<PAGE>
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, 1999
[ ] 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, 1999, the Registrant had outstanding 1,053,601 shares of
common stock.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
<TABLE>
ChoiceOne Financial Services, Inc.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,521,000 $ 5,055,000
Securities available for sale 19,486,000 20,282,000
Loans, net 139,767,000 138,924,000
Premises and equipment, net 4,018,000 4,086,000
Other assets 2,366,000 2,255,000
------------ ------------
Total assets $169,158,000 $170,602,000
============ ============
LIABILITIES
Deposits - noninterest bearing $ 14,579,000 $ 15,661,000
Deposits - interest bearing 105,232,000 106,671,000
Federal funds purchased and repurchase agreements 4,923,000 3,310,000
Other liabilities 1,541,000 1,588,000
Federal Home Loan Bank advances 25,969,000 26,650,000
Long-term debt 571,000 581,000
------------ ------------
Total liabilities 152,815,000 154,461,000
SHAREHOLDERS' EQUITY
Preferred stock; shares authorized: 100,000; shares
outstanding: none 0 0
Common stock; shares authorized: 2,000,000; shares
outstanding: 1,106,281 at March 31, 1999 and
1,053,285 at December 31, 1998 13,268,000 11,824,000
Retained earnings 2,883,000 4,070,000
Accumulated other comprehensive income 192,000 247,000
------------ ------------
Total shareholders' equity 16,343,000 16,141,000
------------ ------------
2
<PAGE>
Total liabilities and shareholders' equity $169,158,000 $170,602,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $3,183,000 $3,061,000
Securities
Taxable 153,000 190,000
Nontaxable 104,000 102,000
Other 1,000 3,000
---------- ----------
Total interest income 3,441,000 3,356,000
INTEREST EXPENSE
Deposits 1,197,000 1,173,000
Short-term borrowings 51,000 37,000
Federal Home Loan Bank
advances 403,000 419,000
Long-term debt 11,000 16,000
---------- ----------
Total interest expense 1,662,000 1,645,000
---------- ----------
NET INTEREST INCOME 1,779,000 1,711,000
PROVISION FOR LOAN LOSSES 130,000 275,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,649,000 1,436,000
NONINTEREST INCOME
Customer service fees 129,000 120,000
Insurance commission income 224,000 219,000
Mortgage loan sales
and servicing 78,000 110,000
Other income 58,000 95,000
---------- ----------
Total noninterest income 489,000 544,000
4
<PAGE>
NONINTEREST EXPENSE
Salaries and benefits 764,000 762,000
Occupancy expense 265,000 222,000
Other expense 450,000 373,000
---------- ----------
Total noninterest expense 1,479,000 1,357,000
---------- ----------
INCOME BEFORE INCOME TAX 659,000 623,000
INCOME TAX EXPENSE 200,000 183,000
---------- ----------
NET INCOME $ 459,000 $ 440,000
========== ==========
BASIC EARNINGS PER SHARE AND EARNINGS
PER COMMON SHARE ASSUMING DILUTION $ .41 $ .39
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Net income $459,000 $440,000
Other comprehensive income
Change in unrealized gains and losses on securities
Unrealized gains/(losses) arising during the period (83,000) (32,000)
Tax effect 28,000 11,000
-------- --------
Total other comprehensive income (55,000) (21,000)
-------- --------
Comprehensive income $404,000 $419,000
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<TABLE>
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 459,000 $ 402,000
Reconciling items:
Net amortization on securities 51,000 35,000
Net gain on sales of loans (58,000) (86,000)
Loans originated for sale (3,278,000) (5,689,000)
Proceeds from loan sales 4,154,000 6,389,000
Provision for loan losses 130,000 275,000
Depreciation 127,000 381,000
Other non-cash charges and credits 11,000 (12,000)
Deferred income tax expense/(benefit) (8,000) 6,000
Changes in assets and liabilities:
Interest receivable and other assets (87,000) 182,000
Interest payable and other liabilities (47,000) (2,450,000)
----------- -----------
Net cash provided by/(used in) operating activities 1,454,000 (832,000)
Cash flows from investing activities:
Securities available for sale:
Purchases 0 (2,108,000)
Principal payments 660,000 519,000
Net change in loans (1,955,000) (702,000)
Loans sold 167,000 1,511,000
Premises and equipment expenditures, net (59,000) (116,000)
----------- -----------
Net cash used in investing activities (1,187,000) (896,000)
Cash flows from financing activities:
Net change in deposits (2,521,000) 2,981,000
Net change in short-term borrowings 1,613,000 83,000
Proceeds from Federal Home Loan Bank advances 0 3,500,000
Payments on Federal Home Loan Bank advances (681,000) (3,458,000)
Payments on long-term debt (10,000) (54,000)
Issuance of common stock 10,000 80,000
7
<PAGE>
Repurchase of common stock (1,000) 0
Cash dividends and fractional shares from stock dividends (211,000) (215,000)
----------- -----------
Net cash provided by/(used in) financing activities (1,801,000) 2,917,000
----------- -----------
Net change in cash and cash equivalents (1,534,000) 1,189,000
Beginning cash and cash equivalents 5,055,000 3,769,000
----------- -----------
Ending cash and cash equivalents $ 3,521,000 $ 4,958,000
=========== ===========
Cash paid for interest $ 1,655,000 $ 1,619,000
Cash paid for income taxes 25,000 100,000
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
ChoiceOne Financial Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include ChoiceOne Financial Services,
Inc. (the "Registrant") and its direct and indirect wholly owned
subsidiaries, ChoiceOne Bank (the "Bank"), ChoiceOne Insurance Agencies,
Inc. (the "Insurance Agency") and ChoiceOne Travel, Inc. (the "Travel
Agency"). Intercompany transactions and balances have been eliminated in
consolidation.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information,
prevailing practices within the banking industry and the instructions to
Form 10-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, 1999
and December 31, 1998, the Consolidated Statements of Income for the three-
month periods ended March 31, 1999 and March 31, 1998, the Consolidated
Statements of Comprehensive Income for the three-month periods ended March
31, 1999 and March 31, 1998, and the Consolidated Statements of Cash Flows
for the three-month periods ended March 31, 1999 and March 31, 1998.
Operating results for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
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, 1998.
STOCK TRANSACTIONS, EARNINGS AND CASH DIVIDENDS PER SHARE
The Registrant's Board of Directors declared a 5% stock dividend on April
14, 1999. The stock dividend will be payable to shareholders of record as
of May 10, 1999 and will be paid on June 1, 1999. The dividend has been
reflected in shareholders' equity as of March 31, 1999. A 5% stock
9
<PAGE>
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 was paid on May 22, 1998 to shareholders of record on April 30, 1998.
A total of 356 shares of common stock were issued to the Registrant's Board
of Directors under the terms of the Directors' Stock Purchase Plan in
January 1999. A total of 40 shares of the Registrant's common stock were
repurchased from shareholders in the first quarter of 1999. Approximately
1,882 shares of common stock were sold by the Registrant to the Bank's
401(k) savings and retirement plan in March 1998.
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 5% stock dividend that will be paid in May 1999, the
5% stock dividend paid in March 1998 and the two-for-one stock split paid
in May 1998. The weighted average number of shares outstanding was
1,106,181 for the first quarter of 1999 and 1,128,464 for the first quarter
of 1998.
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 5% stock
dividend that will be paid in May 1999, the 5% stock dividend paid in March
1998 and the two-for-one stock split paid in May 1998. The number of
shares outstanding was 1,106,281 for the cash dividend paid in the first
quarter of 1999 and 1,131,882 for the first quarter of 1998.
NOTE 2 - SECURITIES
Amortized cost and fair value of securities as of March 31, 1999 and
December 31, 1998 follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
MARCH 31, 1999
U.S. Treasuries and
U.S. Government agencies $ 4,260,000 $ 8,000 $ (1,000) $ 4,267,000
States and municipalities 8,170,000 265,000 (6,000) 8,429,000
Mortgage-backed securities 3,799,000 27,000 (5,000) 3,821,000
Other securities 2,968,000 1,000 0 2,969,000
----------- -------- -------- -----------
10
<PAGE>
Total $19,197,000 $301,000 $(12,000) $19,486,000
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Treasuries and
U.S. Government agencies $ 4,264,000 $ 18,000 $ (1,000) $ 4,281,000
States and municipalities 8,324,000 341,000 0 8,665,000
Mortgage-backed securities 4,350,000 31,000 (16,000) 4,365,000
Other securities 2,970,000 1,000 0 2,971,000
----------- -------- -------- -----------
Total $19,908,000 $391,000 $(17,000) $20,282,000
=========== ======== ======== ===========
</TABLE>
There were no sales of securities for the three months ended March 31, 1999
and 1998.
For the three months ended March 31, 1999, the net unrealized holding gain
on securities available for sale decreased by $83,000 resulting in a net
unrealized gain of $290,000 on securities available for sale as of March
31, 1999, before any deferred tax effect.
The fair values of securities pledged as collateral at March 31, 1999 and
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Securities sold under agreements to repurchase $3,293,000 $3,034,000
Public deposits 501,000 503,000
---------- ----------
Total $3,794,000 $3,537,000
========== ==========
</TABLE>
NOTE 3 - LOANS
Loans at March 31, 1999 and December 31, 1998 were classified as follows:
11
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Commercial $ 52,540,000 $ 52,062,000
Agricultural 8,963,000 9,236,000
Real estate mortgage - construction 3,002,000 3,122,000
Real estate mortgage - residential 45,810,000 45,611,000
Consumer 31,323,000 30,744,000
------------ ------------
Total loans before allowance for loan losses 141,638,000 140,775,000
Less allowance for loan losses 1,871,000 1,851,000
------------ ------------
Loans, net $139,767,000 $138,924,000
============ ============
</TABLE>
The cost of loans pledged for borrowings at March 31, 1999 and December 31,
1998 was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Residential real estate mortgages pledged for
Federal Home Loan Bank advances $40,375,000 $37,915,000
Commercial loans pledged for secured loan borrowings 533,000 536,000
----------- -----------
Total $40,908,000 $38,451,000
=========== ===========
</TABLE>
Loans held for sale included $566,000 of residential real estate mortgage
loans at March 31, 1999. Loans held for sale were accounted for at the
lower of aggregate cost or market value.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses follows:
12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
---------- ----------
<S> <C> <C>
Balance at beginning of period $1,851,000 $1,567,000
Provision charged to expense 130,000 275,000
Recoveries credited to the allowance 26,000 22,000
Loans charged-off (136,000) (244,000)
---------- ----------
Balance at end of period $1,871,000 $1,620,000
========== ==========
</TABLE>
Information regarding impaired loans as of March 31, 1999 and December 31,
1998 follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Loans with no allowance allocated $ 419,000 $2,194,000
Loans with allowance allocated 554,000 559,000
Amount of allowance for loan losses allocated 250,000 244,000
</TABLE>
Information regarding impaired loans for the three months ended March 31,
1999 and March 31, 1998 follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Average balance during the period $1,863,000 $1,886,000
Interest income recognized thereon 27,000 68,000
Cash-basis interest income recognized 19,000 57,000
</TABLE>
13
<PAGE>
NOTE 5 - CERTIFICATES OF DEPOSIT
As of March 31, 1999, certificates of deposit included $6,834,000 obtained
through a national time deposit rate service. The weighted average
interest rate on these deposits was 5.61%. Approximately $5,940,000 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, 1999 and 1998 was
as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Supplies and postage $ 74,000 $ 65,000
Computer processing 46,000 36,000
Advertising and marketing 43,000 27,000
Legal and professional 41,000 40,000
State single business tax expense 32,000 29,000
Telephone 29,000 24,000
Other 185,000 152,000
-------- --------
Total $450,000 $373,000
======== ========
</TABLE>
NOTE 7 - INCOME TAX EXPENSE
The components of income tax expense for the three months ended March 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current income tax expense $208,000 $177,000
Deferred income tax expense/(benefit) (8,000) 15,000
-------- --------
Income tax expense $200,000 $192,000
======== ========
</TABLE>
14
<PAGE>
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, 1999 and
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $532,000 $525,000
Deferred compensation 52,000 54,000
Postretirement benefits obligation 52,000 51,000
Deferred loan fees 94,000 95,000
Other 12,000 17,000
-------- --------
Total deferred tax assets 742,000 742,000
Deferred tax liabilities:
Depreciation 242,000 239,000
Unrealized appreciation on securities available
for sale 100,000 127,000
Loan servicing rights 66,000 57,000
Other 9,000 30,000
-------- --------
Total deferred tax liabilities 417,000 453,000
-------- --------
Net deferred tax asset $325,000 $289,000
======== ========
</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, 1999 or December 31, 1998.
15
<PAGE>
NOTE 8 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT
RISK
Noninterest-bearing deposits totaling approximately $2,000,000 were held at
NBD Bank, N.A. at March 31, 1999.
As of March 31, 1999, the Registrant had outstanding commitments to make
loans totaling $23,141,000, the majority of which have variable interest
rates. The Registrant had issued approximately $4,910,000 in unused lines
of credit and $83,000 in letters of credit at March 31, 1999.
16
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion is designed to provide a review of the
consolidated financial condition and results of operations of ChoiceOne
Financial Services, Inc. (the "Registrant" or "ChoiceOne") and its direct
and indirect wholly owned subsidiaries, ChoiceOne Bank (the "Bank"),
ChoiceOne Insurance Agencies, Inc. (the "Insurance Agency") and ChoiceOne
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. Year 2000 related remediation, cost and risk assessments are
necessarily statements of belief as to the outcome of future events, based
in part on information provided by vendors and others that the Registrant
has not independently verified. 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,
implied or forecasted in such forward-looking statements. Furthermore, the
Registrant undertakes no obligation to update, amend, or clarify forward-
looking statements, whether as a result of new information, future events,
or otherwise.
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; the ability of companies on which the Registrant
relies to make their computer systems Year 2000 compliant; 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.
17
<PAGE>
NET INCOME AND RETURN ON AVERAGE ASSETS AND SHAREHOLDERS' EQUITY
The Registrant's net income for the first quarter of 1999 was $459,000,
which represented an increase of $19,000 or 4% compared to the same period
in 1998. The increase in net income was due to higher net interest income
and a lower provision for loan losses, the effect of which was offset by a
decline in noninterest income and growth in noninterest expense.
Growth in average interest-earning assets contributed all of the increase
in net interest income in the first quarter of 1999. This was partially
offset by a smaller spread in 1999 between interest rates earned on
interest-earning assets and interest rates paid on interest-bearing
liabilities than was experienced in 1998. The decline in the interest rate
spread resulted from decreases in market rates that occurred in the last
quarter of 1998 and lower loan fees due to less volume. The decrease in
the provision for loan losses was believed reasonable by the Bank's
management due to the lower level of loan chargeoffs in the first quarter
of 1999 than in the prior year. The decrease in noninterest income was
caused by a lower level of volume in mortgage loan sales and other
noninterest income. The growth in noninterest expense was primarily due to
expenses of the Bank's new branches, increases in advertising and marketing
expenses, and general growth in expenses.
The return on average assets was 1.10% for the first three months of 1999,
compared to 1.13% for the same period in 1998. The return on average
shareholders' equity was 11.44% for the first quarter of 1999, compared to
11.36% for the comparable period of the prior year.
CASH AND STOCK DIVIDENDS
Cash dividends declared in the first quarter of 1999 were $211,000, or $.19
per common share, which represented a $.01 per share or 5% 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 1999 was 46%,
compared to 47% in the same period of 1998. The Registrant declared a 5%
stock dividend in February 1998, a two-for-one stock split in February 1998
and a 5% stock dividend in April 1999. The stock dividend declared in 1998
was paid in March 1998, the stock split declared in 1998 was paid in May 1998
and the stock dividend declared in 1999 will be paid in June 1999. The cash
dividend per share amounts for both 1999 and 1998 have been adjusted for the
effect of the stock dividends.
18
<PAGE>
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,
1999 and March 31, 1998. 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 interest rates. These
tables are referred to in the discussion of interest income, interest
expense and net interest income below.
19
<PAGE>
<TABLE>
Table 1 - Average Balances and Tax Equivalent Interest Rates
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------
1999 1998
----------------------------- ------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans <F1> $140,694 $3,186 9.06% $126,382 $3,067 9.71%
Taxable securities <F2> 11,405 154 5.40 13,272 190 5.75
Nontaxable securities <F1><F2> 8,457 157 7.43 7,926 154 8.04
Other 180 1 2.22 319 3 3.76
-------- ------ -------- ------
Interest-earning assets 160,736 3,498 8.70 147,899 3,414 9.23
------ ------
Noninterest-earning assets 8,892 9,397
-------- --------
Total assets $169,628 $157,296
======== ========
Liabilities and shareholders' equity
Interest-bearing transaction
accounts $ 26,725 200 2.99 $ 22,694 190 3.35
Savings deposits 8,511 25 1.17 8,139 37 1.82
Time deposits 71,175 972 5.46 64,923 946 5.83
Federal Home Loan Bank advances 26,240 403 6.14 26,697 419 6.28
Other 4,971 62 4.99 3,563 53 5.95
-------- ------ -------- ------
Interest-bearing liabilities 137,622 1,662 4.83 126,016 1,645 5.22
------ ---- ------ ----
Demand deposits 14,179 12,460
Other noninterest-bearing liabilities 1,554 3,118
Shareholders' equity 16,273 15,702
-------- --------
Total liabilities and
shareholders' equity $169,628 $157,296
======== ========
20
<PAGE>
Net interest income (tax-equivalent
basis) - interest spread 1,836 3.87% 1,769 4.01%
---- ----
Tax equivalent adjustment <F1> (57) (58)
------ ------
Net interest income $1,779 $1,711
====== ======
Net interest income as a percentage
of earning assets (tax-equivalent
basis) 4.57% 4.78%
==== ====
<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>
Table 2 - Changes in Tax Equivalent Net Interest Income
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 OVER 1998
--------------
TOTAL VOLUME RATE
----- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income <F1>
Loans <F2> $119 $333 $(214)
Taxable securities (36) (25) (11)
Nontaxable securities <F2> 3 13 (10)
Other (2) (1) (1)
---- ---- -----
Net change in tax-equivalent income 84 320 (236)
Increase (decrease) in interest expense <F1>
Interest-bearing transaction accounts 10 32 (22)
Savings deposits (12) 2 (14)
Time deposits 26 88 (62)
Federal Home Loan Bank advances (16) (7) (9)
Other 9 19 (10)
---- ---- -----
Net change in interest expense 17 134 (117)
---- ---- -----
Net change in tax-equivalent
net interest income $ 67 $186 $(119)
==== ==== =====
<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
$67,000 in the first three months of 1999 compared to the same period of
1998. This is significantly less than the growth of $211,000 that occurred
between 1998 and 1997. The increase in net interest income in 1999 was
caused by growth in the Registrant's loan portfolio from the first quarter
of 1998 to the first quarter of 1999. Approximately two-thirds of the
growth effect was offset by a decline in the Registrant's interest rate
spread.
The average balance of loans increased $14,312,000 from the first quarter
of 1998 to the same period in 1999. This growth caused interest income
from loans to be $333,000 higher in 1999 than in 1998. The change in the
average balance in the other interest-earning categories did not have a
significant impact on interest income. The average balance in time
deposits rose $6,252,000 in the first quarter of 1999 compared to the prior
year which caused an increase of $88,000 in interest expense on this
deposit type. The average balance in interest-bearing transaction accounts
increased to a lesser extent in 1999.
Table 1 shows that the net interest income spread was 3.87% for the first
three months of 1999, compared to 4.01% for the same period of the prior
year. This resulted from a 53-basis-point drop in the average rate earned
on interest-earning assets, while the average rate paid on interest-bearing
liabilities declined only 39 basis points. Both rate sensitive assets and
liabilities were affected by a decline in general market interest rates
that occurred in the fourth quarter of 1998. Overnight funding rates fell
75 basis points while other terms decreased between 50 and 100 basis
points. The major contributing factor to the decrease in the Registrant's
net interest spread in 1999 was the 65-basis-point drop in the average rate
earned on loans. The decrease in the average loan rate was due to the
decline in general market rates in late 1998 and intensified competition on
loan rates for all loans. The decrease in general market rates immediately
affected approximately half of the commercial and agricultural loans and a
small portion of consumer loans. The lower interest rates existing in 1999
have caused the interest rate on new loans to be lower than that of loans
already in the portfolio.
The Registrant plans to emphasize loan growth in the remainder of 1999 in
an attempt to offset the effect of the declining net interest spread. Many
banking industry professionals have expressed the belief that overnight
interest rates may increase in the second half of 1999. If this occurs and
the Registrant is able to manage its funding costs, the net interest spread
could be stabilized. If overnight rates do not increase, the net interest
spread will continue to be pressured if the average rate earned on assets
falls more than the rate paid on liabilities.
23
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses increased $20,000 from December 31, 1998 to
March 31, 1999. The allowance was 1.32% of total loans at March 31, 1999,
compared to 1.31% at December 31, 1998. The allowance for loan losses as a
percentage of nonperforming loans was 188% as of March 31, 1999, compared
to 184% as of the end of 1998. The provision for loan losses was $145,000
lower in the first three months of 1999 than in the same period of 1998.
The decrease was primarily due to lower net chargeoffs in the first quarter
of 1999 than in the same period in 1998.
Chargeoffs and recoveries for those loan categories with activity in the
periods ended March 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
CHARGEOFFS RECOVERIES CHARGEOFFS RECOVERIES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial $ 31,000 $10,000 $119,000 $ 1,000
Consumer 105,000 16,000 125,000 21,000
-------- ------- -------- -------
$136,000 $26,000 $244,000 $22,000
======== ======= ======== =======
</TABLE>
The decrease in commercial loan chargeoffs was due to a chargeoff on one
commercial loan in the first quarter of 1998. The amount of chargeoffs
that the Bank will experience in the remainder of 1999 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. The adequacy of the allowance for
loan losses may also be affected by sub-prime residential mortgages, which
the Bank began to purchase for its portfolio in the first quarter of 1999.
The Bank's mortgage department plans to set aside a higher allowance for
the sub-prime mortgage loans than for the loans it originates through
normal channels. As chargeoffs, changes in the level of nonperforming
loans and loan growth occur in the remainder of 1999, 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 decreased $55,000 in the first quarter of 1999
compared to the same period in 1998. Approximately $32,000 of the decline
resulted from a lower level of mortgage loan sales and servicing income in
1999 than in 1998. Gains on sales of mortgage loans were less in 1999 due
to the lower level of mortgage refinancing that occurred. Decreasing
mortgage rates during the year of 1998 caused many borrowers to refinance
their loans. The combination of those borrowers that had already
refinanced and an increase in mortgage rates in the first quarter of 1999
caused the level of mortgage activity to be less in early 1999 than in the
prior year. Management anticipates that gains on sales of mortgages may
continue to lag the prior year since mortgage rates are not anticipated to
decrease in the remainder of 1999 to the extent they did in 1998. The
decrease in other noninterest income in the first quarter of 1999 was due
to lower income from investment sales and travel agency commission income.
The Registrant's management plans to emphasize fee income growth in these
areas in the remainder of 1999.
NONINTEREST EXPENSE
Total noninterest expense increased $122,000 in the first quarter of 1999
compared to the same quarter of 1998. This was approximately 50% less than
the $186,000 increase experienced in 1998. The increase in expense in 1999
resulted from higher occupancy expense and other noninterest expense. The
growth in occupancy expense was due primarily to the Bank's two new
branches. Management expects this will continue through the end of 1999
since the branches were opened in the last quarter of 1998. Costs related
to the remodeling of the Bank's main office are expected to begin to impact
occupancy expenses in the second quarter of 1999. Management anticipates
that the remodeling will begin in the second quarter of 1999 and will be
completed by the end of the year. Other noninterest expense was affected
by higher advertising and marketing expense, higher data processing expense
and by general growth in the Registrant's operating expenses. As a result
of the Bank's new branches and anticipated growth in assets, the Bank's
management believes that noninterest expense in the remainder of 1999 will
continue to exceed the totals in comparable periods in 1998.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 ("Y2K") is significant to ChoiceOne since its computers and
computer-based applications and like items in other businesses may be
affected upon the arrival of January 1, 2000. Some computers and computer-
based applications store the year as a two digit number. This may cause
Y2K to be interpreted as the year 1900 and could cause computers to work
improperly or cease to function.
25
<PAGE>
ChoiceOne began its preparation for Y2K in 1997. ChoiceOne's management
implemented a strategic plan for Y2K readiness. The strategic plan
contains five phases: awareness, assessment, renovation, validation and
implementation. A Y2K committee (the "Committee") was formed with
representatives from each major area of the Bank. The Committee was given
the responsibility for development and implementation of the strategic
plan. The awareness, assessment and renovation phases were completed as of
September 30, 1998. The validation and implementation phases were
completed as of February 28, 1999. The Committee provides monthly updates
to ChoiceOne's Board of Directors on its progress.
The Bank's primary application processing is provided by a data center.
The data center has performed Y2K readiness testing and had completed its
testing as of March 31, 1999. The data center will continue to perform Y2K
testing on new releases of software as necessary. The Committee has
identified what it considers to be critical internal systems. Testing of
internal systems was completed as of March 31, 1999. External resources
and systems, such as heating and air conditioning, electrical, telephone,
and other systems considered to be of major importance to ChoiceOne's
operations, have been reviewed. These resources as well as major vendors
have been surveyed regarding their Y2K readiness. Monitoring and testing
will continue through the end of 1999.
Letters were mailed to all business customers informing them of the Y2K
issue. Surveys were done of all significant commercial loan borrowers as
to their Y2K knowledge and preparation. A discussion of the Y2K issue was
contained in a newsletter mailed by ChoiceOne to all customers. Education
of ChoiceOne's employees has occurred and will continue to occur in the
form of training meetings and seminars.
Approximately $63,000 has been spent through December 31, 1998 on new
hardware, new software and software changes to ready ChoiceOne's systems
for Y2K. ChoiceOne's management estimates that approximately $17,000 in
staff time has been spent to prepare for Y2K. Management anticipates that
an additional $25,000 in hardware and software costs and $10,000 in staff
time may be necessary in 1999. In addition, there may be costs that arise
that are not anticipated at this time. However, these unanticipated costs
are not expected to be significant.
The Bank, Insurance Agency and Travel Agency are very dependent on
technology and are aware that problems could arise if this technology does
not function properly. These problems could potentially include
operational issues, lost income and loan losses from borrowers which could
materially and adversely affect ChoiceOne's financial condition and results
of operations. The Committee has followed its strategic plan to attempt to
assure readiness of computers and related items in ChoiceOne's offices.
However, ChoiceOne will also be dependent on the readiness of third
26
<PAGE>
parties. ChoiceOne has identified as most important its data center and
telephone and electric services. The Committee has contacted these parties
and will continue to monitor their progress with Y2K compliance. In
anticipation of the possibility that certain internal or external systems
may not function properly in January 2000, the Committee has established
contingency plans for all critical areas. The Committee has in place or is
developing backup plans for these areas. A time line has been established
to ensure that appropriate plan development and testing of the plans will
occur prior to December 31, 1999.
The costs of the project and the date on which ChoiceOne believes it will
complete the Y2K modifications are based on management's best estimates.
There can be no guarantee that these estimates will be achieved and actual
results could differ from those anticipated. Specific factors that might
cause differences include, but are not limited to, the ability of other
companies on which ChoiceOne's systems rely to modify or convert their
systems to be Y2K compliant, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
This Year 2000 Readiness Disclosure is based upon and partially repeats
information provided by ChoiceOne's outside consultants, vendors and
others regarding the Y2K readiness of ChoiceOne and its customers, vendors
and other parties. Although ChoiceOne believes this information to be
accurate, it has not in each case independently verified such information.
SECURITIES
The balance of total securities decreased $796,000 from December 31, 1998
to March 31, 1999. Most of the decline was experienced in mortgage-backed
securities as a result of principal paydowns. The Bank did not purchase
any securities in the first quarter of 1999. The Bank's investment
committee plans to review the securities portfolio in the second quarter of
1999 to determine whether securities purchases would be advisable. The
Bank used certain of its securities as collateral for public funds and
repurchase agreements in the first quarter of 1999 and plans to continue to
do so in the remainder of the year. 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 increased $863,000 in the first quarter of 1999. This
represented a higher level of growth than the same quarter in 1998 when
loans decreased $1,618,000. The increased balance in 1999 resulted from
growth in commercial loans and consumer loans. Management believes that
the growth in commercial loans resulted from business development
activities and competitive interest rates. Most of the increase in
consumer loans occurred in indirect automobile loans. Home equity loans
also contributed to the consumer loan growth in the first quarter of 1999.
27
<PAGE>
Management believes that loan growth in the remainder of 1999 will continue
to be impacted by interest rates and by competition within the Bank's
market areas. Interest rate competition for commercial and agricultural
loans has been very intense and management believes that this will
continue. Management plans to continue the use of its officer calling
program to generate commercial and agricultural loans. The Bank's mortgage
lenders anticipate that applications will continue to be less than the
levels experienced in 1998 due to current mortgage rate levels. The Bank
began to purchase sub-prime residential mortgages for its portfolio in the
first quarter of 1999 and plans to continue these purchases in the
remainder of 1999. The Bank's consumer lenders plan to use direct mail
advertising and referrals from other Bank departments to stimulate demand
for direct consumer loans. The Bank also plans to grow the indirect
portion of its consumer portfolio by emphasizing contact with area dealers.
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) 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, 1999 and
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Loans accounted for on a nonaccrual basis $583,000 $489,000
Loans, not included in nonaccrual loans, which are
contractually past due 90 days or more as to
interest or principal payments 269,000 419,000
Loans, not included in nonaccrual or loans past due
90 days or more, which are considered troubled
debt restructurings 109,000 62,000
-------- --------
Total $961,000 $970,000
======== ========
Nonperforming other real estate $ 36,000 $ 36,000
======== ========
</TABLE>
28
<PAGE>
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 was $5,088,000 as of March 31, 1999, compared to $6,440,000 as
of December 31, 1998. The decrease in the first quarter of 1999 was caused
by a large commercial loan that was removed from the list. Approximately
$250,000 of the allowance for loan losses had been specifically allocated
to these loans at March 31, 1999.
DEPOSITS AND OTHER FUNDING SOURCES
Total deposits decreased $2,521,000 in the first quarter of 1999. Most of
the change was caused by a $1,989,000 decline in noninterest-bearing and
interest-bearing demand deposit balances. A decrease in these accounts
is expected in the first quarter of the year as temporary funds have
traditionally been deposited near the end of each calendar year. Little
change occurred in the other deposit categories.
The Bank's management plans to continue to emphasize growth in its core
deposit base (deposits obtained in its local market areas) in the rest of
1999. The rate paid on core deposits is normally less expensive than other
sources of funding such as advances from the Federal Home Loan Bank.
Management plans to use interest rate and other types of promotions 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 $202,000 in the first quarter of 1999.
Equity growth resulted primarily from retained earnings. The effect of a
small decrease in the balance of accumulated other comprehensive income was
offset by proceeds from the issuance of stock to the Registrant's Board of
Directors.
Total shareholders' equity as a percentage of assets was 9.66% as of March
31, 1999, compared to 9.46% as of December 31, 1998. 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, 1999.
CAPITAL RESOURCES
The Bank plans to begin remodeling its main office in the second quarter of
1999. The remodeling will include the interior and exterior of the Bank as
well as the construction of new drive-up facilities. Management estimates
the cost of the remodeling will range from $1,000,000 to $1,250,000. It
29
<PAGE>
is anticipated that most of the remodeling cost will be allocated to the
building. However, some equipment purchases may be necessary.
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 decreased $1,534,000 in the first quarter of
1999. 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. The Bank has completed its application for a secured line of
credit with the Federal Reserve Bank of Chicago. The line will be secured
by commercial loans. Approximately $30,000,000 is available under the line
of credit. The Bank does not anticipate that the secured line of credit
will be used for normal operating needs. Management expects that the line
could be used for liquidity purposes in special circumstances such as the
end of 1999. Management believes that depositor concern over the Year 2000
may cause a higher than normal withdrawal of funds from depositor accounts.
The Bank's management plans to have a relatively high balance of cash on
hand to attempt to meet customer needs.
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 $38,229,000 at the one-year repricing point as of
March 31, 1999. This placed the ratio of rate-sensitive assets to
rate-sensitive liabilities at such repricing point at 63% as of March 31,
1999, compared to 66% as of December 31, 1998. The slight decrease in the
ratio was caused by the funding of longer-term assets with shorter-term
liabilities in the first quarter of 1999. Management believes that the
percentage is relatively low due 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, management has some control over the
timing and extent of the change in interest rates on these deposits. Based
on the current status of general market interest rates, the Bank's management
believes that it may be prudent to lengthen some of the maturities of its
rate-sensitive liabilities to take advantage of relatively low longer-term
interest rates and to increase the ratio of rate-sensitive assets to
rate-sensitive liabilities.
30
<PAGE>
<TABLE>
Table 3 - Maturities and Repricing Schedule
<CAPTION>
AS OF MARCH 31, 1999
----------------------------------------------------------------
0 - 3 3 - 12 1 - 5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
------ ------ ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Loans $ 39,184 $ 16,830 $72,845 $12,779 $141,638
Interest-bearing deposits
with banks 6 0 0 0 6
Taxable securities 3,224 4,185 3,446 352 11,207
Nontaxable securities 445 570 2,402 4,862 8,279
-------- -------- ------- ------- --------
Rate-sensitive assets 42,859 21,585 78,693 17,993 161,130
Liabilities
Interest-bearing transaction
accounts 25,928 0 0 0 25,928
Savings deposits 8,706 0 0 0 8,706
Time deposits 22,886 32,525 15,100 87 70,598
Federal funds purchased and
repurchase agreements 4,923 0 0 0 4,923
Federal Home Loan Bank
advances 2,000 5,329 18,640 0 25,969
Long-term debt 149 227 195 0 571
-------- -------- ------- ------- --------
Rate-sensitive liabilities 64,592 38,081 33,935 87 136,695
-------- -------- ------- ------- --------
Rate-sensitive assets less
rate-sensitive liabilities:
Asset (liability) gap
for the period $(21,733) $(16,496) $44,758 $17,906 $ 24,435
======== ======== ======= ======= ========
Cumulative asset
(liability) gap $(21,733) $(38,229) $ 6,529 $24,435
======== ======== ======= =======
31
<PAGE>
Cumulative rate-
sensitive assets as a
percentage of
cumulative rate-
sensitive liabilities 66.35% 62.77% 104.78% 117.88%
======== ======== ======= =======
</TABLE>
32
<PAGE>
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 13, 1999, the Registrant issued 356 shares of common stock,
without par value, to the directors of the Registrant pursuant to the
ChoiceOne Financial Services, Inc. Directors' Stock Purchase Plan for an
aggregate cash price of $9,612. The Registrant relied on the exemption
contained in Section 4(6) 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. Previously filed as an exhibit to the
Registrant's Form 10-QSB Quarterly Report for the quarter
ended June 30, 1998.
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-QSB Quarterly Report for the quarter
ended September 30, 1998. 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, 1999.
33
<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 17, 1999 /S/ JAE M. MAXFIELD
Jae M. Maxfield
President and Chief Executive Officer
Date MAY 17, 1999 /S/ THOMAS L. LAMPEN
Thomas L. Lampen
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
34
<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. Previously filed as an exhibit to the
Registrant's Form 10-QSB Quarterly Report for the quarter
ended June 30, 1998.
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-QSB Quarterly Report for the quarter
ended September 30, 1998. Here incorporated by reference.
27 Financial Data Schedule.
<TABLE> <S> <C>
<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, 1999, 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,521
<INT-BEARING-DEPOSITS> 5
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,486
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 141,638
<ALLOWANCE> 1,871
<TOTAL-ASSETS> 169,158
<DEPOSITS> 119,811
<SHORT-TERM> 4,923
<LIABILITIES-OTHER> 1,541
<LONG-TERM> 26,540
<COMMON> 0
0
0
<OTHER-SE> 16,343
<TOTAL-LIABILITIES-AND-EQUITY> 169,158
<INTEREST-LOAN> 3,183
<INTEREST-INVEST> 257
<INTEREST-OTHER> 1
<INTEREST-TOTAL> 3,441
<INTEREST-DEPOSIT> 1,197
<INTEREST-EXPENSE> 1,662
<INTEREST-INCOME-NET> 1,779
<LOAN-LOSSES> 130
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,479
<INCOME-PRETAX> 659
<INCOME-PRE-EXTRAORDINARY> 459
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 459
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
<YIELD-ACTUAL> 4.57
<LOANS-NON> 583
<LOANS-PAST> 269
<LOANS-TROUBLED> 109
<LOANS-PROBLEM> 5,088
<ALLOWANCE-OPEN> 1,851
<CHARGE-OFFS> 136
<RECOVERIES> 26
<ALLOWANCE-CLOSE> 1,871
<ALLOWANCE-DOMESTIC> 1,538
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 334
</TABLE>
