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ChoiceOne Financial Services(COFS) - 2025 Q2 - Quarterly Results

Financial Highlights and Overview This section provides an executive summary of ChoiceOne's financial performance, emphasizing the impact of the Fentura merger Second Quarter 2025 Highlights ChoiceOne reported record net income in Q2 2025, significantly impacted by the merger with Fentura Financial, Inc. completed on March 1, 2025 - ChoiceOne completed its merger with Fentura Financial, Inc. on March 1, 2025, acquiring approximately $1.8 billion in total assets, $1.4 billion in loans, and $1.4 billion in deposits14 Q2 & H1 2025 Financial Performance (GAAP) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $13,534,000 | ($372,000) | $6,586,000 | $12,220,000 | | Diluted EPS (Loss) | $0.90 | ($0.03) | $0.87 | $1.61 | Q2 & H1 2025 Financial Performance (Non-GAAP, Adjusted) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Adjusted Net Income | $13,666,000 | $22,976,000 | | Adjusted Diluted EPS | $0.91 | $1.78 | - The results were significantly impacted by merger-related expenses and provisions. For the six months ended June 30, 2025, merger expenses (net of tax) were $13.9 million and the merger-related provision for credit losses (net of tax) was $9.5 million4 Financial Condition This section analyzes ChoiceOne's balance sheet, loan portfolio, asset quality, deposits, liquidity, and capital position Balance Sheet Analysis As of June 30, 2025, total assets reached $4.31 billion, a substantial increase of $1.69 billion from the prior year, primarily due to the Fentura merger Balance Sheet Summary | (In thousands) | June 30, 2025 | June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $4,310,252 | $2,623,067 | +$1,687,185 | | Total Loans, net | $2,885,994 | $1,421,375 | +$1,464,619 | | Total Deposits | $3,592,624 | $2,126,679 | +$1,465,945 | | Total Liabilities | $3,878,491 | $2,408,548 | +$1,469,943 | | Shareholders' Equity | $431,761 | $214,519 | +$217,242 | Loans and Asset Quality Core loans grew by $1.4 billion due to the merger, with asset quality remaining strong, evidenced by low net charge-offs and a manageable nonperforming loan ratio - Core loans (excluding held for sale and loans to other financial institutions) grew by $1.4 billion from the merger and $140.1 million (10.0%) organically over the twelve months ended June 30, 202547 Asset Quality Metrics (as of June 30, 2025) | Metric | Value | | :--- | :--- | | Annualized net loan charge-offs to average loans | 0.06% | | Nonperforming loans to total loans (excl. HFS) | 0.66% | | Portion of nonperforming loans from PCD | 0.41% | | Allowance for credit losses to total loans (excl. HFS) | 1.19% | Deposits and Liquidity Deposits (excluding brokered) increased by $1.4 billion year-over-year due to the merger, with the bank maintaining a strong liquidity position - Deposits (excluding brokered) declined by $98.0 million from March 31, 2025, but increased by $1.4 billion from June 30, 20248 - The bank has $1.2 billion in available borrowing capacity secured by pledged assets, and uninsured deposits represent 29.6% of total deposits8 Shareholders' Equity and Capital Ratios Shareholders' equity more than doubled to $431.8 million from June 30, 2024, primarily driven by the issuance of 6.1 million shares for the merger - Shareholders' equity increased significantly due to the issuance of 6,070,836 shares for the merger and a prior sale of 1,380,000 shares13 Capital Ratios (ChoiceOne Bank) | Ratio | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total capital (to risk weighted assets) | 12.4% | 13.2% | | Common equity Tier 1 capital | 11.3% | 12.5% | | Tier 1 capital (to risk weighted assets) | 11.3% | 12.5% | Results of Operations This section details ChoiceOne's income statement performance, including net interest income, provisions, and noninterest income and expenses Net Interest Income and Margin Net interest income for Q2 2025 nearly doubled to $36.3 million from $18.4 million in Q2 2024, a direct result of the merger Net Interest Income and Margin Comparison | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Interest Income | $36.3 million | $18.4 million | | GAAP Net Interest Margin | 3.66% | 2.95% | - Accretion income from purchased loans added 36 basis points to the net interest margin in Q2 20254 - The annualized cost of funds to average total deposits decreased to 1.84% in Q2 2025 from 1.92% in Q2 2024, as the company paid down borrowings9 Provision for Credit Losses The provision for credit losses was $0.65 million in Q2 2025, primarily due to changes in economic forecasts, with a higher six-month provision due to merger-related non-PCD loans Provision for Credit Losses | Period | Provision Amount | | :--- | :--- | | Three Months Ended June 30, 2025 | $650,000 | | Six Months Ended June 30, 2025 | $13,813,000 | - The ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 1.19% on June 30, 2025, up from 1.07% on December 31, 202410 Noninterest Income Noninterest income increased by $2.4 million to $6.5 million in Q2 2025 compared to the prior-year quarter, driven by card fees, trust income, and death benefit claims Noninterest Income Comparison (Three Months Ended June 30) | (In thousands) | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Total Noninterest Income | $6,503 | $4,083 | +$2,420 | | Credit and debit card fees | $2,083 | $1,516 | +$567 | | Trust income | $596 | $220 | +$376 | Noninterest Expense Noninterest expense rose by $11.2 million to $25.5 million in Q2 2025 compared to Q2 2024, with $17.4 million of the six-month increase attributable to one-time merger-related expenses Noninterest Expense Comparison (Three Months Ended June 30) | (In thousands) | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Total Noninterest Expense | $25,506 | $14,278 | +$11,228 | | Merger related expenses | $166 | $0 | +$166 | - For the six months ended June 30, 2025, merger-related expenses totaled $17.4 million, accounting for a large portion of the year-over-year increase in noninterest expense15 Financial Tables This section provides detailed financial statements and reconciliations, offering a comprehensive view of ChoiceOne's financial position and performance Condensed Balance Sheets The condensed balance sheet as of June 30, 2025, shows total assets of $4.31 billion, total liabilities of $3.88 billion, and shareholders' equity of $431.8 million Condensed Balance Sheet (in thousands) | Account | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total Assets | $4,310,252 | $4,305,391 | $2,623,067 | | Total loans held for investment | $2,920,792 | $2,924,955 | $1,437,527 | | Total Liabilities | $3,878,491 | $3,878,323 | $2,408,548 | | Shareholders' Equity | $431,761 | $427,068 | $214,519 | Condensed Statements of Operations For the three months ended June 30, 2025, the company reported net income of $13.5 million, or $0.90 per diluted share, contrasting with a six-month net loss due to merger costs Condensed Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Net interest income | $36,322 | $62,633 | | Net Provision for credit losses | $650 | $13,813 | | Total noninterest income | $6,503 | $11,425 | | Total noninterest expense | $25,506 | $61,171 | | Net income (loss) | $13,534 | $(372) | | Diluted earnings (loss) per share | $0.90 | $(0.03) | Non-GAAP Reconciliation This section provides reconciliations for non-GAAP measures, adjusting for merger-related expenses and provisions to offer a clearer view of core operating performance Reconciliation of Net Income (Loss) to Adjusted Net Income (Non-GAAP) | (In Thousands) | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Net income (loss) (GAAP) | $13,534 | $(372) | | Merger related expenses net of tax | $132 | $13,885 | | Merger related provision for credit losses, net of tax | $0 | $9,463 | | Adjusted net income (Non-GAAP) | $13,666 | $22,976 | Reconciliation of Net Interest Margin (Non-GAAP) | Metric | 2025 2nd Qtr. | | :--- | :--- | | Net interest margin (GAAP) | 3.66% | | Net interest margin (tax-equivalent basis) | 3.70% | Other Selected Financial Highlights This section presents a quarterly breakdown of key performance ratios and balances, highlighting strong Q2 2025 performance despite merger-related impacts in Q1 Quarterly Performance Ratios | Ratio | 2025 2nd Qtr. | 2025 1st Qtr. | 2024 4th Qtr. | | :--- | :--- | :--- | :--- | | Annualized return on average assets | 1.26% | -1.68% | 1.05% | | Net interest margin (GAAP) | 3.66% | 3.43% | 2.98% | | Efficiency ratio | 55.32% | 111.01% | 61.29% | Quarterly Asset Quality | (in thousands) | 2025 2nd Qtr. | 2025 1st Qtr. | 2024 4th Qtr. | | :--- | :--- | :--- | :--- | | Net loan charge-offs | $418 | $72 | $138 | | Nonperforming loans | $19,296 | $19,154 | $4,177 | | Nonperforming loans to total loans | 0.66% | 0.65% | 0.27% |