EXHIBIT 99.1
SOUTHERN MICHIGAN BANCORP, INC.
FIRST QUARTER 2003 REPORT
Dear Shareholders:
I am pleased to report that earnings for the first quarter of 2003 totaled
$816,000 which equates to $ .44 per share. Our results for the quarter represent
a substantial increase of approximately 45 percent over first quarter 2002
totals of $563,000 and $ .30 per share.
Late last year, the board of directors and executive management group adopted a
proactive plan:
o To add management expertise and depth in vital operating areas of
the bank;
o To initiate strategies that enhance overall credit administration
and loan quality;
o To identify opportunities for revenue growth; and
o To explore options that maximize operating efficiencies throughout
the organization.
Although it is premature to suggest all of our goals have been met, our first
quarter 2003 financial results are positive indicators of our progress.
o We have strengthened our management team in a number of crucial
areas encompassing loan and credit administration, retail banking
and trust, among others.
o Annualized return on average assets for the quarter was 1.01
percent while return on average equity was 12.15 percent.
o Southern Michigan's market leadership in financing mortgages for
homeowners throughout our tri-county service area resulted in
growth in fees generated from sale of mortgage loans. Fees
generated exceeded $568,000 during the first quarter 2003,
compared with $252,000 in the first quarter of 2002.
o The allowance for loan losses at the end of the first quarter was
increased to 1.51 percent of gross loans to reflect our prudent
approach to overall credit administration.
o The board of directors declared a quarterly dividend of $.16 per
share, payable on April 18th to shareholders of record on March
28, 2003.
I am most thankful to our bank staff for their outstanding efforts that
contributed substantially to our first quarter results. Our tasks associated
with the goal to become a
high performance financial service company are still in their infant stages of
implementation. We will regularly update you on our progress. In addition,
please continue to provide your thoughts, ideas, suggestions and advice that may
enable us to serve our clients and shareholders in the best manner possible.
Again, many thanks for your encouragement and support.
Respectfully,
/s/ John H. Castle
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John H. Castle
Chairman and Chief Executive Officer
CONDENSED CONSOLIDATED BALANCE SHEETS
SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
March 31 December 31
2003 2002
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(Unaudited) (A)
(In thousands, except share
and per share data)
ASSETS
Cash and due from banks $ 21,909 $ 19,287
Securities available for sale 51,098 48,811
Loans held for sale 2,422 1,083
Loans 232,805 234,166
Less allowance for loan losses (3,520) (3,512)
Premises and equipment, net 7,003 7,137
Other assets 13,795 13,711
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TOTAL ASSETS $ 325,512 $ 320,683
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 40,919 $ 42,462
Interest bearing 226,934 219,887
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TOTAL DEPOSITS 267,853 262,349
Federal funds purchased 3,700 5,000
Accrued expenses and other liabilities 4,043 4,197
Other borrowings 23,140 22,646
Common stock subject to repurchase obligation in Employee
Stock Ownership Plan, shares outstanding -- 92,948 in 2003
104,841 in 2002 1,604 1,618
Shareholders' equity:
Preferred stock, 100,000 shares authorized; none issued
or outstanding
Common stock, $2.50 par value:
Authorized--4,000,000 shares
Issued--1,849,349 shares (2002 - 1,864,046)
Outstanding--1,756,401 shares (2002 - 1,759,205) 4,391 4,398
Additional paid-in-capital 8,492 8,752
Retained earnings 11,887 11,366
Accumulated other comprehensive income, net of tax 736 793
Unearned Employee Stock Ownership Plan shares (334) (436)
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TOTAL SHAREHOLDERS' EQUITY 25,172 24,873
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 325,512 $ 320,683
=============================
(A) The balance sheet at December 31, 2002 has been derived from the audited
consolidated financial statements at that date.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
Three Months Ended
March 31
2003 2002
(In thousands, except per share amounts)
Interest income:
Loans, including fees $ 3,773 $ 4,044
Securities:
Taxable 277 438
Tax exempt 227 252
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Total interest income 4,277 4,734
Interest expense:
Deposits 1,011 1,220
Other 432 433
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Total interest expense 1,443 1,653
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NET INTEREST INCOME 2,834 3,081
Provision for loan losses 225 275
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,609 2,806
Non-interest income:
Service charges on deposit accounts 534 263
Trust fees 139 148
Net securities gains - 4
Net gains on loan sales 568 252
Other 353 147
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1,594 814
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4,203 3,620
Non-interest expense:
Salaries and benefits 1,644 1,475
Occupancy, net 186 186
Equipment 218 356
Other 1,049 899
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3,097 2,916
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INCOME BEFORE INCOME TAXES 1,106 704
Federal income taxes 290 141
NET INCOME $ 816 $ 563
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BASIC AND DILUTED EARNINGS PER SHARE $ 0.44 $ 0.30
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DIVIDENDS DECLARED PER SHARE $ 0.16 $ 0.16
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