Financial Performance Overview

ChoiceOne Financial Services, Inc. (ChoiceOne) reported strong financial results in 2024, with net income reaching $26.7 million, up from $21.3 million in 2023. Diluted earnings per share were $3.25 in 2024, compared to $2.82 in 2023. This improvement was driven by growth in core loans, higher net interest income, and increased noninterest income.

ChoiceOne’s total assets grew to $2.7 billion at the end of 2024, up from $2.6 billion a year earlier. This growth was primarily due to a $114.5 million increase in core loans, which now make up 69.8% of total deposits, up from 66.5% at the end of 2023. The company strategically shifted its balance sheet to focus on higher-yielding loans while reducing lower-yielding securities.

Revenue and Profit Trends

Net interest income, which is the difference between interest earned on loans and investments and interest paid on deposits and borrowings, increased by $8.6 million in 2024 compared to 2023. This was driven by strong loan growth and higher interest rates, which offset the rising cost of deposits and borrowings.

Noninterest income, which includes fees and other revenue sources, increased by $3.1 million in 2024. This was largely due to higher credit and debit card fees, as well as earnings on bank-owned life insurance policies.

The provision for credit losses, which is the amount set aside to cover expected loan losses, was $1.3 million in 2024, up from $1.3 million in 2023. This increase was due to the significant growth in the loan portfolio, offset by slight improvements in the economic forecast.

Noninterest expense, which includes operating costs such as salaries, benefits, and occupancy, increased by $3.6 million or 6.6% in 2024. This was partly due to $1.0 million in merger-related expenses incurred during the year.

Strengths and Weaknesses

ChoiceOne’s key strengths include its strong core deposit base, which grew by 3.8% in 2024, and its ability to manage interest rate risk through the use of interest rate swaps. The company’s asset quality remains strong, with nonperforming loans at just 0.24% of total loans at the end of 2024.

One potential weakness is ChoiceOne’s reliance on brokered deposits, which made up 1.6% of total deposits at the end of 2024. While the company has ample liquidity, a heavy dependence on brokered funds could pose a risk if market conditions change.

Additionally, the company’s cost of deposits has been rising, increasing from 1.14% in 2023 to 1.58% in 2024 as the Federal Reserve raised interest rates. While ChoiceOne has been able to offset this by growing higher-yielding loans, a continued rise in deposit costs could put pressure on net interest margins.

Outlook and Future Considerations

Looking ahead, ChoiceOne’s merger with Fentura Financial, Inc., the parent company of The State Bank, is expected to close in early 2025. This transaction will expand ChoiceOne’s footprint and provide opportunities for cost savings and revenue synergies.

The company’s capital position remains strong, with a total risk-based capital ratio of 12.7% at the end of 2024. This provides ChoiceOne with the flexibility to continue growing its loan portfolio and pursue strategic initiatives.

However, the company will need to closely monitor the interest rate environment and its impact on net interest margin. If the Federal Reserve continues to raise rates, ChoiceOne may need to further adjust its deposit pricing and funding mix to maintain profitability.

Additionally, the company will need to effectively integrate the Fentura acquisition and ensure a smooth transition for customers and employees. Successful execution of the merger will be crucial for ChoiceOne’s future growth and performance.

Overall, ChoiceOne’s 2024 financial results demonstrate the company’s ability to navigate a challenging interest rate environment and deliver solid earnings growth. By focusing on core loan growth, managing interest rate risk, and pursuing strategic opportunities, ChoiceOne is well-positioned to continue creating value for its shareholders.