Good morning and welcome to Washington Trust Bancorp Inc. Conference Call. My name is Emily, and 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, please go ahead.

Thank you, Emily. Good morning. This is the Third Quarter 2012 Earnings Conference Call for Washington Trust Bancorp Inc. NASDAQ Global Market Select under the symbol WASH. Please note this morning's conference call is being recorded and webcast live. A webcast replay of today's conference call will be available shortly after the conclusion of this call through the Corporation's website, washtrust.com in the Investor Relations section under the 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 J. MarcAurele, Chairman, President and Chief Executive Officer; and David V. Devault, Senior Executive Vice President, Secretary and Chief Financial Officer. And now I am pleased to introduce Washington Trust's President, Chairman and CEO, Joseph MarcAurele. Joe?

Thank you, Beth. Good morning, and thank you for joining us on today's conference call. Yesterday, we released our third quarter results. This morning, I'll discuss the highlights of the quarter and David will review our financial performance. At the conclusion of today's call, we'll answer your questions and provide an outlook for the months ahead. I'd like to begin by stating that we're extremely pleased with our third quarter results. We had good growth along all business lines, all total deposits and total loans reached all-time highs. We had record mortgage production and wealth management assets reached the $4.2 billion mark. This strong operating performance resulted in another quarter of record earnings. Net income was $8.9 million or $0.54 per fully diluted share, up $0.08 or 17% from the third quarter a year ago. Our profitability ratio has also improved as return on average equity was 12.02% for the quarter. Return on average assets also increased to 1.17%. All profitability measures have increased steadily over the past several quarters and ROE surpassed the 12% mark for the first time since the third quarter of 2008. Our mortgage area continues to contribute significantly to our profitability as loan sales gains were once again a key source of revenues, mortgage origination volume remained strong during the third quarter. Mortgage production was strong in all 3 markets where we have offices: Rhode Island, Massachusetts and Connecticut, as we continued to take advantage of a strong refinance environment. We also had healthy commercial loan growth in the third quarter, attracting new commercial real estate and C&I relationships in the Rhode Island, Greater Boston and Hartford, New Haven, Connecticut markets. The new business continues to come at the expense of larger competitors, our commercial team also brought in new business deposits and cash management…

Thank you, Joe. Good morning, everyone and thanks for joining us on our call today. I'll review our third quarter 2012 operating results financial position as described in our press release yesterday afternoon. Net income for the corporation was $8.9 million, with diluted earnings per share of $0.54. These were both record levels for Washington Trust. These results are up $0.01 per diluted share from the previous quarter and are $0.08 per diluted share higher than the third quarter of 2011. Key performance ratios in the third quarter were solid with return on average equity climbing to over 12% and return on average assets of 1.17%. These were higher in both cases than the linked quarter results. There were certain transactions in the quarter that resulted in a $0.01 reduction in diluted earnings per share on an after-tax basis. These included a nontaxable gain of $528,000 and the receipt of proceeds on a bank owned life insurance policy and $1.2 million in debt prepayment penalty expense resulting from the prepayment of $32.4 million in Federal Home Loan Bank advances. The net interest margin in the third quarter was 3.28%, down a modest 2 basis points on a linked quarter basis. This reflects the impact of the sustained low interest rate environment on earning asset yields, which declined at a slightly higher rate than funding costs during the latest quarter. Linked quarter interest earning asset yields declined 7 basis points, partially offset by a 6 basis point decline in the cost of funds. The net interest margin is 6 basis points higher than the third quarter of 2011, again reflecting a reduction in the cost of funds. Average interest-earning assets rose by $25.8 million or 1% from the second quarter and are 4% higher than the third quarter a year ago.…

Thank you, David. Washington Trust had a good third quarter and posted record earnings, increased our dividend for the second time and so our stock price reached a 52-week high. We're pleased of our consistent performance in earnings trend, but we remain cautious. The continued low interest rate environment, slow economic growth and increased competitive pressures, as always, present a challenge. Really, the key to our success has been our ability to steer a consistent course as we grow the company. Going forward, we continue to -- we plan to continue to adhere to the business model and the core values that have guided us over the years. Thank you for your time this morning and now David and I would be happy to answer any questions.

[Operator Instructions] And our first question will come from Frank Schiraldi of Sandler O'Neill.

Just a few quick questions. The first on the margin. Dave, you mentioned enhancement of net interest income of $319,000 from those balance sheet restructurings. That's through the end of the year. So that -- is that all 4Q? Or is a percentage of that in 3Q numbers?

About $275,000 of that is going to be in the fourth quarter.

Okay. Given then that that's probably 4 basis points or so in NIM expansion, are you comfortable given the other moving parts here to expect some overall NIM expansion in 4Q?

That's possible. It will depend on the yield upon the new loans come on to the balance sheet add. We've been certainly satisfied with maintaining the NIM. If we can get a little bit of extra NIM out of that transaction and the overall balance sheet management, that would be wonderful, but I think NIM maintenance is really the overarching goal for the company at this time. And the longer this low interest rate environment continues, that's just going to be challenging.

Got you. Okay, and then on credit. Dave, if you could just -- you mentioned the $8.2 million CREE loan that went into accruing TDR status in the quarter. Could you give us a LTV on that and then the market it's in?

It's in the Rhode Island market. I'm not sure I have LTV. We have maintained it in accruing status, which means it would have a nominal loss allocation based on a formula that we would use for that type of accruing loan and we're comfortable with this credit based on all of those factors that I indicated.

Okay. And then finally, on the -- on mortgage production. The pipeline, you said it's still robust. Can you just give it to us in comparison to what the pipeline was this time last quarter?

The pipeline has -- it goes up and down from week to week, but certainly applications have remained strong as we head into the third quarter. It might even be modestly higher than it was 3 months ago, but it depends on the week that you measure it. So it's been pretty steady over the last several months.

Got you. So is the growth in the quarter more on loan sales margins growing rather than originations growing, sequentially?

Well, the growth in the third quarter compared to the second quarter is clearly due to origination increases. We originated about $178 million in the second quarter and that was over $200 million in the third quarter.

[Operator Instructions] And our next question comes from Damon DelMonte of KBW.

I guess first one is probably for David here. I was wondering if you could just talk a little bit about the additional opportunities for balance sheet restructuring? Are you pretty much done? I know this is probably the second or third quarter that you've had some opportunity. I didn't know what the fourth quarter looked like or going beyond that.

There are modest opportunities to do things like that. They're diminishing in benefit as we move forward.

Okay. Along the lines of prepayment of debt or maybe just restructuring and doing a blend and extend?

Either of those things, we continue to look at that all the time to see what makes sense.

Okay. And then as far as your cost of deposits go, it looks like there could be some additional opportunity to lower those costs. Is there anything notable coming up in the fourth quarter?

We see modest opportunity to -- for repricing the weighted average cost of what's maturing and this quarter is not a lot higher than what we've been originating in recent months. So again, we see a modest opportunity for some deposit repricing downward in the fourth quarter, probably to a lesser extent than we've seen in prior quarters.

Okay, that's helpful. And then I guess lastly, with regard to mortgage banking operations, are you guys still comfortable with the size of your group of bankers right now? Or do you see greater opportunities to continue to hire people and start taking advantage of the continued strong volume activity?

Well -- this is Joe. I would tell you that we continue to recruit particularly in markets outside of Rhode Island. I really believe that as we go forward, there will be opportunity to recruit originators. The key to the business going forward is making sure that we don't overly expand the expense base so that at whatever point this business, which we all know to be cyclical, changes, that we can directly change our expense base in a way that makes sense.

[Operator Instructions] Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Joe MarcAurele for any closing remarks.

First of all, I just like to thank everyone for their time. This is obviously a challenging economy and continues to be that way. We feel as though we are well positioned to continue to take advantage of what the market presents us and our goal is to continue to show a consistent performance. So again, thank you very much and I will be back with you at the end of the year.

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