Spokane-based Washington Trust Bank reported sharply lower earnings for 2008, but says its loans, deposits, and assets all continued to grow at a healthy pace, despite the financial trauma that's plaguing the banking industry nationally.

The privately held bank expects slower growth this year, but also expects to remain in good shape overall, and says it will be watching closely for other opportunities to expand through Federal Deposit Insurance Corp.-assisted transactions like one that recently netted it a small Oregon bank. Also, the bank has filed an application to open a second full-service branch in that state.

The bank posted net income of $15. 8 million last year, down 70 percent from a record $53.7 million in 2007. Its assets, though, grew by 10 percent, ending the year at $4.1 billion, topping the $4 billion threshold for the first time.

The bank's total loans increased 11 percent to about $3.24 billion as of Dec. 31, up from about $2.91 billion a year earlier. Total deposits at year-end were about $3.08 billion, up 5 percent from $2.94 billion at the end of 2007.

"Overall, we're really pleased with the year," says Jack Heath, Washington Trust's president and chief operating officer.

Tighter margins on earning assets, a substantial increase in loan-loss reserves, and "a really challenging credit environment" all contributed to the lower earnings, Heath says, adding that margins will continue to be compressed this year.

"I think the key for us is to be able to show positive earnings on a year-over-year basis" by staying on top of problem loans as they surface, he says.

Washington Trust's return on average assets, a key indicator for banks, was 0.41 percent at the end of 2008, down steeply from 1.5 percent at the end of 2007. Despite the roughly two-thirds decline, Heath says that level of return "stands up really, really well" compared with peer institutions in this recession.

Washington Trust announced last month that it had acquired Pinnacle Bank, in Beaverton, Ore., in an FDIC-assisted transaction to protect depositors, assuming about $65 million in assets and total deposits of about $58 million. That bank's lone branch now is doing business in Beaverton under the Washington Trust Bank name.

Linda Williams, Washington Trust's Oregon region president, called the purchase a "strategic acquisition" and said it "paves the way for Washington Trust to extend our banking offerings to additional Portland-area clients."

Heath says, "A real key for us was to get branching powers in Oregon. This gives us the opportunity to go ahead and have full branching."

Washington Trust has operated a loan production office in downtown Portland since 2004, and recently filed an application with the FDIC to establish a regular branch at the same address downtown that Heath says he expects will contribute to strong growth in that market.

Washington Trust has tentative plans to open as many as three new branches this year, though the locations of those branches are uncertain as yet, he says.