CHOICEONE FINANCIAL SERVICES INC
For the period ended Mar 31, 2025. Filed May 12, 2025.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 12, 2025
COFS$36.69-0.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-11-08.
0000950170-24-124039
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-12.
0000950170-25-069133
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 96 previous paragraphs and 105 current paragraphs.
33 unchanged; 32 reworded; 39 added; 26 removed; 5 previous and 1 current paragraphs rearranged.
Tables are not compared: 9 previous and 7 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (39)
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NON-GAAP FINANCIAL MEASURES
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In addition to results presented in accordance with GAAP, this report includes certain non-GAAP financial measures. ChoiceOne
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believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand
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underlying financial performance and condition and trends of ChoiceOne.
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Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with
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respect to the use of such measures. To compensate for these limitations, non-GAAP measures are used as comparative tools, together
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with GAAP measures, to assist in the evaluation of operating performance or financial condition. These measures are also calculated
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using the appropriate GAAP or regulatory components in their entirety and are computed in a manner intended to facilitate consistent
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period-to-period comparisons. ChoiceOne’s method of calculating these non-GAAP measures may differ from methods used by other
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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.
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Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the
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reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in the tables to this news release
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under the heading non-GAAP reconciliation.
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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, ChoiceOne Bank completed the consolidation of The State Bank with and into ChoiceOne Bank with ChoiceOne Bank surviving the consolidation. Accordingly, the reported consolidated financial results for the first quarter ended March 31, 2025 include financial results for ChoiceOne and ChoiceOne Bank and, from and after March 1, 2025, Fentura and The State Bank. Following the Merger, ChoiceOne is the third largest publicly traded bank headquartered in Michigan with approximately $4.3 billion in consolidated total assets and 56 offices in Western, Central and Southeastern Michigan.
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With recent news of tariffs expected to impact the automotive industry, ChoiceOne performed a review of loans in the automotive sector. ChoiceOne has total outstanding loans to businesses in the automotive sector of $99.3 million, which represents 3.4% of gross loans (excluding loans held for sale). These loans are primarily to Tier 2 and Tier 3 suppliers, many of which serve multiple industries and manufacturers. The average balance of these loans was $409,000. Although ChoiceOne's exposure is low as a percentage of the portfolio, we will continue to monitor these relationships closely.
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ChoiceOne reported net loss of $13,906,000 for the three months ended March 31, 2025, compared to net income of $5,634,000 for the same period in 2024. Net income excluding merger expenses, net of taxes, and merger related provision for credit losses, net of taxes was $9,310,000 for the three months ended March 31, 2025. Diluted loss per share was $1.29 for the three months ended March 31, 2025, compared to diluted earnings per share of $0.74 in the same period in the prior year. Diluted earnings per share excluding merger expenses, net of taxes, and merger related provision for credit losses, net of taxes was $0.86 for the three months ended March 31, 2025.
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A reconciliation for non-GAAP adjusted net income and adjusted earnings per share to GAAP net income and earnings (loss) per share follows:
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(1) Merger related provision for credit losses represents the calculated credit loss on Non-PCD loans acquired during the Merger on March 1, 2025.
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As of March 31, 2025, total assets were $4.3 billion, an increase of $1.6 billion compared to March 31, 2024. The growth is primarily attributed to the Merger. This growth was offset by a $28.5 million reduction in securities on March 31, 2025 compared to March 31, 2024, as ChoiceOne chose to restructure much of the acquired security portfolio purchased in the Merger, and reduce high cost wholesale funding. ChoiceOne has actively managed its balance sheet to support organic loan growth with a loan to deposit ratio of 80.21% at March 31, 2025.
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Core loans, which exclude held for sale loans and loans to other financial institutions, grew organically by $40.1 million or 10.6% on an annualized basis during the first quarter of 2025 and $157.3 million or 11.3% during the twelve months ended March 31, 2025. Core loans grew by $1.4 billion through acquisition for the three months ended March 31, 2025. Loan interest income increased $11.9 million in the first quarter of 2025 compared to the same period in 2024. Interest income for the three months ended March 31, 2025 includes $2.8 million of purchased loan interest accretion income related to the Merger. Loans to other financial institutions decreased by $27.6 million from March 31, 2024 to March 31, 2025. These loans 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.
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ChoiceOne's cost of deposits to average total deposits has decreased since peaking in the first quarter of 2024, driven by positive cash flow from pay-fixed interest rate swaps hedged against deposits and reduced deposit expenses. Additionally, the Federal Reserve's 100 basis point reduction in the federal funds rate since September 2024 has contributed to this decline. As a result, the cost of deposits to average total deposits was an annualized 1.59% in the first quarter of 2025, down from 1.65% in the first 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.
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Interest expense on borrowings for the three months ended March 31, 2025, declined by $332,000 compared to the same period in the prior year, due to a decrease in average balances borrowed. During the first quarter of 2025, ChoiceOne liquidated the majority of the acquired securities due to the Merger to pay down higher cost FHLB advances. As of March 31, 2025, the total borrowed balance at the FHLB was $130.0 million at a weighted average fixed rate of 4.03%, with the earliest maturity in April 2025. The total cost of funds declined in the first quarter of 2025, with an annualized 1.86% compared to 2.0% in the first quarter of 2024.
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The average balance of total securities decreased $23.4 million in the three months ended March 31, 2025, compared to the same period in 2024. The decrease is due to paydowns and a decline in the fair value of available for sale securities. There was very little impact on securities due to the Merger as ChoiceOne chose to sell much of the acquired security portfolio purchased in the Merger. The average rate earned on securities declined 19 basis points for the three months ended March 31, 2025, compared to the same period in the prior year. Interest income on securities declined by $623,000 in the three months ended March 31, 2025, compared to the same period in 2024. Interest income and rate on securities were impacted by a decline in cash settlements from fixed rate interest rate swaps which are hedged against securities. The cash settlements have declined by $717,000 in the first quarter of 2025 compared to the first quarter of 2024 as market rates have declined since the prior year period.
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The average balance of borrowings declined by $20.9 million in the three months ended March 31, 2025, compared to the same period in 2024. In addition, the rate paid on borrowings declined by 14 basis points in the three months ended March 31, 2025, compared to the same period in 2024. The decline in balance and rate led to a decline in interest expense of $332,000 in the three months ended March 31, 2025, compared to the same period in 2024.
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The provision for credit losses on loans was $13.1 million in the first quarter of 2025, due primarily to $12.0 million of expense for the acquisition of $1.3 billion of non-PCD loans in the Merger. Additional expense was recorded to account for organic growth, changes in qualitative factors, and forecast data used in the allowance for credit losses calculation. The allowance for credit losses also increased by $4.9 million as the credit mark on PCD loans migrated into the reserve in accordance with CECL guidelines.
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Asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.01% and nonperforming loans to total loans (excluding loans held for sale) of 0.65% as of March 31, 2025. Notably, 0.44% of the nonperforming loans to total loans (excluding loans held for sale) is attributed to PCD loans acquired through the Merger which have a corresponding PCD credit reserve.
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Noninterest income increased by $871,000 for the three months ended March 31, 2025, compared to the same period in the prior year. This increase was partly driven by higher mortgage servicing rights income, which rose due to the Merger, as Fentura had a substantial portfolio of mortgages held and serviced. Additionally, we recorded income from changes in the market value of a CRA-eligible mutual fund investment, which appreciated during the quarter. Trust income also increased as a result of higher estate settlement fees and customers obtained from the Merger. However, this was offset by a decline in earnings on life insurance policies, as the prior year included death benefits of $196,000 and $504,000 received in both the first and fourth quarters of 2024 respectively.
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Noninterest expense increased by $22.0 million for the three months ended March 31, 2025, compared to the same period in 2024. This increase was largely due to merger-related expenses of $17.2 million during the three months ended March 31, 2025, compared to $0 in the same period in the prior year. The remainder of the increase was primarily due to the additional operating expenses as a result of the Merger with Fentura on March 1, 2025. Management 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.
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ChoiceOne acquired $90.7 million in securities as part of the Merger; however, management chose to sell $78.9 million in securities to pay down higher cost wholesale funding. Consequently, the net increase in securities from the Merger was $11.8 million.
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On March 31, 2025, total available-for-sale securities amounted to $480.7 million, up from $479.1 million on December 31, 2024. This increase was driven by $6.7 million in securities acquired through the Merger, which was partially offset by principal repayments, calls, and maturities. The unrealized loss on securities available for sale increased by $4.5 million to $65.6 million in the first three months of 2025 primarily due to an increase in spreads on tax exempt municipal bonds.
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Average loan balances increased to $2.02 billion in the first quarter of 2025 compared to $1.41 billion in the first quarter of 2024. Core loans, which exclude held for sale loans and loans to other financial institutions, grew organically by $40.1 million or 10.6% on an annualized basis during the first quarter of 2025 and $157.3 million or 11.3% during the twelve months ended March 31, 2025. Core loans grew by $1.4 billion through acquisition for the three months ended March 31, 2025. Loan interest income increased $11.9 million in the first quarter of 2025 compared to the same period in 2024.
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Interest income for the three months ended March 31, 2025 includes $2.8 million of purchased loan interest accretion income related to the Merger. Estimated accretion for the remainder of 2025 using the effective interest method of amortization is $7.5 million; however, unexpected accretion income from purchased loans will be dependent on prepayment speeds and other factors. The remaining yield mark on acquired loans from the Merger totaled $57.0 million as of March 31, 2025.
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Loans to other financial institutions decreased by $27.6 million from March 31, 2024 to March 31, 2025. These loans consist of a
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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.
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ChoiceOne recognized a core deposit intangible of $31.0 million related to the Merger. This intangible asset, valued at 2.78% of Fentura's core deposits, is being amortized over a period of 10 years using the sum-of-years-digits method. This approach reflects the anticipated pattern of economic benefits derived from the core deposits. At March 31, 2025, ChoiceOne recognized core deposit intangible expense of $470,000 for the month of March 2025, from the Merger.
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ChoiceOne's cost of deposits to average total deposits has decreased since peaking in the first quarter of 2024, driven by positive cash flow from pay-fixed interest rate swaps hedged against deposits and reduced deposit expenses. Additionally, the Federal Reserve's 100 basis point reduction in the federal funds rate since September 2024 has contributed to this decline. As a result, the cost of deposits to average total deposits was an annualized 1.59% in the first quarter of 2025, down from 1.65% in the first 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.
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As of March 31, 2025, the total borrowed balance at the FHLB was $130.0 million at a weighted average fixed rate of 4.03%, with the earliest maturity in April 2025. ChoiceOne also has a $7.7 million line of credit at the holding company with a rate of 7.50%.
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As of March 31, 2025, shareholders’ equity was $426.9 million, a significant increase from $206.8 million on March 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. 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 11.9% as of March 31, 2025, compared to 12.6% on March 31, 2024. The decrease in capital ratios was primarily due to the impact of the Merger.
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Net cash used in operating activities was $6.5 million for the three months ended March 31, 2025 compared to $15.3 million net cash provided in the same period in 2024. The change was due to the net loss of $13.9 million in the first quarter of 2025 compared to net income of $5.6 million in the same period in 2024 and a decline in other liabilities of $8.6 million in the three months ended March 31, 2025 compared to an increase of $9.5 million in the same period in 2024. The change was partially offset by provision for credit losses of $13.1 million in the three months ended March 31, 2025 compared to $0 in the same period in 2024. Net cash provided by investing activities was $257.0 million for the three months ended March 31, 2025 compared to $7.6 million net cash used in the same period in 2024. The increase is due to the sale of $78.9 million of securities acquired in the Merger with Fentura. ChoiceOne also received $173.1 million of cash from The State Bank as part of the Merger. Net cash provided by financing activities was $207.8 million for the three months ended March 31, 2025, compared to $71.7 million provided in the same period in the prior year. ChoiceOne decreased borrowing by $207.5 million in the first three months of 2025 compared to an increase of $10.0 million in the same period during the prior year. ChoiceOne also had $5.8 million in deposit growth , which includes brokered deposits of $30.8 million, in the first three months of 2025 compared to an increase of $63.8 million in the same period in 2024.
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the failure to obtain necessary regulatory approvals when expected or at all (and the risk that such approvals may result in a materially burdensome regulatory condition (as defined in the merger agreement));
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the failure of Fentura to obtain shareholder approval, for ChoiceOne to obtain the shareholder approval, or for either party to satisfy any of the other closing conditions to the proposed transaction on a timely basis or at all;
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the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement;
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the possibility that the anticipated benefits of the proposed transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where ChoiceOne and Fentura do business, or as a result of other unexpected factors or events;
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the impact of purchase accounting with respect to the proposed transaction, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;
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diversion of management’s attention from ongoing business operations and opportunities;
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potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed transaction; or
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the outcome of any legal proceedings that may be instituted against ChoiceOne or Fentura.
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On July 25, 2024, ChoiceOne and Fentura Financial, Inc. (“Fentura”), the parent company of The State Bank, announced the signing of a definitive merger agreement (the “Merger Agreement”) pursuant to which ChoiceOne and Fentura will merge in an all-stock transaction. The agreement was unanimously approved by the boards of directors of both companies. Under the terms of the merger agreement, each share of Fentura common stock outstanding immediately prior to completion of the merger will be converted into the right to receive 1.35 shares of ChoiceOne common stock. Once completed, the combination will create the third largest publicly traded bank in Michigan with approximately $4.3 billion in consolidated total assets and 56 offices in Western, Central and Southeastern Michigan. The proposed transaction is expected to close in the first quarter of 2025, subject to the satisfaction of customary closing conditions, including receipt of approval from Fentura and ChoiceOne shareholders and receipt of all necessary regulatory approvals.
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ChoiceOne reported net income of $7,348,000 and $19,568,000 for the three and nine months ended September 30, 2024, compared to $5,122,000 and $15,968,000 for the same periods in 2023, representing growth of 43.5% and 22.5%, respectively. Net income adjusted for merger related expenses net of tax was $7,981,000 and $20,201,000 for the three and nine months ended September 30, 2024. Diluted earnings per share were $0.85 and $2.46 in the three and nine months ended September 30, 2024, compared to $0.68 and $2.12 per share in the same periods in the prior year. Earnings per share was negatively impacted by the sale of 1,380,000 shares of common stock in the Common Stock Offering.
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As of September 30, 2024, total assets were $2.7 billion, an increase of $149.3 million compared to December 31, 2023. The growth is primarily attributed to an increase in core loans of $74.2 million and loans to other financial institutions of $19.1 million and an increase in cash and due from banks of $90.5 million compared to December 31, 2023. This growth was partially offset by a $33.1 million reduction in securities during the same time period. ChoiceOne has actively managed its balance sheet to support organic loan growth, strategically shifting from lower-yielding assets to higher-yielding loans. This is reflected in the loan growth observed during the nine months ended September 30, 2024.
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ChoiceOne's cost of deposits to average total deposits has declined since peaking in the first quarter of 2024 due to positive cash flow from pay-fixed interest rate swaps, hedged against deposits, decreasing deposit expenses. In addition, the Federal Reserve decreased the federal funds rate by 50 basis points in September 2024 and signaled potential further rate drops in the future. The cost of deposits to average total deposits has increased slightly to an annualized 1.53% in the third quarter of 2024 compared to an annualized 1.36% in the third quarter of 2023. Due to hedge instruments we have in place, our balance sheet is asset sensitive. If rates decline, we expect to see slight declines in deposit costs; however these declines will be muted by the decrease in cash flows from pay-fixed interest rate swaps collected. Interest expense on borrowings for the three and nine months ended September 30, 2024 increased $239,000 and $3.4 million, respectively, compared to the same periods in the prior year, due to increases in borrowing amounts and interest rates. Borrowings include $170 million from the BTFP and $40 million of FHLB borrowings at a weighted average fixed rate of 4.7%, with the earliest maturity in January 2025. Total cost of funds increased to an annualized 1.87% in the third quarter of 2024 compared to an annualized 1.70% in the third quarter of 2023.
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The average balance of total securities decreased $64.9 million and $63.6 million for the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year. The decrease is due to paydowns and a decline in the fair value of available for sale securities. The average rate earned on securities increased 25 basis points and 27 basis points for the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year. Interest income on securities increased by $196,000 and $719,000 for the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year.
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In order to bolster liquidity, ChoiceOne borrowed a total of $170.0 million from the Bank Term Funding Program ("BTFP") during the second and fourth quarters of 2023 and held $6.6 million in brokered deposits and $40.0 million in FHLB advances on September 30, 2024. The net effect of these additional borrowed funds and brokered deposits was neutral to interest expense for the three months ended September 30, 2024 and an increase in interest expense of $2.7 million for the nine months ended September 30, 2024, compared to the same periods in 2023.
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Loans individually evaluated for credit losses increased by $656,000 to $2.7 million during the first nine months of 2024, and the ACL related to these individually evaluated loans increased by $28,000 during the same period.
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The provision for credit losses on loans was $1.1 million during the first nine months of 2024, compared to $332,000 in the same period in the prior year. The provision expense was deemed necessary due to growth in total loans held for investment of $93.3 million during the first nine months of 2024 and minor deteriorations in the forecast used in ChoiceOne's CECL model.
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The loan provision expense was offset by the decrease in unfunded commitments provision expense of $675,000 in the first nine months of 2024, due to changes in mix, historical average funding rate declines, and a decline in balance. Total unfunded commitments decreased $28.7 million in the first nine months of 2024 compared to December 31, 2023.
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Net provision for credit losses was $425,000 for the third quarter and first nine months of 2024.
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Noninterest income increased $1.2 million and $2.1 million in the three and nine months ended September 30, 2024, compared to the same periods in the prior year. The increase was largely due to an increase in customer service charges of $391,000 and $920,000 in the three and nine months ended September 30, 2024 and changes in the market value of equity securities in the three and nine months ended September 30, 2024, compared to the same periods in the prior year. Equity securities include community bank stocks and CRA focused bond mutual funds. In addition, ChoiceOne recognized earnings on a bank owned life insurance death benefit claim in the amount of $196,000 during the first quarter of 2024.
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Noninterest expense increased by $1.7 million or 12.3% and $2.1 million or 5.0% in the three and nine months ended September 30, 2024 compared to the same periods in 2023. The increase in total noninterest expense was due in part to merger related expenses of $645,000 during the third quarter 2024 compared to $0 in the prior year. Additionally, there was an increase to employee health insurance and other benefit costs, and an increase to FDIC insurance and other costs related to inflationary pressures. The year to date increase in costs were offset by a decline in occupancy and equipment related to two branch closures during the first quarter of 2024. Management continues to seek out ways to manage costs, but also recognizes the value of investing in innovation and attracting the best talent in our industry to compete effectively in our markets.
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Average loan balances increased to $1.46 billion in the third quarter of 2024 compared to $1.36 billion in the fourth quarter of 2023 and $1.28 billion in the third quarter of 2023. Core loans grew organically by $74.2 million or 7.1% on an annualized basis during the first nine months of 2024. Loan growth during the first nine months of 2024 was concentrated in Non-Owner Occupied CRE loans, which grew by $75.3 million. ChoiceOne also saw healthy growth in Multifamily Loans, which grew by $27.9 million, 1-4 Family loans which grew $25.4 million, and Owner Occupied CRE, which grew by $22.1 million. The growth in 1-4 Family loans was largely related to growth in loans to other financial institutions which were $38.5 million as of September 30, 2024, compared to $19.4 million as of December 31, 2023. Loans to other financial institutions is comprised of a warehouse line of credit to facilitate mortgage loan originations and the interest rate fluctuates with the national mortgage market. This balance is short term in nature with an average life of under 30 days. Management believes the short-term structure and low credit risk of this asset is advantageous in the current rate environment. Loan interest including fee income increased $5.5 million and $17.4 million in the three and nine months ended September 30, 2024, respectively, compared to the same time periods in the prior year.
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Deposits, excluding brokered deposits, increased $102.1 million or an annualized 19.5% in the third quarter of 2024 and $103.0 million or 4.9% compared to December 31, 2023. The increase in deposits in the third quarter was driven by public funds including schools and townships which historically increase in the third quarter of each year due to the timing of tax collection. The increase in deposits compared to December 31, 2023 is a combination of new business and recapture of deposit losses from the prior year. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits, the Bank Term Funding Program (“BTFP”), and FHLB advances to ensure ample liquidity.
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At September 30, 2024, ChoiceOne has borrowed $170 million from the BTFP. This program provides a 1-year term at a fixed rate with the ability to prepay at any time without penalty. The interest rate on the BTFP borrowings as of September 30, 2024 was 4.76% and fixed through January of 2025. Collateral pledged is U.S. Treasuries, agency debt and mortgage-backed securities valued at par. At September 30, 2024, ChoiceOne had $40 million of borrowings from the FHLB with a weighted average rate of 4.58% with maturities through 2026. Total cost of funds increased to an annualized 1.87% in the third quarter of 2024 compared to an annualized 1.70% in the third quarter of 2023.
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Shareholders’ equity totaled $247.7 million as of September 30, 2024, up from $195.6 million as of December 31, 2023, due in large part to the $34.5 million in aggregate gross proceeds (before deducting discounts and estimated offering expenses) received in the Common Stock Offering. The additional increase is due to retained earnings and an improvement in accumulated other compressive loss (AOCI) of $6.1 million compared to December 31, 2023. The improvement in AOCI, is due to both the shortening duration and maturing (paydowns) of the securities portfolio, offset by the change in unrealized gain of the pay-fixed swap derivatives. ChoiceOne Bank remains “well-capitalized” with a total risk-based capital ratio of 13.1% as of September 30, 2024, compared to 12.4% on December 31, 2023.
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On January 1, 2023, ChoiceOne adopted ASU 2016-13 CECL which caused an increase in the ACL of $7.2 million and booked a liability for expected credit losses on unfunded loans and other commitments of $3.3 million. The increase in the ACL and the cost of the liability resulted in a decrease in the retained earnings account on our Consolidated Balance Sheet equal to the after-tax impact, with the tax impact portion being recorded in deferred taxes in our Consolidated balance Sheet in accordance with FASB guidance. This reduction in retained earnings was offset by first quarter 2023 earnings and recovery of accumulated other comprehensive loss.
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Net cash provided by operating activities was $25.0 million for the nine months ended September 30, 2024 compared to $57.3 million in the same period in 2023. The change was due to the change in proceeds from loan sales and other liabilities, partially offset by other assets in the nine months ended September 30, 2024 compared to the same period in 2023. Net cash used in investing activities was $56.3 million for the nine months ended September 30, 2024 compared to $96.1 million used in the same period in 2023. The change was due to a decrease in net loan originations that led to cash used of $94.1 million in the first nine months of 2024 compared to $120.3 million used in the same period during the prior year. Net maturities, payments and calls of available for sale and held to maturity securities was $41.8 million for the nine months ended September 30, 2024 compared to $32.2 million in the same period in 2023. Net cash provided by financing activities was $122.2 million for the nine months ended September 30, 2024, compared to $139.5 million in the same period in the prior year. ChoiceOne had $86.2 million in deposit growth in the first nine months of 2024 compared to a decrease of $15.2 million in the same period in 2023. ChoiceOne also increased borrowing by $10.0 million in the first nine months of 2024 compared to an increase of $130.0 million in the same period during the prior year.
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Previous wording
This discussion and other sections of this quarterly report contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and ChoiceOne. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “may,” “could,” “look forward,” “continue,” “future,” “will” and variations of such words and similar expressions are intended to identify such forward-looking statements. Management’s determination of the provision and allowance for credit losses, the carrying value of goodwill, loan servicing rights, other real estate owned, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) and management’s assumptions concerning pension and other post-retirement benefit plans involve judgments that are inherently forward-looking. All of the information concerning interest rate sensitivity is forward-looking. All statements with references to future time periods are forward-looking. These statements are not guarantees of future performance and 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 undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise. Such risks, uncertainties and assumptions, include, among others, the following:
Current wording
This discussion and other sections of this quarterly report contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and ChoiceOne. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “may,” “could,” “look forward,” “continue,” “future,” “will” and variations of such words and similar expressions are intended to identify such forward-looking statements. Management’s determination of the provision and allowance for credit losses, the carrying value of goodwill, loan servicing rights, other real estate owned, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) and management’s assumptions concerning pension and other post-retirement benefit plans involve judgments that are inherently forward-looking. All of the information concerning interest rate sensitivity is forward-looking. All statements with references to future time periods are forward-looking. These statements are not guarantees of future performance and 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 undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.
Previous wording
Additional risk factors include, but are not limited to, the risk factors discussed in Item 1A of ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2023 and in Part II, Item 1A of ChoiceOne’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.
Current wording
Risk factors include, but are not limited to, the risk factors discussed in Item 1A of ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2024. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.
Previous wording
On July 26, 2024, ChoiceOne completed an underwritten public offering of 1,380,000 shares of its common stock at a price to the public of $25.00 per share (the “Common Stock Offering”). The aggregate gross proceeds of the Common Stock Offering were approximately $34.5 million before deducting underwriting discounts and estimated offering expenses. The proceeds from the Common Stock Offering will qualify as tangible common equity and Tier 1 common equity. ChoiceOne intends to use the net proceeds of the Common Stock Offering for general corporate purposes including supplementing regulatory capital ratios and in conjunction with its announced merger with Fentura Financial, Inc.
Current wording
On July 26, 2024, ChoiceOne completed an underwritten public offering of 1,380,000 shares of its common stock at a price to the public of $25.00 per share (the “Common Stock Offering”). The aggregate gross proceeds of the Common Stock Offering were approximately $34.5 million before deducting underwriting discounts and estimated offering expenses. The proceeds from the Common Stock Offering will qualify as tangible common equity and Tier 1 common equity.
Previous wording
Deposits, excluding brokered deposits, increased $102.1 million or an annualized 19.5% in the third quarter of 2024 and $103.0 million or 4.9% compared to December 31, 2023. The increase in deposits in the third quarter was driven by public funds including schools and townships which historically increase in the third quarter of each year due to the timing of tax collection. The increase in deposits compared to December 31, 2023 is a combination of new business and recapture of deposit losses from the prior year. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits, the Bank Term Funding Program (“BTFP”), and FHLB advances to ensure ample liquidity. At September 30, 2024, total available borrowing capacity secured by pledged assets was $780.6 million. ChoiceOne can increase its capacity by utilizing unsecured federal fund lines and pledging additional assets, if necessary. Uninsured deposits totaled $863.3 million or 39.1% of deposits at September 30, 2024.
Current wording
Deposits, excluding brokered deposits, increased by $1.4 billion as of March 31, 2025, compared to the same period in 2024. This growth was primarily driven by the addition of $1.4 billion in deposits from the Merger, complemented by $48.7 million in organic growth. Not including the impact of the Merger, deposits, excluding brokered deposits, grew organically by $15.0 million in the first quarter of 2025. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits and FHLB advances to ensure ample liquidity. At March 31, 2025, total available borrowing capacity secured by pledged assets was $945.3 million. ChoiceOne can increase its capacity by utilizing unsecured federal fund lines and pledging additional assets. Uninsured deposits totaled $1.2 billion or 33.9% of deposits at March 31, 2025.
Previous wording
ChoiceOne uses interest rate swaps to manage interest rate exposure to certain fixed rate assets and variable rate liabilities. On September 30, 2024, ChoiceOne had pay-fixed interest rate swaps with a total notional value of $401.0 million, a weighted average coupon of 3.07%, a fair value of $4.4 million and an average remaining contract length of 7 to 8 years. These derivative instruments increase in value as long-term interest rates rise, which offsets the reduction in equity due to unrealized losses on securities available for sale. Included in the total is $200.0 million of forward starting pay-fixed, receive floating interest rate swaps used to hedge interest bearing liabilities. These forward starting swaps pay a fixed coupon of 2.75% while receiving SOFR. Settlements from these swaps amounted to $1.3 million for the third quarter of 2024 and were a contributing factor to the increase in net interest margin during the third quarter of 2024. Fully tax equivalent net interest margin excluding the swaps was 39 basis points lower than tax equivalent net interest margin reported for the third quarter of 2024. In addition to the pay-fixed interest rate swaps, ChoiceOne also employs back-to-back swaps on a commercial loans, with the impact reflected in interest income.
Current wording
ChoiceOne uses interest rate swaps to manage interest rate exposure to certain fixed rate assets and variable rate liabilities. On February 6, 2025, ChoiceOne sold $50 million of pay fixed receive floating interest rate swaps. The sold swaps had a fixed rate of 2.75% and a floating rate that will be determined periodically over the life of the swaps. This transaction resulted in a gain of approximately $3.6 million, which will be recognized through interest expense over the 7 years remaining on the life of the swap. On March 31, 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 $11.7 million and an average remaining contract length of 7.1 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 first quarter of 2025 compared to $1.5 million for the fourth quarter of 2024. Due in part to the pay fixed interest rate swaps in place, our balance sheet is asset sensitive. 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.
Previous wording
The annualized return on average assets and annualized return on average shareholders’ equity were 1.09% and 12.36%, respectively, for the third quarter of 2024, compared to an annualized 0.80% and an annualized 11.31%, respectively, for the same period in 2023. The annualized return on average assets and annualized return on average shareholders’ equity were 0.98% and 12.00%, respectively, for the first nine months of 2024, compared to 0.87% and 12.26%, respectively, for the same period in 2023.
Current wording
The annualized return on average assets and annualized return on average shareholders’ equity was (1.68)% and (18.39)%, respectively, for the first quarter of 2025, compared to an annualized 0.86% and 11.26%, , respectively, for the same period in 2024.
Previous wording
Cash dividends of $2.4 million or $0.27 per share were declared in the third quarter of 2024, compared to $2.0 million or $0.26 per share in thethird quarter of 2023. Cash dividends declared in the first nine months of 2024 were $6.5 million or $0.81 per share, compared to $5.9 million or $0.78 per share in the same period during the prior year. The cash dividend payout percentage was 33.2% for the first nine months of 2024, compared to 36.8% in the same period in the prior year.
Current wording
Cash dividends of $4.2 million or $0.28 per share were declared in the first quarter of 2025, compared to $2.0 million or $0.27 per share in thefirst quarter of 2024. The cash dividend payout percentage was (30.1)% for the first three months of 2025, compared to 36.8% in the same period in the prior year.
Previous wording
Tables 1 and 2 on the following pages provide information regarding interest income and expense for the three and nine months ended September 30, 2024 and 2023. Table 1 documents ChoiceOne’s average balances and interest income and expense, as well as the average rates earned or paid on assets and liabilities. Table 2 documents the effect on interest income and expense of changes in volume (average balance) and interest rates. These tables are referred to in the discussion of interest income, interest expense and net interest income.
Current wording
Tables 1 and 2 on the following pages provide information regarding interest income and expense for the three months ended March 31, 2025 and 2024. Table 1 documents ChoiceOne’s average balances and interest income and expense, as well as the average rates earned or paid on assets and liabilities. Table 2 documents the effect on interest income and expense of changes in volume (average balance) and interest rates. These tables are referred to in the discussion of interest income, interest expense and net interest income.
Previous wording
Non-accruing loan balances are included in the balances of average loans. Non-accruing loan average balances were $2.2 million and $1.9 million in the third quarter of 2024 and 2023, respectively.
Current wording
Non-accruing loan balances are included in the balances of average loans. Non-accruing loan average balances were $13.6 million and $1.7 million in the first quarter of 2025 and 2024, respectively.
Previous wording
Interest on loans included net origination fees and accretion income. Accretion income was $275,000 and $362,000 in the third quarter of 2024 and 2023, respectively.
Current wording
Interest on loans included net origination fees and accretion income. Accretion income was $2.9 million and $390,000 in the first quarter of 2025 and 2024, respectively.
Previous wording
Tax-equivalent net interest income increased $4.0 million and $5.8 million in the three and nine months ended September 30, 2024, compared to the same periods in 2023. The primary factor contributing to the increase in interest income was the higher interest rates on new loans and the impact of fixed rate swaps (see note 8). Tax equivalent net interest margin increased 53 basis points and 13 basis points in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. GAAP based net interest margin increased 53 basis points and 14 basis points in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.
Current wording
Tax-equivalent net interest income increased $9.8 million in the three months ended March 31, 2025, compared to the same period in 2024. The primary factor contributing to the increase in interest income was loan growth, both organically and due to the Merger, at higher interest rates, the impact of accretion from the Merger, and the impact of fixed rate swaps (see note 8). Tax equivalent net interest margin increased 74 basis points in the three months ended March 31, 2025, compared to the same period in 2024. GAAP based net interest margin increased 75 basis points in the three months ended March 31, 2025, compared to the same period in 2024.
Previous wording
The following table presents the annualized cost of deposits and the annualized cost of funds for the three and nine months ended September 30, 2024 and 2023.
Current wording
The following table presents the annualized cost of deposits and the annualized cost of funds for the three months ended March 31, 2025 and 2024.
Previous wording
ChoiceOne has experienced loan growth, leading to an increase in interest income from loans of $5.5 million and $17.4 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year. Average loans grew $181.6 million and $202.8 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year. In addition, the average rate earned on loans increased 82 basis points and 88 basis points in the three and nine months ended September 30, 2024, respectively, compared to the same period in the prior year. Interest income on loans for the three and nine months ended September 30, 2024 increased by $673,000 and $1.3 million, respectively, compared to the same periods in 2023, due to amortization expense related to the March 2023 sale of the pay floating swap derivative and a decline in accretion income related to acquired loans of $87,000 and $333,000, respectively.
Current wording
ChoiceOne has experienced loan growth, leading to an increase in interest income from loans of $11.9 million in the three months ended March 31, 2025, compared to the same period in 2024. In the three months ended March 31, 2025, average loans increased by $607.1 million, driven by both organic growth and the impact of the Merger, compared to the same period in 2024. In addition, the average rate earned on loans increased 64 basis points in the three months ended March 31, 2025, compared to the same period in 2024. Interest income for the three months ended March 31, 2025 includes $2.8 million of interest income accretion due to purchased loans related to the Merger. Interest income accretion from the Merger increased GAAP net interest margin by 37 basis points for the first quarter of 2025.
Previous wording
Interest expense increased $1.4 million in the three months ended September 30, 2024 and increased $13.3 million in the nine months ended September 30, 2024, compared to the same periods in the prior year. The average rate paid on interest bearing-demand deposits and savings deposits increased 13 basis points and 46 basis points in the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year. This was partly due to an increase in the average balance of interest bearing-demand deposits and savings deposits of $31.9 million for the three months ended September 30, 2024 and offset by the decline in the average balance of interest bearing-demand deposits and savings deposits of $2.0 million for the nine months ended September 30, 2024, compared to the same time periods in the prior year. The increase in the average balance of certificates of deposit of $51.8 million and $95.7 million in the three and nine months ended September 30, 2024, respectively, combined with a 50 basis point and 128 basis point increase in the rate paid on certificates of deposits in the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year, led to an increase in interest expense of $988,000 and $5.9 million during the respective time periods.
Current wording
Interest expense increased $1.7 million in the three months ended March 31, 2025, compared to the same period in 2024. Interest paid on interest-bearing demand deposits and savings deposits increased by $1.1 million in the three months ended March 31, 2025, compared to the same period in 2024. This increase was driven by a $321.2 million increase in the average balance of these deposits, attributed to both organic growth and the Merger. This was partially offset by a 1 basis point decline in the average rate paid on these deposits during the same period. The increase in the average balance of certificates of deposit of $109.8 million in the three months ended March 31, 2025, compared to the same period in 2024, offset by a 26 basis point reduction in the rate paid on certificates of deposits in the three months ended March 31, 2025, compared to the same period in 2024, led to an increase in interest expense of $835,000 during the first quarter 2025.
Previous wording
In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. In addition, ChoiceOne holds certain subordinated debentures issued in connection with a trust preferred securities offering that were obtained as part of the merger with Community Shores. The average balance of subordinated debentures was flat in the third quarter of 2024 and the nine months ended September 30, 2024, compared to the same periods in the prior year.
Current wording
In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. In addition, ChoiceOne holds certain subordinated debentures issued in connection with a trust preferred securities that were obtained as part of the merger with Community Shores and the Merger with Fentura. The average balance of subordinated debentures increased $4.6 million and 56 basis points in the first quarter of 2025, compared to the same period in the prior year due to the additional subordinated debenture obtained in the Merger. The increase led to additional expense of $106,000 for the first quarter of 2025 compared to the first quarter of 2024.
Previous wording
The allowance for credit losses ("ACL") consists of general and specific components. The general component covers loans collectively evaluated for credit loss and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustment for current and forecasted factors is based on trends in delinquencies, trends in charge-offs and recoveries, trends in the volume of loans, changes in underwriting standards, trends in loan review findings, the experience and ability of lending staff, and a reasonable and supportable economic forecast described further below.
Current wording
The ACL consists of general and specific components. The general component covers loans collectively evaluated for credit loss and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustment for current and forecasted factors is based on trends in delinquencies, trends in charge-offs and recoveries, trends in the volume of loans, changes in underwriting standards, trends in loan review findings, the experience and ability of lending staff, and a reasonable and supportable economic forecast described further below.
Previous wording
The determination of our loss factors is based, in part, upon benchmark peer loss history adjusted for qualitative factors that, in management's judgment, affect the collectability of the portfolio as of the analysis date. ChoiceOne's lookback period of benchmark peer net charge-off history was from January 1, 2004 through December 31, 2019 for this analysis.
Current wording
The determination of our loss factors is based, in part, upon benchmark peer loss history adjusted for qualitative factors that, in management's judgment, affect the collectability of the portfolio as of the analysis date. We have updated our lookback period for benchmark peer net charge-off history to exclude the years 2020 and 2021 due to the COVID-19 pandemic. Our revised lookback period now spans from January 1, 2004, to December 31, 2019, and January 1, 2022, to December 31, 2024.
Previous wording
Nonperforming loans, which includes Other Real Estate Owned ("OREO") but excludes performing troubled loan modifications ("TLM"), remained low at $2.9 million as of September 30, 2024, compared to $1.9 million as of December 31, 2023, and $1.8 million as of September 30, 2023. The ACL was 1.10% of total loans, excluding loans held for sale, at September 30, 2024, compared to 1.11% on December 31, 2023, and 1.14% on September 30, 2023. The liability for expected credit losses on unfunded loans and other commitments was $1.5 million on September 30, 2024, compared to $2.2 million on December 31, 2023, and $2.7 million on September 30, 2023.
Current wording
Nonperforming assets, which includes Other Real Estate Owned ("OREO") but excludes performing troubled loan modifications ("TLM"), increased by $15.1 million to $19.3 million at March 31, 2025, compared to the balance on December 31, 2024, largely due to $12.9 million in non-accrual loans and $1.7 million of OREO acquired in the Merger. All non-accrual loans from the Merger are classified as PCD loans. The ACL was 1.18% of total loans, excluding loans held for sale, at March 31, 2025, compared to 1.07% as of December 31, 2024. The liability for expected credit losses on unfunded loans and other commitments was $1.6 million as of March 31, 2025, compared to $1.5 million as of December 31, 2024.
Previous wording
Charge-offs and recoveries for respective loan categories for the nine months ended September 30, 2024 and 2023 were as follows:
Current wording
Charge-offs and recoveries for respective loan categories for the three months ended March 31, 2025 and 2024 were as follows:
Previous wording
Net charge-offs were $295,000 during the first nine months of 2024, compared to net charge-offs of $244,000 during the same period in 2023. Net charge-offs for checking accounts during the first nine months of 2024 were $155,000 or an annualized $206,000 compared to $178,000 or an annualized $238,000 for the same period in the prior year. Annualized net loan charge-offs as a percentage of average loans were 0.02% for the third quarter of 2024 compared to 0.05% for the same period in the prior year.
Current wording
Net charge-offs were $72,000 during the first three months of 2025, compared to net charge-offs of $51,000 during the same period in 2024. Net charge-offs for checking accounts during the first three months of 2025 were $51,000 compared to $31,000 for the same period in the prior year. Annualized net charge-offs as a percentage of average loans were 0.01% for both the first quarter of 2025 and 2024.
Previous wording
Income tax expense was $1.9 million and $4.7 million in the three and nine months ended September 30, 2024, respectively, compared to $1.1 million and $3.2 million for the same periods in 2023. The effective tax rate was 20.8% and 19.4% for the three and nine months ended September 30, 2024, respectively, compared to 17.4% and 16.5% for the same periods in 2023. During the first nine months of 2024, disallowed interest expense and non deductible merger expenses increased compared to the same period in 2023.
Current wording
Income tax benefit was $3.7 million in the three months ended March 31, 2025, compared to expense of $1.2 million for the same period in 2024. The effective tax rate was 21.0% for the three months ended March 31, 2025, compared to 17.6% for the same period in 2024. During the three months ended March 31, 2025 nondeductible merger expenses increased $777,000 compared to the same period in 2024.
Previous wording
At September 30, 2024, ChoiceOne had consolidated total assets of $2.7 billion, net loans of $1.5 billion, total deposits of $2.2 billion and total shareholders' equity of $247.7 million.
Current wording
At March 31, 2025, ChoiceOne had consolidated total assets of $4.3 billion, net loans of $2.9 billion, total deposits (excluding brokered deposits) of $3.6 billion and total shareholders' equity of $426.9 million.
Previous wording
Total available for sale securities on September 30, 2024 were $497.6 million compared to $514.6 million on December 31, 2023, with the decrease caused by $25.1 million of principal repayments, calls and maturities. The unrealized loss on securities available for sale declined by $17.0 million in the first nine months of 2024. Total held to maturity securities on September 30, 2024 were $392.0 million compared to $408.0 million on December 31, 2023. ChoiceOne's held to maturity securities declined during the first nine months of 2024 due to $16.0 million of principal repayments, calls and maturities.
Current wording
Total held to maturity securities on March 31, 2025 were $394.4 million compared to $394.5 million on December 31, 2024. ChoiceOne's held to maturity securities declined during the first three months of 2025 due to $4.1 million of principal repayments, calls and maturities, which was offset by $3.5 million in securities acquired through the Merger and purchases during the first quarter of 2025.
Previous wording
At September 30, 2024, ChoiceOne had $107.7 million in unrealized losses on its investment securities, including $61.4 million in unrealized losses on available for sale securities, $46.1 million in unrealized losses on held to maturity securities, and $214,000 in unrealized losses on equity securities. Unrealized losses on corporate and municipal bonds have not been recognized into income because management believes the issuers are of high credit quality, and management does not intend to sell prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.
Current wording
At March 31, 2025, ChoiceOne had $116.5 million in unrealized losses on its investment securities, including $65.6 million in unrealized losses on available for sale securities, $50.2 million in unrealized losses on held to maturity securities, and $596,000 in unrealized losses on equity securities. Unrealized losses on corporate and municipal bonds have not been recognized into income because management believes the issuers are of high credit quality, and management does not intend to sell prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.
Previous wording
ChoiceOne utilizes interest rate derivatives as part of its asset liability management strategy to help manage its interest rate risk position. In order to hedge the risk of rising rates and unrealized losses on securities resulting from the rising rates, ChoiceOne currently holds pay fixed, receive variable interest rate swaps with a total notional value of $401.0 million. These derivative instruments increase in value as long-term interest rates rise, which partially offsets the reduction in shareholders' equity due to unrealized losses on securities available for sale. Refer to Note 8 - Derivatives and Hedging Activities of the consolidated financial statements for more discussion on ChoiceOne’s derivative position.
Current wording
ChoiceOne utilizes interest rate derivatives as part of its asset liability management strategy to help manage its interest rate risk position. In order to hedge the risk of rising rates and unrealized losses on securities resulting from the rising rates, ChoiceOne currently holds pay fixed, receive variable interest rate swaps with a total notional value of $351.0 million. These derivative instruments change in value as rates rise or fall inverse to the change in unrealized losses of the available for sale portfolio. Refer to Note 8 - Derivatives and Hedging Activities of the consolidated financial statements for more discussion on ChoiceOne’s derivative position.
Previous wording
Equity securities included a money market preferred security ("MMP") of $1.0 million and common stock of $6.8 million as of September 30, 2024. As of December 31, 2023, equity securities included a MMP of $1.0 million and common stock of $6.5 million.
Current wording
Equity securities included a money market preferred security ("MMP") of $1.0 million and common stock of $8.3 million as of March 31, 2025. As of December 31, 2024, equity securities included a MMP of $1.0 million and common stock of $6.8 million.
Previous wording
During the first nine months of 2024 and 2023, ChoiceOne recorded accretion income related to acquired loans in the amount of $944,000 and $1.3 million, respectively. Remaining credit and yield mark on acquired loans from the mergers with County Bank Corp. and Community Shores will accrete into income as the acquired loans mature. The remaining yield mark on acquired loans from the mergers with County Bank Corp. and Community Shores totaled $1.6 million as of September 30, 2024.
Current wording
During the first three months of 2025 and 2024, ChoiceOne recorded accretion income related to acquired loans from mergers with County Bank Corp. and Community Shores in the amount of $127,000 and $390,000, respectively. Remaining credit and yield mark on acquired loans from the mergers with County Bank Corp. and Community Shores will accrete into income as the acquired loans mature. The remaining yield mark on acquired loans from the mergers with County Bank Corp. and Community Shores totaled $1.2 million as of March 31, 2025.
Previous wording
Goodwill is not amortized but is evaluated annually for impairment and on an interim basis if events or changes in circumstances indicate that goodwill might be impaired. The goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized for any amount by which the carrying amount exceeds the reporting unit’s fair value. Accounting pronouncements allow a company to first perform a qualitative assessment for goodwill prior to a quantitative assessment (Step 1 assessment). If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired, then a quantitative assessment must be performed. If not, there is no further assessment required. The Company acquired Valley Ridge Financial Corp. in 2006, County Bank Corp in 2019, and Community Shores in 2020, which resulted in the recognition of goodwill of $13.7 million, $38.9 million and $7.3 million, respectively.
Current wording
Goodwill is not amortized but is evaluated annually for impairment and on an interim basis if events or changes in circumstances indicate that goodwill might be impaired. The goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized for any amount by which the carrying amount exceeds the reporting unit’s fair value. Accounting pronouncements allow a company to first perform a qualitative assessment for goodwill prior to a quantitative assessment (Step 1 assessment). If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired, then a quantitative assessment must be performed. If not, there is no further assessment required. The Company acquired Valley Ridge Financial Corp. in 2006, County Bank Corp in 2019, Community Shores in 2020, and Fentura in 2025, which resulted in the recognition of goodwill of $13.7 million, $38.9 million, $7.3 million and $66.6 million, respectively.
Previous wording
Uninsured deposits totaled $863.3 million or 39.1% of deposits on September 30, 2024 compared to $769.7 million, or 36.3% of total deposits at December 31, 2023. At September 30, 2024, total available borrowing capacity from all sources was $780.6 million. ChoiceOne can increase its capacity by utilizing unsecured federal fund lines and pledging additional assets, if necessary.
Current wording
Uninsured deposits totaled $1.2 billion or 33.9% of deposits on March 31, 2025 compared to $792.3 million, or 37.0% of total deposits at December 31, 2024. At March 31, 2025, total available borrowing capacity from all sources was $945.3 million.
Previous wording
In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. ChoiceOne also holds $3.5 million in subordinated debentures issued in connection with a $4.5 million trust preferred securities offering, which were obtained in the merger with Community Shores, offset by the merger mark-to-market adjustment.
Current wording
In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. ChoiceOne also holds $15.9 million in subordinated debentures that were obtained in the merger with Community Shores and the Merger with Fentura, offset by the merger mark-to-market adjustment.
Previous wording
Liquidity risk deals with ChoiceOne's ability to meet its cash flow requirements. These requirements include depositors desiring to withdraw funds and borrowers seeking credit. Longer-term liquidity needs may be met through core deposit growth, maturities of and cash flows from investment securities, normal loan repayments, advances from the FHLB and the Federal Reserve Bank, brokered certificates of deposit, and income retention. ChoiceOne had $170.0 million in outstanding borrowings from the BTFP as of September 30, 2024. ChoiceOne had $40.0 million in outstanding borrowings at the FHLB as of September 30, 2024. The acceptance of brokered certificates of deposit is not limited as long as the Bank is categorized as “well capitalized” under regulatory guidelines. At September 30, 2024, total available borrowing capacity from the FHLB and the Federal Reserve Bank was $780.6 million.
Current wording
Liquidity risk deals with ChoiceOne's ability to meet its cash flow requirements. These requirements include depositors desiring to withdraw funds and borrowers seeking credit. Longer-term liquidity needs may be met through core deposit growth, maturities of and cash flows from investment securities, normal loan repayments, advances from the FHLB and the Federal Reserve Bank, brokered certificates of deposit, and income retention. ChoiceOne had $130.0 million in outstanding borrowings from the FHLB at a weighted average fixed rate of 4.03%, with the earliest maturity in April 2025 as of March 31, 2025. ChoiceOne had $7.7 million in outstanding borrowings at the holding company from a line of credit at BMO as of March 31, 2025. The acceptance of brokered certificates of deposit is not limited as long as the Bank is categorized as “well capitalized” under regulatory guidelines. At March 31, 2025, total available borrowing capacity from the FHLB and the Federal Reserve Bank was $945.3 million.
Previous wording
ChoiceOne continues to review its liquidity management and has taken steps in an effort to ensure adequacy. These steps include limiting bond purchases in the first nine months of 2024, pledging securities to FHLB and the Federal Reserve Bank in order to increase borrowing capacity and using alternative funding sources such as brokered deposits.
Current wording
ChoiceOne continues to review its liquidity management and has taken steps in an effort to ensure adequacy. These steps include limiting bond purchases in the first three months of 2025, pledging securities to the FHLB in order to increase borrowing capacity and using alternative funding sources such as brokered deposits.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Deposits, excluding brokered deposits, increased by $1.4 billion as of March 31, 2025, compared to the same period in 2024. This growth was primarily driven by the addition of $1.4 billion in deposits from the Merger, complemented by $48.7 million in organic growth. Not including the impact of the Merger, deposits, excluding brokered deposits, grew organically by $15.0 million in the first quarter of 2025. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits and FHLB advances to ensure ample liquidity. At March 31, 2025, total available borrowing capacity secured by pledged assets was $945.3 million. ChoiceOne can increase its borrowing capacity by utilizing unsecured federal fund lines and pledging additional assets.
Rearranged previous paragraphs (5)
Previous report — wording carried elsewhere
Adjusted to a fully tax-equivalent basis to facilitate comparison to the taxable interest-earning assets. The adjustment uses an incremental tax rate of 21%. The presentation of these measures on a tax-equivalent basis is not in accordance with GAAP, but is customary in the banking industry. These non-GAAP measures ensure comparability with respect to both taxable and tax-exempt loans and securities.
Previous report — wording carried elsewhere
Taxable securities include dividend income from Federal Home Loan Bank and Federal Reserve Bank stock.
Previous report — wording carried elsewhere
Loans include both loans to other financial institutions and loans held for sale.
Previous report — wording carried elsewhere
Non-accruing loan balances are included in the balances of average loans. Non-accruing loan average balances were $2.1 million and $1.5 million in the first nine months of 2024 and 2023, respectively.
Previous report — wording carried elsewhere
Interest on loans included net origination fees and accretion income related to acquired loans. Accretion income related to acquired loans was $944,000 and $1.4 million in the first nine months of 2024 and 2023, respectively.