Bank mergers and general growth in the small-business sector have helped the biggest bank holding companies boost their share of loans to that market.
The top 50 in small-business lending held $82 billion, or 45%, of all bank-held small-business debt as of June 1996, according to American Banker's annual survey of the field. (Tables begin on page 10.)
At the same juncture in 1995, the top 50 held $67 billion, or 39%, of total bank small-business loans.
"The gap between the excellent players and the mediocre players is getting wider and wider," said Charles Wendel, president of Financial Institutions Consulting in New York.
"The industry is moving too quickly to take a wait-and-see attitude," he said. "The banks have to focus their efforts and figure out how they can play."
NationsBank Corp. held on to the top spot in small-business lending, with $4.2 billion outstanding on June 30. But the Charlotte, N.C., organization's portfolio would actually have fallen 5% from a year earlier if loans obtained through acquisitions were factored out.
In fact, many of the banking companies that went through mergers between mid-1995 and mid-1996 would have seen loan balances decline if not for the effects of mergers.
That is not unusual; mergers routinely turn off customers who had grown accustomed to their banks' products and their relationships with officers who may have been displaced.
By contrast, Wells Fargo & Co. leaped from No. 11 on the list to No. 2, with a 110% increase in its small-business portfolio. San Francisco-based Wells' $3.95 billion portfolio is now close on the heels of NationsBank's $4.2 billion.
Wells' performance shows how innovation in small-business lending is paying off for a few banks. Wells Fargo mails offers of revolving business credit lines nationwide and has stepped up sales initiatives in its 10- state home region.
Even excluding its merger with First Interstate Bancorp, Wells posted a 35% growth in small-business loans in the year ended June 30, on the strength of its nationwide solicitations and the resulting credit-scored portfolio.
Executives at Mellon Bank Corp. were not available to comment on its 136% increase, to $1.63 billion. A spokesman for the Pittsburgh bank chalked it up to equipping lending officers with laptop computers, as well as a streamlined application process and shorter turnaround times.
Among the top 50 banks, a few posted internally generated increases comparable to Wells'. They included Bank of Tokyo-Mitsubishi Ltd.'s Union Bank of California (76%); Summit Bancorp of Princeton, N.J. (43%); Fifth Third Bancorp. in Cincinnati (34%); Union Planters Corp. in Memphis (24%); and First Empire State Corp., Buffalo, N.Y. (21%).
The rankings were compiled from June 30 call reports, the one time each year banks report small-business loan data.
In California and the Northeast, where many laid-off executives started their own businesses, small-business bankers have generally enjoyed healthy demand. Also, entrepreneurs on the East and West coasts are more likely to jump into the import-export business simply because of their proximity to trade routes.
Union Bank and Bank of California were already benefiting from both trends when their Japanese parents, Bank of Tokyo and Mitsubishi Bank Ltd., merged last April.
At the post-merger Union Bank of California, the loan portfolio increased fourfold. Even adjusting for the merger, the parent banks' small- business loans increased 35%.
Union Bank competes directly with Wells Fargo and BankAmerica in California, but tries to set itself apart with expertise in import-export financing and personal service.
"Small-business owners want to deal with a banker, not just a bank," said Donald Hance, manager of Union Bank's small-business banking program. "They want to deal with someone who understands their business and knows where they are going and who is there when they need them."
Compass Bancshares, Birmingham, Alabama, designated small-business lenders to develop relationships with customers throughout its branch network. Compass more than doubled its small-business portfolio, to $961 million.
The bank also expanded its small-business lending with the purchase of smaller banks in Texas, a state with abundant growth in entrepreneurship.
"The competition is putting a lot of pressure on the margins, but if a bank does its job well the relationships with small-business customers can be very profitable," said Randy Haines, Compass' city president for Birmingham.
Two other Birmingham-based banking companies posted double-digit increases: 21% at SouthTrust Corp. and 27% at Regions Financial Corp. Amsouth Bancorp., also of Birmingham, saw a 17% decline.
To compete with nonbank lenders entering the expanding market, Compass formed a division specializing in Small Business Administration loans and is considering securitizing them.
While SBA lending can fill a competitive niche, relying on the federal agency too much can cause problems, said Russ Schuler, manager of Firstar Bank of Wisconsin's commercial financial group.
Firstar Corp. was one of the few companies showing a decline in its small-business portfolio. Mr. Schuler said an increase in fees the SBA charges on larger loans discouraged some potential customers.
Milwaukee-based Marshall & Ilsley Corp. and Grand Rapids, Mich.-based Old Kent Financial Corp. also slumped. At the same time First Chicago NBD Corp. posted an 8% increase, excluding the impact of the merger of its Chicago and Detroit constituent banks.
Mr. Schuler sounded a note of caution amid the prosperity: "The competition is doing deals without government guarantees, without personal guarantees, and at lower rates than in the past. There is too much competition chasing too few deals."
