Magazine article American Banker

Small Banks Begin to Make More Big Loans to Insiders

Magazine article American Banker

Small Banks Begin to Make More Big Loans to Insiders

Article excerpt

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. …

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