ChoiceOne Reports Second Quarter 2025 Results

SPARTA, Mich., July 25, 2025 /PRNewswire/ -- ChoiceOne Financial Services, Inc. ("ChoiceOne", NASDAQ:COFS), the parent company for ChoiceOne Bank, reported financial results for the quarter ended June 30, 2025.  On March 1, 2025, ChoiceOne completed the merger (the "Merger") of Fentura Financial, Inc. ("Fentura"), the former parent company of The State Bank, with and into ChoiceOne with ChoiceOne surviving the merger.  On March 14, 2025, the consolidation of The State Bank with and into ChoiceOne Bank with ChoiceOne Bank surviving the consolidation was completed. 

Significant items impacting comparable second quarter 2024 and 2025 results include the following:

• The total assets, loans and deposits acquired in the Merger were approximately $1.8 billion, $1.4 billion and $1.4 billion, respectively.   
• Merger related expenses, net of taxes, of approximately $132,000 and $13.9 million ($0.01 and $1.08 per diluted share) for the three and six months ended June 30, 2025, respectively.  Management does not anticipate material merger expenses going forward.
• Merger related provision for credit losses, net of taxes, of $9.5 million during the first quarter ended March 31, 2025, or $0.73 per diluted share as of June 30, 2025.

Highlights

• ChoiceOne reported net income of $13,534,000 and a net loss of $372,000 for the three and six months ended June 30, 2025, compared to net income of $6,586,000 and $12,220,000 for the same periods in the prior year, respectively.  Net income excluding merger expenses, net of taxes, and merger related provision for credit losses, net of taxes was $13,666,000 and $22,976,000 for the three and six months ended June 30, 2025, respectively.
• Diluted earnings per share was $0.90 for the three months ended June 30, 2025 and diluted loss per share was $0.03 per share for the six months ended June 30, 2025, compared to diluted earnings per share of $0.87 and $1.61 in the same periods in the prior year.  Diluted earnings per share excluding merger expenses, net of taxes, and merger related provision for credit losses, net of taxes, were $0.91 and $1.78 for the three and six months ended June 30, 2025.
• In the second quarter of 2025, ChoiceOne's GAAP net interest margin rose significantly to 3.66%, up from 2.95% in the same period of 2024. GAAP net interest income also saw a substantial increase, reaching $36.3 million compared to $18.4 million in the second quarter of 2024. This growth was primarily due to the additional net interest income added through the Merger beginning on March 1, 2025. Accretion income from purchased loans increased GAAP net interest margin by 36 basis points for the second quarter of 2025.  
• Core loans, which exclude held for sale loans and loans to other financial institutions, declined by $4.8 million or less than 1% on an annualized basis during the second quarter of 2025 and grew organically by $140.1 million or 10.0% during the twelve months ended June 30, 2025.  Core loans grew by $1.4 billion due to the Merger on March 1, 2025.  Loan interest income increased $24.6 million in the second quarter of 2025 compared to the same period in 2024.  Interest income for the three months ended June 30, 2025 includes $3.5 million of interest income accretion due to loans purchased.
• Deposits, excluding brokered deposits, declined by $98.0 million as of June 30, 2025, compared to March 31, 2025, primarily due to seasonal municipal fluctuations and some reduction of higher cost deposits acquired from the Merger. 
• Asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.06% and nonperforming loans to total loans (excluding loans held for sale) of 0.66% as of June 30, 2025.  Notably, 0.41% of the nonperforming loans to total loans (excluding loans held for sale) is attributed to loans purchased with credit deterioration acquired through the Merger.  

"We are pleased to report another outstanding quarter at ChoiceOne, highlighted by record net income and an expansion in our net interest margin," said Kelly Potes, Chief Executive Officer. "These results reflect the successful execution of our strategic merger with Fentura and The State Bank, which has strengthened our market position and enhanced our ability to serve our communities.  As we move forward, we remain focused on delivering long-term value to our customers, employees, and shareholders."

ChoiceOne reported net income of $13,534,000 and a net loss of $372,000 for the three and six months ended June 30, 2025, compared to net income of $6,586,000 and $12,220,000 for the same periods in the prior year, respectively.  Net income excluding merger expenses, net of taxes, and merger related provision for credit losses, net of taxes was $13,666,000 and $22,976,000 for the three and six months ended June 30, 2025, respectively.  Diluted earnings per share was $0.90 for the three months ended June 30, 2025 and diluted loss per share was $0.03 per share for the six months ended June 30, 2025, compared to diluted earnings per share of $0.87 and $1.61 in the same periods in the prior year.  Diluted earnings per share excluding merger expenses, net of taxes, and merger related provision for credit losses, net of taxes, were $0.91 and $1.78 for the three and six months ended June 30, 2025.

As of June 30, 2025, total assets were $4.3 billion, an increase of $1.7 billion compared to June 30, 2024.  The growth is primarily attributed to the Merger.  This growth was offset by a $33.5 million reduction in loans to other financial institutions and a $14.5 million reduction in securities on June 30, 2025 compared to June 30, 2024.  Loans to other financial institutions consist of a warehouse line of credit used to facilitate mortgage loan originations, with interest rates that fluctuate in line with the national mortgage market. This decline is attributed to ChoiceOne's strategic shift towards a higher percentage of internally driven originations.  The reduction in securities occurred as ChoiceOne chose to restructure much of the acquired securities portfolio purchased in the Merger in order to reduce high cost wholesale funding. 

Core loans, which exclude held for sale loans and loans to other financial institutions, declined by $4.8 million or less than 1% on an annualized basis during the second quarter of 2025 and grew organically by $140.1 million or 10.0% during the twelve months ended June 30, 2025.  Core loans grew by $1.4 billion due to the Merger on March 1, 2025.  Loan interest income increased $24.6 million in the second quarter of 2025 compared to the same period in 2024.  Interest income for the three months ended June 30, 2025 includes $3.5 million of interest income accretion due to loans purchased.  Of this amount, $2.4 million was calculated using the effective interest rate method of amortization, while the remaining $1.1 million resulted from accretion through unexpected payoffs and paydowns of loans with an associated fair value mark.  Estimated accretion income from purchased loans for the remainder of 2025 using the effective interest method of amortization is $4.1 million; however, actual results will be dependent on prepayment speeds and other factors.

Deposits, excluding brokered deposits, declined by $98.0 million as of June 30, 2025,compared to March 31, 2025, primarily due to seasonal municipal fluctuations and some reduction of higher cost deposits acquired from the Merger.  Deposits, excluding brokered deposits, increased by $1.4 billion  as of June 30, 2025, compared to June 30, 2024 as a result of the Merger.  ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits and FHLB advances to ensure ample liquidity.  At June 30, 2025, total available borrowing capacity secured by pledged assets was $1.2 billion. ChoiceOne can increase its borrowing capacity by utilizing unsecured federal fund lines and pledging additional assets.  Uninsured deposits totaled $1.1 billion or 29.6% of deposits at June 30, 2025.

ChoiceOne's annualized cost of deposits to average total deposits has increased by 9 basis points from June 30, 2024 to June 30, 2025, as higher cost deposits were acquired in the Merger.  The increase was slightly offset by the decline in the cost of CD's during the same time period.  ChoiceOne has been able to mitigate the increase in the annualized cost of deposits to average total deposits by paying down borrowings in order to decrease the cost of funds to average total deposits to an annualized 1.84% in the second quarter of 2025, down from 1.92% in the second quarter of 2024. If rates continue to decline, we anticipate further reductions in deposit costs, although these will be tempered by decreased cash flows from pay-fixed interest rate swaps.  Interest expense on borrowings for the three months ended June 30, 2025, declined by $536,000 compared to the same period in the prior year.  As of June 30, 2025, the total borrowed balance at the FHLB was $195.0 million at a weighted average fixed rate of 4.36%, with $155.0 million due within 12 months.

The provision for credit losses on loans was $650,000 in the second quarter of 2025, due primarily to changes in forecast metrics per the Federal Open Market Committee.  The ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 1.19% on June 30, 2025 compared to 1.07% on December 31, 2024.  Asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.06% and nonperforming loans to total loans (excluding loans held for sale) of 0.66% as of June 30, 2025.  Notably, 0.41% of the nonperforming loans to total loans (excluding loans held for sale) is attributed to loans purchased with credit deterioration acquired through the Merger.  

ChoiceOne uses interest rate swaps to manage interest rate exposure to certain fixed rate assets and variable rate liabilities.  On June 30, 2025, ChoiceOne held pay-fixed interest rate swaps with a total notional value of $351.0 million, a weighted average coupon of 3.12%, a fair value of $7.9 million and an average remaining contract length of 6.9 years.  These derivative instruments change in value as rates rise or fall inverse to the change in unrealized losses of the available for sale portfolio due to rates.  Settlements from swaps amounted to $1.3 million for the second quarter of 2025 compared to $1.3 million for the first quarter of 2025.  In addition to the pay-fixed interest rate swaps, ChoiceOne also employs back-to-back swaps on select commercial loans, with the impact reflected in interest income.

As of June 30, 2025, shareholders' equity was $431.8 million, a significant increase from $214.5 million on June 30, 2024. This growth was primarily driven by the Merger, in which ChoiceOne issued 6,070,836 shares of common stock on March 1, 2025, valued at $193.0 million. Additionally, the sale of 1,380,000 shares of common stock at $25.00 per share on July 26, 2024, generated $34.5 million in aggregate gross proceeds (before deducting discounts and estimated offering expenses). However, this was slightly offset by a minor decline in retained earnings.  ChoiceOne Bank continues to be "well-capitalized," with a total risk-based capital ratio of 12.4% as of June 30, 2025, compared to 13.2% on June 30, 2024, primarily due to the impact of the Merger.

Noninterest income increased by $2.4 million and $3.3 million for the three and six months ended June 30, 2025, compared to the same periods in the prior year. This increase was partly driven by higher credit and debit card fees, which rose due to increased volume from the Merger.  Additionally, ChoiceOne recognized income from two death benefit claims during the quarter for an additional $299,000. Trust income also increased as a result of higher estate settlement fees and customers obtained from the Merger.

Noninterest expense increased by $11.2 million and $33.2 million for the three and six months ended June 30, 2025, compared to the same periods in 2024. The year to date increase was largely due to merger-related expenses of $17.4 million during the six months ended June 30, 2025, compared to $0 in the same period in the prior year.  Management does not anticipate material merger expenses going forward.  The remainder of the increase was primarily due to the addition of Fentura on March 1, 2025.  ChoiceOne is committed to managing costs strategically while making prudent investments to sustain our competitive edge and provide exceptional value to our customers, shareholders, and communities. 

"Our strong second quarter results, including record net income and a substantial increase in net interest margin, reflect the early benefits of the Merger. As we complete integration efforts, we believe in our ability to unlock long-term value through operational efficiencies, a broader customer base, and the exceptional talent that has joined our team. We remain committed to delivering outstanding service and sustainable growth for our customers, communities, and shareholders," said Kelly Potes, Chief Executive Officer.

About ChoiceOne

ChoiceOne Financial Services, Inc. is a financial holding company headquartered in Sparta, Michigan, with assets over $4 billion, and the parent corporation of ChoiceOne Bank. Member FDIC. ChoiceOne Bank operates 56 offices in West, Central and Southeast Michigan. ChoiceOne Bank offers insurance and investment products through its subsidiary, ChoiceOne Insurance Agencies, Inc. ChoiceOne Financial Services, Inc. common stock is quoted on the Nasdaq Capital Market under the symbol "COFS." For more information, please visit Investor Relations at ChoiceOne's website choiceone.bank.

Forward-Looking Statements

This news release contains forward-looking statements.  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. Examples of forward-looking statements include, but are not limited to, statements regarding the outlook and expectations of ChoiceOne with respect to the Merger, including the strategic benefits and financial benefits of the Merger.  These statements reflect current beliefs as to the expected outcomes of future events and are not guarantees of future performance.  These statements 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 does not undertake any obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise. 

Risk factors include, but are not limited to, the risk factors described in Item 1A in ChoiceOne's Annual Report on Form 10-K for the year ended December 31, 2024 and in any of ChoiceOne's subsequent SEC filings, which are available on the SEC's website, www.sec.gov.

Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this presentation includes certain non-GAAP financial measures. ChoiceOne believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand underlying financial performance and condition and trends of ChoiceOne.

Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, non-GAAP measures are used as comparative tools, together with GAAP measures, to assist in the evaluation of operating performance or financial condition. These measures are also calculated using the appropriate GAAP or regulatory components in their entirety and are computed in a manner intended to facilitate consistent period-to-period comparisons. ChoiceOne's method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.

Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in the tables to this news release under the heading non-GAAP reconciliation.