Washington, DC  20549
(Mark One)
Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 2008 or
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to ____________
Commission file number:  000-13091
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code:     401-348-1200
Securities registered pursuant to Section 12(b) of the Act:   NONE
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  oYes  xNo
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  oYes  xNo
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  xYes  oNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Mark one):
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2)
oYes  xNo
The aggregate market value of voting stock held by non-affiliates of the registrant at June 30, 2008 was $215,971,363 based on a closing sales price of $19.70 per share as reported for the NASDAQ Global Select Market, which includes $10,645,827 held by The Washington Trust Company under trust agreements and other instruments.
The number of shares of the registrant’s common stock, $.0625 par value per share, outstanding as of February 25, 2009 was 15,949,541.
Portions of the Registrant’s Proxy Statement dated March 11, 2009 for the Annual Meeting of Shareholders to be held April 28, 2009 are incorporated by reference into Part III of this Form 10-K.


For the Year Ended December 31, 2008


Exhibit 2.2 Amendment to Stock Purchase Agreement  
Exhibit 10.49 Annual Performance Plan  
Exhibit 10.50 Amendment to Registrant's 1997 Equity Incentive Plan  
Exhibit 10.51 Amendment to Registrant's Wealth Management Business Building Incentive Plan  
Exhibit 21.1 Subsidiaries of the Registrant  
Exhibit 23.1 Consent of Independent Accountants  
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  
Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  
Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  


ITEM 1.  Business

Washington Trust Bancorp, Inc.
Washington Trust Bancorp, Inc. (the “Bancorp”), a publicly-owned registered bank holding company and financial holding company, was organized in 1984 under the laws of the state of Rhode Island.  The Bancorp owns all of the outstanding common stock of The Washington Trust Company (the “Bank”), a Rhode Island chartered commercial bank.  The Bancorp was formed in 1984 under a plan of reorganization in which outstanding common shares of the Bank were exchanged for common shares of the Bancorp.  See additional information under the caption “Subsidiaries”.

Through its subsidiaries, the Bancorp offers a broad range of financial services to individuals and businesses, including wealth management, through its offices in Rhode Island, Massachusetts and southeastern Connecticut, ATMs, and its Internet website (  The Bancorp’s common stock is traded on the NASDAQ Global SelectÒ Market under the symbol “WASH.”

The accounting and reporting policies of the Bancorp and its subsidiaries (collectively, the “Corporation” or “Washington Trust”) are in accordance with U. S. generally accepted accounting principles (“GAAP”) and conform to general practices of the banking industry.  At December 31, 2008, Washington Trust had total assets of $3.0 billion, total deposits of $1.8 billion and total shareholders’ equity of $235.1 million.

Commercial Banking
The Corporation offers a variety of banking and related financial services, including:

Residential mortgages
Consumer installment loans
Merchant credit card services
Reverse mortgages
Commercial and consumer demand deposits
Telephone banking services
Commercial loans
Savings, NOW and money market deposits
Internet banking services
Construction loans
Certificates of deposit
Cash management services
Home equity lines of credit
Retirement accounts
Remote deposit capture
Home equity loans
Automated teller machines (ATMs)
Safe deposit boxes

The Corporation’s largest source of income is net interest income, the difference between interest earned on interest-earning assets and interest paid on interest-bearing deposits and other borrowed funds.

The Corporation’s lending activities are conducted primarily in southern New England and, to a lesser extent, other states.  Washington Trust offers a variety of commercial and retail lending products.  In addition, Washington Trust purchases loans for its portfolio from various other financial institutions.  In making commercial loans, Washington Trust may occasionally solicit the participation of other banks and may also occasionally participate in commercial loans originated by other banks.  From time to time, we sell the guaranteed portion of Small Business Administration (“SBA”) loans to investors.  Washington Trust generally underwrites its residential mortgages based upon secondary market standards.  Residential mortgages are originated both for sale in the secondary market as well as for retention in the Corporation’s loan portfolio.  Loan sales in the secondary market provide funds for additional lending and other banking activities.  The majority of loans are sold with servicing released.  We also originate residential loans for various investors in a broker capacity, including conventional mortgages and reverse mortgages.

Washington Trust offers a wide range of banking services, including the acceptance of demand, savings, NOW, money market and time deposits.  Banking services are accessible through a variety of delivery channels including branch facilities, ATMs, telephone and Internet banking.  Washington Trust also sells various business services products including merchant credit card processing and cash management services.

Wealth Management Services
The Corporation generates fee income from providing investment management, trust and financial planning services.  Washington Trust provides personal trust services, including services as executor, trustee, administrator, custodian and guardian.  Institutional trust services are also provided, including services as trustee for pension and profit sharing plans.  Investment management and financial planning services are provided for both personal and

institutional clients.  At December 31, 2008 and 2007, wealth management assets under administration totaled $3.1 billion and $4.0 billion, respectively.  These assets are not included in the Consolidated Financial Statements.

Business Segments
Segment reporting information is presented in Note 17 to the Consolidated Financial Statements.
The following summarizes Washington Trust’s acquisition history:

On August 31, 2005, the Bancorp completed the acquisition of Weston Financial Group, Inc. (“Weston Financial”), a Registered Investment Adviser and financial planning company located in Wellesley, Massachusetts, with broker-dealer and insurance agency subsidiaries. Pursuant to the Stock Purchase Agreement, dated March 18, 2005, as amended December 24, 2008, the acquisition was effected by the Bancorp’s acquisition of all of Weston Financial’s outstanding capital stock. (1)

On April 16, 2002, the Bancorp completed the acquisition of First Financial Corp., the parent company of First Bank and Trust Company, a Rhode Island chartered community bank.  First Financial Corp. was headquartered in Providence, Rhode Island and its subsidiary, First Bank and Trust Company, operated banking offices in Providence, Cranston, Richmond and North Kingstown, Rhode Island.  The Richmond and North Kingstown branches were closed and consolidated into existing Bank branches in May 2002.  Pursuant to the Agreement and Plan of Merger, dated November 12, 2001, the acquisition was effected by means of the merger of First Financial Corp. with and into the Bancorp and the merger of First Bank with and into the Bank. (1)

On June 26, 2000, the Bancorp completed the acquisition of Phoenix Investment Management Company, Inc. (“Phoenix”), an independent investment advisory firm located in Providence, Rhode Island.  Pursuant to the Agreement and Plan of Merger, dated April 24, 2000, the acquisition was effected by means of merger of Phoenix with and into the Bank. (2)

On August 25, 1999, the Bancorp completed the acquisition of Pier Bank, a Rhode Island chartered community bank headquartered in South Kingstown, Rhode Island.  Pursuant to the Agreement and Plan of Merger, dated February 22, 1999, the acquisition was effected by means of merger of Pier Bank with and into the Bank. (2)
(1)   These acquisitions have been accounted for as a purchase and, accordingly, the operations of the acquired companies are included in the Consolidated Financial Statements from their dates of acquisition.
These acquisitions were accounted for as poolings of interests and, accordingly, all financial data was restated to reflect the combined financial condition and results of operations as if these acquisitions were in effect for all periods presented.

The Bancorp’s subsidiaries include the Bank and Weston Securities Corporation (“WSC”).  The Bancorp also owns all of the outstanding common stock of WT Capital Trust I, WT Capital Trust II and Washington Preferred Capital Trust, special purpose finance entities formed with the sole purpose of issuing trust preferred debt securities and investing the proceeds in junior subordinated debentures of the Bancorp.  See Note 11 to the Consolidated Financial Statements for additional information.

The following is a description of Bancorp’s primary operating subsidiaries:

The Washington Trust Company
The Bank was originally chartered in 1800 as the Washington Bank and is the oldest banking institution headquartered in its market area and is among the oldest banks in the United States.  Its current corporate charter dates to 1902.

The Bank provides a broad range of financial services, including lending, deposit and cash management services, wealth management services and merchant credit card services.  The deposits of the Bank are insured by the Federal Deposit Insurance Corporation (“FDIC”), subject to regulatory limits.

The Bank’s subsidiary, Weston Financial, is a Registered Investment Adviser and financial planning company located in Wellesley, Massachusetts, with an insurance agency subsidiary.  In addition, the Bank has other passive investment subsidiaries whose primary functions are to provide servicing on passive investments, such as residential and consumer loans acquired from the Bank and investment securities.

Weston Securities Corporation
WSC is a licensed broker-dealer that markets several of Weston Financial’s investment programs, including mutual funds and variable annuities.  WSC acts as the principal distributor to a group of mutual funds for which Weston Financial is the investment advisor.

Market Area and Competition
Washington Trust faces considerable competition in its market area for all aspects of banking and related financial service activities.  Competition from both bank and non-bank organizations is expected to continue.

The Bank contends with strong competition both in generating loans and attracting deposits.  The primary factors in competing are interest rates, financing terms, fees charged, products offered, personalized customer service, online access to accounts and convenience of branch locations, ATMs and branch hours.  Competition comes from commercial banks, credit unions, and savings institutions, as well as other non-bank institutions.  The Bank faces strong competition from larger institutions with greater resources, broader product lines and larger delivery systems than the Bank.

The Bank operates ten of its seventeen branch offices in Washington County, Rhode Island.  As of June 30, 2008, based upon information reported in the FDIC’s Deposit Market Share Report, the Bank had 47% of total deposits reported by all financial institutions for Washington County. We have excluded our out-of-market brokered certificates of deposit from this measurement to provide a more representative measurement of our market share.  Out-of-market brokered certificates of deposit are utilized by the Corporation as part of its overall funding program along with other sources.  The closest competitor held 26%, and the second closest competitor held 8% of total deposits in Washington County.  We believe that being the largest commercial banking institution headquartered within this market area provides a competitive advantage over other financial institutions.

The Bank’s remaining seven branch offices are located in Providence and Kent Counties in Rhode Island and New London County in southeastern Connecticut.  In December 2008, Washington Trust relocated its Washington Street branch office in Providence to a new branch office located in the financial district of Providence.  In 2009, the Bank plans to open a de novo branch in Kent County (Warwick), subject to the approval of state and federal regulators.  The Warwick branch will bring the total number of the Bank’s branch offices to eighteen.  We continue to expand our branch footprint and broaden our presence in Providence and Kent Counties.  Both the population and number of businesses in Providence and Kent Counties far exceed those in Washington County.

Washington Trust operates in a highly competitive wealth management services marketplace.  Key competitive factors include investment performance, quality and level of service, and personal relationships.  Principal competitors in the wealth management services business are commercial banks and trust companies, investment advisory firms, mutual fund companies, stock brokerage firms, and other financial companies.  Many of these companies have greater resources than Washington Trust.

At December 31, 2008, Washington Trust had 440 full-time and 43 part-time and other employees.  Washington Trust maintains a comprehensive employee benefit program providing, among other benefits, group medical and dental insurance, life insurance, disability insurance, a pension plan and a 401(k) plan. Management considers relations with its employees to be good.  See Note 15 to the Consolidated Financial Statements for additional information on certain employee benefit programs.

Supervision and Regulation
The business in which the Corporation is engaged is subject to extensive supervision, regulation, and examination by various bank regulatory authorities and other governmental agencies.  State and federal banking laws have as their principal objective either the maintenance of the safety and soundness of financial institutions and the federal deposit

insurance system or the protection of consumers, or classes of consumers, and depositors, in particular, rather than the specific protection of shareholders of a bank or its parent company.

Set forth below is a brief description of certain laws and regulations that relate to the regulation of Washington Trust.  To the extent the following material describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statute or regulation.  A change in applicable statutes, regulations or regulatory policy may have a material effect on our business.

Regulation of the Bancorp.  As a registered bank holding company, the Bancorp is subject to regulation under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and to inspection, examination and supervision by the Board of Governors of the Federal Reserve System (the “FRB”), and the State of Rhode Island, Department of Business Regulation, Division of Banking (the “Rhode Island Division of Banking”).

The FRB has the authority to issue orders to bank holding companies to cease and desist from unsafe or unsound banking practices and violations of conditions imposed by, or violations of agreements with, or commitments to, the FRB.  The FRB is also empowered to, among other things, assess civil money penalties against companies or individuals who violate the BHCA or orders or regulations thereunder, to order termination of non-banking activities of non-banking subsidiaries of bank holding companies, and to order termination of ownership and control of a non-banking subsidiary by a bank holding company.

During 2005, the Bancorp elected financial holding company status pursuant to the provisions of the Gramm-Leach-Bliley Act of 1999 (“GLBA”).  As a financial holding company, the Bancorp is authorized to engage in certain financial activities in which a bank holding company may not engage.  “Financial activities” is broadly defined to include not only banking, insurance and securities activities, but also merchant banking and additional activities that the FRB, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.  Currently, the Bancorp engages in broker-dealer activities pursuant to this authority.  If a financial holding company fails to remain well capitalized and well managed, the company and its affiliates may not commence any new activity that is authorized particularly for financial holding companies.  If a financial holding company remains out of compliance for 180 days or such longer period as the FRB permits, the FRB may require the financial holding company to divest either its insured depository institution or all of its nonbanking subsidiaries engaged in activities not permissible for a bank holding company.  If a financial holding company fails to maintain a “satisfactory” or better record of performance under the Community Reinvestment Act, it will be prohibited, until the rating is raised to satisfactory or better, from engaging in new activities, or acquiring companies other than bank holding companies, banks or savings associations, except that the Bancorp could engage in new activities, or acquire companies engaged in activities that are closely related to banking under the BHCA.  In addition, if the FRB finds that the Bank is not well capitalized or well managed, the Bancorp would be required to enter into an agreement with the FRB to comply with all applicable capital and management requirements and which may contain additional limitations or conditions.  Until corrected, the Bancorp would not be able to engage in any new activity or acquire companies engaged in activities that are not closely related to banking under the BHCA without prior FRB approval.  If the Bancorp fails to correct any such condition within a prescribed period, the FRB could order the Bancorp to divest its banking subsidiary or, in the alternative, to cease engaging in activities other than those closely related to banking under the BHCA.

Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Interstate Act”).  The Interstate Act permits adequately capitalized or well-capitalized and adequately or well-managed bank holding companies, as determined by the FRB, to acquire banks in any state subject to certain concentration limits and other conditions.  The Interstate Act also generally authorizes the interstate merger of banks.  In addition, among other things, the Interstate Act permits banks to establish new branches on an interstate basis provided that the law of the host state specifically authorizes such action.  Rhode Island and Connecticut, the two states in which the Corporation conducts branch-banking operations, have adopted legislation to "opt in" to interstate merger and branching provisions that effectively eliminated state law barriers.  However, as a bank holding company, we are required to obtain prior FRB approval before acquiring more than 5% of a class of voting securities, or substantially all of the assets, of a bank holding company, bank or savings association.

Control Acquisitions.  The Change in Bank Control Act prohibits a person or a group of persons from acquiring “control” of a bank holding company, such as the Bancorp, unless the FRB has been notified and has not objected to the transaction.  Under a rebuttable presumption established by the FRB, the acquisition of 10% or more of a class of voting securities of a bank holding company with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), would, under the circumstances set forth in the presumption, constitute the acquisition of control of the bank holding company.  In addition, a company is required to obtain the approval of the FRB under the BHCA before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of any class of outstanding voting securities of a bank holding company, or otherwise obtaining control or a “controlling influence” over that bank holding company.  In September 2008, the FRB released guidance on minority investment in banks which relaxed the presumption of control for investments of greater than 10% of a class of outstanding voting securities of a bank holding company in certain instances discussed in the guidance.

Bank Holding Company Dividends.  The FRB and the Rhode Island Division of Banking have authority to prohibit bank holding companies from paying dividends if such payment is deemed to be an unsafe or unsound practice.  The FRB has indicated generally that it may be an unsafe or unsound practice for bank holding companies to pay dividends unless the bank holding company’s net income over the preceding year is sufficient to fund the dividends and the expected rate of earnings retention is consistent with the organization’s capital needs, asset quality and overall financial condition.  Additionally, under Rhode Island law, distributions of dividends cannot be made if a bank holding company would not be able to pay its debts as they become due in the usual course of business or the bank holding company’s total assets would be less than the sum of its total liabilities.  The Bancorp’s revenues consist primarily of cash dividends paid to it by the Bank.  As described below, the FDIC and the Rhode Island Division of Banking may also regulate the amount of dividends payable by the Bank.  The inability of the Bank to pay dividends may have an adverse effect on the Bancorp.

Regulation of the Bank.  The Bank is subject to the regulation, supervision and examination by the FDIC, the Rhode Island Division of Banking and the State of Connecticut, Department of Banking.  The Bank is also subject to various Rhode Island and Connecticut business and banking regulations.

Regulation of the Registered Investment Adviser and Broker-Dealer.  WSC is a registered broker-dealer and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and is subject to extensive regulation, supervision, and examination by the Securities and Exchange Commission (“SEC”), FINRA and the Commonwealth of Massachusetts.  Weston Financial is registered as an investment advisor under the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”), and is subject to extensive regulation, supervision, and examination by the SEC and the Commonwealth of Massachusetts, including those related to sales methods, trading practices, the use and safekeeping of customers’ funds and securities, capital structure, record keeping and the conduct of directors, officers and employees.

As an investment advisor, Weston Financial is subject to the Investment Advisers Act and any regulations promulgated thereunder, including fiduciary, recordkeeping, operational and disclosure obligations.  Each of the mutual funds for which Weston Financial acts an advisor or subadvisor is registered with the SEC under the Investment Company Act of 1940, as amended (the “Investment Company Act”), and subject to requirements thereunder.  Shares of each mutual fund are registered with the SEC under the Securities Act of 1933, as amended (the “Securities Act”), and are qualified for sale (or exempt from such qualification) under the laws of each state and the District of Columbia to the extent such shares are sold in any of those jurisdictions.  In addition, an advisor or subadvisor to a registered investment company generally has obligations with respect to the qualification of the registered investment company under the Internal Revenue Code of 1986, as amended (the “Code”).

The foregoing laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict Weston Financial from conducting its business in the event it fails to comply with such laws and regulations.  Possible sanctions that may be imposed in the event of such noncompliance include the suspension of individual employees, limitations on business activities for specified periods of time, revocation of registration as an investment advisor, commodity trading advisor and/or other registrations, and other censures and fines.

ERISA.  The Bank and Weston Financial are each also subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and related regulations, to the extent it is a “fiduciary” under ERISA with respect to some of its clients.  ERISA and related provisions of the Code impose duties on persons who are fiduciaries under ERISA, and prohibit certain transactions involving the assets of each ERISA plan that is a client of the Bank or Weston Financial, as applicable, as well as certain transactions by the fiduciaries (and several other related parties) to such plans.
Insurance of Accounts and FDIC Regulation.  The Bank pays deposit insurance premiums to the FDIC based on an assessment rate established by the FDIC.  In 2006, the FDIC enacted various rules to implement the provisions of the Federal Deposit Insurance Reform Act of 2005 (the “FDIR Act”).  Pursuant to the FDIR Act, in 2006 the FDIC merged the Bank Insurance Fund with the Savings Association Insurance Fund to create a newly named Deposit Insurance Fund (the “DIF”) that covers both banks and savings associations.  The FDIC also revised, effective January 1, 2007, the risk-based premium system under which the FDIC classifies institutions based on the factors described below and generally assesses higher rates on those institutions that tend to pose greater risks to the DIF.  For most banks and savings associations, including the Bank, FDIC rates depend upon a combination of CAMELS component ratings and financial ratios.  CAMELS ratings reflect the applicable bank regulatory agency’s evaluation of the financial institution’s capital, asset quality, management, earnings, liquidity and sensitivity to risk.  For large banks and savings associations that have long-term debt issuer ratings, assessment rates will depend upon such ratings and CAMELS component ratings.  For institutions, such as the Bank, which are in the lowest risk category, assessment rates vary initially from five to seven basis points of deposits.  Beginning January 1, 2009, the FDIC assessment rates were raised seven basis points and vary initially from twelve to fourteen basis points of deposits.  Based on a final ruling approved by the FDIC on February 27, 2009, further rate changes will take effect on April 1, 2009, after which assessment rates will vary initially from twelve to sixteen basis points of deposits with additional adjustments which could result in total base assessment rates of seven to twenty-four basis points of deposits.  On February 27, 2009, the FDIC also issued an interim rule that provides for a twenty basis point special assessment on June 30, 2009.  The interim rule also provides that the FDIC may impose additional assessments of up to ten basis points thereafter under certain circumstances.  The Federal Deposit Insurance Act (“FDIA”), as amended by the FDIR Act, requires the FDIC to set a ratio of deposit insurance reserves to estimated insured deposits, the designated reserve ratio (the “DRR”), for a particular year within a range of 1.15% to 1.50%.  For 2008, the FDIC has set the initial DRR at 1.25%.  Under the FDIR Act and the FDIC’s revised premium assessment program, every FDIC-insured institution will pay some level of deposit insurance assessments regardless of the level of the DRR.  In 2008, FDIC deposit insurance was temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009.  The Bank’s FDIC deposit insurance costs totaled $1.0 million in 2008.  We cannot predict whether, as a result of an adverse change in economic conditions or other reasons, the FDIC will be required in the future to further increase deposit insurance assessments levels.
Bank Holding Company Support to Subsidiary Bank.  Under FRB policy, a bank holding company is expected to act as a source of financial and managerial strength to its subsidiary bank and to commit resources to its support.  This support may be required at times when the bank holding company may not have the resources to provide it.  Similarly, under the cross-guarantee provisions of the FDIA, the FDIC can hold any FDIC-insured depository institution liable for any loss suffered or anticipated by the FDIC in connection with (1) the “default” of a commonly controlled FDIC-insured depository institution; or (2) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution “in danger of default.”  The Bank is a FDIC-insured depository institution.

Regulatory Capital Requirements.  The FRB and the FDIC have issued substantially similar risk-based and leverage capital guidelines applicable to United States banking organizations.  In addition, these regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels, whether because of its financial condition or actual or anticipated growth.

The FRB risk-based guidelines define a three-tier capital framework.  Tier 1 capital includes common shareholders’ equity and qualifying preferred stock, less goodwill and other adjustments.  Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, mandatory convertible debt, limited amounts of subordinated debt, other qualifying term debt and the allowance for loan losses up to 1.25% of risk-weighted assets.  Tier 3 capital includes subordinated debt that is unsecured, fully paid, has an original maturity of at least two years, is not redeemable before maturity without prior approval by the FRB and includes a lock-in clause precluding payment of either interest or principal if the payment would cause the issuing bank’s risk-based capital ratio to fall or remain below the required minimum.  

The sum of Tier 1 and Tier 2 capital less investments in unconsolidated subsidiaries represents qualifying total capital.  Risk-based capital ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets.  Assets and off-balance sheet exposures are assigned to one of four categories of risk-weights, based primarily on relative credit risk.  The minimum Tier 1 capital ratio is 4% and the minimum total risk-based capital is 8%.  At December 31, 2008, the Corporation’s net risk-weighted assets amounted to $1.9 billion, its Tier 1 capital ratio was 11.29% and its total risk-based capital ratio was 12.54%.

The leverage ratio is determined by dividing Tier 1 capital by adjusted average total assets.  Although the stated minimum ratio is 100 to 200 basis points above 3%, banking organizations must maintain a ratio of at least 5% to be classified as “well-capitalized.”  The Corporation’s leverage ratio was 7.53% as of December 31, 2008.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, identifies five capital categories for insured depository institutions (well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the federal banking agencies (the “Agencies”) to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements within such categories.  FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified.  Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements.  An “undercapitalized” bank must develop a capital restoration plan and its parent holding company must guarantee that bank’s compliance with the plan.  The liability of the parent holding company under any such guarantee is limited to the lesser of 5% of the bank’s assets at the time it became “undercapitalized” or the amount needed to comply with the plan.  Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parent’s general unsecured creditors.  In addition, FDICIA requires the Agencies to prescribe certain non-capital standards for safety and soundness relating generally to operations and management, asset quality and executive compensation and permits regulatory action against a financial institution that does not meet such standards.

The Agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the total risk-based capital, Tier 1 risk-based capital, and leverage capital ratios as the relevant capital measures. Such regulations establish various degrees of corrective action to be taken when an institution is considered undercapitalized.  Under the regulations, a bank generally shall be deemed to be:

 “well-capitalized” if it has a total risk based capital ratio of 10.0% or greater, has a Tier 1 risk based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or greater and is not subject to any written agreement, order or capital directive or prompt corrective action directive;
“adequately capitalized” if it has a total risk based capital ratio of 8.0% or greater, a Tier 1 risk based capital ratio of 4.0% or more, and a leverage ratio of 4.0% or greater (3.0% under certain circumstances) and does not meet the definition of a “well-capitalized bank;”
“undercapitalized” if it has a total risk based capital ratio that is less than 8.0%, a Tier 1 risk based capital ratio that is less than 4.0% or a leverage ratio that is less than 4.0% (3.0% under certain circumstances);
“significantly undercapitalized” if it has a total risk based capital ratio that is less than 6.0%, a Tier 1 risk based capital ratio that is less than 3.0% or a leverage ratio that is less than 3.0%; and
“critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.

Regulators also must take into consideration (1) concentrations of credit risk; (2) interest rate risk (when the interest rate sensitivity of an institution’s assets does not match the sensitivity of its liabilities or its off-balance sheet position); and (3) risks from non-traditional activities, as well as an institution’s ability to manage those risks, when determining the adequacy of an institution’s capital.  This evaluation will be made as a part of the institution’s regular safety and soundness examination.  In addition, the Bancorp, and any bank with significant trading activity, must incorporate a measure for market risk in their regulatory capital calculations.  At December 31, 2008, the Bank’s capital ratios placed it in the well-capitalized category.  Reference is made to Note 12 to the Consolidated Financial Statements for additional discussion of the Corporation’s regulatory capital requirements.

An institution generally must file a written capital restoration plan which meets specified requirements with an appropriate FDIC regional director within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized.  An institution that is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution.  A critically undercapitalized institution generally is to be placed in conservatorship or receivership within 90 days unless the FDIC formally determines that forbearance from such action would better protect the deposit insurance fund.  Immediately upon becoming undercapitalized, an institution becomes subject to the provisions of Section 38 of the FDIA, including for example, (i) restricting the payment of capital distributions and management fees, (ii) requiring that the FDIC monitor the condition of the institution and its efforts to restore its capital, (iii) requiring submission of a capital restoration plan, (iv) restricting growth of the institution’s assets and (v) requiring prior approval of certain expansion proposals.

The Agencies issued a final rule entitled “Risk-Based Capital Standards: Advanced Capital Adequacy Framework - Basel II” (“Basel II”), which became effective on April 1, 2008 and “core banks” (“core banks” are the approximately 20 largest U.S. bank holding companies) were required to adopt a board-approved plan to implement Basel II by October 1, 2008.  Basel II will result in significant changes to the risk based capital standards for "core banks” subject to Basel II and other banks that elect to use such rules to calculate their risk-based capital requirements.  In connection with Basel II, the Agencies published a joint notice of proposed rulemaking entitled "Risk-Based Capital Guidelines; Capital Adequacy Guidelines: Standardized Framework" on July 29, 2008 (the "Standardized Approach Proposal").  The Standardized Approach Proposal, if adopted by the Agencies, would provide all non-core banks with an optional framework, based upon the standardized approach under the international Basel II Accord, for calculating their risk-based capital requirements.  The Bank does not currently expect to calculate their capital ratios under Basel II or in accordance with the Standardized Approach Proposal. Accordingly, the Corporation is not yet in a position to determine the effect of such rules on its risk capital requirements.

Transactions with Affiliates.  Under Sections 23A and 23B of the Federal Reserve Act and Regulation W thereunder, there are various legal restrictions on the extent to which a bank holding company and its nonbank subsidiaries may borrow, obtain credit from or otherwise engage in “covered transactions” with its FDIC-insured depository institution subsidiaries.  Such borrowings and other covered transactions by an insured depository institution subsidiary (and its subsidiaries) with its nondepository institution affiliates are limited to the following amounts:

In the case of one such affiliate, the aggregate amount of covered transactions of the insured depository institution and its subsidiaries cannot exceed 10% of the capital stock and surplus of the insured depository institution.
In the case of all affiliates, the aggregate amount of covered transactions of the insured depository institution and its subsidiaries cannot exceed 20% of the capital stock and surplus of the insured depository institution.

“Covered transactions” are defined by statute for these purposes to include a loan or extension of credit to an affiliate, a purchase of or investment in securities issued by an affiliate, a purchase of assets from an affiliate unless exempted by the FRB, the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any person or company, or the issuance of a guarantee, acceptance, or letter of credit on behalf of an affiliate.  Covered transactions are also subject to certain collateral security requirements.  Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property of any kind, or furnishing of any service.

Limitations on Bank Dividends.  The Bancorp’s revenues consist primarily of cash dividends paid to it by the Bank.  The FDIC has the authority to use its enforcement powers to prohibit a bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice.  Federal law also prohibits the payment of dividends by a bank that will result in the bank failing to meet its applicable capital requirements on a pro forma basis.  Payment of dividends by a bank is also restricted pursuant to various state regulatory limitations.  Reference is made to Note 12 to the Consolidated Financial Statements for additional discussion of the Corporation’s ability to pay dividends.

Customer Information Security.  The Agencies have adopted final guidelines for establishing standards for safeguarding nonpublic personal information about customers.  These guidelines implement provisions of GLBA, which establishes a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the BHCA framework.  Specifically, the Information Security Guidelines established by the GLBA require each financial institution, under the supervision and ongoing oversight of its Board of Directors or an appropriate committee thereof, to develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, to protect against any anticipated threats or hazards to the security or integrity of such information, and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.  The federal banking regulators have issued guidance for banks on response programs for unauthorized access to customer information.  This guidance, among other things, requires notice to be sent to customers whose “sensitive information” has been compromised if unauthorized use of this information is “reasonably possible”.  A majority of states have enacted legislation concerning breaches of data security and Congress is considering federal legislation that would require consumer notice of data security breaches.

Privacy.  The GLBA requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to nonaffiliated third parties.  In general, the statute requires the financial institution to explain to consumers its policies and procedures regarding the disclosure of such nonpublic personal information, and, except as otherwise required by law, the financial institution is prohibited from disclosing such information except as provided in its policies and procedures.

USA Patriot Act of 2001 (the “Patriot Act”).  The Patriot Act, designed to deny terrorists and others the ability to obtain anonymous access to the United States financial system, has significant implications for depository institutions, broker-dealers, mutual funds, insurance companies and businesses of other types involved in the transfer of money.  The Patriot Act, together with the implementing regulations of various federal regulatory agencies, has caused financial institutions, including banks, to adopt and implement additional, or amend existing, policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity and currency transaction reporting, customer identity verification and customer risk analysis.  The statute and its underlying regulations also permit information sharing for counter-terrorist purposes between federal law enforcement agencies and financial institutions, as well as among financial institutions, subject to certain conditions, and require the FRB (and other federal banking agencies) to evaluate the effectiveness of an applicant and a target institution in combating money laundering activities when considering applications filed under Section 3 of the BHCA or the Bank Merger Act.  In 2006, final regulations under the Patriot Act were issued requiring financial institutions, including the Bank, to take additional steps to monitor their correspondent banking and private banking relationships as well as their relationships with “shell Banks.”  Management believes that the Corporation is in compliance with all the requirements prescribed by the Patriot Act and all applicable final implementing regulations.

The Community Reinvestment Act (the “CRA”).  The CRA requires lenders to identify the communities served by the institution’s offices and other deposit taking facilities and to make loans and investments and provide services that meet the credit needs of these communities.  Regulatory agencies examine each of the banks and rate such institutions’ compliance with CRA as “Outstanding”, “Satisfactory”, “Needs to Improve” or “Substantial Noncompliance”.  Failure of an institution to receive at least a “Satisfactory” rating could inhibit an institution or its holding company from undertaking certain activities, including engaging in activities newly permitted as a financial holding company under GLBA and acquisitions of other financial institutions.  The FRB must take into account the record of performance of banks in meeting the credit needs of the entire community served, including low and moderate income neighborhoods.  The Bank has achieved a rating of “Satisfactory” on its most recent examination dated November 2006.  Rhode Island and Connecticut also have enacted substantially similar community reinvestment requirements.

Regulation R.  The FRB approved Regulation R implementing the bank broker push out provisions under Title II of the GLBA.  GLBA provided 11 exceptions from the definition of “broker” in Section 3(a)(4) of the Exchange Act that permit banks not registered as broker-dealers with the SEC to effect securities transactions under certain conditions.  Regulation R implements certain of these exceptions.  In 2007, the SEC also approved Regulation R.  The Bank began complying with Regulation R on the first day of the bank’s fiscal quarter starting after September 30, 2008.  The FRB and SEC have stated that they will jointly issue any interpretations or no-action

letters/guidance regarding Regulation R and consult with each other and the appropriate federal banking agency with respect to formal enforcement actions pursuant to Regulation R.
Regulatory Enforcement Authority.  The enforcement powers available to the Agencies include, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined.  In general, these enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices.  Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.  Under certain circumstances, federal and state law requires public disclosure and reports of certain criminal offenses and also final enforcement actions by the Agencies.

Identity Theft Red Flags.  The Agencies jointly issued final rules and guidelines in 2007 implementing Section 114 (“Section 114”) of the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”) and final rules implementing Section 315 (“Section 315”) of the FACT Act.  Section 114 requires each financial institution or creditor to develop and implement a written Identity Theft Prevention Program (the “Program”) to detect, prevent, and mitigate identity theft in connection with the opening of certain accounts or certain existing accounts.  Section 114 also requires credit and debit card issuers to assess the validity of notifications of changes of address under certain circumstances.  The Agencies issued joint rules under Section 315 that provide guidance regarding reasonable policies and procedures that a user of consumer reports must employ when a consumer reporting agency sends the user a notice of address discrepancy.  The final rules and guidelines became effective January 1, 2008 with a mandatory compliance deadline for the Bank of November 1, 2008.

Fair Credit Reporting Affiliate Marketing Regulations.  In 2007, the Agencies published final rules to implement the affiliate marketing provisions in Section 214 of the FACT Act, which amends the Fair Credit Reporting Act.  The final rules generally prohibit a person from using information received from an affiliate to make a solicitation for marketing purposes to a consumer, unless the consumer is given notice and a reasonable opportunity and a reasonable and simple method to opt out of the making of such solicitations.  These rules became effective January 1, 2008 with a mandatory compliance deadline for the Bank of October 1, 2008.

The Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”).  Sarbanes-Oxley implemented a broad range of corporate governance and accounting measures for public companies (including publicly-held bank holding companies such as Bancorp) designed to promote honesty and transparency in corporate America.  Sarbanes-Oxley’s principal provisions, many of which have been interpreted through regulations released in 2003, provide for and include, among other things, (1) requirements for audit committees, including independence and financial expertise; (2) certification of financial statements by the principal executive officer and principal financial officer of the reporting company; (3) standards for auditors and regulation of audits; (4) disclosure and reporting requirements for the reporting company and directors and executive officers; and (5) a range of civil and criminal penalties for fraud and other violations of securities laws.
Securities and Exchange Commission Availability of Filings
Under Sections 13 and 15(d) of the Exchange Act, periodic and current reports must be filed or furnished with the SEC.  You may read and copy any reports, statements or other information filed by Washington Trust with the SEC at its public reference room at 100 F Street, N.E., Washington, D.C. 20549.  Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms.  Washington Trust’s filings are also available to the public from commercial document retrieval services and at the website maintained by the SEC at  In addition, Washington Trust makes available free of charge on the Investor Relations section of its website ( its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and exhibits and amendments to those reports as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.  Information on the Washington Trust website is not incorporated by reference into this Annual Report on Form 10-K.

Item 1A  Risk Factors
In addition to the other information contained or incorporated by reference in this Annual Report on Form 10-K, you should consider the following factors relating to the business of the Corporation.


Interest Rate Volatility May Reduce Our Profitability
Our consolidated results of operations depend, to a large extent, on the level of net interest income, which is the difference between interest income from interest-earning assets, such as loans and investments, and interest expense on interest-bearing liabilities, such as deposits and borrowings.  If interest rate fluctuations cause the cost of interest-bearing liabilities to increase faster than the yield on interest-earning assets, then our net interest income will decrease.  If the cost of interest-bearing liabilities declines faster than the yield on interest-earning assets, then our net interest income will increase.

We measure our interest rate risk using simulation analyses with particular emphasis on measuring changes in net income and net economic value in different interest-rate environments.  The simulation analyses incorporate assumptions about balance sheet changes, such as asset and liability growth, loan and deposit pricing and changes due to the mix and maturity of such assets and liabilities.  Other key assumptions relate to the behavior of interest rates and spreads, prepayments of loans and the run-off of deposits.  These assumptions are inherently uncertain and, as a result, the simulation analyses cannot precisely estimate the impact that higher or lower rate environments will have on net income.  Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, changes in cash flow patterns and market conditions, as well as changes in management’s strategies.

While various monitors of interest-rate risk are employed, we are unable to predict future fluctuations in interest rates or the specific impact thereof.  The market values of most of our financial assets are sensitive to fluctuations in market interest rates.  Fixed-rate investments, mortgage-backed securities and mortgage loans typically decline in value as interest rates rise.  Prepayments on mortgage-backed securities may adversely affect the value of such securities and the interest income generated by them.

Changes in interest rates can also affect the amount of loans that we originate, as well as the value of loans and other interest-earning assets and our ability to realize gains on the sale of such assets and liabilities.  Prevailing interest rates also affect the extent to which our borrowers prepay their loans. When interest rates increase, borrowers are less likely to prepay their loans, and when interest rates decrease, borrowers are more likely to prepay loans.  Funds generated by prepayments might be reinvested at a less favorable interest rate.  Prepayments may adversely affect the value of mortgage loans, the levels of such assets that are retained in our portfolio, net interest income, loan servicing income and capitalized servicing rights.

Increases in interest rates might cause depositors to shift funds from accounts that have a comparatively lower cost, such as regular savings accounts, to accounts with a higher cost, such as certificates of deposit. If the cost of interest-bearing deposits increases at a rate greater than the yields on interest-earning assets increase, our net interest income will be negatively affected.  Changes in the asset and liability mix may also affect our net interest income.

Our principal sources of funding are deposits and borrowings.  As a general matter, deposits are a lower cost source of funds than borrowings because interest rates paid for deposits are typically less than interest rates charged for borrowings.  If, as a result of general economic conditions, market interest rates, competitive pressures or otherwise, the level of our deposits were to decline relative to the total sources of funds, we may have to rely more heavily on higher cost borrowings in the future.

For additional discussion on interest rate risk, see disclosures in Item 7 under the caption "Asset / Liability Management and Interest Rate Risk."

The Market Value of Wealth Management Assets under Administration May Be Negatively Affected by Changes in Economic and Market Conditions
Revenues from wealth management services represented 27% of our total revenues for 2008.  A substantial portion of these fees are dependent on the market value of wealth management assets under administration, which are primarily marketable securities.  Changes in domestic and foreign economic conditions, volatility in financial markets, and general trends in business and finance, all of which are beyond our control, could adversely impact the market value of these assets and the fee revenues derived from the management of these assets.

We May Not Be Able to Attract and Retain Wealth Management Clients at Current Levels
Due to strong competition, our wealth management division may not be able to attract and retain clients at current levels.  Competition is strong because there are numerous well-established and successful investment management and wealth advisory firms including commercial banks and trust companies, investment advisory firms, mutual fund companies, stock brokerage firms, and other financial companies.  Many of our competitors have greater resources than we have.

Our ability to successfully attract and retain wealth management clients is dependent upon our ability to compete with competitors’ investment products, level of investment performance, client services and marketing and distribution capabilities.  If we are not successful, our results of operations and financial condition may be negatively impacted.

Wealth management revenues are primarily derived from investment management (including mutual funds), trust fees and financial planning services.  Most of our investment management clients may withdraw funds from accounts under management generally at their sole discretion.  Financial planning contracts must typically be renewed on an annual basis and are terminable upon relatively short notice.  The financial performance of our wealth management business is a significant factor in our overall results of operations and financial condition.

Our Allowance for Loan Losses May Not Be Adequate to Cover Actual Loan Losses
We make various assumptions and judgments about the collectibility of our loan portfolio and provide an allowance for potential losses based on a number of factors.  If our assumptions are wrong, our allowance for loan losses may not be sufficient to cover our losses, which would have an adverse effect on our operating results, and may also cause us to increase the allowance in the future.  Material additions to our allowance would materially decrease our net income.  In addition to general real estate and economic factors, the following factors could affect our ability to collect our loans and require us to increase the allowance in the future:

Regional credit concentration - We are exposed to real estate and economic factors in southern New England, because a significant portion of our loan portfolio is concentrated among borrowers in this market.  Further, because a substantial portion of our loan portfolio is secured by real estate in this area, including residential mortgages, most consumer loans, commercial mortgages and other commercial loans, the value of our collateral is also subject to regional real estate market conditions and other factors that might affect the value of real estate, including natural disasters.

Industry concentration - A portion of our loan portfolio consists of loans to the hospitality, tourism and recreation industries.  Loans to companies in these industries may have a somewhat higher risk of loss than some other industries because these businesses are seasonal, with a substantial portion of commerce concentrated in the summer season.  Accordingly, the ability of borrowers to meet their repayment terms is more dependent on economic, climate and other conditions and may be subject to a higher degree of volatility from year to year.

Volatility in the financial markets associated with subprime mortgages, including adverse impacts on credit quality and liquidity within the financial markets, have been associated with a general decline in the real estate and housing market along with significant mortgage loan related losses reported by many other financial institutions.  Global and domestic economic conditions have been adversely affected by these factors.  No assurance can be given that these conditions will not result in an increase in delinquencies with a negative impact on our loan loss experience, necessitating an increase in our allowance for loan losses.

Federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize additional charge-offs.  Any increase in our allowance for loan losses or loan charge-offs required by these regulatory agencies could have a material adverse effect on our results of operations and financial condition.


For a more detailed discussion on the allowance for loan losses, see additional information disclosed in Item 7 under the caption “Application of Critical Accounting Policies and Estimates.”

We Have Credit Risk Inherent in Our Securities Portfolio
We maintain a diversified securities portfolio, which includes mortgage-backed securities issued by U.S. government and government sponsored agencies, obligations of the U.S. Treasury and government-sponsored agencies, securities issued by state and political subdivisions, trust preferred debt securities primarily issued by financial service companies, and corporate debt securities.  We also invest in capital securities, which include common and perpetual preferred stocks.  We seek to limit credit losses in our securities portfolios by generally purchasing only highly-rated securities.

The current economic environment and recent volatility of financial markets increase the difficulty of assessing investment securities impairment and the same influences tend to increase the risk of potential impairment of these assets.  During the year ended December 31, 2008, we recorded charges for other-than-temporary impairment of securities of $5.9 million.  We believe we have adequately reviewed our investment securities for impairment and that our investment securities are carried at fair value.  However, over time, the economic and market environment may provide additional insight regarding the fair value of certain securities, which could change our judgment regarding impairment.  This could result in realized losses relating to other-than-temporary declines being charged against future income.  Given the current market conditions and the significant judgments involved, there is continuing risk that further declines in fair value may occur and additional material other-than-temporary impairments may be charged to income in future periods, resulting in realized losses.

We May Not Be Able to Compete Effectively Against Larger Financial Institutions in Our Increasingly Competitive Industry
The financial services industry in our market has experienced both significant concentration and deregulation.  This means that we compete with larger bank and non-bank financial institutions for loans and deposits in the communities we serve, and we may face even greater competition in the future due to legislative, regulatory and technological changes and continued consolidation.  Many of our competitors have significantly greater resources and lending limits than we have.  Banks and other financial services firms can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service.  In addition, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automated transfer and automatic payment systems.  Many competitors have fewer regulatory constraints and may have lower cost structures than we do.  Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can.  Our long-term success depends on the ability of the Bank to compete successfully with other financial institutions in the Bank’s service areas.

Economic Conditions
National and local economic conditions have an impact on the banking and financial services industry, including those of the Corporation.  The Corporation’s operating results depend to a large extent on providing products and services to customers in our local market area.  Unemployment rates, real estate values, demographic changes, property tax rates, and local and state governments have an impact on local and regional economic conditions.  An increase in unemployment, a decrease in real estate values, an increase in property tax rates, or decrease in population could weaken the local economies in which the Corporation operates.  Weak economic conditions could lead to credit quality concerns related to repayment ability and collateral protection.  These conditions could also affect the Corporation’s ability to retain or grow deposits.

Current Levels of Market Volatility Are Unprecedented.
The capital and credit markets have been experiencing volatility and disruption for more than 12 months, recently reaching unprecedented levels.  In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength.  If current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations.

Operational Risk
The Corporation is subject to certain operational risks, including, but not limited to, data processing system failures and errors, customer or employee fraud and catastrophic failures resulting from terrorist acts or natural disasters. The Corporation depends upon data processing, software, communication, and information exchange on a variety of computing platforms and networks and over the Internet.  Despite instituted safeguards, the Corporation cannot be certain that all of its systems are entirely free from vulnerability to attack or other technological difficulties or failures. If information security is breached or other technology difficulties or failures occur, information may be lost or misappropriated, services and operations may be interrupted and the Corporation could be exposed to claims from customers. While the Corporation maintains a system of internal controls and procedures, any of these results could have a material adverse effect on the Corporation's business, financial condition, results of operations or liquidity.

Technological Development and Changes
The financial services industry is subject to rapid technological changes with frequent introductions of new technology driven products and services. In addition to improving the Corporation's ability to serve customers, the effective use of technology increases efficiencies and helps to maintain or reduce expenses. The Corporation's ability to keep pace with technological changes affecting the financial industry and to introduce new products and services based on this new technology will be important to the Corporation's continued success.

Changes in Legislation and/or Regulation and Accounting Principles, Policies and Guidelines
Changes in legislation and/or regulation governing financial holding companies and their subsidiaries could affect our operations.  The Corporation is subject to extensive federal and state laws and regulations and is subject to supervision, regulation and examination by various federal and state bank regulatory agencies.  The restrictions imposed by such laws and regulations limit the manner in which the Corporation may conduct business. There can be no assurance that any modification of these laws and regulations, or new legislation that may be enacted in the future, will not make compliance more difficult or expensive, or otherwise adversely affect the operations of the Corporation.  See the section entitled "Supervision and Regulation" in Item 1 of this Annual Report on Form 10-K.

The Corporation is subject to tax laws and regulations promulgated by the United States government and the states in which we operate.  Changes to these laws and regulations or the interpretation of such laws and regulations by taxing authorities could impact future tax expense and the value of deferred tax assets.

Changes in GAAP applicable to the Corporation could have a material impact on the Corporation’s reported results of operations.

ITEM 1B.  Unresolved Staff Comments

GUIDE 3 Statistical Disclosures
The information required by Securities Act Guide 3 “Statistical Disclosure by Bank Holding Companies” is located on the pages noted below.
Distribution of Assets, Liabilities and Stockholder Equity;
Interest Rates and Interest Differentials
Investment Portfolio
40-41, 82
Loan Portfolio
44-48, 83
Summary of Loan Loss Experience
50-51, 85
31, 90
Return on Equity and Assets
Short-Term Borrowings

ITEM 2.  Properties
The Corporation conducts its business from seventeen offices, including its headquarters located at 23 Broad Street, Westerly, Rhode Island and offices located within Washington, Providence and Kent Counties in Rhode Island and New London County in southeastern Connecticut.  In addition, Washington Trust has a commercial lending office located in the financial district of Providence and provides wealth management services from its main office and offices located in Providence and Narragansett, Rhode Island and Wellesley, Massachusetts.  The Bank also has two

operations facilities located in Westerly, Rhode Island.  At December 31, 2008, nine of the Corporation’s facilities were owned, twelve were leased and one branch office was owned on leased land.  Lease expiration dates range from five months to fourteen years with renewal options on certain leases of two to fifteen years.  All of the Corporation’s properties are considered to be in good condition and adequate for the purpose for which they are used.

In addition to the locations mentioned above, the Bank has three owned offsite-ATMs in leased spaces.  The terms of two of these leases are negotiated annually.  The lease term for the third offsite-ATM expires in three years with no renewal option.

The Bank also operates ATMs that are branded with the Bank’s logo under contracts with a third party vendor located in retail stores and other locations in Rhode Island, southeastern Connecticut and southeastern Massachusetts.

For additional information regarding premises and equipment and lease obligations see Note 7 to the Consolidated Financial Statements.
ITEM 3.  Legal Proceedings
The Corporation is involved in various claims and legal proceedings arising out of the ordinary course of business.  Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such other matters will not materially affect the consolidated financial position or results of operations of the Corporation.
ITEM 4.  Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2008.

Executive Officers of the Registrant
The following is a list of all executive officers of the Bancorp and the Bank with their titles, ages, and years of service, followed by certain biographical information as of December 31, 2008.
Years of
John C. Warren
Chairman and Chief Executive Officer of the Bancorp and the Bank
John F. Treanor
President and Chief Operating Officer of the Bancorp and the Bank
Galan G. Daukas
Executive Vice President of Wealth Management of the Bancorp and the Bank
David V. Devault
Executive Vice President, Chief Financial Officer and Secretary of the Bancorp
and the Bank
Mark K. W. Gim
Executive Vice President and Treasurer of the Bancorp and the Bank
Stephen M. Bessette
Executive Vice President – Retail Lending of the Bank
B. Michael Rauh, Jr.
Executive Vice President –Sales, Service and Delivery of the Bank
James M. Vesey
Executive Vice President and Chief Credit Officer of the Bank
Dennis L. Algiere
Senior Vice President – Chief Compliance Officer and Director of
Community Affairs of the Bank
Vernon F. Bliven
Senior Vice President – Human Resources of the Bank
Elizabeth B. Eckel
Senior Vice President – Marketing of the Bank
William D. Gibson
Senior Vice President – Risk Management of the Bank
Barbara J. Perino, CPA
Senior Vice President – Operations and Technology of the Bank

John C. Warren joined the Bancorp and the Bank in 1996 as President and Chief Operating Officer.  In 1997, he was elected President and Chief Executive Officer of the Bancorp and the Bank.  In 1999, he was elected Chairman and Chief Executive Officer of the Bancorp and the Bank.

John F. Treanor joined the Bancorp and the Bank in 1999 as President and Chief Operating Officer.

Galan G. Daukas joined the Bancorp and the Bank in 2005 as Executive Vice President of Wealth Management.  Prior to joining Washington Trust, he held the position of Chief Operating Officer of The Managers Funds, LLC from 2002 to 2005.

David V. Devault joined the Bank in 1986 as Controller.  He was promoted to Vice President and Chief Financial Officer of the Bancorp and the Bank in 1987 and to Senior Vice President and Chief Financial Officer of the Bancorp and the Bank in 1990.  In 1997, he was also elected Treasurer of the Bancorp and the Bank.  He was named Executive Vice President, Treasurer and Chief Financial Officer of the Bancorp and the Bank in 1998.  He was appointed to the position of Secretary of the Bank in 2002 and Secretary of the Bancorp in 2005.  In 2008, his title was changed to Executive Vice President, Chief Financial Officer and Secretary of the Bancorp and the Bank.

Mark K. W. Gim joined the Bank in 1993 as Financial Planning Officer.  He was promoted to Assistant Vice President – Financial Planning of the Bank in 1995, and to Vice President – Financial Planning of the Bank in 1996.  In 2000, he was promoted to Senior Vice President – Financial Planning and Asset/Liability Management of the Bank.  He was named Executive Vice President and Treasurer of the Bancorp and the Bank in 2008.

Stephen M. Bessette joined the Bank in 1997 as Senior Vice President – Retail Lending.  He was named Executive Vice President – Retail Lending in 2005.

B. Michael Rauh, Jr. joined the Bank in 1991 as Vice President - Marketing and was promoted in 1993 to Senior Vice President - Retail Banking.  He was named Senior Vice President – Corporate Sales, Planning & Delivery in 2003.  In 2005, he was appointed Executive Vice President – Corporate Sales, Planning and Delivery.  In 2007, his title was changed to Executive Vice President, Sales, Service & Delivery.

James M. Vesey joined the Bank in 1998 as Senior Vice President – Commercial Lending.  In 2000, he was named Senior Vice President and Chief Credit Officer.  In 2007, he was appointed Executive Vice President and Chief Credit Officer.

Dennis L. Algiere joined the Bank in 1995 as Compliance Officer.  He was named Vice President – Compliance in 1996 and was promoted to Senior Vice President – Compliance and Community Affairs in 2001.  He was named Senior Vice President – Chief Compliance Officer and Director of Community Affairs in 2003.

Vernon F. Bliven joined the Bank in 1972 and was named Assistant Vice President in 1980, Vice President in 1986 and Senior Vice President – Human Resources in 1993.

Elizabeth B. Eckel joined the Bank in 1991 as Director of Advertising and Public Relations. In 1995, she was named Vice President – Marketing.  She was promoted to Senior Vice President – Marketing in 2000.

William D. Gibson joined the Bank in 1999 as Senior Vice President – Credit Administration.  In 2007, he was named Senior Vice President – Risk Management.

Barbara J. Perino joined the Bank in 1988 as Financial Accounting Officer.  She was named Controller in 1989 and Vice President - Controller in 1992.  In 1998, she was promoted to Senior Vice President – Operations and Technology.

Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
Washington Trust’s common stock trades on the NASDAQ Global SelectÒ Market under the symbol WASH.

The quarterly common stock price ranges and dividends paid per share for the years ended December 31, 2008 and 2007 are presented in the following table.  The stock prices are based on the high and low sales prices during the respective quarter.
2008 Quarters
Stock prices:
  $ 26.50     $ 26.49     $ 33.34     $ 27.30  
    21.84       19.70       18.43       16.33  
Cash dividend declared per share
  $ 0.20     $ 0.21     $ 0.21     $ 0.21  
2007 Quarters
Stock prices:
  $ 28.98     $ 27.69     $ 28.42     $ 28.65  
    25.32       23.90       22.87       23.49  
Cash dividend declared per share
  $ 0.20     $ 0.20     $ 0.20     $ 0.20  

The Bancorp will continue to review future common stock dividends based on profitability, financial resources and economic conditions.  The Bancorp (including the Bank prior to 1984) has recorded consecutive quarterly dividends for over 100 years.

The Bancorp’s primary source of funds for dividends paid to shareholders is the receipt of dividends from the Bank.  A discussion of the restrictions on the advance of funds or payment of dividends to the Bancorp is included in Note 12 to the Consolidated Financial Statements.

At February 25, 2009 there were 1,999 holders of record of the Bancorp’s common stock.

See additional disclosures on Equity Compensation Plan Information in Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

The following table provides information as of and for the quarter ended December 31, 2008 regarding shares of common stock of the Corporation that were repurchased under the Amended and Restated Nonqualified Deferred Compensation Plan (“Deferred Compensation Plan”), the 2006 Stock Repurchase Plan, the Bancorp’s 1997 Equity Incentive Plan, as amended (the “1997 Plan”), and the Bancorp’s 2003 Stock Incentive Plan, as amended (the “2003 Plan”).
Total number of shares purchased
Average price paid per share
Total number of shares purchased as part of publicly announced plan(s)
Maximum number of shares that may yet be purchased under the plan(s)
Deferred Compensation Plan (1)
Balance at beginning of period
10/1/2008 to 10/31/2008
11/1/2008 to 11/30/2008
12/1/2008 to 12/31/2008
Total Deferred Compensation Plan
2006 Stock Repurchase Plan (2)
Balance at beginning of period
10/1/2008 to 10/31/2008
11/1/2008 to 11/30/2008
12/1/2008 to 12/31/2008
Total 2006 Stock Repurchase Plan
Other (3)
Balance at beginning of period
10/1/2008 to 10/31/2008
11/1/2008 to 11/30/2008
12/1/2008 to 12/31/2008
Total Other
Total Purchases of Equity Securities
The Deferred Compensation Plan allows directors and officers to defer a portion of their compensation.  The deferred compensation is contributed to a rabbi trust that invests the assets of the trust into selected mutual funds as well as shares of the Bancorp’s common stock.  The plan authorizes Bancorp to acquire shares of Bancorp’s common stock to satisfy its obligation under this plan.  All shares are purchased in the open market.  As of October 15, 2007, the Bancorp’s common stock was no longer available as a new benchmark investment under the plan.  Further, directors and officers who currently have selected Bancorp’s common stock as a benchmark investment (the “Bancorp Stock Fund”) will be allowed to transfer from that fund during a transition period that will run through March 14, 2009.  After March 14, 2009, directors and officers will not be allowed to make transfers from the Bancorp Stock Fund and any distributions will be made in whole shares of Bancorp’s common stock to the extent of the benchmark investment election in the Bancorp Stock Fund.
The 2006 Stock Repurchase Plan was established in December 2006.  A maximum of 400,000 shares were authorized under the plan.  The Bancorp plans to hold the repurchased shares as treasury stock for general corporate purposes.
Pursuant to the Corporation’s share-based compensation plans, employees may deliver back shares of stock previously issued in payment of the exercise price of stock options.  While required to be reported in this table, such transactions are not reported as share repurchases in the Corporation’s Consolidated Financial Statements.  The share-based compensation plans (the 1997 Plan and the 2003 Plan) have expiration dates of April 29, 2017 and February 20, 2023, respectively.

ITEM 6.  Selected Financial Data
The selected consolidated financial data set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information including the Consolidated Financial Statements and related Notes, and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere in this Annual Report on Form 10-K.

Selected Financial Data
(Dollars in thousands, except per share amounts)
At or for the years ended December 31,
Financial Results:
Interest income
  $ 140,662     $ 136,434     $ 131,134     $ 115,693     $ 96,853  
Interest expense
    75,149       76,490       69,660       55,037       42,412  
Net interest income
    65,513       59,944       61,474       60,656       54,441  
Provision for loan losses
    4,800       1,900       1,200       1,200       610  
Net interest income after provision for loan losses
    60,713       58,044       60,274       59,456       53,831  
Noninterest income:
Net realized gains on securities
    2,224       455       443       389       248  
Losses on write-downs of investments to fair value
    (5,937 )                 (32 )      
Other noninterest income
    44,233       45,054       41,740       30,589       26,657  
Total noninterest income
    40,520       45,509       42,183       30,946       26,905  
Noninterest expense
    71,742       68,906       65,335       56,393       50,373  
Income before income taxes
    29,491       34,647       37,122       34,009       30,363  
Income tax expense
    7,319       10,847       12,091       10,985       9,534  
Net income
  $ 22,172     $ 23,800     $ 25,031     $ 23,024     $ 20,829  
Per share information ($):
Earnings per share:
    1.59       1.78       1.86       1.73       1.57  
    1.57       1.75       1.82       1.69       1.54  
Cash dividends declared  (1)
    0.83       0.80       0.76       0.72       0.68  
Book value
    14.75       13.97       12.89       11.86       11.44  
Tangible book value
    10.47       9.33       8.61       7.79       9.64  
Market value - closing stock price
    19.75       25.23       27.89       26.18       29.31  
Performance Ratios (%):
Return on average assets
    0.82       0.99       1.04       0.98       0.97  
Return on average shareholders’ equity
    11.12       13.48       14.99       14.80       14.40  
Average equity to average total assets
    7.35       7.33       6.93       6.62       6.73  
Dividend payout ratio  (2)
    52.87       45.71       41.76       42.60       44.16  
Asset Quality Ratios (%):
Total past due loans to total loans
    0.96       0.45       0.49       0.27       0.43  
Nonperforming loans to total loans
    0.42       0.27       0.19       0.17       0.38  
Nonperforming assets to total assets
    0.30       0.17       0.11       0.10       0.21  
Allowance for loan losses to nonaccrual loans
    305.07       471.12       693.87       742.25       354.49  
Allowance for loan losses to total loans
    1.29       1.29       1.29       1.28       1.34  
Net charge-offs (recoveries) to average loans
    0.08       0.03       0.02       (0.01 )     (0.02 )
Capital Ratios (%):
Tier 1 leverage capital ratio
    7.53       6.09       6.01       5.45       5.35  
Tier 1 risk-based capital ratio
    11.29       9.10       9.57       9.06       9.15  
Total risk-based capital ratio
    12.54       10.39       10.96       10.51       10.72  
Tangible equity to tangible assets
    5.76       5.03       4.94       4.43       5.60  
Represents historical per share dividends declared by the Bancorp.
Represents the ratio of historical per share dividends declared by the Bancorp to diluted earnings per share.

Selected Financial Data
(Dollars in thousands)
December 31,
Cash and cash equivalents
  $ 58,190     $ 41,112     $ 71,909     $ 66,163     $ 52,081  
Total securities
    866,219       751,778       703,851       783,941       890,058  
FHLB stock
    42,008       31,725       28,727       34,966       34,373  
Commercial and other
    880,313       680,266       587,397       554,734       507,711  
Residential real estate
    642,052       599,671       588,671       582,708       513,695  
    316,789       293,715       283,918       264,466       228,270  
Total loans
    1,839,154       1,573,652       1,459,986       1,401,908       1,249,676  
Less allowance for loan losses
    23,725       20,277       18,894       17,918       16,771  
Net loans
    1,815,429       1,553,375       1,441,092       1,383,990       1,232,905  
Investment in bank-owned life insurance
    43,163       41,363       39,770       30,360       29,249  
Goodwill and other intangibles
    68,266       61,912       57,374       54,372       23,900  
Other assets
    72,191       58,675       56,442       48,211       45,254  
Total assets
  $ 2,965,466     $ 2,539,940     $ 2,399,165     $ 2,402,003     $ 2,307,820  
Demand deposits
  $ 172,771     $ 175,542     $ 186,533     $ 196,102     $ 189,588  
NOW accounts
    171,306       164,944       175,479       178,677       174,727  
Money market accounts
    305,879       321,600       286,998       223,255       196,775  
Savings accounts
    173,485       176,278       205,998       212,499       251,920  
Time deposits
    967,427       807,841       822,989       828,725       644,875  
Total deposits
    1,790,868       1,646,205       1,677,997       1,639,258       1,457,885  
FHLB advances
    829,626       616,417       474,561       545,323       672,748  
Junior subordinated debentures
    32,991       22,681       22,681       22,681        
Other borrowings
    26,743       32,560       14,684       9,774       3,417  
Other liabilities
    50,127       35,564       36,186       26,521       21,918  
Shareholders' equity
    235,111       186,513       173,056       158,446       151,852  
Total liabilities and shareholders’ equity
  $ 2,965,466     $ 2,539,940     $ 2,399,165     $ 2,402,003     $ 2,307,820  
Asset Quality:
Nonaccrual loans
  $ 7,777     $ 4,304     $ 2,723     $ 2,414     $ 4,731  
Nonaccrual investment securities
Other real estate owned, net
    392                         4  
Total nonperforming assets
  $ 8,802     $ 4,304     $ 2,723     $ 2,414     $ 4,735  
Wealth Management Assets:
Market value of assets under administration
  $ 3,147,649     $ 4,014,352     $ 3,609,180     $ 3,215,763     $ 1,821,718  

Selected Quarterly Financial Data
(Dollars and shares in thousands, except per share amounts)
Interest income:
Interest and fees on loans
  $ 24,970     $ 24,406     $ 25,520     $ 26,043     $ 100,939  
Income on securities:
    8,416       8,302       8,504       9,160       34,382  
    780       786       778       781       3,125  
Dividends on corporate stock and FHLB stock
    620       489       407       366       1,882  
Other interest income
    140       50       128       16       334  
Total interest income
    34,926       34,033       35,337       36,366       140,662  
Interest expense:
    11,899       9,248       9,884       10,164       41,195  
FHLB advances
    7,299       7,794       8,011       7,790       30,894  
Junior subordinated debentures
    338       509       524       508       1,879  
Other interest expense
    314       275       274       318       1,181  
Total interest expense
    19,850       17,826       18,693       18,780       75,149  
Net interest income
    15,076       16,207       16,644       17,586       65,513  
Provision for loan losses
    450       1,400       1,100       1,850       4,800  
Net interest income after provision for loan losses
    14,626       14,807       15,544       15,736       60,713  
Noninterest income:
Wealth management services:
Trust and investment advisory fees
    5,342       5,321       5,238       4,415       20,316  
Mutual fund fees
    1,341       1,445       1,383       1,036       5,205  
Financial planning, commissions and
other service fees
    575       884       570       723       2,752  
Wealth management services
    7,258       7,650       7,191       6,174       28,273  
Service charges on deposit accounts
    1,160       1,208       1,215       1,198       4,781  
Merchant processing fees
    1,272       1,914       2,221       1,493       6,900  
Income from bank-owned life insurance
    447       453       452       448       1,800  
Net gains on loan sales and commissions
on loans originated for others
    491       433       239       233       1,396  
Net realized gains on securities
    813       1,096             315       2,224  
Losses on write-downs of investments to fair value
    (858 )     (1,149 )     (982 )     (2,948 )     (5,937 )
Net unrealized gains (losses) on interest rate
swap contracts
    119       26       (24 )     (663 )     (542 )
Other income
    342       528       278       477       1,625  
Total noninterest income
    11,044       12,159       10,590       6,727       40,520  
Noninterest expense:
Salaries and employee benefits
    10,343       10,411       10,580       9,703       41,037  
Net occupancy
    1,138       1,064       1,123       1,211       4,536  
    944       977       956       961       3,838  
Merchant processing costs
    1,068       1,598       1,857       1,246       5,769  
Outsourced services
    636       742       700       781       2,859  
Advertising and promotion
    386       467       376       500       1,729  
Legal, audit and professional fees
    543       430       626       726       2,325  
Amortization of intangibles
    326       326       320       309       1,281  
Other expenses
    1,758       2,039       1,933       2,638       8,368  
Total noninterest expense
    17,142       18,054       18,471       18,075       71,742  
Income before income taxes
    8,528       8,912       7,663       4,388       29,491  
Income tax expense
    2,712       2,817       1,623       167       7,319  
Net income
  $ 5,816     $ 6,095     $ 6,040     $ 4,221     $ 22,172  
Weighted average shares outstanding - basic
    13,358.1       13,381.1       13,409.5       15,765.4       13,981.9  
Weighted average shares outstanding - diluted
    13,560.6       13,566.7       13,588.3       15,871.6       14,146.3  
Per share information:
Basic earnings per share
  $ 0.44     $ 0.45     $ 0.45     $ 0.27     $ 1.59  
Diluted earnings per share
  $ 0.43     $ 0.45     $ 0.44     $ 0.27     $ 1.57  
Cash dividends declared per share
  $ 0.20     $ 0.21     $ 0.21     $ 0.21     $ 0.83  

Selected Quarterly Financial Data
(Dollars and shares in thousands, except per share amounts)
Interest income:
Interest and fees on loans
  $ 23,934     $ 24,414     $ 25,032     $ 25,340     $ 98,720  
Income on securities:
    7,792       7,839       7,565       7,967       31,163  
    668       759       781       775       2,983  
Dividends on corporate stock and FHLB stock
    718       685       669       665       2,737  
Other interest income
    191       184       275       181       831  
Total interest income
    33,303       33,881       34,322       34,928       136,434  
Interest expense:
    12,977       13,215       13,140       13,090       52,422  
FHLB advances
    4,968       5,112       5,243       6,318       21,641  
Junior subordinated debentures
    338       338       338       338       1,352  
Other interest expense
    150       289       291       345       1,075  
Total interest expense
    18,433       18,954       19,012       20,091       76,490  
Net interest income
    14,870       14,927       15,310       14,837       59,944  
Provision for loan losses
    300       300       300       1,000       1,900  
Net interest income after provision for loan losses
    14,570       14,627       15,010       13,837       58,044  
Noninterest income:
Wealth management services:
Trust and investment advisory fees
    5,038       5,252       5,336       5,498       21,124  
Mutual fund fees
    1,262       1,352       1,386       1,430       5,430  
Financial planning, commissions and
other service fees