Construction and development loans at some small banks in North Carolina are rising as the state's economy continues to thrive.

An American Banker study found that eight community banks in the state have more than 10% of their total loans in construction and land development, an area considered among the riskiest for a bank.

The level at one bank, First Commercial Bank in Asheville, is as high as 28%.

"That's a little surprising when you get that high," said Buddy Howard, president of Equity Research Services Inc. in Raleigh. "It's hard to anticipate when weaknesses will occur, so banks should be reserving for that higher level of risk - and I'm sure they are."

John H. Morrison, president of the $175 million-asset First Commercial, said the 28% figure is misleading and the result primarily of "reporting glitches."

"That sounds high to me," he said. "I would say that we don't have that percentage in pure construction loans. We don't do condo developments or things like that, or anything on spec. All of it is with locally owned businesses and is owner-occupied."

Mr. Morrison said the percentage is deceptive in that often a loan issued under the construction heading is subsequently drawn on for multiple purposes, even though the initial construction work has long since been completed and paid off.

Some of the other banks with high percentages of C&D loans are Guaranty State Bank in Durham with 18%, Bank of Currituck in Moyock with 17%, and Triangle Bank in Raleigh with 15%.

"I don't think we are uncomfortable with that figure," said Jean R. Turner, senior vice president at Guaranty State Bank. "My sense is that it's probably high right now because of a new loan product we're offering."

Local observers and analysts said these percentages give no real cause for concern, given the state's robust economy and history of conservative bank management.

"I don't think it's a concern not only because our state is booming but because our bankers have not been given to excess," said Harry M. Davis, chairman of the Department of Finance, Insurance, and Real Estate at Appalachian State University in Boone.

He added that compared with other states North Carolina has seen few depository institutions fail, even in the savings and loan industry.

Though much of North Carolina's urban development is financed by the Big Three - NationsBank, First Union, and Wachovia - the bulk of the construction statewide is being driven by the community banks, observers said.

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