Securities

3 Months Ended

Mar. 31, 2023

Debt Securities, Trading, and Equity Securities, FV-NI, Cost [Abstract]

NOTE 2 – SECURITIES

On January 1, 2022, ChoiceOne reassessed and transferred, at fair value $428.4 million of securities classified as available for sale to the held to maturity classification. The net unrealized after-tax loss of $2.7 million as of the transfer date remained in accumulated other comprehensive income to be amortized over the remaining life of the securities, offsetting the related amortization of discount or premium on the transferred securities. No gains or losses were recognized at the time of the transfer. The remaining net unamortized unrealized loss on transferred securities included in accumulated other comprehensive income was $2.4 million after tax as of March 31, 2023.

The fair value of equity securities and the related gross unrealized gains and (losses) recognized in noninterest income were as follows:


	March 31, 2023
			Gross		Gross
(Dollars in thousands)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Equity securities	$	9,052	$	310	$	(663	)	$	8,699


	December 31, 2022
			Gross		Gross
(Dollars in thousands)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Equity securities	$	8,982	$	305	$	(721	)	$	8,566

The following tables present the amortized cost and fair value of securities available for sale and the gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and the fair value of securities held to maturity and the related gross unrealized gains and losses:


	March 31, 2023
			Gross		Gross
(Dollars in thousands)	Amortized		Unrealized		Unrealized			Fair
Available for Sale:	Cost		Gains		Losses			Value
U.S. Treasury notes and bonds	$	90,695	$	-	$	(10,720	)	$	79,975
State and municipal		281,139		-		(44,641	)		236,498
Mortgage-backed		231,577		8		(25,448	)		206,137
Corporate		758		-		(42	)		716
Asset-backed securities		12,546		-		(524	)		12,022
Total	$	616,715	$	8	$	(81,375	)	$	535,348

Held to Maturity:
U.S. Government and federal agency	$	2,968	$	-	$	(365	)	$	2,603
State and municipal		199,267		1		(32,688	)		166,580
Mortgage-backed		199,795		-		(29,139	)		170,656
Corporate		19,990		46		(2,292	)		17,744
Asset-backed securities		856		-		(66	)		790
Total	$	422,876	$	47	$	(64,550	)	$	358,373


	December 31, 2022
			Gross		Gross
(Dollars in thousands)	Amortized		Unrealized		Unrealized			Fair
Available for Sale:	Cost		Gains		Losses			Value
U.S. Treasury notes and bonds	$	90,810	$	-	$	(12,606	)	$	78,204
State and municipal		277,489		-		(47,551	)		229,938
Mortgage-backed		236,703		-		(28,140	)		208,563
Corporate		757		-		(46	)		711
Asset-backed securities		13,031		-		(698	)		12,333
Total	$	618,790	$	-	$	(89,041	)	$	529,749

Held to Maturity:
U.S. Government and federal agency	$	2,966	$	-	$	(421	)	$	2,545
State and municipal		201,890		1		(39,355	)		162,536
Mortgage-backed		200,473		-		(29,868	)		170,605
Corporate		19,603		-		(2,285	)		17,318
Asset-backed securities		974		-		(77	)		897
Total	$	425,906	$	1	$	(72,006	)	$	353,901

Available for sale securities with unrealized losses as of March 31, 2023 and December 31, 2022, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, were as follows:


	March 31, 2023
	Less than 12 months				More than 12 months				Total
(Dollars in thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available for Sale:	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury notes and bonds	$	-	$	-	$	79,975	$	10,720	$	79,975	$	10,720
State and municipal		2,481		25		233,517		44,616		235,998		44,641
Mortgage-backed		26,955		1,626		178,182		23,822		205,137		25,448
Corporate		501		7		215		35		716		42
Asset-backed securities		-		-		12,022		524		12,022		524
Total temporarily impaired	$	29,937	$	1,658	$	503,911	$	79,717	$	533,848	$	81,375


	December 31, 2022
	Less than 12 months				More than 12 months				Total
(Dollars in thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available for Sale:	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury notes and bonds	$	-	$	-	$	78,204	$	12,606	$	78,204	$	12,606
State and municipal		89,158		12,612		140,390		34,939		229,548		47,551
Mortgage-backed		63,249		3,093		144,318		25,047		207,567		28,140
Corporate		711		46		-		-		711		46
Asset-backed securities		-		-		12,333		698		12,333		698
Total temporarily impaired	$	153,118	$	15,751	$	375,245	$	73,290	$	528,363	$	89,041

Held to maturity securities with unrealized losses as of March 31, 2023 and December 31, 2022, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, were as follows:


	March 31, 2023
	Less than 12 months				More than 12 months				Total
(Dollars in thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Held to Maturity:	Value		Losses		Value		Losses		Value		Losses
U.S. Government and federal agency	$	-	$	-	$	2,603	$	365	$	2,603	$	365
State and municipal		1,411		10		164,769		32,678		166,180		32,688
Mortgage-backed		414		24		170,242		29,115		170,656		29,139
Corporate		2,263		171		13,803		2,121		16,066		2,292
Asset-backed securities		-		-		790		66		790		66
Total temporarily impaired	$	4,088	$	205	$	352,207	$	64,345	$	356,295	$	64,550


	December 31, 2022
	Less than 12 months				More than 12 months				Total
(Dollars in thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Held to Maturity:	Value		Losses		Value		Losses		Value		Losses
U.S. Government and federal agency	$	-	$	-	$	2,545	$	421	$	2,545	$	421
State and municipal		13,457		1,899		149,016		37,456		162,473		39,355
Mortgage-backed		25,582		822		145,024		29,046		170,606		29,868
Corporate		5,296		603		10,771		1,682		16,067		2,285
Asset-backed securities		-		-		897		77		897		77
Total temporarily impaired	$	44,335	$	3,324	$	308,253	$	68,682	$	352,588	$	72,006

ChoiceOne evaluates all securities on a quarterly basis to determine if an ACL and corresponding impairment charge should be recorded. Consideration is given to 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 issuer for a period of time sufficient to allow for any anticipated recovery in fair value of amortized cost basis. ChoiceOne believes that unrealized losses on securities 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 ACL was recorded in the three months ended March 31, 2023, and no other-than-temporary impairment charges were recorded in the same periods in 2022.

At March 31, 2023 and December 31, 2022, there were 604 and 611 securities with an unrealized loss, respectively. Unrealized losses on corporate and municipal bonds have not been recognized into income because the issuers’ bonds are of high credit quality, and management does not intend to sell prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.

The majority of unrealized losses at March 31, 2023, are related to U.S. Treasury notes and bonds, state and municipal bonds and mortgage backed securities. The U.S. Treasury notes are guaranteed by the U.S. government and 100% of the notes are rated AA or better. State and municipal bonds are backed by the taxing authority of the bond issuer or the revenues from the bond. On March 31, 2023, 86% of state and municipal bonds held are rated AA or better, 11% are A rated and 3% are not rated. Of the mortgage-backed securities held on March 31, 2023, 38% were issued by US government sponsored entities and agencies, and rated AA, 46% are AAA rated private issue and collateralized mortgage obligation, and 16% are unrated privately issued mortgage-backed securities with structured credit enhancement and collateralized mortgage obligation.

Presented below is a schedule of maturities of securities as of March 31, 2023. Available for sale securities are reported at fair value and held to maturity securities are reported at amortized cost. Callable securities in the money are presumed called and matured at the callable date.


	Available for Sale Securities maturing within:
									Fair Value
	Less than		1 Year -		5 Years -		More than		at March 31,
(Dollars in thousands)	1 Year		5 Years		10 Years		10 Years		2023

U.S. Government and federal agency	$	-	$	-	$	-	$	-	$	-
U.S. Treasury notes and bonds		-		19,451		60,524		-		79,975
State and municipal		4,261		7,282		99,415		125,540		236,498
Corporate		501		-		215		—		716
Asset-backed securities		—		8,767		3,255		—		12,022
Total debt securities		4,762		35,500		163,409		125,540		329,211

Mortgage-backed securities		7,412		76,343		106,925		15,457		206,137
Total Available for Sale	$	12,174	$	111,843	$	270,334	$	140,997	$	535,348


	Held to Maturity Securities maturing within:
									Amortized Cost
	Less than		1 Year -		5 Years -		More than		at March 31,
(Dollars in thousands)	1 Year		5 Years		10 Years		10 Years		2023

U.S. Government and federal agency	$	—	$	—	$	2,968	$	—	$	2,968
State and municipal		2,415		4,998		89,542		102,312		199,267
Corporate		—		-		18,990		1,000		19,990
Asset-backed securities		—		856		—		—		856
Total debt securities		2,415		5,854		111,500		103,312		223,081

Mortgage-backed securities		21,951		32,133		145,711		—		199,795
Total Held to Maturity	$	24,366	$	37,987	$	257,211	$	103,312	$	422,876

Following is information regarding unrealized gains and losses on equity securities for the three months ended March 31, 2023 and 2022:


	Three Months Ended
	March 31,
	2023		2022

Net gains and (losses) recognized during the period	$	63	$	(356	)
Less: Net gains and (losses) recognized during the period on securities sold		—		—

Unrealized gains and (losses) recognized during the reporting period on securities still held at the reporting date	$	63	$	(356	)