Good morning, and welcome to Washington Trust Bancorp, Inc.’s Conference Call. My name is Chad. I will be your Operator today. [Operator instructions] Today’s call is being recorded. And now I would like to turn the call over to Elizabeth Eckel, Senior Vice President, Marketing and Investor Relations. Ms. Eckel?

Thank you, Chad. Good morning. This is the Q1 2013 conference call for Washington Trust Bancorp, Inc. NASDAQ Global Select market, symbol WASH. This morning’s conference call is being recorded and webcast live. A replay of today’s conference call will be available shortly after the conclusion of the call through the corporation’s website at www.washtrust.com in our Investor Relations section under subhead “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 Joseph MarcAurele, Chairman, President and Chief Executive Officer; and David Devault, Senior Executive Vice President, Secretary and Chief Financial Officer. And now I’m pleased to introduce Washington Trust’s Chairman, President and CEO, Joseph MarcAurele.

Good morning, and thank you for joining us on today’s call. Earlier this morning we released our Q1 2013 results. I’d like to take a few moments to discuss the highlights for the quarter and later David will review our financial performance. At the conclusion of the call we will answer any questions you may have. For Q1 2013, net income totaled $7.4 million or $0.45 per fully diluted share. Included in these results was the recognition of a $2.8 million impairment charge to earnings on a trust preferred collateralized debt obligation investment security. The after-tax impact of this charge was $1.9 million or $0.11 per diluted share. David will discuss this item in more detail a little later on in the presentation. Returns on average equity and average assets for the quarter were 9.91% and 0.98% respectively. We remain well capitalized and recently increased the dividend during the quarter to $0.25 per share. The local economy has shown some signs of improvement. We do though continue to be under some level of competitive pressure. Despite some economic challenges, Washington Trust posted solid loan growth and strong mortgage production in Q1 2013. In recent years we’ve opened new branches and mortgage offices, hired talent from larger competitors and enhanced technology. These investments paid off for us in 2012 and provided momentum going into Q1 2013. Our commercial lending area had a great Q4 and built a pipeline that carried us into Q1 2013. As a result of the solid business development efforts, commercial loans were up by about $25 million or 2%. We’ve been successful in attracting quality commercial credits from larger competitors. In addition to providing commercial financing we’ve been able to obtain their cash management and deposit relationships as well. Mortgage banking activity remained strong during Q1 although it was not as robust as the record high level in Q4. We have seen some pickup in the purchase market and the recent interest rate drop has once again spurred additional refinancing activity. We continue to generate good mortgage origination production in Massachusetts where home values have held up and the economy has rebounded faster than Rhode Island. We have an experienced team of originators covering Rhode Island, Massachusetts and Connecticut and are confident that we’ll get our fair share of the mortgage business in 2013. In the past 12 months we have done a good job attracting new core deposits which once again helped our deposit mix and lowered our cost of funds. Wealth management assets under administration were up from year-end. Wealth management revenues totaled $7.5 million for Q1. A stronger and more consistent financial market will benefit our wealth management returns. I would now like to ask David Devault to provide more detail on our Q1 results. Thank you.

Thank you, Joe. Good morning, everyone. Thanks for joining us on our call today. I’ll review our Q1 2013 operating results and financial position as described in our press release this morning. Net income amounted to $7.4 million with diluted earnings per share of $0.45 for Q1 this year. This compares to Q4 2012 net income of $9 million or $0.55 per diluted share, and Q1 2012 net income of $8.4 million or $0.51 per diluted share. While the operating results of our major lines of business were very sound in the latest quarter, the overall results did not meet our expectations. The sole reason for this was an other-than-temporary impairment charge to earnings of $2.8 million on a trust preferred collateralized debt obligation or CDO. The net after-tax impact of this was $1.9 million or $0.11 per diluted share. By way of background on this, on March 22 the trustee for the CDO entity issued a notice that a liquidation of the CDO entity will take place at the direction of holders of the 2 most senior CDO tranches. We estimate that the proceeds from the liquidation event will be insufficient to satisfy the amount owed to note holders of the subordinated CDO tranches of which Washington Trust is a note holder. We had recognized other-than-temporary impairment charges of $2.1 million on this security in years prior to this year; however, prior to the March announcement of the liquidation event, the expected future cash flows of the CDO through its maturity in the year 2033 were considered to be sufficient to recover our remaining $2.8 million amortized cost. The Q1 impairment loss reduces our carrying value in the holding to 0. As far as the effect on ongoing core earnings this year, we believe that’s negligible as the security…

Thank you, David. While we continue to be faced with challenging operating environments in general, we continue to be confident that Washington Trust can turn these challenges into opportunities by balancing our strategic growth initiatives with disciplined expense management. Washington Trust continues to have a strong foundation and has provided solid returns for our shareholders. We will continue to focus on enhancing the value of our company. We thank you for your time this morning and now David and I would be happy to answer any questions.

[Operator instructions] Our first question comes from Damon DelMonte with KBW.

Just wondering if we could start off with the mortgage banking. Can you just give us a little perspective on the volume and the gain on sales that you saw this past quarter versus Q4?

Well, Q4 was an all-time high. A lot of events occurred that really led to that in Q4. We saw some reduction this quarter in the pipeline, particularly earlier in the quarter with some increase in rates that had occurred around that time and probably some seasonality as well. So we’ve seen some strengthening in the pipeline over the last several weeks that keeps our optimism high and solid for mortgage banking as we head into the near term.

Can you quantify actual dollar amounts for volume or even what the gain on sale in margin was for Q1 versus Q4?

I don’t have a margin number per se. The originations in the quarter were $184 million. We sold about $153 million into the secondary market. In Q4 we had originated about $220 million and sold about $157 million into the secondary market. The margins have held pretty well, but they’re not necessarily as high as they had been at certain points last year.

Okay, that’s helpful. And then can you just repeat, David, what you said about the benefit expected from the FHLB restructurings? I think you said that in this last quarter you had about $70,000 of additional interest income and what was it -- what’s the total amount that can be expected in Q2?

Well, $326,000 for the remaining quarters of this year.

Okay, for the remaining quarters, okay.

Yes. I mean there would be a continuing benefit in 2014, but you can extrapolate that over time.

Yes, okay, that’s good. And then I guess just as you look at loan growth opportunities for the remainder of the year, do you think that something in the high single-digit ranges is achievable for this year?

David, it’s Joe. I would say that mid- to higher-single digit commercial loan growth in general is probably something that’s realistic for us. We feel decent about the pipeline as it stands today and actually feel a little bit better about the mix of C&I versus commercial real estate with a little bit stronger C&I pipeline than we had seen during the previous several months.

Our next question comes from Frank Schiraldi with Sandler O’Neill.

Just a couple questions: on credit, you continue to have very, very modest levels of charge offs here, so even with the $600,000 provision in the quarter you had a pretty strong continual reserve to loan ratio north of 1.3%. I wondered if you just maybe had any update there, Dave, on your thoughts on provisioning going forward.

Well, at this time we’re not seeing a lot of pressure to increase the provision and our goal would be to certainly cover charge offs and provide enough to keep up with growth in the portfolio. When we took all things into consideration at the end of March, we concluded a $600,000 provision would achieve that. We’re not seeing any significant pressure that would change that in the near term and that’s our outlook at this time.

Okay. And then just wanted to ask about securities balances. Obviously they continue to run off here, and I just wonder is there a point that we’re reaching soon in your mind where you have to at least reinvest and then sort of hold those securities balances at least constant.

If things continued at the current pace, that day will arrive. That is several quarters away by our estimation.

Great. Okay, all right. I just wondered if you could remind us, I know you get a little bit of a boost or I believe you do in investment management revenues during tax season. I don’t know how that hits and how much that is.

It’s typically in the $300,000 to $400,000 range and it typically would be a Q2 matter.

[Operator instructions] Our next question comes from Matthew Breese with Sterne Agee.

Just on the loan growth, I was wondering if you could characterize it a bit more. Would you say that the loan growth you’re experiencing is taking market share or would you say that there’s some organic loan growth in the client base you already have?

I would say that the majority of our loan growth comes from taking market share. Given the state of the economy, and this has been true over the last few years, the growth that you would normally expect in your commercial portfolio coming from existing customers has been less dramatic. We’ve believed, and I think it’s proven out in regards to the deals that we do, that our opportunity continues to be to take share from larger competitors.

And what markets are you seeing the greatest strengths?

Well first of all, on the commercial real estate side we do operate in what I would call primarily a 3-state area: Rhode Island of course, Connecticut to a lesser extent, and Massachusetts to a greater extent than Connecticut. We see very strong metrics coming out of the Massachusetts market, solid metrics in Connecticut and Rhode Island is a kind of pick-and-choose deal market, but we feel as though we get our share coming out of our native market here in Rhode Island.

Okay. And then my last question is really around your thoughts and strategy with M&A. Recently there was a deal done where Newport Bancorp was acquired and I was just curious on your thoughts overall on M&A and your thoughts on that deal, particularly considering it was in your backyard.

We are always interested in deals that make sense, and obviously we look at virtually everything that we think would be of interest to us. Decisions around M&A have everything to do for us with good strategic fit and a price that we believe we can pay and make accretive in a reasonable amount of time.

Our next question is a follow-up from Damon DelMonte with KBW.

Just a quick follow-up: can you remind us what if any additional CDO exposure you guys have?

We have one remaining pool trust preferred CDO holding. I’ll have the carrying value on that in a moment. The risk profile for that security while it is in nonaccrual status is not anywhere near the kind of event that led to what’s happening with the one that we took the impairment charge on. The carrying value of the one that remains is about $1.3 million.

Our next question comes from Julie Casarino [ph] with Prospector Partners.

You just said the carrying value of the remaining CDO is $1.3 million, but haven’t you marked that down to fair value to like less than $0.25 million?

Yes, that’s a good point. The fair value of that at March 31 is $404,000. So if there were a loss, the charge to capital would be that number tax affected, so roughly $300,000. But again, our outlook on the cash flow generating capacity of that entity would indicate that it appears to be in decent shape.

On the 10(k) it looks like $230,000 fair value. So the amortized cost of $1.26 million, it just…

It apparently went up during the quarter.

Oh, okay. Okay. And the other one was being carried at like $600,000, which is why the mark to tangible book was minimal.

Yes. That number tax affected was the approximate $400,000 number I mentioned earlier in the call and in the press release.

There appears to be no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Joseph MarcAurele for any closing remarks.

Well, thank you very much, and thank you, everyone, for joining us on the call today. Again, we all understand the kind of situation that we’re operating in and the industry that we’re in, but we do continue to feel well-positioned to take advantage of opportunities within this market. So we thank you and we look forward to our next call for Q2.

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