Page PART I. FINANCIAL INFORMATION 3 Item 1. Financial Statements 3 Consolidated Balance Sheets 3 Consolidated Statements Of Income 4 Consolidated Statements Of Comprehensive Income (Loss) 5 Consolidated Statements Of Changes In Shareholders’ Equity 6 Consolidated Statements Of Cash Flows 7 Notes To Interim Consolidated Financial Statements 8 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31 Item 4. Controls and Procedures 38 PART II. OTHER INFORMATION 41 Item 1. Legal Proceedings 41 Item 1A. Risk Factors 41 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41 Item 5. Other Information 41 Item 6. Exhibits 42 Signatures 43 PART I.  FINAN CIAL INFORMATION Item 1. Fina ncial Statements . ChoiceOne Financial Services, Inc. CONSOLIDAT ED BALANCE SHEETS March 31, December 31, (Dollars in thousands, except per share data) 2023 2022 (Unaudited) (Audited) Assets Cash and due from banks $ 54,839 $ 43,593 Time deposits in other financial institutions 350 350 Cash and cash equivalents 55,189 43,943 Equity securities, at fair value (Note 2) 8,699 8,566 Securities available for sale, at fair value (Note 2) 535,348 529,749 Securities held to maturity, at amortized cost (Note 2) 422,876 425,906 Federal Home Loan Bank stock 5,195 3,517 Federal Reserve Bank stock 5,064 5,064 Loans held for sale 3,603 4,834 Loans (Note 3) 1,210,583 1,189,782 Allowance for credit losses (Note 3) ( 15,065 ) ( 7,619 ) Loans, net 1,195,518 1,182,163 Premises and equipment, net 28,633 28,232 Other real estate owned, net 130 - Cash value of life insurance policies 44,241 43,978 Goodwill 59,946 59,946 Core deposit intangible 2,557 2,809 Other assets 42,887 47,208 Total assets $ 2,409,886 $ 2,385,915 Liabilities Deposits – noninterest-bearing $ 554,699 $ 599,579 Deposits – interest-bearing 1,513,429 1,518,424 Brokered deposits 37,773 - Total deposits 2,105,901 2,118,003 Borrowings 85,000 50,000 Subordinated debentures 35,323 35,262 Other liabilities 14,950 13,776 Total liabilities 2,241,174 2,217,041 Shareholders' Equity Preferred stock; shares authoriz 100,000 ; shares outstandin none — — Common stock and paid-in capital, no par value; shares authoriz 15,000,000 ; shares outstandin 7,521,749 at March 31, 2023 and 7,516,098 at December 31, 2022 172,564 172,277 Retained earnings 64,026 68,394 Accumulated other comprehensive loss, net ( 67,878 ) ( 71,797 ) Total shareholders’ equity 168,712 168,874 Total liabilities and shareholders’ equity $ 2,409,886 $ 2,385,915 See accompanying notes to interim consolidated financial statements. 3 ChoiceOne Financial Services, Inc. CONSOLIDATED STA TEMENTS OF INCOME (Unaudited) Three Months Ended (Dollars in thousands, except per share data) March 31, 2023 2022 Interest income Loans, including fees $ 14,873 $ 12,298 Securiti Taxable 4,913 3,507 Tax exempt 1,435 1,655 Other 177 14 Total interest income 21,398 17,474 Interest expense Deposits 3,276 783 Advances from Federal Home Loan Bank 605 1 Other 505 369 Total interest expense 4,386 1,153 Net interest income 17,012 16,321 Provision for credit losses on loans 309 — Provision for credit losses on unfunded commitments ( 284 ) — Net Provision for credit losses expense 25 — Net interest income after provision 16,987 16,321 Noninterest income Customer service charges 2,267 2,189 Insurance and investment commissions 196 205 Gains on sales of loans 403 804 Net gains on sales and write downs of other assets 3 171 Earnings on life insurance policies 263 280 Trust income 184 178 Change in market value of equity securities 63 ( 356 ) Other 292 374 Total noninterest income 3,671 3,845 Noninterest expense Salaries and benefits 8,083 7,606 Occupancy and equipment 1,643 1,625 Data processing 1,682 1,744 Professional fees 621 510 Supplies and postage 191 191 Advertising and promotional 149 132 Intangible amortization 252 282 FDIC insurance 300 225 Other 1,074 1,375 Total noninterest expense 13,995 13,690 Income before income tax 6,663 6,476 Income tax expense 1,030 948 Net income $ 5,633 $ 5,528 Basic earnings per share (Note 4) $ 0.75 $ 0.74 Diluted earnings per share (Note 4) $ 0.75 $ 0.74 Dividends declared per share $ 0.26 $ 0.25 See accompanying notes to interim consolidated financial statements. 4 ChoiceOne Financial Services, Inc. CONSOLIDATED STATEME NTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Ended (Dollars in thousands) March 31, 2023 2022 Net income $ 5,633 $ 5,528 Other comprehensive income: Change in net unrealized gain (loss) on available-for-sale securities 13,694 ( 42,767 ) Income tax benefit (expense) ( 2,876 ) 8,981 L reclassification adjustment for net (gain) loss for fair value hedge ( 6,021 ) - Income tax benefit (expense) 1,264 - Unrealized gain (loss) on available-for-sale securities, net of tax 6,061 ( 33,786 ) Amortization of net unrealized (gains) losses on securities transferred from available-for-sale to held-to-maturity 29 - Income tax benefit (expense) ( 6 ) - Unrealized loss on held to maturity securities, net of tax 23 - Change in net unrealized gain (loss) on cash flow hedge ( 2,896 ) - Income tax benefit (expense) 608 - L reclassification adjustment for net (gain) loss on cash flow hedge - - Income tax benefit (expense) - - L amortization of net unrealized (gains) losses included in net income 156 - Income tax benefit (expense) ( 33 ) - Unrealized gain (loss) on cash flow hedge instruments, net of tax ( 2,165 ) - Other comprehensive income (loss), net of tax 3,919 ( 33,786 ) Comprehensive income (loss) $ 9,552 $ ( 28,258 ) See accompanying notes to interim consolidated financial statements. 5 ChoiceOne Financial Services, Inc. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) For the three months ended March 31, Accumulated Common Other Stock and Comprehensive Number of Paid in Retained Income/(Loss), (Dollars in thousands, except per share data) Shares Capital Earnings Net Total Balance, January 1, 2022 7,510,379 $ 171,913 $ 52,332 $ ( 2,576 ) $ 221,669 Net income 5,528 5,528 Other comprehensive income ( 33,786 ) ( 33,786 ) Shares issued 5,332 133 133 Effect of employee stock purchases 7 7 Stock-based compensation expense 121 121 Shares repurchased ( 25,899 ) ( 682 ) ( 682 ) Cash dividends declared ($ 0.25 per share) ( 1,872 ) ( 1,872 ) Balance, March 31, 2022 7,489,812 $ 171,492 $ 55,988 $ ( 36,362 ) $ 191,118 Balance, December 31, 2022 7,516,098 $ 172,277 $ 68,394 $ ( 71,797 ) $ 168,874 Adoption of ASU 2016-13 (CECL ) on January 1, 2023 ( 8,046 ) ( 8,046 ) Balance, January 1, 2023 7,516,098 $ 172,277 $ 60,348 $ ( 71,797 ) $ 160,828 Net income 5,633 5,633 Other comprehensive income (loss) 3,919 3,919 Shares issued 5,651 147 147 Effect of employee stock purchases 7 7 Stock-based compensation expense 133 133 Cash dividends declared ($ 0.26 per share) ( 1,955 ) ( 1,955 ) Balance, March 31, 2023 7,521,749 $ 172,564 $ 64,026 $ ( 67,878 ) $ 168,712 6 ChoiceOne Financial Services, Inc. CONSOLIDATED STATEME NTS OF CASH FLOWS (Unaudited) Three Months Ended (Dollars in thousands) March 31, 2023 2022 Cash flows from operating activiti Net income $ 5,633 $ 5,528 Adjustments to reconcile net income to net cash from operating activiti Provision for credit losses 25 - Depreciation 609 672 Amortization 2,500 2,673 Compensation expense on employee and director stock purchases, stock options, and restricted stock units 235 226 Net change in market value of equity securities ( 63 ) 356 Gains on sales of loans ( 403 ) ( 804 ) Loans originated for sale ( 10,283 ) ( 29,531 ) Proceeds from loan sales 11,753 25,896 Earnings on bank-owned life insurance ( 263 ) ( 280 ) Proceeds from BOLI policy - 130 Earnings on death benefit from bank-owned life insurance - ( 14 ) (Gains)/losses on sales of other real estate owned - ( 41 ) Proceeds from sales of other real estate owned - 235 Deferred federal income tax (benefit)/expense 252 248 Net change in: Other assets 995 173 Other liabilities ( 1,821 ) ( 2,665 ) Net cash provided by operating activities 9,169 2,802 Cash flows from investing activiti Maturities, prepayments and calls of securities available for sale 7,052 13,157 Maturities, prepayments and calls of securities held to maturity 2,990 1,078 Purchases of securities available for sale ( 393 ) ( 28,197 ) Purchases of securities held to maturity ( 421 ) ( 3,160 ) Purchase of Federal Home Loan Bank stock ( 1,678 ) - Proceeds from redemption of Federal Home Loan Bank stock - 331 Loan originations and payments, net ( 20,701 ) 31,816 Additions to premises and equipment ( 1,025 ) ( 526 ) Proceeds from (payments for) derivative contracts, net ( 551 ) - Payments for derivative contracts settlements ( 4,191 ) - Net cash provided by (used in) investing activities ( 18,918 ) 14,499 Cash flows from financing activiti Net change in deposits ( 12,102 ) 93,307 Net change in short term borrowings 35,000 ( 50,000 ) Issuance of common stock 52 35 Repurchase of common stock - ( 682 ) Cash dividends ( 1,955 ) ( 1,872 ) Net cash provided by financing activities 20,995 40,788 Net change in cash and cash equivalents 11,246 58,089 Beginning cash and cash equivalents 43,943 31,887 Ending cash and cash equivalents $ 55,189 $ 89,976 Supplemental disclosures of cash flow informati Cash paid for interest $ 4,557 $ 1,413 Cash paid for income taxes - - Loans transferred to other real estate owned 130 172 See accompanying notes to interim consolidated financial statements. 7 ChoiceOne Financial Services, Inc. NOTES TO INTERIM CONSOLID ATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include ChoiceOne Financial Services, Inc. ("ChoiceOne"), its wholly-owned subsidiary, ChoiceOne Bank, and ChoiceOne Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. Intercompany transactions and balances have been eliminated in consolidation. ChoiceOne owns all of the common securities of Community Shores Capital Trust I (the “Capital Trust”). Under U.S. generally accepted accounting principles ("GAAP"), the Capital Trust is not consolidated because it is a variable interest entity and ChoiceOne is not the primary beneficiary. The accompanying unaudited consolidated financial statements and notes thereto reflect all adjustments ordinary in nature which are, in the opinion of management, necessary for a fair presentation of such financial statements.  Operating results for the three months ended March 31, 2023 , are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 . The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2022 . Use of Estimates To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, ChoiceOne’s management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. These estimates and assumptions are subject to many risks and uncertainties, and actual results may differ from these estimates. Estimates associated with the allowance for credit losses and the unrealized gains and losses on securities available for sale and held to maturity are particularly susceptible to change. Investment Securities Investment securities for which ChoiceOne has the intent and ability to hold to maturity are classified as held to maturity and are carried at amortized cost.  Investment securities not classified as held to maturity are classified as available for sale and are reported at fair value with unrealized gains and losses, net of income taxes, as a separate component of other comprehensive income. ChoiceOne determines the appropriate classification of investment securities at the time of purchase and reassesses the classification at each reporting date.  Additions to securities held to maturity consist mostly of local issue municipals. Goodwill Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of the acquired tangible assets and liabilities and identifiable intangible assets. Goodwill and intangible assets acquired in a purchase or business combination and determined to have an indefinite useful life are not amortized but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. Core Deposit Intangible Core deposit intangible represents the value of the acquired customer core deposit bases and is included as an asset on the consolidated balance sheets. The core deposit intangible has an estimated finite life, is amortized on an accelerated basis over a 120 month period and is subject to periodic impairment evaluation. Stock Transactions A total of 3,220 shares of common stock were issued to ChoiceOne’s Board of Directors for a cash price of $ 94,000 under the terms of the Directors’ Stock Purchase Plan in the first quarter of 2023 . A total of 2,431 shares for a cash price of $ 53,000 were issued under the Employee Stock Purchase Plan in the first quarter of 2023 .  ChoiceOne's common stock repurchase program announced in April 2021 and amended in 2022, authorizes repurchases of up to 375,388 shares, representing 5 % of the total outstanding shares of common stock as of the date the program was adopted. No shares were repurchased under this program in the first quarter of 2023 . Reclassifications Certain amounts presented in prior periods have been reclassified to conform to the current presentation. 8 Recently Issued Accounting Pronouncements Allowance for Credit Losses ("ACL") In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments.  This ASU (as subsequently amended by ASU 2018-19) significantly changed how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the CECL model, applies to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. The standard also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the ACL. In addition, entities need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.  A reasonable and supportable economic forecast is a key component of the CECL methodology. ChoiceOne adopted CECL effective January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the incurred loss accounting standards. The transition adjustment of the CECL adoption included an increase in the ACL of $ 7.2 million, which included a $ 5.5 million decrease to the retained earnings account to reflect the cumulative effect of adopting CECL on our Consolidated Balance Sheet, with the $ 1.5 million tax impact portion being recorded as part of the deferred tax asset in other assets on our Consolidated Balance Sheet.  The transition adjustment of the CECL adoption included an additional ACL on unfunded commitments of $ 3.3 million, which included a $ 2.6 million decrease to the retained earnings account to reflect the cumulative effect of adopting CECL on our Consolidated Balance Sheet, with the $ 688,000 tax impact portion being recorded as part of the deferred tax asset in other assets on our Consolidated Balance Sheet. The ACL is a valuation allowance for probable incurred credit losses. The ACL is increased by the provision for credit losses and decreased by loans charged off less any recoveries of charged off loans. As ChoiceOne has had very limited loss experience since 2011, management elected to utilize benchmark peer loss history data to estimate historical loss rates.  ChoiceOne worked with a third party advisory firm to identify an appropriate peer group for each loan group which shared similar characteristics. Management estimates the ACL required based on a selected peer group loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, a reasonable and supportable economic forecast, and other factors. Allocations of the ACL may be made for specific loans, but the entire ACL is available for any loan that, in management’s judgment, should be charged off. Loan losses are charged against the ACL when management believes that collection of a loan balance is not possible. The ACL consists of general and specific components. The general component covers loans collectively evaluated for credit losses and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustment for current and forecasted factors is based on trends in delinquencies, trends in charge-offs and recoveries, trends in the volume of loans, changes in underwriting standards, trends in loan review findings, the experience and ability of lending staff, and a reasonable and supportable economic forecast described further below. The discounted cash flow methodology is utilized for all loan pools.  This methodology is supported by our CECL software provider and allows management to automatically calculate contractual life by factoring in all cash flows and adjusting them for behavioral and credit-related aspects. Reasonable and supportable economic forecasts have to be incorporated in determining expected credit losses. The forecast period represents the time frame from the current period end through the point in time that we can reasonably forecast and support entity and environmental factors that are expected to impact the performance of our loan portfolio. Ideally, the economic forecast period would encompass the contractual terms of all loans; however, the ability to produce a forecast that is considered reasonable and supportable becomes more difficult or may not be possible in later periods. Subsequent to the end of the forecast period, we revert to historical loan data based on an ongoing evaluation of each economic forecast in relation to then current economic conditions as well as any developing loan loss activity and resulting historical data. As of March 31, 2023, we used a one-year reasonable and supportable economic forecast period, with a two year straight-line reversion period. We are not required to develop and use our own economic forecast model, and elected to utilize economic forecasts from third-party providers that analyze and develop forecasts of the economy for the entire United States at least quarterly. We are also required to consider expected credit losses associated with loan commitments over the contractual period in which we are exposed to credit risk on the underlying commitments unless the obligation is unconditionally cancellable by us. Any allowance for off-balance sheet credit exposures is reported as an other liability on our Consolidated Balance Sheet and is increased or decreased via the provision for credit losses account on our Consolidated Statement of Income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to be funded.  . 9 Securities Available for Sale - For securities AFS in an unrealized loss position, management determines whether they intend to sell or if it is more likely than not that ChoiceOne will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income with an allowance being established under CECL.  For securities AFS with unrealized losses not meeting these criteria, management evaluates whether any decline in fair value is due to credit loss factors.  In making this assessment, management considers any changes to the rating of the security by rating agencies and adverse conditions specifically related to the issuer of the security, among other factors.  If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.  If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses (“ACL”) is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.  Changes in the ACL under ASC 326-30 are recorded as provisions for (or reversal of) credit loss expense.  Losses are charged against the allowance when the collectability of a debt security AFS is confirmed or when either of the criteria regarding intent or requirement to sell is met.  Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, net of income taxes.  At March 31, 2023 and at adoption of CECL on January 1, 2023, there was no ACL related to debt securities AFS.  Accrued interest receivable on debt securities was excluded from the estimate of credit losses. Loans that do not share risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. ChoiceOne has determined that any loans which have been placed on non-performing status, loans with a risk rating of 6 or higher, and loans past due more than 60 days will be assessed for individually evaluation.  Management's judgment will be used to determine if the loan should be migrated back to pool on an individual basis.  Individual analysis will establish a specific reserve for loans in scope. Specific reserves on non-performing loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as appropriate. Securities Held to Maturity - Since the adoption of CECL, ChoiceOne measures credit losses on HTM securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The ACL on securities HTM is a contra asset valuation account that is deducted from the carrying amount of HTM securities to present the net amount expected to be collected.  HTM securities are charged off against the ACL when deemed uncollectible.  Adjustments to the ACL are reported in ChoiceOne’s Consolidated Statements of Income in the provision for credit losses.  Accrued interest receivable on HTM securities is excluded from the estimate of credit losses.  With regard to US Treasury securities, these have an explicit government guarantee; therefore, no ACL is recorded for these securities.  With regard to obligations of states and political subdivisions and other HTM securities, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities.  At March 31, 2023 and at adoption of CECL on January 1, 2023, there was no ACL related to securities HTM. Troubled Loan Modifications FASB also issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  This standard eliminated the previous accounting guidance for troubled debt restructurings and added additional disclosure requirements for gross chargeoffs by year of origination.  It also prescribes guidance for reporting modifications of loans to borrowers experiencing financial difficulty. Investment in Equity Method and Joint Ventures In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Venture (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The amendments in this ASU permit reporting entities to account for the tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2023. Early adoption is permitted.  ChoiceOne is currently evaluating the impact of this standard on the consolidated financial statements. 10 NOTE 2 – SECURITIES On January 1, 2022, ChoiceOne reassessed and transferred, at fair value $ 428.4 million of securities classified as available for sale to the held to maturity classification.  The net unrealized after-tax loss of $ 2.7 million as of the transfer date remained in accumulated other comprehensive income to be amortized over the remaining life of the securities, offsetting the related amortization of discount or premium on the transferred securities.  No gains or losses were recognized at the time of the transfer.  The remaining net unamortized unrealized loss on transferred securities included in accumulated other comprehensive income was $ 2.4 million after tax as of March 31, 2023. The fair value of equity securities and the related gross unrealized gains and (losses) recognized in noninterest income were as follows: March 31, 2023 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value Equity securities $ 9,052 $ 310 $ ( 663 ) $ 8,699 December 31, 2022 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value Equity securities $ 8,982 $ 305 $ ( 721 ) $ 8,566 11 The following tables present the amortized cost and fair value of securities available for sale and the gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and the fair value of securities held to maturity and the related gross unrealized gains and loss March 31, 2023 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Available for S Cost Gains Losses Value U.S. Treasury notes and bonds $ 90,695 $ - $ ( 10,720 ) $ 79,975 State and municipal 281,139 - ( 44,641 ) 236,498 Mortgage-backed 231,577 8 ( 25,448 ) 206,137 Corporate 758 - ( 42 ) 716 Asset-backed securities 12,546 - ( 524 ) 12,022 Total $ 616,715 $ 8 $ ( 81,375 ) $ 535,348 Held to Maturity: U.S. Government and federal agency $ 2,968 $ - $ ( 365 ) $ 2,603 State and municipal 199,267 1 ( 32,688 ) 166,580 Mortgage-backed 199,795 - ( 29,139 ) 170,656 Corporate 19,990 46 ( 2,292 ) 17,744 Asset-backed securities 856 - ( 66 ) 790 Total $ 422,876 $ 47 $ ( 64,550 ) $ 358,373 December 31, 2022 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Available for S Cost Gains Losses Value U.S. Treasury notes and bonds $ 90,810 $ - $ ( 12,606 ) $ 78,204 State and municipal 277,489 - ( 47,551 ) 229,938 Mortgage-backed 236,703 - ( 28,140 ) 208,563 Corporate 757 - ( 46 ) 711 Asset-backed securities 13,031 - ( 698 ) 12,333 Total $ 618,790 $ - $ ( 89,041 ) $ 529,749 Held to Maturity: U.S. Government and federal agency $ 2,966 $ - $ ( 421 ) $ 2,545 State and municipal 201,890 1 ( 39,355 ) 162,536 Mortgage-backed 200,473 - ( 29,868 ) 170,605 Corporate 19,603 - ( 2,285 ) 17,318 Asset-backed securities 974 - ( 77 ) 897 Total $ 425,906 $ 1 $ ( 72,006 ) $ 353,901 Available for sale securities with unrealized losses as of March 31, 2023 and December 31, 2022, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, were as follows: March 31, 2023 Less than 12 months More than 12 months Total (Dollars in thousands) Fair Unrealized Fair Unrealized Fair Unrealized Available for S Value Losses Value Losses Value Losses U.S. Treasury notes and bonds $ - $ - $ 79,975 $ 10,720 $ 79,975 $ 10,720 State and municipal 2,481 25 233,517 44,616 235,998 44,641 Mortgage-backed 26,955 1,626 178,182 23,822 205,137 25,448 Corporate 501 7 215 35 716 42 Asset-backed securities - - 12,022 524 12,022 524 Total temporarily impaired $ 29,937 $ 1,658 $ 503,911 $ 79,717 $ 533,848 $ 81,375 12 December 31, 2022 Less than 12 months More than 12 months Total (Dollars in thousands) Fair Unrealized Fair Unrealized Fair Unrealized Available for S Value Losses Value Losses Value Losses U.S. Treasury notes and bonds $ - $ - $ 78,204 $ 12,606 $ 78,204 $ 12,606 State and municipal 89,158 12,612 140,390 34,939 229,548 47,551 Mortgage-backed 63,249 3,093 144,318 25,047 207,567 28,140 Corporate 711 46 - - 711 46 Asset-backed securities - - 12,333 698 12,333 698 Total temporarily impaired $ 153,118 $ 15,751 $ 375,245 $ 73,290 $ 528,363 $ 89,041 Held to maturity securities with unrealized losses as of March 31, 2023 and December 31, 2022, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, were as follows: March 31, 2023 Less than 12 months More than 12 months Total (Dollars in thousands) Fair Unrealized Fair Unrealized Fair Unrealized Held to Maturity: Value Losses Value Losses Value Losses U.S. Government and federal agency $ - $ - $ 2,603 $ 365 $ 2,603 $ 365 State and municipal 1,411 10 164,769 32,678 166,180 32,688 Mortgage-backed 414 24 170,242 29,115 170,656 29,139 Corporate 2,263 171 13,803 2,121 16,066 2,292 Asset-backed securities - - 790 66 790 66 Total temporarily impaired $ 4,088 $ 205 $ 352,207 $ 64,345 $ 356,295 $ 64,550 December 31, 2022 Less than 12 months More than 12 months Total (Dollars in thousands) Fair Unrealized Fair Unrealized Fair Unrealized Held to Maturity: Value Losses Value Losses Value Losses U.S. Government and federal agency $ - $ - $ 2,545 $ 421 $ 2,545 $ 421 State and municipal 13,457 1,899 149,016 37,456 162,473 39,355 Mortgage-backed 25,582 822 145,024 29,046 170,606 29,868 Corporate 5,296 603 10,771 1,682 16,067 2,285 Asset-backed securities - - 897 77 897 77 Total temporarily impaired $ 44,335 $ 3,324 $ 308,253 $ 68,682 $ 352,588 $ 72,006 ChoiceOne evaluates all securities on a quarterly basis to determine if an ACL and corresponding impairment charge should be recorded. Consideration is given to 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. ChoiceOne believes that unrealized losses on securities 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 ACL was recorded in the three months ended March 31, 2023 , and no other-than-temporary impairment charges were recorded in the same periods in 2022 . At March 31, 2023 and December 31, 2022, there were 604 and 611 securities with an unrealized loss, respectively.  Unrealized losses on corporate and municipal bonds have not been recognized into income because the issuers’ bonds are of high credit quality, and management does not intend to sell prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity. The majority of unrealized losses at March 31, 2023 , are related to U.S. Treasury notes and bonds, state and municipal bonds and mortgage backed securities.  The U.S. Treasury notes are guaranteed by the U.S. government and 100 % of the notes are rated AA or better. State and municipal bonds are backed by the taxing authority of the bond issuer or the revenues from the bond. On March 31, 2023 , 86 % of state and municipal bonds held are rated AA or better, 11 % are A rated and 3 % are not rated.  Of the mortgage-backed securities held on March 31, 2023 , 38 % were issued by US government sponsored entities and agencies, and rated AA, 46 % are AAA rated private issue and collateralized mortgage obligation, and 16 % are unrated privately issued mortgage-backed securities with structured credit enhancement and collateralized mortgage obligation. 13 Presented below is a schedule of maturities of securities as of March 31, 2023.  Available for sale securities are reported at fair value and held to maturity securities are reported at amortized cost.  Callable securities in the money are presumed called and matured at the callable date. Available for Sale Securities maturing within: Fair Value Less than 1 Year - 5 Years - More than at March 31, (Dollars in thousands) 1 Year 5 Years 10 Years 10 Years 2023 U.S. Government and federal agency $ - $ - $ - $ - $ - U.S. Treasury notes and bonds - 19,451 60,524 - 79,975 State and municipal 4,261 7,282 99,415 125,540 236,498 Corporate 501 - 215 — 716 Asset-backed securities — 8,767 3,255 — 12,022 Total debt securities 4,762 35,500 163,409 125,540 329,211 Mortgage-backed securities 7,412 76,343 106,925 15,457 206,137 Total Available for Sale $ 12,174 $ 111,843 $ 270,334 $ 140,997 $ 535,348 Held to Maturity Securities maturing within: Amortized Cost Less than 1 Year - 5 Years - More than at March 31, (Dollars in thousands) 1 Year 5 Years 10 Years 10 Years 2023 U.S. Government and federal agency $ — $ — $ 2,968 $ — $ 2,968 State and municipal 2,415 4,998 89,542 102,312 199,267 Corporate — - 18,990 1,000 19,990 Asset-backed securities — 856 — — 856 Total debt securities 2,415 5,854 111,500 103,312 223,081 Mortgage-backed securities 21,951 32,133 145,711 — 199,795 Total Held to Maturity $ 24,366 $ 37,987 $ 257,211 $ 103,312 $ 422,876 Following is information regarding unrealized gains and losses on equity securities for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, 2023 2022 Net gains and (losses) recognized during the period $ 63 $ ( 356 ) L Net gains and (losses) recognized during the period on securities sold — — Unrealized gains and (losses) recognized during the reporting period on securities still held at the reporting date $ 63 $ ( 356 ) 14 NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES Loans by type as a percentage of the portfolio were as follows: March 31, 2023 December 31, 2022 (Dollars in thousands) Balance % Balance % Percent Increase (Decrease) Agricultural $ 55,995 4.63 % 64,159 5.39 % ( 12.72 ) % Commercial and Industrial 217,063 17.93 % 210,210 17.67 % 3.26 % Commercial Real Estate 648,202 53.54 % 630,953 53.03 % 2.73 % Consumer 38,891 3.21 % 39,808 3.35 % ( 2.30 ) % Construction Real Estate 13,939 1.15 % 14,736 1.24 % ( 5.41 ) % Residential Real Estate 236,493 19.54 % 229,916 19.32 % 2.86 % Gross Loans $ 1,210,583 $ 1,189,782 Allowance for credit losses 15,065 1.24 % 7,619 0.64 % Net loans $ 1,195,518 $ 1,182,163 Activity in the allowance for credit losses and balances in the loan portfolio were as follows: Commercial (Dollars in thousands) and Commercial Construction Residential Agricultural Industrial Consumer Real Estate Real Estate Real Estate Unallocated Total Allowance for Credit Losses Three Months Ended March 31, 2023 Beginning balance $ 144 $ 1,361 $ 310 $ 4,822 $ 63 $ 906 $ 13 $ 7,619 Cumulative effect of change in accounting principle 14 1,587 541 3,006 20 2,010 ( 13 ) 7,165 Charge-offs — — ( 140 ) — — — — ( 140 ) Recoveries — 27 69 13 — 3 — 112 Provision ( 23 ) 45 133 ( 4 ) ( 10 ) 168 — 309 Ending balance $ 135 $ 3,020 $ 913 $ 7,837 $ 73 $ 3,087 $ — $ 15,065 Individually evaluated for credit loss $ 1 $ 7 $ 1 $ 1 $ — $ 42 $ — $ 52 Collectively evaluated for credit loss $ 134 $ 3,013 $ 912 $ 7,836 $ 73 $ 3,045 $ — $ 15,013 Loans March 31, 2023 Individually evaluated for credit loss $ 18 $ 180 $ 27 $ 32 $ — $ 1,894 $ 2,151 Collectively evaluated for credit loss 55,977 216,883 38,864 648,170 13,939 234,599 1,208,432 Ending balance $ 55,995 $ 217,063 $ 38,891 $ 648,202 $ 13,939 $ 236,493 $ 1,210,583 15 Commercial (Dollars in thousands) and Commercial Construction Residential Agricultural Industrial Consumer Real Estate Real Estate Real Estate Unallocated Total Allowance for Loan Losses Three Months Ended March 31, 2022 Beginning balance $ 448 $ 1,454 $ 290 $ 3,705 $ 110 $ 671 $ 1,010 $ 7,688 Charge-offs — ( 31 ) ( 112 ) - — — — ( 143 ) Recoveries — 2 52 1 — 1 — 56 Provision ( 61 ) 327 74 ( 16 ) ( 73 ) ( 83 ) ( 168 ) — Ending balance $ 387 $ 1,752 $ 304 $ 3,690 $ 37 $ 589 $ 842 $ 7,601 Individually evaluated for impairment $ 253 $ 116 $ 3 $ 9 $ — $ 167 $ — $ 548 Collectively evaluated for impairment $ 134 $ 1,636 $ 301 $ 3,681 $ 37 $ 422 $ 842 $ 7,053 Loans March 31, 2022 Individually evaluated for impairment $ 2,542 $ 356 $ 32 $ 157 $ — $ 1,853 $ 4,940 Collectively evaluated for impairment 59,076 194,024 36,108 527,743 15,669 174,206 1,006,826 Acquired with deteriorated credit quality — 4,534 11 9,352 — 1,743 15,640 Ending balance $ 61,618 $ 198,914 $ 36,151 $ 537,252 $ 15,669 $ 177,802 $ 1,027,406 Commercial (Dollars in thousands) and Commercial Construction Residential Agricultural Industrial Consumer Real Estate Real Estate Real Estate Unallocated Total Allowance for Loan Losses December 31, 2022 Individually evaluated for impairment $ 2 $ 14 $ 1 $ 5 $ — $ 131 $ — $ 153 Collectively evaluated for impairment $ 142 $ 1,347 $ 309 $ 4,817 $ 63 $ 775 $ 13 $ 7,466 Loans December 31, 2022 Individually evaluated for impairment $ 23 $ 177 $ 7 $ 165 $ — $ 2,474 $ 2,846 Collectively evaluated for impairment 64,136 206,074 39,793 622,131 14,736 225,792 1,172,662 Acquired with deteriorated credit quality — 3,959 8 8,657 — 1,650 14,274 Ending balance $ 64,159 $ 210,210 $ 39,808 $ 630,953 $ 14,736 $ 229,916 $ 1,189,782 The provision for credit losses on loans was $ 309,000 in the first quarter of 2023 , compared to $ 0 in the same period in the prior year.  Provision expense was deemed necessary to reserve for core loan growth of $ 20.8 million in the first quarter of 2023.  There was very little change to forecasted economic conditions and no changes to qualitative factors from the CECL implementation date of January 1, 2023 to March 31, 2023. 16 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 asset 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. 17 The following table reflects the amortized cost basis of loans as of March 31, 2023 based on year of origination (dollars in thousands): Commerci 2023 2022 2021 2020 2019 Prior Term Loans Total Revolving Loans Grand Total Agricultural Pass $ 19 $ 19,463 $ 3,285 $ 1,905 $ 7,853 $ 18,052 $ 50,577 $ 5,149 $ 55,726 Special mention - - - - 184 85 269 - 269 Substandard - - - - - - - - - Doubtful - - - - - - - - - Loss - - - - - - - - - Total $ 19 $ 19,463 $ 3,285 $ 1,905 $ 8,037 $ 18,137 $ 50,846 $ 5,149 $ 55,995 Current year-to-date gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Commercial and Industrial Pass $ 9,644 $ 49,508 $ 31,241 $ 14,120 $ 16,186 $ 16,174 $ 136,873 $ 79,836 $ 216,709 Special mention - - 38 161 110 38 347 - 347 Substandard - - - - - 7 7 - 7 Doubtful - - - - - - - - - Loss - - - - - - - - - Total $ 9,644 $ 49,508 $ 31,279 $ 14,281 $ 16,296 $ 16,219 $ 137,227 $ 79,836 $ 217,063 Current year-to-date gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Commercial Real Estate Pass $ 20,489 $ 136,340 $ 129,054 $ 85,247 $ 49,365 $ 158,159 $ 578,654 $ 64,573 $ 643,227 Special mention - - - - - 761 761 - 761 Substandard - - - - - 4,214 4,214 - 4,214 Doubtful - - - - - - - - - Loss - - - - - - - - - Total $ 20,489 $ 136,340 $ 129,054 $ 85,247 $ 49,365 $ 163,134 $ 583,629 $ 64,573 $ 648,202 Retai 2023 2022 2021 2020 2019 Prior Term Loans Total Revolving Loans Grand Total Consumer Performing $ 2,786 $ 17,480 $ 9,478 $ 4,431 $ 2,094 $ 2,034 $ 38,303 $ 588 $ 38,891 Nonperforming - - - - - - - - - Nonaccrual - - - - - - - - - Total $ 2,786 $ 17,480 $ 9,478 $ 4,431 $ 2,094 $ 2,034 $ 38,303 $ 588 $ 38,891 Current year-to-date gross write-offs $ - $ 12 $ 7 $ 1 $ - $ - $ 20 $ - $ 20 Construction real estate Performing $ - $ 1,599 $ 1,001 $ - $ - $ - $ 2,600 $ 11,339 $ 13,939 Nonperforming - - - - - - - - - Nonaccrual - - - - - - - - - Total $ - $ 1,599 $ 1,001 $ - $ - $ - $ 2,600 $ 11,339 $ 13,939 Current year-to-date gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Residential real estate Performing $ 9,793 $ 70,595 $ 30,957 $ 18,271 $ 14,386 $ 46,875 $ 190,877 $ 44,020 $ 234,897 Nonperforming - - - - - - - - - Nonaccrual - 420 214 - - 885 1,519 77 1,596 Total $ 9,793 $ 71,015 $ 31,171 $ 18,271 $ 14,386 $ 47,760 $ 192,396 $ 44,097 $ 236,493 18 Corporate Credit Exposure - Credit risk profile by credit worthiness category (Dollars in thousands) Agricultural Commercial and Industrial Commercial Real Estate December 31, December 31, December 31, 2022 2022 2022 Pass $ 63,867 $ 209,700 $ 624,555 Special Mention 289 400 2,048 Substandard 3 110 4,350 Doubtful — - — Loss - - - $ 64,159 $ 210,210 $ 630,953 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, 2022 2022 2022 Performing $ 39,808 $ 14,736 $ 228,653 Nonperforming — — — Nonaccrual — — 1,263 $ 39,808 $ 14,736 $ 229,916 The following table provides information on loans that were considered troubled loan modification ("TLMs") that were modified during the three months ended March 31, 2023 Three Months Ended March 31, 2023 Term extension % of total class of (Dollars in thousands) Amortized financing Cost basis receivable Residential real estate $ 129 0 % Total 129 Three Months Ended March 31, 2023 Term extension Residential real estate Provided twelve month payment plan to catch up past  due amount  through our standard program. Three Months Ended March 31, 2023 (Dollars in thousands) Term extension Residential real estate $ 129 Total $ 129 19 Three Months Ended March 31, 2023 (Dollars in thousands) Current 30-89 days Greater than 90 days Total Residential real estate $ 129 — — — Total $ 129 $ - $ - $ - The following table provides information on loans that were considered troubled debt restructurings ("TDRs") that were modified during the three months ended March 31, 2022 . Three Months Ended March 31, 2022 Pre- Post- Modification Modification Outstanding Outstanding (Dollars in thousands) Number of Recorded Recorded Loans Investment Investment Agricultural 1 $ 258 $ 258 Total 1 $ 258 $ 258 There were no TDRs where the borrower was past due with respect to principal and/or interest for 30 days or more during the three months ended March 31, 2022, which loans had been modified and classified as TDRs during the year prior to the default. 20 Nonaccrual loans by loan category as of March 31, 2023 were as follows: (Dollars in thousands) Nonaccrual loans with no ACL Total nonaccrual loans Interest income recognized during the period on nonaccrual loans Residential real estate $ 1,432 $ 1,596 $ — Total nonaccrual loans $ 1,432 $ 1,596 $ — Nonaccrual loans by loan category as of December 31, 2022 were as follows: (Dollars in thousands) Total nonaccrual loans Residential real estate $ 1,263 $ 1,263 The following schedule provides information regarding average balances of loans evaluated for impairment and interest recognized on impaired loans for the three months ended three months ended December 31, 2022 and March 31, 2022: Interest (Dollars in thousands) Recorded Related Income Investment Allowance Recognized December 31, 2022 With no related allowance recorded Agricultural $ — $ — $ — Commercial and industrial — — — Consumer — — — Construction real estate — — — Commercial real estate — — — Residential real estate 550 — 1 Subtotal 550 — 1 With an allowance recorded Agricultural 23 2 2 Commercial and industrial 177 14 13 Consumer 7 1 1 Construction real estate — — — Commercial real estate 165 5 13 Residential real estate 1,924 131 93 Subtotal 2,296 153 122 Total Agricultural 23 2 2 Commercial and industrial 177 14 13 Consumer 7 1 1 Construction real estate — — — Commercial real estate 165 5 13 Residential real estate 2,474 131 94 Total $ 2,846 $ 153 $ 123 21 Interest (Dollars in thousands) Recorded Related Income Investment Allowance Recognized March 31, 2022 With no related allowance recorded Agricultural $ 314 $ — $ — Commercial and industrial 92 — 1 Consumer — — — Construction real estate — — — Commercial real estate — — — Residential real estate - — — Subtotal 406 — 1 With an allowance recorded Agricultural 2,228 253 42 Commercial and industrial 264 116 2 Consumer 32 3 — Construction real estate — — — Commercial real estate 157 8 3 Residential real estate 1,853 167 17 Subtotal 4,534 547 64 Total Agricultural 2,542 253 42 Commercial and industrial 356 116 3 Consumer 32 3 — Construction real estate — — — Commercial real estate 157 8 3 Residential real estate 1,853 167 17 Total $ 4,940 $ 547 $ 65 An aging analysis of loans by loan category follows: Loans Loans Loans Loans Past Due 90 Days Past Due Past Due Greater 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 March 31, 2023 Agricultural $ — $ — $ — $ — $ 55,995 $ 55,995 $ — Commercial and industrial 174 — — 174 216,889 217,063 — Consumer 3 27 — 30 38,861 38,891 — Commercial real estate — — — — 648,202 648,202 — Construction real estate 267 — — 267 13,672 13,939 — Residential real estate 2,416 290 153 2,859 233,634 236,493 $ 2,860 $ 317 $ 153 $ 3,330 $ 1,207,253 $ 1,210,583 $ — December 31, 2022 Agricultural $ — $ — $ — $ — $ 64,159 $ 64,159 $ — Commercial and industrial — 171 — 171 210,039 210,210 — Consumer 39 7 — 46 39,762 39,808 — Commercial real estate — — — — 630,953 630,953 — Construction real estate — — — — 14,736 14,736 — Residential real estate 682 — 842 1,524 228,392 229,916 — $ 721 $ 178 $ 842 $ 1,741 $ 1,188,041 $ 1,189,782 $ — (1) Includes nonaccrual loans. 22 The table below presents a roll forward of the accretable yield on the County Bank Corp. acquired loan portfolio for the years ended December 31, 2022 and the three months ended March 31, 2023 (dollars in thousands): (Dollars in thousands) Purchased with credit deterioration Purchased without credit deterioration Acquired Total Balance January 1, 2022 288 1,176 1,464 Transfer from non-accretable to accretable yield 2,192 — 2,192 Accretion January 1, 2022 through December 31, 2022 ( 553 ) ( 98 ) ( 651 ) Balance January 1, 2023 1,927 1,078 3,005 Transfer from non-accretable to accretable yield - Accretion January 1, 2023 through March 31, 2023 ( 133 ) ( 135 ) ( 268 ) Balance, March 31, 2023 $ 1,794 $ 943 $ 2,737 The table below presents a roll forward of the accretable yield on Community Shores Bank Corporation acquired loan portfolio for the years ended  December 31, 2022 and the three months ended March 31, 2023 (dollars in thousands): Purchased with credit deterioration Purchased without credit deterioration Acquired Total Balance January 1, 2022 522 197 719 Transfer from non-accretable to accretable yield 1,086 — 1,086 Accretion January 1, 2022 through December  31, 2022 ( 993 ) ( 197 ) ( 1,190 ) Balance January 1, 2023 615 - 615 Transfer from non-accretable to accretable yield 622 622 Accretion January 1, 2023 through March 31, 2023 ( 203 ) ( 203 ) Balance, March 31, 2023 $ 1,034 $ - $ 1,034 NOTE 4 – EARNINGS PER SHARE Earnings per share are based on the weighted average number of shares outstanding during the period. A computation of basic earnings per share and diluted earnings per share follows: Three Months Ended (Dollars in thousands, except share data) March 31, 2023 2022 Basic Net income $ 5,633 $ 5,528 Weighted average common shares outstanding 7,519,282 7,495,464 Basic earnings per common shares $ 0.75 $ 0.74 Diluted Net income $ 5,633 $ 5,528 Weighted average common shares outstanding 7,519,282 7,495,464 Plus dilutive stock options and restricted stock units 33,047 21,461 Weighted average common shares outstanding and potentially dilutive shares 7,552,329 7,516,925 Diluted earnings per common share $ 0.75 $ 0.74 There were no performance awards, restricted stock, or stock options that were considered anti-dilutive to earnings per share for the three months ended March 31, 2023 .  There were no performance awards or restricted stock units that were considered anti-dilutive  and there were 12,000 stock options that were considered anti-dilutive for the three months ended March 31, 2022. 23 Note 5 – 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) March 31, 2023 Assets Cash and cash equivalents $ 55,189 $ 55,189 $ 55,189 $ - $ - Equity securities at fair value 8,699 8,699 6,062 - 2,637 Securities available for sale 535,348 535,348 79,975 455,373 - Securities held to maturity 422,876 358,373 - 342,946 15,427 Federal Home Loan Bank and Federal Reserve Bank stock 10,259 10,259 - 10,259 - Loans held for sale 3,603 3,711 - 3,711 - Loans to other financial institutions - - - - - Loans, net 1,195,518 1,151,264 - - 1,151,264 Accrued interest receivable 9,652 9,652 - 9,652 - Interest rate lock commitments 87 87 - 87 - Mortgage loan servicing rights 4,165 5,623 - 5,623 - Interest rate derivative contracts 2,244 2,244 - 2,244 - Liabilities Noninterest-bearing deposits 554,699 554,699 554,699 - - Interest-bearing deposits 1,513,429 1,510,549 - 1,510,549 - Brokered deposits 37,773 37,698 - 37,698 - Borrowings 85,000 85,000 - 85,000 - Subordinated debentures 35,323 30,883 - 30,883 - Accrued interest payable 438 438 - 438 - Interest rate derivative contracts 3,790 3,790 - 3,790 - December 31, 2022 Assets Cash and cash equivalents $ 43,943 $ 43,943 $ 43,943 $ - $ - Equity securities at fair value 8,566 8,566 6,024 - 2,542 Securities available for sale 529,749 529,749 78,204 451,545 - Securities held to maturity 425,906 353,901 - 338,583 15,318 Federal Home Loan Bank and Federal Reserve Bank stock 8,581 8,581 - 8,581 - Loans held for sale 4,834 4,979 - 4,979 - Loans to other financial institutions - - - - - Loans, net 1,182,163 1,123,198 - - 1,123,198 Accrued interest receivable 8,949 8,949 - 8,949 - Interest rate lock commitments 28 28 - 28 - Mortgage loan servicing rights 4,322 5,855 - 5,855 - Interest rate derivative contracts 9,204 9,204 - 9,204 - Liabilities Noninterest-bearing deposits 599,579 599,579 599,579 - - Interest-bearing deposits 1,518,424 1,514,294 - 1,514,294 - Borrowings 50,000 50,000 - 50,000 - Subordinated debentures 35,262 30,304 - 30,304 - Accrued interest payable 610 610 - 610 - Interest rate derivative contracts 5,823 5,823 - 5,823 - 24 NOTE 6 – FAIR VALUE MEASUREMENTS The following tables present information about assets and liabilities measured at fair value on a recurring basis and the valuation techniques used 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 ChoiceOne Bank 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. ChoiceOne Bank’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability. 25 Disclosures concerning assets and liabilities measured at fair value are as follows: Assets and Liabilities Measured at Fair Value on a Recurring Basis Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Balance (Dollars in thousands) Assets Inputs Inputs at Date (Level 1) (Level 2) (Level 3) Indicated Equity Securities Held at Fair Value - March 31, 2023 Equity securities $ 6,062 $ - $ 2,637 $ 8,699 Investment Securities, Available for Sale - March 31, 2023 U.S. Treasury notes and bonds $ 79,975 $ - $ - $ 79,975 State and municipal - 236,498 - 236,498 Mortgage-backed - 206,137 - 206,137 Corporate - 716 - 716 Asset-backed securities - 12,022 - 12,022 Total $ 79,975 $ 455,373 $ - $ 535,348 Derivative Instruments - March 31, 2023 Interest rate derivative contracts - assets $ - $ 2,244 $ - $ 2,244 Interest rate derivative contracts - liabilities $ - $ 3,790 $ - $ 3,790 Equity Securities Held at Fair Value - December 31, 2022 Equity securities $ 6,024 $ - $ 2,542 $ 8,566 Investment Securities, Available for Sale - December 31, 2022 U. S. Government and federal agency $ - $ - $ - $ - U. S. Treasury notes and bonds 78,204 - - 78,204 State and municipal - 229,938 - 229,938 Mortgage-backed - 208,563 - 208,563 Corporate - 711 - 711 Asset-backed securities - 12,333 - 12,333 Total $ 78,204 $ 451,545 $ - $ 529,749 Derivative Instruments - December 31, 2022 Interest rate derivative contracts - assets $ - $ 9,204 $ - $ 9,204 Interest rate derivative contracts - liabilities $ - $ 5,823 $ - $ 5,823 26 Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis Three Months Ended (Dollars in thousands) March 31, 2023 2022 Equity Securities Held at Fair Value Balance, January 1 $ 2,542 $ 1,768 Total realized and unrealized gains included in noninterest income 25 ( 1 ) Net purchases, sales, calls, and maturities 70 - Net transfers into Level 3 - - Balance, March 31, $ 2,637 $ 1,767 Amount of total losses for the period included in earning attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at March 31, $ 25 $ ( 1 ) Investment Securities, Available for Sale Balance, January 1 $ - $ 21,050 Total unrealized gains included in other comprehensive income - - Net purchases, sales, calls, and maturities - - Net transfers into Level 3 - - Transfer to held to maturity - ( 21,050 ) Balance, March 31, $ - $ - Amount of total losses for the period included in earning attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at March 31, $ - $ - Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 investment securities 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. Securities categorized as Level 3 assets as of March 31, 2023 and December 31, 2022 primarily consist of common and preferred equity securities of community banks.  ChoiceOne estimates the fair value of these bonds and equity securities 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. ChoiceOne 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) Collateral Dependent Loans March 31, 2023 $ 2,151 $ - $ - $ 2,151 December 31, 2022 $ 2,846 $ - $ - $ 2,846 Other Real Estate March 31, 2023 $ 130 $ - $ - $ 130 December 31, 2022 $ - $ - $ - $ - 27 Collateral dependent loans categorized as Level 3 assets consist of non-homogeneous loans that are considered non-accrual or higher risk.  ChoiceOne estimates the fair value of the loans based on the present value of expected future cash flows using management’s 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 collateral dependent loans that were posted to the allowance for credit losses and write-downs of other real estate that were posted to a valuation account. NOTE 7 – REVENUE FROM CONTRACTS WITH CUSTOMERS ChoiceOne has a variety of sources of revenue, which include interest and fees from customers as well as revenue from non-customers.  ASC Topic 606, Revenue from Contracts With Customers, covers certain sources of revenue that are classified within noninterest income in the Consolidated Statements of Income.  Sources of revenue that are included in the scope of ASC Topic 606 include service charges and fees on deposit accounts, interchange income, investment asset management income and transaction-based revenue, and other charges and fees for customer services. Service Charges and Fees on Deposit Accounts Revenue includes charges and fees to provide account maintenance, overdraft services, wire transfers, funds transfer, and other deposit-related services.  Account maintenance fees such as monthly service charges are recognized over the period of time that the service is provided.  Transaction fees such as wire transfer charges are recognized when the service is provided to the customer. Interchange Income Revenue includes debit card interchange and network revenues.  This revenue is earned on debit card transactions that are conducted through payment networks such as MasterCard. The revenue is recorded as services are delivered and is presented net of interchange expenses. Investment Commission Income Revenue includes fees from the investment management advisory services and revenue is recognized when services are rendered.  Revenue also includes commissions received from the placement of brokerage transactions for purchase or sale of stocks or other investments. Commission income is recognized when the transaction has been completed. Trust Fee Income Revenue includes fees from the management of trust assets and from other related advisory services. Revenue is recognized when services are rendered. Following is noninterest income separated by revenue within the scope of ASC 606 and revenue within the scope of other GAAP topics: Three Months Ended March 31, (Dollars in thousands) 2023 2022 Service charges and fees on deposit accounts $ 1,027 $ 1,031 Interchange income 1,240 1,158 Investment commission income 196 205 Trust fee income 184 178 Other charges and fees for customer services 137 148 Noninterest income from contracts with customers within the scope of ASC 606 2,784 2,720 Noninterest income within the scope of other GAAP topics 887 1,125 Total noninterest income $ 3,671 $ 3,845 28 NOTE 8 – DERIVATIVE AND HEDGING ACTIVITIES ChoiceOne is exposed to certain risks relating to its ongoing business operations. ChoiceOne utilizes interest rate derivatives as part of its asset liability management strategy to help manage its interest rate risk position. Derivative instruments represent contracts between parties that result in one party delivering cash to the other party based on a notional amount and an underlying term (such as a rate, security price or price index) as specified in the contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying term. Derivatives are also implicit in certain contracts and commitments. ChoiceOne recognizes derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. ChoiceOne records derivative assets and derivative liabilities on the balance sheet within other assets and other liabilities, respectively. Changes in the fair value of derivative financial instruments are either recognized in income or in shareholders’ equity as a component of accumulated other comprehensive income or loss depending on whether the derivative financial instrument qualifies for hedge accounting and, if so, whether it qualifies as a fair value hedge or cash flow hedge. ChoiceOne currently uses interest rate swaps to manage its exposure to certain fixed and variable rate assets and variable rate liabilities. Interest rate swaps ChoiceOne uses interest rate swaps as part of its interest rate risk management strategy to add stability to net interest income and to manage its exposure to interest rate movements. Interest rate swaps designated as hedges involve the receipt of variable-rate amounts from a counterparty in exchange for ChoiceOne making fixed-rate payments or the receipt of fixed-rate amounts from a counterparty in exchange for ChoiceOne making variable rate payments, over the life of the agreements without the exchange of the underlying notional amount. In the second quarter of 2022, ChoiceOne entered i nto two pay-floating/receive-fixed interest rate swaps (the “Pay Floating Swap Agreements”) for a total notional amount of $ 200.0 million that were designated as cash flow hedges. These derivatives hedge the variable cash flows of specifically identified available-for-sale securities, cash and loans. The Pay Floating Swap Agreements were determined to be highly effective during the periods presented and therefore no amount of ineffectiveness has been included in net income. The Pay Floating Swap Agreements pay a coupon rate equal to SOFR while receiving a fixed coupon rate of 2.41 %.  In March 2023, ChoiceOne terminated all Pay Floating Swap Agreements for a cash payment of $ 4.2 million.  The loss will be amortized into interest income over 13 months, which was the remaining period of the swap agreements. Net cash settlements paid on pay-floating/received-fixed swaps were $ 837,000 as of March 31, 2023, which were included in interest income. In the second quarter of 2022, ChoiceOne entered into one forward starting pay-fixed/receive-floating interest rate swap (the “Pay Fixed Swap Agreement”) for a notional amount of $ 200.0 million that was designated as a cash flow hedge. This derivative hedges the risk of variability in cash flows attributable to forecasted payments on future deposits or floating rate borrowings indexed to the SOFR Rate. The Pay Fixed Swap Agreement is two years forward starting with an eight-year term set to expire in 2032.   The Pay Fixed Swap Agreements will pay a fixed coupon rate of 2.75 % while receiving the SOFR Rate. In the fourth quarter of 2022, ChoiceOne entered into four pay-fixed/receive-floating interest rate swaps for a total notional amount of $ 201.0 million that were designated as fair value hedges. These derivatives hedge the risk of changes in fair value of certain available for sale securities for changes in the SOFR benchmark interest rate component of the fixed rate bonds. All four of these hedges were effective immediately on December 22, 2022. Of the total notional value, $ 101.9 million has a ten-year term set to expire in 2032, with the benchmark SOFR interest rate risk component of the fixed rate bonds equal to 3.390 %. Of the total notional value, $ 50.0 million has a nine-year term set to expire in 2031, with the benchmark SOFR interest rate risk component of the fixed rate bonds equal to 3.4015 %. The remaining notional value of $ 49.1 million has a nine-year term set to expire in 2031, with the benchmark SOFR interest rate risk component of the fixed rate bond equal to 3.4030 %. ChoiceOne adopted ASC2022-01, as of December 20, 2022, to use the portfolio layer method. The fair value basis adjustment associated with available-for-sale fixed rate bonds initially results in an adjustment to AOCI.  For available-for-sale securities subject to fair value hedge accounting, the changes in the fair value of the fixed rate bonds related to the hedged risk (the benchmark interest rate component and the partial term) are then reclassed from AOCI to current earnings offsetting the fair value measurement change of the interest rate swap, which is also recorded in current earnings. Net cash settlements are received/paid semi-annually, with the first starting in March 2023, and will be included in interest income. Net cash settlements received on these four pay-fixed/receive-floating swaps we re $ 565,000 a s of March 31, 2023, which were included in interest income. 29 The table below presents the fair value of derivative financial instruments as well as the classification within the consolidated statements of financial conditi March 31, 2023 December 31, 2022 (Dollars in thousands) Balance Sheet Location Fair Value Balance Sheet Location Fair Value Derivatives designated as hedging instruments Interest rate contracts Other Assets $ 2,244 Other Assets $ 9,204 Interest rate contracts Other Liabilities $ 3,790 Other Liabilities $ 5,823 The table below presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of those items as of the periods present Location and Amount of Gain or (Loss) Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships Recognized in Income on Fair Value and Cash Flow Hedging Relationships Three months ended March 31, 2023 Three months ended March 31, 2022 Interest Income Interest Expense Interest Income Interest Expense Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded $ ( 366 ) $ - $ - $ - Gain or (loss) on fair value hedging relationships: Interest rate contra Hedged items $ 6,022 $ - $ - $ - Derivatives designated as hedging instruments $ ( 5,960 ) $ - $ - $ - Amount excluded from effectiveness testing recognized in earnings based on amortization approach $ - $ - $ - $ - Gain or (loss) on cash flow hedging relationships: Interest rate contra Amount of gain or (loss) reclassified from accumulated other comprehensive income into income $ ( 156 ) $ - $ - $ - Amount excluded from effectiveness testing recognized in earnings based on amortization approach $ - $ - $ - $ - The table below presents the effect of fair value and cash flow hedge accounting on the consolidated statements of operations for the periods present March 31, 2023 Cumulative amount of Fair Value Hedging Adjustment Line Item in the Statement of included in the carrying Financial Position in which the Amortized cost of the amount of the Hedged Hedged Item is included Hedged Assets/(Liabilities) Assets/(Liabilities) Securities available for sale $ 225,127 $ ( 4,091 ) 30 Item 2. Management’s Discussion and Ana lysis of Financial Condition and Results of Operations . The following discussion is designed to provide a review of the consolidated financial condition and results of operations of ChoiceOne Financial Services, Inc. (“ChoiceOne”), its wholly-owned subsidiary ChoiceOne Bank, and ChoiceOne Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc.  This discussion should be read in conjunction with the interim consolidated financial statements and related notes. FORWARD-LOOKING STATEMENTS This discussion and other sections of this quarterly report contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and ChoiceOne. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “may,” “could,” “look forward,” “continue,” “future,” “will” and variations of such words and similar expressions are intended to identify such forward-looking statements.  Management’s determination of the provision for credit losses and ACL, the carrying value of goodwill, loan servicing rights, other real estate owned, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) and management’s assumptions concerning pension and other post-retirement benefit plans involve judgments that are inherently forward-looking.  All of the information concerning interest rate sensitivity is forward-looking.  All statements with references to future time periods are forward-looking.  These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“risk factors”) that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed, implied or forecasted in such forward-looking statements.  Furthermore, ChoiceOne undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise. Additional risk factors include, but are not limited to, the risk factors discussed in Item 1A of ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2022 and in Part II, Item 1A of this Quarterly Report on Form 10-Q.  These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement. RESULTS OF OPERATIONS Net income for the first quarter of 2023 was $ 5,633,000 , which represented an increase of $105,000 or 1.9% compared to the first quarter of 2022.  Basic and diluted earnings per common share were $0.75 for the first quarter of 2023 compared to $0.74 for the first quarter of the prior year.  The increase in the first quarter of 2023 is largely related to the increase in interest income due to strong organic loan growth over the past year which was offset by the increase in deposit and borrowing costs due to rate increases. Core loans, which exclude held for sale loans and Paycheck Protection Program loans ("PPP"), grew organically by $20.8 million or 7.0% on an annualized basis during the first quarter of 2023 and $191.7 million or 18.8% since March 31, 2022.  Loan interest income increased $2.6 million in the first quarter of 2023 compared to the same period in 2022, despite the first quarter of 2022 being aided by $869,000 in PPP fees and an additional $347,000 in accretion income.  Deposits, excluding brokered deposits, decreased by $77.5 million or 3.6% as of March 31, 2023, compared to March 31, 2022 ,while the total cost of funds increased to 0.79% in the first quarter of 2023 compared to 0.21% in the first quarter of 2022.  Deposit interest expense increased $2.5 million in the first quarter of 2023 compared to the same period in 2022. The return on average assets and return on average shareholders’ equity were 0.94% and 13.42%, respectively, for the first quarter of 2023, compared to 0.93% and 10.72%, respectively, for the same period in 2022.  The increase in the return on average shareholders' equity is related to the decline in equity caused by the increase in unrealized losses on available-for-sale securities. Dividends Cash dividends of $2.0 million or $0.26 per share were declared in the first quarter of 2023 , compared to $1.9 million or $0.25 per share in the first quarter of 2022 .  The cash dividend payout percentage was 34.7% for the first quarter of 2023, compared to 33.9% in the same period in the prior year. Interest Income and Expense Tables 1 and 2 on the following pages provide information regarding interest income and expense for the first quarter of 2023.  Table 1 documents ChoiceOne’s average balances and interest income and expense, as well as the average rates earned or paid on assets and liabilities.  Table 2 documents the effect on interest income and expense of changes in volume (average balance) and interest rates.  These tables are referred to in the discussion of interest income, interest expense and net interest income. 31 Table 1 – Average Balances and Tax-Equivalent Interest Rates Three Months Ended March 31, 2023 2022 (Dollars in thousands) Average Average Balance Interest Rate Balance Interest Rate Assets: Loans (1)(3)(4)(5)(6) $ 1,202,268 $ 14,889 5.02 % $ 1,037,646 $ 12,304 4.74 % Taxable securities (2)(6) 761,318 4,913 2.62 795,888 3,507 1.76 Nontaxable securities (1) 298,429 1,817 2.47 334,793 2,097 2.50 Other 19,452 177 3.68 36,460 14 0.15 Interest-earning assets 2,281,467 21,796 3.87 2,204,787 17,922 3.25 Noninterest-earning assets 109,877 171,077 Total assets $ 2,391,344 $ 2,375,864 Liabilities and Shareholders' Equity: Interest-bearing demand deposits $ 875,435 $ 1,572 0.73 % $ 928,437 $ 435 0.19 % Savings deposits 407,022 273 0.27 440,873 146 0.13 Certificates of deposit 247,856 1,279 2.09 179,375 202 0.45 Brokered deposit 12,762 152 4.84 - - 0.00 Borrowings 63,122 708 4.55 10,239 6 0.22 Subordinated debentures 35,290 402 4.62 35,342 364 4.12 Interest-bearing liabilities 1,641,487 4,386 1.08 1,594,266 1,153 0.29 Demand deposits 566,628 553,267 Other noninterest-bearing liabilities 15,277 22,051 Total liabilities 2,223,392 2,169,584 Shareholders' equity 167,952 206,280 Total liabilities and shareholders' equity $ 2,391,344 $ 2,375,864 Net interest income (tax-equivalent basis) (Non-GAAP) (1) $ 17,410 $ 16,769 Net interest margin (tax-equivalent basis) (Non-GAAP) (1) 3.09 % 3.04 % Reconciliation to Reported Net Interest Income Net interest income (tax-equivalent basis) (Non-GAAP) (1) $ 17,410 $ 16,769 Adjustment for taxable equivalent interest (398 ) (447 ) Net interest income  (GAAP) $ 17,012 $ 16,322 Net interest margin (GAAP) 3.02 % 2.96 % (1) Adjusted to a fully tax-equivalent basis to facilitate comparison to the taxable interest-earning assets. The adjustment uses an incremental tax rate of 21%.  The presentation of these measures on a tax-equivalent basis is not in accordance with GAAP, but is customary in the banking industry.  These non-GAAP measures ensure comparability with respect to both taxable and tax-exempt loans and securities. (2) Taxable securities include dividend income from Federal Home Loan Bank and Federal Reserve Bank stock. (3) Loans include both loans to other financial institutions and loans held for sale. (4) Non-accruing loan and PPP loan balances are included in the balances of average loans.  Non-accruing loan average balances were $1.4 million and $1.4 million in the first quarter of 2023 and 2022, respectively.  PPP loan average balances were $0 and $20.8 million in the first quarter of 2023 and 2022, respectively. (5) Interest on loans included net origination fees, accretion income, and PPP fees.  Accretion income was $471,000 and $818,000 in the first quarter of 2023 and 2022, respectively. PPP fees were approximately $0 and $869,000 in the first quarter of 2023 and 2022, respectively. (6) Interest on loans and securities included derivative income and expense.  Security income was $373,000 and $0 in the first quarter of 2023 and 2022, respectively.  Loan expense was $745,000 and $0 in the first quarter of 2023 and 2022, respectively. 32 Table 2 – Changes in Tax-Equivalent Net Interest Income Three Months Ended March 31, (Dollars in thousands) 2023 Over 2022 Total Volume Rate Increase (decrease) in interest income (1) Loans (2) $ 2,585 $ 1,879 $ 706 Taxable securities 1,406 (1,002 ) $ 2,408 Nontaxable securities (2) (280 ) (252 ) $ (28 ) Other 163 (47 ) $ 210 Net change in interest income 3,874 578 3,296 Increase (decrease) in interest expense (1) Interest-bearing demand deposits 1,137 (175 ) 1,312 Savings deposits 127 (74 ) 201 Certificates of deposit 1,077 102 975 Brokered deposit 152 152 0 Borrowings 702 146 556 Subordinated debentures 38 (4 ) 42 Net change in interest expense 3,233 147 3,086 Net change in tax-equivalent net interest income $ 641 $ 431 $ 210 (1) The volume variance is computed as the change in volume (average balance) multiplied by the previous year’s interest rate.  The rate variance is computed as the change in interest rate multiplied by the previous year’s volume (average balance).  The change in interest due to both volume and rate has been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. (2) Interest on nontaxable investment securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 21%. Net Interest Income Tax-equivalent net interest income increased $641,000 in the first quarter of 2023, compared to the same period in 2022.  The Federal Reserve increased the federal funds rate by 4.50% from March 31, 2022 to March 31, 2023 in response to published inflation rates.  This both increased rates on newly originated loans and increased the rates paid on deposits.  Tax equivalent net interest margin increased 5 basis points in the first quarter of 2023 compared to the same period in 2022.  GAAP based net interest margin increased 6 basis points in the first quarter of 2023 compared to the same period in 2022. The following table presents the cost of deposits and the cost of funds for the three months ended March 31, 2023 and the three months ended March 31, 2022. Three months ended March 31, 2023 2022 Cost of deposits 0.62 % 0.15 % Cost of funds 0.79 % 0.21 % ChoiceOne has experienced substantial core loan growth from March 31, 2022 to March 31, 2023, leading to an increase in interest income from loans of $2.6 million in the three months ended March 31, 2023, compared to the same period in the prior year.  Average core loans, which exclude PPP loans, loans held for sale, and loans to other financial institutions, grew $164.6 million from March 31, 2022 to March 31, 2023.  In addition, the average rate earned on loans increased 28 basis points during that time period.  The increase in interest income from loans and the average rate increase on loans is muted by a decline in PPP fee income of $869,000, an increase in derivative expense of $745,000, and a reduction in accretion income of $347,000 in the first quarter of 2023 compared to same time period in 2022. The average balance of total securities decreased $70.9 million from Q1 2022 through the end of Q1 2023.  The decrease is due to the liquidation of $47.2 million in securities during 2022, with the remainder attributed to paydowns and a decline in the fair value of available for sale securities.  The average rate earned on securities increased 83 basis points in the first quarter of 2023 compared to the same period in 2022 which was aided by $373,000 of income related to derivative instruments which were put in place during the second quarter of 2022. 33 Interest expense increased $3.2 million in the first quarter of 2023, compared to the same period in 2022.  The average rate paid on deposits, excluding brokered deposits, increased 41 basis points in the first quarter of 2023 compared to the same period in 2022, offset by the decline in the average balance of deposits, excluding brokered deposits, of $86.9 million from Q1 2022 to Q1 2023.  The increase in the average balance of certificates of deposit of $68.5 million, combined with a 164 basis point increase in the rate paid on certificates of deposits in Q1 of 2023 compared to Q1 2022, led to an increase in interest expense of $1.1 million. Due to the decline in the average balance of deposits, ChoiceOne borrowed additional funds from the Federal Home Loan Bank ("FHLB") and the Federal Reserve Bank ("FRB"), and obtained $37.8 million in brokered deposits during the first quarter of 2023.  The net effect of these additional borrowed funds and brokered CDs was an increase in interest expense of $855,000 in the first quarter of 2023 compared to the first quarter of 2022. In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031.  In addition, ChoiceOne holds certain subordinated debentures issued in connection with a trust preferred securities offering that were obtained as part of the merger with Community Shores.  The average balance of subordinated debentures was relatively flat compared in the first quarter of 2023 compared to the same period in the prior year. Provision and Allowance for Credit Losses On January 1, 2023, ChoiceOne adopted ASU 2016-13 CECL which caused an increase in the ACL of $7.2 million.  The large increase is partially due to the current economic environment and the nature of the CECL calculation. Approximately 20% of this increase is related to the migration of purchased loans into the portfolio assessed by the CECL calculation. ChoiceOne also booked a liability for expected credit losses on unfunded loans and other commitments of $3.3 million related to the adoption of CECL guidance. These unfunded loans are open credit lines with current customers and loans approved by ChoiceOne but not funded. The increase in the allowance and the cost of the liability resulted in a decrease in the retained earnings account on our Consolidated Balance Sheet equal to the after-tax impact, with the tax impact portion being recorded in deferred taxes in our Consolidated balance Sheet in accordance with FASB guidance. The ACL consists of general and specific components. The general component covers loans collectively evaluated for credit loss and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustment for current and forecasted factors is based on trends in delinquencies, trends in charge-offs and recoveries, trends in the volume of loans, changes in underwriting standards, trends in loan review findings, the experience and ability of lending staff, and a reasonable and supportable economic forecast described further below. Loans individually evaluated for credit losses increased by $300,000 during the three months ended March 31, 2023; however, the ACL related to these individually evaluated loans decreased by $100,000 during the three months ended March 31, 2023 largely due to the loan balances being fully collateralized compared to December 31, 2022. The determination of our loss factors is based, in part, upon benchmark peer loss history adjusted for qualitative factors that, in management's judgment, affect the collectability of the portfolio as of the analysis date.  ChoiceOne's lookback period of benchmark peer net charge-off history was from January 1, 2004 through December 31, 2019 for this analysis. Nonperforming loans, which excludes performing TLM and TDR loans, were $1.7 million as of March 31, 2023, compared to $1.3 million as of December 31, 2022 .  The ACL was 1.24 % of total loans at March 31, 2023, compared to 1.24% as of January 1, 2023 (the CECL adoption date) and 0.64% at December 31, 2022.  The liability for expected credit losses on unfunded loans and other commitments was $3.0 million on March 31, 2023, compared to $3.3 million as of January 1, 2023 and did not exist on December 31, 2022. Net charge-offs were $27,000 in the first quarter of 2023, compared to net charge-offs of $87,000 during the same period in 2022. Checking account charge-off and recovery activity is included in the consumer charge-off activity above.  Net charge-offs for checking accounts for the first quarter of 2023 were $56,000 compared to $53,000 for the same period in the prior year.  Net charge-offs on an annualized basis as a percentage of average loans were 0.01% in the first quarter of 2023 compared to annualized net charge-offs of 0.03% of average loans in the same period in the prior year. Management is aware that the economic climate in Michigan will continue to affect businesses and individual borrowers.  Management has worked and intends to continue to work with delinquent borrowers in an attempt to lessen the negative impact to ChoiceOne. 34 Charge-offs and recoveries for respective loan categories for the three months ended March 31, 2023 and 2022 were as follows: (Dollars in thousands) 2023 2022 Charge-offs Recoveries Charge-offs Recoveries Agricultural $ — $ — $ — $ — Commercial and industrial — 27 31 2 Consumer 140 69 112 52 Commercial real estate — 13 — 1 Construction real estate — — — — Residential real estate — 3 — 1 $ 140 $ 112 $ 143 $ 56 The provision for credit losses on loans was $309,000 in the first quarter of 2023, compared to $0 in the same period in the prior year.  Provision expense was deemed necessary to reserve for core loan growth of $20.8 million in the first quarter of 2023.  There was very little change to forecasted economic conditions from the CECL implementation date of January 1, 2023 to March 31, 2023. The loan provision was offset by the decline in unfunded commitments provision of $284,000 as ChoiceOne saw declines in the pipeline for new loans approved but not funded as well as an increase in the funding on open lines of credit.  The total unfunded commitments declined $15.9 million in the first quarter of 2023 compared to January 1, 2023. The net provision expense for the first quarter of 2023 was $25,000. Noninterest Income Total noninterest income declined $174,000 in the first three months of 2023 compared to the same period in the prior year.  With the rapid rise in interest rates, refinancing activity has slowed, and demand has shifted towards adjustable-rate mortgage products.  This led to a decline in mortgage sales of $401,000 in the first quarter of 2023 compared to the same time period in the prior year.  This decline was offset by the change in market value of equity securities, which saw an increase in the first quarter of 2023 compared to a large decline during the same period of the prior year.  Equity investments include local community bank stocks and Community Reinvestment Act bond mutual funds.  Customer service charges also increased by $78,000 in the first quarter of 2023 compared to the same period of 2022, as consumer and business activity improved. Noninterest Expense Total noninterest expense increased $305,000, or 2.2%, in the first quarter of 2023 compared to the same period in the prior year.  The increase in total noninterest expense was related to an increase in FDIC insurance costs and inflationary pressures on employee wages and benefits.  This increase was offset by decreases in other categories including data processing and fraud losses.  ChoiceOne continues to monitor expenses and looks to improve our efficiency through automation and use of digital tools. ChoiceOne launched an enhanced treasury services online platform for business clients during the first quarter of 2023.  This new platform targets mid-sized businesses and municipalities who require enhanced reporting, security, and payment capabilities. Management believes that continuing to invest in our technology and people is the right way to maintain sustainable growth. Income Tax Expense Income tax expense was $1.0 million in the first quarter of  2023 compared to $948,000  for the same period in 2022.  The effective tax rate was 15.5% for the first quarter of 2023 compared to 14.6% for the first quarter of 2022.  In the first quarter of 2022, non taxable municipal interest decreased and disallowed interest expense increased compared to the first quarter of 2022. FINANCIAL CONDITION Securities Total available for sale securities on March 31, 2023, was $535.3 million compared to $529.7 on December 31, 2022, with the increase caused by an increase in the fair value of the underlying securities. The unrealized loss on securities available for sale declined by $7.6 million in the first quarter of 2023.  ChoiceOne's held to maturity securities declined slightly during the first quarter of 2023, as $3.8 million of securities were called or matured and principal repayments on securities totaled $6.2 million.  The securities portfolio is projected to produce over $217 million of cashflows over the next two years as lower yielding assets roll off. 35 At March 31, 2023, ChoiceOne had $145.9 million in unrealized losses on its investment securities, including $81.4 million in unrealized losses on available for sale securities and $64.5 in unrealized losses on held to maturity securities.  Unrealized losses on corporate and municipal bonds have not been recognized into income because the issuers’ bonds are of high credit quality, and management does not intend to sell prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity. ChoiceOne utilizes interest rate derivatives as part of its asset liability management strategy to help manage its interest rate risk position.  In order to hedge the risk of rising rates and unrealized losses on securities resulting from the rising rates, ChoiceOne currently holds four interest rate swaps with a total notional value of $401.0 million. These derivative instruments increase in value as long-term interest rates rise, which offsets the reduction in equity due to unrealized losses on securities available for sale.  Refer to footnote 8 for more discussion on ChoiceOne’s derivative position. Equity securities included a money market preferred security ("MMP") of $1.0 million and common stock of $7.7 million as of March 31, 2023. As of March 31, 2022, equity securities included an MMP of $1.0 million and common stock of $7.6 million. Per U.S. generally accepted accounting principles, unrealized gains or losses on securities available for sale are reflected on the balance sheet in accumulated other comprehensive income (loss), while unrealized gains or losses on securities held to maturity are not reflected on the balance sheet in accumulated other comprehensive income (loss). Loans Core loans, which exclude held for sale loans and PPP, grew organically by $20.8 million or 7.0% on an annualized basis during the first quarter of 2023 and $191.7 million or 18.8% since March 31, 2022.  Loan interest income increased $2.6 million in the first quarter of 2023 compared to the same period in 2022.  The increase in interest income from loans is muted by a decline in PPP fee income of $869,000, an increase in derivative expense of $745,000, and a reduction in accretion income of $347,000 in the first quarter of 2023 compared to same time period in 2022. Loan growth was largely concentrated in commercial real estate loans which grew $111.0 million or 21% in the trailing twelve months from March 31, 2023.  Much of this growth in commercial real estate loans is directly the result of the new loan production offices in both the city of Wyoming and Macomb County as well as the newly hired experienced lenders in these locations.   Approximately 12% of this commercial real estate loan growth is a single land development loan which consists of high end single family homes currently under construction which are 85% pre-sold.  Another 21% of this growth is owner-occupied and mainly consists of current customers who are expanding businesses that are performing well in the current environment.  Residential real estate loans also grew $58.7 million or 33% in the trailing twelve months from March 31, 2023 as the 5/1 ARM product became popular as a mortgage option and it is less salable than more traditional mortgage options.  These large increases were offset by declines in agricultural loans of $5.6 million and construction real estate loans of $1.7 million during the period beginning on April 1, 2022 through March 31, 2023. ChoiceOne recorded accretion income related to acquired loans in the amount of $471,000 during the first quarter of 2023.  Remaining credit and yield mark on acquired loans from the mergers with County Bank Corp. and Community Shores will accrete into income as the acquired loans mature.  The remaining yield mark on acquired loans from the mergers with County Bank Corp. and Community Shores totaled $3.8 million as of March 31, 2023. Asset Quality Information regarding individually evaluated loans can be found in Note 3 to the consolidated financial statements included in this report.  The total balance of individually evaluated loans was $2.2 million on March 31, 2023, compared to $2.8 million of impaired loans as of December 31, 2022.  The change in the first quarter of 2023 was primarily due to the decline in non-accrual residential mortgage loans. As part of its review of the loan portfolio, management also monitors the various nonperforming loans.  Nonperforming loans are comprised of loans accounted for on a nonaccrual basis and loans, not included in nonaccrual loans, which are contractually past due 90 days or more as to interest or principal payments. 36 The balances of these nonperforming loans were as follows: (Dollars in thousands) March 31, December 31, 2023 2022 Loans accounted for on a nonaccrual basis $ 1,596 $ 1,263 Accruing loans which are contractually past due 90 days or more as to principal or interest payments — — Loans past due defined as "troubled loan modifications" or "troubled debt restructurings " which are not included above — — Total $ 1,596 $ 1,263 The small increase in the balance of nonaccrual loans in the first quarter of 2023 was primarily due to the increase in residential mortgage loans.  It is also noted that 100% of loans considered TLMs and TDRs were performing according to their restructured terms as of March 31, 2023.  Management believes the ACL allocated to its nonperforming loans is sufficient at March 31, 2023. Goodwill 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. ChoiceOne acquired Valley Ridge Financial Corp. in 2006, County Bank Corp. in 2019, and Community Shores in 2020, which resulted in the recognition of goodwill of $13.7 million, $38.9 million and $7.3 million, respectively. ChoiceOne conducted an annual assessment of goodwill as of June 30, 2022 and no impairment was identified. ChoiceOne used a qualitative assessment to determine goodwill was not impaired as of June 30, 2022. Additionally, ChoiceOne engaged a third party valuation firm to assist in performing a quantitative analysis of goodwill as of November 30, 2022 ("the valuation date"). In deriving the fair value of the reporting unit (the Bank), the third-party firm assessed general economic conditions and outlook; industry and market considerations and outlook; the impact of recent events to financial performance; the market price of ChoiceOne’s common stock and other relevant events. In addition, the valuation relied on financial projections through 2027 and growth rates prepared by management. Based on the valuation prepared, it was determined that ChoiceOne's estimated fair value of the reporting unit at the valuation date was greater than its book value and impairment of goodwill was not required. Management concurred with the conclusion derived from the quantitative goodwill analysis as of the valuation date and determined that there were no material changes and that no triggering events had occurred that indicated impairment from the valuation date through March 31, 2023, and as a result that it is more likely than not that there was no goodwill impairment. Deposits and Borrowings ChoiceOne saw deposits, excluding brokered deposits, decline $49.9 million in the first quarter of 2023 and $77.5 million or 3.6% compared to March 31, 2022. This decrease was attributed to a combination of customers using cash on hand for debt payoffs, seasonal tax and municipal bond payments, and customers seeking higher rates via money market securities with transfers to the ChoiceOne Wealth department or outside firms. In the last twelve months, over $33.6 million or 43.4% of the trailing twelve-month deposit runoff has been transferred from bank deposits to the ChoiceOne Wealth department, which is off balance sheet.  The cost of deposits has increased to 0.62% during the three months ended March 31, 2023 compared to 0.47% and 0.15% for the three months ended December 31, 2022 and March 31, 2022, respectively, due to rising short term interest rates and is expected to continue to increase as deposits reprice.  ChoiceOne is actively managing these costs and expects rates paid on deposits to continue to lag the federal fund rate. Uninsured deposits total $751.4 million or 36% of deposits at March 31, 2023 compared to $823.2 million, or 39% of total deposits and $889.2 million, or 43% of total deposits at December 31, 2022 and 2021, respectively.  At March 31, 2023, total available borrowing capacity from all sources was $405.7 million.  Management notes that if additional collateral is pledged to the FHLB, the Federal Reserve Discount Window, or the new Bank Term Funding Program, borrowing capacity from all sources would increase to over $800 million, which exceeds uninsured deposits. 37 In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031.  ChoiceOne also holds $3.2 million in subordinated debentures issued in connection with a $4.5 million trust preferred securities offering, which were obtained in the merger with Community Shores, offset by the merger mark-to-market adjustment.   ChoiceOne increased its Federal Home Loan Bank advances by $35.0 million in the first quarter of 2023 to $85.0 million in total at March 31, 2023 compared to $50.0 million at December 31, 2022.  During the first quarter of 2023 ChoiceOne also obtained $37.8 million in short term brokered deposits, which were locked in at below market rates prior to the latest increase by the Federal Reserve.  Brokered deposits allow us to preserve borrowing capacity at more accessible funding options.  ChoiceOne will continue to use brokered deposits, Federal Home Loan Bank advances, advances from the Federal Reserve Bank Discount Window, and potentially the Bank Term Funding Program to meet short-term funding needs in the remainder of 2023. Shareholders' Equity Shareholders’ equity totaled $168.7 million as of March 31, 2023, flat compared to December 31, 2022 and down from $191.1 million compared to March 31, 2022.  The decline from March 31, 2022 is primarily due to an increase in the after-tax net unrealized loss on securities available for sale resulting from higher market interest rates.  ChoiceOne uses interest rate swaps to manage interest rate exposure to certain fixed assets and variable rate liabilities.  On March 31, 2022 ChoiceOne has pay-fixed interest rate swaps with a total notional value of $401.0 million. These derivative instruments increase in value as long-term interest rates rise, which offsets the reduction in equity due to unrealized losses on securities available for sale. On January 1, 2023, ChoiceOne adopted ASU 2016-13 CECL which caused an increase in the ACL of $7.2 million and  booked a liability for expected credit losses on unfunded loans and other commitments of $3.3 million related to the adoption of CECL guidance. The increase in the allowance and the cost of the liability resulted in a decrease in the retained earnings account on our Consolidated Balance Sheet equal to the after-tax impact, with the tax impact portion being recorded in deferred taxes in our Consolidated balance Sheet in accordance with FASB guidance.  This reduction in retained earnings was offset by first quarter 2023 earnings and recovery of accumulated other comprehensive loss. 38 Regulatory Capital Requirements Following is information regarding compliance of ChoiceOne and ChoiceOne Bank with regulatory capital requirements: 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 March 31, 2023 ChoiceOne Financial Services Inc. Total capital (to risk weighted assets) $ 219,626 13.5 % $ 129,905 8.0 % N/A N/A Common equity Tier 1 capital (to risk weighted assets) 174,088 10.7 73,072 4.5 N/A N/A Tier 1 capital (to risk weighted assets) 178,588 11.0 97,429 6.0 N/A N/A Tier 1 capital (to average assets) 178,588 7.7 93,290 4.0 N/A N/A ChoiceOne Bank Total capital (to risk weighted assets) $ 211,447 13.0 % $ 129,640 8.0 % $ 162,049 10.0 % Common equity Tier 1 capital (to risk weighted assets) 202,416 12.5 72,922 4.5 105,332 6.5 Tier 1 capital (to risk weighted assets) 202,416 12.5 97,230 6.0 129,640 8.0 Tier 1 capital (to average assets) 202,416 8.7 93,161 4.0 116,451 5.0 December 31, 2022 ChoiceOne Financial Services Inc. Total capital (to risk weighted assets) $ 222,006 13.8 % $ 128,545 8.0 % N/A N/A Common equity Tier 1 capital (to risk weighted assets) 177,916 11.1 72,307 4.5 N/A N/A Tier 1 capital (to risk weighted assets) 182,416 11.4 96,409 6.0 N/A N/A Tier 1 capital (to average assets) 182,416 7.9 92,558 4.0 N/A N/A ChoiceOne Bank Total capital (to risk weighted assets) $ 208,696 13.0 % $ 128,294 8.0 % $ 160,367 10.0 % Common equity Tier 1 capital (to risk weighted assets) 201,077 12.5 72,165 4.5 104,239 6.5 Tier 1 capital (to risk weighted assets) 201,077 12.5 96,220 6.0 128,294 8.0 Tier 1 capital (to average assets) 201,077 8.7 92,449 4.0 115,562 5.0 Management reviews the capital levels of ChoiceOne and ChoiceOne Bank on a regular basis. The Board of Directors and management believe that the capital levels as of March 31, 2023 are adequate for the foreseeable future. The Board of Directors’ determination of appropriate cash dividends for future periods will be based on, among other things, market conditions and ChoiceOne’s requirements for cash and capital. 39 Liquidity Net cash provided by operating activities was $9.2 million for the three months ended March 31, 2023 compared to $2.8 million in the same period a year ago.  The change was due to higher net proceeds from loan sales in 2023 compared to 2022.  Net cash used in investing activities was $18.9 million for the three months ended March 31, 2023 compared to $14.5 million of cash provided by investing activities in the same period in 2022. ChoiceOne purchased $2.5 million of securities and had maturities or sales of securities of $10.0 million in the first quarter of 2023 compared to $31.4 million and $14.2 million in the same periods in 2022, respectively.  An increase in net loan originations led to cash used of $20.7 million in the first quarter of 2023 compared to cash provided of $31.8 million in the same period during the prior year.  Net cash provided by financing activities was $21.0 million for the first quarter of 2023, compared to $40.1 million in the same period in the prior year. ChoiceOne experienced a decline of $12.1 million in deposits in the first quarter of 2023 compared to $93.3 million of growth in 2022.  ChoiceOne increased borrowing by $35.0 million in the first quarter of  2023 compared to a decrease of $50.0 million in the same period during the prior year. ChoiceOne's market risk exposure occurs in the form of interest rate risk and liquidity risk.  ChoiceOne's business is transacted in U.S. dollars with no foreign exchange risk exposure. Agricultural loans comprise a relatively small portion of ChoiceOne's total assets. Management believes that ChoiceOne's exposure to changes in commodity prices is insignificant. Management believes that the current level of liquidity and sources of additional liquidity are sufficient to meet the Bank's future liquidity needs. This belief is based upon the availability of deposits from both the local and national markets, our core deposit base, maturities of and cash flows from securities, normal loan repayments, income retention, federal funds purchased and advances available from the FHLB. Liquidity risk deals with ChoiceOne's ability to meet its cash flow requirements. These requirements include depositors desiring to withdraw funds and borrowers seeking credit.  Longer-term liquidity needs may be met through core deposit growth, maturities of and cash flows from securities, normal loan repayments, advances from the FHLB, brokered certificates of deposit, and income retention. ChoiceOne had $85.0 million in outstanding borrowings at the FHLB as of March 31, 2023, and $316.1 million of additional borrowing capacity was available based on residential real estate loans pledged and if securities were pledged as collateral. The acceptance of brokered certificates of deposit is not limited as long as the Bank is categorized as “well capitalized” under regulatory guidelines.  At March 31, 2023, total available borrowing capacity from all sources was $405.7 million.  ChoiceOne estimates that if additional collateral is pledged to the FHLB, the Federal Reserve Discount Window, or the new Bank Term Funding Program, we would increase available borrowing capacity from all sources to over $800 million. ChoiceOne continues to review its liquidity management and has taken steps in an effort to ensure adequacy.  These steps include limiting bond purchases in the first quarter of 2023, moving safekeeping of securities to FHLB in order to increase borrowing capacity, if pledged and using alternative funding sources such as brokered deposits. Item 4. Controls and Procedures. An evaluation was performed under the supervision and with the participation of ChoiceOne’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of ChoiceOne’s disclosure controls and procedures as of March 31, 2023. Based on and as of the time of that evaluation, ChoiceOne’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that ChoiceOne’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that material information required to be disclosed in the reports that ChoiceOne files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that ChoiceOne files or submits under the Exchange Act is accumulated and communicated to management, including ChoiceOne’s principal executive and principal financial officers, as appropriate to allow for timely decisions regarding required disclosure. There was no change in ChoiceOne’s internal control over financial reporting that occurred during the three months ended March 31, 2023 that has materially affected, or that is reasonably likely to materially affect, ChoiceOne’s internal control over financial reporting. 40 PART II.  OT HER INFORMATION Item 1. Le gal Proceedings . There are no material pending legal proceedings to which ChoiceOne or ChoiceOne Bank is a party or to which any of their properties are subject, except for proceedings that arose in the ordinary course of business. Item 1A. Risk Factors . Information concerning risk factors is contained in the discussion in Item 1A, “Risk Factors,” in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2022. Ite m 2. Unregistered Sales of Equity Securities and Use of Proceeds . There were no unregistered sales of equity securities in the first quarter of 2023. There were no issuer purchases of equity securities during the first quarter of 2023. Ite m 5. Other Information None. 41 It em 6. Exhibits The following exhibits are filed or incorporated by reference as part of this repor Exhibit Number Document 3.1 Restated Articles of Incorporation of ChoiceOne Financial Services, Inc. Previously filed as an exhibit to ChoiceOne’s Form 10-K Annual Report for the year ended December 31, 2022.  Here incorporated by reference. 3.2 Bylaws of ChoiceOne as currently in effect and any amendments thereto. Previously filed as an exhibit to ChoiceOne’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. 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification pursuant to 18 U.S.C. § 1350. 101.INS Inline XBRL Instance 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) 42 SIGNA TURES Pursuant to the requirements 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. Date:   May 9, 2023 /s/ Kelly J. Potes Kelly J. Potes Chief Executive Officer (Principal Executive Officer) Date:   May 9, 2023 /s/ Adom J. Greenland Adom J. Greenland Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 43