AFTER 3 1/2 YEARS OF community reinvestment tie-ups, a group of commonly controlled community banks in Wyoming and Montana plans to merge under one holding company in September.

First Interstate BancSystem of Montana Inc., Billings, received federal approval in May to acquire Commerce Bankshares of Wyoming Inc., across the state line in Sheridan, Wyo., ending several years of wrangling with community groups over its lending history in the nearby Northern Cheyenne Indian Reservation.

"It's turned out positively for all groups, I think," said William Wilson, senior vice president of First Interstate. "The only complaints we have ever had are about the confusion and length of time it took to get us here."

Both First Interstate and Commerce are about 80% owned by the Scotts of Billings, a prominent ranching and banking family. First Interstate, not related to the First Interstate Bancorp of Los Angeles, has $711 million in assets and is the third-largest bank holding company in Montana. After the merger, First Interstate will have $1.13 billion of assets.

The merger of the holding companies was first proposed in January 1990. But the Federal Reserve rejected the application in October 1991 on the ground that First Interstate's Bank of Colstrip was rated "needs to improve" in its Community Reinvestment Act exam.

Native Action, an American Indian community action group in Lame Deer, Mont., lobbied against the merger in its comments to the Fed. It was the first time the Fed had rejected a merger application solely on the grounds of CRA problems.

In its order rejecting the holding company merger application, the board of governors found that despite commitments to improve its CRA rating at the Bank of Colstrip, the bank had "deficiencies" in its lending efforts on the reservation and had improperly excluded the entire reservation from its delineated market area.

Native Action again filed a complaint when First Interstate applied to merge its seven Billings-area banks into its flagship First Interstate Bank of Billings.

Dan Hanger, manager of applications at the Minneapolis Fed, said the group's objections were "substantive." But First Interstate's commitment to enhance its CRA efforts at the Bank of Colstrip, including a pledge to make $4 million in loans to reservation residents, led to a compromise that will bring full banking services on the reservation.

Gail Small, director of Native Action, said the bank has already lent more than $1 million inside the reservation, and is discussing the possibility of opening a branch in Lame Deer. She added that what started out as an adversarial relationship has turned into one of mutual trust.

"It's turned out fairly positive because we've sensitized one another to the economic and racial barriers that have separated our two organizations in the past," Ms. Small said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.