EXHIBIT 13
 2008 ANNUAL REPORT TO STOCKHOLDERS
 39




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##### 



FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
 2008
ANNUAL REPORT
 March 31, 2009




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##### 



Selected Consolidated Financial and Other Data of the Company
  For Years Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In thousands)Total assets
    
    $
    247,672
    
    
    $
    250,831
    
    
    $
    280,959
    
    
    $
    282,775
    
    
    $
    262,800Loans receivable, net
    
    
    192,270
    
    
    
    201,333
    
    
    
    209,518
    
    
    
    201,183
    
    
    
    195,388Loans held for sale
    
    
    107
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    1,096Investment securities
    
    
    29,687
    
    
    
    23,451
    
    
    
    44,850
    
    
    
    55,187
    
    
    
    42,033Cash and cash equivalents
    
    
    3,471
    
    
    
    5,341
    
    
    
    4,993
    
    
    
    4,780
    
    
    
    4,739Deposits
    
    
    165,778
    
    
    
    157,833
    
    
    
    170,530
    
    
    
    183,442
    
    
    
    179,342FHLB advances and note payable
    
    
    40,969
    
    
    
    52,684
    
    
    
    66,042
    
    
    
    54,403
    
    
    
    56,001Repo Sweep agreements
    
    
    9,447
    
    
    
    6,637
    
    
    
    6,528
    
    
    
    5,293
    
    
    
    3,147Stockholders equity
    
    
    29,419
    
    
    
    32,503
    
    
    
    35,453
    
    
    
    36,649
    
    
    
    21,777Operating data:
 At December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In thousands)Interest income
    
    $
    13,967
    
    
    $
    16,200
    
    
    $
    17,170
    
    
    $
    15,076
    
    
    $
    13,278Interest expense
    
    
    7,130
    
    
    
    8,437
    
    
    
    8,548
    
    
    
    6,704
    
    
    
    6,202Net interest income
    
    
    6,837
    
    
    
    7,763
    
    
    
    8,622
    
    
    
    8,372
    
    
    
    7,076Provision for loan losses
    
    
    4,421
    
    
    
    2,377
    
    
    
    851
    
    
    
    368
    
    
    
    323Net interest income after provision for loan losses
    
    
    2,416
    
    
    
    5,386
    
    
    
    7,771
    
    
    
    8,004
    
    
    
    6,753Other income (loss):Service charges and fees
    
    
    942
    
    
    
    911
    
    
    
    1,044
    
    
    
    1,030
    
    
    
    1,012Mortgage banking activities
    
    
    432
    
    
    
    418
    
    
    
    344
    
    
    
    482
    
    
    
    579Net gain (loss) on sale of investment securities
    
    
    6
    
    
    
    (97
    )
    
    
    (45
    )
    
    
    13
    
    
    
    103Gain (loss) on sale of real estate
    
    
    22
    
    
    
    (40
    )
    
    
    4
    
    
    
    (45
    )
    
    
    (47
    )Other non-interest income
    
    
    95
    
    
    
    64
    
    
    
    103
    
    
    
    37
    
    
    
    97Insurance & brokerage commissions
    
    
    180
    
    
    
    180
    
    
    
    180
    
    
    
    180
    
    
    
    180Total other income
    
    
    1,677
    
    
    
    1,436
    
    
    
    1,630
    
    
    
    1,697
    
    
    
    1,924Other expenses
    
    
    8,874
    
    
    
    9,313
    
    
    
    8,761
    
    
    
    9,193
    
    
    
    8,195Income (loss) from continuing operations before income tax expense (benefit)
    
    
    (4,781
    )
    
    
    (2,491
    )
    
    
    640
    
    
    
    508
    
    
    
    482Income tax expense (benefit) from continuing operations
    
    
    (1,601
    )
    
    
    (908
    )
    
    
    164
    
    
    
    157
    
    
    
    161Net income (loss) from continuing operations
    
    
    (3,180
    )
    
    
    (1,583
    )
    
    
    476
    
    
    
    351
    
    
    
    321Income (loss)
from  discontinued operations, net of tax expense or benefit
    
    
    (61
    )
    
    
    (17
    )
    
    
    (13
    )
    
    
    91
    
    
    
    83Net income (loss)
    
    $
    (3,241
    )
    
    $
    (1,600
    )
    
    $
    463
    
    
    $
    442
    
    
    $
    404




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##### 



Key Financial Ratios and Other Data:
    
    For Years Ended December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004Performance Ratios:Return on average assets
    
    
    -1.30
    %
    
    
    -0.60
    %
    
    
    0.16
    %
    
    
    0.16
    %
    
    
    0.17
    %Return on average equity
    
    
    -10.05
    %
    
    
    -4.84
    %
    
    
    1.35
    %
    
    
    1.49
    %
    
    
    1.91
    %Average interest rate spread
    
    
    2.51
    %
    
    
    2.68
    %
    
    
    2.83
    %
    
    
    2.97
    %
    
    
    2.88
    %Dividend payout ratio
    
    
    N/M
    ***
    
    
    N/M
    ***
    
    
    133.33
    %
    
    
    142.86
    %
    
    
    153.85
    %Dividends per share
    
    $
    0.15
    
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.20Net interest margin
    
    
    2.93
    %
    
    
    3.13
    %
    
    
    3.24
    %
    
    
    3.30
    %
    
    
    3.10
    %Efficiency ratio
    
    
    104.54
    %
    
    
    101.18
    %
    
    
    89.37
    %
    
    
    85.07
    %
    
    
    96.38
    %Non-interest expense to average total assets
    
    
    4.18
    %
    
    
    4.45
    %
    
    
    4.04
    %
    
    
    4.32
    %
    
    
    4.39
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    113.85
    %
    
    
    113.65
    %
    
    
    112.99
    %
    
    
    112.34
    %
    
    
    108.08
    %Asset Quality Ratios:Non-performing assets to total assets
    
    
    5.57
    %
    
    
    4.15
    %
    
    
    1.59
    %
    
    
    1.57
    %
    
    
    0.66
    %Non-performing loans to total loans
    
    
    6.14
    %
    
    
    4.54
    %
    
    
    1.90
    %
    
    
    1.99
    %
    
    
    0.87
    %Allowance for loan losses to nonperforming assets
    
    
    40.90
    %
    
    
    38.53
    %
    
    
    46.67
    %
    
    
    35.33
    %
    
    
    72.37
    %Allowance for loan losses to total loans
    
    
    2.85
    %
    
    
    1.95
    %
    
    
    0.98
    %
    
    
    0.70
    %
    
    
    0.61
    %Capital Ratios:Equity to total assets at end of period
    
    
    11.88
    %
    
    
    12.96
    %
    
    
    12.62
    %
    
    
    12.96
    %
    
    
    8.29
    %Average equity to average assets
    
    
    12.44
    %
    
    
    12.38
    %
    
    
    12.07
    %
    
    
    10.87
    %
    
    
    8.82
    %Risk-based capital ratio (Bank only)
    
    
    15.75
    %
    
    
    16.27
    %
    
    
    17.07
    %
    
    
    16.82
    %
    
    
    10.51
    %Other Data:Number of full service offices
    
    
    8
    
    
    
    9
    **
    
    
    10
    *
    
    
    10
    
    
    
    10
 
 *
    
    as of 12-31-06. In February 2007, the Bank closed a branch to reduce its full-service offices to 9.**
    
    as of 12-31-07. In February 2008, the Bank closed a branch to reduce its full-service offices to 8.***
    
    Not meaningful




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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
    Business Strategy
 Operating as a Community Savings Bank .
 Increasing Our Commercial Real Estate and Commercial Lending .
 Increasing Our Share of Lower-Cost Deposits .




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##### 



Maintaining High Asset Quality and Capital Strength.
 Managing Our Interest Rate Risk Exposure by Selling Fixed-Rate Residential Real Estate Loans.
 Comparison of Financial Condition at December 31, 2008 and 2007




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##### 



Comparison of Operating Results for the Years Ended December 31, 2008 and 2007
 General .
 Interest Income.
 Interest Expense
 Net Interest Income
 Provision for Loan Losses .
 Non-Interest Income




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##### 



Non-Interest Expense
 Income Taxes




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##### 



Average Balance Sheet
  Average Consolidated Statements of ConditionFor Years Ended December 31,As of December 31, 2008
    
    
    2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageYield /
    
    
    Average
    
    
    
    
    
    
    Yield /
    
    
    Average
    
    
    
    
    
    
    Yield /
    
    
    Average
    
    
    
    
    
    
    Yield /Balance
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(In thousands)
    
    
    (In thousands)
    
    
    (In thousands)Interest-earning assets:Mortgage loans
    
    
    
    
    
    
    
    
    
    $
    94,787
    
    
    $
    5,969
    
    
    
    
    
    
    $
    102,200
    
    
    $
    6,380
    
    
    
    
    
    
    $
    104,739
    
    
    $
    6,473Non-mortgage loans
    
    
    
    
    
    
    
    
    
    
    104,983
    
    
    
    6,619
    
    
    
    
    
    
    
    106,920
    
    
    
    8,076
    
    
    
    
    
    
    
    105,186
    
    
    
    8,388Loans
    
    $
    192,377
    
    
    
    5.78
    %
    
    
    199,770
    
    
    
    12,588
    
    
    
    6.30
    %
    
    
    209,120
    
    
    
    14,456
    
    
    
    6.91
    %
    
    
    209,925
    
    
    
    14,861
    
    
    
    7.08
    %Mortgage-backed
securities (1)
    
    
    14,051
    
    
    
    4.39
    %
    
    
    10,071
    
    
    
    421
    
    
    
    4.18
    %
    
    
    2,268
    
    
    
    93
    
    
    
    4.10
    %
    
    
    5,795
    
    
    
    203
    
    
    
    3.50
    %Investment
securities
    
    
    15,636
    
    
    
    4.10
    %
    
    
    16,423
    
    
    
    671
    
    
    
    4.09
    %
    
    
    32,023
    
    
    
    1,408
    
    
    
    4.40
    %
    
    
    45,686
    
    
    
    1,848
    
    
    
    4.05
    %Investment securities
    
    
    29,687
    
    
    
    4.22
    %
    
    
    26,494
    
    
    
    1,092
    
    
    
    4.12
    %
    
    
    34,291
    
    
    
    1,501
    
    
    
    4.38
    %
    
    
    51,481
    
    
    
    2,051
    
    
    
    3.98
    %Other investments
    
    
    4,569
    
    
    
    4.55
    %
    
    
    8,387
    
    
    
    297
    
    
    
    3.54
    %
    
    
    5,192
    
    
    
    243
    
    
    
    4.68
    %
    
    
    5,339
    
    
    
    258
    
    
    
    4.83
    %Total interest earning assets
    
    
    226,633
    
    
    
    5.56
    %
    
    
    234,651
    
    
    
    13,967
    
    
    
    5.95
    %
    
    
    248,603
    
    
    
    16,200
    
    
    
    6.52
    %
    
    
    266,745
    
    
    
    17,170
    
    
    
    6.44
    %Non Interest Earning Assets
    
    
    21,039
    
    
    
    
    
    
    
    14,709
    
    
    
    
    
    
    
    
    
    
    
    17,556
    
    
    
    
    
    
    
    
    
    
    
    18,398Total Assets
    
    $
    247,672
    
    
    
    
    
    
    $
    249,360
    
    
    
    
    
    
    
    
    
    
    $
    266,159
    
    
    
    
    
    
    
    
    
    
    $
    285,143Interest bearing liabilities:Savings Deposits
    
    $
    14,857
    
    
    
    0.15
    %
    
    $
    15,071
    
    
    $
    25
    
    
    
    0.18
    %
    
    $
    24,566
    
    
    $
    325
    
    
    
    1.33
    %
    
    $
    21,130
    
    
    $
    177
    
    
    
    0.84
    %Money market/NOW accounts
    
    
    34,046
    
    
    
    1.62
    %
    
    
    28,889
    
    
    
    415
    
    
    
    1.43
    %
    
    
    27,489
    
    
    
    378
    
    
    
    1.37
    %
    
    
    34,111
    
    
    
    531
    
    
    
    1.56
    %Certificates of deposit
    
    
    106,465
    
    
    
    3.87
    %
    
    
    107,213
    
    
    
    4,457
    
    
    
    4.16
    %
    
    
    107,892
    
    
    
    4,851
    
    
    
    4.50
    %
    
    
    118,673
    
    
    
    4,729
    
    
    
    3.98
    %Total Interest bearing deposits
    
    
    155,368
    
    
    
    2.65
    %
    
    
    151,173
    
    
    $
    4,897
    
    
    
    3.24
    %
    
    
    159,947
    
    
    $
    5,554
    
    
    
    3.47
    %
    
    
    173,914
    
    
    $
    5,437
    
    
    
    3.13
    %Borrowed funds
    
    
    50,416
    
    
    
    4.18
    %
    
    
    55,104
    
    
    
    2,233
    
    
    
    4.05
    %
    
    
    58,794
    
    
    
    2,883
    
    
    
    4.90
    %
    
    
    62,171
    
    
    
    3,131
    
    
    
    5.04
    %Total Interest bearing liabilities
    
    
    205,784
    
    
    
    3.02
    %
    
    
    206,277
    
    
    
    7,130
    
    
    
    3.44
    %
    
    
    218,741
    
    
    
    8,437
    
    
    
    3.84
    %
    
    
    236,085
    
    
    
    8,568
    
    
    
    3.61
    %Non interest bearing liabilities
    
    
    12,469
    
    
    
    
    
    
    
    10,849
    
    
    
    
    
    
    
    
    
    
    
    12,907
    
    
    
    
    
    
    
    
    
    
    
    14,638Total liabilities
    
    
    218,253
    
    
    
    
    
    
    
    217,126
    
    
    
    
    
    
    
    
    
    
    
    231,648
    
    
    
    
    
    
    
    
    
    
    
    250,723Stockholders equity
    
    
    29,419
    
    
    
    
    
    
    
    32,234
    
    
    
    
    
    
    
    
    
    
    
    34,511
    
    
    
    
    
    
    
    
    
    
    
    34,420Total Liabilities & stockholders equity
    
    $
    247,672
    
    
    
    
    
    
    $
    249,360
    
    
    
    
    
    
    
    
    
    
    $
    266,159
    
    
    
    
    
    
    
    
    
    
    $
    285,143Net interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,837
    
    
    
    
    
    
    
    
    
    
    $
    7,763
    
    
    
    
    
    
    
    
    
    
    $
    8,602Interest rate spread
    
    
    
    
    
    
    2.54
    %
    
    
    
    
    
    
    
    
    
    
    2.51
    %
    
    
    
    
    
    
    
    
    
    
    2.68
    %
    
    
    
    
    
    
    
    
    
    
    2.83
    %Net interest  earning assets
    
    
    
    
    
    
    
    
    
    $
    28,374
    
    
    
    
    
    
    
    
    
    
    $
    29,862
    
    
    
    
    
    
    
    
    
    
    $
    30,660Net interest margin (1)
    
    
    
    
    
    
    2.81
    %
    
    
    
    
    
    
    
    
    
    
    2.93
    %
    
    
    
    
    
    
    
    
    
    
    3.13
    %
    
    
    
    
    
    
    
    
    
    
    3.24
    %Average interest-earning assets
to average interest-bearing liabilities
    
    
    
    
    
    
    110.13
    %
    
    
    
    
    
    
    
    
    
    
    113.76
    %
    
    
    
    
    
    
    
    
    
    
    113.65
    %
    
    
    
    
    
    
    
    
    
    
    112.99
    %




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##### 



Rate/Volume Analysis
  Year ended December 31, 2008Compared toYear ended December 31, 2007Increase (Decrease) Due to:Volume
    
    
    Rate
    
    
    Total(In thousands)Interest-earning assets:Loans receivable
    
    $
    (585
    )
    
    $
    (1,283
    )
    
    $
    (1,868
    )Investment securities
    
    
    (312
    )
    
    
    (97
    )
    
    $
    (409
    )Other investments
    
    
    135
    
    
    
    (91
    )
    
    $
    44Total interest-earning assets
    
    
    (762
    )
    
    
    (1,471
    )
    
    
    (2,233
    )Interest-bearing liabilities:Savings Deposits
    
    
    (4
    )
    
    
    (24
    )
    
    
    (28
    )Money Market/NOW accounts
    
    
    19
    
    
    
    18
    
    
    
    37Certificates of Deposit
    
    
    (23
    )
    
    
    (371
    )
    
    
    (394
    )Deposits
    
    
    (8
    )
    
    
    (377
    )
    
    
    (385
    )Borrowed funds
    
    
    (477
    )
    
    
    (445
    )
    
    
    (922
    )Total interest-bearing liabilities
    
    
    (485
    )
    
    
    (822
    )
    
    
    (1,307
    )Change in net interest income
    
    $
    (277
    )
    
    $
    (649
    )
    
    $
    (926
    )
 Management of Interest Rate Risk
 Qualitative Analysis.




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##### 



Quantitative Analysis
  Change in Interest
    
    
    
    
    
    Estimated Increase (Decrease) in NPV
    
    
    NPV as a Percentage of Present Value of Assets (3)Rates (basis points)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)(1)
    
    Estimated NPV (2)
    
    
    Amount
    
    
    Percent
    
    
    NPV Ratio (4)
    
    
    (basis points)(Dollars in thousands)+300
    
    
    25,537
    
    
    
    (4,610
    )
    
    
    -15
    %
    
    
    10.41
    %
    
    
    (148
    )+200
    
    
    27,721
    
    
    
    (2,426
    )
    
    
    -8
    %
    
    
    11.15
    %
    
    
    (74
    )+100
    
    
    29,271
    
    
    
    (876
    )
    
    
    -3
    %
    
    
    11.65
    %
    
    
    (24
    )+50
    
    
    29,755
    
    
    
    (392
    )
    
    
    -1
    %
    
    
    11.79
    %
    
    
    (10
    )
    
    
    30,147
    
    
    
    
    
    
    
    
    
    
    
    11.89
    %
    
    
    -50
    
    
    30,204
    
    
    
    56
    
    
    
    0
    %
    
    
    11.87
    %
    
    
    (1
    )-100
    
    
    30,287
    
    
    
    139
    
    
    
    0
    %
    
    
    11.88
    %
    
    
    (1
    )
 
 (1)
    
    Assumes an instantaneous uniform change in interest rates at all maturities.(2)
    
    NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.(3)
    
    Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.(4)
    
    NPV Ratio represents NPV divided by the present value of assets.




---



##### 



Liquidity and Capital Resources




---



##### 



Critical Accounting Policies
  Allowance for Loan Losses .
   Mortgage Servicing Rights




---



##### 



Annual constant prepayment speed (CPR):
    
    
    12.72
    %Weighted average life remaining (in months):
    
    
    241Discount rate used:
    
    
    8.0
    %
  Impairment of Intangible Assets .




---



##### 



Off-Balance Sheet Arrangements
     Safe Harbor Statement




---



##### 



Impact of Inflation and Changing Prices
  Subsequent Events




---



##### 



DIRECTORS AND EXECUTIVE OFFICERS OF
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
AND FIRST FEDERAL OF NORTHERN MICHIGAN
 Directors -
 Martin A. Thomson
 James C. Rapin
 Keith D. Wallace
 Gary C. VanMassenhove
 Thomas R. Townsend
 Michael W. Mahler
 Executive Officers Who Are Not Directors-
 Amy E. Essex
 Jerome W. Tracey




---



##### 



Senior Management Team of the Bank -
  STOCKHOLDER INFORMATION
  Stock Listing
  Price Range of Common Stock
  Market PriceQuarter Ended
    
    High
    
    Low
    
    Cash Dividends DeclaredDecember 31, 2008
    
    $
    4.79
    
    
    $
    1.16
    
    
    $
    September 30, 2008
    
    $
    6.34
    
    
    $
    4.53
    
    
    $
    0.050June 30, 2008
    
    $
    7.44
    
    
    $
    4.51
    
    
    $
    0.050March 31, 2008
    
    $
    8.74
    
    
    $
    6.12
    
    
    $
    0.050December 31, 2007
    
    $
    8.50
    
    
    $
    6.61
    
    
    $
    0.050September 30, 2007
    
    $
    9.02
    
    
    $
    7.05
    
    
    $
    0.050June 30, 2007
    
    $
    9.24
    
    
    $
    8.76
    
    
    $
    0.050March 31, 2007
    
    $
    9.33
    
    
    $
    9.10
    
    
    $
    0.050
 Special Counsel
    
    Independent AuditorLuse Gorman Pomerenk & Schick, PC
    
    Plante & Moran, PLLC5335 Wisconsin Avenue, N.W.
    
    2601 Cambridge Ct. Suite 500Suite 400
    
    Auburn Hills, Michigan 48326Washington, D.C. 20015Transfer AgentRegistrar and Transfer Company10 Commerce DriveCranford, New Jersey 07016800-346-6084




---



##### 



Annual Report on Form 10-K




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 ContentsReport Letter
    
    
    2Consolidated Financial StatementsBalance Sheet
    
    
    3Statement
of Operations
    
    
    4Statement of Changes in Stockholders Equity
    
    
    5Statement of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7
 1




---



##### 



2




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 
 Consolidated Balance Sheet
(000s omitted, except per share data)
 December 312008
    
    
    2007AssetsCash and cash equivalents
    
    $
    3,098
    
    
    $
    3,568Overnight deposits with Federal Home Loan Bank
    
    
    373
    
    
    
    1,773Total cash and cash equivalents
    
    
    3,471
    
    
    
    5,341Securities available for sale (Note 2)
    
    
    25,665
    
    
    
    20,681Securities held to maturity (Note 2)
    
    
    4,022
    
    
    
    2,770Loans  Net (Note 3)
    
    
    192,270
    
    
    
    201,333Loans held for sale
    
    
    107
    
    
    
    Federal Home Loan Bank stock
    
    
    4,197
    
    
    
    4,197Property and equipment (Note 4)
    
    
    7,090
    
    
    
    7,619Accrued interest receivable
    
    
    1,469
    
    
    
    1,700Intangible assets (Note 6)
    
    
    1,193
    
    
    
    1,382Deferred tax asset
    
    
    2,379
    
    
    
    1,340Other assets (Note 5)
    
    
    4,198
    
    
    
    2,359Assets of discontinued operations (Note 15)
    
    
    1,611
    
    
    
    2,109Total assets
    
    $
    247,672
    
    
    $
    250,831Liabilities and Stockholders EquityLiabilitiesNoninterest bearing deposits
    
    $
    10,410
    
    
    $
    10,186Interest-bearing deposits (Note 7)
    
    
    155,368
    
    
    
    147,647Advances from Federal Home Loan Bank (Note 8)
    
    
    40,200
    
    
    
    51,700Note payable (Note 9)
    
    
    769
    
    
    
    899REPO Sweep
accounts
    
    
    9,447
    
    
    
    6,637Accrued expenses and other liabilities (Note 13)
    
    
    1,982
    
    
    
    1,034Liablities of discontinued operations (Note 15)
    
    
    77
    
    
    
    225Total liabilities
    
    
    218,253
    
    
    
    218,328Stockholders Equity(Note 12)Common stock ($0.01 par value 20,000,000 shares authorized
3,191,999 shares issued)
    
    
    32
    
    
    
    32Additional paid-in capital
    
    
    24,306
    
    
    
    24,328Retained earnings
    
    
    8,763
    
    
    
    12,416Treasury stock at cost (307,750 shares)
    
    
    (2,964
    )
    
    
    (2,964
    )Unallocated ESOP shares (Note 13)
    
    
    (765
    )
    
    
    (959
    )Unearned compensation
    
    
    (290
    )
    
    
    (415
    )Accumulated other comprehensive income
    
    
    337
    
    
    
    65Total stockholders equity
    
    
    29,419
    
    
    
    32,503Total liabilities and stockholders equity
    
    $
    247,672
    
    
    $
    250,831
 
 3




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 
 Consolidated
Statement of Operations
(000s omitted, except per share data)
 Year Ended December 312008
    
    
    2007Interest IncomeLoans, including fees
    
    $
    12,588
    
    
    $
    14,456Investments
    
    
    958
    
    
    
    1,651Mortgage-backed securities
    
    
    421
    
    
    
    93Total interest income
    
    
    13,967
    
    
    
    16,200Interest ExpenseDeposits (Note 8)
    
    
    4,897
    
    
    
    5,533Other borrowings
    
    
    2,233
    
    
    
    2,904Total interest expense
    
    
    7,130
    
    
    
    8,437Net Interest Income Before provision for loan losses
    
    
    6,837
    
    
    
    7,763Provision for Loan Losses (Note 3)
    
    
    4,421
    
    
    
    2,377Net Interest Income After provision for loan losses
    
    
    2,416
    
    
    
    5,386Other IncomeService charges and other fees
    
    
    942
    
    
    
    911Net gain on sale of loans
    
    
    123
    
    
    
    175Loan servicing fees
    
    
    309
    
    
    
    243Insurance and brokerage commissions
    
    
    180
    
    
    
    180Other
    
    
    123
    
    
    
    (73
    )Total other income
    
    
    1,677
    
    
    
    1,436Operating ExpensesCompensation and employee benefits (Note 13)
    
    
    4,825
    
    
    
    5,109Amortization of intangible assets
    
    
    308
    
    
    
    304Advertising
    
    
    151
    
    
    
    171Occupancy and equipment
    
    
    1,263
    
    
    
    1,399Data processing service bureau
    
    
    320
    
    
    
    318Professional fees
    
    
    409
    
    
    
    322Other
    
    
    1,598
    
    
    
    1,690Total operating expenses
    
    
    8,874
    
    
    
    9,313Loss from continuing operations  before federal income tax benefit
    
    
    (4,781
    )
    
    
    (2,491
    )Income tax benefit from continuing operations(Note 10)
    
    
    (1,601
    )
    
    
    (908
    )Net loss from continuing operations
    
    
    (3,180
    )
    
    
    (1,583
    )Loss from discontinued operations, net of tax benefit of $31 and $8, respectively (Note 15)
    
    
    (61
    )
    
    
    (17
    )Net loss
    
    $
    (3,241
    )
    
    $
    (1,600
    )Per Share DataLoss per share from continuing operationsBasic
    
    $
    (1.10
    )
    
    $
    (0.55
    )Diluted
    
    $
    (1.10
    )
    
    $
    (0.55
    )Loss per share from discontinued operationsBasic
    
    $
    (0.02
    )
    
    $
    (0.01
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.01
    )Net loss per shareBasic
    
    $
    (1.12
    )
    
    $
    (0.56
    )Diluted
    
    $
    (1.12
    )
    
    $
    (0.56
    )Dividends per common share
    
    
    0.15
    
    
    
    0.20
 
 4




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 
 Consolidated Statement of Changes in Stockholders Equity
(000s omitted)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Treasury
    
    
    Paid-in
    
    
    Unearned
    
    
    Retained
    
    
    Unallocated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    ESOP Shares
    
    
    Income (Loss)
    
    
    EquityBalance January 1, 2007
    
    
    3,191
    
    
    $
    32
    
    
    $
    (1,565
    )
    
    $
    24,262
    
    
    $
    (529
    )
    
    $
    14,576
    
    
    $
    (1,059
    )
    
    $
    (264
    )
    
    $
    35,453Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,600
    )
    
    
    
    
    
    
    
    
    
    
    (1,600
    )Other comprehensive income:Unrealized appreciation on available-for-
sale securities  Net of tax of $169
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329
    
    
    
    329Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,271
    )Treasury stock at cost (151,750 shares)
    
    
    
    
    
    
    
    
    
    
    (1,399
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,399
    )ESOP common stock committed to be released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    22
    
    
    
    100
    
    
    
    
    
    
    
    107MRP shares awarded
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0
    )MRP shares forfeited
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Stock options/MRP shares expensed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    122
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (582
    )
    
    
    
    
    
    
    
    
    
    
    (582
    )Balance December 31, 2007
    
    
    3,192
    
    
    
    32
    
    
    
    (2,964
    )
    
    
    24,328
    
    
    
    (415
    )
    
    
    12,416
    
    
    
    (959
    )
    
    
    65
    
    
    
    32,503Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,241
    )
    
    
    
    
    
    
    
    
    
    
    (3,241
    )Other comprehensive income:Unrealized appreciation on available-for-
sale securities  Net of tax of $140
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    272
    
    
    
    272Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,969
    )ESOP common stock committed to be released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123
    )
    
    
    
    
    
    
    20
    
    
    
    194
    
    
    
    
    
    
    
    91Stock options/MRP shares expensed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    226Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (432
    )
    
    
    
    
    
    
    
    
    
    
    (432
    )Balance December 31, 2008
    
    
    3,192
    
    
    $
    32
    
    
    $
    (2,964
    )
    
    $
    24,306
    
    
    $
    (290
    )
    
    $
    8,763
    
    
    $
    (765
    )
    
    $
    337
    
    
    $
    29,419
 
 5




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 
 Consolidated Statement of Cash Flows
(000s omitted, except per share data)
 Year Ended December 312008
    
    
    2007Cash Flows from Operating ActivitiesNet loss
    
    $
    (3,241
    )
    
    $
    (1,600
    )Adjustments to reconcile net loss to cash from operating
activities:Depreciation and amortization
    
    
    781
    
    
    
    788Provision for loan losses
    
    
    4,421
    
    
    
    2,377Amortization and accretion on securities
    
    
    60
    
    
    
    19(Gain) loss on sale of investment securities
    
    
    (6
    )
    
    
    96ESOP contribution
    
    
    91
    
    
    
    107Stock options/awards
    
    
    226
    
    
    
    195Gain on sale of loans held for sale
    
    
    (116
    )
    
    
    (175
    )Originations of loans held for sale
    
    
    (11,641
    )
    
    
    (10,596
    )Proceeds from sale of loans held for sale
    
    
    11,650
    
    
    
    10,843(Gain) loss on fixed assets
    
    
    (27
    )
    
    
    30Change in accrued interest receivable
    
    
    231
    
    
    
    439Change in other assets
    
    
    (1,839
    )
    
    
    196Change in accrued expenses and other liabilities
    
    
    948
    
    
    
    (359
    )Change in deferred income taxes
    
    
    (1179
    )
    
    
    (903
    )Net cash provided by operating activities
    
    
    359
    
    
    
    1,457Cash Flows from Investing ActivitiesNet decrease in loans
    
    
    4,642
    
    
    
    4,931Proceeds from maturity of securities
    
    
    16,802
    
    
    
    18,930Proceeds from sale of securities available-for-sale
    
    
    1,022
    
    
    
    4,727Proceeds from sale of property and equipment
    
    
    157
    
    
    
    Net change in discontinued operations
    
    
    350
    
    
    
    227Purchase of securities available for sale
    
    
    (22,363
    )
    
    
    (855
    )Purchases of securities held-to-maturity
    
    
    (1,339
    )
    
    
    (1,020
    )Purchase of premises and equipment
    
    
    (193
    )
    
    
    (207
    )Net cash (used for) provided by investing activities
    
    
    (922
    )
    
    
    26,733Cash Flows from Financing ActivitiesNet increase (decrease) in deposits
    
    
    7,945
    
    
    
    (12,697
    )Dividends paid on common stock
    
    
    (432
    )
    
    
    (582
    )Net increase in Repo Sweep Accts
    
    
    2,810
    
    
    
    109Additions to advances from FHLB and Notes Payable
    
    
    22,200
    
    
    
    42,200Repayments of advances from FHLB and Notes Payable
    
    
    (33,830
    )
    
    
    (55,473
    )Purchase of treasury shares
    
    
    
    
    
    
    (1,399
    )Net cash used for financing activities
    
    
    (1,307
    )
    
    
    (27,842
    )Net Increase in Cash and Cash Equivalents
    
    
    (1,870
    )
    
    
    348Cash and Cash Equivalents Beginning of year
    
    
    5,341
    
    
    
    4,993Cash and Cash Equivalents End of year
    
    $
    3,471
    
    
    $
    5,341Supplemental Cash Flow and Noncash InformationCash paid for income taxes
    
    $
    
    
    
    $
    175Cash paid for interest on deposits and borrowings
    
    
    7,360
    
    
    
    8,684
 
 6




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies
 Nature of Operations
 Discontinued Operations
 Principles of Consolidation
 Use of Estimates
 7




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
 Significant Group Concentrations of Credit Risk
 Cash and Cash Equivalents
 Securities
  Federal Home Loan Bank Stock
 Mortgage Banking Activities
 8




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
    Loans
   9




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
 Allowance for Loan Losses
    10




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
   Loan Servicing
 11




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
  Loans Held for Sale
 Foreclosed Assets
 Real Estate Held for Sale Accounting for Impairment or Disposal of
Long-Lived Assets.
   12




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
  Property and Equipment
 Intangible Assets
   13




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
     14




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
     Goodwill 
 15




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
   Income Taxes
 Insurance and Brokerage Commissions
 16




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
 Off Balance Sheet Instruments
  Comprehensive Income
 Stock Based Compensation Accounting for Stock Issued to Employees Share-Based Payment
   17




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
 Year EndedDecember 31,2007Expected Volatility
    
    
    18
    %Dividend yield
    
    
    2.2
    %Expected term (in years)
    
    
    8.0Risk- free interest rate
    
    
    5.21
    %
 Earnings Per Common Share
  December 31,2008
    
    
    2007Net loss from continung operations
    
    $
    (3,180
    )
    
    $
    (1,583
    )Net loss from discontinued operations
    
    
    (61
    )
    
    
    (17
    )Net loss
    
    $
    (3,241
    )
    
    $
    (1,600
    )Average number of common shares
outstanding
    
    
    2,884,249
    
    
    
    2,873,250Effect of dilutive options
    
    
    
    
    
    
    Average number of common shares
outstanding used to calculate diluted
earnings per common share
    
    
    2,884,249
    
    
    
    2,873,250
 18




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
 Fair Value Measurements
      19




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
 Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2008
(dollars in thousands)
 Quoted Prices
    
    Significantin Active
    
    OtherMarkets for
    
    Observable
    
    Significant
    
    Balance atIdentical Assets
    
    Inputs (Level
    
    Unobservable
    
    December 31,(Level 1)
    
    2)
    
    Inputs (Level 3)
    
    2008AssetsInvestment securities- available-for-sale
    
    $
    
    
    
    $
    25,665
    
    
    $
    
    
    
    $
    25,665LiabilitiesNone
  Assets Measured at Fair Value on a Nonrecurring Basis
(dollars in thousands)
 Quoted Prices
    
    
    
    
    
    
    
    
    
    
    Change inin Active
    
    
    Significant
    
    
    
    
    
    
    fair value forMarkets for
    
    
    Other
    
    
    Significant
    
    
    the periodBalance at
    
    
    Identical
    
    
    Observable
    
    
    Unobservabl
    
    
    endedDecember 31,
    
    
    Assets (Level
    
    
    Inputs
    
    
    e Inputs
    
    
    December 31,2008
    
    
    1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2008AssetsImpaired loans
accounted for under FAS
    
    $
    9,986
    
    
    $
    
    
    
    
    
    
    
    $
    9,986
    
    
    
    3,562$
    3,562
 20




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 2  Securities
  December 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSecurities Available for SaleU.S. Treasury securities and obligations
of U.S. government corporations
and agencies
    
    $
    5,680
    
    
    $
    88
    
    
    $
    
    
    
    $
    5,768Municipal notes
    
    
    3,920
    
    
    
    58
    
    
    
    3
    
    
    
    3,975Corporate securities
    
    
    1,500
    
    
    
    4
    
    
    
    
    
    
    
    1,504Mortgage-backed securities
    
    
    14,051
    
    
    
    366
    
    
    
    1
    
    
    
    14,416Other securities
    
    
    3
    
    
    
    
    
    
    
    1
    
    
    
    2Total
    
    $
    25,154
    
    
    $
    516
    
    
    $
    5
    
    
    $
    25,665Securities Held to MaturityMunicipal notes
    
    $
    4,022
    
    
    $
    14
    
    
    $
    87
    
    
    $
    3,949
 December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSecurities Available for SaleU.S. Treasury securities and obligations
of U.S. government corporations
and agencies
    
    $
    18,477
    
    
    $
    41
    
    
    $
    4
    
    
    $
    18,514Municipal notes
    
    
    830
    
    
    
    
    
    
    
    1
    
    
    
    829Mortgage-backed securities
    
    
    1,273
    
    
    
    3
    
    
    
    25
    
    
    
    1,251Other securities
    
    
    3
    
    
    
    84
    
    
    
    
    
    
    
    87Total
    
    $
    20,583
    
    
    $
    128
    
    
    $
    30
    
    
    $
    20,681Securities Held to MaturityMunicipal notes
    
    $
    2,770
    
    
    $
    33
    
    
    $
    8
    
    
    $
    2,795
 21




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 2  Securities (Continued)
  December 31, 2008Amortized
    
    
    MarketCost
    
    
    ValueAvailable For Sale:Due in one year or less
    
    $
    4,499
    
    
    $
    4,554Due after one year through five years
    
    
    5,412
    
    
    
    5,495Due in five year through ten years
    
    
    943
    
    
    
    954Due after ten years
    
    
    246
    
    
    
    244Subtotal
    
    
    11,100
    
    
    
    11,247Equity securities
    
    
    3
    
    
    
    2Mortgage-backed securities
    
    
    14,051
    
    
    
    14,416Total
    
    $
    25,154
    
    
    $
    25,665Held To MaturityDue in one year or less
    
    $
    85
    
    
    $
    86Due after one year through five years
    
    
    1,378
    
    
    
    1,385Due in five year through ten years
    
    
    884
    
    
    
    886Due after ten years
    
    
    1,675
    
    
    
    1,592Total
    
    $
    4,022
    
    
    $
    3,949
   22




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 2  Securities (Continued)
  December 31, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedLosses
    
    
    
    
    
    
    Losses
    
    
    
    
    
    
    Losses
    
    
    
    
    
    
    Losses<12
    
    
    
    
    
    
    > 12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 12Fair Value
    
    
    months
    
    
    Fair Value
    
    
    months
    
    
    Fair Value
    
    
    <12 months
    
    
    Fair Value
    
    
    monthsU.S. Treasury securities and obligations
of U.S. government corporations
and agencies
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,994
    
    
    $
    4Corporate and other securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Municipal notes
    
    
    2,144
    
    
    
    71
    
    
    
    216
    
    
    
    20
    
    
    
    697
    
    
    
    8
    
    
    
    150
    
    
    
    1Mortgage-backed securities
    
    
    22
    
    
    
    
    
    
    
    15
    
    
    
    1
    
    
    
    22
    
    
    
    1
    
    
    
    1,008
    
    
    
    24Total
    
    $
    2,166
    
    
    $
    71
    
    
    $
    231
    
    
    $
    21
    
    
    $
    719
    
    
    $
    9
    
    
    $
    6,152
    
    
    $
    29
  23




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 3  Loans
  December 312008
    
    
    2007Real estate loans  One- to four-family residential
    
    $
    92,364
    
    
    $
    99,373Commercial loans:Secured by real estate
    
    
    49,787
    
    
    
    50,819Other
    
    
    30,173
    
    
    
    26,783Total commercial loans
    
    
    79,960
    
    
    
    77,602Consumer loans:Secured by real estate
    
    
    22,303
    
    
    
    24,095Other
    
    
    3,564
    
    
    
    4,555Total consumer loans
    
    
    25,867
    
    
    
    28,650Total gross loans
    
    
    198,191
    
    
    
    205,625Less:Net deferred loan fees
    
    
    274
    
    
    
    279Allowance for loan losses
    
    
    5,647
    
    
    
    4,013Total loans  Net
    
    $
    192,270
    
    
    $
    201,333
  December 31, 2008One Year
    
    
    AfterLess Than
    
    
    to Five
    
    
    FiveOne Year
    
    
    Years
    
    
    Years
    
    
    TotalLoans at fixed interest rates
    
    $
    13,532
    
    
    $
    50,975
    
    
    $
    58,822
    
    
    $
    123,329Loans at variable interest rates
    
    
    18,519
    
    
    
    8,309
    
    
    
    48,034
    
    
    
    74,862Total
    
    $
    32,051
    
    
    $
    59,284
    
    
    $
    106,856
    
    
    $
    198,191
 24




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 3  Loans (Continued)
  December 312008
    
    
    2007Aggregate balance  Beginning of Period
    
    $
    3,737
    
    
    $
    2,860New loans
    
    
    3,528
    
    
    
    2,031Repayments
    
    
    (2,837
    )
    
    
    (1,154
    )Aggregate balance  End of Period
    
    $
    4,428
    
    
    $
    3,737
  Year Ended December 312008
    
    
    2007Balance  Beginning of period
    
    $
    4,013
    
    
    $
    2,079Provision for losses
    
    
    4,421
    
    
    
    2,377Charge-offs
    
    
    (2,837
    )
    
    
    (478
    )Recoveries
    
    
    50
    
    
    
    35Balance  End of period
    
    $
    5,647
    
    
    $
    4,013
 25




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 3  Loans (Continued)
  December 312008
    
    
    2007Impaired loans without a
valuation allowance
    
    $
    
    
    
    $
    Impaired loans with a valuation
allowance
    
    
    9,986
    
    
    
    7,733Total impaired loans
    
    $
    9,986
    
    
    $
    7,733Valuation allowance related to
impaired loans
    
    $
    3,617
    
    
    $
    2,333Total non-accrual loans
    
    $
    11,952
    
    
    $
    8,460Total loans past-due ninety days or more and still accruing
    
    $
    217
    
    
    $
    677
 Year Ended December 312008
    
    
    2007Average investment in
impaired loans
    
    $
    9,565
    
    
    $
    1,704Interest income recognized
on impaired loans
    
    $
    
    
    
    $
    Interest income recognized on
a cash basis on impaired loans
    
    $
    
    
    
    $
    
  26




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 4  Property and Equipment
  December 312008
    
    
    2007Land
    
    $
    1,198
    
    
    $
    1,251Land improvements
    
    
    209
    
    
    
    211Buildings
    
    
    6,552
    
    
    
    6,555Equipment
    
    
    3,616
    
    
    
    3,534Total property and equipment
    
    
    11,575
    
    
    
    11,551Less accumulated depreciation
    
    
    4,485
    
    
    
    3,932Net property and equipment
    
    $
    7,090
    
    
    $
    7,619
  Note 5  Servicing
    December 31,2008
    
    2007Annual constant prepayment speed (CPR)
    
    
    12.72
    %
    
    
    12.36
    %Weighted average life (in months)
    
    
    241
    
    
    
    243Discount rate
    
    
    8.00
    %
    
    
    9.00
    %
  27




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 5  Servicing (Continued)
  December 312008
    
    
    2007Balance, beginning of period
    
    $
    492
    
    
    $
    621Originated mortgage servicing rights capitalized
    
    
    130
    
    
    
    99Amortization of mortgage servicing rights
    
    
    (192
    )
    
    
    (228
    )Balance  end of period
    
    
    430
    
    
    
    492Valuation allowances:Balance at beginning of year
    
    
    
    
    
    
    Additions
    
    
    
    
    
    
    Reductions
    
    
    
    
    
    
    Write-downs
    
    
    
    
    
    
    Balance, end of year (net of allowances)
    
    $
    430
    
    
    $
    492
 Note 6  Intangible Assets
  December 31, 2008Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountAmortized intangible assets:Customer list
    
    $
    1,454
    
    
    $
    735
    
    
    $
    719Customer contract
    
    
    597
    
    
    
    597
    
    
    
    Core deposit
    
    
    3,081
    
    
    
    2,488
    
    
    
    593Non-compete covenant
    
    
    200
    
    
    
    117
    
    
    
    83Total
    
    $
    5,332
    
    
    $
    3,937
    
    
    $
    1,395
 December 31, 2007Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountAmortized intangible assets:Customer list
    
    $
    1,454
    
    
    $
    542
    
    
    $
    912Customer contract
    
    
    597
    
    
    
    299
    
    
    
    298Core deposit
    
    
    3,081
    
    
    
    2,300
    
    
    
    781Non-compete covenant
    
    
    200
    
    
    
    97
    
    
    
    103Total
    
    $
    5,332
    
    
    $
    3,238
    
    
    $
    2,094
 28




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 6  Intangible Assets (Continued)
     29




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 7  Deposits
  December 312008
    
    
    2007Account TypeNOW accounts and MMDA
    
    $
    34,046
    
    
    $
    26,251Regular savings accounts
    
    
    14,857
    
    
    
    15,964Total
    
    
    48,903
    
    
    
    42,215Certificate of Deposit Rates0.50 percent to 1.99 percent
    
    
    8,577
    
    
    
    2.00 percent to 2.99 percent
    
    
    11,776
    
    
    
    11,3463.00 percent to 3.99 percent
    
    
    42,403
    
    
    
    11,9774.00 percent to 4.99 percent
    
    
    38,278
    
    
    
    70,9005.00 percent to 6.99 percent
    
    
    4,036
    
    
    
    9,8577.00 percent to 8.99 percent
    
    
    1,395
    
    
    
    1,352Total certificate of deposits
    
    
    106,465
    
    
    
    105,432Total interest-bearing deposits
    
    $
    155,368
    
    
    $
    147,647
   December 31, 2008Amount DueGreaterLess than
    
    
    1-2
    
    
    2-3
    
    
    3-5
    
    
    thanRate
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    5 Years
    
    
    Total0.50 percent to
1.99 percent
    
    $
    6,182
    
    
    $
    2,387
    
    
    $
    8
    
    
    $
    
    
    
    $
    
    
    
    $
    8,5772.00 percent to
2.99 percent
    
    
    7,005
    
    
    
    4,537
    
    
    
    141
    
    
    
    31
    
    
    
    62
    
    
    
    11,7763.00 percent to
3.99 percent
    
    
    27,904
    
    
    
    7,782
    
    
    
    4,745
    
    
    
    1,497
    
    
    
    475
    
    
    
    42,4034.00 percent to
4.99 percent
    
    
    26,134
    
    
    
    8,629
    
    
    
    2,296
    
    
    
    1,069
    
    
    
    150
    
    
    
    38,2785.00 percent to
6.99 percent
    
    
    1,529
    
    
    
    2,021
    
    
    
    486
    
    
    
    
    
    
    
    
    
    
    
    4,0367.00 percent to
8.99 percent
    
    
    
    
    
    
    1,395
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,395Total
    
    $
    68,754
    
    
    $
    26,751
    
    
    $
    7,676
    
    
    $
    2,597
    
    
    $
    687
    
    
    $
    106,465
 30




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 7  Deposits (Continued)
  Year Ended December 312008
    
    
    2007NOW and MMDAs
    
    $
    415
    
    
    $
    378Regular savings
    
    
    25
    
    
    
    326Certificates of deposit
    
    
    4,457
    
    
    
    4,829Total
    
    $
    4,897
    
    
    $
    5,533
  Note 8  Federal Home Loan Bank Advances
   Years Ending
    
    
    
    
    
    
    Weighted AverageDecember 31
    
    
    Amount
    
    
    Interest Rate2009
    
    
    $
    18,200
    
    
    
    3.992010
    
    
    
    17,000
    
    
    
    4.192012
    
    
    
    2,500
    
    
    
    3.552013
    
    
    
    2,500
    
    
    
    3.81Total
    
    
    $
    40,200
    
    
    
    3.89
  31




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 9  Note Payable
  2009
    
    
    $
    1382010
    
    
    
    1452011
    
    
    
    1532012
    
    
    
    1622013
    
    
    
    171Total
    
    
    $
    769
 .
 Note 10  Federal Income Tax
  Year Ended December 312008
    
    
    2007Continuing operations:Current provision
    
    $
    (422
    )
    
    $
    (5
    )Deferred benefit
    
    
    (1,179
    )
    
    
    (903
    )Total from continuing operation:
    
    $
    (1,601
    )
    
    $
    (908
    )Discontinued operations
    
    
    (31
    )
    
    
    (8
    )Total
    
    $
    (1,632
    )
    
    $
    (916
    )
 32




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 10  Federal Income Tax (Continued)
   Year Ended December 312008
    
    
    2007Tax at statutory rate
    
    $
    (1,626
    )
    
    $
    (846
    )Increase (decrease) from:Tax-exempt interest
    
    
    (65
    )
    
    
    (56
    )Other
    
    
    90
    
    
    
    (6
    )Total income tax recovery
    
    $
    (1,601
    )
    
    $
    (908
    )
  December 312008
    
    
    2007Deferred tax assets:Allowance for loan losses
    
    $
    1,712
    
    
    $
    1,270Valuation allowance for real estate held for sale
    
    
    70
    
    
    
    30Non-accrual
loan interest
    
    
    142
    
    
    
    129Directors benefit plan
    
    
    360
    
    
    
    359Contributions carryover
    
    
    133
    
    
    
    130Net operating loss carryforward
    
    
    433
    
    
    
    Other
    
    
    657
    
    
    
    490Total deferred tax assets
    
    
    3,507
    
    
    
    2,408Deferred tax liabilities:Mortgage servicing rights
    
    
    146
    
    
    
    167Partnership losses
    
    
    110
    
    
    
    102Unrealized gain on available-for-sale securities
    
    
    173
    
    
    
    33Depreciation
    
    
    457
    
    
    
    531Other
    
    
    242
    
    
    
    202Total deferred tax liabilities
    
    
    1,128
    
    
    
    1,068Net deferred tax asset
    
    $
    2,379
    
    
    $
    1,340
 33




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 10  Federal Income Tax (Continued)
    Note 11  Off Balance Sheet Risk Commitments and Contingencies
 Credit-Related Financial Instruments
  34




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 11  Off Balance Sheet Risk Commitments and Contingencies (continued)
  December 312008
    
    2007Commitments to grant loans
    
    $
    14,242
    
    
    $
    11,842Unfunded commitments under lines of credit
    
    
    17,804
    
    
    
    21,213Commercial and standby letters of credit
    
    
    5
    
    
    
    220
   Guarantors Accounting and Disclosure Requirements for
Guarantees,
 35




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 11  Off Balance Sheet Risk Commitments and Contingencies (continued)
   Legal Contingencies
 Note 12 Stockholders Equity
   36




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 12 Stockholders Equity (continued)
   To be Categorized asWell-Capitalized UnderFor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in Thousands)December 31, 2008Total capital (to risk-weighted assets)
    
    $
    27,079
    
    
    
    15.75
    %
    
    $
    13,757
    
    
    
    8.00
    %
    
    $
    17,197
    
    
    
    10.00
    %Tier 1 capital (to risk-weighted assets)
    
    $
    24,886
    
    
    
    14.47
    %
    
    $
    6,879
    
    
    
    4.00
    %
    
    $
    10,318
    
    
    
    6.00
    %Tangible capital (to tangible assets)
    
    $
    24,886
    
    
    
    10.21
    %
    
    $
    3,655
    
    
    
    1.50
    %
    
    $
    4,873
    
    
    
    2.00
    %December 31, 2007Total capital (to risk-weighted assets)
    
    $
    29,607
    
    
    
    16.27
    %
    
    $
    14,558
    
    
    
    8.00
    %
    
    $
    18,198
    
    
    
    10.00
    %Tier 1 capital (to risk-weighted assets)
    
    $
    27,295
    
    
    
    15.00
    %
    
    $
    7,279
    
    
    
    4.00
    %
    
    $
    10,919
    
    
    
    6.00
    %Tangible capital (to tangible assets)
    
    $
    27,295
    
    
    
    11.05
    %
    
    $
    3,705
    
    
    
    1.50
    %
    
    $
    4,940
    
    
    
    2.00
    %
 37




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 12 Stockholders Equity (continued)
  December 312008
    
    
    2007GAAP Capital
    
    $
    28,320
    
    
    $
    31,154Reconciling items:Less: Investment in and advances to
nonincludable subsidaries
    
    
    (293
    )
    
    
    (304
    )Less: Goodwill and other intangible assets
    
    
    (2,804
    )
    
    
    (3,491
    )Unrealized (gain) loss on securities
available for sale
    
    
    (337
    )
    
    
    (65
    )Disallowed mortgage servicing rights
    
    
    
    
    
    
    Tangible and core capital
    
    
    24,886
    
    
    
    27,294Allowable unrealized (gain) loss on
securities available for sale
    
    
    
    
    
    
    38General valuation allowance
    
    
    2,193
    
    
    
    2,275Risk Based Capital
    
    $
    27,079
    
    
    $
    29,607
 Note 13  Employee Benefit Plans
 Defined Benefit Pension Plan
  38




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 13  Employee Benefit Plans (Continued)
  401(k)Savings Plan
  Nonqualified Deferred Compensation Plan
   39




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 13  Employee Benefit Plans (Continued)
 Employee Stock Ownership Plan
   Year EndedDecember 31
    
    Principal Amount2009
    
    $
    902010
    
    
    972011
    
    
    1042012
    
    
    1112013
    
    
    120Thereafter
    
    
    295Total
    
    $
    817
  40




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 13  Employee Benefit Plans (Continued)
    December 312008
    
    2007Allocated
    
    
    107,990
    
    
    
    85,785Unallocated
    
    
    77,586
    
    
    
    96,962Total
    
    
    185,576
    
    
    
    182,747
   Stock Based Compensation Plans
  41




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 13  Employee Benefit Plans (Continued)
   Stock Options
 Weighted-AverageWeighted-
    
    
    RemainingAverage
    
    
    Contractual Term
    
    
    AggregateOptions
    
    Shares
    
    
    Exercise Price
    
    
    (Years)
    
    
    Intrinsic ValueOutstanding at January 1, 2007
    
    
    204,532
    
    
    $
    9.50
    
    
    
    9.49
    
    
    $
    0Granted in 2007
    
    
    6,200
    
    
    $
    8.79Exercised in 2007
    
    
    
    
    
    $
    0.00Forfeited or Expired in 2007
    
    
    (13,740
    )
    
    $
    9.53Outstanding at December 31, 2007
    
    
    196,992
    
    
    $
    9.48
    
    
    
    8.52
    
    
    $
    0Granted in 2008
    
    
    0
    
    
    $
    0.00Exercised in 2008
    
    
    0
    
    
    $
    0.00Forfeited or expired in 2008
    
    
    (4,860
    )
    
    $
    9.56Oustanding at December 31, 2008
    
    
    192,132
    
    
    $
    9.48
    
    
    
    7.52
    
    
    $
    0Options
Exercisable at December 31, 2008
    
    
    80,358
    
    
    $
    9.40
    
    
    
    7.34
    
    
    $
    0
 42




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 13  Employee Benefit Plans (Continued)
  Weighted-AverageGrant-DateNonvested Shares
    
    Shares
    
    
    Fair ValueNonvested at January 1, 2007
    
    
    200,099
    
    
    $
    2.11Granted
    
    
    6,200
    
    
    $
    1.91Vested
    
    
    (38,159
    )
    
    $
    2.10Forfeited or Expired
    
    
    (13,740
    )
    
    $
    2.10Nonvested at December 31, 2007
    
    
    154,400
    
    
    $
    2.11Granted
    
    
    
    
    
    
    Vested
    
    
    (39,876
    )
    
    $
    2.10Forfeited or Expired
    
    
    (2,750
    )
    
    $
    2.11Nonvested at December 31, 2008
    
    
    111,774
    
    
    $
    2.11
  Restricted Stock Awards
 43




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 13  Employee Benefit Plans (Continued)
  2008
    
    
    2007Beginning of period
    
    
    51,700
    
    
    
    63,250Granted
    
    
    
    
    
    
    1,500Vested
    
    
    (12,850
    )
    
    
    (12,550
    )Forfeited
    
    
    
    
    
    
    (500
    )Nonvested, end of period
    
    
    38,850
    
    
    
    51,700
 Note 14  Fair Values of Financial Instruments
   Cash and Cash Equivalents
 Securities
 44




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 14  Fair Values of Financial Instruments (Continued)
 Loans Held for Sale
 Loans Receivable
 Deposit Liabilities
 REPO
Sweep Accounts
 Long-term Borrowings
 Accrued Interest
 45




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 14  Fair Values of Financial Instruments (Continued)
  December 31, 2008
    
    December 31, 2007Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmounts
    
    Fair Value
    
    Amounts
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    $
    3,471
    
    
    $
    3,471
    
    
    $
    5,341
    
    
    $
    5,341Securities
available for sale
    
    
    25,665
    
    
    
    25,665
    
    
    
    20,681
    
    
    
    20,681Securities
held to maturity
    
    
    4,022
    
    
    
    3,949
    
    
    
    2,770
    
    
    
    2,795Loans and loans held for sale  Net
    
    
    192,377
    
    
    
    197,804
    
    
    
    201,333
    
    
    
    204,516Federal Home Loan Bank stock
    
    
    4,197
    
    
    
    4,197
    
    
    
    4,197
    
    
    
    4,197Accrued interest receivable
    
    
    1,469
    
    
    
    1,469
    
    
    
    1,700
    
    
    
    1,700Financial liabilities:Customer deposits
    
    
    165,778
    
    
    
    166,931
    
    
    
    157,833
    
    
    
    157,951Federal Home Loan Bank advances
    
    
    40,200
    
    
    
    41,688
    
    
    
    51,700
    
    
    
    51,824Note payable
    
    
    769
    
    
    
    773
    
    
    
    899
    
    
    
    901REPO Sweep
accounts
    
    
    9,447
    
    
    
    9,447
    
    
    
    6,637
    
    
    
    6,637Accrued interest payable
    
    
    518
    
    
    
    518
    
    
    
    710
    
    
    
    710
 Note 15  Discontinued Operations
   46




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 15  Discontinued Operations (continued)
 2008
    
    2007AssetsIntangible Assets
    
    $
    202
    
    
    $
    712Goodwill
    
    
    1,408
    
    
    
    1,397Total Assets
    
    
    1,610
    
    
    
    2,109Liabilities & Shareholders EquityAccrued expenses & other liabilities
    
    
    77
    
    
    
    225Shareholders equity
    
    
    1,533
    
    
    
    1,884Total Liabilities & Shareholders Equity
    
    $
    1,610
    
    
    $
    2,109
  2008
    
    2007Interest income
    
    $
    
    
    
    $
    Interest expense
    
    
    
    
    
    
    10Net interest income
    
    
    
    
    
    
    (10
    )Noninterest income
    
    
    1,465
    
    
    
    2,547Noninterest expenses
    
    
    1,558
    
    
    
    2,562Loss before taxes
    
    
    (93
    )
    
    
    (25
    )Income tax benefit
    
    
    (32
    )
    
    
    (8
    )Net Loss
    
    $
    (61
    )
    
    $
    (17
    )
 47




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 16  Restrictions on Dividends
  Note 17  Parent-Only Financial Statements
   December 312008
    
    
    2007AssetsCash at subsidiary bank
    
    $
    416
    
    
    $
    989Investment in subsidiary
    
    
    28,320
    
    
    
    31,154Other assets
    
    
    683
    
    
    
    559Total assets
    
    $
    29,419
    
    
    $
    32,702Liabilities and Stockholders EquityLiabilities
    
    $
    
    
    
    $
    199Stockholders equity
    
    
    29,419
    
    
    
    32,503Total liabilities and stockholders equity
    
    $
    29,419
    
    
    $
    32,702
 48




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 17  Parent-Only Financial Statements (Continued)
  December 312008
    
    
    2007Operating income
    
    $
    
    
    
    $
    2,300Operating expense
    
    
    203
    
    
    
    165Income (loss) before income taxes and equity in
undistributed net income of subsidiary
    
    
    (203
    )
    
    
    2,135Income tax benefit
    
    
    68
    
    
    
    55Income (loss) before equity in undistributed net income (loss) of
subsidiary
    
    
    (135
    )
    
    
    2,190Equity in undistributed net income (loss) of subsidiary
    
    
    (3,106
    )
    
    
    (3,790
    )Net loss
    
    $
    (3,241
    )
    
    $
    (1,600
    )
  December 312008
    
    
    2007Cash Flows from Operating ActivitiesNet loss
    
    $
    (3,241
    )
    
    $
    (1,600
    )Adjustments to reconcile net income to net cash
from operating activities:Equity in undistributed net income of
subsidiary
    
    
    3,106
    
    
    
    3,790Net change in other assets
    
    
    (124
    )
    
    
    53Net change in other liabilities
    
    
    (199
    )
    
    
    18Net cash provided by (used in) operating activities
    
    
    (458
    )
    
    
    2,261Cash Flows from Financing ActivitiesPurchase of treasury shares
    
    
    
    
    
    
    (1,399
    )ESOP Loan Repayment
    
    
    91
    
    
    
    107Payment for subsidiary stock-based compensation plan
    
    
    226
    
    
    
    195Dividends paid
    
    
    (432
    )
    
    
    (582
    )Net cash used in financing activities
    
    
    (115
    )
    
    
    (1,679
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (573
    )
    
    
    582Cash and Cash Equivalents- Beginning of year
    
    
    989
    
    
    
    407Cash and
Cash Equivalents- End of year
    
    $
    416
    
    
    $
    989
 49




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 18  Segment Reporting
   50




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 18  Segment Reporting (Continued)
 For Year EndedDecember 31, 2008Bank
    
    
    ICA
    
    
    Eliminations
    
    
    TotalInterest Income
    
    $
    13,967
    
    
    $
    36
    
    
    $
    (36
    )
    
    $
    13,967Interest Expense
    
    
    7,166
    
    
    
    
    
    
    
    (36
    )
    
    
    7,130Net Interest Income- Before provision for loan losses
    
    
    6,801
    
    
    
    36
    
    
    
    
    
    
    
    6,837Provision for Loan Losses
    
    
    4,421
    
    
    
    
    
    
    
    
    
    
    
    4,421Net Interest Income- After provision for loan losses
    
    
    2,380
    
    
    
    36
    
    
    
    
    
    
    
    2,416Other Income
    
    
    1,470
    
    
    
    1,672
    
    
    
    
    
    
    
    3,142Operating Expenses
    
    
    8,655
    
    
    
    1,776
    
    
    
    
    
    
    
    10,431Income- Before federal income tax
    
    
    (4,805
    )
    
    
    (68
    )
    
    
    
    
    
    
    (4,873
    )Federal Income Tax
    
    
    (1,609
    )
    
    
    (23
    )
    
    
    
    
    
    
    (1,632
    )Net Income
    
    $
    (3,196
    )
    
    $
    (45
    )
    
    $
    
    
    
    $
    (3,241
    )Depreciation and amortization
    
    $
    749
    
    
    $
    268
    
    
    $
    
    
    
    $
    1,017Assets
    
    $
    244,769
    
    
    $
    4,149
    
    
    $
    (1,246
    )
    
    $
    247,672Expenditures related to long-lived assets:Goodwill
    
    $
    
    
    
    $
    47
    
    
    $
    
    
    
    $
    47Intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property and equipment
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    193Total
    
    $
    193
    
    
    $
    47
    
    
    $
    
    
    
    $
    240
 For Year EndedDecember 31, 2007Bank
    
    
    ICA
    
    
    Eliminations
    
    
    TotalInterest Income
    
    $
    16,200
    
    
    $
    32
    
    
    $
    (32
    )
    
    $
    16,200Interest Expense
    
    
    8,469
    
    
    
    10
    
    
    
    (32
    )
    
    
    8,447Net Interest Income- Before provision for loan losses
    
    
    7,731
    
    
    
    22
    
    
    
    
    
    
    
    7,753Provision for Loan Losses
    
    
    2,377
    
    
    
    
    
    
    
    
    
    
    
    2,377Net Interest Income- After provision for loan losses
    
    
    5,354
    
    
    
    22
    
    
    
    
    
    
    
    5,376Other Income
    
    
    1,256
    
    
    
    2,726
    
    
    
    
    
    
    
    3,982Operating Expenses
    
    
    9,136
    
    
    
    2,738
    
    
    
    
    
    
    
    11,874Income- Before federal income tax
    
    
    (2,526
    )
    
    
    10
    
    
    
    
    
    
    
    (2,516
    )Federal Income Tax
    
    
    (919
    )
    
    
    3
    
    
    
    
    
    
    
    (916
    )Net Income
    
    $
    (1,607
    )
    
    $
    7
    
    
    $
    
    
    
    $
    (1,600
    )Depreciation and amortization
    
    $
    755
    
    
    $
    345
    
    
    $
    
    
    
    $
    1,100Assets
    
    $
    247,268
    
    
    $
    4,421
    
    
    $
    (858
    )
    
    $
    250,831Expenditures related to long-lived assets:Goodwill
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property and equipment
    
    
    183
    
    
    
    24
    
    
    
    
    
    
    
    207Total
    
    $
    183
    
    
    $
    24
    
    
    $
    
    
    
    $
    207
 51




---



##### 



First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(000s omitted, except per share data)
 Note 19  Quarterly Results of Operations (Unaudited)
  For the Three-Month Period EndingMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2008
    
    
    2008
    
    
    2008
    
    
    2008Interest income
    
    $
    3,590
    
    
    $
    3,491
    
    
    $
    3,525
    
    
    $
    3,361Interest expense
    
    
    1,867
    
    
    
    1,790
    
    
    
    1,808
    
    
    
    1,665Net interest income
    
    
    1,723
    
    
    
    1,701
    
    
    
    1,717
    
    
    
    1,696Provision for losses on loans
    
    
    25
    
    
    
    342
    
    
    
    876
    
    
    
    3,178Other income
    
    
    412
    
    
    
    459
    
    
    
    400
    
    
    
    406Other expenses
    
    
    2,131
    
    
    
    2,172
    
    
    
    2,158
    
    
    
    2,413Loss from continuing operations  before income tax benefit
    
    
    (21
    )
    
    
    (354
    )
    
    
    (917
    )
    
    
    (3,489
    )Income tax benefit from continuing operations
    
    
    (7
    )
    
    
    (119
    )
    
    
    (307
    )
    
    
    (1,168
    )Net loss from continuing operations
    
    
    (14
    )
    
    
    (235
    )
    
    
    (610
    )
    
    
    (2,321
    )Loss from discontinued operations, net of tax benefit
    
    
    (17
    )
    
    
    (15
    )
    
    
    (25
    )
    
    
    (4
    )Net Loss
    
    $
    (31
    )
    
    $
    (250
    )
    
    $
    (635
    )
    
    $
    (2,325
    )Loss per share from continuing operationsBasic
    
    $
    (0.00
    )
    
    $
    (0.08
    )
    
    $
    (0.21
    )
    
    $
    (0.80
    )Diluted
    
    $
    (0.00
    )
    
    $
    (0.08
    )
    
    $
    (0.21
    )
    
    $
    (0.80
    )Loss per share from discontinued operationsBasic
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.00
    )Diluted
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.00
    )Net loss per shareBasic
    
    $
    (0.01
    )
    
    $
    (0.09
    )
    
    $
    (0.22
    )
    
    $
    (0.81
    )Diluted
    
    $
    (0.01
    )
    
    $
    (0.09
    )
    
    $
    (0.22
    )
    
    $
    (0.81
    )Weighted average number of shares outstanding
    
    
    2,884
    
    
    
    2,884
    
    
    
    2,884
    
    
    
    2,884Weighted average number of shares outstanding,
including dilutive stock options
    
    
    2,884
    
    
    
    2,884
    
    
    
    2,884
    
    
    
    2,884Cash dividends declared per common share
    
    $
    0.050
    
    
    $
    0.050
    
    
    $
    0.050
    
    
    $
    
 For the Three-Month Period EndingMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2007
    
    
    2007
    
    
    2007
    
    
    2007Interest income
    
    $
    4,130
    
    
    $
    4,057
    
    
    $
    4,140
    
    
    $
    3,873Interest expense
    
    
    2,231
    
    
    
    2,112
    
    
    
    2,098
    
    
    
    1,996Net interest income
    
    
    1,899
    
    
    
    1,945
    
    
    
    2,042
    
    
    
    1,877Provision for losses on loans
    
    
    86
    
    
    
    113
    
    
    
    111
    
    
    
    2,067Other income
    
    
    340
    
    
    
    279
    
    
    
    366
    
    
    
    451Other expenses
    
    
    2,150
    
    
    
    2,471
    
    
    
    2,376
    
    
    
    2,316Income (loss) from continuing operations- Before income taxes
    
    
    3
    
    
    
    (360
    )
    
    
    (79
    )
    
    
    (2,055
    )Federal income tax benefit
    
    
    (15
    )
    
    
    (146
    )
    
    
    (50
    )
    
    
    (697
    )Net income (loss) from continuing operations
    
    
    18
    
    
    
    (214
    )
    
    
    (29
    )
    
    
    (1,358
    )Income (loss) from discontinued operations, net of tax expense (benefit)
    
    
    4
    
    
    
    (21
    )
    
    
    4
    
    
    
    (4
    )Net Loss
    
    $
    22
    
    
    $
    (235
    )
    
    $
    (25
    )
    
    $
    (1,362
    )Loss per share from continuing operationsBasic
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    (0.01
    )
    
    $
    (0.47
    )Diluted
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    (0.01
    )
    
    $
    (0.47
    )Loss per share from discontinued operationsBasic
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    0.00
    
    
    $
    (0.00
    )Diluted
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    0.00
    
    
    $
    (0.00
    )Net loss per shareBasic
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    (0.01
    )
    
    $
    (0.47
    )Diluted
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    (0.01
    )
    
    $
    (0.47
    )Weighted average number of shares outstanding
    
    
    2,981
    
    
    
    2,848
    
    
    
    2,832
    
    
    
    2,873Weighted average number of shares outstanding,
including dilutive stock options
    
    
    2,982
    
    
    
    2,848
    
    
    
    2,832
    
    
    
    2,873Cash dividends declared per common share
    
    $
    0.050
    
    
    $
    0.050
    
    
    $
    0.050
    
    
    $
    0.050
 52