ChoiceOne Financial Services secures Federal Reserve approval for merger with Fentura Financial

ChoiceOne Financial Services, Inc. (NASDAQ: COFS), the parent company of ChoiceOne Bank, has received final regulatory approval from the Federal Reserve Board to proceed with its planned merger with Fentura Financial, Inc. (OTCQX: FETM). This approval marks a significant step toward the completion of the Michigan bank merger, which will consolidate the two financial institutions under the ChoiceOne brand.

With the regulatory hurdles now cleared, the transaction is set to close on March 1, 2025, with the full bank consolidation expected to be completed by March 14, 2025. The community banking expansion will position the combined entity as a major regional player, with an extensive network of branches serving West and Southeastern Michigan.

The merger between ChoiceOne and Fentura was initially announced in July 2024 as an all-stock transaction valued at approximately $180.4 million. Under the terms of the agreement, each Fentura shareholder will receive 1.35 shares of ChoiceOne common stock. Both companies’ boards of directors have unanimously approved the deal, and with regulatory approval secured, the focus now shifts to integration and execution.

How will the merger impact community banking in Michigan?

Following the completion of the financial services growth strategy, the newly merged institution will become a $4.3 billion-asset bank holding company, making it the third-largest publicly traded bank in Michigan. The expansion will significantly strengthen its market presence, bringing the number of branches under the ChoiceOne Bank brand to 56 locations across Michigan.

Kelly Potes, CEO of ChoiceOne Financial Services, emphasized that the merger aligns with the bank’s long-term vision of enhancing financial services in Michigan. He noted that ChoiceOne’s expansion into key counties, including Genesee, Jackson, Livingston, Ingham, Saginaw, Shiawassee, and Bay, will allow the company to better serve customers and businesses with an expanded suite of banking products and services.

Jack Hendon, Chairman of ChoiceOne Financial Services, underscored the importance of maintaining a strong community banking culture throughout the transition. He pointed out that both ChoiceOne and The State Bank, Fentura’s banking subsidiary, share a commitment to customer-focused financial services, making this merger a natural progression for both institutions.

What are the competitive and regulatory implications of the merger?

The Federal Reserve’s approval followed a rigorous review under the Bank Holding Company Act and the Bank Merger Act, ensuring that the transaction does not negatively impact competition or financial stability. A competitive analysis by regulators determined that the combined entity will control approximately $3.6 billion in deposits, making it Michigan’s 11th largest bank by deposit share. The Department of Justice’s Antitrust Division also reviewed the transaction and found no significant competitive concerns.

The approval process included a public comment period, during which one adverse comment was submitted, raising concerns about potential disparities in lending practices. However, regulators found that ChoiceOne and The State Bank had demonstrated compliance with fair lending standards and the Community Reinvestment Act (CRA). The Federal Reserve concluded that the benefits of the merger outweighed any potential risks, particularly given the banks’ strong records in community lending and financial inclusion.

How will customers and businesses benefit from the bank consolidation?

A key focus of the community banking expansion is to enhance financial services for both retail and commercial customers. The merger will provide expanded access to banking solutions, including an improved range of business lending products, mortgage programs, and wealth management services.

ChoiceOne has confirmed that no branches will be closed as a result of the merger, ensuring continued access to banking services for existing customers of both ChoiceOne Bank and The State Bank. The company is also investing in digital banking enhancements, making online and mobile banking more efficient and user-friendly.

For businesses, the merger will introduce additional lending programs, particularly for small and minority-owned businesses. ChoiceOne has stated that it plans to expand The State Bank’s small business support programs, including its Express Loans initiative, which provides quick-access credit lines for growing businesses.

In addition to business lending, the merger will broaden financial literacy programs and community outreach efforts. ChoiceOne has a history of offering specialized programs, such as the Down Payment Savings Account Program and the Fresh Start Credit Builder Program, both of which are designed to support low- and moderate-income (LMI) individuals. These programs will now be extended to the regions previously served by The State Bank.

What are the financial and strategic advantages of this merger?

The financial services growth strategy behind this merger is aimed at strengthening ChoiceOne’s market position while maintaining its core values as a community bank. The company has assured that the transaction will not compromise its strong capital position, asset quality, or earnings potential.

Janney Montgomery Scott LLC served as financial advisor to ChoiceOne, while Warner Norcross + Judd LLP provided legal counsel. Fentura was advised by Hovde Group, LLC, with legal representation from Dickinson Wright PLLC.

In terms of long-term growth, the bank consolidation is expected to generate operational efficiencies, increase profitability, and provide enhanced shareholder value. Ronald Justice, President & CEO of Fentura Financial, highlighted that the merger will deliver greater liquidity for shareholders and a dividend yield that is expected to be more than three times higher than Fentura’s current dividend.

With regulatory approval secured, the leadership teams of both institutions are now focused on executing a seamless transition, ensuring that customers experience minimal disruption during the integration process.

What does this mean for the future of Michigan’s banking industry?

The ChoiceOne and Fentura merger signals a significant shift in Michigan’s community banking landscape. As larger financial institutions continue to dominate the market, this merger reinforces the importance of mid-sized banks in providing localized, relationship-driven banking services.

Industry analysts suggest that regional bank mergers like this one will continue to play a crucial role in the evolving financial ecosystem, particularly as community banks seek to leverage economies of scale to remain competitive. With 56 locations and a diversified portfolio of financial services, the new ChoiceOne Bank is positioned to drive economic growth and financial inclusion across Michigan.

As the banking consolidation moves forward, customers, businesses, and investors will be watching closely to see how ChoiceOne’s expanded network and enhanced product offerings shape the future of community banking in the region.