ex_415986.htm

EX-99.1 2 ex_415986.htm EXHIBIT 99.1 ex_415986.htm

EXHIBIT 99.1

ChoiceOne Financial Reports Third Quarter 2022 Results

Sparta, Michigan - October 26, 2022 - ChoiceOne Financial Services, Inc. ("ChoiceOne", NASDAQ:COFS), the parent company for ChoiceOne Bank, reported financial results for the quarter ended September 30, 2022.

Financial Highlights

● ChoiceOne reported net income of $5,813,000 and $16,956,000 for the three and nine months ended September 30, 2022, compared to $5,749,000 and $17,029,000 for the same periods in 2021.

● Diluted earnings per share were $0.77 and $2.26 in the three and nine months ended September 30, 2022, compared to $0.75 and $2.20 per share in the same periods in the prior year.

● Core loans, which exclude Paycheck Protection Program (“PPP”) loans, held for sale loans, and loans to other financial institutions, grew organically by $52.8 million or 19.6% on an annualized basis during the third quarter of 2022 and $205.2 million or 22.1% since the end of the third quarter in 2021.

● ChoiceOne continues to grow deposits, which grew $18.2 million or 3.4% on an annualized basis in the third quarter of 2022 and $144.5 million or 7.2% since the end of the third quarter in 2021. Deposit expense has increased $786,000 for the first nine months of 2022 as compared to the same period in 2021.

● ChoiceOne plans for a fourth quarter 2022 opening of its Oakland County, Michigan loan production office. It is intended that this location will host both commercial and mortgage lenders.

● ChoiceOne will be launching an enhanced treasury services online platform for business clients in 2023. This new platform includes enhanced reporting, security, and payment capabilities.

"ChoiceOne continues to see strong organic core loan growth, as core loans grew organically by $52.8 million or 19.6% on an annualized basis during the third quarter of 2022 and $205.2 million or 22.1% since the end of the third quarter in 2021,” said Kelly Potes, Chief Executive Officer. "We have funded this increase in core loans using on balance sheet liquidity, deployed excess funds into higher earning assets, and increased earnings from our core business. Our investment in customer relationships is our greatest asset in this uncertain economic environment."

Total assets as of September 30, 2022, increased $3.3 million as compared to June 30, 2022, and increased $86.3 million compared to September 30, 2021. Deposits in the third quarter 2022 showed modest growth of 3.4%, which is attributed to organic growth of new relationships and some seasonal fluctuations in our municipal clients. Despite the rapidly rising rate environment resulting from the federal funds rate increases, deposit costs have only increased 12 basis points since the third quarter of 2021, as ChoiceOne is actively managing these costs and intends to continue to lag the expected additional increases in the federal funds rate. Total interest expense for the nine months ended September 30, 2022, has increased $1.6 million as compared to the same period in 2021 primarily due to the issuance of $32.5 million in subordinated debt that was completed in the third quarter of 2021. In addition to a focus on managing interest rate expense, ChoiceOne's derivative strategy implemented during the second quarter of 2022, better positions the bank should rates continue to rise. The net impact on equity of the derivative strategy as of September 30, 2022 was $4.8 million net of tax.

Core loans grew organically by $52.8 million during the third quarter of 2022, driven by commercial loan growth of $33.8 million and retail home loan growth of $19.0 million. The majority of growth in retail home loans are five-year adjustable-rate mortgage loans targeting high quality borrowers in our market area. This loan product has helped ChoiceOne stay competitive in a challenging mortgage market. Loans to other financial institutions, which is a warehouse line of credit, declined to $70,000, and management chose to suspend the program at the end of the third quarter. ChoiceOne has ample on balance sheet liquidity to fund future loan growth, including $183.1 million of cash flow from securities over the next two years. During the three months ended September 30, 2022, the remaining $1.8 million of PPP loans were forgiven resulting in $68,000 of fee income. All PPP loans were fully forgiven, and the associated fee income has been recognized at September 30, 2022. Interest income increased $6.6 million in the nine months ended September 30, 2022, compared to the same period in the prior year. The increase was driven by a $4.8 million increase in securities interest income as the average balance of securities at September 30, 2022 has increased $306.1 million from September 30, 2021. $1.8 million of the increase in interest income is from loan interest income and was primarily a result of higher loan balances and $1.7 million of accretion income from acquired loans partially offset by a decrease in PPP fee income.

ChoiceOne had $100,000 of provision for loan losses expense for the nine months ended September 30, 2022. Management has seen declining deferrals and very few past due loans; however, the additional provision was deemed necessary due to consistent loan growth. On September 30, 2022, the allowance for loan losses represented 0.66% of total loans. The remaining credit mark on acquired loans from the mergers with County Bank Corp. and Community Shores Bank Corporation totaled $1.8 million as of September 30, 2022. If the credit mark associated with the loans acquired in the mergers were added to the allowance for loan losses, the allowance for loan losses would have represented 0.82% of total loans excluding loans held for sale on September 30, 2022.

Shareholders’ equity totaled $156.7 million as of September 30, 2022, down from $225.1 million as of September 30, 2021, primarily due to an increase in the after-tax net unrealized loss on securities available for sale resulting from higher market interest rates. ChoiceOne Bank remains “well-capitalized” with a total risk-based capital ratio of 12.8% as of September 30, 2022, compared to 13.4% at September 30, 2021. No shares of common stock were repurchased during the third quarter of 2022; however, ChoiceOne may strategically repurchase shares of common stock in the future depending on market and other conditions.

Total noninterest income declined $4.7 million in the first nine months of 2022 compared to the first nine months of 2021. Total noninterest income in 2021 was bolstered by heightened levels of refinancing activity within ChoiceOne's mortgage portfolio, with gains on sales of loans $3.6 million larger than in the first nine months of 2022. Customer service charges increased $691,000 in the first nine months of 2022 compared to the first nine months of 2021 as prior year service charges were depressed by the effects of the COVID-19 pandemic. The market value of equity securities declined $1.5 million during the first nine months of 2022 compared to the first nine months of 2021 consistent with general market conditions. Equity investments include local community bank stocks and Community Reinvestment Act bond mutual funds. During the first nine months of 2022, ChoiceOne has liquidated a total of $47.2 million in securities resulting in an $805,000 realized loss, in order to redeploy the funds into higher yielding loans and reduce the risk of extension on certain fixed income securities which include a call option.

Total noninterest expense increased $1.1 million in the first nine months of 2022 compared to the first nine months of 2021. The increase is related to an increase in salaries and wages due to annual wage increases and the addition of new commercial loan production and wealth management staff. This investment in people will increase expenses in the short term but is expected to drive long term value to ChoiceOne through the building of new relationships. Other expenses have also increased in the first nine months of 2022 compared to the same period in the prior year due to an increase to our FDIC insurance related expenses, business travel expenses which were still being affected by the pandemic last year, and other expenses. ChoiceOne continues to monitor expenses and looks to improve our efficiency through automation and use of digital tools.

Potes further commented, “We are looking forward to offering enhanced treasury capabilities with our upgraded platform in 2023 and the upcoming opening of our Oakland County loan production office. I believe that continuing to invest in our technology and people is the right way to maintain sustainable growth as we continue to build quality customer relationships.”

About ChoiceOne

ChoiceOne Financial Services, Inc. is a financial holding company headquartered in Sparta, Michigan and the parent corporation of ChoiceOne Bank. Member FDIC. ChoiceOne Bank operates 35 offices in parts of Kent, Lapeer, Macomb, Muskegon, Newaygo, Ottawa, and St. Clair 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.

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", "will" 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. 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. 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, 2021.

For Further Information:

Adom Greenland

Senior Vice President & CFO

(616) 887 - 2334

IR@ChoiceOne.com

Condensed Balance Sheets
(Unaudited)

(In thousands)	9/30/2022			6/30/2022			9/30/2021
Cash and Cash Equivalents	$	51,494		$	40,296		$	59,780
Securities Available for Sale		546,627			582,987			1,044,538
Securities Held to Maturity		428,205			429,675			-
Loans Held For Sale		8,848			10,628			7,505
Loans to Other Financial Institutions		70			37,422			38,728
Loans, Net of Allowance For Loan Losses		1,124,944			1,073,973			980,602
Premises and Equipment		28,947			29,122			30,014
Cash Surrender Value of Life Insurance Policies		44,033			43,774			33,322
Goodwill		59,946			59,946			59,946
Core Deposit Intangible		3,062			3,358			4,264
Other Assets		67,353			49,024			18,481

Total Assets	$	2,363,529		$	2,360,205		$	2,277,180

Noninterest-bearing Deposits	$	599,360		$	578,927		$	543,165
Interest-bearing Deposits		1,557,294			1,559,577			1,468,985
Borrowings		-			7,000			-
Subordinated Debt		35,201			35,140			34,956
Other Liabilities		15,017			13,101			5,019

Total Liabilities		2,206,872			2,193,745			2,052,125

Common stock and paid-in capital, no par value; shares authorized: 12,000,000; shares outstanding: 7,510,036 at September 30, 2022, 7,503,072 at June 30, 2022, and 7,591,221 at September 30, 2021.		171,975			171,804			173,888
Retained earnings		63,664			59,728			49,198
Accumulated other comprehensive income (loss), net		(78,982	)		(65,072	)		1,969
Shareholders' Equity		156,657			166,460			225,055

Total Liabilities and Shareholders’ Equity	$	2,363,529		$	2,360,205		$	2,277,180

Condensed Statements of Income
(Unaudited)

	Three Months Ended						Nine Months Ended
(In Thousands, Except Per Share Data)	9/30/2022			9/30/2021			9/30/2022			9/30/2021
Interest Income
Loans, including fees	$	13,611		$	12,408		$	38,432		$	36,655
Securities and other		5,674			4,318			15,993			11,145
Total Interest Income		19,285			16,726			54,425			47,800

Interest Expense
Deposits		1,563			837			3,342			2,556
Borrowings		384			189			1,135			348
Total Interest Expense		1,947			1,026			4,477			2,904

Net Interest Income		17,338			15,700			49,948			44,896
Provision for Loan Losses		100			-			100			416

Net Interest Income After Provision for Loan Losses		17,238			15,700			49,848			44,480

Noninterest Income
Customer service charges		2,458			2,255			7,000			6,309
Insurance and investment commissions		158			153			596			624
Gains on sales of loans		432			1,798			2,123			5,715
Gains (losses) on sales of securities		(378	)		-			(805	)		3
Gains on sales of other assets		-			-			172			-
Trust income		174			187			528			612
Earnings on life insurance policies		259			194			793			570
Change in market value of equity securities		(323	)		(28	)		(1,006	)		461
Other income		267			159			922			756
Total Noninterest Income		3,047			4,718			10,323			15,050

Noninterest Expense
Salaries and benefits		7,668			7,552			22,811			21,719
Occupancy and equipment		1,545			1,538			4,688			4,591
Data processing		1,734			1,471			5,056			4,573
Professional fees		559			754			1,628			2,426
Core deposit intangible amortization		297			346			901			1,005
Other expenses		1,613			1,845			5,179			4,849
Total Noninterest Expense		13,416			13,506			40,263			39,163

Income Before Income Tax		6,869			6,912			19,908			20,367
Income Tax Expense		1,056			1,163			2,952			3,337

Net Income	$	5,813		$	5,749		$	16,956		$	17,029

Basic Earnings Per Share	$	0.77		$	0.75		$	2.26		$	2.20
Diluted Earnings Per Share	$	0.77		$	0.75		$	2.26		$	2.20

Other Selected Financial Highlights

(Unaudited)

	Quarterly
Earnings	2022 3rd Qtr.		2022 2nd Qtr.		2022 1st Qtr.		2021 4th Qtr.		2021 3rd Qtr.
(in thousands except per share data)
Net interest income	$	17,338	$	16,289	$	16,321	$	15,745	$	15,700
Provision for loan losses		100		-		-		-		-
Noninterest income		3,047		3,430		3,845		4,144		4,718
Noninterest expense		13,416		13,157		13,690		13,758		13,506
Net income before federal income tax expense		6,869		6,562		6,476		6,131		6,912
Income tax expense		1,056		947		948		1,119		1,163
Net income		5,813		5,615		5,528		5,012		5,749
Basic earnings per share		0.77		0.75		0.74		0.67		0.75
Diluted earnings per share		0.77		0.75		0.74		0.66		0.75

End of period balances	2022 3rd Qtr.		2022 2nd Qtr.		2022 1st Qtr.		2021 4th Qtr.		2021 3rd Qtr.
(in thousands)
Gross loans	$	1,141,319	$	1,129,439	$	1,040,856	$	1,068,832	$	1,034,590
Loans held for sale (1)		8,848		10,628		13,450		9,351		7,505
Loans to other financial institutions (2)		70		37,422		-		42,632		38,728
PPP loans (3)		-		1,758		8,476		33,129		61,192
Core loans (gross loans excluding 1, 2, and 3 above)		1,132,401		1,079,631		1,018,930		983,720		927,165
Allowance for loan losses		7,457		7,416		7,601		7,688		7,755
Securities available for sale		546,627		582,987		657,887		1,116,264		1,044,538
Securities held to maturity		428,205		429,675		429,918		-		-
Other interest-earning assets		21,744		9,532		62,945		9,751		30,383
Total earning assets (before allowance)		2,137,895		2,151,633		2,191,606		2,194,847		2,109,511
Total assets		2,363,529		2,360,205		2,376,778		2,366,682		2,277,180
Noninterest-bearing deposits		599,360		578,927		565,657		560,931		543,165
Interest-bearing deposits		1,557,294		1,559,577		1,579,944		1,491,363		1,468,985
Total deposits		2,156,654		2,138,504		2,145,601		2,052,294		2,012,150
Total subordinated debt		35,201		35,140		35,078		35,017		34,956
Total borrowed funds		-		7,000		-		50,000		-
Total interest-bearing liabilities		1,592,495		1,601,717		1,615,022		1,576,380		1,503,941
Shareholders' equity		156,657		166,460		191,118		221,669		225,055

Average Balances	2022 3rd Qtr.		2022 2nd Qtr.		2022 1st Qtr.		2021 4th Qtr.		2021 3rd Qtr.
(in thousands)
Loans	$	1,128,679	$	1,076,934	$	1,037,646	$	1,019,966	$	1,021,326
Securities		1,079,584		1,098,419		1,130,681		1,079,616		922,653
Other interest-earning assets		45,210		40,728		36,460		29,999		106,831
Total earning assets (before allowance)		2,253,473		2,216,081		2,204,787		2,129,581		2,050,810
Total assets		2,389,550		2,361,479		2,375,864		2,298,579		2,234,228
Noninterest-bearing deposits		593,793		578,943		553,267		556,214		545,251
Interest-bearing deposits		1,576,240		1,555,721		1,548,685		1,472,022		1,441,831
Total deposits		2,170,033		2,134,664		2,101,952		2,028,236		1,987,082
Total subordinated debt		35,168		35,095		35,342		35,674		9,154
Total borrowed funds		2,414		5,765		10,239		8,010		2,667
Total interest-bearing liabilities		1,613,822		1,596,581		1,594,266		1,515,706		1,453,652
Shareholders' equity		164,758		177,085		206,280		221,076		229,369

Performance Ratios	2022 3rd Qtr.			2022 2nd Qtr.			2022 1st Qtr.			2021 4th Qtr.			2021 3rd Qtr.

Return on average assets		0.97	%		0.95	%		0.93	%		0.87	%		1.03	%
Return on average equity		14.11	%		12.68	%		10.72	%		9.07	%		10.03	%
Return on average tangible common equity		21.96	%		18.87	%		14.85	%		12.16	%		13.28	%
Net interest margin (fully tax-equivalent)		3.15	%		3.02	%		3.04	%		3.04	%		3.06	%
Efficiency ratio		61.06	%		61.43	%		64.37	%		66.15	%		63.16	%
Cost of funds		0.35	%		0.25	%		0.21	%		0.21	%		0.21	%
Cost of deposits		0.29	%		0.19	%		0.15	%		0.15	%		0.17	%
Full-time equivalent employees		383			380			376			374			358

Capital Ratios ChoiceOne Financial Services Inc.	2022 3rd Qtr.			2022 2nd Qtr.			2022 1st Qtr.			2021 4th Qtr.			2021 3rd Qtr.

Total capital (to risk weighted assets)		13.7	%		13.8	%		14.6	%		14.4	%		15.4	%
Common equity Tier 1 capital (to risk weighted assets)		10.9	%		11.0	%		11.5	%		11.3	%		12.0	%
Tier 1 capital (to risk weighted assets)		11.2	%		11.3	%		11.9	%		11.6	%		12.3	%
Tier 1 capital (to average assets)		7.6	%		7.5	%		7.3	%		7.4	%		7.5	%

Capital Ratios ChoiceOne Bank	2022 3rd Qtr.			2022 2nd Qtr.			2022 1st Qtr.			2021 4th Qtr.			2021 3rd Qtr.

Total capital (to risk weighted assets)		12.8	%		12.7	%		13.3	%		12.9	%		13.4	%
Common equity Tier 1 capital (to risk weighted assets)		12.3	%		12.2	%		12.8	%		12.3	%		12.8	%
Tier 1 capital (to risk weighted assets)		12.3	%		12.2	%		12.8	%		12.3	%		12.8	%
Tier 1 capital (to average assets)		8.3	%		8.1	%		7.9	%		7.8	%		7.8	%