ChoiceOne Financial Services (COFS) Q2 2024 & Acquisition earnings summary

Executive summary

• Net income for Q2 2024 was $6.6 million, up 26.3% year-over-year; six-month net income was $12.2 million, up 12.7% year-over-year.

• Diluted EPS was $0.87 for Q2 and $1.61 for the first half, compared to $0.69 and $1.44 in the prior year.

• Total assets reached $2.6 billion as of June 30, 2024, up $46.4 million since year-end 2023 and $139.3 million from the prior year.

• Announced a merger with Fentura Financial, Inc., expected to create Michigan's third largest public bank with $4.3B in assets, $2.9B in loans, and $3.6B in deposits.

• The merger is expected to close in Q1 2025, subject to shareholder and regulatory approvals, with a fixed exchange ratio of 1.35 COFS shares per FETM share and an aggregate transaction value of $180.4M.

Financial highlights

• Net interest income for Q2 2024 was $18.4 million, up from $16.1 million in Q2 2023.

• Noninterest income rose by $598,000 in Q2 2024, driven by higher service charges and lower equity security losses.

• Noninterest expense increased by $705,000 in Q2 2024, mainly due to higher employee benefits and FDIC insurance.

• Cash dividends declared were $0.27 per share in Q2 2024, up from $0.26 in Q2 2023.

• Projected 2025 ROAA >1.30%, ROATCE >20%, and EPS accretion >30%, assuming 75% phased-in cost savings and excluding one-time deal costs.

Outlook and guidance

• The merger with Fentura is expected to close in Q1 2025, subject to regulatory and shareholder approvals.

• Management expects deposit costs to remain elevated as customers shift to higher-yield products, but anticipates controlling these costs below the federal funds rate.

• The company remains proactive in managing liquidity and expects continued organic loan growth.

• Expected EPS accretion of >30% in 2025 and >25% in 2026, with tangible book value dilution earnback in less than 3 years.

• Revenue synergies are anticipated but not modeled; cost savings of 28% of FETM's noninterest expense base are expected.