Washington Trust Announces First Quarter 2009 Earnings

Washington Trust Bancorp, Inc. (NASDAQ Global Select; symbol: WASH), parent company of The Washington Trust Company, today announced first quarter 2009 net income of $2.7 million, or 17 cents per diluted share, compared to first quarter 2008 net income of $5.8 million, or 43 cents per diluted share.

Earnings in the first quarter of 2009 were influenced by:

• Net impairment losses of $2.0 million ($1.3 million after tax; 8 cents per diluted share) were charged to earnings in the first quarter of 2009 for securities deemed to be other-than-temporarily impaired.
• The loan loss provision charged to earnings amounted to $1.7 million for the first quarter of 2009, compared to $450 thousand for the first quarter of 2008. The provision was based on management’s assessment of economic and credit conditions as well as growth in the loan portfolio.
• No dividend was received from the Federal Home Loan Bank of Boston (FHLBB) in the first quarter of 2009. Dividend income on the Corporation’s investment in FHLBB stock totaled $445 thousand in the first quarter of 2008.
• FDIC deposit insurance premiums for the first quarter of 2009 were up by $395 thousand from the first quarter a year earlier.
• In the first quarter of 2009 a $250 thousand charge, recorded in other noninterest expenses, was incurred associated with the repositioning of investment options in the Corporation’s 401(k) Plan.

Selected First Quarter 2009 developments:

• Reflecting declines in the financial markets, wealth management revenues for the first quarter of 2009 were down by $1.8 million, or 25 percent, from the first quarter of 2008. Assets under administration totaled $2.958 billion at March 31, 2009, down $920.8 million from the March 31, 2008 balance.
• Commercial loan growth was solid in the first quarter of 2009, amounting to $28.0 million, or 3 percent. Commercial loans have increased $182.0 million, or 25 percent, from the balance at March 31, 2008.

• In-market deposits grew by $119.0 million, or 7 percent, during the first quarter of 2009 largely due to growth in money market accounts. In-market deposits have increased by $213.8 million, or 14 percent, from March 31, 2008.
• Reflecting continued weak economic conditions, nonperforming assets amounted to $17.5 million, or 0.60% of total assets, at March 31, 2009 up from $8.8 million, or 0.30% of total assets, at December 31, 2008.
• As a result of strong residential mortgage refinancing and sales activity, net gains on loans sales and commissions on loans originated for others totaled $1.0 million for the first quarter of 2009, up by $553 thousand from the first quarter of 2008.

John C. Warren, Washington Trust Bancorp, Inc.’s Chairman and Chief Executive Officer, stated "First quarter earnings were negatively affected by a number of systemic factors including continued weakness in the financial markets and the downturn in the local and national economies. Washington Trust remains a strong, stable, well-capitalized financial institution. During the quarter, we experienced strong loan and deposit growth. We are well-positioned to meet the challenges that lie ahead: we have a history of success, strong core values, an experienced leadership team, and have a proven track record of capitalizing on market opportunities.”

RESULTS OF OPERATIONS

Net interest income for the first quarter of 2009 decreased $1.6 million, or 9 percent, from the fourth quarter of 2008 and increased $883 thousand, or 6 percent, from the first quarter a year ago. No dividend was received from the FHLBB in the first quarter of 2009. Dividend income on the Corporation’s investment in FHLBB stock totaled $264 thousand in the fourth quarter of 2008 and $445 thousand in the first quarter of 2008.

The net interest margin (annualized tax-equivalent net interest income as a percentage of average earning assets) for the first quarter of 2009 was 2.39%, down 26 basis points from the fourth quarter of 2008 and down 20 basis points from the first quarter a year ago. The decrease in net interest margin reflects the elimination of FHLBB dividend income and margin compression resulting from a lagging effect of downward pricing of deposit rates in response to the Federal Reserve’s actions to reduce short-term interest rates.

Total noninterest income for the first quarter of 2009 increased $586 thousand, or 8 percent, from the fourth quarter of 2008 and decreased $3.1 million, or 28 percent, from the first quarter of 2008. Included in noninterest income in the first quarter of 2009 were net impairment losses of $2.0 million for investment securities deemed to be other-than-temporarily impaired. Impairment losses amounted to $2.9 million in the fourth quarter of 2008 and $858 thousand in the first quarter of 2008. Also included in noninterest income were net realized gains on securities of $57 thousand in the first quarter of 2009, compared to net realized gains of $315 thousand in the fourth quarter of 2008, resulting from a contribution of appreciated equity securities to the Corporation’s charitable foundation. In the first quarter of 2008, net realized gains on securities totaled $813 thousand.

Wealth management revenues for the first quarter of 2009 decreased $761 thousand, or 12 percent, from the fourth quarter of 2008 and $1.8 million, or 25 percent, from the first quarter a year ago. Wealth management revenues are largely dependent on the value of assets under administration and are closely tied to the performance of the financial markets. Assets under administration totaled $2.958 billion at March 31, 2009, down $189.7 million, or 6 percent, in the first quarter of 2009. Assets under administration were down $920.8 million, or 24 percent, from March 31, 2008. The decline in assets under administration was primarily due to lower valuations in the financial markets.

Net gains on loan sales and commissions on loans originated for others amounted to $1.0 million for the first quarter of 2009, up by $811 thousand from the fourth quarter of 2008 and by $553 thousand from the first quarter of 2008 due to strong residential mortgage refinancing and sales activity. Also included in noninterest income were net unrealized gains on interest rate swap contracts of $60 thousand in the first quarter of 2009, compared to net unrealized losses of $663 thousand in the fourth quarter of 2008 and net unrealized gains of $119 thousand in the first quarter a year ago.

Noninterest expenses amounted to $18.4 million for the first quarter of 2009, up $315 thousand, or 2 percent, from the fourth quarter of 2008 and up $1.2 million, or 7 percent, from the first quarter of 2008. The increase in noninterest expenses on both a linked quarter and year over year basis was largely due to an increase in the assessment rate of FDIC deposit insurance and a $250 thousand charge, reported in other noninterest expenses, associated with the repositioning of investment options in the Corporation’s 401(k) Plan. FDIC deposit insurance premiums for the first quarter of 2009 were up by $379 thousand from the fourth quarter of 2008 and by $395 thousand from the first quarter a year earlier.

Income tax expense amounted to $1.1 million for the three months ended March 31, 2009, as compared to $2.7 million for the same period in 2008. The Corporation’s effective tax rate for the first quarter of 2009 was 29.3%, as compared to 31.8% for the first quarter of last year.

ASSET QUALITY

The level of nonperforming assets and loan delinquencies increased in the first quarter of 2009. Nonperforming assets (nonaccrual loans, nonaccrual investment securities and property acquired through foreclosure) amounted to $17.5 million, or 0.60% of total assets, at March 31, 2009, compared to $8.8 million, or 0.30% of total assets, at December 31, 2008 and $5.7 million, or 0.22% of total assets, at March 31, 2008. Nonaccrual loans totaled $15.4 million at March 31, 2009, compared to $7.8 million at the end of 2008 and $5.7 million at March 31, 2008, with a $5.0 million increase in the nonaccrual commercial loans and a $2.3 million increase in nonaccrual residential mortgages. In the first three months of 2009 four commercial loan relationships totaling $4.8 million moved into the nonaccrual loan classification. Nonaccrual investment securities totaled $1.9 million at March 31, 2009, compared to $633 thousand at December 31, 2008. There were no nonaccrual investment securities as of March 31, 2008. Property acquired through foreclosure or repossession amounted to $170 thousand at March 31, 2009, compared to $392 thousand at December 31, 2008. There was no property acquired through foreclosure on the balance sheet at March 31, 2008.

Total 30 day+ delinquencies amounted to $22.1 million, or 1.18% of total loans, at March 31, 2009, up $4.5 million in the first quarter of 2009 and up $11.7 million from the balance at March 31, 2008. Commercial loan delinquencies amounted to $14.9 million, or 1.64% of total commercial loans, at March 31, 2009, an increase of $3.4 million in the first quarter of 2009.

Total residential mortgage and consumer loan 30 day+ delinquencies amounted to $7.2 million, or 0.75% of these loans, at March 31, 2009, an increase of $1.1 million in the first quarter of 2009. Total 90 day+ delinquencies in the residential mortgage and consumer loan categories amounted to $3.6 million (9 loans) and $7 thousand (2 loans), respectively, at March 31, 2009. Washington Trust has never offered a subprime residential loan program.

The Corporation’s loan loss provision charged to earnings amounted to $1.7 million for the first quarter of 2009, compared to $1.850 million for the fourth quarter of 2008 and $450 thousand for the first quarter of 2008. The provision for loan losses was based on management’s assessment of economic and credit conditions as well as growth in the loan portfolio. Net charge-offs amounted to $927 thousand in the first quarter of 2009, as compared to net charge-offs of $756 thousand in the fourth quarter of 2008 and $3 thousand in the first quarter of 2008. Commercial loan net charge-offs amounted to $810 thousand, or 87% of total net charge-offs, for the first quarter of 2009.

We believe that the declining credit quality trend is primarily related to a general weakening in national and regional economic conditions and that this trend may continue throughout 2009. Management will continue to assess the adequacy of the allowance for loan losses in accordance with its established policies. The allowance for loan losses was $24.5 million, or 1.31% of total loans, at March 31, 2009, compared to $23.7 million, or 1.29% of total loans, at December 31, 2008 and $20.7 million, or 1.30% of total loans, at March 31, 2008.

FINANCIAL CONDITION

Total loans grew by $26.8 million, or 1.5 percent, in the first quarter of 2009, led by commercial loan growth of $28.0 million, or 3 percent. First quarter 2009 growth was due primarily to increases in commercial and industrial loans.

The investment securities portfolio amounted to $834.0 million at March 31, 2009, down by $32.3 million from the balance at December 31, 2008. Washington Trust’s investment securities portfolio consists largely of mortgage-backed securities. All of the Corporation’s mortgage-backed securities are issued by U.S. Government agencies or U.S. Government-sponsored enterprises. At March 31, 2009, the net unrealized gain position on the investment securities portfolio was $782 thousand, including gross unrealized losses of $24.3 million. Approximately 85% of the gross unrealized losses on the investment securities portfolio were concentrated in variable rate trust preferred securities issued by financial services companies. During the first quarter of 2009, net impairment losses of $2.0 million were charged to earnings for securities deemed to be other-than-temporarily impaired. First quarter 2009 net impairment charges included $1.350 million on a pooled trust preferred debt security and $641 thousand on common and perpetual preferred stocks.

Washington Trust elected to early adopt the provisions of FASB Staff Position FAS 115-2 and FAS 124-2 "Recognition and Presentation of Other-Than-Temporary Impairments,” effective March 31, 2009. For securities not expected to be sold, this FASB Staff Position requires that the credit-related portion of other-than-temporary impairment losses be recognized in earnings while the noncredit-related portion is recognized in other comprehensive income. As a result of the adoption of this FASB Staff Position, in the first quarter of 2009 a $1.350 million credit-related impairment loss was recognized in earnings and a $2.3 million noncredit-related impairment loss was recognized in other comprehensive income for a pooled trust preferred debt security not expected to be sold. Also in accordance with this FASB Staff Position, Washington Trust reclassified the noncredit-related portion of an other-than-temporary impairment loss previously recognized in earnings in the fourth quarter of 2008. This reclassification was reflected as a cumulative effect adjustment of $1.2 million after taxes ($1.9 million before taxes) that increased retained earnings and decreased accumulated other comprehensive loss. This reclassification had a positive impact on regulatory capital and no impact on tangible equity.

Total deposits increased by $93.5 million, or 5 percent, from December 31, 2008 and by $249.3 million, or 15 percent, from March 31, 2008. In-market deposit growth during the first quarter of 2009 was $119.0 million, or 7 percent, led by an $84.4 million increase in money market and savings balances. Included in this increase was $47.9 million in wealth management client money market deposits. This balance represents the successful first quarter transition of balances previously held in outside money market funds to fully insured and collateralized deposits, in a manner similar to other financial institutions. Washington Trust also experienced growth in in-market consumer time deposits and NOW account balances in the first three months of 2009. In-market deposits have increased by $213.8 million, or 14 percent, from March 31, 2008.

Federal Home Loan Bank advances totaled $723.1 million at March 31, 2009, down by $106.5 million from the balance at December 31, 2008. During the first quarter of 2009, the Corporation paid $2.5 million, representing the final payment pursuant to the Stock Purchase Agreement for the August 2005 acquisition of Weston Financial Group, Inc. This deferred acquisition obligation had previously been recognized as a liability in 2008 and was classified in other borrowings at December 31, 2008.

DIVIDENDS DECLARED

The Board of Directors declared a quarterly dividend of 21 cents per share for the quarter ended March 31, 2009. The dividend was paid on April 14, 2009 to shareholders of record on March 31, 2009.

CONFERENCE CALL

Washington Trust Chairman and Chief Executive Officer John C. Warren, and David V. Devault, Executive Vice President, Chief Financial Officer and Secretary, will host a conference call on Monday, April 27, 2009 at 8:30 a.m. (Eastern Time) to discuss the Corporation’s first quarter results. This call is being webcast by SNL IR Solutions and can be accessed through the Investor Relations section of the Washington Trust website, www.washtrust.com, or may be accessed by calling (800) 860-2442, or (412) 858-4600 for international callers. A replay of the call will be posted in this same location on the website shortly after the conclusion of the call. To listen to a replay of the conference call, dial (877) 344-7529 and enter Conference ID #: 429617. The replay will be available until 9:00 a.m. on May 5, 2009.

BACKGROUND

Washington Trust Bancorp, Inc. is the parent of The Washington Trust Company, a Rhode Island state-chartered bank founded in 1800. Washington Trust offers personal banking, business banking and wealth management services through its offices in Rhode Island, Massachusetts and southeastern Connecticut. Washington Trust Bancorp, Inc.’s common stock trades on the Nasdaq Global Select^® Market under the symbol "WASH”. Investor information is available on the Corporation’s web site: www.washtrust.com.

FORWARD-LOOKING STATEMENTS

This press release contains certain statements that may be considered "forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, including statements regarding our strategy, effectiveness of investment programs, evaluations of future interest rate trends and liquidity, expectations as to growth in assets, deposits and results of operations, success of acquisitions, future operations, market position, financial position, and prospects, plans, goals and objectives of management are forward-looking statements. The actual results, performance or achievements of the Corporation could differ materially from those projected in the forward-looking statements as a result of, among other factors, changes in general national, regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets, volatility and disruption in national and international financial markets, government intervention in the U.S. financial system, 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, changes in the value of securities and other assets, reductions in loan demand, changes in loan collectibility, default and charge-off rates, 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, 2008, as filed with the Securities and Exchange Commission, 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 press release, and the Corporation assumes no obligation to update forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

(a) Net of other-than-temporary impairment losses recognized in earnings in accordance with FASB Staff Position FAS 115-2 and FAS 124-2.

(b) Standard & Poor’s ("S&P”).

(c) Consists of various series of trust preferred securities issued by seven corporate financial institutions.

(d) This investment security is not rated by S&P. As of March 31, 2009, 7 of the 38 pooled institutions have invoked their original contractual right to defer interest payments. Based on the financial condition and operating outlook of the pooled institutions, this investment security was deemed to be other-than-temporarily impaired at March 31, 2009 resulting in the recognition of net impairment losses in earnings of $1.350 million in the first quarter of 2009. This investment security was also placed on nonaccrual status as of March 31, 2009.

(e) This investment security is not rated by S&P. As of March 31, 2009, 6 of the 73 pooled institutions have invoked their original contractual right to defer interest payments. In the fourth quarter of 2008, the tranche held by Washington Trust began deferring interest payments until future periods. This investment security was also placed on nonaccrual status as of December 31, 2008. As a result of the early adoption of FASB Staff Position FAS 115-2 and FAS 124-2, Washington Trust reclassified the noncredit-related portion of the other-than-temporary impairment loss for this security previously recognized in earnings in the fourth quarter of 2008. This reclassification was reflected as a cumulative effect adjustment of $1.2 million after taxes ($1.9 million before taxes) that increased retained earnings and decreased accumulated other comprehensive loss. The amortized cost basis of this security was increased by the amount of the cumulative effect adjustment before taxes.

The following tables present average balance and interest rate information. Tax-exempt income is converted to a fully taxable equivalent basis using the statutory federal income tax rate. For dividends on corporate stocks, the 70% federal dividends received deduction is also used in the calculation of tax equivalency. Unrealized gains (losses) on available for sale securities are excluded from the average balance and yield calculations. Nonaccrual and renegotiated loans, as well as interest earned on these loans (to the extent recognized in the Consolidated Statements of Income) are included in amounts presented for loans.