ChoiceOne Reports Fourth Quarter 2025 Results

ChoiceOne Financial Services, Inc. ("ChoiceOne", NASDAQ:COFS), the parent company for ChoiceOne Bank, reported financial results for the quarter ended December 31, 2025.Significant items impacting comparable periods of 2024 and 2025 results include the following: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. 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 $13.9 million or $0.99 per diluted share for the year ended December 31, 2025. There were no merger expenses in the fourth quarter of 2025 and management does not anticipate additional material merger expenses. Merger related provision for credit losses, net of taxes, of $9.5 million during the first quarter ended March 31, 2025, or $0.68 per diluted share for the year ended December 31, 2025.HighlightsChoiceOne reported net income of $13,867,000 and $28,176,000 for the three months ended and year ended December 31, 2025, compared to net income of $7,159,000 and $26,727,000 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 $13,867,000 and $51,524,000 for the three months ended and year ended December 31, 2025, respectively. Diluted earnings per share were $0.92 and $2.01 for the three months ended and year ended December 31, 2025, compared to diluted earnings per share of $0.79 and $3.25 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 $0.92 and $3.68 for the three months ended and year ended December 31, 2025. Core loans, which exclude held for sale loans and loans to other financial institutions, increased by $55.6 million or 7.6% on an annualized basis during the fourth quarter of 2025 and grew organically by $86.1 million or 5.7% during the twelve months ended December 31, 2025. Core loans also grew by $1.4 billion due to the Merger on March 1, 2025. Asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.04%. Nonperforming loans to total loans (excluding loans held for sale) increased to 0.98% as of December 31, 2025 compared to 0.69% as of September 30, 2025. Notably, 0.63% of the nonperforming loans to total loans (excluding loans held for sale) is attributed to certain purchased loans which were identified prior to the Merger as having credit deterioration. Importantly, we believe this uptick is not indicative of a broader trend, and current portfolio performance does not suggest emerging weakness in underlying credit quality."2025 was a landmark year for ChoiceOne—not only because of the successful merger with Fentura and its subsidiary, The State Bank, but also due to our strong financial performance. These accomplishments are a direct result of the hard work and dedication of our exceptional team, whose efforts truly shined throughout the year" said Kelly Potes, Chief Executive Officer.ChoiceOne reported net income of $13,867,000 and $28,176,000 for the three months ended and year ended December 31, 2025, compared to net income of $7,159,000 and $26,727,000 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 $13,867,000 and $51,524,000 for the three months ended and year ended December 31, 2025, respectively. Diluted earnings per share were $0.92 and $2.01 for the three months ended and year ended December 31, 2025, compared to diluted earnings per share of $0.79 and $3.25 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 $0.92 and $3.68 for the three months ended and year ended December 31, 2025.As of December 31, 2025, total assets were $4.4 billion, an increase of $1.7 billion compared to December 31, 2024. The growth in total assets is primarily attributed to the Merger. In addition to growth related to the Merger, ChoiceOne also grew in core loans, securities and loans to other financial institutions, which consist of a warehouse line of credit used to facilitate mortgage loan originations. Interest rates and balances from this warehouse line of credit fluctuate with the national mortgage market and are short term in nature.Core loans, which exclude held for sale loans and loans to other financial institutions, increased by $55.6 million or 7.6% on an annualized basis during the fourth quarter of 2025 and grew organically by $86.1 million or 5.7% during the twelve months ended December 31, 2025. Core loans also grew by $1.4 billion due to the Merger on March 1, 2025. Loan interest income increased $23.0 million in the fourth quarter of 2025 compared to the same period in 2024 and decreased $506,000 compared to the third quarter of 2025. The decrease from the third quarter is due to rate reductions in PRIME rate loans which are tied to changes in the federal funds rate and a decrease in interest income due to accretion from purchased loans. Interest income for the three months ended December 31, 2025, includes $3.1 million of interest income due to accretion from purchased loans compared to $3.6 million for the three months ended September 30, 2025. Interest income due to accretion from purchased loans increased GAAP net interest margin by 29 and 36 basis points in the fourth and third quarter of 2025, respectively. Of this amount, $2.3 million was calculated using the effective interest rate method of amortization, while the remaining $635,000 resulted from accretion through unexpected payoffs and paydowns of loans with an associated fair value mark. Estimated interest income due to accretion from purchased loans for 2026 using the effective interest method of amortization is $8.0 million; however, actual results will be dependent on prepayment speeds and other factors. It is estimated that a total of $53.1 million remains to be recognized as interest income due to accretion from purchased loans over the life of the loan portfolio.Deposits, excluding brokered deposits, increased by $760,000 as of December 31, 2025, compared to September 30, 2025. Deposits, excluding brokered deposits, increased by $1.3 billion as of December 31, 2025, compared to December 31, 2024 largely as a result of the Merger. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits and short term FHLB advances to ensure ample liquidity. As of December 31, 2025, the total balance of borrowed funds from the FHLB was $265.0 million at a weighted average rate of 3.83%, with $245.0 million due within 12 months. At December 31, 2025, total available borrowing capacity secured by pledged assets was $1.1 billion. ChoiceOne can increase its borrowing capacity by utilizing unsecured federal fund lines and pledging additional assets. Uninsured deposits totaled $1.2 billion or 33.2% of deposits at December 31, 2025.In the three months ended December 31, 2025, ChoiceOne's annualized cost of deposits to average total deposits remained flat compared to the three months ended September 30, 2025 and was down one basis point compared to the three months ended December 31, 2024, despite the higher-cost deposits acquired through the Merger. The annualized cost of funds decreased by 11 basis points, from 1.90% to 1.79% in the three months ended December 31, 2025 compared to the same period in the prior year, primarily due to a decrease in higher cost local and brokered CDs. Interest expense on borrowings for the three months ended December 31, 2025, increased by $289,000 compared to the same period in the prior year, due to a $58.2 million increase in the average balance borrowed offset by a reduction in rates. In the three months ended December 31, 2025, compared to the three months ended September 30, 2025, annualized cost of funds increased 2 basis points from 1.77% to 1.79% despite reductions in federal funds rates during the fourth quarter. This is due to the timing of reductions to customer rates later in the fourth quarter, increased competition for deposits, and the reduction of cash flow on pay-fixed swaps tied to interest bearing deposits which offset interest expense. With ChoiceOne's already low cost of deposits and market conditions, further reductions in federal funds rates may not immediately offset with savings on reductions in deposits and short term borrowings.The provision for credit losses on loans was $1.1 million in the fourth quarter of 2025, due to $112.1 million of loan growth in the portfolio, excluding loans held for sale, and $305,000 in net charge offs. The ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 1.18% on December 31, 2025 compared to 1.19% on September 30, 2025, and 1.07% on December 31, 2024. Asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.04%. Nonperforming loans to total loans (excluding loans held for sale) increased to 0.98% as of December 31, 2025 compared to 0.69% as of September 30, 2025. Notably, 0.63% of the nonperforming loans to total loans (excluding loans held for sale) is attributed to certain purchased loans which were identified prior to the Merger as having credit deterioration. Importantly, we believe this uptick is not indicative of a broader trend, and current portfolio performance does not suggest emerging weakness in underlying credit quality.ChoiceOne uses interest rate swaps to manage interest rate exposure to certain fixed rate assets and variable rate liabilities. During the third quarter of 2025, ChoiceOne entered into $30.4 million in amortizing pay-fixed interest rate swaps to hedge interest rate risk on approximately $40.6 million of newly purchased agency mortgage backed securities. The interest rate swaps are designed to amortize with the expected cash flow of the bonds and hold a coupon of 3.52% and a contractual term ending in 2040. On December 31, 2025, ChoiceOne held pay-fixed interest rate swaps with a total notional value of $380.4 million, a weighted average coupon of 3.15%, a fair value of $8.4 million and an average remaining contract length of 7.0 years. Settlements from interest rate swaps amounted to $955,000 for the fourth quarter of 2025 compared to $1.3 million for the third 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. In January 2026, ChoiceOne exited $201.0 million of pay‑fixed interest rate swaps with a coupon of 3.4%, realizing a small gain, that will be applied to the basis of the hedged bonds. After evaluating multiple rate scenarios, we determined that our interest rate risk profile and overall balance‑sheet flexibility are improved without the pay‑fixed interest rate swaps, and we believe this action better aligns our interest‑rate posture with long‑term value creation for shareholders. Following this exit, ChoiceOne has approximately $180 million of pay-fixed interest rate swaps with a weighted average coupon of 2.88%.As of December 31, 2025, shareholders' equity was $465.4 million, a significant increase from $260.4 million on December 31, 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. Additional growth of $2.1 million is the result of improvement to accumulated other comprehensive loss during the year. ChoiceOne also repurchased 25,116 shares of stock for a net cost of $775,000 under our existing share repurchase plan. The repurchase plan has 350,272 shares remaining to purchase as of December 31, 2025. The repurchase reflects our view that our capital position is healthy and the repurchase of shares is in the best interest of our shareholders. ChoiceOne Bank continues to be "well-capitalized," with a total risk-based capital ratio of 12.5% as of December 31, 2025, compared to 12.7% on December 31, 2024.Noninterest income increased by $1.1 million and $6.7 million for the three months ended and year ended December 31, 2025, compared to the same periods in the prior year. This increase was partly driven by higher interchange income, which rose due to increased volume from the Merger. Trust income as well as insurance and investment commissions income also increased as a result of higher estate settlement fees and customers obtained from the Merger. These increases were offset by a decline in gains on sales of loans and losses on sales and write downs of other assets. Gains on sales of loans declined as the bank maintained conservative underwriting and chose not to pursue certain loan sale opportunities that did not meet our pricing or credit risk standards. Noninterest income decreased $1.0 million in the fourth quarter of 2025 compared to the third quarter 2025 due primarily to losses on sales of other assets of $161,000 and unrealized losses on market value of equity securities of $655,000.Noninterest expense increased by $10.0 million and $54.0 million for the three months ended and year ended December 31, 2025, compared to the same periods in 2024. The increase in 2025 was largely due to merger-related expenses of $17.4 million during 2025, compared to $1.0 million in the same period in the prior year. Management does not anticipate additional material merger expenses. The remainder of the increase was primarily due to the addition of Fentura on March 1, 2025. Noninterest expense decreased by $866,000 in the fourth quarter of 2025 compared to the third quarter of 2025 due to decreases in collections and fraud expenses and other operational expenses which were partially offset by an increase in salaries and benefits. ChoiceOne will continue to invest in its talented staff, technology and footprint while prioritizing operational efficiency and disciplined investment. ChoiceOne has secured a location in Troy, MI and expects to open a full service branch and lending office later in 2026. We believe this new office will help us continue our strong growth in an attractive market. In addition, we are experimenting with automation and AI‑driven solutions designed to modernize processes to augment the ability for our existing staff to manage our growth.ChoiceOne's fourth‑quarter 2025 tax expense was reduced by $340,000 as a result of purchasing a transferable tax credit that will be applied to 2025 income taxes, with allowable carrybacks to prior years. Management is continuing to evaluate additional transferable tax credit opportunities and may pursue further purchases to help offset tax expense in 2026."We closed the year with solid capital and liquidity and an efficient funding mix, keeping us well‑positioned to support clients and create long‑term value" said Kelly Potes, Chief Executive Officer. "As we move into 2026, we do so with strong organic growth momentum across our markets and a renewed focus on strengthening our customer relationships. I am grateful to our employees, Board of Directors, and shareholders for their continued support of our vision to be the Best Bank in Michigan"

ChoiceOne Reports Fourth Quarter 2025 Results

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