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ChoiceOne Financial Reports Second Quarter 2022 Results

ChoiceOne Financial Services, Inc. ("ChoiceOne", NASDAQ:COFS), the parent company for ChoiceOne Bank, reported financial results for the quarter ended June 30, 2022.  

"ChoiceOne continues to see strong organic core loan growth, as core loans grew organically by $60.7 million or 23.8% on an annualized basis in the second quarter of 2022 and $184.9 million or 20.7% since the end of the second quarter in 2021,” said Kelly Potes, Chief Executive Officer.  "We have invested in both talent and technology, and our pipeline continues to be strong with customers that value our expertise and experience over rates.  We have funded this increase in core loans using on balance sheet liquidity.  The value of our bank is not in the rates offered, but in the relationships and trust we have built over time with both clients and employees.  This serves us well as we navigate a new interest rate environment. "

Total assets as of June 30, 2022, declined $16.6 million as compared to March 31, 2022, and increased $239.3 million compared to June 30, 2021.  Deposits in the second quarter were relatively flat primarily due to the seasonality of ChoiceOne's municipal clients and some modest deposit runoff as ChoiceOne has held deposit rates through the rapidly rising rate environment.  Despite the 13.7% growth in deposits since June 30, 2021, ChoiceOne has been able to maintain relatively low deposit costs, with an increase in interest expense of only 3.5% for the first six months of 2022 compared to the first six months of 2021.  Interest expense has increased primarily due to the issuance of $32.5 million in subordinated debt that was completed in the third quarter of 2021. Core loans grew organically by $60.7 million during the second quarter of 2022, driven by commercial loan growth of $42.0 million and retail home loan growth of $16.5 million. ChoiceOne recently launched a new five-year adjustable-rate mortgage product targeting high quality borrowers in our market area.  This loan product is expected to bolster our retail loan portfolio for the remainder of 2022, as the market demand for this product has increased.  Loans to other financial institutions increased by $37.4 million during the second quarter of 2022. Loans to other financial institutions is comprised of a warehouse line of credit to facilitate mortgage loan originations and rates fluctuate with the national mortgage market.  During the three months ended June 30, 2022, $6.7 million of PPP loans were forgiven resulting in $283,000 of fee income.  $1.8 million in PPP loans and $68,000 in deferred PPP fee income remains outstanding as of June 30, 2022.  Management expects the remaining PPP loans to be forgiven by the end of 2022.  Interest income increased $4.1 million in the first half of 2022 compared to the first half of 2021.  Driving this increase was an increase of $3.5 million in securities interest income in the first half of 2022 compared to the first half of 2021 due to a higher average balance.  The $574,000 increase in loan interest income was primarily a result of higher loan balances and $1.2 million of accretion income from acquired loans partially offset by a decrease in PPP fee income. 

ChoiceOne had no provision for loan losses expense for the six months ended June 30, 2022, as management has seen declining deferrals and very few past due loans.  At June 30, 2022, the allowance for loan losses represented 0.69% of total loans.  The remaining credit mark on acquired loans from the mergers with County Bank Corp. and Community Shores Bank Corporation totaled $3.1 million as of June 30, 2022.  If the credit mark associated with the loans acquired in the mergers were added to the allowance for loan losses, the allowance for loan losses would have represented 0.97% of total loans excluding loans held for sale on June 30, 2022.

Shareholders’ equity totaled $166.5 million as of June 30, 2022, down from $228.5 million as of June 30, 2021, primarily due to an increase in the after-tax net unrealized loss on securities available for sale resulting from higher market interest rates. ChoiceOne Bank remains “well-capitalized” with a total risk-based capital ratio of 12.7% as of June 30, 2022, compared to 13.7% at June 30, 2021.  No shares of common stock were repurchased during the second quarter of 2022; however, ChoiceOne may strategically repurchase shares of common stock in the future depending on market and other conditions. 

Total noninterest income declined $3.1 million in the first half of 2022 compared to the first half of 2021.  Total noninterest income in 2021 was bolstered by heightened levels of refinancing activity within ChoiceOne's mortgage portfolio, with gains on sales of loans $2.2 million larger than in the first six months of 2022.  Customer service charges increased $488,000 in the first half of 2022 compared to the first half of 2021 as prior year service charges were depressed by the effects of the COVID 19 pandemic.  The market value of equity securities declined during the first half of 2022 compared to the first half of 2021 consistent with general market conditions.  Equity investments include local community bank stocks and Community Reinvestment Act bond mutual funds.  During the second quarter, ChoiceOne liquidated $31.5 million in securities resulting in a $427,000 realized loss, 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.

Total noninterest expense increased $1.2 million in the first half of 2022 compared to the first half of 2021.  The increase is related to an increase in salaries and wages due to new commercial loan production and wealth management staff.  This investment in people will increase expenses short term but is expected to drive long term value to ChoiceOne through the building of new relationships.  Other expenses have also increased in the first half of 2022 compared to the same period in the prior year due to an increase to our FDIC insurance related expenses and other expenses.  ChoiceOne continues to monitor expenses and looks to improve our efficiency through automation and use of digital tools.

Potes further commented, “I am happy to announce that we will be expanding into Oakland County with a loan production office.  It is intended that this office will house both commercial and mortgage lenders and will help us continue to build quality customer relationships in a growing market.” 

About ChoiceOne

ChoiceOne Financial Services, Inc. is a financial holding company headquartered in Sparta, Michigan and the parent corporation of ChoiceOne Bank. Member FDIC. ChoiceOne Bank operates 35 offices in parts of Kent, Lapeer, Macomb, Muskegon, Newaygo, Ottawa, and St. Clair counties. ChoiceOne Bank offers insurance and investment products through its subsidiary, ChoiceOne Insurance Agencies, Inc. For more information, please visit Investor Relations at ChoiceOne’s website at choiceone.com.

Forward-Looking Statements

This release may contain forward-looking statements. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "plans," "predicts," "projects," "may," "could," "look forward," "continue", "future" and variations of such words and similar expressions are intended to identify such forward looking statements. These statements reflect current beliefs as to the expected outcomes of future events and are not guarantees of future performance. These statements 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. Risk factors include, but are not limited to, the risk factors described in Item 1A in ChoiceOne Financial Services, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2021.

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