-----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, Q3v+BnKmOaoI6PH7XEMibMEXWX0ZCpruFcXViN5+iy9zTVCQ5dE8XANE0rwUk8+Y Y+mxWbN6E1gUwZegxLGeGg== 0000950124-98-002827.txt : 19980514 0000950124-98-002827.hdr.sgml : 19980514 ACCESSION NUMBER: 0000950124-98-002827 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NONE 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: SEC FILE NUMBER: 002-78178 FILM NUMBER: 98618515 BUSINESS ADDRESS: STREET 1: 51 W PEARL ST CITY: COLDWATER STATE: MI ZIP: 49036 BUSINESS PHONE: 5172795500 10-Q 1 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 March 31, 1998 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 - 1,923,756 shares at April 30, 1998 - ------------------------------------------------------------------ 1 2 CONDENSED CONSOLIDATED BALANCE SHEETS SOUTHERN MICHIGAN BANCORP, INC AND SUBSIDIARY
March 31 December 31 1998 1997 --------------------------------------- (Unaudited) (A) (In thousands) ASSETS Cash and due from banks $16,194 $16,848 Federal funds sold 1,000 4,500 Investment securities available-for-sale 16,717 12,853 Investment securities held to maturity (market value of $34,563 in 1998 and $32,572 in 1997) 33,237 32,221 Loans 160,514 158,741 Less allowance for loan losses (1,915) (1,863) --------------------------------- 158,599 156,878 Premises and equipment 5,874 5,588 Other assets 9,912 9,643 --------------------------------- TOTAL ASSETS $241,533 $238,531 ================================= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing $27,819 $30,923 Interest bearing 179,923 176,142 --------------------------------- 207,742 207,065 Accounts payable and other liabilities 2,702 2,977 Other long-term borrowings 5,000 3,000 --------------------------------- TOTAL LIABILITIES 215,444 213,042 Common stock subject to repurchase obligation in ESOP 6,061 4,899 Shareholders' equity: Common stock, $2.50 par value: Authorized--4,000,000 shares Outstanding--1,773,425 shares (1997-1,772,839) 4,433 4,432 Capital surplus 898 1,914 Retained earnings 14,687 14,218 Net unrealized appreciation on available-for-sale securities net of tax of $5 (1997--$13) 10 26 --------------------------------- TOTAL SHAREHOLDERS' EQUITY 20,028 20,590 --------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $241,533 $238,531 ================================= (A) The balance sheet at December 31, 1997 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 AND COMPREHENSIVE INCOME (UNAUDITED) SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31 1998 1997 --------------------------------------- (In thousands, except per share amounts) Interest income: Loans, including fees $3,951 $3,705 Investment securities: Taxable 537 625 Tax exempt 243 222 Other 36 6 ---------------------------------- Total interest income 4,767 4,558 Interest expense: Deposits 1,821 1,792 Other 84 51 ---------------------------------- Total interest expense 1,905 1,843 ---------------------------------- NET INTEREST INCOME 2,862 2,715 Provision for loan losses 150 75 ---------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,712 2,640 Non-interest income: Service charges on deposit accounts 213 201 Trust department 119 136 Security gains 0 0 Other 230 92 ---------------------------------- 562 429 ---------------------------------- 3,274 3,069 Non-interest expenses: Salaries and benefits 1,110 1,021 Occupancy 181 176 Equipment 187 188 Other 771 734 ---------------------------------- 2,249 2,119 ---------------------------------- INCOME BEFORE INCOME TAXES 1,025 950 Federal income taxes 268 207 ---------------------------------- NET INCOME 757 743 Other comprehensive income, net of tax: Change in unrealized gains on securities (16) (106) ---------------------------------- COMPREHENSIVE INCOME $741 $637 ================================== Basic and Diluted Earnings Per Share $0.39 $0.39 ================================== Dividends Declared Per Share $0.15 $0.13 ==================================
See notes to condensed consolidated financial statements. 3 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31 1998 1997 ----------------------------------- (In thousands) OPERATING ACTIVITIES Net income $757 $743 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 150 75 Provision for depreciation 115 123 Increase in other assets (261) (257) Decrease in accounts payable and other liabilities (180) (379) ------------------------------- Net cash provided by operating activities 581 305 INVESTING ACTIVITIES Proceeds from maturity of investment securities 2,342 2,099 Purchases of investment securities (7,246) (751) (Increase) decrease in federal funds sold 3,500 (1,500) Net increase in loans (1,871) (36) Net increase in premises and equipment (401) (87) ------------------------------- Net cash used in investing activities (3,676) (275) FINANCING ACTIVITIES Net increase (decrease) in deposits 677 (253) Increase in other borrowings 2,000 0 Common stock issued 147 110 Cash dividends (383) (323) ------------------------------- Net cash provided by (used in) financing activities 2,441 (466) ------------------------------- Decrease in cash and cash equivalents (654) (436) Cash and cash equivalents at beginning of period 16,848 13,520 ------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $16,194 $13,084 ===============================
See notes to condensed consolidated financial statements. 4 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY March 31, 1998 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 included 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, 1997. 5 6 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 1998. A complete overhaul of the Bank's personal checking accounts allowed the Bank to increase the number of deposit accounts and overcome the decline in deposits that the Company has traditionally experienced in the first quarter of the year. Loans have increased by 1.1% in the first three months of 1998. The loan growth has occurred in the commercial portfolio while the real estate mortgage portfolio has declined. The commercial growth is due to an increase in borrowers' seasonal demands. The real estate mortgage decline is due to many existing customers rewriting their adjustable rate loans into fixed rate loans which are then sold to the secondary market. There were no loans held for sale as of March 31, 1998. Investment securities increased by 10.8% during the first quarter of 1998. Funds received from increased Federal Home Loan Bank borrowings and funds transfered from federal funds sold were invested in the securities portfolio. The Company has committed approximately $1,700,000 for the construction of a new branch office in Hillsdale, Michigan. 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 March 31, 1998: Tier 1 risk-based capital ratio 13.63% Total risk-based capital ratio 14.69% Leverage ratio 10.34% 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 increased by $147,000 for the three month period ended March 31, 1998 compared to the same period in 1997. This increase is due to the reinvestment of funds held in overnight federal funds accounts into higher yielding loans and securities. 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 increased by $75,000 for the first quarter of 1998 compared to the same period in 1997. This increase occurred to provide for loan growth and increased charge-offs and delinquencies, primarily as a result of increased customer bankruptcies. 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, 1998. 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 $133,000 during the first quarter of 1998 compared to the same period in 1997. This increase is due primarily to gains recognized on the sale of real estate mortgage loans to the secondary market. 7 8 Non-interest Expense Non-interest expenses increased by $130,000 for the three month period ended March 31, 1998 compared to the same period in 1997. The primary expense categories that increased in 1998 were salaries and benefits and advertising expenditures. Salaries and benefits increased due to an increase in the number of employees and normal cost of living adjustments. Advertising expenditures increased as the Bank revamped its checking products. 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 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. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates as of March 31, 1998. The Company had no 8 9 derivative financial instruments, or trading portolio, as of that date. The expected maturity date values for loans receivable were calculated without adjusting the instrument's contractual maturity date for expectations of prepayments. Investment securities are reported at the earlier of maturity date or anticipated call date. Expected maturity date values for interest-bearing core deposits were not based upon estimates of the period over which the deposits would be outstanding, but rather the opportunity for repricing. Similarly, with respect to its variable rate instruments, the Company believes that repricing dates, as opposed to expected maturity dates, may be more relevant in analyzing the value of such instruments and are reported as such in the following table. Company borrowings are also reported based on conversion or repricing dates. 9 10
Principal Amount Maturing in: Fair ------------------------------------------------------------------------------ Value 03/31/99 03/31/00 03/31/01 03/31/02 03/31/03 Thereafter Total 03/31/98 ------------------------------------------------------------------------------------------ Rate sensitive assets: Fixed interest rate loans 19,418 12,423 9,318 7,186 4,859 4,427 57,631 57,684 Average interest rate 9.80% 10.00% 10.11% 10.21% 10.19% 10.01% 9.94% Variable interest rate loans 12,040 583 464 9,762 11,401 68,633 102,883 102,883 Average interest rate 9.18% 9.30% 9.60% 9.56% 9.61% 9.40% 9.39% Fixed interest rate securities 16,836 11,821 8,418 5,104 2,932 4,843 49,954 51,280 Average interest rate 5.98% 6.43% 5.45% 5.46% 5.40% 4.82% 6.25% Other interest bearing assets 1,000 1,000 1,000 Average interest rate 5.29% 5.29% Rate sensitive liabilities: Interest bearing demand deposits 67,040 67,040 67,040 Average interest rate 3.21% 3.21% Savings deposits 34,722 5,233 2,134 1,305 138 0 43,532 43,532 Average interest rate 2.80% 5.90% 5.50% 5.32% 5.73% 3.38% Time deposits 52,794 8,585 6,698 1,259 15 0 69,351 69,298 Average interest rate 5.39% 5.68% 5.83% 6.18% 5.64% 5.33% Fixed interest rate borrowings 5,000 5,000 5,000 Average interest rate 5.47% 5.47%
10 11 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 1998. 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) MAY 13, 1998 JERRY L. TOWNS - ------------ ------------------------------- Date Jerry L. Towns, President and Chief Executive Officer MAY 13, 1998 JAMES T. GROHALSKI - ------------ ------------------------------- Date James T. Grohalski, Executive Vice-President (Principal Financial and Accounting Officer) 11 12 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 27 FINANCIAL DATA SCHEDULE 12 EX-27 2 EXHIBIT 27
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE 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. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 16,194 0 1,000 0 16,717 33,237 34,563 160,514 1,915 241,533 207,742 0 8,763 5,000 0 4,433 0 15,595 241,533 3,951 780 36 4,767 1,821 1,905 2,862 150 0 2,249 1,025 1,025 0 0 757 .39 .39 5.42 1,038 864 0 2,554 1,863 128 30 1,915 962 0 953
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