Peter F. Stanton, chairman and CEO of Washington Trust Bank, points out that the bank he leads is the only one  still operating out of all of the banks that appeared on the Journal of Business’ first Banks List in the mid-1980s. 

Founded in 1902, Washington Trust is 115 years old, and Stanton is the fourth generation of his family to lead it. It now employs about 870 people companywide and has about 40 branches in Washington, Idaho, and Oregon. In Spokane County specifically, it has led all banks in total deposits since 2009.

The Journal sat down with Stanton and Jack Heath, the bank’s president and chief operating officer, to talk about the company, the economy, and the banking industry in general.

Journal: It seems like a good time in the economic cycle to be involved in community banking. What is the state of operations right now?

Stanton: I think you’re right if you’re talking about Spokane County. Over the years, we’ve expanded into close markets, but different from Spokane. There’s a diversification we have by lending across the whole state of Washington, whole state of Idaho, and parts of Oregon. 

Even though someone from the outside might say that it’s the Pacific Northwest and it’s all one, we know from the recession in 2008-2009, our ag portfolio was a fantastic performer. As the economy got better in more urban markets, the ag economy went down a little bit. These things move cyclically, so for us, the last decade has been quite good. It’s been steady, but it’s been nice to see Spokane’s numbers pick up across the board the last couple of years. 

Journal: Are there any areas of the business that you’re most concerned about right now?

Heath: Not to speak of. I think across the board, everybody is performing very well. All of the sectors are pretty strong. 

I think you’re seeing record low cap (capitalization) rates, so they’re driving valuations higher on commercial real estate. 

I think you’re seeing some softness in the ag market with the pricing, particularly with wheat. But our clients are well positioned and are coming off a record number of years. They’re well positioned to work through these lower rate environments for their commodities. 

We’re bullish on where the market is right now. We have good appreciation of home prices. We’ve had good employment growth. And I think you look around at what’s happened with Kendall Yards and a number of the different developments. The infrastructure in Spokane, in particular, is getting built out, and that’s important for attracting Millennials, attracting people into the market. The community is really well positioned. 

Stanton: Nationally, there’s been some talk of overheating in the multifamily home market, with so many apartments being built with the low cap rates. All banks across the country have had a pretty good growth rate with the multifamily housing. People are wary, but it still seems to be filling up. It might be slowing down some, but for the most part, it’s still a very good sector. 

Journal: I saw one national story about credit card companies putting in additional provisions for losses. Is that something you’re starting to prepare for? 

Stanton: We’re not really a huge retail bank, nor do we want to be. We don’t have a large credit-card portfolio. 

Coming out of the recession, consumer debt was pretty low. The last couple of years, it’s risen back up. I suspect homeowners are starting to see higher balances. That’s what is leading the credit card companies. Frankly, it’s a mathematical formula. With a big, ubiquitous portfolio, it’s more math driven. But with employment where it is, I think it’s going to moderate that.

Heath: I think the one thing that has proved itself out over the last few cycles is, we’re primarily a relationship lending bank. The people who are carrying our credit cards and have consumer loans have relationships with us. Through those cycles, that has performed very, very well. 

I think where the credit card companies have exposures is where they’re mass mailing to people and putting credit cards in the hands of people who already have a few. I’m not as concerned about that. I think we’re well provisioned. We have a very conservative fortress balance-sheet philosophy from the bank perspective. I think the key thing as a community bank is knowing your clients, having a true relationship. In really good times, you do more business, and it’s really profitable. In bad times, you work together and work through the issues. 

Journal: You mentioned that your focus isn’t retail banking, but you’re doing a little investing in your retail banking operations right now. Tell me about that. 

Stanton: Yes. I’ll give you a high-level view. We already have fewer branches, maybe by half, than other banks our size. Our three pillars of real strength are commercial banking, private banking, and wealth management. I’ve been in this business a long time, and we never thought we were going to out-retail B of A (Bank of America) or Wells Fargo. For more than 100 years, we’ve had a concentration on the commercial side. 

That being said, particularly in Spokane and Boise, we have a fantastic retail network. We have great retail customers. Changes in electronic delivery and online banking make your branches serve a different purpose than they used to. Probably a little less on the transaction and more on the consultative banking. Maybe even a community aspect in some of our smaller markets. 

Clearly, making sure they’re in the right locations and that they have the right products and services is important. Some of it is an experimentation. A few years ago, at the Pullman branch, we went to a lot of touchscreen account openings. We went to handprints to get into your safe-deposit box. Let’s try some new technology to see how it gets embraced, which means you can fool around with your staffing levels just to see what the market is accepting. 

With margins at banks shrinking over the years—certainly over my career—to be more efficient on your staffing side makes some sense too. 

Heath: Retail banking is a really important segment of our business, but we don’t build it on overdraft fees and feeing your customers to death. Our theory is, we have invested a horrendous amount in technology. We’ve done some conversions to a new data processor. We’ve built out our mobile. We’ve enhanced our web delivery. We’ve introduced remote capture. We’ve really tried to invest in that customer experience. 

Stanton: Up on the South Hill, at Manito, our older branch—I used to be a drive-thru teller at that branch—has two physical buildings. You had to staff both buildings. The new building that we’ve building across the street will be much more efficient. Thirty or 40 years later, things have changed, and you have to make sure you keep up. 

Journal: There have been reports lately that Wells Fargo is reducing its number of branches. Do you think that’s going to be a trend, not necessarily within your company, but within the industry?

Stanton. It’s funny. The number of banks in general, stand-alone banks, when I first started in this business was 18,000 in the country. We’re now down to about 5,000. Everybody thought the branches would combine too. They really haven’t. 

But we have this turn toward electronic banking. I know my kids probably haven’t walked into a bank branch once in the last five years. As fewer people transact in your branch, particularly for the big banks that have thousands of branches, I think there’s room for consolidation. For us, who already has fewer locations than banks our size, I don’t think the opportunity to consolidate is necessarily there. Nor do we want to. 

Heath: Yeah, look at B of A, who has sold off a significant number of its branches. Wells Fargo is doing what it’s doing. 

Historically, if you look at as the number of banks was going down, the number of branches was skyrocketing. Now that continuum is going to come down, and people will consolidate. They’re going to change the format. What you’re seeing with us is that we’re building smaller branches and going to a universal employee who can do any transaction. As Pete mentioned, it’s more of a consultative approach, ready to serve the more sophisticated customer and the more complex transaction. A lot of the simple, day-to-day deposit gathering functions have been moved to the mobile and the ATMs. 

Journal: So do those employees in the branch require a higher level of expertise than they once did?

Stanton: They do. We have a fairly comprehensive training program. At our Pullman location, you have someone stationed somewhat close to the front door, so that when someone came in, they could greet them. They could go do a cash transaction for them. They could take a deposit or open a safety-deposit box. As soon as they did that, the next person who was out there would staff the front door. 

If all you’re doing is training to be a teller or a new-accounts person, that’s one thing. But now you have to have people skills, because you’re out greeting somebody. You have to handle transactions. You have to open new accounts. It is a more complicated training, but I think it’s good for the employees. I think they like doing more than one thing. 

Journal: We’ve seen some large Spokane companies being acquired in recent weeks. In terms of merger-and-acquisition activity, do you see a time where Washington Trust becomes part of a larger organization? Or do you view yourself as more of an acquirer?

Stanton: If you look at our history, we’ve acquired only a handful of smaller companies. We’re still here. We’ve never sold. We’ve been the same bank we’ve been for 115 years. I think people are here because of our culture and who we are. I think we’re a good place to work. 

I started my career at Rainier Bank and Seafirst way back when, as did a lot of our employees, especially some of those who have been around a long time. I think they came here for a reason. None of us want that to change or be part of another organization. We have a great environment and a great company. It’s never anything we’ve wanted to pursue. 

When I came back to the company in 1982, we were at $350-$400 million in assets. We were 80 years old, and I never thought we’d hit a billion in assets in my life. We may hit $6 billion by the end of this year. That’s pretty much all been organic growth. 

So, we certainly don’t need to be a part of something else to grow. We’ve shown we can do that organically. If you can do that organically, you can be competitive with the big guys. You can provide a good place to work. Why would you be part of somebody else that would kind of control your destiny. 

Heath: Our strategy is to build it one customer, one employee at a time. I think we want to create an environment here with the heritage of family, with Pete being fourth generation of the family that owns the bank or is a significant shareholder in the bank. It creates an environment here that’s unique.  

We’ve been able to deliver a great value to our shareholders. I don’t see that changing. It’s been a good investment for them. We have good employees and strong relationships with our clients. That creates something we can build on. 

Bigger is not better.  

Stanton: I have nothing against the big guys. They have to run their business. But for us, I look at it as, we’re a private company serving other private companies. A family business serving other family businesses. We’re a nice alternative to the big guys. I would rather have a strategy that’s really different like that than just be another big bank.