1st Interstate Boosts Loans to Poor Areas

First Interstate Bank of California said Thursday it will commit $2 billion--nearly 10% of its assets--to low-income home, business and community loans during the next 10 years in the most far-reaching program so far by a financial institution to aid the state’s poor and minority communities.

The state’s third-largest bank also announced that it is changing the way it does business in order to include more women and minorities. Its plans range from seeking a woman or minority for its Board of Directors to boosting the amount of business it does with minority firms.

The broad scope of First Interstate’s program goes beyond commitments by Sumitomo Bank of California--which announced a similar, $500-million program in January--and other banks that have sought in recent years to counter the criticism that they have ignored poor and minority communities.

Last year’s riots in Los Angeles underscored the plight of inner-city areas, where lack of credit is a key obstacle to development.

First Interstate also said it will invest $1 million in black-owned Family Savings Bank to help it make loans in the city’s minority communities. For 45-year-old Family Savings, it was the second major infusion of cash in two days. Walt Disney Co. said Wednesday that it would invest $1 million in the financial institution.

The First Interstate announcement drew praise from some community groups, notably the Greenlining Coalition, which negotiated the program with the bank on behalf of its 19 member organizations.

“Not only does it make them the leader in regard to (community reinvestment) as far as California is concerned, but as far as the nation is concerned,” said George Dean, co-chair of coalition.

But others, while lauding First Interstate’s initiative, worried that the money would not find its way to the people who needed it most.

“We really need to make sure that the money hits the street,” said Gilda Haas, founder of Communities for Accountable Reinvestment. In the past, she said, it has been difficult to assess where such loans have ended up.

In 1991, Bank of America--the state’s largest bank--committed $12 billion in economic development funds over 10 years in response to criticism of its merger with Security Pacific National Bank.

In 1990, Wells Fargo Bank committed $1 billion over seven years. Wells Fargo, which has been holding its own talks with the Greenlining Coalition, is poised to announce an increase in its goal.

First Interstate’s program goes beyond the earlier efforts. For one thing, its commitment represents a higher percentage of assets than either Wells Fargo’s or Bank of America’s.

Moreover, Bruce G. Willison, chairman of the bank, said a minority or woman would be chosen to fill at least one of three new board seats in the next year.

It would also boost the amount of business it does with woman- or minority-owned companies to 25% by 1998, and target 30% of its annual charitable giving to minority and low-income housing, economic development and education projects.

First Interstate announced a number of other programs, including opening a branch in a new Vons supermarket in Compton on Nov. 1. It will be the bank’s fourth branch in the inner city.

“Why are we doing this? Pure and simply, we’re doing it because we should be,” said Edward M. Carson, chairman and chief executive of First Interstate Bancorp, the bank’s holding company, at a news conference at the company’s World Center headquarters in Los Angeles.

“This is a community reinvestment program,” he added. “But we’d just like to think it’s good business for us.”

First Interstate’s program targets communities where the median income is 80% or less of the median for the surrounding area. The median monthly income for a family of four in Los Angeles County is $2,820, said Mary Salinas Duron, a First Interstate vice president and manager of community reinvestment.

The program marks a significant departure in the bank’s service to minorities and low-income communities.

In 1991, First Interstate made only 34 home mortgage loans to African-Americans in the state and 168 to Latinos out of a total of 2,135, said Robert Gnaizda, the Greenlining Coalition’s general counsel. The bank’s performance was typical of all major banks, he added.

In 1992, the bank made $31 million of loans in low-income census tracts. Under the program announced Thursday, that would more than double, to $70 million, in 1993.

But the performance of other banks raises questions about how useful such loan programs ultimately are.

Bank of America said it achieved its first-year goal of lending $1.2 billion under its program in 1992. That included $800 million in home loans in low-income census tracts and $193 million to small businesses, spokesman Russ Yarrow said in San Francisco.

But Yarrow could not break those figures down to say which counties received most of the money, or to say what percentage of the business loans went to minority or women-owned businesses.

Such results lead community organizers like Marva Smith Battle-Bey to remain skeptical.

“I applaud them for doing this,” said Battle-Bey, executive director of the Vermont Slauson Economic Development Corp. But, she added, “I think much of it is public relations. I think many times, the product they try to put out on the street doesn’t fit the community needs, so there are still a lot of people who go unserviced.”