SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[ X ] |
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended September 30, 2002 |
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[ ] |
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the transition period from to |
Commission File Number: 1-9202
ChoiceOne Financial Services, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Michigan |
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38-2659066 |
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109 East Division |
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(616) 887-7366 |
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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
As of October 31, 2002, the Registrant had 1,551,204 shares of common stock outstanding.
CHOICEONE FINANCIAL SERVICES, INC.
INDEX TO FORM 10-Q
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Page |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
Financial Statements: |
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Consolidated Balance Sheets at September 30, 2002 (Unaudited) |
3 |
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Consolidated Statements of Income for the three and nine months ended |
4 |
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Consolidated Statements of Changes in Shareholders' Equity for the nine months |
5 |
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Consolidated Statements of Cash Flows for the nine months ended |
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Notes to Consolidated Financial Statements |
7-9 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition |
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and Results of Operations |
9-16 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
16 |
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Item 4. |
Controls and Procedures |
16 |
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PART II. OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
17 |
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Item 2. |
Changes in Securities and Use of Proceeds |
17 |
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Item 3. |
Defaults Upon Senior Securities |
17 |
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Item 4. |
Submission of Matters to a Vote of Security Holders |
17 |
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Item 5. |
Other Information |
17 |
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Item 6. |
Exhibits and Reports on Form 8-K |
17 |
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SIGNATURES AND CERTIFICATIONS |
18-20 |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ChoiceOne Financial Services, Inc.
CONSOLIDATED BALANCE SHEETS
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September 30, |
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December 31, |
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(Unaudited) |
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Assets |
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Cash and due from banks |
$ |
4,292,000 |
$ |
4,931,000 |
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Short-term investments |
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100,000 |
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0 |
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Securities available for sale |
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19,888,000 |
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18,265,000 |
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Federal Home Loan Bank and Federal Reserve Bank stock |
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2,620,000 |
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2,620,000 |
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Loans held for sale |
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6,071,000 |
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656,000 |
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Loans, net |
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174,828,000 |
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163,154,000 |
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Premises and equipment, net |
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4,561,000 |
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5,061,000 |
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Other real estate owned, net |
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791,000 |
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710,000 |
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Other assets |
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2,279,000 |
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2,394,000 |
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Total assets |
$ |
215,430,000 |
$ |
197,791,000 |
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Liabilities |
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Deposits - noninterest bearing |
$ |
15,478,000 |
$ |
16,011,000 |
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Deposits - interest bearing |
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128,908,000 |
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119,964,000 |
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Repurchase agreements |
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3,761,000 |
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4,002,000 |
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Federal funds purchased |
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7,500,000 |
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2,900,000 |
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Advances from Federal Home Loan Bank |
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38,888,000 |
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35,125,000 |
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Mandatory redeemable shares under Employee Stock |
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27,000 |
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20,000 |
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Other liabilities |
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1,720,000 |
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1,496,000 |
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Total liabilities |
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196,282,000 |
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179,518,000 |
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Shareholders' Equity |
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Preferred stock; shares authorized: 100,000; |
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0 |
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0 |
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Common stock; shares authorized: 4,000,000; |
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15,640,000 |
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14,475,000 |
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Unallocated shares held by 401(k) and Employee Stock |
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(54,000 |
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(64,000 |
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Retained earnings |
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2,960,000 |
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3,680,000 |
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Accumulated other comprehensive income |
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602,000 |
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182,000 |
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Total shareholders' equity |
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19,148,000 |
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18,273,000 |
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Total liabilities and shareholders' equity |
$ |
215,430,000 |
$ |
197,791,000 |
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See accompanying notes to consolidated financial statements.
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2002 |
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2001 |
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2002 |
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2001 |
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Interest income |
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Loans, including fees |
$ |
3,396,000 |
$ |
3,794,000 |
$ |
10,128,000 |
$ |
11,650,000 |
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Securities: |
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Taxable |
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155,000 |
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103,000 |
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448,000 |
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305,000 |
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Nontaxable |
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106,000 |
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108,000 |
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323,000 |
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306,000 |
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Other |
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0 |
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31,000 |
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1,000 |
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63,000 |
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Total interest income |
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3,657,000 |
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4,036,000 |
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10,900,000 |
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12,324,000 |
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Interest expense |
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Deposits |
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977,000 |
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1,434,000 |
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3,108,000 |
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4,584,000 |
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Advances from Federal Home Loan Bank |
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487,000 |
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644,000 |
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1,506,000 |
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1,905,000 |
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Federal funds purchased and repurchase agreements |
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43,000 |
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34,000 |
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129,000 |
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127,000 |
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Other |
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2,000 |
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4,000 |
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8,000 |
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10,000 |
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Total interest expense |
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1,509,000 |
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2,116,000 |
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4,751,000 |
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6,626,000 |
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Net interest income |
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2,148,000 |
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1,920,000 |
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6,149,000 |
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5,698,000 |
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Provision for loan losses |
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325,000 |
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225,000 |
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710,000 |
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675,000 |
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Net interest income after |
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provision for loan losses |
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1,823,000 |
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1,695,000 |
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5,439,000 |
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5,023,000 |
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Noninterest income |
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Customer service fees |
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263,000 |
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187,000 |
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784,000 |
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521,000 |
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Insurance commissions |
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391,000 |
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307,000 |
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1,019,000 |
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932,000 |
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Gain on sales of securities |
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1,000 |
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1,000 |
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55,000 |
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9,000 |
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Gain on sales of loans |
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186,000 |
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68,000 |
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372,000 |
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196,000 |
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Loan servicing fees, net |
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31,000 |
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38,000 |
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71,000 |
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68,000 |
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Other income |
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32,000 |
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17,000 |
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109,000 |
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119,000 |
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Total noninterest income |
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904,000 |
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618,000 |
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2,410,000 |
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1,845,000 |
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Noninterest expense |
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Salaries and benefits |
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1,101,000 |
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946,000 |
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3,138,000 |
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2,632,000 |
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Occupancy |
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424,000 |
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325,000 |
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1,255,000 |
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1,028,000 |
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Professional services |
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157,000 |
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64,000 |
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396,000 |
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260,000 |
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Printing, postage and supplies |
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59,000 |
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73,000 |
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199,000 |
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222,000 |
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Data processing |
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69,000 |
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46,000 |
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208,000 |
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137,000 |
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Advertising and promotional |
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33,000 |
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55,000 |
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115,000 |
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150,000 |
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Other expense |
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365,000 |
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315,000 |
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986,000 |
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954,000 |
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Total noninterest expense |
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2,208,000 |
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1,824,000 |
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6,297,000 |
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5,383,000 |
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Income before income tax |
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519,000 |
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489,000 |
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1,552,000 |
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1,485,000 |
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Income tax expense |
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142,000 |
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138,000 |
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434,000 |
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428,000 |
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Net income |
$ |
377,000 |
$ |
351,000 |
$ |
1,118,000 |
$ |
1,057,000 |
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Comprehensive income |
$ |
632,000 |
$ |
449,000 |
$ |
1,538,000 |
$ |
1,237,000 |
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Basic and diluted earnings per share |
$ |
0.24 |
$ |
0.23 |
$ |
0.72 |
$ |
0.69 |
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See accompanying notes to consolidated financial statements.
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
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Common |
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Accumulated |
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Balance, January 1, 2001 |
1,385,609 |
$ |
13,317,000 |
$ |
(82,000 |
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$ |
4,222,000 |
$ |
132,000 |
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$ |
17,589,000 |
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Comprehensive income |
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Net income |
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1,057,000 |
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1,057,000 |
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Net change in unrealized gain |
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180,000 |
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180,000 |
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Total comprehensive income |
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1,237,000 |
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Shares issued to employee |
10,471 |
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146,000 |
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146,000 |
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Shares committed to be released |
510 |
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(9,000 |
) |
9,000 |
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0 |
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Shares repurchased |
(332 |
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(5,000 |
) |
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(5,000 |
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Stock dividend |
69,149 |
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1,002,000 |
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(1,005,000 |
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(3,000 |
) |
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Cash dividends |
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(746,000 |
) |
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(746,000 |
) |
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Balance, September 30, 2001 |
1,465,407 |
$ |
14,451,000 |
$ |
(73,000 |
) |
$ |
3,528,000 |
$ |
312,000 |
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$ |
18,218,000 |
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Balance, January 1, 2002 |
1,467,706 |
$ |
14,475,000 |
$ |
(64,000 |
) |
$ |
3,680,000 |
$ |
182,000 |
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$ |
18,273,000 |
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Comprehensive income |
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Net income |
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1,118,000 |
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1,118,000 |
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Net change in unrealized gain |
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420,000 |
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420,000 |
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Total comprehensive income |
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1,538,000 |
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Shares issued to employee |
9,027 |
|
114,000 |
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114,000 |
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Shares committed to be released |
510 |
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(10,000 |
) |
10,000 |
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0 |
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Stock dividend |
73,385 |
|
1,061,000 |
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(1,064,000 |
) |
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(3,000 |
) |
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Cash dividends |
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(774,000 |
) |
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(774,000 |
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Balance, September 30, 2002 |
1,550,628 |
$ |
15,640,000 |
$ |
(54,000 |
) |
$ |
2,960,000 |
$ |
602,000 |
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$ |
19,148,000 |
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See accompanying notes to consolidated financial statements.
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Nine Months Ended |
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2002 |
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|
2001 |
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Cash flows from operating activities: |
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Net income |
$ |
1,118,000 |
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$ |
1,057,000 |
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Adjustments to reconcile net income to net cash from |
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Depreciation |
|
761,000 |
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|
589,000 |
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Amortization |
|
261,000 |
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|
119,000 |
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Provision for loan losses |
|
710,000 |
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|
675,000 |
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Gain on sales of securities |
|
(55,000 |
) |
|
(9,000 |
) |
|
Gain on sales of loans |
|
(372,000 |
) |
|
(155,000 |
) |
|
Loans originated for sale |
|
(22,043,000 |
) |
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(13,904,000 |
) |
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Proceeds from loan sales |
|
17,000,000 |
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|
14,059,000 |
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Net changes in: |
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Accrued interest receivable and other assets |
|
832,000 |
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|
(357,000 |
) |
|
Accrued interest payable and other liabilities |
|
12,000 |
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|
682,000 |
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Net cash provided by/(used in) operating activities |
|
(1,776,000 |
) |
|
2,756,000 |
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Cash flows from investing activities: |
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Purchases of securities available for sale |
|
(5,242,000 |
) |
|
(7,639,000 |
) |
|
Proceeds from sales of securities available for sale |
|
3,111,000 |
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|
1,998,000 |
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Principal payments on securities available for sale |
|
1,090,000 |
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|
649,000 |
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Net change in loans |
|
(13,431,000 |
) |
|
3,764,000 |
|
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Premises and equipment expenditures, net |
|
(261,000 |
) |
|
(342,000 |
) |
|
Net cash used in investing activities |
|
(14,733,000 |
) |
|
(1,570,000 |
) |
|
|
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|
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Cash flows from financing activities: |
|
|
|
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|
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Net change in deposits |
|
8,411,000 |
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|
348,000 |
|
|
Net change in repurchase agreements |
|
(241,000 |
) |
|
1,510,000 |
|
|
Net change in federal funds purchased |
|
4,600,000 |
|
|
(3,650,000 |
) |
|
Proceeds from Federal Home Loan Bank advances |
|
16,000,000 |
|
|
9,250,000 |
|
|
Payments on Federal Home Loan Bank advances |
|
(12,237,000 |
) |
|
(5,684,000 |
) |
|
Issuance of common stock |
|
114,000 |
|
|
146,000 |
|
|
Repurchase of common stock |
|
0 |
|
|
(5,000 |
) |
|
Cash dividends and fractional shares from stock dividends |
|
(777,000 |
) |
|
(749,000 |
) |
|
Net cash provided by financing activities |
|
15,870,000 |
|
|
1,166,000 |
|
|
|
|
|
|
|
|
|
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Net change in cash and cash equivalents |
|
(639,000 |
) |
|
2,352,000 |
|
|
Beginning cash and cash equivalents |
|
4,931,000 |
|
|
4,896,000 |
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents |
$ |
4,292,000 |
|
$ |
7,248,000 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Cash paid for interest |
$ |
4,769,000 |
|
$ |
6,720,000 |
|
|
Cash paid for income taxes |
$ |
375,000 |
|
$ |
335,000 |
|
|
Loans transferred to other real estate |
$ |
1,047,000 |
|
$ |
598,000 |
|
See accompanying notes to consolidated financial statements.
ChoiceOne Financial Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include ChoiceOne Financial Services, Inc. (the "Registrant") and its direct and indirect wholly owned subsidiaries, ChoiceOne Bank (the "Bank"), ChoiceOne Mortgage Company of Michigan (the "Mortgage Company"), ChoiceOne Insurance Agencies, Inc. (the "Insurance Agency") and ChoiceOne Travel, Inc. (the "Travel Agency"). Effective April 1, 2001, the Registrant's management closed the Travel Agency. 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, 2002 and December 31, 2001, the Consolidated Statements of Income for the three- and nine-month periods ended September 30, 2002 and September 30, 2001, the Consolidated Statements of Changes in Shareholders' Equity for the nine-month periods ended September 30, 2002 and September 30, 2001, and the Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2002 and September 30, 2001. Operating results for the nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.
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, 2001.
Stock Transactions
A total of 2,958 shares of common stock were issued to the Registrant's Board of Directors for a cash price of $43,000 under the terms of the Directors' Stock Purchase Plan in the first three quarters of 2002. A total of 6,288 shares of common stock were issued to shareholders for a cash price of $71,000 under the Dividend Reinvestment and Supplemental Purchase Plan. Approximately 510 shares of common stock were released under the Employee Stock Ownership Plan.
The Registrant's Board of Directors declared a 5% stock dividend payable on the Registrant's common stock on April 17, 2002. The dividend was paid May 31, 2002 to shareholders of record as of May 9, 2002. Earnings per share data for all periods presented have been adjusted for this stock dividend and the 5% stock dividend paid in 2001.
Reclassifications
Certain amounts presented in prior periods have been reclassified to conform to the 2002 presentation.
NOTE 2 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses follows:
|
|
For the three months ended |
|
|
For the nine months ended |
|
|||||||
|
|
2002 |
|
|
2001 |
|
|
2002 |
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
2,030,000 |
|
$ |
2,010,000 |
|
$ |
2,013,000 |
|
$ |
2,101,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision charged to expense |
|
325,000 |
|
|
225,000 |
|
|
710,000 |
|
|
675,000 |
|
|
Loans charged-off |
|
(257,000 |
) |
|
(163,000 |
) |
|
(731,000 |
) |
|
(803,000 |
) |
|
Recoveries of charged-off loans |
|
36,000 |
|
|
49,000 |
|
|
142,000 |
|
|
148,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
$ |
2,134,000 |
|
$ |
2,121,000 |
|
$ |
2,134,000 |
|
$ |
2,121,000 |
|
Information regarding impaired loans follows:
|
|
|
September 30, |
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
Loans with no allowance allocated |
$ |
3,273,000 |
$ |
718,000 |
|
|
|
Loans with allowance allocated |
|
959,000 |
|
153,000 |
|
|
|
Amount of allowance for loan losses allocated |
|
495,000 |
|
53,000 |
|
|
Information regarding impaired loans follows:
|
|
|
Nine Months ended September 30, |
|
||
|
|
|
2002 |
|
2001 |
|
|
|
|
|
|
|
|
|
Average balance during the period |
$ |
2,325,000 |
$ |
975,000 |
|
|
Interest income recognized thereon |
|
29,000 |
|
13,000 |
|
|
Cash basis interest income recognized |
|
47,000 |
|
12,000 |
|
NOTE 3 - EARNINGS PER SHARE
A computation of the basic earnings per share and diluted earnings per share follows:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||
|
|
|
2002 |
|
2001 |
|
2002 |
|
2001 |
|
|
Basic Earnings Per Share |
|
|
|
|
|
|
|
|
|
|
Net income available to common |
|
|
|
|
|
|
|
|
|
|
shareholders |
$ |
377,000 |
$ |
351,000 |
$ |
1,118,000 |
$ |
1,057,000 |
|
|
|
|
|
|
|
|
|
| ||