Hello, and welcome to the fourth quarter of 2008 Washington Trust Bancorp earnings conference call. All participants will be in a listen-only mode. There’ll be an opportunity for you to ask questions at the end of today’s presentation. (Operator instructions) Please note this conference is being recorded. Now, I would like to turn the call over to Elizabeth Eckel. Ma’am, please begin.

Thank you. Good morning, and welcome to the quarterly earnings conference call for Washington Trust Bancorp, NASDAQ global market symbol WASH. Today’s conference call is being recorded and is being webcast live. A webcast replay of the conference call will be available shortly after the conclusion of today’s call through the corporation’s Web site at www.washtrust.com in the Investor Relations section under 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, Chief Financial Officer, and Secretary. And now, I am pleased to introduce Washington Trust’s Chairman and Chief Executive Officer, John C. Warren. John?

Thank you, Beth. Good morning. And thank you all for joining us here today. Earlier this morning, we released our earnings for the fourth quarter and the year ended December 31st, 2008. Dave and I will provide an overview of our results, and then answer any questions you may have. As we look back at 2008, it’s clear that our success for the year can be attributed to our focus. We knew the challenges, which we faced in both the economic environment and the financial markets. But we stuck to our principles, remained focus on our core businesses, and the core businesses that has driven our company for more than 208 years. Over the past few years, we’ve exited the credit card business, we exited indirect automobile lending. We didn’t get involved in subprime lending. We remained true to our disciplined credit standards. We continue to invest in new talents and technology that will help us to grow our key business lines. We raised approximately $47 million in new capital through a private issuance, a pipe transaction, all of which is probably trading now with select institutional investors in early October. We chose not to accept any TARP funds through the US Treasury Department’s capital purchase program. All these decisions contributed to our success in 2008, and had made us an even stronger company. Despite all the turmoil in 2008, including a national recession, a federal banking crisis, a precipitous decline in the financial markets, Washington Trust had a very solid year. For the fourth quarter, net income totaled $4.6 million or $0.29 per diluted share, down from $5.8 million or $0.43 per diluted share for the fourth quarter of ’07. In the year ended 2008, net income was $22.6 million or $1.59 per diluted share, compared to net income…

Thank you, John. Good morning, everyone. Thank you for joining us on our call today. I’ll be reviewing the fourth quarter operating results in financial position as described in our press release this morning. Net income for the fourth quarter of 2008 was $4.6 million or $0.29 per diluted share, compared to $5.8 million or $0.43 per diluted share reported for the fourth quarter of 2007. Return on average equity for the fourth quarter was 7.98%, compared to 12.73% for the same period in 2007. Full year 2008 results included net income of $22.6 million or $1.59 per diluted share, compared to $23.8 million or $1.75 per diluted share in 2007. The return on average equity for the year 2008 was $11.31%, compared to 13.48% for 2007. There were a few items, which were unusual for Washington Trust in the fourth quarter that I’d like to mention. We recognize losses on write downs to fair value for certain investment securities deemed to be other than temporarily impaired totaling $2.4 million pre-tax. On an after tax basis this amounted to $1.7 million or $0.10 per diluted share. Non-core income tax benefits totaling $1.2 million or $0.07 per diluted share were recognized in the fourth quarter. This was attributable to the resolution of certain tax positions and adjustments to overall effective income tax rate based on full year 2008 operating results. Unrealized losses on interest rate swap contracts of $663,000 were recognized in the fourth quarter, compared to unrealized losses compared of $24,000 in the third quarter of 2008 and unrealized gains of $27,000 in the fourth quarter of 2007. On an after tax basis, the fourth quarter of 2008 charge amounted to $468,000 or $0.03 per diluted share. I’ll comment further on the nature of this matter in a few moments.…

Thank you, David. On our conference call one year ago, I concluded by stating, there are many words I could use to describe the banking industry in 2007, challenging, difficult, or extraordinary, little did I know. All I can say now is that if 2007 was challenging, then 2008 took it to a whole new level for the financial services industry. As we look ahead, candidly for everyone, 2009 is a total unknown. No one really knows. It will likely be the end of 2009 and possibly even 2010 before the economy can really get moving again. President Obama does represent change. And we’re certainly hopeful that the new stimulus package will create a little confidence and begin to move the economy forward. As we enter 2009, which you’ll see from us, we will continue to focus on commercial lending as the larger institutions continue to remain distracted. Our residential lending, largely revised, has shown substantial growth for the recent rate declines. We expect this will continue. Also in our press release, as we indicated, Jack Treanor, our President and Chief Operating Officer, has indicated his intent to take early retirement in October this year. Jack will remain on the Board, and we’ll continue to have the benefit of both his wisdom and strategic thinking. We’re very thankful for that. Washington Trust has been a pillar of strength for more than two centuries and we remain one of the premier financial institutions in our region. We’re ready, willing, and able to meet the lending, deposit, and investment needs of our community. That message is getting across. We’re strong, focused, and poised for future growth. Thank you for your time this morning. And now, at this point, David and I would be happy to answer any questions you might have. Thanks.

(Operator instructions) Our first question is from Frank Schiraldi of Sandler O’Niell. I’m sorry if I mispronounced your name. Please go ahead. Frank Schiraldi – Sandler O’Niell: Good morning

Hi, Frank. How are you? Frank Schiraldi – Sandler O’Niell: Good. How are you doing?

Good. Frank Schiraldi – Sandler O’Niell: Just a couple of questions.

Sure. Frank Schiraldi – Sandler O’Niell: I’m wondering if you can give us any specifics or further color on the commercial loan growth in the quarter as far as geography, and size, and any specifics that you can give, really.

It’s really been New England, largely Rhode Island, with a little bit over the Massachusetts and with our branches in Connecticut, a little bit in Connecticut as well. Frank Schiraldi – Sandler O’Niell: Okay. And I’m assuming, John, from the comments you made just a second ago, what are your thoughts on commercial loan growth next year? I mean based on the pipeline, do you expect next – for instance, 1Q ’09, do you expect sort of similar growth that we saw quarter-over-quarter here.

I was going to reference quarter-over-quarter. I mean I think the key is and continues to be the destruction of the largest institutions in our competitive area. That’s been the source of a huge chunk of our lending, (inaudible) organic activity going on. But obviously, the economy has slowed significantly, not just in Rhode Island and New England, but through out the country. So what we really had is, and thankful for, all the major institutions are so distracted that we’ve had business coming to us. So we expect to see it continue growing. It won’t be the 29% growth we saw year-over-year. And we’ll just see how the business environment in Rhode Island and the larger customers come to us. Frank Schiraldi – Sandler O’Neill: And then, just finally on Wolf Management business, obviously, it’s difficult to control at the market, but as far as flows, what have you seen so far? It’s still early, obviously, but so far this year?

The customer base we have has been, I guess, positive, responsive. I think in the information we included in the press release and you probably didn’t have time – Dave put in a stack of numbers and multiple pages to say the least. We did include the new business originations for the four quarters, quarter-by-quarter last year.

Yes. I would add that I think there was a bit of a seasonal reduction in the fourth quarter in customer flows. But it’s my understanding that the pipeline for business development is in good shape.

Yes. And once again, needless to say, some of the competitors, both banking and – I mean banking as in real bank, competitors and some of the brokerage firms are dramatically different than they used to be. And that’s shuffling the deck, shall we say. Frank Schiraldi – Sandler O’Neill: Okay. Thank you.

You bet.

Thanks, Frank.

Our next question is from Lee Howard of The Day Publishing Company. Please, go ahead. Lee Howard – The Day Publishing Company: Hi, John. How are you?

I’m doing well, Lee. Yourself? Lee Howard – The Day Publishing Company: Good, good. Thanks. I’ve got a couple of questions here.

Sure. Lee Howard – The Day Publishing Company: I’m curious as to what it’s like to be running a bank these days? Obviously, you have a lot of pressure, a lot of questions that you never had to answer before. You know what kind of pressures are on you to do things that you might not want to do?

It’s actually kind of a – I should probably start by saying that if I didn’t already have a full head of grey hair, it would be greyer than it was before. But part of that grey came from the last cycle that we went through in 1989 to ’91, ’92, when New England really had a rocky period. And a lot of the talent that we have here at Washington Trust went through that, experienced it, lived it. Both Jack Treanor and myself were running a bank in Massachusetts at that point, and we saw what happened up there. We handled it. We handled it very well up there to the extent we could. That team we have down here in Washington Trust, everything that we’re going through now and the quality of the loan portfolio that you see today, is reflective of decisions that were made four, five, six, seven years ago. We put in a structure, we put in a discipline, and we’re pleased with it. We still knock on wood everyday. But we’re certainly pleased with where we are. And as Dave said, our net charge offs were eight basis points, which is statistically about as low as it could go. A slight increase from the last couple of years, but incredibly low compared to just about anybody out there in the banking world. It’s a challenge, what’s going on in the economy. When the president won the election, there was one shot, just after the inaugural ceremony, that the helicopter was on the lawn of the White House waiting to take President Bush and Laura away. The two presidents and their spouses were saying goodbye. And Bush looked five years younger and had a big smile on his face, and Laura looked happy and great.…

For sure. Our commercial lending area grew over $200 million just in ’08. That was 29% growth. Our retail and our consumer lending grew about 7%. We’re doing business. We’ve been doing business. And as I had mentioned in the presentation, some of the large banks being distracted and really in position. We’ve had customers telling us they have been told that the large banks are not making loans. So we’re more than happy to invite them to our front door and help them out. And that’s the kind of business that’s going on. We consciously do not take government money. We had a phone call inviting us to take government money. We raised the $50 million ourselves, net $47 million. In the subsequent events, the people that are basically been told how to run their company, we’re exceptionally glad that we didn’t take the government TARP money. Lee Howard – The Day Publishing Company: What kinds of strings were attached?

Well, they’ve been making –well, trying to force people to make loans. You only should make a loan if it’s a good loan. Some of the politicians’ comments are really pretty ridiculous. But that’s part of what you get when two of the largest banks in the country now have the US government as their largest shareholder. I chuckled when I saw the article in the paper today that one of the largest banks in the country had to send back a $50 million jet. Lee Howard – The Day Publishing Company: You don’t have one of those?

That was the Citigroup article that was in the paper today. You just sort of have to chuckle. Much of it is appearances, but the government tells you what you can do for a dividend. I think it’s not by coincidence that a number of banks have dropped their dividend to a $0.01. The number of banks doing that is too large. And if you went down the list, every one of them has TARP money. Lee Howard – The Day Publishing Company: What about mortgage loans these people are concerned about? Obviously, their ability to get loans in this environment, and with prices going down, a lot of folks are saying this is an opportunity to throw out a safety net and get the real estate market going again and then maybe get the economy rolling. Obviously, you have a very small slice of the economic pie of the United States, but what kind of thoughts are in your head about how you’re approaching residential loans at this point?

We’ve seen some great activity in the residential lending area, especially in the month of January. |And it’s – with rates having dropped as much as they did, there were people out there. It’s challenging. Freddy and Fannie have changed the roles a little bit, that doesn’t get mentioned too much. But the rates are lower, and there are opportunities, and there’s a fair amount of refinancing that’s going on in the market. The vast majority is refinancing. But that, on an overall basis, will help the cash flow of the economy. Lee Howard – The Day Publishing Company: Can you talk about some of those securities that went bad on you, the trust securities? What kind of companies are we talking about as far as the ones that weren’t able to pay you back?

Well, on the trust preferred pool, it’s actually a pool with a large number of individual, primarily banks, but financial entities in the pool. |So it’s diversified. And what’s happened is, with some of the bank failures around the country and some of the banks – other banks having trouble, we’re seeing in that one particular securities situation, we’ve seen several deferrals and at least one default as far as an individual – underneath the umbrella or the pool. So that we don’t necessarily agree with the pricing. But the way the world operates today and the accounting operates, we made the decision, did the evaluation, and decided to write the security down. We can come back to you. We’ve got a couple of other people, I believe, that are looking to ask a question as well and–

Our next question is from Laurie Hunsicker of Stifel Nicolaus. Please, go ahead. Laurie Hunsicker – Stifel Nicolaus: Yes, hi. Good morning. Good morning, gentlemen.

Good morning, Laurie. How are you? Laurie Hunsicker – Stifel Nicolaus: Good, thanks. A couple of questions, I just wondered if maybe we could talk specifically about credit, maybe specifically within the commercial and residential categories. You’ve seen some erosion, especially in the C&I. And then I guess, conversely, your consumer and your commercial constructions seem to be performing brilliantly. If you could just maybe comment on sort of both sides of that.

In the commercial category, there were a number of loans that moved into the non-accrual category during the quarter. I don’t think there’s any common characteristic there other than they tend to be small business loans, for the most part, mid-sized, small business loans. And the economy is affecting those kinds of businesses, and that is manifesting itself in what you saw in the increase in delinquencies. And comparatively, the absolute amount of both delinquencies and non-accrual loans we considered to be manageable. And we’re watching it very closely.

Yes. In fact, Laurie, I think that the stats that Dave gave in his presentation – our percentage, which was very low what was reflective of December 31st, 2008. The comparative was the best number we could get, which actually was September 30th for the peer group. I think it’s safe to say that when we see the December 31 number from the peer group, our favorable variants in that will be even higher. Laurie Hunsicker – Stifel Nicolaus: Yes, sure. Your credit numbers are still holding nicely. On the commercial charge offs, the 682 of the 756 charge offs for the quarter, was that all or primarily all in the C&I business?

Most of it was, yes. Laurie Hunsicker – Stifel Nicolaus: Most of it was, okay. Does the trend now make you sort of rethink that portfolio?

Well, not really. That’s a core part of our business because the – so many small businesses keep the checking accounts. And they, just from a liquidity point of view, they keep a substantial amount of money in DDA on a relative basis compared to the loans. I think with the economy, with the downturn like we’re seeing right now, and the magnitude of the layoffs right now, you can’t – the small business guy just or woman can’t help but be struggling a little bit. I mean there’s not – there aren’t too many people out there that are boasting about how good business is. Laurie Hunsicker – Stifel Nicolaus: Right.

And the little guy is just taking a hit. This is a handful of small businesses that – in diverse areas that just couldn’t make it. Laurie Hunsicker – Stifel Nicolaus: Can you just generally talk to us about general economic conditions and, I guess, unemployment as a backdrop? The preliminary numbers out yesterday said Rhode Island’s at 10%.

Right. Laurie Hunsicker – Stifel Nicolaus: And that actually puts you guys at a 30% plus year high on unemployment.

Yes. I think that the – in Rhode Island, we only have a million people or a smidge over a million people. So it’s pretty easy to drive the numbers, but there’s no question there are challenges out there economically. And there’s a lot of work being done by the governor and a lot of work being done actually by the business community trying to pull together and find ways to bring some additional jobs and get the employment levels back on the right road here in the state. Laurie Hunsicker – Stifel Nicolaus: Okay. And then, just to get back over to credit for a second, your commercial construction, your non-performers, how are you all doing that?

By paying attention. A lot of that commercial construction is really owner occupied businesses that have been expanding, projects that they’ve been working on or expanding their business. So you’ve got a building going on or moving to a slightly different location. So a lot of that has done well but the– Laurie Hunsicker – Stifel Nicolaus: What percentage of that is land, just roughly?

Well, if I would – pure, undeveloped land, it wouldn’t be in that category. There’s a modest amount of land development loan in there, but it is not significant. Laurie Hunsicker – Stifel Nicolaus: It’s not significant.

No, not at all. Laurie Hunsicker – Stifel Nicolaus: Okay. And just one more general question, I guess, I would throw out there. Congratulations to Jack.

Yes, absolutely. Laurie Hunsicker – Stifel Nicolaus: Yes. He’s done amazing. Jack, if you’re on the call, congratulations. Generally, if you could comment–

He is. Laurie Hunsicker – Stifel Nicolaus: Jack is on the call? Okay, great. I remember you from your SISC [ph] days. It’s amazing. So Jack, you’re retiring in October, and John, you’re scheduled to transition next April.

Right. Laurie Hunsicker – Stifel Nicolaus: Can you all generally talk in – in harder economic times, if you would sort of weighed on a scale of one to ten, where would you put your consideration, and maybe becoming a part of a larger bank given the succession and so forth and the challenges facing you all, generally?

Well, I think that the humor in it, and you can understand this very well, is if you look back over the last couple years when our price of the stock was trading higher. And needless to say, everybody else’s price was trading higher. That if you look over the range of what’s left in the battlefield of larger institutions and where they are price wise, it’s a pretty devastated battlefield. It was a real good thing that nothing ever happened, and we didn’t – and the owning stock that’s now trading at $3.00 a share or $4.00 a share. So as a further answer to your question, I guess when I look around on the residual, it seems to me like we’re one of the last guys standing. There are not too many people in good shape right now. And they would have to call the US government, since most of them have taken TARP, they would have to call the US government to ask permission to do anything. So we’re staying focused and paying attention to what’s going on, Laurie, and I think the best thing we could do for this institution is to maintain that focus and keep doing a great job on the business that we’re doing. Laurie Hunsicker – Stifel Nicolaus: Okay, great. Thanks a lot.

You’re welcome.

And your next question comes from Damon DelMonte of KBW. Please, go ahead. Damon DelMonte – KBW: Hi. Good morning, guys. How are you?

Hey, great, Damon. How are you? Damon DelMonte – KBW: Great, thanks. Just a question on the home equity growth that we saw this quarter, is that more of a function of line utilization or are you adding new loans?

It’s both. There has been some new loan growth there. Line utilization is up a little bit, but it’s still very modest, I would say. Damon DelMonte – KBW: Yes, but a percentage of the utilization rate?

Well, yes. Utilization, just as a comparison, was 45% at the end of 2007 and it’s 48.9% at the end of ’08. So it’s up somewhat, but still in the low and conservative side. Damon DelMonte – KBW: And could you just remind us a little bit about the characteristics of that portfolio? What’s the average LTV, FICO, the borrowers, things like that?

Yes. All local and self originated.

Right. And with LTV, at time of origination, in the 50’s in that category. And FICO score is, when we’ve look at that, has been averaging well over 700 for that portfolio. Damon DelMonte – KBW: Okay, okay. And then, just kind of – just getting back to credit, the reserve level this quarter was $129 million. As you kind of go through ’09, I would imagine we’ve seen this trend with a lot of other banks. But are you comfortable at this level or are you kind of bearish enough with the outlook that you feel you need to increase at some level?

No. We’re comfortable with the level. We do a regular analysis. Obviously, we look at it every month, but we thoroughly look at it every quarter. And it’s really – if you look at the loan growth that we had in 2008, the biggest chunk of why you saw the kind of provisioning that we did in ’08, the $4.8 million, was really the loan growth that we had in order to keep a $129 million reserve. Every time you put a new loan on, you have to put $129 million against it. So that’s a chunk of money when you grow well over $200 million. Damon DelMonte – KBW: Right. Okay. That’s all I have. Thank you.

Oh, great. Thanks.

Thanks, Damon.

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

Once again, we thank you all for attending. And to Jack Treanor who’s on the line as well, we thank him for attending the call. It was good to talk to you all. Any questions, just always feel free to give David and myself a call after call, or Beth a call. And have a great day. Thank you very much.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.