UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].
For the fiscal year ended December 31, 2006
---------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED].
For the transition period from _______________ to ______________________
Commission File Number 000-31957
---------
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
First Federal of Northern Michigan
Employees' Savings & Profit Sharing Plan and Trust
B: Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
First Federal of Northern Michigan Bancorp, Inc.
100 S. Second Avenue
Alpena, Michigan 49707
FIRST FEDERAL OF
NORTHERN MICHIGAN
EMPLOYEES' SAVINGS AND
PROFIT SHARING PLAN
Financial Statements
As of December 31, 2006 and 2005 and
for the year Ended December 31, 2006
STRALEY, ILSLEY & LAMP P.C.
INDEX
Page
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits 2
Statement of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
SUPPLEMENTAL SCHEDULE
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) 9
-1-
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Administrator of
First Federal of Northern Michigan Employees'
Savings and Profit Sharing Plan
Alpena, Michigan
We have audited the accompanying statements of net assets available for benefits
of the First Federal of Northern Michigan Employees' Savings and Profit Sharing
Plan ("the Plan"), as of December 31, 2006 and 2005, and the related statement
of changes in net assets available for benefits for the year ended December 31,
2006. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Plan's internal control over financial reporting. Our audits
included consideration of the internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Plan's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2006 and 2005, and the changes in its net assets available for
benefits for the year ended December 31, 2006, in conformity with U.S. generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2006 is presented for the purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information as required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the 2006 financial statements and, in our
opinion, is fairly stated in all material respects in relation to the 2006
financial statements as a whole.
/s/ Straley, Ilsley & Lamp P.C.
- --------------------------------
June 21, 2007
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FIRST FEDERAL OF NORTHERN MICHIGAN
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
Statements of Net Assets Available For Benefits
December 31,
Assets ------------------------------------
2006 2005
--------------- --------------
Investments, at fair value (Notes 2 and 4)
Pooled separate accounts $1,068,596 $ 715,903
Common stock (employer) 369,538 335,428
Common collective trust 261,981 337,210
Participant loans 93,869 45,275
---------- -----------
1,793,984 1,433,816
Receivables
Employer's profit sharing contribution 124,926 61,721
---------- -----------
Total assets 1,918,910 1,495,537
Liabilities - -
---------- -----------
Net assets available for benefits at fair value 1,918,910 1,495,537
Adjustments from fair value to contract value for
fully benefit-responsive investment contracts (Note 4) 4,158 5,353
---------- -----------
Net assets available for benefits $1,923,068 $ 1,500,890
========== ===========
See accompanying notes to the financial statements
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FIRST FEDERAL OF NORTHERN MICHIGAN
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
Statement of Changes in Net Assets Available for Benefits
Additions Year Ended
Additions in net assets attributed to: December 31, 2006
------------------
Investment income:
Net appreciation in fair value of investments (Note 3) $ 141,328
Dividend and interest income 8,882
----------
150,210
Contributions: ----------
Participants'
Salary deferral 253,311
Rollovers 17,734
Employer's
Matching 76,416
Profit sharing 124,926
----------
472,387
----------
Total additions 622,597
----------
Deductions
Deductions from net assets attributed to:
Benefits paid to participants 196,467
Administration expenses 3,952
----------
Total deductions 200,419
----------
Net increase during the year 422,178
Net assets available for benefits
Beginning of the year 1,500,890
----------
End of the year $1,923,068
==========
See accompanying notes to the financial statements
<page>
-4-
FIRST FEDERAL OF NORTHERN MICHIGAN
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 -- DESCRIPTION OF THE PLAN
The following description of the First Federal of Northern Michigan ("the
Company") Employees' Savings and Profit Sharing Plan ("the Plan") provides only
general information. Participants should refer to the Plan agreement for a more
complete description of the Plan's provisions.
General. The Plan Sponsor established the Plan effective February 1, 2005. The
Plan is a defined contribution plan covering all full-time employees of the
Company who have completed six months of eligibility service and are age
twenty-one or older. The Plan is subject to the provisions of the Employee
Retirement Income and Security Act of 1974 (ERISA).
Contributions. Each year, participants may contribute up to 25% of pretax annual
compensation, as defined in the Plan. Participants who have attained age 50
before the end of the Plan year are eligible to make catch-up contributions.
Participants may also contribute amounts representing distributions from other
qualified defined benefit or defined contributions plans. The Company makes
matching contributions in an amount equal to 100% of the employees' elective
deferral contributions which are not over 2% of compensation, plus 50% of the
employees' elective deferral contributions which are over 2% of compensation but
are not over 4% of compensation. Additional profit sharing amounts may be
contributed at the option of the Company's Board of Directors and invested in a
portfolio of investments as directed by participants. The Company made elective
profit sharing contributions of $124,926 and $61,721 for the Plan periods ending
December 31, 2006 and 2005, respectively.
Participant Accounts. Each participant's account is credited with the
participant's contributions and allocations of (a) the Company's matching and
profit sharing contributions, and (b) Plan earnings. Allocations are based on
participant earnings, contributions or account balances, as defined. The benefit
to which a participant is entitled is the aggregate of the participants'
deferrals and rollovers and the vested portion of employer contributions. Each
participant directs the investment of his or her account to any of the
investment options available under the Plan.
Vesting. Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in the Company's contribution portion of their
accounts is based on years of continuous service. A participant is 100% vested
after five years of credited service.
Participant Loans. Participants may borrow from their accounts a minimum of
$1,000 up to a maximum equal to the lesser of (a) $50,000 or (b) one-half of the
participant's vested balance, reduced by any outstanding loan balance. Loan
terms range from one to five years or up to ten years for the purchase of a
primary residence. The loans are secured by the balance in the participant's
account and bear interest at rates ranging from 5.00% to 9.25%, which are
commensurate with local prevailing rates as determined by the Plan
administrator. Principal and interest is paid ratably through payroll
deductions.
Payment of Benefits. Upon termination of service due to retirement, disability
or death, a participant may elect to receive either a lump-sum amount equal to
the value of the participant's vested interest in his or her account, or annual
installments according to Internal Revenue Code Section 401(a)(9). For
termination of service for other reasons, a participant may receive the value of
the vested interest in his or her account as a lump-sum distribution.
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-5-
FIRST FEDERAL OF NORTHERN MICHIGAN
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 -- DESCRIPTION OF THE PLAN (Continued)
Expenses. The Company paid $12,600 of the $16,552 of administrative expenses
incurred by the Plan for the year ended December 31, 2006.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting. The financial statements of the Plan are prepared under the
accrual method of accounting in accordance with U.S. generally accepted
accounting principles.
Investment Valuation and Recognition. The Plan's investments are stated at fair
value. Participation units in pooled separate accounts and a common collective
trust are valued at fair value, which represents the estimated fair value of the
underlying securities held by the fund. First Federal of Northern Michigan
Bancorp, Inc. common stock is traded on a national exchange and is valued at the
last sales price on the date of valuation. Participant loans are stated at cost
which approximates fair value. Purchases and sale of securities are recorded on
a trade-date basis. Interest income is recorded on the accrual basis. Dividends
are recorded on the ex-dividend date.
Estimates. The preparation of financial statements in conformity with U. S.
generally accepted accounting principles requires the Plan administrator to make
estimates that affect certain reported amounts and disclosures. Accordingly,
actual results may differ from those estimates.
Forfeited Accounts. Forfeited non-vested account balances are used to either
offset Plan administrative expenses or reduce employer matching contributions.
Forfeitures of terminated non-vested account balances were $0 and $11,012 for
the periods ended December 31, 2006 and 2005, respectively. Forfeitures were
used entirely to offset employer contributions.
Risks and Uncertainties. The Plan invests in pooled separate accounts, a common
collective trust and employer common stock. These investment securities are
exposed to various risks, such as interest rate, market and credit risks. Due to
the level of risk associated with certain investment securities, it is at least
reasonably possible that changes in the values of the investment securities will
occur in the near term and that such changes could materially affect
participant's account balances and the amounts reported in the statement of net
assets available for benefits and participants' individual account balances.
Payment of Benefits. Benefits are recorded when paid.
New Accounting Pronouncements.
In September 2006, the FASB issued Statement on Financial Accounting Standards
No. 157 (SFAS 157), Fair Value Measurements. SFAS 157 established a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurement. SFAS 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007. Plan management does not believe the adoption of SFAS 157
will have a material impact on the Plan's financial statements.
<Page>
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FIRST FEDERAL OF NORTHERN MICHIGAN
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 -- INVESTMENTS
The following presents investments that represent five percent or more of the
Plan's net assets:
2006 2005
-------------------------- ---------------------------
Investment Shares/Units Value Shares/Units Value
---------- ------------ ------------- ------------ -----------
Principal Disciplined Large Cap Blend Fund 11,878 $ 203,891 15,893 $ 241,342
Principal Large Company Growth Fund 7,341 161,896 6,710 135,907
Principal Mid-Cap Stock Index Fund 6,269 126,242 7,206 132,830
First Federal of Northern Michigan Bancorp, Inc. Stock 39,137 369,538 37,913 335,428
Principal Stable Value Fund 16,784 261,981 22,438 337,210
During 2006, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated in value by $
141,328, as follows:
Pooled separate accounts $ 112,543
Common collective trusts 6,568
Common stock 22,217
-----------
$ 141,328
===========
NOTE 4 -- COMMON COLLECTIVE TRUSTS
As of December 31, 2006, the Plan adopted Financial Accounting Standards Board
(FASB) Staff Position FSP AAG INV-1 and Statement of Financial Position 94-4-1,
Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain
Investment Companies Subject to the AICPA Investment Company Guide and
Defined-Contribution Health and Welfare and Pension Plans (the FSP). The FSP
defines circumstances in which an investment contract is considered fully
benefit-responsive and provides certain reporting and disclosure requirements
for fully benefit-responsive investment contracts in defined contribution plans.
As described in the FSP, fully benefit-responsive investment contracts held by a
defined contribution plan are required to be reported at fair value. However,
contract value is the relevant measurement attribute for that portion of the net
assets available for benefits of a defined contribution plan attributable to
fully benefit-responsive investment contracts. Contract value is the amount
participants would receive if they were to initiate permitted transactions under
the terms of the Plan. The Plan invests in an investment contract through
participation in the Principal Stable Value Fund, which is a common collective
trust fund. As required by the FSP, investments in the accompanying statements
of net assets available for benefits presents the fair value of the Principal
Stable Value Fund as well as the adjustment of the portion of the Principal
Stable Value Fund related to fully benefit-responsive investment contracts from
fair value to contract value. The requirements of the FSP have been applied
retroactively to the statement of net assets available for benefits as of
December 31, 2005, presented for comparative purposes.
<Page>
-7-
FIRST FEDERAL OF NORTHERN MICHIGAN
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 -- COMMON COLLECTIVE TRUSTS (Continued)
All investment contracts and fixed income securities held in the common
collective trust must satisfy the credit standards of the Principal Financial
Group.
The fair value of the investment contract at December 31, 2006 and 2005 was
$261,981 and $337,210, respectively. The average yield and crediting interest
rates were approximately 5.30% and 4.72% for 2006. The crediting interest rate
is based on a formula agreed upon with the issuer, but may not be less than 0%.
Such interest rates are reviewed quarterly.
Certain events, such as premature termination of the contract by the Plan or the
termination of the Plan, would limit the Plan's ability to transact at contract
value. The Plan administrator believes the occurrence of such events that would
limit the Plan's ability to transact at contract value with the Plan's
participants is not probable.
NOTE 5 -- RELATED PARTY TRANSACTIONS
Certain Plan investments are managed by The Principal Life Insurance Company,
which is a member company of the Principal Financial Group. In addition, trust
services are performed by the Principal Trust Company, which is also a member of
the Principal Financial Group. Transactions between these companies qualify as
party-in-interest transactions. Fees paid by the Plan for professional services
amounted to $3,952 and $955 for the periods ended December 31, 2006 and 2005,
respectively.
The 39,137 and 37,913 shares of First Federal of Northern Michigan Bancorp, Inc.
common stock held by the Plan as of December 31, 2006 and 2005 represent
approximately 1.2% each year of the Corporation's outstanding shares as of
December 31, 2006 and 2005.
Profit sharing contributions of $124,926 and $61,721 were paid to the Plan by
First Federal of Northern Michigan Bancorp, Inc. for the periods ended December
31, 2006 and 2005.
As of December 31, the Plan held the following party-in-interest investments (at
fair value):
2006 2005
--------- ---------
First Federal of Northern Michigan Bancorp, Inc.
common stock; 39,137 and 37,913 shares in
2006 and 2005, respectively $ 369,538 $ 335,428
Participant loans 93,869 45,275
NOTE 6 -- PLAN TERMINATION
Although the Company has not been expressed any intent to do so, the Company has
the right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of the Plan
termination, participants would become 100% vested in employer contributions
allocated to their account.
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-8-
FIRST FEDERAL OF NORTHERN MICHIGAN
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 -- TERMINATED PARTICIPANTS
Included in net assets available for benefits are amounts allocated to
individuals who have elected to withdraw from the Plan, but who have not yet
been paid. Plan assets allocated to these participants were $0 and $62,035 at
December 31, 2006 and 2005, respectively.
NOTE 8 -- TAX STATUS
The Plan is awaiting response from the Internal Revenue Service regarding final
determination that the Plan and related trust agreement are designed in
accordance with applicable sections of the Internal Revenue Code. The Plan
administrator and the Plan's tax counsel believe the Plan is designed and is
currently being operated in compliance with the applicable requirements of the
Internal Revenue Code.
NOTE 9 -- RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500:
December 31,
2006
----------------
Net assets available for benefits per the financial statements $ 1,923,068
Less: adjustment from fair value to contract value for fully
benefit-responsive investment contracts (4,158)
------------
Net assets available for benefits per the Form 5500 $ 1,918,910
============
The following is a reconciliation of investment income per the financial
statements to the Form 5500:
December 31,
2006
-----------------
Total investment income per the financial statements $ 150,210
Less: adjustment from fair value to contract value for fully
benefit-responsive investment contracts (4,158)
------------
Total investment income per the Form 5500 $ 146,052
============
NOTE 10 -- PLAN AMENDMENT
Effective January 1, 2006, the Plan was amended and restated to reduce the
eligibility requirement for participation in the Plan from one year to six
months.
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-9-
REQUIRED SUPPLEMENTARY SCHEDULE
-10-
FIRST FEDERAL OF NORTHERN MICHIGAN
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
EIN 38-3206228, Plan # 003
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2006
(a) (b) (c) (d) (e)
Description of Investment
Including Maturity Date, Rate
Identity of Issuer, Borrower, of Interest, Collateral, Par or
Lessor, or Similar Party Maturity Value Cost Current Value
POOLED SEPARATE ACCOUNTS
* Principal Life Insurance Company Principal Bond and Mtg Sep Acct # $ 18,358
* Principal Life Insurance Company Principal Disc LGCPBL Sep Acct # 203,891
* Principal Life Insurance Company Principal Lifetm Str Inc Sep Acct # 37
* Principal Life Insurance Company Principal Lifetm 2010 Sep Acct # 17,978
* Principal Life Insurance Company Principal Lifetm 2020 Sep Acct # 63,615
* Principal Life Insurance Company Principal Lifetm 2030 Sep Acct # 24,783
* Principal Life Insurance Company Principal Lifetm 2040 Sep Acct # 35,112
* Principal Life Insurance Company Principal Lifetm 2050 Sep Acct # 1,082
* Principal Life Insurance Company Principal Ptnrs Lg-Cap Value II SA # 59,300
* Principal Life Insurance Company Principal Ptr Md-CP Value I Sep Acct # 48,130
* Principal Life Insurance Company Principal U.S. Property Sep Acct # 76,281
* Principal Life Insurance Company Principal Lg Co Growth Sep Acct # 161,896
* Principal Life Insurance Company Principal Mid Cap Stk Idx Sep Acct # 126,242
* Principal Life Insurance Company Principal Ptnr Md-CP Gr II Sep Acct # 34,581
* Principal Life Insurance Company Principal Ptr Sm-CP Gr II Sep Acct # 29,061
* Principal Life Insurance Company Principal Sm Cap Co Value Sep Acct # 52,835
* Principal Life Insurance Company Principal Sm Cap Stk Idx Sep Acct # 30,181
* Principal Life Insurance Company Principal Intl Em Mkt Sep Acct # 85,232
COMMON STOCK
* First Federal of Northern Michigan Bancorp, Inc. Employer common stock # 369,538
COMMON COLLECTIVE TRUSTS
Gartmore Trust Company Principal Stable Value Fund # 261,981
PARTICIPANT LOANS
* Participant Loans Rates Range From 5.00% to 9.25% # 93,869
-----------
$ 1,793,984
===========
* Indicates a party-in-interest to the Plan.
# Investments are participant directed, therefore historical cost is not
required.
<page>
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees (or other persons who administer the employee benefit plan)
have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST FEDERAL OF NORTHERN MICHIGAN
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN AND TRUST
Date: June 21, 2007 By: /s/ Amy E. Essex
----------------------------------
Name: Amy E. Essex
Title: Chief Financial Officer,
Treasurer and Corporate Secretary,
First Federal of Northern Michigan