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Choiceone Financial Services Inc (COFS) SEC Filing 10-K Annual report for the fiscal year ending Tuesday, December 31, 2013

Choiceone Financial Services Inc

CIK: 803164 Ticker: COFS

EXHIBIT 99.1

 

 

 

News Release

 

Contact: Tom Lampen, ChoiceOne Bank
(616) 887-2337
tlampen@choiceone.com

 

ChoiceOne Financial Announces Earnings For 2013

 

Sparta, Michigan – January 31, 2014 – ChoiceOne Financial Services, Inc. (OTCBB:COFS), parent company for ChoiceOne Bank, reported net income of $1,346,000 for the fourth quarter of 2013 compared to $1,104,000 in the same period in 2012. Earnings per share were $0.41 for the fourth quarter of 2013 compared to $0.33 for the fourth quarter in the prior year. Net income for the full year 2013 was $5,094,000 or $1.55 per share, compared to $4,262,000 or $1.29 per share for the full year 2012.

 

“I am very pleased to report our earnings for the fourth quarter and year of 2013,” said James Bosserd, President and Chief Executive Officer of ChoiceOne Financial Services, Inc. “Our fourth quarter net income increased 22 percent and our full year net income increased 20 percent when compared to the same periods in 2012. As a local community bank, I believe it is important to note our loan growth in the last 12 months demonstrated our commitment to meeting the credit needs of the families, farmers, and businesses in our local communities. We experienced deposit growth of $13.0 million in our checking and savings accounts over the past 12 months as we continued to build new and expanded relationships with our clients. I am also pleased to report that by actively managing our other real estate owned properties, we reduced this balance from $2.0 million as of December 31, 2012 to $508,000 as of December 31, 2013. Our growth in loans and deposits has shown that we are active in developing and supporting our communities.”

 

The primary reason for the increase in net income in both the fourth quarter and the full year 2013 compared to the same periods in 2012 was a lower provision for loan losses. This was partially offset by lower net interest income and noninterest income for both periods. Noninterest expense was down slightly in the fourth quarter of 2013, in contrast to the full year 2013 which was higher than 2012.

 

Net interest income decreased $124,000 in the fourth quarter of 2013 and $79,000 for the full year 2013 compared to the same periods in the prior year. Average earning assets grew $4.3 million in the full year 2013 compared to the same period in 2012. The average balance of loans increased $5.2 million during 2013 as average commercial loans were $4.0 million higher and consumer loans $0.9 million higher in the full year 2013 than in the prior year. The average balance of securities was $4.4 million higher in the full year 2013 than in the prior year as securities were purchased during 2013 to provide growth in earning assets. ChoiceOne’s net interest spread was unchanged from the year of 2012 to the full year 2013. The net reductions in rates paid on funding sources were equal to the reductions in rates earned on loans and investment securities.

 

The provision for loan losses was $0 in the fourth quarter and $300,000 in the full year 2013, compared to $540,000 and $2,515,000, respectively, in the same periods in 2012. Although net charge-offs were higher in the fourth quarter of 2013 than in the corresponding period in 2012, net charge-offs for the full year 2013 were lower than the prior year, which caused the need for less provision expense. Net charge-offs were $977,000 in the fourth quarter of 2013 and $1,417,000 in the full year 2013, compared to $461,000 and $1,876,000, respectively, in the same periods in the prior year. ChoiceOne’s allowance for loan losses was 1.50 percent of total loans as of December 31, 2013, compared to 1.81 percent as of September 30, 2013 and 1.88 percent as of December 31, 2012. Total nonperforming loans were $7.7 million as of December 31, 2013, compared to $7.4 million as of September 30, 2013 and $6.8 million as of December 31, 2012. The increase in nonperforming loans during 2013 was due to an increase of $792,000 in nonaccrual loans. Nonperforming loans included $5.0 million of loans classified as troubled debt restructurings as of December 31, 2013, of which $4.2 million was current as to payments and performing according to their new terms.

 

 

The following information was filed by Choiceone Financial Services Inc (COFS) on Friday, January 31, 2014 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

 

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
  For the fiscal year ended December 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 Street, Sparta, Michigan
(Address of Principal Executive Offices)
  49345
(Zip Code)

 

(616) 887-7366
(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:

 

Common Stock
(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes     No 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes     No 

 

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    No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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). Yes    No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

 

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 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 company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

 

As of June 30, 2013, the aggregate market value of common stock held by non-affiliates of the Registrant was $50.9 million. This amount is based on an average bid price of $15.44 per share for the Registrant’s stock as of such date.

 

As of February 28, 2014, the Registrant had 3,296,537 shares of common stock outstanding.

 

 
 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Part I, Item 1, and Part II, Items 5 through 9A incorporate by reference portions of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2013.

 

Part III, Items 10 through 14 incorporate by reference portions of the Registrant’s Definitive Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held April 30, 2014.

  

FORWARD-LOOKING STATEMENTS

 

This report and the documents incorporated into this 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 the Registrant itself. Words such as “anticipates,” “believes,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “may,” “could,” “estimates,” 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, the Registrant 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 disclosed in Item 1A of this report, 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; 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 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.

 

PART I

 

Item 1. Business

 

General

ChoiceOne Financial Services, Inc. (the “Registrant”) is a one-bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Registrant was incorporated on February 24, 1986, as a Michigan corporation. The Registrant was formed to create a bank holding company for the purpose of acquiring all of the capital stock of ChoiceOne Bank (formerly Sparta State Bank), which became a wholly owned subsidiary of the Registrant on April 6, 1987. The Registrant’s only subsidiary and significant asset as of December 31, 2013, was ChoiceOne Bank (the “Bank”). Effective January 1, 1996, the Bank acquired all of the outstanding common stock of ChoiceOne Insurance Agencies, Inc. (formerly Bradford Insurance Centre, Ltd.), an independent insurance agency headquartered in Sparta, Michigan (the “Insurance Agency”). Effective January 1, 2002, the Bank formed ChoiceOne Mortgage Company of Michigan (the “Mortgage Company”). In December 2008, the operations of the Mortgage Company were consolidated into the Bank and the Mortgage Company subsidiary was eliminated. The Bank also owns a 25% interest in a non-banking corporation, West Shore Computer Services, Inc., a data processing firm located in Scottville, Michigan. Effective November 1, 2006, the Registrant merged with Valley Ridge Financial Corp. (“VRFC”), a single-bank holding company for Valley Ridge Bank (“VRB”). In the merger, the Registrant issued shares of its common stock in exchange for all outstanding shares of VRFC. In December 2006, VRB was consolidated into the Bank.

 

2
 

 

The Registrant’s business is primarily concentrated in a single industry segment - banking. The Bank is a full-service banking institution that offers a variety of deposit, payment, credit and other financial services to all types of customers. These services include time, savings, and demand deposits, safe deposit services, and automated transaction machine services. Loans, both commercial and consumer, are extended primarily on a secured basis to corporations, partnerships and individuals. Commercial lending covers such categories as business, industry, agricultural, construction, inventory and real estate. The Bank’s consumer loan department makes direct and indirect loans to consumers and purchasers of residential and real property. The Mortgage Company originated and sold a full line of conventional type mortgage loans for 1-4 family and multi-family residential real estate properties. No material part of the business of the Registrant or the Bank is dependent upon a single customer or very few customers, the loss of which would have a materially adverse effect on the Registrant.

 

The Bank’s primary market area lies within portions of Kent, Muskegon, Newaygo, and Ottawa counties in Michigan in the communities where the Bank’s offices are located. Currently the Bank serves these markets through thirteen full-service offices. The Registrant and the Bank have no foreign assets or income.

 

The principal source of revenue for the Registrant and the Bank is interest and fees on loans. On a consolidated basis, interest and fees on loans accounted for 62%, 62%, and 67% of total revenues in 2013, 2012, and 2011, respectively. Interest on securities accounted for 13%, 12%, and 11% of total revenues in 2013, 2012, and 2011, respectively.

 

The Consolidated Financial Statements incorporated by reference in Part II, Item 8 contain information concerning the financial position and results of operations of the Registrant.

 

Competition

The Bank’s competition primarily comes from other financial institutions located within Kent, Muskegon, Newaygo, and Ottawa counties in western Michigan. There are a number of larger commercial banks within the Bank’s primary market area. The Bank also competes with a large number of other financial institutions, such as savings and loan associations, insurance companies, consumer finance companies, credit unions and commercial finance and leasing companies for deposits, loans and service business. Money market mutual funds, brokerage houses and nonfinancial institutions provide many of the financial services offered by the Bank. Many of these competitors have substantially greater resources than the Bank. The principal methods of competition for financial services are price (the rates of interest charged for loans, the rates of interest paid for deposits and the fees charged for services) and the convenience and quality of services rendered to customers.

 

Supervision and Regulation

Banks and bank holding companies are extensively regulated. The Registrant is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Registrant’s activities are generally limited to owning or controlling banks and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking. Prior approval of the Federal Reserve Board, and in some cases various other government agencies, is required for the Registrant to acquire control of any additional bank holding companies, banks or other operating subsidiaries.

 

The Bank is chartered under state law and is subject to regulation by the Michigan Office of Financial and Insurance Regulation. State banking laws place restrictions on various aspects of banking, including permitted activities, loan interest rates, branching, payment of dividends and capital and surplus requirements. The Bank is a member of the Federal Reserve System and is also subject to regulation by the Federal Reserve Board. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”) to the extent provided by law. The Bank became a member of the Federal Home Loan Bank system in March 1993. This provides certain advantages to the Bank, including favorable borrowing rates for certain funds.

 

The Registrant is a legal entity separate and distinct from the Bank. There are legal limitations on the extent to which the Bank can lend or otherwise supply funds to the Registrant. In addition, payment of dividends to the Registrant by the Bank is subject to various state and federal regulatory limitations.

 

3
 

 

Under Federal Reserve Board policy, the Registrant is expected to act as a source of financial strength to the Bank and to commit resources to support it. The FDIC formed the Deposit Insurance Fund (“DIF”) in accordance with the Federal Deposit Insurance Reform Act of 2005 (“Reform Act”). The FDIC will maintain the insurance reserves of the DIF by assessing depository institutions an insurance premium.

 

The FDIC adopted final regulations that implemented the Reform Act to create a stronger and more stable insurance system. The final regulations enable the FDIC to tie each depository institution’s DIF insurance premiums both to the balance of insured deposits, as well as to the degree of risk the institution poses to the DIF. In addition, the FDIC has new flexibility to manage the DIF’s reserve ratio within a range, which in turn may help prevent sharp swings in assessment rates that were possible under the design of the former system. Under the new risk-based assessment system, the FDIC will evaluate each depository institution’s risk based on three primary sources of information: supervisory ratings for all insured institutions, financial ratios for most institutions, and long-term debt issuer ratings for large institutions that have them. Neither the Registrant nor the Bank has a long-term debt issuer rating. The ability to differentiate on the basis of risk will improve incentives for effective risk management and will reduce the extent to which safer banks subsidize riskier ones.

 

The 2008 DIF rates for nearly all depository institutions varied between five and seven cents for every $100 of deposits. The 2009 rates were approximately double those of the prior year as depository institutions classified in the FDIC’s Risk Category I were assessed between 12 and 14 cents for every $100 of deposits. The rates could increase up to 50 cents for every $100 of deposits for riskier institutions. In addition, the FDIC imposed a special assessment of 5 basis points on each insured institution’s assets minus its Tier 1 capital on September 30, 2009. The FDIC passed a regulation in November 2010 that changed the deposit insurance assessment base from total domestic deposits to average total assets less average tangible equity.

 

The Deposit Insurance Funds Act of 1996 authorized the Financing Corporation (“FICO”) to impose periodic assessments on all depository institutions. The purpose of these periodic assessments is to spread the cost of the interest payments on the outstanding FICO bonds issued to recapitalize the Savings Association Insurance Fund (“SAIF”) over a larger number of institutions. Until the change in the law, only SAIF member institutions bore the cost of funding these interest payments.

 

Banks are subject to a number of federal and state laws and regulations, which have a material impact on their business. These include, among others, minimum capital requirements, state usury laws, state laws relating to fiduciaries, the Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Expedited Funds Availability Act, the Community Reinvestment Act, the Real Estate Settlement Procedures Act, the USA PATRIOT Act, the Bank Secrecy Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, electronic funds transfer laws, redlining laws, predatory lending laws, antitrust laws, environmental laws, money laundering laws and privacy laws. The instruments of monetary policy of authorities, such as the Federal Reserve Board, may influence the growth and distribution of bank loans, investments and deposits, and may also affect interest rates on loans and deposits. These policies may have a significant effect on the operating results of banks.

 

Bank holding companies may acquire banks and other bank holding companies located in any state in the United States without regard to geographic restrictions or reciprocity requirements imposed by state banking law. Banks may also establish interstate branch networks through acquisitions of and mergers with other banks. The establishment of de novo interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is allowed only if specifically authorized by state law.

 

Michigan banking laws do not significantly restrict interstate banking. The Michigan Banking Code permits, in appropriate circumstances and with the approval of the Office of Financial and Insurance Regulation, (1) acquisition of Michigan banks by FDIC-insured banks, savings banks or savings and loan associations located in other states, (2) sale by a Michigan bank of branches to an FDIC-insured bank, savings bank or savings and loan association located in a state in which a Michigan bank could purchase branches of the purchasing entity, (3) consolidation of Michigan banks and FDIC-insured banks, savings banks or savings and loan associations located in other states having laws permitting such consolidation, (4) establishment of branches in Michigan by FDIC-insured banks located in other states, the District of Columbia or U.S. territories or protectorates having laws permitting a Michigan bank to establish a branch in such jurisdiction, and (5) establishment by foreign banks of branches located in Michigan.

 

4
 

 

Effects of Compliance With Environmental Regulations

The nature of the business of the Bank is such that it holds title, on a temporary or permanent basis, to a number of parcels of real property. These include properties owned for branch offices and other business purposes as well as properties taken in or in lieu of foreclosure to satisfy loans in default. Under current state and federal laws, present and past owners of real property may be exposed to liability for the cost of clean up of environmental contamination on or originating from those properties, even if they are wholly innocent of the actions that caused the contamination. These liabilities can be material and can exceed the value of the contaminated property. Management is not presently aware of any instances where compliance with these provisions will have a material effect on the capital expenditures, earnings or competitive position of the Registrant or the Bank, or where compliance with these provisions will adversely affect a borrower’s ability to comply with the terms of loan contracts.

 

Employees

As of February 28, 2014, the Registrant, the Bank and the Insurance Agency employed 153 employees, of which 122 were full-time employees. The Registrant, Bank, and Insurance Agency believe their relations with their employees are good.

 

Statistical Information

Additional statistical information describing the business of the Registrant appears on the following pages and in Management’s Discussion and Analysis of Financial Condition and Results of Operations incorporated by reference in Item 7 of this report and in the Consolidated Financial Statements and the notes thereto incorporated by reference in Item 8 of this report.

 

The following statistical information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and notes thereto incorporated by reference in this report.

 

Securities Portfolio

The carrying value of securities categorized by type at December 31 was as follows:

 

(Dollars in thousands)

   2013   2012   2011 
             
U.S. Government and federal agency  $43,722   $40,268   $40,413 
U.S. Treasury notes and bonds   7,224    7,398     
State and municipal   64,775    64,678    54,499 
Mortgage-backed   8,470    12,526    9,780 
Corporate   8,815    6,712    6,011 
Foreign debt securities   990    1,001     
Equity securities   1,603    1,909    1,535 
Asset-backed securities   483         
FDIC-guaranteed financial institution debt           2,038 
Total  $136,082   $134,492   $114,276 

 

The Registrant did not hold investment securities from any one issuer at December 31, 2013, that were greater than 10% of the Registrant’s shareholders’ equity, exclusive of U.S. Government and U.S. Government agency securities.

 

5
 

 

Presented below is the fair value of securities as of December 31, 2013 and 2012, a schedule of maturities of securities as of December 31, 2013, and the weighted average yields of securities as of December 31, 2013.

 

(Dollars in thousands)

   Securities maturing within:         
                   Fair Value   Fair Value 
   Less than   1 Year -   5 Years -   More than   at Dec. 31   at Dec. 31 
   1 Year   5 Years   10 Years   10 Years   2013   2012 
                         
U.S. Government and federal agency  $13,010   $27,803   $2,909   $   $43,722   $40,268 
U.S. Treasury notes and bonds       7,224            7,224    7,398 
State and municipal   8,956    24,786    28,331    2,702    64,775    64,678 
Mortgage-backed securities   153    5,623    2,625    69    8,470    12,526 
Corporate   2,231    6,584            8,815    6,712 
Foreign debt securities       990            990    1,001 
Asset-backed securities   483                483     
Total debt securities  $24,833   $73,010   $33,865   $2,771   $134,479   $132,583 
                               
Equity securities (1)               1,603    1,603    1,909 
   $24,833   $73,010   $33,865   $4,374   $136,082   $134,492 

 

   Weighted average yields: 
   Less than   1 Year -   5 Years -   More than     
   1 Year   5 Years   10 Years   10 Years   Total 
U.S. Government and federal agency   1.62%   1.18%   1.58%   %   1.34%
State and municipal (2)   4.35    4.43    4.00    4.81    4.25 
Foreign debt securities       1.10            1.10 
Asset-backed securities   0.50                0.50 
U.S. Treasury       0.78            0.78 
Mortgage-backed securities   4.50    2.46    1.94    2.33    2.34 
Corporate   1.96    1.56            1.66 
Equity securities (1)               4.23    4.33 

 

(1) Equity securities are preferred and common stock that may or may not have a stated maturity.

(2) The yield is computed for tax-exempt securities on a fully tax-equivalent basis at an incremental tax rate of 34%.

 

Loan Portfolio

The Bank’s loan portfolio categorized by loan type (excluding loans held for sale) as of December 31 is presented below.

 

(Dollars in thousands)

   2013   2012   2011   2010   2009 
Agricultural  $37,048   $31,790   $38,929   $29,681   $31,322 
Commercial and industrial   68,530    67,365    58,685    55,947    53,964 
Consumer   19,931    19,367    18,657    16,709    16,285 
Real estate - commercial   96,987    93,312    106,250    116,351    121,100 
Real estate - construction   890    1,056    1,169    853    1,158 
Real estate - residential   92,580    98,578    96,437    97,399    98,887 
Total loans, gross  $315,966   $311,468   $320,127    316,940   $322,716 

 

6
 

 

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following schedule presents the maturities of loans (excluding residential real estate and consumer loans) as of December 31, 2013. All loans over one year in maturity (excluding residential real estate and consumer loans) are also presented classified according to the sensitivity to changes in interest rates as of December 31, 2013.

 

(Dollars in thousands)

   Less than   1 Year -   More than     
   1 Year   5 Years   5 Years   Total 
Loan Type                    
Agricultural  $9,720   $17,193   $10,135   $37,048 
Commercial and industrial   14,843    41,853    11,834    68,530 
Real estate - commercial   20,716    60,790    15,481    96,987 
Real estate - construction      656    234    890 
    Totals  $45,279   $120,492   $37,684   $203,455 

 

   Less than   1 Year -   More than     
  1 Year   5 Years   5 Years   Total 
Loan Sensitivity to Changes in Interest Rates                    
Loans with fixed interest rates  $16,593   $118,015   $37,684   $172,292 
Loans with floating or adjustable interest rates   28,686    2,477        31,163 
    Totals  $45,279   $120,492   $37,684   $203,455 

 

(1)  Loan maturities are classified according to the contractual maturity date or the anticipated amortization period, whichever is appropriate. The anticipated amortization period is used in the case of loans where a balloon payment is due before the end of the loan’s normal amortization period. At the time the balloon payment is due, the loan can either be rewritten or payment in full can be requested. The decision regarding whether the loan will be rewritten or a payment in full will be requested will be based upon the loan’s payment history, the borrower’s current financial condition, and other relevant factors.

 

Risk Elements

The following loans were classified as nonperforming as of December 31:

 

(Dollars in thousands)

   2013   2012   2011   2010   2009 
Loans accounted for on a non-accrual basis  $3,123   $2,331   $4,155   $6,273   $11,881 
Accruing loans which are contractually past due                         
  90 days or more as to principal or interest payments   11    30    70    23    202 
Loans defined as “troubled debt restructurings”   4,523    4,405    2,448    2,141    1,919 
    Totals  $7,657   $6,766   $6,673   $8,437   $14,002 

 

A loan is placed on nonaccrual status at the point in time at which the collectability of principal or interest is considered doubtful.

 

The table below illustrates interest forgone and interest recorded on nonperforming loans for the years presented.

 

(Dollars in thousands)

   2013   2012   2011   2010   2009 
Interest on non-performing loans which would have                         
  been earned had the loans been in an accrual or                         
  performing status  $251   $183   $373   $492   $567 
Interest on non-performing loans that was actually                         
  recorded when received  $   $   $   $2   $ 

 

Potential Problem Loans

At December 31, 2013, there were $14 million of loans not disclosed above where some concern existed as to the borrowers’ abilities to comply with original loan terms. Specific loss allocations totaling $1.1 million from the allowance for loan losses had been allocated for all nonperforming and potential problem loans as of December 31, 2013. However, the entire allowance for loan losses is also available for these potential problem loans.

 

Loan Concentrations

As of December 31, 2013, there was no concentration of loans exceeding 10% of total loans that is not otherwise disclosed as a category of loans in the loan portfolio listing in Note 3 to the Consolidated Financial Statements incorporated by reference in Item 8 of this report.

 

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Other Interest-Bearing Assets

As of December 31, 2013, there were no other interest-bearing assets requiring disclosure.

 

Summary of Loan Loss Experience

The following schedule presents a summary of activity in the allowance for loan losses for the periods shown and the percentage of net charge-offs during each period to average gross loans outstanding during the period.

 

(Dollars in thousands)                    
   2013   2012   2011   2010   2009 
                     
Balance at January 1  $5,852   $5,213   $4,729   $4,322   $3,600 
                          
Charge-offs:                         
Agricultural   88        45         
Commercial and industrial   122    405    228    765    1,558 
Consumer   351    338    361    444    535 
Real estate - commercial   858    869    1,357    1,523    1,217 
Real estate - construction                   15 
Real estate - residential   732    887    1,677    1,152    1,369 
Total charge-offs   2,151    2,499    3,668    3,884    4,694 
                          
Recoveries:                         
Agricultural   6    5    10         
Commercial and industrial   337    61    32    68    102 
Consumer   175    214    217    230    246 
Real estate - commercial   84    224    89    16    58 
Real estate - construction                   29 
Real estate - residential   132    119    104    27    106 
Total recoveries   734    623    452    341    541 
                          
Net charge-offs   1,417    1,876    3,216    3,543    4,153 
                          
Additions charged to operations (1)   300    2,515    3,700    3,950    4,875 
                          
Balance at December 31  $4,735   $5,852   $5,213   $4,729   $4,322 
                         
Ratio of net charge-offs during the period to average loans outstanding during the period   0.45%   0.61%   1.01%   1.12%   1.30%

 

(1)Additions to the allowance for loan losses charged to operations during the periods shown were based on management’s judgment after considering factors such as loan loss experience, evaluation of the loan portfolio, and prevailing and anticipated economic conditions. The evaluation of the loan portfolio is based upon various risk factors such as the financial condition of the borrower, the value of collateral and other considerations, which, in the opinion of management, deserve current recognition in estimating loan losses.

 

The following schedule presents an allocation of the allowance for loan losses to the various loan categories as of the years ended December 31.

 

(Dollars in thousands)                    
   2013   2012   2011   2010   2009 
Agricultural  $178   $140   $55   $181   $124 
Commercial and industrial   562    381    609    641    735 
Consumer   192    250    197    243    306 
Real estate - commercial   1,842    2,596    2,299    1,729    1,546 
Real estate - construction   12    15    34    2    3 
Real estate - residential   1,626    1,923    1,847    1,554    1,590 
Unallocated   323    547    172    379    18 
Total allowance  $4,735   $5,852   $5,213   $4,729   $4,322 

 

The increase in the allowance allocation to commercial and industrial loans was caused by an increase in loans rated 5, 6, or 7 from $1,359,000 as of December 31, 2012 to $1,697,000 as of December 31, 2013. The decrease in the allowance allocation to commercial real estate loans was due to a decrease in loans rated 5, 6, or 7 from $15,083,000 as of December 31, 2012 to $12,696,000 as of December 31, 2013. The decline in the allowance allocation to residential real estate loans occurred as a result of a reduction in historical charge-off levels in this loan category.

 

8
 

 

Management periodically reviews the assumptions, loss ratios and delinquency trends in estimating the appropriate level of its allowance for loan losses and believes the unallocated portion of the total allowance is sufficient at December 31, 2013.

 

The following schedule presents the stratification of the loan portfolio by category, based on the amount of loans outstanding as a percentage of total loans for the respective years ended December 31.

 

   2013   2012   2011   2010   2009 
Agricultural   12%   10%   12%   9%   10%
Commercial and industrial   22    22    18    18    17 
Consumer   6    6    6    5    5 
Real estate - commercial   31    30    33    37    37 
Real estate - construction           1         
Real estate - residential   29    32    30    31    31 
Total allowance   100%   100%   100%   100%   100%

 

Deposits

The following schedule presents the average deposit balances by category and the average rates paid thereon for the respective years.

 

(Dollars in thousands)

  2013  2012  2011 
Noninterest-bearing demand  $93,853       $83,810       $72,707     
Interest-bearing demand and money market deposits   132,053    0.20%   136,118    0.27%   124,575    0.43%
Savings   65,484    0.06%   50,252    0.12%   45,698    0.11%
Certificates of deposit   119,072    0.86%   138,805    1.20%   153,494    1.54%
Total  $410,462    0.32%  $408,985    0.51%  $396,474    0.74%

 

The following table illustrates the maturities of certificates of deposits issued in denominations of $100,000 or more as of December 31, 2013.

 

(Dollars in thousands)     
Maturing in less than 3 months  $12,432 
Maturing in 3 to 6 months   13,078 
Maturing in 6 to 12 months   11,970 
Maturing in more than 12 months   19,873 
    Total  $57,353 

 

Short-Term Borrowings

Federal funds purchased by the Registrant are unsecured overnight borrowings from correspondent banks. Federal funds purchased are due the next business day. The table below provides additional information regarding these short-term borrowings:

 

(Dollars in thousands)            
   2013   2012   2011 
Outstanding balance at December 31  $   $   $ 
Average interest rate at December 31   %   %   %
Average balance during the year  $578   $97   $3 
Average interest rate during the year   0.36%   0.14%   0.72%
Maximum month end balance during the year  $5,597   $   $6,120 

 

9
 

 

Repurchase agreements include advances by Bank customers that are not covered by federal deposit insurance. These agreements are direct obligations of the Registrant and are secured by securities held in safekeeping at a correspondent bank. The table below provides additional information regarding these short-term borrowings:

 

(Dollars in thousands)            
   2013   2012   2011 
Outstanding balance at December 31  $26,033   $19,572   $16,869 
Average interest rate at December 31   0.22%   0.25%   0.30%
Average balance during the year  $19,456   $19,289   $15,815 
Average interest rate during the year   0.23%   0.27%   0.36%
Maximum month end balance during the year  $26,995   $22,984   $17,249 

 

Advances from the Federal Home Loan Bank (“FHLB”) with original repayment terms less than one year are considered short-term borrowings for the Registrant. These advances are secured by residential real estate mortgage loans and U.S. government agency securities. The advances have maturities ranging from 6 months to 9 months from the date of issue.

 

The table below provides additional information regarding these short-term borrowings:

 

(Dollars in thousands)            
   2013   2012   2011 
Outstanding balance at December 31  $6,000   $   $ 
Average interest rate at December 31   0.40%   %   %
Average balance during the year  $7,415   $   $1 
Average interest rate during the year   0.60%   %   0.49%
Maximum month end balance during the year  $12,409   $   $ 

 

There were no other categories of short-term borrowings whose average balance outstanding exceeded 30% of shareholders’ equity in 2013, 2012, or 2011.

 

Return on Equity and Assets

The following schedule presents the Registrant’s ratios for the years ended December 31:

 

   2013   2012   2011 
Return on assets(net income divided by average total assets)   1.01%   0.85%   0.72%
                
Return on equity(net income dividend by average equity)   8.31%   7.17%   6.26%
                
Dividend payout ratio(dividends declared per share divided   34.93%   38.67%   44.92%
  by net income per share)               
                
Equity to assets ratio(average equity divided by average total assets)   12.21%   11.87%   11.53%

 

Item 1A. Risk Factors

 

The Registrant is subject to many risks and uncertainties. Although the Registrant seeks ways to manage these risks and develop programs to control risks to the extent that management can control them, the Registrant cannot predict the future. Actual results may differ materially from management’s expectations. Some of these significant risks and uncertainties are discussed below. The risks and uncertainties described below are not the only ones that the Registrant faces. Additional risks and uncertainties of which the Registrant is unaware, or that it currently does not consider to be material, also may become important factors that affect the Registrant and its business. If any of these risks were to occur, the Registrant’s business, financial condition or results of operations could be materially and adversely affected.

 

Investments in the Registrant’s common stock involve risk.

 

The market price of the Registrant’s common stock may fluctuate significantly in response to a number of factors, including:

 

· Variations in quarterly or annual operating results
· Changes in interest rates
· New developments in the banking industry
· Regulatory actions
· Volatility of stock market prices and volumes

 

 

10
 

 

· Changes in market valuations of similar companies
· New litigation or contingencies or changes in existing litigation or contingencies
· Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies
· Rumors or erroneous information
· Credit and capital availability

 

Asset quality could be less favorable than expected.

 

A significant source of risk for the Registrant arises from the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loan agreements. Most loans originated by the Registrant are secured, but some loans are unsecured depending on the nature of the loan. With respect to secured loans, the collateral securing the repayment of these loans includes a wide variety of real and personal property that may be insufficient to cover the obligations owed under such loans. Collateral values may be adversely affected by changes in prevailing economic, environmental and other conditions, including declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal government, terrorist activity, environmental contamination and other external events. In addition, collateral appraisals that are out of date or that do not meet industry recognized standards may create the impression that a loan is adequately collateralized when in fact it is not.

 

General economic conditions in the state of Michigan could be less favorable than expected.

 

The Registrant is affected by general economic conditions in the United States, although most directly within Michigan. A further economic downturn within Michigan could negatively impact household and corporate incomes. This impact may lead to decreased demand for both loan and deposit products and increase the number of customers who fail to pay interest or principal on their loans.

 

Volatility and disruptions in the functioning of the financial markets and related liquidity issues could continue or worsen and, therefore, may adversely impact the Registrant’s business, financial condition and results of operations.

 

The financial markets have been experiencing volatility and disruption in recent periods. The impact of this situation, together with concerns regarding the financial strength of financial institutions, has led to distress in financial markets and issues relating to liquidity among financial institutions. As a result of concern about the stability of the financial markets generally, the resulting credit availability issues, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could have a material adverse effect on the Registrant’s ability to access capital and manage liquidity. There can be no assurance that the Registrant’s business, financial condition and results of operations will not be materially and adversely impacted by financial market volatility and disruptions. There can be no assurances that legislation or actions taken by government agencies for the purpose of stabilizing the financial markets will achieve their intended effects.

 

If the Registrant does not adjust to changes in the financial services industry, its financial performance may suffer.

 

The Registrant’s ability to maintain its financial performance and return on investment to shareholders will depend in part on its ability to maintain and grow its core deposit customer base and expand its financial services to its existing customers. In addition to other banks, competitors include credit unions, securities dealers, brokers, mortgage bankers, investment advisors and finance and insurance companies. The increasingly competitive environment is, in part, a result of changes in the economic environment within the state of Michigan, regulation, changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers. New competitors may emerge to increase the degree of competition for the Registrant’s customers and services. Financial services and products are also constantly changing. The Registrant’s financial performance will also depend in part upon customer demand for the Registrant’s products and services and the Registrant’s ability to develop and offer competitive financial products and services.

 

Changes in interest rates could reduce the Registrant’s income and cash flow.

 

The Registrant’s income and cash flow depends, to a great extent, on the difference between the interest earned on loans and securities, and the interest paid on deposits and other borrowings. Market interest rates are beyond the Registrant’s control, and they fluctuate in response to general economic conditions and the policies of various governmental and regulatory agencies including, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates and interest rate relationships, will influence the origination of loans, the purchase of investments, the generation of deposits and the rate received on loans and securities and paid on deposits and other borrowings.

 

11
 

 

The Dodd-Frank Act may have a significant impact on the Registrant and results of its operations.

 

The Dodd-Frank Act was signed into law by President Obama on July 21, 2010. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the United States, established the new federal Consumer Financial Protection Bureau (CFPB), and requires the CFPB and other federal agencies to implement many new and significant rules and regulations. The CFPB has issued significant new regulations that impact consumer mortgage lending and servicing. Those regulations became effective in January 2014. In addition, the CFPB is drafting regulations that will change the disclosure requirements and forms used under the Truth in Lending Act and Real Estate Settlement and Procedures Act. Compliance with these new laws and regulations and other regulations under consideration by the CFPB will likely result in additional costs and changes in the products and/or services that are currently being offered, which could be significant and could adversely impact the Registrant’s results of operations, financial condition or liquidity.

 

Unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of computer systems or otherwise, could severely harm the Registrant’s business.

 

As part of its business, the Registrant collects, processes and retains sensitive and confidential client and customer information on behalf of itself and other third parties. Despite the security measures the Registrant has in place for its facilities and systems, and the security measures of its third party service providers, the Registrant may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information, whether by the Registrant or by its vendors, could severely damage the Registrant’s reputation, expose it to the risks of litigation and liability, disrupt the Registrant’s operations and have a material adverse effect on the Registrant’s business.

 

The Registrant’s information systems may experience an interruption or breach in security.

 

The Registrant relies heavily on communications and information systems to conduct its business and deliver its products. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Registrant’s customer relationship management, general ledger, deposit, loan and other systems. While the Registrant has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches of the Registrant’s information systems or its customers’ information or computer systems would not damage the Registrant’s reputation, result in a loss of customer business, subject the Registrant to additional regulatory scrutiny, or expose the Registrant to civil litigation and financial liability, any of which could have a material adverse effect on the Registrant’s financial condition and results of operations.

 

Severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact the Registrant’s business.

 

Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on the Registrant’s ability to conduct business. Such events could affect the stability of the Registrant’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Registrant to incur additional expenses.

 

Additional risks and uncertainties could have a negative effect on financial performance.

 

Additional factors could have a negative effect on the financial performance of the Registrant and the Registrant’s common stock. Some of these factors are financial market conditions, changes in financial accounting and reporting standards, new litigation or changes in existing litigation, regulatory actions and losses.

  

Item 1B. Unresolved Staff Comments

 

None.

  

Item 2. Properties

 

The offices of the Bank and Insurance Agency as of February 28, 2014, were as follows:

 

Registrant’s, Bank’s and Insurance Agency’s main office:
     109 East Division, Sparta, Michigan
     Office is owned by the Bank and comprises 24,000 square feet.

 

12
 

 

Bank’s branch office:
     416 West Division, Sparta, Michigan
     Office is leased by the Bank and comprises 3,000 square feet.

 

Bank’s branch office:
     4170 - 17 Mile Road, Cedar Springs, Michigan
     Office is owned by the Bank and comprises 3,000 square feet.

 

Bank’s branch office:
     6795 Courtland Drive, Rockford, Michigan
     Office is owned by the Bank and comprises 2,400 square feet.

 

Bank’s branch office:
     5050 Alpine Avenue NW, Comstock Park, Michigan
     Office is owned by the Bank and comprises 2,400 square feet.

 

Bank’s branch office:
     450 West Muskegon, Kent City, Michigan
     Office is owned by the Bank and comprises 27,300 square feet.

 

Bank’s branch office:
     3069 Slocum Road, Ravenna, Michigan
     Office is owned by the Bank and comprises 4,800 square feet.

 

Bank’s branch office:
     5475 East Apple Avenue, Muskegon, Michigan
     Office is owned by the Bank and comprises 4,800 square feet.

 

Bank’s branch office:
     661 West Randall, Coopersville, Michigan
     Office is owned by the Bank and comprises 2,700 square feet.

 

Bank’s branch office:
     10 West Main Street, Grant, Michigan
     Office is owned by the Bank and comprises 4,800 square feet.

 

Bank’s branch office:
     246 West River Valley Drive, Newaygo, Michigan
     Office is owned by the Bank and comprises 2,600 square feet.

 

Bank’s branch office:
     1423 West Main Street, Fremont, Michigan
     Office is owned by the Bank and comprises 1,600 square feet.

 

The Registrant operates its business at the main office of the Bank. The Registrant did not own any properties as of February 28, 2014. The Registrant, Bank and Insurance Agency believe that their offices are suitable and adequate for their future needs and are in good condition. The Registrant’s management believes all offices are adequately covered by property insurance.

 

13
 

 

Item 3. Legal Proceedings

 

As of December 31, 2013, there are no significant pending legal proceedings to which the Registrant or the Bank is a party or to which any of their properties are subject, except for legal proceedings arising in the ordinary course of business. In the opinion of management, pending legal proceedings will not have a material effect on the consolidated financial condition of the Registrant.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

14
 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

The information under the caption “Stock Information” on pages 3 and 4 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2013, is incorporated herein by reference.

 

On October 23, 2013, the Registrant issued 660 shares of common stock to its directors pursuant to the Directors’ Stock Purchase Plan for an aggregate cash price of $11,000. The Registrant relied on the exemption contained in Section 4(6) of the Securities Act of 1933 in connection with this sale.

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

The Board of Directors authorized a repurchase plan on July 26, 2007 to buy back 100,000 shares. The Registrant did not purchase any of its own common stock during the quarter ended December 31, 2013. There were 96,388 shares that may yet be purchased under the plan as of December 31, 2013. There is no stated expiration date.

 

Item 6. Selected Financial Data

 

The information under the caption “Selected Financial Data” on page 5 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2013, is incorporated herein by reference.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including all subheadings, on pages 6 through 19, inclusive, of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2013, is incorporated herein by reference.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

The information under the subheading “Liquidity and Interest Rate Risk” under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 16 through 19, inclusive, of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2013, is incorporated herein by reference.

 

Item 8. Financial Statements and Supplementary Data

 

The Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements, and Notes to Consolidated Financial Statements on pages 21 through 54, inclusive, of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2013, are incorporated herein by reference.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. 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. There was no change in the Registrant’s internal control over financial reporting that occurred during the three months ended December 31, 2013 that has materially affected, or that is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

15
 

 

Management’s Report on Internal Control over Financial Reporting on page 20 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2013 is here incorporated by reference.

 

Item 9B. Other Information

 

None.

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The information under the captions “ChoiceOne’s Board of Directors and Executive Officers,” “Related Matters - Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 2014, is incorporated herein by reference.

 

The Registrant has adopted a Code of Ethics for Executive Officers and Senior Financial Officers, which applies to the Chief Executive Officer and the Chief Financial Officer, as well as all other senior financial and accounting officers. The Code of Ethics is posted on the Registrant’s website at “www.choiceone.com.” The Registrant intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of the Code of Ethics by posting such information on its website at “www.choiceone.com.”

 

Item 11. Executive Compensation

 

The information under the captions “Executive Compensation” in the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 2014, is incorporated herein by reference.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information under the caption “Ownership of ChoiceOne Common Stock” in the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 2014, is incorporated herein by reference.

 

The following table presents information regarding the equity compensation plans both approved and not approved by shareholders at December 31, 2013:

 

   Number of securities to be issued upon exercise of outstanding options, warrants and rights   Weighted-average exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
   (a)   (b)   (c)
Equity compensation plans approved by             
  security holders   38,625   $17.29   140,805
Equity compensation plans not approved             
  by security holders          26,800
       Total   38,625   $17.29   167,605

 

Equity compensation plans approved by security holders include the Amended and Restated Executive Stock Incentive Plan and the Employee Stock Purchase Plan.

 

Shareholders at the Registrant’s 2012 Annual Meeting approved the Stock Incentive Plan of 2012. Officers and key employees of the Registrant and its subsidiaries are eligible to receive awards under this Plan. Incentive awards may be given in the form of stock options, stock appreciation rights, restricted stock units, restricted stock, stock awards and other equity-based awards. The Plan provides for a maximum of 100,000 shares of the Registrant’s common stock, subject to adjustments in the capital structure of the Registrant. New awards for up to 100,000 shares may be made under this Plan.

 

16
 

 

The number of shares available for issuance under the Plan is equal to the number determined by the following formula: (a) for the initial plan year, 5% of the total number of shares of common stock outstanding at the time the Plan became effective; plus (b) in each subsequent plan year, an additional number of shares of common stock not to exceed 2% of the number of shares of common stock outstanding as reported in the Registrant’s Annual Report on Form 10-K for the fiscal year ending immediately before such plan year such that at the beginning of each plan year after the initial plan year there shall be available, in addition to any amount of shares remaining from the 5% authorization for the initial plan year, a minimum number of shares equal to 2% of the number of shares of common stock outstanding; plus (c) there shall be carried forward and available for additional awards certain shares that are either unused, canceled or surrendered in connection with incentive awards.

 

Shareholders at the 2002 Annual Meeting approved the Employee Stock Purchase Plan. This Plan allows employees to purchase the Registrant’s common stock at up to a 15% discount from the average bid price for the Registrant’s common stock. Employees who elect to participate in the plan can purchase shares of the Registrant’s common stock on a quarterly basis. The Plan provides for a maximum of 55,126 shares of the Registrant’s common stock, subject to adjustments for certain changes in the capital structure of the Registrant. Shareholders at the 2011 Annual Meeting approved an Amended and Restated Employee Stock Purchase Plan. The new plan made an additional 50,000 available for purchase providing a total of 105,126 shares under the plan. As of December 31, 2013, new issuances for up to 40,805 shares may be made under the plan.

 

Equity compensation plans not approved by security holders consist of the Directors’ Stock Purchase Plan. The Plan is designed to provide directors of the Registrant the option of receiving their fees in the Registrant’s stock. Directors who elect to participate in the Plan may elect to contribute to the Plan twenty-five, fifty, seventy-five or one hundred percent of their board of director fees and one hundred percent of their director committee fees earned as directors of the Registrant. Contributions to the Plan are made by the Registrant on behalf of each electing participant. Plan participants may terminate their participation in the Plan at any time by written notice of withdrawal to the Registrant. Participants will cease to be eligible to participate in the Plan when they cease to serve as directors of the Registrant. Shares are distributed to participants on a quarterly basis. The Plan provides for a maximum of 100,000 shares of the Registrant’s common stock, subject to adjustments for certain changes in the capital structure of the Registrant. New issuances for up to 26,800 shares may be made under this Plan.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

The information under the captions “Related Matters - Transactions with Related Persons” and “Corporate Governance” in the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 2014, is incorporated herein by reference.

 

Item 14. Principal Accountant Fees and Services

 

The information under the caption “Related Matters - Independent Certified Public Accountants” in the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 2014, is incorporated herein by reference.

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

 

(a) (1) Financial Statements.  The following financial statements and independent auditors’ reports are filed as part of this report:
     
      Consolidated Balance Sheets at December 31, 2013 and 2012.
       
      Consolidated Statements of Income for the years ended December 31, 2013, 2012, and 2011.
       
      Consolidated Statement of Comprehensive Income for the years ended December 31, 2013, 2012, and 2011.

 

17
 

 

      Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2013, 2012, and 2011.
       
      Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012, and 2011.
       
      Notes to Consolidated Financial Statements.
       
      Report of Independent Registered Public Accounting Firm dated March 27, 2014.
     
    The consolidated financial statements, notes to consolidated financial statements and independent auditors’ report dated March 27, 2014 listed above are incorporated by reference in Item 8 of this report from the Registrant’s Annual Report to Shareholders for the year ended December 31, 2013.
     
  (2) Financial Statement Schedules.  None.

 

(b)   Exhibits. The following exhibits are filed as part of this report:

 

Exhibit Document
   
3.1 Amended and Restated Articles of Incorporation of the Registrant.  
   
3.2 Bylaws of the Registrant as currently in effect and any amendments thereto.  
   
4 Advances, Pledge and Security Agreement between ChoiceOne Bank and the Federal Home Loan Bank of Indianapolis.  
   
10.1 Employment Agreement with James A. Bosserd. (1)  Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2012.  Here incorporated by reference.  
   
10.2 Stock Incentive Plan of 2012. (1)  Previously filed as an appendix to the Registrant’s definitive proxy statement filed with the commission on March 30, 2012.  Here incorporated by reference.
   
10.3 Amended and Restated Executive Stock Incentive Plan. (1)  Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2011.  Here incorporated by reference.
   
10.4 Directors’ Stock Purchase Plan. (1). Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2011.  Here incorporated by reference.
   
10.5 Former Valley Ridge Executive Employee Salary Continuation Agreements, as amended. (1)  
   
10.6 Former Valley Ridge Directors’ Deferred Compensation Plan and Agreement. (1)  
   
13 Annual Report to Shareholders for the year ended December 31, 2013.
   
21 Subsidiaries of the Registrant.
   
23 Consent of Independent Registered Public Accounting Firm for fiscal years ended December 31, 2013, 2012, and 2011.
   
24 Powers of Attorney.
   
31.1 Certification of Chief Executive Officer.
   
31.2 Certification of Treasurer.
   
32 Certification pursuant to 18 U.S.C. § 1350.
   
101.1 Interactive Data File.

(1) This agreement is a management contract or compensation plan or arrangement to be filed as an exhibit to this Form 10-K.

 

Copies of any exhibits will be furnished to shareholders upon written request. Requests should be directed to: Thomas L. Lampen, Treasurer, ChoiceOne Financial Services, Inc., 109 East Division, Sparta, Michigan 49345.

 

18
 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  ChoiceOne Financial Services, Inc.    
       
By:   /s/ James A. Bosserd   March 27, 2014
  James A. Bosserd
President and Chief Executive
Officer
   

 

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

 

/s/ James A. Bosserd   President and Chief Executive Officer and
Director (Principal Executive Officer)
  March 27, 2014
     James A. Bosserd      
         
/s/ Thomas L. Lampen   Treasurer (Principal Financial and
Accounting Officer)
  March 27, 2014
     Thomas L. Lampen      
         
*/s/ Paul L. Johnson   Chairman of the Board and Director   March 27, 2014
     Paul L. Johnson      
         
*/s/ Jerome Arends   Director   March 27, 2014
     Jerome Arends        
         
*/s/ Frank G. Berris   Director   March 27, 2014
     Frank G. Berris        
         
*/s/ K. Timothy Bull   Director   March 27, 2014
     K. Timothy Bull        
         
*/s/ William F. Cutler, Jr.   Director   March 27, 2014
     William F. Cutler, Jr.        
         
*/s/ Lewis G. Emmons   Director   March 27, 2014
     Lewis G. Emmons        
         
*/s/ Gary Gust   Director   March 27, 2014
     Gary Gust        
         
*/s/ Dennis C. Nelson   Director   March 27, 2014
     Dennis C. Nelson        
         
*/s/ Nels W. Nyblad   Director   March 27, 2014
     Nels W. Nyblad        
         
*/s/ Roxanne M. Page   Director   March 27, 2014
     Roxanne M. Page        
         
*/s/ Jack Hendon   Director   March 27, 2014
     Jack Hendon        

 

*By /s/ Thomas L. Lampen        
     Attorney-in-Fact        

 

 

19


 

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Document And Entity Information
Consolidated Balance Sheets
Consolidated Balance Sheets (parenthetical)
Consolidated Statements Of Cash Flows
Consolidated Statements Of Changes In Shareholders' Equity
Consolidated Statements Of Changes In Shareholders' Equity (parenthetical)
Consolidated Statements Of Comprehensive Income
Consolidated Statements Of Income
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income (details)
Accumulated Other Comprehensive Income (tables)
Condensed Financial Statements Of Parent Company
Condensed Financial Statements Of Parent Company (details 1)
Condensed Financial Statements Of Parent Company (details 2)
Condensed Financial Statements Of Parent Company (details)
Condensed Financial Statements Of Parent Company (tables)
Deposits
Deposits (details 1)
Deposits (details Narrative)
Deposits (details)
Deposits (tables)
Earnings Per Share
Earnings Per Share (details Narrative)
Earnings Per Share (details)
Earnings Per Share (tables)
Employee Benefit Plans
Employee Benefit Plans (details Narrative)
Employee Benefit Plans (details)
Employee Benefit Plans (tables)
Fair Value Measurements
Fair Value Measurements (details 1)
Fair Value Measurements (details 2)
Fair Value Measurements (details Narrative)
Fair Value Measurements (details)
Fair Value Measurements (tables)
Federal Home Loan Bank Advances
Federal Home Loan Bank Advances (details 1)
Federal Home Loan Bank Advances (details Narrative)
Federal Home Loan Bank Advances (details)
Federal Home Loan Bank Advances (tables)
Financial Instruments
Financial Instruments (details)
Financial Instruments (tables)
Goodwill And Intangible Assets
Goodwill And Intangible Assets (details 1)
Goodwill And Intangible Assets (details Narrative)
Goodwill And Intangible Assets (details)
Goodwill And Intangible Assets (tables)
Income Taxes
Income Taxes (details 1)
Income Taxes (details 2)
Income Taxes (details Narrative)
Income Taxes (details)
Income Taxes (tables)
Loans And Allowance For Loan Losses
Loans And Allowance For Loan Losses (details 1)
Loans And Allowance For Loan Losses (details 2)
Loans And Allowance For Loan Losses (details 3)
Loans And Allowance For Loan Losses (details 4)
Loans And Allowance For Loan Losses (details 5)
Loans And Allowance For Loan Losses (details 6)
Loans And Allowance For Loan Losses (details 7)
Loans And Allowance For Loan Losses (details)
Loans And Allowance For Loan Losses (tables)
Mortgage Banking
Mortgage Banking (details 1)
Mortgage Banking (details Narrative)
Mortgage Banking (details)
Mortgage Banking (tables)
Off-balance Sheet Activities
Off-balance Sheet Activities (details)
Off-balance Sheet Activities (tables)
Other Real Estate Owned
Other Real Estate Owned (details)
Other Real Estate Owned (tables)
Premises And Equipment
Premises And Equipment (details 1)
Premises And Equipment (details Narrative)
Premises And Equipment (details)
Premises And Equipment (tables)
Quarterly Financial Data (unaudited)
Quarterly Financial Data (unaudited) (details)
Quarterly Financial Data (unaudited) (tables)
Regulatory Capital
Regulatory Capital (details Narrative)
Regulatory Capital (details)
Regulatory Capital (tables)
Related Party Transactions
Related Party Transactions (details Narrative)
Related Party Transactions (details)
Related Party Transactions (tables)
Repurchase Agreements
Repurchase Agreements (details)
Repurchase Agreements (tables)
Securities
Securities (details 1)
Securities (details 2)
Securities (details 3)
Securities (details 4)
Securities (details Narrative)
Securities (details)
Securities (tables)
Stock Based Compensation
Stock Based Compensation (details 1)
Stock Based Compensation (details Narrative)
Stock Based Compensation (details)
Stock Based Compensation (tables)
Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies (details Narrative)
Summary Of Significant Accounting Policies (policies)
Ticker: COFS
CIK: 803164
Form Type: 10-K Annual Report
Accession Number: 0001387131-14-001190
Submitted to the SEC: Mon Mar 31 2014 1:13:11 PM EST
Accepted by the SEC: Mon Mar 31 2014
Period: Tuesday, December 31, 2013
Industry: State Commercial Banks

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