Richard H. Mason's oil and gas drilling company has a $750,000 line of credit from First National Bank of El Dorado, Ark.

Mr. Mason, president of Gibraltar Energy Co., is also a director of the bank, which has loans outstanding to four of its 12 members.

Far from being unusual, such lending is routine. Apparently most small banks lend to insiders.

In a recent survey done by the Director Resource Group in Warrenton, Va., 82% of respondents said insiders - meaning directors, executive officers, and principal shareholders - borrow from their banks.

It was the first time the group had collected such data, but analysts say this is a marked increase from just a few years ago, when the industry was still smarting from the abuse of such practices, which had led to many bank and thrift failures.

"It's a convenience," Mr. Mason said. "We could probably get better rates at money-center banks, but we do it for convenience and because we like to support the community - that's probably the overriding factor."

Mr. Mason said First National's directors get no preferential treatment. Though the board initially approves each director's loan request, the application then passes through the bank's normal credit-approval channels, he said.

He acknowledged, however, that he doesn't recall any director's loan application being rejected in his 14 years on the board.

Insider lending at First National, a subsidiary of $1.2 billion-asset First United, seems to mirror arrangements at community institutions nationwide.

Other business relationships between directors and their banks - such as consulting, insurance, and legal advice - also appear to be on the rise. Some observers said that, for many community banks, particularly those in small towns, it couldn't be any other way.

"This happens quite a bit, especially in small towns, where things are a bit closer," said Richard B. Foster, president of Banconsult Inc., Okemos, Mich.

Insider lending is clearly more acceptable now than it was just a few years ago. A June 1988 report by the Office of the Comptroller of the Currency on national bank failures said insider abuses, such as self- dealing and unauthorized transactions, was "a significant factor leading to failure in 35% of the failed banks.

"Healthy banks, in contrast, generally avoided problems in these areas," the report said.

Though regulators clamped down on such practices in the wake of the savings and loan debacle, the OCC, for one, appears to be relaxing its position. In December, the agency proposed exempting certain secured loans, such as those backed by government securities, from insider lending limits.

The OCC currently prohibits loans to insiders that exceed $25,000, or 2% of the bank's capital, whichever is greater.

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