SPARTA, Mich., Oct. 28, 2020 /PRNewswire/ -- ChoiceOne Financial
Services, Inc. ("ChoiceOne", NASDAQ:COFS), the parent company for
ChoiceOne Bank reported financial results for the
quarter ended September 30, 2020.
Significant items impacting comparable third quarter and year
to date 2020 and 2019 results include the following:
- On October 1, 2019, ChoiceOne
completed the merger (the "County Merger") of County Bank Corp.,
the former parent company of Lakestone Bank & Trust, with and
into ChoiceOne with ChoiceOne surviving the merger. Lakestone Bank
& Trust was consolidated with and into ChoiceOne Bank effective
May 15, 2020. The total assets, loans and deposits
acquired in the County Merger were approximately $712 million,
$424 million and $568 million, respectively.
- On July 1, 2020, ChoiceOne
completed the merger (the "Community Shores Merger") of Community
Shores Bank Corporation, 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 effective October 16,
2020. The total assets, loans and deposits acquired in the
Community Shores Merger were approximately $249 million, $168
million and $231 million,
respectively.
- ChoiceOne incurred tax-effected merger-related expenses of
approximately $1,423,000 and
$2,167,000, respectively
($0.18 per diluted share and
$0.29 per diluted share,
respectively), for the quarter and year ended September 30, 2020.
Financial Highlights
- Net income of $3,829,000 in
the third quarter of 2020 compared to $1,021,000 in the same period
in 2019.
- Diluted earnings per share of $0.49 in the third quarter of 2020 compared
to $0.28 per share in the third quarter of the prior
year.
- Excluding $1,423,000 in
tax-effected merger-related expenses, net income in the third
quarter of 2020 was $5,252,000 or $0.67 per diluted share.
- Excluding loans obtained in the Community Shores Merger, gross
loans increased $32.7 million during
the third quarter of 2020.
- ChoiceOne incurred $1,225,000 in
provision for loan losses expense during the third quarter of 2020
and $3,000,000 in the first nine
months of 2020, much of which was related to the impact of the
COVID-19 pandemic.
- Excluding deposits obtained in the Community Shores Merger,
total deposits grew $30.8 million in
the third quarter of 2020.
ChoiceOne reported net income of $3,829,000 for
the third quarter of 2020 compared
to $1,021,000 in the same period in 2019. Diluted
earnings per share were $0.49 in the third
quarter of 2020 compared to $0.28 per share in
the third quarter of the prior year. Excluding $1,423,000
in tax-effected merger-related expenses, net income for
the third quarter of 2020 amounted
to $5,252,000 or $0.67 per diluted share, compared
to $1,642,000 or $0.45 per diluted share in the same period
in 2019 when adjusted for tax-effected merger-related expenses. Net
income for the first nine
months of 2020 was $11,513,000 or $1.55
per diluted share, compared to $4,144,000 or $1.14 per diluted share in the first
nine months of 2019. Net income for the first nine
months of 2020, when adjusted to
exclude $2,167,000 of tax-effected merger-related
expenses, was $13,680,000 or $1.84 per diluted
share, compared to $5,338,000 or
$1.46 per diluted share in the
same period in the prior year when adjusted for tax-effected
merger-related expenses. The increases in net income as
compared to prior periods in 2019 are largely due to the County
Merger and the Community Shores Merger. Higher levels of
gains on sales of loans in 2020 compared to the prior year also
contributed to net income growth.
"ChoiceOne is pleased and grateful to report strong net
income for the third quarter of 2020, particularly in light of the
COVID-19 pandemic," said ChoiceOne CEO Kelly Potes. "We experienced significant gains
on sales of mortgages offset by a large provision for loan
losses expense mostly related to the pandemic. At the same
time, our expert teams completed two bank consolidations in 2020 –
the consolidation of Lakestone Bank & Trust with and into
ChoiceOne Bank in May and the consolidation of Community Shores
Bank with and into ChoiceOne Bank in October."
Total assets grew to $1.8 billion as of September 30,
2020, compared to $1.5 billion as of June 30, 2020. Gross loans, excluding loans
obtained in the Community Shores Merger, increased $32.7 million in the third
quarter of 2020. Interest and fee income related to
loans grew $18.0 million or 112%
in the nine months ended September 30,
2020 compared to the nine months ended September 30, 2019. Growth in loan
interest and related fee income was boosted by loans
originated in the Paycheck Protection Program, the County Merger,
and the Community Shores Merger. Accretion from loans
acquired through the Paycheck Protection Program totaled
$988,000 and $1,802,000 in the three and nine months ended
September 30, 2020,
respectively. Accretion from loans acquired in the County
Merger and Community Shores Merger was $331,000 and $471,000 in the three and nine months ended
September 30, 2020,
respectively. ChoiceOne incurred $1,225,000 in provision for loan losses expense
during the third quarter and $3,000,000 in the first nine months
of 2020, much of which was related to the impact of the
COVID-19 pandemic. The remaining credit mark on loans
acquired from Lakestone Bank & Trust and Community Shores Bank
totaled $9.1 million as of
September 30, 2020. Although
ChoiceOne has not seen significant increases in charge-offs or
delinquencies as a result of the COVID-19 pandemic, management
is continuing to monitor deferrals and economic indicators
which may signify the need for increased provision for loan losses
expense. Excluding deposits obtained in the Community Shores
Merger, total deposits grew $30.8 million in the third quarter of
2020. A portion of this growth is related to the stimulus
package included in the CARES Act as well as funds on deposit from
Paycheck Protection Program loans that were not fully utilized as
of September 30, 2020.
Total noninterest income increased $11.3 million in
the nine months ended September 30, 2020 compared to the nine
months ended September 30, 2019. This was largely due to
gains on sales of loans which increased $7.0
million during the nine months ended September 30, 2020
compared to the nine months ended September 30, 2019 due to
lower interest rates encouraging refinancing activity. Gains on
sales of securities were $1.3
million higher in the first nine months of 2020 compared
to the first nine months of 2019 as a result of a
restructuring of ChoiceOne's securities portfolio in the second
quarter of 2020. These gains were offset by the negative
change in the market value of equity securities of $184,000 during the first nine months of
2020. Although customer service charges increased overall,
they have declined as a percentage of deposits due to the
effect of the COVID-19 pandemic on customer activity levels.
Total noninterest expense increased $19.6 million in
the first nine months of 2020 compared to the first nine months of
2019. Much of the increase was caused by expenses related to
the consolidation of ChoiceOne Bank and Lakestone Bank
& Trust in May 2020 and the
Community Shores Merger. Other contributing factors to the
higher level of noninterest expense in 2020 were amortization of
the core deposit intangible and increased costs related to higher
mortgage volume levels in 2020 compared to the prior year.
"While we work through the issues related to the COVID-19
pandemic, our recent mergers have presented us with significant
scale to move through these unprecedented times," said Potes. "We
expect to continue to grow our community bank franchise throughout
our expanded network across West and Southeast Michigan, keeping the safety and
security of our customers, employees and those in our communities
at the forefront of our growth."
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 33
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 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,
including without limitation the impact of the global coronavirus
outbreak (COVID-19). 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, employees, 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, 2019 and in Item 1A in ChoiceOne
Financial Services, Inc.'s Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2020 and
June 30, 2020.
Condensed Balance
Sheets
(Unaudited)
|
|
(In
thousands)
|
|
09/30/2020
|
|
|
06/30/2020
|
|
|
12/31/2019
|
|
|
09/30/2019
|
|
Cash and Cash
Equivalents
|
|
$
|
117,883
|
|
|
$
|
66,791
|
|
|
$
|
59,558
|
|
|
$
|
16,574
|
|
Securities
|
|
|
401,963
|
|
|
|
381,901
|
|
|
|
348,888
|
|
|
|
160,845
|
|
Loans Held For
Sale
|
|
|
35,826
|
|
|
|
10,860
|
|
|
|
3,095
|
|
|
|
1,202
|
|
Loans to Other
Financial Institutions
|
|
|
55,064
|
|
|
|
49,895
|
|
|
|
51,048
|
|
|
|
29,992
|
|
Loans, Net of
Allowance For Loan Losses
|
|
|
1,072,111
|
|
|
|
902,243
|
|
|
|
797,991
|
|
|
|
402,710
|
|
Premises and
Equipment
|
|
|
30,203
|
|
|
|
23,779
|
|
|
|
24,265
|
|
|
|
15,282
|
|
Cash Surrender Value
of Life Insurance Policies
|
|
|
32,557
|
|
|
|
32,363
|
|
|
|
31,979
|
|
|
|
15,189
|
|
Goodwill
|
|
|
61,000
|
|
|
|
52,593
|
|
|
|
52,870
|
|
|
|
13,728
|
|
Core Deposit
Intangible
|
|
|
5,664
|
|
|
|
5,299
|
|
|
|
6,006
|
|
|
|
-
|
|
Other
Assets
|
|
|
19,664
|
|
|
|
19,355
|
|
|
|
10,428
|
|
|
|
8,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,831,935
|
|
|
$
|
1,545,079
|
|
|
$
|
1,386,128
|
|
|
$
|
663,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
Deposits
|
|
$
|
447,548
|
|
|
$
|
392,086
|
|
|
$
|
287,460
|
|
|
$
|
152,579
|
|
Interest-bearing
Deposits
|
|
|
1,138,822
|
|
|
|
932,222
|
|
|
|
867,142
|
|
|
|
421,496
|
|
Borrowings
|
|
|
13,234
|
|
|
|
10,179
|
|
|
|
33,198
|
|
|
|
207
|
|
Other
Liabilities
|
|
|
6,283
|
|
|
|
7,969
|
|
|
|
6,189
|
|
|
|
4,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
1,605,888
|
|
|
|
1,342,456
|
|
|
|
1,193,989
|
|
|
|
578,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
226,047
|
|
|
|
202,623
|
|
|
|
192,139
|
|
|
|
84,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders' Equity
|
|
$
|
1,831,935
|
|
|
$
|
1,545,079
|
|
|
$
|
1,386,128
|
|
|
$
|
663,589
|
|
Condensed
Statements of Income
(Unaudited)
|
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
(In Thousands, Except
Per Share Data)
|
|
09/30/2020
|
|
|
09/30/2019
|
|
|
09/30/2020
|
|
|
09/30/2019
|
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including
fees
|
|
$
|
13,047
|
|
|
$
|
5,394
|
|
|
$
|
34,110
|
|
|
$
|
16,064
|
|
Securities and
other
|
|
|
2,103
|
|
|
|
1,167
|
|
|
|
6,564
|
|
|
|
3,528
|
|
Total Interest
Income
|
|
|
15,150
|
|
|
|
6,561
|
|
|
|
40,674
|
|
|
|
19,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
946
|
|
|
|
973
|
|
|
|
3,229
|
|
|
|
2,748
|
|
Borrowings
|
|
|
143
|
|
|
|
18
|
|
|
|
367
|
|
|
|
277
|
|
Total Interest
Expense
|
|
|
1,089
|
|
|
|
991
|
|
|
|
3,596
|
|
|
|
3,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest
Income
|
|
|
14,062
|
|
|
|
5,570
|
|
|
|
37,079
|
|
|
|
16,567
|
|
Provision for Loan
Losses
|
|
|
1,225
|
|
|
|
-
|
|
|
|
3,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
After Provision for Loan Losses
|
|
|
12,837
|
|
|
|
5,570
|
|
|
|
34,079
|
|
|
|
16,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer service
charges
|
|
|
2,059
|
|
|
|
1,094
|
|
|
|
5,306
|
|
|
|
3,275
|
|
Insurance and
investment commissions
|
|
|
137
|
|
|
|
88
|
|
|
|
416
|
|
|
|
225
|
|
Gains on sales of
loans
|
|
|
3,617
|
|
|
|
638
|
|
|
|
8,356
|
|
|
|
1,373
|
|
Gains on sales of
securities
|
|
|
(35)
|
|
|
|
19
|
|
|
|
1,308
|
|
|
|
22
|
|
Trust
income
|
|
|
197
|
|
|
|
-
|
|
|
|
569
|
|
|
|
-
|
|
Earnings on life
insurance policies
|
|
|
193
|
|
|
|
99
|
|
|
|
577
|
|
|
|
290
|
|
Change in market value
of equity securities
|
|
|
(238)
|
|
|
|
(147)
|
|
|
|
(184)
|
|
|
|
119
|
|
Other
income
|
|
|
396
|
|
|
|
144
|
|
|
|
661
|
|
|
|
417
|
|
Total Noninterest
Income
|
|
|
6,326
|
|
|
|
1,935
|
|
|
|
17,009
|
|
|
|
5,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
|
|
8,059
|
|
|
|
3,268
|
|
|
|
19,546
|
|
|
|
8,915
|
|
Occupancy and
equipment
|
|
|
1,556
|
|
|
|
755
|
|
|
|
4,185
|
|
|
|
2,267
|
|
Data
processing
|
|
|
1,585
|
|
|
|
676
|
|
|
|
4,637
|
|
|
|
1,814
|
|
Professional
fees
|
|
|
1,221
|
|
|
|
836
|
|
|
|
2,897
|
|
|
|
2,031
|
|
Core deposit
intangible amortization
|
|
|
395
|
|
|
|
-
|
|
|
|
1,102
|
|
|
|
-
|
|
Other
expenses
|
|
|
1,733
|
|
|
|
842
|
|
|
|
4,748
|
|
|
|
2,446
|
|
Total Noninterest
Expense
|
|
|
14,548
|
|
|
|
6,377
|
|
|
|
37,114
|
|
|
|
17,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income
Tax
|
|
|
4,614
|
|
|
|
1,128
|
|
|
|
13,973
|
|
|
|
4,815
|
|
Income Tax
Expense
|
|
|
785
|
|
|
|
107
|
|
|
|
2,460
|
|
|
|
671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
3,829
|
|
|
$
|
1,021
|
|
|
$
|
11,513
|
|
|
$
|
4,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per
Share
|
|
$
|
0.49
|
|
|
$
|
0.28
|
|
|
$
|
1.55
|
|
|
$
|
1.14
|
|
Diluted Earnings Per
Share
|
|
$
|
0.49
|
|
|
$
|
0.28
|
|
|
$
|
1.55
|
|
|
$
|
1.14
|
|
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)
|
|
09/30/2020
|
|
|
09/30/2019
|
|
|
09/30/2020
|
|
|
09/30/2019
|
|
Income before income
tax
|
|
$
|
4,614
|
|
|
$
|
1,128
|
|
|
$
|
13,973
|
|
|
$
|
4,815
|
|
Adjustment for
merger-related expenses
|
|
|
1,707
|
|
|
|
763
|
|
|
|
2,526
|
|
|
|
1,351
|
|
Adjusted income
before income tax
|
|
$
|
6,321
|
|
|
$
|
1,891
|
|
|
$
|
16,499
|
|
|
$
|
6,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
|
$
|
785
|
|
|
$
|
107
|
|
|
$
|
2,460
|
|
|
$
|
671
|
|
Tax impact on
adjustment for merger-related expenses
|
|
|
284
|
|
|
|
142
|
|
|
|
359
|
|
|
|
157
|
|
Adjusted income
tax expense
|
|
$
|
1,069
|
|
|
$
|
249
|
|
|
$
|
2,819
|
|
|
$
|
828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,829
|
|
|
$
|
1,021
|
|
|
$
|
11,513
|
|
|
$
|
4,144
|
|
Adjusted net
income
|
|
$
|
5,252
|
|
|
$
|
1,642
|
|
|
$
|
13,680
|
|
|
$
|
5,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
$
|
0.49
|
|
|
$
|
0.28
|
|
|
$
|
1.55
|
|
|
$
|
1.14
|
|
Diluted earnings per
share
|
|
$
|
0.49
|
|
|
$
|
0.28
|
|
|
$
|
1.55
|
|
|
$
|
1.14
|
|
Adjusted basic
earnings per share
|
|
$
|
0.67
|
|
|
$
|
0.45
|
|
|
$
|
1.84
|
|
|
$
|
1.47
|
|
Adjusted diluted
earnings per share
|
|
$
|
0.67
|
|
|
$
|
0.45
|
|
|
$
|
1.84
|
|
|
$
|
1.46
|
|
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SOURCE ChoiceOne Financial Services, Inc.