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 provisions of ASC 320, "Investments - Debt and Equity Securities," effective January 1, 2009, the Corporation has revised its critical accounting policy pertaining to other-than-temporary impairment of investment securities. These provisions 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, prepayment 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

market conditions, federal government agencies initiated several intervention actions in the U.S. financial services industry.

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. In addition, wealth management revenues are largely dependent on the value of assets under administration and are closely tied to the performance of the financial markets.

Composition of Earnings
Net income for the third quarter of 2009 amounted to $4.9 million, or 31 cents per diluted share, compared to $6.0 million, or 44 cents per diluted share, reported for the third quarter a year earlier. The returns on average equity and average assets for the third quarter of 2009 were 7.94% and 0.68%, respectively, compared to 12.94% and 0.88%, respectively, for the same quarter in 2008.

Net income for the nine months ended September 30, 2009 amounted to $11.3 million, or 71 cents per diluted share, compared to $18.0 million, or $1.32 per diluted share, for the same period in 2008. The returns on average equity and average assets for the first nine months of 2009 were 6.24% and 0.52%, respectively, compared to 12.68% and 0.90%, respectively, for the first nine months of 2008. Earnings in 2009 were influenced by several factors as described below.

Net interest income for the third quarter of 2009 remained essentially flat compared to the third quarter a year ago. On a year-to-date basis, net interest income increased $1.0 million, or 2 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 $292 thousand and $1.1 million for the three and nine months ended September 30, 2008, respectively.

The loan loss provision charged to earnings amounted to $1.8 million and $6.5 million for the three and nine months ended September 30, 2009, respectively. Comparable amounts for the same periods in 2008 were $1.1 million and $3.0 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 nine months ended September 30, 2009 were down by $1.1 million and $4.7 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. While the balance of assets under administration at September 30, 2009 was approximately the same as the balance a year earlier, the average balances for the three and nine months ended September 30, 2009 were lower than the comparable average balances 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 third quarter and first nine months of 2009 increased by $352 thousand and $2.0 million from the same periods in 2008.

Net impairment losses of $467 thousand were charged to earnings in the third quarter of 2009 for an investment security deemed to be other-than-temporarily impaired at September 30, 2009. Impairment losses of $982 thousand were recognized in the third quarter of 2008 for securities deemed to be other-than-temporarily impaired in the third quarter of that year. For the nine months ended September 30, 2009 and 2008, net impairment losses recognized in earnings totaled $2.5 million and $3.0 million, respectively. Also included in noninterest income in the nine months ended September 30, 2009 and 2008, were net realized gains on securities of $314 thousand and $1.9 million, respectively.

Noninterest expenses for the third quarter of 2009 increased by $721 thousand, or 4 percent, from the third quarter of 2008, which included a $543 thousand increase in Federal Deposit Insurance Corporation ("FDIC") deposit insurance costs. On a year-to-date basis, total noninterest expenses increased by $4.2 million, or 8 percent, from 2008, which included a $2.8 million increase in FDIC deposit insurance costs. In the second quarter of 2009, the Corporation recognized a FDIC special assessment of $1.35 million ($869 thousand after tax). In addition to the special 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 the first nine months of 2009, the Bank continued to experience firm demand for commercial loans in 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 seeking to maintain its traditional commercial lending underwriting standards. Also during the first nine months of 2009, the investment securities portfolio declined by approximately $134 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 nine months ended September 30, 2009 declined by $1.5 million and $1.6 million, respectively, from the amounts reported for the comparable 2008 periods. On a year-to-date basis, net interest income increased by approximately 4% over 2008 amounts reflecting growth in average loan balances and lower deposit costs, offset in part by the elimination of FHLB dividend income as well as the impact of higher levels of nonaccrual loans in 2009. 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 nine months ended September 30, 2009 fell by $311 thousand and $2.4 million, respectively, from the amounts reported for the comparable 2008 periods. Noninterest income derived from the Wealth Management Services segment for three and nine months ended September 30, 2009 decreased by 16% and 21%, respectively, from comparable 2008 periods. This revenue 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 third quarter and first nine months of 2009 increased by $82 thousand and $1.0 million, respectively, from the same periods a year earlier. Included in net interest income in third quarter and first nine months of 2008 was dividend income on the Corporation's investment in FHLB stock of $292 thousand and $1.1 million, respectively. No 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 third quarter and first nine months of 2009 increased by $87 thousand and $1.0 million, respectively, from the same periods in 2008. The net interest margin (FTE net interest income as a percentage of average interest-earnings assets) for the third quarter and first nine months of 2009 decreased by 11 basis points and 19 basis points, respectively, from the comparable 2008 periods. The quarter and year-to-date declines in the net interest margin from 2008 reflect the elimination of the FHLB dividend income, margin compression, in general, on core deposit rates following the Federal Reserve's actions to reduce short-term interest rates in late 2008 and early 2009, and the impact of higher levels of nonaccrual loans in 2009 compared to 2008.

Average interest-earning assets for the three and nine months ended September 30, 2009 increased $127 million and $254 million, respectively, from the same periods a year earlier. This increase primarily reflects growth in the loan portfolio. Total average loans for the three and nine months ended September 30, 2009 increased $175 million and $222 million, respectively, from the same periods in 2008 largely due to growth in the commercial loan portfolio. The yield on total loans for the third quarter and first nine months of 2009 decreased by 80 basis points and 87 basis points, respectively, from the comparable 2008 periods, reflecting declines in short-term interest rates. Total average securities for the third quarter of 2009 decreased by $35 million from the same quarter in 2008, largely due to maturities and pay-downs on mortgage-backed securities. On a year-to-date basis, total average securities increased by $30 million from the same period in 2008, due largely to purchases of mortgage-backed securities issued by U.S. government agencies and government-sponsored enterprises during the fourth quarter of 2008. The FTE rate of return on securities for the third quarter and first nine months of 2009 decreased by 59 basis points, as compared to 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 nine months ended September 30, 2009, average interest-bearing liabilities increased by $66 million and $193 million, respectively, from the amounts reported for the same periods in 2008 primarily due to growth in deposits, offset in part by declines in FHLB advances. The increase in deposits 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. This resulted in a $46 million year-to-date increase in average interest-bearing deposits. For the third quarter and first nine months of 2009, average interest-bearing deposits increased by $154 million and $211 million, respectively, from the same periods a year earlier. The average rate paid on interest-bearing deposits for the three and nine months ended September 30, 2009 decreased by 78 basis points and 77 basis points, respectively from the comparable periods in 2008. Interest-bearing 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 nine months ended September 30, 2009 decreased by $81 million and $1 million, respectively, from the same periods in 2008. The average rate paid on out-of-market brokered certificates of deposit for the three and nine months ended September 30, 2009 decreased by 12 basis points and 21 basis points, respectively, from the comparable periods in 2008. Excluding out-of-market brokered certificates of deposit, average in-market interest-bearing deposits or the third quarter and first nine months of 2009 increased by $235 million and $212 million, respectively, from the same periods a year earlier. The average rate paid on in-market interest-bearing deposits for the three and nine months ended September 30, 2009 decreased by 71 basis points and 80 basis points, respectively from the comparable periods in 2008.

The growth in deposits enabled the Corporation to reduce its level of FHLB advances in 2009. The average balance of FHLB advances for the three and nine months ended September 30, 2009 decreased by $86 million and $17 million, respectively, from the same period in 2008. The average rate paid on such advances for the three and nine months ended September 30, 2009 decreased 2 basis points and 20 basis points, respectively, from the same periods a year earlier.

Average Balances / Net Interest Margin - Fully Taxable Equivalent (FTE) Basis The following tables present average balance and interest rate information. Tax-exempt income is converted to a fully taxable equivalent ("FTE") basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. 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.

Three months ended
September 30,                                     2009                                        2008
                                    Average                     Yield/          Average                     Yield/
(Dollars in thousands)              Balance       Interest       Rate           Balance       Interest       Rate
Assets:
Commercial and other loans        $   969,215     $  12,850        5.26 %     $   812,749     $  12,834        6.28 %
Residential real estate loans,
including
mortgage loans held for sale          616,825         8,113        5.22 %         619,288         8,629        5.54 %
Consumer loans                        324,306         3,390        4.15 %         303,745         4,106        5.38 %
Total loans                         1,910,346        24,353        5.06 %       1,735,782        25,569        5.86 %
Cash, federal funds sold
and other short-term
investments                            18,962            13        0.28 %          31,213           128        1.63 %
FHLB stock                             42,008             -           - %          42,008           292        2.76 %

Taxable debt securities               664,923         7,028        4.19 %         696,815         8,504        4.85 %
. . .