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CF

CHOICEONE FINANCIAL SERVICES INC (COFS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 reported a GAAP net loss of $13.9M and diluted loss per share of $1.29, driven by $17.2M merger-related expenses and a $13.1M provision for credit losses tied to Fentura’s non‑PCD loans; adjusted diluted EPS was $0.86 .
  • Adjusted EPS of $0.86 beat S&P Global consensus of $0.755 by ~14%, while “Revenue” (SPGI definition: net interest income after provision + noninterest income) of $18.07M missed consensus of $29.7M .
  • Net interest margin expanded materially to 3.43% (GAAP) vs 2.98% in Q4’24 and 2.67% in Q1’24, aided by merger accretion; net interest income rose to $26.3M vs $19.3M in Q4’24 and $16.5M in Q1’24 .
  • Balance sheet scaled post‑merger: assets $4.31B, deposits $3.65B, core loans $2.92B; loan‑to‑deposit ratio rose to 80.21% (vs 70.14% in Q4’24) .
  • Management highlighted integration progress and synergy potential; accretion on acquired loans expected to add ~$7.5M through 2025 (effective interest method), with additional upside dependent on prepayments .

What Went Well and What Went Wrong

What Went Well

  • Net interest margin and net interest income expanded meaningfully: NIM to 3.43% (GAAP) and net interest income to $26.3M, benefitting from loan accretion and scale from the merger .
  • Organic growth intact: core loans grew $40.1M QoQ (10.6% annualized) and $157.3M YoY (11.3%), even excluding merger impacts; deposits ex‑brokered rose organically $15.0M in Q1 .
  • Asset quality stable despite portfolio scale‑up: net charge‑offs annualized 0.01%; allowance coverage 1.18%; NPLs 0.65% with 0.44% attributed to PCD loans that have corresponding reserves .
  • Quote: “This merger brings together two great community bank franchises and enhances our market presence… We look forward to the opportunities this merger brings” — CEO Kelly Potes .

What Went Wrong

  • GAAP earnings impacted by one‑time items: $17.2M merger expenses and $13.1M provision resulted in a GAAP net loss of $13.9M (vs $7.2M profit in Q4’24) and an efficiency ratio spike to 111% .
  • Nonperforming loans ratio rose to 0.65% from 0.27% in Q4’24 and 0.19% in Q3’24 due to PCD loans acquired, though these have associated credit marks/reserves .
  • CRE concentration increased: Commercial Real Estate (non‑owner occupied) as % of total capital rose to ~304% at the bank, from ~225% in Q4’24, tightening capital flexibility amid integration .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Net Interest Income ($USD Millions)$20.25 $19.35 $26.31
Noninterest Income ($USD Millions)$4.87 $4.99 $4.92
Net Provision Expense ($USD Millions)$0.43 $0.20 $13.16
Net Income ($USD Millions)$7.35 $7.16 $(13.91)
Diluted EPS (GAAP, $)$0.85 $0.79 $(1.29)
Adjusted Diluted EPS (Non‑GAAP, $)$0.93 $0.83 $0.86
Net Interest Margin (GAAP, %)3.17% 2.98% 3.43%
Efficiency Ratio (%)60.80% 61.29% 111.01%
Loan Category ($USD Millions)Q3 2024Q4 2024Q1 2025
Commercial & Industrial$229.23 $228.26 $345.14
Commercial Real Estate$862.77 $901.13 $1,757.60
Residential Real Estate$279.06 $281.70 $722.66
Consumer$30.69 $29.41 $30.93
Agricultural$49.15 $48.22 $48.17
Construction Real Estate$14.56 $17.04 $18.07
Loans to Other Financial Institutions$38.49 $39.88 $2.39
KPIsQ3 2024Q4 2024Q1 2025
Total Deposits ($USD Millions)$2,208 $2,214 $3,652
Deposits ex‑Brokered ($USD Millions)$2,202 $2,178 $3,584
Loan‑to‑Deposit Ratio (%)68.38% 70.14% 80.21%
Cost of Deposits (Annualized, %)1.53% 1.58% 1.59%
Uninsured Deposits (% of Deposits)39.1% (9/30/24) 37.6% (12/31/24) 33.9% (3/31/25)
NPLs / Total Loans (%)0.19% 0.27% 0.65%
Allowance for Credit Losses ($USD Millions)$16.49 $16.55 $34.57
Q1 2025 vs S&P Global ConsensusConsensusActualSurprise
Primary EPS (Normalized, $)0.755*0.86*+13.9%*
Revenue (SPGI definition, $USD Millions)29.70*18.07*−39.2%*

*Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Accretion income on acquired loans (effective interest method)FY 2025 remainderN/A~$7.5M expected; additional unexpected accretion depends on prepaymentsNew qualitative/quantitative outlook
Deposit cost trajectory2025N/AAnticipate further reductions if rates continue to decline, tempered by lower swap cash flowsDirectional commentary
Balance sheet rate positioning2025N/AAsset sensitive due in part to pay‑fixed swaps; held $351M notional, 3.12% couponMaintained asset sensitivity posture
Dividend per shareQ1 2025$0.28 (Q4’24 baseline)$0.28 declared (Q1’25)Maintained

Earnings Call Themes & Trends

Note: No Q1 2025 earnings call transcript was found; themes compiled from management press releases.

TopicPrevious Mentions (Q3’24, Q4’24)Current Period (Q1’25)Trend
Merger with Fentura/The State BankCapital raise and pending merger; regulatory process advancing Merger closed Mar 1; bank consolidation Mar 14; integration underway; scale and synergies emphasized Acceleration; execution in focus
Interest rate swaps / asset sensitivity$401M notional; swaps boosted NIM; asset sensitive positioning $351M notional; sold $50M pay‑fixed swaps (gain ~$3.6M recognized over 7 years); asset sensitive maintained Optimization of hedge book
Deposit costs and fundingDeclining deposit costs amid Fed cuts and swap cash flows; BTFP replaced with FHLB Cost of deposits 1.59%; total cost of funds 1.86%; FHLB balance $130M @4.03% after liquidating acquired securities Funding costs easing; wholesale reduction
Asset qualityNPLs ~0.19–0.27%; strong metrics NPLs 0.65% due to PCD loans; coverage increased; net charge‑offs 0.01% Temporary elevation, risk‑managed
Technology/digital capabilitiesGeneral references to innovation Enhanced capacity and technology post‑merger highlighted Scale‑enabled investment
Macro/tariffsNot referencedAutomotive tariff review: $99.3M exposure (3.4% of loans), largely Tier 2/3 suppliers Active sector monitoring

Management Commentary

  • “This merger brings together two great community bank franchises and enhances our market presence and capabilities… We look forward to the opportunities this merger brings” — CEO Kelly Potes .
  • “As we integrate operations, we anticipate we will find the expected synergies… leverage the talented staff that has joined our team” — CEO Kelly Potes .
  • Balance sheet actions: liquidation of acquired securities to reduce higher‑cost FHLB advances; FHLB borrowings $130.0M at 4.03% .
  • Hedge strategy: sold $50M pay‑fixed swaps (fixed 2.75%), recognizing ~$3.6M gain over 7 years; ongoing pay‑fixed swap program supports asset sensitivity .
  • Non‑GAAP view: Adjusted diluted EPS $0.86; NIM expansion to 3.48% (tax‑equivalent); reconciliation provided to GAAP .

Q&A Highlights

  • No Q1 2025 earnings call transcript was available in our document set or catalog; therefore Q&A themes and any guidance clarifications from a live call could not be assessed. We searched for “earnings-call-transcript” and found none for COFS in Q1 2025 [ListDocuments results].

Estimates Context

  • EPS: Adjusted (normalized) EPS of $0.86 vs consensus $0.755 — a ~14% beat*, reflecting higher net interest income and merger accretion benefits, despite elevated noninterest expense from integration*.
  • Revenue (SPGI definition): $18.07M vs consensus $29.7M — a ~39% miss*, driven by the large provision for credit losses that reduces net interest income after provision within SPGI’s revenue construct*.
  • Estimate breadth was limited (EPS: 2 estimates; Revenue: 1 estimate), which can increase dispersion risk in consensus and post‑print revisions*.
    *Values retrieved from S&P Global.

Key Takeaways for Investors

  • Integration reset: GAAP earnings will be noisy near‑term due to merger costs and provisioning; normalized EPS and NIM expansion indicate core earnings power improved with scale .
  • Accretion tailwinds: ~$7.5M effective‑interest accretion expected for the remainder of 2025, with potential upside from prepayments — supportive of NIM and net interest income .
  • Funding cost trajectory: Further deposit cost declines possible if rates fall, though swap cash flows will temper the pace; continued remix away from wholesale funding lowers total cost of funds .
  • Credit watchpoints: Elevated NPLs from PCD loans and higher allowance are expected integration effects; low charge‑offs and explicit PCD reserves mitigate near‑term risk .
  • Concentration risk: CRE (non‑owner) concentration to capital increased post‑merger; monitor regulatory capital ratios and CRE outlook in a slowing macro .
  • Asset sensitivity: The hedge program positions COFS to benefit from rate declines via deposit repricing while protecting spread; ongoing swap optimization is a lever .
  • Balance sheet scale: Assets $4.31B, deposits $3.65B, loan‑to‑deposit 80.21% provides operating leverage; execution on synergy capture is the narrative driver for shares .

Additional Press Releases Relevant to Q1 2025

  • Dividend: Board declared $0.28 per share, payable Mar 31, 2025 (vs $0.27 in Q1’24) .
  • Regulatory approval: Fed approval to complete Fentura merger; expected effectiveness Mar 1 and consolidation Mar 14 .
  • Merger completion: Transaction closed Mar 1; combined organization >$4B assets, 56 offices across Michigan .

Prior Two Quarters’ Earnings (for trend)

  • Q4 2024: Net income $7.16M; diluted EPS $0.79; NIM 2.98%; efficiency ratio 61.29%; deposits ex‑brokered $2.18B; NPLs/loans 0.27% .
  • Q3 2024: Net income $7.35M; diluted EPS $0.85; NIM 3.17%; efficiency ratio 60.80%; deposits ex‑brokered $2.20B; NPLs/loans 0.19% .