ChoiceOne Financial Services, Inc. (COFS): 5 FORCES Analysis [Nov-2025 Updated]

As a seasoned analyst, I see ChoiceOne Financial Services, Inc. navigating a tough spot in late 2025. The core story here isn't just the intense rivalry in Michigan, but the push-pull between high customer power-thanks to low switching costs-and the solid regulatory moat that keeps new banks out, a defintely high hurdle given the $4 billion-plus asset base post-merger. We're seeing supplier power tick up with rising rates, while fintechs aggressively substitute for traditional lending. Let's cut through the noise and see exactly where the pressure points are across all five forces below.

ChoiceOne Financial Services, Inc. (COFS) - Porter's Five Forces: Bargaining power of suppliers

You're analyzing the supplier side for ChoiceOne Financial Services, Inc. (COFS), and honestly, the power dynamic here is a mix of core stability and necessary market maneuvering. The primary suppliers are, of course, your depositors. Their power is generally moderate, but it definitely ratchets up when market interest rates are high, as depositors can easily shop around for better yields. We saw evidence of this pressure, as ChoiceOne Financial Services, Inc.'s annualized cost of deposits to average total deposits increased by 9 basis points from June 30, 2024, to June 30, 2025, even with some offset from declining CD costs.

To manage this, ChoiceOne Financial Services, Inc. has a clear reliance on wholesale funding. They are actively utilizing brokered deposits and advances from the Federal Home Loan Bank (FHLB) to ensure they have ample liquidity. At the end of Q2 2025, on June 30, 2025, the total available borrowing capacity secured by pledged assets stood at $1.2 billion. Still, the actual balance drawn on the FHLB at that date was $195.0 million, carrying a weighted average fixed rate of 4.36%. This reliance on non-core funding is a key lever they pull when core deposit competition heats up.

Here's a quick look at the funding picture as of June 30, 2025, which helps frame the depositor/funding supplier dynamic:

The power of other key suppliers is less about price and more about lock-in. Core banking technology vendors definitely have leverage here. Switching core systems is a massive undertaking, involving significant time, expense, and operational risk, so those vendors hold considerable power due to the high switching costs imposed on ChoiceOne Financial Services, Inc.

Furthermore, you have to consider the labor market for specialized financial talent, particularly in Michigan. That market is competitive, which translates directly into wage pressure for ChoiceOne Financial Services, Inc. when trying to attract and retain experienced bankers and analysts. This isn't a number you see on the balance sheet, but it's a real, ongoing cost driver.

The trend in core funding suggests some positive movement in managing depositor risk. The uninsured deposits fell to 29.6% in Q2 2025, which is a tangible reduction from 33.9% in the prior quarter. This reduction in the most flight-prone funding segment definitely helps temper the bargaining power of that specific depositor group.

To summarize the supplier pressures ChoiceOne Financial Services, Inc. faces:

• Primary suppliers are depositors, whose power is moderate, but increasing with rate hikes.
• Reliance on wholesale funding is present, utilizing brokered deposits and $1.2 billion in FHLB borrowing capacity.
• Core banking technology vendors have high switching costs, giving them leverage over ChoiceOne Financial Services, Inc.
• Labor market for specialized financial talent in Michigan is competitive, increasing wage pressure.
• Uninsured deposits fell to 29.6% in Q2 2025, suggesting some stability in core funding.

Finance: draft 13-week cash view by Friday.

ChoiceOne Financial Services, Inc. (COFS) - Porter's Five Forces: Bargaining power of customers

For ChoiceOne Financial Services, Inc. (COFS), the bargaining power of customers is definitely a significant force to manage. Honestly, in the banking sector, especially for basic deposit and loan products, switching costs for the average consumer are quite low. If you find a better rate or a more convenient branch, moving your money isn't the hassle it used to be; you just set up the new direct deposits and close the old account. That ease of movement keeps the pressure on pricing and service quality.

ChoiceOne Financial Services, Inc.'s deposit market share in Michigan is small, at approximately 1.1 percent post-merger, based on data reflecting the consolidation of The State Bank as of June 30, 2024. This small slice of the overall pie means that no single customer or small group of customers holds significant leverage over ChoiceOne Financial Services, Inc. based on their volume alone. However, the sheer number of competitors means customers have plenty of options to choose from.

Customers have access to a large number of local, regional, and national bank alternatives. As of the second quarter of 2025, the FDIC reported there were 74 FDIC-insured institutions operating in Michigan. This density of choice means that if ChoiceOne Financial Services, Inc. becomes too expensive or too slow, a competitor is nearby, either physically or digitally.

The community-focused, personalized service model is a key differentiator that builds customer loyalty. This is where ChoiceOne Financial Services, Inc. pushes back against the high switching power. They operate 56 offices across West, Central, and Southeast Michigan, aiming to foster trust through local involvement.

Here's a quick look at some relevant 2025 figures for ChoiceOne Financial Services, Inc. to put their market position in context:

The focus on relationship banking attempts to raise the effective switching cost by making the customer relationship more personal than transactional. This strategy is vital because, structurally, customers have several avenues to move their funds:

• Switching to a larger national bank.
• Moving to a local credit union.
• Choosing one of the 73 other FDIC-insured institutions in Michigan.
• Utilizing fintech or non-bank lending alternatives.

If onboarding takes 14+ days, churn risk rises, even with good service. Finance: draft 13-week cash view by Friday.

ChoiceOne Financial Services, Inc. (COFS) - Porter's Five Forces: Competitive rivalry

Rivalry in the Michigan banking sector for ChoiceOne Financial Services, Inc. is defintely stiff. You are competing against a dense field that includes many regional banks and the massive reach of larger national institutions operating within the state. This environment means that every basis point on a loan rate or every service feature matters to capture market share.

To gauge the competitive set, look at peers by size. For instance, Capital Bancorp carries a market capitalization of approximately US$463.9m as of late 2025. ChoiceOne Financial Services, Inc. itself held a market cap of about $450.42 million as of November 25, 2025, placing it right in the thick of the regional competition based on public valuation. This proximity in size suggests direct competition for the same customer segments.

The recent merger with Fentura Financial, Inc., which closed on March 1, 2025, was a clear move to address this rivalry by achieving necessary scale. The combined entity now boasts total assets exceeding $4 billion, specifically reported at $4.3 billion as of June 30, 2025. This transaction propelled ChoiceOne Financial Services, Inc. to become the 3rd largest publicly traded bank holding company headquartered in Michigan.

Competition plays out across several dimensions. Price competition centers on the cost of funds and the rates offered on credit products. For example, ChoiceOne Financial Services, Inc.'s GAAP net interest margin (NIM) for the third quarter of 2025 rose to 3.73%, up from 3.17% in the third quarter of 2024. This improvement was partially driven by the acquisition of higher-yielding assets via the Merger. Non-price factors are equally important, especially as the bank now operates an enhanced retail network of 56 offices across West, Central, and Southeast Michigan.

The market itself is mature, which generally implies slower organic growth, forcing banks to compete more aggressively for existing business. While ChoiceOne Financial Services, Inc. did see strong organic loan growth, with core loans increasing by $157.3 million or 11.3% in the twelve months ending March 31, 2025, this growth must be won from rivals. The need for scale through the Fentura merger underscores the pressure to build capacity to compete effectively on service delivery, including digital offerings, against larger, more established players.

Here's a look at the scale achieved post-merger compared to a key competitor:

The competitive battleground is clearly defined by both cost of funding and service delivery capabilities, as evidenced by the focus on interest margins and network size. You see this pressure reflected in the deposit costs:

• Cost of deposits to average total deposits: 1.57% (Q3 2025)
• Annualized cost of funds: 1.77% (Q3 2025)
• Interest rate swaps notional value (as of Sep 30, 2025): $381.3 million

ChoiceOne Financial Services, Inc. (COFS) - Porter's Five Forces: Threat of substitutes

You're looking at the competitive landscape for ChoiceOne Financial Services, Inc. (COFS) as of late 2025, and the threat of substitutes is definitely a major factor, especially given the current rate environment and digital acceleration.

High threat from non-bank fintech lenders offering rapid, digitally-native consumer and small business loans.

Fintech lenders present a clear, fast alternative, particularly for consumer credit where speed trumps relationship for many borrowers. The broader United States digital lending market itself was valued at $303.07 billion in 2025, and it is projected to grow at a 13.10% Compound Annual Growth Rate (CAGR) through 2030. This shows the sheer volume of lending activity happening outside traditional banks. To be fair, nearly 68% of borrowers globally prefer these digital platforms because of faster approvals and convenient access to credit solutions. For ChoiceOne Financial Services, Inc., whose core loan growth paused in Q3 2025, this digital competition is a constant pressure point on loan volume and pricing power.

Credit unions and mutual banks offer similar products with a non-profit, member-owned advantage.

Credit unions are powerful substitutes, especially for core deposit gathering, which is crucial for ChoiceOne Financial Services, Inc. as its uninsured deposits stood at 33.2% of total deposits as of September 30, 2025. In the second quarter of 2025, the total assets of federally insured credit unions reached $2.38 trillion, and their insured shares and deposits grew 4.0% year-over-year to $1.83 trillion. Their membership base hit 143.8 million in Q2 2025. This growth in deposits, which rose 5% in Q2 2025, shows they are successfully attracting the core funding ChoiceOne Financial Services, Inc. needs to fund its balance sheet.

Wealth management and investment services face substitution from robo-advisors and large brokerage firms.

The wealth management segment of ChoiceOne Financial Services, Inc. competes against highly efficient, low-cost digital platforms. The industry has matured; while explosive growth has slowed, total industry assets under management (AUM) for robo-advisors surpassed $1 trillion by Q1 2025. The largest players command massive scale, with Vanguard Digital Advisor managing over $311 billion in AUM. These platforms often charge management fees clustering around 0.15% to 0.25% of AUM, which is significantly lower than many traditional advisory fee structures.

Here's a quick look at the scale of the substitution threat in wealth management:

Money market funds and U.S. Treasury securities are substitutes for traditional bank deposits in a high-rate environment.

When rates are elevated, uninvested cash held in ChoiceOne Financial Services, Inc.'s non-interest-bearing accounts or low-yield savings products can easily migrate to higher-yielding, liquid alternatives. In 2025, total U.S. Money Market Fund (MMF) assets reached $7 trillion. As of November 12, 2025, the 7-day SEC yield on a major Federal MMF (VMFXX) was 3.88 percent. This is a direct competitor to ChoiceOne Financial Services, Inc.'s deposit base, especially since the bank's cost of funds was 1.77% in Q3 2025. The yield differential incentivizes depositors to move funds, which is reflected in ChoiceOne Financial Services, Inc.'s noninterest-bearing deposits falling $39.9M quarter-over-quarter in Q3 2025.

The competitive pressure on deposits is clear:

• MMF Assets in U.S. reached $7 trillion in 2025.
• Top Government MMF 7-day SEC Yields near 4.0% (Oct 2025).
• ChoiceOne Financial Services, Inc. Cost of Funds was 1.77% (Q3 2025).
• Credit Union Deposits grew 5% in Q2 2025.

ChoiceOne Financial Services, Inc. (COFS) - Porter's Five Forces: Threat of new entrants

The threat of new entrants for ChoiceOne Financial Services, Inc. remains decidedly low, primarily due to the substantial structural and regulatory hurdles inherent in the banking sector.

Threat is low due to high regulatory barriers, including the need to maintain a Total Risk-Based Capital Ratio of 11.9%. You see this ratio reflected in ChoiceOne Financial Services, Inc.'s own filings, for instance, their ratio stood at 11.9% as of March 31, 2025. Any new entrant must secure approval and demonstrate the capacity to meet and sustain such stringent capital adequacy standards right from the start.

Significant initial capital investment is required to build a competitive branch network and digital infrastructure. Think about the sheer scale ChoiceOne Financial Services, Inc. already commands; this isn't a small operation a startup can easily match. The capital needed to establish a footprint that rivals their existing physical and technological presence is massive, representing a major barrier to entry.

New entrants face difficulty building the local trust and community relationships ChoiceOne Financial Services, Inc. has cultivated since 1887. That history matters deeply in community banking. A startup lacks the decades of established goodwill and local decision-making reputation that ChoiceOne Financial Services, Inc. has built over more than a century.

Achieving scale is challenging; ChoiceOne Financial Services, Inc. has over $4 billion in assets post-merger, a high hurdle for a startup. This scale provides advantages in funding costs and service offerings that a new, smaller entity simply cannot replicate quickly. You can see the post-merger scale clearly in the recent figures.

The regulatory environment itself acts as a powerful moat, demanding significant upfront investment in compliance infrastructure before a single deposit is taken. New entrants must navigate a complex web of federal and state regulations.

• Minimum capital requirements are non-negotiable entry tickets.
• Establishing a competitive digital platform demands millions.
• Building a branch network of 56 locations is capital-intensive.
• Regulatory compliance staff must be hired immediately.
• Achieving the $4.3 billion asset base takes years of organic growth or expensive M&A.

The established presence of ChoiceOne Financial Services, Inc. means that any new competitor is immediately fighting against an incumbent with deep local roots and proven regulatory compliance.