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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2023

Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from  to

Commission File Number: 000-19202

ChoiceOne Financial Services, Inc.

(Exact Name of Registrant as Specified in its Charter)

Michigan
(State or Other Jurisdiction of
Incorporation or Organization)

38-2659066
(I.R.S. Employer Identification No.)

109 East Division
Sparta, Michigan
(Address of Principal Executive Offices)


49345
(Zip Code)

(616) 887-7366
(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

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

As of October 31, 2023, the Registrant had 7,545,094 shares of common stock outstanding.

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements

3

 

Consolidated Balance Sheets

3

 

Consolidated Statements Of Income

4

 

Consolidated Statements Of Comprehensive Income (Loss)

6

 

Consolidated Statements Of Changes In Shareholders’ Equity

7

 

Consolidated Statements Of Cash Flows

9

 

Notes To Interim Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

43

Item 4.

Controls and Procedures

55

PART II.

OTHER INFORMATION

56

Item 1.

Legal Proceedings

56

Item 1A.

Risk Factors

56

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

56

Item 5.

Other Information

56

Item 6.

Exhibits

57

Signatures

 

58

 

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ChoiceOne Financial Services, Inc.
CONSOLIDATED BALANCE SHEETS

 

 

September 30,

 

 

December 31,

 

(Dollars in thousands, except share data)

2023

 

 

2022

 

 

(Unaudited)

 

 

(Audited)

 

Assets

 

 

 

 

 

Cash and due from banks

$

144,323

 

 

$

43,593

 

Time deposits in other financial institutions

 

350

 

 

 

350

 

Cash and cash equivalents

 

144,673

 

 

 

43,943

 

 

 

 

 

 

 

Equity securities, at fair value (Note 2)

 

7,262

 

 

 

8,566

 

Securities available for sale, at fair value (Note 2)

 

490,804

 

 

 

529,749

 

Securities held to maturity, at amortized cost net of credit losses (Note 2)

 

414,743

 

 

 

425,906

 

Federal Home Loan Bank stock

 

4,449

 

 

 

3,517

 

Federal Reserve Bank stock

 

5,065

 

 

 

5,064

 

Loans held for sale

 

5,222

 

 

 

4,834

 

Loans to other financial institutions (Note 3)

 

23,763

 

 

 

 

Core loans (Note 3)

 

1,286,037

 

 

 

1,189,782

 

Total loans (Note 3)

 

1,309,800

 

 

 

1,189,782

 

Allowance for credit losses (Note 3)

 

(14,872

)

 

 

(7,619

)

Loans, net

 

1,294,928

 

 

 

1,182,163

 

 

 

 

 

 

 

Premises and equipment, net

 

29,628

 

 

 

28,232

 

Other real estate owned, net

 

122

 

 

 

 

Cash value of life insurance policies

 

44,788

 

 

 

43,978

 

Goodwill

 

59,946

 

 

 

59,946

 

Core deposit intangible

 

2,057

 

 

 

2,809

 

Other assets

 

70,509

 

 

 

47,208

 

Total assets

$

2,574,196

 

 

$

2,385,915

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits – noninterest-bearing

$

531,962

 

 

$

599,579

 

Deposits – interest-bearing

 

1,551,995

 

 

 

1,518,424

 

Brokered deposits

 

49,238

 

 

 

-

 

Total deposits

 

2,133,195

 

 

 

2,118,003

 

 

 

 

 

 

 

Borrowings

 

180,000

 

 

 

50,000

 

Subordinated debentures

 

35,446

 

 

 

35,262

 

Other liabilities

 

44,394

 

 

 

13,776

 

Total liabilities

 

2,393,035

 

 

 

2,217,041

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

Preferred stock; shares authorized: 100,000; shares outstanding: none

 

 

 

 

 

Common stock and paid-in capital, no par value; shares authorized: 15,000,000; shares outstanding: 7,541,187 at September 30, 2023 and 7,516,098 at December 31, 2022

 

173,187

 

 

 

172,277

 

Retained earnings

 

70,444

 

 

 

68,394

 

Accumulated other comprehensive loss, net

 

(62,470

)

 

 

(71,797

)

Total shareholders’ equity

 

181,161

 

 

 

168,874

 

 Total liabilities and shareholders’ equity

$

2,574,196

 

 

$

2,385,915

 

 

See accompanying notes to interim consolidated financial statements.

 

3


 

ChoiceOne Financial Services, Inc.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 

 

4


 

 

Three Months Ended

 

 

Nine Months Ended

 

(Dollars in thousands, except share data)

September 30,

 

 

September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

$

17,774

 

 

$

13,611

 

 

$

48,625

 

 

$

38,432

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

5,346

 

 

 

3,972

 

 

 

15,637

 

 

 

11,001

 

Tax exempt

 

1,420

 

 

 

1,464

 

 

 

4,244

 

 

 

4,678

 

Other

 

1,764

 

 

 

238

 

 

 

2,512

 

 

 

314

 

Total interest income

 

26,304

 

 

 

19,285

 

 

 

71,018

 

 

 

54,425

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

7,237

 

 

 

1,563

 

 

 

15,569

 

 

 

3,342

 

Advances from Federal Home Loan Bank

 

272

 

 

 

5

 

 

 

1,498

 

 

 

8

 

Other

 

2,569

 

 

 

379

 

 

 

4,622

 

 

 

1,127

 

Total interest expense

 

10,078

 

 

 

1,947

 

 

 

21,689

 

 

 

4,477

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

16,226

 

 

 

17,338

 

 

 

49,329

 

 

 

49,948

 

Provision for (reversal of) credit losses on loans

 

438

 

 

 

100

 

 

 

332

 

 

 

100

 

Provision for (reversal of) credit losses on unfunded commitments

 

(438

)

 

 

 

 

 

(557

)

 

 

 

Net Provision for (reversal of) credit losses expense

 

-

 

 

 

100

 

 

 

(225

)

 

 

100

 

Net interest income after provision

 

16,226

 

 

 

17,238

 

 

 

49,554

 

 

 

49,848

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

Customer service charges

 

2,382

 

 

 

2,458

 

 

 

6,920

 

 

 

7,000

 

Insurance and investment commissions

 

173

 

 

 

158

 

 

 

541

 

 

 

596

 

Gains on sales of loans

 

536

 

 

 

432

 

 

 

1,479

 

 

 

2,123

 

Net gains (losses) on sales of securities

 

(71

)

 

 

(378

)

 

 

(71

)

 

 

(805

)

Net gains on sales and write downs of other assets

 

13

 

 

 

 

 

 

149

 

 

 

172

 

Earnings on life insurance policies

 

278

 

 

 

259

 

 

 

810

 

 

 

793

 

Trust income

 

197

 

 

 

174

 

 

 

577

 

 

 

528

 

Change in market value of equity securities

 

(134

)

 

 

(323

)

 

 

(456

)

 

 

(1,006

)

Other

 

330

 

 

 

267

 

 

 

911

 

 

 

922

 

Total noninterest income

 

3,704

 

 

 

3,047

 

 

 

10,860

 

 

 

10,323

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

8,038

 

 

 

7,668

 

 

 

23,958

 

 

 

22,811

 

Occupancy and equipment

 

1,427

 

 

 

1,545

 

 

 

4,577

 

 

 

4,688

 

Data processing

 

1,724

 

 

 

1,734

 

 

 

5,087

 

 

 

5,056

 

Professional fees

 

435

 

 

 

559

 

 

 

1,675

 

 

 

1,628

 

Supplies and postage

 

192

 

 

 

184

 

 

 

580

 

 

 

541

 

Advertising and promotional

 

269

 

 

 

199

 

 

 

573

 

 

 

478

 

Intangible amortization

 

247

 

 

 

297

 

 

 

752

 

 

 

901

 

FDIC insurance

 

270

 

 

 

195

 

 

 

790

 

 

 

645

 

Other

 

1,126

 

 

 

1,035

 

 

 

3,304

 

 

 

3,515

 

Total noninterest expense

 

13,728

 

 

 

13,416

 

 

 

41,296

 

 

 

40,263

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income tax

 

6,202

 

 

 

6,869

 

 

 

19,118

 

 

 

19,908

 

Income tax expense

 

1,080

 

 

 

1,056

 

 

 

3,150

 

 

 

2,952

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

5,122

 

 

$

5,813

 

 

$

15,968

 

 

$

16,956

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share (Note 4)

$

0.68

 

 

$

0.77

 

 

$

2.12

 

 

$

2.26

 

Diluted earnings per share (Note 4)

$

0.68

 

 

$

0.77

 

 

$

2.12

 

 

$

2.26

 

Dividends declared per share

$

0.26

 

 

$

0.25

 

 

$

0.78

 

 

$

0.75

 

See accompanying notes to interim consolidated financial statements.

 

5


 

ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

(Dollars in thousands)

September 30,

 

 

September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

$

5,122

 

 

$

5,813

 

 

$

15,968

 

 

$

16,956

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain (loss) on available-for-sale securities

 

(21,739

)

 

 

(25,073

)

 

 

(13,063

)

 

 

(99,584

)

Income tax benefit (expense)

 

4,565

 

 

 

5,265

 

 

 

2,743

 

 

 

20,913

 

Less: reclassification adjustment for net (gain) loss included in net income

 

-

 

 

 

378

 

 

 

-

 

 

 

805

 

Income tax benefit (expense)

 

-

 

 

 

(79

)

 

 

-

 

 

 

(169

)

Less: reclassification adjustment for net (gain) loss for fair value hedge

 

9,189

 

 

 

-

 

 

 

9,920

 

 

 

-

 

Income tax benefit (expense)

 

(1,930

)

 

 

-

 

 

 

(2,083

)

 

 

-

 

Less: net unrealized (gains) losses on securities transferred from available-for-sale to held-to-maturity

 

-

 

 

 

-

 

 

 

-

 

 

 

3,404

 

Income tax benefit (expense)

 

-

 

 

 

-

 

 

 

-

 

 

 

(715

)

Unrealized gain (loss) on available-for-sale securities, net of tax

 

(9,915

)

 

 

(19,509

)

 

 

(2,483

)

 

 

(75,346

)

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of unrealized gain (loss) upon transfer of securities from available-for-sale to held-to-maturity

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,404

)

Income tax benefit (expense)

 

-

 

 

 

-

 

 

 

-

 

 

 

715

 

Amortization of net unrealized (gains) losses on securities transferred from available-for-sale to held-to-maturity

 

67

 

 

 

53

 

 

 

261

 

 

 

297

 

Income tax benefit (expense)

 

(14

)

 

 

(11

)

 

 

(55

)

 

 

(62

)

Unrealized loss on held to maturity securities, net of tax

 

53

 

 

 

42

 

 

 

206

 

 

 

(2,454

)

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain (loss) on cash flow hedge

 

9,625

 

 

 

6,618

 

 

 

12,748

 

 

 

1,042

 

Income tax benefit (expense)

 

(2,021

)

 

 

(1,390

)

 

 

(2,677

)

 

 

(219

)

Less: reclassification adjustment for net (gain) loss on cash flow hedge

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Income tax benefit (expense)

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Less: amortization of net unrealized (gains) losses included in net income

 

897

 

 

 

416