<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 1-9202
CHOICEONE FINANCIAL SERVICES, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
MICHIGAN 38-2659066
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
109 EAST DIVISION
SPARTA, MICHIGAN 49345
(Address of Principal Executive Offices)
(616) 887-7366
(Issuer's Telephone Number, Including Area Code)
Check whether the Registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes __X__ No _____
As of April 30, 1998, the Registrant had outstanding 538,745 shares of
common stock.
Transitional Small Business Disclosure Format (check one): Yes ____ No _X__
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
ChoiceOne Financial Services, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,858,000 $ 3,769,000
Federal funds sold 100,000 0
Securities available for sale 21,464,000 19,942,000
Loans, net 124,538,000 126,209,000
Premises and equipment, net 3,686,000 3,663,000
Other assets 2,569,000 2,746,000
---------------- ----------------
Total assets $ 157,215,000 $ 156,329,000
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
ChoiceOne Financial Services, Inc.
CONSOLIDATED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------------- ----------------
<S> <C> <C>
LIABILITIES
Deposits - noninterest bearing $ 13,203,000 $ 13,464,000
Deposits - interest bearing 97,270,000 94,028,000
Federal funds purchased and repurchase agreements 2,143,000 2,060,000
Federal Home Loan Bank advances 26,156,000 26,114,000
Secured loan borrowings 823,000 878,000
Other liabilities 1,799,000 4,248,000
---------------- ----------------
Total liabilities 141,394,000 140,792,000
SHAREHOLDERS' EQUITY
Preferred stock; shares authorized: 100,000; shares
outstanding: none 0 0
Common stock and paid-in capital, no par value;
shares authorized: 1,000,000; shares outstanding:
538,745 at March 31, 1998 and 537,015 at
December 31, 1997 12,445,000 12,375,000
Retained earnings 3,229,000 2,994,000
Unrealized gains and losses on securities 147,000 168,000
---------------- ----------------
Total shareholders' equity 15,821,000 15,537,000
---------------- ----------------
Total liabilities and shareholders' equity $ 157,215,000 $ 156,329,000
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1998 1997
------------- --------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 3,061,000 $ 2,562,000
Securities
Taxable 190,000 217,000
Nontaxable 102,000 128,000
Other 3,000 0
------------- --------------
Total interest income 3,356,000 2,907,000
INTEREST EXPENSE
Deposits 1,173,000 947,000
Federal Home Loan Bank
advances 419,000 396,000
Other 53,000 80,000
------------- --------------
Total interest expense 1,645,000 1,423,000
------------- --------------
NET INTEREST INCOME 1,711,000 1,484,000
PROVISION FOR LOAN LOSSES 275,000 158,000
------------- --------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,436,000 1,326,000
NONINTEREST INCOME
Customer service fees 120,000 104,000
Insurance commission income 219,000 225,000
Mortgage loan sales
and servicing 110,000 19,000
Other income 95,000 42,000
------------- --------------
Total noninterest income 544,000 390,000
NONINTEREST EXPENSE
Salaries and benefits 762,000 623,000
-4-
<PAGE>
Occupancy expense 222,000 186,000
Other expense 373,000 362,000
------------- --------------
Total noninterest expense 1,357,000 1,171,000
------------- --------------
INCOME BEFORE INCOME TAX 623,000 545,000
INCOME TAX EXPENSE 183,000 143,000
------------- --------------
NET INCOME $ 440,000 $ 402,000
============= ==============
BASIC EARNINGS PER SHARE AND EARNINGS
PER COMMON SHARE ASSUMING DILUTION $ .82 $ .75
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1998 1997
------------- --------------
<S> <C> <C>
Net income $ 440,000 $ 402,000
Other comprehensive income, net of tax
Change in unrealized gains and losses on securities (21,000) (113,000)
------------- --------------
Comprehensive income $ 419,000 $ 289,000
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 440,000 $ 402,000
Reconciling items:
Net amortization on securities 35,000 18,000
Net gain on sales of loans (86,000) (3,000)
Loans originated for sale (5,689,000) (441,000)
Proceeds from loan sales 6,389,000 287,000
Provision for loan losses 275,000 158,000
Depreciation 93,000 79,000
Other non-cash charges and credits (27,000) 2,000
Deferred income tax expense/(benefit) 6,000 (20,000)
Changes in:
Interest receivable and other assets 182,000 (316,000)
Interest payable and other liabilities (2,450,000) (238,000)
-------------- --------------
Net cash used in operating activities (832,000) (72,000)
Cash flows from investing activities:
Securities available for sale:
Purchases (2,108,000) (518,000)
Principal payments 519,000 614,000
Net change in loans (702,000) (3,377,000)
Loans sold 1,511,000 1,390,000
Premises and equipment expenditures, net (116,000) (636,000)
-------------- --------------
Net cash used in investing activities (896,000) (2,527,000)
Cash flows from financing activities:
Net change in deposits 2,981,000 (2,390,000)
Increase in federal funds purchased and repurchase
agreements 83,000 3,261,000
Proceeds from Federal Home Loan Bank advances 3,500,000 0
Payments on Federal Home Loan Bank advances (3,458,000) 0
Payments on secured loan borrowings (54,000) 0
-7-
<PAGE>
Sale of common stock 80,000 0
Cash dividends and fractional shares from stock dividends (215,000) (169,000)
-------------- --------------
Net cash from financing activities 2,917,000 702,000
-------------- --------------
Net change in cash and cash equivalents 1,189,000 (1,897,000)
Beginning cash and cash equivalents 3,769,000 4,952,000
-------------- --------------
Ending cash and cash equivalents $ 4,958,000 $ 3,055,000
============== ==============
Cash paid for interest $ 1,619,000 $ 1,416,000
Cash paid for income taxes 100,000 170,000
Loans transferred to other real estate 0 50,000
</TABLE>
See accompanying notes to the consolidated financial statements.
-8-
<PAGE>
ChoiceOne Financial Services, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
ChoiceOne Financial Services, Inc. (the "Registrant") and its direct
and indirect wholly owned subsidiaries, ChoiceOne Bank (the "Bank"),
ChoiceOne Insurance Agencies, Inc. (the "Insurance Agency") and Alpine
Travel, Inc. (the "Travel Agency") after elimination of significant
intercompany transactions and accounts. The 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-QSB and
Item 310 of Regulation S-B. 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 March 31, 1998 and December 31, 1997, the
Consolidated Statements of Income for the three-month periods ended
March 31, 1998 and March 31, 1997, and the Consolidated Statements of
Cash Flows for the three-month periods ended March 31, 1998 and March
31, 1997. Operating results for the three months ended March 31,
1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
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-KSB for
the year ended December 31, 1997.
STOCK TRANSACTIONS, EARNINGS AND CASH DIVIDENDS PER SHARE
A 5% stock dividend was declared on February 11, 1998. The stock
dividend was paid on March 31, 1998 to shareholders of record on March
16, 1998. The Registrant also declared a two-for-one stock split on
February 11, 1998. The stock split will be paid on May 22, 1998 to
shareholders of record on April 30, 1998. Approximately 1,882 shares
of common stock were sold by the Registrant to the Bank's 401(k)
savings and retirement plan on March 16, 1998. A 6% stock dividend
was declared by the Registrant on April 16, 1997. The stock dividend
was paid on May 16, 1997 to shareholders of record on April 29, 1997.
-9-
<PAGE>
Earnings per share are based on the weighted average number of shares
outstanding during the period. The weighted average number of shares
has been adjusted for the 6% stock dividend declared in April 1997,
the 5% stock dividend declared in February 1998, and the sale of stock
in March 1998. The weighted average number of shares outstanding was
537,015 for the first quarter of 1998 and 537,256 for the first
quarter of 1997.
Cash dividends per share are based on the number of shares outstanding
at the time the dividend was paid and have also been adjusted for the
6% stock dividend declared in April 1997 and the 5% stock dividend
declared in February 1998. The number of shares outstanding was
538,991 for the cash dividend paid in the first quarter of 1998 and
537,256 for the first quarter of 1997.
COMPREHENSIVE INCOME
The Registrant implemented Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," in the first quarter of 1998.
Statement No. 130 requires that comprehensive income be reported for all
accounting periods. Comprehensive income includes net income and other
comprehensive income. Other comprehensive income includes the change in
unrealized gains and losses on securities available for sale, foreign
currency translation adjustments, and additional minimum pension liability
adjustments. The change in unrealized gains and losses on securities
available for sale is the only item of comprehensive income that the
Registrant has at this time.
NOTE 2 - SECURITIES
Amortized cost and fair value of securities as of March 31, 1998 and
December 31, 1997 follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- ----------- ------------ ----------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
MARCH 31, 1998
U.S. Treasuries and
U.S. Government agencies $ 3,256,000 $ 7,000 $ (1,000) $ 3,262,000
States and municipalities 7,947,000 251,000 (3,000) 8,195,000
Mortgage-backed securities 7,075,000 37,000 (71,000) 7,041,000
Other securities 2,965,000 1,000 0 2,966,000
--------------- ----------- ------------ ---------------
Total $ 21,243,000 $ 296,000 $ (75,000) $ 21,464,000
=============== =========== ============ ===============
-10-
<PAGE>
DECEMBER 31, 1997
U.S. Treasuries and
U.S. Government agencies $ 3,259,000 $ 7,000 $ (2,000) $ 3,264,000
States and municipalities 7,458,000 232,000 (4,000) 7,686,000
Mortgage-backed securities 6,005,000 32,000 (12,000) 6,025,000
Other securities 2,966,000 1,000 0 2,967,000
--------------- ----------- ------------ ---------------
Total $ 19,688,000 $ 272,000 $ (18,000) $ 19,942,000
=============== =========== ============ ===============
</TABLE>
There were no securities classified as held to maturity as of March
31, 1998 or December 31, 1997.
There were no sales of securities for the three months ended March 31,
1998 and 1997.
For the three months ended March 31, 1998, the net unrealized holding
gain on securities available for sale decreased by $32,000 resulting
in a net unrealized gain of $222,000 on securities available for sale
as of March 31, 1998, before any deferred tax effect.
The fair values of securities pledged as collateral at March 31, 1998
and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
Securities sold under agreements to repurchase $ 2,257,000 $ 2,259,000
Public deposits 505,000 505,000
-------------- --------------
Total $ 2,762,000 $ 2,764,000
============== ==============
</TABLE>
-11-
<PAGE>
NOTE 3 - LOANS
Loans at March 31, 1998 and December 31, 1997 were classified as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Commercial $ 43,443,000 $ 43,546,000
Agricultural 9,026,000 9,350,000
Real estate mortgage - construction 1,724,000 2,499,000
Real estate mortgage - residential 43,107,000 43,715,000
Consumer 28,858,000 28,666,000
---------------- ----------------
Total loans before allowance for loan losses 126,158,000 127,776,000
Less allowance for loan losses 1,620,000 1,567,000
---------------- ----------------
Loans, net $ 124,538,000 $ 126,209,000
================ ================
</TABLE>
Loans pledged for borrowings at March 31, 1998 and December 31, 1997
were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Residential real estate mortgages pledged for
Federal Home Loan Bank advances $ 37,615,000 $ 39,505,000
Commercial loans pledged for secured loan borrowings 823,000 878,000
---------------- ----------------
Total $ 38,438,000 $ 40,383,000
================ ================
</TABLE>
Loans held for sale included $100,000 of residential real estate
mortgage loans at March 31, 1998. Loans held for sale were accounted
for at the lower of aggregate cost or market value.
-12-
<PAGE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Balance at beginning of period $ 1,567,000 $ 1,487,000
Provision charged to operating expense 275,000 158,000
Recoveries credited to the allowance 22,000 15,000
Loans charged-off (244,000) (114,000)
-------------- --------------
Balance at end of period $ 1,620,000 $ 1,546,000
============== ==============
</TABLE>
Information regarding impaired loans as of March 31, 1998 and December
31, 1997 follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Loans with no allowance allocated $ 2,305,000 $ 780,000
Loans with allowance allocated 535,000 152,000
Amount of allowance for loan losses allocated 153,000 86,000
</TABLE>
-13-
<PAGE>
Information regarding impaired loans for the three months ended March
31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Average balance during the period $ 1,886,000 $ 715,000
Interest income recognized thereon 68,000 10,000
Cash-basis interest income recognized 57,000 5,000
</TABLE>
NOTE 5 - CERTIFICATES OF DEPOSIT
As of March 31, 1998, certificates of deposit included $6,638,000
obtained from a national time deposit rate service. The weighted
average interest rate on these deposits was 6.35%. Approximately
$5,844,000 of the deposits had maturities of one year or less, while
the remainder had a maximum maturity of two years.
NOTE 6 - NONINTEREST EXPENSE
Noninterest expense for the three months ended March 31, 1998 and 1997
was as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C>
Supplies and postage $ 65,000 $ 56,000
Legal and professional 40,000 42,000
Computer processing 36,000 38,000
State single business tax expense 29,000 11,000
Advertising and marketing 27,000 18,000
Training and seminars 14,000 28,000
Other 162,000 169,000
-------------- --------------
Total $ 373,000 $ 362,000
============== ==============
</TABLE>
-14-
<PAGE>
NOTE 7 - INCOME TAX EXPENSE
The components of income tax expense for the three months ended March
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Current income tax expense $ 177,000 $ 163,000
Deferred income tax expense 15,000 38,000
------------ ------------
Total expense attributable to operations 192,000 201,000
Deferred expense allocated to other comprehensive
income items:
Unrealized gains and losses on securities (9,000) (58,000)
------------ ------------
Total income tax expense $ 183,000 $ 143,000
============ ============
</TABLE>
The difference between the financial statement tax provision and
amounts computed by applying the federal income tax rate to pre-tax
income is principally attributable to tax-exempt interest income.
The components of deferred tax assets and liabilities at March 31,
1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 446,000 $ 428,000
Deferred compensation 57,000 59,000
Postretirement benefits obligation 48,000 46,000
Deferred loan fees 36,000 39,000
Other 78,000 79,000
------------ ------------
Total deferred tax assets 665,000 651,000
-15-
<PAGE>
Deferred tax liabilities:
Depreciation 215,000 215,000
Unrealized appreciation on securities available
for sale 75,000 86,000
Other 48,000 28,000
------------ ------------
Total deferred tax liabilities 338,000 329,000
------------ ------------
Net deferred tax asset $ 327,000 $ 322,000
============ ============
</TABLE>
A valuation allowance related to a deferred tax asset is recognized
when it is considered more likely than not that part or all of the
deferred tax benefits will not be realized. Management has determined
that no such allowance was required at March 31, 1998 or December 31,
1997.
NOTE 8 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT
RISK
Noninterest-bearing deposits totaling approximately $3,493,000 were
held at NBD Bank, N.A. at March 31, 1998.
As of March 31, 1998, the Registrant had outstanding commitments to
make loans totaling $15,741,000, the majority of which have variable
interest rates. The Registrant had issued approximately $3,516,000 in
unused lines of credit and $33,000 in letters of credit at March 31,
1998.
NOTE 9 - STOCK SPLIT
On February 11, 1998, the Registrant's Board of Directors declared a
conditional two-for-one stock split. The stock split, to be effected
in the form of a share dividend, will cause one additional share of
common stock to be issued for each share outstanding. The stock split
will be payable to shareholders of record as of April 30, 1998 and
will be paid on May 22, 1998. The stock split was conditioned upon
and subject to approval by the Registrant's shareholders at the April
30, 1998 annual meeting of a proposed amendment to the Registrant's
Restated Articles of Incorporation to increase the authorized common
stock of the Registrant from 1,000,000 shares to 2,000,000 shares.
-16-
<PAGE>
The amendment was approved by a vote of the shareholders at the annual
meeting. Therefore, the condition for payment of the stock split has been
satisfied.
Earnings per share amounts, after giving retroactive effect to the
two-for-one stock split on a pro forma basis, are presented below.
Because the ex-dividend date of the stock split is May 25, 1998,
financial information contained elsewhere in these financial
statements has not been adjusted to reflect the impact of the stock
split.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------
1998 1997
---- ----
<S> <C> <C>
Earnings per common share (pro forma) $.41 $.37
</TABLE>
-17-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion is designed to provide a review of the
financial condition and results of operations of ChoiceOne Financial
Services, Inc. (the "Registrant") and its direct and indirect wholly
owned subsidiaries, ChoiceOne Bank (the "Bank"), ChoiceOne Insurance
Agencies, Inc. (the "Insurance Agency") and Alpine Travel, Inc. (the
"Travel Agency"). This discussion should be read in conjunction with
the consolidated financial statements and related footnotes.
FORWARD-LOOKING STATEMENTS
This discussion and other sections of this report contain forward-
looking statements that are based on management's beliefs,
assumptions, current expectations, estimates, and projections about
the financial services industry, the economy, and about the Registrant
itself. Words such as "anticipates," "believes," "estimates,"
"expects," "forecasts," "intends," "is likely," "plans," "predicts,"
"projects," and variations of such words and similar expressions are
intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve
certain risks, uncertainties, and assumptions ("future 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, the Registrant undertakes no
obligation to update, amend, or clarify forward-looking statements,
whether as a result of new information, future events, or otherwise.
Future factors include, but are not limited to, 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 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 ability to repay loans;
and changes in the national economy. These are representative of the
future factors that could cause a difference between an ultimate
actual outcome and a preceding forward-looking statement.
NET INCOME AND RETURN ON AVERAGE ASSETS AND SHAREHOLDERS' EQUITY
The Registrant's net income increased $38,000 or 9% in the first
quarter of 1998 compared to the same period in 1997. The increase in
net income was due to higher net interest income and noninterest
income, the effect of which was offset by growth in the provision for
loan losses and noninterest expense.
-18-
<PAGE>
Comprehensive income is a new disclosure that appears in the
Consolidated Statements of Income. Net income is adjusted by other
comprehensive income to arrive at comprehensive income. In the
Registrant's case, other comprehensive income includes only the change
in unrealized gains and losses on securities. This change was
previously disclosed only in the Consolidated Statement of Changes in
Shareholders' Equity.
The majority of the increase in net interest income in 1998 was caused
by growth in average interest-earning assets. A larger spread between
interest rates earned on interest-earning assets and interest rates
paid on interest-bearing liabilities also contributed to growth in net
interest income. The change in noninterest income was primarily
caused by a significant increase in mortgage loan sales and servicing
income. Gains on sales of mortgages were higher in 1998 due to a
larger amount of mortgage refinancing occurring in the first quarter
of 1998 than in the prior year. The increase in the provision for
loan losses was due to a higher level of loan chargeoffs in 1998 than
in 1997. The change in noninterest expense was primarily due to
higher salaries and benefits in the first quarter of 1998 than in the
same period in 1997. Almost one-half of the increase in salaries and
benefits resulted from commissions paid to commission-based personnel.
The return on average assets was 1.13% for the first three months of
1998, compared to 1.15% for the same period in 1997. The return on
average shareholders' equity was 11.36% for the first quarter of 1998,
compared to 11.17% for the comparable period of the prior year.
CASH AND STOCK DIVIDENDS
Cash dividends declared in the first quarter of 1998 were $205,000, or $.38
per common share, which represents a $.07 per share or 23% increase compared
to the dividend paid in the same period of the prior year. The cash dividend
payout percentage in the first three months of 1998 was 46.69%, compared to
42.05% in the same period of 1997. The Registrant declared a 6% stock
dividend on April 16, 1997, a 5% stock dividend on February 11, 1998 and a
two-for-one stock split on February 11, 1998. The stock dividends were paid
on May 16, 1997 and March 31, 1998, respectively. The two-for-one stock
split will be paid on May 22, 1998. The cash dividend per share amounts for
both 1998 and 1997 have been adjusted for the effect of the stock dividends.
INTEREST INCOME AND EXPENSE
Tables 1 and 2 on the following pages provide information regarding
interest income and expense for the three-month periods ended March
31, 1998 and March 31, 1997. Table 1 documents average balances and
interest income and expense, as well as the average rates earned or
paid on assets and liabilities. Table 2 documents the effect on
interest income and expense of changes in volume (average balance) and
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<PAGE>
interest rates. These tables are referred to in the discussion of
interest income, interest expense and net interest income below.
Table 1 - Average Balances and Tax Equivalent Interest Rates
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------------------
1998 1997
------------------------------------ ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans <F1> $ 126,382 $ 3,067 9.71% $ 110,123 $ 2,570 9.33%
Taxable securities <F2> 13,272 190 5.75 13,134 216 6.57
Nontaxable securities <F1><F2> 7,926 154 8.04 9,817 194 7.90
Other 319 3 3.76 90 1 4.44
---------- --------- ----------- --------
Interest-earning assets 147,899 3,414 9.23 133,164 2,981 8.95
--------- --------
Noninterest-earning assets 9,397 7,710
---------- -----------
Total assets $ 157,296 $ 140,874
========== ===========
Liabilities and shareholders' equity
Interest-bearing transaction
accounts $ 22,694 190 3.35 $ 22,754 183 3.21
Savings deposits 8,139 37 1.82 9,118 42 1.84
Time deposits 64,923 946 5.83 50,595 722 5.70
Federal Home Loan Bank advances 26,697 419 6.28 25,200 396 6.28
Other 3,563 53 5.95 6,019 80 5.31
---------- --------- ----------- --------
Interest-bearing liabilities 126,016 1,645 5.22 113,686 1,423 5.00
--------- ---- --------
Demand deposits 12,460 10,793
Other noninterest-bearing liabilities 3,118 1,775
Shareholders' equity 15,702 14,620
---------- -----------
Total liabilities and
shareholders' equity $ 157,296 $ 140,874
========== ===========
Net interest income (tax-equivalent
basis) - interest spread 1,769 4.01% 1,558 3.95%
==== ====
Tax equivalent adjustment <F1> (58) (74)
--------- --------
-20-
<PAGE>
Net interest income $ 1,711 $ 1,484
========= ========
Net interest income as a percentage
of earning assets (tax-equivalent
basis) 4.78% 4.67%
==== ====
<FN>
<F1> Interest on nontaxable securities and loans has been adjusted to a fully tax-equivalent basis to facilitate comparison to
the taxable interest-earning assets. The adjustment uses an incremental tax rate of 34% for the periods presented.
<F2> The average balance includes the effect of unrealized appreciation/depreciation on securities, while the average rate was
computed on the average amortized cost of the securities.
</FN>
</TABLE>
-21-
<PAGE>
Table 2 - Changes in Tax Equivalent Net Interest Income
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 OVER 1997
--------------
TOTAL VOLUME RATE
----- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income <F1>
Loans <F2> $ 497 $ 390 $ 107
Taxable securities (26) 1 (27)
Nontaxable securities <F2> (40) (43) 3
Other 2 2 0
--------- -------- --------
Net change in tax-equivalent income 433 350 83
Increase (decrease) in interest expense <F1>
Interest-bearing transaction accounts 7 (1) 8
Savings deposits (5) (5) 0
Time deposits 224 207 17
Federal Home Loan Bank advances 23 23 0
Other (27) (36) 9
--------- -------- --------
Net change in interest expense 222 188 34
--------- -------- --------
Net change in tax-equivalent
net interest income $ 211 $ 162 $ 49
========= ======== ========
<FN>
<F1> The volume variance is computed as the change in volume (average balance) multiplied by the previous year's interest
rate. The rate variance is computed as the change in interest rate multiplied by the previous year's volume (average
balance). The change in interest due to both volume and rate has been allocated to the volume and rate changes in proportion
to the relationship of the absolute dollar amounts of the change in each.
<F2> Interest on nontaxable investment securities and loans has been adjusted to a fully tax-equivalent basis using an
incremental tax rate of 34% for the periods presented.
</FN>
</TABLE>
-22-
<PAGE>
NET INTEREST INCOME
As shown in Tables 1 and 2, tax equivalent net interest income
increased $211,000 in the first three months of 1998 compared to the
same period of 1997. The majority of the increase resulted from
growth in the Registrant's loan portfolio from the first quarter of
1997 to the first quarter of 1998. A smaller portion of the increase
in net interest income was due to a widening of the Registrant's
interest rate spread. Average loans increased $16,259,000 from the
first quarter of 1997 to the same period in 1998. This growth caused
interest income from loans to be $390,000 higher in the first quarter
of 1998. The average balance of nontaxable securities was $1,891,000
lower in the first quarter of 1998 than in 1997. This was caused by
sales of nontaxable securities in the fourth quarter of 1997. The
other interest-earning asset categories experienced small differences
between 1998 and 1997.
Time deposits was the only interest-bearing liability category that
experienced a significant change from the first quarter of 1997 to the
same period in 1998. The average balance of time deposits increased
$14,328,000 from 1997 to 1998. Almost $6,667,000, or just under one-half
of the increase, was caused by deposits obtained from a national rate
service. The Bank began using the national rate service in the second
quarter of 1997. The remainder of the growth was obtained from
customers within the Bank's local market areas. The decrease in other
interest-bearing liabilities was due to a lower average balance of
federal funds purchased in the first quarter of 1998 than in the same
period in 1997.
Table 1 shows that the net interest income spread was 4.01% for the
first three months of 1998, compared to 3.95% for the same period of
the prior year. The increase in the net interest income spread was
caused by a 28-basis-point increase in the average rate earned on
interest-earning assets, while the average rate paid on interest-bearing
liabilities went up 22 basis points. The increase in the average rate
earned on interest-earning assets was caused by a 38-basis-point increase
in the average rate earned on loans. Approximately 21 basis points of the
loan increase was caused by a $64,000 increase in loan fees in the first
quarter of 1998 compared to the same period in 1997. The growth in loan
fees was caused by the high level of mortgage refinancings that occurred
in the first quarter of 1998. The Registrant's management believes that
the level of mortgage refinancings will decline in the remainder of 1998
and will cause loan fees to have a lesser impact in the rest of 1998 than
they did in the first quarter. Therefore, management anticipates that
the average rate earned on interest-bearing assets may decrease somewhat in
the rest of 1998. The increase in the average rate paid on interest-bearing
liabilities was attributable to the higher average rates paid on interest-
bearing transaction accounts and time deposits.
-23-
<PAGE>
Both account types were affected by the competitive interest rate
environment that existed in the Bank's market areas.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses increased $53,000 from December 31, 1997
to March 31, 1998. The allowance was 1.28% of total loans at March 31,
1998, compared to 1.23% at December 31, 1997. The allowance for loan
losses as a percentage of nonperforming loans was 196% as of March 31,
1998, compared to 130% as of the end of 1997. The provision for loan
losses was $117,000 higher in the first three months of 1998 than in
the same period of 1997. The increase in the provision was due to the
funding for higher net chargeoffs experienced in 1998 than in the
prior year.
Chargeoffs and recoveries for those loan categories with activity in
the periods ended March 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
CHARGEOFFS RECOVERIES CHARGEOFFS RECOVERIES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial $ 119,000 $ 1,000 $ 20,000 $ 0
Real estate mortgage -
residential 0 0 5,000 0
Consumer 125,000 21,000 89,000 15,000
---------- --------- ---------- ----------
$ 244,000 $ 22,000 $ 114,000 $ 15,000
========== ========= ========== ==========
</TABLE>
The increase in commercial loan chargeoffs was due to a chargeoff on
one commercial loan. The increase in consumer loan chargeoffs
resulted from a combination of small chargeoffs. The amount of
chargeoffs that the Bank will experience in the remainder of 1998
will be dependent on the extent to which business and consumer
borrowers are affected by the local economy and on many other economic
factors. As growth in the loan portfolio occurs, management believes
chargeoffs may increase as a result of the higher total balance of
loans. As chargeoffs, changes in the level of nonperforming loans and
loan growth occur in the remainder of 1998, the provision and
allowance for loan losses will be reviewed by the Bank's management
and adjusted as believed necessary.
-24-
<PAGE>
NONINTEREST INCOME
Total noninterest income increased $154,000 in the first quarter of
1998 compared to the same period in 1997. Approximately $91,000 of
the increase resulted from a higher level of mortgage loan sales and
servicing income. Gains on sales of mortgage loans increased
significantly in 1998 due to the high level of mortgage refinancing
that occurred. This was caused by relatively low long-term interest
rates in late 1997 and early 1998. The amount of mortgage applications
had started to decrease by March 1998. Management anticipates that the level
of refinancings will decrease in the second quarter of 1998 and that
resultant gains on sales of mortgage loans will also decrease from the
level experienced in 1998's first quarter. The increase in other
noninterest income from the first quarter of 1997 to the same period in
1998 was primarily due to commission income from the Travel Agency.
NONINTEREST EXPENSE
Total noninterest expense increased $186,000 in the first quarter of
1998 compared to the same quarter in 1997. Approximately $139,000 of
the increase resulted from higher salaries and benefits expense. An
increase of $108,000 in salaries, wages and commissions expense
comprised the majority of the salaries and benefits increase. Travel
Agency salaries and wages and increases in commissions paid to
mortgage originators made up slightly more than one-half of the growth in
salaries, wages and commissions. The increase in salaries and wages
due to the Travel Agency is expected to continue through the third
quarter of 1998 since the Bank did not purchase the Travel Agency
until August 1, 1997. The increase in commissions paid to mortgage
originators may decrease in the second quarter of 1998 as mortgage
activity is expected to slow. Approximately $36,000 of the increase in
total noninterest expense in the first quarter of 1998 was caused by
higher occupancy expense. This was due to the new building housing the
Bank and Insurance Agency's Cedar Springs office which opened in the
second quarter of 1997 and the expanded building which contains the
Grand Rapids office. A higher level of expenses from these offices is
expected to continue through the remainder of 1998.
The Bank currently plans to open two new offices later in 1998. Anticipated
expenses related to these new offices would also cause increases in
noninterest expense.
SECURITIES
The balance of total securities increased $1,522,000 from December 31,
1997 to March 31, 1998. Growth was experienced in two categories:
securities issued by states and municipalities and mortgage-backed
-25-
<PAGE>
securities. The purchases in the first quarter of 1998 served to
replace those securities that matured since the end of 1997 and those
that were sold in the fourth quarter of 1997. The Bank used certain
of its securities as collateral for public funds and repurchase
agreements in the first quarter of 1998 and plans to continue to do so
in the remainder of 1998. The securities portfolio may also serve as
a source of liquidity for deposit needs and as collateral for
additional advances from the Federal Home Loan Bank.
LOANS
Total loans decreased $1,618,000 in the first quarter of 1998. The
total of the two real estate mortgage categories declined $1,383,000
since the end of 1997. The mortgage decrease resulted from the level
of mortgage activity experienced in the first quarter of 1998. The
majority of borrowers who refinanced their mortgages obtained 15 to 30
year fixed rate mortgages. The Bank did not retain this type of
mortgage in its portfolio and instead sold them into the secondary market.
Since some of the mortgages that were refinanced had previously been
in the Bank's loan portfolio, the refinancing of the mortgages and
subsequent sale caused the decrease that occurred in the mortgage
portfolio. There was little change in the other loan categories. The
Bank's management believes that competition with other lenders in the
Bank's market areas caused the lack of growth that was experienced in
commercial, agricultural and consumer loans.
Loan growth in the remainder of 1998 will continue to be affected by
interest rates and by competition within the Bank's market areas.
Management anticipates that interest rate competition for commercial
and agricultural loans will continue to be very strong. Management is
reviewing its pricing structure to make sure that its rates are
competitive. The continued use of the officer calling program is
planned. The Bank's mortgage department believes that the level of
mortgage refinancings will decline from 1998's first quarter level.
They expect their attention to be more focused on new mortgages and
plan to continue to call on realtors and other mortgage professionals.
In the consumer loan area, management plans to use direct mail
advertising and referrals from other departments within the Bank to
stimulate demand for direct consumer loans. Management will also
investigate expansion of its base of contacts for indirect consumer
loans.
Information regarding impaired loans can be found in Note 4 to the
consolidated financial statements included in this report. In addition
to its review of the loan portfolio for impaired loans, management also
monitors the various loan categories for nonperforming loans. Nonperforming
loans are comprised of: (1) loans accounted for on a nonaccrual basis; (2)
loans, not included in nonaccrual loans, which are contractually past
due 90 days or more as to interest or principal payments; and (3)
-26-
<PAGE>
loans, not included in nonaccrual or loans past due 90 days or more,
which are considered troubled debt restructurings. The balances of
the three nonperforming categories as of March 31, 1998 and December
31, 1997 were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ -------------
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 589,000 $ 753,000
Loans, not included in nonaccrual loans, which are
contractually past due 90 days or more as to
interest or principal payments 220,000 195,000
Loans, not included in nonaccrual or loans past due
90 days or more, which are considered troubled
debt restructurings 3,000 27,000
------------- -------------
Total $ 812,000 $ 975,000
============= =============
Nonperforming other real estate $ 0 $ 229,000
============= =============
</TABLE>
Management maintains a list of loans that are not classified as
nonperforming loans but where some concern exists as to the borrowers'
abilities to comply with the original loan terms. The total balance of
these loans were $3,189,000 as of March 31, 1998, compared to
$1,915,000 as of December 31, 1997. The increase was caused by three
large commercial loans that were added to the list in the first
quarter of 1998. Approximately $108,000 of the allowance for loan
losses had been specifically allocated to these loans at March 31,
1998.
DEPOSITS AND OTHER FUNDING SOURCES
Total deposits increased $2,981,000 in the first quarter of 1998. The
growth was caused by certificates of deposit, which increased
$4,154,000 from December 31, 1997 to March 31, 1998. The certificates
of deposit growth was partially offset by a $1,013,000 decline in the
balance of interest-bearing transaction accounts. Management believes
the growth in certificates of deposit was primarily due to the Bank's
interest rate promotions on certain maturities in the first quarter of
1998. All of the growth was obtained from the Bank's local market
-27-
<PAGE>
areas as the total balance of deposits obtained from the national rate
service declined $100,000 in the first quarter of 1998. Management
also believes that part of the decline in the balance of interest-bearing
transaction accounts was caused by depositors shifting their
funds into certificates of deposit.
The Bank's management plans to continue to emphasize growth in core
deposits (deposits obtained in its local market areas) in the
remainder of 1998. Management plans to use interest rate promotions
and new products to attempt to stimulate the growth. Management
anticipates it will use federal funds purchased, repurchase
agreements, and Federal Home Loan Bank advances to supplement the core
deposit growth.
SHAREHOLDERS' EQUITY
Total shareholders' equity increased $284,000 in the first quarter of
1998. Equity growth in 1998 resulted from retained earnings and
proceeds from the sale of stock to the Bank's 401(k) savings and
retirement plan. These were offset by a small decrease in the balance
of unrealized gains and losses on securities.
The Registrant's Board of Directors changed the par value of the
Registrant's capital stock from $10 par value to no par value at its
February 1998 meeting. The common stock balance of $5,370,000 had been
disclosed as a separate line item in the equity section of the Registrant's
December 31, 1997 Consolidated Balance Sheet. As a result of the
change to no par value stock, this balance was combined with paid-in
capital.
Total shareholders' equity as a percentage of assets was 10.06% as of
March 31, 1998, compared to 9.94% as of December 31, 1997. The ratio
rose slightly in the first quarter of 1998 due to the limited amount
of asset growth that occurred. The Registrant's management plans to
decrease the equity to assets ratio to more effectively use shareholders'
equity by leveraging it through asset growth. Based on risk-based capital
guidelines established by the Bank's regulators, the Registrant's risk-
based capital was categorized as well capitalized at March 31, 1998.
CAPITAL RESOURCES
The Bank completed the construction of its new branch office in Cedar
Springs in March 1997. The cost of land, building and equipment for
the branch approximated $750,000. The cost of leasehold improvements
for the Grand Rapids office that were paid in late 1997 and early 1998
approximated $100,000. The facilities for the two new branches that
the Bank has planned for 1998 will be leased. However, equipment and
leasehold improvements will be needed for these branches.
-28-
<PAGE>
Management believes that the current level of capital is adequate to
take advantage of potential opportunities that may arise for the
Registrant or the Bank.
LIQUIDITY AND RATE SENSITIVITY
Cash and cash equivalents increased $1,189,000 in the first quarter of
1998. The Registrant's management believes that the current level of
liquidity is sufficient to meet the Bank's normal operating needs.
This belief is based upon the availability of deposit growth from both
the local and national markets, maturities of securities, normal loan
repayments, income retention, federal funds which can be purchased
from correspondent banks, and advances available from the Federal Home
Loan Bank of Indianapolis.
Table 3 presents the maturity and repricing schedule for the
Registrant's rate-sensitive assets and liabilities for selected time
periods. The Registrant's cumulative rate-sensitive liabilities
exceeded its cumulative rate-sensitive assets by $19,364,000 at the
one-year repricing point as of March 31, 1998. This placed the ratio
of rate-sensitive assets to rate-sensitive liabilities at such repricing
point at 77% as of March 31, 1998, compared to 76% as of December 31, 1997.
The negative cumulative gap as of both dates was due primarily to the
classification of all interest-bearing transaction accounts and
savings deposits in the 0-to-3-month repricing category. The rates
paid on these deposit types can be immediately repriced. However, the
Bank's management believes that these types of accounts may not be as
sensitive to changes in interest rates in the short term as Table 3
indicates since management can control the timing or extent of the
change in rates on these deposits. For the remainder of 1998,
management will determine the rates it will pay on deposits based on
rates paid by competitors and the Bank's need for deposited funds.
The Registrant's management is aware of the inherent interest rate
risk associated with gap management. As interest rate fluctuations
occur, the relationship between rate-sensitive assets and liabilities
will be monitored by management and changes in assets and liabilities
will be made when deemed necessary. It is the goal of the
Registrant's Asset/Liability Management Committee to maintain a
desired interest rate spread through its pricing of both loans and
deposits.
-29-
<PAGE>
Table 3 - Maturities and Repricing Schedule
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------------------------------------------------
0 - 3 3 - 12 1 - 5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
------ ------ ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Loans $ 38,335 $ 18,396 $ 56,470 $ 12,957 $ 126,158
Interest-bearing deposits
with banks 1 0 0 0 1
Federal funds sold 100 0 0 0 100
Taxable securities 4,261 1,757 6,401 999 13,418
Nontaxable securities 280 359 3,559 3,848 8,046
----------- ----------- ----------- ---------- -----------
Rate-sensitive assets 42,977 20,512 66,430 17,804 147,723
Liabilities
Interest-bearing transaction
accounts 22,066 0 0 0 22,066
Savings deposits 8,244 0 0 0 8,244
Time deposits 19,795 23,792 23,239 134 66,960
Federal funds purchased and
repurchase agreements 2,143 0 0 0 2,143
Federal Home Loan Bank
advances 0 6,686 18,440 1,030 26,156
Secured loan borrowings 36 91 697 0 824
----------- ----------- ----------- ---------- -----------
Rate-sensitive liabilities 52,284 30,569 42,376 1,164 126,393
----------- ----------- ----------- ---------- -----------
Rate-sensitive assets less
rate-sensitive liabilities:
Asset (liability) gap
for the period $ (9,307) $ (10,057) $ 24,054 $ 16,640 $ 21,330
=========== =========== =========== ========== ===========
Cumulative asset
(liability) gap $ (9,307) $ (19,364) $ 4,690 $ 21,330
=========== =========== =========== ==========
Cumulative rate-
sensitive assets as a
percentage of
cumulative rate-
sensitive liabilities 82.20% 76.63% 103.74% 116.88%
=========== =========== =========== ==========
</TABLE>
-30-
<PAGE>
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On March 16, 1998, the Registrant sold 1,882 shares of its common
stock, no par value, to the Bank's 401(k) Savings and Retirement Plan
for an aggregate cash price of $80,000. The Registrant relied on the
exemption contained in Section 4(2) of the Securities Act of 1933 in
connection with this sale.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
1. EXHIBITS. The following exhibits are filed or incorporated
by reference as part of this report:
EXHIBIT
NUMBER DOCUMENTS
------- ---------
3.1 Amended and Restated Articles of Incorporation of the
Registrant.
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-KSB Annual Report for its
fiscal year ended December 31, 1993. Here incorporated
by reference.
27 Financial Data Schedule.
2. REPORTS ON FORM 8-K. No reports on Form 8-K were filed
during the three months ended March 31, 1998.
-31-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHOICEONE FINANCIAL SERVICES, INC.
Date MAY 15, 1998 /S/ JAE M. MAXFIELD
Jae M. Maxfield
President and Chief Executive Officer
Date MAY 15, 1998 /S/ THOMAS L. LAMPEN
Thomas L. Lampen
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
-32-
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part
of this report:
EXHIBIT
NUMBER DOCUMENTS
------- ---------
3.1 Amended and Restated Articles of Incorporation of the
Registrant.
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-KSB Annual Report for its
fiscal year ended December 31, 1993. Here incorporated
by reference.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
CHOICEONE FINANCIAL SERVICES, INC.
1. These Restated Articles of Incorporation are executed pursuant to
the provisions of Sections 641-643, Act 284, Public Acts of 1972, as
amended.
2. The corporation identification number (CID) assigned by the
Bureau is 323-667.
3. The present name of the corporation is:
CHOICEONE FINANCIAL SERVICES, INC.
4. The corporation's former name was 1ST COMMUNITY BANCORP, INC.
5. The date of filing the original Articles of Incorporation was
February 24, 1986.
6. The following Restated Articles of Incorporation supersede the
original Articles of Incorporation as amended and shall be the Articles of
Incorporation of the corporation:
ARTICLE I
NAME
The name of the corporation is:
CHOICEONE FINANCIAL SERVICES, INC.
ARTICLE II
PURPOSES
The purposes of the corporation are to engage in any activity
within the purposes for which corporations may be organized under the
Michigan Business Corporation Act.
<PAGE>
ARTICLE III
AUTHORIZED CAPITAL
The total authorized capital stock of the corporation is One
Million One Hundred Thousand (1,100,000) shares of stock divided into two
classes, as follows:
A. One Million (1,000,000) shares of common stock, which shall
be called "Common Stock."
B. One Hundred Thousand (100,000) shares of preferred stock, which
shall be called "Preferred Stock."
The following provisions shall apply to the authorized stock of
the corporation:
1. PROVISIONS APPLICABLE TO COMMON STOCK.
a. NO PREFERENCE. None of the shares of Common Stock
shall be entitled to any preferences, and each share of Common
Stock shall be equal to every other share of said Common Stock in
every respect.
b. DIVIDENDS. After payment or declaration of full
dividends on all shares having a priority over the Common Stock
as to dividends, and after making all required sinking or
retirement fund payments, if any, on all classes of Preferred
Stock and on any other stock of the corporation ranking as to
dividends or assets prior to the Common Stock, dividends on the
shares of Common Stock may be declared and paid, but only when
and as determined by the Board of Directors.
c. RIGHTS ON LIQUIDATION. On any liquidation, dissolution
or winding up of the affairs of the corporation, after there
shall have been paid to or set aside for the holders of all
shares having priority over the Common Stock the full
preferential amounts to which they are respectively entitled, the
holders of the Common Stock shall be entitled to receive pro rata
all the remaining assets of the corporation available for
distribution to shareholders. The Board of Directors may
distribute in kind to the holders of Common Stock such remaining
assets of the corporation or may sell, transfer or otherwise
dispose of all or any part of such remaining assets to any person
and may sell all or any part of the consideration so received and
distribute any balance thereof in kind to holders of Common
Stock. The merger or consolidation of the corporation into or
with any other corporation, or the merger or consolidation of any
other corporation into it, or any purchase or redemption of
-2-
<PAGE>
shares of stock of the corporation of any class, shall not be
deemed to be a dissolution, liquidation or winding up of the
corporation for the purposes of this paragraph.
d. VOTING. At all meetings of shareholders of the
corporation, the holders of the Common Stock shall be entitled to
one (1) vote for each share of Common Stock held by them
respectively.
2. PROVISIONS APPLICABLE TO PREFERRED STOCK.
a. PROVISIONS TO BE FIXED BY THE BOARD OF DIRECTORS.
The Board of Directors is expressly authorized at any time,
and from time to time, to provide for the issuance of shares of
Preferred Stock in one or more series, each with such voting
powers, full or limited, or without voting powers, and with such
designations, preferences and relative, participating,
conversion, optional or other rights, and such qualifications,
limitations or restrictions thereof, as shall be stated in the
resolution or resolutions providing for the issue thereof adopted
by the Board of Directors, and as are not stated in these
Restated Articles of Incorporation, or any amendments thereto,
including (without limiting the generality of the foregoing) the
following:
(1) The distinctive designation and number of shares
comprising such series, which number may (except where
otherwise provided by the Board of Directors in creating
such series) be increased or decreased (but not below the
number of shares then outstanding) from time to time by
action of the Board of Directors.
(2) The stated value of the shares of such
series.
(3) The dividend rate or rates on the shares of such
series and the relation which such dividends shall bear to
the dividends payable on any other class of capital stock or
on any other series of Preferred Stock, the terms and
conditions upon which and the periods in respect of which
dividends shall be payable, whether and upon what conditions
such dividends shall be cumulative and, if cumulative, the
date or dates from which dividends shall accumulate.
(4) Whether the shares of such series shall be
redeemable and, if redeemable, whether redeemable for cash,
property or rights, including securities of any other
corporation, and whether redeemable at the option of the
holder or the corporation or upon the happening of a
-3-
<PAGE>
specified event, the limitations and restrictions with
respect to such redemption, the time or times when, the
price or prices or rate or rates at which, the adjustments
with which and the manner in which such shares shall be
redeemable, including the manner of selecting shares of such
series for redemption if less than all shares are to be
redeemed.
(5) The rights to which the holders of shares of such
series shall be entitled, and the preferences, if any, over
any other series (or of any other series over such series),
upon the voluntary or involuntary liquidation, dissolution,
distribution or winding up of the corporation, which rights
may vary depending on whether such liquidation, dissolution,
distribution or winding up is voluntary or involuntary, and,
if voluntary, may vary at different dates.
(6) Whether the shares of such series shall be subject
to the operation of a purchase, retirement or sinking fund
and, if so, whether and upon what conditions such fund shall
be cumulative or noncumulative, the extent to which and the
manner in which such fund shall be applied to the purchase
or redemption of the shares of such series for retirement or
to other corporation purposes and the terms and provisions
relative to the operation thereof.
(7) Whether the shares of such series shall be
convertible into or exchangeable for shares of any other
class or of any other series of any class of capital stock
of the corporation or any other corporation, and, if so
convertible or exchangeable, the price or prices or the rate
or rates of conversion or exchange and the method, if any,
of adjusting the same, and any other terms and conditions of
such conversion or exchange.
(8) The voting powers, if any, of the shares of such
series, and whether and under what conditions the shares of
such series (alone or together with the shares of one or
more of other series having similar provisions) shall be
entitled to vote separately as a single class, for the
election of one or more additional directors of the
corporation in case of dividend arrearages or other
specified events, or upon other matters.
(9) Whether the issuance of any additional shares of
such series, or of any shares of any other series, shall be
subject to restrictions as to issuance, or as to the powers,
preferences or rights of any such other series.
-4-
<PAGE>
(10) Any other preferences, privileges and powers and
relative participating, optional or other special rights,
and qualifications, limitations or restrictions of such
series, as the Board of Directors may deem advisable and as
shall not be inconsistent with the provisions of these
Restated Articles of Incorporation.
b. PROVISIONS APPLICABLE TO ALL PREFERRED STOCK.
(1) All Preferred Stock shall rank equally and be
identical in all respects except as to the matters permitted
to be fixed by the Board of Directors, and all shares of any
one series thereof shall be identical in every particular
except as to the date, if any, from which dividends on such
shares shall accumulate.
(2) Shares of Preferred Stock redeemed, converted,
exchanged, purchased, retired or surrendered to the
corporation, or which have been issued and reacquired in any
manner, may, upon compliance with any applicable provisions
of the Michigan Business Corporation Act, be given the
status of authorized and unissued shares of Preferred Stock
and may be reissued by the Board of Directors as part of the
series of which they were originally a part or may be
reclassified into and reissued as part of a new series or as
a part of any other series, all subject to the protective
conditions or restrictions of any outstanding series of
Preferred Stock.
ARTICLE IV
REGISTERED OFFICE AND RESIDENT AGENT
The street address (which is the mailing address) of the current
registered office is 109 East Division, Sparta, Michigan 49345.
The name of the current resident agent is Jae M. Maxfield.
ARTICLE V
POWERS OF BOARD OF DIRECTORS
In furtherance and not in limitation of the powers conferred by
the Michigan Business Corporation Act, the Board of Directors is expressly
authorized:
A. To make, alter or repeal the Bylaws of the corporation.
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B. To authorize and cause to be executed mortgages and liens upon
the real and personal property of the corporation.
C. To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created.
D. By a majority of the whole Board, to designate one or more
committees, each committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. The Bylaws may
provide that in the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in
place of any such absent or disqualified member. Any such committee, to
the extent provided in the resolution of the Board of Directors, or in the
Bylaws of the corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation
to be affixed to all papers which may require it; but no such committee
shall have the power to authorize amending these Restated Articles of
Incorporation, adopting an agreement of merger or consolidation,
recommending to the shareholders the sale, lease, exchange or other
disposition of all or substantially all of the corporation's property and
assets other than in the usual and regular course of its business,
recommending to the shareholders a dissolution of the corporation or a
revocation of a dissolution or amending the Bylaws of the corporation; and,
unless the resolution or Bylaws expressly so provide, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
E. When and as authorized by the shareholders in accordance with the
Michigan Business Corporation Act, to sell, lease or exchange all or
substantially all of the property and assets of the corporation, including
its goodwill and its corporate franchises, upon such terms and conditions
and for such consideration, which may consist in whole or in part of money
or property including shares of stock in, and/or other securities of, any
other corporation or corporations, as the Board of Directors shall deem
expedient and in the best interests of the corporation.
F. To elect and determine the duties of the officers of the
corporation and to establish the rights, powers, duties, rules and
procedures that (1) govern the Board of Directors, including without
limitation the vote required for any action by the Board of Directors; and
(2) affect the directors' power to manage the affairs of the corporation.
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G. To create and issue, by way of distributions to shareholders, as
dividends or otherwise, rights or options entitling the holders thereof to
purchase from the corporation shares of any class or series of the
corporation's capital stock. Such rights or options shall be evidenced in
such manner as the Board shall approve and shall set forth the terms upon
which, the time within which and the price at which such shares may be
purchased from the corporation upon the exercise of any such right or
option. The terms and conditions of such rights or options may include,
without limitation, provisions which adjust the option price or number of
shares issuable under such rights or options in the event of an acquisition
of shares or a reorganization, merger, consolidation, sale of assets or
other occurrence involving the corporation, and restrictions or conditions
that preclude or limit the entitlement, exercise or transfer of such rights
or options by any person or persons who, after the date of creation or
issuance of such rights or options, acquires, obtains the right to acquire,
or offers to acquire directly or indirectly, beneficial ownership of a
specified number or percentage of the corporation's outstanding voting
shares or other shares of the corporation, or that invalidate or void such
rights or options held by any such person or persons.
H. No Bylaw shall be adopted by shareholders which shall impair or
impede the implementation of the foregoing.
ARTICLE VI
INDEMNIFICATION
The corporation shall indemnify directors and executive officers
of the corporation as of right to the fullest extent now or hereafter
permitted by law in connection with any actual or threatened civil,
criminal, administrative or investigative action, suit or proceeding
(whether brought by or in the name of the corporation, a subsidiary or
otherwise) arising out of their service to the corporation, a subsidiary or
to another organization at the request of the corporation or a subsidiary.
The corporation may indemnify persons who are not directors or executive
officers of the corporation to the extent authorized by Bylaw, resolution
of the Board of Directors or contractual agreement authorized by the Board
of Directors. The corporation may purchase and maintain insurance to
protect itself and any such director, officer or other person against any
liability asserted against the person and incurred by him or her in respect
of such service whether or not the corporation would have the power to
indemnify him or her against such liability by law or under the provisions
of this paragraph. The provisions of this paragraph shall apply to
actions, suits or proceedings, whether arising from acts or omissions
occurring before or after the adoption of this Article VI, and to
directors, officers and other persons who have ceased to render such
service, and shall inure to the benefit of the heirs, executors and
administrators of the directors, officers and other persons referred to in
this Article VI.
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ARTICLE VII
DIRECTORS
A. NUMBER AND TERM OF DIRECTORS. The corporation shall be managed
by a Board of Directors who will initially be elected in accordance with
this Section. The number of directors shall not be less than nine (9) nor
more than fifteen (15). Initially there shall be eleven (11) directors.
The exact number of directors may be increased or decreased from time to
time by the Board of Directors, pursuant to a resolution adopted by a
majority of the entire Board of Directors. Effective on January 1, 1987,
the members of the Board must be shareholders of the corporation. The
Board of Directors shall be divided into three (3) classes, with the term
of office of one class expiring each year. At the annual meeting of
shareholders in 1986, four (4) directors of Class I shall be elected to
hold office for a term expiring at the 1987 annual meeting, four (4)
directors of Class II shall be elected to hold office for a term expiring
at the 1988 annual meeting and three (3) directors of Class III shall be
elected to hold office for a term expiring at the 1989 annual meeting.
Beginning with the annual meeting of shareholders in 1987, each class of
directors whose term shall then expire shall be elected to hold office for
a three (3) year term and until the election and qualification of their
respective successors.
B. NOMINATIONS OF DIRECTOR CANDIDATES.
1. Nominations of candidates for election as directors of the
corporation at any meeting of shareholders called for election of
directors (an "Election Meeting") may be made by the Board of
Directors or by any shareholder entitled to vote at such Election
Meeting.
2. Nominations made by the Board of Directors shall be made at
a meeting of the Board of Directors, or by written consent of
directors in lieu of a meeting, not less than thirty (30) days prior
to the date of the Election Meeting, and such nominations shall be
reflected in the minute books of the corporation as of the date made.
At the request of the Secretary of the corporation, each proposed
nominee shall provide the corporation with such information concerning
himself as is required under the rules of the Securities and Exchange
Commission to be included in the corporation's proxy statement
soliciting proxies for such person's election as a director.
3. Any shareholder who intends to make a nomination at an
Election Meeting shall deliver, not less than one hundred twenty (120)
days prior to the date of notice of the Election Meeting in the case
of an annual meeting, and not more than seven (7) days following the
date of notice of the meeting in the case of a special meeting, a
notice to the Secretary of the corporation setting forth: (a) the
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name, age, business address and residence address of each nominee
proposed in such notice; (b) the principal occupation or employment of
each such nominee; (c) the number of shares of capital stock of the
corporation which are beneficially owned by each such nominee; (d) a
statement that each such nominee is willing to be nominated and serve;
and (e) such other information concerning each such nominee as would
be required under the rules of the Securities and Exchange Commission
in a proxy statement soliciting proxies for the election of such
nominees.
4. If the chairman of the Election Meeting determines that a
nomination was not made in accordance with the foregoing procedures,
such nomination shall be void.
C. VACANCIES. All vacancies in the membership of the Board shall be
filled by appointment made by a majority vote of the remaining directors.
Any vacancy resulting from the removal of a director for cause shall be
filled solely by appointment made by a majority of the Continuing Directors
as defined in Article IX. Each person so appointed to fill a vacancy shall
remain a director until the next election of the class for which that
director shall have been chosen and until that director's successor shall
be elected by the shareholders.
D. REMOVAL OF DIRECTORS. A director may be removed before the end
of a term only for cause, except that the Bylaws may provide for mandatory
retirement from the Board of Directors at seventy (70) years of age or
older. At any annual meeting of the shareholders, or at a meeting of
shareholders called expressly for the purpose, the notice of which shall
state that the removal of a director or directors is among the purposes of
the meeting, the holders of a majority of the shares then entitled to vote
at an election of directors, present in person or by proxy, may remove such
director or directors for cause. If the holders of the shares of any class
are entitled to elect one (1) or more directors by the provisions of these
Restated Articles of Incorporation the provisions of this Section shall
apply only to the vote of the holders of that class of outstanding shares.
Except as may be provided otherwise by law, cause for removal
shall be construed to exist only if: (1) the director whose removal is
proposed has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal; (2)
such director has been adjudicated by a court of competent jurisdiction to
be liable for negligence or misconduct in the performance of such person's
duty to the corporation in a matter of substantial importance to the
corporation and such adjudication is no longer subject to a direct appeal;
(3) such director has become mentally incompetent, whether or not so
adjudicated, which mental incompetency directly affects such person's
ability as a director of the corporation; or (4) the director's actions or
failure to act have been in derogation of the director's duties, as
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provided in the Bylaws of the corporation or otherwise provided by law.
Any proposal for removal pursuant to (3) or (4) of this paragraph which is
initiated by the Board of Directors for submission to the shareholders
shall require the affirmative vote of at least sixty-six and 2/3 percent
(66-2/3%) of the total number of directors then in office, exclusive of the
director who is the subject of the removal action and who shall not be
entitled to vote thereon.
ARTICLE VIII
OPT-OUT PROVISION
Pursuant to Section 784(1)(b) of the Michigan Business
Corporation Act, the corporation elects not to be governed by Chapter 7A
of the Michigan Business Corporation Act, or any amended versions of that
Chapter.
ARTICLE IX
CERTAIN BUSINESS COMBINATIONS
A. HIGHER VOTE REQUIREMENTS FOR CERTAIN BUSINESS COMBINATIONS. In
addition to any vote otherwise required by law or by these Restated
Articles of Incorporation, a Business Combination shall require approval by
an affirmative vote of not less than sixty-six and 2/3 percent (66-2/3%) of
the Voting Stock, other than Voting Stock held by either (1) an Interested
Shareholder who is, or whose Affiliate or Associate is, a party to a
Business Combination, or (2) an Affiliate or Associate of the Interested
Shareholder.
B. CONDITIONS EXEMPTING HIGHER VOTE REQUIREMENTS. The vote
requirements of Section A of this Article IX shall not be applicable to a
particular Business Combination if the conditions specified in either one
of the following paragraphs are met:
1. APPROVAL BY CONTINUING DIRECTORS. The Business Combination
has been approved by a vote of a majority of the Continuing Directors;
or
2. FAIR PRICE PROVISION. Payment to shareholders in the
Business Combination is exclusively in the form of cash, or cash and
notes at the individual shareholder's option, provided that the option
is available to all shareholders, and all of the following conditions
are met:
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a. COMMON STOCK. The amount of cash to be paid per share
to holders of Common Stock of the corporation must be at least
equal to the HIGHEST of the following amounts:
(1) The highest per share price, including any
brokerage commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Shareholder for any
shares of Common Stock of the same class or series acquired
by the Interested Shareholder at any time prior to the
Announcement Date of the proposal of the Business
Combination, or in the transaction in which it became an
Interested Shareholder, whichever is higher.
(2) The fair market value per share of Common Stock of
the same class or series as determined in good faith by the
Continuing Directors, which determination may be based upon
an appraisal by any investment banking or similar firm, on
the Announcement Date or on the Determination Date,
whichever is higher.
b. NON-COMMON STOCK. The amount of the cash to be paid
per share in the Business Combination to holders of shares of any
class or series of outstanding stock other than Common Stock
shall be at least equal to the HIGHEST of the following amounts,
whether or not the Interested Shareholder has previously acquired
any shares of the particular class or series of stock:
(1) The highest per share price, including any
brokerage commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Shareholder for any
shares of the class of stock acquired at any time prior to
the Announcement Date of the proposal of the Business
Combination, or in the transaction in which it became an
Interested Shareholder, whichever is higher.
(2) The highest preferential amount per share to which
the holders of shares of the class of stock are entitled in
the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation.
(3) The fair market value per share of the class of
stock as determined in good faith by the Continuing
Directors, which determination may be based upon an
appraisal by any investment banking or similar firm, on the
Announcement Date or on the Determination Date, whichever is
higher.
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c. OTHER CONDITIONS. Prior to the consummation of a
Business Combination by an Interested Shareholder, all of the
following conditions shall be met:
(1) Any full periodic dividends, whether or not
cumulative, on any outstanding Preferred Stock of the
corporation shall have been declared and paid at the regular
date therefor.
(2) The annual rate of dividends paid on any class or
series of stock of the corporation that is not Preferred
Stock, except as necessary to reflect any subdivision of the
stock, shall not have been reduced, and the annual rate of
dividends shall have increased as necessary to reflect any
reclassification, including any reverse stock split,
recapitalization, reorganization or any similar transaction
that has the effect of reducing the number of outstanding
shares of the stock.
(3) The Interested Shareholder may not have received
the benefit, directly or indirectly, except proportionately
as a shareholder, of any loans, advances, guarantees,
pledges or other financial assistance or any tax credits or
other tax advantages provided by the corporation or any of
its subsidiaries, whether in anticipation of or in
connection with the Business Combination or otherwise.
(4) The Interested Shareholder did not become the
Beneficial Owner of any additional shares of the corporation
except as part of the transaction that created the
Interested Shareholder status or as a result of
proportionate stock splits or stock dividends.
d. PROXY STATEMENT. A proxy statement describing the
proposed Business Combination that complies with the disclosure
requirements of the Securities Exchange Act of 1934, as amended,
and which complies with the disclosure requirements of the
Michigan Blue Sky Laws, as amended, and the rules and regulations
promulgated thereunder (collectively the "Acts"), must be sent by
first class mail to all shareholders of the corporation at least
thirty (30) days prior to the consummation of the Business
Combination. The proxy statement must be sent regardless of
whether it is required by the Acts. The proxy statement shall
prominently display a recommendation of the Continuing Directors
on the advisability or inadvisability of the Business Combination
and a recommendation of any investment banking or similar firm
selected by a majority of the Continuing Directors, as to the
fairness of the Business Combination to the shareholders of the
corporation.
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C. DEFINITIONS.
1. "Affiliate" or "Affiliated Person" means a Person who
directly, or indirectly through one or more intermediaries, controls,
is controlled by or is under common control with a specified Person.
2. "Announcement Date" means the first general public
announcement or the first communication generally to shareholders of
the corporation, whichever is earlier, of the proposal or intention to
make a proposal concerning a Business Combination.
3. "Associate," when used to indicate a relationship with any
person, means any one of the following:
a. Any corporation, partnership or other organization,
(except for the corporation or a subsidiary of the corporation),
in which the Person is (1) an officer, director or partner, or
(2) directly or indirectly, the Beneficial Owner of ten
percent (10%) or more of any class of Equity Securities.
b. Any trust or other estate (1) in which the Person has a
beneficial interest of ten percent (10%) or more, or (2) as to
which the Person serves as trustee or in a similar fiduciary
capacity.
c. Any relative of the Person or the Person's spouse who
has the same residence as the Person or who is a director or
officer of the corporation or any of its Affiliates.
4. "Beneficial Owner," when used with respect to any Voting
Stock, means a Person who:
a. Individually or with any of its Affiliates or
Associates, beneficially owns Voting Stock, directly or
indirectly.
b. Individually or with any of its Affiliates or
Associates has:
(1) The right to acquire Voting Stock whether the
right is exercisable immediately or only after the passage
of time, pursuant to any agreement, or upon the exercise of
conversion rights, exchange rights, warrants, options or
otherwise.
(2) The right to vote Voting Stock pursuant to any
agreement.
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(3) Any agreement for the purpose of acquiring,
holding, voting or disposing of Voting Stock with any other
person who beneficially owns, or whose Affiliates or
Associates beneficially own, directly or indirectly, the
Voting Stock.
5. "Book Value" means the net amount of an asset or group of
assets shown in the accounting records which record the cost of the
asset less reductions from the cost of the asset, such as depreciation
and amortization, determined in accordance with generally accepted
accounting principles.
6. "Business Combination" means any one of the following:
a. Any merger or consolidation of the corporation, or any
subsidiary of the corporation, that alters the contract rights of
the Voting Stock as expressly set forth in these Restated
Articles of Incorporation or changes or converts, in whole or in
part, the outstanding shares of the corporation with either:
(1) Any Interested Shareholder.
(2) Any other corporation, whether or not itself an
Interested Shareholder, which is, or after the merger or
consolidation would be, an Affiliate of an Interested
Shareholder that was an Interested Shareholder prior to the
transaction.
b. Any sale, lease, transfer or other disposition, except
in the ordinary course of business, in one transaction or a
series of transactions in any twelve (12) month period, to any
Interested Shareholder or any Affiliate of any Interested
Shareholder (other than the corporation or any of its
subsidiaries) of any assets of the corporation or any of its
subsidiaries having an aggregate Book Value as of the end of the
corporation's most recently ended fiscal quarter of ten percent
(10%) or more of its Consolidated Net Worth measured at the time
the transaction or transactions are approved by the Board of
Directors of the corporation.
c. The issuance or transfer by the corporation, or any of
its subsidiaries in one transaction or a series of transactions,
of any Equity Securities of the corporation or any of its
subsidiaries that have an aggregate market value of ten percent
(10%) or more of the total fair market value of the outstanding
shares of the corporation to any Interested Shareholder or any
Affiliate of any Interested Shareholder (other than the
corporation or any of its subsidiaries) except pursuant to the
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exercise of warrants or rights to purchase Equity Securities
offered pro rata to all holders of the corporation's Voting Stock
or any other method affording substantially proportionate
treatment to the holders of Voting Stock.
d. The adoption of any plan or proposal for the
liquidation or dissolution of the corporation in which anything
other than cash will be received by an Interested Shareholder or
any Affiliate of any Interested Shareholder.
e. Any reclassification of securities, including any
reverse stock split, or recapitalization of the corporation, or
any merger or consolidation of the corporation with any of its
subsidiaries that has the effect, directly or indirectly, in one
transaction or a series of transactions, of increasing by ten
percent (10%) or more of the total number of outstanding shares,
the proportionate amount of the outstanding shares of any class
of Equity Securities of the corporation or any of its
subsidiaries which is directly or indirectly owned by any
Interested Shareholder or any Affiliate of any Interested
Shareholder.
7. "Common Stock" means any stock other than preferred or
preference stock.
8. "Consolidated Net Worth" means the total assets of the
corporation less its total liabilities determined in accordance with
generally accepted accounting principles.
9. "Continuing Director" means any member of the Board of
Directors of the corporation who is not an Affiliate or an Associate
of an Interested Shareholder and either (a) was a member of the Board
of Directors prior to the time that the Interested Shareholder became
an Interested Shareholder, or (b) is a successor to a Continuing
Director who is not an Affiliate or Associate of an Interested
Shareholder and is recommended to succeed a Continuing Director by a
majority of the Continuing Directors who are then members of the Board
of Directors.
10. "Control," "controlling," "controlled by," or "under common
control with" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting shares, by
contract, or otherwise. The Beneficial Ownership of 10% or more of
the voting shares of a corporation shall create a presumption of
control.
11. "Determination Date" means the date on which an Interested
Shareholder first became an Interested Shareholder.
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12. "Equity Security" or "Equity Securities" mean any one of the
following:
a. Any stock or similar security, certificate of interest
or participation in any profit sharing agreement, voting trust
certificate or voting share.
b. Any security convertible, with or without
consideration, into an equity security, or any warrant or other
security carrying any right to subscribe to or purchase an equity
security.
c. Any put, call, straddle or other option or privilege of
buying an equity security from, or selling an equity security to,
another without being bound to do so.
13. "Interested Shareholder" means any Person (other than the
corporation or any of its subsidiaries) who is either:
a. The Beneficial Owner, directly or indirectly, of ten
percent (10%) or more of the outstanding Voting Stock of the
corporation.
b. An Affiliate of the corporation and at any time within
the two (2) year period immediately prior to the date in question
was the Beneficial Owner, directly or indirectly, of ten percent
(10%) or more of the then outstanding Voting Stock of the
corporation.
c. For the purpose of determining whether a Person is an
Interested Shareholder pursuant to subdivision (a) or (b), the
number of shares of Voting Stock considered to be outstanding
shall include all Voting Stock owned by the Person.
14. "Person" means any entity including, without limitation, an
individual, a corporation, a partnership, a trust, a bank, a joint
stock company, an unincorporated association or similar organization.
15. "Valuation Date" means:
a. In a Business Combination voted upon by shareholders,
the day prior to the date of the shareholders vote or the day
which is twenty (20) calendar days prior to the consummation of
the Business Combination, whichever is later.
b. In a Business Combination not voted upon by
shareholders, the date of the consummation of the Business
Combination.
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16. "Voting Stock" means all outstanding shares of Common Stock
and Preferred Stock of the corporation entitled to vote in an election
of directors.
ARTICLE X
EVALUATION OF OFFERS
The Board of Directors shall not initiate, approve, adopt or
recommend any offer of any party other than the corporation to make a
tender or exchange offer for any equity security of the corporation, or to
engage in any Business Combination as defined in Article IX, unless and
until it shall have first evaluated the proposed offer and determined in
its judgment that the proposed offer would be in compliance with all
applicable laws. In evaluating a proposed offer to determine whether it
would be in compliance with law, the Board of Directors shall consider all
aspects of the proposed offer, including the manner in which the offer is
proposed to be made, the documents proposed for the communication of the
offer and the effects and consequences of the offer if consummated, in the
light of the laws of the United States of America and affected states and
foreign countries. In connection with this evaluation, the Board may seek
and rely upon the opinion of independent legal counsel and it may test the
legality of the proposed offer in any state, federal or foreign court or
before any state, federal or foreign administrative agency which may have
jurisdiction. If the Board of Directors determines in its judgment that a
proposed offer would be in compliance with all applicable laws, the Board
of Directors shall then evaluate the proposed offer and determine whether
the proposed offer is in the best interests of the corporation and its
shareholders. The Board of Directors shall not initiate, approve, adopt or
recommend any such offer which in its judgment would not be in the best
interests of the corporation and its shareholders. In evaluating a
proposed offer to determine whether it would be in the best interests of
the corporation and its shareholders, the Board of Directors shall consider
all factors which it deems relevant including, without limitation:
A. The fairness of the consideration to be received by the
corporation and its shareholders under the proposed offer, taking into
account the trading price of the corporation's stock immediately prior to
the announcement of the proposed offer, the historical trading prices of
the corporation's stock, the price that might be achieved in a negotiated
sale of the corporation as a whole, premiums over the trading price of
their securities which have been proposed or offered to other companies in
the past in connection with similar offers and the future prospects of the
corporation;
B. The possible social and economic impact of the proposed offer and
its consummation on the corporation and its employees, customers and
suppliers;
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C. The possible social and economic impact of the proposed offer and
its consummation on the communities in which the corporation and its
subsidiaries operate or are located;
D. The business and financial conditions and earnings prospects of
the offering party, including, without limitation, debt service and other
existing or likely financial obligations of the offering party;
E. The competence, experience and integrity of the offering party
and its management; and
F. The intentions of the offering party regarding the use of the
assets of the corporation to finance the transaction.
ARTICLE XI
LIABILITY OF DIRECTORS
A director of the corporation shall not be personally liable to
the corporation or its shareholders for monetary damages for a breach of
the director's fiduciary duty, except for liability:
A. For any breach of the director's duty of loyalty to the
corporation or its shareholders;
B. For any acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
C. For any violation of Section 551(1) of the Michigan Business
Corporation Act;
D. For any transaction from which the director derived an improper
personal benefit; or
E. For any acts or omissions occurring before March 1, 1987.
If the Michigan Business Corporation Act is amended after this
Article has been adopted by the shareholders to authorize corporate action
to further eliminate or limit the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or limited
to the fullest extent permitted by the Michigan Business Corporation Act as
amended.
Any repeal, modification or adoption of any provision in these
Restated Articles of Incorporation inconsistent with this Article XI shall
not adversely affect any right or protection of a director of the
corporation existing at the time of such repeal, modification or adoption.
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ARTICLE XII
DURATION
The term of this corporation is perpetual.
ARTICLE XIII
AMENDMENTS
These Restated Articles of Incorporation may be amended by the
affirmative vote of a majority of the shares entitled to vote at any regular
or special meeting of shareholders of the corporation if notice of the
proposed amendment is contained in the notice of the meeting, except that
the affirmative vote of not less than sixty-six and 2/3 percent (66-2/3%) of
the shares entitled to vote at any regular or special meeting of shareholders
of the corporation shall be necessary for any amendment to Articles VII, VIII,
IX, X and this Article XIII.
I, the President and Chief Executive Officer of ChoiceOne
Financial Services, Inc., sign my name this 27th day of May, 1997.
CHOICEONE FINANCIAL SERVICES, INC.
/s/ Jae M. Maxfield
Jae M. Maxfield
President and Chief Executive Officer
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<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF CHOICEONE
FINANCIAL SERVICES, INC. INCLUDED IN THE MARCH 31, 1998, FORM 10-QSB FILING
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,858
<INT-BEARING-DEPOSITS> 1
<FED-FUNDS-SOLD> 100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,464
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 126,158
<ALLOWANCE> 1,620
<TOTAL-ASSETS> 157,215
<DEPOSITS> 110,473
<SHORT-TERM> 2,143
<LIABILITIES-OTHER> 1,799
<LONG-TERM> 26,979
<COMMON> 0
0
0
<OTHER-SE> 15,821
<TOTAL-LIABILITIES-AND-EQUITY> 157,215
<INTEREST-LOAN> 3,356
<INTEREST-INVEST> 292
<INTEREST-OTHER> 3
<INTEREST-TOTAL> 3,356
<INTEREST-DEPOSIT> 1,173
<INTEREST-EXPENSE> 1,645
<INTEREST-INCOME-NET> 1,711
<LOAN-LOSSES> 275
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,357
<INCOME-PRETAX> 623
<INCOME-PRE-EXTRAORDINARY> 440
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 440
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
<YIELD-ACTUAL> 4.78
<LOANS-NON> 589
<LOANS-PAST> 220
<LOANS-TROUBLED> 3
<LOANS-PROBLEM> 3,189
<ALLOWANCE-OPEN> 1,567
<CHARGE-OFFS> 244
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 1,620
<ALLOWANCE-DOMESTIC> 1,390
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 230
</TABLE>
