Note
1 – Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include ChoiceOne Financial Services, Inc., its wholly-owned subsidiary, ChoiceOne Bank, and
ChoiceOne Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. (together referred to as “ChoiceOne”).
Intercompany transactions and balances have been eliminated in consolidation.
Nature
of Operations
The
Bank is a full-service community bank that offers commercial, consumer, and real estate loans as well as traditional demand, savings
and time deposits to both commercial and consumer clients in Kent, Muskegon, Newaygo, and Ottawa counties in Michigan. Substantially
all loans are secured by specific items of collateral including business assets, consumer assets, and real estate. Commercial
loans are expected to be repaid from the cash flows from operations of businesses. Real estate loans are collateralized by either
residential or commercial real estate.
The
Insurance Agency is a wholly-owned subsidiary of the Bank. The Insurance Agency sells insurance policies such as life and health
for both commercial and consumer clients. The Insurance Agency also offers alternative investment products such as annuities and
mutual funds through a registered broker.
Together,
the Bank and the Insurance Agency account for substantially all of ChoiceOne’s assets, revenues and operating income.
Use
of Estimates
To
prepare financial statements in conformity with accounting principles generally accepted in the United States of America, ChoiceOne’s
management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided. Actual results may differ from these estimates. Estimates associated
with securities available for sale, the allowance for loan losses, other real estate owned, core deposit intangible assets, loan
servicing rights, goodwill, and fair values of certain financial instruments are particularly susceptible to change.
Cash
and Cash Equivalents
Cash
and cash equivalents are defined to include cash on hand, demand deposits with other banks, and federal funds sold. Cash flows
are reported on a net basis for customer loan and deposit transactions, deposits with other financial institutions, and short-term
borrowings with original terms of 90 days or less.
Securities
Securities
are classified as available for sale because they might be sold before maturity. Securities classified as available for sale are
carried at fair value, with unrealized holding gains and losses reported separately in the accumulated other comprehensive income
or loss section of shareholders’ equity, net of tax effect. Restricted investments in Federal Reserve Bank stock and Federal
Home Loan Bank stock are carried at cost. Equity securities consist of investments in preferred stock, trust-preferred securities,
and investments in common stock of other financial institutions.
Interest
income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized using the level-yield
method without anticipating prepayments. Gains or losses on sales are recorded on the trade date based on the amortized cost of
the security sold.
Management
evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, and more frequently when economic
or market conditions warrant such an evaluation. The evaluation of securities includes consideration given to the length of time
and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer,
whether the market decline was affected by macroeconomic conditions and whether ChoiceOne has the intent to sell the security
or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. In analyzing
an issuer’s financial condition, management may consider whether the securities are issued by the federal government or
its agencies, or U.S. Government sponsored enterprises, whether downgrades by bond rating agencies have occurred, and the results
of reviews of the issuer’s financial condition. The assessment of whether an other-than-temporary decline exists involves
a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
When
OTTI occurs, the amount of the OTTI recognized in earnings depends on whether ChoiceOne intends to sell the security or it is
more likely than not it will be required to sell the security before recovery of its amortized cost basis. If ChoiceOne intends
to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the
OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its
fair value at the balance sheet date. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized
cost basis of the investment. If a security is determined to be other-than-temporarily impaired, but ChoiceOne does not intend
to sell the security, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss
recognized in other comprehensive income.
Loans
Loans
that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the
principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Loans
held for sale are reported at the lower of cost or market, on an aggregate basis.
Interest
income on loans is reported on the interest method and includes amortization of net deferred loan fees and costs over the estimated
loan term. Interest on loans is accrued based upon the principal balance outstanding. The accrual of interest is discontinued
at the time at which commercial loans are 90 days past due unless the loan is secured by sufficient collateral and is in the process
of collection. Interest on consumer or real estate secured loans is discontinued at the time at which the loan is 120 days past
due unless the credit is secured by sufficient collateral and is in the process of collection. Past due status is based on the
contractual terms of the loan. In all cases, loans are placed into nonaccrual status or charged off at an earlier date if collection
of principal or interest is considered doubtful. Interest accrued but not received is reversed against interest income when the
loans are placed into nonaccrual status. Interest received on such loans is applied to principal until qualifying for return to
accrual. Loans are returned to accrual basis when all the principal and interest amounts contractually due are brought current
and future payment is reasonably assured.
Allowance
for Loan Losses
The
allowance for loan losses is a valuation allowance for probable incurred credit losses. The allowance for loan losses is increased
by the provision for loan losses and decreased by loans charged off less any recoveries of charged off loans. Management estimates
the allowance for loan losses balance required based on past loan loss experience, the nature and volume of the loan portfolio,
information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations
of the allowance for loan losses may be made for specific loans, but the entire allowance for loan losses is available for any
loan that, in management’s judgment, should be charged off. Loan losses are charged against the allowance for loan losses
when management believes that collection of a loan balance is not possible.
The
allowance for loan losses consists of general and specific components. The general component covers non-classified loans and is
based on historical loss experience adjusted for current factors. The specific component relates to loans that are individually
classified as impaired or loans otherwise classified as substandard or doubtful.
A
loan is impaired when full payment under the loan terms is not expected. Commercial loans are evaluated for impairment on an individual
loan basis. If a loan is considered impaired, a portion of the allowance for loan losses is allocated to the loan so that it is
reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of
collateral if repayment is expected solely from the collateral. Large groups of smaller-balance homogeneous loans such as consumer
and residential real estate mortgage loans are collectively evaluated for impairment and, accordingly, they are not separately
identified for impairment disclosures.
Premises
and Equipment
Premises
and equipment are stated at cost less accumulated depreciation. Land is carried at cost. Land improvements are depreciated using
the straight-line method with useful lives ranging from 7 to 15 years. Building and related components are depreciated using the
straight-line method with useful lives ranging from 5 to 39 years. Leasehold improvements are depreciated over the shorter of
the estimated life or the lease term. Furniture and equipment are depreciated using the straight-line method with useful lives
ranging from 3 to 7 years. Fixed assets are periodically reviewed for impairment. If impaired, the assets are recorded at fair
value.
Other
Real Estate Owned
Real
estate properties acquired in the collection of a loan are initially recorded at the lower of the Bank’s basis in the loans
or fair value at acquisition establishing a new cost basis. Any reduction to fair value from the carrying value of the related
loan is accounted for as a loan loss. After acquisition, a valuation allowance reduces the reported amount to the lower of the
initial amount or fair value less costs to sell. Expenses to repair or maintain properties are included within other noninterest
expenses. Gains and losses upon disposition and changes in the valuation allowance are reported net within noninterest income.
Loan
Servicing Rights
Loan
servicing rights represent the allocated value of servicing rights on loans sold with servicing retained. Servicing rights are
expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair
value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and
prepayment characteristics. Fair value is determined using prices for similar assets with similar characteristics when available
or based upon discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance.
Goodwill
Goodwill
results from business acquisitions and represents the excess of the purchase price over the fair value of the acquired tangible
assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such
impairment will be recognized in the period identified.
Loan
Commitments and Related Financial Instruments
Financial
instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued
to meet financing needs of customers. The face amount for these items represents the exposure to loss, before considering customer
collateral or ability to repay. Such financial instruments are recorded when they are funded.
Employee
Benefit Plans
ChoiceOne’s
401(k) plan allows participants to make contributions to their individual accounts under the plan in amounts up to the IRS maximum.
Employer matching contributions from ChoiceOne to its 401(k) plan are discretionary. ChoiceOne also allows retired employees to
participate in its health insurance plan. Employees who have attained age 55 and completed at least ten years of service to ChoiceOne
are eligible to participate as a retiree until they are eligible for Medicare. These post-retirement benefits are accrued during
the years in which the employee provides service.
Employee
Stock Ownership Plan
Dividends
on Employee Stock Ownership Plan (the “ESOP”) shares are recorded as a reduction of retained earnings. Upon distribution
of shares to a participant, the participant has the right to require the Company to purchase his or her shares at fair value in
accordance with the terms and conditions of the ESOP. As such, these shares are not classified in shareholders’ equity as
permanent equity. Effective January 1, 2016, ChoiceOne terminated the ESOP and transferred shares held by the ESOP to the 401(k)
plan.
Income
Taxes
Income
tax expense is the sum of the current year income tax due and the change in deferred tax assets and liabilities. Deferred tax
assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets
to the amount expected to be realized.
Earnings
Per Share
Basic
earnings per common share (“EPS”) is based on weighted-average common shares outstanding. The weighted-average number
of shares used in the computation of basic and diluted EPS includes shares allocated to the ESOP. Diluted EPS further assumes
issue of any dilutive potential common shares issuable under stock options or restricted stock units granted.
Comprehensive
Income
Comprehensive
income consists of net income and other comprehensive income or loss. Other comprehensive income or loss includes unrealized gains
and losses on securities available for sale and changes in the funded status of post-retirement plans, net of tax, which are also
recognized as a separate component of shareholders’ equity.
Accumulated
other comprehensive income was as follows:
(Dollars in thousands)
|
|
Years ended December 31,
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available for sale securities
|
|
$
|
(1,063
|
)
|
|
$
|
1,632
|
|
|
|
|
|
|
|
|
|
|
Unrecognized gains on post-retirement benefits
|
|
|
157
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
Tax effect
|
|
|
308
|
|
|
|
(620
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
$
|
(598
|
)
|
|
$
|
1,203
|
|
Loss
Contingencies
Loss
contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe that
there are any such matters that may have a material effect on the financial statements as of December 31, 2016.
Cash
Restrictions
Cash
on hand or on deposit with the Federal Reserve Bank of $621,000 and $1.1 million was required to meet regulatory reserve and clearing
requirements at December 31, 2016 and 2015, respectively. The balance in excess of the amount required was interest-bearing as
of December 31, 2016 and December 31, 2015.
Stock-Based
Compensation
The
Company values share-based stock option awards granted using the Black-Scholes option-pricing model. The Company recognizes compensation
expense for its awards on a straight-line basis over the requisite service period for the entire award (straight-line attribution
method), ensuring that the amount of compensation cost recognized at any date at least equals the portion of the grant-date fair
value of the award that is vested at that time. Compensation costs related to stock options granted are disclosed in Note 14.
ChoiceOne
has granted restricted stock units to a select group of employees under the Stock Incentive Plan of 2012. Restricted stock units
vest in three annual installments on each of the next three anniversaries of the grant date. Certain additional vesting provisions
apply. Each unit, once vested, is settled by delivery of one share of ChoiceOne common stock.
Dividend
Restrictions
Banking
regulations require the maintenance of certain capital levels and may limit the amount of dividends that may be paid by the Bank
to ChoiceOne (see Note 20).
Fair
Value of Financial Instruments
Fair
values of financial instruments are estimated using relevant market information and other assumptions, which are more fully documented
in Note 18 to the consolidated financial statements. Fair value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular
items. Changes in assumptions or in market conditions could significantly affect the estimates.
Operating
Segments
While
ChoiceOne’s management monitors the revenue streams of various products and services for the Bank and Insurance Agency,
operations and financial performance are evaluated on a company-wide basis. Accordingly, all of the financial service operations
are considered by management to be aggregated into one reportable operating segment.
Recent
Accounting Pronouncements
The
Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers
(Topic 606)
. The ASU adopts a standardized approach for revenue recognition and was a joint effort with the International
Accounting Standards Board (IASB). The new revenue recognition standard is based on a core principle of recognizing revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The ASU does not apply to financial instruments. The ASU is effective
for public entities for reporting periods beginning after December 15, 2017 (therefore, for the year ending December 31, 2018
for ChoiceOne). Early implementation is not allowed for public companies. Management is currently assessing the impact to the
ChoiceOne’s consolidated financial statements but does not expect these changes to have a significant effect on the financial
statements.
The
FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
. The ASU covers various
changes to the accounting, measurement, and disclosure related to certain financial instruments. The most significant change included
in the update is the requirement for certain equity investments (excluding investments that are consolidated or accounted for
under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. An entity
may choose to measure equity investments that do not have readily determinable fair values at cost, minus impairment. When a qualitative
assessment of equity investments without readily determinable fair values indicates that impairment exists, an entity is required
to measure the investment at fair value. The update also eliminates the requirement for public business entities to disclose the
methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments
measured at amortized cost. The new standard is effective for ChoiceOne for the fiscal year beginning after December 15, 2017,
including interim periods within this fiscal year. Management is currently assessing the impact to ChoiceOne’s consolidated
financial statements. Other than the impact in the accounting for the change in fair value of equity securities discussed in Note
2, ChoiceOne does not expect any significant changes as a result of adopting this update.
The
FASB issued ASU 2016-02,
Leases
. The new standard establishes a right-of-use (ROU) model that requires a lessee to record
a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified
as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The
new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients
available. As ChoiceOne owns most of its branch locations, the impact of this ASU is not expected to be material.
The
FASB issued ASU No. 2016-13
, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments
. This ASU provides financial statement users with more decision-useful information about the expected credit losses
on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing
the incurred loss impairment methodology in current generally accepted accounting principles (GAAP) with a methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit
loss estimates. The new guidance attempts to reflect an entity’s current estimate of all expected credit losses and broadens
the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively
or individually to include forecasted information, as well as past events and current conditions. There is no specified method
for measuring expected credit losses, and an entity may apply methods that reasonably reflect its expectations of the credit loss
estimate. Although an entity may still use its current systems and methods for recording the allowance for credit losses, under
the new rules, the inputs used to record the allowance for credit losses generally will need to change to appropriately reflect
an estimate of all expected credit losses and the use of reasonable and supportable forecasts. Additionally, credit losses on
available-for-sale debt securities will have to be presented as an allowance rather than as a write-down. This ASU is effective
for fiscal years beginning after December 15, 2019, and for interim periods within those years. Management is currently evaluating
the impact of this new ASU on its consolidated financial statements.
Reclassifications
Certain amounts presented in prior year consolidated financial statements have been reclassified to conform to the current year’s
presentation.
Note
2 – Securities
The
fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other
comprehensive income (loss) at December 31 were as follows:
|
|
2016
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
(Dollars in thousands)
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
U.S. Government
and federal agency
|
|
$
|
59,864
|
|
|
$
|
34
|
|
|
$
|
(846
|
)
|
|
$
|
59,052
|
|
U.S. Treasury notes
and bonds
|
|
|
4,111
|
|
|
|
—
|
|
|
|
(39
|
)
|
|
|
4,072
|
|
State and municipal
|
|
|
89,169
|
|
|
|
748
|
|
|
|
(944
|
)
|
|
|
88,973
|
|
Mortgage-backed
|
|
|
7,925
|
|
|
|
19
|
|
|
|
(155
|
)
|
|
|
7,789
|
|
Corporate
|
|
|
7,069
|
|
|
|
12
|
|
|
|
(40
|
)
|
|
|
7,041
|
|
Foreign debt
|
|
|
4,514
|
|
|
|
—
|
|
|
|
(114
|
)
|
|
|
4,400
|
|
Equity securities
|
|
|
2,617
|
|
|
|
266
|
|
|
|
—
|
|
|
|
2,883
|
|
Asset-backed
securities
|
|
|
182
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
178
|
|
Total
|
|
$
|
175,451
|
|
|
$
|
1,079
|
|
|
$
|
(2,142
|
)
|
|
$
|
174,388
|
|
|
|
2015
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
(Dollars in thousands)
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
U.S. Government
and federal agency
|
|
$
|
57,406
|
|
|
$
|
30
|
|
|
$
|
(229
|
)
|
|
$
|
57,207
|
|
U.S. Treasury notes
and bonds
|
|
|
6,133
|
|
|
|
—
|
|
|
|
(33
|
)
|
|
|
6,100
|
|
State and municipal
|
|
|
76,005
|
|
|
|
1,858
|
|
|
|
(109
|
)
|
|
|
77,754
|
|
Mortgage-backed
|
|
|
6,989
|
|
|
|
26
|
|
|
|
(45
|
)
|
|
|
6,970
|
|
Corporate
|
|
|
8,418
|
|
|
|
8
|
|
|
|
(39
|
)
|
|
|
8,387
|
|
Foreign debt
|
|
|
1,000
|
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
995
|
|
Equity securities
|
|
|
2,279
|
|
|
|
174
|
|
|
|
—
|
|
|
|
2,453
|
|
Asset-backed
securities
|
|
|
274
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
270
|
|
Total
|
|
$
|
158,504
|
|
|
$
|
2,096
|
|
|
$
|
(464
|
)
|
|
$
|
160,136
|
|
Information
regarding sales of securities available for sale for the year ended December 31 follows:
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Proceeds
from sales of securities
|
|
$
|
15,317
|
|
|
$
|
25,876
|
|
|
$
|
24,766
|
|
Gross realized gains
|
|
|
312
|
|
|
|
261
|
|
|
|
341
|
|
Gross realized losses
|
|
|
0
|
|
|
|
0
|
|
|
|
30
|
|
Contractual
maturities of securities available for sale at December 31, 2016 were as follows:
(Dollars in thousands)
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
Due within
one year
|
|
$
|
34,174
|
|
|
$
|
33,879
|
|
Due after one year
through five years
|
|
|
89,413
|
|
|
|
89,204
|
|
Due after five years
through ten years
|
|
|
37,153
|
|
|
|
36,514
|
|
Due
after ten years
|
|
|
4,168
|
|
|
|
4,119
|
|
Total
debt securities
|
|
|
164,908
|
|
|
|
163,716
|
|
Mortgage-backed securities
|
|
|
7,925
|
|
|
|
7,789
|
|
Equity
securities
|
|
|
2,883
|
|
|
|
2,883
|
|
Total
|
|
$
|
175,716
|
|
|
$
|
174,388
|
|
Various
securities were pledged as collateral for securities sold under agreements to repurchase, advances from the Federal Home Loan
Bank, and participation in a program that provided Community Reinvestment Act credits. The carrying amount of securities pledged
as collateral at December 31 was as follows:
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
Securities
pledged for securities sold under agreements to repurchase
|
|
$
|
13,186
|
|
|
$
|
7,011
|
|
Securities pledged
for advances from the Federal Home Loan Bank
|
|
|
—
|
|
|
|
24,199
|
|
Security
pledged for Community Reinvestment Act credits
|
|
|
250
|
|
|
|
276
|
|
Total
|
|
$
|
13,436
|
|
|
$
|
31,486
|
|
The
fair value of securities pledged to secure repurchase agreements may decline, and the Company may be required to provide additional
collateral. The Company manages this risk by pledging securities with fair values in excess of the repurchase liability.
Securities
with unrealized losses at year-end 2016 and 2015, aggregated by investment category and length of time the individual securities
have been in an unrealized loss position, were as follows:
|
|
2016
|
|
|
|
Less
than 12 months
|
|
|
More
than 12 months
|
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
U.S. Government
and federal agency
|
|
$
|
46,283
|
|
|
$
|
(846
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46,283
|
|
|
$
|
(846
|
)
|
U.S. Treasury notes
and bonds
|
|
|
4,072
|
|
|
|
(39
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,072
|
|
|
|
(39
|
)
|
State and municipal
|
|
|
47,832
|
|
|
|
(944
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
47,832
|
|
|
|
(944
|
)
|
Mortgage-backed
|
|
|
5,980
|
|
|
|
(150
|
)
|
|
|
251
|
|
|
|
(5
|
)
|
|
|
6,231
|
|
|
|
(155
|
)
|
Corporate
|
|
|
2,838
|
|
|
|
(40
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,838
|
|
|
|
(40
|
)
|
Foreign debt
|
|
|
4,400
|
|
|
|
(114
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,400
|
|
|
|
(114
|
)
|
Asset-backed
securities
|
|
|
—
|
|
|
|
—
|
|
|
|
178
|
|
|
|
(4
|
)
|
|
|
178
|
|
|
|
(4
|
)
|
Total
temporarily impaired
|
|
$
|
111,405
|
|
|
$
|
(2,133
|
)
|
|
$
|
429
|
|
|
$
|
(9
|
)
|
|
$
|
111,834
|
|
|
$
|
(2,142
|
)
|
|
|
2015
|
|
|
|
Less
than 12 months
|
|
|
More
than 12 months
|
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
U.S. Government
and federal agency
|
|
$
|
38,567
|
|
|
$
|
(216
|
)
|
|
$
|
986
|
|
|
$
|
(13
|
)
|
|
$
|
39,553
|
|
|
$
|
(229
|
)
|
U.S. Treasury notes
and bonds
|
|
|
6,101
|
|
|
|
(33
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
6,101
|
|
|
|
(33
|
)
|
State and municipal
|
|
|
10,382
|
|
|
|
(69
|
)
|
|
|
2,906
|
|
|
|
(40
|
)
|
|
|
13,288
|
|
|
|
(109
|
)
|
Mortgage-backed
|
|
|
4,459
|
|
|
|
(41
|
)
|
|
|
382
|
|
|
|
(4
|
)
|
|
|
4,841
|
|
|
|
(45
|
)
|
Corporate
|
|
|
4,284
|
|
|
|
(33
|
)
|
|
|
896
|
|
|
|
(6
|
)
|
|
|
5,180
|
|
|
|
(39
|
)
|
Foreign debt
|
|
|
995
|
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
995
|
|
|
|
(5
|
)
|
Asset-backed
securities
|
|
|
—
|
|
|
|
—
|
|
|
|
270
|
|
|
|
(4
|
)
|
|
|
270
|
|
|
|
(4
|
)
|
Total
temporarily impaired
|
|
$
|
64,788
|
|
|
$
|
(397
|
)
|
|
$
|
5,440
|
|
|
$
|
(67
|
)
|
|
$
|
70,228
|
|
|
$
|
(464
|
)
|
ChoiceOne
evaluates all securities on a quarterly basis to determine whether unrealized losses are temporary or other than temporary. Consideration
is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term
prospects of the issuer, and the intent and ability of ChoiceOne to retain its investment in the issue for a period of time sufficient
to allow for any anticipated recovery in fair value of amortized cost basis. Management believed that unrealized losses as of
December 31, 2016 were temporary in nature and were caused primarily by changes in interest rates, increased credit spreads, and
reduced market liquidity and were not caused by the credit status of the issuer. No other than temporary impairments were recorded
in 2016 or 2015.
At
December 31, 2016, there were 196 securities with an unrealized loss, compared to 82 securities with an unrealized loss as of
December 31, 2015. The increase in the number of securities in an unrealized loss position was caused by higher interest rates
at the end of 2016 compared to the end of 2015.
Note
3 – Loans and Allowance for Loan Losses
The
Bank’s loan portfolio as of December 31 was as follows:
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
Agricultural
|
|
$
|
44,614
|
|
|
$
|
40,232
|
|
Commercial and industrial
|
|
|
96,088
|
|
|
|
94,347
|
|
Consumer
|
|
|
21,596
|
|
|
|
20,090
|
|
Real estate - commercial
|
|
|
110,762
|
|
|
|
97,736
|
|
Real estate - construction
|
|
|
6,153
|
|
|
|
5,390
|
|
Real
estate - residential
|
|
|
89,787
|
|
|
|
91,509
|
|
Loans,
gross
|
|
|
369,000
|
|
|
|
349,304
|
|
Allowance
for loan losses
|
|
|
(4,277
|
)
|
|
|
(4,194
|
)
|
Loans,
net
|
|
$
|
364,723
|
|
|
$
|
345,110
|
|
ChoiceOne
manages its credit risk through the use of its loan policy and its loan approval process and by monitoring of loan credit performance.
The loan approval process for commercial loans involves individual and group approval authorities. Individual authority levels
are based on the experience of the lender. Group authority approval levels can consist of an internal loan committee that includes
the Bank’s President or Senior Lender and other loan officers for loans that exceed individual approval levels, or a loan
committee of the Board of Directors for larger commercial loans. Most consumer loans are approved by individual loan officers
based on standardized underwriting criteria, with larger consumer loans subject to approval by the internal loan committee.
Ongoing
credit review of commercial loans is the responsibility of the loan officers. ChoiceOne’s internal credit committee meets
at least monthly and reviews loans with payment issues and loans with a risk rating of 5, 6, or 7. Risk ratings of commercial
loans are reviewed periodically and adjusted if needed. ChoiceOne’s consumer loan portfolio is primarily monitored on an
exception basis. Loans where payments are past due are turned over to the Bank’s collection department, which works with
the borrower to bring payments current or take other actions when necessary. In addition to internal reviews of credit performance,
ChoiceOne contracts with a third party for independent loan review that monitors the loan approval process and the credit quality
of the loan portfolio.
Activity
in the allowance for loan losses and balances in the loan portfolio were as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
Commercial
and Industrial
|
|
|
Consumer
|
|
|
Commercial
Real
Estate
|
|
|
Construction
Real
Estate
|
|
|
Residential
Real
Estate
|
|
|
Unallocated
|
|
|
Total
|
|
2016
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
420
|
|
|
$
|
586
|
|
|
$
|
297
|
|
|
$
|
1,030
|
|
|
$
|
46
|
|
|
$
|
1,388
|
|
|
$
|
427
|
|
|
$
|
4,194
|
|
Charge-offs
|
|
|
—
|
|
|
|
(37
|
)
|
|
|
(218
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(102
|
)
|
|
|
—
|
|
|
|
(357
|
)
|
Recoveries
|
|
|
—
|
|
|
|
31
|
|
|
|
149
|
|
|
|
89
|
|
|
|
—
|
|
|
|
171
|
|
|
|
—
|
|
|
|
440
|
|
Provision
|
|
|
13
|
|
|
|
108
|
|
|
|
77
|
|
|
|
319
|
|
|
|
16
|
|
|
|
(444
|
)
|
|
|
(89
|
)
|
|
|
—
|
|
Ending balance
|
|
$
|
433
|
|
|
$
|
688
|
|
|
$
|
305
|
|
|
$
|
1,438
|
|
|
$
|
62
|
|
|
$
|
1,013
|
|
|
$
|
338
|
|
|
$
|
4,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
3
|
|
|
$
|
11
|
|
|
$
|
2
|
|
|
$
|
91
|
|
|
$
|
—
|
|
|
$
|
296
|
|
|
$
|
—
|
|
|
$
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
430
|
|
|
$
|
677
|
|
|
$
|
303
|
|
|
$
|
1,347
|
|
|
$
|
62
|
|
|
$
|
717
|
|
|
$
|
338
|
|
|
$
|
3,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
526
|
|
|
$
|
301
|
|
|
$
|
28
|
|
|
$
|
1,073
|
|
|
$
|
—
|
|
|
$
|
2,983
|
|
|
|
|
|
|
$
|
4,911
|
|
Collectively
evaluated for impairment
|
|
|
44,088
|
|
|
|
95,787
|
|
|
|
21,568
|
|
|
|
109,689
|
|
|
|
6,153
|
|
|
|
86,804
|
|
|
|
|
|
|
|
364,089
|
|
Ending balance
|
|
$
|
44,614
|
|
|
$
|
96,088
|
|
|
$
|
21,596
|
|
|
$
|
110,762
|
|
|
$
|
6,153
|
|
|
$
|
89,787
|
|
|
|
|
|
|
$
|
369,000
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
Commercial
and Industrial
|
|
|
Consumer
|
|
|
Commercial
Real
Estate
|
|
|
Construction
Real
Estate
|
|
|
Residential
Real
Estate
|
|
|
Unallocated
|
|
|
Total
|
|
2015
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
186
|
|
|
$
|
527
|
|
|
$
|
184
|
|
|
$
|
1,641
|
|
|
$
|
9
|
|
|
$
|
1,193
|
|
|
$
|
433
|
|
|
$
|
4,173
|
|
Charge-offs
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
(291
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(140
|
)
|
|
|
—
|
|
|
|
(461
|
)
|
Recoveries
|
|
|
1
|
|
|
|
64
|
|
|
|
121
|
|
|
|
47
|
|
|
|
—
|
|
|
|
149
|
|
|
|
—
|
|
|
|
382
|
|
Provision
|
|
|
233
|
|
|
|
25
|
|
|
|
283
|
|
|
|
(658
|
)
|
|
|
37
|
|
|
|
186
|
|
|
|
(6
|
)
|
|
|
100
|
|
Ending balance
|
|
$
|
420
|
|
|
$
|
586
|
|
|
$
|
297
|
|
|
$
|
1,030
|
|
|
$
|
46
|
|
|
$
|
1,388
|
|
|
$
|
427
|
|
|
$
|
4,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
3
|
|
|
$
|
15
|
|
|
$
|
1
|
|
|
$
|
191
|
|
|
$
|
—
|
|
|
$
|
296
|
|
|
$
|
—
|
|
|
$
|
506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
417
|
|
|
$
|
571
|
|
|
$
|
296
|
|
|
$
|
839
|
|
|
$
|
46
|
|
|
$
|
1,092
|
|
|
$
|
427
|
|
|
$
|
3,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
50
|
|
|
$
|
192
|
|
|
$
|
24
|
|
|
$
|
2,790
|
|
|
$
|
—
|
|
|
$
|
2,529
|
|
|
|
|
|
|
$
|
5,585
|
|
Collectively
evaluated for impairment
|
|
|
40,182
|
|
|
|
94,155
|
|
|
|
20,066
|
|
|
|
94,946
|
|
|
|
5,390
|
|
|
|
88,980
|
|
|
|
|
|
|
|
343,719
|
|
Ending balance
|
|
$
|
40,232
|
|
|
$
|
94,347
|
|
|
$
|
20,090
|
|
|
$
|
97,736
|
|
|
$
|
5,390
|
|
|
$
|
91,509
|
|
|
|
|
|
|
$
|
349,304
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
Commercial and Industrial
|
|
|
Consumer
|
|
|
Commercial
Real
Estate
|
|
|
Construction
Real
Estate
|
|
|
Residential
Real
Estate
|
|
|
Unallocated
|
|
|
Total
|
|
2014
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
178
|
|
|
$
|
562
|
|
|
$
|
192
|
|
|
$
|
1,842
|
|
|
$
|
12
|
|
|
$
|
1,626
|
|
|
$
|
323
|
|
|
$
|
4,735
|
|
Charge-offs
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(273
|
)
|
|
|
(665
|
)
|
|
|
—
|
|
|
|
(133
|
)
|
|
|
—
|
|
|
|
(1,072
|
)
|
Recoveries
|
|
|
20
|
|
|
|
119
|
|
|
|
179
|
|
|
|
48
|
|
|
|
—
|
|
|
|
44
|
|
|
|
—
|
|
|
|
410
|
|
Provision
|
|
|
(12
|
)
|
|
|
(153
|
)
|
|
|
86
|
|
|
|
416
|
|
|
|
(3
|
)
|
|
|
(344
|
)
|
|
|
110
|
|
|
|
100
|
|
Ending balance
|
|
$
|
186
|
|
|
$
|
527
|
|
|
$
|
184
|
|
|
$
|
1,641
|
|
|
$
|
9
|
|
|
$
|
1,193
|
|
|
$
|
433
|
|
|
$
|
4,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
745
|
|
|
$
|
—
|
|
|
$
|
365
|
|
|
$
|
—
|
|
|
$
|
1,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
186
|
|
|
$
|
527
|
|
|
$
|
180
|
|
|
$
|
896
|
|
|
$
|
9
|
|
|
$
|
828
|
|
|
$
|
433
|
|
|
$
|
3,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
—
|
|
|
$
|
38
|
|
|
$
|
36
|
|
|
$
|
3,853
|
|
|
$
|
—
|
|
|
$
|
2,958
|
|
|
|
|
|
|
$
|
6,885
|
|
Collectively
evaluated for impairment
|
|
|
41,098
|
|
|
|
88,024
|
|
|
|
20,716
|
|
|
|
95,954
|
|
|
|
2,691
|
|
|
|
90,745
|
|
|
|
|
|
|
|
339,228
|
|
Ending balance
|
|
$
|
41,098
|
|
|
$
|
88,062
|
|
|
$
|
20,752
|
|
|
$
|
99,807
|
|
|
$
|
2,691
|
|
|
$
|
93,703
|
|
|
|
|
|
|
$
|
346,113
|
|
The
process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking (1) the risk ratings of business loans,
(2) the level of classified business loans, and (3) delinquent and nonperforming consumer loans. Business loans are risk rated
on a scale of 1 to 8. A description of the characteristics of the ratings follows:
Risk
ratings 1 and 2: These loans are considered pass credits. They exhibit good to exceptional credit risk and demonstrate the ability
to repay the loan from normal business operations.
Risk
rating 3: These loans are considered pass credits. They exhibit acceptable credit risk and demonstrate the ability to repay the
loan from normal business operations.
Risk
rating 4: These loans are considered watch credits. They have potential developing weaknesses that, if not corrected, may cause
deterioration in the ability of the borrower to repay the loan. While a loss is possible for a loan with this rating, it is not
anticipated.
Risk
rating 5: These loans are considered special mention credits. Loans in this risk rating are considered to be inadequately protected
by the net worth and debt service coverage of the borrower or of any pledged collateral. These loans have well defined weaknesses
that may jeopardize the borrower’s ability to repay the loan. If the weaknesses are not corrected, loss of principal and
interest could be probable.
Risk
rating 6: These loans are considered substandard credits. These loans have well defined weaknesses, the severity of which makes
collection of principal and interest in full questionable. Loans in this category may be placed on nonaccrual status.
Risk
rating 7: These loans are considered doubtful credits. Some loss of principal and interest has been determined to be probable.
The estimate of the amount of loss could be affected by factors such as the borrower’s ability to provide additional capital
or collateral. Loans in this category are on nonaccrual status.
Risk
rating 8: These loans are considered loss credits. They are considered uncollectible and will be charged off against the allowance
for loan losses.
Information
regarding the Bank’s credit exposure as of December 31 was as follows:
Corporate
Credit Exposure - Credit Risk Profile By Creditworthiness Category
(Dollars in thousands)
|
|
Agricultural
|
|
|
Commercial
and Industrial
|
|
|
Commercial
Real Estate
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Risk ratings
1 and 2
|
|
$
|
12,005
|
|
|
$
|
10,416
|
|
|
$
|
12,135
|
|
|
$
|
10,480
|
|
|
$
|
8,013
|
|
|
$
|
3,875
|
|
Risk rating 3
|
|
|
23,852
|
|
|
|
25,189
|
|
|
|
56,714
|
|
|
|
66,921
|
|
|
|
59,343
|
|
|
|
57,540
|
|
Risk rating 4
|
|
|
7,505
|
|
|
|
3,086
|
|
|
|
25,895
|
|
|
|
16,169
|
|
|
|
39,641
|
|
|
|
29,826
|
|
Risk rating 5
|
|
|
726
|
|
|
|
1,491
|
|
|
|
1,267
|
|
|
|
574
|
|
|
|
1,867
|
|
|
|
3,776
|
|
Risk rating 6
|
|
|
526
|
|
|
|
50
|
|
|
|
77
|
|
|
|
129
|
|
|
|
1,898
|
|
|
|
2,719
|
|
Risk
rating 7
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
74
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
44,614
|
|
|
$
|
40,232
|
|
|
$
|
96,088
|
|
|
$
|
94,347
|
|
|
$
|
110,762
|
|
|
$
|
97,736
|
|
Consumer
Credit Exposure - Credit Risk Profile Based On Payment Activity
(Dollars in thousands)
|
|
Consumer
|
|
|
Construction
Real Estate
|
|
|
Residential
Real Estate
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Performing
|
|
$
|
21,590
|
|
|
$
|
20,090
|
|
|
$
|
6,153
|
|
|
$
|
5,390
|
|
|
$
|
88,767
|
|
|
$
|
90,796
|
|
Nonperforming
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
229
|
|
|
|
282
|
|
Nonaccrual
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
791
|
|
|
|
431
|
|
|
|
$
|
21,596
|
|
|
$
|
20,090
|
|
|
$
|
6,153
|
|
|
$
|
5,390
|
|
|
$
|
89,787
|
|
|
$
|
91,509
|
|
Included
within the loan categories above were loans in the process of foreclosure. As of December 31, 2016, and 2015 loans in the process
of foreclosure totaled $282,000 and $13,000, respectively.
The
following schedule provides information on loans that were considered troubled debt restructurings (“TDRs”) that were
modified during the twelve months ended December 31, 2016 and December 31, 2015:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
(Dollars in thousands)
|
|
Number
of
Loans
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
|
Number
of
Loans
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Agricultural
|
|
|
1
|
|
|
$
|
105
|
|
|
$
|
105
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
439
|
|
|
|
439
|
|
Residential
real estate
|
|
|
2
|
|
|
|
155
|
|
|
|
155
|
|
|
|
2
|
|
|
|
195
|
|
|
|
195
|
|
|
|
|
3
|
|
|
$
|
260
|
|
|
$
|
260
|
|
|
|
6
|
|
|
$
|
634
|
|
|
$
|
634
|
|
The
pre-modification and post-modification outstanding recorded investment represents amounts as of the date of loan modification.
If a difference exists between the pre-modification and post-modification outstanding recorded investment, it represents impairment
recognized through the provision for loan losses computed based on a loan’s post-modification present value of expected
future cash flows discounted at the loan’s original effective interest rate. If no difference exists, a loss is not expected
to be incurred based on an assessment of the borrower’s expected cash flows.
The
following schedule provides information on TDRs as of December 31, 2016 and December 31, 2015 where the borrower was past due
with respect to principal and/or interest for 30 days or more during the twelve months ended December 31, 2016 and December 31,
2015 that had been modified during the 12-month period prior to the default:
|
|
With
Payment Defaults During the Following Periods
|
|
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
(Dollars in thousands)
|
|
Number
|
|
|
Recorded
|
|
|
Number
|
|
|
Recorded
|
|
|
|
of
Loans
|
|
|
Investment
|
|
|
of
Loans
|
|
|
Investment
|
|
Agricultural
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
real estate
|
|
|
1
|
|
|
|
105
|
|
|
|
3
|
|
|
|
400
|
|
Residential
real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1
|
|
|
$
|
105
|
|
|
|
3
|
|
|
$
|
400
|
|
Loans
are classified as performing when they are current as to principal and interest payments or are past due on payments less than
90 days. Loans are classified as nonperforming when they are past due 90 days or more as to principal and interest payments or
are considered a troubled debt restructuring.
Impaired
loans by loan category as of December 31 were as follows:
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
(Dollars in thousands)
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance
recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
$
|
482
|
|
|
$
|
485
|
|
|
$
|
—
|
|
|
$
|
220
|
|
|
$
|
13
|
|
Commercial
and industrial
|
|
|
206
|
|
|
|
207
|
|
|
|
—
|
|
|
|
91
|
|
|
|
3
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
Commercial
real estate
|
|
|
342
|
|
|
|
939
|
|
|
|
—
|
|
|
|
925
|
|
|
|
2
|
|
Residential
real estate
|
|
|
301
|
|
|
|
292
|
|
|
|
—
|
|
|
|
167
|
|
|
|
5
|
|
Subtotal
|
|
|
1,331
|
|
|
|
1,923
|
|
|
|
—
|
|
|
|
1,404
|
|
|
|
23
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
44
|
|
|
|
44
|
|
|
|
3
|
|
|
|
72
|
|
|
|
3
|
|
Commercial
and industrial
|
|
|
95
|
|
|
|
95
|
|
|
|
11
|
|
|
|
218
|
|
|
|
—
|
|
Consumer
|
|
|
28
|
|
|
|
28
|
|
|
|
2
|
|
|
|
24
|
|
|
|
2
|
|
Commercial
real estate
|
|
|
731
|
|
|
|
804
|
|
|
|
91
|
|
|
|
1,281
|
|
|
|
33
|
|
Residential
real estate
|
|
|
2,682
|
|
|
|
2,711
|
|
|
|
296
|
|
|
|
2,672
|
|
|
|
108
|
|
Subtotal
|
|
|
3,580
|
|
|
|
3,682
|
|
|
|
403
|
|
|
|
4,267
|
|
|
|
146
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
526
|
|
|
|
529
|
|
|
|
3
|
|
|
|
292
|
|
|
|
16
|
|
Commercial
and industrial
|
|
|
301
|
|
|
|
302
|
|
|
|
11
|
|
|
|
309
|
|
|
|
3
|
|
Consumer
|
|
|
28
|
|
|
|
28
|
|
|
|
2
|
|
|
|
25
|
|
|
|
2
|
|
Commercial
real estate
|
|
|
1,073
|
|
|
|
1,743
|
|
|
|
91
|
|
|
|
2,206
|
|
|
|
35
|
|
Residential
real estate
|
|
|
2,983
|
|
|
|
3,003
|
|
|
|
296
|
|
|
|
2,839
|
|
|
|
113
|
|
Total
|
|
$
|
4,911
|
|
|
$
|
5,605
|
|
|
$
|
403
|
|
|
$
|
5,671
|
|
|
$
|
169
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
(Dollars in thousands)
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance
recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial
and industrial
|
|
|
74
|
|
|
|
103
|
|
|
|
—
|
|
|
|
25
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
Commercial
real estate
|
|
|
1,540
|
|
|
|
1,540
|
|
|
|
—
|
|
|
|
1,061
|
|
|
|
11
|
|
Residential
real estate
|
|
|
13
|
|
|
|
13
|
|
|
|
—
|
|
|
|
191
|
|
|
|
—
|
|
Subtotal
|
|
|
1,627
|
|
|
|
1,656
|
|
|
|
—
|
|
|
|
1,279
|
|
|
|
11
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
50
|
|
|
|
50
|
|
|
|
3
|
|
|
|
62
|
|
|
|
(6
|
)
|
Commercial
and industrial
|
|
|
118
|
|
|
|
118
|
|
|
|
15
|
|
|
|
44
|
|
|
|
1
|
|
Consumer
|
|
|
24
|
|
|
|
24
|
|
|
|
1
|
|
|
|
34
|
|
|
|
3
|
|
Commercial
real estate
|
|
|
1,250
|
|
|
|
1,755
|
|
|
|
191
|
|
|
|
2,002
|
|
|
|
64
|
|
Residential
real estate
|
|
|
2,516
|
|
|
|
2,516
|
|
|
|
296
|
|
|
|
2,425
|
|
|
|
86
|
|
Subtotal
|
|
|
3,958
|
|
|
|
4,463
|
|
|
|
506
|
|
|
|
4,567
|
|
|
|
148
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
50
|
|
|
|
50
|
|
|
|
3
|
|
|
|
62
|
|
|
|
(6
|
)
|
Commercial
and industrial
|
|
|
192
|
|
|
|
221
|
|
|
|
15
|
|
|
|
69
|
|
|
|
1
|
|
Consumer
|
|
|
24
|
|
|
|
24
|
|
|
|
1
|
|
|
|
36
|
|
|
|
3
|
|
Commercial
real estate
|
|
|
2,790
|
|
|
|
3,295
|
|
|
|
191
|
|
|
|
3,063
|
|
|
|
75
|
|
Residential
real estate
|
|
|
2,529
|
|
|
|
2,529
|
|
|
|
296
|
|
|
|
2,616
|
|
|
|
86
|
|
Total
|
|
$
|
5,585
|
|
|
$
|
6,119
|
|
|
$
|
506
|
|
|
$
|
5,846
|
|
|
$
|
159
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
(Dollars in thousands)
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance
recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
90
|
|
|
$
|
—
|
|
Commercial
and industrial
|
|
|
38
|
|
|
|
43
|
|
|
|
—
|
|
|
|
81
|
|
|
|
—
|
|
Consumer
|
|
|
8
|
|
|
|
8
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
Commercial
real estate
|
|
|
413
|
|
|
|
419
|
|
|
|
—
|
|
|
|
352
|
|
|
|
6
|
|
Residential
real estate
|
|
|
502
|
|
|
|
502
|
|
|
|
—
|
|
|
|
492
|
|
|
|
9
|
|
Subtotal
|
|
|
961
|
|
|
|
972
|
|
|
|
—
|
|
|
|
1,018
|
|
|
|
15
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
130
|
|
|
|
—
|
|
Commercial
and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
292
|
|
|
|
4
|
|
Consumer
|
|
|
28
|
|
|
|
28
|
|
|
|
4
|
|
|
|
31
|
|
|
|
3
|
|
Commercial
real estate
|
|
|
3,440
|
|
|
|
4,498
|
|
|
|
745
|
|
|
|
3,932
|
|
|
|
81
|
|
Residential
real estate
|
|
|
2,456
|
|
|
|
2,474
|
|
|
|
365
|
|
|
|
2,323
|
|
|
|
91
|
|
Subtotal
|
|
|
5,924
|
|
|
|
7,000
|
|
|
|
1,114
|
|
|
|
6,708
|
|
|
|
179
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
220
|
|
|
|
—
|
|
Commercial
and industrial
|
|
|
38
|
|
|
|
43
|
|
|
|
—
|
|
|
|
373
|
|
|
|
4
|
|
Consumer
|
|
|
36
|
|
|
|
36
|
|
|
|
4
|
|
|
|
34
|
|
|
|
3
|
|
Commercial
real estate
|
|
|
3,853
|
|
|
|
4,917
|
|
|
|
745
|
|
|
|
4,284
|
|
|
|
87
|
|
Residential
real estate
|
|
|
2,958
|
|
|
|
2,976
|
|
|
|
365
|
|
|
|
2,815
|
|
|
|
100
|
|
Total
|
|
$
|
6,885
|
|
|
$
|
7,972
|
|
|
$
|
1,114
|
|
|
$
|
7,726
|
|
|
$
|
194
|
|
An
aging analysis of loans by loan category as of December 31 follows:
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
Loans
|
|
|
Past
Due
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Greater
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
Past
|
|
(Dollars in thousands)
|
|
30 to
59
|
|
|
60 to
89
|
|
|
Than
90
|
|
|
|
|
|
Loans
Not
|
|
|
Total
|
|
|
Due and
|
|
|
|
Days
(1)
|
|
|
Days
(1)
|
|
|
Days
(1)
|
|
|
Total
(1)
|
|
|
Past
Due
|
|
|
Loans
|
|
|
Accruing
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
44,614
|
|
|
$
|
44,614
|
|
|
$
|
—
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
30
|
|
|
|
245
|
|
|
|
275
|
|
|
|
95,813
|
|
|
|
96,088
|
|
|
|
—
|
|
Consumer
|
|
|
99
|
|
|
|
2
|
|
|
|
6
|
|
|
|
107
|
|
|
|
21,489
|
|
|
|
21,596
|
|
|
|
—
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
260
|
|
|
|
260
|
|
|
|
110,502
|
|
|
|
110,762
|
|
|
|
—
|
|
Construction real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,153
|
|
|
|
6,153
|
|
|
|
—
|
|
Residential
real estate
|
|
|
1,027
|
|
|
|
109
|
|
|
|
646
|
|
|
|
1,782
|
|
|
|
88,005
|
|
|
|
89,787
|
|
|
|
229
|
|
|
|
$
|
1,126
|
|
|
$
|
141
|
|
|
$
|
1,157
|
|
|
$
|
2,424
|
|
|
$
|
366,576
|
|
|
$
|
369,000
|
|
|
$
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
40,229
|
|
|
$
|
40,232
|
|
|
$
|
—
|
|
Commercial and industrial
|
|
|
90
|
|
|
|
322
|
|
|
|
77
|
|
|
|
489
|
|
|
|
93,858
|
|
|
|
94,347
|
|
|
|
—
|
|
Consumer
|
|
|
115
|
|
|
|
—
|
|
|
|
—
|
|
|
|
115
|
|
|
|
19,975
|
|
|
|
20,090
|
|
|
|
—
|
|
Commercial real estate
|
|
|
505
|
|
|
|
297
|
|
|
|
1,233
|
|
|
|
2,035
|
|
|
|
95,701
|
|
|
|
97,736
|
|
|
|
—
|
|
Construction real estate
|
|
|
299
|
|
|
|
—
|
|
|
|
—
|
|
|
|
299
|
|
|
|
5,091
|
|
|
|
5,390
|
|
|
|
—
|
|
Residential
real estate
|
|
|
1,012
|
|
|
|
364
|
|
|
|
200
|
|
|
|
1,576
|
|
|
|
89,933
|
|
|
|
91,509
|
|
|
|
29
|
|
|
|
$
|
2,024
|
|
|
$
|
983
|
|
|
$
|
1,510
|
|
|
$
|
4,517
|
|
|
$
|
344,787
|
|
|
$
|
349,304
|
|
|
$
|
29
|
|
(1)
Includes nonaccrual loans.
Nonaccrual
loans by loan category as of December 31 follow:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Agricultural
|
|
$
|
482
|
|
|
$
|
50
|
|
Commercial and industrial
|
|
|
245
|
|
|
|
77
|
|
Consumer
|
|
|
6
|
|
|
|
—
|
|
Commercial real estate
|
|
|
458
|
|
|
|
1,640
|
|
Construction real estate
|
|
|
—
|
|
|
|
—
|
|
Residential real estate
|
|
|
792
|
|
|
|
431
|
|
|
|
$
|
1,983
|
|
|
$
|
2,198
|
|
Note
4 – Mortgage Banking
Activity
in secondary market loans during the year was as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Loans originated for resale, net of principal payments
|
|
$
|
53,591
|
|
|
$
|
47,498
|
|
|
$
|
29,850
|
|
Proceeds from loan sales
|
|
|
57,830
|
|
|
|
46,077
|
|
|
|
29,561
|
|
Net gains on sales of loans held for sale
|
|
|
1,748
|
|
|
|
1,416
|
|
|
|
1,023
|
|
Loan servicing fees, net of amortization
|
|
|
159
|
|
|
|
113
|
|
|
|
166
|
|
Net
gains on sales of loans held for sale include capitalization of loan servicing rights. Loans serviced for others are not reported
as assets in the accompanying consolidated balance sheets. The unpaid principal balances of these loans were $103.6 million and
$79.4 million at December 31, 2016 and 2015, respectively. The Bank maintains custodial escrow balances in connection with these
serviced loans; however, such escrows were immaterial at December 31, 2016 and 2015.
Activity
for loan servicing rights (included in other assets) was as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance, beginning of year
|
|
$
|
378
|
|
|
$
|
489
|
|
|
$
|
544
|
|
Capitalized
|
|
|
491
|
|
|
|
49
|
|
|
|
73
|
|
Amortization
|
|
|
(172
|
)
|
|
|
(160
|
)
|
|
|
(128
|
)
|
Balance, end of year
|
|
$
|
698
|
|
|
$
|
378
|
|
|
$
|
489
|
|
The
fair value of loan servicing rights was $1,029,000 and $739,000 as of December 31, 2016 and 2015, respectively. Consequently,
a valuation allowance was not necessary at year-end 2016 or 2015. The fair value of servicing rights at December 31, 2016 was
determined using a discount rate of 5.82% and prepayment speeds ranging from 10% to 19%. The fair value of servicing rights at
December 31, 2015 was determined using a discount rate of 6.37% and prepayment speeds ranging from 9% to 13%.
Note
5 – Premises and Equipment
As
of December 31, premises and equipment consisted of the following:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Land and land improvements
|
|
$
|
5,869
|
|
|
$
|
4,529
|
|
Leasehold improvements
|
|
|
38
|
|
|
|
38
|
|
Buildings
|
|
|
12,052
|
|
|
|
12,076
|
|
Furniture and equipment
|
|
|
5,394
|
|
|
|
5,322
|
|
Total cost
|
|
|
23,353
|
|
|
|
21,965
|
|
Accumulated depreciation
|
|
|
(10,765
|
)
|
|
|
(10,118
|
)
|
Premises and equipment, net
|
|
$
|
12,588
|
|
|
$
|
11,847
|
|
Depreciation
expense was $1,078,000, $986,000, and $986,000 for 2016, 2015 and 2014, respectively.
The
Bank leases certain branch properties, a loan production office, and automated-teller machine locations in its normal course of
business. Rent expense totaled $99,000, $53,000, and $52,000 for 2016, 2015 and 2014, respectively. Rent commitments under non-cancelable
operating leases were as follows, before considering renewal options that generally are present:
(Dollars in thousands)
|
|
|
|
|
|
2017
|
|
|
$
|
69
|
|
2018
|
|
|
|
71
|
|
2019
|
|
|
|
59
|
|
2020
|
|
|
|
18
|
|
2021
|
|
|
|
19
|
|
Thereafter
|
|
|
|
72
|
|
Total
|
|
|
$
|
308
|
|
Note
6 - Goodwill and Intangible Assets
Goodwill
There
were no changes in the goodwill balance in 2016 or 2015. ChoiceOne evaluates goodwill annually for impairment. Recently issued
accounting pronouncements allow a company to first perform a qualitative assessment for goodwill prior to a quantitative assessment
(Step 1 assessment). If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired,
then a quantitative assessment must be performed. If not, there is no further assessment required.
ChoiceOne
engaged an outside consulting firm to assist management in performing its annual evaluation of goodwill for impairment as of June
30, 2016. The following steps were used in the valuation: determination of the reporting unit, determination of the appropriate
standard of value, determination of the appropriate level of value, calculation of fair value, and comparison of the fair value
computed to the equity carrying value. It was determined that the relevant reporting unit to be valued was ChoiceOne Bank. The
standard of value used in the valuation was fair value as determined by generally accepted accounting principles. The appropriate
level of value was determined to be the controlling interest level. The appraisal methodology used to calculate the fair value
included the income approach, which was a discounted cash flow value based on projected earnings capacity. The income approach
used a discount rate of 11.50%, a growth assumption of 5.0% for assets, and an assumption of cost savings of 20% of noninterest
expense as a result of synergies and cost reductions from a change in control. The appraisal methodology also included the market
approach, which was based on price-to-earnings multiples, price-to-tangible book value ratios, and core deposit premiums for selected
bank sale transactions. The asset approach was also an approach that was reviewed, but it was not used in determining the fair
value since it did not render a control level indication of value. The results from the valuation approaches were used to calculate
an estimate of the fair value of ChoiceOne’s equity, which was compared to the carrying value of equity to determine whether
the Step 1 test under generally accepted accounting principles that govern the valuation of goodwill was passed. The goodwill
analysis determined that the fair value of ChoiceOne’s equity exceeded the carrying value by 31%. Based on this assessment,
management believed that there was no indication of goodwill impairment at June 30, 2016. Based on the testing performed and a
review of factors that might impact ChoiceOne’s stock value subsequent to this evaluation, no impairment of goodwill was
deemed to exist as of December 31, 2016.
Management
performed a qualitative assessment of goodwill as of June 30, 2015 and December 31, 2015. The analysis was performed including
evaluation of the share price, book value, and financial results of ChoiceOne as compared to the previous year. Additionally,
industry and market conditions were evaluated. Average deal prices during 2015 in the Midwest of closed transactions indicated
increases in deal values to tangible common equity, deal values to earnings, and core deposit premiums when compared to the observed
prices used in the prior quantitative assessment of goodwill in 2012. Further, macro-economic trends were on a positive trajectory
during 2015 and there had been no adverse legal, regulatory, contractual, political or other factors that materially impacted
ChoiceOne. Upon completion of the qualitative assessment, ChoiceOne believed that it is more likely than not that the fair value
of ChoiceOne’s equity exceeded the carrying value at the assessment date and there was no further quantitative assessment
necessary for 2015.
Acquired
Intangible Assets
Information
for acquired intangible assets at December 31 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangible
|
|
$
|
4,134
|
|
|
$
|
4,134
|
|
|
$
|
4,134
|
|
|
$
|
3,790
|
|
Other intangible assets
|
|
|
348
|
|
|
|
348
|
|
|
|
348
|
|
|
|
313
|
|
Totals
|
|
$
|
4,482
|
|
|
$
|
4,482
|
|
|
$
|
4,482
|
|
|
$
|
4,103
|
|
The
core deposit intangible and other intangible assets were being amortized on a straight-line basis over ten years. Intangible assets
are reviewed for impairment on a quarterly basis. No impairment was indicated as of December 31, 2015. These intangible assets
were fully amortized as of the end of 2016 and will have no carrying value on the balance sheet going forward. Aggregate amortization
expense was $379,000 in 2016 and $448,000 in 2015 and 2014.
Note
7 – Other Real Estate Owned
Other
real estate owned represents residential and commercial properties primarily owned as a result of loan collection activities and
is reported net of a valuation allowance. Activity within other real estate owned was as follows:
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
31
|
|
|
$
|
150
|
|
|
$
|
508
|
|
Transfers from loans
|
|
|
661
|
|
|
|
408
|
|
|
|
561
|
|
Proceeds from sales
|
|
|
(247
|
)
|
|
|
(406
|
)
|
|
|
(789
|
)
|
Gains/(losses) on sales
|
|
|
(8
|
)
|
|
|
(30
|
)
|
|
|
24
|
|
Write-downs
|
|
|
—
|
|
|
|
(91
|
)
|
|
|
(154
|
)
|
Balance, end of year
|
|
$
|
437
|
|
|
$
|
31
|
|
|
$
|
150
|
|
Included
in the balances above were residential real estate mortgage loans of $291,000, $31,000, and $54,000 as of December 31, 2016, 2015,
and 2014, respectively.
Note
8 – Deposits
Deposit
balances as of December 31 consisted of the following:
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
$
|
127,611
|
|
|
$
|
122,937
|
|
Interest-bearing demand deposits
|
|
|
122,465
|
|
|
|
106,882
|
|
Money market deposits
|
|
|
99,454
|
|
|
|
86,987
|
|
Savings deposits
|
|
|
75,835
|
|
|
|
70,946
|
|
Local certificates of deposit
|
|
|
79,108
|
|
|
|
86,944
|
|
Brokered certificates of deposit
|
|
|
7,913
|
|
|
|
—
|
|
Total deposits
|
|
$
|
512,386
|
|
|
$
|
474,696
|
|
Scheduled
maturities of certificates of deposit at December 31, 2016 were as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
$
|
54,111
|
|
2018
|
|
|
|
17,778
|
|
2019
|
|
|
|
7,401
|
|
2020
|
|
|
|
7,627
|
|
2021
|
|
|
|
104
|
|
Total
|
|
|
$
|
87,021
|
|
The
Bank had certificates of deposit issued in denominations of $250,000 or greater totaling $22.2 million and $21.4 million at December
31, 2016 and 2015, respectively. The Bank held $7.9 million in brokered certificates of deposit at December 31, 2016 as brokered
rates became competitive with other wholesale funding channels. In addition, the Bank had $2.0 million of certificates of deposit
as of December 31, 2016 and $2.1 million as of December 31, 2015 that had been issued through the Certificate of Deposit Account
Registry Service (CDARS). Although certificates of deposit issued through CDARS are issued to local customers, this type of deposit
is classified as brokered deposits for regulatory purposes.
Note
9 – Repurchase Agreements
Securities
sold under agreements to repurchase are advances to the Bank by customers or another bank. These agreements are direct obligations
of the Bank and are secured by securities held in safekeeping at a correspondent bank. Repurchase agreements with Bank customers
mature daily. Information regarding repurchase agreements follows:
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31
|
|
$
|
7,913
|
|
|
$
|
9,460
|
|
Average interest rate at December 31
|
|
|
0.05
|
%
|
|
|
0.04
|
%
|
Average balance during the year
|
|
$
|
7,762
|
|
|
$
|
17,825
|
|
Average interest rate during the year
|
|
|
0.05
|
%
|
|
|
0.17
|
%
|
Maximum month end balance during the year
|
|
$
|
10,539
|
|
|
$
|
26,743
|
|
Repurchase
agreements accounted for as secured borrowings as of December 31, 2016 were as follows:
|
|
Remaining Contractual Maturity of the Agreements
|
|
(Dollars in thousands)
|
|
Overnight and
|
|
|
|
Continuous
|
|
U.S. Government agencies
|
|
$
|
13,186
|
|
Total securities
|
|
|
13,186
|
|
Unsecured borrowings
|
|
|
—
|
|
Total borrowings
|
|
$
|
13,186
|
|
Note
10 – Federal Home Loan Bank Advances
At
December 31, advances from the FHLB were as follows:
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Maturity of November 2024 with fixed interest rate of 3.98%
|
|
$
|
301
|
|
|
$
|
332
|
|
Maturities ranging from January 2017 to March 2017, fixed interest rates ranging from 0.81% to 0.88%, with an average of 0.86%
|
|
|
12,000
|
|
|
|
—
|
|
Maturity of February 2016 with fixed interest rate of 0.47%
|
|
|
|
|
|
|
11,000
|
|
Total advances outstanding at year-end
|
|
$
|
12,301
|
|
|
$
|
11,332
|
|
Fees
are charged on fixed rate advances that are paid prior to maturity. No fixed rate advances were paid prior to maturity in 2016
or 2015. Advances were secured by agricultural loans and residential real estate loans with a carrying value of approximately
$92.3 million and $107.6 million at December 31, 2016 and December 31, 2015, respectively. Advances were also secured by $24.2
million of U.S. Government agency securities and U.S. Treasury securities at December 31, 2015. Based on this collateral, the
Bank was eligible to borrow an additional $41.7 million at year-end 2016.
The
scheduled maturities of advances from the FHLB at December 31, 2016 were as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
$
|
12,033
|
|
2018
|
|
|
|
34
|
|
2019
|
|
|
|
36
|
|
2020
|
|
|
|
37
|
|
2021
|
|
|
|
39
|
|
Thereafter
|
|
|
|
122
|
|
Total
|
|
|
$
|
12,301
|
|
Note
11 – Income Taxes
Information
as of December 31 and for the year follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Current federal income tax expense
|
|
$
|
2,244
|
|
|
$
|
2,576
|
|
|
$
|
2,536
|
|
Deferred federal income tax expense/(benefit)
|
|
|
(82
|
)
|
|
|
(631
|
)
|
|
|
(460
|
)
|
Income tax expense
|
|
$
|
2,162
|
|
|
$
|
1,945
|
|
|
$
|
2,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Income Tax Provision to Statutory Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax computed at statutory federal rate of 34%
|
|
$
|
2,806
|
|
|
$
|
2,614
|
|
|
$
|
2,642
|
|
Tax exempt interest income
|
|
|
(496
|
)
|
|
|
(488
|
)
|
|
|
(475
|
)
|
Tax exempt earnings on bank-owned life insurance
|
|
|
(121
|
)
|
|
|
(221
|
)
|
|
|
(103
|
)
|
Other items
|
|
|
(27
|
)
|
|
|
40
|
|
|
|
12
|
|
Income tax expense
|
|
$
|
2,162
|
|
|
$
|
1,945
|
|
|
$
|
2,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
26
|
%
|
|
|
25
|
%
|
|
|
27
|
%
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Deferred Tax Assets and Liabilities
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
1,454
|
|
|
$
|
1,426
|
|
Unrealized losses on securities available for sale
|
|
|
361
|
|
|
|
—
|
|
Deferred compensation
|
|
|
232
|
|
|
|
269
|
|
Loan costs/fees deferred
|
|
|
84
|
|
|
|
86
|
|
Other
|
|
|
339
|
|
|
|
181
|
|
Total deferred tax assets
|
|
|
2,470
|
|
|
|
1,962
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,181
|
|
|
|
1,182
|
|
Loan servicing rights
|
|
|
238
|
|
|
|
129
|
|
Post-retirement benefits obligation
|
|
|
53
|
|
|
|
65
|
|
Unrealized gains on securities available for sale
|
|
|
—
|
|
|
|
555
|
|
Purchase accounting adjustments from merger
|
|
|
—
|
|
|
|
117
|
|
Other
|
|
|
190
|
|
|
|
117
|
|
Total deferred tax liabilities
|
|
|
1,662
|
|
|
|
2,165
|
|
Net deferred tax asset/(liability)
|
|
$
|
808
|
|
|
$
|
(203
|
)
|
Note
12 – Related Party Transactions
Loans
to executive officers, directors and their affiliates were as follows at December 31:
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
10,234
|
|
|
$
|
10,339
|
|
New loans
|
|
|
6,797
|
|
|
|
4,054
|
|
Repayments
|
|
|
(4,125
|
)
|
|
|
(4,159
|
)
|
Effect of changes in related parties
|
|
|
—
|
|
|
|
—
|
|
Balance, end of year
|
|
$
|
12,906
|
|
|
$
|
10,234
|
|
Deposits
from executive officers, directors and their affiliates were $14.7 million and $16.1 million at December 31, 2016 and 2015, respectively.
Note
13 – Employee Benefit Plans
401(k)
Plan
:
The
401(k) plan allows employees to contribute to their individual accounts under the plan amounts up to the IRS maximum. Matching
company contributions to the plan are discretionary. Expense for matching company contributions under the plan was $180,000, $168,000,
and $140,000 in 2016, 2015, and 2014, respectively.
Employee
Stock Ownership Plan
:
Through
December 31, 2015, employees participated in an Employee Stock Ownership Plan (“ESOP”). ChoiceOne could make discretionary
contributions to the ESOP. Shares of ChoiceOne common stock were allocated to participants based on relative compensation earned
and compensation expense was recorded when allocated. Dividends on allocated shares increased the participant accounts. Participants
became fully vested upon completing six years of qualifying service. Participants received the shares at the end of employment.
A participant could require stock received to be repurchased by ChoiceOne at any time. ChoiceOne did not contribute to the ESOP
nor was any expense recorded in 2016, 2015, or 2014. Effective January 1, 2016, ChoiceOne terminated the ESOP and transferred
shares held by the ESOP to the 401(k) plan and ChoiceOne no longer has a mandatory obligation to repurchase shares from the 401(k)
plan.
Shares
held by the ESOP as of December 31 were as follows:
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Shares allocated to participants
|
|
|
—
|
|
|
|
5,355
|
|
|
|
5,355
|
|
Shares unallocated
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total shares of ChoiceOne stock held by ESOP
|
|
|
—
|
|
|
|
5,355
|
|
|
|
5,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of allocated shares, subject to repurchase
obligation, recorded in other liabilities
|
|
$
|
—
|
|
|
$
|
127
|
|
|
$
|
123
|
|
Post-retirement
Benefits Plan
:
ChoiceOne
maintains an unfunded post-retirement health care plan, which permits employees (and their dependents) the ability to participate
upon retirement from ChoiceOne. ChoiceOne does not pay any portion of the health care premiums charged to its retired participants.
A liability has been accrued for the obligation under this plan. ChoiceOne incurred a negative post-retirement benefit expense
of $18,000 in 2016, a benefit expense of $2,000 in 2015, and a negative expense of $20,000 in 2014. The post-retirement obligation
liability was $148,000 as of December 31, 2016 and $127,000 as of December 31, 2015.
Deferred
Compensation Plans
:
A
deferred director compensation plan covers certain former directors. Under the
plan, ChoiceOne pays each former director the amount of director fees deferred plus interest at rates ranging from 5.50% to
5.84% over various periods as elected by each director. The payout periods range from one month to ten years beginning with
the individual’s termination of service. A liability has been accrued for the obligation under this plan.
ChoiceOne incurred deferred compensation plan expense of $7,000, $12,000, and $12,000 in 2016, 2015, and 2014, respectively.
The deferred compensation liability was $138,000 as of December 31, 2016 and $173,000 as of December 31, 2015.
A
supplemental executive retirement plan covers four former executive officers. Under the plan, ChoiceOne pays these individuals
a specific amount of compensation plus interest at 7.50% over a 15-year period commencing upon early retirement age (as defined
in the plan) or normal retirement age (as defined in the plan). A liability has been accrued for the obligation under this plan.
The effective interest rate used for the accrual for the retirement liability is based on long-term interest rates. Slightly higher
long-term interest rates during 2016 caused a slight decrease in plan expense in 2016 and in 2015. ChoiceOne incurred deferred
compensation plan expense of $19,000 in 2016 and $32,000 in 2015 and a negative expense of $42,000 in 2014. Liabilities related
to the supplemental executive retirement plan of $558,000 and $618,000 were outstanding as of December 31, 2016 and December 31,
2015, respectively.
Note
14 - Stock Based Compensation
Options
to buy stock have been granted to key employees under an incentive stock option plan to provide them with additional equity interests
in ChoiceOne. Compensation expense in connection with stock options granted during 2016, 2015, or 2014 was $71,000 in 2016 and
$0 in 2015 and 2014. The Amended and Restated Executive Stock Incentive Plan under which the stock options were granted expired
in 2012. The Stock Incentive Plan of 2012 was approved by the Company’s shareholders at the Annual Meeting held on April
25, 2012. The new plan provides for the issuance of up to 100,000 shares of common stock. At December 31, 2016, there were 40,750
shares available for future grants.
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
|
exercise
|
|
|
|
|
|
exercise
|
|
|
|
|
|
exercise
|
|
|
|
Shares
|
|
|
price
|
|
|
Shares
|
|
|
price
|
|
|
Shares
|
|
|
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, beginning of year
|
|
|
40,750
|
|
|
$
|
21.69
|
|
|
|
20,250
|
|
|
$
|
16.65
|
|
|
|
38,625
|
|
|
$
|
17.29
|
|
Options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
30,000
|
|
|
|
23.30
|
|
|
|
—
|
|
|
|
—
|
|
Options exercised
|
|
|
8,000
|
|
|
|
17.95
|
|
|
|
9,500
|
|
|
|
16.03
|
|
|
|
14,550
|
|
|
|
18.87
|
|
Options forfeited or expired
|
|
|
750
|
|
|
|
18.85
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,825
|
|
|
|
18.51
|
|
Options outstanding, end of year
|
|
|
32,000
|
|
|
$
|
22.69
|
|
|
|
40,750
|
|
|
$
|
21.69
|
|
|
|
20,250
|
|
|
$
|
16.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31
|
|
|
22,000
|
|
|
$
|
22.69
|
|
|
|
18,250
|
|
|
$
|
19.70
|
|
|
|
20,250
|
|
|
$
|
16.65
|
|
The
exercise prices for options outstanding and exercisable at the end of 2016 ranged from $13.50 to $23.30 per share. The weighted
average remaining contractual life of options outstanding and exercisable at the end of 2016 was approximately 8.4 years.
The
intrinsic value of all outstanding in-the-money stock options and exercisable in-the-money stock options was $34,000 and $29,000
respectively, at December 31, 2016. The aggregate intrinsic values of outstanding and exercisable options at December 31, 2016
were calculated based on the closing market price of the Company’s common stock on December 31, 2016 of $23.75 per share
less the exercise price.
Information
pertaining to options outstanding at December 31, 2016 is as follows:
Exercise price of stock options:
|
|
|
Number of
options
outstanding
at year-end
|
|
|
Number of
options
exercisable at
year-end
|
|
|
Average
remaining
contractual
life (in years)
|
|
$
|
13.50
|
|
|
2,000
|
|
|
2,000
|
|
|
1.08
|
|
$
|
23.30
|
|
|
30,000
|
|
|
20,000
|
|
|
9.09
|
|
The
fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. ChoiceOne uses
historical data to estimate the volatility of the market price of ChoiceOne stock and employee terminations within the valuation
model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect
at the time of grant. No options were granted in 2016 or 2014. As of December 31, 2016 there was $35,000 in unrecognized compensation
expense related to stock options issued in 2015.
The
fair value of stock options granted during 2015 was $106,000; determined using the following weighted-average assumptions as of
the grant date.
|
|
2015
|
|
Risk-free interest rate
|
|
|
2.28
|
%
|
Expected option life
|
|
|
5.75 years
|
|
Expected stock price volatility
|
|
|
22.95
|
%
|
Dividend yield
|
|
|
3.64
|
%
|
Fair value of options granted
|
|
$
|
3.54
|
|
ChoiceOne
has granted restricted stock units to a select group of employees under the Stock Incentive Plan of 2012. Restricted stock units
vest in three annual installments on each of the next three anniversaries of the grant date. Certain additional vesting provisions
apply. Each restricted stock unit, once vested, is settled by delivery of one share of ChoiceOne common stock. ChoiceOne recognized
compensation expense of $207,000 and $103,000 in 2016 and 2015, respectively, in connection with restricted stock units for current
participants during these years. At December 31, 2016, there were 14,933 restricted stock units outstanding with an approximate
stock value of $355,000 based on ChoiceOne’s December 31, 2016 stock price. At December 31, 2015, there were 17,850 restricted
stock units outstanding with an approximate stock value of $425,000. Unrecognized compensation expense as of December 31, 2016,
and based on the stock price at time of award was approximately $241,000 and will be allocated $139,000 to 2017, $79,000 to 2018
and $23,000 in 2019.
Note
15 - Earnings Per Share
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,090
|
|
|
$
|
5,743
|
|
|
$
|
5,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
3,287,109
|
|
|
|
3,289,296
|
|
|
|
3,298,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common shares
|
|
$
|
1.85
|
|
|
$
|
1.75
|
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,090
|
|
|
$
|
5,743
|
|
|
$
|
5,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
3,287,109
|
|
|
|
3,289,296
|
|
|
|
3,298,177
|
|
Plus dilutive stock options and restricted stock units
|
|
|
4,972
|
|
|
|
7,925
|
|
|
|
12,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and potentially dilutive shares
|
|
|
3,292,081
|
|
|
|
3,297,221
|
|
|
|
3,310,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
1.85
|
|
|
$
|
1.74
|
|
|
$
|
1.72
|
|
There
were 30,000 stock options that were considered anti-dilutive to earnings per share as of December 31, 2016 and thus have been
excluded from the calculations above. There were 30,000 stock options that were considered anti-dilutive to earnings per share
as of December 31, 2015, and there were no stock options as of December 31, 2014 considered to be anti-dilutive to earnings per
share.
Note
16 – Condensed Financial Statements of Parent Company
Condensed Balance Sheets
|
(Dollars in thousands)
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
516
|
|
|
$
|
1,145
|
|
Securities available for sale
|
|
|
3,406
|
|
|
|
2,263
|
|
Other assets
|
|
|
151
|
|
|
|
83
|
|
Investment in ChoiceOne Bank
|
|
|
67,698
|
|
|
|
66,539
|
|
Total assets
|
|
$
|
71,771
|
|
|
$
|
70,030
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Mandatory redeemable shares under ESOP, at fair value
|
|
$
|
—
|
|
|
$
|
127
|
|
Other liabilities
|
|
|
73
|
|
|
|
61
|
|
Total liabilities
|
|
|
73
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
71,698
|
|
|
|
69,842
|
|
Total liabilities and shareholders’ equity
|
|
$
|
71,771
|
|
|
$
|
70,030
|
|
Condensed Statements of Income
|
(Dollars in thousands)
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest and dividends from ChoiceOne Bank
|
|
$
|
3,161
|
|
|
$
|
3,579
|
|
|
$
|
2,731
|
|
Interest and dividends from other securities
|
|
|
52
|
|
|
|
26
|
|
|
|
16
|
|
Other income
|
|
|
—
|
|
|
|
—
|
|
|
|
27
|
|
Total income
|
|
|
3,213
|
|
|
|
3,605
|
|
|
|
2,774
|
|
Other expenses
|
|
|
133
|
|
|
|
137
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax and equity in undistributed net income of subsidiary
|
|
|
3,080
|
|
|
|
3,468
|
|
|
|
2,682
|
|
Income tax benefit
|
|
|
39
|
|
|
|
44
|
|
|
|
21
|
|
Income before equity in undistributed net income of subsidiary
|
|
|
3,119
|
|
|
|
3,512
|
|
|
|
2,703
|
|
Equity in undistributed net income of subsidiary
|
|
|
2,971
|
|
|
|
2,231
|
|
|
|
2,992
|
|
Net income
|
|
$
|
6,090
|
|
|
$
|
5,743
|
|
|
$
|
5,695
|
|
Condensed Statements of Cash Flows
|
(Dollars in thousands)
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,090
|
|
|
$
|
5,743
|
|
|
$
|
5,695
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed net income of subsidiary
|
|
|
(2,971
|
)
|
|
|
(2,231
|
)
|
|
|
(2,992
|
)
|
Amortization
|
|
|
20
|
|
|
|
11
|
|
|
|
3
|
|
Net expense of restricted stock units
|
|
|
367
|
|
|
|
103
|
|
|
|
48
|
|
Net gain on sale of securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(26
|
)
|
Changes in other assets
|
|
|
(68
|
)
|
|
|
71
|
|
|
|
(125
|
)
|
Changes in other liabilities
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
(35
|
)
|
Net cash from operating activities
|
|
|
3,437
|
|
|
|
3,701
|
|
|
|
2,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of securities
|
|
|
—
|
|
|
|
—
|
|
|
|
1,184
|
|
Purchases of securities
|
|
|
(1,126
|
)
|
|
|
(1,029
|
)
|
|
|
(1,565
|
)
|
Net cash from investing activities
|
|
|
(1,126
|
)
|
|
|
(1,029
|
)
|
|
|
(381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash proceeds from the issuance of common stock
|
|
|
85
|
|
|
|
206
|
|
|
|
132
|
|
Repurchase of common stock
|
|
|
(794
|
)
|
|
|
(371
|
)
|
|
|
(203
|
)
|
Cash dividends paid
|
|
|
(2,231
|
)
|
|
|
(2,170
|
)
|
|
|
(1,945
|
)
|
Net cash from financing activities
|
|
|
(2,940
|
)
|
|
|
(2,335
|
)
|
|
|
(2,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(629
|
)
|
|
|
337
|
|
|
|
171
|
|
Beginning cash
|
|
|
1,145
|
|
|
|
808
|
|
|
|
637
|
|
Ending cash
|
|
$
|
516
|
|
|
$
|
1,145
|
|
|
$
|
808
|
|
Note
17 – Financial Instruments
Financial
instruments as of the dates indicated were as follows:
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
(Dollars in thousands)
|
|
Carrying
|
|
|
Estimated
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
14,809
|
|
|
$
|
14,809
|
|
|
$
|
14,809
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Securities available for sale
|
|
|
174,388
|
|
|
|
174,388
|
|
|
|
1,383
|
|
|
|
157,902
|
|
|
|
15,103
|
|
Federal Home Loan Bank and Federal Reserve Bank stock
|
|
|
3,567
|
|
|
|
3,567
|
|
|
|
—
|
|
|
|
3,567
|
|
|
|
—
|
|
Loans held for sale
|
|
|
1,974
|
|
|
|
2,044
|
|
|
|
—
|
|
|
|
2,044
|
|
|
|
—
|
|
Loans, net
|
|
|
364,723
|
|
|
|
365,780
|
|
|
|
—
|
|
|
|
—
|
|
|
|
365,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
127,611
|
|
|
|
127,611
|
|
|
|
—
|
|
|
|
127,611
|
|
|
|
—
|
|
Interest-bearing deposits
|
|
|
384,775
|
|
|
|
383,879
|
|
|
|
—
|
|
|
|
383,879
|
|
|
|
—
|
|
Repurchase agreements
|
|
|
7,913
|
|
|
|
7,913
|
|
|
|
—
|
|
|
|
7,913
|
|
|
|
—
|
|
Federal Home Loan Bank advances
|
|
|
12,301
|
|
|
|
12,323
|
|
|
|
—
|
|
|
|
12,323
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
11,187
|
|
|
$
|
11,187
|
|
|
$
|
11,187
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Securities available for sale
|
|
|
160,136
|
|
|
|
160,136
|
|
|
|
953
|
|
|
|
147,384
|
|
|
|
11,799
|
|
Federal Home Loan Bank and Federal Reserve Bank stock
|
|
|
3,187
|
|
|
|
3,187
|
|
|
|
—
|
|
|
|
3,187
|
|
|
|
—
|
|
Loans held for sale
|
|
|
4,957
|
|
|
|
5,109
|
|
|
|
—
|
|
|
|
5,109
|
|
|
|
—
|
|
Loans, net
|
|
|
345,110
|
|
|
|
349,875
|
|
|
|
—
|
|
|
|
—
|
|
|
|
349,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
122,937
|
|
|
|
122,937
|
|
|
|
—
|
|
|
|
122,937
|
|
|
|
—
|
|
Interest-bearing deposits
|
|
|
351,759
|
|
|
|
353,113
|
|
|
|
—
|
|
|
|
353,113
|
|
|
|
—
|
|
Repurchase agreements
|
|
|
9,460
|
|
|
|
9,460
|
|
|
|
—
|
|
|
|
9,460
|
|
|
|
—
|
|
Federal Home Loan Bank advances
|
|
|
11,332
|
|
|
|
12,028
|
|
|
|
—
|
|
|
|
12,028
|
|
|
|
—
|
|
The
estimated fair values approximate the carrying amounts for all financial instruments except those described later in this paragraph.
The methodology for determining the estimated fair value for securities available for sale is described in Note 18. The estimated
fair value for loans is based on the rates charged at December 31 for new loans with similar maturities, applied until the loan
is assumed to reprice or be paid. The allowance for loan losses is considered to be a reasonable estimate of discount for credit
quality concerns. The estimated fair value of deposits is based on comparing the average rate paid on deposits compared to the
three month Libor rate which is assumed to be the replacement value of these deposits. At December 31, 2016, all average rates
were lower than the three month Libor rate causing fair values to be higher than carrying amounts. The estimated fair values for
time deposits and FHLB advances are based on the rates paid at December 31 for new deposits or FHLB advances, applied until maturity.
The estimated fair values for other financial instruments and off-balance sheet loan commitments are considered nominal.
Note
18 – Fair Value Measurements
The
following tables present information about the Bank’s assets and liabilities measured at fair value on a recurring basis
at December 31, 2016 and December 31, 2015, and the valuation techniques used by the Bank to determine those fair values.
In
general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that
the Bank has the ability to access.
Fair
values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs
include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield
curves that are observable at commonly quoted intervals.
Level
3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity
for the related asset or liability.
In
instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements
in their entirety are categorized based on the lowest level input that is significant to the valuation. The Bank’s assessment
of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to
each asset or liability.
There
were no liabilities measured at fair value as of December 31, 2015 or December 31, 2016. Disclosures concerning assets measured
at fair value are as follows:
Assets
Measured at Fair Value on a Recurring Basis
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Balance at
|
|
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level
3)
|
|
Date Indicated
|
|
Investment Securities, Available for Sale - December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government and federal agency
|
|
$
|
—
|
|
|
$
|
59,052
|
|
|
$
|
—
|
|
|
$
|
59,052
|
|
U. S. Treasury notes and bonds
|
|
|
—
|
|
|
|
4,072
|
|
|
|
—
|
|
|
|
4,072
|
|
State and municipal
|
|
|
—
|
|
|
|
75,370
|
|
|
|
13,603
|
|
|
|
88,973
|
|
Mortgage-backed
|
|
|
—
|
|
|
|
7,789
|
|
|
|
—
|
|
|
|
7,789
|
|
Corporate
|
|
|
—
|
|
|
|
7,041
|
|
|
|
—
|
|
|
|
7,041
|
|
Foreign debt
|
|
|
—
|
|
|
|
4,400
|
|
|
|
—
|
|
|
|
4,400
|
|
Equity securities
|
|
|
1,383
|
|
|
|
—
|
|
|
|
1,500
|
|
|
|
2,883
|
|
Asset backed securities
|
|
|
—
|
|
|
|
178
|
|
|
|
—
|
|
|
|
178
|
|
Total
|
|
$
|
1,383
|
|
|
$
|
157,902
|
|
|
$
|
15,103
|
|
|
$
|
174,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities, Available for Sale
- December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government and federal agency
|
|
$
|
—
|
|
|
$
|
57,207
|
|
|
$
|
—
|
|
|
$
|
57,207
|
|
U. S. Treasury notes and bonds
|
|
|
—
|
|
|
|
6,100
|
|
|
|
—
|
|
|
|
6,100
|
|
State and municipal
|
|
|
—
|
|
|
|
67,852
|
|
|
|
9,902
|
|
|
|
77,754
|
|
Mortgage-backed
|
|
|
—
|
|
|
|
6,970
|
|
|
|
—
|
|
|
|
6,970
|
|
Corporate
|
|
|
—
|
|
|
|
7,990
|
|
|
|
397
|
|
|
|
8,387
|
|
Foreign debt
|
|
|
—
|
|
|
|
995
|
|
|
|
—
|
|
|
|
995
|
|
Equity securities
|
|
|
953
|
|
|
|
—
|
|
|
|
1,500
|
|
|
|
2,453
|
|
Asset backed securities
|
|
|
—
|
|
|
|
270
|
|
|
|
—
|
|
|
|
270
|
|
Total
|
|
$
|
953
|
|
|
$
|
147,384
|
|
|
$
|
11,799
|
|
|
$
|
160,136
|
|
Securities
classified as available for sale are generally reported at fair value utilizing Level 2 inputs. ChoiceOne’s external investment
advisor obtained fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical
technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities
but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value
measurements considered observable data that may include dealer quotes, market spreads, cash flows and the bonds’ terms
and conditions, among other things. Securities classified in Level 2 included U.S. Government and federal agency securities, U.S.
Treasury notes and bonds, state and municipal securities, mortgage-backed securities, corporate bonds, foreign debt, and asset
backed securities. The Company classified certain state and municipal securities and corporate bonds, and equity securities as
Level 3. Based on the lack of observable market data, estimated fair values were based on the observable data available and reasonable
unobservable market data.
Changes
in Level 3 Assets Measured at Fair Value on a Recurring Basis
(Dollars in thousands)
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Investment Securities,
Available for Sale
|
|
|
|
|
|
|
|
|
Balance, January 1
|
|
$
|
11,799
|
|
|
$
|
11,642
|
|
Total realized and unrealized gains included in
income
|
|
|
—
|
|
|
|
—
|
|
Total unrealized gains/(losses) included in other
comprehensive income
|
|
|
(307
|
)
|
|
|
806
|
|
Net purchases, sales, calls, and maturities
|
|
|
3,611
|
|
|
|
(649
|
)
|
Net transfers into Level
3
|
|
|
—
|
|
|
|
—
|
|
Balance, December 31
|
|
$
|
15,103
|
|
|
$
|
11,799
|
|
Of
the Level 3 assets that were still held by the Bank at December 31, 2016, the net unrealized loss for the twelve months ended
December 31, 2016 was $307,000 compared to a $806,000 unrealized gain as of December 31, 2015, which is recognized in other comprehensive
income in the consolidated balance sheets. A total of $6.7 million and $3.2 million of Level 3 securities were purchased in 2016
and 2015, respectively.
Both
observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets and liabilities.
As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes
in fair value that were attributable to both observable and unobservable inputs.
Available
for sale investment securities categorized as Level 3 assets consist of bonds issued by local municipalities and a trust-preferred
security. The Bank estimates the fair value of these assets based on the present value of expected future cash flows using management’s
best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality and a discount rate commensurate
with the current market and other risks involved.
The
Bank also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets
are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment.
Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:
Assets
Measured at Fair Value on a Non-recurring Basis
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
Balances at
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
(Dollars in thousands)
|
|
Dates
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
Indicated
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level 3)
|
|
Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
4,911
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,911
|
|
December 31, 2015
|
|
$
|
5,585
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
437
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
437
|
|
December 31, 2015
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
31
|
|
Impaired
loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Bank estimates the fair
value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions.
These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral
(typically based on outside appraisals). The changes in fair value consisted of charge-downs of impaired loans that were posted
to the allowance for loan losses and write-downs of other real estate owned that were posted to a valuation account. The fair
value of other real estate owned was based on appraisals or other reviews of property values, adjusted for estimated costs to
sell.
Note
19 – Off-Balance Sheet Activities
Some
financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet
customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions
established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance
sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The
same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the
commitment.
The
contractual amount of financial instruments with off-balance sheet risk was as follows at December 31:
|
|
2016
|
|
2015
|
|
|
|
Fixed
|
|
Variable
|
|
Fixed
|
|
Variable
|
|
(Dollars in thousands)
|
|
Rate
|
|
Rate
|
|
Rate
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused
lines of credit and letters of credit
|
|
$
|
9,219
|
|
|
$
|
38,422
|
|
|
$
|
14,445
|
|
|
$
|
77,089
|
|
Commitments
to fund loans (at market rates)
|
|
|
16,788
|
|
|
|
3,005
|
|
|
|
18,654
|
|
|
|
1,740
|
|
Commitments
to fund loans are generally made for periods of 180 days or less. The fixed rate loan commitments have interest rates ranging
from 3.00% to 6.75% and maturities ranging from 3 years to 30 years.
Note
20 – Regulatory Capital
ChoiceOne
and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines
and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items
calculated under regulatory accounting practices. The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although
these terms are not used to represent overall financial condition. Depending upon the capital category to which an institution
is assigned, the regulators’ corrective powers include: prohibiting the acceptance of brokered deposits; requiring the submission
of a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to issue
additional capital stock (including additional voting stock) or to be acquired; restricting transactions with affiliates; restricting
the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that
senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks;
requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt;
and ultimately, appointing a receiver for the institution. At year-end 2016 and 2015, the Bank was categorized as well capitalized
under the regulatory framework for prompt corrective action.
Actual
capital levels and minimum required levels for ChoiceOne and the Bank were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
thousands)
|
|
Actual
|
|
|
Minimum
Required
for Capital
Adequacy Purposes
|
|
|
Minimum
Required
to be Well
Capitalized Under
Prompt Corrective
Action Regulations
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ChoiceOne
Financial Services Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital (to risk weighted assets)
|
|
$
|
62,822
|
|
|
|
14.2
|
%
|
|
$
|
35,289
|
|
|
|
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Common
equity Tier 1 capital (to risk weighted assets)
|
|
|
58,568
|
|
|
|
13.3
|
|
|
|
19,850
|
|
|
|
4.5
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier
1 capital (to risk weighted assets)
|
|
|
58,568
|
|
|
|
13.3
|
|
|
|
26,467
|
|
|
|
6.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier
1 capital (to average assets)
|
|
|
58,568
|
|
|
|
9.9
|
|
|
|
23,641
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ChoiceOne
Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital (to risk weighted assets)
|
|
$
|
58,963
|
|
|
|
13.4
|
%
|
|
$
|
35,119
|
|
|
|
8.0
|
%
|
|
$
|
43,899
|
|
|
|
10.0
|
%
|
Common
equity Tier 1 capital (to risk weighted assets)
|
|
|
54,709
|
|
|
|
12.5
|
|
|
|
19,754
|
|
|
|
4.5
|
|
|
|
28,534
|
|
|
|
6.5
|
|
Tier
1 capital (to risk weighted assets)
|
|
|
54,709
|
|
|
|
12.5
|
|
|
|
26,339
|
|
|
|
6.0
|
|
|
|
35,119
|
|
|
|
8
.0
|
|
Tier
1 capital (to average assets)
|
|
|
54,709
|
|
|
|
9.3
|
|
|
|
23,504
|
|
|
|
4.0
|
|
|
|
29,380
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ChoiceOne
Financial Services Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital (to risk weighted assets)
|
|
$
|
59,737
|
|
|
|
14.2
|
%
|
|
$
|
33,600
|
|
|
|
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Common
equity Tier 1 capital (to risk weighted assets)
|
|
|
54,532
|
|
|
|
13.0
|
|
|
|
18,900
|
|
|
|
4.5
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier
1 capital (to risk weighted assets)
|
|
|
54,532
|
|
|
|
13.0
|
|
|
|
16,800
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier
1 capital (to average assets)
|
|
|
54,532
|
|
|
|
9.7
|
|
|
|
22,434
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ChoiceOne
Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital (to risk weighted assets)
|
|
$
|
55,723
|
|
|
|
13.3
|
%
|
|
$
|
33,470
|
|
|
|
8.0
|
%
|
|
$
|
41,837
|
|
|
|
10.0
|
%
|
Common
equity Tier 1 capital (to risk weighted assets)
|
|
|
51,574
|
|
|
|
12.3
|
|
|
|
18,827
|
|
|
|
4.5
|
|
|
|
27,194
|
|
|
|
6.5
|
|
Tier
1 capital (to risk weighted assets)
|
|
|
51,574
|
|
|
|
12.3
|
|
|
|
16,735
|
|
|
|
4.0
|
|
|
|
25,102
|
|
|
|
6.0
|
|
Tier
1 capital (to average assets)
|
|
|
51,574
|
|
|
|
9.2
|
|
|
|
22,350
|
|
|
|
4.0
|
|
|
|
27,937
|
|
|
|
5.0
|
|
Banking
regulations limit capital distributions by state-chartered banks. Generally, capital distributions are limited to undistributed
net income for the current and prior two years. At December 31, 2016, approximately $10.9 million was available for ChoiceOne
Bank to pay dividends to ChoiceOne. ChoiceOne’s ability to pay dividends to shareholders is dependent on the payment of
dividends from the Bank, which is restricted by state law and regulations.
On
July 3, 2013, the FDIC Board of Directors approved the Regulatory Capital Interim Final Rule, implementing Basel III. This rule
redefines Tier 1 capital as two components (Common Equity Tier 1 and Additional Tier 1), creates a new capital ratio (Common Equity
Tier 1 Risk-based Capital Ratio) and implements a capital conservation buffer. It also revises the prompt corrective action thresholds
and makes changes to risk weights for certain assets and off-balance-sheet exposures. Banks were required to transition into the
new rule beginning on January 1, 2015.
Note
21 – Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Earnings
Per Share
|
|
(Dollars in
thousands)
|
|
Interest
|
|
|
Interest
|
|
|
Net
|
|
|
|
|
|
Fully
|
|
|
|
Income
|
|
|
Income
|
|
|
Income
|
|
|
Basic
|
|
|
Diluted
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
4,921
|
|
|
$
|
4,680
|
|
|
$
|
1,274
|
|
|
$
|
0.39
|
|
|
$
|
0.39
|
|
Second
Quarter
|
|
|
5,037
|
|
|
|
4,789
|
|
|
|
1,445
|
|
|
|
0.43
|
|
|
|
0.43
|
|
Third
Quarter
|
|
|
5,168
|
|
|
|
4,931
|
|
|
|
1,683
|
|
|
|
0.52
|
|
|
|
0.52
|
|
Fourth
Quarter
|
|
|
5,186
|
|
|
|
4,943
|
|
|
|
1,688
|
|
|
|
0.51
|
|
|
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
4,746
|
|
|
$
|
4,490
|
|
|
$
|
1,642
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
Second
Quarter
|
|
|
4,832
|
|
|
|
4,578
|
|
|
|
1,430
|
|
|
|
0.44
|
|
|
|
0.43
|
|
Third
Quarter
|
|
|
4,870
|
|
|
|
4,624
|
|
|
|
1,449
|
|
|
|
0.44
|
|
|
|
0.44
|
|
Fourth
Quarter
|
|
|
4,904
|
|
|
|
4,670
|
|
|
|
1,222
|
|
|
|
0.37
|
|
|
|
0.37
|
|
There
were no significant fluctuations in the quarterly financial data in 2015 or 2016. The growth in net income that occurred in 2016
was due to an increase in interest and non-interest income offset by an increase in interest expense.