Good morning and welcome to Washington Trust Bancorp Inc.’s Conference Call. My name is Kevin. I will be your operator today. [Operator Instructions] Today’s call is being recorded. Now, I will turn the call over to Elizabeth B. Eckel, Senior Vice President, Marketing and Investor Relations. Ms. Eckel, please begin.

Thank you, Kevin. Good afternoon and welcome to Washington Trust Bancorp Inc.’s first quarter 2016 conference call. Today’s call will be hosted by Washington Trust executive team, Joseph MarcAurele, Chairman and Chief Executive Officer; Ned Handy, President and Chief Operating Officer; and David Devault, Vice Chair, Secretary and Chief Financial Officer. We would like to remind you that today’s presentation may include forward-looking statements and actual results could differ materially from the statements made today. Our complete Safe Harbor statement is included in our earnings press release and in other documents we file with the SEC. These materials are available on our Investor Relations website at washtrustbancorp.com. Washington Trust’s stock trades on NASDAQ’s OMX market under the symbol WASH. I am now pleased to turn the call over to Washington Trust Chairman and CEO, Joseph MarcAurele.

Thank you, Beth. Good afternoon and thank you for joining us on today’s call. I will review the highlights of the first quarter of 2016 and then David will provide more detail on our financial performance. At the conclusion of the call, Ned, David and I will answer any questions you may have about the quarter or the year ahead. I am pleased to report that Washington Trust once again posted solid earnings. First quarter net income totaled $10.9 million or $0.64 per diluted share, up from the fourth quarter of 2015. Our key performance metrics, including return on average equity and return on average assets remained strong during the quarter. These profitability ratios continue to place us among the top of our peer group. Our asset quality also remained stable during the quarter and we continue to be well capitalized. During the quarter, we increased our quarterly cash dividend. This is the sixth consecutive year of dividend increases and is consistent with our dividend strategy and commitment to our shareholders. David will have more on the dividend in his comments. Our first quarter performance reflects our continued success in growing our key business lines through market expansion, de novo branching and acquisition. This strategy has allowed us to expand our regional presence for wealth management, mortgage banking and commercial lending services and increased our deposit market share position in our home state of Rhode Island. Our commitment to Rhode Island branch expansion continued in the first quarter of 2016 as we opened a branch on the East side of Providence. The branch is located in an affluent and historic district of the capital city. It’s a great location and offers terrific opportunities. Over the past few years, we have successfully rebalanced our deposit portfolio by attracting lower cost deposits…

Thank you, Joe. Good afternoon, everyone and thanks for joining us on our call today. I will review the first quarter 2016 operating results and financial position as described in our press release issued earlier today. Net income was $10.9 million or $0.64 per diluted share in the first quarter. That represented a 2% increase in net income and an increase of $0.02 per diluted share on a linked quarter basis compared to the fourth quarter of 2015. As Joe mentioned, the profitability results for the latest quarter were very solid. Return on equity was 11.5% and our return on assets was 1.16%. One of the reasons for the results is an increase in net interest income, which for the quarter was $27.7 million, up $1.5 million from the previous quarter. Included in the net interest income in the latest quarter was $1 million in commercial loan prepayment fee income, which benefited net interest margin by about 11 basis points. And on an after-tax basis that was about $0.04 per diluted share. A substantial portion of that prepayment income was attributable to one relationship. And excluding the prepayment fee income, the margin for the quarter was 3.13%, a 6 basis point improvement over the fourth quarter. The margin was helped by balance sheet growth as well as the increase in short-term rates as announced by the Federal Reserve in December. Our average interest earning assets were up 1.7% on a linked quarter basis largely due to growth in commercial loans. Total loans stand at $3 billion at the end of March, up $34 million or 1.1% in the quarter and total loans are up 5.8% in the last 12 months. The increase in the quarter was led by growth in the commercial portfolio, which was up 2.7% and total commercial…

Thank you, David. We are pleased with our first quarter performance and believe that our market expansion efforts along with the continuing strength of our commercial, retail, mortgage banking and wealth management business lines will help us to continue to achieve favorable results in future periods. The low interest rate environment, challenging economy and unstable market conditions continue to present challenges for all banks. While we have a strong capital position, a sound balance sheet and we will continue to seek opportunities to grow and provide solid returns for our shareholders. We look forward to sharing our results and our story with our shareholders at the Annual Meeting on May 10. Thank you for your time this afternoon. And now Ned, David and I are happy to answer any of your questions.

Thank you. We will now begin the Question-and-Answer Session. [Operator Instructions] Our first question today is coming from Mark Fitzgibbon from Sandler O’Neill. Please proceed with your question.

Good afternoon guys. This is Nick filling in for Mark.

Hi Nick.

Nick, how are you?

Doing very well. Thank you. First, I heard your comments on the mortgage banking pipeline being at an all-time high and I was wondering if you could share with us the size and complexion of the commercial pipelines?

Ned?

Commercial pipeline is what I call the short pipeline, so 50% or more likely to close is right about $195 million. Pretty healthy split, about 50 in C&I and 146 in – on the CRE side. So we are happy with that. The total pipeline above that is in the $300 million. So we have got a lot of activity on the front end of the process, plus $70 million in – of that pipeline is in construction. Mostly in two projects, one apartment project and stores, Connecticut and one medical office facility in Providence. So I think the pipeline is in great shape and I feel good about the next – certainly the next quarter anyway.

Okay. And are you still sticking mid single-digit loan growth is the good bogey for the full year?

Yes.

Yes. I think that even on a combined basis, Nick I think that make sense. We continue to – and we will continue to experience some level of commercial real estate payouts. But as Ned said, the pipeline is strong and we are having a little bit of a challenge in residential mortgage business, but we feel as though we will be able to add to that a little bit, too.

Okay. And then in terms of the margin, we saw the elevated prepayments this quarter and the benefit from the December hike and I am just wondering what your outlook on the core NIM was?

The core NIM did benefit from the increase in short-term rates. And the way I view it is it’s kind of set the bar a little bit higher, but the general trend that we have been seeing over sometime is that barring some other Fed action or a change in the – noticeable change in the shape or steepness of the yield curve, there probably would continue to be some erosion on a modest basis over the next several quarters. Now, we certainly are doing whatever we can to manage funding costs and growth is obviously an opportunity for us to overcome that in terms of net interest income dollars.

Right. Okay. And then on expenses, are there any initiatives yet planned for 2016? And I guess how are you viewing expenses more generally, a modest rise throughout the year?

I think a modest rise throughout the year would be a good way to characterize it. As we grow, we continue to build our infrastructure. And so that’s always going to be a part of the equation, but we are not looking at any significant changes in the – the characteristics of our expense base.

And then Joe, on the M&A front, I was hoping you could help us think about your appetite for acquisition is on either the whole bank or what management side?

Well, I think as you know, we did the Halsey Associates deal in New Haven on the wealth management side and we garnered about $800 million in additional assets under management from that. I would tell you that we would continue to consider acquisitions of that type. We think we have significant expertise in the wealth management business and we like the characteristics of that business. On the whole bank side, I think it’s really a function of, to some extent, geography. We wouldn’t go too far a field and then it comes down to price and our ability to grow the franchise when we got a hold of it. So, I would say those are the gating factors for us. And obviously, there are also risk parameters associated with any kind of whole bank acquisition, but we feel as though we would box that if we were to pull the trigger.

Thank you.

You are welcome.

Thank you. Our next question today is coming from Travis Lan from KBW. Please proceed with your question.

Yes, thank you. David, given the theory environment that you laid out where you have borrowers selling at low cap rates, could we see prepayment fees remain a little bit more elevated over the next few quarters?

It’s possible. And if they are paying out fixed rate loans, which a number of the CRE credits are, then that can trigger prepayment penalties. So, it’s possible. It’s very hard to project that with a high degree of confidence and we tend to assume on the low side in our budgeting and forecasting process for that source of revenue.

Got it. On the deposit side, it sounds like you would be willing to let money market deposits run off a little bit further. Is that right?

Well, that’s certainly not our preference and we are working very hard to rebuild those balances. Some of it will come back, because it’s they are accounts that have some natural volatility and we are putting a lot of effort into continuing to grow that deposit base.

What types of actions can you take to kind of rebuild that base beyond price?

I would say the biggest thing we can do is step up our efforts on the C&I side of our lending business. In addition to that, we continue to call through our cash management effort on municipalities in large organizations, whether those are educational nonprofits or healthcare nonprofits that exist in our market. It’s probably more of a marketing commercial effort than it is just driving deposits through the branches. It’s fairly difficult in today’s environment to advertise any kind of an exciting money market rate given how low the rates are. So, it’s really one of calling on larger opportunities.

Okay. Okay, that’s helpful. And then just back on the expense side real quick, based on your comments, does that mean that any kind of normalization of the payroll taxes that elevated the first quarter would be offset by some additional or higher cost sales were in second quarter?

Well, the payroll tax impact kind of tails off, towards the latter part of the year as people reach taxable limits. I mean, with 600 employees, there is quite a range of timing on that. And so I would say the first quarter is representative of cost base and there could be some staff adds as we continue to grow business lines that might marginally increase those costs, but we are watching that very closely.

Okay. And then just last one big picture as I know you referenced Connecticut and Massachusetts as growth markets and you already have exposure there obviously with wealth and mortgage. But do you have a desire or timeline or potential timeline, I should say, to eventually back those efforts up with a more robust commercial lending platform or LPO?

Yes. Absolutely have the desire and are working on – especially in Connecticut, we think that’s the primary opportunity with policy ground there and with a couple of mortgage offices and with existing lending activity already in that marketplace. We have got some real estate lenders that happened to work out of Westerly, but there are – three of them are in Connecticut, living in Connecticut and do most of their business, if not all of it, in Connecticut. But on the C&I side, we are still focused on putting a team on the ground. We kind of delayed that a little bit in the third quarter of last year. We are back with renewed vigor to bolster the existing effort in Connecticut with a team on the ground.

Got it. Alright, that’s all I had. Thank you, all very much.

Thank you. [Operator Instructions] Our next question is coming from Laurie Hunsicker from Compass Point. Please proceed with your question.

Yes. Hi. Thanks. Good afternoon. Just wondered if we could go back to expenses here, I just want to make sure I got this right, the East side of Providence branch, that was fully reflected in the first quarter results, in terms of the expense drag, is that correct?

Yes.

Okay. Because that was a December opening, is that right?

January 8, I think.

We had done – Laurie, we had done some of the hiring even before the end of last year. So the salary part of it was completely in place.

And the rent.

Okay. And then typically, in the fourth quarter you all have done a charitable foundation contribution, is that in the works for this year?

That’s something we decide on a year-by-year basis and it’s not a decision we have made at this time.

Okay. And just going back to, I guess de novo branch plans, can you refresh us on where we sit in terms of thinking about costs of de novo branch plans going forward or how you are thinking about that?

Well, Laurie, I would say that we – the ones that we have opened have all gone very well. We have a very strong state wide brand. The way we are thinking about it is doing things that are smaller. If you would have seen the new one that we opened on the East side of Providence, it’s actually a small space with four or five employees. That’s the way we think of it from a size perspective. We would consider doing one or so a year, going more North in the state, probably into towns that are a little more significantly populated around Providence.

Okay. And then just going back to…

They can add 500,000-ish in the year to expenses each one of them.

$500,000, okay. And just remind us, what is the breakeven on deposits there approximately on one of those branches?

$35-ish million.

It depends on the mix, but that would certainly do it.

Sure. Okay. And do we have an update, I mean I know it’s super early, but do you have an update on what East side Providence branch already has in?

It’s on track.

Okay. And then the mortgage production office in Wellesley, I mean any plans to actually be on the ground there with the full branch or how are you thinking about the Wellesley branch?

Well, Laurie, I don’t think we have – we don’t really have a brand in Boston. And the Boston market is extremely competitive and crowded. The ability to generate residential mortgages and commercial real estate loans, in particular is a lot different than opening an actual branch. The other thing we would have to consider is there is a significant up-tick in expense, particularly for rent in a place like Wellesley. So I don’t know if we would have the same kind of success. People know us in Rhode Island. We certainly have a state wide brand that is strong. But it’s a totally different media market. And we grow residential mortgages in that market because we hire people who know the market. We don’t grow it as much of it by brand.

Sure. And I guess along those lines, you all certainly have the strongest currency or one of the strongest currencies in New England in terms of M&A – full bank M&A and I know I have asked you this before, but can you just update us on what you think there?

I would agree with you in regard to our currency. It’s certainly something that would give us an advantage. It really is all about, to some extent, price. But even more than that, can you grow what’s available for you to buy. And one of the really difficult decisions is to – some of things that are available today are not in great markets and they don’t have great traction. So it’s really – once you get through the expense cuts that you may be able to do around it, you really have to make – resolve the doubts against yourself in regard to growing it. So that’s the biggest gating factor for me.

Okay, great. Thank you very much.

You’re welcome.

Thank you. That does conclude our question-and-answer session. I would like to turn the conference back over to Joseph MarcAurele for any closing remarks.

Great. Thank you. I appreciate everyone’s attention and interest today. And we look forward to the next quarter. And we feel as though we have very good momentum and traction and we hope to be able to show you some excellent results for the second quarter of this year. Thank you.

Thank you. That does conclude today’s teleconference. You may disconnect your lines now. And have a wonderful day. We thank you for your participation today.