Some of the factors that might cause these differences include the following:
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 Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, 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 quarterly 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.

Critical Accounting Policies
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, 2008, 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. As a result of the early adoption of FSP No. FAS 115-2 and FAS 124-2 effective January 1, 2009, the Corporation has revised its critical accounting policy pertaining to other-than-temporary impairment of investment securities. FSP No. FAS 115-2 and FAS 124-2 applied to existing and new debt securities held by the Corporation as of January 1, 2009, the beginning of the interim period in which it was adopted. Therefore, the revised accounting policy below represents the only change in the Corporation's critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and applies prospectively beginning January 1, 2009.

Valuation of Investment Securities for Impairment Securities available for sale are carried at fair value, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in shareholders' equity. The fair values of securities are based on either quoted market prices, third party pricing services or third party valuation specialists. When the fair value of an investment security is less than its amortized cost basis, the Corporation assesses whether the decline in value is other-than-temporary. The Corporation considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for impairment, the severity and duration of the impairment, changes in the value subsequent to the reporting date, forecasted performance of the issuer, changes in the dividend or interest payment practices of the issuer, changes in the credit rating of the issuer or the specific security, and the general market condition in the geographic area or industry the issuer operates in.

Future adverse changes in market conditions, continued poor operating results of the issuer, projected adverse changes in cash flows which might impact the collection of all principal and interest related to the security, or other factors could result in further losses that may not be reflected in an investment's current carrying value, possibly requiring an additional impairment charge in the future.

Equity securities:
In determining whether an other-than-temporary impairment has occurred for common equity securities, the Corporation also considers whether it has the ability and intent to hold the investment until a market price recovery in the foreseeable future. Management evaluates the near-term prospects of the issuers in relation to the severity and duration of the impairment. If necessary, the investment is written down to its current fair value through a charge to earnings at the time the impairment is deemed to have occurred.

With respect to perpetual preferred stocks, the Corporation's assessment of other-than-temporary impairment is made using an impairment model (including an anticipated recovery period) similar to a debt security, provided there has been no evidence of a deterioration in credit of the issuer.

Debt securities:
In determining whether an other-than-temporary impairment has occurred for debt securities, the Corporation compares the present value of cash flows expected to be collected from the security with the amortized cost of the security. If the present value of expected cash flows is less than the amortized cost of the security, then the entire amortized cost of the security will not be recovered, that is, a credit loss exists, and an other-than-temporary impairment shall be considered to have occurred.

With respect to holdings of collateralized debt obligations representing pooled trust preferred debt securities, estimates of cash flows are evaluated upon consideration of information including, but not limited to, past events, current conditions, and reasonable and supporting forecasts for the respective holding. Such information generally includes the remaining payment terms of the security, prepayments speeds, the financial condition of the issuer(s), expected defaults, and the value of any underlying collateral. The estimated cash flows shall be discounted at a rate equal to the current yield used to accrete the beneficial interest.

When an other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment recognized in earnings for a debt security depends on whether the Corporation intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost less any current period credit loss. If the Corporation intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost, the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the amortized cost and fair value of the security. If the Corporation does not intend to sell or more likely than not will not be required to sell the security before recovery of its amortized cost, the amount of the other-than-temporary impairment related to credit loss shall be recognized in earnings and the noncredit-related portion of the other-than-temporary impairment shall be recognized in other comprehensive income.

Overview
Washington Trust offers a comprehensive product line of financial services to individuals and businesses including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management services through its offices in Rhode Island, Massachusetts and southeastern Connecticut, ATMs, and its Internet website (www.washtrust.com).

Our largest source of operating income is net interest income, the difference between interest earned on loans and securities and interest paid on deposits and other borrowings. In addition, we generate noninterest income from a number of sources including wealth management services, deposit services, merchant credit card processing, bank-owned life insurance, loan sales, commissions on loans originated for others and sales of investment securities. Our principal noninterest expenses include salaries and employee benefits, occupancy and facility-related costs, merchant processing costs, technology and other administrative expenses.

Our financial results are affected by interest rate volatility, changes in economic and market conditions, competitive conditions within our market area and changes in legislation, regulation and/or accounting principles. During the latter part of 2008 and continuing into 2009, market and economic conditions have been severely impacted by deterioration in credit conditions as well as illiquidity with respect to various parts of the financial markets and elevated levels of volatility. Concerns about future economic growth, lower consumer confidence, contraction of credit availability and lower corporate earnings continue to challenge the economy. The rate of unemployment continued to increase, reaching its highest level in several years. Corporate and related counterparty credit spreads widened and heightened concerns about numerous financial services companies adversely impacted the financial markets. As a result of these unparalleled

Management believes that the downturn in the local and national economies negatively impacted the credit quality of our loans, particularly in our commercial portfolio. We have increased the allowance for loan losses in response to this condition as well as growth in the portfolio. In response to these conditions, the Corporation has continued to refine its loan underwriting standards and has continued to enhance its credit monitoring and collection practices. The weakness in the financial markets as described above also contributed to declines in the values of portions of our investment securities portfolio as well as declines in wealth management assets under administration during the last twelve months.

Composition of Earnings
Net income for the second quarter of 2009 amounted to $3.8 million, or 23 cents per diluted share; compared to $6.1 million, or 45 cents per diluted share, reported for the second quarter a year earlier. The returns on average equity and average assets for the second quarter of 2009 were 6.22% and 0.52%, respectively, compared to 12.88% and 0.92%, respectively, for the same quarter in 2008.

Net income for the six months ended June 30, 2009 amounted to $6.4 million, or 40 cents per diluted share, compared to the $11.9 million, or 88 cents per diluted share, for the same period in 2008. The returns on average equity and average assets for the first six months of 2009 were 5.36% and 0.44%, respectively, compared to 12.55% and 0.91%, respectively, for the first six months of 2008. Earnings in 2009 were influenced by several factors as described below.

Net interest income for the second quarter of 2009 remained essentially flat compared to the second quarter a year ago. On a year-to-date basis, net interest income increased $937 thousand, or 3 percent, from 2008. No quarterly dividend has been received from the FHLB in 2009. Dividend income on the Corporation's investment in FHLB stock totaled $344 thousand and $789 thousand for the three and six months ended June 30, 2008, respectively.

The loan loss provision charged to earnings amounted to $3.0 million and $4.7 million for the three and six months ended June 30, 2009, respectively. Comparable amounts for the same periods in 2008 were $1.4 million and $1.85 million, respectively. The provision for loan losses was based on management's assessment of economic and credit conditions, with particular emphasis on commercial and commercial real estate categories, as well as growth in the loan portfolio.

Revenue from wealth management services, our primary source of noninterest income, is largely dependent on the value of assets under administration. Wealth management revenues for the three and six months ended June 30, 2009 were down by $1.7 million and $3.5 million, respectively, from the same periods in 2008. The decline in the revenue source was primarily due to lower valuations in the financial markets in 2009, compared to the same periods in 2008.

Due to strong residential mortgage refinancing and sales activity, net gains on loan sales and commissions on loans originated for others for the second quarter and first half of 2009 increased by $1.1 million and $1.7 million from the same periods in 2008.

Results for the first half of 2009 included net impairment losses of $2.0 million charged to earnings in the first quarter of 2009 for securities deemed to be other-than-temporarily impaired. Net impairment losses totaled $2.0 million in the first half of 2008 for securities deemed to be other-than-temporarily impaired in the first and second quarters of that year. Also included in noninterest income in the three and six months ended June 30, 2009, were net realized gains on securities of $257 thousand and $314 thousand, respectively. Comparable amounts for the same periods in 2008 were $1.1 million and $1.9 million, respectively.

In the second quarter of 2009, the Corporation recognized a Federal Deposit Insurance Corporation ("FDIC") special assessment of $1.35 million ($869 thousand after tax; or 5 cents per diluted share). FDIC deposit insurance costs totaled $2.1 million for the second quarter of 2009, up by $1.9 million from the second quarter a year earlier. On a year-to-date basis, FDIC deposit insurance costs have increased by $2.3 million over 2008 reported amounts. In addition to the second quarter of 2009 special FDIC assessment, the year over year increase in FDIC deposit insurance costs also reflects higher assessment rates, which are generally expected to continue in effect for the foreseeable future.

During thr first half of 2009, the Bank continued to experience firm demand for commercial loans in a large part due to decreased lending activity by larger institutions in its lending area. As a result, the bank continued to selectively expand its commercial lending relationships with new and existing customers while at the same time maintaining its traditional commercial lending underwriting standards. Also during the first half of 2009, the investment securities portfolio declined by approximately $90 million largely due to maturities and pay-downs on mortgage-backed securities. Management has elected not to increase the portfolio primarily due to a lack of attractive investment opportunities in the current environment.

Results of Operations
Segment Reporting
Washington Trust manages its operations through two business segments, Commercial Banking and Wealth Management Services. The Commercial Banking segment includes commercial, commercial real estate, residential and consumer lending activities; mortgage banking, secondary market and loan servicing activities; deposit generation; merchant credit card services; cash management activities; and direct banking activities, which include the operation of ATMs, telephone and internet banking services and customer support and sales. Wealth Management Services includes asset management services provided for individuals and institutions; personal trust services, including services as executor, trustee, administrator, custodian and guardian; corporate trust services, including services as trustee for pension and profit sharing plans; and other financial planning and advisory services. All other activity, such as the investment securities portfolio, wholesale funding activities and administrative units, are not related to the segments and are considered Corporate. See Note 12 to the Consolidated Financial Statements for additional disclosure related to business segments.

The Commercial Banking segment net income for three and six months ended June 30, 2009 declined by $573 thousand and $856 thousand, respectively, from the amounts reported for the comparable 2008 periods. Net interest income increased by approximately 10% over 2008 amounts reflecting growth in average loan balances and lower deposit costs. Noninterest income derived from the Commercial Banking segment also increased over 2008 reported amounts largely due to increases in net gains on loan sales and commissions on loans originated for others. The increases in net interest income and noninterest income were offset by a higher loan loss provision and an increase in Commercial Banking other noninterest expenses in 2009, as compared to 2008. The increase in other noninterest expenses was attributable to increases in salaries and benefits and higher FDIC deposit insurance costs, including the second quarter 2009 special FDIC assessment.

The Wealth Management Services segment net income for three and six months ended June 30, 2009 fell by $762 thousand and $2.0 million, respectively, from the amounts reported for the comparable 2008 periods. Noninterest income derived from the Wealth Management Services segment is dependent to a large extent on the value of assets under administration and is closely tied to the performance of the financial markets. Noninterest expenses for the Wealth Management Services segment also declined in 2009, as compared to 2008, reflecting lower incentive-based compensation.

Net Interest Income
Net interest income is the difference between interest earned on loans and securities and interest paid on deposits and other borrowings, and continues to be the primary source of Washington Trust's operating income. Net interest income is affected by the level of interest rates, changes in interest rates and changes in the amount and composition of interest-earnings assets and interest-bearing liabilities. Included in interest income are loan prepayment fees and certain other fees, such as late charges.

Net interest income for the second quarter and first half of 2009 increased by $54 thousand and $937 thousand, respectively, from the same periods a year earlier. Included in net interest income in second quarter and first half of 2008 was dividend income on the Corporation's investment in FHLB stock of $344 thousand and $789 thousand, respectively. No quarterly dividend has been received from FHLB in 2009.

The following discussion presents net interest income on a fully taxable equivalent ("FTE") basis by adjusting income and yields on tax-exempt loans and securities to be comparable to taxable loans and securities. For more information see the section entitled "Average Balances / Net Interest Margin - Fully Taxable Equivalent (FTE) Basis" below.

FTE net interest income for the second quarter and first half of 2009 increased by $46 thousand and $918 thousand, respectively, from the same periods in 2008. The net interest margin (FTE net interest income as a percentage of

Average interest-earning assets for the three and six months ended June 30, 2009 increased $265.5 million and $317.8 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, 2009 increased $232.0 million and $246.2 million, respectively, from the same periods in 2008 largely due to growth in the commercial loan portfolio. The yield on total loans for the second quarter and first half of 2009 decreased by 81 basis points and 91 basis points, respectively, from the comparable 2008 periods, reflecting declines in short-term interest rates. Total average securities for the three and six months ended June 30, 2009 increased by $29.7 million and $62.9 million, respectively, from the same periods last year due largely to purchases of mortgage-backed securities issued by U.S. government agencies and government-sponsored enterprises 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 six months of 2009 decreased by 61 basis points and 60 basis points, respectively, from the same periods in 2008. The decrease in the total yield on securities reflects lower yields on variable rate securities tied to short-term interest rates.

For the three and six months ended June 30, 2009, average interest-bearing liabilities increased by $206.6 million and $257.8 million, respectively, from the amounts reported for the same periods in 2008 primarily due to growth in deposits. A significant portion of growth in average deposit balances was concentrated in time deposits. The average balance of time deposits for the second quarter and first half of 2009 increased by $182.7 million and $171.1 million, respectively, while the average rate paid on time deposits decreased by 82 basis points and 95 basis points, respectively, from the same periods in 2008. Time deposits include out-of-market 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 out-of-market brokered certificates of deposit for the three and six months ended June 30, 2009 increased by $36.2 million and $38.9 million, respectively, from the same periods in 2008. The average rate paid on out-of-market brokered certificates of deposit for the three and six months ended June 30, 2009 decreased by 29 basis points and 28 basis points, respectively, from the comparable periods in 2008. The average balance of money market accounts for the three and six months ended June 30, 2009 increased by $61.5 million and $49.4 million, respectively, while the average rate paid on such accounts decreased 81 basis points and 121 basis points, respectively, from the same periods a year earlier. The increase in money market account balances includes the successful first quarter 2009 transition of wealth management client money market deposits previously held in outside money market funds to fully insured and collateralized deposits. The growth in deposits enabled the Corporation to reduce its level of FHLB advances in the second quarter of 2009. The average balance of FHLB advances for the three months ended June 30, 2009 decreased by $61.6 million and the average rate paid on such advances decreased 4 basis points from the same period a year earlier. For the first half of 2009, the average balance of FHLB advances increased by $17.5 million and the average rate paid on such advances decreased by 30 basis points, from the same period last year.

Three months ended June 30,                    2009                                         2008
                                 Average                     Yield/           Average                     Yield/
(Dollars in thousands)           Balance       Interest       Rate            Balance       Interest       Rate
Assets:
Commercial and other loans     $   637,633     $   8,550        5.38 %      $   598,274     $   8,257        5.55 %
Residential real estate
loans, including
mortgage loans held for sale       916,329        12,270        5.37 %          749,468        12,135        6.51 %
Consumer loans                     323,629         3,378        4.19 %          297,802         4,059        5.48 %
Total loans                      1,877,591        24,198        5.17 %        1,645,544        24,451        5.98 %
Cash, federal funds sold
and other short-term
investments                         12,459             9        0.27 %           12,214            50        1.64 %
FHLB stock                          42,008             -           - %           38,475           344        3.59 %

Taxable debt securities            723,199         7,588        4.21 %          687,461         8,302        4.86 %
Nontaxable debt securities          80,672         1,166        5.80 %           81,649         1,152        5.67 %
Corporate stocks                     5,600            75        5.40 %           10,694           201        7.57 %
Total securities                   809,471         8,829        4.37 %          779,804         9,655        4.98 %
Total interest-earning
assets                           2,741,529        33,036        4.83 %        2,476,037        34,500        5.60 %
Non interest-earning assets        182,473                                      165,806
Total assets                   $ 2,924,002                                  $ 2,641,843
Liabilities and
Shareholders' Equity:
NOW accounts                   $   180,969     $      78        0.17 %      $   167,755     $      81        0.19 %
Money market accounts              376,559           917        0.98 %          315,075         1,399        1.79 %
Savings accounts                   188,208           123        0.26 %          174,897           218        0.50 %
Time deposits                      965,492         7,363        3.06 %          782,825         7,550        3.88 %
FHLB advances                      693,860         7,112        4.11 %          755,455         7,794        4.15 %
Junior subordinated
debentures                          32,991           479        5.82 %           32,311           509        6.34 %
Other                               20,805           244        4.70 %           24,016           275        4.60 %
. . .