UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| S | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the quarterly period ended March 31, 2013 |
| £ | 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:000-19202
ChoiceOne Financial Services, Inc.
(Exact Name of Registrant as Specified in its Charter)
Michigan (State or Other Jurisdiction of Incorporation or Organization) | 38-2659066 (I.R.S. Employer Identification No.) | |
109 East Division Sparta, Michigan (Address of Principal Executive Offices) |
49345 (Zip Code) |
(616) 887-7366
(Registrant’s Telephone Number, including Area Code)
Indicate by checkmark 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.
YesS No£
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YesS No£
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer£ | Accelerated filer£ | ||
| Non-accelerated filer£ | Smaller reporting companyS |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes£ No S
As of April 30, 2013, the Registrant had outstanding 3,300,456 shares of common stock.
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements.
ChoiceOne Financial Services, Inc.
CONSOLIDATED BALANCE SHEETS
| (Dollars in thousands) | March 31, 2013 | December 31 2012 | ||||||
| (Unaudited) | (Audited) | |||||||
| Assets | ||||||||
| Cash and cash due from banks | $ | 17,746 | $ | 19,034 | ||||
| Federal funds sold | 0 | 0 | ||||||
| Cash and cash equivalents | 17,746 | 19,034 | ||||||
| Securities available for sale | 133,689 | 134,492 | ||||||
| Federal Home Loan Bank stock | 2,478 | 2,478 | ||||||
| Federal Reserve Bank stock | 1,272 | 1,272 | ||||||
| Loans held for sale | 3,403 | 1,874 | ||||||
| Loans | 313,116 | 311,468 | ||||||
| Allowance for loan losses | (5,881 | ) | (5,852 | ) | ||||
| Loans, net | 307,235 | 305,616 | ||||||
| Premises and equipment, net | 12,253 | 12,121 | ||||||
| Other real estate owned, net | 2,077 | 2,019 | ||||||
| Cash value of life insurance policies | 10,045 | 9,970 | ||||||
| Intangible assets, net | 1,612 | 1,724 | ||||||
| Goodwill | 13,728 | 13,728 | ||||||
| Other assets | 4,851 | 4,585 | ||||||
| Total assets | $ | 510,389 | $ | 508,913 | ||||
| Liabilities | ||||||||
| Deposits – noninterest-bearing | $ | 95,618 | $ | 101,861 | ||||
| Deposits – interest-bearing | 330,058 | 322,338 | ||||||
| Total deposits | 425,676 | 424,199 | ||||||
| Repurchase agreements | 18,353 | 19,572 | ||||||
| Advances from Federal Home Loan Bank | 413 | 420 | ||||||
| Other liabilities | 4,521 | 4,216 | ||||||
| Total liabilities | 448,963 | 448,407 | ||||||
| Shareholders’ Equity | ||||||||
| Preferred stock; shares authorized: 100,000; shares outstanding: none | — | — | ||||||
| Common stock and paid in capital, no par value; shares authorized: 7,000,000; shares outstanding: 3,300,456 at March 31, 2013 and 3,298,081 at December 31, 2012 | 46,674 | 46,649 | ||||||
| Retained earnings | 12,307 | 11,501 | ||||||
| Accumulated other comprehensive income, net | 2,445 | 2,356 | ||||||
| Total shareholders’ equity | 61,426 | 60,506 | ||||||
| Total liabilities and shareholders’ equity | $ | 510,389 | $ | 508,913 | ||||
See accompanying notes to consolidated financial statements.
| 2 |
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| (Dollars in thousands, except per share data) | Three Months Ended March 31, | |||||||
| 2013 | 2012 | |||||||
| Interest income | ||||||||
| Loans, including fees | $ | 4,004 | $ | 4,346 | ||||
| Securities: | ||||||||
| Taxable | 463 | 503 | ||||||
| Tax exempt | 346 | 321 | ||||||
| Other | 3 | 5 | ||||||
| Total interest income | 4,816 | 5,175 | ||||||
| Interest expense | ||||||||
| Deposits | 376 | 612 | ||||||
| Advances from Federal Home Loan Bank | 4 | 76 | ||||||
| Other | 9 | 68 | ||||||
| Total interest expense | 389 | 756 | ||||||
| Net interest income | 4,427 | 4,419 | ||||||
| Provision for loan losses | 300 | 825 | ||||||
| Net interest income after provision for loan losses | 4,127 | 3,594 | ||||||
| Noninterest income | ||||||||
| Customer service charges | 838 | 780 | ||||||
| Insurance and investment commissions | 149 | 161 | ||||||
| Gains on sales of loans | 493 | 374 | ||||||
| Gains on sales of securities | 23 | 169 | ||||||
| Losses on sales and write-downs of other assets | (69 | ) | (172 | ) | ||||
| Earnings on life insurance policies | 75 | 213 | ||||||
| Other income | 187 | 168 | ||||||
| Total noninterest income | 1,696 | 1,693 | ||||||
| Noninterest expense | ||||||||
| Salaries and benefits | 2,016 | 1,869 | ||||||
| Occupancy and equipment | 570 | 592 | ||||||
| Data processing | 500 | 442 | ||||||
| Professional fees | 158 | 210 | ||||||
| Supplies and postage | 144 | 135 | ||||||
| Advertising and promotional | 53 | 44 | ||||||
| Intangible amortization | 112 | 112 | ||||||
| Loan and collection expense | 111 | 128 | ||||||
| FDIC insurance | 95 | 105 | ||||||
| Other expense | 403 | 378 | ||||||
| Total noninterest expense | 4,162 | 4,015 | ||||||
| Income before income tax | 1,661 | 1,272 | ||||||
| Income tax expense | 426 | 257 | ||||||
| Net income | $ | 1,235 | $ | 1,015 | ||||
| Basic earnings per share | $ | 0.37 | $ | 0.31 | ||||
| Diluted earnings per share | $ | 0.37 | $ | 0.31 | ||||
| Dividends declared per share | $ | 0.13 | $ | 0.12 | ||||
See accompanying notes to consolidated financial statements.
| 3 |
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| (Dollars in thousands) | Three Months Ended March 31, | |||||||
| 2013 | 2012 | |||||||
| Net income | $ | 1,235 | $ | 1,015 | ||||
| Other comprehensive income, net of tax | ||||||||
| Unrealized holding gains on available for sale securities, net of tax of $54 and ($98) at March 31, 2013 and March 31, 2012, respectively | 104 | (191 | ) | |||||
| Less: Reclassification adjustment for gain recognized in earnings, net of tax of ($8) and ($57) at March 31, 2013 and March 31, 2012, respectively | (15 | ) | (112 | ) | ||||
| Other comprehensive income, net of tax of $46 and ($155) at March 31, 2013 and March, 2012, respectively | 89 | (303 | ) | |||||
| Comprehensive income | $ | 1,324 | $ | 712 | ||||
See accompanying notes to consolidated financial statements.
| 4 |
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
| (Dollars in thousands) | Number of Shares | Common Stock and Paid in Capital | Retained Earnings | Accumulated Other Comprehensive Income, Net | Total | |||||||||||||||
| Balance, January 1, 2012 | 3,293,269 | $ | 46,602 | $ | 8,887 | $ | 2,415 | $ | 57,904 | |||||||||||
| Net income | 1,015 | 1,015 | ||||||||||||||||||
| Other comprehensive income | (303 | ) | (303 | ) | ||||||||||||||||
| Shares issued | 1,772 | 19 | 19 | |||||||||||||||||
| Effect of employee stock purchases | 3 | 3 | ||||||||||||||||||
| Cash dividends declared ($0.12 per share) | (395 | ) | (395 | ) | ||||||||||||||||
| Balance, March 31, 2012 | 3,295,041 | $ | 46,624 | $ | 9,507 | $ | 2,112 | $ | 58,243 | |||||||||||
| Balance, January 1, 2013 | 3,298,081 | $ | 46,649 | $ | 11,501 | $ | 2,356 | $ | 60,506 | |||||||||||
| Net income | 1,235 | 1,235 | ||||||||||||||||||
| Other comprehensive income | 89 | 89 | ||||||||||||||||||
| Shares issued | 2,375 | 30 | 30 | |||||||||||||||||
| Change in ESOP repurchase obligation | (8 | ) | (8 | ) | ||||||||||||||||
| Effect of employee stock purchases | 3 | 3 | ||||||||||||||||||
| Cash dividends declared ($0.13 per share) | (429 | ) | (429 | ) | ||||||||||||||||
| Balance, March 31, 2013 | 3,300,456 | $ | 46,674 | $ | 12,307 | $ | 2,445 | $ | 61,426 | |||||||||||
See accompanying notes to consolidated financial statements.
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ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| (Dollars in thousands) | Three Months Ended March 31, | |||||||
| 2013 | 2012 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 1,235 | $ | 1,015 | ||||
| Adjustments to reconcile net income to net cash from operating activities: | ||||||||
| Provision for loan losses | 300 | 825 | ||||||
| Depreciation | 218 | 233 | ||||||
| Amortization | 427 | 354 | ||||||
| Compensation expense on employee stock purchases | 3 | 3 | ||||||
| Gains on sales of securities | (23 | ) | (169 | ) | ||||
| Gains on sales of loans | (493 | ) | (374 | ) | ||||
| Loans originated for sale | (14,677 | ) | (10,807 | ) | ||||
| Proceeds from loan sales | 13,550 | 11,538 | ||||||
| Earnings on bank-owned life insurance | (75 | ) | (213 | ) | ||||
| Proceeds from life insurance | — | 311 | ||||||
| Gains on sales of other real estate owned | (17 | ) | (9 | ) | ||||
| Write-downs of other real estate owned | 89 | 166 | ||||||
| Proceeds from sales of other real estate owned | 235 | 284 | ||||||
| Deferred federal income tax benefit | 113 | (9 | ) | |||||
| Net changes in other assets | (217 | ) | (83 | ) | ||||
| Net changes in other liabilities | 364 | (2 | ) | |||||
| Net cash from operating activities | 806 | 3,063 | ||||||
| Cash flows from investing activities: | ||||||||
| Securities available for sale: | ||||||||
| Sales | 1,283 | 3,690 | ||||||
| Maturities, prepayments and calls | 5,597 | 12,607 | ||||||
| Purchases | (6,192 | ) | (29,161 | ) | ||||
| Loan originations and payments, net | (2,284 | ) | 12,180 | |||||
| Additions to premises and equipment | (350 | ) | (61 | ) | ||||
| Net cash from investing activities | (1,946 | ) | (745 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net change in deposits | 1,477 | 9,500 | ||||||
| Net change in repurchase agreements | (1,219 | ) | (2,894 | ) | ||||
| Proceeds from Federal Home Loan Bank advances | 1,000 | — | ||||||
| Payments on Federal Home Loan Bank advances | (1,007 | ) | (7 | ) | ||||
| Issuance of common stock | 30 | 19 | ||||||
| Cash dividends | (429 | ) | (395 | ) | ||||
| Net cash from financing activities | (148 | ) | 6,223 | |||||
| Net change in cash and cash equivalents | (1,288 | ) | 8,541 | |||||
| Beginning cash and cash equivalents | 19,034 | 17,125 | ||||||
| Ending cash and cash equivalents | $ | 17,746 | $ | 25,666 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 412 | $ | 773 | ||||
| Cash paid for income taxes | $ | — | $ | 100 | ||||
| Loans transferred to other real estate owned | $ | 365 | $ | 15 | ||||
| Securities transferred to other assets | $ | — | $ | 330 | ||||
See accompanying notes to consolidated financial statements.
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ChoiceOne Financial Services, Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include ChoiceOne Financial Services, Inc. (“ChoiceOne” or the “Registrant”) and its wholly-owned subsidiary, ChoiceOne Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. Intercompany transactions and balances have been eliminated in consolidation.
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, prevailing practices within the banking industry and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
The accompanying consolidated financial statements reflect all adjustments ordinary in nature which are, in the opinion of management, necessary for a fair presentation of the Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, the Consolidated Statements of Income for the three-month periods ended March 31, 2013 and March 31, 2012, the Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2013 and March 31, 2012, the Consolidated Statements of Changes in Shareholders’ Equity for the three-month periods ended March 31, 2013 and March 31, 2012, and the Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2013 and March 31, 2012. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.
The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate by management to absorb probable incurred losses inherent in the consolidated loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, assessments of the impact of current economic conditions on the portfolio and historical loss experience of seasoned loan portfolios. See Note 3 to the interim consolidated financial statements for additional information.
Management believes the accounting estimate related to the allowance for loan losses is a “critical accounting estimate” because (1) the estimate is highly susceptible to change from period to period because of assumptions concerning the changes in the types and volumes of the portfolios and economic conditions and (2) the impact of recognizing an impairment or loan loss could have a material effect on ChoiceOne’s assets reported on the balance sheet as well as its net income.
Stock Transactions
A total of 848 shares of common stock were issued to the Registrant’s Board of Directors for a cash price of $12,000 under the terms of the Directors’ Stock Purchase Plan in the first quarter of 2013. A total of 1,336 shares were issued to employees for a cash price of $18,000 under the Employee Stock Purchase Plan for the quarter ended March 31, 2013. A total of 191 shares of common stock were issued upon the exercise of stock options in the first quarter of 2013.
Reclassifications
Certain amounts presented in prior periods have been reclassified to conform to the current presentation.
New Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-02,Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income(“ASU 2013-02”), to improve the reporting of reclassifications out of accumulated other comprehensive income. The update requires that an entity report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (“GAAP”) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about these accounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. ChoiceOne adopted ASU 2013-02 as of January 1, 2013.
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NOTE 2 - SECURITIES
The fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:
| March 31, 2013 | ||||||||||||||||
| (Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| U.S. Government and federal agency | $ | 39,882 | $ | 351 | $ | (1 | ) | $ | 40,232 | |||||||
| U.S. Treasury | 7,343 | 46 | (8 | ) | 7,381 | |||||||||||
| State and municipal | 62,093 | 2,945 | (176 | ) | 64,862 | |||||||||||
| Mortgage-backed | 10,887 | 256 | (8 | ) | 11,135 | |||||||||||
| Corporate | 7,351 | 106 | (1 | ) | 7,456 | |||||||||||
| Foreign debt | 1,000 | — | (1 | ) | 999 | |||||||||||
| Equity securities | 1,651 | — | (27 | ) | 1,624 | |||||||||||
| Total | $ | 130,207 | $ | 3,704 | $ | (222 | ) | $ | 133,689 | |||||||
| December 31, 2012 | ||||||||||||||||
| (Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| U.S. Government and federal agency | $ | 39,815 | $ | 455 | $ | (2 | ) | $ | 40,268 | |||||||
| U.S. Treasury | 7,362 | 45 | (9 | ) | 7,398 | |||||||||||
| State and municipal | 62,248 | 2,668 | (238 | ) | 64,678 | |||||||||||
| Mortgage-backed | 12,218 | 308 | — | 12,526 | ||||||||||||
| Corporate | 6,600 | 113 | (1 | ) | 6,712 | |||||||||||
| Foreign debt | 1,000 | 1 | — | 1,001 | ||||||||||||
| Equity securities | 1,902 | 12 | (5 | ) | 1,909 | |||||||||||
| Total | $ | 131,145 | $ | 3,602 | $ | (255 | ) | $ | 134,492 | |||||||
ChoiceOne reviews its securities portfolio on a quarterly basis to determine whether unrealized losses are considered to be temporary or other-than-temporary. No other-than-temporary impairment charges were recorded in the first quarter of 2013. ChoiceOne believed that unrealized losses on securities were temporary in nature and were due to changes in interest rates and reduced market liquidity and not as a result of credit quality issues.
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NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses and balances in the loan portfolio were as follows:
(Dollars in thousands)
| Agricultural | Commercial and Industrial | Consumer | Commercial Real Estate | Construction Real Estate | Residential Real Estate | Unallocated | Total | |||||||||||||||||||||||||
| Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2013 | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 140 | $ | 381 | $ | 250 | $ | 2,596 | $ | 15 | $ | 1,923 | $ | 547 | $ | 5,852 | ||||||||||||||||
| Charge-offs | — | (21 | ) | (97 | ) | (98 | ) | — | (164 | ) | — | (380 | ) | |||||||||||||||||||
| Recoveries | 1 | 37 | 52 | 10 | — | 9 | — | 109 | ||||||||||||||||||||||||
| Provision | 49 | 156 | 31 | 392 | — | (216 | ) | (112 | ) | 300 | ||||||||||||||||||||||
| Ending balance | $ | 190 | $ | 553 | $ | 236 | $ | 2,900 | $ | 15 | $ | 1,552 | $ | 435 | $ | 5,881 | ||||||||||||||||
| Individually evaluated for impairment | $ | 26 | $ | 193 | $ | 10 | $ | 373 | $ | — | $ | 447 | $ | — | $ | 1,049 | ||||||||||||||||
| Collectively evaluated for impairment | $ | 164 | $ | 360 | $ | 226 | $ | 2,527 | $ | 15 | $ | 1,105 | $ | 435 | $ | 4,832 | ||||||||||||||||
| Three Months Ended March 31, 2012 | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 55 | $ | 609 | $ | 197 | $ | 2,299 | $ | 34 | $ | 1,847 | $ | 172 | $ | 5,213 | ||||||||||||||||
| Charge-offs | — | (20 | ) | (71 | ) | (187 | ) | — | (584 | ) | — | (862 | ) | |||||||||||||||||||
| Recoveries | 1 | 20 | 66 | 10 | — | 63 | — | 160 | ||||||||||||||||||||||||
| Provision | (6 | ) | (53 | ) | 39 | 626 | (18 | ) | 196 | 41 | 825 | |||||||||||||||||||||
| Ending balance | $ | 50 | $ | 556 | $ | 231 | $ | 2,748 | $ | 16 | $ | 1,522 | $ | 213 | $ | 5,336 | ||||||||||||||||
| Individually evaluated for impairment | $ | — | $ | 105 | $ | — | $ | 443 | $ | — | $ | — | $ | — | $ | 548 | ||||||||||||||||
| Collectively evaluated for impairment | $ | 50 | $ | 451 | $ | 231 | $ | 2,305 | $ | 16 | $ | 1,522 | $ | 213 | $ | 4,788 | ||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||
| March 31, 2013 | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 568 | $ | 285 | $ | 69 | $ | 4,372 | $ | — | $ | 2,987 | $ | 8,281 | ||||||||||||||||||
| Collectively evaluated for impairment | 29,454 | 68,352 | 19,107 | 92,038 | 1,116 | 94,768 | 304,835 | |||||||||||||||||||||||||
| Ending balance | $ | 30,022 | $ | 68,637 | $ | 19,176 | $ | 96,410 | $ | 1,116 | $ | 97,755 | $ | 313,116 | ||||||||||||||||||
| December 31, 2012 | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 166 | $ | 198 | $ | 32 | $ | 3,723 | $ | — | $ | 1,820 | $ | 5,939 | ||||||||||||||||||
| Collectively evaluated for impairment | 31,624 | 67,167 | 19,335 | 89,589 | 1,056 | 96,758 | | 305,529 | ||||||||||||||||||||||||
| Ending balance | $ | 31,790 | $ | 67,365 | $ | 19,367 | $ | 93,312 | $ | 1,056 | $ | 98,578 | $ | 311,468 | ||||||||||||||||||
The process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking (1) the risk ratings of business loans, (2) the level of classified business loans, and (3) delinquent and nonperforming consumer loans. Business loans are risk rated on a scale of 1 to 8. A description of the characteristics of the ratings follows:
Risk rating 1 and 2: These loans are considered pass credits. They exhibit good to exceptional credit risk and demonstrate the ability to repay the loan from normal business operations.
Risk rating 3: These loans are considered pass credits. They exhibit acceptable credit risk and demonstrate the ability to repay the loan from normal business operations.
Risk rating 4: These loans are considered pass credits. However, they have potential developing weaknesses that, if not corrected, may cause deterioration in the ability of the borrower to repay the loan. While a loss is possible for a loan with this rating, it is not anticipated.
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Risk rating 5: These loans are considered special mention credits. Loans in this risk rating are considered to be inadequately protected by the net worth and debt service coverage of the borrower or of any pledged collateral. These loans have well defined weaknesses that may jeopardize the borrower’s ability to repay the loan. If the weaknesses are not corrected, loss of principal and interest could be probable.
Risk rating 6: These loans are considered substandard credits. These loans have well defined weaknesses, the severity of which makes collection of principal and interest in full questionable. Loans in this category may be placed on nonaccrual status.
Risk rating 7: These loans are considered doubtful credits. Some loss of principal and interest has been determined to be probable. The estimate of the amount of loss could be affected by factors such as the borrower’s ability to provide additional capital or collateral. Loans in this category are on nonaccrual status.
Risk rating 8: These loans are considered loss credits. They are considered uncollectible and will be charged off against the allowance for loan losses.
Information regarding the Bank’s credit exposure was as follows:
(Dollars in thousands)
Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Category
Agricultural | Commercial and Industrial | Commercial Real Estate | ||||||||||||||||||||||||||
| March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
| Risk ratings 1 and 2 | $ | 8,017 | $ | 8,615 | $ | 9,761 | $ | 9,040 | $ | 3,033 | $ | 2,711 | ||||||||||||||||
| Risk rating 3 | 15,366 | 16,173 | 42,745 | 43,549 | 48,152 | 45,295 | ||||||||||||||||||||||
| Risk rating 4 | 5,068 | 5,040 | 14,568 | 13,417 | 29,543 | 30,223 | ||||||||||||||||||||||
| Risk rating 5 | 1,548 | 1,939 | 891 | 855 | 7,990 | 7,847 | ||||||||||||||||||||||
| Risk rating 6 | 19 | 19 | 529 | 361 | 7,539 | 6,960 | ||||||||||||||||||||||
| Risk rating 7 | 4 | 4 | 143 | 143 | 153 | 276 | ||||||||||||||||||||||
| $ | 30,022 | $ | 31,790 | $ | 68,637 | $ | 67,365 | $ | 96,410 | $ | 93,312 | |||||||||||||||||
Consumer Credit Exposure - Credit Risk Profile Based On Payment Activity
| Consumer | Construction Real Estate | Residential Real Estate | ||||||||||||||||||||||||||
| March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
| Performing | $ | 19,143 | $ | 19,334 | $ | 1,116 | $ | 1,056 | $ | 97,300 | $ | 98,018 | ||||||||||||||||
| Nonperforming | 33 | 33 | — | — | 455 | 560 | ||||||||||||||||||||||
| $ | 19,176 | $ | 19,367 | $ | 1,116 | $ | 1,056 | $ | 97,755 | $ | 98,578 | |||||||||||||||||
The following schedule provides information on loans that were considered troubled debt restructurings (“TDRs”) that were modified during the three months ended March 31, 2013 and March 31, 2012:
| March 31, 2013 | March 31, 2012 | |||||||||||||||||||||||
| (Dollars in thousands) | Number of Loans | Pre- Recorded | Post- Outstanding | Number of Loans | Pre- Outstanding | Post- Recorded | ||||||||||||||||||
| Agricultural | — | $ | — | $ | — | 1 | $ | 75 | $ | 75 | ||||||||||||||
| Commercial and industrial | — | — | — | 1 | 40 | 40 | ||||||||||||||||||
| Commercial real estate | — | — | — | 3 | 78 | 78 | ||||||||||||||||||
| — | $ | — | $ | — | 5 | $ | 193 | $ | 193 | |||||||||||||||
The following schedule provides information on TDRs as of March 31, 2013 where the borrower was past due with respect to principal and/or interest for 30 days or more during the three-month periods ended March 31, 2013 and March 31, 2012 that had been modified during the year prior to the default:
| March 31, 2013 | March 31, 2012 | |||||||||||||||
| (Dollars in thousands) | Number of Loans | Recorded Investment | Number of Loans | Recorded Investment | ||||||||||||
| Commercial and industrial | 1 | $ | 118 | 2 | $ | 88 | ||||||||||
| Commercial real estate | 1 | 65 | 3 | 1,169 | ||||||||||||
| Residential real estate | — | — | 7 | 868 | ||||||||||||
| 2 | $ | 183 | 12 | $ | 2,125 | |||||||||||
Loans are classified as performing when they are current as to principal and interest payments or are past due on payments less than 90 days. Loans are classified as nonperforming when they are past due 90 days or more as to principal and interest payments or are considered a troubled debt restructuring.
| 10 |
Impaired loans by loan category follow:
(Dollars in thousands)
| Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | ||||||||||||||||
| March 31, 2013 | ||||||||||||||||||||
| With no related allowance recorded | ||||||||||||||||||||
| Agricultural | $ | 474 | $ | 821 | $ | — | $ | 284 | $ | 7 | ||||||||||
| Commercial and industrial | 49 | 49 | — | 49 | — | |||||||||||||||
| Consumer | 6 | 6 | — | 3 | 1 | |||||||||||||||
| Commercial real estate | 648 | 1,078 | — | 612 | — | |||||||||||||||
| Residential real estate | 334 | 391 | — | 167 | 2 | |||||||||||||||
| Subtotal | 1,510 | 2,345 | — | 1,115 | 10 | |||||||||||||||
| With an allowance recorded | ||||||||||||||||||||
| Agricultural | 94 | 94 | 26 | 83 | 1 | |||||||||||||||
| Commercial and industrial | 236 | 252 | 193 | 192 | 1 | |||||||||||||||
| Consumer | 63 | 63 | 10 | 48 | 1 | |||||||||||||||
| Commercial real estate | 3,724 | 3,801 | 373 | 3,435 | 52 | |||||||||||||||
| Residential real estate | 2,653 | 2,672 | 447 | 2,237 | 23 | |||||||||||||||
| Subtotal | 6,770 | 6,882 | 1,049 | 5,995 | 78 | |||||||||||||||
| Total | ||||||||||||||||||||
| Agricultural | 568 | 915 | 26 | 367 | 8 | |||||||||||||||
| Commercial and industrial | 285 | 301 | 193 | 241 | 1 | |||||||||||||||
| Consumer | 69 | 69 | 10 | 51 | 2 | |||||||||||||||
| Commercial real estate | 4,372 | 4,879 | 373 | 4,047 | 52 | |||||||||||||||
| Residential real estate | 2,987 | 3,063 | 447 | 2,404 | 25 | |||||||||||||||
| Total | $ | 8,281 | $ | 9,227 | $ | 1,049 | $ | 7,110 | $ | 88 | ||||||||||
| December 31, 2012 | ||||||||||||||||||||
| With no related allowance recorded | ||||||||||||||||||||
| Agricultural | $ | 94 | $ | 441 | $ | — | $ | 19 | $ | — | ||||||||||
| Commercial and industrial | 49 | 49 | — | 223 | 6 | |||||||||||||||
| Consumer | — | — | — | — | — | |||||||||||||||
| Commercial real estate | 577 | 848 | — | 1,586 | — | |||||||||||||||
| Residential real estate | — | — | — | 1,366 | 48 | |||||||||||||||
| Subtotal | 720 | 1,338 | — | 3,194 | 54 | |||||||||||||||
| With an allowance recorded | ||||||||||||||||||||
| Agricultural | 72 | 72 | 1 | 14 | 1 | |||||||||||||||
| Commercial and industrial | 149 | 169 | 112 | 112 | — | |||||||||||||||
| Consumer | 32 | 32 | — | 6 | — | |||||||||||||||
| Commercial real estate | 3,146 | 3,193 | 449 | 1,576 | 24 | |||||||||||||||
| Residential real estate | 1,820 | 1,820 | 138 | 364 | 20 | |||||||||||||||
| Subtotal | 5,219 | 5,286 | 700 | 2,072 | 45 | |||||||||||||||
| Total | ||||||||||||||||||||
| Agricultural | 166 | 513 | 1 | 33 | 1 | |||||||||||||||
| Commercial and industrial | 198 | 218 | 112 | 335 | 6 | |||||||||||||||
| Consumer | 32 | 32 | — | 6 | — | |||||||||||||||
| Commercial real estate | 3,723 | 4,041 | 449 | 3,162 | 24 | |||||||||||||||
| Residential real estate | 1,820 | 1,820 | 138 | 1,730 | 68 | |||||||||||||||
| Total | $ | 5,939 | $ | 6,624 | $ | 700 | $ | 5,266 | $ | 99 | ||||||||||
| 11 |
An aging analysis of loans by loan category follows:
(Dollars in thousands)
30 to 59 | 60 to 89 | Greater | Total | Loans Not | Total Loans | 90 Days Past | ||||||||||||||||||||||
| March 31, 2013 | ||||||||||||||||||||||||||||
| Agricultural | $ | 344 | $ | 215 | $ | 19 | $ | 578 | $ | 29,444 | $ | 30,022 | $ | — | ||||||||||||||
| Commercial and industrial | 622 | 9 | 49 | 680 | 67,957 | 68,637 | — | |||||||||||||||||||||
| Consumer | 117 | 5 | 33 | 155 | 19,021 | 19,176 | 20 | |||||||||||||||||||||
| Commercial real estate | 775 | — | 393 | 1,168 | 95,242 | 96,410 | 266 | |||||||||||||||||||||
| Construction real estate | — | — | — | — | 1,116 | 1,116 | — | |||||||||||||||||||||
| Residential real estate | 989 | 540 | 455 | 1,984 | 95,771 | 97,755 | 226 | |||||||||||||||||||||
| $ | 2,847 | $ | 769 | $ | 949 | $ | 4,565 | $ | 308,551 | $ | 313,116 | $ | 512 | |||||||||||||||
| December 31, 2012 | ||||||||||||||||||||||||||||
| Agricultural | $ | 262 | $ | — | $ | — | $ | 262 | $ | 31,529 | $ | 31,790 | $– | |||||||||||||||
| Commercial and industrial | 102 | 4 | 198 | 304 | 67,061 | 67,365 | — | |||||||||||||||||||||
| Consumer | 173 | 28 | 33 | 234 | 19,133 | 19,367 | 1 | |||||||||||||||||||||
| Commercial real estate | 64 | 68 | 339 | 471 | 92,841 | 93,312 | — | |||||||||||||||||||||
| Construction real estate | — | — | — | — | 1,056 | 1,056 | — | |||||||||||||||||||||
| Residential real estate | 1,438 | 691 | 559 | 2,688 | 95,889 | 98,578 | 29 | |||||||||||||||||||||
| $ | 2,039 | $ | 791 | $ | 1,129 | $ | 3,959 | $ | 307,509 | $ | 311,468 | $ | 30 | |||||||||||||||
(1) Includes nonaccrual loans.
Nonaccrual loans by loan category follow:
(Dollars in thousands)
| March 31, | December 31, | |||||||
| 2013 | 2012 | |||||||
| Agricultural | $ | 114 | $ | 94 | ||||
| Commercial and industrial | 187 | 220 | ||||||
| Consumer | 13 | 33 | ||||||
| Commercial real estate | 784 | 1,230 | ||||||
| Construction real estate | — | — | ||||||
| Residential real estate | 631 | 754 | ||||||
| $ | 1,729 | $ | 2,331 | |||||
NOTE 4 - EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares outstanding during the period. A computation of basic earnings per share and diluted earnings per share follows:
| (Dollars in thousands, except per share data) | Three Months Ended March 31, | |||||||
| 2013 | 2012 | |||||||
| Basic Earnings Per Share | ||||||||
| Net income available to common shareholders | $ | 1,235 | $ | 1,015 | ||||
| Weighted average common shares outstanding | 3,298,910 | 3,293,524 | ||||||
| Basic earnings per share | $ | 0.37 | $ | 0.31 | ||||
| Diluted Earnings Per Share | ||||||||
| Net income available to common shareholders | $ | 1,235 | $ | 1,015 | ||||
| Weighted average common shares outstanding | 3,298,910 | 3,293,524 | ||||||
| Plus dilutive stock options | 1,285 | — | ||||||
| Weighted average common shares outstanding and potentially dilutive shares | 3,300,194 | 3,293,524 | ||||||
| Diluted earnings per share | $ | 0.37 | $ | 0.31 | ||||
| 12 |
There were 24,800 stock options as of March 31, 2013 and 43,350 stock options as of March 31, 2012, that are considered to be anti-dilutive to earnings per share. These stock options have been excluded from the calculation above.
NOTE 5 – FINANCIAL INSTRUMENTS
Financial instruments as of the dates indicated were as follows (dollars in thousands):
| Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||
| March 31, 2013 | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and due from banks | $ | 17,746 | $ | 17,746 | $ | 17,746 | $ | — | $ | — | ||||||||||
| Securities available for sale | 133,689 | 133,689 | — | 130,964 | 2,725 | |||||||||||||||
| Federal Home Loan Bank and Federal | ||||||||||||||||||||
| Reserve Bank stock | 3,750 | 3,750 | — | 3,750 | — | |||||||||||||||
| Loans held for sale | 3,403 | 3,506 | — | 3,506 | — | |||||||||||||||
| Loans, net | 307,235 | 311,973 | — | — | 311,973 | |||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Noninterest-bearing deposits | 95,618 | 95,618 | — | 95,618 | — | |||||||||||||||
| Interest-bearing deposits | 330,058 | 330,991 | — | 330,991 | — | |||||||||||||||
| Repurchase agreements | 18,353 | 18,353 | — | 18,353 | — | |||||||||||||||
| Federal Home Loan Bank advances | 413 | 473 | — | 473 | — | |||||||||||||||
| December 31, 2012 | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and due from banks | $ | 19,034 | $ | 19,034 | $ | 19,034 | $ | — | $ | — | ||||||||||
| Securities available for sale | 134,492 | 134,492 | — | 131,893 | 2,599 | |||||||||||||||
| Federal Home Loan Bank and Federal | ||||||||||||||||||||
| Reserve Bank stock | 3,750 | 3,750 | — | 3,750 | — | |||||||||||||||
| Loans held for sale | 1,874 | 1,933 | — | 1,933 | — | |||||||||||||||
| Loans, net | 305,616 | 310,175 | — | — | 310,175 | |||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Noninterest-bearing deposits | 101,861 | 101,861 | — | 101,861 | — | |||||||||||||||
| Interest-bearing deposits | 322,338 | 323,457 | — | 323,457 | — | |||||||||||||||
| Repurchase agreements | 19,572 | 19,573 | — | 19,573 | — | |||||||||||||||
| Federal Home Loan Bank advances | 420 | 485 | — | 485 | — |
The estimated fair values approximate the carrying amounts for all assets and liabilities except those described later in this paragraph. The methodology for determining the estimated fair value for securities available for sale is described in Note 6. The estimated fair value for loans is based on the rates charged at March 31, 2013 and December 31, 2012 for new loans with similar maturities, applied until the loan is assumed to reprice or be paid. The allowance for loan losses is considered to be a reasonable estimate of discount for credit quality concerns. The estimated fair values for time deposits and Federal Home Loan Bank (“FHLB”) advances are based on the rates paid at March 31, 2013 and December 31, 2012 for new deposits or FHLB advances, applied until maturity. The estimated fair values for other financial instruments and off-balance sheet loan commitments are considered nominal.
| 13 |
NOTE 6 – FAIR VALUE MEASUREMENTS
The following tables present information about the Bank’s assets and liabilities measured at fair value on a recurring basis and the valuation techniques used by the Bank to determine those fair values.
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Bank has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Bank’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.
There were no liabilities measured at fair value as of March 31, 2013 or December 31, 2012. Disclosures concerning assets measured at fair value are as follows:
Assets Measured at Fair Value on a Recurring Basis
(Dollars in Thousands)
Quoted Prices | Significant | Significant | Balance at | |||||||||||||
| Investment Securities, Available for Sale – March 31, 2013 | ||||||||||||||||
| U.S. Government and federal agency | $ | — | $ | 40,232 | $ | — | $ | 40,232 | ||||||||
| U.S. Treasury | — | 7,381 | — | 7,381 | ||||||||||||
| State and municipal | — | 62,637 | 2,225 | 64,862 | ||||||||||||
| Mortgage-backed | — | 11,135 | — | 11,135 | ||||||||||||
| Corporate | — | 7,456 | — | 7,456 | ||||||||||||
| Foreign debt | — | 999 | — | 999 | ||||||||||||
| Equity securities | — | 1,124 | 500 | 1,624 | ||||||||||||
| Total | $ | — | $ | 130,964 | $ | 2,725 | $ | 133,689 | ||||||||
| Investment Securities, Available for Sale - December 31, 2012 | ||||||||||||||||
| U.S. Government and federal agency | $ | — | $ | 40,268 | $ | — | $ | 40,268 | ||||||||
| U.S. Treasury notes and bonds | — | 7,398 | — | 7,398 | ||||||||||||
| State and municipal | — | 62,579 | 2,099 | 64,678 | ||||||||||||
| Mortgage-backed | — | 12,526 | — | 12,526 | ||||||||||||
| Corporate | — | 6,712 | — | 6,712 | ||||||||||||
| Foreign debt | — | 1,001 | — | 1,001 | ||||||||||||
| Equity securities | — | 1,409 | 500 | 1,909 | ||||||||||||
| Total | $ | — | $ | 131,893 | $ | 2,599 | $ | 134,492 | ||||||||
| 14 |
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
(Dollars in Thousands)
| 2013 | 2012 | |||||||
| Investment Securities, Available for Sale | ||||||||
| Balance, January 1 | $ | 2,599 | $ | 2,771 | ||||
| Total realized and unrealized gains included in income | — | — | ||||||
| Total unrealized gains (losses) included in other comprehensive income | 132 | (2 | ) | |||||
| Purchases of securities | — | 291 | ||||||
| Calls, maturities, and payments | (6 | ) | (17 | ) | ||||
| Transfers into Level 3 | — | — | ||||||
| Transfers out of Level 3 | — | (311 | ) | |||||
| Balance, March 31 | $ | 2,725 | $ | 2,732 | ||||
Of the Level 3 assets that were held by the Bank at March 31, 2013, the net unrealized gain for the three months ended March 31, 2013 was $132,000, which is recognized in other comprehensive income in the consolidated balance sheet. There were no sales or purchases of Level 3 securities in the first quarter of 2013. One municipal security was reclassified to other assets in the first quarter of 2012. The issuer of the security defaulted upon its maturity of September 1, 2009. Settlement was reached with the security’s issuer in December 2011 and the bond’s carrying value was reclassified upon termination of the bond’s contractual agreement.
Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.
Available-for-sale investment securities categorized as Level 3 assets primarily consist of bonds issued by local municipalities. The Bank estimates the fair value of these bonds based on the present value of expected future cash flows using management’s best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality and a discount rate commensurate with the current market and other risks involved.
The Bank also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment. Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:
Assets Measured at Fair Value on a Non-recurring Basis
(Dollars in Thousands)
| Balance at Dates Indicated | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Impaired Loans | ||||||||||||||||
| March 31, 2013 | $ | 8,281 | $ | — | $ | — | $ | 8,281 | ||||||||
| December 31, 2012 | $ | 5,939 | $ | — | $ | — | $ | 5,939 | ||||||||
| Other Real Estate | ||||||||||||||||
| March 31, 2013 | $ | 2,077 | $ | — | $ | — | $ | 2,077 | ||||||||
| December 31, 2012 | $ | 2,019 | $ | — | $ | — | $ | 2,019 | ||||||||
Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Bank estimates the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). The changes in fair value consisted of charge-downs of impaired loans that were posted to the allowance for loan losses and write-downs of other real estate that were posted to a valuation account.
| 15 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion is designed to provide a review of the consolidated financial condition and results of operations of ChoiceOne Financial Services, Inc. (“ChoiceOne” or the “Registrant”) and its wholly-owned subsidiary, ChoiceOne Bank (the "Bank"), and the Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. This discussion should be read in conjunction with the consolidated financial statements and related notes.
FORWARD-LOOKING STATEMENTS
This discussion and other sections of this quarterly report contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and ChoiceOne itself. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "plans," "predicts," "projects," "may," "could," variations of such words and similar expressions are intended to identify such forward-looking statements. Management’s determination of the provision and allowance for loan losses, the carrying value of goodwill and loan servicing rights, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other than temporary) and management’s assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. All of the information concerning interest rate sensitivity is forward-looking. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed, implied or forecasted in such forward-looking statements. Furthermore, ChoiceOne undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.
Risk factors include, but are not limited to, the risk factors discussed in Item 1A of the Company’s Annual Report on Form 10-K; changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking laws and regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior as well as their abilities to repay loans; changes in the local and national economies; changes in market conditions; the level and timing of asset growth; various other local and global uncertainties such as acts of terrorism and military actions; and current uncertainties and fluctuations in the financial markets and stocks of financial services providers due to concerns about capital and credit availability and concerns about the Michigan economy in particular. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.
RESULTS OF OPERATIONS
Summary
Net income for the first quarter of 2013 was $1,235,000, which represented an increase of $220,000 or 22% compared to the same period in 2012. A reduction in the provision for loan losses was partially offset by higher noninterest expense in the first quarter of 2013 compared to the same period in the prior year. Basic and diluted earnings per common share were $0.37 for the first quarter of 2013, compared to $0.31 for the same quarter in 2012. The return on average assets and return on average shareholders’ equity percentages were 0.98% and 8.10%, respectively, for the first quarter of 2013, compared to 0.81% and 6.97%, respectively, for the same period in 2012.
Dividends
Cash dividends of $429,000 or $0.13 per share were declared in the first quarter of 2013, compared to $395,000 or $0.12 per share in the first quarter of 2012. The cash dividend payout percentage was 35% for the first three months of 2013, compared to 39% in the same period a year ago.
Interest Income and Expense
Tables 1 and 2 on the following pages provide information regarding interest income and expense for the three-month periods ended March 31, 2013 and 2012. Table 1 documents ChoiceOne’s average balances and interest income and expense, as well as the average rates earned or paid on assets and liabilities. Table 2 documents the effect on interest income and expense of changes in volume (average balance) and interest rates. These tables are referred to in the discussion of interest income, interest expense and net interest income.
| 16 |
Table 1 – Average Balances and Tax-Equivalent Interest Rates
| (Dollars in thousands) | Three Months Ended March 31, | |||||||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||||||||
| Average Balance | Interest | Rate | Average Balance | Interest | Rate | |||||||||||||||||||
| Assets: | ||||||||||||||||||||||||
| Loans (1) | $ | 311,724 | $ | 4,008 | 5.14 | % | $ | 313,566 | $ | 4,350 | 5.55 | % | ||||||||||||
| Taxable securities (2) (3) | 92,499 | 463 | 2.00 | 85,155 | 503 | 2.36 | ||||||||||||||||||
| Nontaxable securities (1) (2) | 41,468 | 522 | 5.04 | 33,908 | 484 | 5.71 | ||||||||||||||||||
| Other | 4,729 | 2 | 0.17 | 9,836 | 5 | 0.20 | ||||||||||||||||||
| Interest-earning assets | 450,420 | 4,995 | 4.43 | 442,465 | 5,342 | 4.83 | ||||||||||||||||||
| Noninterest-earning assets | 52,950 | 56,119 | ||||||||||||||||||||||
| Total assets | $ | 503,370 | $ | 498,584 | ||||||||||||||||||||
| Liabilities and Shareholders’ Equity: | ||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 133,236 | 69 | 0.21 | % | $ | 136,416 | 118 | 0.35 | % | ||||||||||||||
| Savings deposits | 65,271 | 11 | 0.07 | 47,213 | 9 | 0.08 | ||||||||||||||||||
| Certificates of deposit | 128,248 | 296 | 0.92 | 145,991 | 485 | 1.33 | ||||||||||||||||||
| Advances from Federal Home Loan Bank | 418 | 4 | 3.83 | 8,444 | 76 | 3.60 | ||||||||||||||||||
| Other | 17,196 | 9 | 0.21 | 21,235 | 68 | 1.28 | ||||||||||||||||||
| Interest-bearing liabilities | 344,369 | 389 | 0.45 | 359,299 | 756 | 0.84 | ||||||||||||||||||
| Noninterest-bearing demand deposits | 94,297 | 77,151 | ||||||||||||||||||||||
| Other noninterest-bearing liabilities | 3,688 | 3,892 | ||||||||||||||||||||||
| Total liabilities | 442,354 | 440,342 | ||||||||||||||||||||||
| Shareholders’ equity | 61,016 | 58,242 | ||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 503,370 | $ | 498,584 | ||||||||||||||||||||
| Net interest income (tax-equivalent basis) – interest spread | 4,606 | 3.98 | % | 4,586 | 3.99 | % | ||||||||||||||||||
| Tax-equivalent adjustment (1) | (179 | ) | (167 | ) | ||||||||||||||||||||
| Net interest income | $ | 4,427 | $ | 4,419 | ||||||||||||||||||||
| Net interest income as a percentage of earning assets (tax-equivalent basis) | 4.09 | % | 4.15 | % | ||||||||||||||||||||
| (1) | Adjusted to a fully tax-equivalent basis to facilitate comparison to the taxable interest-earning assets. The adjustment uses an incremental tax rate of 34% for the periods presented. |
| (2) | Includes the effect of unrealized gains or losses on securities. |
| (3) | Taxable securities include dividend income from Federal Home Loan Bank and Federal Reserve Bank stock. |
Table 2 – Changes in Tax-Equivalent Net Interest Income
| (Dollars in thousands) | Three Months Ended March 31, 2013 Over 2012 | |||||||||||
| Total | Volume | Rate | ||||||||||
| Increase (decrease) in interest income (1) | ||||||||||||
| Loans (2) | $ | (342 | ) | $ | (25 | ) | $ | (317 | ) | |||
| Taxable securities | (40 | ) | 207 | (247 | ) | |||||||
| Nontaxable securities (2) | 38 | 323 | (285 | ) | ||||||||
| Other | (3 | ) | (2 | ) | (1 | ) | ||||||
| Net change in tax-equivalent income | (347 | ) | 503 | (850 | ) | |||||||
| Increase (decrease) in interest expense (1) | ||||||||||||
| Interest-bearing demand deposits | (49 | ) | (3 | ) | (46 | ) | ||||||
| Savings deposits | 2 | 8 | (6 | ) | ||||||||
| Certificates of deposit | (189 | ) | (54 | ) | (135 | ) | ||||||
| Advances from Federal Home Loan Bank | (72 | ) | (103 | ) | 31 | |||||||
| Other | (59 | ) | (11 | ) | (48 | ) | ||||||
| Net change in interest expense | (367 | ) | (163 | ) | (204 | ) | ||||||
| Net change in tax-equivalent net interest income | $ | 20 | $ | 666 | $ | (646 | ) | |||||
| 17 |
| (1) | The volume variance is computed as the change in volume (average balance) multiplied by the previous year's interest rate. The rate variance is computed as the change in interest rate multiplied by the previous year's volume (average balance). The change in interest due to both volume and rate has been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. |
| (2) | Interest on nontaxable investment securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 34% for the periods presented. |
Net Interest Income
The presentation of net interest income on a tax-equivalent basis is not in accordance with generally accepted accounting principles (“GAAP”), but is customary in the banking industry. This non-GAAP measure ensures comparability of net interest income arising from both taxable and tax-exempt loans and investment securities. The adjustments to determine net interest income on a tax-equivalent basis were $179,000 and $167,000 for the three months ended March 31, 2013 and 2012, respectively. These adjustments were computed using a 34% federal income tax rate.
As shown in Tables 1 and 2, tax-equivalent net interest income increased $20,000 in the first three months of 2013 compared to the same period in 2012. The combination of growth in average interest-earning assets and a decline in average interest-bearing liabilities caused net interest income to increase $666,000 in the first quarter of 2013 compared to the same quarter in the prior year. A reduction of 1 basis point in the net interest spread from 3.99% in the first quarter of 2012 to 3.98% in the same quarter in 2013 resulted in a $646,000 decrease in net interest income.
The average balance of loans decreased $1.8 million in the first quarter of 2013 compared to the same period in 2012. Average commercial and industrial and commercial real estate loans were $6.1 million lower in the first quarter of 2013 than in the same quarter of 2012. These decreases were partially offset by a $2.3 million increase in the average balance of consumer loans and $2.0 million increase in the average balance of residential real estate loans in the first quarter of 2013 compared to the same quarter in the prior year. The decrease in the average loans balance combined with a 41 basis point decrease in the average rate earned caused tax-equivalent interest income from loans to decline $342,000 in the first quarter of 2013 compared to the same period in the prior year. The average balance of total securities grew $14.9 million in the first three months of 2013 compared to the same period in 2012. Additional securities were purchased in 2012 and in the first quarter of 2013 due to the declining balance in loans and to provide earning asset growth. The growth in securities, partially offset by the effect of lower interest rates earned, caused interest income to decrease $2,000 in the first quarter of 2013 compared to the same quarter in 2012.
The average balance of interest-bearing demand deposits decreased $3.2 million in the first three months of 2013 compared to the same period in 2012. The effect of the lower average balance and a 14 basis point decline in the average rate paid caused interest expense to decrease $49,000 in the first quarter of 2013 compared to the same quarter in 2012. The average balance of savings deposits increased $18.1 million in the first quarter of 2013 compared to the same quarter in the prior year. The impact of the savings deposit growth was offset slightly by a 1 basis point drop in the average rate paid, resulting in an increase in interest expense of $2,000 in the first three months of 2013 compared to the same period in 2012. The average balance of certificates of deposit was down $17.8 million in the first quarter of 2013 compared to the same period in 2012. The average balance of local certificates was $13.4 million lower while the average balance of nonlocal certificates was $4.4 million lower in the first quarter of 2013 than in the same period in 2012. The decline in certificates of deposit plus a 41 basis point reduction in the average rate paid on certificates caused interest expense to fall $189,000 in the first quarter of 2013 compared to the same period in 2012. A combination of an $8.0 million decrease in the average balance of Federal Home Loan Bank advances offset by a 23 basis point increase in the average rate paid caused interest expense to decline $72,000 in the first quarter of 2013 compared to the same quarter in 2012. A decrease of $4.0 million in the average balance of other interest-bearing liabilities in the first quarter of 2013 compared to the first quarter of 2012 plus the effect of a 107 basis point decrease in the average rate paid caused a $59,000 decrease in interest expense.
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ChoiceOne’s net interest income spread was 3.98% in the first quarter of 2013, compared to 3.99% for the first quarter of 2012. The decline in the interest spread was due to a 40 basis point decrease in the average rate earned on interest earning assets in the first quarter of 2013 compared to the same quarter in 2012, which was partially offset by a 39 basis point decrease in the average rate paid on interest-bearing liabilities. The reduction in the average rate earned on interest-earning assets was caused by relatively low general market rates which affected new loan originations and securities purchases in 2012 and the first quarter of 2013. Interest rates on loans are also being impacted by rate pressure from some of ChoiceOne’s competing financial institutions. The lower rate paid on interest-bearing liabilities resulted from repricing of local deposits as general market interest rates remained low during 2012 and the first quarter of 2013.
Provision and Allowance for Loan Losses
The allowance for loan losses grew $29,000 from December 31, 2012 to March 31, 2013. The provision for loan losses was $300,000 in the first quarter of 2013, compared to $825,000 in the same period in 2012. Nonperforming loans were $6.9 million as of March 31, 2013, compared to $6.8 million as of December 31, 2012. The allowance for loan losses was 1.88% of total loans at March 31, 2013, compared to 1.88% at December 31, 2012 and 1.74% at March 31, 2012.
Charge-offs and recoveries for respective loan categories for the three months ended March 31 were as follows:
| (Dollars in thousands) | 2013 | 2012 | ||||||||||||||
| Charge-offs | Recoveries | Charge-offs | Recoveries | |||||||||||||
| Agricultural | $ | — | $ | 1 | $ | — | $ | 1 | ||||||||
| Commercial and industrial | 21 | 37 | 20 | 20 | ||||||||||||
| Consumer | 97 | 52 | 71 | 66 | ||||||||||||
| Real estate, commercial | 98 | 10 | 187 | 10 | ||||||||||||
| Real estate, residential | 164 | 9 | 584 | 63 | ||||||||||||
| $ | 380 | $ | 109 | $ | 862 | $ | 160 | |||||||||
Net charge-offs in the first quarter of 2013 were $271,000, compared to $702,000 in the first quarter of 2012. Net charge-offs on an annualized basis as a percentage of average loans were 0.35% in the first three months of 2013 compared to 0.90% for the same period in the prior year. Management is aware that the economic climate in Michigan will continue to affect business and personal borrowers. Management has worked and intends to continue to work with delinquent borrowers in an attempt to lessen the negative impact to ChoiceOne. As charge-offs, changes in the level of nonperforming loans, and changes within the composition of the loan portfolio occur throughout 2013, the provision and allowance for loan losses will be reviewed by the Bank's management and adjusted as necessary.
Noninterest Income
Total noninterest income increased $3,000 in the first quarter of 2013 compared to the same period in 2012. An increase of $58,000 in customer service charges resulted from growth in overdraft and debit card income. Growth of $119,000 in gains on sales of loans came from increased residential mortgage refinancing activity which supported $13.6 million of loan sales in the first quarter of 2013, compared to $11.5 million in the first quarter of 2012. A decrease of $146,000 in gains on sales of securities resulted from less sales activity in the first three months of 2013 than in the same period of the prior year. The change in losses on sales and write-downs of other assets was primarily due to a $77,000 decrease in write-downs of other real estate owned in the first quarter of 2013 compared to the same period in 2012. Earnings on life insurance policies included $135,000 in the first quarter of 2012 from a death benefit received.
Noninterest Expense
Total noninterest expense increased $147,000 or 4% in the first quarter of 2013 compared to the same period in 2012. The increase of $147,000 in salaries and benefits in the first quarter of 2013 compared to the same period in the prior year resulted from higher salaries, incentive bonus accruals, commission expense from mortgage loan originations, and health insurance costs. Growth of $58,000 in data processing expense resulted from higher ATM and electronic banking expenses. Professional fees were $52,000 lower in the first three months of 2013 than in the same period in 2012 due to lower legal fees related to nonperforming loans.
Income Tax Expense
Income tax expense was $426,000 in the first quarter of 2013 compared to $257,000 for the same quarter in 2012. The effective tax rate was 25.6% for 2013 and 20.2% for 2012. The increase in the effective tax rate in 2013 compared to 2012 was primarily due to nontaxable income from a life insurance death benefit received in the first quarter of 2012.
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FINANCIAL CONDITION
Securities
The securities available for sale portfolio decreased $0.8 million from December 31, 2012 to March 31, 2013. Various securities totaling $6.2 million were purchased in the first three months of 2013 to replace maturities, principal repayments, and calls within the securities portfolio. Approximately $4.2 million in various securities were called or matured since the end of 2012. Principal repayments on securities totaled $1.4 million in the first three months of 2013. Approximately $1.3 million of securities were sold in the first quarter of 2013 for a net gain of $23,000.
Loans
The loan portfolio (excluding loans held for sale) grew $1.6 million from December 31, 2012 to March 31, 2013. Commercial real estate loans increased $3.1 million and commercial and industrial loans increased $1.3 million since the end of 2012. Agricultural loans, consumer loans, and residential mortgage loans declined $1.8 million, $0.2 million, and $0.8 million, respectively, in the first quarter of 2013. Much of the decrease in agricultural loans in the first quarter of 2013 resulted from seasonal pay-downs on lines of credit.
Information regarding impaired loans can be found in Note 3 to the consolidated financial statements included in this report. The total balance of loans classified as impaired increased from $5.9 million as of December 31, 2012 to $8.3 million as of March 31, 2013. Residential real estate loans classified as impaired grew $1.2 million and commercial real estate loans classified as impaired grew by $0.6 million in the first quarter.
As part of its review of the loan portfolio, management also monitors the various nonperforming loans. Nonperforming loans are comprised of: (1) loans accounted for on a nonaccrual basis; (2) loans, not included in nonaccrual loans, which are contractually past due 90 days or more as to interest or principal payments; and (3) loans, not included in nonaccrual or loans past due 90 days or more, which are considered troubled debt restructurings.
The balances of these nonperforming loans were as follows:
| (Dollars in thousands) | ||||||||
| March 31, 2013 | December 31, 2012 | |||||||
| Loans accounted for on a nonaccrual basis | $ | 1,729 | $ | 2,331 | ||||
| Accruing loans contractually past due 90 days or more as to principal or interest payments | 512 | 30 | ||||||
| Loans considered troubled debt restructurings | 4,623 | 4,405 | ||||||
| Total | $ | 6,864 | $ | 6,766 | ||||
At March 31, 2013, nonaccrual loans included $784,000 in commercial real estate loans, $631,000 in residential real estate loans, $187,000 in commercial and industrial loans, and $114,000 in agricultural loans. At December 31, 2012, nonaccrual loans included $1,230,000 in commercial real estate loans, $754,000 in residential real estate loans, $220,000 in commercial and industrial loans, and $94,000 in agricultural loans. The decrease in nonaccrual loans was due to payments received and charge-offs. Management believes the allowance allocated to its nonperforming loans is sufficient at March 31, 2013.
Other Real Estate Owned
The balance of other real estate owned (“OREO”) increased $58,000 from December 31, 2012 to March 31, 2013. A total of $365,000 of loans were transferred into OREO during the first quarter of 2013 while sales of properties or payments upon them or write-downs of the value of other real estate properties were $307,000 for the same time period. Due to the current state of the Michigan economy, management believes there will be continuing transfers from loans into OREO during the remainder of 2013. The OREO balance may also be affected by troubled debt restructurings in future quarters as loans can be restructured as an alternative to foreclosure. Management is continuing to work with borrowers in an attempt to mitigate potential losses for ChoiceOne.
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Deposits and Borrowings
Total deposits increased $1.5 million from December 31, 2012 to March 31, 2013. Since the end of 2012, money market account balances have risen $16.0 million and savings deposits have grown $4.8 million. Decreases in local certificates of deposit, noninterest-bearing checking accounts, and interest-bearing checking accounts of $8.3 million, $6.2 million, and $4.8 million, respectively were experienced in the first quarter of 2013.
A decline of $1.2 million in repurchase agreements in the first quarter of 2013 was due to normal fluctuations in funds provided by bank customers. Certain securities are sold under agreements to repurchase them the following day or over a certain fixed term. Management plans to continue this practice as a low-cost source of funding. Federal Home Loan Bank advances decreased $7,000 in the first quarter of 2013 due to payments on an amortizing advance.
Shareholders' Equity
Total shareholders' equity increased $740,000 from December 31, 2012 to March 31, 2013. Growth in equity resulted from current year’s net income, an increase in accumulated other comprehensive income, and proceeds from issuances of ChoiceOne stock, offset by cash dividends paid.
Following is information regarding the Bank’s compliance with regulatory capital requirements:
| Total | ||||||||||||
| Risk- | ||||||||||||
| (Dollars in thousands) | Leverage | Tier 1 | Based | |||||||||
| Capital | Capital | Capital | ||||||||||
| Capital balances at March 31, 2013 | $ | 42,789 | $ | 42,789 | $ | 46,808 | ||||||
| Required regulatory capital to be considered “well capitalized” | 24,233 | 20,355 | 33,925 | |||||||||
| Capital in excess of “well capitalized” minimum | 18,556 | 22,434 | 12,883 | |||||||||
| Capital ratios at March 31, 2013 | 8.83 | % | 12.61 | % | 13.80 | % | ||||||
| Regulatory capital ratios – minimum requirement to be considered “well capitalized” | 5.00 | % | 6.00 | % | 10.00 | % | ||||||
Management reviews the capital levels of ChoiceOne and the Bank on a regular basis. The Board of Directors (the “Board”) and management believe that the capital levels as of March 31, 2013 are adequate for the foreseeable future. The Board’s determination of appropriate cash dividends for future periods will be based on market conditions and ChoiceOne’s requirements for cash and capital.
Liquidity
Net cash provided from operating activities was $0.8 million for the three months ended March 31, 2013 compared to $3.1 million provided in the same period a year ago. The primary reason for the decrease was a $1.9 million net decrease in net activity of sold loans. Net cash used in investing activities was $1.9 million for the first quarter of 2013 compared to $0.8 million in the same period in 2012. The effect of loan growth in the first quarter of 2013 compared to a decline in loans in the first quarter of 2012 was offset by less net purchases of securities in 2013 than in 2012. Net cash provided from financing activities was a negative $0.1 million in the quarter ended March 31, 2013, compared to $6.2 million in the same period in the prior year. The decrease resulted from less deposit growth in 2013 than in 2012, partially offset by a smaller decrease in repurchase agreements.
Management believes that the current level of liquidity is sufficient to meet the Bank's normal operating needs. This belief is based upon the availability of deposits from both the local and national markets, maturities of securities, normal loan repayments, income retention, federal funds purchased from correspondent banks, and advances available from the Federal Home Loan Bank. The Bank also has a secured line of credit available from the Federal Reserve Bank.
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Item 4. Controls and Procedures.
An evaluation was performed under the supervision and with the participation of the Registrant’s management, including the Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based on and as of the time of that evaluation, the Registrant’s management, including the Chief Executive Officer and Principal Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that material information required to be disclosed in the reports that ChoiceOne files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that ChoiceOne files or submits under the Exchange Act is accumulated and communicated to management, including ChoiceOne’s principal executive and principal financial officers, as appropriate to allow for timely decisions regarding required disclosure. There was no change in the Registrant’s internal control over financial reporting that occurred during the three months ended March 31, 2013 that has materially affected, or that is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings to which the Registrant or the Bank is a party to or to which any of their properties are subject, except for proceedings that arose in the ordinary course of business. In the opinion of management, pending or current legal proceedings will not have a material effect on the consolidated financial condition of the Registrant.
Item 1A. Risk Factors.
Information concerning risk factors is contained in the discussion in Item 1A, “Risk Factors,” in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2012. As of the date of this report, ChoiceOne does not believe that there has been a material change in the nature or categories of ChoiceOne's risk factors, as compared to the information disclosed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On January 23, 2013, the Registrant issued 848 shares of common stock, without par value, to the directors of the Registrant pursuant to the Directors’ Stock Purchase Plan for an aggregate cash price of $12,000. The Registrant relied on the exemption contained in Section 4(5) of the Securities Act of 1933 in connection with these sales.
ISSUER PURCHASES OF EQUITY SECURITIES
There were no purchases of equity securities by the Registrant in the first quarter of 2013. As of March 31, 2013, there are 96,388 shares remaining that may yet be purchased under approved plans or programs. The repurchase plan was adopted and announced on July 26, 2007. There is no stated expiration date. The plan authorized the repurchase of up to 100,000 shares.
Item 6. Exhibits
The following exhibits are filed or incorporated by reference as part of this report:
| Exhibit Number | Document | ||
| 3.1 | Amended and Restated Articles of Incorporation of the Registrant. Previously filed as an exhibit to the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 2008. Here incorporated by reference. | ||
| 3.2 | Bylaws of the Registrant as currently in effect and any amendments thereto. Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2008. Here incorporated by reference. | ||
| 31.1 | Certification of President and Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 31.2 | Certification of Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32.1 | Certification pursuant to 18 U.S.C. § 1350. | ||
| 101.1* | Interactive Data File.
*As provided in Rule 406T of Regulation S-T, this information shall not be deemed filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Exchange Act or otherwise subject to liability under those sections. |
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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.
| CHOICEONE FINANCIAL SERVICES, INC. | |
| Date: May 15, 2013 | /s/ James A. Bosserd |
| James A. Bosserd | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: May 15, 2013 | /s/ Thomas L. Lampen |
| Thomas L. Lampen | |
| Treasurer | |
| (Principal Financial and Accounting Officer) |
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INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part of this report:
| Exhibit Number | Document | ||
| 3.1 | Amended and Restated Articles of Incorporation of the Registrant. Previously filed as an exhibit to the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 2008. Here incorporated by reference. | ||
| 3.2 | Bylaws of the Registrant as currently in effect and any amendments thereto. Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2008. Here incorporated by reference. | ||
| 31.1 | Certification of President and Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31.2 | Certification of Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32.1 | Certification pursuant to 18 U.S.C. § 1350. | ||
| 101.1* | Interactive Data File.
*As provided in Rule 406T of Regulation S-T, this information shall not be deemed filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Exchange Act or otherwise subject to liability under those sections.
|
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