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] And now, I’ll turn the call over to Elizabeth B. Eckel, Senior Vice President, Marketing and Investor Relations. Ms. Eckel?

Thank you, Michelle. Good morning and welcome to Washington Trust Bancorp Inc.’s first quarter 2017 conference call. This morning’s call will be hosted by Washington Trust’s 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. Before we begin, please note that today’s presentation may contain forward-looking statements, and actual results could differ materially from those statements. Our complete Safe Harbor statement appears in our earnings press release and in other documents filed with the SEC. To review the complete Safe Harbor Statement and other documents please visit our Investor Relations website at washtrustbancorp.com. Washington Trust trades on NASDAQ under the symbol WASH. And now I am pleased to introduce Washington Trust’s Chairman and CEO, Joseph MarcAurele.

Good morning and thank you for joining us on today’s conference call. Earlier this morning we released our first quarter results. I would know like to take a few minutes to review the highlights of the quarter with you, then I will ask David Devault to discuss our financial performance. After our prepared remarks, Ned, David and I will answer any questions you may have about the quarter or the year ahead. Washington Trust posted solid first quarter results with net income totaling $11.8 million, or $0.68 per diluted share. While earnings were down from the previous quarter, net income and earnings per diluted share were up from the first quarter a year ago. Our profitability measures and asset quality remained strong, and we continue to be well-capitalized. Once again our diversified business model was key to our quarterly performance as we had good contributions from our core business lines. We also continue to benefit from the solid level of business activity and production throughout the market area. Now I would like to take a few minutes to review some of the quarterly highlights. It was a good quarter for deposits as we surpassed the $3.1 billion mark, which is up slightly from year-end, but represents an 8% increase in deposits from the year ago. We were also successful in attracting a good mix of low-cost demand deposits, NOW accounts and savings deposits, which helps our continued efforts to manage our balance sheet and cost of funds. We had sold in-market deposit growth generating new funds from both new and existing customers. Deposit generation has been an ongoing challenge for all financial institutions. We believe we have great potential to garner additional deposit share in Rhode Island and have the right strategy to do so. A year ago we opened…

Thank you, Joe. Good morning everyone. Thanks for joining us on our call today. I’ll review the first quarter 2017 operating results and financial position as described in our press release issued this morning. Net income in the first quarter was $11.8 million or $0.68 per diluted share. That compares to net income of $12.2 million or $0.70 per diluted share in the fourth quarter of 2016. Profitability metrics continued to be very respectable with a return on equity of 11.87% and return on assets of 1.08%. Net interest income in the first quarter was $28.7 million, up modestly from the fourth quarter, and the margin was 2.87%, down to 2 basis points from the fourth quarter. Now I would also note there was a noticeably higher amount of commercial loan prepayment income in the fourth quarter of $816,000, whereas in the latest quarter it was only $135,000, and excluding the prepayment fee income the margin was 2.86% in the quarter, up 5 basis points from the fourth quarter. Net interest income benefited from $112 million increase in average interest-earning assets. That was the impact of mainly securities portfolio additions and other asset growth in the fourth quarter. So we had the full quarter impact of that and the Federal Reserve rate increase in December was also a contributing factor to the improvement in net interest income and the margin. The impact of the margin increase will for the most part occur starting in April. The yield on interest-earning assets was up by 3 basis points from the preceding quarter, and if you exclude the prepayment fee income in both quarters, the yield on interest-earning assets was 9 basis points. On the funding side, average wholesale funding balances, which I would define as federal home loan bank advances and wholesale…

Thank you, David. Our first quarter performance illustrates the importance of our diverse business model, particularly in the current operating environment. Each of our business units contributes to the bottom line, and together they make our company what it is. But tomorrow we will host our annual meeting of shareholders, and look forward to presenting our 2016 results and the first quarter highlights and our outlook for this year. We believe we are in the right markets, have an outstanding team and have solid potential for future growth. We remain optimistic about what lies ahead, and now thank you for your time. And now Ned, David and I are happy to answer your questions.

[Operator Instructions] Our first question comes from the line of Mark Fitzgibbon with Sandler O’Neill. Please proceed with your question.

Good morning.

Good morning Mark.

Good morning Mark.

I wonder David if maybe you could give us a sense for whether the new commercial real estate and C&I loans that you are booking on the balance sheet are sort of at or above the portfolio yield today?

Well, it will be slightly above, I would say, in the – it depends on the mix and we have seen continued demand for LIBOR-based lending, and particularly in the CRE portfolio.

Okay. So, I mean, given that and also the rate increases that we have seen, it sounds like the net interest margin trend ought to be up a little bit in the coming quarters, is that fair?

That would make sense to us and that is what we think. There is a near-term effect, where typically we have some seasonal outflow of institutional deposits that we back fill with some borrowings. That typically happens throughout the second quarter and then we see that turnaround and a rebuild of in-market deposits in the latter half of the year. But all in all, even without another rate increase, we would expect to see some margin improvement.

Okay, and then in the past year, in terms of provisioning, it looked like in the early part of the year when loan growth was a little lower, you provided a little bit less and later in the year loan growth provisioning picked up. Should we expect a similar trend do you think this year?

Well, one of the key factors in determining the measurement of loss exposure that drives the need for poor provision is growth. So, with modest growth in the first quarter, there was a modest provision, it's not the only reason but there were really very little new loss formation as well in the first quarter. So, we love to see growth accelerate in the loan portfolio and we'll make appropriate provisions as that occurs.

And I'm curious on the mortgage business, if origination volume doesn't come back as strongly as you hope it will. Do you have plans in place to do some cost control kinds of things in the latter part of the year?

Well, there are two things that can happen with if you're referring to portfolio growth. We can, we've done some wholesale purchases in the past and we will consider that again. For mortgage banking itself, we are watching cost controls where the cost structure of that line of business very carefully, we have been able to maintain a very solid core nucleus of quality people to support that business and we are constantly taking steps either to technology or just reviewing the way we do things to make it as efficient as we possibly can.

Thank you.

Thanks, Mark.

Thank you. Our next question comes from the line of Damon DelMonte with KBW. Please proceed with your question.

Hi, thanks, good morning everyone.

Good morning, Damon.

Good morning, Damon.

Good morning. So, my first question is kind of circling on the loan growth outlook. Are you guys still optimistic that you could for the full year get back to that mid to upper single-digit range?

It's Joe. I think at this point we would probably guide to mid-single digits. We believe that we will at least for the next three or four months and certainly throughout this current quarter continue to experience some level of commercial real-estate payoffs. So, I think we're in a mid-single digit range.

Damon, its Ned, just to add a little color. Both pipelines are coming back to what we would call within the range of being pretty strong. Energy pipeline's about a 171 million, the commercial pipeline is about a 190 million which is pretty good for us historically. On the commercial side, about half of that is construction. So, and that was part of the issue in the first quarter too we had good loan formation, but we had a fair amount of that in construction. So, it's funding overtime and at the same time we've had some commercial real-estate payoffs that are more significant than the funding almost. So, we think that’s a challenge going forward in this quarter. But on the pipeline side, things are rebuilding and applications on [energy] side have been stronger as we move forward. But February and March were a little bit lower. So, sales on the [energy] side, the sales outlook is going to be a little bit lower in the quarter ahead.

Okay. Would you I think driving these ongoing and accelerated seasonal repay offs, is it loans that are being refinanced the way from you to other competitors, are they -- the businesses that have sold and they are just paying down kind of cashing in on the fortunes. Or what's leading to this level of payoffs?

So, all time low cap rates, we're funding quality projects that are taking advantage of low cap rates and selling at the [height] of the market. They are typically being financed but more institutionally not by competitor banks, they're going to reach sort of like companies. Long term, fixed rate, nonrecourse financing that frankly we don’t care to compete with. And I think as rates stay low, cap rates will stay low and that will continue a little bit as rates come up. Cap rates should come up, that might slow a little bit but we're expecting that will still a bit more in the quarter ahead.

Got you, okay. That's helpful, I appreciate the color on that.

Yes.

And then I guess, kind of with regards to the outlook for overall non-interest income obviously swapped, swap gains were down and we talked a little bit about the mortgage banking side of things. David, can you kind of quantify a reasonable run rate on a quarterly basis for your outlook for non-interest income. This quarter was 14.5 million, do you see a little bit of a rebound in the mortgage banking income, can you get a backup over 15 million a quarter or do you think you kind of turns from this point forward?

I would expect some modest improvement in the near term and we had some very low derivative swap income in the first quarter. We hope to see more of that in the future. Mortgage banking should be okay in the near term. I don’t know that it would be dramatically better than the first quarter. Well, seems to be doing well. So, we hope to see modest growth.

One of the issues on the swap side, Damon, is that as we do more construction loans, some of them will take a forward swap but not all of them. Some of them prefer to float during the construction period. And then we would expect to see some of those swap at completion. We're actually talking to some about doing forward swaps. Now, and hope that with prospective rates increasing that will make sense to some of our customers. But it's not a given in a construction scenario that your customer would take a swap.

Thank you, okay, great. And then I guess it's my last question. Kind of on the funding side of things. We've seen a rate increase obviously just last month, we had one December, we had one mid-year last year. I think the general sentiment is that banks have been able to lag on increasing their funding cost and not having to really react on to its increasing the deposit cost. And what are you guys seeing in your markets and what your expectations if we were to have another rate hike or two in 2017? Do you think you are going to continue to be able to lag or are we going to sort of see higher data for future rate increases?

Okay, Damon, its Joe. I think two things. We see even now a little bit more pressure on the municipal and institutional side of our deposit base. I feel as though the consumer is probably a little bit slower to react, I think the answer though is if we get one more increase, we'll probably be able to deal with that kind of on a one-by-one basis. But if we get two, I wouldn’t be surprised if the market reacts a little bit more strongly to that.

Yes, okay. That's good color. Thanks a lot for answering the question this morning. Thank you.

Thanks.

[Operator Instructions] Our next question comes from the line of Laurie Hunsicker with Compass Point. Please proceed with your question.

Thanks, good morning.

Good morning, Laurie.

Good morning, Laurie.

Just to go back here to non-interest income. I know that Q2 typically has a tax benefit. How should we be thinking about that for the June quarter?

That's typically in the range of I don’t know to the nearest $100,000, probably a $300,000 number in the quarter.

300K benefit, okay perfect. And then the charitable foundation that you guys have typically done in the fourth quarter in terms of expenses, has that been planned for 2017 and that's run like $400,000 or $500,000. How should we think about that one?

Right. At this point we are not planning to do that. We already have plenty of list in the assets of the foundation to support our giving plans. So, I wouldn’t count that in.

Okay, right. And then, just a --.

It is a decision that we'll revisit as we get towards the end of the year.

Okay, great. And then, with respect to margin, obviously just same quarter two basis points have reported. But if we strip out that prepay penalty income. You actually had five basis points of core expansion in the quarter, which is a little bit better than I was expecting. Can you help me think about just as we look from March to June? Could we potentially see another five basis points of core expansion excluding the prepay penalty income?

Well, again you have a very similar effect pattern with a 25 basis points fit increase right at the end of most recent quarter. So, there will be a benefit from that, certainly on prime base amounts. And but as I mentioned, the second quarter is typically a period where we might have to increase borrowings a little bit because of some typically business cycle outflows associated with larger institutional depositors. So, it could be a few basis points. It's pretty hard to be precise to actual specific number.

Okay, great. And then, that's helpful. And then, with respect to your branching plans, your east side Boston branch, what were the deposits in that?

It's East Side of Providence, it's about $6 million.

$6 million, okay. And what is in your mind as breakeven on that?

I think Laurie, that's the footprint of that branch is quite small as is the staffing. We probably think that it starts the breakeven in the high-20s maybe 30'ish.

20s to 30s, okay. And then the new branch that you're opening, the one in Rhode Island you started construction. When is the actual planned opening of that, approximately?

This October.

It's around the end of the third quarter, early fourth quarter.

Okay, great. And what are your Geneva branch plans for the rest of the year. Is it just the one or is there anything else from the drawing board?

No, that's it for this year. And then Laurie, I think we've got a record of saying in the past. We're pretty cautious with this going forward, we think there maybe one or two more opportunities but we all we are very cognizant of the fact that retail branch banking is a changing world. So, we're certainly trying to be judicious but there are some locations that we're interested in.

Okay.

And so far, these have worked for us.

Great. And then, just last question on M&A. One of your community bank peer shows very strong currency and obviously your currency is very strong sitting here three times but indicated that they are really looking to grow substantially. Can you just give us a refresh on your take on M&A given that you have such strong currency, how you're thinking about hoping M&A and then also how you're thinking about maybe acquisitions in the ROA front?

I think we're always interested on wealth management side. Laurie, we've obviously done one in the last year or so, year and a half. We think that that's something we can do well. Those are a function of kind of culture and price to some extent and we obviously look for things that are more high net worth individual based not institutional based. From a whole-bank perspective, our feeling is that we are always interested in things that will get us either synergy to what we do today or get us into markets that we think we can grow in. It is true that our currency is strong, but quite frankly a lot of other people's currency has got stronger. So, we will match that with what we think makes sense from a credit risk perspective and whether or not we can grow what we buy.

Okay. And then, just one last question. What would be the largest assets size acquisition that you all would entertain, if you were doing a whole-bank M&A deal?

I don’t think you would see us do something that would be a best of bank size. So, something that was a billion'ish dollars or under might make sense.

Okay, great, very helpful. Thank you, so much.

You're welcome.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Joseph MarcAurele for closing remarks.

Thank you. I just like to thank everyone for your interest and attention today. And we look forward to speaking to you again when next quarter earnings are released. Thank you.

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