The Invisible Bank

Washington Trust Bank’s president and chief operating
officer Jack Heath says the bank has used different strategies to enter
different markets.

Drive around Spokane, and you’re bound to encounter one of Washington Trust Bank’s 15 branches. Peruse the city’s downtown skyline, and it’s tough to miss the 16-story building with the 108-year-old institution’s name atop it.

But spend time west of the Cascade Mountains, and you won’t see the name unless you happen to wander onto the 47th floor of the Two Union Square building in downtown Seattle or the 11th floor of Bellevue Place in Bellevue.

Those are the bank’s only locations in the Puget Sound region, and all it has needed. When Washington Trust entered the Seattle market in 2000, it was nothing more than an experienced banker-Western Region President Scott Luttinen-and his contacts. Since then, the bank has put together a commercial and industrial banking portfolio with assets totaling $750 million, as well as a large private banking practice. With two offices and 41 employees, the Seattle locations are responsible for nearly 25 percent of the bank’s asset base.

“We’re 10th in market share in Seattle,” Washington Trust President and Chief Operating Officer Jack Heath says. “It’s a very efficient model.”

Largely concentrated in eastern Washington for most of its history, Washington Trust has expanded into a handful of markets in the western United States during the past decade. In addition to its Seattle entrance, the bank has moved into the Tri-Cities, Portland, Boise and Salt Lake City.

In late 2009, the privately held bank had $4 billion in assets and $2.5 billion in its wealth-management asset group.

In each market the bank has entered, it has used somewhat different strategies to gain a foothold, Heath notes. In Boise, for example, the bank felt the market was small enough that it could build a brick-and-mortar branch system that would give it good coverage and make it a player in retail banking there. Within a few years, the bank had seven branches serving Boise.

To get an equivalent retail banking presence in the Seattle market, Washington Trust would have had to build 40 branches, which wasn’t feasible, Heath says. Rather, the bank decided to focus on commercial banking and private banking for high-net-worth individuals. To do so, it hired bankers who already had relationships in the market and leveraged technology to serve those customers. For example, many of its Seattle-area customers have remote-capture deposit systems at their offices so they can make deposits from their desktops. For those who don’t, Washington Trust offers a courier service that picks up deposits from its clients.

“We have a number of different strategies,” Heath says. “Market share isn’t always what drives our model. It’s finding the right customers on whom you can get a good return and for whom you can provide a long-term value.”

Heath says this past year has been a challenging one for all financial institutions, but Washington Trust’s real estate portfolio has held up well. The bank has been “pretty fortunate” in Washington state, he says, but it has experienced softness in Boise and Salt Lake City residential real estate loans. In the commercial real estate market, lenders are bracing for some stress in the coming months, but Heath says Washington Trust hasn’t seen much in the way of troubled commercial assets yet.

Commercial-centric

While Washington Trust has a strong retail presence in some of its markets, the bank historically has been focused on commercial banking and wealth management. Put another way, it concentrates on serving companies, their principals and stand-alone, high-net-worth individuals.

Luttinen says a typical commercial client for Washington Trust needs to borrow between $1 million and $15 million. Depending on the industry, that can be a company with anywhere from $2 million to $100 million in annual sales. The bank serves clients in most industries, from professional firms to software companies to conventional manufacturers.

To successfully serve commercial banking customers, Luttinen says, a bank needs employees who are essentially experts in their customers’ industries, so they can understand why the customer is asking for money and give the customer an answer promptly. Over the long term, the bank’s goal is to become a trusted financial adviser for the company.

In the near future, industry observers say, more banks will try to break into the commercial market, not the least of which is JPMorgan Chase & Co., which acquired Washington Mutual in 2008. A couple of Northwest banks have acknowledged this financial giant’s entry into the market with advertising campaigns that promote their local roots while playing up the fact that Chase is based on the East Coast. In commercials Washington Trust rolled out last fall, the Spokane-based bank shows a deposit to an unnamed competitor traveling across the country, going through fields, under the St. Louis Arch and through small towns until finally reaching a big East Coast city. The commercial then points out that Washington Trust is based locally, with decisions made locally.

Luttinen says Chase has the potential to be formidable and has made some hires that suggest it’s going to compete in the commercial banking market. Still, he adds, it might not be an easy transition for the old Washington Mutual operations, which focused primarily on mortgage lending. He says real estate-focused banks are driven by transactions, whereas Washington Trust concentrates more on long-term relationships and fee-based services.

“The culture of those banks is more real estate-centric. Switching that over is difficult.” He adds, “The kind of companies we go after, the ones that value what we have to offer, may not be attracted to that larger banking model.”

Washington Trust Bank

• Spokane-based, privately held bank with $4 billion in assets
• $2.5 billion in managed wealth assets
• 10th in Seattle market share with just two offices and no retail branches