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Surprise: Banking competition heats up in Buffalo

Is competition actually growing in Buffalo banking?

It depends on your measuring stick. One statistic – deposit market share – screams “no.” Just two banks, M&T Bank and KeyBank, controlled a combined 79 percent last year.

Compare that to our Thruway neighbor Rochester, where that same percentage was spread among the top six banks.

But consider this: In 2017, 16 different banks operated branches in the Buffalo Niagara region. That total is set to rise to 18 banks this year – the most since 2013, when HSBC sold off its upstate branch network.

M&T is clearly the dominant player here, and Key has moved up to a solid No. 2 since acquiring First Niagara Bank. But Key’s deal for First Niagara seems to have emboldened other banks to either dive in or build up what they have here.

The upshot for consumers and commercial customers: more choices, should they choose to use them.

In the past year alone, three different banks either opened their first branches in the Buffalo Niagara market or declared that they were about to do so. Some banks already operating here were just as determined to enhance their presence.

We’re seeing the result of the shakeout that ensues when a big, locally based bank – First Niagara, in this case – gets acquired. Competitors seize the moment, making their case to customers whose accounts are being transferred.

Key completed the First Niagara deal in August 2016 and didn’t convert the branches until two months later. So 2017 was the first full year of Key owning First Niagara and absorbing its operations. Even now, Key is wrapping up achieving its projected cost savings on the deal, and consolidating office space.

M&T Bank’s deposit market share increased last year, even without acquiring more branches. Naturally, Key’s share also grew, thanks to the First Niagara deal. But other banks are hardly conceding the market.

The most visible example is Bank on Buffalo, a division of Pennsylvania-based CNB, which went from zero to three branches in the region last year. CNB had explored coming here several years ago, but shelved the idea. CNB had already decided to expand here by the time of Key’s deal for First Niagara, but sped up the process in light of the merger. And now, Bank on Buffalo is considering where to open a fourth branch.

More competitors are moving in. Steuben Trust, which is based in Hornell, bought a vacant branch in Clarence, and expects others to follow. Tompkins Bank of Castile, based in Batavia, was making plans for its first area branch.

Even some incumbents are seizing the moment. Five Star Bank opened its first downtown branch last year and added office space in Amherst. Alden State Bank plans to add a branch in Clarence. Northwest Bank, which absorbed 18 former First Niagara branches, opened an administrative center in Amherst with an eye toward growth.

Financial industry titan Bank of America remains No. 3 in market share here. At the smaller end of the spectrum, banks like Evans Bank and Lake Shore Bank play up their local ties, presenting themselves as an alternative to bigger rivals that are expanding outside the market.

The number of banks with a presence in the Buffalo market has fluctuated slightly over the years. In 1999, there were only 14 of them, according to the FDIC. What’s changed is how much more market share the top players control. Nineteen years ago, the top four banks controlled 81 percent of the region’s deposit market share; today, the top two control 79 percent. (Banks often hold deposits from large corporate or institutional customers in their central offices, which can boost figures for a bank like M&T that is headquartered here.)

In light of the top banks’ dominance in deposit market share, it’s intriguing how many banks are making a push for more business in the region. To the competitors, there’s great value in picking up even a percentage point or two of deposit market share.

As John Eagleton, Steuben Trust’s president, said last year: “First Niagara was a massive company and a dominant player within the Buffalo market, and is gone, and Key is still trying to figure that out, in my opinion. So there’s a lot of room left for people to come in and take advantage of that disruption that’s there.”

M&T remains a powerful force. Key has placed a heavy emphasis on the Buffalo area, its second-largest market after its Cleveland home base. But none of that is deterring competitors from finding their own place in the market. The customers will decide how much to take advantage of it.

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