ChoiceOne Financial Services, Inc. (COFS)

ChoiceOne Financial Services (COFS), headquartered in Sparta, MI, is the holding company for ChoiceOne Bank. ChoiceOne operates a 14-branch network in western Michigan (in/around Grand Rapids area).

ChoiceOne trades with a fairly limited float so the market weakness in bank stocks has not hit COFS as hard as most of its peers as shares are down ~12% since its 2018 highs. While COFS’s P/TBV valuation (143%) is a touch on the high-end for my taste, the P/E valuation (~13x) is very manageable and I think shares have entered a range that provides a good entry point to start accumulating a position in an attractive banking franchise.

ChoiceOne has proven its mettle over the years. The bank was established in 1898 and managed through the previous financial crisis without printing a full year net loss and COFS has been printing some healthy returns since FY 2013. As positioned today, 1%+ ROA and 10%+ ROE profile is a reasonable forecast for returns during expansionary periods. Primary drivers setting up COFS shareholders for continued investment performance over the near- and longer-term:

  1. Compounding Earnings: Under the current regulatory environment, ROE should print a 10%+ rate and provide attractive growth and investment returns to shareholders.
  2. Dividend Income: COFS pays a ~2.90% dividend yield (38% payout ratio).
  3. Potential M&A Upside: from an acquirer’s perspective, COFS checks the boxes that most acquirers are searching for in this market.
    • Market Geography: nestled nicely around Grand Rapids, MI, which is one of the fastest growing economies in the US over the past 5 years.
    • Deposit Funding: impressive, all around
      • 27% of COFS’ deposits are noninterest-bearing
      • The cost of the interest-bearing deposits is 0.45%
      • The total cost of funds on COFS’ $545 Million deposit book is 0.33%
    • Asset Quality: credit book is in good shape; low 0.6% NPA/Assets metrics along with a reserve balance 1.2x the NPAs. Bank management proved its underwriting strength thru the financial crisis when NPLs peaked at 4.2% and charge-offs peaked at 1.3%. Nice 22% weighting to C&I portfolio, a nice diversifying asset mix for an acquiring bank more heavily weighted to residential and commercial real estate lending.

Some concerns that could pressure earnings/profitability/growth to keep an eye on:

  • Economic Cycle – Hard to forecast how close we are to a turn in the credit cycle, but all banks and shareholders, no matter the quality of management, bear the risk of a downturn in local and national economies.
  • Unforeseen credit losses – Another challenge to forecast, but the smaller you go down in the asset size of the banking industry, the more dangerous one or two bad loans can be for an institution.

Bank Description & Geography

ChoiceOne’s roots trace back to 1898, and the bank currently has a 14 branch network in and around the Grand Rapids area


Financial Overview



Notable Ownership

  • Directors / Named Executives, as group – 9.1%

Prospective Buyers

  • Independent Bank Corporation ($3.3B Assets / IBCP)
  • Mercantile Bank Corporation ($3.3B / MBWM)
  • Horizon Bancorp ($5.1B / HBCN)
  • Macatawa Bank Corporation ($1.9B / MCBC)
  • Chemical Financial ($20.9B / CHFC)
  • Old National Bancorp ($17.6B / ONB)

Author: Golden Belt Investments

Investor, primarily community banks, small/mid cap, specialty finance

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