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

Thank you, and good morning. Washington Trust Bancorp Inc.’s fourth quarter and year end 2016 conference call. This morning’s call will be hosted by Washington Trust’s executive team of by Joseph MarcAurele, Chairman and Chief Executive Officer; Ned Handy, President and Chief Operating Officer; and David Devault, Vice Chair, Secretary and Chief Financial Officer. Before we begin today’s presentation, I’d like to note that it may contain forward-looking statements, and actual results could differ materially. Our Safe Harbor statement appears in our earnings press release and in other documents filed with the SEC. Please visit our Investor Relations website at washtrustbancorp.com to review these SEC files documents and our complete Safe Harbor Statement. Washington Trust trades on NASDAQ under the symbol WASH. And now I am pleased to introduce Washington Trust’s Chairman and CEO, Joe MarcAurele.

Thank you Beth. Good morning and thank you for joining us on today’s conference call. This morning I’ll review the highlights of our 2016 performance and David will discuss the company’s financial results. At the end of our prepared remarks, David, Ned and I will answer any questions you may have about 2016 or the year ahead. I’m pleased to report that Washington Trust posted solid fourth quarter results which contributed to earnings of $46.5 million or $2.70 per diluted share for 2016. This marked our seventh consecutive year of increased annual earnings. Our key profitability measures remain strong and capital levels continue to exceed regulatory requirements. Our credit quality also remains healthy. Our stock performed well, reaching an all-time high level in the fourth quarter and we declared a $0.37 cash dividend in December. Our record performance is the result of our continued success at growing our core business lines, expanding our local and regional footprint and maintaining disciplined pricing and expense management. In a moment, David will provide a detailed analysis of our financial performance, but first I’d like to highlight and discuss some of our key business lines. Total deposits exceeded $3 billion at year end. We had success during the year in attracting new low cost deposits as both demand deposits in our accounts grew by 7% from the end of 2015. Generating low cost deposits is critical to our funding and to fund continued loan growth, but deposit generation is a continued challenge industrywide. In recent years our deposit growth strategies have focused on opening branches in markets dominated by larger competitors and deepening relationships with our commercial and municipal customers. These strategies have proven successful. We believe local community branches, which are adequately staffed to provide good personal service still have value. We realize…

Thank you, Joe. Good morning everyone and thanks for joining us on our call today. I’ll review our fourth quarter 2016 operating results and financial position as described in our press release yesterday afternoon. Net income amounted to $12.2 million or $0.70 per diluted share for the fourth quarter. This compared to net income of $12.3 million or $0.72 per diluted share for the third quarter. Profitability results in the latest quarter were solid with a return on equity of 12.26% and return on assets of 1.14%. For the full year 2016 net income was $46.5 million or $2.70 per diluted share and net income was up by 7% over the previous year. And for the full year the return on equity was 11.96% and the return on assets was 1.16%. The full year net income and earnings per share amounts were record highs for the company. Our results were driven by revenue growth, offset in part by increases in core non-interest expenses and a higher loan loss provision. In the latest quarter, total net interest income was $28.6 million, up by $1.2 million or 4% from the third quarter. The net interest margin was 2.89% in the latest quarter, down by five basis points on a linked quarter basis. Included in net interest income in the latest quarter was $816,000 in loan prepayment fee income and that compared to $365,000 of that type of income in the third quarter. The fourth quarter prepayment fee income contributed about eight basis points with a net interest margin in the fourth quarter and prepayment fee income contributed about four basis points to the margin in the third quarter. The reduction in the margin is largely attributable to a change in the mix of interest-earning assets resulting from the addition of debt securities…

Thank you David. We're pleased with our 2016 earnings and our ability to once again provide a healthy return to our shareholders. Looking forward, 2017 promises to bring some new opportunities and some challenges. You know the change will be inevitable. There may be some headwinds. However, Washington Trust has witnessed many changes, and we’ve faced many obstacles over our now 216 plus year history, and we've succeeded mostly by focusing on the fundamentals. We have a strong foundation. We’re committed to doing what's best for our customers, our employees and our shareholders. We will continue to do that. We thank you for your time. And now Ned, David and I are happy answer any questions you may have.

[Operator instructions]. The first question comes from Mark Fitzgibbon with Sandler O’Neill

Good morning. First question I had. Dave, it looked like you put about $175 million of leverage trade earned during the quarter at - it looks to me like a little less than 100 basis points spread. I guess given the prospect for higher rates, what was sort of the thought process on that?

Well, a lot of that occurred before the higher rate scenario played out, but the thought process was clearly to enhance income, and we had the ability to do that, the amount of securities as part of the total balance sheet was relatively low. It got down to as low as 11% at some point in the early third quarter and between the third quarter editions and the fourth quarter editions, it's up to about 18% of total assets, which seems like a good amount, a reasonable amount and provides ample liquidity and a lot of that is pledgeable for collateralization purposes at the Federal Home Loan Bank for liquidity. And so it's part of our overall balance sheet strategy.

Okay. And then secondly, on the mortgage side, in the fourth quarter, could you share with us what the split was in the mortgage originations between purchases and refi? And was a lot of that volume coming out of that new office in Wellesley?

I don't know if I have a split between purchase and refi. The Wellesley office has been doing well considering it's been open for maybe six to nine months and the production there has been very satisfactory. Overall, all of the offices did well, because it was just a good operating result in that line of business.

Okay. And then I know you aren’t going to ...

Mark, it’s Joe. I think it would be fair to say that throughout all of 2016, we were operating at approximately 30% of the volume as refi. That was - that's probably a pretty good number.

Okay, and then I know you regulatory capital ratios are strong, but the tangible common equity ratio is starting to look a little bit thin. I wondered if you could share with us your thoughts on raising additional capital in 2017.

Well, that ratio obviously was reduced because of the leveraging that took place. That leveraging is I would say essentially done. At this point, we don't expect to continue to do that kind of growth in the securities portfolio. Between earnings retention net of dividends, we see that tangible equity to the tangible assets ratio continuing to grow from the current level.

Then lastly Dave, I wondered if you could just share with us your outlook for the margin.

Sure. I would say on a core basis, and this would exclude prepayment penalty fee income, and also exclude the potential favorable impact of future Federal Reserve rate increases, that we would expect the margin to settle out in the 270 to 275 range throughout 2017. And again that does not include prepayment fee income which can be irregular, and whatever the Fed does.

Thank you.

[Operator Instructions] Our next question comes from Laurie Hunsicker with Compass Point Research.

Good morning. I wonder - and your credit is obviously very pristine, but just wonder if we can go back to the commercial real estate relationship, and you can just remind us what potentially changed. We obviously saw you guys take a $1.9 million charge on that loan in the quarter and now $2.5 million charge. What changed in-between quarters and how do you see resolution on that loan?

Well, in the fourth quarter we continued to assess the underlying real estate collateral associated with that credit and the overall condition of the borrower, and that assessment led us to conclude that this recognition of loss and related charge-off was appropriate. I would say that at this point, we feel that we’ve done a very creditable job of recognizing whatever is associated with that credit, and I’m hoping that we're able to work out at the carrying value that we have of about $3.9 million.

Laurie, it’s Ned. I think we’ve positioned it so that we can now work with the borrower to resolve this in a relatively short time frame. We've recognized where we needed to position the asset to do that.

Okay, and you don't have any other exposure with this borrower, do you?

No. The $3.9 million is the totally of it.

Okay, great. Then just in terms of charitable foundation contribution, I know in the past you’ve done that typically in the fourth quarter. We didn’t see it. How are you thinking about that?

At this point the foundation is satisfactorily funding the charitable giving program that we have. It is likely that we will not do that again in 2017 as well. And if we change our approach on that we would certainly talk about that.

Okay, and then how do you think about dividend payout targets?

Well, the dividend will follow the path of earnings, and as I've said the 50% to 55% payout ratio seems to make sense for us. It's providing sufficient earnings or capital growth to support the growth of the balance sheet. That's what we're assuming at this point, and we will continue to evaluate it each quarter.

Okay. And then Joe, last question for you. You had mentioned the opportunities. Obviously we’ve seen your stock take a very healthy jump here, and that could potentially be acquisition currency. How are you thinking about acquisitions and how has your approach changed in the last few months?

Well, I guess we would count that with the fact that everyone else's stock has also increased. I think Laurie, our philosophy on this hasn't changed from what it was in the past. I think it’s a function of price, and whether or not we can find something that makes sense to combine with that we also feel will - we would be able to grow. You know, expenses synergies aside, we are interested in things that are in markets that we think present growth opportunities for us. So I think any kind of a payback period is still within the same kind of parameters that we had discussed before.

Okay, great, and then just one last question. Again with stock currencies up et cetera, have you all seen any sort of increased M&A discussions because of stock prices?

I would say, Laurie, that people are currently taking a little bit of a pause because, I think all of us would like to get comfortable that these kind of evaluations have a chance to hold.

Great. Thank you.

This concludes our question answer session. I'd like to turn the conference back over to Joseph MarcAurele for closing remarks.

Well, thank you all for taking the time with us again today. We look forward to the first quarter and to having further discussions, and we're certainly hoping to produce the same kind of results we have historically. So thank you very much.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect