WASHINGTON, D.C. 20549 FORM 10-Q ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2022 ☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Numbe 000-19202 ChoiceOne Financial Services, Inc. (Exact Name of Registrant as Specified in its Charter) Michigan (State or Other Jurisdiction of Incorporation or Organization) 38-2659066 (I.R.S. Employer Identification No.) 109 East Division Sparta , Michigan (Address of Principal Executive Offices) 49345 (Zip Code) ( 616 ) 887-7366 (Registrant’s Telephone Number, including Area Code) Indicate by check mark whether the Registran (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒        No ☐ Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒        No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒ Securities registered pursuant to Section 12(b) of the Ac Title of each class Trading symbol(s) Name of each exchange on which registered Common stock COFS NASDAQ Capital Market As of April 30, 2022, the Registra nt had outstanding 7,493,521 shares of common stock. PART I.  FINANCIAL INFORMATION Item 1. Financial Statements . ChoiceOne Financial Services, Inc. CONSOLIDATED BALANCE SHEETS March 31, December 31, (Dollars in thousands) 2022 2021 (Unaudited) (Audited) Assets Cash and due from banks $ 89,626 $ 31,537 Time deposits in other financial institutions 350 350 Cash and cash equivalents 89,976 31,887 Equity securities, at fair value (Note 2) 8,282 8,492 Securities available for sale, at fair value (Note 2) 641,048 1,098,885 Securities held to maturity (Note 2) 429,918 - Federal Home Loan Bank stock 3,493 3,824 Federal Reserve Bank stock 5,064 5,064 Loans held for sale 13,450 9,351 Loans to other financial institutions - 42,632 Loans (Note 3) 1,027,406 1,016,848 Allowance for loan losses (Note 3) ( 7,601 ) ( 7,688 ) Loans, net 1,019,805 1,009,160 Premises and equipment, net 29,678 29,880 Other real estate owned, net 172 194 Cash value of life insurance policies 43,520 43,356 Goodwill 59,946 59,946 Core deposit intangible 3,660 3,962 Other assets 28,766 20,049 Total assets $ 2,376,778 $ 2,366,682 Liabilities Deposits – noninterest-bearing $ 565,657 $ 560,931 Deposits – interest-bearing 1,579,944 1,491,363 Total deposits 2,145,601 2,052,294 Borrowings - 50,000 Subordinated debentures 35,078 35,017 Other liabilities 4,981 7,702 Total liabilities 2,185,660 2,145,013 Shareholders' Equity Preferred stock; shares authoriz 100,000 ; shares outstandin none - - Common stock and paid-in capital, no par value; shares authoriz 12,000,000 ; shares outstandin 7,489,812 at March 31, 2022 and 7,510,379 at December 31, 2021 171,492 171,913 Retained earnings 55,988 52,332 Accumulated other comprehensive loss, net ( 36,362 ) ( 2,576 ) Total shareholders’ equity 191,118 221,669 Total liabilities and shareholders’ equity $ 2,376,778 $ 2,366,682 See accompanying notes to interim consolidated financial statements. 2 ChoiceOne Financial Services, Inc. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended (Dollars in thousands, except per share data) March 31, 2022 2021 Interest income Loans, including fees $ 12,298 $ 12,682 Securiti Taxable 3,507 1,856 Tax exempt 1,655 1,097 Other 14 20 Total interest income 17,474 15,655 Interest expense Deposits 783 880 Advances from Federal Home Loan Bank 1 1 Other 369 86 Total interest expense 1,153 967 Net interest income 16,321 14,688 Provision for loan losses - 250 Net interest income after provision for loan losses 16,321 14,438 Noninterest income Customer service charges 2,189 1,920 Insurance and investment commissions 205 273 Gains on sales of loans 804 2,146 Net gains on sales of securities - 1 Net gains on sales and write downs of other assets 171 5 Earnings on life insurance policies 280 186 Trust income 178 172 Change in market value of equity securities ( 356 ) 608 Other 374 289 Total noninterest income 3,845 5,600 Noninterest expense Salaries and benefits 7,606 7,168 Occupancy and equipment 1,625 1,555 Data processing 1,744 1,429 Professional fees 510 729 Supplies and postage 191 100 Advertising and promotional 132 145 Intangible amortization 282 307 FDIC insurance 225 152 Other 1,375 943 Total noninterest expense 13,690 12,528 Income before income tax 6,476 7,510 Income tax expense 948 1,272 Net income $ 5,528 $ 6,238 Basic earnings per share (Note 4) $ 0.74 $ 0.80 Diluted earnings per share (Note 4) $ 0.74 $ 0.80 Dividends declared per share $ 0.25 $ 0.22 See accompanying notes to interim consolidated financial statements. 3 ChoiceOne Financial Services, Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Ended (Dollars in thousands) March 31, 2022 2021 Net income $ 5,528 $ 6,238 Other comprehensive income: Changes in net unrealized gains on investment securities available for sale, net of tax (benefit)/expense of ($ 8,981 ) and ($ 3,560 ) for the three months ended March 31, 2022 and March 31, 2021, respectively. ( 33,786 ) ( 13,393 ) Reclassification adjustment for realized (gain) loss on sale of investment securities available for sale included in net income, net of tax expense (benefit) of $ 0 and $ 0 for the three months ended March 31, 2022 and March 31, 2021, respectively. 0 ( 1 ) Other comprehensive income (loss), net of tax ( 33,786 ) ( 13,394 ) Comprehensive income (loss) $ ( 28,258 ) $ ( 7,156 ) See accompanying notes to interim consolidated financial statements. 4 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, 2021 7,796,352 $ 178,750 $ 37,490 $ 11,028 $ 227,268 Net income 6,238 6,238 Other comprehensive loss ( 13,394 ) ( 13,394 ) Shares issued 4,732 175 175 Effect of employee stock purchases 1,201 4 4 Stock-based compensation expense - 64 64 Cash dividends declared ($ 0.22 per share) ( 1,716 ) ( 1,716 ) Balance, March 31, 2021 7,802,285 $ 178,993 $ 42,012 $ ( 2,366 ) $ 218,639 Balance, January 1, 2022 7,510,379 $ 171,913 $ 52,332 $ ( 2,576 ) $ 221,669 Net income 5,528 5,528 Other comprehensive loss ( 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 See accompanying notes to interim consolidated financial statements. 5 ChoiceOne Financial Services, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended (Dollars in thousands) March 31, 2022 2021 Cash flows from operating activiti Net income $ 5,528 $ 6,238 Adjustments to reconcile net income to net cash from operating activiti Provision for loan losses - 250 Depreciation 672 646 Amortization 2,673 1,949 Compensation expense on employee and director stock purchases, stock options, and restricted stock units 226 214 Net gains on sales of securities - ( 1 ) Net change in market value of equity securities 356 ( 608 ) Gains on sales of loans ( 804 ) ( 2,146 ) Loans originated for sale ( 29,531 ) ( 72,727 ) Proceeds from loan sales 25,896 68,637 Earnings on bank-owned life insurance ( 280 ) ( 186 ) 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 ) ( 4 ) Proceeds from sales of other real estate owned 235 270 Deferred federal income tax (benefit)/expense 248 506 Net change in: Other assets 173 ( 3,952 ) Other liabilities ( 2,665 ) 3,124 Net cash provided by operating activities 2,802 2,210 Cash flows from investing activiti Maturities, prepayments and calls of securities available for sale 13,157 12,918 Maturities, prepayments and calls of securities held to maturity 1,078 - Purchases of securities available for sale ( 28,197 ) ( 179,221 ) Purchases of securities held to maturity ( 3,160 ) - Proceeds from redemption of Federal Home Loan Bank stock 331 - Loan originations and payments, net 31,816 63,084 Additions to premises and equipment ( 526 ) ( 1,038 ) Net cash provided by (used in) investing activities 14,499 ( 104,257 ) Cash flows from financing activiti Net change in deposits 93,307 165,386 Net change in short term borrowings ( 50,000 ) ( 5,843 ) Issuance of common stock 35 29 Repurchase of common stock ( 682 ) - Cash dividends ( 1,872 ) ( 1,716 ) Net cash provided by financing activities 40,788 157,856 Net change in cash and cash equivalents 58,089 55,809 Beginning cash and cash equivalents 31,887 79,519 Ending cash and cash equivalents $ 89,976 $ 135,328 Supplemental disclosures of cash flow informati Cash paid for interest $ 1,413 $ 1,021 Cash paid for income taxes - - Loans transferred to other real estate owned 172 123 See accompanying notes to interim consolidated financial statements. 6 ChoiceOne Financial Services, Inc. NOTES TO INTERIM CONSOLIDATED 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. (the "Insurance Agency"). 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 the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 , the Consolidated Statements of Income for the three -month periods ended March 31, 2022 and March 31, 2021 , the Consolidated Statements of Comprehensive Income for the three -month periods ended March 31, 2022 and March 31, 2021 , the Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2022 and March 31, 2021 , and the Consolidated Statements of Cash Flows for the three -month periods ended March 31, 2022 and March 31, 2021 . Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 . 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, 2021 . Use of Estimates To prepare financial statements in conformity with GAAP, 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, including changes in interest rates and other general economic, business and political conditions, including the effects of the COVID- 19 pandemic, and its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state and local government laws, regulations and orders in connection with the pandemic. Actual results may differ from these estimates. Estimates associated with the allowance for loan losses 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. Loans to Other Financial Institutions ChoiceOne Bank entered into an agreement with another financial institution to fund mortgage loans. Loans to other financial institutions are purchased participating interests in individual advances made to mortgage bankers nation-wide from an unaffiliated originating bank. The originating bank services these loans and cash flows on the individual advances (principal, interest, and fees) which are allocated pro-rata based on ownership in the participating interest, less fees paid for the servicing activity. The underlying collateral is generally made up of 1 - 4 family first residential mortgages owned by the mortgage banker and held for sale in the secondary market and have been underwritten using secondary market underwriting standards prior to purchasing the participating interest. Once the mortgage banker delivers the loan to the secondary market, the advance is required to be paid off, including ChoiceOne Bank’s participating interest. If the advance (in which ChoiceOne Bank has a participating interest) is outstanding over 90 days, the originating bank has the right to request the participating interest be paid off by the mortgage banker. There was no participating interest as of March 31, 2022. Credit risk associated with the participating interest is measured as an allowance for loan losses when necessary. Losses are charged off against the allowance when incurred and recoveries of loan charge-offs are recorded when received. At least quarterly, ChoiceOne Bank reviews the portfolios of participating interests for potential losses including any participating interest that is outstanding over 90 days (even if the advance and participating interest is current). Loans to other financial institutions are excluded from the loans described in Note 3 to the interim consolidated financial statements. 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 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. 7 Stock Transactions A total of 3,698 shares of common stock were issued to ChoiceOne’s Board of Directors for a cash price of $ 98,000 under the terms of the Directors’ Stock Purchase Plan in the first quarter of 2022 . A total of 1,634 shares for a cash price of $ 35,000 were issued under the Employee Stock Purchase Plan in the first quarter of 2022 .  ChoiceOne repurchased 25,899 shares for $ 682,000 , or a weighted average all-in cost per share of $ 26.35 , during the first quarter of 2022. This was part of the common stock repurchase program announced in April 2021 which authorized repurchases of up to 390,114 shares, representing 5 % of the total outstanding shares of common stock as of the date the program was adopted. Allowance for Loan Losses The allowance for loan losses is a valuation allowance for probable incurred credit losses. The allowance for loan losses is increased by the provision for loan losses and decreased by loans charged off less any recoveries of charged off loans. Management estimates the allowance for loan losses balance required based on past loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance for loan losses may be made for specific loans, but the entire allowance for loan losses is available for any loan that, in management’s judgment, should be charged off. Loan losses are charged against the allowance for loan losses when management believes that collection of a loan balance is not possible. The allowance for loan losses consists of general and specific components. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful.  The general component of management's estimate of the allowance for loan losses covers non-impaired loans and is based on historical loss experience adjusted for current factors. Management's adjustment for current 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, experience and ability of lending staff, national and economic trends and conditions, industry conditions, trends in real estate values, and other conditions. A loan is impaired when full payment under the loan terms is not expected. Troubled debt restructuring of loans is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule. All modified loans are evaluated to determine whether the loans should be reported as Troubled Debt Restructurings ("TDR"). A loan is a TDR when the Bank, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower by modifying a loan. To make this determination, the Bank must determine whether (a) the borrower is experiencing financial difficulties and (b) the Bank granted the borrower a concession. This determination requires consideration of all facts and circumstances surrounding the modification. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean the borrower is experiencing financial difficulties. Commercial loans are evaluated for impairment on an individual loan basis. If a loan is considered impaired or if a loan has been classified as a TDR, a portion of the allowance for loan losses is allocated to the loan so that it is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller-balance homogeneous loans such as consumer and residential real estate mortgage loans are collectively evaluated for impairment and, accordingly, they are not separately identified for impairment disclosures. Reclassifications Certain amounts presented in prior periods have been reclassified to conform to the current presentation. Recent Accounting Pronouncements The Financial Accounting Standards Board (FASB) issued ASU No. 2016 - 13 , Financial Instruments — Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments . This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance attempts to reflect an entity’s current estimate of all expected credit losses and broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually to include forecasted information, as well as past events and current conditions. There is no specified method for measuring expected credit losses, and an entity may apply methods that reasonably reflect its expectations of the credit loss estimate. Although an entity may still use its current systems and methods for recording the allowance for credit losses, under the new rules, the inputs used to record the allowance for credit losses generally will need to change to appropriately reflect an estimate of all expected credit losses and the use of reasonable and supportable forecasts. Additionally, credit losses on available-for-sale debt securities will have to be presented as an allowance rather than as a write-down. This ASU is effective for fiscal years beginning after December 15, 2022, and for interim periods within those years for companies considered smaller reporting companies with the Securities and Exchange Commission. ChoiceOne was classified as a smaller reporting company as of the measurement date. Management is currently evaluating the impact of this new ASU on its consolidated financial statements which may be significant. 8 NOTE 2 – SECURITIES During the three months ended March 31, 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 pre-tax loss of $ 3.4 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 $ 2.6 million after tax as of March 31, 2022. The fair value of equity securities and the related gross unrealized gains and (losses) recognized in noninterest income were as follows: March 31, 2022 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value Equity securities $ 8,100 $ 545 $ ( 363 ) $ 8,282 December 31, 2021 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value Equity securities $ 7,953 $ 665 $ ( 126 ) $ 8,492 The following tables present the amortized cost and fair value of investment securities at the dates indicated and the corresponding amounts of gross unrealized gains and losses, including the corresponding amounts of gross unrealized gains and losses on investment securities available for sale recognized in accumulated other comprehensive income: March 31, 2022 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Available for S Cost Gains Losses Value U.S. Government and federal agency $ - $ - $ - $ - U.S. Treasury notes and bonds 93,154 8 ( 6,671 ) 86,491 State and municipal 334,907 443 ( 22,962 ) 312,388 Mortgage-backed 240,062 19 ( 13,412 ) 226,669 Corporate 1,255 4 ( 4 ) 1,255 Asset-backed securities 14,465 - ( 220 ) 14,245 Total $ 683,843 $ 474 $ ( 43,269 ) $ 641,048 Held to Maturity: U.S. Government and federal agency $ 2,962 $ - $ ( 195 ) $ 2,767 U.S. Treasury notes and bonds - - - - State and municipal 204,201 2 ( 17,668 ) 186,535 Mortgage-backed 204,165 30 ( 13,533 ) 190,662 Corporate 17,161 - ( 606 ) 16,555 Asset-backed securities 1,429 - ( 37 ) 1,392 Total $ 429,918 $ 32 $ ( 32,039 ) $ 397,911 December 31, 2021 Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Fair Available for S Cost Gains Losses Value U.S. Government and federal agency $ 2,001 $ 7 $ - $ 2,008 U.S. Treasury notes and bonds 93,267 23 ( 1,311 ) 91,979 State and municipal 528,252 10,704 ( 4,109 ) 534,847 Mortgage-backed 441,383 781 ( 9,049 ) 433,115 Corporate 20,856 19 ( 233 ) 20,642 Asset-backed securities 16,387 - ( 93 ) 16,294 Total $ 1,102,146 $ 11,534 $ ( 14,795 ) $ 1,098,885 ChoiceOne reviews its securities portfolio on a quarterly basis to determine whether unrealized losses are considered to be temporary or other-than-temporary. No other-than-temporary impairment charges were recorded in the three months ended March 31, 2022 or in the same period in 2021 . ChoiceOne believes that unrealized losses on securities were temporary in nature and were due to changes in interest rates and reduced market liquidity and not as a result of credit quality issues. 9 Presented below is a schedule of maturities of securities as of March 31, 2022 , the fair value of securities available for sale and the amortized cost of securities held to maturity as of March 31, 2022 .  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 2022 U.S. Government and federal agency $ - $ - $ - $ - $ - U.S. Treasury notes and bonds 2,007 - 84,484 - 86,491 State and municipal 17,913 34,667 185,902 73,906 312,388 Corporate 501 508 246 - 1,255 Asset-backed securities - 10,305 3,940 - 14,245 Total debt securities 20,421 45,480 274,572 73,906 414,379 Mortgage-backed securities 13,689 84,660 119,303 9,017 226,669 Equity securities - 1,000 - 7,282 8,282 Total Available for Sale $ 34,110 $ 131,140 $ 393,875 $ 90,205 $ 649,330 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 2022 U.S. Government and federal agency $ - $ - $ 2,962 $ - $ 2,962 U.S. Treasury notes and bonds - - - - - State and municipal 2,755 4,608 97,764 99,074 204,201 Corporate - 250 15,911 1,000 17,161 Asset-backed securities - 1,429 - - 1,429 Total debt securities 2,755 6,287 116,637 100,074 225,753 Mortgage-backed securities 3,511 44,972 155,682 - 204,165 Equity securities - - - - - Total Held to Maturity $ 6,266 $ 51,259 $ 272,319 $ 100,074 $ 429,918 Following is information regarding unrealized gains and losses on equity securities for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 Net gains and (losses) recognized during the period $ ( 356 ) $ 608 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 $ ( 356 ) $ 608 10 NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan 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 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 Three Months Ended March 31, 2021 Beginning balance $ 257 $ 1,327 $ 317 $ 4,178 $ 97 $ 1,300 $ 117 $ 7,593 Charge-offs - ( 74 ) ( 71 ) ( 48 ) - - - ( 193 ) Recoveries - 9 79 - - 2 - 90 Provision 85 337 ( 78 ) 215 ( 23 ) ( 278 ) ( 8 ) 250 Ending balance $ 342 $ 1,599 $ 247 $ 4,345 $ 74 $ 1,024 $ 109 $ 7,740 Individually evaluated for impairment $ 114 $ 2 $ - $ 10 $ — $ 213 $ — $ 339 Collectively evaluated for impairment $ 227 $ 1,596 $ 246 $ 4,337 $ 75 $ 811 $ 109 $ 7,401 Loans March 31, 2021 Individually evaluated for impairment $ 3,173 $ 1,626 $ - $ 3,001 $ — $ 2,589 $ 10,389 Collectively evaluated for impairment 43,513 290,140 32,311 448,261 15,670 174,562 1,004,457 Acquired with deteriorated credit quality — 6,284 19 11,159 — 2,775 20,237 Ending balance $ 46,686 $ 298,050 $ 32,330 $ 462,421 $ 15,670 $ 179,926 $ 1,035,083 11 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, 2021 Individually evaluated for impairment $ 251 $ 95 $ 2 $ 9 $ - $ 146 $ - $ 503 Collectively evaluated for impairment $ 197 $ 1,359 $ 288 $ 3,696 $ 110 $ 525 $ 1,010 $ 7,185 Loans December 31, 2021 Individually evaluated for impairment $ 2,616 $ 339 $ 14 $ 273 $ - $ 2,191 $ 5,433 Collectively evaluated for impairment 62,203 197,656 35,148 515,528 19,066 164,647 994,248 Acquired with deteriorated credit quality - 5,029 12 10,083 - 2,043 17,167 Ending balance $ 64,819 $ 203,024 $ 35,174 $ 525,884 $ 19,066 $ 168,881 $ 1,016,848 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 Ban k will sustain some future loss if such weaknesses are not corrected. Clear loss potential, however, does not have to exist in any individual assets classified as substandard. Loans falling into this category should have clear action plans and timelines with benchmarks to determine which direction the relationship will move. Risk rating 7 or substandar Loans and other credit extensions graded “7” have all the weaknesses inherent in those graded “6”, with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. Loans in this classification should be evaluated for non-accrual status. All nonaccrual commercial and Retail loans must be at a minimum graded a risk code “7”. Risk rating 8 or doubtfu Loans and other credit extensions bearing this grade have been determined to have the extreme probability of some loss, but because of certain important and reasonably specific factors, the amount of loss cannot be determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral. Risk rating 9 or l Loans in this classification are considered uncollectible and cannot be justified as a viable asset of ChoiceOne Bank. This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial recovery may be obtained in the future. 12 Information regarding ChoiceOne Bank's credit exposure was as follows: Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Category (Dollars in thousands) Agricultural Commercial and Industrial Commercial Real Estate March 31, December 31, March 31, December 31, March 31, December 31, 2022 2021 2022 2021 2022 2021 Pass $ 58,749 $ 61,864 $ 196,394 $ 201,202 $ 531,683 $ 519,537 Special Mention 327 339 1,190 300 749 778 Substandard 2,542 2,616 1,245 1,266 4,820 5,569 Doubtful - - 85 256 - - $ 61,618 $ 64,819 $ 198,914 $ 203,024 $ 537,252 $ 525,884 Consumer Credit Exposure - Credit Risk Profile Based On Payment Activity (Dollars in thousands) Consumer Construction Real Estate Residential Real Estate March 31, December 31, March 31, December 31, March 31, December 31, 2022 2021 2022 2021 2022 2021 Performing $ 36,119 $ 35,174 $ 15,669 $ 19,066 $ 177,186 $ 168,031 Nonperforming - - - - - - Nonaccrual 32 - - - 616 850 $ 36,151 $ 35,174 $ 15,669 $ 19,066 $ 177,802 $ 168,881 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 and March 31, 2021 . 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 Three Months Ended March 31, 2021 Pre- Post- Modification Modification Outstanding Outstanding (Dollars in thousands) Number of Recorded Recorded Loans Investment Investment Agricultural 6 $ 2,326 $ 2,326 Commercial Real Estate 1 958 958 Total 7 $ 3,284 $ 3,284 There were no TDRs as of March 31, 2022 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.  The following schedule provides information on TDRs as of March 31, 2021 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, 2021, which loans had been modified and classified as TDRs during the year prior to the default. Three Months Ended March 31, 2021 (Dollars in thousands) Number Recorded of Loans Investment Commercial and industrial 1 $ 52 Commercial Real Estate 3 1,850 Total 4 $ 1,902 13 Impaired loans by loan category fol Unpaid (Dollars in thousands) Recorded Principal Related Investment Balance Allowance March 31, 2022 With no related allowance recorded Agricultural $ 314 $ 428 $ - Commercial and industrial 92 123 - Consumer - - - Construction real estate - - - Commercial real estate - - - Residential real estate - - - Subtotal 406 551 - With an allowance recorded Agricultural 2,228 2,228 253 Commercial and industrial 264 279 116 Consumer 32 32 3 Construction real estate - - - Commercial real estate 157 157 8 Residential real estate 1,853 1,907 167 Subtotal 4,534 4,603 547 Total Agricultural 2,542 2,656 253 Commercial and industrial 356 402 116 Consumer 32 32 3 Construction real estate - - - Commercial real estate 157 157 8 Residential real estate 1,853 1,907 167 Total $ 4,940 $ 5,154 $ 547 Unpaid (Dollars in thousands) Recorded Principal Related Investment Balance Allowance December 31, 2021 With no related allowance recorded Agricultural $ 314 $ 428 $ - Commercial and industrial - - - Consumer - - - Construction real estate - - - Commercial real estate 94 94 - Residential real estate 164 172 - Subtotal 572 694 - With an allowance recorded Agricultural 2,302 2,302 251 Commercial and industrial 339 363 95 Consumer 14 15 2 Construction real estate - - - Commercial real estate 179 179 9 Residential real estate 2,027 2,084 146 Subtotal 4,861 4,943 503 Total Agricultural 2,616 2,730 251 Commercial and industrial 339 363 95 Consumer 14 15 2 Construction real estate - - - Commercial real estate 273 273 9 Residential real estate 2,191 2,256 146 Total $ 5,433 $ 5,637 $ 503 14 The following schedule provides information regarding average balances of impaired loans and interest recognized on impaired loans for the three months ended March 31, 2022 and March 31, 2021: Average Interest (Dollars in thousands) Recorded Income Investment Recognized Three Months Ended March 31, 2022 With no related allowance recorded Agricultural $ 314 $ - Commercial and industrial 46 1 Consumer - - Construction real estate - - Commercial real estate 47 - Residential real estate 82 - Subtotal 489 1 With an allowance recorded Agricultural 2,265 42 Commercial and industrial 301 2 Consumer 23 - Construction real estate - - Commercial real estate 168 3 Residential real estate 1,940 17 Subtotal 4,697 64 Total Agricultural 2,579 42 Commercial and industrial 347 3 Consumer 23 - Construction real estate - - Commercial real estate 215 3 Residential real estate 2,022 17 Total $ 5,186 $ 65 Average Interest (Dollars in thousands) Recorded Income Investment Recognized Three Months Ended March 31, 2021 With no related allowance recorded Agricultural $ 348 $ - Commercial and industrial 1,490 - Consumer - - Construction real estate 40 - Commercial real estate 2,238 3 Residential real estate 166 1 Subtotal 4,282 4 With an allowance recorded Agricultural 1,413 - Commercial and industrial 155 - Consumer 4 - Construction real estate - - Commercial real estate 778 4 Residential real estate 2,488 17 Subtotal 4,838 21 Total Agricultural 1,761 - Commercial and industrial 1,645 - Consumer 4 - Construction real estate 40 - Commercial real estate 3,016 7 Residential real estate 2,654 18 Total $ 9,120 $ 25 15 An aging analysis of loans by loan category follows: Loans Loans Loans Past Due Loans Past Due Past Due Greater 90 Days Past (Dollars in thousands) 30 to 59 60 to 89 Than 90 Loans Not Total Due and Days (1) Days (1) Days (1) Total (1) Past Due Loans Accruing March 31, 2022 Agricultural $ - $ - $ - $ - $ 61,618 $ 61,618 $ - Commercial and industrial - 93 85 178 198,736 198,914 - Consumer 66 - 32 98 36,053 36,151 - Commercial real estate - - - - 537,252 537,252 - Construction real estate - - - - 15,669 15,669 - Residential real estate 2,032 28 - 2,060 175,742 177,802 - $ 2,098 $ 121 $ 117 $ 2,336 $ 1,025,070 $ 1,027,406 $ - December 31, 2021 Agricultural $ - $ - $ - $ - $ 64,819 $ 64,819 $ - Commercial and industrial 21 - 88 109 202,915 203,024 - Consumer 70 15 - 85 35,089 35,174 - Commercial real estate 422 13 279 714 525,170 525,884 - Construction real estate 1,149 1,235 - 2,384 16,682 19,066 - Residential real estate 1,489 306 454 2,249 166,632 168,881 - $ 3,151 $ 1,569 $ 821 $ 5,541 $ 1,011,307 $ 1,016,848 $ - ( 1 ) Includes nonaccrual loans. Nonaccrual loans by loan category fol (Dollars in thousands) March 31, December 31, 2022 2021 Agricultural $ 314 $ 313 Commercial and industrial 205 285 Consumer 32 - Commercial real estate - 279 Residential real estate 616 850 $ 1,167 $ 1,727 16 The table below details the outstanding balances of the County Bank Corp. acquired loan portfolio and the acquisition fair value adjustments at acquisition date of October 1, 2019 ( dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 7,729 $ 387,394 $ 395,123 Nonaccretable difference ( 2,928 ) - ( 2,928 ) Expected cash flows 4,801 387,394 392,195 Accretable yield ( 185 ) ( 1,894 ) ( 2,079 ) Carrying balance at acquisition date $ 4,616 $ 385,500 $ 390,116 The table below presents a roll forward of the accretable yield on the County Bank Corp. acquired loan portfolio for the years ended December 31, 2019, December 31, 2020, and December 31, 2021 and the three months ended March 31, 2022 (dollars in thousands): (Dollars in thousands) Acquired Acquired Acquired Impaired Non-impaired Total Balance, January 1, 2019 $ - $ - $ - Merger with County Bank Corp on October 1, 2019 185 1,894 2,079 Accretion October 1, 2019 through December 31, 2019 - ( 75 ) ( 75 ) Balance January 1, 2020 185 1,819 2,004 Accretion January 1, 2020 through December 31, 2020 ( 50 ) ( 295 ) ( 345 ) Balance January 1, 2021 135 1,524 1,659 Accretion January 1, 2021 through December 31, 2021 ( 247 ) ( 95 ) ( 342 ) Transfer from non-accretable to accretable yield 400 - 400 Balance January 1, 2022 288 1,429 1,717 Transfer from non-accretable to accretable yield 400 - 400 Accretion January 1, 2022 through March 31, 2022 ( 102 ) ( 151 ) ( 253 ) Balance, March 31, 2022 $ 586 $ 1,278 $ 1,864 The table below details the outstanding balances of the Community Shores Bank Corporation acquired loan portfolio and the acquisition fair value adjustments at acquisition date of July 1, 2020 ( dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 20,491 $ 158,495 $ 178,986 Nonaccretable difference ( 2,719 ) - ( 2,719 ) Expected cash flows 17,772 158,495 176,267 Accretable yield ( 869 ) ( 596 ) ( 1,465 ) Carrying balance at acquisition date $ 16,903 $ 157,899 $ 174,802 The table below presents a roll forward of the accretable yield on Community Shores Bank Corporation acquired loan portfolio for the years ended December 31, 2020 and December 31, 2021 and the three months ended March 31, 2022 (dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Balance January 1, 2020 $ - $ - $ - Merger with Community Shores Bank Corporation on July 1, 2020 869 596 1,465 Accretion July 1, 2020 through December 31, 2020 ( 26 ) ( 141 ) ( 167 ) Balance, January 1, 2021 843 455 1,298 Accretion January 1, 2021 through December 31, 2021 ( 321 ) ( 258 ) ( 579 ) Balance January 1, 2022 522 197 719 Transfer from non-accretable to accretable yield 874 - 874 Accretion January 1, 2022 through March 31, 2022 ( 302 ) - ( 302 ) Balance, March 31, 2022 $ 1,094 $ 197 $ 1,291 17 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, 2022 2021 Basic Net income $ 5,528 $ 6,238 Weighted average common shares outstanding 7,495,464 7,801,058 Basic earnings per common shares $ 0.74 $ 0.80 Diluted Net income $ 5,528 $ 6,238 Weighted average common shares outstanding 7,495,464 7,801,058 Plus dilutive stock options and restricted stock units 21,461 9,732 Weighted average common shares outstanding and potentially dilutive shares 7,516,925 7,810,790 Diluted earnings per common share $ 0.74 $ 0.80 There were 12,000 stock options that were considered anti-dilutive to earnings per share for the three months ended March 31, 2022. There were no stock options that were considered to be anti-dilutive to earnings per share for the three months ended March 31, 2021. There were no restricted stock units that were considered anti-dilutive to earnings per share during either the three months ended March 31, 2022 or March 31, 2021. 18 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, 2022 Assets Cash and cash equivalents $ 89,976 $ 89,976 $ 89,976 $ - $ - Equity securities at fair value 8,282 8,282 6,515 - 1,767 Securities available for sale 641,048 641,048 - 641,048 - Securities held to maturity 429,918 397,911 - 380,447 17,464 Federal Home Loan Bank and Federal Reserve Bank stock 8,557 8,557 - 8,557 - Loans held for sale 13,450 13,853 - 13,853 - Loans to other financial institutions - - - - - Loans, net 1,019,805 1,001,696 - - 1,001,696 Accrued interest receivable 9,382 9,382 - 9,382 - Interest rate lock commitments 167 167 - 167 - Mortgage loan servicing rights 4,680 5,537 - 5,537 - Liabilities Noninterest-bearing deposits 565,657 565,657 - 565,657 - Interest-bearing deposits 1,579,944 1,577,909 - 1,577,909 - Borrowings - - - - - Subordinated debentures 35,078 31,350 - 31,350 - Accrued interest payable 181 181 - 181 - December 31, 2021 Assets Cash and cash equivalents $ 31,887 $ 31,887 $ 31,887 $ - $ - Equity securities at fair value 8,492 8,492 6,724 - 1,768 Securities available for sale 1,098,885 1,098,885 - 1,077,835 21,050 Federal Home Loan Bank and Federal Reserve Bank stock 8,888 8,888 - 8,888 - Loans held for sale 9,351 9,632 - 9,632 - Loans to other financial institutions 42,632 42,632 - 42,632 - Loans, net 1,009,160 999,393 - - 999,393 Accrued interest receivable 8,211 8,211 - 8,211 - Interest rate lock commitments 172 172 - 172 - Mortgage loan servicing rights 4,666 5,522 - 5,522 - Liabilities Noninterest-bearing deposits 560,931 560,931 - 560,931 - Interest-bearing deposits 1,491,363 1,491,135 - 1,491,135 - Borrowings 50,000 50,000 - 50,000 - Subordinated debentures 35,017 33,414 - 33,414 - Accrued interest payable 441 441 - 441 - 19 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. There were no liabilities measured at fair value as of March 31, 2022 or December 31, 2021 . Disclosures concerning assets measured at fair value are as follows: Assets Measured at Fair Value on a Recurring Basis Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Balance (Dollars in thousands) Assets Inputs Inputs at Date (Level 1) (Level 2) (Level 3) Indicated Equity Securities Held at Fair Value - March 31, 2022 Equity securities $ 6,515 $ - $ 1,767 $ 8,282 Investment Securities, Available for Sale - March 31, 2022 U. S. Government and federal agency $ - $ - $ - $ - U. S. Treasury notes and bonds - 86,491 - 86,491 State and municipal - 312,388 - 312,388 Mortgage-backed - 226,669 - 226,669 Corporate - 1,255 - 1,255 Asset-backed securities - 14,245 - 14,245 Total $ - $ 641,048 $ - $ 641,048 Equity Securities Held at Fair Value - December 31, 2021 Equity securities $ 6,724 $ - $ 1,768 $ 8,492 Investment Securities, Available for Sale - December 31, 2021 U. S. Government and federal agency $ - $ 2,008 $ - $ 2,008 U. S. Treasury notes and bonds - 91,979 - 91,979 State and municipal - 514,797 20,050 534,847 Mortgage-backed - 433,115 - 433,115 Corporate - 19,642 1,000 20,642 Asset-backed securities - 16,294 - 16,294 Total $ - $ 1,077,835 $ 21,050 $ 1,098,885 20 Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis Three Months Ended (Dollars in thousands) March 31, 2022 2021 Equity Securities Held at Fair Value Balance, January 1 $ 1,768 $ 1,485 Total realized and unrealized gains included in noninterest income ( 1 ) ( 40 ) Net purchases, sales, calls, and maturities - 500 Net transfers into Level 3 - - Balance, March 31 $ 1,767 $ 1,945 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 $ ( 1 ) $ ( 40 ) Investment Securities, Available for Sale Balance, January 1 $ 21,050 $ 11,423 Total unrealized gains included in other comprehensive income - ( 270 ) Net purchases, sales, calls, and maturities - 2,453 Net transfers into Level 3 - - Transfer to held to maturity ( 21,050 ) - Balance, March 31 $ - $ 13,606 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 $ - $ ( 270 ) 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, 2022 primarily consist of common and preferred equity securities of community banks. As of December 31, 2021, bonds issued by local municipalities were classified as available for sale and were included as Level 3 securities. 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) Impaired Loans March 31, 2022 $ 4,940 $ - $ - $ 4,940 December 31, 2021 $ 5,433 $ - $ - $ 5,433 Other Real Estate March 31, 2022 $ 172 $ - $ - $ 172 December 31, 2021 $ 194 $ - $ - $ 194 Mortgage Loan Servicing Rights March 31, 2022 $ 4,680 $ - $ 4,680 $ - December 31, 2021 $ 4,666 $ - $ 4,666 $ - Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired.  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 impaired loans that were posted to the allowance for loan losses and write-downs of other real estate that were posted to a valuation account. 21 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) 2022 2021 Service charges and fees on deposit accounts $ 1,031 $ 785 Interchange income 1,157 1,135 Investment commission income 205 236 Trust fee income 178 173 Other charges and fees for customer services 148 166 Noninterest income from contracts with customers within the scope of ASC 606 2,719 2,495 Noninterest income within the scope of other GAAP topics 1,126 3,105 Total noninterest income $ 3,845 $ 5,600 NOTE 8 – SUBSEQUENT EVENTS During the first quarter of 2022, the Federal Reserve increased the federal funds rate by 25 basis points in response to published inflation rates, causing interest rates generally to sharply increase.  This change in interest rates increased ChoiceOne's unrealized pre-tax loss on its available for sale securities portfolio from $ 3.3 million at December 31, 2021 to $ 42.8 million at March 31, 2022. Additionally, meeting minutes from the Federal Open Market Committee indicated that additional increases in the federal funds rate are expected in order to combat inflation in the coming quarters.  As such, ChoiceOne has elected to utilize interest rate derivatives in order to better manage its interest rate risk position.  On April 21, 2022, ChoiceOne purchased five forward-starting interest rate caps with a total notional amount of $ 200 million and entered into a $ 200 million forward-starting pay-fixed interest rate swap.  ChoiceOne also entered into a $ 200 million receive-fixed interest rate swap, which, in the current environment, offsets the cost of the rising rate protection.  The five forward-starting interest rate caps are tied to the Secured Overnight Financing Rate ("SOFR") with a strike price of 2.68 %, and are structured as a two -year forward eight year term.  The forward-starting pay-fixed interest rate swap is also structured with a two -year forward eight year term, and ChoiceOne will pay a coupon rate of 2.75 % while receiving SOFR.  The receive-fixed interest rate swap has a two year term with an immediate start date and ChoiceOne is receiving a fixed coupon of 2.41 % while paying SOFR.  These strategies create accounting symmetry between available-for-sale securities and other comprehensive income (equity), thus protecting tangible capital from further increases in interest rates.  These three strategies, in the aggregate, are expected to be modestly accretive to net income in 2022 and better position ChoiceOne Bank should rates continue to rise. 22 Item 2. Management’s Discussion and Analysis 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”, and variations of such words and similar expressions are intended to identify such forward-looking statements.  Management’s determination of the provision and allowance for loan losses, 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 that are inherently forward-looking.  Examples of forward-looking statements also include, but are not limited to, statements related to risks and uncertainties related to, and the impact of, the COVID-19 pandemic on the businesses, financial condition and results of operations of ChoiceOne and its customers and statements regarding the outlook and expectations of ChoiceOne and its customers.  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, 2021 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. 23 RESULTS OF OPERATIONS Net income for the first quarter of 2022 was $ 5,528,000 , which represented a decline of $ 710,000 or 11% compared to the first quarter of 2021 .  Basic and diluted earnings per common share were $0.74 for the first quarter of 2022 compared to $0.80 for the first quarter of the prior year.  The decline in net income in the first quarter of 2022 compared to the same period in the prior year resulted in part from a decline of refinancing activity within ChoiceOne's mortgage portfolio due to a rise in mortgage rates since the first quarter of the prior year.  Net income also declined as noninterest expense increased related to salaries and wages of new commercial loan production staff and wealth management staff.  These factors were offset by an increase of $1.8 million in interest income as the balance of both core loans and securities continued to grow.  Core loans (defined as loans excluding loans held for sale, loans to other financial institutions, and Paycheck Protection Program (“PPP”) loans) increased $121.3 million from March 31, 2021 to March 31, 2022. The return on average assets and return on average shareholders’ equity were 0.93% and 10.72%, respectively, for the first quarter of 2022 , compared to 1.25% and 11.13%, respectively, for the same period in 2021 . Paycheck Protection Program ("PPP") ChoiceOne processed over $126 million in PPP loans in 2020, acquired an additional $37 million in PPP loans in the merger with Community Shores, and originated $89.1 million in PPP loans in 2021.  PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. PPP loans carry a fixed rate of 1.00% and a term of two years (loans made before June 5, 2020) or five years (loans made on or after June 5, 2020), if not forgiven in whole or in part.  Payments are deferred until either the date on which the Small Business Administration ("SBA") remits the amount of forgiveness proceeds to the lender or the date that is ten months after the last day of the covered period if the borrower does not apply for forgiveness within that ten-month period.  The loans are 100% guaranteed by the SBA.  The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan. Upon SBA forgiveness, unrecognized fees are recognized into interest income. During the three months ended March 31, 2022, $24.7 million of PPP loans were forgiven resulting in $869,000 of fee income.  $8.5 million in PPP loans and $351,000 in deferred PPP fee income remains outstanding as of March 31, 2022.  Management expects the remaining PPP loans to be forgiven in the second quarter of 2022. Dividends Cash dividends of $1,872,000 or $0.25 per share were declared in the first quarter of 2022 , compared to $1,716,000 or $0.22 per share declared in the first quarter of 2021 .  The cash dividend payout percentage was 33.9% for the first quarter of 2022 , compared to 27.5% 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 three months ended March 31, 2022 and 2021.  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. 24 Table 1 – Average Balances and Tax-Equivalent Interest Rates Three Months Ended March 31, 2022 2021 (Dollars in thousands) Average Average Balance Interest Rate Balance Interest Rate Assets: Loans (1)(3)(4)(5) $ 1,037,646 $ 12,304 4.74 % $ 1,080,181 $ 12,687 4.70 % Taxable securities (2) 795,888 3,507 1.76 438,575 1,856 1.69 Nontaxable securities (1) 334,793 2,097 2.50 201,228 1,390 2.76 Other 36,460 14 0.15 84,822 20 0.09 Interest-earning assets 2,204,787 17,921 3.25 1,804,806 15,953 3.54 Noninterest-earning assets 171,077 184,954 Total assets $ 2,375,864 $ 1,989,760 Liabilities and Shareholders' Equity: Interest-bearing demand deposits $ 928,437 $ 435 0.19 % $ 715,868 $ 429 0.24 % Savings deposits 440,873 146 0.13 355,395 114 0.13 Certificates of deposit 179,375 202 0.45 195,093 337 0.69 Borrowings 10,239 6 0.22 8,462 35 1.70 Subordinated debentures 35,342 364 4.12 3,099 52 6.65 Interest-bearing liabilities 1,594,266 1,153 0.29 1,277,917 967 0.30 Demand deposits 553,267 479,649 Other noninterest-bearing liabilities 22,051 7,937 Total liabilities 2,169,584 1,765,503 Shareholders' equity 206,280 224,257 Total liabilities and shareholders' equity $ 2,375,864 $ 1,989,760 Net interest income (tax-equivalent basis) (Non-GAAP) (1) $ 16,768 $ 14,986 Net interest margin (tax-equivalent basis) (Non-GAAP) (1) 3.04 % 3.32 % Reconciliation to Reported Net Interest Income Net interest income (tax-equivalent basis) (Non-GAAP) (1) $ 16,768 $ 14,986 Adjustment for taxable equivalent interest (447 ) (297 ) Net interest income (GAAP) $ 16,321 $ 14,689 Net interest margin (GAAP) 2.96 % 3.26 % (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 $5.9 million in the first quarter of 2022 and 2021, respectively.  PPP loan average balances were $22.8 million and $137.7 million in the first quarter of 2022 and 2021, respectively. (5) Interest on loans included net origination fees, accretion income, and PPP fees.  Accretion income was $818,000 and $351,000 in the first quarter of 2022 and 2021, respectively. PPP fees were approximately $869,000 and $1.4 million in the first quarter of 2022 and 2021, respectively. 25 Table 2 – Changes in Tax-Equivalent Net Interest Income Three Months Ended March 31, (Dollars in thousands) 2022 Over 2021 Total Volume Rate Increase (decrease) in interest income (1) Loans (2) $ (383 ) $ (1,063 ) $ 680 Taxable securities 1,651 1,568 83 Nontaxable securities (2) 707 1,521 (814 ) Other (6 ) (50 ) 43 Net change in interest income 1,969 1,976 (8 ) Increase (decrease) in interest expense (1) Interest-bearing demand deposits 6 436 (430 ) Savings deposits 32 30 2 Certificates of deposit (135 ) (25 ) (110 ) Borrowings (30 ) 43 (73 ) Subordinated debentures 312 452 (139 ) Net change in interest expense 185 936 (750 ) Net change in tax-equivalent net interest income $ 1,784 $ 1,040 $ 742 (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 $1.8 million in the first three months of 2022 compared to the same period in 2021 . This was partially due to a $490.9 million increase in the securities portfolio balance compared to 2021. Net interest margin on a tax-equivalent basis declined by 28 basis points to 3.04% in the first quarter of 2022 from 3.32% in the same period of 2021. The decline was due to lower PPP fees and a higher percentage of securities to total assets. The average balance of loans decreased $42.5 million in the first quarter of 2022 compared to the same period in 2021.  The decline in average loan balance is due to average PPP loans declining $116.9 million from March 31, 2021 to March 31, 2022.  This decline in balance was offset by an increase in average core loans (defined as loans excluding PPP loans, loans to other financial institutions, and loans held for sale) of $86.7 million from March 31, 2021 to March 31, 2022. The decrease in PPP loan balance and fees caused tax-equivalent interest income from loans to decrease $383,000 in the first quarter of 2022 compared to the same period in the prior year. The average balance of total securities increased $490.9 million in the first quarter of 2022 compared to the same period in 2021. The securities portfolio has grown as ChoiceOne has deployed excess deposit dollars into securities with the intent to transition to loans as good credits become available.  The effect of the average balance growth, partially offset by a combined 5 basis point reduction in the average rate earned on securities, caused tax-equivalent securities income to increase $2.4 million in the first quarter of 2022 compared to the same period in 2021. 26 Growth of $298.0 million in the average balance of interest-bearing demand deposits and savings deposits, partially offset by a combined 3 basis point decrease in the average rate paid, caused interest expense to be $38,000 higher in the first three months of 2022 compared to the first three months of the prior year. The average balance of certificates of deposit decreased $15.7 million in the first three months of 2022 compared to the same period in 2021. The decreased balance and a reduction of 24 basis points in the average rate paid on certificates caused interest expense to decrease $135,000 in the first three months of 2022 compared to the same period in 2021.  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.  These increased the average balance of subordinated debentures by $32.2 million in the first three months of 2022 compared to the same period in the prior year and caused interest expense to increase by $312,000. Provision and Allowance for Loan Losses The provision for loan losses was $0 in the first quarter of 2022, compared to $250,000 in the same period in the prior year. No provision in the first quarter of 2022 was deemed prudent based on our assessment of the probable estimated losses inherent in the loan portfolio. Our methodology for measuring the appropriate level of allowance for loan losses and related provision for loan losses involves specific allocations for loans considered impaired, and general allocations for homogeneous loans based on historical loss experience. Loans classified as impaired loans declined by $494,000 during the three months ended March 31, 2022.  The specific allowance for loan losses for impaired loans increased by $44,000 during the three months ended March 31, 2022 as the loans being evaluated had a higher risk of loss based on management's judgement than impaired loans at  December 31, 2021. The determination of our loss factors is based, in part, upon our actual loss history adjusted for significant qualitative factors that, in management's judgment, affect the collectability of the portfolio as of the analysis date.  ChoiceOne uses a rolling 20 quarter actual net charge-off history as the base for the computation. Nonperforming loans were $4.7 million as of March 31, 2022, compared to $5.5 million as of December 31, 2021.  The allowance for loan losses was 0.74% of total loans at March 31, 2022, compared to 0.76% at December 31, 2021.  Loans acquired in the mergers with County and Community Shores were recorded at fair value and as a result do not have an allowance for loan losses allocated to them unless credit deteriorates subsequent to acquisition.  ChoiceOne has $4.5 million in credit mark remaining on loans acquired in the mergers.  If the credit mark associated with the loans acquired in the mergers were added to the allowance for loan losses, the total allowance for loan losses would have represented 1.18% of total loans at March 31, 2022. Charge-offs and recoveries for respective loan categories for the three months ended March 31, 2022 and 2021 were as follows: (Dollars in thousands) 2022 2021 Charge-offs Recoveries Charge-offs Recoveries Agricultural $ - $ - $ - $ - Commercial and industrial 31 2 74 9 Consumer 112 52 71 79 Commercial real estate - 1 48 - Residential real estate - 1 - 2 $ 143 $ 56 $ 193 $ 90 Net charge-offs were $87,000 in the first quarter of 2022, compared to net charge-offs of $103,000 during the same period in 2021. Net charge-offs on an annualized basis as a percentage of average loans were 0.03% in the first three months of 2022 compared to annualized net charge-offs of 0.04% of average loans in the same period in the prior year. Management is aware that the economic climate in Michigan will continue to affect business and individual borrowers. Management believes that the COVID-19 pandemic will continue to have an impact in 2022 and, accordingly, has maintained a qualitative allocation related to the COVID-19 pandemic in evaluating its allowance for loan losses. Management has worked and intends to continue to work with delinquent borrowers in an attempt to lessen the impact of the COVID-19 pandemic on ChoiceOne. ChoiceOne has allocated approximately $545,000 of its allowance for loan losses to borrowers falling into industry classification codes that management believes to be highly or moderately affected by the pandemic, as follows: Highly Affected Moderately Affected Accommodation Ambulatory Health Care Services Amusement, Gambling, and Recreation Industries Educational Services Food Services and Drinking Places Merchant Wholesalers, Durable Goods Performing Arts, Spectator Sports, and Related Industries Merchant Wholesalers, Nondurable Goods Rental and Leasing Services Miscellaneous Store Retailers Scenic and Sightseeing Transportation Motion Picture and Sound Recording Industries Transit and Ground Passenger Transportation Real Estate Loans highly affected and moderately affected based on their commercial industry category have been allocated an additional 10 basis points and 5 basis points, respectively.  ChoiceOne has also allocated 5 basis points to all retail loan categories.  It is noted that this allowance amount is in addition to the regularly calculated allowance based on risk rating and qualitative factors.  These allocations have continued to decline, as ChoiceOne has seen improvements in customer, industry, and economic conditions related to the effects of the pandemic.  ChoiceOne will continue to monitor concentrations as part of its analysis on an ongoing basis. Management will continue to monitor charge-offs, changes in the level of nonperforming loans, changes within the composition of the loan portfolio and the impact of the COVID-19 pandemic, and it will adjust the provision and allowance for loan losses as determined to be necessary. Noninterest Income Total noninterest income declined $1.8 million in the first quarter of 2022 compared to the same period in 2021.  Total noninterest income in the first quarter of 2021 was bolstered by heightened levels of refinancing activity within ChoiceOne's mortgage portfolio, with gains on sales of loans $1.3 million larger than in the first quarter of 2022.  Customer service charges increased $269,000 compared to the same period in the prior year.  Prior year service charges were depressed by stay at home orders during the COVID-19 pandemic.  The market value of equity securities declined during the current quarter compared to the first quarter of 2021 consistent with general market conditions.  Equity securities include local community bank stocks and Community Reinvestment Act bond mutual funds. Noninterest Expense Total noninterest expense declined $68,000 in the first quarter of 2022 compared to the fourth quarter of 2021 and increased $1.2 million compared to the first quarter of 2021.  The increase since the first quarter of 2021 is related to an increase in salaries and wages due to new commercial loan production staff and wealth management staff.  Data processing and other expenses have also increased in the first quarter of 2022 compared to the same quarter in the prior year as ChoiceOne looks to improve its efficiency through automation and use of digital tools. Income Tax Expense Income tax expense was $948,000 in the first quarter of 2022 compared to $ 1,272,000 for the same period in 2021 . The decrease was due to a higher level of income before income tax in 2021. The effective tax rate was 14.6% for the first quarter of 2022 compared to 16.9% for the first quarter of 2021.  The decline in the effective tax rate resulted from increased interest income from tax-exempt securities in 2022 compared to 2021. 27 FINANCIAL CONDITION Securities In the last two years ChoiceOne has grown its securities portfolio substantially.  Total available for sale securities on December 31, 2020, amounted to $577.7 million and grew steadily to an available for sale balance on December 31, 2021, of $1.1 billion.  Many of the securities making up this balance include local municipals and other securities ChoiceOne has no intent to sell prior to maturity.  During the three months ended March 31, 2022, ChoiceOne elected to move $428.4 million of the portfolio into a held to maturity status.  Management believes the $641.0 million in available for sale securities at March 31, 2022 to be sufficient for any future liquidity needs. There were no sales of securities in the first three months of 2022; however, $3.8 million of securities were called or matured during that same period. Principal repayments on securities totaled $10.4 million in the first three months of 2022. Loans Core loans, which exclude PPP loans, held for sale loans, and loans to other financial institutions, grew organically by $121.3 million from March 31, 2021 to March 31, 2022. Additions to our commercial lending staff in 2021 and investments in the automation of our commercial loan process have helped drive our pipeline of commercial loans and corresponding growth.  Loans to other financial institutions decreased $7.3 million from March 31, 2021 to March 31, 2022. Loans to other financial institutions is comprised of a warehouse line of credit to facilitate mortgage loan originations and fluctuates with the national mortgage market.  In the first quarter of 2022, $24.7 million of PPP loans were forgiven resulting in $869,000 of fee income.  $8.5 million in PPP loans and $351,000 in deferred PPP fee income remains outstanding as of March 31, 2022.  During the first quarter of 2022, ChoiceOne recorded accretion income in the amount of $818,000, while the remaining credit mark on acquired loans from the recent mergers with County Bank Corp. and Community Shores totaled $4.5 million as of March 31, 2022. Excluding PPP loans, ChoiceOne saw an increase to commercial and industrial loans of $20.0 million and commercial real estate loans of $10.3 million during the first three months of 2022.  Excluding PPP loans, ChoiceOne saw declines of $3.3 million in agricultural loans and $3.4 million in construction real estate loans in the first three months of 2022.  The other changes resulted from normal fluctuations in borrower activity. Asset Quality Information regarding impaired loans can be found in Note 3 to the consolidated financial statements included in this report.  The total balance of loans classified as impaired was $4.9 million at March 31, 2022, compared to $5.4 million as of December 31, 2021.  The change in the first three months of 2022 was primarily comprised of a decrease of $338,000 in impaired residential real estate loans. As part of its review of the loan portfolio, management also monitors the various nonperforming loans.  Nonperforming loans are comprised o (1) loans accounted for on a nonaccrual basis; (2) loans, not included in nonaccrual loans, which are contractually past due 90 days or more as to interest or principal payments; and (3) loans, not included in nonaccrual or loans past due 90 days or more, which are considered troubled debt restructurings ("TDRs"). The balances of these nonperforming loans were as follows: (Dollars in thousands) March 31, December 31, 2022 2021 Loans accounted for on a nonaccrual basis $ 1,167 $ 1,727 Accruing loans which are contractually past due 90 days or more as to principal or interest payments - - Loans defined as "troubled debt restructurings " which are not included above 3,513 3,816 Total $ 4,680 $ 5,543 The reduction in the balance of nonaccrual loans in the first three months of 2022 was primarily due to loans that were paid off.  It is also noted that 90% of loans considered TDRs were performing according to their restructured terms as of March 31, 2022.  Management believes the allowance for loan losses allocated to its nonperforming loans is sufficient at March 31, 2022. 28 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 in 2019, and Community Shores in 2020, which resulted in the recognition of goodwill of $13.7 million, $38.9 million and $7.3 million, respectively. Management performed its annual qualitative assessment of goodwill as of June 30, 2021. In evaluating whether it is more likely than not that the fair value of ChoiceOne's operations was less than the carrying amount, management assessed the relevant events and circumstances such as the ones noted in ASC 350-20-35-3c. The analysis consisted of a review of ChoiceOne’s current and expected future financial performance, the potential impact of the COVID-19 pandemic on the ability of ChoiceOne’s borrowers to comply with loan terms, and the impact that both short-term and long-term interest rates have had and may continue to have on net interest margin and mortgage sales activity. The share price and book value of ChoiceOne’s stock were also compared to the prior year. Management also compared average deal values for recent closed bank transactions to ChoiceOne transactions.  Despite ChoiceOne's market capitalization declining slightly from November 30, 2020 to June 30, 2021, ChoiceOne's financial performance remained positive. In assessing the totality of the events and circumstances, management determined that it was more likely than not that the fair value of ChoiceOne’s operations, from a qualitative perspective, exceeded the carrying value as of June 30, 2021 and impairment of goodwill was not necessary. ChoiceOne’s stock price per share was less than its book value as of March 31, 2022.  This indicated that goodwill may be impaired and resulted in management performing another qualitative goodwill impairment assessment as of the end of the first quarter of 2022.  As a result of the analysis, management concluded that it was more-likely-than-not that the fair value of the reporting unit was greater than the carrying value.  This was evidenced by the strong financial indicators, solid credit quality ratios, as well as the strong capital position of ChoiceOne. In addition, revenue in the first three months of 2022 reflected significant and continuing growth in ChoiceOne's interest income.  Based on the results of the qualitative analysis, management believed that a quantitative analysis was not necessary as of March 31, 2022. Deposits and Borrowings Total deposits increased $93.3 million in the first quarter of 2022 and 305.6 million since March 31, 2021. The change in deposits was due in part to funds related to the increased savings from the pandemic as well as funds on deposit from the PPP loans that were not fully utilized as of March 31, 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.  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 may use Federal Home Loan Bank advances and advances from the Federal Reserve Bank Discount Window to meet short-term funding needs if needed in the remainder of 2022. Shareholders' Equity Total shareholders' equity declined $30.6 million in the first three months of 2022.  During the first quarter of 2022, the Federal Reserve increased the federal funds rate by 25 basis points in response to published inflation rates, causing interest rates generally to sharply increase.  This change in interest rates increased ChoiceOne's unrealized pre-tax loss on the available for sale securities portfolio from $3.3 million at December 31, 2021 to $42.8 million at March 31, 2022.  Additionally, meeting minutes from the Federal Open Market Committee indicated that additional increases in the federal funds rate are expected in order to combat inflation in the coming quarters.  As such, ChoiceOne has elected to utilize interest rate derivatives in order to better manage its interest rate risk position.  On April 21, 2022, ChoiceOne purchased five forward-starting interest rate caps with a total notional amount of $200 million and entered into a $200 million forward-starting pay-fixed interest rate swap.  These strategies create accounting symmetry between available for sale securities and other comprehensive income (equity), thus protecting tangible capital from further increases in interest rates.  ChoiceOne also entered into a $200 million receive-fixed interest rate swap, which, in the current environment, offsets the cost of the rising rate protection. These three strategies, in the aggregate, are expected to be modestly accretive to net income in 2022 and better position ChoiceOne Bank should rates continue to rise.  Importantly, the transactions were structured to qualify for hedge accounting, which means that changes in the fair value of the instruments flow through other comprehensive income (equity).  Refer to further details in subsequent event footnote 8. The reduction in common stock and paid in capital resulted from ChoiceOne's repurchase of 25,899 shares for $683,000, or a weighted average all-in cost per share of $26.35, during the first quarter of 2022. We do not expect further buybacks for the remainder of the year.  This was part of the common stock repurchase program announced in April 2021 which authorized repurchases of up to 390,114 shares, representing 5% of the total outstanding shares of common stock as of the date the program was adopted.  This program replaced and superseded all prior repurchase programs for ChoiceOne. 29 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, 2022 ChoiceOne Financial Services Inc. Total capital (to risk weighted assets) $ 207,839 14.6 % $ 113,648 8.0 % N/A N/A Common equity Tier 1 capital (to risk weighted assets) weighted assets) 163,875 11.5 63,927 4.5 N/A N/A Tier 1 capital (to risk weighted assets) 168,375 11.9 85,236 6.0 N/A N/A Tier 1 capital (to average assets) 168,375 7.3 92,225 4.0 N/A N/A ChoiceOne Bank Total capital (to risk weighted assets) $ 188,451 13.3 % $ 113,464 8.0 % $ 141,830 10.0 % Common equity Tier 1 capital (to risk weighted assets) weighted assets) 180,850 12.8 63,824 4.5 92,190 6.5 Tier 1 capital (to risk weighted assets) 180,850 12.8 85,098 6.0 113,464 8.0 Tier 1 capital (to average assets) 180,850 7.9 92,130 4.0 115,163 5.0 December 31, 2021 ChoiceOne Financial Services Inc. Total capital (to risk weighted assets) $ 204,353 14.4 % $ 113,604 8.0 % N/A N/A Common equity Tier 1 capital (to risk weighted assets) weighted assets) 160,338 11.3 63,902 4.5 N/A N/A Tier 1 capital (to risk weighted assets) 164,838 11.6 85,203 6.0 N/A N/A Tier 1 capital (to average assets) 164,838 7.4 89,415 4.0 N/A N/A ChoiceOne Bank Total capital (to risk weighted assets) $ 182,275 12.9 % $ 113,444 8.0 % $ 141,806 10.0 % Common equity Tier 1 capital (to risk weighted assets) weighted assets) 174,587 12.3 63,813 4.5 92,174 6.5 Tier 1 capital (to risk weighted assets) 174,587 12.3 85,083 6.0 113,444 8.0 Tier 1 capital (to average assets) 174,587 7.8 89,289 4.0 111,611 5.0 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, 2022 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. Liquidity Net cash provided by operating activities was $2.8 million for the three months ended March 31, 2022 compared to $2.2 million in the same period a year ago.  The change was due to $1.3 million lower net proceeds from loan sales in 2022 compared to 2021, which was offset by the change in other assets and liabilities.  Net cash provided by investing activities was $14.5 million for the first three months of 2022 compared to net cash used of $104.3 million in the same period in 2021. ChoiceOne had $31.4 million of securities purchases and sold $0 of securities in the first three months of 2022 compared to $179.2 million and $0 in the same period in 2021, respectively.  A decline in net loan originations and payments led to cash provided of $31.8 million in the first three months of 2022 compared to $63.1 million in the same period during the prior year.  Net cash provided by financing activities was $40.8 million for the first three months ended 2022, compared to $157.9 million in the same period in the prior year. ChoiceOne experienced growth of $93.3 million in deposits in the first three months of 2022 compared to $165.4 million in 2021, with a $44.2 million decrease in borrowings contributing to the change. ChoiceOne believes that the current level of liquidity is sufficient to meet ChoiceOne Bank's normal operating needs. This belief is based upon the availability of deposits from both the local and national markets, maturities of securities, normal loan repayments, income retention, federal funds purchased from correspondent banks, advances available from the Federal Home Loan Bank, and secured lines of credit available from the Federal Reserve Bank. 30 PART II.  OTHER INFORMATION Item 1. Legal 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. In the belief of management, pending or current legal proceedings should not have a material effect on the consolidated financial condition of ChoiceOne. 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, 2021. Item 2. Un registered Sales of Equity Securities and Use of Proceeds . There were no unregistered sales of equity securities in the first quarter of 2022. 31 ISSUER PURCHASES OF EQUITY SECURITIES The following table provides information regarding ChoiceOne's purchases of its common stock during the quarter ended March 31, 2022. Total Number Maximum of Shares Number of Total Purchased as Shares that Number Average Part of a May Yet be of Shares Price Paid Publicly Purchased Period Purchased per Share Announced Plan Under the Plan (1) January 1 - January 31, 2022 Employee Transactions - $ - - - Repurchase Plan 14,391 $ 26.43 14,391 66,449 February 1 - March 1, 2022 Employee Transactions - $ - - - Repurchase Plan 11,508 $ 26.26 11,508 54,941 March 2 - April 1, 2022 Employee Transactions - $ - - - Repurchase Plan - $ - - 54,941 (1) As of March 31, 2022 , there are 54,941 shares remaining that may yet be purchased under approved plans. The repurchase plan was adopted and announced in April 2021. There was no stated expiration date. The plan authorized the repurchase of up to 390,114 shares, representing 5% of the total outstanding shares of common stock as of the date the plan was adopted. Item 5. Other Information None. Item 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 8-A filed February 4, 2020.  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 Treasurer 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) 32 SIGNATURES 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 13, 2022 /s/ Kelly J. Potes Kelly J. Potes Chief Executive Officer (Principal Executive Officer) Date:   May 13, 2022 /s/ Adom J. Greenland Adom J. Greenland Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 33