    $ 0 at both December 31, 2021 and 2020, as the Federal Reserve revoked the reserve requirement due to COVID- 19. Leases Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. 44 Stock-Based Compensation The Company values share-based stock option awards granted using the Black-Scholes option-pricing model. The Company recognizes compensation expense for its awards on a straight-line basis over the requisite service period for the entire award (straight-line attribution method), ensuring that the amount of compensation cost recognized at any date at least equals the portion of the grant-date fair value of the award that is vested at that time. Compensation costs related to stock options granted are disclosed in Note 14. ChoiceOne has granted restricted stock units to a select group of employees under the Stock Incentive Plan of 2012. Each unit, once vested, is settled by delivery of one share of ChoiceOne common stock. Dividend Restrictions Banking regulations require the maintenance of certain capital levels and may limit the amount of dividends that may be paid by the Bank to ChoiceOne (see Note 20 ). Fair Value of Financial Instruments Fair values of financial instruments are estimated using relevant market information and other assumptions, which are more fully documented in Note 18 to the consolidated financial statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. Operating Segments While ChoiceOne’s management monitors the revenue streams of various products and services for the Bank and the Insurance Agency, operations and financial performance are evaluated on a company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated into one reportable operating segment. Recent Accounting Pronouncements The FASB issued ASU No. 2016 - 13 , Financial Instruments—Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments . This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current generally accepted accounting principles ("GAAP") with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance attempts to reflect an entity’s current estimate of all expected credit losses and broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually to include forecasted information, as well as past events and current conditions. There is no specified method for measuring expected credit losses, and an entity may apply methods that reasonably reflect its expectations of the credit loss estimate. Although an entity may still use its current systems and methods for recording the allowance for credit losses, under the new rules, the inputs used to record the allowance for credit losses generally will need to change to appropriately reflect an estimate of all expected credit losses and the use of reasonable and supportable forecasts. Additionally, credit losses on available-for-sale debt securities will have to be presented as an allowance rather than as a write-down. This ASU is effective for fiscal years beginning after December 15, 2022, and for interim periods within those years for companies considered smaller reporting filers with the Securities and Exchange Commission. ChoiceOne was classified as a smaller reporting filer as of the measurement date. Management is currently evaluating the impact of this new ASU on its consolidated financial statements which may be significant. Reclassifications Certain amounts presented in prior year consolidated financial statements have been reclassified to conform to the 2021 presentation. 45 Note 2 – Securities The fair value of equity securities and the related gross unrealized gains recognized in noninterest income at December 31 were as follows: December 31, 2021 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value Equity securities $ 7,953 $ 665 $ ( 126 ) $ 8,492 December 31, 2020 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value Equity securities $ 2,836 $ 60 $ - $ 2,896 The fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows: December 31, 2021 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Government and federal agency $ 2,001 $ 7 $ - $ 2,008 U.S. Treasury notes and bonds 93,267 23 ( 1,311 ) 91,979 State and municipal 528,252 10,704 ( 4,109 ) 534,847 Mortgage-backed 441,383 781 ( 9,049 ) 433,115 Corporate 20,856 19 ( 233 ) 20,642 Asset-backed securities 16,387 - ( 93 ) 16,294 Total $ 1,102,146 $ 11,534 $ ( 14,795 ) $ 1,098,885 December 31, 2020 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Government and federal agency $ 2,007 $ 44 $ - $ 2,051 U.S. Treasury notes and bonds 1,996 60 - 2,056 State and municipal 307,201 13,191 ( 24 ) 320,368 Mortgage-backed 246,085 1,510 ( 872 ) 246,723 Corporate 3,539 51 ( 1 ) 3,589 Total $ 560,828 $ 14,856 $ ( 897 ) $ 574,787 Information regarding sales of securities available for sale for the year ended December 31 follows: (Dollars in thousands) 2021 2020 2019 Proceeds from sales of securities $ 29,742 $ 121,942 $ 178,913 Gross realized gains 0 1,308 22 Gross realized losses ( 40 ) - - 46 Contractual maturities of equity securities and securities available for sale at December 31, 2021 were as follows: (Dollars in thousands) Amortized Fair Cost Value Due within one year $ 25,111 $ 25,310 Due after one year through five years 49,146 50,979 Due after five years through ten years 474,166 480,614 Due after ten years 112,340 108,867 Total debt securities 660,763 665,770 Mortgage-backed securities 441,383 433,115 Equity securities 7,953 8,492 Total $ 1,110,099 $ 1,107,377 Certain securities were pledged as collateral for participation in a program that provided Community Reinvestment Act credits. The carrying amount of the securities pledged as collateral at December 31 was as follows: (Dollars in thousands) 2021 2020 Securities pledged for Community Reinvestment Act credits $ 273 $ 278 Securities with unrealized losses at year-end 2021 and 2020 , aggregated by investment category and length of time the individual securities have been in an unrealized loss position, were as follows: 2021 Less than 12 months More than 12 months Total (Dollars in thousands) Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses U.S. Government and federal agency $ - $ - $ - $ - $ - $ - U.S. Treasury notes and bonds 89,958 1,311 - - 89,958 1,311 State and municipal 130,001 3,253 15,237 856 145,238 4,109 Mortgage-backed 261,560 5,709 86,974 3,340 348,534 9,049 Corporate 17,369 233 - - 17,369 233 Asset-backed securities 16,294 93 - - 16,294 93 Total temporarily impaired $ 515,182 $ 10,599 $ 102,211 $ 4,196 $ 617,393 $ 14,795 2020 Less than 12 months More than 12 months Total (Dollars in thousands) Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses U.S. Government and federal agency $ - $ - $ - $ - $ - $ - U.S. Treasury notes and bonds - - - - - - State and municipal 8,950 24 - - 8,950 24 Mortgage-backed 75,126 866 9,994 6 85,120 872 Corporate 453 1 - - 453 1 Asset-backed securities - - - - - - Total temporarily impaired $ 84,529 $ 891 $ 9,994 $ 6 $ 94,523 $ 897 ChoiceOne evaluates all securities on a quarterly basis to determine whether unrealized losses are temporary or other than temporary. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of ChoiceOne to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value of amortized cost basis. Management believed that unrealized losses as of December 31, 2021 were temporary in nature and were caused primarily by changes in interest rates, increased credit spreads, and reduced market liquidity and were not caused by the credit status of the issuer. No other than temporary impairments were recorded in 2021 or 2020. Following is information regarding unrealized gains and losses on equity securities for the years ending December 31: 2021 2020 2019 Net gains and losses recognized during the period $ 479 $ ( 155 ) $ - L Net gains and losses recognized during the period on securities sold - - ( 5 ) Unrealized gains and losses recognized during the reporting period on securities still held at the reporting date $ 479 $ ( 155 ) $ 5 At December 31, 2021 , there were 247 securities with an unrealized loss, compared to 22 securities with an unrealized loss as of December 31, 2020 . 47 Note 3 – Loans and Allowance for Loan Losses The Bank’s loan portfolio as of December 31 was as follows: (Dollars in thousands) 2021 2020 Agricultural $ 64,819 $ 53,735 Commercial and industrial 203,024 303,527 Consumer 35,174 34,014 Real estate - commercial 525,884 469,247 Real estate - construction 19,066 16,639 Real estate - residential 168,881 192,506 Loans, gross $ 1,016,848 $ 1,069,668 Allowance for Loan Losses ( 7,688 ) ( 7,593 ) Loans, net $ 1,009,160 $ 1,062,075 ChoiceOne manages its credit risk through the use of its loan policy and its loan approval process and by monitoring of loan credit performance. The loan approval process for commercial loans involves individual and group approval authorities. Individual authority levels are based on the experience of the lender. Group authority approval levels can consist of an internal loan committee that includes the Bank’s President or Senior Lender and other loan officers for loans that exceed individual approval levels, or a loan committee of the Board of Directors for larger commercial loans. Most consumer loans are approved by individual loan officers based on standardized underwriting criteria, with larger consumer loans subject to approval by the internal loan committee. Ongoing credit review of commercial loans is the responsibility of the loan officers. ChoiceOne’s internal credit committee meets at least monthly and reviews loans with payment issues and loans with a risk rating of 6, 7, or 8. Risk ratings of commercial loans are reviewed periodically and adjusted if needed. ChoiceOne’s consumer loan portfolio is primarily monitored on an exception basis. Loans where payments are past due are turned over to the applicable Bank’s collection department, which works with the borrower to bring payments current or take other actions when necessary. In addition to internal reviews of credit performance, ChoiceOne contracts with a third party for independent loan review that monitors the loan approval process and the credit quality of the loan portfolio. The table below details the outstanding balances of the County Bank Corp. acquired portfolio and the acquisition fair value adjustments at acquisition date: (Dollars in thousands) Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 7,729 $ 387,394 $ 395,123 Nonaccretable difference ( 2,928 ) - ( 2,928 ) Expected cash flows 4,801 387,394 392,195 Accretable yield ( 185 ) ( 1,894 ) ( 2,079 ) Carrying balance at acquisition date $ 4,616 $ 385,500 $ 390,116 The table below presents a roll-forward of the accretable yield on County Bank Corp. acquired loans for the year ended December 31, 2021: (Dollars in thousands) Acquired Acquired Impaired Non-impaired Total Balance, January 1, 2019 $ - $ - $ - Merger with County Bank Corp on October 1, 2019 185 1,894 2,079 Accretion October 1, 2019 through December 31, 2019 - ( 75 ) ( 75 ) Balance, January 1, 2020 185 1,819 2,004 Accretion January 1, 2020 through December 31, 2020 ( 50 ) ( 295 ) ( 345 ) Balance, January 1, 2021 135 1,524 1,659 Transfer from non-accretable to accretable yield 400 - 400 Accretion January 1, 2021 through December 31, 2021 ( 247 ) ( 95 ) ( 342 ) Balance, December 31, 2021 $ 288 $ 1,429 $ 1,717 The table below details the outstanding balances of the Community Shores Bank Corporation acquired loan portfolio and the acquisition fair value adjustments at acquisition date: (Dollars in thousands) Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 20,491 $ 158,495 $ 178,986 Nonaccretable difference ( 2,719 ) - ( 2,719 ) Expected cash flows 17,772 158,495 176,267 Accretable yield ( 869 ) ( 596 ) ( 1,465 ) Carrying balance at acquisition date $ 16,903 $ 157,899 $ 174,802 The table below presents a roll-forward of the accretable yield on Community Shores Bank Corporation acquired loans for the year ended December 31, 2021: (Dollars in thousands) Acquired Acquired Impaired Non-impaired Total Balance, January 1, 2020 $ - $ - $ - Merger with Community Shores Bank Corporation on July 1, 2020 869 596 1,465 Accretion July 1, 2020 through December 31, 2020 ( 26 ) ( 141 ) ( 167 ) Balance, January 1, 2020 843 455 1,298 Accretion January 1, 2021 through December 31, 2021 ( 321 ) ( 258 ) ( 579 ) Balance, December 31, 2021 $ 522 $ 197 $ 719 48 Activity in the allowance for loan losses and balances in the loan portfolio was as follows: Commercial (Dollars in thousands) and Commercial Construction Residential Agricultural Industrial Consumer Real Estate Real Estate Real Estate Unallocated Total Allowance for Loan Losses Year Ended December 31, 2021 Beginning balance $ 257 $ 1,327 $ 317 $ 4,178 $ 97 $ 1,300 $ 117 $ 7,593 Charge-offs — ( 195 ) ( 370 ) ( 111 ) — — — ( 676 ) Recoveries — 86 214 48 — 7 — 355 Provision 191 236 129 ( 410 ) 13 ( 636 ) 893 416 Ending balance $ 448 $ 1,454 $ 290 $ 3,705 $ 110 $ 671 $ 1,010 $ 7,688 Individually evaluated for impairment $ 251 $ 95 $ 2 $ 9 $ — $ 146 $ — $ 503 Collectively evaluated for impairment $ 197 $ 1,359 $ 288 $ 3,696 $ 110 $ 525 $ 1,010 $ 7,185 Loans December 31, 2021 Individually evaluated for impairment $ 2,616 $ 339 $ 14 $ 273 $ — $ 2,191 $ 5,433 Collectively evaluated for impairment 62,203 197,656 35,148 515,528 19,066 164,647 994,248 Acquired with deteriorated credit quality — 5,029 12 10,083 — 2,043 17,167 Ending balance $ 64,819 $ 203,024 $ 35,174 $ 525,884 $ 19,066 $ 168,881 $ 1,016,848 Commercial (Dollars in thousands) and Commercial Construction Residential Agricultural Industrial Consumer Real Estate Real Estate Real Estate Unallocated Total Allowance for Loan Losses Year Ended December 31, 2020 Beginning balance $ 471 $ 655 $ 270 $ 1,663 $ 76 $ 640 $ 282 $ 4,057 Charge-offs ( 15 ) ( 148 ) ( 329 ) ( 254 ) - ( 8 ) - ( 754 ) Recoveries - 57 204 10 - 19 - 290 Provision ( 199 ) 763 172 2,759 21 649 ( 165 ) 4,000 Ending balance $ 257 $ 1,327 $ 317 $ 4,178 $ 97 $ 1,300 $ 117 $ 7,593 Individually evaluated for impairment $ - $ 19 $ 1 $ 157 $ - $ 254 $ - $ 431 Collectively evaluated for impairment $ 257 $ 1,308 $ 316 $ 4,021 $ 97 $ 1,046 $ 117 $ 7,162 Loans December 31, 2020 Individually evaluated for impairment $ 348 $ 1,663 $ 8 $ 3,032 $ 80 $ 2,720 $ 7,851 Collectively evaluated for impairment 53,387 295,154 33,982 453,681 16,559 186,982 1,039,745 Acquired with deteriorated credit quality - 6,710 24 12,534 - 2,804 22,072 Ending balance $ 53,735 $ 303,527 $ 34,014 $ 469,247 $ 16,639 $ 192,506 $ 1,069,668 Commercial (Dollars in thousands) and Commercial Construction Residential Agricultural Industrial Consumer Real Estate Real Estate Real Estate Unallocated Total Allowance for Loan Losses Year Ended December 31, 2019 Beginning balance $ 481 $ 892 $ 254 $ 1,926 $ 38 $ 537 $ 545 $ 4,673 Charge-offs - ( 83 ) ( 292 ) ( 589 ) - ( 25 ) - ( 989 ) Recoveries 65 22 136 26 - 124 - 373 Provision ( 75 ) ( 176 ) 172 300 38 4 ( 263 ) - Ending balance $ 471 $ 655 $ 270 $ 1,663 $ 76 $ 640 $ 282 $ 4,057 Individually evaluated for impairment $ 103 $ - $ 4 $ 13 $ - $ 235 $ - $ 355 Collectively evaluated for impairment $ 368 $ 655 $ 266 $ 1,650 $ 76 $ 405 $ 282 $ 3,702 Loans December 31, 2019 Individually evaluated for impairment $ 924 $ 259 $ 17 $ 2,288 $ - $ 2,434 $ 5,922 Collectively evaluated for impairment 56,415 141,583 38,524 323,358 13,411 215,106 788,397 Acquired with deteriorated credit quality - 6,241 313 733 - 442 7,729 Ending balance $ 57,339 $ 148,083 $ 38,854 $ 326,379 $ 13,411 $ 217,982 $ 802,048 49 The process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking ( 1 ) the risk ratings of business loans, ( 2 ) the level of classified business loans, and ( 3 ) delinquent and nonperforming consumer loans. Business loans are risk rated on a scale of 1 to 9. A description of the characteristics of the ratings follows: Risk Rating 1 through 5 or pass: These loans are considered pass credits. They exhibit acceptable credit risk and demonstrate the ability to repay the loan from normal business operations. Risk rating 6 or special menti Loans and other credit extensions bearing this grade are considered to be inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These obligations, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, market, or political conditions that have clearly jeopardized repayment of principal and interest as originally intended. Furthermore, there is the possibility that ChoiceOne Bank will sustain some future loss if such weaknesses are not corrected. Clear loss potential, however, does not have to exist in any individual assets classified as substandard. Loans falling into this category should have clear action plans and timelines with benchmarks to determine which direction the relationship will move. Risk rating 7 or substandar Loans and other credit extensions graded “7” have all the weaknesses inherent in those graded “6”, with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. Loans in this classification should be evaluated for non-accrual status. All nonaccrual commercial and Retail loans must be at a minimum graded a risk code “7”. Risk rating 8 or doubtfu Loans and other credit extensions bearing this grade have been determined to have the extreme probability of some loss, but because of certain important and reasonably specific factors, the amount of loss cannot be determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral. Risk rating 9 or l Loans in this classification are considered uncollectible and cannot be justified as a viable asset of ChoiceOne Bank. This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial recovery may be obtained in the future. Information regarding the Bank’s credit exposure as of December 31 was as follows: Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Category (Dollars in thousands) Agricultural Commercial and Industrial Commercial Real Estate December 31, December 31, December 31, December 31, December 31, December 31, 2021 2020 2021 2020 2021 2020 Pass $ 61,864 $ 50,185 $ 201,202 $ 294,614 $ 519,537 $ 453,080 Special Mention 339 3,202 300 4,101 778 6,006 Substandard 2,616 348 1,266 4,812 5,569 8,925 Doubtful - - 256 - - 1,236 $ 64,819 $ 53,735 $ 203,024 $ 303,527 $ 525,884 $ 469,247 Consumer Credit Exposure - Credit Risk Profile Based On Payment Activity (Dollars in thousands) Consumer Construction Real Estate Residential Real Estate December 31, December 31, December 31, December 31, December 31, December 31, 2021 2020 2021 2020 2021 2020 Performing $ 35,174 $ 34,006 $ 19,066 $ 16,559 $ 168,031 $ 191,125 Nonperforming - - - - - - Nonaccrual - 8 - 80 850 1,381 $ 35,174 $ 34,014 $ 19,066 $ 16,639 $ 168,881 $ 192,506 Included within the loan categories above were loans in the process of foreclosure. As of December 31, 2021 and 2020 , loans in the process of foreclosure totaled $81 3,000 and $337,000, respectively. Loans are classified as performing when they are current as to principal and interest payments or are past due on payments less than 90 days. Loans are classified as nonperforming when they are past due 90 days or more as to principal and interest payments or are considered a troubled debt restructuring. 50 The following table provides information on loans that were considered troubled debt restructurings ("TDRs") that were modified during the year ended December 31, 2021. There were no new TDRs in 2020. Year Ended December 31, 2021 Pre- Post- Modification Modification Outstanding Outstanding (Dollars in thousands) Number of Recorded Recorded Loans Investment Investment Agricultural 5 $ 1,803 $ 1,803 Commercial and Industrial 4 270 270 Commercial Real Estate 2 619 619 Total 11 $ 2,692 $ 2,692 The following schedule provides information on TDRs as of December 31, 2021 where the borrower was past due with respect to principal and/or interest for 30 days during the year ended December 31, 2021, which loans had been modified and classified as TDRs during the year prior to the default.  There were no TDRs as of December 31, 2020 where the borrower was past due with respect to principal and/or interest for 30 days or more during year ended December 31, 2020, which loans had been modified and classified as TDRs during the year prior to the default. Year Ended December 31, 2021 (Dollars in thousands) Number Recorded of Loans Investment Commercial Real Estate 1 185 Total 1 $ 185 The federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” on March 22, 2020 and subsequently issued a revised statement on April 7, 2020. These statements encourage financial institutions to work constructively with borrowers affected by COVID- 19, and provide that short-term modifications to loans made on a good faith basis to borrowers who were current as of the implementation date of the statements are not considered TDRs. Further, Section 4013 of the CARES Act states that COVID- 19 related modifications made during 2020 and 2021 on loans that were current as of December 31, 2019 are not TDRs. As of December 31, 2020, ChoiceOne had granted deferments on approximately 750 loans with loan balances totaling $ 148 million which, in reliance on the statements of federal banking agencies and the CARES Act, are not reflected as TDRs in this report.  All deferments had resumed payments in accordance with loan terms as of June 30, 2021. Impaired loans by loan category as of December 31 were as follows: Unpaid Average Interest (Dollars in thousands) Recorded Principal Related Recorded Income Investment Balance Allowance Investment Recognized December 31, 2021 With no related allowance recorded Agricultural $ 314 $ 428 $ - $ 598 $ - Commercial and industrial - - - 596 - Consumer - - - - - Construction real estate - - - 16 - Commercial real estate 94 94 - 1,117 5 Residential real estate 164 172 - 228 - Subtotal 572 694 - 2,555 5 With an allowance recorded Agricultural 2,302 2,302 251 1,873 139 Commercial and industrial 339 363 95 226 5 Consumer 14 15 2 4 - Construction real estate - - - - - Commercial real estate 179 179 9 456 10 Residential real estate 2,027 2,084 146 2,177 64 Subtotal 4,861 4,943 503 4,736 218 Total Agricultural 2,616 2,730 251 2,471 139 Commercial and industrial 339 363 95 822 5 Consumer 14 15 2 4 - Construction real estate - - - 16 - Commercial real estate 273 273 9 1,573 15 Residential real estate 2,191 2,256 146 2,405 64 Total $ 5,433 $ 5,637 $ 503 $ 7,291 $ 223 51 Unpaid Average Interest (Dollars in thousands) Recorded Principal Related Recorded Income Investment Balance Allowance Investment Recognized December 31, 2020 With no related allowance recorded Agricultural $ 348 $ 434 $ - $ 329 $ - Commercial and industrial 1,516 1,629 - 464 2 Consumer - - - 1 - Construction real estate 80 80 - 16 - Commercial real estate 1,852 2,664 - 1,495 14 Residential real estate 162 162 - 99 3 Subtotal 3,958 4,969 - 2,404 19 With an allowance recorded Agricultural - - - 152 - Commercial and industrial 147 147 19 111 12 Consumer 8 8 1 16 - Construction real estate - - - - - Commercial real estate 1,180 1,180 157 897 35 Residential real estate 2,558 2,651 254 2,330 87 Subtotal 3,893 3,986 431 3,506 134 Total Agricultural 348 434 - 481 - Commercial and industrial 1,663 1,776 19 575 14 Consumer 8 8 1 17 - Construction real estate 80 80 - 16 - Commercial real estate 3,032 3,844 157 2,392 49 Residential real estate 2,720 2,813 254 2,429 90 Total $ 7,851 $ 8,955 $ 431 $ 5,910 $ 153 Unpaid Average Interest (Dollars in thousands) Recorded Principal Related Recorded Income Investment Balance Allowance Investment Recognized December 31, 2019 With no related allowance recorded Agricultural $ 545 $ 545 $ - $ 146 $ 10 Commercial and industrial 259 340 - 104 9 Consumer - - - - - Construction real estate - - - - - Commercial real estate 1,882 2,471 - 782 30 Residential real estate 42 42 - 133 4 Subtotal 2,728 3,398 - 1,165 53 With an allowance recorded Agricultural 379 439 103 388 - Commercial and industrial - - - 86 1 Consumer 17 18 4 48 - Construction real estate - - - - - Commercial real estate 406 406 13 975 32 Residential real estate 2,392 2,460 235 2,486 83 Subtotal 3,194 3,323 355 3,983 116 Total Agricultural 924 984 103 534 10 Commercial and industrial 259 340 - 190 10 Consumer 17 18 4 48 - Construction real estate - - - - - Commercial real estate 2,288 2,877 13 1,757 62 Residential real estate 2,434 2,502 235 2,619 87 Total $ 5,922 $ 6,721 $ 355 $ 5,148 $ 169 52 An aging analysis of loans by loan category as of December 31 follows: Loans Loans Loans Past Due Loans Past Due Past Due Greater 90 Days Past (Dollars in thousands) 30 to 59 60 to 89 Than 90 Loans Not Total Due and Days (1) Days (1) Days (1) Total (1) Past Due Loans Accruing December 31, 2021 Agricultural $ - $ - $ - $ - $ 64,819 $ 64,819 $ - Commercial and industrial 21 - 88 109 202,915 203,024 - Consumer 70 15 - 85 35,089 35,174 - Commercial real estate 422 13 279 714 525,170 525,884 - Construction real estate 1,149 1,235 - 2,384 16,682 19,066 - Residential real estate 1,489 306 454 2,249 166,632 168,881 - $ 3,151 $ 1,569 $ 821 $ 5,541 $ 1,011,307 $ 1,016,848 $ - December 31, 2020 Agricultural $ - $ - $ - $ - $ 53,735 $ 53,735 $ - Commercial and industrial - 109 515 624 302,903 303,527 - Consumer 39 - - 39 33,975 34,014 - Commercial real estate 532 44 1,744 2,320 466,927 469,247 - Construction real estate 1,076 180 80 1,336 15,303 16,639 - Residential real estate 1,563 256 352 2,171 190,335 192,506 - $ 3,210 $ 589 $ 2,691 $ 6,490 $ 1,063,178 $ 1,069,668 $ - ( 1 ) Includes nonaccrual loans Nonaccrual loans by loan category as of December 31 as follows: (Dollars in thousands) 2021 2020 Agricultural $ 313 $ 348 Commercial and industrial 285 1,802 Consumer - 8 Commercial real estate 279 3,088 Construction real estate - 80 Residential real estate 850 1,381 $ 1,727 $ 6,707 Note 4 – Mortgage Banking Activity in secondary market loans during the year was as follows: (Dollars in thousands) 2021 2020 2019 Loans originated for resale, net of principal payments $ 197,387 $ 326,286 $ 63,920 Proceeds from loan sales 205,398 325,306 62,763 Net gains on sales of loans held for sale 6,776 11,313 1,951 Loan servicing fees, net of amortization ( 163 ) ( 129 ) 82 Net gains on sales of loans held for sale include capitalization of loan servicing rights. Loans serviced for others are not reported as assets in the accompanying consolidated balance sheets. The unpaid principal balances of these loans were $ 481.9 million and $ 404.2 million at December 31, 2021 and 2020 , respectively. The Bank maintains custodial escrow balances in connection with these serviced loans; however, such escrows were immaterial at December 31, 2021 and 2020 . 53 Activity for loan servicing rights (included in other assets) was as follows: (Dollars in thousands) 2021 2020 2019 Balance, beginning of year $ 3,967 $ 2,131 $ 1,049 Capitalized 1,961 3,554 822 Amortization ( 1,635 ) ( 1,344 ) ( 453 ) Market valuation allowance change 374 ( 374 ) - Acquired from merger with County Bank Corp. - - 713 Balance, end of year $ 4,667 $ 3,967 $ 2,131 The fair value of loan servicing rights was $ 5,521,000 and $ 3,967,000 as of December 31, 2021 and 2020, respectively. Valuation allowances of $ 0 and $ 373,000 were recorded at December 31, 2021 and December 31, 2020, respectively. The fair value of the Bank’s servicing rights at December 31, 2021 was determined using a discount rate of 8.00 % and prepayment speeds ranging from 5 % to 27 %.  The fair value of the Bank’s servicing rights at December 31, 2020 was determined using a discount rate of 7.75 % and prepayment speeds ranging from 7 % to 26 %. Note 5 – Premises and Equipment As of December 31, premises and equipment consisted of the followin (Dollars in thousands) 2021 2020 Land and land improvements $ 8,888 $ 8,753 Leasehold improvements 69 69 Buildings 26,091 25,985 Furniture and equipment 11,145 10,687 Total cost 46,193 45,494 Accumulated depreciation ( 16,313 ) ( 16,005 ) Premises and equipment, net $ 29,880 $ 29,489 Depreciation expense was $ 2.6 million, $ 2.7 million and $ 1.6 million for 2021 , 2020 and 2019 , respectively. The Bank leases certain branch properties and automated-teller machine locations in its normal course of business. Rent expense totaled $ 153,000 , $ 83,000 , and $ 72,000 for 2021 , 2020 and 2019 , respectively. The associated right of use assets are included in the applicable categories of fixed assets in the above table and the net book value of such assets approximates the operating lease liability. Rent commitments under non-cancelable operating leases were as follows, before considering renewal options that generally are present (dollars in thousands): 2022 $ 221 2023 169 2024 115 2025 106 2026 46 Total undiscounted cash flows 657 Less discount 27 Total operating lease liabilities $ 630 54 Note 6 - Goodwill and Acquired Intangible Assets Goodwill The change in the balance for goodwill was as follows: (Dollars in thousands) 2021 2020 Balance, beginning of year $ 60,506 $ 52,870 Goodwill adjustment from merger with County Bank Corp. - ( 277 ) Acquired goodwill from merger with Community Shores Bank Corporation - 7,913 Goodwill adjustment from merger with Community Shores Bank Corporation ( 560 ) - Balance, end of year $ 59,946 $ 60,506 Goodwill is not amortized but is evaluated annually for impairment and on an interim basis if events or changes in circumstances indicate that goodwill might be impaired. The goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized for any amount by which the carrying amount exceeds the reporting unit's fair value.  Accounting pronouncements allow a company to first perform a qualitative assessment for goodwill prior to a quantitative assessment (Step 1 assessment). If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired, then a quantitative assessment must be performed. If not, there is no further assessment required. The Company acquired Valley Ridge Financial Corp. in 2006, County 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. Management performed its annual qualitative assessment of goodwill as of June 30, 2021. In evaluating whether it is more likely than not that the fair value of ChoiceOne's operations was less than the carrying amount, management assessed the relevant events and circumstances such as the ones noted in ASC 350 - 20 - 35 - 3c. The analysis consisted of a review of ChoiceOne’s current and expected future financial performance, the potential impact of the COVID- 19 pandemic on the ability of ChoiceOne’s borrowers to comply with loan terms, and the impact that reductions in both short-term and long-term interest rates have had and may continue to have on net interest margin and mortgage sales activity. The share price and book value of ChoiceOne’s stock were also compared to the most recent quantitative assessment, which was performed as of November 30, 2020. Management also compared average deal values for recent closed bank transactions to ChoiceOne transactions. Despite ChoiceOne's market capitalization declining slightly from November 30, 2020 to June 30, 2021, ChoiceOne's financial performance remained positive. In assessing the totality of the events and circumstances, management determined that it was more likely than not that the fair value of ChoiceOne’s operations, from a qualitative perspective, exceeded the carrying value as of June 30, 2021 and impairment of goodwill was not necessary. ChoiceOne’s stock price per share was less than its book value as of December 31, 2021. This indicated that goodwill may be impaired and resulted in management performing another qualitative goodwill impairment assessment as of the year ended December 31, 2021. As a result of the analysis, management concluded that it was more-likely-than- not that the fair value of the reporting unit was greater than the carrying value.  This was evidenced by the strong financial indicators, solid credit quality ratios, as well as the strong capital position of ChoiceOne. In addition, revenue for the year ended December 31, 2021 reflected significant and continuing growth in ChoiceOne's interest income, as well as net Small Business Administration fees related to Paycheck Protection Program loans.  Based on the results of the qualitative analysis, management believed that a quantitative analysis was not necessary as of December 31, 2021. Acquired Intangible Assets Information for acquired intangible assets at December 31 is as follows: 2021 2020 Gross Gross Carrying Accumulated Carrying Accumulated (Dollars in thousands) Amount Amortization Amount Amortization Core deposit intangible $ 7,120 $ 3,158 $ 7,120 $ 1,851 The core deposit intangible from the County and Community Shores mergers is being amortized on a sum-of-the-years digits basis over ten years and eight years, respectively.  Amortization expense was $ 1,307,000 in 2021 and $ 1,498,000 in 2020. The estimated amortization expense for the next five years ending December 31 is as follows (dollars in thousands): 2022 $ 1,153 2023 955 2024 757 2025 560 2026 362 Thereafter 175 Total $ 3,962 55 Note 7 – Other Real Estate Owned Other real estate owned represents residential and commercial properties primarily owned as a result of loan collection activities and is reported net of a valuation allowance. Activity within other real estate owned was as follows: (Dollars in thousands) 2021 2020 2019 Balance, beginning of year $ 266 $ 929 $ 102 Transfers from loans 520 391 347 Additions from merger - 346 1,364 Proceeds from sales ( 611 ) ( 1,384 ) ( 938 ) Write-downs - ( 80 ) - Gains on sales 19 64 54 Balance, end of year $ 194 $ 266 $ 929 Included in the balances above were residential real estate mortgage loans of $ 80,000 , $ 61,000 , and $ 175,000 as of December 31, 2021, 2020, and 2019, respectively, and $ 114,000 , $ 205,000 , and $ 754,000 of commercial real estate loans as of December 31, 2021, 2020, and 2019 respectively. Note 8 – Deposits Deposit balances as of December 31 consisted of the followin (Dollars in thousands) 2021 2020 Noninterest-bearing demand deposits $ 560,931 $ 477,654 Interest-bearing demand deposits 665,482 471,346 Money market deposits 218,211 191,681 Savings deposits 425,626 337,332 Local certificates of deposit 182,044 196,565 Total deposits $ 2,052,294 $ 1,674,578 Scheduled maturities of certificates of deposit as of December 31, 2021 were as follows: (Dollars in thousands) 2022 $ 149,991 2023 19,641 2024 5,529 2025 3,759 2026 2,732 Thereafter 392 Total $ 182,044 The Bank had certificates of deposit issued in denominations of $250,000 or greater totaling $ 87.3 million and $ 88.2 million at December 31, 2021 and 2020, respectively. The Bank held $ 0 in brokered certificates of deposit at December 31, 2021 and 2020. In addition, the Bank had $ 13.7 million and $ 12.7 million of certificates of deposit as of December 31, 2021, and December 31, 2020, respectively, that had been issued through the Certificate of Deposit Account Registry Service ("CDARS"). 56 Note 9 – Borrowings Federal Home Loan Bank Advances At December 31, advances from the FHLB were as follows: (Dollars in thousands) 2021 2020 Maturity of January 2022 with fixed interest rate of .21 % $ 50,000 $ - Maturity of November 2024 with fixed interest rate of 3.98 % - 161 Total advances outstanding at year-end $ 50,000 $ 161 Fees of $ 16,000 were charged on a fixed rate advance that was paid prior to maturity during 2021. No fixed rate advances were paid prior to maturity in 2020. Advances were secured by agricultural loans and residential real estate loans with a carrying value of approximately $ 127.5 million and $ 158.2 million at December 31, 2021 and December 31, 2020, respectively. Based on this collateral, the Bank was eligible to borrow an additional $ 69.3 million at year-end 2021. FHLB Advances mature in January 2022. Holding Company Term Loan ChoiceOne obtained a $ 10,000,000 term note in June 2020. Part of the proceeds from the note were used to fund the cash portion of the consideration paid in the Community Shores merger.  The note would have matured in June 2023; however, the note was paid off with a line of credit in June 2021. At December 31, information regarding the holding company term loan was as follows: (Dollars in thousands) 2021 2020 Maturity of June 2023 with floating interest rate of 3.00 % $ - $ 9,167 In June 2021, ChoiceOne obtained a $ 20,000,000 line of credit with an annual renewal.  The line carries a floating rate of prime rate with a floor of 3.25 %.  The credit agreement includes certain financial covenants, including minimum capital ratios, asset quality ratios, and the requirements of achieving certain profitability thresholds.  ChoiceOne was in compliance with all covenants as of December 31, 2021. The line of credit balance was $ 0 at December 31, 2021. Note 10 – Subo rdinated Debentures The Capital Trust sold 4,500 Cumulative Preferred Securities (“trust preferred securities”) at $ 1,000 per security in a December 2004 offering. The proceeds from the sale of the trust preferred securities were used by the Capital Trust to purchase an equivalent amount of subordinated debentures from Community Shores. The trust preferred securities and subordinated debentures carry a floating rate of 2.05 % over the 3 -month LIBOR and the rate was 2.27 % at December 31, 2021 and 2.29 % at December 31, 2020. The stated maturity is December 30, 2034. The trust preferred securities are redeemable at par value on any interest payment date and are, in effect, guaranteed by ChoiceOne. Interest on the subordinated debentures is payable quarterly on March 30, June 30, September 30 and December 30. ChoiceOne is not considered the primary beneficiary of the Capital Trust (under the variable interest entity rules), therefore the Capital Trust is not consolidated in the consolidated financial statements, rather the subordinated debentures are shown as a liability, and the interest expense is recorded in the consolidated statement of income. The terms of the subordinated debentures, the trust preferred securities and the agreements under which they were issued give ChoiceOne the right, from time to time, to defer payment of interest for up to 20 consecutive quarters, unless certain specified events of default have occurred and are continuing. The deferral of interest payments on the subordinated debentures results in the deferral of distributions on the trust preferred securities. 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. The notes will initially bear interest at a fixed interest rate of 3.25% per annum until September 3, 2026, after which time the interest rate will reset quarterly to a floating rate equal to a benchmark rate, which is expected to be the then current three -month term Secured Overnight Financing Rate ("SOFR") plus 255 basis points until the notes’ maturity on September 3, 2031. The notes are redeemable by ChoiceOne, in whole or in part, on or after September 3, 2026, and at any time upon the occurrence of certain events. The notes have been structured to qualify as Tier 2 capital for ChoiceOne for regulatory capital purposes.  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. During the third quarter of 2021, ChoiceOne used a portion of the proceeds from this private placement to pay off $ 2.6 million of other outstanding debt and an additional $ 5.0 million of proceeds was downstreamed to the Bank. 57 Note 11 – Income Taxes Information as of December 31 and for the year follows: (Dollars in thousands) 2021 2020 2019 Provision for Income Taxes Current federal income tax expense $ 3,532 $ 3,070 $ 984 Deferred federal income tax expense/(benefit) 924 202 310 Income tax expense $ 4,456 $ 3,272 $ 1,294 Reconciliation of Income Tax Provision to Statutory Rate Income tax computed at statutory federal rate of 21 % $ 5,565 $ 3,966 $ 1,778 Tax exempt interest income ( 1,190 ) ( 574 ) ( 320 ) Tax exempt earnings on bank-owned life insurance ( 170 ) ( 162 ) ( 162 ) Tax credits ( 284 ) ( 240 ) ( 218 ) Nondeductible merger expenses - 182 164 Disallowed interest expense 74 64 13 Other items 461 36 39 Income tax expense $ 4,456 $ 3,272 $ 1,294 Effective income tax rate 17 % 17 % 15 % (Dollars in thousands) Components of Deferred Tax Assets and Liabilities 2021 2020 Deferred tax assets: Purchase accounting adjustments from mergers with County and Community Shores $ 1,374 $ 1,953 Allowance for loan losses 1,614 1,595 Unrealized losses on securities available for sale 685 - Net operating loss carryforward 544 851 Deferred loan fees 319 466 Write-downs of other real estate owned - 326 Other 354 380 Total deferred tax assets 4,890 5,571 Deferred tax liabiliti Unrealized gains on securities available for sale - 2,931 Purchase accounting adjustments from mergers with County and Community Shores 1,107 1,403 Loan servicing rights 980 833 Depreciation 540 653 Interest rate lock commitments - 177 Other 323 230 Total deferred tax liabilities 2,950 6,227 Net deferred tax asset (liability) $ 1,940 $ ( 656 ) As of December 31, 2021, deferred tax assets included federal net operating loss carryforwards of approximately $ 2.6 million which was acquired through the merger with Community Shores.  The loss carryforwards expire at various dates from 2031 to 2035. Deferred tax assets are recognized for net operating losses because the benefit is more likely than not to be realized.  Under Code Section 382, ChoiceOne is limited to applying approximately $ 185,000 of net operating losses per year. 58 Note 12 – Related Party Transactions Loans to executive officers, directors and their affiliates were as follows at December 31: (Dollars in thousands) 2021 2020 Balance, beginning of year $ 20,724 $ 10,563 New loans 13,188 12,211 Repayments ( 9,912 ) ( 5,125 ) Loans acquired from merger - 3,075 Balance, end of year $ 24,000 $ 20,724 Deposits from executive officers, directors and their affiliates were $ 16.8 million and $ 14.7 million at December 31, 2021 and 2020 , respectively. Note 13 – Employee Benefit Plans 401 (k) Plan : The 401 (k) plan allows employees to contribute to their individual accounts under the plan amounts up to the IRS maximum. Matching company contributions to the plan are discretionary. Expense for matching company contributions under the plan was $ 627,000 , $ 465,000 , and $ 233,000 in 2021, 2020, and 2019, respectively. Post-retirement Benefits Plan : ChoiceOne maintains an unfunded post-retirement health care plan, which permits employees (and their dependents) the ability to participate upon retirement from ChoiceOne. ChoiceOne does not pay any portion of the health care premiums charged to its retired participants. A liability would be accrued for the obligation under this plan. Effective in December 2020, ChoiceOne curtailed the plan to the extent that it would be no longer offered to future retirees.  Current retirees receiving the benefit were not affected.  As a result of the curtailment, ChoiceOne realized a recovery of post-retirement benefit expense of $ 10,000 in 2021, compared to recoveries of $ 222,000 and $ 14,000 in 2020 and 2019, respectively. The post-retirement obligation liability was $ 0 as of December 31, 2021 and $ 10,000 as of December 31, 2020. 59 Note 14 - Stock Based Compensation Options to buy stock have been granted to key employees to provide them with additional equity interests in ChoiceOne. Compensation expense in connection with stock options granted was $ 15,000 in 2021, $ 15,000 in 2020, and $ 53,000 in 2019. The Stock Incentive Plan of 2012 was approved by the Company’s shareholders at the Annual Meeting held on April 25, 2012. The Stock Incentive Plan of 2012, as amended effective May 23, 2018, provides for the issuance of up to 200,000 shares of common stock. At December 31, 2021, there were 76,467 shares available for future grants. A summary of stock options activity during the year ended December 31, 2021 was as follows: Weighted Weighted average average exercise Grant Date Shares price Fair Value Options outstanding at January 1, 2021 20,631 $ 25.30 $ 3.46 Options granted - - - Options exercised - - - Options forfeited or expired - - - Options outstanding, end of year 20,631 $ 25.30 $ 3.36 Options exercisable at December 31, 2021 8,631 $ 22.60 $ 3.22 The exercise prices for options outstanding and exercisable at the end of 2021 ranged from $ 20.86 to $ 25.65 per share. The weighted average remaining contractual life of options outstanding and exercisable at the end of 2021 was approximately 4.81 years. The intrinsic value of all outstanding stock options and exercisable stock options was $ 34,000 and $ 82,000 respectively, at December 31, 2021 and December 31, 2020. The aggregate intrinsic values of outstanding and exercisable options at December 31, 2021 were calculated based on the closing market price of the Company’s common stock on December 31, 2021 of $ 26.49 per share less the exercise price. Information pertaining to options outstanding at December 31, 2021 was as follows: Exercise price of stock optio Number of options outstanding at year-end Number of options exercisable at year-end Average remaining contractual life (in years) $ 27.25 12,000 - 7.44 $ 25.65 3,000 3,000 6.51 $ 20.86 3,306 3,306 5.36 $ 21.13 2,325 2,325 4.02 The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. ChoiceOne uses historical data to estimate the volatility of the market price of ChoiceOne stock and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. As of December 31, 2021, there was $ 4,000 in unrecognized compensation expense related to stock options. ChoiceOne has granted restricted stock units to a select group of employees under the Stock Incentive Plan of 2012. Restricted stock units outstanding as of December 31, 2021 vest on the three year anniversary of the grant date. Certain additional vesting provisions apply. Each restricted stock unit, once vested, is settled by delivery of one share of ChoiceOne common stock. ChoiceOne recognized compensation expense of $ 320,000 , $ 157,000 , and $ 349,000 in 2021, 2020, and 2019, respectively, in connection with restricted stock units for current participants during these years. A summary of the activity for restricted stock units outstanding during the year ended December 31, 2021 is presented be Outstanding Stock Awards Shares Per Share Outstanding at January 1, 2021 18,989 $ 28.20 Granted 19,575 28.50 Vested - Forfeited ( 2,880 ) 28.20 Outstanding at December 31, 2021 35,684 $ 28.36 At December 31, 2021, there were 35,684 restricted stock units outstanding with an approximate stock value of $ 945,000 based on ChoiceOne’s December 31, 2021 stock price. At December 31, 2020, there were 18,989 restricted stock units outstanding with an approximate stock value of $ 585,000 based on ChoiceOne’s December 31, 2020 stock price. As a result of the merger with County, all unvested stock awards granted prior to October 1, 2019 vested upon completion of the merger.  The grant date fair value of restricted stock units granted was $ 558,000 and $ 306,000 in 2021 and 2020, respectively.  The cost is expected to be recognized over a weighted average period of 1.63 years.  As of December 31, 2021, there was $ 503,000 of unrecognized compensation cost related to unvested shares granted. 60 Note 15 - Earnings Per Share (Dollars in thousands, except share data) 2021 2020 2019 Basic Net income $ 22,042 $ 15,613 $ 7,171 Weighted average common shares outstanding 7,685,459 7,521,771 4,528,786 Basic earnings per common shares $ 2.87 $ 2.08 $ 1.58 Diluted Net income $ 22,042 $ 15,613 $ 7,171 Weighted average common shares outstanding 7,685,459 7,521,771 4,528,786 Plus dilutive stock options and restricted stock units 17,255 9,846 10,489 Weighted average common shares outstanding and potentially dilutive shares 7,702,714 7,531,617 4,539,275 Diluted earnings per common share $ 2.86 $ 2.07 $ 1.58 Stock options considered anti-dilutive to earnings per share were 15,000 , 0 , and 0 as of December 31, 2021 , December 31, 2020 , and December 31, 2019 , respectively. This calculation is based on the average stock price during the year. 61 Note 16 – Condensed Financial Statements of Parent Company Condensed Balance Sheets (Dollars in thousands) December 31, 2021 2020 Assets Cash $ 17,622 $ 11,939 Equity securities at fair value 2,555 1,884 Securities available for sale - - Other assets 553 292 Investment in subsidiaries 236,462 228,895 Total assets $ 257,192 $ 243,010 Liabilities Term loan $ - $ 9,167 Subordinated debentures 31,827 - Trust preferred securities 3,190 3,089 Other liabilities 506 3,486 Total liabilities 35,523 15,742 Shareholders' equity 221,669 227,268 Total liabilities and shareholders’ equity $ 257,192 $ 243,010 Condensed Statements of Income (Dollars in thousands) Years Ended December 31, 2021 2020 2019 Interest income Interest and dividends from ChoiceOne Bank $ 6,125 $ 12,942 $ 4,011 Interest and dividends from other securities 10 13 50 Total interest income 6,135 12,955 4,061 Interest expense Borrowings 645 239 - Net interest income 5,490 12,716 4,061 Noninterest income Gains on sales of securities - 26 8 Change in market value of equity securities 554 ( 155 ) ( 114 ) Other 4 - - Total noninterest income 558 ( 129 ) ( 106 ) Noninterest expense Salaries and benefits - 1,201 339 Professional fees 15 1,093 1,517 Other 203 217 492 Total noninterest expense 218 2,511 2,348 Income before income tax and equity in undistributed net income of subsidiary 5,830 10,076 1,607 Income tax (expense)/benefit 64 431 261 Income before equity in undistributed net income of subsidiary 5,894 10,507 1,868 Equity in undistributed net income of subsidiary 16,148 5,106 5,303 Net income $ 22,042 $ 15,613 $ 7,171 62 Condensed Statements of Cash Flows (Dollars in thousands) Years Ended December 31, 2021 2020 2019 Cash flows from operating activiti Net income $ 22,042 $ 15,613 $ 7,171 Adjustments to reconcile net income to net cash from operating activiti Equity in undistributed net income of subsidiary ( 16,148 ) ( 5,106 ) ( 5,303 ) Amortization 101 51 14 Compensation expense on employee and director stock purchases, stock options, and restricted stock units 787 488 359 Net gain on sale of securities - ( 26 ) ( 8 ) Change in market value of equity securities ( 554 ) 155 114 Changes in other assets ( 260 ) 582 ( 344 ) Changes in other liabilities ( 2,982 ) 551 1,485 Net cash from operating activities 2,986 12,308 3,488 Cash flows from investing activiti Sales of securities - 958 1,102 Purchases of securities ( 117 ) ( 200 ) - Investment in Subsidiary ( 5,000 ) - - Cash acquired from mergers with Community Shores Bank Corporation and County Bank Corp. - 142 1,038 Net cash from investing activities ( 5,117 ) 900 2,140 Cash flows from financing activiti Issuance of common stock 139 134 142 Repurchase of common stock ( 7,786 ) - ( 67 ) Proceeds from borrowings 36,827 10,000 - Payments on borrowings ( 14,166 ) ( 833 ) - Cash used as part of equity issuance for merger - ( 5,387 ) ( 297 ) Cash dividends paid ( 7,200 ) ( 6,174 ) ( 5,815 ) Net cash from financing activities 7,814 ( 2,260 ) ( 6,037 ) Net change in cash 5,683 10,948 ( 409 ) Beginning cash 11,939 991 1,400 Ending cash $ 17,622 $ 11,939 $ 991 63 Note 17 – Financial Instruments Financial instruments as of the dates indicated were as follows: Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable (Dollars in thousands) Carrying Estimated Assets Inputs Inputs Amount Fair Value (Level 1) (Level 2) (Level 3) December 31, 2021 Assets Cash and cash equivalents $ 31,887 $ 31,887 $ 31,887 $ - $ - Equity securities at fair value 8,492 8,492 6,724 - 1,768 Securities available for sale 1,098,885 1,098,885 - 1,077,835 21,050 Federal Home Loan Bank and Federal Reserve Bank stock 8,888 8,888 - 8,888 - Loans held for sale 9,351 9,632 - 9,632 - Loans to other financial institutions 42,632 42,632 - 42,632 - Loans, net 1,009,160 999,393 - - 999,393 Accrued interest receivable 8,211 8,211 - 8,211 - Interest rate lock commitments 172 172 - 172 - Liabilities Noninterest-bearing deposits 560,931 560,931 - 560,931 - Interest-bearing deposits 1,491,363 1,491,135 - 1,491,135 - Borrowings 50,000 50,000 - 50,000 - Subordinated debentures 35,017 33,414 - 33,414 - Accrued interest payable 441 441 - 441 - December 31, 2020 Assets Cash and due from banks $ 79,519 $ 79,519 $ 79,519 $ - $ - Equity securities at fair value 2,896 2,896 1,411 - 1,485 Securities available for sale 574,787 574,787 - 563,364 11,423 Federal Home Loan Bank and Federal Reserve Bank stock 8,004 8,004 - 8,004 - Loans held for sale 12,921 13,350 - 13,350 - Loans to other financial institutions 35,209 35,209 - 35,209 - Loans, net 1,062,075 1,057,786 - - 1,057,786 Accrued interest receivable 6,521 6,521 - 6,521 - Interest rate lock commitments 842 842 - 842 - Liabilities Noninterest-bearing deposits 477,654 477,654 - 477,654 - Interest-bearing deposits 1,196,924 1,197,964 - 1,197,964 - Borrowings 9,327 9,143 - 9,143 - Subordinated debentures 3,089 3,089 - 3,089 - Accrued interest payable 183 183 - 183 - The estimated fair values approximate the carrying amounts for all financial instruments except those described later in this paragraph. The methodology for determining the estimated fair value for securities available for sale is described in Note 18. The estimated fair value for loans follows the guidance in ASU 2016 - 01 which prescribes an “exit price” approach, which incorporates discounts for credit, liquidity, and marketability. The allowance for loan losses is considered to be a reasonable estimate of discount for credit quality concerns. The estimated fair value of loans also included the mark to market adjustments related to the Company’s mergers. The estimated fair value of deposits is based on comparing the average rate paid on deposits compared to the three month LIBOR rate which is assumed to be the replacement value of these deposits. The estimated fair values for time deposits and FHLB advances are based on the rates paid at December 31 for new deposits or FHLB advances, applied until maturity. The estimated fair values for other financial instruments and off-balance sheet loan commitments are considered nominal. 64 Note 18 – Fair Value Measurements The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2021 and December 31, 2020 , and the valuation techniques used by the Company to determine those fair values. In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability. There were no liabilities measured at fair value as of December 31, 2020 or December 31, 2021 . Disclosures concerning assets measured at fair value are as follows: Assets Measured at Fair Value on a Recurring Basis Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable (Dollars in thousands) Assets Inputs Inputs Balance at (Level 1) (Level 2) (Level 3) Date Indicated Equity Securities Held at Fair Value - December 31, 2021 Equity securities $ 6,724 $ - $ 1,768 $ 8,492 Investment Securities, Available for Sale - December 31, 2021 U. S. Government and federal agency $ - $ 2,008 $ - $ 2,008 U. S. Treasury notes and bonds - 91,979 - 91,979 State and municipal - 514,797 20,050 534,847 Mortgage-backed - 433,115 - 433,115 Corporate - 19,642 1,000 20,642 Asset-backed Securities - 16,294 - 16,294 Total $ - $ 1,077,835 $ 21,050 $ 1,098,885 Equity Securities Held at Fair Value - December 31, 2020 Equity securities $ 1,411 $ - $ 1,485 $ 2,896 Investment Securities, Available for Sale - December 31, 2020 U. S. Government and federal agency $ - $ 2,051 $ - $ 2,051 U. S. Treasury notes and bonds - 2,056 - 2,056 State and municipal - 309,945 10,423 320,368 Mortgage-backed - 246,723 - 246,723 Corporate - 2,589 1,000 3,589 Total $ - $ 563,364 $ 11,423 $ 574,787 Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs. ChoiceOne’s external investment advisor obtained fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements considered observable data that may include dealer quotes, market spreads, cash flows and the bonds' terms and conditions, among other things. Securities classified in Level 2 included U.S. Government and federal agency securities, U.S. Treasury notes and bonds, state and municipal securities, mortgage-backed securities, corporate bonds, and asset backed securities. The Company classified certain state and municipal securities and corporate bonds, and equity securities as Level 3. Based on the lack of observable market data, estimated fair values were based on the observable data available and reasonable unobservable market data. 65 Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis (Dollars in thousands) 2021 2020 Equity Securities Held at Fair Value Balance, January 1 $ 1,485 $ 1,472 Total realized and unrealized gains included in noninterest income 166 13 Net purchases, sales, calls, and maturities 117 - Balance, December 31 $ 1,768 $ 1,485 Investment Securities, Available for Sale Balance, January 1 $ 11,423 $ 12,367 Total realized and unrealized gains included in income - - Total unrealized gains/(losses) included in other comprehensive income 1,720 512 Net purchases, sales, calls, and maturities 7,907 ( 1,456 ) Balance, December 31 $ 21,050 $ 11,423 Of the Level 3 assets that were held by the Company at December 31, 2021, the net unrealized gain as of December 31, 2021 was $ 591,000 , compared to $ 889,000 as of December 31, 2020. The change in the net unrealized gain or loss is recognized in noninterest income or other comprehensive income in the consolidated balance sheets and income statements. Amounts recognized in noninterest income relate to changes in equity securities. A total of $ 8,839,000 and $ 1,642,000 of Level 3 securities were purchased in 2021 and 2020, respectively. Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs. Available for sale investment securities categorized as Level 3 assets consist of bonds issued by local municipalities and a trust-preferred security. The Company estimates the fair value of these assets based on the present value of expected future cash flows using management’s best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality and a discount rate commensurate with the current market and other risks involved. The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment. Disclosures concerning assets measured at fair value on a non-recurring basis are as follows: Assets Measured at Fair Value on a Non-recurring Basis Quoted Prices In Active Significant Markets for Other Significant Balances at Identical Observable Unobservable (Dollars in thousands) Dates Assets Inputs Inputs Indicated (Level 1) (Level 2) (Level 3) Impaired Loans December 31, 2021 $ 5,433 $ - $ - $ 5,433 December 31, 2020 $ 7,851 $ - $ - $ 7,851 Other Real Estate December 31, 2021 $ 194 $ - $ - $ 194 December 31, 2020 $ 266 $ - $ - $ 266 Mortgage Loan Servicing Rights December 31, 2020 $ 3,967 $ - $ 3,967 $ - Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Company estimates the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). The changes in fair value consisted of charge-downs of impaired loans that were posted to the allowance for loan losses and write-downs of other real estate owned that were posted to a valuation account. The fair value of other real estate owned was based on appraisals or other reviews of property values, adjusted for estimated costs to sell. 66 Note 19 – Off-Balance Sheet Activities Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment. The contractual amount of financial instruments with off-balance sheet risk was as follows at December 31: 2021 2020 Fixed Variable Fixed Variable (Dollars in thousands) Rate Rate Rate Rate Unused lines of credit and letters of credit $ 63,001 $ 275,170 $ 48,622 $ 231,667 Commitments to fund loans (at market rates) 72,257 25,545 10,691 3,954 Commitments to fund loans are generally made for periods of 180 days or less. The fixed rate loan commitments have interest rates ranging from 2.375 % to 6.00 % and maturities ranging from 1 year to 30 years. 67 Note 20 – Regulatory Capital ChoiceOne and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. Depending upon the capital category to which an institution is assigned, the regulators' corrective powers inclu prohibiting the acceptance of brokered deposits; requiring the submission of a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions with affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution. At year-end 2021 and 2020 , the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. Actual capital levels and minimum required levels for ChoiceOne and the Bank were as follows: Minimum Required to be Well Minimum Required Capitalized Under for Capital Prompt Corrective (Dollars in thousands) Actual Adequacy Purposes Action Regulations Amount Ratio Amount Ratio Amount Ratio December 31, 2021 ChoiceOne Financial Services Inc. Total capital (to risk weighted assets) $ 204,353 14.4 % $ 113,604 8.0 % N/A N/A Common equity Tier 1 capital (to risk weighted assets) 160,338 11.3 63,902 4.5 N/A N/A Tier 1 capital (to risk weighted assets) 164,838 11.6 85,203 6.0 N/A N/A Tier 1 capital (to average assets) 164,838 7.4 89,415 4.0 N/A N/A ChoiceOne Bank Total capital (to risk weighted assets) $ 182,275 12.9 % $ 113,444 8.0 % $ 141,806 10.0 % Common equity Tier 1 capital (to risk weighted assets) 174,587 12.3 63,813 4.5 92,174 6.5 Tier 1 capital (to risk weighted assets) 174,587 12.3 85,083 6.0 113,444 8.0 Tier 1 capital (to average assets) 174,587 7.8 89,289 4.0 111,611 5.0 December 31, 2020 ChoiceOne Financial Services Inc. Total capital (to risk weighted assets) $ 162,558 13.2 % $ 98,835 8.0 % N/A N/A Common equity Tier 1 capital (to risk weighted assets) 150,465 12.2 55,595 4.5 N/A N/A Tier 1 capital (to risk weighted assets) 150,465 12.2 74,126 6.0 N/A N/A Tier 1 capital (to average assets) 150,465 8.3 72,281 4.0 N/A N/A ChoiceOne Bank Total capital (to risk weighted assets) $ 159,684 12.9 % $ 98,683 8.0 % $ 123,353 10.0 % Common equity Tier 1 capital (to risk weighted assets) 152,091 12.3 55,509 4.5 80,180 6.5 Tier 1 capital (to risk weighted assets) 152,091 12.3 74,012 6.0 98,683 8.0 Tier 1 capital (to average assets) 152,091 8.4 72,208 4.0 90,259 5.0 Banking regulations limit capital distributions by state-chartered banks. Generally, capital distributions are limited to undistributed net income for the current and prior two years. At December 31, 2021, approximately $ 26.6 million was available for the Bank to pay dividends to ChoiceOne. ChoiceOne’s ability to pay dividends to shareholders is dependent on the payment of dividends from the Bank, which is restricted by state law and regulations. 68 Note 21 – Business Combinations Community Shores Bank Corporation ChoiceOne completed the acquisition of Community Shores Bank Corporation (“Community Shores”) with and into ChoiceOne, with ChoiceOne as the surviving entity, effective on July 1, 2020. Community Shores had 4 branch offices as of the date of the merger. Total assets of Community Shores as of July 1, 2020 were $ 244.5 million, including total loans of $ 174.8 million. Deposits acquired in the merger, the majority of which were core deposits, totaled $ 227.8 million. The impact of the merger has been included in ChoiceOne’s results of operations since the effective date of the merger. As con sideration in the merger, ChoiceOne issued 524,139 shares of ChoiceOne common stock and cash in the amount of $ 5,390,000 with an approximate total value of $ 20.9 million. During 2021 management finalized accounting for certain loans and deferred tax accounts, resulting in measurement period adjustments increasing the acquisition date fair value of loans by $ 828,000 and decreasing the acquisition date fair value of other assets by $ 268,000 . As a result, goodwill recognized as a result of the acquisition was reduced by $ 560,000 . The table below presents the allocation of purchase price for the merger with Community Shores (dollars in thousands): Purchase Price Consideration $ 20,881 Net assets acquir Cash and cash equivalents 41,023 Securities available for sale 20,023 Federal Home Loan Bank and Federal Reserve Bank stock 300 Originated loans 174,802 Premises and equipment 6,204 Other real estate owned 346 Deposit based intangible 760 Other assets 1,077 Total assets 244,535 Non-interest bearing deposits 65,499 Interest bearing deposits 162,333 Total deposits 227,832 Trust preferred securities 3,039 Other liabilities 136 Total liabilities 231,007 Net assets acquired 13,528 Goodwill $ 7,353 69 County Bank Corp. ChoiceOne completed the merger of County Bank Corp. (“County”) with and into ChoiceOne effective on October 1, 2019. County had 14 branch offices and one loan production office as of the date of the merger. Total assets of County as of October 1, 2019 were $ 673 million, including total loans of $ 424 million. Deposits acquired in the merger, the majority of which were core deposits, totaled $ 574 million. The impact of the merger has been included in ChoiceOne’s results of operations since the effective date of the merger. As consideration in the merger, ChoiceOne issued 3,603,872 shares of ChoiceOne common stock with an approximate value of $ 108 million. During 2020, management finalized accounting for acquired loans and deferred taxes. As a result, the acquisition date fair value of loans was decreased by $ 238,000 , other liabilities were decreased by $ 502,000 , and goo dwill recognized as a result of the acquisition was reduced by $ 276,000 . The table below highlights the allocation of purchase price for the merger with County (dollars in thousands): Purchase Price Consideration $ 107,945 Net assets acquir Cash and cash equivalents 20,638 Equity securities at fair value 474 Securities available for sale 187,230 Federal Home Loan Bank and Federal Reserve Bank stock 2,915 Loans to other financial institutions 33,481 Originated loans 390,116 Premises and equipment 9,271 Other real estate owned 1,364 Deposit based intangible 6,359 Bank owned life insurance 16,912 Other assets 4,002 Total assets 672,762 Non-interest bearing deposits 124,113 Interest bearing deposits 449,488 Total deposits 573,601 Federal funds purchased 3,800 Advances from Federal Home Loan Bank 23,000 Other liabilities 3,282 Total liabilities 603,683 Net assets acquired 69,079 Goodwill $ 38,866 70 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on and as of the time of that evaluation, the Company’s management, including the Chief Executive Officer and principal financial officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation. Management assessed the effectiveness of the Company’s system of internal control over financial reporting as of December 31, 2021, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Management’s assessment is based on the criteria for effective internal control over financial reporting as described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that, as of December 31, 2021, its system of internal control over financial reporting was effective and meets the criteria of the “Internal Control – Integrated Framework. There was no change in the Company’s internal control over financial reporting that occurred during the three months ended December 31, 2021 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 71 PART III Item 10. Directors, Executive Officers and Corporate Governance The information under the captions “ChoiceOne's Board of Directors and Executive Officers and “Corporate Governance” in the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 25, 2022, is incorporated herein by reference. The Company has adopted a Code of Ethics for Executive Officers and Senior Financial Officers, which applies to the Chief Executive Officer and the Chief Financial Officer, as well as all other senior financial and accounting officers. The Code of Ethics is posted on the Company’s website at “ www.choiceone.com. ” The Company intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of the Code of Ethics by posting such information on its website at “ www.choiceone.com. ” Item 11. Executive Compensation The information under the captions “Executive Compensation” in the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 25, 2022, is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information under the caption "Ownership of ChoiceOne Common Stock" in the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 25, 2022, is incorporated herein by reference. The following table presents information regarding the equity compensation plans both approved and not approved by shareholders at December 31, 2021: Number of securities remaining available for Number of securities to Weighted-average future issuance under be issued upon exercise exercise price of equity compensation plans of outstanding options, outstanding options, (excluding securities warrants and rights warrants and rights reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders 56,315 $ 9.27 84,832 Equity compensation plans not approved by security holders - - 183,055 Total 56,315 $ 9.27 267,887 Equity compensation plans approved by security holders include the Stock Incentive Plan of 2012, the Amended and Restated Executive Stock Incentive Plan and the Employee Stock Purchase Plan. As of December 31, 2021, 76,467 shares remained available for future issuance under the Stock Incentive Plan of 2012 and 8,365 shares remained available for future issuance under the Employee Stock Purchase Plan, in each case other than upon the exercise of outstanding stock options. No further future issuances of shares are permitted under the Amended and Restated Executive Stock Incentive Plan other than upon the exercise of outstanding stock options. The Directors’ Stock Purchase Plan and the Directors’ Equity Compensation Plan are the only equity compensation plans not approved by security holders. The Directors’ Stock Purchase Plan is designed to provide directors of the Company the option of receiving their fees in the Company’s common stock. Directors who elect to participate in the plan may elect to contribute to the plan twenty-five, fifty, seventy-five or one hundred percent of their board of director fees and one hundred percent of their director committee fees earned as directors of the Company. Contributions to the plan are made by the Company on behalf of each electing participant. Plan participants may terminate their participation in the plan at any time by written notice of withdrawal to the Company. The Directors’ Equity Compensation Plan provides for the grant and award of stock options, restricted stock, restricted stock units, stock awards, and other stock-based and stock-related awards as part of director compensation. Participants will cease to be eligible to participate in both plans when they cease to serve as directors of the Company. Shares are distributed to participants on a quarterly basis. The Directors' Equity Compensation Plan provides for the issuance of a maximum of 100,000 shares of the Company's common stock thereunder and the Directors' Stock Purchase Plan provides for issuance of a maximum of 100,000 shares thereunder, in each case subject to adjustments for certain changes in the capital structure of the Company. As of December 31, 2021, 91,633 shares remained available for issuance under the Directors' Equity Compensation Plan and 91,422 shares remained available for issuance under the Directors' Stock Purchase Plan. 72 Item 13. Certain Relationships and Related Transactions, and Director Independence The information under the captions “Related Matters - Transactions with Related Persons” and “Corporate Governance” in the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 25, 2022, is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information under the caption "Related Matters - Independent Certified Public Accountants" in the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 25, 2022, is incorporated herein by reference. Independent Registered Public Accounting F N Plante & Moran, PLLC Locati Auburn Hills, Michigan PCAOB ID: 166 PART IV Item 15. Exhibits and Financial Statement Schedules (a) (1) Financial Statements . The following financial statements and independent auditors' reports are filed as part of this repor Consolidated Balance Sheets at December 31, 2021 and 2020. Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019. Consolidated Statement of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019. Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2021, 2020, and 2019. Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019. Notes to Consolidated Financial Statements. Report of Independent Registered Public Accounting Firm dated March 17, 2021. (2) Financial Statement Schedules . None. Exhibit Document 3.1 Restated Articles of Incorporation of ChoiceOne Financial Services, Inc. Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 8-A filed February 4, 2020. Here incorporated by reference. 3.2 Bylaws of ChoiceOne Financial Services, Inc., as currently in effect and any amendments thereto. Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 8-K filed April 21, 2021. Here incorporated by reference. 4.1 Advances, Pledge and Security Agreement between ChoiceOne Bank and the Federal Home Loan Bank of Indianapolis. Previously filed as an exhibit to ChoiceOne Financial Services, Inc.’s Form 10-K Annual Report for the year ended December 31, 2013.  Here incorporated by reference. 4.2 Form of 3.25% Fixed-to-Floating Rate Subordinated Note due September 3, 2031.  Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 8-K filed September 7, 2021. Here incorporated by reference. 4.3 Form of 3.25% Fixed-to-Floating Rate Global Subordinated Note due September 3, 2031.  Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 8-K filed September 7, 2021. Here incorporated by reference. 4.4 Description of Rights of Shareholders. Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 10-K Annual Report for the year ended December 31, 2019. Here incorporated by reference. 73 10.1 Employment Agreement between ChoiceOne Financial Services, Inc. and Kelly J. Potes, dated as of September 30, 2019. (1) Previously filed as an exhibit to ChoiceOne’s Form 8-K filed October 1, 2019. Here incorporated by reference. 10.2 Employment Agreement between ChoiceOne Financial Services, Inc. and Michael J. Burke, Jr., dated as of March 22, 2019. (1) Previously filed as exhibit to ChoiceOne’s Pre-Effective Amendment No. 2 to Form S-4 filed August 5, 2019. Here incorporated by reference. 10.3 Stock Incentive Plan of 2012. (1) Previously filed as Appendix A to ChoiceOne’s definitive proxy statement for ChoiceOne’s 2018 Annual Meeting of Shareholders, filed on April 19, 2018. Here incorporated by reference. 10.4 Directors' Stock Purchase Plan, as amended. (1) Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 10-K Annual Report for the year ended December 31, 2019. Here incorporated by reference. 10.5 Director Equity Compensation Plan of 2019. (1) Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 10-K Annual Report for the year ended December 31, 2019. Here incorporated by reference. 10.6 Former Valley Ridge Executive Employee Salary Continuation Agreements, as amended. (1) Previously filed as an exhibit to ChoiceOne Financial Services, Inc.’s Form 10-K Annual Report for the year ended December 31, 2013. Here incorporated by reference. 10.7 Former Valley Ridge Directors’ Deferred Compensation Plan and Agreement. (1) Previously filed as an exhibit to the ChoiceOne Financial Services, Inc.’s Form 10-K Annual Report for the year ended December 31, 2013. Here incorporated by reference. 10.8 Amended and Restated Employee Stock Purchase Plan. (1) Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 10-K Annual Report for the year ended December 31, 2016. Here incorporated by reference. 21 Subsidiaries of ChoiceOne Financial Services, Inc. 23 Consent of Independent Registered Public Accounting Firm. 24 Powers of Attorney. 31.1 Certification of Chief Executive Officer. 31.2 Certification of Treasurer. 32 Certification pursuant to 18 U.S.C. § 1350. 101.INS Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) (1) This agreement is a management contract or compensation plan or arrangement to be filed as an exhibit to this Form 10-K. Copies of any exhibits will be furnished to shareholders upon written request. Requests should be directed t Adom J. Greenland, Secretary, Chief Financial Officer and Treasurer, ChoiceOne Financial Services, Inc., 109 East Division, Sparta, Michigan, 49345. 74 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ChoiceOne Financial Services, Inc. By: /s/ Kelly J. Potes March 18, 2022 Kelly J. Potes Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Kelly J. Potes Chief Executive Officer and March 18, 2022 Kelly J. Potes Director (Principal Executive Officer) /s/ Adom J. Greenland Chief Financial Officer and Treasurer (Principal Financial and March 18, 2022 Adom J. Greenland Accounting Officer) */s/ Jack G. Hendon Chairman of the Board and Director March 18, 2022 Jack G. Hendon */s/ Greg L. Armock Director March 18, 2022 Greg L. Armock */s/ Keith Brophy Director March 18, 2022 Keith Brophy */s/ Michael J. Burke, Jr. President and Director March 18, 2022 Michael J. Burke, Jr. */s/ Harold J. Burns Director March 18, 2022 Harold J. Burns */s/ Eric E. Burrough Director March 18, 2022 Eric E. Burrough */s/ David H. Bush Director March 18, 2022 David H. Bush */s/ Bruce J. Cady Director March 18, 2022 Bruce J. Cady */s/ Patrick A. Cronin Director March 18, 2022 Patrick A. Cronin */s/ Gregory A. McConnell Director March 18, 2022 Gregory A. McConnell */s/ Bradley F. McGinnis Director March 18, 2022 Bradley F. McGinnis */s/ Nels W. Nyblad Director March 18, 2022 Nels W. Nyblad */s/ Roxanne M. Page Director March 18, 2022 Roxanne M. Page *By /s/ Adom J. Greenland Attorney-in-Fact 75