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 June 30, 2004 |
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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: 000-19202
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
Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
As of July 30, 2004, the Registrant had outstanding 1,567,645 shares of common stock.
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 June 30, 2004 (Unaudited) and December 31, 2003 |
3 |
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Consolidated Statements of Income for the three and six months ended |
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Consolidated Statements of Changes in Shareholders' Equity for the six months |
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Consolidated Statements of Cash Flows for the six months ended June 30, 2004 |
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Notes to Consolidated Financial Statements |
7-9 |
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Item 2. |
Management's Discussion and Analysis of Financial |
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Condition and Results of Operations |
10-15 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
15-16 |
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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 |
16 |
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Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
16 |
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Item 3. |
Defaults Upon Senior Securities |
16 |
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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 |
18 |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ChoiceOne Financial Services, Inc.
CONSOLIDATED BALANCE SHEETS
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June 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 |
$ |
4,720,000 |
$ |
4,722,000 |
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4,720,000 |
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4,722,000 |
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Securities available for sale |
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40,781,000 |
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38,149,000 |
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Federal Home Loan Bank and Federal Reserve Bank stock |
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2,890,000 |
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2,772,000 |
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Loans, net |
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167,490,000 |
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161,158,000 |
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Loans held for sale |
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510,000 |
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0 |
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Premises and equipment, net |
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4,603,000 |
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4,080,000 |
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Other real estate owned, net |
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1,581,000 |
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1,433,000 |
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Loan servicing rights, net |
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420,000 |
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442,000 |
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Other assets |
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2,589,000 |
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2,711,000 |
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Total assets |
$ |
225,584,000 |
$ |
215,467,000 |
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Liabilities |
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Deposits - noninterest bearing |
$ |
19,239,000 |
$ |
17,288,000 |
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Deposits - interest bearing |
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137,203,000 |
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128,975,000 |
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Total deposits |
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156,442,000 |
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146,263,000 |
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Repurchase agreements |
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4,555,000 |
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5,305,000 |
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Federal funds purchased |
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5,214,000 |
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7,882,000 |
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Advances from Federal Home Loan Bank |
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37,250,000 |
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33,750,000 |
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Other liabilities |
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1,771,000 |
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1,699,000 |
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Total liabilities |
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205,232,000 |
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194,899,000 |
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Shareholders' Equity |
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Preferred stock; shares authorized: 100,000; |
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Common stock; shares authorized: 4,000,000; |
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Unallocated shares held by Employee Stock Ownership Plan |
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(18,000 |
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(27,000 |
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Retained earnings |
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4,648,000 |
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4,264,000 |
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Accumulated other comprehensive income (loss) |
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(139,000 |
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516,000 |
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Total shareholders' equity |
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20,352,000 |
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20,568,000 |
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Total liabilities and shareholders' equity |
$ |
225,584,000 |
$ |
215,467,000 |
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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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Six Months Ended |
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2004 |
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2003 |
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2004 |
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2003 |
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Interest income |
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Loans, including fees |
$ |
2,463,000 |
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$ |
2,822,000 |
$ |
4,951,000 |
$ |
5,787,000 |
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Securities: |
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Taxable |
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242,000 |
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192,000 |
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491,000 |
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356,000 |
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Tax exempt |
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139,000 |
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109,000 |
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276,000 |
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218,000 |
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Other |
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1,000 |
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4,000 |
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1,000 |
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5,000 |
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Total interest income |
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2,845,000 |
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3,127,000 |
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5,719,000 |
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6,366,000 |
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Interest expense |
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Deposits |
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728,000 |
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819,000 |
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1,447,000 |
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1,700,000 |
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Advances from Federal Home Loan Bank |
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233,000 |
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317,000 |
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452,000 |
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672,000 |
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Other |
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22,000 |
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21,000 |
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48,000 |
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44,000 |
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Total interest expense |
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983,000 |
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1,157,000 |
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1,947,000 |
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2,416,000 |
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Net interest income |
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1,862,000 |
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1,970,000 |
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3,772,000 |
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3,950,000 |
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Provision for loan losses |
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80,000 |
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75,000 |
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160,000 |
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245,000 |
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Net interest income after provision for loan losses |
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1,782,000 |
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1,895,000 |
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3,612,000 |
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3,705,000 |
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Noninterest income |
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Customer service fees |
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242,000 |
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260,000 |
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464,000 |
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501,000 |
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Insurance and investment commissions |
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277,000 |
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240,000 |
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557,000 |
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539,000 |
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Gain on sales of loans |
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64,000 |
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250,000 |
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124,000 |
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419,000 |
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Gain on sales of securities |
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6,000 |
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0 |
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35,000 |
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0 |
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Loan servicing fees, net |
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8,000 |
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(15,000 |
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30,000 |
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(18,000 |
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Other |
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8,000 |
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11,000 |
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83,000 |
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108,000 |
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Total noninterest income |
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605,000 |
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746,000 |
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1,293,000 |
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1,549,000 |
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Noninterest expense |
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Salaries and benefits |
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927,000 |
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1,057,000 |
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1,905,000 |
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2,069,000 |
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Occupancy |
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293,000 |
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315,000 |
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568,000 |
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638,000 |
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Professional services |
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137,000 |
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132,000 |
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242,000 |
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260,000 |
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Supplies and postage |
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64,000 |
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64,000 |
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127,000 |
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131,000 |
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Data processing |
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79,000 |
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89,000 |
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173,000 |
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182,000 |
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Advertising and promotional |
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26,000 |
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38,000 |
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52,000 |
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66,000 |
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Other |
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282,000 |
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252,000 |
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541,000 |
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504,000 |
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Total noninterest expense |
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1,808,000 |
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1,947,000 |
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3,608,000 |
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3,850,000 |
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Income before income tax |
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579,000 |
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694,000 |
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1,297,000 |
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1,404,000 |
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Income tax expense |
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175,000 |
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189,000 |
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381,000 |
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393,000 |
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Net income |
$ |
404,000 |
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$ |
505,000 |
$ |
916,000 |
$ |
1,011,000 |
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Comprehensive income (loss) |
$ |
(428,000 |
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$ |
741,000 |
$ |
261,000 |
$ |
1,291,000 |
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Basic earnings per share |
$ |
0.26 |
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$ |
0.32 |
$ |
0.59 |
$ |
0.65 |
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Diluted earnings per share |
$ |
0.26 |
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$ |
0.32 |
$ |
0.58 |
$ |
0.65 |
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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, 2003 |
1,551,228 |
$ |
15,645,000 |
$ |
(45,000 |
) |
$ |
3,222,000 |
$ |
537,000 |
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$ |
19,359,000 |
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Comprehensive income |
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Net income |
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1,011,000 |
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1,011,000 |
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Change in unrealized gain |
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280,000 |
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280,000 |
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Total comprehensive income |
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1,291,000 |
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Shares issued |
7,541 |
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105,000 |
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105,000 |
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Shares repurchased |
(630 |
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(9,000 |
) |
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(9,000 |
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Shares committed to be released |
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Cash dividends |
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(528,000 |
) |
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(528,000 |
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Balance, June 30, 2003 |
1,558,139 |
$ |
15,732,000 |
$ |
(36,000 |
) |
$ |
3,705,000 |
$ |
817,000 |
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$ |
20,218,000 |
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Balance, January 1, 2004 |
1,563,415 |
$ |
15,815,000 |
$ |
(27,000 |
) |
$ |
4,264,000 |
$ |
516,000 |
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$ |
20,568,000 |
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Comprehensive income |
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Net income |
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|
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|
916,000 |
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|
916,000 |
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Change in unrealized gain |
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Total comprehensive income |
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261,000 |
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Shares issued |
6,759 |
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122,000 |
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122,000 |
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Shares repurchased |
(2,679 |
) |
(51,000 |
) |
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(51,000 |
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Shares committed to be released |
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Cash dividends |
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(532,000 |
) |
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(532,000 |
) |
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Balance, June 30, 2004 |
1,567,495 |
$ |
15,861,000 |
$ |
(18,000 |
) |
$ |
4,648,000 |
$ |
(139,000 |
) |
$ |
20,352,000 |
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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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Six Months Ended |
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2004 |
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2003 |
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Cash flows from operating activities: |
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Net income |
$ |
916,000 |
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$ |
1,011,000 |
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Adjustments to reconcile net income to net cash from |
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Depreciation |
|
269,000 |
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|
303,000 |
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Amortization |
|
300,000 |
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|
244,000 |
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Provision for loan losses |
|
160,000 |
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|
245,000 |
|
|
Gain on sales of securities |
|
(35,000 |
) |
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0 |
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Gain on sales of loans |
|
(124,000 |
) |
|
(419,000 |
) |
|
Loans originated for sale |
|
(5,311,000 |
) |
|
(21,362,000 |
) |
|
Proceeds from sales of loans |
|
4,874,000 |
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|
18,940,000 |
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Net changes in: |
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Other assets |
|
601,000 |
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|
1,216,000 |
|
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Other liabilities |
|
393,000 |
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|
43,000 |
|
|
Net cash provided by operating activities |
|
2,043,000 |
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|
221,000 |
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Cash flows from investing activities: |
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Purchases of securities available for sale |
|
(9,941,000 |
) |
|
(11,296,000 |
) |
|
Proceeds from sales of securities available for sale |
|
4,071,000 |
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|
0 |
|
|
Principal payments on securities available for sale |
|
1,951,000 |
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|
1,787,000 |
|
|
Loan originations, net of repayments |
|
(7,134,000 |
) |
|
14,188,000 |
|
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Premises and equipment expenditures, net of disposals |
|
(792,000 |
) |
|
(122,000 |
) |
|
Proceeds from sale of insurance book of business |
|
0 |
|
|
186,000 |
|
|
Net cash provided by/(used in) investing activities |
|
(11,845,000 |
) |
|
4,743,000 |
|
|
|
|
|
|
|
|
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Cash flows from financing activities: |
|
|
|
|
|
|
|
Net change in deposits |
|
10,179,000 |
|
|
(4,005,000 |
) |
|
Net change in repurchase agreements |
|
(750,000 |
) |
|
(582,000 |
) |
|
Net change in federal funds purchased |
|
(2,668,000 |
) |
|
5,350,000 |
|
|
Proceeds from Federal Home Loan Bank advances |
|
14,750,000 |
|
|
6,500,000 |
|
|
Payments on Federal Home Loan Bank advances |
|
(11,250,000 |
) |
|
(13,514,000 |
) |
|
Issuance of common stock |
|
122,000 |
|
|
105,000 |
|
|
Repurchase of common stock |
|
(51,000 |
) |
|
(9,000 |
) |
|
Cash dividends and fractional shares from stock dividends |
|
(532,000 |
) |
|
(528,000 |
) |
|
Net cash provided by/(used in) financing activities |
|
9,800,000 |
|
|
(6,683,000 |
) |
|
|
|
|
|
|
|
|
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Net change in cash and cash equivalents |
|
(2,000 |
) |
|
(1,719,000 |
) |
|
Beginning cash and cash equivalents |
|
4,722,000 |
|
|
6,471,000 |
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents |
$ |
4,720,000 |
|
$ |
4,752,000 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Cash paid for interest |
$ |
1,928,000 |
|
$ |
2,411,000 |
|
|
Cash paid for income taxes |
$ |
275,000 |
|
$ |
395,000 |
|
|
Loans transferred to other real estate |
$ |
642,000 |
|
$ |
927,000 |
|
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"), and ChoiceOne Insurance Agencies, Inc. (the "Insurance Agency").
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 June 30, 2004 and December 31, 2003, the Consolidated Statements of Income for the three- and six-month periods ended June 30, 2004 and June 30, 2003, the Consolidated Statements of Changes in Shareholders' Equity for the six-month periods ended June 30, 2004 and June 30, 2003, and the Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2004 and June 30, 2003. Operating results for the six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.
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, 2003.
Stock Based Compensation
Employee compensation expense under the Registrant's stock option plan is reported if options are granted below market price at the grant date. Pro forma disclosures of net income and earnings per share are shown using the fair value method to measure expense for options granted using an option pricing model to estimate the fair value.
The following pro forma information presents net income and earnings per share for the three and six months ended June 30, 2004 and 2003 had the fair value method been used to measure compensation expense for stock option plans. No compensation expense was recognized for stock options in 2004 and 2003.
|
Three Months Ended |
||||||
|
2004 |
2003 |
|||||
|
Net income as reported |
$ |
404,000 |
|
$ |
505,000 |
|
|
Deduct: Stock-based compensation expense determined under |
|
|
|
|
|
|
|
Pro forma net income |
$ |
404,000 |
|
$ |
505,000 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share and diluted earnings per common share |
|
|
|
|
|
|
|
as reported |
$ |
0.26 |
|
$ |
0.32 |
|
|
Pro forma basic earnings per common share and pro forma |
|
|
|
|
|
|
|
diluted earnings per common share |
$ |
0.26 |
|
$ |
0.32 |
|
|
Six Months Ended |
||||||
|
2004 |
2003 |
|||||
|
Net income as reported |
$ |
916,000 |
|
$ |
1,011,000 |
|
|
Deduct: Stock-based compensation expense determined under |
|
|
|
|
|
|
|
Pro forma net income |
$ |
910,000 |
|
$ |
1,005,000 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share as reported |
$ |
0.59 |
|
$ |
0.65 |
|
|
Diluted earnings per common share as reported |
$ |
0.58 |
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
Proforma basic earnings per common share |
$ |
0.59 |
|
$ |
0.65 |
|
|
Proforma diluted earnings per common share |
$ |
0.58 |
|
$ |
0.65 |
|
Stock Transactions
A total of 1,735 shares of common stock were issued to the Registrant's Board of Directors for a cash price of $31,000 under the terms of the Directors' Stock Purchase Plan in the first two quarters of 2004. A total of 3,865 shares of common stock were issued to shareholders for a cash price of $72,000 under the Dividend Reinvestment and Supplemental Purchase Plan in the six months ended June 30, 2004. A total of 1,159 shares were issued to employees for a cash price of $19,000 under the Employee Stock Purchase Plan for the six months ended June 30, 2004. A total of 2,679 shares were repurchased from shareholders at a cash price of $51,000 in the first six months of 2004.
NOTE 2 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||
|
|
2004 |
|
|
2003 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
1,713,000 |
|
$ |
2,094,000 |
|
$ |
1,974,000 |
|
$ |
2,211,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision charged to expense |
|
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