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 | |
☐ | 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 | 38-2659066 |
109 East Division |
|
| |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common stock | COFS | NASDAQ Capital Market |
As of October 31, 2022,April 30, 2023, the Registrant had outstanding 7,514,0767,521,749 shares of common stock.stock outstanding.
Table of Contents
Page | ||
PART I. | 3 | |
Item 1. | 3 | |
3 | ||
4 | ||
5 | ||
6 | ||
7 | ||
8 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 31 |
Item 4. | Controls and Procedures | 38 |
PART II. | 41 | |
Item 1. | 41 | |
Item 1A. | 41 | |
Item 2. | 41 | |
Item 5. | 41 | |
Item 6. | 42 | |
43 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ChoiceOne Financial Services, Inc.
CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | March 31, |
| December 31, |
| ||||||||||
(Dollars in thousands, except per share data) | 2022 | 2021 | 2023 |
| 2022 |
| |||||||||
(Unaudited) | (Audited) | (Unaudited) |
| (Audited) |
| ||||||||||
Assets |
|
|
|
| |||||||||||
Cash and due from banks | $ | 51,144 | $ | 31,537 | $ | 54,839 |
|
| $ | 43,593 |
| ||||
Time deposits in other financial institutions | 350 | 350 |
| 350 |
|
|
| 350 |
| ||||||
Cash and cash equivalents | 51,494 | 31,887 |
| 55,189 |
|
|
| 43,943 |
| ||||||
|
|
|
|
| |||||||||||
Equity securities, at fair value (Note 2) | 7,977 | 8,492 |
| 8,699 |
|
|
| 8,566 |
| ||||||
Securities available for sale, at fair value (Note 2) | 530,093 | 1,098,885 |
| 535,348 |
|
|
| 529,749 |
| ||||||
Securities held to maturity, at amortized cost (Note 2) | 428,205 | - |
| 422,876 |
|
|
| 425,906 |
| ||||||
Federal Home Loan Bank stock | 3,493 | 3,824 |
| 5,195 |
|
|
| 3,517 |
| ||||||
Federal Reserve Bank stock | 5,064 | 5,064 |
| 5,064 |
|
|
| 5,064 |
| ||||||
Loans held for sale | 8,848 | 9,351 |
| 3,603 |
|
|
| 4,834 |
| ||||||
Loans to other financial institutions | 70 | 42,632 | |||||||||||||
Loans (Note 3) | 1,132,401 | 1,016,848 |
| 1,210,583 |
|
|
| 1,189,782 |
| ||||||
Allowance for loan losses (Note 3) | (7,457 | ) | (7,688 | ) | |||||||||||
Allowance for credit losses (Note 3) |
| (15,065 | ) |
|
| (7,619 | ) | ||||||||
Loans, net | 1,124,944 | 1,009,160 |
| 1,195,518 |
|
|
| 1,182,163 |
| ||||||
|
|
|
|
| |||||||||||
Premises and equipment, net | 28,947 | 29,880 |
| 28,633 |
|
|
| 28,232 |
| ||||||
Other real estate owned, net | - | 194 |
| 130 |
|
|
| - |
| ||||||
Cash value of life insurance policies | 44,033 | 43,356 |
| 44,241 |
|
|
| 43,978 |
| ||||||
Goodwill | 59,946 | 59,946 |
| 59,946 |
|
|
| 59,946 |
| ||||||
Core deposit intangible | 3,062 | 3,962 |
| 2,557 |
|
|
| 2,809 |
| ||||||
Other assets | 67,353 | 20,049 |
| 42,887 |
|
|
| 47,208 |
| ||||||
Total assets | $ | 2,363,529 | $ | 2,366,682 | $ | 2,409,886 |
|
| $ | 2,385,915 |
| ||||
|
|
|
|
| |||||||||||
Liabilities |
|
|
|
|
| ||||||||||
Deposits – noninterest-bearing | $ | 599,360 | $ | 560,931 | $ | 554,699 |
|
| $ | 599,579 |
| ||||
Deposits – interest-bearing | 1,557,294 | 1,491,363 |
| 1,513,429 |
|
|
| 1,518,424 |
| ||||||
Brokered deposits |
| 37,773 |
|
|
| - |
| ||||||||
Total deposits | 2,156,654 | 2,052,294 |
| 2,105,901 |
|
|
| 2,118,003 |
| ||||||
|
|
|
|
|
| ||||||||||
Borrowings | - | 50,000 |
| 85,000 |
|
|
| 50,000 |
| ||||||
Subordinated debentures | 35,201 | 35,017 |
| 35,323 |
|
|
| 35,262 |
| ||||||
Other liabilities | 15,017 | 7,702 |
| 14,950 |
|
|
| 13,776 |
| ||||||
Total liabilities | 2,206,872 | 2,145,013 |
| 2,241,174 |
|
|
| 2,217,041 |
| ||||||
|
|
|
|
| |||||||||||
Shareholders' Equity |
|
|
|
|
| ||||||||||
Preferred stock; shares authorized: 100,000; shares outstanding: none | - | - |
| — |
|
|
| — |
| ||||||
Common stock and paid-in capital, no par value; shares authorized: 12,000,000; shares outstanding: 7,510,036 at September 30, 2022 and 7,510,379 at December 31, 2021 | 171,975 | 171,913 | |||||||||||||
Common stock and paid-in capital, no par value; shares authorized: 15,000,000; shares outstanding: 7,521,749 at March 31, 2023 and 7,516,098 at December 31, 2022 |
| 172,564 |
|
|
| 172,277 |
| ||||||||
Retained earnings | 63,664 | 52,332 |
| 64,026 |
|
|
| 68,394 |
| ||||||
Accumulated other comprehensive loss, net | (78,982 | ) | (2,576 | ) |
| (67,878 | ) |
|
| (71,797 | ) | ||||
Total shareholders’ equity | 156,657 | 221,669 |
| 168,712 |
|
|
| 168,874 |
| ||||||
Total liabilities and shareholders’ equity | $ | 2,363,529 | $ | 2,366,682 | $ | 2,409,886 |
|
| $ | 2,385,915 |
| ||||
See accompanying notes to interim consolidated financial statements.
3
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended | Nine Months Ended | Three Months Ended |
| ||||||||||||||||||||
(Dollars in thousands, except per share data) | September 30, | September 30, | March 31, |
| |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 |
| 2022 |
| ||||||||||||||||
Interest income |
|
|
|
| |||||||||||||||||||
Loans, including fees | $ | 13,611 | $ | 12,408 | $ | 38,432 | $ | 36,655 | $ | 14,873 |
|
| $ | 12,298 |
| ||||||||
Securities: |
|
|
|
| |||||||||||||||||||
Taxable | 3,972 | 2,821 | 11,001 | 7,073 |
| 4,913 |
|
|
| 3,507 |
| ||||||||||||
Tax exempt | 1,464 | 1,459 | 4,678 | 4,002 |
| 1,435 |
|
|
| 1,655 |
| ||||||||||||
Other | 238 | 38 | 314 | 70 |
| 177 |
|
|
| 14 |
| ||||||||||||
Total interest income | 19,285 | 16,726 | 54,425 | 47,800 |
| 21,398 |
|
|
| 17,474 |
| ||||||||||||
|
|
|
| ||||||||||||||||||||
Interest expense |
|
|
|
| |||||||||||||||||||
Deposits | 1,563 | 837 | 3,342 | 2,556 |
| 3,276 |
|
|
| 783 |
| ||||||||||||
Advances from Federal Home Loan Bank | 5 | 18 | 8 | 21 |
| 605 |
|
|
| 1 |
| ||||||||||||
Other | 379 | 171 | 1,127 | 327 |
| 505 |
|
|
| 369 |
| ||||||||||||
Total interest expense | 1,947 | 1,026 | 4,477 | 2,904 |
| 4,386 |
|
|
| 1,153 |
| ||||||||||||
|
|
|
| ||||||||||||||||||||
Net interest income | 17,338 | 15,700 | 49,948 | 44,896 |
| 17,012 |
|
|
| 16,321 |
| ||||||||||||
Provision for loan losses | 100 | - | 100 | 416 | |||||||||||||||||||
Net interest income after provision for loan losses | 17,238 | 15,700 | 49,848 | 44,480 | |||||||||||||||||||
Provision for credit losses on loans |
| 309 |
|
|
| — |
| ||||||||||||||||
Provision for credit losses on unfunded commitments |
| (284 | ) |
|
| — |
| ||||||||||||||||
Net Provision for credit losses expense |
| 25 |
|
|
| — |
| ||||||||||||||||
Net interest income after provision |
| 16,987 |
|
|
| 16,321 |
| ||||||||||||||||
|
|
|
| ||||||||||||||||||||
Noninterest income |
|
|
|
| |||||||||||||||||||
Customer service charges | 2,458 | 2,255 | 7,000 | 6,309 |
| 2,267 |
|
|
| 2,189 |
| ||||||||||||
Insurance and investment commissions | 158 | 153 | 596 | 624 |
| 196 |
|
|
| 205 |
| ||||||||||||
Gains on sales of loans | 432 | 1,798 | 2,123 | 5,715 |
| 403 |
|
|
| 804 |
| ||||||||||||
Net gains (losses) on sales of securities | (378 | ) | — | (805 | ) | 3 | |||||||||||||||||
Net gains on sales and write downs of other assets | — | — | 172 | — |
| 3 |
|
|
| 171 |
| ||||||||||||
Earnings on life insurance policies | 259 | 194 | 793 | 570 |
| 263 |
|
|
| 280 |
| ||||||||||||
Trust income | 174 | 187 | 528 | 612 |
| 184 |
|
|
| 178 |
| ||||||||||||
Change in market value of equity securities | (323 | ) | (28 | ) | (1,006 | ) | 461 |
| 63 |
|
|
| (356 | ) | |||||||||
Other | 267 | 159 | 922 | 756 |
| 292 |
|
|
| 374 |
| ||||||||||||
Total noninterest income | 3,047 | 4,718 | 10,323 | 15,050 |
| 3,671 |
|
|
| 3,845 |
| ||||||||||||
|
|
|
| ||||||||||||||||||||
Noninterest expense |
|
|
|
| |||||||||||||||||||
Salaries and benefits | 7,668 | 7,552 | 22,811 | 21,719 |
| 8,083 |
|
|
| 7,606 |
| ||||||||||||
Occupancy and equipment | 1,545 | 1,538 | 4,688 | 4,591 |
| 1,643 |
|
|
| 1,625 |
| ||||||||||||
Data processing | 1,734 | 1,471 | 5,056 | 4,573 |
| 1,682 |
|
|
| 1,744 |
| ||||||||||||
Professional fees | 559 | 754 | 1,628 | 2,426 |
| 621 |
|
|
| 510 |
| ||||||||||||
Supplies and postage | 184 | 171 | 541 | 395 |
| 191 |
|
|
| 191 |
| ||||||||||||
Advertising and promotional | 199 | 183 | 478 | 535 |
| 149 |
|
|
| 132 |
| ||||||||||||
Intangible amortization | 297 | 346 | 901 | 1,005 |
| 252 |
|
|
| 282 |
| ||||||||||||
FDIC insurance | 195 | 225 | 645 | 533 |
| 300 |
|
|
| 225 |
| ||||||||||||
Other | 1,035 | 1,266 | 3,515 | 3,386 |
| 1,074 |
|
|
| 1,375 |
| ||||||||||||
Total noninterest expense | 13,416 | 13,506 | 40,263 | 39,163 |
| 13,995 |
|
|
| 13,690 |
| ||||||||||||
|
|
|
| ||||||||||||||||||||
Income before income tax | 6,869 | 6,912 | 19,908 | 20,367 |
| 6,663 |
|
|
| 6,476 |
| ||||||||||||
Income tax expense | 1,056 | 1,163 | 2,952 | 3,337 |
| 1,030 |
|
|
| 948 |
| ||||||||||||
|
|
|
| ||||||||||||||||||||
Net income | $ | 5,813 | $ | 5,749 | $ | 16,956 | $ | 17,029 | $ | 5,633 |
|
| $ | 5,528 |
| ||||||||
|
|
|
| ||||||||||||||||||||
Basic earnings per share (Note 4) | $ | 0.77 | $ | 0.75 | $ | 2.26 | $ | 2.20 | $ | 0.75 |
|
| $ | 0.74 |
| ||||||||
Diluted earnings per share (Note 4) | $ | 0.77 | $ | 0.75 | $ | 2.26 | $ | 2.20 | $ | 0.75 |
|
| $ | 0.74 |
| ||||||||
Dividends declared per share | $ | 0.25 | $ | 0.25 | $ | 0.75 | $ | 0.69 | $ | 0.26 |
|
| $ | 0.25 |
| ||||||||
See accompanying notes to interim consolidated financial statements.
4
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three Months Ended | Nine Months Ended | Three Months Ended |
| ||||||||||||||||||||
(Dollars in thousands) | September 30, | September 30, | March 31, |
| |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 |
| 2022 |
| ||||||||||||||||
Net income | $ | 5,813 | $ | 5,749 | $ | 16,956 | $ | 17,029 | $ | 5,633 |
|
| $ | 5,528 |
| ||||||||
|
|
|
|
| |||||||||||||||||||
Other comprehensive income: |
|
|
|
|
| ||||||||||||||||||
Change in net unrealized gain (loss) on available-for-sale securities | (25,073 | ) | (6,173 | ) | (99,584 | ) | (11,464 | ) |
| 13,694 |
|
|
| (42,767 | ) | ||||||||
Income tax benefit (expense) | 5,265 | 1,296 | 20,913 | 2,407 |
| (2,876 | ) |
|
| 8,981 |
| ||||||||||||
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 | - | |||||||||||||||||||
Less: reclassification adjustment for net (gain) loss for fair value hedge |
| (6,021 | ) |
|
| - |
| ||||||||||||||||
Income tax benefit (expense) | - | - | (715 | ) | - |
| 1,264 |
|
|
| - |
| |||||||||||
Unrealized gain (loss) on available-for-sale securities, net of tax | (19,509 | ) | (4,877 | ) | (75,346 | ) | (9,059 | ) |
| 6,061 |
|
|
| (33,786 | ) | ||||||||
|
|
|
|
| |||||||||||||||||||
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 | - | |||||||||||||||||||
Amortization of net unrealized (gains) losses on securities transferred from available-for-sale to held-to-maturity |
| 29 |
|
|
| - |
| ||||||||||||||||
Income tax benefit (expense) | (11 | ) | - | (62 | ) | - |
| (6 | ) |
|
| - |
| ||||||||||
Unrealized loss on held to maturity securities, net of tax | 42 | - | (2,454 | ) | - |
| 23 |
|
|
| - |
| |||||||||||
|
|
|
|
| |||||||||||||||||||
Change in net unrealized gain (loss) on derivatives | 6,618 | - | 1,042 | - | |||||||||||||||||||
Change in net unrealized gain (loss) on cash flow hedge |
| (2,896 | ) |
|
| - |
| ||||||||||||||||
Income tax benefit (expense) |
| 608 |
|
|
| - |
| ||||||||||||||||
Less: reclassification adjustment for net (gain) loss on cash flow hedge |
| - |
|
|
| - |
| ||||||||||||||||
Income tax benefit (expense) | (1,390 | ) | - | (219 | ) | - |
| - |
|
|
| - |
| ||||||||||
Less: amortization of net unrealized (gains) losses included in net income | 416 | - | 723 | - |
| 156 |
|
|
| - |
| ||||||||||||
Income tax benefit (expense) | (87 | ) | - | (152 | ) | - |
| (33 | ) |
|
| - |
| ||||||||||
Unrealized gain (loss) on derivative instruments, net of tax | 5,557 | - | 1,394 | - | |||||||||||||||||||
Unrealized gain (loss) on cash flow hedge instruments, net of tax |
| (2,165 | ) |
|
| - |
| ||||||||||||||||
|
|
|
|
| |||||||||||||||||||
Other comprehensive income (loss), net of tax | (13,910 | ) | (4,877 | ) | (76,406 | ) | (9,059 | ) |
| 3,919 |
|
|
| (33,786 | ) | ||||||||
|
|
|
|
| |||||||||||||||||||
Comprehensive income (loss) | $ | (8,097 | ) | $ | 872 | $ | (59,450 | ) | $ | 7,970 | $ | 9,552 |
|
| $ | (28,258 | ) | ||||||
See accompanying notes to interim consolidated financial statements.
5
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the three months ended September 30,March 31,
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, July 1, 2021 | 7,692,537 | $ | 176,323 | $ | 45,352 | $ | 6,846 | $ | 228,521 | |||||||||||||||||||||||||||||||
Balance, January 1, 2022 |
|
| 7,510,379 |
|
| $ | 171,913 |
|
| $ | 52,332 |
|
| $ | (2,576 | ) |
| $ | 221,669 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Net income | 5,749 | 5,749 |
|
|
|
|
|
| 5,528 |
|
|
|
|
| 5,528 |
| ||||||||||||||||||||||||
Other comprehensive income | (4,877 | ) | (4,877 | ) |
|
|
|
|
|
|
|
| (33,786 | ) |
|
| (33,786 | ) | ||||||||||||||||||||||
Shares issued | 5,924 | 139 | 139 |
|
| 5,332 |
|
|
| 133 |
|
|
|
|
|
|
| 133 |
| |||||||||||||||||||||
Effect of employee stock purchases | 6 | 6 |
|
|
|
| 7 |
|
|
|
|
|
|
| 7 |
| ||||||||||||||||||||||||
Stock-based compensation expense | 84 | 84 |
|
|
|
| 121 |
|
|
|
|
|
|
| 121 |
| ||||||||||||||||||||||||
Shares repurchased | (107,240 | ) | (2,664 | ) | (2,664 | ) |
|
| (25,899 | ) |
|
| (682 | ) |
|
|
|
|
|
| (682 | ) | ||||||||||||||||||
Cash dividends declared ($0.25 per share) | (1,903 | ) | (1,903 | ) | ||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.25 per share) |
|
|
|
|
|
| (1,872 | ) |
|
|
|
| (1,872 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance, September 30, 2021 | 7,591,221 | $ | 173,888 | $ | 49,198 | $ | 1,969 | $ | 225,055 | |||||||||||||||||||||||||||||||
Balance, March 31, 2022 |
|
| 7,489,812 |
|
| $ | 171,492 |
|
| $ | 55,988 |
|
| $ | (36,362 | ) |
| $ | 191,118 |
| ||||||||||||||||||||
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|
| ||||||||||||||||||||||||||||
Balance, July 1, 2022 | 7,503,072 | $ | 171,804 | $ | 59,728 | $ | (65,072 | ) | $ | 166,460 | ||||||||||||||||||||||||||||||
Balance, December 31, 2022 |
|
| 7,516,098 |
|
| $ | 172,277 |
|
| $ | 68,394 |
|
| $ | (71,797 | ) |
| $ | 168,874 |
| ||||||||||||||||||||
Adoption of ASU 2016-13 (CECL) on January 1, 2023 |
|
|
|
|
|
|
| (8,046 | ) |
|
|
|
|
| (8,046 | ) | ||||||||||||||||||||||||
Balance, January 1, 2023 |
|
| 7,516,098 |
|
| $ | 172,277 |
|
| $ | 60,348 |
|
| $ | (71,797 | ) |
| $ | 160,828 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Net income | 5,813 | 5,813 |
|
|
|
|
|
|
| 5,633 |
|
|
|
|
|
| 5,633 |
| ||||||||||||||||||||||
Other comprehensive income (loss) | (13,910 | ) | (13,910 | ) |
|
|
|
|
|
|
|
|
| 3,919 |
|
|
| 3,919 |
| |||||||||||||||||||||
Shares issued | 6,964 | 32 | 32 |
|
| 5,651 |
|
|
| 147 |
|
|
|
|
|
|
|
|
| 147 |
| |||||||||||||||||||
Effect of employee stock purchases | 6 | 6 |
|
|
|
| 7 |
|
|
|
|
|
|
|
| 7 |
| |||||||||||||||||||||||
Stock-based compensation expense | 133 | 133 |
|
|
|
| 133 |
|
|
|
|
|
|
|
| 133 |
| |||||||||||||||||||||||
Cash dividends declared ($0.25 per share) | (1,877 | ) | (1,877 | ) | ||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.26 per share) |
|
|
|
|
|
|
| (1,955 | ) |
|
|
|
|
| (1,955 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Balance, September 30, 2022 | 7,510,036 | $ | 171,975 | $ | 63,664 | $ | (78,982 | ) | $ | 156,657 | ||||||||||||||||||||||||||||||
Balance, March 31, 2023 |
|
| 7,521,749 |
|
| $ | 172,564 |
|
| $ | 64,026 |
|
| $ | (67,878 | ) |
| $ | 168,712 |
| ||||||||||||||||||||
6
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYCASH FLOWS (Unaudited)
For the nine months ended September 30,
| Three Months Ended |
| |||||
(Dollars in thousands) | March 31, |
| |||||
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income | $ | 5,633 |
|
| $ | 5,528 |
|
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
| ||
Provision for credit losses |
| 25 |
|
|
| - |
|
Depreciation |
| 609 |
|
|
| 672 |
|
Amortization |
| 2,500 |
|
|
| 2,673 |
|
Compensation expense on employee and director stock purchases, stock options, and restricted stock units |
| 235 |
|
|
| 226 |
|
Net change in market value of equity securities |
| (63 | ) |
|
| 356 |
|
Gains on sales of loans |
| (403 | ) |
|
| (804 | ) |
Loans originated for sale |
| (10,283 | ) |
|
| (29,531 | ) |
Proceeds from loan sales |
| 11,753 |
|
|
| 25,896 |
|
Earnings on bank-owned life insurance |
| (263 | ) |
|
| (280 | ) |
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 | ) |
Proceeds from sales of other real estate owned |
| - |
|
|
| 235 |
|
Deferred federal income tax (benefit)/expense |
| 252 |
|
|
| 248 |
|
Net change in: |
|
|
|
|
| ||
Other assets |
| 995 |
|
|
| 173 |
|
Other liabilities |
| (1,821 | ) |
|
| (2,665 | ) |
Net cash provided by operating activities |
| 9,169 |
|
|
| 2,802 |
|
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Maturities, prepayments and calls of securities available for sale |
| 7,052 |
|
|
| 13,157 |
|
Maturities, prepayments and calls of securities held to maturity |
| 2,990 |
|
|
| 1,078 |
|
Purchases of securities available for sale |
| (393 | ) |
|
| (28,197 | ) |
Purchases of securities held to maturity |
| (421 | ) |
|
| (3,160 | ) |
Purchase of Federal Home Loan Bank stock |
| (1,678 | ) |
|
| - |
|
Proceeds from redemption of Federal Home Loan Bank stock |
| - |
|
|
| 331 |
|
Loan originations and payments, net |
| (20,701 | ) |
|
| 31,816 |
|
Additions to premises and equipment |
| (1,025 | ) |
|
| (526 | ) |
Proceeds from (payments for) derivative contracts, net |
| (551 | ) |
|
| - |
|
Payments for derivative contracts settlements |
| (4,191 | ) |
|
| - |
|
Net cash provided by (used in) investing activities |
| (18,918 | ) |
|
| 14,499 |
|
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Net change in deposits |
| (12,102 | ) |
|
| 93,307 |
|
Net change in short term borrowings |
| 35,000 |
|
|
| (50,000 | ) |
Issuance of common stock |
| 52 |
|
|
| 35 |
|
Repurchase of common stock |
| - |
|
|
| (682 | ) |
Cash dividends |
| (1,955 | ) |
|
| (1,872 | ) |
Net cash provided by financing activities |
| 20,995 |
|
|
| 40,788 |
|
|
|
|
|
|
| ||
Net change in cash and cash equivalents |
| 11,246 |
|
|
| 58,089 |
|
Beginning cash and cash equivalents |
| 43,943 |
|
|
| 31,887 |
|
|
|
|
|
|
| ||
Ending cash and cash equivalents | $ | 55,189 |
|
| $ | 89,976 |
|
|
|
|
|
|
| ||
Supplemental disclosures of cash flow information: |
|
|
|
|
| ||
Cash paid for interest | $ | 4,557 |
|
| $ | 1,413 |
|
Cash paid for income taxes |
| - |
|
|
| - |
|
Loans transferred to other real estate owned |
| 130 |
|
|
| 172 |
|
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.
7
ChoiceOne Financial Services, Inc.CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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. 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 such financial statements. Operating results for the ninethree months ended September 30, 2022,March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023.
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-K10-K for the year ended December 31, 2021.2022.
Use of Estimates
To prepare financial statements in conformity with GAAP,accounting principles generally accepted in the United States of America, 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. Actualactual results may differ from these estimates. Estimates associated with the allowance for loancredit losses and the unrealized gains and losses on securities available for sale and held to maturity 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 Additions to Other Financial Institutions securities held to maturity consist mostly of local issue municipals.
Loans to other financial institutions are made for the purpose of providing a warehouse line of credit to facilitate funding of residential mortgage loan originations at other financial institutions. The loans are short-term in nature and are designed to provide funding for the time period between the loan origination and its subsequent sale in the secondary market. Loans to other financial institutions earn a share of interest income, determined by the contract, from when the loan is funded to when the loan is sold on the secondary market. Loans to other financial institutions are excluded from Note 3. 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 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 12,1043,220 shares of common stock were issued to ChoiceOne’s Board of Directors for a cash price of $286,000$94,000 under the terms of the Directors’ Stock Purchase Plan in the firstnine months quarter of 2022.2023. A total of 6,5242,431 shares for a cash price of $80,000$53,000 were issued under the Employee Stock Purchase Plan in the firstnine 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 the2023. ChoiceOne's common stock repurchase program announced in April 2021 which authorizedand amended in 2022, authorizes repurchases of up to 390,114375,388 shares, representing 5%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 thirdfirst quarter of 2022.2023.
Reclassifications
Certain amounts presented in prior periods have been reclassified to conform to the current presentation.
8
Recently Issued Accounting Pronouncements
Allowance for LoanCredit Losses ("ACL")
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU (as subsequently amended by ASU 2018-19) significantly changed how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The allowancestandard replaced the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the CECL model, applies to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. The standard also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for loan lossesestimating the ACL. In addition, entities need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. A reasonable and supportable economic forecast is a key component of the CECL methodology.
ChoiceOne adopted CECL effective January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the incurred loss accounting standards. The transition adjustment of the CECL adoption included an increase in the ACL of $7.2 million, which included a $5.5 million decrease to the retained earnings account to reflect the cumulative effect of adopting CECL on our Consolidated Balance Sheet, with the $1.5 million tax impact portion being recorded as part of the deferred tax asset in other assets on our Consolidated Balance Sheet. The transition adjustment of the CECL adoption included an additional ACL on unfunded commitments of $3.3 million, which included a $2.6 million decrease to the retained earnings account to reflect the cumulative effect of adopting CECL on our Consolidated Balance Sheet, with the $688,000 tax impact portion being recorded as part of the deferred tax asset in other assets on our Consolidated Balance Sheet.
The ACL is a valuation allowance for probable incurred credit losses. The allowance for loan lossesACL is increased by the provision for loancredit losses and decreased by loans charged off less any recoveries of charged off loans. As ChoiceOne has had very limited loss experience since 2011, management elected to utilize benchmark peer loss history data to estimate historical loss rates. ChoiceOne worked with a third party advisory firm to identify an appropriate peer group for each loan group which shared similar characteristics. Management estimates the allowance for loan lossesACL required based on pasta selected peer group loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, a reasonable and supportable economic conditions,forecast, and other factors. Allocations of the allowance for loan losses ACL may be made for specific loans, but the entire allowance for loan lossesACL is available for any loan that, in management’s judgment, should be charged off. Loan losses are charged against the allowance for loan lossesACL when management believes that collection of a loan balance is not possible.
The allowance for loan lossesACL consists of general and specific components. The general component covers non-impaired loans collectively evaluated for credit losses and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustment for current and forecasted 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, the experience and ability of lending staff, national and a reasonable and supportable economic trendsforecast described further below.
The discounted cash flow methodology is utilized for all loan pools. This methodology is supported by our CECL software provider and conditions, industry conditions, trendsallows management to automatically calculate contractual life by factoring in real estate values,all cash flows and other conditions.adjusting them for behavioral and credit-related aspects.
Reasonable and supportable economic forecasts have to be incorporated in determining expected credit losses. The specific component relates to loansforecast period represents the time frame from the current period end through the point in time that we can reasonably forecast and support entity and environmental factors that are individually classifiedexpected to impact the performance of our loan portfolio. Ideally, the economic forecast period would encompass the contractual terms of all loans; however, the ability to produce a forecast that is considered reasonable and supportable becomes more difficult or may not be possible in later periods. Subsequent to the end of the forecast period, we revert to historical loan data based on an ongoing evaluation of each economic forecast in relation to then current economic conditions as impaired.well as any developing loan loss activity and resulting historical data. As of March 31, 2023, we used a one-year reasonable and supportable economic forecast period, with a two year straight-line reversion period.
AWe are not required to develop and use our own economic forecast model, and elected to utilize economic forecasts from third-party providers that analyze and develop forecasts of the economy for the entire United States at least quarterly.
We are also required to consider expected credit losses associated with loan commitments over the contractual period in which we are exposed to credit risk on the underlying commitments unless the obligation is impaired when full payment underunconditionally cancellable by us. Any allowance for off-balance sheet credit exposures is reported as an other liability on our Consolidated Balance Sheet and is increased or decreased via the loan terms is not expected. Troubled debt restructuringprovision for credit losses account on our Consolidated Statement of loans is undertaken to improveIncome. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the loansame aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to be funded. .
9
Securities Available for Sale - For securities AFS in an unrealized loss position, management determines whether they intend to sell or if it is more likely than not that ChoiceOne will be repaidrequired to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income with an allowance being established under CECL. For securities AFS with unrealized losses not meeting these criteria, management evaluates whether any decline in full underfair value is due to credit loss factors. In making this assessment, management considers any changes to the modified terms in accordance with a reasonable repayment schedule. All modified loans are evaluated to determine whetherrating of the loans should be reported as Troubled Debt Restructurings ("TDR"). A loan is a TDR when ChoiceOne Bank, for economic or legal reasonssecurity by rating agencies and adverse conditions specifically related to the borrower’s financial difficulties, grantsissuer of the security, among other factors. If this assessment indicates that a concessioncredit loss exists, the present value of cash flows expected to be collected from the security are compared to the borroweramortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses (“ACL”) is recorded for the credit loss, limited by modifying a loan. To make this determination, ChoiceOne Bank must determine whether (a) the borroweramount that the fair value is experiencing financial difficulties and (b) ChoiceOne Bank grantedless than the borrower a concession. This determination requires consideration of all facts and circumstances surrounding the modification. An overall general declineamortized cost basis. Changes in the economyACL under ASC 326-30 are recorded as provisions for (or reversal of) credit loss expense. Losses are charged against the allowance when the collectability of a debt security AFS is confirmed or some deteriorationwhen either of the criteria regarding intent or requirement to sell is met. Any impairment that has not been recorded through an ACL is recognized in a borrower’s financial condition does not automatically meanother comprehensive income, net of income taxes. At March 31, 2023 and at adoption of CECL on January 1, 2023, there was no ACL related to debt securities AFS. Accrued interest receivable on debt securities was excluded from the borrower is experiencing financial difficulties. Commercial loansestimate of credit losses.
Loans that do not share risk characteristics are evaluated for impairment on an individual loan basis. Ifbasis and are excluded from the collective evaluation. ChoiceOne has determined that any loans which have been placed on non-performing status, loans with a loan is considered impairedrisk rating of 6 or if a loan has been classified as a TDR, a portion of the allowancehigher, and loans past due more than 60 days will be assessed for loan losses is allocatedindividually evaluation. Management's judgment will be used to determine if the loan so that it is reported, at the net present valueshould be migrated back to pool on an individual basis. Individual analysis will establish a specific reserve for loans in scope. Specific reserves on non-performing loans are typically based on management’s best estimate of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely fromsecuring these loans, adjusted for selling costs as appropriate.
Securities Held to Maturity - Since the collateral. Large groupsadoption 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 expectedCECL, ChoiceOne measures credit losses on financial instrumentsHTM securities on a collective basis by major security type with each type sharing similar risk characteristics, 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 informconsiders historical 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 estimateis adjusted for assets measured either collectively or individually to include forecasted information, as well as past eventscurrent conditions 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 lossesThe ACL on available-for-sale debt securities will haveHTM is a contra asset valuation account that is deducted from the carrying amount of HTM securities to present the net amount expected to be presented ascollected. HTM securities are charged off against the ACL when deemed uncollectible. Adjustments to the ACL are reported in ChoiceOne’s Consolidated Statements of Income in the provision for credit losses. Accrued interest receivable on HTM securities is excluded from the estimate of credit losses. With regard to US Treasury securities, these have an allowance rather than as a write-down.explicit government guarantee; therefore, no ACL is recorded for these securities. With regard to obligations of states and political subdivisions and other HTM securities, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. At March 31, 2023 and at adoption of CECL on January 1, 2023, there was no ACL related to securities HTM.
Troubled Loan Modifications
FASB also issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This standard eliminated the previous accounting guidance for troubled debt restructurings and added additional disclosure requirements for gross chargeoffs by year of origination. It also prescribes guidance for reporting modifications of loans to borrowers experiencing financial difficulty.
Investment in Equity Method and Joint Ventures
In March 2023, the FASB issued ASU is2023-02, Investments - Equity Method and Joint Venture (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The amendments in this ASU permit reporting entities to account for the tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2022, and for interim periods within those years for companies considered smaller reporting companies with the Securities and Exchange Commission.2023. Early adoption is permitted. ChoiceOne was classified as a smaller reporting company as of the measurement date. Management is currently evaluating the impact of this new ASUstandard on itsthe 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. statements.
10
NOTE 2 – SECURITIES
On January 1, 2022, ChoiceOne reassessed and transferred, at fair value $428.4$428.4 million of securities classified as available for sale to the held to maturity classification. The net unrealized after-tax loss of $2.7$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 $2.5$2.4 million after tax as of September 30, 2022.March 31, 2023.
The fair value of equity securities and the related gross unrealized gains and (losses) recognized in noninterest income were as follows:
September 30, 2022 | March 31, 2023 |
| |||||||||||||||||||||||||||||
Gross | Gross |
|
| Gross |
| Gross |
|
|
| ||||||||||||||||||||||
(Dollars in thousands) | Amortized | Unrealized | Unrealized | Fair | Amortized |
| Unrealized |
| Unrealized |
| Fair |
| |||||||||||||||||||
Cost | Gains | Losses | Value | Cost |
| Gains |
| Losses |
| Value |
| ||||||||||||||||||||
Equity securities | $ | 8,445 | $ | 272 | $ | (740 | ) | $ | 7,977 | $ | 9,052 |
|
| $ | 310 |
|
| $ | (663 | ) |
| $ | 8,699 |
| |||||||
December 31, 2021 | December 31, 2022 |
| |||||||||||||||||||||||||||||
Gross | Gross |
|
| Gross |
| Gross |
|
|
| ||||||||||||||||||||||
(Dollars in thousands) | Amortized | Unrealized | Unrealized | Fair | Amortized |
| Unrealized |
| Unrealized |
| Fair |
| |||||||||||||||||||
Cost | Gains | Losses | Value | Cost |
| Gains |
| Losses |
| Value |
| ||||||||||||||||||||
Equity securities | $ | 7,953 | $ | 665 | $ | (126 | ) | $ | 8,492 | $ | 8,982 |
|
| $ | 305 |
|
| $ | (721 | ) |
| $ | 8,566 |
| |||||||
11
The following tables present the amortized cost and fair value of investment securities at the dates indicatedavailable for sale 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:income (loss) and the fair value of securities held to maturity and the related gross unrealized gains and losses:
September 30, 2022 | March 31, 2023 |
| |||||||||||||||||||||||||||||
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. Treasury notes and bonds | $ | 90,926 | $ | - | $ | (13,372 | ) | $ | 77,554 | $ | 90,695 |
|
| $ | - |
|
| $ | (10,720 | ) |
| $ | 79,975 |
| |||||||
State and municipal | 281,298 | - | (57,311 | ) | 223,987 |
| 281,139 |
|
|
| - |
|
|
| (44,641 | ) |
|
| 236,498 |
| |||||||||||
Mortgage-backed | 242,095 | - | (27,404 | ) | 214,691 |
| 231,577 |
|
|
| 8 |
|
|
| (25,448 | ) |
|
| 206,137 |
| |||||||||||
Corporate | 757 | - | (41 | ) | 716 |
| 758 |
|
|
| - |
|
|
| (42 | ) |
|
| 716 |
| |||||||||||
Asset-backed securities | 13,653 | - | (508 | ) | 13,145 |
| 12,546 |
|
|
| - |
|
|
| (524 | ) |
|
| 12,022 |
| |||||||||||
Total | $ | 628,729 | $ | - | $ | (98,636 | ) | $ | 530,093 | $ | 616,715 |
|
| $ | 8 |
|
| $ | (81,375 | ) |
| $ | 535,348 |
| |||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Held to Maturity: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
U.S. Government and federal agency | $ | 2,965 | $ | - | $ | (415 | ) | $ | 2,550 | $ | 2,968 |
|
| $ | - |
|
| $ | (365 | ) |
| $ | 2,603 |
| |||||||
State and municipal | 202,406 | - | (42,485 | ) | 159,921 |
| 199,267 |
|
|
| 1 |
|
|
| (32,688 | ) |
|
| 166,580 |
| |||||||||||
Mortgage-backed | 202,131 | - | (31,296 | ) | 170,835 |
| 199,795 |
|
|
| - |
|
|
| (29,139 | ) |
|
| 170,656 |
| |||||||||||
Corporate | 19,597 | - | (2,068 | ) | 17,529 |
| 19,990 |
|
|
| 46 |
|
|
| (2,292 | ) |
|
| 17,744 |
| |||||||||||
Asset-backed securities | 1,106 | - | (83 | ) | 1,023 |
| 856 |
|
|
| - |
|
|
| (66 | ) |
|
| 790 |
| |||||||||||
Total | $ | 428,205 | $ | - | $ | (76,347 | ) | $ | 351,858 | $ | 422,876 |
|
| $ | 47 |
|
| $ | (64,550 | ) |
| $ | 358,373 |
| |||||||
December 31, 2021 | December 31, 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 | $ | 2,001 | $ | 7 | $ | - | $ | 2,008 | |||||||||||||||||||||||
U.S. Treasury notes and bonds | 93,267 | 23 | (1,311 | ) | 91,979 | $ | 90,810 |
|
| $ | - |
|
| $ | (12,606 | ) |
| $ | 78,204 |
| |||||||||||
State and municipal | 528,252 | 10,704 | (4,109 | ) | 534,847 |
| 277,489 |
|
|
| - |
|
|
| (47,551 | ) |
|
| 229,938 |
| |||||||||||
Mortgage-backed | 441,383 | 781 | (9,049 | ) | 433,115 |
| 236,703 |
|
|
| - |
|
|
| (28,140 | ) |
|
| 208,563 |
| |||||||||||
Corporate | 20,856 | 19 | (233 | ) | 20,642 |
| 757 |
|
|
| - |
|
|
| (46 | ) |
|
| 711 |
| |||||||||||
Asset-backed securities | 16,387 | - | (93 | ) | 16,294 |
| 13,031 |
|
|
| - |
|
|
| (698 | ) |
|
| 12,333 |
| |||||||||||
Total | $ | 1,102,146 | $ | 11,534 | $ | (14,795 | ) | $ | 1,098,885 | $ | 618,790 |
|
| $ | - |
|
| $ | (89,041 | ) |
| $ | 529,749 |
| |||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Held to Maturity: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
U.S. Government and federal agency | $ | 2,966 |
|
| $ | - |
|
| $ | (421 | ) |
| $ | 2,545 |
| ||||||||||||||||
State and municipal |
| 201,890 |
|
|
| 1 |
|
|
| (39,355 | ) |
|
| 162,536 |
| ||||||||||||||||
Mortgage-backed |
| 200,473 |
|
|
| - |
|
|
| (29,868 | ) |
|
| 170,605 |
| ||||||||||||||||
Corporate |
| 19,603 |
|
|
| - |
|
|
| (2,285 | ) |
|
| 17,318 |
| ||||||||||||||||
Asset-backed securities |
| 974 |
|
|
| - |
|
|
| (77 | ) |
|
| 897 |
| ||||||||||||||||
Total | $ | 425,906 |
|
| $ | 1 |
|
| $ | (72,006 | ) |
| $ | 353,901 |
| ||||||||||||||||
Available for sale securities with unrealizeunrealized losses as of September 30,March 31, 2023 and December 31, 2022,and 2021, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, were as follows:
| March 31, 2023 |
| |||||||||||||||||||||
| Less than 12 months |
|
| More than 12 months |
|
| Total |
| |||||||||||||||
(Dollars in thousands) | Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||||
Available for Sale: | Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
| ||||||
U.S. Treasury notes and bonds | $ | - |
| $ | - |
| $ | 79,975 |
| $ | 10,720 |
| $ | 79,975 |
| $ | 10,720 |
| |||||
State and municipal |
| 2,481 |
|
| 25 |
|
| 233,517 |
|
| 44,616 |
|
| 235,998 |
|
| 44,641 |
| |||||
Mortgage-backed |
| 26,955 |
|
| 1,626 |
|
| 178,182 |
|
| 23,822 |
|
| 205,137 |
|
| 25,448 |
| |||||
Corporate |
| 501 |
|
| 7 |
|
| 215 |
|
| 35 |
|
| 716 |
|
| 42 |
| |||||
Asset-backed securities |
| - |
|
| - |
|
| 12,022 |
|
| 524 |
|
| 12,022 |
|
| 524 |
| |||||
Total temporarily impaired | $ | 29,937 |
|
| $ | 1,658 |
|
| $ | 503,911 |
|
| $ | 79,717 |
|
| $ | 533,848 |
|
| $ | 81,375 |
|
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 | ||||||||||||
12
| December 31, 2022 |
| |||||||||||||||||||||
| Less than 12 months |
|
| More than 12 months |
|
| Total |
| |||||||||||||||
(Dollars in thousands) | Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||||
Available for Sale: | Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
| ||||||
U.S. Treasury notes and bonds | $ | - |
| $ | - |
| $ | 78,204 |
| $ | 12,606 |
| $ | 78,204 |
| $ | 12,606 |
| |||||
State and municipal |
| 89,158 |
|
| 12,612 |
|
| 140,390 |
|
| 34,939 |
|
| 229,548 |
|
| 47,551 |
| |||||
Mortgage-backed |
| 63,249 |
|
| 3,093 |
|
| 144,318 |
|
| 25,047 |
|
| 207,567 |
|
| 28,140 |
| |||||
Corporate |
| 711 |
|
| 46 |
|
| - |
|
| - |
|
| 711 |
|
| 46 |
| |||||
Asset-backed securities |
| - |
|
| - |
|
| 12,333 |
|
| 698 |
|
| 12,333 |
|
| 698 |
| |||||
Total temporarily impaired | $ | 153,118 |
| $ | 15,751 |
| $ | 375,245 |
| $ | 73,290 |
| $ | 528,363 |
| $ | 89,041 |
| |||||
Held to maturity securities with unrealizeunrealized losses as of September 30,March 31, 2023 and December 31, 2022, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, in the table below. There were no held to maturityas follows:
| March 31, 2023 |
| |||||||||||||||||||||
| Less than 12 months |
|
| More than 12 months |
|
| Total |
| |||||||||||||||
(Dollars in thousands) | Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||||
Held to Maturity: | Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
| ||||||
U.S. Government and federal agency | $ | - |
| $ | - |
| $ | 2,603 |
| $ | 365 |
| $ | 2,603 |
| $ | 365 |
| |||||
State and municipal |
| 1,411 |
|
| 10 |
|
| 164,769 |
|
| 32,678 |
|
| 166,180 |
|
| 32,688 |
| |||||
Mortgage-backed |
| 414 |
|
| 24 |
|
| 170,242 |
|
| 29,115 |
|
| 170,656 |
|
| 29,139 |
| |||||
Corporate |
| 2,263 |
|
| 171 |
|
| 13,803 |
|
| 2,121 |
|
| 16,066 |
|
| 2,292 |
| |||||
Asset-backed securities |
| - |
|
| - |
|
| 790 |
|
| 66 |
|
| 790 |
|
| 66 |
| |||||
Total temporarily impaired | $ | 4,088 |
| $ | 205 |
| $ | 352,207 |
| $ | 64,345 |
| $ | 356,295 |
| $ | 64,550 |
| |||||
| December 31, 2022 |
| |||||||||||||||||||||
| Less than 12 months |
|
| More than 12 months |
|
| Total |
| |||||||||||||||
(Dollars in thousands) | Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||||
Held to Maturity: | Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
| ||||||
U.S. Government and federal agency | $ | - |
|
| $ | - |
|
| $ | 2,545 |
|
| $ | 421 |
|
| $ | 2,545 |
| $ | 421 |
| |
State and municipal |
| 13,457 |
|
|
| 1,899 |
|
|
| 149,016 |
|
|
| 37,456 |
|
|
| 162,473 |
|
| 39,355 |
| |
Mortgage-backed |
| 25,582 |
|
|
| 822 |
|
|
| 145,024 |
|
|
| 29,046 |
|
|
| 170,606 |
|
| 29,868 |
| |
Corporate |
| 5,296 |
|
|
| 603 |
|
|
| 10,771 |
|
|
| 1,682 |
|
|
| 16,067 |
|
| 2,285 |
| |
Asset-backed securities |
| - |
|
|
| - |
|
|
| 897 |
|
|
| 77 |
|
|
| 897 |
|
| 77 |
| |
Total temporarily impaired | $ | 44,335 |
| $ | 3,324 |
| $ | 308,253 |
| $ | 68,682 |
| $ | 352,588 |
| $ | 72,006 |
| |||||
ChoiceOne evaluates all securities 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 consideredif an ACL and corresponding impairment charge should be recorded. Consideration is given to be temporary or other-than-temporary. No other-than-temporary impairment charges were recordedthe extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of ChoiceOne to retain its investment in the three and nine months ended September 30, 2022, orissuer for a period of time sufficient to allow for any anticipated recovery in the same periods in 2021.fair value of amortized cost basis. ChoiceOne believes that unrealized losses on securities were temporary in nature and were caused primarily by changes in interest rates, increased credit spreads, and reduced market liquidity and were not caused by the credit status of the issuer. No ACL was recorded in the three months ended March 31, 2023, and no other-than-temporary impairment charges were recorded in the same periods in 2022.
At March 31, 2023 and December 31, 2022, there were 604 and 611 securities with an unrealized loss, respectively. Unrealized losses on corporate and municipal bonds have not been recognized into income because the issuers’ bonds are of high credit quality, and management does not intend to sell prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and reducedother market liquidityconditions. The issuers continue to make timely principal and notinterest payments on the bonds. The fair value is expected to recover as a resultthe bonds approach maturity.
The majority of unrealized losses at March 31, 2023, are related to U.S. Treasury notes and bonds, state and municipal bonds and mortgage backed securities. The U.S. Treasury notes are guaranteed by the U.S. government and 100% of the notes are rated AA or better. State and municipal bonds are backed by the taxing authority of the bond issuer or the revenues from the bond. On March 31, 2023, 86% of state and municipal bonds held are rated AA or better, 11% are A rated and 3% are not rated. Of the mortgage-backed securities held on March 31, 2023, 38% were issued by US government sponsored entities and agencies, and rated AA, 46% are AAA rated private issue and collateralized mortgage obligation, and 16% are unrated privately issued mortgage-backed securities with structured credit quality issues.enhancement and collateralized mortgage obligation.
13
Presented below is a schedule of maturities of securities as of September 30, 2022, and theMarch 31, 2023. Available for sale securities are reported at fair value of securities available for sale and the amortized cost of securities held to maturity as of September 30, 2022.securities are reported at amortized cost. Callable securities in the money are presumed called and matured at the callable date.
Available for Sale Securities maturing within: | Available for Sale Securities maturing within: |
|
|
|
| ||||||||||||||||||||||||||||||||||
Fair Value |
|
|
|
|
|
|
|
| Fair Value |
| |||||||||||||||||||||||||||||
Less than | 1 Year - | 5 Years - | More than | at September 30, | Less than |
| 1 Year - |
| 5 Years - |
| More than |
| at March 31, |
| |||||||||||||||||||||||||
(Dollars in thousands) | 1 Year | 5 Years | 10 Years | 10 Years | 2022 | 1 Year |
| 5 Years |
| 10 Years |
| 10 Years |
| 2023 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
U.S. Government and federal agency | $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
| ||||||||||||||||||||
U.S. Treasury notes and bonds | $ | - | $ | - | $ | 77,554 | $ | - | $ | 77,554 |
| - |
|
|
| 19,451 |
|
|
| 60,524 |
|
|
| - |
|
|
| 79,975 |
| ||||||||||
State and municipal | 9,609 | 7,929 | 38,202 | 168,247 | 223,987 |
| 4,261 |
|
|
| 7,282 |
|
|
| 99,415 |
|
|
| 125,540 |
|
|
| 236,498 |
| |||||||||||||||
Corporate | - | 497 | 219 | - | 716 |
| 501 |
|
|
| - |
|
|
| 215 |
|
|
| — |
|
|
| 716 |
| |||||||||||||||
Asset-backed securities | - | 9,481 | 3,664 | - | 13,145 |
| — |
|
|
| 8,767 |
|
|
| 3,255 |
|
|
| — |
|
|
| 12,022 |
| |||||||||||||||
Total debt securities | 9,609 | 17,907 | 119,639 | 168,247 | 315,402 |
| 4,762 |
|
|
| 35,500 |
|
|
| 163,409 |
|
|
| 125,540 |
|
|
| 329,211 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Mortgage-backed securities | 19,362 | 98,970 | 90,161 | 6,198 | 214,691 |
| 7,412 |
|
|
| 76,343 |
|
|
| 106,925 |
|
|
| 15,457 |
|
|
| 206,137 |
| |||||||||||||||
Total Available for Sale | $ | 28,971 | $ | 116,877 | $ | 209,800 | $ | 174,445 | $ | 530,093 | $ | 12,174 |
|
| $ | 111,843 |
|
| $ | 270,334 |
|
| $ | 140,997 |
|
| $ | 535,348 |
| ||||||||||
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 September 30, | Less than |
| 1 Year - |
| 5 Years - |
| More than |
| at March 31, |
| |||||||||||||||||||||||||
(Dollars in thousands) | 1 Year | 5 Years | 10 Years | 10 Years | 2022 | 1 Year |
| 5 Years |
| 10 Years |
| 10 Years |
| 2023 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
U.S. Government and federal agency | $ | - | $ | - | $ | 2,965 | $ | - | $ | 2,965 | $ | — |
|
| $ | — |
|
| $ | 2,968 |
|
| $ | — |
|
| $ | 2,968 |
| ||||||||||
State and municipal | 2,348 | 5,180 | 68,447 | 126,431 | 202,406 |
| 2,415 |
|
|
| 4,998 |
|
|
| 89,542 |
|
|
| 102,312 |
|
|
| 199,267 |
| |||||||||||||||
Corporate | - | 250 | 18,347 | 1,000 | 19,597 |
| — |
|
|
| - |
|
|
| 18,990 |
|
|
| 1,000 |
|
|
| 19,990 |
| |||||||||||||||
Asset-backed securities | - | 1,106 | - | - | 1,106 |
| — |
|
|
| 856 |
|
|
| — |
|
|
| — |
|
|
| 856 |
| |||||||||||||||
Total debt securities | 2,348 | 6,536 | 89,759 | 127,431 | 226,074 |
| 2,415 |
|
|
| 5,854 |
|
|
| 111,500 |
|
|
| 103,312 |
|
|
| 223,081 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Mortgage-backed securities | - | 56,033 | 146,098 | - | 202,131 |
| 21,951 |
|
|
| 32,133 |
|
|
| 145,711 |
|
|
| — |
|
|
| 199,795 |
| |||||||||||||||
Total Held to Maturity | $ | 2,348 | $ | 62,569 | $ | 235,857 | $ | 127,431 | $ | 428,205 | $ | 24,366 |
|
| $ | 37,987 |
|
| $ | 257,211 |
|
| $ | 103,312 |
|
| $ | 422,876 |
| ||||||||||
Following is information regarding unrealized gains and losses on equity securities for the three and nine months ended September 30,2022March 31, 2023 and 2021:2022:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net gains and (losses) recognized during the period | $ | (323 | ) | $ | (28 | ) | $ | (1,006 | ) | $ | 461 | |||||
Less: Net gains and (losses) recognized during the period on securities sold | — | — | — | — | ||||||||||||
Unrealized gains and (losses) recognized during the reporting period on securities still held at the reporting date | $ | (323 | ) | $ | (28 | ) | $ | (1,006 | ) | $ | 461 | |||||
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Net gains and (losses) recognized during the period |
| $ | 63 |
|
| $ | (356 | ) |
Less: Net gains and (losses) recognized during the period on securities sold |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
| ||
Unrealized gains and (losses) recognized during the reporting period on securities still held at the reporting date |
| $ | 63 |
|
| $ | (356 | ) |
14
NOTE 3 – LOANS AND ALLOWANCE FOR LOANCREDIT LOSSES
Loans by type as a percentage of the portfolio were as follows:
| March 31, 2023 |
|
| December 31, 2022 |
|
|
|
|
| |||||||||
(Dollars in thousands) | Balance |
| % |
|
| Balance |
| % |
|
| Percent Increase (Decrease) | |||||||
Agricultural | $ | 55,995 |
|
| 4.63 | % |
|
| 64,159 |
|
| 5.39 | % |
|
| (12.72 | ) | % |
Commercial and Industrial |
| 217,063 |
|
| 17.93 | % |
|
| 210,210 |
|
| 17.67 | % |
|
| 3.26 |
| % |
Commercial Real Estate |
| 648,202 |
|
| 53.54 | % |
|
| 630,953 |
|
| 53.03 | % |
|
| 2.73 |
| % |
Consumer |
| 38,891 |
|
| 3.21 | % |
|
| 39,808 |
|
| 3.35 | % |
|
| (2.30 | ) | % |
Construction Real Estate |
| 13,939 |
|
| 1.15 | % |
|
| 14,736 |
|
| 1.24 | % |
|
| (5.41 | ) | % |
Residential Real Estate |
| 236,493 |
|
| 19.54 | % |
|
| 229,916 |
|
| 19.32 | % |
|
| 2.86 |
| % |
Gross Loans | $ | 1,210,583 |
|
|
|
| $ | 1,189,782 |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Allowance for credit losses |
| 15,065 |
|
| 1.24 | % |
|
| 7,619 |
|
| 0.64 | % |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net loans | $ | 1,195,518 |
|
|
|
| $ | 1,182,163 |
|
|
|
|
|
|
| |||
Activity in the allowance for loancredit 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 September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for Credit Losses Three Months Ended March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 132 | $ | 1,613 | $ | 309 | $ | 4,224 | $ | 45 | $ | 691 | $ | 402 | $ | 7,416 |
| $ | 144 |
|
| $ | 1,361 |
|
| $ | 310 |
|
| $ | 4,822 |
|
| $ | 63 |
|
| $ | 906 |
|
| $ | 13 |
|
| $ | 7,619 |
| ||||||||||||||||
Cumulative effect of change in accounting principle |
|
| 14 |
|
|
| 1,587 |
|
|
| 541 |
|
|
| 3,006 |
|
|
| 20 |
|
|
| 2,010 |
|
|
| (13 | ) |
|
| 7,165 |
| ||||||||||||||||||||||||||||||||
Charge-offs | — | (47 | ) | (128 | ) | - | — | — | — | (175 | ) |
|
| — |
|
|
| — |
|
|
| (140 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (140 | ) | |||||||||||||||||||||
Recoveries | — | 59 | 56 | 1 | — | �� | — | — | 116 |
|
| — |
|
|
| 27 |
|
|
| 69 |
|
|
| 13 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 112 |
| |||||||||||||||||||||||
Provision | 8 | (252 | ) | 66 | 384 | 14 | 178 | (298 | ) | 100 |
|
| (23 | ) |
|
| 45 |
|
|
| 133 |
|
|
| (4 | ) |
|
| (10 | ) |
|
| 168 |
|
|
| — |
|
|
| 309 |
| ||||||||||||||||||||||
Ending balance | $ | 140 | $ | 1,373 | $ | 303 | $ | 4,609 | $ | 59 | $ | 869 | $ | 104 | $ | 7,457 |
| $ | 135 |
|
| $ | 3,020 |
|
| $ | 913 |
|
| $ | 7,837 |
|
| $ | 73 |
|
| $ | 3,087 |
|
| $ | — |
|
| $ | 15,065 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||
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 credit loss |
| $ | 1 |
|
| $ | 7 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 42 |
|
| $ | — |
|
| $ | 52 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1 | $ | 6 | $ | 1 | $ | 6 | $ | — | $ | 143 | $ | — | $ | 157 | ||||||||||||||||||||||||||||||||||||||||||||||||
Collectively evaluated for impairment | $ | 139 | $ | 1,367 | $ | 302 | $ | 4,603 | $ | 59 | $ | 726 | $ | 104 | $ | 7,300 | ||||||||||||||||||||||||||||||||||||||||||||||||
Collectively evaluated for credit loss |
| $ | 134 |
|
| $ | 3,013 |
|
| $ | 912 |
|
| $ | 7,836 |
|
| $ | 73 |
|
| $ | 3,045 |
|
| $ | — |
|
| $ | 15,013 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 312 | $ | 108 | $ | 7 | $ | 140 | $ | — | $ | 2,070 | $ | — | $ | 2,637 | ||||||||||||||||||||||||||||||||||||||||||||||||
Collectively evaluated for impairment | 63,035 | 204,686 | 38,340 | 584,274 | 14,299 | 210,867 | — | 1,115,501 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquired with deteriorated credit quality | — | 3,796 | 9 | 8,781 | — | 1,677 | — | 14,263 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for credit loss |
| $ | 18 |
|
| $ | 180 |
|
| $ | 27 |
|
| $ | 32 |
|
| $ | — |
|
| $ | 1,894 |
|
|
|
| $ | 2,151 |
| ||||||||||||||||||||||||||||||||||
Collectively evaluated for credit loss |
|
| 55,977 |
|
|
| 216,883 |
|
|
| 38,864 |
|
|
| 648,170 |
|
|
| 13,939 |
|
|
| 234,599 |
|
|
|
|
| 1,208,432 |
| ||||||||||||||||||||||||||||||||||
Ending balance | $ | 63,347 | $ | 208,590 | $ | 38,356 | $ | 593,195 | $ | 14,299 | $ | 214,614 | $ | 1,132,401 |
| $ | 55,995 |
|
| $ | 217,063 |
|
| $ | 38,891 |
|
| $ | 648,202 |
|
| $ | 13,939 |
|
| $ | 236,493 |
|
|
|
| $ | 1,210,583 |
| ||||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||||||
(Dollars in thousands) | and | Commercial | Construction | Residential | ||||||||||||||||||||||||||||
Agricultural | Industrial | Consumer | Real Estate | Real Estate | Real Estate | Unallocated | Total | |||||||||||||||||||||||||
Allowance for Loan Losses Three Months Ended 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 | ||||||||||||||||
Charge-offs | — | (195 | ) | (244 | ) | (111 | ) | — | — | — | (550 | ) | ||||||||||||||||||||
Recoveries | — | 80 | 168 | 43 | — | 5 | — | 296 | ||||||||||||||||||||||||
Provision | 261 | 390 | (9 | ) | 50 | 16 | (364 | ) | 72 | 416 | ||||||||||||||||||||||
Ending balance | $ | 518 | $ | 1,602 | $ | 232 | $ | 4,160 | $ | 113 | $ | 941 | $ | 189 | $ | 7,755 | ||||||||||||||||
Individually evaluated for impairment | $ | 124 | $ | 174 | $ | - | $ | 8 | $ | - | $ | 177 | $ | - | $ | 483 | ||||||||||||||||
Collectively evaluated for impairment | $ | 394 | $ | 1,428 | $ | 232 | $ | 4,152 | $ | 113 | $ | 764 | $ | 189 | $ | 7,272 | ||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||
September 30, 2021 | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 3,051 | $ | 296 | $ | - | $ | 418 | $ | - | $ | 2,191 | $ | 5,956 | ||||||||||||||||||
Collectively evaluated for impairment | 60,394 | 211,695 | 33,793 | 474,425 | 18,238 | 165,913 | 964,458 | |||||||||||||||||||||||||
Acquired with deteriorated credit quality | — | 5,251 | 13 | 10,489 | — | 2,190 | 17,943 | |||||||||||||||||||||||||
Ending balance | $ | 63,445 | $ | 217,242 | $ | 33,806 | $ | 485,332 | $ | 18,238 | $ | 170,294 | $ | 988,357 | ||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||||||
(Dollars in thousands) | and | Commercial | Construction | Residential | ||||||||||||||||||||||||||||
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 | $ | - | $ | 146 | $ | - | $ | 503 | ||||||||||||||||
Collectively evaluated for impairment | $ | 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 | $ | - | $ | 2,191 | $ | 5,433 | ||||||||||||||||||
Collectively evaluated for impairment | 62,203 | 197,656 | 35,148 | 515,528 | 19,066 | 164,647 | 994,248 | |||||||||||||||||||||||||
Acquired with deteriorated credit quality | - | 5,029 | 12 | 10,083 | - | 2,043 | 17,167 | |||||||||||||||||||||||||
Ending balance | $ | 64,819 | $ | 203,024 | $ | 35,174 | $ | 525,884 | $ | 19,066 | $ | 168,881 | $ | 1,016,848 | ||||||||||||||||||
15
|
|
|
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
(Dollars in thousands) |
|
|
| and |
|
|
|
|
| Commercial |
|
| Construction |
|
| Residential |
|
|
|
|
|
|
| ||||||||
| Agricultural |
|
| Industrial |
|
| Consumer |
|
| Real Estate |
|
| Real Estate |
|
| Real Estate |
|
| Unallocated |
|
| Total |
| ||||||||
Allowance for Loan Losses Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Beginning balance | $ | 448 |
|
| $ | 1,454 |
|
| $ | 290 |
|
| $ | 3,705 |
|
| $ | 110 |
|
| $ | 671 |
|
| $ | 1,010 |
|
| $ | 7,688 |
|
Charge-offs | — |
|
|
| (31 | ) |
|
| (112 | ) |
|
| - |
|
| — |
|
|
| — |
|
| — |
|
|
| (143 | ) | |||
Recoveries | — |
|
|
| 2 |
|
|
| 52 |
|
|
| 1 |
|
| — |
|
|
| 1 |
|
| — |
|
|
| 56 |
| |||
Provision |
| (61 | ) |
|
| 327 |
|
|
| 74 |
|
|
| (16 | ) |
|
| (73 | ) |
|
| (83 | ) |
|
| (168 | ) |
|
| — |
|
Ending balance | $ | 387 |
|
| $ | 1,752 |
|
| $ | 304 |
|
| $ | 3,690 |
|
| $ | 37 |
|
| $ | 589 |
|
| $ | 842 |
|
| $ | 7,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Individually evaluated for impairment | $ | 253 |
|
| $ | 116 |
|
| $ | 3 |
|
| $ | 9 |
|
| $ | — |
|
| $ | 167 |
|
| $ | — |
|
| $ | 548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Collectively evaluated for impairment | $ | 134 |
|
| $ | 1,636 |
|
| $ | 301 |
|
| $ | 3,681 |
|
| $ | 37 |
|
| $ | 422 |
|
| $ | 842 |
|
| $ | 7,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Individually evaluated for impairment | $ | 2,542 |
|
| $ | 356 |
|
| $ | 32 |
|
| $ | 157 |
|
| $ | — |
|
| $ | 1,853 |
|
|
|
|
| $ | 4,940 |
| |
Collectively evaluated for impairment |
| 59,076 |
|
|
| 194,024 |
|
|
| 36,108 |
|
|
| 527,743 |
|
|
| 15,669 |
|
|
| 174,206 |
|
|
|
|
|
| 1,006,826 |
| |
Acquired with deteriorated credit quality | — |
|
|
| 4,534 |
|
|
| 11 |
|
|
| 9,352 |
|
| — |
|
|
| 1,743 |
|
|
|
|
|
| 15,640 |
| |||
Ending balance | $ | 61,618 |
|
| $ | 198,914 |
|
| $ | 36,151 |
|
| $ | 537,252 |
|
| $ | 15,669 |
|
| $ | 177,802 |
|
|
|
|
| $ | 1,027,406 |
| |
|
|
|
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
(Dollars in thousands) |
|
|
| and |
|
|
|
|
| Commercial |
|
| Construction |
|
| Residential |
|
|
|
|
|
|
| ||||||||
| Agricultural |
|
| Industrial |
|
| Consumer |
|
| Real Estate |
|
| Real Estate |
|
| Real Estate |
|
| Unallocated |
|
| Total |
| ||||||||
Allowance for Loan Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Individually evaluated for impairment | $ | 2 |
|
| $ | 14 |
|
| $ | 1 |
|
| $ | 5 |
|
| $ | — |
|
| $ | 131 |
|
| $ | — |
|
| $ | 153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Collectively evaluated for impairment | $ | 142 |
|
| $ | 1,347 |
|
| $ | 309 |
|
| $ | 4,817 |
|
| $ | 63 |
|
| $ | 775 |
|
| $ | 13 |
|
| $ | 7,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Individually evaluated for impairment | $ | 23 |
|
| $ | 177 |
|
| $ | 7 |
|
| $ | 165 |
|
| $— |
|
| $ | 2,474 |
|
|
|
|
| $ | 2,846 |
| ||
Collectively evaluated for impairment |
| 64,136 |
|
|
| 206,074 |
|
|
| 39,793 |
|
|
| 622,131 |
|
|
| 14,736 |
|
|
| 225,792 |
|
|
|
|
|
| 1,172,662 |
| |
Acquired with deteriorated credit quality | — |
|
|
| 3,959 |
|
|
| 8 |
|
|
| 8,657 |
|
| — |
|
|
| 1,650 |
|
|
|
|
|
| 14,274 |
| |||
Ending balance | $ | 64,159 |
|
| $ | 210,210 |
|
| $ | 39,808 |
|
| $ | 630,953 |
|
| $ | 14,736 |
|
| $ | 229,916 |
|
|
|
|
| $ | 1,189,782 |
| |
The provision for credit losses on loans was $309,000 in the first quarter of 2023, compared to $0 in the same period in the prior year. Provision expense was deemed necessary to reserve for core loan growth of $20.8 million in the first quarter of 2023. There was very little change to forecasted economic conditions and no changes to qualitative factors from the CECL implementation date of January 1, 2023 to March 31, 2023.
16
The process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking (1)(1) the risk ratings of business loans, (2)(2) the level of classified business loans, and (3)(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 Bank will sustain some future loss if such weaknesses are not corrected. Clear loss potential, however, does not have to exist in any individual assetsasset 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”“7” have all the weaknesses inherent in those graded “6”“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”“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.
17
Information regarding ChoiceOne Bank's credit exposure wasThe following table reflects the amortized cost basis of loans as follows:of March 31, 2023 based on year of origination (dollars in thousands):
Commercial: | 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| Prior |
|
| Term Loans Total |
|
| Revolving Loans |
|
| Grand Total |
| |||||||||
Agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 19 |
|
| $ | 19,463 |
|
| $ | 3,285 |
|
| $ | 1,905 |
|
| $ | 7,853 |
|
| $ | 18,052 |
|
| $ | 50,577 |
|
| $ | 5,149 |
|
| $ | 55,726 |
|
Special mention |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 184 |
|
|
| 85 |
|
|
| 269 |
|
|
| - |
|
|
| 269 |
|
Substandard |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Doubtful |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Loss |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total | $ | 19 |
|
| $ | 19,463 |
|
| $ | 3,285 |
|
| $ | 1,905 |
|
| $ | 8,037 |
|
| $ | 18,137 |
|
| $ | 50,846 |
|
| $ | 5,149 |
|
| $ | 55,995 |
|
Current year-to-date gross write-offs | $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial and Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 9,644 |
|
| $ | 49,508 |
|
| $ | 31,241 |
|
| $ | 14,120 |
|
| $ | 16,186 |
|
| $ | 16,174 |
|
| $ | 136,873 |
|
| $ | 79,836 |
|
| $ | 216,709 |
|
Special mention |
| - |
|
|
| - |
|
|
| 38 |
|
|
| 161 |
|
|
| 110 |
|
|
| 38 |
|
|
| 347 |
|
|
| - |
|
|
| 347 |
|
Substandard |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7 |
|
|
| 7 |
|
|
| - |
|
|
| 7 |
|
Doubtful |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Loss |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total | $ | 9,644 |
|
| $ | 49,508 |
|
| $ | 31,279 |
|
| $ | 14,281 |
|
| $ | 16,296 |
|
| $ | 16,219 |
|
| $ | 137,227 |
|
| $ | 79,836 |
|
| $ | 217,063 |
|
Current year-to-date gross write-offs | $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 20,489 |
|
| $ | 136,340 |
|
| $ | 129,054 |
|
| $ | 85,247 |
|
| $ | 49,365 |
|
| $ | 158,159 |
|
| $ | 578,654 |
|
| $ | 64,573 |
|
| $ | 643,227 |
|
Special mention |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 761 |
|
|
| 761 |
|
|
| - |
|
|
| 761 |
|
Substandard |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,214 |
|
|
| 4,214 |
|
|
| - |
|
|
| 4,214 |
|
Doubtful |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Loss |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total | $ | 20,489 |
|
| $ | 136,340 |
|
| $ | 129,054 |
|
| $ | 85,247 |
|
| $ | 49,365 |
|
| $ | 163,134 |
|
| $ | 583,629 |
|
| $ | 64,573 |
|
| $ | 648,202 |
|
Retail: | 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| Prior |
|
| Term Loans Total |
|
| Revolving Loans |
|
| Grand Total |
| |||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Performing | $ | 2,786 |
|
| $ | 17,480 |
|
| $ | 9,478 |
|
| $ | 4,431 |
|
| $ | 2,094 |
|
| $ | 2,034 |
|
| $ | 38,303 |
|
| $ | 588 |
|
| $ | 38,891 |
|
Nonperforming |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Nonaccrual |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total | $ | 2,786 |
|
| $ | 17,480 |
|
| $ | 9,478 |
|
| $ | 4,431 |
|
| $ | 2,094 |
|
| $ | 2,034 |
|
| $ | 38,303 |
|
| $ | 588 |
|
| $ | 38,891 |
|
Current year-to-date gross write-offs | $ | - |
|
| $ | 12 |
|
| $ | 7 |
|
| $ | 1 |
|
| $ | - |
|
| $ | - |
|
| $ | 20 |
|
| $ | - |
|
| $ | 20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Construction real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Performing | $ | - |
|
| $ | 1,599 |
|
| $ | 1,001 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 2,600 |
|
| $ | 11,339 |
|
| $ | 13,939 |
|
Nonperforming |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Nonaccrual |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total | $ | - |
|
| $ | 1,599 |
|
| $ | 1,001 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 2,600 |
|
| $ | 11,339 |
|
| $ | 13,939 |
|
Current year-to-date gross write-offs | $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Performing | $ | 9,793 |
|
| $ | 70,595 |
|
| $ | 30,957 |
|
| $ | 18,271 |
|
| $ | 14,386 |
|
| $ | 46,875 |
|
| $ | 190,877 |
|
| $ | 44,020 |
|
| $ | 234,897 |
|
Nonperforming |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Nonaccrual |
| - |
|
|
| 420 |
|
|
| 214 |
|
|
| - |
|
|
| - |
|
|
| 885 |
|
|
| 1,519 |
|
|
| 77 |
|
|
| 1,596 |
|
Total | $ | 9,793 |
|
| $ | 71,015 |
|
| $ | 31,171 |
|
| $ | 18,271 |
|
| $ | 14,386 |
|
| $ | 47,760 |
|
| $ | 192,396 |
|
| $ | 44,097 |
|
| $ | 236,493 |
|
18
Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Categoryrisk profile by credit worthiness category
(Dollars in thousands) | Agricultural | Commercial and Industrial | Commercial Real Estate | Agricultural |
| Commercial and Industrial |
| Commercial Real Estate |
| ||||||||||||||||||||||||||
September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | December 31, |
| December 31, |
| December 31, |
| ||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 |
| 2022 |
| 2022 |
| ||||||||||||||||||||||||
Pass | $ | 62,733 | $ | 61,864 | $ | 208,087 | $ | 201,202 | $ | 588,066 | $ | 519,537 | $ | 63,867 |
|
| $ | 209,700 |
|
| $ | 624,555 |
| ||||||||||||
Special Mention | 302 | 339 | 344 | 300 | 729 | 778 |
| 289 |
|
|
| 400 |
|
|
| 2,048 |
| ||||||||||||||||||
Substandard | 312 | 2,616 | 159 | 1,266 | 4,400 | 5,569 |
| 3 |
|
|
| 110 |
|
|
| 4,350 |
| ||||||||||||||||||
Doubtful | - | - | - | 256 | - | - |
| — |
|
|
| - |
|
|
| — |
| ||||||||||||||||||
Loss |
| - |
|
|
| - |
|
|
| - |
| ||||||||||||||||||||||||
| $ | 63,347 | $ | 64,819 | $ | 208,590 | $ | 203,024 | $ | 593,195 | $ | 525,884 | $ | 64,159 |
|
| $ | 210,210 |
|
| $ | 630,953 |
| |||||||||||||
Consumer Credit Exposure - Credit Risk Profile Based On Payment Activityrisk profile based on payment activity
(Dollars in thousands) | Consumer | Construction Real Estate | Residential Real Estate | Consumer |
| Construction Real Estate |
| Residential Real Estate |
| ||||||||||||||||||||||||||
September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | December 31, |
| December 31, |
| December 31, |
| ||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 |
| 2022 |
| 2022 |
| ||||||||||||||||||||||||
Performing | $ | 38,349 | $ | 35,174 | $ | 14,299 | $ | 19,066 | $ | 213,777 | $ | 168,031 | $ | 39,808 |
|
| $ | 14,736 |
|
| $ | 228,653 |
| ||||||||||||
Nonperforming | - | - | - | - | - | - |
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||
Nonaccrual | 7 | - | - | - | 837 | 850 |
| — |
|
|
| — |
|
|
| 1,263 |
| ||||||||||||||||||
| $ | 38,356 | $ | 35,174 | $ | 14,299 | $ | 19,066 | $ | 214,614 | $ | 168,881 | $ | 39,808 |
|
| $ | 14,736 |
|
| $ | 229,916 |
| |||||||||||||
The following table provides information on loans that were considered troubled loan modification ("TLMs") that were modified during the three months ended March 31, 2023
| Three Months Ended March 31, 2023 |
|
| |||||
|
|
|
|
|
|
| ||
| Term extension |
|
| |||||
|
|
|
| % of total |
|
| ||
|
|
|
| class of |
|
| ||
(Dollars in thousands) | Amortized |
|
| financing |
|
| ||
| Cost basis |
|
| receivable |
|
| ||
Residential real estate | $ | 129 |
|
|
| 0 | % |
|
Total |
| 129 |
|
|
|
|
| |
Three Months Ended March 31, 2023 | ||
Term extension | ||
Residential real estate | Provided twelve month payment plan to catch up past due amount through our standard program. |
| Three Months Ended March 31, 2023 |
| |
(Dollars in thousands) | Term extension |
| |
|
|
| |
Residential real estate | $ | 129 |
|
Total | $ | 129 |
|
19
| Three Months Ended March 31, 2023 |
| |||||||||||||
(Dollars in thousands) | Current |
|
| 30-89 days |
|
| Greater than 90 days |
|
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Residential real estate | $ | 129 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total | $ | 129 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
The following table provides information on loans that were considered troubled debt restructurings ("TDRs") that were modified during the three and nine months ended September 30, 2022 and September 30, 2021.March 31, 2022.
Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||||||||||||||||
Pre- | Post- | Pre- | Post- | |||||||||||||||||||||
Modification | Modification | Modification | Modification | |||||||||||||||||||||
Outstanding | Outstanding | Outstanding | Outstanding | |||||||||||||||||||||
(Dollars in thousands) | Number of | Recorded | Recorded | Number of | Recorded | Recorded | ||||||||||||||||||
Loans | Investment | Investment | Loans | Investment | Investment | |||||||||||||||||||
Agricultural | - | $ | - | $ | - | 1 | $ | 253 | $ | 253 | ||||||||||||||
Commercial and industrial | - | - | - | 1 | 18 | 18 | ||||||||||||||||||
Total | - | $ | - | $ | - | 2 | $ | 271 | $ | 271 | ||||||||||||||
Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||||||||||||||||||
Pre- | Post- | Pre- | Post- | |||||||||||||||||||||
Modification | Modification | Modification | Modification | |||||||||||||||||||||
Outstanding | Outstanding | Outstanding | Outstanding | |||||||||||||||||||||
(Dollars in thousands) | Number of | Recorded | Recorded | Number of | Recorded | Recorded | ||||||||||||||||||
Loans | Investment | Investment | Loans | Investment | Investment | |||||||||||||||||||
Agricultural | - | $ | - | $ | - | 6 | $ | 2,210 | $ | 2,210 | ||||||||||||||
Commercial Real Estate | 1 | 493 | 493 | 2 | 931 | 931 | ||||||||||||||||||
Total | 1 | $ | 493 | $ | 493 | 8 | $ | 3,141 | $ | 3,141 | ||||||||||||||
| Three Months Ended March 31, 2022 |
| |||||||||
|
|
|
| Pre- |
|
| Post- |
| |||
|
|
|
| Modification |
|
| Modification |
| |||
|
|
|
| Outstanding |
|
| Outstanding |
| |||
(Dollars in thousands) | Number of |
|
| Recorded |
|
| Recorded |
| |||
| Loans |
|
| Investment |
|
| Investment |
| |||
Agricultural |
| 1 |
|
| $ | 258 |
|
| $ | 258 |
|
Total |
| 1 |
|
| $ | 258 |
|
| $ | 258 |
|
There were no TDRs where the borrower was past due with respect to principal and/or interest for 30 days or more during the three and nine months ended September 30,March 31, 2022,, or September 30, 2021, which loans had been modified and classified as TDRs during the year prior to the default.
20
ImpairedNonaccrual loans by loan category follow:as of March 31, 2023 were as follows:
Unpaid | ||||||||||||
(Dollars in thousands) | Recorded | Principal | Related | |||||||||
Investment | Balance | Allowance | ||||||||||
September 30, 2022 | ||||||||||||
With no related allowance recorded | ||||||||||||
Agricultural | $ | 307 | $ | 428 | $ | - | ||||||
Commercial and industrial | - | - | - | |||||||||
Consumer | - | - | - | |||||||||
Construction real estate | - | - | - | |||||||||
Commercial real estate | - | - | - | |||||||||
Residential real estate | - | - | - | |||||||||
Subtotal | 307 | 428 | - | |||||||||
With an allowance recorded | ||||||||||||
Agricultural | 5 | 5 | 1 | |||||||||
Commercial and industrial | 108 | 185 | 6 | |||||||||
Consumer | 7 | 7 | 1 | |||||||||
Construction real estate | - | - | - | |||||||||
Commercial real estate | 140 | 140 | 6 | |||||||||
Residential real estate | 2,070 | 2,149 | 143 | |||||||||
Subtotal | 2,330 | 2,486 | 157 | |||||||||
Total | ||||||||||||
Agricultural | 312 | 433 | 1 | |||||||||
Commercial and industrial | 108 | 185 | 6 | |||||||||
Consumer | 7 | 7 | 1 | |||||||||
Construction real estate | - | - | - | |||||||||
Commercial real estate | 140 | 140 | 6 | |||||||||
Residential real estate | 2,070 | 2,149 | 143 | |||||||||
Total | $ | 2,637 | $ | 2,914 | $ | 157 | ||||||
(Dollars in thousands) | Nonaccrual loans with no ACL |
|
| Total nonaccrual loans |
|
| Interest income recognized during the period on nonaccrual loans |
|
| |||
Residential real estate | $ | 1,432 |
|
| $ | 1,596 |
|
| $ | — |
|
|
Total nonaccrual loans | $ | 1,432 |
|
| $ | 1,596 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
| |||
Unpaid | ||||||||||||
(Dollars in thousands) | Recorded | Principal | Related | |||||||||
Investment | Balance | Allowance | ||||||||||
December 31, 2021 | ||||||||||||
With no related allowance recorded | ||||||||||||
Agricultural | $ | 314 | $ | 428 | $ | - | ||||||
Commercial and industrial | - | - | - | |||||||||
Consumer | - | - | - | |||||||||
Construction real estate | - | - | - | |||||||||
Commercial real estate | 94 | 94 | - | |||||||||
Residential real estate | 164 | 172 | - | |||||||||
Subtotal | 572 | 694 | - | |||||||||
With an allowance recorded | ||||||||||||
Agricultural | 2,302 | 2,302 | 251 | |||||||||
Commercial and industrial | 339 | 363 | 95 | |||||||||
Consumer | 14 | 15 | 2 | |||||||||
Construction real estate | - | - | - | |||||||||
Commercial real estate | 179 | 179 | 9 | |||||||||
Residential real estate | 2,027 | 2,084 | 146 | |||||||||
Subtotal | 4,861 | 4,943 | 503 | |||||||||
Total | ||||||||||||
Agricultural | 2,616 | 2,730 | 251 | |||||||||
Commercial and industrial | 339 | 363 | 95 | |||||||||
Consumer | 14 | 15 | 2 | |||||||||
Construction real estate | - | - | - | |||||||||
Commercial real estate | 273 | 273 | 9 | |||||||||
Residential real estate | 2,191 | 2,256 | 146 | |||||||||
Total | $ | 5,433 | $ | 5,637 | $ | 503 | ||||||
Nonaccrual loans by loan category as of December 31, 2022 were as follows:
(Dollars in thousands) | Total nonaccrual loans |
| |
Residential real estate | $ | 1,263 |
|
| $ | 1,263 |
|
The following schedule provides information regarding average balances of impaired loans evaluated for impairment and interest recognized on
impaired loans for the three and nine months ended September 30,three months ended December 31, 2022 and September 30, 2021:March 31, 2022:
Average | Interest |
|
|
|
| Interest |
| ||||||||||||
(Dollars in thousands) | Recorded | Income | Recorded |
| Related |
| Income |
| |||||||||||
Investment | Recognized | Investment |
| Allowance |
| Recognized |
| ||||||||||||
Three Months Ended September 30, 2022 | |||||||||||||||||||
December 31, 2022 |
|
|
|
|
|
| |||||||||||||
With no related allowance recorded |
|
|
|
|
|
| |||||||||||||
Agricultural | $ | 310 | $ | - | $ | — |
|
| $ | — |
|
| $ | — |
| ||||
Commercial and industrial | - | - |
| — |
|
|
| — |
|
|
| — |
| ||||||
Consumer | - | - |
| — |
|
|
| — |
|
|
| — |
| ||||||
Construction real estate | - | - |
| — |
|
|
| — |
|
|
| — |
| ||||||
Commercial real estate | - | - |
| — |
|
|
| — |
|
|
| — |
| ||||||
Residential real estate | 220 | - |
| 550 |
|
|
| — |
|
|
| 1 |
| ||||||
Subtotal | 530 | - |
| 550 |
|
|
| — |
|
|
| 1 |
| ||||||
With an allowance recorded |
|
|
|
|
|
| |||||||||||||
Agricultural | 6 | - |
| 23 |
|
|
| 2 |
|
|
| 2 |
| ||||||
Commercial and industrial | 134 | 1 |
| 177 |
|
|
| 14 |
|
|
| 13 |
| ||||||
Consumer | 7 | - |
| 7 |
|
|
| 1 |
|
|
| 1 |
| ||||||
Construction real estate | - | - |
| — |
|
|
| — |
|
|
| — |
| ||||||
Commercial real estate | 145 | 2 |
| 165 |
|
|
| 5 |
|
|
| 13 |
| ||||||
Residential real estate | 1,842 | 16 |
| 1,924 |
|
|
| 131 |
|
|
| 93 |
| ||||||
Subtotal | 2,134 | 19 |
| 2,296 |
|
|
| 153 |
|
|
| 122 |
| ||||||
Total |
|
|
|
|
|
| |||||||||||||
Agricultural | 316 | - |
| 23 |
|
|
| 2 |
|
|
| 2 |
| ||||||
Commercial and industrial | 134 | 1 |
| 177 |
|
|
| 14 |
|
|
| 13 |
| ||||||
Consumer | 7 | - |
| 7 |
|
|
| 1 |
|
|
| 1 |
| ||||||
Construction real estate | - | - |
| — |
|
|
| — |
|
|
| — |
| ||||||
Commercial real estate | 145 | 2 |
| 165 |
|
|
| 5 |
|
|
| 13 |
| ||||||
Residential real estate | 2,062 | 16 |
| 2,474 |
|
|
| 131 |
|
|
| 94 |
| ||||||
Total | $ | 2,664 | $ | 19 | $ | 2,846 |
|
| $ | 153 |
|
| $ | 123 |
| ||||
Average | Interest | |||||||
(Dollars in thousands) | Recorded | Income | ||||||
Investment | Recognized | |||||||
Three Months Ended September 30, 2021 | ||||||||
With no related allowance recorded | ||||||||
Agricultural | $ | 989 | $ | - | ||||
Commercial and industrial | - | - | ||||||
Consumer | - | - | ||||||
Construction real estate | - | - | ||||||
Commercial real estate | 507 | 2 | ||||||
Residential real estate | 320 | - | ||||||
Subtotal | 1,816 | 2 | ||||||
With an allowance recorded | ||||||||
Agricultural | 2,119 | 36 | ||||||
Commercial and industrial | 240 | 2 | ||||||
Consumer | - | - | ||||||
Construction real estate | - | - | ||||||
Commercial real estate | 272 | 2 | ||||||
Residential real estate | 1,943 | 14 | ||||||
Subtotal | 4,574 | 54 | ||||||
Total | ||||||||
Agricultural | 3,108 | 36 | ||||||
Commercial and industrial | 240 | 2 | ||||||
Consumer | - | - | ||||||
Construction real estate | - | - | ||||||
Commercial real estate | 779 | 4 | ||||||
Residential real estate | 2,263 | 14 | ||||||
Total | $ | 6,390 | $ | 56 | ||||
21
|
|
|
|
|
|
| Interest |
| |||
(Dollars in thousands) | Recorded |
|
| Related |
|
| Income |
| |||
| Investment |
|
| Allowance |
|
| Recognized |
| |||
March 31, 2022 |
|
|
|
|
|
|
|
| |||
With no related allowance recorded |
|
|
|
|
|
|
|
| |||
Agricultural | $ | 314 |
|
| $ | — |
|
| $ | — |
|
Commercial and industrial |
| 92 |
|
|
| — |
|
|
| 1 |
|
Consumer |
| — |
|
|
| — |
|
|
| — |
|
Construction real estate |
| — |
|
|
| — |
|
|
| — |
|
Commercial real estate |
| — |
|
|
| — |
|
|
| — |
|
Residential real estate |
| - |
|
|
| — |
|
|
| — |
|
Subtotal |
| 406 |
|
|
| — |
|
|
| 1 |
|
With an allowance recorded |
|
|
|
|
|
|
|
| |||
Agricultural |
| 2,228 |
|
|
| 253 |
|
|
| 42 |
|
Commercial and industrial |
| 264 |
|
|
| 116 |
|
|
| 2 |
|
Consumer |
| 32 |
|
|
| 3 |
|
|
| — |
|
Construction real estate |
| — |
|
|
| — |
|
|
| — |
|
Commercial real estate |
| 157 |
|
|
| 8 |
|
|
| 3 |
|
Residential real estate |
| 1,853 |
|
|
| 167 |
|
|
| 17 |
|
Subtotal |
| 4,534 |
|
|
| 547 |
|
|
| 64 |
|
Total |
|
|
|
|
|
|
|
| |||
Agricultural |
| 2,542 |
|
|
| 253 |
|
|
| 42 |
|
Commercial and industrial |
| 356 |
|
|
| 116 |
|
|
| 3 |
|
Consumer |
| 32 |
|
|
| 3 |
|
|
| — |
|
Construction real estate |
| — |
|
|
| — |
|
|
| — |
|
Commercial real estate |
| 157 |
|
|
| 8 |
|
|
| 3 |
|
Residential real estate |
| 1,853 |
|
|
| 167 |
|
|
| 17 |
|
Total | $ | 4,940 |
|
| $ | 547 |
|
| $ | 65 |
|
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 | Loans | Past Due | Loans | Loans |
| Loans |
| Past Due |
|
|
|
|
|
|
| 90 Days |
| ||||||||||||||||||||||||||||||||||||||
Past Due | Past Due | Greater | 90 Days Past | Past Due |
| Past Due |
| Greater |
|
|
|
|
|
|
| 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 |
| |||||||||||||||||||||||||||||||||||
September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
Agricultural | $ | - | $ | - | $ | - | $ | - | $ | 63,347 | $ | 63,347 | $ | - | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 55,995 |
|
| $ | 55,995 |
|
| $ | — |
| ||||||||||||||
Commercial and industrial | 1,065 | - | 46 | 1,111 | 207,479 | 208,590 | - |
| 174 |
|
|
| — |
|
|
| — |
|
|
| 174 |
|
|
| 216,889 |
|
|
| 217,063 |
|
|
| — |
| |||||||||||||||||||||
Consumer | 17 | - | - | 17 | 38,339 | 38,356 | - |
| 3 |
|
|
| 27 |
|
|
| — |
|
|
| 30 |
|
|
| 38,861 |
|
|
| 38,891 |
|
|
| — |
| |||||||||||||||||||||
Commercial real estate | - | - | - | - | 593,195 | 593,195 | - |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 648,202 |
|
|
| 648,202 |
|
|
| — |
| |||||||||||||||||||||
Construction real estate | - | - | - | - | 14,299 | 14,299 | - |
| 267 |
|
|
| — |
|
|
| — |
|
|
| 267 |
|
|
| 13,672 |
|
|
| 13,939 |
|
|
| — |
| |||||||||||||||||||||
Residential real estate | 48 | 615 | 31 | 694 | 213,920 | 214,614 |
| 2,416 |
|
|
| 290 |
|
|
| 153 |
|
|
| 2,859 |
|
|
| 233,634 |
|
|
| 236,493 |
|
|
|
| |||||||||||||||||||||||
| $ | 1,130 | $ | 615 | $ | 77 | $ | 1,822 | $ | 1,130,579 | $ | 1,132,401 | $ | - | $ | 2,860 |
|
| $ | 317 |
|
| $ | 153 |
|
| $ | 3,330 |
|
| $ | 1,207,253 |
|
| $ | 1,210,583 |
|
| $ | — |
| |||||||||||||||
December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Agricultural | $ | - | $ | - | $ | - | $ | - | $ | 64,819 | $ | 64,819 | $ | - | |||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 21 | - | 88 | 109 | 202,915 | 203,024 | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Consumer | 70 | 15 | - | 85 | 35,089 | 35,174 | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate | 422 | 13 | 279 | 714 | 525,170 | 525,884 | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction real estate | 1,149 | 1,235 | - | 2,384 | 16,682 | 19,066 | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Residential real estate | 1,489 | 306 | 454 | 2,249 | 166,632 | 168,881 | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 3,151 | $ | 1,569 | $ | 821 | $ | 5,541 | $ | 1,011,307 | $ | 1,016,848 | $ | - | ||||||||||||||||||||||||||||||||||||||||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Agricultural | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 64,159 |
|
| $ | 64,159 |
|
| $ | — |
|
Commercial and industrial |
| — |
|
|
| 171 |
|
|
| — |
|
|
| 171 |
|
|
| 210,039 |
|
|
| 210,210 |
|
|
| — |
|
Consumer |
| 39 |
|
|
| 7 |
|
|
| — |
|
|
| 46 |
|
|
| 39,762 |
|
|
| 39,808 |
|
|
| — |
|
Commercial real estate |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 630,953 |
|
|
| 630,953 |
|
|
| — |
|
Construction real estate |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,736 |
|
|
| 14,736 |
|
|
| — |
|
Residential real estate |
| 682 |
|
|
| — |
|
|
| 842 |
|
|
| 1,524 |
|
|
| 228,392 |
|
|
| 229,916 |
|
|
| — |
|
| $ | 721 |
|
| $ | 178 |
|
| $ | 842 |
|
| $ | 1,741 |
|
| $ | 1,188,041 |
|
| $ | 1,189,782 |
|
| $ | — |
|
(1)(1) Includes nonaccrual loans.
Nonaccrual loans by loan category follow:22
(Dollars in thousands) | September 30, | December 31, | ||||||
2022 | 2021 | |||||||
Agricultural | $ | 307 | $ | 313 | ||||
Commercial and industrial | 46 | 285 | ||||||
Consumer | 7 | - | ||||||
Commercial real estate | - | 279 | ||||||
Residential real estate | 837 | 850 | ||||||
| $ | 1,197 | $ | 1,727 | |||||
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 | ||||||||||
Impaired | Non-impaired | Total | ||||||||||
Loans acquired - contractual payments | $ | 7,729 | $ | 387,394 | $ | 395,123 | ||||||
Nonaccretable difference | (2,928 | ) | - | (2,928 | ) | |||||||
Expected cash flows | 4,801 | 387,394 | 392,195 | |||||||||
Accretable yield | (185 | ) | (1,894 | ) | (2,079 | ) | ||||||
Carrying balance at acquisition date | $ | 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 2022 and the ninethree months ended September 30, 2022March 31, 2023 (dollars in thousands):
(Dollars in thousands) | Acquired | Acquired | Acquired | |||||||||
Impaired | Non-impaired | Total | ||||||||||
Balance, January 1, 2019 | $ | - | $ | - | $ | - | ||||||
Merger with County Bank Corp. on October 1, 2019 | 185 | 1,894 | 2,079 | |||||||||
Accretion October 1, 2019 through December 31, 2019 | - | (75 | ) | (75 | ) | |||||||
Balance January 1, 2020 | 185 | 1,819 | 2,004 | |||||||||
Accretion January 1, 2020 through December 31, 2020 | (50 | ) | (295 | ) | (345 | ) | ||||||
Balance January 1, 2021 | 135 | 1,524 | 1,659 | |||||||||
Accretion January 1, 2021 through December 31, 2021 | (247 | ) | (348 | ) | (595 | ) | ||||||
Transfer from non-accretable to accretable yield | 400 | - | 400 | |||||||||
Balance January 1, 2022 | 288 | 1,176 | 1,464 | |||||||||
Transfer from non-accretable to accretable yield | 2,192 | - | 2,192 | |||||||||
Accretion January 1, 2022 through September 30, 2022 | (396 | ) | (32 | ) | (428 | ) | ||||||
Balance, September 30, 2022 | $ | 2,084 | $ | 1,144 | $ | 3,228 | ||||||
(Dollars in thousands) |
| Purchased with credit deterioration |
|
| Purchased without credit deterioration |
|
| Acquired |
| |||
|
|
|
|
|
|
|
| Total |
| |||
Balance January 1, 2022 |
|
| 288 |
|
|
| 1,176 |
|
|
| 1,464 |
|
Transfer from non-accretable to accretable yield |
|
| 2,192 |
|
|
| — |
|
|
| 2,192 |
|
Accretion January 1, 2022 through December 31, 2022 |
|
| (553 | ) |
|
| (98 | ) |
|
| (651 | ) |
Balance January 1, 2023 |
|
| 1,927 |
|
|
| 1,078 |
|
|
| 3,005 |
|
Transfer from non-accretable to accretable yield |
|
|
|
|
|
|
|
| - |
| ||
Accretion January 1, 2023 through March 31, 2023 |
|
| (133 | ) |
|
| (135 | ) |
|
| (268 | ) |
Balance, March 31, 2023 |
| $ | 1,794 |
|
| $ | 943 |
|
| $ | 2,737 |
|
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 | ||||||||||
Impaired | Non-impaired | Total | ||||||||||
Loans acquired - contractual payments | $ | 20,491 | $ | 158,495 | $ | 178,986 | ||||||
Nonaccretable difference | (2,719 | ) | - | (2,719 | ) | |||||||
Expected cash flows | 17,772 | 158,495 | 176,267 | |||||||||
Accretable yield | (869 | ) | (596 | ) | (1,465 | ) | ||||||
Carrying balance at acquisition date | $ | 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 2022 and the ninethree months ended September 30, 2022March 31, 2023 (dollars in thousands):
Acquired | Acquired | Acquired | ||||||||||
Impaired | Non-impaired | Total | ||||||||||
Balance January 1, 2020 | $ | - | $ | - | $ | - | ||||||
Merger with Community Shores Bank Corporation on July 1, 2020 | 869 | 596 | 1,465 | |||||||||
Accretion July 1, 2020 through December 31, 2020 | (26 | ) | (141 | ) | (167 | ) | ||||||
Balance, January 1, 2021 | 843 | 455 | 1,298 | |||||||||
Accretion January 1, 2021 through December 31, 2021 | (321 | ) | (258 | ) | (579 | ) | ||||||
Balance January 1, 2022 | 522 | 197 | 719 | |||||||||
Transfer from non-accretable to accretable yield | 1,086 | - | 1,086 | |||||||||
Accretion January 1, 2022 through September 30, 2022 | (837 | ) | (197 | ) | (1,034 | ) | ||||||
Balance, September 30, 2022 | $ | 771 | $ | - | $ | 771 | ||||||
|
| Purchased with credit deterioration |
|
| Purchased without credit deterioration |
|
| Acquired |
| |||
|
|
|
|
|
|
|
| Total |
| |||
Balance January 1, 2022 |
|
| 522 |
|
|
| 197 |
|
|
| 719 |
|
Transfer from non-accretable to accretable yield |
|
| 1,086 |
|
|
| — |
|
|
| 1,086 |
|
Accretion January 1, 2022 through December 31, 2022 |
|
| (993 | ) |
|
| (197 | ) |
|
| (1,190 | ) |
Balance January 1, 2023 |
|
| 615 |
|
|
| - |
|
|
| 615 |
|
Transfer from non-accretable to accretable yield |
|
| 622 |
|
|
|
|
|
| 622 |
| |
Accretion January 1, 2023 through March 31, 2023 |
|
| (203 | ) |
|
|
|
|
| (203 | ) | |
Balance, March 31, 2023 |
| $ | 1,034 |
|
| $ | - |
|
| $ | 1,034 |
|
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 | Nine Months Ended | Three Months Ended |
| ||||||||||||||||||||
(Dollars in thousands, except share data) | September 30, | September 30, | March 31, |
| |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 |
| 2022 |
| ||||||||||||||||
Basic |
|
|
|
| |||||||||||||||||||
Net income | $ | 5,813 | $ | 5,749 | $ | 16,956 | $ | 17,029 | $ | 5,633 |
|
| $ | 5,528 |
| ||||||||
|
|
|
|
| |||||||||||||||||||
Weighted average common shares outstanding | 7,507,538 | 7,621,423 | 7,500,877 | 7,730,135 |
| 7,519,282 |
|
|
| 7,495,464 |
| ||||||||||||
|
|
|
|
| |||||||||||||||||||
Basic earnings per common shares | $ | 0.77 | $ | 0.75 | $ | 2.26 | $ | 2.20 | $ | 0.75 |
|
| $ | 0.74 |
| ||||||||
|
|
|
|
| |||||||||||||||||||
Diluted |
|
|
|
|
| ||||||||||||||||||
Net income | $ | 5,813 | $ | 5,749 | $ | 16,956 | $ | 17,029 | $ | 5,633 |
|
| $ | 5,528 |
| ||||||||
|
|
|
|
| |||||||||||||||||||
Weighted average common shares outstanding | 7,507,538 | 7,621,423 | 7,500,877 | 7,730,135 |
| 7,519,282 |
|
|
| 7,495,464 |
| ||||||||||||
Plus dilutive stock options and restricted stock units | 12,820 | 12,644 | 17,279 | 13,766 |
| 33,047 |
|
|
| 21,461 |
| ||||||||||||
|
|
|
|
| |||||||||||||||||||
Weighted average common shares outstanding and potentially dilutive shares | 7,520,358 | 7,634,067 | 7,518,156 | 7,743,901 |
| 7,552,329 |
|
|
| 7,516,925 |
| ||||||||||||
|
|
|
|
| |||||||||||||||||||
Diluted earnings per common share | $ | 0.77 | $ | 0.75 | $ | 2.26 | $ | 2.20 | $ | 0.75 |
|
| $ | 0.74 |
| ||||||||
There were 15,000no performance awards, restricted stock, or stock options that were considered anti-dilutive to earnings per share for the three and nine months ended September 30, 2022 and September 30, 2021. March 31, 2023. There were no performance awards or restricted stock units that were considered anti-dilutive and there were 12,000 stock options that were considered anti-dilutive for the three and nine months ended September 30, 2022 and September 30, 2021. March 31, 2022.
23
Note 5 – Financial Instruments
Financial instruments as of the dates indicated were as follows:
|
|
|
|
|
|
| Quoted Prices |
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
| In Active |
|
| Significant |
|
|
|
| |||||
|
|
|
|
|
|
| Markets for |
|
| Other |
|
| Significant |
| |||||
|
|
|
|
|
|
| Identical |
|
| Observable |
|
| Unobservable |
| |||||
(Dollars in thousands) | Carrying |
|
| Estimated |
|
| Assets |
|
| Inputs |
|
| Inputs |
| |||||
| Amount |
|
| Fair Value |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| |||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents | $ | 55,189 |
|
| $ | 55,189 |
|
| $ | 55,189 |
|
| $ | - |
|
| $ | - |
|
Equity securities at fair value |
| 8,699 |
|
|
| 8,699 |
|
|
| 6,062 |
|
|
| - |
|
|
| 2,637 |
|
Securities available for sale |
| 535,348 |
|
|
| 535,348 |
|
|
| 79,975 |
|
|
| 455,373 |
|
|
| - |
|
Securities held to maturity |
| 422,876 |
|
|
| 358,373 |
|
|
| - |
|
|
| 342,946 |
|
|
| 15,427 |
|
Federal Home Loan Bank and Federal |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Reserve Bank stock |
| 10,259 |
|
|
| 10,259 |
|
|
| - |
|
|
| 10,259 |
|
|
| - |
|
Loans held for sale |
| 3,603 |
|
|
| 3,711 |
|
|
| - |
|
|
| 3,711 |
|
|
| - |
|
Loans to other financial institutions |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Loans, net |
| 1,195,518 |
|
|
| 1,151,264 |
|
|
| - |
|
|
| - |
|
|
| 1,151,264 |
|
Accrued interest receivable |
| 9,652 |
|
|
| 9,652 |
|
|
| - |
|
|
| 9,652 |
|
|
| - |
|
Interest rate lock commitments |
| 87 |
|
|
| 87 |
|
|
| - |
|
|
| 87 |
|
|
| - |
|
Mortgage loan servicing rights |
| 4,165 |
|
|
| 5,623 |
|
|
| - |
|
|
| 5,623 |
|
|
| - |
|
Interest rate derivative contracts |
| 2,244 |
|
|
| 2,244 |
|
|
| - |
|
|
| 2,244 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Noninterest-bearing deposits |
| 554,699 |
|
|
| 554,699 |
|
|
| 554,699 |
|
|
| - |
|
|
| - |
|
Interest-bearing deposits |
| 1,513,429 |
|
|
| 1,510,549 |
|
|
| - |
|
|
| 1,510,549 |
|
|
| - |
|
Brokered deposits |
| 37,773 |
|
|
| 37,698 |
|
|
| - |
|
|
| 37,698 |
|
|
| - |
|
Borrowings |
| 85,000 |
|
|
| 85,000 |
|
|
| - |
|
|
| 85,000 |
|
|
| - |
|
Subordinated debentures |
| 35,323 |
|
|
| 30,883 |
|
|
| - |
|
|
| 30,883 |
|
|
| - |
|
Accrued interest payable |
| 438 |
|
|
| 438 |
|
|
| - |
|
|
| 438 |
|
|
| - |
|
Interest rate derivative contracts |
| 3,790 |
|
|
| 3,790 |
|
|
| - |
|
|
| 3,790 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents | $ | 43,943 |
|
| $ | 43,943 |
|
| $ | 43,943 |
|
| $ | - |
|
| $ | - |
|
Equity securities at fair value |
| 8,566 |
|
|
| 8,566 |
|
|
| 6,024 |
|
|
| - |
|
|
| 2,542 |
|
Securities available for sale |
| 529,749 |
|
|
| 529,749 |
|
|
| 78,204 |
|
|
| 451,545 |
|
|
| - |
|
Securities held to maturity |
| 425,906 |
|
|
| 353,901 |
|
|
| - |
|
|
| 338,583 |
|
|
| 15,318 |
|
Federal Home Loan Bank and Federal |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Reserve Bank stock |
| 8,581 |
|
|
| 8,581 |
|
|
| - |
|
|
| 8,581 |
|
|
| - |
|
Loans held for sale |
| 4,834 |
|
|
| 4,979 |
|
|
| - |
|
|
| 4,979 |
|
|
| - |
|
Loans to other financial institutions |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Loans, net |
| 1,182,163 |
|
|
| 1,123,198 |
|
|
| - |
|
|
| - |
|
|
| 1,123,198 |
|
Accrued interest receivable |
| 8,949 |
|
|
| 8,949 |
|
|
| - |
|
|
| 8,949 |
|
|
| - |
|
Interest rate lock commitments |
| 28 |
|
|
| 28 |
|
|
| - |
|
|
| 28 |
|
|
| - |
|
Mortgage loan servicing rights |
| 4,322 |
|
|
| 5,855 |
|
|
| - |
|
|
| 5,855 |
|
|
| - |
|
Interest rate derivative contracts |
| 9,204 |
|
|
| 9,204 |
|
|
| - |
|
|
| 9,204 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Noninterest-bearing deposits |
| 599,579 |
|
|
| 599,579 |
|
|
| 599,579 |
|
|
| - |
|
|
| - |
|
Interest-bearing deposits |
| 1,518,424 |
|
|
| 1,514,294 |
|
|
| - |
|
|
| 1,514,294 |
|
|
| - |
|
Borrowings |
| 50,000 |
|
|
| 50,000 |
|
|
| - |
|
|
| 50,000 |
|
|
| - |
|
Subordinated debentures |
| 35,262 |
|
|
| 30,304 |
|
|
| - |
|
|
| 30,304 |
|
|
| - |
|
Accrued interest payable |
| 610 |
|
|
| 610 |
|
|
| - |
|
|
| 610 |
|
|
| - |
|
Interest rate derivative contracts |
| 5,823 |
|
|
| 5,823 |
|
|
| - |
|
|
| 5,823 |
|
|
| - |
|
Quoted Prices | ||||||||||||||||||||
In Active | Significant | |||||||||||||||||||
Markets for | Other | Significant | ||||||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||||||
(Dollars in thousands) | Carrying | Estimated | Assets | Inputs | Inputs | |||||||||||||||
Amount | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||
September 30, 2022 | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 51,494 | $ | 51,494 | $ | 51,494 | $ | - | $ | - | ||||||||||
Equity securities at fair value | 7,977 | 7,977 | 6,116 | - | 1,861 | |||||||||||||||
Securities available for sale | 530,093 | 530,093 | - | 530,093 | - | |||||||||||||||
Securities held to maturity | 428,205 | 351,858 | - | 336,795 | 15,063 | |||||||||||||||
Federal Home Loan Bank and Federal | ||||||||||||||||||||
Reserve Bank stock | 8,557 | 8,557 | - | 8,557 | - | |||||||||||||||
Loans held for sale | 8,848 | 9,113 | - | 9,113 | - | |||||||||||||||
Loans to other financial institutions | 70 | 70 | - | 70 | - | |||||||||||||||
Loans, net | 1,124,944 | 1,063,833 | - | - | 1,063,833 | |||||||||||||||
Accrued interest receivable | 9,273 | 9,273 | - | 9,273 | - | |||||||||||||||
Interest rate lock commitments | 51 | 51 | - | 51 | - | |||||||||||||||
Mortgage loan servicing rights | 4,537 | 5,853 | - | 5,853 | - | |||||||||||||||
Interest rate derivative contracts | 28,185 | 28,185 | - | 28,185 | - | |||||||||||||||
Liabilities | ||||||||||||||||||||
Noninterest-bearing deposits | 599,360 | 599,360 | - | 599,360 | - | |||||||||||||||
Interest-bearing deposits | 1,557,294 | 1,553,133 | - | 1,553,133 | - | |||||||||||||||
Borrowings | - | - | - | - | - | |||||||||||||||
Subordinated debentures | 35,201 | 29,836 | - | 29,836 | - | |||||||||||||||
Accrued interest payable | 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 | $ | - | $ | - | ||||||||||
Equity securities at fair value | 8,492 | 8,492 | 6,724 | - | 1,768 | |||||||||||||||
Securities available for sale | 1,098,885 | 1,098,885 | - | 1,077,835 | 21,050 | |||||||||||||||
Federal Home Loan Bank and Federal | ||||||||||||||||||||
Reserve Bank stock | 8,888 | 8,888 | - | 8,888 | - | |||||||||||||||
Loans held for sale | 9,351 | 9,632 | - | 9,632 | - | |||||||||||||||
Loans to other financial institutions | 42,632 | 42,632 | - | 42,632 | - | |||||||||||||||
Loans, net | 1,009,160 | 999,393 | - | - | 999,393 | |||||||||||||||
Accrued interest receivable | 8,211 | 8,211 | - | 8,211 | - | |||||||||||||||
Interest rate lock commitments | 172 | 172 | - | 172 | - | |||||||||||||||
Mortgage loan servicing rights | 4,666 | 5,522 | - | 5,522 | - | |||||||||||||||
Liabilities | ||||||||||||||||||||
Noninterest-bearing deposits | 560,931 | 560,931 | - | 560,931 | - | |||||||||||||||
Interest-bearing deposits | 1,491,363 | 1,491,135 | - | 1,491,135 | - | |||||||||||||||
Borrowings | 50,000 | 50,000 | - | 50,000 | - | |||||||||||||||
Subordinated debentures | 35,017 | 33,414 | - | 33,414 | - | |||||||||||||||
Accrued interest payable | 441 | 441 | - | 441 | - | |||||||||||||||
24
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.
25
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 | ||||||||||||||||
In Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | Balance | |||||||||||||
(Dollars in thousands) | Assets | Inputs | Inputs | at Date | ||||||||||||
(Level 1) | (Level 2) | (Level 3) | Indicated | |||||||||||||
Equity Securities Held at Fair Value - September 30, 2022 | ||||||||||||||||
Equity securities | $ | 6,116 | $ | - | $ | 1,861 | $ | 7,977 | ||||||||
Investment Securities, Available for Sale - September 30, 2022 | ||||||||||||||||
U. S. Treasury notes and bonds | $ | - | $ | 77,554 | $ | - | $ | 77,554 | ||||||||
State and municipal | - | 223,987 | - | 223,987 | ||||||||||||
Mortgage-backed | - | 214,691 | - | 214,691 | ||||||||||||
Corporate | - | 716 | - | 716 | ||||||||||||
Asset-backed securities | - | 13,145 | - | 13,145 | ||||||||||||
Total | $ | - | $ | 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 | $ | - | $ | 1,768 | $ | 8,492 | ||||||||
Investment Securities, Available for Sale - December 31, 2021 | ||||||||||||||||
U. S. Government and federal agency | $ | - | $ | 2,008 | $ | - | $ | 2,008 | ||||||||
U. S. Treasury notes and bonds | - | 91,979 | - | 91,979 | ||||||||||||
State and municipal | - | 514,797 | 20,050 | 534,847 | ||||||||||||
Mortgage-backed | - | 433,115 | - | 433,115 | ||||||||||||
Corporate | - | 19,642 | 1,000 | 20,642 | ||||||||||||
Asset-backed securities | - | 16,294 | - | 16,294 | ||||||||||||
Total | $ | - | $ | 1,077,835 | $ | 21,050 | $ | 1,098,885 | ||||||||
| Quoted Prices |
|
|
|
|
|
|
|
|
|
| ||||
| In Active |
|
| Significant |
|
|
|
|
|
|
| ||||
| Markets for |
|
| Other |
|
| Significant |
|
|
|
| ||||
| Identical |
|
| Observable |
|
| Unobservable |
|
| Balance |
| ||||
(Dollars in thousands) | Assets |
|
| Inputs |
|
| Inputs |
|
| at Date |
| ||||
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Indicated |
| ||||
Equity Securities Held at Fair Value - March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
| ||||
Equity securities | $ | 6,062 |
|
| $ | - |
|
| $ | 2,637 |
|
| $ | 8,699 |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investment Securities, Available for Sale - March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury notes and bonds | $ | 79,975 |
|
| $ | - |
|
| $ | - |
|
| $ | 79,975 |
|
State and municipal |
| - |
|
|
| 236,498 |
|
|
| - |
|
|
| 236,498 |
|
Mortgage-backed |
| - |
|
|
| 206,137 |
|
|
| - |
|
|
| 206,137 |
|
Corporate |
| - |
|
|
| 716 |
|
|
| - |
|
|
| 716 |
|
Asset-backed securities |
| - |
|
|
| 12,022 |
|
|
| - |
|
|
| 12,022 |
|
Total | $ | 79,975 |
|
| $ | 455,373 |
|
| $ | - |
|
| $ | 535,348 |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Derivative Instruments - March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate derivative contracts - assets | $ | - |
|
| $ | 2,244 |
|
| $ | - |
|
| $ | 2,244 |
|
Interest rate derivative contracts - liabilities | $ | - |
|
| $ | 3,790 |
|
| $ | - |
|
| $ | 3,790 |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Equity Securities Held at Fair Value - December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
| ||||
Equity securities | $ | 6,024 |
|
| $ | - |
|
| $ | 2,542 |
|
| $ | 8,566 |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investment Securities, Available for Sale - December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
| ||||
U. S. Government and federal agency | $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
U. S. Treasury notes and bonds |
| 78,204 |
|
|
| - |
|
|
| - |
|
|
| 78,204 |
|
State and municipal |
| - |
|
|
| 229,938 |
|
|
| - |
|
|
| 229,938 |
|
Mortgage-backed |
| - |
|
|
| 208,563 |
|
|
| - |
|
|
| 208,563 |
|
Corporate |
| - |
|
|
| 711 |
|
|
| - |
|
|
| 711 |
|
Asset-backed securities |
| - |
|
|
| 12,333 |
|
|
| - |
|
|
| 12,333 |
|
Total | $ | 78,204 |
|
| $ | 451,545 |
|
| $ | - |
|
| $ | 529,749 |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Derivative Instruments - December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate derivative contracts - assets | $ | - |
|
| $ | 9,204 |
|
| $ | - |
|
| $ | 9,204 |
|
Interest rate derivative contracts - liabilities | $ | - |
|
| $ | 5,823 |
|
| $ | - |
|
| $ | 5,823 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
26
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
Nine Months Ended | Three Months Ended |
| |||||||||||||
(Dollars in thousands) | September 30, | March 31, |
| ||||||||||||
2022 | 2021 | 2023 |
| 2022 |
| ||||||||||
Equity Securities Held at Fair Value |
|
|
|
|
| ||||||||||
Balance, January 1 | $ | 1,768 | $ | 1,485 | $ | 2,542 |
|
| $ | 1,768 |
| ||||
Total realized and unrealized gains included in noninterest income | 18 | (51 | ) |
| 25 |
|
|
| (1 | ) | |||||
Net purchases, sales, calls, and maturities | 75 | 262 |
| 70 |
|
|
| - |
| ||||||
Net transfers into Level 3 | - | - |
| - |
|
|
| - |
| ||||||
Balance, September 30, | $ | 1,861 | $ | 1,696 | |||||||||||
Balance, March 31, | $ | 2,637 |
|
| $ | 1,767 |
| ||||||||
|
|
|
|
| |||||||||||
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 | ) | ||||||||||
Amount of total losses for the period included in earning attributable to the change in | $ | 25 |
|
| $ | (1 | ) | ||||||||
|
|
|
|
| |||||||||||
Investment Securities, Available for Sale |
|
|
|
|
| ||||||||||
Balance, January 1 | $ | 21,050 | $ | 11,423 | $ | - |
|
| $ | 21,050 |
| ||||
Total unrealized gains included in other comprehensive income | - | (369 | ) |
| - |
|
|
| - |
| |||||
Net purchases, sales, calls, and maturities | - | 7,979 |
| - |
|
|
| - |
| ||||||
Net transfers into Level 3 | - | - |
| - |
|
|
| - |
| ||||||
Transfer to held to maturity | (21,050 | ) | - |
| - |
|
|
| (21,050 | ) | |||||
Balance, September 30, | $ | - | $ | 19,033 | |||||||||||
Balance, March 31, | $ | - |
|
| $ | - |
| ||||||||
|
|
|
|
| |||||||||||
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 | ) | ||||||||||
Amount of total losses for the period included in earning attributable to the change in | $ | - |
|
| $ | - |
| ||||||||
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 September 30,March 31, 2023 and December 31, 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 | ||||||||||||||||
In Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Balances at | Identical | Observable | Unobservable | |||||||||||||
(Dollars in thousands) | Dates | Assets | Inputs | Inputs | ||||||||||||
Indicated | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Impaired Loans | ||||||||||||||||
September 30, 2022 | $ | 2,637 | $ | - | $ | - | $ | 2,637 | ||||||||
December 31, 2021 | $ | 5,433 | $ | - | $ | - | $ | 5,433 | ||||||||
Other Real Estate | ||||||||||||||||
September 30, 2022 | $ | - | $ | - | $ | - | $ | - | ||||||||
December 31, 2021 | $ | 194 | $ | - | $ | - | $ | 194 | ||||||||
Mortgage Loan Servicing Rights | ||||||||||||||||
September 30, 2022 | $ | 4,537 | $ | - | $ | 4,537 | $ | - | ||||||||
December 31, 2021 | $ | 4,666 | $ | - | $ | 4,666 | $ | - | ||||||||
|
|
|
| Quoted Prices |
|
|
|
|
|
|
| ||||
|
|
|
| In Active |
|
| Significant |
|
|
|
| ||||
|
|
|
| Markets for |
|
| Other |
|
| Significant |
| ||||
| Balances at |
|
| Identical |
|
| Observable |
|
| Unobservable |
| ||||
(Dollars in thousands) | Dates |
|
| Assets |
|
| Inputs |
|
| Inputs |
| ||||
| Indicated |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
Collateral Dependent Loans |
|
|
|
|
|
|
|
|
|
|
| ||||
March 31, 2023 | $ | 2,151 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,151 |
|
December 31, 2022 | $ | 2,846 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,846 |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other Real Estate |
|
|
|
|
|
|
|
|
|
|
| ||||
March 31, 2023 | $ | 130 |
|
| $ | - |
|
| $ | - |
|
| $ | 130 |
|
December 31, 2022 | $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Impaired
27
Collateral dependent loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired.non-accrual or higher risk. 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 impairedcollateral dependent loans that were posted to the allowance for loancredit losses and write-downs of other real estate that were posted to a valuation account.
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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Service charges and fees on deposit accounts | $ | 1,152 | $ | 977 | $ | 3,218 | $ | 2,585 | ||||||||
Interchange income | 1,306 | 1,278 | 3,782 | 3,724 | ||||||||||||
Investment commission income | 158 | 153 | 596 | 624 | ||||||||||||
Trust fee income | 174 | 187 | 528 | 612 | ||||||||||||
Other charges and fees for customer services | 113 | 153 | 387 | 458 | ||||||||||||
Noninterest income from contracts with customers within the scope of ASC 606 | 2,903 | 2,748 | 8,511 | 8,003 | ||||||||||||
Noninterest income within the scope of other GAAP topics | 144 | 1,970 | 1,812 | 7,047 | ||||||||||||
Total noninterest income | $ | 3,047 | $ | 4,718 | $ | 10,323 | $ | 15,050 | ||||||||
| Three Months Ended |
| |||||
| March 31, |
| |||||
(Dollars in thousands) | 2023 |
|
| 2022 |
| ||
Service charges and fees on deposit accounts | $ | 1,027 |
|
| $ | 1,031 |
|
Interchange income |
| 1,240 |
|
|
| 1,158 |
|
Investment commission income |
| 196 |
|
|
| 205 |
|
Trust fee income |
| 184 |
|
|
| 178 |
|
Other charges and fees for customer services |
| 137 |
|
|
| 148 |
|
Noninterest income from contracts with customers |
| 2,784 |
|
|
| 2,720 |
|
Noninterest income within the scope of other GAAP topics |
| 887 |
|
|
| 1,125 |
|
Total noninterest income | $ | 3,671 |
|
| $ | 3,845 |
|
28
NOTE 8 – DERIVATIVE AND HEDGING ACTIVITIES
ChoiceOne is exposed to certain risks relating to its ongoing business operations. ChoiceOne utilizes interest rate derivatives as part of its asset liability management strategy to help manage its interest rate risk position. Derivative instruments represent contracts between parties that result in 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 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.
ChoiceOne currently uses interest rate swaps to manage its exposure to certain fixed and variable rate assets and variable rate liabilities.
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$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%2.41%. In March 2023, ChoiceOne terminated all Pay Floating Swap Agreements for a cash payment of $4.2 million. The loss will be amortized into interest income over 13 months, which was the remaining period of the swap agreements.
Net cash settlements received YTDpaid on pay-floating/received-fixed swaps were $773,000$837,000 as of September 30, 2022, March 31, 2023, 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$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 eighteight-year-year term set to expire in 2032. The Pay Fixed Swap Agreements will pay a fixed coupon rate of 2.75%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 secondfourth quarter of 2022, ChoiceOne entered into four forward starting pay-fixed/receive-floating interest rate cap agreements withswaps for a total notional amount of $200.0$201.0 million (“that were designated as fair value hedges. These derivatives hedge the risk of changes in fair value of certain available for sale securities for changes in the SOFR Cap Agreements”). Threebenchmark interest rate component of the SOFR Cap Agreements with afixed rate bonds. All four of these hedges were effective immediately on December 22, 2022. Of the total notional amountvalue, $101.9 million has a ten-year term set to expire in 2032, with the benchmark SOFR interest rate risk component of $100.0the fixed rate bonds equal to 3.390%. Of the total notional value, $50.0 million has a nine-year term set to expire in 2031, with the benchmark SOFR interest rate risk component of the fixed rate bonds equal to 3.4015%. The remaining notional value of $49.1 million has a nine-year term set to expire in 2031, with the benchmark SOFR interest rate risk component of the fixed rate bond equal to 3.4030%. ChoiceOne adopted ASC2022-01, as of December 20, 2022, to use the portfolio layer method. The fair value basis adjustment associated with available-for-sale fixed rate bonds initially results in an adjustment to AOCI. For available-for-sale securities subject to fair value hedge accounting, the changes in the fair value of the fixed rate bonds related to the hedged risk (the benchmark interest rate component and the partial term) are then reclassed from AOCI to current earnings offsetting the fair value measurement change of the interest rate swap, which is also recorded in current earnings. Net cash settlements are received/paid semi-annually, with the first starting in March 2023, and will be included in interest income.
Net cash settlements received on these four pay-fixed/receive-floating swaps were $565,000 as of March 31, 2023, which were included in interest income.
29
The table below presents the fair value of derivative financial instruments as well as the classification within the consolidated statements of financial condition:
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
(Dollars in thousands) | Balance Sheet Location | Fair Value |
|
| Balance Sheet Location | Fair Value |
| ||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
| ||
Interest rate contracts | Other Assets | $ | 2,244 |
|
| Other Assets | $ | 9,204 |
|
Interest rate contracts | Other Liabilities | $ | 3,790 |
|
| Other Liabilities | $ | 5,823 |
|
The table below presents the cumulative basis adjustments on hedged items designated as fair value hedges and hedge against changes in the related amortized cost of those items as of the periods presented:
| 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 March 31, 2023 |
|
| Three months ended March 31, 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 | $ | (366 | ) | $ | - |
|
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
| |||||
Gain or (loss) on fair value hedging relationships: |
|
|
|
|
|
|
|
|
| ||||
Interest rate contracts: |
|
|
|
|
|
|
|
|
| ||||
Hedged items | $ | 6,022 |
| $ | - |
|
| $ | - |
| $ | - |
|
Derivatives designated as hedging instruments | $ | (5,960 | ) | $ | - |
|
| $ | - |
| $ | - |
|
Amount excluded from effectiveness testing recognized in earnings based on amortization approach | $ | - |
| $ | - |
|
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
| |||||
Gain or (loss) on cash flow hedging relationships: |
|
|
|
|
|
|
|
|
| ||||
Interest rate contracts: |
|
|
|
|
|
|
|
|
| ||||
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income | $ | (156 | ) | $ | - |
|
| $ | - |
| $ | - |
|
Amount excluded from effectiveness testing recognized in earnings based on amortization approach | $ | - |
| $ | - |
|
| $ | - |
| $ | - |
|
The table below presents the effect of fair value of certain fixed rate tax-exempt municipal bonds. ChoiceOne utilizes the interest rate caps 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 aand cash flow hedge and hedges againstaccounting on the riskconsolidated statements of variability in cash flows attributable to fluctuations inoperations for the SOFR rate above 2.68% for forecasted payments on future deposits or borrowings indexed to the SOFR Rate. All of the SOFR Cap Agreements are two-year forward starting with an periods presented:
|
|
| March 31, 2023 |
| ||
|
|
| Cumulative amount of Fair |
| ||
|
|
| Value Hedging Adjustment |
| ||
Line Item in the Statement of |
|
| included in the carrying |
| ||
Financial Position in which the | Amortized cost of the |
| amount of the Hedged |
| ||
Hedged Item is included | Hedged Assets/(Liabilities) |
| Assets/(Liabilities) |
| ||
|
|
|
|
| ||
Securities available for sale | $ | 225,127 |
| $ | (4,091 | ) |
eight-year term set to expire in 2032. The initial amount excluded from hedge effectiveness testing and amortized into earnings over the life of the interest rate cap derivatives is $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 | $ | - | ||||
30
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”,“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 for credit losses and allowance for loan losses,ACL, 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 concerning pension and other post-retirement benefit plans involve judgments that are inherently forward-looking. 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, 20212022 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.
RESULTS OF OPERATIONS
Net income for the thirdfirst quarter of 20222023 was $5,813,000,$5,633,000, which represented an increase of $64,000$105,000 or 1%1.9% compared to the thirdfirst quarter of 2021.2022. Basic and diluted earnings per common share were $0.77 for the third quarter of 2022 compared to $0.75 for the thirdfirst quarter of 2023 compared to $0.74 for the first quarter of the prior year. The increase in the thirdfirst quarter of 20222023 is largely related to the increase in interest income due to strong organic loan growth. Net incomegrowth over the past year which was offset by the increase in deposit and borrowing costs due to rate increases.
Core loans, which exclude held for sale loans and Paycheck Protection Program loans ("PPP"), grew organically by $20.8 million or 7.0% on an annualized basis during the first nine monthsquarter of 2022 was $16,956,000, which represented a decline of $74,0002023 and $191.7 million 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 net18.8% since March 31, 2022. Loan interest income increased $2.6 million in the first nine monthsquarter of 20222023 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 since2022, despite the first quarter of 2022 being aided by $869,000 in PPP fees and an additional $347,000 in accretion income. Deposits, excluding brokered deposits, decreased by $77.5 million or 3.6% as of March 31, 2023, compared to March 31, 2022 ,while the prior year. Net income also declined astotal cost of funds increased to 0.79% in the first quarter of 2023 compared to 0.21% in the first quarter of 2022. Deposit interest expense increased mostly due to expense from a private placement of $32.5$2.5 million of fixed-to-floating rate subordinated notes late in the thirdfirst quarter of 2023 compared to the prior year and organic deposit interest expense. These factors were largely offset by an increase of $6.6 millionsame period 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 by $52.8 million 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 2021.2022.
The return on average assets and return on average shareholders’ equity were 0.98%0.94% and 12.67%13.42%, respectively, for the thirdfirst quarter of 2022,2023, compared to 1.03%0.93% and 10.03%10.72%, respectively, for the same period in 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 2021.2022. 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 Programsecurities.
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. In the third quarter of 2022, the remaining $1.8 million of PPP loans were forgiven resulting in $68,000 of fee income. For the nine months ended September 30, 2022, $33.1 million of PPP loans were forgiven resulting in $1.2 million of fee income. At September 30, 2022, no PPP loans remain in ChoiceOne’s loan portfolio.
Dividends
Cash dividends of $2.0 million or $0.26 per share were declared in the first quarter of 2023, compared to $1.9 million or $0.25 per share were declared in the third quarter of 2022, and the third quarter of 2021. Cash dividends declared in the first nine monthsquarter of 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.2022. The cash dividend payout percentage was 33.2%34.7% for the first nine monthsquarter of 2022,2023, compared to 31.3%33.9% 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- and nine-month periods ended September 30, 2022 and 2021.first quarter of 2023. 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.
31
Table 1 – Average Balances and Tax-Equivalent Interest Rates
Three Months Ended September 30, | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
(Dollars in thousands) | Average | Average | ||||||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Loans (1)(3)(4)(5) | $ | 1,128,679 | $ | 13,622 | 4.83 | % | $ | 1,021,326 | $ | 12,412 | 4.86 | % | ||||||||||||
Taxable securities (2) | 774,040 | 3,943 | 2.04 | 641,430 | 2,821 | 1.76 | ||||||||||||||||||
Nontaxable securities (1) | 305,661 | 1,853 | 2.43 | 281,223 | 1,850 | 2.63 | ||||||||||||||||||
Other | 43,418 | 238 | 2.19 | 106,831 | 38 | 0.14 | ||||||||||||||||||
Interest-earning assets | 2,251,798 | 19,656 | 3.49 | 2,050,810 | 17,121 | 3.34 | ||||||||||||||||||
Noninterest-earning assets | 137,752 | 183,418 | ||||||||||||||||||||||
Total assets | $ | 2,389,550 | $ | 2,234,228 | ||||||||||||||||||||
Liabilities and Shareholders' Equity: | ||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 915,698 | $ | 972 | 0.42 | % | $ | 850,963 | $ | 485 | 0.23 | % | ||||||||||||
Savings deposits | 464,382 | 182 | 0.16 | 407,765 | 144 | 0.14 | ||||||||||||||||||
Certificates of deposit | 196,160 | 410 | 0.84 | 183,103 | 208 | 0.45 | ||||||||||||||||||
Borrowings | 2,414 | 8 | 1.40 | 2,667 | 38 | 5.70 | ||||||||||||||||||
Subordinated debentures | 35,168 | 375 | 4.27 | 9,154 | 151 | 6.60 | ||||||||||||||||||
Interest-bearing liabilities | 1,613,822 | 1,947 | 0.48 | 1,453,652 | 1,026 | 0.28 | ||||||||||||||||||
Demand deposits | 593,793 | 545,251 | ||||||||||||||||||||||
Other noninterest-bearing liabilities | 17,177 | 5,956 | ||||||||||||||||||||||
Total liabilities | 2,224,792 | 2,004,859 | ||||||||||||||||||||||
Shareholders' equity | 164,758 | 229,369 | ||||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 2,389,550 | $ | 2,234,228 | ||||||||||||||||||||
Net interest income (tax-equivalent basis) (Non-GAAP) (1) | $ | 17,709 | $ | 16,095 | ||||||||||||||||||||
Net interest margin (tax-equivalent basis) (Non-GAAP) (1) | 3.15 | % | 3.14 | % | ||||||||||||||||||||
Reconciliation to Reported Net Interest Income | ||||||||||||||||||||||||
Net interest income (tax-equivalent basis) (Non-GAAP) (1) | $ | 17,709 | $ | 16,095 | ||||||||||||||||||||
Adjustment for taxable equivalent interest | (371 | ) | (395 | ) | ||||||||||||||||||||
Net interest income (GAAP) | $ | 17,338 | $ | 15,700 | ||||||||||||||||||||
Net interest margin (GAAP) | 3.08 | % | 3.06 | % | ||||||||||||||||||||
|
| |
|
| |
|
| |
| Three Months Ended March 31, |
|
| |||||||||||||||||||||
| 2023 |
|
| 2022 |
|
| ||||||||||||||||||
(Dollars in thousands) | Average |
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
| ||||||
| Balance |
|
| Interest |
|
| Rate |
|
| Balance |
|
| Interest |
|
| Rate |
|
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans (1)(3)(4)(5)(6) | $ | 1,202,268 |
|
| $ | 14,889 |
|
|
| 5.02 |
| % | $ | 1,037,646 |
|
| $ | 12,304 |
|
|
| 4.74 |
| % |
Taxable securities (2)(6) |
| 761,318 |
|
|
| 4,913 |
|
|
| 2.62 |
|
|
| 795,888 |
|
|
| 3,507 |
|
|
| 1.76 |
|
|
Nontaxable securities (1) |
| 298,429 |
|
|
| 1,817 |
|
|
| 2.47 |
|
|
| 334,793 |
|
|
| 2,097 |
|
|
| 2.50 |
|
|
Other |
| 19,452 |
|
|
| 177 |
|
|
| 3.68 |
|
|
| 36,460 |
|
|
| 14 |
|
|
| 0.15 |
|
|
Interest-earning assets |
| 2,281,467 |
|
|
| 21,796 |
|
|
| 3.87 |
|
|
| 2,204,787 |
|
|
| 17,922 |
|
|
| 3.25 |
|
|
Noninterest-earning assets |
| 109,877 |
|
|
|
|
|
|
|
|
| 171,077 |
|
|
|
|
|
|
|
| ||||
Total assets | $ | 2,391,344 |
|
|
|
|
|
|
|
| $ | 2,375,864 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Liabilities and Shareholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-bearing demand deposits | $ | 875,435 |
|
| $ | 1,572 |
|
|
| 0.73 |
| % | $ | 928,437 |
|
| $ | 435 |
|
|
| 0.19 |
| % |
Savings deposits |
| 407,022 |
|
|
| 273 |
|
|
| 0.27 |
|
|
| 440,873 |
|
|
| 146 |
|
|
| 0.13 |
|
|
Certificates of deposit |
| 247,856 |
|
|
| 1,279 |
|
|
| 2.09 |
|
|
| 179,375 |
|
|
| 202 |
|
|
| 0.45 |
|
|
Brokered deposit |
| 12,762 |
|
|
| 152 |
|
|
| 4.84 |
|
|
| - |
|
|
| - |
|
|
| 0.00 |
|
|
Borrowings |
| 63,122 |
|
|
| 708 |
|
|
| 4.55 |
|
|
| 10,239 |
|
|
| 6 |
|
|
| 0.22 |
|
|
Subordinated debentures |
| 35,290 |
|
|
| 402 |
|
|
| 4.62 |
|
|
| 35,342 |
|
|
| 364 |
|
|
| 4.12 |
|
|
Interest-bearing liabilities |
| 1,641,487 |
|
|
| 4,386 |
|
|
| 1.08 |
|
|
| 1,594,266 |
|
|
| 1,153 |
|
|
| 0.29 |
|
|
Demand deposits |
| 566,628 |
|
|
|
|
|
|
|
|
| 553,267 |
|
|
|
|
|
|
|
| ||||
Other noninterest-bearing liabilities |
| 15,277 |
|
|
|
|
|
|
|
|
| 22,051 |
|
|
|
|
|
|
|
| ||||
Total liabilities |
| 2,223,392 |
|
|
|
|
|
|
|
|
| 2,169,584 |
|
|
|
|
|
|
|
| ||||
Shareholders' equity |
| 167,952 |
|
|
|
|
|
|
|
|
| 206,280 |
|
|
|
|
|
|
|
| ||||
Total liabilities and shareholders' equity | $ | 2,391,344 |
|
|
|
|
|
|
|
| $ | 2,375,864 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest income (tax-equivalent basis) (Non-GAAP) (1) |
|
|
| $ | 17,410 |
|
|
|
|
|
|
|
| $ | 16,769 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest margin (tax-equivalent basis) (Non-GAAP) (1) |
|
|
|
|
|
|
| 3.09 |
| % |
|
|
|
|
|
|
| 3.04 |
| % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Reconciliation to Reported Net Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest income (tax-equivalent basis) (Non-GAAP) (1) |
|
|
| $ | 17,410 |
|
|
|
|
|
|
|
| $ | 16,769 |
|
|
|
|
| ||||
Adjustment for taxable equivalent interest |
|
|
|
| (398 | ) |
|
|
|
|
|
|
|
| (447 | ) |
|
|
|
| ||||
Net interest income (GAAP) |
|
|
| $ | 17,012 |
|
|
|
|
|
|
|
| $ | 16,322 |
|
|
|
|
| ||||
Net interest margin (GAAP) |
|
|
|
|
|
|
| 3.02 |
| % |
|
|
|
|
|
|
| 2.96 |
| % | ||||
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 | % | ||||||||||||||||||||
|
| |
|
| |
|
| |
32
Table 2 – Changes in Tax-Equivalent Net Interest Income
Three Months Ended September 30, | Three Months Ended March 31, |
| |||||||||||||||||||||
(Dollars in thousands) | 2022 Over 2021 | 2023 Over 2022 |
| ||||||||||||||||||||
Total | Volume | Rate | Total |
|
| Volume |
|
| Rate |
| |||||||||||||
Increase (decrease) in interest income (1) |
|
|
|
|
|
| |||||||||||||||||
Loans (2) | $ | 1,210 | $ | 1,354 | $ | (144 | ) | $ | 2,585 |
|
| $ | 1,879 |
|
| $ | 706 |
| |||||
Taxable securities | 1,122 | 942 | $ | 180 |
| 1,406 |
|
|
| (1,002 | ) |
| $ | 2,408 |
| ||||||||
Nontaxable securities (2) | 3 | 238 | $ | (235 | ) |
| (280 | ) |
|
| (252 | ) |
| $ | (28 | ) | |||||||
Other | 200 | (125 | ) | $ | 325 |
| 163 |
|
|
| (47 | ) |
| $ | 210 |
| |||||||
Net change in interest income | 2,535 | 2,409 | 126 |
| 3,874 |
|
|
| 578 |
|
|
| 3,296 |
| |||||||||
|
|
|
|
|
|
|
| ||||||||||||||||
Increase (decrease) in interest expense (1) |
|
|
|
|
|
|
|
| |||||||||||||||
Interest-bearing demand deposits | 487 | 129 | 358 |
| 1,137 |
|
|
| (175 | ) |
|
| 1,312 |
| |||||||||
Savings deposits | 38 | 31 | 7 |
| 127 |
|
|
| (74 | ) |
|
| 201 |
| |||||||||
Certificates of deposit | 202 | 50 | 152 |
| 1,077 |
|
|
| 102 |
|
|
| 975 |
| |||||||||
Brokered deposit |
| 152 |
|
|
| 152 |
|
|
| 0 |
| ||||||||||||
Borrowings | (30 | ) | (10 | ) | (20 | ) |
| 702 |
|
|
| 146 |
|
|
| 556 |
| ||||||
Subordinated debentures | 224 | 321 | (97 | ) |
| 38 |
|
|
| (4 | ) |
|
| 42 |
| ||||||||
Net change in interest expense | 921 | 521 | 400 |
| 3,233 |
|
|
| 147 |
|
|
| 3,086 |
| |||||||||
Net change in tax-equivalent net interest income | $ | 1,614 | $ | 1,888 | $ | (274 | ) | $ | 641 |
|
| $ | 431 |
|
| $ | 210 |
| |||||
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 | ||||||
|
| |
|
|
Net Interest Income
Tax-equivalent net interest income increased $1.6 million and $5.2 million$641,000 in the thirdfirst quarter and first nine months of 2022, respectively,2023, compared to the same periodsperiod in 2021. Growth2022. The Federal Reserve increased the federal funds rate by 4.50% from March 31, 2022 to March 31, 2023 in response to published inflation rates. This both increased rates on newly originated loans and increased the rates paid on deposits. Tax equivalent net interest margin increased 5 basis points in the first quarter of 2023 compared to the same period in 2022. GAAP based net interest margin increased 6 basis points in the first quarter of 2023 compared to the same period in 2022.
The following table presents the cost of deposits and the cost of funds for the three months ended March 31, 2023 and ninethe three months ended September 30, 2022 compared to the same time periods in 2021 were affected by an increased average balance of securities as ChoiceOne deployed excess deposit dollars into securities with the intent to transition to loans as good credits become available. March 31, 2022.
| Three months ended March 31, |
| ||||
| 2023 |
| 2022 |
| ||
Cost of deposits |
| 0.62 | % |
| 0.15 | % |
Cost of funds |
| 0.79 | % |
| 0.21 | % |
ChoiceOne has also experienced substantial core loan growth duringfrom March 31, 2022 to March 31, 2023, leading to growthan increase in interest income from loans of $1.2$2.6 million and $1.8 million duringin the three and nine months ended September 30, 2022, respectively,March 31, 2023, compared to the same periodsperiod in the prior year. CoreAverage core loans, which exclude PPP loans, loans held for sale, and loans to other financial institutions. Net interest margininstitutions, grew $164.6 million from March 31, 2022 to March 31, 2023. In addition, the average rate earned on a tax-equivalent basisloans increased by 128 basis points during that time period. The increase in interest income from loans 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 Federal Reserve increased the federal fundsaverage 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,loans is due the asset mix as ChoiceOne grew securities faster than it grew loans.
The average balance 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 offsetmuted by a decline in PPP loans. Average core loans increased $195.1 millionfee income of $869,000, an increase in the third quarterderivative expense of 2022$745,000, and $140.9 milliona reduction in accretion income of $347,000 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 20222023 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 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 rates2022.
The average balance of total securities decreased $70.9 million from Q1 2022 through the end of Q1 2023. The decrease is due to market conditions offset bythe liquidation of $47.2 million in securities during 2022, with the remainder attributed to paydowns and a $2.8 million decline in PPP feesthe fair value of available for sale securities. The average rate earned during nine months ended September 30, 2022on securities increased 83 basis points in the first quarter of 2023 compared to the same period in 2021.2022 which was aided by $373,000 of income related to derivative instruments which were put in place during the second quarter of 2022.
The average balance of total securities
33
Interest expense increased $157.0$3.2 million and the average rate earned increased 12 basis points in the thirdfirst quarter of 20222023, compared to the same period in 2021.2022. The average balance of total securitiesrate paid on deposits, excluding brokered deposits, increased $306.0 million and the average rate earned increased 141 basis pointpoints in the first nine monthsquarter of 20222023 compared to the same period in 2021.
Growth of $121.4 million2022, offset by the decline in the average balance of interest-bearing demand deposits, and savingsexcluding brokered deposits, and a combined 13 basis pointof $86.9 million from Q1 2022 to Q1 2023. The increase in the average rate paid, caused interest expense to 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 nine months of 2022 compared to the first nine months of the prior year. The average balance of certificates of deposit increased $13.1of $68.5 million, and declined $2.0 million in the third quarter and first nine months of 2022, respectively, compared to the same period in 2021. Thecombined with a 164 basis point increase in balances and a 39 basis points increase in the average rate paid on certificates of deposit causeddeposits in Q1 of 2023 compared to Q1 2022, led to an increase in interest expense of $1.1 million.
Due to increase $202,000the decline in the thirdaverage balance of deposits, ChoiceOne borrowed additional funds from the Federal Home Loan Bank ("FHLB") and the Federal Reserve Bank ("FRB"), and obtained $37.8 million in brokered deposits during the first quarter 2022,of 2023. The net effect of these additional borrowed funds and brokered CDs was an increase in interest expense of $855,000 in the first quarter of 2023 compared to the same periods in 2021. The decline in balances offset by a 3 basis points increase in the average rate paid on certificatesfirst quarter of deposit caused interest expense to increase $37,000 in the first nine months of 2022, compared to the same periods in 2021. 2022.
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 theThe average balance of subordinated debentures by $26.0 million and $30.0 millionwas relatively flat compared in the thirdfirst quarter and first nine months of 2022, respectively,2023 compared to the same period in the prior year and caused interest expense to increase by $224,000 and $847,000 in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.
year.
Provision and Allowance for LoanCredit Losses
The provision for loan losses was $100,000On January 1, 2023, ChoiceOne adopted ASU 2016-13 CECL which caused an increase in the first nine monthsACL of 2022, compared$7.2 million. The large increase is partially due to $416,000the current economic environment and the nature of the CECL calculation. Approximately 20% of this increase is related to the migration of purchased loans into the portfolio assessed by the CECL calculation. ChoiceOne also booked a liability for expected credit losses on unfunded loans and other commitments of $3.3 million related to the adoption of CECL guidance. These unfunded loans are open credit lines with current customers and loans approved by ChoiceOne but not funded. The increase in the same periodallowance and the cost of the liability resulted in a decrease in the prior year. Provision expense was deemed necessaryretained earnings account on our Consolidated Balance Sheet equal to reservethe after-tax impact, with the tax impact portion being recorded in deferred taxes in our Consolidated balance Sheet in accordance with FASB guidance.
The ACL consists of general and specific components. The general component covers loans collectively evaluated for core loan growth of $52.8 millioncredit loss and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustment for current and forecasted factors is based on trends in delinquencies, trends in charge-offs and recoveries, trends in the third quartervolume of 2022. Based on our assessmentloans, changes in underwriting standards, trends in loan review findings, the experience and ability of the probable estimatedlending staff, and a reasonable and supportable economic forecast described further below.
Loans individually evaluated for credit losses inherent in the loan 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 declinedincreased by $2.8 million$300,000 during the ninethree months ended September 30, 2022. The specific allowance for loan losses for impairedMarch 31, 2023; however, the ACL related to these individually evaluated loans decreased by $346,000$100,000 during the ninethree months ended September 30, 2022March 31, 2023 largely due to the decrease in balance of impaired loansloan balances being fully collateralized compared to December 31, 2021.2022.
The determination of our loss factors is based, in part, upon our actualbenchmark peer 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 actualChoiceOne's lookback period of benchmark peer net charge-off history as the basiswas from January 1, 2004 through December 31, 2019 for the computation. this analysis.
Nonperforming loans, which excludes performing TLM and TDR loans, were $2.6$1.7 million as of September 30, 2022,March 31, 2023, compared to $5.5$1.3 million as of December 31, 2021.2022. The allowance for loan lossesACL was 0.66%1.24% of total loans at September 30, 2022,March 31, 2023, compared to 0.76%1.24% as of January 1, 2023 (the CECL adoption date) and 0.64% at December 31, 2021. Loans acquired in the mergers with County Bank Corp.2022. The liability for expected credit losses on unfunded loans and Community Shores were recorded at fair valueother commitments was $3.0 million on March 31, 2023, compared to $3.3 million as of January 1, 2023 and as a result dodid not have an allowance for loan losses allocated to them unless credit deteriorates subsequent to acquisition. ChoiceOne has $1.8 million in credit mark remainingexist on loans acquired in the mergers. December 31, 2022.
Charge-offs and recoveries for respective loan categories for the nine months ended September 30, 2022 and 2021 were as follows:
(Dollars in thousands) | 2022 | 2021 | ||||||||||||||
Charge-offs | Recoveries | Charge-offs | Recoveries | |||||||||||||
Agricultural | $ | - | $ | - | $ | - | $ | - | ||||||||
Commercial and industrial | 177 | 62 | 195 | 80 | ||||||||||||
Consumer | 383 | 162 | 244 | 168 | ||||||||||||
Commercial real estate | - | 3 | 111 | 43 | ||||||||||||
Construction real estate | - | - | - | - | ||||||||||||
Residential real estate | - | 2 | - | 5 | ||||||||||||
| $ | 560 | $ | 229 | $ | 550 | $ | 296 | |||||||||
Net charge-offs were $331,000$27,000 in the first nine monthsquarter of 2022,2023, compared to net charge-offs of $254,000$87,000 during the same period in 2021.2022. Checking account charge-off and recovery activity is included in the consumer charge-off activity above. Net charge-offs for checking accounts for the thirdfirst quarter and first nine months of 20222023 were $73,000 and $186,000, respectively,$56,000 compared to $49,000 and $90,000$53,000 for the same periodsperiod in the prior year. Net charge-offs on an annualized basis as a percentage of average loans were 0.04%0.01% in the first nine monthsquarter of 20222023 compared to annualized net charge-offs of 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 businesses and individual borrowers. Management has worked and intends to continue to work with delinquent borrowers in an attempt to lessen the negative impact to ChoiceOne. As charge-offs, changes
34
Charge-offs and recoveries for respective loan categories for the three months ended March 31, 2023 and 2022 were as follows:
(Dollars in thousands) | 2023 |
|
| 2022 |
| ||||||||||
| Charge-offs |
|
| Recoveries |
|
| Charge-offs |
|
| Recoveries |
| ||||
Agricultural | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Commercial and industrial |
| — |
|
|
| 27 |
|
|
| 31 |
|
|
| 2 |
|
Consumer |
| 140 |
|
|
| 69 |
|
|
| 112 |
|
|
| 52 |
|
Commercial real estate |
| — |
|
|
| 13 |
|
|
| — |
|
|
| 1 |
|
Construction real estate |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Residential real estate |
| — |
|
|
| 3 |
|
|
| — |
|
|
| 1 |
|
| $ | 140 |
|
| $ | 112 |
|
| $ | 143 |
|
| $ | 56 |
|
The provision for credit losses on loans was $309,000 in the levelfirst quarter of nonperforming2023, compared to $0 in the same period in the prior year. Provision expense was deemed necessary to reserve for core loan growth of $20.8 million in the first quarter of 2023. There was very little change to forecasted economic conditions from the CECL implementation date of January 1, 2023 to March 31, 2023.
The loan provision was offset by the decline in unfunded commitments provision of $284,000 as ChoiceOne saw declines in the pipeline for new loans and changes withinapproved but not funded as well as an increase in the compositionfunding on open lines of credit. The total unfunded commitments declined $15.9 million in the loan portfolio occur throughout 2022,first quarter of 2023 compared to January 1, 2023.
The net provision expense for the provision and allowance for loan losses will be reviewed by ChoiceOne’s management and adjusted as determined to be necessary.
first quarter of 2023 was $25,000.
Noninterest Income
Total noninterest income declined $1.7 million and $4.7 million$174,000 in the third quarter and first ninethree months of 20222023 compared to the same periodsperiod in the prior year. Total noninterest incomeWith the rapid rise in 2021 was bolstered by heightened levels ofinterest rates, refinancing activity within ChoiceOne'shas slowed, and demand has shifted towards adjustable-rate mortgage portfolio, with gains onproducts. This led to a decline in mortgage sales of loans $1.4 million and $3.6 million larger than$401,000 in the thirdfirst quarter and first nine months of 2022. Customer service charges increased $203,000 and $691,000 in the third quarter and first nine months of 20222023 compared to the same periodstime period in the prior year. Service charges were depressedThis decline was offset by the effects of the COVID 19 pandemic. The change in the market value of equity securities, declined $295,000 and $1.5 millionwhich saw an increase in the first quarter of 2023 compared to a large decline during the third quarter and first nine monthssame period of 2022 compared to the same periods in the prior year consistent with general market conditions.year. Equity securitiesinvestments include local community bank stocks and Community Reinvestment Act bond mutual funds. DuringCustomer service charges also increased by $78,000 in the thirdfirst quarter and first nine monthsof 2023 compared to the same period of 2022, ChoiceOne has liquidated $15.3 millionas consumer 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.
business activity improved.
Noninterest Expense
Total noninterest expense decreased $90,000 and increased $1.1 million in the third quarter and first nine months of 2022, respectively, compared to the same time periods in 2021. The increase during the first nine months of 2022 is related to an increase in salaries and wages due to annual wage increases and the addition of new commercial loan production and wealth management staff. This investment in people will increase expenses in the short term but is expected to drive long term value to ChoiceOne through the building of new relationships. Other expenses have also increased$305,000, or 2.2%, in the first nine monthsquarter of 20222023 compared to the same period in the prior year dueyear. The increase in total noninterest expense was related to an increase to ourin FDIC insurance related expenses, business travel expenses which were still being affectedcosts and inflationary pressures on employee wages and benefits. This increase was offset by the pandemic last year.decreases in other categories including data processing and fraud losses. ChoiceOne continues to monitor expenses and looks to improve our efficiency through automation and use of digital tools.
ChoiceOne launched an enhanced treasury services online platform for business clients during the first quarter of 2023. This new platform targets mid-sized businesses and municipalities who require enhanced reporting, security, and payment capabilities. Management believes that continuing to invest in our technology and people is the right way to maintain sustainable growth.
Income Tax Expense
Income tax expense was $3.0$1.0 million in the first nine monthsquarter of 20222023 compared to $3.3 million$948,000 for the same period in 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 2021.2022. The effective tax rate was 14.8%15.5% for the first nine monthsquarter of 20222023 compared to 16.4%14.6% for the first nine monthsquarter of 2021. 2022. In the first quarter of 2022, non taxable municipal interest decreased and disallowed interest expense increased compared to the first quarter of 2022.
FINANCIAL CONDITION
Securities
In the last two years ChoiceOne has grown its securities portfolio substantially. Total available for sale securities on March 31, 2023, was $535.3 million compared to $529.7 on December 31, 2020, amounted to $577.7 million and grew steadily to2022, with the increase caused by an increase in the fair value of the underlying securities. The unrealized loss on securities 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. Duringdeclined by $7.6 million in the first quarter of 2022, ChoiceOne elected to move $428.4 million of the portfolio into a2023. ChoiceOne's held to maturity status. Management believessecurities declined slightly during the $530.1 million in available for sale securities at September 30, 2022 to be sufficient for any future liquidity needs.
$47.2 millionfirst quarter of securities were sold in the nine months ended September 30, 2022 to be replaced with higher yielding assets. $13.72023, as $3.8 million of securities were called or matured during that same period. Principaland principal repayments on securities totaled $31.6$6.2 million. The securities portfolio is projected to produce over $217 million of cashflows over the next two years as lower yielding assets roll off.
35
At March 31, 2023, ChoiceOne had $145.9 million in unrealized losses on its investment securities, including $81.4 million in unrealized losses on available for sale securities and $64.5 in unrealized losses on held to maturity securities. Unrealized losses on corporate and municipal bonds have not been recognized into income because the nine months ended September 30, 2022.issuers’ bonds are of high credit quality, and management does not intend to sell prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.
ChoiceOne utilizes interest rate derivatives as part of its asset liability management strategy to help manage its interest rate risk position. In order to hedge the risk of rising rates and unrealized losses on securities resulting from the rising rates, ChoiceOne currently holds four interest rate swaps with a total notional value of $401.0 million. These derivative instruments increase in value as long-term interest rates rise, which offsets the reduction in equity due to unrealized losses on securities available for sale. Refer to footnote 8 for more discussion on ChoiceOne’s derivative position.
Equity securities included a money market preferred security ("MMP") of $1.0 million and common stock of $7.7 million as of March 31, 2023. As of March 31, 2022, equity securities included an MMP of $1.0 million and common stock of $7.6 million.
Per U.S. generally accepted accounting principles, unrealized gains or losses on securities available for sale are reflected on the balance sheet in accumulated other comprehensive income (loss), while unrealized gains or losses on securities held to maturity are not reflected on the balance sheet in accumulated other comprehensive income (loss).
Loans
Core loans, which exclude PPP loans, held for sale loans and loans to other financial institutions,PPP, grew organically by $205.2$20.8 million from September 30, 2021 to September 30,or 7.0% on an annualized basis during the first quarter of 2023 and $191.7 million or 18.8% since March 31, 2022. Excluding PPP loans, ChoiceOne saw growth of $160.2Loan interest income increased $2.6 million in commercialthe first quarter of 2023 compared to the same period in 2022. The increase in interest income from loans is muted by a decline in PPP fee income of $869,000, an increase in derivative expense of $745,000, and $40.4 milliona reduction in retail loans from September 30, 2021 to September 30, 2022. Additions to our commercial lending staff in 2021 and investmentsaccretion income of $347,000 in the automationfirst quarter of our2023 compared to same time period in 2022.
Loan growth was largely concentrated in commercial real estate loans which grew $111.0 million or 21% in the trailing twelve months from March 31, 2023. Much of this growth in commercial real estate loans is directly the result of the new loan process have helped drive our pipelineproduction offices in both the city of Wyoming and Macomb County as well as the newly hired experienced lenders in these locations. Approximately 12% of this commercial loans and corresponding growth. ChoiceOne has ample on balance sheet liquidity to fund futurereal estate loan growth including an expected $183.1is a single land development loan which consists of high end single family homes currently under construction which are 85% pre-sold. Another 21% of this growth is owner-occupied and mainly consists of current customers who are expanding businesses that are performing well in the current environment. Residential real estate loans also grew $58.7 million or 33% in the trailing twelve months from March 31, 2023 as the 5/1 ARM product became popular as a mortgage option and it is less salable than more traditional mortgage options. These large increases were offset by declines in agricultural loans of cash flow from securities over$5.6 million and construction real estate loans of $1.7 million during the next two years. period beginning on April 1, 2022 through March 31, 2023.
Loans to other financial institutions declined $38.8 million from September 30, 2021 to September 30, 2022 as management chose to suspend the program at the end of the third quarter 2022. During the nine months ended September 30, 2022, the remaining $33.1 million of PPP loans were forgiven resulting in $1.2 million of fee income. At September 30, 2022 all PPP loans have been fully forgiven, and the associated fee income has been recognized.
During the first nine months of 2022, ChoiceOne recorded accretion income related to acquired loans in the amount of $1.7 million. The remaining$471,000 during the first quarter of 2023. Remaining credit and yield mark on acquired loans from the recentmergers with County Bank Corp. and Community Shores will accrete into income as the acquired loans mature. The remaining yield mark on acquired loans from the mergers with County Bank Corp. and Community Shores totaled $1.8$3.8 million as of September 30, 2022.
March 31, 2023.
Asset Quality
Information regarding impairedindividually evaluated loans can be found in Note 3 to the consolidated financial statements included in this report. The total balance of individually evaluated loans classified as impaired was $2.6$2.2 million on September 30, 2022,March 31, 2023, compared to $5.5$2.8 million of impaired loans as of December 31, 2021.2022. The change in the first nine monthsquarter of 20222023 was primarily comprised of a decrease of $2.3 milliondue to the decline in impaired agriculturalnon-accrual residential mortgage loans.
As part of its review of the loan portfolio, management also monitors the various nonperforming loans. Nonperforming loans are comprised of: (1)of loans accounted for on a nonaccrual basis; (2)basis and 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").payments.
36
The balances of these nonperforming loans were as follows:
(Dollars in thousands) | September 30, | December 31, | March 31, |
| December 31, |
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2022 | 2021 | 2023 |
| 2022 |
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Loans accounted for on a nonaccrual basis | $ | 1,197 | $ | 1,727 | $ | 1,596 |
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| $ | 1,263 |
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Accruing loans which are contractually past due 90 days or more as to principal or interest payments | - | - |
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Loans defined as "troubled debt restructurings " which are not included above | 1,431 | 3,816 | |||||||||||||
Loans past due defined as "troubled loan modifications" or "troubled debt restructurings " which are not included above |
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Total | $ | 2,628 | $ | 5,543 | $ | 1,596 |
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| $ | 1,263 |
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The reductionsmall increase in the balance of nonaccrual loans in the first nine monthsquarter of 20222023 was primarily due to loans that were paid off.the increase in residential mortgage loans. It is also noted that 82%100% of loans considered TLMs and TDRs were performing according to their restructured terms as of September 30, 2022.March 31, 2023. Management believes the allowance for loan lossesACL allocated to its nonperforming loans is sufficient at September 30, 2022.
March 31, 2023.
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.
ChoiceOne management performsconducted an annual qualitative assessment and periodically performs a quantitative assessment. Management will perform a quantitative assessment of goodwill during the fourth quarteras of June 30, 2022 and no impairment was identified. ChoiceOne used a qualitative assessment to determine goodwill was not impaired as of June 30, 2022.
Additionally, ChoiceOne engaged a third party valuation firm to assist in performing a quantitative analysis of goodwill as of November 30, 2022 ("the valuation date"). In deriving the fair value of the reporting unit (the Bank), the third-party firm assessed general economic conditions and outlook; industry and market considerations and outlook; the impact of recent events to financial performance; the market price of ChoiceOne’s common stock and other relevant events. In addition, the valuation relied on financial projections through 2027 and growth rates prepared by management. Based on the valuation prepared, it was determined that ChoiceOne's estimated fair value of the reporting unit at the valuation date was greater than its book value and impairment of goodwill was not required.
Management concurred with the conclusion derived from the quantitative goodwill analysis as of the valuation date and determined that there were no material changes and that no triggering events had occurred that indicated impairment from the valuation date through March 31, 2023, and as a result that it is more likely than not that there was no goodwill impairment.
Deposits and Borrowings
DepositsChoiceOne saw deposits, excluding brokered deposits, decline $49.9 million in the thirdfirst quarter of 2023 and $77.5 million or 3.6% compared to March 31, 2022. This decrease was attributed to a combination of customers using cash on hand for debt payoffs, seasonal tax and municipal bond payments, and customers seeking higher rates via money market securities with transfers to the ChoiceOne Wealth department or outside firms. In the last twelve months, over $33.6 million or 43.4% of the trailing twelve-month deposit runoff has been transferred from bank deposits to the ChoiceOne Wealth department, which is off balance sheet. The cost of deposits has increased to 0.62% during the three months ended March 31, 2023 compared to 0.47% and 0.15% for the three months ended December 31, 2022 and March 31, 2022, respectively, due to rising short term interest rates and is expected to continue to hold strong with an increase of $18.1 million 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 12 basis points since the third quarter of 2021, asdeposits reprice. ChoiceOne is actively managing these costs and willexpects rates paid on deposits to continue to lag the expected increases infederal fund rate.
Uninsured deposits total $751.4 million or 36% of deposits at March 31, 2023 compared to $823.2 million, or 39% of total deposits and $889.2 million, or 43% of total deposits at December 31, 2022 and 2021, respectively. At March 31, 2023, total available borrowing capacity from all sources was $405.7 million. Management notes that if additional collateral is pledged to the federal funds rate. FHLB, the Federal Reserve Discount Window, or the new Bank Term Funding Program, borrowing capacity from all sources would increase to over $800 million, which exceeds uninsured deposits.
37
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 useincreased its Federal Home Loan Bank advances andby $35.0 million in the first quarter of 2023 to $85.0 million in total at March 31, 2023 compared to $50.0 million at December 31, 2022. During the first quarter of 2023 ChoiceOne also obtained $37.8 million in short term brokered deposits, which were locked in at below market rates prior to the latest increase by the Federal Reserve. Brokered deposits allow us to preserve borrowing capacity at more accessible funding options. ChoiceOne will continue to use brokered deposits, Federal Home Loan Bank advances, advances from the Federal Reserve Bank Discount Window, and potentially the Bank Term Funding Program to meet short-term funding needs in the remainder of 2022.
2023.
Shareholders' Equity
Total shareholders'Shareholders’ equity declined $65.0totaled $168.7 million as of March 31, 2023, flat compared to December 31, 2022 and down from $191.1 million compared to March 31, 2022. The decline from March 31, 2022 is primarily due to an increase in the first nine months of 2022. As previously referenced the 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. This change in interest rates increased ChoiceOne'safter-tax net unrealized pre-tax loss on thesecurities available for sale securities portfolioresulting from $3.3 million on December 31, 2021 to $102.9 million 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 elected to utilize interest rate derivatives in order to better manage its interest rate risk position. On April 21, 2022, ChoiceOne purchased four 2-year forward-starting interest rate caps with a total notional amount of $200.0 million and entered into a $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 inhigher market interest rates. ChoiceOne also entered into multiple received-fixeduses interest rate swaps to manage interest rate exposure to certain fixed assets and variable rate liabilities. On March 31, 2022 ChoiceOne has pay-fixed interest rate swaps with a total notional amountvalue of $200.0 million with a 2-year term,$401.0 million. These derivative instruments increase in value as long-term interest rates rise, which offsets the reduction in equity due to unrealized losses on securities available for sale.
On January 1, 2023, ChoiceOne adopted ASU 2016-13 CECL which caused an increase in the current environment, offsetsACL of $7.2 million and booked a liability for expected credit losses on unfunded loans and other commitments of $3.3 million related to the adoption of CECL guidance. The increase in the allowance and the cost of the rising rate protection. These three strategies,liability resulted in a decrease in the aggregate, are expectedretained earnings account on our Consolidated Balance Sheet equal to be neutral to net incomethe after-tax impact, with the tax impact portion being recorded in 2022deferred taxes in our Consolidated balance Sheet in accordance with FASB guidance. This reduction in retained earnings was offset by first quarter 2023 earnings and better position ChoiceOne Bank should rates continue to rise and remain elevated. Importantly, the transactions were structured to qualify for hedge accounting, which means that changes in the fair valuerecovery of certain instruments flow throughaccumulated other comprehensive income (equity). Refer to further details in Note 8 to the consolidated financial statements included in this report. loss.
A reduction in common stock and paid in capital resulted from ChoiceOne's repurchase of 25,899 shares for $682,000, or a weighted average all-in cost per share of $26.35, during the first quarter of 2022. No shares of common stock were repurchased during the second or third quarters of 2022; however, ChoiceOne may strategically repurchase shares of common stock in the future depending on market and other conditions.
38
Regulatory Capital Requirements
Following is information regarding compliance of ChoiceOne and ChoiceOne Bank with regulatory capital requirements:
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ChoiceOne Financial Services Inc. |
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Total capital (to risk weighted assets) | $ | 216,524 | 13.7 | % | $ | 126,267 | 8.0 | % | N/A | N/A | $ | 219,626 |
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Common equity Tier 1 capital (to risk weighted assets) | 172,632 | 10.9 | 71,025 | 4.5 | N/A | N/A |
| 174,088 |
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| 73,072 |
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Tier 1 capital (to risk weighted assets) | 177,132 | 11.2 | 94,700 | 6.0 | N/A | N/A |
| 178,588 |
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| 97,429 |
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Tier 1 capital (to average assets) | 177,132 | 7.6 | 93,179 | 4.0 | N/A | N/A |
| 178,588 |
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| 7.7 |
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| 93,290 |
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ChoiceOne Bank |
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Total capital (to risk weighted assets) | $ | 201,500 | 12.8 | % | $ | 126,071 | 8.0 | % | $ | 157,589 | 10.0 | % | $ | 211,447 |
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Common equity Tier 1 capital (to risk weighted assets) | 194,043 | 12.3 | 70,915 | 4.5 | 102,433 | 6.5 |
| 202,416 |
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| 12.5 |
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| 72,922 |
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| 4.5 |
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| 105,332 |
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Tier 1 capital (to risk weighted assets) | 194,043 | 12.3 | 94,553 | 6.0 | 126,071 | 8.0 |
| 202,416 |
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| 12.5 |
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| 97,230 |
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Tier 1 capital (to average assets) | 194,043 | 8.3 | 93,081 | 4.0 | 116,351 | 5.0 |
| 202,416 |
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| 8.7 |
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| 93,161 |
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| 116,451 |
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ChoiceOne Financial Services Inc. |
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Total capital (to risk weighted assets) | $ | 204,353 | 14.4 | % | $ | 113,604 | 8.0 | % | N/A | N/A | $ | 222,006 |
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Common equity Tier 1 capital (to risk weighted assets) | 160,338 | 11.3 | 63,902 | 4.5 | N/A | N/A |
| 177,916 |
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| 72,307 |
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Tier 1 capital (to risk weighted assets) | 164,838 | 11.6 | 85,203 | 6.0 | N/A | N/A |
| 182,416 |
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| 96,409 |
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Tier 1 capital (to average assets) | 164,838 | 7.4 | 89,415 | 4.0 | N/A | N/A |
| 182,416 |
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| 7.9 |
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ChoiceOne Bank |
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Total capital (to risk weighted assets) | $ | 182,275 | 12.9 | % | $ | 113,444 | 8.0 | % | $ | 141,806 | 10.0 | % | $ | 208,696 |
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Common equity Tier 1 capital (to risk weighted assets) | 174,587 | 12.3 | 63,813 | 4.5 | 92,174 | 6.5 |
| 201,077 |
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| 12.5 |
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| 72,165 |
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| 104,239 |
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Tier 1 capital (to risk weighted assets) | 174,587 | 12.3 | 85,083 | 6.0 | 113,444 | 8.0 |
| 201,077 |
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Tier 1 capital (to average assets) | 174,587 | 7.8 | 89,289 | 4.0 | 111,611 | 5.0 |
| 201,077 |
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| 92,449 |
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| 115,562 |
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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 September 30, 2022March 31, 2023 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.
39
Liquidity
Net cash provided by operating activities was $32.0$9.2 million for the ninethree months ended September 30, 2022March 31, 2023 compared to $29.6$2.8 million in the same period a year ago. The change was due to lowerhigher net proceeds from loan sales in 20222023 compared to 2021, which was offset by the change in other assets and liabilities.2022. Net cash used in investing activities was $60.5$18.9 million for the ninethree months ended September 30, 2022March 31, 2023 compared to $398.6$14.5 million of cash provided by investing activities in the same period in 2021.2022. ChoiceOne purchased $61.9$2.5 million of securities and had maturities or sales of securities of $92.5$10.0 million in the first nine monthsquarter of 20222023 compared to $514.2$31.4 million and $39.8$14.2 million in the same periods in 2021,2022, respectively. An increase in net loan originations led to cash used of $73.3$20.7 million in the first nine monthsquarter of 20222023 compared to cash provided of $78.1$31.8 million in the same period during the prior year. Net cash provided by financing activities was $48.1$21.0 million for the first nine monthsquarter of 2022,2023, compared to $349.3$40.1 million in the same period in the prior year. ChoiceOne experienced growtha decline of $104.4$12.1 million in deposits in the first nine monthsquarter of 20222023 compared to $337.6$93.3 million of growth in 2022. ChoiceOne increased borrowing by $35.0 million in 2021, while also seeingthe first quarter of 2023 compared to a $72.5decrease of $50.0 million decrease in borrowings, which led to the change.same period during the prior year.
ChoiceOneChoiceOne's market risk exposure occurs in the form of interest rate risk and liquidity risk. ChoiceOne's business is transacted in U.S. dollars with no foreign exchange risk exposure. Agricultural loans comprise a relatively small portion of ChoiceOne's total assets. Management believes that ChoiceOne's exposure to changes in commodity prices is insignificant.
Management believes that the current level of liquidity isand sources of additional liquidity are sufficient to meet ChoiceOnethe Bank's normal operatingfuture liquidity needs. This belief is based upon the availability of deposits from both the local and national markets, our core deposit base, maturities of and cash flows from securities, normal loan repayments, income retention, federal funds purchased from correspondent banks,and advances available from the Federal Home LoanFHLB. Liquidity risk deals with ChoiceOne's ability to meet its cash flow requirements. These requirements include depositors desiring to withdraw funds and borrowers seeking credit. Longer-term liquidity needs may be met through core deposit growth, maturities of and cash flows from securities, normal loan repayments, advances from the FHLB, brokered certificates of deposit, and income retention. ChoiceOne had $85.0 million in outstanding borrowings at the FHLB as of March 31, 2023, and $316.1 million of additional borrowing capacity was available based on residential real estate loans pledged and if securities were pledged as collateral. The acceptance of brokered certificates of deposit is not limited as long as the Bank and secured lines of creditis categorized as “well capitalized” under regulatory guidelines. At March 31, 2023, total available borrowing capacity from all sources was $405.7 million. ChoiceOne estimates that if additional collateral is pledged to the FHLB, the Federal Reserve Bank.Discount Window, or the new Bank Term Funding Program, we would increase available borrowing capacity from all sources to over $800 million.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedingsChoiceOne continues to which ChoiceOne or ChoiceOne Bank is a party orreview its liquidity management and has taken steps in an effort to which any of their properties are subject, except for proceedings that aroseensure adequacy. These steps include limiting bond purchases 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. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of equity securities in the thirdfirst quarter of 2022.2023, moving safekeeping of securities to FHLB in order to increase borrowing capacity, if pledged and using alternative funding sources such as brokered deposits.
ISSUER PURCHASES OF EQUITY SECURITIES
There were no issuer purchases of equity securities during the third quarter of 2022.
Item 4. Controls and Procedures.
An evaluation was performed under the supervision and with the participation of ChoiceOne’s management, including the Chief Executive Officer and PrincipalChief Financial Officer, of the effectiveness of the design and operation of ChoiceOne’s disclosure controls and procedures as of September 30, 2022.March 31, 2023. Based on and as of the time of that evaluation, ChoiceOne’s management, including the Chief Executive Officer and PrincipalChief 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 disclosed in the reports that ChoiceOne files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and 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 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 change in ChoiceOne’s internal control over financial reporting that occurred during the three months ended September 30, 2022March 31, 2023 that has materially affected, or that is reasonably likely to materially affect, ChoiceOne’s internal control over financial reporting.
40
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.
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, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of equity securities in the first quarter of 2023.
There were no issuer purchases of equity securities during the first quarter of 2023.
Item 5. Other Information
None.
41
Item 6. Exhibits
The following exhibits are filed or incorporated by reference as part of this report:
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Exhibit | Document | ||
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) |
SIGNATURES
42
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: | /s/ Kelly J. Potes | |
Kelly J. Potes | ||
Date: | /s/ Adom J. Greenland | |
Adom J. Greenland |
43