Office of Advocacy

A Directory of Small Business Lending Reported by Commercial Banks in June 1997

The Office of Advocacy is pleased to release The Bank Holding Company Study, 1997. This year's study-an expanded version of the previous studies-provides information not otherwise available in the marketplace and helps small businesses identify multi-billion-dollar bank holding companies (BHCs) that are "small-business-friendly," that is, banks from which small businesses have been more successful in obtaining loans.

With the rapid pace of bank consolidations and the consolidation of accounting operations by major banking companies over the past two years, the study of multi-billion-dollar BHCs becomes even more relevant to an understanding of small business lending in the United States.

The 1997 study used a new scoring method to rank small business lending by multi-billion-dollar BHCs. In the 1995 and 1996 studies, BHCs were ranked on the basis of the dollar amount of small business loans outstanding. The 1997 list uses the four ranking criteria also used in the Office of Advocacy's two other banking studies, providing a more balanced scoring system between very large and smaller bank holding companies.

Among the highlights of the study are the following:

• Of the $184 billion in small business loans outstanding from all banks, $68 billion was in 57 multi-billion-dollar bank holding companies (BHCs).(1) As a group, these BHCs accounted for almost 37 percent of the value of small business loans (under $250,000) and 66 percent of total domestic bank assets in the United States in June 1997.
• These BHCs continued to participate in the small business loan market in 1997; however, the growth in dollars lent to small businesses lagged far behind the growth in total business loans and total assets.
• A very significant increase in the number of loans in the smallest loan size class was observed in the multi-billion-dollar BHCs in 1997. Two developments contribute to these huge increases-the promotion of credit cards to small businesses and the expansion of lines of credit for small firms.
• The top five small-business-friendly lenders were: BB&T Corporation, Wells Fargo, Norwest, American Express Centurion, and Union Planters. BB&T and Union Planters moved into the top five positions because they committed a large share of their total assets and business loans to small business lending.

The Office of Advocacy annually issues two companion reports to this study, Small Business Lending in the United States, and Micro-Business-Friendly Bank Lending in the United States. The first study rank-orders banks in terms of their small business lending within each state. The second lists, in descending order, the top banks in each state in terms of their micro-lending (loans of $100,000 or less).

This report would not be complete without a note about banks' participation in the lending programs of the U.S. Small Business Administration. Included in the estimates in this study are only those portions of loans under SBA loan guaranty programs that were not sold on the secondary market.

Therefore, regardless of their rankings in these banking studies, banks participating in the SBA's Preferred Lender or Certified Lender programs should certainly be considered small-business-friendly, and small businesses in search of capital are encouraged to seek them out. For a listing of SBA Preferred and Certified Lenders, contact your local SBA district office or visit the SBA website at http://www.sba.gov/regions/states.html

Our readers have made many helpful suggestions with respect to the format of this report. A number of them have been incorporated in this edition to improve its usefulness while preserving comparability with earlier editions. Thanks to those who have helped fine-tune this effort. Further comments and suggestions are welcome.

For those with access to the Internet, the studies are available at http://www.sba.gov/advo/stats/lending/.

Jere W. Glover

Chief Counsel for Advocacy

U. S. Small Business Administration

The Bank Holding Company Study, 1997 is the third study of small business lending by bank holding companies (BHCs) in the United States.(2) This report is a companion to a more comprehensive study, Small Business Lending in the United States, 1997 Edition, the Office of Advocacy's "small-business-friendly banks" study. The small business lending study ranks all 9,293 U.S. commercial banks that reported small business lending data in the June 1997 call reports filed with federal banking regulators.(3)

This year's study-an expanded and revised version of the previous studies-provides information not otherwise available in the marketplace and helps small businesses identify multi-billion-dollar bank holding companies (BHCs) that are "small-business-friendly." With the rapid pace of bank consolidations and the consolidation of accounting operations by major banking companies over the past several years, the study of multi-billion-dollar BHCs becomes even more relevant to an understanding of small business lending in the United States. This study includes 57 multi-billion-dollar bank holding companies (BHCs) with domestic assets of $10 billion or more.

What's New in the 1997 Report

Three overall changes are introduced in this year's study:

• Instead of ranking only the banks with $1 billion or more in loans to small businesses, this study covers all 57 multi-billion dollar BHCs.
• A four-criteria scoring method is used to measure the "small business friendliness" of these BHCs.(4) The four-criteria ranking method-also used in the two other banking studies-provides a more balanced measurement of the small business lending activities of very large bank holding companies.(5)
• Finally, the top lender list in the previous studies, which used a single criterion-the dollar amount of small business loans outstanding-is discontinued.

The new ranking method should better measure small-business-friendly bank holding companies in the United States. The four variables used in the ranking method are (1) the small business loan-to-asset ratio, (2) the small-business-loan-to-total-business-loan ratio, (3) the dollar value of small business loans, and (4) the number of small business loans. The first two variables measure the importance of small business loans in the bank's portfolio and give BHCs with greater emphasis on small business lending a better chance to be included in the top rankings.

Because of the small number of banks involved, a BHC's rank in a given category is based on a simple ranking rather than the decile ranking system used in the other studies. The four rankings were then summed and re-ranked from a top ranking of 1 to a low of 57.(6)

The list of the top three small business lenders in each state (Table 2 in the 1996 study) is also discontinued in the 1997 report because of consolidation in the banking industry and in the accounting operations of major banking corporations. Statistics on many top lending banks that are members of major BHCs are not reported separately for each state in which the BHC operates.(7)

Overview

• Of the $184 billion in small business loans outstanding from all banks, $68 billion was in 57 multi-billion-dollar bank holding companies (BHCs).(8) As a group, these BHCs accounted for almost 37 percent of small business loans under $250,000 and 66 percent of total domestic assets in the United States in June 1997.
• These multi-billion-dollar BHCs continued to participate in the small business loan market in 1997 (Figure 1); however, the growth in dollars lent-up 5.3 percent for loans under $250,000-lagged far behind the 10.3 percent growth in their total business loans and the 10.4 percent growth in total assets. The largest increase in their business lending in 1997-11,7 percent-was directed toward large businesses (loans over $1 million). Increasing merger and acquisition activity in large American corporations is believed to have contributed to the growth in this larger loan category.
• A very significant increase in the number of the smallest loans was observed for the multi-billion-dollar BHCs in 1997 (Figure 2). Two developments contributed to this huge increase: the promotion of credit cards to small businesses and the expansion of lines of credit for small firms. The use of credit scoring methods in credit reviews by major banks and BHCs seems to have been a contributing factor. Increases in the value of loans under $100,000 also exceeded the increases in larger small business loans (Table A).

The top five small-business-friendly lenders in 1997, based on the new ranking method, were BB&T of North Carolina, Wells Fargo of California, Norwest of Minnesota, American Express Centurion of Utah, and Union Planters of Alabama. Union

Table A: Assets, Loans, and Small Business Lending of 56 Multi-Billion-Dollar Bank Holding Companies, June 1996 and June 1997**

	Billions of Dollars		Percent Change
	1996	1997	1996-1997
Total Assets	2,372	2,619	10.4
Total Loans	1,518	1,684	10.2
Total Business Loans	539	594	10.3
Small Business Loans a	58.0	61.1	5.3
Very Small Business Loans b	30.4	32.1	5.7
Large Small Business Loans c	133.5	140.2	5.0

** Data for Keycorp were excluded. See footnote 8.

a. Loans under $250,000
b. Loans under $100,000
c. Loans under $1 million

Planters and BB&T moved to the top five because of the strong small business emphasis in their loan portfolios; they committed a large share-42 and 31 percent respectively-of their total assets and business loans to small business lending. American Express Centurion was newly formed to promote small business credit card activity (Table B).

• Although not listed separately, the number of banks with more than $1 billion in loans outstanding to small businesses decreased from 27 to 23 in 1997. Several major lenders disappeared because of mergers and acquisitions among very large banks.

Table B: Top Five Small-Business-Friendly BHCs in 1997

Bank Name	Rank	Ratio SBL/TA	SBLa (Millions)
BB&T Corporation	1	0.068	1,543.2
Wells Fargo & Co.	2	0.038	3,917.8
Norwest Corporation	2	0.037	2,522.1
American Express Centurion Bank	3	0.055	616.6
Union Planters Corporation	4	0.070	1,047.8

a. Small business loans outstanding (less than $250,000)


Table: Small Business Lending by Bank Holding Companies ( loans under $250,000), June 1997

The Small Business Lending by Bank Holding Companies table ranks BHCs that are small-business-friendly on the basis of four criteria that display the small business lending emphases in a bank's loan portfolio. Small business loans (SBL) are defined as loans under $250,000.


Explanation of Columns

Column 1, Total Rank. The total ranking in this column is the summary ranking of the BHC. A BHC's rank in a given category is based on a simple ranking rather than the decile ranking system used in other studies. The four rankings were then summed and re-ranked from a top ranking of 1 to a low of 57. BHCs with identical summary scores were given the same total ranking.(9)

Column 2, Ratio of Small Business Loans to Total Assets (SBL/TA). This column displays the ratio of small business loans under $250,000 to total bank assets for each bank holding company. For the 57 multi-billion-dollar BHCs, the ratios of small business loans to total assets ranged from 0 percent to 7.2 percent, for an average ratio of 3.0 percent.

Column 3, Ratio of Small Business Loans to Total Business Loans (SBL/TBL). For the 57 multi-billion-dollar BHCs, the ratios of the value of small business lending to total business lending ranged from 0.2 percent to 100 percent, for an average ratio of 15.9 percent.

Column 4, Total Dollar Amount of Small Business Lending by the BHC (SBL($). This column lists the total dollar amounts (in millions) of small business loans of less than $250,000.

Column 5, Total Number of Small Business Loans (SBL(#)). This column lists the number of small business loans of less than $250,000 made by the bank holding company.

Column 6, BHC Asset Size Class. Here the asset size class of the multi-billion-dollar BHC is defined in two categories.

• $10 billion to under $50 billion (10B-50B)
• $50 billion and over (>50B)

Column 7, Ratio of Very Small Business Loans to Total Assets (SSBL/TA). This column displays the ratio of very small business loans (under $100,000) to total bank assets for each bank holding company. Ratios ranged from 0 to 3.7 percent, with an average ratio of 1.6 percent.

Column 8, Ratio of Large Small Business Loans to Total Assets (LSBL/TA). This column displays the ratio of larger small business loans (LSBL under $1 million) to total bank assets for each bank holding company. These ratios ranged from 0 to 15.5 percent, with an average ratio of 6.8 percent.

Column 9, Growth in Total Assets (TA97/96). This indicates the percentage growth of the BHC's total assets from 1996 to 1997.

Column 10, Growth in Small Business Loans (SBL$97/96). This measure indicates the percentage growth in the BHC's small business loan dollars from 1996 to 1997.

Column 11, Credit Card Banks (Crt. Card). A double asterisk in this column means that the bank has a significant amount of business credit card activity. These loans may be the credit card accounts of individual employees of large firms or of small firms. Since the call report information does not distinguish between these types of loans, the summary total statistic in column 1 may be biased, making some banks appear more small-business-friendly than they are. However, a few of these credit card banks are making loans to small businesses with credit cards. Thus, the double asterisk is a caution flag.

Column 12, Number of States in which the BHC Operates (No. of States). This column shows the number of states in which the BHC operates.


Limitations of the Study

It is important to note that the call report data tell only a part of the story about lending to small business, namely the commercial bank part. (Small businesses certainly have access to other sources of credit, such as family and friends.) The user should remember that some lending information may not be reported in call reports or may not be discernible as small business financing. For example:

• Banks may provide lines of credit to small firms in their region. If the line of credit is not used, it may not be reported.
• Banks may issue consumer credit cards or other forms of consumer credit to small businesses for working capital, for example, to buy office equipment. These may be categorized by a bank as lines of credit or consumer loans.
• Large banks may make loans to small businesses under their consumer loan divisions, classifying the loans as consumer loans.
• Large banks may send the business person to a subsidiary finance company.
• SBA loans sold in the secondary market will be recorded in the number of loans made by banks. It is believed, however, that only the non-guaranteed portion of these loans is included in the dollar value of small loans in the call reports.
• Loans to many small businesses are often made in the form of a second mortgage on the business owner's home and/or personal lines of credit.
• Small business owners may use their personal credit cards to finance their business.

Moreover, call reports do not reflect a major factor affecting a bank's small business lending activities: the demand or lack of demand for small business loans. Banks with a similar capacity to lend, but responding to less regional demand for small business loans, may have a lower small business friendliness rating than banks responding to more demand.

Despite these limitations, call report data provide sufficient information to present a fairly accurate picture of lending to small businesses in the U.S. economy. And they are currently the only source of small business lending information available to the public.


Suggestions

Suggestions on how to improve the study are welcome. Send written comments to: Office of Advocacy, U.S. Small Business Administration, Mail Code 3112, 409 Third Street, S.W., Washington, DC 20416. Or fax your comments to (202) 205-6928. Comments and technical questions may be addressed to Dr. Charles Ou, Office of Advocacy, U.S. Small Business Administration, telephone (202) 205-6966. e-mail: Charles.Ou@SBA.gov.


Accessing the Study

You may access the 1997 edition of The Bank Holding Company Study on the Internet's World Wide Web at the following address:

http://www.sba.gov/advo/stats/lending/

The previous editions of The Bank Holding Company Study, Small Business Lending in the United States, and Micro-Business-Friendly Banks in the United States are also available at the same address.(10)

Paper and microfiche copies of the banking studies are available for purchase from the National Technical Information Service, Springfield, VA 22161, telephone (703) 487-4650.

Figure 1

Figure 2