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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
☒
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
September 30,
2025
☐
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
to
.
Commission File Number:
001-39209
ChoiceOne Financial Services, Inc.
(Exact Name of Registrant as Specified in its Charter)
Michigan
(State or Other Jurisdiction of
Incorporation or Organization)
38-2659066
(I.R.S. Employer Identification No.)
109 East Division
Sparta
,
Michigan
(Address of Principal Executive Offices)
49345
(Zip Code)
(
616
)
887-7366
(Registrant’s Telephone Number, including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common stock
COFS
NASDAQ
Capital Market
As of October 31, 2025, the Registra
nt had
15,023,732
shares of common stock outstanding.
Common stock and paid-in capital,
no
par value; shares authorized:
30,000,000
; shares outstanding:
15,017,802
at September 30, 2025 and
8,965,483
at December 31, 2024
398,688
206,780
Retained earnings
93,124
91,414
Accumulated other comprehensive loss, net
(
42,197
)
(
37,779
)
Total shareholders’ equity
449,615
260,415
Total liabilities and shareholders’ equity
$
4,296,902
$
2,723,243
3
See accompanying notes to interim consolidated financial statements.
ChoiceOne Financial Services, Inc.
CONSOLIDATED STA
TEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
Nine Months Ended
(Dollars in thousands, except share data)
September 30,
September 30,
2025
2024
2025
2024
Interest income
Loans, including fees
$
47,123
$
23,252
$
126,297
$
66,009
Securities:
Taxable
5,249
5,563
15,243
16,382
Tax exempt
1,418
1,402
4,220
4,224
Other
908
1,473
2,822
3,451
Total interest income
54,698
31,690
148,582
90,066
Interest expense
Deposits
14,287
8,362
39,843
25,464
Advances from Federal Home Loan Bank
1,926
468
5,637
1,372
Other
888
2,612
2,872
8,137
Total interest expense
17,101
11,442
48,352
34,973
Net interest income
37,597
20,248
100,230
55,093
Provision for (reversal of) credit losses on loans
200
425
14,013
1,100
Provision for (reversal of) credit losses on unfunded commitments
-
—
-
(
675
)
Net Provision for (reversal of) credit losses expense
200
425
14,013
425
Net interest income after provision
37,397
19,823
86,217
54,668
Noninterest income
Customer service charges
1,729
1,249
4,311
3,537
Interchange income
2,133
1,524
5,725
4,303
Insurance and investment commissions
485
184
1,320
572
Gains on sales of loans
671
631
1,470
1,610
Net (losses) gains on sales and write downs of other assets
(
39
)
191
(
26
)
203
Earnings on life insurance policies
558
315
1,791
1,115
Trust income
734
232
1,836
665
Change in market value of equity securities
458
277
804
241
Other
415
264
1,338
755
Total noninterest income
7,144
4,867
18,569
13,001
Noninterest expense
Salaries and benefits
14,127
8,372
38,178
24,467
Occupancy and equipment
2,694
1,475
6,845
4,414
Data processing
2,499
1,598
6,937
4,406
Communications
517
334
1,458
976
Professional fees
834
610
2,478
1,818
Supplies and postage
267
174
816
520
Advertising and promotional
207
168
723
517
Intangible amortization
1,728
198
4,140
604
FDIC insurance
530
390
1,535
1,155
Merger related expenses
-
645
17,369
645
Other
2,812
1,453
6,907
3,857
Total noninterest expense
26,215
15,417
87,386
43,379
Income before income tax
18,326
9,273
17,400
24,290
Income tax expense
3,645
1,925
3,091
4,722
Net income
$
14,681
$
7,348
$
14,309
$
19,568
Basic earnings per share (Note 4)
$
0.98
$
0.86
$
1.05
$
2.48
Diluted earnings per share (Note 4)
$
0.97
$
0.85
$
1.05
$
2.46
Dividends declared per share
$
0.28
$
0.27
$
0.84
$
0.81
4
See accompanying notes to interim consolidated financial statements.
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEME
NTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended
Nine Months Ended
(Dollars in thousands)
September 30,
September 30,
2025
2024
2025
2024
Net income
$
14,681
$
7,348
$
14,309
$
19,568
Other comprehensive income:
Change in net unrealized gain (loss) on available-for-sale securities
9,997
14,077
7,973
11,091
Income tax benefit (expense)
(
2,099
)
(
2,956
)
(
1,674
)
(
2,329
)
Less: reclassification adjustment for net (gain) loss for fair value hedge
(
578
)
(
9,827
)
(
7,274
)
(
2,841
)
Income tax benefit (expense)
121
2,064
1,527
597
Unrealized gain (loss) on available-for-sale securities, net of tax
7,441
3,358
552
6,518
Amortization of net unrealized (gains) losses on securities transferred from available-for-sale to held-to-maturity
70
61
202
173
Income tax benefit (expense)
(
14
)
(
12
)
(
42
)
(
36
)
Unrealized loss on held to maturity securities, net of tax
56
49
160
137
Change in net unrealized gain (loss) on cash flow hedge
(
641
)
(
9,558
)
(
6,169
)
(
1,753
)
Income tax benefit (expense)
133
2,006
1,294
367
Less: amortization of net unrealized (gains) losses included in net income
(
126
)
-
(
323
)
1,092
Income tax benefit (expense)
27
-
68
(
229
)
Unrealized gain (loss) on cash flow hedge instruments, net of tax
(
607
)
(
7,552
)
(
5,130
)
(
523
)
Other comprehensive income (loss), net of tax
6,890
(
4,145
)
(
4,418
)
6,132
Comprehensive income
$
21,571
$
3,203
$
9,891
$
25,700
See accompanying notes to interim consolidated financial statements.
5
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
For the three months ended September 30,
Accumulated
Common
Other
Stock and
Comprehensive
Number of
Paid in
Retained
Income/(Loss),
(Dollars in thousands, except per share data)
Shares
Capital
Earnings
Net
Total
Balance, July 1, 2024
7,573,618
$
173,984
$
81,836
$
(
41,301
)
$
214,519
Net income
7,348
7,348
Other comprehensive income (loss)
(
4,145
)
(
4,145
)
Shares issued
5,914
165
165
Effect of employee stock purchases
11
11
Stock options exercised and issued
132
—
Stock-based compensation expense
174
174
Common stock offering
1,380,000
32,093
32,093
Cash dividends declared ($
0.27
per share)
(
2,419
)
(
2,419
)
Balance, September 30, 2024
8,959,664
$
206,427
$
86,765
$
(
45,446
)
$
247,746
Balance, July 1, 2025
15,008,864
$
398,201
$
82,647
$
(
49,087
)
$
431,761
Net income
14,681
14,681
Other comprehensive income (loss)
6,890
6,890
Shares issued for directors and employee stock plans
8,938
245
245
Effect of employee stock purchases
17
17
Stock-based compensation expense
225
225
Cash dividends declared ($
0.28
per share)
(
4,204
)
(
4,204
)
Balance, September 30, 2025
15,017,802
$
398,688
$
93,124
$
(
42,197
)
$
449,615
6
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
For the nine months ended September 30,
Accumulated
Common
Other
Stock and
Comprehensive
Number of
Paid in
Retained
Income/(Loss),
(Dollars in thousands, except per share data)
Shares
Capital
Earnings
Net
Total
Balance, January 1, 2024
7,548,217
$
173,513
$
73,699
$
(
51,578
)
$
195,634
Net income
19,568
19,568
Other comprehensive income (loss)
6,132
6,132
Shares issued for directors and employee stock plans
30,435
280
280
Effect of employee stock purchases
33
33
Stock options exercised and issued
1,012
-
Stock-based compensation expense
508
508
Common stock offering
1,380,000
32,093
32,093
Cash dividends declared ($
0.81
per share)
(
6,502
)
(
6,502
)
Balance, September 30, 2024
8,959,664
$
206,427
$
86,765
$
(
45,446
)
$
247,746
Balance, January 1, 2025
8,965,483
$
206,780
$
91,414
$
(
37,779
)
$
260,415
Net income
14,309
14,309
Other comprehensive income (loss)
(
4,418
)
(
4,418
)
Shares issued for directors and employee stock plans
23,855
678
678
Effect of employee stock purchases
46
46
Stock-based compensation expense
578
578
Restricted stock units issued
22,214
-
Shares surrendered by participants for RSU tax payments
(
327
)
(
327
)
Merger with Fentura Financial, Inc., net of issuance costs
6,064,057
192,770
192,770
Repurchase of shares from Fentura Financial, Inc. ESOP
(
57,807
)
(
1,837
)
(
1,837
)
Cash dividends declared ($
0.84
per share)
(
12,599
)
(
12,599
)
Balance, September 30, 2025
15,017,802
$
398,688
$
93,124
$
(
42,197
)
$
449,615
7
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEME
NTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
(Dollars in thousands)
September 30,
2025
2024
Cash flows from operating activities:
Net income
$
14,309
$
19,568
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses
14,013
425
Depreciation
2,576
1,907
Amortization
11,975
7,263
Accretion on purchased loans
(
10,034
)
(
944
)
Compensation expense on employee stock purchase plan, stock options, and restricted stock units
624
541
Net change in market value of equity securities
(
804
)
(
241
)
Gains on sales of loans
(
1,470
)
(
1,610
)
Loans originated for sale
(
41,493
)
(
48,171
)
Proceeds from loan sales
43,368
47,810
Earnings on bank-owned life insurance
(
1,488
)
(
919
)
Earnings on death benefit from bank-owned life insurance
(
303
)
(
196
)
(Gains)/losses on sales of other real estate owned
(
51
)
(
17
)
Write downs of OREO
78
139
Deferred federal income tax (benefit)/expense
2,297
166
Net change in:
Other assets
(
2,177
)
(
3,534
)
Other liabilities
(
13,640
)
1,507
Net cash provided by operating activities
17,780
23,694
Cash flows from investing activities:
Sales of securities available for sale
78,856
-
Maturities, prepayments and calls of securities available for sale
19,593
25,109
Maturities, prepayments and calls of securities held to maturity
12,294
16,710
Purchases of securities available for sale
(
73,673
)
(
1,116
)
Purchases of equity securities
(
203
)
(
70
)
Purchases of securities held to maturity
(
4,108
)
(
2,000
)
Purchase of Federal Home Loan Bank stock
-
(
242
)
Purchase of Federal Reserve Bank stock
(
7,247
)
-
Loan originations and payments, net
25,533
(
93,177
)
Proceeds from bank owned life insurance death benefits claim
940
490
Additions to premises and equipment
(
4,510
)
(
1,047
)
Proceeds from sales of other real estate owned
728
-
Proceeds from derivative contracts settlements
3,636
-
Issuance costs
(
8
)
-
Cash received from merger with Fentura Financial, Inc.
173,082
-
Net cash provided by (used in) investing activities
224,913
(
55,343
)
Cash flows from financing activities:
Net change in deposits
(
78,953
)
86,173
Net change in short term borrowings
(
147,213
)
10,109
Issuance of common stock
678
500
Repurchase of shares from Fentura Financial, Inc. ESOP
(
2,051
)
-
Share based compensation withholding obligation
(
327
)
(
220
)
Cash dividends
(
12,599
)
(
6,502
)
Cash related to common stock offering
-
32,094
Net cash provided by (used in) financing activities
(
240,465
)
122,154
Net change in cash and cash equivalents
2,227
90,505
Beginning cash and cash equivalents
96,751
55,433
Ending cash and cash equivalents
$
98,978
$
145,938
Supplemental disclosures of cash flow information:
Cash paid for interest
$
44,055
$
34,358
Cash paid for income taxes
2,840
4,450
Noncash transactions:
Loans transferred to other real estate
1,122
529
Acquisition of assets from merger, net of cash
1,578,547
-
Acquisition of liabilities from merger
1,625,421
-
Issuance of common stock as consideration for merger
192,770
-
See accompanying notes to interim consolidated financial statements.
8
ChoiceOne Financial Services, Inc.
NOTES TO INTERIM CONSOLID
ATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include ChoiceOne Financial Services, Inc. (“ChoiceOne”), its wholly-owned subsidiaries, ChoiceOne Bank (the “Bank”) and 109 Technologies, LLC, and ChoiceOne Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. (the “Insurance Agency”). Intercompany transactions and balances have been eliminated in consolidation.
ChoiceOne owns all of the common securities of Community Shores Capital Trust I, Fentura Capital Trust I, and Fentura Capital Trust II (collectively, the “Capital Trusts”). Under U.S. generally accepted accounting principles (“GAAP”), the Capital Trusts are not consolidated because each is a variable interest entity and ChoiceOne is not the primary beneficiary.
The accompanying unaudited consolidated financial statements and notes thereto reflect all adjustments ordinary in nature which are, in the opinion of management, necessary for a fair presentation of such financial statements. Operating results for the nine months ended September 30, 2025, are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.
The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2024
.
Recent Events
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.
Identification and Classification of Merger-Related Expenses
Merger-related expenses are costs incurred directly in connection with the company's merger and acquisition activities and are expensed in the period in which the costs are incurred and services are received. The costs to issue equity securities associated with the merger are netted against the value of the securities issued. Merger related expenses include legal fees for negotiation and drafting of merger agreements, accounting and auditing fees related to due diligence and financial statement preparation, consulting fees for strategic advisory services specific to the merger, costs related to regulatory filings and compliance, expenses for integration planning and execution (including IT, systems integration, and contract terminations), severance and retention bonuses for employees affected by the merger, and travel and accommodation expenses directly related to merger activities.
To ensure accurate classification and segregation of these expenses, detailed documentation supporting the nature and purpose of each expense is maintained, including invoices, contracts, and internal memos. All merger-related expenses must be reviewed and approved by the CFO or an authorized delegate to ensure they meet the criteria for classification as merger-related. The Accounting Department conducts periodic reviews of these expenses to ensure proper classification and segregation, promptly addressing and correcting any discrepancies. Merger-related expenses are disclosed separately in the financial statements and accompanying notes to provide transparency to investors and stakeholders.
Use of Estimates
To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, ChoiceOne’s management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. These estimates and assumptions are subject to many risks and uncertainties, and actual results may differ from these estimates. Estimates associated with the allowance for credit losses, the unrealized gains and losses on securities available for sale and held to maturity, and the fair value measurement of acquired assets and liabilities associated with the Merger are particularly susceptible to change.
Goodwill
Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of the acquired tangible assets and liabilities and identifiable intangible assets. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed.
9
Core Deposit Intangible
Core deposit intangible represents the value of the acquired customer core deposit bases and is included as an asset on the consolidated balance sheets. The core deposit intangible has an estimated finite life, is amortized on an accelerated basis over its useful life and is subject to periodic impairment evaluation.
Stock Transactions
A total of
6,136
and
16,442
shares of common stock were issued to ChoiceOne’s Board of Directors for a cash price of $
176,000
and $
496,000
for the three and nine months ended September 30, 2025, respectively, under the terms of the Directors’ Stock Purchase Plan. A total
of
2,802
and
7,413
shares
for a cash price of $
69,000
and $
182,000
were issued for the three and nine months ended September 30, 2025, respectively, under the Employee Stock Purchase Plan.
On March 1, 2025, ChoiceOne issued
6,070,836
shares of common stock at a net cost of $
192.8
million as consideration in the Merger. Also on March 1, 2025, as required in the Merger, ChoiceOne purchased
57,807
shares of common stock for a cash price of approximately $
1.8
million. ChoiceOne retired
6,750
shares of stock that were FETM shares which were owned by ChoiceOne prior to the merger for a cash price of $
215,000
on March 1, 2025.
ChoiceOne's common stock repurchase program announced in April 2021 and amended in 2022, authorizes repurchases of up to
375,388
shares, representing
5
% of the total outstanding shares of common stock as of the date the program was adopted.
No
shares were repurchased under this program in the first nine months of 2025.
Reclassifications
Certain amounts presented in prior periods have been reclassified to conform to the current presentation.
Allowance for Credit Losses (“ACL”)
The ACL is a valuation allowance for expected credit losses. The ACL is increased by the provision for credit losses and decreased by loans charged off less any recoveries of charged off loans. As ChoiceOne has had very limited loss experience since 2011, management elected to utilize benchmark peer loss history data to estimate historical loss rates. ChoiceOne identified an appropriate peer group for each loan pool which shared similar characteristics. Management estimates the ACL required based on the selected peer group loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, a reasonable and supportable economic forecast, and other factors. Allocations of the ACL may be made for specific loans, but the entire ACL is available for any loan that, in management’s judgment, should be charged off. Loan losses are charged against the ACL when management believes that collection of a loan balance is not possible.
The ACL consists of general and specific components. The general component covers loans collectively evaluated for credit losses 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.
The discounted cash flow methodology is utilized for all loan pools included in the general component. This methodology is supported by our current expected credit loss ("CECL") software provider and allows management to automatically calculate contractual life by factoring in all cash flows and adjusting them for behavioral and credit-related aspects.
Reasonable and supportable economic forecasts have to be incorporated in determining expected credit losses. The forecast period represents the time frame from the current period end through the point in time that we can reasonably forecast and support entity and environmental factors that are expected to impact the performance of our loan portfolio. Ideally, the economic forecast period would encompass the contractual terms of all loans; however, the ability to produce a forecast that is considered reasonable and supportable becomes more difficult or may not be possible in later periods. Subsequent to the end of the forecast period, we revert to historical loan data based on an ongoing evaluation of each economic forecast in relation to then current economic conditions as well as any developing loan loss activity and resulting historical data. As of September 30, 2025, we used a one-year reasonable and supportable economic forecast period, with a two year straight-line reversion period.
We are not required to develop and use our own economic forecast model, and we elected to utilize economic forecasts from third-party providers that analyze and develop forecasts of the economy for the entire United States at least quarterly.
10
Other inputs to the calculation are also updated or reviewed quarterly. Prepayment speeds are updated on a one quarter lag based on the asset liability model from the previous quarter. This model is performed at the loan level. Curtailment is updated quarterly within the ACL model based on our peer group average. The reversion period is reviewed by management quarterly with consideration of the current economic climate. Prepayment speeds and curtailment were updated during the third quarter of 2025; however, the effect was insignificant.
We are also required to consider expected credit losses associated with loan commitments over the contractual period in which we are exposed to credit risk on the underlying commitments unless the obligation is unconditionally cancellable by us. Any allowance for off-balance sheet credit exposures is reported as an other liability on our Consolidated Balance Sheet and is increased or decreased via the provision for credit losses account on our Consolidated Statement of Income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to be funded.
Loans that do not share risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. ChoiceOne has determined that any loans which have been placed on non-performing status, loans with a risk rating of 6 or higher, and loans past due more than
60
days will be assessed individually for evaluation. Management's judgment will be used to determine if the loan should be migrated back to pool on an individual basis. Individual analysis will establish a specific reserve for loans in scope. Specific reserves on non-performing loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as appropriate or based on the present value of the expected cash flows from that loan.
ACL for Purchased Loans: With and Without Credit Deterioration
Purchased loans are initially recorded at fair value. ChoiceOne’s accounting treatment for these loans depends on whether they exhibit significant credit deterioration since origination at the time of purchase. As part of the Merger, ChoiceOne recognized a valuation adjustment on the purchased loans, which included two distinct categories: loans purchased with credit deterioration and those without. A substantial portion of this adjustment is expected to be recognized as interest income over time.
Purchased Loans with Credit Deterioration
Purchased loans that reflect a more than insignificant credit deterioration since origination at the date of purchase are classified as purchased credit deteriorated (PCD) loans. PCD loans are recorded at fair value plus the ACL expected at the time of purchase. Under this method, there is no provision for credit losses on purchase of PCD loans. The ACL was recorded as the credit mark on PCD loans. PCD loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. The non-credit-related difference between fair value and the unpaid principal balance at the purchase date is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.
Purchased Loans Without Credit Deterioration
Loans not considered purchased credit deteriorated (Non-PCD) loans do not reflect more than insignificant credit deterioration since origination at the date of purchase. These loans are recorded at fair value and an increase to the allowance for credit losses (ACL) is recorded with a corresponding increase to the provision for credit losses at the date of purchase. The difference between fair value and the unpaid principal balance at the purchase date is amortized or accreted to interest income over the contractual life of the loan using the effective interest method. Purchased loans from the Merger were brought into the model and segmented into classes on the same basis as ChoiceOne originated loans.
ACL for Securities
Securities Available for Sale ("AFS") – For securities AFS in an unrealized loss position, management determines whether they intend to sell or if it is more likely than not that ChoiceOne will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities AFS with unrealized losses not meeting these criteria, management evaluates whether any decline in fair value is due to credit loss factors. In making this assessment, management considers any changes to the rating of the security by rating agencies and adverse conditions specifically related to the issuer of the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses (“ACL”) is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Changes in the ACL under ASC 326-30 are recorded as provisions for (or reversal of) credit loss expense. Losses are charged against the ACL when the collectability of a debt security AFS is confirmed or when either of the criteria regarding intent
11
or requirement to sell is met. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, net of income taxes. At September 30, 2025, there was no ACL related to debt securities AFS.
Securities Held to Maturity ("HTM") – Since the adoption of CECL, ChoiceOne measures credit losses on HTM securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The ACL on securities HTM is a contra asset valuation account that is deducted from the carrying amount of HTM securities to present the net amount expected to be collected. HTM securities are charged off against the
ACL when deemed uncollectible. Adjustments to the ACL are reported in ChoiceOne’s Consolidated Statements of Income in the provision for credit losses. Accrued interest receivable totaled $
2.3
million at September 30, 2025 and $
2.0
million at December 31, 2024 and was reported in other assets on the consolidated balance sheets and is excluded from the estimate of credit losses. With regard to US Treasury securities, these have an explicit government guarantee; therefore, no ACL is recorded for these securities. With regard to obligations of states and politic
al subdivisions and other HTM securities, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. At September 30, 2025 and December 31, 2024, the ACL related to HTM securities is insignificant.
Recent Accounting Pronouncements
Adoption of ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about the Company's operating segments. This adoption was aimed at providing more transparent and comprehensive information regarding the Company's financial performance and position. The Company operates in
one
reportable segment. The Company
adopted
this guidance as of
December 31, 2024
, on a retrospective basis. The adoption did
no
t have a material impact on the Company's financial statements but resulted in additional entity-wide disclosures about products and services, geographic areas, and major customers. These disclosures are intended to provide users of the financial statements with a better understanding of the Company's operations and the economic environments in which it operates.
While ChoiceOne’s management monitors the revenue streams of various products and services for the Bank and the Insurance Agency, operations and financial performance are evaluated on a company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated into one reportable operating segment.
ASU 2023-09 Improvements to Income Tax Disclosures
In 2023, the FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures. The amendments in this update enhance transparency and decision usefulness of income tax disclosures. This ASU requires consistent categorization, greater disaggregation, and detailed disclosures related to income taxes paid. These changes aim to help users of financial statements understand factors contributing to differences between effective and statutory tax rates. The disclosure is effective for annual reporting periods beginning after December 15, 2024. The Company is evaluating the impact this will have on the Company's income tax disclosures.
12
NOTE 2 – SECURITIES
On January 1, 2022, ChoiceOne reassessed and transferred, at fair value, $
428.4
million of securities classified as available for sale to the held to maturity classification. The net unrealized after-tax loss of $
2.7
million as of the transfer date remained in accumulated other comprehensive income to be amortized over the remaining life of the securities, offsetting the related amortization of discount or premium on the transferred securities. No gains or losses were recognized at the time of the transfer. The remaining net unamortized unrealized loss on transferred securities included in accumulated other comprehensive income was $
1.8
million after tax as of September 30, 2025.
ChoiceOne acquired $
90.7
million in securities as part of the Merger; however, management chose to sell $
78.9
million of those securities to pay down higher cost wholesale funding. The sale of the securities was completed so close to the fair value determination date that no loss was recognized. Consequently, the net increase in securities from the Merger was $
11.8
million.
The fair value of equity securities and the related gross unrealized gains (losses) recognized in noninterest income were as follows:
September 30, 2025
Gross
Gross
(Dollars in thousands)
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
Equity securities
$
9,352
$
649
$
(
496
)
$
9,505
December 31, 2024
Gross
Gross
(Dollars in thousands)
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
Equity securities
$
8,043
$
397
$
(
658
)
$
7,782
The following tables present the amortized cost and fair value of securities available for sale and the gross unrealized gains (losses) recognized in accumulated other comprehensive income (loss) and the amortized cost and fair value of securities held to maturity and the related gross unrealized gains and losses:
September 30, 2025
Gross
Gross
(Dollars in thousands)
Amortized
Unrealized
Unrealized
Fair
Available for Sale:
Cost
Gains
Losses
Value
U.S. Treasury notes and bonds
$
94,284
$
25
$
(
5,923
)
$
88,386
State and municipal
262,393
-
(
38,236
)
224,157
Mortgage-backed
238,535
98
(
16,172
)
222,461
Corporate
250
-
(
33
)
217
Asset-backed securities
8,936
-
(
134
)
8,802
Total
$
604,398
$
123
$
(
60,498
)
$
544,023
(Dollars in thousands)
Held to Maturity:
U.S. Government and federal agency
$
2,983
$
-
$
(
182
)
$
2,801
State and municipal
197,497
43
(
24,081
)
173,459
Mortgage-backed
167,458
14
(
14,849
)
152,623
Corporate
20,532
32
(
1,497
)
19,067
Asset-backed securities
47
-
-
47
Total
$
388,517
$
89
$
(
40,609
)
$
347,997
13
December 31, 2024
Gross
Gross
(Dollars in thousands)
Amortized
Unrealized
Unrealized
Fair
Available for Sale:
Cost
Gains
Losses
Value
U.S. Treasury notes and bonds
$
89,875
$
-
$
(
9,373
)
$
80,502
State and municipal
258,815
-
(
30,579
)
228,236
Mortgage-backed
181,863
62
(
20,955
)
160,970
Corporate
250
-
(
38
)
212
Asset-backed securities
9,387
-
(
190
)
9,197
Total
$
540,190
$
62
$
(
61,135
)
$
479,117
(Dollars in thousands)
Held to Maturity:
U.S. Government and federal agency
$
2,978
$
-
$
(
279
)
$
2,699
State and municipal
196,510
5
(
31,477
)
165,038
Mortgage-backed
174,323
7
(
21,963
)
152,367
Corporate
20,495
29
(
1,803
)
18,721
Asset-backed securities
228
-
(
5
)
223
Total
$
394,534
$
41
$
(
55,527
)
$
339,048
Available for sale securities with unrealized losses as of
September 30, 2025 and December 31, 2024, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, were as follows:
September 30, 2025
Less than 12 months
More than 12 months
Total
(Dollars in thousands)
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Available for Sale:
Value
Losses
Value
Losses
Value
Losses
U.S. Treasury notes and bonds
$
-
$
-
$
83,597
$
5,923
$
83,597
$
5,923
State and municipal
4,696
520
219,230
37,716
223,926
38,236
Mortgage-backed
67,359
982
134,772
15,190
202,131
16,172
Corporate
-
-
217
33
217
33
Asset-backed securities
-
-
8,802
134
8,802
134
Total temporarily impaired
$
72,055
$
1,502
$
446,618
$
58,996
$
518,673
$
60,498
December 31, 2024
Less than 12 months
More than 12 months
Total
(Dollars in thousands)
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Available for Sale:
Value
Losses
Value
Losses
Value
Losses
U.S. Treasury notes and bonds
$
-
$
-
$
80,502
$
9,373
$
80,502
$
9,373
State and municipal
-
-
228,236
30,579
228,236
30,579
Mortgage-backed
963
1
142,170
20,954
143,133
20,955
Corporate
-
-
212
38
212
38
Asset-backed securities
-
-
9,197
190
9,197
190
Total temporarily impaired
$
963
$
1
$
460,317
$
61,134
$
461,280
$
61,135
14
Held to maturity securities with unrealized losses as of
September 30, 2025 and December 31, 2024, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, were as follows:
September 30, 2025
Less than 12 months
More than 12 months
Total
(Dollars in thousands)
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Held to Maturity:
Value
Losses
Value
Losses
Value
Losses
U.S. Government and federal agency
$
-
$
-
$
2,801
$
182
$
2,801
$
182
State and municipal
951
21
167,633
24,060
168,584
24,081
Mortgage-backed
4,329
39
140,576
14,810
144,905
14,849
Corporate
1,447
3
15,929
1,494
17,376
1,497
Asset-backed securities
-
-
47
-
47
-
Total temporarily impaired
$
6,727
$
63
$
326,986
$
40,546
$
333,713
$
40,609
December 31, 2024
Less than 12 months
More than 12 months
Total
(Dollars in thousands)
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Held to Maturity:
Value
Losses
Value
Losses
Value
Losses
U.S. Government and federal agency
$
-
$
-
$
2,699
$
279
$
2,699
$
279
State and municipal
5,262
630
159,558
30,847
164,820
31,477
Mortgage-backed
2,350
11
141,970
21,952
144,320
21,963
Corporate
-
-
16,591
1,803
16,591
1,803
Asset-backed securities
-
-
223
5
223
5
Total temporarily impaired
$
7,612
$
641
$
321,041
$
54,886
$
328,653
$
55,527
15
ChoiceOne evaluates all securities on a quarterly basis to determine if an ACL and corresponding impairment charge should be recorded. Consideration is given to the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of ChoiceOne to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value of amortized cost basis. ChoiceOne believes that unrealized losses on securities were temporary in nature and were caused primarily by changes in interest rates, increased credit spreads, and reduced market liquidity and were not caused by the credit status of the issuer. No ACL was recorded in the three and nine months ended September 30, 2025 and September 30, 2024 on AFS securities.
The majority of unrealized losses at September 30, 2025, are related to U.S. Treasury notes and bonds, state and municipal bonds and mortgage backed securities. The U.S. Treasury notes are guaranteed by the U.S. government and
100
% of the notes are rated AA or better. State and municipal bonds are backed by the taxing authority of the bond issuer or the revenues from the bond. On September 30, 2025,
85
% of state and municipal bonds held are rated AA or better,
10
% are A rated and
5
% are not rated. Of the mortgage-backed securities held on September 30, 2025,
47
% were issued by US government sponsored entities and agencies, and rated AA,
38
% are AAA rated private issue and collateralized mortgage obligations, and
15
% are unrated privately issued mortgage-backed securities with structured credit enhancement and collateralized mortgage obligations.
Unrealized losses have not been recognized into income because the issuers’ bonds are of high credit quality, and management does not intend to sell the bonds 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.
16
Presented below is a schedule of maturities of securities as of
September 30, 2025. Available for sale securities are reported at fair value and held to maturity securities are reported at amortized cost. Callable securities in the money are presumed called and matured at the callable date.
Available for Sale Securities maturing within:
Fair Value
Less than
1 Year -
5 Years -
More than
at September 30,
(Dollars in thousands)
1 Year
5 Years
10 Years
10 Years
2025
U.S. Treasury notes and bonds
$
980
$
87,406
$
-
$
-
$
88,386
State and municipal
230
32,024
29,622
162,281
224,157
Corporate
-
-
217
-
217
Asset-backed securities
-
6,406
2,396
-
8,802
Total debt securities
1,210
125,836
32,235
162,281
321,562
Mortgage-backed securities
1,649
124,723
72,250
23,839
222,461
Total Available for Sale
$
2,859
$
250,559
$
104,485
$
186,120
$
544,023
Held to Maturity Securities maturing within:
Amortized Cost
Less than
1 Year -
5 Years -
More than
at September 30,
(Dollars in thousands)
1 Year
5 Years
10 Years
10 Years
2025
U.S. Government and federal agency
$
-
$
2,983
$
-
$
-
$
2,983
State and municipal
2,332
45,985
90,267
58,913
197,497
Corporate
-
-
20,532
-
20,532
Asset-backed securities
47
-
-
-
47
Total debt securities
2,379
48,968
110,799
58,913
221,059
Mortgage-backed securities
3,416
93,193
70,849
-
167,458
Total Held to Maturity
$
5,795
$
142,161
$
181,648
$
58,913
$
388,517
Following is information regarding unrealized gains and losses on equity securities for the
three and nine months ended September 30, 2025 and 2024:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2025
2024
2025
2024
(Dollars in thousands)
Net gains (losses) recognized during the period
$
458
$
277
$
804
$
241
Less: Net gains (losses) recognized during the period on securities sold
—
—
—
—
Unrealized gains (losses) recognized during the reporting period on securities still held at the reporting date
$
458
$
277
$
804
$
241
17
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans by type as a percentage of the portfolio were as follows:
September 30, 2025
December 31, 2024
(Dollars in thousands)
Balance
%
Balance
%
Percent Increase (Decrease)
Agricultural
$
51,183
1.8
%
$
48,221
3.1
%
6.1
%
Commercial and Industrial
352,876
12.1
%
228,256
14.8
%
54.6
%
Commercial Real Estate
1,728,774
59.4
%
901,130
58.3
%
91.8
%
Consumer
27,328
0.9
%
29,412
1.9
%
(
7.1
)
%
Construction Real Estate
18,441
0.6
%
17,042
1.1
%
8.2
%
Residential Real Estate
728,843
25.0
%
281,701
18.2
%
158.7
%
Loans to Other Financial Institutions
2,483
0.1
%
39,878
2.6
%
(
93.8
)
%
Gross Loans
$
2,909,928
$
1,545,640
Allowance for credit losses
34,754
1.19
%
16,552
1.07
%
Net loans
$
2,875,174
$
1,529,088
18
Activity in the allowance for credit losses and balances in the loan portfolio were as follows:
Commercial
Loans to Other
(Dollars in thousands)
And
Commercial
Construction
Residential
Financial
Agricultural
Industrial
Consumer
Real Estate
Real Estate
Real Estate
Institutions
Total
Allowance for Credit Losses Three Months Ended September 30, 2025
Beginning balance
$
219
$
5,240
$
772
$
18,311
$
90
$
10,161
$
5
$
34,798
Charge-offs
-
-
(
193
)
(
185
)
-
-
-
(
378
)
Recoveries
-
2
131
-
-
1
-
134
Provision
14
1,055
26
(
551
)
(
7
)
(
336
)
(
1
)
200
Ending balance
$
233
$
6,297
$
736
$
17,575
$
83
$
9,826
$
4
$
34,754
Allowance for Credit Losses Nine Months Ended September 30, 2025
Beginning balance
$
90
$
2,260
$
733
$
9,460
$
59
$
3,890
$
60
$
16,552
Acquisition related allowance for credit loss (PCD)
2
2,963
-
1,791
-
168
-
4,924
Charge-offs
-
(
9
)
(
586
)
(
393
)
-
(
52
)
-
(
1,040
)
Recoveries
-
8
273
-
-
25
-
306
Provision
141
1,075
316
6,717
24
5,795
(
56
)
14,013
Ending balance
$
233
$
6,297
$
736
$
17,575
$
83
$
9,826
$
4
$
34,754
Individually evaluated for credit loss
$
-
$
2,916
$
-
$
637
$
-
$
38
$
-
$
3,591
Collectively evaluated for credit loss
$
233
$
3,382
$
736
$
16,938
$
82
$
9,788
$
4
$
31,163
Loans
September 30, 2025
Individually evaluated for credit loss
$
5
$
8,176
1
$
4,506
$
—
$
2,944
$
-
$
15,632
Collectively evaluated for credit loss
51,178
344,700
27,327
1,724,268
18,441
725,899
2,483
2,894,296
Ending loan balance
$
51,183
$
352,876
$
27,328
$
1,728,774
$
18,441
$
728,843
$
2,483
$
2,909,928
The outstanding balance and related ACL on PCD loans as of March 1, 2025 (the acquisition date) and September 30, 2025 is as follows (in thousands):
19
As of September 30, 2025
As of March 1, 2025
Loan Balance
ACL Balance
Loan Balance
ACL Balance
(dollars in thousands)
Agricultural
$
460
$
2
$
611
$
2
Commercial and Industrial
11,628
2,934
13,572
2,960
Commercial Real Estate
65,988
1,096
79,444
1,791
Consumer
12
-
32
0
Residential Real Estate
18,014
138
19,252
171
Total
$
96,102
$
4,170
$
112,911
$
4,924
There were no PCD loans in the prior year.
Commercial
Loans to Other
(Dollars in thousands)
and
Commercial
Construction
Residential
Financial
Agricultural
Industrial
Consumer
Real Estate
Real Estate
Real Estate
Institutions
Total
Allowance for Credit Losses
December 31, 2024
Ending balance
$
90
$
2,260
$
733
$
9,460
$
59
$
3,890
$
60
$
16,552
Loans
December 31, 2024
Ending loan balance
$
48,221
$
228,256
$
29,412
$
901,130
$
17,042
$
281,701
$
39,878
$
1,545,640
Commercial
(Dollars in thousands)
and
Commercial
Construction
Residential
Loans to Other
Agricultural
Industrial
Consumer
Real Estate
Real Estate
Real Estate
Financial Institution
Total
Allowance for Credit Losses Three Months Ended September 30, 2024
Beginning balance
$
112
$
2,161
$
795
$
9,360
$
49
$
3,625
$
50
$
16,152
Charge-offs
-
-
(
166
)
-
-
(
23
)
-
(
189
)
Recoveries
-
2
96
-
-
4
-
102
Provision
(
2
)
307
36
(
140
)
(
13
)
227
10
425
Ending balance
$
110
$
2,470
$
761
$
9,220
$
36
$
3,833
$
60
$
16,490
Allowance for Credit Losses Nine Months Ended September 30, 2024
Beginning balance
$
94
$
2,216
$
823
$
8,820
$
58
$
3,644
$
30
$
15,685
Charge-offs
-
(
1
)
(
616
)
-
-
(
23
)
-
(
640
)
Recoveries
-
13
321
-
-
11
-
345
Provision
16
242
233
400
(
22
)
201
30
1,100
Ending balance
$
110
$
2,470
$
761
$
9,220
$
36
$
3,833
$
60
$
16,490
Individually evaluated for credit loss
$
1
$
7
$
1
$
1
$
-
$
78
$
-
$
88
Collectively evaluated for credit loss
$
109
$
2,463
$
760
$
9,219
$
36
$
3,755
$
60
$
16,402
20
The process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking (1) the risk ratings of business loans and (2) delinquent and nonperforming consumer loans. Business loans are risk rated on a scale of 1 to 9. A description of the characteristics of the ratings follows:
Risk Rating 1 through 5 or pass: These loans are considered pass credits. They exhibit acceptable credit risk and demonstrate the ability to repay the loan from normal business operations.
Risk rating 6 or special mention: Loans and other credit extensions bearing this grade are considered to be inadequately protected by the current net worth and debt service capacity of the borrower or of any pledged collateral. These obligations, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, market, or political conditions that have clearly jeopardized repayment of principal and interest as originally intended. Furthermore, there is the possibility that ChoiceOne Bank will sustain some future loss if such weaknesses are not corrected. Clear loss potential, however, does not have to exist in any individual assets classified as special mention. Loans falling into this category should have clear action plans and timelines with benchmarks to determine which direction the relationship will move.
Risk rating 7 or substandard: Loans and other credit extensions graded “7” have all the weaknesses inherent in those graded “6”, with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. Loans in this classification should be evaluated for non-accrual status. All nonaccrual commercial and Retail loans must be at a minimum graded a risk code “7”.
Risk rating 8 or doubtful: Loans and other credit extensions bearing this grade have been determined to have the extreme probability of some loss, but because of certain important and reasonably specific factors, the amount of loss cannot be determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral.
Risk rating 9 or loss: Loans in this classification are considered uncollectible and cannot be justified as a viable asset of ChoiceOne Bank. This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial recovery may be obtained in the future.
21
The following tables reflect the amortized cost basis of loans as of September 30, 2025 based on year of origination (dollars in thousands):
Commercial:
2025
2024
2023
2022
2021
Prior
Term Loans Total
Revolving Loans
Grand Total
Agricultural
Pass
$
3,743
$
4,209
$
1,858
$
3,706
$
4,952
$
19,586
$
38,054
$
12,794
$
50,848
Special mention
-
-
-
-
-
157
157
-
157
Substandard
-
-
-
-
-
178
178
-
178
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
3,743
$
4,209
$
1,858
$
3,706
$
4,952
$
19,921
$
38,389
$
12,794
$
51,183
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial and Industrial
Pass
$
43,364
$
44,434
$
18,784
$
37,820
$
13,564
$
23,539
$
181,505
$
158,391
$
339,896
Special mention
-
-
-
152
163
106
421
-
421
Substandard
-
692
5,804
46
1,471
1,758
9,771
2,788
12,559
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
43,364
$
45,126
$
24,588
$
38,018
$
15,198
$
25,403
$
191,697
$
161,179
$
352,876
Current year-to-date gross write-offs (1)
$
-
$
-
$
9
$
-
$
-
$
-
$
9
$
-
$
9
Commercial Real Estate
Pass
$
156,993
$
180,641
$
141,991
$
338,974
$
236,175
$
415,475
$
1,470,249
$
223,075
$
1,693,324
Special mention
-
-
212
14,068
1,561
5,199
21,040
-
21,040
Substandard
-
110
1,430
8,662
-
4,208
14,410
-
14,410
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
156,993
$
180,751
$
143,633
$
361,704
$
237,736
$
424,882
$
1,505,699
$
223,075
$
1,728,774
Current year-to-date gross write-offs (1)
$
-
$
-
$
36
$
257
$
-
$
100
$
393
$
-
$
393
Total Commercial Loans
$
204,100
$
230,086
$
170,079
$
403,428
$
257,886
$
470,206
$
1,735,785
$
397,048
$
2,132,833
22
Retail:
2025
2024
2023
2022
2021
Prior
Term Loans Total
Revolving Loans
Grand Total
Consumer
Performing
$
5,167
$
4,176
$
5,208
$
6,320
$
3,321
$
2,333
$
26,525
$
754
$
27,279
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
-
13
-
27
8
48
1
49
Total
$
5,167
$
4,176
$
5,221
$
6,320
$
3,348
$
2,341
$
26,573
$
755
$
27,328
Current year-to-date gross write-offs (1)
$
9
$
37
$
76
$
11
$
6
$
7
$
146
$
-
$
146
Construction real estate
Performing
$
2,067
$
1,179
$
-
$
-
$
501
$
-
$
3,747
$
14,584
$
18,331
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
-
-
-
-
-
-
110
110
Total
$
2,067
$
1,179
$
-
$
-
$
501
$
-
$
3,747
$
14,694
$
18,441
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Residential real estate
Performing
$
52,954
$
55,531
$
64,393
$
162,816
$
109,639
$
161,232
$
606,565
$
113,536
$
720,101
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
380
760
2,979
2,086
2,102
8,307
435
8,742
Total
$
52,954
$
55,911
$
65,153
$
165,795
$
111,725
$
163,334
$
614,872
$
113,971
$
728,843
Current year-to-date gross write-offs (1)
$
-
$
-
$
17
$
4
$
30
$
1
$
52
$
-
$
52
Loans to Other Financial Institutions
Performing
$
2,483
$
-
$
-
$
-
$
-
$
-
$
2,483
$
-
$
2,483
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
-
-
-
-
-
-
-
-
Total
$
2,483
$
-
$
-
$
-
$
-
$
-
$
2,483
$
-
$
2,483
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total Retail Loans
$
62,671
$
61,266
$
70,374
$
172,115
$
115,574
$
165,675
$
647,675
$
129,420
$
777,095
(1)
It is noted that write-offs in the tables above do not include checking account write-offs. Checking account write-offs during the first nine months of 2025 were $
440,000
or an annualized $
587,000
compared to $
607,000
during the full year 2024.
23
The following tables reflect the amortized cost basis of loans as of December 31, 2024 based on year of origination (dollars in thousands):
Commercial:
2024
2023
2022
2021
2020
Prior
Term Loans Total
Revolving Loans
Grand Total
Agricultural
Pass
$
7,669
$
1,729
$
2,998
$
2,867
$
1,545
$
18,573
$
35,381
$
12,666
$
48,047
Special mention
-
-
-
-
-
174
174
-
174
Substandard
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
7,669
$
1,729
$
2,998
$
2,867
$
1,545
$
18,747
$
35,555
$
12,666
$
48,221
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial and Industrial
Pass
$
40,184
$
17,481
$
30,769
$
14,659
$
6,100
$
10,110
$
119,303
$
108,656
$
227,959
Special mention
-
84
14
24
174
296
-
296
Substandard
-
-
-
-
-
1
1
-
1
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
40,184
$
17,481
$
30,853
$
14,673
$
6,124
$
10,285
$
119,600
$
108,656
$
228,256
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
7
$
7
$
-
$
7
Commercial Real Estate
Pass
$
150,126
$
140,105
$
120,517
$
99,381
$
69,773
$
151,908
$
731,810
$
165,046
$
896,856
Special mention
-
-
-
-
-
4,274
4,274
-
4,274
Substandard
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
150,126
$
140,105
$
120,517
$
99,381
$
69,773
$
156,182
$
736,084
$
165,046
$
901,130
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total Commercial Loans
$
197,979
$
159,315
$
154,368
$
116,921
$
77,442
$
185,214
$
891,239
$
286,368
$
1,177,607
24
Retail:
2024
2023
2022
2021
2020
Prior
Term Loans Total
Revolving Loans
Grand Total
Consumer
Performing
$
6,489
$
6,636
$
8,427
$
4,240
$
1,632
$
1,283
$
28,707
$
697
$
29,404
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
7
1
-
-
-
8
-
8
Total
$
6,489
$
6,643
$
8,428
$
4,240
$
1,632
$
1,283
$
28,715
$
697
$
29,412
Current year-to-date gross write-offs (1)
$
-
$
69
$
111
$
11
$
-
$
2
$
193
$
-
$
193
Construction real estate
Performing
$
1,436
$
451
$
-
$
522
$
-
$
-
$
2,409
$
14,404
$
16,813
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
-
-
-
-
-
-
229
229
Total
$
1,436
$
451
$
-
$
522
$
-
$
-
$
2,409
$
14,633
$
17,042
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Residential real estate
Performing
$
40,095
$
43,531
$
54,379
$
25,350
$
13,717
$
45,051
$
222,123
$
56,111
$
278,234
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
63
292
1,864
736
278
183
3,416
51
3,467
Total
$
40,158
$
43,823
$
56,243
$
26,086
$
13,995
$
45,234
$
225,539
$
56,162
$
281,701
Current year-to-date gross write-offs (1)
$
-
$
23
$
-
$
1
$
-
$
6
$
30
$
-
$
30
Loans to Other Financial Institutions
Performing
$
39,878
$
-
$
-
$
-
$
-
$
-
$
39,878
$
-
$
39,878
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
-
-
-
-
-
-
-
-
Total
$
39,878
$
-
$
-
$
-
$
-
$
-
$
39,878
$
-
$
39,878
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total Retail Loans
$
87,961
$
50,917
$
64,671
$
30,848
$
15,627
$
46,517
$
296,541
$
71,492
$
368,033
(1)
It is noted that write-offs in the tables above do not include checking account write-offs. Checking account write-offs were $
607,000
during the full year 2024.
The following tables present the amortized cost basis of the loans modified to borrowers experiencing financial difficulty disaggregated by class of financing receivable and type of concession granted during the first nine months of 2025 and the full year 2024.
For the period ended:
September 30, 2025
Term Extension
% of Total
Class of
(Dollars in thousands)
Amortized
Financing
Cost Basis
Receivable
Commercial real estate
$
761
0
%
Residential real estate
131
0
%
Total
$
892
25
For the period ended:
December 31, 2024
Term Extension
% of Total
Class of
(Dollars in thousands)
Amortized
Financing
Cost Basis
Receivable
Residential real estate
$
121
0
%
Total
$
121
The following table presents the financial effect by type of modification made to borrowers experiencing financial difficulty and class of financing receivable during the first nine months of 2025 and the full year 2024.
For the period ended:
September 30, 2025
Term Extension
Commercial real estate
Reduced interest rate upon listing a property for sale
Residential real estate
Provided with new payment schedule to catch up on past due balance
For the period ended:
December 31, 2024
Term Extension
Residential real estate
Provided with new five year payment plan based on bankruptcy
The following table presents the period-end amortized cost basis of financing receivables that had a payment default during the period and were modified in the 12 months before default to borrowers experiencing financial difficulty.
For the period ended:
September 30, 2025
(Dollars in thousands)
Interest rate reduction
Term extension
Commercial real estate
$
761
$
-
Residential real estate
-
131
Total
$
761
$
131
For the period ended:
December 31, 2024
(Dollars in thousands)
Interest rate reduction
Term extension
Residential real estate
$
-
$
121
Total
$
-
$
121
The following table presents the period-end amortized cost basis of loans that have been modified in the past 12 months to borrowers experiencing financial difficulty by payment status and class of financing receivable.
For the period ended:
September 30, 2025
(Dollars in thousands)
Current
30-89 days
Greater than 90 days
Total
Commercial real estate
$
-
$
-
$
761
$
761
Residential real estate
131
-
-
131
Total
$
131
$
-
$
761
$
892
For the period ended:
December 31, 2024
(Dollars in thousands)
Current
30-89 days
Greater than 90 days
Total
Residential real estate
$
-
$
-
$
121
$
121
Total
$
-
$
-
$
121
$
121
26
Nonaccrual loans by loan category were as follows:
As of September 30, 2025
(Dollars in thousands)
Nonaccrual loans with no ACL
Total nonaccrual loans
Interest income recognized year to date on nonaccrual loans
Agricultural
$
-
$
-
$
-
Commercial and industrial
17
7,412
26
Consumer
-
49
2
Construction real estate
-
110
4
Commercial real estate
761
1,077
9
Residential real estate
1,219
8,743
79
Total nonaccrual loans
$
1,997
$
17,391
$
120
As of December 31, 2024
(Dollars in thousands)
Nonaccrual loans with no ACL
Total nonaccrual loans
Interest income recognized year to date on nonaccrual loans
Agricultural
$
-
$
-
$
-
Commercial and industrial
-
-
-
Consumer
-
8
1
Construction real estate
-
229
9
Commercial real estate
-
-
-
Residential real estate
806
3,467
71
Total nonaccrual loans
$
806
$
3,704
$
81
27
An aging analysis of loans by loan category follows:
Loans
Loans
Loans
Loans
Past Due
90 Days
Past Due
Past Due
Greater
Past
(Dollars in thousands)
30 to 59
60 to 89
Than 90
Loans Not
Total
Due and
Days (1)
Days (1)
Days (1)
Total (1)
Past Due
Loans
Accruing
September 30, 2025
Agricultural
$
-
$
-
$
-
$
-
$
51,183
$
51,183
$
-
Commercial and industrial
1,029
-
5,591
6,620
346,256
352,876
-
Consumer
33
94
5
132
27,196
27,328
-
Commercial real estate
7,982
-
1,077
9,059
1,719,715
1,728,774
-
Construction real estate
-
-
110
110
18,331
18,441
-
Residential real estate
6,088
135
3,778
10,001
718,842
728,843
-
Loans to Other Financial Institutions
-
-
-
-
2,483
2,483
-
$
15,132
$
229
$
10,561
$
25,922
$
2,884,006
$
2,909,928
$
-
(1)
Includes nonaccrual loans.
Loans
Loans
Loans
Loans
Past Due
90 Days
Past Due
Past Due
Greater
Past
(Dollars in thousands)
30 to 59
60 to 89
Than 90
Loans Not
Total
Due and
Days (1)
Days (1)
Days (1)
Total (1)
Past Due
Loans
Accruing
December 31, 2024
Agricultural
$
-
$
-
$
-
$
-
$
48,221
$
48,221
$
-
Commercial and industrial
-
49
-
49
228,207
228,256
-
Consumer
52
87
7
146
29,266
29,412
-
Commercial real estate
23
-
-
23
901,107
901,130
-
Construction real estate
694
-
229
923
16,119
17,042
-
Residential real estate
4,866
765
1,850
7,481
274,220
281,701
-
Loans to Other Financial Institutions
-
-
-
-
39,878
39,878
-
$
5,635
$
901
$
2,086
$
8,622
$
1,537,018
$
1,545,640
$
-
(1)
Includes nonaccrual loans.
28
NOTE 4 – EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares outstanding during the period.
A computation of basic earnings per share and diluted earnings per share follows:
Three Months Ended
Nine Months Ended
(Dollars in thousands, except share data)
September 30,
September 30,
2025
2024
2025
2024
Basic
Net (loss) income
$
14,681
$
7,348
$
14,309
$
19,568
Weighted average common shares outstanding
15,014,933
8,567,548
13,579,249
7,898,938
Basic (loss) earnings per common shares
$
0.98
$
0.86
$
1.05
$
2.48
Diluted
Net (loss) income
$
14,681
$
7,348
$
14,309
$
19,568
Weighted average common shares outstanding
15,014,933
8,567,548
13,579,249
7,898,938
Plus dilutive stock options and restricted stock units
46,222
48,269
46,538
45,227
Weighted average common shares outstanding and potentially dilutive shares
15,061,155
8,615,817
13,625,787
7,944,165
Diluted (loss) earnings per common share
$
0.97
$
0.85
$
1.05
$
2.46
There were
no
stock options that were considered anti-dilutive to earnings per share for the three and nine months ended September 30, 2025. There were
no
stock options that were considered anti-dilutive to earnings per share for the three months ended September 30, 2024 and
3,000
stock options that were considered anti-dilutive to earnings per share for the nine months ended September 30, 2024. There were
1,729
and
1,686
performance awards that were considered anti-dilutive to earnings for the three and nine months ended September 30, 2025, respectively.
29
Note 5 – Financial Instruments
Financial instruments as of the dates indicated were as follows:
30
Quoted Prices
In Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
(Dollars in thousands)
Carrying
Estimated
Assets
Inputs
Inputs
Amount
Fair Value
(Level 1)
(Level 2)
(Level 3)
September 30, 2025
Assets
Cash and cash equivalents
$
98,978
$
98,978
$
98,978
$
-
$
-
Equity securities at fair value
9,505
9,505
5,713
-
3,792
Securities available for sale
544,023
544,023
88,386
455,637
-
Securities held to maturity
388,517
347,997
-
331,565
16,432
Federal Home Loan Bank and Federal
Reserve Bank stock
31,116
31,116
-
31,116
-
Loans held for sale
6,323
6,513
-
6,513
-
Loans, net
2,875,174
2,829,132
-
-
2,829,132
Accrued interest receivable
16,219
16,219
-
16,219
-
Interest rate lock commitments
247
247
-
247
-
Interest rate derivative contracts
6,756
6,756
-
6,756
-
Interest rate swaps
1,770
1,770
-
1,770
-
Liabilities
Noninterest-bearing deposits
903,925
903,925
903,925
-
-
Total interest-bearing deposits
2,590,434
2,589,395
-
2,589,395
-
Brokered deposits
72,672
72,827
-
72,827
-
Borrowings
197,752
198,068
-
198,068
-
Subordinated debentures
48,368
46,486
-
46,486
-
Accrued interest payable
1,982
1,982
-
1,982
-
Interest rate derivative contracts
-
-
-
-
-
Interest rate swaps
1,783
1,783
-
1,783
-
December 31, 2024
Assets
Cash and cash equivalents
$
96,751
$
96,751
$
96,751
$
-
$
-
Equity securities at fair value
7,782
7,782
4,838
-
2,944
Securities available for sale
479,117
479,117
80,502
398,615
-
Securities held to maturity
394,534
339,048
-
324,591
14,457
Federal Home Loan Bank and Federal
Reserve Bank stock
14,690
14,690
-
14,690
-
Loans held for sale
7,288
7,507
-
7,507
-
Loans, net
1,529,088
1,496,704
-
-
1,496,704
Accrued interest receivable
10,376
10,376
-
10,376
-
Interest rate lock commitments
95
95
-
95
-
Interest rate derivative contracts
23,649
23,649
-
23,649
-
Interest rate swaps
686
686
-
686
-
Liabilities
Noninterest-bearing deposits
524,945
524,945
524,945
-
-
Total interest-bearing deposits
1,652,647
1,652,169
-
1,652,169
-
Brokered deposits
36,511
36,508
-
36,508
-
Borrowings
175,000
175,139
-
175,139
-
Subordinated debentures
35,752
32,895
-
32,895
-
Accrued interest payable
1,694
1,694
-
1,694
-
Interest rate swaps
686
686
-
686
-
31
NOTE 6 – FAIR VALUE MEASUREMENTS
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2025 and December 31, 2024, and the valuation techniques used by the Company to determine those fair values.
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.
32
Disclosures concerning assets and liabilities measured at fair value are as follows:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Quoted Prices
In Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Balance
(Dollars in thousands)
Assets
Inputs
Inputs
at Date
(Level 1)
(Level 2)
(Level 3)
Indicated
Equity Securities Held at Fair Value - September 30, 2025
Equity securities
$
5,713
$
-
$
3,792
$
9,505
Investment Securities, Available for Sale - September 30, 2025
U.S. Treasury notes and bonds
$
88,386
$
-
$
-
$
88,386
State and municipal
-
224,157
-
224,157
Mortgage-backed
-
222,461
-
222,461
Corporate
-
217
-
217
Asset-backed securities
-
8,802
-
8,802
Total
$
88,386
$
455,637
$
-
$
544,023
Derivative Instruments - September 30, 2025
Interest rate derivative contracts - assets
$
-
$
6,756
$
-
$
6,756
Interest rate derivative contracts - liabilities
$
-
$
-
$
-
$
-
Interest rate swaps - September 30, 2025
Interest rate swaps - assets
$
-
$
1,770
$
-
$
1,770
Interest rate swaps - liabilities
$
-
$
1,783
$
-
$
1,783
Equity Securities Held at Fair Value - December 31, 2024
Equity securities
$
4,838
$
-
$
2,944
$
7,782
Investment Securities, Available for Sale - December 31, 2024
U. S. Treasury notes and bonds
$
80,502
$
-
$
-
$
80,502
State and municipal
-
228,236
-
228,236
Mortgage-backed
-
160,970
-
160,970
Corporate
-
212
-
212
Asset-backed securities
-
9,197
-
9,197
Total
$
80,502
$
398,615
$
-
$
479,117
Derivative Instruments - December 31, 2024
Interest rate derivative contracts - assets
$
-
$
23,649
$
-
$
23,649
Interest rate derivative contracts - liabilities
$
-
$
-
$
-
$
-
Interest rate swaps - December 31, 2024
Interest rate swaps - assets
$
-
$
686
$
-
$
686
Interest rate swaps - liabilities
$
-
$
686
$
-
$
686
Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs. ChoiceOne’s external investment advisor obtained fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements considered observable data that may include dealer quotes, market spreads, cash flows and the bonds' terms and conditions, among other things. Securities classified in Level 2 included U.S. Government and federal agency securities, state and municipal securities,
33
mortgage-backed securities, corporate bonds, and asset backed securities. The Company classified certain state and municipal securities and corporate bonds as Level 3. Based on the lack of observable market data, estimated fair values were based on the observable data available and reasonable unobservable market data.
The Company classified certain equity securities as Level 3. Based on the lack of observable market data, estimated fair values were based on the observable data available and reasonable unobservable market data.
Derivative instruments and interest rate swaps are generally reported at fair value using Level 2 inputs. The estimated fair value is determined by calculating the present value of expected future cashflows, based on market observable inputs.
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
Nine Months Ended
(Dollars in thousands)
September 30,
2025
2024
Equity Securities Held at Fair Value
Balance, January 1
$
2,944
$
2,756
Total realized and unrealized gains (losses) included in noninterest income
289
71
Net purchases, sales, calls, and maturities
559
70
Net transfers into Level 3
-
-
Balance, September 30,
$
3,792
$
2,897
Amount of total losses for the period included in earnings attributable to the change in
unrealized gains (losses) relating to assets and liabilities still held at September 30,
$
11
$
36
Of the Level 3 assets that were held by the Company at September 30, 2025, the net unrealized gain as of September 30, 2025 was $
606,000
, compared to $
283,000
as of September 30, 2024. The change in the net unrealized gain or loss is recognized in noninterest income or other comprehensive income in the consolidated balance sheets and income statements. Amounts recognized in noninterest income relate to changes in equity securities. A total of $
883,000
and $
70,000
of Level 3 securities were purchased during the nine months ended 2025 and 2024, respectively.
Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.
The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment. Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:
Assets Measured at Fair Value on a Non-recurring Basis
Quoted Prices
In Active
Significant
Markets for
Other
Significant
Balances at
Identical
Observable
Unobservable
(Dollars in thousands)
Dates
Assets
Inputs
Inputs
Indicated
(Level 1)
(Level 2)
(Level 3)
Collateral Dependent Loans
September 30, 2025
$
1,007
$
-
$
-
$
1,007
December 31, 2024
$
1,887
$
-
$
-
$
1,887
Other Real Estate
September 30, 2025
$
2,575
$
-
$
-
$
2,575
December 31, 2024
$
473
$
-
$
-
$
473
34
Collateral dependent loans classified as Level 3 are loans for which the repayment is expected to be provided substantially through the sale or operation of the collateral when the borrower is experiencing financial difficulty. The fair value of the collateral should be adjusted for estimated costs to sell if the repayment depends on the sale of the collateral. The net carrying amount of the loan should not exceed the fair value of the collateral (less costs to sell, if applicable).
The fair value of other real estate owned was based on appraisals or other reviews of property values, adjusted for estimated costs to sell.
35
NOTE 7 – REVENUE FROM CONTRACTS WITH CUSTOMERS
ChoiceOne has a variety of sources of revenue, which include interest and fees from customers as well as revenue from non-customers. ASC Topic 606, Revenue from Contracts with Customers, covers certain sources of revenue that are classified within noninterest income in the Consolidated Statements of Income. Sources of revenue that are included in the scope of ASC Topic 606 include service charges and fees on deposit accounts, interchange income, investment asset management income and transaction-based revenue, and other charges and fees for customer services.
Customer service charges
Revenue includes charges and fees to provide account maintenance, overdraft services, wire transfers, funds transfer, and other deposit-related services. Account maintenance fees such as monthly service charges are recognized over the period of time that the service is provided. Transaction fees such as wire transfer charges are recognized when the service is provided to the customer.
Interchange income
Revenue includes debit card interchange and network revenues. This revenue is earned on debit card transactions that are conducted through payment networks. The revenue is recorded as services are delivered and is presented net of interchange expenses.
Insurance and investment commission income
Revenue includes fees from the investment management advisory services and revenue is recognized when services are rendered. Revenue also includes commissions received from the placement of brokerage transactions for purchase or sale of stocks or other investments and commission income is recognized when the transaction has been completed. The Company earns commissions from the sale of life insurance and credit life insurance products. Revenue is recognized at the time the policy is sold, as the Company’s performance obligation is satisfied upon completion of the sale.
Trust fee income
Revenue includes fees from the management of trust assets and from other related advisory services. Revenue is recognized when services are rendered.
Following is noninterest income separated by revenue within the scope of ASC 606 and revenue within the scope of other GAAP topics:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in thousands)
2025
2024
2025
2024
Customer service charges
$
1,729
$
1,249
$
4,311
$
3,537
Interchange income
2,133
1,524
5,725
4,303
Insurance and investment commissions
485
184
1,320
572
Trust fee income
734
232
1,836
665
Other charges and fees for customer services
204
162
563
409
Noninterest income from contracts with customers
within the scope of ASC 606
5,285
3,351
13,755
9,486
Noninterest income within the scope of other GAAP topics
1,859
1,516
4,814
3,515
Total noninterest income
$
7,144
$
4,867
$
18,569
$
13,001
36
NOTE 8 – DERIVATIVE AND HEDGING ACTIVITIES
ChoiceOne is exposed to certain risks relating to its ongoing business operations. ChoiceOne utilizes interest rate derivatives as part of its asset liability management strategy to help manage its interest rate risk position. Derivative instruments represent contracts between parties that result in one party delivering cash to the other party based on a notional amount and an underlying term (such as a rate, security price or price index) as specified in the contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying term. Derivatives are also implicit in certain contracts and commitments.
ChoiceOne recognizes derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. ChoiceOne records derivative assets and derivative liabilities on the balance sheet within other assets and other liabilities, respectively. Changes in the fair value of derivative financial instruments are either recognized in income or in shareholders’ equity as a component of accumulated other comprehensive income or loss depending on whether the derivative financial instrument qualifies for hedge accounting and, if so, whether it qualifies as a fair value hedge or cash flow hedge.
Interest rate swaps
ChoiceOne uses interest rate swaps as part of its interest rate risk management strategy to add stability to net interest income and to manage its exposure to interest rate movements. Interest rate swaps designated as hedges involve the receipt of variable-rate amounts from a counterparty in exchange for ChoiceOne making fixed-rate payments or the receipt of fixed-rate amounts from a counterparty in exchange for ChoiceOne making variable rate payments, over the life of the agreements without the exchange of the underlying notional amount.
In the second quarter of 2022, ChoiceOne entered into
two
pay-floating/receive-fixed interest rate swaps (the “Pay Floating Swap Agreements”) for a total notional amount of $
200.0
million that were designated as cash flow hedges. These derivatives hedge the variable cash flows of specifically identified available-for-sale securities, cash and loans. The Pay Floating Swap Agreements were determined to be highly effective during the periods presented and therefore no amount of ineffectiveness has been included in net income. The Pay Floating Swap Agreements pay a coupon rate equal to SOFR while receiving a fixed coupon rate of
2.41
%. In March 2023, ChoiceOne terminated all Pay Floating Swap Agreements for a cash payment of $
4.2
million. The loss was amortized into interest income over 13 months, which was the remaining period of the swap agreements. By April of 2024, the loss was fully amortized, reducing interest income by $
1.1
million for the year ended December 31, 2024.
In the second quarter of 2022, ChoiceOne entered into
one
forward starting pay-fixed/receive-floating interest rate swap (the “Pay Fixed Swap Agreement”) for a notional amount of $
200.0
million that was designated as a cash flow hedge. This derivative hedges the risk of variability in cash flows attributable to forecasted payments on future deposits or floating rate borrowings indexed to the SOFR Rate. The Pay Fixed Swap Agreement is two years forward starting with an
eight-year
term set to expire in 2032. The Pay Fixed Swap Agreement will pay a fixed coupon rate of
2.75
% while receiving the SOFR Rate, which began in April 2024. On February 6, 2025, ChoiceOne sold $
50
million of the Pay Fixed Swap Agreement. 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. Net settlements on the Pay Fixed Swap Agreement were $
608,000
and $
1.9
million for the three and nine months ended September 30, 2025 compared to $
1.3
million and $
2.3
million for the three and nine months ended September 30, 2024, which reduced interest expense. Interest expense was further reduced by $
126,000
and $
337,000
during the three and nine months ended September 30, 2025, respectively, due to accretion from the gain on the sale of $
50
million of the Pay Fixed Swap Agreement.
In the fourth quarter of 2022, ChoiceOne entered into
four
pay-fixed/receive-floating interest rate swaps for a total notional amount of $
201.0
million that were designated as fair value hedges. These derivatives hedge the risk of changes in fair value of certain available for sale securities for changes in the SOFR benchmark interest rate component of the fixed rate bonds. All
four
of these hedges were effective immediately on December 22, 2022. Of the total notional value, $
101.9
million has a
ten-year
term set to expire in 2032, with the benchmark SOFR interest rate risk component of the fixed rate bonds equal to
3.390
%. Of the total notional value, $
50.0
million has a
nine-year
term set to expire in 2031, with the benchmark SOFR interest rate risk component of the fixed rate bonds equal to
3.4015
%. The remaining notional value of $
49.1
million has a
nine-year
term set to expire in 2031, with the benchmark SOFR interest rate risk component of the fixed rate bond equal to
3.4030
%. ChoiceOne adopted ASC 2022-01, as of December 20, 2022, to use the portfolio layer method. The fair value basis adjustment associated with available-for-sale fixed rate bonds initially results in an adjustment to AOCI. For available-for-sale securities subject to fair value hedge accounting, the changes in the fair value of the fixed rate bonds related to the hedged risk (the benchmark interest rate component and the partial term) are then reclassed from AOCI to current earnings offsetting the fair value measurement change of the interest rate swap, which is also recorded in current earnings. Net cash settlements are received/paid semi-annually, with the first starting in March 2023, and are included in interest income.
37
In the third quarter of 2025, ChoiceOne entered into $
30.4
million in amortizing pay fix swaps to hedge interest rate risk on approximately $
40.6
million of newly purchased agency mortgage backed se
curities. The swaps are designated as a fair value hedge and will amortize with the expected cash flow of the bonds and hold a coupon of
3.52
% and a contractual term ending in
2040
. A fair value basis adjustment associated with available-for-sale
agency mortgage backed se
curities initially results in an adjustment to AOCI. For available-for-sale securities subject to fair value hedge accounting, the changes in the fair value of the
agency mortgage backed se
curities related to the hedged risk (the benchmark interest rate component) are then reclassed from AOCI to current earnings offsetting the fair value measurement change of the interest rate swap, which is also recorded in current earnings.
Net cash settlements are received/paid monthly, with the first starting in October 2025, and will be included in interest income.
Settlements on the
four
pay-fixed/receive-floating interest rate swaps for a total notional amount of $
201.0
million and the
$
30.4
million in amortizing pay fix swaps
amounted to $
510,000
and $
1.5
million for the three and nine months ended September 30, 2025 compared to $
1.0
million and $
3.0
million during the same periods in 2024.
In total, as of September 30, 2025, ChoiceOne held pay-fixed interest rate swaps with a total notional value of $
381.3
million, a weighted average coupon of
3.15
%, a fair value of $
6.8
million and an average remaining contract length of
7.2
years.
On December 31, 2024, ChoiceOne held 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 $
23.6
million and an average remaining contract length of
7.4
years. In total, income from the effect of swaps amounted to $
1.3
million and $
3.8
million for the three and nine months ended September 30, 2025 compared to $
2.5
million and $
4.3
million for the three and nine months ended September 30, 2024, which were included in interest income and interest expense.
The table below presents the fair value of derivative financial instruments as well as the classification within the consolidated statements of financial condition:
September 30, 2025
December 31, 2024
(Dollars in thousands)
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Derivatives designated as hedging instruments
Interest rate contracts
Other Assets
$
6,756
Other Assets
$
23,649
Interest rate contracts
Other Liabilities
$
-
Other Liabilities
$
-
The table below presents the effect of fair value and cash flow hedge accounting on the consolidated statements of operations for the periods presented:
38
Location and Amount of Gain or (Loss)
Location and Amount of Gain or (Loss)
Recognized in Income on Fair Value and Cash Flow Hedging Relationships
Recognized in Income on Fair Value and Cash Flow Hedging Relationships
Three months ended September 30, 2025
Three months ended September 30, 2024
Nine months ended September 30, 2025
Nine months ended September 30, 2024
(Dollars in thousands)
Interest Income
Interest Expense
Interest Income
Interest Expense
Interest Income
Interest Expense
Interest Income
Interest Expense
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded
$
553
$
734
$
1,180
$
1,327
$
1,639
$
2,207
$
2,038
$
2,301
Gain or (loss) on fair value hedging relationships:
Interest rate contracts:
Hedged items
$
578
$
-
$
9,827
$
-
$
7,274
$
-
$
2,841
$
-
Derivatives designated as hedging instruments
$
(
535
)
$
-
$
(
9,665
)
$
-
$
(
7,124
)
$
-
$
(
2,720
)
$
-
Amount excluded from effectiveness testing recognized in earnings based on amortization approach
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Gain or (loss) on cash flow hedging relationships:
Interest rate contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income
$
-
$
126
$
-
$
-
$
-
$
337
$
(
1,092
)
$
-
Amount excluded from effectiveness testing recognized in earnings based on amortization approach
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
The table below presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of those items as of the periods presented:
September 30, 2025
Cumulative amount of Fair
(Dollars in thousands)
Value Hedging Adjustment
Line Item in the Statement of
included in the carrying
Financial Position in which the
Amortized cost of the
amount of the Hedged
Hedged Item is included
Hedged Assets/(Liabilities)
Assets/(Liabilities)
Securities available for sale
$
258,247
$
(
327
)
Back to Back Loan Swaps
Derivatives not designated as hedges are not speculative and result from a service provided to certain commercial loan borrowers. ChoiceOne executes interest rate swaps with commercial banking customers desiring longer-term fixed rate loans, while simultaneously entering into interest rate swaps with a correspondent bank to offset the impact of the interest rate swaps with the commercial banking customers. This is known as a back to back loan swap agreement. The net result is the desired floating rate loan and a minimization of the risk exposure of the interest rate swap transactions. Under this arrangement the Bank has freestanding interest rate swaps, each of which is carried at fair value. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the commercial banking customer interest rate swaps and the offsetting interest rate swaps with the correspondent bank are recognized directly to earnings. As the terms mirror each other, there is no income statement impact to the Bank.
39
The table below presents the notional and fair value of these derivative instruments as of September 30, 2025 and December 31, 2024:
September 30, 2025
(Dollars in thousands)
Notional Amount
Balance Sheet Location
Fair Value
Derivative assets
Interest rate swaps
$
84,986
Other Assets
$
1,770
Derivative liabilities
Interest rate swaps
$
84,986
Other Liabilities
$
1,783
December 31, 2024
(Dollars in thousands)
Notional Amount
Balance Sheet Location
Fair Value
Derivative assets
Interest rate swaps
$
56,526
Other Assets
$
686
Derivative liabilities
Interest rate swaps
$
56,526
Other Liabilities
$
686
The fair value of interest rate swaps in a net liability position, which includes accrued interest was $
1.8
million and $
686,000
as of September 30, 2025 and December 31, 2024, respectively. ChoiceOne has a master netting agreement with the correspondent bank and has the right to offset; however, ChoiceOne has elected to present the assets and liabilities gross. ChoiceOne is required to pledge collateral to the correspondent bank equal to or in excess of the net liability position. ChoiceOne's derivative liability with the correspondent banks was $
1.8
million and $
686,000
at September 30, 2025 and December 31, 2024, respectively. Cash pledged as collateral to the correspondent bank was $
2.5
million and $
0
at September 30, 2025 and December 31, 2024, respectively.
Interest rate swaps entered into with commercial loan customers had notional amounts aggregating $
85.0
million as of September 30, 2025 and $
56.5
million at December 31, 2024. Associated credit exposure is generally mitigated by securing the interest rate swaps with the underlying collateral of the loan instrument that has been hedged.
NOTE 9 – Borrowings
The following represents the contractual maturities of Federal Home Loan Bank Advances:
(Dollars in thousands)
September 30, 2025
December 31, 2024
Maturity of January 2025 with fixed interest rate of
4.48
%
$
-
$
135,000
Maturity of July 2025 with fixed interest rate of
4.88
%
-
20,000
Maturity of October 2025 with fixed interest rate of
4.51
%
20,000
Maturity of October 2025 with fixed interest rate of
4.29
%
118,000
Maturity of December 2025 with fixed interest rate of
4.11
%
10,000
Maturity of January 2026 with fixed interest rate of
4.35
%
10,000
10,000
Maturity of December 2026 with fixed interest rate of
3.88
%
10,000
Maturity of December 2026 with fixed interest rate of
4.20
%
10,000
10,000
Maturity of December 2027 with fixed interest rate of
3.76
%
20,000
Total contractual advances outstanding at period end
$
198,000
$
175,000
Advances from the FHLB were secured by residential real estate loans with a carrying value of approximately $
610.1
million at September 30, 2025. Based on this collateral, the Bank was eligible to borrow an additional $
212.4
million at September 30, 2025. Advances from the FHLB were secured by residential real estate loans with a carrying value of approximately $
204.4
million and securities with a carrying value of approximately $
265.5
million at December 31, 2024.
Advances from the Federal Reserve Bank were secured by securities with a carrying value of approximately $
349.4
million and loans with a carrying value of approximately $
841.1
million at September 30, 2025. Based on this collateral, the Bank was eligible to borrow an additional $
975.1
million
at September 30, 2025. As of September 30, 2025, ChoiceOne had no borrowings from the Federal Reserve Bank. As of December 31, 2024, advances from the Federal Reserve Bank were secured by securities with a carrying value of
40
approximately
$
349.9
million and loans with a carrying value of approximately $
460.6
million. As of December 31, 2024, ChoiceOne had no borrowings from the Federal Reserve Bank.
In June 2021, ChoiceOne obtained a $
20
million line of credit with an annual renewal. The line carries a floating rate of prime rate with a
floor
of
3.25
% and a rate of
7.25
% at September 30, 2025. The credit agreement includes certain financial covenants, including minimum capital ratios, asset quality ratios, and the requirements of achieving certain profitability thresholds. ChoiceOne was in compliance with all covenants as of September 30, 2025. The available line of credit balance was $
3.7
million at June 30, 2025. The line of credit had
no
outstanding balance at September 30, 2025.
ChoiceOne acquired trust preferred securities in the merger with Fentura. Fentura Capital Trust I sold
12,000
Cumulative Preferred Securities at $
1,000
per security in a December 2003 offering. The proceeds from the sale of the trust preferred securities were used by the Fentura Capital Trust I to purchase an equivalent amount of subordinated debentures from Fentura. The trust preferred securities and subordinated debentures carry a floating rate of
3.00
% over the 3-month SOFR and the rate was
7.30
% at September 30, 2025. The stated maturity is December 15, 2033. Total trust preferred securities at September 30, 2025 were $
10.8
million consisting of $
12.0
million in trust preferred securities less $
1.2
million in merger fair value adjustments, which is being amortized over the next
8
years. The trust preferred securities are redeemable at par value on any interest payment date and are, in effect, guaranteed by ChoiceOne. Interest on the subordinated debentures is payable quarterly on March 15, June 15, September 15 and December 15. ChoiceOne is not considered the primary beneficiary of the Fentura Capital Trust I, and the Fentura Capital Trust I is not consolidated in the consolidated financial statements. Rather, the subordinated debentures are shown as a liability, and the interest expense is recorded in the consolidated statement of income.
The Fentura Capital Trust II sold
2,000
Cumulative Preferred Securities at $
1,000
per security in an August 2005 offering. The proceeds from the sale of the trust preferred securities were used by the Fentura Capital Trust II to purchase an equivalent amount of subordinated debentures from Fentura. The trust preferred securities and subordinated debentures carry a floating rate of
1.86
% over the 3-month SOFR and the rate was
6.06
% at September 30, 2025. The stated maturity is November 23, 2035. Total trust preferred securities at September 30, 2025 were $
1.6
million consisting of $
2.0
million in trust preferred securities less $
403,000
in merger fair value adjustments, which is being amortized over the next
10
years. The trust preferred securities are redeemable at par value on any interest payment date and are, in effect, guaranteed by ChoiceOne. Interest on the subordinated debentures is payable quarterly on February 23, May 23, August 23 and November 23. ChoiceOne is not considered the primary beneficiary of the Fentura Capital Trust II, and the Fentura Capital Trust II is not consolidated in the consolidated financial statements. Rather, the subordinated debentures are shown as a liability, and the interest expense is recorded in the consolidated statement of income.
41
Note 10 – Segment Reporting
Segment Reporting
ChoiceOne operates in
one
reportable segment, which is commercial banking. ChoiceOne provides a full range of financial services to individual and business customers through its network of branches and ATMs. ChoiceOne’s products and services include deposit accounts, loans, mortgage banking, and other financial services.
At ChoiceOne, the Chief Operating Decision Maker (CODM) is the
Chief Executive Officer
.
The CODM evaluates key metrics, such as consolidated net income and its major components, to develop strategies and allocate resources effectively. This analysis involves receiving comprehensive financial information on a consolidated basis, which includes actual and budgeted data, credit quality metrics, net income, earnings per share, loan originations, deposit growth, total non-interest income, and non-interest expense.
Entity-Wide Disclosures
Products and Services:
ChoiceOne's revenues are derived from a variety of financial products and services, including interest income from loans and investments, fees from deposit accounts, and income from mortgage banking activities.
Geographic Areas:
ChoiceOne operates primarily in the state of Michigan, with a significant portion of its revenues generated from customers located in Michigan. ChoiceOne does not have any operations outside of the United States.
Major Customers:
ChoiceOne does not have any single customer that accounts for
10
% or more of its total revenues.
Reconciliations:
The following table reconciles ChoiceOne's total revenues, profit or loss, and assets to the consolidated financial statements:
Nine months ended September 30,
(Dollars in thousands)
2025
2024
Total Revenues
$
167,151
$
103,067
Net (loss) Income
$
14,309
$
19,568
Total Assets
$
4,296,902
$
2,723,243
NOTE 11 – BUSINESS COMBINATION
On March 1, 2025, ChoiceOne completed the Merger, in an all stock transaction, of Fentura, the former parent company of The State Bank, with and into ChoiceOne, with ChoiceOne surviving the Merger.
The primary reason for the Merger was to expand ChoiceOne's market presence and enhance its financial strength by integrating Fentura's substantial customer base.
On March 14, 2025, ChoiceOne Bank completed the consolidation of The State Bank with and into ChoiceOne Bank, with ChoiceOne Bank surviving the consolidation. Fentura had
20
branch offices and
one
loan production office as of the date of the Merger. Total assets acquired in the Merger were approximately $
1.8
billion, including total loans of approximately $
1.4
billion. Total deposits acquired in the Merger, the majority of which were core deposits, totaled approximately $
1.4
billion. The impact of the Merger has been included in ChoiceOne’s results of operations since March 1, 2025. As consideration in the Merger, ChoiceOne issued
6,070,836
shares of ChoiceOne common stock with an approximate total value of $
193.0
million. Transaction costs incurred after the merger date were primarily in salaries and employee benefits and legal and consulting fees in the Consolidated Statements of Operations, as well as a $
12.0
million provision for credit losses. The initial accounting for the business combination has been determined provisionally for the fair value of certain assets and liabilities, including loans, core deposit intangible, and deferred taxes. Management expects to finalize calculations supporting the fair value of these assets and liabilities during the measurement period.
The table below presents the allocation of purchase price for the Merger with Fentura (dollars in thousands):
42
Purchase Price
Consideration
$
192,992
Net assets acquired:
Cash and cash equivalents
173,082
Securities available for sale
90,696
Federal Home Loan Bank and Federal Reserve Bank stock
9,179
Originated loans
1,376,721
Premises and equipment
16,664
Other real estate owned
1,735
Intangible assets
34,737
Other assets
48,815
Total assets
1,751,629
Non-interest bearing deposits
404,497
Interest bearing deposits
1,027,384
Total deposits
1,431,881
Borrowing
169,786
Subordinated debentures
12,344
Other liabilities
11,410
Total liabilities
1,625,421
Net assets acquired
126,208
Goodwill
$
66,784
The following pro forma presentation of net income (loss) for the three- and nine month periods ended September 30, 2025, gives effect to completion of the Merger as if it had occurred on January 1, 2024. This pro forma presentation excludes the impact of after-tax merger-related expenses totaling $
0
and $
13.9
million for the three- and nine-month periods ended September 30, 2025, respectively, as well as a non-recurring provision for credit losses on acquired loans of $
9.5
million and includes these expenses for the nine month period ended September 30, 2024.
Additional adjustments include estimated accretion of fair value marks on acquired loans, which increased net interest income by $
1.6
million in 2025 and by $
2.4
million and $
4.8
million for the three- and nine-month periods ended September 30, 2024, respectively. Net income (loss) was further adjusted to reflect the after-tax impact of incremental interest income and intangible amortization, resulting in after-tax adjustments of $
433,000
in 2025 and $
649,000
and $
1.9
million for the three- and nine month periods ended September 30, 2024, respectively.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in thousands)
2025
2024
2025
2024
Net interest income plus other income
$
44,741
$
41,717
$
130,132
$
118,228
Net income (loss)
$
16,681
$
8,231
$
40,841
$
3,172
The pro forma information is theoretical in nature and not necessarily indicative of future consolidated results of operations of the Company or the consolidated results of operations which would have resulted had ChoiceOne acquired Fentura during the periods presented.
ChoiceOne has determined that it is impractical to report the amounts of revenue and earnings of legacy Fentura since the Merger date due to the integration of operations shortly after the merger date. Accordingly, reliable and separate complete revenue and earnings information is no longer available. In addition, such amounts would require significant estimates related to the proper allocation of Merger cost savings that cannot be objectively made.
43
Item 2.
Management’s Discussion and Ana
lysis of Financial Condition and Results of Operations
.
The following discussion is designed to provide a review of the consolidated financial condition and results of operations of ChoiceOne Financial Services, Inc. (“ChoiceOne”) and its wholly-owned subsidiaries. This discussion should be read in conjunction with the interim consolidated financial statements and related notes.
FORWARD-LOOKING STATEMENTS
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.
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.
NON-GAAP FINANCIAL MEASURES
In addition to results presented in accordance with GAAP, this report includes certain non-GAAP financial measures. ChoiceOne
believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand
underlying financial performance and condition and trends of ChoiceOne.
Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with
respect to the use of such measures. To compensate for these limitations, non-GAAP financial measures are used as comparative tools, together with GAAP financial measures, to assist in the evaluation of operating performance or financial condition. These measures are also calculated using the appropriate GAAP or regulatory components in their entirety and are computed in a manner intended to facilitate consistent period-to-period comparisons. ChoiceOne’s method of calculating these non-GAAP financial measures may differ from methods used by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or applicable regulatory requirements.
Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the
reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in the tables to this Form 10-Q
under the heading non-GAAP reconciliation.
RECENT EVENTS
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. Following the Merger, ChoiceOne has approximately $4.3 billion in consolidated total assets and 56 offices in Western, Central and Southeastern Michigan.
RESULTS OF OPERATIONS
ChoiceOne reported net income of $14,681,000 and $14,309,000 for the three and nine months ended September 30, 2025, compared to net income of $7,348,000 and $19,568,000 for the same periods in the prior year, respectively. Adjusted net income (non-GAAP) excluding merger expenses, net of taxes, and merger related provision for credit losses, net of taxes, was $14,681,000 and $37,657,000 for the three and nine months ended September 30, 2025, respectively. Diluted earnings per share were $0.97 and $1.05 for the three
44
and nine months ended September 30, 2025, compared to diluted earnings per share of $0.85 and $2.46 in the same periods in the prior year. Adjusted diluted earnings per share (non-GAAP) excluding merger expenses, net of taxes, and merger related provision for credit losses, net of taxes, were $0.97 and $2.76 for the three and nine months ended September 30, 2025, respectively.
A reconciliation for non-GAAP adjusted net income and adjusted earnings per share to GAAP net income and earnings (loss) per share follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2025
2024
2025
2024
(In Thousands, Except Per Share Data)
Net (loss) income
$
14,681
$
7,348
$
14,309
$
19,568
Merger related expenses net of tax
-
633
13,885
633
Merger related provision for credit losses, net of tax (1)
-
-
9,463
-
Adjusted net income (Non-GAAP)
$
14,681
$
7,981
$
37,657
$
20,201
Weighted average number of shares
15,014,933
8,567,548
13,579,249
7,898,938
Diluted average shares outstanding
15,061,155
8,615,500
13,625,787
7,944,143
Basic earnings (loss) per share
$
0.98
$
0.86
1.05
2.48
Diluted earnings (loss) per share
$
0.97
$
0.85
1.05
2.46
Adjusted basic earnings per share (Non-GAAP)
$
0.98
$
0.94
$
2.77
$
2.56
Adjusted diluted earnings per share (Non-GAAP)
$
0.97
$
0.93
$
2.76
$
2.54
(1) Merger related provision for credit losses represents the estimated credit loss on loans purchased without credit deterioration in the Merger on March 1, 2025.
As of September 30, 2025, total assets were $4.3 billion, an increase of $1.6 billion compared to September 30, 2024. The growth in total assets is primarily attributed to the Merger. The growth in total assets was offset by a $36.0 million reduction in loans to other financial institutions and a $47.0 million reduction in cash and cash equivalents on September 30, 2025 compared to September 30, 2024. Loans to other financial institutions consist of a warehouse line of credit used to facilitate mortgage loan originations, with interest rates and balances that fluctuate in line with the national mortgage market. The reduction in cash balances is primarily due to purchases of agency mortgage backed securities during the third quarter of 2025. ChoiceOne has actively managed its balance sheet to support organic loan growth with a loan to deposit ratio of 81.8% at September 30, 2025.
Core loans, which exclude held for sale loans and loans to other financial institutions, declined by $10.3 million or 1.4% on an annualized basis during the third quarter of 2025 and grew organically by $65.3 million or 4.5% during the twelve months ended September 30, 2025. Core loans grew by $1.4 billion due to the Merger on March 1, 2025. Loan interest income increased $23.9 million in the third quarter of 2025 compared to the same period in 2024. Interest income for the three months ended September 30, 2025 includes $3.6 million of interest income due to accretion from purchased loans. Of this amount, $1.8 million was calculated using the effective interest rate method of amortization, while the remaining $1.8 million resulted from unexpected payoffs and paydowns of loans with an associated fair value mark. Estimated interest income due to accretion from purchased loans for the remainder of 2025 and 2026 using the effective interest method of amortization is $2.3 million and $8.2 million, respectively; however, actual results will be dependent on prepayment speeds and other factors. It is estimated that a total of $54.0 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 $8.0 million as of September 30, 2025, compared to June 30, 2025. During the third quarter of 2025 non-interest bearing deposits declined by $39.9 million while interest bearing demand deposits increased by $73.4 million. The shift from non-interest-bearing to interest-bearing demand deposits was partly due to quarter-end timing and fluctuations in business and municipal activity. The growth in interest-bearing demand deposits was primarily concentrated in non-maturity interest-bearing checking and money market accounts. The average balance of non-interest-bearing deposits rose to $930.3 million in the third quarter of 2025, up from $915.6 million in the second quarter of 2025. Deposits, excluding brokered deposits, increased by $1.3 billion as of September 30, 2025, compared to September 30, 2024 largely as a result of the Merger. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits and FHLB advances to ensure ample liquidity. At September 30, 2025, total available borrowing capacity secured by pledged assets was $1.2 billion. ChoiceOne can increase its borrowing capacity by utilizing unsecured federal fund lines and pledging additional assets. Uninsured deposits totaled $1.2 billion or 33.2% of deposits at September 30, 2025.
45
In the three months ended September 30, 2025, compared to the same period in the prior year, ChoiceOne’s cost of deposits to average total deposits increased by 4 basis points, rising from 1.53% to 1.57%, primarily due to higher-cost deposits acquired through the Merger. This increase was partially offset by a decline in CD costs and a reduction in wholesale funding costs. The annualized cost of funds decreased by 10 basis points, from 1.87% to 1.77% in the three months ended September 30, 2025 compared to the same period in the prior year. In the three months ended September 30, 2025, compared to the three months ended June 30, 2025, annualized cost of funds decreased to 1.77% from 1.84%, primarily due to a decrease in higher cost local and brokered CDs. Interest expense on borrowings for the three months ended September 30, 2025, declined by $489,000 compared to the same period in the prior year. As of September 30, 2025, the total balance of borrowed funds from the FHLB was $198.0 million at a weighted average fixed rate of 4.23%, with $158.0 million due within 12 months.
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 fix swaps to hedge interest rate risk on approximately $40.6 million of newly purchased agency mortgage backed securities. The 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 September 30, 2025, ChoiceOne held pay-fixed interest rate swaps with a total notional value of $381.3 million, a weighted average coupon of 3.15%, a fair value of $6.8 million and an average remaining contract length of 7.2 years. Settlements from swaps amounted to $1.3 million for the third quarter of 2025 compared to $1.3 million for the second 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.
The ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 1.19% on September 30, 2025 compared to 1.07% on December 31, 2024. Asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.03% and nonperforming loans to total loans (excluding loans held for sale) of 0.69% as of September 30, 2025. Notably, 0.39% of the nonperforming loans to total loans (excluding loans held for sale) is attributed to loans purchased with credit deterioration acquired in the Merger.
The annualized return on average assets and annualized return on average shareholders’ equity were 1.36% and 13.39%, respectively, for the third quarter of 2025, compared to an annualized 1.09% and an annualized 12.36%, respectively, for the same period in 2024. The annualized return on average assets and annualized return on average shareholders’ equity were 0.48% and 5.00%, respectively, for the first nine months of 2025, compared to 0.98% and 12.00%, respectively, for the same period in 2024.
Dividends
Cash dividends of $4.2 million or $0.28 per share were declared in the third quarter of
2025
, compared to $2.4 million or $0.27 per share in the
third quarter of
2024
. Cash dividends declared in the first nine months of 2025 were $12.6 million or $0.84 per share, compared to $6.5 million or $0.81 per share in the same period during the prior year. The cash dividend payout percentage was 88.0% for the nine months ended September 30, 2025, compared to 33.2% in the same period in the prior year.
Interest Income and Expense
Tables 1 and 2 on the following pages provide information regarding interest income and expense for the three and nine months ended September 30, 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.
46
Table 1 – Average Balances and Tax-Equivalent Interest Rates
Three Months Ended September 30,
Three Months Ended June 30,
Three Months Ended September 30,
2025
2025
2024
(Dollars in thousands)
Average
Average
Average
Balance
Interest
Rate
Balance
Interest
Rate
Balance
Interest
Rate
Assets:
Loans (1)(3)(4)(5)
$
2,927,878
$
47,142
6.39
%
$
2,936,168
$
46,551
6.36
%
$
1,460,033
$
23,262
6.34
%
Taxable securities (2)
703,045
5,249
2.96
695,546
5,264
3.04
681,578
5,563
3.25
Nontaxable securities (1)
287,274
1,795
2.48
289,061
1,764
2.45
289,335
1,775
2.44
Other
79,365
909
4.54
63,416
735
4.65
108,019
1,473
5.43
Interest-earning assets
3,997,562
55,095
5.47
3,984,191
54,314
5.47
2,538,965
32,073
5.03
Noninterest-earning assets
310,727
314,322
146,225
Total assets
$
4,308,289
$
4,298,513
$
2,685,190
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits
$
1,374,827
$
6,392
1.84
%
$
1,332,318
$
6,163
1.86
%
$
916,459
$
3,111
1.35
%
Savings deposits
591,653
1,125
0.75
595,362
1,003
0.68
329,613
728
0.88
Certificates of deposit
616,686
5,777
3.72
646,247
6,353
3.94
388,183
4,296
4.40
Brokered deposit
91,735
993
4.30
120,720
1,321
4.39
17,227
227
5.25
Borrowings
179,122
2,019
4.47
169,257
1,945
4.61
210,000
2,508
4.75
Subordinated debentures
48,663
701
5.72
48,971
689
5.65
35,658
413
4.61
Other
8,550
94
4.38
11,763
129
4.39
11,756
159
5.37
Interest-bearing liabilities
2,911,236
17,101
2.33
2,924,638
17,603
2.41
1,908,896
11,442
2.38
Demand deposits
930,346
915,637
519,511
Other noninterest-bearing liabilities
28,258
30,695
18,908
Total liabilities
3,869,840
3,870,970
2,447,315
Shareholders' equity
438,449
427,543
237,875
Total liabilities and shareholders' equity
$
4,308,289
$
4,298,513
$
2,685,190
Net interest income (tax-equivalent basis) (Non-GAAP) (1)
$
37,994
$
36,711
$
20,631
Net interest margin (tax-equivalent basis) (Non-GAAP) (1)
3.77
%
3.70
%
3.23
%
Reconciliation to Reported Net Interest Income
Net interest income (tax-equivalent basis) (Non-GAAP) (1)
$
37,994
$
36,711
$
20,631
Adjustment for taxable equivalent interest
(397
)
(389
)
(383
)
Net interest income (GAAP)
$
37,597
$
36,322
$
20,248
Net interest margin (GAAP)
3.73
%
3.66
%
3.17
%
(1)
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.
(2)
Taxable securities include dividend income from Federal Home Loan Bank and Federal Reserve Bank stock.
(3)
Loans include both loans to other financial institutions and loans held for sale.
(4)
Non-accruing loan balances are included in the balances of average loans. Non-accruing loan average balances were $17.0 million, $16.8 million, and $2.2 million in the third quarter of 2025, the second quarter of 2025 and the third quarter of 2024, respectively.
(5)
Interest on loans included net origination fees and interest income due to accretion from purchased loans. Interest income due to accretion from purchased loans was $3.6 million, $3.5 million and $275,000 in the third quarter of 2025, the second quarter of 2025 and the third quarter of 2024, respectively.
47
Nine Months Ended September 30,
2025
2024
(Dollars in thousands)
Average
Average
Balance
Interest
Rate
Balance
Interest
Rate
Assets:
Loans (1)(3)(4)(5)
$
2,631,222
$
126,359
6.42
%
$
1,436,277
$
66,051
6.14
%
Taxable securities (2)
697,188
15,243
2.92
695,984
16,382
3.14
Nontaxable securities (1)
288,398
5,342
2.48
290,404
5,347
2.46
Other
85,827
2,822
4.40
84,209
3,451
5.47
Interest-earning assets
3,702,635
149,766
5.41
2,506,874
91,231
4.86
Noninterest-earning assets
276,538
143,570
Total assets
$
3,979,173
$
2,650,444
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits
$
1,273,979
$
16,976
1.78
%
$
892,174
$
9,609
1.44
%
Savings deposits
539,990
3,010
0.75
333,707
2,019
0.81
Certificates of deposit
583,934
17,079
3.91
385,823
12,742
4.41
Brokered deposit
86,172
2,778
4.31
29,347
1,095
4.98
Borrowings
180,726
6,174
4.57
211,606
7,511
4.74
Subordinated debentures
45,897
1,889
5.50
35,597
1,237
4.64
Other
13,578
446
4.39
18,835
760
5.39
Interest-bearing liabilities
2,724,276
48,352
2.37
1,907,089
34,973
2.45
Demand deposits
833,490
514,019
Other noninterest-bearing liabilities
39,862
11,946
Total liabilities
3,597,628
2,433,054
Shareholders' equity
381,545
217,390
Total liabilities and shareholders' equity
$
3,979,173
$
2,650,444
Net interest income (tax-equivalent basis) (Non-GAAP) (1)
$
101,414
$
56,258
Net interest margin (tax-equivalent basis) (Non-GAAP) (1)
3.66
%
3.00
%
Reconciliation to Reported Net Interest Income
Net interest income (tax-equivalent basis) (Non-GAAP) (1)
$
101,414
$
56,258
Adjustment for taxable equivalent interest
(1,184
)
(1,165
)
Net interest income (GAAP)
$
100,230
$
55,093
Net interest margin (GAAP)
3.62
%
2.94
%
(1)
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.
(2)
Taxable securities include dividend income from Federal Home Loan Bank and Federal Reserve Bank stock.
(3)
Loans include both loans to other financial institutions and loans held for sale.
(4)
Non-accruing loan balances are included in the balances of average loans. Non-accruing loan average balances were $13.7 million and $2.1 million in the nine months ended September 30, 2025 and 2024, respectively.
(5)
Interest on loans included net origination fees and accretion income. Accretion income was $10.0 million and $944,000 in the nine months ended September 30, 2025 and 2024, respectively.
Table 2 – Changes in Tax-Equivalent Net Interest Income
48
Three Months Ended September 30,
(Dollars in thousands)
2025 Over 2024
Total
Volume
Rate
Increase (decrease) in interest income (1)
Loans (2)
$
23,880
$
23,696
$
184
Taxable securities
(314
)
943
(1,257
)
Nontaxable securities (2)
20
(63
)
83
Other
(564
)
(350
)
(214
)
Net change in interest income
23,022
24,226
(1,204
)
Increase (decrease) in interest expense (1)
Interest-bearing demand deposits
3,281
1,895
1,386
Savings deposits
397
1,033
(636
)
Certificates of deposit
1,481
5,384
(3,903
)
Brokered deposit
766
1,050
(284
)
Borrowings
(489
)
(349
)
(140
)
Subordinated debentures
288
174
114
Other
(64
)
(38
)
(26
)
Net change in interest expense
5,660
9,149
(3,489
)
Net change in tax-equivalent net interest income
$
17,362
$
15,077
$
2,285
(1)
The volume variance is computed as the change in volume (average balance) multiplied by the previous year’s interest rate. The rate variance is computed as the change in interest rate multiplied by the previous year’s volume (average balance). The change in interest due to both volume and rate has been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
(2)
Interest on nontaxable investment securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 21%.
Nine Months Ended September 30,
(Dollars in thousands)
2025 Over 2024
Total
Volume
Rate
Increase (decrease) in interest income (1)
Loans (2)
$
60,308
$
57,946
$
2,362
Taxable securities
(1,139
)
37
(1,176
)
Nontaxable securities (2)
(5
)
(45
)
40
Other
(629
)
84
(713
)
Net change in interest income
58,535
58,022
513
Increase (decrease) in interest expense (1)
Interest-bearing demand deposits
7,367
5,196
2,171
Savings deposits
991
1,193
(202
)
Certificates of deposit
4,337
6,207
(1,870
)
Brokered deposit
1,683
1,881
(198
)
Borrowings
(1,336
)
(1,125
)
(211
)
Subordinated debentures
652
440
212
Other
(314
)
(210
)
(104
)
Net change in interest expense
13,380
13,582
(202
)
Net change in tax-equivalent net interest income
$
45,155
$
44,440
$
715
(1)
The volume variance is computed as the change in volume (average balance) multiplied by the previous year’s interest rate. The rate variance is computed as the change in interest rate multiplied by the previous year’s volume (average balance). The change in interest due to both volume and rate has been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
49
(2)
Interest on nontaxable investment securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 21%.
Net Interest Income
Tax-equivalent net interest income (non-GAAP) increased $17.4 million and $45.2 million in the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The primary factor contributing to the increase in interest income was loan growth, both organically and due to the Merger, the impact of interest income due to accretion from purchased loans, and the impact of fixed rate swaps (see note 8). Tax equivalent net interest margin (non-GAAP) increased 54 and 66 basis points in the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. GAAP based net interest margin increased 56 and 68 basis points in the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024.
The following table presents the annualized cost of deposits and the annualized cost of funds for the three and nine months ended September 30, 2025 and 2024.
Three Months Ended September 30,
Nine Months Ended September 30,
2025
2024
2025
2024
Cost of deposits
1.57
%
1.53
%
1.60
%
1.58
%
Cost of funds
1.77
%
1.87
%
1.81
%
1.93
%
ChoiceOne has experienced loan growth, leading to an increase in interest income from loans of $23.9 million and $60.3 million in the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. In the three and nine months ended September 30, 2025, average loans increased by $1.5 billion and $1.2 billion, respectively, driven by both organic growth and the impact of the Merger, compared to the same periods in 2024. In addition, the average rate earned on loans increased 5 and 28 basis points in the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. Interest income for the three and nine months ended September 30, 2025 includes $3.6 million and $10.0 million, respectively, of interest income due to accretion from purchased loans.
The average balance of total securities increased $19.4 million and decreased $802,000 for the three and nine months ended September 30, 2025, respectively, compared to the same periods in the prior year. The increase during the three months ended September 30, 2025 is due to $40.6 million of newly purchased agency mortgage backed securities. These securities were purchased in congruence to $30.4 million of amortizing pay fix swaps designed to amortize with the expected cash flow of the bonds and hold a coupon of 3.52%. The decrease in securities during the nine months ended September 30, 2025, is due to paydowns and a decline in the fair value of available for sale securities, offset by the purchase of agency mortgage backed securities during the third quarter of 2025. The average rate earned on securities decreased 18 basis points and 15 basis points for the three and nine months ended September 30, 2025, respectively, compared to the same periods in the prior year. 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.
Total interest expense increased $5.7 million and $13.4 million in the three and nine months ended September 30, 2025, respectively, compared to the same periods in the prior year. This increase was driven by a $1.2 billion increase in interest bearing liabilities from the Merger. Interest expense on interest bearing-demand deposits and savings deposits increased $3.7 million and $8.4 million in the three and nine months ended September 30, 2025, respectively. The average rate paid on interest bearing-demand deposits and savings deposits increased by 30 basis points and 20 basis points in the three and nine months ended September 30, 2025, respectively, compared to the same periods in the prior year as higher cost deposits were acquired in the Merger.
In the three months ended September 30, 2025, compared to the same period in the prior year, ChoiceOne’s cost of deposits to average total deposits increased by 4 basis points, rising from 1.53% to 1.57%, primarily due to higher-cost deposits acquired through the Merger. This increase was partially offset by a decline in CD costs and a reduction in wholesale funding costs. The annualized cost of funds decreased by 10 basis points, from 1.87% to 1.77% in the three months ended September 30, 2025 compared to the same period in the prior year. In the three months ended September 30, 2025, compared to the three months ended June 30, 2025, annualized cost of funds decreased to 1.77% from 1.84%, primarily due to a decrease in higher cost local and brokered CDs.
The average balance of borrowings increased by $9.9 million and declined by $30.9 million in the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. In addition, the rate paid on borrowings declined by 28 basis points and 17 basis points in the three and nine months ended September 30, 2025, compared to the same periods in 2024. The decline in balance and rate led to a decline in interest expense of $489,000 and $1.3 million in the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024.
50
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 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 $10.3 million and the average rate on subordinated debentures increased 86 basis points in the first nine months of 2025, compared to the same period in the prior year due to the additional subordinated debentures obtained in the Merger. The increase led to additional expense of $652,000 for the first nine months of 2025 compared to the same period in prior year.
51
Provision and Allowance for Credit Losses
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.
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. Our lookback period for benchmark peer net charge-off history excludes the years 2020 and 2021 due to the COVID-19 pandemic and spans from January 1, 2004, to December 31, 2019, and January 1, 2022, to December 31, 2024.
The provision for credit losses on loans was $200,000 and $14.0 million for the three and nine months ended September 30, 2025, respectively. The provision for credit losses in the first nine months of 2025 was due primarily to $12.0 million of expense in the first quarter for the acquisition of $1.3 billion of loans purchased without credit deterioration 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 in the first quarter of 2025 as the credit mark on loans purchased with credit deterioration (“PCD loans”) migrated into the reserve in accordance with CECL guidelines.
Nonperforming assets, which includes Other Real Estate Owned ("OREO") but excludes performing troubled loan modifications ("TLM"), increased by $15.8 million to $19.9 million at September 30, 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 1.19% of total loans, excluding loans held for sale, at September 30, 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 September 30, 2025, compared to $1.5 million as of December 31, 2024.
Charge-offs and recoveries for respective loan categories for the nine months ended September 30, 2025 and 2024 were as follows:
(Dollars in thousands)
2025
2024
Charge-offs
Recoveries
Charge-offs
Recoveries
Commercial and industrial
$
9
$
8
$
1
$
13
Consumer
586
273
616
321
Commercial real estate
393
-
-
-
Residential real estate
52
25
23
11
$
1,040
$
306
$
640
$
345
Net charge-offs were $734,000 during the first nine months of 2025, compared to net charge-offs of $295,000 during the same period in 2024. Net charge-offs for checking accounts during the first nine months of 2025 were $206,000 compared to $155,000 for the same period in the prior year. Annualized net loan charge-offs as a percentage of average loans were 0.03% for the first nine months of 2025 compared to 0.02% for the same period in the prior year. Nonperforming loans to total loans (excluding loans held for sale) were 0.69% as of September 30, 2025. Notably, 0.39% 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.
Noninterest Income
Noninterest income increased by $2.3 million and $5.6 million for the three and nine months ended September 30, 2025, compared to the same periods in the prior year. This increase was partly driven by higher service charges and interchange income, which rose due to increased volume from the Merger. Investment commissions and trust income also increased as a result of higher estate settlement fees and customers obtained from the Merger. Additionally, ChoiceOne recognized income from two death benefit claims under bank-owned life insurance policies during the second quarter for an additional $299,000.
Noninterest Expense
52
Noninterest expense increased by $10.8 million and $44.0 million for the three and nine months ended September 30, 2025, compared to the same periods in 2024. The year to date increase was largely due to merger-related expenses of $17.4 million during the nine months ended September 30, 2025, compared to $645,000 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. ChoiceOne continues to strive to optimize our cost structure while investing in opportunities that enhance our performance and reinforce the value we bring to customers and shareholders.
Income Tax Expense
Income tax expense was $3.6 million and $3.1 million in the three and nine months ended September 30, 2025, compared to income tax expense of $1.9 million and $4.7 million for the same periods in 2024. The effective tax rate was 19.9% and 17.8% for the three and nine months ended September 30, 2025, respectively, compared to 20.8% and 19.4% for the same periods in 2024. The effective tax rate in 2025 is lower than compared to 2024 due to a decrease in disallowed interest expense during 2025.
53
FINANCIAL CONDITION
At September 30, 2025, ChoiceOne had consolidated total assets of $4.3 billion, net loans of $2.9 billion, total deposits (excluding brokered deposits) of $3.5 billion and total shareholders' equity of $449.6 million.
Securities
In the first quarter of 2025, ChoiceOne acquired $90.7 million in securities as part of the Merger. However, to reduce higher-cost wholesale funding, management opted to sell $78.9 million of those securities. As a result, the net increase in securities from the Merger totaled $11.8 million.
On September 30, 2025, total available-for-sale securities amounted to $544.0 million, up from $479.1 million on December 31, 2024. This increase was driven by securities acquired through the Merger and the purchase of $40.6 million of agency mortgage backed securities purchased in conjuncture with $30.4 million in amortizing pay fix swaps. The 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. Purchases of securities were offset by principal repayments, calls, and maturities. The unrealized loss on securities available for sale was relatively flat compared to December 31, 2024.
Total held to maturity securities on September 30, 2025 were $388.5 million compared to $394.5 million on December 31, 2024. ChoiceOne's held to maturity securities declined during the first nine months of 2025 due to $12.3 million of principal repayments, calls and maturities, which was offset by $4.1 million in securities acquired through the Merger and purchases of securities during the first nine months of 2025.
At September 30, 2025, ChoiceOne had $101.6 million in gross unrealized losses on its investment securities, including $60.5 million in unrealized losses on available for sale securities, $40.6 million in unrealized losses on held to maturity securities, and $496,000 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.
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 $381.3 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.
Equity securities included a money market preferred security ("MMP") of $1.0 million and common stock of $8.5 million as of September 30, 2025. As of December 31, 2024, equity securities included a MMP of $1.0 million and common stock of $6.8 million.
Per U.S. generally accepted accounting principles, unrealized gains or losses on securities available for sale are reflected on the balance sheet in accumulated other comprehensive income (loss), while unrealized gains or losses on securities held to maturity are not reflected on the balance sheet.
Loans
The company's loan portfolio by call report code was as follows:
54
September 30, 2025
December 31, 2024
(Dollars in thousands)
Call Report Codes
Balance
%
Balance
%
Construction & Development Loans
1A2
$
81,476
2.8
%
$
61,740
4.0
%
1-4 Family Loans
1A1, 1C1, 1C2A, 1C2B, 9A
819,428
28.2
%
380,139
24.6
%
Multifamily Loans
1D
154,072
5.3
%
83,766
5.4
%
Owner Occupied CRE Loans
1E1
535,143
18.4
%
325,966
21.1
%
Non-Owner Occupied CRE Loans
1E2
886,114
30.5
%
387,102
25.0
%
Commercial & Industrial Loans
2A2, 4A
341,156
11.7
%
216,376
14.0
%
Farm & Agriculture Loans
1B, 3
52,990
1.8
%
48,246
3.1
%
Consumer & Other Loans
6B, 6C, 6D, 8, 9b2,10B
39,549
1.4
%
42,305
2.7
%
Total Loans
$
2,909,928
$
1,545,640
Average loan balances decreased $8.3 million in the third quarter of 2025, compared to the second quarter of 2025. Core loans, which exclude held for sale loans and loans to other financial institutions, declined by $10.3 million or 1.4% on an annualized basis during the third quarter of 2025 and grew organically by $65.3 million or 4.5% during the twelve months ended September 30, 2025. Core loans grew by $1.4 billion due to the Merger on March 1, 2025.
Loan interest income increased $23.9 million in the third quarter of 2025 compared to the same period in 2024. Interest income for the three months ended September 30, 2025 includes $3.6 million of interest income due to accretion from purchased loans. Of this amount, $1.8 million was calculated using the effective interest rate method of amortization, while the remaining $1.8 million 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 the remainder of 2025 and 2026 using the effective interest method of amortization is $2.3 million and $8.2 million, respectively; however, actual results will be dependent on prepayment speeds and other factors. It is estimated that a total of $54.0 million remains to be recognized as interest income due to accretion from purchased loans over the life of the loan portfolio.
Loans to other financial institutions decreased by $37.4 million as of September 30, 2025 compared to December 31, 2024. Loans to other financial institutions consist of a warehouse line of credit used to facilitate mortgage loan originations, with interest rates and balances that fluctuate in line with the national mortgage market.
Goodwill
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.
ChoiceOne conducted an annual assessment of goodwill as of June 30, 2025 and no impairment was identified. No material changes and no triggering events have occurred that indicated impairment.
Deposits and Borrowings
Deposits, excluding brokered deposits, increased by $8.0 million as of September 30, 2025, compared to June 30, 2025. During the third quarter of 2025, non-interest bearing deposits declined by $39.9 million while interest-bearing demand deposits increased by $73.4 million. The shift from non-interest-bearing to interest-bearing demand deposits was partly due to quarter-end timing and fluctuations in business and municipal activity. The growth in interest-bearing demand deposits was primarily concentrated in non-maturity interest-bearing checking and money market accounts. The average balance of non-interest-bearing deposits rose to $930.3 million in the third quarter of 2025, up from $915.6 million in the second quarter of 2025. Deposits, excluding brokered deposits, increased by $1.3 billion as of September 30, 2025, compared to September 30, 2024 largely as a result of the Merger. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits and FHLB advances to ensure ample liquidity. At September 30, 2025, total available borrowing capacity secured by pledged assets was $1.2 billion. ChoiceOne can increase its borrowing capacity by utilizing unsecured federal fund lines and pledging additional assets. Uninsured deposits totaled $1.2 billion or 33.2% of deposits at September 30, 2025.
55
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. ChoiceOne recognized core deposit intangible expense of $4.1 million for the nine months ended September 30, 2025.
In the three months ended September 30, 2025, compared to the same period in the prior year, ChoiceOne’s cost of deposits to average total deposits increased by 4 basis points, rising from 1.53% to 1.57%, primarily due to higher-cost deposits acquired through the Merger. This increase was partially offset by a decline in CD costs and a reduction in wholesale funding costs. The annualized cost of funds decreased by 10 basis points, from 1.87% to 1.77% in the three months ended September 30, 2025 compared to the same period in the prior year. In the three months ended September 30, 2025, compared to the three months ended June 30, 2025, annualized cost of funds decreased to 1.77% from 1.84%, primarily due to a decrease in higher cost local and brokered CDs.
Interest expense on borrowings for the three months ended September 30, 2025, declined by $489,000 compared to the same period in the prior year. As of September 30, 2025, the total balance of borrowed funds from the FHLB was $198.0 million at a weighted average fixed rate of 4.23%, with $158.0 million due within 12 months and the earliest maturity in October 2025.
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 acquisition of Community Shores and the Merger with Fentura, offset by the merger mark-to-market adjustment.
Shareholders' Equity
As of September 30, 2025, shareholders’ equity was $449.6 million, a significant increase from $260.8 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. ChoiceOne Bank continues to be “well-capitalized,” with a total risk-based capital ratio of 12.8% as of September 30, 2025, compared to 12.7% on December 31, 2024.
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Regulatory Capital Requirements
Following is information regarding compliance of ChoiceOne and ChoiceOne Bank with regulatory capital requirements:
Minimum Required
to be Well
Minimum Required
Capitalized Under
for Capital
Prompt Corrective
(Dollars in thousands)
Actual
Adequacy Purposes
Action Regulations
Amount
Ratio
Amount
Ratio
Amount
Ratio
September 30, 2025
ChoiceOne Financial Services Inc.
Total capital (to risk weighted assets)
$
418,645
13.0
%
$
258,279
8.0
%
N/A
N/A
Common equity Tier 1 capital (to risk weighted assets)
333,388
10.3
145,282
4.5
N/A
N/A
Tier 1 capital (to risk weighted assets)
351,888
10.9
193,709
6.0
N/A
N/A
Tier 1 capital (to average assets)
351,888
8.5
166,068
4.0
N/A
N/A
ChoiceOne Bank
Total capital (to risk weighted assets)
$
411,407
12.8
%
$
257,926
8.0
%
$
322,407
10.0
%
Common equity Tier 1 capital (to risk weighted assets)
377,017
11.7
145,083
4.5
209,565
6.5
Tier 1 capital (to risk weighted assets)
377,017
11.7
193,444
6.0
257,926
8.0
Tier 1 capital (to average assets)
377,017
9.1
165,898
4.0
207,372
5.0
December 31, 2024
ChoiceOne Financial Services Inc.
Total capital (to risk weighted assets)
$
287,927
14.5
%
$
158,391
8.0
%
N/A
N/A
Common equity Tier 1 capital (to risk weighted assets)
237,152
12.0
89,095
4.5
N/A
N/A
Tier 1 capital (to risk weighted assets)
241,652
12.2
118,793
6.0
N/A
N/A
Tier 1 capital (to average assets)
241,652
9.1
106,485
4.0
N/A
N/A
ChoiceOne Bank
Total capital (to risk weighted assets)
$
250,494
12.7
%
$
158,197
8.0
%
$
197,746
10.0
%
Common equity Tier 1 capital (to risk weighted assets)
236,479
12.0
88,986
4.5
128,535
6.5
Tier 1 capital (to risk weighted assets)
236,479
12.0
118,647
6.0
158,197
8.0
Tier 1 capital (to average assets)
236,479
8.9
106,422
4.0
133,028
5.0
Management reviews the capital levels of ChoiceOne and ChoiceOne Bank on a regular basis. The Board of Directors and management believe that the capital levels as of September 30, 2025 are adequate for the foreseeable future. The Board of Directors’ determination of appropriate cash dividends for future periods will be based on, among other things, market conditions and ChoiceOne’s requirements for cash and capital.
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Liquidity
Net cash provided by operating activities was $17.8 million for the nine months ended September 30, 2025 compared to $24.6 million net cash provided in the same period in 2024. The change was primarily driven by a $15.1 million decrease in other liabilities during the nine months ended September 30, 2025, compared to the same period in 2024, partially offset by a $13.6 million increase in the provision for credit losses over the same timeframe. Net cash provided by investing activities was $224.9 million for the nine months ended September 30, 2025 compared to net cash used in investing activities of $56.3 million 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 used in financing activities was $240.5 million for the nine months ended September 30, 2025, compared to $122.2 million provided in the same period in the prior year. ChoiceOne decreased borrowing by $147.2 million in the first nine months of 2025 compared to an increase of $10.1 million in the same period during the prior year. ChoiceOne had $79.0 million in deposit decline, net of the increase from the Merger, in the first nine months of 2025 compared to an increase of $86.2 million in the same period in 2024. The deposit decline was primarily due to seasonal municipal fluctuations and some reduction of higher cost deposits acquired from the Merger, offset by an increase in brokered deposits.
ChoiceOne's market risk exposure occurs in the form of interest rate risk and liquidity risk. ChoiceOne's business is transacted in U.S. dollars with no foreign exchange risk exposure. Agricultural loans comprise a relatively small portion of ChoiceOne's total assets. Management believes that ChoiceOne's exposure to changes in commodity prices is insignificant.
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 $198.0 million in outstanding borrowings from the FHLB at a weighted average fixed rate of 4.23%, with the earliest maturity in October 2025 as of September 30, 2025. ChoiceOne had $72.7 million in brokered deposits on September 30, 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 September 30, 2025, total available borrowing capacity from the FHLB and the Federal Reserve Bank was $1.2 billion.
Item 4.
Controls and Procedures.
An evaluation was performed under the supervision and with the participation of ChoiceOne’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of ChoiceOne’s disclosure controls and procedures as of September 30, 2025. Based on and as of the time of that evaluation, ChoiceOne’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that ChoiceOne’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that material information required to be disclosed in the reports that ChoiceOne files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that ChoiceOne files or submits under the Exchange Act is accumulated and communicated to management, including ChoiceOne’s principal executive and principal financial officers, as appropriate to allow for timely decisions regarding required disclosure.
There was no change in ChoiceOne’s internal control over financial reporting that occurred during the nine months ended September 30, 2025 that has materially affected, or that is reasonably likely to materially affect, ChoiceOne’s internal control over financial reporting.
58
PART II. OT
HER INFORMATION
Item 1.
Le
gal Proceedings
.
There are no material pending legal proceedings to which ChoiceOne or ChoiceOne Bank is a party or to which any of their properties are subject, except for proceedings that arose in the ordinary course of business.
Item
1A.
Risk Factors
.
Information concerning risk factors is contained in the discussion in Item 1A, “Risk Factors,” in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2024.
Ite
m 2.
Unregistered Sales of Equity Securities and Use of Proceeds
.
There were no unregistered sales of equity securities in the third quarter of 2025.
There were no issuer purchases of equity securities during the third quarter of 2025.
Ite
m 5.
Other Information
None
.
59
It
em 6.
Exhibits
The following exhibits are filed or incorporated by reference as part of this report:
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
60
SIGNA
TURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHOICEONE FINANCIAL SERVICES, INC.
Date: November 10, 2025
/s/ Kelly J. Potes
Kelly J. Potes
Chief Executive Officer
(Principal Executive Officer)
Date: November 10, 2025
/s/ Adom J. Greenland
Adom J. Greenland
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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