Community bankers are becoming more comfortable with making large loans to insiders and related parties after years of hesitancy because of well- publicized scandals and regulatory scrutiny.

Thirty-eight banks with less than $3 billion in assets each reported more than 10 large loans to insiders as of June 30, according to an American Banker study of call report data supplied by Sheshunoff Information Services. Large loans are those that equal more than 5% of a bank's equity.

The banks, with total assets of about $30 billion, made $1.1 billion in 519 loans to directors, officers, and related parties, including companies owned by directors.

Leading the pack for the first half of this year in the number of loans was FMB-First Michigan Bank, Zeeland, Mich., with 22. The bank had $65 million outstanding in insider loans.

"We're very comfortable with community banking, community lending, and loans to our insiders and directors," said Stephen A. Stream, president and chief operating officer of First Michigan Bancorp. "We take that very seriously and monitor that very carefully."

Nationwide, community banks' loans to insiders grew 6.4% in raw dollars in the first half of 1995, while total loans grew only 4.9%.

But George Freibert, president of Professional Bank Services in Louisville, Ky., downplayed the numbers, saying they "don't sound untypical at all."

"Right after the banking crisis, banks were scared to make a loan to any insider," he said. "The comfort level of insiders with the requirements of Reg O has risen somewhat and as the S&L crisis fades on the horizon, that also contributes to increasing the comfort level about granting loans from their institutions."

But, he add, "It doesn't mean anything. Some banks are very comfortable with their insider loans and always have been."

And the bankers agreed.

"We encourage our directors to do business with the bank," said James B. Hayhurst Jr., executive vice president of United National Bank, Parkersburg, W.Va. "If you were making a statewide prospect list, many of these directors would be at the top."

"We're fortunate. We have a very strong group of directors and they want to borrow from their own bank," said William G. Stevens, president of $77 million-asset Greenwood Bank and Trust Co., in Greenwood, S.C. "The other directors at other banks around the country need to be dealing more with their own banks. I know they're borrowing money."

Insider lending is generally governed by federal rules known as Reg O. The regulations, which mandate that insiders receive the same treatment as any other borrower at the bank, were imposed by Congress after an uproar over such lending at a Georgia bank owned by Bert Lance, a former Carter administration official.

"It's been my experience that all bankers who have been living on the planet for the last 15 years know that violations of Reg O are considered the most egregious type of violation by regulators," Mr. Freibert said.

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