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What changed in CHOICEONE FINANCIAL SERVICES INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of CHOICEONE FINANCIAL SERVICES INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+177 added−198 removedSource: 10-K (2025-03-11) vs 10-K (2024-03-13)

Top changes in CHOICEONE FINANCIAL SERVICES INC's 2024 10-K

177 paragraphs added · 198 removed · 131 edited across 7 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

21 edited+6 added−4 removed91 unchanged
Biggest changeIf the Company is unable to maintain adequate liquidity, then its business, financial condition and results of operations would be negatively affected. If the Company were required to sell investment securities in an unrealized loss position to meet liquidity needs and realize losses, that could have a material adverse impact on its results of operation and financial condition.
Biggest changeIf the Company were required to sell investment securities in an unrealized loss position to meet liquidity needs and realize losses, that could have a material adverse impact on its results of operation and financial condition. 11 At December 31, 2024, the Company had $116.6 million in unrealized losses on its investment securities, including $61.1 million in unrealized losses on available for sale securities and $55.5 in unrealized losses on held to maturity securities.
Technology has lowered barriers to entry into the market and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of the Company’s competitors have fewer regulatory constraints and may have lower cost structures, such as credit unions that are not subject to federal income tax.
Technology has lowered barriers to entry into the market and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and 14 automatic payment systems. Many of the Company’s competitors have fewer regulatory constraints and may have lower cost structures, such as credit unions that are not subject to federal income tax.
These regulatory agencies may require the Company to increase its provision for credit losses or to recognize further loan charge-offs based upon their judgments, which may be different from the Company’s judgments. Any increase in the allowance for credit losses could have a negative effect on the Company’s regulatory capital ratios, net income, financial condition and results of operations.
These regulatory agencies may require the Company to increase its allowance for credit losses or to recognize further loan charge-offs based upon their judgments, which may be different from the Company’s judgments. Any increase in the allowance for credit losses could have a negative effect on the Company’s regulatory capital ratios, net income, financial condition and results of operations.
If the Company were required to sell investment securities in an unrealized loss position to meet liquidity needs and realize losses, that could have a material 11 adverse impact on its results of operations and financial condition, including a negative impact on net income and a permanent reduction in equity capital.
If the Company were required to sell investment securities in an unrealized loss position to meet liquidity needs and realize losses, that could have a material adverse impact on its results of operations and financial condition, including a negative impact on net income and a permanent reduction in equity capital.
The limited market for the Company’s common stock may affect a shareholder’s ability to sell their shares at any given time, and the sale of a large number of shares at one time could temporarily adversely affect the market price of our common stock. 15 The Company's common stock is not insured by any government entity.
The limited market for the Company’s common stock may affect a shareholder’s ability to sell their shares at any given time, and the sale of a large number of shares at one time could temporarily adversely affect the market price of our common stock. The Company's common stock is not insured by any government entity.
Losing the services of one or more key members of the Company’s management team could adversely affect its operations. 12 The Company ’ s controls and procedures may fail or be circumvented. Management regularly reviews and updates the Company’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures.
Losing the services of one or more key members of the Company’s management team could adversely affect its operations. The Company ’ s controls and procedures may fail or be circumvented. Management regularly reviews and updates the Company’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures.
Although we employ comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, employee training, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could 13 potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations.
Although we employ reasonably comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, employee training, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations.
The Company relies heavily on its management and other key personnel, and the loss of any of them may adversely affect its operations. The Company is and will continue to be dependent upon the services of its management team and other key personnel.
The Company relies heavily on its management and other key personnel, and the loss of any of them may adversely affect its operations. 12 The Company is and will continue to be dependent upon the services of its management team and other key personnel.
The market price of the Company’s common stock may fluctuate significantly in response to a number of factors, including: • Variations in quarterly or annual operating results • Changes in dividends per share • Changes in interest rates • New developments, laws or regulations in the banking industry • Acquisitions or business combinations involving the Company or its competition • Regulatory actions, including changes to regulatory capital levels, the components of regulatory capital and how regulatory capital is calculated • Volatility of stock market prices and volumes • Changes in market valuations of similar companies • New litigation or contingencies or changes in existing litigation or contingencies • Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies • Rumors or erroneous information • Credit and capital availability • Issuance of additional shares of common stock or other debt or equity securities of the Company • Market conditions • General economic conditions • Turbulence, uncertainty or a lack of confidence within the banking industry The Company’s common stock, while publicly traded, has less liquidity than the average liquidity of stocks listed on the Nasdaq Stock Market.
The market price of the Company’s common stock may fluctuate significantly in response to a number of factors, including: • Variations in quarterly or annual operating results • Changes in dividends per share • Changes in interest rates • Changes in inflation levels • Trade tariffs • New developments, laws or regulations in the banking industry • Acquisitions or business combinations involving the Company or its competition • Regulatory actions, including changes to regulatory capital levels, the components of regulatory capital and how regulatory capital is calculated • Volatility of stock market prices and volumes • Changes in market valuations of similar companies • New litigation or contingencies or changes in existing litigation or contingencies • Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies • Rumors or erroneous information • Credit and capital availability • Issuance of additional shares of common stock or other debt or equity securities of the Company • Market conditions • General economic conditions • Turbulence, uncertainty or a lack of confidence within the banking industry The Company’s common stock, while publicly traded, has less liquidity than the average liquidity of stocks listed on the Nasdaq Stock Market. 15 The Company’s common stock is listed for trading on the Nasdaq Capital Market.
The Company makes various assumptions and judgments about the collectability of its loan portfolio and provides an allowance for potential losses based on a number of factors.
The Company makes various assumptions and judgments about the collectability of its loan portfolio and provides an allowance for credit losses based on a number of factors.
In the course of its business, the Company may acquire, through foreclosure, properties securing loans it has originated or purchased that are in default. Particularly in commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties.
In the course of its business, the Company may acquire, through foreclosure, properties securing loans that are in default. Particularly in commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties.
An entity that is subject to regulation as a bank holding company would be subject to regulatory and statutory obligations and restrictions, and could be required to divest all or a portion of the entity’s investment in the Company’s securities or in other investments that are not permitted for a bank holding company. Item 1B. Unreso lved Staff Comments None.
An entity that is subject to regulation as a bank holding company would be subject to regulatory and statutory obligations and restrictions, and could be required to divest all or a portion of the entity’s investment in the Company’s securities or in other investments that are not permitted for a bank holding company.
As of that same date, the Company had approximately $267.7 million in residential real estate loans outstanding, or approximately 19.0% of its loan portfolio. Consequently, real estate-related credit risks are a significant concern for the Company.
As of that same date, the Company had approximately $281.7 million in residential real estate loans outstanding, or approximately 18.2% of its loan portfolio. Consequently, real estate-related credit risks are a significant concern for the Company.
The Company’s commercial and industrial loan portfolio, including commercial mortgages, was approximately $229.9 million at December 31, 2023, comprising approximately 16.3% of its total loan portfolio. Commercial loans generally carry larger loan balances and can involve a greater degree of financial and credit risk than other loans.
The Company’s commercial and industrial loan portfolio, including commercial mortgages, was approximately $228.3 million at December 31, 2024, comprising approximately 14.8% of its total loan portfolio. Commercial loans generally carry larger loan balances and can involve a greater degree of financial and credit risk than other loans.
The Company’s common stock is listed for trading on the Nasdaq Capital Market. However, the Company’s common stock has less liquidity than the average liquidity for companies listed in the Nasdaq Stock Market.
However, the Company’s common stock has less liquidity than the average liquidity for companies listed in the Nasdaq Stock Market.
A substantial portion of the Company’s loan portfolio consists of commercial and residential real estate-related loans, including real estate development, construction and residential and commercial mortgage loans. As of December 31, 2023, the Company had approximately $807.9 million of commercial and construction real estate loans outstanding, which represented approximately 57.3% of its loan portfolio.
A substantial portion of the Company’s loan portfolio consists of commercial and residential real estate-related loans, including real estate development, construction and residential and commercial mortgage loans. As of December 31, 2024, the Company had approximately $918.2 million of commercial and construction real estate loans outstanding, which represented approximately 59.4% of its loan portfolio.
Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology (IT) systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company and/or its third party service providers.
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations. 13 Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology (IT) systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company and/or its third party service providers.
The Company is affected by general economic conditions in the United States, although most directly within Michigan. An economic downturn within Michigan caused by inflation, recession or a recessionary environment, unemployment, changes in financial or capital 10 markets or other factors, could negatively impact household and corporate incomes.
An economic downturn within Michigan caused by inflation, recession or a recessionary environment, trade tariffs, unemployment, changes in financial or capital markets or other factors, could negatively impact household and corporate incomes.
Due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than the Company can. 14 Severe weather, natural disasters, acts of war or terrorism, a public health crisis, and other external events could significantly impact the Company’s business.
Due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than the Company can.
This impact may lead to decreased demand for both loan and deposit products and increase the number of customers who fail to pay interest or principal on their loans. The Company could be adversely affected by the soundness of other financial institutions, including defaults by larger financial institutions.
This impact may lead to decreased demand for both loan and deposit products and increase the number of customers who fail to pay interest or principal on their loans. We may be adversely affected by risks associated with future mergers and acquisitions, including execution risk, which could disrupt our business and dilute shareholder value.
These forecasts, assumptions and models are by their nature uncertain and are based upon management’s reasonable judgment in light of information currently available. General economic conditions in the state of Michigan could have a material adverse effect on the Company ’ s results of operations or financial condition.
General economic conditions in the state of Michigan could have a material adverse effect on the Company ’ s results of operations or financial condition. The Company is affected by general economic conditions in the United States, although most directly within Michigan.
Removed
The Current Expected Credit Loss ( " CECL " ) accounting standard could add volatility to our allowance for credit losses and may have an adverse effect on our financial condition and results of operations. Effective January 1, 2023, we adopted CECL.
Added
We plan to grow our business both organically and through mergers and acquisitions. We periodically evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies.
Removed
CECL changed the allowance for credit losses methodology from an incurred loss impairment methodology to an expected loss methodology, which is more dependent on future economic forecasts, assumptions and models than the incurred loss accounting standard and could result in increases in, and add volatility to, our allowance for credit losses and future provisions for credit losses.
Added
As a result, we may engage in discussions or negotiations that, if they were to result in a transaction, could have a material 10 effect on our operating results and financial condition.
Removed
At December 31, 2023, the Company had $128.9 million in unrealized losses on its investment securities, including $69.7 million in unrealized losses on available for sale securities and $59.2 in unrealized losses on held to maturity securities.
Added
Our merger and acquisition activities could be material and could require us to use a substantial amount of common stock, preferred stock, cash, other liquid assets, and/or incur debt.
Removed
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
Added
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from our merger and acquisition activities could have a material adverse effect on our financial condition and results of operations. The Company could be adversely affected by the soundness of other financial institutions, including defaults by larger financial institutions.
Added
If the Company is unable to maintain adequate liquidity, then its business, financial condition and results of operations would be negatively affected.
Added
Severe weather, natural disasters, acts of war or terrorism, a public health crisis, and other external events could significantly impact the Company’s business.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

3 edited+4 added−0 removed5 unchanged
Biggest changeItem 1C. Cybersecurity Our bank faces various cybersecurity threats, including unauthorized access, malware, and phishing attacks. These threats could compromise the security of our information systems and the data we store and process.
Biggest changeItem 1C. Cybersecurity We face various cybersecurity threats, including unauthorized access, malware, ransomware, and phishing attacks. These threats could compromise the security of our information systems and the data we store and process.
The potential consequences of a material cybersecurity incident could include reputational damage, litigation with 16 third parties, regulatory criticism or proceedings and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations. We have established an information security third party risk management program to identify and manage these risks.
The potential consequences of a material cybersecurity incident could include reputational damage, litigation with third parties, regulatory criticism or proceedings and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations. We have established an information security third party risk management program to identify and manage these risks.
While we have experienced, and expect to continue to experience, cybersecurity threats, we have not experienced a material cybersecurity incident in the three year period ended December 31, 2023.
While we have experienced, and expect to continue to experience, cybersecurity threats, we have not experienced a material cybersecurity incident in the three year period ended December 31, 2024.
Added
ChoiceOne recognizes the importance of cybersecurity and has established a comprehensive framework to assess and manage material risks from cybersecurity threats. The Company's cybersecurity risk management program is overseen by the Information Technology Committee, which is responsible for developing and implementing policies and procedures to protect the Company's information assets.
Added
Key members of ChoiceOne’s cybersecurity team include: Chief Information Officer (“CIO”) has extensive experience in managing complex IT environments and mitigating cybersecurity risks. The CIO is responsible for overseeing cybersecurity and technology vendors, assessing risks in these areas, and ensuring the effective execution of the information security program.
Added
Vice President of Network Security is a Certified Information System Security Professional (CISSP) with over 10 years of experience in managing IT and cybersecurity operations. The cybersecurity team has several other members with expertise in network security, technology, and administration.
Added
The cybersecurity team meets regularly to review and assess the Company's cybersecurity posture, identify potential threats, and implement appropriate measures to mitigate risks. The committee also collaborates with external cybersecurity experts to stay informed about the latest threats and best practices in the industry.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed0 unchanged
Biggest changeThe remaining six locations are comprised of loan production offices and wealth management. Offices generally range in size from 1,200 to 3,200 square feet, based on the location and number of employees located at the facility. All of our offices are owned by the Bank except for six that are leased under various operating lease agreements.
Biggest changeThe remaining six locations are comprised of loan production and wealth management offices. Offices generally range in size from 1,200 to 3,200 square feet, based on the location and number of employees located at the facility. All of our offices are owned by the Bank except for seven that are leased under various operating lease agreements.
Item 2. Prope rties The Company’s headquarters are located at 109 East Division, Sparta, Michigan 49345. The headquarters location is owned by the Company and is not subject to any mortgage. 29 of the Company’s 35 locations are designed for use and operation as a bank, are well maintained, and are suitable for current operations.
Item 2. Prope rties The Company’s headquarters are located at 109 East Division, Sparta, Michigan 49345. The headquarters location is owned by the Company and is not subject to any mortgage. 29 of the Company’s 35 locations are designed for use and operation as a bank branch office, are well maintained, and are suitable for current operations.
The Company’s management believes all offices are adequately covered by property insurance.
The Company’s management believes all offices are adequately covered by property insurance. 17

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

2 edited+0 added−0 removed0 unchanged
Biggest changeItem 3. Legal P roceedings As of December 31, 2023, there were no significant pending legal proceedings to which the Company or the Bank is a party or to which any of their properties were subject, except for legal proceedings arising in the ordinary course of business.
Biggest changeItem 3. Legal P roceedings As of December 31, 2024, there were no significant pending legal proceedings to which the Company or the Bank is a party or to which any of their properties were subject, except for legal proceedings arising in the ordinary course of business.
In the opinion of management, pending legal proceedings will not have a material adverse effect on the consolidated financial condition of the Company. Item 4. M ine Safety Disclosures Not applicable. 17 PART II
In the opinion of management, pending legal proceedings will not have a material adverse effect on the consolidated financial condition of the Company. Item 4. M ine Safety Disclosures Not applicable. 18 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+0 added−1 removed2 unchanged
Biggest changeStock options were issued out of the ChoiceOne Financial Services, Inc. Stock Incentive Plan of 2012. As of December 31, 2023, there were 375,388 shares remaining that may yet be repurchased under the plan. There was no stated expiration date. Item 6. Res erved 18
Biggest changeAs of December 31, 2024, there were 375,388 shares remaining that may yet be repurchased under the plan. There was no stated expiration date.
ISSUER PURCHASES OF EQUITY SECURITIES ChoiceOne’s common stock repurchase plan announced in April 2021 and amended in 2022, authorizes the repurchase of up to 375,388 shares, representing 5% of the total outstanding shares of common stock as of the date the plan was adopted. No shares were repurchased under this plan in 2023.
ISSUER PURCHASES OF EQUITY SECURITIES ChoiceOne’s common stock repurchase plan announced in April 2021 and amended in 2022, authorizes the repurchase of up to 375,388 shares, representing 5% of the total outstanding shares of common stock as of the date the plan was adopted. No shares were repurchased under this plan in 2024.
Based on information presently available, management expects ChoiceOne to declare and pay regular quarterly cash dividends in 2024, although the amount of the quarterly dividends will be dependent on market conditions and ChoiceOne’s requirements for cash and capital, among other things.
Based on information presently available, management expects ChoiceOne to declare and pay regular quarterly cash dividends in 2025, although the amount of the quarterly dividends will be dependent on market conditions and ChoiceOne’s requirements for cash and capital, among other things.
The following table summarizes the quarterly cash dividends declared per share of common stock during 2023 and 2022: 2023 2022 First Quarter $ 0.26 $ 0.25 Second Quarter 0.26 0.25 Third Quarter 0.26 0.25 Fourth Quarter 0.27 0.26 Total $ 1.05 $ 1.01 ChoiceOne’s principal source of funds to pay cash dividends is the earnings and dividends paid by the Bank.
The following table summarizes the quarterly cash dividends declared per share of common stock during 2024 and 2023: 2024 2023 First Quarter $ 0.27 $ 0.26 Second Quarter 0.27 0.26 Third Quarter 0.27 0.26 Fourth Quarter 0.28 0.27 Total $ 1.09 $ 1.05 ChoiceOne’s principal source of funds to pay cash dividends is the earnings and dividends paid by the Bank.
Item 5. Mar ket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stock Information The Company’s common stock is traded on the NASDAQ Capital Market under the symbol COFS. As of February 29, 2024, there were approximately 1,122 owners of record and approximately 1,093 beneficial owners of our common stock.
Item 5. Mar ket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stock Information The Company’s common stock is traded on the NASDAQ Capital Market under the symbol COFS. As of February 28, 2025, there were approximately 1,095 owners of record and approximately 2,200 beneficial owners of our common stock.
Removed
Total Number Maximum of Shares Number of Total Purchased as Shares that Number Average Part of a May Yet be of Shares Price Paid Publicly Purchased Period Purchased per Share Announced Plan Under the Plan October 1 - October 31, 2023 Employee Transactions — $ — — Repurchase Plan — $ — — 375,388 November 1 - November 30, 2023 Employee Transactions — $ — — Repurchase Plan — $ — — 375,388 December 1 - December 31, 2023 — Employee Transactions (1) 6,853 $ 31.07 6,853 Repurchase Plan — $ — — 375,388 (1) Shares submitted for the purchase of stock options.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

89 edited+36 added−62 removed38 unchanged
Biggest changeYear Ended December 31, 2023 2022 2021 (Dollars in thousands) Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets: Loans (1) (3)(4)(5)(6) $ 1,265,261 $ 68,437 5.41 % $ 1,104,030 $ 52,861 4.79 % $ 1,040,430 $ 48,672 4.62 % Taxable securities (2)(6) 747,006 21,169 2.83 779,915 15,583 2.00 599,902 10,260 2.13 Nontaxable securities (1) 295,553 7,106 2.40 314,644 7,790 2.48 269,886 7,098 3.02 Other 70,826 3,797 5.36 34,255 491 1.43 68,879 84 0.37 Interest-earning assets 2,378,646 100,509 4.23 2,232,844 76,725 3.44 1,979,097 66,114 3.83 Noninterest-earning assets 115,194 140,530 177,677 Total assets $ 2,493,840 $ 2,373,374 $ 2,156,774 Liabilities and Shareholders' Equity: Interest-bearing demand deposits $ 852,927 $ 10,028 1.18 % $ 902,090 $ 3,514 0.39 % $ 791,886 $ 1,797 0.23 % Savings deposits 370,074 1,609 0.43 452,542 711 0.16 398,969 551 0.14 Certificates of deposit 306,999 10,621 3.46 196,063 1,618 0.83 186,898 957 0.51 Brokered deposit 35,044 1,732 4.94 103 2 2.48 - - 0.00 Borrowings 141,507 6,818 4.82 13,537 410 3.02 5,465 101 1.86 Subordinated debentures 35,382 1,636 4.62 35,211 1,491 4.23 12,841 571 4.45 Other 12,258 651 5.31 - - 0.00 - - 0.00 Interest-bearing liabilities 1,754,191 33,095 1.89 1,599,546 7,746 0.48 1,396,059 3,977 0.28 Demand deposits 546,926 582,992 527,876 Other noninterest-bearing liabilities 15,522 12,421 7,719 Total liabilities 2,316,639 2,194,959 1,931,654 Shareholders' equity 177,201 178,415 225,120 Total liabilities and shareholders' equity $ 2,493,840 $ 2,373,374 $ 2,156,774 Net interest income (tax-equivalent basis) (Non-GAAP) (1) $ 67,415 $ 68,979 $ 62,137 Net interest margin (tax-equivalent basis) (Non-GAAP) (1) 2.83 % 3.09 % 3.14 % Reconciliation to Reported Net Interest Income Net interest income (tax-equivalent basis) (Non-GAAP) (1) $ 67,415 $ 68,979 $ 62,137 Adjustment for taxable equivalent interest (1,530 ) (1,665 ) (1513 ) Net interest income (GAAP) $ 65,885 $ 67,314 $ 60,624 Net interest margin (GAAP) 2.77 % 3.01 % 3.08 % (1) Adjusted to a fully tax-equivalent basis to facilitate comparison to the taxable interest-earning assets.
Biggest changeYear Ended December 31, 2024 2023 2022 (Dollars in thousands) Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets: Loans (1) (3)(4)(5)(6) $ 1,456,434 $ 89,645 6.16 % $ 1,265,261 $ 68,437 5.41 % $ 1,104,030 $ 52,861 4.79 % Taxable securities (2)(6) 691,562 21,228 3.07 747,006 21,169 2.83 779,915 15,583 2.00 Nontaxable securities (1) 289,892 7,089 2.45 295,553 7,106 2.40 314,644 7,790 2.48 Other 88,576 4,681 5.29 70,826 3,797 5.36 34,255 491 1.43 Interest-earning assets 2,526,464 122,643 4.85 2,378,646 100,509 4.23 2,232,844 76,725 3.44 Noninterest-earning assets 142,092 115,194 140,530 Total assets $ 2,668,556 $ 2,493,840 $ 2,373,374 Liabilities and Shareholders' Equity: Interest-bearing demand deposits $ 896,060 $ 12,997 1.45 % $ 852,927 $ 10,028 1.18 % $ 902,090 $ 3,514 0.39 % Savings deposits 334,310 2,828 0.85 370,074 1,609 0.43 452,542 711 0.16 Certificates of deposit 388,724 17,033 4.38 306,999 10,621 3.46 196,063 1,618 0.83 Brokered deposit 26,902 1,315 4.89 35,044 1,732 4.94 103 2 2.48 Borrowings 208,142 9,885 4.75 141,507 6,818 4.82 13,537 410 3.02 Subordinated debentures 35,627 1,642 4.61 35,382 1,636 4.62 35,211 1,491 4.23 Other 18,355 961 5.23 12,258 651 5.31 - - 0.00 Interest-bearing liabilities 1,908,120 46,661 2.45 1,754,191 33,095 1.89 1,599,546 7,746 0.48 Demand deposits 519,709 546,926 582,992 Other noninterest-bearing liabilities 14,180 15,522 12,421 Total liabilities 2,442,009 2,316,639 2,194,959 Shareholders' equity 226,547 177,201 178,415 Total liabilities and shareholders' equity $ 2,668,556 $ 2,493,840 $ 2,373,374 Net interest income (tax-equivalent basis) (Non-GAAP) (1) $ 75,981 $ 67,415 $ 68,979 Net interest margin (tax-equivalent basis) (Non-GAAP) (1) 3.01 % 2.83 % 3.09 % Reconciliation to Reported Net Interest Income Net interest income (tax-equivalent basis) (Non-GAAP) (1) $ 75,981 $ 67,415 $ 68,979 Adjustment for taxable equivalent interest (1,539 ) (1,530 ) (1665 ) Net interest income (GAAP) $ 74,442 $ 65,885 $ 67,314 Net interest margin (GAAP) 2.95 % 2.77 % 3.01 % (1) Adjusted to a fully tax-equivalent basis to facilitate comparison to the taxable interest-earning assets.
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, and a reasonable and supportable economic forecast described further below.
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, and a reasonable and supportable economic forecast described further below.
(2) Interest on taxable securities includes dividends on Federal Home Loan Bank and Federal Reserve Bank stock. (3) Loans include both loans to other financial institutions and loans held for sale. (4) Non-accruing loan and PPP loan balances are included in the balances of average loans.
(2) Interest on taxable securities includes dividends on Federal Home Loan Bank and Federal Reserve Bank stock. (3) Loans include both loans to other financial institutions and loans held for sale. (4) Non-accruing loan balances are included in the balances of average loans.
Management's judgment will be used to determine if the loan should be migrated back to pool on an individual basis. Individual analysis will establish a specific reserve for loans in scope.
Management's judgment will be used to determine if the 33 loan should be migrated back to pool on an individual basis. Individual analysis will establish a specific reserve for loans in scope.
At December 31, 2023, the ACL related to securities HTM is insignificant. 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.
At December 31, 2024, the ACL related to securities HTM is insignificant. 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.
These steps include limiting bond purchases in 2023, pledging securities to FHLB and the Federal Reserve Bank in order to increase borrowing capacity and using alternative funding sources such as brokered deposits. 31 NON-GAAP FINANCIAL MEASURES This report contains financial measures that are not defined in U.S. generally accepted accounting principles ("GAAP").
These steps include limiting bond purchases in 2024, pledging securities to FHLB and the Federal Reserve Bank in order to increase borrowing capacity and using alternative funding sources such as brokered deposits. 31 NON-GAAP FINANCIAL MEASURES This report contains financial measures that are not defined in U.S. generally accepted accounting principles ("GAAP").
Securities 34 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 required to sell the security before recovery of the amortized cost basis.
ACL for Securities 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 required to sell the security before recovery of the amortized cost basis.
Based on its review of ChoiceOne’s deferred tax assets as of December 31, 2023, management determined that no valuation allowance was necessary. The valuation of current and deferred income tax assets and liabilities is considered critical, as it requires management to make estimates based on provisions of the enacted tax laws.
Based on its review of ChoiceOne’s deferred tax assets as of December 31, 2024, management determined that no valuation allowance was necessary. The valuation of current and deferred income tax assets and liabilities is considered critical, as it requires management to make estimates based on provisions of the enacted tax laws.
We have omitted discussion of 2022 results where it would be redundant to the discussion previously included in Part II, Item 7 of our 2022 Annual Report on Form 10-K.
We have omitted discussion of 2023 results where it would be redundant to the discussion previously included in Part II, Item 7 of our 2023 Annual Report on Form 10-K.
ChoiceOne recorded accretion income related to acquired loans in the amount of $1.7 million in 2023 and $2.0 million during 2022. Remaining credit and yield mark on acquired loans from the mergers with County Bank Corp. and Community Shores will accrete into income as the acquired loans mature.
ChoiceOne recorded accretion income related to acquired loans in the amount of $1.2 million in 2024 and $1.7 million during 2023. Remaining credit and yield mark on acquired loans from the mergers with County Bank Corp. and Community Shores will accrete into income as the acquired loans mature.
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.
In addition, the valuation relied on financial projections through 2029 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 measurement date was greater than its book value and impairment of goodwill was not required.
For further details, refer to Note 12 - Income Taxes of the Notes to the Consolidated Financial Statements included in Item 8 of this report. 21 Table 1 – Average Balances and Tax-Equivalent Interest Rates Tables 1 and 2 on the following pages provide information regarding interest income and expense for the years ended December 31, 2023, 2022, and 2021.
For further details, refer to Note 12 - Income Taxes of the Notes to the Consolidated Financial Statements included in Item 8 of this report. 22 Table 1 – Average Balances and Tax-Equivalent Interest Rates Tables 1 and 2 on the following pages provide information regarding interest income and expense for the years ended December 31, 2024, 2023, and 2022.
Management believes this non-GAAP financial measure provides 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.
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.
The acceptance of brokered certificates of deposit is not limited as long as the Bank is categorized as “well capitalized” under regulatory guidelines. At December 31, 2023, total available borrowing capacity from the FHLB and the Federal Reserve Bank was $933.3 million. ChoiceOne continues to review its liquidity management and has taken steps in an effort to ensure adequacy.
The acceptance of brokered certificates of deposit is not limited as long as the Bank is categorized as “well capitalized” under regulatory guidelines. At December 31, 2024, total available borrowing capacity from the FHLB and the Federal Reserve Bank was $837.2 million. ChoiceOne continues to review its liquidity management and has taken steps in an effort to ensure adequacy.
Net charge-offs for checking accounts during the full year 2023 were $226,000 compared to $246,000 for the same period in the prior year. Net charge-offs as a percentage of average loans were 0.03% during the full year 2023 and 2022.
Net charge-offs for checking accounts during the full year 2024 were $237,000 compared to $226,000 for the same period in the prior year. Net charge-offs as a percentage of average loans were 0.03% during the full year 2024 and 2023.
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 fair value is due to credit loss factors.
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. For securities AFS with unrealized losses not meeting these criteria, management evaluates whether any decline in fair value is due to credit loss factors.
Securities The Company’s securities balances as of December 31 were as follows: (Dollars in thousands) 2023 2022 Equity securities $ 7,505 $ 8,566 Available for Sale Securities at fair value U.S. Government and federal agency $ - $ - U.S.
Securities The Company’s securities balances as of December 31 were as follows: (Dollars in thousands) 2024 2023 Equity securities $ 7,782 $ 7,505 Available for Sale Securities at fair value U.S. Government and federal agency $ - $ - U.S.
Asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.03% and nonperforming loans to total loans (excluding loans held for sale) of 0.14% as of December 31, 2023.
Asset quality continues to remain strong, with net loan charge-offs to average loans of 0.03% and nonperforming loans to total loans (excluding loans held for sale) of 0.24% as of December 31, 2024.
On December 31, 2023, ChoiceOne had pay-fixed interest rate swaps with a total notional value of $401.0 million, a weighted average coupon of 3.07%, a fair value of $8.9 million and an average contract length of 8 to 9 years.
On December 31, 2024, ChoiceOne had pay-fixed interest rate swaps with a total notional value of $401.0 million, a weighted average coupon of 3.07%, a fair value of $23.6 million and an average remaining contract length of 7 to 8 years.
Average core loans grew $161.2 million for the twelve months ended December 31, 2023, compared to the same period in the prior year. In addition, the average rate earned on loans increased 62 basis points for the twelve months ended December 31, 2023, compared to the same period in the prior year.
Average core loans grew $191.2 million for the twelve months ended December 31, 2024, compared to the same period in the prior year. In addition, the average rate earned on loans increased 75 basis points for the twelve months ended December 31, 2024, compared to the same period in the prior year.
The Company 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. 35 During the prior year, ChoiceOne engaged a third party valuation firm to assist in performing a quantitative analysis of goodwill as of November 30, 2022 ("the valuation date").
The Company 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. 34 ChoiceOne engaged a third party valuation firm to assist in performing a quantitative analysis of goodwill as of June 30, 2024 ("the measurement date").
The general component covers loans collectively evaluated for credit loss and is based on peer historical loss experience adjusted for current and forecasted factors.
The ACL consists of general and specific components. The general component covers loans collectively evaluated for credit loss and is based on peer historical loss experience adjusted for current and forecasted factors.
(2) Interest on tax-exempt securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 21% for 2023, 2022, and 2021. Net Interest Income Tax-equivalent net interest income declined $1.6 million for the full year 2023, compared to the same period in 2022.
(2) Interest on tax-exempt securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 21% for 2024, 2023, and 2022. Net Interest Income GAAP based net interest income increased $8.6 million, and tax-equivalent net interest income increased $8.6 million, respectively, for the full year 2024, compared to the same period in 2023.
Interest expense increased $25.3 million for the full year 2023, compared to the same period in the prior year. The average rate paid on interest bearing-demand deposits and savings deposits increased 64 basis points in the twelve months ended December 31, 2023, compared to the same period in the prior year.
Interest expense increased $13.6 million for the full year 2024, compared to the same period in the prior year. The average rate paid on interest bearing-demand deposits and savings deposits increased 33 basis points in the twelve months ended December 31, 2024, compared to the same period in the prior year.
ChoiceOne estimates that roughly $2.5 million will accrete into income over the next two to four years. As part of its review of the loan portfolio, management also monitors the various nonperforming loans.
ChoiceOne estimates that roughly $1.3 million will accrete into income over the next one to three years. As part of its review of the loan portfolio, management also monitors the various nonperforming loans.
Non-accruing loan average balances were $1.6 million, $1.3 million, and $3.3 million for the year ended 2023, 2022, and 2021, respectively. PPP loan average balances were $0, $8.7 million, $95.9 million for the year ended 2023, 2022, and 2021, respectively. (5) Interest on loans included net origination fees, accretion income, and PPP fees.
Non-accruing loan average balances were $2.3 million, $1.6 million, and $1.3 million for the year ended 2024, 2023, and 2022, respectively. (5) Interest on loans included net origination fees and accretion income. Accretion income was $1.2 million, $1.7 million, and $2.0 million for the full year 2024, 2023, and 2022, respectively.
Equity securities included a money market preferred security ("MMP") of $1.0 million and common stock of $6.5 million as of December 31, 2023. As of December 31, 2022, equity securities included a MMP of $1.0 million and common stock of $7.6 million.
Equity securities included a money market preferred security ("MMP") of $1.0 million and common stock of $6.8 million as of December 31, 2024.
The liability for expected credit losses on unfunded loans and other commitments was $2.2 million on December 31, 2023, compared to $3.3 million as of January 1, 2023 (the CECL adoption date). Net charge-offs were $364,000 during the full year 2023, compared to net charge-offs of $319,000 during the same period in 2022.
The liability for expected credit losses on unfunded loans and other commitments was $1.5 million on December 31, 2024, compared to $2.2 million as of December 31, 2023. 26 Net charge-offs were $433,000 during the full year 2024, compared to net charge-offs of $364,000 during the same period in 2023.
The dividend yield for ChoiceOne’s common stock was 3.58% as of the end of 2023, compared to 3.48% as of the end of 2022. The cash dividend payout as a percentage of net income was 37% as of December 31, 2023, compared to 32% as of December 31, 2022.
The dividend yield for ChoiceOne’s common stock was 3.06% as of the end of 2024, compared to 3.58% as of the end of 2023. The cash dividend payout as a percentage of net income was 33.7% as of December 31, 2024, compared to 37.2% as of December 31, 2023.
The provision for credit losses expense on loans was $1.3 million in the full year 2023, due to the significant growth of core loans. Core loan growth was offset by improvements in the Federal Open Market Committee ("FOMC") forecast and certain payoffs of watch loans during the full year 2023.
The provision for credit losses on loans was $1.3 million during the full year 2024 and 2023, due to core loan growth, which was partially offset by slight improvements in the Federal Open Market Committee ("FOMC") forecast during the full year 2024.
Net provision for credit losses was $150,000 for the full year 2023. 26 Financial Condition Summary Total assets grew $190.8 million in the twelve months ended December 31, 2023. Core loans grew $201.5 million or 16.9% and were offset by a decline in investment securities of $33.2 million.
Net provision for credit losses was $625,000 for the full year 2024. 27 Financial Condition Summary Total assets grew $146.5 million in the twelve months ended December 31, 2024. Core loans grew $114.5 million or 8.2% and were offset by a decline in investment securities of $48.9 million.
ChoiceOne identified an appropriate peer group for each loan cohort which shared similar characteristics. Management estimates the ACL required based on the 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 forecast, and other factors.
Management estimates the ACL required based on the 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 forecast, and other factors.
Longer-term liquidity needs may be met through core deposit growth, maturities of and cash flows from investment securities, normal loan repayments, advances from the FHLB and the Federal Reserve Bank, brokered certificates of deposit, and income retention.
Longer-term liquidity needs may be met through core deposit growth, maturities of and cash flows from investment securities, normal loan repayments, advances from the FHLB and the Federal Reserve Bank, brokered certificates of deposit, and income retention. ChoiceOne had $175.0 million in outstanding borrowings from the FHLB as of December 31, 2024.
The increase in the average balance of certificates of deposit of $110.9 million during 2023, combined with a 263 basis point increase in the rate paid on certificates of deposits during 2023, compared to the same period in the prior year, led to an increase in interest expense of $9.0 million during 2023.
The increase in the average balance of certificates of deposit of $81.7 million during 2024, combined with a 92 basis point increase in the rate paid on certificates of deposits during 2024, compared to the same period in the prior year, led to an increase in interest expense of $6.4 million during 2024.
Loans to other financial institutions increased $19.4 million from December 31, 2022 to December 31, 2023. Loans to other financial institutions is comprised of a warehouse line of credit to facilitate mortgage loan originations, and interest rates fluctuate with the national mortgage market. This balance is short term in nature with an average life of under 30 days.
Loans to other financial institutions is comprised of a warehouse line of credit to facilitate mortgage loan originations and the interest rate fluctuates with the national mortgage market. This balance is short term in nature with an average life of under 30 days.
The loan provision expense was offset by the decrease in unfunded commitments provision expense of $1.1 million in the full year 2023 due to changes in mix and expected funding rates during the year. Total unfunded commitments decreased $17.6 million in the full year 2023 compared to January 1, 2023.
The loan provision expense was offset by the decrease in unfunded commitments provision expense of $675,000 in the full year 2024 due to changes in mix and expected funding rates during the year. Total unfunded commitments decreased $15.9 million in the full year 2024 compared to December 31, 2023.
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 unconditionally cancellable by us.
Prepayment speeds and curtailment were updated during the fourth quarter of 2024; however, the effect was insignificant. 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 unconditionally cancellable by us.
Year Ended December 31, 2023 2022 2021 Cost of deposits 1.14 % 0.27 % 0.17 % Cost of funds 1.44 % 0.35 % 0.21 % ChoiceOne has experienced substantial core loan growth from December 31, 2022 to December 31, 2023, leading to an increase in interest income from loans of $15.6 million in the twelve months ended December 31, 2023, compared to the same period in the prior year.
ChoiceOne has experienced substantial core loan growth from December 31, 2023 to December 31, 2024, leading to an increase in interest income from loans of $21.2 million in the twelve months ended December 31, 2024, compared to the same period in the prior year.
Other inputs to the calculation are also updated or reviewed quarterly. Prepayment speeds are updated on a one quarter lag based on the asset liability model from the previous quarter. This model is performed at the loan level. Curtailment is updated quarterly within the ACL model based on our peer group average.
Prepayment speeds are updated on a one quarter lag based on the asset liability model from the previous quarter. This model is performed at the loan level. Curtailment is updated quarterly within the ACL model based on our peer group average. The reversion period is reviewed by management quarterly with consideration of the current economic climate.
ChoiceOne Bank remains “well-capitalized” with a total risk-based capital ratio of 12.4% as of December 31, 2023, compared to 13.0% on December 31, 2022. ChoiceOne uses interest rate swaps to manage interest rate exposure to certain fixed assets and variable rate liabilities.
The pay-fixed swap derivatives are designed to offset swings in AOCI due to changes in interest rates. ChoiceOne Bank remains “well-capitalized” with a total risk-based capital ratio of 12.7% as of December 31, 2024, compared to 12.4% on December 31, 2023. ChoiceOne uses interest rate swaps to manage interest rate exposure to certain fixed rate assets and variable rate liabilities.
ChoiceOne’s Board of Directors and management do not plan to allow capital to decrease below those levels necessary to be considered "well capitalized" by regulatory guidelines.
Management will monitor these capital ratios during 2025 as they relate to asset growth and earnings retention. ChoiceOne’s Board of Directors and management do not plan to allow capital to decrease below those levels necessary to be considered "well capitalized" by regulatory guidelines.
Net cash used in investing activities was $181.4 million in 2023 compared to $90.5 million in 2022. ChoiceOne had loan originations and payments of $221.2 million in the full year 2023, compared to $130.6 million in the same period in the prior year. Net cash provided by financing activities was $146.4 million in 2023, compared to $57.5 million in 2022.
ChoiceOne had loan originations and payments of $136.1 million in the full year 2024, compared to $221.2 million in the full year 2023. Net cash provided by financing activities was $90.7 million in 2024, compared to $146.4 million in 2023.
It is noted that prior to January 1, 2023, loans classified as troubled debt restructurings that were not performing as of December 31, 2022 are included in the table below. 28 The balances of these nonperforming loans as of December 31 were as follows: (Dollars in thousands) 2023 2022 Loans accounted for on a nonaccrual basis $ 1,723 $ 1,263 Loans contractually past due 90 days or more as to principal or interest payments - - Loans modified to borrowers experiencing financial difficulty at December 31, 2023 and troubled debt restructurings as of December 31, 2022. 189 1,404 Total $ 1,912 $ 2,667 Nonaccrual loans included $1.7 million in residential real estate loans as of December 31, 2023, compared to $1.3 million in residential real estate loans as of December 31, 2022.
The balances of these nonperforming loans as of December 31 were as follows: (Dollars in thousands) 2024 2023 Loans accounted for on a nonaccrual basis $ 3,704 $ 1,723 Loans contractually past due 90 days or more as to principal or interest payments - - Loans modified to borrowers experiencing financial difficulty at December 31, 2024 and December 31, 2023. - 189 Total $ 3,704 $ 1,912 Nonaccrual loans included $3.5 million in residential real estate loans, $229,000 in construction real estate loans, and $8,000 in consumer loans as of December 31, 2024, compared to $1.7 million in residential real estate loans as of December 31, 2023.
Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, net of income taxes. At December 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 estimate of credit losses.
Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, net of income taxes. At December 31, 2024, there was no ACL related to debt securities AFS.
The ACL was 1.11% of total loans, excluding loans held for sale, at December 31, 2023, compared to 1.24% as of January 1, 2023 (the CECL adoption date) and 0.64% at December 31, 2022.
The ACL was 1.07% of total loans, excluding loans held for sale, at December 31, 2024, compared to 1.11% as of December 31, 2023.
Treasury notes and bonds 80,194 78,204 State and municipal 234,682 229,938 Mortgage-backed 188,501 208,563 Corporate 204 711 Asset-backed securities 11,017 12,333 Total $ 514,598 $ 529,749 Held to Maturity Securities at amortized cost U.S. Government and federal agency $ 2,972 $ 2,966 U.S.
Treasury notes and bonds 80,502 80,194 State and municipal 228,236 234,682 Mortgage-backed 160,970 188,501 Corporate 212 204 Asset-backed securities 9,197 11,017 Total $ 479,117 $ 514,598 Held to Maturity Securities at amortized cost U.S. Government and federal agency $ 2,978 $ 2,972 U.S.
Provision and Allowance For Credit Losses Table 3 – Provision and Allowance For Credit Losses 24 (Dollars in thousands) 2023 2022 2021 Allowance for credit losses at beginning of year $ 7,619 $ 7,688 $ 7,593 Cumulative effect of change in accounting principle 7,165 - - Charge-offs: Agricultural - - - Commercial and industrial 158 177 195 Consumer 554 496 370 Real estate - commercial - - 111 Real estate - construction - - - Real estate - residential 27 - - Total 739 673 676 Recoveries: Agricultural - - - Commercial and industrial 66 143 86 Consumer 283 206 214 Real estate - commercial 13 3 48 Real estate - construction - - - Real estate - residential 13 2 7 Total 375 354 355 Net charge-offs (recoveries) 364 319 321 Provision for credit losses 1,265 250 416 Allowance for credit losses at end of year $ 15,685 $ 7,619 $ 7,688 Allowance for credit losses as a percentage of: Total loans as of year end 1.11 % 0.64 % 0.76 % Nonaccrual loans, accrual loans past due 90 days or more and troubled debt restructurings 820 % 286 % 139 % Ratio of net charge-offs during the period to average loans outstanding during the period 0.03 % 0.03 % 0.03 % Loan recoveries as a percentage of prior year's charge-offs 56 % 52 % 47 % On January 1, 2023, ChoiceOne adopted ASU 2016-13 CECL which caused an increase in the allowance for credit losses ("ACL") of $7.2 million.
Year Ended December 31, 2024 2023 2022 Cost of deposits 1.58 % 1.14 % 0.27 % Cost of funds 1.92 % 1.44 % 0.35 % Provision and Allowance For Credit Losses Table 3 – Provision and Allowance For Credit Losses 25 (Dollars in thousands) 2024 2023 2022 Allowance for credit losses at beginning of year $ 15,685 $ 7,619 $ 7,688 Cumulative effect of change in accounting principle - 7,165 - Charge-offs: Agricultural - - - Commercial and industrial 7 158 177 Consumer 800 554 496 Commercial real estate - - Construction real estate - - - Residential real estate 30 27 - Total 837 739 673 Recoveries: Agricultural - - - Commercial and industrial 15 66 143 Consumer 374 283 206 Commercial real estate - 13 3 Construction real estate - - - Residential real estate 15 13 2 Total 404 375 354 Net charge-offs (recoveries) 433 364 319 Provision for credit losses 1,300 1,265 250 Allowance for credit losses at end of year $ 16,552 $ 15,685 $ 7,619 Allowance for credit losses as a percentage of: Total loans as of year end 1.07 % 1.11 % 0.64 % Nonaccrual loans, accrual loans past due 90 days or more and troubled debt restructurings 447 % 820 % 286 % Ratio of net charge-offs during the period to average loans outstanding during the period 0.03 % 0.03 % 0.03 % Loan recoveries as a percentage of prior year's charge-offs 55 % 56 % 52 % Note: In the table above, "consumer" includes deposit account charge-offs and recoveries.
This was offset by the decline in the average balance of interest bearing-demand deposits and savings deposits, of $131.6 million during 2023.
This was compounded by the increase in the average balance of interest bearing-demand deposits and savings deposits, of $7.4 million during 2024.
(6) Interest income for 2023 was reduced by $2.8 million due to amortization expense related to the March 2023 sale of the pay floating swap derivative. 22 Table 2 – Changes in Tax-Equivalent Net Interest Income Year Ended December 31, (Dollars in thousands) 2023 Over 2022 2022 Over 2021 Total Volume Rate Total Volume Rate Increase (decrease) in interest income (1) Loans (2) $ 15,576 $ 8,264 $ 7,312 $ 4,189 $ 3,026 $ 1,163 Taxable securities 5,586 (682 ) 6,268 5,323 3,410 1,913 Nontaxable securities (2) (684 ) (455 ) (229 ) 692 1,126 (434 ) Other 3,306 925 2,381 407 (62 ) 469 Net change in interest income $ 23,784 $ 8,052 $ 15,732 $ 10,611 $ 7,500 $ 3,111 Increase (decrease) in interest expense (1) Interest-bearing demand deposits $ 6,514 $ (202 ) $ 6,716 $ 1,717 $ 279 $ 1,438 Savings deposits 898 (152 ) 1,050 159 79 80 Certificates of deposit 9,003 1,364 7,639 664 50 614 Brokered deposit 1,730 1,725 5 - - - Borrowings 6,408 6,029 379 309 217 92 Subordinated debentures 145 7 138 920 948 (28 ) Other 651 651 - - - - Net change in interest expense $ 25,349 $ 9,422 $ 15,927 $ 3,769 $ 1,573 $ 2,196 Net change in tax-equivalent net interest income $ (1,565 ) $ (1,370 ) $ (195 ) $ 6,841 $ 5,927 $ 915 (1) The volume variance is computed as the change in volume (average balance) multiplied by the previous year’s interest rate.
(6) Interest income for 2024 and 2023 was reduced by $1.1 million and $2.8 million, respectively, due to amortization expense related to the March 2023 sale of the pay floating swap derivative. 23 Table 2 – Changes in Tax-Equivalent Net Interest Income Year Ended December 31, (Dollars in thousands) 2024 Over 2023 2023 Over 2022 Total Volume Rate Total Volume Rate Increase (decrease) in interest income (1) Loans (2) $ 21,208 $ 11,095 $ 10,113 $ 15,576 $ 8,264 $ 7,312 Taxable securities 59 (1,645 ) 1,704 5,586 (682 ) 6,268 Nontaxable securities (2) (17 ) (144 ) 127 (684 ) (455 ) (229 ) Other 884 938 (54 ) 3,306 925 2,381 Net change in interest income $ 22,134 $ 10,244 $ 11,890 $ 23,784 $ 8,052 $ 15,732 Increase (decrease) in interest expense (1) Interest-bearing demand deposits $ 2,969 $ 537 $ 2,432 $ 6,514 $ (202 ) $ 6,716 Savings deposits 1,219 (169 ) 1,388 898 (152 ) 1,050 Certificates of deposit 6,412 3,205 3,207 9,003 1,364 7,639 Brokered deposit (417 ) (399 ) (18 ) 1,730 1,725 5 Borrowings 3,067 3,169 (102 ) 6,408 6,029 379 Subordinated debentures 6 10 (4 ) 145 7 138 Other 310 319 (9 ) 651 651 - Net change in interest expense $ 13,566 $ 6,672 $ 6,894 $ 25,349 $ 9,422 $ 15,927 Net change in tax-equivalent net interest income $ 8,568 $ 3,572 $ 4,996 $ (1,565 ) $ (1,370 ) $ (195 ) (1) The volume variance is computed as the change in volume (average balance) multiplied by the previous year’s interest rate.
The decline compared to December 31, 2022 was due to the sale of an equity position during the third quarter. 27 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).
As of December 31, 2023, equity securities included a MMP of $1.0 million and common stock of $6.5 million. 28 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).
Management also maintains a list of loans that are not classified as nonperforming loans but where some concern exists as to the borrowers’ abilities to comply with the original loan terms. There were 22 loans totaling $357,000 fitting this description as of December 31, 2023, and 10 loans totaling $180,000 fitting this description as of December 31, 2022.
There were no troubled loan modifications ("TLM") at December 31, 2024, compared to $60,000 of commercial and industrial TLM loans and $129,000 of residential real estate TLM loans at December 31, 2023. 29 Management also maintains a list of loans that are not classified as nonperforming loans but where some concern exists as to the borrowers’ abilities to comply with the original loan terms.
Selected Financial Data (Dollars in thousands, except per share data) 2023 2022 2021 For the year Net interest income $ 65,885 $ 67,314 $ 60,641 Provision for credit losses, net 150 250 416 Noninterest income 14,906 14,072 19,194 Noninterest expense 55,074 53,478 52,921 Income before income taxes 25,567 27,658 26,498 Income tax expense 4,306 4,018 4,456 Net income 21,261 23,640 22,042 Cash dividends declared 7,910 7,578 7,200 Per share Basic earnings $ 2.82 $ 3.15 $ 2.87 Diluted earnings 2.82 3.15 2.86 Cash dividends declared 1.05 1.01 0.94 Shareholders' equity (at year end) 25.92 22.47 29.52 Average for the year Securities $ 1,042,559 $ 1,094,559 $ 869,788 Gross loans 1,265,261 1,104,030 1,040,430 Deposits 2,111,970 2,133,790 1,905,629 Borrowings 141,507 13,537 5,465 Subordinated debt 35,382 35,211 12,841 Shareholders' equity 177,201 178,415 225,120 Assets 2,493,840 2,373,374 2,156,774 At year end Securities $ 939,576 $ 972,802 $ 1,116,265 Gross loans 1,415,363 1,194,616 1,068,831 Deposits 2,122,055 2,118,003 2,052,294 Borrowings 200,000 50,000 50,000 Subordinated debt 35,507 35,262 35,017 Shareholders' equity 195,634 168,874 221,669 Assets 2,576,706 2,385,915 2,366,682 Selected financial ratios Return on average assets 0.85 % 1.00 % 1.02 % Return on average shareholders' equity 12.00 13.25 9.79 Cash dividend payout as a percentage of net income 37.21 32.06 32.67 Shareholders' equity to assets (at year end) 7.59 7.08 9.37 19 RESULTS OF OPERATIONS Summary ChoiceOne's net income for 2023 was $21.3 million, compared to $23.6 million in 2022.
Selected Financial Data (Dollars in thousands, except per share data) 2024 2023 2022 For the year Net interest income $ 74,442 $ 65,885 $ 67,314 Provision for credit losses, net 625 150 250 Noninterest income 17,995 14,906 14,072 Noninterest expense 58,723 55,074 53,478 Income before income taxes 33,089 25,567 27,658 Income tax expense 6,362 4,306 4,018 Net income 26,727 21,261 23,640 Cash dividends declared 9,012 7,910 7,578 Per share Basic earnings $ 3.27 $ 2.82 $ 3.15 Diluted earnings 3.25 2.82 3.15 Cash dividends declared 1.09 1.05 1.01 Shareholders' equity (at year end) 29.05 25.92 22.47 Average for the year Securities $ 981,454 $ 1,042,559 $ 1,094,559 Gross loans 1,456,434 1,265,261 1,104,030 Deposits 2,165,705 2,111,970 2,133,790 Borrowings 208,142 141,507 13,537 Subordinated debt 35,627 35,382 35,211 Shareholders' equity 226,547 177,201 178,415 Assets 2,668,556 2,493,840 2,373,374 At year end Securities $ 896,123 $ 939,576 $ 972,802 Gross loans 1,552,928 1,415,363 1,194,616 Deposits 2,214,103 2,122,055 2,118,003 Borrowings 175,000 200,000 50,000 Subordinated debt 35,752 35,507 35,262 Shareholders' equity 260,415 195,634 168,874 Assets 2,723,243 2,576,706 2,385,915 Selected financial ratios Return on average assets 1.00 % 0.85 % 1.00 % Return on average shareholders' equity 11.80 12.00 13.25 Cash dividend payout as a percentage of net income 33.72 37.21 32.06 Shareholders' equity to assets (at year end) 9.56 7.59 7.08 20 RECENT EVENTS ChoiceOne and Fentura Financial, Inc., the parent company of The State Bank, entered into a definitive merger agreement on July 25, 2024 pursuant to which ChoiceOne and Fentura would merge in an all-stock transaction (the “Merger”).
Accrued interest receivable on HTM securities is excluded from the estimate of credit losses. With regard to US Treasury securities, these have an explicit government guarantee; therefore, no ACL is recorded for these securities.
Accrued interest receivable totaled $2.0 million and $2.1 million at December 31, 2024, and 2023, respectively, and was reported in other assets on the consolidated balance sheets and is excluded from the estimate of credit losses. With regard to US Treasury securities, these have an explicit government guarantee; therefore, no ACL is recorded for these securities.
As of December 31, 2023, we used a one-year reasonable and supportable economic forecast period, with a two year straight-line reversion period. 33 We are not required to develop and use our own economic forecast model, and we 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 not required to develop and use our own economic forecast model, and we 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. Other inputs to the calculation are also updated or reviewed quarterly.
Loans The Company’s loan portfolio by call report code was as follows: December 31, 2023 December 31, 2022 (Dollars in thousands) Call Report Codes Balance % Balance % Construction & Development Loans 1A2 112,877 8.0 % 55,426 4.7 % 1-4 Family Loans 1A1, 1C1, 1C2A, 1C2B 347,036 24.6 % 287,208 24.1 % Multifamily Loans 1D 56,563 4.0 % 44,053 3.7 % Owner Occupied CRE Loans 1E1 281,515 20.0 % 266,652 22.4 % Non-Owner Occupied CRE Loans 1E2 298,265 21.1 % 220,779 18.6 % Commercial & Industrial Loans 2A2, 4A 219,849 15.6 % 205,117 17.2 % Farm & Agriculture Loans 1B, 3 46,515 3.3 % 59,918 5.0 % Consumer & Other Loans 6B, 6C, 6D, 8, 9b2,10B 48,033 3.4 % 50,629 4.3 % Total Loans 1,410,653 1,189,782 Core loans, which exclude held for sale loans, and loans to other financial institutions, grew organically by $201.5 million in 2023.
Loans The Company’s loan portfolio by call report code was as follows: December 31, 2024 December 31, 2023 (Dollars in thousands) Call Report Codes Balance % Balance % Construction & Development Loans 1A2 61,740 4.0 % 112,877 8.0 % 1-4 Family Loans 1A1, 1C1, 1C2A, 1C2B 380,139 24.6 % 347,036 24.6 % Multifamily Loans 1D 83,766 5.4 % 56,563 4.0 % Owner Occupied CRE Loans 1E1 325,966 21.1 % 281,515 20.0 % Non-Owner Occupied CRE Loans 1E2 387,102 25.0 % 298,265 21.1 % Commercial & Industrial Loans 2A2, 4A 216,376 14.0 % 219,849 15.6 % Farm & Agriculture Loans 1B, 3 48,246 3.1 % 46,515 3.3 % Consumer & Other Loans 6B, 6C, 6D, 8, 9b2,10B 42,305 2.7 % 48,033 3.4 % Total Loans 1,545,640 1,410,653 Average loan balances increased $191.2 million in the full year 2024 compared to the same period in 2023.
Deposits and Other Funding Sources The Company’s deposit balances as of December 31 were as follows: (Dollars in thousands) 2023 2022 Noninterest-bearing demand deposits $ 547,625 $ 599,579 Interest-bearing demand deposits 599,681 638,641 Money market deposits 247,602 214,026 Savings deposits 336,851 427,583 Local certificates of deposit 366,851 236,431 Brokered certificates of deposit 23,445 1,743 Total deposits $ 2,122,055 $ 2,118,003 Deposits, excluding brokered deposits, increased by $14.7 million or an annualized 2.8% in the fourth quarter of 2023 and decreased $17.7 million or 0.8% as of December 31, 2023 compared to December 31, 2022.
Deposits and Other Funding Sources The Company’s deposit balances as of December 31 were as follows: (Dollars in thousands) 2024 2023 Noninterest-bearing demand deposits $ 524,945 $ 547,625 Interest-bearing demand deposits 630,155 599,681 Money market deposits 290,012 247,602 Savings deposits 338,109 336,851 Local certificates of deposit 394,371 366,851 Brokered certificates of deposit 36,511 23,445 Total deposits $ 2,214,103 $ 2,122,055 Deposits, excluding brokered deposits increased $79.0 million or 3.8% during 2024.
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.
To compensate for these limitations, we use non-GAAP financial measures as comparative tools, together with GAAP financial measures, to assist in the evaluation of our operating performance or financial condition.
Table 4 – Contractual Obligations The following table discloses information regarding the maturity of ChoiceOne’s contractual obligations at December 31, 2023: Payment Due by Period Less More than 1 - 3 3 - 5 than (Dollars in thousands) Total 1 year Years Years 5 Years Time deposits $ 390,296 $ 351,516 $ 33,659 $ 4,855 $ 266 Borrowings 200,000 170,000 30,000 - - ChoiceOne Capital Trust (1) 4,500 - - - 4,500 ChoiceOne Subordinated Debenture (2) 32,500 - - - 32,500 Operating leases 777 314 398 65 - Other obligations 94 51 20 18 5 Total $ 628,167 $ 521,881 $ 64,077 $ 4,938 $ 37,271 (1) Cumulative preferred securities on the balance sheet include $1.1 million of discount due to a mark to market adjustment which is not reflected in the table above. 30 (2) ChoiceOne subordinated debenture on the balance sheet includes $385,000 of capitalized issuance cost which is not reflected in the table above.
Table 4 – Contractual Obligations The following table discloses information regarding the maturity of ChoiceOne’s contractual obligations at December 31, 2024: Payment Due by Period Less More than 1 - 3 3 - 5 than (Dollars in thousands) Total 1 year Years Years 5 Years Time deposits $ 430,882 $ 413,786 $ 13,110 $ 3,719 $ 267 Borrowings 175,000 155,000 20,000 - - ChoiceOne Capital Trust (1) 4,500 - - - 4,500 ChoiceOne Subordinated Debenture (2) 32,500 - - - 32,500 Operating leases 759 310 280 50 119 Other obligations 43 11 18 14 - Total $ 643,684 $ 569,107 $ 33,408 $ 3,783 $ 37,386 (1) Cumulative preferred securities on the balance sheet include $1.0 million of discount due to a mark to market adjustment which is not reflected in the table above.
Income Taxes Income tax expense was $288,000 higher in 2023 than in 2022. The effective tax rate was 16.8% for the year ended 2023 compared to 14.5% for the same period in 2022. During 2023, nontaxable municipal interest decreased and disallowed interest expense increased compared to the year ended 2022.
Income Taxes Income tax expense was $2.1 million higher in 2024 than in 2023. The effective tax rate was 19.2% for the year ended December 31, 2024 compared to 16.8% for the same period in 2023. For 2024, income before income tax, disallowed interest expense (TEFRA) and nondeductible merger expenses increased compared to 2023.
Allowance for Loan Losses Prior to the adoption of CECL on January 1, 2023, management calculated the allowance for loan losses for the valuation allowance for probable incurred credit losses. The allowance for loan losses is increased by the provision for loan losses and decreased by loans charged off less any recoveries of charged off loans.
Allowance for Credit Losses ("ACL") The ACL is a valuation allowance for expected credit losses. The ACL is increased by the provision for credit losses and decreased by loans charged off less any recoveries of charged off loans.
The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and the federal tax code. 36
The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and the federal tax code. Identification and Classification of Merger-Related Expenses Merger-related expenses are costs incurred directly in connection with the company's merger and acquisition activities.
ChoiceOne had net cash from borrowings of $150.0 million in the full year 2023, compared to $0 in the full year 2022. ChoiceOne'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.
The change was largely due to $150.0 million of higher borrowings in 2023, offset by $32.1 million in net proceeds received from our common stock offering completed on July 26, 2024. ChoiceOne'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.
Core deposits, which we define as insured branch deposits less certificates of deposit, totaled $823.2 million or 38.8% of total deposits at December 31, 2023.
Core deposits, which we define as insured branch deposits less certificates of deposit, totaled $1.1 billion or 51.2% of total deposits at December 31, 2024. ChoiceOne's cost of deposits to average total deposits has increased from 1.14% in 2023 to 1.58% in 2024.
Interest income on loans for 2023 was reduced by $2.1 million due to amortization expense related to the March 2023 sale of the pay floating swap derivative. The average balance of total securities decreased $52.0 million in 2023, compared to the same period in 2022. The decrease was due to the paydowns, maturities, and redemptions during 2023.
The average balance of total securities decreased $61.1 million in 2024, compared to the same period in 2023. The decrease was due to the paydowns, maturities, and redemptions during 2024.
Treasury notes and bonds - - State and municipal 196,098 201,890 Mortgage-backed 188,329 200,473 Corporate 20,013 19,603 Asset-backed securities 547 974 Total $ 407,959 $ 425,906 Total investment securities declined $34.2 million from December 31, 2022 to December 31, 2023. ChoiceOne purchased $7.1 million of securities in 2023.
Treasury notes and bonds - State and municipal 196,510 196,098 Mortgage-backed 174,323 188,329 Corporate 20,495 20,013 Asset-backed securities 228 547 Total $ 394,534 $ 407,959 Total investment securities declined $48.9 million from December 31, 2023 to December 31, 2024. ChoiceOne purchased $16.8 million of securities in 2024. Securities totaling $11.8 million were called or matured in 2024.
The ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 1.11% on December 31, 2023 compared to 1.24% on January 1, 2023.
Core loan growth was offset by slight improvements in the Federal Open Market Committee ("FOMC") forecast during the full year 2024. The ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 1.07% on December 31, 2024 compared to 1.11% on December 31, 2023.
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 mark-to-market adjustment. Shareholders’ Equity Shareholders’ equity totaled $195.6 million as of December 31, 2023, up from $168.9 million as of December 31, 2022.
ChoiceOne used a portion of net proceeds from the private placement to redeem senior debt, fund common stock repurchases, and support bank-level capital ratios. ChoiceOne also holds $3.5 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 mark-to-market adjustment.
The improvement in AOCI, despite the rise in interest rates, is due to both the shortening duration and maturing (paydowns) of the securities portfolio, as well as an offsetting increase in unrealized gain of the pay-fixed swap derivatives.
The additional increase is due to retained earnings and an improvement in accumulated other compressive loss (AOCI) of $13.8 million compared to December 31, 2023. The improvement in AOCI is due to both the shortening duration and maturing (paydowns) of the securities portfolio, offset by the change in unrealized gain of the pay-fixed swap derivatives.
The net effect of these additional borrowed funds and brokered deposits was an increase in interest expense of $8.1 million for the year ended December 31, 2023, compared to the same period in 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.
This increased the total borrowed balance at the FHLB to $175.0 million at a weighted average fixed rate of 4.5%. The net effect of these additional borrowed funds was an increase in interest expense of $3.1 million for the year ended December 31, 2024, compared to the same period in 2023.
Deposits grew in the third and fourth quarters of 2023 due to new business, recapture of deposit losses, and some seasonality in municipal balances. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits, the Bank Term Funding Program ("BTFP"), and FHLB advances to ensure ample liquidity.
The increase in deposits in the twelve months ended December 31, 2024 is a combination of new business and recapture of deposit losses from the prior year. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits and FHLB advances to ensure ample liquidity.
At December 31, 2023, the Company had $128.9 million in unrealized losses on its investment securities, including $69.7 million in unrealized losses on available for sale securities and $59.2 million in unrealized losses on held to maturity securities.
ChoiceOne received principal payments for municipal and mortgage-backed securities totaling $48.0 million during 2024. At December 31, 2024, the Company had $116.6 million in unrealized losses on its investment securities, including $61.1 million in unrealized losses on available for sale securities and $55.5 million in unrealized losses on held to maturity securities.
Liquidity and Interest Rate Risk Net cash provided by operating activities was $46.5 million in 2023 compared to $45.0 million in 2022. The change was due to lower net proceeds from loan sales and an increase in other assets in 2023 compared to 2022.
The change was due to higher net proceeds from loan sales and an increase in other liabilities in 2024 compared to 2023. Net cash used in investing activities was $97.9 million in 2024 compared to $181.4 million in 2023.
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. The average balance of subordinated debentures was relatively flat in 2023 compared to the same period in the prior year.
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.
GAAP based net interest margin declined 24 basis points in 2023 compared to 2022. The following table presents the cost of deposits and the cost of funds for the years ended December 31, 2023, December 31, 2022, and December 31, 2021.
The average balance of subordinated debentures was relatively flat in 2024 compared to the same period in the prior year. The following table presents the cost of deposits and the cost of funds for the years ended December 31, 2024, December 31, 2023, and December 31, 2022.
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. 32 Critical Accounting Policies And Estimates Management’s discussion and analysis of financial condition and results of operations as well as disclosures found elsewhere in this report are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
Income Adjusted for Merger Expenses - Non-GAAP Reconciliation 2024 (In Thousands, Except Per Share Data) Net income $ 26,727 Merger related expenses net of tax 1,006 Adjusted net income (Non-GAAP) $ 27,733 Weighted average number of shares 8,166,472 Diluted average shares outstanding 8,221,065 Basic earnings per share $ 3.27 Diluted earnings per share $ 3.25 Adjusted basic earnings per share (Non-GAAP) $ 3.40 Adjusted diluted earnings per share (Non-GAAP) $ 3.37 32 Critical Accounting Policies And Estimates Management’s discussion and analysis of financial condition and results of operations as well as disclosures found elsewhere in this report are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
Diluted earnings per share were $2.82 in the twelve months ended December 31, 2023, compared to $3.15 per share in the twelve months ended December 31, 2022. ChoiceOne's asset mix has shifted from loans held for investment of 56.2% of deposits at December 31, 2022 to 66.5% of deposits at December 31, 2023.
ChoiceOne's asset mix has shifted from loans held for investment of 66.5% of deposits at December 31, 2023 to 69.8% of deposits at December 31, 2024. As of December 31, 2024, total assets were $2.7 billion, an increase of $146.5 million compared to December 31, 2023.
The average rate earned on securities increased 58 basis points for the full year 23 2023, compared to the same period in the prior year. Interest income on securities for 2023 was reduced by $709,000 due to amortization expense related to the March 2023 sale of the pay floating swap derivative.
Interest income on securities remained flat in 2024 compared to 2023 despite the decline in average balance as the average rate earned on securities increased 17 basis points for the full year 2024, compared to the same period in the prior year.
Noninterest Expense Noninterest expense increased $1.6 million or 3.0% in the twelve months ended December 31, 2023 compared to the same period in 2022. The increase in total noninterest expense was largely related to inflationary pressures on employee wages and benefits and increases to FDIC insurance, partially offset by lower occupancy and data processing costs.
Noninterest Expense Noninterest expense increased by $3.6 million or 6.6% in the twelve months ended December 31, 2024 compared to the same period in 2023.
These derivative instruments increase in value as long-term interest rates rise, which partially offsets the reduction in equity due to unrealized losses on securities available for sale. Included in the total is $200.0 million of forward starting pay-fixed, receive floating interest rate swaps used to hedge interest bearing liabilities.
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. 30 Note 21 to the consolidated financial statements presents regulatory capital information for ChoiceOne and the Bank at the end of 2024 and 2023.
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 from the private placement to redeem senior debt, fund common stock repurchases, and support bank-level capital ratios.
This increased ChoiceOne's total borrowed balance at the FHLB to $175.0 million at a weighted average fixed rate of 4.5%, with the earliest maturity in January 2025. 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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeTable 5 documents the maturity or repricing schedule for ChoiceOne’s rate-sensitive assets and liabilities for selected time periods: Table 5 – Maturities and Repricing Schedule As of December 31, 2023 (Dollars in thousands) 0 - 3 3 - 12 1 - 5 Over Months Months Years 5 Years Total Assets Equity securities at fair value $ 7,505 $ - $ - $ - $ 7,505 Securities available for sale 72,671 16,262 116,948 308,717 514,598 Securities held to maturity 23,863 7,932 28,282 347,882 407,959 Federal Home Loan Bank stock 4,449 - - - 4,449 Federal Reserve Bank stock - - - 5,065 5,065 Loans held for sale 4,710 - - - 4,710 Loans to other financial institutions 19,400 - - - 19,400 Core Loans 311,184 170,790 719,686 189,593 1,391,253 Cash surrender value of life insurance policies - - - 45,074 45,074 Interest rate derivative contracts 716 8,164 - - 8,880 Rate-sensitive assets $ 444,498 $ 203,148 $ 864,916 $ 896,331 $ 2,408,893 Liabilities Interest-bearing demand deposits $ 599,681 $ - $ - $ - $ 599,681 Money market deposits 247,602 - - - 247,602 Savings deposits 336,851 - - - 336,851 Certificates of deposit 71,688 261,019 33,878 266 366,851 Brokered deposits 12,056 6,754 4,635 - 23,445 Borrowings - 170,000 30,000 - 200,000 Subordinated debentures 3,392 - 32,115 - 35,507 Interest rate derivative contracts - - - - - Rate-sensitive liabilities $ 1,271,270 $ 437,773 $ 100,628 $ 266 $ 1,809,937 Rate-sensitive assets less rate-sensitive liabilities: Asset (liability) gap for the period $ (826,772 ) $ (234,625 ) $ 764,288 $ 896,065 $ 598,956 Cumulative asset (liability) gap $ (826,772 ) $ (1,061,397 ) $ (297,109 ) $ 598,956 (1) Interest rate derivative contracts include pay fixed, receive variable swaps with a notional value of $401.0 million.
Biggest changeTable 5 documents the maturity or repricing schedule for ChoiceOne’s rate-sensitive assets and liabilities for selected time periods: Table 5 – Maturities and Repricing Schedule As of December 31, 2024 (Dollars in thousands) 0 - 3 3 - 12 1 - 5 Over Months Months Years 5 Years Total Assets Equity securities at fair value $ 7,782 $ - $ - $ - $ 7,782 Securities available for sale 63,054 5,948 141,844 268,271 479,117 Securities held to maturity 16,887 3,163 97,906 276,578 394,534 Federal Home Loan Bank stock 9,383 - - - 9,383 Federal Reserve Bank stock - - - 5,307 5,307 Loans held for sale 7,288 - - - 7,288 Loans to other financial institutions 39,878 - - - 39,878 Core Loans 371,533 208,690 763,592 161,947 1,505,762 Cash surrender value of life insurance policies - - - 44,896 44,896 Interest rate derivative contracts 23,649 - - - 23,649 Rate-sensitive assets $ 539,454 $ 217,801 $ 1,003,342 $ 756,999 $ 2,517,596 Liabilities Interest-bearing demand deposits $ 630,155 $ - $ - $ - $ 630,155 Money market deposits 290,012 - - - $ 290,012 Savings deposits 338,109 - - - $ 338,109 Certificates of deposit 118,393 260,376 15,335 267 $ 394,371 Brokered deposits 29,884 5,133 1,494 - 36,511 Borrowings 135,000 20,000 20,000 - 175,000 Subordinated debentures 3,492 - 32,260 - 35,752 Interest rate derivative contracts - - - - - Rate-sensitive liabilities $ 1,545,045 $ 285,509 $ 69,089 $ 267 $ 1,899,910 Rate-sensitive assets less rate-sensitive liabilities: Asset (liability) gap for the period $ (1,005,591 ) $ (67,708 ) $ 934,253 $ 756,732 $ 617,686 Cumulative asset (liability) gap $ (1,005,591 ) $ (1,073,299 ) $ (139,046 ) $ 617,686 (1) Interest rate derivative contracts include pay fixed, receive variable swaps with a notional value of $401.0 million.
Another method the Risk Committee uses to monitor its interest rate sensitivity is to subject rate-sensitive assets and liabilities to interest rate shocks. At December 31, 2023, management used a simulation model to subject its assets and liabilities up to an immediate 200 basis point increase and decline.
Another method the Risk Committee uses to monitor its interest rate sensitivity is to subject rate-sensitive assets and liabilities to interest rate shocks. At December 31, 2024, management used a simulation model to subject its assets and liabilities up to an immediate 200 basis point increase and decline.
The Risk Committee plans to continue to monitor the ratio of rate-sensitive assets to rate-sensitive liabilities on a quarterly basis in 2024. As interest rates change, the Risk Committee will attempt to match its maturing assets with corresponding liabilities to maximize ChoiceOne’s net interest income.
The Risk Committee plans to continue to monitor the ratio of rate-sensitive assets to rate-sensitive liabilities on a quarterly basis in 2025. As interest rates change, the Risk Committee will attempt to match its maturing assets with corresponding liabilities to maximize ChoiceOne’s net interest income.
In the case of variable rate assets and 37 liabilities, repricing dates were used to determine their values. The simulation model measures the effect of immediate interest rate changes on both net interest income and shareholders’ equity.
In the case of variable rate assets and 36 liabilities, repricing dates were used to determine their values. The simulation model measures the effect of immediate interest rate changes on both net interest income and shareholders’ equity.
Further details can be found in Note 8 – Derivatives and Hedging Activities. Under this method, the Risk Committee measures interest rate sensitivity by focusing on the one-year repricing gap. ChoiceOne’s ratio of rate-sensitive assets to rate-sensitive liabilities that matured or repriced within a one-year time frame was 38% at December 31, 2023, compared to 36% at December 31, 2022.
Further details can be found in Note 8 – Derivatives and Hedging Activities. Under this method, the Risk Committee measures interest rate sensitivity by focusing on the one-year repricing gap. ChoiceOne’s ratio of rate-sensitive assets to rate-sensitive liabilities that matured or repriced within a one-year time frame was 41% at December 31, 2024, compared to 38% at December 31, 2023.
As of December 31, 2022, the Bank was within its guidelines for immediate rate shocks up and down for all net interest income scenarios and for the up rate scenarios and the down 100 and down 200 basis points scenarios for the market value of shareholders’ equity.
As of December 31, 2023, the Bank was within its guidelines for immediate rate shocks of 100 and 200 basis points up and down for net interest income scenarios and was within its guidelines for immediate rate shocks of 100 and 200 basis points up and 100 basis points down for market value of shareholders’ equity scenarios.
Table 6 provides an illustration of hypothetical interest rate changes as of December 31, 2023 and 2022: Table 6 – Sensitivity to Changes in Interest Rates 2023 Net Market (Dollars in thousands) Interest Percent Value of Percent Income Change Equity Change Change in Interest Rate 200 basis point rise 67,650 -2 % 480,950 8 % 100 basis point rise 68,430 -1 % 469,920 5 % Base rate scenario 69,100 - % 446,210 - % 100 basis point decline 66,660 -4 % 407,940 -9 % 200 basis point decline 66,120 -4 % 350,800 -21 % 2022 Net Market (Dollars in thousands) Interest Percent Value of Percent Income Change Equity Change Change in Interest Rate 200 basis point rise 61,826 -11 % 355,701 15 % 100 basis point rise 66,025 -5 % 338,913 9 % Base rate scenario 69,734 - % 309,801 - % 100 basis point decline 71,788 3 % 260,889 -16 % 200 basis point decline 71,276 2 % 181,078 -42 % As of December 31, 2023, the Bank was within its guidelines for immediate rate shocks up and down for all net interest income scenarios and for the up rate scenarios for the market value of shareholders’ equity.
Table 6 provides an illustration of hypothetical interest rate changes as of December 31, 2024 and 2023: Table 6 – Sensitivity to Changes in Interest Rates 2024 Net Market (Dollars in thousands) Interest Percent Value of Percent Income Change Equity Change Change in Interest Rate 200 basis point rise 76,250 - % 415,500 6 % 100 basis point rise 76,320 - % 408,000 4 % Base rate scenario 75,950 - % 391,800 - % 100 basis point decline 75,230 -1 % 368,200 -6 % 200 basis point decline 73,080 -4 % 330,800 -16 % 2023 Net Market (Dollars in thousands) Interest Percent Value of Percent Income Change Equity Change Change in Interest Rate 200 basis point rise 67,650 -2 % 480,950 8 % 100 basis point rise 68,430 -1 % 469,920 5 % Base rate scenario 69,100 - % 446,210 - % 100 basis point decline 66,660 -4 % 407,940 -9 % 200 basis point decline 66,120 -4 % 350,800 -21 % As of December 31, 2024, the Bank was within its guidelines for immediate rate shocks of 100 and 200 basis points up and down for net interest income and market value of shareholders’ equity scenarios.
The Bank’s percent change in the 100 and 200 basis points down scenarios for the market value of shareholders’ equity was higher than the policy guidelines.
The immediate rate shock of 200 basis points down for market value of shareholders’ equity scenarios was higher than the policy guidelines.

Other COFS 10-K year-over-year comparisons