10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 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 November 14, 2013
(Title of Class)	2,884,049 shares

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 2013

INDEX

	PAGE
PART I – FINANCIAL INFORMATION
ITEM 1 - UNAUDITED FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheet at September 30, 2013 and December 31, 2012	3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2013 and September 30, 2012	4
Consolidated Statement of Changes in Stockholders’ Equity  for the Nine Months Ended September 30, 2013	5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and September 30, 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 – QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK	31
ITEM 4 - CONTROLS AND PROCEDURES	31
Part II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS	32
ITEM 1A - RISK FACTORS	32
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	32
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES	32
ITEM 4 – MINE SAFETY DISCLOSURES	32
ITEM 5 - OTHER INFORMATION	32
ITEM 6 - EXHIBITS	32
Section 302 Certifications
Section 906 Certifications
101.INS          XBRL Taxonomy Extension Schema
101.SCH         XBRL Taxonomy Extension Calculation Linkbase
101.CAL         XBRL Taxonomy Extension Label Linkbase
101.DEF         XBRL Taxonomy Extension Definition Linkbase
101.LAB         XBRL Taxonomy Extension Label Linkbase
101.PRE         XBRL Taxonomy Extension Presentation Linkbase

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

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheet

	September 30, 2013			December 31, 2012
	(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks	$	3,506,272		$	2,732,109
Overnight deposits with FHLB		30,725			19,701
Total cash and cash equivalents		3,536,997			2,751,810
Securities AFS		50,280,668			50,763,551
Securities HTM		2,305,000			2,345,000
Loans held for sale		973,920			78,712
Loans receivable, net of allowance for loan losses of $1,793,258 and $1,749,915 as of September 30, 2013 and December 31, 2012, respectively		138,005,242			138,911,989
Foreclosed real estate and other repossessed assets		2,241,522			2,387,307
Federal Home Loan Bank stock, at cost		3,266,100			3,266,100
Premises and equipment		5,190,283			5,394,412
Accrued interest receivable		953,288			970,450
Intangible assets		69,378			158,316
Prepaid FDIC premiums		-			582,945
Deferred tax asset		759,380			330,831
Originated mortgage servicing rights (net of valuation allowance)		906,012			1,016,070
Bank owned life insurance		4,575,291			4,474,563
Other assets		812,188			402,090
Total assets	$	213,875,269		$	213,834,146
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits	$	158,054,264		$	158,350,134
Advances from borrowers for taxes and insurance		216,038			132,823
Federal Home Loan Bank Advances		25,015,573			26,357,962
REPO Sweep Accounts		5,560,451			3,183,351
Accrued expenses and other liabilities		1,179,461			1,375,092
Total liabilities		190,025,787			189,399,362
Stockholders' equity:
Common stock ($0.01 par value 20,000,000 shares authorized 3,191,799 shares issued and outstanding) at September 30, 2013 and December 31, 2012		31,918			31,918
Additional paid-in capital		23,853,891			23,853,891
Retained earnings		3,012,759			2,766,170
Treasury stock at cost (307,750 shares) at September 30, 2013 and December 31, 2012		(2,963,918	)		(2,963,918	)
Accumulated other comprehensive (loss) income		(85,168	)		746,723
Total stockholders' equity		23,849,482			24,434,784
Total liabilities and stockholders' equity	$	213,875,269		$	213,834,146

See accompanying notes to consolidated financial statements.

3

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Statement of Income

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2013			2012			2013			2012
	(Unaudited)						(Unaudited)
Interest income:
Interest and fees on loans	$	1,786,663		$	1,995,749		$	5,429,925		$	6,047,447
Interest and dividends on investments
Taxable		121,899			136,100			361,219			423,308
Tax-exempt		37,054			38,438			112,098			116,240
Interest on mortgage-backed securities		119,852			142,309			342,018			486,153
Total interest income		2,065,468			2,312,596			6,245,260			7,073,148
Interest expense:
Interest on deposits		201,046			249,442			631,586			793,620
Interest on borrowings		73,553			144,584			249,017			491,872
Total interest expense		274,599			394,026			880,603			1,285,492
Net interest income		1,790,869			1,918,570			5,364,657			5,787,656
Provision for loan losses		31,733			234,005			371,560			1,188,588
Net interest income after provision for loan losses		1,759,136			1,684,565			4,993,097			4,599,068
Non-interest income:
Service charges and other fees		240,103			205,592			654,822			563,084
Mortgage banking activities		155,869			441,445			487,993			876,090
Net loss on sale of premises and equipment, real estate owned and other repossessed assets		(11,462	)		(10,691	)		(10,712	)		(80,796	)
Net gain on sale of investment securities		-			47,017			-			47,017
Other		74,468			119,519			231,831			234,961
Total non-interest income		458,978			802,882			1,363,934			1,640,356
Non-interest expense:
Compensation and employee benefits		1,179,082			1,243,598			3,472,983			3,692,139
FDIC Insurance Premiums		43,378			47,190			138,054			141,314
Advertising		27,676			29,005			95,391			111,489
Occupancy		237,924			239,900			689,578			719,148
Amortization of intangible assets		29,646			29,646			88,938			146,893
Service bureau charges		79,301			73,495			233,884			229,149
Professional services		84,011			89,559			343,845			297,403
Collection activity and real estate owned expense		42,840			41,165			106,603			156,434
Other		311,798			283,738			941,166			1,026,775
Total non-interest expense		2,035,656			2,077,296			6,110,442			6,520,744
Income (loss) before income tax expense or benefit		182,458			410,151			246,589			(281,320	)
Income tax expense (benefit)		-			137,375			-			(884,822	)
Net income		182,458			272,776			246,589			603,502
Other comprehensive income (loss):
Net income	$	182,458		$	272,776		$	246,589		$	603,502
Change in unrealized gain on available-for-sale securities, net of tax		(274,115	)		(48,099	)		(831,890	)		118,587
Comprehensive income (loss)	$	(91,657	)	$	224,677		$	(585,301	)	$	722,089
Per share data:
Net income per share	$	0.06		$	0.09		$	0.09		$	0.21
Basic	$	0.06		$	0.09		$	0.09		$	0.21
Diluted
Weighted average number of shares outstanding
Basic		2,884,049			2,884,049			2,884,049			2,884,049
Including dilutive stock options		-			-			-			-
Dividends per common share	$	-		$	-		$	-		$	-

See accompanying notes to consolidated financial statements.

4

First Federal of Northern Michigan Bancorp Inc. and Subsidiaries

Consolidated Statement of Changes in Stockholders' Equity (Unaudited)

										Accumulated
						Additional				Other
	Common		Treasury			Paid-in		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 for the period		-		-			-		246,589		-			246,559
Change in unrealized gain on available-for-sale securities (net of tax of $428,550)		-		-			-		-		(831,891	)		(831,891	)
Balance at September 30, 2013	$	31,918	$	(2,963,918	)	$	23,853,891	$	3,012,759	$	(85,168	)	$	23,849,482

See accompanying notes to the consolidated financial statements.

5

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries

Consolidated Statement of Cash Flows

	For Nine Months Ended
	September 30,
	2013			2012
	(Unaudited)
Cash Flows from Operating Activities:
Net income	$	246,589		$	603,502
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		301,053			378,619
Provision for loan loss		371,560			1,188,588
Amortization and accretion on securities		439,662			371,770
Gain on sale of investment securities		-			(47,017	)
Stock-based compensation		-			1,766
Gain on sale of loans held for sale		(207,229	)		(393,692	)
Originations of loans held for sale		(12,443,497	)		(26,174,538	)
Proceeds from sale of loans held for sale		11,755,518			25,526,776
Loss on sale of fixed assets		(9,084	)		698
Loss on sale of real estate owned and other repossessed assets		19,796			80,098
Net change in:
Accrued interest receivable		17,162			29,168
Other assets		(300,039	)		(188,024	)
Prepaid FDIC insurance premiums		582,945			131,569
Bank owned life insurance		(100,728	)		(35,583	)
Deferred income tax (benefit) expense		-			(807,808	)
Accrued expenses and other liabilities		(195,632	)		(95,492	)
Net cash provided by operating activities		478,076			570,400
Cash Flows from Investing Activities:
Net (increase) decrease in loans		(678,131	)		47,965
Proceeds from maturity and sale of available-for-sale securities		12,840,206			16,906,748
Proceeds from sale of property and equipment		56,163			425
Purchase of securities		(14,017,425	)		(16,446,962	)
Purchase of premises and equipment		(55,065	)		(117,655	)
Proceeds from sale of real estate owned and other repossessed assets		1,339,307			2,313,794
Net cash (used for) provided by investing activities		(514,945	)		2,704,315
Cash Flows from Financing Activities:
Net (decrease) increase in deposits		(295,870	)		8,026,680
Net increase (decrease) in Repo Sweep accounts		2,377,100			(1,347,279	)
Net increase in advances from borrowers		83,215			82,146
Advances from Federal Home Loan Bank and notes payable		39,155,000			32,250,000
Repayments of Federal Home Loan Bank advances and notes payable		(40,497,389	)		(41,750,000	)
Net cash provided by (used for) financing activities		822,056			(2,738,453	)
Net increase in cash and cash equivalents		785,187			536,262
Cash and cash equivalents at beginning of period		2,751,810			2,749,498
Cash and cash equivalents at end of period	$	3,536,997		$	3,285,760
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest	$	880,717		$	1,322,705
Income taxes		-			-
Transfers of loans to foreclosed real estate and repossessed assets		1,213,318			1,273,811

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 and nine months ended September 30, 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 (the “Bank”), and the Bank’s wholly owned subsidiaries, Financial Services & Mortgage Corporation (“FSMC”) and FFNM Agency. FSMC invests in real estate, which includes leasing, selling, developing, and maintaining real estate properties. The main activity of FFNM Agency is to collect the stream of income associated with the sale of the Blue Cross/Blue Shield override business to the Grotenhuis Group. All significant intercompany balances and transactions have been eliminated in the consolidation.

Note 3—SECURITIES

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

	September 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
	(dollars in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	7,130	$	43	$	(98	)		7,075
Municipal obligations		11,876		215		(297	)		11,794
Corporate bonds & other obligations		1,098		13		-			1,111
Mortgage-backed securities		30,304		340		(346	)		30,298
Equity securities		2		1		-			3
Total	$	50,410	$	612	$	(741	)	$	50,281
Securities Held to Maturity
Municipal obligations	$	2,305	$	145	$	-		$	2,450

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 September 30, 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.

	September 30, 2013
	Amortized Cost		Market Value
	(dollars in thousands)
Available For Sale:
Due in one year or less	$	2,076	$	2,086
Due after one year through five years		11,042		11,153
Due in five year through ten years		6,740		6,451
Due after ten years		246		290
Subtotal		20,104		19,980
Equity securities		2		3
Mortgage-backed securities		30,304		30,298
Total	$	50,410	$	50,281
Held To Maturity:
Due in one year or less	$	90	$	91
Due after one year through five years		1,615		1,695
Due in five year through ten years		300		332
Due after ten years		300		332
Total	$	2,305	$	2,450

At September 30, 2013 and December 31, 2012, securities with a carrying value and fair value of $37,820,000 and $44,135,000, respectively, were pledged to certain deposit accounts, FHLB advances and our line of credit at the Federal Reserve.

Gross proceeds from the sale of securities for the nine-months ended September 30, 2013 and 2012 were $0 and $1,553,000, respectively, resulting in gross gains of $0 and $54,000, respectively and gross losses of $0 and $7,000, respectively.

8

The following is a summary of temporarily impaired investments that have been impaired for less than and more than twelve months as of September 30, 2013 and December 31, 2012:

	September 30, 2013
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		<12 months			Fair Value		> 12 months
	(dollars in thousands)
Available For Sale:
U.S. Government and agency obligations	$	901	$	(98	)	$	-	$	-
Municipal obligations		6,773		(274	)		953		(23	)
Mortgage-backed securities		13,131		(282	)		2,175		(64	)
Equity securities		-		-			-		-
Total	$	20,805	$	(654	)	$	3,128	$	(87	)
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	$	-	$	-		$	-	$	-

As of September 30, 2013, there were 5 securities with an estimated fair value of $3,128,000 and unrealized losses of $87,000 in a continuous unrealized loss position for more than twelve months compared to 2 securities with an estimated fair value of $1,688,000 and unrealized losses of $18,000 at December 31, 2012. The Company had 26 securities with an estimated fair value of $20,805,000 and unrealized losses of $654,000 in a continuous unrealized loss position for less than twelve months compared to 7 securities with an estimated fair value of $4,262,000 and unrealized loss of $36,000 at December 31, 2012.

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

9

Note 4—LOANS

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

	At September 30,			At December 31,
	2013			2012
	(dollars in thousands)
Real estate loans:
Residential mortgage	$	64,244		$	66,539
Commercial loans:
Secured by real estate		53,022			54,673
Other		12,429			8,102
Total commercial loans		65,451			62,775
Consumer loans:
Secured by real estate		9,286			10,409
Other		1,117			1,259
Total consumer loans		10,403			11,668
Total gross loans	$	140,098		$	140,982
Less:
Net deferred loan fees		(300	)		(320	)
Allowance for loan losses		(1,793	)		(1,750	)
Total loans, net	$	138,005		$	138,912

The following table illustrates the contractual aging of the recorded investment in past due loans by class of loans as of September 30, 2013 and December 31, 2012:

Contractual Aging of Recorded Balance in Past Due Loans by Class of Loan

As of September 30, 2013

													Recorded
					Greater than								Investment > 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Loans		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	$	-	$	173	$	-
Commercial Real Estate - other		39		1,305		2,151		3,495		49,354		52,849		-
Commercial - non real estate		66		27		-		93		12,336		12,429		-
Consumer:
Consumer - Real Estate		121		13		-		134		9,152		9,286		-
Consumer - Other		-		-		-		-		1,117		1,117		-
Residential:
Residential		1,631		552		759		2,942		61,302		64,244		85
Total	$	1,857	$	1,897	$	3,083	$	6,837	$	133,261	$	140,098	$	85

As of December 31, 2012
													Recorded
					Greater than								Investment > 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Loans		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

10

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

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

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

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

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

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

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

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

11

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

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

The following table presents the risk category of loans by class of loans based on the most recent analysis performed as of September 30, 2013 and December 31, 2012:

	As of September 30, 2013
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	-
3		-		15,822		5,954
4		-		27,878		6,179
5		-		5,468		106
6		173		3,681		190
7		-		-		-
8		-		-		-
Total	$	173	$	52,849	$	12,429

	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 September 30, 2013 and December 31, 2012:

12

As of September 30, 2013
(dollars in thousands)
	Residential
Loan Grade:
Pass	$	63,089
Special Mention		-
Substandard		1,155
Total	$	64,244

	Consumer -
	Real Estate		Consumer - Other
	(dollars in thousands)
Performing	$	9,279	$	1,117
Nonperforming		7		-
Total	$	9,286	$	1,117

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 September 30, 2013 and December 31, 2012:

	As of
	September 30, 2013		December 31, 2012
	(in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		2,151		2,851
Commercial		-		-
Consumer:
Consumer - real estate		7		28
Consumer - other		-		1
Residential:
Residential		1,071		1,810
Total	$	3,402	$	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. At a minimum, a borrower must make at least six consecutive timely payments before the Company would consider a return of a restructured loan to accruing status in accordance with Federal Deposit Insurance Corporation guidelines regarding restoration of credits to accrual status.

13

The Bank has classified approximately $2.4 million of its impaired loans as troubled debt restructurings as of September 30, 2013. There were no commitments to extend credit to borrowers with loans classified as troubled debt restructurings as of September 30, 2013 and December 31, 2012.

For the three months ended September 30, 2013 the Company did not have any new troubled debt restructurings or troubled debt restructurings that subsequently defaulted.

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the three months ended September 30, 2012						For the three months ended Septebmer 30, 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)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		-		-		-		-		-
Commercial - non real estate		2		1,914		1,454		-		-
Residential		-		-		-		-		-
Total		2	$	1,914	$	1,454		-	$	-

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the nine months ended September 30, 2013						For the nine months ended September 30, 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)
Commerical Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		2		2,442		2,434		-		-
Consumer - Real Estate		-		-		-		-		-
Residential		2		331		268		1		190
Total		4	$	2,773	$	2,702		1	$	190

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the nine months ended September 30, 2012						For the nine months ended September 30, 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)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		-		-		-		1		63
Commercial - non real estate		4		3,542		3,052		-		-
Residential		-		-		-		-		-
Total		4	$	3,542	$	3,052		1	$	63

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

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

14

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2013 and December 31, 2012:

							For the Three Months Ended				For the Nine Months Ended
Impaired Loans							September 30,				September 30,
As of September 30, 2013							2013				2013
	Unpaid Principal		Recorded		Related		Average		Interest		Average		Interest
	Balance		Investment		Allowance		Recorded		Income		Recorded		Income
							Investment		Recognized		Investment		Recognized
	(dollars in thousands)						(dollars in thousands)				(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-		173		-
Commercial Real Estate - Other		4,064		4,064		-		4,189		56		4,065		148
Consumer - Real Estate		8		7		-		9		-		7		-
Consumer - Other		-		-		-		-		-		-		-
Residential		1,595		1,169		-		1,296		-		1,170		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		-		-
Commercial Real Estate - Other		2,030		2,030		510		2,030		-		2,030		-
Consumer - Real Estate		-		-		-		-		-		-		-
Consumer - Other		-		-		-		-		-		-		-
Residential		73		64		21		64		-		64		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	6,094	$	6,094	$	510	$	6,219	$	56	$	6,095	$	148
Consumer - Real Estate	$	8	$	7	$	-	$	9	$	-	$	7	$	-
Consumer - Other	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Residential	$	1,668	$	1,233	$	21	$	1,360	$	-	$	1,234	$	-

							For the Three Months Ended				For the Nine Months Ended
Impaired Loans							September 30,				September 30,
As of December 31, 2012							2012				2012
	Unpaid Principal		Recorded		Related		Average		Interest		Average		Interest
	Balance		Investment		Allowance		Recorded		Income		Recorded		Income
							Investment		Recognized		Investment		Recognized
	(dollars in thousands)						(dollars in thousands)				(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-		173		-
Commercial Real Estate - Other		4,869		4,535		-		3,206		35		3,309		107
Consumer - Real Estate		33		28		-		29		-		31		-
Consumer - Other		1		1		-		3		-		4		-
Residential		1,365		1,194		-		1,657		-		1,666		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		-		-
Commercial Real Estate - Other		2,138		2,127		101		2,167		20		2,175		61
Consumer - Real Estate		-		-		-		96		-		96		-
Consumer - Other		-		-		-		-		-		-		-
Residential		616		616		141		45		-		45		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	7,007	$	6,662	$	101	$	5,373	$	55	$	5,484	$	168
Consumer - Real Estate	$	33	$	28	$	-	$	125	$	-	$	127	$	-
Consumer - Other	$	1	$	1	$	-	$	3	$	-	$	4	$	-
Residential	$	1,981	$	1,810	$	141	$	1,702	$	-	$	1,711	$	-

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

15

Activity in the allowance for loan and lease losses was as follows for the quarter and year ended September 30, 2013 and September 30, 2012, respectively:

Allowance for Credit Losses and Recorded Investment in Financing Receivables
For the Three Months Ended September 30, 2013
	Commercial		Commercial					Consumer
	Construction		Real Estate		Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	-	$	673	$	79		$	75		$	25		$	839		$	-	$	1,691
Charge-offs		-		-		-			(33	)		(1	)		(29	)		-		(63	)
Recoveries		-		46		-			2			-			85			-		133
Provision		-		87		(9	)		24			(4	)		(66	)		-		32
Ending Balance	$	-	$	806	$	70		$	68		$	20		$	829		$	-	$	1,793

For the Nine Months Ended September 30, 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	)		-		(40	)		(13	)		(397	)		-		(535	)
Recoveries		-			57			-		34			5			110			-		206
Provision		(64	)		255			1		(25	)		(5	)		210			-		372
Ending Balance	$	-		$	806		$	70	$	68		$	20		$	829		$	-	$	1,793

Loan Balances Individually Evaluated for Impairment
As of September 30, 2013
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	510	$	-	$	-	$	-	$	21	$	-	$	531
Ending balance: loans collectively evaluated for impairment	$	-	$	296	$	70	$	68	$	20	$	808	$	-	$	1,262
Ending balance: loans acquired with  deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Financing Receivables:
Ending Balance	$	173	$	52,849	$	12,429	$	9,286	$	1,117	$	64,244	$	-	$	140,098
Ending balance: individually evaluated for impairment	$	173	$	6,094	$	-	$	7	$	-	$	1,233	$	-	$	7,507
Ending balance: loans collectively evaluated for impairment	$	-	$	46,755	$	12,429	$	9,279	$	1,117	$	63,011	$	-	$	132,591
Ending balance: loans acquired with  deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

16

For the Three Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	-	$	770		$	40	$	140		$	15		$	808		$	-	$	1,773
Charge-offs		-		(138	)		-		(17	)		(20	)		(166	)		-		(341	)
Recoveries		-		2			-		6			3			7			-		18
Provision		35		(13	)		36		1			36			139			-		234
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	-	$	1,684

For the Nine Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	10	$	393		$	53	$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-		(265	)		-		(54	)		(29	)		(724	)		-		(1,072	)
Recoveries		-		10			-		14			8			17			-		49
Provision		25		483			23		24			9			625			-		1,189
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	-	$	1,684

Loan Balances Individually Evaluated for Impairment
As of September 30, 2012
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	175	$	-	$	-	$	21	$	5	$	-	$	201
Ending balance: loans collectively evaluated for impairment	$	35	$	446	$	76	$	130	$	13	$	783	$	-	$	1,483
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Financing Receivables:
Ending Balance	$	487	$	53,081	$	8,414	$	11,561	$	1,276	$	65,552	$	-	$	140,371
Ending balance: individually evaluated for impairment	$	173	$	2,573	$	-	$	174	$	1	$	1,556	$	-	$	4,477
Ending balance: loans collectively
evaluated for impairment	$	314	$	50,508	$	8,414	$	11,387	$	1,275	$	63,996	$	-	$	135,894
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Note 5 – DIVIDENDS

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

Note 6 – STOCK-BASED COMPENSATION

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

17

During the three and nine months ended September 30, 2013 the Company awarded no shares under the either the 2006 or the 1996 Stock-Based Incentive Plan. Shares issued under the 2006 Plan and exercised pursuant to the exercise of stock options may be either authorized but unissued shares or reacquired shares held by the Company as treasury stock.

Stock Options - A summary of option activity under the Plan during the nine months ended September 30, 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		3.4	$	-
Granted		-			N/A
Exercised		-			N/A
Forfeited or expired		(4,900	)	$	9.54
Oustanding at September 30, 2013		162,720		$	9.53		2.6	$	-
Options Exercisable at September 30, 2013		162,720		$	9.53		2.6	$	-

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 $4.43 on September 30, 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 September 30, 2013. This amount changes based on the fair market value of the stock.

As of September 30, 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 September 30, 2013. In addition, there were no non-vested options as of September 30, 2013.

Restricted Stock Awards – As of September 30, 2013 all restricted stock awards have vested, therefore the Company had no unrecognized compensation costs under the Plan. There were 5,304 shares available for future stock award grants as of September 30, 2013.

Note 7 – COMMITMENTS TO EXTEND CREDIT

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

18

At September 30, 2013, the Company had outstanding commitments to originate loans of $21.6 million. These commitments include the following:

	As of
	September 30, 2013
	(dollars in thousands)
Commitments to grant loans	$	9,119
Unfunded commitments under lines of credit		12,445
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.

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

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

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 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 September 30, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2013
Assets	(dollars in thousands)
Investment securities- available-for-sale:
US Government and agency obligations	$	-	$	7,075	$	-	$	7,075
Municipal obligations		-		11,794		-		11,794
Corporate bonds & other obligations				1,111				1,111
Mortgage-backed securities		-		30,298		-		30,298
Equity securities		-		3		-		3
Total investment securities - available-for-sale	$	-	$	50,281	$	-	$	50,281

19

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:
US Government and agency obligations	$	-	$	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 September 30, 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 September 30, 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 September 30, 2013
	Balance at September 30, 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 ASC 310-10	$	6,267	$	-	$	-	$	6,267
Other real estate owned -residential mortgages		279		-		-		279
Other Real estate owned - commercial		939		-		-		939
Other Repossessed Assets		1,023		-		-		1,023
Total assets at fair value on a non-recurring basis							$	8,508

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

20

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.

21

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

September 30, 2013	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	3,537	$	3,537	$	-	$	-	$	3,537
Securities available for sale		50,281		-		50,281		-		50,281
Securities held to maturity		2,305		-		2,450		-		2,450
Loans held for sale		974		-		-		974		974
Loans receivable - net		138,005		-		-		137,759		137,759
Federal Home Loan Bank stock		3,226		-		3,226		-		3,226
Accrued interest receivable		953		-		953		-		953
Financial liabilities:
Customer deposits		158,054		-		159,885		-		159,885
Federal Home Loan Bank advances		25,016		-		24,651		-		24,651
REPO sweep accounts		5,560		-		5,560		-		5,560
Accrued interest payable		100		-		100		-		100

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 September 30, 2013 and December 31, 2012, and the results of operations for the three- and nine-month periods ended September 30, 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 centers. The deposited funds, together with funds generated from operations and borrowings, are used by the Company to originate loans. The Company’s principal lending activity is the origination of mortgage loans for the purchase or refinancing of one-to-four family residential properties. The Company also originates commercial and multi-family real estate loans, construction loans, commercial loans, automobile loans, home equity loans and lines of credit, and a variety of other consumer loans.

For the quarter ended September 30, 2013, the Company reported net income of $182,000, or $0.06 per basic and diluted share, compared to $272,000, or $0.09 per basic and diluted share, for the quarter ended September 30, 2012, a decrease of $90,000. For the nine months ended September 30, 2013 net income was $247,000, or $0.09 per basic and diluted share as compared to $604,000, or $0.21 per share, for the same period ended September 30, 2012.

Total assets increased $41,000, or 0.02%, to $213.9 million as of September 30, 2013 from $213.8 million as of December 31, 2012. Investment securities available-for-sale decreased $483,000, or 1.0%, from December 31, 2012 to September 30, 2013. Cash and cash equivalents increased by $785,000, while net loans receivable decreased $907,000 during this time period. In addition, during the nine months ended September 30, 2013 the Company received $509,000 as a return of our unused FDIC insurance premiums as a result of the expiration of the prepaid assessment period which began in 2009. Total deposits decreased $296,000 from December 31, 2012 to September 30, 2013, Federal Home Loan Bank advances decreased $1.3 million, while REPO sweep accounts increased $2.4 million and equity declined $585,000.

CRITICAL ACCOUNTING POLICIES

As of September 30, 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, real estate owned, mortgage servicing rights, valuation of deferred tax assets and impairment of intangible assets.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2013 AND DECEMBER 31, 2012

Assets: Total assets increased $41,000, or 0.02%, to $213.9 million at September 30, 2013 from $213.8 million at December 31, 2012. During the nine-moth period the following changes occurred: investment securities available for sale decreased $483,000, or 1.0%, as a result of a decline of $1.3 million in market value in our portfolio and net loans receivable decreased $907,000, or 0.07%, to $138.0 million at September 30, 2013 from $138.9 million at December 31, 2012. Mortgage loans decreased $2.3 million despite our continued efforts to grow this portfolio by retaining certain high-quality 10- and 15- year fixed rate residential mortgages as opposed to selling them. In addition, our consumer loan portfolio, consisting mainly of home equity loans, decreased by $1.3 million and our commercial loans increased $2.7 million for the nine months ended September 30, 2013.

23

Liabilities: Deposits decreased $296,000 to $158.1 million at September 30, 2013 from $158.4 million at December 31, 2012. The composition of our deposits changed during the nine-month period ended September 30, 2013. We experienced increases of $2.4 million in statement savings accounts, $583,000 in money market accounts, $721,000 in NOW demand deposit accounts and $744,000 in non-interest bearing demand deposit accounts. Partially offsetting these increases were decreases of $3.6 million in our traditional certificates of deposit and $2.2 million in our liquid certificates of deposit (from which customers can take a penalty–free withdrawal with seven days advance written notice) as, in general, we were not the market leader in rates on these product during this time period. FHLB advances decreased $1.3 million to $25.0 million at September 30, 2013 from $26.4 million at December 31, 2012. During this same time period, REPO sweep balances increased $2.4 million.

Equity: Stockholders’ equity decreased $585,000 to $23.8 million at September 30, 2013 from $24.4 million at December 31, 2012. The decrease was due primarily to a decrease of $832,000, net of tax, in the unrealized gain on available-for-sale securities, partially offset by net income for the nine-month period of $247,000.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012

General: Net income decreased $90,000 to $182,000 for the three months ended September 30, 2013 from $272,000 for the same period ended September 30, 2012.

Interest Income: Interest income was $2.1 million for the three months ended September 30, 2013, compared to $2.3 million for the comparable period in 2012. The decrease in interest income was due to a decrease in the average balance of our interest-earning assets resulting from a decrease in the size of our loan portfolio and a decrease in the yield on interest-earning assets. The average balance of mortgage loans decreased $2.8 million quarter over quarter, as we continued to experience a decline in loan originations despite our continued efforts to retain certain high quality 10- and 15-year mortgages in our loan portfolio. The average balance of non-mortgage loans increased $443,000 period over period. The decline in the loan portfolio was partially offset by an increase in cash and cash equivalents of $785,000 for the three months ended September 30, 2013 when compared to the same period in 2012. As a result of the decline in our loan portfolios, the average yield on our interest-earning assets declined 44 basis points from 4.59% for the three-month period ended September 30, 2012 to 4.15% for the same period in 2013.

Interest Expense: Interest expense was $275,000 for the three-month period ended September 30, 2013, compared to $394,000 for the same period in 2012. The decrease in interest expense for the three-month period was due in part to a $4.0 million decrease in the average balance of our interest-bearing liabilities and a decrease in our overall cost of funds of 26 basis points period over period. Most notably, the average balance of our FHLB advances decreased $6.0 million from the three-month period ended September 30, 2013 when compared to the same period in 2012 and the cost of those borrowings decreased 70 basis points from 1.93% to 1.23%, period over period. In addition, the average balance of our certificate of deposits decreased $5.0 million from the three-month period ended September 30, 2012 as compared to the same period in 2013 and the cost of these deposits decreased 19 basis points period over period. The decrease in certificate of deposit accounts were partially offset by increases of $2.9 million in money market and NOW demand deposit accounts and $3.3 million in savings deposit accounts quarter over quarter.

24

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

	Quarter ended September 30, 2013
	Compared to
	Quarter ended September 30, 2012
	Increase (Decrease) Due to:
	Volume			Rate			Total
	(dollars in thousands)
Interest-earning assets:
Loans receivable	$	(36	)	$	(173	)	$	(209	)
Investment securities		-			(37	)	$	(37	)
Other investments		(6	)		5		$	(1	)
Total interest-earning assets		(42	)		(205	)		(247	)
Interest-bearing liabilities:
Savings Deposits		1			-			1
Money Market/NOW accounts		1			(1	)		-
Certificates of Deposit		(17	)		(32	)		(49	)
Deposits		(15	)		(33	)		(48	)
Borrowed funds		(44	)		(27	)		(71	)
Total interest-bearing liabilities		(59	)		(60	)		(119	)
Change in net interest income	$	17		$	(145	)	$	(128	)

Net Interest Income: Net interest income decreased $128,000 to $1.8 million for the three-month period ended September 30, 2013 as compared to the same period in 2012. For the three months ended September 30, 2013, average interest-earning assets decreased $2.6 million, or 1.3%, to $198.3 million when compared to the same period in 2012. Average interest-bearing liabilities decreased $4.0 million, or 2.3%, to $166.8 million for the quarter ended September 30, 2013 from $170.8 million for the quarter ended September 30, 2012 as we experienced a shift from interest bearing to non-interest bearing deposits during the period. The yield on average interest-earning assets decreased to 4.15% for the three month period ended September 30, 2013 from 4.59% for the same period ended in 2012. The cost of average interest-bearing liabilities decreased to 0.65% from 0.91% for the three-month periods ended September 30, 2013 and September 30, 2012, respectively. The net interest margin decreased 21 basis points to 3.60% for the three-month period ended September 30, 2013 from 3.81% for same period in 2012.

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 September 30, 2013 was $32,000 as compared to $234,000 for the prior year period. Prior to 2012, our provision for loan losses was based on an eight-quarter rolling average of actual net charge-offs adjusted for environmental factors for each segment of loans in our portfolio. Management has decided that eight quarters is no longer reflective of the inherent loss in the loan portfolios. In 2012, we began moving towards a twelve-quarter rolling average of actual net charge-offs by adding an additional quarter of net charge-offs each quarter in 2012. By the end of 2012 we were using a twelve-quarter rolling average. During the quarter ended September 30, 2013, we charged off $29,000 in mortgage loans as compared to $166,000 during the quarter ended September 30, 2012. In addition, we recorded no commercial loan charges offs during the three months ended September 30, 2013 in comparison to $138,000 recorded for the three months ended September 30, 2012. The direct effect of the decrease in charge-offs quarter over quarter resulted in a decline in the general reserve factor applied to the entire pool of mortgage and commercial loans for the quarter ended September 30, 2013, which in turn was a main cause of the decrease in provision period over period. In addition, recoveries on charged off mortgage and commercial loans increased $74,000 and $46,000, respectively, for the three-month period ended September 30, 2013 when compared to the same period in 2012. The provision was based on management’s review of the components of the overall loan portfolio, the status of non-performing loans and various subjective factors.

Non-Interest Income: Non-interest income decreased to $459,000 for the three months ended September 30, 2013 from $803,000 for the three months ended September 30, 2012, related primarily to a decrease of $286,000 in mortgage banking activities income period over period as mortgage origination activity declined in the nine-months ended September 30, 2013. Additionally, gain on sale of investments decreased $47,000 period over period as we sold municipal bonds for credit reasons during the quarter ended September 30, 2012. Lastly, other income decreased $45,000 for the three months ended September 30, 2013 compared to the same period in 2012, mainly as the result of a $65,000 settlement of a lawsuit related to a troubled credit that was received during the three months ended September 30, 2012.

Non-Interest Expense: Non-interest expense was $2.0 million for the three-months ended September 30, 2013 as compared to $2.1 million for the same period in 2012. Compensation and employee benefit expense decreased $65,000 period over period as we reduced staffing, suspended our accrual of the elective contribution to our 401(k) plan and reduced health insurance premiums as a result of self insuring deductibles for employee insurance coverage period over period. This decrease is partially offset by an increase of $30,000 in other expenses associated with problem loans and bank-owned properties period over period.

Income Taxes: The Company recorded no federal income tax benefit for the three months ended September 30, 2013 compared to tax expense of $137,000 for the three months ended September 30, 2012.

Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

General: Net income decreased $357,000 to $247,000 for the nine months ended September 30, 2013 from $604,000 for the same period ended September 30, 2012. This decrease is attributed to a decrease in federal income tax benefit relating to the reversal of a partial recovery of our deferred tax asset valuation allowance that was established in 2009.

Interest Income: Interest income was $6.2 million for the nine months ended September 30, 2013, compared to $7.1 million for the comparable period in 2012. This decrease of $828,000, or 11.7%, in interest income was due in large part to a decrease of 45 basis points in the yield on interest earning assets to 4.25% for the nine-month period ended September 30, 2013 as compared to 4.70% for the same period in 2012. The decrease in yield was a result of a $1.6 million decrease in average balances of mortgage loans and a decrease of $2.0 million in average balance of available-for-sale securities period over period.

Interest Expense: Interest expense was $881,000 for the nine-month period ended September 30, 2013 compared to $1.3 million for the same period in 2012. The decrease in interest expense was due primarily to a period over period increase of $7.5 million in the average balance of core deposits, which serve as a low cost funding source for the Company. In addition, we experienced an $8.0 million decrease in the average balance of FHLB advances for the nine months ended September 30, 2013 when compared to the same period in 2012 with the average rate on those borrowings decreasing 65 basis points to 1.32% for the nine-month period ended September 30, 2013 as compared to the year-earlier period. Lastly, the cost of funds relating to our certificate of deposits decreased 23 basis points to 1.03% nine-month period over nine-month period.

26

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

	Nine Months ended September 30, 2013
	Compared to
	Nine Months ended September 30, 2012
	Increase (Decrease) Due to:
	Volume			Rate			Total
	(dollars in thousands)
Interest-earning assets:
Loans receivable	$	(112	)	$	(506	)	$	(618	)
Investment securities		(36	)		(184	)		(220	)
Other investments		4			6			10
Total interest-earning assets		(144	)		(684	)		(828	)
Interest-bearing liabilities:
Savings Deposits		1			-			1
Money Market/NOW accounts		5			(2	)		3
Certificates of Deposit		(47	)		(119	)		(166	)
Deposits		(41	)		(121	)		(162	)
Borrowed funds		(229	)		(14	)		(243	)
Total interest-bearing liabilities		(270	)		(135	)		(405	)
Change in net interest income	$	126		$	(549	)	$	(423	)

Net Interest Income: Net interest income decreased by $423,000 to $5.4 million for the nine-month period ended September 30, 2013 compared to the same period in 2012. For the nine months ended September 30, 2013, average interest-earning assets decreased $4.3 million, or 2.2%, and average interest-bearing liabilities decreased $6.9 million, or 4.0%, when compared to the same period in 2012. The yield on average interest-earning assets decreased to 4.25% for the nine months ended September 30, 2013 from 4.70% for the same period ended in 2012. The average cost of interest-bearing liabilities decreased to 0.71% from 0.98% for the nine month periods ended September 30, 2013 and September 30, 2012, respectively. The net interest margin decreased 20 basis points to 3.64% for the nine-month period ended September 30, 2013, from 3.84% for the same period in 2012.

Delinquent Loans and Nonperforming Assets: Nonperforming assets decreased by $1.6 million from December 31, 2012 to September 30, 2013 due primarily to sales of real estate owned properties during the nine months ended September 30, 2013.

Provision for Loan Losses: The provision for loan losses was $372,000 for the nine-month period ended September 30, 2013 as compared to $1.2 million for the comparable period in 2012. As discussed above in the discussion for the three-month period ended September 30, 2013, our provision for loan losses is based on a twelve-quarter rolling average of actual net charge-offs adjusted for various environmental factors for each pool of loans in our portfolio. During the nine-month period ended September 30, 2013, we added specific reserves of approximately $190,000 on a commercial credit relationship, that is classified as Troubled Debt Restructuring, and had net charge-offs of approximately $287,000 on mortgage loans. Additionally we reduced the general reserve factor applied to the entire portfolio of residential mortgages and commercial loans as a result of decreased charge-off history in 2013, and increased our general reserve pool for special mention and substandard commercial credits based on the inherent increased risk in those credits. The provision was based on management’s review of the components of the overall loan portfolio, the status of non-performing loans and various subjective factors.

27

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

	September 30,			December 31,
	2013			2012
	(dollars in thousands)
Total non-accrual loans	$	3,402		$	4,863
Accrual loans delinquent 90 days or more:
One- to four-family residential		85			61
Other real estate loans		-			-
Construction		-			-
Purchased Out-of-State		-			-
Commerical		-			-
Consumer & other		-			6
Total accrual loans delinquent 90 days or more	$	85		$	67
Total nonperforming loans (1)		3,487			4,930
Total real estate owned-residential mortgages (2)		279			947
Total real estate owned-Commercial (2)		939			319
Total other repossessed assets (2)		1,023			1,121
Total nonperforming assets	$	5,728		$	7,317
Total nonperforming loans to loans receivable		2.49	%		3.50	%
Total nonperforming assets to total assets		2.68	%		3.42	%

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

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

				Delinquent
	Portfolio			Loans			Non-Accrual
	Balance			Over 90 Days			Loans
	(in thousands)
At September 30, 2013
Real estate loans:
Construction	$	1,598		$	-		$	173
One - to four - family		62,819			85			1,071
Commercial Mortgages		52,849			-			2,151
Home equity lines of credit/ Junior liens		9,286			-			7
Commercial loans		12,429			-			-
Consumer loans		1,117			-			-
Total gross loans	$	140,098		$	85		$	3,402
Less:
Net deferred loan fees		(300	)		(1	)		(6	)
Allowance for loan losses		(1,793	)		-			(400	)
Total loans, net	$	138,005		$	84		$	2,996
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

28

Non-Interest Income: Non-interest income was $1.4 million for the nine-month period ended September 30, 2013, a decrease of $276,000, or 16.9%, from the same period in 2012. The nine-month results in 2013 reflect a decrease of $388,000 in mortgage banking activities due to reduced refinance activity as compared to the prior year period, and a decline of $47,000 in gain on sale of investments as a result of the sale of municipal bond due to credit concerns during the nine months ended September 30, 2012. These decreases were partially offset by an increase of $92,000 in service charges and other fee income mostly related to non-sufficient funds fees and ATM access fees and a $70,000 reduction in loss on sale of Bank owned real estate when comparing the nine-month periods ended September 30, 2013 and September 30, 2012.

Non-Interest Expense: Non-interest expense decreased to $6.1 million for the nine months ended September 30, 2013 from $6.5 million for the nine months ended September 30, 2012. For the nine-months ended September 30, 2013 we reduced other expenses by $135,000 mainly related to lower costs associated with problem loans and bank-owned properties. Period over period we also experienced decreases in occupancy costs of $30,000 due mainly to decreases in depreciation expense and equipment maintenance, amortization of intangible assets of $58,000 and salaries and benefits of $219,000 as we have 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 period over period. These decreases were partially offset by an increase in professional services expense of $46,000 as we incurred expenses related to the upgrade of our core banking software during the nine months ended September 30, 2013.

Income Taxes: At September 30, 2013 the Company did not record any income tax expense or benefit compared to an income tax benefit of $885,000 for the nine months ended September 30, 2012. The variance of $885,000 relates to a partial recovery of $866,000, during the first quarter of 2012, of a valuation allowance for our deferred tax asset (DTA) that was established in 2009. The valuation allowance was recorded 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 September 30, 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.

29

Liquidity represents the amount of an institution’s assets that can be quickly and easily converted into cash without significant loss. The most liquid assets are cash, short-term U.S. Government securities, U.S. Government agency securities and certificates of deposit. The Company is required to maintain sufficient levels of liquidity as defined by OCC regulations. This requirement may be varied at the direction of the OCC. Regulations currently in effect require that the Bank must maintain sufficient liquidity to ensure its safe and sound operation. The Company’s objective for liquidity is to be above 20% of net deposits and short-term borrowings. Liquidity as of September 30, 2013 was $54.0 million, or 42.6%, 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 September 30, 2013, the Bank had unused borrowing capacity totaling $28.9 million at the FHLB based on the pledged collateral.

The Company intends to retain in its portfolio certain originated residential mortgage loans (primarily adjustable rate, balloon and shorter-term fixed-rate mortgage loans) and to generally sell the remainder in the secondary market. The Bank will from time to time participate in or originate commercial real estate loans, including real estate development loans. During the nine month period ended September 30, 2013 the Company originated $21.8 million in residential mortgage loans, of which $9.4 million were retained in portfolio while the remainder were sold in the secondary market or are being held for sale. This compares to $36.7 million in originations during the first nine months of 2012 of which $10.5 million were retained in portfolio. The Company also originated $17.9 million of commercial loans and $1.4 million of consumer loans in the first nine months of 2013 compared to $14.4 million of commercial loans and $1.5 million of consumer loans for the same period in 2012. Of total loans receivable, excluding loans held for sale, mortgage loans comprised 45.9% and 47.2%, commercial loans 46.7% and 44.5% and consumer loans 7.4% and 8.3% at September 30, 2013 and December 31, 2012, respectively.

Deposits are a primary source of funds for use in lending and for other general business purposes. At September 30, 2013 deposits funded 73.9% of the Company’s total assets compared to 74.1% at December 31, 2012. Certificates of deposit scheduled to mature in less than one year at September 30, 2013 totaled $36.3 million. Management believes that a significant portion of such deposits will remain with the Bank. The Bank monitors the deposit rates offered by competition in the area and sets rates that take into account the prevailing market conditions along with the Bank’s liquidity position. Moreover, management believes that the growth in assets is not expected to require significant in-flows of liquidity. As such, the Bank does not expect to be a significant market leader in rates paid for liabilities.

Borrowings may be used to compensate for seasonal or other reductions in normal sources of funds or for deposit outflows at more than projected levels. Borrowings may also be used on a longer-term basis to support increased lending or investment activities. At September 30, 2013 the Company had $25.0 million in FHLB advances. FHLB borrowings as a percentage of total assets were 11.7% at September 30, 2013 as compared to 12.3% at December 31, 2012. The Company has sufficient available collateral to obtain additional advances of $28.9 million as of September 30, 2013.

CAPITAL RESOURCES

Stockholders’ equity at September 30, 2013 was $23.8 million, or 11.2% 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 requirements in accordance with OCC regulations. The Bank exceeded all regulatory capital requirements at September 30, 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 September 30, 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)	$	22,583		10.58	%	$	8,539		4.00	%	$	10,674		5.00	%
Total risk-based capital ( to risk-weighted assets)	$	24,295		17.74	%	$	10,955		8.00	%	$	13,694		10.00	%
Tier 1 risk-based capital ( to risk weighted assets)	$	22,583		16.49	%	$	5,477		4.00	%	$	8,216		6.00	%
Tangible Capital ( to tangible assets)	$	22,583		10.58	%	$	3,202		1.50	%	$	4,270		2.00	%

30

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 and 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 and 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, is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms and in timely alerting them to material information relating to the Company (or its consolidated subsidiaries) required to be included in its periodic SEC filings.

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

31

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 2013

PART II – OTHER INFORMATION

Item 1 - Legal Proceedings:

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

Item 1A - Risk Factors:

Not applicable to smaller reporting companies

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

(a) Not applicable

(b) Not applicable

(c) Not applicable

Item 3 - Defaults upon Senior Securities:

Not applicable.

Item 4 - Mine Safety Disclosures

Not applicable.

Item 5 - Other Information:

(a) Not applicable

(b) There was no material change to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by the Form 10-Q.

Item 6 - Exhibits:

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

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

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

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

101.INS XBRL Taxonomy Extension Schema

101.SCH XBRL Taxonomy Extension Calculation Linkbase

101.CAL XBRL Taxonomy Extension Label Linkbase

101.DEF XBRL Taxonomy Extension Definition Linkbase

101.LAB XBRL Taxonomy Extension Label Linkbase

101.PRE XBRL Taxonomy Extension Presentation Linkbase

32

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 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
		Chief Executive Officer
		Date:November 14, 2013
	By:	/s/Eileen M. Budnick
		Eileen M. Budnick
		VP-Director of Financial Reporting and Accounting (Principal Financial and Accounting Officer)
		Date:  November 14, 2013

33

EX-31.1

Exhibit 31.1

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 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.

November 14, 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 September 30, 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.

November 14, 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 September 30, 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.

November 14, 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 September 30, 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.

November 14, 2013	/s/Eileen M. Budnick
Dated	Eileen M. Budnick

XML

LOANS (Tables)

9 Months Ended

Sep. 30, 2013

LOANS [Abstract]

Composition of Loan Portfolio by Loan Type

	At September 30,			At December 31,
	2013			2012
	(dollars in thousands)
Real estate loans:
Residential mortgage	$	64,244		$	66,539
Commercial loans:
Secured by real estate		53,022			54,673
Other		12,429			8,102
Total commercial loans		65,451			62,775
Consumer loans:
Secured by real estate		9,286			10,409
Other		1,117			1,259
Total consumer loans		10,403			11,668
Total gross loans	$	140,098		$	140,982
Less:
Net deferred loan fees		(300	)		(320	)
Allowance for loan losses		(1,793	)		(1,750	)
Total loans, net	$	138,005		$	138,912

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

Contractual Aging of Recorded Balance in Past Due Loans by Class of Loan

As of September 30, 2013

													Recorded
					Greater than								Investment greater than 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Loans		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	$	-	$	173	$	-
Commercial Real Estate - other		39		1,305		2,151		3,495		49,354		52,849		-
Commercial - non real estate		66		27		-		93		12,336		12,429		-
Consumer:
Consumer - Real Estate		121		13		-		134		9,152		9,286		-
Consumer - Other		-		-		-		-		1,117		1,117		-
Residential:
Residential		1,631		552		759		2,942		61,302		64,244		85
Total	$	1,857	$	1,897	$	3,083	$	6,837	$	133,261	$	140,098	$	85

As of December 31, 2012
													Recorded
					Greater than								Investment greater than 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Loans		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 September 30, 2013
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	-
3		-		15,822		5,954
4		-		27,878		6,179
5		-		5,468		106
6		173		3,681		190
7		-		-		-
8		-		-		-
Total	$	173	$	52,849	$	12,429

	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 September 30, 2013
(dollars in thousands)
	Residential
Loan Grade:
Pass	$	63,089
Special Mention		-
Substandard		1,155
Total	$	64,244

	Consumer -
	Real Estate		Consumer - Other
	(dollars in thousands)
Performing	$	9,279	$	1,117
Nonperforming		7		-
Total	$	9,286	$	1,117

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
	September 30, 2013		December 31, 2012
	(in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		2,151		2,851
Commercial		-		-
Consumer:
Consumer - real estate		7		28
Consumer - other		-		1
Residential:
Residential		1,071		1,810
Total	$	3,402	$	4,863

Troubled Debt Restructurings on Financing Receivables

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the three months ended September 30, 2012						For the three months ended September 30, 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)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		-		-		-		-		-
Commercial - non real estate		2		1,914		1,454		-		-
Residential		-		-		-		-		-
Total		2	$	1,914	$	1,454		-	$	-

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the nine months ended September 30, 2013						For the nine months ended September 30, 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)
Commerical Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		2		2,442		2,434		-		-
Consumer - Real Estate		-		-		-		-		-
Residential		2		331		268		1		190
Total		4	$	2,773	$	2,702		1	$	190

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the nine months ended September 30, 2012						For the nine months ended September 30, 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)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		-		-		-		1		63
Commercial - non real estate		4		3,542		3,052		-		-
Residential		-		-		-		-		-
Total		4	$	3,542	$	3,052		1	$	63

Loans Individually Evaluated for Impairment by Class of Loans

							For the Three Months Ended				For the Nine Months Ended
Impaired Loans							September 30,				September 30,
As of September 30, 2013							2013				2013
	Unpaid Principal		Recorded		Related		Average		Interest		Average		Interest
	Balance		Investment		Allowance		Recorded		Income		Recorded		Income
							Investment		Recognized		Investment		Recognized
	(dollars in thousands)						(dollars in thousands)				(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-		173		-
Commercial Real Estate - Other		4,064		4,064		-		4,189		56		4,065		148
Consumer - Real Estate		8		7		-		9		-		7		-
Consumer - Other		-		-		-		-		-		-		-
Residential		1,595		1,169		-		1,296		-		1,170		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		-		-
Commercial Real Estate - Other		2,030		2,030		510		2,030		-		2,030		-
Consumer - Real Estate		-		-		-		-		-		-		-
Consumer - Other		-		-		-		-		-		-		-
Residential		73		64		21		64		-		64		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	6,094	$	6,094	$	510	$	6,219	$	56	$	6,095	$	148
Consumer - Real Estate	$	8	$	7	$	-	$	9	$	-	$	7	$	-
Consumer - Other	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Residential	$	1,668	$	1,233	$	21	$	1,360	$	-	$	1,234	$	-

							For the Three Months Ended				For the Nine Months Ended
Impaired Loans							September 30,				September 30,
As of December 31, 2012							2012				2012
	Unpaid Principal		Recorded		Related		Average		Interest		Average		Interest
	Balance		Investment		Allowance		Recorded		Income		Recorded		Income
							Investment		Recognized		Investment		Recognized
	(dollars in thousands)						(dollars in thousands)				(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-		173		-
Commercial Real Estate - Other		4,869		4,535		-		3,206		35		3,309		107
Consumer - Real Estate		33		28		-		29		-		31		-
Consumer - Other		1		1		-		3		-		4		-
Residential		1,365		1,194		-		1,657		-		1,666		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		-		-
Commercial Real Estate - Other		2,138		2,127		101		2,167		20		2,175		61
Consumer - Real Estate		-		-		-		96		-		96		-
Consumer - Other		-		-		-		-		-		-		-
Residential		616		616		141		45		-		45		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	7,007	$	6,662	$	101	$	5,373	$	55	$	5,484	$	168
Consumer - Real Estate	$	33	$	28	$	-	$	125	$	-	$	127	$	-
Consumer - Other	$	1	$	1	$	-	$	3	$	-	$	4	$	-
Residential	$	1,981	$	1,810	$	141	$	1,702	$	-	$	1,711	$	-

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

Allowance for Credit Losses and Recorded Investment in Financing Receivables
For the Three Months Ended September 30, 2013
	Commercial		Commercial					Consumer
	Construction		Real Estate		Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	-	$	673	$	79		$	75		$	25		$	839		$	-	$	1,691
Charge-offs		-		-		-			(33	)		(1	)		(29	)		-		(63	)
Recoveries		-		46		-			2			-			85			-		133
Provision		-		87		(9	)		24			(4	)		(66	)		-		32
Ending Balance	$	-	$	806	$	70		$	68		$	20		$	829		$	-	$	1,793

For the Nine Months Ended September 30, 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	)		-		(40	)		(13	)		(397	)		-		(535	)
Recoveries		-			57			-		34			5			110			-		206
Provision		(64	)		255			1		(25	)		(5	)		210			-		372
Ending Balance	$	-		$	806		$	70	$	68		$	20		$	829		$	-	$	1,793

Loan Balances Individually Evaluated for Impairment
As of September 30, 2013
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	510	$	-	$	-	$	-	$	21	$	-	$	531
Ending balance: loans collectively evaluated for impairment	$	-	$	296	$	70	$	68	$	20	$	808	$	-	$	1,262
Ending balance: loans acquired with  deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Financing Receivables:
Ending Balance	$	173	$	52,849	$	12,429	$	9,286	$	1,117	$	64,244	$	-	$	140,098
Ending balance: individually evaluated for impairment	$	173	$	6,094	$	-	$	7	$	-	$	1,233	$	-	$	7,507
Ending balance: loans collectively evaluated for impairment	$	-	$	46,755	$	12,429	$	9,279	$	1,117	$	63,011	$	-	$	132,591
Ending balance: loans acquired with  deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

For the Three Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	-	$	770		$	40	$	140		$	15		$	808		$	-	$	1,773
Charge-offs		-		(138	)		-		(17	)		(20	)		(166	)		-		(341	)
Recoveries		-		2			-		6			3			7			-		18
Provision		35		(13	)		36		1			36			139			-		234
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	-	$	1,684

For the Nine Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	10	$	393		$	53	$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-		(265	)		-		(54	)		(29	)		(724	)		-		(1,072	)
Recoveries		-		10			-		14			8			17			-		49
Provision		25		483			23		24			9			625			-		1,189
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	-	$	1,684

Loan Balances Individually Evaluated for Impairment
As of September 30, 2012
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	175	$	-	$	-	$	21	$	5	$	-	$	201
Ending balance: loans collectively evaluated for impairment	$	35	$	446	$	76	$	130	$	13	$	783	$	-	$	1,483
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Financing Receivables:
Ending Balance	$	487	$	53,081	$	8,414	$	11,561	$	1,276	$	65,552	$	-	$	140,371
Ending balance: individually evaluated for impairment	$	173	$	2,573	$	-	$	174	$	1	$	1,556	$	-	$	4,477
Ending balance: loans collectively
evaluated for impairment	$	314	$	50,508	$	8,414	$	11,387	$	1,275	$	63,996	$	-	$	135,894
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

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Consolidated Statement of Income (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Interest income:
Interest and fees on loans	$ 1,786,663	$ 1,995,749	$ 5,429,925	$ 6,047,447
Interest and dividends on investments
Taxable	121,899	136,100	361,219	423,308
Tax-exempt	37,054	38,438	112,098	116,240
Interest on mortgage-backed securities	119,852	142,309	342,018	486,153
Total interest income	2,065,468	2,312,596	6,245,260	7,073,148
Interest expense:
Interest on deposits	201,046	249,442	631,586	793,620
Interest on borrowings	73,553	144,584	249,017	491,872
Total interest expense	274,599	394,026	880,603	1,285,492
Net interest income	1,790,869	1,918,570	5,364,657	5,787,656
Provision for loan loss	31,733	234,005	371,560	1,188,588
Net interest income after provision for loan losses	1,759,136	1,684,565	4,993,097	4,599,068
Non-interest income:
Service charges and other fees	240,103	205,592	654,822	563,084
Mortgage banking activities	155,869	441,445	487,993	876,090
Net loss on sale of premises and equipment, real estate owned and other repossessed assets	(11,462)	(10,691)	(10,712)	(80,796)
Net gain on sale of investment securities		47,017		47,017
Other	74,468	119,519	231,831	234,961
Total non-interest income	458,978	802,882	1,363,934	1,640,356
Non-interest expense:
Compensation and employee benefits	1,179,082	1,243,598	3,472,983	3,692,139
FDIC Insurance Premiums	43,378	47,190	138,054	141,314
Advertising	27,676	29,005	95,391	111,489
Occupancy	237,924	239,900	689,578	719,148
Amortization of intangible assets	29,646	29,646	88,938	146,893
Service bureau charges	79,301	73,495	233,884	229,149
Professional services	84,011	89,559	343,845	297,403
Collection activity and real estate owned expense	42,840	41,165	106,603	156,434
Other	311,798	283,738	941,166	1,026,775
Total non-interest expense	2,035,656	2,077,296	6,110,442	6,520,744
Income (loss) before income tax benefit	182,458	410,151	246,589	(281,320)
Income tax expense (benefit)		137,375		(884,822)
Net income	182,458	272,776	246,589	603,502
Other comprehensive income (loss):
Net income	182,458	272,776	246,589	603,502
Change in unrealized gain on available-for-sale securities, net of tax	(274,115)	(48,099)	(831,890)	118,587
Comprehensive income (loss)	$ (91,657)	$ 224,677	$ (585,301)	$ 722,089
Net income per share
Basic	$ 0.06	$ 0.09	$ 0.09	$ 0.21
Diluted	$ 0.06	$ 0.09	$ 0.09	$ 0.21
Weighted average number of shares outstanding
Basic	2,884,049	2,884,049	2,884,049	2,884,049
Including dilutive stock options
Dividends per common share

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SECURITIES

9 Months Ended

Sep. 30, 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:

	September 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
	(dollars in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	7,130	$	43	$	(98	)		7,075
Municipal obligations		11,876		215		(297	)		11,794
Corporate bonds & other obligations		1,098		13		-			1,111
Mortgage-backed securities		30,304		340		(346	)		30,298
Equity securities		2		1		-			3
Total	$	50,410	$	612	$	(741	)	$	50,281
Securities Held to Maturity
Municipal obligations	$	2,305	$	145	$	-		$	2,450

	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 September 30, 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.

	September 30, 2013
	Amortized Cost		Market Value
	(dollars in thousands)
Available For Sale:
Due in one year or less	$	2,076	$	2,086
Due after one year through five years		11,042		11,153
Due in five year through ten years		6,740		6,451
Due after ten years		246		290
Subtotal		20,104		19,980
Equity securities		2		3
Mortgage-backed securities		30,304		30,298
Total	$	50,410	$	50,281
Held To Maturity:
Due in one year or less	$	90	$	91
Due after one year through five years		1,615		1,695
Due in five year through ten years		300		332
Due after ten years		300		332
Total	$	2,305	$	2,450

At September 30, 2013 and December 31, 2012, securities with a carrying value and fair value of $37,820,000 and $44,135,000, respectively, were pledged to certain deposit accounts, FHLB advances and our line of credit at the Federal Reserve.

Gross proceeds from the sale of securities for the nine-months ended September 30, 2013 and 2012 were $0 and $1,553,000, respectively, resulting in gross gains of $0 and $54,000, respectively and gross losses of $0 and $7,000, respectively.

The following is a summary of temporarily impaired investments that have been impaired for less than and more than twelve months as of September 30, 2013 and December 31, 2012:

	September 30, 2013
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		less than 12 months			Fair Value		greater than 12 months
	(dollars in thousands)
Available For Sale:
U.S. Government and agency obligations	$	901	$	(98	)	$	-	$	-
Municipal obligations		6,773		(274	)		953		(23	)
Mortgage-backed securities		13,131		(282	)		2,175		(64	)
Equity securities		-		-			-		-
Total	$	20,805	$	(654	)	$	3,128	$	(87	)
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	$	-	$	-		$	-	$	-

As of September 30, 2013, there were 5 securities with an estimated fair value of $3,128,000 and unrealized losses of $87,000 in a continuous unrealized loss position for more than twelve months compared to 2 securities with an estimated fair value of $1,688,000 and unrealized losses of $18,000 at December 31, 2012. The Company had 26 securities with an estimated fair value of $20,805,000 and unrealized losses of $654,000 in a continuous unrealized loss position for less than twelve months compared to 7 securities with an estimated fair value of $4,262,000 and unrealized loss of $36,000 at December 31, 2012.

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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SECURITIES (Summary of Temporarily Impaired Investments Impaired) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Investments Unrealized Gain Loss Positions [Line Items]
Fair value of securities with unrealized losses less than twelve months	$ 20,805	$ 4,262
Available-for-Sale, Gross Unrealized Losses less than 12 months	(654)	(36)
Fair value of securities with unrealized losses twelve months or longer	3,128	1,688
Available-for-Sale, Gross Unrealized Losses longer than 12 months	(87)	(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]
Fair value of securities with unrealized losses less than twelve months	901
Available-for-Sale, Gross Unrealized Losses less than 12 months	(98)
Fair value of securities with unrealized losses twelve months or longer
Available-for-Sale, Gross Unrealized Losses longer than 12 months
Municipal obligations [Member]
Investments Unrealized Gain Loss Positions [Line Items]
Fair value of securities with unrealized losses less than twelve months	6,773	1,537
Available-for-Sale, Gross Unrealized Losses less than 12 months	(274)	(23)
Fair value of securities with unrealized losses twelve months or longer	953
Available-for-Sale, Gross Unrealized Losses longer than 12 months	(23)
Mortgage-backed securities [Member]
Investments Unrealized Gain Loss Positions [Line Items]
Fair value of securities with unrealized losses less than twelve months	13,131	2,725
Available-for-Sale, Gross Unrealized Losses less than 12 months	(282)	(13)
Fair value of securities with unrealized losses twelve months or longer	2,175	1,687
Available-for-Sale, Gross Unrealized Losses longer than 12 months	(64)	(16)
Equity securities [Member]
Investments Unrealized Gain Loss Positions [Line Items]
Fair value of securities with unrealized losses less than twelve months
Available-for-Sale, Gross Unrealized Losses less than 12 months
Fair value of securities with unrealized losses twelve months or longer		1
Available-for-Sale, Gross Unrealized Losses longer than 12 months		$ (2)

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STOCK-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 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		3.4	$	-
Granted		-			N/A
Exercised		-			N/A
Forfeited or expired		(4,900	)	$	9.54
Oustanding at September 30, 2013		162,720		$	9.53		2.6	$	-
Options Exercisable at September 30, 2013		162,720		$	9.53		2.6	$	-

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COMMITMENTS TO EXTEND CREDIT (Additional Information) (Details) (USD $)	Sep. 30, 2013
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments to grant loans	$ 9,119,000
Loans outstanding commitments	21,600,000
Unfunded commitments under lines of credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments to grant loans	12,445,000
Commercial and standby letters of credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments to grant loans	$ 59,000

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LOANS (Additional Information) (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Trouble debt restructuring, impaired loan	$ 2.4
Unsecured Debt [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	90 days
Secured Debt [Member] | Consumer loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	120 days
Secured Debt [Member] | Commercial Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquency period	90 days

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LOANS (Contractual Aging of Recorded Investment in Past Due Loans by Class of Loans) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	$ 1,857	$ 5,440
60-89 Days past due	1,897	1,341
Greater than 90 days past due	3,083	1,672
Total past due	6,837	8,453
Current	133,261	132,529
Total financing receivables	140,098	140,982	140,371
Recorded investment > 90 days and accruing	85	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		2,073
Total financing receivables	173	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	39	3,210
60-89 Days past due	1,305	540
Greater than 90 days past due	2,151	282
Total past due	3,495	4,032
Current	49,354	48,395
Total financing receivables	52,849	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	66	113
60-89 Days past due	27
Greater than 90 days past due
Total past due	93	113
Current	12,336	7,989
Total financing receivables	12,429	8,102	8,414
Recorded investment > 90 days and accruing
Consumer - Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	121	59
60-89 Days past due	13
Greater than 90 days past due		13
Total past due	134	72
Current	9,152	10,337
Total financing receivables	9,286	10,409	11,561
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
Total past due		22
Current	1,117	1,237
Total financing receivables	1,117	1,259
Recorded investment > 90 days and accruing		6
Residential [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days past due	1,631	2,047
60-89 Days past due	552	796
Greater than 90 days past due	759	1,198
Total past due	2,942	4,041
Current	61,302	62,498
Total financing receivables	64,244	66,539	65,552
Recorded investment > 90 days and accruing	$ 85	$ 61

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LOANS (Activity in Allowance for Loan and Lease Losses) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Allowance for credit losses:
Beginning Balance	$ 1,691	$ 1,773	$ 1,750	$ 1,518
Charge-offs	(63)	(341)	(535)	(1,072)
Recoveries	133	18	206	49
Provision	32	234	372	1,189
Ending Balance	1,793	1,684	1,793	1,684
Commercial Construction [Member]
Allowance for credit losses:
Beginning Balance			64	10
Charge-offs
Recoveries
Provision		35	(64)	25
Ending Balance		35		35
Commercial Real Estate [Member]
Allowance for credit losses:
Beginning Balance	673	770	579	393
Charge-offs		(138)	(85)	(265)
Recoveries	46	2	57	10
Provision	87	(13)	255	483
Ending Balance	806	621	806	621
Commercial - non real estate [Member]
Allowance for credit losses:
Beginning Balance	79	40	69	53
Charge-offs
Recoveries
Provision	(9)	36	1	23
Ending Balance	70	76	70	76
Consumer - Real Estate [Member]
Allowance for credit losses:
Beginning Balance	75	140	99	146
Charge-offs	(33)	(17)	(40)	(54)
Recoveries	2	6	34	14
Provision	24	1	(25)	24
Ending Balance	68	130	68	130
Consumer [Member]
Allowance for credit losses:
Beginning Balance	25	15	33	46
Charge-offs	(1)	(20)	(13)	(29)
Recoveries		3	5	8
Provision	(4)	36	(5)	9
Ending Balance	20	34	20	34
Residential [Member]
Allowance for credit losses:
Beginning Balance	839	808	906	870
Charge-offs	(29)	(166)	(397)	(724)
Recoveries	85	7	110	17
Provision	(66)	139	210	625
Ending Balance	829	788	829	788
Unallocated Financing Receivables [Member]
Allowance for credit losses:
Beginning Balance
Charge-offs
Recoveries
Provision
Ending Balance

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FAIR VALUE MEASUREMENTS (Assets Measured at Fair Value on Nonrecurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 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	$ 6,267	$ 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	279	947
Commercial Real Estate - Other [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	939	319
Other repossessed assets [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Fair value disclosure non-recurring, assets	1,023	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	8,508	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	6,267	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	279	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	939	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	$ 1,023	$ 1,121

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LOANS (Impaired Loans Classified as Troubled Debt Restructurings) (Details) (Troubled Debt Restructuring [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Financing Receivable, Modifications [Line Items]
Number of contracts	2	4	4
Pre-modification outstanding recorded investments	$ 1,914	$ 2,773	$ 3,542
Post-modification outstanding recorded investment	1,454	2,702	3,052
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		2,442
Post-modification outstanding recorded investment		2,434
Consumer - Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts
Pre-modification outstanding recorded investments
Post-modification outstanding recorded investment
Commercial - non real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	2		4
Pre-modification outstanding recorded investments	1,914		3,542
Post-modification outstanding recorded investment	1,454		3,052
Residential [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts		2
Pre-modification outstanding recorded investments		331
Post-modification outstanding recorded investment		$ 268

XML

LOANS (Composition of Loan Portfolio by Loan Type) (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012
Composition Of Loan Portfolio [Line Items]
Gross loans	$ 140,098,000	$ 140,982,000	$ 140,371,000
Net deferred loan fees	(300,000)	(320,000)
Allowance for loan losses	(1,793,258)	(1,749,915)
Total loans, net	138,005,242	138,911,989
Residential mortgage [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	64,244,000	66,539,000	65,552,000
Commercial loans, secured by real estate [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	53,022,000	54,673,000
Commercial loans, other [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	12,429,000	8,102,000	8,414,000
Commercial Loans [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	65,451,000	62,775,000
Consumer loans, secured by real estate [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	9,286,000	10,409,000	11,561,000
Consumer loans, other [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	1,117,000	1,259,000
Consumer loans [Member]
Composition Of Loan Portfolio [Line Items]
Gross loans	$ 10,403,000	$ 11,668,000

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Consolidated Statement of Changes in Stockholders' Equity (Parenthetical) (USD $)	9 Months Ended
	Sep. 30, 2013
Consolidated Statement of Changes in Stockholders' Equity [Abstract]
Change in unrealized gain on available-for-sale securities, tax	$ 428,550

XML

BASIS OF FINANCIAL STATEMENT PRESENTATION

9 Months Ended

Sep. 30, 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 and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

XML

LOANS

9 Months Ended

Sep. 30, 2013

LOANS [Abstract]

LOANS

Note 4-LOANS

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

	At September 30,			At December 31,
	2013			2012
	(dollars in thousands)
Real estate loans:
Residential mortgage	$	64,244		$	66,539
Commercial loans:
Secured by real estate		53,022			54,673
Other		12,429			8,102
Total commercial loans		65,451			62,775
Consumer loans:
Secured by real estate		9,286			10,409
Other		1,117			1,259
Total consumer loans		10,403			11,668
Total gross loans	$	140,098		$	140,982
Less:
Net deferred loan fees		(300	)		(320	)
Allowance for loan losses		(1,793	)		(1,750	)
Total loans, net	$	138,005		$	138,912

The following table illustrates the contractual aging of the recorded investment in past due loans by class of loans as of September 30, 2013 and December 31, 2012:

Contractual Aging of Recorded Balance in Past Due Loans by Class of Loan

As of September 30, 2013

													Recorded
					Greater than								Investment greater than 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Loans		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	$	-	$	173	$	-
Commercial Real Estate - other		39		1,305		2,151		3,495		49,354		52,849		-
Commercial - non real estate		66		27		-		93		12,336		12,429		-
Consumer:
Consumer - Real Estate		121		13		-		134		9,152		9,286		-
Consumer - Other		-		-		-		-		1,117		1,117		-
Residential:
Residential		1,631		552		759		2,942		61,302		64,244		85
Total	$	1,857	$	1,897	$	3,083	$	6,837	$	133,261	$	140,098	$	85

As of December 31, 2012
													Recorded
					Greater than								Investment greater than 90
	30 - 59 Days		60 - 89 Days		90 Days		Total				Total Loans		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. In any tables presented subsequently, Risk Grade 4.5 credits are included with Risk Grade 4 credits.

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

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

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

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

The following table presents the risk category of loans by class of loans based on the most recent analysis performed as of September 30, 2013 and December 31, 2012:

	As of September 30, 2013
	Commercial Real Estate		Commercial Real Estate
Loan Grade	Construction		Other		Commercial
	(dollars in thousands)
1-2	$	-	$	-	$	-
3		-		15,822		5,954
4		-		27,878		6,179
5		-		5,468		106
6		173		3,681		190
7		-		-		-
8		-		-		-
Total	$	173	$	52,849	$	12,429

	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 September 30, 2013 and December 31, 2012:

As of September 30, 2013
(dollars in thousands)
	Residential
Loan Grade:
Pass	$	63,089
Special Mention		-
Substandard		1,155
Total	$	64,244

	Consumer -
	Real Estate		Consumer - Other
	(dollars in thousands)
Performing	$	9,279	$	1,117
Nonperforming		7		-
Total	$	9,286	$	1,117

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 September 30, 2013 and December 31, 2012:

	As of
	September 30, 2013		December 31, 2012
	(in thousands)
Commercial Real Estate:
Commercial Real Estate - construction	$	173	$	173
Commercial Real Estate - other		2,151		2,851
Commercial		-		-
Consumer:
Consumer - real estate		7		28
Consumer - other		-		1
Residential:
Residential		1,071		1,810
Total	$	3,402	$	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. At a minimum, a borrower must make at least six consecutive timely payments before the Company would consider a return of a restructured loan to accruing status in accordance with Federal Deposit Insurance Corporation guidelines regarding restoration of credits to accrual status.

The Bank has classified approximately $2.4 million of its impaired loans as troubled debt restructurings as of September 30, 2013. There were no commitments to extend credit to borrowers with loans classified as troubled debt restructurings as of September 30, 2013 and December 31, 2012.

For the three months ended September 30, 2013 the Company did not have any new troubled debt restructurings or troubled debt restructurings that subsequently defaulted.

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the three months ended September 30, 2012						For the three months ended September 30, 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)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		-		-		-		-		-
Commercial - non real estate		2		1,914		1,454		-		-
Residential		-		-		-		-		-
Total		2	$	1,914	$	1,454		-	$	-

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the nine months ended September 30, 2013						For the nine months ended September 30, 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)
Commerical Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		2		2,442		2,434		-		-
Consumer - Real Estate		-		-		-		-		-
Residential		2		331		268		1		190
Total		4	$	2,773	$	2,702		1	$	190

	Troubled Debt Restructurings						Troubled Debt Restructurings that Subsequently Defaulted
	For the nine months ended September 30, 2012						For the nine months ended September 30, 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)
Troubled Debt Restructurings
Commercial Real Estate - Construction		-	$	-	$	-		-	$	-
Commercial Real Estate - Other		-		-		-		1		63
Commercial - non real estate		4		3,542		3,052		-		-
Residential		-		-		-		-		-
Total		4	$	3,542	$	3,052		1	$	63

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

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

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2013 and December 31, 2012:

							For the Three Months Ended				For the Nine Months Ended
Impaired Loans							September 30,				September 30,
As of September 30, 2013							2013				2013
	Unpaid Principal		Recorded		Related		Average		Interest		Average		Interest
	Balance		Investment		Allowance		Recorded		Income		Recorded		Income
							Investment		Recognized		Investment		Recognized
	(dollars in thousands)						(dollars in thousands)				(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-		173		-
Commercial Real Estate - Other		4,064		4,064		-		4,189		56		4,065		148
Consumer - Real Estate		8		7		-		9		-		7		-
Consumer - Other		-		-		-		-		-		-		-
Residential		1,595		1,169		-		1,296		-		1,170		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		-		-
Commercial Real Estate - Other		2,030		2,030		510		2,030		-		2,030		-
Consumer - Real Estate		-		-		-		-		-		-		-
Consumer - Other		-		-		-		-		-		-		-
Residential		73		64		21		64		-		64		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	6,094	$	6,094	$	510	$	6,219	$	56	$	6,095	$	148
Consumer - Real Estate	$	8	$	7	$	-	$	9	$	-	$	7	$	-
Consumer - Other	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Residential	$	1,668	$	1,233	$	21	$	1,360	$	-	$	1,234	$	-

							For the Three Months Ended				For the Nine Months Ended
Impaired Loans							September 30,				September 30,
As of December 31, 2012							2012				2012
	Unpaid Principal		Recorded		Related		Average		Interest		Average		Interest
	Balance		Investment		Allowance		Recorded		Income		Recorded		Income
							Investment		Recognized		Investment		Recognized
	(dollars in thousands)						(dollars in thousands)				(dollars in thousands)
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction		1,589		173		-		173		-		173		-
Commercial Real Estate - Other		4,869		4,535		-		3,206		35		3,309		107
Consumer - Real Estate		33		28		-		29		-		31		-
Consumer - Other		1		1		-		3		-		4		-
Residential		1,365		1,194		-		1,657		-		1,666		-
With a specific allowance recorded:
Commercial		-		-		-		-		-		-		-
Commercial Real Estate - Construction		-		-		-		-		-		-		-
Commercial Real Estate - Other		2,138		2,127		101		2,167		20		2,175		61
Consumer - Real Estate		-		-		-		96		-		96		-
Consumer - Other		-		-		-		-		-		-		-
Residential		616		616		141		45		-		45		-
Totals:
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial Real Estate - Construction	$	1,589	$	173	$	-	$	173	$	-	$	173	$	-
Commercial Real Estate - Other	$	7,007	$	6,662	$	101	$	5,373	$	55	$	5,484	$	168
Consumer - Real Estate	$	33	$	28	$	-	$	125	$	-	$	127	$	-
Consumer - Other	$	1	$	1	$	-	$	3	$	-	$	4	$	-
Residential	$	1,981	$	1,810	$	141	$	1,702	$	-	$	1,711	$	-

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

Activity in the allowance for loan and lease losses was as follows for the quarter and year ended September 30, 2013 and September 30, 2012, respectively:

Allowance for Credit Losses and Recorded Investment in Financing Receivables
For the Three Months Ended September 30, 2013
	Commercial		Commercial					Consumer
	Construction		Real Estate		Commercial			Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	-	$	673	$	79		$	75		$	25		$	839		$	-	$	1,691
Charge-offs		-		-		-			(33	)		(1	)		(29	)		-		(63	)
Recoveries		-		46		-			2			-			85			-		133
Provision		-		87		(9	)		24			(4	)		(66	)		-		32
Ending Balance	$	-	$	806	$	70		$	68		$	20		$	829		$	-	$	1,793

For the Nine Months Ended September 30, 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	)		-		(40	)		(13	)		(397	)		-		(535	)
Recoveries		-			57			-		34			5			110			-		206
Provision		(64	)		255			1		(25	)		(5	)		210			-		372
Ending Balance	$	-		$	806		$	70	$	68		$	20		$	829		$	-	$	1,793

Loan Balances Individually Evaluated for Impairment
As of September 30, 2013
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	510	$	-	$	-	$	-	$	21	$	-	$	531
Ending balance: loans collectively evaluated for impairment	$	-	$	296	$	70	$	68	$	20	$	808	$	-	$	1,262
Ending balance: loans acquired with  deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Financing Receivables:
Ending Balance	$	173	$	52,849	$	12,429	$	9,286	$	1,117	$	64,244	$	-	$	140,098
Ending balance: individually evaluated for impairment	$	173	$	6,094	$	-	$	7	$	-	$	1,233	$	-	$	7,507
Ending balance: loans collectively evaluated for impairment	$	-	$	46,755	$	12,429	$	9,279	$	1,117	$	63,011	$	-	$	132,591
Ending balance: loans acquired with  deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

For the Three Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	-	$	770		$	40	$	140		$	15		$	808		$	-	$	1,773
Charge-offs		-		(138	)		-		(17	)		(20	)		(166	)		-		(341	)
Recoveries		-		2			-		6			3			7			-		18
Provision		35		(13	)		36		1			36			139			-		234
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	-	$	1,684

For the Nine Months Ended September 30, 2012
	Commercial		Commercial					Consumer
	Construction		Real Estate			Commercial		Real Estate			Consumer			Residential			Unallocated		Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	10	$	393		$	53	$	146		$	46		$	870		$	-	$	1,518
Charge-offs		-		(265	)		-		(54	)		(29	)		(724	)		-		(1,072	)
Recoveries		-		10			-		14			8			17			-		49
Provision		25		483			23		24			9			625			-		1,189
Ending Balance	$	35	$	621		$	76	$	130		$	34		$	788		$	-	$	1,684

Loan Balances Individually Evaluated for Impairment
As of September 30, 2012
	Commercial		Commercial				Consumer
	Construction		Real Estate		Commercial		Real Estate		Consumer		Residential		Unallocated		Total
	(dollars in thousands)
Ending balance: individually evaluated for impairment	$	-	$	175	$	-	$	-	$	21	$	5	$	-	$	201
Ending balance: loans collectively evaluated for impairment	$	35	$	446	$	76	$	130	$	13	$	783	$	-	$	1,483
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Financing Receivables:
Ending Balance	$	487	$	53,081	$	8,414	$	11,561	$	1,276	$	65,552	$	-	$	140,371
Ending balance: individually evaluated for impairment	$	173	$	2,573	$	-	$	174	$	1	$	1,556	$	-	$	4,477
Ending balance: loans collectively
evaluated for impairment	$	314	$	50,508	$	8,414	$	11,387	$	1,275	$	63,996	$	-	$	135,894
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

XML

PRINCIPLES OF CONSOLIDATION

9 Months Ended

Sep. 30, 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 (the "Bank"), and the Bank's wholly owned subsidiaries, Financial Services & Mortgage Corporation ("FSMC") and FFNM Agency. FSMC invests in real estate, which includes leasing, selling, developing, and maintaining real estate properties. The main activity of FFNM Agency is to collect the stream of income associated with the sale of the Blue Cross/Blue Shield override business to the Grotenhuis Group. All significant intercompany balances and transactions have been eliminated in the consolidation.

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FAIR VALUE MEASUREMENTS (Estimated Fair Values and Related Carrying or Notional Amounts of Financial Instruments) (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Financial assets:
Securities AFS	$ 50,280,668	$ 50,763,551
Securities held to maturity	2,450,000	2,570,000
Level 1 [Member]
Financial assets:
Cash and cash equivalents	3,537,000	2,752,000
Securities AFS
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 AFS	50,281,000	50,764,000
Securities held to maturity	2,450,000	2,570,000
Loans held for sale
Loans receivable - net
Federal Home Loan Bank stock	3,226,000	3,266,000
Accrued interest receivable	953,000	970,000
Financial liabilities:
Customer deposits	159,885,000	159,335,000
Federal Home Loan Bank advances	24,651,000	26,493,000
REPO sweep accounts	5,560,000	3,183,000
Accrued interest payable	100,000	100,000
Level 3 [Member]
Financial assets:
Cash and cash equivalents
Securities AFS
Securities held to maturity
Loans held for sale	974,000	84,000
Loans receivable - net	137,759,000	140,877,000
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	3,537,000	2,752,000
Securities AFS	50,281,000	50,764,000
Securities held to maturity	2,305,000	2,345,000
Loans held for sale	974,000	79,000
Loans receivable - net	138,005,000	138,912,000
Federal Home Loan Bank stock	3,226,000	3,266,000
Accrued interest receivable	953,000	970,000
Financial liabilities:
Customer deposits	158,054,000	158,350,000
Federal Home Loan Bank advances	25,016,000	26,358,000
REPO sweep accounts	5,560,000	3,183,000
Accrued interest payable	100,000	100,000
Total Estimated Fair Value [Member]
Financial assets:
Cash and cash equivalents	3,537,000	2,752,000
Securities AFS	50,281,000	50,764,000
Securities held to maturity	2,450,000	2,570,000
Loans held for sale	974,000	84,000
Loans receivable - net	137,759,000	140,877,000
Federal Home Loan Bank stock	3,226,000	3,266,000
Accrued interest receivable	953,000	970,000
Financial liabilities:
Customer deposits	159,885,000	159,335,000
Federal Home Loan Bank advances	24,651,000	26,493,000
REPO sweep accounts	5,560,000	3,183,000
Accrued interest payable	$ 100,000	$ 100,000

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LOANS (Risk Category of Loans by Class of Loans Based on Most Recent Analysis Performed) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012
Financing Receivable, Recorded Investment [Line Items]
Gross loans	$ 140,098	$ 140,982	$ 140,371
Commercial Real Estate - Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	173	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		615
Commercial Real Estate - Construction [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans		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	52,849	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	15,822	13,895
Commercial Real Estate - Other [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	27,878	27,488
Commercial Real Estate - Other [Member] | Loan Grade Five [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	5,468	2,712
Commercial Real Estate - Other [Member] | Loan Grade Six [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	3,681	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	12,429	8,102	8,414
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	5,954	2,376
Commercial loans, other [Member] | Loan Grade Four [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	6,179	5,489
Commercial loans, other [Member] | Loan Grade Five [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	106	37
Commercial loans, other [Member] | Loan Grade Six [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	190	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

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LOANS (Debt Restructurings Defaulted) (Details) (Troubled Debt Restructuring [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Financing Receivable, Modifications [Line Items]
Number of Contracts		1	1
Recorded Investment		$ 190	$ 63
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			1
Recorded Investment			63
Consumer - Real Estate [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

STOCK-BASED COMPENSATION (Summary of Option Activity under Plan) (Details) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Shares
Outstanding, Beginning balance	167,620
Granted
Exercised
Forfeited or expired	(4,900)
Outstanding, Ending balance	162,720	167,620
Options Exercisable	162,720
Weighted-Average Exercise Price
Outstanding, Beginning Balance	$ 9.53
Forfeited or expired	$ 9.54
Outstanding, Ending Balance	$ 9.53	$ 9.53
Options Exercisable	$ 9.53
Weighted Average Remaining Contractual Term
Outstanding	2 years 7 months 6 days	3 years 4 months 24 days
Options exercisable	2 years 7 months 6 days
Aggregate intrinsic value
Outstanding, Beginning Balance
Outstanding, Ending Balance
Options Exercisable
Closing stock price	$ 4.43

XML

Consolidated Balance Sheet (Parenthetical) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Consolidated Balance Sheet [Abstract]
Allowance for loan losses	$ 1,793,258	$ 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
Common stock, shares outstanding	3,191,799	3,191,799
Treasury stock, shares	307,750	307,750

XML

COMMITMENTS TO EXTEND CREDIT

9 Months Ended

Sep. 30, 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, standby letters of credit, and commercial lines of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheet. The Company's exposure to credit loss is represented by the contracted amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At September 30, 2013, the Company had outstanding commitments to originate loans of $21.6 million. These commitments include the following:

	As of
	September 30, 2013
	(dollars in thousands)
Commitments to grant loans	$	9,119
Unfunded commitments under lines of credit		12,445
Commercial and standby letters of credit		59

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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	$ 24,434,784	$ 31,918	$ (2,963,918)	$ 23,853,891	$ 2,766,170	$ 746,723
Net income	246,589				246,589
Change in unrealized gain on available-for-sale securities (net of tax of $428,550)	(831,891)					(831,891)
Balance at Sep. 30, 2013	$ 23,849,482	$ 31,918	$ (2,963,918)	$ 23,853,891	$ 3,012,759	$ (85,168)

XML

Consolidated Balance Sheet (USD $)	Sep. 30, 2013	Dec. 31, 2012
Cash and cash equivalents:
Cash on hand and due from banks	$ 3,506,272	$ 2,732,109
Overnight deposits with FHLB	30,725	19,701
Total cash and cash equivalents	3,536,997	2,751,810
Securities AFS	50,280,668	50,763,551
Securities HTM	2,305,000	2,345,000
Loans held for sale	973,920	78,712
Loans receivable, net of allowance for loan losses of $1,793,258 and $1,749,915 as of September 30, 2013 and December 31, 2012, respectively	138,005,242	138,911,989
Foreclosed real estate and other repossessed assets	2,241,522	2,387,307
Federal Home Loan Bank stock, at cost	3,266,100	3,266,100
Premises and equipment	5,190,283	5,394,412
Accrued interest receivable	953,288	970,450
Intangible assets	69,378	158,316
Prepaid FDIC premiums		582,945
Deferred tax asset	759,380	330,831
Originated mortgage servicing rights (net of valuation reserve)	906,012	1,016,070
Bank owned life insurance	4,575,291	4,474,563
Other assets	812,188	402,090
Total assets	213,875,269	213,834,146
Liabilities:
Deposits	158,054,264	158,350,134
Advances from borrowers for taxes and insurance	216,038	132,823
Federal Home Loan Bank Advances	25,015,573	26,357,962
REPO sweep accounts	5,560,451	3,183,351
Accrued expenses and other liabilities	1,179,461	1,375,092
Total liabilities	190,025,787	189,399,362
Stockholders' equity:
Common stock ($0.01 par value 20,000,000 shares authorized 3,191,799 shares issued and outstanding) at September 30, 2013 and December 31, 2012	31,918	31,918
Additional paid-in capital	23,853,891	23,853,891
Retained earnings	3,012,759	2,766,170
Treasury stock at cost (307,750 shares) at September 30, 2013 and December 31, 2012	(2,963,918)	(2,963,918)
Accumulated other comprehensive (loss) income	(85,168)	746,723
Total stockholders' equity	23,849,482	24,434,784
Total liabilities and stockholders' equity	$ 213,875,269	$ 213,834,146

XML

LOANS (Risk Category of Loans by Class Based on Most Recent Analysis Performed) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012
Financing Receivable, Recorded Investment [Line Items]
Gross loans	$ 140,098	$ 140,982	$ 140,371
Residential [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	64,244	66,539	65,552
Residential [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	63,089	64,668
Residential [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,155	1,871
Residential [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans
Consumer - Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	9,286	10,409	11,561
Consumer - Real Estate [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	9,279	10,381
Consumer - Real Estate [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	7	28
Consumer - Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,117	1,259
Consumer - Other [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,117	1,253
Consumer - Other [Member] | Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans		$ 6

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SECURITIES (Additional Information) (Details) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
SECURITIES [Abstract]
Securities pledge as collateral, carrying value	$ 37,820,000		$ 44,135,000
Gross proceeds from sales of securities	0	1,553,000
Gross gains from sale of securities	0	54,000
Gross losses from sale of securities	0	7,000
Number of securities with unrealized losses twelve months or longer	5		2
Fair value of securities with unrealized losses twelve months or longer	3,128,000		1,688,000
Unrealized losses twelve months or longer	87,000		18,000
Number of securities with unrealized losses less than twelve months	26		7
Fair value of securities with unrealized losses less than twelve months	20,805,000		4,262,000
Unrealized losses less than twelve months	$ 654,000		$ 36,000

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FAIR VALUE MEASUREMENTS (Assets and Liabilities Measured at Fair Value on Recurring Basis) (Details) (Available-for-sale Securities [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	$ 50,281	$ 50,764
US Government and agency obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	7,075	9,247
Municipal notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	11,794	10,758
Corporate bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	1,111	1,150
Mortgage-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	30,298	29,608
Equity securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	3	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 Government and agency obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | 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	50,281	50,764
Significant Other Observable Inputs (Level 2) [Member] | US Government and agency obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets	7,075	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	11,794	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	1,111	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	30,298	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	3	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 Government and agency obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure recurring, assets
Significant Unobservable Inputs (Level 3) [Member] | 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

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LOANS (Loans Individually Evaluated For Impairment) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment	$ 531		$ 201
Ending balance: loans collectively evaluated for impairment	1,262		1,483
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Gross loans	140,098	140,982	140,371
Ending balance: individually evaluated for impairment	7,507		4,477
Ending balance: collectively evaluated for impairment	132,591		135,894
Ending balance: loans acquired with deteriorated credit quality
Commercial Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment			35
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Gross loans	173		487
Ending balance: individually evaluated for impairment	173		173
Ending balance: collectively evaluated for impairment			314
Ending balance: loans acquired with deteriorated credit quality
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment	510		175
Ending balance: loans collectively evaluated for impairment	296		446
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Gross loans	52,849		53,081
Ending balance: individually evaluated for impairment	6,094		2,573
Ending balance: collectively evaluated for impairment	46,755		50,508
Ending balance: loans acquired with deteriorated credit quality
Commercial - non real estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment	70		76
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Gross loans	12,429	8,102	8,414
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment	12,429		8,414
Ending balance: loans acquired with deteriorated credit quality
Consumer Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment	68		130
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Gross loans	9,286	10,409	11,561
Ending balance: individually evaluated for impairment	7		174
Ending balance: collectively evaluated for impairment	9,279		11,387
Ending balance: loans acquired with deteriorated credit quality
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment			21
Ending balance: loans collectively evaluated for impairment	20		13
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Gross loans	1,117		1,276
Ending balance: individually evaluated for impairment			1
Ending balance: collectively evaluated for impairment	1,117		1,275
Ending balance: loans acquired with deteriorated credit quality
Residential [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment	21		5
Ending balance: loans collectively evaluated for impairment	808		783
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Gross loans	64,244	66,539	65,552
Ending balance: individually evaluated for impairment	1,233		1,556
Ending balance: collectively evaluated for impairment	63,011		63,996
Ending balance: loans acquired with deteriorated credit quality
Unallocated Financing Receivables [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: individually evaluated for impairment
Ending balance: loans collectively evaluated for impairment
Ending balance: loans acquired with deteriorated credit quality
Financing Receivables
Gross loans
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment
Ending balance: loans acquired with deteriorated credit quality

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STOCK-BASED COMPENSATION (Additional Information) (Details)	9 Months Ended
	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	5 years
Contractual term	10 years
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
Available for future grants	5,304

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STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2013

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

Note 6 - STOCK-BASED COMPENSATION

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

During the three and nine months ended September 30, 2013 the Company awarded no shares under the either the 2006 or the 1996 Stock-Based Incentive Plan. Shares issued under the 2006 Plan and exercised pursuant to the exercise of stock options may be either authorized but unissued shares or reacquired shares held by the Company as treasury stock.

Stock Options - A summary of option activity under the Plan during the nine months ended September 30, 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		3.4	$	-
Granted		-			N/A
Exercised		-			N/A
Forfeited or expired		(4,900	)	$	9.54
Oustanding at September 30, 2013		162,720		$	9.53		2.6	$	-
Options Exercisable at September 30, 2013		162,720		$	9.53		2.6	$	-

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 $4.43 on September 30, 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 September 30, 2013. This amount changes based on the fair market value of the stock.

As of September 30, 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 September 30, 2013. In addition, there were no non-vested options as of September 30, 2013.

Restricted Stock Awards - As of September 30, 2013 all restricted stock awards have vested, therefore the Company had no unrecognized compensation costs under the Plan. There were 5,304 shares available for future stock award grants as of September 30, 2013.

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LOANS (Recorded Investment in Non-Accrual Loans by Class) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Recorded investment in non-accrual loans	$ 3,402	$ 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	2,151	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	7	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	$ 1,071	$ 1,810

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SECURITIES (Tables)

9 Months Ended

Sep. 30, 2013

SECURITIES [Abstract]

Carrying Value and Estimated Fair Value of Securities

September 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
	(dollars in thousands)
Securities Available for Sale
U.S. Government and agency obligations	$	7,130	$	43	$	(98	)		7,075
Municipal obligations		11,876		215		(297	)		11,794
Corporate bonds & other obligations		1,098		13		-			1,111
Mortgage-backed securities		30,304		340		(346	)		30,298
Equity securities		2		1		-			3
Total	$	50,410	$	612	$	(741	)	$	50,281
Securities Held to Maturity
Municipal obligations	$	2,305	$	145	$	-		$	2,450

	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

	September 30, 2013
	Amortized Cost		Market Value
	(dollars in thousands)
Available For Sale:
Due in one year or less	$	2,076	$	2,086
Due after one year through five years		11,042		11,153
Due in five year through ten years		6,740		6,451
Due after ten years		246		290
Subtotal		20,104		19,980
Equity securities		2		3
Mortgage-backed securities		30,304		30,298
Total	$	50,410	$	50,281
Held To Maturity:
Due in one year or less	$	90	$	91
Due after one year through five years		1,615		1,695
Due in five year through ten years		300		332
Due after ten years		300		332
Total	$	2,305	$	2,450

Summary of Temporily Impaired Investments Impaired

	September 30, 2013
			Gross Unrealized Losses					Gross Unrealized Losses
	Fair Value		less than 12 months			Fair Value		greater than 12 months
	(dollars in thousands)
Available For Sale:
U.S. Government and agency obligations	$	901	$	(98	)	$	-	$	-
Municipal obligations		6,773		(274	)		953		(23	)
Mortgage-backed securities		13,131		(282	)		2,175		(64	)
Equity securities		-		-			-		-
Total	$	20,805	$	(654	)	$	3,128	$	(87	)
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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DIVIDENDS

9 Months Ended

Sep. 30, 2013

DIVIDENDS [Abstract]

DIVIDENDS

Note 5-DIVIDENDS

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

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Consolidated Statement of Cash Flows (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Cash Flows from Operating Activities:
Net income	$ 246,589	$ 603,502
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	301,053	378,619
Provision for loan loss	371,560	1,188,588
Amortization and accretion on securities	439,662	371,770
Gain on sale of investment securities		(47,017)
Stock-based compensation		1,766
Gain on sale of loans held for sale	(207,229)	(393,692)
Originations of loans held for sale	(12,443,497)	(26,174,538)
Proceeds from sale of loans held for sale	11,755,518	25,526,776
Loss on sale of fixed assets	(9,084)	698
Loss on sale of real estate owned and other repossessed assets	19,796	80,098
Net change in:
Accrued interest receivable	17,162	29,168
Other assets	(300,039)	(188,024)
Prepaid FDIC insurance premiums	582,945	131,569
Bank owned life insurance	(100,728)	(35,583)
Deferred income tax (benefit) expense		(807,808)
Accrued expenses and other liabilities	(195,632)	(95,492)
Net cash provided by operating activities	478,076	570,400
Cash Flows from Investing Activities:
Net (increase) decrease in loans	(678,131)	47,965
Proceeds from maturity and sale of available-for-sale securities	12,840,206	16,906,748
Proceeds from sale of property and equipment	56,163	425
Purchase of securities	(14,017,425)	(16,446,962)
Purchase of premises and equipment	(55,065)	(117,655)
Proceeds from sale of real estate owned and other repossessed assets	1,339,307	2,313,794
Net cash (used in) provided by investing activities	(514,945)	2,704,315
Cash Flows from Financing Activities:
Net (decrease) increase in deposits	(295,870)	8,026,680
Net increase (decrease) in Repo Sweep accounts	2,377,100	(1,347,279)
Net increase in advances from borrowers	83,215	82,146
Advances from Federal Home Loan Bank and notes payable	39,155,000	32,250,000
Repayments of Federal Home Loan Bank advances and notes payable	(40,497,389)	(41,750,000)
Net cash provided by (used for) financing activities	822,056	(2,738,453)
Net increase in cash and cash equivalents	785,187	536,262
Cash and cash equivalents at beginning of period	2,751,810	2,749,498
Cash and cash equivalents at end of period	3,536,997	3,285,760
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	880,717	1,322,705
Cash paid during the period for: Income taxes
Transfers of loans to foreclosed real estate and repossessed assets	$ 1,213,318	$ 1,273,811

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LOANS (Loans Individually Evaluated for Impairment by Class of Loans) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	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		1,589
Recorded Investment, With no related allowance recorded	173		173		173
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	173	173	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		1,589
Recorded Investment, total	173		173		173
Related Allowance, total
Average Recorded Investment, total	173	173	173	173
Interest Income Recognized, total
Commercial Real Estate - Other [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	4,064		4,064		4,869
Recorded Investment, With no related allowance recorded	4,064		4,064		4,535
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	4,189	3,206	4,065	3,309
Interest Income Recognized, With no related allowance recorded	56	35	148	107
Unpaid Principal Balance, With a specific allowance recorded	2,030		2,030		2,138
Recorded Investment, With a specific allowance recorded	2,030		2,030		2,127
Related Allowance, With a specific allowance recorded	510		510		101
Average Recorded Investment, With a specific allowance recorded	2,030	2,167	2,030	2,175
Interest Income Recognized, With a specific allowance recorded		20		61
Unpaid Principal Balance, total	6,094		6,094		7,007
Recorded Investment, total	6,094		6,094		6,662
Related Allowance, total	510		510		101
Average Recorded Investment, total	6,219	5,373	6,095	5,484
Interest Income Recognized, total	56	55	148	168
Consumer - Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	8		8		33
Recorded Investment, With no related allowance recorded	7		7		28
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	9	29	7	31
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		96		96
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total	8		8		33
Recorded Investment, total	7		7		28
Related Allowance, total
Average Recorded Investment, total	9	125	7	127
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		4
Interest Income Recognized, With no related allowance recorded
Unpaid Principal Balance, With a specific allowance recorded
Recorded Investment, With a specific allowance recorded
Related Allowance, With a specific allowance recorded
Average Recorded Investment, With a specific allowance recorded
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total					1
Recorded Investment, total					1
Related Allowance, total
Average Recorded Investment, total		3		4
Interest Income Recognized, total
Residential [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	1,595		1,595		1,365
Recorded Investment, With no related allowance recorded	1,169		1,169		1,194
Related Allowance, With no related allowance recorded
Average Recorded Investment, With no related allowance recorded	1,296	1,657	1,170	1,666
Interest Income Recognized, With no related allowance recorded
Unpaid Principal Balance, With a specific allowance recorded	73		73		616
Recorded Investment, With a specific allowance recorded	64		64		616
Related Allowance, With a specific allowance recorded	21		21		141
Average Recorded Investment, With a specific allowance recorded	64	45	64	45
Interest Income Recognized, With a specific allowance recorded
Unpaid Principal Balance, total	1,668		1,668		1,981
Recorded Investment, total	1,233		1,233		1,810
Related Allowance, total	21		21		141
Average Recorded Investment, total	1,360	1,702	1,234	1,711
Interest Income Recognized, total

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COMMITMENTS TO EXTEND CREDIT (Tables)

9 Months Ended

Sep. 30, 2013

COMMITMENTS TO EXTEND CREDIT [Abstract]

Schedule of Outstanding Commitments to Originate Loans

	As of
	September 30, 2013
	(dollars in thousands)
Commitments to grant loans	$	9,119
Unfunded commitments under lines of credit		12,445
Commercial and standby letters of credit		59

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 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 September 30, 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 September 30, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2013
Assets	(dollars in thousands)
Investment securities- available-for-sale:
US Government and agency obligations	$	-	$	7,075	$	-	$	7,075
Municipal obligations		-		11,794		-		11,794
Corporate bonds & other obligations				1,111				1,111
Mortgage-backed securities		-		30,298		-		30,298
Equity securities		-		3		-		3
Total investment securities - available-for-sale	$	-	$	50,281	$	-	$	50,281

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:
US Government and agency obligations	$	-	$	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 September 30, 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 September 30, 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 September 30, 2013
	Balance at September 30, 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 ASC 310-10	$	6,267	$	-	$	-	$	6,267
Other real estate owned -residential mortgages		279		-		-		279
Other Real estate owned - commercial		939		-		-		939
Other Repossessed Assets		1,023		-		-		1,023
Total assets at fair value on a non-recurring basis							$	8,508

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:

September 30, 2013	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	3,537	$	3,537	$	-	$	-	$	3,537
Securities available for sale		50,281		-		50,281		-		50,281
Securities held to maturity		2,305		-		2,450		-		2,450
Loans held for sale		974		-		-		974		974
Loans receivable - net		138,005		-		-		137,759		137,759
Federal Home Loan Bank stock		3,226		-		3,226		-		3,226
Accrued interest receivable		953		-		953		-		953
Financial liabilities:
Customer deposits		158,054		-		159,885		-		159,885
Federal Home Loan Bank advances		25,016		-		24,651		-		24,651
REPO sweep accounts		5,560		-		5,560		-		5,560
Accrued interest payable		100		-		100		-		100

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

XML

SECURITIES (Amortized Cost and Estimated Market Value of Securities by Contract Maturity) (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale amortized cost, Due in one year or less	$ 2,076,000
Available for Sale amortized cost, Due after one year through five years	11,042,000
Available for Sale amortized cost, Due in five year through ten years	6,740,000
Available for Sale amortized cost, Due after ten years	246,000
Available for Sale amortized cost, Subtotal	20,104,000
Available for Sale, Amortized Cost	50,410,000	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	1,615,000
Held to Maturity amortized cost, Due in five year through ten years	300,000
Held to Maturity amortized cost, Due after ten years	300,000
Held to Maturity, Amortized cost	2,305,000	2,345,000
Available for sale market value, Due in one year or less	2,086,000
Available for sale market value, Due after one year through five years	11,153,000
Available for sale market value, Due in five year through ten years	6,451,000
Available for sale market value, Due after ten years	290,000
Available for sale market value, Subtotal	19,980,000
Available for Sale, Market Value	50,280,668	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	1,695,000
Held to maturity market value, Due in five year through ten years	332,000
Held to maturity market value, Due after ten years	332,000
Held to Maturity, Market Value	2,450,000	2,570,000
Equity Securities [Member]
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale, Amortized Cost	2,000	3,000
Available for Sale, Market Value	3,000	1,000
Mortgage-backed securities [Member]
Investments Classified By Contractual Maturity Date [Line Items]
Available for Sale, Amortized Cost	30,304,000	28,901,000
Available for Sale, Market Value	$ 30,298,000	$ 29,608,000

XML

FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 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 September 30, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2013
Assets	(dollars in thousands)
Investment securities- available-for-sale:
US Government and agency obligations	$	-	$	7,075	$	-	$	7,075
Municipal obligations		-		11,794		-		11,794
Corporate bonds & other obligations				1,111				1,111
Mortgage-backed securities		-		30,298		-		30,298
Equity securities		-		3		-		3
Total investment securities - available-for-sale	$	-	$	50,281	$	-	$	50,281

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:
US Government and agency obligations	$	-	$	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 September 30, 2013
	Balance at September 30, 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 ASC 310-10	$	6,267	$	-	$	-	$	6,267
Other real estate owned -residential mortgages		279		-		-		279
Other Real estate owned - commercial		939		-		-		939
Other Repossessed Assets		1,023		-		-		1,023
Total assets at fair value on a non-recurring basis							$	8,508

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

September 30, 2013	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	3,537	$	3,537	$	-	$	-	$	3,537
Securities available for sale		50,281		-		50,281		-		50,281
Securities held to maturity		2,305		-		2,450		-		2,450
Loans held for sale		974		-		-		974		974
Loans receivable - net		138,005		-		-		137,759		137,759
Federal Home Loan Bank stock		3,226		-		3,226		-		3,226
Accrued interest receivable		953		-		953		-		953
Financial liabilities:
Customer deposits		158,054		-		159,885		-		159,885
Federal Home Loan Bank advances		25,016		-		24,651		-		24,651
REPO sweep accounts		5,560		-		5,560		-		5,560
Accrued interest payable		100		-		100		-		100

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

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 14, 2013
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Entity Registrant Name	First Federal of Northern Michigan Bancorp, Inc.
Entity Central Index Key	0001128227
Trading Symbol	FFNM
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,884,049

XML

SECURITIES (Carrying Value and Estimated Fair Value of Securities) (Details) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	$ 50,410,000	$ 49,633,000
Available for Sale, Gross Unrealized Gains	612,000	1,185,000
Available for Sale, Gross Unrealized (Losses)	(741,000)	(54,000)
Available for Sale, Market Value	50,280,668	50,763,551
Held to Maturity, Amortized Cost	2,305,000	2,345,000
Held to Maturity Securities, Gross Unrealized Gains	145,000	225,000
Held to Maturity Securities, Gross Unrealized (Losses)
Held to Maturity, Market Value	2,450,000	2,570,000
U.S. Government and agency obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	7,130,000	9,181,000
Available for Sale, Gross Unrealized Gains	43,000	66,000
Available for Sale, Gross Unrealized (Losses)	(98,000)
Available for Sale, Market Value	7,075,000	9,247,000
Municipal obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	11,876,000	10,413,000
Available for Sale, Gross Unrealized Gains	215,000	368,000
Available for Sale, Gross Unrealized (Losses)	(297,000)	(23,000)
Available for Sale, Market Value	11,794,000	10,758,000
Corporate bonds & other obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	1,098,000	1,135,000
Available for Sale, Gross Unrealized Gains	13,000	15,000
Available for Sale, Gross Unrealized (Losses)
Available for Sale, Market Value	1,111,000	1,150,000
Mortgage-backed securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	30,304,000	28,901,000
Available for Sale, Gross Unrealized Gains	340,000	736,000
Available for Sale, Gross Unrealized (Losses)	(346,000)	(29,000)
Available for Sale, Market Value	30,298,000	29,608,000
Equity securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	2,000	3,000
Available for Sale, Gross Unrealized Gains	1,000
Available for Sale, Gross Unrealized (Losses)		(2,000)
Available for Sale, Market Value	$ 3,000	$ 1,000