CHOICEONE FINANCIAL SERVICES INC (COFS)

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

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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:

(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.

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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

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Item 7. 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 consolidated financial statements and related footnotes.

We have omitted discussion of 2024 results where it would be redundant to the discussion previously included in Part II, Item 7 of our 2024 Annual Report on Form 10-K.

Selected Financial Data

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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

Summary

ChoiceOne reported net income of $28,176,000 for the year ended December 31, 2025, compared to net income of $26,727,000 for the same period in the prior year . Net income excluding merger expenses, net of taxes, and merger related provision for credit losses, net of taxes, was $51,524,000 for the year ended December 31, 2025. Diluted earnings per share were $2.01 for the year ended December 31, 2025, compared to diluted earnings per share of $3.25 for the same period in the prior year. Diluted earnings per share excluding merger expenses, net of taxes, and merger related provision for credit losses, net of taxes, were $3.68 for the year ended December 31, 2025.

ChoiceOne's asset mix has shifted from loans held for investment of 69.8% of deposits at December 31, 2024 to 83.9% of deposits at December 31, 2025. As of December 31, 2025, total assets were $4.4 billion, an increase of $1.7 billion compared to December 31, 2024. The growth in total assets is primarily attributed to the Merger. In addition to growth related to the Merger, ChoiceOne also grew in core loans, securities and mortgage warehouse advances, which consist of a line of credit to fund participated mortgage loans. Interest rates and balances from this warehouse line of credit fluctuate with the national mortgage market and are short term in nature.

Core loans, which exclude held for sale loans and mortgage warehouse advances, grew organically by $86.1 million or 5.7% during the twelve months ended December 31, 2025. Core loans also grew by $1.4 billion due to the Merger on March 1, 2025. As a result of loan growth and interest income due to accretion from purchased loans, loan interest income increased $83.3 million in the full year 2025 compared to the same period in 2024. Interest income for the year ended December 31, 2025, includes $13.1 million of interest income due to accretion from purchased loans compared to $1.2 million for the same period in 2024. Interest income due to accretion from purchased loans increased GAAP net interest margin by 34 basis points in the full year 2025. Estimated interest income due to accretion from purchased loans for 2026 using the effective interest method of amortization is $8.0 million; however, actual results will be dependent on prepayment speeds and other factors. It is estimated that a total of $53.1 million remains to be recognized as interest income due to accretion from purchased loans over the life of the loan portfolio.

Deposits, excluding brokered deposits, increased by $1.3 billion as of December 31, 2025, compared to December 31, 2024 largely as a result of the Merger. 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 December 31, 2025, the total balance of borrowed funds from the FHLB was $265.0 million at a weighted average rate of 3.83%, with $245.0 million due within 12 months. At December 31, 2025, total available borrowing capacity secured by pledged assets was $1.1 billion. ChoiceOne can increase its borrowing capacity by utilizing unsecured federal fund lines and pledging additional assets. Uninsured deposits totaled $1.2 billion or 33.2% of deposits at December 31, 2025.

The provision for credit losses on loans was $15.1 million during 2025, due primarily to $12.0 million of expense for the acquisition of $1.3 billion of purchased loans without credit deterioration (“non-PCD loans”) 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 ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 1.18% on December 31, 2025 compared 1.07% on December 31, 2024. Asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.04%. Nonperforming loans to total loans (excluding loans held for sale) increased to 0.98% as of December 31, 2025 compared to 0.24% as of December 31, 2024. Notably, 0.63% 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. Importantly, we believe this uptick is not indicative of a broader trend, and current portfolio performance does not suggest emerging weakness in underlying credit quality.

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Noninterest Income

Noninterest income increased by $6.7 million for the year ended December 31, 2025, compared to the same period in the prior year. This increase was partly driven by higher interchange income, which rose due to increased volume from the Merger. Trust income as well as insurance and investment commissions income also increased as a result of higher estate settlement fees and customers obtained from the Merger. These increases were offset by a decline in gains on sales of loans and losses on sales and write downs of other assets. Gains on sales of loans declined due to a higher mix of loans held on the balance sheet and market conditions.

Noninterest Expense

Noninterest expense increased by $54.0 million for the year ended December 31, 2025, compared to the same period in 2024. The increase in 2025 was largely due to merger-related expenses of $17.4 million during 2025, compared to $1.0 million in the year ended December 31, 2024. Management does not anticipate additional material merger-related expenses. The remainder of the increase was primarily due to the addition of Fentura on March 1, 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, Michigan and expects to open 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. In addition, we are experimenting with automation and AI‑driven solutions designed to modernize processes to augment the ability for our existing staff to manage our growth.

Dividends

Cash dividends of $16.9 million or $1.13 per common share were declared in 2025 compared to $9.0 million or $1.09 per common share in 2024. The dividend yield for ChoiceOne’s common stock was 3.83% as of the end of 2025, compared to 3.06% as of the end of 2024. The cash dividend payout as a percentage of net income was 60.2% as of December 31, 2025, compared to 33.7% as of December 31, 2024. The large increase was due to merger-related expenses leading to a net income loss during the first quarter of 2025.

Income Taxes

Income tax expense was $350,000 lower in 2025 than in 2024. The effective tax rate was 17.6% for the year ended December 31, 2025 compared to 19.2% for the same period in 2024. ChoiceOne’s fourth‑quarter 2025 tax expense was reduced by a net of $340,000 as a result of purchasing a transferable tax credit that will be applied to 2025 income taxes, with allowable carrybacks to prior years. Management is continuing to evaluate additional transferable tax credit opportunities and may pursue further purchases to help offset tax expense in 2026. For further details, refer to Note 12 - Income Taxes of the Notes to the Consolidated Financial Statements included in Item 8 of this report.

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Table 1 – Average Balances and Tax-Equivalent Interest Rates

Tables 1 and 2 on the following pages provide information regarding interest income and expense for the years ended December 31, 2025, 2024, and 2023. 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.

(1)
Adjusted to a fully tax-equivalent basis to facilitate comparison to the taxable interest-earning assets. The adjustment uses an incremental tax rate of 21%. The presentation of these measures on a tax-equivalent basis is not in accordance with GAAP, but is customary in the banking industry. These non-GAAP measures ensure comparability with respect to both taxable and tax-exempt loans and securities.

(2)
Interest on taxable securities includes dividends on Federal Home Loan Bank and Federal Reserve Bank stock.

(3)
Loans include both mortgage warehouse advances and loans held for sale.

(4)
Non-accruing loan balances are included in the balances of average loans. Non-accruing loan average balances were $16.4 million, $2.3 million, and $1.6 million for the year ended 2025, 2024, and 2023, 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 $13.1 million, $1.2 million, and $1.7 million for the full year 2025, 2024, and 2023, respectively.

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Table 2 – Changes in Tax-Equivalent Net Interest Income

(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 tax-exempt securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 21% for 2025, 2024, and 2023.

Net Interest Income

GAAP based net interest income increased $62.6 million, and tax-equivalent net interest income increased $62.7 million for the full year 2025, compared to the same period in 2024. GAAP based net interest margin increased 66 basis points, and tax equivalent net interest margin increased 64 basis points in 2025 compared to 2024.

Core loans, which exclude held for sale loans and mortgage warehouse advances, grew organically by $86.1 million or 5.7% during the twelve months ended December 31, 2025. Core loans also grew by $1.4 billion due to the Merger on March 1, 2025. This loan growth led to an increase in interest income from loans of $83.3 million in the twelve months ended December 31, 2025, compared to the same period in the prior year. Average core loans grew $1.3 billion for the twelve months ended December 31, 2025, compared to the same period in the prior year. In addition, the average rate earned on loans increased 21 basis points for the twelve months ended December 31, 2025, compared to the same period in the prior year. Interest income for the year ended December 31, 2025, includes $13.1 million of interest income due to accretion from purchased loans compared to $1.2 million for the same period in 2024. Interest income due to accretion from purchased loans increased GAAP net interest margin by 34 basis points in the full year 2025.

The average balance of total securities increased $16.2 million in 2025, compared to the same period in 2024. The increase is largely due to the purchase of $40.6 million of agency mortgage backed securities in the third quarter of 2025. ChoiceOne also entered into $30.4 million in amortizing pay-fixed, receive variable interest rate swaps designed to amortize with the expected cash flow of the bonds and hold a coupon of 3.52% and a contractual term ending in 2040. Interest income on securities declined $309,000 in 2025 compared to 2024 while the average rate earned on securities declined by 8 basis points for the full year 2025, compared to the same period in the prior year.

Interest expense increased $19.2 million for the full year 2025, compared to the same period in the prior year. The average balance of deposits, excluding brokered deposits, increased by $817.9 million during the full year 2025, compared to the full year 2024 largely as a result of the Merger. The average rate paid on interest bearing-demand deposits and savings deposits increased 21 basis points in the twelve months ended December 31, 2025, compared to the same period in the prior year due to higher cost deposit accounts purchased during the Merger. The increase in the average balance of certificates of deposit of $202.6 million during 2025, offset by a 56 basis

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point decline in the rate paid on certificates of deposits during 2025, compared to the same period in the prior year, led to an increase in interest expense of $5.5 million during 2025.

The cost of funds decreased by 11 basis points, from 1.92% to 1.81% in 2025 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 year ended December 31, 2025 decreased by $1.3 million compared to the same period in the prior year, due to a $5.5 million decline in the average balance borrowed and a decline in the rate paid on borrowings of 50 basis points in 2025 compared to the rate paid on borrowings in 2024. With ChoiceOne’s already low cost of deposits and market conditions, further reductions in federal funds rates may not immediately offset with savings on reductions in deposits and short term borrowings.

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. In addition, ChoiceOne holds certain subordinated debentures issued in connection with trust preferred securities that were obtained as part of the merger with Community Shores and the Merger with Fentura. The average balance of subordinated debentures increased $10.7 million and the average rate on subordinated debentures increased 144 basis points in the full year 2025, compared to the same period in the prior year due to the additional subordinated debentures obtained in the Merger. The increase led to additional expense of $1.2 million in 2025 compared to the same period in prior year.

The following table presents the cost of deposits and the cost of funds for the years ended December 31, 2025, December 31, 2024, and December 31, 2023.

Provision and Allowance For Credit Losses

Table 3 – Provision and Allowance For Credit Losses

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Note: In the table above, "consumer" includes deposit account charge-offs and recoveries. Net consumer deposit account charge-offs were $223,000 for the full year 2025 compared to $237,000 and $226,000 for the full year 2024 and 2023, respectively.

The allowance for credit losses ("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, changes in the value of underlying collateral for collateral dependent loans, industry conditions, 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, 2024.

Loans individually evaluated for credit losses increased by $27.1 million to $31.2 million during the year ended December 31, 2025, and the ACL related to these individually evaluated loans increased by $5.3 million during the same period largely due to the balance

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increase. Notably, $23.8 million, or 88.0%, of the increase in individually evaluated loans resulted from loans added through the Merger. Similarly, $5.2 million, or 97.8%, of the increase in the ACL related to individually evaluated loans is attributable to loans acquired in the Merger.

Nonperforming loans, which includes Other Real Estate Owned ("OREO") but excludes performing troubled loan modifications ("TLM"), increased by $23.4 million to $27.1 million at December 31, 2025, compared to a historically low balance on December 31, 2024. Notably, $21.8 million or 73.2% of nonperforming loans were acquired during the Merger. The ACL was 1.18% of total loans, excluding loans held for sale, at December 31, 2025, compared to 1.07% as of December 31, 2024. The liability for expected credit losses on unfunded loans and other commitments was $1.3 million on December 31, 2025, compared to $1.5 million as of December 31, 2024.

Net charge-offs were $1.0 million during the full year 2025, compared to net charge-offs of $433,000 during the same period in 2024. Net charge-offs for checking accounts during the full year 2025 were $223,000 compared to $237,000 for the same period in the prior year. Net charge-offs as a percentage of average loans were 0.04% in the full year 2025, compared to 0.03% during the full year 2024.

Net provision for credit losses was $14.8 million for the full year 2025. The provision for credit losses on loans was $15.1 million during 2025, due primarily to $12.0 million of expense for the acquisition of $1.3 billion of non-PCD loans 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 ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 1.18% on December 31, 2025 compared 1.07% on December 31, 2024. The loan provision expense was offset by the decrease in unfunded commitments provision expense of $300,000 in the full year 2025 due to changes in mix and expected funding rates during the year. Total unfunded commitments increased $208.3 million in the full year 2025 compared to December 31, 2024.

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Financial Condition

Summary

As of December 31, 2025, total assets were $4.4 billion, an increase of $1.7 billion compared to December 31, 2024. The growth in total assets is primarily attributed to the Merger. Core loans, which exclude held for sale loans and mortgage warehouse advances, grew organically by $86.1 million or 5.7% during the twelve months ended December 31, 2025. Core loans also grew by $1.4 billion due to the Merger on March 1, 2025.

Deposits, excluding brokered deposits, increased by $1.3 billion as of December 31, 2025, compared to December 31, 2024 largely as a result of the Merger, while the total balance of borrowed funds from the FHLB was $265.0 million as of December 31, 2025.

Securities

The Company’s securities balances as of December 31 were as follows:

Total securities increased $67.5 million as of December 31, 2025, compared to December 31, 2024. The increase is largely due to the purchase of $40.6 million of agency mortgage backed securities in the third quarter of 2025. ChoiceOne also entered into $30.4 million in amortizing pay-fixed, receive variable interest rate swaps designed to amortize with the expected cash flow of the bonds and hold a coupon of 3.52% and a contractual term ending in 2040. ChoiceOne acquired $90.7 million in securities as part of the Merger of which management chose to sell $78.9 million in securities to pay down higher cost wholesale funding. Consequently, the net increase in securities from the Merger was $11.8 million. Securities totaling $15.6 million were called or matured in 2025. ChoiceOne received principal payments for municipal and mortgage-backed securities totaling $24.4 million during 2025.

At December 31, 2025, the Company had $90.0 million in unrealized losses on its investment securities, including $52.8 million in unrealized losses on available for sale securities and $37.2 million in unrealized losses on held to maturity 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 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.

ChoiceOne utilizes interest rate derivatives as part of its asset liability management strategy to help manage its interest rate risk position. In order to hedge the risk of rising rates and unrealized losses on securities resulting from the rising rates, ChoiceOne currently holds pay fixed, receive variable interest rate swaps with a total notional value of $380.4 million as of December 31, 2025. These derivative instruments increase in value as long-term interest rates rise, which partially offsets the reduction in shareholders' equity due

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to unrealized losses on securities available for sale. Refer to Note 8 - Derivatives and Hedging Activities of the consolidated financial statements for more discussion on ChoiceOne’s derivative position and Note 25 - Subsequent Events: Sale of Interest Rate Swaps, which discusses the sale of $201.0 million of pay-fixed interest rate swaps in January 2026.

Equity securities included a money market preferred security ("MMP") of $1.0 million and common stock of $8.4 million as of December 31, 2025. As of December 31, 2024, equity securities included a MMP of $1.0 million and common stock of $6.8 million.

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 in accumulated other comprehensive income (loss).

Loans

The Company’s loan portfolio by call report code was as follows:

Core loans, which exclude held for sale loans and mortgage warehouse advances, grew organically by $86.1 million or 5.7% during the twelve months ended December 31, 2025. Core loans also grew by $1.4 billion due to the Merger on March 1, 2025.

Growth was concentrated in Non-Owner Occupied CRE loans, which grew by $530.7 million, 1-4 Family Loans, which grew by $495.7 million, and Owner Occupied CRE loans, which grew by $227.2 million. The growth in 1-4 Family loans was largely related to the Merger with $19.1 million coming from growth in mortgage warehouse advances. The growth in owner occupied and non-owner occupied CRE loans was due to a mixture of growth from the Merger and organic growth. Mortgage warehouse advances consist of a line of credit to fund participated mortgage loans with interest rates on these advances fluctuating with the national mortgage market. This balance is short term in nature with an average life of under 30 days. Management believes the short-term structure and low credit risk of this asset is advantageous in the current rate environment; however, this balance is volatile and could change based on third party origination volume or market conditions.

As a result of loan growth and interest income due to accretion from purchased loans, loan interest income increased $83.3 million in the full year 2025 compared to the same period in 2024. Interest income for the year ended December 31 2025 includes $13.1 million of interest income due to accretion from purchased loans compared to $1.2 million for the same period in 2024. Interest income due to accretion from purchased loans increased GAAP net interest margin by 34 basis points in the full year 2025. Estimated interest income due to accretion from purchased loans for 2026 using the effective interest method of amortization is $8.0 million; however, actual results will be dependent on prepayment speeds and other factors. It is estimated that a total of $53.1 million remains to be recognized as interest income due to accretion from purchased loans over the life of the loan portfolio.

As part of its review of the loan portfolio, management also monitors the various nonperforming loans. Nonperforming loans are comprised of loans accounted for on a nonaccrual basis, loans not included in nonaccrual loans, which are contractually past due 90 days or more as to interest or principal payments, and troubled loan modifications which are accruing and initiated in the past year.

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The balances of these nonperforming loans as of December 31 were as follows:

Nonperforming loans, which includes Other Real Estate Owned ("OREO") but excludes performing troubled loan modifications ("TLM"), increased by $23.4 million to $27.1 million at December 31, 2025, compared to a historically low balance on December 31, 2024. Notably, $21.8 million or 73.2% of nonperforming loans were acquired during the Merger. Nonaccrual loans included $10.9 million in residential real estate loans, $8.0 million in commercial real estate loans, $8.0 million in commercial and industrial loans and $101,000 in consumer loans as of December 31, 2025, compared to $3.5 million in residential real estate loans, $229,000 in construction real estate loans, and $8,000 in consumer loans as of December 31, 2024. There were $128,000 and $121,000 of TLM loans at December 31, 2025 and December 31, 2024, respectively.

Management also maintains a list of loans that are not classified as nonperforming loans but where some concern exists as to the borrowers’ abilities to comply with the original loan terms. There were 16 loans totaling $4.1 million fitting this description as of December 31, 2025, and 19 loans totaling $375,000 fitting this description as of December 31, 2024.

Deposits and Other Funding Sources

The Company’s deposit balances as of December 31 were as follows:

Deposits, excluding brokered deposits, increased by $1.3 billion as of December 31, 2025, compared to December 31, 2024 largely as a result of the Merger. 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 December 31, 2025, the total balance of borrowed funds from the FHLB was $265.0 million at a weighted average rate of 3.83%, with $245.0 million due within 12 months. At December 31, 2025, total available borrowing capacity secured by pledged assets was $1.1 billion. ChoiceOne can increase its borrowing capacity by utilizing unsecured federal fund lines and pledging additional assets. Uninsured deposits totaled $1.2 billion or 33.2% of deposits at December 31, 2025.

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 used a portion of net proceeds from the private placement to redeem senior debt, fund common stock repurchases, and support bank-level capital ratios. ChoiceOne also holds $12.5 million in subordinated debentures issued in connection with a $14.0 million trust preferred securities offering, which were obtained in the Merger with Fentura, offset by the mark-to-market adjustment and $3.6 million in subordinated debentures issued in connection with a $4.5 million trust preferred securities offering, which were obtained in the merger with Community Shores, offset by the mark-to-market adjustment.

Shareholders’ Equity

As of December 31, 2025, shareholders’ equity was $465.4 million, a significant increase from $260.4 million on December 31, 2024. This growth was primarily driven by the Merger, in which ChoiceOne issued 6,070,836 shares of common stock on March 1, 2025, valued at $193.0 million. Additional growth of $2.1 million is the result of improvement to accumulated other comprehensive loss during the year and growth in retained earnings of $11.2 million during the full year 2025. ChoiceOne also repurchased 25,116 shares of stock for a net cost of $775,000 under our existing share repurchase plan. The repurchase plan has 350,272 shares remaining to purchase as of December 31, 2025. The repurchase in 2025 reflects our view that our capital position is healthy and the repurchase of

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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 December 31, 2025, compared to 12.7% on December 31, 2024.

ChoiceOne uses interest rate swaps to manage interest rate exposure to certain fixed rate assets and variable rate liabilities. On December 31, 2025, ChoiceOne held pay-fixed, receive variable interest rate swaps with a total notional value of $380.4 million, a weighted average coupon of 3.15%, a fair value of $8.4 million and an average remaining contract length of 7.0 years. In addition to the pay-fixed, receive variable interest rate swaps, ChoiceOne also employs back-to-back swaps on select commercial loans, with the impact reflected in interest income. These derivative instruments increase in value as long-term interest rates rise, which offsets the reduction in equity due to unrealized losses on securities available for sale. Refer to Note 8 - Derivatives and Hedging Activities of the consolidated financial statements for more discussion on ChoiceOne’s derivative position and Note 25 - Subsequent Events: Sale of Interest Rate Swaps, which discusses the sale of $201.0 million of pay-fixed, receive variable interest rate swaps in January 2026.

Note 21 to the consolidated financial statements presents regulatory capital information for ChoiceOne and the Bank at the end of 2025 and 2024. Management will monitor these capital ratios during 2026 as they relate to asset growth and earnings retention. ChoiceOne’s Board of Directors and management do not plan to allow capital to decrease below those levels necessary to be considered "well capitalized" by regulatory guidelines.

Table 4 – Contractual Obligations

The following table discloses information regarding the maturity of ChoiceOne’s contractual obligations at December 31, 2025:

(1)
Cumulative borrowings on the balance sheet include $212,000 of discount due to a mark to market adjustment which is not reflected in the table above.

(2)
Cumulative trust preferred securities on the balance sheet include $2.4 million of discount due to a mark to market adjustment which is not reflected in the table above

(3)
ChoiceOne subordinated debenture on the balance sheet includes $96,000 of capitalized issuance cost which is not reflected in the table above.

Liquidity and Interest Rate Risk

Net cash provided by operating activities was $32.9 million in 2025, compared to $47.4 million in 2024. The decrease was primarily attributable to higher amortization and accretion on purchased loans, as well as a decrease in other liabilities in 2025 compared to 2024. Net cash provided by investing activities increased significantly to $105.6 million in 2025, compared to net cash used of $96.7 million in 2024. The increase was driven primarily by $173.1 million of cash received in connection with the Merger. During 2025, ChoiceOne purchased $95.6 million of securities, which was partially offset by the sale of $78.9 million of securities acquired through the Merger. In addition, ChoiceOne experienced lower net loan activity, with loan originations and payments totaling $89.3 million in 2025, compared to $134.9 million in 2024. Net cash used in financing activities was $147.3 million in 2025, compared to net cash provided of $90.6 million in 2024. The year‑over‑year change was primarily due to changes in deposits and continued repayments of borrowings and other financing obligations. In contrast, financing cash flows in 2024 benefited from stronger net inflows, including capital‑raising and borrowing activity that did not recur in 2025.

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.

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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 $265.0 million in outstanding borrowings from the FHLB as of December 31, 2025. The acceptance of brokered certificates of deposit is not limited as long as the Bank is categorized as “well capitalized” under regulatory guidelines. At December 31, 2025, total available borrowing capacity from the FHLB and the Federal Reserve Bank was $410.7 million.

ChoiceOne continues to review its liquidity management and has taken steps in an effort to ensure adequacy. These steps include limiting bond purchases in 2026, pledging securities to FHLB and the Federal Reserve Bank in order to increase borrowing capacity and using alternative funding sources such as brokered deposits.

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NON-GAAP FINANCIAL MEASURES

This report contains financial measures that are not defined in U.S. generally accepted accounting principles ("GAAP"). Management believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the underlying financial performance 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, we use non-GAAP financial measures as comparative tools, together with GAAP financial measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they 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 in-effect regulatory requirements.

Income Adjusted for Merger Expenses - Non-GAAP Reconciliation

(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.

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Critical Accounting Policies And Estimates

Management’s discussion and analysis of financial condition and results of operations as well as disclosures found elsewhere in this report are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the market value of securities, the amount of the allowance for credit losses, loan servicing rights, carrying value of goodwill, and income taxes. Actual results could differ from those estimates.

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. 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 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 fourth quarter of 2025; 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 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

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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 and those without. A substantial portion of this adjustment is expected to be recognized as interest income over time.

Purchased Loans with Credit Deterioration

Purchased loans that reflect a more than insignificant credit deterioration since origination at the date of purchase are classified as purchased credit deteriorated (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.

Purchased Loans Without Credit Deterioration

Loans not considered purchased credit deteriorated (Non-PCD) loans do not reflect more than insignificant credit deterioration since origination at the date of purchase. These loans are recorded at fair value and an increase to the allowance for credit losses (ACL) 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.

Purchase Price Allocation

The Company accounts for business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under this method, the assets acquired and liabilities assumed are recorded at their estimated fair values as of the acquisition date, with the excess of consideration transferred over the net fair value of identifiable assets acquired and liabilities assumed recorded as goodwill. The determination of fair values requires management to make significant estimates and assumptions, particularly with respect to acquired loans and the core deposit intangible.

Acquired loans were recorded at their estimated fair values as of the acquisition date. The fair value of acquired loans reflects the present value of expected future cash flows, discounted at market‑based rates of return, and incorporates assumptions related to credit risk, interest rates, prepayment speeds, and liquidity risk. Key assumptions used in the valuation process include expected default rates, loss severity, prepayment behavior, and the timing of expected cash flows. These assumptions involve significant judgment and are sensitive to changes in economic conditions and borrower performance.

Acquired loans were classified as either purchased credit deteriorated (“PCD”) or non‑PCD in accordance with ASC 326. For PCD loans, the Company recorded an allowance for expected credit losses at the acquisition date, with a corresponding increase to the amortized cost basis of the loans. This approach results in no immediate impact to earnings at acquisition for expected credit losses. For non‑PCD loans, no allowance for credit losses was recorded at acquisition; instead, the fair value discount attributable to credit and non‑credit factors is accreted into interest income over the remaining life of the loans using the effective interest method.

The core deposit intangible ("CDI") represents the estimated economic benefit derived from the acquired non‑maturity deposit relationships. The CDI was recognized as an identifiable intangible asset and recorded at fair value as of the acquisition date. The fair value of the CDI was determined using an income‑based valuation approach, which estimates the present value of future cost savings associated with the acquired deposit base compared to alternative market funding sources.

Significant assumptions used in the valuation of the CDI include projected deposit attrition rates, maintenance costs, alternative funding rates, and discount rates. These assumptions require judgment and are influenced by competitive factors, customer behavior, interest rate environments, and overall market conditions. Management believes the assumptions used are reasonable; however, changes in these assumptions could materially impact the estimated fair value of the CDI.

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The CDI is amortized on an accelerated basis over its estimated useful life, which reflects the expected pattern of economic benefit derived from the acquired deposit relationships. The amortization period and method are reviewed periodically and adjusted if necessary based on updated experience and expectations.

Goodwill

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.

Deferred Tax Assets and Liabilities

Income taxes include both a current and deferred portion. Deferred tax assets and liabilities are recorded to account for differences in the timing of the recognition of revenues and expenses for financial reporting and tax purposes. Generally accepted accounting principles require that deferred tax assets be reviewed to determine whether a valuation allowance should be established using a “more likely than not” standard. Based on its review of ChoiceOne’s deferred tax assets as of December 31, 2025, management determined that no valuation allowance was necessary. The valuation of current and deferred income tax assets and liabilities is considered critical, as it requires management to make estimates based on provisions of the enacted tax laws. The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and the federal tax code.

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