-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JeyE1q8KvHB/uNaa86W3igv39KaDnFdBHXGODMGCO4jq9uW1UzE/WelqAuIJFes1 fwCgxnr5wy4lc3jfQah/Pg== /in/edgar/work/0000950124-00-006903/0000950124-00-006903.txt : 20001115 0000950124-00-006903.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950124-00-006903 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN MICHIGAN BANCORP INC CENTRAL INDEX KEY: 0000703699 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 382407501 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-78178 FILM NUMBER: 764525 BUSINESS ADDRESS: STREET 1: 51 W PEARL ST CITY: COLDWATER STATE: MI ZIP: 49036 BUSINESS PHONE: 5172795500 10-Q 1 k58409e10-q.txt FORM 10-Q 1 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 September 30, 2000 Commission file number 2-78178 ------------------ ------- Southern Michigan Bancorp, Inc. ------------------------------- (Exact name of registrant as specified in its charter) Michigan 38-2407501 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 51 West Pearl Street, Coldwater, Michigan 49036 - ----------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code -- (517) 279-5500 ------------- 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 - 1,940,660 shares at October 31, 2000 (including shares held by ESOP) 2 CONDENSED CONSOLIDATED BALANCE SHEETS SOUTHERN MICHIGAN BANCORP, INC AND SUBSIDIARY
September 30 December 31 2000 1999 -------------------------------------- (Unaudited) (A) (In thousands) ASSETS Cash and due from banks $ 15,363 $ 12,046 Investment securities available-for-sale 51,842 54,229 Loans, net 214,267 191,239 Premises and equipment 7,214 6,705 Other assets 12,911 11,606 -------------------------------------- TOTAL ASSETS $301,597 $275,825 ====================================== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing $ 37,672 $ 33,124 Interest bearing 209,341 200,179 -------------------------------------- 247,013 233,303 Federal funds purchased 1,000 Accounts payable and other liabilities 3,621 3,542 Other long-term borrowings 25,000 15,000 -------------------------------------- TOTAL LIABILITIES 276,634 251,845 Common stock subject to repurchase obligation in ESOP 1,674 3,990 Shareholders' equity: Preferred stock, 100,000 shares authorized Common stock, $2.50 par value: Authorized--4,000,000 shares Issued--1,940,660 shares (1999-1,969,259) Outstanding--1,832,670 shares (1999-1,838,757) 4,582 4,597 Capital surplus 9,874 8,421 Retained earnings 9,358 7,949 Net unrealized appreciation (depreciation) on available-for-sale securities, net of tax of ($32) (1999--$200) 63 (389) Unearned Employee Stock Ownership Plan shares (588) (588) -------------------------------------- TOTAL SHAREHOLDERS' EQUITY 23,289 19,990 -------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $301,597 $275,825 ======================================
(A) The balance sheet at December 31, 1999 has been derived from the audited consolidated financial statements at that date. See notes to condensed consolidated financial statements. -2- 3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
Three Months Ended Nine Months Ended September 30 September 30 2000 1999 2000 1999 ---------------------------------------------------------------------- (In thousands, except per share amounts) Interest income: Loans, including fees $5,215 $4,358 $14,862 $12,084 Investment securities: Taxable 637 516 1,646 1,706 Tax exempt 229 255 702 878 Other 5 0 7 41 ---------------------------------------------------------------------- Total interest income 6,086 5,129 17,217 14,709 Interest expense: Deposits 2,342 1,918 6,499 5,712 Other 604 204 1,315 462 ---------------------------------------------------------------------- Total interest expense 2,946 2,122 7,814 6,174 ---------------------------------------------------------------------- NET INTEREST INCOME 3,140 3,007 9,403 8,535 Provision for loan losses 150 258 450 594 ---------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,990 2,749 8,953 7,941 Non-interest income: Service charges on deposit accounts 275 269 824 777 Trust department 131 19 388 359 Security gains (losses) (4) 0 (7) 0 Secondary market gains 127 182 377 557 Earnings on life insurance 52 49 148 150 Other 138 128 449 386 ---------------------------------------------------------------------- 719 647 2,179 2,229 ---------------------------------------------------------------------- 3,709 3,396 11,132 10,170 Non-interest expenses: Salaries and benefits 1,243 1,184 3,709 3,349 Occupancy 195 222 606 629 Equipment 218 239 719 706 Other 956 799 2,730 2,281 ---------------------------------------------------------------------- 2,612 2,444 7,764 6,965 ---------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 1,097 952 3,368 3,205 Federal income taxes 316 214 929 717 ---------------------------------------------------------------------- NET INCOME 781 738 2,439 2,488 Other comprehensive income, net of tax: Change in unrealized gains on securities 503 45 452 (447) ---------------------------------------------------------------------- COMPREHENSIVE INCOME $1,284 $ 783 $ 2,891 $ 2,041 ====================================================================== Basic and Diluted Earnings Per Share $ 0.40 $ 0.37 $ 1.26 $ 1.23 ====================================================================== Dividends Declared Per Share $ 0.17 $ 0.17 $ 0.53 $ 0.50 ======================================================================
See notes to condensed consolidated financial statements. -3- 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
Nine Months Ended September 30 2000 1999 -------------------------------------- (In thousands) OPERATING ACTIVITIES Net income $ 2,439 $ 2,488 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 450 594 Provision for depreciation 507 501 Increase in other assets (1,538) (932) Increase in accounts payable and other liabilities 88 363 -------------------------------------- Net cash provided by operating activities 1,946 3,014 INVESTING ACTIVITIES Proceeds from maturity of investment securities 10,222 27,078 Purchases of investment securities (7,150) (13,988) (Increase) decrease in federal funds sold 0 4,000 Net increase in loans (23,478) (25,494) Net increase in premises and equipment (1,016) (257) -------------------------------------- Net cash used in investing activities (21,422) (8,661) FINANCING ACTIVITIES Net increase (decrease) in deposits 13,710 (4,421) Increase in federal funds purchased 1,000 Increase in other borrowings 10,000 10,000 Common stock repurchased and retired (875) (1,304) Cash dividends (1,042) (1,079) -------------------------------------- Net cash provided by financing activities 22,793 3,196 -------------------------------------- Increase (decrease) in cash and cash equivalents 3,317 (2,451) Cash and cash equivalents at beginning of period 12,046 16,228 -------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,363 $ 13,777 ======================================
See notes to condensed consolidated financial statements. -4- 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY September 30, 2000 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 for 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, 1999. NOTE B -- EARNINGS PER SHARE Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options. Earnings and dividends per share are restated for all stock splits and dividends through the date of issue of the financial statements. The weighted average common shares outstanding for the three and nine months ended September 30, 2000 were 1,925,615 and 1,934,017, respectively. The weighted average common shares outstanding for the three and nine months ended September 30, 1999 were 2,009,160 and 2,023,242, respectively. -5- 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION Total deposits have increased by 5.9% during the first nine months of 2000. The increase is expected to be temporary since it is due to money coming into short term money market accounts. Net loans have increased by 12.0% in the first nine months of 2000. The loan growth has occurred in the commercial and real estate mortgage portfolios. The commercial growth is due to economic growth in the Company's market area and increased efforts to competitively price loans. The real estate mortgage increase is the result of the rising rate environment. Customers have been reluctant to commit to long term fixed rate mortgages that the Company sells to the secondary market, instead they have opted for adjustable rate loans that the Company keeps in house. There were no loans held for sale as of September 30, 2000. Investment securities decreased by 4.4% during the first nine months of 2000. Funds received from maturing securities were used to support the increase in loans. In 2000, the Bank will spend approximately $2,300,000 to renovate the Coldwater main office and the Beckley road office. On October 4, 2000 the Board of Directors of Sturgis Bank & Trust Company announced the termination of its merger agreement with the Company. Sturgis terminated the Agreement because it was unable to obtain a Fairness Opinion from its financial advisor. The receipt of a Fairness Opinion was a necessary condition to the closing of the transaction. A fairness opinion is a professional judgment offered for a fee by a financial advisor on the fairness of the consideration being offered in a merger or consolidation. The Company has incurred costs of approximately $335,000 directly related to the merger in 2000. 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 interest in equity accounts of consolidated subsidiaries less goodwill. -6- 7 As a supplement to the risk-based capital requirements, the FRB has also adopted leverage capital ratio requirements. The 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 September 30, 2000: Tier 1 risk-based capital ratio 10.32% Total risk-based capital ratio 11.15 Leverage ratio 8.06
The above table indicates that the Company's capital ratios are above the regulatory minimum requirements. The Company has repurchased and retired 28,533 shares of outstanding common stock from ESOP participants during the first nine months of 2000. RESULTS OF OPERATIONS Net Interest Income Net interest income increased by $133,000 and $868,000 for the three and nine month periods ended September 30, 2000 compared to the same periods in 1999. The increases are due to increased loan volume and higher interest rates. 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. -7- 8 The provision for loan losses decreased by $108,000 and $144,000 for the three and nine month periods ended September 30, 2000 compared to the same periods in 1999. The provision was higher in 1999 due to a large commercial borrower experiencing financial difficulties. The loan portfolio has experienced significant growth in recent years and management is closely monitoring portfolio performance particularly in light of recent interest rate increases. The allowance for loan losses is being maintained at a level, which in management's opinion, is adequate to absorb probable loan losses in the loan portfolio as of September 30, 2000. 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 $72,000 for the three month period and decreased by $50,000 for the nine month period ended September 30, 2000 compared to the same periods in 1999. The increase in the third quarter is due to an increase in collected trust fees. The nine month decrease is due primarily to a decline in gains recognized on the sale of real estate mortgage loans to the secondary market. As fixed rate mortgage rates have increased, the number of new loans and refinancing activities have declined. Non-interest Expense Non-interest expenses increased by $168,000 and $799,000 for the three and nine month periods ended September 30, 2000 compared to the same periods in 1999. Salaries and benefits expenditures increased in the third quarter of the year as additional loan department employees were added throughout the year to assist with the increased loan volume. Legal and professional fees increased as a result of increased usage of consultants for general purposes and the merger consideration. The Company has also seen an increase in federal income taxes as its non taxable municipal securities income has declined. As the non taxable municipal securities matured, the funds were reinvested in loans. Year 2000 The Company had a successful Year 2000 rollover. The Company has not experienced any significant Year 2000 problems as a result of the rollover, and is not aware of any customers that have experienced material Year 2000 problems. This success can be attributed to the fact that the Company began addressing Year 2000 issues in mid 1997. The Company followed a plan to identify all critical business processes and established a priority schedule for assessment of each process. As the Company worked through its Year 2000 plan, any hardware, software, equipment or vendor provided services that were identified as not Year 2000 compliant were either upgraded or retired. While no Year 2000 problems have been identified to date, monitoring will continue for most of 2000 to assure that all Year 2000 issues have been addressed. -8- 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is interest rate risk and to a lesser extent liquidity risk. Interest rate risk arises when the maturity or repricing characteristics of assets differ significantly from the maturity or the repricing characteristics of liabilities. Accepting this risk can be an important source of profitability and shareholder value, however, excessive levels of interest rate risk could pose a significant threat to the Company's earnings and capital base. Accordingly, effective risk management that maintains interest rate risk at prudent levels is essential to the Company's safety and soundness. The Company measures the impact of changes in interest rates on net interest income through a comprehensive analysis of the Bank's interest rate sensitive assets and liabilities. Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. Overnight federal funds and mutual funds on which rates change daily and loans which are tied to the prime rate or a comparable index differ considerably from long-term investment securities and fixed-rate loans. Similarly, certificates of deposit and money market investment accounts are much more interest sensitive than passbook savings accounts. The shorter term interest rate sensitivities are key to measuring the interest sensitivity gap, or excess interest-earning assets over interest-bearing liabilities. In addition to reviewing the interest sensitivity gap, the Company also analyzes projected changes in market interest rates and the resulting effect on net interest income. Liquidity management involves the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Certain portions of the Bank's liabilities may be short-term or due on demand, while most of its assets may be invested in long-term loans or investments. Accordingly, the Company seeks to have in place sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing or selling assets. Also, Federal Home Loan Bank advances and short-term borrowings provide additional sources of liquidity for the Company. There have been no significant changes in the distribution of the Company's financial instruments that are sensitive to changes in interest rates during the third quarter of 2000. -9- 10 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 third quarter of 2000. 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. ------------------------------- (Registrant) NOVEMBER 10, 2000 JAMES T. GROHALSKI - ------------------ ------------------------------ Date James T. Grohalski, President and Chief Executive Officer (Principal Financial and Accounting Officer) -10- 11 Exhibit Index
Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule
EX-27 2 k58409ex27.txt FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q. 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 15,363 0 0 0 51,842 0 0 216,187 1,920 301,597 247,013 1,588 4,707 25,000 0 0 4,582 18,707 301,597 14,862 2,348 7 17,217 6,499 7,814 9,403 450 (7) 7,764 3,368 3,368 0 0 2,439 1.26 1.26 5.20 939 729 0 1,529 2,132 799 137 1,920 1,446 0 474
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