10-K: ChoiceOne Financial Services Reports Increased Net Income and Strategic Balance Sheet Management in 2024

ChoiceOne Financial Services' net income rose to $26.7 million in 2024, driven by strategic balance sheet management and core loan growth.

Summary

• ChoiceOne Financial Services, Inc. reported a net income of $26.7 million for 2024, compared to $21.3 million in 2023.
• Diluted earnings per share increased to $3.25 in 2024 from $2.82 in 2023.
• Adjusted net income, excluding merger-related expenses, was $27.7 million, with adjusted diluted earnings per share at $3.37.
• Total assets reached $2.7 billion as of December 31, 2024, up from $2.58 billion the previous year.
• Net loans increased to $1.5 billion, while total deposits excluding brokered deposits grew to $2.2 billion.
• The company recognized consolidated net income of $26.7 million for the year ended December 31, 2024.
• Interest and fees on loans accounted for 64% of total revenues in 2024, compared to 60% in 2023.
• Interest on securities accounted for 19% of total revenues in 2024, compared to 24% in 2023.
• The company's allowance for credit losses to total loans was 1.07% on December 31, 2024, compared to 1.11% on December 31, 2023.
• Nonperforming loans to total loans were 0.24% as of December 31, 2024.
• Noninterest income increased by $3.1 million, driven by higher credit and debit card fees and earnings on life insurance policies.
• Noninterest expense increased by $3.6 million, including $1.0 million in merger-related expenses.
• Cash dividends declared were $1.09 per common share in 2024, compared to $1.05 in 2023.
• The effective tax rate was 19.2% for 2024, compared to 16.8% in 2023.

Sentiment

Score: 7

Explanation: The document presents a positive outlook with increased net income and strategic balance sheet management, but also acknowledges risks and challenges, resulting in a moderately positive sentiment.

Positives

• Significant core loan growth of $114.5 million or 8.2% during 2024.
• Increase in deposits, excluding brokered deposits, by $79.0 million or 3.8% during 2024.
• Strong asset quality with low net loan charge-offs to average loans of 0.03%.
• Available borrowing capacity secured by pledged assets was $837.2 million at December 31, 2024.
• ChoiceOne Bank remains well-capitalized with a total risk-based capital ratio of 12.7% as of December 31, 2024.

Negatives

• Noninterest expense increased by $3.6 million or 6.6% in 2024, due in part to merger related expenses of $1.0 million.
• Unrealized losses on investment securities totaled $116.6 million at December 31, 2024.
• Cost of deposits to average total deposits increased from 1.14% in 2023 to 1.58% in 2024.

Risks

• The company is exposed to risks associated with commercial and residential real estate.
• Changes in interest rates could reduce the company's income and cash flow.
• Cybersecurity incidents could disrupt business operations and result in the loss of critical and confidential information.
• The company relies heavily on its management and other key personnel, and the loss of any of them may adversely affect its operations.
• The company operates in a highly competitive industry and market area.

Future Outlook

Management expects ChoiceOne to declare and pay regular quarterly cash dividends in 2025, although the amount of the quarterly dividends will be dependent on market conditions and ChoiceOne's requirements for cash and capital, among other things.

Management Comments

• ChoiceOne has actively managed its balance sheet to support organic loan growth, strategically shifting from lower-yielding assets to higher-yielding loans.
• ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits and FHLB advances to ensure ample liquidity.
• ChoiceOne seeks to strategically manage costs while still making thoughtful investments in order to maintain our competitive edge and deliver exceptional value to our customers, shareholders, and communities.

Industry Context

The company operates in a highly competitive environment, facing competition from larger commercial banks, savings and loan associations, credit unions, internet banks, and other financial technology companies.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or comparable companies.
• However, it does mention that ChoiceOne uses benchmark peer loss history data to estimate historical loss rates for its allowance for credit losses.

Related Party Transactions

• Loans to executive officers, directors, and their affiliates totaled $36.18 million at December 31, 2024.
• Deposits from executive officers, directors, and their affiliates were $25.5 million at December 31, 2024.

Stakeholder Impact

• Shareholders will benefit from increased net income and potential dividend payments.
• Customers will continue to have access to a variety of financial services.
• Employees may experience changes due to the merger with Fentura Financial, Inc.

Next Steps

• The consolidation of The State Bank with and into ChoiceOne Bank is expected to be completed on March 14, 2025.
• The Risk Committee plans to continue to monitor the ratio of rate-sensitive assets to rate-sensitive liabilities on a quarterly basis in 2025.
• The Risk Committee plans to continue to monitor the effect of changes in interest rates on both net interest income and shareholders equity and will make changes in the duration of its rate-sensitive assets and rate-sensitive liabilities where necessary.

Key Dates