John Warren - Chairman and Chief Executive Officer David Devault - Executive Vice President, Secretary, Treasurer and Chief Financial Officer

John Stewart - Sandler O'Neill Asset Management Laurie Hunsicker - Stifel Nicholas Frank Schiraldi - Sandler O'Neill

Hello and welcome to the Q3 2008 Washington Trust Bancor Inc earnings conference call. All participants will be in 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 Elizabeth Eckel. Ms. Eckel you may begin.

Thank you, Nicky. Good morning everyone and welcome to the quarterly earnings conference call for Washington Trust Bancorp, Inc., with NASDAQ Global Market symbol (WASH). This morning’s conference call is being recorded and is being web-cast live and a web-cast replay of this conference call will be available shortly after the conference call through the corporation’s website at www.washtrust.com in the 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 the 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 CEO, John Warren.

Thank you, Beth. I’d like to welcome everyone and thank you for joining us today. Yesterday we released our earnings to the third quarter ended September 30. This morning David and I will discuss these results and answer any questions you may have about our performance. I’m pleased to report that Washington Trust recorded another solid performance despite the economic recession and the upheaval in the financial markets. For the third quarter ended September 30, net income totaled $6 million which is down from the $6.6 million earned a year ago. Diluted earnings per share were $0.44 compared to $0.48 per diluted share reported last year. Asset quality continues to remain good and strong and Washington Trust continues to be well capitalized. In addition as you all know, just after the close of the third quarter, Washington Trust raised $50 million in new capital through a private equity issue and some pipe deal. This capital, we use to take advantage of strategic growth opportunities, particularly in the areas of commercial banking and wealth management. Washington Trust is a solid financial institution and this additional capital just makes us stronger. Over the past year we have expressed concern about the economy and the spill over effect from the sub prime crisis would be on the financial services industry. No one could have predicted the upheaval and the series of events that have taken place over the past several weeks. We saw several of the nations top financial institutions fail; investment banking firms, those that are left converted to bank charters and a $700 billion government rescue program. Needless to say, our industry and the competitive landscape have changed dramatically and will continue to do so. How has all of this affected Washington Trust? In these uncharted waters we have stayed the…

Thank you, John. Good morning everyone. Thank you for joining us on our call today. I’ll be reviewing the third quarter operating results and our financial position as described in our press release yesterday. Net income for the third quarter of 2008 was $6 million or $0.44 per diluted share, compared to $6.6 million or $0.48 per diluted share reported for the third quarter of 2007. For the nine month period ended September 30, 2008 net income was $18 million or $1.32 per diluted share, substantially the same as the amounts reported for the same period last year. The churn on average equity in the third quarter was 12.94% and it was 12.68% for the first nine months of this year. This compares to 14.99% in the third quarter last year and 13.74% for the nine month period last year. There was some items of note in the earnings securities losses charged to earnings of $982,000, were recognized in the third quarter of this year on Freddie Mac and Fanny Mae perpetual preferred stock holdings which were deemed to be other than temporarily impaired. On an after tax basis this amounted to $669,000 or $0.05 per diluted share. In addition, an income tax benefit of $841,000 or $0.06 per diluted share was recognized in the third quarter based on an increase in net differed tax assets resulting from a change in a state corporate income tax rate in the state calculation method which was enacted during the quarter. Net interest income for the third quarter this year was $16.6 million up $437,000 or 2.7% on a linked quarter basis and up $1.3 million or 8.7% from the third quarter a year ago. The increase in the second quarter reflects how you’re earning asset levels, while the increase from a year…

Thank you, David. I would like to thank everyone for joining us on today’s call and for your continued interest on Washington Trust. There was still many unknowns, not only in the economy and the financial services industry, but obviously with the upcoming presidential elections as well. The economy continues to make borrowers nervous, they are loosing confidence in over the past four or five weeks and the events thereof, it really slowed things down. As we mentioned our loan growth has continued strong, but with many closings over this period our pipeline has slowed and is back to year-ago levels. : So thank you very much at this point and David and I would now be happy to answer any questions you might have.

(Operator Instructions) Your first question comes from John Stewart - Sandler O'Neill Asset Management.

I had a couple of questions for you. I guess first just wanted to get your thoughts on participation in the [Inaudible]?

It’s kind of interesting, as one CEO was quoted this morning and saying the “Devils in the details.” I think we are very happy with the $50 million that we raised, there is no question about that. I think we got between here and November 14. I don’t want to say categorically we won’t touch it, so we’ll look at the details, we will also look and see if there are any opportunities out there but we are happy with the $50 million that we raised. Also a little unnerved, I think there was an op-ed piece in the Wall Street today. I don’t know if it’s the Wall Street or the New York Times and they were a couple of people of slumping up and down saying definitely that no dividend should be paid at all for any banking institution that takes this government money. So I think that we’ll take a look at it, but where we stand right now is we are very, very pleased with the $50 million that we raised, net 47.

Okay and then I guess just on the commercial loan growth in the quarter. Can you kind of just breakdown where that came from; how much of it was self originative versus purchase, things like that, geographically?

Geographically it’s primarily in the Southern New England, very little would have been out of that footprint. Primarily south originated were some participation in there. I’m not sure I have that exact dollar amount of participation or originations in the quarter handy.

We can give you the gross amount of participations that we have right now, which is on the sheet and on a net basis that only puts it up a few million dollars.

Right we have $84 million of participation balances where we are not the lead bank at the end of the third quarter.

Okay and is there something that is happening kind of in your markets that’s giving you the opportunity to put up that kind of growth. It’s just more than I would have expected in the quarter.

Yes, I mean it continues to be and I think we mentioned a little bit of last quarter as well. The largest banks in our area from a competitive point of view are all in the category, I’ll say of being slightly distracted to say the least. Citizens is number one, Bank of America is number two in size, Sovereign is number three in size, Webster has a presence in our market.

So there is nothing that you guys are doing on as you alluded to in the prepared statements on the credit side as far as using standards there or anything like that?

We’re definitely not using standards, no question about that. I mean I think what we are really seeing is with what’s going on in the market place is there’s just a stronger recognition and we are receiving a lot of credibility and the vendors are there and the opportunities are coming to us, to the business.

Okay and then I guess just on the other side of the balance sheet transaction and core transaction accounts were down linked quarter, almost $20 million. Is there anything specific that’s happening there, offsetting that? There is a tremendous amount of growth from out-of-market brokerage CD’s. Can you just kind of talk about the terms of those liabilities duration, pricing and things like that?

While we saw a shift in the in-market deposited demand and into time deposits and now that’s reflected in the decline in the money market and savings balances for the quarter.

Did you change pricing on those deposits that generates that shift?

Well I think there were some competitive forces that moved in that direction and we have to be competitive in the market place. The other market brokerage CDs is primarily longer term to pick maturity spots that make sense from a balance sheet management and interest rate risk management stand point.

Longer term is out of three to five years or something like that?

A year and longer. I’m not sure we have any five years in that piece.

Okay and then I guess considering the capital raise early in the fourth quarter can you just talk about your outlook or the margin. I guess the capital raise and the recent FED activity heading into the fourth quarter and through ‘09 or the beginning of ‘09 if you could?

Well the capital raise has been deployed primarily in securities at this point and the FED action is one of the things structurally that you run into is that the lower rates bump up against flows and some of the non premium rate, non time deposit accounts, so we’ll have to see how that plays out in the market place here, so on the positive side you would certainly have the additional securities, but on the negative side a lower FED rate does not help most banks margins.

So is it fair to say that the margin will be down underneath the 260 level for the quarter. I would imagine there is at lease a couple of bits of compression from the deployment of the capital and securities; is that fair.

Okay, and then I guess finally, what was the amount of the FHOB dividend cut?

It’s about $100,000 a quarter.

In cut or that’s the net difference or what was it last quarter versus this quarter?

That’s the dollar affect on us.

And that is likely to continue for the foreseeable future.

Yes, I mean basically all the home loan banks were, because they sent a very nice letter out as to why they were recapitalizing or strengthening their capital base, but in essence it was a letter explaining that when you got to the end of it that they obviously in order to do that would have to reduce the dividend or the spread on the dividend that they would normally pay to their banking members and I would expect what’s out there, it probably take a couple of years before the home loan system is back with the flexibility to be able to open that spread up again.

Great okay; what was the dollar amount of the dividend in the second quarter?

The dollar amount in the second quarter it was $489,000, in the third quarter it is $292,000.

Your next question comes from Laurie Hunsicker - Stifel Nicholas.

Just to sort of follow-up a little bit on the margin question, do you have the margin for the month on September?

It was 2.71%.

And I guess from the standpoint that you just raised $47 million and essentially zero costing capital and I appreciate that your hesitant to comment on margin, but it would just seem that at least in the fourth quarter, shy of everything else going on, we would see a margin benefit just from the standpoint of even if you redeploy that into securities; is that not an accurate statement?

That’s an accurate statement.

And with respect to the increase in FTIC assessment that all banks are facing, if your up seven basis points, that’s up $1.2 million next year into expenses. Are there any steps your taking there to reduce non-interest expense to sort off set this or should we be adding this right on top and then I guess sort of a tan-in question to that, the demand deposits that are insured unlimitedly that you can sort of opt into or opt out of, do you all know what you are going to be doing there or I guess that’s another way. Sould we be modeling a 10 basis point cost to that as well.

We are looking on the latter. We are looking at that and we’ll make a decision shortly and the competitive forces will no doubt play a factor in that. The increase in the announced rates, banks to my knowledge we don’t know yet exactly what the basis point increase for us will be. It’ll be some qualitative factors that can enter consideration by the regulators in setting those rates or selecting those rates for individual institutions. It could be an amount similar to what you had describes of seven basis points and $1.2 on an annualized basis, but we don’t know yet. It would be very difficult I think to expect that structurally we could off set that with any significant amount of non-interest expenses without affecting service quality and we’re always hesitant to do things that would affect service quality.

We are obviously right in the throws of the budgeting process right now. I think it’s safe to say that we are not wildly optimistic on the economy for 2009 and so from the expense side, we’ll be as tight as we can possible be on that, fully recognizing that there are lots of uncontrollable out there including the FDIC increase.

And when you are on the road with your capital raise, did you give any kind of bottom line earnings guidance that you can share with us?

We did not.

I mean I know typically you all don’t give earnings guidance, but in light of everything, is there any sort of range that you would through out there.

We’ve stayed away from it Laurie. I think the point that we will continue to make or we do make is that our loan demand has continued strong, the quality has continued excellent and the additions to the provisioning that we do have in part been looking at the economy and what’s going on out there, but to a very large extent reflective of the magnitude of the loan growth that we’ve been enjoying over the last couple of years or the last six quarters anyway.

One sort of small question to ask and then I have one follow-up. David you touched on this briefly; the western financial acquisition, the corresponding increase to goodwill; can you just take me though why that written out, what happened there?

Well under the terms of the acquisition, based on operating performance of the acquired business in 2006, 2007 and 2008 there is the opportunity for the selling share holders to earn more. Its an earn out additions to the purchase price and based on the earnings of that acquired business through September 30, using the standard of has it being earned beyond the reasonable doubt, we concluded that it was time to recognize that liability owed to the selling shareholders for that amount of the 2008 earn out. So its will paid to them in March and the debit is to good will on the balance sheet.

Just as part of the incentive, when we did the deal we consciously didn’t want to pay them everything upfront. We wanted to give them plenty of reason to stick around and be motivated and they have done just that for us which has been wonderfully.

Okay. So with that your tangible book finished at 880; if I were to pro form that with the capital ratio, right about 1037, is that correct. I mean I’m just adding in $47 million even with the new shares.

I deducted a little bit of expenses associated with that. I got to 1036 book value per share, spot on.

And then just one last thing; do you have your pro forma leverage risk base and total risk base ratios?

Based on what has been used to deploy those proceeds, the total risk base ratio is coming out around 12.99% and the Tear I leverage of 7.68%. That’s at the outset, I mean that’s not a prediction of what it would be at December 31. I would like to make just one correction to an earlier statement I made about the amount of the Federal Home Loan bank dividend. I think I’d combined that with some other equity dividend that we have received in comparing the second to the third quarter. The decrease in the amount of the Federal Home Loan Bank dividend is about $100,000 compared to what we would have expected a quarterly basis, based on the amount of stock that we own.

Your next question comes from Frank Schiraldi - Sandler O'Neill.

I just wanted to make sure I heard that last number right Dave; what was the Tear I pro forma that you’re coming up with after the capital raise?

I’m seeing 7.68 Tear I leverage.

Do you have like a Tear 1 risk base?

11.74.

Just going back to the margin and CD growth in the quarter, is there any ballpark average price you can give me on sort of where you have been putting retail CD’s on the books at in 3Q and if that’s sort of changes here early in 4Q?

We continued to see very competitive rates in our market place from other institutions. I think banks are just very concerned about attracting and frankly retaining deposits and it continues to be very competitive.

I think the good news is, I was down in Florida a couple of week ends ago and I saw ads in the paper from some very large instructions at five and a quarter for a three year CD. Fortunately we are not there here, but we have seen rates much higher that normal and hopefully when we get some little bit of confidence back in the system and stabilization, we’ll see the shrinkage on the spreads on the CDs because they are obviously just like LIBOR; they are much higher than would be anticipated in this kind of environment or should be in this kind of environment.

So, this competition is still north of four and then give that that’s where you guys are?

On a selective basis that could be true. I don’t think that’s the average rate that we are paying on new time deposits.

And it sounds like if I heard you right John the pipeline here has returned to last years level, so may be we don’t see the outside that we seen in the last two quarters in the loan portfolio in 4Q?

The last two to three weeks have defiantly been on the quieter side. We continued closing good loan volume through the end of the quarter and it’s just quieter now, so we’ll see.

So I guess you wouldn’t be averse to growing the loan book, if the option is there in 4Q as you did in the third quarter.

Yes, absolutely. We definitely are looking at opportunities out there, but in this kind of environment we are very selective and it really is the better credits that you’re going to see going on the books when they come.

And was there anything out of market, like out of Southern New England that was sort of bulky, like a bigger size loan, may be above $3 million or something that you can recall and could just give us some more color on?

I don’t remember. Dave’s got the list in front of him.

We have a credit and its in New Jersey. It’s a commercial real-estate office building and that is about just under $5 million, but again that’s out off $42 million in growth and commercial mortgage originations during the quarter.

And what sort of loan to value on that? Is that the whole bit of that loan is in the office building and so it’s occupied but the owner or...

I doubt it, but I don’t have that information.

No it was not. Once again a very high quality borrower and solid strong LTV ratio and once again on the higher side on that service coverage ratios.

Would you be willing to give sort of an idea of loan to value there, just a ballpark?

No we don’t have that.

I don’t have that in front of me, sorry.

Okay and I was wondering if you could give us some color, I don’t know how much you can, but sort there have been talks with the accountants on taking or not taking OTTI charges on the portion of trust preferred portfolio that’s been marked down though OCI. Did anything change sort of late in the quarter? Was the guidance that came out from the SEC, whatever it was, late September or early October, did that sort of change the minds or change sort of whether or not there was going to be an OTTI charge or is there any color you can give us on that process. Just industry wide I’m trying to get an idea if we are going to see more of these OTTI’s for a trust preferred pool than single assured stuff?

Obviously we continue to monitor those kind of announcements being made either by the SEC of the FASB or the center for audit quality, right up until last week as we looked at this issue. Most of what came out had more to do with determining fare value as supposed to determining whether it was other than temporary impairment and in liquid markets, that kind of guidance was necessary and we were very pleased to take every bit of advice and guidance that we could receive. On the trust preferred where they had named issuers, we continue to believe that with the maturities that are there and the strength of the companies that are there that we will be repaid and that is the predominant reason for us drawing a temperately impairment conclusion on those type of debt instruments. We have a coupled of pooled trust preferred securities and there is a bit more of a complicated analysis looking at the cash flows of what we own but when we went through that analysis again we compared that, it determined rather that the impairment is temporary and that no impairment charge to earnings was warranted.

Frankly we work in all the discussion both externally, but also needless to say staying in very close touch, with KPMG which is our accounting firm. All the accounting firms are working together, the regulators are all taking, everybody is trying to figure what they are to be recommending and doing and what the banks are to be looking at. We are intimately involved with discussions on an ongoing basis with them as I’m sure very singe bank out there is.

Okay and then just a few quick questions for modeling purposes here. There wasn’t a contribution to the chartable foundation in 3Q right?

We expect to do that this quarter.

Okay and as far as the tax rate, I know you gave it from where you expect it to be in the fourth quarter Dave; is there any reason to alter it considerable from that number for ’09? I have 31.5% tax rate, that’s what I’ve been using for ’09, does that ballpark sort of still make sense?

I think its ballpark. We haven’t completed our ’09 budgeting process but its somewhere between 31.5% and 32%, its problem a good place holder for now.

Okay and then just finally, you mentioned the margin for September was 271, so the margin for the quarter obviously was 262. So do you expect that sort of continue, is that a better gauge. It would seem to me that a better gauge of 4Q would be September’s margin than the whole quarters. Is there something in September that went off or something that would move that needle?

We didn’t see anything in September that was in that number. There were some of the reason I alluded to earlier on, that non-routine I guess elements of margin that had occurred and they did occur for the most part in July and August. So I’m encouraged by September, I’m reluctant to extrapolate however from September, but it certainly moved in a good direction in September.

I mean September is a 30 day month so we get a slightly different effect. August was a tad below that, but the combination of the two indicative, along with the capital raise. As Dave said I don’t want to be wildly optimistic, but hopefully that’s indicative of what we will see.

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

We just want to thank you all for attending and if any of you have any questions, feel free to pick up the phone and give us a call, happy to chat with you. Appreciated it and have a good day. Thanks.

The conference has now concluded. Thank you for attending today’s presentation.