##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Fiscal Year Ended December 31, 2008
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number: 000-31957
 FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
  Maryland
    
    32-0135202(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 100 S. Second Avenue, Alpena, Michigan
    
    49707(Address of Principal Executive Offices)
    
    Zip Code
 (989) 356-9041  (Registrants telephone number)
 Securities Registered Pursuant to Section 12(b) of the Act:
 Common Stock, par value $.01 per share
    
    The Nasdaq Stock Market LLC(Title of Class)
    
    (Name of Exchange of Which Registered)
 Securities Registered Pursuant to Section 12(g) of the Act:
None
 o þ
 o þ
  þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



TABLE OF CONTENTS
 PART IITEM 1 BUSINESS
    
    
    3ITEM 1A RISK FACTORS
    
    
    29ITEM 1B UNRESOLVED STAFF COMMENTS
    
    
    33ITEM 2 PROPERTIES
    
    
    33ITEM 3 LEGAL PROCEEDINGS
    
    
    33ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    33PART IIITEM 5 MARKET FOR COMMON EQUITY, RELATED STOCKHODLER MATTERS AND SMALL BUSINESS ISSUER OURCHASES
OF EQUITY SECURITIES

    
    34ITEM 6 SELECTED FINANCIAL DATA
    
    
    34ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    
    34ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    34ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    34ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

    
    34ITEM 9A CONTROLS AND PROCEDURES
    
    
    34ITEM 9A(T) CONTROLS AND PROCEDURES
    
    
    35ITEM 9B OTHER INFORMATION
    
    
    35PART IIIITEM 10 DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
    
    
    36ITEM 11 EXECUTIVE COMPENSATION
    
    
    36ITEM 12 SECURITY OWNERSHIP OF CERTAIN BEENFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
    
    
    36ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    36ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    36ITEM 15 EXHIBITS
    
    
    36EX-13EX-21EX-23EX-31.1EX-31.2EX-32.1EX-32.2
  
 2




---



##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
 Forward-Looking Statements
   First Federal of Northern Michigan Bancorp, Inc.
  First Federal of Northern Michigan
    Market Area and Competition
  3




---



##### Table of Contents



Lending Activities
 General.
 One- to Four-Family Residential Real Estate Lending.
   4




---



##### Table of Contents



Commercial Real Estate Lending.
  Consumer and Other Loans.
 5




---



##### Table of Contents



Commercial Loans. The Wall Street Journal,
   Construction Loans.
   6




---



##### Table of Contents



Loan Portfolio Composition .
 At December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Real estate loans:Residential mortgage
    
    $
    91,339
    
    
    
    46.1
    %
    
    $
    97,266
    
    
    
    47.3
    %
    
    $
    99,490
    
    
    
    46.9
    %
    
    $
    100,042
    
    
    
    49.3
    %
    
    $
    102,600
    
    
    
    52.1
    %Commercial mortgage
    
    
    43,774
    
    
    
    22.0
    %
    
    
    44,634
    
    
    
    21.7
    %
    
    
    45,274
    
    
    
    21.4
    %
    
    
    40,270
    
    
    
    19.8
    %
    
    
    29,690
    
    
    
    15.1
    %Construction
    
    
    7,038
    
    
    
    3.6
    %
    
    
    8,292
    
    
    
    4.0
    %
    
    
    9,406
    
    
    
    4.4
    %
    
    
    10,030
    
    
    
    4.9
    %
    
    
    8,906
    
    
    
    4.5
    %Home Equity/Junior Liens
    
    
    22,303
    
    
    
    11.3
    %
    
    
    24,095
    
    
    
    11.7
    %
    
    
    24,868
    
    
    
    11.7
    %
    
    
    21,238
    
    
    
    10.5
    %
    
    
    19,927
    
    
    
    10.1
    %Non real estate loansCommercial
    
    
    30,173
    
    
    
    15.2
    %
    
    
    26,783
    
    
    
    13.0
    %
    
    
    28,209
    
    
    
    13.3
    %
    
    
    26,658
    
    
    
    13.1
    %
    
    
    30,174
    
    
    
    15.3
    %Consumer and other loans
    
    
    3,564
    
    
    
    1.8
    %
    
    
    4,555
    
    
    
    2.3
    %
    
    
    4,688
    
    
    
    2.3
    %
    
    
    4,669
    
    
    
    2.4
    %
    
    
    5,617
    
    
    
    2.9
    %Total Loans
    
    $
    198,191
    
    
    
    100.0
    %
    
    $
    205,625
    
    
    
    100.0
    %
    
    $
    211,935
    
    
    
    100.0
    %
    
    $
    202,907
    
    
    
    100.0
    %
    
    $
    196,914
    
    
    
    100.0
    %Other items:Deferred loan origination costs
    
    
    13
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    37Deferred loan origination fees
    
    
    (287
    )
    
    
    
    
    
    
    (292
    )
    
    
    
    
    
    
    (358
    )
    
    
    
    
    
    
    (336
    )
    
    
    
    
    
    
    (349
    )Allowance for loan losses
    
    
    (5,647
    )
    
    
    
    
    
    
    (4,013
    )
    
    
    
    
    
    
    (2,079
    )
    
    
    
    
    
    
    (1,416
    )
    
    
    
    
    
    
    (1,214
    )Total loans, net
    
    $
    192,270
    
    
    
    
    
    
    $
    201,333
    
    
    
    
    
    
    $
    209,518
    
    
    
    
    
    
    $
    201,183
    
    
    
    
    
    
    $
    195,388
 Loan Portfolio Maturities and Yield.
 Residential Mortgage
    
    
    Commercial Mortgage
    
    
    Construction
    
    
    HomeEquity/Junior LiensWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageAmount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate(Dollars in thousands)Due During the Years
Ending December 31,2009
    
    $
    3,558
    
    
    
    5.13
    %
    
    $
    6,038
    
    
    
    6.01
    %
    
    $
    6,524
    
    
    
    5.33
    %
    
    $
    95
    
    
    
    6.32
    %2010
    
    
    1,158
    
    
    
    7.05
    %
    
    
    9,240
    
    
    
    6.81
    %
    
    
    
    
    
    
    0.00
    %
    
    
    245
    
    
    
    7.05
    %2011
    
    
    457
    
    
    
    7.73
    %
    
    
    9,358
    
    
    
    6.98
    %
    
    
    514
    
    
    
    3.93
    %
    
    
    1,989
    
    
    
    5.14
    %2012 to 2013
    
    
    2,792
    
    
    
    6.50
    %
    
    
    16,228
    
    
    
    7.13
    %
    
    
    
    
    
    
    0.00
    %
    
    
    2,441
    
    
    
    5.95
    %2014 to 2018
    
    
    9,030
    
    
    
    6.12
    %
    
    
    1,935
    
    
    
    7.21
    %
    
    
    
    
    
    
    0.00
    %
    
    
    5,819
    
    
    
    6.60
    %2019 to 2023
    
    
    8,577
    
    
    
    6.59
    %
    
    
    94
    
    
    
    6.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    8,993
    
    
    
    5.27
    %2023 and beyond
    
    
    65,767
    
    
    
    6.40
    %
    
    
    881
    
    
    
    7.25
    %
    
    
    
    
    
    
    0.00
    %
    
    
    2,721
    
    
    
    4.62
    %Total
    
    $
    91,339
    
    
    
    6.36
    %
    
    $
    43,774
    
    
    
    6.81
    %
    
    $
    7,038
    
    
    
    5.25
    %
    
    $
    22,303
    
    
    
    5.75
    %
 Commercial
    
    
    Consumer and Other
    
    
    TotalWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageAmount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateDue During the Years
Ending December 31,2009
    
    $
    15,371
    
    
    
    4.41
    %
    
    $
    465
    
    
    
    8.66
    %
    
    $
    32,051
    
    
    
    5.64
    %2010
    
    
    4,176
    
    
    
    4.31
    %
    
    
    301
    
    
    
    8.72
    %
    
    
    15,120
    
    
    
    6.34
    %2011
    
    
    4,057
    
    
    
    6.11
    %
    
    
    458
    
    
    
    8.23
    %
    
    
    16,833
    
    
    
    6.57
    %2012 to 2013
    
    
    2,446
    
    
    
    6.85
    %
    
    
    655
    
    
    
    7.60
    %
    
    
    24,562
    
    
    
    6.63
    %2014 to 2018
    
    
    2,595
    
    
    
    6.31
    %
    
    
    1,303
    
    
    
    8.70
    %
    
    
    20,682
    
    
    
    6.62
    %2019 to 2023
    
    
    
    
    
    
    0.00
    %
    
    
    382
    
    
    
    8.12
    %
    
    
    18,046
    
    
    
    5.63
    %2023 and beyond
    
    
    1,528
    
    
    
    5.16
    %
    
    
    
    
    
    
    0.00
    %
    
    
    70,897
    
    
    
    6.14
    %Total
    
    $
    30,173
    
    
    
    4.75
    %
    
    $
    3,564
    
    
    
    8.58
    %
    
    $
    198,191
    
    
    
    6.37
    %
 Fixed- and Adjustable-Rate Loans.
 Due After December 31, 2009Fixed
    
    
    Adjustable
    
    
    Total(In thousands)Residential mortgage
    
    $
    41,362
    
    
    $
    46,419
    
    
    $
    87,781Commercial mortgage
    
    
    35,674
    
    
    
    2,062
    
    
    $
    37,736Construction
    
    
    514
    
    
    
    
    
    
    $
    514Home Equity/Junior Liens
    
    
    13,494
    
    
    
    8,714
    
    
    $
    22,208Commercial
    
    
    7,371
    
    
    
    7,431
    
    
    $
    14,802Consumer and other
    
    
    2,668
    
    
    
    431
    
    
    $
    3,099Total loans
    
    $
    101,083
    
    
    $
    65,057
    
    
    $
    166,140
 7




---



##### Table of Contents



Loan Originations, Purchases, Sales and Servicing.
     Loan Origination Fees and Costs.
 8




---



##### Table of Contents



Origination, Purchase and Sale of Loans .
 Years Ended December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Loans receivable at beginning of period
    
    $
    205,625
    
    
    $
    211,935
    
    
    $
    202,907Originations:Real estate:Residential 1-4 family
    
    
    30,187
    
    
    
    31,496
    
    
    
    33,371Commercial and Multi-family
    
    
    24,191
    
    
    
    21,644
    
    
    
    23,760Consumer
    
    
    6,543
    
    
    
    9,035
    
    
    
    15,992Total originations
    
    
    60,921
    
    
    
    62,175
    
    
    
    73,123Loan purchases
    
    
    5,177
    
    
    
    11,125
    
    
    
    4,625Loan sales
    
    
    (11,641
    )
    
    
    (16,287
    )
    
    
    (14,632
    )Transfer of mortgage loans
to foreclosed real estate
    
    
    (8,251
    )
    
    
    (1,719
    )
    
    
    (703
    )Repayments
    
    
    (53,640
    )
    
    
    (61,604
    )
    
    
    (53,385
    )Total loans receivable at end of period
    
    $
    198,191
    
    
    $
    205,625
    
    
    $
    211,935
 Delinquent Loans, Other Real Estate Owned and Classified Assets
 Collection Procedures.
 Loans Past Due and Non-Performing Assets.
  9




---



##### Table of Contents



Delinquent Loans .
 Loan Delinquent For60-89 Days
    
    
    
    
    
    
    90 Days and Over
    
    
    TotalNumber
    
    
    Amount
    
    
    
    
    
    
    Number
    
    
    Amount
    
    
    Number
    
    
    Amount( Dollars In Thousands)At December 31, 2008Residential Mortgages
    
    
    26
    
    
    
    2,513
    
    
    
    
    
    
    
    2
    
    
    
    128
    
    
    
    28
    
    
    
    2,641Commercial Mortgages
    
    
    5
    
    
    
    736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    736Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    72
    
    
    
    1
    
    
    
    72Consumer
    
    
    26
    
    
    
    155
    
    
    
    
    
    
    
    8
    
    
    
    17
    
    
    
    34
    
    
    
    172Total
    
    
    57
    
    
    $
    3,404
    
    
    
    
    
    
    
    11
    
    
    $
    217
    
    
    
    68
    
    
    
    3,621At December 31, 2007Residential Mortgages
    
    
    24
    
    
    
    1,315
    
    
    
    
    
    
    
    6
    
    
    
    532
    
    
    
    30
    
    
    
    1,847Commercial Mortgages
    
    
    1
    
    
    
    797
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    797Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    100
    
    
    
    1
    
    
    
    100Consumer
    
    
    19
    
    
    
    181
    
    
    
    
    
    
    
    10
    
    
    
    45
    
    
    
    29
    
    
    
    226Total
    
    
    44
    
    
    $
    2,293
    
    
    
    
    
    
    
    17
    
    
    $
    677
    
    
    
    61
    
    
    
    2,969At December 31, 2006Residential Mortgages
    
    
    22
    
    
    
    1,218
    
    
    
    
    
    
    
    9
    
    
    
    645
    
    
    
    31
    
    
    
    1,863Commercial Mortgages
    
    
    1
    
    
    
    636
    
    
    
    
    
    
    
    2
    
    
    
    221
    
    
    
    3
    
    
    
    857Construction
    
    
    1
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    74Commercial
    
    
    6
    
    
    
    317
    
    
    
    
    
    
    
    10
    
    
    
    540
    
    
    
    16
    
    
    
    857Consumer
    
    
    17
    
    
    
    105
    
    
    
    
    
    
    
    9
    
    
    
    84
    
    
    
    26
    
    
    
    189Total
    
    
    47
    
    
    $
    2,350
    
    
    
    
    
    
    
    30
    
    
    $
    1,490
    
    
    
    77
    
    
    
    3,839At December 31, 2005Residential Mortgages
    
    
    24
    
    
    
    1,375
    
    
    
    
    
    
    
    19
    
    
    
    1,684
    
    
    
    43
    
    
    
    3,059Commercial Mortgages
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    670
    
    
    
    4
    
    
    
    670Construction
    
    
    1
    
    
    
    341
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    341Commercial
    
    
    8
    
    
    
    506
    
    
    
    
    
    
    
    2
    
    
    
    115
    
    
    
    10
    
    
    
    621Consumer
    
    
    23
    
    
    
    197
    
    
    
    
    
    
    
    13
    
    
    
    185
    
    
    
    36
    
    
    
    382Total
    
    
    56
    
    
    $
    2,419
    
    
    
    
    
    
    
    38
    
    
    $
    2,654
    
    
    
    94
    
    
    
    5,073At December 31, 2004Residential Mortgages
    
    
    6
    
    
    $
    1,045
    
    
    
    
    
    
    
    16
    
    
    $
    960
    
    
    
    22
    
    
    $
    2,005Commercial Mortgages
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    2
    
    
    
    195
    
    
    
    
    
    
    
    1
    
    
    
    105
    
    
    
    3
    
    
    
    300Consumer
    
    
    5
    
    
    
    179
    
    
    
    
    
    
    
    16
    
    
    
    175
    
    
    
    21
    
    
    
    354Total
    
    
    13
    
    
    $
    1,419
    
    
    
    
    
    
    
    33
    
    
    $
    1,240
    
    
    
    46
    
    
    $
    2,659
 10




---



##### Table of Contents



Nonperforming Assets.
 At December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in thousands)Non-Accrual Loans delinquent 90 days or more:Residential Mortgage
    
    
    1,876
    
    
    
    697
    
    
    
    670
    
    
    
    308
    
    
    
    21Commercial Mortgage
    
    
    4,002
    
    
    
    3,825
    
    
    
    1,395
    
    
    
    1,006
    
    
    
    442Construction
    
    
    3,469
    
    
    
    3,475
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    2,515
    
    
    
    433
    
    
    
    364
    
    
    
    
    
    
    
    Consumer and other
    
    
    90
    
    
    
    29
    
    
    
    61
    
    
    
    39
    
    
    
    15Total non-accrual loans delinquent 90 days or more
    
    $
    11,952
    
    
    $
    8,459
    
    
    $
    2,490
    
    
    $
    1,353
    
    
    $
    478Accrual loans delinquent 90 days or more:Residential Mortgage
    
    
    128
    
    
    
    532
    
    
    
    645
    
    
    
    1,684
    
    
    
    960Commercial Mortgage
    
    
    72
    
    
    
    
    
    
    
    221
    
    
    
    670
    
    
    
    Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    100
    
    
    
    540
    
    
    
    115
    
    
    
    105Consumer and other
    
    
    17
    
    
    
    45
    
    
    
    84
    
    
    
    185
    
    
    
    175Total accrual loans delinquent 90 days or more
    
    $
    217
    
    
    $
    677
    
    
    $
    1,490
    
    
    $
    2,654
    
    
    $
    1,240Total nonperforming loans (1)
    
    $
    12,169
    
    
    $
    9,136
    
    
    $
    3,980
    
    
    $
    4,007
    
    
    $
    1,718Real Estate Owned and Other Repossessed Assets:Residential Mortgage
    
    
    686
    
    
    
    872
    
    
    
    437
    
    
    
    427
    
    
    
    9Commercial Mortgage
    
    
    882
    
    
    
    406
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer and other
    
    
    70
    
    
    
    2
    
    
    
    38
    
    
    
    8
    
    
    
    20Total real estate owned and other repossesed assets (2)
    
    $
    1,638
    
    
    $
    1,280
    
    
    $
    475
    
    
    $
    435
    
    
    $
    29Total nonperforming assets
    
    $
    13,807
    
    
    $
    10,416
    
    
    $
    4,455
    
    
    $
    4,442
    
    
    $
    1,747Total nonperforming loans to net loans receivable
    
    
    6.14
    %
    
    
    4.54
    %
    
    
    1.90
    %
    
    
    1.97
    %
    
    
    0.87
    %Total nonperforming assets to total assets
    
    
    5.57
    %
    
    
    4.15
    %
    
    
    1.59
    %
    
    
    1.57
    %
    
    
    0.66
    %
 Classification of Assets.
 11




---



##### Table of Contents



At December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Substandard assets
    
    $
    19,409
    
    
    $
    14,362
    
    
    $
    14,027Doubtful assets
    
    
    
    
    
    
    
    
    
    
    244Loss assets
    
    
    
    
    
    
    
    
    
    
    Total classified assets
    
    $
    19,409
    
    
    $
    14,362
    
    
    $
    14,271
 Accounting for
Impairment or Disposal of Long-Lived Assets
 Allowance for Loan Losses.
 12




---



##### Table of Contents



Analysis of the Allowance for Loan Losses .
 For the Years Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in thousands)Allowance at beginning of period
    
    $
    4,013
    
    
    $
    2,079
    
    
    $
    1,416
    
    
    $
    1,214
    
    
    $
    1,036Charge-offs:Residential Mortgages
    
    
    342
    
    
    
    225
    
    
    
    44
    
    
    
    21
    
    
    
    12Commercial Mortgages
    
    
    2,023
    
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    331
    
    
    
    4
    
    
    
    1
    
    
    
    57
    
    
    
    Consumer and other
    
    
    141
    
    
    
    190
    
    
    
    163
    
    
    
    171
    
    
    
    179Total charge offs
    
    
    2,837
    
    
    
    478
    
    
    
    208
    
    
    
    249
    
    
    
    191Recoveries:Residential Mortgages
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Consumer and other
    
    
    50
    
    
    
    34
    
    
    
    20
    
    
    
    83
    
    
    
    45Total recoveries
    
    
    50
    
    
    
    35
    
    
    
    20
    
    
    
    83
    
    
    
    46Net charge offs (recoveries)
    
    
    2,787
    
    
    
    443
    
    
    
    188
    
    
    
    166
    
    
    
    145Provision for loan losses
    
    
    4,421
    
    
    
    2,377
    
    
    
    851
    
    
    
    368
    
    
    
    323Balance at end of year
    
    $
    5,647
    
    
    $
    4,013
    
    
    $
    2,079
    
    
    $
    1,416
    
    
    $
    1,214Ratios:Net Charge-offs to average loans
outstanding (annualized)
    
    
    1.40
    %
    
    
    0.21
    %
    
    
    0.08
    %
    
    
    0.08
    %
    
    
    0.07
    %Allowance for loan loss to non-performing
loans at end of period
    
    
    46.41
    %
    
    
    43.93
    %
    
    
    22.76
    %
    
    
    35.34
    %
    
    
    70.67
    %Allowance for loan losses to total
loans at end of period
    
    
    2.85
    %
    
    
    1.95
    %
    
    
    0.98
    %
    
    
    0.70
    %
    
    
    0.62
    %
 13




---



##### Table of Contents



Allocation of Allowance for Loan Losses.
 At December 312008
    
    2007
    
    2006Percent of
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentLoans in
    
    
    
    
    
    
    of Loans
    
    
    
    
    
    
    of Loans inEach
    
    
    
    
    
    
    in Each
    
    
    
    
    
    
    EachCategory
    
    
    Allowance
    
    
    Category
    
    
    Allowance
    
    
    CategoryAllowance for
    
    
    to Total
    
    
    for Loan
    
    
    to Total
    
    
    for Loan
    
    
    to TotalLoan Losses
    
    
    Loans
    
    
    Losses
    
    
    Loans
    
    
    Losses
    
    
    LoansReal Estate Loans:One to four family residental
    
    $
    1,185
    
    
    
    46.1
    %
    
    $
    793
    
    
    
    47.3
    %
    
    $
    175
    
    
    
    46.9
    %Commercial
    
    $
    1,666
    
    
    
    22.0
    %
    
    $
    1,374
    
    
    
    21.7
    %
    
    $
    846
    
    
    
    21.4
    %Construction
    
    $
    12
    
    
    
    3.6
    %
    
    $
    32
    
    
    
    4.0
    %
    
    $
    17
    
    
    
    4.4
    %Home Equity & Junior Liens
    
    $
    215
    
    
    
    11.3
    %
    
    $
    171
    
    
    
    11.7
    %
    
    $
    429
    
    
    
    11.7
    %Non Real Estate Loans:Commercial business loans
    
    $
    2,515
    
    
    
    15.2
    %
    
    $
    1,579
    
    
    
    13.0
    %
    
    $
    527
    
    
    
    13.3
    %Consumer
    
    $
    54
    
    
    
    1.8
    %
    
    $
    64
    
    
    
    2.3
    %
    
    $
    85
    
    
    
    2.3
    %Total
    
    $
    5,647
    
    
    
    100.0
    %
    
    $
    4,013
    
    
    
    100.0
    %
    
    $
    2,079
    
    
    
    100.0
    %
 At December 312005
    
    2004Percent of
    
    
    
    
    
    
    Percent ofLoans in
    
    
    
    
    
    
    Loans inEach
    
    
    
    
    
    
    EachCategory
    
    
    Allowance
    
    
    CategoryAllowance for
    
    
    to Total
    
    
    for Loan
    
    
    to TotalLoan Losses
    
    
    Loans
    
    
    Losses
    
    
    LoansReal Estate Loans:One to four family residental
    
    $
    168
    
    
    
    49.3
    %
    
    $
    126
    
    
    
    52.1
    %Commercial
    
    $
    457
    
    
    
    19.8
    %
    
    $
    300
    
    
    
    15.1
    %Construction
    
    $
    17
    
    
    
    4.9
    %
    
    $
    11
    
    
    
    4.5
    %Home Equity & Junior Liens
    
    $
    383
    
    
    
    10.5
    %
    
    $
    361
    
    
    
    10.1
    %Non Real Estate Loans:Commercial business loans
    
    $
    302
    
    
    
    13.1
    %
    
    $
    305
    
    
    
    15.3
    %Consumer
    
    $
    89
    
    
    
    2.4
    %
    
    $
    111
    
    
    
    2.9
    %Total
    
    $
    1,416
    
    
    
    100.0
    %
    
    $
    1,214
    
    
    
    100.0
    %
 Mortgage Banking Activities
   14




---



##### Table of Contents



Insurance Brokerage Activities
      Real Estate Development Activities
    15




---



##### Table of Contents



Investment Activities
    i.e.
    16




---



##### Table of Contents



Investment Securities Portfolio.
 At December 31,2008
    
    
    2007
    
    
    2006Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value(In Thousands)Debt Securities:U.S. Government and
agency obligations
    
    $
    5,680
    
    
    $
    5,768
    
    
    $
    18,477
    
    
    $
    18,514
    
    
    $
    36,271
    
    
    $
    35,902State agency and municipal
obligations
    
    
    7,942
    
    
    
    7,924
    
    
    
    3,600
    
    
    
    3,623
    
    
    
    3,771
    
    
    
    3,789Corporate bonds and other
obligations
    
    
    1,500
    
    
    
    1,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities:Pass-through securities:Fannie Mae
    
    
    9,468
    
    
    
    9,733
    
    
    
    
    
    
    
    
    
    
    
    576
    
    
    
    539Freddie Mac
    
    
    4,419
    
    
    
    4,516
    
    
    
    1,076
    
    
    
    1,054
    
    
    
    3,007
    
    
    
    2,888Ginnie Mae
    
    
    164
    
    
    
    167
    
    
    
    197
    
    
    
    197
    
    
    
    1,622
    
    
    
    1,594Total debt securities
    
    
    29,173
    
    
    
    29,612
    
    
    
    23,350
    
    
    
    23,388
    
    
    
    45,247
    
    
    
    44,712Marketable equity securitiesCommon stock
    
    
    3
    
    
    
    2
    
    
    
    3
    
    
    
    87
    
    
    
    3
    
    
    
    171Total equity securities
    
    
    3
    
    
    
    2
    
    
    
    3
    
    
    
    87
    
    
    
    3
    
    
    
    171Total investment securities
    
    $
    29,176
    
    
    $
    29,614
    
    
    $
    23,353
    
    
    $
    23,476
    
    
    $
    45,250
    
    
    $
    44,883
 Portfolio Maturities and Yields.
 At December 31, 2008More than One Year
    
    
    More than Five YearsOne Year or Less
    
    
    Through Five years
    
    
    Through Ten Years
    
    
    More than Ten Years
    
    
    Total SecuritiesWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAmortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Fair
    
    
    AverageCost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    Yield(Dollars in Thousands)Debt Securities:U.S. Government and agency
securities
    
    $
    3,999
    
    
    
    4.06
    %
    
    $
    1,681
    
    
    
    4.10
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    5,680
    
    
    $
    5,768
    
    
    
    4.07
    %State agency and municipal
obligations
    
    
    85
    
    
    
    3.69
    %
    
    
    4,108
    
    
    
    4.17
    %
    
    
    1,828
    
    
    
    4.05
    %
    
    
    1,921
    
    
    
    4.70
    %
    
    
    7,942
    
    
    
    7,924
    
    
    
    4.27
    %Corporate bonds and other obligations
    
    
    499
    
    
    
    6.38
    %
    
    
    1,001
    
    
    
    5.72
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    1,500
    
    
    
    1,504
    
    
    
    5.94
    %Mortgage-backed securitiesFannie Mae
    
    
    
    
    
    
    0.00
    %
    
    
    3,801
    
    
    
    4.00
    %
    
    
    876
    
    
    
    4.50
    %
    
    
    4,792
    
    
    
    5.29
    %
    
    
    9,468
    
    
    
    9,733
    
    
    
    4.70
    %Freddie Mac
    
    
    
    
    
    
    0.00
    %
    
    
    3,449
    
    
    
    4.16
    %
    
    
    16
    
    
    
    4.62
    %
    
    
    954
    
    
    
    5.00
    %
    
    
    4,419
    
    
    
    4,516
    
    
    
    4.35
    %Ginnie Mae
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    164
    
    
    
    5.26
    %
    
    
    
    
    
    
    0.00
    %
    
    
    164
    
    
    
    167
    
    
    
    5.26
    %Total debt securities
    
    
    4,583
    
    
    
    
    
    
    
    14,040
    
    
    
    
    
    
    
    2,884
    
    
    
    
    
    
    
    7,667
    
    
    
    
    
    
    
    29,173
    
    
    
    29,612Marketable equity securities:Common Stock
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    3
    
    
    
    0.00
    %
    
    
    3
    
    
    
    2
    
    
    
    0.00
    %Total investment securities
    
    $
    4,583
    
    
    
    
    
    
    $
    14,040
    
    
    
    
    
    
    $
    2,884
    
    
    
    
    
    
    $
    7,670
    
    
    
    
    
    
    $
    29,176
    
    
    $
    29,614
 17




---



##### Table of Contents



Sources of Funds
 General.
 Deposits.
  At December 31,2008
    
    
    2007
    
    
    2006Weighted
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedPercent
    
    
    Average
    
    
    
    
    
    
    Percent
    
    
    Average
    
    
    
    
    
    
    Percent
    
    
    AverageAmount
    
    
    of Total
    
    
    Interest Rate
    
    
    Amount
    
    
    of Total
    
    
    Interest Rate
    
    
    Amount
    
    
    of Total
    
    
    Interest Rate(Dollars in thousands)Non-interest-bearing
    
    $
    10,410
    
    
    
    6.28
    %
    

    NA
    
    
    $
    10,186
    
    
    
    6.45
    %
    

    NA
    

    
    $
    10,029
    
    
    
    5.88
    %
    
    NANOW accounts
    
    
    14,652
    
    
    
    8.84
    %
    
    
    0.33
    %
    
    
    15,135
    
    
    
    9.59
    %
    
    
    0.32
    %
    
    
    15,526
    
    
    
    9.10
    %
    
    
    0.31
    %Passbook
    
    
    14,857
    
    
    
    8.96
    %
    
    
    0.15
    %
    
    
    15,964
    
    
    
    10.11
    %
    
    
    0.30
    %
    
    
    18,990
    
    
    
    11.13
    %
    
    
    0.30
    %Money market accounts
    
    
    19,394
    
    
    
    11.70
    %
    
    
    2.66
    %
    
    
    11,116
    
    
    
    7.04
    %
    
    
    2.61
    %
    
    
    12,450
    
    
    
    7.30
    %
    
    
    2.64
    %Time deposits that mature:Less than 12 months
    
    
    68,753
    
    
    
    41.47
    %
    
    
    3.72
    %
    
    
    77,275
    
    
    
    48.96
    %
    
    
    4.37
    %
    
    
    86,106
    
    
    
    50.47
    %
    
    
    4.52
    %Within 12-36 months
    
    
    34,429
    
    
    
    20.77
    %
    
    
    3.95
    %
    
    
    24,944
    
    
    
    15.80
    %
    
    
    4.68
    %
    
    
    19,670
    
    
    
    11.53
    %
    
    
    4.08
    %Beyond 36 months
    
    
    3,283
    
    
    
    1.98
    %
    
    
    3.78
    %
    
    
    3,213
    
    
    
    2.04
    %
    
    
    4.22
    %
    
    
    7,125
    
    
    
    4.18
    %
    
    
    5.31
    %Jumbo
    
    
    
    
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    700
    
    
    
    0.41
    %
    
    
    4.04
    %Total deposits
    
    $
    165,778
    
    
    
    100.00
    %
    
    
    2.79
    %
    
    $
    157,833
    
    
    
    100.00
    %
    
    
    3.19
    %
    
    $
    170,596
    
    
    
    100.00
    %
    
    
    3.27
    %
 18




---



##### Table of Contents



Time Deposit Rates.
 At December 31,Rate
    
    2008
    
    
    2007
    
    
    2006(In Thousands)Less than 2%
    
    $
    8,577
    
    
    $
    
    
    
    $
    7572.00 percent to 2.99 percent
    
    
    11,776
    
    
    
    11,346
    
    
    
    4,4873.00 percent to 3.99 percent
    
    
    42,403
    
    
    
    11,977
    
    
    
    25,8474.00 percent to 4.99 percent
    
    
    38,278
    
    
    
    70,900
    
    
    
    52,5025.00 percent to 6.99 percent
    
    
    4,036
    
    
    
    9,857
    
    
    
    28,5037.00 percent to 8.99 percent
    
    
    1,395
    
    
    
    1,352
    
    
    
    1,505$
    106,465
    
    
    $
    105,432
    
    
    $
    122,590
 Time Deposit Maturities .
 1  Less
    
    
    2  Less
    
    
    3  Less
    
    
    5 yearsLess Than
    
    
    than 2
    
    
    than 3
    
    
    than 5
    
    
    andRate
    
    One Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Greater
    
    
    TotalLess than 2%
    
    $
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,395$
    68,754
    
    
    $
    26,751
    
    
    $
    7,676
    
    
    $
    2,597
    
    
    $
    687
    
    
    $
    106,465
 19




---



##### Table of Contents



Certificates of DepositMaturity Period
    
    in excess of $100,000(In thousands)Three months or less
    
    $
    11,111Three through six months
    
    
    6,155Six through twelve months
    
    
    7,888Over twelve months
    
    
    10,495Total
    
    $
    35,649
 Borrowings.
 Years Ended December 31,2008
    
    2007
    
    2006(Dollars in Thousands)Balance at end of period
    
    $
    40,969
    
    
    $
    52,684
    
    
    $
    66,042Average balance during period
    
    $
    47,075
    
    
    $
    54,425
    
    
    $
    62,159Maximum outstanding at any month end
    
    $
    48,900
    
    
    $
    66,850
    
    
    $
    66,650Weighted average interest rate at end of period
    
    
    4.22
    %
    
    
    4.68
    %
    
    
    5.09
    %Average interest rate during period
    
    
    4.27
    %
    
    
    4.78
    %
    
    
    4.99
    %
 Subsidiary Activity
     20




---



##### Table of Contents



Personnel
  SUPERVISION AND REGULATION
 General
    Federal Banking Regulation
 Business Activities.
 21




---



##### Table of Contents



Capital
Requirements.
   At December 31,2008
    
    
    2007Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Assets
    
    
    Amount
    
    
    of Assets(Dollars in Thousands)Equity capital
    
    $
    28,320
    
    
    
    11.43
    %
    
    $
    31,154
    
    
    
    12.42
    %Tangible Capital Requirement:Tangible capital level
    
    
    24,887
    
    
    
    10.31
    %
    
    
    27,295
    
    
    
    11.05
    %Requirement
    
    
    3,628
    
    
    
    1.50
    %
    
    
    3,705
    
    
    
    1.50
    %Excess
    
    
    21,260
    
    
    
    8.81
    %
    
    
    23,590
    
    
    
    9.55
    %Core Capital Requirement:Core capital level
    
    
    24,887
    
    
    
    10.31
    %
    
    
    27,295
    
    
    
    11.05
    %Requirement
    
    
    9,674
    
    
    
    4.00
    %
    
    
    9,880
    
    
    
    4.00
    %Excess
    
    
    15,213
    
    
    
    6.31
    %
    
    
    17,415
    
    
    
    7.05
    %Risk-based Capital Requirement:Risk-based capital level
    
    
    27,079
    
    
    
    15.75
    %
    
    
    29,607
    
    
    
    16.27
    %Requirement
    
    
    13,840
    
    
    
    8.00
    %
    
    
    14,558
    
    
    
    8.00
    %Excess
    
    
    13,239
    
    
    
    7.75
    %
    
    
    15,049
    
    
    
    8.27
    %
 Loans to One Borrower.
 Qualified Thrift Lender Test.
 22




---



##### Table of Contents



Capital Distributions.
 
    
    the total capital distributions for the applicable calendar year exceed the sum of
the savings banks net income for that year to date plus the savings banks retained
net income for the preceding two years;
    
    the savings bank would not be at least adequately capitalized following the
distribution;
    
    the distribution would violate any applicable statute, regulation, agreement or
Office of Thrift Supervision-imposed condition; or
    
    the savings bank is not eligible for expedited treatment of its filings.
   
    
    the savings bank would be undercapitalized following the distribution;
    
    the proposed capital distribution raises safety and soundness concerns; or
    
    the capital distribution would violate a prohibition contained in any statute,
regulation or agreement.
  Liquidity.
 Community Reinvestment Act and Fair Lending Laws.
 23




---



##### Table of Contents



Transactions with Related Parties.
  Enforcement.
 Standards for Safety and Soundness.
 Prompt Corrective Action Regulations .
 
    
    well-capitalized (at least 5% leverage capital, 6% tier 1 risk-based capital and 10%
total risk-based capital);
    
    adequately capitalized (at least 4% leverage capital, 4% tier 1 risk-based capital
and 8% total risk-based capital);
    
    undercapitalized (less than 3% leverage capital, 4% tier 1 risk-based capital or 8%
total risk-based capital);
    
    significantly undercapitalized (less than 3% leverage capital, 3% tier 1 risk-based
capital or 6% total risk-based capital); or
    
    critically undercapitalized (less than 2% tangible capital).
 24




---



##### Table of Contents



Insurance of Deposit Accounts.
    Temporary Liquidity Guarantee Program.
  25




---



##### Table of Contents



U.S. Treasurys Troubled Asset Relief Program Capital Purchase Program.
 Prohibitions Against Tying Arrangements .
 Federal Home Loan Bank System.
 Other Regulations
  
    
    Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
    
    Home Mortgage Disclosure Act, requiring financial institutions to provide
information to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the
community it serves;
    
    Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed
or other prohibited factors in extending credit;
    
    Fair Credit Reporting Act, governing the use and provision of information to credit
reporting agencies;
    
    Fair Debt Collection Act, governing the manner in which consumer debts may be
collected by collection agencies;
    
    Truth in Savings Act; and
    
    rules and regulations of the various federal agencies charged with the
responsibility of implementing such federal laws.
  
    
    Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with administrative
subpoenas of financial records;
    
    Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern
automatic deposits to and withdrawals from deposit accounts and customers rights and
liabilities arising from the use of automated teller machines and other electronic
banking services;
 26




---



##### Table of Contents




    
    Check Clearing for the 21st Century Act (also known as Check 21), which
gives substitute checks, such as digital check images and copies made from that
image, the same legal standing as the original paper check;
    
    Title III of The Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the USA
PATRIOT Act), which significantly expanded the responsibilities of financial
institutions, including savings and loan associations, in preventing the use of the
American financial system to fund terrorist activities. Among other provisions, the
USA PATRIOT Act and the related regulations of the OTS require savings associations
operating in the United States to develop new anti-money laundering compliance
programs, due diligence policies and controls to ensure the detection and reporting of
money laundering. Such required compliance programs are intended to supplement existing
compliance requirements, also applicable to financial institutions, under the Bank
Secrecy Act and the Office of Foreign Assets Control regulations; and
    
    The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer
financial information by financial institutions with unaffiliated third parties.
Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering
financial products or services to retail customers to provide such customers with the
financial institutions privacy policy and provide such customers the opportunity to
opt out of the sharing of certain personal financial information with unaffiliated
third parties.
 Federal Reserve System
  The USA PATRIOT Act
   Holding Company Regulation
   27




---



##### Table of Contents



Sarbanes-Oxley Act of 2002
   Federal Securities Laws
   TAXATION
 Federal Taxation
 General.
 28




---



##### Table of Contents



Method of Accounting .
 Bad Debt Reserves.
 Taxable Distributions and Recapture.
 Minimum Tax.
 Net Operating Loss Carryovers.
 Corporate Dividends.
  State and Local Taxation
    
 ITEM 1A. RISK FACTORS
  29




---



##### Table of Contents



The United States Economy Is In Recession. A Prolonged Economic Downturn, Especially One Affecting
Our Geographic Market Area, Could Materially Affect our Business and Financial Results.
  Future Changes in Interest Rates Could Reduce Our Profits
  
    
    the interest income we earn on our interest-earning assets, such as loans and
securities; and
    
    the interest expense we pay on our interest-bearing liabilities, such as deposits and
borrowings.
     As a Result of Our Previous Emphasis on Originating Commercial Real Estate and Commercial Business
Loans, Our Credit Risk Has and Will Continue to Increase. Continued Weakness or a Deeper Downturn
in the Real Estate Market and Local Economy Could Adversely Affect Our Earnings.
  30




---



##### Table of Contents



If Our Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses, Our Earnings Could
Decrease.
   Future Legislative or Regulatory Actions Responding to Financial and Market Weakness Could Affect
Us Adversely. There Can Be No Assurance that Actions of the U.S. Government, Federal Reserve and
Other Governmental and Regulatory Bodies For the Purpose of Stabilizing the Financial Markets Will
Achieve the Intended Effect.
   31




---



##### Table of Contents



Lack of Consumer Confidence in Financial Institutions May Decrease Our Level of Deposits.
  Strong Competition Within Our Market Area May Limit Our Growth and Profitability.
  Recent Negative Developments in the Financial Services Industry And the Credit Markets May Subject
Us to Additional Regulation.
  Our Future Growth May Require Us to Raise Additional Capital in the Future, But That Capital May
Not Be Available When It Is Needed.
  Our Expenses Will Increase as a Result of Increases in FDIC Insurance Premiums.
  We Recently Suspended our Common Stock Cash Dividend.
  32




---



##### Table of Contents



ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTY
  Main Office100 South Second AvenueAlpena, Michigan 49707Branch Offices300 South Ripley Boulevard
    
    625 North Williams Street (2)Alpena, Michigan 49707
    
    Mancelona, Michigan 496596232 River Street
    
    308 North MorenciAlanson, Michigan 49706
    
    Mio, Michigan 48647101 South Main Street
    
    201 North State StreetCheboygan, Michigan 49721
    
    Oscoda, Michigan 487501000 South Wisconsin
    
    11874 U.S. 23 South (1)Gaylord, Michigan 49735
    
    Ossineke, Michigan 497662885 South County Road #489Lewiston, Michigan 49756InsuranCenter of Alpena123 S. Second Avenue (3)Alpena, Michigan 49707
 
 (1)
    
    This branch was closed on February, 16, 2007. The property has been listed for sale.(2)
    
    This branch was closed on February 1, 2008. The property sold in March, 2008.(3)
    
    The majority of the assets of ICA were sold on February 27, 2009, however the Company
still owns this property. 
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  33




---



##### Table of Contents



PART II
 
 ITEM 5.
    
    MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES
 (a)
    
    First Federal of Northern Michigan Bancorp, Inc.s common stock is traded on
the Nasdaq Global Market under the symbol FFNM.As of December 31, 2008 there were 2,884,249 shares of First Federal of Northern
Michigan Bancorp, Inc. common stock outstanding. At December 31, 2008, First Federal
of Northern Michigan Bancorp, Inc. had approximately 600 stockholders of record. The
remaining information required by this item is incorporated by reference to Exhibit
13, the Companys Annual Report to Stockholders.(b)
    
    Not Applicable(c)
    
    First Federal of Northern Michigan Bancorp, Inc. did not repurchase any of its
equity securities during the quarter ended December 31, 2008.
 
 ITEM 6. SELECTED FINANCIAL DATA
  
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
PERATIONS
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
  34




---



##### Table of Contents



ITEM 9A(T). CONTROLS AND PROCEDURES
          
 ITEM 9B. OTHER INFORMATION
  35




---



##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 ITEM 15. EXHIBITS
  3.1
    
    Articles of Incorporation of First Federal of Northern Michigan Bancorp, Inc.*3.2
    
    Bylaws of First Federal of Northern Michigan Bancorp, Inc.*4
    
    Form of Common Stock Certificate of First Federal of Northern Michigan Bancorp, Inc.*10.1
    
    Change in Control Agreements*10.2
    
    1996 Stock Option Plan*10.3
    
    1996 Recognition and Retention Plan*10.4
    
    2006 Stock-Based Incentive Plan**13
    
    Annual Report to Shareholders14
    
    Code of Ethics ***21
    
    Subsidiaries of Registrant
 36




---



##### Table of Contents



23
    
    Consent of Plante & Moran PLLC31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Incorporated by reference to the Registration Statement on Form SB-2 of First Federal of
Northern Michigan Bancorp, Inc. (Registration No. 333-121178), originally filed with the
Commission on December 10, 2004.**
    
    Incorporate by reference to the Definitive Proxy materials filed on April 10, 2006 (No.
000-31957).***
    
    Incorporated by reference to the Annual Report on Form 10-K of Alpena Bancshares, Inc. filed
with the Commission on March 30, 2004 (Registration No. 000-31957). 37




---



##### Table of Contents



SIGNATURES
  FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.By:
    
    /s/Michael W. MahlerMichael W. MahlerChief Executive OfficerDate: March 31, 2009
  By:
    
    /s/Michael W. Mahler

Michael W. Mahler, Director and
    
    
    
    By:
    
    /s/Amy E. Essex

Amy E. Essex, Chief Financial Officer, TreasurerChief Executive Officer
    
    
    
    
    
    and Corporate Secretary(Principal Executive Officer)
    
    
    
    
    
    (Principal Financial and Accounting Officer)Date: March 31, 2009
    
    
    
    
    
    Date: March 31, 2009By:
    
    /s/Martin A. Thomson
    
    
    
    By:
    
    /s/Keith WallaceMartin A. Thomson, Chairman
    
    
    
    
    
    Keith Wallace, DirectorDate: March 31, 2009
    
    
    
    
    
    Date: March 31, 2009By:
    
    /s/GaryVanMassenhove
    
    
    
    By:
    
    /s/Thomas R. TownsendGary VanMassenhove, Director
    
    
    
    
    
    Thomas R. Townsend, DirectorDate: March 31, 2009
    
    
    
    
    
    Date: March 31, 2009By:
    
    /s/James C. RapinJames C. Rapin, DirectorDate: March 31, 2009
 38