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8-K - CHOICEONE FINANCIAL FORM 8-K - CHOICEONE FINANCIAL SERVICES INCchoice8k_012813.htm

EXHIBIT 99.1

News Release

CONTACT:

TOM LAMPEN, CHOICEONE BANK
(616) 887-2337
TLAMPEN@CHOICEONE.COM

ChoiceOne Financial Announces Earnings For 2012

Sparta, Michigan - January 28, 2013 - ChoiceOne Financial Services, Inc. (OTCBB:COFS), parent company for ChoiceOne Bank, today reported full year net income of $4,262,000 for 2012, compared to $3,513,000 for 2011, which represented an increase of $749,000. Earnings per share were $1.29 for 2012 compared to $1.07 for the prior year. Net income for the fourth quarter of 2012 was $1,104,000 or $0.33 per share, compared to $1,019,000 or $0.31 per share in the same quarter in 2011.

"We are very excited to report a record year of profitability for our community bank", said James Bosserd, President and Chief Executive Officer of ChoiceOne Financial Services, Inc. "Our total of past due and nonaccrual loans declined to their lowest level in 5 years. Our volume of residential mortgage loan activity exceeded our expectations as we helped many local families refinance their home mortgages and reduce their loan payments or acquire new homes with historically low interest rates. Our assets and deposits continued to grow in 2012 and for the first time our total assets exceeded $500 million."

The increase in net income in both the fourth quarter and the year of 2012 compared to the same periods in 2011 was due to a lower provision for loan losses and higher noninterest income. These were partially offset by lower net interest income and higher noninterest expense in the fourth quarter and the year of 2012 compared to the same periods in 2011.

Net interest income was $128,000 lower in the fourth quarter of 2012 and $247,000 lower for the year of 2012 than in the same periods in 2011. Average earning assets were $16.5 million higher for the year of 2012 than in the same period in 2011. The average balance of loans for 2012 was $9.4 million lower compared to the prior year, primarily due to payments received on agricultural and other commercial loans. The average balance of securities for 2012 was $24.4 million higher compared to 2011 as securities were purchased to provide growth in earning assets. ChoiceOne's net interest spread was 18 basis points lower in 2012 than in 2011 because of the low interest rate environment. The interest spread decrease was caused by reductions in rates earned on loans and investment securities that were greater than rate decreases on funding sources.

The provision for loan losses was $540,000 in the fourth quarter of 2012 and $2,515,000 for 2012, compared to $900,000 and $3,700,000, respectively, in the same periods in 2011. The decrease in the provision in 2012 was based on lower net charge-offs than in the prior year and a reduction in nonperforming loans from the end of 2011 to the end of 2012. Net charge-offs were $461,000 in the fourth quarter and $1,876,000 for 2012, compared to $521,000 and $3,216,000, respectively, in the same periods in 2011. ChoiceOne's allowance for loan losses was 1.88% of total loans as of December 31, 2012, compared to 1.91% as of September 30, 2012 and 1.63% as of December 31, 2011. Total nonperforming loans were $5.9 million as of December 31, 2012, compared to $7.5 million as of September 30, 2012 and $6.7 million as of December 31, 2011. The decrease in nonperforming loans since the end of 2011 was due to a reduction of $1.8 million in the balance of troubled debt restructurings, which was partially offset by growth of $0.5 million each in loans past due 90 days or more and still accruing and troubled debt restructurings. Of the total of $3.3 million of loans classified as troubled debt restructurings as of December 31, 2012, approximately $2.1 million are current as to payments and performing as to their new terms.

Noninterest income increased $226,000 in the fourth quarter and $750,000 for 2012 compared to the same periods in 2011. Customer service charges increased $63,000 in the fourth quarter of 2012 after declining $152,000 in the first three quarters of 2012 compared to the same periods in 2011. Growth in debit card activity helped to grow customer service charges fee income in late 2012. Gains on sales of loans grew $152,000 in the fourth quarter and



$962,000 for 2012 compared to the same periods in 2011 as mortgage refinancing activity was stimulated by low interest rates for long-term fixed rate mortgage loans. Gains on sales of securities increased $50,000 in the fourth quarter and $290,000 for 2012 over the same periods in 2011 due to a higher level of sales activity. Net losses on sales of other assets were $387,000 higher for 2012 than in the prior year as a result of write-downs of foreclosed properties.

Noninterest expense increased $315,000 in the fourth quarter and $656,000 for 2012 compared to the same periods in 2011. Salaries and benefits expense grew $244,000 in the fourth quarter and $525,000 for 2012 compared to the same periods in 2011 as a result of higher commission expense related to mortgage originations, performance bonuses, and supplemental retirement expense. Data processing expense increased $35,000 in the fourth quarter and $112,000 for 2012 compared to the same periods in 2011 as a result of higher software maintenance costs. Professional fees grew $26,000 in the third quarter of 2012 and $94,000 for 2012 compared to the same periods in 2011 due to increased use of outside consultants. FDIC insurance cost decreased $111,000 for 2012 compared to 2011 due to a change in the assessment base for insurance beginning in the second quarter of 2011.

Total assets declined $1.4 million in the fourth quarter of 2012 and grew $13.0 million in the twelve months ended December 31, 2012. Cash and cash equivalents decreased $7.9 million in the fourth quarter of 2012 and grew $1.9 in 2012. Securities decreased $3.7 million in the fourth quarter of 2012 after growing $23.9 million in the first three quarters of 2012. Net loans grew $9.8 million in the fourth quarter of 2012, in contrast with a decline of $18.6 million in the first three quarters of 2012. The loan growth in the fourth quarter of 2012 was funded by the decrease in securities and growth in deposits. Growth in commercial and industrial loans, agricultural loans, and residential real estate loans in the fourth quarter of 2012 was partially offset by a reduction in commercial real estate loans. Total deposits increased $4.2 million in the fourth quarter of 2012 and $20.8 million in 2012. Noninterest-bearing demand deposits grew $19.8 million in the fourth quarter of 2012 and $23.6 million since the end of 2011.

ChoiceOne Financial Services, Inc. is a financial holding company headquartered in Sparta, Michigan and the parent corporation of ChoiceOne Bank. ChoiceOne Bank operates twelve full service offices in parts of Kent, Ottawa, Muskegon, and Newaygo Counties in Michigan. ChoiceOne Bank offers insurance and investment products through its subsidiary, ChoiceOne Insurance Agencies, Inc. ChoiceOne Financial Services, Inc. common stock is publicly traded and is available on the OTCBB under the symbol "COFS." For more information, please visit ChoiceOne's website at www.choiceone.com.

Condensed Balance Sheets
(Unaudited)

(In Thousands)

12/31/2012

 

9/30/2012

 

12/31/2011

Cash and Cash Equivalents

$

19,034

 

$

26,966

 

$

17,125

Securities

 

138,242

 

 

141,958

 

 

118,025

Loans, Net of Allowance For Loan Losses

 

307,490

 

 

297,597

 

 

316,176

Premises and Equipment

 

12,121

 

 

11,736

 

 

12,080

Cash Surrender Value of Life Insurance Policies

 

9,970

 

 

9,891

 

 

9,834

Goodwill and Other Intangible Assets

 

15,452

 

 

15,564

 

 

15,900

Other Assets

 

6,604

 

 

6,599

 

 

6,774

 

 

 

 

 

 

 

 

 

     Total Assets

$

508,913

 

$

510,311

 

$

495,914

 

 

 

 

 

 

 

 

 

Noninterest-bearing Deposits

$

101,861

 

$

82,092

 

$

78,263

Interest-bearing Demand Deposits

 

127,376

 

 

151,176

 

 

127,505

Savings Deposits

 

63,405

 

 

51,556

 

 

46,737

Local Certificates of Deposit

 

130,057

 

 

131,668

 

 

144,983

Nonlocal Certificates of Deposit

 

1,500

 

 

3,548

 

 

5,877

Borrowings

 

19,992

 

 

25,690

 

 

30,316

Other Liabilities

 

4,217

 

 

4,245

 

 

4,329

 

 

 

 

 

 

 

 

 

     Total Liabilities

 

448,407

 

 

449,975

 

 

438,010

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

60,506

 

 

60,336

 

 

57,904

 

 

 

 

 

 

 

 

 

     Total Liabilities and Shareholders' Equity

$

508,913

 

$

510,311

 

$

495,914





Condensed Statements of Income
(Unaudited)

 

Quarter Ended

 

Twelve Months Ended

 

(In Thousands, Except Per Share Data)

12/31/2012

 

12/31/2011

 

12/31/2012

 

12/31/2011

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

     Loans, including fees

$

4,092

 

$

4,621

 

$

16,875

 

$

18,398

 

     Securities

 

839

 

 

783

 

 

3,319

 

 

3,057

 

     Other

 

6

 

 

4

 

 

25

 

 

20

 

Total Interest Income

 

4,937

 

 

5,408

 

 

20,219

 

 

21,475

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

     Deposits

 

444

 

 

676

 

 

2,087

 

 

2,956

 

     Borrowings

 

39

 

 

150

 

 

457

 

 

597

 

Total Interest Expense

 

483

 

 

826

 

 

2,544

 

 

3,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income

 

4,454

 

 

4,582

 

 

17,675

 

 

17,922

 

Provision for Loan Losses

 

540

 

 

900

 

 

2,515

 

 

3,700

 

Net Interest Income After Provision

 

 

 

 

 

 

 

 

 

 

 

 

     for Loan Losses

 

3,914

 

 

3,682

 

 

15,160

 

 

14,222

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

     Customer service charges

 

904

 

 

841

 

 

3,365

 

 

3,454

 

     Gains on sales of loans

 

428

 

 

276

 

 

1,634

 

 

672

 

     Gains on sales of securities

 

112

 

 

62

 

 

419

 

 

129

 

     Gains (losses) on sales of other assets

 

(38

)

 

(40

)

 

(358

)

 

29

 

     Other income

 

429

 

 

470

 

 

1,829

 

 

1,855

 

Total Noninterest Income

 

1,835

 

 

1,609

 

 

6,889

 

 

6,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

     Salaries and benefits

 

2,074

 

 

1,830

 

 

7,873

 

 

7,348

 

     Occupancy and equipment

 

545

 

 

523

 

 

2,256

 

 

2,247

 

     Data processing

 

473

 

 

438

 

 

1,852

 

 

1,740

 

     Professional fees

 

237

 

 

211

 

 

887

 

 

793

 

     FDIC insurance

 

87

 

 

83

 

 

377

 

 

488

 

     Other expense

 

835

 

 

851

 

 

3,199

 

 

3,172

 

Total Noninterest Expense

 

4,251

 

 

3,936

 

 

16,444

 

 

15,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Before Income Tax

 

1,498

 

 

1,355

 

 

5,605

 

 

4,573

 

Income Taxes

 

394

 

 

336

 

 

1,343

 

 

1,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

$

1,104

 

$

1,019

 

$

4,262

 

$

3,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share

$

0.33

 

$

0.31

 

$

1.29

 

$

1.07

 

Diluted Earnings Per Share

$

0.33

 

$

0.31

 

$

1.29

 

$

1.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Ratios

 

 

 

 

 

 

 

 

 

 

 

 

Return on Average Assets (Annualized)

 

 

 

 

 

 

 

0.85

%

 

0.72

%

Return on Average Equity (Annualized)

 

 

 

 

 

 

 

7.21

%

 

6.26

%

Net Interest Margin (Tax Equivalent) (1)

 

 

 

 

 

 

 

3.96

%

 

4.14

%

Efficiency Ratio

 

 

 

 

 

 

 

68.1

%

 

66.0

%

Net Loan Charge-offs

 

 

 

 

 

 

$

1,876

 

$

3,216

 

Net Loan Charge-offs as Percentage of

 

 

 

 

 

 

 

 

 

 

 

 

     Average Loans (Annualized)

 

 

 

 

 

 

 

0.61

%

 

1.01

%

(1) The presentation of net interest margin on a tax-equivalent basis is not in accordance with generally accepted accounting principles ("GAAP"), but is customary in the banking industry. This non-GAAP measure ensures comparability of net interest margin arising from both taxable and tax-exempt loans and investment securities. The tax-equivalent adjustment uses an incremental tax rate of 34%.

Forward-Looking Statements
This press release contains forward-looking statements. Words such as "believes," "expects," "predicts," "may," "could," "continue," and variations of such words and similar expressions are intended to identify 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. These statements reflect management's current beliefs as to the expected outcomes of future events and are not guarantees of future performance. These statements 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 or forecasted in such forward-looking statements. Furthermore, ChoiceOne 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 described in Item 1A in ChoiceOne Financial Services, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2011; changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking laws and regulations; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior as well as their abilities to repay loans; changes in the local and national economies; changes in market conditions; the level and timing of asset growth; various other local and global uncertainties such as acts of terrorism and military actions; and current uncertainties and fluctuations in the financial markets and stocks of financial services providers due to concerns about capital levels and credit availability and concerns about the Michigan economy in particular. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

# # #

EDITORS NOTE: Media interviews with ChoiceOne executives are available by calling Tom Lampen at (616) 887-2337 or tlampen@choiceone.com. Electronic versions of official headshots are also available.