UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
☒
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2026
☐
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to .
Commission File Number: 001-39209
ChoiceOne Financial Services, Inc.
(Exact Name of Registrant as Specified in its Charter)
Michigan (State or Other Jurisdiction of Incorporation or Organization)
38-2659066 (I.R.S. Employer Identification No.)
109 East Division Sparta, Michigan (Address of Principal Executive Offices)
49345 (Zip Code)
(616) 887-7366 (Registrant’s Telephone Number, including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer☒
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common stock
COFS
NASDAQ Capital Market
As of April 30, 2026, the Registrant had 14,975,035 shares of common stock outstanding.
Common stock and paid-in capital, no par value; shares authorized: 30,000,000; shares outstanding: 14,960,200 at March 31, 2026 and 15,000,939 at December 31, 2025
397,498
398,386
Retained earnings
112,008
102,641
Accumulated other comprehensive loss, net
(39,505
)
(35,674
)
Total shareholders’ equity
470,001
465,353
Total liabilities and shareholders’ equity
$
4,394,565
$
4,410,551
See accompanying notes to interim consolidated financial statements.
3
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended
(Dollars in thousands, except share data)
March 31,
2026
2025
Interest income
Loans, including fees
$
45,642
$
32,641
Securities:
Taxable
5,492
4,730
Tax exempt
1,451
1,409
Other
690
1,179
Total interest income
53,275
39,959
Interest expense
Deposits
13,745
10,716
Advances from Federal Home Loan Bank
2,182
2,052
Other
706
880
Total interest expense
16,633
13,648
Net interest income
36,642
26,311
Provision for (reversal of) credit losses on loans
-
13,163
Provision for (reversal of) credit losses on unfunded commitments
-
-
Net Provision for (reversal of) credit losses expense
-
13,163
Net interest income after provision
36,642
13,148
Noninterest income
Customer service charges
1,656
1,181
Interchange income
1,892
1,509
Insurance and investment commissions
551
295
Gains on sales of loans
408
444
Net gains (losses) on sales of securities
(203
)
-
Net gains on sales and write downs of other assets
9
10
Earnings on life insurance policies
584
389
Trust income
692
506
Change in market value of equity securities
26
107
Other
200
481
Total noninterest income
5,815
4,922
Noninterest expense
Salaries and benefits
14,062
10,320
Occupancy and equipment
2,591
1,719
Data processing
2,290
1,999
Communications
555
380
Professional fees
982
697
Supplies and postage
335
244
Advertising and promotional
264
256
Intangible amortization
1,685
680
FDIC insurance
570
455
Merger related expenses
-
17,203
Other
2,442
1,712
Total noninterest expense
25,776
35,665
Income (Loss) before income tax expense (benefit)
16,681
(17,595
)
Income tax expense (benefit)
2,977
(3,689
)
Net income (loss)
$
13,704
$
(13,906
)
Basic earnings (loss) per share (Note 4)
$
0.91
$
(1.30
)
Diluted earnings (loss) per share (Note 4)
$
0.91
$
(1.29
)
Dividends declared per share
$
0.29
$
0.28
4
See accompanying notes to interim consolidated financial statements.
5
ChoiceOne Financial Services, Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three Months Ended
(Dollars in thousands)
March 31,
2026
2025
Net income
$
13,704
$
(13,906
)
Other comprehensive income:
Change in net unrealized gain (loss) on available-for-sale securities
(1,941
)
99
Income tax benefit (expense)
408
(21
)
Less: reclassification adjustment for net (gain) loss included in net income
203
-
Income tax benefit (expense)
(43
)
-
Less: reclassification adjustment for net (gain) loss for fair value hedge
(1,084
)
(4,578
)
Income tax benefit (expense)
228
961
Less: net unrealized (gains) losses on securities transferred from available-for-sale to held-to-maturity
-
-
Income tax benefit (expense)
-
-
Unrealized gain (loss) on available-for-sale securities, net of tax
(2,229
)
(3,539
)
Reclassification of unrealized gain (loss) upon transfer of securities from available-for-sale to held-to-maturity
-
-
Income tax benefit (expense)
-
-
Amortization of net unrealized (gains) losses on securities transferred from available-for-sale to held-to-maturity
61
70
Income tax benefit (expense)
(13
)
(15
)
Unrealized loss on held to maturity securities, net of tax
48
55
Change in net unrealized gain (loss) on cash flow hedge
(1,897
)
(3,948
)
Income tax benefit (expense)
398
830
Less: reclassification adjustment for net (gain) loss on cash flow hedge
-
-
Income tax benefit (expense)
-
-
Less: accretion of net unrealized (gains) losses included in net income
(191
)
73
Income tax benefit (expense)
40
(15
)
Unrealized gain (loss) on cash flow hedge instruments, net of tax
(1,650
)
(3,060
)
Other comprehensive income (loss), net of tax
(3,831
)
(6,544
)
Comprehensive income (loss)
$
9,873
$
(20,450
)
See accompanying notes to interim consolidated financial statements.
6
ChoiceOne Financial Services, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the three months ended March 31,
Accumulated
Common
Other
Stock and
Comprehensive
Number of
Paid in
Retained
Income/(Loss),
(Dollars in thousands, except per share data)
Shares
Capital
Earnings
Net
Total
Balance, January 1, 2025
8,965,483
$
206,780
$
91,414
$
(37,779
)
$
260,415
Net income (loss)
(13,906
)
(13,906
)
Other comprehensive income (loss)
(6,544
)
(6,544
)
Shares issued for directors and employee stock plans
5,515
172
172
Compensation expense for employee stock purchases
13
13
Stock-based compensation expense
177
177
Merger with Fentura Financial, Inc., net of issuance costs
6,064,057
192,770
192,770
Repurchase of shares from Fentura Financial, Inc. ESOP
(57,807
)
(1,837
)
(1,837
)
Cash dividends declared ($0.28 per share)
(4,192
)
(4,192
)
Balance, March 31, 2025
14,977,248
$
398,075
$
73,316
$
(44,323
)
$
427,068
Balance, January 1, 2026
15,000,939
$
398,386
$
102,641
$
(35,674
)
$
465,353
Net income
13,704
13,704
Other comprehensive income (loss)
(3,831
)
(3,831
)
Shares issued for directors and employee stock plans
9,261
255
255
Compensation expense for employee stock purchases
13
13
Stock-based compensation expense
285
285
Shares repurchased
(50,000
)
(1,441
)
(1,441
)
Cash dividends declared ($0.29 per share)
(4,337
)
(4,337
)
Balance, March 31, 2026
14,960,200
$
397,498
$
112,008
$
(39,505
)
$
470,001
7
ChoiceOne Financial Services, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
(Dollars in thousands)
March 31,
2026
2025
Cash flows from operating activities:
Net income (loss)
$
13,704
$
(13,906
)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Provision for (reversal of) credit losses
-
13,163
Depreciation
881
645
Amortization
4,048
2,989
Accretion on purchased loans
(2,691
)
(2,921
)
Accretion of derivative termination (gain) loss
(191
)
73
Compensation expense on employee stock purchase plan, stock options, and restricted stock units
298
190
Net losses (gains) on sales of available for sale securities
203
-
Net change in market value of equity securities
(26
)
(107
)
Gains on sales of loans
(408
)
(444
)
Loans originated for sale
(19,525
)
(12,127
)
Proceeds from loan sales
16,958
15,725
Earnings on bank-owned life insurance
(584
)
(389
)
(Gains) on sales of other real estate owned
(9
)
-
Deferred federal income tax (benefit)/expense
1,053
(3,689
)
Net change in:
Other assets
(5,849
)
42
Other liabilities
(8,039
)
(8,637
)
Net cash (used in) provided by operating activities
(177
)
(9,393
)
Cash flows from investing activities:
Sales of securities available for sale
4,235
78,856
Maturities, prepayments and calls of securities available for sale
8,229
4,477
Maturities, prepayments and calls of securities held to maturity
679
4,060
Purchases of securities available for sale
(34,520
)
(371
)
Purchases of equity securities
(46
)
(75
)
Purchases of securities held to maturity
(250
)
(904
)
Purchase of Federal Home Loan Bank stock
-
(7,050
)
Loan originations and payments, net
41,374
5,022
Proceeds from sales of other real estate owned
248
-
Purchase of bank-owned life insurance policies
(10,923
)
-
Additions to premises and equipment
(1,524
)
(835
)
Proceeds from derivative contracts settlements
7,062
3,636
Cash received from merger with Fentura Financial, Inc.
-
173,082
Net cash provided by (used in) investing activities
14,564
259,898
8
Cash flows from financing activities:
Net change in deposits
67,366
5,745
Net change in short term borrowings
(80,000
)
(207,501
)
Issuance of common stock
255
172
Repurchase of common stock
(1,441
)
(2,059
)
Cash dividends
(4,337
)
(4,192
)
Net provided by (used in) financing activities
(18,157
)
(207,835
)
Net change in cash and cash equivalents
(3,770
)
42,670
Beginning cash and cash equivalents
87,988
96,751
Ending cash and cash equivalents
$
84,218
$
139,421
Supplemental disclosures of cash flow information:
Cash paid for interest
$
17,262
$
11,573
Cash paid for income taxes
-
-
Noncash transactions:
Loans transferred to other real estate
-
157
Acquisition of assets from merger, net of cash
-
1,578,547
Acquisition of liabilities from merger
-
1,625,421
Issuance of common stock as consideration for merger
-
192,992
See accompanying notes to interim consolidated financial statements.
9
ChoiceOne Financial Services, Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include ChoiceOne Financial Services, Inc. (“ChoiceOne”), its wholly-owned subsidiaries, ChoiceOne Bank (the “Bank”) and 109 Technologies, LLC, and ChoiceOne Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. (the “Insurance Agency”). Intercompany transactions and balances have been eliminated in consolidation.
ChoiceOne owns all of the common securities of Community Shores Capital Trust I, Fentura Capital Trust I, and Fentura Capital Trust II (collectively, the “Capital Trusts”). Under U.S. generally accepted accounting principles (“GAAP”), the Capital Trusts are not consolidated because each is a variable interest entity and ChoiceOne is not the primary beneficiary.
On March 1, 2025, ChoiceOne completed the merger (the “Merger”) of Fentura Financial, Inc. (“Fentura”), the former parent company of The State Bank, with and into ChoiceOne with ChoiceOne surviving the merger. On March 14, 2025, ChoiceOne Bank completed the consolidation of The State Bank with and into ChoiceOne Bank with ChoiceOne Bank surviving the consolidation.
The accompanying unaudited consolidated financial statements and notes thereto reflect all adjustments ordinary in nature which are, in the opinion of management, necessary for a fair presentation of such financial statements. Operating results for the three months ended March 31, 2026, are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.
The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2025.
Use of Estimates
To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, ChoiceOne’s management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. These estimates and assumptions are subject to many risks and uncertainties. Actual results may differ from these estimates. Estimates associated with the allowance for credit losses, the unrealized gains and losses on securities available for sale and held to maturity, the fair value of other financial instruments (derivatives), and the fair value measurement of acquired assets and liabilities associated with the Merger are particularly susceptible to change.
Goodwill
Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of the acquired tangible assets and liabilities and identifiable intangible assets. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed.
Core Deposit Intangible
Core deposit intangible represents the value of the acquired customer core deposit bases and is included as an asset on the consolidated balance sheets. The core deposit intangible has an estimated finite life, is amortized on an accelerated basis over its useful life and is subject to periodic impairment evaluation.
Customer List Intangible
Customer list intangible represents the value of the acquired customer relationships from the Merger and is included as an asset on the consolidated balance sheets. The customer list intangible has an estimated finite life and is amortized on an accelerated basis using the sum-of-the-years’ digits method over ten years. The customer list intangible is subject to periodic impairment evaluation.
Stock Transactions
A total of 5,978 shares of common stock were issued to ChoiceOne’s Board of Directors for a cash price of $177,000 for the three months ended March 31, 2026, under the terms of the Directors’ Stock Purchase Plan. A total of 3,283 shares for a cash price of $91,000 were issued for the three months ended March 31, 2026, under the Employee Stock Purchase Plan.
10
A total of 3,301 shares of common stock were issued to ChoiceOne’s Board of Directors for a cash price of $118,000 under the terms of the Directors’ Stock Purchase Plan in the first quarter of 2025. A total of 2,214 shares for a cash price of $67,000 were issued under the Employee Stock Purchase Plan in the first quarter of 2025.
On March 1, 2025, ChoiceOne issued 6,070,836 shares of common stock at a net cost of $193.0 million as consideration in the Merger. Also on March 1, 2025, as required in the Merger, ChoiceOne purchased 57,807 shares of common stock for a cash price of approximately $1.8 million. ChoiceOne retired 6,750 shares of stock that were FETM shares which were owned by ChoiceOne prior to the merger for a cash price of $215,000 on March 1, 2025.
ChoiceOne’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 the first quarter of 2026, ChoiceOne repurchased 50,000 shares of stock for a net cost of $1.4 million under the repurchase plan. The repurchase plan has 300,272 shares remaining to purchase as of March 31, 2026. There was no stated expiration date. The repurchase of shares during 2026 reflects our view that our capital position is healthy and the repurchase of shares is in the best interest of our shareholders.
Allowance for Credit Losses (“ACL”)
The ACL is a valuation allowance for expected credit losses. The ACL is increased by the provision for credit losses and decreased by loans charged off less any recoveries of charged off loans. As ChoiceOne has had very limited loss experience since 2011, management elected to utilize benchmark peer loss history data to estimate historical loss rates. ChoiceOne identified an appropriate peer group for each loan pool which shared similar characteristics. In 2026, a new peer group was identified. Management estimates the ACL required based on the selected peer group loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, a reasonable and supportable economic forecast, and other factors. Allocations of the ACL may be made for specific loans, but the entire ACL is available for any loan that, in management’s judgment, should be charged off. Loan losses are charged against the ACL when management believes that collection of a loan balance is not possible.
The ACL consists of general and specific components. The general component covers loans collectively evaluated for credit losses and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustment for current and forecasted factors is based on trends in delinquencies, trends in charge-offs and recoveries, trends in the volume of loans, changes in underwriting standards, trends in loan review findings, the experience and ability of lending staff, and a reasonable and supportable economic forecast described further below.
The discounted cash flow methodology is utilized for all loan pools included in the general component. This methodology is supported by our current expected credit loss ("CECL") software provider and allows management to automatically calculate contractual life by factoring in all cash flows and adjusting them for behavioral and credit-related aspects.
Reasonable and supportable economic forecasts have to be incorporated in determining expected credit losses. The forecast period represents the time frame from the current period end through the point in time that we can reasonably forecast and support entity and environmental factors that are expected to impact the performance of our loan portfolio. Ideally, the economic forecast period would encompass the contractual terms of all loans; however, the ability to produce a forecast that is considered reasonable and supportable becomes more difficult or may not be possible in later periods. Subsequent to the end of the forecast period, we revert to historical loan data based on an ongoing evaluation of each economic forecast in relation to then current economic conditions as well as any developing loan loss activity and resulting historical data. As of March 31, 2026 and December 31, 2025, we used a one-year reasonable and supportable economic forecast period, with a two year straight-line reversion period.
We are not required to develop and use our own economic forecast model, and we elected to utilize economic forecasts from third-party providers that analyze and develop forecasts of the economy for the entire United States at least quarterly.
Other inputs to the calculation are also updated or reviewed quarterly. Prepayment speeds are updated on a one quarter lag based on the asset liability model from the previous quarter. This model is performed at the loan level. Curtailment is updated quarterly within the ACL model based on our peer group average. The reversion period is reviewed by management quarterly with consideration of the current economic climate. Prepayment speeds and curtailment were updated during the first quarter of 2026; however, the effect was insignificant.
We are also required to consider expected credit losses associated with loan commitments over the contractual period in which we are exposed to credit risk on the underlying commitments unless the obligation is unconditionally cancellable by us. Any allowance for off-balance sheet credit exposures is reported as an other liability on our Consolidated Balance Sheet and is increased or decreased via the provision for credit losses account on our Consolidated Statement of Income. The calculation includes consideration of the likelihood
11
that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to be funded.
Loans that do not share risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. ChoiceOne has determined that any loans which have been placed on non-performing status, loans with a risk rating of 6 or higher, and loans past due more than 60 days will be assessed individually for evaluation. Management's judgment will be used to determine if the loan should be migrated back to pool on an individual basis. Individual analysis will establish a specific reserve for loans in scope. Specific reserves on non-performing loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as appropriate or based on the present value of the expected cash flows from that loan.
ACL for Purchased Loans: With and Without Credit Deterioration
Purchased loans are initially recorded at fair value. ChoiceOne’s accounting treatment for these loans depends on whether they exhibit significant credit deterioration since origination at the time of purchase. As part of the Merger, ChoiceOne recognized a valuation adjustment on the purchased loans, which included two distinct categories: loans purchased with credit deterioration (“PCD”) and loans purchased without credit deterioration. Loans were classified as PCD based on a review of credit quality indicators at the acquisition date, including any loan designated as a watch‑list credit (which includes loans that were 30 days or more past due and/or internally risk‑rated 6 or higher), as well as any loan for which credit deterioration was identified or recommended by ChoiceOne’s third‑party loan review firm as part of its independent credit review. A substantial portion of this valuation adjustment is expected to be recognized as interest income over time.
Loans Purchased with Credit Deterioration
Purchased loans that reflect a more than insignificant credit deterioration since origination at the date of purchase are classified as loans purchased with credit deterioration (PCD loans). PCD loans are recorded at fair value plus the ACL expected at the time of purchase. Under this method, there is no provision for credit losses on purchase of PCD loans. The allowance for credit losses was recorded as the credit mark on PCD loans. PCD loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. The non-credit-related difference between fair value and the unpaid principal balance at the purchase date is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.
Loans Purchased Without Credit Deterioration
Loans purchased without credit deterioration (Non-PCD loans) do not reflect more than insignificant credit deterioration since origination at the date of purchase. Non-PCD loans are recorded at fair value and an increase to the allowance for credit losses is recorded with a corresponding increase to the provision for credit losses at the date of purchase. The difference between fair value and the unpaid principal balance at the purchase date is amortized or accreted to interest income over the contractual life of the loan using the effective interest method. Purchased loans from the Merger were brought into the model and segmented into classes on the same basis as ChoiceOne originated loans.
ACL for Securities
Securities Available for Sale ("AFS") – For securities AFS in an unrealized loss position, management determines whether they intend to sell or if it is more likely than not that ChoiceOne will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities AFS with unrealized losses not meeting these criteria, management evaluates whether any decline in fair value is due to credit loss factors. In making this assessment, management considers any changes to the rating of the security by rating agencies and adverse conditions specifically related to the issuer of the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Changes in the ACL under ASC 326-30 are recorded as provisions for (or reversal of) credit loss expense. Losses are charged against the ACL when the collectability of a debt security AFS is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, net of income taxes. At March 31, 2026 and December 31, 2025, there was no ACL related to securities AFS.
Securities Held to Maturity ("HTM") – ChoiceOne measures credit losses on HTM securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The ACL on securities HTM is a contra asset valuation account that is deducted
12
from the carrying amount of HTM securities to present the net amount expected to be collected. HTM securities are charged off against the ACL when deemed uncollectible. Adjustments to the ACL are reported in ChoiceOne’s Consolidated Statements of Income in the provision for credit losses. Accrued interest receivable totaled $2.3 million at March 31, 2026 and $2.0 million at December 31, 2025 and was reported in other assets on the consolidated balance sheets and is excluded from the estimate of credit losses. With regard to US Treasury securities, these have an explicit government guarantee; therefore, no ACL is recorded for these securities. With regard to obligations of states and political subdivisions and other HTM securities, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. At March 31, 2026 and December 31, 2025, the ACL related to HTM securities was insignificant.
Recent Accounting Pronouncements
ASU 2025-08 Purchased Credit Deteriorated Loans
In November 2025, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2025‑08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans, which expands the use of the gross‑up method for recognizing expected credit losses on certain acquired loans. The amendments extend the gross‑up approach—previously limited to purchased credit deteriorated (“PCD”) loans—to a broader population of acquired loans that meet the definition of purchased seasoned loans, while retaining the existing accounting model for PCD loans. Under the gross‑up method, an allowance for credit losses is recorded at acquisition with a corresponding increase to the loan’s amortized cost basis, rather than through earnings. The guidance is effective for fiscal years beginning after December 15, 2026, including interim periods therein, and is to be applied prospectively. Management has elected not to early adopt this guidance and is currently evaluating the potential impact of adoption on the Bank’s consolidated financial statements.
13
NOTE 2 – SECURITIES
On January 1, 2022, ChoiceOne reassessed and transferred, at fair value, $428.4 million of securities classified as available for sale to the held to maturity classification. The net unrealized after-tax loss of $2.7 million as of the transfer date remained in accumulated other comprehensive income to be amortized over the remaining life of the securities, offsetting the related amortization of discount or premium on the transferred securities. No gains or losses were recognized at the time of the transfer. The remaining net unamortized unrealized loss on transferred securities included in accumulated other comprehensive income was $1.7 million after tax as of March 31, 2026.
On March 1, 2025, ChoiceOne acquired $90.7 million in securities as part of the Merger; however, management chose to sell $78.9 million of those securities to pay down higher cost wholesale funding. The sale of the securities was completed so close to the fair value determination date that no loss was recognized. Consequently, the net increase in securities from the Merger was $11.8 million.
The fair value of equity securities and the related gross unrealized gains (losses) recognized in noninterest income were as follows:
March 31, 2026
Gross
Gross
(Dollars in thousands)
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
Equity securities
$
9,119
$
812
$
(506
)
$
9,425
December 31, 2025
Gross
Gross
(Dollars in thousands)
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
Equity securities
$
9,073
$
751
$
(471
)
$
9,353
The following tables present the amortized cost and fair value of securities available for sale and the gross unrealized gains (losses) recognized in accumulated other comprehensive income (loss) and the amortized cost and fair value of securities held to maturity and the related gross unrealized gains and losses:
March 31, 2026
Gross
Gross
(Dollars in thousands)
Amortized
Unrealized
Unrealized
Fair
Available for Sale:
Cost
Gains
Losses
Value
U.S. Treasury notes and bonds
$
94,117
$
9
$
(5,313
)
$
88,813
State and municipal
254,490
-
(34,216
)
220,274
Mortgage-backed
268,774
135
(15,843
)
253,066
Corporate
250
-
(29
)
221
Asset-backed securities
11,294
-
(137
)
11,157
Total
$
628,925
$
144
$
(55,538
)
$
573,531
(Dollars in thousands)
Held to Maturity:
U.S. Government and federal agency
$
2,986
$
-
$
(150
)
$
2,836
State and municipal
196,105
19
(23,337
)
172,787
Mortgage-backed
164,049
6
(14,388
)
149,667
Corporate
21,199
56
(1,105
)
20,150
Total
$
384,339
$
81
$
(38,980
)
$
345,440
14
December 31, 2025
Gross
Gross
(Dollars in thousands)
Amortized
Unrealized
Unrealized
Fair
Available for Sale:
Cost
Gains
Losses
Value
U.S. Treasury notes and bonds
$
94,200
$
30
$
(5,195
)
$
89,035
State and municipal
260,228
-
(32,654
)
227,574
Mortgage-backed
241,643
178
(14,767
)
227,054
Corporate
250
-
(28
)
222
Asset-backed securities
10,670
-
(135
)
10,535
Total
$
606,991
$
208
$
(52,779
)
$
554,420
(Dollars in thousands)
Held to Maturity:
U.S. Government and federal agency
$
2,984
$
-
$
(152
)
$
2,832
State and municipal
196,448
63
(22,116
)
174,395
Mortgage-backed
164,820
14
(13,729
)
151,105
Corporate
20,941
38
(1,189
)
19,790
Total
$
385,193
$
115
$
(37,186
)
$
348,122
Available for sale securities with unrealized losses as of March 31, 2026 and December 31, 2025, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, were as follows:
March 31, 2026
Less than 12 months
More than 12 months
Total
(Dollars in thousands)
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Available for Sale:
Value
Losses
Value
Losses
Value
Losses
U.S. Treasury notes and bonds
$
-
$
-
$
83,968
$
5,313
$
83,968
$
5,313
State and municipal
5,254
396
215,020
33,820
220,274
34,216
Mortgage-backed
93,676
1,569
122,078
14,274
215,754
15,843
Corporate
-
-
221
29
221
29
Asset-backed securities
2,798
22
8,359
115
11,157
137
Total temporarily impaired
$
101,728
$
1,987
$
429,646
$
53,551
$
531,374
$
55,538
December 31, 2025
Less than 12 months
More than 12 months
Total
(Dollars in thousands)
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Available for Sale:
Value
Losses
Value
Losses
Value
Losses
U.S. Treasury notes and bonds
$
-
$
-
$
84,204
$
5,195
$
84,204
$
5,195
State and municipal
4,716
467
222,858
32,187
227,574
32,654
Mortgage-backed
66,709
644
128,063
14,123
194,772
14,767
Corporate
-
-
222
28
222
28
Asset-backed securities
1,910
10
8,625
125
10,535
135
Total temporarily impaired
$
73,335
$
1,121
$
443,972
$
51,658
$
517,307
$
52,779
15
Held to maturity securities with unrealized losses as of March 31, 2026 and December 31, 2025, aggregated by investment category and length of time the individual securities have been in an unrealized loss position, were as follows:
March 31, 2026
Less than 12 months
More than 12 months
Total
(Dollars in thousands)
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Held to Maturity:
Value
Losses
Value
Losses
Value
Losses
U.S. Government and federal agency
$
-
$
-
$
2,836
$
150
$
2,836
$
150
State and municipal
1,660
16
167,518
23,321
169,178
23,337
Mortgage-backed
4,493
1
143,492
14,387
147,985
14,388
Corporate
1,140
10
16,338
1,095
17,478
1,105
Total temporarily impaired
$
7,293
$
27
$
330,184
$
38,953
$
337,477
$
38,980
December 31, 2025
Less than 12 months
More than 12 months
Total
(Dollars in thousands)
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Held to Maturity:
Value
Losses
Value
Losses
Value
Losses
U.S. Government and federal agency
$
-
$
-
$
2,832
$
152
$
2,832
$
152
State and municipal
45
-
169,139
22,116
169,184
22,116
Mortgage-backed
-
-
144,910
13,729
144,910
13,729
Corporate
2,043
57
16,296
1,132
18,339
1,189
Total temporarily impaired
$
2,088
$
57
$
333,177
$
37,129
$
335,265
$
37,186
16
ChoiceOne evaluates all securities on a quarterly basis to determine if an ACL and corresponding impairment charge should be recorded. Consideration is given to the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of ChoiceOne to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value of amortized cost basis. ChoiceOne believes that unrealized losses on securities were temporary in nature and were caused primarily by changes in interest rates, increased credit spreads, and reduced market liquidity and were not caused by the credit status of the issuer. No ACL was recorded in the three months ended March 31, 2026 and March 31, 2025 on AFS securities.
The majority of unrealized losses at March 31, 2026, are related to U.S. Treasury notes and bonds, state and municipal bonds and mortgage backed securities. The U.S. Treasury notes are guaranteed by the U.S. government and 100% of the notes are rated AA or better. State and municipal bonds are backed by the taxing authority of the bond issuer or the revenues from the bond. On March 31, 2026, 85% of state and municipal bonds held are rated AA or better, 10% are A rated and 5% are not rated. Of the mortgage-backed securities held on March 31, 2026, 48% were issued by US government sponsored entities and agencies, and rated AA, 39% are AAA rated private issue and collateralized mortgage obligations, and 13% are unrated privately issued mortgage-backed securities with structured credit enhancement and collateralized mortgage obligations.
Unrealized losses have not been recognized into income because the issuers’ bonds are of high credit quality, and management does not intend to sell the bonds prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.
17
Presented below is a schedule of maturities of securities as of March 31, 2026. Available for sale securities are reported at fair value and held to maturity securities are reported at amortized cost. Callable securities in the money are presumed called and matured at the callable date.
Available for Sale Securities maturing within:
Fair Value
Less than
1 Year -
5 Years -
More than
at March 31,
(Dollars in thousands)
1 Year
5 Years
10 Years
10 Years
2026
U.S. Treasury notes and bonds
$
2,941
$
85,872
$
-
$
-
$
88,813
State and municipal
-
34,108
20,317
165,849
220,274
Corporate
-
-
221
-
221
Asset-backed securities
-
7,976
3,181
-
11,157
Total debt securities
2,941
127,956
23,719
165,849
320,465
Mortgage-backed securities
4,892
133,475
84,705
29,994
253,066
Total Available for Sale
$
7,833
$
261,431
$
108,424
$
195,843
$
573,531
Held to Maturity Securities maturing within:
Amortized Cost
Less than
1 Year -
5 Years -
More than
at March 31,
(Dollars in thousands)
1 Year
5 Years
10 Years
10 Years
2026
U.S. Government and federal agency
$
-
$
2,986
$
-
$
-
$
2,986
State and municipal
2,169
53,586
87,631
52,719
196,105
Corporate
-
548
20,651
-
21,199
Total debt securities
2,169
57,120
108,282
52,719
220,290
Mortgage-backed securities
1,761
117,081
45,207
-
164,049
Total Held to Maturity
$
3,930
$
174,201
$
153,489
$
52,719
$
384,339
Following is information regarding sales of securities available for sale for the three months ended March 31, 2026 and 2025. The cost of securities sold is determined using the specific identification method.
Three Months Ended
(Dollars in thousands)
March 31,
2026
2025
Proceeds from sales of securities
$
4,235
$
78,856
Gross realized gains
-
-
Gross realized losses
(203
)
-
Following is information regarding unrealized gains and losses on equity securities for the three months ended March 31, 2026 and 2025:
Three Months Ended
March 31,
2026
2025
(Dollars in thousands)
Net gains and (losses) recognized during the period
$
26
$
107
Less: Net gains and (losses) recognized during the period on securities sold
-
-
Unrealized gains and (losses) recognized during the reporting period on securities still held at the reporting date
$
26
$
107
18
19
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans by type as a percentage of the portfolio were as follows:
March 31, 2026
December 31, 2025
(Dollars in thousands)
Balance
%
Balance
%
Percent Increase (Decrease)
Agricultural
$
47,840
1.6
%
$
56,218
1.9
%
(14.9
)
%
Commercial and Industrial
369,425
12.4
%
352,556
11.7
%
4.8
%
Commercial Real Estate
1,745,410
58.5
%
1,780,396
58.9
%
(2.0
)
%
Consumer
23,180
0.8
%
26,701
0.9
%
(13.2
)
%
Construction Real Estate
20,897
0.7
%
19,139
0.6
%
9.2
%
Residential Real Estate
725,358
24.3
%
728,037
24.1
%
(0.4
)
%
Mortgage Warehouse Advances
51,187
1.7
%
58,987
2.0
%
(13.2
)
%
Gross Loans
$
2,983,297
$
3,022,034
Allowance for credit losses
35,496
1.19
%
35,550
1.18
%
Net loans
$
2,947,801
$
2,986,484
20
Activity in the allowance for credit losses and balances in the loan portfolio were as follows:
Commercial
Mortgage
(Dollars in thousands)
And
Commercial
Construction
Residential
Warehouse
Agricultural
Industrial
Consumer
Real Estate
Real Estate
Real Estate
Advances
Total
Allowance for Credit Losses Three Months Ended March 31, 2026
Beginning balance
$
219
$
6,797
$
693
$
18,416
$
80
$
9,257
$
88
$
35,550
Charge-offs
-
-
(204
)
-
-
(26
)
-
(230
)
Recoveries
-
20
147
-
-
9
-
176
Provision
(48
)
2,108
(73
)
(2,665
)
(33
)
722
(11
)
-
Ending balance
$
171
$
8,925
$
563
$
15,751
$
47
$
9,962
$
77
$
35,496
Loans
March 31, 2026
Ending loan balance
$
47,840
$
369,425
$
23,180
$
1,745,410
$
20,897
$
725,358
$
51,187
$
2,983,297
The outstanding balance and related ACL on PCD loans as of March 1, 2025 (the acquisition date) and March 31, 2026 is as follows (in thousands):
As of March 31, 2026
As of March 1, 2025
Loan Balance
ACL Balance
Loan Balance
ACL Balance
(dollars in thousands)
Agricultural
$
441
$
8
$
611
$
2
Commercial and Industrial
11,734
2,939
13,572
2,960
Commercial Real Estate
56,418
2,606
79,444
1,791
Consumer
6
-
32
0
Residential Real Estate
17,127
243
19,252
171
Total
$
85,726
$
5,796
$
112,911
$
4,924
Commercial
Mortgage
(Dollars in thousands)
and
Commercial
Construction
Residential
Warehouse
Agricultural
Industrial
Consumer
Real Estate
Real Estate
Real Estate
Advances
Total
Allowance for Credit Losses
December 31, 2025
Beginning Balance
$
90
$
2,260
$
733
$
9,460
$
59
$
3,890
$
60
$
16,552
Acquisition related allowance for credit loss (PCD)
2
2,963
1,791
168
4,924
Charge-offs
(245
)
(720
)
(416
)
(76
)
(1,457
)
Recoveries
9
380
29
418
Provision
127
1,810
300
7,581
21
5,246
28
15,113
Ending balance
$
219
$
6,797
$
693
$
18,416
$
80
$
9,257
$
88
$
35,550
Loans
December 31, 2025
Ending loan balance
$
56,218
$
352,556
$
26,701
$
1,780,396
$
19,139
$
728,037
$
58,987
$
3,022,034
21
Commercial
(Dollars in thousands)
and
Commercial
Construction
Residential
Mortgage
Agricultural
Industrial
Consumer
Real Estate
Real Estate
Real Estate
Warehouse Advances
Total
Allowance for Credit Losses Three Months Ended March 31, 2025
Beginning balance
$
90
$
2,260
$
733
$
9,460
$
59
$
3,890
$
60
$
16,552
Acquisition related allowance for credit loss (PCD)
2
2,963
1,791
168
4,924
Charge-offs
-
-
(133
)
-
-
(22
)
-
(155
)
Recoveries
-
2
60
-
-
21
-
83
Provision
128
278
43
9,476
31
3,263
(56
)
13,163
Ending balance
$
220
$
5,503
$
703
$
20,727
$
90
$
7,320
$
4
$
34,567
Loans
March 31, 2025
Ending loan balance
$
48,165
$
345,138
$
30,932
$
1,757,598
$
18,067
$
722,662
$
2,393
$
2,924,955
The process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking (1) the risk ratings of business loans and (2) delinquent and nonperforming consumer loans. Business loans are risk rated on a scale of 1 to 9. A description of the characteristics of the ratings follows:
Risk Rating 1 through 5 or pass: These loans are considered pass credits. They exhibit acceptable credit risk and demonstrate the ability to repay the loan from normal business operations.
Risk rating 6 or special mention: Loans and other credit extensions bearing this grade are considered to be inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These obligations, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, market, or political conditions that have clearly jeopardized repayment of principal and interest as originally intended. Furthermore, there is the possibility that ChoiceOne Bank will sustain some future loss if such weaknesses are not corrected. Clear loss potential, however, does not have to exist in any individual assets classified as special mention. Loans falling into this category should have clear action plans and timelines with benchmarks to determine which direction the relationship will move.
Risk rating 7 or substandard: Loans and other credit extensions graded “7” have all the weaknesses inherent in those graded “6”, with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. Loans in this classification should be evaluated for non-accrual status. All nonaccrual commercial and Retail loans must be at a minimum graded a risk code “7”.
Risk rating 8 or doubtful: Loans and other credit extensions bearing this grade have been determined to have the extreme probability of some loss, but because of certain important and reasonably specific factors, the amount of loss cannot be determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral.
Risk rating 9 or loss: Loans in this classification are considered uncollectible and cannot be justified as a viable asset of ChoiceOne Bank. This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial recovery may be obtained in the future.
22
The following tables reflect the amortized cost basis of loans as of March 31, 2026 based on year of origination (dollars in thousands). The current year-to-date gross write offs reflect three months ended March 31, 2026 gross write offs:
Commercial:
2026
2025
2024
2023
2022
Prior
Term Loans Total
Revolving Loans
Grand Total
Agricultural
Pass
$
1,505
$
4,383
$
3,941
$
1,456
$
3,527
$
20,878
$
35,690
$
11,417
$
47,107
Special mention
-
-
-
-
-
148
148
-
148
Substandard
-
-
-
266
-
220
486
99
585
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
1,505
$
4,383
$
3,941
$
1,722
$
3,527
$
21,246
$
36,324
$
11,516
$
47,840
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial and Industrial
Pass
$
9,578
$
53,196
$
35,566
$
15,418
$
31,067
$
28,103
$
172,928
$
182,396
$
355,324
Special mention
-
-
-
-
39
237
276
188
464
Substandard
-
-
186
7,982
254
3,020
11,442
2,195
13,637
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
9,578
$
53,196
$
35,752
$
23,400
$
31,360
$
31,360
$
184,646
$
184,779
$
369,425
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial Real Estate
Pass
$
31,944
$
232,949
$
180,979
$
125,006
$
319,508
$
595,452
$
1,485,838
$
231,785
$
1,717,623
Special mention
-
-
-
-
13,368
1,573
14,941
-
14,941
Substandard
-
-
109
1,599
7,864
3,149
12,721
125
12,846
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
31,944
$
232,949
$
181,088
$
126,605
$
340,740
$
600,174
$
1,513,500
$
231,910
$
1,745,410
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total Commercial Loans
$
43,027
$
290,528
$
220,781
$
151,727
$
375,627
$
652,780
$
1,734,470
$
428,205
$
2,162,675
23
Retail:
2026
2025
2024
2023
2022
Prior
Term Loans Total
Revolving Loans
Grand Total
Consumer
Performing
$
1,690
$
5,455
$
3,276
$
4,071
$
3,773
$
4,301
$
22,566
$
525
$
23,091
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
1
1
15
-
43
60
29
89
Total
$
1,690
$
5,456
$
3,277
$
4,086
$
3,773
$
4,344
$
22,626
$
554
$
23,180
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
2
$
1
$
3
$
-
$
3
Construction real estate
Performing
$
280
$
592
$
-
$
-
$
-
$
485
$
1,357
$
19,540
$
20,897
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
-
-
-
-
-
-
-
-
Total
$
280
$
592
$
-
$
-
$
-
$
485
$
1,357
$
19,540
$
20,897
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Residential real estate
Performing
$
17,227
$
70,081
$
49,155
$
53,079
$
155,712
$
257,603
$
602,857
$
112,385
$
715,242
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
92
1,364
1,256
3,042
3,923
9,677
439
10,116
Total
$
17,227
$
70,173
$
50,519
$
54,335
$
158,754
$
261,526
$
612,534
$
112,824
$
725,358
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
26
$
-
$
-
$
26
$
-
$
26
Mortgage warehouse advances
Performing
$
51,187
$
-
$
-
$
-
$
-
$
-
$
51,187
$
-
$
51,187
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
-
-
-
-
-
-
-
-
Total
$
51,187
$
-
$
-
$
-
$
-
$
-
$
51,187
$
-
$
51,187
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total Retail Loans
$
70,384
$
76,221
$
53,796
$
58,421
$
162,527
$
266,355
$
687,704
$
132,918
$
820,622
(1) It is noted that write-offs in the tables above do not include checking account write-offs. Checking account write-offs during the first three months of 2026 were $200,000 or an annualized $800,000 compared to $561,000 during the full year 2025.
24
The following tables reflect the amortized cost basis of loans as of December 31, 2025 based on year of origination (dollars in thousands). The current year-to-date gross write offs reflect three months ended March 31, 2025 gross write offs:
Commercial:
2025
2024
2023
2022
2021
Prior
Term Loans Total
Revolving Loans
Grand Total
Agricultural
Pass
$
7,046
$
4,057
$
1,903
$
3,832
$
4,875
$
19,748
$
41,461
$
14,428
$
55,889
Special mention
-
-
-
-
-
153
153
-
153
Substandard
-
-
176
-
-
-
176
-
176
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
7,046
$
4,057
$
2,079
$
3,832
$
4,875
$
19,901
$
41,790
$
14,428
$
56,218
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial and Industrial
Pass
$
52,768
$
42,364
$
17,453
$
34,720
$
11,549
$
19,185
$
178,039
$
162,004
$
340,043
Special mention
-
-
127
154
99
380
-
380
Substandard
-
186
5,514
45
1,415
1,697
8,857
3,276
12,133
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
52,768
$
42,550
$
22,967
$
34,892
$
13,118
$
20,981
$
187,276
$
165,280
$
352,556
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial Real Estate
Pass
$
237,396
$
179,922
$
130,368
$
333,082
$
231,358
$
400,392
$
1,512,518
$
239,552
$
1,752,070
Special mention
-
-
-
13,977
1,549
42
15,568
-
15,568
Substandard
-
109
1,624
7,865
-
3,160
12,758
-
12,758
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total
$
237,396
$
180,031
$
131,992
$
354,924
$
232,907
$
403,594
$
1,540,844
$
239,552
$
1,780,396
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total Commercial Loans
$
297,210
$
226,638
$
157,038
$
393,648
$
250,900
$
444,476
$
1,769,910
$
419,260
$
2,189,170
25
Retail:
2025
2024
2023
2022
2021
Prior
Term Loans Total
Revolving Loans
Grand Total
Consumer
Performing
$
6,352
$
3,959
$
4,874
$
5,520
$
3,079
$
2,057
$
25,841
$
759
$
26,600
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
1
17
6
42
6
72
29
101
Total
$
6,352
$
3,960
$
4,891
$
5,526
$
3,121
$
2,063
$
25,913
$
788
$
26,701
Current year-to-date gross write-offs (1)
$
-
$
-
$
27
$
-
$
-
$
-
$
27
$
-
$
27
Construction real estate
Performing
$
1,419
$
998
$
-
$
-
$
493
$
-
$
2,910
$
16,229
$
19,139
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
-
-
-
-
-
-
-
-
Total
$
1,419
$
998
$
-
$
-
$
493
$
-
$
2,910
$
16,229
$
19,139
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Residential real estate
Performing
$
69,917
$
53,631
$
59,933
$
157,022
$
107,022
$
156,130
$
603,655
$
113,448
$
717,103
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
96
701
1,156
3,165
2,677
2,600
10,395
539
10,934
Total
$
70,013
$
54,332
$
61,089
$
160,187
$
109,699
$
158,730
$
614,050
$
113,987
$
728,037
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
4
$
18
$
-
$
22
$
-
$
22
Mortgage warehouse advances
Performing
$
58,987
$
-
$
-
$
-
$
-
$
-
$
58,987
$
-
$
58,987
Nonperforming
-
-
-
-
-
-
-
-
-
Nonaccrual
-
-
-
-
-
-
-
-
-
Total
$
58,987
$
-
$
-
$
-
$
-
$
-
$
58,987
$
-
$
58,987
Current year-to-date gross write-offs (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total Retail Loans
$
136,771
$
59,290
$
65,980
$
165,713
$
113,313
$
160,793
$
701,860
$
131,004
$
832,864
(1) It is noted that write-offs in the tables above do not include checking account write-offs. Checking account write-offs were $106,000 for the first three months of 2025 and $561,000 during the full year 2025.
The following table presents the amortized cost basis of the loans modified to borrowers experiencing financial difficulty disaggregated by class of financing receivable and type of concession granted during the full year 2025. There were no loans modified to borrowers experiencing financial difficulty during the first three months of 2026.
For the period ended:
December 31, 2025
Term Extension
% of Total
Class of
(Dollars in thousands)
Amortized
Financing
Cost Basis
Receivable
Residential real estate
$
128
0
%
Total
$
128
The following table presents the financial effect by type of modification made to borrowers experiencing financial difficulty and class of financing receivable during the full year 2025. There were no loans modified to borrowers experiencing financial difficulty during the first three months of 2026.
26
For the period ended:
December 31, 2025
Term Extension
Residential real estate
Provided with new five year payment plan based on bankruptcy
The following table presents the period-end amortized cost basis of financing receivables that had a payment default during the period and were modified in the 12 months before default to borrowers experiencing financial difficulty.
For the period ended:
March 31, 2026
(Dollars in thousands)
Term extension
Residential real estate
$
127
Total
$
127
For the period ended:
December 31, 2025
(Dollars in thousands)
Term extension
Residential real estate
$
128
Total
$
128
The following table presents the period-end amortized cost basis of loans that have been modified in the past 12 months to borrowers experiencing financial difficulty by payment status and class of financing receivable.
For the period ended:
March 31, 2026
(Dollars in thousands)
Current
30-89 days
Greater than 90 days
Total
Residential real estate
$
-
$
127
$
-
$
127
Total
$
-
$
127
$
-
$
127
For the period ended:
December 31, 2025
(Dollars in thousands)
Current
30-89 days
Greater than 90 days
Total
Residential real estate
$
-
$
128
$
-
$
128
Total
$
-
$
128
$
-
$
128
27
Nonaccrual loans by loan category were as follows and the interest income recognized during the period on those nonaccrual loans:
As of March 31, 2026
(Dollars in thousands)
Nonaccrual loans with no ACL
Nonaccrual loans with ACL
Interest income recognized year to date on nonaccrual loans
Agricultural
$
266
$
144
$
7
Commercial and industrial
-
9,274
-
Consumer
-
89
-
Commercial real estate
-
8,003
-
Residential real estate
2,616
7,500
4
Total nonaccrual loans
$
2,882
$
25,010
$
11
As of December 31, 2025
(Dollars in thousands)
Nonaccrual loans with no ACL
Nonaccrual loans with ACL
Interest income recognized year to date on nonaccrual loans
Commercial and industrial
$
966
$
7,037
$
2
Consumer
-
101
6
Commercial real estate
-
8,020
-
Residential real estate
2,267
8,667
125
Total nonaccrual loans
$
3,233
$
23,825
$
133
An aging analysis of loans by loan category follows:
Loans
Loans
Loans
Loans
Past Due
90 Days
Past Due
Past Due
Greater
Past
(Dollars in thousands)
30 to 59
60 to 89
Than 90
Loans Not
Total
Due and
Days (1)
Days (1)
Days (1)
Total (1)
Past Due
Loans
Accruing
March 31, 2026
Agricultural
$
-
$
365
$
45
$
410
$
47,430
$
47,840
$
-
Commercial and industrial
157
1,910
6,211
8,278
361,147
369,425
-
Consumer
394
50
38
482
22,698
23,180
-
Commercial real estate
7,665
353
8,003
16,021
1,729,389
1,745,410
-
Construction real estate
2,249
-
-
2,249
18,648
20,897
-
Residential real estate
19,930
2,694
2,929
25,553
699,805
725,358
-
Mortgage warehouse advances
-
-
-
-
51,187
51,187
-
$
30,395
$
5,372
$
17,226
$
52,993
$
2,930,304
$
2,983,297
$
-
(1) Includes nonaccrual loans.
Management evaluated loans past due 30 to 59 days as of March 31, 2026, and observed that a significant portion of these loans were exactly 30 days past due at the end of the first quarter of 2026. Subsequent to March 31, 2026, $12.2 million of these loans remitted payments and returned to current status by April 20, 2026.
28
Loans
Loans
Loans
Loans
Past Due
90 Days
Past Due
Past Due
Greater
Past
(Dollars in thousands)
30 to 59
60 to 89
Than 90
Loans Not
Total
Due and
Days (1)
Days (1)
Days (1)
Total (1)
Past Due
Loans
Accruing
December 31, 2025
Agricultural
$
-
$
-
$
-
$
-
$
56,218
$
56,218
$
-
Commercial and industrial
187
-
6,249
6,436
346,120
352,556
-
Consumer
102
38
62
202
26,499
26,701
-
Commercial real estate
547
211
8,020
8,778
1,771,618
1,780,396
-
Construction real estate
685
495
-
1,180
17,959
19,139
-
Residential real estate
10,844
4,671
4,952
20,467
707,570
728,037
-
Mortgage warehouse advances
-
-
-
-
58,987
58,987
-
$
12,365
$
5,415
$
19,283
$
37,063
$
2,984,971
$
3,022,034
$
-
(1) Includes nonaccrual loans.
The following tables present the collateral dependent loans and the related ACL allocated by segment of loans. All collateral dependent loans were secured by real estate, with the exception of those classified as commercial and industrial and consumer, which were secured by accounts receivable, inventory, vehicles or equipment.
March 31, 2026
December 31, 2025
(Dollars in thousands)
Loan Balance
ACL Allocation
Loan Balance
ACL Allocation
Agricultural
$
733
$
19
$
3
$
-
Commercial and Industrial
3,779
1,349
1,500
8
Commercial Real Estate
9,081
1,752
7,715
1,714
Consumer
146
6
115
5
Residential Real Estate
14,674
487
11,195
361
Total
$
28,413
$
3,613
$
20,528
$
2,088
29
NOTE 4 – EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares outstanding during the period. A computation of basic earnings per share and diluted earnings per share follows:
Three Months Ended
(Dollars in thousands, except share data)
March 31,
2026
2025
Basic
Net (loss) income
$
13,704
$
(13,906
)
Weighted average common shares outstanding
14,990,017
10,676,068
Basic (loss) earnings per common shares
$
0.91
$
(1.30
)
Diluted
Net (loss) income
$
13,704
$
(13,906
)
Weighted average common shares outstanding
14,990,017
10,676,068
Plus dilutive stock options and restricted stock units
51,893
64,016
Weighted average common shares outstanding and potentially dilutive shares
15,041,910
10,740,084
Diluted (loss) earnings per common share
$
0.91
$
(1.29
)
There were no stock options that were considered anti-dilutive to earnings per share for the three months ended March 31, 2026 or the three months ended March 31, 2025.
30
Note 5 – Financial Instruments
Financial instruments as of the dates indicated were as follows:
31
Quoted Prices
In Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
(Dollars in thousands)
Carrying
Estimated
Assets
Inputs
Inputs
Amount
Fair Value
(Level 1)
(Level 2)
(Level 3)
March 31, 2026
Assets
Cash and cash equivalents
$
84,218
$
84,218
$
84,218
$
-
$
-
Equity securities at fair value
9,425
9,425
5,702
-
3,723
Securities available for sale
573,531
573,531
88,813
484,718
-
Securities held to maturity
384,339
345,440
-
329,771
15,669
Federal Home Loan Bank and Federal
Reserve Bank stock
31,116
31,116
-
31,116
-
Loans held for sale
9,976
10,275
-
10,275
-
Loans, net
2,947,801
2,892,700
-
-
2,892,700
Accrued interest receivable
16,538
16,538
-
16,538
-
Interest rate lock commitments
181
181
-
181
-
Interest rate derivative contracts
409
409
-
409
-
Interest rate swaps
1,119
1,119
-
1,119
-
Liabilities
Noninterest-bearing deposits
912,845
912,845
912,845
-
-
Total interest-bearing deposits
2,651,165
2,649,990
-
2,649,990
-
Brokered deposits
103,381
103,427
-
103,427
-
Borrowings
184,819
184,941
-
184,941
-
Subordinated debentures
48,552
45,038
-
45,038
-
Accrued interest payable
1,846
1,846
-
1,846
-
Interest rate derivative contracts
-
-
-
-
-
Interest rate swaps
1,127
1,127
-
1,127
-
December 31, 2025
Assets
Cash and cash equivalents
$
87,988
$
87,988
$
87,988
$
-
$
-
Equity securities at fair value
9,353
9,353
5,723
-
3,630
Securities available for sale
554,420
554,420
89,035
465,385
-
Securities held to maturity
385,193
348,122
-
332,243
15,879
Federal Home Loan Bank and Federal Reserve Bank stock
31,116
31,116
-
31,116
-
Loans held for sale
7,185
7,401
-
7,401
-
Loans, net
2,986,484
2,941,021
-
-
2,941,021
Accrued interest receivable
14,537
14,537
-
14,537
-
Interest rate lock commitments
202
202
-
202
-
Interest rate derivative contracts
8,446
8,446
-
8,446
-
Interest rate swaps
1,815
1,815
-
1,815
-
Liabilities
Noninterest-bearing deposits
907,007
907,007
907,007
-
-
Total interest-bearing deposits
2,588,111
2,587,407
-
2,587,407
-
Brokered deposits
104,906
105,040
-
105,040
-
Borrowings
264,788
265,179
-
265,179
-
Subordinated debentures
48,460
46,886
-
46,886
-
Accrued interest payable
2,475
2,475
-
2,475
-
Interest rate derivative contracts
-
-
-
-
-
Interest rate swaps
1,826
1,826
-
1,826
-
32
NOTE 6 – FAIR VALUE MEASUREMENTS
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2026 and December 31, 2025, and the valuation techniques used by the Company to determine those fair values.
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.
33
Disclosures concerning assets and liabilities measured at fair value are as follows:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Quoted Prices
In Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Balance
(Dollars in thousands)
Assets
Inputs
Inputs
at Date
(Level 1)
(Level 2)
(Level 3)
Indicated
Equity Securities Held at Fair Value - March 31, 2026
Equity securities
$
5,702
$
-
$
3,723
$
9,425
Investment Securities, Available for Sale - March 31, 2026
U.S. Treasury notes and bonds
$
88,813
$
-
$
-
$
88,813
State and municipal
-
220,274
-
220,274
Mortgage-backed
-
253,066
-
253,066
Corporate
-
221
-
221
Asset-backed securities
-
11,157
-
11,157
Total
$
88,813
$
484,718
$
-
$
573,531
Derivative Instruments - March 31, 2026
Interest rate derivative contracts - assets
$
-
$
409
$
-
$
409
Interest rate derivative contracts - liabilities
$
-
$
-
$
-
$
-
Interest rate swaps - March 31, 2026
Interest rate swaps - assets
$
-
$
1,119
$
-
$
1,119
Interest rate swaps - liabilities
$
-
$
1,127
$
-
$
1,127
Equity Securities Held at Fair Value - December 31, 2025
Equity securities
$
5,723
$
-
$
3,630
$
9,353
Investment Securities, Available for Sale - December 31, 2025
U. S. Treasury notes and bonds
$
89,035
$
-
$
-
$
89,035
State and municipal
-
227,574
-
227,574
Mortgage-backed
-
227,054
-
227,054
Corporate
-
222
-
222
Asset-backed securities
-
10,535
-
10,535
Total
$
89,035
$
465,385
$
-
$
554,420
Derivative Instruments - December 31, 2025
Interest rate derivative contracts - assets
$
-
$
8,446
$
-
$
8,446
Interest rate derivative contracts - liabilities
$
-
$
-
$
-
$
-
Interest rate swaps - December 31, 2025
Interest rate swaps - assets
$
-
$
1,815
$
-
$
1,815
Interest rate swaps - liabilities
$
-
$
1,826
$
-
$
1,826
Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs. ChoiceOne’s external investment advisor obtained fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements considered observable data that may include dealer quotes, market spreads, cash flows and the bonds' terms and conditions, among other things. Securities classified in Level 2 included U.S. Government and federal agency securities, state and municipal securities,
34
mortgage-backed securities, corporate bonds, and asset backed securities. The Company classified certain state and municipal securities and corporate bonds as Level 3. Based on the lack of observable market data, estimated fair values were based on the observable data available and reasonable unobservable market data.
The Company classified certain equity securities as Level 3. Based on the lack of observable market data, estimated fair values were based on the observable data available and reasonable unobservable market data.
Derivative instruments and interest rate swaps are generally reported at fair value using Level 2 inputs. The estimated fair value is determined by calculating the present value of expected future cashflows, based on market observable inputs.
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
Three Months Ended
(Dollars in thousands)
March 31,
2026
2025
Equity Securities Held at Fair Value
Balance, January 1
$
3,630
$
2,944
Total realized and unrealized (losses) gains included in noninterest income
47
58
Net purchases, sales, calls, and maturities
46
755
Net transfers into Level 3
-
-
Balance, March 31,
$
3,723
$
3,757
Amount of total losses for the period included in earning attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at March 31,
$
10
$
9
Of the Level 3 assets that were held by the Company at March 31, 2026, the net unrealized gain as of March 31, 2026 was $771,000, compared to $375,000 as of March 31, 2025. The change in the net unrealized gain or loss is recognized in noninterest income or other comprehensive income in the consolidated balance sheets and income statements. Amounts recognized in noninterest income relate to changes in equity securities. A total of $46,000 and $755,000 of Level 3 securities were purchased during the three months ended 2026 and 2025, respectively.
Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.
The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment. Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:
Assets Measured at Fair Value on a Non-recurring Basis
Quoted Prices
In Active
Significant
Markets for
Other
Significant
Balances at
Identical
Observable
Unobservable
(Dollars in thousands)
Dates
Assets
Inputs
Inputs
Indicated
(Level 1)
(Level 2)
(Level 3)
Collateral Dependent Loans
March 31, 2026
$
24,800
$
-
$
-
$
24,800
December 31, 2025
$
16,936
$
-
$
-
$
16,936
Other Real Estate
March 31, 2026
$
2,285
$
-
$
-
$
2,285
December 31, 2025
$
2,524
$
-
$
-
$
2,524
35
Collateral dependent loans classified as Level 3 are loans for which the repayment is expected to be provided substantially through the sale or operation of the collateral when the borrower is experiencing financial difficulty. The fair value of the collateral should be adjusted for estimated costs to sell if the repayment depends on the sale of the collateral. The net carrying amount of the loan should not exceed the fair value of the collateral (less costs to sell, if applicable). The fair value of other real estate owned was based on appraisals or other reviews of property values, adjusted for estimated costs to sell.
36
NOTE 7 – REVENUE FROM CONTRACTS WITH CUSTOMERS
ChoiceOne has a variety of sources of revenue, which include interest and fees from customers as well as revenue from non-customers. ASC Topic 606, Revenue from Contracts with Customers, covers certain sources of revenue that are classified within noninterest income in the Consolidated Statements of Income. Sources of revenue that are included in the scope of ASC Topic 606 include service charges and fees on deposit accounts, interchange income, investment asset management income and transaction-based revenue, and other charges and fees for customer services.
Customer service charges
Revenue includes charges and fees to provide account maintenance, overdraft services, wire transfers, funds transfer, and other deposit-related services. Account maintenance fees such as monthly service charges are recognized over the period of time that the service is provided. Transaction fees such as wire transfer charges are recognized when the service is provided to the customer.
Interchange income
Revenue includes debit card interchange and network revenues. This revenue is earned on debit card transactions that are conducted through payment networks. The revenue is recorded as services are delivered.
Insurance and investment commission income
Revenue includes fees from the investment management advisory services and revenue is recognized when services are rendered. Revenue also includes commissions received from the placement of brokerage transactions for purchase or sale of stocks or other investments. Commission income is recognized when the transaction has been completed. Insurance commission income is recognized when the company has satisfied its performance obligation under the terms of the agreement.
Trust fee income
Revenue includes fees from the management of trust assets and from other related advisory services. Revenue is recognized when services are rendered.
Following is noninterest income separated by revenue within the scope of ASC 606 and revenue within the scope of other GAAP topics:
Three Months Ended
March 31,
(Dollars in thousands)
2026
2025
Customer service charges
$
1,656
$
1,181
Interchange income
1,892
1,509
Insurance and investment commission income
551
295
Trust fee income
692
506
Other charges and fees for customer services
191
162
Noninterest income from contracts with customers within the scope of ASC 606
4,982
3,653
Noninterest income within the scope of other GAAP topics
833
1,269
Total noninterest income
$
5,815
$
4,922
37
NOTE 8 – DERIVATIVE AND HEDGING ACTIVITIES
ChoiceOne utilizes interest rate derivatives as part of its asset liability management strategy to help manage its interest rate risk position. Derivative instruments represent contracts between parties that result in one party delivering cash to the other party based on a notional amount and an underlying term (such as a rate, security price or price index) as specified in the contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying term. Derivatives are also implicit in certain contracts and commitments.
ChoiceOne recognizes derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. ChoiceOne records derivative assets and derivative liabilities on the balance sheet within other assets and other liabilities, respectively. Changes in the fair value of derivative financial instruments are either recognized in income or in shareholders’ equity as a component of accumulated other comprehensive income or loss depending on whether the derivative financial instrument qualifies for hedge accounting and, if so, whether it qualifies as a fair value hedge or cash flow hedge.
Interest rate swaps
ChoiceOne uses interest rate swaps as part of its interest rate risk management strategy to add stability to net interest income and to manage its exposure to interest rate movements. Interest rate swaps designated as hedges involve the receipt of variable-rate amounts from a counterparty in exchange for ChoiceOne making fixed-rate payments or the receipt of fixed-rate amounts from a counterparty in exchange for ChoiceOne making variable rate payments, over the life of the agreements without the exchange of the underlying notional amount.
Active Interest Rate Swaps
In the third quarter of 2025, ChoiceOne entered into $30.4 million in amortizing pay fix swaps to hedge interest rate risk on approximately $40.6 million of newly purchased agency mortgage backed securities. The swap is designated as a fair value hedge and will amortize with the expected cash flow of the bonds and hold a coupon of 3.52% and a contractual term ending in 2040. A fair value basis adjustment associated with available-for-sale agency mortgage backed securities initially results in an adjustment to AOCI. For available-for-sale securities subject to fair value hedge accounting, the changes in the fair value of the agency mortgage backed securities related to the hedged risk (the benchmark interest rate component) are then reclassed from AOCI to current earnings offsetting the fair value measurement change of the interest rate swap, which is also recorded in current earnings. Net cash settlements are received/paid monthly, with the first starting in October 2025, and will be included in interest income. Settlements on this swap increased interest income by $6,000 during the three months ended March 31, 2026 and zero during the three months ended March 31, 2025.
Terminated Interest Rate Swaps
In 2022, ChoiceOne entered into one forward starting pay-fixed/receive-floating interest rate swap (the “Pay Fixed Swap Agreement”) for a notional amount of $200.0 million that was designated as a cash flow hedge. On February 6, 2025, ChoiceOne sold $50 million of the Pay Fixed Swap Agreement. This transaction resulted in a gain of approximately $3.6 million, which will be recognized through interest expense over the 7 years remaining on the life of the swap. On February 26, 2026, ChoiceOne sold the remaining $150 million of the Pay Fixed Swap Agreement, which resulted in a gain of approximately $4.6 million, which will be recognized through interest expense over the 6 years remaining on the life of the swap. Interest expense was reduced by net settlements and accretion from the gain on the sales of the Pay Fixed Swap Agreement which totaled $411,000 and $750,000 for the three months ended March 31, 2026 and March 31, 2025, respectively.
In 2022, ChoiceOne entered into four pay-fixed/receive-floating interest rate swaps for a total notional amount of $201.0 million that were designated as fair value hedges. In January 2026, ChoiceOne sold these swaps, realizing a gain of $2.5 million, that will be applied to the basis of the hedged bonds. Settlements on these four pay-fixed/receive-floating interest rate swaps amounted to $37,000 and $550,000 for the three months ended March 31, 2026 and March 31, 2025, respectively, with no future settlements.
The table below presents the fair value of derivative financial instruments as well as the classification within the consolidated statements of financial condition:
March 31, 2026
December 31, 2025
(Dollars in thousands)
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Derivatives designated as hedging instruments
Interest rate contracts
Other Assets
$
409
Other Assets
$
8,446
Interest rate contracts
Other Liabilities
$
-
Other Liabilities
$
-
38
The table below presents the effect of fair value and cash flow hedge accounting on the consolidated statements of operations for the periods presented:
Location and Amount of Gain or (Loss)
Recognized in Income on Fair Value and Cash Flow Hedging Relationships
Three months ended March 31, 2026
Three months ended March 31, 2025
(Dollars in thousands)
Interest Income
Interest Expense
Interest Income
Interest Expense
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded
$
43
$
411
$
550
$
750
Gain or (loss) on fair value hedging relationships:
Interest rate contracts:
Hedged items
$
(128
)
$
-
$
4,578
$
-
Derivatives designated as hedging instruments
$
128
$
-
$
(4,534
)
$
-
Amount excluded from effectiveness testing recognized in earnings based on amortization approach
$
-
$
-
$
-
$
-
Gain or (loss) on cash flow hedging relationships:
Interest rate contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income
$
-
$
191
$
-
$
-
Amount excluded from effectiveness testing recognized in earnings based on amortization approach
$
-
$
-
$
73
$
-
The table below presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of those items as of the periods presented:
March 31, 2026
Cumulative amount of Fair
(Dollars in thousands)
Value Hedging Adjustment
Line Item in the Statement of
included in the carrying
Financial Position in which the
Amortized cost of the
amount of the Hedged
Hedged Item is included
Hedged Assets/(Liabilities)
Assets/(Liabilities)
Securities available for sale
$
38,886
$
(415
)
Back to Back Loan Swaps
Derivatives not designated as hedges are not speculative and result from a service provided to certain commercial loan borrowers. ChoiceOne executes interest rate swaps with commercial banking customers desiring longer-term fixed rate loans, while simultaneously entering into interest rate swaps with a correspondent bank to offset the impact of the interest rate swaps with the commercial banking customers. This is known as a back to back loan swap agreement. The net result is the desired floating rate loan and a minimization of the risk exposure of the interest rate swap transactions. Under this arrangement the Bank has freestanding interest rate swaps, each of which is carried at fair value. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the commercial banking customer interest rate swaps and the offsetting interest rate swaps with the correspondent bank are recognized directly to earnings.
The table below presents the notional and fair value of these derivative instruments as of March 31, 2026 and December 31, 2025:
39
March 31, 2026
(Dollars in thousands)
Notional Amount
Balance Sheet Location
Fair Value
Derivative assets
Interest rate swaps
$
93,704
Other Assets
$
1,119
Derivative liabilities
Interest rate swaps
$
93,704
Other Liabilities
$
1,127
December 31, 2025
(Dollars in thousands)
Notional Amount
Balance Sheet Location
Fair Value
Derivative assets
Interest rate swaps
$
101,508
Other Assets
$
1,815
Derivative liabilities
Interest rate swaps
$
101,508
Other Liabilities
$
1,826
The fair value of interest rate swaps in a net liability position, which includes accrued interest was $1.1 million and $1.8 million as of March 31, 2026 and December 31, 2025, respectively. ChoiceOne has a master netting agreement with the correspondent bank and has the right to offset; however, ChoiceOne has elected to present the assets and liabilities gross. ChoiceOne is required to pledge collateral to the correspondent bank equal to or in excess of the net liability position. ChoiceOne's derivative liability with the correspondent banks was $930,000 and $1.7 million at March 31, 2026 and December 31, 2025, respectively. Cash pledged as collateral to the correspondent bank was $530,000 and $2.5 million at March 31, 2026 and December 31, 2025, respectively.
Interest rate swaps entered into with commercial loan customers had notional amounts aggregating $93.7 million as of March 31, 2026 and $101.5 million at December 31, 2025. Associated credit exposure is generally mitigated by securing the interest rate swaps with the underlying collateral of the loan instrument that has been hedged.
NOTE 9 – Borrowings
The following represents the contractual maturities of Federal Home Loan Bank Advances:
(Dollars in thousands)
March 31, 2026
December 31, 2025
Maturity of January 2026 with fixed interest rate of 4.35%
$
-
$
10,000
Maturity of March 2026 with Variable-fed fund Callable rate of 3.79%
-
180,000
Maturity of March 2026 with Variable-fed fund Callable rate of 3.79%
-
35,000
Maturity of May 2026 with Variable-fed fund Callable rate of 3.79%
80,000
-
Maturity of June 2026 with Variable-fed fund Callable rate of 3.79%
25,000
-
Maturity of June 2026 with Variable-fed fund Callable rate of 3.79%
40,000
-
Maturity of December 2026 with fixed interest rate of 4.20%
10,000
10,000
Maturity of December 2026 with fixed interest rate of 3.88%
10,000
10,000
Maturity of December 2027 with fixed interest rate of 3.76%
20,000
20,000
Total contractual advances outstanding at period end
$
185,000
$
265,000
As of March 31, 2026, ChoiceOne had no borrowings from the Federal Reserve Bank, and had securities pledged with a carrying value of approximately $348.4 million and loans pledged with a carrying value of approximately $774.6 million. At December 31, 2025, ChoiceOne had securities pledged with a carrying value of approximately $351.8 million and loans pledged with a carrying value of approximately $773.7 million. Based on this collateral, the Bank was eligible to borrow an additional $930.1 million at quarter end March 31, 2026.
Advances from the FHLB were secured by residential real estate loans with a carrying value of approximately $614.7 million and no securities at March 31, 2026 and by residential real estate loans with a carrying value of approximately $610.9 million and no securities at December 31, 2025. Based on this collateral, the Bank was eligible to borrow an additional $228.5 million at March 31, 2026, compared to an additional $145.7 million at year-end 2025.
40
In June 2021, ChoiceOne obtained a $20 million line of credit with an annual renewal. The line carries a floating rate of prime rate with a floor of 3.25% and a rate of 6.75% at March 31, 2026 and December 31, 2025. The credit agreement includes certain financial covenants, including minimum capital ratios, asset quality ratios, and the requirements of achieving certain profitability thresholds. ChoiceOne was in compliance with all covenants as of March 31, 2026 and December 31, 2025. The line of credit had no outstanding balance at March 31, 2026 and December 31, 2025, respectively.
In February 2026, ChoiceOne obtained a $25 million FHLB overdraft line of credit with an annual renewal. Interest on overdrafts will be calculated using the FHLB variable advance rate and is accrued for outstanding advances on a daily basis, paid monthly. The overdraft line of credit had no outstanding balance at March 31, 2026.
Note 10 – Subordinated Debentures
ChoiceOne acquired trust preferred securities in the acquisition of Community Shores. The Capital Trust sold 4,500 Cumulative Preferred Securities (“trust preferred securities”) at $1,000 per security in a December 2004 offering. The proceeds from the sale of the trust preferred securities were used by the Capital Trust to purchase an equivalent amount of subordinated debentures from Community Shores. The trust preferred securities and subordinated debentures carry a floating rate of 2.05% over the 3-month Secured Overnight Financing Rate and the rate was 6.0% at March 31, 2026 and December 31, 2025. The stated maturity is December 30, 2034. Total trust preferred securities at March 31, 2026 were $3.6 million consisting of $4.5 million in trust preferred securities less $882,000 in merger fair value adjustments. The trust preferred securities are redeemable at par value on any interest payment date and are, in effect, guaranteed by ChoiceOne. Interest on the subordinated debentures is payable quarterly on March 30, June 30, September 30 and December 30. ChoiceOne is not considered the primary beneficiary of the Capital Trust (under the variable interest entity rules), therefore the Capital Trust is not consolidated in the consolidated financial statements, rather the subordinated debentures are shown as a liability, and the interest expense is recorded in the consolidated statement of income.
ChoiceOne acquired trust preferred securities in the merger with Fentura. Fentura Capital Trust I sold 12,000 Cumulative Preferred Securities at $1,000 per security in a December 2003 offering. The proceeds from the sale of the trust preferred securities were used by the Fentura Capital Trust I to purchase an equivalent amount of subordinated debentures from Fentura. The trust preferred securities and subordinated debentures carry a floating rate of 3.00% over the 3-month SOFR and the rate was 6.9% at March 31, 2026 and 7.0% at December 31, 2025. The stated maturity is December 15, 2033. Total trust preferred securities at March 31, 2026 were $10.9 million consisting of $12.0 million in trust preferred securities less $1.2 million in merger fair value adjustments, which is being amortized over the next 8 years. The trust preferred securities are redeemable at par value on any interest payment date and are, in effect, guaranteed by ChoiceOne. Interest on the subordinated debentures is payable quarterly on March 15, June 15, September 15 and December 15. ChoiceOne is not considered the primary beneficiary of the Fentura Capital Trust I, and the Fentura Capital Trust I is not consolidated in the consolidated financial statements. Rather, the subordinated debentures are shown as a liability, and the interest expense is recorded in the consolidated statement of income.
The Fentura Capital Trust II sold 2,000 Cumulative Preferred Securities at $1,000 per security in an August 2005 offering. The proceeds from the sale of the trust preferred securities were used by the Fentura Capital Trust II to purchase an equivalent amount of subordinated debentures from Fentura. The trust preferred securities and subordinated debentures carry a floating rate of 1.86% over the 3-month SOFR and the rate was 5.5% at March 31, 2026 and 5.7% at December 31, 2025. The stated maturity is November 23, 2035. Total trust preferred securities at March 31, 2026 were $1.6 million consisting of $2.0 million in trust preferred securities less $403,000 in merger fair value adjustments, which is being amortized over the next 10 years. The trust preferred securities are redeemable at par value on any interest payment date and are, in effect, guaranteed by ChoiceOne. Interest on the subordinated debentures is payable quarterly on February 23, May 23, August 23 and November 23. ChoiceOne is not considered the primary beneficiary of the Fentura Capital Trust II, and the Fentura Capital Trust II is not consolidated in the consolidated financial statements. Rather, the subordinated debentures are shown as a liability, and the interest expense is recorded in the consolidated statement of income.
The terms of the subordinated debentures, the trust preferred securities and the agreements under which they were issued give ChoiceOne the right, from time to time, to defer payment of interest for up to 20 consecutive quarters, unless certain specified events of default have occurred and are continuing. The deferral of interest payments on the subordinated debentures results in the deferral of distributions on the trust preferred securities.
In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. The notes will initially bear interest at a fixed interest rate of 3.25% per annum until September 3, 2026, after which time the interest rate will reset quarterly to a floating rate equal to a benchmark rate, which is expected to be the then current three-month term Secured Overnight Financing Rate (“SOFR”) plus 255 basis points until the notes’ maturity on September 3, 2031. The notes are redeemable by ChoiceOne, in whole or in part, on or after September 3, 2026, and at any time upon the occurrence
41
of certain events. The notes have been structured to qualify as Tier 2 capital for ChoiceOne for regulatory capital purposes. ChoiceOne used a portion of net proceeds from the private placement to redeem senior debt, fund common stock repurchases, and support bank-level capital ratios.
42
Note 11 – Segment Reporting
Segment Reporting
ChoiceOne operates in one reportable segment, which is commercial banking. ChoiceOne provides a full range of financial services to individual and business customers through its network of branches and ATMs. ChoiceOne’s products and services include deposit accounts, loans, mortgage banking, and other financial services.
At ChoiceOne, the Chief Operating Decision Maker (CODM) is the Chief Executive Officer. The CODM evaluates key metrics, such as consolidated net income and its major components, to develop strategies and allocate resources effectively. This analysis involves receiving comprehensive financial information on a consolidated basis, which includes actual and budgeted data, credit quality metrics, net income, earnings per share, loan originations, deposit growth, total non-interest income, and non-interest expense.
Entity-Wide Disclosures
Products and Services: ChoiceOne's revenues are derived from a variety of financial products and services, including interest income from loans and investments, fees from deposit accounts, and income from mortgage banking activities.
Geographic Areas: ChoiceOne operates primarily in the state of Michigan, with a significant portion of its revenues generated from customers located in Michigan. ChoiceOne does not have any operations outside of the United States.
Major Customers: The Company does not have any single customer that accounts for 10% or more of its total revenues.
Reconciliations: The following table reconciles ChoiceOne's total revenues, profit or loss, and assets to the consolidated financial statements:
Three Months Ended March 31,
(Dollars in thousands)
2026
2025
Total Revenues
$
59,091
$
44,881
Net (loss) Income
$
13,704
$
(13,906
)
Total Assets
$
4,394,565
$
4,305,391
43
NOTE 12 – BUSINESS COMBINATION
On March 1, 2025, ChoiceOne completed the Merger, in an all stock transaction, of Fentura, the former parent company of The State Bank, with and into ChoiceOne, with ChoiceOne surviving the Merger.The primary reason for the Merger was to expand ChoiceOne's market presence and enhance its financial strength by integrating Fentura's substantial customer base. On March 14, 2025, ChoiceOne Bank completed the consolidation of The State Bank with and into ChoiceOne Bank, with ChoiceOne Bank surviving the consolidation. Fentura had 20 branch offices and one loan production office as of the date of the Merger. Total assets acquired in the Merger were approximately $1.7 billion, including total loans of approximately $1.4 billion. Total deposits acquired in the Merger, the majority of which were core deposits, totaled approximately $1.4 billion. The Company recorded the estimated fair value of based on assumptions related to discount rates, expected future cash flows, market condition and other future events that are subjective in nature. The impact of the Merger has been included in ChoiceOne’s results of operations since March 1, 2025. As consideration in the Merger, ChoiceOne issued 6,070,836 shares of ChoiceOne common stock with an approximate total value of $193.0 million. Transaction costs incurred after the merger date were primarily in salaries and employee benefits and legal and consulting fees in the Consolidated Statements of Operations, as well as a $12.0 million provision for credit losses.
The table below presents the allocation of purchase price for the Merger with Fentura (dollars in thousands):
Purchase Price
Consideration
$
192,992
Net assets acquired:
Cash and cash equivalents
173,082
Securities available for sale
90,696
Federal Home Loan Bank and Federal Reserve Bank stock
9,179
Originated loans
1,371,226
Premises and equipment
16,664
Other real estate owned
1,735
Intangible assets
35,876
Other assets
50,607
Total assets
1,749,065
Non-interest bearing deposits
404,497
Interest bearing deposits
1,027,384
Total deposits
1,431,881
Borrowing
169,786
Subordinated debentures
12,344
Other liabilities
11,970
Total liabilities
1,625,981
Net assets acquired
123,084
Goodwill
$
69,908
44
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion is designed to provide a review of the consolidated financial condition and results of operations of ChoiceOne Financial Services, Inc. (“ChoiceOne” or the "Company") and its wholly-owned subsidiaries. This discussion should be read in conjunction with the interim consolidated financial statements and related notes.
FORWARD-LOOKING STATEMENTS
This discussion and other sections of this quarterly report contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and ChoiceOne. 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. Management’s determination of the provision and allowance for credit losses, the carrying value of goodwill, loan servicing rights, other real estate owned, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) and management’s assumptions concerning pension and other post-retirement benefit plans involve judgments that are inherently forward-looking. All of the information concerning interest rate sensitivity is forward-looking. All statements with references to future time periods are forward-looking. These statements are not guarantees of future performance and 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 discussed in Item 1A of ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2025. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.
NON-GAAP FINANCIAL MEASURES
In addition to results presented in accordance with GAAP, this report includes certain non-GAAP financial measures. ChoiceOne believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand underlying financial performance and condition and trends of ChoiceOne.
Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, non-GAAP financial measures are used as comparative tools, together with GAAP financial measures, to assist in the evaluation of operating performance or financial condition. These measures are also calculated using the appropriate GAAP or regulatory components in their entirety and are computed in a manner intended to facilitate consistent period-to-period comparisons. ChoiceOne’s method of calculating these non-GAAP financial measures may differ from methods used by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or applicable regulatory requirements.
Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in the tables to this Form 10-Q under the heading non-GAAP reconciliation.
RECENT EVENTS
On March 1, 2025, ChoiceOne completed the merger (the “Merger”) of Fentura Financial, Inc. (“Fentura”), the former parent company of The State Bank, with and into ChoiceOne with ChoiceOne surviving the Merger. On March 14, 2025, ChoiceOne Bank completed the consolidation of The State Bank with and into ChoiceOne Bank with ChoiceOne Bank surviving the consolidation.
RESULTS OF OPERATIONS
ChoiceOne reported net income of $13,704,000 for the three months ended March 31, 2026, compared to net income of $13,867,000 and net loss of $13,906,000 for the three months ended December 31, 2025 and March 31, 2025, respectively. Net income excluding Merger expenses, net of taxes, and Merger related provision for credit losses, net of taxes, was $9,310,000 for the three months ended March 31, 2025. Diluted earnings per share were $0.91 for the three months ended March 31, 2026, compared to diluted earnings per
45
share of $0.92 and diluted loss per share of $1.29 for the three months ended December 31, 2025 and March 31, 2025, respectively. Diluted earnings per share excluding Merger expenses, net of taxes, and Merger related provision for credit losses, net of taxes, was $0.86 for the three months ended March 31, 2025.
A reconciliation for non-GAAP adjusted net income and adjusted earnings per share to GAAP net income and earnings (loss) per share follows:
Three Months Ended
March 31,
2026
2025
(In Thousands, Except Per Share Data)
Net (loss) income
$
13,704
$
(13,906
)
Merger related expenses, net of tax
-
13,753
Merger related provision for credit losses, net of tax (1)
-
9,463
Adjusted net income (Non-GAAP)
$
13,704
$
9,310
Weighted average number of shares
14,990,017
10,676,068
Diluted average shares outstanding
15,041,910
10,740,084
Basic earnings (loss) per share
$
0.91
$
(1.30
)
Diluted earnings (loss) per share
$
0.91
$
(1.29
)
Adjusted basic earnings per share (Non-GAAP)
$
0.91
$
0.87
Adjusted diluted earnings per share (Non-GAAP)
$
0.91
$
0.86
(1) Merger related provision for credit losses represents the estimated credit loss on loans purchased without credit deterioration in the Merger on March 1, 2025.
As of March 31, 2026, total assets were $4.4 billion, an increase of $89.2 million compared to March 31, 2025. The growth in total assets is primarily attributed to growth in securities and warehouse mortgage advances. This was partially offset by a reduction in the cash balance of $55.2 million during the twelve months ended March 31, 2026. Interest rates and balances on warehouse mortgage advances fluctuate with the national mortgage market and are short term in nature.
Core loans, which exclude held for sale loans and mortgage warehouse advances, declined by $30.9 million or an annualized 4.2% during the first quarter of 2026 and grew by $9.5 million or 0.3% during the twelve months ended March 31, 2026. Loan interest income increased $13.0 million in the first quarter of 2026 compared to the same period in 2025 and decreased $975,000 compared to the fourth quarter of 2025. The decrease from the fourth quarter of 2025 is partially due to a decline in interest income due to accretion from purchased loans during the first quarter of 2026 compared to the fourth quarter of 2025. Interest income for the three months ended March 31, 2026 includes $2.7 million of interest income due to accretion from purchased loans compared to $3.1 million for the three months ended December 31, 2025. Interest income due to accretion from purchased loans increased GAAP net interest margin by 26 and 29 basis points in the first quarter of 2026 and fourth quarter of 2025, respectively. Of the amount recognized in the first quarter of 2026, $2.1 million was calculated using the effective interest rate method of amortization, while the remaining $597,000 resulted from accretion through unexpected payoffs and paydowns of loans with an associated fair value mark. Estimated interest income due to accretion from purchased loans for the remainder of 2026 using the effective interest method of amortization is $5.8 million; however, actual results will be dependent on prepayment speeds and other factors. It is estimated that a total of $50.4 million remains to be recognized as interest income due to accretion from purchased loans over the life of the purchased loans portfolio.
Deposits, excluding brokered deposits, increased by $68.9 million as of March 31, 2026, compared to December 31, 2025. This increase is a combination of organic deposit growth and some seasonality in municipal deposits. Deposits, excluding brokered deposits, declined by $20.4 million as of March 31, 2026, compared to March 31, 2025. This decrease is primarily related to runoff of higher cost municipal CDs acquired in the Merger, partially offset by organic growth in other categories. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits and short term FHLB advances to ensure ample liquidity. As of March 31, 2026, the total balance of borrowed funds from the FHLB was $185.0 million at a weighted average rate of 3.81%, with $165.0 million due within 12 months. At March 31, 2026, total available borrowing capacity secured by pledged assets was $1.2 billion. ChoiceOne can increase its borrowing capacity by utilizing unsecured federal fund lines and pledging additional assets. Uninsured deposits totaled $1.1 billion or 30.7% of deposits at March 31, 2026.
46
In the three months ended March 31, 2026, ChoiceOne’s annualized cost of deposits to average total deposits declined 3 basis points compared to the three months ended December 31, 2025 and declined 5 basis points compared to the three months ended March 31, 2025. The annualized cost of funds decreased by 13 basis points, from 1.86% to 1.73% in the three months ended March 31, 2026 compared to the same period in the prior year, primarily due to a decrease in higher cost local and brokered CDs. Interest expense on borrowings for the three months ended March 31, 2026 decreased by $9,000 compared to the same period in the prior year, despite a $32.2 million increase in the average balance borrowed, due to a reduction in rates. In the three months ended March 31, 2026, compared to the three months ended December 31, 2025, annualized cost of funds decreased 6 basis points from 1.79% to 1.73% due to the reductions in the federal funds rate during the fourth quarter of 2025. With ChoiceOne’s already low cost of deposits and market conditions, additional reductions in the federal funds rate may not immediately result in a further reduction in cost of deposits.
ChoiceOne uses interest rate swaps to manage interest rate exposure to certain fixed rate assets and variable rate liabilities. During the first quarter of 2026, ChoiceOne exited $351.0 million of pay‑fixed interest rate swaps with an average coupon of approximately 3.12%. This resulted in a small gain that was applied to the basis of the hedged bonds and a $4.6 million realized gain that will be amortized into interest expense over approximately six years. After evaluating multiple rate scenarios, we determined that our interest rate risk profile and overall balance sheet flexibility are improved without the pay‑fixed interest rate swaps, and we believe this action better aligns our interest rate posture with long‑term value creation for shareholders. Following this exit, the asset sensitivity of the bank is reduced and balance sheet derivatives are no longer a significant percentage of assets. ChoiceOne has approximately $29.0 million of pay-fixed interest rate swaps with a weighted average coupon of 3.52%. These swaps were entered into in the third quarter of 2025 to hedge interest rate risk on newly purchased agency mortgage backed securities.
There was no provision for credit losses on loans during the first quarter of 2026, due to a decline in loan balances and only $53,000 in net charge offs. The ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 1.19% on March 31, 2026 compared to 1.18% on December 31, 2025. Asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.01% for the first quarter of 2026. Nonperforming loans to total loans (excluding loans held for sale) increased to 1.01% as of March 31, 2026 compared to 0.98% as of December 31, 2025. Notably, 0.61% of the nonperforming loans to total loans (excluding loans held for sale) is attributed to certain purchased loans which were identified prior to the Merger as having credit deterioration.
The annualized return on average assets and annualized return on average shareholders’ equity were 1.24% and 11.65%, respectively, for the first quarter of 2026, compared to an annualized loss on average assets and an annualized loss on average shareholders' equity of (1.68)% and (18.39)%, respectively, for the same period in 2025.
Dividends
Cash dividends of $4.3 million or $0.29 per share were declared in the first quarter of2026, compared to $4.2 million or $0.28 per share in the first quarter of 2025. The cash dividend payout percentage was 31.6% for the three months ended March 31, 2026.
Interest Income and Expense
Tables 1 and 2 on the following pages provide information regarding interest income and expense for the three months ended March 31, 2026 and 2025. Table 1 documents ChoiceOne’s average balances and interest income and expense, as well as the average rates earned or paid on assets and liabilities. Table 2 documents the effect on interest income and expense of changes in volume (average balance) and interest rates. These tables are referred to in the discussion of interest income, interest expense and net interest income.
47
Table 1 – Average Balances and Tax-Equivalent Interest Rates
Three Months Ended March 31,
Three Months Ended December 31,
Three Months Ended March 31,
2026
2025
2025
(Dollars in thousands)
Average
Average
Average
Balance
Interest
Rate
Balance
Interest
Rate
Balance
Interest
Rate
Assets:
Loans (1)(3)(4)(5)
$
2,979,652
$
45,661
6.21
%
$
2,961,133
$
46,635
6.25
%
$
2,019,643
$
32,666
6.56
%
Taxable securities (2)
755,718
5,492
2.95
750,256
5,663
2.99
689,891
4,730
2.78
Nontaxable securities (1)
281,295
1,837
2.65
285,782
1,776
2.47
288,878
1,783
2.50
Other
74,803
690
3.74
69,056
694
3.99
115,091
1,179
4.15
Interest-earning assets
4,091,468
53,680
5.32
4,066,227
54,768
5.34
3,113,503
40,358
5.26
Noninterest-earning assets
313,152
309,300
206,088
Total assets
$
4,404,620
$
4,375,527
$
3,319,591
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits
$
1,404,153
$
6,282
1.81
%
$
1,343,600
$
6,352
1.88
%
$
1,111,903
$
4,420
1.61
%
Savings deposits
613,837
1,379
0.91
596,010
1,252
0.83
431,192
883
0.83
Certificates of deposit
598,616
5,099
3.45
613,387
5,502
3.56
487,448
4,950
4.12
Brokered deposit
100,175
985
3.99
100,133
1,021
4.05
45,553
463
4.12
Borrowings
226,192
2,182
3.91
255,978
2,663
4.13
193,961
2,191
4.58
Subordinated debentures
48,503
661
5.53
48,411
681
5.58
40,182
518
5.23
Other
4,871
45
3.75
6,311
65
4.09
20,553
223
4.41
Interest-bearing liabilities
2,996,347
16,633
2.25
2,963,830
17,536
2.35
2,330,792
13,648
2.37
Demand deposits
907,453
925,414
651,424
Other noninterest-bearing liabilities
30,425
26,860
34,838
Total liabilities
3,934,225
3,916,104
3,017,054
Shareholders' equity
470,395
459,423
302,537
Total liabilities and shareholders' equity
$
4,404,620
$
4,375,527
$
3,319,591
Net interest income (tax-equivalent basis) (Non-GAAP) (1)
$
37,047
$
37,232
$
26,710
Net interest margin (tax-equivalent basis) (Non-GAAP) (1)
3.67
%
3.63
%
3.48
%
Reconciliation to Reported Net Interest Income
Net interest income (tax-equivalent basis) (Non-GAAP) (1)
$
37,047
$
37,232
$
26,710
Adjustment for taxable equivalent interest
(405
)
(392
)
(399
)
Net interest income (GAAP)
$
36,642
$
36,840
$
26,311
Net interest margin (GAAP)
3.63
%
3.59
%
3.43
%
(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.
48
(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 $27.5 million, $22.2 million, and $10.2 million in the first quarter of 2026, the fourth quarter of 2025 and the first quarter of 2025, respectively.
(5)
Interest on loans included net origination fees and interest income due to accretion from purchased loans. Interest income due to accretion from purchased loans was $2.7 million, $3.1 million and $2.9 million in the first quarter of 2026, the fourth quarter of 2025 and the first quarter of 2025, respectively.
49
Table 2 – Changes in Tax-Equivalent Net Interest Income
Three Months Ended March 31,
(Dollars in thousands)
2026 Over 2025
Total
Volume
Rate
Increase (decrease) in interest income (1)
Loans (2)
$
12,995
$
24,253
$
(11,258
)
Taxable securities
762
467
295
Nontaxable securities (2)
54
(246
)
300
Other
(489
)
(382
)
(107
)
Net change in interest income
13,322
24,092
(10,770
)
Increase (decrease) in interest expense (1)
Interest-bearing demand deposits
1,862
1,256
606
Savings deposits
496
403
93
Certificates of deposit
149
3,885
(3,736
)
Brokered deposit
522
625
(103
)
Borrowings
(9
)
1,376
(1,385
)
Subordinated debentures
143
112
31
Other
(178
)
(149
)
(29
)
Net change in interest expense
2,985
7,508
(4,523
)
Net change in tax-equivalent net interest income
$
10,337
$
16,584
$
(6,247
)
(1)
The volume variance is computed as the change in volume (average balance) multiplied by the previous year’s interest rate. The rate variance is computed as the change in interest rate multiplied by the previous year’s volume (average balance). The change in interest due to both volume and rate has been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
(2)
Interest on nontaxable investment securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 21%.
Net Interest Income
GAAP based net interest income declined $198,000 in the three months ended March 31, 2026 compared to the three months ended December 31, 2025 and increased $10.3 million in the three ended March 31, 2026 compared to the three months ended March 31, 2025. GAAP based net interest margin increased four and 20 basis points in the three months ended March 31 2026, compared to the three months ended December 31, 2025 and March 31, 2025, respectively.
The following table presents the annualized cost of deposits and the annualized cost of funds for the three months ended March 31, 2025, December 31, 2025 and March 31, 2025.
Three months ended,
March 31, 2026
December 31, 2025
March 31, 2025
Cost of deposits
1.54
%
1.57
%
1.59
%
Cost of funds
1.73
%
1.79
%
1.86
%
Loan interest income increased $13.0 million in the first quarter of 2026 compared to the same period in 2025 and decreased $975,000 compared to the fourth quarter of 2025. The decrease from the fourth quarter of 2025 is partially due to a decline in interest income due to accretion from purchased loans during the first quarter of 2026 compared to the fourth quarter of 2025. Interest income for the three months ended March 31, 2026 includes $2.7 million of interest income due to accretion from purchased loans compared to $3.1 million for the three months ended December 31, 2025. Interest income due to accretion from purchased loans increased GAAP net interest margin by 26 and 29 basis points in the first quarter of 2026 and fourth quarter of 2025, respectively. Of the amount recognized in the first quarter of 2026, $2.1 million was calculated using the effective interest rate method of amortization, while the remaining $597,000 resulted from accretion through unexpected payoffs and paydowns of loans with an associated fair value mark. Estimated interest income due to accretion from purchased loans for the remainder of 2026 using the effective interest method of
50
amortization is $5.8 million; however, actual results will be dependent on prepayment speeds and other factors. It is estimated that a total of $50.4 million remains to be recognized as interest income due to accretion from purchased loans over the life of the purchased loans portfolio.
The average balance of total securities increased $975,000 and $58.2 million for the three months ended March 31, 2026 compared to the three months ended December 31, 2025 and March 31, 2025, respectively. The increase during the first quarter of 2026 compared to the first quarter of 2025 is due in part to $40.6 million of newly purchased agency mortgage backed securities. These securities were purchased in congruence to $30.4 million of amortizing pay fix swaps designed to amortize with the expected cash flow of the bonds and hold a coupon of 3.52%. The average rate earned on securities decreased four basis points and increased 17 basis points for the three months ended March 31, 2026 compared to the three months ended December 31, 2025 and March 31, 2025, respectively. Interest income and rate on securities were impacted by a decline in cash settlements from fixed rate interest rate swaps sold between December of 2025 and February of 2026, which were hedged against securities.
Total interest expense decreased $903,000 and increased $3.0 million for the three months ended March 31, 2026 compared to the three months ended December 31, 2025 and March 31, 2025, respectively. The decrease from the fourth quarter of 2025 compared to the first quarter of 2026 was driven by a decline in the average balance and rate paid on borrowings and CDs. This increase in the first quarter of 2026 compared to the first quarter of 2025 was driven by a $665.6 million dollar increase in the average balance of interest bearing liabilities from the Merger which occurred on March 1, 2025. This was offset by a decline in the rate paid on CDs and borrowings since the first quarter of 2025.
In the three months ended March 31, 2026, ChoiceOne’s annualized cost of deposits to average total deposits declined 3 basis points compared to the three months ended December 31, 2025 and declined 5 basis points compared to the three months ended March 31, 2025. The annualized cost of funds decreased by 13 basis points, from 1.86% to 1.73% in the three months ended March 31, 2026 compared to the same period in the prior year, primarily due to a decrease in higher cost local and brokered CDs. Interest expense on borrowings for the three months ended March 31, 2026 decreased by $9,000 compared to the same period in the prior year, despite a $32.2 million increase in the average balance borrowed, due to a reduction in rates. In the three months ended March 31, 2026, compared to the three months ended December 31, 2025, annualized cost of funds decreased 6 basis points from 1.79% to 1.73% due to the reductions in federal funds rate during the fourth quarter of 2025. With ChoiceOne’s already low cost of deposits and market conditions, additional reductions in the federal funds rate may not immediately result in a further reduction in cost of deposits.
Interest expense on borrowings for the three months ended March 31, 2026 increased by $130,000 compared to the same period in the prior year due to the Merger that took place on March 1, 2025.
51
Provision and Allowance for Credit Losses
The ACL consists of general and specific components. The general component covers loans collectively evaluated for credit loss and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustment for current and forecasted factors is based on trends in delinquencies, trends in charge-offs and recoveries, trends in the volume of loans, changes in underwriting standards, trends in loan review findings, the experience and ability of lending staff, and a reasonable and supportable economic forecast described further below.
The determination of our loss factors is based, in part, upon benchmark peer loss history adjusted for qualitative factors that, in management's judgment, affect the collectability of the portfolio as of the analysis date. Our lookback period for benchmark peer net charge-off history excludes the years 2020 and 2021 due to the COVID-19 pandemic and spans from January 1, 2004, to December 31, 2019, and January 1, 2022, to December 31, 2025.
The provision for credit losses on loans was $0 for the three months of 2026 compared to $13.2 million in the same period in 2025. The provision for credit losses in the first three months of 2025 was due primarily to $12.0 million of expense in the first quarter for the acquisition of $1.3 billion of loans purchased without credit deterioration in the Merger. Additional expense was recorded to account for organic growth, changes in qualitative factors, and forecast data used in the allowance for credit losses calculation. The allowance for credit losses also increased by $4.9 million in the first quarter of 2025 as the credit mark on loans purchased with credit deterioration (“PCD loans”) migrated into the reserve in accordance with CECL guidelines.
Nonperforming assets, which includes Other Real Estate Owned ("OREO") but excludes performing troubled loan modifications ("TLM"), increased by $595,000 to $30.2 million at March 31, 2026, compared to the balance on December 31, 2025. All non-accrual loans from the Merger are classified as PCD loans. The ACL was 1.19% of total loans, excluding loans held for sale, at March 31, 2026, compared to 1.18% as of December 31, 2025. The liability for expected credit losses on unfunded loans and other commitments was $1.3 million for both March 31, 2026 and December 31, 2025.
Charge-offs and recoveries for respective loan categories for the three months ended March 31, 2026 and 2025 were as follows:
(Dollars in thousands)
2026
2025
Charge-offs
Recoveries
Charge-offs
Recoveries
Commercial and industrial
$
-
$
20
$
-
$
2
Consumer
204
147
132
60
Residential real estate
26
9
22
21
$
230
$
176
$
154
$
83
Net charge-offs were $53,000 during the first three months of 2026, compared to net charge-offs of $71,000 during the same period in 2025. Net charge-offs for checking accounts during the first three months of 2026 were $55,000 compared to $51,000 for the same period in the prior year. Annualized net loan charge-offs as a percentage of average loans were 0.01% for both the three months ended March 31, 2026 and the three months ended March 31, 2025. Nonperforming loans to total loans (excluding loans held for sale) were 1.01% as of March 31, 2026. Notably, 0.61% of the nonperforming loans to total loans (excluding loans held for sale) is attributed to PCD loans acquired through the Merger which have a corresponding PCD credit reserve.
Noninterest Income
Noninterest income increased by $893,000 in the three months ended March 31, 2026 compared to the three months ended March 31, 2025. This increase was partly driven by higher customer service charges and interchange income, which rose due to increased volume from the Merger. Insurance and investment commissions income also increased as a result of higher estate settlement fees and customers obtained from the Merger. These increases were partially offset by the loss on sales of securities in the first quarter of 2026.
Noninterest Expense
Noninterest expense declined by $9.9 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The decline was largely due to merger-related expenses of $17.2 million in the three months ended March 31, 2025, offset by higher salaries and benefits expense, occupancy and equipment expense and intangible amortization expense in the three months ended March 31, 2026, compared to the same period in 2025. ChoiceOne will continue to invest in its talented staff, technology and footprint while prioritizing operational efficiency and disciplined investment. ChoiceOne has secured a location in Troy, MI and expects to open
52
a full service branch and lending office later in 2026. We believe this new office will help us continue our strong growth in an attractive market.
Income Tax Expense
Income tax expense was $3.0 million in the three months ended March 31, 2026, compared to income tax benefit of $3.7 million for the same period in 2025. The tax benefit for 2025 was generated by the loss in first quarter of 2025 due to expenses related to the Merger. The effective tax rate was 17.8% for the three months ended March 31, 2026. ChoiceOne’s first‑quarter 2026 tax expense was reduced by $200,000 as a result of purchasing a transferable tax credit that will be applied to 2026 income taxes. Management intends to purchase similar sized transferable tax credits in 2026 to reduce tax expense.
53
FINANCIAL CONDITION
At March 31, 2026, ChoiceOne had consolidated total assets of $4.4 billion, net loans of $2.9 billion, total deposits (excluding brokered deposits) of $3.6 billion and total shareholders' equity of $470.0 million.
Securities
On March 31, 2026, total available‑for‑sale securities were $573.5 million, compared to $554.4 million at December 31, 2025. The increase was primarily driven by the purchase of $34.2 million in agency mortgage‑backed securities. These purchases were partially offset by principal repayments, calls, and maturities.
Total held to maturity securities on March 31, 2026 were $384.3 million compared to $385.2 million on December 31, 2025. ChoiceOne's held to maturity securities declined during the first three months of 2026 due to principal repayments, calls and maturities, which was offset by the purchase of securities during the first three months of 2026.
At March 31, 2026, ChoiceOne had $95.0 million in gross unrealized losses on its investment securities, including $55.5 million in unrealized losses on available for sale securities, $39.0 million in unrealized losses on held to maturity securities, and $506,000 in unrealized losses on equity securities. Unrealized losses on corporate and municipal bonds have not been recognized into income because management believes the issuers are of high credit quality, and management does not intend to sell the bonds prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.
Equity securities included a money market preferred security of $1.0 million and common stock of $8.4 million as of March 31, 2026. and December 31, 2025.
Per U.S. generally accepted accounting principles, unrealized gains or losses on securities available for sale are reflected on the balance sheet in accumulated other comprehensive income (loss), while unrealized gains or losses on securities held to maturity are not reflected on the balance sheet.
Loans
The company's loan portfolio by call report code was as follows:
March 31, 2026
December 31, 2025
(Dollars in thousands)
Call Report Codes
Balance
%
Balance
%
Construction & Development Loans
1A2
$
85,442
2.9
%
$
89,394
3.0
%
1-4 Family Loans
1A1, 1C1, 1C2A, 1C2B, 9A
867,457
29.1
%
875,818
29.0
%
Multifamily Loans
1D
135,580
4.5
%
150,380
5.0
%
Owner Occupied CRE Loans
1E1
563,082
18.9
%
553,208
18.3
%
Non-Owner Occupied CRE Loans
1E2
892,133
29.9
%
917,758
30.4
%
Commercial & Industrial Loans
2A2, 4A
353,980
11.8
%
339,272
11.2
%
Farm & Agriculture Loans
1B, 3
50,555
1.7
%
57,525
1.9
%
Consumer & Other Loans
6B, 6C, 6D, 8, 9b2,10B
35,068
1.2
%
38,679
1.3
%
Total Loans
$
2,983,297
$
3,022,034
Core loans, which exclude held for sale loans and mortgage warehouse advances, declined by $30.9 million or an annualized 4.2% during the first quarter of 2026 and grew by $9.5 million or 0.3% during the twelve months ended March 31, 2026.
Mortgage warehouse advances increased by $7.8 million as of March 31, 2026 compared to December 31, 2025. Loans to other financial institutions consist of a warehouse line of credit used to facilitate mortgage loan originations, with interest rates and balances that fluctuate in line with the national mortgage market.
Goodwill
54
Goodwill is not amortized but is evaluated annually for impairment and on an interim basis if events or changes in circumstances indicate that goodwill might be impaired. The goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized for any amount by which the carrying amount exceeds the reporting unit’s fair value. Accounting pronouncements allow a company to first perform a qualitative assessment for goodwill prior to a quantitative assessment (Step 1 assessment). If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired, then a quantitative assessment must be performed. If not, there is no further assessment required. The Company acquired Valley Ridge Financial Corp. in 2006, County Bank Corp in 2019, Community Shores in 2020, and Fentura in 2025, which resulted in the recognition of goodwill of $13.7 million, $38.9 million, $7.3 million and $69.9 million, respectively.
ChoiceOne conducted an annual assessment of goodwill as of June 30, 2025 and no impairment was identified. No material changes and no triggering events have occurred that indicated impairment.
Deposits and Borrowings
Deposits, excluding brokered deposits, increased by $68.9 million as of March 31, 2026, compared to December 31, 2025. This increase is a combination of organic deposit growth and some seasonality in municipal deposits. Deposits, excluding brokered deposits, declined by $20.4 million as of March 31, 2026, compared to March 31, 2025. This decrease is primarily related to runoff of higher cost municipal CDs acquired in the Merger, partially offset by organic growth in other categories. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits and FHLB advances to ensure ample liquidity. At March 31, 2026, total available borrowing capacity secured by pledged assets was $1.2 billion. ChoiceOne can increase its borrowing capacity by utilizing unsecured federal fund lines and pledging additional assets. Uninsured deposits totaled $1.1 billion or 30.7% of deposits at March 31, 2026. As of March 31, 2026, the total balance of borrowed funds from the FHLB was $185.0 million with a weighted average fixed rate of 3.81% and $165.0 million due within 12 months.
ChoiceOne recognized a core deposit intangible of $31.0 million related to the Merger in the first quarter of 2025. This intangible asset, valued at 2.78% of Fentura's core deposits, is being amortized over a period of 10 years using the sum-of-years-digits method. This approach reflects the anticipated pattern of economic benefits derived from the core deposits. ChoiceOne recognized core deposit intangible expense of $1.7 million for the three months ended March 31, 2026.
In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. ChoiceOne also holds $15.9 million in subordinated debentures that were obtained in the acquisition of Community Shores and the Merger with Fentura, offset by the merger mark-to-market adjustment.
Shareholders' Equity
At March 31, 2026, shareholders’ equity was $470.0 million, an increase from $427.1 million on March 31, 2025. ChoiceOne repurchased 25,116 shares of stock for a net cost of $775,000 in the fourth quarter of 2025 and 50,000 shares of stock for a net cost of $1.4 million during the first quarter of 2026 under our existing share repurchase plan. The repurchase plan has 300,272 shares remaining to purchase as of March 31, 2026. The repurchase reflects our view that our capital position is healthy and the repurchase of shares is in the best interest of our shareholders. ChoiceOne Bank continues to be “well-capitalized,” with a total risk-based capital ratio of 12.5% as of March 31, 2026, compared to 11.9% on March 31, 2025.
.
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Regulatory Capital Requirements
Following is information regarding compliance of ChoiceOne and ChoiceOne Bank with regulatory capital requirements:
Minimum Required
to be Well
Minimum Required
Capitalized Under
for Capital
Prompt Corrective
(Dollars in thousands)
Actual
Adequacy Purposes
Action Regulations
Amount
Ratio
Amount
Ratio
Amount
Ratio
March 31, 2026
ChoiceOne Financial Services Inc.
Total capital (to risk weighted assets)
$
435,583
13.2
%
$
264,523
8.0
%
N/A
N/A
Common equity Tier 1 capital (to risk weighted assets)
350,188
10.6
148,794
4.5
N/A
N/A
Tier 1 capital (to risk weighted assets)
366,300
11.1
198,392
6.0
N/A
N/A
Tier 1 capital (to average assets)
366,300
8.6
169,797
4.0
N/A
N/A
ChoiceOne Bank
Total capital (to risk weighted assets)
$
425,808
12.9
%
$
264,315
8.0
%
$
330,394
10.0
%
Common equity Tier 1 capital (to risk weighted assets)
388,965
11.8
148,677
4.5
214,756
6.5
Tier 1 capital (to risk weighted assets)
388,965
11.8
198,236
6.0
264,315
8.0
Tier 1 capital (to average assets)
388,965
9.2
169,697
4.0
212,122
5.0
December 31, 2025
ChoiceOne Financial Services Inc.
Total capital (to risk weighted assets)
$
425,813
12.7
%
$
267,754
8.0
%
N/A
N/A
Common equity Tier 1 capital (to risk weighted assets)
340,023
10.2
150,611
4.5
N/A
N/A
Tier 1 capital (to risk weighted assets)
358,523
10.7
200,815
6.0
N/A
N/A
Tier 1 capital (to average assets)
358,523
8.5
168,643
4.0
N/A
N/A
ChoiceOne Bank
Total capital (to risk weighted assets)
$
417,800
12.5
%
$
267,564
8.0
%
$
334,455
10.0
%
Common equity Tier 1 capital (to risk weighted assets)
382,914
11.4
150,505
4.5
217,396
6.5
Tier 1 capital (to risk weighted assets)
382,914
11.4
200,673
6.0
267,564
8.0
Tier 1 capital (to average assets)
382,914
9.1
168,463
4.0
210,579
5.0
Management reviews the capital levels of ChoiceOne and ChoiceOne Bank on a regular basis. The Board of Directors and management believe that the capital levels as of March 31, 2026 are adequate for the foreseeable future. The Board of Directors’ determination of appropriate cash dividends for future periods will be based on, among other things, market conditions and ChoiceOne’s requirements for cash and capital.
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Liquidity
Net cash used in operating activities was $179,000 for the three months ended March 31, 2026 compared to $9.4 million in the same period in 2025. The year-over-year change was primarily driven by a $13.2 million decrease in the provision for credit losses in the first quarter of 2026 compared to the prior-year period, largely attributable to the impact of Merger-related activity. Net cash provided by investing activities was $14.6 million for the three months ended March 31, 2026 compared to net cash provided by investing activities of $259.9 million in the same period in 2025. The decrease is due to the cash acquired in the Merger and the sale of $78.9 million of securities acquired in the Merger with Fentura in the first quarter of 2025. ChoiceOne also received $173.1 million of cash from The State Bank as part of the Merger. Net cash used in financing activities was $18.2 million for the three months ended March 31, 2026, compared to $207.8 million provided in the same period in the prior year. ChoiceOne decreased borrowing by $80.0 million in the first three months of 2026 compared to a decrease of $207.5 million in the same period during the prior year. ChoiceOne had $61.6 million in deposit increase in the first three months of 2026 compared to an increase of $5.7 million in the same period in 2025. The deposit increase is a combination of organic deposit growth and some seasonality in municipal deposits.
ChoiceOne's market risk exposure occurs in the form of interest rate risk and liquidity risk. ChoiceOne's business is transacted in U.S. dollars with no foreign exchange risk exposure. Agricultural loans comprise a relatively small portion of ChoiceOne's total assets. Management believes that ChoiceOne's exposure to changes in commodity prices is insignificant.
Liquidity risk deals with ChoiceOne's ability to meet its cash flow requirements. These requirements include depositors desiring to withdraw funds and borrowers seeking credit. Longer-term liquidity needs may be met through core deposit growth, maturities of and cash flows from investment securities, normal loan repayments, advances from the FHLB and the Federal Reserve Bank, brokered certificates of deposit, and income retention. ChoiceOne had $185.0 million in outstanding borrowings from the FHLB at a weighted average fixed rate of 3.81% with $165.0 million due within 12 months as of March 31, 2026. ChoiceOne had $103.4 million in brokered deposits on March 31, 2026. The acceptance of brokered certificates of deposit is not limited as long as the Bank is categorized as “well capitalized” under regulatory guidelines. At March 31, 2026, total available borrowing capacity from the FHLB and the Federal Reserve Bank was $1.2 billion.
Item 4. Controls and Procedures.
An evaluation was performed under the supervision and with the participation of ChoiceOne’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of ChoiceOne’s disclosure controls and procedures as of March 31, 2026. Based on and as of the time of that evaluation, ChoiceOne’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that ChoiceOne’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that material information required to be disclosed in the reports that ChoiceOne files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that ChoiceOne files or submits under the Exchange Act is accumulated and communicated to management, including ChoiceOne’s principal executive and principal financial officers, as appropriate to allow for timely decisions regarding required disclosure.
There was no change in ChoiceOne’s internal control over financial reporting that occurred during the three months ended March 31, 2026 that has materially affected, or that is reasonably likely to materially affect, ChoiceOne’s internal control over financial reporting.
57
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings to which ChoiceOne or ChoiceOne Bank is a party or to which any of their properties are subject, except for proceedings that arose in the ordinary course of business.
Item 1A. Risk Factors.
Information concerning risk factors is contained in the discussion in Item 1A, “Risk Factors,” in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of equity securities in the first quarter of 2026.
ChoiceOne’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. ChoiceOne repurchased 50,000 shares of stock for a net cost of $1.4 million during the first quarter of 2026 under the repurchase plan. The repurchase plan has 300,272 shares remaining to purchase as of March 31, 2026. There was no stated expiration date. The repurchase reflects our view that our capital position is healthy and the repurchase of shares is in the best interest of our shareholders.
The following table provides information regarding ChoiceOne's purchases of its common stock during the quarter ended March 31, 2026.
Total Number
Maximum
of Shares
Number of
Total
Purchased as
Shares that
Number
Average
Part of a
May Yet be
of Shares
Price Paid
Publicly
Purchased
Period
Purchased
per Share
Announced Plan
Under the Plan
January 1 - January 31, 2026
Employee Transactions
—
$
—
—
Repurchase Plan
—
$
—
—
350,272
February 1 - February 28, 2026
Employee Transactions
—
$
—
—
Repurchase Plan
30,000
$
29.36
30,000
320,272
March 1 - March 31, 2026
Employee Transactions
—
$
—
—
Repurchase Plan
20,000
$
28.00
20,000
300,272
Item 5. Other Information
Employment Agreements
Kelly J. Potes, Chief Executive Officer of ChoiceOne, entered into an employment agreement with ChoiceOne on May 7, 2026 (the “Potes Employment Agreement”). Michael J. Burke, Jr., President of ChoiceOne, entered into an employment agreement with ChoiceOne on May 7, 2026 (the “Burke Employment Agreement”).
The terms of the Potes Employment Agreement and Burke Employment Agreement (together, the “Employment Agreements”) are substantially similar.
Each Employment Agreement has a term of one year that will automatically extend for additional one year terms unless either party gives notice to the other party to terminate the Employment Agreement at least 30 days before an anniversary date of the Agreement.
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Under each Employment Agreement, in the event of ChoiceOne’s termination of Mr. Potes or Mr. Burke, as applicable, without cause, or by the executive for good reason, the executive will be entitled to a lump-sum cash payment equal to (i) two times the executive’s then-current salary, plus (ii) twelve times ChoiceOne’s share of the monthly cost of healthcare under ChoiceOne’s health plan.
In the event of a change of control and a qualifying termination within two years after the change in control, the executive will be entitled to a lump-sum cash payment equal to (i) three times the executive’s then-current salary, plus (ii) twelve times ChoiceOne’s share of the monthly cost of healthcare under ChoiceOne’s health plan. If any payment to be received by the executive following a change in control is determined to constitute a “parachute payment” as such term is defined in Section 280G(b)(2) of the Code, ChoiceOne will act in good faith to mitigate the impact of Section 280G of the Code such that no “parachute payment” will result. To the extent this effort is unsuccessful, ChoiceOne will reduce the amount of such payment to ensure that the total payments to the applicable executive do not exceed 2.99 times the executive's “base amount” as defined in Section 280G(b)(3) of the Code.
The Employment Agreements contain provisions related to non-solicitation and non-competition that generally preclude the executive, during his time of employment and for a period of 24 months thereafter, from engaging in activities competitive with ChoiceOne in any county in which ChoiceOne or its affiliates has a branch office or loan production office or in any contiguous counties, from diverting from ChoiceOne any trade or business with any customer or supplier with whom the executive had contact during his employment, and from soliciting any person who is an employee of ChoiceOne or its affiliates to apply for or accept an employment or business opportunity with any other person or entity, subject to certain conditions and exceptions. The Employment Agreements also require the executive to maintain the confidentiality of non-public information with respect to ChoiceOne and its affiliates.
Pursuant to the Potes Employment Agreement, Mr. Potes' annual salary will be $585,000. Pursuant to the Burke Employment Agreement, Mr. Burke's annual salary will be $497,250. In each case, the salaries of each of Mr. Potes and Mr. Burke will be subject to annual review and adjustment in accordance with ChoiceOne’s normal procedures. Mr. Potes and Mr. Burke will be eligible to participate in ChoiceOne’s bonus programs and equity-based compensation programs.
The foregoing description of the Potes Employment Agreement is qualified in its entirety by reference to the complete terms and conditions of the Potes Employment Agreement, which is filed as Exhibit 10.1 to this Form 10-Q. The foregoing description of the Burke Employment Agreement is qualified in its entirety by reference to the complete terms and conditions of the Burke Employment Agreement, which is filed as Exhibit 10.2 to this Form 10-Q.
Change in Control Agreements
Adom J. Greenland, Executive Vice President and Chief Financial Officer of ChoiceOne, entered into a change in control agreement with ChoiceOne on May 7, 2026 (the “Greenland CIC Agreement”). Bradley A. Henion, Executive Vice President and Chief Lending Officer of ChoiceOne, entered into a change in control agreement with ChoiceOne on May 7, 2026 (the “Henion CIC Agreement”).
The terms of the Greenland CIC Agreement and Henion CIC Agreement (together, the “CIC Agreements”) are substantially similar.
In the event of a change of control and a qualifying termination within two years after the change in control, the executive will be entitled to a lump-sum cash payment equal to (i) two times the executive’s then-current salary, plus (ii) twelve times ChoiceOne’s share of the monthly cost of healthcare under ChoiceOne’s health plan. If any payment to be received by the executive following a change in control is determined to constitute a “parachute payment” as such term is defined in Section 280G(b)(2) of the Code, ChoiceOne will act in good faith to mitigate the impact of Section 280G of the Code such that no “parachute payment” will result. To the extent this effort is unsuccessful, ChoiceOne will reduce the amount of such payment to ensure that the total payments to the applicable executive do not exceed 2.99 times the executive's “base amount” as defined in Section 280G(b)(3) of the Code.
The CIC Agreements contain provisions related to non-solicitation and non-competition that generally preclude the executive, during his time of employment and for a period of 24 months thereafter, from engaging in activities competitive with ChoiceOne in any county in which ChoiceOne or its affiliates has a branch office or loan production office or in any contiguous counties, from diverting from ChoiceOne any trade or business with any customer or supplier with whom the executive had contact during his employment, and from soliciting any person who is an employee of ChoiceOne or its affiliates to apply for or accept an employment or business opportunity with any other person or entity, subject to certain conditions and exceptions. The CIC Agreements also require the executive to maintain the confidentiality of non-public information with respect to ChoiceOne and its affiliates.
The foregoing description of the Greenland CIC Agreement is qualified in its entirety by reference to the complete terms and conditions of the Greenland CIC Agreement, which is filed as Exhibit 10.3 to this Form 10-Q. The foregoing description of the Henion CIC Agreement is qualified in its entirety by reference to the complete terms and conditions of the Henion CIC Agreement, which is filed as Exhibit 10.4 to this Form 10-Q.
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SERP Agreements
Effective May 7, 2026, ChoiceOne Bank, a wholly owned subsidiary of ChoiceOne, entered into an unfunded Supplemental Executive Retirement Benefits Agreement (the “SERP Agreement”) with each of Messrs. Potes, Burke, Greenland and Henion to provide each executive with the opportunity to earn supplemental nonqualified retirement benefits payable by ChoiceOne Bank from its general assets following the later of the executive’s attainment of a specified age (an age between 60 and 70 specified in the SERP Agreement) or separation from service under various scenarios. Each executive shall be credited with a specified benefit amount as of each December 31st the executive remains employed by the Company or ChoiceOne Bank as follows: Mr. Potes ($25,000 per year for 4 years), Mr. Burke ($14,400 per year for 10 years), Mr. Henion ($11,111 per year for 9 years, except $11,112 for year 5), and Mr. Greenland ($10,000 per year for 15 years). If the executive becomes entitled to benefits before the final year of scheduled benefit accruals for a reason other than a change in control before the executive has attained age 60, the executive will receive a limited benefit equal to the amount credited to-date under the executive’s SERP Agreement. If the executive is discharged for cause or breaches any covenant under an agreement with the Company or ChoiceOne Bank, the executive shall forfeit all unpaid benefits under the SERP Agreement.
The SERP Agreement provides for payment of retirement benefits in substantially equal monthly installments over a period of 15 years (10 years in the case of Mr. Potes), except that if the executive dies while employed, and an insurance agreement providing split-dollar life insurance on the executive’s life is not in effect on the date of the executive’s death, SERP benefits shall be paid in a lump sum that is actuarially equivalent to the SERP benefit (full benefit or limited benefit) earned by the executive as of the date of death. Upon a change in control, if the executive is age 60 or over, the executive will vest in his full benefit under the SERP. If the executive is under age 60 as of a change in control, the executive will vest in his limited benefit under the SERP. Upon termination of the SERP prior to payment of all benefits, benefits shall be paid in a lump sum at the time permitted under Code Section 409A.
The foregoing description of the SERP Agreement is qualified in its entirety by reference to the complete terms and conditions of the SERP Agreement with each executive, which are filed as Exhibits 10.5, 10.6, 10.7, and 10.8 to this Form 10-Q.
Split Dollar Life Insurance Agreements
Effective May 7, 2026, ChoiceOne Bank entered into a split-dollar life insurance agreement (the “Insurance Agreement”) with each of Messrs. Potes, Burke, Greenland and Henion. Under each Insurance Agreement, the executive’s named beneficiary is entitled to receive a death benefit equal to the lesser of a specified dollar amount in the Insurance Agreement ($1,000,000 for Mr. Potes, $1,000,000 for Mr. Burke through March 9, 2031 and $1,500,000 thereafter, $1,000,000 for Mr. Greenland through July 25, 2036 and $1,500,000 thereafter, and $1,000,000 for Mr. Henion) or 100% of the difference between the death benefit payable under the applicable life insurance policy purchased by ChoiceOne Bank and the accrued cash value of the life insurance policy at the time of the executive’s death. Premiums with respect to the related life insurance policy under the Insurance Agreement are payable by ChoiceOne Bank and it is the sole owner of the related life insurance policy. The Insurance Agreement automatically terminates on the first to occur of any of the following events: (i) distribution of death benefit proceeds in accordance with the Insurance Agreement, (ii) termination of the executive’s employment; or (iii) the surrender or termination of the related life insurance policy by ChoiceOne Bank. Upon termination of the Insurance Agreement, the executive will forfeit all rights thereunder.
The foregoing description of the Insurance Agreement is qualified in its entirety by reference to the complete terms and conditions of the Insurance Agreement with each executive, which are filed as Exhibits 10.9, 10.10, 10.11, and 10.12 to this Form 10-Q.
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Item 6. Exhibits
The following exhibits are filed or incorporated by reference as part of this report:
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
62
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHOICEONE FINANCIAL SERVICES, INC.
Date: May 11, 2026
/s/ Kelly J. Potes
Kelly J. Potes Chief Executive Officer (Principal Executive Officer)
Date: May 11, 2026
/s/ Adom J. Greenland
Adom J. Greenland Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)