10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013

OR

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

For the transition period from__________________________ to____________________________

Commission File Number 000-31957

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

(Exact name of registrant as specified in its charter)

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

100 S. Second Avenue, Alpena, Michigan	49707
(Address of principal executive offices)	(Zip Code)

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

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

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

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

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

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

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

Common Stock, Par Value $0.01	Outstanding at May 10, 2013
(Title of Class)	2,884,049 shares

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended March 31, 2013

INDEX

	PAGE
PART I – FINANCIAL INFORMATION
ITEM 1  -  UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheet at March 31, 2013 and December 31, 2012	3
Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2013 and March 31, 2012	4
Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2013	5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and March 31, 2012	6
Notes to Unaudited Consolidated Financial Statements	7
ITEM 2  -  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK	29
ITEM 4  -  CONTROLS AND PROCEDURES	29
Part II  -  OTHER INFORMATION
ITEM 1  -  LEGAL PROCEEDINGS	30
ITEM 1A - RISK FACTORS	30
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF  PROCEEDS	30
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES	30
ITEM 4 - MINE SAFETY DISCLOSURES	30
ITEM 5 - OTHER INFORMATION	30
ITEM 6 – EXHIBITS	30
Section 302 Certifications
Section 906 Certifications

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

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

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

2

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheet

	March 31, 2013			December 31, 2012
	(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks	$	1,960,216		$	2,732,109
Overnight deposits with FHLB		21,420			19,701
Total cash and cash equivalents		1,981,636			2,751,810
Securities AFS		51,903,448			50,763,551
Securities HTM		2,345,000			2,345,000
Loans held for sale		115,000			78,712
Loans receivable, net of allowance for loan losses of $1,674,842 and $1,749,915 as of March  31, 2013 and December 31, 2012, respectively		137,583,927			138,911,989
Foreclosed real estate and other repossessed assets		2,405,141			2,387,307
Federal Home Loan Bank stock, at cost		3,266,100			3,266,100
Premises and equipment		5,323,453			5,394,412
Accrued interest receivable		1,034,410			970,450
Intangible assets		128,670			158,316
Prepaid FDIC premiums		540,372			582,945
Deferred tax asset		382,241			330,831
Originated mortgage servicing rights (net of valuation reserve)		979,961			1,016,070
Bank owned life insurance		4,507,642			4,474,563
Other assets		362,202			402,091
Total assets	$	212,859,203		$	213,834,146
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits	$	158,177,800		$	158,350,134
Advances from borrowers for taxes and insurance		304,638			132,823
Advances from Federal Home Loan Bank		24,862,885			26,357,962
REPO sweep accounts		3,865,981			3,183,351
Accrued expenses and other liabilities		1,245,267			1,375,093
Total liabilities		188,456,572			189,399,363
Stockholders' equity:
Common stock ($0.01 par value 20,000,000 shares authorized 3,191,799 shares issued)		31,918			31,918
Additional paid-in capital		23,853,891			23,853,891
Retained earnings		2,833,814			2,766,170
Treasury stock at cost (307,750 shares)		(2,963,918	)		(2,963,918	)
Accumulated other comprehensive income		646,926			746,723
Total stockholders' equity		24,402,631			24,434,783
Total liabilities and stockholders' equity	$	212,859,203		$	213,834,146

See accompanying notes to consolidated financial statements.

3

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Statement of Income and Comprehensive Income

	For the Three Months
	Ended March 31,
	2013			2012
	(Unaudited)
Interest income:
Interest and fees on loans	$	1,816,613		$	2,040,208
Interest and dividends on investments
Taxable		115,329			150,180
Tax-exempt		37,695			39,073
Interest on mortgage-backed securities		115,371			179,288
Total interest income		2,085,008			2,408,749
Interest expense:
Interest on deposits		221,902			280,544
Interest on borrowings		99,441			183,634
Total interest expense		321,343			464,178
Net interest income		1,763,664			1,944,571
Provision for loan losses		144,074			376,268
Net interest income after provision for loan losses		1,619,591			1,568,303
Non-interest income:
Service charges and other fees		192,440			169,953
Mortgage banking activities		170,432			220,560
Net income (loss) on sale of premises and equipment, real estate owned and other repossessed assets		6,479			(2,089	)
Other		70,992			58,399
Total non-interest income		440,343			446,823
Non-interest expense:
Compensation and employee benefits		1,159,257			1,271,958
FDIC Insurance Premiums		45,699			47,479
Advertising		38,919			33,115
Occupancy		233,446			241,916
Amortization of intangible assets		29,646			73,113
Service bureau charges		77,494			78,787
Professional services		72,863			94,735
Other		334,965			459,548
Total non-interest expense		1,992,290			2,300,651
Income (loss) before income tax expense or benefit		67,644			(285,526	)
Income tax benefit		-			(886,200	)
Net Income	$	67,644		$	600,675
Other Comprehensive Income (Loss)
Net Income	$	67,644		$	600,675
Change in unrealized gain (loss) on available-for-sale securities, net of tax ...		(99,797	)		59,183
Comprehensive Income (Loss)	$	(32,153	)	$	659,858
Per share data:
Net Income per share
Basic	$	0.02		$	0.21
Diluted	$	0.02		$	0.21
Weighted average number of shares outstanding
Basic		2,884,049			2,884,049
Including dilutive stock options		2,884,049			2,884,049
Dividends per common share	$	-		$	-

See accompanying notes to consolidated financial statements.

4

First Federal of Northern Michigan Bancorp Inc. and Subsidiaries

Consolidated Statement of Changes in Stockholders' Equity (Unaudited)

										Accumulated
						Additional				Other
	Common		Treasury			Paid-in		Retained		Comprehensive
	Stock		Stock			Capital		Earnings		Income			Total
Balance at December 31, 2012		31,918		(2,963,918	)		23,853,891		2,766,170		746,723			24,434,784
Net income		-		-			-		67,644		-			67,644
Change in unrealized gain on available-for-sale securities (net of tax of $51,411)		-		-			-		-		(99,797	)		(99,797	)
Balance at March 31, 2013		31,918		(2,963,918	)		23,853,891		2,833,814		646,926			24,402,631

See accompanying notes to the consolidated financial statements.

5

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Statement of Cash Flows

	For Three Months Ended
	March 31,
	2013			2012
	(Unaudited)
Cash Flows from Operating Activities:
Net income	$	67,644		$	600,675
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		100,605			156,237
Provision for loan loss		144,074			376,268
Amortization and accretion on securities		152,447			112,413
Stock-based compensation		-			978
Gain on sale of loans held for sale		(70,471	)		(99,903	)
Originations of loans held for sale		(4,427,961	)		(7,697,851	)
Proceeds from sale of loans held for sale		4,462,144			7,491,195
Loss on sale of fixed assets		-			1,123
(Gain) loss on sale of real estate owned and other repossessed assets		(6,479	)		967
Net change in:
Accrued interest receivable		(63,960	)		(12,243	)
Other assets		76,000			(8,064	)
Prepaid FDIC insurance premiums		42,573			44,209
Bank owned life insurance		(33,079	)		-
Deferred income tax benefit		-			(886,200	)
Accrued expenses and other liabilities		(129,826	)		(366,221	)
Net cash provided by (used in) operating activities		313,711			(286,417	)
Cash Flows from Investing Activities:
Net decrease in loans		975,988			654,797
Proceeds from maturies and calls of available-for-sale securities		3,990,226			3,046,478
Proceeds from sale of real estate and other repossessed assets		196,645			439,933
Purchase of securities		(5,433,778	)		(3,027,942	)
Purchase of premises and equipment		-			(34,487	)
Net cash (used in) provided by investing activities		(270,919	)		1,078,779
Cash Flows from Financing Activities:
Net (decrease) increase in deposits		(172,334	)		457,260
Net increase in Repo Sweep accounts		682,630			14,091
Net increase in advances from borrowers		171,815			175,999
Advances  from Federal Home Loan Bank		13,930,000			8,075,000
Repayments of Federal Home Loan Bank advances		(15,425,077	)		(9,850,000	)
Net cash used in financing activities		(812,966	)		(1,127,650	)
Net decrease in cash and cash equivalents		(770,174	)		(335,288	)
Cash and cash equivalents at beginning of period		2,751,810			2,749,498
Cash and cash equivalents at end of period	$	1,981,636		$	2,414,210
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	332,503		$	484,792
Transfers of loans to foreclosed real estate and repossessed assets		208,000			649,564

See accompanying notes to the consolidated financial statements.

6

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements are not included herein. The interim financial statements should be read in conjunction with the financial statements of First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries and the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2012.

All adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of financial position, results of operations and cash flows, have been made. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

Note 2— PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of First Federal of Northern Michigan Bancorp, Inc., First Federal of Northern Michigan, and the Bank’s wholly owned subsidiaries, Financial Services & Mortgage Corporation (“FSMC”) and FFNM Agency, Inc. 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 to the Grotenhuis Group (as discussed further below). All significant intercompany balances and transactions have been eliminated in the consolidation.

Note 3—SECURITIES

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

	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	7,663	$	54	$	(6	)		7,711
Municipal obligations		11,510		333		(30	)		11,813
Corporate bonds & other obligations		1,122		17		-			1,139
Mortgage-backed securities		30,626		653		(41	)		31,238
Equity securities		3		-		(1	)		2
Total	$	50,924	$	1,057	$	(78	)	$	51,903
Securities Held to Maturity
Municipal obligations	$	2,345	$	195	$	-		$	2,540

7

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	9,181	$	66	$	-			9,247
Municipal obligations		10,413		368		(23	)		10,758
Corporate bonds & other obligations		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 obligations	$	2,345	$	225	$	-		$	2,570

The amortized cost and estimated market value of securities at March 31, 2013, by contract maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities with no specified maturity date are separately stated.

	March 31, 2013
	Amortized Cost		Market Value
	(in thousands)
Available For Sale:
Due in one year or less	$	2,574	$	2,583
Due after one year through five years		11,425		11,665
Due in five year through ten years		6,010		6,051
Due after ten years		286		364
Subtotal		20,295		20,663
Equity securities		3		2
Mortgage-backed securities		30,626		31,238
Total	$	50,924	$	51,903
Held To Maturity:
Due in one year or less	$	90	$	91
Due after one year through five years		480		511
Due in five year through ten years		635		690
Due after ten years		1,140		1,248
Total	$	2,345	$	2,540

At March 31, 2013 and December 31, 2012, securities with a carrying value and fair value of $40,289,000 and $44,135,000, respectively, were pledged to secure our REPO sweep accounts, FHLB advances and our line of credit at the Federal Reserve.

There were no security sales in either the three months ended March 31, 2013 or 2012.

8

The following is a summary of temporarily impaired investments that have been impaired for less than and more than twelve months as of March 31, 2013 and December 31, 2012:

	March 31, 2013
			Gross  Unrealized Losses					Gross Unrealized Losses
	Fair Value		<12 months			Fair Value		> 12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	993	$	(6	)	$	-	$	-
Municipal obligations		4,065		(30	)		-		-
Mortgage-backed securities		7,146		(34	)		1,040		(7	)
Equity securities		-		-			2		(1	)
Total	$	12,204	$	(70	)	$	1,042	$	(8	)
Held to Maturity:
Municipal obligations	$	-	$	-		$	-	$	-

	December 31, 2012
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		<12 months			Fair Value		> 12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	-	$	-		$	-	$	-
Municipal obligations		1,537		(23	)		-		-
Mortgage-backed securities		2,725		(13	)		1,687		(16	)
Equity securities		-		-			1		(2	)
Total	$	4,262	$	(36	)	$	1,688	$	(18	)
Held to Maturity:
Municipal obligations	$	-	$	-		$	-	$	-

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

9

Note 4—LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	At March 31,			At December 31,
	2013			2012
	(in thousands)
Real estate loans:
Residential mortgage	$	66,363		$	66,539
Commercial loans:
Secured by real estate		52,775			54,673
Other		9,473			8,102
Total commercial loans		62,248			62,775
Consumer loans:
Secured by real estate		9,813			10,409
Other		1,156			1,259
Total consumer loans		10,969			11,668
Total gross loans	$	139,580		$	140,982
Less:
Net deferred loan fees		(321	)		(320	)
Allowance for loan losses		(1,675	)		(1,750	)
Total loans, net	$	137,584		$	138,912

The following table illustrates the contractual aging of the recorded investment in past due loans by class of loans as of March 31, 2013 and December 31, 2012:

As of March 31, 2013
													Recorded
					Greater than						Total		Investment > 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Financing		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Receivables		Accruing
	(dollars in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	2,445	$	2,618	$	-
Commercial Real Estate - other		867		1,112		2,506		4,485		45,672		50,157		-
Commercial - non real estate		53		-		-		53		9,420		9,473		-
Consumer:
Consumer - Real Estate		89		3		-		92		9,721		9,813		-
Consumer - Other		-		-		6		6		1,150		1,156		6
Residential:
Residential		2,052		-		1,455		3,507		62,856		66,363		97
Total	$	3,061	$	1,115	$	4,140	$	8,316	$	131,264	$	139,580	$	103

10

As of December 31, 2012
													Recorded
					Greater than								Investment > 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Financing		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Receivables		Accruing
	(dollars in thousands)
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

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.

11

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

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

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

The following table presents the risk category of loans by class of loans based on the most recent analysis performed and the contractual aging as of March 31, 2013 and December 31, 2012:

As of March 31, 2013
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	-
3		1,171		13,102		3,676
4		1,275		26,539		5,510
5		-		2,564		96
6		173		7,951		191
7		-		-		-
8		-		-		-
Total	$	2,619	$	50,156	$	9,473

As of December 31, 2012
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
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

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.

12

The following tables present the risk category of loans by class based on the most recent analysis performed as of March 31, 2013 and December 31, 2012.

As of March 31, 2013
	(dollars in thousands)
	Residential
Loan Grade:
Pass	$	64,436
Special Mention		-
Substandard		1,927
Total	$	66,363

	Consumer -
	Real Estate		Consumer - Other
	(dollars in thousands)
Performing	$	9,804	$	1,150
Nonperforming		9		6
Total	$	9,813	$	1,156

As of  December 31, 2012
	Residential
	(dollars in thousands)
Loan Grade:
Pass	$	64,668
Special Mention		-
Substandard		1,871
Total	$	66,539

	Consumer -
	Real Estate		Consumer - Other
	(dollars in thousands)
Performing	$	10,381	$	1,253
Nonperforming		28		6
Total	$	10,409	$	1,259

The following table presents the recorded investment in non-accrual loans by class as of March 31, 2013 and December 31, 2012:

	As of
	March 31, 2013		December 31, 2012
	(dollars in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		2,506		2,851
Commercial		-		-
Consumer:
Consumer - real estate		9		28
Consumer – other		-		1
Residential:
Residential		1,831		1,810
Total	$	4,519	$	4,863

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The key features of the Company’s loan modifications are determined on a loan-by-loan basis. Generally, our restructurings have related to interest rate reductions and loan term extensions. In the past the Company has granted reductions in interest rates, payment extensions and short-term payment forbearances as a means to maximize collectability of troubled credits. The Company has not forgiven principal to date, although this would be considered if necessary to ensure the long-term collectability of the loan. The Company’s loan modifications are typically short-term in nature, although the Company would consider a long-term modification to ensure the long-term collectability of the credit. In general, a borrower must make at least six consecutive timely payments before the Company would consider a return of a restructured loan to accruing status in accordance with Federal Deposit Insurance Corporation guidelines regarding restoration of credits to accrual status.

The Bank has classified approximately $4,640,000 of its impaired loans as troubled debt restructurings as of March 31, 2013.

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the three months ended March 31, 2013						For the three months ended March 31, 2013
	Number of Loans		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of Loans		Recorded Investment
			(dollars in thousands)						(dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		1		412		410		-		-
Commercial - non real estate		-		-		-		-		-
Residential		2		331		270		1		190
Total		3	$	743	$	680		1	$	190

	Troubled Debt Restructurings						Troubled Debt Restructurings that
	For the three months ended March 31, 2012						For the three months ended March 31, 2012
	Number of Loans		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of Loans		Recorded Investment
			(dollars in thousands)						(dollars in thousands)
Commercial Loans		-	$	-	$	-	$	-	$	-
Commerical Real Estate - Construction		-		-		-		-		-
Commercial Real Estate - Other		2		1,628		1,621		-		-
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		-		-		-		-		-
Residential		-		-		-		-		-
Total		2	$	1,628	$	1,621		-	$	-

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.

14

The following table presents the loans individually evaluated for impairment by class of loans as of March 31, 2013 and December 31, 2012:

							For the Three Months Ended
Impaired Loans							March 31,
As of March 31, 2013							2013
	Unpaid Principal		Recorded		Related		Average		Interest
	Balance		Investment		Allowance		Recorded		Income
							Investment		Recognized
	(dollars in thousands)						(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-
Commercial Real Estate - Other		3,196		3,096		-		3,118		24
Consumer - Real Estate		10		9		-		10		-
Consumer - Other		-		-		-		-		-
Residential		1,904		1,601		-		1,751		1
With a specific allowance recorded:
Commercial		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-
Commercial Real Estate - Other		3,607		3,607		48		3,612		19
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		1		-		-		1		-
Residential		309		309		89		309		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	6,803	$	6,703	$	48	$	6,730	$	43
Consumer - Real Estate	$	10	$	9	$	-	$	10	$	-
Consumer - Other	$	1	$	-	$	-	$	1	$	-
Residential	$	2,213	$	1,910	$	89	$	2,060	$	1

15

							For the Twelve  Months Ended
Impaired Loans							December 31,
As of December 31, 2012							2012
							Average		Interest
	Unpaid Principal		Recorded		Related		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized
	(dollars in thousands)
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	$	-

The Allowance for Loan and Lease Losses 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 quarters ended March 31, 2013 and 2012, respectively:

Allowance for Credit Losses and Recorded Investment in Financing Receivables
For the Three Months Ended March 31, 2013
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	64	$	579		$	69	$	99		$	33		$	906		$	-	$	1,750
Charge-offs		-		(85	)		-		(7	)		(6	)		(162	)		-		(260	)
Recoveries		-		10			-		15			4			12			-		41
Provision		25		5			18		(20	)		(5	)		121			-		144
Ending Balance	$	89	$	509		$	87	$	87		$	26		$	877		$	-	$	1,675

Loan Balances Individually Evaluated for Impairment
As of March 31, 2013
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	48	$	-	$	-	$	-	$	89	$	-	$	137
Ending balance: loans collectively evaluated for impairment	$	89	$	461	$	87	$	87	$	26	$	788	$	-	$	1,538
Loans:
Ending Balance	$	2,618	$	50,156	$	9,473	$	9,813	$	1,156	$	66,364	$	-	$	139,580
Ending balance: individually evaluated for impairment	$	173	$	6,703	$	-	$	9	$	-	$	1,910	$	-	$	8,795
Ending balance: loans collectively evaluated for impairment	$	2,445	$	43,453	$	9,473	$	9,804	$	1,156	$	64,454	$	-	$	130,785

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For the Three Months Ended March 31, 2012
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	10		$	393		$	53		$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-			(55	)		-			(19	)		(7	)		(166	)		-		(247	)
Recoveries		-			4			-			5			2			5			-		16
Provision		(10	)		173			(12	)		(6	)		1			230			-		376
Ending Balance	$	-		$	515		$	41		$	126		$	42		$	939		$	-	$	1,663

Loan Balances Individually Evaluated for Impairment
As of March 31, 2012
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	213	$	-	$	-	$	-	$	245	$	-	$	458
Ending balance: loans collectively evaluated for impairment	$	-	$	302	$	41	$	126	$	42	$	694	$	-	$	1,205
Loans:
Ending Balance	$	173	$	53,140	$	7,191	$	12,485	$	1,359	$	66,798	$	-	$	141,146
Ending balance: individually evaluated for impairment	$	173	$	3,333	$	-	$	145	$	14	$	1,966	$	-	$	5,631
Ending balance: loans collectively evaluated for impairment	$	-	$	49,807	$	7,191	$	12,340	$	1,345	$	64,832	$	-	$	135,515

Note 5—DIVIDENDS

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

Note 6—STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted ASC 718-10, “Shareholder Based Payments”, which requires that the grant-date fair value of awarded stock options be expensed over the requisite service period. The Company’s 1996 Stock Option Plan (the “1996 Plan”), which was approved by shareholders, permits the grant of share options to 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 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).

During the three months ended March 31, 2013 no shares were awarded under either the 1996 Plan or the 2006 Plan. Shares issued under the plans and exercised pursuant to the exercise of the stock options awarded under the plans 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 Plans during the three months ended March 31, 2013 is presented below:

17

						Weighted-Average
				Weighted-		Remaining
				Average		Contractual Term		Aggregate
Options	Shares			Exercise Price		(Years)		Intrinsic Value
Outstanding at January 1, 2013		167,620		$	9.53		3.38	$	0
Granted		0			N/A
Exercised		0			N/A
Forfeited or expired		(2,950	)	$	9.65
Oustanding at March 31, 2013		164,670		$	9.53		3.38	$	0
Options Exercisable at March 31, 2013		164,670		$	9.53		3.38	$	0

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 $4.68 on March 31, 2013 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 March 31, 2013. The amount changes based on the fair market value of the stock.

As of March 31, 2013 the Company had no unrecognized compensation cost related to nonvested options under the Plan. There were no shares which vested during the quarter ended March 31, 2013. In addition, there were no non-vested options as of March 31, 2013.

Restricted Stock Awards - As of March 31, 2013 all restricted stock awards have vested; therefore the Company had no unrecognized compensation cost under the Plans.

Note 7— COMMITMENTS TO EXTEND CREDIT.

The Company is a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, stand by letters of credit, and commercial lines of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheet. The Company’s exposure to credit loss is represented by the contracted amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At March 31, 2013, the Company had outstanding commitments to originate loans of $20.3 million. These commitments included the following:

	As of
	March 31, 2013
	(in thousands)
Commitments to grant loans	$	7,771
Unfunded commitments under lines of credit		12,437
Commercial and standby letters of credit		59

Note 8-FAIR VALUE MEASUREMENTS

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

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

18

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 March 31, 2013 and December 31, 2012, 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 March 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at March 31, 2013
	(dollars in thousands)
Assets
Investment securities- available-for-sale:
US Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	7,711	$	-	$	7,711
Municipal obligations		-		11,813		-		11,813
Corporate bonds		-		1,139		-		1,139
Mortgage-backed securities		-		31,238		-		31,238
Equity securities		-		2		-		2
Total investment securities - available-for-sale	$	-	$	51,903	$	-	$	51,903

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
	(dollars in thousands)
Assets
Investment securities - available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	9,247	$	-	$	9,247
Municipal obligations		-		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

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

There were no transfers between Levels 1 and 2 of the fair value hierarchy from December 31, 2012 to March 31, 2013. For the available for sale securities, the Company obtains fair value measurements from an independent third-party service.

19

The Company has assets that, under certain conditions, are subject to measurement at fair value on a nonrecurring basis. At March 31, 2013 and December 31, 2012, 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. 

Assets Measured at Fair Value on a Nonrecurring Basis at March 31, 2013
	Balance at March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
Impaired loans accounted for under FASB ASC 310-10	$	6,876	$	-	$	-	$	6,876
Other real estate owned -residential mortgages	$	765	$	-	$	-	$	765
Other Real estate owned - commercial	$	520	$	-	$	-	$	519
Other repossessed assets	$	1,121					$	1,121
Total assets at fair value on a non-recurring basis							$	9,281

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)
	(dollars in thousands)
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							$	9,222

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.

20

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

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

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

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

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

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

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

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

March 31, 2013	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	1,982	$	1,982	$	-	$	-	$	1,982
Securities available for sale		51,903		-		51,903		-		51,903
Securities held to maturity		2,345		-		2,540		-		2,540
Loans held for sale		115		-		-		145		145
Loans receivable - net		137,584		-		-		139,101		139,101
Federal Home Loan Bank stock		3,266		-		3,266		-		3,266
Accrued interest receivable		1,034		-		1,034		-		1,034
Financial liabilities:
Customer deposits		158,178		-		159,082		-		159,082
Federal Home Loan Bank advances		24,863		-		24,886		-		24,886
REPO sweep accounts		3,866		-		3,866		-		3,866
Accrued interest payable		89		-		89		-		89

21

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

22

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

AND SUBSIDIARIES

PART Ι - FINANCIAL INFORMATION

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion compares the consolidated financial condition of the Company at March 31, 2013 and December 31, 2012, and the results of operations for the three-month periods ended March 31, 2013 and 2012. This discussion should be read in conjunction with the interim financial statements and footnotes included herein.

OVERVIEW

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

For the quarter ended March 31, 2013, the Company had net income of $68,000, or $0.02 per basic and diluted share, compared to $601,000, or $0.21 per basic and diluted share, for the year earlier period, a decrease of $533,000. The 2012 quarter was impacted by an $866,000 credit to the valuation allowance on its deferred tax asset to income tax expense. See page 27 for further discussion on income taxes.

Total assets decreased by $975,000, or 0.5%, from $213.8 million as of December 31, 2012 to $212.9 million as of March 31, 2013. Cash and cash equivalents decreased by $770,000 while investment securities available for sale increased by $1.1 million and net loans receivable decreased $1.3 million during the quarter. Total deposits decreased $172,000 from December 31, 2012 to March 31, 2013 while Federal Home Loan Bank advances decreased by $1.5 million and stockholders’ equity decreased by $32,000.

CRITICAL ACCOUNTING POLICIES

As of March 31, 2013, there have been no changes in the critical accounting policies as disclosed in the Company’s Form 10-K for the year ended December 31, 2012. The Company’s critical accounting policies are described in the Management’s Discussion and Analysis and financial sections of its 2012 Annual Report. Management believes its critical accounting policies relate to the Company’s allowance for loan losses, mortgage servicing rights, valuation of deferred tax assets and impairment of intangible assets. 

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2013 AND DECEMBER 31, 2012

ASSETS: Total assets decreased $975,000, or 0.5%, to $212.9 million at March 31, 2013 from $213.8 million at December 31, 2012. Net loans receivable decreased $1.3 million, or 1.0%, to $137.6 million at March 31, 2013 from $138.9 million at December 31, 2012, resulting primarily from a decrease of $699,000 and $527,000 in our consumer and commercial loan portfolios, respectfully. Our residential mortgage portfolio remained relatively unchanged period over period. Investment securities AFS increased $1.1 million from $50.8 million at December 31, 2012 to $51.9 million at March 31, 2013, due primarily to purchases of mortgage-backed securities during the period. Cash and cash equivalents decreased $772,000, or 28.3% to $2.0 million at March 31, 2013 from $2.7 million at December 31, 2012.

LIABILITIES: Deposits decreased $172,000 to $158.2 million at March 31, 2013 from $158.4 million at December 31, 2012. During this time period, we experienced an increase of $934,000 in our savings, money market and checking accounts, which was more than offset by a decrease of $1.2 million in our certificates of deposit. FHLB advances decreased $1.5 million, or 5.7% to $24.9 million at March 31, 2013 from $26.4 million at December 31, 2012, as proceeds from loan payments and payoffs, as well as cash on hand, were used to pay off maturing advances.

23

EQUITY: Stockholders’ equity decreased slightly and was $24.4 million at March 31, 2013 and December 31, 2012. The decrease was due primarily to net earnings for the three-month period of $68,000 partially offset by a decrease of $100,000 in the unrealized gain on available-for-sale investment securities

RESULTS OF OPERATIONS

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

General: Net income decreased by $533,000 to $68,000 for the three months ended March 31, 2013 from $601,000 for the quarter ended March 31, 2012.

Interest Income: Interest income decreased to $2.1 million for the three months ended March 31, 2013 from $2.4 million for the comparable period in 2012 as the average balance of interest earning assets decreased by $4.6 million from $200.9 million for the three months ended March 31, 2012 to $196.3 million for the three months ended March 31, 2013 and the average yield on interest earning assets decreased 52 basis points over that same time period from 4.80% to 4.28%. The yield on our mortgage loan portfolio decreased by 59 basis points to 5.14% for the three month period ended March 31, 2013 from 5.73% the year-earlier period, while the average balance of that portfolio remained relatively unchanged at $66.7 million period over period. The average balance of our non-mortgage loan portfolio decreased $887,000 to $74.0 million for the three months ended March 31, 2013 from the 2012 quarter, while the yield on this portfolio decreased 56 basis points to 5.25% from 5.81% period over period. The average balance of our investment portfolio decreased $4.2 million from the three months ended March 31, 2012 to the same period in 2013 while the yield on our investments decreased by 57 basis points period over period as agency securities matured and mortgage backed securities were paid off and replaced with securities with lower yields due to market interest rates.

Interest Expense: Interest expense decreased to $321,000 for the three months ended March 31, 2013 from $464,000 for the three months ended March 31, 2012. The decrease was due in part to a $9.1 million decrease in the average balance of our interest-bearing liabilities and a decrease in our overall cost of funds of 27 basis points from 1.05% to 0.78% period over period. Most notably, the average balance of our Federal Home Loan Bank advances decreased $8.2 million for the three-month period ended March 31, 2013 from the same period in 2012. The cost of these advances decreased 59 basis points from 2.06% to 1.47% period over period. In addition, our average balance in certificates of deposit decreased $4.5 million with the cost of these deposits decreasing 24 basis points from 1.33% to 1.09% for the quarter ended March 31, 2012 and March 31, 2013, respectively. For the three month period ended March 31, 2013 the average balance of REPO sweep deposits decreased by $2.0 million when compared to the same period in 2012. These decreases were partially offset by average balance increases of $3.0 million in our money market and NOW accounts and $2.6 million in our savings deposits when comparing the three months ended March 31, 2013 to the same period in 2012.

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

24

	Three Months Ended March 31, 2013
	Compared to
	Three Months Ended March 31, 2012
	Increase (Decrease) Due to:
	Volume			Rate			Total
	(In thousands)
Interest-earning assets:
Loans receivable	$	(14	)	$	(210	)	$	(224	)
Investment securities		(24	)		(74	)	$	(98	)
Other investments		2			(4	)	$	(2	)
Total interest-earning assets		(36	)		(288	)		(324	)
Interest-bearing liabilities:
Savings Deposits		-			-			-
Money Market/NOW accounts		1			-			1
Certificates of Deposit		(15	)		(45	)		(60	)
Deposits		(14	)		(45	)		(59	)
Borrowed funds		(91	)		7			(84	)
Total interest-bearing liabilities		(105	)		(38	)		(143	)
Change in net interest income	$	69		$	(250	)	$	(181	)

Net Interest Income: Net interest income decreased by $181,000, to $1.8 million for the three months ended March 31, 2013 from $1.9 million for the prior year period. For the three months ended March 31, 2013, average interest-earning assets decreased $4.6 million, or 2.3%, to $196.3 million when compared to the same period in 2012. Average interest-bearing liabilities decreased $9.1 million, or 5.1%, to $168.3 million for the quarter ended March 31, 2013 from $177.4 million for the quarter ended March 31, 2012. While the average balance of interest-bearing deposits decreased significantly the Company saw an increase of $5.9 million of average balances in non interest-bearing deposits for the quarter ended of March 31, 2013 compared to the year earlier period in 2012. The yield on average interest-earning assets decreased to 4.28% for the three month period ended March 31, 2013 from 4.80% for the same period ended in 2012 as we continued to see a decline in loan rates period over period. In addition, the cost of average interest-bearing liabilities decreased to 0.78% from 1.05% for the three month periods ended March 31, 2013 and 2012, respectively. Our interest rate spread decreased by 25 basis points to 3.50% from 3.75% while our net interest margin decreased by 26 basis points to 3.61% for the three-month period ended March 31, 2013 from 3.87% for same period in 2012. In an effort to offset declining levels of net interest income, the Company continues to pursue loan opportunities in our market area with qualified borrowers in addition to seeking continued growth of low cost core deposits. At March 31, 2013 the Company had outstanding loan commitments of $20.3 million. During the three months ended March 31, 2013 the Company grew average interest bearing core deposits by $3.0 million.

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

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

25

The provision for loan losses for the three-month period ended March 31, 2013 was $144,000, as compared to $376,000 for the three months ended March 31, 2012. Prior to 2012, our provision for loan losses was based on an eight-quarter rolling average of actual net charge-offs adjusted for environmental factors for each segment of loans in our portfolio. Management has decided that eight quarters is no longer reflective of the inherent loss in the loan portfolios. Beginning with the quarter ended March 31, 2012, we began moving towards a twelve-quarter rolling average of actual net charge-offs by adding an additional quarter of net charge-offs each quarter in 2012. By the end of 2012 we were using a twelve-quarter rolling average. During the quarter ended March 31, 2012, we added specific reserves of approximately $200,000 on two commercial credit relationships which were reclassified as Troubled Debt Restructurings. In addition, we recorded specific reserves of approximately $200,000 on several residential mortgage loans which had progressed in the foreclosure process during the quarter. By comparison, the first quarter of 2013 had fewer loans requiring specific reserves along with lower levels of charge-offs. The provision was based on management’s review of the components of the overall loan portfolio, the status of non-performing loans and various subjective factors.

The following table sets forth the details of our loan portfolio at the dates indicated:

				Delinquent
	Portfolio			Loans			Non-Accrual
	Balance			Over 90 Days			Loans
	(Dollars in thousands)
At March 31, 2013
Real estate loans:
Construction	$	4,042		$	-		$	173
One - to four - family		64,940			97			1,831
Commercial Mortgages		50,156			-			2,506
Home equity lines of credit/ Junior liens		9,813			-			-
Commercial loans		9,473			-			-
Consumer loans		1,156			6			9
Total gross loans	$	139,580		$	103		$	4,519
Less:
Net deferred loan fees		(321	)		(2	)		(6	)
Allowance for loan losses		(1,675	)		-			(246	)
Total loans, net	$	137,584		$	101		$	4,267
At December 31, 2012
Real estate loans:
Construction	$	3,208		$	-		$	173
One - to four - family		65,578			61			1,810
Commercial Mortgages		52,427			-			2,851
Home equity lines of credit/Junior liens		10,409			-			28
Commercial loans		8,102			-			-
Consumer loans		1,258			6			1
Total gross loans	$	140,982		$	67		$	4,863
Less:
Net deferred loan fees		(320	)		-			(5	)
Allowance for loan losses		(1,750	)		-			(346	)
Total loans, net	$	138,912		$	67		$	4,512

Non Interest Income: Non-interest income was relatively unchanged for the quarters ended March 31, 2013 and 2012. Mortgage banking activities were $50,000 lower for the three months ended March 31, 2013 when compared to the same period a year earlier. This decrease was partially offset by increases of $22,000 in service charge fee income and $19,000 of income related to bank owned life insurance that was purchased during the fourth quarter of 2012.

Non Interest Expense: Non interest expense decreased by $308,000 from $2.3 million for the three months ended March 31, 2012 to $2.0 million for the 2013 period. Most notably, other expenses decreased by $125,000 period over period as we experienced an $111,000 decrease in real estate owned expenses related to troubled credits. In addition, compensation and employee benefits decreased $113,000 period over period as we reduced staffing, suspended our accrual of the elective contribution to the Company’s 401(k) plan and reduced health insurance premiums as a result of self insuring deductibles for employee insurance coverage.

26

Income Taxes: For the quarter ended March 31, 2013, the Company recorded no tax expense. By comparison, during the quarter ended March 31, 2012, the Company recorded an income tax benefit of $886,000. The variance of $886,000 relates to the partial recovery, during the 2012 quarter, of a valuation allowance for our Deferred Tax Asset (DTA) that was established in 2009. The valuation allowance was recorded in 2009 against the DTA because management determined that it was more likely than not that some or all of the DTA would not be realized. At March 31, 2012, management reevaluated the Company’s valuation allowance related to its DTA. The analysis of the DTA was made to determine the utilization of those tax benefits based upon projected future taxable income. Based upon management’s determination and in accordance with the generally accepted accounting principles, management concluded that the utilization of this asset was “more likely than not.” Accordingly, as of March 31, 2012, $866,000 of the valuation allowance was credited to income tax expense. Among the criteria that management considered in evaluating the DTA were: improved core profitability of the Bank in 2010 and 2011; substantial improvement in 2010 and 2011 of non-performing asset levels, which were driving losses in prior years; and positive forecast for taxable income looking forward over the next three years. However, during the fourth quarter of 2012 the $866,000 was reversed as a result of management’s reevaluation of the DTA and determination that it was more likely than not that some or all of the DTA would not be realized during the period. Management’s decision to reverse the DTA recovery in the fourth quarter of 2012 was influenced by several factors including a higher than anticipated provision expense recorded throughout the year, lower than expected commercial loan demand and lastly placing two large commercial loans into non-accrual status during the fourth quarter. A valuation allowance of $3.2 million remains on our current DTA as of March 31, 2013.

The Company will continue to evaluate the future benefits from these carryforwards and at such time as it becomes “more likely than not” that they would be utilized prior to expiration, the Company will recognize the additional benefits as an adjustment to the valuation allowance. The net operating loss carryforwards expire twenty years from the date they originated. These carryforwards, if not utilized, will fully expire in the year 2032.

LIQUIDITY

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

Liquidity represents the amount of an institution’s assets that can be quickly and easily converted into cash without significant loss. The most liquid assets are cash, short-term U.S. Government securities, U.S. Government agency securities and certificates of deposit. The Company is required to maintain sufficient levels of liquidity as defined by OCC regulations. This requirement may be varied at the direction of the OCC. Regulations currently in effect require that the Bank maintain sufficient liquidity to ensure its safe and sound operation. The Company’s objective for liquidity is to be above 20%. Liquidity as of March 31, 2013 was $55.8 million, or 46.5%, compared to $52.5 million, or 42.5%, at December 31, 2012. The levels of these assets are dependent on the Company’s operating, financing, lending and investing activities during any given period. The liquidity calculated by the Company includes additional borrowing capacity available with the FHLB. This borrowing capacity is based on pledged collateral. As of March 31, 2013, the Bank had unused borrowing capacity totaling $35.3 million at the FHLB based on pledged collateral.

27

The Company intends to retain for its portfolio certain originated residential mortgage loans (primarily adjustable rate and shorter term fixed rate mortgage loans) and to generally sell the remainder in the secondary market. The Bank will from time to time participate in or originate commercial real estate loans, including real estate development loans. During the three month period ended March 31, 2013, the Company originated $6.9 million in residential mortgage loans, of which $2.5 million were retained in portfolio while the remainder were sold in the secondary market or are being held for sale. This compares to $11.7 million in originations during the first three months of 2012 of which $4.0 million were retained in portfolio. The Company also originated $6.2 million of commercial loans and $253,000 of consumer loans in the first three months of 2013 compared to $3.0 million of commercial loans and $179,000 of consumer loans for the same period in 2012. Of total loans receivable, excluding loans held for sale, mortgage loans comprised 47.6% and 47.3%, commercial loans 44.6% and 42.9% and consumer loans 7.9% and 9.8% at March 31, 2013 and March 31, 2012, respectively.

Deposits are a primary source of ;funds for use in lending and for other general business purposes. At March 31, 2013 deposits funded 74.3% of the Company’s total assets compared to 69.9% at December 31, 2012. Certificates of deposit scheduled to mature in less than one year at March 31, 2013 totaled $35.5 million. Management believes that a significant portion of such deposits will remain with the Bank. The Bank monitors the deposit rates offered by competition in the area and sets rates that take into account the prevailing market conditions along with the Bank’s liquidity position. Future liquidity needs are expected to be satisfied through the use of FHLB 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.

Borrowings may be used to compensate for seasonal or other reductions in normal sources of funds or for deposit outflows at more than projected levels. Borrowings may also be used on a longer-term basis to support increased lending or investment activities. At March 31, 2013 the Company had $24.9 million in FHLB advances, of which $7.1 million will mature during 2013. FHLB borrowings as a percentage of total assets were 11.7% at March 31, 2013 as compared to 12.3% at December 31, 2012. The Company has sufficient available collateral to obtain additional advances of $35.3 million.

CAPITAL RESOURCES

Stockholders’ equity at March 31, 2013 was $24.4 million, or 11.5% of total assets, compared to $24.4 million, or 11.4% of total assets, at December 31, 2012 (See “Consolidated Statement of Changes in Stockholders’ Equity”). The Bank is subject to certain capital-to-assets levels in accordance with OCC regulations. The Bank exceeded all regulatory capital requirements at March 31, 2013. The following table summarizes the Bank’s actual capital with the regulatory capital requirements and with requirements to be “Well Capitalized” under prompt corrective action provisions, as of March 31, 2013:

						Regulatory					Minimum to be
	Actual					Minimum					Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	Dollars in Thousands
Tier 1 (Core) capital ( to adjusted assets)	$	22,218		10.47	%	$	8,486		4.00	%	$	10,608		5.00	%
Total risk-based capital ( to risk- weighted assets)	$	23,893		17.66	%	$	10,824		8.00	%	$	13,530		10.00	%
Tier 1 risk-based capital ( to risk weighted assets)	$	22,218		16.42	%	$	5,412		4.00	%	$	8,118		6.00	%
Tangible Capital ( to tangible assets)	$	22,218		10.47	%	$	3,182		1.50	%	$	4,243		2.00	%

28

ITEM 3. QUANTITATIVE AND QUALITITIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Company’s Chief Executive Officer and VP - Director of Financial Reporting & Accounting, 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 VP - Director of Financial Reporting & Accounting 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 (1) is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting during the Company’s first quarter of 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

29

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended March 31, 2013

PART II – OTHER INFORMATION

Item 1 - Legal Proceedings:

At March 31, 2013 there were no material legal proceedings to which the Company is a party or of which any of its property is subject. From time to time the Company is a party to various legal proceedings incident to its business.

Item 1A - Risk Factors:

Not applicable to smaller reporting companies

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

(a) Not applicable

(b) Not applicable

(c) Not applicable

Item 3 - Defaults upon Senior Securities:

Not applicable.

Item 4 - Mine Safety Disclosures

Not applicable

Item 5 - Other Information:

Not applicable

Item 6 - Exhibits

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

Exhibit 31.2 Certification by VP - Director of Financial Reporting & Accounting pursuant to section 302 of the Sarbanes-Oxley Act of 2002

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

Exhibit 32.2 Statement of VP - Director of Financial Reporting & Accounting furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

30

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended March 31, 2013

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
		President and Chief Executive Officer
		Date:May 10, 2013
	By:	/s/Eileen M Budnick
		Eileen M. Budnick, VP - Director of Financial Reporting & Accounting
		(Principal Financial and Accounting Officer)
		Date:  May 10, 2013

31

EX-31.1

Exhibit 31.1

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended March 31, 2013

Certification of Chief Executive Officer

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

I, Michael W. Mahler, certify that:

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

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

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

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

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

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

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

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

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

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

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

May 10, 2013	/s/ Michael W. Mahler
	Michael W. Mahler
	Chief Executive Officer

EX-31.2

Exhibit 31.2

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended March 31, 2013

Certification of VP - Director of Financial Reporting & Accounting

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

I, Eileen M. Budnick, certify that:

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

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

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

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

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

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

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

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

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

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

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

May 10, 2013	/s/ Eileen M. Budnick
	Eileen M. Budnick
	VP - Director of Financial Reporting &
	Accounting

EX-32.1

EXHIBIT 32.1

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

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002,

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

This statement is being furnished in connection with the filing by the Company of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Report”).

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

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

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

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

May 10, 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, Eileen M. Budnick, is the VP - Director of Financial Reporting & Accounting of First Federal of Northern Michigan Bancorp, Inc. (the “Company”).

This statement is being furnished in connection with the filing by the Company of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Report”).

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

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

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

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

May 10, 2013	/s/ Eileen M. Budnick
Dated	Eileen M. Budnick

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	Mar. 31, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	$ 51,903	$ 50,764
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	7,711	9,247
Municipal notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	11,813	10,758
Corporate bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	1,139	1,150
Mortgage-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	31,238	29,608
Equity securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	2	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 [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	51,903	50,764
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	7,711	9,247
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	11,813	10,758
Significant Other Observable Inputs (Level 2) [Member] | Corporate bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	1,139	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	31,238	29,608
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	2	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 [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 (Loans Individually Evaluated for Impairment by Class of Loans) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Commercial [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	173
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	1,589	1,589
Recorded Investment, total	173	173
Related Allowance, total
Average Recorded Investment, total	173	173
Interest Income Recognized, total
Commercial Real Estate - Other [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	3,196	4,869
Recorded Investment, With no related allowance recorded	3,096	4,535
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	3,118	5,084
Interest Income Recognized, With no related allowance recorded	24	138
Unpaid Principal Balance, With a specific allowance recorded	3,607	2,138
Recorded Investment, With a specific allowance recorded	3,607	2,127
Related Allowance, With a specific allowance recorded	48	101
Average Recorded Investment, With a specific allowance recorded	3,612	2,167
Interest Income Recognized, With a specific allowance recorded	19	80
Unpaid Principal Balance, total	6,803	7,007
Recorded Investment, total	6,703	6,662
Related Allowance, total	48	101
Average Recorded Investment, total	6,730	7,251
Interest Income Recognized, total	43	218
Consumer - Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	10	33
Recorded Investment, With no related allowance recorded	9	28
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	10	34
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	10	33
Recorded Investment, total	9	28
Related Allowance, total
Average Recorded Investment, total	10	34
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
Interest Income Recognized, With no related allowance recorded
Unpaid Principal Balance, With a specific allowance recorded	1
Recorded Investment, With a specific allowance recorded
Related Allowance, With a specific allowance recorded
Average Recorded Investment, With a specific allowance recorded	1
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total	1	1
Recorded Investment, total		1
Related Allowance, total
Average Recorded Investment, total	1	3
Interest Income Recognized, total
Residential [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	1,904	1,365
Recorded Investment, With no related allowance recorded	1,601	1,194
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	1,751	1,359
Interest Income Recognized, With no related allowance recorded	1
Unpaid Principal Balance, With a specific allowance recorded	309	616
Recorded Investment, With a specific allowance recorded	309	616
Related Allowance, With a specific allowance recorded	89	141
Average Recorded Investment, With a specific allowance recorded	309	642
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total	2,213	1,981
Recorded Investment, total	1,910	1,810
Related Allowance, total	89	141
Average Recorded Investment, total	2,060	2,001
Interest Income Recognized, total	$ 1

XML

LOANS (Composition of Loan Portfolio by Loan Type) (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012
Composition Of Loan Portfolio [Line Items]
Gross loans	$ 139,580,000	$ 140,982,000	$ 141,146,000
Net deferred loan fees	(321,000)	(320,000)
Allowance for loan losses	(1,674,842)	(1,749,915)
Total loans, net	137,583,927	138,911,989
Residential mortgage [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	66,363,000	66,539,000	66,798,000
Commercial loans, secured by real estate [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	52,775,000	54,673,000
Commercial loans, other [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	9,473,000	8,102,000	7,191,000
Commercial Loans [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	62,248,000	62,775,000
Consumer loans, secured by real estate [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	9,813,000	10,409,000	12,485,000
Consumer loans, other [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	1,156,000	1,259,000
Consumer loans [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	$ 10,969,000	$ 11,668,000

XML

STOCK-BASED COMPENSATION (Summary of Option Activity under Plan) (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Shares
Outstanding, Beginning balance	167,620
Granted	0
Exercised	0
Forfeited or expired	(2,950)
Outstanding, Ending balance	164,670	167,620
Options Exercisable	164,670
Weighted-Average Exercise Price
Outstanding, Beginning Balance	$ 9.53
Forfeited or expired	$ 9.65
Outstanding, Ending Balance	$ 9.53	$ 9.53
Options Exercisable	$ 9.53
Weighted Average Remaining Contractual Term
Outstanding	3 years 4 months 17 days	3 years 4 months 17 days
Options exercisable	3 years 4 months 17 days
Aggregate intrinsic value
Outstanding, Beginning Balance	$ 0
Outstanding, Ending Balance	0	0
Options Exercisable	$ 0
Closing stock price	$ 4.68

XML

PRINCIPLES OF CONSOLIDATION

3 Months Ended

Mar. 31, 2013

PRINCIPLES OF CONSOLIDATION [Abstract]

PRINCIPLES OF CONSOLIDATION

Note 2- PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of First Federal of Northern Michigan Bancorp, Inc., First Federal of Northern Michigan, and the Bank's wholly owned subsidiaries, Financial Services & Mortgage Corporation ("FSMC") and FFNM Agency, Inc. 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 to the Grotenhuis Group (as discussed further below). All significant intercompany balances and transactions have been eliminated in the consolidation.

XML

LOANS (Risk Category of Loans by Class Based on Most Recent Analysis Performed) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Gross loans	$ 139,580	$ 140,982	$ 141,146
Residential [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	66,363	66,539	66,798
Residential [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	64,436	64,668
Residential [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans
Residential [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,927	1,871
Consumer - Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	9,813	10,409	12,485
Consumer - Real Estate [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	9,804	10,381
Consumer - Real Estate [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	9	28
Consumer - Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,156	1,259
Consumer - Other [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,150	1,253
Consumer - Other [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	$ 6	$ 6

XML

LOANS (Risk Category of Loans by Class of Loans Based on Most Recent Analysis Performed) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Gross loans	$ 139,580	$ 140,982	$ 141,146
Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	2,618	2,246
Commercial Real Estate - Construction [Member] | Loan Grade One to Two [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans
Commercial Real Estate - Construction [Member] | Loan Grade Three [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,171	615
Commercial Real Estate - Construction [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,275	1,458
Commercial Real Estate - Construction [Member] | Loan Grade Five [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans
Commercial Real Estate - Construction [Member] | Loan Grade Six [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	173	173
Commercial Real Estate - Construction [Member] | Loan Grade Seven [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans
Commercial Real Estate - Construction [Member] | Loan Grade Eight [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans
Commercial Real Estate - Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	50,157	52,427
Commercial Real Estate - Other [Member] | Loan Grade One to Two [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans
Commercial Real Estate - Other [Member] | Loan Grade Three [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	13,102	13,895
Commercial Real Estate - Other [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	26,539	27,488
Commercial Real Estate - Other [Member] | Loan Grade Five [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	2,564	2,712
Commercial Real Estate - Other [Member] | Loan Grade Six [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	7,951	8,332
Commercial Real Estate - Other [Member] | Loan Grade Seven [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans
Commercial Real Estate - Other [Member] | Loan Grade Eight [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans
Commercial loans, other [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	9,473	8,102	7,191
Commercial loans, other [Member] | Loan Grade One to Two [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans
Commercial loans, other [Member] | Loan Grade Three [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	3,676	2,367
Commercial loans, other [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	5,510	5,489
Commercial loans, other [Member] | Loan Grade Five [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	96	37
Commercial loans, other [Member] | Loan Grade Six [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	191	200
Commercial loans, other [Member] | Loan Grade Seven [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans
Commercial loans, other [Member] | Loan Grade Eight [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans

XML

LOANS (Recorded Investment in Non-Accrual Loans by Class) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans	$ 4,519	$ 4,863
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	2,506	2,851
Commercial Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans
Consumer - Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans	9	28
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	$ 1,831	$ 1,810

XML

LOANS (Impaired Loans Classified as Troubled Debt Restructurings) (Details) (Troubled Debt Restructuring [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Financing Receivable, Modifications [Line Items]
Number of contracts	3	2
Pre-modification outstanding recorded investments	$ 743	$ 1,628
Post-modification outstanding recorded investment	680	1,621
Commercial Loans [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts
Pre-modification outstanding recorded investments
Post-modification outstanding recorded investment
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		2
Pre-modification outstanding recorded investments		1,628
Post-modification outstanding recorded investment		1,621
Consumer - Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts
Pre-modification outstanding recorded investments
Post-modification outstanding recorded investment
Consumer - Other [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts
Pre-modification outstanding recorded investments
Post-modification outstanding recorded investment
Commercial - non real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	1
Pre-modification outstanding recorded investments	412
Post-modification outstanding recorded investment	410
Residential [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	2
Pre-modification outstanding recorded investments	331
Post-modification outstanding recorded investment	$ 270

XML

BASIS OF FINANCIAL STATEMENT PRESENTATION

3 Months Ended

Mar. 31, 2013

BASIS OF FINANCIAL STATEMENT PRESENTATION [Abstract]

BASIS OF FINANCIAL STATEMENT PRESENTATION

Note 1-BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements are not included herein. The interim financial statements should be read in conjunction with the financial statements of First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries and the notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2012.

All adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of financial position, results of operations and cash flows, have been made. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

XML

LOANS (Debt Restructurings Defaulted) (Details) (Troubled Debt Restructuring [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Financing Receivable, Modifications [Line Items]
Number of Contracts	1
Recorded Investment	$ 190
Commercial Loans [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts
Recorded Investment
Commercial Real Estate - Construction [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts
Recorded Investment
Commercial Real Estate - Other [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts
Recorded Investment
Consumer - Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts
Recorded Investment
Consumer - Other [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	1
Recorded Investment	$ 190

XML

FAIR VALUE MEASUREMENTS (Assets Measured at Fair Value on Nonrecurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
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	$ 6,876	$ 6,835
Other real estate owned -residential mortgages [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	765	947
Commercial Real Estate - Other [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	520	319
Other repossessed assets [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	1,121	1,121
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	9,281	9,222
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	6,876	6,835
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	765	947
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	519	319
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	$ 1,121

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Consolidated Balance Sheet (USD $)	Mar. 31, 2013	Dec. 31, 2012
Cash and cash equivalents:
Cash on hand and due from banks	$ 1,960,216	$ 2,732,109
Overnight deposits with FHLB	21,420	19,701
Total cash and cash equivalents	1,981,636	2,751,810
Securities AFS	51,903,448	50,763,551
Securities HTM	2,345,000	2,345,000
Loans held for sale	115,000	78,712
Loans receivable, net of allowance for loan losses of $1,674,842 and $1,749,915 as of March 31, 2013 and December 31, 2012, respectively	137,583,927	138,911,989
Foreclosed real estate and other repossessed assets	2,405,141	2,387,307
Federal Home Loan Bank stock, at cost	3,266,100	3,266,100
Premises and equipment	5,323,453	5,394,412
Accrued interest receivable	1,034,410	970,450
Intangible assets	128,670	158,316
Prepaid FDIC premiums	540,372	582,945
Deferred tax asset	382,241	330,831
Originated mortgage servicing rights (net of valuation reserve)	979,961	1,016,070
Bank owned life insurance	4,507,642	4,474,563
Other assets	362,202	402,091
Total assets	212,859,203	213,834,146
Liabilities:
Deposits	158,177,800	158,350,134
Advances from borrowers for taxes and insurance	304,638	132,823
Advances from Federal Home Loan Bank	24,862,885	26,357,962
REPO sweep accounts	3,865,981	3,183,351
Accrued expenses and other liabilities	1,245,267	1,375,093
Total liabilities	188,456,572	189,399,363
Stockholders' equity:
Common stock ($0.01 par value 20,000,000 shares authorized 3,191,799 shares issued)	31,918	31,918
Additional paid-in capital	23,853,891	23,853,891
Retained earnings	2,833,814	2,766,170
Treasury stock at cost (307,750 shares)	(2,963,918)	(2,963,918)
Accumulated other comprehensive income	646,926	746,723
Total stockholders' equity	24,402,631	24,434,783
Total liabilities and stockholders' equity	$ 212,859,203	$ 213,834,146

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Consolidated Statement of Changes in Stockholders' Equity (Parenthetical) (USD $)	3 Months Ended
	Mar. 31, 2013
Consolidated Statement of Changes in Stockholders' Equity [Abstract]
Change in unrealized gain on available-for-sale securities, tax	$ 51,411

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LOANS (Loans Individually Evaluated For Impairment) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment	$ 137		$ 458
Ending balance: loans collectively evaluated for impairment	1,538		1,205
Financing Receivables
Gross loans	139,580	140,982	141,146
Ending balance: individually evaluated for impairment	8,795		5,631
Ending balance: collectively evaluated for impairment	130,785		135,515
Commercial Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment	89
Financing Receivables
Gross loans	2,618		173
Ending balance: individually evaluated for impairment	173		173
Ending balance: collectively evaluated for impairment	2,445
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment	48		213
Ending balance: loans collectively evaluated for impairment	461		302
Financing Receivables
Gross loans	50,156		53,140
Ending balance: individually evaluated for impairment	6,703		3,333
Ending balance: collectively evaluated for impairment	43,453		49,807
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	87		41
Financing Receivables
Gross loans	9,473	8,102	7,191
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment	9,473		7,191
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	87		126
Financing Receivables
Gross loans	9,813	10,409	12,485
Ending balance: individually evaluated for impairment	9		145
Ending balance: collectively evaluated for impairment	9,804		12,340
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment	26		42
Financing Receivables
Gross loans	1,156		1,359
Ending balance: individually evaluated for impairment			14
Ending balance: collectively evaluated for impairment	1,156		1,345
Residential [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment	89		245
Ending balance: loans collectively evaluated for impairment	788		694
Financing Receivables
Gross loans	66,363	66,539	66,798
Ending balance: individually evaluated for impairment	1,910		1,966
Ending balance: collectively evaluated for impairment	64,454		64,832
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
Financing Receivables
Gross loans
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment

XML

SECURITIES (Amortized Cost and Estimated Market Value of Securities by Contract Maturity) (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale amortized cost, Due in one year or less	$ 2,574,000
Available for Sale amortized cost, Due after one year through five years	11,425,000
Available for Sale amortized cost, Due in five year through ten years	6,010,000
Available for Sale amortized cost, Due after ten years	286,000
Available for Sale amortized cost, Subtotal	20,295,000
Available for Sale, Amortized Cost	50,924,000	49,633,000
Held to Maturity, Due in one year or less	90,000
Held to Maturity amortized cost, Due after one year through five years	480,000
Held to Maturity amortized cost, Due in five year through ten years	635,000
Held to Maturity amortized cost, Due after ten years	1,140,000
Held to Maturity, Amortized cost	2,345,000
Available for sale market value, Due in one year or less	2,583,000
Available for sale market value, Due after one year through five years	11,665,000
Available for sale market value, Due in five year through ten years	6,051,000
Available for sale market value, Due after ten years	364,000
Available for sale market value, Subtotal	20,663,000
Available for Sale, Market Value	51,903,448	50,763,551
Held to maturity market value, Due in one year or less	91,000
Held to maturity market value, Due after one year through five years	511,000
Held to maturity market value, Due in five year through ten years	690,000
Held to maturity market value, Due after ten years	1,248,000
Held to Maturity, Market Value	2,540,000	2,570,000
Equity Securities [Member]
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale, Amortized Cost	3,000	3,000
Available for Sale, Market Value	2,000	1,000
Mortgage-backed securities [Member]
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale, Amortized Cost	30,626,000	28,901,000
Available for Sale, Market Value	$ 31,238,000	$ 29,608,000

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STOCK-BASED COMPENSATION (Additional Information) (Details)	Mar. 31, 2013
Stock Option Plan 1996 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant of awards, authorized number of shares	127,491
Stock Incentive Plan 2006 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant of awards, authorized number of shares	242,740
Stock Incentive Plan 2006 [Member] | Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant of awards, authorized number of shares	173,386
Stock Incentive Plan 2006 [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant of awards, authorized number of shares	69,354

XML

SECURITIES (Summary of Temporarily Impaired Investments Impaired) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Investments Unrealized Gain Loss Positions [Line Items]
Available-for-Sale, Fair Value Unrealized Losses less than 12 months	$ 12,204	$ 4,262
Available-for-Sale, Gross Unrealized Losses less than 12 months	(70)	36
Available-for-Sale, Fair Value Unrealized Losses longer than 12 months	1,042	1,688
Available-for-Sale, Gross Unrealized Losses longer than 12 months	8	(18)
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. Government and agency obligations [Member]
Investments Unrealized Gain Loss Positions [Line Items]
Available-for-Sale, Fair Value Unrealized Losses less than 12 months	993
Available-for-Sale, Gross Unrealized Losses less than 12 months	(6)
Available-for-Sale, Fair Value Unrealized Losses longer than 12 months
Available-for-Sale, Gross Unrealized Losses longer than 12 months
Municipal obligations [Member]
Investments Unrealized Gain Loss Positions [Line Items]
Available-for-Sale, Fair Value Unrealized Losses less than 12 months	4,065	1,537
Available-for-Sale, Gross Unrealized Losses less than 12 months	(30)	(23)
Available-for-Sale, Fair Value Unrealized Losses longer than 12 months
Available-for-Sale, 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	7,146	2,725
Available-for-Sale, Gross Unrealized Losses less than 12 months	(34)	(13)
Available-for-Sale, Fair Value Unrealized Losses longer than 12 months	1,040	1,687
Available-for-Sale, Gross Unrealized Losses longer than 12 months	(7)	(16)
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	2	1
Available-for-Sale, Gross Unrealized Losses longer than 12 months	$ (1)	$ (2)

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Consolidated Statement of Cash Flows (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash Flows from Operating Activities:
Net income	$ 67,644	$ 600,675
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	100,605	156,237
Provision for loan loss	144,074	376,268
Amortization and accretion on securities	152,447	112,413
Stock-based compensation		978
Gain on sale of loans held for sale	(70,471)	(99,903)
Originations of loans held for sale	(4,427,961)	(7,697,851)
Proceeds from sale of loans held for sale	4,462,144	7,491,195
Loss on sale of fixed assets		1,123
Gain (loss) on sale of real estate owned and other repossessed assets	(6,479)	967
Net change in:
Accrued interest receivable	(63,960)	(12,243)
Other assets	76,000	(8,064)
Prepaid FDIC insurance premiums	42,573	44,209
Bank owned life insurance	(33,079)
Deferred income tax benefit		(886,200)
Accrued expenses and other liabilities	(129,826)	(366,221)
Net cash provided by (used in) operating activities	313,711	(286,417)
Cash Flows from Investing Activities:
Net decrease in loans	975,988	654,797
Proceeds from maturies and calls of available-for-sale securities	3,990,226	3,046,478
Proceeds from sale of real estate owned and other repossed assets	196,645	439,933
Purchase of securities	(5,433,778)	(3,027,942)
Purchase of premises and equipment		(34,487)
Net cash (used in) provided by investing activities	(270,919)	1,078,779
Cash Flows from Financing Activities:
Net (decrease) increase in deposits	(172,334)	457,260
Net increase in Repo Sweep accounts	682,630	14,091
Net increase in advances from borrowers	171,815	175,999
Advances from Federal Home Loan Bank	13,930,000	8,075,000
Repayments of Federal Home Loan Bank advances	(15,425,077)	(9,850,000)
Net cash used in financing activities	(812,966)	(1,127,650)
Net decrease in cash and cash equivalents	(770,174)	(335,288)
Cash and cash equivalents at beginning of period	2,751,810	2,749,498
Cash and cash equivalents at end of period	1,981,636	2,414,210
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	332,503	484,792
Transfers of loans to foreclosed real estate and repossessed assets	$ 208,000	$ 649,564

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Consolidated Balance Sheet (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Consolidated Balance Sheet [Abstract]
Allowance for loan losses	$ 1,674,842	$ 1,749,915
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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LOANS (Tables)

3 Months Ended

Mar. 31, 2013

LOANS [Abstract]

Composition of Loan Portfolio by Loan Type

	At March 31,			At December 31,
	2013			2012
	(in thousands)
Real estate loans:
Residential mortgage	$	66,363		$	66,539
Commercial loans:
Secured by real estate		52,775			54,673
Other		9,473			8,102
Total commercial loans		62,248			62,775
Consumer loans:
Secured by real estate		9,813			10,409
Other		1,156			1,259
Total consumer loans		10,969			11,668
Total gross loans	$	139,580		$	140,982
Less:
Net deferred loan fees		(321	)		(320	)
Allowance for loan losses		(1,675	)		(1,750	)
Total loans, net	$	137,584		$	138,912

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

As of March 31, 2013
													Recorded
					Greater than						Total		Investment > 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Financing		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Receivables		Accruing
	(dollars in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	2,445	$	2,618	$	-
Commercial Real Estate - other		867		1,112		2,506		4,485		45,672		50,157		-
Commercial - non real estate		53		-		-		53		9,420		9,473		-
Consumer:
Consumer - Real Estate		89		3		-		92		9,721		9,813		-
Consumer - Other		-		-		6		6		1,150		1,156		6
Residential:
Residential		2,052		-		1,455		3,507		62,856		66,363		97
Total	$	3,061	$	1,115	$	4,140	$	8,316	$	131,264	$	139,580	$	103

As of December 31, 2012
													Recorded
					Greater than								Investment > 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Financing		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Receivables		Accruing
	(dollars in thousands)
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

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

As of March 31, 2013
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	-
3		1,171		13,102		3,676
4		1,275		26,539		5,510
5		-		2,564		96
6		173		7,951		191
7		-		-		-
8		-		-		-
Total	$	2,619	$	50,156	$	9,473

As of December 31, 2012
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
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

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

As of March 31, 2013
	(dollars in thousands)
	Residential
Loan Grade:
Pass	$	64,436
Special Mention		-
Substandard		1,927
Total	$	66,363

	Consumer -
	Real Estate		Consumer - Other
	(dollars in thousands)
Performing	$	9,804	$	1,150
Nonperforming		9		6
Total	$	9,813	$	1,156

As of December 31, 2012
	Residential
	(dollars in thousands)
Loan Grade:
Pass	$	64,668
Special Mention		-
Substandard		1,871
Total	$	66,539

	Consumer -
	Real Estate		Consumer - Other
	(dollars in thousands)
Performing	$	10,381	$	1,253
Nonperforming		28		6
Total	$	10,409	$	1,259

Recorded Investment in Non-Accrual Loans by Class

	As of
	March 31, 2013		December 31, 2012
	(dollars in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		2,506		2,851
Commercial		-		-
Consumer:
Consumer - real estate		9		28
Consumer - other		-		1
Residential:
Residential		1,831		1,810
Total	$	4,519	$	4,863

Troubled Debt Restructurings on Financing Receivables

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the three months ended March 31, 2013						For the three months ended March 31, 2013
	Number of Loans		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of Loans		Recorded Investment
			(dollars in thousands)						(dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		1		412		410		-		-
Commercial - non real estate		-		-		-		-		-
Residential		2		331		270		1		190
Total		3	$	743	$	680		1	$	190

	Troubled Debt Restructurings						Troubled Debt Restructurings that
	For the three months ended March 31, 2012						For the three months ended March 31, 2012
	Number of Loans		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of Loans		Recorded Investment
			(dollars in thousands)						(dollars in thousands)
Commercial Loans		-	$	-	$	-	$	-	$	-
Commerical Real Estate - Construction		-		-		-		-		-
Commercial Real Estate - Other		2		1,628		1,621		-		-
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		-		-		-		-		-
Residential		-		-		-		-		-
Total		2	$	1,628	$	1,621		-	$	-

Loans Individually Evaluated for Impairment by Class of Loans

							For the Three Months Ended
Impaired Loans							March 31,
As of March 31, 2013							2013
	Unpaid Principal		Recorded		Related		Average		Interest
	Balance		Investment		Allowance		Recorded		Income
							Investment		Recognized
	(dollars in thousands)						(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-
Commercial Real Estate - Other		3,196		3,096		-		3,118		24
Consumer - Real Estate		10		9		-		10		-
Consumer - Other		-		-		-		-		-
Residential		1,904		1,601		-		1,751		1
With a specific allowance recorded:
Commercial		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-
Commercial Real Estate - Other		3,607		3,607		48		3,612		19
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		1		-		-		1		-
Residential		309		309		89		309		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	6,803	$	6,703	$	48	$	6,730	$	43
Consumer - Real Estate	$	10	$	9	$	-	$	10	$	-
Consumer - Other	$	1	$	-	$	-	$	1	$	-
Residential	$	2,213	$	1,910	$	89	$	2,060	$	1

							For the Twelve Months Ended
Impaired Loans							December 31,
As of December 31, 2012							2012
							Average		Interest
	Unpaid Principal		Recorded		Related		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized
	(dollars in thousands)
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	$	-

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

Allowance for Credit Losses and Recorded Investment in Financing Receivables
For the Three Months Ended March 31, 2013
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	64	$	579		$	69	$	99		$	33		$	906		$	-	$	1,750
Charge-offs		-		(85	)		-		(7	)		(6	)		(162	)		-		(260	)
Recoveries		-		10			-		15			4			12			-		41
Provision		25		5			18		(20	)		(5	)		121			-		144
Ending Balance	$	89	$	509		$	87	$	87		$	26		$	877		$	-	$	1,675

Loan Balances Individually Evaluated for Impairment
As of March 31, 2013
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	48	$	-	$	-	$	-	$	89	$	-	$	137
Ending balance: loans collectively evaluated for impairment	$	89	$	461	$	87	$	87	$	26	$	788	$	-	$	1,538
Loans:
Ending Balance	$	2,618	$	50,156	$	9,473	$	9,813	$	1,156	$	66,364	$	-	$	139,580
Ending balance: individually evaluated for impairment	$	173	$	6,703	$	-	$	9	$	-	$	1,910	$	-	$	8,795
Ending balance: loans collectively evaluated for impairment	$	2,445	$	43,453	$	9,473	$	9,804	$	1,156	$	64,454	$	-	$	130,785

For the Three Months Ended March 31, 2012
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	10		$	393		$	53		$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-			(55	)		-			(19	)		(7	)		(166	)		-		(247	)
Recoveries		-			4			-			5			2			5			-		16
Provision		(10	)		173			(12	)		(6	)		1			230			-		376
Ending Balance	$	-		$	515		$	41		$	126		$	42		$	939		$	-	$	1,663

Loan Balances Individually Evaluated for Impairment
As of March 31, 2012
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	213	$	-	$	-	$	-	$	245	$	-	$	458
Ending balance: loans collectively evaluated for impairment	$	-	$	302	$	41	$	126	$	42	$	694	$	-	$	1,205
Loans:
Ending Balance	$	173	$	53,140	$	7,191	$	12,485	$	1,359	$	66,798	$	-	$	141,146
Ending balance: individually evaluated for impairment	$	173	$	3,333	$	-	$	145	$	14	$	1,966	$	-	$	5,631
Ending balance: loans collectively evaluated for impairment	$	-	$	49,807	$	7,191	$	12,340	$	1,345	$	64,832	$	-	$	135,515

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 10, 2013
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2013
Entity Registrant Name	First Federal of Northern Michigan Bancorp, Inc.
Entity Central Index Key	0001128227
Trading Symbol	FFMN
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,884,049

XML

STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2013

STOCK-BASED COMPENSATION [Abstract]

Summary of Stock Option Activity under Plan

						Weighted-Average
				Weighted-		Remaining
				Average		Contractual Term		Aggregate
Options	Shares			Exercise Price		(Years)		Intrinsic Value
Outstanding at January 1, 2013		167,620		$	9.53		3.38	$	0
Granted		0			N/A
Exercised		0			N/A
Forfeited or expired		(2,950	)	$	9.65
Oustanding at March 31, 2013		164,670		$	9.53		3.38	$	0
Options Exercisable at March 31, 2013		164,670		$	9.53		3.38	$	0

XML

Consolidated Statement of Income and Comprehensive Income (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Interest income:
Interest and fees on loans	$ 1,816,613	$ 2,040,208
Interest and dividends on investments
Taxable	115,329	150,180
Tax-exempt	37,695	39,073
Interest on mortgage-backed securities	115,371	179,288
Total interest income	2,085,008	2,408,749
Interest expense:
Interest on deposits	221,902	280,544
Interest on borrowings	99,441	183,634
Total interest expense	321,343	464,178
Net interest income	1,763,664	1,944,571
Provision for loan loss	144,074	376,268
Net interest income after provision for loan losses	1,619,591	1,568,303
Non-interest income:
Service charges and other fees	192,440	169,953
Mortgage banking activities	170,432	220,560
Net income (loss) on sale of premises and equipment, real estate owned and other repossessed assets	6,479	(2,089)
Other	70,992	58,399
Total non-interest income	440,343	446,823
Non-interest expense:
Compensation and employee benefits	1,159,257	1,271,958
FDIC Insurance Premiums	45,699	47,479
Advertising	38,919	33,115
Occupancy	233,446	241,916
Amortization of intangible assets	29,646	73,113
Service bureau charges	77,494	78,787
Professional services	72,863	94,735
Other	334,965	459,548
Total non-interest expense	1,992,290	2,300,651
Income (loss) before income tax expense or benefit	67,644	(285,526)
Income tax benefit		(886,200)
Net income	67,644	600,675
Other Comprehensive Income (Loss):
Net income	67,644	600,675
Change in unrealized gain (loss) on available-for-sale securities, net of tax	(99,797)	59,183
Comprehensive Income (Loss)	$ (32,153)	$ 659,858
Net Income per share
Basic	$ 0.02	$ 0.21
Diluted	$ 0.02	$ 0.21
Weighted average number of shares outstanding
Basic	2,884,049	2,884,049
Including dilutive stock options	2,884,049	2,884,049
Dividends per common share

XML

DIVIDENDS

3 Months Ended

Mar. 31, 2013

DIVIDENDS [Abstract]

DIVIDENDS

Note 5-DIVIDENDS

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

XML

LOANS

3 Months Ended

Mar. 31, 2013

LOANS [Abstract]

LOANS

Note 4-LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	At March 31,			At December 31,
	2013			2012
	(in thousands)
Real estate loans:
Residential mortgage	$	66,363		$	66,539
Commercial loans:
Secured by real estate		52,775			54,673
Other		9,473			8,102
Total commercial loans		62,248			62,775
Consumer loans:
Secured by real estate		9,813			10,409
Other		1,156			1,259
Total consumer loans		10,969			11,668
Total gross loans	$	139,580		$	140,982
Less:
Net deferred loan fees		(321	)		(320	)
Allowance for loan losses		(1,675	)		(1,750	)
Total loans, net	$	137,584		$	138,912

The following table illustrates the contractual aging of the recorded investment in past due loans by class of loans as of March 31, 2013 and December 31, 2012:

As of March 31, 2013
													Recorded
					Greater than						Total		Investment > 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Financing		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Receivables		Accruing
	(dollars in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	-	$	-	$	173	$	173	$	2,445	$	2,618	$	-
Commercial Real Estate - other		867		1,112		2,506		4,485		45,672		50,157		-
Commercial - non real estate		53		-		-		53		9,420		9,473		-
Consumer:
Consumer - Real Estate		89		3		-		92		9,721		9,813		-
Consumer - Other		-		-		6		6		1,150		1,156		6
Residential:
Residential		2,052		-		1,455		3,507		62,856		66,363		97
Total	$	3,061	$	1,115	$	4,140	$	8,316	$	131,264	$	139,580	$	103

As of December 31, 2012
													Recorded
					Greater than								Investment > 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Financing		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Receivables		Accruing
	(dollars in thousands)
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

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 table presents the risk category of loans by class of loans based on the most recent analysis performed and the contractual aging as of March 31, 2013 and December 31, 2012:

As of March 31, 2013
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	-
3		1,171		13,102		3,676
4		1,275		26,539		5,510
5		-		2,564		96
6		173		7,951		191
7		-		-		-
8		-		-		-
Total	$	2,619	$	50,156	$	9,473

As of December 31, 2012
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
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

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 March 31, 2013 and December 31, 2012.

As of March 31, 2013
	(dollars in thousands)
	Residential
Loan Grade:
Pass	$	64,436
Special Mention		-
Substandard		1,927
Total	$	66,363

	Consumer -
	Real Estate		Consumer - Other
	(dollars in thousands)
Performing	$	9,804	$	1,150
Nonperforming		9		6
Total	$	9,813	$	1,156

As of December 31, 2012
	Residential
	(dollars in thousands)
Loan Grade:
Pass	$	64,668
Special Mention		-
Substandard		1,871
Total	$	66,539

	Consumer -
	Real Estate		Consumer - Other
	(dollars in thousands)
Performing	$	10,381	$	1,253
Nonperforming		28		6
Total	$	10,409	$	1,259

The following table presents the recorded investment in non-accrual loans by class as of March 31, 2013 and December 31, 2012:

	As of
	March 31, 2013		December 31, 2012
	(dollars in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		2,506		2,851
Commercial		-		-
Consumer:
Consumer - real estate		9		28
Consumer - other		-		1
Residential:
Residential		1,831		1,810
Total	$	4,519	$	4,863

The key features of the Company's loan modifications are determined on a loan-by-loan basis. Generally, our restructurings have related to interest rate reductions and loan term extensions. In the past the Company has granted reductions in interest rates, payment extensions and short-term payment forbearances as a means to maximize collectability of troubled credits. The Company has not forgiven principal to date, although this would be considered if necessary to ensure the long-term collectability of the loan. The Company's loan modifications are typically short-term in nature, although the Company would consider a long-term modification to ensure the long-term collectability of the credit. In general, a borrower must make at least six consecutive timely payments before the Company would consider a return of a restructured loan to accruing status in accordance with Federal Deposit Insurance Corporation guidelines regarding restoration of credits to accrual status.

The Bank has classified approximately $4,640,000 of its impaired loans as troubled debt restructurings as of March 31, 2013.

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the three months ended March 31, 2013						For the three months ended March 31, 2013
	Number of Loans		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of Loans		Recorded Investment
			(dollars in thousands)						(dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		1		412		410		-		-
Commercial - non real estate		-		-		-		-		-
Residential		2		331		270		1		190
Total		3	$	743	$	680		1	$	190

	Troubled Debt Restructurings						Troubled Debt Restructurings that
	For the three months ended March 31, 2012						For the three months ended March 31, 2012
	Number of Loans		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of Loans		Recorded Investment
			(dollars in thousands)						(dollars in thousands)
Commercial Loans		-	$	-	$	-	$	-	$	-
Commerical Real Estate - Construction		-		-		-		-		-
Commercial Real Estate - Other		2		1,628		1,621		-		-
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		-		-		-		-		-
Residential		-		-		-		-		-
Total		2	$	1,628	$	1,621		-	$	-

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 following table presents the loans individually evaluated for impairment by class of loans as of March 31, 2013 and December 31, 2012:

							For the Three Months Ended
Impaired Loans							March 31,
As of March 31, 2013							2013
	Unpaid Principal		Recorded		Related		Average		Interest
	Balance		Investment		Allowance		Recorded		Income
							Investment		Recognized
	(dollars in thousands)						(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-
Commercial Real Estate - Other		3,196		3,096		-		3,118		24
Consumer - Real Estate		10		9		-		10		-
Consumer - Other		-		-		-		-		-
Residential		1,904		1,601		-		1,751		1
With a specific allowance recorded:
Commercial		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-
Commercial Real Estate - Other		3,607		3,607		48		3,612		19
Consumer - Real Estate		-		-		-		-		-
Consumer - Other		1		-		-		1		-
Residential		309		309		89		309		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	6,803	$	6,703	$	48	$	6,730	$	43
Consumer - Real Estate	$	10	$	9	$	-	$	10	$	-
Consumer - Other	$	1	$	-	$	-	$	1	$	-
Residential	$	2,213	$	1,910	$	89	$	2,060	$	1

							For the Twelve Months Ended
Impaired Loans							December 31,
As of December 31, 2012							2012
							Average		Interest
	Unpaid Principal		Recorded		Related		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized
	(dollars in thousands)
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	$	-

The Allowance for Loan and Lease Losses 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 quarters ended March 31, 2013 and 2012, respectively:

Allowance for Credit Losses and Recorded Investment in Financing Receivables
For the Three Months Ended March 31, 2013
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	64	$	579		$	69	$	99		$	33		$	906		$	-	$	1,750
Charge-offs		-		(85	)		-		(7	)		(6	)		(162	)		-		(260	)
Recoveries		-		10			-		15			4			12			-		41
Provision		25		5			18		(20	)		(5	)		121			-		144
Ending Balance	$	89	$	509		$	87	$	87		$	26		$	877		$	-	$	1,675

Loan Balances Individually Evaluated for Impairment
As of March 31, 2013
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	48	$	-	$	-	$	-	$	89	$	-	$	137
Ending balance: loans collectively evaluated for impairment	$	89	$	461	$	87	$	87	$	26	$	788	$	-	$	1,538
Loans:
Ending Balance	$	2,618	$	50,156	$	9,473	$	9,813	$	1,156	$	66,364	$	-	$	139,580
Ending balance: individually evaluated for impairment	$	173	$	6,703	$	-	$	9	$	-	$	1,910	$	-	$	8,795
Ending balance: loans collectively evaluated for impairment	$	2,445	$	43,453	$	9,473	$	9,804	$	1,156	$	64,454	$	-	$	130,785

For the Three Months Ended March 31, 2012
	Commercial			Commercial						Consumer
	Construction			Real Estate			Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	10		$	393		$	53		$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-			(55	)		-			(19	)		(7	)		(166	)		-		(247	)
Recoveries		-			4			-			5			2			5			-		16
Provision		(10	)		173			(12	)		(6	)		1			230			-		376
Ending Balance	$	-		$	515		$	41		$	126		$	42		$	939		$	-	$	1,663

Loan Balances Individually Evaluated for Impairment
As of March 31, 2012
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	213	$	-	$	-	$	-	$	245	$	-	$	458
Ending balance: loans collectively evaluated for impairment	$	-	$	302	$	41	$	126	$	42	$	694	$	-	$	1,205
Loans:
Ending Balance	$	173	$	53,140	$	7,191	$	12,485	$	1,359	$	66,798	$	-	$	141,146
Ending balance: individually evaluated for impairment	$	173	$	3,333	$	-	$	145	$	14	$	1,966	$	-	$	5,631
Ending balance: loans collectively evaluated for impairment	$	-	$	49,807	$	7,191	$	12,340	$	1,345	$	64,832	$	-	$	135,515

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SECURITIES (Additional Information) (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
SECURITIES [Abstract]
Securities pledge as collateral, carrying value	$ 40,289,000	$ 44,135,000

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COMMITMENTS TO EXTEND CREDIT (Tables)

3 Months Ended

Mar. 31, 2013

COMMITMENTS TO EXTEND CREDIT [Abstract]

Outstanding Commitments to Originate Loans

	As of
	March 31, 2013
	(in thousands)
Commitments to grant loans	$	7,771
Unfunded commitments under lines of credit		12,437
Commercial and standby letters of credit		59

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FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2013

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS

Note 8-FAIR VALUE MEASUREMENTS

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

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

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

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

The following table presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012, 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 March 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at March 31, 2013
	(dollars in thousands)
Assets
Investment securities- available-for-sale:
US Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	7,711	$	-	$	7,711
Municipal obligations		-		11,813		-		11,813
Corporate bonds		-		1,139		-		1,139
Mortgage-backed securities		-		31,238		-		31,238
Equity securities		-		2		-		2
Total investment securities - available-for-sale	$	-	$	51,903	$	-	$	51,903

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
	(dollars in thousands)
Assets
Investment securities - available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	9,247	$	-	$	9,247
Municipal obligations		-		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

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

There were no transfers between Levels 1 and 2 of the fair value hierarchy from December 31, 2012 to March 31, 2013. 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 March 31, 2013 and December 31, 2012, 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.

Assets Measured at Fair Value on a Nonrecurring Basis at March 31, 2013
	Balance at March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
Impaired loans accounted for under FASB ASC 310-10	$	6,876	$	-	$	-	$	6,876
Other real estate owned -residential mortgages	$	765	$	-	$	-	$	765
Other Real estate owned - commercial	$	520	$	-	$	-	$	519
Other repossessed assets	$	1,121					$	1,121
Total assets at fair value on a non-recurring basis							$	9,281

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)
	(dollars in thousands)
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							$	9,222

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

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

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

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

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

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

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

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

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

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

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

March 31, 2013	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	1,982	$	1,982	$	-	$	-	$	1,982
Securities available for sale		51,903		-		51,903		-		51,903
Securities held to maturity		2,345		-		2,540		-		2,540
Loans held for sale		115		-		-		145		145
Loans receivable - net		137,584		-		-		139,101		139,101
Federal Home Loan Bank stock		3,266		-		3,266		-		3,266
Accrued interest receivable		1,034		-		1,034		-		1,034
Financial liabilities:
Customer deposits		158,178		-		159,082		-		159,082
Federal Home Loan Bank advances		24,863		-		24,886		-		24,886
REPO sweep accounts		3,866		-		3,866		-		3,866
Accrued interest payable		89		-		89		-		89

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

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STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2013

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

Note 6-STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted ASC 718-10, "Shareholder Based Payments", which requires that the grant-date fair value of awarded stock options be expensed over the requisite service period. The Company's 1996 Stock Option Plan (the "1996 Plan"), which was approved by shareholders, permits the grant of share options to 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 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).

During the three months ended March 31, 2013 no shares were awarded under either the 1996 Plan or the 2006 Plan. Shares issued under the plans and exercised pursuant to the exercise of the stock options awarded under the plans 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 Plans during the three months ended March 31, 2013 is presented below:

						Weighted-Average
				Weighted-		Remaining
				Average		Contractual Term		Aggregate
Options	Shares			Exercise Price		(Years)		Intrinsic Value
Outstanding at January 1, 2013		167,620		$	9.53		3.38	$	0
Granted		0			N/A
Exercised		0			N/A
Forfeited or expired		(2,950	)	$	9.65
Oustanding at March 31, 2013		164,670		$	9.53		3.38	$	0
Options Exercisable at March 31, 2013		164,670		$	9.53		3.38	$	0

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 $4.68 on March 31, 2013 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 March 31, 2013. The amount changes based on the fair market value of the stock.

As of March 31, 2013 the Company had no unrecognized compensation cost related to nonvested options under the Plan. There were no shares which vested during the quarter ended March 31, 2013. In addition, there were no non-vested options as of March 31, 2013.

Restricted Stock Awards - As of March 31, 2013 all restricted stock awards have vested; therefore the Company had no unrecognized compensation cost under the Plans.

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COMMITMENTS TO EXTEND CREDIT

3 Months Ended

Mar. 31, 2013

COMMITMENTS TO EXTEND CREDIT [Abstract]

COMMITMENTS TO EXTEND CREDIT

Note 7- COMMITMENTS TO EXTEND CREDIT.

The Company is a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, stand by letters of credit, and commercial lines of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheet. The Company's exposure to credit loss is represented by the contracted amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At March 31, 2013, the Company had outstanding commitments to originate loans of $20.3 million. These commitments included the following:

	As of
	March 31, 2013
	(in thousands)
Commitments to grant loans	$	7,771
Unfunded commitments under lines of credit		12,437
Commercial and standby letters of credit		59

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SECURITIES (Tables)

3 Months Ended

Mar. 31, 2013

SECURITIES [Abstract]

Carrying Value and Estimated Fair Value of Securities

	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	7,663	$	54	$	(6	)		7,711
Municipal obligations		11,510		333		(30	)		11,813
Corporate bonds & other obligations		1,122		17		-			1,139
Mortgage-backed securities		30,626		653		(41	)		31,238
Equity securities		3		-		(1	)		2
Total	$	50,924	$	1,057	$	(78	)	$	51,903
Securities Held to Maturity
Municipal obligations	$	2,345	$	195	$	-		$	2,540

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	9,181	$	66	$	-			9,247
Municipal obligations		10,413		368		(23	)		10,758
Corporate bonds & other obligations		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 obligations	$	2,345	$	225	$	-		$	2,570

Amortized Cost and Estimated Market Value of Securities by Contract Maturity

	March 31, 2013
	Amortized Cost		Market Value
	(in thousands)
Available For Sale:
Due in one year or less	$	2,574	$	2,583
Due after one year through five years		11,425		11,665
Due in five year through ten years		6,010		6,051
Due after ten years		286		364
Subtotal		20,295		20,663
Equity securities		3		2
Mortgage-backed securities		30,626		31,238
Total	$	50,924	$	51,903
Held To Maturity:
Due in one year or less	$	90	$	91
Due after one year through five years		480		511
Due in five year through ten years		635		690
Due after ten years		1,140		1,248
Total	$	2,345	$	2,540

Summary of Temporily Impaired Investments Impaired

	March 31, 2013
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		less than 12 months			Fair Value		greater than 12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	993	$	(6	)	$	-	$	-
Municipal obligations		4,065		(30	)		-		-
Mortgage-backed securities		7,146		(34	)		1,040		(7	)
Equity securities		-		-			2		(1	)
Total	$	12,204	$	(70	)	$	1,042	$	(8	)
Held to Maturity:
Municipal obligations	$	-	$	-		$	-	$	-

	December 31, 2012
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		less than 12 months			Fair Value		greater than 12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	-	$	-		$	-	$	-
Municipal obligations		1,537		(23	)		-		-
Mortgage-backed securities		2,725		(13	)		1,687		(16	)
Equity securities		-		-			1		(2	)
Total	$	4,262	$	(36	)	$	1,688	$	(18	)
Held to Maturity:
Municipal obligations	$	-	$	-		$	-	$	-

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LOANS (Activity in Allowance for Loan and Lease Losses) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Allowance for credit losses:
Beginning Balance	$ 1,750	$ 1,518
Charge-offs	(260)	(247)
Recoveries	41	16
Provision	144	376
Ending Balance	1,675	1,663
Commercial Construction [Member]
Allowance for credit losses:
Beginning Balance	64	10
Charge-offs
Recoveries
Provision	25	(10)
Ending Balance	89
Commercial Real Estate [Member]
Allowance for credit losses:
Beginning Balance	579	393
Charge-offs	(85)	(55)
Recoveries	10	4
Provision	5	173
Ending Balance	509	515
Commercial - non real estate [Member]
Allowance for credit losses:
Beginning Balance	69	53
Charge-offs
Recoveries
Provision	18	(12)
Ending Balance	87	41
Consumer - Real Estate [Member]
Allowance for credit losses:
Beginning Balance	99	146
Charge-offs	(7)	(19)
Recoveries	15	5
Provision	(20)	(6)
Ending Balance	87	126
Consumer [Member]
Allowance for credit losses:
Beginning Balance	33	46
Charge-offs	(6)	(7)
Recoveries	4	2
Provision	(5)	1
Ending Balance	26	42
Residential [Member]
Allowance for credit losses:
Beginning Balance	906	870
Charge-offs	(162)	(166)
Recoveries	12	5
Provision	121	230
Ending Balance	877	939
Unallocated Financing Receivables [Member]
Allowance for credit losses:
Beginning Balance
Charge-offs
Recoveries
Provision
Ending Balance

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SECURITIES (Carrying Value and Estimated Fair Value of Securities) (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	$ 50,924,000	$ 49,633,000
Available for Sale, Gross Unrealized Gains	1,057,000	1,185,000
Available for Sale, Gross Unrealized (Losses)	(78,000)	(54,000)
Available for Sale, Market Value	51,903,448	50,763,551
Held to Maturity, Amortized Cost	2,345,000	2,345,000
Held to Maturity Securities, Gross Unrealized Gains	195,000	225,000
Held to Maturity Securities, Gross Unrealized (Losses)
Held to Maturity, Market Value	2,540,000	2,570,000
U.S. Government and agency obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	7,663,000	9,181,000
Available for Sale, Gross Unrealized Gains	54,000	66,000
Available for Sale, Gross Unrealized (Losses)	(6,000)
Available for Sale, Market Value	7,711,000	9,247,000
Municipal obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	11,510,000	10,413,000
Available for Sale, Gross Unrealized Gains	333,000	368,000
Available for Sale, Gross Unrealized (Losses)	(30,000)	(23,000)
Available for Sale, Market Value	11,813,000	10,758,000
Corporate bonds & other obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	1,122,000	1,135,000
Available for Sale, Gross Unrealized Gains	17,000	15,000
Available for Sale, Gross Unrealized (Losses)
Available for Sale, Market Value	1,139,000	1,150,000
Mortgage-backed securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	30,626,000	28,901,000
Available for Sale, Gross Unrealized Gains	653,000	736,000
Available for Sale, Gross Unrealized (Losses)	(41,000)	(29,000)
Available for Sale, Market Value	31,238,000	29,608,000
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)	(1,000)	(2,000)
Available for Sale, Market Value	$ 2,000	$ 1,000

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LOANS (Contractual Aging of Recorded Investment in Past Due Loans by Class of Loans) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	$ 3,061	$ 5,440
60-89 Days past due	1,115	1,341
Greater than 90 days past due	4,140	1,672
Total past due	8,316	8,453
Current	131,264	132,529
Total financing receivables	139,580	140,982	141,146
Recorded investment > 90 days and accruing	103	67
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	2,445	2,073
Total financing receivables	2,618	2,246
Recorded investment > 90 days and accruing
Commercial Real Estate - Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	867	3,210
60-89 Days past due	1,112	540
Greater than 90 days past due	2,506	282
Total past due	4,485	4,032
Current	45,672	48,395
Total financing receivables	50,157	52,427
Recorded investment > 90 days and accruing
Commercial - non real estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	53	113
60-89 Days past due
Greater than 90 days past due
Total past due	53	113
Current	9,420	7,989
Total financing receivables	9,473	8,102	7,191
Recorded investment > 90 days and accruing
Consumer - Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	89	59
60-89 Days past due	3
Greater than 90 days past due		13
Total past due	92	72
Current	9,721	10,337
Total financing receivables	9,813	10,409	12,485
Recorded investment > 90 days and accruing
Consumer - Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due		11
60-89 Days past due		5
Greater than 90 days past due	6	6
Total past due	6	22
Current	1,150	1,237
Total financing receivables	1,156	1,259
Recorded investment > 90 days and accruing	6	6
Residential [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	2,052	2,047
60-89 Days past due		796
Greater than 90 days past due	1,455	1,198
Total past due	3,507	4,041
Current	62,856	62,498
Total financing receivables	66,363	66,539	66,798
Recorded investment > 90 days and accruing	$ 97	$ 61

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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	Mar. 31, 2013	Dec. 31, 2012
Level 1 [Member]
Financial assets:
Cash and cash equivalents	$ 1,982	$ 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
Level 2 [Member]
Financial assets:
Cash and cash equivalents
Securities available for sale	51,903	50,764
Securities held to maturity	2,540	2,570
Loans held for sale
Loans receivable - net
Federal Home Loan Bank stock	3,266	3,266
Accrued interest receivable	1,034	970
Financial liabilities:
Customer deposits	159,082	159,335
Federal Home Loan Bank advances	24,886	26,493
REPO sweep accounts	3,866	3,183
Accrued interest payable	89	100
Level 3 [Member]
Financial assets:
Cash and cash equivalents
Securities available for sale
Securities held to maturity
Loans held for sale	145	84
Loans receivable - net	139,101	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 Value [Member]
Financial assets:
Cash and cash equivalents	1,982	2,752
Securities available for sale	51,903	50,764
Securities held to maturity	2,345	2,345
Loans held for sale	115	79
Loans receivable - net	137,584	138,912
Federal Home Loan Bank stock	3,266	3,266
Accrued interest receivable	1,034	970
Financial liabilities:
Customer deposits	158,178	158,350
Federal Home Loan Bank advances	24,863	26,358
REPO sweep accounts	3,866	3,183
Accrued interest payable	89	100
Total Estimated Fair Value [Member]
Financial assets:
Cash and cash equivalents	1,982	2,752
Securities available for sale	51,903	50,764
Securities held to maturity	2,540	2,570
Loans held for sale	145	84
Loans receivable - net	139,101	140,877
Federal Home Loan Bank stock	3,266	3,266
Accrued interest receivable	1,034	970
Financial liabilities:
Customer deposits	159,082	159,335
Federal Home Loan Bank advances	24,886	26,493
REPO sweep accounts	3,866	3,183
Accrued interest payable	$ 89	$ 100

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Consolidated Statement of Changes in Stockholders' Equity (USD $)	Total	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]
Balance at Dec. 31, 2012	$ 24,434,783	$ 31,918	$ (2,963,918)	$ 23,853,891	$ 2,766,170	$ 746,723
Net income	67,644				67,644
Change in unrealized gain on available-for-sale securities (net of tax of $51,411)	(99,797)					(99,797)
Balance at Mar. 31, 2013	$ 24,402,631	$ 31,918	$ (2,963,918)	$ 23,853,891	$ 2,833,814	$ 646,926

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SECURITIES

3 Months Ended

Mar. 31, 2013

SECURITIES [Abstract]

SECURITIES

Note 3-SECURITIES

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

	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	7,663	$	54	$	(6	)		7,711
Municipal obligations		11,510		333		(30	)		11,813
Corporate bonds & other obligations		1,122		17		-			1,139
Mortgage-backed securities		30,626		653		(41	)		31,238
Equity securities		3		-		(1	)		2
Total	$	50,924	$	1,057	$	(78	)	$	51,903
Securities Held to Maturity
Municipal obligations	$	2,345	$	195	$	-		$	2,540

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Market Value
	(in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	9,181	$	66	$	-			9,247
Municipal obligations		10,413		368		(23	)		10,758
Corporate bonds & other obligations		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 obligations	$	2,345	$	225	$	-		$	2,570

The amortized cost and estimated market value of securities at March 31, 2013, by contract maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities with no specified maturity date are separately stated.

	March 31, 2013
	Amortized Cost		Market Value
	(in thousands)
Available For Sale:
Due in one year or less	$	2,574	$	2,583
Due after one year through five years		11,425		11,665
Due in five year through ten years		6,010		6,051
Due after ten years		286		364
Subtotal		20,295		20,663
Equity securities		3		2
Mortgage-backed securities		30,626		31,238
Total	$	50,924	$	51,903
Held To Maturity:
Due in one year or less	$	90	$	91
Due after one year through five years		480		511
Due in five year through ten years		635		690
Due after ten years		1,140		1,248
Total	$	2,345	$	2,540

At March 31, 2013 and December 31, 2012, securities with a carrying value and fair value of $40,289,000 and $44,135,000, respectively, were pledged to secure our REPO sweep accounts, FHLB advances and our line of credit at the Federal Reserve.

There were no security sales in either the three months ended March 31, 2013 or 2012.

The following is a summary of temporarily impaired investments that have been impaired for less than and more than twelve months as of March 31, 2013 and December 31, 2012:

	March 31, 2013
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		less than 12 months			Fair Value		greater than 12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	993	$	(6	)	$	-	$	-
Municipal obligations		4,065		(30	)		-		-
Mortgage-backed securities		7,146		(34	)		1,040		(7	)
Equity securities		-		-			2		(1	)
Total	$	12,204	$	(70	)	$	1,042	$	(8	)
Held to Maturity:
Municipal obligations	$	-	$	-		$	-	$	-

	December 31, 2012
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		less than 12 months			Fair Value		greater than 12 months
	(in thousands)
Available For Sale:
U.S. Government and agency obligations	$	-	$	-		$	-	$	-
Municipal obligations		1,537		(23	)		-		-
Mortgage-backed securities		2,725		(13	)		1,687		(16	)
Equity securities		-		-			1		(2	)
Total	$	4,262	$	(36	)	$	1,688	$	(18	)
Held to Maturity:
Municipal obligations	$	-	$	-		$	-	$	-

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

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LOANS (Additional Information) (Details) (USD $)	3 Months Ended
	Mar. 31, 2013
Unsecured Debt [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Risk-rating system to grade loan	8
Trouble debt restructuring, impaired loan	$ 4,640,000
Delinquency period	90 days
Secured Debt [Member] | Consumer loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	120 days
Secured Debt [Member] | Commercial Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	90 days

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COMMITMENTS TO EXTEND CREDIT (Additional Information) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments to grant loans	$ 7,771
Loans outstanding commitments	20,300
Unfunded commitments under lines of credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loans outstanding commitments	12,437
Commercial and standby letters of credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loans outstanding commitments	$ 59

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FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Mar. 31, 2013

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 March 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at March 31, 2013
	(dollars in thousands)
Assets
Investment securities- available-for-sale:
US Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	7,711	$	-	$	7,711
Municipal obligations		-		11,813		-		11,813
Corporate bonds		-		1,139		-		1,139
Mortgage-backed securities		-		31,238		-		31,238
Equity securities		-		2		-		2
Total investment securities - available-for-sale	$	-	$	51,903	$	-	$	51,903

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
	(dollars in thousands)
Assets
Investment securities - available-for-sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	-	$	9,247	$	-	$	9,247
Municipal obligations		-		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 Measured at Fair Value on Nonrecurring Basis

Assets Measured at Fair Value on a Nonrecurring Basis at March 31, 2013
	Balance at March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
Impaired loans accounted for under FASB ASC 310-10	$	6,876	$	-	$	-	$	6,876
Other real estate owned -residential mortgages	$	765	$	-	$	-	$	765
Other Real estate owned - commercial	$	520	$	-	$	-	$	519
Other repossessed assets	$	1,121					$	1,121
Total assets at fair value on a non-recurring basis							$	9,281

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)
	(dollars in thousands)
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							$	9,222

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

March 31, 2013	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	1,982	$	1,982	$	-	$	-	$	1,982
Securities available for sale		51,903		-		51,903		-		51,903
Securities held to maturity		2,345		-		2,540		-		2,540
Loans held for sale		115		-		-		145		145
Loans receivable - net		137,584		-		-		139,101		139,101
Federal Home Loan Bank stock		3,266		-		3,266		-		3,266
Accrued interest receivable		1,034		-		1,034		-		1,034
Financial liabilities:
Customer deposits		158,178		-		159,082		-		159,082
Federal Home Loan Bank advances		24,863		-		24,886		-		24,886
REPO sweep accounts		3,866		-		3,866		-		3,866
Accrued interest payable		89		-		89		-		89

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