Though credit is tight and demand for loans is down, bankers here are looking for opportunities to ensure that they provide financial services fairly throughout their communities in accordance with the federal Community Reinvestment Act.

The CRA authorizes bank-regulating agencies, such as the Federal Deposit Insurance Corp., to examine whether banks meet the credit needs of all parts of the communities they serve, including small businesses and low- to moderate-income neighborhoods. The FDIC conducts CRA examinations every few years for each bank it regulates.

Ric Gaunt, community-development manager at Spokane-based Sterling Savings Bank, says regulatory agencies don't set specific community-reinvestment thresholds for banks, but they decide whether banks are in compliance.

"Even though it's a regulatory requirement, it's more of an attitude," Gaunt says of the spirit of the CRA. "It's the right thing to do."

The regulatory agency's CRA exams are based on three tests—lending, investments, and services. Lending carries 50 percent of the weight of the overall exam.

"It's somewhat subjective," Gaunt says. "In some ways it's difficult to ascertain whether you are above or below a certain bar."

Even so, the FDIC says an unsatisfactory CRA performance could be the basis for denial of an application for a bank merger or acquisition. With so much at stake, most banks have someone on staff to track their institution's CRA activity and to ensure the bank will maintain a satisfactory or better rating.

In 2009, FDIC rated Sterling's overall CRA compliance as satisfactory, but said the bank should improve its community investment.

"We obviously want to improve in that area," Gaunt says. "We're reviewing our investment profile and trying to target areas that will be of benefit on the CRA side and for the bank."

In the service category, the FDIC rated Sterling as outstanding, meaning it's a leader in including low- and middle-income people in its retail-banking and community-development services.

Since then, bank employees volunteered 25,000 hours of service, much of which was on bank time and qualified as CRA community-development services, Gaunt says. Such volunteer services include building low-income housing, serving on a community development board, and donating consumer-credit counseling.

Since the CRA examination, the pool of borrowers at Sterling has shrunk across all income ranges, Gaunt says.

Spokane-based Inland Northwest Bank also received an overall satisfactory rating for CRA compliance in its most recent exam. INB issued $5 million in community-development loans in Spokane County and $2 million in such loans in Kootenai County during the two-year assessment period covered in the 2009 evaluation.

Marcia Dorwin, the bank's CRA officer, declines to disclose the total community-development loans INB has originated since then, but says, "INB is looking for opportunities to do the kind of loans that contribute to community-development activities."

During INB's last assessment period, Spokane County had 106 census tracts, which are small, permanent geographic areas delineated by the federal government for studying changes in population. Two census tracts were designated low-income tracts and 32 were considered moderate-income tracts.

"If we only made home loans in upper-income census tracts, that wouldn't be good," Dorwin says. "We lend to credit-worthy individuals in every census tract."

INB also invests in or contributes to agencies and organizations involved in community development, she says

"We're involved in the Spokane Low Income Housing Consortium," Dorwin says.

Investment and lending for low-income housing falls under CRA compliance, says Steve Cervantes, executive director of the nonprofit Spokane Housing Authority.

Such investments include the purchase of tax credits, which also can be deducted directly from the buyers' income-tax liability. In some cases, banks buy the tax credits and issue the construction loan for the same project, which counts toward two of the CRA compliance tests.

One such example here was the Cornerstone Courtyard project, which was a $10 million endeavor financed largely through tax credits. In the project, Spokane Housing Authority converted a former warehouse at 151 S. Adams into a 50-unit, low-income apartment building.

The Spokane office of Minneapolis-based U.S. Bank, through its community-development corporation, supplied the construction loan and bought the tax credits for the project, which was completed in 2008.

Such investments, though, fluctuate with the economy.

"Last year, most investors stepped away from the market," Cervantes says. Prior to the recession, low-income housing tax credits sold for close to their face value. During the depth of the recession, "credits were selling in the low 70-cents-on-the-dollar range," he says.

The selling prices for the tax credits are starting to rebound, Cervantes says.

"Investors are now coming back to at least the high 80-cents range," he says.

Spokane Housing Authority is reviewing its own banking needs and has received proposals from three financial institutions that want to be the nonprofit's bank.

"It's part of our requirement they comply with CRA," Cervantes says. "They have to demonstrate how they are in compliance."

CRA doesn't require banks to make risky loans, Gaunt says, adding that he's seen no evidence that loans that meet CRA criteria have a greater failure rate than other loans.

"We look at the ability of a borrower to secure and repay a loan the same whether it's a community-development loan or not," he says.

In another effort to meet CRA requirements and help low-income families, INB and other banks are exploring an initiative called Bank On, which is designed to encourage people who don't have accounts to use banks and credit unions, Dorwin says.

Nationwide, more than 10 percent of American households don't have banking accounts, she says.

"They tend to be lower-income and lower-educated people and immigrants," Dorwin says.

The Federal Reserve Board estimates that a family with no bank account spends $800 in check-cashing fees and money orders a year, she says.

The Bank On initiative would provide low-income customers with free and low-cost checking accounts so they could cash paychecks and spend money without buying money orders, Dorwin says.

"The hope is to help families save that $800," she says.

INB also hopes to add a personal-finance education component to Bank On services, she says.

"Some employees are trained in financial education, and we're going to be doing more in terms of financial education for people in these communities," Dorwin says.

Credit unions aren't subject to the Community Reinvestment Act, although some participate in programs with similar goals, says Bill Before, a vice president and chief financial officer at Spokane-based Spokane Teachers Credit Union.

STCU secures funds at discounted rates through the Federal Home Loan Bank of Seattle's Community Investment Program (CIP) to loan to creditworthy people who earn less than 115 percent of the area median income, Before says.

Without that discount, the credit union would have to charge low- to moderate-income borrowers higher interest rates, he says.

Since March 2009, STCU has originated $85 million in home loans through CIP, about 20 percent of the total mortgages it originated during that period.