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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997 Commission file number 2-78178
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Southern Michigan Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Michigan 38-2407501
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
51 West Pearl Street, Coldwater, Michigan 49036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code--(517) 279-5500
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Indicate by check mark whether 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 preceding 12 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 issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $2.50 Par Value - 954,623 shares at April 30, 1997
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CONDENSED CONSOLIDATED BALANCE SHEETS
SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
March 31 December 31
1997 1996
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(Unaudited) (A)
(In thousands)
ASSETS
Cash and due from banks $ 13,084 $ 13,520
Federal funds sold 1,500
Investment securities available-for-sale 22,134 24,089
Investment securities (market value of
$32,924,000 in 1997 and $32,796,000 in
1996) 32,957 32,510
Loans 152,673 152,678
Less allowance for loan losses (1,848) (1,814)
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150,825 150,864
Premises and equipment 5,191 5,227
Other assets 9,663 9,352
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TOTAL ASSETS $235,354 $235,562
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 29,455 $ 35,230
Interest bearing 179,760 174,238
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209,215 209,468
Accounts payable and other liabilities 2,459 2,922
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TOTAL LIABILITIES 211,674 212,390
Common stock subject to repurchase obligation
in ESOP 3,685 3,555
Shareholders' equity:
Common stock, $2.50 par value:
Authorized--2,000,000 shares
Outstanding--871,857 shares (1996--
869,550 shares) 2,180 2,174
Capital surplus 2,709 2,735
Retained earnings 15,191 14,687
Net unrealized appreciation (depreciation)
on available-for-sale securities, net of
tax of $44,000 (1996--$10,000) (85) 21
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TOTAL SHAREHOLDERS' EQUITY 19,995 19,617
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $235,354 $235,562
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(A) The balance sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
Three Months Ended
March 31
1997 1996
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(In thousands, except
per share amounts)
Interest income:
Loans, including fees $ 3,705 $ 3,190
Investment securities:
Taxable 625 703
Tax exempt 222 191
Other 6 19
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Total interest income 4,558 4,103
Interest expense:
Deposits 1,792 1,565
Capital notes and other 51 38
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Total interest expense 1,843 1,603
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NET INTEREST INCOME 2,715 2,500
Provision for loan losses 75 117
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,640 2,383
Non-interest income:
Service charges on deposit
accounts 201 179
Trust department 136 136
Security gains 0 5
Other 92 0
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429 320
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3,069 2,703
Non-interest expenses:
Salaries and benefits 1,021 893
Occupancy 176 140
Equipment 188 186
Other 734 648
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2,119 1,867
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INCOME BEFORE INCOME TAXES 950 836
Federal income taxes 207 194
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NET INCOME $ 743 $ 642
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Net income per share $ .78 $ .69
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Dividends declared per share $ .25 $ .24
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See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
Three Months Ended
March 31 1997
1996
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(In thousands)
OPERATING ACTIVITIES
Net income $ 743 $ 642
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 75 117
Unrealized loss on loans held for sale 65
Provision for depreciation 123 72
Increase in other assets (257) (76)
Decrease in accounts payable and other
liabilities (379) (452)
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Net cash provided by operating activities 305 368
INVESTING ACTIVITIES
Proceeds from maturities of investment
securities 2,099 8,514
Purchases of investment securities (751) (8,163)
Increase (decrease) in federal funds sold (1,500) 4,500
Net increase in loans (36) (7,493)
Purchases of premises and equipment (87) (718)
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Net cash used in investing activities (275) (3,360)
FINANCING ACTIVITIES
Net decrease in deposits (253) (2,307)
Payment of capital note (1,000)
Common stock issued 110 129
Cash dividends (323) (336)
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Net cash used in financing activities (466) (3,514)
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Decrease in cash and cash equivalents (436) (6,506)
Cash and cash equivalents at beginning of period 13,520 17,180
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,084 $10,674
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See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
March 31, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying year-end balance sheet data was derived from audited
consolidated financial statements, but does not include all disclosures
required by generally accepted accounting principles.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
Total deposits have remained fairly steady during the first quarter of 1997.
The deposits acquired in the fourth quarter of 1996 helped to offset the
historical decline in deposits that the Company typically experiences in the
first quarter of the year.
Loans have remained fairly steady during the first quarter of 1997. The Company
historically experiences loan growth in the second and third quarters of the
year as borrowers' seasonal demands increase. There were no loans held for sale
at March 31, 1997.
Investment securities decreased by 2.7% during the first quarter of 1997. The
funds received from maturing securities were reinvested in federal funds sold
in anticipation of future loan growth.
The Company had no material commitments for capital expenditures at
March 31, 1997.
CAPITAL RESOURCES
The Federal Reserve Board (FRB) has adopted risk-based capital guidelines
applicable to the Company. These guidelines require that bank holding
companies maintain capital commensurate with both on and off balance sheet
credit risks of their operations. Under the guidelines, a bank holding company
must have a minimum ratio of total capital to risk-weighted assets of 8.0
percent. In addition, a bank holding company must maintain a minimum ratio of
Tier 1 capital equal to 4.0 percent of risk-weighted assets. Tier 1 capital
includes common shareholders' equity, qualifying perpetual preferred stock and
minority interests in equity accounts of consolidated subsidiaries less
goodwill.
As a supplement to the risk-based capital requirements, the FRB has also
adopted leverage capital ratio requirements. The new leverage ratio
requirements establish a minimum ratio of Tier 1 capital to total assets less
goodwill of 3 percent for the most highly rated bank holding companies. All
other bank holding companies are required to maintain additional Tier 1 capital
yielding a leverage ratio of 4 percent to 5 percent, depending on the
particular circumstances and risk profile of the institution.
The following table summarizes the Company's capital ratios as of March 31,
1997:
Tier 1 risk-based capital ratio 12.26%
Total risk-based capital ratio 13.30%
Leverage ratio 9.35%
The table above indicates that the Company's capital ratios are above the
regulatory minimum requirements.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Continued
RESULTS OF OPERATIONS
Net Interest Income
Net interest income increased by $215,000 for the three month period ended
March 31, 1997 compared to the same period in 1996. This increase is due to
loan rates rising at a faster pace than the rates paid on deposit accounts.
Provision for Loan Losses
The provision for loan losses is based on an analysis of outstanding loans. In
assessing the adequacy of the allowance, management reviews the characteristics
of the loan portfolio in order to determine the overall quality and risk
profile. Some factors considered by management in determining the level at
which the allowance is maintained include a continuing evaluation of those
loans identified as being subject to possible problems in collection, results
of examinations by regulatory agencies, current economic conditions and
historical loan loss experience.
The provision for loan losses decreased by $42,000 for the three month period
ended March 31, 1997 compared to the same period in 1996. This decrease
occurred as a result of the low level of loan losses experience in recent
years. The allowance for loan losses is being maintained at a level which, in
management's opinion, is adequate to absorb possible loan losses in the loan
portfolio as of March 31, 1997.
Non-Interest Income
Non-interest income, which includes service charges on deposit accounts, trust
fee income, security gains and losses and other miscellaneous charges and fees,
increased by $109,000 during the first quarter of 1997 compared to the same
period in 1996. This increase is due to increased service charges on deposit
accounts in 1997 as a result of the additional deposits purchased in connection
with the acquisition of two branches in late 1996, increased gains on the sale
of secondary market real estate mortgage loans in 1997 and unrecognized losses
on real estate mortgage loans held for sale recorded in 1996.
Non-Interest Expense
Non-interest expense increased by $252,000 for the three month period ended
March 31, 1997 compared to the same period in 1996. This increase is due to
additional personnel costs, occupancy costs, marketing and advertising
expenditures and training costs primarily as a result of the acquisition of two
branches in late 1996.
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PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 6. Exhibits and Reports on Form 8-K
a. Listing of Exhibits: Financial Data Schedule
b. There were no reports on Form 8-K filed in the first quarter of 1997.
SIGNATURES
Pursuant to the requirements 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.
Southern Michigan Bancorp, Inc.
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(Registrant)
May 12, 1997 /s/ Jerry L. Towns
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Date Jerry L. Towns, President and
Chief Executive Officer
May 12, 1997 /s/ James T. Grohalski
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Date James T. Grohalski, Executive
Vice-President (Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
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27 Financial Data Schedule