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

Thank you, Melisa. Washington Trust Bancorp Inc.’s Third Quarter 2017 Conference Call will be hosted by Joseph MarcAurele, Washington Trust’s Chairman and Chief Executive Officer; Ned Handy, President and Chief Operating Officer; David Devault, Vice Chair, Secretary and Chief Financial Officer and Ron Ohsberg, Senior Executive Vice President and Treasurer. Before we begin, please note that today’s presentation 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 Washington Trust filed with the SEC. Please visit our Investor Relations Web site at washtrustbancorp.com to review these materials and our entire Safe Harbor Statement Washington Trust trades on NASDAQ under the symbol WASH. I’m now pleased to introduce Washington Trust’s Chairman and Chief Executive Officer, Joseph MarcAurele.

Thank you, Beth. Good morning and thank you for joining us on today’s conference call. Yesterday afternoon, we released our third quarter earnings. This morning, David and I will provide some insight into Washington Trust’s performance. After our prepared comments, Ned Handy and Ron Ohsberg, will join us to answer any questions you may have about our third quarter results or our thoughts and what lies ahead for the remainder of 2017. I am pleased to report that Washington Trust had another good quarter, earnings $13 million or $0.75 per diluted share. We generated a record $47.3 million in total quarterly revenues. Our performance reflects our continued success at growing our key business lines. Diversified revenue streams were integral to our solid quarterly results, allowing us to maintain strong profitability metrics. Let me take a few minutes to discuss some positive highlights for the quarter. First, total loans were up 4% from the second quarter. Commercial loan activity was fairly robust during the quarter. We had growth in both commercial real estate and commercial and industrial portfolios. There was some payoff activity during the quarter, but it seems to have slowed through a more normal run rate. Our commercial pipeline remains healthy heading into the fourth quarter. In our residential mortgage business, total portfolio loans were up more than 2% from the prior quarter and almost 11% from a year ago. Purchase activity outpaced refinancings during the quarter with good production from our Rhode Island, Massachusetts and Connecticut offices. Total mortgage loan originations for the year are ahead of where we were a year ago. As we look into the fourth quarter, mortgage application activity has been steady. So we’re optimistic that we have a good fourth quarter. A notable highlight for the third quarter was a record $3.2 billion…

Thank you, Joe. Good morning everyone. I’ll review our third quarter 2017 operating results and financial position as described in our press release issued yesterday. Net income was $13 million or $0.75 per diluted share for the quarter. That compares with $13.2 or $0.76 in the second quarter. The profitability metrics remain strong with a return on equity in the latest quarter of 12.56%, and return on assets of 1.18%. Increases across most revenue categories contributed to these results. The results also reflect the impact of $570,000 third quarter expense item, which we considered to be non-core. Net interest income was up by $155,000. The margin, net interest margin, was 2.93%, a decline of 4 basis points from the second quarter. Included in net interest income was prepayment fee of $131,000 in the latest quarter compared to $549,000 in the second quarter. Excluding those amounts, net interest income was up by about 2% and the margin was 2.9%, down 1 basis point on a linked quarter basis. The yield on interest earning assets declined by 1 basis point, and excluding prepayment fee income in both quarters, the yield on interest earning assets rose by 4 basis points to 3.66%. The average balance of interest earning assets increased by $35 million, reflecting growth in the loan portfolio, partially offset by a decline in average investment securities. On the funding side, the average balance of wholesale funding sources, including the Federal Home Loan Bank borrowings and wholesale broker deposits, increased by $32 million in the second quarter, while the average balance of the in-market deposits declined by $24 million and that reflects the seasonal outflows towards the end of the second quarter. The cost of wholesale funding rose by 7 basis points and meanwhile the cost of end market deposits which includes…

Thank you, David. I would like to take a moment to comment on some leadership changes that will take place in early 2018. A few weeks ago, David Devault and I, announced our intention to retire from the corporation. Ron Ohsberg will -- who’s joined us on today’s conference call will take over as Chief Financial Officer and Treasurer, when David retires on January 31, 2018. Ned Handy, who has served as President and Chief Operating Officer for the past several years will succeed me as Chairman and Chief Executive Officer, when I retire on March 2, 2018. Mark Gim, who is currently traveling and was unable to join us today, will take over Ned’s role as President and Chief Operating Officer. David and I have both been contemplating retirement for some time. But leaving Washington Trust obviously was not an easy decision. This Company is a special place, which is why it’s been around for 217 years and it’s recognized as one of the top financial institutions in the country. I’ve been honored to serve as Chairman and CEO and to work alongside some outstanding professionals, particularly David Devault, who has served faithfully for over 31 years at the Company. And I would just like to personally thank David for all of the help he has given me over the last several years. I could not have done my job without David. As I had often David packs his bags to travel, we’re confident, very confident that Ned, Mark, Ron and the entire leadership team will successfully guide Washington Trust in the years ahead. And again, I thank all of the management team for all the help and support they have given me, in particular. Thank you for your time this morning. And now, Ned, David, Ron and I are happy to answer any of your questions. Thank you.

Thank you. We will now begin the question-and-answer session [Operator Instructions]. Thank you. Our first question comes from the line of Mark Fitzgibbon with Sandler O’Neill & Partners. Please proceed with your question.

Good morning. And Joe and Dave, congratulations on your retirement and Ned, Mark and Ron, best of luck in your new roles. I wonder if I could start by asking a quick question about the external fraud that you mentioned in the press release. If you could maybe give us a little more detail on that, and whether there might be any additional charges coming down the pipe on that?

It's kind of an unusual item. We’re continuing to work through the matter. I don’t believe -- we don’t consider there to be any additional exposure. I can say it's not a cyber related matter nor is it an internal control problem, and it's just an unusual item for us.

Was it a long related event?

No, it has something to do with a fraud perpetrated to the banking system.

Were there other institutions effected by it?

No, the answer is no.

Okay, you just can’t give more detail on it.

We’re continuing to work through it and we’re hoping that there will be some recovery at some point in the future.

Mark this is Joe. We don’t want to be too cryptic about this. This was an isolated incident that happened with just one event that we’re working through now, and we feel like the charge that we took this quarter is the extent of it. And we are working through a potential recovery of that, but we really wouldn’t want to predict that at this point.

And then secondly Dave, I wondered if you can help us think about the net interest margin over the next couple of quarters. Where that’s likely to trend?

Sure. Without assuming a future fed rate increase, I would say that the trends that you saw in the third quarter are fairly representative of what we would expect to happen in the next few quarters, some pressure, both on deposit rates which as we look at other regional community banks in the northeast, we see a fair number of them reporting higher deposit costs and that effected us as well. And the loan growth was helpful. And so overall, I would say, margin on that basis would be about flat over the next couple of quarters, a fed rate increase could potentially improve that. But again, that depends on what the rate of deposit funding costs would be during that period of time.

And then on the mortgage banking line, you guys had much better results than some of your peers there. I'm curious is that because you just have more purchase volume you think than the peers, or is there something else there?

The purchase portion of the secondary market originations has been fairly good. We have what we believe is a good -- a well run business with a diversified base of investors who know our product and are going to buy our product. And we have overtime refined our origination system to be able to meet the needs of individual investors. We also operate in a good market in the Boston area and other Southern New England markets. So it just works well for us.

Mark, it’s Ned. I think David is right. The Boston market has been very supportive, Connecticut has been strong, plus the pipeline remains fairly robust. And so, we expect the next few quarters to be -- to continue to be strong. And we are, as David said, we do well in the purchase market. And those are independent contractors, if you will, and they have great networks of their own, they’re not branch dependent, which tends to itself to refi business. So they’re taking advantage of the full market.

And then lastly, are you seeing much of the way of M&A opportunities on the wealth management side?

Mark, this is Joe. I would comment on that. I would say that wealth management is something that we remain interested. And we are, quite frankly, shown things fairly consistently. We probably have a little bit of a geographic prejudice to that. We like these things to be within striking distance of us. We like the business and for us it really is a -- it has a lot to do with the age of the principals, the actual price and how if we can structure these things in a way that keeps the principals of those companies with us a lot like restructured the Halsey deal. So yes, we would certainly consider that as we go forward.

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

So my first question just dealing with loan growth. Could you guys talk a little bit about what drove the commercial real estate growth during the quarter? What kind of asset classes and types of credit you’re putting on?

It’s a good mix on the commercial real estate side, property side. Probably we had a little bit towards multifamily and construction. We had, during the quarter, new originations and commercial across the board are about $161 million. So we did still have some payoffs about $42 million in the quarter, unexpected payoffs. So I think the highlight was that the new credit formation was very strong. Those payoffs have continued to be mostly in real estate where borrowers are still taking advantage of very well cap rates and selling at the top of the market. But construction, multifamily, some retail, some office all Rhode Island, Massachusetts and Connecticut, so all within our short striking distance. Some participations but I would say more direct to borrowers than broad participation certainly. So I think a good mixture. We had about, let’s see, we had about $21 million -- 16 million in new C&I loans and about $21 million in construction advances during the quarter on C&I credits, so pretty good balance between CRE and C&I for us.

And then as you look into the fourth quarter and as we go into ’18. Obviously, the first half of this year, you’re struggling for loan growth, but it was probably more function of the payoffs on the origination side. So what do you seeing as you go into the fourth quarter and into 2018?

You’re correct. It was more about payoffs and about loan than actually new credit formation. But the pipeline is at about $200 million, which is pretty good for us. We think we'll hit the mid-single digit growth rate that we’ve projected for this year. And we don’t see any reason why we won't get our fair share of activity going into 2018. The team is busy. The pay-offs have slowed somewhat, to Joe’s earlier point. They still continue to be there so we have to keep an eye on that. And those are generally deals that are either selling or refinancing long-term non-recourse with insurance companies or CMBS. So they’re deals that we could keep if we wanted to or should keep if we wanted to. So that's going to be the ongoing challenge to the extent to which the portfolio turns. And as I've said in the past, rather have real-estate loans pay-off too early than too late. So I'm okay with that and run hard to replace high-quality deals.

And then my other question is relates to expenses. If we take out that $570,000 fraud related charge, is this a good core base to build-off of going forward?

I would say so. There’s really nothing unusual in those numbers other than that one item that I mentioned. We would expect normal growth over the next few quarters?

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

I just want to say Joe and David it has been a real pleasure working with you guys, and best of luck, Ned and Mark and Ron, congratulations just wanted to echo that, makes it special. So just going back to loan growth for a moment. Obviously, CRE was really strong 30% annualized this quarter. How much of that was participations?

The exact dollar amount paid, I don’t have in front of me, but may have it.

Okay, I can follow-up it back with you offline. And then same question, I know you have purchased resi loans, primarily Massachusetts. Any of your growth in the residential book this quarter purchased?

No, we haven't done any purchases this past quarter Laurie.

And I guess as we think about your overall loan growth, I mean linked quarter 15% annualized, you’re just hitting it out of the park. How should we think about that overall for next year?

I don’t think we have solid numbers for next year, Laurie. But I do think that we feel confident that we will year-over-year this year get into the mid-single digit. Next year, if we could do a little bit better than that, that would be our goal. But I don’t see us hitting that annualized 15% growth for the next year. I think that would be an outsize number.

Okay.

Laurie, back to the participation question, actually participations are down in the quarter by $9 million.

So, what was the total participations?

Total number is -- in the portfolio is $391 million for the quarter.

And how much of that was put on this quarter?

The net change in Washing Trust’s participation in loans led by other banks declined by $9 million during the question. So that the increase is from our self originated products.

Of the $77 million same quarter. And so going over the loan loss provision, obviously, you have a lot of loan growth so understandably you had a chunk in provision here. Was there anything in the provision line that related to the fraud? I mean I get that the fraud charge was down in the non-interest expense line. But was there anything about -- and I appreciate you don’t want to disclose it. But was there anything -- so there was nothing fraud related in the loan loss provision line?

Absolutely not.

And then as you look at -- can you just comment a little bit, your wealth management is just off the charts. But you have larger outflows. This quarter, you had net client outflows about around $86 million. Any color around that?

Laurie, I would say that one of the things that we face from an outflow perspective is that on balance, particularly our customers in the Southern part of Rhode Island, are somewhat older and are in a mode of depleting their accounts to some extent. So it’s one of the things that we constantly have to battle. It’s not a lost account issue. It’s really more about that part of our business. So to the extent that we can continue to grow through developing new relationships, that’s a very important part of what we do as we go forward.

And then just last question, I know Mark asked about the RAA, and how you’re looking at that, potentially in the acquisition. Can you share with us -- and you have one of the strongest currencies in New England, now you’re almost 3 times. But can you share with us how you’re thinking about an acquisition? And obviously, we’re asking this almost every quarter, but you now have that filed shelf. Just how are you approaching that bank acquisition potentially?

Well, I’ll let Joe talk about the appetite in the way we look at potential acquisitions. The shelf was really to position the Company, to have the ability to either issue debt or raise capital. It’s something that most regional community banks have in place, and we decided that was something that we needed to have and is part of our overall capital management strategy.

I would say, from an acquisition perspective on the whole bank side Laurie, what we would look to is something that is -- would be in a market that we felt we could grow and obviously, get some level of cost efficiencies from. One of the things obviously that we’ll be very attractive to us would be something that had a very favorable loan to deposit ratio. There is not a lot of that in New England. So I would say it’s, as we’ve said before, it’s a function of price. And to an extent the type of franchise that we’ve got we could do something with and add value to. And I think we also are very mindful of how, even though our stock is certainly good currency, we are very conscious of having reasonable dilution to anything that we would do.

And just last question around that. Would you remind us of parameters in terms of how smaller deal you would look at on the asset side, and how large you would think about?

Well, the Halsey deal was approximately an $800 million. I would say that we would do things if they were close enough to us that would be somewhat smaller than that at some level to do things that are kind of not necessarily worth it. I don’t think you would see us do a bet the bank combination on the whole bank side. But clearly, we would -- we’re not addressed to doing things that are a $1 billion or $1.5 billion if it made sense.

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

Great. Thank you to everyone for participating today. We feel as though we had a solid quarter and we think we have very good momentum as we’re going through year-end. Looking ahead, obviously, there are variables. We know that the appointment of a potential new fed chairman may have some effect on interest rates. And tax reform, obviously, could affect our whole industry. We have a lot of confidence in our diversified business model. It’s helped us whether economic swings in the past and we’re confident that we’ll continue to navigate through those changes. I’d also be remised if I didn’t say that I personally have a lot of confidence in our new management team, and I think the Company is well positioned to continue its success. So thank you very much.

Thank you. This concludes today's conference. Thank you for attending today's presentation. You may now disconnect, and have a wonderful day.