Southern Michigan Bancorp, Inc. Announces Second Quarter 2020 Earnings

COLDWATER, Mich., July 29, 2020 (GLOBE NEWSWIRE) -- Southern Michigan Bancorp, Inc. (OTC Pink: SOMC) announced second quarter 2020 net income of $1,831,000, or $0.79 per share, compared to net income of $2,326,000, or $1.01 per share, for the second quarter of 2019.  Southern earned $3,344,000, or $1.45 per share, for the six-month period ending June 30, 2020 compared to $4,246,000, or $1.84 per share, for the same six-month period a year ago.   

John H. Castle, Chairman and Chief Executive Officer of Southern Michigan Bancorp, Inc., stated, “During these challenging times created by the COVID-19 pandemic, we have continued to focus on the needs of our customers.  We provided temporary relief to both our commercial and retail customers by modifying over 350 loans since the start of the pandemic.  In addition, we were able to process 660 Payroll Protection Program (PPP) loans during the second quarter totaling more than $75 million.  The ability of our customers to retain jobs was vital to the sustainability of those businesses, as well as for the employees and their families.  PPP also allowed us to positively impact many other businesses from within and outside of our market area as well.  This program resulted in significant loan and deposit growth during the second quarter.  During the remainder of this year we will be working with these customers as they apply for PPP loan forgiveness.”

Gross loans totaled $633.7 million at June 30, 2020, compared to $562.9 million at December 31, 2019.  Total deposits increased from $655.8 million at December 31, 2019 to $766.5 million.

Castle continued, “We prudently increased the allowance for loan losses in the second quarter, adding an additional $750,000 to the allowance.  As a result, our allowance for loan losses to nonperforming loans ratio was 168% at June 30, 2020, compared to 94% at June 30, 2019.”            

The allowance for loan losses was $6,936,000, or 1.09% of loans at June 30, 2020 and $5,184,000, or 0.91% of loans at December 31, 2019.  Excluding SBA guaranteed PPP loans the allowance at June 30 was 1.24% of gross loans.  Net recoveries totaled $9,000 for the second quarter of 2020, compared to net charge offs of $107,000 for the second quarter of 2019.  For the six-month period ending June 30, 2020, net recoveries totaled $2,000, compared to net charge offs of $110,000 for the same period of 2019.  Southern provided $750,000 for loan losses during the second quarter of 2020, bringing the six-month total to $1,750,000.  For the first six months of 2019, $150,000 of loan loss provision was recorded. 

The annualized return on average assets for the six-month periods ending June 30, 2020 and 2019 was 0.78% and 1.10%, respectively.  The annualized return on average equity was 7.80% for the first six months of 2020 compared to 10.94% for the same period of 2019.  The tax equivalent net interest margin for the six-month periods ending June 30, 2020 and 2019 was 3.31% and 3.73%, respectively.

Southern Michigan Bancorp, Inc. is a bank holding company and the parent company of Southern Michigan Bank & Trust.  It operates 13 branches within Branch, Calhoun, Hillsdale, Kalamazoo and St. Joseph Counties, providing a broad range of consumer, business and wealth management services throughout the region. 

This press release contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and Southern Michigan Bancorp, Inc. Forward-looking statements are identifiable by words or phrases such as “expected,” “begin,” and other similar words or expressions.  All statements with reference to a future time period are forward-looking.  Management’s determination of the provision and allowance for loan losses and other accounting estimates, such as the carrying value of goodwill, other real estate owned and mortgage servicing rights and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment), involves judgments that are inherently forward-looking.  There can be no assurance that future loan losses will be limited to the amounts estimated.  Our ability sell other real estate owned at its carrying value or at all, successfully implement new programs and initiatives, increase efficiencies, maintain our current level of deposits and other sources of funding, respond to declines in collateral values and credit quality, and improve profitability is not entirely within our control and is not assured.  The future effect of changes in the financial and credit markets and the national and regional economy on the banking industry, generally, and Southern Michigan Bancorp, Inc., specifically, are also inherently uncertain.  These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extend, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed in or implied by such forward-looking statements. Southern Michigan Bancorp, Inc. does not undertake to update forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.

Southern Michigan Bancorp, Inc.
Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

	June 30, 2020				December 31, 2019
ASSETS
Cash and cash equivalents	$	77,496			$		68,723
Federal funds sold		263					265
Securities available for sale		146,101					123,436
Loans held for sale		2,108					1,171
Loans, net of allowance for loan losses of $6,936 - 2020 ($5,184 – 2019)		626,749					557,680
Premises and equipment, net		14,067					14,515
Accrued interest receivable		4,440					3,380
Net cash surrender value of life insurance		15,822					15,633
Goodwill		13,422					13,422
Other intangible assets, net		273					291
Other assets		14,122					11,200
TOTAL ASSETS	$	914,863			$		809,716
LIABILITIES
Deposits :
Non-interest bearing	$	194,299			$		136,430
Interest bearing		572,186					519,332
Total deposits		766,485					655,762
Securities sold under agreements to repurchase and overnight borrowings		14,815					15,401
Accrued expenses and other liabilities		13,317					12,553
Other borrowings		27,000					37,500
Subordinated debentures		5,155					5,155
Total liabilities		826,772					726,371
SHAREHOLDERS’ EQUITY
Preferred stock, 100,000 shares authorized; none issued or outstanding		-					-
Common stock, $2.50 par value:
Authorized - 5,000,000 shares
Issued and outstanding – 2,311,307 shares in 2020    (2,314,878 shares in 2019)		5,773					5,781
Additional paid-in capital		15,277					15,521
Retained earnings		64,761					62,484
Accumulated other comprehensive income/(loss), net		2,620					(52		)
Unearned Employee Stock Ownership Plan shares		(340	)				(389		)
Total shareholders’ equity		88,091					83,345
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	914,863			$		809,716

Southern Michigan Bancorp, Inc.
condensed consolidated statements of income (unaudited)
(In thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Interest income:
Loans, including fees	$	7,260		$	7,178		$	14,187		$	14,023
Federal funds sold and balances with banks		29			373			256			762
Securities:
Taxable		567			448			1,274			847
Tax-exempt		169			193			285			396
Total interest income		8,025			8,192			16,002			16,028
Interest expense:
Deposits		1,032			1,297			2,289			2,448
Other		302			316			621			621
Total interest expense		1,334			1,613			2,910			3,069
Net interest income		6,691			6,579			13,092			12,959
Provision for loan losses		750			-			1,750			150
Net interest income after provision for loan losses		5,941			6,579			11,342			12,809
Non-interest income:
Service charges on deposit accounts		255			496			718			982
Trust fees		504			514			1,021			1,017
Net gains on loan sales		538			92			787			180
Net gains on investment security sales		-			161			-			207
Earnings on life insurance assets		95			98			189			195
ATM and debit card fee income		380			361			728			680
Other		113			165			263			307
Total non-interest income		1,885			1,887			3,706			3,568
Non-interest expense:
Salaries and employee benefits		3,309			3,433			6,567			6,830
Occupancy, net		375			325			772			714
Equipment		277			266			590			530
Printing, postage and supplies		109			99			212			205
Telecommunication expenses		122			93			250			195
Professional and outside services		400			374			737			690
Software maintenance		388			397			768			801
ATM expenses		157			137			288			244
Other		482			519			882			1,086
Total non-interest expense		5,619			5,643			11,066			11,295
INCOME BEFORE INCOME TAXES		2,207			2,823			3,982			5,082
Federal income tax provision		376			497			638			836
NET INCOME	$	1,831		$	2,326		$	3,344		$	4,246
Basic Earnings Per Common Share	$	0.79		$	1.01		$	1.45		$	1.84
Diluted Earnings Per Common Share		0.79			1.01			1.45			1.84
Dividends Declared Per Common Share		0.23			0.23			0.46			0.45

CONTACT: CONTACT:  John H. Castle, CEO
[phone]