20549-0408
February 3, 2005
Martin A. Thomson
President
First Federal of Northern Michigan Bancorp, Inc.
100 South Second Avenue
Alpena, Michigan 49707
Re: First Federal of Northern Michigan Bancorp, Inc.
Currently filing as Alpena Bancshares, Inc.
Form SB-2, amendment number 1, filed January 26, 2005
File Number 333-121178
Dear Mr. Thomson:
We have reviewed your amended Form SB-2 and have the
following
comments. Where indicated, we think you should revise your
documents
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information we may have
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form SB-2
How We Determined the Offering Price...page 9
1. Please expand the table at the top of page 10 to include
Alpena`s
pricing multiples.
2. In addition, expand the narrative to discuss the reasons for
pricing the second step at below book value with both Alpena`s
pricing multiples as well as the peer group pricing multiples.
Aftermarket Performance
3. Add disclosure, including a tabular presentation, regarding
aftermarket performance by second step thrift conversions directly
following the "How We Determined the Offering Range..."
disclosure.
As discussed with counsel, we would not object if you include
aftermarket performance information for the last 2 years and
compare
that 2 year information with the most recent 6 months aftermarket
performance- assuming reasonable basis for peer group
presentation.
Benefits to Management...page 15
4. Move this disclosure to directly follow the Aftermarket
Performance disclosure.
Our Failure to Utilize Effectively the Net Proceeds... - page 22
5. We reiterate our prior comment 15. It appears material to
understand how long the offering will negatively impact earnings.
Please provide the estimated range of months management expects to
break even.
Recent Developments
Comparison of Operating Results for the Three Months Ended
December
31, 2004 and December 31, 2003
General - page 31
6. Please revise to discuss what types of fees you earn from the
"skip pay" program and to quantify the impact on the periods
presented, revising MD&A as applicable. Also, revise the Business
section to disclose and discuss the terms of this program.
Provision for Loan Losses - page 32
7. Please revise to discuss why the provision increased for the
three
months ended December 31, 2004 as compared to December 31, 2003
since
your methodology was the same and charge-offs did not increase
proportionately. Also, discuss the facts and circumstances
resulting
in the decrease in the allowance for loan losses as a percentage
of
total loans.
Critical Accounting Estimates - page 54
8. Please revise to discuss why management believes a comparison
of
the range of the provision for loan losses over the past five
years
to the range of historical losses over the same period is evidence
that the provisions and charge-offs have proven to be relatively
accurate (emphasis added).
Business Strategy
Increasing and Diversifying our Sources of Non-Interest Income -
page
57
9. Please refer to our previous comment 29. Revise your business
section to include a discussion of all of your subsidiaries,
including the subsidiaries of First Federal of Northern Michigan,
to
address all applicable topics as required by Item 101(b) of
Regulation S-B. Ensure you discuss the BCBS contract with your
insurance segment, including the terms of the contract and the
percentage of insurance revenues it represents.
Management of Interest Rate Risk - page 58
10. We note the sentence bridging pages 58 and 59, and the next
sentence. Please indicate that you will also use this cash to
make
commercial loans. Please also revised the filing to better
explain
why you are in this cash rich position, we understand from counsel
that in anticipates a return to mortgage lending, and the
consequences of offering proceeds on this situation. Note our
prior
comment 27.
Lending Activities - page 73
11. Under this or other appropriate subheading discuss you
mortgage
banking activities. See our prior comment 28. While these
operations may not warrant disclosure in the future, they
currently
appear to represent a significant component of your operations,
and
thus warrant disclosure.
Classification of Assets - page 82
12. We note your response to our prior comment 39. It remains
unclear why you have characterized your investment in FSMC as
substandard, which implies that your investment is in the form of
a
loan. See our comment above on including expanded discussions of
your subsidiaries in the Business section and also address the
following:
* Please revise to disclose how your accounting for the impairment
of
FSMC complies with SFAS 144.
* Please revise to disclose your total investment in FSMC.
* Please revise to disclose where the fair adjustment of $121,000
is
recorded in the statement of operations and how the amount was
determined.
Material Income Tax Consequences - page 135
13. We note the assumption in the last full paragraph on page 137
as
well as the related narrative disclosure on page 138. Please
revise
both the disclosure and opinion consistent with longstanding staff
position. We may have further comment based upon your response.
Consolidated Financial Statements
General
14. We note your response to our previous comment 47. It appears
to
us that the operations of InsuranCenter represent a segment under
SFAS 131 and that appropriate disclosures under that standard are
required. We considered the following in our review.
* As noted in your response, the operations of your insurance
segment
exceed the quantitative threshold set forth in SFAS 131.
* It appears the types of products and services, customer base and
geographic areas of this segment are different from those of your
banking segment.
* It appears discrete financial information is maintained and
available for this segment.
To the extent you continue to assert that these operations do
not represent a segment as contemplated by SFAS 131, provide us an
expanded discussion of how management reviews the financial
position
and operating results of the company along with copies of all
materials reporting the company`s financial position and operating
results provided to the Board of Directors. Otherwise, revise to
provide the disclosures required by SFAS 131.
Consolidated Statement of Financial Condition - page F-3
15. Please revise to present goodwill as a separate line item.
Refer
to paragraph 43 of SFAS 142.
Note 1 - Summary of Significant Accounting Policies
General
16. Please revise to include an affirmative statement that the
interim financial statements include all adjustments which, in the
opinion of management, are necessary in order to make the
financial
statements not misleading. Refer to instruction 2 of Item 310(b)
of
Regulation S-B
Principals of Consolidation and Organization - page F-9
17. Please revise to disclose how you determined that 20 years was
an
appropriate amortization period for the customers lists and the
exclusive health care contract. Also, disclose and discuss the
terms
of the exclusive contract with BSBC.
Core Deposit Intangible - page F-14
18. Please revise to disclose how you determine the expected lives
for your core deposit intangibles.
Note 14 - Employee Benefit Plans - page F-45
19. Please revise to disclose the limited rights included within
your
stock option plan, and state what the restrictions are. If you
have
no intention of issuing restricted stock, then state so.
List of Exhibits
20. If the appraisal will be available at the bank you should
disclose that here.
* * * * *
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
Direct any questions on accounting matters to Rebekah Moore
at
202-842-5482, or to Paul Cline, Senior Accountant, at 202-942-
1782.
Please direct any other questions to David Lyon at 202-942-1796,
or
to me at 202-942-1779.
Sincerely,
Barry McCarty
Senior Counsel
By fax : Steve Lanter
Fax number 202-362-2902
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First Federal of Northern Michigan Bancorp, Inc.
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