-----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, JNF3hYnc8PdGoAhq2xx8zXR8IYgZrNi7ymrOlPdkePLdikKr2gYE0KSueF2sohHy 6fK+LQr57g7EQd6+W1zvug== 0000950124-01-502738.txt : 20010814 0000950124-01-502738.hdr.sgml : 20010814 ACCESSION NUMBER: 0000950124-01-502738 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN MICHIGAN BANCORP INC CENTRAL INDEX KEY: 0000703699 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382407501 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-78178 FILM NUMBER: 1705413 BUSINESS ADDRESS: STREET 1: 51 W PEARL ST CITY: COLDWATER STATE: MI ZIP: 49036 BUSINESS PHONE: 5172795500 10-Q 1 k64306e10-q.txt QUARTERLY REPORT 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 June 30, 2001 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 incorporation or organization) Identification 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 - 1,940,184 shares at July 31, 2001 (including shares held by ESOP) 2 CONDENSED CONSOLIDATED BALANCE SHEETS SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
June 30, December 31, 2001 2000 ------------------------------------ (Unaudited) (A) (In thousands) ASSETS Cash and due from banks $ 22,816 $ 18,489 Securities available for sale 52,145 51,475 Loans, net of allowance for loan losses of $1,841 (2000 - $2,096) 202,471 212,309 Premises and equipment 8,315 7,619 Other assets 12,394 13,747 ------------------------------------ TOTAL ASSETS $ 298,141 $ 303,639 ------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing $ 37,055 $ 37,677 Interest bearing 207,994 207,753 ------------------------------------ 245,049 245,430 Federal funds purchased - 4,000 Accounts payable and other liabilities 3,201 3,520 Other long-term borrowings 23,000 25,000 ------------------------------------ 271,250 277,950 Common stock subject to repurchase obligation in ESOP 1,768 1,478 Shareholders' equity: Preferred stock, 100,000 shares authorized Common stock, $2.50 par value: Authorized--4,000,000 shares Issued--1,940,184 shares (2000 - 1,940,502) Outstanding--1,826,315 shares (2000 -1,831,064) 4,566 4,578 Capital surplus 9,787 10,072 Retained earnings 10,712 9,964 Accumulated other comprehensive income 646 185 Unearned Employee Stock Ownership Plan shares (588) (588) ------------------------------------ 25,123 24,211 ------------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 298,141 $ 303,639 ------------------------------------
(A) The balance sheet at December 31, 2000 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 Six Months Ended June 30, June 30, 2001 2000 2001 2000 (In thousands, except per share amounts) Interest income: Loans, including fees $ 4,669 $ 4,998 $ 9,602 $ 9,647 Securities: Taxable 643 465 1,212 1,009 Tax - exempt 194 234 396 473 Other 2 - 36 2 ------------------------------------------------------------ Total interest income 5,508 5,697 11,246 11,131 Interest expense: Deposits 2,175 2,123 4,484 4,157 Other 429 399 884 711 ------------------------------------------------------------ Total interest expense 2,604 2,522 5,368 4,868 ------------------------------------------------------------ NET INTEREST INCOME 2,904 3,175 5,878 6,263 Provision for loan losses 225 150 600 300 ------------------------------------------------------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,679 3,025 5,278 5,963 Non-interest income: Service charges on deposit accounts 263 285 523 549 Trust fees 128 123 271 257 Gains on sales of securities, net 27 (4) 33 (3) Gains on sales of loans, net 290 149 494 250 Earnings on life insurance policies 54 51 107 96 Other 74 162 270 311 ------------------------------------------------------------ 836 766 1,698 1,460 ------------------------------------------------------------ 3,515 3,791 6,976 7,423 Non-interest expenses: Salaries and benefits 1,257 1,206 2,560 2,466 Occupancy 199 193 419 411 Equipment 308 244 571 501 Other 874 903 1,651 1,774 ------------------------------------------------------------ 2,638 2,546 5,201 5,152 ------------------------------------------------------------ INCOME BEFORE INCOME TAXES 877 1,245 1,775 2,271 Federal income taxes 221 344 445 613 ------------------------------------------------------------ NET INCOME 656 901 1,330 1,658 Other comprehensive income, net of tax: Change in unrealized gains (losses) on securities 16 99 461 (51) ------------------------------------------------------------ COMPREHENSIVE INCOME $ 672 $ 1,000 $ 1,791 $ 1,607 ------------------------------------------------------------ Basic and Diluted Earnings Per Share 0.34 0.47 0.69 0.86 Dividends Declared Per Share 0.15 0.17 0.30 0.36 See notes to condensed consolidated financial statements.
-3- 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
Six Months Ended June 30, 2001 2000 (In thousands) OPERATING ACTIVITIES Net income $ 1,330 $ 1,658 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 600 300 Provision for depreciation 430 336 Net (increase) decrease in other assets 1,115 (707) Increase (decrease) in accounts payable and other liabilities (280) 31 --------- --------- Net cash provided by operating activities 3,195 1,618 INVESTING ACTIVITIES Proceeds from sales of securities 2,125 - Proceeds from maturities of securities 12,988 6,307 Net realized gain on sales of securities (33) - Purchases of securities (15,051) (3,150) Net (increase) decrease in loans 9,238 (20,769) Net increase in premises and equipment (1,126) (404) --------- --------- Net cash provided by (used in) investing activities 8,141 (18,016) FINANCING ACTIVITIES Net decrease in deposits (381) (228) Increase (decrease) in federal funds purchased (4,000) 10,060 Increase (decrease) in other borrowings (2,000) 10,000 Common stock repurchased and retired (7) (853) Cash dividends (621) (713) --------- --------- Net cash provided by (used in) financing activities (7,009) 18,266 --------- --------- Increase in cash and cash equivalents 4,327 1,868 Cash and cash equivalents at beginning of period 18,489 12,046 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22,816 $ 13,914
See notes to condensed consolidated financial statements. -4- 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY June 30, 2001 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, 2000. 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. On April 17, 2001, 10,191 options to purchase shares of stock were granted by the Board of Directors under the 2000 Stock Option plan. The basic and diluted weighted average common shares outstanding for the three and six month periods ended June 30, 2001 were:
3 months ended 6 months ended June 30, 2001 June 30, 2001 basic 1,924,879 1,925,002 diluted 1,925,008 1,925,063
-5- 6 The basic and diluted weighted average common shares outstanding for the three and six month periods ended June 30, 2000 were 1,930,722 and 1,937,711, respectively. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION Net loans have decreased by 4.6% in the first six months of 2001. The decrease has occurred in the real estate mortgage and consumer portfolios. Customers took advantage of the 275 basis point drop in interest rates since the beginning of the year to refinance their adjustable rate loans or their higher rate fixed rate loans. These longer term fixed rate loans were subsequently sold on the secondary market. At June 30, 2001 the Company had $213,000 in loans held for sale. The decrease in the loan portfolio generated excess cash which allowed the Company to reduce the long term borrowings and federal funds purchased during the first six months of 2001. There were no significant fixed asset commitments as of June 30, 2001. 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. 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. -6- 7 The following table summarizes the Company's capital ratios as of June 30, 2001: Tier 1 risk-based capital ratio 11.39% Total risk-based capital ratio 12.22 Leverage ratio 8.37
The above table indicates that the Company's capital ratios are above the regulatory minimum requirements. RESULTS OF OPERATIONS Net Interest Income Net interest income decreased by $271,000 and $385,000 for the three and six month periods ended June 30, 2001 compared to the same periods in 2000. This decrease is the result of a decrease in the Company's margin due to a higher cost of funds (primarily higher rate CD's and FHLB borrowings) and six reductions, totaling 275 basis points, in the national prime rate during the first six months of 2001. 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 for the first six months of 2001 was $300,000 higher than the same period of 2000. The increase is partially the result of one commercial loan charge off of $673,000 for which $526,000 had previously been allocated in the allowance for loan loss. 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 June 30, 2001. -7- 8 Non-interest Income Non-interest income, which includes service charges on deposit accounts, gain on sale of loans, trust fee income, security gains and losses and other miscellaneous charges and fees, increased by $70,000 and $238,000 for the three and six month periods ended June 30, 2001 compared to the same periods in 2000. This increase is due primarily to gains recognized on the sale of real estate mortgage loans to the secondary market. In order to reduce the risk associated with changing interest rates, the Company regularly sells fixed rate real estate mortgage loans on the secondary market. The Company recognizes a profit at the time of sale. During a period of relatively low interest rates, the Company has generated relatively large volumes of fixed rate mortgage loans. Non-interest Expense Non-interest expenses increased by $92,000 and $49,000 for the three and six month periods ended June 30, 2001 compared to the same periods in 2000. This increase is due primarily to a loss incurred on a repossessed mortgage property that was sold at a loss of $52,000. 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 -8- 9 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 first six months of 2001. -9- 10 PART II - OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of Southern Michigan Bancorp, Inc. was held on April 16, 2001 at Southern Michigan Bank & Trust. The following items were approved by the shareholders at the Annual Meeting: a. Election of H. Kenneth Cole, William E. Galliers, James T. Grohalski and James J. Morrison as directors. b. Ratification of the selection of Crowe, Chizek and Company LLP as Independent Auditors for 2001. ITEM 6. Exhibits and Reports on Form 8-K a. There were no reports filed on Form 8-K during the second quarter of 2001. 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) AUGUST 10, 2001 JAMES T. GROHALSKI - --------------- ------------------ Date James T. Grohalski, President and Chief Executive Officer (Principal Financial and Accounting Officer) -10- -----END PRIVACY-ENHANCED MESSAGE-----