UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM 10-Q
[ X ]
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2010
[ ]
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 ofIncorporation or Organization)
38-2659066(I.R.S. Employer Identification No.)
109 East DivisionSparta, 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.Yes X 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).Yes 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 company X
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
As of October 31, 2010, the Registrant had outstanding 3,278,787 shares of common stock.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ChoiceOne Financial Services, Inc.CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30,2010
December 31,2009
(Unaudited)
(Audited)
Assets
Cash and due from banks
$
22,697
9,957
Federal funds sold
5,000
9,793
Cash and cash equivalents
27,697
19,750
Securities available for sale
90,345
74,413
Federal Home Loan Bank stock
3,304
Federal Reserve Bank stock
1,270
Loans held for sale
696
322
Loans
314,755
322,716
Allowance for loan losses
(4,841
)
(4,322
Loans, net
309,914
318,394
Premises and equipment, net
12,762
11,918
Other real estate owned, net
2,107
2,201
Cash value of life insurance policies
9,440
9,201
Intangible assets, net
2,732
3,068
Goodwill
13,728
Other assets
8,022
8,346
Total assets
482,017
465,915
Liabilities
Deposits - noninterest-bearing
64,674
60,802
Deposits - interest-bearing
321,890
304,208
Total deposits
386,564
365,010
Advances from Federal Home Loan Bank
15,479
21,980
Securities sold under agreements to repurchase
19,428
20,684
Other liabilities
5,656
5,315
Total liabilities
427,127
412,989
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: 3,277,814 at Sept 30, 2010 and 3,265,714 at December 31, 2009
46,433
46,326
Retained earnings
6,687
5,813
Accumulated other comprehensive income, net
1,770
787
Total shareholders' equity
54,890
52,926
Total liabilities and shareholders' equity
See accompanying notes to consolidated financial statements.
ChoiceOne Financial Services, Inc.CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands, except per share data)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2010
2009
Interest income
Loans, including fees
4,787
5,010
14,278
15,106
Securities:
Taxable
369
284
1,087
1,063
Tax exempt
345
499
1,062
1,348
Other
6
1
12
Total interest income
5,507
5,794
16,439
17,523
Interest expense
Deposits
967
3,046
4,347
178
277
605
910
73
85
229
266
Total interest expense
1,218
1,710
3,880
5,523
Net interest income
4,289
4,084
12,559
12,000
Provision for loan losses
900
1,225
2,950
3,175
Net interest income after provision for loan losses
3,389
2,859
9,609
8,825
Noninterest income
Deposit service charges
821
846
2,345
2,349
Insurance and investment commissions
156
166
526
566
Gains on sales of loans
209
89
383
504
Gains on sales of securities
91
35
488
158
Losses on sales of other assets
(66
(67
(167
(178
Earnings on life insurance policies
90
92
269
274
164
171
459
524
Total noninterest income
1,465
1,332
4,303
4,197
Noninterest expense
Compensation and benefits
1,808
1,732
5,244
5,234
Occupancy and equipment
577
536
1,657
1,614
Data processing
402
407
1,240
1,182
Professional fees
169
148
518
510
Supplies and postage
129
133
400
416
Advertising and promotional
31
101
72
Loan and collection expense
193
290
443
608
FDIC insurance
122
468
630
Intangible amortization
86
118
310
355
375
288
932
Total noninterest expense
3,926
3,809
11,348
11,553
Income before income tax
928
382
2,564
1,469
Income tax expense (benefit)
189
(27
512
14
Net income
739
409
2,052
1,455
Basic earnings per share
0.23
0.13
0.63
0.45
Diluted earnings per share
Dividends declared per share
0.12
0.36
ChoiceOne Financial Services, Inc.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
Number ofShares
CommonStock andPaid inCapital
RetainedEarnings
AccumulatedOtherComprehensiveIncome,Net
Total
Balance, January 1, 2009
3,246,109
46,171
5,898
116
52,185
Comprehensive income
Net change in unrealized gain on
securities available for sale, net of tax of $615
1,193
Total comprehensive income
2,648
Shares issued
16,202
102
Change in ESOP repurchase obligation
2
Effect of stock options granted
18
Effect of employee stock purchases
9
Cash dividends declared ($0.36 per share)
(1,172
Balance, September 30, 2009
3,262,311
46,302
6,181
1,309
53,792
Balance, January 1, 2010
3,265,714
securities available for sale, net of tax of $506
983
3,035
12,104
99
Shares cancelled
(4
(14
11
(1,178
Balance, September 30, 2010
3,277,814
ChoiceOne Financial Services, Inc.CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Cash flows from operating activities:
Adjustments to reconcile net income to net cash from operating activities:
Depreciation
662
674
Amortization
848
835
Expense related to employee stock options and stock purchases
22
27
(488
(158
(383
(504
Loans originated for sale
(16,488
(23,411
Proceeds from loan sales
16,429
23,801
Earnings on bank-owned life insurance
(268
(274
Losses on sales of other real estate owned
188
Write-downs of other real estate owned
257
215
Proceeds from sales of other real estate owned
640
1,525
Deferred federal income tax expense/(benefit)
(18
Net changes in other assets
201
391
Net changes in other liabilities
(1,246
Net cash from operating activities
6,422
6,675
Cash flows from investing activities:
Securities available for sale:
Sales
5,614
4,258
Maturities, prepayments and calls
19,141
18,505
Purchases
(38,955
(19,117
Loan originations and repayments, net
4,561
(155
Additions to premises and equipment
(1,536
(461
Net cash from investing activities
(11,175
3,030
Cash flows from financing activities:
Net change in deposits
21,554
12,083
Net change in repurchase agreements
(1,256
(1,794
Proceeds from Federal Home Loan Bank advances
29,500
Payments on Federal Home Loan Bank advances
(6,519
(47,000
Issuance of common stock
Cash dividends
Net cash from financing activities
12,700
(8,281
Net change in cash and cash equivalents
7,947
1,424
Beginning cash and cash equivalents
11,160
Ending cash and cash equivalents
12,584
Supplemental disclosures of cash flow information:
Cash paid for interest
3,997
5,721
Cash paid for income taxes
110
21
Loans transferred to other real estate
1,054
2,936
Other real estate transferred to loans
Other real estate transferred to premises and equipment
331
ChoiceOne Financial Services, Inc.NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of ConsolidationThe consolidated financial statements include ChoiceOne Financial Services, Inc. (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 September 30, 2010 and December 31, 2009, the Consolidated Statements of Income for the three- and nine-month periods ended September 30, 2010 and September 30, 2009, the Consolidated Statements of Changes in Shareholders' Equity for the nine-month periods ended September 30, 2010 and September 30, 2009, and the Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2010 and September 30, 2009. Operating results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.
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, 2009.
Allowance for Loan LossesThe 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 TransactionsA total of 5,825 shares of common stock were issued to the Registrant's Board of Directors for a cash price of $52,000 under the terms of the Directors' Stock Purchase Plan in the first nine months of 2010. A total of 6,279 shares were issued to employees for a cash price of $47,000 under the Employee Stock Purchase Plan in the first three quarters of 2010.
ReclassificationsCertain amounts presented in prior periods have been reclassified to conform to the current presentation.
ChoiceOne Financial Services, Inc.NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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:
September 30, 2010
AmortizedCost
GrossUnrealizedGains
GrossUnrealizedLosses
FairValue
U.S. Government and federal agency
26,684
502
27,186
Corporate
2,574
59
2,629
State and municipal
48,236
1,780
(235
49,781
Mortgage-backed
6,947
336
7,283
Other debt securities
2,022
42
2,064
Equity securities
1,500
(98
1,402
87,963
2,719
(337
December 31, 2009
18,550
108
(87
18,571
44,230
699
(330
44,599
8,672
285
(28
8,929
2,069
385
(140
2,314
73,521
1,477
(585
ChoiceOne reviews its securities portfolio on a quarterly basis to determine whether unrealized losses are considered to be temporary or other-than-temporary. As a result of this review, an other-than-temporary impairment charge of $47,000 was recorded in the third quarter of 2010. This was related to a municipal security that matured in September 2009 but was not redeemed by the issuer. An impairment charge of $47,000 was previously recorded on this security in the fourth quarter of 2009. The bondholders have continued to work with the security's issuer since the maturity date, but no settlement has yet been reached. The additional impairment was based on the uncertainty of the timing and amount of future payments by the issuer.
Other than the security noted in the preceding paragraph, 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.
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses follows:
Balance at beginning of period
4,857
3,832
4,322
3,600
Provision charged to expense
Recoveries credited to the allowance
74
261
417
Loans charged off
(990
(1,118
(2,692
(3,089
Balance at end of period
4,841
4,103
Information regarding impaired loans follows:
Loans with no allowance allocated
4,899
4,471
Loans with allowance allocated
4,301
3,842
Amount of allowance for loan losses allocated
1,074
660
Average balance during the period
10,105
8,797
9,715
7,874
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:
Basic Earnings Per Share
Net income available to common
shareholders
Weighted average common shares outstanding
3,275,801
3,259,521
3,271,301
3,253,497
Diluted Earnings Per Share
Plus dilutive stock options
and potentially dilutive shares
As of September 30, 2010 and 2009, there were 48,732 stock options that are considered to be anti-dilutive to earnings per share for both the three-month and nine-month periods ended September 30, 2010 and 2009. These stock options have been excluded from the calculation above.
NOTE 5 - FINANCIAL INSTRUMENTS
Financial instruments as of the dates indicated were as follows:
CarryingAmount
EstimatedFairValue
Assets:
Federal Home Loan Bank and Federal Reserve Bank stock
4,574
311,729
314,491
Accrued interest receivable
2,292
2,091
Liabilities:
Demand, savings and money market deposits
225,484
199,418
Time deposits
161,080
160,716
165,592
165,597
Repurchase agreements
19,430
20,686
16,096
21,986
Accrued interest payable
377
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 September 30, 2010 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 advances are based on the rates paid at September 30, 2010 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.
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 at September 30, 2010, 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 September 30, 2010. Disclosures concerning assets measured at fair value are as follows:
Assets Measured at Fair Value on a Recurring Basis(Dollars in Thousands)
Quoted Pricesin ActiveMarkets for IdenticalAssets (Level 1)
SignificantOtherObservableInputs(Level 2)
SignificantUnobservableInputs(Level 3)
Balance atDate Indicated
Investment Securities, Available for
Sale - September 30, 2010
47,468
2,313
902
500
31,879
55,653
2,813
Sale - December 31, 2009
1,904
40,388
2,307
954
860
30,358
41,248
2,807
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis(Dollars in Thousands)
Investment Securities, Available for Sale
Balance at December 31, 2009
Total realized and unrealized gains (losses) included in income
Total unrealized gains (losses) included in other comprehensive income
8
Net purchases, sales, calls, and maturities
(271
Net transfers in/out of Level 3
Balance at September 30, 2010
Of the Level 3 assets that were still held by the Bank at September 30, 2010, the net unrealized gain for the nine months ended September 30, 2010 was $8,000, 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 nine months of 2010. Eight securities were reclassified from a Level 2 measurement of fair value to a Level 3 measurement in 2010 as a result of a change in the marketability of the securities.
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 consist of bonds issued by local municipalities and a trust preferred security. 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 atDatesIndicated
Total Lossesfor thePeriod Ended
Impaired Loans
$ 9,200
$ -
$ 666
$ 9,747
$ 1,855
Other Real Estate
$ 2,107
$ 257
$ 2,201
$ 319
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. The fair value of other real estate owned was based on appraisals or other reviews of property values, adjusted for estimated costs to sell.
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS
In July 2010, the Financial Accounting Standards Board issued an update which expands disclosures about credit quality of financing receivables and allowance for credit losses. The update will require the Bank to expand disclosures about the credit quality of its loans and the related reserves against them. The extra disclosures will include details on the Bank's past due loans, credit quality indicators, and modifications of loans. The Bank will implement the update beginning with the December 31, 2010 financial statements.
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 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," "estimates," "expects," "forecasts," "intends," "is likely," "plans," "predicts," "projects," 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 and the fair value of investment securities involve judgments that are inherently 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 forecas ted 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 discussed in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2009 and in Part II, 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; 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 forwar d-looking statement.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
GoodwillGenerally accepted accounting principles require that the fair value of the assets and liabilities of an acquired entity be recorded at their fair value on the date of acquisition. The fair values are determined using both internal computations and information obtained from outside parties when deemed necessary. The net difference between the price paid for the acquired company and the net value of its balance sheet is recorded as goodwill. Accounting principles also require that goodwill be evaluated for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Management performed its annual review of goodwill as of June 30, 2010. ChoiceOne engaged an outside consulting firm to assist in the goodwill impairment analysis. The following steps were used in the valuation: determination of the reporting unit, determination of the appropriate standard of value, determination of the appropriate level of value, calculation of fair value, and comparison of the fair value computed to the equity carrying value. It was determined that the relevant reporting unit to be valued was ChoiceOne Bank. The standard of value used in the valuation was fair value as determined by generally accepting accounting principles. The appropriate level of value was determined to be the controlling interest level. The appraisal methodology used to calculate the fair value included the following valuation approaches:
Income Approach: A discounted cash flow value was calculated based on earnings capacity. The discount rate used for the calculation was 12.70%. The growth assumption for assets was 0% for the first year and 2% in subsequent years. In addition, it was assumed that cost savings of 20% of noninterest expense would occur as a result of synergies and cost reductions from a change in control.Market Approach: The analysis was based on price-to-earnings multiples, price-to-tangible-book value ratios, and core deposit premiums for selected bank sale transactions.
The Asset Approach was also an approach reviewed, but it was not used in determining the fair value since it did not render a control level indication of value. The results from the valuation approaches were used to calculate an estimate of the fair value of ChoiceOne's equity. The fair value was compared to the carrying value of equity to determine whether the Step 1 test under generally accepted accounting standards that govern the valuation of goodwill was passed. The goodwill analysis determined that the fair value of ChoiceOne's equity exceeded the carrying value by 4.6%. Based on this assessment, management believed that there was no indication of goodwill impairment.
RESULTS OF OPERATIONS
SummaryNet income was $739,000 in the third quarter of 2010 compared to $409,000 in the third quarter of 2009. For the nine months ended September 30, 2010, net income was $2,052,000, compared to $1,455,000 in the same period in 2009. The increase in both the third quarter and the first nine months of 2010 was caused by higher net interest income, a lower provision for loan losses, and higher noninterest income. This was partially offset by growth in noninterest expense in the third quarter of 2010 compared to the same quarter in 2009, in contrast to the first nine months of 2010 that experienced lower noninterest expense than in the same period in the prior year. Basic and diluted earnings per common share were $0.23 for the third quarter of 2010 and $0.63 for the first nine months of 2010, compared to $0.13 and $0.45 for the same periods in 2009, respectively. The annualized return on average assets and return on average shareholders' equity was 0.59% and 5.09%, respectively, for the first nine months of 2010, co mpared to 0.43% and 3.65%, respectively, for the same period in 2009.
DividendsCash dividends of $393,000 or $0.12 per share were declared in the third quarter of 2010, compared to $392,000 or $0.12 per share in the third quarter of 2009. The cash dividends declared in the first nine months of 2010 were $1,178,000 or $0.36 per share, compared to $1,172,000 or $0.36 per share declared in the same period of 2009. The cash dividend payout percentage was 57% for the first three quarters of 2010, compared to 81% in the same period a year ago.
Interest Income and ExpenseTables 1 and 2 on the following pages provide information regarding interest income and expense for the nine-month periods ended September 30, 2010 and 2009, respectively. 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.
Table 1 - Average Balances and Tax-Equivalent Interest Rates
Nine Months Ended September 30,
AverageBalance
Interest
Rate
Loans (1)
$ 315,164
$ 14,294
6.05%
$ 319,417
$ 15,128
6.31%
Taxable securities (2) (3)
48,719
2.97
33,556
1,053
4.18
Nontaxable securities (1) (2)
35,595
1,603
6.00
43,438
2,043
6.27
6,869
2,766
0.29
Interest-earning assets
406,347
16,996
5.58
399,177
18,230
6.09
Noninterest-earning assets
59,241
54,557
$ 465,588
$ 453,734
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits
$ 107,828
423
0.52%
$ 86,141
403
0.62%
Savings deposits
39,938
65
0.22
36,050
87
0.32
Certificates of deposit
159,933
2,558
2.13
167,439
3,857
3.07
17,467
4.61
30,321
4.00
18,533
1.65
19,269
1.84
Interest-bearing liabilities
343,699
1.51
339,220
2.17
Noninterest-bearing demand deposits
62,894
55,983
Other noninterest-bearing liabilities
5,192
5,438
Shareholders' equity
53,803
53,093
Net interest income (tax-equivalent basis) - interest spread
13,116
4.07%
12,707
3.92%
Tax-equivalent adjustment (1)
(557
(707
$ 12,559
$ 12,000
Net interest income as a percentage of earning assets (tax-equivalent basis)
4.30%
4.24%
______________
(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
Nine Months Ended September 30,2010 Over 2009
Volume
Increase (decrease) in interest income (1)
Loans (2)
(834
(200
(634
Taxable securities
34
516
(482
Nontaxable securities (2)
(440
(356
(84
(2
Net change in tax-equivalent income
(1,234
(32
(1,202
Increase (decrease) in interest expense (1)
20
(22
13
(35
(1,299
(166
(1,133
(305
(498
(37
(10
Net change in interest expense
(1,643
(543
(1,100
Net change in tax-equivalent net interest income
511
(102
_______________
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.
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 IncomeThe 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 $557,000 and $707,000 for the nine months ended September 30, 2010 and 2009, 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 $409,000 in the first nine months of 2010 compared to the same period in 2009. The relationship between growth in average interest-earning assets and average interest-bearing liabilities caused net interest income to increase $511,000 in the first three quarters of 2010 compared to the same period in the prior year. Although the net interest spread grew 15 basis points in the first nine months of 2010 compared to the same period in 2009, the impact of the larger interest-earning assets balance compared to interest-bearing liabilities resulted in a $102,000 decrease in net interest income.
The average balance of loans decreased $4.3 million in the first nine months of 2010 compared to the same period in 2009. The average balance of residential real estate loans was $5.0 million lower in the first three quarters of 2010 than the same period in the prior year. This was partially offset by a $0.8 million increase in average commercial and industrial and commercial real estate loans. The decrease in the average loans balance combined with a 26 basis point decrease in the average rate earned caused tax-equivalent interest income from loans to decline $834,000 in the first nine months of 2010 compared to the same period in the prior year. The average balance of total securities grew $7.3 million in the first nine months of 2010 compared to the same period in 2009. The securities growth occurred as a result of management's desire to provide earning asset growth. The increase in the securities balance was offset by lower interest rates earned which caused interest income to decline $406,000 in the first three quarters of 2010 compared to the same period in 2009. Interest income from other interest-earning assets increased slightly in the first nine months of 2010 as a result of growth in average assets.
The average balance of interest-bearing demand deposits increased $21.7 million in the first nine months of 2010 compared to the same period in 2009. The effect of the higher average balance, offset by a 10 basis point decline in the average rate paid, caused interest expense to increase $20,000 in the first three quarters of 2010 compared to the same period in 2009. The average balance of savings deposits increased $3.9 million in the first nine months of 2010 compared to the same period in the prior year. The impact of the savings deposit growth was offset by a 10 basis point drop in the average rate paid, which caused interest expense to decrease $22,000 in the first nine months of 2010 compared to the same period in 2009. The average balance of certificates of deposit was down $7.5 million in the first three quarters of 2010 compared to the same period in 2009. The average balance of local certificates was $4.1 million lower while the average balance of nonlocal certificates was $3.4 million lower in 2010 than in 2009. The decline in certificates of deposit plus a 94 basis point reduction in the average rate paid on certificates caused interest expense to fall $1,299,000 in the first nine months of 2010 compared to the same period in 2009. The average balance of advances from the Federal Home Loan Bank ("FHLB") was $12.9 million lower in the first nine months of 2010 than in the same period of the prior year. The average rate paid on FHLB advances was 61 basis points higher in the first three quarters of 2010 than in the same period of 2009 due to low-rate floating rate advances comprising a smaller portion of total advances in 2010 than they did in 2009. The combination of the decline in FHLB advances and the increase in the average rate paid caused interest expense to decrease $305,000 in the first nine months of 2010 compared to the same period in 2009. A $0.8 million decrease in the average balance of other interest-bearing liabilities in the first nine months of 2010 compared to the same period in t he prior year plus a 19 basis point drop in the average rate paid caused a $37,000 decrease in interest expense.
ChoiceOne's net interest income spread was 4.07% in the first nine months of 2010, compared to 3.92% for the same period in 2009. The growth in the interest spread was due to a 66 basis point decrease in the average rate paid on interest-bearing liabilities in the first three quarters of 2010 compared to the same period in 2009, which was partially offset by a drop in the average rate earned on interest-earning assets of 51 basis points. The reduction in the rate paid on liabilities was due in part to aggressive repricing of local deposits as general market interest rates fell during 2009 and the first nine months of 2010. The decline in general market interest rates in 2009 and 2010 also impacted the rates earned on interest-earning assets as the rates earned on new assets were less than the maturing assets that they replaced.
Provision and Allowance for Loan LossesThe allowance for loan losses was $4,841,000 as of September 30, 2010, compared to $4,857,000 as of June 30, 2010 and $4,322,000 as of December 31, 2009. The allowance growth occurred in spite of a decline in total loans of $7.6 million since the end of 2009. The allowance increase resulted from the provision for loan losses exceeding net charge-offs in the first nine months of 2010 and was believed necessary due to continued concerns over the Michigan economy. The provision for loan losses for the third quarter and first nine months of 2010 was $900,000 and $2,950,000, respectively, compared to $1,225,000 and $3,175,000, respectively, in the same periods in the prior year. Nonperforming loans were $11.0 million as of September 30, 2010, compared to $14.4 million as of June 30, 2010 and $14.0 million as of December 31, 2009. The decrease in nonperforming loans since the end of 2009 was primarily due to a $3.4 million decline in nonaccrual loans. The decrease in nonaccrual loans resulted from $2.4 million of net charge-offs of loans and $1.1 million of loan balances transferred to other real estate owned in the first nine months of 2010. The allowance for loan losses was 1.53% of total loans as of September 30, 2010, compared to 1.56% of total loans at June 30, 2010 and 1.34% at December 31, 2009.
Charge-offs and recoveries for respective loan categories for the nine months ended September 30 were as follows:
Charge-offs
Recoveries
Agricultural
Commercial and industrial
272
44
780
Consumer
328
194
371
203
Real estate, commercial
1,256
16
981
10
Real estate, residential
836
7
957
103
2,692
3,089
Net charge-offs in the first nine months of 2010 were $2,431,000, compared to $2,672,000 in the same period in 2009. Annualized net charge-offs as a percentage of average loans were 1.03% in the first three quarters of 2010 compared to 1.12% for the same period in the prior year. As is shown in the table above, the decrease was due to
lower charge-off levels for commercial and industrial loans, the effect of which was partially offset by higher charge-offs of commercial real estate loans. Management believes that certain business and personal borrowers will continue to be challenged to make their payments until there is improvement in economic activity in Michigan. 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 2010, the provision and allowance for loan losses will be reviewed by the Bank's management and adjusted as necessary.
Noninterest IncomeTotal noninterest income increased $133,000 in the third quarter of 2010 and $106,000 in the first nine months of 2010 compared to the same periods in 2009. The increase in the third quarter was caused by growth of $120,000 in gains on sales of loans. Approximately $8.4 million of residential real estate loans were sold in the third quarter of 2010, compared to $5.0 million sold in the same period in 2009. However, a decrease in loan sales of $23.4 million in the first nine months of 2009 to $16.5 million in the same period in 2010 caused gains on sales of loans to be $121,000 lower in 2010 than in 2009. Gains on sales of securities were $330,000 higher in the first nine months of 2010 than in the first nine months of 2009. Approximately $386,000 of securities gains were recognized in the first quarter of 2010 from sales of preferred stock that represented a recovery of losses recognized on money market preferred securities in the fourth quarter of 2008.
Noninterest ExpenseTotal noninterest expense increased $117,000 in the third quarter of 2010 and decreased $205,000 in the first nine months of 2010 compared to the same periods in 2009. Compensation and benefits expense was $76,000 higher in the third quarter of 2010 than the same period in 2009 as a result of staffing increases and higher commission expense related to mortgage originations volume. Loan and collection expense decreased $97,000 in the third quarter and $165,000 in the first nine months of 2010 compared to the same periods in 2009 due to lower amounts spent to collect past due loans and maintain foreclosed real estate. FDIC insurance expense was $162,000 lower in the first nine months of 2010 compared to the same period in the prior year due to a $204,000 special assessment levied in the second quarter of 2009. Other noninterest expense increased $87,000 in the third quarter of 2010 compared to the same quarter in the prior year as a result of higher customer relations expense and changes in various other expen ses.
Income Tax ExpenseIncome tax expense was $189,000 in the third quarter of 2010 and $512,000 in the first nine months of 2010, compared to a tax benefit of $27,000 and tax expense of $14,000 in the same periods in 2009. The increase in tax expense in both periods in 2010 was caused by higher income before income taxes. Nontaxable income from municipal securities was also lower in 2010 than in 2009. ChoiceOne's effective tax rate was 20.0% for the first nine months of 2010 compared to 1.0% for the same period in the prior year.
FINANCIAL CONDITION
SecuritiesThe securities available for sale portfolio increased $8.0 million in the third quarter and $15.9 million in the first nine months of 2010. Government agency, municipal and corporate securities totaling $39.0 million were purchased in the first nine months of 2010 to provide earning assets and to replace maturities, principal repayments, and calls within the securities portfolio. Approximately $17.1 million in various securities were called or matured since the end of 2009. Principal repayments on securities totaled $2.0 million in the first three quarters of 2010. Approximately $5.6 million of securities were sold in the first nine months of 2010 for a net gain of $535,000.
As a result of its review of securities for impairment, ChoiceOne recorded an other than temporary impairment charge of $47,000 in the third quarter of 2010. This was related to a municipal security that matured in September 2009 but was not redeemed by the issuer. An impairment charge of $47,000 was previously recorded on this security in the fourth quarter of 2009. The bondholders have continued to work with the security's issuer since the maturity date, but no settlement has yet been reached. The additional impairment was based on the uncertainty of the timing and amount of future payments by the issuer.
A book gain of $386,000 and a tax loss of $95,000 were recognized from the sale of preferred stock in the first quarter of 2010. The difference was caused by losses recorded for book purposes but not tax purposes in the fourth quarter of 2008 when preferred stock was received from the unwinding of money market preferred securities.
LoansThe loan portfolio (excluding loans held for sale) grew $3.9 million in the third quarter of 2010, which reversed a trend from the first two quarters that experienced a decline of $11.9 million. Loan demand recovered somewhat from the sluggishness of the first two quarters, but continued to be affected by the Michigan economy and reduced real estate values. Commercial real estate loans increased $2.0 million in the third quarter of 2010 and consumer loans increased $1.0 million. For the first nine months of 2010, commercial real estate loans, residential real estate loans, and agricultural loans have decreased $4.0 million, $2.8 million, and $2.3 million, respectively.
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 was $9.2 million as of September 30, 2010, compared to $11.0 million as of June 30, 2010 and $9.7 million as of December 31, 2009. The decrease in the third quarter of 2010 was due to a $1.7 million decrease in modified residential real estate loans classified as impaired.
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:
Loans accounted for on a nonaccrual basis
$ 8,511
$ 11,881
Accruing loans contractually past due 90 days or more as to principal or interest payments
202
Loans considered troubled debt restructurings
2,115
1,919
$ 10,995
$ 14,002
At September 30, 2010, nonaccrual loans included $5.4 million in commercial industrial and commercial real estate loans and $3.1 million in residential real estate loans. At December 31, 2009, nonaccrual loans included $7.8 million in commercial industrial and commercial real estate loans and $4.1 million in residential real estate loans. The decrease in nonaccrual loans since the end of 2009 was primarily due to charge-offs of loans and transfers of loan balances to other real estate. Management believes the specific reserves allocated to its nonperforming loans are sufficient at September 30, 2010; however, management believes future credit deterioration is possible given the status of the Michigan economy.
Other Real Estate OwnedThe balance of other real estate owned ("OREO") decreased $94,000 from December 31, 2009 to September 30, 2010. Commercial and residential real estate loans totaling $1,054,000 were transferred into OREO during the first nine months of 2010 and $85,000 of OREO was transferred to residential real estate loans during the same time period. Sales of properties, payments received, or write-downs of the value of other real estate properties were $1,063,000 in the first three quarters of 2010. Due to the current state of the Michigan economy, management anticipates that there will be continuing transfers from loans into OREO during the remainder of 2010 and continuing into 2011. 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.
Deposits and BorrowingsTotal deposits increased $23.0 million in the third quarter of 2010 and have grown $21.6 million since the end of 2009. Checking, money market, and savings deposits have grown $26.1 million in the first nine months of 2010, while certificates of deposit decreased $4.5 million. Management is continuing to emphasize growth in checking, money market, and savings accounts in its effort to obtain lower cost funding. Consistent with this emphasis, accounts with municipal depositors comprised $11.0 million of the nonmaturity deposit growth in 2010. Nonlocal certificates of deposit increased $3.5 million in the first nine months of 2010 as the Bank took advantage of lower long-term interest rates.
Federal Home Loan Bank advances decreased $6.5 million in the first nine months of 2010. Some maturing advances were replaced by growth in deposits while other advances were paid off with funds provided from payments received from loans. The $1.3 million decline in the balance of securities sold under agreements to repurchase 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.
Shareholders' EquityTotal shareholders' equity has increased $1,964,000 in the first nine months of 2010. Growth in equity resulted primarily from current year's net income, an increase in accumulated other comprehensive income, and proceeds from the sale of ChoiceOne's stock, offset by cash dividends paid. ChoiceOne cancelled 4 shares of its common stock in the first nine months of 2010 as a result of the conversion of shares of Valley Ridge Financial Corp. common stock into shares of ChoiceOne common stock and the cash payment for fractional shares. No shares were repurchased in the same period in 2009. Shares of common stock may be repurchased in the future if management deems it to be a prudent use of capital.
Following is information regarding the Bank's compliance with regulatory capital requirements:
LeverageCapital
Tier 1Capital
TotalRisk-BasedCapital
Capital balances at September 30, 2010
36,321
40,259
Required regulatory capital to be considered "well capitalized"
22,889
20,031
33,385
Capital in excess of "well capitalized" minimum
13,432
16,290
6,874
Capital ratios at September 30, 2010
7.93
%
10.88
12.06
Regulatory capital ratios - minimum requirement
to be considered "well capitalized"
5.00
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 September 30, 2010 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 and Sensitivity to Interest RatesNet cash provided from operating activities was $6.4 million for the nine months ended September 30, 2010 compared to $6.7 million provided in the same period in 2009. A decrease in proceeds from sales of other real estate owned was offset by a smaller negative net change in other liabilities. Net cash of $11.2 million was used in investing activities in the first three quarters of 2010 compared to $3.0 million of net cash provided in the same period in 2009. The change was caused by a higher level of securities purchases in 2010 compared to 2009. Net cash of $12.7 million was provided by financing activities in the first nine months of 2010 compared to $8.3 million of net cash used in the same period in the prior year. The change was due to greater deposit growth in 2010 than in 2009 and a smaller reduction in Federal Home Loan Bank advances.
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.
The Bank's sensitivity to changes in interest rates is monitored by the Bank's Asset/Liability Management Committee ("ALCO"). ALCO uses a simulation model to subject rate-sensitive assets and liabilities to interest rate shocks. Assets and liabilities are subjected to an immediate 200 basis point shock up and down and the effect on net income and shareholders' equity is measured. The Bank's Interest Rate Risk Policy states that changes in interest rates cannot cause net interest income to decrease more than 10% and the market value of shareholders' equity to decrease more than 20% if rates are instantaneously shocked 200 basis points upward or downward. The rate shock computation as of September 30, 2010 increased net interest income 1% if rates rose 200 basis points and decreased net interest income less than 1% if rates fell 15 basis points. The economic value of shareholders' equity declined 9% when rates were shocked 200 basis points upward and increased less than 1% if rates were shocked 15 basis poi nts downward. The downward interest rate shock as of September 30, 2010, was limited to 15 basis points due to the current low interest rate environment. The impact of these interest rate shocks is within the allowable policy limits established by ALCO. ALCO will continue to monitor the effect of changes in interest rates upon the Registrant's interest margin and financial condition.
Item 4T. 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 d isclosed 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 nine months ended September 30, 2010 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 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.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (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, establishes the new Federal Bureau of Consumer Financial Protection (BCFP), and will require the BCFP and other federal agencies to implement many new and significant rules and regulations. At this time, it is difficult to predict the extent to which the Dodd-Frank Act or the resulting rules and regulations will impact the Registrant's and the Bank's business. Compliance with these new laws and regulations will likely result in additional costs, which could be significant and could adversely impact the Registrant's results of operations, financial condition, or liquidity.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On July 22, 2010, the Registrant issued 973 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 $10,000. On September 24, 2010, the Registrant issued 1,905 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 $16,000. The Registrant relied on the exemption contained in Section 4(6) 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 third quarter of 2010. As of September 30, 2010, there are 135,668 shares remaining that may yet be purchased under approved plans or programs. The repurchase plan was adopted and announced on July 21, 2004. There is no stated expiration date. The plan authorized the repurchase of up to 50,000 shares. The Registrant's Board of Directors authorized an additional repurchase plan on July 26, 2007. There is no stated expiration date and this plan authorized ChoiceOne to repurchase an additional 100,000 shares.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. [Item 4 of Form 10-Q has been removed and reserved by the Securities and Exchange Commission.]
Item 5. Other Information.
Item 6. Exhibits
The following exhibits are filed or incorporated by reference as part of this report:
ExhibitNumber
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.
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: November 15, 2010
/s/ James A. Bosserd
James A. BosserdPresident and Chief Executive Officer(Principal Executive Officer)
/s/ Thomas L. Lampen
Thomas L. LampenTreasurer(Principal Financial and Accounting Officer)
INDEX TO EXHIBITS