First Interstate Gears Up To Improve Spotty Ratings
First Interstate Bancorp has been progressing from loose affiliation to centralized banking company, but until recently its 18 banks remained independent in Community Reinvestment Act efforts.
"Each bank was allowed to have its own CRA program," said Kathleen F. Hext, corporate chief compliance officer. "We were not as involved as we should have been."
Not surprisingly, the ratings have been inconsistent. The 13 revealed so far for First Interstate banks range from 1 ("outstanding") to 3 ("needs to improve").
The flagship California bank, the largest in the system, received the only announced "outstanding." Major subsidiaries in Oregon and Arizona, as well as the smaller First Interstate Bank of Denver, were rated "needs to improve." The remaining nine units were rated "satisfactory." None have received a 4 ("substantial non-compliance), the lowest rating on the scale.
The mediocre grades spurred First Interstate to action. It created the position of chief compliance officer in April and gave it to Ms. Hext, formerly general auditor. The job includes setting companywide policies and procedures for community reinvestment.
In addition, a corporate council with representatives from the managing committee of each subsidiary has been formed to help direct First Interstate's reinvestment act program. The company has hired State and Federal Associates, an Alexandria, Va., consulting firm, to help overhaul its CRA practices.
Why were three First Interstate units rated "needs to improve"? In what is becoming a familiar refrain, the company says examiners focused on procedural problems, such as inadequate record keeping.
Record Is Defended
"We believe that the |needs to improve' ratings were delivered to banks which in fact have done a very significant amount of work under the CRA," Ms. Hext said. The low ratings "were due to fairly limited deficiencies and a strict regulatory attitude."
Discrepancies in ratings of different units also reflected differences among regulatory agencies, Ms. Hext said. The Federal Reserve System examined First Interstate Bank of California, while the Office of the Comptroller of the Currency audited Oregon, Arizona, and Denver units.
The written evaluation of the Oregon bank reinforces the assertion that its problems were mainly technical. The report calls the bank's involvement in community development programs "note-worthy." But it criticizes documentation, internal communications, and oversight by senior management and the board of directors.
Bank officials acknowledge that their reinvestment act procedures were lax. Distraction caused by a companywide reorganization last year is partly to blame, they said.
"We failed to assign the priority to CRA that we did to some other things," said Robert Ames, president of the Oregon bank. "We flat ran out of priorities."
Since First Interstate Oregon's rating was released, officials of the bank have stepped up efforts to meet with community groups and market loans in low-income neighborhoods. "They seem to be making a good-faith effort," said Pauline Bradford, a board member of the Portland Organizing Project, a housing activist group.
"Maybe we have accelerated some things," Mr. Ames said. "We want to change that rating as soon as we can."