ChoiceOne Reports Second Quarter 2024 Results

Rhea-AI Summary

ChoiceOne Financial Services (NASDAQ: COFS) reported strong financial results for Q2 2024. Net income increased to $6,586,000, up 26.3% year-over-year. Diluted EPS rose to $0.87, compared to $0.69 in Q2 2023. The GAAP net interest margin improved to 2.95%, up from 2.79% in Q2 2023. Core loans grew organically by $12.4 million (3.6% annualized) in Q2 2024 and $175.6 million (14.3%) year-over-year. Deposits, excluding brokered deposits, increased by $64.5 million (3.2%) over the past 12 months. Asset quality remains strong with nonperforming loans at just 0.16% of total loans. The company's strategic use of interest rate swaps has contributed to improved financial performance and positioning in various rate environments.

Positive

• Net income increased 26.3% year-over-year to $6,586,000 in Q2 2024
• Diluted EPS rose to $0.87, up from $0.69 in Q2 2023
• GAAP net interest margin improved to 2.95%, up from 2.79% in Q2 2023
• Core loans grew organically by $175.6 million (14.3%) year-over-year
• Deposits, excluding brokered deposits, increased by $64.5 million (3.2%) over the past 12 months
• Asset quality remains strong with nonperforming loans at just 0.16% of total loans
• Total available borrowing capacity from all sources was $759.5 million as of June 30, 2024
• Shareholders' equity increased to $214.5 million, up from $179.2 million as of June 30, 2023

Negative

• Deposits, excluding brokered deposits, decreased $44.4 million (8.3% annualized) in Q2 2024
• Deposit costs rose to an annualized 1.56% in Q2 2024, compared to 0.98% in Q2 2023
• Interest expense on borrowings increased $1.1 million in Q2 2024 compared to Q2 2023
• Total cost of funds increased to an annualized 1.92% in Q2 2024, up from 1.29% in Q2 2023
• Noninterest expense increased by $705,000 (5.2%) in Q2 2024 compared to Q2 2023

Insights

Financial Analyst

ChoiceOne Financial Services' Q2 2024 results demonstrate robust performance and strategic financial management. The company reported net income of $6,586,000 for Q2 2024, a significant 26.3% year-over-year increase. This growth is primarily attributed to improved net interest margin and effective use of interest rate swaps.

Key financial highlights include:

• Diluted EPS increased to $0.87 in Q2 2024 from $0.69 in Q2 2023
• GAAP net interest margin rose to 2.95% in Q2 2024, up from 2.79% in Q2 2023
• Core loans grew by 14.3% year-over-year
• Deposits (excluding brokered) increased by 3.2% over the past 12 months

The bank's strategic use of pay-fixed interest rate swaps has been particularly effective, contributing $974,000 to net interest income in Q2 2024. This hedging strategy has helped mitigate the impact of rising interest rates on the bank's financial position.

Asset quality remains strong, with nonperforming loans at just 0.16% of total loans. The bank's capital position is solid, with a total risk-based capital ratio of 13.2%, well above regulatory requirements.

While deposit costs have increased due to the rising rate environment, ChoiceOne's proactive management and use of hedging instruments have helped control these costs. The bank's ability to grow its loan portfolio while maintaining strong asset quality in a challenging economic environment is commendable.

Overall, ChoiceOne's Q2 2024 results reflect a well-managed financial institution successfully navigating a complex interest rate environment while delivering value to shareholders.

Banking Industry Expert

ChoiceOne's Q2 2024 results highlight the bank's adept navigation of the current banking landscape. The institution's performance is particularly noteworthy given the challenges facing the banking sector, including deposit competition and interest rate volatility.

Several aspects of ChoiceOne's strategy stand out:

• Effective interest rate risk management: The use of pay-fixed interest rate swaps has significantly boosted net interest margin, demonstrating foresight in hedging against rate fluctuations.
• Strong organic loan growth: The 14.3% year-over-year increase in core loans indicates robust demand and effective customer relationships.
• Deposit stability: Despite industry-wide pressures, ChoiceOne has managed to grow its deposit base by 3.2% over the past year, reflecting customer confidence.
• Prudent liquidity management: The bank's use of multiple funding sources, including brokered deposits and the BTFP, ensures ample liquidity ($759.5 million in available borrowing capacity).

The bank's focus on technology and customer relationships aligns with industry trends towards digital transformation and personalized banking services. However, the 35.5% of uninsured deposits warrants attention, as it could pose a risk in a stressed scenario.

ChoiceOne's ability to improve its net interest margin in a rising rate environment, coupled with its strong asset quality, positions it well among its peers. The strategic closure of two branches in Q1 2024 also indicates a willingness to optimize operations and manage costs effectively.

As the banking industry continues to face challenges from economic uncertainties and technological disruption, ChoiceOne's balanced approach to growth, risk management and operational efficiency sets a positive example for regional banks navigating these complex times.

SPARTA, Mich., July 25, 2024 /PRNewswire/ -- ChoiceOne Financial Services, Inc. ("ChoiceOne", NASDAQ: COFS), the parent company for ChoiceOne Bank, reported financial results for the quarter ended June 30, 2024.

 Financial Highlights

• ChoiceOne reported net income of $6,586,000 and $12,220,000 for the three and six months ended June 30, 2024, compared to $5,213,000 and $10,846,000 for the same periods in 2023, representing annualized growth of 26.3% and 12.7%, respectively.
• Diluted earnings per share were $0.87 and $1.61 in the three and six months ended June 30, 2024, compared to $0.69 and $1.44 per share in the same periods in the prior year.
• GAAP Net interest margin in the second quarter of 2024 increased to 2.95%, compared to 2.67% in the first quarter of 2024, and 2.79% in the second quarter of 2023. GAAP net interest income was $18.4 million in the second quarter of 2024 compared to $16.1 million in the second quarter of 2023. Net interest income was aided by cash settlements from pay-fixed interest rate swaps which started paying in April 2024.
• Core loans, which exclude held for sale loans and loans to other financial institutions, grew organically by $12.4 million or 3.6% on an annualized basis during the second quarter of 2024 and $175.6 million or 14.3% since June 30, 2023. Loan interest income increased $6.0 million in the second quarter of 2024 compared to the same period in 2023.
• Deposits, excluding brokered deposits, decreased $44.4 million or an annualized 8.3% in the second quarter of 2024 and increased $64.5 million or 3.2% during the twelve months since June 30, 2023. The decrease in deposits in the second quarter was largely public funds including schools and townships which historically fluctuate with summer tax bill collection in July. The increase in deposits in the trailing twelve months is a combination of new business and recapture of deposit losses from the prior year.
• Asset quality remains strong with only 0.16% of nonperforming loans to total loans (excluding held for sale) as of June 30, 2024.

"As we navigate through the evolving economic landscape, our bank has achieved consistent growth due to our strong team, technology, and relationships we have with our customers. Our strategic efforts have improved our net interest margin, bolstered by the use of derivative instruments which contribute positive cashflow. These steps have strengthened our financial base, so that ChoiceOne is well positioned to handle the market's fluctuations in different rate environments," said Kelly Potes, Chief Executive Officer. 

ChoiceOne reported net income of $6,586,000 and $12,220,000 for the three and six months ended June 30, 2024, compared to $5,213,000 and $10,846,000 for the same periods in 2023.  Diluted earnings per share were  $0.87 and $1.61 in the three and six months ended June 30, 2024, compared to $0.69 and $1.44 per share in the same periods in the prior year.  ChoiceOne experienced modest growth in our loan portfolio and a slight reduction in deposit balances. Despite these fluctuations, both net income and net interest margin have increased largely due to the commencement of cash flows from our pay-fixed interest rate swaps.

As of June 30, 2024, total assets were $2.6 billion, an increase of $139.3 million compared to June 30, 2023.  The growth is primarily attributed to an increase in core loans of $175.6 million, and an increase in cash of $24.2 million.  This growth was offset by a $62.1 million reduction in securities during the same time period. ChoiceOne has actively managed its liquidity to support organic loan growth, strategically shifting from lower-yielding assets to higher-yielding loans. This is reflected in the loan growth observed since June 30, 2023.

Deposits, excluding brokered deposits, decreased $44.4 million or an annualized 8.3% in the second quarter of 2024 and increased $64.5 million or 3.2% during the twelve months since June 30, 2023.  The decrease in deposits in the second quarter was largely public funds including schools and townships which historically fluctuate with summer tax bill collection in July.   The increase in deposits in the trailing twelve months is a combination of new business and recapture of deposit losses from the prior year. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits, the Bank Term Funding Program ("BTFP"), and FHLB advances to ensure ample liquidity.  At June 30, 2024, total available borrowing capacity from all sources was $759.5 million.   Uninsured deposits totaled $754.4 million or 35.5% of deposits at June 30, 2024.

Increases to short term interest rates have led to higher deposit costs, which rose to an annualized 1.56% in the second quarter of 2024, compared to an annualized 0.98% in the second quarter of 2023.  As deposits reprice and customers shift to certificates of deposits and other interest bearing products, this trend is likely to persist.  Deposit costs have declined since the first quarter of 2024 due to positive cash flow from pay-fixed interest rate swaps, hedged against deposits, decreasing deposit expenses. ChoiceOne is taking active measures to control these costs and expects to pay lower rates on deposits than the federal funds rate.  Interest expense on borrowings for the three and six months ended June 30, 2024 increased $1.1 million and $3.2 million compared to the same period in the prior year, due to increases in borrowing amounts and interest rates.  Borrowings include $170 million from the BTFP and $40 million of FHLB borrowings at a weighted average fixed rate of 4.7%, with the earliest maturity in January 2025.  Total cost of funds increased to an annualized 1.92% in the second quarter of 2024 compared to an annualized 2.0% in the first quarter of 2024 and an annualized 1.29% in the second quarter of 2023.

The provision for credit losses expense on loans was $272,000 in the second quarter of 2024, due in part to loan growth during the quarter.  This was offset by a reversal of the provision for unfunded commitments leading to net provision for credit losses expense for the second quarter 2024 of $0.  The ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 1.12% on June 30, 2024 compared to 1.15% on June 30, 2023.  Asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.04% and nonperforming loans to total loans (excluding loans held for sale) of 0.16% as of June 30, 2024.     

ChoiceOne uses interest rate swaps to manage interest rate exposure to certain fixed assets and variable rate liabilities.  On June 30, 2024, ChoiceOne had 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 to 8 years.  These derivative instruments increase in value as long-term interest rates rise, which offsets the reduction in equity due to unrealized losses on securities available for sale.  Included in the total is $200.0 million of forward starting pay-fixed, receive floating interest rate swaps used to hedge interest bearing liabilities.  These forward starting swaps pay a fixed coupon of 2.75% while receiving SOFR.  Settlements from these swaps amounted to $974,000 for the second quarter of 2024 and were a contributing factor to the increase in net interest margin during the second quarter of 2024.  Fully tax equivalent net interest margin excluding the swaps was 28 basis points lower than tax equivalent net interest margin reported for the second quarter of 2024.

Shareholders' equity totaled $214.5 million as of June 30, 2024, up from $179.2 million as of June 30, 2023.  This increase is due to increased retained earnings and an improvement in accumulated other compressive loss (AOCI) of $19.6 million compared to June 30, 2023.  The improvement in AOCI, despite the rise in interest rates, is due to both the shortening duration and maturing (paydowns) of the securities portfolio, as well as an increase in unrealized gain of the pay-fixed swap derivatives.  ChoiceOne Bank remains "well-capitalized" with a total risk-based capital ratio of 13.2% as of June 30, 2024, compared to 12.7% on June 30, 2023.

Noninterest income increased $598,000 and $978,000 in the three and six months ended June 30, 2024, compared to the same periods in the prior year.  The increase was largely due to an increase in customer service charges of $391,000 and $529,000 in the three and six months ended June 30, 2024 compared to the same period in 2023 and changes in the market value of equity securities in the three and six months ended June 30, 2024, compared to the same period in the prior year.  In addition, ChoiceOne recognized earnings on a bank owned life insurance death benefit claim in the amount of $196,000 during the first quarter of 2024.

Noninterest expense increased by $705,000 or 5.2% and $394,000 or 1.4% in the three and six months ended June 30, 2024 compared to the same period in 2023. The increase in total noninterest expense was due to an increase in employee health insurance benefits and an increase to FDIC insurance and other costs related to inflationary pressures.  This was offset by a decline in occupancy and equipment related to two branch closures during the first quarter of 2024.  Management continues to seek out ways to manage costs, but also recognizes the value of investing in innovation and attracting the best talent in our industry to compete effectively in our markets.

"I am very pleased with the results of the second quarter of 2024, showing an improving net interest margin and excellent credit metrics. Our experienced team has positioned ChoiceOne to grow our franchise, improve our technology, and offer a high level of service to customers.  We remain committed to our communities, customers, and stakeholders and sincerely appreciate the trust they put in us as their local financial partner." said Kelly Potes, Chief Executive Officer.  

About ChoiceOne

ChoiceOne Financial Services, Inc. is a financial holding company headquartered in Sparta, Michigan and the parent corporation of ChoiceOne Bank, Member FDIC. ChoiceOne Bank operates 35 offices in parts of Kent, Lapeer, Macomb, Muskegon, Newaygo, Ottawa, and St. Clair counties. ChoiceOne Bank offers insurance and investment products through its subsidiary, ChoiceOne Insurance Agencies, Inc. For more information, please visit Investor Relations at ChoiceOne's website at choiceone.bank.

Forward-Looking Statements

This release may contain forward-looking statements. 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. These statements reflect current beliefs as to the expected outcomes of future events and are not guarantees of future performance. These statements 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 described in Item 1A in ChoiceOne Financial Services, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2023.

Condensed Balance Sheets (Unaudited)
(In thousands)		June 30, 2024				March 31, 2024				June 30, 2023
Cash and cash equivalents		$	101,002			$	150,129			$	76,810
Equity securities, at fair value			7,502				7,560				8,299
Securities Held to Maturity			392,699				397,981				420,549
Securities Available for Sale			491,670				504,636				521,202
Federal Home Loan Bank stock			4,449				4,449				8,366
Federal Reserve Bank stock			5,066				5,066				5,065
Loans held for sale			5,946				6,035				8,924
Loans to other financial institutions			36,569				30,032				38,838
Core loans			1,400,958				1,388,558				1,225,390
Total loans held for investment			1,437,527				1,418,590				1,264,228
Allowance for credit losses			(16,152)				(16,037)				(14,582)
Loans, net of allowance for credit losses			1,421,375				1,402,553				1,249,646
Premises and equipment			27,370				28,268				29,085
Cash surrender value of life insurance policies			45,384				45,079				44,510
Goodwill			59,946				59,946				59,946
Core deposit intangible			1,448				1,651				2,304
Other assets			59,210				57,346				49,020
Total Assets		$	2,623,067			$	2,670,699			$	2,483,726
Noninterest-bearing deposits		$	517,137			$	502,685			$	544,925
Interest-bearing deposits			1,582,365				1,641,193				1,490,093
Brokered deposits			27,177				41,970				51,370
Borrowings			210,000				210,000				160,000
Subordinated debentures			35,630				35,568				35,385
Other liabilities			36,239				32,527				22,713
Total Liabilities			2,408,548				2,463,943				2,304,486
Common stock and paid-in capital, no par value; shares authorized: 15,000,000; shares outstanding: 7,573,618 at June 30, 2024, 7,556,137 at March 31, 2024, and 7,534,658 at June 30, 2023			173,984				173,786				172,880
Retained earnings			81,836				77,294				67,281
Accumulated other comprehensive income (loss), net			(41,301)				(44,324)				(60,921)
Shareholders' Equity			214,519				206,756				179,240
Total Liabilities and Shareholders' Equity		$	2,623,067			$	2,670,699			$	2,483,726

Condensed Statements of Income (Unaudited)
		Three Months Ended								Six Months Ended
(Dollars in thousands, except per share data)		June 30,								June 30,
		2024				2023				2024				2023
Interest income
Loans, including fees		$	21,971			$	15,978			$	42,757			$	30,851
Securities:
Taxable			5,471				5,378				10,819				10,291
Tax exempt			1,410				1,389				2,822				2,824
Other			1,092				571				1,978				748
Total interest income			29,944				23,316				58,376				44,714
Interest expense
Deposits			8,325				5,056				17,102				8,332
Advances from Federal Home Loan Bank			463				621				904				1,226
Other			2,785				1,548				5,525				2,053
Total interest expense			11,573				7,225				23,531				11,611
Net interest income			18,371				16,091				34,845				33,103
Provision for credit losses on loans			272				(415)				675				(106)
Provision for credit losses on unfunded commitments			(272)				165				(675)				(119)
Net Provision for credit losses expense			-				(250)				-				(225)
Net interest income after provision			18,371				16,341				34,845				33,328
Noninterest income
Customer service charges			2,662				2,271				5,067				4,538
Insurance and investment commissions			190				172				388				368
Gains on sales of loans			525				540				979				943
Net gains (losses) on sales of securities			-				-				-				-
Net gains (losses) on sales and write downs of other assets			11				133				12				136
Earnings on life insurance policies			305				269				800				532
Trust income			220				196				433				380
Change in market value of equity securities			(71)				(385)				(36)				(322)
Other			241				289				491				581
Total noninterest income			4,083				3,485				8,134				7,156
Noninterest expense
Salaries and benefits			8,264				7,837				16,095				15,920
Occupancy and equipment			1,477				1,507				2,939				3,150
Data processing			1,780				1,681				3,450				3,363
Professional fees			593				619				1,208				1,240
Supplies and postage			168				197				346				388
Advertising and promotional			199				155				349				304
Intangible amortization			203				253				406				505
FDIC insurance			390				220				765				520
Other			1,204				1,104				2,404				2,178
Total noninterest expense			14,278				13,573				27,962				27,568
Income before income tax			8,176				6,253				15,017				12,916
Income tax expense			1,590				1,040				2,797				2,070
Net income		$	6,586			$	5,213			$	12,220			$	10,846
Basic earnings per share		$	0.87			$	0.69			$	1.62			$	1.44
Diluted earnings per share		$	0.87			$	0.69			$	1.61			$	1.44
Dividends declared per share		$	0.27			$	0.26			$	0.54			$	0.52

Other Selected Financial Highlights
(Unaudited)
		Quarterly
Earnings		2024  2nd Qtr.				2024 1st Qtr.				2023 4th Qtr.				2023 3rd Qtr.				2023 2nd Qtr.
(in thousands except per share data)
Net interest income		$	18,371			$	16,474			$	16,556			$	16,226			$	16,091
Net provision expense			-				-				375				-				(250)
Noninterest income			4,083				4,051				4,046				3,704				3,485
Noninterest expense			14,278				13,684				13,778				13,728				13,573
Net income before federal income tax expense			8,176				6,841				6,449				6,202				6,253
Income tax expense			1,590				1,207				1,156				1,080				1,040
Net income			6,586				5,634				5,293				5,122				5,213
Basic earnings per share			0.87				0.75				0.70				0.68				0.69
Diluted earnings per share			0.87				0.74				0.70				0.68				0.69
End of period balances		2024  2nd Qtr.				2024 1st Qtr.				2023 4th Qtr.				2023 3rd Qtr.				2023 2nd Qtr.
(in thousands)
Gross loans		$	1,443,473			$	1,424,625			$	1,415,363			$	1,315,022			$	1,273,152
Loans held for sale (1)			5,946				6,035				4,710				5,222				8,924
Loans to other financial institutions (2)			36,569				30,032				19,400				23,763				38,838
Core loans (gross loans excluding 1 and 2 above)			1,400,958				1,388,558				1,391,253				1,286,037				1,225,390
Allowance for credit losses			16,152				16,037				15,685				14,872				14,582
Securities available for sale			491,670				504,636				514,598				490,804				521,202
Securities held to maturity			392,699				397,981				407,959				414,743				420,549
Other interest-earning assets			84,484				100,175				39,411				130,178				62,762
Total earning assets (before allowance)			2,412,326				2,427,417				2,377,331				2,350,747				2,277,665
Total assets			2,623,067				2,670,699				2,576,706				2,574,196				2,483,726
Noninterest-bearing deposits			517,137				502,685				547,625				531,962				544,925
Interest-bearing deposits			1,582,365				1,641,193				1,550,985				1,551,995				1,490,093
Brokered deposits			27,177				41,970				23,445				49,238				51,370
Total deposits			2,126,679				2,185,848				2,122,055				2,133,195				2,086,388
Deposits excluding brokered			2,099,502				2,143,878				2,098,610				2,083,957				2,035,018
Total subordinated debt			35,630				35,568				35,507				35,446				35,385
Total borrowed funds			210,000				210,000				200,000				180,000				160,000
Other interest-bearing liabilities			22,378				21,512				8,060				32,204				11,985
Total interest-bearing liabilities			1,877,550				1,950,243				1,817,997				1,848,883				1,748,833
Shareholders' equity			214,519				206,756				195,634				181,161				179,240
Average Balances		2024  2nd Qtr.				2024 1st Qtr.				2023 4th Qtr.				2023 3rd Qtr.				2023 2nd Qtr.
(in thousands)
Loans		$	1,435,966			$	1,412,569			$	1,359,643			$	1,278,421			$	1,218,860
Securities			986,281				1,002,140				1,019,218				1,035,785				1,053,191
Other interest-earning assets			80,280				64,064				92,635				128,704				41,075
Total earning assets (before allowance)			2,502,527				2,478,773				2,471,496				2,442,910				2,313,126
Total assets			2,647,716				2,621,009				2,589,541				2,568,240				2,422,567
Noninterest-bearing deposits			516,308				506,175				546,778				540,497				534,106
Interest-bearing deposits			1,601,020				1,599,509				1,565,493				1,550,591				1,472,990
Brokered deposits			34,218				34,708				32,541				44,868				49,679
Total deposits			2,151,546				2,140,392				2,144,812				2,135,956				2,056,775
Total subordinated debt			35,596				35,535				35,474				35,413				35,352
Total borrowed funds			210,000				214,835				185,707				181,739				144,231
Other interest-bearing liabilities			26,426				18,399				25,729				19,180				3,763
Total interest-bearing liabilities			1,907,260				1,902,986				1,844,944				1,831,791				1,706,015
Shareholders' equity			210,742				200,177				187,099				181,219				171,912
Loan Breakout (in thousands)		2024  2nd Qtr.				2024 1st Qtr.				2023 4th Qtr.				2023 3rd Qtr.				2023 2nd Qtr.
Agricultural		$	45,274			$	41,950			$	49,210			$	43,290			$	40,684
Commercial and Industrial			224,031				231,222				229,915				222,357				224,191
Commercial Real Estate			804,213				794,705				786,921				709,960				657,549
Consumer			32,811				34,268				36,541				37,605				38,614
Construction Real Estate			18,751				17,890				20,936				16,477				16,734
Residential Real Estate			275,878				268,523				267,730				256,348				247,618
Loans to Other Financial Institutions			36,569				30,032				19,400				23,763				38,838
Gross Loans (excluding held for sale)		$	1,437,527			$	1,418,590			$	1,410,653			$	1,309,800			$	1,264,228
Allowance for credit losses			16,152				16,037				15,685				14,872				14,582
Net loans		$	1,421,375			$	1,402,553			$	1,394,968			$	1,294,928			$	1,249,646
Performance Ratios		2024  2nd Qtr.				2024 1st Qtr.				2023 4th Qtr.				2023 3rd Qtr.				2023 2nd Qtr.
Annualized return on average assets			0.99	%			0.86	%			0.82	%			0.80	%			0.86	%
Annualized return on average equity			12.50	%			11.26	%			11.32	%			11.31	%			12.13	%
Annualized return on average tangible common equity			17.22	%			15.81	%			16.40	%			16.55	%			18.31	%
Net interest margin (GAAP)			2.95	%			2.67	%			2.66	%			2.64	%			2.79	%
Net interest margin (fully tax-equivalent)			3.01	%			2.74	%			2.72	%			2.70	%			2.86	%
Efficiency ratio			61.47	%			64.55	%			65.31	%			65.74	%			65.92	%
Annualized cost of funds			1.92	%			2.00	%			1.91	%			1.70	%			1.29	%
Annualized cost of deposits			1.56	%			1.65	%			1.57	%			1.36	%			0.98	%
Cost of interest bearing liabilities			2.44	%			2.53	%			2.45	%			2.18	%			1.70	%
Shareholders' equity to total assets			8.18	%			7.74	%			7.59	%			7.04	%			7.22	%
Tangible common equity to tangible assets			5.98	%			5.56	%			5.32	%			4.74	%			4.83	%
Annualized noninterest expense to average assets			2.16	%			2.09	%			2.13	%			2.14	%			2.24	%
Loan to deposit			67.87	%			65.17	%			66.70	%			61.65	%			61.02	%
Full-time equivalent employees			368				367				369				376				380
Capital Ratios ChoiceOne Financial Services Inc.		2024  2nd Qtr.				2024 1st Qtr.				2023 4th Qtr.				2023 3rd Qtr.				2023 2nd Qtr.
Total capital (to risk weighted assets)			13.5	%			13.3	%			13.0	%			13.2	%			13.2	%
Common equity Tier 1 capital (to risk weighted assets)			10.7	%			10.5	%			10.3	%			10.4	%			10.5	%
Tier 1 capital (to risk weighted assets)			10.9	%			10.7	%			10.5	%			10.7	%			10.8	%
Tier 1 capital (to average assets)			7.7	%			7.6	%			7.5	%			7.4	%			7.7	%
Capital Ratios ChoiceOne Bank		2024  2nd Qtr.				2024 1st Qtr.				2023 4th Qtr.				2023 3rd Qtr.				2023 2nd Qtr.
Total capital (to risk weighted assets)			13.2	%			12.6	%			12.4	%			12.7	%			12.7	%
Common equity Tier 1 capital (to risk weighted assets)			12.5	%			11.8	%			11.8	%			12.0	%			12.2	%
Tier 1 capital (to risk weighted assets)			12.5	%			11.8	%			11.8	%			12.0	%			12.2	%
Tier 1 capital (to average assets)			8.8	%			8.3	%			8.4	%			8.3	%			8.7	%
Asset Quality		2024  2nd Qtr.				2024 1st Qtr.				2023 4th Qtr.				2023 3rd Qtr.				2023 2nd Qtr.
(in thousands)
Net loan charge-offs (recoveries)		$	157			$	51			$	120			$	148			$	67
Annualized net loan charge-offs (recoveries) to average loans			0.04	%			0.01	%			0.04	%			0.05	%			0.02	%
Allowance for credit losses		$	16,152			$	16,037			$	15,685			$	14,872			$	14,582
Unfunded commitment liability		$	1,485			$	1,757			$	2,160			$	2,718			$	3,156
Allowance to loans (excludes held for sale)			1.12	%			1.13	%			1.11	%			1.14	%			1.15	%
Total funds reserved to pay for loans (includes liability for unfunded commitments and excludes held for sale)			1.23	%			1.25	%			1.27	%			1.34	%			1.40	%
Non-Accruing loans		$	2,086			$	1,715			$	1,723			$	1,670			$	1,581
Nonperforming loans (includes OREO)		$	2,358			$	1,837			$	1,845			$	1,792			$	1,847
Nonperforming loans to total loans (excludes held for sale)			0.16	%			0.13	%			0.13	%			0.14	%			0.15	%
Nonperforming assets to total assets			0.09	%			0.07	%			0.07	%			0.07	%			0.07	%
NON-GAAP Reconciliation		2024  2nd Qtr.				2024 1st Qtr.				2023 4th Qtr.				2023 3rd Qtr.				2023 2nd Qtr.
Net interest income (tax-equivalent basis) (Non-GAAP)		$	18,756			$	16,871			$	16,945			$	16,609			$	16,468
Net interest margin (fully tax-equivalent)			3.01	%			2.74	%			2.72	%			2.70	%			2.86	%
Reconciliation to Reported Net Interest Income
Net interest income (tax-equivalent basis) (Non-GAAP) (1)		$	18,756			$	16,871			$	16,945			$	16,609			$	16,468
Adjustment for taxable equivalent interest			(385)				(397)				(390)				(383)				(377)
Net interest income  (GAAP)		$	18,371			$	16,474			$	16,555			$	16,226			$	16,091
Net interest margin (GAAP)			2.95	%			2.67	%			2.66	%			2.64	%			2.79	%

	Three Months Ended June 30,
	2024												2023
(Dollars in thousands)	Average												Average
	Balance				Interest				Rate				Balance				Interest				Rate
Assets:
Loans (1)(3)(4)(5)	$	1,435,966			$	21,981				6.16		%	$	1,218,860			$	15,986				5.26		%
Taxable securities (2)		696,023				5,471				3.16				756,239				5,378				2.85
Nontaxable securities (1)		290,258				1,785				2.47				296,952				1,758				2.38
Other		80,280				1,092				5.47				41,075				571				5.57
Interest-earning assets		2,502,527				30,329				4.87				2,313,126				23,693				4.11
Noninterest-earning assets		145,189												109,441
Total assets	$	2,647,716											$	2,422,567
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits	$	876,344			$	2,921				1.34		%	$	815,179			$	1,905				0.94		%
Savings deposits		333,056				649				0.78				372,651				345				0.37
Certificates of deposit		391,620				4,331				4.45				285,160				2,225				3.13
Brokered deposit		34,218				424				4.98				49,679				581				4.69
Borrowings		210,000				2,480				4.75				144,231				1,717				4.78
Subordinated debentures		35,596				412				4.65				35,352				407				4.62
Other		26,426				356				5.41				3,763				45				4.81
Interest-bearing liabilities		1,907,260				11,573				2.44				1,706,015				7,225				1.70
Demand deposits		516,308												534,106
Other noninterest-bearing liabilities		13,406												10,534
Total liabilities		2,436,974												2,250,655
Shareholders' equity		210,742												171,912
Total liabilities and shareholders' equity	$	2,647,716											$	2,422,567
Net interest income (tax-equivalent basis) (Non-GAAP) (1)					$	18,756											$	16,468
Net interest margin (tax-equivalent basis) (Non-GAAP) (1)										3.01		%										2.86		%
Reconciliation to Reported Net Interest Income
Net interest income (tax-equivalent basis) (Non-GAAP) (1)					$	18,756											$	16,468
Adjustment for taxable equivalent interest						(385)												(377)
Net interest income  (GAAP)					$	18,371											$	16,091
Net interest margin (GAAP)										2.95		%										2.79		%

(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 $1.9 million and $1.6 million in the second quarter of 2024 and 2023, respectively.
(5)	Interest on loans included net origination fees and accretion income.  Accretion income was $279,000 and $444,000 in the second quarter of 2024 and 2023, respectively.

 

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SOURCE ChoiceOne Financial Services, Inc.

FAQ

What was ChoiceOne's (COFS) net income for Q2 2024?

ChoiceOne (COFS) reported net income of $6,586,000 for Q2 2024, representing a 26.3% increase compared to Q2 2023.

How much did ChoiceOne's (COFS) core loans grow in Q2 2024?

ChoiceOne's (COFS) core loans grew organically by $12.4 million or 3.6% on an annualized basis during Q2 2024.

What was ChoiceOne's (COFS) GAAP net interest margin in Q2 2024?

ChoiceOne's (COFS) GAAP net interest margin in Q2 2024 increased to 2.95%, up from 2.67% in Q1 2024 and 2.79% in Q2 2023.

How did ChoiceOne's (COFS) deposits change in Q2 2024?

ChoiceOne's (COFS) deposits, excluding brokered deposits, decreased by $44.4 million or an annualized 8.3% in Q2 2024, primarily due to seasonal fluctuations in public funds.

What was ChoiceOne's (COFS) diluted earnings per share for Q2 2024?

ChoiceOne's (COFS) diluted earnings per share for Q2 2024 were $0.87, compared to $0.69 per share in Q2 2023.