Hello and welcome to the second quarter 2008 Washington Trust Bancorp, Inc. earnings conference call. All participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator instructions) Now, I would like to turn the conference over to Ms. Elizabeth Eckel. Ms. Eckel, please begin.

Thank you, Camille. Good morning and welcome to the quarterly earnings conference call for Washington Trust Bancorp, Inc. NASDAQ Global Market symbol WASH. This morning's conference call is being recorded, is being webcast live, and a webcast replay of our conference call is available shortly after the conclusion of the call through our Web site, www.washtrust.com in our Investor Relations section, under the sub head Presentations. However, the information we provide during today's call is accurate only as of this date and you should not rely on these statements after the conclusion of today's call. Hosting this morning's discussion is John C. Warren, Chairman and Chief Executive Officer, and David V. Devault, Executive Vice President, Secretary, Treasurer, and Chief Financial Officer. And now, I'm pleased to introduce Washington Trust's Chairman and Chief Executive Officer, John C. Warren. John?

Thank you, Beth, and good morning everyone. Yesterday afternoon, we released our earnings for the second quarter ended June 30, 2008. This morning, David and I will discuss these results and answer any questions you may have about our company's performance. I would like to start by saying that these are certainly challenging times for the financial services industry. While we have continued to express our concerns about the economy, no one could have predicted the fallout of the national credit crisis, or the number of financial giants who would require assistance and additional capital. Consumer confidence has declined as dramatically as gasoline and food crisis have risen. I am pleased to report that despite all the turmoil that has taken place in the economy and the financial markets, Washington Trust's story continues to be one of strength, discipline, and focus. For the second quarter ended June 30, 2008, net income totalled $6.1 million or $0.45 per diluted share compared to $5.5 million or $0.40 per diluted share a year ago. Return on average equity was 12.88% compared to 12.57% last year, and return on average assets was 92 basis points, which is consistent with the ROA for the same quarter of 2007. We have achieved solid results through good capital and balance sheet management, and sticking to the fundamentals. As I've mentioned before, we have an experienced leadership team who have been through difficult economic cycles before. We have a disciplined credit culture and have never offered a sub-prime or Alt-A mortgage program. By staying focused, we have avoided many of the problems other banks have experienced. In fact, we have benefited from the disruption that is occurring at the larger banks and investment management companies, and have been able to pick up new clients during this period. Here…

Thank you, John. Good morning everyone and thank you for joining us on our call today. I'll be reviewing the second quarter operating results and financial position as described in our press release yesterday. Net income for the second quarter of 2008 was $6.1 million or $0.45 per diluted share, up 12.5% over the $0.40 reported for the second quarter of 2007. Return on equity for the current quarter was 12.88% compared to 12.57% for the same period last year. Net interest income for the second quarter this year was $16.2 million, 7.5% higher than the first quarter of 2008 and 8.6% higher than the second quarter a year ago. The net interest margin for the second quarter this year was 2.71%, up 12 basis points from the first quarter but down 5 basis points from the second quarter of 2007. The increase in the margin on a linked quarter basis was largely attributable to lower deposit and funding costs. Compared to the second quarter of 2007, the margin decline of 5 basis points was for the most part attributable to the lagging impact of lower rates on deposits compared to variable rate loans. Our loan loss provision charged to earnings in the second quarter was $1.4 million due largely to growth in the loan portfolio as well as our ongoing evaluation of credit quality and general economic conditions. I'll comment more on asset quality in a few moments. Let's turn now to the balance sheet. Total loan growth was $107.1 million or 6.7% in the second quarter led by $68.7 million or 9.5% increase in commercial real estate balances. This represented the seventh consecutive quarter of firm growth in this category. Residential mortgages grew $30.5 million or 5.3% in the quarter, including $30.8 million in mortgages purchased during the…

Thank you, David. I'd like to thank everyone for joining us in today's call and for your interest in Washington Trust. We're pleased with our performance, particularly in these challenging economic times. As I said earlier, Washington Trust story is one of strength and discipline. We have a focused leadership team, a disciplined credit culture and a strong balanced stream of earnings. In this environment, we will stay on course, grow our core business lines and maintain our good asset quality. Thank you for your time this morning. And now, David and I would be happy to answer any of your questions. Thank you.

Thank you. (Operator instructions) Our first question comes from Frank Schiraldi from Sandler O'Neill, please go ahead.

Pretty morning, Frank. Frank Schiraldi - Sandler O’Neill: Good morning. How you guys doing?

Yes, good. Thanks. Frank Schiraldi - Sandler O’Neill: A question on the margin going forward. CDs continue to run off, demands up nicely, it looks like you're locking into (inaudible) do you expect to continue to see some expansion in the net interest margin going forward?

We view that as being relatively neutral with respect to interest rate changes. There was certainly some improvement in the margin in the quarter. I think that where it is for the second quarter is largely representative of where we think it would be in the second half of the year. It could be some seasonal benefit with inflow of demand deposit dollars in the summer season that would help it somewhat in the third quarter, but the second quarter is fairly representative. Frank Schiraldi - Sandler O’Neill: Okay, thanks. And just looking at loan growth, it looks like commercial real state quarter over quarter was up 16% on annualized. Is there anymore color you can give us on what sort of stuff you are putting on the books, if it's own or occupied, where you are seeing the growth, loan to value, just any sort of more color we can get to get comfortable with that sort of growth?

Yes, I mean I think a lot of what we've been seeing Frank is it's sort of split up in two categories. The larger institutions in New England have all – I guess created an environment and at some points helped us out by offering us some very good loans. So we've had a couple of things. We've had the ability to acquire loans that are already outstanding and very highly, high quality, highly rated loans in our review. And at the same time, we're seeing customers out there in our neighborhood that are actually looking to Washington Trust and bringing their business to Washington Trust after years being at some of these other institutions. But once again, very high quality paper. Frank Schiraldi - Sandler O’Neill: Okay. Would you have numbers on owner-occupied or non-owner-occupied, just on the total commercial real estate portfolio, and then what the quarterly growth or no, is that something I might have to –?

I don't have it broken down that way in absolute dollars in the portfolio. The growth, as John mentioned, was really the result of a lot of work over time to build a pipeline that in many cases, we were able to close in the second quarter and that resulted in that increase that you see. Our overall assessment, the weighted average I guess of our internal underwriting rating system was actually higher than normal. So, it was a very good quality paper and book of business that we added. They were – it's a variety, one of the strength I think of the commercial real estate portfolio that we have is that it is relatively well diversified with retail office, hotels, mixed use, multi family, I mean there is a good mix in that portfolio. Frank Schiraldi - Sandler O’Neill: Okay. In terms of geography, southern or out in farther north or Connecticut, I mean, is it just sort of spread?

Southern New England and to a very limited extent in the metropolitan New York area I think is a fair way to characterize it. Frank Schiraldi - Sandler O’Neill: Okay. And then is that something that now you're talking about the quarterly growth?

Right.

Yes. Frank Schiraldi - Sandler O’Neill: And then the metro New York stuff, is that some multi family stuff or has that run the gamut as well?

I guess I should expand metro New York to be the Philadelphia area as well and that was – there was some hotel business in there. We have a credit that represents its branches of a major financial institution underlying that credit, so it's – these are strong credits. Frank Schiraldi - Sandler O’Neill: Okay.

Yes, I mean the hotel as an example, Frank, is a 35% loan-to-value and it's a high grade hotel. Frank Schiraldi - Sandler O’Neill: Okay. And then just finally, I want to ask about the securities portfolio and about the impairment charge in a quarter. I don't know if there is anymore disclosure you can give us on that as far as the preferred securities. I mean, should we assume are those agency preferred and if so, what's left on the balance sheet of that?

Two out of three were agency preferred, the other was a financial entity, not a government agency. The agency paper we had about $1.1 million in carrying value after the impairment charge at June 30. Now, we are just going to have to continue to monitor the condition of the securities portfolio to monitor their status. Frank Schiraldi - Sandler O’Neill: Okay. And then, in the common and preferred stocks, I know you have some or you had some utility companies as well. Added to that, the fair value on that looks like at $7.1 million now, is that – how much of that is financial? I mean I guess you just subtract the $1.1 million carrying of the agency, so then you're down to $6 million and can you tell us how much of that is financial institution?

The majority of it. Frank Schiraldi - Sandler O’Neill: Okay. And then the other question was on the trust preferred securities line item. Are those pooled trust preferred, and if so, is it bank only trust preferred?

A portion of it, way under 50% of pooled securities, under 25% in fact. Most of them are – they are financial institutions. They're all investment grade rated securities. Clearly, this is a sector that is not in favor right now. Frank Schiraldi - Sandler O’Neill: Right, okay. And would those include some REIT pooled as well or is it just bank?

No REITs. Frank Schiraldi - Sandler O’Neill: .:

They're financial institutions, banking companies. Frank Schiraldi - Sandler O’Neill: But not agency?

No. Frank Schiraldi - Sandler O’Neill: Okay. And then, I guess just one last question, what about capital levels here, are you guys telling us – I mean, you did purchase $30 million in residential in the quarter, so – and you upped the dividend $0.01, so I guess you feel pretty comfortable with capital levels – tangible capital levels where they are, these levels?

I think you sort of answered the question with the increase in the dividend, the way you phrased the whole thing. Frank Schiraldi - Sandler O’Neill: Okay, alright thank you.

You bet, thanks Frank.

Thank you.

Our next question comes from Laurie Hunzinger [ph] from Stifel Nicolaus. Please go ahead. Laurie Hunzinger – Stifel Nicolaus: Yes. Hi John and David. Good morning.

Hey how are Laurie? Laurie Hunzinger – Stifel Nicolaus: Good, thanks. Just to go back to some of the points that Frank touched on, what your month end net interest margin, do you have that?

The margin for June was about where we were for the quarter. Laurie Hunzinger – Stifel Nicolaus: Okay, great. And then you mentioned charitable [ph] contribution expense, is that going to be in the fourth quarter?

Probably the third quarter, Laurie. Laurie Hunzinger – Stifel Nicolaus: Third quarter, and is that going to be around $500,000?

Yes. Laurie Hunzinger – Stifel Nicolaus: Okay, great, and then within both your – in terms of income, I mean your other income and your other expenses, linked quarter, those were up, are there any non-recurring items in either of these categories?

In other expenses, there is some things there that seasonal. So if you're looking at a linked quarter comparison, things like – I don't know, anticipating charity golf tournaments, there isn't a lot of that in the first quarter. So that tends to be somewhat irregular. There is probably about $80,000 to $100,000 of what I would call non-recurring expense and they're associated with a couple of different things. Laurie Hunzinger – Stifel Nicolaus: Okay. And in terms of the income line, the 461 to 554, are there anything in there that's non-recurring?

There's always things in there that are, because it's other, but there's nothing big – Laurie Hunzinger – Stifel Nicolaus: Nothing big, okay. Okay, great. And then as far as loan loss provision, you mentioned the $1.4 million was due to sort of two factors, loan growth and economic conditions. You had massive loan growth in almost every category. Your loans are up at an annual interest [ph] rate of 27% for this quarter. What is – if you were to break out the increase, how much of it is related to loan growth versus how much of it is related to your concerns about the economy?

It's probably more – well, it is more growth than a scientific allocation of loss exposure, but it is primarily due to the growth and we want to maintain an allowance that keeps pace with the growth. We wanted to have allowance coverage ratios that continued to be strong and made sense, so that really drove that provision level.

Yes, when you look at quarter over quarter, Laurie, that the level was 129 in both quarters. Laurie Hunzinger – Stifel Nicolaus: Alright.

So, reflective really of the loan volume. Laurie Hunzinger – Stifel Nicolaus: So that – your target is going to be about that 129 level at least right now.

Well, in general, I think that's a level that makes sense. Laurie Hunzinger – Stifel Nicolaus: Okay.

Timing of charge-offs and recognition of charge-offs versus loan provisioning, is not going to be smooth from quarter to quarter, so it could vary somewhat. Laurie Hunzinger – Stifel Nicolaus: Okay. And then, in terms of our growth, I mean, we are probably not going to see while continue to grow linked quarter at the same run rate. Is that a fair statement?

It is a very fair statement. I mean, I think there is a real anomaly in what was going on in the financial markets from really the end of March throughout the – especially April and May of the second quarter, and we took advantage of it in several spots. And we were able to help several customers with some great loans and also some of the activity in the residential mortgage side was reflective of a unique situation there as well. Laurie Hunzinger – Stifel Nicolaus: Okay. So, if we were to sort of model out, what we could expect to see in the last half year as far as growth, what would kind of be a good range for you?

Less than the second quarter's growth rate. Laurie Hunzinger – Stifel Nicolaus: Okay.

Yes. Our pipeline has backed down to levels more akin to what we saw last year, which would put it into, I would say high – mid to high single-digit type growth, and then we will just see if there are some other opportunities that come to us because of the disruptions in the market. I think the more disruptions we see, the more phone calls we are going to get from some good customers that want to move and give us a chance at it. Laurie Hunzinger – Stifel Nicolaus: Okay, great. And then, just jumping over to credit and (inaudible) so thanks for that. But could you just touch on as far as the commercial category – there was a pretty big jump in your loans, 30 to 69 days past too. You went from $2.2 million to $6.7 million, and just maybe a breakdown of what is the commercial real estate versus C&I, and generally how much of that category migrates over to nonperforming.

It is mainly all C&I compared to commercial real estate and there is a $3.4 million hotel loan in that category. The rest are a variety of small business loans. The hotel loan, I can't predict where it is going to go. It is a credit that has, I think, been characterized by a strong loan-to-value ratio, but a borrower who has had some, maybe under capitalization and cash flow difficulties, and it has been a sporadically and delinquency status. It is a strong loan-to-value credit. Laurie Hunzinger – Stifel Nicolaus: What is the loan-to-value?

I believe it was below 50. Laurie Hunzinger – Stifel Nicolaus: Below 50?

Yes. Laurie Hunzinger – Stifel Nicolaus: Okay, and it is that in market?

Yes, that is market. Yes. Laurie Hunzinger – Stifel Nicolaus: Okay, great. Just one last thing, if you could just touch on your demand deposit growth has been exceptional, what are you all doing to sort of pull that in and I am guessing we are not going to say that necessarily, continue with the same run rate.

We are just working very hard with promotions and product design, and a lot of business development efforts, knocking on a lot of other business stores to develop relationships that translate into demand deposits. We try very hard with commercial borrowers first to garner the entire relationship including their operating demand deposit account. So, it is a lot of singles and doubles, and hard work.

Yes, we are getting the benefit of most of the loan growth. You are seeing a lot of it. It is bringing deposits with us – with it, Laurie.

Okay.

And then at the same time as David said, we've got – we've been in an internal program that people have setup baseball teams and are participating on their respective teams to bring in DDA accounts. So, that's helping quite a bit as well. Laurie Hunzinger – Stifel Nicolaus: Okay, great. Thank you all very much.

Sure thank you Laurie.

Our next question comes from John Stewart from Sandler O'Neill Asset Management. Please go ahead. John Stewart – Sandler O'Neill Asset Management: Good morning guys.

Hey, good morning John. John Stewart – Sandler O'Neill Asset Management: I just wanted to go back and touch on a couple of questions that Frank raised earlier. First on the trust preferred, I believe you said the rest of the 75% is banking institutions. Are there any specific company concentrations in there that we should be aware of, to the extent you can share that?

It's pretty well spread out, there is no significant concentration in there from an individual security. The largest holding would be about $3 million. The rest are on to $2 million value. John Stewart – Sandler O'Neill Asset Management: And those are backed by issuer or that's for a specific security?

Insurer. John Stewart – Sandler O'Neill Asset Management: And then I guess just back to the preferred stock, common stock line item, you said the carrying value the GSC preferred at June 30 was 1.1, what was it at March 31?

It must have been around closer to $2 million prior to the impairment charge. John Stewart – Sandler O'Neill Asset Management: Okay, so you wrote up or impaired about 50% of the value is that right?

It would have been around $1.6 million, I'm just roughly doing math quickly here. So, the impairment charge on those securities was – looks like it was about $430,000. John Stewart – Sandler O'Neill Asset Management: The impairment charge on the GSC is $430,000 of the $1.1 million?

Yes. John Stewart – Sandler O'Neill Asset Management: Okay. Okay great. That was it, thanks.

Thank you.

Our next question comes from Alper Sungur from Sidoti & Company. Please go ahead. Alper Sungur – Sidoti & Company: Hi, good morning.

Hi, good morning Alper. Alper Sungur – Sidoti & Company: Hi, my question is I guess, how much for the pipeline for the commercial loan portfolio at the end of the quarter?

I believe it was just under $100 million. Alper Sungur – Sidoti & Company: $100 million?

Now, pipeline is a tough thing to nail down, not everything in the pipeline closes. Alper Sungur – Sidoti & Company: So what percentage would you say will close within the next 90 days?

That's very hard to nail down also. And included in that number are refinancing of existing credit or maturing credits or new requests from existing costumer, so yes, I will go back to John's comment about the overall expected rate of growth as fairly the best indication for this. Alper Sungur – Sidoti & Company: Okay. And also the broker deposits were down substantially. Will you say that you guys are in a runoff on that front?

We had a net decrease in broker deposits over the past year. I think this what you're referring to. There was some decrease in the quarter as well. That's a source of funding we do use from time to time and you will see as you start among our various funding sources in the future. Alper Sungur – Sidoti & Company: Okay. And any buybacks during the quarter? I missed that, but –

No, there were not. Alper Sungur – Sidoti & Company: There were not. Okay. Thank you very much.

You're welcome.

Thanks.

We show no further questions at this time I would like to turn the conference back over to Mr. Warren for any closing remarks.

I just want to thank everybody for joining us on the conference call. As usual, if you have any questions, following up with us, I think give David or myself a call. We'd be happy to chat with you. Thank you all very much.

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