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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 2-78178
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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 NO.)
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 the 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES / / NO /X/
The number of shares of the registrant's common stock, $2.50 par value,
outstanding as of April 30, 2003 was 1,849,329 (including shares held by the
ESOP).
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PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
SOUTHERN MICHIGAN BANCORP, INC.
March 31, December 31,
2003 2002
-----------------------------------------
(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, net of valuation of $-0- (2002 - $-0-) 2,422 1,083
Loans, net of allowance for loan losses of $3,520 (2002 - $3,512) 229,285 230,654
Premises and equipment, net 7,003 7,137
Accrued interest receivable 1,983 2,118
Net cash surrender value of life insurance 6,532 6,472
Goodwill 620 620
Other intangible assets 140 150
Other assets 4,520 4,351
-----------------------------------------
TOTAL ASSETS $325,512 $320,683
=========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 40,919 $ 42,462
Interest bearing 226,934 219,887
-----------------------------------------
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)
-----------------------------------------
TOTAL SHAREHOLDERS' EQUITY 25,172 24,873
-----------------------------------------
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.
See notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
SOUTHERN MICHIGAN BANCORP, INC.
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
-----------------------------------
Total interest income 4,277 4,734
Interest expense:
Deposits 1,011 1,220
Other 432 433
-----------------------------------
Total interest expense 1,443 1,653
-----------------------------------
NET INTEREST INCOME 2,834 3,081
Provision for loan losses 225 275
-----------------------------------
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
Earnings on life insurance assets 60 51
Other 293 96
-----------------------------------
1,594 814
-----------------------------------
Non-interest expense:
Salaries and employee benefits 1,644 1,475
Occupancy, net 186 186
Equipment 218 356
Professional and outside services 395 195
Advertising and marketing 41 34
Other 613 670
-----------------------------------
3,097 2,916
-----------------------------------
INCOME BEFORE INCOME TAXES 1,106 704
Federal income taxes 290 141
-----------------------------------
NET INCOME 816 563
Other comprehensive income/(loss), net of tax: (57) (98)
-----------------------------------
COMPREHENSIVE INCOME $ 759 $ 465
===================================
Basic and Diluted Earnings Per Common Share $ 0.44 $ 0.30
===================================
Dividends Declared Per Common Share $ 0.16 $ 0.16
===================================
See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SOUTHERN MICHIGAN BANCORP, INC.
Three Months Ended
March 31,
2003 2002
------------------------------------
(In thousands)
OPERATING ACTIVITIES
Net income $ 816 $ 563
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 225 275
Depreciation 174 224
Net securities gains - (4)
Loans originated for sale (26,807) (11,665)
Proceeds on loans sold 26,036 12,804
Net gains on loan sales (568) (252)
Earnings on life insurance assets (60) (51)
Amortization of goodwill - 16
Amortization of other intangible assets 10 10
Reduction of obligation under ESOP 67 -
Net change in:
Accrued interest receivable 135 610
Other assets (140) (663)
Accrued expenses and other liabilities (151) (595)
------------------------------------
Net cash from operating activities (263) 1,272
INVESTING ACTIVITIES
Proceeds from sales of securities - 254
Proceeds from maturities of securities 4,127 11,016
Purchases of securities (6,500) (3,250)
Loan originations and payments, net 1,144 (11,489)
Additions to premises and equipment (40) (56)
------------------------------------
Net cash from investing activities (1,269) (3,525)
FINANCING ACTIVITIES
Net change in deposits 5,504 (11,551)
Net change in federal funds purchased (1,300) 5,750
Proceeds from other borrowings 596 820
Repayments of other borrowings (102) -
Repurchase of common stock (246) (840)
Cash dividends paid (298) (307)
------------------------------------
Net cash from financing activities 4,154 (6,128)
------------------------------------
Net change in cash and cash equivalents 2,622 (8,381)
Cash and cash equivalents at beginning of period 19,287 23,432
------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,909 $ 15,051
====================================
See notes to condensed consolidated financial statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SOUTHERN MICHIGAN BANCORP, INC.
March 31, 2003
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 accounting principles generally accepted in the U.S.A.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
U.S.A. 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 accounting principles generally accepted
in the U.S.A. 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 Southern
Michigan Bancorp, Inc.'s (the "Company") annual report on Form 10-K for the year
ended December 31, 2002.
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 common share are
restated for all stock splits and dividends through the date of issue of the
financial statements.
The basic and diluted weighted average common shares outstanding for the three
month periods ended March 31, 2003 and 2002 were:
For the 3 months ended
3/31/03 3/31/02
--------------------------
Basic 1,838,866 1,891,397
Diluted 1,839,063 1,891,702
Reclassifications: Some items in the prior year consolidated financial
statements have been reclassified to conform with the current year presentation.
NOTE B -- STOCK COMPENSATION
The following table illustrates the effect on net income and earnings per common
share if expense was measured using the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock Based Compensation.
5
March 31, 2003 March 31, 2002
-------------------------------
Net income as reported $816 $563
Deduct: stock based compensation expense
determined under fair value based method (2) (3)
--- ---
Pro forma net income $814 $560
Basic earnings per share as reported .44 .30
Pro forma basic earnings per share .44 .30
Diluted earnings per share as reported .44 .30
Pro forma diluted earnings per share .44 .30
NOTE C -- NEWLY ISSUED ACCOUNTING STANDARDS
New accounting standards on asset retirement obligations, restructuring
activities and exit costs, operating leases, early extinguishments of debt,
stock options, and guarantees of indebtedness of others were effective January
1, 2003. Adoption of these standards did not have a material impact on the
Company's financial condition or results of operations for the period ended
March 31, 2003.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FINANCIAL CONDITION
During the first three months of 2003, cash and cash equivalents increased 13.6%
or $2,622,000. In addition, securities available for sale increased by 4.7% or
$2,287,000 during this same time period.
Gross loans have decreased slightly, .6%, or $1,361,000 as management has
focused on improving credit quality and internal control policies and procedures
during the quarter rather than growth.
In assessing the adequacy of the allowance for loan losses, 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 allowance for loan losses is being
maintained at a level, which in management's opinion, is adequate to absorb
probable incurred loan losses in the loan portfolio as of March 31, 2003.
The allowance for loan losses was $3,520,000 or 1.51% of gross loans at March
31, 2003. As of December 31, 2002, the allowance for loan losses was $3,512,000
or 1.50% of gross loans. Non-performing loans (defined as loans over 90 days
past due or
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non accrual loans) increased from $3,969,000 at December 31, 2002 to $4,484,000
at March 31, 2003. In consideration of increases in the levels of non-performing
loans, management is keeping the allowance for loan losses at the high end of
the range of estimated loss determined by Southern Michigan Bank & Trust's (the
"Bank") methodology to assess the adequacy of the allowance for loan losses.
Total deposits increased by $5,504,000 or 2.1% during the first three months of
2003. The Bank provides services to several commercial clients who have large
fluctuating balances. On the last day of the quarter these customers had higher
than average balances. Total average deposits were up only $132,000 over total
average deposits at year end.
During the first three months of 2003, the Company repurchased and retired
approximately $246,000 worth of stock.
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 intangible assets.
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 intangible assets 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, 2003
and December 31, 2002:
March 31, 2002 December 31, 2002
-------------- -----------------
Tier 1 risk-based capital ratio 10.3% 10.3%
Total risk-based capital ratio 11.6% 11.5%
Leverage ratio 7.9% 7.8%
7
The above table indicates that the Company's capital ratios are above the
regulatory minimum requirements.
At March 31, 2003 the Bank had a tier 1 capital to average asset ratio of 7.7%.
On February 17, 2003, the Bank entered into an agreement with its banking
regulators that requires the Bank to maintain this ratio at a level at or above
7%. In addition, under this agreement, the Bank will establish and monitor
certain lending and operational policies and procedures.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income decreased by 8.0% or $247,000 for the three month period
ended March 31, 2003 compared to the same period in 2002. This decrease can be
partially attributed to the large number of commercial loans that are tied to
the prime rate. During the first quarter of 2002, the prime rate was fifty basis
points higher than during the first quarter of 2003 resulting in lower net
interest income in 2003. In addition, bonds that were purchased to replace
maturing securities had lower yields than the matured bonds. Offsetting these
decreases in interest income was a 12.7%, or $210,000, decrease in interest
expense. The Bank reduced rates paid on deposit accounts throughout 2002 as
rates decreased. In addition, as higher priced longer term certificates of
deposit matured, they were rolled over into lower interest rate certificates.
Provision for Loan Losses
The provision for loan losses is based on an analysis of outstanding loans. In
assessing the adequacy of the allowance for loan losses, 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, historical
loan loss experience, delinquency and charge off trends, loan volume, portfolio
mix, concentrations of credit and lending policies, procedures and personnel.
The provision for loan losses for the first quarter of 2003 replenished the
allowance for loan losses for net charge-offs incurred during the quarter. As
discussed earlier, management is keeping the allowance for loan losses at the
high end of the range of estimated loss determined by the Bank's methodology to
assess the adequacy of the allowance for loan losses.
Non-interest Income
Non-interest income increased $780,000, or 95.8%, for the three month period
ending March 31, 2003 compared to the same period in 2002.
8
A $271,000 increase was realized in service charges on deposit accounts for this
period. This was primarily due to fee income generated from an overdraft product
the bank introduced at the end of May 2002 where the Bank began paying overdraft
checks for qualifying customers, up to a specified dollar limit, rather than
return the checks. A significant increase in overdraft volume has occurred since
this product was introduced. Additionally, the increase can be attributed to
increased service fees that began in January 2003.
In order to reduce the risk associated with changing interest rates, the Bank
regularly sells fixed rate real estate mortgage loans on the secondary market.
The Bank recognized a profit at the time of the sale. The Bank originated for
sale $26,807,000 in loans during the first quarter of 2003 compared to
$11,665,000 during the same quarter of 2002. Net gain on sale of loans increased
$316,000 or 125.4% for the three month period ending March 31, 2003 compared to
the same period in 2002. The low interest rates continue to make these loans
attractive to customers.
In addition, other non-interest income increased $197,000 as an insurance
settlement totaling $199,000 was received in the first quarter of 2003 relating
to a litigation settled in 2002.
Non-interest Expense
Non-interest expenses increased by $181,000 during the three month period ended
March 31, 2003 compared to the same period in 2002.
During the three months ended March 31, 2003, salaries and employee benefits
expense increased $169,000 compared to the same period in 2002. Commissions paid
to mortgage originators for the first three months of 2003 have exceeded the
commissions for the same time period in 2002 by over $121,000. The cost of
employee benefits increased in 2003 as health insurance costs have increased.
Costs for health insurance increased $21,000 for the three months ended March
31, 2003 compared to the same period last year.
In addition to salaries and employee benefits increasing, the Company saw an
increase in professional and outside services expense. During the fourth quarter
of 2002, the Bank hired an outside consulting firm to review selected areas of
the Bank looking for potential cost savings, revenue enhancements and efficiency
measures. The Bank has implemented a number of recommendations made by the
consulting firm and expects to continue to see benefits to both efficiency and
net income. The final work was completed by the consulting firm during the first
quarter of 2003. In 2002 the Bank had higher equipment service contract and
lease costs. The service contracts and leases were renegotiated during the
fourth quarter of 2002 as a result of recommendations made by the outside
consulting firm. In addition to costs associated with the consultants, $48,000
was paid in legal fees relating to the $199,000 settlement received.
9
Contingent and Contractual Obligations
At March 31, 2003, the Bank had commitments under commercial letters of credit,
used to facilitate customers' trade transactions, of $69,000.
The Bank had commitments under performance letter of credit agreements of
$70,000 at March 31, 2003.
Under standby letter of credit agreements, the Bank agrees to honor certain
commitments in the event that its customers are unable to do so. At March 31,
2003, commitments under outstanding standby letters of credit were $138,000.
Loan commitments outstanding to extend credit totaled $40,113,000 at March 31,
2003.
Management does not anticipate any losses as a result of the above transactions;
however the above amount represents the maximum exposure to credit loss for loan
commitments and commercial, performance and standby letters of credit.
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.
10
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 three months of 2003.
ITEM 4. Controls and Procedures.
(a) Within the 90 days prior to the date of filing of this report, an evaluation
was carried out under the supervision and with the participation of the
Company's management, including the Company's Chairman and Chief Executive
Officer along with the Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Exchange Act Rule 13a-14 and 15d-14). Based upon that evaluation, the Company's
Chairman and Chief Executive Officer along with the Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are, to the best
of their knowledge, effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in our periodic SEC filings.
Prior to and during this evaluation certain significant deficiencies or material
weaknesses in internal controls existed, namely:
o Commercial loan documentation review and disbursement controls have
been inadequate to provide for appropriate segregation of duties at
origination of loans.
o Less than satisfactory commercial loan workout and collection efforts.
The following actions have been taken to correct these deficiencies in internal
controls:
o Creation of a Credit Administration Department reporting to the
President of the Bank, independent of the loan officers. This
department is now responsible for the underwriting, documentation and
funding of new loans.
o The Bank has hired a reputable outside consulting firm to assist with
the collection of non-performing commercial loans. In addition, as part
of the Credit Administration Department, the Bank has created a Managed
Assets Division to work in conjunction with the outside consultant to
ensure an acceptable reduction in non-performing loans.
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(b) There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect internal controls subsequent to
the date the Company carried out this evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Bank is engaged in litigation from time to time, both as plaintiff and
defendant, which is incidental to its business. In certain proceedings, claims
or counterclaims may be asserted against the Bank. Based on the facts known to
date, management of the Company does not currently anticipate that the ultimate
liability, if any arising out of any such litigation will have a material
adverse effect on the Company's financial condition or results of operations.
The Company previously reported claims in Note A of the Notes to the Company's
Consolidated Financial Statements contained in the Company's annual report on
Form 10-K for the fiscal year ended December 31, 2002. There were no material
developments in these proceedings during the quarter ended March 31, 2003.
ITEM 2. Changes in Securities and Use of Proceeds.
None.
ITEM 3. Defaults Upon Senior Securities.
none.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
12
Exhibit No. Description of Exhibit
- ----------- ----------------------
Exhibit 99.1 Certification of the Company's Chief Executive Officer, John H.
Castle, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification of the Company's Chief Financial Officer, Danice L.
Chartrand, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) On March 10, 2003, the Company filed a Form 8-K which contained the
Company's annual report and management's discussion & analysis.
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)
Date: May 14, 2003 /s/ John H. Castle
--------------------- --------------------------------------------
John H. Castle, Chief Executive Officer
Date: May 14, 2003 /s/ Danice L. Chartrand
--------------------- --------------------------------------------
Danice L. Chartrand, Chief Financial Officer
(Principal Financial and Accounting Officer)
13
CERTIFICATIONS
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John H. Castle, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Southern Michigan
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
14
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003 /s/ John H. Castle
------------ ---------------------------------------
John H. Castle, Chief Executive Officer
I, Danice L. Chartrand, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Southern Michigan
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
15
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003 /s/ Danice L. Chartrand
------------ -----------------------------------
Danice L. Chartrand, Chief Financial
Officer
16
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
99.1 Certification of the Company's Chief Executive Officer, John H. Castle, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Company's Chief Financial Officer, Danice L. Chartrand, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
17