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CF

CHOICEONE FINANCIAL SERVICES INC (COFS)·Q2 2025 Earnings Summary

Executive Summary

  • Delivered record GAAP net income of $13.53M and diluted EPS of $0.90; adjusted diluted EPS was $0.91, reflecting merger-related addbacks .
  • Total revenue (net interest income + noninterest income) was $42.83M, driven by GAAP net interest income of $36.32M and noninterest income of $6.50M; GAAP NIM expanded to 3.66% from 2.98% in Q4 and 3.43% in Q1 .
  • EPS and revenue exceeded Wall Street consensus: GAAP EPS $0.90 vs $0.78* and revenue $42.83M vs $41.25M*; accretion from purchased loans added 36 bps to NIM and $3.5M to interest income, a key catalyst for the beat .
  • Deposits excluding brokered fell $98.0M q/q on seasonal municipal outflows; uninsured deposits fell to 29.6% (from 33.9% in Q1 and 37.6% in Q4), reducing risk concentration .
  • Management expects merger-related expenses to be immaterial going forward, while accretion guidance for the remainder of 2025 was lowered to $4.1M (from $7.5M previously), shaping estimate revisions and medium-term margin outlook .
    Values retrieved from S&P Global*

What Went Well and What Went Wrong

What Went Well

  • Record profitability: Net income $13.53M, diluted EPS $0.90; adjusted diluted EPS $0.91, reflecting strong underlying earnings and merger benefits .
  • NIM expansion and net interest strength: GAAP NIM rose to 3.66% (from 2.98% in Q4, 3.43% in Q1) as GAAP net interest income surged to $36.32M; accretion from purchased loans added 36 bps to NIM in Q2 and $3.5M to loan interest .
  • CEO confidence on merger execution: “record net income and an expansion in our net interest margin… reflect the successful execution of our strategic merger… we remain focused on delivering long-term value” .

What Went Wrong

  • Deposits excluding brokered declined $98.0M q/q due to seasonal municipal outflows and reduction of higher-cost deposits; total deposits decreased to $3.59B from $3.65B in Q1 .
  • Elevated nonperforming ratios post-merger: NPLs/loans rose to 0.66% (0.41% attributed to PCD loans), increasing reported asset quality metrics even as coverage remains adequate .
  • Accretion outlook tempered: Remainder-of-2025 accretion guidance cut to $4.1M (from $7.5M in Q1), likely moderating margin tailwinds vs prior expectations .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Net Interest Income ($USD Thousands)$19,349 $26,311 $36,322
Total Noninterest Income ($USD Thousands)$4,994 $4,922 $6,503
Total Revenue (NII + Noninterest) ($USD Thousands)$24,343 $31,233 $42,825
Total Noninterest Expense ($USD Thousands)$15,344 $35,665 $25,506
Net Income ($USD Thousands)$7,159 $(13,906) $13,534
Diluted EPS ($)$0.79 $(1.29) $0.90
GAAP Net Interest Margin (%)2.98% 3.43% 3.66%
Efficiency Ratio (%)61.29% 111.01% 55.32%
Annualized Cost of Funds (%)1.90% 1.86% 1.84%

Segment breakdown – Loan composition

Loan Category ($USD Thousands)Q4 2024Q1 2025Q2 2025
Agricultural$48,221 $48,165 $47,273
Commercial & Industrial$228,256 $345,138 $351,367
Commercial Real Estate$901,130 $1,757,599 $1,743,541
Consumer$29,412 $30,932 $29,741
Construction Real Estate$17,042 $18,067 $21,508
Residential Real Estate$281,701 $722,661 $724,329
Loans to Other Financial Institutions$39,878 $2,393 $3,033
Gross Loans (ex-HFS)$1,545,640 $2,924,955 $2,920,792

KPIs

KPIQ4 2024Q1 2025Q2 2025
Total Assets ($USD Thousands)$2,723,243 $4,305,391 $4,310,252
Total Deposits ($USD Thousands)$2,214,103 $3,651,729 $3,592,624
Deposits ex-Brokered ($USD Thousands)$2,177,592 $3,584,434 $3,486,399
Core Loans ($USD Thousands)$1,505,762 $2,922,562 $2,917,759
Allowance to Loans (%)1.07% 1.18% 1.19%
NPLs to Total Loans (%)0.27% 0.65% 0.66%
Uninsured Deposits (% of Deposits)37.6% 33.9% 29.6%
FHLB Borrowed Balance ($MM) / Rate$175.0 @ 4.5% $130.0 @ 4.03% $195.0 @ 4.36%
Pay-Fixed Swaps Notional ($MM) / Fair Value ($MM)$401.0 / $23.6 $351.0 / $11.7 $351.0 / $7.9

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Purchased Loan Accretion (Remainder of 2025)FY 2025~$7.5M (effective interest) ~$4.1M (effective interest) Lowered
Merger-Related ExpensesQ3+ 2025Heavy in Q1 ($17.2M) with no prior forward outlook “Do not anticipate material merger expenses going forward” Lowered
Deposit Cost OutlookFY 2025Anticipate further reductions if rates decline; swaps temper impact Anticipate further reductions if rates decline; swaps temper impact Maintained
Quarterly Dividend per ShareQ2 2025$0.28 in Q1 2025 $0.28 declared (payable 6/30/25) Maintained q/q; +$0.01 y/y

Earnings Call Themes & Trends

Note: No Q2 2025 earnings call transcript was available; themes below reflect press releases and 8-Ks.

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Merger Integration & AccretionQ1: detailed PCD vs Non‑PCD marks; accretion guided to $7.5M remainder 2025 Accretion added 36 bps to NIM and $3.5M to loan interest; remainder 2025 accretion guided to $4.1M Integration progressing; accretion tailwind moderating
Net Interest MarginQ4: 2.98%; benefit from swaps; Q1: 3.43% GAAP NIM 3.66% in Q2 Improving
Deposit Costs & LiquidityQ1: cost of deposits fell to 1.59%; liquidity via brokered deposits/FHLB Cost of funds down to 1.84%; available pledged capacity $1.2B Gradual improvement
Asset QualityQ1: NPLs/loans up to 0.65% post-merger (PCD impact) NPLs/loans 0.66%; 0.41% from PCD loans Stable with merger‑related mix
Hedging Strategy (Swaps)Q4: pay-fixed swaps $401M notional; asset-sensitive balance sheet Pay-fixed swaps $351M notional; fair value $7.9M; settlements $1.3M Active, size moderated
Macro/Tariffs (Automotive exposure)Q1: $99.3M automotive sector loans; reviewed potential tariff impact No new update disclosed in Q2 releasesWatchful

Management Commentary

  • “We are pleased to report another outstanding quarter… record net income and an expansion in our net interest margin… reflect the successful execution of our strategic merger with Fentura and The State Bank…” — Kelly Potes, CEO .
  • “Our strong second quarter results… reflect the early benefits of the Merger. As we complete integration efforts, we believe in our ability to unlock long-term value through operational efficiencies…” — Kelly Potes, CEO .

Q&A Highlights

  • No Q2 2025 earnings call transcript was available; therefore, no Q&A themes or clarifications can be referenced from a call [ListDocuments: none].

Estimates Context

MetricQ4 2024Q1 2025Q2 2025
EPS Consensus Mean ($)0.84*0.76*0.78*
EPS Actual ($)0.83*0.86*0.91*
Revenue Consensus Mean ($USD)24.0M*29.7M*41.25M*
Revenue Actual ($USD)23.44M*18.07M*42.18M*
EPS # of Estimates1*2*3*
Revenue # of Estimates1*1*2*
Target Price Consensus Mean ($)35.33*35.33*35.33*
Values retrieved from S&P Global*

Implications: Q2 EPS beat vs $0.78* and Q2 revenue beat vs $41.25M*; given NIM expansion and lower cost of funds, estimate models likely revise higher on NII, while lowering accretion contribution ($4.1M remainder 2025) may temper outer-quarter margin assumptions . Values retrieved from S&P Global*

Key Takeaways for Investors

  • Strong beat and margin expansion: GAAP EPS $0.90 and total revenue $42.83M outpaced consensus amid 36 bps NIM lift from accretion; consider near-term positive sentiment and potential multiple support .
  • Accretion moderation: Guidance cut to $4.1M for the rest of 2025 suggests tailwinds fade, shifting focus to core loan growth, pricing discipline, and deposit mix optimization .
  • Deposit/composition improvements: Uninsured deposits declined to 29.6% and deposits ex-brokered fell on seasonal factors; monitor sustainability of lower uninsured levels for risk profile .
  • Expense normalization: Management does not expect material merger expenses going forward; efficiency ratio improved to 55.3% vs 111.0% in Q1 .
  • Asset quality stable with merger-related mix: NPLs/loans at 0.66% (PCD-driven); allowance coverage edged up to 1.19% .
  • Hedging and funding: Pay-fixed swaps ($351M notional) and $1.2B pledged borrowing capacity underpin liquidity; cost of funds trending down supports NIM resilience if rates drift lower .
  • Trading implications: Near term, the beat and confident tone could be a catalyst; medium term, watch accretion roll-off, deposit cost trajectory, and organic loan growth to gauge durability of margin expansion .

Notes:

  • Company total revenue is defined here as GAAP net interest income plus total noninterest income, per company disclosures .
  • Values marked with an asterisk (*) are retrieved from S&P Global.