ChoiceOne Financial Reports Third Quarter 2021 Results
SPARTA, Mich., Oct. 27, 2021 /PRNewswire/ -- ChoiceOne Financial Services, Inc. ("ChoiceOne", NASDAQ:COFS), the parent company for ChoiceOne Bank, reported financial results for the quarter ended September 30, 2021.
Significant items impacting comparable nine months ended September 30, 2021 and 2020 results included the following:
- On July 1, 2020, ChoiceOne completed the merger of Community Shores Bank Corporation ("Community Shores"), the former parent company of Community Shores Bank, with and into ChoiceOne with ChoiceOne surviving the merger. Community Shores Bank was consolidated with and into ChoiceOne Bank (the "Bank") effective October 16, 2020. The total assets, loans and deposits acquired in the merger with Community Shores were approximately $244.0 million, $173.9 million and $227.8 million, respectively.
- There were no merger-related expenses in the first nine months of 2021. ChoiceOne incurred tax-effected merger-related expenses of approximately $1.4 million and $2.2 million, respectively ($0.18 per diluted share and $0.29 per diluted share, respectively), for the third quarter and nine months ended September 30, 2020.
Financial Highlights
- Net income of $5,749,000 and $17,030,000 for the three and nine months ended September 30, 2021 compared to $3,829,000 and $11,513,000 in the same periods in 2020.
- Diluted earnings per share of $0.75 and $2.20 in the three and nine months ended September 30, 2021 compared to $0.49 and $1.55 per share in the same periods in the prior year.
- Excluding PPP loans forgiven during the quarter, ChoiceOne grew loans organically by $32.5 million during the third quarter of 2021.
- In the third quarter and first nine months of 2021, $48.7 million and $164.5 million of Paycheck Protection Program ("PPP") loans were forgiven resulting in $1.6 million and $4.0 million of fee income, respectively. $2.4 million in PPP fee income remains deferred as of September 30, 2021.
- Total deposits grew $131.4 million in the third quarter of 2021 and $425.8 million since the third quarter of 2020.
- In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. ChoiceOne intends to use net proceeds of the private placement for general corporate purposes, including support for organic growth plans, possible redemption of senior debt, common stock repurchases, and support for bank-level capital ratios.
- ChoiceOne repurchased approximately 223,000 shares for $5.6 million, or a weighted average all-in cost per share of $24.94, during the first nine months of 2021. This was part of the common stock repurchase program announced in April 2021 which authorized repurchases of up to 390,114 shares, representing 5% of the total outstanding shares of common stock as of the date the plan was adopted. This program replaced and superseded all prior repurchase programs for ChoiceOne.
- During the third quarter of 2021, ChoiceOne agreed to become a limited partner in Banktech Ventures LP, a venture capital fund that specializes in connecting and accelerating bank technology-focused startups.
ChoiceOne reported net income of $5,749,000 for the third quarter of 2021 compared to $3,829,000 in the same period in 2020. Diluted earnings per share were $0.75 in the third quarter of 2021 compared to $0.49 per share in the third quarter of the prior year. Excluding $1.4 million in tax-effected merger related expenses, net income for the third quarter of 2020 was $5,252,000 and $0.67 per diluted share. Net income for the first nine months of 2021 was $17,030,000 or $2.20 per diluted share, compared to $11,513,000 or $1.55 per diluted share in the first nine months of 2020. Net income for the first nine months of 2020, excluding $2.2 million of tax-effected merger expenses, was $13,680,000 or $1.84 per diluted share.
Total assets grew $156.0 million from June 30, 2021 to September 30 2021 due in part to $131.4 million in deposit growth during the third quarter of 2021. Total assets grew $447.9 million in the twelve months ended September 30, 2021, while deposit growth during the twelve months ended September 30, 2021 was $425.8 million. Despite the large increase in deposits, ChoiceOne has been able to maintain low deposit costs; interest expense from deposits decreased $109,000 in the third quarter of 2021 and $673,000 in the first nine months of 2021 compared to the same periods in 2020. Excluding PPP loans forgiven during the quarter, ChoiceOne grew loans organically by $32.5 million during the third quarter of 2021 due in part to new experienced lenders and an emphasis on organic loan growth during 2021. In the third quarter and first nine months of 2021, $48.7 million and $164.5 million of Paycheck Protection Program ("PPP") loans were forgiven resulting in $1.6 million and $4.0 million of fee income, respectively. $2.4 million in PPP fee income remains deferred as of September 30, 2021. During the third quarter and first nine months of 2021, ChoiceOne recorded accretion income related to paydowns of acquired loans in the amount of $253,000 and $924,000, respectively. The remaining credit mark on acquired loans from the recent mergers with County Bank Corp. and Community Shores totaled $7.1 million as of September 30, 2021. ChoiceOne had no provision expense for the three months ended September 30, 2021 as management has seen declining deferrals and very few past due loans as the economy recovers from the COVID-19 pandemic. In an effort to deploy deposit growth, ChoiceOne grew its securities portfolio $172.6 million in the third quarter of 2021 and $641.8 million in the twelve months ended September 30, 2021. During the third quarter of 2021, ChoiceOne agreed to become a limited partner in Banktech Ventures LP, a venture capital fund that specializes in connecting and accelerating bank technology-focused startups. Management believes its investments are sufficiently short-term to allow loans to grow organically as good credits become available. In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. ChoiceOne intends to use net proceeds of the private placement for general corporate purposes, including support for organic growth plans, possible redemption of senior debt, common stock repurchases, and support for bank-level capital ratios.
Total noninterest income declined $1.6 million and $2.0 million in the three and nine months ended September 30, 2021, respectively. Total noninterest income in the third quarter of 2020 was bolstered by heightened levels of refinancing activity within ChoiceOne's mortgage portfolio, with gains on sales of loans $1.8 million larger than in the third quarter of 2021. Customer service charges increased $196,000 and $1.0 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year. Prior year service charges were depressed by stay at home orders during the COVID 19 pandemic. Current year service charges also included the effect of a merger with Community Shores which closed on July 1, 2020.
Total noninterest expense declined $1.0 million in the third quarter of 2021 and increased $2.0 million in the first nine months of 2021 compared to the same time periods in 2020. The decrease during the third quarter of 2021 was due to savings on salaries of personnel, data processing, and professional fees related to the merger with Community Shores. Much of the increase in the first nine months of 2021 was caused by the increase in scale related to the merger with Community Shores.
"We continue to see strong organic growth in our core deposit base and adding to our experienced team has paid dividends in the form of loan growth" said Kelly Potes, Chief Executive Officer. "I am very pleased with our results for the third quarter and year to date 2021 and look forward to continuing this momentum in the future."
About 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 34 offices in parts of Kent, Lapeer, Macomb, Muskegon, Newaygo, Ottawa, and St. Clair counties. ChoiceOne Bank offers insurance and investment products through its subsidiary, ChoiceOne Insurance Agencies, Inc. For more information, please visit Investor Relations at ChoiceOne's website at choiceone.com.
Non-GAAP Financial 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.
The COVID-19 pandemic is adversely affecting us and our customers, counterparties, and third-party service providers. The ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Additional risk factors include, but are not limited to, the risk factors described in Item 1A in ChoiceOne Financial Services, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2020.
Condensed Balance Sheets | ||||||||
(In thousands) | 9/30/2021 | 6/30/2021 | 9/30/2020 | |||||
Cash and Cash Equivalents | $ | 59,780 | $ | 95,318 | $ | 117,883 | ||
Securities | 1,044,538 | 871,964 | 402,776 | |||||
Loans Held For Sale | 7,505 | 12,884 | 35,826 | |||||
Loans to Other Financial Institutions | 38,728 | - | 55,064 | |||||
Loans, Net of Allowance For Loan Losses | 980,603 | 996,637 | 1,072,111 | |||||
Premises and Equipment | 30,014 | 29,615 | 29,927 | |||||
Cash Surrender Value of Life Insurance Policies | 33,322 | 33,128 | 32,556 | |||||
Goodwill | 59,946 | 59,946 | 60,506 | |||||
Core Deposit Intangible | 4,264 | 4,610 | 5,664 | |||||
Other Assets | 18,213 | 16,830 | 16,671 | |||||
Total Assets | $ | 2,276,913 | $ | 2,120,932 | $ | 1,828,984 | ||
Noninterest-bearing Deposits | $ | 543,165 | $ | 527,964 | $ | 447,548 | ||
Interest-bearing Deposits | 1,468,985 | 1,352,771 | 1,138,822 | |||||
Subordinated Debt | 35,665 | 5,782 | 13,234 | |||||
Other Liabilities | 4,043 | 5,894 | 6,454 | |||||
Total Liabilities | 2,051,858 | 1,892,411 | 1,606,058 | |||||
Shareholders' Equity | 225,055 | 228,521 | 222,926 | |||||
Total Liabilities and Shareholders' Equity | $ | 2,276,913 | $ | 2,120,932 | $ | 1,828,984 | ||
Condensed Statements of Income | |||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||
(In Thousands, Except Per Share Data) | 9/30/2021 | 9/30/2020 | 9/30/2021 | 9/30/2020 | |||||||||
Interest Income | |||||||||||||
Loans, including fees | $ | 12,408 | $ | 13,047 | $ | 36,655 | $ | 34,110 | |||||
Securities and other | 4,318 | 2,104 | 11,145 | 6,565 | |||||||||
Total Interest Income | 16,726 | 15,151 | 47,800 | 40,675 | |||||||||
Interest Expense | |||||||||||||
Deposits | 837 | 946 | 2,556 | 3,229 | |||||||||
Borrowings | 189 | 143 | 348 | 367 | |||||||||
Total Interest Expense | 1,026 | 1,089 | 2,904 | 3,596 | |||||||||
Net Interest Income | 15,700 | 14,062 | 44,896 | 37,079 | |||||||||
Provision for Loan Losses | - | 1,225 | 416 | 3,000 | |||||||||
Net Interest Income After Provision for Loan Losses | 15,700 | 12,837 | 44,480 | 34,079 | |||||||||
Noninterest Income | |||||||||||||
Customer service charges | 2,255 | 2,059 | 6,309 | 5,306 | |||||||||
Insurance and investment commissions | 153 | 137 | 624 | 416 | |||||||||
Gains on sales of loans | 1,798 | 3,617 | 5,715 | 8,356 | |||||||||
Gains on sales of securities | - | (35) | 3 | 1,308 | |||||||||
Trust income | 187 | 197 | 612 | 569 | |||||||||
Earnings on life insurance policies | 194 | 193 | 571 | 577 | |||||||||
Change in market value of equity securities | (28) | (238) | 461 | (184) | |||||||||
Other income | 159 | 396 | 755 | 661 | |||||||||
Total Noninterest Income | 4,718 | 6,326 | 15,050 | 17,009 | |||||||||
Noninterest Expense | |||||||||||||
Salaries and benefits | 7,552 | 8,058 | 21,719 | 19,545 | |||||||||
Occupancy and equipment | 1,538 | 1,556 | 4,591 | 4,185 | |||||||||
Data processing | 1,471 | 1,585 | 4,573 | 4,637 | |||||||||
Professional fees | 754 | 1,221 | 2,426 | 2,897 | |||||||||
Core deposit intangible amortization | 346 | 395 | 1,005 | 1,102 | |||||||||
Other expenses | 1,845 | 1,734 | 4,849 | 4,749 | |||||||||
Total Noninterest Expense | 13,506 | 14,549 | 39,163 | 37,115 | |||||||||
Income Before Income Tax | 6,912 | 4,614 | 20,367 | 13,973 | |||||||||
Income Tax Expense | 1,163 | 785 | 3,337 | 2,460 | |||||||||
Net Income | $ | 5,749 | $ | 3,829 | $ | 17,030 | $ | 11,513 | |||||
Basic Earnings Per Share | $ | 0.75 | $ | 0.49 | $ | 2.20 | $ | 1.55 | |||||
Diluted Earnings Per Share | $ | 0.75 | $ | 0.49 | $ | 2.20 | $ | 1.55 | |||||
Non-GAAP Reconciliation
(Unaudited)
In addition to analyzing ChoiceOne's results on a reported basis, management reviews ChoiceOne's results and the results on an adjusted basis. The non-GAAP measures presented in the table below reflect the adjustments of the reported U.S. GAAP results for significant items that management does not believe are reflective of ChoiceOne's current and ongoing operations.
Three Months Ended | Nine Months Ended | ||||||||||||
(In Thousands, Except Per Share Data) | 9/30/2021 | 9/30/2020 | 9/30/2021 | 9/30/2020 | |||||||||
Income before income tax | $ | 6,912 | $ | 4,614 | $ | 20,367 | $ | 13,973 | |||||
Adjustment for merger-related expenses | - | 1,707 | - | 2,526 | |||||||||
Adjusted income before income tax | $ | 6,912 | $ | 6,321 | $ | 20,367 | $ | 16,499 | |||||
Income tax expense | $ | 1,163 | $ | 785 | $ | 3,337 | $ | 2,460 | |||||
Tax impact on adjustment for merger-related expenses | - | 284 | - | 359 | |||||||||
Adjusted income tax expense | $ | 1,163 | $ | 1,069 | $ | 3,337 | $ | 2,819 | |||||
Net income | $ | 5,749 | $ | 3,829 | $ | 17,030 | $ | 11,513 | |||||
Adjusted net income | $ | 5,749 | $ | 5,252 | $ | 17,030 | $ | 13,680 | |||||
Basic earnings per share | $ | 0.75 | $ | 0.49 | $ | 2.20 | $ | 1.55 | |||||
Diluted earnings per share | $ | 0.75 | $ | 0.49 | $ | 2.20 | $ | 1.55 | |||||
Adjusted basic earnings per share | $ | 0.75 | $ | 0.67 | $ | 2.20 | $ | 1.84 | |||||
Adjusted diluted earnings per share | $ | 0.75 | $ | 0.67 | $ | 2.20 | $ | 1.84 | |||||
Other Selected Financial Highlights (Unaudited) | |||||||||||||||||||
Quarterly | |||||||||||||||||||
Earnings | 2021 3rd Qtr. | 2021 2nd Qtr. | 2021 1st Qtr. | 2020 4th Qtr. | 2020 3rd Qtr. | ||||||||||||||
(in thousands except per share data) | |||||||||||||||||||
Net interest income | $ | 15,700 | $ | 14,508 | $ | 14,688 | $ | 13,992 | $ | 14,062 | |||||||||
Provision for loan losses | - | 166 | 250 | 1,000 | 1,225 | ||||||||||||||
Noninterest income | 4,718 | 4,732 | 5,600 | 5,689 | 6,326 | ||||||||||||||
Noninterest expense | 13,506 | 13,129 | 12,528 | 13,769 | 14,549 | ||||||||||||||
Net income before federal income tax expense | 6,912 | 5,945 | 7,510 | 4,912 | 4,614 | ||||||||||||||
Income tax expense | 1,163 | 902 | 1,272 | 812 | 785 | ||||||||||||||
Net income | 5,749 | 5,043 | 6,238 | 4,100 | 3,829 | ||||||||||||||
Basic earnings per share | 0.75 | 0.65 | 0.80 | 0.53 | 0.49 | ||||||||||||||
Diluted earnings per share | 0.75 | 0.65 | 0.80 | 0.52 | 0.49 | ||||||||||||||
End of period balances | 2021 3rd Qtr. | 2021 2nd Qtr. | 2021 1st Qtr. | 2020 4th Qtr. | 2020 3rd Qtr. | ||||||||||||||
(in thousands) | |||||||||||||||||||
Loans including PPP | $ | 1,034,591 | $ | 1,017,472 | $ | 1,061,131 | $ | 1,117,798 | $ | 1,169,686 | |||||||||
PPP Loans | 61,192 | 109,898 | 137,458 | 138,028 | 163,446 | ||||||||||||||
Securities | 1,044,538 | 871,964 | 734,435 | 585,687 | 402,776 | ||||||||||||||
Other interest-earning assets | 30,383 | 64,407 | 106,279 | 40,614 | 85,957 | ||||||||||||||
Total earning assets (before allowance) | 2,109,512 | 1,953,843 | 1,901,845 | 1,744,099 | 1,658,419 | ||||||||||||||
Total assets | 2,276,913 | 2,120,931 | 2,070,103 | 1,919,342 | 1,828,984 | ||||||||||||||
Noninterest-bearing deposits | 543,165 | 527,964 | 515,552 | 477,654 | 447,548 | ||||||||||||||
Interest-bearing deposits | 1,468,985 | 1,352,771 | 1,324,412 | 1,196,924 | 1,138,822 | ||||||||||||||
Total deposits | 2,012,150 | 1,880,735 | 1,839,964 | 1,674,578 | 1,586,370 | ||||||||||||||
Total subordinated debt | 35,665 | 3,140 | 3,115 | 3,089 | - | ||||||||||||||
Total borrowed funds | - | 2,642 | 3,484 | 9,327 | 13,234 | ||||||||||||||
Total interest-bearing liabilities | 1,504,650 | 1,358,553 | 1,331,011 | 1,209,340 | 1,152,056 | ||||||||||||||
Shareholders' equity | 225,055 | 228,521 | 218,639 | 227,268 | 222,926 | ||||||||||||||
Average Balances | 2021 3rd Qtr. | 2021 2nd Qtr. | 2021 1st Qtr. | 2020 4th Qtr. | 2020 3rd Qtr. | ||||||||||||||
(in thousands) | |||||||||||||||||||
Loans | $ | 1,021,326 | $ | 1,041,118 | $ | 1,080,181 | $ | 1,132,711 | $ | 1,139,634 | |||||||||
Securities | 922,653 | 824,753 | 639,803 | 458,350 | 373,364 | ||||||||||||||
Other interest-earning assets | 106,831 | 57,782 | 84,822 | 67,241 | 125,991 | ||||||||||||||
Total earning assets (before allowance) | 2,050,810 | 1,923,653 | 1,804,806 | 1,658,302 | 1,638,989 | ||||||||||||||
Total assets | 2,234,228 | 2,091,900 | 1,989,760 | 1,870,136 | 1,839,051 | ||||||||||||||
Noninterest-bearing deposits | 545,251 | 533,877 | 479,649 | 482,271 | 467,709 | ||||||||||||||
Interest-bearing deposits | 1,441,831 | 1,327,836 | 1,266,356 | 1,153,337 | 1,128,085 | ||||||||||||||
Total deposits | 1,987,082 | 1,861,713 | 1,746,005 | 1,635,608 | 1,595,794 | ||||||||||||||
Total subordinated debt | 9,154 | 3,123 | 3,099 | 3,077 | 3,064 | ||||||||||||||
Total borrowed funds | 2,667 | 2,758 | 8,462 | 3,484 | 10,176 | ||||||||||||||
Total interest-bearing liabilities | 1,453,652 | 1,333,717 | 1,277,917 | 1,159,898 | 1,141,325 | ||||||||||||||
Shareholders' equity | 229,369 | 224,993 | 224,257 | 224,340 | 222,602 | ||||||||||||||
Performance Ratios | 2021 3rd Qtr. | 2021 2nd Qtr. | 2021 1st Qtr. | 2020 4th Qtr. | 2020 3rd Qtr. | ||||||||||||||
Return on average assets | 1.03 | % | 0.96 | % | 1.25 | % | 0.88 | % | 0.83 | % | |||||||||
Return on average equity | 10.03 | % | 8.97 | % | 11.13 | % | 7.31 | % | 6.88 | % | |||||||||
Return on average tangible common equity | 13.28 | % | 13.28 | % | 16.31 | % | 11.15 | % | 10.32 | % | |||||||||
Net interest margin (fully tax-equivalent) | 3.06 | % | 3.02 | % | 3.23 | % | 3.44 | % | 3.38 | % | |||||||||
Efficiency ratio | 63.18 | % | 64.70 | % | 61.20 | % | 67.17 | % | 67.71 | % | |||||||||
Full-time equivalent employees | 358 | 362 | 355 | 369 | 369 | ||||||||||||||
SOURCE ChoiceOne Financial Services, Inc.
Share this article