ChoiceOne Financial Reports Fourth Quarter and Year End 2021 Results

COFS

SPARTA, Mich., Jan. 26, 2022 /PRNewswire/ -- ChoiceOne Financial Services, Inc. ("ChoiceOne", NASDAQ: COFS), the parent company for ChoiceOne Bank reported financial results for the quarter and year ended December 31, 2021.

Significant items impacting comparable fourth quarter and year end 2021 and 2020 results include the following:

Financial Highlights

ChoiceOne reported net income of $5,012,000 and $22,042,000 during the three and twelve months ended December 31, 2021, compared to $4,100,000 and $15,613,000 in the same periods in 2020.  Diluted earnings per share were $0.66 and $2.86 during the three and twelve months ended December 31, 2021, compared to $0.52 and $2.07 per share in the same periods in the prior year.  Excluding $547,000 in tax-effected merger related expenses, net income for the fourth quarter of 2020 was $4,647,000 and $0.59 per diluted share.  Net income for the year ended December 31, 2020, excluding $2.7 million of tax-effected merger expenses, was $18,327,000 or $2.43 per diluted share.

Total assets grew $89.5 million and total deposits grew $40.1 million from September 30, 2021 to December 31, 2021.  Total assets grew $447.3 million in the twelve months ended December 31, 2021, while deposit growth during the twelve months ended December 31, 2021 was $377.7 million.  Despite the large increase in deposits, ChoiceOne has been able to maintain low deposit costs; interest expense from deposits decreased $873,000 during the year ended 2021 compared to the same period in 2020.  Excluding PPP loans forgiven during the quarter, held for sale loans, and loans held at other financial institutions, ChoiceOne grew loans organically by $56.6 million during the fourth quarter of 2021.  During the three and twelve months ended December 31, 2021, $28.1 million and $192.5 million of  PPP loans were forgiven resulting in $1.2 million and $5.2 million of fee income, respectively.  $33.1 million in PPP loans and $1.2 million in deferred PPP fee income remains as of December 31, 2021.  Management expects the remaining PPP loans to be forgiven in the first half of 2022.

During the fourth quarter and year ended December 31, 2021, ChoiceOne recorded accretion income related to acquired loans in the amount of $203,000 and $1.1 million, respectively.  The remaining credit mark on acquired loans from the mergers with County Bank Corp. and Community Shores Bank Corporation totaled $6.8 million as of December 31, 2021.  ChoiceOne had no provision expense for the three months ended December 31, 2021, as management has seen declining deferrals and very few past due loans as the economy gradually recovers from the COVID-19 pandemic.

In an effort to deploy deposit growth, ChoiceOne grew its securities portfolio $71.7 million in the fourth quarter of 2021 and $530.6 million in the year ended December 31, 2021.  Management believes ChoiceOne's investments are sufficiently short-term to allow for sufficient liquidity to fund continued organic loan growth.

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 used a portion of net proceeds of the private placement to redeem senior debt, fund common stock repurchases, and support bank-level capital ratios.

Total noninterest income declined $1.5 million and $3.5 million in the three and twelve months ended December 31, 2021, respectively, compared to the same periods in the prior year.  Total noninterest income in 2020 was bolstered by heightened levels of refinancing activity within ChoiceOne's mortgage portfolio, with gains on sales of loans $3.7 million larger than in 2021.  Customer service charges increased $373,000 and $1.4 million in the three and twelve months ended December 31, 2021, respectively, compared to the same periods in the prior year.  Prior year service charges were depressed by stay-at-home orders during the COVID 19 pandemic.  Current year service charges also included the effect from the merger with Community Shores, which closed on July 1, 2020.

Total noninterest expense increased $2.0 million in the year ended December 31, 2021, compared to the same time period in 2020.  Much of the increase in 2021 was caused by the increase in scale related to the merger with Community Shores.  During 2021, ChoiceOne hired six experienced commercial lenders, opened a loan production office in Wyoming Michigan, and added four experienced members to our wealth management team focused on growing the wealth management and trust business.

"I am very pleased to report our strong results for the fourth quarter and record results for the year ended December 31, 2021," said Kelly Potes, Chief Executive Officer of ChoiceOne.  "During 2021, we realized cost benefits of our new scale following our mergers in 2019 and 2020.  In addition, we added experienced lenders to our team which has helped us achieve loan growth and have momentum heading into 2022 to further deploy our outstanding local deposit base. We continue to invest in growing our fee income with recent experienced additions to our wealth management team and technology investments in our online mortgage application.  Our capital position is strong, bolstered by our subordinated debt offering completed in September 2021 and positions us well to continue to grow the franchise and deliver shareholder value.  I am thankful and blessed to be part of the talented team at ChoiceOne and particularly pleased that we were named 'Best Small Bank' in Michigan by Newsweek for a second year in a row.  This is a testament to our employees and the service they provide to our customers and communities."

About ChoiceOneChoiceOne 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.

Non-GAAP Financial MeasuresThis press release contains references to certain financial measures that are not defined in U.S. generally accepted accounting principles ("GAAP"). Management believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the underlying financial performance of ChoiceOne.

Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. ChoiceOne's method of calculating these non-GAAP financial measures may differ from methods used by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.

Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in this news release. See Non-GAAP Reconciliation.

Forward-Looking StatementsThis 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, 2020.

Condensed Balance Sheets

(Unaudited)

(In thousands)

12/31/2021

12/31/2020

Cash and cash equivalents

$

31,887

$

79,519

Securities

1,116,264

585,687

Loans held for sale

9,351

12,921

Loans to other financial institutions

42,632

35,209

Loans, net of allowance for loan losses

1,009,161

1,062,075

Premises and equipment

29,880

29,489

Cash surrender value of life insurance policies

43,356

32,751

Goodwill

59,946

60,506

Core deposit intangible

3,962

5,269

Other assets

20,243

15,916

Total Assets

$

2,366,682

$

1,919,342

Noninterest-bearing deposits

$

560,931

$

477,654

Interest-bearing deposits

1,491,363

1,196,924

Borrowings

50,000

9,327

Subordinated debentures

35,017

3,089

Other liabilities

7,702

5,080

Total Liabilities

2,145,013

1,692,074

Shareholders' Equity

221,669

227,268

Total Liabilities and Shareholders' Equity

$

2,366,682

$

1,919,342

Condensed Statements of Income

(Unaudited)

Three Months Ended

Twelve Months Ended

(In thousands, except per share data)

12/31/2021

12/31/2020

12/31/2021

12/31/2020

Interest income

Loans, including fees

$

12,002

$

12,764

$

48,657

$

46,874

Securities and other

4,816

2,276

15,961

8,841

Total Interest Income

16,818

15,040

64,618

55,715

Interest expense

Deposits

749

949

3,305

4,178

Borrowings

324

99

672

466

Total Interest Expense

1,073

1,048

3,977

4,644

Net interest income

15,745

13,992

60,641

51,071

Provision for loan losses

-

1,000

416

4,000

Net Interest Income After Provision for Loan Losses

15,745

12,992

60,225

47,071

Noninterest income

Customer service charges

2,319

1,946

8,628

7,252

Insurance and investment commissions

141

125

765

541

Gains on sales of loans

554

1,673

4,441

8,133

Gains (loss) on sales of securities

(43)

-

(40)

1,308

Trust income

178

169

790

739

Earnings on life insurance policies

239

195

809

772

Change in market value of equity securities

18

29

479

(155)

Other income

738

1,551

3,322

4,108

Total Noninterest Income

4,144

5,688

19,194

22,698

Noninterest expense

Salaries and benefits

7,581

6,994

29,300

26,539

Occupancy and equipment

1,577

1,598

6,168

5,783

Data processing

1,616

2,128

6,189

6,765

Professional fees

583

819

3,009

3,716

Core deposit intangible amortization

302

396

1,307

1,498

Other expenses

2,099

1,833

6,948

6,583

Total Noninterest Expense

13,758

13,768

52,921

50,884

Income Before Income Tax

6,131

4,912

26,498

18,885

Income Tax Expense

1,119

812

4,456

3,272

Net Income

$

5,012

$

4,100

$

22,042

$

15,613

Basic Earnings Per Share

$

0.67

$

0.53

$

2.87

$

2.08

Diluted Earnings Per Share

$

0.66

$

0.52

$

2.86

$

2.07

Non-GAAP Reconciliation(Unaudited)

In addition to analyzing ChoiceOne's results on a reported basis, management reviews ChoiceOne's results and the results on an adjusted basis. The non-GAAP measures presented in the table below reflect the adjustments of the reported U.S. GAAP results for significant items thatmanagement does not believe are reflective of ChoiceOne's current and ongoing operations.

Three Months Ended

Twelve Months Ended

(In thousands, except per share data)

12/31/2021

12/31/2020

12/31/2021

12/31/2020

Income before income tax

$

6,131

$

4,912

$

26,498

$

18,885

Adjustment for merger-related expenses

-

692

-

3,219

Adjusted income before income tax

$

6,131

$

5,604

$

26,498

$

22,104

Income tax expense

$

1,119

$

812

$

4,456

$

3,272

Tax impact on adjustment for merger-related expenses

-

145

-

505

Adjusted income tax expense

$

1,119

$

957

$

4,456

$

3,777

Net income

$

5,012

$

4,100

$

22,042

$

15,613

Adjusted net income

$

5,012

$

4,647

$

22,042

$

18,327

Basic earnings per share

$

0.67

$

0.53

$

2.87

$

2.08

Diluted earnings per share

$

0.66

$

0.52

$

2.86

$

2.07

Adjusted basic earnings per share

$

0.67

$

0.60

$

2.87

$

2.44

Adjusted diluted earnings per share

$

0.66

$

0.59

$

2.86

$

2.43

Other Selected Financial Highlights

(Unaudited)

Quarterly

Earnings

2021 4thQtr.

2021 3rd Qtr.

2021 2nd Qtr.

2021 1st Qtr.

2020 4thQtr.

(in thousands except per share data)

Net interest income

$

15,745

$

15,700

$

14,508

$

14,688

$

13,992

Provision for loan losses

-

-

166

250

1,000

Noninterest income

4,144

4,718

4,732

5,600

5,689

Noninterest expense

13,758

13,506

13,129

12,528

13,769

Net income before federal income tax expense

6,131

6,912

5,945

7,510

4,912

Income tax expense

1,119

1,163

902

1,272

812

Net income

5,012

5,749

5,043

6,238

4,100

Basic earnings per share

0.67

0.75

0.65

0.80

0.53

Diluted earnings per share

0.66

0.75

0.65

0.80

0.52

End of period balances

2021 4th Qtr.

2021 3rdQtr.

2021 2nd Qtr.

2021 1st Qtr.

2020 4th Qtr.

(in thousands)

Gross loans

$

1,068,832

$

1,034,590

$

1,017,472

$

1,061,131

$

1,117,798

Loans held for sale (1)

9,351

7,505

12,884

18,736

12,921

Loans to other financial institutions (2)

42,632

38,728

-

7,312

35,209

PPP loans (3)

33,129

61,192

109,898

137,458

138,028

Core loans (gross loans excluding 1, 2, and 3 above)

983,720

927,165

894,690

897,625

931,640

Allowance for loan losses

7,688

7,755

7,950

7,740

7,593

Securities

1,116,264

1,044,538

871,964

734,435

585,687

Other interest-earning assets

9,751

30,383

64,407

106,279

40,614

Total earning assets (before allowance)

2,194,847

2,109,511

1,953,843

1,901,845

1,744,099

Total assets

2,366,682

2,277,180

2,120,931

2,070,103

1,919,342

Noninterest-bearing deposits

560,931

543,165

527,964

515,552

477,654

Interest-bearing deposits

1,491,363

1,468,985

1,352,771

1,324,412

1,196,924

Total deposits

2,052,294

2,012,150

1,880,735

1,839,964

1,674,578

Total subordinated debt

35,017

34,956

3,140

3,115

3,089

Total borrowed funds

50,000

-

2,642

3,484

9,327

Total interest-bearing liabilities

1,576,380

1,503,941

1,358,553

1,331,011

1,209,340

Shareholders' equity

221,669

225,055

228,521

218,639

227,268

Average Balances

2021 4th Qtr.

2021 3rdQtr.

2021 2nd Qtr.

2021 1st Qtr.

2020 4th Qtr.

(in thousands)

Loans

$

1,019,966

$

1,021,326

$

1,041,118

$

1,080,181

$

1,132,711

Securities

1,079,616

922,653

824,753

639,803

458,350

Other interest-earning assets

29,999

106,831

57,782

84,822

67,241

Total earning assets (before allowance)

2,129,581

2,050,810

1,923,653

1,804,806

1,658,302

Total assets

2,298,579

2,234,228

2,091,900

1,989,760

1,870,136

Noninterest-bearing deposits

556,214

545,251

533,877

479,649

482,271

Interest-bearing deposits

1,472,022

1,441,831

1,327,836

1,266,356

1,153,337

Total deposits

2,028,236

1,987,082

1,861,713

1,746,005

1,635,608

Total subordinated debt

35,674

9,154

3,123

3,099

3,077

Total borrowed funds

8,010

2,667

2,758

8,462

3,484

Total interest-bearing liabilities

1,515,706

1,453,652

1,333,717

1,277,917

1,159,898

Shareholders' equity

221,076

229,369

224,993

224,257

224,340

Performance Ratios

2021 4th Qtr.

2021 3rd Qtr.

2021 2nd Qtr.

2021 1st Qtr.

2020 4th Qtr.

Return on average assets

0.87

%

1.03

%

0.96

%

1.25

%

0.88

%

Return on average equity

9.07

%

10.03

%

8.97

%

11.13

%

7.31

%

Return on average tangible common equity

12.16

%

13.28

%

11.89

%

16.31

%

11.15

%

Net interest margin (fully tax-equivalent)

3.04

%

3.06

%

3.02

%

3.23

%

3.44

%

Efficiency ratio

66.15

%

63.16

%

64.70

%

61.20

%

67.17

%

Full-time equivalent employees

374

358

362

355

369

SOURCE ChoiceOne Financial Services, Inc.