Loans and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2024

NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans by type as a percentage of the portfolio were as follows:


	March 31, 2024					December 31, 2023
(Dollars in thousands)	Balance		%			Balance		%			Percent Increase (Decrease)
Agricultural	$	41,950		3.0	%	$	49,210		3.5	%		(14.8	)	%
Commercial and Industrial		231,222		16.3	%		229,915		16.3	%		0.6		%
Commercial Real Estate		794,705		56.0	%		786,921		55.8	%		1.0		%
Consumer		34,268		2.4	%		36,541		2.6	%		(6.2	)	%
Construction Real Estate		17,890		1.3	%		20,936		1.5	%		(14.5	)	%
Residential Real Estate		268,523		18.9	%		267,730		19.0	%		0.3		%
Loans to Other Financial Institutions		30,032		2.1	%		19,400		1.4	%		54.8		%
Gross Loans	$	1,418,590				$	1,410,653

Allowance for credit losses		16,037		1.13	%		15,685		1.11	%

Net loans	$	1,402,553				$	1,394,968

Activity in the allowance for credit losses and balances in the loan portfolio were as follows:


			Commercial														Loans to Other
(Dollars in thousands)			And						Commercial		Construction			Residential			Financial
	Agricultural		Industrial			Consumer			Real Estate		Real Estate			Real Estate			Institutions		Total
Allowance for Credit Losses Three Months Ended March 31, 2024
Beginning balance	$	94	$	2,216		$	823		$	8,820	$	58		$	3,644		$	30	$	15,685
Charge-offs		-		(1	)		(123	)		-		-			-			-		(124	)
Recoveries		-		9			60			-		-			4			-		73
Provision		3		19			158			347		(9	)		(135	)		20		403
Ending balance	$	97	$	2,243		$	918		$	9,167	$	49		$	3,513		$	50	$	16,037


Individually evaluated for credit loss	$	2	$	7		$	116		$	1	$	-		$	136		$	-	$	262

Collectively evaluated for credit loss	$	95	$	2,236		$	802		$	9,166	$	49		$	3,377		$	50	$	15,775

Loans
March 31, 2024
Individually evaluated for credit loss	$	44	$	174		$	238		$	29	$	-		$	1,994		$	-	$	2,479
Collectively evaluated for credit loss		41,906		231,048			34,030			794,676		17,890			266,529			30,032		1,416,111
Ending balance	$	41,950	$	231,222		$	34,268		$	794,705	$	17,890		$	268,523		$	30,032	$	1,418,590


			Commercial										Loans to Other
(Dollars in thousands)			and				Commercial		Construction		Residential		Financial
	Agricultural		Industrial		Consumer		Real Estate		Real Estate		Real Estate		Institutions		Total
Allowance for Loan Losses
December 31, 2023
Individually evaluated for impairment	$	2	$	6	$	-	$	1	$	—	$	51	$	—	$	60

Collectively evaluated for impairment	$	92	$	2,210	$	823	$	8,819	$	58	$	3,593	$	30	$	15,625


Loans
December 31, 2023
Individually evaluated for impairment	$	54	$	136	$	2	$	29	$	—	$	1,858	$	—	$	2,079
Collectively evaluated for impairment	$	49,156	$	229,779	$	36,539	$	786,892	$	20,936	$	265,872	$	19,400		1,408,574
Acquired with deteriorated credit quality	—			-		-		-	—			-				-
Ending balance	$	49,210	$	229,915	$	36,541	$	786,921	$	20,936	$	267,730	$	19,400	$	1,410,653


				Commercial
(Dollars in thousands)				and					Commercial			Construction			Residential
	Agricultural			Industrial		Consumer			Real Estate			Real Estate			Real Estate		Unallocated			Total
Allowance for Loan Losses Three Months Ended March 31, 2023
Beginning balance	$	144		$	1,361	$	310		$	4,822		$	63		$	906	$	13		$	7,619
Cumulative effect of change in accounting principle		14			1,587		541			3,006			20			2,010		(13	)		7,165
Charge-offs		-			-		(140	)		-			-			-		-			(140	)
Recoveries		-			27		69			13			-			3		-			112
Provision		(23	)		45		133			(4	)		(10	)		168		-			309
Ending balance	$	135		$	3,020	$	913		$	7,837		$	73		$	3,087	$	-		$	15,065

Individually evaluated for impairment	$	1		$	7	$	1		$	1		$	-		$	42	$	-		$	52

Collectively evaluated for impairment	$	134		$	3,013	$	912		$	7,836		$	73		$	3,045	$	-		$	15,013

The provision for credit losses on loans was an expense of $403,000 in the first quarter of 2024, compared to an expense of $309,000 in the same period in the prior year. The provision expense was deemed necessary due to the increase in reserve for collateral dependent loans and an increase in qualitative factors related to the value of underlying collateral for collateral dependent non owner occupied loans and consumer loans.

The process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking (1) the risk ratings of business loans and (2) delinquent and nonperforming consumer loans. Business loans are risk rated on a scale of 1 to 9. A description of the characteristics of the ratings follows:

Risk Rating 1 through 5 or pass: 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 6 or special mention: Loans and other credit extensions bearing this grade are considered to be inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These obligations, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, market, or political conditions that have clearly jeopardized repayment of principal and interest as originally intended. Furthermore, there is the possibility that ChoiceOne Bank will sustain some future loss if such weaknesses are not corrected. Clear loss potential, however, does not have to exist in any individual assets classified as substandard. Loans falling into this category should have clear action plans and timelines with benchmarks to determine which direction the relationship will move.

Risk rating 7 or substandard: Loans and other credit extensions graded “7” have all the weaknesses inherent in those graded “6”, with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. Loans in this classification should be evaluated for non-accrual status. All nonaccrual commercial and Retail loans must be at a minimum graded a risk code “7”.

Risk rating 8 or doubtful: Loans and other credit extensions bearing this grade have been determined to have the extreme probability of some loss, but because of certain important and reasonably specific factors, the amount of loss cannot be determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral.

Risk rating 9 or loss: Loans in this classification are considered uncollectible and cannot be justified as a viable asset of ChoiceOne Bank. This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial recovery may be obtained in the future.

The following table reflects the amortized cost basis of loans as of March 31, 2024 based on year of origination (dollars in thousands):


Commercial:	2024		2023		2022		2021		2020		Prior		Term Loans Total		Revolving Loans		Grand Total
Agricultural
Pass	$	523	$	2,000	$	3,723	$	3,047	$	1,696	$	22,303	$	33,292	$	8,440	$	41,732
Special mention		-		-		-		-		-		218		218		-		218
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	523	$	2,000	$	3,723	$	3,047	$	1,696	$	22,521	$	33,510	$	8,440	$	41,950
Current year-to-date gross write-offs (1)	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Commercial and Industrial
Pass	$	4,323	$	27,221	$	42,317	$	20,127	$	9,891	$	18,852	$	122,731	$	107,930	$	230,661
Special mention		-		-		111		24		33		121		289		109		398
Substandard		-		-		-		-		-		146		146		17		163
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	4,323	$	27,221	$	42,428	$	20,151	$	9,924	$	19,119	$	123,166	$	108,056	$	231,222
Current year-to-date gross write-offs (1)	$	-	$	-	$	-	$	-	$	-	$	1	$	1	$	-	$	1

Commercial Real Estate
Pass	$	10,189	$	151,579	$	127,964	$	105,078	$	70,301	$	176,176	$	641,287	$	153,046	$	794,333
Special mention		-		-		-		-		-		372		372		-		372
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	10,189	$	151,579	$	127,964	$	105,078	$	70,301	$	176,548	$	641,659	$	153,046	$	794,705
Current year-to-date gross write-offs (1)	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total Commercial Loans	$	15,035	$	180,800	$	174,115	$	128,276	$	81,921	$	218,188	$	798,335	$	269,542	$	1,067,877


Retail:	2024		2023		2022		2021		2020		Prior		Term Loans Total		Revolving Loans		Grand Total
Consumer
Performing	$	2,210	$	9,011	$	11,277	$	6,201	$	2,487	$	2,100	$	33,286	$	782	$	34,068
Nonperforming		-		-		-		-		-		-		-		-		-
Nonaccrual		-		42		157		1		-		-		200		-		200
Total	$	2,210	$	9,053	$	11,434	$	6,202	$	2,487	$	2,100	$	33,486	$	782	$	34,268
Current year-to-date gross write-offs (1)	$	-	$	1	$	33	$	1	$	-	$	1	$	36	$	-	$	36

Construction real estate
Performing	$	960	$	1,518	$	148	$	542	$	-	$	-	$	3,168	$	14,722	$	17,890
Nonperforming		-		-		-		-		-		-		-		-		-
Nonaccrual		-		-		-		-		-		-		-		-		-
Total	$	960	$	1,518	$	148	$	542	$	-	$	-	$	3,168	$	14,722	$	17,890
Current year-to-date gross write-offs (1)	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Residential real estate
Performing	$	7,133	$	52,345	$	63,307	$	28,034	$	15,992	$	50,977	$	217,788	$	49,220	$	267,008
Nonperforming		-		-		-		-		-		-		-		-		-
Nonaccrual		-		136		499		697		-		111		1,443		72		1,515
Total	$	7,133	$	52,481	$	63,806	$	28,731	$	15,992	$	51,088	$	219,231	$	49,292	$	268,523
Current year-to-date gross write-offs (1)	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Loans to Other Financial Institutions
Performing	$	30,032	$	-	$	-	$	-	$	-	$	-	$	30,032	$	-	$	30,032
Nonperforming		-		-		-		-		-		-		-		-		-
Nonaccrual		-		-		-		-		-		-		-		-		-
Total	$	30,032	$	-	$	-	$	-	$	-	$	-	$	30,032	$	-	$	30,032
Current year-to-date gross write-offs (1)	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total Retail Loans	$	40,335	$	63,052	$	75,388	$	35,475	$	18,479	$	53,188	$	285,917	$	64,796	$	350,713

The following table reflects the amortized cost basis of loans as of December 31, 2023 based on year of origination (dollars in thousands):


Commercial:	2023		2022		2021		2020		2019		Prior		Term Loans Total		Revolving Loans		Grand Total
Agricultural
Pass	$	5,015	$	4,088	$	3,078	$	1,788	$	7,028	$	18,476	$	39,473	$	9,507	$	48,980
Special mention		-		-		-		-		176		54		230		-		230
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	5,015	$	4,088	$	3,078	$	1,788	$	7,204	$	18,530	$	39,703	$	9,507	$	49,210
Current year-to-date gross write-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Commercial and Industrial
Pass	$	23,600	$	45,489	$	23,462	$	10,502	$	9,214	$	11,882	$	124,149	$	105,559	$	229,708
Special mention		-		-		28		35		73		64		200		3		203
Substandard		-		-		-		-		-		4		4		-		4
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	23,600	$	45,489	$	23,490	$	10,537	$	9,287	$	11,950	$	124,353	$	105,562	$	229,915
Current year-to-date gross write-offs	$	-	$	55	$	30	$	71	$	-	$	2	$	158	$	-	$	158

Commercial Real Estate
Pass	$	149,181	$	134,289	$	107,033	$	71,754	$	43,846	$	136,361	$	642,464	$	143,120	$	785,584
Special mention		-		-		-		-		-		1,337		1,337		-		1,337
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	149,181	$	134,289	$	107,033	$	71,754	$	43,846	$	137,698	$	643,801	$	143,120	$	786,921
Current year-to-date gross write-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total Commercial Loans	$	177,796	$	183,866	$	133,601	$	84,079	$	60,337	$	168,178	$	807,857	$	258,189	$	1,066,046


Retail:	2023		2022		2021		2020		2019		Prior		Term Loans Total		Revolving Loans		Grand Total
Consumer
Performing	$	9,775	$	13,876	$	6,771	$	2,849	$	1,260	$	1,202	$	35,733	$	808	$	36,541
Nonperforming		-		-		-		-		-		-		-		-		-
Nonaccrual		-		-		-		-		-		-		-		-		-
Total	$	9,775	$	13,876	$	6,771	$	2,849	$	1,260	$	1,202	$	35,733	$	808	$	36,541
Current year-to-date gross write-offs	$	8	$	24	$	11	$	28	$	-	$	1	$	72	$	-	$	72

Construction real estate
Performing	$	2,507	$	2,719	$	552	$	-	$	-	$	-	$	5,778	$	15,158	$	20,936
Nonperforming		-		-		-		-		-		-		-		-		-
Nonaccrual		-		-		-		-		-		-		-		-		-
Total	$	2,507	$	2,719	$	552	$	-	$	-	$	-	$	5,778	$	15,158	$	20,936
Current year-to-date gross write-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Residential real estate
Performing	$	54,231	$	64,768	$	28,301	$	16,391	$	12,556	$	40,270	$	216,517	$	49,491	$	266,008
Nonperforming		-		-		-		-		-		-		-		-		-
Nonaccrual		-		380		826		-		-		486		1,692		30		1,722
Total	$	54,231	$	65,148	$	29,127	$	16,391	$	12,556	$	40,756	$	218,209	$	49,521	$	267,730
Current year-to-date gross write-offs	$	-	$	26	$	-	$	-	$	-	$	1	$	27	$	-	$	27

Loans to Other Financial Institutions
Performing	$	19,400	$	-	$	-	$	-	$	-	$	-	$	19,400	$	-	$	19,400
Nonperforming		-		-		-		-		-		-		-		-		-
Nonaccrual		-		-		-		-		-		-		-		-		-
Total	$	19,400	$	-	$	-	$	-	$	-	$	-	$	19,400	$	-	$	19,400
Current year-to-date gross write-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total Retail Loans	$	85,913	$	81,743	$	36,450	$	19,240	$	13,816	$	41,958	$	279,120	$	65,487	$	344,607

(1) It is noted that write-offs in the table above do not include checking account write offs. Checking account write-offs during the first three months of 2024 were $87,000 or an annualized $348,000 compared to $480,000 during the full year 2023.

The following table presents the amortized cost basis of the loans modified to borrowers experiencing financial difficulty disaggregated by class of financing receivable and type of concession granted during 2023. There have been no loans modified due to borrowers experiencing financial difficulty as of March 31, 2024.


For the period ended:	December 31, 2023

	Term Extension
			% of Total
			Class of
(Dollars in thousands)	Amortized		Financing
	Cost Basis		Receivable
Commercial and industrial	$	60		0	%
Residential real estate		129		0	%
Total	$	189

The following table presents the financial effect by type of modification made to borrowers experiencing financial difficulty and class of financing receivable during 2023. There have been no loans modified due to borrowers experiencing financial difficulty as of March 31, 2024.


For the period ended:	December 31, 2023
	Term Extension
Commercial and industrial	Termed out line of credit & termed out draw note
Residential real estate	Provided with new twelve month payment plan to catch up on past due balance.

The following table presents the period-end amortized cost basis of financing receivables that had a payment default during the period and were modified in the 12 months before default to borrowers experiencing financial difficulty.


For the period ended:	March 31, 2024
(Dollars in thousands)	Term extension

Commercial and industrial		52
Residential real estate		126
Total	$	178


For the period ended:	December 31, 2023
(Dollars in thousands)	Term extension

Commercial and industrial		60
Residential real estate		129
Total	$	189

The following table presents the period-end amortized cost basis of loans that have been modified in the past 12 months to borrowers experiencing financial difficulty by payment status and class of financing receivable.


For the period ended:	March 31, 2024
(Dollars in thousands)	Current		30-89 days		Greater than 90 days		Total

Commercial and industrial	$	52		-		-	$	52
Residential real estate		-		-		126		126
Total	$	52	$	-	$	126	$	178


For the period ended:	December 31, 2023
(Dollars in thousands)	Current		30-89 days		Greater than 90 days		Total

Commercial and industrial	$	60	$	-	$	-	$	60
Residential real estate		-		-		129		129
Total	$	60	$	-	$	129	$	189

Nonaccrual loans by loan category were as follows:


As of March 31, 2024
(Dollars in thousands)	Nonaccrual loans with no ACL		Total nonaccrual loans		Interest income recognized during the period on nonaccrual loans
Consumer	$	43	$	200	$	5
Residential real estate		436		1,515		3
Total nonaccrual loans	$	479	$	1,715	$	8


As of March 31, 2023
(Dollars in thousands)	Nonaccrual loans with no ACL		Total nonaccrual loans		Interest income recognized during the period on nonaccrual loans
Residential real estate	$	1,432	$	1,596	$	-
Total nonaccrual loans	$	1,432	$	1,596	$	-


As of December 31, 2023
(Dollars in thousands)	Nonaccrual loans with no ACL		Total nonaccrual loans		Interest income recognized during the period on nonaccrual loans
Commercial and industrial	$	-	$	1	$	-
Residential real estate		707		1,722		16
Total nonaccrual loans	$	707	$	1,723	$	16

An aging analysis of loans by loan category follows:


					Loans								Loans
	Loans		Loans		Past Due								90 Days
	Past Due		Past Due		Greater								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
March 31, 2024
Agricultural	$	-	$	-	$	-	$	-	$	41,950	$	41,950	$	-
Commercial and industrial		-		-		-		-		231,222		231,222		-
Consumer		31		94		4		129		34,139		34,268		-
Commercial real estate		173		-		-		173		794,532		794,705		-
Construction real estate		-		-		-		-		17,890		17,890		-
Residential real estate		873		770		126		1,769		266,754		268,523
Loans to Other Financial Institutions		-		-		-		-		30,032		30,032
	$	1,077	$	864	$	130	$	2,071	$	1,416,519	$	1,418,590	$	-


December 31, 2023
Agricultural	$	-	$	-	$	-	$	-	$	49,210	$	49,210	$	-
Commercial and industrial		-		-		1		1		229,914		229,915		-
Consumer		31		2		-		33		36,508		36,541		-
Commercial real estate		173		-		-		173		786,748		786,921		-
Construction real estate		-		-		-		-		20,936		20,936		-
Residential real estate		755		549		870		2,174		265,556		267,730		-
Loans to Other Financial Institutions		-		-		-		-		19,400		19,400
	$	959	$	551	$	871	$	2,381	$	1,408,272	$	1,410,653	$	-

(1) Includes nonaccrual loans.