Back to GetFilings.com
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
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 SEPTEMBER 30, 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
-----------------
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 October 31, 2003 was 1,849,328 (including shares held by the
ESOP).
- --------------------------------------------------------------------------------
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
SOUTHERN MICHIGAN BANCORP, INC.
September 30 December 31
2003 2002
-----------------------------------------
(Unaudited) (A)
(In thousands, except share
and per share data)
ASSETS
Cash and due from banks $ 12,543 $ 19,287
Securities available for sale 50,115 48,811
Loans held for sale, net of valuation of $-0- (2002 - $-0-) 1,302 1,083
Loans, net of allowance for loan losses of $3,652 (2002 - $3,512) 232,724 230,654
Premises and equipment, net 6,853 7,137
Accrued interest receivable 1,990 2,118
Net cash surrender value of life insurance 6,981 6,472
Goodwill 620 620
Other intangible assets 120 150
Other assets 5,195 4,351
-----------------------------------------
TOTAL ASSETS $ 318,443 $ 320,683
=========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 42,774 $ 42,558
Interest bearing 219,755 219,791
-----------------------------------------
262,529 262,349
Accrued expenses and other liabilities 4,722 4,197
Federal funds purchased 725 5,000
Other borrowings 22,771 22,646
-----------------------------------------
290,747 294,192
Common stock subject to repurchase obligation in Employee Stock Ownership
Plan, shares outstanding - 86,224 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 -- 1,849,328 shares (2002 - 1,864,046)
Outstanding -- 1,763,104 shares (2002 - 1,759,205) 4,408 4,398
Additional paid-in capital 8,475 8,752
Retained earnings 12,940 11,366
Accumulated other comprehensive income, net of tax 603 793
Unearned Employee Stock Ownership Plan shares (334) (436)
-----------------------------------------
TOTAL SHAREHOLDERS' EQUITY 26,092 24,873
-----------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 318,443 $ 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 unaudited condensed consolidated financial statements.
-2-
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
SOUTHERN MICHIGAN BANCORP, INC.
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
-----------------------------------------------------------------------
(In thousands, except per share amounts)
Interest income:
Loans, including fees $ 3,734 $ 4,074 $ 11,484 $ 12,308
Securities:
Taxable 221 297 745 1,073
Tax-exempt 204 228 638 718
Other - - - 1
-----------------------------------------------------------------------
Total interest income 4,159 4,599 12,867 14,100
Interest expense:
Deposits 835 1,079 2,768 3,430
Other 420 471 1,263 1,364
-----------------------------------------------------------------------
Total interest expense 1,255 1,550 4,031 4,794
-----------------------------------------------------------------------
NET INTEREST INCOME 2,904 3,049 8,836 9,306
Provision for loan losses 250 1,400 825 2,050
-----------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,654 1,649 8,011 7,256
Non-interest income:
Service charges on deposit accounts 515 412 1,562 1,022
Trust fees 135 135 408 426
Net securities gains - - - 4
Net gains on loan sales 492 415 1,849 810
Earnings on life insurance assets 49 66 161 176
Loss on viatical settlement contracts - - - (283)
Other 93 71 484 313
-----------------------------------------------------------------------
1,284 1,099 4,464 2,468
-----------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 1,569 1,527 5,152 4,486
Occupancy, net 178 200 542 557
Equipment 201 291 652 952
Professional and outside services 249 142 852 482
Advertising and marketing 51 57 148 129
Other 636 760 1,837 2,115
-----------------------------------------------------------------------
2,884 2,977 9,183 8,721
-----------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 1,054 (229) 3,292 1,003
Federal income tax expense (benefit) 250 (111) 831 216
-----------------------------------------------------------------------
NET INCOME (LOSS) 804 (118) 2,461 787
Other comprehensive income (loss), net of tax: (223) 264 (190) 454
-----------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 581 $ 146 $ 2,271 $ 1,241
=======================================================================
Basic and Diluted Earnings (Loss) Per Common Share $ 0.44 $ (0.06) $ 1.34 $ 0.42
=======================================================================
Dividends Declared Per Common Share $ 0.16 $ 0.16 $ 0.48 $ 0.48
=======================================================================
See notes to unaudited condensed consolidated financial statements.
-3-
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SOUTHERN MICHIGAN BANCORP, INC.
Nine Months Ended
September 30
2003 2002
-----------------------------------------
(In thousands)
OPERATING ACTIVITIES
Net income $ 2,461 $ 787
Adjustments to reconcile net income to net
cash from operating activities:
Provision for loan losses 825 2,050
Depreciation 510 671
Earnings on life insurance assets (161) (176)
Loss on viatical settlement contracts - 283
Amortization of goodwill - 47
Amortization of other intangible assets 30 76
Net securities gains - (4)
Loans originated for sale (86,654) (33,996)
Proceeds on loans sold 88,284 35,490
Net gains on loan sales (1,849) (810)
Net realized loss on disposal of fixed assets - 23
Reduction of obligation under ESOP 67 64
Net change in:
Accrued interest receivable 128 104
Other assets (696) (207)
Accrued expenses and other liabilities 525 (682)
-----------------------------------------
Net cash from operating activities 3,470 3,720
INVESTING ACTIVITIES
Proceeds from sales of securities - 254
Proceeds from maturities of securities 13,954 22,330
Purchases of securities (15,545) (10,051)
Loan originations and payments, net (2,895) (23,127)
Purchase of life insurance (398) (320)
Proceeds from sale of premises and equipment - 58
Additions to premises and equipment (226) (160)
-----------------------------------------
Net cash from investing activities (5,110) (11,016)
FINANCING ACTIVITIES
Net change in deposits 180 (313)
Net change in federal funds purchased (4,275) 2,750
Proceeds from other borrowings 530 870
Repayments of other borrowings (405) (152)
Repurchase of common stock (247) (903)
Cash dividends paid (887) (905)
-----------------------------------------
Net cash from financing activities (5,104) 1,347
-----------------------------------------
Net change in cash and cash equivalents (6,744) (5,949)
Cash and cash equivalents at beginning of period 19,287 23,432
-----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,543 $ 17,483
=========================================
See notes to unaudited condensed consolidated financial statements.
-4-
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SOUTHERN MICHIGAN BANCORP, INC.
September 30, 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 United States of America.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America 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 United States of America 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
and nine month periods ended September 30, 2003 and 2002 were:
For the 3 months ended For the 9 months ended
9/30/03 9/30/02 9/30/03 9/30/02
---------------------------- -------------------
Basic 1,840,577 1,853,440 1,840,007 1,870,737
Diluted 1,840,995 1,853,549 1,840,680 1,871,140
Reclassifications: Some items in the prior year consolidated financial
statements have been reclassified to conform to the current year presentation.
5
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.
For the nine months ended
September 30, 2003 September 30, 2002
---------------------------------------
Net income as reported $2,461 $787
Deduct: stock based compensation expense
determined under fair value based method (6) (8)
--- ---
Pro forma net income $2,455 $779
Basic earnings per share as reported 1.34 .42
Pro forma basic earnings per share 1.33 .42
Diluted earnings per share as reported 1.34 .42
Pro forma diluted earnings per share 1.33 .42
For the three months ended
September 30, 2003 September 30, 2002
---------------------------------------
Net income/(loss) as reported $804 $(118)
Deduct: stock based compensation expense
determined under fair value based method (2) (3)
--- ---
Pro forma net income/(loss) $802 $(121)
Basic earnings/(loss) per share as reported .44 (.06)
Pro forma basic earnings/(loss) per share .44 (.07)
Diluted earnings/(loss) per share as reported .44 (.06)
Pro forma diluted earnings/(loss) per share .44 (.07)
NOTE C -- NEWLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued two new accounting
standards, Statement 149, Amendment of Statement 133 on Derivative Instruments
and Hedging Activities, and Statement 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equities, both of which
generally became effective in the quarter beginning July 1, 2003.
Management determined that, upon adopting the new standards, they did not
materially affect the Company's operating results or financial condition.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
6
FINANCIAL CONDITION
During the first nine months of 2003, cash and cash equivalents decreased 35.0%
or $6,744,000. A portion of this decrease funded security purchases resulting in
an increase in securities available for sale of 2.7% or $1,304,000 during this
same time period.
Gross loans have increased slightly during the first nine months of the year,
..8%, or $1,757,000. Management has continued to focus on improving credit
quality and internal control policies and procedures rather than growth.
The allowance for loan losses is based on regular, quarterly assessments of the
probable estimated losses inherent in the loan portfolio. The allowance is based
on two principles of accounting, Statement of Financial Accountings Standards
(SFAS) No. 5 "Accounting for Contingencies", and SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan". The methodology used relies on several key
features, including historical loss experience, specific allowances for
identified problem loans, and an unallocated allowance.
The historical loss component of the allowance is based on the three and five
year historical loss experience for each loan category. The component may be
adjusted for significant factors that, in management's opinion, will affect the
collectibility of the portfolio. These factors include current economic
conditions, delinquency and charge off trends, loan volume, portfolio mix,
concentrations of credit, and lending policies, procedures and personnel. The
resulting loss estimate could differ from the losses actually incurred in the
future.
Specific allowances are established in cases where management has identified
significant conditions or circumstances related to a specific loan credit. These
allowances are calculated in accordance with SFAS No. 114.
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 September 30, 2003. While management uses the best
information available to make these estimates, future adjustments to allowances
may be necessary due to economic, operating or regulatory conditions beyond the
Company's control.
The allowance for loan losses was $3,652,000 or 1.55% of gross loans at
September 30, 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 non accrual loans) increased from $3,969,000 at December 31,
2002 to $4,068,000 at September 30, 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.
7
The following table sets forth the allocation of the allowance for loan losses
at September 30, 2003 and December 31, 2002:
September 30, 2003 December 31, 2002
------------------------ -----------------------
Percent of Percent of
Loans in Loans in
Each Each
Category Category
Of Total Of Total
Allowance Loans Allowance Loans
----------------------------------------------------
Commercial $2,882 63.7% $2,775 65.1%
Real Estate Mortgage 126 30.6% 149 28.3%
Installment 151 5.7% 164 6.6%
Unallocated 493 - 424 -
-------- ------- -------- -------
$3,652 100.0% $3,512 100.0%
The Company is giving consideration to the new AICPA exposure draft "Allowance
for Credit Losses" and is using that guidance in determining the allocations
presented in the above table for both September 30, 2003 and December 31, 2002.
During the first nine months of 2003, the Company repurchased and retired
approximately $247,000 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%. In addition, a
bank holding company must maintain a minimum ratio of Tier 1 capital equal to
4.0% 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% 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% to 5%, depending on the particular circumstances and risk profile of the
institution.
8
The following table summarizes the Company's capital ratios as of September 30,
2003 and December 31, 2002:
September 30, 2003 December 31, 2002
------------------ ------------------
Tier 1 risk-based capital ratio 10.9% 10.3%
Total risk-based capital ratio 12.1% 11.5%
Leverage ratio 8.4% 7.8%
The above table indicates that the Company's capital ratios are above the
regulatory minimum requirements.
At September 30, 2003 the Bank had a tier 1 capital to average asset ratio of
8.2%. 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 4.8% and 5.1% or $145,000 and $470,000,
respectively, for the three and nine month periods ended September 30, 2003
compared to the same periods in 2002. These decreases can be partially
attributed to the large number of commercial loans that are tied to the prime
rate. During the first nine months of 2002, the prime rate was fifty basis
points higher than during the first nine months of 2003, resulting in lower
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 15.9%, or $763,000, decrease in interest
expense for the nine months ended September 30, 2003. The Bank reduced rates
paid on deposit accounts throughout 2002 and 2003 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.
9
The provision for loan losses for the three months ending September 30, 2003
replenished the allowance for loan losses for net charge-offs incurred. 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.
The provision for loan losses was 59.8% lower for the nine month period ending
September 30, 2003 compared to the same period in 2002. Net charge offs declined
41.0% or $476,000 comparing the same periods. In 2002 the allowance was
increased to 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. To
account for increased charge offs and the movement to the high end of the range
of the allowance for loan losses, additional provision for loan losses was
recorded in 2002.
Non-interest Income
Non-interest income increased $1,997,000, or 80.9%, for the nine month period
ending September 30, 2003 compared to the same period in 2002.
The largest increase came from net gains on loan sales. Net gains on sale of
loans increased $1,039,000 or 128.3%. 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 recognizes a profit at the time
of the sale. The Bank originated for sale $86,654,000 in loans during the first
nine months of 2003 compared to $33,996,000 during the same period of 2002.
A $540,000 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.
Non-interest income for the three months ended September 30, 2003 compared to
the same period in 2002 was 16.8% or $185,000 higher. For the three month period
ending September 30, 2003, service charges on deposit accounts increased
$103,000 or 25.0% over the same period in 2002. Net gain on loan sales also
increased 18.6% or $77,000 over the same period. During the third quarter of
2003 interest rates increased reducing the demand for refinancing home mortgage
loans.
Non-interest Expense
Non-interest expenses increased by $463,000 during the nine month period ended
September 30, 2003 compared to the same period in 2002.
10
During the three and nine months ended September 30, 2003, salaries and employee
benefits expense increased $42,000 and $666,000 as compared to the same periods
in 2002. The increase in expense during the third quarter of 2003 was less than
the increase during the first two quarters partially due to the reversal of a
portion of the 2003 incentive compensation accrual in the third quarter of 2003,
due to revised estimates of the expected incentive compensation to be paid for
2003. Commissions paid to mortgage originators for the first nine months of 2003
have exceeded the commissions for the same time period in 2002 by over 118.3% or
$379,000. In addition, the cost of employee benefits increased in 2003 as health
insurance costs have increased.
Professional and outside services expense also has increased during 2003. 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 consulting firm completed the
final work during the first quarter of 2003. Also in the fourth quarter of 2002
the Bank hired a workout loan consulting firm to manage the loans that are past
due.
Equipment costs are lower for both the three and nine month period ending
September 30, 2003 compared to the same periods in 2002. 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.
Contingent and Contractual Obligations
At September 30, 2003, the Bank had no commitments under commercial letters of
credit, used to facilitate customers' trade transactions.
The Bank had commitments under performance letter of credit agreements of
$70,000 at September 30, 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 September
30, 2003, commitments under outstanding standby letters of credit were $168,000.
Loan commitments outstanding to extend credit totaled $33,855,000 at September
30, 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.
11
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 that 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 Company 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 nine months of 2003.
ITEM 4. Controls and Procedures.
The Company maintains disclosure controls and procedures designed to ensure that
the information the Company must disclose in its filings with the Securities and
Exchange Commission is recorded, processed, summarized and reported on a timely
basis. The Company's Chief Executive Officer and Chief Financial Officer have
reviewed and evaluated the Company's disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act") as of the end of the period covered by
this report (the "Evaluation Date"). Based on such evaluation, such officers
have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures are effective in bringing to their attention on a timely
basis material information relating to the Company required to be included in
the Company's periodic filings under the Exchange Act.
12
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 September 30, 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.
13
Exhibit No. Description of Exhibit
- ----------- ----------------------
Exhibit 31.1 Certification of the Company's Chief Executive
Officer, John H. Castle, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of the Company's Chief Financial
Officer, Danice L. Chartrand, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of the Company's Chief Executive
Officer, John H. Castle, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of the Company's Chief Financial
Officer, Danice L. Chartrand, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) None.
14
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: November 13, 2003 /s/ John H. Castle
----------------- -------------------------------------------
John H. Castle, Chief Executive Officer
Date: November 13, 2003 /s/ Danice L. Chartrand
----------------- -------------------------------------------
Danice L. Chartrand, Chief Financial
Officer (Principal Financial and
Accounting Officer)
15
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
31.1 Certification of the Company's Chief Executive Officer, John H. Castle,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Company's Chief Financial Officer, Danice L.
Chartrand, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Company's Chief Executive Officer, John H. Castle,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Company's Chief Financial Officer, Danice L.
Chartrand, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
E-1