions impose progressively more restrictive constraints on operations, management, and capital distributions of the institution as its regulatory capital decreases, or in some cases, based on supervisory information other than the institution’s capital level. This framework and the authority it confers on the federal banking agencies supplement other existing authority vested in such agencies to initiate supervisory actions to address capital deficiencies. Moreover, other provisions of law and regulation employ regulatory capital level designations the same as or similar to those established by the prompt corrective action provisions both in imposing certain restrictions and limitations and in conferring certain economic and other benefits upon institutions. These include restrictions on brokered deposits, limits on exposure to interbank liabilities, determination of risk-based FDIC deposit insurance premium assessments, and action upon regulatory applications.

The recently proposed rules that would increase regulatory capital requirements would adjust the prompt corrective categories accordingly. See “–Capital Requirements” above.

Prohibitions Against Tying Arrangements. Federal savings banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the savings bank or its affiliates or not obtain services of a competitor of the savings bank.

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Federal Home Loan Bank System. First Federal of Northern Michigan is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions. As a member of the Federal Home Loan Bank of Indianapolis, First Federal of Northern Michigan is required to acquire and hold shares of capital stock in the Federal Home Loan Bank in an amount equal to at least 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20 of its borrowings from the Federal Home Loan Bank, whichever is greater. As of December 31, 2012, First Federal of Northern Michigan was in compliance with this requirement.

Other Regulations

Interest and other charges collected or contracted for by First Federal of Northern Michigan are subject to state usury laws and federal laws concerning interest rates. First Federal of Northern Michigan’s operations are also subject to federal laws applicable to credit transactions, such as the:

· Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

· Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

· Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

· Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

· Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

· Truth in Savings Act; and

· rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of First Federal of Northern Michigan also are subject to the:

· Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

· Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

· Check Clearing for the 21^st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

· Title III of The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the “USA PATRIOT Act”), which significantly expanded the responsibilities of financial institutions, including savings and loan associations, in preventing the use of the American financial system to fund terrorist activities. Among other provisions, the USA PATRIOT Act and the related regulations of the OCC require savings associations operating in the United States to develop new anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

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· The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

Federal Reserve System

Federal Reserve Board regulations require savings banks to maintain non-interest-earning reserves against their transaction accounts, such as negotiable order of withdrawal and regular checking accounts. At December 31, 2012, First Federal of Northern Michigan was in compliance with these reserve requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements imposed by the Office of the Comptroller of the Currency.

The USA PATRIOT Act

The USA PATRIOT Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. Certain provisions of the Act impose affirmative obligations on a broad range of financial institutions, including federal savings banks, like First Federal of Northern Michigan. These obligations include enhanced anti-money laundering programs, customer identification programs and regulations relating to private banking accounts or correspondence accounts in the United States for non-United States persons or their representatives (including foreign individuals visiting the United States).

First Federal of Northern Michigan has established policies and procedures to ensure compliance with the USA PATRIOT Act’s provisions, and the impact of the USA PATRIOT Act on our operations has not been material.

Holding Company Regulation

Pursuant to the Dodd-Frank Act, as of July 21, 2011, the Federal Reserve Board succeeded the Office of Thrift Supervision as the regulator for savings and loan holding companies, such as First Federal of Northern Michigan Bancorp, Inc.

General.First Federal of Northern Michigan Bancorp, Inc. is a non-diversified unitary savings and loan holding company within the meaning of the Home Owners’ Loan Act. As such, First Federal of Northern Michigan Bancorp, Inc. is registered with the Federal Reserve Board and subject to examination and supervision by the Federal Reserve Bank of Chicago. First Federal of Northern Michigan Bancorp, Inc. is subject to the Federal Reserve Board regulations (including applicable regulations of the former Office of Thrift Supervision), and reporting requirements. In addition, the Federal Reserve Board has enforcement authority over First Federal of Northern Michigan Bancorp, Inc. and its non-insured subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution.

Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, requires the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. Instruments such as cumulative preferred stock and trust preferred securities will no longer be includable as Tier 1 capital, as is currently the case with bank holding companies. Instruments issued prior to May 19, 2010 are grandfathered for companies with consolidated assets of $15 billion or less. There is a five-year transition period (from the July 21, 2010 effective date of the Dodd-Frank Act) before the capital requirements will apply to savings and loan holding companies.

The Federal Reserve Board has issued a policy guidance regarding the payment of dividends by bank holding companies that it has made applicable to savings and loan holding companies as well.  In general, the Federal Reserve Board’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition.  Federal Reserve Board guidance provides for prior regulatory review of capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition.  The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.  These regulatory policies could affect our ability to pay dividends or otherwise engage in capital distributions.

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The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must issue regulations requiring that all bank and savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

Permissible Activities. Under present law, the business activities of First Federal of Northern Michigan Bancorp, Inc. are generally limited to those activities permissible for financial holding companies under Section 4(k) of the Bank Holding Company Act of 1956, as amended, or for multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance as well as activities that are incidental to financial activities or complementary to a financial activity. A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the Federal Reserve Board, and certain additional activities authorized by Federal Reserve Board regulations.

Federal law prohibits a savings and loan holding company, including First Federal of Northern Michigan Bancorp, Inc., directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or holding company thereof, without prior written approval of the Federal Reserve Bank of Chicago. It also prohibits the acquisition or retention of, with certain exceptions, more than 5% of a non-subsidiary company engaged in activities that are not closely related to banking or financial in nature, or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Bank of Chicago must consider the financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors.

The Federal Reserve Bank of Chicago is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions:

(i) the approval of interstate supervisory acquisitions by savings and loan holding companies; and

(ii) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisition.

The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the SEC, under the Securities Exchange Act of 1934.

The Sarbanes-Oxley Act includes very specific additional disclosure requirements and new corporate governance rules requiring the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules, and mandates further studies of certain issues by the SEC. The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

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Federal Securities Laws

First Federal of Northern Michigan Bancorp, Inc.’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. First Federal of Northern Michigan Bancorp, Inc. is subject to the information, proxy solicitation, insider trader restrictions and other requirements under the Securities Exchange of 1934.

First Federal of Northern Michigan Bancorp, Inc. common stock held by persons who are affiliates (generally officers, directors and principal stockholders) of First Federal of Northern Michigan Bancorp, Inc. may not be resold without registration or unless sold in accordance with certain resale restrictions. If First Federal of Northern Michigan Bancorp, Inc. meets specified current public information requirements, each affiliate of First Federal of Northern Michigan Bancorp, Inc. is able to sell in the public market, without registration, a limited number of shares in any three-month period.

TAXATION

Federal Taxation

General. First Federal of Northern Michigan Bancorp, Inc. and First Federal of Northern Michigan are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to First Federal of Northern Michigan Bancorp, Inc. and First Federal of Northern Michigan.

Method of Accounting. For federal income tax purposes, First Federal of Northern Michigan currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its consolidated federal income tax returns. The Small Business Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995.

Bad Debt Reserves. Prior to the Small Business Protection Act of 1996, First Federal of Northern Michigan was permitted to establish a reserve for bad debts for tax purposes and to make annual additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at First Federal of Northern Michigan’s taxable income. As a result of the Small Business Protection Act, First Federal of Northern Michigan must use the specific charge-off method in computing its bad debt deduction for tax purposes.

Deferred Tax Asset Valuation. The Company records a valuation allowance against its deferred tax assets if it believes, based on available evidence, that it is “more likely than not” that the future tax assets recognized will not be realized before their expiration. Realization of the Company’s deferred tax assets is primarily dependent upon the generation of a sufficient level of future taxable income. At December 31, 2012 the Company had a valuation allowance against its deferred tax assets of $3.2 million.

Taxable Distributions and Recapture. Prior to the Small Business Protection Act of 1996, bad debt reserves created prior to 1988 were subject to recapture into taxable income if First Federal of Northern Michigan failed to meet certain thrift asset and definitional tests. The Small Business Protection Act of 1996 eliminated these thrift-related recapture rules. However, under current law, pre-1988 reserves remain subject to tax recapture should First Federal of Northern Michigan make certain distributions from its tax bad debt reserve or cease to maintain a bank charter. At December 31, 2012, First Federal of Northern Michigan’s total federal pre-1988 reserve was approximately $60,000. This reserve reflects the cumulative effects of federal tax deductions by First Federal of Northern Michigan for which no federal income tax provision has been made.

Minimum Tax. The Internal Revenue Code of 1986, as amended, imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income” or “AMTI”). The alternative minimum tax is payable to the extent such AMTI is in excess of an exemption amount. Net operating losses can, in general, offset no more than 90% of AMTI. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. First Federal of Northern Michigan has not been subject to the alternative minimum tax and has no such amounts available as credits for carryover.

Net Operating Loss Carryovers. A financial institution may carry back net operating losses to the preceding five taxable years and forward to the succeeding 20 taxable years. At December 31, 2012, First Federal of Northern Michigan had a net operating loss of approximately $10.4 million which it may carry forward for federal income tax purposes until 2032.

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Corporate Dividends. We may exclude from our income 100% of dividends received from First Federal of Northern Michigan as a member of the same affiliated group of corporations.

The federal income tax returns of First Federal of Northern Michigan Bancorp, Inc. and its predecessor, Alpena Bancshares, Inc. have not been audited by the Internal Revenue Service in the last five fiscal years.

State and Local Taxation

During 1999, the State of Michigan enacted legislation that resulted in elimination of the Michigan single business tax by gradually phasing it out over the next 23 years. On August 9, 2006, the Michigan Legislature approved the repeal of the Michigan SBT for tax years beginning after December 31, 2007. The Michigan SBT has been replaced with the Michigan Business Tax (MBT). Financial Institutions are subject to a component of the MBT, the Financial Institutions Tax, which is based on capital rather than taxable earnings.

Other applicable state taxes include generally applicable sales, use and real property taxes.

As a Maryland business corporation, First Federal of Northern Michigan Bancorp, Inc. is required to file annual returns with and pay annual fees to the State of Maryland.

ITEM 1A.           RISK FACTORS

Not required for smaller reporting companies.

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ITEM 1B.          UNRESOLVED STAFF COMMENTS

None

ITEM 2.             PROPERTIES

As of December 31, 2012, First Federal of Northern Michigan owned its main office and all of its branch offices. The following is a list of our locations:

Main Office	Main Office – Annex Building
100 South Second Avenue	123 S Second Ave
Alpena, Michigan 49707	Alpena, MI 49707
Branch Offices
300 South Ripley Boulevard	2885 South County Road #489
Alpena, Michigan  49707	Lewiston, Michigan  49756
6232 River Street	308 North Morenci
Alanson, Michigan 49706	Mio, Michigan  48647
101 South Main Street	201 North State Street
Cheboygan, Michigan  49721	Oscoda, Michigan  48750
1000 South Wisconsin
Gaylord, Michigan  49735

ITEM 3.             LEGAL PROCEEDINGS

The Company and the Bank are periodically involved in claims and lawsuits that are incident to their business. At December 31, 2012, neither the Company nor the Bank was involved in any claims or lawsuits material to their respective businesses.

ITEM 4.             MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.              MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) First Federal of Northern Michigan Bancorp, Inc.’s common stock is traded on the Nasdaq Capital Market under the symbol “FFNM.”

33

As of March 29, 2013 there were 2,884,049 shares of First Federal of Northern Michigan Bancorp, Inc. common stock outstanding. At December 31, 2012, First Federal of Northern Michigan Bancorp, Inc. had approximately 600 stockholders of record. The remaining information required by this item is incorporated by reference to Exhibit 13, the Company’s Annual Report to Stockholders.

No equity securities were sold during the year ended December 31, 2012 that were not registered under the Securities Act.

(b) Not Applicable

(c) First Federal of Northern Michigan Bancorp, Inc. did not repurchase any of its equity securities during the quarter ended December 31, 2012.

ITEM 6.             SELECTED FINANCIAL DATA

Not required for smaller reporting companies. 

ITEM 7.             MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" is incorporated by reference to Exhibit 13, the Company's Annual Report to Stockholders.

ITEM 7A.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 8.             FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information contained in the section captioned “Financial Statements” is incorporated by reference to Exhibit 13, the Company’s Annual Report to Shareholders.

ITEM 9.             CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A.           CONTROLS AND PROCEDURES

(a)          Evaluation of Disclosure 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.

(b)          Management’s Annual Report on Internal Control over Financial Reporting

Management of First Federal of Northern Michigan Bancorp, Inc. and subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s system of internal control is designed under the supervision of management, including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).

34

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with the authorization of management and the Board of Directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections on any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate.

As of December 31, 2012, management assessed the effectiveness of the Company’s internal control over financial reporting based upon the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon its assessment, management believes that the Company’s internal control over financial reporting as of December 31, 2012 is effective using these criteria. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission applicable to smaller reporting companies that permit the Company to provide only management’s report in this annual report.

(c)          Changes in Internal Control over Financial Reporting

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

ITEM 9B.           OTHER INFORMATION

None.

PART III

ITEM 10.           DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Information concerning directors and executive officers is incorporated herein by reference from the Company’s Proxy Statement, specifically the section captioned "Proposal I—Election of Directors."

ITEM 11.           EXECUTIVE COMPENSATION

Information concerning executive compensation is incorporated herein by reference from the Company’s Proxy Statement, specifically the section captioned "Proposal I—Election of Directors.”

ITEM 12.            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information concerning security ownership of certain owners and management is incorporated herein by reference from the Company’s Proxy Statement, specifically the Section captioned “Proposal I – Election of Directors.”

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information concerning relationships and transactions is incorporated herein by reference from the Company's Proxy Statement, specifically the section captioned “Transactions with Certain Related Persons”.

35

ITEM 14.         PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning principal accountant fees and services is incorporated herein by reference to the Company’s Proxy Statement, specifically the section captioned “Proposal II – Ratification of Appointment of Auditors.”

PART IV

ITEM 15.         EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The exhibits filed as a part of this form 10-K are as follows:

3.1 Articles of Incorporation of First Federal of Northern Michigan Bancorp, Inc.*

3.2 Bylaws of First Federal of Northern Michigan Bancorp, Inc.*

4 Form of Common Stock Certificate of First Federal of Northern Michigan Bancorp, Inc.*

10.1 Change in Control Agreements*

10.2 1996 Stock Option Plan*

10.3 2006 Stock-Based Incentive Plan**

13 Annual Report to Shareholders

14 Code of Ethics ***

21 Subsidiaries of Registrant

23 Consent of Plante & Moran PLLC

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Incorporated by reference to the Registration Statement on Form SB-2 of First Federal of Northern Michigan Bancorp, Inc. (Registration No. 333-121178), originally filed with the Commission on December 10, 2004.

** Incorporate by reference to the Definitive Proxy materials filed on April 10, 2006 (No. 000-31957).

*** Incorporated by reference to the Annual Report on Form 10-K of Alpena Bancshares, Inc. filed with the Commission on March 30, 2004 (Registration No. 000-31957).

36

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:  March 29, 2013

Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

By:	/s/Michael W. Mahler	By:	/s/Amy E. Essex
	Michael W. Mahler, Director and		Amy E. Essex, Chief Financial Officer, Treasurer and
	Chief Executive Officer		Corporate Secretary
	(Principal Executive Officer)		(Principal Financial and Accounting Officer)
Date:  March 29, 2013			Date:  March 29, 2013
By:	/s/Martin A. Thomson	By:	/s/Keith Wallace
	Martin A. Thomson, Chairman		Keith Wallace, Director
Date:  March 29, 2013			Date:  March 29, 2013
By:	/s/GaryVanMassenhove	By:	/s/Thomas R. Townsend
	Gary VanMassenhove, Director		Thomas R. Townsend, Director
Date:  March 29, 2013			Date:  March 29, 2013
By:	/s/James C. Rapin
	James C. Rapin, Director
Date:  March 29, 2013

37

EX-13

EXHIBIT 13

2012 ANNUAL REPORT TO STOCKHOLDERS

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

2012

ANNUAL REPORT

March 29, 2013

Dear Fellow Shareholder,

Last year’s annual report theme was New Horizons and New Beginnings. I spent considerable time in that letter talking about our new priorities including growing the balance sheet, increasing the level of core deposits, continuing to jettison the non-performing assets and establishing an operational efficiency that will allow for continued financial improvement that ultimately will allow for the restoration of the dividend. One year later these items still represent our focus. What I failed to discuss in last year’s letter was the interconnection between these focus areas and the communities our Bank serves. The cover of this year’s annual report features several of the communities we live, work and operate within. We serve on various community boards, teach Junior Achievement, coach numerous sports and take active roles in many worthwhile initiatives. This is part of the mission we fulfill as a community bank. Before I begin that discussion though, let me take a moment to look backward.

The operating environment in 2012 did not meet our expectations in both positive and negative ways. To illustrate:

Ø Mortgage Banking: On the positive side, for the year, our Bank originated $52.4 million dollars in mortgage loans. After a more normalized 2011, we expected more of the same for 2012. However, mortgage rates dipped in the late spring of 2012 and we were operating at capacity for the balance of the year. Mortgage origination volume in 2012 certainly exceeded our expectations.

Ø Mortgage Charge Offs: While we saw improvement year over year in terms of the charge off levels ($1.1 million in 2011 to $775,000 in 2012), the continuation of falling real estate prices negatively impacted us in 2012. While many parts of Michigan and the country have seen some recovery in real estate values, the phrase “appreciating real estate values” has not found its way back into our vocabulary in Northern Michigan as of yet. This was the single biggest factor in the increase in our provision expense of 2012 when compared to the prior year.

Ø Margin Compression: Another positive was that in 2012 our margins did not get compressed to the extent we thought they would. In spite of lower interest rates during the year, we continued to successfully grow core deposits which helped to offset some of the pressures on the loan pricing side.

Ø Commercial Loan Originations: We expected to grow net loans in 2012. We were wrong. Demand was more muted than we anticipated. We saw many prospects testing the waters but most were unable or unwilling to “take the next step.” Some of these loan commitments sat on our pipeline for the entire year. Many of those we worked with in 2012 were concerned about the outcome of the November elections along with the fiscal cliff and the impact both of those outcomes might have on the economy. As a result, these same borrowers sat on the sidelines. Finally today we are starting to see some of these deals move ahead.

Ø Asset Quality: In spite of our provision expense needs in 2012, we have once again made solid progress in this area. Net charge-offs overall declined for the 4^th consecutive year (even though Mortgage charge-offs grew) and was at the lowest level in 5 years. In addition, the classified asset ratio declined from 69% to 54% throughout the year. The big disappointment came the very last week of the year when we had to reclassify a large classified commercial relationship into non-performing status. The borrower ran into financial difficulty late in the year. The military is their largest customer. Reductions to defense spending ahead of sequestration (9% automatic Department of Defense cuts) placed this customer in a tenuous position that resulted in the customer no longer being able to service the debt. This added $2 million dollars to our non-performing asset totals in the final week of the year. This was a bitter pill to swallow. This reclassification wiped out the entire year’s improvement to our NPA balances.

On a positive note, we continue to see reductions in collection costs and REO / ORA costs. Many of these reductions were the result of declining legal costs along with fewer write downs associated with the liquidation of these assets.

Community Focus

As I discussed in last year’s letter, the focus shifted more to looking ahead and less on fixing problems. In 2012 that is exactly what we did. Our focus was on growing our balance sheet in order to create value for our shareholders. This is not a “grow at all cost” mentality. Our focus centers on working within our communities to help good customers get better. Our roots as a 56-year-old savings bank center on meeting the needs of the community. When we started in 1957 we were a one-branch bank focused on Alpena, Michigan and making mortgage loans to the community. Today the story is somewhat similar. We now serve the region with 8 full service branches, thereby helping us to meet the needs of several more rural communities throughout our region. In addition to expanding our footprint, we have also expanded our product offerings by getting involved in commercial lending which became a strategic focus in the late 1990’s. Up until then we were primarily a mortgage bank. Our focus is simple; we are here to meet the varied and diverse needs of our communities.

To demonstrate our role in the communities we serve consider the following:

Ø The Bank originated $52.4 million dollars of mortgages in our market. Of that total, the Bank placed $13.3 million of these community loans into our own portfolio.

Ø The Bank originated $18.2 million of commercial loans in our market in 2012.

Our support of the communities and borrowers is vital to our community and therefore to our own long term success.

It is no mystery that Michigan was hurt hard in the recession. While most of the country endured a recession, the impact was disproportionate on our state. Many would characterize our economy as a depression at the height of the downturn. The markets we serve are very dependent on the economies of the southern part of the state. When Detroit and the entire auto industry fell into chaos, the impact on our communities was magnified. We saw unemployment rates rise to near 30% in some of our markets. In our biggest market (Alpena) the unemployment rate rose above 16%. While this was not a pretty picture, it was the hand we were dealt as a community focused bank.

Our response in the years that have followed has been to work with the members of our community that were caught up in the economic tidal wave. We worked with borrowers, where possible, to find a way to help them keep their home, their car or their business.

Our help of borrowers took many different forms:

Ø In the case of troubled homeowners, we supported them through various government programs including the Home Affordable Modification Program (HAMP) or the Making Home Affordable (MHA) programs. The Bank worked with numerous troubled homeowners over the last several years in an attempt to keep the borrower in their home. This work continues today but at a slower pace as the recovery has begun for our region.

Ø In the case of troubled commercial borrowers, we restructured loans with lower rates, longer amortizations or seasonal payments if it made sense. While there are often negative financial implications for the Bank in these cases, in the long run it is often the best choice in terms of helping the borrower manage through the crisis. Through these actions, we saw many distressed borrowers make it through to the improving conditions today.

While these situations were hard on all parties, the cooperation in many cases helped our borrowers recover, which in turn helps our communities to recover. This is at the heart of what community banking is all about. That is why our business model is so vital to the well-being of the small communities we serve. Of course we could not save all troubled borrowers. Some could not break away from the inertia of the downward spiral they found themselves caught up in. Among the lessons we learned from this period was that the distant deals that became problematic were made more complicated by the miles that separated us from the borrowers.

Our board and staff recognize that while our markets may not be dynamic, fast paced high growth markets, they are still our markets. We understand our markets and the borrowers therein. In 2007 our board elected to no longer get involved in lending out of state no matter how good the business climate was in that particular state or market. Without boots on the ground, we have been reminded how difficult it is to monitor and know the customer. Our focus is on making money in our markets, even challenging markets. Bad markets still have good borrowers. As a community bank, we will continue to focus on those borrowers.

Today all of our markets show signs of healing. Some are further along than others but all are improving. The proof of this is found in improving delinquency trends and financial performance of our commercial borrowers. Our business plan is to grow with these customers once again.

Over the last five years we have reduced our full time staff by 25% from 92 to 69 while adding only 4 part time employees increasing that total to 23. As a bank, we have never been thinner in terms of our staffing levels. In spite of these cuts, earnings have still been challenged. We know we cannot cut our way to prosperity. Our financial improvement is not only contingent upon the economic recovery of Michigan but also in out ability to grow our Bank. In that spirit, we intend on committing both human and financial capital to technology initiatives in 2013. As customers needs and the way they do business evolves, so must the Bank. Our technology initiatives evolve around both commercial and retail customers. Both of these groups will see new or enhanced product offerings including more robust merchant capture, internet banking, mobile applications, treasury management products, and commercial electronic bill pay to name but a few. Additionally, we will support these technology initiatives by investing in fiber technology. As fiber technology makes its way into northern Lower Michigan, we will embrace it. This will not only allow for more robust speeds to support these enhanced products and services, but also provide for improved redundancy supporting our more robust business continuity and pandemic preparedness goals. We view all of these investments as vital to support these rural evolving communities.

Closing thoughts:

While the core of this letter centers on meeting the needs of our communities and the interwoven relationship between community success and Bank success, there are still forces coming from outside of the community that can and will impact our communities and our industry. The artificially low interest rate environment, a commitment by the Federal Reserve to hold its target short-term interest rates between 0 - .25% through at least mid 2015, the unresolved debt ceiling debate, an unbalanced federal government budget, sequestration, a new bank regulator to protect consumers (CFPB) and newly proposed bank capital rules are a few of the open items that will play a role in the economic recovery, impacting our industry, our customers and ultimately our shareholders. For our bank, we will continue to focus on those elements within our control ever mindful and considerate of the potential influences of these unknowns. The community bank business model has proven itself time and time again across the decades and in every region of our country. We know our customers. We know our borrowers, their track record, and their character. As a community bank this is vital to our success. We are reminded daily of the benefits of knowing our communities, our customers and their needs. We are positioned and ready to continue to recover with our markets, our friends, our neighbors and our shareholders. We are honored to be a community bank and a participant in the meaningful recovery of all of the communities we serve.

Michael W. Mahler

President and Chief Executive Officer

Selected Consolidated Financial and Other Data of the Company

Set forth below are selected financial and other data of First Federal of Northern Michigan Bancorp, Inc. (the “Company”). This information is derived in part from and should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto presented elsewhere in this Annual Report. The information at December 31, 2012 and December 31, 2011 and for the years ended December 31, 2012 and 2011 is derived in part from the audited consolidated financial statements of the Company that appear in this Annual Report. The information for the years ended December 31, 2010, 2009, and 2008 is derived in part from audited consolidated financial statements that do not appear in this Annual Report.

	At December 31,
Financial condition data:	2012		2011		2010		2009		2008
	(In thousands)
Total assets	$	213,834	$	217,045	$	215,733	$	233,506	$	247,672
Loans receivable, net		138,912		140,884		157,144		171,219		192,270
Loans held for sale		79		-		-		52		107
Investment securities		53,109		55,484		37,821		37,641		29,687
Cash and cash equivalents		2,752		2,749		1,963		3,099		3,471
Deposits		158,350		150,649		155,466		158,100		165,778
FHLB advances and note payable		26,358		34,500		29,000		45,031		40,969
Repo Sweep agreements		3,183		5,592		6,172		5,408		9,447
Stockholders' equity		24,435		24,568		23,236		23,052		29,419

	For the Years Ended December 31,
Operating data:	2012			2011			2010			2009			2008
	(In thousands)
Interest income	$	9,243		$	10,390		$	11,447		$	12,442		$	13,967
Interest expense		1,654			2,262			3,447			5,088			7,130
Net interest income		7,589			8,128			8,000			7,354			6,837
Provision for loan losses		1,367			284			1,101			6,196			4,421
Net interest income after provision for loan losses		6,222			7,844			6,899			1,158			2,416
Other income (loss):
Service charges and fees		760			730			804			869			942
Mortgage banking activities		1,243			969			1,438			1,414			432
Net gain (loss) on sale of investment securities		47			-			546			-			6
Gain (loss) on sale of real estate		(3	)		(51	)		(43	)		20			22
Other non-interest income		80			126			301			102			95
Insurance & brokerage commissions		149			158			159			170			180
Total other income		2,276			1,932			3,205			2,575			1,677
Other expenses		8,712			9,034			9,866			9,360			8,874
Income (loss) from continuing operations before income tax expense (benefit)		(214	)		742			238			(5,627	)		(4,781	)
Income tax expense (benefit) from continuing operations		-			-			-			1,090			(1,601	)
Net income (loss) from continuing operations		(214	)		742			238			(6,717	)		(3,180	)
Loss from discontinued operations, net of tax benefit		-			-			-			(46	)		(61	)
Net income (loss)	$	(214	)	$	742		$	238		$	(6,763	)	$	(3,241	)

	For  the Years Ended December 31,
Performance Ratios:	2012			2011			2010			2009			2008
Return on average assets		-0.10	%		0.34	%		0.10	%		-2.80	%		-1.30	%
Return on average equity		-0.85	%		3.07	%		0.99	%		-23.21	%		-10.05	%
Average interest rate spread		3.65	%		3.88	%		3.60	%		2.97	%		2.51	%
Dividend payout ratio		N/M			0.00	%		0.00	%		N/M			N/M
Dividends per share	$	0.00		$	0.00		$	0.00		$	0.00		$	0.15
Net interest margin		3.78	%		4.02	%		3.78	%		3.26	%		2.93	%
Efficiency ratio (Bank)		101.55	%		90.06	%		102.76	%		252.19	%		104.54	%
Texas ratio (Bank)		30.83	%		28.28	%		39.66	%		64.29	%		45.22	%
Non-interest expense to average total assets		3.94	%		4.14	%		4.33	%		3.88	%		3.56	%
Average interest-earning assets to average interest-bearing liabilities		115.88	%		112.59	%		111.20	%		113.32	%		113.85	%

	At December 31,
Asset Quality Ratios:	2012			2011			2010			2009			2008
Non-performing assets to total assets		3.42	%		3.11	%		4.37	%		6.58	%		5.57	%
Non-performing loans to total loans		3.50	%		2.34	%		4.13	%		6.73	%		6.14	%
Allowance for loan losses to nonperforming loans		35.50	%		45.47	%		42.85	%		31.05	%		46.41	%
Allowance for loan losses to total loans		1.24	%		1.07	%		1.77	%		2.09	%		2.85	%
Capital Ratios:
Equity to total assets at end of period		11.43	%		11.32	%		10.77	%		9.87	%		11.88	%
Average equity to average assets		11.63	%		11.06	%		10.47	%		12.07	%		12.44	%
Risk-based capital ratio (Bank only)		17.36	%		17.20	%		15.57	%		13.58	%		15.75	%
Other Data:
Number of full service offices		8			8			8			8			8
N/M - Not meaningful

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

First Federal of Northern Michigan (the “Bank”), the Company’s principal operating subsidiary, is a full-service, community-oriented savings bank whose primary lending activity is the origination of one- to four-family residential real estate mortgages, commercial real estate loans, commercial loans and consumer loans. As of December 31, 2012, $66.5 million, or 47.2%, of our total loan portfolio consisted of one- to four-family residential real estate loans, $54.7 million, or 38.8%, and $8.1 million, or 5.7%, of our total loan portfolio consisted of commercial mortgage loans and commercial loans, respectively, and $11.7 million, or 8.3%, of our total loan portfolio consisted of consumer and other loans. In recent years, commercial mortgage loans and commercial loans have grown as a percentage of our loan portfolio for three reasons. First, we have increased our emphasis on originating these loans, which generally have higher interest rates compared to one- to four-family residential real estate loans. In addition, most of these loans are originated with adjustable interest rates, which assist us in managing interest rate risk. Finally, most of our one- to four-family residential mortgage loan customers prefer fixed-rate loans in the low interest rate environment that has prevailed over the last several years. Since we sell into the secondary mortgage market a majority of the fixed-rate one- to four-family residential mortgage loans that we originate, one- to four-family residential real estate loans have decreased as a percentage of our total loan portfolio.

Our results of operations depend primarily on our net interest income, which is the difference between the interest income we receive on our interest-earning assets, such as loans and securities, and the interest expense we pay on our deposits and borrowings. Our results of operations are also affected by non-interest income and non-interest expense, the provision for loan losses and income tax expense. Non-interest income consists primarily of banking fees, service charges, insurance commissions, mortgage banking activities and security transactions. Our non-interest expense consists primarily of salaries and employee benefits, FDIC insurance premiums, occupancy and office expenses, advertising and promotion expense, data processing expenses and expenses related to troubled credits and repossessed properties.

Our results of operations are significantly affected by general economic and competitive conditions, and particularly changes in market interest rates, government policies and actions of regulatory authorities. Numerous factors that are beyond our control can cause market interest rates to increase or decline. In addition, we are unable to predict future changes in government policies and actions of regulatory authorities that could have a material impact on our financial performance. As a result, we believe that changes in market interest rates, government policies and actions of regulatory authorities represent the primary uncertainties in predicting our future performance.

Business Strategy

Operating as a Community Savings Bank. We are committed to meeting the financial needs of the communities in which we operate. Our branch network of eight offices enhances our ability to serve these communities. We provide a broad range of individualized consumer and business financial services. We believe that we can be more effective in servicing our customers than many of our non-local competitors because our employees and senior management are able to respond promptly to customer needs and inquiries. Our ability to provide these services is enhanced by the experience of our senior management, which has an average of 21 years experience in the financial services industry.

Rebuilding our Balance Sheet. Beginning in 2001, we began to increase our originations of commercial real estate and commercial loans, resulting in significant organic loan growth in the years from 2004 - 2006. In 2007 we began participating, on a limited basis, in commercial opportunities outside of our market areas and, in some cases, outside of Michigan to help mitigate the geographic risk of lending only in Michigan. At December 31, 2005 and 2006, respectively, our total assets were $282.8 million and $281.0 million, the highest levels in our history. Beginning in 2008, due to severely deteriorating economic conditions in our market area, we began to see a both decline in loan balances and an increase in loan charge-offs, which began deteriorating our asset base. At December 31, 2012 our total assets were $213.8 million. We are seeing signs of economic recovery in our markets and have devoted staff and resources to begin the process of rebuilding our balance sheet in 2013 and beyond.

Increasing Our Share of Lower-Cost Deposits. In past years our cost of funds has been relatively high as we accepted higher-cost long-term certificates of deposit to fund our long-term assets such as one- to four-family residential mortgage loans. As we have increased our origination of shorter-term commercial real estate and commercial loans, most of which are originated with adjustable interest rates, we have decreased our need for higher-cost long-term certificates of deposit. We intend to continue to lower our cost of funds by increasing our share of lower-cost short-term certificates of deposit and lower-cost money market deposits. We typically are not a market leader in deposit rates, although from time-to-time we do offer higher rates as liquidity needs dictate. We also intend to continue to market our non-interest-bearing checking accounts in conjunction with our focus on commercial business lending. We grew our core deposits by $11.4 million in 2012.

Maintaining High Asset Quality and Capital Strength. We are committed to conservative loan underwriting standards and procedures, and we primarily originate loans secured by real estate. As a result, we have historically experienced low levels of late payments and losses on loans. However, during the economic recession that continued to deepen in 2009 and 2010, we saw delinquency trends increase despite our conservative underwriting practices due to declining economic conditions and increasing unemployment in our market area. In 2012 we began to see a gradual improvement in delinquency patterns as evidenced by improvements in our asset quality ratios through the third quarter of 2012. However, at December 31, 2012, our ratio of non-performing assets to total assets was 3.41% as compared to 3.11% at December 31, 2011 due primarily to our placing a $2.0 million commercial loan on non-accrual status in the fourth quarter of 2012. Despite losses over the years from 2007 to 2009, we continue to maintain a strong capital base. At December 31, 2012, our total risk-based capital ratio was 17.4%, an improvement from 17.20% at December 31, 2011 and well in excess of the regulatory requirements to be categorized as “well capitalized.”

Managing Our Interest Rate Risk Exposure by Selling Fixed-Rate Residential Real Estate Loans. Historically, most borrowers have preferred long-term, fixed-rate residential real estate loans when, as now, market interest rates are at relatively low levels. These loans expose us to interest rate risk because our liabilities, consisting primarily of deposits, have relatively short maturities. In order to better match the maturities of our loan portfolio to the maturities of our deposits in the current low interest rate environment, we sell substantially all of the fixed-rate, one- to four-family residential real estate loans with maturities of 15 years or more that we have originated since 2002. Beginning in late 2012 we began placing certain 15 year fixed residential real estate loans into our portfolio in an effort to rebuild our balance sheet and increase net interest income, however we continue to sell most loans with terms longer than 15 years into the secondary market to minimize interest rate risk.

Comparison of Financial Condition at December 31, 2012 and 2011

Total assets decreased $3.2 million, or 1.5%, to $213.8 million at December 31, 2012 from $217.0 million at December 31, 2011. Net loans decreased $2.0 million, or 1.4% to $138.9 million at December 31, 2012 from $140.9 million at December 31, 2011. Mortgage loan originations increased by $14.2 million to $52.4 million in 2012 from $38.1 million in 2011. During that time period, our mortgage loan portfolio remained unchanged at $66.5 million, despite placing $8.0 million of high-quality 10- and 15-year fixed rate mortgages into portfolio in 2012. The commercial loan portfolio increased 2.6% to $62.8 million at December 31, 2012 from $61.2 million at December 31, 2011. Cash and cash equivalents increased slightly, to $2.8 million at December 31, 2012 from $2.7 million at December 31, 2011. Investment securities decreased $2.4 million, or 4.3%, to $53.1 million at December 31, 2012 from $55.5 million at December 31, 2011.

Deposits increased $7.7 million, or 5.1%, to $158.4 million at December 31, 2012 from $150.6 million at December 31, 2011. This increase was due in large part to the increase in our non interest-bearing demand deposit accounts. Our focus in 2012 continued to be on building deposit relationships rather than attracting higher-cost non-core certificate of deposit accounts. REPO Sweep accounts decreased $2.4 million, or 43.1% to $3.2 million at December 31, 2012 from $5.6 million at December 31, 2011. Borrowings, consisting primarily of FHLB advances, decreased $8.1 million, or 23.6%, to $26.4 million at December 31, 2012 from $34.5 million at December 31, 2011 as we replaced borrowings with deposits.

Stockholders’ equity decreased $134,000, or 1.0%, to $24.4 million at December 31, 2012 from $24.6 million at December 31, 2011. The decrease was mainly a result of our net loss for the year of $214,000 partially offset by an increase of $79,000 in net unrealized gain on investment securities.

Comparison of Operating Results for the Years Ended December 31, 2012 and 2011

General. Net income decreased to a loss of $214,000 for the year ended December 31, 2012 from $742,000 for the year ended December 31, 2011. Net interest income before provision for loan losses was $539,000 lower in 2012 than in 2011, due in large part to a decline in our net interest margin year over year. The provision for loan losses was $1.1 million higher in 2012 than in 2011, resulting in net interest income after provision for loan losses being $1.6 million lower in 2012 than in 2011. Non-interest income was $344,000 higher in 2012 than in 2011, and non-interest expenses which were $322,000 lower in 2012 than in 2011.

Interest Income. Interest income decreased by $1.1 million, or 11.0%, to $9.2 million for the year ended December 31, 2012 from $10.4 million for the year ended December 31, 2011. The decrease was primarily due to a decrease in the average balance of our loan portfolio of $2.0 million, or 1.0%, year over year. The average balance of our non-mortgage loans, principally commercial loans and consumer loans, decreased by $6.9 million, or 8.4%, to $75.6million for the twelve months ended December 31, 2012 from $82.6 million for the twelve months ended December 31, 2011. The average yield on our commercial loans decreased 64 basis points and the average yield on our consumer loans decreased 2 basis points from 2011 to 2012. The average balance of our one- to four-family residential mortgage loans decreased to $67.2 million for the year ended December 31, 2012 from $67.5 million for the year ended December 31, 2011, while the average yield on such loans decreased to 5.52% from 5.94%.

Interest Expense. Interest expense decreased to $1.7 million for the year ended December 31, 2012 from $2.3million for the year ended December 31, 2011, due primarily to a $6.8 million, or 3.8%, decrease in the average balance of interest-bearing liabilities. The average balance of interest-bearing deposits decreased by $5.3 million from 2012 to 2011, while the average cost of those deposits decreased 34 basis points to 0.76% for 2012 from 1.10% for 2011, reflecting a continued decline in market interest rates during 2012. The average balance of FHLB borrowings increased $43,000 from 2012 to 2011 while the cost of those borrowings decreased from 2.18% to 1.92% year over year as we were able to pay off high-cost maturing advances with deposits or replace them with lower-cost advances due to the rate environment. The average balance of REPO Sweep accounts decreased by $1.5 million, or 26.3% year over year, while the average cost of these accounts decreased 18 basis points from 0.39% for 2011 to 0.21% for 2012.

Net Interest Income. Net interest income decreased to $7.6 million for the year ended December 31, 2012 from $8.1 million for the year ended December 31, 2011. The decrease was primarily due to a decrease of 20 basis points in our average interest rate spread to 3.65% for the year ended December 31, 2012 from 3.88% for the year ended December 31, 2011.

Provision for Loan Losses. We recorded a provision for loan losses of $1.4 million for the year ended December 31, 2012 compared to a provision of $284,000 for the year ended December 31, 2011. We had net charge-offs of $1.1 million and $1.6 million during 2012 and 2011, respectively. Our provision is based on management’s review of the components of the overall loan portfolio, the status of non-performing loans and various subjective factors. For 2011, the provision was significantly lower than 2012 due to the following factors: our provision for loan losses is based on a twelve-quarter rolling average of actual net charge-offs adjusted for various environmental factors for each pool of loans in our portfolio. As our charge-off history on commercial and consumer loans improved in 2011 as compared to recent prior years, lower loss factors were applied to those pools of loans to establish an adequate reserve. In addition, asset quality metrics improved in 2011. These factors enabled us to reverse provision expense recorded during the first three quarters of 2011. In contrast, in 2012, the Company charged off $1.2 million in loans, including $840,000 of residential mortgage loans which required a comparatively higher provision than the previous year.

Non-Interest Income. Non-interest income increased to $2.3 million for the year ended December 31, 2012 from $1.9 million for the year ended December 31, 2011. The 2012 results reflected an increase of $274,000 in mortgage banking activities and an increase in gain on sale of available for sale securities of $47,000 as compared to the twelve months ended December 31, 2011. In 2012 we retained in our portfolio approximately $8.0 million of 15-year fixed residential mortgages in our portfolio, rather than selling them into the secondary market, which reduced mortgage banking activities income.

Non-Interest Expense. Non-interest expense decreased to $8.7 million for the year ended December 31, 2012 from $9.0 million for the year ended December 31, 2011. The year over year decrease related primarily to a reduction in expenses associated with troubled loans and repossessed properties. Compensation and benefits were higher during both the three-month and twelve-month periods ended December 31, 2011 as compared to the prior-year period related mainly to increase mortgage lender commissions attributable to increased mortgage loan originations year over year.

Income Taxes. The Company had no federal income expense for the periods ended December 31, 2012 and 2011 as a result of the valuation allowance against the Company’s deferred tax assets.

Average Balance Sheet

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

						Average Consolidated Statements of Condition
						For Years Ended December 31,
	As of December 31, 2012					2012							2011							2010
										Average							Average							Average
			Yield /			Average				Yield /			Average				Yield /			Average				Yield /
	Balance		Rate			Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
						(In thousands)							(In thousands)							(In thousands)
Interest-earning assets:
Mortgage loans						$	67,151	$	3,708				$	67,529	$	4,012				$	77,280	$	4,806
Non-mortgage loans							75,640		4,220					82,562		4,914					91,470		5,327
Loans	$	138,991		5.09	%		142,791		7,928		5.55	%		150,091		8,926		5.95	%		168,750		10,133		6.00	%
Mortgage-backed securities		29,608		3.49	%		29,002		621		2.14	%		26,543		784		2.95	%		18,973		648		3.42	%
Other Investment securities		23,501		2.69	%		24,352		566		2.32	%		19,448		573		2.95	%		16,940		568		3.35	%
Investment securities		53,109		3.48	%		53,354		1,187		2.22	%		45,991		1,357		2.95	%		35,913		1,216		3.39	%
Other investments		3,671		2.88	%		4,412		128		2.90	%		6,433		107		1.66	%		7,151		98		1.37	%
Total interest-earning assets		195,771		4.61	%		200,557		9,243		4.62	%		202,515		10,390		5.14	%		211,814		11,447		5.41	%
Non interest-earning assets		18,063					16,544							15,947							15,809
Total Assets	$	213,834				$	217,101						$	218,462						$	227,623
Interest-bearing liabilities:
Savings Deposits	$	19,867		0.05	%	$	18,784	$	9		0.06	%	$	17,507	$	9		0.06	%	$	16,053	$	8		0.06	%
Money market/NOW accounts		44,218		0.22	%		43,634		94		0.21	%		43,471		158		0.35	%		41,845		324		0.76	%
Certificates of deposit		73,198		1.44	%		74,966		931		1.24	%		81,665		1,382		1.69	%		88,379		1,964		2.22	%
Total interest-bearing deposits		137,283		0.85	%		137,384	$	1,034		0.75	%		142,643	$	1,549		1.09	%		146,277	$	2,296		1.57	%
Borrowed funds		29,541		1.59	%		35,694		620		1.74	%		37,233		713		1.91	%		44,211		1,151		2.60	%
Total interest-bearing liabilities		166,824		0.98	%		173,078		1,654		0.96	%		179,876		2,262		1.26	%		190,488		3,447		1.81	%
Non interest-bearing liabilities		22,575					18,729							14,417							13,312
Total liabilities		189,399					191,807							194,293							203,800
Stockholders' equity		24,435					25,294							24,169							23,823
Total liabilities & stockholders' equity	$	213,834				$	217,101						$	218,462						$	227,623
Net interest income								$	7,589						$	8,128						$	8,000
Interest rate spread				3.63	%						3.66	%						3.88	%						3.60	%
Net interest-earning assets						$	27,479						$	22,639						$	21,326
Net interest margin (1)				3.78	%						3.80	%						4.02	%						3.78	%
Average interest-earning assets to average interest-bearing liabilities											115.88	%						112.59	%						111.20	%

(1) Net interest margin represents net interest income divided by the interest-earning assets.

Rate/Volume Analysis

The following table sets forth certain information regarding changes in interest income and interest expense of the Company during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided in each category with respect to (i) changes attributable to changes in volume (change in volume multiplied by prior rate), (ii) changes in rates (changes in rate multiplied by prior average volume), and (iii) the net change. Changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

	Year ended December 31, 2012
	Compared to
	Year ended December 31, 2011
	Increase (Decrease) Due to:
	Volume			Rate			Total
	(In thousands)
Interest-earning assets:
Loans receivable	$	(413	)	$	(585	)	$	(998	)
Investment securities		27			(196	)	$	(169	)
Other investments		(41	)		61		$	20
Total interest-earning assets		(427	)		(721	)		(1,147	)
Interest-bearing liabilities:
Savings Deposits		1			-			1
Money Market/NOW accounts		1			(65	)		(64	)
Certificates of Deposit		(134	)		(318	)		(452	)
Deposits		(132	)		(384	)		(515	)
Borrowed funds		(33	)		(60	)		(93	)
Total interest-bearing liabilities		(165	)		(444	)		(608	)
Change in net interest income	$	(262	)	$	(277	)	$	(539	)

	Year ended December 31, 2011
	Compared to
	Year ended December 31, 2010
	Increase (Decrease) Due to:
	Volume			Rate			Total
	(In thousands)
Interest-earning assets:
Loans receivable	$	(1,098	)	$	(109	)	$	(1,207	)
Investment securities		264			(122	)	$	142
Other investments		(11	)		20		$	9
Total interest-earning assets		(845	)		(211	)		(1,056	)
Interest-bearing liabilities:
Savings Deposits		1			-			1
Money Market/NOW accounts		13			(179	)		(166	)
Certificates of Deposit		(173	)		(409	)		(582	)
Deposits		(159	)		(588	)		(747	)
Borrowed funds		(253	)		(185	)		(438	)
Total interest-bearing liabilities		(412	)		(773	)		(1,185	)
Change in net interest income	$	(433	)	$	562		$	129

Management of Interest Rate Risk

Qualitative Analysis. Our most significant form of market risk is interest rate risk. The general objective of our interest rate risk management is to determine the appropriate level of risk given our business strategy, and then manage that risk in a manner that is consistent with our policy to reduce the exposure of our net interest income to changes in market interest rates. First Federal of Northern Michigan’s asset/liability management committee (“ALCO”), which consists of senior management, evaluates the interest rate risk inherent in our assets and liabilities, our operating environment and capital and liquidity requirements, and modifies our lending, investing and deposit-taking strategies accordingly. The Board of Directors reviews the ALCO’s activities and strategies, the effect of those strategies on our net interest margin, and the effect that changes in market interest rates would have on the economic value of our loan and securities portfolios, as well as the intrinsic value of our deposits and borrowings.

We actively evaluate interest rate risk in connection with our lending, investing and deposit-taking activities. Generally, our loans, which represent the significant majority of our assets, have longer-terms to maturity than our deposits, which represent the significant majority of our liabilities. As of December 31, 2012, $122.6 million, or 87.0% of our loan portfolio, consisted of loans that mature or reprice after December 31, 2012. In contrast, as of December 31, 2012, $39.2 million, or 53.6% of our time deposits as of that date, consisted of deposits that mature or reprice in less than one year.

In an effort to manage interest rate risk, we have increased our focus on the origination and retention in our portfolio of adjustable-rate residential mortgage loans. In addition, we have increased the origination and retention in our portfolio of commercial real estate and commercial loans, since most of these loans are originated with adjustable interest rates. In the current low interest rate environment in recent years, we generally have sold into the secondary mortgage market all of the fixed-rate, longer-term (15 years or more) residential mortgage loans that we originate on a servicing-retained basis. In 2012, we determined to keep in portfolio $8.0 million of 15-year fixed-rate residential mortgage loans. Finally, we have primarily invested in short- and medium-term securities and have maintained high levels of liquid assets, such as cash and cash equivalents. Shortening the average maturity of our interest-earning assets through these strategies helps us to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. Maintaining high levels of liquid assets also permits us to invest in higher-yielding securities and loans when market interest rates increase. However, these strategies can be expected to adversely affect net interest income if long-term interest rates remain at low levels. As long-term interest rates rise, as we expect will happen, we will reduce our mortgage-banking operations, and will retain in our portfolio a larger percentage of the one- to four-family loans that we originate.

Quantitative Analysis. The Company uses two primary measurement techniques to identify and manage its interest rate risk:

· Net Interest Income (NII) simulation

· Economic Value of Equity (EVE)

Net Interest Income Simulation Model: The Company uses a NII simulation model to analyze the sensitivity of net interest income to changing interest rates. The model is based on contractual and assumed cash flows and repricing characteristics for all of the Company’s financial instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities. The model also includes management’s projections of the future volume and pricing of each of the product lines offered by the Company as well as other pertinent assumptions. Actual results may differ from these simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies.

The Company’s interest rate risk exposure is currently evaluated by measuring the anticipated change in net interest income over a 24-month horizon assuming a -100bp, 100bp, 200bp, 300bp and 400bp parallel ramped increase in interest rates. The Fed Funds interest rate, targeted by the Federal Reserve at a range of 0% to 0.25% is currently set at a level that would be negative in parallel ramped decrease scenarios, therefore those scenarios were omitted from the interest rate risk analysis at December 31, 2012.

At December 31, 2012, the Company’s interest rate risk profile reflects a neutral position. The following table shows the Company’s estimated net interest income sensitivity profile and ALCO policy limits as of December 31, 2012.

Dynamic Balance Sheet - RAMP
Rate Changes:		0 BP		- 100 BP			+ 100 BP			+200 BP			+300 BP			+400 BP
$ Change in NII	$	14,761	$	14,689		$	14,927		$	15,102		$	15,348		$	15,545
% Change in NII				-0.48	%		1.13	%		2.31	%		3.98	%		5.31	%
Policy Limits				+/- 5	%		+/- 5	%		+/- 10	%		+/- 15	%		+/- 20	%

The 24-months net interest income at risk reported as of December 31, 2012 for all scenarios presented shows that the Company’s overall risk to changes in interest rates is low. Given that the duration of our assets is longer than that of our liabilities, the scenarios shown illustrate that a rising rate environment has a neutral to slightly positive impact on our net interest income, i.e. our liabilities will reprice upwards faster than our assets will. However, the impact is well within Board set limits.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in net interest income requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The net interest income table presented above assumes that the composition of our interest-rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data do not reflect any actions management may undertake in response to changes in interest rates. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Economic Value of Equity: The Company also uses EVE as a measurement tool in managing interest rate risk. Whereas the net interest income simulation model highlights exposure over a relatively short time horizon, the EVE analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The EVE of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows less the discounted value of liability cash flows. The sensitivity of EVE to changes in the level of interest rates is a measure of longer-term interest rate risk. EVE values only the current balance sheet and does not incorporate the growth assumptions used in the earnings simulation model. As with the earnings simulation model, assumptions about the timing and variability of existing balance sheet cash flows are critical in the EVE analysis. Particularly important are assumptions driving prepayments and the expected changes in balances and pricing of transaction deposit portfolios. The following table shows the Company’s EVE sensitivity profile as of December 31, 2012.

Economic Value of Equity
Rate Changes:		0 BP		+ 100 BP			+200 BP			+300 BP			+400 BP
$ Change in Equity	$	32,824	$	34,190		$	34,702		$	34,803		$	24,663
% Change in Equity				4.16	%		5.72	%		6.03	%		5.60	%
Policy Limits				+/- 10	%		+/- 15	%		+/- 20	%		+/- 25	%

The EVE at risk profile shows slight to moderate asset sensitivity from market rate increases.

Cash Flows

Cash flows provided by operations were $2.2 million in both 2012 and 2011. Cash flows provided by investing activities were $700,000 in 2012 as compared to cash used in investing activities of $1.6 million in 2011. The change year over year was due in large part to the purchase of bank owned life insurance of $3.0 million and proceeds from the sale of available for sale securities of $1.6 million in 2012. Cash used in financing activities was $2.9 million in 2012 as compared to cash provided by financing activities of $103,000 million in 2011, due primarily to the decrease in our outstanding Federal Home Loan Bank (FHLB) advances in 2012.

Liquidity and Capital Resources

The overall objective of our liquidity management is to ensure the availability of sufficient cash funds to meet all financial commitments and to take advantage of investment opportunities. We manage liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.

Our primary sources of funds are deposits, principal and interest payments on loans and securities, and, to a lesser extent, borrowings (Federal Home Loan Bank advances), the proceeds from maturing securities and short-term investments, and the proceeds from the sales of loans and securities. The scheduled amortization of loans and securities, as well as proceeds from borrowings, are predictable sources of funds. Other funding sources, however, such as deposit inflows, mortgage prepayments, mortgage loan sales and mortgage-backed securities sales are greatly influenced by market interest rates, economic conditions and competition.

Liquidity represents the amount of our assets that can be quickly and easily converted into cash without significant loss. Our most liquid assets are cash, short-term U.S. Government securities and U.S. Government agency or government-sponsored enterprise securities. We are required to maintain sufficient levels of liquidity as defined by the Office of the Comptroller of the Currency regulations. Current regulations require that we maintain sufficient liquidity to ensure our safe and sound operation. Our current objective is to maintain liquid assets equal to at least 20% of total deposits and Federal Home Loan Bank borrowings due in one year or less. Liquidity as of December 31, 2012 was $52.5 million, or 42.5% of total deposits and Federal Home Loan Bank borrowings due in one year or less, compared to $44.6 million, or 39.9% of this amount at December 31, 2011. The levels of liquidity are dependent on our operating, financing, lending and investing activities during any given period. Our calculation of liquidity includes additional borrowing capacity available with the Federal Home Loan Bank. As of December 31, 2012, we had unused borrowing capacity of $27.4 million.

We currently retain in our portfolio all adjustable-rate residential mortgage loans, short-term balloon mortgage loans and fixed-rate residential mortgage loans with maturities of less than 15 years, and generally sell the remainder in the secondary mortgage market, although in 2012 we placed $8.0 million in 15 year fixed-rate residential mortgage loans in our portfolio. We also originate for retention in our loan portfolio, commercial and commercial real estate loans, including real estate development loans. During the year ended December 31, 2012, we originated $52.4 million of one- to four-family residential mortgage loans, of which $15.9 million were retained in our portfolio and the remainder were sold into the secondary mortgage market. This compares to $38.1 million of one- to four-family originations during the year ended December 31, 2011, of which $9.3 million were retained in our portfolio. At December 31, 2012, we had outstanding loan commitments of $22.6 million. These commitments included $4.9 million for permanent one- to four-family residential mortgage loans, $2.4 million for non-residential loans, $1.8 million of undisbursed loan proceeds for construction of one- to four-family residences, $4.8 million of undisbursed lines of credit on home equity loans, $566,000 of unused credit card lines, $6.1 million of unused commercial lines of credit, and $300,000 for commercial loans, unused bounce protection.of $1.7 million and letters of credit of $4,000.

Deposits are a primary source of funds for use in lending and for other general business purposes. At December 31, 2012, deposits funded 73.7% of our total assets compared to 69.4% at December 31, 2011. Certificates of deposit scheduled to mature in less than one year at December 31, 2012 totaled $39.2 million. We believe that a significant portion of such deposits will remain with us. We monitor the deposit rates offered by competitors in our market area, and we set rates that take into account the prevailing market conditions along with our liquidity position. As we rebuild our balance sheet in the next few years, the growth in assets may require a more significant in-flow of liquidity than has been necessary over the past few years. As such, we may from time to time be a market leader in rates paid for certain liabilities to fund asset growth.

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 also may be used on a longer-term basis to support increased lending or investment activities. At December 31, 2012, we had $26.4 million in Federal Home Loan Bank advances and no outstanding advances at the Federal Reserve Discount Window. Total borrowings as a percentage of total assets were 12.3% at December 31, 2012 compared to 15.9% at December 31, 2011.

As of December 31, 2012, management was not aware of any known trends, events or uncertainties that have or are reasonably likely to have a material impact on our liquidity. As of December 31, 2012, we had no material commitments for capital expenditures.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statement of Cash Flows included with our Consolidated Financial Statements.

Total stockholders’ equity of the Company was $24.4 million at December 31, 2012 and $24.6 million at December 31, 2011, a decrease of $134,000 year over year. The Company’s ratio of equity to assets increased from 11.4% as of December 31, 2011 to 11.6% as of December 31, 2012. Federal bank regulatory agencies have set capital adequacy standards for Total Risk Based Capital, Tier 1 Risk Based Capital, and Leverage Capital. These regulatory standards require banks to maintain Leverage and Tier 1 ratios of at least 4% and a Total Capital ratio of at least 8% to be adequately capitalized. The regulatory agencies consider a bank to be “well capitalized” if its Total Risk Based Capital is at least 10% of Risk Weighted Assets, Tier 1 Capital is at least 6% of Risk Weighted Assets, the Leverage Capital Ratio is at least 5%, and the Bank is not subject to any written agreements or order issued by the FDIC pursuant to Section 8 of the Federal Deposit Insurance Act.

The following table summarizes the capital ratios of the Company:

	At December 31,						Minimum to be
	2012			2011			Well Capitalized
Tier 1 Leverage Ratio		10.33	%		10.37	%		5.00	%
Tier 1 Risk-Based Capital		16.11	%		16.30	%		6.00	%
Total Risk-Based Capital		17.36	%		17.20	%		10.00	%

At December 31, 2012 and December 31, 2011, the Bank exceeded the minimum capital requirements to be considered “well capitalized.” See Note 11 to our financial statements for further information.

Critical Accounting Policies

Our accounting and reporting policies are prepared in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. We consider accounting policies that require significant judgment and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. Changes in underlying factors, assumptions or estimates could have a material impact on our future financial condition and results of operations. Based on the size of the item or significance of the estimate, the following accounting policies are considered critical to our financial results.

Allowance for Loan Losses. The allowance for loan losses is calculated with the objective of maintaining an allowance sufficient to absorb estimated probable loan losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective, as it requires an estimate of the loss content for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows, and an estimate of the value of collateral.

We have established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish an allowance for losses on loans. The allowance for losses on loans is based on our current judgments about the credit quality of individual loans and segments of the loan portfolio. The allowance for losses on loans is established through a provision for loan losses based on our evaluation of the losses inherent in the loan portfolio, and considers all known internal and external factors that affect loan collectability as of the reporting date. Our evaluation, which includes a review of all loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, our knowledge of inherent losses in the portfolio that are probable and reasonably estimable and other factors that warrant recognition in providing an appropriate loan loss allowance. Management believes this is a critical accounting policy because this evaluation involves a high degree of complexity and requires us to make subjective judgments that often require assumptions or estimates about various matters.

The analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general reserve. The principal assumption used in deriving the allowance for loan losses is the estimate of loss content for each risk rating. To illustrate, if recent loss experience dictated that the projected loss ratios would be increased by 10% (of the estimate) across all risk ratings, the allocated allowance as of December 31, 2012 would have changed by approximately $155,000. Actual loan losses may be significantly more than the allowances we have established, which could have a material negative effect on our financial results.

Mortgage Servicing Rights. We sell to investors a portion of our originated one- to four-family residential real estate mortgage loans. When we acquire mortgage servicing rights through the origination of mortgage loans and sale of those loans with servicing rights retained, we allocate a portion of the total cost of the mortgage loans to the mortgage servicing rights based on their relative fair value.As of December 31, 2012, we were servicing loans sold to others totaling $140.7 million. We amortize capitalized mortgage servicing rights as a reduction of servicing fee income in proportion to, and over the period of, estimated net servicing income by use of a method that approximates the level-yield method. We periodically evaluate capitalized mortgage servicing rights for impairment using a model that takes into account several variables including expected prepayment speeds and prevailing interest rates. If we identify impairment, we charge the amount of the impairment to earnings by establishing a valuation allowance against the capitalized mortgage servicing rights asset. The primary risk of material changes to the value of the servicing rights resides in the potential volatility in the economic assumptions used, particularly the prepayment speed. We monitor this risk and adjust the valuation allowance as necessary to adequately record any probable impairment in the portfolio. Management believes the estimation of these variables makes this a critical accounting policy. For purposes of measuring impairment, the mortgage servicing rights are stratified based on financial asset type and interest rates. In addition, we obtain an independent third-party valuation of the mortgage servicing portfolio on a quarterly basis. In general, the value of mortgage servicing rights increases as interest rates rise and decreases as interest rates fall. This is because the estimated life and estimated income from a loan increase as interest rates rise and decrease as interest rates fall. The key economic assumptions made in determining the fair value of the mortgage servicing rights at December 31, 2012 included the following:

Annual constant prepayment speed (CPR):	17.9	%
Weighted average life remaining (in months):	246
Discount rate used:	8.1	%

At the December 31, 2012 valuation we determined that the book value of our mortgage servicing rights asset associated with sold 20-year fixed-rate loans was $19,200 more than the independent valuation; therefore a $19,200 valuation reserve was established against that tranche of loans. There was no need to establish a valuation allowance against the asset related to either the 15- or 30-year fixed-rate sold loan tranches.

Impairment of Intangible Assets. On June 12, 2003, we acquired 100% of the stock of the InsuranCenter of Alpena (ICA). We allocated the excess of the purchase price paid over the fair value of net assets acquired to intangible assets, including goodwill. On February 27, 2009 the Company sold the majority of the assets of ICA. The remaining goodwill on our books of $600,000 related to certain assets of the Company that were not sold in the sale of ICA. We allocated the goodwill between the assets sold and the assets retained and determined a value of the assets that remained of $600,000. Since the $600,000 allocation relates to a finite life asset, we re-characterized the goodwill as an amortizable intangible and began amortizing the asset in March 2009. The balance of the intangible asset was $154,000 at December 31, 2012, and was evaluated for impairment as of that date.

Valuation of Deferred Tax Assets. The Company records a valuation allowance if it believes, based on available evidence, that it is “more likely than not” that the future tax assets recognized will not be realized before their expiration. Realization of the Company’s deferred tax assets is primarily dependent upon the generation of a sufficient level of future taxable income.

At December 31, 2012 and 2011, management did not believe it was more likely than not that all of the deferred tax assets would be realized. Accordingly, at December 31, 2012 and 2011 a valuation allowance of $3.2 million and $3.0 million was recorded, respectively. The net deferred tax asset recorded at December 31, 2012 and 2011 was $331,000 and $372,000. See Note 9 for additional information.

Off-Balance Sheet Arrangements

In the ordinary course of business, First Federal of Northern Michigan is a party to credit-related financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. First Federal of Northern Michigan follows the same credit policies in making off-balance sheet commitments as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by First Federal of Northern Michigan, is based on management’s credit evaluation of the customer.

Unfunded commitments under construction lines of credit for residential and commercial properties and commercial lines of credit are commitments for possible future extensions of credit to existing customers, for which funds have not been advanced by First Federal of Northern Michigan.

At December 31, 2012 and December 31, 2011, First Federal of Northern Michigan had $9.5 million and $10.3 million, respectively, of commitments to grant loans, $13.1 million and $14.5 million, respectively, of unfunded commitments under lines of credit and $4,000 and $150,000, respectively, of letters of credit. See Note 11 of the Notes to the Consolidated Financial Statements.

Safe Harbor Statement

When used in this annual report or future filings by First Federal of Northern Michigan Bancorp, Inc. with the Securities and Exchange Commission, 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.

Impact of Inflation and Changing Prices

The financial statements and related notes of First Federal of Northern Michigan Bancorp, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

DIRECTORS AND EXECUTIVE OFFICERS OF

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

AND FIRST FEDERAL OF NORTHERN MICHIGAN

Directors

Martin A. Thomson has been Chairman of the Board of Directors since May 2008. He was President and Chief Executive Officer of the Company and Bank from May 2001. In January 2006, Mr. Thomson relinquished the position of President and in May 2008 relinquished the position of Chief Executive Officer and assumed the role of Chairman of the Board of Directors of the Company and Bank. Mr. Thomson previously held the position of President and Chief Executive Officer of Presque Isle Electric and Gas Co-op., Onaway, Michigan. Mr. Thomson has been a director of the Bank since 1986, and a director of the Company since its formation in November 2000.

James C. Rapin has been a director of the Bank since 1985, and a director of the Company since its formation in November 2000. He was Chairman of the Board of Directors of the Company and the Bank from March 2002 until May 2008. Mr. Rapin retired as a pharmacist with LeFave Pharmacy, Alpena, Michigan in 2004.

Keith D. Wallace is a senior attorney with the law firm of Isackson, Wallace and Pfiefer, P.C., located in Alpena, Michigan. Mr. Wallace has been a director of the Bank since 1988, and a director of the Company since its formation in November 2000.

Gary C. VanMassenhove is a partner in VanMassenhove, Kearly, Taphouse & Faulman, CPAs. Mr. VanMassenhove has been a Certified Public Accountant for 42 years. He has been a director of the Company and the Bank since September 2001.

Thomas R. Townsend is the President of the R.A. Townsend Co., a plumbing, heating and air conditioning distributor located in Alpena, Michigan, where he has been employed for the past 35 years. Mr. Townsend has been a director of the Company and the Bank since April 2002.

Michael W. Mahler was named President and Chief Executive Officer of the Company and the Bank in May 2008. He was named President and Chief Operating Officer of the Company and the Bank in January 2006. Prior to that appointment, since November 2004, Mr. Mahler served as Executive Vice President of the Company and the Bank and had served, since November 2002, as Chief Financial Officer. From September 2000 until November 2002, Mr. Mahler was Corporate Controller at Besser Company, Alpena, Michigan, an international producer of concrete products equipment. From 1990 until 2000, Mr. Mahler was employed at LTV Steel Company, East Chicago, Indiana where he served in financial roles of increasing responsibility and served, from 1997 until 2000, as Controller for a northeast Michigan division. Mr. Mahler has been a Director of the Bank since January 2006 and of the Company since May 2008.

Executive Officers Who Are Not Directors

Amy E. Essex was named Chief Financial Officer, Treasurer and Corporate Secretary of the Company and the Bank in January 2006. Ms. Essex had served as Chief Financial Officer of the Company and the Bank since November 2004 and prior to that appointment, since March 2003, served as the Internal Auditor and Compliance Officer for Alpena Bancshares, Inc. Prior to March 2003, Ms. Essex spent eight years as the Director of Tax and Risk for Besser Company, Alpena, Michigan. Ms. Essex is a certified public accountant.

Jerome W. Tracey was named Executive Vice President and Chief Lending Officer of the Company and the Bank in January 2006. Mr. Tracey had served as Senior Vice President, Senior Lender of the Company and the Bank since September 2001 and served as Vice President of Commercial Services since joining the Bank in November 1999. Prior to joining the Bank, Mr. Tracey served as Vice President of Commercial Lending for National City Bank, Alpena, Michigan, a position he held since 1996. Mr. Tracey has been in the banking profession since 1981.

Executive Management of the Bank

Michael W. Mahler, Jerome W. Tracey, Amy E. Essex, Gregory S. Matthews

Officers of the Bank

Michael W. Mahler, Jerome W. Tracey, Amy E. Essex, Joseph W. Gentry II, Kathleen R. Brown, Linda K. Sansom, Gregory S. Matthews, Jerome P. Schmidt, Steven T. Mousseau

STOCKHOLDER INFORMATION

The Annual Meeting of Stockholders will be held at 1:00 p.m., May 15, 2013 at the Thunder Bay National Marine Sanctuary, 500 W. Fletcher St., Alpena, MI 49707.

Stock Listing

The Company's common stock is traded on the NASDAQ Capital Market under the symbol “FFNM”.

Price Range of Common Stock

The following sets forth the quarterly high and low closing price per share and cash dividends declared during each of the four quarters in 2012 and 2011.

	Market Price
Quarter Ended	High		Low		Cash Dividends Declared
December 31, 2012	$	5.00	$	3.94	$	-
September 30, 2012	$	3.96	$	3.25	$	-
June 30, 2012	$	4.03	$	3.30	$	-
March 31, 2012	$	4.27	$	2.99	$	-
December 31, 2011	$	3.66	$	2.85	$	-
September 30, 2011	$	3.90	$	3.40	$	-
June 30, 2011	$	3.80	$	3.28	$	-
March 31, 2011	$	3.93	$	2.95	$	-

Special Counsel	Independent Auditor
Luse Gorman Pomerenk & Schick, PC	Plante & Moran, PLLC
5335 Wisconsin Avenue, N.W.	2601 Cambridge Ct.  Suite 500
Suite 780	Auburn Hills, Michigan 48326
Washington, D.C.  20015
	Transfer Agent
Market Makers
	Registrar and Transfer Company
Raymond James & Associates, Inc.	10 Commerce Drive
222 South Riverside Plaza	Cranford, New Jersey 07016
7th Floor 60606	800-346-6084
Chicago, IL
312-655-3000
Stifel Nicolaus
237 Park Avenue
8th Floor
New York, NY 10017
212-847-6500
Keefe, Bruyette & Woods
787 7th Avenue
4th Floor
New York, NY 10019
212-887-7777
FIG Partners, LLC
1175 Peachtree St. NE
100 Colony Sq, Suite 2250
Atlanta, GA 30361
866-344-2657

Annual Report on Form 10-K

A copy of the Company's Form 10-K for the year ended December 31, 2012 will be furnished without charge upon written request to: Amy E. Essex, Chief Financial Officer, Treasurer and Corporate Secretary, First Federal of Northern Michigan Bancorp, Inc., 100 S. Second Avenue, Alpena, Michigan 49707.

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

	Contents
Report Letter	2
Consolidated Financial Statements
Balance Sheet	3
Statement of Operations and Comprehensive Income	4
Statement of Changes in Stockholders’ Equity	5
Statement of Cash Flows	6
Notes to Consolidated Financial Statements	7

1

Report of Independent Registered Public Accounting Firm

Board of Directors

First Federal of Northern Michigan Bancorp, Inc.

We have audited the consolidated balance sheet of First Federal of Northern Michigan Bancorp, Inc. as of December 31, 2012 and 2011 and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for each year in the two-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards established by the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Federal of Northern Michigan Bancorp, Inc. as of December 31, 2012 and 2011 and the consolidated results of their operations and their cash flows for each year in the two-year period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

/s/ Plante & Moran, PLLC

Auburn Hills, Michigan 

March 29, 2013

2

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheet

(000s omitted, except per share data)

	December 31
	2012			2011
Assets
Cash and cash equivalents	$	2,732		$	2,714
Overnight deposits with Federal Home Loan Bank		20			35
Total cash and cash equivalents		2,752			2,749
Securities available for sale (Note 2)		50,764			53,049
Securities held to maturity (Note 2)		2,345			2,435
Loans - net (Note 3)		138,912			140,884
Loans - held for sale		79			-
Federal Home Loan Bank stock		3,266			3,266
Property and equipment (Note 4)		5,394			5,846
Foreclosed real estate		2,387			3,408
Accrued interest receivable		970			1,149
Prepaid FDIC insurance premiums		583			759
Intangible assets (Note 6)		158			335
Deferred tax asset		331			372
Originated mortgage servicing right - net (Note 5)		1,016			993
Bank owned life insurance		4,475			1,413
Other assets		402			387
Total assets	$	213,834		$	217,045
Liabilities and Stockholders' Equity
Liabilities
Non-interest bearing deposits	$	21,067		$	12,609
Interest-bearing deposits (Note 7)		137,283			138,040
Advances from Federal Home Loan Bank (Note 8)		26,358			34,500
REPO sweep accounts		3,183			5,592
Accrued expenses and other liabilities (Note 12)		1,508			1,736
Total liabilities		189,399			192,477
Stockholders' Equity (Note 11)
Common stock ($0.01 par value 20,000,000 shares authorized
3,191,799 shares issued)		32			32
Additional paid-in capital		23,854			23,853
Retained earnings		2,766			2,980
Treasury stock at cost (307,750 shares)		(2,964	)		(2,964	)
Unearned compensation		-			(1	)
Accumulated other comprehensive income		747			668
Total stockholders' equity		24,435			24,568
Total liabilities and stockholders' equity	$	213,834		$	217,045

See Notes to Consolidated

Financial Statements.

3

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Statement of Operations and Comprehensive Income

(000s omitted, except per share data)

	Year Ended December 31
	2012			2011
Interest Income
Loans, including fees	$	7,928		$	8,926
Investments
Taxable		540			521
Tax-exempt		154			159
Mortgage-backed securities		621			784
Total interest income		9,243			10,390
Interest Expense
Deposits (Note 7)		1,034			1,549
Borrowings		620			713
Total interest expense		1,654			2,262
Net Interest Income - Before provision for loan losses		7,589			8,128
Provision for Loan Losses (Note 3)		1,367			284
Net Interest Income - After provision for loan losses		6,222			7,844
Other Income
Service charges and other fees		760			730
Net gain on sale of investments		47			-
Net gain on sale of loans		587			388
Loan servicing fees		656			581
Insurance and brokerage commissions		149			158
Other		77			75
Total other income		2,276			1,932
Operating Expenses
Compensation and employee benefits (Note 12)		4,913			4,622
FDIC insurance premiums		189			224
Amortization of intangible assets		177			292
Advertising		156			134
Occupancy and equipment		959			1,049
Data processing service bureau		306			301
Professional fees		424			433
Other		1,588			1,979
Total operating expenses		8,712			9,034
Income (Loss) - before income tax expense		(214	)		742
Income tax expense (Note 9)		-			-
Net income (loss)	$	(214	)	$	742
Comprehensive Income (Loss):
Net Income (Loss)	$	(214	)	$	742
Change in unrealized gain on available for sale securities, net of tax		79			522
Comprehensive Income (Loss)	$	(135	)	$	1,264
Per Share Data
Net income (loss) per share
Basic	$	(0.07	)	$	0.26
Diluted	$	(0.07	)	$	0.26
Dividends per common share	$	-		$	-

See Notes to Consolidated

Financial Statements.

4

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity

(000s omitted)

	Shares		Common Stock		Treasury Stock			Additional Paid-in Capital		Unearned Compensation			Retained Earnings			Accumulated Other Comprehensive Income		Total Stockholders' Equity
Balance - January 1, 2011		3,192	$	32	$	(2,964	)	$	23,822	$	(38	)	$	2,238		$	146	$	23,236
Net Income		-		-		-			-		-			742			-		742
Unrealized depreciation on available-for-sale securities - Net of tax of ($269)		-		-		-			-		-			-			522		522
Stock options/MRP shares expensed		-		-		-			31		37			-			-		68
Balance - December 31, 2011		3,192		32		(2,964	)		23,853		(1	)		2,980			668		24,568
Net loss		-		-		-			-		-			(214	)		-		(214	)
Unrealized appreciation on available-for-
sale securities - Net of tax of ($41)		-		-		-			-		-			-			79		79
Stock options/MRP shares expensed		-		-		-			1		1			-			-		2
Balance - December 31, 2012		3,192	$	32	$	(2,964	)	$	23,854	$	-		$	2,766		$	747	$	24,435

See Notes to Consolidated

Financial Statements.

5

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

 Consolidated Statement of Cash Flows

(000s omitted, except per share data)

	Year Ended December 31
	2012			2011
Cash Flows from Operating Activities
Net income (loss)	$	(214	)	$	742
Adjustments to reconcile net income (loss) to cash from operating
activities:
Depreciation and amortization		480			684
Provision for loan losses		1,367			284
Amortization and accretion on securities		527			321
Gain on sale of investment securities		(47	)		-
Stock options/awards		2			68
Gain on sale of loans held for sale		(587	)		(388	)
Loss(Gain) on sale of property and equipment		4			(1	)
Loss on sale of real estate owned and other repossessed assets		83			48
Originations of loans held for sale		(35,559	)		(28,821	)
Proceeds from sale of loans held for sale		36,067			29,209
Net change in:
Accrued interest receivable		179			82
Prepaid FDIC insurance premiums		176			208
Bank owned life insurance		(61	)		-
Other assets		(37	)		(58	)
Accrued expenses and other liabilities		(227	)		(123	)
Deferred income tax benefit - (Note 9)		0			(18	)
Net cash provided by operating activities		2,153			2,237
Cash Flows from Investing Activities
Net (increase)decrease in loans		(1,219	)		12,518
Proceeds from maturity of securities		20,494			12,790
Proceeds from sale of securities available-for-sale		1,600			-
Proceeds from sale of property and equipment		264			2
Proceeds from sale of of real estate owned and other repossessed assets		2,761			2,821
Purchase of securities available for sale		(20,080	)		(29,982	)
Proceeds from sale of Federal Home Loan Bank stock		-			509
Purchase of bank owned life insurance		(3,000	)		-
Purchase of premises and equipment		(120	)		(212	)
Net cash provided by (used in) investing activities		700			(1,554	)
Cash Flows from Financing Activities
Net increase(decrease) in deposits		7,701			(4,817	)
Net decrease in Repo Sweep Accts		(2,409	)		(580	)
Advances from FHLB		58,815			23,700
Repayments of advances from FHLB		(66,957	)		(18,200	)
Net cash (used in) provided by financing activities		(2,850	)		103
Net Increase in Cash and Cash Equivalents		3			786
Cash and Cash Equivalents - Beginning of year		2,749			1,963
Cash and Cash Equivalents - End of year	$	2,752		$	2,749
Supplemental Cash Flow and Noncash Information
Net cash refunded for income taxes	$	(15	)	$	(41	)
Cash paid for interest on deposits and borrowings		1,702			2,341
Transfer of loans to real estate owned & other repossessed assets		1,823			3,459

See Notes to Consolidated

Financial Statements.

6

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 1 - Summary of Significant Accounting Policies

Nature of Operations – First Federal of Northern Michigan Bancorp, Inc. (the “Company”) and its subsidiary, First Federal of Northern Michigan (the “Bank”), conduct operations in the northeastern lower peninsula of Michigan. The Company’s primary services include accepting deposits, making commercial, consumer and mortgage loans, and engaging in mortgage banking activities.

Principles of Consolidation - The consolidated financial statements include the accounts of First Federal of Northern Michigan Bancorp, Inc., First Federal of Northern Michigan, 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 an outside party and, to a lesser extent, the collection of commissions for the sale of non-insured investment products. All significant intercompany balances and transactions have been eliminated in the consolidation.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of investment securities, intangible and deferred tax assets, and mortgage servicing rights.

Significant Group Concentrations of Credit Risk - Most of the Company’s activities are with customers located within the northeastern lower peninsula of Michigan. Note 2 discusses the types of securities in which the Company invests. Note 3 discusses the types of lending in which the Company engages. The Company does not have any significant concentrations to any one industry or customer.

Cash and Cash Equivalents - For the purpose of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from depository institutions and federal funds sold and interest bearing deposits in other depository institutions which mature within ninety days when purchased.

Securities – Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income net of applicable income taxes.

The market value of securities is based on quoted market prices. For securities that do not have readily available market values, estimated market values are calculated based on the market values of comparable securities.

7

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 1 - Summary of Significant Accounting Policies (Continued)

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Federal Home Loan Bank Stock – The Bank is a member of the Federal Home Loan Bank of Indianapolis (FHLBI). Members are required to own a certain amount of stock based on the level of borrowings and other factors. Stock in the FHLBI is recorded at redemption value which approximates fair value. The Company periodically evaluates the FHLBI stock for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Mortgage Banking Activities – The Company routinely sells to investors its originated long-term residential fixed-rate mortgage loans. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Company. The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding, also known as rate lock commitments. Rate lock commitments on residential mortgage loans that are intended to be sold are considered to be derivatives. Fair value is based on fees currently charged to enter into similar agreements. The fair value of rate lock commitments was insignificant at December 31, 2012 and 2011.

The Company uses forward contracts as part of its mortgage banking activities. Forward contracts provide for the delivery of financial instruments at a specified future date and at a specified price or yield. The fair value of forward contracts was insignificant at December 31, 2012 and 2011.

Loans - The Company grants mortgage, commercial, and consumer loans to customers. Loans are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield over the contractual life of the loan.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

8

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 1 - Summary of Significant Accounting Policies (Continued)

The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected, for loans that are placed on nonaccrual or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses - The allowance for loan losses is established as losses are estimated to have occurred 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 on management’s periodic review of the collectibility 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.

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of homogeneous loans are collectively evaluated for impairment. The Company does not separately identify individual consumer and residential loans for impairment disclosures until a loss is imminent.

9

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 1 - Summary of Significant Accounting Policies (Continued)

Troubled debt restructuring of loans is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule.  All modified loans are evaluated to determine whether the loans should be reported as a Troubled Debt Restructure (TDR).  A loan is a TDR when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower by modifying or renewing a loan that the Company would not otherwise consider. To make this determination, the Company must determine whether (a) the borrower is experiencing financial difficulties and (b) the Company granted the borrower a concession. This determination requires consideration of all of the facts and circumstances surrounding the modification.  An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean the borrower is experiencing financial difficulties.

Loans Held for Sale - Loans held for sale consist of fixed rate residential mortgage loans with maturities of 15 to 30 years. Such loans are recorded at the lower of aggregate cost or estimated fair value.

Loan Servicing – Servicing assets are recognized as separate assets when rights are acquired through the sale of originated residential mortgage loans. Capitalized servicing rights are reported in other assets and are amortized against non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or on a valuation model that calculates the present value of estimated future net servicing income using market based assumptions. Temporary impairment is recognized through a valuation allowance for an individual stratum to the extent that fair value is less than the capitalized amount for the stratum. If it is later determined that all or a portion of the temporary impairment no longer exists, the valuation allowance is reduced through a recovery of income. An other-than-temporary impairment results in a permanent reduction to the carrying value of the servicing asset.

Servicing income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income.

Foreclosed Assets (Including Other Real Estate Owned) - Foreclosed real estate held for sale is carried at the lower of fair value minus estimated costs to sell, or cost. Costs of holding foreclosed real estate are charged to expense in the current period, except for significant property improvements, which are capitalized. Valuations are periodically performed by management and an allowance is established by a charge to non-interest expense if the carrying value exceeds the fair value minus estimated costs to sell. Foreclosed real estate is classified as other real estate owned. The net income from operations of foreclosed real estate held for sale is reported in non-interest income.

10

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 1 - Summary of Significant Accounting Policies (Continued)

Property and Equipment - These assets are recorded at cost, less accumulated depreciation. The Bank uses the straight-line method of recording depreciation for financial reporting. The depreciable lives used by the Company are: land improvements 7-10 years, buildings 7-40 years and equipment 3-10 years. Maintenance and repairs are charged to expense and improvements are capitalized.

Intangible Assets – The Company has in the past purchased a branch or branches from other financial institutions. The analysis of these branch acquisitions led the Company to conclude that in each case, we acquired a business and therefore, the excess of purchase price over fair value of net assets acquired has been allocated to core deposit intangible assets. The conclusion was based on the fact that in each case we acquired employees, customers and branch facilities. The expected life for core deposit intangibles is based on the type of products acquired in an acquisition. The amortization periods range from 10 to 15 years and are based on the expected life of the products. The expected life was determined based on an analysis of the life of similar products within the Company and local competition in the markets where the branches were acquired. The core deposit intangibles are amortized on a straight line basis. The core deposit intangible is analyzed quarterly for impairment.

On June 12, 2003, First Federal of Northern Michigan acquired 100% of the stock of the InsuranCenter of Alpena (ICA).

On February 27, 2009 the Company announced that it had sold the majority of the assets of the InsuranCenter of Alpena.

At the time of the sale, goodwill of $600,000 continued to be recorded related to certain assets of the Company that were not sold in the sale of ICA. The assets retained relate to a future stream of commissions. Under an agreement, the Company will receive a portion of the override commission through April, 2014. Management computed an estimated cash flow on this commission using a 6.0% discount rate and determined a fair value of $600,000. Since the $600,000 allocation of fair value relates to a finite life asset, the Company re-characterized the goodwill as an amortizable intangible and began amortizing the asset in March, 2009.

Bank Owned Life Insurance - Bank owned life insurance policies are stated at the current cash surrender value of the policy, or the policy death proceeds less any obligation to provide a death benefit to an insured’s beneficiaries if that value is less than the cash surrender value. Increases in the asset value are recorded as earnings in other income.

Income Taxes - Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company records a valuation allowance if it believes, based on available evidence, that it is “more likely than not” that the future tax assets recognized will not be realized before their expiration.

11

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 1 - Summary of Significant Accounting Policies (Continued)

Realization of the Company’s deferred tax assets is primarily dependent upon the generation of a sufficient level of future taxable income.

At December 31, 2012 and 2011, management did not believe it was more likely than not that all of the deferred tax assets would be realized. Accordingly, at December 31, 2012 and 2011 a valuation allowance of $3.2 million and $3.0 million was recorded, respectively. The net deferred tax asset recorded at December 31, 2012 and 2011 was $331,000 and $372,000. See Note 9 for additional information.

Off Balance Sheet Instruments - In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under credit card arrangements, commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded. Additional information regarding Off Balance Sheet Instruments is included in Note 10 in these Notes to Consolidated Financial Statements.

Comprehensive Income - Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, however, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component in the equity section of the consolidated statement of financial condition. Such items, along with net income, are components of comprehensive income.

Stock-Based Compensation – The Company applies the recognition and measurement of stock-based compensation accounting rules for stock-based compensation which is referred to as the fair value method. Compensation cost is based on the fair value of the equity issued to employees. The Company recognizes compensation expense related to stock-based compensation over the period the services are performed. The Company granted no options in 2012 and 2011. Compensation costs charged to earnings were $2,000 and $68,000 in 2012 and 2011, respectively.

Earnings Per Common Share - Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method. As of December 31, 2012 there was no dilution due to the net loss for the year. As of December 31, 2011, 182,682 options were not considered dilutive, due to the fact that the options are underwater.

12

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 1 - Summary of Significant Accounting Policies (Continued)

Earnings per common share have been computed based on the following:

	December 31,
	2012			2011
Net income (loss)	$	(214	)	$	742
Average number of common shares outstanding		2,884,049			2,884,049
Effect of dilutive options		-			-
Average number of common shares outstanding used to calculate diluted earnings per common share		2,884,049			2,884,049

Recent Accounting Pronouncements - Accounting Standards Update 2011-05 (ASU 2011-05), “Comprehensive Income” was issued by the Financial Accounting Standards Board (“FASB”) in June 2011. ASU 2011-05 requires an entity to present the total of comprehensive income, the components of comprehensive income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but continuous statements. This standard eliminated the option to present the components of other comprehensive income as a part of the statement of changes in stockholders’ equity. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 31, 2011. The implementation of this standard only changed the presentation of comprehensive income; it did not have an impact on the Company’s financial position or its results of operations. ASU 2011-12 was issued by FASB in December 2011. ASU 2011-12 deferred the requirement to present reclassification adjustments for each component of OCI in both net income and OCI and the face of the financial statements until fiscal years, and interim periods within those fiscal years, beginning after December 15, 2012. The other requirements of ASU 2011-05 were not affected by ASU 2011-12. As a result of adopting ASU 2011-05, the Company is presenting the total of comprehensive income and the components of comprehensive income and other comprehensive income in a single continuous statement.

In 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.  This update applies to all creditors, both public and non-public, and was introduced to provide clarification surrounding troubled debt restructurings (“TDR”).  The primary characteristics that previously caused a restructuring to qualify as a TDR still exist: (1) the restructuring constitutes a concession to the borrower and (2) the borrower is experiencing financial difficulties.  The update provides additional details and examples to provide clarity surrounding these items.  The update also prohibits the use of the effective interest rate test when determining whether the restructuring constitutes a concession.  The update is effective for annual reporting periods ending on or after December 15, 2012 (therefore, December 31, 2012, for the Company).  Lastly, the disclosure requirements set forth by ASU 2010-20 regarding troubled debt restructurings, and later deferred by ASU 2011-1 until December 31, 2012 for the Company, are included in Note 3.  Other than the additional disclosures, these updates did not have a significant impact on the financial statements.

In 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This update to Fair Value Measurement (Topic 820) results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The amendments in this update explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. However, this update does require expanded disclosure related to the nature and significance of inputs that are used in estimating and measuring the fair value of financial instruments. The amendments in this update are to be applied prospectively and are effective for annual reporting periods beginning after December 15, 2011 (therefore, December 31, 2012, for the Company).  This update did not have a significant impact on the financial statements.

13

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 2 - Securities

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

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
Securities Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	9,181	$	66	$	-		$	9,247
Municipal notes		10,413		368		(23	)		10,758
Corporate securities		1,135		15		-			1,150
Mortgage-backed securities		28,901		736		(29	)		29,608
Equity securities		3		-		(2	)		1
Total	$	49,633	$	1,185	$	(54	)	$	50,764
Securities Held to Maturity
Municipal notes	$	2,345	$	225	$	-		$	2,570

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
Securities Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	14,756	$	108	$	(1	)	$	14,863
Municipal notes		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 notes	$	2,435	$	230	$	-		$	2,665

14

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 2 - Securities (Continued)

The amortized cost and estimated market value of securities at December 31, 2012, by contractual 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.

	December 31, 2012
	Amortized Cost		Market Value
Available For Sale:
Due in one year or less	$	1,857	$	1,864
Due after one year through five years		13,981		14,245
Due in five year through ten years		4,605		4,673
Due after ten years		286		373
Subtotal		20,729		21,155
Equity securities		3		1
Mortgage-backed securities		28,901		29,608
Total	$	49,633	$	50,764
Held To Maturity
Due in one year or less	$	90	$	92
Due after one year through five years		455		486
Due in five year through ten years		660		726
Due after ten years		1,140		1,266
Total	$	2,345	$	2,570

At December 31, 2012 and 2011, securities with a fair value of $44,135,000 and $31,085,000, respectively, were pledged to secure REPO Sweep accounts, FHLB advances and borrowings from the Federal Reserve discount window.

Gross proceeds from the sale of available-for-sale securities for the years ended December 31, 2012 and 2011 were $1.6 million and $0, respectively, resulting in gross gains of $54,000 and $0, respectively, and gross losses of $7,000 and $0, respectively. The tax provision applicable to these net realized gains amounted to $16,000 and $0, respectively.

15

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 2 - Securities (Continued)

The investment securities portfolio is evaluated for impairment throughout the year. Impairment is recorded against individual securities, unless the decrease in fair value is attributable to interest rates or the lack of an active market, and management determines that the Company has the intent and ability to hold the investment for a period of time sufficient to allow for an anticipated recovery in the market value. The fair values of investments with an amortized cost in excess of their fair values at December 31, 2012 and December 31, 2011 are as follows:

	December 31, 2012										December 31, 2011
			Gross Unrealized Losses					Gross Unrealized Losses					Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		less than 12 months			Fair Value		greater than 12 months			Fair Value		less than 12 months			Fair Value		greater than 12 months
Available For Sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	-		$	-	$	-		$	1,999	$	(1	)	$	-	$	-
Municipal notes		1,537		(23	)		-		-			646		(12	)		-		-
Mortgage-backed securities		2,725		(13	)		1,687		(16	)		8,137		(27	)		1,458		(17	)
Equity securities		-		-			1		(2	)		-		-			1		(2	)
Total Securities available for sale	$	4,262	$	(36	)	$	1,688	$	(18	)	$	10,782	$	(40	)	$	1,459	$	(19	)
Held to Maturity:
Municipal notes		-		-			-		-			-		-			-		-
Total Securities held to maturity	$	-	$	-		$	-	$	-		$	-	$	-		$	-	$	-

The unrealized losses on the securities held in the portfolio are not considered other than temporarily impaired (OTTI) 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. The Company has the intent and ability to hold these securities until recovery, which may not be until maturity. The fair value of these securities is expected to recover as the securities approach maturity.

As of both December 31, 2012 and 2011, there were 10 securities in an unrealized loss position.

16

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 3 - Loans

Loans at December 31, 2012 and 2011 are summarized as follows:

	December 31
	2012		2011
Real estate loans - One- to four-family residential	$	66,539	$	66,599
Commercial loans:
Secured by real estate		54,673		54,202
Other		8,102		7,002
Total commercial loans		62,775		61,204
Consumer loans:
Secured by real estate		10,409		13,395
Other		1,259		1,477
Total consumer loans		11,668		14,872
Total gross loans		140,982		142,675
Less:
Net deferred loan fees		320		273
Allowance for loan losses		1,750		1,518
Total loans - net	$	138,912	$	140,884

Final loan maturities and rate sensitivity of the loan portfolio are as follows:

	December 31, 2012
	Less Than One Year		One Year to Five Years		After Five Years		Total
Loans at fixed interest rates	$	8,440	$	24,634	$	45,611	$	78,685
Loans at variable interest rates		9,952		15,581		36,764		62,297
Total	$	18,392	$	40,215	$	82,375	$	140,982

17

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 3 - Loans (Continued)

Certain directors and executive officers of the Company were loan customers during 2012 and 2011. Such loans were made in the ordinary course of business and do not involve more than a normal risk of collectibility. An analysis of aggregate loans outstanding to directors and executive officers for the years ended December 31, 2012 and 2011 are as follows:

	December 31
	2012			2011
Aggregate balance - Beginning of Period	$	3,344		$	3,357
New loans		1,166			771
Repayments		(1,170	)		(784	)
Aggregate balance - End of Period	$	3,340		$	3,344

The following tables illustrate the contractual aging of the recorded investment in past due loans by class of loans as of December 31, 2012 and 2011:

As of December 31, 2012
													Recorded
													Investment > 90
	30 - 59 Days		60 - 89 Days		Greater than 90		Total						Days and
	Past Due		Past Due		Days		Past Due		Current		Total Loans		Accruing
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	2,073	$	2,246	$	-
Commercial Real Estate - other		3,210		540		282		4,032		48,395		52,427		-
Commercial - non real estate		113		-		-		113		7,989		8,102		-
Consumer:
Consumer - Real Estate		59		-		13		72		10,337		10,409		-
Consumer - Other		11		5		6		22		1,237		1,259		6
Residential:
Residential		2,047		796		1,198		4,041		62,498		66,539		61
Total	$	5,440	$	1,341	$	1,672	$	8,453	$	132,529	$	140,982	$	67

18

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 3 - Loans (Continued)

As of December 31, 2011
													Recorded
													Investment > 90
	30 - 59 Days		60 - 89 Days		Greater than 90		Total						Days and
	Past Due		Past Due		Days		Past Due		Current		Total Loans		Accruing
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.

19

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 3 - Loans (Continued)

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.

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

20

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 3 - Loans (Continued)

As of December 31, 2012
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
1-2	$	-	$	-	$	-
3		615		13,895		2,376
4		1,458		27,488		5,489
5		-		2,712		37
6		173		8,332		200
7		-		-		-
8		-		-		-
Total	$	2,246	$	52,427	$	8,102

As of December 31, 2011
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
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 December 31, 2012 and 2011:

21

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 3 - Loans (Continued)

As of December 31, 2012
	Residential
Loan Grade:
Pass	$	64,669
Special Mention		-
Substandard		1,871
Total	$	66,540

	Consumer -
	Real Estate		Consumer - Other
Performing	$	10,381	$	1,252
Nonperforming		28		6
Total	$	10,409	$	1,258

As of December 31, 2011
	Residential
Loan Grade:
Pass	$	63,941
Special Mention		-
Substandard		2,658
Total	$	66,599

	Consumer -
	Real Estate		Consumer - Other
Performing	$	13,248	$	1,473
Nonperforming		147		4
Total	$	13,395	$	1,477

22

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 3 - Loans (Continued)

The following tables present the recorded investment in non-accrual loans by class as of December 31, 2012 and 2011:

As of December 31
	2012		2011
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		2,851		356
Commercial		-		-
Consumer:
Consumer - real estate		28		152
Consumer - other		1		-
Residential:
Residential		1,810		2,420
Total	$	4,863	$	3,101

23

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 3 - Loans (Continued)

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

							For the Twelve  Months Ended
Impaired Loans							December 31,
As of December 31, 2012							2012
	Unpaid Principal		Recorded		Related		Average		Interest
	Balance		Investment		Allowance		Recorded		Income
							Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-
Commercial Real Estate - Other		4,869		4,535		-		5,084		138
Consumer - Real Estate		33		28		-		34		-
Consumer - Other		1		1		-		3		-
Residential		1,365		1,194		-		1,359		-
With a specific allowance recorded:
Commercial		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-
Commercial Real Estate - Other		2,138		2,127		101		2,167		80
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		-		-		-		-		-
Residential		616		616		141		642		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	7,007	$	6,662	$	101	$	7,251	$	218
Consumer - Real Estate	$	33	$	28	$	-	$	34	$	-
Consumer - Other	$	1	$	1	$	-	$	3	$	-
Residential	$	1,981	$	1,810	$	141	$	2,001	$	-

24

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 3 - Loans (Continued)

							For the Twelve  Months Ended
Impaired Loans							December 31,
As of December 31, 2011							2011
	Unpaid Principal		Recorded		Related		Average		Interest
	Balance		Investment		Allowance		Recorded		Income
							Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		469		-
Commercial Real Estate - Other		626		626		-		509		135
Consumer - Real Estate		171		152		-		196		-
Consumer - Other		0		0		-		7		-
Residential		2,017		1,640		-		1,928		-
With a specific allowance recorded:
Commercial		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		516		-
Commercial Real Estate - Other		1,337		1,128		85		1,039		115
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		-		-		-		-		-
Residential		813		780		199		860		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	985	$	-
Commercial Real Estate - Other	$	1,963	$	1,754	$	85	$	1,548	$	250
Consumer - Real Estate	$	171	$	152	$	-	$	196	$	-
Consumer - Other	$	-	$	-	$	-	$	7	$	-
Residential	$	2,830	$	2,420	$	199	$	2,788	$	-

No additional funds are committed to be advanced in connection with impaired loans.

The Bank may agree to modify the terms of a loan in order to improve the Bank’s ability to collect amounts due. These modifications may include reduction of the interest rate, extension of the loan term, or in some cases, reduction of the principal balance. Modifications that are performed due to the debtor’s financial difficulties are considered Troubled Debt Restructurings (TDRs). Loans that were classified as TDRs during the year ended December 31, 2012 are as follows:

25

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

 (000s omitted, except per share data)

Note 3 - Loans (Continued)

For the Twelve Months Ended
December 31, 2012
							Troubled Debt Restructurings
			Pre-Modification		Post-Modification		That Subsequently Defaulted
	Number of		Outstanding Recorded		Outstanding Recorded		Number of		Recorded
	Contracts		Investments		Investment		Contracts		Investment
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		-		-		-		1		53
Commercial - non real estate		4		3,542		2,737		-		-
Residential		-		-		-		-		-

For the Twelve Months Ended
December 31, 2011
							Troubled Debt Restructurings
			Pre-Modification		Post-Modification		That Subsequently Defaulted
	Number of		Outstanding Recorded		Outstanding Recorded		Number of		Recorded
	Contracts		Investments		Investment		Contracts		Investment
Troubled Debt Restructurings
Commerical Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		3		1,503		1,398		-		-
Consumer - 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 delinquent, 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-off may be realized as further unsecured positions are recognized.

26

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 3 – Loans (Continued)

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 years ended December 31, 2012 and 2011:

For the Year Ended December 31, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	10	$	393		$	53	$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-		(265	)		-		(87	)		(44	)		(840	)		-		(1,236	)
Recoveries		-		10			-		16			10			65			-		101
Provision		54		441			16		24			21			811			-		1,367
Ending Balance	$	64	$	579		$	69	$	99		$	33		$	906		$	-	$	1,750
Ending balance: individually evaluated for impairment	$	-	$	101		$	-	$	-		$	-		$	141		$	-	$	242
Ending balance: loans collectively evaluated for impairment	$	64	$	478		$	69	$	99		$	33		$	765		$	-	$	1,508
Loans:
Ending Balance	$	2,246	$	52,427		$	8,102	$	10,409		$	1,259		$	66,539		$	-	$	140,982
Ending balance: individually evaluated for impairment	$	173	$	6,662		$	-	$	28		$	1		$	1,810		$	-	$	8,674
Ending balance: loans collectively evaluated for impairment	$	2,073	$	45,765		$	8,102	$	10,381		$	1,258		$	64,729		$	-	$	132,308

For the Year Ended December 31, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	535		$	1,281		$	192		$	228		$	59		$	536		$	-	$	2,831
Charge-offs		(93	)		(334	)		(6	)		(166	)		(26	)		(1,119	)		-		(1,744	)
Recoveries		-			79			1			31			11			25			-		147
Provision		(432	)		(633	)		(134	)		53			2			1,428			-		284
Ending Balance	$	10		$	393		$	53		$	146		$	46		$	870		$	-	$	1,518
Ending balance: individually evaluated for impairment	$	-		$	85		$	-		$	-		$	-		$	199		$	-	$	284
Ending balance: loans collectively evaluated for impairment	$	10		$	308		$	53		$	146		$	46		$	671		$	-	$	1,234
Loans:
Ending Balance	$	264		$	53,938		$	7,002		$	13,395		$	1,477		$	66,599		$	-	$	142,675
Ending balance: individually evaluated for impairment	$	173		$	1,754		$	-		$	152		$	-		$	2,420		$	-	$	4,499
Ending balance: loans collectively evaluated for impairment	$	91		$	52,184		$	7,002		$	13,243		$	1,477		$	64,179		$	-	$	138,176

27

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

 (000s omitted, except per share data)

Note 4 - Property and Equipment

A summary of property and equipment is as follows:

	December 31
	2012		2011
Land	$	1,112	$	1,188
Land improvements		184		214
Buildings		6,249		6,483
Equipment		3,682		3,712
Total property and equipment		11,227		11,597
Accumulated depreciation		5,833		5,751
Net property and equipment	$	5,394	$	5,846

Depreciation expense was $303,000 and $392,000 for the periods ended December 31, 2012 and 2011, respectively.

28

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 5 - Servicing

Loans serviced for others are not included in the accompanying consolidated statement of financial condition. The unpaid principal balances of mortgage and other loans serviced for others were approximately $140,676,000 and $143,051,000 at December 31, 2012 and 2011, respectively.

The key economic assumptions used in determining the fair value of the mortgage servicing rights are as follows:

	December 31,
	2012			2011
Annual constant prepayment speed (CPR)		17.86	%		17.52	%
Weighted average life (in months)		246			246
Discount rate		8.11	%		8.13	%

The fair value of our mortgage servicing rights was estimated to be $1,046,000 and $1,089,000 at December 31, 2012 and December 31, 2011, respectively. At December 31, 2012 a valuation allowance of $19,000 was established against the mortgage servicing rights associated with our 20-year fixed-rate sold loan portfolio.

The following table summarizes mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowances:

	December 31
	2012			2011
Balance - beginning of period:	$	993		$	960
Originated mortgage servicing rights capitalized		426			362
Amortization of mortgage servicing rights		(384	)		(329	)
Balance - end of period		1,035			993
Valuation allowances:
Balance - beginning of period		-			-
Additions		(19	)		-
Reductions		-			-
Write-downs		-			-
Balance - end of period (net of allowances)	$	1,016		$	993

29

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

 (000s omitted, except per share data)

Note 6 - Intangible Assets

Intangible assets of the Company are summarized as follows:

	December 31, 2012
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:
Core deposit	$	3,081	$	3,078	$	3
Commission residual		600		445		155
Total	$	3,681	$	3,523	$	158

	December 31, 2011
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:
Core deposit	$	3,081	$	3,017	$	64
Commission residual		600		329		271
Total	$	3,681	$	3,346	$	335

Amortization expense was $177,000 and $292,000 for the periods ended December 31, 2012 and 2011, respectively.

As discussed in Note 1, on February 27, 2009 the Company announced that it had sold the majority of the assets of the InsuranCenter of Alpena. The Company allocated the goodwill between the assets sold and the assets retained.

The assets retained relate to a future stream of commissions related to the override commission discussed earlier. Under an agreement, the Company will receive a portion of the override commission through April, 2014. Management computed an estimated cash flow on this commission and using a 6.0% discount rate determined a fair value of $600,000. Since the $600,000 allocation of fair value relates to a finite life asset, the Company re-characterized the goodwill as an amortizable intangible and began amortizing the asset in March, 2009.

30

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

 (000s omitted, except per share data)

Note 6 - Intangible Assets (Continued)

The following table sets forth the amount of remaining amortization for intangibles assets:

	For the Year Ended December 31,
	2013		2014
Core deposit		2		1
Commission residual		116		39
Total		118		40

Note 7 - Deposits

Deposit accounts, by type and range of rates, consist of the following:

	December 31
	2012		2011
Account Type
NOW accounts and MMDA	$	44,218	$	41,795
Regular savings accounts		19,867		17,873
Total		64,085		59,668
Certificate of Deposit Rates
0.50 percent to 0.99 percent		42,698		38,802
1.00 percent to 1.99 percent		15,962		18,343
2.00 percent to 2.99 percent		10,746		16,057
3.00 percent to 3.99 percent		3,398		4,078
4.00 percent to 4.99 percent		394		1,092
Total certificate of deposits		73,198		78,372
Total interest-bearing deposits	$	137,283	$	138,040

Certificates of deposit $100,000 or greater at December 31, 2012 and 2011 were $25,993,000 and $25,499,000, respectively.

31

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 7 – Deposits (Continued)

The following table sets forth the amount and maturities of certificates of deposit:

	December 31, 2012
	Amount Due
Rate	Less than 1 Year		1-2 Years		2-3 Years		3-5 Years		Greater than 5 Years		Total
0.50 percent to
0.99 percent	$	30,190	$	10,916	$	1,563	$	29	$	-	$	42,698
1.00 percent to
1.99 percent		3,514		3,540		953		7,831		124		15,962
2.00 percent to
2.99 percent		3,296		1,458		3,961		459		1,572		10,746
3.00 percent to
3.99 percent		1,899		424		484		-		591		3,398
4.00 percent to
4.99 percent		261		-		46		87		-		394
Total	$	39,160	$	16,338	$	7,007	$	8,406	$	2,287	$	73,198

Interest expense on deposits is summarized as follows:

	Year Ended December 31
	2012		2011
NOW and MMDAs	$	95	$	159
Regular savings		10		9
Certificates of deposit		929		1,381
Total	$	1,034	$	1,549

Deposits from related parties held by the Bank at December 31, 2012 and 2011 amounted to $1,271,000 and $698,000, respectively.

32

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 8 - Federal Home Loan Bank and Federal Reserve Advances

The Bank has advances from the Federal Home Loan Bank. Interest rates range from 0.50% to 3.81% with a weighted average interest rate of 1.46%. These advances contain varying maturity dates through November 5, 2019 with a weighted average maturity of approximately 26 months. The advances are collateralized by approximately $50,002,000 and $47,802,000 of mortgage loans as of December 31, 2012 and 2011, respectively. In addition, at December 31, 2012 and 2011, securities with a carrying value of $31,713,000 and $19,877,000, respectively, were pledged as collateral for Federal Home Loan Bank advances. Available borrowings with the Federal Home Loan Bank at December 31, 2012 totaled $53,847,000, of which $26,400,000 was outstanding.

The advances are subject to prepayment penalties subject to the provisions and conditions of the credit policy of the Federal Home Loan Bank. Future maturities of the advances are as follows:

December 31, 2012
Years Ending December 31	Amount		Weighted Average Interest Rate
2013	$	14,968		1.52
2014		553		1.12
2015		1,162		1.17
2016		5,572		1.26
2017		2,983		1.86
Thereafter		1,120		1.12
Total	$	26,358		1.46

The Bank did not have any variable rate advances as of December 31, 2012 or 2011, respectively.

In 2009, the Bank entered into a discount window loan agreement with the Federal Reserve Bank that allows for advances up to seventy-five percent of the collateral balance. As of December 31, 2012, these advances are secured by investment securities with a fair value of approximately $6,698,000 and are generally due within 28 days from the date of the advance. The interest rate on the advances is based on the quoted Federal Reserve discount window rate (effective rate of 0.75 percent as of December 31, 2012). At December 31, 2012 and 2011, the Bank had $0 outstanding in Federal Reserve Bank advances.

33

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 9 - Federal Income Tax

Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. The Company and the Bank file a consolidated Federal income tax return.

The analysis of the consolidated provision for federal income tax is as follows:

	Year Ended December 31
	2012		2011
Continuing operations:
Current provision	$	-	$	18
Deferred benefit		-		(18	)
Total	$	-	$	-

The following presents a reconciliation of income taxes as shown on the Consolidated Statement of Operations with that which would be computed by applying the statutory Federal tax rate of 34% to income (loss) before taxes in 2012 and 2011.

	Year Ended December 31
	2012			2011
Tax (benefit) expense at statutory rate	$	(73	)	$	252
Increase (decrease) from:
Change in valuation allowance		138			(177	)
Tax-exempt interest		(52	)		(55	)
Other		(13	)		(20	)
Total income tax expense	$	-		$	-

Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to uncertain income tax positions. At December 31, 2012 and 2011, the Company had no unrecognized tax benefits recorded. The Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months. During 2012 and 2011, there were no material uncertain income tax positions.

Management believes that it is more likely than not that a portion of the deferred Federal tax assets will be realized. At December 31, 2012 and 2011 there was $3.2 million and $3.0 million of valuation allowance required. The tax effects of temporary differences that give rise to significant portions of the deferred Federal tax assets and deferred Federal tax liabilities are presented below

34

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 9 - Federal Income Tax (Continued)

	December 31
	2012		2011
Deferred tax assets:
Other real estate owned	$	96	$	185
Non-accrual loan interest		65		20
Directors' benefit plan		274		279
Net operating loss carryforward		3,536		3,320
Investment in  subsidiary		784		784
Net deferred loan origination fees		109		93
Other		192		139
Total deferred tax assets		5,056		4,820
Less: valuation allowance		3,166		3,028
Deferred tax liabilities:
Allowance for loan losses		158		143
Mortgage servicing rights		345		338
Partnership losses		117		118
Unrealized gain on available-for-sale securities		385		344
Depreciation		343		287
Other		211		190
Total deferred tax liabilities		1,559		1,420
Net deferred tax asset	$	331	$	372

The Company has net operating loss carryforwards of approximately $10.4 million generated from December 31, 2007 through December 31, 2012 that are available to reduce total taxable income through the years ending December 31, 2032.

For tax years beginning prior to January 1, 1996, a qualified thrift institution was allowed a bad debt deduction for tax purposes based on a percentage of taxable income or on actual experience. The Bank used the percentage of taxable income method through December 31, 1995.

A deferred tax liability has not been recognized for the tax bad debt base year reserves of the Bank. The base year reserves are the balance of reserves as of December 31, 1987. At December 31, 2012 and 2011, the amount of those reserves was approximately $60,000. The amount of the unrecognized deferred tax liability at December 31, 2012 and 2011 was approximately $20,000.

35

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 10 - Off Balance Sheet Risk Commitments and Contingencies

In the normal course of business, the Bank enters into commitments with off-balance sheet risk to meet the financing needs of its customers. These instruments are currently limited to commitments to extend credit and standby letters of credit. Commitments to extend credit involve elements of credit risk and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the commitment is represented by the contractual amount of the commitment. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Bank since the time the commitment was made.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates of 30 to 120 days or other termination clauses and may require payment of a fee. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained by the Bank upon extension of credit is based on management’s credit evaluation of the applicant. Collateral held is generally single-family residential real estate and commercial real estate. Substantially all of the obligations to extend credit are variable rate. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.

A summary of the contractual amount of commitments at December 31, 2012 and 2011 follows:

	December 31
	2012		2011
Commitments to grant loans	$	9,498	$	9,783
Unfunded commitments under lines of credit		13,074		14,485
Commercial and standby letters of credit		4		150

The nature of the Company’s business may result in litigation. Management, after reviewing with counsel all actions and proceedings pending against or involving First Federal of Northern Michigan Bancorp, Inc. and subsidiaries, considers that the aggregate liability or loss, if any, resulting from them will not be material to the Company’s financial position, results of operation or liquidity.

36

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 11 - Stockholders’ Equity

Payment of dividends on the common stock is subject to determination and declaration by the Board of Directors and depends on a number of factors, including capital requirements, regulatory limitation on payment of dividends, the Bank’s results of operations and financial condition, tax considerations, and general economic conditions.

The Bank is subject to various regulatory capital requirements which were administered by the Office of Thrift Supervision (OTS) until July 21, 2011. Effective that date, supervisory responsibility for federal savings associations was transferred to the Office of the Comptroller of the Currency (OCC). Failure to meet certain capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators regarding components, risk-weightings, and other factors.

During the most recent regulatory examination, the OCC categorized the Bank as “well-capitalized” per definition of 12 CFR Section 565.4(b)(1). To be categorized as well-capitalized, the Bank must maintain minimum total risk-based, tier 1 risk based, and tangible equity ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank’s categorization.

	Actual					For Capital Adequacy Purposes					To be Categorized as Well-Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
December 31, 2012
Total capital (to risk- weighted assets)	$	23,723		17.4	%	$	10,930		8.0	%	$	13,663		10.0	%
Tier 1 capital (to risk- weighted assets)	$	22,015		16.1	%	$	5,465		4.0	%	$	8,198		6.0	%
Tangible capital (to  tangible assets)	$	22,015		10.3	%	$	3,197		1.5	%	$	4,263		2.0	%
December 31, 2011
Total capital (to risk- weighted assets)	$	23,568		17.2	%	$	10,961		8.0	%	$	13,702		10.0	%
Tier 1 capital (to risk- weighted assets)	$	22,334		16.3	%	$	5,481		4.0	%	$	8,221		6.0	%
Tangible capital (to  tangible assets)	$	22,334		10.4	%	$	3,232		1.5	%	$	4,309		2.0	%

37

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 12 - Employee Benefit Plans

Defined Benefit Pension Plan

The Bank is a participant in the multiemployer Financial Institutions Retirement Fund (FIRF or the “Plan”), which covers substantially all of its officers and employees. The defined benefit plan covers all employees who have completed one year of service, attained age 21, and worked at least 1,000 hours during the year. Normal retirement age is 65, with reduced benefits available at age 55. The Bank’s contributions are determined by FIRF and generally represent the normal cost of the Plan. Specific Plan assets and accumulated benefit information for the Bank’s portion of the Plan are not available. Under the Employee Retirement Income Security Act of 1974 (ERISA), a contributor to a multiemployer pension plan may be liable in the event of complete or partial withdrawal for the benefit payments guaranteed under ERISA. Effective July 1, 2005 the plan was frozen as to current participants and any new employees hired after July 1, 2004 were excluded from the plan. The expense of the Plan allocated to the Bank was $87,000 and $81,000 for the years ended December 31, 2012 and 2011, respectively.

401(k) Savings Plan

 The Bank has a Section 401(k) savings plan covering substantially all of its employees who meet certain age and service requirements. Contributions to the plan by the Bank are discretionary in nature in such amounts determined by the Board of Directors. The expense under the plan for the years ended December 31, 2012 and 2011 was $94,000 and $167,000, respectively.

Nonqualified Deferred Compensation Plan

The Bank has a nonqualified deferred compensation plan for certain ofits directors. Through 1998, each eligibledirector could voluntarily defer all or part of his or her director’s fees to participate in the program. The plan is currently unfunded and amounts deferred are unsecured and remain subject to claims of the Bank’s general creditors.

Directors are paid once they reach normal retirement age or sooner for reason of death, total disability, or termination. The Bank may terminate the plan at any time. The amount recorded under the plan totaled approximately $807,000 and $821,000 at December 31, 2012 and 2011, respectively. The expense under the plan for the years ended December 31, 2012 and 2011 was $71,000 and $87,000, respectively.

Employee Stock Ownership Plan

Effective January 1, 1994, the Bank implemented an employee stock ownership plan (ESOP). The ESOP covers substantially all employees who have completed one year of service, attained age 21, and worked at least 1,000 hours during the year. To fund the ESOP, the Bank borrowed $480,000 from an outside party to purchase 48,000 shares of the Company’s common stock at $10 per share. The ESOP note was payable quarterly with interest at the prime rate and was retired in 1999. All of the 1994 shares were allocated as of December 31, 1999. Compensation expense is measured by the fair value of ESOP shares allocated to participants during a fiscal year.

Pursuant to the 2005 second-step conversion and stock offering, the shareholders of the Company approved the purchase of 8% of shares sold in the stock offering by the ESOP. The Company provided a loan to the ESOP, which was used to purchase 138,709 shares of the Company’s common stock in the stock offering at $10 per share. The loan bore interest at a rate equal to the current prime rate, adjustable on January 1 of each year and provided for repayment of principal over the 15 year term of the loan. Since the Company provided the loan to the ESOP, the note receivable was not included in the Company’s balance sheet. Accordingly, the Company did not recognize interest income on the loan.

38

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 12 - Employee Benefit Plans (Continued)

The Company made annual contributions to the ESOP sufficient to support the debt service of the loan. The loan was secured by the shares purchased, which were held in a suspense account for allocation among the participants as the loan is paid. Dividends paid on unallocated shares were not considered dividends for financial reporting purposes and were used to pay principal and interest on the ESOP loan. Dividends on allocated shares are charged to retained earnings.

The loan was paid in full as of December 31, 2009.

Compensation expense is recognized for the ESOP equal to the average fair value of shares committed to be released for allocation to participant accounts. Any difference between the average fair value of shares committed to be released for allocation and the ESOP’s original acquisition cost is charged or credited to stockholders’ equity (additional paid-in capital). During the years ended December 31, 2012 and 2011, respectively, 13,687 and 13,811 shares were sold into the open market and 15 and 0 shares were purchased from the open market. Total compensation expense was $0 for both the years ended December 31, 2012 and 2011.

Shares held by the ESOP include the following:

	December 31
	2012		2011
Allocated		121,608		138,345
Unallocated		-		-
Total		121,608		138,345

There were 3,065 and 8 shares distributed to ESOP participants in 2012 and 2011, respectively.

Stock-Based Compensation Plans

The Company’s 1996 Stock Option Plan (the “1996 Plan”), which was approved by shareholders, permits the grant of share options to its employees 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 the shareholders on May 17, 2006, 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 that can 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; those 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). Shares issued under the Plan and exercised pursuant to the exercise of the stock option plan may be either authorized but unissued shares or reacquired shares held by the Company as treasury stock.

39

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 12 - Employee Benefit Plans (Continued)

Stock Options - A summary of option activity under the Plan during the years ended December 31, 2012 and 2011 is presented below:

						Weighted-Average
				Weighted-		Remaining
				Average		Contractual Term		Aggregate
Options	Shares			Exercise Price		(Years)		Intrinsic Value
Outstanding at January 1, 2011		186,132		$	9.47		5.3		-
Granted in 2011		-		$	0.00
Exercised in 2011		-		$	0.00
Forfeited or Expired in 2011		(3,450	)	$	9.54
Outstanding at December 31, 2011		182,682		$	9.47		4.3		-
Granted in 2012		-		$	0.00
Exercised in 2012		-		$	0.00
Forfeited or expired in 2012		(15,062	)	$	8.81
Oustanding at December 31, 2012		167,620		$	9.53		3.38		-
Options Exercisable at December 31, 2012		167,620		$	9.53		3.38		-

There were 39,166 shares available for future granting of options as of December 31, 2012.

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 $4.60 on December 31, 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 December 31, 2012. The amount changes based on the fair market value of the stock. This value was $0.00 at December 31, 2012.

As of December 31, 2012, the total compensation cost of outstanding options was fully recognized. The total fair value of shares vested during the year ended December 31, 2012 and 2011 was $4,200 and $137,000, respectively. Compensation expense for 2012 and 2011 related to options granted under this plan was $1,200 and $31,000, respectively.

40

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

 (000s omitted, except per share data)

Note 12 - Employee Benefit Plans (Continued)

A summary of the status of the Company’s nonvested options as of December 31, 2012 and 2011 and changes during the years then ended is presented below:

				Weighted-Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2011		37,358		$	2.11
Granted		-		$	0.00
Vested		(36,118	)	$	2.11
Forfeited		-		$	0.00
Nonvested at December 31, 2011		1,240		$	2.19
Granted		-		$	0.00
Vested		(1,240	)	$	2.19
Forfeited		-		$	0.00
Nonvested at December 31, 2012		0		$	0.00

Restricted Stock Awards – The Company did not grant any award shares during the years ended December 31, 2012 and 2011. Compensation expense for 2012 and 2011 related to awards granted under this plan was $1,000 and $37,000, respectively.

The shares vest over a five year service period. As of December 31, 2012, the total compensation cost of the Plan was fully recognized.

41

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 12 - Employee Benefit Plans (Continued)

The following table summarizes the activity of restricted stock awards under the Plan during the years ended December 31, 2012 and 2011:

	For the Year Ended December 31,
	2012			2011
Beginning of period		300			13,050
Granted		-			-
Vested		(300	)		(12,750	)
Forfeited		-			-
Nonvested, end of period		0			300

There were 5,304 shares available for future grants of award shares at December 31, 2012.

Note 13 - 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 December 31, 2012 and 2011, and the valuation techniques used by the Company to determine those fair values.

42

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 13 - Fair Value Measurements (Continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2012

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of December 31, 2012
Investment securities – available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	9,247	$	-	$	9,247
Municipal notes		-		10,758		-		10,758
Corporate securities		-		1,150				1,150
Mortgage-backed securities		-		29,608		-		29,608
Equity securities		-		1		-		1
Total investment securities – available-for-sale	$	-	$	50,764	$	-	$	50,764

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)		Fair Value as of December 31,  2011
Investment securities - available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	14,863	$	-	$	14,863
Municipal notes		-		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, mortgage backed securities and municipal notes 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 during the years ended December 31, 2012 and 2011. For the available for sale securities, the Company obtains fair value measurements from an independent third-party service.

43

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 13 - Fair Value Measurements (Continued)

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

The following table presents the balance of assets and liabilities measured at fair value on a nonrecurring basis:

Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2012

	Balance at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans accounted for under FASB ASC 310-10	$	6,835	$	-	$	-	$	6,835
Other real estate owned -residential mortgages	$	947	$	-	$	-	$	947
Other real estate owned - commercial	$	319	$	-	$	-	$	319
Other repossessed assets	$	1,121	$	-	$	-	$	1,121
Total assets at fair value on a non-recurring basis							$	8,772

44

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 13 - Fair Value Measurements (Continued)

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)
Impaired loans accounted for under FASB ASC 310-10	$	1,927	$	-	$	-	$	1,927
Other real estate owned -residential mortgages	$	1,087	$	-	$	-	$	1,086
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							$	5,335

Impaired and nonaccrual loans:    Fair value adjustments for these items typically occur when there is evidence of impairment. Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair market value of the collateral. The Company measures fair value based on the value of the collateral securing the loans. Collateral may be in the form of real estate or personal property including equipment and inventory. The vast majority of collateral is real estate. The value of the collateral is determined based on internal estimates as well as third party appraisals or non-binding broker quotes. These measurements were classified as Level 3.

Other Real Estate:    Other real estate includes foreclosed assets and properties securing residential and commercial loans. Foreclosed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at lower of carry value or fair value less costs to sell. Fair value is generally based upon internal estimates and third party appraisals or non-binding broker quotes and, accordingly, considered a Level 3 classification

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.

45

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 13 - Fair Value Measurements (Continued)

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.

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.

46

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 13 - Fair Value Measurements (Continued)

The estimated fair values and related carrying amounts of the Company’s financial instruments as of December 31, 2012 and 2011 are as follows:

December 31, 2012	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	2,752	$	2,752	$	-	$	-	$	2,752
Securities available for sale		50,764		-		50,764		-		50,764
Securities held to maturity		2,345		-		2,570		-		2,570
Loans held for sale		79						84		84
Loans receivable - net		138,912		-		-		140,877		140,877
Federal Home Loan Bank stock		3,266		-		3,266		-		3,266
Accrued interest receivable		970		-		970		-		970
Financial liabilities:
Customer deposits		158,350		-		159,335		-		159,335
Federal Home Loan Bank advances		26,358		-		26,493		-		26,493
REPO sweep accounts		3,183		-		3,183		-		3,183
Accrued interest payable		100		-		100		-		100

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 receivable - 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

47

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 14 - Restrictions on Dividends

Dividends paid by the Bank are the primary source of funds available to the Company for payment of dividends to shareholders and for other working capital needs. The payment of dividends by the Bank to the Company is subject to restrictions by the Office of the Comptroller of Currency (OCC). These restrictions generally limit dividends to the current and prior two years’ retained earnings. In addition to these restrictions, as a practical matter, dividend payments cannot reduce regulatory capital levels below the Company’s regulatory capital requirements and minimum regulatory guidelines. Future dividend payments by the Company will be based on future earnings and the approval of the OCC.

Note 15 - Parent-Only Financial Statements

The following represents the condensed financial statements of First Federal of Northern Michigan Bancorp, Inc. (“Parent”) only. The Parent-only financial information should be read in conjunction with the Company’s consolidated financial statements.

Condensed parent company financial statements, which include transactions with the subsidiary, are as follows:

Balance Sheets:

	December 31
	2012		2011
Assets
Cash at subsidiary bank	$	817	$	516
Investment in subsidiary		23,304		23,734
Deferred tax asset		318		318
Other assets		-		-
Total assets	$	24,439	$	24,568
Liabilities and Stockholders' Equity
Liabilities	$	4	$	-
Stockholders' equity		24,435		24,568
Total liabilities and stockholders' equity	$	24,439	$	24,568

48

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Statements of Operations:

	December 31
	2012			2011
Operating income	$	-		$	-
Dividend income		500			-
Operating expense		(205	)		(199	)
Income (loss) before income taxes and equity in undistributed net income of subsidiary bank		295			(199	)
Income tax benefit		-			-
Income (loss) before equity in undistributed loss of subsidiary bank		295			(199	)
Equity in undistributed net income (loss) of subsidiary bank		(509	)		941
Net income (loss)	$	(214	)	$	742

Statements of Cash Flows:

	December 31
	2012			2011
Cash Flows from Operating Activities
Net income (loss)	$	(214	)	$	742
Adjustments to reconcile net income (loss) to net cash from operating activities:
Dividend from subsidiary bank		500			-
Stock options/awards		2			68
Equity in undistributed net income of subsidiary bank		9			(941	)
Net change in deferred tax assets		-			-
Net change in other liabilities		4			-
Net change in other assets		-			223
Net cash provided by (used in) operating activities		515			(650	)
Net Increase in Cash		301			92
Cash - Beginning of year		516			424
Cash - End of year	$	817		$	516

49

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

(000s omitted, except per share data)

Note 16 - Quarterly Results of Operations (Unaudited)

The following tables summarize the Company’s quarterly results for the fiscal years ended December 31, 2012 and 2011:

	For the Three-Month Period Ending
	March 31, 2012			June 30, 2012			September 30, 2012		December 31, 2012
Interest income	$	2,409		$	2,352		$	2,313	$	2,169
Interest expense		464			427			394		369
Net interest income		1,945			1,925			1,919		1,800
Provision for loan losses		376			578			234		179
Other income		447			390			802		637
Other expenses		2,301			2,143			2,077		2,191
Income (Loss) - before income tax expense (benefit)		(285	)		(406	)		410		67
Income tax (benefit) expense		(886	)		(136	)		137		885
Net income (loss)	$	601		$	(270	)	$	273	$	(818	)
Net income (loss) per share
Basic	$	0.21		$	(0.09	)	$	0.09	$	(0.28	)
Diluted	$	0.21		$	(0.09	)	$	0.09	$	(0.28	)
Weighted average number of shares outstanding - basic and dilutive		2,884			2,884			2,884		2,884
Cash dividends declared per common share	$	-		$	-		$	-	$	-

	For the Three-Month Period Ending
	March 31, 2011		June 30, 2011			September 30, 2011			December 31, 2011
Interest income	$	2,592	$	2,691		$	2,588		$	2,519
Interest expense		605		581			564			512
Net interest income		1,987		2,110			2,024			2,007
Provision for loan losses		67		(19	)		(67	)		303
Other income		449		393			469			621
Other expenses		2,208		2,260			2,325			2,241
Income - before income tax expense (benefit)		161		262			235			84
Income tax expense		-		-			-			-
Net income	$	161	$	262		$	235		$	84
Net income per share
Basic	$	0.06	$	0.09		$	0.08		$	0.03
Diluted	$	0.06	$	0.09		$	0.08		$	0.03
Weighted average number of shares outstanding - basic and dilutive		2,884		2,884			2,884			2,884
Cash dividends declared per common share	$	-	$	-		$	-		$	-

50

EX-21

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

EXHIBIT 21

Subsidiaries of the Registrant

Parent Company	Subsidiary Companies	State of Incorporation
First Federal of Northern Michigan Bancorp, Inc.	First Federal of Northern Michigan	Federal
First Federal of Northern Michigan	Financial Services and Mortgage Corporation	Michigan
First Federal of Northern Michigan	FFNM Agency, Inc	Michigan

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EXHIBIT 23 –

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference into the Registration Statement on Form S-8 for the Company's 1996 Stock Option Plan and 1996 Recognition and Retention Plan (Registration No. 333-83198) of our report dated March 29, 2013 relating to the consolidated financial statements of First Federal of Northern Michigan Bancorp, Inc. as of December 31, 2012 which appear in this Form 10-K of First Federal of Northern Michigan Bancorp, Inc. for the year ended December 31, 2012.

Plante & Moran, PLLC

Auburn Hills, Michigan

March 29, 2013

EX-31.1

Exhibit 31.1

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-K

Year Ended December 31, 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 annual report on Form 10-K of First Federal of Northern Michigan Bancorp, Inc.;

(2) Based on my knowledge, this annual 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 annual report;

(3) Based on my knowledge, the financial statements and other financial information included in this annual 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 annual 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 fourth 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 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.

March 29, 2013	/s/ Michael W. Mahler
Date	Michael W. Mahler
	Chief Executive Officer

EX-31.2

Exhibit 31.2

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-K

Year Ended December 31, 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 annual report on Form 10-K of First Federal of Northern Michigan Bancorp, Inc.;

(2) Based on my knowledge, this annual 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 annual report;

(3) Based on my knowledge, the financial statements and other financial information included in this annual 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 annual 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 fourth 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 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.

March 29, 2013	/s/ Amy E. Essex
Date	Amy E. Essex
	Chief Financial Officer, Treasurer, and Corporate Secretary

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 Annual Report on Form 10-K for the year ended December 31, 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 (15 U.S.C. 78m(a) or 78o(d)) 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.

This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended.

March 29, 2013	/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 Annual Report on Form 10-K for the year ended December 31, 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 (15 U.S.C. 78m(a) or 78o(d)) 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.

This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended.

March 29, 2013	/s/ Amy E. Essex
Dated	Amy E. Essex

XML

Quarterly Results of Operations (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2012

Quarterly Results of Operations (Unaudited) [Abstract]

Schedule of Quarterly Results of Operations (Unaudited)

	For the Three-Month Period Ending
	March 31, 2012			June 30, 2012			September 30, 2012		December 31, 2012
Interest income	$	2,409		$	2,352		$	2,313	$	2,169
Interest expense		464			427			394		369
Net interest income		1,945			1,925			1,919		1,800
Provision for loan losses		376			578			234		179
Other income		447			390			802		637
Other expenses		2,301			2,143			2,077		2,191
Income (Loss) - before income tax expense (benefit)		(285	)		(406	)		410		67
Income tax (benefit) expense		(886	)		(136	)		137		885
Net income (loss)	$	601		$	(270	)	$	273	$	(818	)
Net income (loss) per share
Basic	$	0.21		$	(0.09	)	$	0.09	$	(0.28	)
Diluted	$	0.21		$	(0.09	)	$	0.09	$	(0.28	)
Weighted average number of shares outstanding - basic and dilutive		2,884			2,884			2,884		2,884
Cash dividends declared per common share	$	-		$	-		$	-	$	-

	For the Three-Month Period Ending
	March 31, 2011		June 30, 2011			September 30, 2011			December 31, 2011
Interest income	$	2,592	$	2,691		$	2,588		$	2,519
Interest expense		605		581			564			512
Net interest income		1,987		2,110			2,024			2,007
Provision for loan losses		67		(19	)		(67	)		303
Other income		449		393			469			621
Other expenses		2,208		2,260			2,325			2,241
Income - before income tax expense (benefit)		161		262			235			84
Income tax expense		-		-			-			-
Net income	$	161	$	262		$	235		$	84
Net income per share
Basic	$	0.06	$	0.09		$	0.08		$	0.03
Diluted	$	0.06	$	0.09		$	0.08		$	0.03
Weighted average number of shares outstanding - basic and dilutive		2,884		2,884			2,884			2,884
Cash dividends declared per common share	$	-	$	-		$	-		$	-

XML

Loans (Impaired Loans Classified as Troubled Debt Restructurings) (Details) (Troubled Debt Restructuring [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
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		3
Pre-modification outstanding recorded investments		1,503
Post-modification outstanding recorded investment		1,398
Commercial - non real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	4
Pre-modification outstanding recorded investments	3,542
Post-modification outstanding recorded investment	2,737
Residential [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts
Pre-modification outstanding recorded investments
Post-modification outstanding recorded investment

XML

Loans (Contractual Aging of Recorded Investment in Past Due Loans by Class of Loans) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	$ 5,440	$ 7,308
60-89 Days past due	1,341	1,928
Greater than 90 days past due	1,672	2,515
Total past due	8,453	11,751
Current	132,529	130,924
Total loans	140,982	142,675
Recorded investment > 90 days and accruing	67	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	2,073	91
Total loans	2,246	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	3,210	3,808
60-89 Days past due	540	339
Greater than 90 days past due	282	245
Total past due	4,032	4,392
Current	48,395	49,546
Total loans	52,427	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	113	46
60-89 Days past due		29
Greater than 90 days past due
Total past due	113	75
Current	7,989	6,927
Total loans	8,102	7,002
Recorded investment > 90 days and accruing
Consumer - Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	59	394
60-89 Days past due		34
Greater than 90 days past due	13	128
Total past due	72	556
Current	10,337	12,839
Total loans	10,409	13,395
Recorded investment > 90 days and accruing
Consumer - Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	11	5
60-89 Days past due	5	25
Greater than 90 days past due	6
Total past due	22	30
Current	1,237	1,447
Total loans	1,259	1,477
Recorded investment > 90 days and accruing	6
Residential [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	2,047	3,055
60-89 Days past due	796	1,501
Greater than 90 days past due	1,198	1,969
Total past due	4,041	6,525
Current	62,498	60,074
Total loans	66,540	66,599
Recorded investment > 90 days and accruing	$ 61	$ 238

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	Dec. 31, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	$ 50,764	$ 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	9,247	14,863
Municipal Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	10,758	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	1,150
Mortgage-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	29,608	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	50,764	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	9,247	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	10,758	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	1,150
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	29,608	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

Loans (Debt Restructurings Defaulted) (Details) (Troubled Debt Restructuring [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Commercial Real Estate - other [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts	1
Recorded Investment	$ 53
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

Loans (Schedule of Final Loan Maturities and Rate Sensitivity of Loan Portfolio) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	$ 140,982	$ 142,675
Less Than One Year [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	18,392
One Year to Five Years [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	40,215
After Five Years [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	82,375
Loans at fixed interest rates [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	78,685
Loans at fixed interest rates [Member] | Less Than One Year [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	8,440
Loans at fixed interest rates [Member] | One Year to Five Years [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	24,634
Loans at fixed interest rates [Member] | After Five Years [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	45,611
Loans at variable interest rates [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	62,297
Loans at variable interest rates [Member] | Less Than One Year [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	9,952
Loans at variable interest rates [Member] | One Year to Five Years [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	15,581
Loans at variable interest rates [Member] | After Five Years [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	$ 36,764

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Federal Income Tax (Tables)

12 Months Ended

Dec. 31, 2012

Federal Income Tax [Abstract]

Schedule of Consolidated Provision for Federal Income Tax

	Year Ended December 31
	2012		2011
Continuing operations:
Current provision	$	-	$	18
Deferred benefit		-		(18	)
Total	$	-	$	-

Schedule of Effective Income Tax Rate Reconciliation

	Year Ended December 31
	2012			2011
Tax (benefit) expense at statutory rate	$	(73	)	$	252
Increase (decrease) from:
Change in valuation allowance		138			(177	)
Tax-exempt interest		(52	)		(55	)
Other		(13	)		(20	)
Total income tax expense	$	-		$	-

Schedule of Net Deferred Tax Assets

	December 31
	2012		2011
Deferred tax assets:
Other real estate owned	$	96	$	185
Non-accrual loan interest		65		20
Directors' benefit plan		274		279
Net operating loss carryforward		3,536		3,320
Investment in subsidiary		784		784
Net deferred loan origination fees		109		93
Other		192		139
Total deferred tax assets		5,056		4,820
Less: valuation allowance		3,166		3,028
Deferred tax liabilities:
Allowance for loan losses		158		143
Mortgage servicing rights		345		338
Partnership losses		117		118
Unrealized gain on available-for-sale securities		385		344
Depreciation		343		287
Other		211		190
Total deferred tax liabilities		1,559		1,420
Net deferred tax asset	$	331	$	372

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Parent-Only Financial Statements (Parent Company Balance Sheet) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Assets
Cash at subsidiary bank	$ 20	$ 35
Deferred tax asset	331	372
Other assets	402	387
Total assets	213,834	217,045
Liabilities and Stockholders' Equity
Liabilities	189,399	192,477
Stockholders' equity	24,435	24,568	23,236
Total liabilities and stockholders' equity	213,834	217,045
Parent Company [Member]
Assets
Cash at subsidiary bank	817	516
Investment in subsidiary	23,304	23,734
Deferred tax asset	318	318
Other assets
Total assets	24,439	24,568
Liabilities and Stockholders' Equity
Liabilities	4
Stockholders' equity	24,435	24,568
Total liabilities and stockholders' equity	$ 24,439	$ 24,568

XML

Loans (Loans Individually Evaluated For Impairment) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment	$ 241	$ 284
Ending balance: loans collectively evaluated for impairment	1,508	1,234
Financing Receivables
Loans and leases receivables, gross	140,982	142,675
Ending balance: individually evaluated for impairment	8,674	4,499
Ending balance: collectively evaluated for impairment	132,308	138,176
Commercial Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment	64	10
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	2,246	264
Ending balance: individually evaluated for impairment	173	173
Ending balance: collectively evaluated for impairment	2,073	91
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	101	85
Ending balance: loans collectively evaluated for impairment	478	308
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	52,427	53,938
Ending balance: individually evaluated for impairment	6,662	1,754
Ending balance: collectively evaluated for impairment	45,765	52,184
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	69	53
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	8,102	7,002
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment	8,102	7,002
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
Ending balance: loans collectively evaluated for impairment	99	146
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	10,409	13,395
Ending balance: individually evaluated for impairment	28	152
Ending balance: collectively evaluated for impairment	10,381	13,243
Ending balance: loans acquired with deteriorated credit quality
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment	33	46
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	1,259	1,477
Ending balance: individually evaluated for impairment	1
Ending balance: collectively evaluated for impairment	1,258	1,477
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	141	199
Ending balance: loans collectively evaluated for impairment	765	671
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Loans and leases receivables, gross	66,540	66,599
Ending balance: individually evaluated for impairment	1,810	2,420
Ending balance: collectively evaluated for impairment	64,729	64,179
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
Ending balance: loans acquired with deteriorated credit quality

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Quarterly Results of Operations (Unaudited) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Quarterly Results of Operations (Unaudited) [Abstract]
Interest income	$ 2,169	$ 2,313	$ 2,352	$ 2,409	$ 2,519	$ 2,588	$ 2,691	$ 2,592	$ 9,243	$ 10,390
Interest expense	369	394	427	464	512	564	581	605	1,654	2,262
Net interest income	1,800	1,919	1,925	1,945	2,007	2,024	2,110	1,987	7,589	8,128
Provision for loan losses	179	234	578	376	303	(67)	(19)	67	1,367	284
Other income	637	802	390	447	621	469	393	449	77	75
Other expenses	2,191	2,077	2,143	2,301	2,241	2,325	2,260	2,208	8,712	9,034
Income (Loss) - before income tax expense	67	410	(406)	(285)	84	235	262	161	(214)	742
Income tax (benefit) expense	885	137	(136)	(886)
Net income (loss)	$ (818)	$ 273	$ (270)	$ 601	$ 84	$ 235	$ 262	$ 161	$ (214)	$ 742
Net income (loss) per share
Basic	$ (0.28)	$ 0.09	$ (0.09)	$ 0.21	$ 0.03	$ 0.08	$ 0.09	$ 0.06	$ (0.07)	$ 0.26
Diluted	$ (0.28)	$ 0.09	$ (0.09)	$ 0.21	$ 0.03	$ 0.08	$ 0.09	$ 0.06	$ (0.07)	$ 0.26
Weighted average number of shares outstanding - basic and dilutive	2,884	2,884	2,884	2,884	2,884	2,884	2,884	2,884
Cash dividends declared per common share

XML

Fair Value Measurements (Assets Measured at Fair Value on Nonrecurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 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	$ 6,835	$ 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	947	1,087
Commercial Real Estate - other [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	319	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	8,772	5,335
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	6,835	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	947	1,086
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	319	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

Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Schedule of Weighted Average Number of Common Shares Outstanding

	December 31,
	2012			2011
Net income (loss)	$	(214	)	$	742
Average number of common shares outstanding		2,884,049			2,884,049
Effect of dilutive options		-			-
Average number of common shares outstanding used to calculate diluted earnings per common share		2,884,049			2,884,049

XML

Loans (Risk Category of Loans by Class of Loans Based on Most Recent Analysis Performed) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	$ 140,982	$ 142,675
Commercial Real Estate - construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	2,246	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	615
Commercial Real Estate - construction [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	1,458	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	52,427	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	13,895	10,911
Commercial Real Estate - other [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	27,488	31,926
Commercial Real Estate - other [Member] | Loan Grade Five [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	2,712	1,078
Commercial Real Estate - other [Member] | Loan Grade Six [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	8,332	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	8,102	7,002
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	2,376	2,178
Commercial - non real estate [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	5,489	4,512
Commercial - non real estate [Member] | Loan Grade Five [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	37
Commercial - non real estate [Member] | Loan Grade Six [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	200	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

Securities (Amortized Cost and Estimated Market Value of Securities by Contract Maturity) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale amortized cost, Due in one year or less	$ 1,857
Available for Sale amortized cost, Due after one year through five years	13,981
Available for Sale amortized cost, Due in five year through ten years	4,605
Available for Sale amortized cost, Due after ten years	286
Available for Sale amortized cost, Subtotal	20,729
Available for Sale, Amortized Cost	49,633	52,036
Held to Maturity, Due in one year or less	90
Held to Maturity amortized cost, Due after one year through five years	455
Held to Maturity amortized cost, Due in five year through ten years	660
Held to Maturity amortized cost, Due after ten years	1,140
Held to Maturity, Amortized cost	2,345
Available for sale market value, Due in one year or less	1,864
Available for sale market value, Due after one year through five years	14,245
Available for sale market value, Due in five year through ten years	4,673
Available for sale market value, Due after ten years	373
Available for sale market value, Subtotal	21,155
Available for Sale, Market Value	50,764	53,049
Held to maturity market value, Due in one year or less	92
Held to maturity market value, Due after one year through five years	486
Held to maturity market value, Due in five year through ten years	726
Held to maturity market value, Due after ten years	1,266
Held-to-Maturity Securities, Market Value	2,570	2,665
Equity Securities [Member]
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale, Amortized Cost	3	3
Available for Sale, Market Value	1	1
Mortgage-backed securities [Member]
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale, Amortized Cost	28,901	30,350
Available for Sale, Market Value	$ 29,608	$ 30,909

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Parent-Only Financial Statements (Parent Company Statement of Cash Flows) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash Flows from Operating Activities:
Net Income (Loss)	$ (214)	$ 742
Adjustments to reconcile net income (loss) to cash from operating activities:
Stock options/awards	2	68
Net change in other assets	(37)	(58)
Net cash provided by (used in) operating activities	2,153	2,237
Net Increase in Cash and Cash Equivalents	3	786
Parent Company [Member]
Cash Flows from Operating Activities:
Net Income (Loss)	(214)	742
Adjustments to reconcile net income (loss) to cash from operating activities:
Dividend from subsidiary bank	500
Stock options/awards	2	68
Equity in undistributed net income of subsidiary bank	509	(941)
Net change in deferred tax assets
Net change in other liabilities	4
Net change in other assets		223
Net cash provided by (used in) operating activities	515	(650)
Net Increase in Cash and Cash Equivalents	301	92
Cash and Cash Equivalents - Beginning of year	516	424
Cash and Cash Equivalents - End of year	$ 817	$ 516

XML

Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 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 December 31, 2012

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of December 31, 2012
Investment securities - available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	9,247	$	-	$	9,247
Municipal notes		-		10,758		-		10,758
Corporate securities		-		1,150				1,150
Mortgage-backed securities		-		29,608		-		29,608
Equity securities		-		1		-		1
Total investment securities - available-for-sale	$	-	$	50,764	$	-	$	50,764

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)		Fair Value as of December 31, 2011
Investment securities - available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	14,863	$	-	$	14,863
Municipal notes		-		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 December 31, 2012

	Balance at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans accounted for under FASB ASC 310-10	$	6,835	$	-	$	-	$	6,835
Other real estate owned -residential mortgages	$	947	$	-	$	-	$	947
Other real estate owned - commercial	$	319	$	-	$	-	$	319
Other repossessed assets	$	1,121	$	-	$	-	$	1,121
Total assets at fair value on a non-recurring basis							$	8,772

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)
Impaired loans accounted for under FASB ASC 310-10	$	1,927	$	-	$	-	$	1,927
Other real estate owned -residential mortgages	$	1,087	$	-	$	-	$	1,086
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							$	5,335

Estimated Fair Values and Related Carrying of Financial Instruments

December 31, 2012	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	2,752	$	2,752	$	-	$	-	$	2,752
Securities available for sale		50,764		-		50,764		-		50,764
Securities held to maturity		2,345		-		2,570		-		2,570
Loans held for sale		79						84		84
Loans receivable - net		138,912		-		-		140,877		140,877
Federal Home Loan Bank stock		3,266		-		3,266		-		3,266
Accrued interest receivable		970		-		970		-		970
Financial liabilities:
Customer deposits		158,350		-		159,335		-		159,335
Federal Home Loan Bank advances		26,358		-		26,493		-		26,493
REPO sweep accounts		3,183		-		3,183		-		3,183
Accrued interest payable		100		-		100		-		100

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 receivable - 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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Loans (Recorded Investment in Non-Accrual Loans by Class) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans	$ 4,863	$ 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	2,851	356
Consumer - Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans	28	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	$ 1,810	$ 2,420

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Employee Benefit Plans (Summary of Stock Option Activity) (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Stock options, outstanding:
Beginning balance	182,682	186,132
Granted
Exercised
Forfeited or expired	(15,062)	(3,450)
Ending balance	167,620	182,682	186,132
Options Exercisable, Ending balance	167,620
Weighted average exercise price:
Beginning Balance	$ 9.47	$ 9.47
Forfeited or expired	$ 8.81	$ 9.54
Ending Balance	$ 9.53	$ 9.47	$ 9.47
Weighted average exercise price, exercisable	$ 9.53
Weighted average remaining contractual term (years)
Weighted average remaining contractual term, outstanding	3 years 4 months 17 days	4 years 3 months 18 days	5 years 3 months 18 days
Weighted average remaining contractual term, options exercisable	3 years 4 months 17 days
Aggregate intrinsic value
Aggregate intrinsic value outstanding, beginning balance
Aggregate intrinsic value outstanding, ending balance
Aggregate intrinsic value, exercisable

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Deposits (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Deposits:
NOW accounts and MMDA	$ 44,218,000	$ 41,795,000
Regular savings accounts	19,867,000	17,873,000
Total	64,085,000	59,668,000
Certificates of deposit	73,198,000	78,372,000
Total interest-bearing deposits	137,283,000	138,040,000
Maturities of certificates of deposit:
Less than 1 Year	39,160,000
1-2 Years	16,338,000
2-3 Years	7,007,000
3-5 Years	8,406,000
Greater than 5 Years	2,287,000
Certificates of deposit in denominations of $100,000 or more	25,993,000	25,499,000
Interest expense on deposits:
NOW and MMDAs	95,000	159,000
Savings accounts	10,000	9,000
Certificates of deposit	929,000	1,381,000
Total	1,034,000	1,549,000
Deposits from related parties	1,271,000	698,000
0.50 percent to 0.99 percent [Member]
Deposits:
Certificates of deposit	42,698,000	38,802,000
Maturities of certificates of deposit:
Less than 1 Year	30,190,000
1-2 Years	10,916,000
2-3 Years	1,563,000
3-5 Years	29,000
Greater than 5 Years
1.00 percent to 1.99 percent [Member]
Deposits:
Certificates of deposit	15,962,000	18,343,000
Maturities of certificates of deposit:
Less than 1 Year	3,514,000
1-2 Years	3,540,000
2-3 Years	953,000
3-5 Years	7,831,000
Greater than 5 Years	124,000
2.00 percent to 2.99 percent [Member]
Deposits:
Certificates of deposit	10,746,000	16,057,000
Maturities of certificates of deposit:
Less than 1 Year	3,296,000
1-2 Years	1,458,000
2-3 Years	3,961,000
3-5 Years	459,000
Greater than 5 Years	1,572,000
3.00 percent to 3.99 percent [Member]
Deposits:
Certificates of deposit	3,398,000	4,078,000
Maturities of certificates of deposit:
Less than 1 Year	1,899,000
1-2 Years	424,000
2-3 Years	484,000
3-5 Years
Greater than 5 Years	591,000
4.00 percent to 4.99 percent [Member]
Deposits:
Certificates of deposit	394,000	1,092,000
Maturities of certificates of deposit:
Less than 1 Year	261,000
1-2 Years
2-3 Years	46,000
3-5 Years	87,000
Greater than 5 Years

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Loans (Schedule of Loans Made to Directors and Executive Officers) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Loans [Abstract]
Aggregate balance - Beginning of Period	$ 3,344	$ 3,357
New loans	1,166	771
Repayments	(1,170)	(784)
Aggregate balance - End of Period	$ 3,340	$ 3,344

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Securities

12 Months Ended

Dec. 31, 2012

Securities [Abstract]

Securities

Note 2 - Securities

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

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
Securities Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	9,181	$	66	$	-		$	9,247
Municipal notes		10,413		368		(23	)		10,758
Corporate securities		1,135		15		-			1,150
Mortgage-backed securities		28,901		736		(29	)		29,608
Equity securities		3		-		(2	)		1
Total	$	49,633	$	1,185	$	(54	)	$	50,764
Securities Held to Maturity
Municipal notes	$	2,345	$	225	$	-		$	2,570

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
Securities Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	14,756	$	108	$	(1	)	$	14,863
Municipal notes		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 notes	$	2,435	$	230	$	-		$	2,665

The amortized cost and estimated market value of securities at December 31, 2012, by contractual 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.

	December 31, 2012
	Amortized Cost		Market Value
Available For Sale:
Due in one year or less	$	1,857	$	1,864
Due after one year through five years		13,981		14,245
Due in five year through ten years		4,605		4,673
Due after ten years		286		373
Subtotal		20,729		21,155
Equity securities		3		1
Mortgage-backed securities		28,901		29,608
Total	$	49,633	$	50,764
Held To Maturity
Due in one year or less	$	90	$	92
Due after one year through five years		455		486
Due in five year through ten years		660		726
Due after ten years		1,140		1,266
Total	$	2,345	$	2,570

At December 31, 2012 and 2011, securities with a fair value of $44,135,000 and $31,085,000, respectively, were pledged to secure REPO Sweep accounts, FHLB advances and borrowings from the Federal Reserve discount window.

Gross proceeds from the sale of available-for-sale securities for the years ended December 31, 2012 and 2011 were $1.6 million and $0, respectively, resulting in gross gains of $54,000 and $0, respectively, and gross losses of $7,000 and $0, respectively. The tax provision applicable to these net realized gains amounted to $16,000 and $0, respectively.

The investment securities portfolio is evaluated for impairment throughout the year. Impairment is recorded against individual securities, unless the decrease in fair value is attributable to interest rates or the lack of an active market, and management determines that the Company has the intent and ability to hold the investment for a period of time sufficient to allow for an anticipated recovery in the market value. The fair values of investments with an amortized cost in excess of their fair values at December 31, 2012 and December 31, 2011 are as follows:

	December 31, 2012										December 31, 2011
			Gross Unrealized Losses					Gross Unrealized Losses					Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		less than 12 months			Fair Value		greater than 12 months			Fair Value		less than 12 months			Fair Value		greater than 12 months
Available For Sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	-		$	-	$	-		$	1,999	$	(1	)	$	-	$	-
Municipal notes		1,537		(23	)		-		-			646		(12	)		-		-
Mortgage-backed securities		2,725		(13	)		1,687		(16	)		8,137		(27	)		1,458		(17	)
Equity securities		-		-			1		(2	)		-		-			1		(2	)
Total Securities available for sale	$	4,262	$	(36	)	$	1,688	$	(18	)	$	10,782	$	(40	)	$	1,459	$	(19	)
Held to Maturity:
Municipal notes		-		-			-		-			-		-			-		-
Total Securities held to maturity	$	-	$	-		$	-	$	-		$	-	$	-		$	-	$	-

The unrealized losses on the securities held in the portfolio are not considered other than temporarily impaired (OTTI) 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. The Company has the intent and ability to hold these securities until recovery, which may not be until maturity. The fair value of these securities is expected to recover as the securities approach maturity.

As of both December 31, 2012 and 2011, there were 10 securities in an unrealized loss position.

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Federal Home Loan Bank and Federal Reserve Advances (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Federal Home Loan Bank and Federal Reserve Advances [Abstract]
FHLB advances, stated interest rate range, minimum	0.50%
FHLB advances, stated interest rate range, maximum	3.81%
FHLB advances, weighted-average interest rate	1.46%
FHLB advances, latest due date	2019
FHLB advances, weighted average maturity	26 months
FHLB advances, mortgage loans pledged as collateral	$ 50,002,000	$ 47,802,000
FHLB advances, securities pledged as collateral	31,713,000	19,877,000
Available borrowings with FHLB	53,847,000
Advances from FHLB	26,358,000	34,500,000
FHLB future maturity of advances:
2013	14,968,000
2014	553,000
2015	1,162,000
2016	5,572,000
2017	2,983,000
Thereafter	1,120,000
Total	26,358,000
FHLB future maturity of advances, weighted average interest rates:
2013	1.52%
2014	1.12%
2015	1.17%
2016	1.26%
2017	1.86%
Thereafter	1.12%
Total	1.46%
Federal Reserve Bank Short-term Borrowings [Member]
Short-term Debt [Line Items]
Percentage rate of collateral balance used to determine allowable amount of advances from the Federal Reserve bank	0.75%
The fair value of securities pledged as collateral for advances from the Federal Reserve Bank	6,698,000
Interest rate	0.75%
Short-term borrowings	$ 0

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Securities (Additional Information) (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Securities [Abstract]
Securities pledge as collateral, carrying value	$ 44,135,000	$ 31,085,000
Gross proceeds from sales of securities	1,600,000
Gross gains from sale of securities	54,000
Gross losses from sale of securities	7,000
Tax provision applicable to net realized gains on sale of available for sale securities	$ 16,000

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Servicing (Tables)

12 Months Ended

Dec. 31, 2012

Servicing [Abstract]

Schedule of Key Economic Assumptions Used in Determining Fair Value of Mortgage Servicing Rights

December 31,
	2012			2011
Annual constant prepayment speed (CPR)		17.86	%		17.52	%
Weighted average life (in months)		246			246
Discount rate		8.11	%		8.13	%

Schedule of Mortgage Servicing Rights Capitalized and Amortized

	December 31
	2012			2011
Balance - beginning of period:	$	993		$	960
Originated mortgage servicing rights capitalized		426			362
Amortization of mortgage servicing rights		(384	)		(329	)
Balance - end of period		1,035			993
Valuation allowances:
Balance - beginning of period		-			-
Additions		(19	)		-
Reductions		-			-
Write-downs		-			-
Balance - end of period (net of allowances)	$	1,016		$	993

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Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2012

Property and Equipment [Abstract]

Schedule of Property and Equipment

	December 31
	2012		2011
Land	$	1,112	$	1,188
Land improvements		184		214
Buildings		6,249		6,483
Equipment		3,682		3,712
Total property and equipment		11,227		11,597
Accumulated depreciation		5,833		5,751
Net property and equipment	$	5,394	$	5,846

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Loans (Activity in Allowance for Loan and Lease Losses) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Allowance for credit losses:
Beginning Balance	$ 1,518	$ 2,831
Charge-offs	(1,236)	(1,744)
Recoveries	101	147
Provision	1,367	284
Ending Balance	1,750	1,518
Commercial Construction [Member]
Allowance for credit losses:
Beginning Balance	10	535
Charge-offs		(93)
Recoveries
Provision	54	(432)
Ending Balance	64	10
Commercial Real Estate [Member]
Allowance for credit losses:
Beginning Balance	393	1,281
Charge-offs	(265)	(334)
Recoveries	10	79
Provision	441	(633)
Ending Balance	579	393
Commercial - non real estate [Member]
Allowance for credit losses:
Beginning Balance	53	192
Charge-offs		(6)
Recoveries		1
Provision	16	(134)
Ending Balance	69	53
Consumer - Real Estate [Member]
Allowance for credit losses:
Beginning Balance	146	228
Charge-offs	(87)	(166)
Recoveries	16	31
Provision	24	53
Ending Balance	99	146
Consumer [Member]
Allowance for credit losses:
Beginning Balance	46	59
Charge-offs	(44)	(26)
Recoveries	10	11
Provision	21	2
Ending Balance	33	46
Residential [Member]
Allowance for credit losses:
Beginning Balance	870	536
Charge-offs	(840)	(1,119)
Recoveries	65	25
Provision	811	1,428
Ending Balance	906	870
Unallocated Financing Receivables [Member]
Allowance for credit losses:
Beginning Balance
Charge-offs
Recoveries
Provision
Ending Balance

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Securities (Summary of Temporarily Impaired Investments Impaired) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Investments Unrealized Gain Loss Positions [Line Items]
Available-for-Sale, Fair Value Unrealized Losses less than 12 months	$ 4,262	$ 10,782
Available-for-Sale, Gross Unrealized Losses less than 12 months	(36)	(40)
Available-for-Sale, Fair Value Unrealized Losses longer than 12 months	1,688	1,459
Available-for-Sale, Gross Unrealized Losses longer than 12 months	(18)	(19)
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
U.S. Treasury securities and obligations of U.S. government corporations and agencies [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 notes [Member]
Investments Unrealized Gain Loss Positions [Line Items]
Available-for-Sale, Fair Value Unrealized Losses less than 12 months	1,537	646
Available-for-Sale, Gross Unrealized Losses less than 12 months	(23)	(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	2,725	8,137
Available-for-Sale, Gross Unrealized Losses less than 12 months	(13)	(27)
Available-for-Sale, Fair Value Unrealized Losses longer than 12 months	1,687	1,458
Available-for-Sale, Gross Unrealized Losses longer than 12 months	(16)	(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)

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2012

Intangible Assets [Abstract]

Schedule of Intangible Assets

December 31, 2012
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:
Core deposit	$	3,081	$	3,078	$	3
Commission residual		600		445		155
Total	$	3,681	$	3,523	$	158

	December 31, 2011
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:
Core deposit	$	3,081	$	3,017	$	64
Commission residual		600		329		271
Total	$	3,681	$	3,346	$	335

Schedule of Future Amortization Expense

	For the Year Ended December 31,
	2013		2014
Core deposit		2		1
Commission residual		116		39
Total		118		40

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Deposits (Tables)

12 Months Ended

Dec. 31, 2012

Deposits [Abstract]

Schedule of Deposits by Type and Range of Rates

	December 31
	2012		2011
Account Type
NOW accounts and MMDA	$	44,218	$	41,795
Regular savings accounts		19,867		17,873
Total		64,085		59,668
Certificate of Deposit Rates
0.50 percent to 0.99 percent		42,698		38,802
1.00 percent to 1.99 percent		15,962		18,343
2.00 percent to 2.99 percent		10,746		16,057
3.00 percent to 3.99 percent		3,398		4,078
4.00 percent to 4.99 percent		394		1,092
Total certificate of deposits		73,198		78,372
Total interest-bearing deposits	$	137,283	$	138,040

Schedule of Amount and Maturities of Certificates of Deposit

	December 31, 2012
	Amount Due
Rate	Less than 1 Year		1-2 Years		2-3 Years		3-5 Years		Greater than 5 Years		Total
0.50 percent to
0.99 percent	$	30,190	$	10,916	$	1,563	$	29	$	-	$	42,698
1.00 percent to
1.99 percent		3,514		3,540		953		7,831		124		15,962
2.00 percent to
2.99 percent		3,296		1,458		3,961		459		1,572		10,746
3.00 percent to
3.99 percent		1,899		424		484		-		591		3,398
4.00 percent to
4.99 percent		261		-		46		87		-		394
Total	$	39,160	$	16,338	$	7,007	$	8,406	$	2,287	$	73,198

Schedule of Interest Expense on Deposits

	Year Ended December 31
	2012		2011
NOW and MMDAs	$	95	$	159
Regular savings		10		9
Certificates of deposit		929		1,381
Total	$	1,034	$	1,549

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1 - Summary of Significant Accounting Policies

Nature of Operations - First Federal of Northern Michigan Bancorp, Inc. (the "Company") and its subsidiary, First Federal of Northern Michigan (the "Bank"), conduct operations in the northeastern lower peninsula of Michigan. The Company's primary services include accepting deposits, making commercial, consumer and mortgage loans, and engaging in mortgage banking activities.

Principles of Consolidation - The consolidated financial statements include the accounts of First Federal of Northern Michigan Bancorp, Inc., First Federal of Northern Michigan, 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 an outside party and, to a lesser extent, the collection of commissions for the sale of non-insured investment products. All significant intercompany balances and transactions have been eliminated in the consolidation.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of investment securities, intangible and deferred tax assets, and mortgage servicing rights.

Significant Group Concentrations of Credit Risk - Most of the Company's activities are with customers located within the northeastern lower peninsula of Michigan. Note 2 discusses the types of securities in which the Company invests. Note 3 discusses the types of lending in which the Company engages. The Company does not have any significant concentrations to any one industry or customer.

Cash and Cash Equivalents - For the purpose of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from depository institutions and federal funds sold and interest bearing deposits in other depository institutions which mature within ninety days when purchased.

Securities - Debt securities that management has the positive intent and ability to hold to maturity are classified as "held to maturity" and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as "available for sale" and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income net of applicable income taxes.

The market value of securities is based on quoted market prices. For securities that do not have readily available market values, estimated market values are calculated based on the market values of comparable securities.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Federal Home Loan Bank Stock - The Bank is a member of the Federal Home Loan Bank of Indianapolis (FHLBI). Members are required to own a certain amount of stock based on the level of borrowings and other factors. Stock in the FHLBI is recorded at redemption value which approximates fair value. The Company periodically evaluates the FHLBI stock for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Mortgage Banking Activities - The Company routinely sells to investors its originated long-term residential fixed-rate mortgage loans. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Company. The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding, also known as rate lock commitments. Rate lock commitments on residential mortgage loans that are intended to be sold are considered to be derivatives. Fair value is based on fees currently charged to enter into similar agreements. The fair value of rate lock commitments was insignificant at December 31, 2012 and 2011.

The Company uses forward contracts as part of its mortgage banking activities. Forward contracts provide for the delivery of financial instruments at a specified future date and at a specified price or yield. The fair value of forward contracts was insignificant at December 31, 2012 and 2011.

Loans - The Company grants mortgage, commercial, and consumer loans to customers. Loans are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield over the contractual life of the loan.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected, for loans that are placed on nonaccrual or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses - The allowance for loan losses is established as losses are estimated to have occurred 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 on management's periodic review of the collectibility 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.

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of homogeneous loans are collectively evaluated for impairment. The Company does not separately identify individual consumer and residential loans for impairment disclosures until a loss is imminent.

Troubled debt restructuring of loans is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule.  All modified loans are evaluated to determine whether the loans should be reported as a Troubled Debt Restructure (TDR).  A loan is a TDR when the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower by modifying or renewing a loan that the Company would not otherwise consider. To make this determination, the Company must determine whether (a) the borrower is experiencing financial difficulties and (b) the Company granted the borrower a concession. This determination requires consideration of all of the facts and circumstances surrounding the modification.  An overall general decline in the economy or some deterioration in a borrower's financial condition does not automatically mean the borrower is experiencing financial difficulties.

Loans Held for Sale - Loans held for sale consist of fixed rate residential mortgage loans with maturities of 15 to 30 years. Such loans are recorded at the lower of aggregate cost or estimated fair value.

Loan Servicing - Servicing assets are recognized as separate assets when rights are acquired through the sale of originated residential mortgage loans. Capitalized servicing rights are reported in other assets and are amortized against non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or on a valuation model that calculates the present value of estimated future net servicing income using market based assumptions. Temporary impairment is recognized through a valuation allowance for an individual stratum to the extent that fair value is less than the capitalized amount for the stratum. If it is later determined that all or a portion of the temporary impairment no longer exists, the valuation allowance is reduced through a recovery of income. An other-than-temporary impairment results in a permanent reduction to the carrying value of the servicing asset.

Servicing income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income.

Foreclosed Assets (Including Other Real Estate Owned) - Foreclosed real estate held for sale is carried at the lower of fair value minus estimated costs to sell, or cost. Costs of holding foreclosed real estate are charged to expense in the current period, except for significant property improvements, which are capitalized. Valuations are periodically performed by management and an allowance is established by a charge to non-interest expense if the carrying value exceeds the fair value minus estimated costs to sell. Foreclosed real estate is classified as other real estate owned. The net income from operations of foreclosed real estate held for sale is reported in non-interest income.

Property and Equipment - These assets are recorded at cost, less accumulated depreciation. The Bank uses the straight-line method of recording depreciation for financial reporting. The depreciable lives used by the Company are: land improvements 7-10 years, buildings 7-40 years and equipment 3-10 years. Maintenance and repairs are charged to expense and improvements are capitalized.

Intangible Assets - The Company has in the past purchased a branch or branches from other financial institutions. The analysis of these branch acquisitions led the Company to conclude that in each case, we acquired a business and therefore, the excess of purchase price over fair value of net assets acquired has been allocated to core deposit intangible assets. The conclusion was based on the fact that in each case we acquired employees, customers and branch facilities. The expected life for core deposit intangibles is based on the type of products acquired in an acquisition. The amortization periods range from 10 to 15 years and are based on the expected life of the products. The expected life was determined based on an analysis of the life of similar products within the Company and local competition in the markets where the branches were acquired. The core deposit intangibles are amortized on a straight line basis. The core deposit intangible is analyzed quarterly for impairment.

On June 12, 2003, First Federal of Northern Michigan acquired 100% of the stock of the InsuranCenter of Alpena (ICA).

On February 27, 2009 the Company announced that it had sold the majority of the assets of the InsuranCenter of Alpena.

At the time of the sale, goodwill of $600,000 continued to be recorded related to certain assets of the Company that were not sold in the sale of ICA. The assets retained relate to a future stream of commissions. Under an agreement, the Company will receive a portion of the override commission through April, 2014. Management computed an estimated cash flow on this commission using a 6.0% discount rate and determined a fair value of $600,000. Since the $600,000 allocation of fair value relates to a finite life asset, the Company re-characterized the goodwill as an amortizable intangible and began amortizing the asset in March, 2009.

Bank Owned Life Insurance - Bank owned life insurance policies are stated at the current cash surrender value of the policy, or the policy death proceeds less any obligation to provide a death benefit to an insured's beneficiaries if that value is less than the cash surrender value. Increases in the asset value are recorded as earnings in other income.

Income Taxes - Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company records a valuation allowance if it believes, based on available evidence, that it is "more likely than not" that the future tax assets recognized will not be realized before their expiration.

Realization of the Company's deferred tax assets is primarily dependent upon the generation of a sufficient level of future taxable income.

At December 31, 2012 and 2011, management did not believe it was more likely than not that all of the deferred tax assets would be realized. Accordingly, at December 31, 2012 and 2011 a valuation allowance of $3.2 million and $3.0 million was recorded, respectively. The net deferred tax asset recorded at December 31, 2012 and 2011 was $331,000 and $372,000. See Note 9 for additional information.

Off Balance Sheet Instruments - In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under credit card arrangements, commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded. Additional information regarding Off Balance Sheet Instruments is included in Note 10 in these Notes to Consolidated Financial Statements.

Comprehensive Income - Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, however, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component in the equity section of the consolidated statement of financial condition. Such items, along with net income, are components of comprehensive income.

Stock-Based Compensation - The Company applies the recognition and measurement of stock-based compensation accounting rules for stock-based compensation which is referred to as the fair value method. Compensation cost is based on the fair value of the equity issued to employees. The Company recognizes compensation expense related to stock-based compensation over the period the services are performed. The Company granted no options in 2012 and 2011. Compensation costs charged to earnings were $2,000 and $68,000 in 2012 and 2011, respectively.

Earnings Per Common Share - Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method. As of December 31, 2012 there was no dilution due to the net loss for the year. As of December 31, 2011, 182,682 options were not considered dilutive, due to the fact that the options are underwater.

Earnings per common share have been computed based on the following:

	December 31,
	2012			2011
Net income (loss)	$	(214	)	$	742
Average number of common shares outstanding		2,884,049			2,884,049
Effect of dilutive options		-			-
Average number of common shares outstanding used to calculate diluted earnings per common share		2,884,049			2,884,049

Recent Accounting Pronouncements - Accounting Standards Update 2011-05 (ASU 2011-05), "Comprehensive Income" was issued by the Financial Accounting Standards Board ("FASB") in June 2011. ASU 2011-05 requires an entity to present the total of comprehensive income, the components of comprehensive income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but continuous statements. This standard eliminated the option to present the components of other comprehensive income as a part of the statement of changes in stockholders' equity. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 31, 2011. The implementation of this standard only changed the presentation of comprehensive income; it did not have an impact on the Company's financial position or its results of operations. ASU 2011-12 was issued by FASB in December 2011. ASU 2011-12 deferred the requirement to present reclassification adjustments for each component of OCI in both net income and OCI and the face of the financial statements until fiscal years, and interim periods within those fiscal years, beginning after December 15, 2012. The other requirements of ASU 2011-05 were not affected by ASU 2011-12. As a result of adopting ASU 2011-05, the Company is presenting the total of comprehensive income and the components of comprehensive income and other comprehensive income in a single continuous statement.

In 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-02, A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring.  This update applies to all creditors, both public and non-public, and was introduced to provide clarification surrounding troubled debt restructurings ("TDR").  The primary characteristics that previously caused a restructuring to qualify as a TDR still exist: (1) the restructuring constitutes a concession to the borrower and (2) the borrower is experiencing financial difficulties.  The update provides additional details and examples to provide clarity surrounding these items.  The update also prohibits the use of the effective interest rate test when determining whether the restructuring constitutes a concession.  The update is effective for annual reporting periods ending on or after December 15, 2012 (therefore, December 31, 2012, for the Company).  Lastly, the disclosure requirements set forth by ASU 2010-20 regarding troubled debt restructurings, and later deferred by ASU 2011-1 until December 31, 2012 for the Company, are included in Note 3.  Other than the additional disclosures, these updates did not have a significant impact on the financial statements.

In 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This update to Fair Value Measurement (Topic 820) results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The amendments in this update explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. However, this update does require expanded disclosure related to the nature and significance of inputs that are used in estimating and measuring the fair value of financial instruments. The amendments in this update are to be applied prospectively and are effective for annual reporting periods beginning after December 15, 2011 (therefore, December 31, 2012, for the Company).  This update did not have a significant impact on the financial statements.

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Federal Home Loan Bank and Federal Reserve Advances (Tables)

12 Months Ended

Dec. 31, 2012

Federal Home Loan Bank and Federal Reserve Advances [Abstract]

Schedule of the Future Maturities of Federal Home Loan Bank Advances

December 31, 2012
Years Ending December 31	Amount		Weighted Average Interest Rate
2013	$	14,968		1.52
2014		553		1.12
2015		1,162		1.17
2016		5,572		1.26
2017		2,983		1.86
Thereafter		1,120		1.12
Total	$	26,358		1.46

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Summary of Significant Accounting Policies (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended					12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Core Deposits [Member]	Dec. 31, 2011 Core Deposits [Member]	Mar. 31, 2009 Core Deposits [Member]	Dec. 31, 2012 Core Deposits [Member] Minimum [Member]	Dec. 31, 2012 Core Deposits [Member] Maximum [Member]	Dec. 31, 2012 Land Improvements [Member] Minimum [Member]	Dec. 31, 2012 Land Improvements [Member] Maximum [Member]	Dec. 31, 2012 Building [Member] Minimum [Member]	Dec. 31, 2012 Building [Member] Maximum [Member]	Dec. 31, 2012 Equipment [Member] Minimum [Member]	Dec. 31, 2012 Equipment [Member] Maximum [Member]
Property and Equipment:
Property and equipment, useful live																7 years	10 years	7 years	40 years	3 years	10 years
Intangible Assets:
Intangible assets, useful live														10 years	15 years
Intangible assets, gross	$ 3,681				$ 3,681				$ 3,681	$ 3,681	$ 3,081	$ 3,081	$ 600
Deferred tax assets:
Deferred tax asset, valuation allowance	3,200				3,000				3,200	3,000
Deferred tax asset	331				372				331	372
Stock-Based Compensation:
Stock-based compensation expense									2	68
Earnings Per Common Share:
Number of options excluded from computation of earnings per share										182,682
Net income (loss)	$ (818)	$ 273	$ (270)	$ 601	$ 84	$ 235	$ 262	$ 161	$ (214)	$ 742
Average number of common shares outstanding									2,884,049	2,884,049
Effect of dilutive options
Average number of common shares outstanding used to calculate diluted earnings per common share									2,884,049	2,884,049

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Loans (Loans Individually Evaluated for Impairment by Class of Loans) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	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
Recorded Investment, With no related allowance recorded	173	173
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	173	469
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		516
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total	1,589	1,589
Recorded Investment, total	173	173
Related Allowance, total
Average Recorded Investment, total	173	985
Interest Income Recognized, total
Commercial Real Estate - other [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	4,869	626
Recorded Investment, With no related allowance recorded	4,535	626
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	5,084	509
Interest Income Recognized, With no related allowance recorded	138	135
Unpaid Principal Balance, With a specific allowance recorded	2,138	1,337
Recorded Investment, With a specific allowance recorded	2,127	1,128
Related Allowance, With a specific allowance recorded	101	85
Average Recorded Investment, With a specific allowance recorded	2,167	1,039
Interest Income Recognized, With a specific allowance recorded	80	115
Unpaid Principal Balance, total	7,007	1,963
Recorded Investment, total	6,662	1,754
Related Allowance, total	101	85
Average Recorded Investment, total	7,251	1,548
Interest Income Recognized, total	218	250
Consumer - Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	33	171
Recorded Investment, With no related allowance recorded	28	152
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	34	196
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	33	171
Recorded Investment, total	28	152
Related Allowance, total
Average Recorded Investment, total	34	196
Interest Income Recognized, total
Consumer - Other [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	1
Recorded Investment, With no related allowance recorded	1
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	3	7
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	1
Recorded Investment, total	1
Related Allowance, total
Average Recorded Investment, total	3	7
Interest Income Recognized, total
Residential [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	1,365	2,017
Recorded Investment, With no related allowance recorded	1,194	1,640
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	1,359	1,928
Interest Income Recognized, With no related allowance recorded
Unpaid Principal Balance, With a specific allowance recorded	616	813
Recorded Investment, With a specific allowance recorded	616	780
Related Allowance, With a specific allowance recorded	141	199
Average Recorded Investment, With a specific allowance recorded	642	860
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total	1,981	2,830
Recorded Investment, total	1,810	2,420
Related Allowance, total	141	199
Average Recorded Investment, total	2,001	2,788
Interest Income Recognized, total

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Fair Value Measurements (Estimated Fair Values and Related Carrying or Notional Amounts of Financial Instruments) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and cash equivalents	$ 2,752
Securities available for sale
Securities held to maturity
Loans held for sale
Loans receivable - 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	50,764
Securities held to maturity	2,570
Loans held for sale
Loans receivable - net
Federal Home Loan Bank stock	3,266
Accrued interest receivable	970
Financial liabilities:
Customer deposits	159,335
Federal Home Loan Bank advances	26,493
REPO sweep accounts	3,183
Accrued interest payable	100
Fair Value, Inputs, Level 3 [Member]
Financial assets:
Cash and cash equivalents
Securities available for sale
Securities held to maturity
Loans held for sale	84
Loans receivable - net	140,877
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	2,752	2,749
Securities available for sale	50,764	53,049
Securities held to maturity	2,345	2,435
Loans held for sale	79
Loans receivable - net	138,912	140,884
Federal Home Loan Bank stock	3,266	3,266
Accrued interest receivable	970	1,149
Financial liabilities:
Customer deposits	158,350	150,649
Federal Home Loan Bank advances	26,358	34,500
REPO sweep accounts	3,183	5,592
Accrued interest payable	100	148
Estimate of Fair Value, Fair Value Disclosure [Member]
Financial assets:
Cash and cash equivalents	2,752	2,749
Securities available for sale	50,764	53,049
Securities held to maturity	2,570	2,665
Loans held for sale	84
Loans receivable - net	140,877	146,018
Federal Home Loan Bank stock	3,266	3,266
Accrued interest receivable	970	1,149
Financial liabilities:
Customer deposits	159,335	151,693
Federal Home Loan Bank advances	26,493	34,827
REPO sweep accounts	3,183	5,592
Accrued interest payable	$ 100	$ 148

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Consolidated Balance Sheet (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets
Cash and cash equivalents	$ 2,732	$ 2,714
Overnight deposits with Federal Home Loan Bank	20	35
Total cash and cash equivalents	2,752	2,749
Securities available for sale (Note 2)	50,764	53,049
Securities held to maturity (Note 2)	2,345	2,435
Loans - net (Note 3)	138,912	140,884
Loans held for sale	79
Federal Home Loan Bank stock	3,266	3,266
Property and equipment (Note 4)	5,394	5,846
Foreclosed real estate	2,387	3,408
Accrued interest receivable	970	1,149
Prepaid FDIC insurance premiums	583	759
Intangible assets (Note 6)	158	335
Deferred tax asset	331	372
Originated mortgage servicing right - net (Note 5)	1,016	993
Bank owned life insurance	4,475	1,413
Other assets	402	387
Total assets	213,834	217,045
Liabilities
Non-interest bearing deposits	21,067	12,609
Interest-bearing deposits (Note 7)	137,283	138,040
Advances from Federal Home Loan Bank (Note 8)	26,358	34,500
REPO sweep accounts	3,183	5,592
Accrued expenses and other liabilities (Note 12)	1,508	1,736
Total liabilities	189,399	192,477
Stockholders' Equity (Note 11)
Common stock ($0.01 par value 20,000,000 shares authorized 3,191,799 shares issued)	32	32
Additional paid-in capital	23,854	23,853
Retained earnings	2,766	2,980
Treasury stock at cost (307,750 shares)	(2,964)	(2,964)
Unearned compensation		(1)
Accumulated other comprehensive income	747	668
Total stockholders' equity	24,435	24,568
Total liabilities and stockholders' equity	$ 213,834	$ 217,045

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Loans (Composition of Loan Portfolio by Loan Type) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	$ 140,982	$ 142,675
Net deferred loan fees	320	273
Allowance for loan losses	1,750	1,518
Total loans, net	138,912	140,884
Residential [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	66,540	66,599
Commercial loans Secured by real estate [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	54,673	54,202
Commercial - non real estate [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	8,102	7,002
Commercial loans [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	62,775	61,204
Consumer - Real Estate [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	10,409	13,395
Consumer - Other [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	1,259	1,477
Consumer Loans [Member]
Composition Of Loan Portfolio [Line Items]
Loans and leases receivables, gross	$ 11,668	$ 14,872

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Consolidated Statement of Changes in Stockholders' Equity (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Consolidated Statement of Changes in Stockholders' Equity [Abstract]
Unrealized appreciation (depreciation) on available-for- sale securities, tax	$ 41	$ 269

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Servicing (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012
Servicing [Abstract]
The unpaid principal balances of mortgage and other loans serviced for others	$ 140,676,000	$ 143,051,000
Annual constant prepayment speed (CPR)	17.86%	17.52%
Weighted average life (in months)	246 months	246 months
Discount rate	8.11%	8.13%
Fair value of mortgage servicing rights	1,046,000	1,089,000
Balance - beginning of period	993,000	960,000
Originated mortgage servicing rights capitalized	426,000	362,000
Amortization of mortgage servicing rights	(384,000)	(329,000)
Balance - end of period	1,035,000	993,000
Valuation allowances:
Balance - beginning of period
Additions	(19,000)
Reductions
Write-downs
Balance - end of period (net of allowances)	$ 1,016,000	$ 993,000

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Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2012

Stockholders' Equity [Abstract]

Schedule of Compliance with Regulatory Capital Requirements

	Actual					For Capital Adequacy Purposes					To be Categorized as Well-Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
December 31, 2012
Total capital (to risk- weighted assets)	$	23,723		17.4	%	$	10,930		8.0	%	$	13,663		10.0	%
Tier 1 capital (to risk- weighted assets)	$	22,015		16.1	%	$	5,465		4.0	%	$	8,198		6.0	%
Tangible capital (to tangible assets)	$	22,015		10.3	%	$	3,197		1.5	%	$	4,263		2.0	%
December 31, 2011
Total capital (to risk- weighted assets)	$	23,568		17.2	%	$	10,961		8.0	%	$	13,702		10.0	%
Tier 1 capital (to risk- weighted assets)	$	22,334		16.3	%	$	5,481		4.0	%	$	8,221		6.0	%
Tangible capital (to tangible assets)	$	22,334		10.4	%	$	3,232		1.5	%	$	4,309		2.0	%

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Stockholders' Equity (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Total capital (to risk- weighted assets)
Actual - Amount	$ 23,723	$ 23,568
For Capital Adequacy Purposes - Amount	10,930	10,961
To be Categorized as Well-Capitalized Under Prompt Corrective Action Provisions - Amount	13,663	13,702
Actual - Ratio	17.40%	17.20%
For Capital Adequacy Purposes - Ratio	8.00%	8.00%
To be Categorized as Well-Capitalized Under Prompt Corrective Action Provisions - Ratio	10.00%	10.00%
Tier 1 capital (to risk- weighted assets)
Actual - Amount	22,015	22,334
For Capital Adequacy Purposes - Amount	5,465	5,481
To be Categorized as Well-Capitalized Under Prompt Corrective Action Provisions - Amount	8,198	8,221
Actual - Ratio	16.10%	16.30%
For Capital Adequacy Purposes - Ratio	4.00%	4.00%
To be Categorized as Well-Capitalized Under Prompt Corrective Action Provisions - Ratio	6.00%	6.00%
Tangible capital (to tangible assets)
Actual - Amount	22,015	22,334
For Capital Adequacy Purposes - Amount	3,197	3,232
To be Categorized as Well-Capitalized Under Prompt Corrective Action Provisions - Amount	$ 4,263	$ 4,309
Actual - Ratio	10.30%	10.40%
For Capital Adequacy Purposes - Ratio	1.50%	1.50%
To be Categorized as Well-Capitalized Under Prompt Corrective Action Provisions - Ratio	2.00%	2.00%

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Parent-Only Financial Statements

12 Months Ended

Dec. 31, 2012

Parent-Only Financial Statements [Abstract]

Parent-Only Financial Statements

Note 15 - Parent-Only Financial Statements

The following represents the condensed financial statements of First Federal of Northern Michigan Bancorp, Inc. ("Parent") only. The Parent-only financial information should be read in conjunction with the Company's consolidated financial statements.

Condensed parent company financial statements, which include transactions with the subsidiary, are as follows:

Balance Sheets:

	December 31
	2012		2011
Assets
Cash at subsidiary bank	$	817	$	516
Investment in subsidiary		23,304		23,734
Deferred tax asset		318		318
Other assets		-		-
Total assets	$	24,439	$	24,568
Liabilities and Stockholders' Equity
Liabilities	$	4	$	-
Stockholders' equity		24,435		24,568
Total liabilities and stockholders' equity	$	24,439	$	24,568

Statements of Operations:

	December 31
	2012			2011
Operating income	$	-		$	-
Dividend income		500			-
Operating expense		(205	)		(199	)
Income (loss) before income taxes and equity in undistributed net income of subsidiary bank		295			(199	)
Income tax benefit		-			-
Income (loss) before equity in undistributed loss of subsidiary bank		295			(199	)
Equity in undistributed net income (loss) of subsidiary bank		(509	)		941
Net income (loss)	$	(214	)	$	742

Statements of Cash Flows:

	December 31
	2012			2011
Cash Flows from Operating Activities
Net income (loss)	$	(214	)	$	742
Adjustments to reconcile net income (loss) to net cash from operating activities:
Dividend from subsidiary bank		500			-
Stock options/awards		2			68
Equity in undistributed net income of subsidiary bank		9			(941	)
Net change in deferred tax assets		-			-
Net change in other liabilities		4			-
Net change in other assets		-			223
Net cash provided by (used in) operating activities		515			(650	)
Net Increase in Cash		301			92
Cash - Beginning of year		516			424
Cash - End of year	$	817		$	516

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Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2012

Employee Benefit Plans [Abstract]

Schedule of Shares Held by ESOP

	December 31
	2012		2011
Allocated		121,608		138,345
Unallocated		-		-
Total		121,608		138,345

Summary of Stock Option Activity

						Weighted-Average
				Weighted-			Remaining
				Average			Contractual Term		Aggregate
Options	Shares			Exercise Price			(Years)		Intrinsic Value
Outstanding at January 1, 2011		186,132		$	9.47			5.3		-
Granted in 2011		-		$	0.00
Exercised in 2011		-		$	0.00
Forfeited or Expired in 2011		(3,450	)	$	9.54
Outstanding at December 31, 2011		182,682		$	9.47			4.3		-
Granted in 2012		-		$	0.00
Exercised in 2012		-		$	0.00
Forfeited or expired in 2012		(15,062	)	$	8.81
Oustanding at December 31, 2012		167,620		$	9.53			3.38		-
Options Exercisable at December 31, 2012		167,620		$	9.53			3.38		-

Summary of Status of Nonvested Options and Changes

				Weighted-Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2011		37,358		$	2.11
Granted		-		$	0.00
Vested		(36,118	)	$	2.11
Forfeited		-		$	0.00
Nonvested at December 31, 2011		1,240		$	2.19
Granted		-		$	0.00
Vested		(1,240	)	$	2.19
Forfeited		-		$	0.00
Nonvested at December 31, 2012		0		$	0.00

Summary of Restricted Stock Awards Activity

	For the Year Ended December 31,
	2012			2011
Beginning of period		300			13,050
Granted		-			-
Vested		(300	)		(12,750	)
Forfeited		-			-
Nonvested, end of period		0			300

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation - The consolidated financial statements include the accounts of First Federal of Northern Michigan Bancorp, Inc., First Federal of Northern Michigan, 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 an outside party and, to a lesser extent, the collection of commissions for the sale of non-insured investment products. All significant intercompany balances and transactions have been eliminated in the consolidation.

Use of Estimates

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of investment securities, intangible and deferred tax assets, and mortgage servicing rights.

Significant Group Concentrations of Credit Risk

Significant Group Concentrations of Credit Risk - Most of the Company's activities are with customers located within the northeastern lower peninsula of Michigan. Note 2 discusses the types of securities in which the Company invests. Note 3 discusses the types of lending in which the Company engages. The Company does not have any significant concentrations to any one industry or customer.

Cash and Cash Equivalents

Cash and Cash Equivalents - For the purpose of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from depository institutions and federal funds sold and interest bearing deposits in other depository institutions which mature within ninety days when purchased.

Securities

Securities - Debt securities that management has the positive intent and ability to hold to maturity are classified as "held to maturity" and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as "available for sale" and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income net of applicable income taxes.

The market value of securities is based on quoted market prices. For securities that do not have readily available market values, estimated market values are calculated based on the market values of comparable securities.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Federal Home Loan Bank Stock

Federal Home Loan Bank Stock - The Bank is a member of the Federal Home Loan Bank of Indianapolis (FHLBI). Members are required to own a certain amount of stock based on the level of borrowings and other factors. Stock in the FHLBI is recorded at redemption value which approximates fair value. The Company periodically evaluates the FHLBI stock for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Mortgage Banking Activities

Mortgage Banking Activities - The Company routinely sells to investors its originated long-term residential fixed-rate mortgage loans. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Company. The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding, also known as rate lock commitments. Rate lock commitments on residential mortgage loans that are intended to be sold are considered to be derivatives. Fair value is based on fees currently charged to enter into similar agreements. The fair value of rate lock commitments was insignificant at December 31, 2012 and 2011.

The Company uses forward contracts as part of its mortgage banking activities. Forward contracts provide for the delivery of financial instruments at a specified future date and at a specified price or yield. The fair value of forward contracts was insignificant at December 31, 2012 and 2011.

Loans

Loans - The Company grants mortgage, commercial, and consumer loans to customers. Loans are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield over the contractual life of the loan.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected, for loans that are placed on nonaccrual or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

Allowance for Loan Losses - The allowance for loan losses is established as losses are estimated to have occurred 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 on management's periodic review of the collectibility 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.

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of homogeneous loans are collectively evaluated for impairment. The Company does not separately identify individual consumer and residential loans for impairment disclosures until a loss is imminent.

Troubled debt restructuring of loans is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule.  All modified loans are evaluated to determine whether the loans should be reported as a Troubled Debt Restructure (TDR).  A loan is a TDR when the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower by modifying or renewing a loan that the Company would not otherwise consider. To make this determination, the Company must determine whether (a) the borrower is experiencing financial difficulties and (b) the Company granted the borrower a concession. This determination requires consideration of all of the facts and circumstances surrounding the modification.  An overall general decline in the economy or some deterioration in a borrower's financial condition does not automatically mean the borrower is experiencing financial difficulties.

Loans Held for Sale

Loans Held for Sale - Loans held for sale consist of fixed rate residential mortgage loans with maturities of 15 to 30 years. Such loans are recorded at the lower of aggregate cost or estimated fair value.

Loan Servicing

Loan Servicing - Servicing assets are recognized as separate assets when rights are acquired through the sale of originated residential mortgage loans. Capitalized servicing rights are reported in other assets and are amortized against non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or on a valuation model that calculates the present value of estimated future net servicing income using market based assumptions. Temporary impairment is recognized through a valuation allowance for an individual stratum to the extent that fair value is less than the capitalized amount for the stratum. If it is later determined that all or a portion of the temporary impairment no longer exists, the valuation allowance is reduced through a recovery of income. An other-than-temporary impairment results in a permanent reduction to the carrying value of the servicing asset.

Servicing income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income.

Foreclosed Assets (Including Other Real Estate Owned)

Foreclosed Assets (Including Other Real Estate Owned) - Foreclosed real estate held for sale is carried at the lower of fair value minus estimated costs to sell, or cost. Costs of holding foreclosed real estate are charged to expense in the current period, except for significant property improvements, which are capitalized. Valuations are periodically performed by management and an allowance is established by a charge to non-interest expense if the carrying value exceeds the fair value minus estimated costs to sell. Foreclosed real estate is classified as other real estate owned. The net income from operations of foreclosed real estate held for sale is reported in non-interest income.

Property and Equipment

Property and Equipment - These assets are recorded at cost, less accumulated depreciation. The Bank uses the straight-line method of recording depreciation for financial reporting. The depreciable lives used by the Company are: land improvements 7-10 years, buildings 7-40 years and equipment 3-10 years. Maintenance and repairs are charged to expense and improvements are capitalized.

Intangible Assets - The Company has in the past purchased a branch or branches from other financial institutions. The analysis of these branch acquisitions led the Company to conclude that in each case, we acquired a business and therefore, the excess of purchase price over fair value of net assets acquired has been allocated to core deposit intangible assets. The conclusion was based on the fact that in each case we acquired employees, customers and branch facilities. The expected life for core deposit intangibles is based on the type of products acquired in an acquisition. The amortization periods range from 10 to 15 years and are based on the expected life of the products. The expected life was determined based on an analysis of the life of similar products within the Company and local competition in the markets where the branches were acquired. The core deposit intangibles are amortized on a straight line basis. The core deposit intangible is analyzed quarterly for impairment.

On June 12, 2003, First Federal of Northern Michigan acquired 100% of the stock of the InsuranCenter of Alpena (ICA).

On February 27, 2009 the Company announced that it had sold the majority of the assets of the InsuranCenter of Alpena.

At the time of the sale, goodwill of $600,000 continued to be recorded related to certain assets of the Company that were not sold in the sale of ICA. The assets retained relate to a future stream of commissions. Under an agreement, the Company will receive a portion of the override commission through April, 2014. Management computed an estimated cash flow on this commission using a 6.0% discount rate and determined a fair value of $600,000. Since the $600,000 allocation of fair value relates to a finite life asset, the Company re-characterized the goodwill as an amortizable intangible and began amortizing the asset in March, 2009.

Bank Owned Life Insurance

Bank Owned Life Insurance - Bank owned life insurance policies are stated at the current cash surrender value of the policy, or the policy death proceeds less any obligation to provide a death benefit to an insured's beneficiaries if that value is less than the cash surrender value. Increases in the asset value are recorded as earnings in other income.

Income Taxes

Income Taxes - Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company records a valuation allowance if it believes, based on available evidence, that it is "more likely than not" that the future tax assets recognized will not be realized before their expiration.

Realization of the Company's deferred tax assets is primarily dependent upon the generation of a sufficient level of future taxable income.

At December 31, 2012 and 2011, management did not believe it was more likely than not that all of the deferred tax assets would be realized. Accordingly, at December 31, 2012 and 2011 a valuation allowance of $3.2 million and $3.0 million was recorded, respectively. The net deferred tax asset recorded at December 31, 2012 and 2011 was $331,000 and $372,000. See Note 9 for additional information.

Off Balance Sheet Instruments

Off Balance Sheet Instruments - In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under credit card arrangements, commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded. Additional information regarding Off Balance Sheet Instruments is included in Note 10 in these Notes to Consolidated Financial Statements.

Comprehensive Income

Comprehensive Income - Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, however, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component in the equity section of the consolidated statement of financial condition. Such items, along with net income, are components of comprehensive income.

Stock-Based Compensation

Stock-Based Compensation - The Company applies the recognition and measurement of stock-based compensation accounting rules for stock-based compensation which is referred to as the fair value method. Compensation cost is based on the fair value of the equity issued to employees. The Company recognizes compensation expense related to stock-based compensation over the period the services are performed. The Company granted no options in 2012 and 2011. Compensation costs charged to earnings were $2,000 and $68,000 in 2012 and 2011, respectively.

Earnings Per Common Share

Earnings Per Common Share - Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method. As of December 31, 2012 there was no dilution due to the net loss for the year. As of December 31, 2011, 182,682 options were not considered dilutive, due to the fact that the options are underwater.

Earnings per common share have been computed based on the following:

	December 31,
	2012			2011
Net income (loss)	$	(214	)	$	742
Average number of common shares outstanding		2,884,049			2,884,049
Effect of dilutive options		-			-
Average number of common shares outstanding used to calculate diluted earnings per common share		2,884,049			2,884,049

Recent Accounting Pronouncements

Recent Accounting Pronouncements - Accounting Standards Update 2011-05 (ASU 2011-05), "Comprehensive Income" was issued by the Financial Accounting Standards Board ("FASB") in June 2011. ASU 2011-05 requires an entity to present the total of comprehensive income, the components of comprehensive income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but continuous statements. This standard eliminated the option to present the components of other comprehensive income as a part of the statement of changes in stockholders' equity. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 31, 2011. The implementation of this standard only changed the presentation of comprehensive income; it did not have an impact on the Company's financial position or its results of operations. ASU 2011-12 was issued by FASB in December 2011. ASU 2011-12 deferred the requirement to present reclassification adjustments for each component of OCI in both net income and OCI and the face of the financial statements until fiscal years, and interim periods within those fiscal years, beginning after December 15, 2012. The other requirements of ASU 2011-05 were not affected by ASU 2011-12. As a result of adopting ASU 2011-05, the Company is presenting the total of comprehensive income and the components of comprehensive income and other comprehensive income in a single continuous statement.

In 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-02, A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring.  This update applies to all creditors, both public and non-public, and was introduced to provide clarification surrounding troubled debt restructurings ("TDR").  The primary characteristics that previously caused a restructuring to qualify as a TDR still exist: (1) the restructuring constitutes a concession to the borrower and (2) the borrower is experiencing financial difficulties.  The update provides additional details and examples to provide clarity surrounding these items.  The update also prohibits the use of the effective interest rate test when determining whether the restructuring constitutes a concession.  The update is effective for annual reporting periods ending on or after December 15, 2012 (therefore, December 31, 2012, for the Company).  Lastly, the disclosure requirements set forth by ASU 2010-20 regarding troubled debt restructurings, and later deferred by ASU 2011-1 until December 31, 2012 for the Company, are included in Note 3.  Other than the additional disclosures, these updates did not have a significant impact on the financial statements.

In 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This update to Fair Value Measurement (Topic 820) results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The amendments in this update explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. However, this update does require expanded disclosure related to the nature and significance of inputs that are used in estimating and measuring the fair value of financial instruments. The amendments in this update are to be applied prospectively and are effective for annual reporting periods beginning after December 15, 2011 (therefore, December 31, 2012, for the Company).  This update did not have a significant impact on the financial statements.

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Employee Benefit Plans (Summary of Nonvested Stock Option Activity) (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Nonvested Stock Options, Shares:
Nonvested, beginning	1,240	37,358
Granted
Vested	(1,240)	(36,118)
Forfeited
Nonvested, ending		1,240
Weighted-Average Grant-Date Fair Value
Nonvested, beginning	$ 2.19	$ 2.11
Granted
Vested	$ 2.19	$ 2.11
Forfeited
Nonvested, ending		$ 2.19

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Consolidated Statement of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash Flows from Operating Activities:
Net income (loss)	$ (214)	$ 742
Adjustments to reconcile net income (loss) to cash from operating activities:
Depreciation and amortization	480	684
Provision for loan losses	1,367	284
Amortization and accretion on securities	527	321
Gain on sale of investment securities	(47)
Stock options/awards	2	68
Gain on sale of loans held for sale	(587)	(388)
Loss (Gain) on sale of property and equipment	4	(1)
Loss on sale of real estate owned and other repossessed assets	83	48
Originations of loans held for sale	(3,559)	(28,821)
Proceeds from sale of loans held for sale	36,067	29,209
Net change in:
Accrued interest receivable	179	82
Prepaid FDIC insurance premiums	176	208
Bank owned life insurance	(61)
Other assets	(37)	(58)
Accrued expenses and other liabilities	(227)	(123)
Deferred income tax benefit - (Note 9)		(18)
Net cash provided by (used in) operating activities	2,153	2,237
Cash Flows from Investing Activities:
Net (increase) decrease in loans	(1,219)	12,518
Proceeds from maturity of securities	20,494	12,790
Proceeds from sale of securities available-for-sale	1,600
Proceeds from sale of property and equipment	264	2
Proceeds from sale of of real estate owned and other repossessed assets	2,761	2,821
Purchase of securities available for sale	(20,080)	(29,982)
Proceeds from sale of Federal Home Loan Bank stock		509
Purchase of bank owned life insurance	(3,000)
Purchase of premises and equipment	(120)	(212)
Net cash provided by (used in) investing activities	700	(1,554)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits	7,701	(4,817)
Net decrease in Repo Sweep Accts	(2,409)	(580)
Advances from FHLB	58,815	23,700
Repayments of advances from FHLB	(66,957)	(18,200)
Net cash (used in) provided by financing activities	(2,850)	103
Net Increase in Cash and Cash Equivalents	3	786
Cash and Cash Equivalents - Beginning of year	2,749	1,963
Cash and Cash Equivalents - End of year	2,752	2,749
Supplemental Cash Flow and Noncash Information
Net cash refunded for income taxes	(15)	(41)
Cash paid for interest on deposits and borrowings	1,702	2,341
Transfer of loans to real estate owned and other repossessed assets	$ 1,823	$ 3,459

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Consolidated Balance Sheet (Parenthetical) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Consolidated Balance Sheet [Abstract]
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

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Off Balance Sheet Risk Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Off Balance Sheet Risk Commitments and Contingencies [Abstract]

Off Balance Sheet Risk Commitments and Contingencies

Note 10 - Off Balance Sheet Risk Commitments and Contingencies

In the normal course of business, the Bank enters into commitments with off-balance sheet risk to meet the financing needs of its customers. These instruments are currently limited to commitments to extend credit and standby letters of credit. Commitments to extend credit involve elements of credit risk and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank's exposure to credit loss in the event of nonperformance by the other party to the commitment is represented by the contractual amount of the commitment. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Bank since the time the commitment was made.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates of 30 to 120 days or other termination clauses and may require payment of a fee. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained by the Bank upon extension of credit is based on management's credit evaluation of the applicant. Collateral held is generally single-family residential real estate and commercial real estate. Substantially all of the obligations to extend credit are variable rate. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.

A summary of the contractual amount of commitments at December 31, 2012 and 2011 follows:

	December 31
	2012		2011
Commitments to grant loans	$	9,498	$	9,783
Unfunded commitments under lines of credit		13,074		14,485
Commercial and standby letters of credit		4		150

The nature of the Company's business may result in litigation. Management, after reviewing with counsel all actions and proceedings pending against or involving First Federal of Northern Michigan Bancorp, Inc. and subsidiaries, considers that the aggregate liability or loss, if any, resulting from them will not be material to the Company's financial position, results of operation or liquidity.

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Document and Entity Information (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Mar. 29, 2013	Jun. 30, 2012
Document and Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 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	FY
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,884,049
Entity Public Float			$ 9.0
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes

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Stockholders' Equity

12 Months Ended

Dec. 31, 2012

Stockholders' Equity [Abstract]

Stockholders' Equity

Note 11 - Stockholders' Equity

Payment of dividends on the common stock is subject to determination and declaration by the Board of Directors and depends on a number of factors, including capital requirements, regulatory limitation on payment of dividends, the Bank's results of operations and financial condition, tax considerations, and general economic conditions.

The Bank is subject to various regulatory capital requirements which were administered by the Office of Thrift Supervision (OTS) until July 21, 2011. Effective that date, supervisory responsibility for federal savings associations was transferred to the Office of the Comptroller of the Currency (OCC). Failure to meet certain capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators regarding components, risk-weightings, and other factors.

During the most recent regulatory examination, the OCC categorized the Bank as "well-capitalized" per definition of 12 CFR Section 565.4(b)(1). To be categorized as well-capitalized, the Bank must maintain minimum total risk-based, tier 1 risk based, and tangible equity ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank's categorization.

	Actual					For Capital Adequacy Purposes					To be Categorized as Well-Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
December 31, 2012
Total capital (to risk- weighted assets)	$	23,723		17.4	%	$	10,930		8.0	%	$	13,663		10.0	%
Tier 1 capital (to risk- weighted assets)	$	22,015		16.1	%	$	5,465		4.0	%	$	8,198		6.0	%
Tangible capital (to  tangible assets)	$	22,015		10.3	%	$	3,197		1.5	%	$	4,263		2.0	%
December 31, 2011
Total capital (to risk- weighted assets)	$	23,568		17.2	%	$	10,961		8.0	%	$	13,702		10.0	%
Tier 1 capital (to risk- weighted assets)	$	22,334		16.3	%	$	5,481		4.0	%	$	8,221		6.0	%
Tangible capital (to  tangible assets)	$	22,334		10.4	%	$	3,232		1.5	%	$	4,309		2.0	%

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Consolidated Statement of Operations and Comprehensive Income (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Interest Income
Loans, including fees	$ 7,928	$ 8,926
Investments
Taxable	540	521
Tax-exempt	154	159
Mortgage-backed securities	621	784
Total interest income	9,243	10,390
Interest Expense
Deposits (Note 7)	1,034	1,549
Borrowings	620	713
Total interest expense	1,654	2,262
Net Interest Income - Before provision for loan losses	7,589	8,128
Provision for Loan Losses (Note 3)	1,367	284
Net Interest Income - After provision for loan losses	6,222	7,844
Other Income
Service charges and other fees	760	730
Net gain on sale of investments	47
Net gain on sale of loans	587	388
Loan servicing fees	656	581
Insurance and brokerage commissions	149	158
Other	77	75
Total other income	2,276	1,932
Operating Expenses
Compensation and employee benefits (Note 12)	4,913	4,622
FDIC Insurance premiums	189	224
Amortization of intangible assets	177	292
Advertising	156	134
Occupancy and equipment	959	1,049
Data processing service bureau	306	301
Professional fees	424	433
Other	1,588	1,979
Total operating expenses	8,712	9,034
Income (Loss) - before income tax expense	(214)	742
Income tax expense (Note 9)
Net income (loss)	(214)	742
Comprehensive Income (Loss):
Net Income (Loss)	(214)	742
Change in unrealized gain on available-for-sale securities, net of tax	79	522
Comprehensive Income (Loss)	$ (135)	$ 1,264
Net income (loss) per share
Basic	$ (0.07)	$ 0.26
Diluted	$ (0.07)	$ 0.26
Dividends per common share

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Servicing

12 Months Ended

Dec. 31, 2012

Servicing [Abstract]

Servicing

Note 5 - Servicing

Loans serviced for others are not included in the accompanying consolidated statement of financial condition. The unpaid principal balances of mortgage and other loans serviced for others were approximately $140,676,000 and $143,051,000 at December 31, 2012 and 2011, respectively.

The key economic assumptions used in determining the fair value of the mortgage servicing rights are as follows:

	December 31,
	2012			2011
Annual constant prepayment speed (CPR)		17.86	%		17.52	%
Weighted average life (in months)		246			246
Discount rate		8.11	%		8.13	%

The fair value of our mortgage servicing rights was estimated to be $1,046,000 and $1,089,000 at December 31, 2012 and December 31, 2011, respectively. At December 31, 2012 a valuation allowance of $19,000 was established against the mortgage servicing rights associated with our 20-year fixed-rate sold loan portfolio.

The following table summarizes mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowances:

	December 31
	2012			2011
Balance - beginning of period:	$	993		$	960
Originated mortgage servicing rights capitalized		426			362
Amortization of mortgage servicing rights		(384	)		(329	)
Balance - end of period		1,035			993
Valuation allowances:
Balance - beginning of period		-			-
Additions		(19	)		-
Reductions		-			-
Write-downs		-			-
Balance - end of period (net of allowances)	$	1,016		$	993

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Property and Equipment

12 Months Ended

Dec. 31, 2012

Property and Equipment [Abstract]

Property and Equipment

Note 4 - Property and Equipment

A summary of property and equipment is as follows:

	December 31
	2012		2011
Land	$	1,112	$	1,188
Land improvements		184		214
Buildings		6,249		6,483
Equipment		3,682		3,712
Total property and equipment		11,227		11,597
Accumulated depreciation		5,833		5,751
Net property and equipment	$	5,394	$	5,846

Depreciation expense was $303,000 and $392,000 for the periods ended December 31, 2012 and 2011, respectively.

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Quarterly Results of Operations (Unaudited)

12 Months Ended

Dec. 31, 2012

Quarterly Results of Operations (Unaudited) [Abstract]

Quarterly Results of Operations (Unaudited)

Note 16 - Quarterly Results of Operations (Unaudited)

The following tables summarize the Company's quarterly results for the fiscal years ended December 31, 2012 and 2011:

	For the Three-Month Period Ending
	March 31, 2012			June 30, 2012			September 30, 2012		December 31, 2012
Interest income	$	2,409		$	2,352		$	2,313	$	2,169
Interest expense		464			427			394		369
Net interest income		1,945			1,925			1,919		1,800
Provision for loan losses		376			578			234		179
Other income		447			390			802		637
Other expenses		2,301			2,143			2,077		2,191
Income (Loss) - before income tax expense (benefit)		(285	)		(406	)		410		67
Income tax (benefit) expense		(886	)		(136	)		137		885
Net income (loss)	$	601		$	(270	)	$	273	$	(818	)
Net income (loss) per share
Basic	$	0.21		$	(0.09	)	$	0.09	$	(0.28	)
Diluted	$	0.21		$	(0.09	)	$	0.09	$	(0.28	)
Weighted average number of shares outstanding - basic and dilutive		2,884			2,884			2,884		2,884
Cash dividends declared per common share	$	-		$	-		$	-	$	-

	For the Three-Month Period Ending
	March 31, 2011		June 30, 2011			September 30, 2011			December 31, 2011
Interest income	$	2,592	$	2,691		$	2,588		$	2,519
Interest expense		605		581			564			512
Net interest income		1,987		2,110			2,024			2,007
Provision for loan losses		67		(19	)		(67	)		303
Other income		449		393			469			621
Other expenses		2,208		2,260			2,325			2,241
Income - before income tax expense (benefit)		161		262			235			84
Income tax expense		-		-			-			-
Net income	$	161	$	262		$	235		$	84
Net income per share
Basic	$	0.06	$	0.09		$	0.08		$	0.03
Diluted	$	0.06	$	0.09		$	0.08		$	0.03
Weighted average number of shares outstanding - basic and dilutive		2,884		2,884			2,884			2,884
Cash dividends declared per common share	$	-	$	-		$	-		$	-

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2012

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 12 - Employee Benefit Plans

Defined Benefit Pension Plan

The Bank is a participant in the multiemployer Financial Institutions Retirement Fund (FIRF or the "Plan"), which covers substantially all of its officers and employees. The defined benefit plan covers all employees who have completed one year of service, attained age 21, and worked at least 1,000 hours during the year. Normal retirement age is 65, with reduced benefits available at age 55. The Bank's contributions are determined by FIRF and generally represent the normal cost of the Plan. Specific Plan assets and accumulated benefit information for the Bank's portion of the Plan are not available. Under the Employee Retirement Income Security Act of 1974 (ERISA), a contributor to a multiemployer pension plan may be liable in the event of complete or partial withdrawal for the benefit payments guaranteed under ERISA. Effective July 1, 2005 the plan was frozen as to current participants and any new employees hired after July 1, 2004 were excluded from the plan. The expense of the Plan allocated to the Bank was $87,000 and $81,000 for the years ended December 31, 2012 and 2011, respectively.

401(k) Savings Plan

 The Bank has a Section 401(k) savings plan covering substantially all of its employees who meet certain age and service requirements. Contributions to the plan by the Bank are discretionary in nature in such amounts determined by the Board of Directors. The expense under the plan for the years ended December 31, 2012 and 2011 was $94,000 and $167,000, respectively.

Nonqualified Deferred Compensation Plan

The Bank has a nonqualified deferred compensation plan for certain of its directors. Through 1998, each eligible director could voluntarily defer all or part of his or her director's fees to participate in the program. The plan is currently unfunded and amounts deferred are unsecured and remain subject to claims of the Bank's general creditors.

Directors are paid once they reach normal retirement age or sooner for reason of death, total disability, or termination. The Bank may terminate the plan at any time. The amount recorded under the plan totaled approximately $807,000 and $821,000 at December 31, 2012 and 2011, respectively. The expense under the plan for the years ended December 31, 2012 and 2011 was $71,000 and $87,000, respectively.

Employee Stock Ownership Plan

Effective January 1, 1994, the Bank implemented an employee stock ownership plan (ESOP). The ESOP covers substantially all employees who have completed one year of service, attained age 21, and worked at least 1,000 hours during the year. To fund the ESOP, the Bank borrowed $480,000 from an outside party to purchase 48,000 shares of the Company's common stock at $10 per share. The ESOP note was payable quarterly with interest at the prime rate and was retired in 1999. All of the 1994 shares were allocated as of December 31, 1999. Compensation expense is measured by the fair value of ESOP shares allocated to participants during a fiscal year.

Pursuant to the 2005 second-step conversion and stock offering, the shareholders of the Company approved the purchase of 8% of shares sold in the stock offering by the ESOP. The Company provided a loan to the ESOP, which was used to purchase 138,709 shares of the Company's common stock in the stock offering at $10 per share. The loan bore interest at a rate equal to the current prime rate, adjustable on January 1 of each year and provided for repayment of principal over the 15 year term of the loan. Since the Company provided the loan to the ESOP, the note receivable was not included in the Company's balance sheet. Accordingly, the Company did not recognize interest income on the loan.

The Company made annual contributions to the ESOP sufficient to support the debt service of the loan. The loan was secured by the shares purchased, which were held in a suspense account for allocation among the participants as the loan is paid. Dividends paid on unallocated shares were not considered dividends for financial reporting purposes and were used to pay principal and interest on the ESOP loan. Dividends on allocated shares are charged to retained earnings.

The loan was paid in full as of December 31, 2009.

Compensation expense is recognized for the ESOP equal to the average fair value of shares committed to be released for allocation to participant accounts. Any difference between the average fair value of shares committed to be released for allocation and the ESOP's original acquisition cost is charged or credited to stockholders' equity (additional paid-in capital). During the years ended December 31, 2012 and 2011, respectively, 13,687 and 13,811 shares were sold into the open market and 15 and 0 shares were purchased from the open market. Total compensation expense was $0 for both the years ended December 31, 2012 and 2011.

Shares held by the ESOP include the following:

	December 31
	2012		2011
Allocated		121,608		138,345
Unallocated		-		-
Total		121,608		138,345

There were 3,065 and 8 shares distributed to ESOP participants in 2012 and 2011, respectively.

Stock-Based Compensation Plans

The Company's 1996 Stock Option Plan (the "1996 Plan"), which was approved by shareholders, permits the grant of share options to its employees 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 the shareholders on May 17, 2006, 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 that can 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; those 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). Shares issued under the Plan and exercised pursuant to the exercise of the stock option plan 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 years ended December 31, 2012 and 2011 is presented below:

						Weighted-Average
				Weighted-		Remaining
				Average		Contractual Term		Aggregate
Options	Shares			Exercise Price		(Years)		Intrinsic Value
Outstanding at January 1, 2011		186,132		$	9.47		5.3		-
Granted in 2011		-		$	0.00
Exercised in 2011		-		$	0.00
Forfeited or Expired in 2011		(3,450	)	$	9.54
Outstanding at December 31, 2011		182,682		$	9.47		4.3		-
Granted in 2012		-		$	0.00
Exercised in 2012		-		$	0.00
Forfeited or expired in 2012		(15,062	)	$	8.81
Oustanding at December 31, 2012		167,620		$	9.53		3.38		-
Options Exercisable at December 31, 2012		167,620		$	9.53		3.38		-

There were 39,166 shares available for future granting of options as of December 31, 2012.

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 $4.60 on December 31, 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 December 31, 2012. The amount changes based on the fair market value of the stock. This value was $0.00 at December 31, 2012.

As of December 31, 2012, the total compensation cost of outstanding options was fully recognized. The total fair value of shares vested during the year ended December 31, 2012 and 2011 was $4,200 and $137,000, respectively. Compensation expense for 2012 and 2011 related to options granted under this plan was $1,200 and $31,000, respectively.

A summary of the status of the Company's nonvested options as of December 31, 2012 and 2011 and changes during the years then ended is presented below:

				Weighted-Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2011		37,358		$	2.11
Granted		-		$	0.00
Vested		(36,118	)	$	2.11
Forfeited		-		$	0.00
Nonvested at December 31, 2011		1,240		$	2.19
Granted		-		$	0.00
Vested		(1,240	)	$	2.19
Forfeited		-		$	0.00
Nonvested at December 31, 2012		0		$	0.00

Restricted Stock Awards - The Company did not grant any award shares during the years ended December 31, 2012 and 2011. Compensation expense for 2012 and 2011 related to awards granted under this plan was $1,000 and $37,000, respectively.

The shares vest over a five year service period. As of December 31, 2012, the total compensation cost of the Plan was fully recognized.

The following table summarizes the activity of restricted stock awards under the Plan during the years ended December 31, 2012 and 2011:

	For the Year Ended December 31,
	2012			2011
Beginning of period		300			13,050
Granted		-			-
Vested		(300	)		(12,750	)
Forfeited		-			-
Nonvested, end of period		0			300

There were 5,304 shares available for future grants of award shares at December 31, 2012.

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Federal Home Loan Bank and Federal Reserve Advances

12 Months Ended

Dec. 31, 2012

Federal Home Loan Bank and Federal Reserve Advances [Abstract]

Federal Home Loan Bank and Federal Reserve Advances

Note 8 - Federal Home Loan Bank and Federal Reserve Advances

The Bank has advances from the Federal Home Loan Bank. Interest rates range from 0.50% to 3.81% with a weighted average interest rate of 1.46%. These advances contain varying maturity dates through November 5, 2019 with a weighted average maturity of approximately 26 months. The advances are collateralized by approximately $50,002,000 and $47,802,000 of mortgage loans as of December 31, 2012 and 2011, respectively. In addition, at December 31, 2012 and 2011, securities with a carrying value of $31,713,000 and $19,877,000, respectively, were pledged as collateral for Federal Home Loan Bank advances. Available borrowings with the Federal Home Loan Bank at December 31, 2012 totaled $53,847,000, of which $26,400,000 was outstanding.

The advances are subject to prepayment penalties subject to the provisions and conditions of the credit policy of the Federal Home Loan Bank. Future maturities of the advances are as follows:

December 31, 2012
Years Ending December 31	Amount		Weighted Average Interest Rate
2013	$	14,968		1.52
2014		553		1.12
2015		1,162		1.17
2016		5,572		1.26
2017		2,983		1.86
Thereafter		1,120		1.12
Total	$	26,358		1.46

The Bank did not have any variable rate advances as of December 31, 2012 or 2011, respectively.

In 2009, the Bank entered into a discount window loan agreement with the Federal Reserve Bank that allows for advances up to seventy-five percent of the collateral balance. As of December 31, 2012, these advances are secured by investment securities with a fair value of approximately $6,698,000 and are generally due within 28 days from the date of the advance. The interest rate on the advances is based on the quoted Federal Reserve discount window rate (effective rate of 0.75 percent as of December 31, 2012). At December 31, 2012 and 2011, the Bank had $0 outstanding in Federal Reserve Bank advances.

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Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Core Deposits [Member]	Dec. 31, 2011 Core Deposits [Member]	Mar. 31, 2009 Core Deposits [Member]	Dec. 31, 2012 Commission Residual [Member]	Dec. 31, 2011 Commission Residual [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 3,681	$ 3,681	$ 3,081	$ 3,081	$ 600	$ 600	$ 600
Accumulated Amortization	3,523	3,346	3,078	3,017		445	329
Total	158	335	3	64		155	271
Amortization expense	177	292
Amortization expense for future fiscal years:
2013	118		2			116
2014	$ 40		$ 1			$ 39

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Intangible Assets

12 Months Ended

Dec. 31, 2012

Intangible Assets [Abstract]

Intangible Assets

Note 6 - Intangible Assets

Intangible assets of the Company are summarized as follows:

	December 31, 2012
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:
Core deposit	$	3,081	$	3,078	$	3
Commission residual		600		445		155
Total	$	3,681	$	3,523	$	158

	December 31, 2011
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:
Core deposit	$	3,081	$	3,017	$	64
Commission residual		600		329		271
Total	$	3,681	$	3,346	$	335

Amortization expense was $177,000 and $292,000 for the periods ended December 31, 2012 and 2011, respectively.

As discussed in Note 1, on February 27, 2009 the Company announced that it had sold the majority of the assets of the InsuranCenter of Alpena. The Company allocated the goodwill between the assets sold and the assets retained.

The assets retained relate to a future stream of commissions related to the override commission discussed earlier. Under an agreement, the Company will receive a portion of the override commission through April, 2014. Management computed an estimated cash flow on this commission and using a 6.0% discount rate determined a fair value of $600,000. Since the $600,000 allocation of fair value relates to a finite life asset, the Company re-characterized the goodwill as an amortizable intangible and began amortizing the asset in March, 2009.

The following table sets forth the amount of remaining amortization for intangibles assets:

	For the Year Ended December 31,
	2013		2014
Core deposit		2		1
Commission residual		116		39
Total		118		40

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Deposits

12 Months Ended

Dec. 31, 2012

Deposits [Abstract]

Deposits

Note 7 - Deposits

Deposit accounts, by type and range of rates, consist of the following:

	December 31
	2012		2011
Account Type
NOW accounts and MMDA	$	44,218	$	41,795
Regular savings accounts		19,867		17,873
Total		64,085		59,668
Certificate of Deposit Rates
0.50 percent to 0.99 percent		42,698		38,802
1.00 percent to 1.99 percent		15,962		18,343
2.00 percent to 2.99 percent		10,746		16,057
3.00 percent to 3.99 percent		3,398		4,078
4.00 percent to 4.99 percent		394		1,092
Total certificate of deposits		73,198		78,372
Total interest-bearing deposits	$	137,283	$	138,040

Certificates of deposit $100,000 or greater at December 31, 2012 and 2011 were $25,993,000 and $25,499,000, respectively.

The following table sets forth the amount and maturities of certificates of deposit:

	December 31, 2012
	Amount Due
Rate	Less than 1 Year		1-2 Years		2-3 Years		3-5 Years		Greater than 5 Years		Total
0.50 percent to
0.99 percent	$	30,190	$	10,916	$	1,563	$	29	$	-	$	42,698
1.00 percent to
1.99 percent		3,514		3,540		953		7,831		124		15,962
2.00 percent to
2.99 percent		3,296		1,458		3,961		459		1,572		10,746
3.00 percent to
3.99 percent		1,899		424		484		-		591		3,398
4.00 percent to
4.99 percent		261		-		46		87		-		394
Total	$	39,160	$	16,338	$	7,007	$	8,406	$	2,287	$	73,198

Interest expense on deposits is summarized as follows:

	Year Ended December 31
	2012		2011
NOW and MMDAs	$	95	$	159
Regular savings		10		9
Certificates of deposit		929		1,381
Total	$	1,034	$	1,549

Deposits from related parties held by the Bank at December 31, 2012 and 2011 amounted to $1,271,000 and $698,000, respectively.

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Federal Income Tax

12 Months Ended

Dec. 31, 2012

Federal Income Tax [Abstract]

Federal Income Tax

Note 9 - Federal Income Tax

Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. The Company and the Bank file a consolidated Federal income tax return.

The analysis of the consolidated provision for federal income tax is as follows:

	Year Ended December 31
	2012		2011
Continuing operations:
Current provision	$	-	$	18
Deferred benefit		-		(18	)
Total	$	-	$	-

The following presents a reconciliation of income taxes as shown on the Consolidated Statement of Operations with that which would be computed by applying the statutory Federal tax rate of 34% to income (loss) before taxes in 2012 and 2011.

	Year Ended December 31
	2012			2011
Tax (benefit) expense at statutory rate	$	(73	)	$	252
Increase (decrease) from:
Change in valuation allowance		138			(177	)
Tax-exempt interest		(52	)		(55	)
Other		(13	)		(20	)
Total income tax expense	$	-		$	-

Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to uncertain income tax positions. At December 31, 2012 and 2011, the Company had no unrecognized tax benefits recorded. The Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months. During 2012 and 2011, there were no material uncertain income tax positions.

Management believes that it is more likely than not that a portion of the deferred Federal tax assets will be realized. At December 31, 2012 and 2011 there was $3.2 million and $3.0 million of valuation allowance required. The tax effects of temporary differences that give rise to significant portions of the deferred Federal tax assets and deferred Federal tax liabilities are presented below

	December 31
	2012		2011
Deferred tax assets:
Other real estate owned	$	96	$	185
Non-accrual loan interest		65		20
Directors' benefit plan		274		279
Net operating loss carryforward		3,536		3,320
Investment in  subsidiary		784		784
Net deferred loan origination fees		109		93
Other		192		139
Total deferred tax assets		5,056		4,820
Less: valuation allowance		3,166		3,028
Deferred tax liabilities:
Allowance for loan losses		158		143
Mortgage servicing rights		345		338
Partnership losses		117		118
Unrealized gain on available-for-sale securities		385		344
Depreciation		343		287
Other		211		190
Total deferred tax liabilities		1,559		1,420
Net deferred tax asset	$	331	$	372

The Company has net operating loss carryforwards of approximately $10.4 million generated from December 31, 2007 through December 31, 2012 that are available to reduce total taxable income through the years ending December 31, 2032.

For tax years beginning prior to January 1, 1996, a qualified thrift institution was allowed a bad debt deduction for tax purposes based on a percentage of taxable income or on actual experience. The Bank used the percentage of taxable income method through December 31, 1995.

A deferred tax liability has not been recognized for the tax bad debt base year reserves of the Bank. The base year reserves are the balance of reserves as of December 31, 1987. At December 31, 2012 and 2011, the amount of those reserves was approximately $60,000. The amount of the unrecognized deferred tax liability at December 31, 2012 and 2011 was approximately $20,000.

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Off Balance Sheet Risk Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments to grant loans	$ 9,498	$ 9,783
Unfunded commitments under lines of credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loans outstanding commitments	13,074	14,485
Commercial And Standbys Letter Of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loans outstanding commitments	$ 4	$ 150

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Employee Benefit Plans (Additional Information) (Details) (USD $)	1 Months Ended	12 Months Ended
	Jan. 31, 1994	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2005	Jan. 02, 1994
401(k) Savings Plan:
Expense recognized on 401(k) Savings Plan		$ 94,000	$ 167,000
Nonqualified Deferred Compensation Plan:
Liability recorded for Nonqualified Deferred Compensation Plan		807,000	821,000
Expense recorded for Nonqualified Deferred Compensation Plan		71,000	87,000
Employee Stock Ownership Plan:
Price paid per share for shares purchased to fund ESOP						$ 10.0
Shares purchased by ESOP using funds loaned by the company		15,000	0		138,709
Shares sold in open market under ESOP		13,687	13,811
ESOP, compensation expense		0	0
Amount borrowed to fund shares held in ESOP						480,000
Total shares purchased to fund ESOP	48,000
Shares held by the ESOP:
Allocated		121,608	138,345
Unallocated
Total		121,608	138,345
Shares distributed to ESOP participants		3,065	8
Stock-Based Compensation Plans:
Weighted average remaining contractual term, outstanding		3 years 4 months 17 days	4 years 3 months 18 days	5 years 3 months 18 days
Defined Benefit Pension Plan [Member]
Defined Benefit Pension Plan:
Pension expense		87,000	81,000
Stock Options [Member]
Stock-Based Compensation Plans:
Closing stock price		$ 2.86
Total fair value of vested shares, stock option		4,200	137,000
Compensation expense		1,200	31,000
Shares available for future grant		39,166
Restricted Stock [Member]
Stock-Based Compensation Plans:
Stock options, vesting period		5 years
Compensation expense		$ 1,000	$ 37,000
Shares available for future grant		5,304
Stock Option Plan 1996 [Member] | Maximum [Member]
Stock-Based Compensation Plans:
Grant of awards, authorized number of shares		127,491
Stock Incentive Plan 2006 [Member]
Stock-Based Compensation Plans:
Stock options, vesting period		5 years
Weighted average remaining contractual term, outstanding		10 years
Stock Incentive Plan 2006 [Member] | Maximum [Member]
Stock-Based Compensation Plans:
Grant of awards, authorized number of shares		242,740
Stock Incentive Plan 2006 [Member] | Stock Options [Member] | Maximum [Member]
Stock-Based Compensation Plans:
Grant of awards, authorized number of shares		173,386
Stock Incentive Plan 2006 [Member] | Restricted Stock [Member] | Maximum [Member]
Stock-Based Compensation Plans:
Grant of awards, authorized number of shares		69,354

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Federal Income Tax (Details) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Consolidated provision for federal income tax:
Current provision										$ 18,000
Deferred benefit										(18,000)
Total	885,000	137,000	(136,000)	(886,000)
Reconciliation of federal income tax expense and statutory federal tax rate:
Tax (benefit) expense at statutory rate									(73,000)	252,000
Increase (decrease) from:
Change in valuation allowance									138,000	(177,000)
Tax-exempt interest									(52,000)	(55,000)
Other									(13,000)	(20,000)
Total income tax expense
Deferred tax assets:
Other real estate owned	96,000				185,000				96,000	185,000
Non-accrual loan interest	65,000				20,000				65,000	20,000
Directors' benefit plan	274,000				279,000				274,000	279,000
Net operating loss carryforward	3,536,000				3,320,000				3,536,000	3,320,000
Investment in subsidiary	784,000				784,000				784,000	784,000
Net deferred loan origination fees	109,000				93,000				109,000	93,000
Other	192,000				139,000				192,000	139,000
Total deferred tax assets	5,056,000				4,820,000				5,056,000	4,820,000
Less: valuation allowance	3,166,000				3,028,000				3,166,000	3,028,000
Deferred tax liabilities:
Allowance for loan losses	158,000				143,000				158,000	143,000
Mortgage servicing rights	345,000				338,000				345,000	338,000
Partnership losses	117,000				118,000				117,000	118,000
Unrealized gain on available-for-sale securities	385,000				344,000				385,000	344,000
Depreciation	343,000				287,000				343,000	287,000
Other	211,000				190,000				211,000	190,000
Total deferred tax liabilities	1,559,000				1,420,000				1,559,000	1,420,000
Net deferred tax asset	331,000				372,000				331,000	372,000
Operating loss carryforwards	10,400,000								10,400,000
Operating loss carryforwards, expiration dates									December 31, 2032
Aggregate amount of tax bad debt base year reserves	60,000				60,000				60,000	60,000
Unrecognized deferred tax liability	$ 20,000				$ 20,000				$ 20,000	$ 20,000

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Off Balance Sheet Risk Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2012

Off Balance Sheet Risk Commitments and Contingencies [Abstract]

Outstanding Commitments to Originate Loans

	December 31
	2012		2011
Commitments to grant loans	$	9,498	$	9,783
Unfunded commitments under lines of credit		13,074		14,485
Commercial and standby letters of credit		4		150

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Loans (Risk Category of Loans by Class Based on Most Recent Analysis Performed) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	$ 140,982	$ 142,675
Residential [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	66,540	66,599
Residential [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	64,669	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	1,871	2,658
Consumer - Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	10,409	13,395
Consumer - Real Estate [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	10,381	13,248
Consumer - Real Estate [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	28	147
Consumer - Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	1,259	1,477
Consumer - Other [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	1,252	1,473
Consumer - Other [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and leases receivables, gross	$ 6	$ 4

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Restrictions on Dividends

12 Months Ended

Dec. 31, 2012

Restrictions on Dividends [Abstract]

Restrictions on Dividends

Note 14 - Restrictions on Dividends

Dividends paid by the Bank are the primary source of funds available to the Company for payment of dividends to shareholders and for other working capital needs. The payment of dividends by the Bank to the Company is subject to restrictions by the Office of the Comptroller of Currency (OCC). These restrictions generally limit dividends to the current and prior two years' retained earnings. In addition to these restrictions, as a practical matter, dividend payments cannot reduce regulatory capital levels below the Company's regulatory capital requirements and minimum regulatory guidelines. Future dividend payments by the Company will be based on future earnings and the approval of the OCC.

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Securities (Tables)

12 Months Ended

Dec. 31, 2012

Securities [Abstract]

Carrying Value and Estimated Fair Value of Securities

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
Securities Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	9,181	$	66	$	-		$	9,247
Municipal notes		10,413		368		(23	)		10,758
Corporate securities		1,135		15		-			1,150
Mortgage-backed securities		28,901		736		(29	)		29,608
Equity securities		3		-		(2	)		1
Total	$	49,633	$	1,185	$	(54	)	$	50,764
Securities Held to Maturity
Municipal notes	$	2,345	$	225	$	-		$	2,570

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
Securities Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	14,756	$	108	$	(1	)	$	14,863
Municipal notes		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 notes	$	2,435	$	230	$	-		$	2,665

Amortized Cost and Estimated Market Value of Securities by Contract Maturity

December 31, 2012
	Amortized Cost		Market Value
Available For Sale:
Due in one year or less	$	1,857	$	1,864
Due after one year through five years		13,981		14,245
Due in five year through ten years		4,605		4,673
Due after ten years		286		373
Subtotal		20,729		21,155
Equity securities		3		1
Mortgage-backed securities		28,901		29,608
Total	$	49,633	$	50,764
Held To Maturity
Due in one year or less	$	90	$	92
Due after one year through five years		455		486
Due in five year through ten years		660		726
Due after ten years		1,140		1,266
Total	$	2,345	$	2,570

Summary of Investments with an Amortized Cost in Excess of Their Fair Values

	December 31, 2012										December 31, 2011
			Gross Unrealized Losses					Gross Unrealized Losses					Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		less than 12 months			Fair Value		greater than 12 months			Fair Value		less than 12 months			Fair Value		greater than 12 months
Available For Sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	-		$	-	$	-		$	1,999	$	(1	)	$	-	$	-
Municipal notes		1,537		(23	)		-		-			646		(12	)		-		-
Mortgage-backed securities		2,725		(13	)		1,687		(16	)		8,137		(27	)		1,458		(17	)
Equity securities		-		-			1		(2	)		-		-			1		(2	)
Total Securities available for sale	$	4,262	$	(36	)	$	1,688	$	(18	)	$	10,782	$	(40	)	$	1,459	$	(19	)
Held to Maturity:
Municipal notes		-		-			-		-			-		-			-		-
Total Securities held to maturity	$	-	$	-		$	-	$	-		$	-	$	-		$	-	$	-

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Loans (Additional Information) (Details) (Unsecured Debt [Member])	Dec. 31, 2012
Consumer Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	120 days
Commercial loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	90 days

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Securities (Carrying Value and Estimated Fair Value of Securities) (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	$ 49,633,000	$ 52,036,000
Available for Sale, Gross Unrealized Gains	1,185,000	1,072,000
Available for Sale, Gross Unrealized Losses	(54,000)	(59,000)
Available for Sale, Market Value	50,764,000	53,049,000
Held-to-Maturity, Amortized Cost	2,345,000	2,435,000
Held-to-Maturity Securities, Gross Unrealized Gains	225,000	230,000
Held-to-Maturity Securities, Gross Unrealized Losses
Held-to-Maturity Securities, Market Value	2,570,000	2,665,000
U.S. Treasury securities and obligations of U.S. government corporations and agencies [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	9,181,000	14,756,000
Available for Sale, Gross Unrealized Gains	66,000	108,000
Available for Sale, Gross Unrealized Losses		(1,000)
Available for Sale, Market Value	9,247,000	14,863,000
Municipal notes [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	10,413,000	6,927,000
Available for Sale, Gross Unrealized Gains	368,000	361,000
Available for Sale, Gross Unrealized Losses	(23,000)	(12,000)
Available for Sale, Market Value	10,758,000	7,276,000
Held-to-Maturity, Amortized Cost	2,345,000	2,435,000
Held-to-Maturity Securities, Gross Unrealized Gains	225,000	230,000
Held-to-Maturity Securities, Gross Unrealized Losses
Held-to-Maturity Securities, Market Value	2,570,000	2,665,000
Corporate securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	1,135,000
Available for Sale, Gross Unrealized Gains	15,000
Available for Sale, Gross Unrealized Losses
Available for Sale, Market Value	1,150,000
Mortgage-backed securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	28,901,000	30,350,000
Available for Sale, Gross Unrealized Gains	736,000	603,000
Available for Sale, Gross Unrealized Losses	(29,000)	(44,000)
Available for Sale, Market Value	29,608,000	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

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Consolidated Statement of Changes in Stockholders' Equity (USD $)	Total	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Unearned Compensation [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]
Balance at Dec. 31, 2010	$ 23,236,000	$ 32,000	$ (2,964,000)	$ 23,822,000	$ (38,000)	$ 2,238,000	$ 146,000
Balance, shares at Dec. 31, 2010		3,192,000
Net Income (Loss)	742,000					742,000
Unrealized appreciation (depreciation) on available-for- sale securities - net of tax	522,000						522,000
Stock Options/MRP shares expensed	68,000			31,000	37,000
Balance at Dec. 31, 2011	24,568,000	32,000	(2,964,000)	23,853,000	(1,000)	2,980,000	668,000
Balance, shares at Dec. 31, 2011		3,192,000
Net Income (Loss)	(214,000)					(214,000)
Unrealized appreciation (depreciation) on available-for- sale securities - net of tax	79,000						79,000
Stock Options/MRP shares expensed	2,000			1,000	1,000
Balance at Dec. 31, 2012	$ 24,435,000	$ 32,000	$ (2,964,000)	$ 23,854,000		$ 2,766,000	$ 747,000
Balance, shares at Dec. 31, 2012		3,192,000

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Loans

12 Months Ended

Dec. 31, 2012

Loans [Abstract]

Loans

Note 3 - Loans

Loans at December 31, 2012 and 2011 are summarized as follows:

	December 31
	2012		2011
Real estate loans - One- to four-family residential	$	66,539	$	66,599
Commercial loans:
Secured by real estate		54,673		54,202
Other		8,102		7,002
Total commercial loans		62,775		61,204
Consumer loans:
Secured by real estate		10,409		13,395
Other		1,259		1,477
Total consumer loans		11,668		14,872
Total gross loans		140,982		142,675
Less:
Net deferred loan fees		320		273
Allowance for loan losses		1,750		1,518
Total loans - net	$	138,912	$	140,884

Final loan maturities and rate sensitivity of the loan portfolio are as follows:

	December 31, 2012
	Less Than One Year		One Year to Five Years		After Five Years		Total
Loans at fixed interest rates	$	8,440	$	24,634	$	45,611	$	78,685
Loans at variable interest rates		9,952		15,581		36,764		62,297
Total	$	18,392	$	40,215	$	82,375	$	140,982

Certain directors and executive officers of the Company were loan customers during 2012 and 2011. Such loans were made in the ordinary course of business and do not involve more than a normal risk of collectibility. An analysis of aggregate loans outstanding to directors and executive officers for the years ended December 31, 2012 and 2011 are as follows:

	December 31
	2012			2011
Aggregate balance - Beginning of Period	$	3,344		$	3,357
New loans		1,166			771
Repayments		(1,170	)		(784	)
Aggregate balance - End of Period	$	3,340		$	3,344

The following tables illustrate the contractual aging of the recorded investment in past due loans by class of loans as of December 31, 2012 and 2011:

As of December 31, 2012
													Recorded
													Investment > 90
	30 - 59 Days		60 - 89 Days		Greater than 90		Total						Days and
	Past Due		Past Due		Days		Past Due		Current		Total Loans		Accruing
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	2,073	$	2,246	$	-
Commercial Real Estate - other		3,210		540		282		4,032		48,395		52,427		-
Commercial - non real estate		113		-		-		113		7,989		8,102		-
Consumer:
Consumer - Real Estate		59		-		13		72		10,337		10,409		-
Consumer - Other		11		5		6		22		1,237		1,259		6
Residential:
Residential		2,047		796		1,198		4,041		62,498		66,539		61
Total	$	5,440	$	1,341	$	1,672	$	8,453	$	132,529	$	140,982	$	67

As of December 31, 2011
													Recorded
													Investment > 90
	30 - 59 Days		60 - 89 Days		Greater than 90		Total						Days and
	Past Due		Past Due		Days		Past Due		Current		Total Loans		Accruing
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.

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

As of December 31, 2012
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
1-2	$	-	$	-	$	-
3		615		13,895		2,376
4		1,458		27,488		5,489
5		-		2,712		37
6		173		8,332		200
7		-		-		-
8		-		-		-
Total	$	2,246	$	52,427	$	8,102

As of December 31, 2011
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
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 December 31, 2012 and 2011:

As of December 31, 2012
	Residential
Loan Grade:
Pass	$	64,669
Special Mention		-
Substandard		1,871
Total	$	66,540

	Consumer -
	Real Estate		Consumer - Other
Performing	$	10,381	$	1,252
Nonperforming		28		6
Total	$	10,409	$	1,258

As of December 31, 2011
	Residential
Loan Grade:
Pass	$	63,941
Special Mention		-
Substandard		2,658
Total	$	66,599

	Consumer -
	Real Estate		Consumer - Other
Performing	$	13,248	$	1,473
Nonperforming		147		4
Total	$	13,395	$	1,477

The following tables present the recorded investment in non-accrual loans by class as of December 31, 2012 and 2011:

As of December 31
	2012		2011
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		2,851		356
Commercial		-		-
Consumer:
Consumer - real estate		28		152
Consumer - other		1		-
Residential:
Residential		1,810		2,420
Total	$	4,863	$	3,101

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

							For the Twelve  Months Ended
Impaired Loans							December 31,
As of December 31, 2012							2012
	Unpaid Principal		Recorded		Related		Average		Interest
	Balance		Investment		Allowance		Recorded		Income
							Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-
Commercial Real Estate - Other		4,869		4,535		-		5,084		138
Consumer - Real Estate		33		28		-		34		-
Consumer - Other		1		1		-		3		-
Residential		1,365		1,194		-		1,359		-
With a specific allowance recorded:
Commercial		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-
Commercial Real Estate - Other		2,138		2,127		101		2,167		80
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		-		-		-		-		-
Residential		616		616		141		642		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	7,007	$	6,662	$	101	$	7,251	$	218
Consumer - Real Estate	$	33	$	28	$	-	$	34	$	-
Consumer - Other	$	1	$	1	$	-	$	3	$	-
Residential	$	1,981	$	1,810	$	141	$	2,001	$	-

							For the Twelve  Months Ended
Impaired Loans							December 31,
As of December 31, 2011							2011
	Unpaid Principal		Recorded		Related		Average		Interest
	Balance		Investment		Allowance		Recorded		Income
							Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		469		-
Commercial Real Estate - Other		626		626		-		509		135
Consumer - Real Estate		171		152		-		196		-
Consumer - Other		0		0		-		7		-
Residential		2,017		1,640		-		1,928		-
With a specific allowance recorded:
Commercial		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		516		-
Commercial Real Estate - Other		1,337		1,128		85		1,039		115
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		-		-		-		-		-
Residential		813		780		199		860		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	985	$	-
Commercial Real Estate - Other	$	1,963	$	1,754	$	85	$	1,548	$	250
Consumer - Real Estate	$	171	$	152	$	-	$	196	$	-
Consumer - Other	$	-	$	-	$	-	$	7	$	-
Residential	$	2,830	$	2,420	$	199	$	2,788	$	-

No additional funds are committed to be advanced in connection with impaired loans.

The Bank may agree to modify the terms of a loan in order to improve the Bank's ability to collect amounts due. These modifications may include reduction of the interest rate, extension of the loan term, or in some cases, reduction of the principal balance. Modifications that are performed due to the debtor's financial difficulties are considered Troubled Debt Restructurings (TDRs). Loans that were classified as TDRs during the year ended December 31, 2012 are as follows:

For the Twelve Months Ended
December 31, 2012
							Troubled Debt Restructurings
			Pre-Modification		Post-Modification		That Subsequently Defaulted
	Number of		Outstanding Recorded		Outstanding Recorded		Number of		Recorded
	Contracts		Investments		Investment		Contracts		Investment
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		-		-		-		1		53
Commercial - non real estate		4		3,542		2,737		-		-
Residential		-		-		-		-		-

For the Twelve Months Ended
December 31, 2011
							Troubled Debt Restructurings
			Pre-Modification		Post-Modification		That Subsequently Defaulted
	Number of		Outstanding Recorded		Outstanding Recorded		Number of		Recorded
	Contracts		Investments		Investment		Contracts		Investment
Troubled Debt Restructurings
Commerical Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		3		1,503		1,398		-		-
Consumer - 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 delinquent, 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-off may be realized as further unsecured positions are recognized.

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 years ended December 31, 2012 and 2011:

For the Year Ended December 31, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	10	$	393		$	53	$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-		(265	)		-		(87	)		(44	)		(840	)		-		(1,236	)
Recoveries		-		10			-		16			10			65			-		101
Provision		54		441			16		24			21			811			-		1,367
Ending Balance	$	64	$	579		$	69	$	99		$	33		$	906		$	-	$	1,750
Ending balance: individually evaluated for impairment	$	-	$	101		$	-	$	-		$	-		$	141		$	-	$	242
Ending balance: loans collectively evaluated for impairment	$	64	$	478		$	69	$	99		$	33		$	765		$	-	$	1,508
Loans:
Ending Balance	$	2,246	$	52,427		$	8,102	$	10,409		$	1,259		$	66,539		$	-	$	140,982
Ending balance: individually evaluated for impairment	$	173	$	6,662		$	-	$	28		$	1		$	1,810		$	-	$	8,674
Ending balance: loans collectively evaluated for impairment	$	2,073	$	45,765		$	8,102	$	10,381		$	1,258		$	64,729		$	-	$	132,308

For the Year Ended December 31, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	535		$	1,281		$	192		$	228		$	59		$	536		$	-	$	2,831
Charge-offs		(93	)		(334	)		(6	)		(166	)		(26	)		(1,119	)		-		(1,744	)
Recoveries		-			79			1			31			11			25			-		147
Provision		(432	)		(633	)		(134	)		53			2			1,428			-		284
Ending Balance	$	10		$	393		$	53		$	146		$	46		$	870		$	-	$	1,518
Ending balance: individually evaluated for impairment	$	-		$	85		$	-		$	-		$	-		$	199		$	-	$	284
Ending balance: loans collectively evaluated for impairment	$	10		$	308		$	53		$	146		$	46		$	671		$	-	$	1,234
Loans:
Ending Balance	$	264		$	53,938		$	7,002		$	13,395		$	1,477		$	66,599		$	-	$	142,675
Ending balance: individually evaluated for impairment	$	173		$	1,754		$	-		$	152		$	-		$	2,420		$	-	$	4,499
Ending balance: loans collectively evaluated for impairment	$	91		$	52,184		$	7,002		$	13,243		$	1,477		$	64,179		$	-	$	138,176

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Property and Equipment (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Total property and equipment	$ 11,227,000	$ 11,597,000
Accumulated depreciation	5,833,000	5,751,000
Net property and equipment	5,394,000	5,846,000
Depreciation expense	303,000	392,000
Land [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	1,112,000	1,188,000
Land Improvements [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	184,000	214,000
Buildings [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	6,249,000	6,483,000
Equipment [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	$ 3,682,000	$ 3,712,000

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Employee Benefit Plans (Summary of Restricted Stock Activity) (Details) (Restricted Stock [Member])	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Nonvested, beginning of period	300	13,050
Granted
Vested	(300)	(12,750)
Forfeited
Nonvested, end of period		300

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Loans (Tables)

12 Months Ended

Dec. 31, 2012

Loans [Abstract]

Composition of Loan Portfolio by Loan Type

	December 31
	2012		2011
Real estate loans - One- to four-family residential	$	66,539	$	66,599
Commercial loans:
Secured by real estate		54,673		54,202
Other		8,102		7,002
Total commercial loans		62,775		61,204
Consumer loans:
Secured by real estate		10,409		13,395
Other		1,259		1,477
Total consumer loans		11,668		14,872
Total gross loans		140,982		142,675
Less:
Net deferred loan fees		320		273
Allowance for loan losses		1,750		1,518
Total loans - net	$	138,912	$	140,884

Schedule of Final Loan Maturities and Rate Sensitivity of Loan Portfolio

	December 31, 2012
	Less Than One Year		One Year to Five Years		After Five Years		Total
Loans at fixed interest rates	$	8,440	$	24,634	$	45,611	$	78,685
Loans at variable interest rates		9,952		15,581		36,764		62,297
Total	$	18,392	$	40,215	$	82,375	$	140,982

Schedule of Loans to Directors and Executive Officers

	December 31
	2012			2011
Aggregate balance - Beginning of Period	$	3,344		$	3,357
New loans		1,166			771
Repayments		(1,170	)		(784	)
Aggregate balance - End of Period	$	3,340		$	3,344

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

As of December 31, 2012
													Recorded
													Investment > 90
	30 - 59 Days		60 - 89 Days		Greater than 90		Total						Days and
	Past Due		Past Due		Days		Past Due		Current		Total Loans		Accruing
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	2,073	$	2,246	$	-
Commercial Real Estate - other		3,210		540		282		4,032		48,395		52,427		-
Commercial - non real estate		113		-		-		113		7,989		8,102		-
Consumer:
Consumer - Real Estate		59		-		13		72		10,337		10,409		-
Consumer - Other		11		5		6		22		1,237		1,259		6
Residential:
Residential		2,047		796		1,198		4,041		62,498		66,539		61
Total	$	5,440	$	1,341	$	1,672	$	8,453	$	132,529	$	140,982	$	67

As of December 31, 2011
													Recorded
													Investment > 90
	30 - 59 Days		60 - 89 Days		Greater than 90		Total						Days and
	Past Due		Past Due		Days		Past Due		Current		Total Loans		Accruing
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 December 31, 2012
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
1-2	$	-	$	-	$	-
3		615		13,895		2,376
4		1,458		27,488		5,489
5		-		2,712		37
6		173		8,332		200
7		-		-		-
8		-		-		-
Total	$	2,246	$	52,427	$	8,102

As of December 31, 2011
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
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 December 31, 2012
	Residential
Loan Grade:
Pass	$	64,669
Special Mention		-
Substandard		1,871
Total	$	66,540

	Consumer -
	Real Estate		Consumer - Other
Performing	$	10,381	$	1,252
Nonperforming		28		6
Total	$	10,409	$	1,258

As of December 31, 2011
	Residential
Loan Grade:
Pass	$	63,941
Special Mention		-
Substandard		2,658
Total	$	66,599

	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 December 31
	2012		2011
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		2,851		356
Commercial		-		-
Consumer:
Consumer - real estate		28		152
Consumer - other		1		-
Residential:
Residential		1,810		2,420
Total	$	4,863	$	3,101

Troubled Debt Restructurings on Financing Receivables

For the Twelve Months Ended
December 31, 2012
							Troubled Debt Restructurings
			Pre-Modification		Post-Modification		That Subsequently Defaulted
	Number of		Outstanding Recorded		Outstanding Recorded		Number of		Recorded
	Contracts		Investments		Investment		Contracts		Investment
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		-		-		-		1		53
Commercial - non real estate		4		3,542		2,737		-		-
Residential		-		-		-		-		-

For the Twelve Months Ended
December 31, 2011
							Troubled Debt Restructurings
			Pre-Modification		Post-Modification		That Subsequently Defaulted
	Number of		Outstanding Recorded		Outstanding Recorded		Number of		Recorded
	Contracts		Investments		Investment		Contracts		Investment
Troubled Debt Restructurings
Commerical Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		3		1,503		1,398		-		-
Consumer - Real Estate		-		-		-		-		-
Residential		-		-		-		-		-

Loans Individually Evaluated for Impairment by Class of Loans

							For the Twelve Months Ended
Impaired Loans							December 31,
As of December 31, 2012							2012
	Unpaid Principal		Recorded		Related		Average		Interest
	Balance		Investment		Allowance		Recorded		Income
							Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-
Commercial Real Estate - Other		4,869		4,535		-		5,084		138
Consumer - Real Estate		33		28		-		34		-
Consumer - Other		1		1		-		3		-
Residential		1,365		1,194		-		1,359		-
With a specific allowance recorded:
Commercial		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-
Commercial Real Estate - Other		2,138		2,127		101		2,167		80
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		-		-		-		-		-
Residential		616		616		141		642		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	7,007	$	6,662	$	101	$	7,251	$	218
Consumer - Real Estate	$	33	$	28	$	-	$	34	$	-
Consumer - Other	$	1	$	1	$	-	$	3	$	-
Residential	$	1,981	$	1,810	$	141	$	2,001	$	-

							For the Twelve Months Ended
Impaired Loans							December 31,
As of December 31, 2011							2011
	Unpaid Principal		Recorded		Related		Average		Interest
	Balance		Investment		Allowance		Recorded		Income
							Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		469		-
Commercial Real Estate - Other		626		626		-		509		135
Consumer - Real Estate		171		152		-		196		-
Consumer - Other		0		0		-		7		-
Residential		2,017		1,640		-		1,928		-
With a specific allowance recorded:
Commercial		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		516		-
Commercial Real Estate - Other		1,337		1,128		85		1,039		115
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		-		-		-		-		-
Residential		813		780		199		860		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	985	$	-
Commercial Real Estate - Other	$	1,963	$	1,754	$	85	$	1,548	$	250
Consumer - Real Estate	$	171	$	152	$	-	$	196	$	-
Consumer - Other	$	-	$	-	$	-	$	7	$	-
Residential	$	2,830	$	2,420	$	199	$	2,788	$	-

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

For the Year Ended December 31, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	10	$	393		$	53	$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-		(265	)		-		(87	)		(44	)		(840	)		-		(1,236	)
Recoveries		-		10			-		16			10			65			-		101
Provision		54		441			16		24			21			811			-		1,367
Ending Balance	$	64	$	579		$	69	$	99		$	33		$	906		$	-	$	1,750
Ending balance: individually evaluated for impairment	$	-	$	101		$	-	$	-		$	-		$	141		$	-	$	242
Ending balance: loans collectively evaluated for impairment	$	64	$	478		$	69	$	99		$	33		$	765		$	-	$	1,508
Loans:
Ending Balance	$	2,246	$	52,427		$	8,102	$	10,409		$	1,259		$	66,539		$	-	$	140,982
Ending balance: individually evaluated for impairment	$	173	$	6,662		$	-	$	28		$	1		$	1,810		$	-	$	8,674
Ending balance: loans collectively evaluated for impairment	$	2,073	$	45,765		$	8,102	$	10,381		$	1,258		$	64,729		$	-	$	132,308

For the Year Ended December 31, 2011
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	535		$	1,281		$	192		$	228		$	59		$	536		$	-	$	2,831
Charge-offs		(93	)		(334	)		(6	)		(166	)		(26	)		(1,119	)		-		(1,744	)
Recoveries		-			79			1			31			11			25			-		147
Provision		(432	)		(633	)		(134	)		53			2			1,428			-		284
Ending Balance	$	10		$	393		$	53		$	146		$	46		$	870		$	-	$	1,518
Ending balance: individually evaluated for impairment	$	-		$	85		$	-		$	-		$	-		$	199		$	-	$	284
Ending balance: loans collectively evaluated for impairment	$	10		$	308		$	53		$	146		$	46		$	671		$	-	$	1,234
Loans:
Ending Balance	$	264		$	53,938		$	7,002		$	13,395		$	1,477		$	66,599		$	-	$	142,675
Ending balance: individually evaluated for impairment	$	173		$	1,754		$	-		$	152		$	-		$	2,420		$	-	$	4,499
Ending balance: loans collectively evaluated for impairment	$	91		$	52,184		$	7,002		$	13,243		$	1,477		$	64,179		$	-	$	138,176

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Parent-Only Financial Statements (Parent Company Statement of Operations) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Condensed Financial Statements, Captions [Line Items]
Income (loss) before income taxes and equity in undistributed net income of subsidiary bank	$ 67	$ 410	$ (406)	$ (285)	$ 84	$ 235	$ 262	$ 161	$ (214)	$ 742
Income tax (benefit) expense	885	137	(136)	(886)
Net income (loss)	(818)	273	(270)	601	84	235	262	161	(214)	742
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Operating income
Dividend income									500
Operating expense									(205)	(199)
Income (loss) before income taxes and equity in undistributed net income of subsidiary bank									295	(199)
Income tax (benefit) expense
Income (loss) before equity in undistributed loss of subsidiary bank									295	(199)
Equity in undistributed net income (loss) of subsidiary bank									(509)	941
Net income (loss)									$ (214)	$ 742

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Parent-Only Financial Statements (Tables)

12 Months Ended

Dec. 31, 2012

Parent-Only Financial Statements [Abstract]

Condensed Balance Sheet

	December 31
	2012		2011
Assets
Cash at subsidiary bank	$	817	$	516
Investment in subsidiary		23,304		23,734
Deferred tax asset		318		318
Other assets		-		-
Total assets	$	24,439	$	24,568
Liabilities and Stockholders' Equity
Liabilities	$	4	$	-
Stockholders' equity		24,435		24,568
Total liabilities and stockholders' equity	$	24,439	$	24,568

Condensed Statement of Operations

Statements of Operations:

	December 31
	2012			2011
Operating income	$	-		$	-
Dividend income		500			-
Operating expense		(205	)		(199	)
Income (loss) before income taxes and equity in undistributed net income of subsidiary bank		295			(199	)
Income tax benefit		-			-
Income (loss) before equity in undistributed loss of subsidiary bank		295			(199	)
Equity in undistributed net income (loss) of subsidiary bank		(509	)		941
Net income (loss)	$	(214	)	$	742

Condensed Statements of Cash Flows

Statements of Cash Flows:

	December 31
	2012			2011
Cash Flows from Operating Activities
Net income (loss)	$	(214	)	$	742
Adjustments to reconcile net income (loss) to net cash from operating activities:
Dividend from subsidiary bank		500			-
Stock options/awards		2			68
Equity in undistributed net income of subsidiary bank		9			(941	)
Net change in deferred tax assets		-			-
Net change in other liabilities		4			-
Net change in other assets		-			223
Net cash provided by (used in) operating activities		515			(650	)
Net Increase in Cash		301			92
Cash - Beginning of year		516			424
Cash - End of year	$	817		$	516

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Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 13 - 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 December 31, 2012 and 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 December 31, 2012

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of December 31, 2012
Investment securities - available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	9,247	$	-	$	9,247
Municipal notes		-		10,758		-		10,758
Corporate securities		-		1,150				1,150
Mortgage-backed securities		-		29,608		-		29,608
Equity securities		-		1		-		1
Total investment securities - available-for-sale	$	-	$	50,764	$	-	$	50,764

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)		Fair Value as of December 31,  2011
Investment securities - available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	14,863	$	-	$	14,863
Municipal notes		-		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, mortgage backed securities and municipal notes 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 during the years ended December 31, 2012 and 2011. 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 December 31, 2012 and 2011, such assets consist primarily of impaired loans and other real estate owned. The Company has estimated the fair values of these assets using Level 3 inputs, specifically discounted cash flow projections.

The following table presents the balance of assets and liabilities measured at fair value on a nonrecurring basis:

Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2012

	Balance at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans accounted for under FASB ASC 310-10	$	6,835	$	-	$	-	$	6,835
Other real estate owned -residential mortgages	$	947	$	-	$	-	$	947
Other real estate owned - commercial	$	319	$	-	$	-	$	319
Other repossessed assets	$	1,121	$	-	$	-	$	1,121
Total assets at fair value on a non-recurring basis							$	8,772

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)
Impaired loans accounted for under FASB ASC 310-10	$	1,927	$	-	$	-	$	1,927
Other real estate owned -residential mortgages	$	1,087	$	-	$	-	$	1,086
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							$	5,335

Impaired and nonaccrual loans:    Fair value adjustments for these items typically occur when there is evidence of impairment. Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair market value of the collateral. The Company measures fair value based on the value of the collateral securing the loans. Collateral may be in the form of real estate or personal property including equipment and inventory. The vast majority of collateral is real estate. The value of the collateral is determined based on internal estimates as well as third party appraisals or non-binding broker quotes. These measurements were classified as Level 3.

Other Real Estate:    Other real estate includes foreclosed assets and properties securing residential and commercial loans. Foreclosed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at lower of carry value or fair value less costs to sell. Fair value is generally based upon internal estimates and third party appraisals or non-binding broker quotes and, accordingly, considered a Level 3 classification

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.

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 amounts of the Company's financial instruments as of December 31, 2012 and 2011 are as follows:

December 31, 2012	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	2,752	$	2,752	$	-	$	-	$	2,752
Securities available for sale		50,764		-		50,764		-		50,764
Securities held to maturity		2,345		-		2,570		-		2,570
Loans held for sale		79						84		84
Loans receivable - net		138,912		-		-		140,877		140,877
Federal Home Loan Bank stock		3,266		-		3,266		-		3,266
Accrued interest receivable		970		-		970		-		970
Financial liabilities:
Customer deposits		158,350		-		159,335		-		159,335
Federal Home Loan Bank advances		26,358		-		26,493		-		26,493
REPO sweep accounts		3,183		-		3,183		-		3,183
Accrued interest payable		100		-		100		-		100

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 receivable - 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