<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31,1996              Commission File No. 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

Securities registered pursuant to Section 12(b) or 12(g) of the Act:
     None

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.  X
                ---
The aggregate market value of the Registrant's common stock, par value $2.50
per share (based on the average of the bid and asked prices) held by
non-affiliates of the registrant as of March 1, 1997 was $42,640,000.

The number of shares outstanding of the Registrant's common stock as of March 1,
1997 was 952,854 shares (including common stock subject to repurchase
obligation).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the year ended December 31,
1996, are incorporated by reference into Parts II, III, and IV hereof.

<PAGE>   2

                                     PART I

ITEM 1.BUSINESS

OVERVIEW

The Registrant, Southern Michigan Bancorp, Inc. (the "Company"), was organized
as a Michigan Corporation in March 1982 for the purpose of becoming a bank
holding company by acquiring all of the outstanding shares of Southern Michigan
National Bank, which it did in November of 1982. The Company's business
currently consists of wholly owning and operating Southern Michigan Bank &
Trust (the "Bank"), a general commercial bank with its main office located at
51 West Pearl Street, Coldwater, Michigan 49036.

The Bank is a Michigan banking corporation and a successor, by conversion of
charter effective December 15, 1992, to Southern Michigan National Bank. The
Bank operates twelve (12) branch offices in the primarily rural areas of Branch,
Hillsdale, and Calhoun counties in southwestern Michigan.

BANKING SERVICES

The Bank offers a full range of banking services to individuals, businesses,
governmental entities and other institutions. These services include checking,
savings, and NOW accounts, time deposits, safe deposit facilities, and money
transfers. The Bank's lending operations provide secured and unsecured
commercial and personal loans, real estate loans, consumer installment loans,
lines of credit and accounts receivable financing.

The Bank's Trust Department offers a wide variety of fiduciary services to
individuals, businesses, not-for-profit organizations and governmental
entities, including services as trustee for personal, corporate, pension,
profit sharing, and other employee benefit trusts. The Bank also provides
securities custody services as an agent, acts as the personal representative
for estates and as a fiscal, paying and escrow agent for corporate customers
and governmental entities.

The Bank also offers securities brokerage services through an unaffiliated
broker. The Bank maintains correspondent banking relationships with several
other larger banks, which involve check clearing operations, transfer of funds,
loan participations, and the purchase and sale of federal funds and other
similar services.

COMPETITION

The banking business in the Bank's market area is highly competitive. The Bank
competes with other banks, savings and loan associations, credit unions and
finance companies. Banks and other financial institutions from surrounding
areas maintain branches within the Bank's service area and offer additional
competition. The Bank is also faced with increasing competition from
non-depository financial intermediaries, such as large retailers and investment
banking and securities brokerage firms.



<PAGE>   3

SUPERVISION AND REGULATION

GENERAL

Various federal and state banking laws and regulations affect the business of
the Company and the Bank. They are subject to supervision, regulation, and
periodic examination by the Board of Governors of the Federal Reserve System
(the "FRB") and the Financial Institutions Bureau of the State of Michigan (the
"FIB") and the Federal Deposit Insurance Corporation (the "FDIC"),
respectively. The following is a summary of certain statutes and regulations
affecting the Company and the Bank. This summary is qualified in its entirety
by such statutes and regulations, which are subject to change based on pending
and future legislation and action by regulatory agencies. Proposals to change
the laws and regulations governing the operation of banks and companies which
control banks and other financial institutions are frequently raised in
Congress. The likelihood of any major legislation and the impact such
legislation might have on the Company or the Bank are, however, impossible to
predict.

THE BANK HOLDING COMPANY ACT

As a bank holding company, the Company is subject to regulation by the FRB
under the Bank Holding Company Act of 1956, as amended (the "BHCA"). The BHCA
restricts the product range of a bank holding company by circumscribing the
types of businesses it may own or acquire. The BHCA limits a bank holding
company to owning and managing banks or companies engaged in activities
determined by the FRB to be closely related to banking. The BHCA requires a
bank holding company to obtain the prior approval of the FRB before acquiring
substantially all of the assets of a bank or a bank holding company or direct
or indirect ownership or control of more than five percent of the voting shares
of a bank or a bank holding company.

Prior to September 29, 1995, the BHCA also prohibited a bank holding company
from acquiring shares of any bank located outside the state in which the
operations of the bank holding company's banking subsidiaries are primarily
conducted unless the acquisition is specifically authorized by statute of the
state of the bank whose shares are to be acquired. Under the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal
Act"), the restriction on interstate bank acquisitions was repealed effective
September 29, 1995. The Federal Reserve Board is now generally authorized to
approve bank acquisitions by out-of-state bank holding companies whether or not
such acquisition is prohibited by state law.

The Riegle-Neal Act permits States to require that a target bank have been in
operation for a minimum period, up to five years, and to impose
nondiscriminatory limits on the percentage of the total amount of deposits with
insured depository institutions in the State which may be controlled by a
single bank or bank holding company. In addition, the Riegle-Neal Act imposes
Federal deposit concentration limits (10% of nationwide total deposits, and 30%
of total deposits in the host State on applications subsequent to the
applicant's initial entry to the host State), and adds new statutory conditions
to Federal Reserve Board approval, i.e., the applicant meets or exceeds all
applicable Federal regulatory capital standards and is "adequately managed."

Also effective September 29, 1995, any bank subsidiary (and, in certain
circumstances thrift subsidiary) of a bank holding company may receive deposits
to existing accounts, renew time deposits, and close, service and receive
payments on (but not disburse proceeds of) loans, as an agent for its depository
institution affiliates without being considered a branch of the affiliate under
any otherwise applicable law. Such agency activities must be conducted on terms
consistent with safe and sound banking practices.

The Riegle-Neal Act also authorizes, effective June 1, 1997, the responsible
Federal banking agency to approve applications for the interstate acquisition
of branches or mergers of depository institutions across State lines without
regard to whether such activity is contrary to State law. Any State may,
however, by adoption of a nondiscriminatory law after September 29, 1994 and
before June 1, 1997, either elect to have this provision take effect before
June 1, 1997 or opt-out of the provision. The State of Michigan has adopted
currently effective legislation opting into the Riegle-Neal Act's interstate
branching provision. The effect of opting out is to prevent banks chartered by,
or having their main office located in, such State from participating in any
interstate branch acquisition or merger. Each State is permitted to prohibit
interstate branch acquisitions (i.e., acquisition of a branch without
acquisition of the entire target bank), to examine acquired or de novo branches
of out-of-state

<PAGE>   4

banks with respect to compliance with certain host State laws, and to retain a
minimum age requirement of up to five years, a nondiscriminatory deposit cap,
and nondiscriminatory notice or filing requirements. The responsible Federal
agency will apply the same Federal concentration limits and capital and
management adequacy requirements noted above with respect to BHCA applications.
Branches acquired in a host State by a State-chartered bank will be subject to
the activity limits and other laws of the host State to the same extent as a
branch of a bank chartered by the host State. Branches acquired in a host State
by an out-of-state national bank will be subject to community reinvestment,
consumer protection, fair lending and interstate branching laws of the host
State (except to the extent the application of such laws to national banks is
preempted by Federal law or is determined by the Comptroller of the Currency to
be discriminatory), and to other nontax laws of the host State to the same
extent as branches of a national bank having its main office in the host State.
The establishment of de novo branches by an out-of-state bank will continue to
require express statutory authority under the law of the host State and of the
chartering jurisdiction.

Among other things, the Riegle-Neal Act also preserves State taxation
authority, prohibits the operation by out-of-state banks of interstate branches
as deposit production Offices, imposes additional notice requirements upon
interstate banks proposing to close branch offices in a low or moderate-income
area, and creates new Community Reinvestment Act evaluation requirements for
interstate depository institutions. The Act mandates new restrictions on
interstate activities of foreign banks, and requires public notice of, and
opportunity to comment on, proposed ruling by a Federal banking agency which
would preempt certain State laws.

DIVIDEND RESTRICTIONS

The Company's principal source of income is the Bank's payment of dividends on
the stock of the Bank owned by the Company. Michigan law restricts the Bank's
ability to pay these dividends. Under the Michigan Banking Code, no dividend
may be declared by a Michigan state-chartered bank in an amount greater than
net profits then on hand after deducting losses and bad debts. In addition, if
the surplus of the Bank is less than the amount of its capital stock, before a
dividend may be declared, the Bank must transfer to surplus not less than 10%
of the net profits of the Bank for the preceding half year in the case of
quarterly or semiannual dividends or not less than 10% of its net profits for
the preceding two consecutive half year periods in the case of annual
dividends. The term "net profits" means the remainder of all eamings from
current operations plus actual recoveries on loans, investments and other
assets, after deducting from the total thereof all current operating expenses,
actual losses, accrued dividends on preferred stock, if any, and all federal
and state taxes. As of December 31, 1996, the amount of dividends the Bank
could pay to the Company without prior regulatory approval was $3,306,000 in
addition to 1997 net income.

Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), no insured depository institution may declare any dividend if,
following the payment of such dividend, the institution would be under
capitalized (see "Capital Requirements").

<PAGE>   5

TRANSACTIONS WITH AFFILIATES AND INSIDERS

The Bank and the Company are affiliates of each other and, as such, are subject
to certain federal restrictions on loans and extensions of credit to the
Company, on investments in the Company's and its affiliates' securities, on
acceptance of such securities as collateral for loans to any borrower and on
leases and services and other contracts between the Bank and the Company.
Additionally, regulations allow a bank to extend credit to the bank's and its
affiliates' executive officers, directors and principal shareholders or their
related interests only if the loan is made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with non-insiders, and if credit underwriting standards
are followed that are no less stringent than those applicable to comparable
transactions with non-insiders. Moreover, loans to insiders must not involve
more than the normal risk of repayment or present other unfavorable features
and must, in certain circumstances, be approved in advance by a majority of the
entire board of directors of the Bank. The aggregate amount that can be lent to
all insiders is limited to the Bank's unimpaired capital and surplus.

DEPOSIT INSURANCE

Deposits held by the Bank are insured, to the extent permitted by law, by the
Bank Insurance Fund ("BIF") administered by the FDIC. A minimum designated
reserve ratio of 1.25 percent of insured deposits has been established for the
BIF. However, the FDIC may set a higher designated reserve ratio if
circumstances raise a significant risk of substantial future losses to the BIF.
Assessment rates are established sufficient to maintain reserves at the
designated reserve ratio or, if the ratio is less than the designated ratio, to
increase the ratio to the designated ratio within a reasonable period of time.

The FDIC began collecting FDIC assessments on a quarterly basis in 1995. As
required under FDICIA, the FDIC has established a system of risk-based deposit
insurance premiums. Under this system each insured institution's assessment is
based on the probability that the BIF will incur a loss related to that
institution, the likely amount of the loss, and the revenue needs of the BIF.

Under the risk-based assessment system and effective January 1, 1997, a
depository institution pays an assessment of between 0 cents and 27 cents per
$100 of insured deposits based on its capital level and risk classification. To
arrive at a risk based assessment for an insured institution, the FDIC places
it in one of nine risk categories using a two step analysis based first on
capital ratios and then on other relevant supervisory information. For 1996, a
$2,000 minimum deposit insurance assessment was imposed on the most highly
rated banks. Also in 1996, pursuant to the Deposit Insurance Funds Act, enacted
by Congress in September, the FDIC imposed a special assessment on bank
deposits at a rate not tied to risk classification in order to service debt on
the Financing Corporation (FICO) bonds issued in connection with the federal
government's bail out of the thrift industry. Any future significant changes in
the deposit insurance assessment rate imposed by the FDIC could have a material
effect on the earnings of the Company.

CAPITAL REQUIREMENTS

The FRB has imposed 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 and other 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 I capital equal to
4.0 percent of risk-weighted assets. Tier I capital includes common
shareholder's equity, qualifying perpetual preferred stock and minority
interests in equity accounts of consolidated subsidiaries, less goodwill. At
December 31, 1996, the Company's total capital to risk-weighted assets was
12.9 percent, which is above the regulatory minimum requirements.

As a supplement to risk-based capital requirements, the FRB has also imposed
leverage capital ratio requirements. The leverage ratio requirements establish
a minimum required ratio of Tier I 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 I capital yielding a
leverage ratio of 4 percent to 5 percent, depending on the particular
circumstances and risk profile of the institution. The Company's Tier I capital
to total assets ratio at December 31, 1996 was 11.9 percent.

<PAGE>   6

The Bank is also subject to risk-weighted capital standards and leverage
measures which are similar, but in some cases not identical, to the
requirements for bank holding companies which apply to the Company. At December
31, 1996, the Bank met all applicable capital requirements. Under FDICIA, the
Federal bank regulators must take various specified prompt corrective actions
based on levels of an insured depository institution's capital that are below
the adequately capitalized level. These prescribed actions increase
restrictions on the institution as its capital declines.

MONETARY POLICY AND ECONOMIC CONDITIONS

The business of commercial banks, such as the Bank, is affected by monetary and
fiscal policies of various regulatory agencies, including the FRB. Among the
regulatory techniques available to the FRB are open market operations in United
States Government securities, changing the discount rate for member bank
borrowings, and imposing and changing the reserve requirements applicable to
member bank deposits and to certain borrowings by member banks and their
affiliates (including parent companies). These policies influence to a
significant extent the overall growth and distribution of bank loans,
investments and deposits and the interest rates charged on loans, as well as
the interest rates paid on savings and time deposits.

The monetary policies of the FRB have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to do so
in the future. In view of constantly changing conditions in the national
economy and the money market, as well as the effect of acts by the monetary and
fiscal authorities, including the FRB, no definitive predictions can be made by
the Company or the Bank as to future changes in interest rates, credit
availability, deposit levels, or the effect of any such changes on the
Company's or the Bank's operations and financial condition.

EMPLOYEES

As of December 31, 1996, 148 persons were employed by the Bank; 126 were full
time employees and 22 were part time employees.

<PAGE>   7

Selected Statistical Information

The following tables describe certain aspects of the Company's business in
statistical form.

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                Year Ended December 31 (Dollars in thousands)
                                              -------------------------------------------------------------------------------------
                                                          1996                         1995                          1994
                                              --------------------------  ---------------------------  ----------------------------
                                               Average            Yield/  Average              Yield/   Average              Yield/
                                               Balance  Interest   Rate   Balance    Interest   Rate    Balance    Interest   Rate
                                              --------------------------  ---------------------------  ----------------------------
<S>                                           <C>       <C>       <C>    <C>         <C>        <C>    <C>       <C>        <C>
ASSETS
Interest earning assets:
  Loans (A) (B) (C)                           $137,273. $13,739.  10.0%  $123,684.   $ 11,982.   9.7%  $119,637.  $ 10,176.   8.5%
  Taxable investment securities (D)             36,372.   2,442.   6.7     37,326.      2,634.   7.1     34,358.     1,869.   5.4
  Tax-exempt investment securities (A)          14,732.   1,145.   7.8     12,986.      1,121.   8.6     11,057.       947.   8.6
  Federal funds sold                             1,309.      69.   5.3      2,333.        135.   5.8        625.        28.   4.5
                                              --------  -------          --------    --------          --------   --------
     Total interest earning assets             189,686.  17,395.   9.2    176,329.     15,872.   9.0    165,677.    13,020.   7.9

Non-interest earnings assets:                                              14,358.                        9,173.
  Cash and due from banks                       10,572.                    10,120.                        8,915.
  Other assets                                  12,106.                    (1.606.)                      (1,425.)
  Less allowance for loan losses                (1.784.)
                                              --------                   --------                      --------
        Total assets                          $210,580.                  $199,201.                     $182,340.
                                              ========                   ========                      ========


LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Demand deposits                             $ 62,657.  $1,956.   3.1   $ 57,349    $  1,834.   3.2   $ 53,180.     1,402.   2.6
  Savings deposits                              37,971.   1,293.   3.4   $ 37,681.      1,243.   3.3     36,969.     1,207.   3.3
  Time deposits                                 60,466.   3,177.   5.3     58,161.      3,039.   5.2     48,837.     1,990.   4.1
  Federal funds purchased                          592.      33.   5.6                                      666.        36.   5.4
  Subordinated notes                                82.       9.  11.0      1,000.        110.  11.0      1,000.       110.  11.0
  Other borrowings                               1,105.     135.  12.2        994.        154.  15.5      1,670.       197.  11.8
                                              --------   ------          --------    --------          --------      -----
    Total interest bearing liabilities         162,873.   6,603.   4.1    155,185.      6,380.   4.1    142,322.     4,942.   3.5

</TABLE>

(continued)
<PAGE>   8

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY - CONTINUED


<TABLE>
<CAPTION>

                                                                Year Ended December 31 (Dollars in thousands)
                                              -------------------------------------------------------------------------------------
                                                          1996                         1995                          1994
                                              --------------------------  ---------------------------  ----------------------------
                                               Average            Yield/  Average              Yield/   Average              Yield/
                                               Balance  Interest   Rate   Balance    Interest   Rate    Balance    Interest   Rate
                                              --------------------------  ---------------------------  ----------------------------
<S>                                            <C>       <C>      <C>    <C>        <C>       <C>       <C>        <C>       <C>
LIABILITIES AND SHAREHOLDERS' EQUITY -
  Continued
Non-interest bearing liabilities:
    Demand deposits                          $ 24,557.                    $ 22,996                      $ 21,349
    Other                                       1,248.                       1,312                         1,022
Common Stock subject to repurchase
  obligation                                    2,894.                       1,848                         1,326
Shareholders' equity                           19,008.                      17,860                        16,321
                                              --------                    --------                      --------
      Total liabilities and shareholders'
        equity                                $210,580.                   $199,201                      $182,340
                                              ========                    ========                      ========
      Net interest earnings                             $10,792                      $9,492                        $8,078
                                                        =======                      ======                        ======
      Net yield on interest earning assets                        5.7%                       5.4%                             4.9%
                                                                  ====                       ====                             ====
</TABLE>

(A)      Includes tax equivalent adjustment of interest (assuming a 34%
         tax rate) for securities and loans of $369,000 and $23,000,
         respectiveiy, for 1996;  $379,000 and $17,000, respectively,
         for 1995; and $322,000 and $18,000, respectively, for 1994.

(B)      Average balance includes average nonaccrual loan balances of $443,000
         in 1996; $284,000 in 1995; and $162,000 in 1994.

(C)      Interest income includes loan fees of $884,000 in 1996; $472,000 in
         1995, and $527,000 in 1994.

(D)      Average balance includes average unrealized gain (loss) of $31,000 in
         1996, $69,000 in 1995 and ($36,000) in 1994 on available-for-sale
         securities. The yield was calculated without regard to this average
         unrealized gain (loss).

<PAGE>   9
<TABLE>
<CAPTION>

The following table sets forth for the periods indicated a summary of changes
in interest income and interest expense, based upon a tax equivalent basis,
resulting from changes in volume and changes in rates:

                                                1996 COMPARED TO 1995                 1995 COMPARED TO 1994
                                              ---------------------------------------------------------------
                                              INCREASE (DECREASE) DUE TO           INCREASE (DECREASE) DUE TO
                                              ---------------------------------------------------------------
<S>                                           <C>      <C>      <C>                <C>       <C>       <C>
(DOLLARS IN THOUSANDS)
Interest income on:                           VOLUME   RATE(A)     NET              VOLUME   RATE(A)     NET
                                              ---------------------------------------------------------------

Loans                                         $1,350    $407    $1,757             $ 354     $1,452    $1,806

Taxable investment securities                    (66)   (126)     (192)              172        593       765

Tax-exempt investment securities                 142    (118)       24               166          8       174

     Federal funds sold                          (55)    (11)      (66)               97         10       107
=============================================================================================================
Total interest earning assets                 $1,371   $ 152    $1,523             $ 789     $2,063    $2,852
=============================================================================================================
Interest expense on:

Demand deposits                               $  167   $ (45)   $  122             $ 116     $  316    $  432

Savings deposits                                  10      40        50                23         13        36

Time deposits                                    121      17       138               423        626     1,049

Federal funds purchased                           33       0        33               (36)         0       (36)

Subordinated notes                              (101)      0      (101)                0          0         0

Other borrowings                                  16     (35)      (19)              (94)        51       (43)
-------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities            $  246   $ (23)   $  223             $ 432     $1,006    $1,438
=============================================================================================================
</TABLE>


<PAGE>   10

INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>

The following table sets forth the fair value and carrying value of investment
securities. The carrying value of available-for-sale securities is equal to
fair value.
                                                                   DECEMBER 31
                                     ------------------------------------------------------------------------
                                           1996                         1995                   1994
                                     ------------------------------------------------------------------------
                                     FAIR        CARRYING        FAIR        CARRYING    FAIR        CARRYING
                                     VALUE        VALUE          VALUE        VALUE      VALUE        VALUE
       (Dollars in thousands)
-------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>             <C>          <C>        <C>         <C>

U.S. Treasury and other U.S.        $15,320     $15,320         $24,847      $24,847    $24,107     $24,482
Government agencies and
corporations

States and political subdivisions    19,343      19,035          14,934       14,534     13,157      13,064

Corporate securities                 19,566      19,588          12,424       12,310     12,950      13,086

Other securities                      2,656       2,656           3,667        3,662        650         647
===========================================================================================================
  Total investment securities       $56,885     $56,599         $55,872      $55,353    $50,864     $51,279
-------------------------------------------------------------------------------------------------------------
</TABLE>

The following table sets forth the amortized cost of the maturities (or
anticipated call date, if earlier) and weighted average yield for each range of
maturities at December 31, 1996.


<TABLE>
<CAPTION>

                                                               MATURING
                        ---------------------------------------------------------------------------------------
                        WITHIN 1 YEAR          1 TO 5 YEARS            5 10 10 YEARS             AFTER 10 YEARS
                        ---------------------------------------------------------------------------------------
                        AMOUNT   YIELD        AMOUNT   YIELD          AMOUNT   YIELD             AMOUNT   YIELD
(Dollars in thousands)
---------------------------------------------------------------------------------------------------------------
<S>                   <C>       <C>        <C>         <C>           <C>       <C>              <C>      <C>
U.S. Treasury and     $ 9,045   6.46%      $  6,275    5.96%
other U.S.
Government
agencies and
corporations

States and political    3,838    5.41        11,133    5.44          $3,663     5.41%          $  401      5.95%
subdivisions

Corporate securities    4,069    6.46        15,519    6.39

Other securities           77     5.4         1,947    6.14                                       632       7.7%
===============================================================================================================
       Total          $17,029              $ 34,874                  $3,663                    $1,033
===============================================================================================================
</TABLE>


The weighted average interest yields were computed by multiplying the amortized
cost of each security by its interest yield to give an annual dollar yield per
security, adding the dollar yields per category and dividing the sum by the
total amortized cost of securities of that category. Interest yields given
above are not on a tax equivalent basis.

<PAGE>   11

LOAN PORTFOLIO

TYPES OF LOANS

     The following table sets forth the classification of loans by major
category:

<TABLE>
<CAPTION>

                                                               DECEMBER 31
                                            ---------------------------------------------------------
                (Dollars in thousands)          1996        1995       1994        1993        1992
           ------------------------------------------------------------------------------------------
          <S>                               <C>          <C>        <C>        <C>         <C>
           Commercial, financial,            $ 72,108     $ 51,940   $ 49,514   $ 47,011    $ 44,823
           and agricultural

           Real estate mortgage                47,560       41,293     43,054     42,525      45,795

           Installment                         33,010       30,004     27,771     22,978      24,906
           =========================================================================================

                   Total loans               $152,678     $123,237   $120,339   $112,514    $115,524
                                             ========     ========   ========   ========    ========
</TABLE>



MATURITIES

     The following table sets forth the maturities of the loan portfolio at
     December 31, 1996.  Also provided are the amounts due after one year
     classified according to interest rate sensitivity.


<TABLE>
<CAPTION>

                                                                         MATURING
                                            ----------------------------------------------------------------

           Dollars in thousands)            WITHIN 1 YEAR (A)     1 TO 5 YEARS     AFTER 5 YRS    TOTAL
           -------------------------------------------------------------------------------------------------
          <S>                                  <C>                 <C>              <C>          <C>
           Commercial, financial,
           and agricultural                     $23,985             $24,016          $24,107      $ 72,108

           Real estate mortgage                   2,802               4,345           40,413        47,560

           Installment                            2,596              25,349            5,065        33,010
           =================================================================================================

                    Total                       $29,383             $53,710          $69,585      $152,678
                                                =======             =======          =======      ========

           Loans maturing after
           one year with:

           Fixed interest rates                                     $29,958          $ 5,134

           Variable interest rates                                   23,752           64,451
           =================================================================================================

                    Total                                           $53,710          $69,585
                                                                    =======          =======

</TABLE>


       (A)  Amounts include demand loans, loans having no stated schedule of
            repayments, or no stated maturity and overdrafts.
<PAGE>   12

NON-PERFORMING LOANS

Non-performing loans include impaired loans, nonaccrual loans and accruing
loans past due 90 days or more.  The following table sets forth the aggregate
amount of non-performing loans in each of the following categories:


<TABLE>
<CAPTION>
                                              December 31
                                -------------------------------------
(Dollars in thousands)           1996    1995    1994    1993    1992
---------------------------------------------------------------------
<S>                             <C>     <C>     <C>     <C>     <C>
NONACCRUAL LOANS:
Commercial, financial,          $ 448   $ 380   $ 142   $ 160   $ 425
and agricultural

Real estate mortgage                0      24       0      71      88

Installment                         2      40      10      68      47
=====================================================================

                                  450     444     152     299     560


LOANS CONTRACTUALLY
PAST DUE 90 DAYS OR
MORE

Commercial, financial,             82     353       6     150     151
and agricultural

Real estate mortgage              129      56       0      25      19

Installment                       165       4       5       7      30
=====================================================================
                                  376     413      11     182     200


     TOTAL                      $ 826    $ 857   $ 163   $ 481   $ 760
                                =====     ====    ====    ====    ====

Percent of total loans            .54%    .70%    .14%    .40%    .66%
outstanding                     =====     ====    ====    ====    ====

</TABLE>


The accrual of interest income generally is discontinued when a loan becomes
over 90 days past due as to principal or interest.  When interest accruals are
discontinued, interest credited to income in the current year and accrued
interest from the prior year is reversed.  Management may elect to continue the
accrual of interest when: (1) the estimated net realizable value of collateral
is sufficient to cover the principal balance and accrued interest and; (2) the
loan is in the process of collection.

Interest of $27,000 and $19,000 was realized on nonaccrual loans during 1996
and 1995, respectively.  Under original terms for these loans, interest income
which would have been recorded approximates $55,000 and $63,000 in 1996 and
1995, respectively.  There are no loan commitments outstanding to extend credit
to these customers.
<PAGE>   13

POTENTIAL PROBLEM LOANS

At December 31, 1996 the Company had approximately $2,767,000 in commercial,
financial, and agricultural loans for which payments are presently current,
but the borrowers are experiencing certain financial and/or operational
difficulties.  These loans are subject to frequent management review and
their classification is reviewed on a monthly basis.

All loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention have been included in the above disclosures.

SUMMARY OF LOAN LOSS EXPERIENCE

The following table sets forth changes in the allowance for loan losses:

<TABLE>
<CAPTION>
                                        YEAR ENDED DECEMBER 31
                            ------------------------------------------------------
   (Dollars in thousands)    1996        1995        1994        1993       1992
                            -------     -------      -------     -------   -------
<S>                         <C>         <C>          <C>         <C>       <C>
Balance at beginning of     $ 1,609     $ 1,498      $ 1,365     $ 1,401   $ 1,307
year

CHARGE OFFS:

Commercial, financial,           13          87           69        193        138
and agricultural

Installment                     157         124           93        124        517

Real estate                       0           0            0          0          4

                                170         211          162        317        659
                           --------   ---------     --------   --------   --------
RECOVERIES:

Commercial financial,            43          43           30        138         91
and agricultural

Installment                      62          54           82        139        182

Real estate                       3           3            3          4

                                108         100          115        281        273
                           --------   ---------     --------   --------   --------

NET CHARGE-OFFS                  62         111           47         36        386

Provision for loan losses       267         222          180          0        480
                           --------   ---------     --------   --------   --------

   Balance at end of year  $  1,814   $   1,609     $  1,498   $  1,365   $  1,401
                           ========   =========     ========   ========   ========

Average loans              $137,273    $123,684     $119,637   $115,524   $114,913
outstanding                ========    ========     ========   ========   ========

Ratio of net charge-offs       .05%        .08%         .04%       .03%       .34%
to average                 ========   =========     ========   ========   ========
outstanding loans

</TABLE>
<PAGE>   14
The allowance for loan losses is maintained at a level which, in management's
opinion, is adequate to absorb possible loan losses in the loan portfolio.  In
assessing the adequacy of the allowance, management reviews the characteristics
of the loan portfolio in order to determine 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
examination by regulatory agencies, current economic conditions, and historical
loan loss experience.

In determining the 1993 provision for loan losses, management considered the
fact that nonaccrual loan and past due loan amounts decreased from prior years.
Also considered in determining the 1993 provision was the low level of
charge-offs and the decline in outstanding loans.  The 1996, 1995 and 1994
provisions increased to provide for loan growth.


<PAGE>   15

Allocation of the Allowance for Loan Losses

The Securities and Exchange Commission's guide to the presentation of
statistical information provides for a break down of the allowance for loan
losses into major loan categories. The Company allocates the allowance among the
various categories through an analysis of the loan portfolio composition, prior
loan loss experience, evaluation of those loans identified as being possible
problems in collection, results of examination by regulatory agencies and
current economic conditions. The entire allowance is available to absorb any
future losses without regard to the category or categories in which the
charged-off loans are classified.

Even though such an allocation has inherent limitations, the Company has
compiled the results of its various reviews and has made estimates of the risks
which might be allocated to the respective loan categories.

The following table sets forth the allocation of the allowance for loan losses:


<TABLE>
<CAPTION>

                                                                   DECEMBER 31
                            -------------------------------------------------------------------------------------------
                                      1996                            1995                           1994
                            -------------------------------------------------------------------------------------------
                                        PERCENT OF                     PERCENT OF                     PERCENT OF
                                        LOANS                          LOANS                          LOANS
                                        IN EACH                        IN EACH                        IN EACH
                                        CATEGORY                       CATEGORY                       CATEGORY
(Dollars in thousands)      ALLOWANCE   TO TOTAL LOANS    ALLOWANCE    TO TOTAL LOANS    ALLOWANCE    TO TOTAL LOANS
                            ---------   --------------    ---------    --------------    ---------    --------------
<S>                          <C>          <C>            <C>              <C>            <C>          <C>
Commercial, financial,
  and agricultural            $  351       47.2%          $  313          42.1%          $   369            41.1%
-----------------------------------------------------------------------------------------------------------------------
Real estate mortgage              95       31.2               83          33.5                86            35.8%
-----------------------------------------------------------------------------------------------------------------------
Installment                      177       21.6              157          24.4               147            23.1
-----------------------------------------------------------------------------------------------------------------------
Unallocated                    1,191                       1,056                             896
=======================================================================================================================
                              $1,814      100.0%          $1,609         100.0%           $1,468           100.0%
                              ======      =====           ======         =====            ======           =====
=======================================================================================================================




<CAPTION>

                                                     DECEMBER 31
                            -----------------------------------------------------------
                                      1993                              1992
                            -----------------------------------------------------------
                                        PERCENT OF                     PERCENT OF
                                        LOANS                          LOANS
                                        IN EACH                        IN EACH
                                        CATEGORY                       CATEGORY
(Dollars in thousands)      ALLOWANCE   TO TOTAL LOANS    ALLOWANCE    TO TOTAL LOANS
                            ---------   --------------    ---------    --------------
<S>                          <C>        <C>               <C>            <C>
Commercial, financial,
  and agricultural            $  344       41.8%          $  430          38.8%
---------------------------------------------------------------------------------------
Real estate mortgage              85       37.8               92          39.6
---------------------------------------------------------------------------------------
Installment                      133       20.4              345          21.6
---------------------------------------------------------------------------------------
Unallocated                      803                         534
=======================================================================================
                              $1,365      100.0%          $1,401         100.0%
                              ======      =====           ======         =====
=======================================================================================
</TABLE>
<PAGE>   16

DEPOSITS
--------

The following table sets forth the average amount of deposits and rates paid
for deposits:

<TABLE>
<CAPTION>
                            -------------------------------------------------------------------
                                                YEAR ENDED DECEMBER 31
                            -------------------------------------------------------------------
                                  1996                   1995                    1994
                            -------------------------------------------------------------------
  <S>                       <C>         <C>        <C>          <C>        <C>           <C>
  (Dollars in thousands)    Amount      Rate       Amount       Rate       Amount        Rate
-----------------------------------------------------------------------------------------------
Non interest bearing        $ 24,557               $ 22,996                $ 21,349
demand deposits
-----------------------------------------------------------------------------------------------
Interest bearing              62,657     3.1%        57,349      3.2%        53,180       2.6%
demand deposits
-----------------------------------------------------------------------------------------------
Savings deposits              37,971     3.4         37,681      3.3         36,969       3.3

-----------------------------------------------------------------------------------------------

Time deposits                 60,466     5.3         58,161      5.2         48,837       4.1
-----------------------------------------------------------------------------------------------
                            $185,651               $176,187                $160,335
                            ========               ========                ========
                            ===================================================================
</TABLE>


The following table sets forth as of December 31, 1996, the aggregate amount of
outstanding deposits (certificates of deposit) of $100,000 or more by maturity
(in thousands of dollars):

        Three months or less                            $ 4,792.
        Over three months through six months              8,837.
        Over six months through twelve months             2,117.
        Over twelve months                                1,692.
                                                        --------
                                                        $17,438.
                                                        ========



RETURN ON EQUITY AND ASSETS
---------------------------

The following table sets forth consolidated operating and capital ratios:

<TABLE>
<CAPTION>
<S>                                             <C>      <C>        <C>
--------------------------------------------------------------------------
                                                  YEAR ENDED DECEMBER 31
                                                --------------------------
                                                 1996     1995       1994
--------------------------------------------------------------------------
Return on average assets                         1.45%    1.31%      1.11%
--------------------------------------------------------------------------
Return on average equity                        16.09    14.64      12.36
--------------------------------------------------------------------------
Dividend payout ratio                           32.74    35.18      33.71
--------------------------------------------------------------------------
Average equity to average assets ratio          10.40     8.97       8.95
--------------------------------------------------------------------------
</TABLE>

Average equity used in the above table excludes common stock subject to
repurchase obligation.
<PAGE>   17

ITEM 2. PROPERTIES

The Bank's main office is located at 51 West Pearl Street, Coldwater, Michigan.
This facility, which opened in 1955 and expanded in 1976, consists of a one
story structure comprising 27,945 square feet. Parking is available for
approximately 125 cars and 9 teller windows are available to serve the Bank's
customers. The Bank owns eleven branch offices, two of which are in Coldwater,
two in Union City, Michigan, one in Kinderhook, Michigan, one in Tekonsha,
Michigan, one in Hillsdale, Michigan, one in Camden, Michigan, one in Athens,
Michigan, one in North Adams, Michigan and one in Pennfield Township (Battle
Creek), Michigan. The Bank also leases 1700 square feet from a third party for
use in its Battle Creek loan production office. In addition, the Registrant owns
a 15,000 square foot building in Battle Creek, Michigan and a 14,000 square
foot building in Coldwater, Michigan. 6,000 square feet of the Battle Creek
building is leased to the Bank for use by one of its Battle Creek branches.
3,500 square feet is leased to a local college, 2,300 square feet is leased as
office space to local businesses and the remaining space is presently
unoccupied. 7,446 square feet of the Coldwater building is leased to the Bank
for use as a Consumer Loan center, 3,420 square feet is leased to a local title
once, 762 square feet is leased to a local insurance company and 394 square
feet is leased to community nonprofit organizations. The Bank's branch offices
range in size from 465 square feet to 6,000 square feet, with nine of the
branch offices having drive-in facilities and seven of the branches having
automated teller machines.

All of the Registrant's and the Bank's facilities are maintained in good
condition and are adequately insured. Management of Registrant believes the
present facilities are adequate to meet both current and future needs.

ITEM 3. LEGAL PROCEEDINGS

The Bank is frequently engaged in litigation, both as plaintiff and defendant,
which is incident to its business. In certain proceedings, claims or
counterclaims may be asserted against the Bank. Based on the facts known to it
to date, management of the Registrant does not currently anticipate that the
ultimate liability, if any, arising out of any such litigation will have a
material effect on the consolidated financial statements of the Registrant.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

<PAGE>   18


                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
             RELATED STOCKHOLDER MATTERS

"Common Stock Market Prices and Dividends" on page 2 of the Annual Report to
Shareholders for the year ended December 31, 1996 is incorporated herein by
reference.

ITEM 6. SELECTED FINANCIAL DATA

"Selected Financial Data" on page 2 of the Annual Report to Shareholders for
the year ended December 31, 1996 is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS

"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 5 through 10 of the Annual Report to Shareholders for the
year ended December 31, 1996 is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements, the Notes thereto and Report of
Independent Auditors included on pages 13 through 29 in the Annual Report to
Shareholders for the year ended December 31, 1996 are incorporated herein by
reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
        ON ACCOUNTING AND FINANCIAL DISCLOSURES

None

<PAGE>   19

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table lists the names of the directors, their ages as of February
28, 1997 principal occupations and year in which each was elected.


<TABLE>
<CAPTION>

<S>                                              <C>                                               <C>
                                                 PRINCIPAL OCCUPATION(S)                              YEAR FIRST BECAME
NAME OF DIRECTOR (1)        AGE                    FOR PAST 5 YEARS (2)                            DIRECTOR OF REGISTRANT
--------------------        ---                    --------------------                            ----------------------

Jerry L. Towns (3)           62              President and Chief Executive Officer of                        1982
                                             Southern Michigan Bancorp, Inc.
                                             (Chairman of Southern Michigan Bank &
                                             Trust)

James T. Grohalski (3)       56              Executive Vice President and Chief                              1982
                                             Financial Officer of Southern Michigan
                                             Bancorp, Inc. (President of Southern
                                             Michigan Bank & Trust)

James Briskey                63              Owner - Briskey Elevator (grain elevator                        1982
                                             operator)

William E. Galliers          54              Co-owner and Chief Executive                                    1993
                                             Officer - G & W Display Fixtures, Inc.

Nolan E. Hooker              45              Owner - Hooker Oil Co. (distributor of                          1991
                                             heating oil)

Gregory J. Hull              48              Farmer                                                          1995

Thomas E. Kolassa            49              Owner - The Planning Group (insurance)                          1995

James J. Morrison            48              Owner - Morrison & Associates                                   1991
                                             (insurance)

Jane L. Randall              75              Owner - Dally Tire Co. (tire distributor)                       1982

Freeman E. Riddle            64              Owner - Spoor & Parlin Farm Equipment                           1982

</TABLE>


NOTES:
     (1) Current directors of Registrant are also directors of Southern
Michigan Bank & Trust.

     (2) The business experience of each director during the past five years
was that typical of a person engaged in the principal occupation listed for
each.

     (3) Messrs. Towns and Grohalski, the Registrant's two executive officers
(who are also directors) have held the same positions since the organization of
Registrant in 1982.

<PAGE>   20

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth compensation paid by the Registrant and the Bank
with respect to the fiscal year ended December 31, 1996 to the Company's Chief
Executive Officer and the only other executive officer whose combined salary and
bonus exceeded $100,000.

                           SUMMARY COMPENSATION TABLE



<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                            ANNUAL COMPENSATION
---------------------------------------------------------------------------------------------
NAME AND PRINCIPAL                                                                  ALL OTHER
POSITION                              YEAR         SALARY ($) (1)        COMPENSATION ($) (2)
---------------------------------------------------------------------------------------------
<S>                                   <C>          <C>                   <C>
Jerry L Towns
President and Chief Executive         1996         $149,201                       $5,978
Officer of the Registrant and         1995         $134,190                       $6,038
Chairman of the Bank                  1994         $114,454                       $5,287
---------------------------------------------------------------------------------------------
James T Grohalski
Executive Vice President              1996         $      135,225        $         7,191
and Chief Financial Officer           1995         $      123,968        $         7,239
of the Registrant and                 1994         $      103,672        $         6,744
President of the Bank
---------------------------------------------------------------------------------------------
</TABLE>

(1)     The amounts shown includes amounts deferred under the 401 (k)
        provisions of the Bank's Employee Stock Ownership Plan ("ESOP") and the
        Bank's Executives' Deferred Compensation Plan ("Deferred Compensation
        Plan").

(2)     The amounts shown include the following for 1995: (i) employer
        contributions to accounts in the ESOP and the Deferred Compensation
        Plan of $2,600 and $3,000, respectively for Mr. Towns; and $3,796 and
        $3,000 respectively for Mr. Grohalski; (ii) $378 and $395 constituting
        the value of insurance premiums paid by the Bank for term life
        insurance for Mr. Towns' and Mr. Grohalski's benefit, respectively.

RETIREMENT BENEFITS
-------------------

Officers of the Registrant participate in the Southern Michigan Bank & Trust
Retirement Plan (the "Retirement Plan"), which has been adopted by the
Registrant. Under the terms of the Plan, a normal monthly retirement benefit is
provided to covered employees who attain the age of 65. It provides for a
normal retirement benefit after 30 years of credited service equal to 35% of a
participant's actual monthly compensation based on the participant's highest
consecutive five year average compensation (see the column captioned
"Remuneration"). For participants with less than 30 years credited service,
reduced benefits are available in an amount equal to the normal retirement
benefit reduced by 1/30 for each year of service less than 30. Participants are
100% vested after five years of credited service, and are subject to forfeiture
upon termination of employment with credited service less than five years. The
following table represents estimated normal annual benefits payable on a
straight-life annuity basis upon retirement at age 65 and are not subject to
deduction for social security benefits:

<PAGE>   21

                              PENSION PLAN TABLE


                                      YEARS OF SERVICE
               REMUNERATION             25        30        35
                  110,000            $32,100   $38,500   $38,500
                  120,000             35,000    42,000    42,000
                  130,000             37,900    45,500    45,500
                  140,000             40,800    49,000    49,000
                  150,000             43,750    52,500    52,500

Jerry L. Towns has 25 years of credited service and $123,000 current covered
remuneration. James T. Grohalski has 30 years of credited service and $111,000
current covered remuneration.

The Bank also has in effect supplemental retirement arrangements in the form of
Executive Employee Salary Continuation Agreements with its executive officers
under which a specified annual benefit, in addition to that provided under the
Retirement Plan, is payable to the officer upon retirement at age 65, subject
to reduction for credited service of less than 30 years on the same basis as
under the Retirement Plan. The specified benefit under the salary continuation
agreements is also payable beginning at the executive officers attaining age
65, if the officer is terminated or has his title, responsibility or
compensation significantly lessened or the situs of his employment is changed
without his consent. The specified annual benefit, when added to the benefit
under the Retirement Plan, is intended to be approximately equal to the benefit
the officer would have received under the Retirement Plan but for a plan
amendment which changed the Plan's benefit formula to comply with changes in
pension laws and which substantially reduced the executive officers' benefits.
For Jerry L. Towns, the specified annual benefits payable upon retirement at
age 65 under the supplemental retirement arrangement is $16,860. For James T.
Grohalski, the specified annual benefit payable upon retirement at age 65 under
the supplemental retirement arrangement is $22,060.

The Bank also has a Deferred Compensation Plan for directors and certain
executive officers. Under the Deferred Compensation Plan, participants elect to
defer a portion of their compensation (in the case of directors, their fees) on
a pretax basis. Upon retirement at or after age 65, the participant or his
designated beneficiary is entitled to a benefit equal to the amount of the
participant's deferrals to the Plan plus earnings on such deferrals at a
specified rate of interest compounded annually, payable in equal monthly
amounts for not less than 180 months. Upon a participant's death before
retirement, other than as a result of suicide, the benefit described above is
paid to the participant's designated beneficiary. Upon the participant's
termination of employment or retirement before age 65, the benefit payable to
the participant at age 65 is determined by multiplying the amount deferred
under the Plan by the ratio of the number of months for which the participant
made deferrals to the number of months from the time the participant began
making deferrals to the participant's reaching age 65. The amounts shown in the
summary compensation table above include amounts deferred as contributions
under the Plan, which amounts are subject to forfeiture pursuant to the formula
described above for determining the applicable benefit in the event the
participant's employment terminates before retirement at age 65.

DIRECTORS' FEES

Currently, each director of the Bank whose principal occupation is not with the
Bank, receives an annual fee of $6,000, in addition, outside directors are
compensated $150 for each Committee meeting attended.

<PAGE>   22

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of February 28, 1997, the names and
addresses of all beneficial owners of 5% or more of Registrant's common stock
(its only authorized class of stock), showing the amount and nature of such
beneficial ownership:

<TABLE>
<CAPTION>




TITLE OF                  NAME & ADDRESS OF           AMOUNT & NATURE OF     PERCENT
 CLASS                    BENEFICIAL OWNER           BENEFICIAL OWNERSHIP   OF CLASS
                                                     (1)
<S>                 <C>                                <C>                  <C>
Common Stock        Southern Michigan Bank & Trust     154,152 (a)          16.178
                    51 W. Pearl Street
                    Coldwater, Michigan 49036

Common Stock        Southern Michigan Bank & Trust      80,997 (b)            8.50
                    Employee Stock Ownership Plan
                    51 W. Pearl Street
                    Coldwater, Michigan 49036

Common Stock        Harvey B. Randall
                    8391 Old U.S. 27 South         1,208.0626  (c)           6.971
                    Marshall, Michigan 49068           65,216  (d)

Common Stock        Max I. Larsen
                    410 East Chicago Street             57,238.84            6.007
                    Coldwater, Michigan 49036

</TABLE>



     (1) Based upon information furnished to the Registrant by the individuals
         named above. The nature of beneficial ownership for shares shown is
         sole voting and investment power, except as set forth below.

           (a) Shares are held by Bank's Trust Department in various
               fiduciary capacities which include power to vote the shares.

           (b) Shares are voted in accordance with instructions from
               plan participants.

           (c) Sole voting and investment power.

           (d) Shared voting and investment power.



<PAGE>   23

The following table sets forth, as of February 28, 1997, the total number of
shares of Registrant's common stock beneficially owned, and the percent of such
shares so owned, by each director and by all directors and executive officers
of the Registrant as a group.


<TABLE>
<CAPTION>
     NAME OF INDIVIDUALS OR    AMOUNT AND NATURE                               PERCENT
     NUMBER OF PERSONS IN            OF                                        OF
     GROUP                   BENEFICIAL OWNERSHIP(1)          TOTAL            CLASS
     --------------------------------------------------------------------------------
     <S>                       <C>                       <C>                  <C>
     James Briskey                  4,840(a)
                                    4,840(b)                   9,680            1.016

     William E. Galliers              200(b)                     200               (2)

     James T. Grohalski          1,442.5361               1,442.5361               (2)

     Nolan E. Hooker                   76(a)
                                      200(b)                     276               (2)

     Gregory J. Hull                    300                      300               (2)

     Thomas E. Kolassa           359.8588(a)                359.8588               (2)

     James J. Morrison           990.9346(b)                990.9346               (2)

     Jane L. Randall              2,220.379                2,220.379               (2)

     Freeman E. Riddle          1,880.1797(a)
                                     1,112(b)             2,992.1797               (2)

     Jerry L. Towns                    258(a)
                                   75.0575(b)               333.0575               (2)

     All directors and
     executive officers as
     a group (10 persons)         18,794.9457            18,794.9457             1.972

</TABLE>

     (1) Based upon information furnished to the Registrant by the individual
         named and the members of the designated group. The nature of beneficial
         ownership for shares shown is sole voting and investment power
         except as set forth below.

          (a) Sole voting and investment power.

          (b) Shared voting and investment power.

     (2) Less than one percent (1%).

<PAGE>   24

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The second paragraph of Note C to the consolidated financial statements on
pages 20 and 21 of the Annual Report to Shareholders for the year ended
December 31, 1996 is incorporated herein by reference.

<PAGE>   25
                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


(a)(1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.

(a)(3)  Exhibits (Numbered in accordance with Item 601 of
        Regulation S-K).

        Exhibit 2 -  Not applicable.

        Exhibit 3 -  Articles of Incorporation and By-Laws
                     incorporated by reference to Exhibit 3 to the Company's
                     Annual Report on Form 10-K for the year ended December
                     31, 1991. (file number 2-78178).

        Exhibit 4 -  Instruments Defining the Rights of
                     Security Holders of the Registrant are the Articles of
                     Incorporation and By-Laws (see Exhibit 3, above).

        Exhibit 9 -  Not applicable.

        Exhibit 10-  Material Contracts - Executive Compensation
                     Plans and Arrangements:  (1) Master Agreements for
                     Directors' Deferred Income Plan; (2) Composite form of
                     Executive Employee Salary Continuation
                     Agreement, as amended; and; (3) Master Agreements for
                     Executives' Deferred Compensation Plan, as amended, are
                     incorporated by reference to Exhibit 10 to the Registrants
                     Annual Report on Form 10-K for the year ended December 31,
                     1994. (file number 2-78178).


        Exhibit 11-  Not applicable.

        Exhibit 12-  Not applicable.

        Exhibit 13-  Registrant's 1996 Annual Report to Shareholders.

                     With the exception of the information incorporated by
                     reference included in Items 3, 5, 6, 7, 8, and 13, the
                     1996 Annual Report to Shareholders is furnished for the
                     Commission's information only and is not deemed filed as
                     part of this report.

        Exhibit 16-  Not applicable.

        Exhibit 18-  Not applicable.

        Exhibit 19-  Not applicable.

        Exhibit 21-  Subsidiary of Registrant.

        Exhibit 22-  Not applicable.

        Exhibit 23-  Consent of Independent Auditors.

        Exhibit 24-  Not applicable.

        Exhibit 27-  Financial Data Schedule.

        Exhibit 28-  Not applicable.


<PAGE>   26

     (b) No reports on Form 8-K were filed in the last Quarter of the period
         covered by this report.

     (c) Exhibits - See Item 14(a)(3) above.

     (d) Financial Statement Schedules - Omitted due to inapplicability or
         because required information is shown in the Financial Statements and
         Notes thereto.

<PAGE>   27

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
 Dated: MARCH 31, 1997                    By: JAMES T. GROHALSKI
       ---------------------                  -------------------------
                                              James T. Grohalski
                                              Executive Vice President and
                                              Secretary/Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

        JAMES BRISKEY                        JAMES J. MORRISON
        -----------------------              ---------------------------
        James Briskey - Director             James J. Morrison - Director


        WILLIAM E. GALLIERS                  JANE L. RANDALL
        -------------------                  ------------------------
        Wiliam E. Galliers- Director         Jane L. Randall - Director



        JAMES T. GROHALSKI                   FREEMAN E. RIDDLE
        -----------------------              ---------------------------
        James T. Grohalski                   Freeman E. Riddle - Director
        Executive Vice President
        and Director
        (Principal Financial &
        Accounting Officer)


        NOLAN E. HOOKER                      JERRY L. TOWNS
        ------------------------             -----------------------
        Nolan E. Hooker- Director            Jerry L. Towns- President
                                             Chief Executive Officer & Director


        GREGORY J. HULL
        -------------------------
        Gregory J. Hull - Director


        THOMAS E. KOLASSA                       MARCH 31, 1997
        ----------------------------          ---------------------------
        Thomas E. Kolassa - Director          Date

<PAGE>   28


                           ANNUAL REPORT ON FORM 10-K

                             ITEM 14(a)(1) and (2)

                   LIST OF FINANCIAL STATEMENTS AND FINANCIAL

                              STATEMENT SCHEDULES

                          YEAR ENDED DECEMBER 31, 1996

                        SOUTHERN MICHIGAN BANCORP, INC.

                              COLDWATER, MICHIGAN

<PAGE>   29

FORM 10-K: ITEM 14(a)(1) AND (2)

SOUTHERN MICHIGAN BANCORP, INC. AND SUBSIDIARY

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES


The following consolidated financial statements and report of independent
auditors of Southern Michigan Bancorp, Inc. and subsidiary included in the
Annual Report to Shareholders of the Registrant for the year ended December 31,
1996 are incorporated by reference in Item 8:

     - Report of Crowe Chizek and Company LLP, independent auditors

     - Consolidated balance sheets - December 31, 1996 and 1995

     - Consolidated statements of shareholders' equity - Years ended
       December 31, 1996, 1995, and 1994

     - Consolidated statements of income - Years ended December 31,
       1996, 1995, and 1994

     - Consolidated statements of cash flows - Years ended December 31,
       1996, 1995, and 1994

     - Notes to consolidated financial statements - December 31, 1996

Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.