Good morning and welcome to Washington Trust Bancorp, Inc.’s Conference Call. My name is Audrey. 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, Audrey. Good afternoon and welcome to Washington Trust Bancorp Inc.’s second 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. Please note, this presentation may include forward-looking statements and actual results could differ materially from the statements made on today’s call. Our complete Safe Harbor statement is included in our earnings press release and in other documents that Washington Trust files with the SEC. These materials are available on our Investor Relations website at washtrustbancorp.com. Washington Trust trades on NASDAQ’s OMX market under the symbol WASH. I am now pleased to introduce Washington Trust’s Chairman and CEO, Joseph MarcAurele. Joe?

Thank you, Beth. Good afternoon and thank you all for joining us. This morning, I will review the highlights of the second quarter and David will discuss the Company’s financial results. At the conclusion of the call, Ned, David and I will answer any questions you may have about our performance. Washington Trust posted solid second quarter earnings in a challenging economic environment. Net income amounted to $11.1 million or $0.64 per diluted share. Profitability ratios, capital levels, and asset quality also remained strong. We are pleased with the consistency of our performance, still recognizing the challenges and through the first half of the year especially in light of continued margin pressure and financial market volatility. Total loans reached a record $3.1 billion at June 30th, led by commercial loan growth during the quarter. Total commercial loans amounted to a record $1.7 billion at June 30th, with increases in the commercial real estate portfolio in particular. Overall growth was tempered by several large commercial real estate payoffs during the quarter. Our commercial pipeline is healthy through the remainder of the third quarter. Mortgage rates dropped to near historical levels during the quarter aspiring [ph] mortgage banking production. We generated a good mix of both refinance and purchase loans throughout southern New England region. Mortgage banking revenues amounted to $2.7 million for the quarter and our mortgage pipeline currently is at an all time high. Earlier this month, we opened a new mortgage production office in Wellesley, Massachusetts, a suburb of Boston. We hired an experienced team of mortgage originators and they’ve already hit the ground running. We’ve made great success with our mortgage banking activities thus far in Massachusetts and are confident that the Wellesley office will help us continue to build our market presence. Total deposits amounted to $2.8 billion at June 30th, down from the previous quarter, really reflecting seasonal outflows by various educational, governmental and institutional deposits. Our experience in the past has been that these deposits will flow back in to the bank as the year progresses. We reported record wealth manager revenues and assets under administration during the second quarter, as wealth manager revenues reached $9.5 million while assets under administration amounted to $5.9 billion. I will now turn the discussion over to David for a review of our financial results. David?

Thank you, Joe. Good morning, everyone; thanks for joining us on our call today. I will review our second quarter 2016 operating results and financial position, which was described in our press release issued yesterday afternoon. Net income was $11.1 million or $0.64 per diluted share in the second quarter that compared to net income of $10.9 million or $0.64 per diluted share in the first quarter of 2016. The profitability results in the latest quarter were solid with a return on equity of 11.5% and return on assets of 1.14%. There were some items that affected the linked quarter results comparison that I’ll point out in my comments this morning. Total net interest income in the second quarter was $26.8 million compared to $27.7 million in the first quarter. As we have previously reported, first quarter net interest income included about $1 million in commercial loan prepayment fee income that was well above average with a substantial portion of that coming from just one relationship. It was a nominal amount of prepayment fee income in the second quarter. So, the change in the prepayment income also affected the change in the net interest margin. The prepayment income in the first quarter contributed about 11 basis points to the margin in that quarter, which was also about $0.04 per diluted share on an after-tax basis. Excluding the impact of the prepayment fee income from both periods, the net interest margin for the second quarter was 3.05%, down by 8 basis points on a linked quarter basis. And that reduction in the margin is largely due to lower yields on interest earning assets as a result of downward movement in interest rates in 2016 as well as the mix of interest earning assets. Average interest earning assets rose by 2.6% from…

Thanks, David. As I mentioned earlier, we posted solid quarterly results, despite some challenges in the financial markets and the continued lower rate environment. We’ve been through some cycles like this before and we are confident that our business model will continue to generate a solid stream of revenues for us going forward. We will continue to maintain the disciplined approach in pursuing strategic growth initiatives. We have a strong financial foundation and are committed to delivering solid returns and enhancing the value of the corporation for our shareholders. At this point, I’d like to thank you for your time this morning. And now Ned, David and I are happy to answer your questions. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Mark Fitzgibbon with Sandler O’Neill and Partners. Please state your question.

First, Dave, I wondered if you could share with us your outlook for the net interest margin for the back half of this year, assuming there is no fed action.

That would probably translate into some continued reduction in the core net interest margin probably mid-to-high single digits per quarter, barring any change in the yield curve that might be helpful.

So, you’re sort of saying 7 to 10 basis points of compression per quarter or for both quarters?

It could be in the mid to upper single-digit basis points per quarter as we proceed throughout the rest of 2016.

Okay.

Now, we haven’t said we would take to mitigate that; obviously we’ll be continuing to be prudent on deposit pricing being as aggressive as we can while remaining competitive in pricing of loans. Growth will be a significant factor in growing net interest income. And we’re working hard on all of those fronts.

Okay. And then secondly, given the heightened regulatory focus on commercial real estate lending, are we likely to see your commercial real estate growth slow in the future?

That increase in the quarter I think is a bit of an anomaly from a timing standpoint and what happened in the overall portfolio. If you look at the regulatory ratio that really governs the issue you’re talking about, we were -- that ratio we believe will actually come down compared to where it was at the end of the first quarter when we file our call report this quarter. It’s slightly above 300% of total risk-based capital but still remaining below 50% growth rate over the last three years. So, it’s something that we are aware of and certainly paying attention to as we have all along with respect to the risk associated with the commercial real estate portfolio. Losses have been, we believe, very manageable and the diversity and type of underwriting that we do and the thoughtfulness and the way we approach that has worked out very well for us.

And then, lastly, I wondered if you could share with us the size of the commercial pipeline right now, what that looks like?

Yes, Mark; it’s Ned. So, the short-term commercial pipeline is a $150 million. Interestingly it’s skewed about two thirds of that C&I in the short-run; the gross pipeline is significantly larger and pretty well-balanced between CRE and C&I. We’re seeing a little bit of more C&I activity than we had. So, I think that’s a good thing.

Our next question comes from the line of Damon DelMonte with KBW. Please go ahead.

I guess just to kind of follow-up on the outlook for loan growth. So, when you factor in the health of the loan pipeline right now, are you guys comfortable with something like the mid-single digit range for loan growth in the back half of the year?

Yes. David, it’s Joe. I think that’s a number that we would guide to. We have had the experience over the last few years of having some times a little bit unpredictable payouts coming out of our commercial real estate portfolio as people have taken advantage of the ultra-low cap rates. However, we believe that our pipeline currently would put us in a position where commercial will continue to grow, probably in the upper single-digit range; and residential, we will probably struggle to keep that portfolio even and maybe up a little bit.

Is that what kind of…

That probably adds up to mid single-digit total loan growth.

And the comment about struggling and keep the resi somewhat flat, is that what led you guys to do the whole loan purchase this quarter?

Yes, that was part of it. And obviously we’re being very careful about that and keeping that -- those purchases. We may do little bit more of that. But, it’s really a situation where we’re trying to keep the originations to our underwriting standards on an individual loan basis and also keep them within the markets that we already operate in.

And then, with respect to expenses going forward, David, if you could back out the $425,000 of the severance related cost, kind of puts you at a core number of around, call it $25.6 million. Is that a descent basis to go off of? Would you expect a modest amount of growth from there, or do we have to keep it flat?

Our goal is going to be to control that as tightly as possible. If you back out those severance costs, I think that’s the most significant unusual item in the second quarter. There is always some ebb and flow with advertising and things like that, but overall that’s a descent run rate.

[Operator Instructions] Our next question comes from Laurie Hunsicker with Compass Point. Please state your question.

Just a follow-up on Damon’s question on expenses. As we think about rolling forward to the fourth quarter when you’ve historically done a charitable foundation contribution of 400,000, how should we think about that for this year? Is that coming this year, or should we take that out of numbers?

We haven’t made that call yet. It will really depend on what the status of our foundation is by the time we get to the fourth quarter. Obviously the equity markets have been helpful to assets that might be in that portfolio. So, we just haven’t made that call yet, Laurie.

And then, just going back to Mark’s question on commercial, as we look at your construction book, that was down pretty sharply this quarter. Is there anything around that that you’re focused on, or was that more of just one-off with timing?

It was really the conversion of construction phase deals into permanent refinancing, largely in the CRE portfolio. And there is really no story with that, it just all happen to net out to the number, to the change that you saw.

Okay. And so, you’re still committed to running your construction book round numbers at call it 4% of loans?

I don’t know that we have a target like that. I mean, we select those about doing good deals; and if they make sense, we do them. And that’s what has driven the average balances in that portfolio over the last several quarters.

Our commitments in construction are about $230 million right now of which that $81 million is outstanding as of 6/30. So, we’ve got deals that are still in process and as they convert to many firms, we move them into obviously our construction book. But, we’re being as careful as we’ve ever been on construction deals and looking at particular markets and making decisions market-by-market and property type by property. The book right now is pretty well spread on among multifamily office, retail with a little bit of -- about 13% of it in healthcare. So, it’s pretty well diversified both product type and geography. So, we feel very comfortable with where it is now.

And then, can you just provide an update on the commercial loan that you charged off last quarter, if there is one to provide?

It was really a one-off type of situation with a particular company that got into some financial trouble and was unable to pull out of it. There really isn’t any systemic or learning from that other than that that’s really what it was. It’s not something that we think is systemic in any way or in any way changes the way we go about commercial lending.

And then, East Providence Branch, can you update us on where that is right now in terms of deposit amounts?

Yes, actually the East Providence Branch is going fairly well. We have about 3.5 million in deposits entered already. We would say that that’s a pretty solid performing branch. We like the location and it’s certainly consistent with what we thought we were going to get. Laurie, just to be clear; that’s the branch on the east side of Providence. We have an East Providence Branch that’s significantly large than that, but the new branch that we opened this year…

The new branch, okay.

East side of Providence.

Got it, okay. Thank you. And then, any other plans for de novo rest of this year and to next year?

So, we have plans for one branch next year, probably towards the third quarter and then second branch that we’ve got under control of a piece of property which we wouldn’t do until 2018.

Okay, great. And then, just I guess Joe and Ned, last question for you. If you can just talk a little bit about how you are looking at acquisitions., I think with your filed charts in May, [ph] there’s certainly been some chatter that presumptions you would look to do a deal. If you could just update us on parameters that you look at, acceptable levels of dilution, how you approach that that will be great.

Yes. I think Laurie, overall, obviously, we are very happy with the acquisition that we made of Halsey Associates, the IRA -- RIA rather in New Heaven. We are always looking particularly of wealth management opportunities. We would consider wealth management opportunities within kind of a 75 plus mile radius of where we are physically located today. In regard to the whole bank acquisition market, I think it’s really got two gating factors for us, one is the market itself and the price and whether or not we felt we could grow it once we got a hold of it; the other part of it obviously is the dilution. And from our perspective, that’s awfully important. And we do see some things in the market today that we create more dilution than would be acceptable to us. So, we are looking at things that certainly something in the three-year payback range is probably more reasonable for us. So, we certainly wouldn’t go outside of those boundaries; actually, we would like it to be less.

Okay, less than three years. And then, as far as tangible book dilution, do you have a threshold for that?

I’ll let David speak on that.

It really is a deal-by-deal analysis, and whatever we do would be supported by fundamentals and a recovery of that on a shorter period as we can achieve.

So, I mean obviously you’re sitting with one of the strongest acquisition currencies in New England but typically there has been a little bit of a hurdle around the 5 and 5, more than 5% dilution in more than five years. Could you stay within that 5% parameter or you’re just not willing to commit to that?

Well, that would make all the sense in a world, then yes, we would certainly target something like that as an outside parameter.

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

Thanks very much. We just wanted to reiterate again that we have a lot of confidence in our business model. And we believe over time that we will produce the same kind of steady performance we have in the past. I would like to again thank everyone for their participation and thank you for being on the call. Take care.

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