ChoiceOne Financial Reports Fourth Quarter and Year End 2021 Results

Rhea-AI Summary

ChoiceOne Financial Services (NASDAQ: COFS) reported strong financial results for the fourth quarter and year ended December 31, 2021. Net income reached $5.01 million for Q4 and $22.04 million for the year, up from $4.10 million and $15.61 million in 2020. Diluted earnings per share (EPS) also increased to $0.66 for Q4 and $2.86 for the year. Total deposits grew by $40.1 million in Q4 and $377.7 million for 2021, while loans increased organically by $56.6 million in Q4. The company maintained low deposit costs, resulting in strong capital positions and continued shareholder value potential.

Positive

• Net income increased to $5.01 million in Q4 from $4.10 million in 2020.
• Diluted EPS rose to $0.66 for Q4 and $2.86 for the year, up from $0.52 and $2.07, respectively.
• Organic loan growth of $56.6 million in Q4, excluding forgiven PPP loans.
• Total deposits rose by $40.1 million in Q4 and $377.7 million for 2021.
• Low deposit costs maintained, with a decrease of $873,000 in interest expense from deposits.
• ChoiceOne Bank recognized as 'Best Small Bank' in Michigan for the second consecutive year.

Negative

• Total noninterest income declined by $1.5 million and $3.5 million in Q4 and the year respectively, due to reduced mortgage refinancing activity.
• Total noninterest expense increased by $2.0 million in 2021 compared to 2020, primarily from merger-related scale increases.

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

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

• On July 1, 2020, ChoiceOne completed the merger of Community Shores Bank Corporation, the former parent company of Community Shores Bank, with and into ChoiceOne with ChoiceOne surviving the merger (the "Community Shores Merger"). Community Shores Bank was consolidated with and into ChoiceOne Bank effective October 16, 2020. The total assets, loans and deposits acquired in the Community Shores Merger were $244.0 million, $174.0 million and $227.8 million, respectively.
• ChoiceOne incurred tax-effected merger-related expenses of $547,000 and $2,714,000, respectively ($0.07 per diluted share and $0.36 per diluted share, respectively), for the quarter and year ended December 31, 2020.  No merger-related expenses were incurred in the year ended December 31, 2021.

Financial Highlights

• Net income of $5,012,000 and $22,042,000 for the three and twelve months ended December 31, 2021, compared to $4,100,000 and $15,613,000 during the same periods in 2020.
• Diluted earnings per share of $0.66 and $2.86 during the three and twelve months ended December 31, 2021, compared to $0.52 and $2.07 per share in the same periods in 2020.
• Excluding Paycheck Protection Program ("PPP") loans forgiven during the quarter, held for sale loans, and loans held at other financial institutions, ChoiceOne grew loans organically by $56.6 million during the fourth quarter of 2021.
• During the three and twelve months ended December 31, 2021, $28.1 million and $192.5 million of PPP loans were forgiven resulting in $1.2 million and $5.2 million of fee income, respectively.  $33.1 million in PPP loans and $1.2 million in deferred PPP fee income remains as of December 31, 2021.
• Total deposits grew by $40.1 million in the fourth quarter of 2021 and $377.7 million during the year ended December 31, 2021.
• ChoiceOne repurchased approximately 85,000 shares for $2.2 million, or a weighted average cost per share of $25.78, during the fourth quarter of 2021. ChoiceOne repurchased approximately 309,000 shares for $7.8 million, or a weighted average cost per share of $25.17 during the year ended December 31, 2021. These repurchases were part of the common stock repurchase program announced in April 2021 which authorized repurchases of up to 390,114 shares, representing 5% of the total outstanding shares of common stock as of the date the program was adopted.  This program replaced and superseded all prior repurchase programs for ChoiceOne.  Approximately 81,000 shares remain authorized to be repurchased under the program.
• ChoiceOne Bank was named "Best Small Bank" in Michigan by Newsweek for 2022 – the second year in a row ChoiceOne has received this honor.
• ChoiceOne became a limited partner in BankTech Ventures, LP, a venture capital fund focused on emerging financial technology companies. This investment will help connect us with innovative technology companies focused on community banks.

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

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

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

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

In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031.  ChoiceOne used a portion of net proceeds of the private placement to redeem senior debt, fund common stock repurchases, and support bank-level capital ratios.

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

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

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

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

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

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

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

Forward-Looking Statements
This release may contain forward-looking statements. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "plans," "predicts," "projects," "may," "could," "look forward," "continue", "future" and variations of such words and similar expressions are intended to identify such forward looking statements. These statements reflect current beliefs as to the expected outcomes of future events and are not guarantees of future performance. These statements involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed, implied or forecasted in such forward-looking statements. Furthermore, ChoiceOne undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise. Risk factors include, but are not limited to, the risk factors described in Item 1A in ChoiceOne Financial Services, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2020.

 

Condensed Balance Sheets (Unaudited)
(In thousands)		12/31/2021				12/31/2020
Cash and cash equivalents		$	31,887			$	79,519
Securities			1,116,264				585,687
Loans held for sale			9,351				12,921
Loans to other financial institutions			42,632				35,209
Loans, net of allowance for loan losses			1,009,161				1,062,075
Premises and equipment			29,880				29,489
Cash surrender value of life insurance policies			43,356				32,751
Goodwill			59,946				60,506
Core deposit intangible			3,962				5,269
Other assets			20,243				15,916
Total Assets		$	2,366,682			$	1,919,342
Noninterest-bearing deposits		$	560,931			$	477,654
Interest-bearing deposits			1,491,363				1,196,924
Borrowings			50,000				9,327
Subordinated debentures			35,017				3,089
Other liabilities			7,702				5,080
Total Liabilities			2,145,013				1,692,074
Shareholders' Equity			221,669				227,268
Total Liabilities and Shareholders' Equity		$	2,366,682			$	1,919,342

 

	Condensed Statements of Income (Unaudited)
		Three Months Ended								Twelve Months Ended
(In thousands, except per share data)		12/31/2021				12/31/2020				12/31/2021				12/31/2020
Interest income
Loans, including fees		$	12,002			$	12,764			$	48,657			$	46,874
Securities and other			4,816				2,276				15,961				8,841
Total Interest Income			16,818				15,040				64,618				55,715
Interest expense
Deposits			749				949				3,305				4,178
Borrowings			324				99				672				466
Total Interest Expense			1,073				1,048				3,977				4,644
Net interest income			15,745				13,992				60,641				51,071
Provision for loan losses			-				1,000				416				4,000
Net Interest Income After Provision for Loan Losses			15,745				12,992				60,225				47,071
Noninterest income
Customer service charges			2,319				1,946				8,628				7,252
Insurance and investment commissions			141				125				765				541
Gains on sales of loans			554				1,673				4,441				8,133
Gains (loss) on sales of securities			(43)				-				(40)				1,308
Trust income			178				169				790				739
Earnings on life insurance policies			239				195				809				772
Change in market value of equity securities			18				29				479				(155)
Other income			738				1,551				3,322				4,108
Total Noninterest Income			4,144				5,688				19,194				22,698
Noninterest expense
Salaries and benefits			7,581				6,994				29,300				26,539
Occupancy and equipment			1,577				1,598				6,168				5,783
Data processing			1,616				2,128				6,189				6,765
Professional fees			583				819				3,009				3,716
Core deposit intangible amortization			302				396				1,307				1,498
Other expenses			2,099				1,833				6,948				6,583
Total Noninterest Expense			13,758				13,768				52,921				50,884
Income Before Income Tax			6,131				4,912				26,498				18,885
Income Tax Expense			1,119				812				4,456				3,272
Net Income		$	5,012			$	4,100			$	22,042			$	15,613
Basic Earnings Per Share		$	0.67			$	0.53			$	2.87			$	2.08
Diluted Earnings Per Share		$	0.66			$	0.52			$	2.86			$	2.07

 

Non-GAAP Reconciliation (Unaudited)

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

		Three Months Ended								Twelve Months Ended
(In thousands, except per share data)		12/31/2021				12/31/2020				12/31/2021				12/31/2020
Income before income tax		$	6,131			$	4,912			$	26,498			$	18,885
Adjustment for merger-related expenses			-				692				-				3,219
Adjusted income before income tax		$	6,131			$	5,604			$	26,498			$	22,104
Income tax expense		$	1,119			$	812			$	4,456			$	3,272
Tax impact on adjustment for merger-related expenses			-				145				-				505
Adjusted income tax expense		$	1,119			$	957			$	4,456			$	3,777
Net income		$	5,012			$	4,100			$	22,042			$	15,613
Adjusted net income		$	5,012			$	4,647			$	22,042			$	18,327
Basic earnings per share		$	0.67			$	0.53			$	2.87			$	2.08
Diluted earnings per share		$	0.66			$	0.52			$	2.86			$	2.07
Adjusted basic earnings per share		$	0.67			$	0.60			$	2.87			$	2.44
Adjusted diluted earnings per share		$	0.66			$	0.59			$	2.86			$	2.43

 

Other Selected Financial Highlights (Unaudited)
		Quarterly
Earnings		2021 4th Qtr.				2021 3rd Qtr.				2021 2nd Qtr.				2021 1st Qtr.				2020 4th Qtr.
(in thousands except per share data)
Net interest income		$	15,745			$	15,700			$	14,508			$	14,688			$	13,992
Provision for loan losses			-				-				166				250				1,000
Noninterest income			4,144				4,718				4,732				5,600				5,689
Noninterest expense			13,758				13,506				13,129				12,528				13,769
Net income before federal income tax expense			6,131				6,912				5,945				7,510				4,912
Income tax expense			1,119				1,163				902				1,272				812
Net income			5,012				5,749				5,043				6,238				4,100
Basic earnings per share			0.67				0.75				0.65				0.80				0.53
Diluted earnings per share			0.66				0.75				0.65				0.80				0.52
End of period balances		2021 4th Qtr.				2021 3rd Qtr.				2021 2nd Qtr.				2021 1st Qtr.				2020 4th Qtr.
(in thousands)
Gross loans		$	1,068,832			$	1,034,590			$	1,017,472			$	1,061,131			$	1,117,798
Loans held for sale (1)			9,351				7,505				12,884				18,736				12,921
Loans to other financial institutions (2)			42,632				38,728				-				7,312				35,209
PPP loans (3)			33,129				61,192				109,898				137,458				138,028
Core loans (gross loans excluding 1, 2, and 3 above)			983,720				927,165				894,690				897,625				931,640
Allowance for loan losses			7,688				7,755				7,950				7,740				7,593
Securities			1,116,264				1,044,538				871,964				734,435				585,687
Other interest-earning assets			9,751				30,383				64,407				106,279				40,614
Total earning assets (before allowance)			2,194,847				2,109,511				1,953,843				1,901,845				1,744,099
Total assets			2,366,682				2,277,180				2,120,931				2,070,103				1,919,342
Noninterest-bearing deposits			560,931				543,165				527,964				515,552				477,654
Interest-bearing deposits			1,491,363				1,468,985				1,352,771				1,324,412				1,196,924
Total deposits			2,052,294				2,012,150				1,880,735				1,839,964				1,674,578
Total subordinated debt			35,017				34,956				3,140				3,115				3,089
Total borrowed funds			50,000				-				2,642				3,484				9,327
Total interest-bearing liabilities			1,576,380				1,503,941				1,358,553				1,331,011				1,209,340
Shareholders' equity			221,669				225,055				228,521				218,639				227,268
Average Balances		2021 4th Qtr.				2021 3rd Qtr.				2021 2nd Qtr.				2021 1st Qtr.				2020 4th Qtr.
(in thousands)
Loans		$	1,019,966			$	1,021,326			$	1,041,118			$	1,080,181			$	1,132,711
Securities			1,079,616				922,653				824,753				639,803				458,350
Other interest-earning assets			29,999				106,831				57,782				84,822				67,241
Total earning assets (before allowance)			2,129,581				2,050,810				1,923,653				1,804,806				1,658,302
Total assets			2,298,579				2,234,228				2,091,900				1,989,760				1,870,136
Noninterest-bearing deposits			556,214				545,251				533,877				479,649				482,271
Interest-bearing deposits			1,472,022				1,441,831				1,327,836				1,266,356				1,153,337
Total deposits			2,028,236				1,987,082				1,861,713				1,746,005				1,635,608
Total subordinated debt			35,674				9,154				3,123				3,099				3,077
Total borrowed funds			8,010				2,667				2,758				8,462				3,484
Total interest-bearing liabilities			1,515,706				1,453,652				1,333,717				1,277,917				1,159,898
Shareholders' equity			221,076				229,369				224,993				224,257				224,340
Performance Ratios		2021 4th Qtr.				2021 3rd Qtr.				2021 2nd Qtr.				2021 1st Qtr.				2020 4th Qtr.
Return on average assets			0.87	%			1.03	%			0.96	%			1.25	%			0.88	%
Return on average equity			9.07	%			10.03	%			8.97	%			11.13	%			7.31	%
Return on average tangible common equity			12.16	%			13.28	%			11.89	%			16.31	%			11.15	%
Net interest margin (fully tax-equivalent)			3.04	%			3.06	%			3.02	%			3.23	%			3.44	%
Efficiency ratio			66.15	%			63.16	%			64.70	%			61.20	%			67.17	%
Full-time equivalent employees			374				358				362				355				369

 

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SOURCE ChoiceOne Financial Services, Inc.

FAQ

What were ChoiceOne Financial Services' earnings for Q4 2021?

ChoiceOne reported a net income of $5.01 million for Q4 2021.

How did COFS perform in terms of diluted EPS for 2021?

Diluted earnings per share increased to $2.86 for the year ended December 31, 2021.

What was the growth in total deposits for ChoiceOne in 2021?

Total deposits grew by $377.7 million during the year ended December 31, 2021.

Did ChoiceOne achieve organic loan growth in Q4 2021?

Yes, ChoiceOne achieved organic loan growth of $56.6 million during Q4 2021.

What is the outlook for the PPP loans held by ChoiceOne?

Management expects the remaining PPP loans to be forgiven in the first half of 2022.