Make Room For Little Guys


    GRAND RAPIDS — Three banks just reported their performance for the most recent quarter. Two of them were bragging. One was blushing. Grand Rapids-based Mercantile Bank Corp. showed a 38 percent increase in third-quarter income. Holland-based Macatawa Bank Corp. pulled off a whopping 162 percent increase. Cincinnati-based Fifth Third Bancorp reported a 16 percent decrease in income. West Michigan companies are increasingly giving their business to smaller, local financial institutions.

    Meanwhile, unsubstantiated rumors circulate about a potential buyout of Fifth Third by an even larger corporation. Fifth Third would not comment directly.

    Five years ago, on the heels of taking over Grand Rapids-based Old Kent Bank, Fifth Third had nearly 40 percent of the banking business in West Michigan, according to data from the Federal Deposit Insurance Corp. Mercantile, which was founded in 1997, had 5.6 percent. Fledgling Macatawa Bank had just .25 percent. Now, Fifth Third’s market share has dipped to 31 percent as Mercantile and Macatawa have steadily gained. Mercantile is now the second largest bank in the region, with over 11 percent market share.

    That’s no coincidence, according to financial consultant and CPA Brett Nesbit. He is a principal in Saginaw-based consulting firm Rehmann Robson. In addition to monitoring the Michigan banking industry, his firm has helped several small startup (or de novo) banks get off the ground.

    “If you go into a Fifth Third Bank, they’re looking to make a transaction. And that transaction is going to be approved by somebody, potentially, in another state that doesn’t know a darn thing about Grand Rapids, Michigan,” said Nesbit. “If you go to Macatawa or Mercantile, they’re going to be able to give you a decision about your financial situation while you’re sitting across the desk from the person, or at worst, at least somebody else that lives in your town, who knows what’s going on in your market, and appreciates what’s going on for you.”

    Mercantile Bank Chairman and CEO Gerald R. Johnson Jr. said that the local connection is important both symbolically and practically.

    “I think a lot of it is psychological and sentimental, but I think it becomes a self-fulfilling type of prophecy because of the commitment to service,” said Johnson. “I’m not saying the large banks don’t have a commitment to service. A large company just isn’t as nimble and agile as a smaller company. And we’re able to out-service our larger competitors.”

    Phil Koning, president and CEO of Macatawa Bank, finds the same to be true in his organization. “I called on a number of customers yesterday. And what I heard from our customers over and over again was, ‘We really enjoy doing business with you, but what we really appreciate is that we have one loan officer that we’ve done business with for several years now. When we have something different or out of the box, you guys can react very quickly. And you’re competitive,’” said Koning.

    Even though a smaller bank can’t always offer a deposit yield that’s higher, or a loan interest rate that’s lower, sometimes the intangible qualities of good customer service win the business.

    “It makes a lot of difference when you’re sitting across from somebody and they feel that you’re really trying to help them. That’s different than when you’re just trying to put a deal together,” he said.

    That feeling translates into long-term, close relationships.

    “There is a lot of give and take from our customers and our loan officers,” said Koning. “The customer becomes so comfortable with the relationship that they look at their loan officer as one of their counselors, just like they would their attorney or their accountant.”

    Perhaps that explains why banks like Koning’s are winning market share away from their larger competition. And if that competition becomes even larger and more distant, could that mean a bigger opportunity for the likes of Mercantile and Macatawa?

    Recent media accounts have suggested that San Francisco-based Wells Fargo & Co. and Minneapolis-based US Bancorp are clamoring to buy out Fifth Third.

    Those reports are based on rumors, said Fifth Third spokesperson Peggy Janei. She would not comment on the rumored sale, though she did provide the Business Journal with the opinions of several professional analysts, all of whom consider an acquisition by either of those firms unlikely.

    Janei also took exception with the characterization of Fifth Third as unable to make decisions without first consulting with the home office in Cincinnati. She said that her company invests a great deal of trust in its local branch managers, and allows them to make decisions on small business lending. That is why Fifth Third is the leading SBA lender in the market, she said. Even with larger business loans, the decisions are made on the local level. She referenced the recent 24-hour turnaround of a $40 million credit for a Grand Rapids-area business, and a similar time frame for a $25 million credit for a lakeshore firm.

    While Janei recognizes the picture painted by the FDIC market share data, she is unperturbed.

    “We are really happy with our performance,” she said.

    The company’s market share may have fallen in recent years, but Janei said that the company’s West Michigan business has grown steadily in all the important measures.

    If Fifth Third is acquired by a larger financial services corporation, the local banks have mixed feelings about what that might mean.

    “Every time there is change, it provides opportunities for us,” said Koning. “People like stability. I think people in West Michigan are very careful and frugal about who they do business with and how they do business, and they do still look for a relationship with someone they can count on.”

    He said that the instability brought about by a corporate takeover could allow Macatawa a chance to win more business.

    Johnson is not convinced that a Fifth Third buyout would change things for Mercantile.

    “I don’t really think that any of that will be a huge event for people like me, or for banks like the one I’m involved with,” he said. “I think people who were upset, for example, when Fifth Third bought Old Kent … they’ve already made their decision whether or not to stay with that organization. And I think if they stayed with Fifth Third, I don’t see a US Bancorp or Wells Fargo acquisition changing a whole lot. … Fifth Third acquiring Old Kent was a significant event for us and for many of the local banks. If Fifth Third is acquired by a Wells Fargo or a US Bancorp, I don’t think that significance will be repeated.”

    Regardless of who owns the competition, Johnson said that his bank will continue the trend of building relationships and doing its best to serve the customer base. He hopes that strategy will continue to serve Mercantile as well as it has in its first eight years.

    “Competition is the name of the game,” he said. “And we’re ready to compete with whomever.”    

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