form10-q20080630.htm

CONSOLIDATED BALANCE SHEETS	Unaudited
	June 30,			December 31,
	2008			2007
Assets:
Cash and noninterest-bearing balances due from banks	$	39,800		$	30,817
Interest-bearing balances due from banks		575			1,973
Federal funds sold and securities purchased under resale agreements		4,959			7,600
Other short-term investments		1,236			722
Mortgage loans held for sale		2,711			1,981
Securities available for sale, at fair value;
amortized cost $799,938 in 2008 and $750,583 in 2007		790,064			751,778
Federal Home Loan Bank stock, at cost		42,008			31,725
Loans:
Commercial and other		795,013			680,266
Residential real estate		608,351			599,671
Consumer		302,286			293,715
Total loans		1,705,650			1,573,652
Less allowance for loan losses		21,963			20,277
Net loans		1,683,687			1,553,375
Premises and equipment, net		25,170			25,420
Accrued interest receivable		10,617			11,427
Investment in bank-owned life insurance		42,262			41,363
Goodwill		50,479			50,479
Identifiable intangible assets, net		10,781			11,433
Other assets		28,640			19,847
Total assets	$	2,732,989		$	2,539,940
Liabilities:
Deposits:
Demand deposits	$	187,865		$	175,542
NOW accounts		170,733			164,944
Money market accounts		305,860			321,600
Savings accounts		177,490			176,278
Time deposits		767,594			807,841
Total deposits		1,609,542			1,646,205
Dividends payable		2,819			2,677
Federal Home Loan Bank advances		845,291			616,417
Junior subordinated debentures		32,991			22,681
Other borrowings		26,484			32,560
Accrued expenses and other liabilities		29,440			32,887
Total liabilities		2,546,567			2,353,427
Shareholders’ Equity:
Common stock of $.0625 par value; authorized 30,000,000 shares;
issued 13,503,876 shares in 2008 and 13,492,110 shares in 2007		844			843
Paid-in capital		34,852			34,874
Retained earnings		160,593			154,647
Accumulated other comprehensive loss		(7,098	)		(239	)
Treasury stock, at cost; 105,677 shares in 2008 and 137,652 shares in 2007		(2,769	)		(3,612	)
Total shareholders’ equity		186,422			186,513
Total liabilities and shareholders’ equity	$	2,732,989		$	2,539,940

The accompanying notes are an integral part of these unaudited consolidated financial statements.

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES	(Dollars and shares in thousands,
CONSOLIDATED STATEMENTS OF INCOME	except per share amounts)

	Unaudited
	Three Months						Six Months
Periods ended June 30,	2008			2007			2008			2007
Interest income:
Interest and fees on loans	$	24,406		$	24,414		$	49,376		$	48,348
Interest on securities:
Taxable		8,302			7,839			16,718			15,631
Nontaxable		786			759			1,566			1,427
Dividends on corporate stock and Federal Home Loan Bank stock		489			685			1,109			1,403
Other interest income		50			184			190			375
Total interest income		34,033			33,881			68,959			67,184
Interest expense:
Deposits		9,248			13,215			21,147			26,192
Federal Home Loan Bank advances		7,794			5,112			15,093			10,080
Junior subordinated debentures		509			338			847			676
Other interest expense		275			289			589			439
Total interest expense		17,826			18,954			37,676			37,387
Net interest income		16,207			14,927			31,283			29,797
Provision for loan losses		1,400			300			1,850			600
Net interest income after provision for loan losses		14,807			14,627			29,433			29,197
Noninterest income:
Wealth management services:
Trust and investment advisory fees		5,321			5,252			10,663			10,290
Mutual fund fees		1,445			1,352			2,786			2,614
Financial planning, commissions and other service fees		884			889			1,459			1,459
Wealth management services		7,650			7,493			14,908			14,363
Service charges on deposit accounts		1,208			1,220			2,368			2,345
Merchant processing fees		1,914			1,829			3,186			3,033
Income from bank-owned life insurance		453			399			900			790
Net gains on loan sales and commissions on loans originated for others		433			510			924			774
Net (losses) gains on securities		(53	)		(700	)		(98	)		336
Other income		554			372			1,015			730
Total noninterest income		12,159			11,123			23,203			22,371
Noninterest expense:
Salaries and employee benefits		10,411			10,285			20,754			20,097
Net occupancy		1,064			1,038			2,202			2,055
Equipment		977			861			1,921			1,693
Merchant processing costs		1,598			1,558			2,666			2,577
Outsourced services		742			535			1,378			1,054
Advertising and promotion		467			572			853			1,001
Legal, audit and professional fees		430			404			973			854
Amortization of intangibles		326			348			652			716
Debt prepayment penalties		–			–			–			1,067
Other expenses		2,039			2,159			3,797			3,755
Total noninterest expense		18,054			17,760			35,196			34,869
Income before income taxes		8,912			7,990			17,440			16,699
Income tax expense		2,817			2,508			5,529			5,242
Net income	$	6,095		$	5,482		$	11,911		$	11,457

Weighted average shares outstanding – basic		13,381.1			13,339.6			13,369.6			13,375.7
Weighted average shares outstanding – diluted		13,567.0			13,616.4			13,550.9			13,667.6
Per share information:
Basic earnings per share	$	0.45		$	0.41		$	0.89		$	0.86
Diluted earnings per share	$	0.45		$	0.40		$	0.88		$	0.84
Cash dividends declared per share	$	0.21		$	0.20		$	0.41		$	0.40
The accompanying notes are an integral part of these unaudited consolidated financial statements.

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES		(Dollars in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
		Unaudited
Six months ended June 30,		2008			2007
Cash flows from operating activities:
Net income		$	11,911		$	11,457
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			1,850			600
Depreciation of premises and equipment			1,505			1,464
Net amortization of premium and discount			520			354
Amortization of intangibles			652			716
Share-based compensation			186			323
Non-cash charitable contribution			–			520
Earnings from bank-owned life insurance			(900	)		(790	)
Net gains on loan sales			(924	)		(774	)
Net losses (gains) on securities			98			(336	)
Proceeds from sales of loans			35,406			28,293
Loans originated for sale			(35,563	)		(29,811	)
Increase in accrued interest receivable, excluding purchased interest			990			137
Decrease increase in other assets			(682	)		(987	)
Decrease in accrued expenses and other liabilities			(4,125	)		(1,635	)
Other, net			(9	)		(2	)
Net cash provided by operating activities			10,915			9,529
Cash flows from investing activities:
Purchases of:	Mortgage-backed securities available for sale		(170,332	)		(113,649	)
	Other investment securities available for sale		(1,025	)		(33,896	)
	Other investment securities held to maturity		–			(12,882	)
Proceeds from sale of:	Mortgage-backed securities available for sale		–			47,938
	Other investment securities available for sale		61,237			9,438
	Mortgage-backed securities held for sale		–			38,501
	Other investment securities held to maturity		–			21,698
Maturities and principal payments of:	Mortgage-backed securities available for sale		50,125			32,583
	Other investment securities available for sale		7,012			6,432
	Mortgage-backed securities held to maturity		–			3,191
	Other investment securities held to maturity		–			20,940
Purchase of Federal Home Loan Bank stock			(10,283	)		–
Net increase in loans			(108,041	)		(24,880	)
Proceeds from sale of loans			18,047			–
Purchases of loans, including purchased interest			(42,086	)		(4,265	)
Purchases of premises and equipment			(1,255	)		(3,450	)
Equity investment in capital trusts			(310	)		–
Payment of deferred acquisition obligation			(8,065	)		(6,720	)
Net cash used in investing activities			(204,976	)		(19,471	)
Cash flows from financing activities:
Net decrease in deposits			(36,663	)		(8,908	)
Net increase in other borrowings			1,989			19,610
Proceeds from Federal Home Loan Bank advances			705,421			391,719
Repayment of Federal Home Loan Bank advances			(476,531	)		(397,433	)
Purchases of treasury stock, including deferred compensation plan activity			43			(4,264	)
Net proceeds from the issuance of common stock under dividend reinvestment plan			295			–
Net proceeds from the exercise of stock options and issuance of other equity instruments			112			320
Tax benefit from stock option exercises and issuance of other equity instruments			192			242
Proceeds from the issuance of junior subordinated debentures, net of debt issuance costs			10,016			–
Cash dividends paid			(5,355	)		(5,237	)
Net cash provided by (used in) financing activities			199,519			(3,951	)
Net increase (decrease) in cash and cash equivalents			5,458			(13,893	)
Cash and cash equivalents at beginning of period			41,112			71,909
Cash and cash equivalents at end of period		$	46,570		$	58,016

The accompanying notes are an integral part of these unaudited consolidated financial statements.

The accounting and reporting policies of the Corporation conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices of the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to near-term change are the determination of the allowance for loan losses and the review of goodwill, other intangible assets and investments for impairment.

In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) and disclosures necessary to present fairly the Corporation’s financial position as of June 30, 2008 and December 31, 2007, respectively, and the results of operations and cash flows for the interim periods presented. Interim results are not necessarily reflective of the results of the entire year. The unaudited consolidated financial statements of the Corporation presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Washington Trust Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures of fair value measurements. SFAS No. 157 applies to the accounting principles that currently use fair value measurement and does not require any new fair value measurements. The expanded disclosures focus on the inputs used to measure fair value as well as the effect of the fair value measurements on earnings. SFAS No. 157 is effective as of the beginning of the first fiscal year beginning after November 15, 2007 and interim periods within that fiscal year. The adoption of SFAS No. 157 for financial assets and liabilities did not have a material impact on the Corporation’s financial position or results of operations. The required disclosures about fair value measurements for financial assets and liabilities have been included in Note 10. In accordance with FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157,” the effective date of SFAS No. 157 as it applies to nonfinancial assets, such as goodwill, and nonfinancial liabilities has been delayed to January 1, 2009. The Corporation is currently evaluating the impact that the adoption of SFAS No. 157 for nonfinancial assets and liabilities will have on the Corporation’s financial position and results of operations.

The SEC released Staff Accounting Bulletin (“SAB”) No. 109 in November 2007. SAB No. 109 provides guidance on written loan commitments that are accounted for at fair value through earnings. SAB No. 109 supersedes SAB No. 105, which provided guidance on derivative loan commitments pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Transactions”. SAB No. 105 stated that in measuring the fair value of a derivative loan commitment it would be inappropriate to incorporate the expected net future cash flows related to the associated loan. SAB No. 109, consistent with the guidance in SFAS No. 156 and SFAS No. 159, requires that expected net future cash flows related to the associated servicing of the loan be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The guidance in SAB No. 109 is applied on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The adoption of SAB No. 109 did not have a material impact on the Corporation’s financial position or results of operations.

The SEC released SAB No. 110 in December 2007. SAB No. 110 provides guidance on the use of a "simplified" method, as discussed in SAB No. 107, in developing an estimate of expected term of "plain vanilla" share options in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment”. SAB No. 107 did not expect a company to use the simplified method for share option grants after December 31, 2007. At the time SAB No. 107 was issued, the SEC believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. The SEC understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the SEC will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The adoption of SAB No. 110 did not have a material impact on the Corporation’s financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (1) how and why an entity uses derivative instruments, (2) how derivative instruments and related hedge items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and its related interpretations, and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. SFAS No. 161 encourages but does not require comparative disclosures for earlier periods at initial adoption. The Corporation will provide the additional disclosures necessary upon the adoption of SFAS No. 161.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. The current GAAP hierarchy is set forth in the American Institute of Certified Public Accountants Statement on Auditing Standards No. 69, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The FASB has concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB and is issuing SFAS No. 162 to achieve that result. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to Interim Auditing Standards AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The FASB does not expect that SFAS No. 162 will result in a change in current practice.

Securities available for sale with a fair value of $691.1 million and $592.7 million were pledged in compliance with state regulations concerning trust powers and to secure Treasury Tax and Loan deposits, borrowings, and certain public deposits at June 30, 2008 and December 31, 2007, respectively. In addition, securities available for sale with a fair value of $8.4 million were collateralized for the discount window at the Federal Reserve Bank at June 30, 2008 and December 31, 2007. There were no borrowings with the Federal Reserve Bank at either date. Securities available for sale with a fair value of $8.9 million and $1.9 million were designated in a rabbi trust for a nonqualified retirement plan at June 30, 2008 and December 31, 2007, respectively. As of June 30, 2008 and December 31, 2007, securities available for sale with a fair value of $525 thousand and $532 thousand, respectively, were pledged as collateral to secure certain interest rate swap agreements.

During the six months ended June 30, 2008, impairment charges of $2.0 million were recognized on four equity security perpetual preferred stock holdings, including FHLMC, FNMA and two other corporate issuers, deemed to be other-than-temporarily impaired based on an analysis of the financial condition and operating outlook of the issuers. These charges were included in net losses on securities in the Consolidated Statements of Income for the six months ended June 30, 2008. Also included in net losses on securities in the six months ended June 30, 2008 were realized gains of $232 thousand on the sale of commercial debt securities and realized gains of $1.7 million on the sale of other equity securities.

(Dollars in thousands)	Less than 12 Months						12 Months or Longer						Total
			Fair		Unrealized				Fair		Unrealized				Fair		Unrealized
At June 30, 2008		#	Value		Losses			#	Value		Losses			#	Value		Losses
Mortgage-backed securities
issued by U.S. government and government-sponsored agencies		75	$	315,997	$	3,672		19	$	44,890	$	1,626		94	$	360,887	$	5,298
States and
political subdivisions		83		62,326		1,192		4		5,368		273		87		67,694		1,465
Trust preferred securities		5		8,704		2,037		8		21,654		5,590		13		30,358		7,627
Corporate bonds		1		1,733		13		–		–		–		1		1,733		13
Subtotal, debt securities		164		388,760		6,194		31		71,912		7,489		195		460,672		14,403
Corporate stocks		3		2,615		473		8		4,115		309		11		6,730		782
Total temporarily
impaired securities		167	$	391,375	$	7,387		39	$	76,027	$	7,798		206	$	467,402	$	15,185

(Dollars in thousands)	Less than 12 Months						12 Months or Longer						Total
			Fair		Unrealized				Fair		Unrealized				Fair		Unrealized
At December 31, 2007		#	Value		Losses			#	Value		Losses			#	Value		Losses
U.S. Treasury obligations
and obligations of U.S. government-sponsored agencies		1	$	6,996	$	1		1	$	3,990	$	9		2	$	10,986	$	10
Mortgage-backed securities
issued by U.S. government and government-sponsored agencies		22		108,630		1,028		46		110,348		1,680		68		218,978		2,708
States and
political subdivisions		13		12,402		128		10		7,681		111		23		20,083		239
Trust preferred securities		8		23,167		2,769		5		11,287		772		13		34,454		3,541
Subtotal, debt securities		44		151,195		3,926		62		133,306		2,572		106		284,501		6,498
Corporate stocks		5		5,258		1,495		4		1,304		233		9		6,562		1,728
Total temporarily
impaired securities		49	$	156,453	$	5,421		66	$	134,610	$	2,805		115	$	291,063	$	8,226

In accordance with applicable accounting literature, Washington Trust must demonstrate an ability and intent to hold temporarily impaired securities until full recovery of their cost basis to classify such losses as temporary. Management uses both internal and external information sources to arrive at the most informed decision. This quantitative and qualitative assessment begins with a review of general market conditions and changes to market conditions, credit, investment performance and structure since the prior review period. The ability to hold temporarily impaired securities will involve a number of factors, including: forecasted recovery period based on average life and Washington Trust’s capital, earnings and cash flow positions, among other things. Washington Trust currently intends to hold all temporarily impaired securities to full recovery of the cost basis, which may be until maturity.

Included in debt securities in an unrealized loss position at June 30, 2008 are 13 trust preferred security holdings. These holdings represent seven individual name issuers in the financial industry, including, where applicable, the impact of mergers and acquisitions of issuers subsequent to original purchase, and two pooled trust preferred securities in the form of collateralized debt obligations (“CDO”). The aggregate unrealized loss position of the 13 trust preferred holdings was $7.6 million, or 20.1% of amortized cost, as of June 30, 2008. The largest unrealized loss dollar amount of any single issuer was $2.1 million, or 21% of its amortized cost, at June 30, 2008. Management believes the June 30, 2008 temporary impairment on trust preferred securities, including the trust preferred CDOs, was not a function of underlying credit issues associated with the issuers of the debt obligations and primarily reflected increased investor concerns beginning in the latter part of 2007 and continuing into 2008 about recent losses in the financial services industry related to sub-prime lending and sub-prime exposure. These concerns resulted in a substantial decrease in market liquidity and increased risk premiums for securities in this sector. Credit spreads for issuers in this sector widened substantially during recent months, causing prices for these securities holdings to decline. As recently as September 30, 2007, the aggregate unrealized loss position of the 13 trust preferred holdings was 6.3% of amortized cost and the aggregate unrealized loss position at December 31, 2007 was 9.3% of amortized cost for these holdings. As of June 30, 2008, the amortized cost and fair value of the two trust preferred CDO holdings was $7.5 million and $5.7 million, respectively. The CDO holdings consist of trust preferred obligations of banking industry companies and, to a lesser extent, insurance industry companies. Valuations of the trust preferred CDO holdings are also dependent in part on cash flows from underlying issuers. Unexpected cash flow disruptions could have an adverse impact on the fair value and performance of these CDOs. For both of its trust preferred CDO holdings, Washington Trust’s investment is senior to one or more subordinated tranches which have first loss exposure. The Corporation does not believe it is likely to experience any loss of principal on these CDO investments given the protection that the subordinated classes provide and therefore considers these securities to be temporarily impaired. All trust preferred debt securities in our portfolio continue to accrue and make payments as expected, and all have credit ratings at or above investment grade minimums. Washington Trust has the ability and intent to hold these securities to full recovery of the cost basis and management does not consider these investments to be other-than-temporarily impaired.

The unrealized losses on U.S. agency or government-sponsored agency mortgage-backed securities was concentrated in securities purchased during 2003 and 2004, during which time interest rates were at or near historical lows. The fair value for these and the state and municipal holdings included in this analysis have declined due to the relative increase in short and medium term interest rates since the time of purchase. The largest unrealized loss percentage amount on any holding in these categories was 5.5% of its amortized cost at June 30, 2008. Management believes that the nature and duration of impairment on these debt security holdings are a function of changes in investment spreads and interest rate movements. Washington Trust has the ability and intent to hold these securities to full recovery of the cost basis and management does not consider these investments to be other-than-temporarily impaired.

The equity securities in an unrealized loss position at June 30, 2008 consisted of 11 holdings of financial and commercial entities with unrealized losses of $782 thousand, or 10% of their aggregate cost. During the six months ended June 30, 2008, Washington Trust recorded $2.0 million in impairment charges on four perpetual preferred stock holdings, including FHLMC, FNMA and two other corporate issuers, based on an analysis of the financial condition and operating outlook of the issuers. As of June 30, 2008, the Corporation had two perpetual preferred stock holdings of FHLMC and FNMA with a total fair value of $1.0 million and unrealized losses of $34 thousand and seven perpetual preferred stock holdings of financial and utility companies with a total fair value of $4.6 million and unrealized losses of $478 thousand. Causes of conditions whereby the fair value of equity securities is less than cost include the timing of purchases and changes in valuation specific to individual industries or issuers. The relationship between the level of market interest rates and the dividend rates paid on individual equity securities may also be a

contributing factor. Management believes that a portion of the June 30, 2008 temporary impairment on its equity securities holdings was not a function of the financial condition and operating outlook of the issuers and reflected increased investor concerns beginning in the latter part of 2007 and continuing into 2008 about recent losses in the financial services industry related to sub-prime lending and sub-prime exposure. These concerns resulted in greater volatility in market prices for both common and preferred stocks in this market sector. Washington Trust has the ability and intent to hold these investments to full recovery of the cost basis and considers the unrealized losses on these equity securities to be temporary.

In addition to outstanding advances, the Corporation also has access to an unused line of credit amounting to $8.0 million at June 30, 2008. Under an agreement with the FHLB, the Corporation is required to maintain qualified collateral, free and clear of liens, pledges, or encumbrances that, based on certain percentages of book and market values, has a value equal to the aggregate amount of the line of credit and outstanding advances (“FHLB borrowings”). The FHLB maintains a security interest in various assets of the Corporation including, but not limited to, residential mortgages loans, U.S. government or agency securities, U.S. government-sponsored agency securities, and amounts maintained on deposit at the FHLB. The Corporation maintained qualified collateral in excess of the amount required to collateralize the line of credit and outstanding advances at June 30, 2008. Included in the collateral were securities available for sale with a fair value of $565.7 million and $476.8 million that were specifically pledged to secure FHLB borrowings at June 30, 2008 and December 31, 2007, respectively. Unless there is an event of default under the agreement with the FHLB, the Corporation may use, encumber or dispose of any portion of the collateral in excess of the amount required to secure FHLB borrowings, except for that collateral that has been specifically pledged.

In April 2008, the Bancorp sponsored the creation of Washington Preferred Capital Trust (“Washington Preferred”). Washington Preferred is a Delaware statutory trust created for the sole purpose of issuing trust preferred securities and investing the proceeds in junior subordinated debentures of the Bancorp. The Bancorp is the owner of all of the common securities of Washington Preferred. In accordance with FASB Interpretation 46-R, “Consolidation of Variable Interest Entities—Revised”, Washington Preferred will be treated as an unconsolidated subsidiary. The common stock investment in the statutory trust will be included in “Other Assets” in the Consolidated Balance Sheet.

The Stock Purchase Agreement for the August 2005 acquisition of Weston Financial Group, Inc. (“Weston Financial”) provides for the payment of contingent purchase price amounts based on operating results in each of the years in the three-year earn-out period ending December 31, 2008. Contingent payments are added to goodwill and recorded as deferred acquisition liabilities at the time the payments are determinable beyond a reasonable doubt. Deferred acquisition obligations amounted to $1.9 million and $9.9 million at June 30, 2008 and December 31, 2007, respectively. In the first quarter of 2008 the Corporation paid approximately $8.1 million pursuant to the Stock Purchase Agreement, which represented the 2007 earn-out payment.

(Dollars in thousands)	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2008:
Total Capital (to Risk-Weighted Assets):
Corporation	$	184,998		10.69	%	$	138,383		8.00	%	$	172,979		10.00	%
Bank	$	185,701		10.75	%	$	138,259		8.00	%	$	172,824		10.00	%
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	$	163,368		9.44	%	$	69,191		4.00	%	$	103,787		6.00	%
Bank	$	164,090		9.49	%	$	69,130		4.00	%	$	103,694		6.00	%
Tier 1 Capital (to Average Assets): (1)
Corporation	$	163,368		6.32	%	$	103,320		4.00	%	$	129,150		5.00	%
Bank	$	164,090		6.36	%	$	103,249		4.00	%	$	129,062		5.00	%

As of December 31, 2007:
Total Capital (to Risk-Weighted Assets):	$	167,061		10.39	%	$	128,648		8.00	%	$	160,810		10.00	%
Corporation	$	174,750		10.87	%	$	128,574		8.00	%	$	160,717		10.00	%
Bank
Tier 1 Capital (to Risk-Weighted Assets):	$	146,393		9.10	%	$	64,324		4.00	%	$	96,486		6.00	%
Corporation	$	154,093		9.59	%	$	64,287		4.00	%	$	96,430		6.00	%
Bank
Tier 1 Capital (to Average Assets): (1)	$	146,393		6.09	%	$	96,088		4.00	%	$	120,110		5.00	%
Corporation	$	154,093		6.42	%	$	96,042		4.00	%	$	120,053		5.00	%
Bank

As of June 30, 2008, Bancorp has sponsored the creation of three statutory trusts for the sole purpose of issuing trust preferred securities and investing the proceeds in junior subordinated debentures of the Bancorp. In accordance with FASB Interpretation 46-R, “Consolidation of Variable Interest Entities – Revised” (“FIN 46-R”), these statutory trusts created by Bancorp are not consolidated into the Corporation’s financial statements; however, the Corporation reflects the amounts of junior subordinated debentures payable to the preferred shareholders of statutory trusts as debt in its financial statements. The trust preferred securities qualify as Tier 1 capital.

The Corporation’s capital ratios at June 30, 2008 place the Corporation in the “well-capitalized” category according to regulatory standards. On March 1, 2005, the Federal Reserve Board issued a final rule that would retain trust preferred securities in Tier 1 capital of bank holding companies, but with stricter quantitative limits and clearer standards. Under the proposal, after a five-year transition period that would end on March 31, 2009, the aggregate amount of trust preferred securities would be limited to 25% of Tier 1 capital elements, net of goodwill. The Corporation has evaluated the potential impact of such a change on its Tier 1 capital ratio and has concluded that the regulatory capital treatment of the trust preferred securities in the Corporation’s total capital ratio would be unchanged.

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to manage the Corporation’s exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, financial guarantees, interest rate swap agreements and commitments to originate and commitments to sell fixed rate mortgage loans. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Corporation’s Consolidated Balance Sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The contractual and notional amounts of financial instruments with off-balance sheet risk are as follows:

(Dollars in thousands)	June 30, 2008		December 31, 2007
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
Commercial loans	$	163,584	$	149,465
Home equity lines		180,322		176,284
Other loans		22,765		20,770
Standby letters of credit		8,111		8,048
Financial instruments whose notional amounts exceed the amount of credit risk:
Forward loan commitments:
Commitments to originate fixed rate mortgage loans to be sold		3,279		3,495
Commitments to sell fixed rate mortgage loans		6,012		5,472
Customer related derivative contracts:
Interest rate swaps with customers		14,115		3,850
Mirror swaps with counterparties		14,115		3,850
Interest rate risk management contract:
Interest rate swap		10,000		–

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Under the standby letters of credit, the Corporation is required to make payments to the beneficiary of the letters of credit upon request by the beneficiary contingent upon the customer’s failure to perform under the terms of the underlying contract with the beneficiary. Standby letters of credit extend up to five years. At June 30, 2008 and December 31, 2007, the maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered, totaled $8.1 million and $8.0 million, respectively. At June 30, 2008 and December 31, 2007, there was no liability to beneficiaries resulting from standby letters of credit. Fee income on standby letters of credit for the six months ended June 30, 2008 and 2007 was insignificant.

Interest rate swaps are used from time to time as part of the Corporation’s interest rate risk management strategy. Swaps are agreements in which the Corporation and another party agree to exchange interest payments (e.g., fixed-rate for variable-rate payments) computed on a notional principal amount. The credit risk associated with swap transactions is the risk of default by the counterparty. To minimize this risk, the Corporation enters into interest rate agreements only with highly rated counterparties that management believes to be creditworthy. The notional amounts of these agreements do not represent amounts exchanged by the parties and thus, are not a measure of the potential loss exposure.

At June 30, 2008 and December 31, 2007, Washington Trust had interest rate swap contracts with commercial loan borrowers with notional amounts of $14.1 million and $3.850 million, respectively, and equal amounts of “mirror” swap contracts with third-party financial institutions. These interest rate swap contracts are carried at fair value with changes recorded as a component of other noninterest income. The fair values of the interest rate swap contracts with commercial loan borrowers amounted to $21 thousand as of June 30, 2008 and $60 thousand as of December 31, 2007. The fair values of the “mirror” swap contracts with third-party financial institutions totaled $3 thousand as of June 30, 2008 and $60 thousand as of December 31, 2007. For the six months ended June 30, 2008, other noninterest income included net gains on customer related interest rate swap contracts of $145 thousand. Washington Trust did not engage in such interest rate swap contracts during the six months ended June 30, 2007.

Interest rate lock commitments are extended to borrowers that relate to the origination of readily marketable mortgage loans held for sale. To mitigate the interest rate risk inherent in these rate locks, as well as closed mortgage loans held for sale, best efforts forward commitments are established to sell individual mortgage loans. Commitments to originate and commitments to sell fixed rate mortgage loans are derivative financial instruments. Accordingly, the fair value of these commitments is recognized in other assets on the consolidated balance sheet and the changes in fair value of such commitments are recorded in current earnings in the consolidated income statement. The carrying value of such commitments as of June 30, 2008 and December 31, 2007 and the respective changes in fair values for the six months ended June 30, 2008 and 2007 were insignificant.

Effective January 1, 2008, the Corporation adopted SFAS No. 157 for financial assets and liabilities. The effective date of SFAS No. 157, as it applies to nonfinancial assets and liabilities, has been delayed to January 1, 2009. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. SFAS No. 157, among other things, emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on the assumptions the market participants would use in pricing the asset or liability. In addition, SFAS No. 157 specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Corporation’s market assumptions. These two types of inputs have created the following fair value hierarchy:

Under SFAS No. 157, fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, the Corporation uses quoted market prices to determine fair value. If quoted prices are not available, fair value is based upon valuation techniques such as matrix pricing or other models that use, where possible, current market-based or independently sourced market parameters, such as interest rates. If observable market-based inputs are not available, the Corporation uses unobservable inputs to determine appropriate valuation adjustments using methodologies applied consistently over time.

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities may be classified as Level 3. As of June 30, 2008, Level 3 securities were comprised of two trust preferred CDO holdings, which were not actively traded. To determine their fair value, Washington Trust utilized third party pricing models and discounted cash flow methodologies. Their fair values were reviewed against similar securities that were more actively traded in order to assess the reasonableness of the fair values. Our fair values assumed liquidation in an orderly market and not under distressed circumstances. Due to the continued market illiquidity and credit risk for securities in the financial sector, the fair value of these securities is highly sensitive to assumption changes and market volatility.

Mortgage servicing rights do not trade in an active market with readily observable prices. Accordingly, we determine the fair value of mortgage servicing rights using a valuation model that calculates the present value of the estimated future net servicing income. The model incorporates assumptions used in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service and contractual servicing fee income. Mortgage servicing rights are subject to fair value measurements on a nonrecurring basis. Fair value measurements of our mortgage servicing rights use significant unobservable inputs and, accordingly, are classified as Level 3.

The fair value of the share option award granted in the second quarter of 2008 was estimated on the date of grant using the Black-Scholes Option-Pricing Model based on assumptions noted in the following table. Washington Trust uses historical data to estimate share option exercise and employee departure behavior used in the option-pricing model; groups of employees that have similar historical behavior are considered separately for valuation purposes. The expected term of options granted was derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. Expected volatility was based on historical volatility of Washington Trust shares. The risk-free rate for periods within the contractual life of the share option was based on the U.S. Treasury yield curve in effect at the date of grant.

The performance share awards were granted at $24.12, which was the fair market value at the date of grant with vesting ranging from two to three years. The number of shares awarded will range from zero to 200% of the target number of shares (13,093 shares) dependent upon the Corporation’s core return on equity and core earnings per share growth ranking at the end of the vesting term. The current assumption based on the most recent peer group information results in the shares vesting at 140% of the target, or 16,930 shares. The Corporation has recognized compensation expense based on this assumption and will make the necessary adjustments each time the percentage of the target shares is adjusted. If the goals are not met, no compensation cost will be recognized and any recognized compensation costs will be reversed. The performance share awards provide for accelerated vesting if there is a change in control, death, disability or retirement (as defined in the plans).

Washington Trust segregates financial information in assessing its results among two operating segments: Commercial Banking and Wealth Management Services. The amounts in the Corporate column include activity not related to the segments, such as the investment securities portfolio, wholesale funding activities and administrative units. The Corporate column is not considered to be an operating segment. The methodologies and organizational hierarchies that define the business segments are periodically reviewed and revised. Results may be restated, when necessary, to reflect changes in organizational structure or allocation methodology. The following tables present the statement of operations and total assets for Washington Trust’s reportable segments.

(Dollars in thousands)
	Commercial Banking				Wealth Management Services						Corporate						Consolidated Total
Three months ended June 30,	2008		2007		2008			2007			2008			2007			2008		2007
Net interest income	$	15,488	$	13,239	$	(5	)	$	(20	)	$	724		$	1,708		$	16,207	$	14,927
Noninterest income		3,944		3,874		7,650			7,493			565			(244	)		12,159		11,123
Total income		19,432		17,113		7,645			7,473			1,289			1,464			28,366		26,050

Provision for loan losses		1,400		300		–			–			–			–			1,400		300
Depreciation and amortization expense		618		607		412			433			45			44			1,075		1,084
Other noninterest expenses		10,325		9,644		4,701			4,614			1,953			2,418			16,979		16,676
Total noninterest expenses		12,343		10,551		5,113			5,047			1,998			2,462			19,454		18,060
Income before income taxes		7,089		6,562		2,532			2,426			(709	)		(998	)		8,912		7,990
Income tax expense (benefit)		2,484		2,302		975			937			(642	)		(731	)		2,817		2,508
Net income (loss)	$	4,605	$	4,260	$	1,557		$	1,489		$	(67	)	$	(267	)	$	6,095	$	5,482

Total assets at period end		1,787,560		1,570,917		42,587			37,418			902,842			785,547			2,732,989		2,393,882
Expenditures for long-lived assets		758		2,296		106			91			73			18			937		2,405

(Dollars in thousands)
	Commercial Banking				Wealth Management Services						Corporate						Consolidated Total
Six months ended June 30,	2008		2007		2008			2007			2008			2007			2008		2007
Net interest income	$	29,974	$	26,614	$	(14	)	$	(28	)	$	1,323		$	3,211		$	31,283	$	29,797
Noninterest income		7,288		6,763		14,908			14,363			1,007			1,245			23,203		22,371
Total income		37,262		33,377		14,894			14,335			2,330			4,456			54,486		52,168

Provision for loan losses		1,850		600		–			–			–			–			1,850		600
Depreciation and amortization expense		1,245		1,223		823			869			89			88			2,157		2,180
Other noninterest expenses		19,715		18,287		9,378			8,912			3,946			5,490			33,039		32,689
Total noninterest expenses		22,810		20,110		10,201			9,781			4,035			5,578			37,046		35,469
Income before income taxes		14,452		13,267		4,693			4,554			(1,705	)		(1,122	)		17,440		16,699
Income tax expense (benefit)		5,073		4,663		1,816			1,763			(1,360	)		(1,184	)		5,529		5,242
Net income (loss)	$	9,379	$	8,604	$	2,877		$	2,791		$	(345	)	$	62		$	11,911	$	11,457

Total assets at period end		1,787,560		1,570,917		42,587			37,418			902,842			785,547			2,732,989		2,393,882
Expenditures for long-lived assets		1,012		3,182		147			160			96			108			1,255		3,450

(Dollars in thousands)
	Three Months
Three months ended June 30,	2008			2007
Net income	$	6,095		$	5,482
Unrealized holding losses on securities available for sale, net of income tax benefit of $4,936 in 2008 and $3,112 in 2007		(9,169	)		(5,779	)
Unrealized gains on cash flow hedge derivative instruments, net of income tax expense of $112 in 2008		207			–
Less reclassification adjustments:
Losses (gains) on securities, net of income tax benefit of $18 in 2008 and $223 in 2007		35			(477	)
Cash flow hedge derivative instruments, net of income tax expense of $1		2			–
Net periodic pension cost, net of income tax expense of $23 in 2008 and $38 in 2007		43			69
Total comprehensive (loss) income	$	(2,787	)	$	249

(Dollars in thousands)
	Six Months
Six months ended June 30,	2008			2007
Net income	$	11,911		$	11,457
Unrealized holding losses on securities available for sale, net of income tax benefit of $3,908 in 2008 and $2,448 in 2007		(7,259	)		(4,545	)
Unrealized gains on cash flow hedge derivative instruments, net of income tax expense of $112 in 2008		207			–
Less reclassification adjustments:
Losses (gains) on securities, net of income tax benefit of $34 in 2008 and income tax expense of $148 in 2007		64			(188	)
Cash flow hedge derivative instruments, net of income tax expense of $1		2			–
Net periodic pension cost, net of income tax expense of $46 in 2008 and $75 in 2007		85			139
Total comprehensive income	$	5,010		$	6,863

With respect to the unaudited consolidated financial statements of Washington Trust Bancorp, Inc. and Subsidiaries at June 30, 2008 and for the three and six months ended June 30, 2008 and 2007, KPMG LLP has made a review (based on the standards of the Public Company Accounting Oversight Board (United States)) and not an audit, set forth in their separate report dated August 8, 2008 appearing below. That report does not express an opinion on the interim unaudited consolidated financial information. KPMG LLP has not carried out any significant or additional audit tests beyond those which would have been necessary if their report had not been included. Accordingly, such report is not a “report” or “part of the Registration Statement” within the meaning of Sections 7 and 11 of the Securities Act of 1933, as amended, and the liability provisions of Section 11 of the Securities Act do not apply.

We have previously audited, in accordance with standards established by the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Washington Trust Bancorp, Inc. and Subsidiaries as of December 31, 2007, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated February 25, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the consolidated balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

This report contains statements that are “forward-looking statements.” We may also make written or oral forward-looking statements in other documents we file with the SEC, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume,” “outlook,” “will,” “should,” and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Corporation. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Corporation to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

Some of the factors that might cause these differences include the following: changes in general national or regional economic conditions or conditions affecting the banking or financial services industries or financial capital markets, reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits, reductions in the market value of wealth management assets under administration, reductions in loan demand, changes in loan collectibility, default and charge-off rates, changes in the value of investment securities, changes in the size and nature of the Corporation’s competition, changes in legislation or regulation and accounting principles, policies and guidelines and changes in the assumptions used in making such forward-looking statements. In addition, the factors described under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as filed with the SEC, may result in these differences. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets and impact income are considered critical accounting policies. As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, we have identified the allowance for loan losses, accounting for acquisitions and review of goodwill and intangible assets for impairment, and other-than-temporary impairment of investment securities as critical accounting policies. There have been no significant changes in the methods or assumptions used in the accounting policies that require material estimates and assumptions.

FTE net interest income for the second quarter and first half of 2008 increased 8% and 5%, respectively, from the same periods in 2007. The net interest margin (FTE net interest income as a percentage of average interest–earnings assets) for the second quarter of 2008 was 2.71%, down 5 basis points from the same quarter a year earlier. This decline was largely due to the lagging impact of lower interest rates on deposits compared to variable rate loans. The net interest margin for the first six months of 2008 was 2.65%, down 14 basis points for the same period in 2007. Excluding the 3 basis points attributable to the 2007 interest recovery, the net interest margin for the first half of 2008 declined 11 basis points from the same period a year earlier. This decline reflects decreases in yields on prime-related commercial and consumer loans resulting from actions taken by the Federal Reserve to reduce short-term interest rates, with less commensurate reduction in deposit rates paid during the same period.

Average interest-earning assets for the three and six months ended June 30, 2008 increased $240.9 million and $224.7 million, respectively, from the same periods a year earlier. This increase was largely due to growth in the loan portfolio. Total average loans for the three and six months ended June 30, 2008 increased $157.3 million and $148.9 million, respectively, from the same periods in 2007, primarily due to growth in the commercial loan category. The yield on total loans for the second quarter and first half of 2008 decreased 61 basis points and 49 basis points, respectively, from the comparable 2007 periods, reflecting declines in short-term interest rates. Total average securities for the three and six months ended June 30, 2008 increased $83.5 million and $75.8 million, respectively, from the same periods last year due largely to purchases of mortgage-backed securities issued by U.S. government and government-sponsored agencies during a period of substantial spread widening for these and many other classes of investment securities. The FTE rate of return on securities for the second quarter and first and six months of 2008 decreased 45 basis points and 31 basis points, respectively, from the comparable 2007 periods. The decrease in the total yield on securities was largely attributable to declines in dividends on variable rate security holdings, including FHLB stock.

For the three and six months ended June 30, 2008, average interest-bearing liabilities increased $237.0 million and $216.6 million, respectively, from the amounts reported for the same periods in 2007. The Corporation experienced increases in FHLB advances and money market accounts and declines in NOW accounts, savings and time deposits. The average balance of FHLB advances for the three and six months ended June 30, 2008 increased $284.4 million and $244.5 million, respectively, while the average rate paid on FHLB advances decreased 20 basis points and 8 basis points, respectively, from the same periods a year earlier. The average balance of money market accounts for the second quarter and first six months of 2008 increased $21.8 million and $27.9 million, respectively, while the average rate paid on money market accounts decreased 213 basis points and 143 basis points, respectively, from the same periods in 2007. The decline in time deposits reflected decreases in average brokered certificates of deposit, which are utilized by the Corporation as part of its overall funding program along with FHLB advances and other sources. Average brokered certificates of deposit for the three and six months ended June 30, 2008 decreased $39.5 million and $39.9 million, respectively, from the comparable periods in 2007. The average rate paid on brokered certificates of deposit for the three and six months ended June 30, 2008 increased 6 basis points and 8 basis points, respectively, from the comparable periods in 2007. See Note 7 to the Consolidated Financial Statements for additional discussion on junior subordinated debentures issued in the second quarter of 2008.

Three months ended June 30,	2008							2007
	Average				Yield/			Average				Yield/
(Dollars in thousands)	Balance		Interest		Rate			Balance		Interest		Rate
Assets:
Residential real estate loans	$	598,274	$	8,257		5.55	%	$	590,226	$	7,812		5.31	%
Commercial and other loans		749,468		12,135		6.51	%		615,606		11,730		7.64	%
Consumer loans		297,802		4,059		5.48	%		282,408		4,911		6.98	%
Total loans		1,645,544		24,451		5.98	%		1,488,240		24,453		6.59	%
Short-term investments, federal funds
sold and other		12,214		50		1.64	%		16,951		184		4.36	%
Taxable debt securities		687,461		8,302		4.86	%		608,223		7,839		5.17	%
Nontaxable debt securities		81,649		1,152		5.67	%		78,964		1,112		5.65	%
Corporate stocks and FHLB stock		49,169		546		4.46	%		42,806		763		7.15	%
Total securities		830,493		10,050		4.87	%		746,944		9,898		5.32	%
Total interest-earning assets		2,476,037		34,501		5.60	%		2,235,184		34,351		6.16	%
Non interest-earning assets		165,806							158,903
Total assets	$	2,641,843						$	2,394,087
Liabilities and Shareholders’ Equity:
NOW accounts	$	167,755	$	81		0.19	%	$	168,742	$	64		0.15	%
Money market accounts		315,075		1,399		1.79	%		293,245		2,869		3.92	%
Savings accounts		174,897		218		0.50	%		196,647		661		1.35	%
Time deposits		782,825		7,550		3.88	%		837,223		9,621		4.61	%
FHLB advances		755,455		7,794		4.15	%		471,026		5,112		4.35	%
Junior subordinated debentures		32,311		509		6.34	%		22,681		338		5.98	%
Other		24,016		275		4.60	%		25,764		289		4.51	%
Total interest-bearing liabilities		2,252,334		17,826		3.18	%		2,015,328		18,954		3.77	%
Demand deposits		171,613							173,473
Other liabilities		28,607							30,852
Shareholders’ equity		189,289							174,434
Total liabilities and shareholders’ equity	$	2,641,843						$	2,394,087
Net interest income (FTE)			$	16,675						$	15,397
Interest rate spread						2.42	%						2.39	%
Net interest margin						2.71	%						2.76	%

Six months ended June 30,	2008							2007
	Average				Yield/			Average				Yield/
(Dollars in thousands)	Balance		Interest		Rate			Balance		Interest		Rate
Assets:
Residential real estate loans	$	599,919	$	16,554		5.55	%	$	591,138	$	15,585		5.32	%
Commercial and other loans		728,270		24,356		6.73	%		601,425		23,102		7.75	%
Consumer loans		295,301		8,556		5.83	%		281,992		9,736		6.96	%
Total loans		1,623,490		49,466		6.13	%		1,474,555		48,423		6.62	%
Short-term investments, federal funds
sold and other		16,600		190		2.30	%		15,231		375		4.97	%
Taxable debt securities		678,081		16,718		4.96	%		615,562		15,631		5.12	%
Nontaxable debt securities		81,337		2,295		5.67	%		74,332		2,090		5.67	%
Corporate stocks and FHLB stock		48,014		1,232		5.16	%		43,136		1,563		7.30	%
Total securities		824,032		20,435		4.99	%		748,261		19,659		5.30	%
Total interest-earning assets		2,447,522		69,901		5.74	%		2,222,816		68,082		6.18	%
Non interest-earning assets		167,258							164,934
Total assets	$	2,614,780						$	2,387,750
Liabilities and Shareholders’ Equity:
NOW accounts	$	165,132	$	159		0.19	%	$	169,206	$	132		0.16	%
Money market accounts		321,476		3,951		2.47	%		293,613		5,680		3.90	%
Savings accounts		174,815		650		0.75	%		201,086		1,371		1.38	%
Time deposits		797,296		16,387		4.13	%		834,870		19,009		4.59	%
FHLB advances		713,786		15,093		4.25	%		469,246		10,080		4.33	%
Junior subordinated debentures		27,496		847		6.20	%		22,681		676		6.01	%
Other		26,631		589		4.45	%		19,316		439		4.58	%
Total interest-bearing liabilities		2,226,632		37,676		3.40	%		2,010,018		37,387		3.75	%
Demand deposits		168,773							172,232
Other liabilities		29,571							30,786
Shareholders’ equity		189,804							174,714
Total liabilities and shareholders’ equity	$	2,614,780						$	2,387,750
Net interest income (FTE)			$	32,225						$	30,695
Interest rate spread						2.34	%						2.43	%
Net interest margin						2.65	%						2.79	%

	Three months ended									Six months ended
	June 30, 2008 vs. 2007									June 30, 2008 vs. 2007
	Increase (decrease) due to									Increase (decrease) due to
(Dollars in thousands)	Volume			Rate			Net Chg			Volume			Rate			Net Chg
Interest on interest-earning assets:
Residential real estate loans	$	109		$	336		$	445		$	236		$	733		$	969
Commercial and other loans		2,324			(1,919	)		405			4,482			(3,228	)		1,254
Consumer loans		257			(1,109	)		(852	)		441			(1,621	)		(1,180	)
Short-term investments, federal funds sold and other		(41	)		(93	)		(134	)		31			(216	)		(185	)
Taxable debt securities		976			(513	)		463			1,546			(460	)		1,086
Nontaxable debt securities		38			2			40			199			6			205
Corporate stocks and FHLB stock		100			(317	)		(217	)		161			(491	)		(330	)
Total interest income		3,763			(3,613	)		150			7,096			(5,277	)		1,819
Interest on interest-bearing liabilities:
NOW accounts		–			17			17			(3	)		30			27
Money market accounts		199			(1,669	)		(1,470	)		499			(2,228	)		(1,729	)
Savings accounts		(68	)		(375	)		(443	)		(162	)		(559	)		(721	)
Time deposits		(596	)		(1,475	)		(2,071	)		(827	)		(1,795	)		(2,622	)
FHLB advances		2,943			(261	)		2,682			5,175			(162	)		5,013
Junior subordinated debentures		151			20			171			147			24			171
Other		(20	)		6			(14	)		162			(12	)		150
Total interest expense		2,609			(3,737	)		(1,128	)		4,991			(4,702	)		289
Net interest income	$	1,154		$	124		$	1,278		$	2,105		$	(575	)	$	1,530

The Corporation’s loan loss provision charged to earnings amounted to $1.4 million and $1.85 million for the three and six months ended June 30, 2008, respectively, compared to $300 thousand and $600 thousand for the same periods in 2007. The provision for loan losses was based on management’s assessment of various factors affecting the loan portfolio, including, among others, growth in the portfolio, ongoing evaluation of credit quality and general economic conditions. Net charge-offs amounted to $161 thousand and $164 thousand for the quarter and first half of 2008, respectively, as compared to net charge-offs of $333 thousand and $167 thousand for the same periods in 2007. The Corporation will continue to assess the adequacy of its allowance for loan losses in accordance with its established policies. The allowance for loan losses was $22.0 million, or 1.29% of total loans, at June 30, 2008, compared to $20.3 million, or 1.29% of total loans, at December 31, 2007, and $19.3 million, or 1.30% of total loans, at June 30, 2007.

(Dollars in thousands)	Three Months												Six Months
							$			%								$			%
Periods ended June 30	2008			2007			Chg			Chg			2008			2007		Chg			Chg
Noninterest income:
Wealth management services:
Trust and investment advisory fees	$	5,321		$	5,252		$	69			1	%	$	10,663		$	10,290	$	373			4	%
Mutual fund fees		1,445			1,352			93			7	%		2,786			2,614		172			7	%
Financial planning, commissions and other service fees		884			889			(5	)		(1	%)		1,459			1,459		–			–	%
Wealth management services		7,650			7,493			157			2	%		14,908			14,363		545			4	%
Service charges on deposit accounts		1,208			1,220			(12	)		(1	%)		2,368			2,345		23			1	%
Merchant processing fees		1,914			1,829			85			5	%		3,186			3,033		153			5	%
Income from bank-owned life insurance		453			399			54			14	%		900			790		110			14	%
Net gains on loan sales and commissions
on loans originated for others		433			510			(77	)		(15	%)		924			774		150			19	%
Other income		554			372			182			49	%		1,015			730		285			39	%
Subtotal		12,212			11,823			389			3	%		23,301			22,035		1,266			6	%
Net (losses) gains on securities		(53	)		(700	)		647			92	%		(98	)		336		(434	)		(129	%)
Total noninterest income	$	12,159		$	11,123		$	1,036			9	%	$	23,203		$	22,371	$	832			4	%

Wealth management revenues for the second quarter of 2008 were up $157 thousand, or 2%, from the second quarter of 2007. Wealth management revenues for the six months ended June 30, 2008 increased by $545 thousand, or 4%, from the same period in 2007. Revenue from wealth management services is largely dependent on the value of assets under administration and is closely tied to the performance of the financial markets. Wealth management assets under administration totaled $3.924 billion at June 30, 2008, down $90.8 million, or 2%, from December 31, 2007 and up $55.9 million, or 1%, from June 30, 2007. The decline in assets under administration in the first six months of 2008 was primarily due to lower valuations in the equity markets.

We originate residential mortgage loans for sale in the secondary market and also originate loans for various investors in a broker capacity, including conventional mortgages and reverse mortgages. In addition, from time to time we sell the guaranteed portion of Small Business Administration (“SBA”) loans to investors. Net gains on loan sales and commissions on loans originated for others totaled $433 thousand for the second quarter 2008, down by 15% from the same quarter in 2007, primarily due to lower gains on sales of SBA loans. For the first half of 2008, net gains on loan sales and commissions on loans originated for others amounted to $924 thousand, up by 19% from the same period in 2007, mainly due to higher gains on sales of residential mortgage loans. In the first quarter of 2008 gains of $80 thousand were recognized from the sale of $17.9 million in residential portfolio loans. We do not have a practice of selling loans from portfolio and we have not sold any packages of loans from our portfolio in many years. These portfolio loans were sold for interest rate risk and balance sheet management purposes.

For the quarters ended June 30, 2008 and 2007 net losses on securities amounted to $53 thousand and $700 thousand, respectively. Included in the second quarter 2008 net losses of $53 thousand were impairment charges of $1.1 million recognized on three preferred stock holdings and realized gains of $1.1 million on sales of equity securities. Net losses on securities for the second quarter of 2007 included approximately $1.3 million of net losses on sales of certain U.S. Government sponsored agency and mortgage-backed securities, $195 thousand of gains from certain debt and equity securities that were called prior to their maturity by the issuers, and $397 thousand of gains resulting from the Corporation’s annual contribution of appreciated equity securities to the Corporation’s charitable foundation. For the six months ended June 30, 2008, net losses on securities amounted to $98 thousand, compared to net gains of $336 thousand for the same period in 2007. On a year to date basis in 2008, Washington Trust has recognized $2.0 million in impairment charges on four preferred stock holdings and realized gains of on sales of securities of $1.9 million.

Noninterest expenses amounted to $18.1 million for the second quarter of 2008, up $294 thousand from the same quarter a year ago. Included in noninterest expenses in the second quarter of 2007 was $520 thousand representing the cost of the Corporation’s contribution of appreciated equity securities to its charitable foundation. Washington Trust expects to make its annual contribution to the foundation later this year. For the six months ended June 30, 2008, noninterest expenses totaled $35.2 million, up $327 thousand, or 1%, from the same period in 2007. Excluding first quarter 2007 debt prepayment penalties and the second quarter 2007 charitable contribution, noninterest expenses for the first six months of 2008 increased $1.9 million, or 6%, from the same period in 2007. Approximately 40% of the 2008 increase, on this basis, represents costs attributable to our wealth management business, an increase in FDIC deposit insurance costs and operating expenses related to a de novo branch opened in June 2007.

(Dollars in thousands)	Three Months										Six Months
					$				%						$				%
Periods ended June 30	2008		2007		Chg			Chg			2008		2007		Chg			Chg
Noninterest expense:
Salaries and employee benefits	$	10,411	$	10,285	$	126			1	%	$	20,754	$	20,097	$	657			3	%
Net occupancy		1,064		1,038		26			3	%		2,202		2,055		147			7	%
Equipment		977		861		116			13	%		1,921		1,693		228			13	%
Merchant processing costs		1,598		1,558		40			3	%		2,666		2,577		89			3	%
Outsourced services		742		535		207			39	%		1,378		1,054		324			31	%
Advertising and promotion		467		572		(105	)		(18	%)		853		1,001		(148	)		(15	%)
Legal, audit and professional fees		430		404		26			6	%		973		854		119			14	%
Amortization of intangibles		326		348		(22	)		(6	%)		652		716		(64	)		(9	%)
Debt prepayment penalties		–		–		–			–			–		1,067		(1,067	)		(100	%)
Other		2,039		2,159		(120	)		(6	%)		3,797		3,755		42			1	%
Total noninterest expense	$	18,054	$	17,760	$	294			2	%	$	35,196	$	34,869	$	327			1	%

Total assets amounted to $2.7 billion at June 30, 2008, up $193.0 million from December 31, 2007, with total loans increasing by $132.0 million and the investment securities portfolio increasing by $38.3 million. Total liabilities were up $193.1 million during the six months ended June 30, 2008, with FHLB advances increasing by $228.9 million and total deposits decreasing by $36.7 million. Shareholders’ equity totaled $186.4 million at June 30, 2008, compared to $186.5 million at December 31, 2007. See additional discussion under the caption “Liquidity and Capital Resources” and Note 11 to the Consolidated Financial Statements regarding the adoption of the measurement date provisions of SFAS No. 158 and the resulting impact on shareholders’ equity.

Effective January 1, 2008, the Corporation adopted SFAS No. 157 and, as a result, has classified certain financial assets and liabilities as Level 1, 2 or 3 within the fair value hierarchy set forth in SFAS No. 157. Fair values determined by Level 1 inputs utilize quoted prices for identical assets or liabilities in active markets. Fair values determined by Level 2 inputs utilize quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and model-derived valuations in which all significant input assumptions are observable in active markets. Fair values determined by Level 3 inputs utilize valuation techniques in which one or more significant input assumptions are unobservable in the markets and which reflect the Corporation’s market assumptions.

As noted in Note 10 to the Consolidated Financial Statements, a majority of our fair value measurements utilize Level 2 inputs. Our Level 2 financial instruments consist primarily of available for sale debt securities. These debt securities were initially valued at their transaction price and subsequently valued based on matrix pricing with market data inputs such as reportable trades, benchmark yields, broker/dealer quotes, bids, offers, issuers spreads, credit ratings and other industry and economic events. Such inputs are observable in the market or can be derived principally from or corroborated by observable market data. When necessary, we validate our valuation techniques by reviewing the underlying basis for the models used by pricing sources and obtaining market values from other pricing sources. As of June 30, 2008, our Level 3 financial instruments consist primarily of two available for sale trust preferred CDO securities, which were not actively traded. To determine their fair values, Washington Trust utilized third party pricing models and discounted cash flow methodologies. Their fair values were reviewed against similar securities that were

Total loans grew by $132.0 million, or 8.4%, during the first six months of 2008 and amounted to $1.7 billion at June 30, 2008. Commercial loans rose by $68.7 million, or 9.5%, in the second quarter of 2008, representing the seventh consecutive quarter of growth. Commercial loans have increased by $114.7 million, or 16.9%, in the first six months of 2008. Residential loans increased by $30.5 million, or 5.3%, in the second quarter of 2008, including purchases of $30.8 million. On a year to date basis, residential loans increased by $8.7 million, or 1.4%. In the first quarter of 2008, Washington Trust sold $17.9 million in residential portfolio loans for interest rate risk and balance sheet management purposes, which resulted in a gain on sale of $80 thousand. We do not have a practice of selling loans from portfolio and we have not sold any packages of loans from our portfolio in many years. Consumer loans

The allowance for loan losses is management’s best estimate of the probable loan losses incurred as of the balance sheet date. The allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off, and is reduced by charge-offs on loans. In addition, various regulatory agencies, as an integral part of their examination process, periodically review a financial institution’s allowance for loan losses and carrying amount of other real estate owned. Such agencies may require the financial institution to recognize additions to the allowances for loan losses based on their judgments about information available to them at the time of their examination.

(Dollars in thousands)	June 30,		December 31,
	2008		2007
Loans 30–59 Days Past Due
Commercial categories	$	6,682	$	1,450
Residential mortgages		1,624		1,620
Consumer loans		476		73
Loans 30–59 days past due	$	8,782	$	3,143
Loans 60–89 Days Past Due
Commercial categories	$	2,091	$	1,313
Residential mortgages		1		39
Consumer loans		87		38
Loans 60-89 days past due	$	2,179	$	1,390
Loans 90 Days or more Past Due
Commercial categories	$	3,625	$	1,963
Residential mortgages		408		441
Consumer loans		–		86
Loans 90 days or more past due	$	4,033	$	2,490
Total Past Due Loans
Commercial categories	$	12,398	$	4,726
Residential mortgages		2,033		2,100
Consumer loans		563		197
Total past due loans	$	14,994	$	7,023

Washington Trust has never offered a subprime residential loan program. Total residential mortgage and consumer loan 30 day+ delinquencies increased modestly in the first half of 2008 to $2.6 million, or 0.29% of these loans, at June 30, 2008, compared to $2.3 million, or 0.26%, at December 31, 2007. Total 90 day+ delinquencies in the residential mortgage portfolio amounted to $408 thousand (two loans) at June 30, 2008. There were no consumer loans in the 90 day+ delinquency category at June 30, 2008. Total nonaccrual loans, which include the 90 day+ delinquencies, amounted to $1.1 million and $170 thousand in the residential mortgage and consumer loan categories, respectively, at June 30, 2008.

The Corporation classifies certain loans as “substandard,” “doubtful,” or “loss” based on criteria consistent with guidelines provided by banking regulators. Potential problem loans consist of classified accruing commercial loans that are performing, but where known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as nonperforming at some time in the future. These loans are not included in the disclosure of nonaccrual or restructured loans above. Management cannot predict the extent to which economic

conditions may worsen or other factors which may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual, become restructured, or require increased allowance coverage and provision for loan losses. The Corporation has identified approximately $7.1 million in potential problem loans at June 30, 2008, as compared to $8.1 million at December 31, 2007. Approximately 95% of the potential problem loans at June 30, 2008 consisted of 5 commercial lending relationships, which have been classified based on our evaluation of the financial condition of the borrowers. The Corporation’s loan policy provides guidelines for the review and monitoring of such loans in order to facilitate collection.

Total shareholders’ equity amounted to $186.4 million at June 30, 2008, compared to $186.5 million at December 31, 2007. The slight decrease reflects the Corporation’s net income of $11.9 million offset by dividends declared of $5.5 million and a $7.3 million increase in accumulated other comprehensive loss. The dividend represented a $0.21 per share dividend, an increase from the $0.20 per share rate paid in the first quarter of 2008, making 2008 the sixteenth consecutive year with a dividend increase. The increase in accumulated other comprehensive loss was primarily due to increases in net unrealized losses on securities available for sale. Also in 2008, the Corporation adopted the required measurement date provisions of SFAS No. 158. The effect of this accounting change was a net reduction to equity of $426 thousand. See Note 11 to the Consolidated Financial Statements for additional information regarding the adoption of the measurement date provisions of SFAS No. 158.

(Dollars in thousands)	Amount of Commitment Expiration – Per Period
	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Other Commitments:
Commercial loans	$	163,584	$	105,224	$	30,878	$	17,025	$	10,457
Home equity lines		180,322		25		9,620		334		170,343
Other loans		22,765		21,482		683		600		–
Standby letters of credit		8,111		1,472		–		6,639		–
Forward loan commitments to:
Originate loans		3,279		3,279		–		–		–
Sell loans		6,012		6,012		–		–		–
Customer related derivative contracts:
Interest rate swaps with customers		14,115		–		–		–		14,115
Mirror swaps with counterparties		14,115		–		–		–		14,115
Interest rate risk management contract:
Interest rate swap		10,000		–		–		10,000		–
Total commitments	$	422,303	$	137,494	$	41,181	$	34,598	$	209,030

In the normal course of business, Washington Trust engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. Such transactions are used to meet the financing needs of its customers and to manage the exposure to fluctuations in interest rates. These financial transactions include commitments to extend credit, standby letters of credit, financial guarantees, interest rate swaps and floors, and commitments to originate and commitments to sell fixed rate mortgage loans. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The ALCO manages the Corporation’s interest rate risk using income simulation to measure interest rate risk inherent in the Corporation’s on-balance sheet and off-balance sheet financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 12-month horizon, the month 13 to month 24 horizon and a 60-month horizon. The simulations assume that the size and general composition of the Corporation’s balance sheet remain static over the simulation horizons, with the exception of certain deposit mix shifts from low-cost core savings to higher-cost time deposits in selected interest rate scenarios. Additionally, the simulations take into account the specific repricing, maturity, call options, and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios. The characteristics of financial instrument classes are reviewed periodically by the ALCO to ensure their accuracy and consistency.

The following table sets forth the estimated change in net interest income from an unchanged interest rate scenario over the periods indicated for parallel changes in market interest rates using the Corporation’s on and off-balance sheet financial instruments as of June 30, 2008 and December 31, 2007. Interest rates are assumed to shift by a parallel 100 or 200 basis points upward or 100 basis points downward over the periods indicated, except for core savings deposits, which are assumed to shift by lesser amounts due to their relative historical insensitivity to market interest rate movements. Further, deposits are assumed to have certain minimum rate levels below which they will not fall. It should be noted that the rate scenarios shown do not necessarily reflect the ALCO’s view of the “most likely” change in interest rates over the periods indicated.

The moderately positive exposure of net interest income to rising rates in Year 1 as compared to an unchanged rate scenario results from a more rapid relative rate of increase in asset yields than funding costs over the near term. For simulation purposes, core savings deposit rate changes are anticipated to lag other market rates in both timing and magnitude. The ALCO’s estimate of interest rate risk exposure to rising rate environments, including those involving changes to the shape of the yield curve, incorporates certain assumptions regarding the shift in mix from low-cost core savings deposits to higher-cost deposit categories, which has characterized a shift in funding mix during the most recent rising interest rate cycle.

The slightly negative exposure of net interest income to rising rates in Year 2 as compared to an unchanged rate scenario is primarily attributable to a projected increase in funding costs associated with retail deposits. Increases in interest rates have created greater growth in rate-sensitive money market and time deposits than growth in other lower-cost deposit categories. The ALCO modeling process assumes that this shift in deposit mix towards higher cost deposit categories would continue if interest rates were to increase, and that this assumption accurately reflects historical operating conditions in rising rate cycles. Although asset yields would also increase in a rising interest rate environment, the cumulative impact of relative growth in the rate-sensitive higher cost deposit category suggests that by Year 2 of rising interest rate scenarios, the increase in the Corporation’s cost of funds could result in a relative decline in net interest margin compared to an unchanged rate scenario.

higher-cost money market and time deposits noted above. The static balance sheet assumption does not necessarily reflect the Corporation’s expectation for future balance sheet growth, which is a function of the business environment and customer behavior. Another significant simulation assumption is the sensitivity of core savings deposits to fluctuations in interest rates. Income simulation results assume that changes in both core savings deposit rates and balances are related to changes in short-term interest rates. The assumed relationship between short-term interest rate changes and core deposit rate and balance changes used in income simulation may differ from the ALCO’s estimates. Lastly, mortgage-backed securities and mortgage loans involve a level of risk that unforeseen changes in prepayment speeds may cause related cash flows to vary significantly in differing rate environments. Such changes could affect the level of reinvestment risk associated with cash flow from these instruments, as well as their market value. Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income.

The Corporation also monitors the potential change in market value of its available for sale debt securities in changing interest rate environments. The purpose is to determine market value exposure that may not be captured by income simulation, but which might result in changes to the Corporation’s capital position. Results are calculated using industry-standard analytical techniques and securities data. Available for sale equity securities are excluded from this analysis because the market value of such securities cannot be directly correlated with changes in interest rates. The following table summarizes the potential change in market value of the Corporation’s available for sale debt securities as of June 30, 2008 and December 31, 2007 resulting from immediate parallel rate shifts:

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Corporation carried out an evaluation under the supervision and with the participation of the Corporation’s management, including the Corporation’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of the end of the quarter ended June 30, 2008. Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Corporation’s disclosure controls and procedures are effective and designed to ensure that information required to be disclosed by the Corporation in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Corporation will continue to review and document its disclosure controls and procedures and consider such changes in future evaluations of the effectiveness of such controls and procedures, as it deems appropriate.

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

N/A

4/1/2008 to 4/30/2008

–

N/A

5/1/2008 to 5/31/2008

–

N/A

6/1/2008 to 6/30/2008

–

N/A

Total Deferred Compensation Plan

–

N/A

2006 Stock Repurchase Plan (2)

Balance at beginning of period

214,600

4/1/2008 to 4/30/2008

–

214,600

5/1/2008 to 5/31/2008

–

214,600

6/1/2008 to 6/30/2008

–

214,600

Total 2006 Stock Repurchase Plan

–

214,600

Other (3)

Balance at beginning of period

N/A

4/1/2008 to 4/30/2008

–

N/A

5/1/2008 to 5/31/2008

–

N/A

6/1/2008 to 6/30/2008

820

15.70

820

N/A

Total Other

820

15.70

820

N/A

Total Purchases of Equity Securities

820

15.70

820

(1)

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 September 15, 2008. After September 15, 2008, 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.

Exhibit Number
10.1	Amended and Restated Declaration of Trust of Washington Preferred Capital Trust dated April 7, 2008, by and among Wilmington Trust Company, as Delaware Trustee and Institutional Trustee, Washington Trust Bancorp, Inc., as sponsor, and the Administrators listed therein - Filed as Exhibit 10.1 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on April 7, 2008.
10.2	Indenture dated as of April 7, 2008, between Washington Trust Bancorp, Inc., as Issuer, and Wilmington Trust Company, as Trustee - Filed as Exhibit 10.2 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on April 7, 2008.
10.3	Guarantee Agreement dated April 7, 2008, by and between Washington Trust Bancorp, Inc. and Wilmington Trust Company - Filed as Exhibit 10.3 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on April 7, 2008.
10.4	Certificate Evidencing Floating Rate Capital Securities of Washington Preferred Capital Trust dated April 7, 2008 - Filed as Exhibit 10.4 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on April 7, 2008.
10.5	Floating Rate Junior Subordinated Deferrable Interest Debenture of Washington Trust Bancorp, Inc. dated April 7, 2008 - Filed as Exhibit 10.5 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on April 7, 2008.
10.6	Form of Deferred Stock Unit Award Agreement — Filed herewith. (2)
15.1	Letter re: Unaudited Interim Financial Information - Filed herewith.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. – Filed herewith. (1)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. – Filed herewith. (1)
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 – Filed herewith. (1)

(1)	These certifications are not “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Exchange Act.
(2)	Management contract or compensatory plan or arrangement.

Exhibit Number
10.1	Amended and Restated Declaration of Trust of Washington Preferred Capital Trust dated April 7, 2008, by and among Wilmington Trust Company, as Delaware Trustee and Institutional Trustee, Washington Trust Bancorp, Inc., as sponsor, and the Administrators listed therein - Filed as Exhibit 10.1 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on April 7, 2008.
10.2	Indenture dated as of April 7, 2008, between Washington Trust Bancorp, Inc., as Issuer, and Wilmington Trust Company, as Trustee - Filed as Exhibit 10.2 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on April 7, 2008.
10.3	Guarantee Agreement dated April 7, 2008, by and between Washington Trust Bancorp, Inc. and Wilmington Trust Company - Filed as Exhibit 10.3 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on April 7, 2008.
10.4	Certificate Evidencing Floating Rate Capital Securities of Washington Preferred Capital Trust dated April 7, 2008 - Filed as Exhibit 10.4 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on April 7, 2008.
10.5	Floating Rate Junior Subordinated Deferrable Interest Debenture of Washington Trust Bancorp, Inc. dated April 7, 2008 - Filed as Exhibit 10.5 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on April 7, 2008.
10.6	Form of Deferred Stock Unit Award Agreement — Filed herewith. (2)
15.1	Letter re: Unaudited Interim Financial Information - Filed herewith.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. – Filed herewith. (1)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. – Filed herewith. (1)
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 – Filed herewith. (1)

(1)	These certifications are not “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Exchange Act.
(2)	Management contract or compensatory plan or arrangement.

RHODE ISLAND		05-0404671
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

23 BROAD STREET
WESTERLY, RHODE ISLAND		02891
(Address of principal executive offices)		(Zip Code)

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

FORM 10-Q
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
For the Quarter Ended June 30, 2008

TABLE OF CONTENTS
		Page
		Number

PART I. Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets
	June 30, 2008 and December 31, 2007	3

Consolidated Statements of Income
	Three and Six Months Ended June 30, 2008 and 2007	4

Consolidated Statements of Cash Flows
	Six Months Ended June 30, 2008 and 2007	5

Condensed Notes to Unaudited Consolidated Financial Statements		7

Report of Independent Registered Public Accounting Firm		28

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		29

Item 3. Quantitative and Qualitative Disclosures About Market Risk		46

Item 4. Controls and Procedures		46

PART II. Other Information

Item 1. Legal Proceedings		47

Item 1A. Risk Factors		47

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		48

Item 4. Submission of Matters to a Vote of Security Holders		49

Item 6. Exhibits		50

Signatures		51

Exhibit 10.6 Form of Deferred Stock Unit Award Agreement

Exhibit 15.1 Letter re: Unaudited Interim Financial Information

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

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES	(Dollars in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

	Unaudited
Six months ended June 30,	2008		2007
Noncash Investing and Financing Activities:
Loans charged off	$	326	$	370
Securities proceeds due from broker		3,084		–
Supplemental Disclosures:
Interest payments		36,687		37,588
Income tax payments		6,868		6,309

The accompanying notes are an integral part of these unaudited consolidated financial statements.

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES	(Dollars in thousands)

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES	(Continued)
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)
	Amortized		Unrealized		Unrealized			Fair
June 30, 2008	Cost		Gains		Losses			Value
Securities Available for Sale:
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies	$	82,002	$	2,448	$	−		$	84,450
Mortgage-backed securities issued by U.S.
government and government-sponsored agencies		588,967		2,445		(5,298	)		586,114
States and political subdivisions		81,645		81		(1,465	)		80,261
Trust preferred securities		37,985		−		(7,627	)		30,358
Corporate bonds		1,746		−		(13	)		1,733
Corporate stocks		7,593		337		(782	)		7,148
Total securities available for sale	$	799,938	$	5,311	$	(15,185	)	$	790,064

(Dollars in thousands)	Core Deposit		Advisory		Non-compete
	Intangible		Contracts		Agreements		Total
Balance at December 31, 2007	$	510	$	10,743	$	180	$	11,433
Amortization		60		568		24		652
Balance at June 30, 2008	$	450	$	10,175	$	156	$	10,781

(Dollars in thousands)
	Core		Advisory		Non-compete
Estimated amortization expense:	Deposits		Contracts		Agreements		Total
2008 (full year)	$	120	$	1,111	$	49	$	1,280
2009		120		1,040		49		1,209
2010		120		922		49		1,091
2011		120		768		33		921
2012		30		727		−		757

(Dollars in thousands)							Assets/
	Fair Value Measurements Using						Liabilities at
June 30, 2008	Level 1		Level 2		Level 3		Fair Value
Assets:
Securities available for sale	$	6,676	$	777,653	$	5,735	$	790,064
Derivative assets (1)		–		532		–		532
Total assets at fair value on a recurring basis	$	6,676	$	778,185	$	5,735	$	790,596
Liabilities:
Derivative liabilities (1)	$	–	$	196	$	30	$	226
Total liabilities at fair value on a recurring basis	$	–	$	196	$	30	$	226

(Dollars in thousands)	Carrying Value at June 30, 2008
	Level 1		Level 2		Level 3		Total
Assets:
Collateral dependent impaired loans	$	–	$	1,630	$	–	$	1,630
Total assets at fair value on a nonrecurring basis	$	–	$	1,630	$	–	$	1,630

(Dollars in thousands)	Prior to Adoption of Measurement Date Provisions of SFAS No. 158			Effect of Adopting Measurement Date Provisions of SFAS No. 158			As of January 1, 2008
Net deferred tax asset	$	7,705		$	229		$	7,934
Defined benefit pension liabilities		11,801			654			12,455
Retained earnings		154,647			(468	)		154,179
Accumulated other comprehensive loss		(239	)		42			(197	)

(Dollars in thousands)	Qualified						Non-Qualified
	Pension Plan						Retirement Plans
Three months ended June 30,	2008			2007			2008		2007
Service cost	$	512		$	502		$	63	$	86
Interest cost		507			462			143		130
Expected return on plan assets		(569	)		(496	)		-		-
Amortization of transition asset		–			(2	)		-		-
Amortization of prior service cost		(9	)		(8	)		15		15
Recognized net actuarial loss		4			47			55		55
Net periodic benefit cost	$	445		$	505		$	276	$	286

	2008
Expected term (years)		9.0
Expected dividend yield		2.86	%
Expected volatility		33.59
Expected forfeiture rate		–
Risk-free interest rate		4.59

(Dollars in thousands)	Number		Weighted		Weighted Average
	Of		Average		Remaining	Aggregate
	Share		Exercise		Contractual	Intrinsic
	Options		Price		Term (Years)	Value
Outstanding at January 1, 2008		955,485	$	21.21
Granted		87,500		24.12
Exercised		36,351		18.43
Forfeited or expired		5,550		27.87
Outstanding at June 30, 2008		1,001,084	$	21.52	4.8 years	$	851,910
Exercisable at June 30, 2008		913,584	$	21.28	4.3 years	$	851,910
Options expected to vest as of June 30, 2008		87,500	$	24.12	10.0 years	$	–

(Dollars and shares in thousands, except per share amounts)
	Three Months				Six Months
Periods ended June 30,	2008		2007		2008		2007

Net income	$	6,095	$	5,482	$	11,911	$	11,457

Weighted average basic shares		13,381.1		13,339.6		13,369.6		13,375.7
Dilutive effect of:
Options		140.8		200.4		145.0		221.8
Other		45.1		76.4		36.3		70.1
Weighted average diluted shares		13,567.0		13,616.4		13,550.9		13,667.6

Earnings per share:
Basic	$	0.45	$	0.41	$	0.89	$	0.86
Diluted	$	0.45	$	0.40	$	0.88	$	0.84

(Dollars in thousands)
	Credit	Amortized		Unrealized					Fair
June 30, 2008	Rating	Cost		Gains		Losses			Value
Trust preferred securities
Collateralized debt obligations	A	$	7,479	$	–	$	(1,744	)	$	5,735
Individual name issuers (1):	AA		15,411		–		(3,128	)		12,283
	A		13,188		–		(2,441	)		10,747
	BBB		1,907		–		(314	)		1,593
Total trust preferred securities		$	37,985	$	–	$	(7,627	)	$	30,358


Corporate bonds	BBB	$	1,746	$	–	$	(13	)	$	1,733

(Dollars in thousands)
	Three		Six
Periods ended June 30, 2008	Months		Months
FNMA and FHLMC preferred stock	$	430	$	430
Other preferred (financials)		719		1,577
Total	$	1,149	$	2,007

(Dollars in thousands)	Balance		% of Total
Rhode Island, Connecticut, Massachusetts	$	526,937		86.6	%
New York, Virginia, New Jersey, Maryland, Pennsylvania, District of Columbia		30,030		4.9	%
Ohio, Michigan		21,615		3.6	%
California, Washington, Oregon		16,576		2.7	%
Colorado, Texas, New Mexico, Utah		8,218		1.4	%
Georgia		2,550		0.4	%
New Hampshire, Vermont		1,871		0.3	%
Other		554		0.1	%
Total	$	608,351		100.0	%

(Dollars in thousands)	Payments Due by Period
	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Contractual Obligations:
FHLB advances (1)	$	845,291	$	264,994	$	243,680	$	202,937	$	133,680
Junior subordinated debentures		32,991		–		–		–		32,991
Operating lease obligations		4,401		1,196		1,549		715		941
Software licensing arrangements		1,688		765		844		79		–
Treasury, tax and loan demand note		4,668		4,668		–		–		–
Deferred acquisition obligations		1,946		1,946		–		–		–
Other borrowed funds		19,870		30		65		19,576		199
Total contractual obligations	$	910,855	$	273,599	$	246,138	$	223,307	$	167,811

	June 30, 2008						December 31, 2007
	Months 1 - 12			Months 13 - 24			Months 1 - 12			Months 13 - 24
100 basis point rate decrease		-1.06	%		-2.57	%		-1.77	%		-2.24	%
100 basis point rate increase		0.16	%		-0.76	%		-1.41	%		-3.62	%
200 basis point rate increase		0.98	%		-1.21	%		-1.13	%		-6.11	%

(Dollars in thousands)	Down 100			Up 200
	Basis			Basis
Security Type	Points			Points
U.S. Treasury and government-sponsored agency securities (noncallable)	$	2,078		$	(3,847	)
U.S. government-sponsored agency securities (callable)		81			(159	)
States and political subdivision		5,266			(12,055	)
Mortgage-backed securities issued by U.S. government
and government-sponsored agencies		13,142			(41,247	)
Corporate securities		(781	)		1,272
Total change in market value as of June 30, 2008	$	19,786		$	(56,036	)

Total change in market value as of December 31, 2007	$	15,459		$	(46,812	)

	Term	Votes In Favor	Votes Withheld
Gary P. Bennett	3 years	10,506,306	1,515,670
Larry J. Hirsh, Esq.	3 years	10,539,526	1,482,450
Mary E. Kennard, Esq.	3 years	9,666,077	2,355,900
H. Douglas Randall III	3 years	10,551,820	1,470,157
John F. Treanor	3 years	10,541,563	1,480,414

	Steven J. Crandall
	Barry G. Hittner, Esq
	Katherine W. Hoxsie
	Edward M. Mazze, Ph.D.
	Kathleen McKeough
	Vicotr J. Orsinger II, Esq.
	Patrick J. Shanahan, Jr.
	Neil H. Thorpe
	John C. Warren

		WASHINGTON TRUST BANCORP, INC.
		(Registrant)


Date: August 8, 2008	By:	/s/ John C. Warren
		John C. Warren
		Chairman and Chief Executive Officer
		(principal executive officer)


Date: August 8, 2008	By:	/s/ David V. Devault
		David V. Devault
		Executive Vice President, Secretary, Treasurer and Chief Financial Officer
		(principal financial and accounting officer)

Executive Officer	Target number of share	Grant date	Vesting date	Performance period	Shortened performance period start date	Months in term
John C Warren	6,007	June 16, 2008	April 30, 2010	January 1, 2008 through December 31, 2009	January 1, 2008	22

John F. Treanor	6,086	June 16, 2008	June 16, 2011	January 1, 2008 through December 31, 2010	January 1, 2008	36

Name of Grantee:	<<Name>>
No. of Target Shares:	<Target Number of Shares>>
Grant Date:	<<Grant Date>>
Vesting Date:	<<Vesting Date>>

Corporation’s Performance vs. Peer Group’s Performance	Percentage of Target Shares
Below 25th percentile	0%
25th percentile	50%
50th percentile	100%
75th percentile	150%
100th percentile	200%

WASHINGTON TRUST BANCORP, INC
By:
	Gary P. Bennett, Chairperson
	Compensation & Human Resources Committee