Washington Trust Bank managed to make a profit last year, although the just under $3 million in net income it posted was less than a fifth of the $15.8 million in profit that it logged in 2008.

As of Dec. 31, the Spokane-based bank's loans were down to $3 billion, from just under $3.24 billion a year earlier, while its assets were at $4.1 billion, up from $4.08 billion. Deposits had grown by $311 million, to $3.38 billion, from $3.07 billion a year earlier.

Washington Trust's net income for 2009 was "certainly not up to our expectations, but positive nonetheless, affected mainly by continuing credit losses," Pete Stanton, the bank's chairman and CEO, says in his annual letter to shareholders.

"This comes at a time when very few of our competitors are reporting positive income, and while we have outperformed them, our results are disappointing," Stanton says.

When he wrote his letter to shareholders a year ago, he was optimistic that by now, the U.S. and Pacific Northwest economies would be on the road to recovery, Stanton says. Today, he says, many aren't feeling a recovery.

"While many economists, mostly those representing the government, say the recession is over, I am having a great deal of trouble finding consensus on this among other bankers or our customers," Stanton says. "The terms that are becoming popular are the 'jobless recovery' or the 'statistical recovery.' These phrases basically say that while there are some positive signs of economic activity, they seem to be in numbers only. The average small business, and most people either working or looking for work in our communities, are not seeing or feeling the effects of improving economic statistics."

The bank's balance sheet is displaying positive trends, Stanton says. Asset quality is stabilizing, and nonperforming loans are down. Washington Trust has strengthened and repositioned its investment portfolio and has beefed up its loan loss reserve to "a robust 2.32 percent of loans at year-end," up from 1.75 percent of loans a year earlier. As of Dec. 31, the bank's allowance for loan losses stood at $69.5 million, up from $56.8 million a year earlier.

The bank's liquidity has increased greatly, its net interest margin has recovered nicely, and its earning capacity has remained strong despite increased charge-offs and the bolstering of its loan-loss reserve, Stanton says. Meanwhile, he says, its regulatory capital ratios have improved and "are well in excess of 'well capitalized' guidelines."

Stanton says the bank has improved its basic foundation substantially, and that gives him optimism for its future.

"Let's be clear, however; 2010 will be yet another challenging year. I do believe we have seen the trough in our economy and we will begin to see improvement in many sectors, albeit in a very slow manner," he says. The bank's strong balance sheet and "a competitive landscape in which we compare very favorably against our competition" fuel his optimism, as does a performance by the company's employees in managing the bank through "the worst economy in memory," he adds.

The privately held institution's shareholder's equity grew to $411.3 million last year from $281.7 million a year earlier.