Between June 30, 2000 and June 30, 2001, in the Grand Rapids market, the Kent County market and the West Michigan market, Fifth Third lost 7.02 percent, 5.39 percent and 0.47 percent of its market share respectively, the FDIC market share report reveals.
Despite the statistical erosion, however, Fifth Third still dominates in all three markets.
FDIC’s market share report is based on domestic deposits data captured June 30 each year at the individual office level.
Kevin Brown, a senior financial analyst in banking statistics for the FDIC’s division of insurance and research, said domestic deposits include everything — personal and business checking and savings accounts, CDs, money market deposit accounts, and state and federal accounts.
Data for 2002 has yet to be processed. With more than 80,000 branches included in the report, it takes about five or six months to analyze the data, Brown said. The usual timing of release of the data is around the end of November or December.
No single financial institution gained those lost percentages of Fifth Third’s market share; judging by the FDIC data, it appears to have been nibbled away by a lot of contenders.
The biggest gain in local market share for the year period, in fact, was made by Mercantile Bank of West Michigan.
In the Grand Rapids market, Mercantile’s share rose from 5.12 percent in 2000 to 7.66 percent in 2001, and in the Kent County market, from 4.25 percent to 6.28 percent.
Though Mercantile had only two offices in Kent County, it also made a gain in the metropolitan statistical area (MSA), with market share increasing from 2.80 percent to 4.07 percent over the period.
Fifth Third continues to control market share in the city, county and region, as did its predecessor, Old Kent Bank, for many years.
As of June 30, 2001, its market share was 47.04 percent in Grand Rapids, 43.03 percent in Kent County and 38.53 percent in the MSA.
But a 5 percent to 7 percent drop in market share locally is still significant.
It’s a huge drop, according to Gregg Dimkoff, professor of finance and director at Grand Valley State University’s Seidman School of Business.
And it can take years to recoup.
The amount of the fall, however, was easily within the realm of predictability in light of the Fifth Third-Old Kent merger, said Joseph Stieven, director of financial institution research for Stifel, Nicolaus & Co. Inc.
Fifth Third acquired Ottawa Financial Corp. of Holland in September 2000 and announced in November 2000 its intention to acquire Old Kent Bank, a deal that was approved in the spring of last year.
“There are a number of customers who are going to want to do business with a true, locally owned bank. And there’s nothing the acquiring company can do; if people want to switch banks, they’ll switch banks,” Stieven said.
Whether the market share can be recouped or not depends on what type of business was lost and, once identified, how successful a targeted effort to regain it is. But FDIC data can’t identify what type of business was lost and what type is left, he said.
“Fifth Third easily has the ability to gain it back over time because Fifth Third has proven that they end up growing their companies after they get them,” Stieven said.
“Fifth Third has done a fabulous job in retaining and expanding the customer base once they get their whole product line in place.
“In a couple of years people will say, ‘Old who?’”
With the Old Kent-Fifth Third announcement, the small banks “were just licking their chops,” Dimkoff recalled. “It was like a gift from the heavens.”
The small banks weren’t worried about competing with a really big bank, he said, because they knew that in a transition something could go wrong, people could become irritated and there could be some fallout.
“That was true with FMB. Huntington lost a third of everything, and it’s only now recovering,” he added.
Dimkoff thinks Fifth Third might eventually recover the lost market share because it has the deepest penetration of offices — and for individuals, the No. 1 consideration for picking a bank is how easy it is to get to, he said.
“It’s still that way even with the Internet. The more branches you have, the more business you’ll get.”
Stieven said the bank consolidation that’s been seen in Grand Rapids is similar to the consolidation seen in other markets.
What’s interesting about the Grand Rapids market right now is that the area’s largest independent banks are relatively new banks, he pointed out.
As Dimkoff observed, the local market changed drastically with Huntington Bancshares’ 1997 acquisition of First Michigan Bank Corp. (FMB).
Former FMB employees established four new banks on the heels of that deal: Mercantile, Macatawa and Community Shores financial corporations and Greenville Community Bank.
The people who left FMB to form new banks here shared some common characteristics, Dimkoff said.
“First, they were highly entrepreneurial. Secondly, they were really good people; they were so good their customers followed them. That’s certainly how Mercantile and Macatawa grew so rapidly.”
He sees the local banking market as fiercely competitive, and it’s not just large banks competing with large banks or small banks competing with small — it’s all across the board.
Edmond Olejniczak, a financial adviser with McQueen Financial Advisors of Royal Oak, said the level of competition among banks here is moderate and increasing — and that the competition is coming from the community-based financial institutions, such as those that grew out of FMB’s sellout to Huntington.
“There’s a tremendous talent pool in the Grand Rapids market and, really, in West Michigan,” he commented. “A lot of the former managers that got their training at the large banks are now running the community banks.”
The bottom line is, they know their competition.
“They had a great training ground. They know the operations and mentality of the large banks. They know how they’re run so they know how to compete against them.”
Olejniczak said the smaller banks are gaining ground these days because they’re running customer-focused, community organizations and utilizing the technology and the outsourcing of services to compete directly with the large players.
“So essentially, the community based financial institutions can offer the depth and the breadth of products offered by Fifth Third, Huntington, Bank One and so forth, and do so cheaply and efficiently,” he added.
A large bank trying to penetrate an individual market has to get to know its customer base and its needs and wants and has to be able to provide service with the “old time feel” that comes from personal relationships and community relationships nurtured over time.
It’s the service that makes the difference, Olejniczak said.
A large national organization going into a market cold has the resources and funds to attempt that and can do it with pricing temporarily, he observed.
“But for the level of service they can offer, it’s hard to get up that curve quickly.”
The larger national banks also are competing everywhere and they’re competing outside of traditional banking with products and services like brokerage, he said, while the community banks hone in on service in their selected markets, rather than trying to compete across the state or across the country.
Olejniczak also noted that with the acquisitions that have started to pop up in the area, like Macatawa’s recent acquisition of Grand Bank, the smaller community focused banks are now becoming mid-sized community focused banks but still maintaining their focus.
And they’re finding complementary niche players in new markets to help them repeat the success they’ve already had in other markets.
“Macatawa can move into Grand Rapids out of the Holland-Zeeland area doing exactly what it did there by finding a nice niche bank like Grand Bank,” Olejniczak said. “It’s that type of activity that’s eating into the market share of Fifth Third.”
Most bank customers don’t need the services of a really huge bank like a company such as General Motors would, Dimkoff noted.
“We have a few big companies and they require large banks, probably even larger than we have in the area here, although they would use local banks for checking accounts and so forth. But the really big, important services they need because they’re huge corporations, they’ll go to Chicago or New York City or some place.
“One bad thing: When a really large bank comes in, we know that the larger the bank, the more their fees. So individuals like you and I would be better off going to one of the smaller banks than doing our banking with a really large concern,” he said.
Typically, the larger a bank gets or wants to get, it starts looking to fees to fund it, Olejniczak agreed.
The smaller banks can offer individuals anything they need and are as competitive as the larger banks, perhaps more so in terms of personal service and lower fees because that’s their niche, Dimkoff said. Good software helps, too.
Banks here in West Michigan are great banks — and attractive to out-of-state banks because they’re highly profitable, he added.
“Who wouldn’t like Independent Bank? Who wouldn’t like Macatawa? Who wouldn’t like Mercantile?” he asked. “I think you’d have trouble trying to get Mercantile shares away from the people who own them.
“We have conservative, well run banks relative to a lot of other parts of the country, and people that simply can’t be beat. The culture here in West Michigan is such that loan losses are relatively small; our banks aren’t hit.”