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

Financial Performance - ChoiceOne reported net income of $13,534,000 for the three months ended June 30, 2025, compared to $6,586,000 for the same period in the prior year, reflecting a significant increase [160]. - The diluted earnings per share for the three months ended June 30, 2025, was $0.90, compared to $0.87 in the same period in the prior year [161]. - Cash dividends declared in the second quarter of 2025 were $4.2 million or $0.28 per share, compared to $2.0 million or $0.27 per share in the same period in 2024 [169]. - The annualized return on average assets was 1.26% for the second quarter of 2025, up from 0.99% for the same period in 2024 [168]. Asset and Loan Growth - Total assets increased to $4.3 billion as of June 30, 2025, an increase of $1.7 billion compared to June 30, 2024, primarily due to the merger [162]. - Core loans grew organically by $140.1 million or 10.0% during the twelve months ended June 30, 2025, despite a slight decline of $4.8 million in the second quarter [163]. - Average loans for Q2 2025 reached $2,936,168 thousand with an interest income of $46,551 thousand, resulting in an interest rate of 6.36% [172]. - The company's loan portfolio totaled $2.92 billion as of June 30, 2025, a significant increase from $1.55 billion on December 31, 2024, driven by a merger [206][208]. - Average loan balances increased to $2.9 billion in Q2 2025, compared to $1.4 billion in Q2 2024, with core loans growing organically by $140.1 million or 10.0% year-over-year [208]. Interest Income and Expenses - Interest income for the three months ended June 30, 2025, increased by $24.6 million compared to the same period in 2024, driven by higher loan interest income [163]. - Net interest income on a tax-equivalent basis for Q2 2025 was $36,711 thousand, compared to $18,756 thousand in Q2 2024, reflecting a significant increase [172]. - The net interest margin (tax-equivalent basis) improved to 3.70% in Q2 2025 from 3.01% in Q2 2024 [172]. - Total interest expense increased by $7.7 million for the six months ended June 30, 2025, driven by a $1.2 billion increase in interest-bearing liabilities from the Merger [183]. Credit Losses and Nonperforming Loans - The ratio of the allowance for credit losses to total loans was 1.19% on June 30, 2025, compared to 1.07% on December 31, 2024, indicating a slight increase in credit loss provisions [167]. - The provision for credit losses on loans was $13.8 million for the six months ended June 30, 2025, primarily due to the acquisition of $1.3 billion of non-PCD loans in the Merger [189]. - Nonperforming assets increased by $15.1 million to $19.3 million at June 30, 2025, largely due to non-accrual loans and OREO acquired in the Merger [190]. - Non-accruing loan average balances were $16.8 million in Q2 2025, compared to $1.9 million in Q2 2024, indicating a rise in non-performing loans [173]. Merger Impact - ChoiceOne completed a public offering of 1,380,000 shares at $25.00 per share, raising approximately $34.5 million before expenses [157]. - The company recognized a core deposit intangible of $31.0 million related to the merger, amortized over 10 years [214]. - ChoiceOne's total shareholders' equity reached $431.8 million as of June 30, 2025, up from $214.5 million a year earlier, primarily due to the merger [218]. - Total capital to risk-weighted assets ratio was 12.4% as of June 30, 2025, compared to 14.5% on December 31, 2024, reflecting the impact of the merger [220]. Cash Flow and Borrowings - Net cash provided by operating activities decreased to $2.5 million for the six months ended June 30, 2025, down from $31.1 million in the same period in 2024, primarily due to a net loss of $372,000 compared to a net income of $12.2 million in 2024 [221]. - Net cash provided by investing activities increased significantly to $267.0 million for the six months ended June 30, 2025, compared to $4.0 million in the same period in 2024, driven by the sale of $78.9 million of securities from the Merger with Fentura [221]. - Net cash used in financing activities was $210.0 million for the six months ended June 30, 2025, compared to $10.5 million provided in the same period in 2024, reflecting a decrease in borrowing by $146.5 million [221]. - As of June 30, 2025, ChoiceOne had $195.0 million in outstanding borrowings from the FHLB at a weighted average fixed rate of 4.36%, with the earliest maturity in July 2025 [223]. Securities and Investments - The unrealized loss on available-for-sale securities increased by $8.7 million to $69.8 million in the first six months of 2025, primarily due to increased spreads on tax-exempt municipal bonds [200]. - ChoiceOne's held to maturity securities declined to $390.5 million as of June 30, 2025, due to principal repayments, calls, and maturities [201]. - As of June 30, 2025, ChoiceOne reported $116.9 million in gross unrealized losses on investment securities, including $69.9 million in available for sale securities and $46.4 million in held to maturity securities [202]. Risk Management - The company holds interest rate derivatives with a total notional value of $351.0 million to manage interest rate risk [203]. - ChoiceOne's exposure to interest rate risk and liquidity risk is significant, with no foreign exchange risk exposure as all transactions are in U.S. dollars [222]. - Management believes that ChoiceOne's exposure to changes in commodity prices is insignificant, as agricultural loans comprise a relatively small portion of total assets [222]. - Uninsured deposits totaled $1.1 billion or 29.6% of total deposits as of June 30, 2025, compared to 37.6% at December 31, 2024 [213].