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Section 1: 8-K (FORM 8-K)

cofs20200630_8k.htm

 

 



 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

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

 

Date of Report (Date of earliest event reported): July 28, 2020

 

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

 

 

Michigan
(State or Other Jurisdiction
of Incorporation)

000-19202
(Commission
File Number)

38-2659066
(IRS Employer
Identification No.)

 

 

109 E. Division Street
Sparta, Michigan

(Address of Principal Executive Offices)


49345
(Zip Code)

 

Registrant's telephone number, including area code: (616) 887-7366

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock

COFS

NASDAQ Capital Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 



 

 

 

 

Item 2.02

Results of Operations and Financial Condition.

 

On July 28, 2020, ChoiceOne Financial Services, Inc. issued the press release attached as Exhibit 99.1 to this Form 8-K, which is here incorporated by reference. This Report and the Exhibit are furnished to, and not filed with, the Commission.

 

 

Item 9.01

Financial Statements and Exhibits.

 

 

 

(d)

Exhibits:

 

 

 

 

 

99.1

Press Release dated July 28, 2020.  This Exhibit is furnished to, and not filed with, the Commission.

 

-2-

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated:

July 28, 2020

CHOICEONE FINANCIAL SERVICES, INC.
(Registrant)

 

 

 

 

 

 

 

 

 

 

By:

/s/ Thomas L. Lampen

 

 

 

Thomas L. Lampen
Its Treasurer

 

-3-

 

 

EXHIBIT INDEX

 

 

Exhibit Number

 

Document

 

 

 

99.1

 

Press Release dated July 28, 2020.  This Exhibit is furnished to, and not filed with, the Commission.

 

 

 
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Section 2: EX-99.1 (EXHIBIT 99.1)

ex_192363.htm
 

 

EXHIBIT 99.1

 

 

News Release

 

Contact:

Tom Lampen, ChoiceOne Bank
(616) 887-2337
[email protected]

 

ChoiceOne Financial Reports Second quarter 2020 Results

 

Sparta, Michigan – July 28, 2020 – ChoiceOne Financial Services, Inc. (NASDAQ:COFS), the parent company for ChoiceOne Bank and, as of July 1, 2020, Community Shores Bank, reported financial results for the quarter ended June 30, 2020.  The reported results for the second quarter of 2020 do not include the financial results for Community Shores Bank Corporation, which was merged with and into ChoiceOne on July 1, 2020.  

 

As we continue to work through the challenges that many of our Michigan families, businesses and communities face due to the coronavirus pandemic, we have serious measures in place to keep our customers and employees safe,” said ChoiceOne CEO Kelly Potes. “Our branch offices are open, but we are continuing to emphasize using our online and mobile banking options. We are encouraging any of our customers who are facing a hardship to contact us immediately. ChoiceOne has deferred numerous mortgage and consumer loan and commercial loan payments. As an SBA lender, we continue to proactively work with our small business customers across West and Southeast Michigan to process their Paycheck Protection Program loans. Our strong capital and liquidity – along with our increased size and scale – continue to be valuable assets as we move forward during these challenging times for our customers.”

 

Financial Highlights

 

 

§

Net income of $4,431,000 in the second quarter of 2020 compared to $1,487,000 in the same period in 2019.

 

§

Diluted earnings per share of $0.61 compared to $0.41 per share in the second quarter of the prior year.

 

§

Excluding $462,000 in tax-effected merger expenses, net income in the second quarter of 2020 was $4,893,000 or $0.67 per diluted share.

 

§

Loans, net of allowance for loan losses grew $100.0 million and interest income related to loans grew 5.7% in the second quarter of 2020 compared to the first quarter of 2020.  Growth in loans and related fee income were boosted by loans originated as part of the Paycheck Protection Program.

  § ChoiceOne added $1,000,000 in provision for loan losses expense during the second quarter of 2020 and $1,775,000 in the first six months of 2020, much of which was related to the impact of COVID-19.
 

§

Total deposits grew $155.4 million or 13.2% in the second quarter of 2020.

 

ChoiceOne reported net income of $4,431,000 for the second quarter of 2020 compared to $1,487,000 in the same period in 2019. Diluted earnings per share were $0.61 in the second quarter of 2020 compared to $0.41 per share in the second quarter of the prior year. Excluding $462,000 in tax-effected merger expenses, net income for the second quarter of 2020 amounted to $4,893,000 or $0.67 per diluted share. Net income for the first six months of 2020 was $7,685,000 or $1.06 per diluted share, compared to $3,123,000 or $0.86 per diluted share in the first half of 2019. Net income for the first half of 2020, when adjusted to exclude $744,000 of tax-effected merger expenses, was $8,429,000 or $1.16 per diluted share.  The increases in net income as compared to prior periods in 2019 are largely due to ChoiceOne's merger with County Bank Corp., which was completed on October 1, 2019.  The total assets, loans and deposits acquired in the merger with County Bank Corp were approximately $712 Million, $424 million and $568 million, respectively.

 

“As we face these unprecedented times in our world and here at ChoiceOne, I am gratified and humbled to report very strong net income for the second quarter of 2020,” said Potes. “We completed the consolidation of Lakestone Bank & Trust into ChoiceOne Bank in May and expect to consolidate Community Shores Bank into ChoiceOne Bank later this year.”

 

Total assets grew to $1.5 billion as of June 30, 2020, compared to $1.4 billion as of March 31, 2020. Net loans grew $100.0 million in the second quarter of 2020 and interest income related to loans grew 5.7% in the second quarter of 2020 compared to the first quarter of 2020.  Growth in loans and related fee income was boosted by loans originated in the Paycheck Protection Program. ChoiceOne added $1,000,000 in provision for loan losses expense during the second quarter and $1,775,000 in the first six months of 2020, much of which was related to the impact of COVID-19.  Although ChoiceOne has not seen significant increases in charge-offs or delinquencies, we are continuing to monitor deferrals and economic indicators which may signify the need for increased provision for loan losses expense.  Total deposits grew $155.4 million or 13.2% in the second quarter of 2020.  A portion of this growth is related to the stimulus package included in the CARES Act as well as funds on deposit from the Paycheck Protection Program loans that were not fully utilized as of June 30, 2020.

 

Total noninterest income increased $2,820,000 in the second quarter of 2020 compared to the first quarter of 2020.  Gains on sales of loans increased due to lower interest rates encouraging refinancing activity.  Gains on sales of securities were higher in the second quarter of 2020 compared to the prior quarter as a result of a restructuring of ChoiceOne’s securities portfolio.  The change in the market value of equity securities was positive in the second quarter of 2020 compared to a negative balance in the first quarter of 2020 as declines that occurred in the first quarter were reversed in the second quarter.  Customer service charges declined in the second quarter of 2020 compared to the prior quarter due to the effect of the COVID-19 pandemic on customer activity levels.

 

Total noninterest expense increased $1,734,000 in the second quarter of 2020 compared to the first quarter of 2020. Much of the increase was caused by expenses related to the consolidation of ChoiceOne Bank and Lakestone Bank & Trust in May 2020 and the merger between ChoiceOne and Community Shores Bank Corporation completed on July 1, 2020. The combined organization will be the 12th largest bank holding company in Michigan based on asset size, with approximately $1.7 billion in assets as of June 30, 2020 and 33 offices across West and Southwest Michigan.  ChoiceOne Bank and Community Shores Bank are expected to be consolidated in the fourth quarter of 2020 and the consolidated bank will operate under the ChoiceOne name.

 

“These are certainly unusual times for our country, our state and our banks,” said Potes. “We believe our recent mergers have given us the increased size and scale to move through these unprecedented times with the ability to continue our pursuit for efficiencies and new growth opportunities in our expanded network across West and Southest Michigan.”

 

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About ChoiceOne

ChoiceOne Financial Services, Inc. is a financial holding company headquartered in Sparta, Michigan and the parent corporation of ChoiceOne Bank and Community Shores Bank.  Members FDIC.  ChoiceOne Bank operates 29 offices in parts of Kent, Lapeer, Macomb, Muskegon, Newaygo, Ottawa, and St. Clair counties.  Community Shores Bank operates 4 offices in Muskegon and Ottawa counties.  ChoiceOne Bank offers insurance and investment products through its subsidiary, ChoiceOne Insurance Agencies, Inc.  For more information, please visit Investor Relations at ChoiceOne’s website at choiceone.com.

 

Non-GAAP Financial Measures

This press release contains references to net income and net income per diluted share, each excluding tax-effected merger expenses, which are financial measures that are not defined in U.S. generally accepted accounting principles ("GAAP"). Management believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the underlying financial performance of ChoiceOne.

 

Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. ChoiceOne’s method of calculating these non-GAAP financial measures may differ from methods used by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.

 

Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in this news release. See Non-GAAP Reconciliation.

 

Forward-Looking Statements

This release may contain forward-looking statements. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “may,” “could,” “look forward,” “continue”, “future” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements reflect current beliefs as to the expected outcomes of future events and are not guarantees of future performance. These statements involve certain risks, uncertainties and assumptions (“risk factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence, including without limitation the impact of the global coronavirus outbreak (COVID-19). Therefore, actual results and outcomes may materially differ from what may be expressed, implied or forecasted in such forward-looking statements. Furthermore, ChoiceOne undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise. 

 

The COVID-19 pandemic is adversely affecting us and our customers, counterparties, employees, and third-party service providers.  The ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain.

 

Additional risk factors include, but are not limited to, the risk factors described in Item 1A in ChoiceOne Financial Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019 and in Item 1A in ChoiceOne Financial Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

 

EDITORS NOTE: Media interviews with ChoiceOne Bank executives are available by calling Tom Lampen at (616) 887-7366 or [email protected] Electronic versions of bank official headshots are also available.

 

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Condensed Balance Sheets
(Unaudited)

 

 

(In thousands)

 

06/30/2020

   

03/31/2020

   

06/30/2019

 

Cash and Cash Equivalents

  $ 66,791     $ 45,471     $ 13,687  

Securities

    381,085       370,936       169,365  

Loans Held For Sale

    10,860       7,385       2,194  

Loans to Other Financial Institutions

    49,895       39,421       28,950  

Loans, Net of Allowance For Loan Losses

    906,782       806,787       392,426  

Premises and Equipment

    23,971       24,087       15,502  

Cash Surrender Value of Life Insurance Policies

    32,363       32,171       15,090  

Goodwill

    52,593       52,593       13,728  

Core Deposit Intangible

    5,299       5,653       -  

Other Assets

    19,125       13,986       7,555  
                         

Total Assets

  $ 1,548,764     $ 1,398,490     $ 658,497  
                         

Noninterest-bearing Deposits

  $ 396,625     $ 283,434     $ 149,320  

Interest-bearing Deposits

    932,221       889,965       412,456  

Borrowings

    10,179       23,188       7,216  

Other Liabilities

    7,767       6,101       3,842  
                         

Total Liabilities

    1,346,792       1,202,688       572,834  
                         

Shareholders' Equity

    201,972       195,802       85,663  
                         

Total Liabilities and Shareholders’ Equity

  $ 1,548,764     $ 1,398,490     $ 658,497  

 

 

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Condensed Statements of Income
(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 

(In Thousands, Except Per Share Data)

 

06/30/2020

   

3/31/2020

   

06/30/2019

   

06/30/2020

   

06/30/2019

 

Interest Income

                                       

Loans, including fees

  $ 10,821     $ 10,242     $ 5,390     $ 21,063     $ 10,670  

Securities and other

    2,042       2,419       1,164       4,461       2,361  

Total Interest Income

    12,863       12,661       6,554       25,524       13,031  
                                         

Interest Expense

                                       

Deposits

    898       1,385       924       2,283       1,775  

Borrowings

    86       138       129       224       259  

Total Interest Expense

    984       1,523       1,053       2,507       2,034  
                                         

Net Interest Income

    11,879       11,138       5,501       23,017       10,997  

Provision for Loan Losses

    1,000       775       -       1,775       -  
                                         

Net Interest Income After Provision for Loan Losses

    10,879       10,363       5,501       21,242       10,997  
                                         

Noninterest Income

                                       

Customer service charges

    1,402       1,845       1,148       3,247       2,181  

Insurance and investment commissions

    153       126       74       279       137  

Gains on sales of loans

    2,997       1,743       489       4,740       735  

Gains on sales of securities

    1,342       2       2       1,344       3  

Trust income

    202       170       -       372       -  

Earnings on life insurance policies

    191       192       95       383       191  

Change in market value of equity securities

    443       (389 )     80       54       266  

Other income

    22       243       141       265       273  

Total Noninterest Income

    6,752       3,932       2,029       10,684       3,786  
                                         

Noninterest Expense

                                       

Salaries and benefits

    6,360       5,128       2,870       11,488       5,647  

Occupancy and equipment

    1,359       1,270       741       2,629       1,512  

Data processing

    1,568       1,484       582       3,052       1,138  

Professional fees

    914       762       678       1,676       1,195  

Other expenses

    1,949       1,772       891       3,721       1,604  

Total Noninterest Expense

    12,150       10,416       5,762       22,566       11,096  
                                         

Income Before Income Tax

    5,481       3,879       1,768       9,360       3,687  

Income Tax Expense

    1,050       625       281       1,675       564  
                                         

Net Income

  $ 4,431     $ 3,254     $ 1,487     $ 7,685     $ 3,123  
                                         

Basic Earnings Per Share

  $ 0.61     $ 0.45     $ 0.41     $ 1.06     $ 0.86  

Diluted Earnings Per Share

  $ 0.61     $ 0.45     $ 0.41     $ 1.06     $ 0.86  

 

4

 

Non-GAAP Reconciliation

(Unaudited)

 

 

In addition to analyzing the Company's results on a reported basis, management reviews the Company's results and the results on an adjusted basis. The non-GAAP measures presented in the table below reflect the adjustments of the reported U.S. GAAP results for significant items that management does not believe are reflective of the Company's current and ongoing operations.

 

   

Three Months Ended

   

Six Months Ended

 

(In Thousands, Except Per Share Data)

 

06/30/2020

   

06/30/2019

   

06/30/2020

   

06/30/2019

 

Income before income tax

  $ 5,481     $ 1,768     $ 9,360     $ 3,687  

Adjustment for merger costs

    517       350       819       588  

Adjusted income before income tax

  $ 5,998     $ 2,118     $ 10,179     $ 4,275  
                                 

Income tax expense

  $ 1,050     $ 281     $ 1,675     $ 564  

Tax impact on adjustment for merger costs

    55       -       75       15  

Adjusted income tax expense

  $ 1,105     $ 281     $ 1,750     $ 579  
                                 

Net income

  $ 4,431     $ 1,487     $ 7,685     $ 3,123  

Adjusted net income

  $ 4,893     $ 1,837     $ 8,429     $ 3,696  
                                 
Basic earnings per share   $ 0.61     $ 0.41     $ 1.06     $ 0.86  
Diluted earnings per share   $ 0.61     $ 0.41     $ 1.06     $ 0.86  

Adjusted basic earnings per share

  $ 0.67     $ 0.51     $ 1.16     $ 1.02  

Adjusted diluted earnings per share

  $ 0.67     $ 0.50     $ 1.16     $ 1.02  

 

 

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