<PAGE>
--------------------------------------------------------------------------------
                                  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).

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

<PAGE>


PART 1 - FINANCIAL INFORMATION

ITEM 1.  Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

SOUTHERN MICHIGAN BANCORP, INC.

<TABLE>
<CAPTION>

                                                                                    September 30           December 31
                                                                                        2003                  2002
                                                                                -----------------------------------------
                                                                                   (Unaudited)               (A)
                                                                                         (In thousands, except share
                                                                                             and per share data)
<S>                                                                             <C>                        <C>
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
                                                                                =========================================
</TABLE>

(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-



<PAGE>

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

SOUTHERN MICHIGAN BANCORP, INC.

<TABLE>
<CAPTION>
                                                                       Three Months Ended                     Nine Months Ended
                                                                          September  30                          September  30
                                                                    2003                2002                 2003           2002
                                                             -----------------------------------------------------------------------
                                                                             (In thousands, except per share amounts)
<S>                                                                <C>                  <C>                 <C>           <C>
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
                                                             =======================================================================
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       -3-


<PAGE>

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED)

SOUTHERN MICHIGAN BANCORP, INC.

<TABLE>
<CAPTION>
                                                                                               Nine Months Ended
                                                                                                  September 30
                                                                                            2003                2002
                                                                                -----------------------------------------
                                                                                                  (In thousands)
<S>                                                                                     <C>                    <C>
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
                                                                                =========================================
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       -4-


<PAGE>

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:

<TABLE>
<CAPTION>

                        For the 3 months ended             For the 9 months ended
                        9/30/03        9/30/02              9/30/03     9/30/02
                      ----------------------------          -------------------
        <S>            <C>            <C>                   <C>         <C>
        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
</TABLE>

Reclassifications: Some items in the prior year consolidated financial
statements have been reclassified to conform to the current year presentation.




                                       5


<PAGE>



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.

<TABLE>
<CAPTION>

                                                         For the nine months ended
                                                   September 30, 2003   September 30, 2002
                                                   ---------------------------------------
<S>                                                 <C>                  <C>
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
                                                   ---------------------------------------
<S>                                                <C>                  <C>
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)
</TABLE>



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


<PAGE>



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

<PAGE>



The following table sets forth the allocation of the allowance for loan losses
at September 30, 2003 and December 31, 2002:

<TABLE>
<CAPTION>

                                       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
                                    ----------------------------------------------------
        <S>                         <C>           <C>            <C>          <C>
        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%
</TABLE>


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

<PAGE>



The following table summarizes the Company's capital ratios as of September 30,
2003 and December 31, 2002:

<TABLE>
<CAPTION>

                                            September 30, 2003   December 31, 2002
                                            ------------------  ------------------
        <S>                                 <C>                 <C>
        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%
</TABLE>

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


<PAGE>



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

<PAGE>



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

<PAGE>



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

<PAGE>




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

<PAGE>



<TABLE>
<CAPTION>

Exhibit No.                                Description of Exhibit
-----------                                ----------------------
<S>                          <C>
      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
</TABLE>                     of the Sarbanes-Oxley Act of 2002.


        (b)    None.




                                       14

<PAGE>



                                   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.

<TABLE>
<S><C>
                                         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)
</TABLE>




                                       15


<PAGE>



                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

Exhibit No.       Description of Exhibit
-----------       ----------------------
<S>               <C>
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.
</TABLE>




                                      E-1