SPARTA — ChoiceOne Financial Services Inc. remains open to further acquisitions after the $89 million deal with Lapeer-based County Bank Corp. is completed next year.
County Bank, the parent company of Lakestone Bank & Trust, will merge into the Sparta-based ChoiceOne (OTC: COFS) following overwhelming shareholder approvals this month. The merger of the holding companies should close Oct. 1. Integration of the two community banks should occur by late in the second quarter of 2020.
Once the banks are fully integrated, ChoiceOne would entertain further deals, should they arise, CEO Kelly Potes told MiBiz.
“We’re definitely open to more acquisitions in the future as it makes sense for us strategically,” said Potes, who’ll become CEO of the merged corporate holding company.
“The best thing is to have a good organic growth model and if we can supplement that with future acquisitions, then we’ll do that,” he said. “We’ll actively survey the Michigan market and continue to talk to banks. Timing is everything. You can have conversations with people for years, then when the right time comes for them, you’re at the top of the list. From that standpoint, we’ll always be just talking to our fellow community bankers and let them know if there’s ever an opportunity or a time that would be right for them, we’d like to talk.”
The merger of County Bank into ChoiceOne will create the 12th largest bank based in Michigan with its corporate headquarters in Sparta in northern Kent County. The merged bank will have 29 offices in West Michigan and Southeast Michigan with combined assets of more than $1.3 billion, twice the present size of ChoiceOne and County Bank individually.
ChoiceOne Bank has 14 offices in Kent, Newaygo, Muskegon and Ottawa counties with $658.4 million in total assets and more than $561.7 million in deposits as of June 30.
County Bank has 15 Lakestone Bank & Trust offices in Lapeer, Macomb and St. Clair counties with $659.8 million in total assets and $562 million in deposits at the end of the second quarter.
“What we’re creating is a true, statewide community bank franchise. We’re equal in size on both sides of Michigan,” Potes said.
Executives from both banks have positioned the merger as a combination of two like-minded, culturally similar community banks that together can grow, invest in needed technologies and better compete against larger rivals.
Even if another acquisition opportunity arises in the future, executives “won’t feel the pressure of ‘Oh, boy: We need to pull the trigger on something,’” said Michal Burke, the president of Lakestone Bank & Trust.
Burke led the former Capac State Bank when it was acquired by County Bank three years ago. He’ll serve as president of the combined bank following completion of the ChoiceOne-County Bank merger and operate from an office in Lapeer.
Still to come in the merger is a decision on a name for the combined bank. Directors will decide on either the ChoiceOne or Lakestone brand by the time the two banks integrate next May, Potes said.
Lower middle market focus
After ChoiceOne and County Bank come together, the larger bank will have higher legal and in-house lending limits. That will enable the merged bank to pursue larger commercial borrowers operating in the lower end of the middle market.
Burke expects the merged bank to “be very aggressive” in pursuing that market. He believes M&A activity in recent years has led some larger banks to pursue larger commercial middle-market credits, providing a market opportunity for others at the low end of the middle market.
“This will allow us to take it to the next level,” Burke said. “There’s a lot of opportunity there.”
Both ChoiceOne and Lakestone each have a $10 million in-house lending limit and $13 million legal limit, Potes said. The legal lending limit will double to $26 million after integration, and Potes expects the in-house limit to rise to $15 million to $20 million.
Those higher limits not only open up a wider market for commercial loans but also allow the merged bank to continue serving growing clients that over time have larger credit needs.
“It’s good from a lender standpoint. There’s more clients that they can service. As well, as our existing clients grow and get bigger, we can accommodate that growth and handle their lending needs,” Potes said.
‘Affirms our vision’
Under the terms of the stock transaction, each share of County Bank common stock will convert into the right to receive 2.0632 shares of ChoiceOne common stock. ChoiceOne directors also will issue a special dividend of 60 cents per share to its shareholders.
Shareholders at ChoiceOne Financial will own approximately 50.1 of the merged bank. Shareholders at County Bank will own 49.9 percent.
The approval by more than 95 percent of shareholders at each bank who voted on the deal “affirms our vision to bring together the best of both companies to benefit our shareholders, customers, employees and the communities we serve,” said County Bank Chairman Bruce Cady.
A 14-member board of directors will consist of seven representatives from each bank. After the merger closes, the bank plans to apply for listing on the Nasdaq stock exchange, a move for ChoiceOne from the OTC Markets that Potes expects will generate greater institutional investor interest.
The corporation’s shares are now largely held by individual investors, primarily from West Michigan.
“My anticipation is it will play well with investors because of the size and the level of profitability that we should be able to maintain and be more efficient,” Potes said.
ChoiceOne was advised on the deal by financial adviser ProBank Austin of Louisville, Ky. and the Grand Rapids-based law firm Warner Norcross + Judd LLP.