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Executive

John Warren - Chairman and Chief Executive Officer

David Devault - Executive Vice President, Secretary, Treasurer and Chief Financial Officer

Analyst

John Stewart - Sandler O'Neill Asset Management

Laurie Hunsicker - Stifel Nicholas

Frank Schiraldi - Sandler O'Neill

Washington Trust Bancorp Inc. (WASH) Q3 2008 Earnings Call October 21, 2008 8:30 AM ET

Operator

Hello and welcome to the Q3 2008 Washington Trust Bancor Inc earnings conference call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. (Operator Instructions) Now I would like to turn the conference over to Elizabeth Eckel. Ms. Eckel you may begin.

Elizabeth Eckel

Thank you, Nicky. Good morning everyone and welcome to the quarterly earnings conference call for Washington Trust Bancorp, Inc., with NASDAQ Global Market symbol (WASH).

This morning’s conference call is being recorded and is being web-cast live and a web-cast replay of this conference call will be available shortly after the conference call through the corporation’s website at www.washtrust.com in the Investor Relations section under the sub-head Presentations. However, the information we provide during today’s call is accurate only as of this date and you should not rely on these statements after the conclusion of the call.

Hosting this morning’s discussion is John C. Warren, Chairman and Chief Executive Officer; and David V. Devault, Executive Vice President, Secretary, Treasurer and Chief Financial Officer and now I’m pleased to introduce Washington Trust’s Chairman and CEO, John Warren.

John Warren

Thank you, Beth. I’d like to welcome everyone and thank you for joining us today. Yesterday we released our earnings to the third quarter ended September 30. This morning David and I will discuss these results and answer any questions you may have about our performance.

I’m pleased to report that Washington Trust recorded another solid performance despite the economic recession and the upheaval in the financial markets. For the third quarter ended September 30, net income totaled $6 million which is down from the $6.6 million earned a year ago.

Diluted earnings per share were $0.44 compared to $0.48 per diluted share reported last year. Asset quality continues to remain good and strong and Washington Trust continues to be well capitalized.

In addition as you all know, just after the close of the third quarter, Washington Trust raised $50 million in new capital through a private equity issue and some pipe deal. This capital, we use to take advantage of strategic growth opportunities, particularly in the areas of commercial banking and wealth management. Washington Trust is a solid financial institution and this additional capital just makes us stronger.

Over the past year we have expressed concern about the economy and the spill over effect from the sub prime crisis would be on the financial services industry. No one could have predicted the upheaval and the series of events that have taken place over the past several weeks. We saw several of the nations top financial institutions fail; investment banking firms, those that are left converted to bank charters and a $700 billion government rescue program. Needless to say, our industry and the competitive landscape have changed dramatically and will continue to do so.

How has all of this affected Washington Trust? In these uncharted waters we have stayed the course. We have remained focused and disciplined and we’re persevered. Washington Trust has a strong heritage that during these uncertain times, many depositors and borrowers have looked to us for guidance. In several respects we have benefited from the disruption in the market place.

Now I’d like to discuss some of the quarter’s highlights. Total loans increased $63.4 million during the quarter with almost $47 million of that increase attributable to growth in commercial loans and commercial real estate. In fact this was our eighth straight quarter of firm commercial loan growth.

Year-over-year commercial loans have increased $192 million or 30%. This double digit growth conforms that Washington Trust is one of the areas top lenders for businesses, both large and small. We continue to be a leading resource for business in our market.

Recently our Chief Credit Officer participated in a forum with Rhode Island’s governor, the small business administration and other business leaders. He advised small business owners not to panic, but to take a big breath and to look at this as an opportunity. He reminded them that Washington Trust is still lending money to qualified borrowers.

The media some how misses that we as well as several others are still lending money. This message continues to resonate with many businesses and with some borrowers, who have been displaced by the larger institutions, they have turned to Washington Trust and that’s been part of our growth as we have mentioned to you before.

It’s important to note that that commercial loan growth is comprised of quality credits. We have not relaxed our credit standards to bolster the balance sheet. We have disciplined credit criteria and maintained adequate reserves, commensurate with the current economic conditions. Once again, asset quality remains strong.

Let me now turn to Wealth Management, a key line of business for us and one that provides a key source of non-interest income for the corporation. Wealth Management revenues declined by 6% from the second quarter of 2008 and we are essentially flat from the same period a year ago.

Assets under administration stood at $3.6 billion at September 30 and were down primarily due to the significant decrease in valuations in the financial markets. In prior quarters we reported good new business growth, but the pact slowed considerably in the third quarter due to increased uncertainty and unrest on Wall Street and the global markets.

The best strategy during these times is communication and we’ve been doing that with our clients; we have good relationships with them. Our wealth management professionals working one-on-one with clients, advising them on both the status of their investment portfolios, but also on the markets as well.

On the residential mortgage and the home equity side, demand has been relatively flat. Decreased consumer confidences, fueled by unemployment and decreased housing valuations, have continued to effect demand. Although on the positive side, in-market deposits grew by $53.5 million or 3.6% during the quarter, but again market unrests let some nervous depositors to come to the bank to ensure their deposits were within FDIC limits.

We haven’t had any major deposit outflows, but media stories advising consumers to put money under their mattresses doesn’t help consumer confidence. The recent increase in FDIC limits to $250,000 and the discussions on providing 100% coverage for demand deposits have certainly helped ease depositors concern. In addition Washington Trust has provided another solution where we now provide depositors with access to up to $50 million in FDIC insurance through the Cedar’s program, which I believe were mentioned to you in the last quarter.

At this juncture, I would like to turn it over to Dave Devault to provide more detail on the third quarter financials; David.

Dave Devault

Thank you, John. Good morning everyone. Thank you for joining us on our call today. I’ll be reviewing the third quarter operating results and our financial position as described in our press release yesterday.

Net income for the third quarter of 2008 was $6 million or $0.44 per diluted share, compared to $6.6 million or $0.48 per diluted share reported for the third quarter of 2007. For the nine month period ended September 30, 2008 net income was $18 million or $1.32 per diluted share, substantially the same as the amounts reported for the same period last year.

The churn on average equity in the third quarter was 12.94% and it was 12.68% for the first nine months of this year. This compares to 14.99% in the third quarter last year and 13.74% for the nine month period last year.

There was some items of note in the earnings securities losses charged to earnings of $982,000, were recognized in the third quarter of this year on Freddie Mac and Fanny Mae perpetual preferred stock holdings which were deemed to be other than temporarily impaired. On an after tax basis this amounted to $669,000 or $0.05 per diluted share.

In addition, an income tax benefit of $841,000 or $0.06 per diluted share was recognized in the third quarter based on an increase in net differed tax assets resulting from a change in a state corporate income tax rate in the state calculation method which was enacted during the quarter.

Net interest income for the third quarter this year was $16.6 million up $437,000 or 2.7% on a linked quarter basis and up $1.3 million or 8.7% from the third quarter a year ago. The increase in the second quarter reflects how you’re earning asset levels, while the increase from a year ago reflects both growth and interest earning assets and lower deposit costs.

The net interest margin for the third quarter of 2008 was 2.62%, down nine basis points from the second quarter and down 19 basis points from the third quarter a year ago. The decline in the margin reflects decreases in yields on variable rate commercial and consumer loans and with less commensurate reduction and deposit rates paid during the same period.

In addition approximately five basis points of the margin decline from the second quarter to the third quarter was attributable to several additional factors including among other things the cost of temporarily maintaining lower yield and short term assets for balance sheet management purposes and a reduction in the dividend yield in our internal corporations investment and federal home loan Bank of Boston stock.

Turning to the loan loss provision, it was $1.1 million in the third quarter, an increase of $800,000 from the third quarter a year ago and down $300,000 from the second quarter of this year and that provision was largely due to growth in our loan portfolio as well as ongoing evaluation of credit quality and general economic conditions.

On the balance sheet, total loan growth was $63.4 million or 3.7% in the quarter and its $195.4 million or 12.4% since the beginning of the year. As John mentioned commercial loan growth continued at a firm pace for the eighth consecutive quarter, was $47 million or 5.9% in the third quarter and commercial loans are up by $192 million or 30% in the last 12 months.

Residential mortgages and consumer loans grew at a more moderate pace with residential growth of 1.6% for the quarter and consumer loan growth of 2.2% for the quarter. The investment securities portfolio stood at $753 million at the end of the third quarter, down $36.8 million for the quarter, including a decrease of $20 million in mortgage backed securities.

Total deposits rose by $128 million in the third quarter and they are up by $91 million in the first nine months. Excluding out-of-market brokerage certificates of deposit, in-market deposits grew by $53.5 million or 3.6% in the third quarter and they were up $32.9 million or 2.2 % from the end of 2007. In-market deposit growth in the most recent quarter reflected increases in certificates of deposit while now savings and money market balances declined.

Looking at non-interest income, the non-interest income in the third quarter of this year declined $1.6 million from the second quarter and $1.3 million from the third quarter of last year. That decline was largely due to the recognition of the previously described impairment charge of $982,000 on Fanny Mae and Freddie Mac perpetual preferred stock holdings. It was only a minor amount of securities gains and losses in the second quarter and there were none in the third quarter of last year.

Wealth management revenues were essentially flat for the third quarter of last year and are down by $459,000 on a linked quarter basis. In the second quarter of this year, there was $353,000 of seasonal tax preparation fee revenues.

Wealth management revenues are of course dependant to a large extent on the value of assets under administration. Wealth management assets have been affected by lower valuations in the financial markets and were down by $299 million or 7.6% in the third quarter and stood at just over $3.6 billion at the end of the quarter and they are down 10% from a year ago.

Non-interest expenses were $18.5 million in the third quarter up 2.3% from the second quarter and up 6.7% from the third quarter a year ago. The increase on a linked quarter basis compared to the second quarter includes an expected seasonal increase of $259,000 in merchant processing expenses and above 40% of the increase from a year ago represents cost attributable to our wealth management business, as well as an increase in FDIC deposit insurance costs.

Earlier I mentioned the $841,000 non-core income tax benefit. Excluding the effect of this, the effect of tax rate for the third quarter was 32.2% compared to 31.6% for the second quarter and 31.3% for the third quarter last year. We currently expect the fourth quarter effective tax rate to be approximately 31.8%.

Let me now discuss asset quality. Non-performing assets remain at manageable levels at $6.8 million or 0.25% of total assets at the end of the third quarter compared to $6.2 million or 0.23% of total assets at the end of the second quarter and up from $4.3 million at the end of 2007. Properties acquired to fore closure or repossession amounted to $113,000 at the end of the third quarter.

Non-accrual loans as a percent of total loans stood at 0.38% at the end of the third quarter, up slightly from 0.36% at the end of the second quarter and up from 0.27% at the end of 2007. Total 30 day plus delinquencies were $11.2 million, down $3.8 million in the quarter and up $4.2 million in the first nine months of this year. The decline in delinquencies in the third quarter was primarily due to one commercial mortgage relationship of $3.5 million which was brought current by the borrower during the quarter. Commercial loans make up 80% of total delinquencies at September 30 2008.

Meanwhile in the residential mortgage and consumer loan categories, delinquencies were fairly stable in both the third quarter and the first nine months of this year and amounted to $2.2 million or 0.24% of those loan categories at the end of the third quarter.

Total 90 day delinquencies in the residential mortgage and consumer loan categories amounted to only $188,000 in residential and $48,000 in the consumer category at the end of the third quarter. Total non-accrual loans which include the 90 day delinquencies were $962,000 in the residential category at the end of the third quarter and $208,000 in the consumer loan category.

As I indicated earlier, the loan loss provision charged to earnings in the third quarter was $1.1 million; that compares to $1.4 million in the second quarter and $300,000 in the third quarter a year ago. Our provision is based on our assessment of various factors affecting the portfolio including growth, our ongoing evaluation of credit quality, the particular emphasis on the commercial portfolio and overall economic conditions.

Net charge offs in the third quarter were $432,000 compared to $161,000 in the second quarter and $155,000 in the third quarter last year. $385,000 of that $432,000 in the third quarter were commercial loans.

The allowance for loan losses was $22.6 million at the end of September. Our coverage ratios remained good with an allowance of 1.28% of total loans and an allowance to non-performing loans ratio of 337%.

During the third quarter we recognized a liability of $5.6 million with the corresponding increase in goodwill representing amounts under the terms of the 2005 acquisition of Western Financial Group. The terms of that transaction provided for contention payment earn-outs in each year, during the three year period ending this year.

Total shareholders equity was $184.8 million at the end of the third quarter compared to $186.5 million at the end of 2007. Our capital ratios at September 30 placed both and corporation and subsidiary bank in the well capitalized category.

We previously announced that we had raised $50 million in common equity and a private placement of 2.5 million shares of our common stock and net proceeds were approximately $47 million after deducting offering related fees and these proceeds were received on October 7. The proceeds will be used for general corporate purposes and to support growth initiatives in commercial and wealth management lines of business. Yesterday we filed the Form S-3 Registration statement for those shares. In September we declared a dividend of $0.21 per share which was paid on October 10.

Now at this time I’ll turn the call back to John Warren.

John Warren

Thank you, David. I would like to thank everyone for joining us on today’s call and for your continued interest on Washington Trust. There was still many unknowns, not only in the economy and the financial services industry, but obviously with the upcoming presidential elections as well.

The economy continues to make borrowers nervous, they are loosing confidence in over the past four or five weeks and the events thereof, it really slowed things down. As we mentioned our loan growth has continued strong, but with many closings over this period our pipeline has slowed and is back to year-ago levels.

We are hopeful that the global actions taken are beginning to show a glimmer of positives, at least the paper talks about that and it’s good to see LIBOR beginning to drift lower, we will see. As I mentioned earlier the reason capital raises made us stronger and better positioned to grow as a company. We will continue to look for the future and take advantage of the opportunities as they become available to us out there and there are many.

So thank you very much at this point and David and I would now be happy to answer any questions you might have.

Question and Answer Session

Operator

(Operator Instructions) Your first question comes from John Stewart - Sandler O'Neill Asset Management.

John Stewart - Sandler O'Neill Asset Management

I had a couple of questions for you. I guess first just wanted to get your thoughts on participation in the [Inaudible]?

John Warren

It’s kind of interesting, as one CEO was quoted this morning and saying the “Devils in the details.” I think we are very happy with the $50 million that we raised, there is no question about that. I think we got between here and November 14. I don’t want to say categorically we won’t touch it, so we’ll look at the details, we will also look and see if there are any opportunities out there but we are happy with the $50 million that we raised.

Also a little unnerved, I think there was an op-ed piece in the Wall Street today. I don’t know if it’s the Wall Street or the New York Times and they were a couple of people of slumping up and down saying definitely that no dividend should be paid at all for any banking institution that takes this government money. So I think that we’ll take a look at it, but where we stand right now is we are very, very pleased with the $50 million that we raised, net 47.

John Stewart - Sandler O'Neill Asset Management

Okay and then I guess just on the commercial loan growth in the quarter. Can you kind of just breakdown where that came from; how much of it was self originative versus purchase, things like that, geographically?

Dave Devault

Geographically it’s primarily in the Southern New England, very little would have been out of that footprint. Primarily south originated were some participation in there. I’m not sure I have that exact dollar amount of participation or originations in the quarter handy.

John Warren

We can give you the gross amount of participations that we have right now, which is on the sheet and on a net basis that only puts it up a few million dollars.

Dave Devault

Right we have $84 million of participation balances where we are not the lead bank at the end of the third quarter.

John Stewart - Sandler O'Neill Asset Management

Okay and is there something that is happening kind of in your markets that’s giving you the opportunity to put up that kind of growth. It’s just more than I would have expected in the quarter.

John Warren

Yes, I mean it continues to be and I think we mentioned a little bit of last quarter as well. The largest banks in our area from a competitive point of view are all in the category, I’ll say of being slightly distracted to say the least. Citizens is number one, Bank of America is number two in size, Sovereign is number three in size, Webster has a presence in our market.

John Stewart - Sandler O'Neill Asset Management

So there is nothing that you guys are doing on as you alluded to in the prepared statements on the credit side as far as using standards there or anything like that?

John Warren

We’re definitely not using standards, no question about that. I mean I think what we are really seeing is with what’s going on in the market place is there’s just a stronger recognition and we are receiving a lot of credibility and the vendors are there and the opportunities are coming to us, to the business.

John Stewart - Sandler O'Neill Asset Management

Okay and then I guess just on the other side of the balance sheet transaction and core transaction accounts were down linked quarter, almost $20 million. Is there anything specific that’s happening there, offsetting that? There is a tremendous amount of growth from out-of-market brokerage CD’s. Can you just kind of talk about the terms of those liabilities duration, pricing and things like that?

Dave Devault

While we saw a shift in the in-market deposited demand and into time deposits and now that’s reflected in the decline in the money market and savings balances for the quarter.

John Stewart - Sandler O'Neill Asset Management

Did you change pricing on those deposits that generates that shift?

Dave Devault

Well I think there were some competitive forces that moved in that direction and we have to be competitive in the market place. The other market brokerage CDs is primarily longer term to pick maturity spots that make sense from a balance sheet management and interest rate risk management stand point.

John Stewart - Sandler O'Neill Asset Management

Longer term is out of three to five years or something like that?

Dave Devault

A year and longer. I’m not sure we have any five years in that piece.

John Stewart - Sandler O'Neill Asset Management

Okay and then I guess considering the capital raise early in the fourth quarter can you just talk about your outlook or the margin. I guess the capital raise and the recent FED activity heading into the fourth quarter and through ‘09 or the beginning of ‘09 if you could?

Dave Devault

Well the capital raise has been deployed primarily in securities at this point and the FED action is one of the things structurally that you run into is that the lower rates bump up against flows and some of the non premium rate, non time deposit accounts, so we’ll have to see how that plays out in the market place here, so on the positive side you would certainly have the additional securities, but on the negative side a lower FED rate does not help most banks margins.

John Stewart - Sandler O'Neill Asset Management

So is it fair to say that the margin will be down underneath the 260 level for the quarter. I would imagine there is at lease a couple of bits of compression from the deployment of the capital and securities; is that fair.

John Warren I’m reluctant to give guidance on this given that what happened during the third quarter was some external factors, so I think that again the net interest income will be helped with the addition of the securities but the FED rate cut is not helpful.

John Stewart - Sandler O'Neill Asset Management

Okay, and then I guess finally, what was the amount of the FHOB dividend cut?

Dave Devault

It’s about $100,000 a quarter.

John Stewart - Sandler O'Neill Asset Management

In cut or that’s the net difference or what was it last quarter versus this quarter?

John Warren

That’s the dollar affect on us.

Dave Devault

And that is likely to continue for the foreseeable future.

John Warren

Yes, I mean basically all the home loan banks were, because they sent a very nice letter out as to why they were recapitalizing or strengthening their capital base, but in essence it was a letter explaining that when you got to the end of it that they obviously in order to do that would have to reduce the dividend or the spread on the dividend that they would normally pay to their banking members and I would expect what’s out there, it probably take a couple of years before the home loan system is back with the flexibility to be able to open that spread up again.

John Stewart - Sandler O'Neill Asset Management

Great okay; what was the dollar amount of the dividend in the second quarter?

Dave Devault

The dollar amount in the second quarter it was $489,000, in the third quarter it is $292,000.

Operator:

Your next question comes from Laurie Hunsicker - Stifel Nicholas.

Laurie Hunsicker - Stifel Nicholas

Just to sort of follow-up a little bit on the margin question, do you have the margin for the month on September?

Dave Devault

It was 2.71%.

Laurie Hunsicker - Stifel Nicholas

And I guess from the standpoint that you just raised $47 million and essentially zero costing capital and I appreciate that your hesitant to comment on margin, but it would just seem that at least in the fourth quarter, shy of everything else going on, we would see a margin benefit just from the standpoint of even if you redeploy that into securities; is that not an accurate statement?

John Warren

That’s an accurate statement.

Laurie Hunsicker - Stifel Nicholas

And with respect to the increase in FTIC assessment that all banks are facing, if your up seven basis points, that’s up $1.2 million next year into expenses. Are there any steps your taking there to reduce non-interest expense to sort off set this or should we be adding this right on top and then I guess sort of a tan-in question to that, the demand deposits that are insured unlimitedly that you can sort of opt into or opt out of, do you all know what you are going to be doing there or I guess that’s another way. Sould we be modeling a 10 basis point cost to that as well.

John Warren

We are looking on the latter. We are looking at that and we’ll make a decision shortly and the competitive forces will no doubt play a factor in that. The increase in the announced rates, banks to my knowledge we don’t know yet exactly what the basis point increase for us will be. It’ll be some qualitative factors that can enter consideration by the regulators in setting those rates or selecting those rates for individual institutions.

It could be an amount similar to what you had describes of seven basis points and $1.2 on an annualized basis, but we don’t know yet. It would be very difficult I think to expect that structurally we could off set that with any significant amount of non-interest expenses without affecting service quality and we’re always hesitant to do things that would affect service quality.

Dave Devault

We are obviously right in the throws of the budgeting process right now. I think it’s safe to say that we are not wildly optimistic on the economy for 2009 and so from the expense side, we’ll be as tight as we can possible be on that, fully recognizing that there are lots of uncontrollable out there including the FDIC increase.

Laurie Hunsicker - Stifel Nicholas

And when you are on the road with your capital raise, did you give any kind of bottom line earnings guidance that you can share with us?

Dave Devault

We did not.

Laurie Hunsicker - Stifel Nicholas

I mean I know typically you all don’t give earnings guidance, but in light of everything, is there any sort of range that you would through out there.

John Warren

We’ve stayed away from it Laurie. I think the point that we will continue to make or we do make is that our loan demand has continued strong, the quality has continued excellent and the additions to the provisioning that we do have in part been looking at the economy and what’s going on out there, but to a very large extent reflective of the magnitude of the loan growth that we’ve been enjoying over the last couple of years or the last six quarters anyway.

Laurie Hunsicker - Stifel Nicholas

One sort of small question to ask and then I have one follow-up. David you touched on this briefly; the western financial acquisition, the corresponding increase to goodwill; can you just take me though why that written out, what happened there?

Dave Devault

Well under the terms of the acquisition, based on operating performance of the acquired business in 2006, 2007 and 2008 there is the opportunity for the selling share holders to earn more. Its an earn out additions to the purchase price and based on the earnings of that acquired business through September 30, using the standard of has it being earned beyond the reasonable doubt, we concluded that it was time to recognize that liability owed to the selling shareholders for that amount of the 2008 earn out. So its will paid to them in March and the debit is to good will on the balance sheet.

John Warren

Just as part of the incentive, when we did the deal we consciously didn’t want to pay them everything upfront. We wanted to give them plenty of reason to stick around and be motivated and they have done just that for us which has been wonderfully.

Laurie Hunsicker - Stifel Nicholas

Okay. So with that your tangible book finished at 880; if I were to pro form that with the capital ratio, right about 1037, is that correct. I mean I’m just adding in $47 million even with the new shares.

Dave Devault

I deducted a little bit of expenses associated with that. I got to 1036 book value per share, spot on.

Laurie Hunsicker - Stifel Nicholas

And then just one last thing; do you have your pro forma leverage risk base and total risk base ratios?

Dave Devault

Based on what has been used to deploy those proceeds, the total risk base ratio is coming out around 12.99% and the Tear I leverage of 7.68%. That’s at the outset, I mean that’s not a prediction of what it would be at December 31. I would like to make just one correction to an earlier statement I made about the amount of the Federal Home Loan bank dividend. I think I’d combined that with some other equity dividend that we have received in comparing the second to the third quarter. The decrease in the amount of the Federal Home Loan Bank dividend is about $100,000 compared to what we would have expected a quarterly basis, based on the amount of stock that we own.

Operator

Your next question comes from Frank Schiraldi - Sandler O'Neill.

Frank Schiraldi - Sandler O'Neill

I just wanted to make sure I heard that last number right Dave; what was the Tear I pro forma that you’re coming up with after the capital raise?

Dave Devault

I’m seeing 7.68 Tear I leverage.

Frank Schiraldi - Sandler O'Neill

Do you have like a Tear 1 risk base?

Dave Devault

11.74.

Frank Schiraldi - Sandler O'Neill

Just going back to the margin and CD growth in the quarter, is there any ballpark average price you can give me on sort of where you have been putting retail CD’s on the books at in 3Q and if that’s sort of changes here early in 4Q?

Dave Devault

We continued to see very competitive rates in our market place from other institutions. I think banks are just very concerned about attracting and frankly retaining deposits and it continues to be very competitive.

John Warren

I think the good news is, I was down in Florida a couple of week ends ago and I saw ads in the paper from some very large instructions at five and a quarter for a three year CD. Fortunately we are not there here, but we have seen rates much higher that normal and hopefully when we get some little bit of confidence back in the system and stabilization, we’ll see the shrinkage on the spreads on the CDs because they are obviously just like LIBOR; they are much higher than would be anticipated in this kind of environment or should be in this kind of environment.

Frank Schiraldi - Sandler O'Neill

So, this competition is still north of four and then give that that’s where you guys are?

Dave Devault

On a selective basis that could be true. I don’t think that’s the average rate that we are paying on new time deposits.

Frank Schiraldi - Sandler O'Neill

And it sounds like if I heard you right John the pipeline here has returned to last years level, so may be we don’t see the outside that we seen in the last two quarters in the loan portfolio in 4Q?

John Warren

The last two to three weeks have defiantly been on the quieter side. We continued closing good loan volume through the end of the quarter and it’s just quieter now, so we’ll see.

Frank Schiraldi - Sandler O'Neill

So I guess you wouldn’t be averse to growing the loan book, if the option is there in 4Q as you did in the third quarter.

John Warren

Yes, absolutely. We definitely are looking at opportunities out there, but in this kind of environment we are very selective and it really is the better credits that you’re going to see going on the books when they come.

Frank Schiraldi - Sandler O'Neill

And was there anything out of market, like out of Southern New England that was sort of bulky, like a bigger size loan, may be above $3 million or something that you can recall and could just give us some more color on?

John Warren

I don’t remember. Dave’s got the list in front of him.

David Devault

We have a credit and its in New Jersey. It’s a commercial real-estate office building and that is about just under $5 million, but again that’s out off $42 million in growth and commercial mortgage originations during the quarter.

Frank Schiraldi - Sandler O'Neill

And what sort of loan to value on that? Is that the whole bit of that loan is in the office building and so it’s occupied but the owner or...

David Devault

I doubt it, but I don’t have that information.

John Warren

No it was not. Once again a very high quality borrower and solid strong LTV ratio and once again on the higher side on that service coverage ratios.

Frank Schiraldi - Sandler O'Neill

Would you be willing to give sort of an idea of loan to value there, just a ballpark?

David Devault

No we don’t have that.

John Warren

I don’t have that in front of me, sorry.

Frank Schiraldi - Sandler O'Neill

Okay and I was wondering if you could give us some color, I don’t know how much you can, but sort there have been talks with the accountants on taking or not taking OTTI charges on the portion of trust preferred portfolio that’s been marked down though OCI. Did anything change sort of late in the quarter?

Was the guidance that came out from the SEC, whatever it was, late September or early October, did that sort of change the minds or change sort of whether or not there was going to be an OTTI charge or is there any color you can give us on that process. Just industry wide I’m trying to get an idea if we are going to see more of these OTTI’s for a trust preferred pool than single assured stuff?

John Warren

Obviously we continue to monitor those kind of announcements being made either by the SEC of the FASB or the center for audit quality, right up until last week as we looked at this issue. Most of what came out had more to do with determining fare value as supposed to determining whether it was other than temporary impairment and in liquid markets, that kind of guidance was necessary and we were very pleased to take every bit of advice and guidance that we could receive.

On the trust preferred where they had named issuers, we continue to believe that with the maturities that are there and the strength of the companies that are there that we will be repaid and that is the predominant reason for us drawing a temperately impairment conclusion on those type of debt instruments.

We have a coupled of pooled trust preferred securities and there is a bit more of a complicated analysis looking at the cash flows of what we own but when we went through that analysis again we compared that, it determined rather that the impairment is temporary and that no impairment charge to earnings was warranted.

David Devault

Frankly we work in all the discussion both externally, but also needless to say staying in very close touch, with KPMG which is our accounting firm. All the accounting firms are working together, the regulators are all taking, everybody is trying to figure what they are to be recommending and doing and what the banks are to be looking at. We are intimately involved with discussions on an ongoing basis with them as I’m sure very singe bank out there is.

Frank Schiraldi - Sandler O'Neill

Okay and then just a few quick questions for modeling purposes here. There wasn’t a contribution to the chartable foundation in 3Q right?

John Warren

We expect to do that this quarter.

Frank Schiraldi - Sandler O'Neill

Okay and as far as the tax rate, I know you gave it from where you expect it to be in the fourth quarter Dave; is there any reason to alter it considerable from that number for ’09? I have 31.5% tax rate, that’s what I’ve been using for ’09, does that ballpark sort of still make sense?

David Devault

I think its ballpark. We haven’t completed our ’09 budgeting process but its somewhere between 31.5% and 32%, its problem a good place holder for now.

Frank Schiraldi - Sandler O'Neill

Okay and then just finally, you mentioned the margin for September was 271, so the margin for the quarter obviously was 262. So do you expect that sort of continue, is that a better gauge. It would seem to me that a better gauge of 4Q would be September’s margin than the whole quarters. Is there something in September that went off or something that would move that needle?

Dave Devault

We didn’t see anything in September that was in that number. There were some of the reason I alluded to earlier on, that non-routine I guess elements of margin that had occurred and they did occur for the most part in July and August. So I’m encouraged by September, I’m reluctant to extrapolate however from September, but it certainly moved in a good direction in September.

John Warren

I mean September is a 30 day month so we get a slightly different effect. August was a tad below that, but the combination of the two indicative, along with the capital raise. As Dave said I don’t want to be wildly optimistic, but hopefully that’s indicative of what we

will see.

Operator

We show no further questions at this time. I would like to turn the conference back over to Elizabeth Eckel for any closing remarks.

John Warren

We just want to thank you all for attending and if any of you have any questions, feel free to pick up the phone and give us a call, happy to chat with you. Appreciated it and have a good day. Thanks.

Operator

The conference has now concluded. Thank you for attending today’s presentation.

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Source: Washington Trust Bancorp Inc Q3 2008 Earnings Call Transcript.
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