Small Banks Boost Outstandings Faster Than Big Ones in Kansas City Fed District

Community banks are piling up small-business loans faster than their larger rivals in the Great Plains and southwestern states, according to a study by the Kansas City Federal Reserve Bank.

At banks in its district with less than $100 million of assets, portfolios of small-business loans-commercial and industrial credits with less than $1 million outstanding-grew 9.5% last year.

The rise was only 3.6% at banks more than $1 billion of assets, though that was six times the 1995 rate.

The 10th Federal Reserve District includes Colorado, Oklahoma, Nebraska, Kansas, Wyoming, Missouri, and New Mexico.

Over all, small-business loan levels increased 7.1% in the district, after rising 8.3% in 1995.

Robert Beauprez, president of $72 million-asset Lafayette State Bank in Colorado, said the entry of superregionals into his market helped steer small-business owners to community banks.

"Customers have seen a lot of changes and new faces," Mr. Beauprez said, "and they are looking for banking the way it used to be, which is closer to the way it still is at the community banks."

Smaller banks have historically made smaller business loans than regional banks, but in recent years that has reversed itself.

At small banks in the 10th District, for example, holdings of outstanding loans from $100,000 to $1 million grew more than 24%; holdings of smaller loans rose just 4.8%.

At the larger banks, portfolios of the smaller loans rose nearly 8%. The rise in the bigger-loan category was just 1.8%.

Gene Harris, executive vice president of BOK Financial Group's Bank of Oklahoma, said NationsBank Corp.'s acquisition of Boatmen's Bancshares has helped his bank increase commercial lending by more than 15%.

"People are concerned about the direction of that bank, and we have picked up some business," Mr. Harris said.

The study suggests that credit scoring has helped large banks reduce their costs and make more of the smaller loans.

It also found that banks with most of their branches in rural areas increased their small-business loan holdings 7.8%; the rise was 6.9% at banks in urban areas.

But banks in predominantly urban areas posted faster growth in loans of less than $100,000, and banks in rural areas booked faster growth in the larger-loan category.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER