Office of Advocacy U.S. Small Business Administration Small Business Lending in the United States A Directory of Small Business Lending by Commercial Banks Reported in June 2000 Published June 2001. This report contains research prepared by the Office of Advocacy, U.S. Small Business Administration. The opinions and recommendations do not necessarily reflect official policies of the U.S. Small Business Administration or any agency of the U.S. government. For further information, contact the Office of Advocacy, U.S. Small Business Administration, Mail Code 3112, Washington, DC 20416. The complete study is available on the World Wide Web at http://www.sba.gov/advo/stats/lending/ or in print or microfiche from the National Technical Information Service, Springfield, VA 22161, tel. (800) 553-6847. The NTIS publication number is PB2001-106751. Foreword I am pleased to release the Office of Advocacy's seventh annual report on the small business lending activities of the nation's commercial banks. Our goal is twofold: to provide small firms with an easy-to-use tool for locating likely loan sources in their communities, and to stimulate competition among banks for small firm customers by comparing bank performance in small firm lending. This, the latest of the "small-business-friendly" bank studies, covers data from two sources. Part 1 of this report compares and contrasts the two sources. Part 2 contains an analysis of the June 2000 call report data submitted by commercial banks to their appropriate banking regulators. All lending of the bank is reported in the state where the bank is headquartered. These numbers are useful for small rural banks in the middle of a state. For most larger banks that lend in several states, data available under the revised regulations of the Community Reinvestment Act (CRA) are more helpful. Part 3 includes the analysis of the latest available CRA data. These data are arrayed by the locations where the loans were actually made during calendar year 1999. Appendix Table A.1 lists the most small-business-friendly banks headquartered in the state using the call reports. Appendix Table A.2 is found only on the Advocacy website at www.sba.gov/advo/ stats/lending/ or is available from NTIS at (800) 553-6847. The NTIS publication number is PB2001-106751. It ranks every bank in the state using call report information and Advocacy's four-variable methodology. Appendix Table A.3 lists the number of banks that fill out call reports by asset size for every state in the United States. Appendix Table A.4 presents the CRA data for all commercial bank loans made in the state in 2000. These banks are ranked only by the dollar amount of lending in the state. This task of identifying small-business-friendly banks is becoming more difficult because of all the merger activity. A bank that was a leader last year may not be listed this year because of name changes or because the bank headquarters may now be located in another state. Thus, the call report database on which this report is partially based is becoming less useful. Merger activity is also changing the names and headquarters locations of larger banks. Thus, checking both call report and CRA rankings for the most small-business-friendly lenders is a good strategy. As merger activity makes banking more national in scope, a companion report by the Office of Advocacy, The Bank Holding Company Study, with its call report and CRA national rankings, becomes more important in determining which of the local lenders may meet a borrower's lending needs. The following quote expresses part of the problem: The recent elimination of bank charters provides reason to focus on the BHC (bank holding company). In the post-deregulation era, BHCs have removed many subsidiary banks' charters by collapsing subsidiaries into a single primary bank in the hope of reaping efficiency gains from common systems and back office operations as well as from reducing regulatory burdens. A primary bank subsidiary might appear to be growing rapidly, when in fact assets have merely been transferred within the same holding company.1 Banks are leading suppliers of credit to small businesses, accounting for 54 percent of total traditional small firm credit used, according to the 1993 National Survey of Small Business Finances. This year's study covers the lending activity of 8,459 individual reporting commercial banks, some 200 fewer than were in the 1999 report; however, the number of bank branches continued to increase.2 In June 2000, commercial banks had $1.3 trillion in business loans outstanding (commercial and industrial loans and commercial mortgage loans), of which 34 percent-$437 billion-was in small business loans (loans less than $1 million). Total business loans outstanding increased by $158 billion or 13.8 percent in 2000 while small firm lending increased by $38.5 billion or 9.7 percent. This declining small firm share raises concerns about the adequacy of small business commercial bank credit, especially for firms looking to grow. And unfortunately, this share has been declining since the Office of Advocacy started these studies. (In 2000, the small business loan share of total business loans was 33.6 percent; in 1999 it was 34.9; in 1998, 36.4; and in 1997, it was 37.8.) The following findings are of particular interest: The dollar amount of small business lending increased at a slower rate than lending to large firms (9.7 percent compared with 16.1 percent). Loans outstanding in the three small-loan categories increased at rates of 6.7 percent (loans under $100,000), 8.5 percent (loans of $100,000 to $250,000), and 11.8 percent ($250,000 to $1 million). This year, the number of the smallest small business loans increased dramatically-by 2 million. Part of the increase was due to a large commercial bank purchasing the accounts receivable of Office Depot. In this instance, lending to small firms was not really increasing, since trade credit was being converted into bank loans. The remaining increase in the number of loans comes from the continued competition among commercial banks to provide small businesses with credit cards. With the number of loans under $100,000 increasing by 27 percent but with the dollar amount increasing by only 7 percent, it is clear that the average size of the smallest loans continues to fall. As interstate bank mergers increase, so do the loans provided by out-of-state banks or bank holding companies (BHCs). These loans may not show up in the state-by-state call report data but will show up in CRA data. For example, call report data identify six banks headquartered in the District of Columbia, whereas the 1999 CRA data identify 27 banks-nearly all headquartered out of state-lending to small firms in the district. This is the reason to study where the loans are being made, as shown in Appendix Table A.4, rather than relying solely on Appendix Tables A.1 and A.2. Mergers and interstate branching will have more significant effects on small firms because of the likely interruption of established banking relationships. Large corporations are not so dependent on established banking relationships because they can obtain capital from the money market, the commercial bond market, and the equity market. Thus, changes in market structure that could adversely affect small firm access to commercial bank credit must be monitored closely. In June 2000, the Office of Advocacy had a conference on the impact of the changing banking structure on the credit markets for small business. Leading researchers presented their views. See the conference report on the Office of Advocacy website at www.sba.gov/advo/b_cf00proc.pdf. No story on small business lending would be complete without mentioning the U.S. Small Business Administration's loan programs. During fiscal year 2000, the SBA's biggest lending program, the 7(a) program, saw the dollar amount of loans it guaranteed increase by 3.7 percent, while the number of loans increased by 0.2 percent. As of September 20, 2000, the nationally ranked top five SBA lenders under the 7(a) program by dollar amount were: CIT Group, Heller Financial, U.S. Bancorp, Bank United, and Wells Fargo. The top five by number of loans were Fleet Boston, Wells Fargo, Bank of America, CIT Group, and U.S. Bancorp.3 These financial institutions are clearly small-business-friendly. In Advocacy's ranking, banks that participate in SBA's loan programs and use secondary markets extensively will have "small business friendliness" rankings that are artificially low because only the non-guaranteed portion of guaranteed loans will appear in the bank's loan portfolio. SBA preferred or certified lenders should all be considered small-business-friendly, and small firms should certainly seek them out. A listing can be found at www.sba.gov/ financing/lender.html. Thanks to all who have helped fine-tune this effort-members of the U.S. House of Representatives and Senate Committees on Small Business and Banking, and many individual users of the previous reports. Comments and suggestions are valuable and truly welcome. The studies are available on the Internet at www.sba.gov/advo/ stats/lending/ or from NTIS at (800) 553-6847. The NTIS publication number is PB2001-106751. Robert E. Berney Chief Economist Contents Part 1: Introduction 1 Part 2: Using the Call Report Data 5 Part 3: Using the CRA Data 9 Data Appendices 11 Table A.1 Small-Business-Friendly Banks in the State Using Call Report Data, June 2000 Table A.1 Expanded version (website andNTIS) Table A.2 Number of Call Reporting Banks by Asset Size and by State, 1999-2000 Table A.3 Small Business Lending in the State Using CRA Data, 1999 Part 1: Introduction Small businesses are the keystone of the U.S. economy. America's small businesses-some 25 million strong, based on business tax return data-employ about 52 percent of the private work force, but create 75 percent of the new jobs: contribute 51 percent of private sector output, and produce 55 percent of innovations.4 By keeping the market-based system efficient, they make an indispensable contribution to U.S. global competitiveness. Access to credit is vital for small business survival, and a key supplier of credit to small firms is the commercial banking system. Some 67 percent of all small firms that borrow from traditional sources obtain their money from commercial banks, according to the 1993 National Survey of Small Business Finances (NSSBF).5 Of a total of $668 billion in small business credit outstanding from traditional sources in 1993, commercial banks supplied 54 percent, a much larger share than the 13 percent supplied by finance companies, the next most prominent lender.6 As firms grow, their reliance on the commercial banking system increases. Of the small firms that borrow from traditional credit sources, according to Office of Advocacy analysis of the NSSBF data, the following obtain their financing from commercial banks: * 59 percent of firms with 0 employees, * 64 percent of firms with 1-4 employees, * 68 percent of firms with 5-9 employees, * 73 percent of firms with 10-19 employees, * 84 percent of firms with 20-99 employees, * 86 percent of firms with 100-499 employees. It is critical to the health and growth of a small business to know which banks are meeting the credit needs of small firms and which banks are investing elsewhere. Such information helps small businesses save precious time and shop efficiently for credit-and it also helps banks gain access to new investment opportunities. Studies using 1994-1996 banking data showed that banks that were small-business-friendly were more profitable than those that made few small business loans.7 These insights cast doubt on the mythology that loans to small businesses are riskier and less profitable. More recently, the Board of Governors of the Federal Reserve System published a report on The Performance and Profitability of CRA-Related Lending.8 It provides the following information gathered by survey: * Small business lending, as identified under the Community Reinvestment Act (CRA) is either profitable or marginally profitable. * The profitability of CRA-related and other small business lending is about the same. * Roughly the same delinquency and charge-off rates exist for CRA-related and other small business lending. * Large banking institutions generally experience poorer performance than smaller institutions in small business lending. This seventh annual edition of Small Business Lending in the United States provides current banking data to small firms and the banks that serve them. Like the earlier studies, this edition contains an analysis of call report data filed by banks with their regulating agencies in June of each year. And for the third time, this report offers lending data from the CRA database. * Appendix Table A.1 identifies the list of the top small-business-friendly banks. Except for states with only a few banks, the list includes the top 10 banks or the top 10 percent of banks, whichever number is smaller. (Ties may increase the number.) * The expanded version of Appendix Table A.1 (on the website and NTIS) provides information on the small business lending behavior of every reporting commercial bank headquartered in each state, using information from the call reports. * Appendix Table A.2 provides the number of call reporting banks in each state by asset size. * Appendix Table A.3 lists the CRA reporting banks in the state with more than $1 million in lending. These banks in total account for two-thirds of the lending activity with small businesses. * Appendix Tables A.1, and A.3 are designed to help depositors and borrowers identify which local banks are more likely to make small business loans. A Comparison of the Data Sets The call report and CRA data complement each other, but are not comparable, in that they provide different kinds of loan information, are identified differently by location, and cover different categories of banks (Table A). CRA data reflect the loans being made during a given year (1999), while the call reports measure all the loans outstanding as of June 30, 2000 (i.e. the flow of credit versus the stock of credit). The call reports attribute all lending of a banking organization to the state where the bank's headquarters is located,9 while the CRA data report actual lending in a given state. For example, in the call report database, Wells Fargo is shown as located in California, but the CRA database shows Wells Fargo lending in all 50 states. Consequently, CRA data are important in analyzing the state-by-state lending behavior of the larger banks. In addition, only the larger banks or BHCs are required to report under CRA. Unfortunately the CRA data do not include other information about bank performance, so only the amount of loans being made can be reported. Attempts have been made to merge the two databases but the results have not been totally successful.10 Basing rankings solely on the total amount of small business loans and leaving out the ratios of small business loans to bank assets or total business loans biases the results in favor of larger banks. One major finding in the CRA data is that many small business loans are made by banks headquartered in other states. For example, Table A. Comparison of Call Report and CRA Databases Used in 2000 Lending Studies Call Report Data CRA Data Loan information provided Stock of business loans outstanding as of June 2000 Flow of business loans over entire calendar year 1999 How location is identified Bank headquartered in the state Lending activity in the state by CRA reporting banks only Categories of banks covered All reporting commercial banks and bank holding companies Banks with $250 million or more in assets or members of bank holding companies with more than $1 billion in assets call report data identify six banks headquartered in the District of Columbia, whereas the 1999 CRA data identify 27 banks lending at least $1 million to small businesses in the district. Appendix Table A.3 contains data on the number of banks filing call reports by asset size for all states. Study Definitions For this study, the definition of a small business loan is a commercial and industrial loan or commercial mortgage loan under $1 million. This is the definition used by most financial regulatory agencies and other researchers. Rankings of banks on their lending in smaller loan sizes (less than $250,000 and less than $100,000) are still available in the final two columns of Appendix Tables A.1 for comparisons with earlier studies and for the benefit of the small firm seeking smaller loans.11 Limitations of the Study It is important to note that call report and CRA data tell only a part of the story about lending to small business, namely the commercial banking part. Small businesses certainly have access to other sources of credit, such as their suppliers, finance companies, family, and friends. Additionally, some lending information may not be reported in call reports or CRA data, or may not be discernible as small business financing. For example: * Banks may provide lines of credit to small firms. If the line of credit is not used, it will not be reported as a loan. * Banks may issue consumer credit cards or other consumer credit to small firms for working capital (e.g., for office equipment). They may report these as either small business or consumer loans. * Loans to small firms are often 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 businesses.12 * Banks may make loans to small businesses under their consumer loan divisions, classifying the loans as consumer loans. * Banks may send business owners to subsidiary finance companies that are not required to file call reports. * SBA-guaranteed loans sold in the secondary market are recorded in the number of small business loans made by banks, but only the non-guaranteed portion of these loans is included in the dollar value of small loans in the call report. * In filing call reports, multi-state bank holding companies may file consolidated reports rather than separately reporting the lending operations of a member bank in a given state. The CRA tables avoid this problem. * When mergers or acquisitions occur among banks or other financial intermediaries, the reported amount of lending may appear to change, but the loans are actually being transferred among financial intermediaries. * When mergers occur, the lending activity of a given bank or the bank's holding company affiliate becomes difficult to track and year-to-year comparisons become questionable. Additionally, a major factor affecting a bank's small business lending activities-the demand or lack of demand for small business loans-is not recorded in either data set. Banks of similar lending capacity and similar intent to serve the small business community may end up with significantly different ranking results because of differences in small business demand. Despite these limitations, the call report and CRA data are useful in that they are the only publicly available sources of information on the small business lending patterns of individual banks. Related Studies The Office of Advocacy continues to conduct research using the call report and CRA data. The Office of Advocacy also publishes 2000 editions of Micro-Business-Friendly Banks in the United States, which ranks the top banks in each state in terms of their micro-lending (loans of less than $100,000), and The Bank Holding Company Study, which ranks multibillion-dollar BHCs using the four-variable methodology developed in this report. Also available from the Office of Advocacy are individual state studies titled Small Farm Lending in the United States and two national studies, Small Farm Lending by Bank Holding Companies and Small Business Lending in Rural America. These reports were prepared last year using the 1999 call reports. A Note about SBA Lending Programs Small businesses seeking loans should also seek out banks that participate in the SBA's loan programs. The top five national SBA lenders under the 7(a) program by dollar amounts, as of September 20, 2000, were CIT Group, Heller Financial, U.S. Bancorp, Bank United, and Wells Fargo. The top five by number of loans were Fleet Boston, Wells Fargo, Bank of America, CIT Group, and U.S. Bancorp.13 These are clearly small-business-friendly banks. In Advocacy's ranking, banks that participate in the SBA's loan programs and use secondary markets extensively will have "small business friendliness" rankings that are artificially low because only the non-guaranteed portion of guaranteed loans will appear in the bank's loan portfolio. SBA preferred or certified lenders should all be considered small-business-friendly, and small firms should certainly seek them out. A listing can be found at www.sba.gov/ gopher/Local-Information/Certified-Preferred-Lenders/. Accessing the Study All editions of Advocacy lending studies are on the Internet at: www.sba.gov/advo/stats/lending/. Paper and microfiche copies are also available for purchase from the National Technical Information Service at (800) 553-6847. The NTIS publication number for this study is PB2001-106751. Suggestions Send written comments or suggestions to the Office of Advocacy, U.S. Small Business Administration, Mail Code 3112, 409 Third St., S.W., Washington, DC 20416, or by fax to (202) 205-6928. For answers to technical questions, call (202) 205-6530 or send e-mail correspondence to advocacy@sba.gov. Part 2: Using the Call Report Data In 1991, Congress, recognizing the importance of small business to the U.S. economy, mandated that financial institutions report small business loan information to federal banking authorities as part of their call reports. Beginning in June 1993, federal banking regulators collected appropriate information from commercial banking institutions on all commercial loans under $1 million. In 1994, the Office of Advocacy first analyzed the call report information reported by banks in order to help small businesses locate the financial institutions most likely to make small business loans. The first study used the June 1994 call report data; reports have been published every year since. Appendix Table A.1 lists the top small-business-friendly banks in the state based on call reports. The list includes the top 10 banks or the top 10 percent. (Ties may increase the number.) The expanded version of Appendix Table A.1 (on the website and NTIS) provides information on the small business lending behavior of every commercial bank that submits call reports in the state. The Call Report Data Call reports, officially known as Consolidated Reports of Condition and Income, are quarterly reports filed by financial institutions with their appropriate bank regulators. The call reports provide detailed information on the current status of a financial institution. Section 122 of the Federal Deposit Insurance Corporation Improvement Act of 1991 requires financial institutions to report on an annual basis the number and amount of small business loans. The call reports on which Appendix Table A.1 is based provide various bank data, including the number and dollar amount of loans outstanding by loan size for business loans of less than $1 million. These data enable researchers to evaluate commercial banks' small business lending activities. Four variables were used to create a score for the small business lending activities of individual banks: (1) the ratio of small business loans to total assets, (2) the ratio of small business loans to total business loans, (3) the dollar value of small business loans, and (4) the number of small business loans. A bank's score in each of the four categories is its decile ranking. The decile ranking is a measure of where the individual bank falls in the distribution of all banks within a state for any given variable. Decile rankings range from 1 to 10. Banks in the top 10 percent of all banks in the state receive the maximum score of 10; banks in the lowest 10 percent in the category receive a score of 1. Banks that do not lend to small businesses (loans under $1 million) receive a 0. To allow for a top score of 100, the total decile value was multiplied by 2.5. Small banks tend to score higher in some categories than larger banks, and vice versa. For example, smaller banks have a higher percentage of total assets in small business loans, but larger banks lead in the sheer number and value of small loans. * To summarize, the 2000 tables using call report information retain the major features of previous studies: * Four criteria are used in the total score. * Data are provided on a state-by-state basis, a format that is most relevant to those relying on local bank credit markets. * Five bank asset size classes are used. * Credit card banks were not ranked.14 * The total score can range from 0 to 100, rather than 0 to 40, as the decile values were multiplied by 2.5 to give the maximum score of 100. The 2000 Study: Findings The dollar value of small business lending continued to increase in 2000, but at a slower rate than lending to large businesses. Small business loans under $1 million outstanding in June 2000 amounted to $437 billion, an increase of $38.5 billion or 9.7 percent over the 1999 level (Table B).15 Business loans outstanding in 2000 were valued at $1.3 trillion, an increase of $158 billion or 13.8 percent. Clearly the small business share was declining. Growth in the value of small business loans was at 6.7 percent for loans under $100,000, 8.5 percent for loans of $100,000 to $250,000, and 11.8 percent for loans of $250,000 to $1 million (Table C). These growth rates were smaller than the growth rates for larger loans (>$1 million), up 16.1 percent. The growth rates for loans in all the small business categories were higher this year than in the previous three years (Table C). Since large loans (over $1 million) are increasing most rapidly, the concern still exists that small firms may not be obtaining the credit they need to grow with the economy. Table B. Dollar Amount and Number of Small Business Loans, 1999 and 2000 (Dollars in Billions, Numbers in Millions) Loan Size 2000* 1999 Percent Change Under $100,000 Dollars $121.4 $113.9 6.7 Number 9.8 7.73 26.9 $100,000-$250,000 Dollars $88.0 $81.1 8.5 Number 0.73 0.69 7.0 $250,000-$1 Million Dollars $227.5 $203.5 11.8 Number 0.63 0.58 8.4 Under $1 Million Dollars $437.0 $398.5 9.7 Number 11.2 9.0 25.2 Over $1 Million Dollars $863.3 $743.9 16.1 Total Dollars in Business Loans $1,300.3 $1,142.3 13.8 * The large increase in the number of small loans can be attributed largely to the purchase of Office Depot's accounts receivable by GE Financial and the continued expansion in small business credit card use. Table C. Change in the Dollar Amount of Business Loans by Loan Size, 1996-2000 (Percent) Loan Size 96-971 97-981 98-992 99-00 Under $100,000 2.9 3.0 2.5 6.7 $100,000-250,000 5.2 8.1 6.3 8.5 $250,000-$1 Million 5.7 7.7 11.2 11.8 Over $1 Million 11.5 13.0 14.6 16.1 1 Changes for 1996-1997 and 1997-1998 were estimated based on revised estimates for KeyCorp in 1997. 2 So that 1998-1999 trends could be shown, 1998 figures were revised to exclude the credit card operation of Mountain West Financial, which was purchased by a non-bank financial intermediary and thus excluded from 1999 data. Table D. Percent Change in the Number of Small Business Loans by Loan Size, 1995-1999 Loan Size 96-971 97-981 98-992 99-003 Under $100,000 26.6 19.3 10.1 26.9 $100,000-$250,000 8.6 1.8 5.4 7.0 $250,000-$1 Million 8.0 1.4 7.6 8.4 1 Changes for 1996-1997 and 1997-1998 were estimated based on revised estimates for KeyCorp in 1997. 2 So that 1998-1999 trends could be shown, 1998 figures were revised to exclude the credit card operation of Mountain West Financial, which was purchased by a non-bank financial intermediary and thus excluded from 1999 data. 3 The large increase in the number of small loans can be attributed largely to the purchase of Office Depot's accounts receivable by GE Financial and the continued expansion in small business credit card use. The number of small business loans increased, especially in the smallest size category (Table D). But this increase was attributed largely to the purchase of Office Depot's accounts receivable by GE Financial and the continued expansion in small business credit card use. The number of loans of less than $100,000 increased by 26.9 percent; those of $100,000 to $250,000 by 7.0 percent; and those of $250,000 to $1 million by 8.4 percent. Bank consolidations continued to affect the relative importance of banks of different sizes in the small business loan market.16 The Table E. Number of Reporting Banks by Asset Size, 1996-2000* Bank Asset Size 1996 1997 1998 1999 2000 <$100 Million 6,465 6,047 5,644 5,302 5,034 $100 Million-$500 Million 2,548 2,590 2,656 2,683 2,751 $500 Million-$1 Billion 260 292 303 290 302 $1 Billion-$10 Billion 326 300 302 309 293 >$10 Billion 71 64 61 75 79 Total 9,670 9,293 8,966 8,659 8,459 * Note: changes in the number of reporting banks could be caused by the financial reporting consolidation of BHCs.) number of commercial banks filing call reports continued to decline, by 377 in 1997, 327 in 1998, 307 in 1999, and 200 in 2000 (Table E). The number of very small banks (with assets of less than $100 million) has declined since 1995; most of the disappearing small banks either grew into the next size category, merged, or were acquired by larger banks. The number of banks in other size categories, except for those in the $1 billion to $10 billion asset size category, increased from 1999 to 2000.17 Appendix Table A.2 lists by state the number of banks filing call reports. What are the expected effects on small business finance from the disappearance of small community banks? A recent study in the FDIC working paper series using the new CRA data, "Banking Consolidation and the Provision of Banking Services: The Case of Small Commercial Loans," confirms what has been learned from other researchers using call reports and other data sources:18 * Small business lending is the most localized of banking services. Therefore scrutiny of proposed mergers from a small business lending perspective is justified. * Mergers among smaller banks tend to increase lending to small firms. * Bank consolidation is linked to lower loan growth in rural areas. * Markets experiencing merger activity by large banks had lower loan growth than markets experiencing no consolidation.19 Part 3: Using the CRA Data The Community Reinvestment Act, enacted in 1977, is designed to encourage banks to meet the credit needs of the local communities from which they obtain deposited funds. In 1994 the federal banking supervisory agencies revised the regulations implementing the CRA. The revisions included a requirement that banks report data on small business lending by census tract.20 To minimize the paperwork burden on small banks, the bank regulatory authorities require only banks with assets over $250 million or any member banks of a bank holding company (BHC) with assets over $1 billion to provide this information. This means that some 21 percent of banks are required to file, but these banks make more than two-thirds (71.5 percent) of small business loans, nearly all (96.7 percent) of the largest loans over $1 million, and more than half (61.0 percent) of the smallest loans under $100,000 (Table F). Given the interstate mergers occurring in the banking industry, the CRA data become more important in understanding small business lending activities by banks and BHCs in a given state. The weakness of this data set is that not all banks are required to report their lending. The smaller banks, which are not required to report, make 28.5 percent of the loans to small businesses and are important lenders to small firms in certain markets. No financial information is available on the CRA reporting banks unless the call report data sets can be linked to the CRA data set, so the ratio Table F. Business Loans Outstanding from All Call Report and CRA-Covered Banks* (Billions of Dollars) Loan Size Call Report Banks (CRB) Banks Subject to CRA CRA/CRB Percent Under $100,000 $121.4 $74.0 61.0 Under $250,000 $209.4 $137.7 65.8 Under $1 Million $437.0 $312.4 71.5 Over $1 Million Total Business Loans $863.3 $1,300.3 $835.1 $1147.5 96.7 88.2 * Call report banks include all commercial banks that filed call reports as of June 2000, while CRA reporting banks are all banks with more than $250 million in assets or that are part of a bank holding company with more than $1 billion in assets that filed for calendar year 1999. analysis used in the rankings of Appendix Tables A.1 cannot be repeated here.21 In 1999, 755 banks and BHCs made 2.7 million small business loans valued at $160 billion.22 The number of loans of less than $100,000 was 2.3 million and totaled $46 billion; the number of loans in the $100,000-$250,000 range was 179,000 and totaled $31 billion. Appendix Table A.3 lists the dollar amount of small business lending that occurred in 1999 by location of the lending activity. This table is an important complement to Appendix Table A.1in helping small firms locate larger banks likely to lend to them. Data are reported for both commercial banks and BHCs at the highest ownership level. For BHCs, individual holding company banks are consolidated into the BHC's total. Total small business lending by the BHC in the state is then derived for the state lending statistics and listed under the name of the ultimate lending bank or BHC. To reiterate, the CRA section of this report shows: * Loans made in calendar year 1999, not the outstanding loans as of June 2000 shown in the call reports. * Data only for commercial banks with more than $250 million in assets and all member banks of bank holding companies with more than $1 billion in assets. (Call reports cover all commercial banks.) * Only the banks and BHCs that made more than $1 million in loans in a state in calendar year 1999. * Using CRA data, Appendix Table A.3 lists by state the banks and BHCs that report lending of at least $1 million in the state. (Using call report data, Appendix Table A.1, the expanded version lists all banks with headquarters in the state in June 2000. This table is found only on the Advocacy website at www.sba.gov/advo/stats/ lending/ or is available from NTIS at (800) 553-6847. The NTIS publication number is PB2001-106751.) Data Appendices Table A.1 Small-Business-Friendly Banks in the State Using Call Report Data, June 2000 This table lists in descending order the top-scoring small-business-friendly banks in the state. 1. Total Score: The total found in the first column is the score of the commercial bank in the state in which it is listed. The number is the aggregate measure of small business lending activity based on the sum of the scores in columns 2 through 5. Each of the component scores is multiplied by 2.5 to bring the best possible score to 100. A total score of 100, for example, means that the bank is in the top decile or the top 10 percent of banks in each of the four categories, while a total score of 10 indicates that the bank is in the bottom 10 percent in each category. A blank of 0 indicates that there is no evidence of the bank making small business loans. 2. Score Based on the Ratio of the Dollar Amount of Small Business Loans to Total Assets (SBL/TA): This column shows each bank's score for the ratio of small business loans (<$1 million) to total assets. A score of 10 means that the bank is in the top 10 percent of the banks headquartered in the state with respect to the small business loan-to-asset distribution. The bank is willing to place a large portion of its assets in small business lending. Thus it has an exceptional record of lending to small businesses. 3. Score Based on the Ratio of the Dollar Amount of Small Business Loans to Total Business Loans (SBL/TBL): The bank's score for the ratio of small business loans (<$1 million) to total business loans. Banks that make business loans predominately to small firms will rank high in this category. 4. Score Based on the Total Dollar Amount of Small Business Loans (SBL$): The score of the dollar value of small business loans (<$1 million) outstanding from the bank. Larger banks will score well in this column and in column 5 because their size allows them to make many small loans, even if their commitment to small business lending, as shown by the ratios in columns 2 and 3, is low. 5. Score Based on the Total Number of Small Business Loans (SBL#): The bank's decile score for the total number of small business loans (<$1 million) outstanding. 6. Bank Asset Size: The asset size class of the reporting bank: * Under $100 million (<$100M) * $100 million to under $500 million ($100M-$500M) * $500 million to under $1 billion ($500M-$1B) * $1 billion to under $10 billion ($1B-$10B) * $10 billion and over (>$10B) 7. Amount of Small Business Loans (Dollars in SBL): The dollar value (in thousands) of small business loans of less than $1 million. 8. Number of Small Business Loans (Number of SBL): The number of small business loans of less than $1 million made by the bank. 9. Total Score for Mid-Sized Small Business Loans (Total Score<$250K): This score is based on the bank's four scores with respect to mid-sized loans-those under $250,000. The number is comparable to the number in column 1. A firm looking for a loan of between $100,000 and $250,000 might be well served by a bank ranking high in this column. 10. Total Score of Micro Business Loans (Total Score<$100K): The total score of the commercial bank based on its micro-lending-that is, the sum of its four scores with respect to micro-loans of less than $100,000. A firm looking for a loan of less than $100,000 might do well to seek out a bank that ranks high in this column. Table A.1 Expanded version (available on the Advocacy website and from NTIS) This table lists all banks using call reports in each state. See ranking criteria from Table A.1 above. Table A.2 Number of Reporting Banks by Bank Asset Size and by State, 1999-2000 This table lists in alphabetical order by each state's postal abbreviation the number of banks submitting call reports for the years 1999 and 2000, breaking the 2000 figures down into asset size classes. Table A.3 Small Business Lending in the State Using CRA Data, 1999 Table A.3 is formatted differently from the tables displaying call report data. The table lists the bank name-the name of the ultimate owning bank or bank holding company-as well as the home state of the bank. It provides the dollar amount and number of small business loans under $1 million, mid-sized small business loans under $250,000, and micro-loans under $100,000. Only banks with small business loan totals in excess of $1 million in a given state in 1999 are listed. 1. Amount of Small Business Loans (SBL$<$1M): The dollar amount, in thousands, of loans under $1 million made in 1999. 2. Number of Small Business Loans (SBL#<$1M): The number of loans of less than $1 million made in 1999. 3. Bank Asset Size (Bk Size): The total assets of the owning bank by size category: * $1 billion to under $10 billion ($1B-$10B) * $10 billion to $50 billion ($10B-$50B) * $50 billion and over (>$50B) 4. Amount of Mid-Sized Small Business Loans (SBL$<$250K): The dollar amount, in thousands, of mid-sized business loans of less than $250,000. 5. Number of Mid-Sized Loans (SBL#<$250K): The number of mid-sized business loans. 6. Amount of Micro-Business Loans (SBL$<$100K): The dollar amount, in thousands, of loans of less than $100,000. 7. Number of Micro-Business Loans (SBL#<$100K): The number of loans of less than $250,000. 8. Credit Card Banks (Crd Cd/TA). The ratio of credit card loans to total assets. Where this percentage is greater than .25, the data are reported. These loans may reflect credit card activity of individual employees of large firms or the credit card activity of small firms. Because the CRA report does not distinguish among 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, since some of these credit card banks are making loans to small businesses with credit cards, they may be a ready source of small business credit. 1 Kevin Stiroh and Jennifer Poole, "Explaining the Rising Concentration of Banking Assets in the 1990s," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 6, no. 9 (August 2000). 2 From 1998 to 1999, the number of banks declined by 193 while the number of branches increased by 1,727, according to information provided by the Federal Deposit Insurance Corporation. 3 Guaranteed Lender, November 13, 2000. 4 U.S. Small Business Administration, Office of Advocacy, Small Business Answer Card, 2001. See also Joel Popkin and Company, The Small Business Share of Private, Nonfarm Gross Domestic Product, report no. PB97-180723, prepared for the U.S. Small Business Administration, Office of Advocacy, (Springfield, Va.: National Technical Information Service, February 1997). 5 A new NSSBF will be available by mid-2001. 6 While the NSSBF does not separate out SBA lending, both banks and finance companies are active participants in SBA's business loan guarantee programs. However, the value of SBA business loans outstanding is less than 10 percent of the total stock of commercial bank loans; that is, most small business bank loans are not SBA guaranteed loans. 7 James Kolari, Robert Berney, and Charles Ou, "Small Business Lending and Bank Profitability," Journal of Entrepreneurial and Small Business Finance, vol. 5, no. 1 (1997), 1-15. These results were confirmed by Prof. Ralph C. Kimball in "Specialization, Risk and Capital in Banking," New England Economic Review (November/December 1997). 8 The Performance and Profitability of CRA-Related Lending, a report by the Board of Governors of the Federal Reserve System submitted to the Congress pursuant to section 713 of the Gramm-Leach-Bliley Act of 1999, July 17, 2000. 9 Given the recent increase in interstate mergers, call report data become less relevant and CRA data become more relevant in understanding the lending activity in a given state. 10 In the 2000 version of The Bank Holding Company Study, matching was successful so that both the call report and CRA information on BHCs can be ranked using Advocacy's four-variable methodology. 11 See also Advocacy's companion study, Micro-Business-Friendly Banks in the United States. 12 The NSSBF found that 27.6 percent of small businesses used business credit cards and 39.2 percent used personal credit cards for business purposes. 13 Guaranteed Lender, November 13, 2000. 14 Banks with a credit-card-loans-to-total-assets ratio in excess of 0.25 were considered credit card banks. Large businesses issue credit cards to their employees; their charges would appear as small loans. 15 Small business loans outstanding as reported by banks should include those portions of small business loans made under the SBA's business loan guaranty programs that remain on the bank's books and are not sold. 16 For more details see Stephen A. Roades, "Bank Mergers and Banking Structure in the United States, 1980-98," Board of Governors, Federal Reserve System Staff Study 174, August 2000. Over this period, there were some 420 mergers per year. 17 For discussions of the issues, see Loretta J. Master, "Banking Industry Consolidation: What's a Small Business to Do?" Business Review, Federal Reserve Bank of Philadelphia, (January/February 1999), 3-16; and Timothy J. Yeager, "Down, But Not Out: The Future of Community Banks," The Regional Economist, Federal Reserve Bank of St. Louis, October 1999, 5-9. 18 Robert B. Avery and Katherine Samolyk, "Bank Consolidation and the Provision of Banking Services: The Case of Small Commercial Loans," FDIC Working Paper Series 2000-01. See also U.S. Small Business Administration, Office of Advocacy, The Impact of Bank Mergers and Acquisitions on Small Business Lending: A Conference Report, January 1998 and The Changing Banking Structure and Its Impact on Small Business: A Conference Report, June 2000. 19 Some of the most small-business-friendly regional banks have been purchased by foreign banks wanting to establish a significant presence in the U.S. market. Other banks disappear from the call reports, since the headquarters are no longer in the state where they reported in the past. Recent major changes are: Name of BHCs in Call Report 6/00 Names of the New Owners Columbus B&TC TB&C Bancshares Harris T&SB Bank of Montreal Union BK OF California NA Bank of Tokyo-Mitsubishi Limited Bank of the West BNP Paribas Michigan NB National Australia Bank Limited Bankers TC Deutsche Bank Aktiengesellschaft Allfirst Bank Allied Irish Banks p.l.c. Citizens Bank of Massachusetts Royal Bank of Scotland Group LaSalle Bank NA Stichting Prioriteit ABN AMRO 20 For more information about the history of the CRA, see "Home Purchase Lending in Low Income Neighborhoods and to Low Income Borrowers," Federal Reserve Bulletin, February 1995, 71-105, and "New Information on Lending to Small Businesses and Small Farms: The 1996 CRA Data," Federal Reserve Bulletin, January 1998, 1-35. 21 CRA and call report data are linked for the national rankings in The Bank Holding Company Study, 2000. 22 Since the number of banks and BHCs under the CRA program varied from the previous year, comparisons between the years should not be made. i iv 6