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EX-13 - CHOICEONE FINANCIAL EXHIBIT 13 TO FORM 10-K - CHOICEONE FINANCIAL SERVICES INCchoiceex13_033010.htm
EX-21 - CHOICEONE FINANCIAL EXHIBIT 21 TO FORM 10-K - CHOICEONE FINANCIAL SERVICES INCchoiceex21_033010.htm
EX-24 - CHOICEONE FINANCIAL EXHIBIT 24 TO FORM 10-K - CHOICEONE FINANCIAL SERVICES INCchoiceex24_033010.htm
EX-32 - CHOICEONE FINANCIAL EXHIBIT 32 TO FORM 10-K - CHOICEONE FINANCIAL SERVICES INCchoiceex32_033010.htm
EX-23.1 - CHOICEONE FINANCIAL EXHIBIT 23.1 TO FORM 10-K - CHOICEONE FINANCIAL SERVICES INCchoiceex231_033010.htm
EX-31.1 - CHOICEONE FINANCIAL EXHIBIT 31.1 TO FORM 10-K - CHOICEONE FINANCIAL SERVICES INCchoiceex311_033010.htm
EX-31.2 - CHOICEONE FINANCIAL EXHIBIT 31.2 TO FORM 10-K - CHOICEONE FINANCIAL SERVICES INCchoiceex312_033010.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

(X)

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

For the fiscal year ended December 31, 2009

 

 

(   )

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

For the transition period from__________________ to __________________

Commission File Number:  000-19202

ChoiceOne Financial Services, Inc.
(Exact Name of Registrant as Specified in its Charter)

 

Michigan
(State or Other Jurisdiction of
Incorporation or Organization)

 

38-2659066
(I.R.S. Employer Identification No.)

 

 

 

 

 

 

 

109 East Division Street, Sparta, Michigan
(Address of Principal Executive Offices)

 

49345
(Zip Code)

 

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

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

Common Stock
(Title of Class)

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   X     No        

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer        

Accelerated filer        

 

 

Non-accelerated filer        

Smaller reporting company    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 June 30, 2009, the aggregate market value of common stock held by non-affiliates of the Registrant was $25.6 million. This amount is based on an average bid price of $7.95 per share for the Registrant's stock as of such date.

As of February 28, 2010, the Registrant had 3,266,948 shares of common stock outstanding.




DOCUMENTS INCORPORATED BY REFERENCE

Part I, Item 1, and Part II, Items 5 through 9A(T) incorporate by reference portions of the Registrant's Annual Report to Shareholders for the year ended December 31, 2009.

Part III, Items 10 through 14 incorporate by reference portions of the Registrant's Definitive Proxy Statement for the Registrant's Annual Meeting of Shareholders to be held April 29, 2010.


FORWARD-LOOKING STATEMENTS

This report and the documents incorporated into this report contain forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and the Registrant itself. Words such as "anticipates," "believes," "expects," "forecasts," "intends," "is likely," "plans," "predicts," "projects," "may," "could," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. Management's determination of the provision and allowance for loan losses, the carrying value of goodwill and loan servicing rights, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other than temporary) and management's assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. All of the information concerning interest rate sensitivity is forward-looking. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed, implied or forecasted in such forward-looking statements. Furthermore, the Registrant undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

Risk factors include, but are not limited to, the risk factors disclosed in Item 1A of this report, changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking laws and regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior as well as their abilities to repay loans; changes in the local and national economies; changes in market conditions; the possibility that anticipated cost savings and revenue enhancements from the merger with Valley Ridge Financial Corp. may not be realized in full or at all or within the expected time frames; the level and timing of asset growth; local and global uncertainties such as acts of terrorism and military actions; and current uncertainties and fluctuations in the financial markets and stocks of financial services providers due to concerns about credit availability and concerns about the Michigan economy in particular. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

PART I

Item 1.

Business

General
ChoiceOne Financial Services, Inc. (the "Registrant") is a one-bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Registrant was incorporated on February 24, 1986, as a Michigan corporation. The Registrant was formed to create a bank holding company for the purpose of acquiring all of the capital stock of ChoiceOne Bank (formerly Sparta State Bank), which became a wholly owned subsidiary of the Registrant on April 6, 1987. The Registrant's only subsidiary and significant asset as of December 31, 2009, was ChoiceOne Bank (the "Bank"). Effective January 1, 1996, the Bank acquired all of the outstanding common stock of ChoiceOne Insurance Agencies, Inc. (formerly Bradford Insurance Centre, Ltd.), an independent insurance agency headquartered in Sparta, Michigan (the "Insurance Agency"). Effective January 1, 2002, the Bank formed ChoiceOne Mortgage Company of Michigan (the "Mortgage Company"). In December 2008, the operations of the Mortgage Company were consolidated into the Bank and the Mortgage Company subsidiary was eliminated. The Bank also owns a 25% interest in a non-banking corporation, West Shore Computer Services, Inc., a data processing firm located in Scottville, Michigan. Effective November 1, 2006, the Registrant merged with Valley Ridge Financial Corp. ("VRFC"), a single-bank holding company for Valley Ridge Bank ("VRB"). In the merger, the

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Registrant issued shares of its common stock in exchange for all outstanding shares of VRFC. In December 2006, VRB was consolidated into the Bank.

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

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

The principal source of revenue for the Registrant and the Bank is interest and fees on loans. On a consolidated basis, interest and fees on loans accounted for 70%, 74%, and 70% of total revenues in 2009, 2008, and 2007, respectively. Interest on securities accounted for 11%, 12%, and 11% of total revenues in 2009, 2008, and 2007, respectively.

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

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

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

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


3


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

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

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

The 2008 DIF rates for nearly all depository institutions varied between five and seven cents for every $100 of deposits. The 2009 rates were approximately double those of the prior year as depository institutions classified in the FDIC's Risk Category I were assessed between 12 and 14 cents for every $100 of deposits. The rates could increase up to 50 cents for every $100 of deposits for riskier institutions. In addition, the FDIC imposed a special assessment of 5 basis points on each insured institution's assets minus its Tier 1 capital on September 30, 2009.

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

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

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

Michigan banking laws do not significantly restrict interstate banking. The Michigan Banking Code permits, in appropriate circumstances and with the approval of the Office of Financial and Insurance Regulation, (1) acquisition of Michigan banks by FDIC-insured banks, savings banks or savings and loan associations located in other states, (2) sale by a Michigan bank of branches to an FDIC-insured bank, savings bank or savings and loan association located in a state in which a Michigan bank could purchase branches of the purchasing entity, (3) consolidation of Michigan banks and FDIC-insured banks, savings banks or savings and loan associations located in other states having laws

4


permitting such consolidation, (4) establishment of branches in Michigan by FDIC-insured banks located in other states, the District of Columbia or U.S. territories or protectorates having laws permitting a Michigan bank to establish a branch in such jurisdiction, and (5) establishment by foreign banks of branches located in Michigan.

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

Employees
As of February 28, 2010, the Registrant, the Bank and the Insurance Agency employed 154 employees, of which 109 were full-time employees. The Registrant, Bank, and Insurance Agency believe their relations with their employees are good.

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

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

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

(Dollars in thousands)

 

 


2009


 


2008


 


2007


 

U.S. Government and federal agency

$

18,571

$

14,221

$

15,952

 

State and municipal

 

44,599

 

49,066

 

46,486

 

Mortgage-backed

 

8,929

 

11,902

 

14,423

 

Corporate

 

-

 

198

 

1,251

 

Equity securities

 


2,314


 


1,981


 


5,044


 

     Total

$


74,413


$


77,368


$


83,156


 

The Registrant did not hold investment securities from any one issuer at December 31, 2009, that were greater than 10% of the Registrant's shareholders' equity, exclusive of U.S. Government and U.S. Government agency securities.

Presented below is the fair value of securities as of December 31, 2009 and 2008, a schedule of maturities of securities as of December 31, 2009, and the weighted average yields of securities as of December 31, 2009.


5


(Dollars in thousands)

 

Securities maturing within:


 

 

 

 

 

 


Less than
1 Year




 



1 Year -
5 Years




 



5 Years -
10 Years




 



More than
10 Years




 


Fair Value
at Dec. 31,
2009




 


Fair Value
at Dec. 31,
2008


 

U.S. Government and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     federal agency

$

5,939

 

$

9,659

 

$

2,973

 

$

-

 

$

18,571

 

$

14,221

 

State and municipal

 

15,343

 

 

13,258

 

 

14,906

 

 

1,092

 

 

44,599

 

 

49,066

 

Mortgage-backed securities

 

1,460

 

 

6,293

 

 

548

 

 

628

 

 

8,929

 

 

11,902

 

Corporate

 


-


 


 


-


 


 


-


 


 


-


 


 


-


 


 


198


 

     Total debt securities

 

22,742

 

 

29,210

 

 

18,427

 

 

1,720

 

 

72,099

 

 

75,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities (1)

 


860


 


 


-


 


 


-


 


 


1,454


 


 


2,314


 


 


1,981


 

     Total securities

$


23,602


 


$


29,210


 


$


18,427


 


$


3,174


 


$


74,413


 


$


77,368


 


 

 


 


 


 


Weighted average yields:


 


 


 


 


 

 

U.S. Government and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     federal agency

 

4.07

%

 

2.23

%

 

3.60

%

 

-

%

 

3.04

%

 

State and municipal (2)

 

5.25

 

 

6.33

 

 

6.21

 

 

6.24

 

 

5.92

 

 

Corporate

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

Mortgage-backed securities

 

3.50

 

 

4.13

 

 

3.20

 

 

3.04

 

 

3.90

 

 

Equity securities (2)

 

6.41

 

 

-

 

 

-

 

 

8.67

 

 

7.83

 

 

______________

(1)

Equity securities are preferred and common stocks with no stated maturity.

(2)

The yield is computed on a fully tax-equivalent basis at an incremental tax rate of 34%.

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

(Dollars in thousands)

 

 


2009


 


 


2008


 


 


2007


 


 


2006


 


 


2005


 

Agricultural

$

31,322

 

$

23,408

 

$

24,765

 

$

23,606

 

$

10,203

 

Commercial and industrial

 

53,964

 

 

57,587

 

 

51,242

 

 

51,419

 

 

37,439

 

Consumer

 

16,285

 

 

16,047

 

 

15,939

 

 

15,589

 

 

11,820

 

Real estate - commercial

 

121,100

 

 

123,952

 

 

125,960

 

 

123,743

 

 

51,453

 

Real estate - construction

 

1,158

 

 

2,026

 

 

4,048

 

 

4,740

 

 

7,466

 

Real estate - residential

 


98,887


 


 


102,957


 


 


106,404


 


 


112,534


 


 


67,187


 

     Total loans, gross

$


322,716


 


$


325,977


 


$


328,358


 


$


331,631


 


$


185,568


 

Maturities and Sensitivities of Loans to Changes in Interest Rates
The following schedule presents the maturities of loans (excluding residential real estate and consumer loans) as of December 31, 2009. All loans over one year in maturity (excluding residential real estate and consumer loans) are also presented classified according to the sensitivity to changes in interest rates as of December 31, 2009.

(Dollars in thousands)


Loan Type


 


Less than
1 Year



 



 


1 Year -
5 Years



 



 


More than
5 Years



 



 



Total


 

Agricultural

$

13,095

 

$

13,821

 

$

4,406

 

$

31,322

 

Commercial and industrial

 

20,708

 

 

28,118

 

 

5,138

 

 

53,964

 

Real estate - commercial

 

35,939

 

 

79,934

 

 

5,227

 

 

121,100

 

Real estate - construction

 


1,158


 


 


-


 


 


-


 


 


1,158


 

     Totals

$


70,900


 


$


121,873


 


$


14,771


 


$


207,544


 



6



Loan Sensitivity to Changes in Interest Rates


 


Less than
1 Year



 



 


1 Year -
5 Years



 



 


More than
5 Years



 



 



Total


 

Loans with fixed interest rates

$

40,186

 

$

104,343

 

$

17,871

 

$

162,401

 

Loans with floating or adjustable interest rates

 


43,034


 


 


581


 


 


--


 


 


43,615


 

     Totals

$


70,900


 


$


121,873


 


$


14,771


 


$


207,544


 


(1)

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

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

(Dollars in thousands)

 

2009


2008


2007


2006


2005


Loans accounted for on a non-accrual basis

$ 11,881

$  8,305

$  5,605

$  6,420

$  934

Accruing loans which are contractually past due 90
     days or more as to principal or interest payments


202


188


188


278


32

Loans defined as "troubled debt restructurings"

1,919


605


-


24


-


          Totals

$ 14,002


$  9,243


$  5,793


$  6,722


$  966


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

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

(Dollars in thousands)

 

2009


2008


2007


2006


2005


Interest on non-performing loans which would have
     been earned had the loans been in an accrual or
     performing status



$  567



$  442



$  383



$  184



$  33

Interest on non-performing loans that was actually
     recorded when received


$     --


$     --


$   --


$  47


$  21

Potential Problem Loans
At December 31, 2009, there were $17.1 million of loans not disclosed above where some concern existed as to the borrowers' abilities to comply with original loan terms. Specific loss allocations totaling $1,112,000 from the allowance for loan losses had been allocated for all nonperforming and potential problem loans as of December 31, 2009. However, the entire allowance for loan losses is also available for these potential problem loans.

Loan Concentrations
As of December 31, 2009, there was no concentration of loans exceeding 10% of total loans that is not otherwise disclosed as a category of loans in the loan portfolio listing in Note 4 to the Consolidated Financial Statements incorporated by reference in Item 8 of this report.

Other Interest-Bearing Assets
As of December 31, 2009, there were no other interest-bearing assets requiring disclosure.


7


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

(Dollars in thousands)

 


2009


 


 


2008


 


 


2007


 


 


2006


 


 


2005


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1

$

3,600

 

$

3,600

 

$

3,569

 

$

1,963

 

$

1,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Agricultural

 

-

 

 

-

 

 

33

 

 

-

 

 

-

 

     Commercial and industrial

 

1,558

 

 

1,193

 

 

599

 

 

221

 

 

72

 

     Consumer

 

535

 

 

567

 

 

635

 

 

200

 

 

162

 

     Real estate - commercial

 

1,217

 

 

816

 

 

841

 

 

-

 

 

25

 

     Real estate - construction

 

15

 

 

-

 

 

-

 

 

-

 

 

20

 

     Real estate - residential

 


1,369


 


 


1,252


 


 


191


 


 


92


 


 


120


 

          Total charge-offs

 


4,694


 


 


3,828


 


 


2,299


 


 


513


 


 


399


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Agricultural

 

-

 

 

-

 

 

3

 

 

-

 

 

-

 

     Commercial and industrial

 

102

 

 

60

 

 

27

 

 

51

 

 

47

 

     Consumer

 

246

 

 

252

 

 

254

 

 

117

 

 

81

 

     Real estate - commercial

 

58

 

 

35

 

 

1

 

 

-

 

 

-

 

     Real estate - construction

 

29

 

 

-

 

 

-

 

 

-

 

 

-

 

     Real estate - residential

 


106


 


 


6


 


 


10


 


 


-


 


 


-


 

          Total recoveries

 


541


 


 


353


 


 


295


 


 


168


 


 


128


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs

 


4,153


 


 


3,475


 


 


2,004


 


 


345


 


 


271


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfer of allowance from VRFC

 

-

 

 

-

 

 

-

 

 

1,751

 

 

-

 

Additions charged to operations (1)

 


4,875


 


 


3,475


 


 


2,035


 


 


200


 


 


495


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31

$


4,322


 


$


3,600


 


$


3,600


 


$


3,569


 


$


1,963


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of net charge-offs during the period to
   average loans outstanding during the
   period

 



1.30



%

 



1.06



%

 



0.61



%

 



0.17



%

 



0.15



%


(1)

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

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

(Dollars in thousands)

 

 


2009


 


 


2008


 


 


2007


 


 


2006


 


 


2005


 

Agricultural

$

123

 

$

242

 

$

397

 

$

314

 

$

202

 

Commercial and industrial

 

735

 

 

616

 

 

873

 

 

1,160

 

 

1,060

 

Consumer

 

306

 

 

351

 

 

489

 

 

289

 

 

195

 

Real estate - commercial

 

1,547

 

 

996

 

 

886

 

 

1,029

 

 

254

 

Real estate - construction

 

3

 

 

5

 

 

10

 

 

12

 

 

19

 

Real estate - residential

 

1,590

 

 

1,124

 

 

881

 

 

575

 

 

229

 

Unallocated

 


18


 


 


266


 


 


64


 


 


190


 


 


4


 

     Total allowance

$


4,322


 


$


3,600


 


$


3,600


 


$


3,569


 


$


1,963


 

The decrease in the allowance allocation to agricultural loans from 2008 to 2009 was based on the limited charge-off activity experienced by this loan category. The increase in the allocation to commercial and industrial loans in 2009

8


was due to the higher level of charge-off activity experienced in 2009 compared to 2008. The increase in the allocation to commercial real estate loans in 2009 was caused by an increase in specific allowance allocations from $420,000 at the end of 2008 to $1,031,000 at the end of 2009. The growth in the allowance allocation to residential real estate mortgage loans resulted from the continued high level of charge-offs in this loan category during 2009, along with an increase in nonaccrual loans in this loan category from $2.5 million as of the end of 2008 to $4.1 million as of the end of 2009. The increase in the total allowance in 2006 was related to the allowance of $1,751,000 acquired from the merger with VRFC in November 2006.

Management periodically reviews the assumptions, loss ratios and delinquency trends in estimating the appropriate level of its allowance for loan losses and believes the unallocated portion of the total allowance is sufficient at December 31, 2009.

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

 

2009


 


2008


 


2007


 


2006


 


2005


 

Agricultural

10

%

7

%

8

%

6

%

6

%

Commercial and industrial

17

 

18

 

16

 

36

 

20

 

Consumer

5

 

5

 

5

 

5

 

6

 

Real estate - commercial

37

 

38

 

38

 

18

 

28

 

Real estate - construction

-

 

1

 

1

 

1

 

4

 

Real estate - residential

31


 


31


 


32


 


34


 


36


 

     Total

100


%


100


%


100


%


100


%


100


%


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

(Dollars in thousands)

 

 


2009


 


 


 


 


 


2008


 


 


 


 


 


2007


 


 


 

Noninterest-bearing demand

$

58,417

 

-

 

 

$

53,638

 

-

 

 

$

51,695

 

-

 

Interest-bearing demand

 

85,154

 

0.61

%

 

 

89,035

 

1.45

%

 

 

90,804

 

2.43

%

Savings

 

36,371

 

0.31

%

 

 

30,554

 

0.46

%

 

 

28,097

 

0.50

%

Certificates of deposit

 


167,065


 


2.94


%


 


 


173,963


 


4.31


%


 


 


187,648


 


4.86


%


     Total

$


347,007


 


1.60


%


 


$


347,190


 


2.57


%


 


$


358,244


 


3.20


%


The following table illustrates the maturities of certificates of deposits issued in denominations of $100,000 or more as of December 31, 2009.

(Dollars in thousands)

Maturing in less than 3 months

$

33,565

 

Maturing in 3 to 6 months

 

7,633

 

Maturing in 6 to 12 months

 

14,490

 

Maturing in more than 12 months

 


12,751


 

     Total

$


68,439


 

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

(Dollars in thousands)

 

 


2009


 


 


 


2008


 


 


 


2007


 

Outstanding balance at December 31

$

-

 

 

$

-

 

 

$

-

 

Average interest rate at December 31

 

-

%

 

 

-

%

 

 

-

%

Average balance during the year

$

531

 

 

$

804

 

 

$

3,956

 

Average interest rate during the year

 

0.38

%

 

 

1.72

%

 

 

4.99

%

Maximum month end balance during the year

$

4,417

 

 

$

5,622

 

 

$

12,255

 


9


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

(Dollars in thousands)

 

 


2009


 


 


 


2008


 


 


 


2007


 

Outstanding balance at December 31

$

20,684

 

 

$

18,786

 

 

$

21,710

 

Average interest rate at December 31

 

1.64

%

 

 

2.13

%

 

 

3.79

%

Average balance during the year

$

18,419

 

 

$

18,632

 

 

$

16,090

 

Average interest rate during the year

 

1.88

%

 

 

2.93

%

 

 

3.50

%

Maximum month end balance during the year

$

12,844

 

 

$

19,754

 

 

$

21,811

 

Advances from the Federal Home Loan Bank ("FHLB") with original repayment terms less than one year are considered short-term borrowings for the Registrant. These advances are secured by residential real estate mortgage loans and U.S. government agency securities. The advances have maturities ranging from 3 months to 11 months from the date of issue.

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

(Dollars in thousands)

 

 


2009


 


 


 


2008


 


 


 


2007


 

Outstanding balance at December 31

$

-

 

 

$

12,000

 

 

$

5,000

 

Average interest rate at December 31

 

-

%

 

 

.60

%

 

 

4.12

%

Average balance during the year

$

6,923

 

 

$

6,923

 

 

$

1,583

 

Average interest rate during the year

 

0.56

%

 

 

2.11

%

 

 

5.12

%

Maximum month end balance during the year

$

15,500

 

 

$

12,000

 

 

$

5,000

 

There were no other categories of short-term borrowings whose average balance outstanding exceeded 30% of shareholders' equity in 2009, 2008, or 2007.

Return on Equity and Assets
The following schedule presents the Registrant's ratios for the years ended December 31:

 

2009


 


2008


 


2007


 

Return on assets (net income divided by average total assets)

0.33

%

0.31

%

0.77

%

 

 

 

 

 

 

 

Return on equity (net income divided by average equity)

2.78

%

2.69

%

6.86

%

 

 

 

 

 

 

 

Dividend payout ratio (dividends declared per share divided
     by net income per share)


105.75


%


153.45


%


61.45


%

 

 

 

 

 

 

 

Equity to assets ratio (average equity divided by average total assets)

11.70

%

11.47

%

11.22

%



Item 1A.

Risk Factors

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


10


Investments in the Registrant's common stock involve risk.

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

Variations in quarterly or annual operating results

Changes in interest rates

New developments in the banking industry

Regulatory actions

Volatility of stock market prices and volumes

Changes in market valuations of similar companies

New litigation or contingencies or changes in existing litigation or contingencies

Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies

Rumors or erroneous information

Credit and capital availability

Asset quality could be less favorable than expected.

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

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

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

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

The financial markets have been experiencing volatility and disruption in recent periods. The impact of this situation, together with concerns regarding the financial strength of financial institutions, has led to distress in financial markets and issues relating to liquidity among financial institutions. As a result of concern about the stability of the financial markets generally, the resulting credit availability issues, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could have a material adverse effect on the Registrant's ability to access capital and manage liquidity. If current levels of financial market volatility and disruption continue or worsen, there can be no assurance that the Registrant's business, financial condition and results of operations will not be materially and adversely impacted. There can be no assurances that recently enacted legislation, such as the Emergency Economic Stabilization Act of 2008, and actions taken by the United States Department of the Treasury and the FDIC for the purpose of stabilizing the financial markets will achieve their intended effects, and the impact of such legislation and regulatory programs on the Registrant cannot reliably be determined at this time.

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

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

11


services and products are also constantly changing. The Registrant's financial performance will also depend in part upon customer demand for the Registrant's products and services and the Registrant's ability to develop and offer competitive financial products and services.

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

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

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

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


Item 1B.

Unresolved Staff Comments

None.


Item 2.

Properties

The offices of the Bank and Insurance Agency as of February 28, 2010, were as follows:

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

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

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

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

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

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

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


12


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

Bank's branch office:
     661 West Randall, Coopersville, Michigan
     Office is owned by the Bank and comprises 4,800 square feet.

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

Bank's branch office:
     246 West River Valley Drive, Newaygo, Michigan
     Office is owned by the Bank and comprises 1,800 square feet.

Bank's branch office:
     47 South Charles Street, White Cloud, Michigan
     Office is leased by the Bank and comprises 1,800 square feet.

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

The Registrant operates its business at the main office of the Bank. The Registrant did not own any properties as of February 28, 2010. The Registrant, Bank and Insurance Agency believe that their offices are suitable and adequate for their future needs and are in good condition. The Registrant's management believes all offices are adequately covered by property insurance.


Item 3.

Legal Proceedings

As of December 31, 2009, there are no significant pending legal proceedings to which the Registrant or the Bank is a party or to which any of their properties are subject, except for legal proceedings arising in the ordinary course of business. In the opinion of management, pending legal proceedings will not have a material effect on the consolidated financial condition of the Registrant.


Item 4.

[Reserved.]

The Securities and Exchange Commission has removed and reserved Item 4 of Form 10-K.






13


PART II

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The information under the caption "Stock Information" on pages 1 and 2 of the Registrant's Annual Report to Shareholders for the year ended December 31, 2009, is incorporated herein by reference.

On October 21, 2009, the Registrant issued 1,119 shares of common stock to its directors pursuant to the Directors' Stock Purchase Plan for an aggregate cash price of $9,000. The Registrant relied on the exemption contained in Section 4(6) of the Securities Act of 1933 in connection with this sale.

ISSUER PURCHASES OF EQUITY SECURITIES

There were no issuer purchases of equity securities during the three-month period ended December 31, 2009.

On July 21, 2004, the Board of Directors authorized the Registrant to repurchase 50,000 shares under a publicly announced repurchase plan. The Board of Directors authorized an additional repurchase plan on July 26, 2007 to buy back 100,000 shares. There is no stated expiration date.

Item 6.

Selected Financial Data

The information under the caption "Selected Financial Data" on page 3 of the Registrant's Annual Report to Shareholders for the year ended December 31, 2009, is incorporated herein by reference.

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," including all subheadings, on pages 4 through 17, inclusive, of the Registrant's Annual Report to Shareholders for the year ended December 31, 2009, is incorporated herein by reference.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

The information under the subheading "Liquidity and Interest Rate Risk" under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 15 through 17, inclusive, of the Registrant's Annual Report to Shareholders for the year ended December 31, 2009, is incorporated herein by reference.

Item 8.

Financial Statements and Supplementary Data

The Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements, and Notes to Consolidated Financial Statements on pages 19 through 42, inclusive, of the Registrant's Annual Report to Shareholders for the year ended December 31, 2009, are incorporated herein by reference.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A(T).

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Registrant's management, including the Chief Executive Officer and principal financial officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based on and as of the time of that evaluation, the Registrant's management, including the Chief Executive Officer and principal financial officer, concluded that the Registrant's disclosure controls and procedures were effective as of the end of the period covered by this report. There was no change in the Registrant's internal control over financial reporting that occurred during the three

14


months ended December 31, 2009 that has materially affected, or that is reasonably likely to materially affect, the Registrant's internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting on page 18 of the Registrant's Annual Report to Shareholders for the year ended December 31, 2009 is here incorporated by reference.

Item 9B.

Other Information

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The information under the captions "ChoiceOne's Board of Directors and Executive Officers," "Related Matters - Section 16(a) Beneficial Ownership Reporting Compliance" and "Corporate Governance" in the Registrant's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 29, 2010, is incorporated herein by reference.

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

Item 11.

Executive Compensation

The information under the captions "Executive Compensation" in the Registrant's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 29, 2010, is incorporated herein by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information under the caption "Ownership of ChoiceOne Common Stock" in the Registrant's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 29, 2010, is incorporated herein by reference.

The following table presents information regarding the equity compensation plans both approved and not approved by shareholders at December 31, 2009:

 



Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights







 




Weighted-average
exercise price of
outstanding options,
warrants and rights







 


Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))


 

 

(a)

 

(b)

 

(c)

 

Equity compensation plans approved
     by security holders


49,232

 


$  16.46

 


112,726

 

Equity compensation plans not
     approved by security holders


-



 



-



 



  21,359


 

          Total

49,232


 


$  16.46


 


134,085


 

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

Shareholders at the Registrant's 2002 Annual Meeting approved the Amended and Restated Executive Stock Incentive Plan. Key employees of the Registrant and its subsidiaries, as the Personnel and Benefits Committee of the Board of Directors may select from time to time, are eligible to receive awards under this Plan. Incentive awards may

15


be stock options, stock appreciation rights or stock awards. The Plan provides for a maximum of 147,376 shares of the Registrant's common stock, subject to adjustments for certain changes in the capital structure of the Registrant. New awards for up to 98,144 shares may be made under this Plan.

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

Shareholders at the 2002 Annual Meeting approved the Employee Stock Purchase Plan. This Plan allows employees to purchase the Registrant's common stock at a 15% discount from the average bid price for the Registrant's common stock. Employees who elect to participate in the plan can purchase shares of the Registrant's common stock on a quarterly basis. The Plan provides for a maximum of 55,125 shares of the Registrant's common stock, subject to adjustments for certain changes in the capital structure of the Registrant. New issuances for up to 14,582 shares may be made under this Plan.

Equity compensation plans not approved by security holders consist of the Directors' Stock Purchase Plan. The Plan is designed to provide directors of the Registrant the option of receiving their fees in the Registrant's stock. Directors who elect to participate in the Plan may elect to contribute to the Plan twenty-five, fifty, seventy-five or one hundred percent of their board of director fees and one hundred percent of their director committee fees earned as directors of the Registrant. Contributions to the Plan are made by the Registrant on behalf of each electing participant. Plan participants may terminate their participation in the Plan at any time by written notice of withdrawal to the Registrant. Participants will cease to be eligible to participate in the Plan when they cease to serve as directors of the Registrant. Shares are distributed to participants on a quarterly basis. The Plan provides for a maximum of 72,978 shares of the Registrant's common stock, subject to adjustments for certain changes in the capital structure of the Registrant. New issuances for up to 21,359 shares may be made under this Plan.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information under the captions "Related Matters - Transactions with Related Persons" and "Corporate Governance" in the Registrant's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 29, 2010, is incorporated herein by reference.

Item 14.

Principal Accountant Fees and Services

The information under the caption "Related Matters - Independent Certified Public Accountants" in the Registrant's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 29, 2010, is incorporated herein by reference.

PART IV

Item 15.

Exhibits and Financial Statement Schedules


(a)

(1)

Financial Statements. The following financial statements and independent auditors' reports are filed as part of this report:

 

 

 

 

 

 

Consolidated Balance Sheets at December 31, 2009 and 2008.

 

 

 

 

 

 

 

Consolidated Statements of Income for the years ended December 31, 2009, 2008, and 2007.

 

 

 

 


16


 

 

 

Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2009, 2008, and 2007.

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008, and 2007.

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements.

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm dated March 26, 2010.

 

 

 

 

 

The consolidated financial statements, notes to consolidated financial statements and independent auditors' report dated March 26, 2010 listed above are incorporated by reference in Item 8 of this report from the Registrant's Annual Report to Shareholders for the year ended December 31, 2009.

 

 

 

 

(2)

Financial Statement Schedules. None.


(b)

 

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


Exhibit

Document

 

 

3.1

Amended and Restated Articles of Incorporation of the Registrant. 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.

 

 

4

Advances, Pledge and Security Agreement between ChoiceOne Bank and the Federal Home Loan Bank of Indianapolis. Previously filed as an exhibit to the Registrant's Form 10-K Annual Report for the year ended December 31, 2007. Here incorporated by reference.

 

 

10.1

Employment Agreement with James A. Bosserd. (1) Previously filed as an exhibit to the Registrant's Form 8-K Current Report for November 1, 2006. Here incorporated by reference.

 

 

10.2

Amended and Restated Executive Stock Incentive Plan. (1) Previously filed as an exhibit to the Registrant's Form 10-K Annual Report for the year ended December 31, 2005. Here incorporated by reference.

 

 

10.3

Directors' Stock Purchase Plan. (1) Previously filed as an exhibit to the Registrant's Form 10-K Annual Report for the year ended December 31, 2008. Here incorporated by reference.

 

 

10.4

Former Valley Ridge Executive Employee Salary Continuation Agreements, as amended. (1) Previously filed as an exhibit to the Registrant's Form 10-K Annual Report for the year ended December 31, 2007. Here incorporated by reference.

 

 

10.5

Former Valley Ridge Directors' Deferred Compensation Plan and Agreement. (1) Previously filed as an exhibit to the Registrant's Form 10-K Annual Report for the year ended December 31, 2006. Here incorporated by reference.

 

 

13

Annual Report to Shareholders for the year ended December 31, 2009.

 

 

21

Subsidiaries of the Registrant.

 

 

23

Consent of Independent Registered Public Accounting Firm for fiscal years ended December 31, 2009, 2008, and 2007.

 

 

24

Powers of Attorney.

 

 

31.1

Certification of Chief Executive Officer.

 

 

31.2

Certification of Treasurer.



17


32

Certification pursuant to 18 U.S.C. § 1350.

_______________________

 

(1)

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

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



















18


SIGNATURES

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

 

ChoiceOne Financial Services, Inc.

 

 

 

 

 

 

By:  

/s/ James A. Bosserd


 

March 30, 2010

 

James A. Bosserd
President and Chief Executive
Officer

 

 

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

/s/ James A. Bosserd


 

President and Chief Executive Officer and
Director (Principal Executive Officer)

 

March 30, 2010

     James A. Bosserd

 

 

 

 

 

 

 

 

/s/ Thomas L. Lampen


 

Treasurer (Principal Financial and
Accounting Officer)

 

March 30, 2010

     Thomas L. Lampen

 

 

 

 

 

 

 

 

*/s/ Jon E. Pike


 

Chairman of the Board and Director

 

March 30, 2010

     Jon E. Pike

 

 

 

 

 

 

 

 

*/s/ Jerome Arends


 

Director

 

March 30, 2010

     Jerome Arends

 

 

 

 

 

 

 

 

 

*/s/ Frank G. Berris


 

Director

 

March 30, 2010

     Frank G. Berris

 

 

 

 

 

 

 

 

 

*/s/ K. Timothy Bull


 

Director

 

March 30, 2010

     K. Timothy Bull

 

 

 

 

 

 

 

 

 

*/s/ William F. Cutler, Jr.


 

Director

 

March 30, 2010

     William F. Cutler, Jr.

 

 

 

 

 

 

 

 

 

*/s/ Lewis G. Emmons


 

Director

 

March 30, 2010

     Lewis G. Emmons

 

 

 

 

 

 

 

 

 

*/s/ Stuart Goodfellow


 

Director

 

March 30, 2010

     Stuart Goodfellow

 

 

 

 

 

 

 

 

 

*/s/ Gary Gust


 

Director

 

March 30, 2010

     Gary Gust

 

 

 

 

 

 

 

 

 

*/s/ Paul L. Johnson


 

Director

 

March 30, 2010

     Paul L. Johnson

 

 

 

 

 

 

 

 

 

*/s/ Dennis C. Nelson


 

Director

 

March 30, 2010

     Dennis C. Nelson

 

 

 

 

 

 

 

 

 

*/s/ Nels W. Nyblad


 

Director

 

March 30, 2010

     Nels W. Nyblad

 

 

 

 



19


 

 

 

 

 

*/s/ Donald VanSingel


 

Director

 

March 30, 2010

     Donald VanSingel

 

 

 

 



*By

/s/ Thomas L. Lampen


 

 

Attorney-in-Fact

 





















20


EXHIBIT INDEX

Exhibit

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.

 

 

4

Advances, Pledge and Security Agreement between ChoiceOne Bank and the Federal Home Loan Bank of Indianapolis. Previously filed as an exhibit to the Registrant's Form 10-K Annual Report for the year ended December 31, 2007. Here incorporated by reference.

 

 

10.1

Employment Agreement with James A. Bosserd. (1) Previously filed as an exhibit to the Registrant's Form 8-K Current Report for November 1, 2006. Here incorporated by reference.

 

 

10.2

Amended and Restated Executive Stock Incentive Plan. (1) Previously filed as an exhibit to the Registrant's Form 10-K Annual Report for the year ended December 31, 2005. Here incorporated by reference.

 

 

10.3

Directors' Stock Purchase Plan. (1) Previously filed as an exhibit to the Registrant's Form 10-K Annual Report for the year ended December 31, 2008. Here incorporated by reference.

 

 

10.4

Former Valley Ridge Executive Employee Salary Continuation Agreements, as amended. (1) Previously filed as an exhibit to the Registrant's Form 10-K Annual Report for the year ended December 31, 2007. Here incorporated by reference.

 

 

10.5

Former Valley Ridge Directors' Deferred Compensation Plan and Agreement. (1) Previously filed as an exhibit to the Registrant's Form 10-K Annual Report for the year ended December 31, 2006. Here incorporated by reference.

 

 

13

Annual Report to Shareholders for the year ended December 31, 2009.

 

 

21

Subsidiaries of the Registrant.

 

 

23

Consent of Independent Registered Public Accounting Firm for fiscal years ended December 31, 2009, 2008, and 2007.

 

 

24

Powers of Attorney.

 

 

31.1

Certification of Chief Executive Officer.

 

 

31.2

Certification of Treasurer.

 

 

32

Certification pursuant to 18 U.S.C. § 1350.

______________________

 

(1)

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