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, I will now 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 2016 conference call will be hosted by Joseph MarcAurele, Washington Trust’s Chairman and Chief Executive Officer; Ned Handy, our President and Chief Operating Officer; and David Devault, Vice Chair, Secretary and Chief Financial Officer. Before we begin the call, it's important to note that today's presentation may contain forward-looking statements, and actual results could differ materially. Our complete Safe Harbor statement appears in our earnings press release and in other documents that Washington Trust files with the SEC. We encourage you to visit our Investor Relations Web site at washtrustbancorp.com to review these materials and the Safe Harbor Statement. Washington Trust trades on NASDAQ’s under the symbol WASH. And now I am pleased to introduce Washington Trust’s Chairman and CEO, Joseph MarcAurele.

Good morning everyone and thank you all for joining us on today's conference call. Yesterday, we released our third quarter 2016 earnings. This morning I'll review some of the highlights from the quarter. And David will discuss the financial performance. At the conclusion of the call Ned, David and I, will answer any questions you may have about our results for the remainder the year. I am pleased to report that Washington Trust posted record quarterly earnings as net income amounted to $12.3 million or $0.72 per diluted share. These results included an adjustment for contingent consideration liability on our balance sheet. They contributed approximately $939,000, or $0.05 per diluted share to our earnings. David will provide more information on this matter in his comments. The third quarter also marked the first time in our 216-year history that we exceeded $4 billion in total assets. At quarter's end, profitability measures were strong and capital ratios continue to be very satisfactory. Solid results once again demonstrate our ability to achieve consistent growth and profitability, despite environmental, economic, and competitive pressures. Performance also reflects the strength and diversity of our business model as our ability to generate a consistent stream of revenues from both interest and non-interest income sources has been a key to our success over-time. Let me take a moment to discuss our core business lines. A notable highlight for the quarter was the significant increase in total deposits, which amounted to $3 billion at September 30th. This is a nice rebound from second quarter levels, which were affected by seasonal fluctuations of some of our larger institutional and governmental depositors. We hope this positive trend will continue, but realize we may continue to see quarter end variations from time to time, and based on the timing of transactions by…

Thank you, Joe. Good morning, everyone. Thanks for joining us on our call today. I will review our third quarter 2016 operating results and financial position, as described in our press release issued yesterday. Net income amounted $12.3 million or $0.72 per diluted share for the third quarter. This compared to net income of $11.1 million or $0.64 per diluted share in the second quarter of this year. The profitability results in the latest quarter were solid with a return on equity of 12.57% and return on assets of 1.21%. These net income and earnings per share amounts were record highs for the Company. Included in the result was a reduction in a contingent consideration liability that resulted in additional income of $939.000 or $0.05 per diluted share for the quarter. I will explain that items further in a few movements. But even excluding that, the profitability of the Company was up nicely over the second quarter. These results were driven by revenue growth compared to the second quarter, while core non-interest expenses were essentially unchanged, and we saw an increase in the loan loss provision as well. Total net interest income in the latest quarter was $27.4 million compared to $26.8 million in the second quarter. The increase was driven by balance sheet growth, including both loans and investments securities. Loans were up by $100 million, included in that loan growth was about $59 million in residential mortgage whole loans purchased in the third quarter. Meanwhile, we increased the investment securities portfolio by a net $161 million, primarily due to the addition of agency mortgage-back securities. The additions were also consistent with our liquidity management and collateralization needs. Total average interest earning assets rose by a $178 million in the second quarter. The yield on interest earning assets declined…

Thank you, David. We’re very pleased with our third quarter performance. We believe it’s a testament to our continued commitment to employees, customers and shareholders. And for our history, throughout our history, we helped generations of depositors, borrowers, and investors reach their goals. We’ve also provide a consistent returns for our shareholders. We hope certainly to continue to do this. We’d like to thank you for your time this morning. And now Ned, David, and I, are happy to answer your questions.

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 and Partners. Please proceed with your question.

The first question I had is on the balance sheet. You guys obviously had really strong growth this quarter. And you typically have pretty strong loan closings in the fourth quarter. Can you help us think about how much more balance sheet, we’re likely to see this year?

The commercial growth in the quarter is -- we’re expecting it to be pretty good. The pipeline is in good condition. And now there is a number of expected closings in the quarter that we would expect to get well and very nicely. Ned, if you have other thoughts on that.

I think the commercial pipeline is about $215 million, about $145 million of that is C&I of some of the other increase increase of the $70 million about $43 million is in construction. The resi pipeline stays over $200 million. We expect that to continue to be strong for the fourth quarter. Big variable on the commercial side is payouts, and we had continued payouts in the third quarter, which we have to cover. And we grew a little bit. And I think we’ll probably see the same expectation as that we’ll end the year in the mid single-digit growth levels in the commercial side of the balance sheet.

And then with respect to securities, I suspect that this quarter the growth in the securities portfolio was a function and the fact that you had to collateralize many deposits coming in it. Are you likely to see more of that in 4Q and do you expect growth in the securities portfolio?

The reasons for the growth the securities portfolio, collateralization is certainly a factor. But just growth in the balance sheet in general was a target there. And we believe that has worked out very well. We may do some more of that in the fourth quarter, and we’ll continue to look at the environment as the quarter continues.

And then for loan loss provision, obviously, a little bit elevated this quarter due to that one credit. Can you help us think about what a good run-rate for that might look like assuming no surprises in 4Q?

We would expect, assuming the growth levels that we are targeting in the loan portfolio and the overall reasonably good credit quality conditions that we are experiencing, that a loan loss provision in the million dollar range on a quarterly basis is probably a reasonable number to assume.

And then lastly I wondered if you could share with us what kind of volume the Wellesly mortgage office produced in the third quarter. How much of the volume came out of there?

I don’t think we have that in the room this morning. But it was very good considering it had just been opened, and in fact before the office was even opened the people that we hired were busy putting loans into the pipeline. So I think we’re very satisfied with the progress there.

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

Just to kind of follow-up on the balance sheet growth strategy. How do we look at the margin in relation to the continued growth in the balance sheet? Looks like this quarter the margin came down a little bit more than what you were guiding for last quarter. But I think the growth in securities portfolio help to generate enough net interest income to mitigate any impact from the lower margin. Is that the strategy going forward that we could expect?

Yes.

You’ll probably see a little bit more of that Damon.

Yes, I think, you could see a 5-ish basis-point reduction in the margin in the quarter and that would reflect both the full quarter impact of the additions in the third quarter and possibly some additions in the fourth quarter.

So, around another five basis-points from this level. And then could you talk a little bit about your outlook for expenses. If we back out the, for just like a core number this quarter call it maybe $25.5 million or $25.6 million. Is that a reasonable starting point for the upcoming quarters?

Yes, we are working very hard to be prudent in spending and focusing it on the items that, where we need to spend dollars. And there is always investments that are required in things like technology and so forth. So, but overtime, we’re trying to be very prudent with spending.

And then just one quick final question, you had mention that on the swap fee income. There is a fair value adjustment that kind of reversed itself from the second quarter. Could you quantify how much that was this quarter?

Well, the item that I mentioned, which was the volatility at the end of the second quarter, it probably was turnaround to the $200,000 in the quarter.

Thank you. Our next question comes from the line of Laurie Hunsicker with Compass Point Research. Please proceed with your questions.

Just if we could go back to expenses, I know that you all have in the past done measurable foundation contribution typically in the fourth quarter of $300,000-$400,000. Is that on the table for this year? Or how are you thinking about that?

We haven’t made that call yet, Laurie. We just haven’t made that call yet.

Okay. And then on to commercial real estate, can you give us a little bit detail behind the $6.3 million loan? What type of credit, LTV, et cetera?

That loan has been on the books for a number of years. It is secured by a couple of boxes and mixed-use space properties in Eastern Connecticut. Really, it's the borrower as much as the properties that I think they were both contributing factors to the loss recognition on that credit. We’ve looked very carefully at the CRE portfolio. We don’t see other things like that in the portfolio. So, it's just the unfortunate outcome of a long series of events affecting this borrower.

And that has started originally at 8.2, or have there been other charges on this?

The relationship was around $9 million, and all charge-offs to-date have brought it down to the $6.3 million, I believe, and which, taken about $1.9 million of charge-offs. And we have another close to $1 million allocated of loss exposure on that credit.

Of the specific reserves?

Yes.

And then can you update us on the CRE loan from the first quarter that had a hiccup. Is there any movement there, or just if you can remind us any details on that?

Yes.

I can follow-up with your offline if that’s easier.

Yes, I want to check my notes to see which one we’re referring to there.

Okay, you have taken an outsized charge in the first quarter. You know what I'll follow-up with you guys offline. You gave tax rate guidance for the fourth quarter of 32.5 which is great. Can you help us think about, and I realized obviously some of that is directional depending on how much you make. But can you help us think about what 2017 is going to look like on tax rate?

Well, the driver there is that tax exempts or municipal bonds, which have been a larger percentage of total assets, are just not an attractive investments in the current environment. And as a result, the composition of tax exempt income as a percentage of total income has been going down. We would think the hacks rate would drift up towards 34% on an affective all-in basis as a result of that phenomenon.

And then on your purchase resi book, you’ve been purchasing, even increasing your purchasing obliviously. Can you tell us a little bit about how you think that portfolio will continue to grow on the purchase side? And then can you just remind us average loan size, you said it was Massachusetts, average LTV. Just some flavor around that? Thanks.

Sure, the incentive to buy mortgages has been that the ability to generate portfolio loans has been limited, and a lot of our production goes into sales in the secondary market. The loans that we’ve bought are primarily arms, and we buy to one to seven one flavor. And I would say in size they are probably in a mid six figure range in average balance. We’ve underwritten them individually. They’re in markets that by-enlarge we’re pretty familiar with. And we may continue to do that to supplement balance sheet growth in the future. We had not bought any for a long time. But this was the decision made in the last several months to really supplement asset growth.

And then did you have average -- average LTV there?

I don’t have that handy.

[Operator Instructions] Our next question comes from the line of Nicole Gulino with American Capital Partners. Please proceed with your question.

I am not sure if I missed it. How much was pre-payment income during the quarter?

Pre-payment income was above $300,000, and the impact of that from quarter-to-quarter has been fairly minimal in the past couple of quarters.

So that core NIM was about 285?

That’s sounds about right. Yes.

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

We again like to thank everyone for your time. We hope and we consider the fourth quarter to be an opportunity for us. So, with that, I will close. And again, thank you for paying attention to our Company.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.