EXHIBIT 99.1
| | For the Year | 2009 | | 2008 | |
| | | | | | | | |
| | Net interest income | $ | 16,538,000 | | $ | 17,740,000 | |
| | Provision for loan losses | | 2,725,000 | | | 5,080,000 | |
| | Non-interest income | | 7,172,000 | | | 6,363,000 | |
| | Non-interest expense | | 18,970,000 | | | 18,970,000 | |
| | Net income | | 1,936,000 | | | 813,000 | |
| | | | | | | | |
| | Per Share | | | | | | |
| | | | | | | | |
| | Basic earnings | | $0.84 | | | $0.36 | |
| | Diluted earnings | | 0.84 | | | 0.36 | |
| | Cash dividends declared | | 0.20 | | | 0.80 | |
| | | | | | | | |
| | At Year End | | | | | | |
| | | | | | | | |
| | Assets | $ | 462,409,000 | | $ | 474,996,000 | |
| | Gross loans | | 333,079,000 | | | 335,310,000 | |
| | Allowance for loan loss | | 6,075,000 | | | 7,104,000 | |
| | Deposits | | 380,905,000 | | | 394,043,000 | |
| | Other borrowings | | 10,832,000 | | | 12,492,000 | |
| | Shareholders' equity | | 45,734,000 | | | 44,416,000 | |
| | | | | | | | |
| | Ratios | | | | | | |
| | | | | | | | |
| | Return on average assets | | 0.41% | | | 0.17% | |
| | Return on average equity | | 4.29% | | | 1.77% | |
| | Total risk-based capital ratio | | 11.91% | | | 10.98% | |
| | ALLL as percentage of loans | | 1.82% | | | 2.12% | |
| | Southern Michigan Bancorp, Inc. is a bank holding company. The Company's wholly-owned subsidiary, Southern Michigan Bank & Trust (SMB&T) offers individuals, businesses, institutions and governmental agencies a full range of commercial banking services primarily in the southern Michigan communities in which they are located and in areas immediately surrounding these communities. | |
Southern Michigan Bancorp, Inc. Annual Report 1
Last year at this time, our country was in the midst of a severe economic crisis, the likes of which we had not witnessed for at least several decades. The financial services industry was in an equally fragile state as we confronted the effects of rising unemployment, escalating defaults on loan obligations, government bailouts and an uncertain future.
Notwithstanding the particular challenges for restoring Michigan's economic vitality, our nation's overall economic conditions appear to be stabilizing. The financial services industry, slowly and deliberately, is adjusting to the new realities of the distressed balance sheets of commercial borrowers, punitive and costly new regulatory burdens and more restrictive credit and capital markets.
Southern's 2009 financial results
Southern's board and management team established a strategic approach last year that focused on improving operational efficiencies, reducing expenses and identifying selective revenue opportunities. Their efforts and diligence resulted in Southern earning $1,936,000, or $.84 per share for 2009. Our 2009 earnings more than doubled 2008 results of $813,000, or $.36 per share. Net income for the fourth quarter of 2009 totaled $685,000, or $.29 per share, compared with a net loss of $758,000, or $.33 per share for the same period in 2008. Southern's net interest margin, at 4.14 percent for 2009, was exceptional when compared with its peers.
Our successes throughout 2009 were the result of carefully identified and implemented strategies that encompassed:
| | • | a fully phased-in integration of our FNB affiliate bank that eliminated approximately $500,000 of redundant expenses; |
| | • | continuation of wage and benefits freezes resulting in a reduction of $780,000, or 7.4 percent, in salaries and benefits costs; |
| | • | elimination of $14.2 million of high cost, non-core deposits that enabled Southern to maintain its traditionally strong net interest margin; and |
| | • | working with business and individual borrowers to mitigate potential problems, resulting in a reduction of non-performing loans to $7.6 million, or 2.28 percent of loans at year-end 2009, compared with $9.2 million, or 2.73 percent of loans at year-end 2008. |
Southern's expense control initiatives offset higher costs associated with managing non-performing assets. Our financial performance throughout 2009 was all the more noteworthy given that FDIC deposit insurance premiums increased $676,000 to $855,000, an increase of 378 percent over 2008 premium costs of $179,000. Banks categorized as "well capitalized", such as Southern, experienced dramatic increases in deposit insurance assessments. In addition, the FDIC required a three year prepayment by Southern of deposit insurance premiums at year end of $2.4 million to cover the costs of bank failures.
Overall asset quality continued to improve throughout 2009. Non-performing loans declined by 17 percent, or $1.6 million, to $7.6 million as of year-end 2009. We added $2,725,000 to the provision for loan losses during the year resulting in a year-end allowance of $6,075,000, or 1.82 percent of loans. Southern's allowance at year-end 2008 was $7,104,000, or 2.12 percent of loans. The reduction was attributable to declines in non-performing loans and to improvements in overall credit quality that enabled decreases in specific reserves.
2 Southern Michigan Bancorp, Inc. Annual Report
Consolidated assets as of December 31, 2009 were $462 million compared with $475 million at year-end 2008. For 2009, the return on average assets was .41 percent while return on average equity was 4.29 percent, both of which substantially exceeded last year's totals of .17 percent and 1.77 percent, respectively. Equally important, Southern's Tier 1 Capital Ratio of 10.65 percent and Total Risk-Based Capital Ratio of 11.91 percent at December 31, 2009 far exceeded the minimum thresholds to be categorized as "well-capitalized" under applicable regulations.
Where we go from here
The volatility and uncertainty of our economy does not afford us the luxury of planning too far into the future. However, Southern's management team and directors are preparing for the potential impact of inordinately higher federal budget deficits, minimal near-term job growth, changes in banking competition and greater regulatory costs and oversight. Our efforts throughout 2010 will emphasize: | |
Pictures of:
Marshall Branch
Marshall, Michigan
Coldwater Main Office
Coldwater, Michigan
Three Rivers Main Office
Three Rivers, Michigan |
| | • | exploring options to further control expenses and to maximize operational efficiencies; |
| | • | leveraging our personalized service capabilities with development of value-added products to meet the financial service needs of underserved individual and business clients; and |
| | • | evaluating strategic expansion opportunities that are likely to emerge with additional bank failures and forced consolidations. |
Our 2009 Annual Report spotlights Southern's banking relationships with three different clients. Radiology Consultants, PLC is one of our newest banking clients and wanted to refinance their commercial real estate debt which led to additional bank services as well. Crossroads Veterinary Clinic and Dr. Sands have been a part of the Southern banking family for three decades. This relationship is testimony to the importance of trust in the banker-client partnership. Hoffman Ag Service and Duane Hoffman required a bank which understood his business needs and its future; Southern's personalized approach to service delivery was what he was looking for. I invite you to read about how they built their successful businesses and the role Southern played in partnering with them.
I continue to value your confidence, especially during these challenging and unsettling times.
Sincerely,
John H. Castle,
Chairman and Chief Executive Officer
Southern Michigan Bancorp, Inc. Annual Report 3
"They gave us better rates, a better plan and have been easier to work with. The numbers were there, and this move saved a significant amount of money.Switching was not a hard choice to make." |
| | -Rocky Baxter
office manager, Radiology Consultants, PLC |
When Radiology Consultants, PLC wanted to refinance the mortgage on their Battle Creek medical building, they didn't look beyond their own back yard - literally.
That's where they discovered a branch of Southern Michigan Bank & Trust adjacent to their growing medical practice. The group of seven radiologists and eleven staff members provide a wide variety of radiology services, including CT scans, general diagnostic X-rays, ultrasounds, mammograms, MRIs and related services in partnership with two area hospitals.
When the group wanted to refinance their medical building, their longtime bank was unable to come up with a suitable program.
"But Southern did," said Rocky Baxter, business manager of Radiology Consultants. "They gave us better rates, a better plan and have been easier to work with. The numbers were there, and this move saved a significant amount of money. Switching was not a hard choice to make."
Since Radiology Consultants moved their bank relationship in July 2009, Southern has handled all of their business accounts, as well as commercial loans and a new health savings account program. Baxter thinks the practice may be a little high maintenance, but Vice President and Commercial Lender Deb Davis and her team at Southern disagree.
"This is a good situation for both of us; a win-win for the bank and the customer," said Deb. "We are able to offer competitive terms and make decisions efficiently, in a manner that bigger banks just cannot." She continued, "We are a Michigan bank. Businesses like this are our bread and butter, and we work hard to treat them right."
Baxter agrees, saying that someone from the practice is at Southern every day, and that Deb and her team have been "...hands down very responsive." Whether right next door like Radiology Consultants or across town, customers find they have a good neighbor in Southern Michigan Bank & Trust. | | Pictures of:
Radiology Consultants, PLC
Opposite page:
Deb Davis, vice president/
commercial lender, meets
with (from left) Dr. Steven
Yuill, Dr. James Timmons,
Dr. Robert Zick, and Dr.
William Coughlin at
Radiology Consultants, PLC. |
Southern Michigan Bancorp, Inc. Annual Report 5
"Hometown community banks are very important. They understand their customers.They understand the business of their customers, and they become friends of yours." |
| | -William C. Sands, DVM
owner, Crossroads Veterinary Clinic |
When Dr. William Sands built his first veterinary clinic in Three Rivers more than 30 years ago, his father bought him the land and a local community bank financed the building.
Three years ago, when he and his team - two other veterinarians and 10 employees - realized they had outgrown the original clinic, they again wanted to work with their local community bank, Southern Michigan Bank & Trust.
The new Crossroads Veterinary Clinic, which opened its doors in September 2007, is nearly four times the square footage of that original clinic and boasts five exam rooms, an in-house lab and pharmacy area, two surgical suites with a large treatment area, large recovery facility, spacious waiting area and a "comfort room" where clients can sit with pets before they are put to sleep.
Sands is delighted with the new space - and working with Southern to make it reality.
"Everyone was helpful in getting us going," he recalled. "They understood where I was coming from, what I was doing, and the loan process was easy."
That's just what Robert Hungerford, vice president at Southern likes to hear. He notes that Dr. Sands had a dream and Southern was proud to help turn it into a reality.
"Bill had a vision to have a new and updated facility in order to better serve clients in the Three Rivers area," Hungerford explained. "He looked to us to put it together for him. With that in mind, we got to work. Today, he and his staff enjoy a first-rate facility that provides high quality veterinary care to area families."
Sands also relies on Southern for a revolving line of credit, cash management services and checking and savings accounts. He appreciates the ease of online banking, saying that he is "constantly" online transferring money, paying bills, or otherwise managing business accounts.
"Hometown community banks are very important," he said. "They understand their customers. They understand the business of their customers, and they become friends of yours. They are people you know and they know you - and they know they can trust you and you can trust them. That relationship is critical." | | Pictures of:
Crossroads Veterinary Clinic
Opposite page:
Robert Hungerford, vice
president / commercial
lender and Sally Cotton,
first vice president / senior
branch administration officer
meet with Dr. Sands
(center) at Crossroads
Veterinary Clinic. |
Southern Michigan Bancorp, Inc. Annual Report 7
"Agriculture is cyclical...Farmers make a big investment in the spring, but don't get paid until fall, so there's a lot riding on the table and a lot at risk. Being able to work with someone like Doug who has that background makes it much easier." |
| | -Duane Hoffman
vice president, Hoffman Ag Service, Ltd. |
Hoffman Ag Service, Ltd. supplies are farmers with seed, fertilizer and chemicals and operates an elevator, providing a market for delivery and sale of grain for local producers.
A third-generation agribusinessman, Duane Hoffman knows that agriculture is fundamentally different than most businesses. Banks know it, too.
That's why when it came time for Hoffman Ag Service to invest in a new seed warehouse, they turned to Southern Michigan Bank & Trust and Doug Kiessling, vice president and a farmer himself.
"Agriculture is cyclical," noted Hoffman, who began his banking relationship with Southern in 2008. "Farmers make a big investment in the spring, but don't get paid until fall, so there is a lot riding on the table and a lot at risk. Being able to work with someone like Doug who has that background makes it so much easier."
The result has been a new, 9,000-square foot seed warehouse that allows the company to add new capabilities and services for customers, including seed treatment areas. The new facility, which opened last year, features five bulk bins where the company can store different varieties of bulk seed.
"It was a pretty big capital investment for us," Hoffman said. "It's our second spring and we love it."
And Kiessling certainly understands how he feels. A self-proclaimed farm boy at heart, he is pleased to be involved in agriculture through the lending side. He has known Duane and his father, Vaughn, all his life and, as a farmer, brings a thorough understanding of the industry to the table.
"Agricultural lending has been a very important part of Southern's loan portfolio for years," Kiessling said. "We have provided credit to local agribusinesses and farmers for over a century, even when many commercial banks would not."
Kiessling noted, "at Southern we have experts who understand how it's done. We are proud to be an integral part of agriculture in Southwest Michigan." | | Pictures of:
Hoffman Ag Service, Ltd.
Opposite page:
Doug Kiessling, vice
president / commercial
lender (on right) meets with
Duane Hoffman and tours
the facilities at Hoffman Ag
Service with Duane and his
father, Vaughn Hoffman. |
8 Southern Michigan Bancorp, Inc. Annual Report
| Southern Michigan Bancorp, Inc.
Board of Directors
|
| | |
Pictures of:
Cassopolis Branch
Cassopolis, Michigan
Battle Creek Branch
Battle Creek, Michigan | Marcia S. Albright
Cequent Electrical Products, Inc.
Dean Calhoun
Coldwater Veneer, Inc.
John S. Carton
Retired Business Executive
John H. Castle
Chairman & CEO of SMB, Inc. and SMB&T
H. Kenneth Cole
Hillsdale College
Robert L. Hance
Midwest Energy
Gary H. Hart
Infinisource, Inc.
Nolan E. (Rick) Hooker
Hooker Oil / Best American Car Washes
Gregory J. Hull
Farmer
Thomas E. Kolassa
HUB International, Inc.
Donald J. Labrecque
Labrecque Management
Brian P. McConnell
Burr Oak Tool, Inc.
Thomas D. Meyer
Meyer Ventures, LLC
Kurt G. Miller
President of SMB, Inc. and SMB&T
Freeman E. Riddle
Spoor-Parlin, Inc. |
| | |
Executive Officers of Southern
Michigan Bancorp, Inc.
| Executive Officers of Southern
Michigan Bank & Trust
|
| | |
John H. Castle
Chairman & Chief Executive Officer
Kurt G. Miller
President
Danice L. Chartrand
Senior Vice President /
Chief Financial Officer | John H. Castle
Chairman & Chief Executive Officer
Kurt G. Miller
President
Danice L. Chartrand
Senior Vice President /
Chief Financial Officer |
10 Southern Michigan Bancorp, Inc. Annual Report
Officers of Southern Michigan Bank & Trust
|
| | | | |
COMMERCIAL LOANS
David Clow
Senior Vice President /
Head of Commercial Lending
Eric Anglin
Vice President
Ric Baker
Vice President
Deborah Davis
Vice President
Nick Grabowski
Vice President
Sarah Headley
Vice President
Robert Hungerford
Vice President
Doug Kiessling
Vice President
Joan Trenary
Vice President
Tom Swoish
Vice President
Jason Williams
Vice President
Cindy Woolner
Assistant Vice President /
Special Assets Manager
Marcia McClellan
Administration Officer
RESIDENTIAL & CONSUMER LOANS
Jamie Smoker
Senior Vice President /
Head of Residential
& Consumer Lending
Rick Feller
Vice President
Phyllis Wingate
Vice President / Head of Retail
Loan Operations
DeAnne Hawley
Assistant Vice President /
Retail Loan Officer
Shari Kline
Assistant Vice President /
Retail Loan Officer | Diane Krimmel
Retail Loan Officer
Judie Ratering
Mortgage Officer
Desiree Kauffman
Mortgage Originator*
Connie Swain
Collections Manager*
Debbie Leer
Collections Officer
LOAN REVIEW
Trisha Pawloski
Assistant Vice President/
Loan Review Officer
TRUST DEPARTMENT
Mary Guthrie
Senior Vice President /
Senior Trust Officer
David Rumsey
Vice President /
Senior Investment Officer
Jean Winans
Vice President /
Senior Trust Officer
Susan White
Vice President /
Trust Officer
INVESTMENTS
Melissa Barlow
Vice President/
Senior Investment Officer
Jared Hoffmaster
Investment Sales Officer
RETAIL BANKING SERVICES
Sally Cotton
First Vice President /
Senior Branch Administration Officer
ATHENS BRANCH
Marcia Carman
Branch Manager
BATTLE CREEK BRANCH
Claudia Murch
Assistant Vice President /
Branch Manager
CAMDEN BRANCH
Lori Neill
Branch Supervisor* | COLDWATER MAIN &
EAST CHICAGO BRANCHES
Veronica Hannah
Assistant Vice President /
Branch Manager
CASSOPOLIS BRANCH
Janet Nosich
Branch Manager
CENTREVILLE BRANCH
Paul Harker
Branch Manager
CONSTANTINE BRANCH
Lorraine Fifer
Branch Manager
HILLSDALE BRANCH
Ann Marie Bentley
Assistant Vice President/
Regional Branch Manager
MARSHALL BRANCH
Annette Campau
Assistant Vice President /
Community Bank Officer
MENDON BRANCH
Doreen Tobin
Assistant Vice President /
Regional Branch Manager
NORTH ADAMS BRANCH
Leonce Towers
Branch Supervisor*
TEKONSHA BRANCH
Dawn Copas
Branch Manager
THREE RIVERS MAIN BRANCH
Sharon Bachinski
Assistant Vice President /
Regional Branch Manager
THREE RIVERS WESTLAND
BRANCH
Lynette Lorenz
Branch Manager
UNION CITY BRANCH
Ken Brooks
Vice President /
Regional Branch Manager | ACCOUNTING
Sara Herrmann
Vice President / Finance
INFORMATION SYSTEMS
Jeff Kiersey
First Vice President /
Network and Systems Manager
Matt Siefken
Network and Systems Officer
OPERATIONS
Kelli Talbot
First Vice President Operations
Christine Hagaman
Vice President /
Compliance Officer
Paul Mahle
Assistant Vice President/
Senior Data Processing Officer
Vikki Kline
Information Systems Officer
Jamie Tobalske
Electronic Services Officer
MARKETING
Patty Parker
Vice President
*Non Officer Position |
Southern Michigan Bancorp, Inc. Annual Report 11
Annual Meeting
The annual meeting of Southern Michigan Bancorp, Inc. will be
held on May 13, 2010 at 4:00 p.m. at the Dearth Community
Center on the Branch County Fairgrounds in Coldwater, Michigan.
Market Information
The Trust Department of Southern Michigan Bank & Trust acts as
the transfer and dividend paying agent for the Company's stock.
For information concerning the Company's stock, call the Trust
Department at (517) 279-5503 or (800) 379-7628.
Market Makers
Boenning & Scattergood
Powell, Ohio
(866) 326-8113
Howe Barnes Investments, Inc.
Chicago, Illinois
(312) 655-2954 or
(800) 800-4693
Stifel, Nicolaus & Company, Inc.
Grand Rapids, Michigan
(800) 676-0477
Hilliard Lyons, Inc.
Coldwater, Michigan
(517) 278-4333 or
(800) 211-5257
Robert Baird & Company
Grand Rapids, Michigan
(616) 459-4491 or
(800) 888-6200
12 Southern Michigan Bancorp, Inc. Annual Report
