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CHOICEONE FINANCIAL SERVICES INC

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Business Summary

ChoiceOne Financial Services, Inc. operates as a financial holding company registered under the Bank Holding Company Act of 1956, with its business primarily concentrated in a single industry segment, banking. The Company's wholly owned subsidiary, ChoiceOne Bank, is a full-service banking institution offering deposit, payment, credit, and other financial services, including trust and wealth management, to commercial and individual customers. The Bank's primary market areas lie within western, central, and southeastern Michigan, and it serves these markets through 47 full-service offices, one drive-up office, five loan production offices, and a wealth management office. The Company and the Bank have no foreign assets or income.

The Bank competes with a number of larger commercial banks and credit unions within its primary market areas, as well as savings and loan associations, insurance companies, consumer finance companies, internet banks, other financial technology companies, and commercial finance and leasing companies. Many of these competitors have substantially greater resources than the Bank. The principal methods of competition are price (interest rates charged for loans, rates paid for deposits, and fees charged for services) and the convenience and quality of services rendered to customers. The Company has elected to be a financial holding company, and the Bank was categorized as "well-capitalized" and "well-managed" as of December 31, 2025. The CRA rating of the Bank was "Satisfactory" as of its most recent examination.

The Company generates revenue primarily through interest and fees on loans, which accounted for 76% of total revenues in 2025, compared to 64% in 2024 and 60% in 2023. Interest on securities accounted for 12% of total revenues in 2025, compared to 19% in 2024 and 24% in 2023. The Company's business is not dependent upon a single customer or very few customers. The principal source of revenue for the Company and the Bank is interest and fees on loans.

The Company's loan portfolio is categorized into several segments: agricultural, commercial and industrial, commercial real estate, construction real estate, consumer, residential real estate, and mortgage warehouse advances. As of December 31, 2025, gross loans totaled $3,022,034,000 , with commercial real estate being the largest segment at $1,780,396,000 , followed by residential real estate at $728,037,000 , commercial and industrial at $352,556,000 , agricultural at $56,218,000 , mortgage warehouse advances at $58,987,000 , construction real estate at $19,139,000 , and consumer at $26,701,000 . The allowance for credit losses on loans was $35,550,000 as of December 31, 2025, representing 1.18% of total loans. Nonperforming loans totaled $27,065,000 , or 0.90% of total loans. The Company also holds a securities portfolio with available for sale securities at a fair value of $554,420,000 and held to maturity securities at an amortized cost of $385,193,000 as of December 31, 2025.

On March 1, 2025, the Company completed the merger of Fentura Financial, Inc. with and into the Company, with the Company surviving. On March 14, 2025, ChoiceOne Bank completed the consolidation of The State Bank with and into ChoiceOne Bank. During 2025, the Company repurchased 25,116 shares of stock for a net cost of $775,000 under its repurchase plan, which had 350,272 shares remaining to purchase as of December 31, 2025. The Company also organized 109 Technologies, LLC on July 18, 2023, as a wholly owned subsidiary to own intellectual property for a fintech product licensed to third party banks and bank holding companies.

For the year ended December 31, 2025, the Company reported net income of $28,176,000 , compared to $26,727,000 in 2024. Net interest income was $137,070,000 in 2025 versus $74,442,000 in 2024. Noninterest income was $24,666,000 in 2025 compared to $17,995,000 in 2024. Noninterest expense was $112,735,000 in 2025 versus $58,723,000 in 2024. The provision for credit losses, net, was $14,813,000 in 2025 compared to $625,000 in 2024. Diluted earnings per share were $2.01 for 2025 versus $3.25 for 2024. Return on average assets was 0.69% in 2025 compared to 1.00% in 2024, and return on average shareholders' equity was 7.04% in 2025 versus 11.80% in 2024.

Business Outlook

Management expects ChoiceOne to declare and pay regular quarterly cash dividends in 2026, although the amount will be dependent on market conditions and ChoiceOne's requirements for cash and capital, among other things. The estimated interest income due to accretion from purchased loans for 2026 using the effective interest method of amortization is $8.0 million ; however, actual results will be dependent on prepayment speeds and other factors. It is estimated that a total of $53.1 million remains to be recognized as interest income due to accretion from purchased loans over the life of the loan portfolio.

ChoiceOne plans to grow its business both organically and through mergers and acquisitions. The Company has secured a location in Troy, Michigan and expects to open a full service branch and lending office later in 2026, which management believes will help continue strong growth in an attractive market. The Company is also experimenting with automation and AI-driven solutions designed to modernize processes to augment the ability for existing staff to manage growth.

Management is continuing to evaluate additional transferable tax credit opportunities and may pursue further purchases to help offset tax expense in 2026. The effective tax rate was 17.6% for the year ended December 31, 2025, compared to 19.2% for 2024. The Company's fourth-quarter 2025 tax expense was reduced by a net of $340,000 as a result of purchasing a transferable tax credit that will be applied to 2025 income taxes, with allowable carrybacks to prior years.

ChoiceOne will continue to invest in its talented staff, technology and footprint while prioritizing operational efficiency and disciplined investment. The Company is experimenting with automation and AI-driven solutions designed to modernize processes to augment the ability for its existing staff to manage growth.

The Company's common stock repurchase plan announced in April 2021 and amended in 2022 authorizes the repurchase of up to 375,388 shares, representing 5% of the total outstanding shares of common stock as of the date the repurchase plan was adopted. During 2025, ChoiceOne repurchased 25,116 shares of stock for a net cost of $775,000 under the repurchase plan. The repurchase plan has 350,272 shares remaining to purchase as of December 31, 2025, with no stated expiration date. Cash dividends of $16,949,000 or $1.13 per common share were declared in 2025, compared to $9,012,000 or $1.09 per common share in 2024. The dividend yield for ChoiceOne's common stock was 3.83% as of the end of 2025, compared to 3.06% as of the end of 2024.

The Company is affected by general economic conditions in the United States, although most directly within Michigan. An economic downturn within Michigan caused by inflation, recession or a recessionary environment, trade tariffs, trade policy or retaliatory measures by trade partners, unemployment, changes in financial or capital markets or other factors, could negatively impact household and corporate incomes. Changes in interest rates could reduce the Company's income and cash flow, as the Company's income and cash flow depends to a great extent on the difference between the interest earned on loans and securities and the interest paid on deposits and other borrowings. The Company is subject to liquidity risk in its operations, which could adversely affect its ability to fund various obligations. At December 31, 2025, the Company had $90.4 million in unrealized losses on its investment securities, including $52.8 million in unrealized losses on available for sale securities, $37.2 million in unrealized losses on held to maturity securities, and $471,000 in unrealized losses on equity securities.

Risk Factors

Asset quality risk is significant, as the Company's allowance for credit losses of $35,550,000 may not be adequate to cover actual credit losses, and nonperforming loans increased to $27,065,000 or 0.90% of total loans at December 31, 2025, up from 0.24% at December 31, 2024. The Company has substantial exposure to commercial and residential real estate, with approximately $1.8 billion of commercial and construction real estate loans (59.6% of the loan portfolio) and $728.0 million in residential real estate loans (24.1% of the loan portfolio) as of December 31, 2025, making a downturn in the Michigan real estate market a material risk. Interest rate risk is pronounced, as the Company's income depends on the spread between interest earned on loans and securities and interest paid on deposits and borrowings, and at December 31, 2025, the Company had $90.4 million in unrealized losses on investment securities, including $52.8 million on available for sale securities, which could be realized if sales are required to meet liquidity needs. The Company relies heavily on dividends from the Bank for most of its revenue, and various federal and state laws limit the amount of dividends the Bank may pay, which could impair the Company's ability to pay cash dividends on its common stock.

Management Priorities

Management's message emphasizes the successful completion of the Fentura Financial, Inc. merger on March 1, 2025, which drove significant balance sheet growth, with total assets increasing by $1.7 billion compared to December 31, 2024. Core loans grew organically by $86.1 million or 5.7% during the twelve months ended December 31, 2025, and also grew by $1.4 billion due to the Merger. Management highlights that net income excluding merger expenses, net of taxes, and merger related provision for credit losses, net of taxes, was $51,524,000 for the year ended December 31, 2025, and diluted earnings per share excluding those items were $3.68 . The Company reported that asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.04% , and that the increase in nonperforming loans to total loans to 0.98% is not indicative of a broader trend. Management does not anticipate additional material merger-related expenses. The Company expects to open a full service branch and lending office in Troy, Michigan later in 2026 and is experimenting with automation and AI-driven solutions to modernize processes.

View Source Annual Report on SEC.gov ↗

References

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Analysis on 6/21/2026