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 ~~March 31,~~September 30, 2022

☐	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:~~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~~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 ~~April 30,~~October 31, 2022, the ~~Registra~~ntRegistrant had outstanding ~~7,493,521~~7,514,076 shares of common stock.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ChoiceOne Financial Services, Inc.
CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,			September 30,			December 31,
(Dollars in thousands)	2022			2021
(Dollars in thousands, except per share data)							2022			2021
	(Unaudited)			(Audited)			(Unaudited)			(Audited)
Assets
Cash and due from banks	$	89,626		$	31,537		$	51,144		$	31,537
Time deposits in other financial institutions		350			350			350			350
Cash and cash equivalents		89,976			31,887			51,494			31,887

Equity securities, at fair value (Note 2)		8,282			8,492			7,977			8,492
Securities available for sale, at fair value (Note 2)		641,048			1,098,885			530,093			1,098,885
Securities held to maturity (Note 2)		429,918			0
Securities held to maturity, at amortized cost (Note 2)								428,205			-
Federal Home Loan Bank stock		3,493			3,824			3,493			3,824
Federal Reserve Bank stock		5,064			5,064			5,064			5,064
Loans held for sale		13,450			9,351			8,848			9,351
Loans to other financial institutions		0			42,632			70			42,632
Loans (Note 3)		1,027,406			1,016,848			1,132,401			1,016,848
Allowance for loan losses (Note 3)		(7,601	)		(7,688	)		(7,457	)		(7,688	)
Loans, net		1,019,805			1,009,160			1,124,944			1,009,160

Premises and equipment, net		29,678			29,880			28,947			29,880
Other real estate owned, net		172			194			-			194
Cash value of life insurance policies		43,520			43,356			44,033			43,356
Goodwill		59,946			59,946			59,946			59,946
Core deposit intangible		3,660			3,962			3,062			3,962
Other assets		28,766			20,049			67,353			20,049
Total assets	$	2,376,778		$	2,366,682		$	2,363,529		$	2,366,682

Liabilities
Deposits – noninterest-bearing	$	565,657		$	560,931		$	599,360		$	560,931
Deposits – interest-bearing		1,579,944			1,491,363			1,557,294			1,491,363
Total deposits		2,145,601			2,052,294			2,156,654			2,052,294
Borrowings		0			50,000			-			50,000
Subordinated debentures		35,078			35,017			35,201			35,017
Other liabilities		4,981			7,702			15,017			7,702
Total liabilities		2,185,660			2,145,013			2,206,872			2,145,013

Shareholders' Equity
Preferred stock; shares authorized: 100,000; shares outstanding: none		0			0			-			-
Common stock and paid-in capital, no par value; shares authorized: 12,000,000; shares outstanding: 7,489,812 at March 31, 2022 and 7,510,379 at December 31, 2021		171,492			171,913
Common stock and paid-in capital, no par value; shares authorized: 12,000,000; shares outstanding: 7,510,036 at September 30, 2022 and 7,510,379 at December 31, 2021								171,975			171,913
Retained earnings		55,988			52,332			63,664			52,332
Accumulated other comprehensive loss, net		(36,362	)		(2,576	)		(78,982	)		(2,576	)
Total shareholders’ equity		191,118			221,669			156,657			221,669
Total liabilities and shareholders’ equity	$	2,376,778		$	2,366,682		$	2,363,529		$	2,366,682

See accompanying notes to interim consolidated financial statements.

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

	Three Months Ended					Three Months Ended						Nine Months Ended
(Dollars in thousands, except per share data)	March 31,					September 30,						September 30,
	2022			2021		2022			2021			2022			2021
Interest income
Loans, including fees	$	12,298		$	12,682	$	13,611		$	12,408		$	38,432		$	36,655
Securities:
Taxable		3,507			1,856		3,972			2,821			11,001			7,073
Tax exempt		1,655			1,097		1,464			1,459			4,678			4,002
Other		14			20		238			38			314			70
Total interest income		17,474			15,655		19,285			16,726			54,425			47,800

Interest expense
Deposits		783			880		1,563			837			3,342			2,556
Advances from Federal Home Loan Bank		1			1		5			18			8			21
Other		369			86		379			171			1,127			327
Total interest expense		1,153			967		1,947			1,026			4,477			2,904

Net interest income		16,321			14,688		17,338			15,700			49,948			44,896
Provision for loan losses		0			250		100			-			100			416
Net interest income after provision for loan losses		16,321			14,438		17,238			15,700			49,848			44,480

Noninterest income
Customer service charges		2,189			1,920		2,458			2,255			7,000			6,309
Insurance and investment commissions		205			273		158			153			596			624
Gains on sales of loans		804			2,146		432			1,798			2,123			5,715
Net gains on sales of securities		0			1
Net gains (losses) on sales of securities							(378	)		—			(805	)		3
Net gains on sales and write downs of other assets		171			5		—			—			172			—
Earnings on life insurance policies		280			186		259			194			793			570
Trust income		178			172		174			187			528			612
Change in market value of equity securities		(356	)		608		(323	)		(28	)		(1,006	)		461
Other		374			289		267			159			922			756
Total noninterest income		3,845			5,600		3,047			4,718			10,323			15,050

Noninterest expense
Salaries and benefits		7,606			7,168		7,668			7,552			22,811			21,719
Occupancy and equipment		1,625			1,555		1,545			1,538			4,688			4,591
Data processing		1,744			1,429		1,734			1,471			5,056			4,573
Professional fees		510			729		559			754			1,628			2,426
Supplies and postage		191			100		184			171			541			395
Advertising and promotional		132			145		199			183			478			535
Intangible amortization		282			307		297			346			901			1,005
FDIC insurance		225			152		195			225			645			533
Other		1,375			943		1,035			1,266			3,515			3,386
Total noninterest expense		13,690			12,528		13,416			13,506			40,263			39,163

Income before income tax		6,476			7,510		6,869			6,912			19,908			20,367
Income tax expense		948			1,272		1,056			1,163			2,952			3,337

Net income	$	5,528		$	6,238	$	5,813		$	5,749		$	16,956		$	17,029

Basic earnings per share (Note 4)	$	0.74		$	0.80	$	0.77		$	0.75		$	2.26		$	2.20
Diluted earnings per share (Note 4)	$	0.74		$	0.80	$	0.77		$	0.75		$	2.26		$	2.20
Dividends declared per share	$	0.25		$	0.22	$	0.25		$	0.25		$	0.75		$	0.69

See accompanying notes to interim consolidated financial statements.

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

	Three Months Ended						Three Months Ended						Nine Months Ended
(Dollars in thousands)	March 31,						September 30,						September 30,
	2022			2021			2022			2021			2022			2021
Net income	$	5,528		$	6,238		$	5,813		$	5,749		$	16,956		$	17,029

Other comprehensive income:
Changes in net unrealized gains on investment securities available for sale, net of tax (benefit)/expense of ($8,981) and ($3,560) for the three months ended March 31, 2022 and March 31, 2021, respectively.		(33,786	)		(13,393	)
Change in net unrealized gain (loss) on available-for-sale securities								(25,073	)		(6,173	)		(99,584	)		(11,464	)
Income tax benefit (expense)								5,265			1,296			20,913			2,407
Less: reclassification adjustment for net (gain) loss included in net income								378			-			805			(3	)
Income tax benefit (expense)								(79	)		-			(169	)		1
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								(19,509	)		(4,877	)		(75,346	)		(9,059	)

Reclassification adjustment for realized (gain) loss on sale of investment securities available for sale included in net income, net of tax expense (benefit) of $0 and $0 for the three months ended March 31, 2022 and March 31, 2021, respectively.		0			(1	)
Reclassification of unrealized gain (loss) upon transfer of securities from available-for-sale to held-to-maturity								-			-			(3,404	)		-
Income tax benefit (expense)								-			-			715			-
Less: amortization of net unrealized (gains) losses on securities transferred from available-for-sale to held-to-maturity								53			-			297			-
Income tax benefit (expense)								(11	)		-			(62	)		-
Unrealized loss on held to maturity securities, net of tax								42			-			(2,454	)		-

Change in net unrealized gain (loss) on derivatives								6,618			-			1,042			-
Income tax benefit (expense)								(1,390	)		-			(219	)		-
Less: amortization of net unrealized (gains) losses included in net income								416			-			723			-
Income tax benefit (expense)								(87	)		-			(152	)		-
Unrealized gain (loss) on derivative instruments, net of tax								5,557			-			1,394			-

Other comprehensive income (loss), net of tax		(33,786	)		(13,394	)		(13,910	)		(4,877	)		(76,406	)		(9,059	)

Comprehensive income (loss)	$	(28,258	)	$	(7,156	)	$	(8,097	)	$	872		$	(59,450	)	$	7,970

See accompanying notes to interim consolidated financial statements.

ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

For the three months ended ~~March 31,~~

September 30,

										Accumulated															Accumulated
				Common						Other									Common						Other
				Stock and						Comprehensive									Stock and						Comprehensive
	Number of			Paid in			Retained			Income/(Loss),						Number of			Paid in			Retained			Income/(Loss),
(Dollars in thousands, except per share data)	Shares			Capital			Earnings			Net			Total			Shares			Capital			Earnings			Net			Total

Balance, January 1, 2021		7,796,352		$	178,750		$	37,490		$	11,028		$	227,268
Balance, July 1, 2021																	7,692,537		$	176,323		$	45,352		$	6,846		$	228,521

Net income					0			6,238			0			6,238									5,749						5,749
Other comprehensive loss					0			0			(13,394	)		(13,394	)
Shares issued		4,732			175			0			0			175
Effect of employee stock purchases		1,201			4			0			0			4
Stock-based compensation expense		-			64			0			0			64
Cash dividends declared ($0.22 per share)					0			(1,716	)		0			(1,716	)

Balance, March 31, 2021		7,802,285		$	178,993		$	42,012		$	(2,366	)	$	218,639


Balance, January 1, 2022		7,510,379		$	171,913		$	52,332		$	(2,576	)	$	221,669

Net income					0			5,528			0			5,528
Other comprehensive loss					0			0			(33,786	)		(33,786	)
Other comprehensive income																										(4,877	)		(4,877	)
Shares issued		5,332			133			0			0			133			5,924			139									139
Effect of employee stock purchases		0			7			0			0			7						6									6
Stock-based compensation expense					121			0			0			121						84									84
Shares repurchased		(25,899	)		(682	)		0			0			(682	)		(107,240	)		(2,664	)								(2,664	)
Cash dividends declared ($0.25 per share)					0			(1,872	)		0			(1,872	)
Cash dividends declared ($0.25 per share)																							(1,903	)					(1,903	)

Balance, March 31, 2022		7,489,812		$	171,492		$	55,988		$	(36,362	)	$	191,118
Balance, September 30, 2021																	7,591,221		$	173,888		$	49,198		$	1,969		$	225,055


Balance, July 1, 2022																	7,503,072		$	171,804		$	59,728		$	(65,072	)	$	166,460

Net income																							5,813						5,813
Other comprehensive income (loss)																										(13,910	)		(13,910	)
Shares issued																	6,964			32									32
Effect of employee stock purchases																				6									6
Stock-based compensation expense																				133									133
Cash dividends declared ($0.25 per share)																							(1,877	)					(1,877	)

Balance, September 30, 2022																	7,510,036		$	171,975		$	63,664		$	(78,982	)	$	156,657

ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

For the nine months ended September 30,

										Accumulated
				Common						Other
				Stock and						Comprehensive
	Number of			Paid in			Retained			Income/(Loss),
(Dollars in thousands, except per share data)	Shares			Capital			Earnings			Net			Total

Balance, January 1, 2021		7,796,352		$	178,750		$	37,490		$	11,028		$	227,268

Net income								17,029						17,029
Other comprehensive loss											(9,059	)		(9,059	)
Shares issued		17,810			420									420
Effect of employee stock purchases					19									19
Stock-based compensation expense					260									260
Shares repurchased		(222,941	)		(5,561	)								(5,561	)
Cash dividends declared ($0.69 per share)		-			-			(5,322	)					(5,322	)

Balance, September 30, 2021		7,591,221		$	173,888		$	49,198		$	1,969		$	225,055


Balance, January 1, 2022		7,510,379		$	171,913		$	52,332		$	(2,576	)	$	221,669

Net income								16,956						16,956
Other comprehensive income (loss)											(76,406	)		(76,406	)
Shares issued		25,556			304									304
Effect of employee stock purchases					19									19
Stock-based compensation expense					421									421
Shares repurchased		(25,899	)		(682	)								(682	)
Cash dividends declared ($0.75 per share)								(5,624	)					(5,624	)

Balance, September 30, 2022		7,510,036		$	171,975		$	63,664		$	(78,982	)	$	156,657

See accompanying notes to interim consolidated financial statements.

ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Three Months Ended

(Dollars in thousands)

March 31,

2022

2021

Cash flows from operating activities:

Net income
$ 5,528 $ 6,238
Adjustments to reconcile net income to net cash from operating activities:

Provision for loan losses
0 250
Depreciation
672 646
Amortization
2,673 1,949
Compensation expense on employee and director stock purchases, stock options, and restricted stock units
226 214
Net gains on sales of securities
0 (1 )
Net change in market value of equity securities
356 (608 )
Gains on sales of loans
(804 ) (2,146 )
Loans originated for sale
(29,531 ) (72,727 )
Proceeds from loan sales
25,896 68,637
Earnings on bank-owned life insurance
(280 ) (186 )
Proceeds from BOLI policy
130 0
Earnings on death benefit from bank-owned life insurance
(14 ) 0
(Gains)/losses on sales of other real estate owned
(41 ) (4 )
Proceeds from sales of other real estate owned
235 270
Deferred federal income tax (benefit)/expense
248 506
Net change in:

Other assets
173 (3,952 )
Other liabilities
(2,665 ) 3,124
Net cash provided by operating activities
2,802 2,210

Cash flows from investing activities:

Maturities, prepayments and calls of securities available for sale
13,157 12,918
Maturities, prepayments and calls of securities held to maturity
1,078 0
Purchases of securities available for sale
(28,197 ) (179,221 )
Purchases of securities held to maturity
(3,160 ) 0
Proceeds from redemption of Federal Home Loan Bank stock
331 0
Loan originations and payments, net
31,816 63,084
Additions to premises and equipment
(526 ) (1,038 )
Net cash provided by (used in) investing activities
14,499 (104,257 )

Cash flows from financing activities:

Net change in deposits
93,307 165,386
Net change in short term borrowings
(50,000 ) (5,843 )
Issuance of common stock
35 29
Repurchase of common stock
(682 ) 0
Cash dividends
(1,872 ) (1,716 )
Net cash provided by financing activities
40,788 157,856

Net change in cash and cash equivalents
58,089 55,809
Beginning cash and cash equivalents
31,887 79,519

Ending cash and cash equivalents
$ 89,976 $ 135,328

Supplemental disclosures of cash flow information:

Cash paid for interest
$ 1,413 $ 1,021
Cash paid for income taxes
0 0
Loans transferred to other real estate owned
172 123

	Nine Months Ended
(Dollars in thousands)	September 30,
	2022			2021
Cash flows from operating activities:
Net income	$	16,956		$	17,029
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses		100			416
Depreciation		2,041			1,949
Amortization		8,145			6,989
Compensation expense on employee and director stock purchases, stock options, and restricted stock units		726			596
Net losses (gains) on sales of available for sale securities		805			(3	)
Net change in market value of equity securities		1,006			(461	)
Gains on sales of loans		(2,123	)		(5,715	)
Loans originated for sale		(68,434	)		(162,579	)
Proceeds from loan sales		70,155			171,882
Earnings on bank-owned life insurance		(793	)		(570	)
Proceeds from BOLI policy		130			-
Earnings on death benefit from bank-owned life insurance		(14	)		-
(Gains)/losses on sales of other real estate owned		(41	)		(4	)
Proceeds from sales of other real estate owned		235			407
Deferred federal income tax (benefit)/expense		169			634
Net change in:
Other assets		(4,461	)		(2,805	)
Other liabilities		7,423			1,797
Net cash provided by operating activities		32,025			29,562

Cash flows from investing activities:
Sales of securities available for sale		47,167			-
Maturities, prepayments and calls of securities available for sale		39,024			39,772
Maturities, prepayments and calls of securities held to maturity		6,277			-
Purchases of securities available for sale		(54,347	)		(514,204	)
Purchases of securities held to maturity		(7,505	)		-
Loan originations and payments, net		(73,321	)		78,067
Additions to premises and equipment		(1,238	)		(2,193	)
Proceeds from (payments for) derivative contracts, net		(16,547	)		-
Net cash provided by (used in) investing activities		(60,490	)		(398,558	)

Cash flows from financing activities:
Net change in deposits		104,360			337,572
Net change in short term borrowings		(50,000	)		22,464
Issuance of common stock		80			104
Repurchase of common stock		(682	)		(5,561	)
Share based compensation withholding obligation		(62	)		-
Cash dividends		(5,624	)		(5,322	)
Net cash provided by financing activities		48,072			349,257

Net change in cash and cash equivalents		19,607			(19,739	)
Beginning cash and cash equivalents		31,887			79,519

Ending cash and cash equivalents	$	51,494		$	59,780

Supplemental disclosures of cash flow information:
Cash paid for interest	$	4,738		$	2,885
Cash paid for income taxes		200			2,501
Loans transferred to other real estate owned		-			298

See accompanying notes to interim consolidated financial statements.

ChoiceOne Financial Services, Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include ChoiceOne Financial Services, Inc. ("ChoiceOne"), its wholly-owned subsidiary, ChoiceOne Bank, and ChoiceOne Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. ~~(the "Insurance Agency").~~ Intercompany transactions and balances have been eliminated in consolidation.

ChoiceOne owns all of the common securities of Community Shores Capital Trust I (the “Capital Trust”). Under U.S. generally accepted accounting principles ("GAAP"), the Capital Trust is not consolidated because it is a variable interest entity and ChoiceOne is not the primary beneficiary.

The accompanying unaudited consolidated financial statements and notes thereto reflect all adjustments ordinary in nature which are, in the opinion of management, necessary for a fair presentation of ~~the Consolidated Balance Sheets as of~~ ~~March 31, 2022~~ ~~and~~ ~~December 31, 2021~~~~, the Consolidated Statements of Income for the~~ ~~three~~~~-month periods ended~~ ~~March 31, 2022~~ ~~and~~ ~~March 31, 2021~~~~, the Consolidated Statements of Comprehensive Income for the~~ ~~three~~~~-month periods ended~~ ~~March 31, 2022~~ ~~and~~ ~~March 31, 2021~~~~, the Consolidated Statements of Changes in Shareholders’ Equity for the~~ ~~three~~ ~~months ended~~ ~~March 31, 2022~~ ~~and~~ ~~March 31, 2021~~~~, and the Consolidated Statements of Cash Flows for the~~ ~~three~~~~-month periods ended~~ ~~March 31, 2022~~ ~~and~~ ~~March 31, 2021~~.such financial statements. Operating results for the ~~three~~nine months ended ~~March 31,~~September 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2021.

Use of Estimates

To prepare financial statements in conformity with GAAP, ChoiceOne’s management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. These estimates and assumptions are subject to many risks and uncertainties, including changes in interest rates and other general economic, business and political conditions, including the effects of the COVID-19 pandemic, and its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state and local government laws, regulations and orders in connection with the pandemic. Actual results may differ from these estimates. Estimates associated with the allowance for loan losses are particularly susceptible to change.

Investment Securities

Investment securities for which ChoiceOne has the intent and ability to hold to maturity are classified as held to maturity and are carried at amortized cost. Investment securities not classified as held to maturity are classified as available for sale and are reported at fair value with unrealized gains and losses, net of income taxes, as a separate component of other comprehensive income. ChoiceOne determines the appropriate classification of investment securities at the time of purchase and reassesses the classification at each reporting date.

Loans to Other Financial Institutions

~~ChoiceOne Bank entered into an agreement with another financial institution to fund mortgage loans.~~ Loans to other financial institutions are ~~purchased participating interests in individual advances~~ made to mortgage bankers nation-wide from an unaffiliated originating bank. The originating bank services these loans and cash flows on the individual advances (principal, interest, and fees) which are allocated pro-rata based on ownership in the participating interest, less fees paid for the ~~servicing activity.~~purpose of providing a warehouse line of credit to facilitate funding of residential mortgage loan originations at other financial institutions. The ~~underlying collateral is generally made up of~~ 1-4 ~~family~~ ~~first~~ ~~residential mortgages owned by~~loans are short-term in nature and are designed to provide funding for the ~~mortgage banker~~time period between the loan origination and ~~held for~~its subsequent sale in the secondary ~~market and have been underwritten using secondary market underwriting standards prior~~market. Loans to ~~purchasing~~other financial institutions earn a share of interest income, determined by the ~~participating interest. Once the mortgage banker delivers~~contract, from when the loan is funded to when the loan is sold on the secondary ~~market, the advance is required to be paid off, including ChoiceOne Bank’s participating interest.~~ ~~If the advance (in which ChoiceOne Bank has a participating interest) is outstanding over~~ 90 ~~days, the originating bank has the right to request the participating interest be paid off by the mortgage banker. There was~~ no ~~participating interest as of~~ ~~March 31, 2022.~~

Credit risk associated with the participating interest is measured as an allowance for loan losses when necessary. Losses are charged off against the allowance when incurred and recoveries of loan charge-offs are recorded when received. At least quarterly, ChoiceOne Bank reviews the portfolios of participating interests for potential losses including any participating interest that is outstanding over 90 ~~days (even if the advance and participating interest is current).~~market. Loans to other financial institutions are excluded from ~~the loans described in~~ Note 33. Management has elected to suspend the warehouse line of credit program as of the end of the third quarter of 2022. A small balance of loans remains in the pipeline from prior to the ~~interim consolidated financial statements.~~suspension; however, these are expected to be paid off quickly, with no losses, and are immaterial.

Goodwill

Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of the acquired tangible assets and liabilities and identifiable intangible assets. Goodwill and intangible assets acquired in a purchase or business combination and determined to have an indefinite useful life are not amortized but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed.

Core Deposit Intangible

Core deposit intangible represents the value of the acquired customer core deposit bases and is included as an asset on the consolidated balance sheets. The core deposit intangible has an estimated finite life, is amortized on an accelerated basis over a 120 month period and is subject to periodic impairment evaluation.

Stock Transactions

A total of ~~3,698~~12,104 shares of common stock were issued to ChoiceOne’s Board of Directors for a cash price of ~~$98,000~~$286,000 under the terms of the Directors’ Stock Purchase Plan in the first ~~quarter~~nine months of 2022. A total of ~~1,634~~6,524 shares for a cash price of ~~$35,000~~$80,000 were issued under the Employee Stock Purchase Plan in the first ~~quarter~~nine months of 2022. ChoiceOne repurchased 25,899 shares for $682,000, or a weighted average all-in cost per share of $26.35, during the first quarter of 2022. This was part of the common stock repurchase program announced in April 2021 which authorized repurchases of up to 390,114 shares, representing 5% of the total outstanding shares of common stock as of the date the program was adopted. No shares were repurchased under this program in the second or third quarter of 2022.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. The allowance for loan losses is increased by the provision for loan losses and decreased by loans charged off less any recoveries of charged off loans. Management estimates the allowance for loan losses ~~balance~~ required based on past loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance for loan losses may be made for specific loans, but the entire allowance for loan losses is available for any loan that, in management’s judgment, should be charged off. Loan losses are charged against the allowance for loan losses when management believes that collection of a loan balance is not possible.

The allowance for loan losses consists of general and specific components. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component of management's estimate of the allowance for loan losses covers non-impaired loans and is based on historical loss experience adjusted for current factors. Management's adjustment for current factors is based on trends in delinquencies, trends in charge-offs and recoveries, trends in the volume of loans, changes in underwriting standards, trends in loan review findings, experience and ability of lending staff, national and economic trends and conditions, industry conditions, trends in real estate values, and other conditions. The specific component relates to loans that are individually classified as impaired.

A loan is impaired when full payment under the loan terms is not expected. Troubled debt restructuring of loans is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule. All modified loans are evaluated to determine whether the loans should be reported as Troubled Debt Restructurings ("TDR"). A loan is a TDR when ~~the~~ChoiceOne Bank, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower by modifying a loan. To make this determination, ~~the~~ChoiceOne Bank must determine whether (a) the borrower is experiencing financial difficulties and (b) ~~the~~ChoiceOne Bank granted the borrower a concession. This determination requires consideration of all facts and circumstances surrounding the modification. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean the borrower is experiencing financial difficulties. Commercial loans are evaluated for impairment on an individual loan basis. If a loan is considered impaired or if a loan has been classified as a TDR, a portion of the allowance for loan losses is allocated to the loan so that it is reported, ~~net,~~ at the net present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller-balance homogeneous loans such as consumer and residential real estate mortgage loans are collectively evaluated for impairment and, accordingly, they are not separately identified for impairment disclosures.

Reclassifications

Certain amounts presented in prior periods have been reclassified to conform to the current presentation.

Recent Accounting Pronouncements

The Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance attempts to reflect an entity’s current estimate of all expected credit losses and broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually to include forecasted information, as well as past events and current conditions. There is no specified method for measuring expected credit losses, and an entity may apply methods that reasonably reflect its expectations of the credit loss estimate. Although an entity may still use its current systems and methods for recording the allowance for credit losses, under the new rules, the inputs used to record the allowance for credit losses generally will need to change to appropriately reflect an estimate of all expected credit losses and the use of reasonable and supportable forecasts. Additionally, credit losses on available-for-sale debt securities will have to be presented as an allowance rather than as a write-down. This ASU is effective for fiscal years beginning after December 15, 2022, and for interim periods within those years for companies considered smaller reporting companies with the Securities and Exchange Commission. ChoiceOne was classified as a smaller reporting company as of the measurement date. Management is currently evaluating the impact of this new ASU on its consolidated financial statements which may be significant.

Management has selected representative peer groups for each loan type and determined economic factors which have a strong correlation with our historical loss data.

NOTE 2 – SECURITIES

~~During the~~On ~~three~~ ~~months ended~~ ~~March 31,~~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 ~~pre-tax~~after-tax loss of ~~$3.4~~$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 ~~$2.6~~$2.5 million after tax as of ~~March 31,~~September 30, 2022.

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

March 31, 2022

Gross

Gross

(Dollars in thousands)

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

Equity securities
$ 8,100 $ 545 $ (363 ) $ 8,282

	September 30, 2022
			Gross		Gross
(Dollars in thousands)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Equity securities	$	8,445	$	272	$	(740	)	$	7,977

	December 31, 2021
			Gross		Gross
(Dollars in thousands)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Equity securities	$	7,953	$	665	$	(126	)	$	8,492

The following tables present the amortized cost and fair value of investment securities at the dates indicated and the corresponding amounts of gross unrealized gains and losses, including the corresponding amounts of gross unrealized gains and losses on investment securities available for sale recognized in accumulated other comprehensive income:

	March 31, 2022									September 30, 2022
			Gross		Gross							Gross		Gross
(Dollars in thousands)	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
Available for Sale:	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
U.S. Government and federal agency	$	0	$	0	$	0		$	0
U.S. Treasury notes and bonds		93,154		8		(6,671	)		86,491	$	90,926	$	-	$	(13,372	)	$	77,554
State and municipal		334,907		443		(22,962	)		312,388		281,298		-		(57,311	)		223,987
Mortgage-backed		240,062		19		(13,412	)		226,669		242,095		-		(27,404	)		214,691
Corporate		1,255		4		(4	)		1,255		757		-		(41	)		716
Asset-backed securities		14,465		0		(220	)		14,245		13,653		-		(508	)		13,145
Total	$	683,843	$	474	$	(43,269	)	$	641,048	$	628,729	$	-	$	(98,636	)	$	530,093

Held to Maturity:
U.S. Government and federal agency	$	2,962	$	0	$	(195	)	$	2,767	$	2,965	$	-	$	(415	)	$	2,550
U.S. Treasury notes and bonds		0		0		0			0
State and municipal		204,201		2		(17,668	)		186,535		202,406		-		(42,485	)		159,921
Mortgage-backed		204,165		30		(13,533	)		190,662		202,131		-		(31,296	)		170,835
Corporate		17,161		0		(606	)		16,555		19,597		-		(2,068	)		17,529
Asset-backed securities		1,429		0		(37	)		1,392		1,106		-		(83	)		1,023
Total	$	429,918	$	32	$	(32,039	)	$	397,911	$	428,205	$	-	$	(76,347	)	$	351,858

	December 31, 2021									December 31, 2021
			Gross		Gross							Gross		Gross
(Dollars in thousands)	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
Available for Sale:	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
U.S. Government and federal agency	$	2,001	$	7	$	0		$	2,008	$	2,001	$	7	$	-		$	2,008
U.S. Treasury notes and bonds		93,267		23		(1,311	)		91,979		93,267		23		(1,311	)		91,979
State and municipal		528,252		10,704		(4,109	)		534,847		528,252		10,704		(4,109	)		534,847
Mortgage-backed		441,383		781		(9,049	)		433,115		441,383		781		(9,049	)		433,115
Corporate		20,856		19		(233	)		20,642		20,856		19		(233	)		20,642
Asset-backed securities		16,387		0		(93	)		16,294		16,387		-		(93	)		16,294
Total	$	1,102,146	$	11,534	$	(14,795	)	$	1,098,885	$	1,102,146	$	11,534	$	(14,795	)	$	1,098,885

Available for sale securities with unrealize losses as of September 30, 2022 and 2021, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, were as follows:

	September 30, 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. Government and federal agency	$	-	$	-	$	-	$	-	$	-	$	-
U.S. Treasury notes and bonds		-		-		77,554		13,372		77,554		13,372
State and municipal		181,857		44,576		40,756		12,735		222,613		57,311
Mortgage-backed		86,499		4,410		125,765		22,994		212,264		27,404
Corporate		716		41		-		-		716		41
Asset-backed securities		-		-		13,145		508		13,145		508
Total temporarily impaired	$	269,072	$	49,027	$	257,220	$	49,609	$	526,292	$	98,636

	December 31, 2021
	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. Government and federal agency	$	-	$	-	$	-	$	-	$	-	$	-
U.S. Treasury notes and bonds		89,958		1,311		-		-		89,958		1,311
State and municipal		130,001		3,253		15,237		856		145,238		4,109
Mortgage-backed		261,560		5,709		86,974		3,340		348,534		9,049
Corporate		17,369		233		-		-		17,369		233
Asset-backed securities		16,294		93		-		-		16,294		93
Total temporarily impaired	$	515,182	$	10,599	$	102,211	$	4,196	$	617,393	$	14,795

Held to maturity securities with unrealize losses as of September 30, 2022, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, in the table below. There were no held to maturity securities as of December 31, 2021.

	September 30, 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	$	-	$	-	$	2,550	$	415	$	2,550	$	415
U.S. Treasury notes and bonds		-		-		-		-		-		-
State and municipal		105,390		25,177		54,531		17,308		159,921		42,485
Mortgage-backed		59,007		6,495		111,828		24,801		170,835		31,296
Corporate		11,371		1,512		4,909		556		16,280		2,068
Asset-backed securities		-		-		1,023		83		1,023		83
Total temporarily impaired	$	175,768	$	33,184	$	174,841	$	43,163	$	350,609	$	76,347

ChoiceOne reviews its securities portfolio on a quarterly basis to determine whether unrealized losses are considered to be temporary or other-than-temporary. ~~NaN~~No other-than-temporary impairment charges were recorded in the three and nine months ended ~~March 31,~~September 30, 2022, or in the same ~~period~~periods in2021. ChoiceOne believes that unrealized losses on securities were temporary in nature and were due to changes in interest rates and reduced market liquidity and not as a result of credit quality issues.

911

Presented below is a schedule of maturities of securities as of ~~March 31,~~September 30, 2022, and the fair value of securities available for sale and the amortized cost of securities held to maturity as of ~~March 31,~~September 30, 2022. Callable securities in the money are presumed called and matured at the callable date.

	Available for Sale Securities maturing within:										Available for Sale Securities maturing within:
									Fair Value										Fair Value
	Less than		1 Year -		5 Years -		More than		at March 31,		Less than		1 Year -		5 Years -		More than		at September 30,
(Dollars in thousands)	1 Year		5 Years		10 Years		10 Years		2022		1 Year		5 Years		10 Years		10 Years		2022

U.S. Government and federal agency	$	0	$	0	$	0	$	0	$	0
U.S. Treasury notes and bonds		2,007		0		84,484		0		86,491	$	-	$	-	$	77,554	$	-	$	77,554
State and municipal		17,913		34,667		185,902		73,906		312,388		9,609		7,929		38,202		168,247		223,987
Corporate		501		508		246		0		1,255		-		497		219		-		716
Asset-backed securities		0		10,305		3,940		0		14,245		-		9,481		3,664		-		13,145
Total debt securities		20,421		45,480		274,572		73,906		414,379		9,609		17,907		119,639		168,247		315,402

Mortgage-backed securities		13,689		84,660		119,303		9,017		226,669		19,362		98,970		90,161		6,198		214,691
Equity securities		0		1,000		0		7,282		8,282
Total Available for Sale	$	34,110	$	131,140	$	393,875	$	90,205	$	649,330	$	28,971	$	116,877	$	209,800	$	174,445	$	530,093

	Held to Maturity Securities maturing within:										Held to Maturity Securities maturing within:
									Amortized Cost										Amortized Cost
	Less than		1 Year -		5 Years -		More than		at March 31,		Less than		1 Year -		5 Years -		More than		at September 30,
(Dollars in thousands)	1 Year		5 Years		10 Years		10 Years		2022		1 Year		5 Years		10 Years		10 Years		2022

U.S. Government and federal agency	$	0	$	0	$	2,962	$	0	$	2,962	$	-	$	-	$	2,965	$	-	$	2,965
U.S. Treasury notes and bonds		0		0		0		0		0
State and municipal		2,755		4,608		97,764		99,074		204,201		2,348		5,180		68,447		126,431		202,406
Corporate		0		250		15,911		1,000		17,161		-		250		18,347		1,000		19,597
Asset-backed securities		0		1,429		0		0		1,429		-		1,106		-		-		1,106
Total debt securities		2,755		6,287		116,637		100,074		225,753		2,348		6,536		89,759		127,431		226,074

Mortgage-backed securities		3,511		44,972		155,682		0		204,165		-		56,033		146,098		-		202,131
Equity securities		0		0		0		0		0
Total Held to Maturity	$	6,266	$	51,259	$	272,319	$	100,074	$	429,918	$	2,348	$	62,569	$	235,857	$	127,431	$	428,205

Following is information regarding unrealized gains and losses on equity securities for the three and ninemonths ended ~~March 31,~~ September 30,2022and 2021:

	Three Months Ended					Three Months Ended						Nine Months Ended
	March 31,					September 30,						September 30,
	2022			2021		2022			2021			2022			2021

Net gains and (losses) recognized during the period	$	(356	)	$	608	$	(323	)	$	(28	)	$	(1,006	)	$	461
Less: Net gains and (losses) recognized during the period on securities sold		0			0		—			—			—			—

Unrealized gains and (losses) recognized during the reporting period on securities still held at the reporting date	$	(356	)	$	608	$	(323	)	$	(28	)	$	(1,006	)	$	461

1012

NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES

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

				Commercial																								Commercial
(Dollars in thousands)				and						Commercial			Construction			Residential												and						Commercial		Construction			Residential
	Agricultural			Industrial			Consumer			Real Estate			Real Estate			Real Estate			Unallocated			Total			Agricultural			Industrial			Consumer			Real Estate		Real Estate			Real Estate		Unallocated			Total
Allowance for Loan Losses Three Months Ended March 31, 2022
Allowance for Loan Losses Three Months Ended September 30, 2022
Beginning balance	$	448		$	1,454		$	290		$	3,705		$	110		$	671		$	1,010		$	7,688		$	132		$	1,613		$	309		$	4,224	$	45		$	691	$	402		$	7,416
Charge-offs		0			(31	)		(112	)		0			0			0			0			(143	)		—			(47	)		(128	)		-		—			—		—			(175	)
Recoveries		0			2			52			1			0			1			0			56			—			59			56			1		—		��	—		—			116
Provision		(61	)		327			74			(16	)		(73	)		(83	)		(168	)		0			8			(252	)		66			384		14			178		(298	)		100
Ending balance	$	387		$	1,752		$	304		$	3,690		$	37		$	589		$	842		$	7,601		$	140		$	1,373		$	303		$	4,609	$	59		$	869	$	104		$	7,457

Allowance for Loan Losses Nine Months Ended September 30, 2022
Beginning balance																									$	448		$	1,454		$	290		$	3,705	$	110		$	671	$	1,010		$	7,688
Charge-offs																										—			(177	)		(383	)		—		—			—		—			(560	)
Recoveries																										—			62			162			3		—			2		—			229
Provision																										(308	)		34			234			901		(51	)		196		(906	)		100
Ending balance																									$	140		$	1,373		$	303		$	4,609	$	59		$	869	$	104		$	7,457

Individually evaluated for impairment	$	253		$	116		$	3		$	9		$	0		$	167		$	0		$	548		$	1		$	6		$	1		$	6	$	—		$	143	$	—		$	157

Collectively evaluated for impairment	$	134		$	1,636		$	301		$	3,681		$	37		$	422		$	842		$	7,053		$	139		$	1,367		$	302		$	4,603	$	59		$	726	$	104		$	7,300

Loans
March 31, 2022
September 30, 2022
Individually evaluated for impairment	$	2,542		$	356		$	32		$	157		$	0		$	1,853			0		$	4,940		$	312		$	108		$	7		$	140	$	—		$	2,070	$	—		$	2,637
Collectively evaluated for impairment		59,076			194,024			36,108			527,743			15,669			174,206			0			1,006,826			63,035			204,686			38,340			584,274		14,299			210,867		—			1,115,501
Acquired with deteriorated credit quality		0			4,534			11			9,352			0			1,743			0			15,640			—			3,796			9			8,781		—			1,677		—			14,263
Ending balance	$	61,618		$	198,914		$	36,151		$	537,252		$	15,669		$	177,802			0		$	1,027,406		$	63,347		$	208,590		$	38,356		$	593,195	$	14,299		$	214,614				$	1,132,401

			Commercial																							Commercial
(Dollars in thousands)			and						Commercial			Construction			Residential											and						Commercial			Construction		Residential
	Agricultural		Industrial			Consumer			Real Estate			Real Estate			Real Estate			Unallocated			Total			Agricultural		Industrial			Consumer			Real Estate			Real Estate		Real Estate			Unallocated			Total
Allowance for Loan Losses Three Months Ended March 31, 2021
Allowance for Loan Losses Three Months Ended September 30, 2021
Beginning balance																								$	374	$	1,523		$	243		$	4,377		$	74	$	860		$	499		$	7,950
Charge-offs																									—		(96	)		(98	)		(63	)		—		-			—			(257	)
Recoveries																									—		7			54			—			—		1			—			62
Provision																									144		168			33			(154	)		39		80			(310	)		-
Ending balance																								$	518	$	1,602		$	232		$	4,160		$	113	$	941		$	189		$	7,755

Allowance for Loan Losses Nine Months Ended September 30, 2021
Beginning balance	$	257	$	1,327		$	317		$	4,178		$	97		$	1,300		$	117		$	7,593		$	257	$	1,327		$	317		$	4,178		$	97	$	1,300		$	117		$	7,593
Charge-offs		0		(74	)		(71	)		(48	)		0			0			0			(193	)		—		(195	)		(244	)		(111	)		—		—			—			(550	)
Recoveries		0		9			79			0			0			2			0			90			—		80			168			43			—		5			—			296
Provision		85		337			(78	)		215			(23	)		(278	)		(8	)		250			261		390			(9	)		50			16		(364	)		72			416
Ending balance	$	342	$	1,599		$	247		$	4,345		$	74		$	1,024		$	109		$	7,740		$	518	$	1,602		$	232		$	4,160		$	113	$	941		$	189		$	7,755

Individually evaluated for impairment	$	114	$	2		$	0		$	10		$	0		$	213		$	0		$	339		$	124	$	174		$	-		$	8		$	-	$	177		$	-		$	483

Collectively evaluated for impairment	$	227	$	1,596		$	246		$	4,337		$	75		$	811		$	109		$	7,401		$	394	$	1,428		$	232		$	4,152		$	113	$	764		$	189		$	7,272


Loans
March 31, 2021
September 30, 2021
Individually evaluated for impairment	$	3,173	$	1,626		$	0		$	3,001		$	0		$	2,589			0		$	10,389		$	3,051	$	296		$	-		$	418		$	-	$	2,191					$	5,956
Collectively evaluated for impairment		43,513		290,140			32,311			448,261			15,670			174,562			0			1,004,457			60,394		211,695			33,793			474,425			18,238		165,913						964,458
Acquired with deteriorated credit quality		0		6,284			19			11,159			0			2,775			0			20,237			—		5,251			13			10,489			—		2,190						17,943
Ending balance	$	46,686	$	298,050		$	32,330		$	462,421		$	15,670		$	179,926					$	1,035,083		$	63,445	$	217,242		$	33,806		$	485,332		$	18,238	$	170,294					$	988,357

1113

			Commercial																Commercial
(Dollars in thousands)			and				Commercial		Construction		Residential								and				Commercial		Construction		Residential
	Agricultural		Industrial		Consumer		Real Estate		Real Estate		Real Estate		Unallocated		Total		Agricultural		Industrial		Consumer		Real Estate		Real Estate		Real Estate		Unallocated		Total
Allowance for Loan Losses
December 31, 2021
Individually evaluated for impairment	$	251	$	95	$	2	$	9	$	0	$	146	$	0	$	503	$	251	$	95	$	2	$	9	$	-	$	146	$	-	$	503

Collectively evaluated for impairment	$	197	$	1,359	$	288	$	3,696	$	110	$	525	$	1,010	$	7,185	$	197	$	1,359	$	288	$	3,696	$	110	$	525	$	1,010	$	7,185


Loans
December 31, 2021
Individually evaluated for impairment	$	2,616	$	339	$	14	$	273	$	0	$	2,191		0	$	5,433	$	2,616	$	339	$	14	$	273	$	-	$	2,191			$	5,433
Collectively evaluated for impairment		62,203		197,656		35,148		515,528		19,066		164,647		0		994,248		62,203		197,656		35,148		515,528		19,066		164,647				994,248
Acquired with deteriorated credit quality		0		5,029		12		10,083		0		2,043		0		17,167		-		5,029		12		10,083		-		2,043				17,167
Ending balance	$	64,819	$	203,024	$	35,174	$	525,884	$	19,066	$	168,881		0	$	1,016,848	$	64,819	$	203,024	$	35,174	$	525,884	$	19,066	$	168,881			$	1,016,848

The process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking (1) the risk ratings of business loans, (2) the level of classified business loans, and (3) 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 ~~Ban~~kBank 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.

1214

Information regarding ChoiceOne Bank's credit exposure was as follows:

Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Category

(Dollars in thousands)	Agricultural				Commercial and Industrial				Commercial Real Estate				Agricultural				Commercial and Industrial				Commercial Real Estate
	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021		2022		2021		2022		2021		2022		2021		2022		2021
Pass	$	58,749	$	61,864	$	196,394	$	201,202	$	531,683	$	519,537	$	62,733	$	61,864	$	208,087	$	201,202	$	588,066	$	519,537
Special Mention		327		339		1,190		300		749		778		302		339		344		300		729		778
Substandard		2,542		2,616		1,245		1,266		4,820		5,569		312		2,616		159		1,266		4,400		5,569
Doubtful		0		0		85		256		0		0		-		-		-		256		-		-
	$	61,618	$	64,819	$	198,914	$	203,024	$	537,252	$	525,884	$	63,347	$	64,819	$	208,590	$	203,024	$	593,195	$	525,884

Consumer Credit Exposure - Credit Risk Profile Based On Payment Activity

(Dollars in thousands)	Consumer				Construction Real Estate				Residential Real Estate				Consumer				Construction Real Estate				Residential Real Estate
	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021		2022		2021		2022		2021		2022		2021		2022		2021
Performing	$	36,119	$	35,174	$	15,669	$	19,066	$	177,186	$	168,031	$	38,349	$	35,174	$	14,299	$	19,066	$	213,777	$	168,031
Nonperforming		0		0		0		0		0		0		-		-		-		-		-		-
Nonaccrual		32		0		0		0		616		850		7		-		-		-		837		850
	$	36,151	$	35,174	$	15,669	$	19,066	$	177,802	$	168,881	$	38,356	$	35,174	$	14,299	$	19,066	$	214,614	$	168,881

The following table provides information on loans that were considered troubled debt restructurings ("TDRs") that were modified during the three and ninemonths ended ~~March 31,~~September 30, 2022 and ~~March 31,~~September 30, 2021.

	Three Months Ended March 31, 2022						Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
			Pre-		Post-				Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding				Outstanding		Outstanding
(Dollars in thousands)	Number of		Recorded		Recorded		Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Loans		Investment		Investment		Loans		Investment		Investment		Loans		Investment		Investment
Agricultural		1	$	258	$	258		-	$	-	$	-		1	$	253	$	253
Commercial and industrial								-		-		-		1		18		18
Total		1	$	258	$	258		-	$	-	$	-		2	$	271	$	271

	Three Months Ended March 31, 2021						Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021
			Pre-		Post-				Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding				Outstanding		Outstanding
(Dollars in thousands)	Number of		Recorded		Recorded		Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Loans		Investment		Investment		Loans		Investment		Investment		Loans		Investment		Investment
Agricultural		6	$	2,326	$	2,326		-	$	-	$	-		6	$	2,210	$	2,210
Commercial Real Estate		1		958		958		1		493		493		2		931		931
Total		7	$	3,284	$	3,284		1	$	493	$	493		8	$	3,141	$	3,141

There were 0no TDRs ~~as of~~ ~~March 31, 2022~~ where the borrower was past due with respect to principal and/or interest for 30 days or more during the three and ninemonths ended ~~March 31,~~September 30, 2022, or September 30, 2021, which loans had been modified and classified as TDRs during the year prior to the default. ~~The following schedule provides information on TDRs as of~~ ~~March~~ ~~31,~~~~2021~~ ~~where the borrower was past due with respect to principal and/or interest for~~ 30 ~~days or more during the~~ ~~three~~ ~~months ended~~ ~~March 31, 2021,~~ ~~which loans had been modified and classified as TDRs during the year prior to the default.~~

Three Months Ended

March 31, 2021

(Dollars in thousands)

Number

Recorded

of Loans

Investment

Commercial and industrial
1 $ 52
Commercial Real Estate
3 1,850
Total
4 $ 1,902

1315

Impaired loans by loan category follow:

			Unpaid						Unpaid
(Dollars in thousands)	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
March 31, 2022
September 30, 2022
With no related allowance recorded
Agricultural	$	314	$	428	$	-	$	307	$	428	$	-
Commercial and industrial		92		123		-		-		-		-
Consumer		0		0		-		-		-		-
Construction real estate		0		0		-		-		-		-
Commercial real estate		0		0		-		-		-		-
Residential real estate		0		0		-		-		-		-
Subtotal		406		551		-		307		428		-
With an allowance recorded
Agricultural		2,228		2,228		253		5		5		1
Commercial and industrial		264		279		116		108		185		6
Consumer		32		32		3		7		7		1
Construction real estate		0		0		0		-		-		-
Commercial real estate		157		157		8		140		140		6
Residential real estate		1,853		1,907		167		2,070		2,149		143
Subtotal		4,534		4,603		547		2,330		2,486		157
Total
Agricultural		2,542		2,656		253		312		433		1
Commercial and industrial		356		402		116		108		185		6
Consumer		32		32		3		7		7		1
Construction real estate		0		0		0		-		-		-
Commercial real estate		157		157		8		140		140		6
Residential real estate		1,853		1,907		167		2,070		2,149		143
Total	$	4,940	$	5,154	$	547	$	2,637	$	2,914	$	157

			Unpaid						Unpaid
(Dollars in thousands)	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
December 31, 2021
With no related allowance recorded
Agricultural	$	314	$	428	$	-	$	314	$	428	$	-
Commercial and industrial		0		0		-		-		-		-
Consumer		0		0		-		-		-		-
Construction real estate		0		0		-		-		-		-
Commercial real estate		94		94		-		94		94		-
Residential real estate		164		172		-		164		172		-
Subtotal		572		694		-		572		694		-
With an allowance recorded
Agricultural		2,302		2,302		251		2,302		2,302		251
Commercial and industrial		339		363		95		339		363		95
Consumer		14		15		2		14		15		2
Construction real estate		0		0		0		-		-		-
Commercial real estate		179		179		9		179		179		9
Residential real estate		2,027		2,084		146		2,027		2,084		146
Subtotal		4,861		4,943		503		4,861		4,943		503
Total
Agricultural		2,616		2,730		251		2,616		2,730		251
Commercial and industrial		339		363		95		339		363		95
Consumer		14		15		2		14		15		2
Construction real estate		0		0		0		-		-		-
Commercial real estate		273		273		9		273		273		9
Residential real estate		2,191		2,256		146		2,191		2,256		146
Total	$	5,433	$	5,637	$	503	$	5,433	$	5,637	$	503

1416

The following schedule provides information regarding average balances of impaired loans and interest recognized on impaired loans for the three and ninemonths ended ~~March 31,~~September 30, 2022 and ~~March 31,~~September 30, 2021:

	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Three Months Ended March 31, 2022
Three Months Ended September 30, 2022
With no related allowance recorded
Agricultural	$	314	$	0	$	310	$	-
Commercial and industrial		46		1		-		-
Consumer		0		0		-		-
Construction real estate		0		0		-		-
Commercial real estate		47		0		-		-
Residential real estate		82		0		220		-
Subtotal		489		1		530		-
With an allowance recorded
Agricultural		2,265		42		6		-
Commercial and industrial		301		2		134		1
Consumer		23		0		7		-
Construction real estate		0		0		-		-
Commercial real estate		168		3		145		2
Residential real estate		1,940		17		1,842		16
Subtotal		4,697		64		2,134		19
Total
Agricultural		2,579		42		316		-
Commercial and industrial		347		3		134		1
Consumer		23		0		7		-
Construction real estate		0		0		-		-
Commercial real estate		215		3		145		2
Residential real estate		2,022		17		2,062		16
Total	$	5,186	$	65	$	2,664	$	19

	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Three Months Ended March 31, 2021
Three Months Ended September 30, 2021
With no related allowance recorded
Agricultural	$	348	$	0	$	989	$	-
Commercial and industrial		1,490		0		-		-
Consumer		0		0		-		-
Construction real estate		40		0		-		-
Commercial real estate		2,238		3		507		2
Residential real estate		166		1		320		-
Subtotal		4,282		4		1,816		2
With an allowance recorded
Agricultural		1,413		0		2,119		36
Commercial and industrial		155		0		240		2
Consumer		4		0		-		-
Construction real estate		0		0		-		-
Commercial real estate		778		4		272		2
Residential real estate		2,488		17		1,943		14
Subtotal		4,838		21		4,574		54
Total
Agricultural		1,761		0		3,108		36
Commercial and industrial		1,645		0		240		2
Consumer		4		0		-		-
Construction real estate		40		0		-		-
Commercial real estate		3,016		7		779		4
Residential real estate		2,654		18		2,263		14
Total	$	9,120	$	25	$	6,390	$	56

1517

	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
Nine Months Ended September 30, 2022
With no related allowance recorded
Agricultural	$	312	$	-
Commercial and industrial		23		-
Consumer		-		-
Construction real estate		-		-
Commercial real estate		23		-
Residential real estate		151		-
Subtotal		509		-
With an allowance recorded
Agricultural		1,136		-
Commercial and industrial		217		3
Consumer		15		-
Construction real estate		-		-
Commercial real estate		156		7
Residential real estate		1,891		49
Subtotal		3,415		59
Total
Agricultural		1,448		-
Commercial and industrial		240		3
Consumer		15		-
Construction real estate		-		-
Commercial real estate		179		7
Residential real estate		2,042		49
Total	$	3,924	$	59

	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
Nine Months Ended September 30, 2021
With no related allowance recorded
Agricultural	$	669	$	52
Commercial and industrial		745		-
Consumer		-		-
Construction real estate		20		-
Commercial real estate		1,372		34
Residential real estate		243		-
Subtotal		3,049		86
With an allowance recorded
Agricultural		1,766		71
Commercial and industrial		198		3
Consumer		2		-
Construction real estate		-		-
Commercial real estate		525		8
Residential real estate		2,215		47
Subtotal		4,706		129
Total
Agricultural		2,435		123
Commercial and industrial		943		3
Consumer		2		-
Construction real estate		20		-
Commercial real estate		1,897		42
Residential real estate		2,458		47
Total	$	7,755	$	215

An aging analysis of loans by loan category follows:

					Loans														Loans
	Loans		Loans		Past Due								Loans		Loans		Loans		Past Due								Loans
	Past Due		Past Due		Greater								90 Days Past		Past Due		Past Due		Greater								90 Days Past
(Dollars in thousands)	30 to 59		60 to 89		Than 90				Loans Not		Total		Due and		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		Days (1)		Days (1)		Days (1)		Total (1)		Past Due		Loans		Accruing
March 31, 2022
September 30, 2022
Agricultural	$	0	$	0	$	0	$	0	$	61,618	$	61,618	$	0	$	-	$	-	$	-	$	-	$	63,347	$	63,347	$	-
Commercial and industrial		0		93		85		178		198,736		198,914		0		1,065		-		46		1,111		207,479		208,590		-
Consumer		66		0		32		98		36,053		36,151		0		17		-		-		17		38,339		38,356		-
Commercial real estate		0		0		0		0		537,252		537,252		0		-		-		-		-		593,195		593,195		-
Construction real estate		0		0		0		0		15,669		15,669		0		-		-		-		-		14,299		14,299		-
Residential real estate		2,032		28		0		2,060		175,742		177,802		0		48		615		31		694		213,920		214,614
	$	2,098	$	121	$	117	$	2,336	$	1,025,070	$	1,027,406	$	0	$	1,130	$	615	$	77	$	1,822	$	1,130,579	$	1,132,401	$	-

December 31, 2021
Agricultural	$	0	$	0	$	0	$	0	$	64,819	$	64,819	$	0	$	-	$	-	$	-	$	-	$	64,819	$	64,819	$	-
Commercial and industrial		21		0		88		109		202,915		203,024		0		21		-		88		109		202,915		203,024		-
Consumer		70		15		0		85		35,089		35,174		0		70		15		-		85		35,089		35,174		-
Commercial real estate		422		13		279		714		525,170		525,884		0		422		13		279		714		525,170		525,884		-
Construction real estate		1,149		1,235		0		2,384		16,682		19,066		0		1,149		1,235		-		2,384		16,682		19,066		-
Residential real estate		1,489		306		454		2,249		166,632		168,881		0		1,489		306		454		2,249		166,632		168,881		-
	$	3,151	$	1,569	$	821	$	5,541	$	1,011,307	$	1,016,848	$	0	$	3,151	$	1,569	$	821	$	5,541	$	1,011,307	$	1,016,848	$	-

(1) Includes nonaccrual loans.

Nonaccrual loans by loan category follow:

(Dollars in thousands)	March 31,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Agricultural	$	314	$	313	$	307	$	313
Commercial and industrial		205		285		46		285
Consumer		32		0		7		-
Commercial real estate		0		279		-		279
Residential real estate		616		850		837		850
	$	1,167	$	1,727	$	1,197	$	1,727

1619

The table below details the outstanding balances of the County Bank Corp. acquired loan portfolio and the acquisition fair value adjustments at acquisition date of October 1, 2019 (dollars in thousands):

	*Acquired*			*Acquired*			*Acquired*			*Acquired*			*Acquired*			*Acquired*
	*Impaired*			*Non-impaired*			*Total*			*Impaired*			*Non-impaired*			*Total*
Loans acquired - contractual payments	$	7,729		$	387,394		$	395,123		$	7,729		$	387,394		$	395,123
Nonaccretable difference		(2,928	)		0			(2,928	)		(2,928	)		-			(2,928	)
Expected cash flows		4,801			387,394			392,195			4,801			387,394			392,195
Accretable yield		(185	)		(1,894	)		(2,079	)		(185	)		(1,894	)		(2,079	)
Carrying balance at acquisition date	$	4,616		$	385,500		$	390,116		$	4,616		$	385,500		$	390,116

The table below presents a roll forward of the accretable yield on the County Bank Corp. acquired loan portfolio for the years ended December 31, 2019, December 31, 2020, and December 31, 2021 and the ~~three~~nine months ended ~~March 31,~~September 30, 2022 (dollars in thousands):

(Dollars in thousands)	*Acquired*			*Acquired*			*Acquired*			*Acquired*			*Acquired*			*Acquired*
	*Impaired*			*Non-impaired*			*Total*			*Impaired*			*Non-impaired*			*Total*
Balance, January 1, 2019	$	0		$	0		$	0		$	-		$	-		$	-
Merger with County Bank Corp on October 1, 2019		185			1,894			2,079
Merger with County Bank Corp. on October 1, 2019											185			1,894			2,079
Accretion October 1, 2019 through December 31, 2019		0			(75	)		(75	)		-			(75	)		(75	)
Balance January 1, 2020		185			1,819			2,004			185			1,819			2,004
Accretion January 1, 2020 through December 31, 2020		(50	)		(295	)		(345	)		(50	)		(295	)		(345	)
Balance January 1, 2021		135			1,524			1,659			135			1,524			1,659
Accretion January 1, 2021 through December 31, 2021		(247	)		(95	)		(342	)		(247	)		(348	)		(595	)
Transfer from non-accretable to accretable yield		400			0			400			400			-			400
Balance January 1, 2022		288			1,429			1,717			288			1,176			1,464
Transfer from non-accretable to accretable yield		400			0			400			2,192			-			2,192
Accretion January 1, 2022 through March 31, 2022		(102	)		(151	)		(253	)
Balance, March 31, 2022	$	586		$	1,278		$	1,864
Accretion January 1, 2022 through September 30, 2022											(396	)		(32	)		(428	)
Balance, September 30, 2022										$	2,084		$	1,144		$	3,228

The table below details the outstanding balances of the Community Shores Bank Corporation acquired loan portfolio and the acquisition fair value adjustments at acquisition date of July 1, 2020 (dollars in thousands):

	*Acquired*			*Acquired*			*Acquired*			*Acquired*			*Acquired*			*Acquired*
	*Impaired*			*Non-impaired*			*Total*			*Impaired*			*Non-impaired*			*Total*
Loans acquired - contractual payments	$	20,491		$	158,495		$	178,986		$	20,491		$	158,495		$	178,986
Nonaccretable difference		(2,719	)		0			(2,719	)		(2,719	)		-			(2,719	)
Expected cash flows		17,772			158,495			176,267			17,772			158,495			176,267
Accretable yield		(869	)		(596	)		(1,465	)		(869	)		(596	)		(1,465	)
Carrying balance at acquisition date	$	16,903		$	157,899		$	174,802		$	16,903		$	157,899		$	174,802

The table below presents a roll forward of the accretable yield on Community Shores Bank Corporation acquired loan portfolio for the years ended December 31, 2020 and December 31, 2021 and the ~~three~~nine months ended ~~March 31,~~September 30, 2022 (dollars in thousands):

	*Acquired*			*Acquired*			*Acquired*			*Acquired*			*Acquired*			*Acquired*
	*Impaired*			*Non-impaired*			*Total*			*Impaired*			*Non-impaired*			*Total*
Balance January 1, 2020	$	0		$	0		$	0		$	-		$	-		$	-
Merger with Community Shores Bank Corporation on July 1, 2020		869			596			1,465			869			596			1,465
Accretion July 1, 2020 through December 31, 2020		(26	)		(141	)		(167	)		(26	)		(141	)		(167	)
Balance, January 1, 2021		843			455			1,298			843			455			1,298
Accretion January 1, 2021 through December 31, 2021		(321	)		(258	)		(579	)		(321	)		(258	)		(579	)
Balance January 1, 2022		522			197			719			522			197			719
Transfer from non-accretable to accretable yield		874			0			874			1,086			-			1,086
Accretion January 1, 2022 through March 31, 2022		(302	)		0			(302	)
Balance, March 31, 2022	$	1,094		$	197		$	1,291
Accretion January 1, 2022 through September 30, 2022											(837	)		(197	)		(1,034	)
Balance, September 30, 2022										$	771		$	-		$	771

1720

NOTE 4 – EARNINGS PER SHARE

Earnings per share are based on the weighted average number of shares outstanding during the period. A computation of basic earnings per share and diluted earnings per share follows:

	Three Months Ended				Three Months Ended				Nine Months Ended
(Dollars in thousands, except share data)	March 31,				September 30,				September 30,
	2022		2021		2022		2021		2022		2021
Basic
Net income	$	5,528	$	6,238	$	5,813	$	5,749	$	16,956	$	17,029

Weighted average common shares outstanding		7,495,464		7,801,058		7,507,538		7,621,423		7,500,877		7,730,135

Basic earnings per common shares	$	0.74	$	0.80	$	0.77	$	0.75	$	2.26	$	2.20

Diluted
Net income	$	5,528	$	6,238	$	5,813	$	5,749	$	16,956	$	17,029

Weighted average common shares outstanding		7,495,464		7,801,058		7,507,538		7,621,423		7,500,877		7,730,135
Plus dilutive stock options and restricted stock units		21,461		9,732		12,820		12,644		17,279		13,766

Weighted average common shares outstanding and potentially dilutive shares		7,516,925		7,810,790		7,520,358		7,634,067		7,518,156		7,743,901

Diluted earnings per common share	$	0.74	$	0.80	$	0.77	$	0.75	$	2.26	$	2.20

There were ~~12,000~~15,000 stock options that were considered anti-dilutive to earnings per share for the three ~~months ended~~and ~~March 31, 2022.~~ ~~There were 0 stock options that were considered to be anti-dilutive to earnings per share for the~~ ~~three~~nine months ended ~~March 31,~~September 30, 2022 and September 30, 2021. There were 0no performance awards or restricted stock units that were considered anti-dilutive ~~to earnings per share during either~~for the three and ninemonths ended ~~March 31,~~September 30, 2022 orand ~~March 31,~~September 30, 2021.

1821

Note 5 – Financial Instruments

Financial instruments as of the dates indicated were as follows:

					Quoted Prices										Quoted Prices
					In Active		Significant								In Active		Significant
					Markets for		Other		Significant						Markets for		Other		Significant
					Identical		Observable		Unobservable						Identical		Observable		Unobservable
(Dollars in thousands)	Carrying		Estimated		Assets		Inputs		Inputs		Carrying		Estimated		Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)		Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2022
September 30, 2022
Assets
Cash and cash equivalents	$	89,976	$	89,976	$	89,976	$	0	$	0	$	51,494	$	51,494	$	51,494	$	-	$	-
Equity securities at fair value		8,282		8,282		6,515		0		1,767		7,977		7,977		6,116		-		1,861
Securities available for sale		641,048		641,048		0		641,048		0		530,093		530,093		-		530,093		-
Securities held to maturity		429,918		397,911		0		380,447		17,464		428,205		351,858		-		336,795		15,063
Federal Home Loan Bank and Federal
Reserve Bank stock		8,557		8,557		0		8,557		0		8,557		8,557		-		8,557		-
Loans held for sale		13,450		13,853		0		13,853		0		8,848		9,113		-		9,113		-
Loans to other financial institutions		0		0		0		0		0		70		70		-		70		-
Loans, net		1,019,805		1,001,696		0		0		1,001,696		1,124,944		1,063,833		-		-		1,063,833
Accrued interest receivable		9,382		9,382		0		9,382		0		9,273		9,273		-		9,273		-
Interest rate lock commitments		167		167		0		167		0		51		51		-		51		-
Mortgage loan servicing rights		4,680		5,537		0		5,537		0		4,537		5,853		-		5,853		-
Interest rate derivative contracts												28,185		28,185		-		28,185		-

Liabilities
Noninterest-bearing deposits		565,657		565,657		0		565,657		0		599,360		599,360		-		599,360		-
Interest-bearing deposits		1,579,944		1,577,909		0		1,577,909		0		1,557,294		1,553,133		-		1,553,133		-
Borrowings		0		0		0		0		0		-		-		-		-		-
Subordinated debentures		35,078		31,350		0		31,350		0		35,201		29,836		-		29,836		-
Accrued interest payable		181		181		0		181		0		180		180		-		180		-
Interest rate derivative contracts												5,524		5,524		-		5,524		-

December 31, 2021
Assets
Cash and cash equivalents	$	31,887	$	31,887	$	31,887	$	0	$	0	$	31,887	$	31,887	$	31,887	$	-	$	-
Equity securities at fair value		8,492		8,492		6,724		0		1,768		8,492		8,492		6,724		-		1,768
Securities available for sale		1,098,885		1,098,885		0		1,077,835		21,050		1,098,885		1,098,885		-		1,077,835		21,050
Federal Home Loan Bank and Federal
Reserve Bank stock		8,888		8,888		0		8,888		0		8,888		8,888		-		8,888		-
Loans held for sale		9,351		9,632		0		9,632		0		9,351		9,632		-		9,632		-
Loans to other financial institutions		42,632		42,632		0		42,632		0		42,632		42,632		-		42,632		-
Loans, net		1,009,160		999,393		0		0		999,393		1,009,160		999,393		-		-		999,393
Accrued interest receivable		8,211		8,211		0		8,211		0		8,211		8,211		-		8,211		-
Interest rate lock commitments		172		172		0		172		0		172		172		-		172		-
Mortgage loan servicing rights		4,666		5,522		0		5,522		0		4,666		5,522		-		5,522		-

Liabilities
Noninterest-bearing deposits		560,931		560,931		0		560,931		0		560,931		560,931		-		560,931		-
Interest-bearing deposits		1,491,363		1,491,135		0		1,491,135		0		1,491,363		1,491,135		-		1,491,135		-
Borrowings		50,000		50,000		0		50,000		0		50,000		50,000		-		50,000		-
Subordinated debentures		35,017		33,414		0		33,414		0		35,017		33,414		-		33,414		-
Accrued interest payable		441		441		0		441		0		441		441		-		441		-

1922

NOTE 6 – FAIR VALUE MEASUREMENTS

The following tables present information about assets and liabilities measured at fair value on a recurring basis and the valuation techniques used to determine those fair values.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that ChoiceOne Bank has the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. ChoiceOne Bank’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

~~There were~~ no ~~liabilities measured at fair value as of~~ ~~March 31, 2022~~ or ~~December 31, 2021~~. Disclosures concerning assets and liabilities measured at fair value are as follows:

Assets and Liabilities Measured at Fair Value on a Recurring Basis

	Quoted Prices								Quoted Prices
	In Active		Significant						In Active		Significant
	Markets for		Other		Significant				Markets for		Other		Significant
	Identical		Observable		Unobservable		Balance		Identical		Observable		Unobservable		Balance
(Dollars in thousands)	Assets		Inputs		Inputs		at Date		Assets		Inputs		Inputs		at Date
	(Level 1)		(Level 2)		(Level 3)		Indicated		(Level 1)		(Level 2)		(Level 3)		Indicated
Equity Securities Held at Fair Value - March 31, 2022
Equity Securities Held at Fair Value - September 30, 2022
Equity securities	$	6,515	$	0	$	1,767	$	8,282	$	6,116	$	-	$	1,861	$	7,977

Investment Securities, Available for Sale - March 31, 2022
U. S. Government and federal agency	$	0	$	0	$	0	$	0
Investment Securities, Available for Sale - September 30, 2022
U. S. Treasury notes and bonds		0		86,491		0		86,491	$	-	$	77,554	$	-	$	77,554
State and municipal		0		312,388		0		312,388		-		223,987		-		223,987
Mortgage-backed		0		226,669		0		226,669		-		214,691		-		214,691
Corporate		0		1,255		0		1,255		-		716		-		716
Asset-backed securities		0		14,245		0		14,245		-		13,145		-		13,145
Total	$	0	$	641,048	$	0	$	641,048	$	-	$	530,093	$	-	$	530,093

Derivative Instruments - September 30, 2022
Interest rate derivative contracts - assets									$	-	$	28,185	$	-	$	28,185
Interest rate derivative contracts - liabilities									$	-	$	5,524	$	-	$	5,524

Equity Securities Held at Fair Value - December 31, 2021
Equity securities	$	6,724	$	0	$	1,768	$	8,492	$	6,724	$	-	$	1,768	$	8,492

Investment Securities, Available for Sale - December 31, 2021
U. S. Government and federal agency	$	0	$	2,008	$	0	$	2,008	$	-	$	2,008	$	-	$	2,008
U. S. Treasury notes and bonds		0		91,979		0		91,979		-		91,979		-		91,979
State and municipal		0		514,797		20,050		534,847		-		514,797		20,050		534,847
Mortgage-backed		0		433,115		0		433,115		-		433,115		-		433,115
Corporate		0		19,642		1,000		20,642		-		19,642		1,000		20,642
Asset-backed securities		0		16,294		0		16,294		-		16,294		-		16,294
Total	$	0	$	1,077,835	$	21,050	$	1,098,885	$	-	$	1,077,835	$	21,050	$	1,098,885

2023

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

	Three Months Ended						Nine Months Ended
(Dollars in thousands)	March 31,						September 30,
	2022			2021			2022			2021
Equity Securities Held at Fair Value
Balance, January 1	$	1,768		$	1,485		$	1,768		$	1,485
Total realized and unrealized gains included in noninterest income		(1	)		(40	)		18			(51	)
Net purchases, sales, calls, and maturities		0			500			75			262
Net transfers into Level 3		0			0			-			-
Balance, March 31	$	1,767		$	1,945
Balance, September 30,							$	1,861		$	1,696

Amount of total losses for the period included in earning attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at March 31	$	(1	)	$	(40	)
Amount of total losses for the period included in earning attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at September 30,							$	18		$	(51	)

Investment Securities, Available for Sale
Balance, January 1	$	21,050		$	11,423		$	21,050		$	11,423
Total unrealized gains included in other comprehensive income		0			(270	)		-			(369	)
Net purchases, sales, calls, and maturities		0			2,453			-			7,979
Net transfers into Level 3		0			0			-			-
Transfer to held to maturity		(21,050	)		0			(21,050	)		-
Balance, March 31	$	0		$	13,606
Balance, September 30,							$	-		$	19,033

Amount of total losses for the period included in earning attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at March 31	$	0		$	(270	)
Amount of total losses for the period included in earning attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at September 30,							$	-		$	(366	)

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 investment securities and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

Securities categorized as Level 3 assets as of ~~March 31,~~September 30, 2022 primarily consist of common and preferred equity securities of community banks. As of December 31, 2021, bonds issued by local municipalities and corporate issuers were classified as available for sale and were included as Level 3 securities. ChoiceOne estimates the fair value of these bonds and equity securities based on the present value of expected future cash flows using management’s best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality and a discount rate commensurate with the current market and other risks involved.

ChoiceOne also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment. Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:

Assets Measured at Fair Value on a Non-recurring Basis

			Quoted Prices								Quoted Prices
			In Active		Significant						In Active		Significant
			Markets for		Other		Significant				Markets for		Other		Significant
	Balances at		Identical		Observable		Unobservable		Balances at		Identical		Observable		Unobservable
(Dollars in thousands)	Dates		Assets		Inputs		Inputs		Dates		Assets		Inputs		Inputs
	Indicated		(Level 1)		(Level 2)		(Level 3)		Indicated		(Level 1)		(Level 2)		(Level 3)
Impaired Loans
March 31, 2022	$	4,940	$	0	$	0	$	4,940
September 30, 2022									$	2,637	$	-	$	-	$	2,637
December 31, 2021	$	5,433	$	0	$	0	$	5,433	$	5,433	$	-	$	-	$	5,433

Other Real Estate
March 31, 2022	$	172	$	0	$	0	$	172
September 30, 2022									$	-	$	-	$	-	$	-
December 31, 2021	$	194	$	0	$	0	$	194	$	194	$	-	$	-	$	194

Mortgage Loan Servicing Rights
March 31, 2022	$	4,680	$	0	$	4,680	$	0
September 30, 2022									$	4,537	$	-	$	4,537	$	-
December 31, 2021	$	4,666	$	0	$	4,666	$	0	$	4,666	$	-	$	4,666	$	-

Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. ChoiceOne estimates the fair value of the loans based on the present value of expected future cash flows using management’s estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). The changes in fair value consisted of charge-downs of impaired loans that were posted to the allowance for loan losses and write-downs of other real estate that were posted to a valuation account.

2124

NOTE 7 – REVENUE FROM CONTRACTS WITH CUSTOMERS

ChoiceOne has a variety of sources of revenue, which include interest and fees from customers as well as revenue from non-customers. ASC Topic 606, Revenue from Contracts With Customers, covers certain sources of revenue that are classified within noninterest income in the Consolidated Statements of Income. Sources of revenue that are included in the scope of ASC Topic 606 include service charges and fees on deposit accounts, interchange income, investment asset management income and transaction-based revenue, and other charges and fees for customer services.

Service Charges and Fees on Deposit Accounts

Revenue includes charges and fees to provide account maintenance, overdraft services, wire transfers, funds transfer, and other deposit-related services. Account maintenance fees such as monthly service charges are recognized over the period of time that the service is provided. Transaction fees such as wire transfer charges are recognized when the service is provided to the customer.

Interchange Income

Revenue includes debit card interchange and network revenues. This revenue is earned on debit card transactions that are conducted through payment networks such as MasterCard. The revenue is recorded as services are delivered and is presented net of interchange expenses.

Investment Commission Income

Revenue includes fees from the investment management advisory services and revenue is recognized when services are rendered. Revenue also includes commissions received from the placement of brokerage transactions for purchase or sale of stocks or other investments. Commission income is recognized when the transaction has been completed.

Trust Fee Income

Revenue includes fees from the management of trust assets and from other related advisory services. Revenue is recognized when services are rendered.

Following is noninterest income separated by revenue within the scope of ASC 606 and revenue within the scope of other GAAP topics:

	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021		2022		2021

Service charges and fees on deposit accounts	$	1,031	$	785	$	1,152	$	977	$	3,218	$	2,585
Interchange income		1,157		1,135		1,306		1,278		3,782		3,724
Investment commission income		205		236		158		153		596		624
Trust fee income		178		173		174		187		528		612
Other charges and fees for customer services		148		166		113		153		387		458
Noninterest income from contracts with customers within the scope of ASC 606		2,719		2,495		2,903		2,748		8,511		8,003
Noninterest income within the scope of other GAAP topics		1,126		3,105		144		1,970		1,812		7,047
Total noninterest income	$	3,845	$	5,600	$	3,047	$	4,718	$	10,323	$	15,050

NOTE 8 – ~~SUBSEQUENT EVENTS~~DERIVATIVE AND HEDGING ACTIVITIES

~~During the~~ ~~first~~ ~~quarter of~~ ~~2022,~~ ~~the Federal Reserve increased the federal funds rate by 25 basis points in response~~ChoiceOne is exposed to ~~published inflation rates, causing interest rates generally~~certain risks relating to ~~sharply increase. This change in interest rates increased ChoiceOne's unrealized pre-tax loss on~~ its ~~available for sale securities portfolio from $3.3 million at~~ ~~December 31, 2021~~ ~~to $42.8 million at~~ ~~March 31, 2022.~~ Additionally, meeting minutes from the Federal Open Market Committee indicated that additional increases in the federal funds rate are expected in order to combat inflation in the coming quarters. As such,ongoing business operations. ChoiceOne ~~has elected to utilize~~utilizes interest rate derivatives ~~in order~~as part of its asset liability management strategy to ~~better~~help manage its interest rate risk position. OnDerivative instruments represent contracts between parties that result in ~~April 21, 2022,~~ one party delivering cash to the other party based on a notional amount and an underlying term (such as a rate, security price or price index) as specified in the contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying term. Derivatives are also implicit in certain contracts and commitments.

ChoiceOne ~~purchased~~ ~~five~~ ~~forward-starting~~currently uses interest rate swaps and interest rate caps to manage its exposure to certain fixed and variable rate assets and variable rate liabilities.

ChoiceOne recognizes derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. ChoiceOne records derivative assets and derivative liabilities on the balance sheet within other assets and other liabilities, respectively. Changes in the fair value of derivative financial instruments are either recognized in income or in shareholders’ equity as a component of accumulated other comprehensive income or loss depending on whether the derivative financial instrument qualifies for hedge accounting and, if so, whether it qualifies as a fair value hedge or cash flow hedge.

Interest rate swaps

ChoiceOne uses interest rate swaps as part of its interest rate risk management strategy to add stability to net interest income and to manage its exposure to interest rate movements. Interest rate swaps designated as hedges involve the receipt of variable-rate amounts from a counterparty in exchange for ChoiceOne making fixed-rate payments or the receipt of fixed-rate amounts from a counterparty in exchange for ChoiceOne making variable rate payments, over the life of the agreements without the exchange of the underlying notional amount.

In the second quarter of 2022, ChoiceOne entered into two pay-floating/receive-fixed interest rate swaps (the “Pay Floating Swap Agreements”) for a total notional amount of $200.0 million that were designated as cash flow hedges. These derivatives hedge the variable cash flows of specifically identified available-for-sale securities, cash and loans. The Pay Floating Swap Agreements were determined to be highly effective during the periods presented and therefore no amount of ineffectiveness has been included in net income. The Pay Floating Swap Agreements will pay a coupon rate equal to SOFR while receiving a fixed coupon rate of 2.41%. Net cash settlements received YTD on pay-floating/ received-fixed swaps were $773,000 as of September 30, 2022, which were included in interest income.

In the second quarter of 2022, ChoiceOne entered into one forward starting pay-fixed/receive-floating interest rate swap (the “Pay Fixed Swap Agreement”) for a notional amount of $200.0 million that was designated as a cash flow hedge. This derivative hedges the risk of variability in cash flows attributable to forecasted payments on future deposits or floating rate borrowings indexed to the SOFR Rate. The Pay Fixed Swap Agreement is two years forward starting with an eight-year term set to expire in 2032. The Pay Fixed Swap Agreements will pay a fixed coupon rate of 2.75% while receiving the SOFR Rate.

Interest rate caps

ChoiceOne also uses interest rate caps to provide stability to net interest income and to manage its exposure to interest rate movements. Interest rate caps designated as hedges involve the payment of a fixed premium by ChoiceOne who will then receive payment equivalent to the spread between the current rate and the strike rate until the conclusion of the term from the counterparty.

In the second quarter of 2022, ChoiceOne entered into four forward starting interest rate cap agreements with a total notional amount of ~~$200~~$200.0 million (“SOFR Cap Agreements”). Three of the SOFR Cap Agreements with a total notional amount of $100.0 million are designated as fair value hedges and ~~entered into a $200 million forward-starting pay-fixed interest rate swap. ChoiceOne also entered into a $200 million receive-fixed interest rate swap, which,~~hedge against changes in the ~~current environment, offsets~~fair value of certain fixed rate tax-exempt municipal bonds. ChoiceOne utilizes the ~~cost of the rising rate protection. The~~ ~~five~~ ~~forward-starting~~ interest rate caps ~~are tied~~as hedges against adverse changes in interest rates on the designated securities attributable to fluctuations in the SOFR rate above 2.68%, as applicable. An increase in the benchmark interest rate hedged reduces the fair value of these assets. The remaining SOFR Cap Agreement with a notional amount of $100.0 million is designated as a cash flow hedge and hedges against the risk of variability in cash flows attributable to fluctuations in the SOFR rate above 2.68% for forecasted payments on future deposits or borrowings indexed to the ~~Secured Overnight Financing Rate ("SOFR") with a strike price~~SOFR Rate. All of ~~2.68%, and~~the SOFR Cap Agreements are ~~structured as a~~ two-year forward starting with an eight ~~year term.~~-year term set to expire in 2032. The ~~forward-starting pay-fixed~~initial amount excluded from hedge effectiveness testing and amortized into earnings over the life of the interest rate ~~swap~~cap derivatives is ~~also structured with a~~ ~~two~~~~-year forward~~ ~~eight~~ ~~year term, and ChoiceOne will pay a coupon rate of 2.75% while receiving SOFR. The receive-fixed interest rate swap has a~~ ~~two~~ year term with an immediate start date and ChoiceOne is receiving a fixed coupon of 2.41% while paying SOFR. These strategies create accounting symmetry between available-for-sale securities and other comprehensive income (equity), thus protecting tangible capital from further increases in interest rates. These ~~three~~ ~~strategies, in the aggregate, are expected to be modestly accretive to net income in~~ ~~2022~~ ~~and better position ChoiceOne Bank should rates continue to rise.~~$16.5 million.

	September 30, 2022			December 31, 2021
(Dollars in thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Interest rate contracts	Other Assets	$	28,185	Other Assets	$	-
Interest rate contracts	Other Liabilities	$	5,524	Other Liabilities	$	-

	Location and Amount of Gain or (Loss)						Location and Amount of Gain or (Loss)
	Recognized in Income on Fair Value and Cash Flow Hedging Relationships						Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	Three months ended September 30, 2022						Nine months ended September 30, 2022
	Interest Income			Interest Expense			Interest Income			Interest Expense
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	$	(8	)	$	(209	)	$	414		$	(364	)

Gain or (loss) on fair value hedging relationships:
Interest rate contracts:
Hedged items	$	(4,229	)	$	-		$	(4,300	)	$	-
Derivatives designated as hedging instruments	$	4,229		$	-		$	4,300		$	-
Amount excluded from effectiveness testing recognized in earnings based on amortization approach	$	(206	)	$	-		$	(359	)	$	-

Gain or (loss) on cash flow hedging relationships:
Interest rate contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	-		$	-		$	-		$	-
Amount excluded from effectiveness testing recognized in earnings based on amortization approach	$	-		$	(209	)	$	-		$	(364	)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion is designed to provide a review of the consolidated financial condition and results of operations of ChoiceOne Financial Services, Inc. (“ChoiceOne”), its wholly-owned subsidiary ChoiceOne Bank, and ChoiceOne Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. This discussion should be read in conjunction with the interim consolidated financial statements and related notes.

FORWARD-LOOKING STATEMENTS

This discussion and other sections of this quarterly report contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and ChoiceOne. 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. Management’s determination of the provision and allowance for loan losses, the carrying value of goodwill, loan servicing rights, other real estate owned, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) and management’s assumptions that are inherently forward-looking. Examples of forward-looking statements also include, but are not limited to, statements related to risks and uncertainties related to, and the impact of, the COVID-19 pandemic on the businesses, financial condition and results of operations of ChoiceOne and its customers and statements regarding the outlook and expectations of ChoiceOne and its customers. All of the information concerning interest rate sensitivity is forward-looking. All statements with references to future time periods are forward-looking. These statements are not guarantees of future performance and 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.

Additional risk factors include, but are not limited to, the risk factors discussed in Item 1A of ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2021 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

2328

RESULTS OF OPERATIONS

Net income for the ~~first~~third quarter of 2022 was $~~5,528,000~~,$5,813,000, which represented ~~a decline~~an increase of $~~710,000~~$64,000 or ~~11%~~1% compared to the ~~first~~third quarter of ~~2021~~.2021. Basic and diluted earnings per common share were ~~$0.74~~$0.77 for the ~~first~~third quarter of 2022 compared to ~~$0.80~~$0.75 for the ~~first~~third quarter of the prior year. The increase in the third quarter of 2022 is largely related to the increase in interest income due to strong loan growth. Net income for the first nine months of 2022 was $16,956,000, which represented a decline of $74,000 or less than 1% compared to the first three quarters of 2021. Basic and diluted earnings per common share were $2.26 for the first three quarters of 2022 compared to $2.20 for the first three quarters of the prior year. The modest decline in net income in the first ~~quarter~~nine months of 2022 compared to the same period in the prior year resulted in part from a decline of refinancing activity within ChoiceOne's mortgage portfolio due to a rise in mortgage rates since the first quarter of the prior year. Net income also declined as ~~noninterest~~interest expense increased ~~related~~mostly due to ~~salaries~~expense from a private placement of $32.5 million of fixed-to-floating rate subordinated notes late in the third quarter of the prior year and ~~wages of new commercial loan production staff and wealth management staff.~~organic deposit interest expense. These factors were largely offset by an increase of ~~$1.8~~$6.6 million in interest income as the balance of both core loans and securities continued to grow. Core loans (defined as loans excluding loans held for sale, loans to other financial institutions, and Paycheck Protection Program (“PPP”) loans) increased ~~$121.3~~by $52.8 million ~~from March 31, 2021 to March 31, 2022.~~ or 19.6% on an annualized basis in the third quarter of 2022 and $205.2 million or 22.1% since the end of the third quarter in 2021.

The return on average assets and return on average shareholders’ equity were ~~0.93%~~0.98% and ~~10.72%~~12.67%, respectively, for the ~~first~~third quarter of 2022,, compared to ~~1.25%~~1.03% and ~~11.13%~~10.03%, respectively, for the same period in ~~2021~~.2021. The return on average assets and return on average shareholders’ equity were 0.97% and 14.11%, respectively, for the first nine months of 2022, compared to 1.08% and 10.01%, respectively, for the same period in 2021. The increase in the return on average shareholders' equity is related to the decline in equity caused by the increase in unrealized losses on available-for-sale securities during the first nine months of 2022.

Paycheck Protection Program ~~("PPP")~~

ChoiceOne processed over $126 million in PPP loans in 2020, acquired an additional $37 million in PPP loans in the merger with Community Shores Bank Corporation ("Community Shores"), and originated $89.1 million in PPP loans in 2021. ~~PPP loans are forgivable, in whole or in part, if~~In the ~~proceeds are used for payroll and other permitted purposes in accordance with~~third quarter of 2022, the requirements of the PPP. PPP loans carry a fixed rate of 1.00% and a term of two years (loans made before June 5, 2020) or five years (loans made on or after June 5, 2020), if not forgiven in whole or in part. Payments are deferred until either the date on which the Small Business Administration ("SBA") remits the amount of forgiveness proceeds to the lender or the date that is ten months after the last day of the covered period if the borrower does not apply for forgiveness within that ten-month period. The loans are 100% guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan. Upon SBA forgiveness, unrecognized fees are recognized into interest income. ~~During the three months ended March 31, 2022, $24.7~~remaining $1.8 million of PPP loans were forgiven resulting in ~~$869,000~~$68,000 of fee income. ~~$8.5~~For the nine months ended September 30, 2022, $33.1 million inof PPP loans ~~and $351,000~~were forgiven resulting in ~~deferred PPP~~$1.2 million of fee ~~income remains outstanding as of March 31, 2022. Management expects the remaining~~income. At September 30, 2022, no PPP loans ~~to be forgiven~~remain in ~~the second quarter of 2022.~~ChoiceOne’s loan portfolio.

Dividends

Cash dividends of ~~$1,872,000~~$1.9 million or $0.25 per share were declared in the ~~first~~third quarter of 2022,~~, compared to $1,716,000 or $0.22 per share~~ and the third quarter of 2021. Cash dividends declared in the first ~~quarter~~ nine months of ~~2021~~.2022 were $5.6 million or $0.75 per share, compared to $5.3 million or $0.69 per share in the same period during the prior year. The cash dividend payout percentage was ~~33.9%~~33.2% for the first ~~quarter~~nine months of 2022,, compared to ~~27.5%~~31.3% in the same period in the prior year.

Interest Income and Expense

Tables 1 and 2 on the following pages provide information regarding interest income and expense for the ~~three months~~three- and nine-month periods ended ~~March 31,~~September 30, 2022 and 2021. Table 1 documents ChoiceOne’s average balances and interest income and expense, as well as the average rates earned or paid on assets and liabilities. Table 2 documents the effect on interest income and expense of changes in volume (average balance) and interest rates. These tables are referred to in the discussion of interest income, interest expense and net interest income.

2429

Table 1 – Average Balances and Tax-Equivalent Interest Rates

	Three Months Ended March 31,																Three Months Ended September 30,
	2022								2021								2022								2021
(Dollars in thousands)	Average								Average								Average								Average
	Balance		Interest			Rate			Balance		Interest			Rate			Balance		Interest			Rate			Balance		Interest			Rate
Assets:
Loans (1)(3)(4)(5)	$	1,037,646	$	12,304			4.74	%	$	1,080,181	$	12,687			4.70	%	$	1,128,679	$	13,622			4.83	%	$	1,021,326	$	12,412			4.86	%
Taxable securities (2)		795,888		3,507			1.76			438,575		1,856			1.69			774,040		3,943			2.04			641,430		2,821			1.76
Nontaxable securities (1)		334,793		2,097			2.50			201,228		1,390			2.76			305,661		1,853			2.43			281,223		1,850			2.63
Other		36,460		14			0.15			84,822		20			0.09			43,418		238			2.19			106,831		38			0.14
Interest-earning assets		2,204,787		17,921			3.25			1,804,806		15,953			3.54			2,251,798		19,656			3.49			2,050,810		17,121			3.34
Noninterest-earning assets		171,077								184,954								137,752								183,418
Total assets	$	2,375,864							$	1,989,760							$	2,389,550							$	2,234,228

Liabilities and Shareholders' Equity:
Interest-bearing demand deposits	$	928,437	$	435			0.19	%	$	715,868	$	429			0.24	%	$	915,698	$	972			0.42	%	$	850,963	$	485			0.23	%
Savings deposits		440,873		146			0.13			355,395		114			0.13			464,382		182			0.16			407,765		144			0.14
Certificates of deposit		179,375		202			0.45			195,093		337			0.69			196,160		410			0.84			183,103		208			0.45
Borrowings		10,239		6			0.22			8,462		35			1.70			2,414		8			1.40			2,667		38			5.70
Subordinated debentures		35,342		364			4.12			3,099		52			6.65			35,168		375			4.27			9,154		151			6.60
Interest-bearing liabilities		1,594,266		1,153			0.29			1,277,917		967			0.30			1,613,822		1,947			0.48			1,453,652		1,026			0.28
Demand deposits		553,267								479,649								593,793								545,251
Other noninterest-bearing liabilities		22,051								7,937								17,177								5,956
Total liabilities		2,169,584								1,765,503								2,224,792								2,004,859
Shareholders' equity		206,280								224,257								164,758								229,369
Total liabilities and shareholders' equity	$	2,375,864							$	1,989,760							$	2,389,550							$	2,234,228

Net interest income (tax-equivalent basis) (Non-GAAP) (1)			$	16,768							$	14,986							$	17,709							$	16,095

Net interest margin (tax-equivalent basis) (Non-GAAP) (1)							3.04	%							3.32	%							3.15	%							3.14	%

Reconciliation to Reported Net Interest Income
Net interest income (tax-equivalent basis) (Non-GAAP) (1)			$	16,768							$	14,986							$	17,709							$	16,095
Adjustment for taxable equivalent interest				(447	)							(297	)							(371	)							(395	)
Net interest income (GAAP)			$	16,321							$	14,689							$	17,338							$	15,700
Net interest margin (GAAP)							2.96	%							3.26	%							3.08	%							3.06	%


	(1)	Adjusted to a fully tax-equivalent basis to facilitate comparison to the taxable interest-earning assets. The adjustment uses an incremental tax rate of 21%. The presentation of these measures on a tax-equivalent basis is not in accordance with GAAP, but is customary in the banking industry. These non-GAAP measures ensure comparability with respect to both taxable and tax-exempt loans and securities.
	(2)	Taxable securities include dividend income from Federal Home Loan Bank and Federal Reserve Bank stock.
	(3)	Loans include both loans to other financial institutions and loans held for sale.
	(4)	Non-accruing loan and PPP loan balances are included in the balances of average loans. Non-accruing loan average balances were ~~$1.4~~$1.2 million and ~~$5.9~~$1.5 million in the ~~first~~third quarter of 2022 and 2021, respectively. PPP loan average balances were ~~$22.8 million~~$879,000 and ~~$137.7~~$85.5 million in the ~~first~~third quarter of 2022 and 2021, respectively. At September 30, 2022 no PPP loans remain in ChoiceOne’s loan portfolio.
	(5)	Interest on loans included net origination fees, accretion income, and PPP fees. Accretion income was ~~$818,000~~$440,000 and ~~$351,000~~$253,000 in the ~~first~~third quarter of 2022 and 2021, respectively. PPP fees were approximately ~~$869,000~~$68,000 and ~~$1.4~~$1.6 million in the ~~first~~third quarter of 2022 and 2021, respectively.

2530

	Nine Months Ended September 30,
	2022								2021
(Dollars in thousands)	Average								Average
	Balance		Interest			Rate			Balance		Interest			Rate
Assets:
Loans (1)(3)	$	1,081,943	$	38,454			4.74	%	$	1,047,326	$	36,666			4.67	%
Taxable securities (2)		782,378		11,001			1.87			542,216		7,073			1.74
Nontaxable securities (1)		319,381		5,921			2.47			253,565		5,070			2.67
Other		40,217		314			1.04			81,912		70			0.11
Interest-earning assets		2,223,919		55,691			3.34			1,925,019		48,879			3.39
Noninterest-earning assets		149,813								180,522
Total assets	$	2,373,732							$	2,105,541

Liabilities and Shareholders' Equity:
Interest-bearing demand deposits	$	918,644	$	2,034			0.30	%	$	772,950	$	1,379			0.24	%
Savings deposits		455,816		485			0.14			385,160		391			0.14
Certificates of deposit		185,857		823			0.59			187,873		786			0.56
Borrowings		5,708		35			0.83			4,608		95			2.76
Subordinated debentures		35,205		1,099			4.16			5,147		253			6.55
Interest-bearing liabilities		1,601,230		4,477			0.37			1,355,738		2,904			0.29
Demand deposits		575,483								518,327
Other noninterest-bearing liabilities		13,528								4,745
Total liabilities		2,190,241								1,878,810
Shareholders' equity		183,491								226,731
Total liabilities and shareholders' equity	$	2,373,732							$	2,105,541

Net interest income (tax-equivalent basis) (Non-GAAP) (1)			$	51,214							$	45,975

Net interest margin (tax-equivalent basis) (Non-GAAP) (1)							3.07	%							3.18	%

Reconciliation to Reported Net Interest Income
Net interest income (tax-equivalent basis) (Non-GAAP) (1)			$	51,214							$	45,975
Adjustment for taxable equivalent interest				(1,265	)							(1079	)
Net interest income (GAAP)			$	49,948							$	44,896
Net interest margin (GAAP)							2.99	%							3.11	%

	(1)	Adjusted to a fully tax-equivalent basis to facilitate comparison to the taxable interest-earning assets. The adjustment uses an incremental tax rate of 21%. The presentation of these measures on a tax-equivalent basis is not in accordance with GAAP, but is customary in the banking industry. These non-GAAP measures ensure comparability with respect to both taxable and tax-exempt loans and securities.
	(2)	Taxable securities include dividend income from Federal Home Loan Bank and Federal Reserve Bank stock.
	(3)	Loans include both loans to other financial institutions and loans held for sale.
	(4)	Non-accruing loan and PPP loan balances are included in the balances of average loans. Non-accruing loan average balances were $1.3 million and $3.7 million in the first nine months of 2022 and 2021, respectively. PPP loan average balances were $10.8 million and $111.6 million in the first nine months of 2022 and 2021, respectively. At September 30, 2022 no PPP loans remain in ChoiceOne’s loan portfolio.
	(5)	Interest on loans included net origination fees, accretion income, and PPP fees. Accretion income was $1.7 million and $924,000 in the first nine months of 2022 and 2021, respectively. PPP fees were approximately $1.2 million and $4.0 million in the first nine months of 2022 and 2021, respectively.

Table 2 – Changes in Tax-Equivalent Net Interest Income

	Three Months Ended March 31,									Three Months Ended September 30,
(Dollars in thousands)	2022 Over 2021									2022 Over 2021
	Total			Volume			Rate			Total			Volume			Rate
Increase (decrease) in interest income (1)
Loans (2)	$	(383	)	$	(1,063	)	$	680		$	1,210		$	1,354		$	(144	)
Taxable securities		1,651			1,568			83			1,122			942		$	180
Nontaxable securities (2)		707			1,521			(814	)		3			238		$	(235	)
Other		(6	)		(50	)		43			200			(125	)	$	325
Net change in interest income		1,969			1,976			(8	)		2,535			2,409			126

Increase (decrease) in interest expense (1)
Interest-bearing demand deposits		6			436			(430	)		487			129			358
Savings deposits		32			30			2			38			31			7
Certificates of deposit		(135	)		(25	)		(110	)		202			50			152
Borrowings		(30	)		43			(73	)		(30	)		(10	)		(20	)
Subordinated debentures		312			452			(139	)		224			321			(97	)
Net change in interest expense		185			936			(750	)		921			521			400
Net change in tax-equivalent net interest income	$	1,784		$	1,040		$	742		$	1,614		$	1,888		$	(274	)

	Nine Months Ended September 30,
(Dollars in thousands)	2022 Over 2021
	Total			Volume			Rate
Increase (decrease) in interest income (1)
Loans (2)	$	1,789		$	1,329		$	460
Taxable securities		3,928			3,470			458
Nontaxable securities (2)		851			1,313			(462	)
Other		244			(69	)		313
Net change in interest income		6,812			6,043			769

Increase (decrease) in interest expense (1)
Interest-bearing demand deposits		655			334			321
Savings deposits		94			79			15
Certificates of deposit		37			(11	)		48
Borrowings		(60	)		23			(83	)
Subordinated debentures		847			985			(138	)
Net change in interest expense		1,573			1,410			163
Net change in tax-equivalent net interest income	$	5,239		$	4,633		$	606

	(1)	The volume variance is computed as the change in volume (average balance) multiplied by the previous year’s interest rate. The rate variance is computed as the change in interest rate multiplied by the previous year’s volume (average balance). The change in interest due to both volume and rate has been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
	(2)	Interest on nontaxable investment securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 21%.

Net Interest Income

Tax-equivalent net interest income increased ~~$1.8~~$1.6 million and $5.2 million in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021. Growth in the three months ofended and nine months ended September 30, 2022 compared to the same ~~period~~time periods in 2021. ~~This was partially due to a $490.9 million increase in the securities portfolio balance compared to 2021. Net interest margin on a tax-equivalent basis declined~~ were affected by ~~28 basis points to 3.04% in the first quarter of 2022 from 3.32% in the same period of 2021. The decline was due to lower PPP fees and a higher percentage of securities to total assets.~~

~~The~~an increased average balance of ~~loans decreased $42.5 million in the first quarter~~ of 2022 compared to the same period in 2021. The decline in average loan balance is due to average PPP loans declining $116.9 million from March 31, 2021 to March 31, 2022. This decline in balance was offset by an increase in average core loans (definedsecurities as loans excluding PPP loans, loans to other financial institutions, and loans held for sale) of $86.7 million from March 31, 2021 to March 31, 2022. The decrease in PPP loan balance and fees caused tax-equivalent interest income from loans to decrease $383,000 in the first quarter of 2022 compared to the same period in the prior year. The average balance of total securities increased $490.9 million in the first quarter of 2022 compared to the same period in 2021. The securities portfolio has grown as ChoiceOne ~~has~~ deployed excess deposit dollars into securities with the intent to transition to loans as good credits become available. ChoiceOne has also experienced core loan growth during 2022 leading to growth in interest income from loans of $1.2 million and $1.8 million during the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. Core loans exclude PPP loans, loans held for sale, and loans to other financial institutions. Net interest margin on a tax-equivalent basis increased by 1 basis points and declined by 11 basis points in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021. The ~~effect~~Federal Reserve increased the federal funds rate by 3.00% during the first nine months of 2022 in response to published inflation rates, causing interest rates to increase on all new loan originations. This led to the modest increase in net interest margin in the third quarter of 2022 compared to the third quarter of 2021. The decline in net interest margin on a tax-equivalent basis for the nine months ended September 30, 2022 compared to the same time period in the prior year, is due the asset mix as ChoiceOne grew securities faster than it grew loans.

The average balance ~~growth, partially~~of loans increased $107.4 million in the third quarter of 2022 and $34.6 million in the first nine months of 2022 compared to the same periods in 2021, as core loans grew offset by a ~~combined 5~~decline in PPP loans. Average core loans increased $195.1 million in the third quarter of 2022 and $140.9 million in the first nine months of 2022 compared to the same periods in 2021. Average PPP loans declined $84.7 million in the third quarter of 2022 and $100.8 million in the first nine months of 2022 compared to the same periods in 2021. The rate earned on loans in the third quarter of 2022 declined slightly due to a reduction in PPP fees which declined $1.6 million in the third quarter of 2022 compared to the third quarter of 2021. The rate earned on loans increased by 7 basis ~~point reduction~~points during the nine months ended September 30, 2022 compared to the same time period in 2021 as new loan originations have been at higher rates due to market conditions offset by a $2.8 million decline in PPP fees earned during nine months ended September 30, 2022 compared to the same period in 2021.

The average balance of total securities increased $157.0 million, and the average rate earned onincreased 12 basis points in the third quarter of 2022 compared to the same period in 2021. The average balance of total securities ~~caused tax-equivalent securities income to increase $2.4~~increased $306.0 million and the average rate earned increased 1 basis point in the first ~~quarter~~nine months of 2022 compared to the same period in 2021.

2632

Growth of ~~$298.0~~$121.4 million in the average balance of interest-bearing demand deposits and savings deposits ~~partially offset by~~and a combined 313 basis point ~~decrease~~increase in the average rate paid, caused interest expense to ~~be $38,000 higher~~increase $525,000 in the third quarter of 2022 compared to the third quarter of the prior year. Growth of $216.4 million in the average balance of interest-bearing demand deposits and savings deposits and a combined 4 basis point increase in the average rate paid, caused interest expense to increase $749,000 in the first ~~three~~nine months of2022 compared to the first ~~three~~nine months of the prior year. The average balance of certificates of deposit ~~decreased $15.7~~increased $13.1 million and declined $2.0 million in the third quarter and first ~~three~~nine months of2022, respectively, compared to the same period in 2021. The ~~decreased balance~~increase in balances and a ~~reduction of 24~~39 basis points increase in the average rate paid on certificates of deposit caused interest expense to ~~decrease $135,000~~increase $202,000 in the third quarter 2022, compared to the same periods in 2021. The decline in balances offset by a 3 basis points increase in the average rate paid on certificates of deposit caused interest expense to increase $37,000 in the first ~~three~~nine months of 2022, compared to the same ~~period~~periods in 2021. In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. In addition, ChoiceOne holds certain subordinated debentures issued in connection with a trust preferred securities offering that were obtained as part of the merger with Community Shores. These increased the average balance of subordinated debentures by ~~$32.2~~$26.0 million and $30.0 million in the third quarter and first ~~three~~nine months of 2022, respectively, compared to the same period in the prior year and caused interest expense to increase by ~~$312,000.~~$224,000 and $847,000 in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

Provision and Allowance for Loan Losses

The provision for loan losses was $0$100,000 in the first ~~quarter~~nine months of 2022, compared to ~~$250,000~~$416,000 in the same period in the prior year. ~~No provision~~Provision expense was deemed necessary to reserve for core loan growth of $52.8 million in the ~~first~~third quarter of ~~2022 was deemed prudent based~~2022. Based on our assessment of the probable estimated losses inherent in the loan ~~portfolio.~~portfolio no additional provision was necessary for existing loans. Our methodology for measuring the appropriate level of allowance for loan losses and related provision for loan losses involves specific allocations for loans considered impaired, and general allocations for homogeneous loans based on historical loss experience.

Loans classified as impaired loans declined by ~~$494,000~~$2.8 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2022. The specific allowance for loan losses for impaired loans ~~increased~~decreased by ~~$44,000~~$346,000 during the ~~three~~nine months ended ~~March 31,~~September 30, 2022 aslargely due to the ~~loans being evaluated had a higher risk~~decrease in balance of ~~loss based on management's judgement than~~ impaired loans atcompared to December 31, 2021.

The determination of our loss factors is based, in part, upon our actual loss history adjusted for significant qualitative factors that, in management's judgment, affect the collectability of the portfolio as of the analysis date. ChoiceOne uses a rolling 20 quarter actual net charge-off history as the ~~base~~basis for the computation.

Nonperforming loans were ~~$4.7~~$2.6 million as of ~~March 31,~~September 30, 2022, compared to $5.5 million as of December 31, 2021. The allowance for loan losses was ~~0.74%~~0.66% of total loans at ~~March 31,~~September 30, 2022, compared to 0.76% at December 31, 2021. Loans acquired in the mergers with County Bank Corp. and Community Shores were recorded at fair value and as a result do not have an allowance for loan losses allocated to them unless credit deteriorates subsequent to acquisition. ChoiceOne has ~~$4.5~~$1.8 million in credit mark remaining on loans acquired in the mergers. If the credit mark associated with the loans acquired in the mergers were added to the allowance for loan losses, the total allowance for loan losses would have represented 1.18% of total loans at March 31, 2022.

Charge-offs and recoveries for respective loan categories for the ~~three~~nine months ended ~~March 31,~~September 30, 2022 and 2021 were as follows:

(Dollars in thousands)	2022				2021				2022				2021
	Charge-offs		Recoveries		Charge-offs		Recoveries		Charge-offs		Recoveries		Charge-offs		Recoveries
Agricultural	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial and industrial		31		2		74		9		177		62		195		80
Consumer		112		52		71		79		383		162		244		168
Commercial real estate		-		1		48		-		-		3		111		43
Construction real estate										-		-		-		-
Residential real estate		-		1		-		2		-		2		-		5
	$	143	$	56	$	193	$	90	$	560	$	229	$	550	$	296

Net charge-offs were ~~$87,000~~$331,000 in the first ~~quarter~~nine months of 2022, compared to net charge-offs of ~~$103,000~~$254,000 during the same period in 2021. Checking account charge-off and recovery activity is included in the consumer charge-off activity above. Net charge-offs for checking accounts for the third quarter and first nine months of 2022 were $73,000 and $186,000, respectively, compared to $49,000 and $90,000 for the same periods in the prior year. Net charge-offs on an annualized basis as a percentage of average loans were ~~0.03%~~0.04% in the first ~~three~~nine months of 2022 compared to annualized net charge-offs of ~~0.04%~~0.03% of average loans in the same period in the prior year. Management is aware that the economic climate in Michigan will continue to affect ~~business~~businesses and individual borrowers. Management believes that the COVID-19 pandemic will continue to have an impact in 2022 and, accordingly, has maintained a qualitative allocation related to the COVID-19 pandemic in evaluating its allowance for loan losses. Management has worked and intends to continue to work with delinquent borrowers in an attempt to lessen the negative impact ~~of the COVID-19 pandemic on~~to ChoiceOne.

ChoiceOne has allocated approximately $545,000 of its allowance for loan losses to borrowers falling into industry classification codes that management believes to be highly or moderately affected by the pandemic, as follows:

~~Highly Affected~~	~~Moderately Affected~~
~~Accommodation~~	~~Ambulatory Health Care Services~~
~~Amusement, Gambling, and Recreation Industries~~	~~Educational Services~~
~~Food Services and Drinking Places~~	~~Merchant Wholesalers, Durable Goods~~
~~Performing Arts, Spectator Sports, and Related Industries~~	~~Merchant Wholesalers, Nondurable Goods~~
~~Rental and Leasing Services~~	~~Miscellaneous Store Retailers~~
~~Scenic and Sightseeing Transportation~~	~~Motion Picture and Sound Recording Industries~~
~~Transit and Ground Passenger Transportation~~	~~Real Estate~~

Loans highly affected and moderately affected based on their commercial industry category have been allocated an additional 10 basis points and 5 basis points, respectively. ChoiceOne has also allocated 5 basis points to all retail loan categories. It is noted that this allowance amount is in addition to the regularly calculated allowance based on risk rating and qualitative factors. These allocations have continued to decline, as ChoiceOne has seen improvements in customer, industry, and economic conditions related to the effects of the pandemic. ChoiceOne will continue to monitor concentrations as part of its analysis on an ongoing basis. Management will continue to monitorAs charge-offs, changes in the level of nonperforming loans, and changes within the composition of the loan portfolio ~~and the impact of the COVID-19 pandemic, and it will adjust~~occur throughout 2022, the provision and allowance for loan losses will be reviewed by ChoiceOne’s management and adjusted as determined to be necessary.

Noninterest Income

Total noninterest income declined ~~$1.8~~$1.7 million and $4.7 million in the third quarter and first ~~quarter~~nine months of 2022 compared to the same ~~period~~periods in ~~2021.~~the prior year. Total noninterest income in ~~the first quarter of~~ 2021 was bolstered by heightened levels of refinancing activity within ChoiceOne's mortgage portfolio, with gains on sales of loans ~~$1.3~~$1.4 million and $3.6 million larger than in the third quarter and first ~~quarter~~nine months of 2022. Customer service charges increased ~~$269,000~~$203,000 and $691,000 in the third quarter and first nine months of 2022 compared to the same ~~period~~periods in the prior year. ~~Prior year service~~Service charges were depressed by ~~stay at home orders during~~ the ~~COVID-19~~effects of the COVID 19 pandemic. The change in the market value of equity securities declined $295,000 and $1.5 million during the ~~current~~third quarter and first nine months of 2022 compared to the ~~first quarter of 2021~~same periods in the prior year consistent with general market conditions. Equity securities include local community bank stocks and Community Reinvestment Act bond mutual funds. During the third quarter and first nine months of 2022, ChoiceOne has liquidated $15.3 million and $47.2 million in securities respectively, resulting in $378,000 and $805,000 of realized loss, respectively, 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.

Noninterest Expense

Total noninterest expense ~~declined $68,000~~decreased $90,000 and increased $1.1 million in the third quarter and first ~~quarter~~nine months of 2022, respectively, compared to the ~~fourth quarter of 2021 and increased $1.2 million compared to the first quarter of~~same time periods in 2021. The increase ~~since~~during the first ~~quarter~~nine months of ~~2021~~2022 is related to an increase in salaries and wages due to annual wage increases and the addition of new commercial loan production ~~staff~~ and wealth management staff. ~~Data processing and other~~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 ~~quarter~~nine months of 2022 compared to the same ~~quarter~~period in the prior year asdue to an increase to our FDIC insurance related expenses, business travel expenses which were still being affected by the pandemic last year. ChoiceOne continues to monitor expenses and looks to improve ~~its~~our efficiency through automation and use of digital tools.

Income Tax Expense

Income tax expense was ~~$948,000~~$3.0 million in the first ~~quarter~~nine months of 2022 compared to $~~1,272,000~~$3.3 million for the same period in ~~2021~~. 2021. The decrease was due to a higher level of income before income tax in 2021 and a $65.8 million dollar increase in the average balance of nontaxable securities in the first nine months of 2022 compared to the same period in 2021. The effective tax rate was ~~14.6%~~14.8% for the first ~~quarter~~nine months of 2022 compared to ~~16.9%~~16.4% for the first ~~quarter~~nine months of 2021. ~~The decline in the effective tax rate resulted from increased interest income from tax-exempt securities in 2022 compared to 2021.~~

2734

FINANCIAL CONDITION

Securities

In the last two years ChoiceOne has grown its securities portfolio substantially. Total available for sale securities on December 31, 2020, amounted to $577.7 million and grew steadily to an available for sale balance on December 31, 2021, of $1.1 billion. Many of the securities making up this balance include local municipals and other securities ChoiceOne has no intent to sell prior to maturity. During the ~~three months ended March 31,~~first quarter of 2022, ChoiceOne elected to move $428.4 million of the portfolio into a held to maturity status. Management believes the ~~$641.0~~$530.1 million in available for sale securities at ~~March 31,~~September 30, 2022 to be sufficient for any future liquidity needs.

~~There were no sales~~$47.2 million of securities were sold in the ~~first three~~nine months ~~of 2022; however, $3.8~~ended September 30, 2022 to be replaced with higher yielding assets. $13.7 million of securities were called or matured during that same period. Principal repayments on securities totaled ~~$10.4~~$31.6 million in the ~~first three~~nine months ofended September 30, 2022.

Loans

Core loans, which exclude PPP loans, held for sale loans, and loans to other financial institutions, grew organically by ~~$121.3~~$205.2 million from ~~March 31,~~September 30, 2021 to ~~March 31,~~September 30, 2022. Excluding PPP loans, ChoiceOne saw growth of $160.2 million in commercial loans and $40.4 million in retail loans from September 30, 2021 to September 30, 2022. Additions to our commercial lending staff in 2021 and investments in the automation of our commercial loan process have helped drive our pipeline of commercial loans and corresponding growth. ChoiceOne has ample on balance sheet liquidity to fund future loan growth, including an expected $183.1 million of cash flow from securities over the next two years.

Loans to other financial institutions ~~decreased $7.3~~declined $38.8 million from ~~March 31,~~September 30, 2021 to ~~March 31,~~September 30, 2022 as management chose to suspend the program at the end of the third quarter 2022. ~~Loans to other financial institutions is comprised of a warehouse line of credit to facilitate mortgage loan originations and fluctuates with~~During the ~~national mortgage market. In~~nine months ended September 30, 2022, the ~~first quarter of 2022, $24.7~~remaining $33.1 million of PPP loans were forgiven resulting in ~~$869,000~~$1.2 million of fee income. ~~$8.5 million in~~At September 30, 2022 all PPP loans have been fully forgiven, and ~~$351,000 in deferred PPP~~the associated fee income ~~remains outstanding as of March 31, 2022.~~ has been recognized.

During the first ~~quarter~~nine months of 2022, ChoiceOne recorded accretion income related to acquired loans in the amount of ~~$818,000, while the~~$1.7 million. The remaining credit mark on acquired loans from the recent mergers with County Bank Corp. and Community Shores totaled ~~$4.5~~$1.8 million as of ~~March 31,~~September 30, 2022.

Excluding PPP loans, ChoiceOne saw an increase to commercial and industrial loans of $20.0 million and commercial real estate loans of $10.3 million during the first three months of 2022. Excluding PPP loans, ChoiceOne saw declines of $3.3 million in agricultural loans and $3.4 million in construction real estate loans in the first three months of 2022. The other changes resulted from normal fluctuations in borrower activity.

Asset Quality

Information regarding impaired loans can be found in Note 3 to the consolidated financial statements included in this report. The total balance of loans classified as impaired was ~~$4.9~~$2.6 million ~~at March 31,~~on September 30, 2022, compared to ~~$5.4~~$5.5 million as of December 31, 2021. The change in the first ~~three~~nine months of 2022 was primarily comprised of a decrease of ~~$338,000~~$2.3 million in impaired ~~residential real estate~~agricultural loans.

As part of its review of the loan portfolio, management also monitors the various nonperforming loans. Nonperforming loans are comprised of: (1) loans accounted for on a nonaccrual basis; (2) loans, not included in nonaccrual loans, which are contractually past due 90 days or more as to interest or principal payments; and (3) loans, not included in nonaccrual or loans past due 90 days or more, which are considered troubled debt restructurings ("TDRs").

The balances of these nonperforming loans were as follows:

(Dollars in thousands)	March 31,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Loans accounted for on a nonaccrual basis	$	1,167	$	1,727	$	1,197	$	1,727
Accruing loans which are contractually past due 90 days or more as to principal or interest payments		-		-		-		-
Loans defined as "troubled debt restructurings " which are not included above		3,513		3,816		1,431		3,816
Total	$	4,680	$	5,543	$	2,628	$	5,543

The reduction in the balance of nonaccrual loans in the first ~~three~~nine months of 2022 was primarily due to loans that were paid off. It is also noted that ~~90%~~82% of loans considered TDRs were performing according to their restructured terms as of ~~March 31,~~September 30, 2022. Management believes the allowance for loan losses allocated to its nonperforming loans is sufficient at ~~March 31,~~September 30, 2022.

2835

Goodwill

Goodwill is not amortized but is evaluated annually for impairment and on an interim basis if events or changes in circumstances indicate that goodwill might be impaired. The goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized for any amount by which the carrying amount exceeds the reporting unit's fair value. Accounting pronouncements allow a company to first perform a qualitative assessment for goodwill prior to a quantitative assessment (Step 1 assessment). If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired, then a quantitative assessment must be performed. If not, there is no further assessment required. ChoiceOne acquired Valley Ridge Financial Corp. in 2006, County Bank Corp. in 2019, and Community Shores in 2020, which resulted in the recognition of goodwill of $13.7 million, $38.9 million and $7.3 million, respectively.

~~Management performed its~~ChoiceOne management performs an annual qualitative assessment and periodically performs a quantitative assessment. Management will perform a quantitative assessment of goodwill ~~as of June 30, 2021. In evaluating whether it is more likely than not that~~during the fair value of ChoiceOne's operations was less than the carrying amount, management assessed the relevant events and circumstances such as the ones noted in ASC 350-20-35-3c. The analysis consisted of a review of ChoiceOne’s current and expected future financial performance, the potential impact of the COVID-19 pandemic on the ability of ChoiceOne’s borrowers to comply with loan terms, and the impact that both short-term and long-term interest rates have had and may continue to have on net interest margin and mortgage sales activity. The share price and book value of ChoiceOne’s stock were also compared to the prior year. Management also compared average deal values for recent closed bank transactions to ChoiceOne transactions. Despite ChoiceOne's market capitalization declining slightly from November 30, 2020 to June 30, 2021, ChoiceOne's financial performance remained positive. In assessing the totality of the events and circumstances, management determined that it was more likely than not that the fair value of ChoiceOne’s operations, from a qualitative perspective, exceeded the carrying value as of June 30, 2021 and impairment of goodwill was not necessary.

ChoiceOne’s stock price per share was less than its book value as of March 31, 2022. This indicated that goodwill may be impaired and resulted in management performing another qualitative goodwill impairment assessment as of the end of the firstfourth quarter of 2022. As a result of the analysis, management concluded that it was more-likely-than-not that the fair value of the reporting unit was greater than the carrying value. This was evidenced by the strong financial indicators, solid credit quality ratios, as well as the strong capital position of ChoiceOne. In addition, revenue in the first three months of 2022 reflected significant and continuing growth in ChoiceOne's interest income. Based on the results of the qualitative analysis, management believed that a quantitative analysis was not necessary as of March 31, 2022.

Deposits and Borrowings

~~Total deposits increased $93.3 million~~Deposits in the ~~first~~third quarter of 2022 ~~and 305.6~~continue to hold strong with an increase of $18.1 million ~~since March 31, 2021.~~ ~~The change in deposits was due in part to funds related~~compared to the second quarter of 2022, which is attributed to organic growth of new relationships, seasonal fluctuations in our municipal clients and some modest deposit runoff as ChoiceOne has held deposit rates. Despite the rapidly rising rate environment, deposit costs have only increased ~~savings from~~12 basis points since the ~~pandemic~~third quarter of 2021, as ~~well as~~ChoiceOne is actively managing these costs and will continue to lag the expected increases in the federal funds ~~on deposit from the PPP loans that were not fully utilized as of March 31, 2022.~~ rate.

In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. ChoiceOne also holds $3.2 million in subordinated debentures issued in connection with a $4.5 million trust preferred securities offering, which were obtained in the merger with Community Shores, offset by the merger mark-to-market adjustment. ChoiceOne may use Federal Home Loan Bank advances and advances from the Federal Reserve Bank Discount Window to meet short-term funding needs ~~if needed~~ in the remainder of 2022.

Shareholders' Equity

Total shareholders' equity declined ~~$30.6~~$65.0 million in the first ~~three~~nine months of 2022. ~~During the first quarter of 2022,~~As previously referenced the Federal Reserve increased the federal funds rate by ~~25 basis points~~3.00% during the first nine months of 2022 in response to published inflation rates, causing interest rates ~~generally~~ to ~~sharply~~ increase. This change in interest rates increased ChoiceOne's unrealized pre-tax loss on the available for sale securities portfolio from $3.3 million aton December 31, 2021 to ~~$42.8~~$102.9 million ~~at March 31,~~on September 30, 2022. Additionally, meeting minutes from the Federal Open Market Committee indicated that additional increases in the federal funds rate are expected in order to combat inflation in the coming quarters. As such, ChoiceOne ~~has~~ elected to utilize interest rate derivatives in order to better manage its interest rate risk position. On April 21, 2022, ChoiceOne purchased ~~five~~four 2-year forward-starting interest rate caps with a total notional amount of ~~$200~~$200.0 million and entered into a ~~$200~~$200.0 million 2-year forward-starting pay-fixed interest rate swap. All forward starting instruments have an 8-year term expiring in 2032. These strategies provide $400 million of notional value protection and also create accounting symmetry between available for sale securities and other comprehensive income (equity), thus protecting tangible capital from further increases in interest rates. ChoiceOne also entered into ~~a $200 million receive-fixed~~multiple received-fixed interest rate ~~swap,~~swaps with a total notional amount of $200.0 million with a 2-year term, which, in the current environment, offsets the cost of the rising rate protection. These three strategies, in the aggregate, are expected to be ~~modestly accretive~~neutral to net income in 2022 and better position ChoiceOne Bank should rates continue to ~~rise.~~rise and remain elevated. Importantly, the transactions were structured to qualify for hedge accounting, which means that changes in the fair value of ~~the~~certain instruments flow through other comprehensive income (equity). Refer to further details in ~~subsequent event footnote 8.~~ Note 8 to the consolidated financial statements included in this report.

~~The~~A reduction in common stock and paid in capital resulted from ChoiceOne's repurchase of 25,899 shares for ~~$683,000,~~$682,000, or a weighted average all-in cost per share of $26.35, during the first quarter of 2022. We do not expect further buybacks for the remainder of the year. This was part of the common stock repurchase program announced in April 2021 which authorized repurchases of up to 390,114 shares, representing 5% of the total outstandingNo shares of common stock aswere repurchased during the second or third quarters of 2022; however, ChoiceOne may strategically repurchase shares of common stock in the ~~date the program was adopted. This program replaced~~future depending on market and ~~superseded all prior repurchase programs for ChoiceOne.~~other conditions.

2936

Regulatory Capital Requirements

Following is information regarding compliance of ChoiceOne and ChoiceOne Bank with regulatory capital requirements:

											Minimum Required															Minimum Required
											to be Well															to be Well
						Minimum Required					Capitalized Under										Minimum Required					Capitalized Under
						for Capital					Prompt Corrective										for Capital					Prompt Corrective
(Dollars in thousands)	Actual					Adequacy Purposes					Action Regulations					Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2022
September 30, 2022
ChoiceOne Financial Services Inc.
Total capital (to risk weighted assets)	$	207,839		14.6	%	$	113,648		8.0	%		N/A		N/A		$	216,524		13.7	%	$	126,267		8.0	%		N/A		N/A
Common equity Tier 1 capital (to risk weighted assets) weighted assets)		163,875		11.5			63,927		4.5			N/A		N/A
Common equity Tier 1 capital (to risk weighted assets)																	172,632		10.9			71,025		4.5			N/A		N/A
Tier 1 capital (to risk weighted assets)		168,375		11.9			85,236		6.0			N/A		N/A			177,132		11.2			94,700		6.0			N/A		N/A
Tier 1 capital (to average assets)		168,375		7.3			92,225		4.0			N/A		N/A			177,132		7.6			93,179		4.0			N/A		N/A

ChoiceOne Bank
Total capital (to risk weighted assets)	$	188,451		13.3	%	$	113,464		8.0	%	$	141,830		10.0	%	$	201,500		12.8	%	$	126,071		8.0	%	$	157,589		10.0	%
Common equity Tier 1 capital (to risk weighted assets) weighted assets)		180,850		12.8			63,824		4.5			92,190		6.5
Common equity Tier 1 capital (to risk weighted assets)																	194,043		12.3			70,915		4.5			102,433		6.5
Tier 1 capital (to risk weighted assets)		180,850		12.8			85,098		6.0			113,464		8.0			194,043		12.3			94,553		6.0			126,071		8.0
Tier 1 capital (to average assets)		180,850		7.9			92,130		4.0			115,163		5.0			194,043		8.3			93,081		4.0			116,351		5.0


December 31, 2021
ChoiceOne Financial Services Inc.
Total capital (to risk weighted assets)	$	204,353		14.4	%	$	113,604		8.0	%		N/A		N/A		$	204,353		14.4	%	$	113,604		8.0	%		N/A		N/A
Common equity Tier 1 capital (to risk weighted assets) weighted assets)		160,338		11.3			63,902		4.5			N/A		N/A
Common equity Tier 1 capital (to risk weighted assets)																	160,338		11.3			63,902		4.5			N/A		N/A
Tier 1 capital (to risk weighted assets)		164,838		11.6			85,203		6.0			N/A		N/A			164,838		11.6			85,203		6.0			N/A		N/A
Tier 1 capital (to average assets)		164,838		7.4			89,415		4.0			N/A		N/A			164,838		7.4			89,415		4.0			N/A		N/A

ChoiceOne Bank
Total capital (to risk weighted assets)	$	182,275		12.9	%	$	113,444		8.0	%	$	141,806		10.0	%	$	182,275		12.9	%	$	113,444		8.0	%	$	141,806		10.0	%
Common equity Tier 1 capital (to risk weighted assets) weighted assets)		174,587		12.3			63,813		4.5			92,174		6.5
Common equity Tier 1 capital (to risk weighted assets)																	174,587		12.3			63,813		4.5			92,174		6.5
Tier 1 capital (to risk weighted assets)		174,587		12.3			85,083		6.0			113,444		8.0			174,587		12.3			85,083		6.0			113,444		8.0
Tier 1 capital (to average assets)		174,587		7.8			89,289		4.0			111,611		5.0			174,587		7.8			89,289		4.0			111,611		5.0

Management reviews the capital levels of ChoiceOne and ChoiceOne Bank on a regular basis. The Board of Directors and management believe that the capital levels as of ~~March 31,~~September 30, 2022 are adequate for the foreseeable future. The Board of Directors’ determination of appropriate cash dividends for future periods will be based on, among other things, market conditions and ChoiceOne’s requirements for cash and capital.

Liquidity

Net cash provided by operating activities was ~~$2.8~~$32.0 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2022 compared to ~~$2.2~~$29.6 million in the same period a year ago. The change was due to ~~$1.3 million~~ lower net proceeds from loan sales in 2022 compared to 2021, which was offset by the change in other assets and liabilities. Net cash ~~provided by~~used in investing activities was ~~$14.5~~$60.5 million for the ~~first three~~nine months ofended September 30, 2022 compared to ~~net cash used of $104.3~~$398.6 million in the same period in 2021. ChoiceOne ~~had $31.4~~purchased $61.9 million of securities ~~purchases~~ and ~~sold $0~~had maturities or sales of securities of $92.5 million in the first ~~three~~nine months of 2022 compared to ~~$179.2~~$514.2 million and $0$39.8 million in the same ~~period~~periods in 2021, respectively. ~~A decline~~An increase in net loan originations ~~and payments~~ led to cash ~~provided~~used of ~~$31.8~~$73.3 million in the first ~~three~~nine months of 2022 compared to ~~$63.1~~cash provided of $78.1 million in the same period during the prior year. Net cash provided by financing activities was ~~$40.8~~$48.1 million for the first ~~three~~nine months ~~ended~~of 2022, compared to ~~$157.9~~$349.3 million in the same period in the prior year. ChoiceOne experienced growth of ~~$93.3~~$104.4 million in deposits in the first ~~three~~nine months of 2022 compared to ~~$165.4~~$337.6 million in 2021, ~~with~~while also seeing a ~~$44.2~~$72.5 million decrease in borrowings, ~~contributing~~which led to the change.

ChoiceOne believes that the current level of liquidity is sufficient to meet ChoiceOne Bank's normal operating needs. This belief is based upon the availability of deposits from both the local and national markets, maturities of securities, normal loan repayments, income retention, federal funds purchased from correspondent banks, advances available from the Federal Home Loan Bank, and secured lines of credit available from the Federal Reserve Bank.

3037

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

There are no material pending legal proceedings to which ChoiceOne or ChoiceOne Bank is a party or to which any of their properties are subject, except for proceedings that arose in the ordinary course of business. In the belief of management, pending or current legal proceedings should not have a material effect on the consolidated financial condition of ChoiceOne.

Item 1A. Risk Factors.

Information concerning risk factors is contained in the discussion in Item 1A, “Risk Factors,” in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. Un~~registered~~Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered sales of equity securities in the ~~first~~third quarter of 2022.

3138

ISSUER PURCHASES OF EQUITY SECURITIES

~~The following table provides information regarding ChoiceOne's~~There were no issuer purchases of ~~its common stock~~equity securities during the third quarter ~~ended March 31,~~of 2022.

Total Number

Maximum

of Shares

Number of

Total

Purchased as

Shares that

Number

Average

Part of a

May Yet be

of Shares

Price Paid

Publicly

Purchased

Period

Purchased

per Share

Announced Plan

Under the Plan (1)

January 1 - January 31, 2022

Employee Transactions
- $ - - -
Repurchase Plan
14,391 $ 26.43 14,391 66,449
February 1 - March 1, 2022

Employee Transactions
- $ - - -
Repurchase Plan
11,508 $ 26.26 11,508 54,941
March 2 - April 1, 2022

Employee Transactions
- $ - - -
Repurchase Plan
- $ - - 54,941

Item 4. ~~(1) As~~Controls and Procedures.

An evaluation was performed under the supervision and with the participation of ~~March 31, 2022, there are 54,941 shares remaining~~ChoiceOne’s management, including the Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of ChoiceOne’s disclosure controls and procedures as of September 30, 2022. Based on and as of the time of that ~~may yet~~evaluation, ChoiceOne’s management, including the Chief Executive Officer and Principal Financial Officer, concluded that ChoiceOne’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that material information required to be ~~purchased~~disclosed in the reports that ChoiceOne files or submits under ~~approved plans. The repurchase plan was adopted~~the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and ~~announced~~reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in ~~April 2021.~~the reports that ChoiceOne files or submits under the Exchange Act is accumulated and communicated to management, including ChoiceOne’s principal executive and principal financial officers, as appropriate to allow for timely decisions regarding required disclosure. There was no ~~stated expiration date. The plan authorized~~change in ChoiceOne’s internal control over financial reporting that occurred during the ~~repurchase of up~~three months ended September 30, 2022 that has materially affected, or that is reasonably likely to ~~390,114 shares, representing 5% of the total outstanding shares of common stock as of the date the plan was adopted.~~materially affect, ChoiceOne’s internal control over financial reporting.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed or incorporated by reference as part of this report:

Exhibit Number		Document

3.1		Restated Articles of Incorporation of ChoiceOne Financial Services, Inc. Previously filed as an exhibit to ChoiceOne’s Form 8-A filed February 4, 2020. Here incorporated by reference.

3.2		Bylaws of ChoiceOne as currently in effect and any amendments thereto. Previously filed as an exhibit to ChoiceOne’s Form 8-K filed April 21, 2021. Here incorporated by reference.

4.1		Advances, Pledge and Security Agreement between ChoiceOne Bank and the Federal Home Loan Bank of Indianapolis. Previously filed as an exhibit to ChoiceOne Financial Services, Inc.’s Form 10-K Annual Report for the year ended December 31, 2013. Here incorporated by reference.

4.2		Form of 3.25% Fixed-to-Floating Rate Subordinated Note due September 3, 2031. Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 8-K filed September 7, 2021. Here incorporated by reference.

4.3		Form of 3.25% Fixed-to-Floating Rate Global Subordinated Note due September 3, 2031. Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 8-K filed September 7, 2021. Here incorporated by reference.

31.1		Certification of Chief Executive Officer

31.2		Certification of Treasurer

32.1		Certification pursuant to 18 U.S.C. § 1350.

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

3239

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, thereunto duly authorized.

	CHOICEONE FINANCIAL SERVICES, INC.

Date: ~~May 13,~~November 10, 2022	/s/ Kelly J. Potes
	Kelly J. Potes Chief Executive Officer (Principal Executive Officer)

Date: ~~May 13,~~November 10, 2022	/s/ Adom J. Greenland
	Adom J. Greenland Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

3340

	Three Months Ended
	March 31, 2021
(Dollars in thousands)	Number		Recorded
	of Loans		Investment
Commercial and industrial		1	$	52
Commercial Real Estate		3		1,850
Total		4	$	1,902

					Total Number		Maximum
					of Shares		Number of
	Total				Purchased as		Shares that
	Number		Average		Part of a		May Yet be
	of Shares		Price Paid		Publicly		Purchased
Period	Purchased		per Share		Announced Plan		Under the Plan (1)

January 1 - January 31, 2022
Employee Transactions		-	$	-		-		-
Repurchase Plan		14,391	$	26.43		14,391		66,449
February 1 - March 1, 2022
Employee Transactions		-	$	-		-		-
Repurchase Plan		11,508	$	26.26		11,508		54,941
March 2 - April 1, 2022
Employee Transactions		-	$	-		-		-
Repurchase Plan		-	$	-		-		54,941