PR Newswire | Oct 27, 2021 04:31PM EDT

10/27 15:30 CDT

ChoiceOne Financial Reports Third Quarter 2021 Results SPARTA, Mich., Oct. 27, 2021

SPARTA, Mich., Oct. 27, 2021 /PRNewswire/ -- ChoiceOne Financial Services, Inc. ("ChoiceOne", NASDAQ:COFS), the parent company for ChoiceOne Bank, reported financial results for the quarter ended September 30, 2021.

Significant items impacting comparable nine months ended September 30, 2021 and 2020 results included the following:

* On July 1, 2020, ChoiceOne completed the merger of Community Shores Bank Corporation ("Community Shores"), the former parent company of Community Shores Bank, with and into ChoiceOne with ChoiceOne surviving the merger. Community Shores Bank was consolidated with and into ChoiceOne Bank (the "Bank") effective October 16, 2020. The total assets, loans and deposits acquired in the merger with Community Shores were approximately $244.0 million, $173.9 million and $227.8 million, respectively. * There were no merger-related expenses in the first nine months of 2021. ChoiceOne incurred tax-effected merger-related expenses of approximately $1.4 million and $2.2 million, respectively ($0.18 per diluted share and $0.29 per diluted share, respectively), for the third quarter and nine months ended September 30, 2020.

Financial Highlights

* Net income of $5,749,000 and $17,030,000 for the three and nine months ended September 30, 2021 compared to $3,829,000 and $11,513,000 in the same periods in 2020. * Diluted earnings per share of $0.75 and $2.20 in the three and nine months ended September 30, 2021 compared to $0.49 and $1.55 per share in the same periods in the prior year. * Excluding PPP loans forgiven during the quarter, ChoiceOne grew loans organically by $32.5 million during the third quarter of 2021. * In the third quarter and first nine months of 2021, $48.7 million and $164.5 million of Paycheck Protection Program ("PPP") loans were forgiven resulting in $1.6 million and $4.0 million of fee income, respectively. $2.4 million in PPP fee income remains deferred as of September 30, 2021. * Total deposits grew $131.4 million in the third quarter of 2021 and $425.8 million since the third quarter of 2020. * 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 intends to use net proceeds of the private placement for general corporate purposes, including support for organic growth plans, possible redemption of senior debt, common stock repurchases, and support for bank-level capital ratios. * ChoiceOne repurchased approximately 223,000 shares for $5.6 million, or a weighted average all-in cost per share of $24.94, during the first nine months of 2021. This was part of the common stock repurchase program announced in April 2021 which authorized repurchases of up to 390,114 shares, representing 5% of the total outstanding shares of common stock as of the date the plan was adopted. This program replaced and superseded all prior repurchase programs for ChoiceOne. * During the third quarter of 2021, ChoiceOne agreed to become a limited partner in Banktech Ventures LP, a venture capital fund that specializes in connecting and accelerating bank technology-focused startups.

ChoiceOne reported net income of $5,749,000 for the third quarter of 2021 compared to $3,829,000 in the same period in 2020. Diluted earnings per share were $0.75 in the third quarter of 2021 compared to $0.49 per share in the third quarter of the prior year. Excluding $1.4 million in tax-effected merger related expenses, net income for the third quarter of 2020 was $5,252,000 and $0.67 per diluted share. Net income for the first nine months of 2021 was $17,030,000 or $2.20 per diluted share, compared to $11,513,000 or $1.55 per diluted share in the first nine months of 2020. Net income for the first nine months of 2020, excluding $2.2 million of tax-effected merger expenses, was $13,680,000 or $1.84 per diluted share.

Total assets grew $156.0 million from June 30, 2021 to September 30 2021 due in part to $131.4 million in deposit growth during the third quarter of 2021. Total assets grew $447.9 million in the twelve months ended September 30, 2021, while deposit growth during the twelve months ended September 30, 2021 was $425.8 million. Despite the large increase in deposits, ChoiceOne has been able to maintain low deposit costs; interest expense from deposits decreased $109,000 in the third quarter of 2021 and $673,000 in the first nine months of 2021 compared to the same periods in 2020. Excluding PPP loans forgiven during the quarter, ChoiceOne grew loans organically by $32.5 million during the third quarter of 2021 due in part to new experienced lenders and an emphasis on organic loan growth during 2021. In the third quarter and first nine months of 2021, $48.7 million and $164.5 million of Paycheck Protection Program ("PPP") loans were forgiven resulting in $1.6 million and $4.0 million of fee income, respectively. $2.4 million in PPP fee income remains deferred as of September 30, 2021. During the third quarter and first nine months of 2021, ChoiceOne recorded accretion income related to paydowns of acquired loans in the amount of $253,000 and $924,000, respectively. The remaining credit mark on acquired loans from the recent mergers with County Bank Corp. and Community Shores totaled $7.1 million as of September 30, 2021. ChoiceOne had no provision expense for the three months ended September 30, 2021 as management has seen declining deferrals and very few past due loans as the economy recovers from the COVID-19 pandemic. In an effort to deploy deposit growth, ChoiceOne grew its securities portfolio $172.6 million in the third quarter of 2021 and $641.8 million in the twelve months ended September 30, 2021. During the third quarter of 2021, ChoiceOne agreed to become a limited partner in Banktech Ventures LP, a venture capital fund that specializes in connecting and accelerating bank technology-focused startups. Management believes its investments are sufficiently short-term to allow loans to grow organically as good credits become available. 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 intends to use net proceeds of the private placement for general corporate purposes, including support for organic growth plans, possible redemption of senior debt, common stock repurchases, and support for bank-level capital ratios.

Total noninterest income declined $1.6 million and $2.0 million in the three and nine months ended September 30, 2021, respectively. Total noninterest income in the third quarter of 2020 was bolstered by heightened levels of refinancing activity within ChoiceOne's mortgage portfolio, with gains on sales of loans $1.8 million larger than in the third quarter of 2021. Customer service charges increased $196,000 and $1.0 million in the three and nine months ended September 30, 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 of a merger with Community Shores which closed on July 1, 2020.

Total noninterest expense declined $1.0 million in the third quarter of 2021 and increased $2.0 million in the first nine months of 2021 compared to the same time periods in 2020. The decrease during the third quarter of 2021 was due to savings on salaries of personnel, data processing, and professional fees related to the merger with Community Shores. Much of the increase in the first nine months of 2021 was caused by the increase in scale related to the merger with Community Shores.

"We continue to see strong organic growth in our core deposit base and adding to our experienced team has paid dividends in the form of loan growth" said Kelly Potes, Chief Executive Officer. "I am very pleased with our results for the third quarter and year to date 2021 and look forward to continuing this momentum in the future."

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 34 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.

The COVID-19 pandemic is adversely affecting us and our customers, counterparties, and third-party service providers. The ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Additional 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) 9/30/2021 6/30/2021 9/30/2020

Cash and Cash Equivalents $ 59,780 $ 95,318 $ 117,883

Securities 1,044,538 871,964 402,776

Loans Held For Sale 7,505 12,884 35,826

Loans to Other Financial Institutions 38,728 - 55,064

Loans, Net of Allowance For Loan Losses 980,603 996,637 1,072,111

Premises and Equipment 30,014 29,615 29,927

Cash Surrender Value of Life Insurance 33,322 33,128 32,556Policies

Goodwill 59,946 59,946 60,506

Core Deposit Intangible 4,264 4,610 5,664

Other Assets 18,213 16,830 16,671

Total Assets $ 2,276,913 $ 2,120,932 $ 1,828,984

Noninterest-bearing Deposits $ 543,165 $ 527,964 $ 447,548

Interest-bearing Deposits 1,468,985 1,352,771 1,138,822

Subordinated Debt 35,665 5,782 13,234

Other Liabilities 4,043 5,894 6,454

Total Liabilities 2,051,858 1,892,411 1,606,058

Shareholders' Equity 225,055 228,521 222,926

Total Liabilities and Shareholders' $ 2,276,913 $ 2,120,932 $ 1,828,984Equity

Condensed Statements of Income(Unaudited)

Three Months Ended Nine Months Ended

(In Thousands, Except Per Share Data) 9/30/ 9/30/ 9/30/ 9/30/ 2021 2020 2021 2020

Interest Income

Loans, including fees $ 12,408 $ 13,047 $ 36,655 $ 34,110

Securities and other 4,318 2,104 11,145 6,565

Total Interest Income 16,726 15,151 47,800 40,675

Interest Expense

Deposits 837 946 2,556 3,229

Borrowings 189 143 348 367

Total Interest Expense 1,026 1,089 2,904 3,596

Net Interest Income 15,700 14,062 44,896 37,079

Provision for Loan Losses - 1,225 416 3,000

Net Interest Income After Provision 15,700 12,837 44,480 34,079for Loan Losses

Noninterest Income

Customer service charges 2,255 2,059 6,309 5,306

Insurance and investment commissions 153 137 624 416

Gains on sales of loans 1,798 3,617 5,715 8,356

Gains on sales of securities - (35) 3 1,308

Trust income 187 197 612 569

Earnings on life insurance policies 194 193 571 577

Change in market value of equity (28) (238) 461 (184)securities

Other income 159 396 755 661

Total Noninterest Income 4,718 6,326 15,050 17,009

Noninterest Expense

Salaries and benefits 7,552 8,058 21,719 19,545

Occupancy and equipment 1,538 1,556 4,591 4,185

Data processing 1,471 1,585 4,573 4,637

Professional fees 754 1,221 2,426 2,897

Core deposit intangible amortization 346 395 1,005 1,102

Other expenses 1,845 1,734 4,849 4,749

Total Noninterest Expense 13,506 14,549 39,163 37,115

Income Before Income Tax 6,912 4,614 20,367 13,973

Income Tax Expense 1,163 785 3,337 2,460

Net Income $ 5,749 $ 3,829 $ 17,030 $ 11,513

Basic Earnings Per Share $ 0.75 $ 0.49 $ 2.20 $ 1.55

Diluted Earnings Per Share $ 0.75 $ 0.49 $ 2.20 $ 1.55

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 that management does not believe are reflective of ChoiceOne's current and ongoing operations.

Three Months Nine Months Ended Ended

(In Thousands, Except Per Share Data) 9/30/ 9/30/ 9/30/ 9/30/ 2021 2020 2021 2020

Income before income tax $ 6,912 $ 4,614 $ 20,367 $ 13,973

Adjustment for merger-related expenses - 1,707 - 2,526

Adjusted income before income tax $ 6,912 $ 6,321 $ 20,367 $ 16,499

Income tax expense $ 1,163 $ 785 $ 3,337 $ 2,460

Tax impact on adjustment for - 284 - 359merger-related expenses

Adjusted income tax expense $ 1,163 $ 1,069 $ 3,337 $ 2,819

Net income $ 5,749 $ 3,829 $ 17,030 $ 11,513

Adjusted net income $ 5,749 $ 5,252 $ 17,030 $ 13,680

Basic earnings per share $ 0.75 $ 0.49 $ 2.20 $ 1.55

Diluted earnings per share $ 0.75 $ 0.49 $ 2.20 $ 1.55

Adjusted basic earnings per share $ 0.75 $ 0.67 $ 2.20 $ 1.84

Adjusted diluted earnings per share $ 0.75 $ 0.67 $ 2.20 $ 1.84

Other Selected Financial Highlights

(Unaudited)

Quarterly

Earnings 2021 3rd 2021 2nd 2021 1st 2020 4th 2020 3rd Qtr. Qtr. Qtr. Qtr. Qtr.

(in thousands exceptper share data)

Net interest income $ 15,700 $ 14,508 $ 14,688 $ 13,992 $ 14,062

Provision for loan - 166 250 1,000 1,225losses

Noninterest income 4,718 4,732 5,600 5,689 6,326

Noninterest expense 13,506 13,129 12,528 13,769 14,549

Net income beforefederal income tax 6,912 5,945 7,510 4,912 4,614expense

Income tax expense 1,163 902 1,272 812 785

Net income 5,749 5,043 6,238 4,100 3,829

Basic earnings per 0.75 0.65 0.80 0.53 0.49share

Diluted earnings per 0.75 0.65 0.80 0.52 0.49share

End of period 2021 3rd 2021 2nd 2021 1st 2020 4th 2020 3rdbalances Qtr. Qtr. Qtr. Qtr. Qtr.

(in thousands)

Loans including PPP $ 1,034,591 $ 1,017,472 $ 1,061,131 $ 1,117,798 $ 1,169,686

PPP Loans 61,192 109,898 137,458 138,028 163,446

Securities 1,044,538 871,964 734,435 585,687 402,776

Otherinterest-earning 30,383 64,407 106,279 40,614 85,957assets

Total earning assets 2,109,512 1,953,843 1,901,845 1,744,099 1,658,419(before allowance)

Total assets 2,276,913 2,120,931 2,070,103 1,919,342 1,828,984

Noninterest-bearing 543,165 527,964 515,552 477,654 447,548deposits

Interest-bearing 1,468,985 1,352,771 1,324,412 1,196,924 1,138,822deposits

Total deposits 2,012,150 1,880,735 1,839,964 1,674,578 1,586,370

Total subordinated 35,665 3,140 3,115 3,089 -debt

Total borrowed funds - 2,642 3,484 9,327 13,234

Totalinterest-bearing 1,504,650 1,358,553 1,331,011 1,209,340 1,152,056liabilities

Shareholders' equity 225,055 228,521 218,639 227,268 222,926

Average Balances 2021 3rd 2021 2nd 2021 1st 2020 4th 2020 3rd Qtr. Qtr. Qtr. Qtr. Qtr.

(in thousands)

Loans $ 1,021,326 $ 1,041,118 $ 1,080,181 $ 1,132,711 $ 1,139,634

Securities 922,653 824,753 639,803 458,350 373,364

Otherinterest-earning 106,831 57,782 84,822 67,241 125,991assets

Total earning assets 2,050,810 1,923,653 1,804,806 1,658,302 1,638,989(before allowance)

Total assets 2,234,228 2,091,900 1,989,760 1,870,136 1,839,051

Noninterest-bearing 545,251 533,877 479,649 482,271 467,709deposits

Interest-bearing 1,441,831 1,327,836 1,266,356 1,153,337 1,128,085deposits

Total deposits 1,987,082 1,861,713 1,746,005 1,635,608 1,595,794

Total subordinated 9,154 3,123 3,099 3,077 3,064debt

Total borrowed funds 2,667 2,758 8,462 3,484 10,176

Totalinterest-bearing 1,453,652 1,333,717 1,277,917 1,159,898 1,141,325liabilities

Shareholders' equity 229,369 224,993 224,257 224,340 222,602

Performance Ratios 2021 3rd 2021 2nd 2021 1st 2020 4th 2020 3rd Qtr. Qtr. Qtr. Qtr. Qtr.

Return on average 1.03 % 0.96 % 1.25 % 0.88 % 0.83 %assets

Return on average 10.03 % 8.97 % 11.13 % 7.31 % 6.88 %equity

Return on averagetangible common 13.28 % 13.28 % 16.31 % 11.15 % 10.32 %equity

Net interest margin(fully 3.06 % 3.02 % 3.23 % 3.44 % 3.38 %tax-equivalent)

Efficiency ratio 63.18 % 64.70 % 61.20 % 67.17 % 67.71 %

Full-time equivalent 358 362 355 369 369employees

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SOURCE ChoiceOne Financial Services, Inc.