Edgar Filing: First Federal of Northern Michigan Bancorp, Inc.

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

FORM 10-QSB

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

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.
(Exact name of registrant as specified in its charter)

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

100 S. SECOND AVENUE, ALPENA, MICHIGAN 49707
(Address of principal executive offices) (Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceeding12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

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

Common Stock, Par Value $0.01 Outstanding at May 9, 2005

(Title of Class) 3,100,191 shares

Transitional Small Business Disclosure Format: Yes No X
----- -----

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2005

INDEX

PART I - FINANCIAL INFORMATION

Interim Financial Information required by Rule 10-01 of Regulation S-X and Item 303 of
Regulation S-K is included in this Form 10-QSB as referenced below:

ITEM 1 - UNAUDITED FINANCIAL STATEMENTS PAGE
----

Consolidated Balance Sheet at
March 31, 2005 and December 31, 2004 ........................... 3
Consolidated Statements of Income for the Three Months
Ended March 31, 2005 and March 31, 2004 ........................ 4
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2005 ...................... 5
Consolidated Statements of Cash Flow for the Three Months Ended
March 31, 2005 and March 31, 2004 .............................. 6
Notes to Unaudited Consolidated Financial Statements ............. 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION ....................... 13
ITEM 3 - CONTROLS AND PROCEDURES ............................................ 18

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS .................................................. 19
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ........ 19
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES .................................... 19
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................ 19
ITEM 5 - OTHER INFORMATION .................................................. 19
ITEM 6 - EXHIBITS
Section 302 Certifications ......................................... 22
Section 906 Certifications ......................................... 24

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

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

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

PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

March 31, 2005 December 31, 2004
--------------- -----------------
(Unaudited)

ASSETS
Cash and cash equivalents:
Cash on hand and due from banks .......................................... $ 2,923,645 $ 4,685,913
Overnight deposits with FHLB ............................................. 567,678 52,646
--------------- ---------------
Total cash and cash equivalents .......................................... 3,491,323 4,738,559
Securities AFS ........................................................... 39,514,829 40,233,035
Securities HTM ........................................................... 1,800,000 1,800,000
Loans held for sale ...................................................... 71,000 1,095,660
Loans receivable, net of allowance for loan losses of $1,296,246 and
$1,213,938 as of March 31, 2005 and December 31, 2004, respectively .... 198,687,336 195,387,937
Foreclosed real estate and other repossessed assets ...................... 196,467 28,907
Real estate held for investment .......................................... 538,898 562,758
Federal Home Loan Bank stock, at cost .................................... 4,715,800 4,666,100
Premises and equipment ................................................... 7,023,201 6,793,998
Accrued interest receivable .............................................. 1,435,682 1,034,695
Intangible assets ........................................................ 3,834,841 3,905,422
Goodwill ................................................................. 1,049,854 1,049,854
Other assets ............................................................. 2,230,845 1,503,209
--------------- ---------------
Total assets ............................................................. $ 264,590,076 $ 262,800,134
=============== ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ................................................................. $ 178,482,180 $ 182,489,148
Advances from borrowers for taxes and insurance .......................... 203,929 44,590
Federal Home Loan Bank advances & Note Payable ........................... 47,051,396 56,001,396
Accrued expenses and other liabilities ................................... 17,271,404 2,488,711
--------------- ---------------

Total liabilities ........................................................ 243,008,909 241,023,845
--------------- ---------------

Commitments and contingencies ............................................ -- --

Stockholders' equity:
Common stock ($1.00 par value, 20,000,000 shares authorized, 1,659,480 and
1,659,480 shares issued and outstanding at
March 31, 2005 and December 31, 2004 respectively) ....................... 1,659,480 1,659,480
Additional paid-in capital ............................................... 5,356,782 5,356,782
Retained earnings, restricted ............................................ 5,244,000 5,152,000
Retained earnings ........................................................ 9,611,643 9,635,580
Accumulated other comprehensive loss ..................................... (290,738) (27,553)
--------------- ---------------
Total stockholders' equity ............................................... 21,581,167 21,776,289
--------------- ---------------

Total liabilities and stockholders' equity ............................... $ 264,590,076 $ 262,800,134
=============== ===============

-------------------------------------------------------------------------------------------------------------------

ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME

For the Three Months
Ended March 31,
--------------------------------
2005 2004
------------- -------------
(Unaudited)

Interest income:
Interest and fees on loans ................................ $ 3,096,727 $ 2,674,279
Interest and dividends on investments ..................... 341,644 356,667
Interest on mortgage-backed securities .................... 66,717 60,224
------------- -------------
Total interest income ..................................... 3,505,088 3,091,170
------------- -------------
Interest expense:
Interest on deposits ...................................... 980,938 813,407
Interest on borrowings .................................... 617,976 631,206
------------- -------------
Total interest expense .................................... 1,598,914 1,444,613
------------- -------------

Net interest income ....................................... 1,906,174 1,646,557
Provision for loan losses ................................. 79,258 81,000
------------- -------------
Net interest income after provision for loan losses ....... 1,826,916 1,565,557
------------- -------------
Non Interest income:
Service charges and other fees ............................ 231,421 243,062
Mortgage banking activities ............................... 118,688 143,326
Gain on sale of available-for-sale investments ............ -- --
Net gain on sale of premises and equipment,
real estate owned and other repossessed assets ............ (4,907) (22,885)
Other (See Note 5) ........................................ 22,067 20,257
Insurance & Brokerage Commissions ......................... 732,054 753,924
------------- -------------
Total other income ........................................ 1,099,323 1,137,684
------------- -------------
Non interest expenses:
Compensation and employee benefits ........................ 1,564,284 1,488,698
SAIF Insurance Premiums ................................... 6,489 5,872
Advertising ............................................... 39,857 56,168
Occupancy ................................................. 315,000 326,143
Amortization of intangible assets ......................... 70,581 77,363
Service Bureau Charges .................................... 89,963 83,164
Insurance & Brokerage Commission Expense .................. 280,499 315,561
Professional Services ..................................... 58,656 76,553
Other (See Note 6) ........................................ 286,853 294,602
------------- -------------
Other expenses ............................................ 2,712,182 2,724,124
------------- -------------

Income before income tax expense .......................... 214,057 (20,883)
Income tax expense ........................................ 72,046 (6,479)
------------- -------------
Net income ................................................ $ 142,011 $ (14,404)
============= =============

-------------------------------------------------------------------------------------------------
Per share data:
Basic earnings per share .................................. $ 0.09 $ (0.01)
Weighted average number of shares outstanding ............. 1,659,480 1,658,554

Diluted earnings per share ................................ $ 0.08 $ (0.01)
Weighted average number of shares outstanding,
including dilutive stock options .......................... 1,672,366 1,659,854
See accompanying notes to consolidated financial statements
Dividends per common share ................................ $ 0.100 $ 0.125
-------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.

ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005

Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income (loss) Total
------------ ------------ ------------ ------------ ------------

Balance at December 31, 2004 ... $ 1,659,480 $ 5,356,782 $ 14,787,580 $ (27,553) 21,776,289

Net income for the period ...... -- -- 142,011 -- 142,011

Changes in unrealized gain
on available-for-sale securities -- -- -- (263,185) (263,185)

Total comprehensive income ..... -- -- -- -- (121,174)

Dividends declared ............. -- -- (73,948) -- (73,948)
------------ ------------ ------------ ------------ ------------
Balance at March 31, 2005 ...... $ 1,659,480 $ 5,356,782 $ 14,855,643 $ (290,738) $ 21,581,167
============ ============ ============ ============ ============

See accompanying notes to consolidated financial statements.
-----------------------------------------------------------------------------------------------------------------------

ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------

For Three Months Ended
March 31,
----------------------------------
2005 2004
-------------- --------------
(Unaudited)

Cash flows from operating activities:
Net income ............................................................... $ 142,011 $ (14,404)
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization ........................................ 192,123 215,542
Provision for Loan Loss .............................................. 79,258 81,000
Amortization and accretion on securities ............................. 50,648 89,121
Originations of loans held for sale .................................. (5,002,410) (5,677,445)
Principal amount of loans sold ....................................... 6,027,070 5,309,970
Purchase of real estate held for sale ................................ -- (44,671)
Proceeds from sale of real estate .................................... 23,860 --
Change in accrued interest receivable ................................ (400,987) (25,387)
Change in other assets ............................................... (727,636) --
Change in accrued expenses and other liabilities ..................... 14,918,272 (972,145)
Change in deferred income taxes ...................................... -- --
-------------- --------------
Net cash provided by (used in) operating activities ...................... 15,302,209 (1,038,419)
-------------- --------------

Net (Increase) decrease in loans ......................................... (3,378,657) (1,574,391)
Proceeds from maturity of available-for-sale securities ................ 268,794 2,052,291
Purchase of securities available for sale .............................. -- (5,254,675)
Purchase of Federal Home Loan Bank Stock ............................... (49,700) (56,000)
Purchase of InsuranCenter of Alpena
Purchase of premises and equipment ..................................... (518,305) 96,202
-------------- --------------
Net cash provided by (used in) investing activities ...................... (3,677,868) (4,736,573)
-------------- --------------

Net Increase (decrease) in deposits .................................... (4,006,968) 904,694
Dividend paid on common stock .......................................... (73,948) (92,348)
Net increase (decrease) in advances from borrowers ..................... 159,339 179,033
Additions to advances from Federal Home Loan Bank and Notes Payable ... -- 3,000,000
Repayments of Federal Home Loan Bank advances and Notes Payable ........ (8,950,000) --
Proceeds from exercise of stock options ................................ -- 12,513
-------------- --------------
Net cash provided by (used in) financing activities ..................... (12,871,577) 4,003,892
-------------- --------------

Net increase (decrease) in cash and cash equivalents .................... (1,247,236) (1,771,100)
Cash and cash equivalents at beginning of period ........................ 4,738,559 6,705,125
-------------- --------------
Cash and cash equivalents at end of period .............................. $ 3,491,323 $ 4,934,025
============== ==============

Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes ............................ $ 131,712 $ 133,485
============== ==============
Cash paid during the period for interest ................................ $ 1,589,824 $ 1,372,416
============== ==============

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

The accompanying consolidated financial statements have been prepared
on an accrual basis of accounting and include the accounts of Alpena Bancshares,
Inc. (the "Company"), the predecessor company to First Federal of Northern
Michigan Bancorp, Inc., and its wholly-owned subsidiary, First Federal of
Northern Michigan (the "Bank") and its wholly owned subsidiaries Financial
Service and Mortgage Corporation ("FSMC") and the InsuranCenter of Alpena
("ICA"). FSMC invests in real estate that includes leasing, selling, developing,
and maintaining real estate properties. ICA is a licensed insurance agency
engaged in the business of property, casualty and health insurance. All
significant intercompany balances and transactions have been eliminated in the
consolidation.

These interim financial statements are prepared without audit and
reflect all adjustments, which, in the opinion of management, are necessary to
present fairly the consolidated financial position of the Company at March 31,
2005 and 2004, and its results of operations and statement of cash flows for the
periods presented. All such adjustments are normal and recurring in nature. The
accompanying consolidated financial statements do not purport to contain all the
necessary financial disclosures required by generally accepted accounting
principles that might otherwise be necessary and should be read in conjunction
with the consolidated financial statements and notes thereto of the Company
included in the Annual Report for the year ended December 31, 2004. Results for
the three months ended March 31, 2005 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2005.

CRITICAL ACCOUNTING POLICIES

Our accounting and reporting policies are prepared in accordance with
accounting principles generally accepted in the United States of America and
conform to general practices within the banking industry. We consider accounting
policies that require significant judgment and assumptions by management that
have, or could have, a material impact on the carrying value of certain assets
or on income to be critical accounting policies. Changes in underlying factors,
assumptions or estimates could have a material impact on our future financial
condition and results of operations. Based on the size of the item or
significance of the estimate, the following accounting policies are considered
critical to our financial results.

Allowance for Loan Losses. The allowance for loan losses is calculated
with the objective of maintaining an allowance sufficient to absorb estimated
probable loan losses. Management's determination of the adequacy of the
allowance is based on periodic evaluations of the loan portfolio and other
relevant factors. However, this evaluation is inherently subjective, as it
requires an estimate of the loss content for each risk rating and for each
impaired loan, an estimate of the amounts and timing of expected future cash
flows, and an estimate of the value of collateral.

We have established a systematic method of periodically reviewing the
credit quality of the loan portfolio in order to establish an allowance for
losses on loans. The allowance for losses on loans is based on our current
judgments about the credit quality of individual loans and segments of the loan
portfolio. The allowance for losses on loans is established through a provision
for loan losses based on our evaluation of the losses inherent in the loan
portfolio, and considers all known internal and external factors that affect
loan collectibility as of the reporting date. Our evaluation, which includes a
review of all loans on which full collectibility may not be reasonably assured,
considers among other matters, the estimated net realizable value or the fair
value of the underlying collateral, economic conditions, historical loan loss
experience, our knowledge of inherent losses in the portfolio that are probable
and reasonably estimable and other factors that warrant recognition in providing
an appropriate loan loss allowance. Management believes this is a critical
accounting policy because this evaluation involves a high degree of complexity
and requires us to make subjective judgments that often require assumptions or

estimates about various matters. Historically, we believe our estimates and
assumptions have proven to be relatively accurate.

The analysis of the allowance for loan losses has two components:
specific and general allocations. Specific allocations are made for loans that
are determined to be impaired. Impairment is measured by determining the present
value of expected future cash flows or, for collateral-dependent loans, the fair
value of the collateral adjusted for market conditions and selling expenses. The
general allocation is determined by segregating the remaining loans by type of
loan, risk weighting (if applicable) and payment history. We also analyze
delinquency trends, which have remained stable, general economic conditions and
geographic and industry concentrations. This analysis establishes factors that
are applied to the loan groups to determine the amount of the general reserve.
The principal assumption used in deriving the allowance for loan losses is the
estimate of loss content for each risk rating.

Mortgage Servicing Rights. In 2000, we began selling to investors a
portion of our originated one- to four-family residential real estate mortgage
loans. When we acquire mortgage servicing rights through the origination of
mortgage loans and sale of those loans with servicing rights retained, we
allocate a portion of the total cost of the mortgage loans to the mortgage
servicing rights based on their relative fair value. As of March 31, 2005, we
were servicing loans sold to others totaling $139.1 million. We amortize
capitalized mortgage servicing rights as a reduction of servicing fee income in
proportion to, and over the period of, estimated net servicing income by use of
a method that approximates the level-yield method. We periodically evaluate
capitalized mortgage servicing rights for impairment using a model that takes
into account several variables including expected prepayment speeds and
prevailing interest rates. If we identify impairment, we charge the amount of
the impairment to earnings by establishing a valuation allowance against the
capitalized mortgage servicing rights asset. The primary risk of material
changes to the value of the servicing rights resides in the potential volatility
in the economic assumptions used, particularly the prepayment speed. We monitor
this risk and adjust the valuation allowance as necessary to adequately record
any probable impairment in the portfolio. Management believes the estimation of
these variables makes this a critical accounting policy. For purposes of
measuring impairment, the mortgage servicing rights are stratified based on
financial asset type and interest rates. In addition, we obtain an independent
third-party valuation of the mortgage servicing portfolio on a quarterly basis.
In general, the value of mortgage servicing rights increases as interest rates
rise and decreases as interest rates fall. This is because the estimated life
and estimated income from a loan increase as interest rates rise and decrease as
interest rates fall. The key economic assumptions made in determining the fair
value of the mortgage servicing rights at March 31, 2005 included the following:

Annual constant prepayment speed (CPR): 9.03%
Weighted average life remaining (in months): 58
Discount rate used: 7.50%

At the March 31, 2005, we calculated the value of our mortgage
servicing rights to be $1.7 million. The book value of our mortgage servicing
rights as of March 31, 2005 was $830,000 which was $870,000 less than the
independent valuation. Because the fair value exceeded the book value, there was
no need to establish a valuation allowance. The book value of the Mortgage
Servicing Rights on March 31, 2005 is $830,000 which is $30,000 lower than the
December 31, 2004 value.

Impairment of Intangible Assets. Goodwill arising from business
acquisitions represents the value attributable to unidentifiable intangible
elements in the business acquired. The fair value of goodwill is dependent upon
many factors, including our ability to provide quality, cost-effective services
in the face of competition. Because of these many factors, management believes
this is a critical accounting policy. A decline in earnings as a result of
business or market conditions or a run-off of insurance customers over sustained
periods could lead to an impairment of goodwill that could adversely affect
earnings in future periods.

A significant portion of our intangible assets, including goodwill,
relates to the acquisition premiums recorded with the purchase of the
InsuranCenter of Alpena ("ICA") and certain branches over the last several
years. Intangible assets are reviewed periodically for impairment by comparing
the fair value of the intangible asset to the book value of the intangible
asset. If the book value is in excess of the fair value, impairment is indicated
and the intangibles must be written down to their fair value.

In connection with our acquisition in 2003 of ICA, we allocated the
excess of the purchase price paid over the fair value of net assets acquired to
intangible assets, including goodwill. These intangible assets included the ICA
customer list and a third-party contract to which ICA is a party. We are
amortizing the value assigned to the customer list and the contract over 20
years. Goodwill is not amortized. The impairment test of goodwill and identified
intangible assets that have an indefinite useful life, performed as of March 31,
2005, and December 31, 2004 in accordance with SFAS No. 142, did not indicate
that an impairment charge was required. Based upon managements' review on March
31, 2005, it was determined that there was no impairment of the customer list,
the Blue Cross contract or to the true goodwill. If, through testing, we
determine that there is impairment based, for example, on significant runoff of
the customer list or material changes to the third party contract, then we may
need to reduce the recorded value of those intangible assets, which would
increase expense and reduce our earnings.

In connection with branch offices that were acquired over the last
decade, we assigned the excess of the purchase price over the fair value of the
assets acquired to core deposit intangible. The core deposit intangible is
tested periodically for impairment. Our original estimates related to the
expected life of the deposits have proven to be relatively accurate as evidenced
by the fact that no impairment has been recorded. If we determine through
testing that a significant portion of the acquired customers no longer do
business with us, then the asset would be deemed to be impaired thereby
requiring a charge to earnings to the extent appropriate given all of the known
factors. We amortize core deposit intangibles over a period of between 10 and 15
years.

NOTE 2--REORGANIZATION.

In February 2005, the Company received final regulatory approval to
consummate the second-step mutual-to-stock conversion of Alpena Bancshares,
M.H.C., in which shares of common stock representing Alpena Bancshares, M.H.C.'s
ownership interest in the Company were sold to investors. As a result of the
conversion and stock offering, Alpena Bancshares, M.H.C. ceased to exist and the
Company was succeeded by First Federal of Northern Michigan Bancorp, Inc., a
Maryland corporation and new holding company for First Federal of Northern
Michigan. As a result, First Federal of Northern Michigan Bancorp, Inc. has
become wholly owned by public stockholders. The transactions were consummated as
of the close of business on April 1, 2005.

The plan of conversion and reorganization of Alpena Bancshares, M.H.C.
and the issuance and contribution of cash and common stock to First Federal
Community Foundation, a charitable foundation established by the Company, were
approved by the stockholders of the Company and the members of Alpena
Bancshares, M.H.C. on March 23, 2005.

First Federal of Northern Michigan Bancorp, Inc. accepted orders to
purchase 1,699,869 shares of common stock at a purchase price of $10.00 per
share. As a part of the conversion, public stockholders of the Company as of the
consummation date received 1.8477 shares of First Federal of Northern Michigan
Bancorp, Inc. common stock in exchange for each of their existing shares of
Company common stock. Cash was issued in lieu of any fractional shares. The
share exchange occurred on April 1, 2005.

As a result of the consummation of the offering, the existing publicly
traded shares of the predecessor company, Alpena Bancshares, Inc., have ceased
trading. First Federal of Northern Michigan Bancorp, Inc.'s common stock began
trading on the Nasdaq National Market under the symbol "FFNM" on April 4, 2005.

NOTE 3--DIVIDENDS.

Payment of dividends on the common stock is subject to determination
and declaration by the Board of Directors and depends upon a number of factors,
including capital requirements, regulatory limitations on the payment of
dividends, the Company's results of operations and financial condition, tax
considerations and general economic conditions. The M.H.C. (the majority
shareholder of the Company) filed a notice with the Office of Thrift Supervision
(the "OTS") requesting approval to waive receipt of cash dividends from the
Company for each quarterly dividend to be paid for the year ending December 31,
2005. In a letter dated March 11, 2005, the OTS did not object to the dividend
waiver request for the four quarters ending December 31, 2005.

On March 15, 2005, the Company declared a cash dividend on its common
stock, payable on, or about April 22, 2005, to shareholders of record as of
March 31, 2005, equal to $0.10 per share. The dividend on all shares outstanding
totaled $165,948, of which $73,948 was paid to shareholders other than the
M.H.C. Because the OTS has agreed to allow the M.H.C. to waive receipt of its
dividend (amounting to $92,000), this dividend was not paid.

On April 1, 2005 the Company completed its stock offering and
second-step conversion of Alpena Bancshares, M.H.C., its mutual holding company.
Accordingly, any future dividends if and when declared and paid by First Federal
of Northern Michigan Bancorp, Inc., the successor company to Alpena Bancshares,
Inc., will be paid to all public stockholders.

NOTE 4--1996 STOCK OPTION PLAN AND 1996 RECOGNITION AND RETENTION PLAN

At March 31, 2005 and December 31, 2004 the Company had outstanding
stock options for 26,411 shares with a weighted exercise price of $10.51. During
the three months ended March 31, 2005, the Board of Directors granted no options
nor where there any options for shares exercised. At March 31, 2005, options had
exercise prices ranging between $9.625 - $13.75 per share and a weighted average
remaining contractual life of 1.65 years.

During the three months ended March 31, 2005 the Company did not award
any shares under the Recognition and Retention Plan ("RRP"). Shares issued under
the RRP and exercised pursuant to the exercise of the stock option plan may be
either authorized but un-issued shares or reacquired shares held by the Company
as treasury stock.

For the quarter ended March 31, 2005, options for 800 shares were
vested. The expense associated with those vested options would have been $1,040
had the Company elected to adopt FAS 148.

NOTE 5 - OTHER EXPENSES

At March 31, 2005 other expenses totaled $435,472. This is comprised of
several larger expenses for the quarter including service bureau charges for the
bank operating system of $90,000, and professional services including audit,
legal, and regulatory fees of $59,000. The balance of the total is comprised of
expenses lower than $40,000.

NOTE 6 - SEGMENT REPORTING

The Company's principal activities include banking and the sale of
insurance products through its wholly owned subsidiary, ICA, purchased in 2003.
The Bank provides financial products including retail and commercial loans as
well as retail and commercial deposits. ICA received commissions from the sale
of various insurance products including health, life, and property. The segments
were determined based on the nature of the products provided to customers.

The financial information for each operating segment is reported on the
basis used internally to evaluate performance and allocate resources. The
allocations have been consistently applied for all periods presented. Revenues
and expenses between affiliates have been transacted at rates that unaffiliated
parties would pay. The only transaction between the segments thus far relates to
a deposit on behalf of the ICA included in the Bank. The interest income and
interest expense for this transaction has been eliminated. All other
transactions are with external customers. The performance measurement of the
operating segments is based on the management structure of the Company and is
not necessarily comparable with similar information for any other financial
institution. The information presented is also not necessarily indicative of the
segment's financial condition and results of operations if they were independent
entities.

For the Three Months
March 31, 2005
-------------------------------------------------------
Bank ICA Eliminations Total
---------- ---------- ------------ ----------

INTEREST INCOME $ 3,505 $ 3 $ (3) $ 3,505
INTEREST EXPENSE 1,602 -- (3) 1,599
---------- ---------- ---------- ----------
NET INTEREST INCOME - Before provision for loan losses 1,903 3 -- 1,906
PROVISION FOR LOAN LOSSES 79 -- -- 79
---------- ---------- ---------- ----------
NET INTEREST INCOME - After provision for loan losses 1,824 3 -- 1,827
OTHER INCOME 365 734 -- 1,099
OPERATING EXPENSES 2,006 706 -- 2,712
---------- ---------- ---------- ----------
INCOME - Before federal income tax 183 31 -- 214
FEDERAL INCOME TAX 61 11 -- 72
---------- ---------- ---------- ----------
NET INCOME $ 122 $ 20 $ -- $ 142
========== ========== ========== ==========

DEPRECIATION AND AMORTIZATION $ 160 $ 32 $ -- $ 192
========== ========== ========== ==========
ASSETS $ 261,397 $ 3,478 $ (285) $ 264,590
========== ========== ========== ==========
EXPENDITURES RELATED TO LONG-LIVED ASSETS:
Goodwill $ -- $ -- $ -- $ --
Intangible assets -- -- -- --
Property and equipment 340 9 -- 349
---------- ---------- ---------- ----------
TOTAL $ 340 $ 9 $ -- $ 349
========== ========== ========== ==========

For the Three Months
March 31, 2004
-------------------------------------------------------
Bank ICA Eliminations Total
---------- ---------- ------------ ----------

INTEREST INCOME $ 3,091 $ 2 $ (2) $ 3,091
INTEREST EXPENSE 1,447 -- (2) 1,445
---------- ---------- ---------- ----------
NET INTEREST INCOME - Before provision for loan losses 1,644 2 -- 1,646
PROVISION FOR LOAN LOSSES 81 -- -- 81
---------- ---------- ---------- ----------
NET INTEREST INCOME - After provision for loan losses 1,563 2 -- 1,565
OTHER INCOME 384 754 -- 1,138
OPERATING EXPENSES 2,050 674 -- 2,724
---------- ---------- ---------- ----------
INCOME - Before federal income tax (103) 82 -- (21)
FEDERAL INCOME TAX (34) 27 -- (7)
---------- ---------- ---------- ----------
NET INCOME $ (69) $ 55 $ -- $ (14)
========== ========== ========== ==========

DEPRECIATION AND AMORTIZATION $ 131 $ 31 $ -- $ 162
========== ========== ========== ==========
ASSETS $ 224,158 $ 3,461 $ (567) $ 227,052
========== ========== ========== ==========
EXPENDITURES RELATED TO LONG-LIVED ASSETS:
Goodwill $ -- $ -- $ -- $ --
Intangible assets -- -- -- --
Property and equipment 140 6 -- 146
---------- ---------- ---------- ----------
TOTAL $ 140 $ 6 $ -- $ 146
========== ========== ========== ==========

RECENT ACCOUNTING PRONOUNCEMENTS -

In March 2004, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 105, Application of Accounting Principles to Loan
Commitments, which provides guidance regarding loan commitments that are
accounted for as derivative instruments. In this SAB, the Securities and
Exchange Commission determined that an interest rate lock commitment should
generally be valued at zero at inception. The rate locks will continue to be
adjusted for changes in value resulting from changes in market interest rates.
This standard will not have a material effect on our financial condition or
results of operations.

In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" ("Statement No. 123R"), which requires entities to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award (with limited exceptions). The cost is
recognized as an expense over the period during which the employee is required
to provide service in exchange for the award, which is usually the vesting
period. The scope of Statement No. 123R includes the recognition and retention
plan and the stock option plan we expect to adopt following the stock offering.
For shares awarded under the recognition and retention plan, we will recognize
the grant-date fair value of the shares as compensation expense on a
straight-line basis over the applicable vesting period, which is the same
accounting required prior to Statement No. 123R. For options granted under the
stock option plan, we will recognize the grant-date fair value of the options as
compensation expense on a straight-line basis over the applicable vesting
period. This accounting treatment differs significantly from the previous
accounting for fixed stock options under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," which generally required expense
recognition only when the exercise price of the option was less than the market
price of the underlying stock on the grant date. As required by Statement No.
123R, we will estimate the fair value of our stock options on each grant date,
using an appropriate valuation approach such as the Black-Scholes option pricing
model. Statement No. 123R did not change existing accounting principles
applicable to employee stock ownership plans. The provisions of this Statement
will be effective for the Company beginning in the first quarter of 2006. The
Company is currently evaluating the impact this new Standard will have on its
financial position, results of operations or cash flows, although the effect is
not expected to be material.

SUBSEQUENT EVENTS -

Stock Offering. SEE NOTE 2 - REORGANIZATION.

Community Foundation. As part of the stock offering and second-step
conversion, members of the M.H.C. and the shareholders of Alpena Bancshares,
Inc. approved the funding of First Federal Community Foundation, a Delaware
non-stock, nonprofit corporation. Upon consummation of the stock transaction, on
April 1, 2005, First Federal Community Foundation was funded with cash in the
amount of $339,970 and 33,997 shares of stock of the Company. The Company
believes that funding the Foundation with shares of the Company will allow the
communities in which the Bank operates to share in the long-term growth of the
Company. First Federal Community Foundation will be dedicated completely to
community activities and the promotion of charitable causes.

Retirement Plan. On April 29, 2005 the Board of Directors voted to
freeze the Retirement Plan as to current participants and excluded from the plan
any new employees hired after July 1, 2004. This change takes place effective
July 1, 2005.

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

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

The following discussion compares the financial condition of the Company
consolidated with its wholly owned direct and indirect subsidiaries at March 31,
2005 and December 31, 2004, and the results of operations for the three month
periods ended March 31, 2005 and 2004. This discussion should be read in
conjunction with the interim financial statements and footnotes included herein.

OVERVIEW

For the quarter ended March 31, 2005, the Company's earnings (loss)
were $142.0 thousand compared to earnings (loss) of ($14.4) thousand one year
earlier, an increase of $156,400 for the quarter. The Bank's Return on Average
Assets (ROA) for the twelve months ended March 31, 2005 was 25 basis points
compared to 51 basis points for the same period one year earlier. Management
uses ROA as a tool to measure the performance of the Bank. ROA is reviewed on a
trailing twelve-month basis each month by management and the Board of Directors.
The appreciation in earnings can be broken down into a couple of key areas: the
increase in Net Interest Margin (NIM) and the growth in loan portfolios.

NET INTEREST MARGIN - The Company's Net Interest Margin (NIM), which
represents net interest income divided by average interest earning assets,
increased from 3.06% for the quarter ended March 31, 2004 to 3.12% for the
quarter ended March 31, 2005, a 6 basis point increase. The increase is
primarily a result of lower cost of funds associated with FHLB advances. Through
the first quarter of 2005, the Bank was able to reduce the overall cost of funds
from 2.96% as of March 31, 2004 to 2.86% as of March 31, 2005, a reduction in
the cost of funds of 10 basis points. While the cost of funds decreased, the
Bank also saw the yield on interest earning assets decline from 5.81% at March
31, 2004 to 5.76% at March 31, 2005, a 5 basis point decline in the overall
yield to the Bank. This decline can be attributed to the yield on the mortgage
portfolio which fell 50 basis points from 6.63% at March 31, 2004 to 6.13% on
March 31, 2005. Compared to the quarter ended March 31, 2004, the Bank saw an
increase in average interest earning assets of $24.8 million. Since the
reduction in the cost of funds exceeded the reduction in yield, the NIM
increased when compared to the same period one year earlier.

MORTGAGE BANKING - The Company generated lower income from mortgage
banking activity in the first quarter of 2005 when compared to the same quarter
of 2004. The volume of mortgage loan originations declined from $12.7 million
for the first quarter of 2004, of which $6.7 million were sold to $11.4 million
for the first quarter of 2005, of which $5 million were sold. This decrease in
mortgage loans sold contributed to an overall decrease of $24,638 in mortgage
banking activities from $143,326 for the first quarter 2004 to $118,688 for the
first quarter 2005.

FINANCIAL CONDITION

ASSETS: Total assets increased $1.8 million, or .68%, to $264.6 million at March
31, 2005 from $262.8 million at December 31, 2004. Cash and cash equivalents
decreased by $1.2 million, or 26.3%, to $3.5 million at March 31, 2005 from $4.7
million at December 31, 2004. Investment securities available for sale decreased
$718,000, or 1.8% in the first three months. The decrease in bonds beyond
premium amortizations and discounts accretions was the result $399,000 of
unrealized loss on available for sale securities and $269,000 of MBS payments
received. Net loans receivable increased $3.3 million, or 1.7%, to $198.7
million at March 31, 2005 from $195.4 million at December 31, 2004. The growth
of Net loans was attributable primarily to growth in the commercial loan
portfolios. The mortgage portfolio saw a slight increase of $1.4 million or
1.2%.

LIABILITIES: Deposits decreased $4.0 million or 2.2% to $178.5 million at March
31, 2005 from $182.5 million at December 31, 2004. This decrease was a result of
a $1.0 million brokered CD which matured and a decrease of $4.4 million in DDA
accounts. These decreases were offset by an increase in CD balances of $1.4
million. Borrowings in the form of Federal Home Loan Bank advances decreased
$9.0 million, or 16%, to $47.0 million at March 31, 2005 from $56.0 million at
December 31, 2004 reflecting use of the proceeds of our stock offering.

EQUITY: Stockholders' equity decreased by $195,000, or .9%, to $21.6 million at
March 31, 2005 from $21.8 million at December 31, 2004. The slight decrease in
stockholders' equity was due to a dividend declaration of $73,948 and a loss in
value of available for sale securities of $263,185, which were offset by net
income for the quarter of $142,011.

RESULTS OF OPERATIONS

GENERAL: Net income increased by $156,400 to a profit of $142,000 for the three
months ended March 31, 2005 from a loss of $14,000 for the same period ended
March 31, 2004. The profit for the three month period was primarily due to an
increase in interest and fees on loans. While net interest income was stronger
than the same quarter one year earlier, non-interest income was weaker as the
volume of mortgage refinance deals continue to slow.

INTEREST INCOME: Interest income was $3.5 million for the three months ended
March 31, 2005, compared to $3.1 million for the comparable period in 2004. The
increase in interest income for the three month period over the prior year was
due to an increase in average balances of commercial loans, and an increase in
yield in adjustable rate loans. The average balance of fixed-rate commercial
loans increased by $9.5 million from the quarter ended March 31, 2004 to the
quarter ended March 31, 2005 resulting in an additional $174,176 in interest
income for the quarter ended March 31, 2005. Adjustable rate commercial loans,
which are tied to the prime rate, generated an additional $118,329 in interest
income for the quarter ended March 31, 2005 as compared to the same quarter a
year ago, due in part to an increase in average balance of $5.8 million and in
part to an increase in prime rate of 175 basis points from 4.0% at March 31,
2004 to 5.75% at March 31, 2005. An increase in yield on other adjustable rate
loans, consisting primarily of adjustable mortgage and HELOCs also contributed
to the increase in interest income for the quarter ended March 31, 2005 as
compared to the same period one year ago.

INTEREST EXPENSE: Interest expense was $1.6 million for the three month period
ended March 31, 2005, compared to $1.4 million for the same period in 2004. The
10.7% increase in interest expense was attributable to higher average balances
and an increased cost of funds on interest bearing deposits for the period ended
March 31, 2005 compared to March 31, 2004. The average balance of interest
bearing deposits increased by $24.1 million or 16.7% when compared to March 31,
2004 and the cost of those deposits increased by 9 basis points. While the
average balance of FHLB borrowings increased from $49.5 million for the period
ended March 31, 2004 to $56.4 million for the period ended March 31, 2005, the
cost of those borrowings decreased by 67 basis points, due primarily to maturing
advances which were replaced by lower cost of funds advances.

NET INTEREST INCOME: Net interest income increased to $1.9 million for the three
month period ended March 31, 2005 compared to $1.65 million for the same period
in 2004. For the three months ended March 31, 2005, average interest-earning
assets increased $34.8 million, or 16.5% when compared to the same period in
2004.

Average interest-bearing liabilities decreased $31.1 million, or 16% for the
same period. The yield on average interest-earning assets declined to 5.76% for
the three month period ended March 31, 2005 from 4.81% for the same period ended
in 2004 while the cost of average interest-bearing liabilities declined to 2.86%
from 2.96% for the three month period ended March 31, 2005 and March 31, 2004,
respectively. Since the decrease in asset yields was less than the decrease in
the cost of funds, the net interest rate margin increased to 3.12% for the three
month period ended March 31, 2005, from 3.06% for same period in 2004.

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)

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

MARCH 31, DECEMBER 31,
2005 2004
--------- -----------

Total non-accrual loans (3) ............................ $ 552 $ 478
--------- ----------

Accrual loans delinquent 90 days or more:
One- to four-family residential ...................... 1,323 960
Other real estate loans .............................. -- --
Consumer/Commercial .................................. 634 280
--------- ----------
Total accrual loans delinquent 90 days or more .... $ 1,957 $ 1,240
--------- ----------

Total nonperforming loans (1) .......................... 2,509 1,718
Total real estate owned-Residential Mortgages (2) ...... 189 9
Total real estate owned-Consumer and other (2) ......... 7 20
========= ==========
Total nonperforming assets ............................. $ 2,516 $ 1,747
========= ==========

Total nonperforming loans to loans receivable .......... 1.25% 0.87%
Total nonperforming assets to total assets ............. 0.95% 0.66%

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

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

(3) For the three months ended March 31, 2005 and the twelve months ended
December 31, 2004, the interest that would have been reported was $12,808
and $75,307, respectively, were these loans not in non-accrual status.

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

The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective, as it requires estimates that are
susceptible to significant revision as more information becomes available. The
provision for loan losses amounted to $79,000 for the three month period ended
March 31, 2005 and $81,000 for the comparable period in 2004. The decrease in
the provision reflects a change in loan portfolio composition to include a
greater percentage of commercial loans for which the Bank has a relatively low
experience of delinquencies and non-performing loans as compared to the Bank's
other loan portfolios. At March 31, 2005, the percent of nonperforming loans
increased to 125 basis points from 87 basis points at

December 31, 2004. As a percent of total assets, nonperforming loans increased
to 95 basis points at March 31, 2005 from 66 basis points at December 31, 2004.

NONINTEREST INCOME: Other income was $1.1 million for the three month period
ended March 31, 2005, a decrease of $38,000 or 3.37% from the same period in
2004. The primary reasons for the decrease were slight reductions in net
earnings of ICA and mortgage banking activities.

NONINTEREST EXPENSE: Other expenses were $2.7 million for the three month period
ended March 31, 2005, a $12,000 or .44% decrease from the same period in 2004.
The decrease was primarily due to a decrease in ICA insurance and brokerage
commission expense of $35,000.

INCOME TAXES: Federal income taxes increased to $72,000 for the three month
period ended March 31, 2005 compared to ($6,500) for the same period in 2004.
The increase for the three month period was attributable to the higher pre-tax
income.

LIQUIDITY

The Company's primary sources of funds are deposits, FHLB advances, and proceeds
from principal and interest payments and prepayments on loans and
mortgage-backed and investment securities. While maturities and scheduled
amortization of loans and mortgage-backed securities are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.

Liquidity represents the amount of an institution's assets that can be quickly
and easily converted into cash without significant loss. The most liquid assets
are cash, short-term U.S. Government securities, U.S. Government agency
securities and certificates of deposit. The Company is required to maintain
sufficient levels of liquidity as defined by the OTS regulations. This
requirement may be varied at the direction of the OTS. Regulations currently in
effect require that the Company must maintain sufficient liquidity to ensure its
safe and sound operation. The Company's objective for liquidity is to be above
20%. Liquidity as of March 31, 2005 was $83.4 million, or 47.6%, compared to
$76.4 million, or 40.02% at December 31, 2004. The levels of these assets are
dependent on the Company's operating, financing, lending and investing
activities during any given period. The liquidity calculated by the Company
includes additional borrowing capacity available with the FHLB. This borrowing
capacity is based on the FHLB stock owned by the Bank along with pledged
collateral. As of March 31, 2005, the Bank had unused borrowing capacity
totaling $48.0 million at the FHLB based on the FHLB stock ownership.

The Company intends to retain for the portfolio certain originated residential
mortgage loans (primarily adjustable rate, balloon and shorter term fixed rate
mortgage loans) and to generally sell the remainder in the secondary market. The
Company will from time to time participate in or originate commercial real
estate loans, including real estate development loans. During the three month
period ended March 31, 2005 the Company originated $11.4 million in residential
mortgage loans, of which $6.4 million were retained in portfolio while the
remainder were sold in the secondary market or are being held for sale. This
compares to $12.7 million in originations during the first three months of 2004
of which $6.0 million were retained in portfolio. The Company also originated
$5.9 million of commercial loans and $2.7 million of consumer loans in the first
three months of 2005 compared to $4.6 million of commercial loans and $3.6
million of consumer loans for the same period in 2004. Of total loans
receivable, excluding loans held for sale, mortgage loans comprised 55.8% and
56.1%, commercial loans 31.5% and 31.0% and consumer loans 12.7 % and 13.0% at
March 31, 2005 and December 31, 2004, respectively. At March 31, 2005, the
Company had outstanding loan commitments of $47 million. These commitments
included $12.7 million for permanent one-to-four family dwellings, $12.1 million
for non-residential loans, $1.6 million of undisbursed loan proceeds for
construction of one-to-four family dwellings, $8.6 million of undisbursed lines
of credit on home equity loans, $1.2 million of unused credit card lines and
$9.8 million of unused commercial lines of credit, $1.2 million of undisbursed,
Commercial construction and $35,000 of unused Letters of Credit.

Deposits are a primary source of funds for use in lending and for other
general business purposes. At March 31, 2005 deposits funded 67.5% of the
Company's total assets compared to 69.4% at December 31, 2004. Certificates of
deposit scheduled to mature in less than one year at March 31, 2005 totaled
$42.1 million.

Management believes that a significant portion of such deposits will remain with
the Company. The Bank monitors the deposit rates offered by competition in the
area and sets rates that take into account the prevailing market conditions
along with the Bank's liquidity position. Moreover, management believes that the
growth in assets is not expected to require significant in-flows of liquidity.
As such, the Bank does not expect to be a market leader in rates paid for
liabilities.

Borrowings may be used to compensate for seasonal or other reductions in normal
sources of funds or for deposit outflows at more than projected levels.
Borrowings may also be used on a longer-term basis to support increased lending
or investment activities. At March 31, 2005 the Company had $45.8 million in
FHLB advances. Total borrowings as a percentage of total assets were 17.3% at
March 31, 2005 as compared to 20.8% at December 31, 2004. The Company has
sufficient available collateral to obtain additional advances of $17.9 million.
When this is combined with current FHLB stock ownership the Company could obtain
up to an additional $48 million in advances from the FHLB.

CAPITAL RESOURCES

Stockholders' equity at March 31, 2005 was $21.1 million, or 8.0% of total
assets, compared to $21.5 million, or 8.17% of total assets, at December 31,
2004 (See "Consolidated Statement of Changes in Stockholders' Equity"). The Bank
is subject to certain capital-to-assets levels in accordance with the OTS
regulations. The Bank exceeded all regulatory capital requirements at March 31,
2005. The following table summarizes the Bank's actual capital with the
regulatory capital requirements and with requirements to be "Well Capitalized"
under prompt corrective action provisions, as of March 31, 2005:

Minimum
Regulatory To Be Well
Actual Minimum Capitalized
-------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
(Dollars in Thousands)

Capital Requirements:
Tangible equity capital $16,801 6.47% $ 3,895 1.50% $ 5,194 2.00%

Tier 1 (Core) capital $16,801 6.47% $10,387 4.00% $12,984 5.00%
Total risk-based capital $18,125 10.22% $14,194 8.00% $17,742 10.00%
Tier 1 risk-based capital $16,801 9.47% $ 7,097 4.00% $10,645 6.00%

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2005

PART I - FINANCIAL INFORMATION

ITEM 3 - CONTROLS AND PROCEDURES

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

There has been no change in the Company's internal control over the financial
reporting during the Company's first quarter of fiscal year 2005 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2005

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings:
Not applicable.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds:
Not applicable.

Item 3 - Defaults upon Senior Securities:
Not applicable.

Item 4 - Submission of Matters to a Vote of Security Holders:

A special meeting of stockholders was held on March 23, 2005. The
meeting was conducted for the purpose of considering and acting upon the
approval of the plan of conversion and reorganization of Alpena Bancshares
M.H.C. and the approval of the issuance of shares of common stock of First
Federal of Northern Michigan Bancorp, Inc. and the contribution of cash to First
Federal Community Foundation. The votes on the proposals were as follows:

MATTERS CONSIDERED FOR AGAINST, ABSTAIN OR NOT VOTED
------------------ -------- -----------------------------

The Plan of Conversion and Reorganization of
Alpena Bancshares, M.H.C., by which Alpena
Bancshares, M.H.C. will convert from the mutual
Form of organization to the stock form of
Organization, and First Federal of Northern
Michigan Bancorp, Inc. will issue shares of
common stock in a stock offering. 1,395,891 263,589

The issuance by First Federal of Northern Michigan
Bancorp, Inc. of (i) cash in an amount Equal to the
value of 2% of the shares of First Federal of Northern
Michigan Bancorp, Inc.'s Common stock sold in the
offering, provided that The cash contribution does
not exceed $375,999, And (ii) First Federal of Northern
Michigan Bancorp, Inc. common stock equal to 2% of the
Shares of common stock sold in the offering, provided
that the common stock contribution does not exceed 37,500 shares. 1,355,393 304,087

Item 5 - Other Information:
Not applicable

Item 6 - Exhibits

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

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

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

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

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2005

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.

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

Date: May 16, 2005

By: /s/Amy E. Essex
---------------------------------------------
Amy E. Essex, Chief Financial Officer
(Principal Financial and Accounting Officer)

Date: May 16, 2005

EXHIBIT INDEX

Exhibit No
----------

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

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

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

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