CHOICEONE FINANCIAL SERVICES INC Income Taxes Disclosure
Note 12 – Income Taxes
The following tables present an allocation of federal income taxes between current and deferred portions and a reconciliation of federal income taxes at the statutory federal rate of 21% to ChoiceOne's effective tax rates for the years ended December 31:
(Dollars in thousands) |
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2025 |
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2024 |
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|
2023 |
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Provision for Income Taxes |
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Current federal income tax expense |
|
$ |
6,125 |
|
|
$ |
6,633 |
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|
$ |
4,330 |
|
Deferred federal income tax expense/(benefit) |
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|
(113 |
) |
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|
(271 |
) |
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|
(24 |
) |
Income tax expense |
|
$ |
6,012 |
|
|
$ |
6,362 |
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|
$ |
4,306 |
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Reconciliation of Income Tax Provision to Statutory Rate |
|
2025 |
|
|
% |
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Income tax computed at statutory federal rate of 21% |
|
$ |
7,179 |
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|
21 |
% |
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|
Tax credits |
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Low-income housing and historic tax credits |
|
|
(254 |
) |
|
|
-0.7 |
% |
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|
Energy credits |
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|
(399 |
) |
|
|
-1.2 |
% |
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|
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QZAB credits |
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|
(65 |
) |
|
|
-0.2 |
% |
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Nontaxable and nondeductible items |
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Tax exempt interest income |
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(1,226 |
) |
|
|
-3.6 |
% |
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|
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|
Tax exempt earnings on bank-owned life insurance |
|
|
(495 |
) |
|
|
-1.4 |
% |
|
|
|
|
Disallowed interest expense |
|
|
967 |
|
|
|
2.8 |
% |
|
|
|
|
Nondeductible expenses |
|
|
242 |
|
|
|
0.7 |
% |
|
|
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Other |
|
|
63 |
|
|
|
0.2 |
% |
|
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|
Income tax expense |
|
$ |
6,012 |
|
|
|
17.6 |
% |
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Reconciliation of Income Tax Provision to Statutory Rate |
|
2024 |
|
|
2023 |
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Income tax computed at statutory federal rate of 21% |
|
$ |
6,949 |
|
|
$ |
5,369 |
|
|
|
|
|
Tax exempt interest income |
|
|
(1,214 |
) |
|
|
(1,206 |
) |
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|
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|
Tax exempt earnings on bank-owned life insurance |
|
|
(406 |
) |
|
|
(230 |
) |
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|
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|
Tax credits |
|
|
(264 |
) |
|
|
(282 |
) |
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|
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|
Disallowed interest expense |
|
|
1,061 |
|
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|
752 |
|
|
|
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Nondeductible merger expenses |
|
|
185 |
|
|
|
- |
|
|
|
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Other items |
|
|
51 |
|
|
|
(97 |
) |
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Income tax expense |
|
$ |
6,362 |
|
|
$ |
4,306 |
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Effective income tax rate |
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|
19 |
% |
|
|
17 |
% |
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The following table presents the components of the deferred tax assets and liabilities at December 31:
(Dollars in thousands) |
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Components of Deferred Tax Assets and Liabilities |
|
2025 |
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|
2024 |
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Deferred tax assets: |
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Purchase accounting adjustments from mergers with County, Community Shores and Fentura |
|
$ |
11,269 |
|
|
$ |
273 |
|
Allowance for credit losses |
|
|
7,465 |
|
|
|
3,476 |
|
Unrealized losses on securities available for sale |
|
|
11,820 |
|
|
|
14,942 |
|
Net operating loss carryforward |
|
|
388 |
|
|
|
427 |
|
Unfunded commitment reserve |
|
|
283 |
|
|
|
312 |
|
Compensation |
|
|
1,934 |
|
|
|
816 |
|
Other |
|
|
1,658 |
|
|
|
658 |
|
Total deferred tax assets |
|
|
34,817 |
|
|
|
20,904 |
|
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Deferred tax liabilities: |
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Purchase accounting adjustments from mergers with County, Community Shores and Fentura |
|
|
7,126 |
|
|
|
442 |
|
Loan servicing rights |
|
|
1,906 |
|
|
|
709 |
|
Depreciation |
|
|
2,626 |
|
|
|
637 |
|
Interest rate derivative contracts |
|
|
2,337 |
|
|
|
4,900 |
|
Deferred loan fees and costs, net |
|
|
66 |
|
|
|
67 |
|
Other |
|
|
1,300 |
|
|
|
384 |
|
Total deferred tax liabilities |
|
|
15,361 |
|
|
|
7,139 |
|
Net deferred tax asset (liability) |
|
$ |
19,456 |
|
|
$ |
13,765 |
|
As of December 31, 2025, deferred tax assets included federal net operating loss carryforwards of approximately $1.8 million which were acquired through the merger with Community Shores. The loss carryforwards expire at various dates from 2031 to 2035. Deferred tax assets are recognized for net operating losses because the benefit is more likely than not to be realized. Under Internal Revenue Code Section 382, ChoiceOne is limited to applying approximately $185,000 of net operating losses per year.
The Company and its subsidiaries file federal income tax returns in the United States. The Company is generally no longer subject to U. S. federal income tax examinations by tax authorities for tax years before 2022.
On July 4, 2025, new tax legislation referred to as the One Big Beautiful Bill Act was enacted into law by the federal government. The tax provisions of the One Big Beautiful Bill Act did not have a material impact on our income tax expense. The retroactive extension of bonus depreciation and immediate deductibility of research and experimentation expenses has afforded the Company additional income tax deductions for 2025, reducing the anticipated income taxes payable for 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 13, 2026 | Showing above |
| 2024 | Mar 11, 2025 | |
| 2023 | Mar 13, 2024 | |
| 2022 | Mar 23, 2023 | |
| 2021 | Mar 18, 2022 | |
| 2020 | Apr 1, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 18, 2019 | |
| 2017 | Mar 29, 2018 | |
| 2016 | Mar 27, 2017 | |
| 2015 | Mar 28, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.