    December 31, 2022 and 2021: Table 6 – Sensitivity to Changes in Interest Rates 2022 Net Market (Dollars in thousands) Interest Percent Value of Percent Income Change Equity Change Change in Interest Rate 200 basis point rise 61,826 -11 % 355,701 15 % 100 basis point rise 66,025 -5 % 338,913 9 % Base rate scenario 69,734 0 % 309,801 0 % 100 basis point decline 71,788 3 % 260,889 -16 % 200 basis point decline 71,276 2 % 181,078 -42 % 2021 Net Market (Dollars in thousands) Interest Percent Value of Percent Income Change Equity Change Change in Interest Rate 200 basis point rise 60,058 -1 % 416,435 -5 % 100 basis point rise 60,482 -1 % 437,975 - % Base rate scenario 60,970 - % 439,144 - % 100 basis point decline 59,132 -3 % 390,180 -11 % 200 basis point decline 57,503 -6 % 326,201 -26 % As of December 31, 2022, the Bank was within its guidelines for immediate rate shocks up and down for all net interest income scenarios and for the up rate scenarios for the market value of shareholders’ equity. The Bank’s percent change in the 100 and 200 basis points down scenarios for the market value of shareholders’ equity was higher than the policy guidelines. As of December 31, 2021, the Bank was within its guidelines for immediate rate shocks up and down for all net interest income scenarios and for the up rate scenarios and the down 100 and down 200 basis points scenarios for the market value of shareholders’ equity.  The ALCO plans to continue to monitor the effect of changes in interest rates on both net interest income and shareholders’ equity and will make changes in the duration of its rate-sensitive assets and rate-sensitive liabilities where necessary. 34 Table of Contents Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of ChoiceOne Financial Services, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of ChoiceOne Financial Services, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion The Company's management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates. 35 Table of Contents Allowance for Loan Losses - Current Factor Adjustments - Refer to Notes 1 and 3 to the Consolidated Financial Statements Critical Audit Matter Description The general component of management’s estimate of the allowance for loan losses covers nonimpaired 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. Identification of factors to consider and adjustments to those factors involve management’s judgement. Given the significant estimates and assumptions management makes to estimate the current factor adjustments of the allowance for loan losses, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the current factor adjustments used in the estimate of the allowance for loan losses included the following, among othe ● We obtained an understanding of management’s process for determining the current factor adjustments, which included identification of internal and external data used in the analysis and understanding how management selects inputs from a range of potential assumptions. ● We evaluated the design of controls over management’s allowance for loan losses estimate, including those over current factor adjustments. ● We evaluated management’s selection of factors to consider when making current factor adjustments. ● We evaluated management's determination of adjustments for each factor, including evaluation of each adjustment for consistency with the direction and magnitude of changes in internal and external data. /s/Plante & Moran, PLLC We have served as the Company’s auditor since 2006. Grand Rapids, MI March 22, 2023 36 Table of Contents ChoiceOne Financial Services, Inc. Consolidated Balance Sheets December 31, (Dollars in thousands) 2022 2021 Assets Cash and due from banks $ 43,593 $ 31,537 Time deposits in other financial institutions 350 350 Cash and cash equivalents 43,943 31,887 Equity securities, at fair value (Note 2) 8,566 8,492 Securities available for sale, at fair value (Note 2) 529,749 1,098,885 Securities held to maturity, at amortized cost (Note 2) 425,906 - Federal Home Loan Bank stock 3,517 3,824 Federal Reserve Bank stock 5,064 5,064 Loans held for sale 4,834 9,351 Loans to other financial institutions - 42,632 Loans (Note 3) 1,189,782 1,016,848 Allowance for loan losses (Note 3) ( 7,619 ) ( 7,688 ) Loans, net 1,182,163 1,009,160 Premises and equipment, net (Note 5) 28,232 29,880 Other real estate owned, net (Note 7) - 194 Cash value of life insurance policies 43,978 43,356 Goodwill (Note 6) 59,946 59,946 Core deposit intangible (Note 6) 2,809 3,962 Other assets 47,208 20,049 Total assets $ 2,385,915 $ 2,366,682 Liabilities Deposits – noninterest-bearing (Note 9) $ 599,579 $ 560,931 Deposits – interest-bearing (Note 9) 1,518,424 1,491,363 Total deposits 2,118,003 2,052,294 Borrowings (Note 10) 50,000 50,000 Subordinated debentures (Note 11) 35,262 35,017 Other liabilities 13,776 7,702 Total liabilities 2,217,041 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 15,000,000 ; shares outstandin 7,516,098 at December 31, 2022 and 7,510,379 at December 31, 2021 (Note 16) 172,277 171,913 Retained earnings 68,394 52,332 Accumulated other comprehensive income, net ( 71,797 ) ( 2,576 ) Total shareholders’ equity 168,874 221,669 Total liabilities and shareholders’ equity $ 2,385,915 $ 2,366,682 See accompanying notes to consolidated financial statements. 37 Table of Contents ChoiceOne Financial Services, Inc. Consolidated Statements of Income Years Ended (Dollars in thousands, except per share data) December 31, 2022 2021 2020 Interest income Loans, including fees $ 52,823 $ 48,657 $ 46,874 Securiti Taxable 15,583 10,260 5,891 Tax exempt 6,163 5,617 2,684 Other 491 84 266 Total interest income 75,060 64,618 55,715 Interest expense Deposits 5,845 3,305 4,178 Advances from Federal Home Loan Bank 117 22 220 Other 1,784 650 246 Total interest expense 7,746 3,977 4,644 Net interest income 67,314 60,641 51,071 Provision for loan losses 250 416 4,000 Net interest income after provision for loan losses 67,064 60,225 47,071 Noninterest income Customer service charges 9,350 8,628 7,252 Insurance and investment commissions 779 765 541 Mortgage servicing rights (Note 4) 1,007 2,335 3,180 Gains on sales of loans (Note 4) 1,336 4,441 8,133 Net (losses) gains on sales of securities (Note 2) ( 809 ) ( 40 ) 1,308 Net (losses) gains on sales and write-downs of other assets (Note 7) 99 6 ( 13 ) Earnings on life insurance policies 1,312 809 772 Trust income 734 790 739 Change in market value of equity securities ( 955 ) 479 ( 155 ) Other 1,219 981 941 Total noninterest income 14,072 19,194 22,698 Noninterest expense Salaries and benefits (Note 14 and 15) 30,391 29,300 26,539 Occupancy and equipment (Note 5) 6,189 6,168 5,783 Data processing 6,729 6,189 6,765 Professional fees 2,175 3,009 3,716 Supplies and postage 719 614 844 Advertising and promotional 764 848 588 Intangible amortization (Note 6) 1,153 1,307 1,498 FDIC insurance 722 804 450 Other 4,636 4,682 4,701 Total noninterest expense 53,478 52,921 50,884 Income before income tax 27,658 26,498 18,885 Income tax expense 4,018 4,456 3,272 Net income $ 23,640 $ 22,042 $ 15,613 Basic earnings per share (Note 16) $ 3.15 $ 2.87 $ 2.08 Diluted earnings per share (Note 16) $ 3.15 $ 2.86 $ 2.07 Dividends declared per share $ 1.01 $ 0.94 $ 0.82 See accompanying notes to consolidated financial statements. 38 Table of Contents ChoiceOne Financial Services, Inc. Consolidated Statements of Comprehensive Income Years Ended (Dollars in thousands) December 31, 2022 2021 2020 Net income $ 23,640 $ 22,042 $ 15,613 Other comprehensive income: Change in net unrealized gain (loss) on available-for-sale securities ( 91,923 ) ( 17,261 ) 13,554 Income tax benefit (expense) 19,304 3,625 ( 2,846 ) L reclassification adjustment for net (gain) loss included in net income 809 39 ( 1,308 ) Income tax benefit (expense) ( 170 ) ( 7 ) 275 L reclassification adjustment for net (gain) loss for fair value hedge 1,930 - - Income tax benefit (expense) ( 405 ) - - L net unrealized (gains) losses on securities transferred from available-for-sale to held-to-maturity 3,404 - - Income tax benefit (expense) ( 715 ) - - Unrealized gain (loss) on available-for-sale securities, net of tax ( 67,766 ) ( 13,604 ) 9,675 Reclassification of unrealized gain (loss) upon transfer of securities from available-for-sale to held-to-maturity ( 3,404 ) - - Income tax benefit (expense) 715 - - L amortization of net unrealized (gains) losses on securities transferred from available-for-sale to held-to-maturity 351 - - Income tax benefit (expense) ( 74 ) - - Unrealized loss on held to maturity securities, net of tax ( 2,412 ) - - Change in net unrealized gain (loss) on derivatives ( 558 ) - - Income tax benefit (expense) 117 - - L reclassification adjustment for net (gain) loss on derivatives 771 - - Income tax benefit (expense) ( 162 ) - - L amortization of net unrealized (gains) losses included in net income 999 - - Income tax benefit (expense) ( 210 ) - - Unrealized gain (loss) on derivative instruments, net of tax 957 - - Change in adjustment for postretirement - - ( 158 ) Income tax benefit (expense) - - 33 Unrealize gain (loss) on postretirement - - ( 125 ) Other comprehensive income (loss), net of tax ( 69,221 ) ( 13,604 ) 9,550 Comprehensive income (loss) $ ( 45,581 ) $ 8,438 $ 25,163 See accompanying notes to consolidated financial statements. 39 Table of Contents ChoiceOne Financial Services, Inc. Consolidated Statements of Changes in Shareholders’ Equity 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, 2020 7,245,088 $ 162,610 $ 28,051 $ 1,478 $ 192,139 Net income 15,613 15,613 Other comprehensive income 9,550 9,550 Shares issued 19,583 451 451 Effect of employee stock purchases 24 24 Stock options exercised and issued (1) 7,261 - Stock-based compensation expense 171 171 Restricted stock units issued 365 - Merger with Community Shores Bank Corporation 524,055 15,494 15,494 Cash dividends declared ($ 0.82 per share) ( 6,174 ) ( 6,174 ) Balance, December 31, 2020 7,796,352 $ 178,750 $ 37,490 $ 11,028 $ 227,268 Net income 22,042 22,042 Other comprehensive income ( 13,604 ) ( 13,604 ) Shares issued 23,301 509 509 Effect of employee stock purchases 25 25 Stock-based compensation expense - 415 415 Shares repurchased ( 309,274 ) ( 7,786 ) ( 7,786 ) Cash dividends declared ($ 0.94 per share) ( 7,200 ) ( 7,200 ) Balance, December 31, 2021 7,510,379 $ 171,913 $ 52,332 $ ( 2,576 ) $ 221,669 Net income 23,640 23,640 Other comprehensive income (loss) ( 69,221 ) ( 69,221 ) Shares issued 31,618 461 461 Effect of employee stock purchases 31 31 Stock-based compensation expense 554 554 Shares repurchased ( 25,899 ) ( 682 ) ( 682 ) Cash dividends declared ($ 1.01 per share) ( 7,578 ) ( 7,578 ) Balance, December 31, 2022 7,516,098 $ 172,277 $ 68,394 $ ( 71,797 ) $ 168,874 (1) The amount shown represents the number of shares issued in cashless transactions where some taxes are netted on a portion of the exercises. See accompanying notes to consolidated financial statements. 40 Table of Contents ChoiceOne Financial Services, Inc. Consolidated Statements of Cash Flows Years Ended (Dollars in thousands) December 31, 2022 2021 2020 Cash flows from operating activiti Net income $ 23,640 $ 22,042 $ 15,613 Adjustments to reconcile net income to net cash from operating activiti Provision for loan losses $ 250 416 4,000 Depreciation 2,658 2,624 2,721 Amortization 10,684 9,801 4,985 Compensation expense on employee and director stock purchases, stock options, and restricted stock units 958 812 512 Net (gains) losses on sales of securities 809 40 ( 1,308 ) Net change in market value of equity securities 955 ( 479 ) 155 Gains on sales of loans and capitalized servicing rights ( 2,343 ) ( 6,776 ) ( 11,313 ) Loans originated for sale ( 71,829 ) ( 197,387 ) ( 326,286 ) Proceeds from loan sales 77,681 205,398 325,306 Earnings on bank-owned life insurance ( 1,038 ) ( 778 ) ( 772 ) Proceeds from BOLI policy 690 204 - Earnings on death benefit from bank-owned life insurance ( 274 ) ( 31 ) - (Gains) on sales of other real estate owned ( 41 ) ( 19 ) ( 64 ) Write downs of ORE - - 80 Proceeds from sales of other real estate owned 235 611 1,384 Costs capitalized to other real estate - - ( 19 ) Deferred federal income tax expense ( 15 ) 924 202 Net change in: Other assets ( 4,208 ) ( 5,418 ) ( 3,186 ) Other liabilities 6,205 5,715 ( 3,532 ) Net cash provided by operating activities $ 45,017 37,699 8,478 Cash flows from investing activiti Sales of securities available for sale 47,167 29,742 121,942 Maturities, prepayments and calls of securities available for sale 51,570 54,202 48,787 Maturities, prepayments and calls of securities held to maturity 8,091 - - Purchases of securities available for sale ( 55,053 ) ( 632,826 ) ( 375,470 ) Purchases of securities held to maturity ( 7,505 ) - - Purchases of equity securities ( 1,029 ) ( 5,117 ) ( 200 ) Purchase of bank-owned life insurance policies - ( 10,000 ) - Loan originations and payments, net ( 130,620 ) 45,384 ( 79,594 ) Additions to premises and equipment ( 1,164 ) ( 2,759 ) ( 1,852 ) Proceeds from (payments for) derivative contracts, net ( 1,953 ) - - Cash received from merger with Community Shores Bank Corporation - - 35,636 Net cash (used in)/provided by investing activities ( 90,496 ) ( 521,374 ) ( 250,751 ) Cash flows from financing activiti Net change in deposits 65,709 377,716 292,145 Proceeds from borrowings 726,000 87,500 10,050 Payments on borrowings ( 726,000 ) ( 14,326 ) ( 33,921 ) Issuance of common stock 172 139 134 Repurchase of common stock ( 767 ) ( 7,786 ) - Cash dividends and fractional shares from merger ( 7,578 ) ( 7,200 ) ( 6,174 ) Net cash provided by/(used in) financing activities 57,536 436,043 262,234 Net change in cash and cash equivalents 12,057 ( 47,632 ) 19,961 Beginning cash and cash equivalents 31,887 79,519 59,558 Ending cash and cash equivalents $ 43,943 $ 31,887 $ 79,519 Supplemental disclosures of cash flow informati Cash paid for interest $ 7,577 $ 3,718 $ 4,872 Cash paid for income taxes 1,989 3,251 5,001 Loans transferred to other real estate owned - 520 372 See accompanying notes to consolidated financial statements. 41 Table of Contents 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 (the "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. Recent Mergers On July 1, 2020, ChoiceOne completed the merger of Community Shores Bank Corporation ("Community Shores") with and into ChoiceOne with ChoiceOne surviving the merger. Accordingly, the reported consolidated financial condition and operating results as of and for the years ended December 31, 2020 and December 31, 2021 include the impact of the merger. On October 1, 2019, ChoiceOne completed the merger of County Bank Corp. ("County") with and into ChoiceOne with ChoiceOne surviving the merger. Accordingly, the reported consolidated financial condition and operating results as of and for the years ended December 31, 2019, December 31, 2020, and December 31, 2021 include the impact of the merger. Nature of Operations The Bank is a full-service community bank that offers commercial, consumer, and real estate loans as well as traditional demand, savings and time deposits to both commercial and consumer clients within the Bank’s primary market areas in Kent, Muskegon, Newaygo, and Ottawa counties in western Michigan and Lapeer, Macomb, and St. Clair counties in southeastern Michigan. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and real estate. Commercial loans are expected to be repaid from the cash flows from operations of businesses. Real estate loans are collateralized by either residential or commercial real estate. The Insurance Agency is a wholly-owned subsidiary of the Bank. The Insurance Agency sells insurance policies such as life and health for both commercial and consumer clients. The Insurance Agency also offers alternative investment products such as annuities and mutual funds through a registered broker. Together, the Bank and ChoiceOne's other direct and indirect subsidiaries account for substantially all of ChoiceOne’s assets, revenues and operating income. 42 Table of Contents Use of Estimates To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, ChoiceOne’s management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. These estimates and assumptions are subject to many risks and uncertainties,  Actual results may differ from these estimates. Estimates associated with the allowance for loan losses are particularly susceptible to change. Cash and Cash Equivalents Cash and cash equivalents are defined to include cash on hand, demand deposits with other banks, and federal funds sold. Cash flows are reported on a net basis for customer loan and deposit transactions, deposits with other financial institutions, and short-term borrowings with original terms of 90 days or less. Securities Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. ​ Debt securities are classified as available for sale because they might be sold before maturity. Debt securities classified as available for sale are carried at fair value, with unrealized holding gains and losses reported separately in the accumulated other comprehensive income or loss section of shareholders’ equity, net of tax effect. Restricted investments in Federal Reserve Bank stock and Federal Home Loan Bank stock are carried at cost. Equity securities consist of investments in preferred stock and investments in common stock of other financial institutions. Equity securities are reported at their fair value with changes in market value reported through current earnings. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized using the level-yield method without anticipating prepayments. Gains or losses on sales are recorded on the trade date based on the amortized cost of the security sold. Management evaluates debt securities for other-than-temporary impairment ("OTTI") on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The evaluation of securities includes consideration of the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, whether the market decline was affected by macroeconomic conditions and whether ChoiceOne has the intent to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. In analyzing an issuer's financial condition, management may consider whether the securities are issued by the federal government or its agencies, or U.S. Government sponsored enterprises, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer's financial condition. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether ChoiceOne intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If ChoiceOne intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment. If a security is determined to be other-than-temporarily impaired, but ChoiceOne does not intend to sell the security, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss recognized in other comprehensive income. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, remaining purchase accounting adjustments, and an allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis. Interest income on loans is reported on the interest method and includes amortization of net deferred loan fees and costs over the estimated loan term. Interest on loans is accrued based upon the principal balance outstanding. The accrual of interest is discontinued at the time at which loans are 90 days past due unless the loan is secured by sufficient collateral and is in the process of collection. Past due status is based on the contractual terms of the loan. Loans are placed into nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. Interest accrued but not received is reversed against interest income when the loans are placed into nonaccrual status. Interest received on such loans is applied to principal until qualifying for return to accrual. Loans are returned to accrual basis when all the principal and interest amounts contractually due are brought current and future payment is reasonably assured. No allowance for loan loss is recorded for loans acquired in a business combination unless losses are incurred subsequent to the acquisition date. Acquired loans are considered purchased credit impaired (“PCI”) if as of the acquisition date, management determines the loan has evidence of deterioration in credit quality since origination and it is probable at acquisition the Company will be unable to collect all contractually required payments. The discount related to credit quality for PCI loans is recorded as an adjustment to the loan balance as of the acquisition date and is not accreted into income. Management subsequently estimates expected cash flows on an individual loan basis. If the present value of expected cash flows is less than a loan's carrying amount, an allowance for loan loss is recorded through the provision for loan losses. If the present value of expected cash flows is greater than the carrying amount, the excess may be reclassified to an accretable difference and recognized into income over the loan's remaining life. For non-PCI loans, the difference between acquisition date fair value and expected cash flows is accreted into income over a pool's expected life using the level yield method. 43 Table of Contents Loans to Other Financial Institutions Loans to other financial institutions are made for the purpose of providing a warehouse line of credit to facilitate funding of residential mortgage loan originations at other financial institutions. The loans are short-term in nature and are designed to provide funding for the time period between the loan origination and its subsequent sale in the secondary market. Loans to other financial institutions earn a share of interest income, determined by the contract, from when the loan is funded to when the loan is sold on the secondary market.  Loans to other financial institutions are excluded from Note 3. Loans to other financial institutions were suspended at the end of the third quarter 2022 to preserve liquidity for loan growth. 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. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Land is carried at cost. Land improvements are depreciated using the straight-line method with useful lives ranging from 7 to 15 years. Building and related components are depreciated using the straight-line method with useful lives ranging from 5 to 39 years. Leasehold improvements are depreciated over the shorter of the estimated life or the lease term. Furniture and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 7 years. Fixed assets are periodically reviewed for impairment. If impaired, the assets are recorded at fair value. Other Real Estate Owned Real estate properties acquired in the collection of a loan are initially recorded at the lower of the Bank’s basis in the loans or fair value at acquisition establishing a new cost basis. Any reduction to fair value from the carrying value of the related loan is accounted for as a loan loss. After acquisition, a valuation allowance reduces the reported amount to the lower of the initial amount or fair value less costs to sell. Expenses to repair or maintain properties are included within other noninterest expenses. Gains and losses upon disposition and changes in the valuation allowance are reported net within noninterest income. Bank Owned Life Insurance Bank owned life insurance policies are stated at the current cash surrender value of the policy, or the policy death proceeds less any obligation to provide a death benefit to an insured’s beneficiaries if that value is less than the cash surrender value. Increases in the asset value are recorded as earnings in other income. Loan Servicing Rights Loan servicing rights represent the allocated value of servicing rights on loans sold with servicing retained. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Servicing rights are initially recorded at estimated fair value and fair value is determined using prices for similar assets with similar characteristics when available or based upon discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance. Goodwill and Intangible Assets 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. 44 Table of Contents 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. Loan Commitments and Related Financial Instruments Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet financing needs of customers. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Employee Benefit Plans ChoiceOne’s 401 (k) plan allows participants to make contributions to their individual accounts under the plan in amounts up to the IRS maximum. Employer matching contributions from ChoiceOne to its 401 (k) plan are discretionary. Income Taxes Income tax expense is the sum of the current year income tax due and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. Earnings Per Share Basic earnings per common share ("EPS") is based on weighted-average common shares outstanding. Diluted EPS assumes issuance of any dilutive potential common shares issuable under stock options or restricted stock units granted. Comprehensive Income Comprehensive income consists of net income and other comprehensive income or loss. Other comprehensive income or loss includes unrealized gains and losses on securities available for sale and changes in the funded status of derivative instruments, net of tax, which are also recognized as a separate component of shareholders’ equity. Accumulated other comprehensive income was as follows: (Dollars in thousands) As of December 31, 2022 2021 Unrealized gain (loss) on available-for-sale securities $ ( 89,041 ) $ ( 3,261 ) Unrealized gain (loss) on held to maturity securities ( 3,053 ) — Unrealized gain (loss) on derivative instruments 1,212 Tax effect 19,085 685 Accumulated other comprehensive income (loss) $ ( 71,797 ) $ ( 2,576 ) L oss Contingencies Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe that there are any such matters that may have a material effect on the financial statements as of December 31, 2022 . Cash Restrictions Cash on hand or on deposit with the Federal Reserve Bank was 