<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             450 FIFTH STREET, N.W.
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

      |X|   Annual Report Pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934 For the Fiscal Year Ended December 31, 2003

                                       OR

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

            For the transition period from _______________ to___________________

                        COMMISSION FILE NUMBER: 000-31957

                             ALPENA BANCSHARES, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              UNITED STATES                                 38-3567362
---------------------------------------              --------------------
     (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                  Identification Number)

 100 S. SECOND AVENUE, ALPENA, MICHIGAN                       49707
 --------------------------------------                       -----
(Address of Principal Executive Offices)                    Zip Code

                                 (989) 356-9041
                         -------------------------------
                         (Registrant's telephone number)

Securities Registered Pursuant to Section 12(b) of the Act:   NONE

Securities Registered Pursuant           COMMON STOCK, PAR VALUE $1.00 PER SHARE
to Section 12(g) of the Act:             ---------------------------------------
                                                    (Title of Class)

      Check 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
past twelve months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.

      YES   |X|   NO   | |

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|

      The Registrant's revenues for the year ended December 31, 2003 were $13.2
million.

      As of March 8, 2004, there were issued and outstanding 1,658,780 shares of
the Registrant's common stock.

      The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the last sale price on March 8, 2004
was $17.1 million. This amount does not include shares held by the Registrant's
Employee Stock Ownership Plan, by executive officers and directors, and by
Alpena Bancshares, M.H.C.

      Transitional Small Business Disclosure Format

      YES  | |   NO   |X|
<PAGE>
                       DOCUMENTS INCORPORATED BY REFERENCE

1.    Sections of the Annual Report to Stockholders for the year ended December
      31, 2003 (Part II).

2.    Portions of the Proxy Statement for the 2004 Annual Meeting of
      Stockholders (Part III).

                                     PART I

ITEM 1.  BUSINESS

GENERAL

      Alpena Bancshares, Inc. (the "Company") is a federally chartered holding
company that conducts business principally through its wholly owned subsidiary,
First Federal of Northern Michigan, a federally chartered savings bank (the
"Bank"). The Company was formed in November 2000 when the Bank reorganized into
the holding company structure. In this reorganization, each outstanding share of
the Bank's common stock was converted by operation of law into one share of the
Company's common stock. The Company's assets consist primarily of shares of the
Bank's common stock and cash it receives from the Bank in the form of capital
distributions. The Company has substantially no independent operations separate
from its role as holding company for the Bank. Accordingly, the operations of
the Bank as described in this report effectively describe the operations of the
Company. At December 31, 2003, the Company had total assets of $223.9 million,
total deposits of $151.7 million, and stockholders' equity of $21.9 million. The
Company's principal executive office is located at 100 South Second Avenue,
Alpena, Michigan, and its telephone number at that address is (989) 354-7310.

      The Bank is a federally chartered savings bank that conducts its
operations from eight full-service facilities located in Cheboygan, Alpena,
Iosco, Otsego, Montmorency and Oscoda Counties, Michigan. The Bank has operated
in Alpena since its chartering in 1957. The Bank's deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC") under the Savings Association
Insurance Fund. The Bank has been a member of the Federal Home Loan Bank System
since 1957.

      The Bank is a community-oriented savings institution that is primarily
engaged in the business of attracting deposits from the general public in the
Bank's market area, and investing such deposits in one- to four-family
residential real estate mortgages, commercial real estate loans and consumer
loans.

      The Bank's principal executive office is located at 100 South Second
Avenue, Alpena, Michigan, and its telephone number at that address is (989)
354-7310.

MARKET AREA AND COMPETITION

      The Bank conducts operations through its main office in Alpena, Michigan,
which is located in the northeastern lower peninsula of Michigan, and through
its seven other branch offices in Michigan. The population of Alpena (city and
township) is approximately 21,000, and the population of the Bank's primary
market area, which includes Alpena County and seven surrounding counties, is
approximately 154,000. Alpena is the largest city located in the northeastern
lower peninsula of Michigan. This area has long been associated with
agricultural, wood and concrete products. Tourism has also been a major industry
in the Bank's primary market area. All of these industries tend to be seasonal
and are strongly affected by state and national economic conditions. Therefore,
unemployment rates in the Bank's primary market area are generally higher than
state and national levels.
<PAGE>
      Major employers in the Bank's primary market area include various public
schools and governmental agencies, Alpena General Hospital, Besser Company (a
manufacturer of concrete products equipment), Lafarge Corporation (a limestone
mining and cement producer), Treetops Sylvan Resort (an operator of resort
properties), Garland Resort (an operator of resort properties), Otsego Memorial
Hospital, Community Memorial Hospital, and various other small companies.

      As of December 31, 2003, the Bank was the only thrift institution
headquartered in the Bank's market area. The Bank encounters strong competition
both in attracting deposits and in originating real estate and other loans. Its
most direct competition for deposits has historically come from commercial
banks, other savings institutions, and credit unions in its market area.
Competition for loans comes from such financial institutions as well as mortgage
banking companies. The Bank expects continued strong competition in the
foreseeable future, including increased competition from "super-regional" banks
entering the market by purchasing other savings institutions. Many such
institutions have greater financial and marketing resources available to them
than does the Bank. The Bank competes for savings deposits by offering
depositors a high level of personal service and a wide range of competitively
priced financial services. In recent years, additional strong competition has
come from stock and bond dealers and brokers. The Bank competes for real estate
loans primarily through the interest rates and loan fees it charges and through
advertising. Competition for deposits and loans may limit the Bank's growth and
adversely affect its profitability in the future.

LENDING ACTIVITIES

      Loan Portfolio. The principal component of the Bank's loan portfolio is
mortgage loans secured by one-to-four family residential real estate. A majority
of the fixed-rate conventional mortgage loans with 15, 20 and 30 year terms
secured by one-to four-family residential real estate originated by the Bank is
sold to Freddie Mac. A majority of the servicing of these mortgages is retained
by the Bank. To a lesser extent, the Bank also originates commercial loans,
commercial real estate loans and consumer loans. At December 31, 2003, the
Bank's net loans receivable totaled $163.5 million, of which $100.2 million, or
61.3%, were one-to four-family residential real estate mortgage loans, and $30.0
million, or 18.3%, were commercial real estate loans. Other loans, consisting
primarily of consumer loans, totaled $34.3 million, or 21.0% of the Bank's net
loan portfolio.

      Analysis of Loan Portfolio. Set forth below is selected data relating to
the composition of the Bank's loan portfolio by type of loan as of the dates
indicated.

<TABLE>
<CAPTION>
                                                                                           At December 31,
                                                                  ------------------------------------------------------------------
                                                                          2003                  2002                   2001
                                                                  -------------------    -------------------    --------------------
                                                                    Amount    Percent     Amount     Percent     Amount      Percent
                                                                  ---------   -------    ---------   -------    ---------    -------
                                                                                            (in thousands)
<S>                                                               <C>          <C>       <C>          <C>       <C>          <C>
Real estate loans:
  One-to four-family residential ..............................   $ 100,198     61.30%   $ 104,779     69.23%   $ 135,489     76.92%
  Construction ................................................       5,381      3.29%       2,946      1.95%       3,036      1.72%
  Other real estate loans construction ........................         525      0.32%          --      0.00%          --      0.00%
  Other real estate loans .....................................      29,978     18.34%      20,369     13.46%      14,152      8.03%
                                                                  ---------    ------    ---------    ------    ---------    ------
   Total real estate loans ....................................     136,082     83.25%     128,094     84.64%     152,677     86.68%
                                                                  ---------    ------    ---------    ------    ---------    ------

Other loans:
  Commerical loans ............................................      13,397      8.20%       7,528      4.97%       6,022      3.42%
  Consumer loans ..............................................      20,708     12.67%      19,230     12.71%      21,010     11.93%
  Loans on savings deposits ...................................         215      0.13%         357      0.24%         162      0.09%
                                                                  ---------    ------    ---------    ------    ---------    ------
    Total other loans .........................................      34,320     21.00%      27,115     17.92%      27,194     15.44%
                                                                  ---------    ------    ---------    ------    ---------    ------
    Total loans receivable ....................................     170,402    104.25%     155,209    102.56%     179,871    102.11%
Less:
Loans in process ..............................................      (5,665)   -3.47%       (2,855)   -1.89%       (2,968)   -1.68%
Deferred loan costs, net of fees and unearned loan discounts ..        (241)   -0.15%          (91)   -0.06%          (68)   -0.04%
Allowance for loan losses .....................................      (1,036)   -0.63%         (922)   -0.61%         (689)   -0.39%
                                                                  ---------    ------    ---------    ------    ---------    ------

  Total loans receivable, net at end of period ................   $ 163,460    100.00%   $ 151,341    100.00%   $ 176,146    100.00%
                                                                  =========    ======    =========    ======    =========    ======

<CAPTION>
                                                                             At December 31,
                                                               -------------------------------------------
                                                                       2000                  1999
                                                               -------------------    --------------------
                                                                Amount     Percent     Amount      Percent
                                                               ---------   -------    ---------    -------
                                                                             (in thousands)
<S>                                                            <C>          <C>       <C>          <C>
Real estate loans:
  One-to four-family residential ...........................   $ 176,548     80.63%   $ 195,237     87.21%
  Construction .............................................       3,930      1.79%          --      0.00%
  Other real estate loans construction .....................          --      0.00%          --      0.00%
  Other real estate loans ..................................      10,681      4.88%       8,969      4.01%
                                                               ---------    ------    ---------    ------
   Total real estate loans .................................     191,159     87.30%     204,206     91.22%
                                                               ---------    ------    ---------    ------

Other loans:
  Commerical loans .........................................       1,410      0.64%          --      0.00%
  Consumer loans ...........................................      28,652     13.09%      21,160      9.45%
  Loans on savings deposits ................................         137      0.06%          46      0.02%
                                                               ---------    ------    ---------    ------
    Total other loans ......................................      30,199     13.79%      21,206      9.47%
                                                               ---------    ------    ---------    ------
    Total loans receivable .................................     221,358    101.10%     225,412    100.69%
Less:
Loans in process ...........................................      (1,727)   -0.79%       (1,179)   -0.53%
Deferred loan costs, net of fees and unearned loan discounts         (25)   -0.01%           81      0.04%
Allowance for loan losses ..................................        (649)   -0.30%         (448)   -0.20%
                                                               ---------    ------    ---------    ------

  Total loans receivable, net at end of period .............   $ 218,957    100.00%   $ 223,866    100.00%
                                                               =========    ======    =========    ======
</TABLE>
<PAGE>
      Loan Maturity Schedule. The following table sets forth the maturity or
period of repricing of the Bank's loan portfolio at December 31, 2003. Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less. Adjustable-and floating rate
loans are included in the period in which interest rates are next scheduled to
adjust rather than in which they contractually mature, and fixed rate loans are
included in the period in which the final contractual repayment is due.

<TABLE>
<CAPTION>
                                                                        One          Three
                                                       Within          Year          Years           Over
                                                        One           Through        Through         Five
                                                        Year        Three Years    Five Years        Years          Total
                                                       -------      -----------    ----------       -------        --------
                                                                                  (In thousands)
<S>                                                    <C>            <C>            <C>            <C>            <C>
Real estate loans:
  One-to four-family residential ..............        $ 9,671        $16,735        $23,940        $44,471        $ 94,817
  Construction ................................          5,266            115             --             --           5,381
  Other real estate construction loans ........            525             --             --             --             525
  Other real estate loans .....................         12,260          5,581         12,694          2,127          32,662
                                                       -------        -------        -------        -------        --------
   Total real estate loans ....................         27,722         22,431         36,634         46,598         133,385

Other loans:
  Commerical loans ............................         10,103             --             85             --          10,188
                                                       -------        -------        -------        -------        --------
  Consumer loans ..............................          7,800          2,408          3,968          6,747          20,923
                                                       -------        -------        -------        -------        --------
    Total other loans .........................        $17,903        $ 2,408        $ 4,053        $ 6,747        $ 31,111
                                                       =======        =======        =======        =======        ========

Total loans receivable ........................         45,625         24,839         40,687         53,345         164,496
                                                       =======        =======        =======        =======        ========
</TABLE>

Fixed- and Adjustable-Rate Loan Schedule. The following table sets forth at
December 31, 2003, the dollar amount of all fixed rate and adjustable rate loans
that have a scheduled maturity or period to repricing after December 31, 2004.

<TABLE>
<CAPTION>
                                                  Fixed     Adjustable
                                                   Rate       Rate       Total
                                                 --------    -------    --------
                                                          (In thousands)
<S>                                              <C>         <C>        <C>
Real estate loans:
  One-to four-family residential ............    $ 84,199    $10,618    $ 94,817
  Construction ..............................       5,381         --       5,381
  Other real estate construction loans ......         525         --         525
  Other real estate loans ...................      32,662         --      32,662
                                                 --------    -------    --------
   Total real estate loans ..................     122,767     10,618     133,385
                                                 --------    -------    --------

Other loans:
  Commerical loans ..........................         886      9,302      10,188
  Consumer loans ............................      20,476        447      20,923
                                                 --------    -------    --------
    Total other loans .......................      21,362      9,749      31,111
                                                 ========    =======    ========

Total loans receivable ......................    $144,129    $20,367    $164,496
                                                 --------    -------    --------
</TABLE>

      One- to Four-Family Residential Real Estate Loans. The Bank's primary
lending activity consists of the origination of one- to four-family
owner-occupied residential mortgage loans, virtually all of which are
collateralized by properties located in the Bank's market area. The Bank also
originates one- to four-family loans that pay interest only during the initial
construction period (which generally does not exceed twelve months) and then pay
interest and principal
<PAGE>
for the remainder of the loan term. The Bank generally sells all of its
originated longer term (greater than 20 years) fixed-rate mortgages to the
Federal Home Loan Mortgage Corporation ("Freddie Mac") and retains a majority of
the loan servicing upon those sales. Most, but not all, of the loans originated
by the Bank qualify for resale in the secondary mortgage market. One- to
four-family loans are underwritten and originated according to policies and
guidelines established by the secondary market agencies and approved by the
Board of Directors. The Bank utilizes existing liquidity, savings deposit
growth, loan repayments, and FHLB advances to meet demand for loans.

      The Bank currently offers fixed rate one- to four-family residential
mortgage loans with terms ranging from 5 to 30 years. One- to four-family
residential real estate loans often remain outstanding for significantly shorter
periods than their contractual terms because borrowers may refinance or prepay
loans at their option. The average length of time that the Bank's one- to
four-family residential mortgage loans remain outstanding varies significantly
depending upon trends in market interest rates and other factors. In recent
years, the average maturity of the Bank's mortgage loans has decreased
significantly due to the unprecedented volume of refinancing activity.
Accordingly, estimates of the average length of one- to four-family loans that
remain outstanding cannot be made with any degree of certainty.

      Originations of fixed rate mortgage loans are regularly monitored and are
affected significantly by the level of market interest rates, the Bank's
interest rate gap position, and loan products offered by the Bank's competitors.
The Bank's fixed rate mortgage loans amortize on a monthly basis with principal
and interest due each month. To make the Bank's loan portfolio less interest
rate sensitive, loans originated with terms greater than fifteen years are
generally underwritten to secondary market standards and sold; balloon mortgage
loans with five year terms and adjustable rate mortgage loans are generally
underwritten to secondary market standards, but will be retained in the Bank's
loan portfolio.

      The Bank originates some fixed-rate loans which are generally amortized
over 15 years but which have "balloon payments" which are due upon the maturity
of the loan in five years. Upon maturity, the balloon mortgage loans are either
underwritten as fixed-rate loans and sold in the secondary market or renewed at
current market rates for a consecutive five year term. While the majority of the
Bank's balloon mortgage loans amortize over 15 years, some amortize over 10 or
30 years, and a limited number amortize over 5 years.

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

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

      The Bank makes one- to four-family real estate loans with loan-to-value
ratios of up to 90%; however, for one- to four-family real estate loans with
loan-to-value ratios of between 80% and 90%, the Bank may require the first 20%
of the loan amount to be covered by private mortgage insurance. The Bank
requires fire and casualty insurance, flood insurance when applicable, as well
as title insurance, on all properties securing real estate loans made by the
Bank.

      Other Real Estate Loans. At December 31, 2003, the Bank had a total of 187
loans secured primarily by commercial real estate properties, unimproved vacant
land and, to a limited extent, multifamily properties. The Bank's commercial
real estate loans are secured by income producing properties such as office
buildings, retail buildings and motels. The Bank has originated commercial
construction loans that are originated as permanent loans but are interest-only
during the initial construction period which generally does not exceed nine
months. At December 31, 2003, the Bank's commercial real estate loans totaled
$30.0 million and had an average principal balance of $160,310 and the largest
commercial real estate loan had a principal balance of $3.4 million. The terms
of each loan are negotiated on a case-by-case basis, although such loans
typically amortize over 15 years and have a three- or five-year balloon feature.
<PAGE>
An origination fee of 0.5% to 1.0% is generally charged on commercial real
estate loans. The Bank generally makes commercial real estate loans up to 75% of
the appraised value of the property securing the loan.

      Loans secured by commercial real estate generally involve a greater degree
of credit risk than one- to four-family residential mortgage loans and carry
larger loan balances. This increased credit risk is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by commercial real
estate is typically dependent upon the successful operation of the business or
the related real estate property. If the cash flow from the business operation
is reduced, the borrower's ability to repay the loan may be impaired.

      Other Loans. The Bank also originates other real estate and non-real
estate related loans, including commercial loans, consumer installment loans,
credit card advances, and loans secured by savings accounts, automobiles, mobile
homes, boats, recreational vehicles, and other personal property. Such other
loans are originated by the Bank in order to provide a full range of financial
services to its customers. Commercial loans carry a greater level of credit risk
due to their dependence on the successful operation and cash flow of the
business, which is the primary source of repayment for the debt. Consumer loans
entail greater credit risk than do residential mortgage loans, particularly in
the case of consumer loans that are secured by assets that depreciate rapidly,
such as automobiles, mobile homes, boats, and recreational vehicles. At December
31, 2003, the Bank's non real estate commercial loan portfolio totaled $13.4
million, or 8.2% of net loans receivable. The Bank's other consumer loans
totaled $20.7 million, or 12.7% of net loans receivable.

      Loan Originations, Solicitation, Processing, and Commitments. Loan
originations are derived from a number of sources such as real estate agent
referrals, existing customers, borrowers, builders, attorneys, the Bank's
directors and walk-in customers. Upon receiving a loan application, the Bank
obtains a credit report and employment verification to verify specific
information relating to the applicant's employment, income, and credit standing.
In the case of a real estate loan, the Bank obtains a determination of value of
the real estate intended to collateralize the proposed loan. Conventional one-
to four-family residential loans up to $322,700 generally may be approved by
loan officers if the loan will be sold on the secondary market. For loans held
in portfolio, the lending limits vary by officer experience but range from
$50,000 to $322,700. The loan committee must approve any loan from $322,701 up
to $400,000, and any loan request over $400,000 must be approved by the Board of
Directors. Consumer lending limits by officer range from $15,000 to $200,000.
For secured commercial loans, the limit ranges from $150,000 to $400,000. After
the loan is approved, a loan commitment letter is promptly issued to the
applicant.

      The commitment letter specifies the terms and conditions of the proposed
loan including the amount of the loan, interest rate, amortization term, a brief
description of the required collateral, and required insurance coverage.
Commitments are typically issued for 30-day periods. The borrower must provide
proof of fire and casualty insurance on the property serving as collateral,
which insurance must be maintained during the full term of the loan. A title
insurance policy is required on all real estate loans. At December 31, 2003, the
Bank had outstanding loan commitments of $47.4 million, including unfunded
commitments under lines of credit and commercial and standby letters of credit.
<PAGE>
      Origination, Purchase and Sale of Loans. The table below shows the Bank's
loan originations, purchases, sales, and repayments of loans for the periods
indicated.

<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31,
                                                                     2003                 2002                  2001
                                                                  ---------             ---------             ---------
                                                                                      (In Thousands)
<S>                                                               <C>                   <C>                   <C>
Loans receivable at beginning of period ..............            $ 152,263             $ 176,835             $ 221,358

Originations:
  Real estate:
     Residential 1-4 family ..........................              132,146                97,487               107,557
     Commercial and Multi-family .....................               35,004                27,211                24,652
  Consumer ...........................................               18,176                 8,340                13,867
                                                                  ---------             ---------             ---------
      Total originations .............................              185,326               133,038               146,076
                                                                  ---------             ---------             ---------

Loan purchases .......................................                   --                    --                    --
                                                                  ---------             ---------             ---------


Loan sales ...........................................              (81,510)              (68,631)              (78,667)
Transfer of mortgage loans
      to foreclosed real estate ......................                 (583)                 (618)                 (372)
Repayments ...........................................              (91,000)              (88,361)             (111,560)
                                                                  ---------             ---------             ---------

   Total loans receivable at end of period ...........              164,496               152,263               176,835
</TABLE>

      Loan Origination Fees and Other Income. In addition to interest earned on
loans, the Bank generally receives fees in connection with loan originations.
Such loan origination fees, net of costs to originate, are deferred and
amortized using an interest method over the contractual life of the loan. Fees
deferred are recognized into income immediately upon prepayment or subsequent
sale of the related loan. At December 31, 2003, the Bank had $227,500 of net
deferred loan origination fees. Such fees vary with the volume and type of loans
and commitments made and purchased, principal repayments, and competitive
conditions in the mortgage markets, which in turn respond to the demand and
availability of money. In addition to loan origination fees, the Bank also
generates other income through the sales and servicing of mortgage loans, late
charges on loans, and fees and charges related to deposit accounts. The Bank
recognized fees and service charges of $802,000, $818,000 and $740,000 for the
years ended December 31, 2003, 2002, and 2001 respectively.

DELINQUENCIES AND CLASSIFIED ASSETS

      Delinquencies. The Bank's general collection procedures provide that when
a mortgage or consumer loan is 16 days past due (11 days for a commercial loan),
a computer-generated late charge notice is sent to the borrower requesting
payment. If delinquency continues, a second delinquent notice is mailed when the
loan continues past due for 30 days. If a loan becomes 60 days past due, the
loan becomes subject to possible legal action. Bank officials will generally
send a "due and payable" letter upon a loan becoming 90 days delinquent. This
letter grants the mortgagor 30 days to bring the account paid to date prior to
start of any legal action. If not paid, foreclosure proceedings are initiated
after this 30 day period. To the extent required by regulations of the
Department of Housing and Urban Development ("HUD"), generally within 45 days of
delinquency, a Section 160 HUD notice is given to the borrower which provides
access to consumer counseling services. General collection procedures may vary
with particular circumstances on a loan by loan basis. Also, collection
procedures for Freddie Mac serviced loans follow the Freddie Mac guidelines
which are different from the Bank's general procedures.
<PAGE>
      Non-performing Assets. Loans are reviewed on a regular basis and are
placed on non-accrual status when, in the opinion of management, the collection
of additional interest is doubtful or when extraordinary efforts are required to
collect the debt. Interest accrued and unpaid at the time a loan is placed on
non-accrual status is charged against interest income.

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

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

      When collateral is acquired or otherwise deemed REO/ORA, it is recorded at
the lower of the unpaid principal balance of the related loan or its estimated
net realizable value. This write down is recorded against the allowance for loan
losses. Periodic future valuations are performed by management, and any
subsequent decline in fair value is charged to operations. At December 31, 2003,
the Bank held $198,672 of REO/ORA.

      Delinquent Loans and Nonperforming Assets. The following table sets forth
information regarding loans delinquent 90 days or more and REO/ORA by the Bank
at the dates indicated. As of the dates indicated, the Bank did not have any
material restructured loans within the meaning of SFAS 15.

<TABLE>
<CAPTION>
                                                                                            AT DECEMBER 31,
                                                                      2003          2002          2001          2000          1999
                                                                     ------        ------        ------        ------        ------
                                                                                         (Dollars in thousands)
<S>                                                                  <C>           <C>           <C>           <C>           <C>
Total non-accrual loans delinquent 90 days or more ...........       $1,291        $  662        $   --        $   --        $   --
                                                                     ------        ------        ------        ------        ------

Accrual loans delinquent 90 days or more:
  One- to four-family residential ............................          617           566           475           498           626
  Construction ...............................................           --            --            --            --            --
  Other real estate loans ....................................           77            --            --            39            --
  Commercial .................................................           --           152            --            --            --
  Consumer ...................................................          134            89           201           168           125
                                                                     ------        ------        ------        ------        ------
     Total accrual loans delinquent 90 days or more ..........       $  828        $  807        $  676        $  705        $  751
                                                                     ------        ------        ------        ------        ------

Total nonperforming loans (1) ................................        2,119         1,469           676           705           751
                                                                     ======        ======        ======        ======        ======

Total real estate owned (2) ..................................          199           128           197           150           100
                                                                     ======        ======        ======        ======        ======

Total nonperforming assets ...................................       $2,318        $1,597        $  873        $  855        $  851
                                                                     ======        ======        ======        ======        ======


Total nonperforming loans to net loans receivable ............         1.30%         0.97%         0.38%         0.32%         0.33%
Total nonperforming loans to total assets ....................         0.95%         0.64%         0.28%         0.26%         0.29%
Total nonperforming assets to total assets ...................         1.04%         0.70%         0.36%         0.32%         0.32%
</TABLE>


(1)   All the Bank's loans delinquent 90 days or more 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.
<PAGE>
      Delinquent Loans. The following table sets forth information with respect
to loans past due by 60-89 days and 90 days or more in the Bank's portfolio at
the dates indicated.

<TABLE>
<CAPTION>
                                                                                              AT DECEMBER 31,
                                                                       2003          2002          2001          2000          1999
                                                                      ------        ------        ------        ------        ------
                                                                                              (In Thousands)
<S>                                                                   <C>           <C>           <C>           <C>           <C>
Loans delinquent 60-89 days:
  One- to four-family residential ............................        $1,248        $1,411        $1,757        $1,315        $1,453
  Construction ...............................................            43            --            --            --            --
  Other real estate loans ....................................            --            --            --            --            --
  Commercial .................................................           221           123            --            --            --
  Consumer ...................................................            90         1,090           171           298           144
                                                                      ------        ------        ------        ------        ------
Total loans delinquent 60-89 days ............................         1,602         2,624         1,928         1,613         1,597
                                                                      ------        ------        ------        ------        ------

Total non-accrual loans delinquent 90 days or more ...........         1,291           662            --            --            --
                                                                      ------        ------        ------        ------        ------

Accrual loans delinquent 90 days or more:
  One- to four-family residential ............................           617           566           475           498           626
  Construction ...............................................            --            --            --            --            --
  Other real estate loans ....................................            77            --            --            39            --
  Commercial .................................................            --           152            --            --            --
  Consumer ...................................................           134            89           201           168           125
                                                                      ------        ------        ------        ------        ------
Total accrual loans delinquent 90 days or more ...............           828           807           676           705           751
                                                                      ------        ------        ------        ------        ------

Total loans past due 60 days or more .........................        $3,721        $4,093        $2,604        $2,318        $2,348
                                                                      ------        ------        ------        ------        ------
</TABLE>

      Classification of Assets. Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the OTS to be of lesser quality as "substandard," "doubtful," or
"loss" assets. An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the savings institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as "doubtful" have all
of the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
that do not expose the savings institution to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated "special mention" by management. Loans
designated as special mention are generally loans that, while current in
required payments, have exhibited some potential weaknesses that, if not
corrected, could increase the level of risk in the future.
<PAGE>
      The Bank classifies its assets pursuant to criteria similar to the
classification structure provided in the OTS regulations. The following table
sets forth the aggregate amount of the Bank's internally classified assets at
the dates indicated.

<TABLE>
<CAPTION>
                                                    AT DECEMBER 31,
                                                    ---------------
                                       2003     2002     2001     2000     1999
                                      ------   ------   ------   ------   ------
                                                    (In Thousands)
<S>                                   <C>      <C>      <C>      <C>      <C>
Substandard assets ................   $2,295   $1,263   $2,198   $3,182   $2,526
Doubtful assets ...................      105      370       --       --       18
Loss assets .......................       --       --       --       --       --
                                      ------   ------   ------   ------   ------
  Total classified assets .........   $2,400   $1,633   $2,198   $3,182   $2,544
</TABLE>

      Substandard assets increased to $2.3 million at December 31, 2003 compared
to $1.3 million at December 31, 2002. The Bank's investment in subsidiary of
$500,000 at December 31, 2003 and $600,000 at December 31, 2002 is classified as
substandard due to slower then expected sales of building lots and condominium
units in the subsidiary's land development project. This project (Wyndham Garden
Estates) is an upscale condominium community comprised of 25 single-family
building lots and 18 planned building units. Management believes this is a
viable project with development and sales ongoing. At December 31, 2003, the
Bank had a recorded lower of cost or market value adjustment of $121,000 for
this development. All 25 lots are developed, of which sixteen lots have been
sold. There are 16 constructed building units all of which are sold.

      Allowance for Loan Losses. Management's policy is to provide for estimated
losses on the Bank's loan portfolio based on management's evaluation of the
estimated losses that may be incurred. The Bank regularly reviews its loan
portfolio, including problem loans, to determine whether any loans require
classification or the establishment of appropriate reserves or allowances for
losses. Such evaluation, which includes a review of all loans of which full
collectability of interest and principal may not be reasonably assured,
considers, among other matters, the estimated fair value of the underlying
collateral. During the years ended December 31, 2003, 2002, 2001, 2000 and 1999
the Bank added $267,000, $415,000, $255,000, $280,000 and $120,000 respectively,
to the allowance for loan losses. The Bank's allowance for loan losses totaled
$1,036,000, $922,000, $689,000, $649,000 and $$448,000 at December 31, 2003,
2002, 2001, 2000 and 1999 respectively.

      For the year ended December 31, 2003, net charge-offs totaled $153,000.
Management believes that the allowances for losses on loans and investments in
real estate are adequate with respect to quality of assets, as Bank loan losses
have generally been minimal. However, as the mix of loans continues to change
(commercial and consumer loans grow as a percentage of the total loan portfolio)
management may increase the allowance for loan losses for the increased risk
these types of loans bring to the loan portfolio. While management uses
available information to recognize losses on loans and investments in real
estate, future additions to the allowances may be necessary based on changes in
economic conditions and the composition of the loan portfolio. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowances for losses on loans and investments in
real estate. Such agencies may require the Bank to recognize additions to the
allowances based on their judgments about information available to them at the
time of their examination.
<PAGE>
      Analysis of the Allowance for Loan Losses. The following table sets forth
the analysis of the allowance for loan losses for the periods indicated.

<TABLE>
<CAPTION>
                                                                             FOR THE YEARS ENDED DECEMBER 31,
                                                         -------------------------------------------------------------------------
                                                           2003             2002           2001            2000            1999
                                                         ---------       ---------       ---------       ---------       ---------
                                                                                  (Dollars in thousands)
<S>                                                      <C>             <C>             <C>             <C>             <C>
Net loans outstanding ..............................     $ 163,460       $ 151,341       $ 176,146       $ 218,957       $ 223,866
Average loans outstanding ..........................       155,105         152,943         181,343         220,642         214,963

Allowance at beginning of period ...................     $     922       $     689       $     649       $     448       $     478
   Provisions for loan losses ......................           267             415             255             280             120
   Recoveries ......................................            62              52              74              26              34
   Charge-offs .....................................          (215)           (234)           (289)           (105)           (184)
                                                         ---------       ---------       ---------       ---------       ---------

Allowance balances at end of period ................     $   1,036       $     922       $     689       $     649       $     448
                                                         =========       =========       =========       =========       =========

Allowance for loan losses as a percent
  of net loans receivable at end of period .........          0.63%           0.61%           0.39%           0.30%           0.20%

Net Charge-offs as a percent of average
  loans outstanding ................................          0.10%           0.12%           0.12%           0.04%           0.07%

Ratio of allowance for loan loss to total
  non-performing loans at end of period ............         48.89%          62.76%         101.95%          92.06%          59.65%

Ratio of allowance for loan losses to
  total non-performing loans and REO at
  the end of the period ............................         44.69%          57.73%          78.92%          75.91%          52.64%
</TABLE>

INVESTMENT ACTIVITIES

      The Bank's investment portfolio comprises investment securities,
mortgage-backed securities, FHLB stock, and other investments. At December 31,
2003, the Bank had no investments in unrated securities. At December 31, 2003,
$29.5 million, or 85.5% of the Bank's investment portfolio were scheduled to
mature in less than five years, and $5.0 million, or 14.5%, were scheduled to
mature in over five years. At December 31, 2003, $7.1 million, or 20.5% of the
Bank's investment portfolio is scheduled to mature in less than one year.

      The Bank's mortgage-backed securities portfolio consists of pass-through
certificates. At December 31, 2003, mortgage-backed securities totaled $7.3
million, or 3.3% of total assets. At December 31, 2003, 89.0% of the Bank's
mortgage-backed securities were secured by Balloon loans. All of the Bank's
pass-through certificates are insured or guaranteed by Freddie Mac, the
Government National Mortgage Association ("GNMA"), or the Federal National
Mortgage Association ("FNMA"). The Bank's policy is to hold mortgage-backed
securities as available for sale. The Bank invests in mortgage-backed securities
to supplement local loan originations as well as to reduce interest rate risk
exposure.

      The Bank's has interest in pools of single-family mortgages in which the
principal and interest payments are passed from the mortgage originators,
through intermediaries (generally quasi-governmental agencies) that pool and
repackage loans and sell the participation interest in the form of securities,
to investors such as the Bank. These quasi-governmental agencies include Freddie
Mac, the GNMA, or the FNMA. The underlying pool of mortgages can be composed of
either fixed-rate mortgage loans or ARM loans. The interest rate risk
characteristics of the underlying pool of mortgages, i.e., fixed-rate or
adjustable rate, are shared by the investors in that pool.

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

      Investment Portfolio. The following table sets forth certain information
regarding the carrying and market values of the Bank's investment securities
portfolio, mortgage-backed securities portfolio and its held-for-sale portfolio
at the dates indicated.

<TABLE>
<CAPTION>
                                                                   2003                      2002                      2001
                                                            --------------------      --------------------      --------------------
                                                            CARRYING     MARKET       CARRYING     MARKET       CARRYING      MARKET
                                                             VALUE        VALUE        VALUE       VALUE         VALUE        VALUE
                                                            -------      -------      -------      -------      -------      -------
<S>                                                         <C>          <C>          <C>          <C>          <C>          <C>
Investment securities available for sale:
     Equity investments (1)                                 $   161      $   161      $   166      $   166      $   182      $   182
     U.S.Government agency securities                        17,067       17,067       31,981       31,981       13,870       13,870
     Mortgage-backed securities                               7,335        7,335        6,931        6,931        1,976        1,976
     Corporate and municipal bonds                           10,108       10,108        7,866        7,866        7,184        7,184
                                                            -------      -------      -------      -------      -------      -------

          Total Investments                                 $34,670      $34,670      $46,944      $46,944      $23,212      $23,212
                                                            =======      =======      =======      =======      =======      =======
</TABLE>

(1)  Includes Freddie Mac & MIMLIC Stocks
<PAGE>
      Investment Portfolio Maturities. The following table sets forth the
scheduled maturities, carrying/market values, and weighted average yields for
the Bank's investment portfolio at December 31, 2003.

<TABLE>
<CAPTION>
                                                                          AT DECEMBER 31, 2003
                                           ------------------------------------------------------------------------------------
                                                One Year or Less             One to Five Years           Five to Ten Years
                                           -------------------------     ------------------------     -------------------------
                                                          Annualized                   Annualized                    Annualized
                                           Carrying /      Weighted      Carrying /     Weighted      Carrying /      Weighted
                                             Market         Average        Market        Average       Market          Average
                                             Value          Yield          Value          Yield        Value            Yield
                                             -----          -----          -----          -----        -----            -----
                                                                         (Dollars in Thousands)
<S>                                         <C>              <C>          <C>             <C>        <C>               <C>
Investment securities available for sale:
     U.S. Government
              agency securities             $ 3,068          4.32%        $13,999         4.66%      $    --           0.00%
     Mortgage-backed securities                  --          0.00%          2,690         3.66%        4,061           3.81%
     Corporate and municipal bonds            3,990          5.95%          5,783         4.59%          335           5.10%
                                            -------                       -------

 Total securiy investments                  $ 7,058                       $22,472                    $ 4,396
                                            =======                       =======                    =======

<CAPTION>
                                                                     AT DECEMBER 31, 2003
                                            --------------------------------------------------------------------
                                                                          Equity
                                              More than Ten Years       Securities     Total
                                            ------------------------    ----------    ---------
                                                          Annualized                                  Annualized
                                            Carrying /     Weighted      Carrying /   Carrying /       Weighted
                                              Market        Average        Market       Market          Average
                                              Value          Yield         Value        Value           Yield
                                              ------         -----        ------        ------          -----
                                                                   (Dollars in Thousands)
<S>                                           <C>             <C>         <C>           <C>             <C>
Investment securities available for sale:
     U.S. Government
              agency securities               $    --         0.00%       $    --       $17,067         4.60%
     Mortgage-backed securities                   583         4.75%            --         7,334         3.83%
     Corporate and municipal bonds                 --         0.00%            --        10,108         5.14%
     Federal Home Loan Mortgage Corp. Stock        --         0.00%           161           161         0.00%
                                              -------                    --------       -------
 Total securiy investments                    $   583                                   $34,670
                                              =======                                   =======
</TABLE>

SOURCES OF FUNDS

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

      Deposits. Deposits are attracted principally from within the Bank's market
area through the offering of a broad selection of deposit instruments including
NOW accounts, regular savings, money market deposit, term certificate accounts
and individual retirement accounts. Deposit account terms vary according to the
minimum balance required, the
<PAGE>
period of time during which the funds must remain on deposit, and the interest
rate, among other factors. The maximum rate of interest which the Bank must pay
is not established by regulatory authority. The asset / liability committee
(ALCO) regularly evaluates its internal cost of funds, surveys rates offered by
competing institutions, reviews the cash flow requirements for lending and
liquidity, and executes rate changes when deemed appropriate. The Bank has
sought to decrease the risk associated with changes in interest rates by
offering competitive rates on some deposit accounts and by pricing certificates
of deposit to provide customers with incentives to choose certificates of
deposit with longer terms. The Bank also attracts non-interest bearing
commercial deposit accounts from its commercial borrowers and offers a
competitive sweep product that is not insured by the FDIC. The Bank periodically
obtains funds through brokers or through a solicitation of funds outside its
market area when rates for these deposits compare favorably to local market
rates. The Bank offers a limited amount of certificates of deposit in excess of
$100,000 which may have negotiated rates. Future liquidity needs are expected to
be satisfied through the use of FHLB borrowings as necessary. Management does
not generally plan on paying above market rates on deposit products.

      Savings Portfolio. Savings in the Bank as of December 31, 2003 were
represented by the various types of deposit programs described below.

<TABLE>
<CAPTION>
Weighted                                                                               Minimum                         Percentage
 Average      Original                                                                 Opening                          of Total
  Rate          Term                              Description                          Amount         Balance           Deposits
  ----          -----                             -----------                          -------        --------          --------
                                                                                                   (In thousands)
<S>           <C>                    <C>                                              <C>             <C>                 <C>
                                                Checking and Savings
                                     -------------------------------------------
   NA%        N/A                    Non-interest checking                            $     --        $   7,282            4.80%
  0.35%       N/A                    NOW accounts                                          100           13,596            8.96%
  0.30%       N/A                    Statement savings                                      50           25,791           17.00%
  0.28%       N/A                    IRA Statement Savings                                 100               60            0.04%
  0.73%       N/A                    Investment sweep account                            2,500            2,987            1.97%
  1.22%       N/A                    Money market accounts                                 500           11,613            7.66%
                                                                                                      ---------          ------
                                     Total checking and savings accounts                              $  61,328           40.43%
                                                                                                      ---------          ------


                                                   Certificates of Deposit
                                     -------------------------------------------
  0.80%       3 - 5 months           Fixed term, fixed rate                                500            1,919            1.26%
  0.96%       6 -11 months           Fixed term, fixed rate                                500            4,573            3.01%
  1.64%       12-17 months           Fixed term, fixed rate                                500           20,194           13.32%
  2.03%       18-23 months           Fixed term, fixed rate                                500            2,797            1.84%
  2.96%       24-35 months           Fixed term, fixed rate                                500           12,132            8.00%
  3.99%       36-47 months           Fixed term, fixed rate                                500           13,804            9.10%
  5.08%       48-59 months           Fixed term, fixed rate                                500            1,592            1.05%
  4.80%       60+ months             Fixed term, fixed rate                                500            9,426            6.21%
  0.80%       3 -5 months            IRA accounts fixed rate                               250              213            0.14%
  0.95%       6 -11 months           IRA accounts fixed rate                               250              412            0.27%
  1.33%       12-17 months           IRA accounts fixed rate                               250              618            0.41%
  1.67%       18-23 months           IRA accounts fixed rate                               500              905            0.60%
  2.98%       24-35 months           IRA accounts fixed rate                               500            1,239            0.82%
  3.64%       36-47 months           IRA accounts fixed rate                               500            2,188            1.44%
  3.62%       48-59 months           IRA accounts fixed rate                               500              189            0.12%
  5.69%       60+ months             IRA accounts fixed rate                               500           12,636            8.33%
  5.19%       1-12 moonths           Jumbo                                             100,000            1,269            0.84%
  6.23%       12+ months             Jumbo                                             100,000            1,703            1.12%
  5.60%                              Brokered CDs                                                         2,564            1.69%
                                                                                                      ---------          ------
                                     Total certificates of deposit                                    $  90,374           59.57%

                                     Total deposits                                                   $ 151,702          100.00%
                                                                                                      =========          ======
</TABLE>
<PAGE>
The following table sets forth the change in dollar amount of savings deposits
in the various types of savings accounts offered by the Bank between the dates
indicated.

<TABLE>
<CAPTION>
                                                                          At December 31,
                                    -----------------------------------------------------------------------------------------------
                                                2003                            2002                             2001
                                    -----------------------------    ----------------------------     -----------------------------
                                              Percent    Increase              Percent   Increase               Percent    Increase
                                              of Total  (Decrease)            of Total  (Decrease)              of Total  (Decrease)
                                     Amount     (1)         (2)       Amount     (1)        (2)        Amount     (1)        (2)
                                    --------   ------    --------    --------   ------    --------    --------   ------    --------
                                        (Dollars in thousands)          (Dollars in thousands)           (Dollars in thousands)
<S>                                 <C>        <C>       <C>         <C>        <C>       <C>         <C>        <C>       <C>
Non-interest-bearing                $  7,282     4.80%   $  1,864    $  5,418     3.47%   $  1,996    $  3,422     2.05%   $  1,135
NOW accounts                          13,596     8.96      (1,055)     14,651     9.39         261      14,390     8.64         864
Passbook                              25,851    17.04      (3,408)     29,259    18.74         591      28,668    17.21       3,613
Investment sweep account .             2,987     1.97         139       2,848     1.82         594       2,254     1.35         987
Money market accounts                 11,613     7.66       3,149       8,464     5.42         728       7,736     4.65       1,481

Time deposits that mature:
  Less than 12 months                 41,943    27.65      (3,010)     44,953    28.80      27,994      16,959    10.18     (25,317)
  Within 12-36 months                 31,934    21.05      11,016      20,918    13.40     (15,563)     36,481    21.91       6,234
  Beyond 36 months                    13,524     8.91      (7,909)     21,433    13.73     (21,136)     42,569    25.56      13,372
  Jumbo                                2,972     1.96      (5,176)      8,148     5.22      (5,911)     14,059     8.44       1,398
                                    --------   ------    --------    --------   ------    --------    --------   ------    --------

Total deposits                      $151,702   100.00%   $ (4,390)   $156,092   100.00%   $(10,446)   $166,538   100.00%   $  3,767
                                    ========   ======    ========    ========   ======    ========    ========   ======    ========
</TABLE>

(1)   Represents percentage of total deposits.

(2)   Represents increase (decrease) in balance from end of prior period.

      Time Deposit Rates. The following table sets forth the time deposits in
the Bank classified by rates as of the dates indicated (see footnote number 8 in
the 2003 Alpena Bancshares Inc. and Subsidiaries Annual Report for a more
detailed breakdown by rate range):

<TABLE>
<CAPTION>
                                                    At December 31,
                                      ------------------------------------------
            Rate                        2003             2002             2001
          --------                    --------         --------         --------
                                                    (In Thousands)
<S>                                   <C>              <C>              <C>
0% - 4.99% ..................         $ 68,422         $ 55,894         $ 40,720
5.00% - 6.99% ...............           18,768           34,394           62,037
7.00% - 8.99% ...............            3,183            5,073            7,311
9.00% - 9.50% ...............               --               --               --
                                      --------         --------         --------
                                      $ 90,373         $ 95,361         $110,068
</TABLE>

      Time Deposit Maturities. The following table sets forth the amount and
maturities of time deposits at December 31, 2003.

<TABLE>
<CAPTION>
                  Less Than       1 -2           2-3           3-5      Greater than
     Rate         One Year        Years         Years         Years        5 Years         Total
-------------     ---------     ---------     ---------     ---------     ---------     ---------
<S>               <C>           <C>           <C>           <C>           <C>           <C>
   0% - 4.99%     $  36,790     $   9,007     $  16,332     $   5,768     $     525     $  68,422
5.00% - 6.99%         6,044         3,870         2,822         1,732         4,300     $  18,768
7.00% - 8.99%           378         1,306            --           128         1,371     $   3,183
                  ---------     ---------     ---------     ---------     ---------     ---------
                  $  43,212     $  14,183     $  19,154     $   7,628     $   6,196     $  90,373
</TABLE>
<PAGE>
      Large Certificates of Deposit Maturities. The following table indicates
the amount of the Bank's certificates of deposit that are equal to or greater
than $100,000 by time remaining until maturity at December 31, 2003. This amount
does not include savings accounts with balances greater than $100,000 or more,
which totaled approximately $4.4 million at December 31, 2003.


<TABLE>
<CAPTION>

            MATURITY PERIOD                                      CERTIFICATES
           -----------------                                      OF DEPOSIT
                                                                --------------
                                                                (IN THOUSANDS)
<S>                                                                 <C>
     Three months or less .............................             $ 1,317
     Three through six months .........................               1,162
     Six through twelve months ........................               6,311
     Over twelve months ...............................               8,601
                                                                    -------

     Total ............................................             $17,391
                                                                    =======
</TABLE>

BORROWINGS

      Deposits are the Bank's primary source of funds. The Bank also obtains
funds from the FHLB. FHLB advances are required to be collateralized by selected
assets of the Bank. Such advances are made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. The
maximum amount that the FHLB will advance to member institutions, including the
Bank, for purposes other than meeting withdrawals, fluctuates from time to time
in accordance with the policies of the OTS and the FHLB. The maximum amount of
FHLB advances to a member institution generally is reduced by borrowings from
any other source. During the year ended December 31, 2003, the Bank decreased
its advances from the FHLB by $2.6 million, and such advances totaled $45.8
million at December 31, 2003. The other borrowing represents the note payable to
the former owners of InsuranCenter of Alpena which was purchased in June of
2003. The amount of the note payable is $1,357,000.


      The following table sets forth certain information regarding borrowings by
the Bank for the periods indicated.

<TABLE>
<CAPTION>
                                                Years Ended December 31,
                                            ---------------------------------
                                             2003         2002          2001
                                            -------      -------      -------
                                                  (Dollars in Thousands)
<S>                                           <C>          <C>          <C>
     Weighted average rate paid on:
       FHLB advances ..................       5.240%       5.810%       5.768%
       Other borrowings ...............       5.485%       0.000%          --%

     FHLB advances: (1)
       Maximum balance at any month end     $51,414      $51,720      $70,435
       Average balance ................     $47,973      $49,462      $60,461

     Other borrowings: (2)
       Maximum balance ................     $ 1,357      $    --      $    --
       Average balance ................     $   747      $    --      $    --
</TABLE>

(1)   FHLB advances, various adjustable and fixed rate notes, with renewable one
      year to ten year maturities.

(2)   Note Payable on the InsuranCenter of Alpena Purchase - June of 2003.
<PAGE>
                           REGULATION AND SUPERVISION

      As a federally chartered SAIF-insured savings bank, the Bank is subject to
examination, supervision and extensive regulation by the OTS and the FDIC. This
regulation and supervision establishes a comprehensive framework of activities
in which an institution can engage and is intended primarily for the protection
of the insurance fund and depositors. The Bank also is subject to regulation by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). The Federal Reserve Board requires reserves to be maintained against
deposits and certain other matters. The OTS examines the Bank and prepares
reports for the consideration of the Bank's Board of Directors on any
deficiencies that they may find in the Bank's operations. The FDIC also examines
the Bank in its role as the administrator of the SAIF. The Bank's relationship
with its depositors and borrowers also is regulated to a great extent by both
federal and state laws especially in such matters as the ownership of savings
accounts and the form and content of the Bank's mortgage documents. Any change
in such regulation, whether by the FDIC, OTS, or Congress, could have a material
adverse impact on the Company and the Bank and their operations. The description
of statutory provisions and regulations applicable to savings institutions and
their holding companies set forth herein does not purport to be a complete
description of such statutes and regulations and their effect on the Bank and
the Company.

      On November 12, 1999, the Gramm-Leach-Bliley Financial Services
Modernization Act of 1999 was signed into law. As a result of the legislation,
bank holding companies are permitted to engage in a wider variety of financial
activities than permitted under prior law, particularly with respect to
insurance and securities activities. In addition, in a change from prior law,
bank holding companies are in a position to be owned, controlled or acquired by
any company engaged in financially-related activities. However, to the extent
that it permits banks, securities firms and insurance companies to affiliate,
the financial services industry may experience further consolidation. This
additional consolidation could result in a growing number of larger financial
institutions that offer a wider variety of financial services than the Bank
might be able to offer. This could adversely impact the Bank's ability to retain
and attract customers that prefer to obtain all of their financial services from
one provider and, ultimately, the Bank's profitability.

FEDERAL REGULATION OF SAVINGS INSTITUTIONS

      Business Activities. The activities of savings institutions are governed
by federal law, which (1) restricts the solicitation of brokered deposits by
savings institutions that are troubled or not well-capitalized, (2) prohibits
the acquisition of any corporate debt security that is not rated in one of the
four highest rating categories, (3) restricts the aggregate amount of loans
secured by non-residential real estate property to 400% of capital, (4) permits
savings and loan holding companies to acquire up to 5% of the voting shares of
non-subsidiary savings institutions or savings and loan holding companies
without prior approval, and (5) permits bank holding companies to acquire
healthy savings institutions.

      Loans to One Borrower. Under federal law, savings institutions are
generally subject to the national bank limits on loans to one borrower.
Generally, savings institutions may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of the Bank's unimpaired capital
and surplus on an unsecured basis. An additional amount may be lent, equal to
10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain securities
and bullion, but generally does not include real estate. The Bank's maximum
loans-to-one-borrower limit was $2.6 million at December 31, 2003. As of
December 31, 2003, the Bank was in compliance with its loans-to-one-borrower
limitations.

      Qualified Thrift Lender Test. Federal law requires savings institutions to
meet a qualified thrift lender ("QTL") test. Under the QTL test, a savings
institution is required to maintain at least 65% of its "portfolio assets"
(total assets less (i) specified liquid assets up to 20% of total assets, (ii)
intangibles, including goodwill, and (iii) the value of property used to conduct
business) in certain "qualified thrift investments," primarily residential
mortgages and related investments, including certain mortgage-backed and related
securities on a monthly average basis in 9 out of every 12 months. A savings
institution that fails the QTL test must either convert to a bank charter or
operate under certain
<PAGE>
restrictions. As of December 31, 2003, the Bank maintained 104.09% of its
portfolio assets in qualified thrift investments and, therefore, met the QTL
test.

      Capital Distributions. OTS regulations govern capital distributions by
federal savings institutions, which include cash dividends, stock repurchases
and other transactions charged to the capital account of a savings institution.
A savings institution must file an application for OTS approval of a capital
distribution if either (1) the total capital distributions for the applicable
calendar year exceed the sum of the savings institution's net income for that
year to date plus the institution's retained net income for the preceding two
years, (2) the savings institution would not be at least adequately capitalized
following the distribution, (3) the distribution would violate any applicable
statute, regulation, agreement or OTS-imposed condition, or (4) the savings
institution is not eligible for expedited treatment of its filings. If an
application is not required to be filed, savings institutions which are a
subsidiary of a holding company, as well as certain other savings institution,
must still file a notice with the OTS at least 30 days before the board of
directors declares a dividend or approves a capital distribution.

      Any additional capital distributions would require prior OTS approval. If
the Bank's capital falls below its required levels or the OTS notifies it that
it is in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS may prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by regulation, if the OTS determines that the distribution would
constitute an unsafe or unsound practice.

      Liquidity. Liquidity represents the amount of an institution's assets that
can be quickly and easily converted into cash without significant loss. Liquid
assets include cash, U.S. Government securities, U.S. Government agency
guaranteed securities and certificates of deposit. The Bank is required to
maintain sufficient levels of liquidity as defined by the OTS regulations. This
requirement may be varied at the direction of the OTS. Regulations currently in
effect require that the Bank must maintain sufficient liquidity to ensure its
safe and sound operations. The Bank's objective for liquidity is to be above
20%. Liquidity as of December 31, 2003 was $42.3 million, or 26.9%, compared to
$47.0 million, or 24.4% at December 31, 2002. The levels of these assets are
dependent on the Bank's operating, financing, lending and investing activities
during any given period.

      Community Reinvestment Act and Fair Lending Laws. Federal savings
institutions have a responsibility under the Community Reinvestment Act and
related regulations of the OTS to help meet the credit needs of their
communities, including low- and moderate-income neighborhoods. In addition, the
Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from
discriminating in their lending practices on the basis of characteristics
specified in those statutes. An institution's failure to comply with the
provisions of the CRA could, at a minimum, result in regulatory restrictions on
its activities, and failure to comply with the Equal Credit Opportunity Act and
the Fair Housing Act could result in enforcement actions by the OTS, as well as
other federal regulatory agencies and the Department of Justice. The Bank
received a satisfactory CRA rating under the current CRA regulations in its most
recent federal examination by the OTS.

      Transactions with Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" or to make loans to specified
insiders is limited by Sections 23A and 23B of the Federal Reserve Act. The term
"affiliates" for these purposes generally means any company that controls or is
under common control with an institution, including the Company and its
non-savings institution subsidiaries. Section 23A limits the aggregate amount of
certain "covered" transactions with any individual affiliate to 10% of the
capital and surplus of the savings institution and also limits the aggregate
amount of covered transactions with all affiliates to 20% of the savings
institution's capital and surplus. Covered transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
Section 23A. The purchase of low quality assets from affiliates is generally
prohibited. Section 23B provides that covered transactions with affiliates,
including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the institution as those prevailing at the time for comparable
transactions with non-affiliated companies. In addition, savings institutions
are prohibited from lending to any affiliate that is engaged in activities that
are not permissible for bank holding companies and no savings institution may
purchase the securities of any affiliate other than a subsidiary.
<PAGE>
      The Bank's authority to extend credit to executive officers, directors and
10% stockholders, as well as entities controlled by these persons, is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and also by
Regulation O. Among other things, these regulations generally require these
loans to be made on terms substantially the same as those offered to
unaffiliated individuals and do not involve more than the normal risk of
repayment. However, recent regulations now permit executive officers and
directors to receive the same terms through benefit or compensation plans that
are widely available to other employees, as long as the director or executive
officer is not given preferential treatment compared to other participating
employees. Regulation O also places individual and aggregate limits on the
amount of loans the Bank may make to these persons based, in part, on the Bank's
capital position, and requires approval procedures to be followed. At December
31, 2003, the Bank was in compliance with these regulations.

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

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

      Assessments. Savings institutions are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semi-annual basis, is computed upon the savings
institution's consolidated total assets, as reported in the institution's latest
quarterly thrift financial report. The Bank paid assessments of approximately
$61,035 in 2003.

      Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 4.0% leverage ratio (or core capital ratio) and an 8.0% risk-based capital
standard. Core capital is defined as common stockholders' equity (including
retained earnings), certain non-cumulative perpetual preferred stock and related
surplus, minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain qualifying supervisory goodwill and certain
purchased mortgage servicing rights ("PMSRs"). Tangible capital is defined as
core capital less all intangible assets (including supervisory goodwill) plus a
specified amount of PMSRs. The OTS regulations also require that, in meeting the
tangible ratio, leverage and risk-based capital standards, institutions must
deduct investments in and loans to subsidiaries engaged in activities not
permissible for a national bank, and unrealized gains (losses) on certain
available for sale securities.

      The risk-based capital standard for savings institutions requires the
maintenance of Tier 2 (core) and total capital (which is defined as core capital
and supplementary capital) to risk weighted assets of 4.0% and 8.0%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight of
0% to 100%, as assigned by the OTS capital regulation based on the risks the OTS
believes are inherent in
<PAGE>
the type of asset. The components of Tier 1 (core) capital are equivalent to
those discussed earlier under the 4.0% leverage ratio standard. The components
of supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and allowance for loan and lease losses.
Allowance for loan and lease losses includable in supplementary capital is
limited to a maximum of 1.25%. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.

      OTS regulatory capital rules also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings institution's interest rate risk is
measured by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates,
divided by the estimated economic value of the institution's assets. In
calculating its total capital under the risk-based rule, a savings institution
whose measured interest rate risk exposure exceeds 2%, must deduct an interest
rate component equal to one-half of the excess change. The OTS has deferred, for
the present time, the date on which the interest rate component is to be
deducted from total capital. The rule also provides that the Director of the OTS
may waive or defer an institution's interest rate risk component on a
case-by-case basis. Further specific information is available in the Management
Discussion and Analysis section of the 2003 Alpena Bancshares Inc. Annual
Report.
<PAGE>
The following table sets forth the Bank's capital position at December 31, 2003,
2002 and 2001 as compared to the minimum capital requirements.

<TABLE>
<CAPTION>
                                                            AT DECEMBER 31,
                                           2003                   2002                    2001
                                    ------------------      ------------------      ------------------
                                               Percent                 Percent                 Percent
                                    Amount    of Assets     Amount    of Assets     Amount    of Assets
                                    ------     -------      ------     -------      ------     -------
                                                          (Dollar in Thousands)
<S>                                 <C>           <C>       <C>           <C>       <C>           <C>
Equity capital ................     21,951        9.81%     21,747        9.50%     20,597        8.53%

Tangible Capital Requirement:
     Tangible capital level ...     17,019        7.78%     18,149        8.08%     17,212        7.24%
     Requirement ..............      3,283        1.50%      3,370        1.50%      3,568        1.50%
                                    ------     -------      ------     -------      ------     -------
     Excess ...................     13,736        6.28%     14,779        6.58%     13,644        5.74%

Core Capital Requirement:
     Core capital level .......     17,019        7.78%     18,150        8.08%     17,212        7.24%
     Requirement ..............      8,754        4.00%      8,986        4.00%      9,516        4.00%
                                    ------     -------      ------     -------      ------     -------
     Excess ...................      8,265        3.78%      9,164        4.08%      7,696        3.24%

Risk-based Capital Requirement:
     Risk-based capital level .     18,119       11.96%     19,137       15.95%     17,974       13.11%
     Requirement ..............     12,116        8.00%      9,596        8.00%     10,972        8.00%
                                    ------     -------      ------     -------      ------     -------
     Excess ...................      6,003        3.96%      9,541        7.95%      7,002        5.11%
</TABLE>

PROMPT CORRECTIVE REGULATORY ACTION

      Under the OTS Prompt Corrective Action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has total risk-based capital of less than
8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has the total
risk-based capital less than 6.0%, a Tier 1 core risk-based capital ratio of
less than 4.0% or a leverage ratio that is less than 4.0% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 1.5% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." In addition, numerous
mandatory supervisory actions become immediately applicable to the institution,
including, but not limited to, restrictions on growth, investment activities,
capital distributions, and affiliate transactions. The OTS could also take any
one of a number of discretionary supervisory actions, including the issuance of
a capital directive and the replacement of senior executive officers and
directors.

FEDERAL HOME LOAN BANK SYSTEM

      The Bank is a member of the FHLB of Indianapolis, which is one of the 12
regional Federal Home Loan Banks. As a member of the FHLB, the Bank is required
to purchase and maintain stock in the FHLB of Indianapolis in an amount equal to
the greater of 1% of its aggregate unpaid residential mortgage loans, home
purchase contracts or similar obligations at the beginning of each year, or 1/20
(or such greater fraction as established by the FHLB) of outstanding FHLB
advances. At December 31, 2003 the Bank held $4.5 million in FHLB stock, which
was in compliance with this requirement. Certain provisions of FIRREA require
all 12 Federal Home Loan Banks to provide financial assistance for the
resolution of troubled financial institutions and to contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing projects.
<PAGE>
These contributions could cause rates on the FHLB advances to increase and could
affect adversely the level of FHLB dividends paid and the value of FHLB stock in
the future.

FEDERAL RESERVE SYSTEM

      The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Bank is in compliance with
these reserve requirements. The balances maintained to meet the reserve
requirements imposed by the FRB may be used to satisfy liquidity requirements
imposed by the OTS.

HOLDING COMPANY REGULATION

      General. The Holding Company and the Company are non-diversified mutual
savings and loan holding companies within the meaning of federal law. As such,
the Holding Company and the Company are registered with the OTS and are subject
to OTS regulations, examinations, supervision and reporting requirements. In
addition, the OTS has enforcement authority over the Holding Company and the
Company and any non-savings institution subsidiaries. Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the subsidiary savings institution. As federal
corporations, the Company and the Holding Company are generally not subject to
state business organizations law.

      Permitted Activities. Pursuant to federal law and OTS regulations and
policy, a mutual holding company and a federally chartered mid-tier holding
company such as the Company may engage in the following activities: (i)
investing in the stock of a savings institution; (ii) acquiring a mutual
association through the merger of such association into a savings institution
subsidiary of such holding company or an interim savings institution subsidiary
of such holding company; (iii) merging with or acquiring another holding
company, one of whose subsidiaries is a savings institution; (iv) investing in a
corporation, the capital stock of which is available for purchase by a savings
institution under federal law or under the law of any state where the subsidiary
savings institution or institutions share their home offices; (v) furnishing or
performing management services for a savings institution subsidiary of such
company; (vi) holding, managing or liquidating assets owned or acquired from a
savings subsidiary of such company; (vii) holding or managing properties used or
occupied by a savings institution subsidiary of such company properties used or
occupied by a savings institution subsidiary of such company; (viii) acting as
trustee under deeds of trust; (ix) any other activity (A) that the Federal
Reserve Board, by regulation, has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the
Director, by regulation, prohibits or limits any such activity for savings and
loan holding companies; or (B) in which multiple savings and loan holding
companies were authorized (by regulation) to directly engage on March 5, 1987;
and (x) purchasing, holding, or disposing of stock acquired in connection with a
qualified stock issuance if the purchase of such stock by such savings and loan
holding company is approved by the Director. If a mutual holding company
acquires or merges with another holding company, the holding company acquired or
the holding company resulting from such merger or acquisition may only invest in
assets and engage in activities listed in (i) through (x) above, and has a
period of two years to cease any nonconforming activities and divest of any
nonconforming investments.

      Federal law prohibits a savings and loan holding company, including the
Company and the Holding Company, directly or indirectly, or through one or more
subsidiaries, from acquiring another savings institution or holding company
thereof, without prior written approval of the OTS. It also prohibits the
acquisition or retention of, with certain exceptions, more than 5% of a
non-subsidiary savings institution, a non-subsidiary holding company, or a
non-subsidiary company engaged in activities other than those permitted by
federal law; or acquiring or retaining control of an institution that is not
federally insured. In evaluating applications by holding companies to acquire
savings institutions, the OTS must consider the financial and managerial
resources, future prospects of the company and institution involved, the effect
of the acquisition on the risk to the insurance fund, the convenience and needs
of the community and competitive factors.

      The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies, and (ii) the
acquisition of a savings institution in another
<PAGE>
state if the laws of the state of the target savings institution specifically
permit such acquisitions. The states vary in the extent to which they permit
interstate savings and loan holding company acquisitions.

      Waivers of Dividends by the Holding Company. OTS regulations require the
Holding Company to notify the OTS of any proposed waiver of its right to receive
dividends. The OTS reviews dividend waiver notices on a case-by-case basis, and,
in general, does not object to any such waiver if: (i) the Holding Company's
board of directors determines that such waiver is consistent with such
directors' fiduciary duties to the Holding Company's members; (ii) for as long
as the savings institution subsidiary is controlled by the Holding Company, the
dollar amount of dividends waived by the Holding Company are considered as a
restriction to the retained earnings of the savings institution, which
restriction, if material, is disclosed in the public financial statements of the
savings institution as a note to the financial statements; (iii) the amount of
any dividend waived by the Holding Company is available for declaration as a
dividend solely to the Holding Company, and, in accordance with SFAS No. 5,
where the savings institution determines that the payment of such dividend to
the Holding Company is probable, an appropriate dollar amount is recorded as a
liability; (iv) the amount of any waived dividend is considered as having been
paid by the savings institution in evaluating any proposed dividend under OTS
capital distribution regulations; and (v) in the event the Holding Company
converts to stock form, the appraisal submitted to the OTS in connection with
the conversion application takes into account the aggregate amount of the
dividends waived by the Holding Company.

      Conversion of the Holding Company to Stock Form. OTS regulations permit
the Holding Company to undertake a conversion from mutual to stock form
("Conversion Transaction"). In a Conversion Transaction a new holding company
would be formed as the successor to the Company (the "New Holding Company"), the
Holding Company's corporate existence would end, and certain customers of the
Bank would receive the right to subscribe for additional shares of the New
Holding Company. In a Conversion Transaction, each share of Common Stock held by
stockholders of the Company other than the Holding Company ("Minority
Stockholders") would be automatically converted into a number of shares of
common stock of the New Holding Company determined pursuant to an exchange ratio
that ensures that after the Conversion Transaction, subject to any adjustment to
reflect the receipt of cash in lieu of fractional shares, the percentage of the
to-be outstanding shares of the New Holding Company issued to Minority
Stockholders in exchange for their Common Stock would be equal to the percentage
of the outstanding shares of Common Stock held by Minority Stockholders
immediately prior to the Conversion Transaction. The total number of shares held
by Minority Stockholders after the Conversion Transaction would also be affected
by any purchases by such persons in the offering that would be conducted as part
of the Conversion Transaction.

FEDERAL SECURITIES LAW

      The Common Stock is registered with the SEC under the Securities Exchange
Act of 1934 (the "Exchange Act"). The Company is subject to the information,
proxy solicitation, insider trading restrictions and other requirements of the
SEC under the Exchange Act. Common Stock held by persons who are affiliates
(generally officers, directors and principal stockholders) of the Company may
not be resold without registration or unless sold in accordance with certain
resale restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
<PAGE>
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC

      The FDIC has adopted a risk-based deposit insurance assessment system. The
FDIC assigns an institution to one of three capital categories, based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period, and one of three supervisory subcategories
within each capital group. The three capital categories are well capitalized,
adequately capitalized and undercapitalized. The supervisory subgroup to which
an institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which the
FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. The FDIC is authorized to raise the assessment rates. The FDIC has
exercised this authority several times in the past and may raise insurance
premiums in the future. If this type of action is taken by the FDIC, it could
have an adverse effect on the earnings of the Bank.

THE USA PATRIOT ACT

      In response to the events of September 11, 2001, the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, was signed into law on
October 26, 2001. The USA PATRIOT Act gives the federal government new powers to
address terrorist threats through enhanced domestic security measures, expanded
surveillance powers, increased information sharing and broadened anti-money
laundering requirements. By way of amendments to the Bank Secrecy Act, Title III
of the USA PATRIOT Act takes measures intended to encourage information sharing
among bank regulatory agencies and law enforcement bodies. Further, certain
provisions of Title III impose affirmative obligations on a broad range of
financial institutions, including banks, thrifts, brokers, dealers, credit
unions, money transfer agents and parties registered under the Commodity
Exchange Act.

Among other requirements, Title III of the USA PATRIOT Act imposes the following
requirements with respect to financial institutions:

      -     Pursuant to Section 352, all financial institutions must establish
            anti-money laundering programs that include, at minimum: (i)
            internal policies, procedures, and controls; (ii) specific
            designation of an anti-money laundering compliance officer; (iii)
            ongoing employee training programs; and (iv) an independent audit
            function to test the anti-money laundering program.

      -     Section 326 authorizes the Secretary of the Department of Treasury,
            in conjunction with other bank regulators, to issue regulations by
            October 26, 2002 that provide for minimum standards with respect to
            customer identification at the time new accounts are opened.

      -     Section 312 requires financial institutions that establish,
            maintain, administer, or manage private banking accounts or
            correspondence accounts in the United States for non-United States
            persons or their representatives (including foreign individuals
            visiting the United States) to establish appropriate, specific, and,
            where necessary, enhanced due diligence policies, procedures, and
            controls designed to detect and report money laundering.

      -     Financial institutions are prohibited from establishing,
            maintaining, administering or managing correspondent accounts for
            foreign shell banks (foreign banks that do not have a physical
            presence in any country), and will be subject to certain record
            keeping obligations with respect to correspondent accounts of
            foreign banks.

      -     Bank regulators are directed to consider a holding company's
            effectiveness in combating money laundering when ruling on Federal
            Reserve Act and Bank Merger Act applications.

      The federal banking agencies have begun to propose and implement
regulations pursuant to the USA PATRIOT Act. These proposed and interim
regulations would require financial institutions to adopt the policies and
<PAGE>
procedures contemplated by the USA PATRIOT Act.

SARBANES-OXLEY ACT OF 2002

      On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of
2002 ("Sarbanes-Oxley"), which implemented legislative reforms intended to
address corporate and accounting fraud. In addition to the establishment of a
new accounting oversight board that will enforce auditing, quality control and
independence standards and will be funded by fees from all publicly traded
companies, Sarbanes-Oxley places certain restrictions on the scope of services
that may be provided by accounting firms to their public company audit clients.
Any non-audit services being provided to a public company audit client will
require preapproval by the company's audit committee. In addition,
Sarbanes-Oxley makes certain changes to the requirements for audit partner
rotation after a period of time. Sarbanes-Oxley requires chief executive
officers and chief financial officers, or their equivalent, to certify to the
accuracy of periodic reports filed with the Securities and Exchange Commission,
subject to civil and criminal penalties if they knowingly or willingly violate
this certification requirement. The Company's Chief Executive Officer and Chief
Financial Officer have signed certifications to this Form 10-K as required by
Sarbanes-Oxley. In addition, under Sarbanes-Oxley, counsel will be required to
report evidence of a material violation of the securities laws or a breach of
fiduciary duty by a company to its chief executive officer or its chief legal
officer, and, if such officer does not appropriately respond, to report such
evidence to the audit committee or other similar committee of the board of
directors or the board itself.

      Under Sarbanes-Oxley, longer prison terms will apply to corporate
executives who violate federal securities laws; the period during which certain
types of suits can be brought against a company or its officers is extended; and
bonuses issued to top executives prior to restatement of a company's financial
statements are now subject to disgorgement if such restatement was due to
corporate misconduct. Executives are also prohibited from trading the company's
securities during retirement plan "blackout" periods, and loans to company
executives (other than loans by financial institutions permitted by federal
rules and regulations) are restricted. In addition, a provision directs that
civil penalties levied by the Securities and Exchange Commission as a result of
any judicial or administrative action under Sarbanes-Oxley be deposited to a
fund for the benefit of harmed investors. The Federal Accounts for Investor
Restitution provision also requires the Securities and Exchange Commission to
develop methods of improving collection rates. The legislation accelerates the
time frame for disclosures by public companies, as they must immediately
disclose any material changes in their financial condition or operations.
Directors and executive officers must also provide information for most changes
in ownership in a company's securities within two business days of the change.

      Sarbanes-Oxley also increases the oversight of, and codifies certain
requirements relating to audit committees of public companies and how they
interact with the company's "registered public accounting firm." Audit committee
members must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose whether at least one member of the committee is a "financial expert"
(as such term is defined by the Securities and Exchange Commission) and if not,
why not. Under Sarbanes-Oxley, a company's registered public accounting firm is
prohibited from performing statutorily mandated audit services for a company if
such company's chief executive officer, chief financial officer, comptroller,
chief accounting officer or any person serving in equivalent positions had been
employed by such firm and participated in the audit of such company during the
one-year period preceding the audit initiation date. Sarbanes-Oxley also
prohibits any officer or director of a company or any other person acting under
their direction from taking any action to fraudulently influence, coerce,
manipulate or mislead any independent accountant engaged in the audit of the
company's financial statements for the purpose of rendering the financial
statements materially misleading. Sarbanes-Oxley also requires the Securities
and Exchange Commission to prescribe rules requiring inclusion of any internal
control report and assessment by management in the annual report to
shareholders. Sarbanes-Oxley requires the company's registered public accounting
firm that issues the audit report to attest to and report on management's
assessment of the company's internal controls.

      Although we anticipate that we will incur additional expense in complying
with the provisions of the Sarbanes-Oxley Act and the resulting regulations,
management does not expect that such compliance will have a material impact on
our results of operations or financial condition.
<PAGE>
                           FEDERAL AND STATE TAXATION

      Federal Taxation. For federal income tax purposes, the Company files a
consolidated federal income tax return on a calendar year basis. This return
includes the Bank. The Holding Company also files a federal income tax return.
Because the Holding Company has nominal income, it has had no material federal
income tax liability.

      The Company and the Holding Company are subject to the rules of federal
income taxation generally applicable to corporations under the Internal Revenue
Code of 1986, as amended (the "Code"). Most corporations are not permitted to
make deductible additions to bad debt reserves under the Code. However, savings
institutions and savings banks such as the Bank, which met certain tests
prescribed by the Code, could for tax years beginning prior to January 1, 1996,
benefit from favorable provisions regarding deductions from taxable income for
annual additions to their bad debt reserve. For purposes of the bad debt reserve
deduction, loans were separated into "qualifying real property loans," which
generally are loans secured by interests in real property, and non-qualifying
loans, which are all other loans. The bad debt reserve deduction with respect to
non-qualifying loans was based on actual loss experience (the "experience
method") or a percentage of taxable income determined without regard to such
deduction (the "percentage of taxable income method").

      The Bank has elected to use the method that resulted in the greatest
deduction for federal income tax purposes, which historically had been the
percentage of taxable income method. The amount of the bad debt deduction that a
thrift institution may claim with respect to additions to its reserve for bad
debts is subject to certain limitations. First, the full deduction was available
only if at least 60% of the institution's assets fell within certain designated
categories. Second, under the percentage of taxable income method, the bad debt
deduction attributable to "qualifying real property loans" could not exceed the
greater of (i) the amount deductible under the experience method or (ii) the
amount which, when added to the bad debt deduction for non-qualifying loans,
equaled the amount by which 12% of the sum of the total deposits and the advance
payments by borrowers for taxes and insurance at the end of the taxable year
exceeds the sum of the surplus, undivided profits, and reserves at the beginning
of the taxable year. Third, the amount of the bad debt deduction attributable to
qualifying real property loans computed using the percentage of taxable income
method was permitted only to the extent that the institution's reserve for
losses on qualifying real property loans at the close of the taxable year did
not exceed 6% of such loans outstanding at such time.

      The Small Business Job Protection Act of 1996 (the "Act") repealed the
percentage of taxable income method for years beginning after December 31, 1995,
and "large" institutions, i.e., the quarterly average of the institution's total
assets or of the consolidated group of which it is a member, exceeds $500
million for the year, may no longer be entitled to use the experience method of
computing additions to their bad debt reserve. A "large" institution must use
the direct write-off method for deducting bad debts, under which charge-offs are
deducted and recoveries are taken into taxable income as incurred. If the Bank
is not a "large" institution, the Bank will continue to be permitted to use the
experience method. The Bank will be required to recapture (i.e., take into
income) over a six-year period its applicable excess reserves, i.e., the balance
of its reserves for losses on qualifying loans and non-qualifying loans, as of
the close of the last tax year beginning before January 1, 1996, over the
greater of (a) the balance of such reserves as of December 31, 1987 (pre-1988
reserves) or (b) in the case of a bank which is not a "large" institution, an
amount that would have been the balance of such reserves as of the close of the
last tax year beginning before January 1, 1996, had the bank always computed the
additions to its reserves using the experience method. Postponement of the
recapture is possible for a two-year period if an institution meets a minimum
level of mortgage lending for 1996 and 1997.

      The Bank currently is accounting for income taxes in accordance with SFAS
No. 109. The liability method accounts for deferred income taxes by applying the
enacted statutory rates in effect at the balance sheet date to differences
between the book cost and the tax cost of assets and liabilities. The resulting
deferred tax liabilities and assets are adjusted to reflect changes in tax laws.
SFAS 109 was implemented by the Bank effective January 1, 1993.

      The Bank is subject to the corporate alternative minimum tax which is
imposed to the extent it exceeds the Bank's regular income tax for the year. The
alternative minimum tax will be imposed at the rate of 20% of a specially
computed tax base. Included in this base will be a number of preference items,
including the following: (i) 100% of the excess of a thrift institution's bad
debt deduction over the amount that would have been allowable on the basis of
actual
<PAGE>
experience; and (ii) interest on certain tax-exempt bonds issued after August 7,
1986. In addition, for purposes of the alternative minimum tax, the amount of
alternative minimum taxable income that may be offset by net operating losses is
limited to 90% of alternative minimum taxable income.

      The Bank was last audited by the Internal Revenue Service in 1995, for tax
years 1992 and 1993. The audit did not result in material adjustments to the
Bank's tax returns.

      Michigan State Taxation. During 1999, the State of Michigan passed
legislation that resulted in elimination of the Michigan single business tax by
gradually phasing it out over the next 23 years. Public Act 115 reduces the
single business tax rate by 0.1% annually beginning January 1, 1999. The Bank
files Michigan Single Business Tax (SBT) returns, and in 2003 was subject to tax
at a rate equal to 1.9% of taxable income. For this purpose, "taxable income"
generally means federal taxable income, subject to certain adjustments to arrive
at an adjusted tax base. The Bank was audited by the State of Michigan in 2001
for the tax years 1997 - 2000. No material adjustments were found.

SUBSIDIARY ACTIVITY

      The Bank has two subsidiaries; the first is Financial Services & Mortgage
Corporation ("FSMC"). At December 31, 2003, the net book value of the Bank's
investment in FSMC was $786,400. The Bank may make additional investments in
FSMC in the future. FSMC invests in real estate which includes leasing, selling,
developing and maintaining real estate properties. FSMC also holds MIMLIC stock.
Because of the nature of FSMC's real estate development activities, 100% of the
Bank's investment in FSMC has been deducted from the Bank's capital. FSMC had a
net income of $37,905 for the year ended December 31, 2003.

      The Bank also has a second subsidiary, the InsuranCenter of Alpena, (ICA),
which was acquired during 2003 as means to help diversify income sources. The
Bank acquired (ICA), a licensed insurance agency engaged in the business of
property, casualty and health insurance, for $2.6 million. The former owners of
ICA remain with the organization and are entitled to an "earn-out" payment of up
to $300,000 per year for three years if specific net sales levels are achieved.
The earn out payment level for net sales was achieved for 2003 and was recorded
at December 31, 2003. The $300,000 payment was made to the former owners in
February 2004. This amount was added to the Goodwill associated with the
purchase. ICA had a net income of $219,230 for the year ended December 31, 2003.

PERSONNEL

      As of December 31, 2003, the Bank had 95 full-time and 9 part-time
employees. None of the Bank's employees is represented by a collective
bargaining group. The Bank believes its relationship with its employees to be
good. The InsuranCenter of Alpena had 18 employees as of the same date. FSMC has
no employees.

ITEM 2.  PROPERTIES

      (a) The Company conducts its business through the Bank's main office and
seven full-service branch offices located in Alpena, Ossineke, Mio, Cheboygan,
Lewiston, Oscoda and Gaylord, Michigan. The Lewiston branch is leased on
short-term lease agreement. All of the remaining offices are owned by the Bank.
The aggregate net book value of the Bank's premises and equipment was $5.8
million, net of $2.8 million of depreciation at December 31, 2003.

      (b) INVESTMENT POLICIES. For a description of the Bank's policies (all of
which may be changed without a vote of the Bank's security holders) and the
limitations on the percentage of assets which may be invested in any one
investment, or type of investment with respect to: (1) investments in real
estate or interests in real estate; (2) investments in real estate mortgages;
and (3) securities of or interests in persons primarily engaged in real estate
activities, reference is made hereunder to the information presented above under
"Item 1. Description of Business."

      (c) DESCRIPTION OF REAL ESTATE AND OPERATING DATA. Not Applicable; the
book value of each of the Company's properties is less than 10% of the Company's
total consolidated assets at December 31, 2003.
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS

      The Company and the Bank are periodically involved in claims and lawsuits
that are incident to their business. At December 31, 2003, neither the Company
nor the Bank was involved in any claims or lawsuits material to their respective
businesses.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted during the fourth quarter of the year ended
December 31, 2003 to a vote of security holders.

                                     PART II

ITEM 5.  MARKET FOR COMPANY'S COMMON STOCK AND RELATED
         STOCKHOLDER MATTERS

      For information concerning the market for the Company's common stock, the
section captioned "Stockholder Information" of the Company's Annual Report to
Stockholders for the Year Ended December 31, 2003 (the "Annual Report to
Stockholders") is incorporated herein by reference.

      Information concerning dividends paid by the Company in the last two years
on its common stock follows:

<TABLE>
<CAPTION>

                                     Dividend       Payment        Dividend
            Period                   Declared         Date         per share
<S>                                 <C>            <C>            <C>
        1st Quarter 2002             3/12/2002      4/25/2002     $    0.125
        2nd Quarter 2002             6/11/2002      7/25/2002     $    0.125
        3rd Quarter 2002             9/10/2002     10/25/2002     $    0.125
        4th Quarter 2002            12/10/2002      1/24/2003     $    0.125
        1st Quarter 2003             3/18/2003      4/25/2003     $    0.125
        2nd Quarter 2003             6/17/2003      7/25/2003     $    0.125
        3rd Quarter 2003             9/16/2003     10/24/2003     $    0.125
        4th Quarter 2003            12/16/2003      1/23/2004     $    0.125
</TABLE>

      As of March 8, 2004, there were approximately 367 holders of record of the
Company's common stock.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

      The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the Company's Annual Report to Stockholders is
incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS

      Pages 16 to 54 of the Company's Annual Report to Stockholders are
incorporated herein by reference.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

         None
<PAGE>
ITEM 8A. CONTROLS AND PROCEDURES

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

      There has been no change in the Company's internal control over the
financial reporting during the Company's fourth quarter of fiscal year 2003 that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.

                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

      Information concerning directors and executive officers of the Company,
the Audit Committee, the Company's audit committee financial expert and the
Company's Code of Ethics is incorporated herein by reference from the Company's
definitive Proxy Statement dated March 15, 2004 (the "Proxy Statement"),
specifically the section captioned "Proposal I--Election of Directors."

ITEM 10. EXECUTIVE COMPENSATION

      Information concerning executive compensation is incorporated herein by
reference from the Company's Proxy Statement, specifically the sections
captioned "Proposal I--Election of Directors--Executive Compensation,"
"--Directors' Compensation," and "--Benefits."

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Information concerning security ownership of certain owners and management
is incorporated herein by reference from the Company's Proxy Statement (Section
headed "Voting Securities, Principal Holders Thereof and Methods of Counting
Votes"). Information concerning compensation plans previously approved by
stockholders is set forth in the table on page 13 of the Proxy Statement and is
incorporated herein by reference.

ITEM 12. CERTAIN TRANSACTIONS

      Information concerning relationships and transactions is incorporated
herein by reference from the Company's Proxy Statement (Section headed
"Transactions with Certain Related Persons").

ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      The exhibits and financial statement schedules filed as a part of this
Form 10-KSB are as follows:

      (a)(1) Financial Statements

                  -    Independent Auditors' Report

                  -    Consolidated Statement of Financial Condition,
                           December 31, 2003 and 2002

                  -    Consolidated Statement of Income,
                           Years Ended December 31, 2003, 2002 and 2001
<PAGE>
                  -    Consolidated Statement of Changes in
                           Stockholder Equity, Years Ended December 31, 2003,
                           2002, and 2001

                  -    Consolidated Statement of Cash Flows,
                           Years Ended December 31, 2003 2002 and 2001

                  -    Notes to Consolidated Financial Statements.

   (a)(2) Financial Statement Schedules
          No financial statement schedules are filed because the required
          information is not applicable or is included in the consolidated
          financial statements or related notes.

   (a)(3) Exhibits

      3.1   Federal Stock Charter of Alpena Bancshares, Inc. (Incorporated by
            reference to Exhibit 3.1 of the Company's Form 8-K as filed on
            November 15, 2000)

      3.2   Bylaws of Alpena Bancshares, Inc. (Incorporated by reference to
            Exhibit 3.2 to Company's 8-K filed on November 15, 2000)

      4     Common Stock Certificate Certificate of the Company (Incorporated by
            reference to Exhibit 4 of the Company's Form 8-K as filed on
            November 15, 2000)

      10    Employment Contract with Ralph Stepaniak dated March 1, 2003.

      13    2003 Annual Report to Stockholders

      14    Code of Ethics for Senior Financial Officers adopted on March 12,
            2004.

      21    Subsidiaries of the Registrant

      23    Consent of Accountants

      31.1  Certification of Chief Executive Officer

      31.2  Certification of Chief Financial Officer

      32.1  Section 1350 Certification by Chief Executive Officer

      32.2  Section 1350 Certification by Chief Financial Officer


   (b)    Reports on Form 8-K:

              None

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning principal accountant fees and services is incorporated
herein by reference from pages 14 and 15 of the Proxy Statement.
<PAGE>
                                   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.

                                      ALPENA BANCSHARES, INC.


                                      By:  /a/Martin A. Thomson
                                           -------------------------------------
                                           Martin A. Thomson
                                           President and Chief Executive Officer

                                           Date: March 30, 2004

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

By:  /s/Martin A. Thomson                  By: /s/Michael W. Mahler
     ----------------------------------        ---------------------------------
     Martin A. Thomson, Director,              Michael W. Mahler, Treasurer and
        President and  Chief Executive            Chief Financial Officer
        Officer                                (Principal Financial and
     (Principal Executive Officer)             Accounting Officer)

Date:  March 30, 2004                          Date:  March 30, 2004



By:  /s/James Rapin                        By: /s/Keith Wallace
     ----------------------------------        ---------------------------------
     James Rapin, Chairman                     Keith Wallace, Director

Date:  March 26, 2004                          Date:  March 30, 2004



By:  /s/GaryVanMassenhove                  By: /s/Thomas R. Townsend
     ----------------------------------        ---------------------------------
       Gary VanMassenhove, Director            Thomas R. Townsend, Director

Date:  March 29, 2004                          Date:  March 29, 2004
<PAGE>
                                  EXHBIT INDEX
     NO.
     ---
      10    Employment Contract with Ralph Stepaniak dated March 1, 2003.

      13    2003 Annual Report to Stockholders

      14    Code of Ethics for Senior Financial Officers adopted on March 12,
            2004.

      21    Subsidiaries of the Registrant

      23    Consent of Accountants

      31.1  Certification of Chief Executive Officer

      31.2  Certification of Chief Financial Officer

      32.1  Section 1350 Certification by Chief Executive Officer

      32.2  Section 1350 Certification by Chief Financial Officer