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

Thank you. Good morning and welcome to Washington Trust Bancorp Inc.’s second quarter 2017 conference call. Today’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 the actual results could differ materially from those statements. Our complete Safe Harbor statement appears in our earnings press release and in other documents that are 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. I am pleased to introduce Washington Trust’s Chairman and CEO, Joseph MarcAurele.

Thank you, Beth. Good morning and thank you for joining us on today’s conference call. Yesterday afternoon we released our second quarter results. I now like to take a few moments 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 remainder of 2017. I am pleased to report that Washington Trust momentum continued into the second quarter, as we achieved record earnings with net income totaling $13.2 million or $0.76 per diluted share. As a result of this performance, our return on average equity was 13.06%; our return on average assets was also strong at 1.21%. Our asset quality metrics also remained strong during the quarter and our capital levels continued to exceed regulatory minimums, deposits were down by 3% from the first quarter. We typically experience a seasonal outflow of deposits in the second quarter, followed by an increase as the year progresses. This is primarily due to the business cycle of some of our larger educational and governmental customers who have regularly scheduled cash flows with [tuition] [ph] tax and other payments. Despite the seasonal decline in deposits, total deposits were up 8% from a year ago and demand and now account deposits increased 12% from the last year’s level. This is a good trend particularly considering the tremendous competition for deposits in our market. We continue to attract new deposit relationships, however there is and will be an ongoing challenge between balancing pricing and growth. Total loans were down slightly from the first quarter, this decline was attributable to a high level of commercial real estate payoffs during the quarter. This is the trend that we have experienced over the last few quarters. We closely manage the portfolio and anticipate that this trend may dissipate somewhat over the next couple of quarters. On a positive note our commercial and industrial portfolio grew by 3% from the previous quarter. Our mortgage banking division had a very strong quarter as residential real estate portfolio loans were up 3% from the first quarter. We originated a record amount of residential mortgages in the month of June. Mortgage banking continues to be a good story for us as mortgage banking revenues were up 25% from the previous quarter and residential real estate -- the residential real estate loan portfolio was up more than 16% from a year ago. We had solid productions from really throughout our Rhode Island, Massachusetts and Connecticut market areas. Our wealth management division is another area that contributed to a record quarterly earnings, generating nearly $10 million in revenues that is an all-time high. We also reached a record $6.4 billion in wealth management assets under administration, this continues to be a significant and meaningful business for the company. I will now turn the discussion over to David Devault, who will review our financial performance. David?

Thank you, Joe. Good morning everyone and thank you for joining us on our call today. I’ll review the second quarter 2017 operating results and financial position as described in our press release issued yesterday afternoon. Net income was $13.2 million or $0.76 per diluted share in the quarter, and both of those amounts were up 12% over the first quarter of 2017. And as Joe mentioned the profitability metrics were strong, return on equity was above 13%, return on assets above 1.2%. Noticeable increases in several revenue categories drove these results, including net interest income, which benefited from higher short-term interest rates. Net interest income in the quarter was up by 4% over the first quarter. The net interest margin was 2.97%, up 10 basis points over the first quarter. Net interest income in the latest quarter included about $549,000 in prepayment fee income and that compared to $135,000 in the first quarter. Excluding those amounts, the net interest margin was 2.92% in the latest quarter, up 6 basis points over the first quarter. The yield on interest earning assets rose by 12 basis points to 3.68% and excluding prepayment fee income in both quarters the yields on all interest earnings assets increased by 8 basis points to 3.62%. The average balance of interest earnings assets in the latest quarter declined by $17 million, reflecting some contraction in total loan balances. On the funding side, the average balance of wholesale funding sources, which includes FHLB borrowings and wholesale broker deposits was down by about $19 million from the previous quarter and the cost of wholesale funding was up 6 basis points. The cost of end market deposits, which includes all deposits plus wholesale broker deposits was up -- was 33 basis points up just 1 basis point in the…

Thank you, David. We are pleased with our second quarter results as our consistent performance, strong capital position and attractive dividend yield continue to place us among the region’s high-performing financial institutions. Our solid foundation, unique and competitive business model, improving growth strategy continue to be a big part of our success and we hope that that will continue to advance us as we get into the future. We thank you for your time. And now, Ned, David and I are happy to answer any questions. Thank you.

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

Good morning. First question I had is for you Dave. Dave, could you help us think about sort of the NIM outlook. It looks like the core NIM was about 2.92% in the quarter assuming the prepayment penalty income slows, but presumably a benefit from higher rates and some remixing should we assume maybe some modest growth off that core margin of 2.92% going forward?

I think the 2.92% range is a pretty good indication of what we would expect over the next couple of quarters. We have to rebuild deposit balances and reduce some wholesale funding levels. So that can influence it and of course we are talking about a no Fed rate increase when we are talking about those kind of forecasts.

Okay. And then secondly you guys have traditionally had better loan growth in the back half of the year and you’ve built provisions in sync with that, should we expect the same kind of trend in the back half of this year?

Well loan growth is certainly a factor that drives the appropriate level of your allowance for loan losses and I think it’s reasonable to anticipate that if loan balances grow at a more higher level than we saw in the first half of the year than certainly it’s reasonable to assume that the provision will include -- would increase. At this time we are not seeing loss formation that is -- would increase that above normal levels. So that’s the way we are viewing it right now.

Mark, it’s Ned. The commercial pipeline is very strong, the level of payoffs that we have experienced in the first couple of quarter we expect to diminish somewhat; the credit formation in the second quarter was very strong compared to history. So we have every reason to believe that we will be back at sort of normalized loan growth levels.

Okay. And then based on what you see in the pipelines today, how you are thinking about derivative income in the back part of the year, how sustainable do you think that derivative number is?

Well, it is relatively volatile amount - component of income, but right now we are seeing pretty decent customer interest in derivative transactions. Now that pretty much can foresee that may be a quarter at a time. So it’s -- but overall we are seeing good demand for those transactions.

And lastly just to preempt Laurie’s question, are you planning to make a contribution to the charitable foundation later this year?

We will make that decision in the fourth quarter. Thank you.

Thank you.

I could have preempt to David’s response by saying the exact same thing Mark.

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

Hey, good morning everyone, how is it going today?

Good morning, David.

Good morning. So just to kind of follow-up on the loan growth question. The high amount of commercial real estate pay downs that you guys have been seeing, where have those loans been going, are they being taken down by competitor banks or other institutions?

Typically sold assets, typically equity buyers so they are going into funds, some finance through life companies with CMBS, we see very little going from us to other competitive banks. So -- but cap rates are low, we have had a couple of Rhode Island based developers as an example decided to sell their entire portfolios just because pricing so strong at an all-time high in this market and similarly in the Boston market. We think upward moving rates will have an upward effect on cap rates and will impact value. And that’s probably why we are seeing a slowdown in projected payouts, but at this point we are not being cavalier, we know we have to work extra hard to keep the pipeline up and offset continued payouts, but we do expect a slowdown in the payouts.

Okay. And based on what’s you are seeing in your pipelines now you guys are confident that you will see some net positive growth at least in the third quarter if not for the entire second half of the year?

Yes. Yes, to both.

Yes to both, okay great. And then with regards to expenses, it didn’t sound like there was anything out of the ordinary in this quarter’s expense base so is that $26.3 million level is that a good run rate to build off of?

Absolutely, yes.

Great. And then, I guess just my last question. Could you just give us a little bit of an update as to where you’re seeing the most opportunity in your footprint? I know you guys in the last couple of years have expanded into Connecticut area and kind of in the Southeaster Mass area. Are you still seeing good opportunities in those markets or are you looking even further beyond those areas?

Yes, I would say we still feel very strongly about the greater Boston market both from the resi side and the commercial side primarily in the case of Massachusetts on the real estate side. Connecticut, we’re seeing a few more C&I opportunities but also we could strengthen both Fairfield County and the Greater New Haven market. To the extent that we go outside of our three state footprint, we do so with in footprint developers. So I wouldn’t say we’re seeing a higher level of external opportunities, but we do see some. So I think we’re still seeing strength in all markets, the Rhode Island residential market has come back somewhat. So we’re seeing a little bit activity right here at home, which is nice. So I think it’s pretty well-balanced.

Okay, great. Thank you very much.

[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.

Just wanted to go back to expenses here David, and I wanted to make sure I heard you right, there was about $250,000 of outsourced services expense in that $2.5 million number, is that correct?

The increase in outsourced was about $250,000 and that’s the biggest piece of that increase is associated with the increase in derivative transactions.

In the derivative, right. Okay. And so that’s my second question, what is the actual dollar expense related to the derivative income?

I’m not sure that we have that with us today. It’s a percentage of the derivative income.

Okay, alright. And then just to go over the loans again, did you have any purchased residential loans in the quarter?

No.

Okay. And I know at one point I guess if we rollback to December, you all had been purchasing loans in Massachusetts is that going to potentially be part of your strategy or how are you thinking about loan growth with respect to the residential?

I would say that compared to last year we’re comfortable with self-originated portfolio growth and right now our outlook is that that would be adequate for our needs.

Okay. And then same question on commercial real estate, so your commercial real estate was down linked quarter by 6%. How are you thinking about that?

So the pipeline is very strong. Again we think the payoffs, which are a big part of it we had very large payoffs in the second quarter, but the new credit formation was strong. Our pipeline is strong as it’s ever been. And it has a fair amount of construction in that. So that the actual funding levels will follow a little bit, but we have a lot of confidence that that will grow in the second and third quarter and the fourth quarter and we’ll kind of stick with our growth objectives.

Okay.

So, Laurie just to put a little bit of color on when we say a large amount of payoffs, was a $118 million and that compared to $27 million of payoffs in the first quarter. So to Ned’s point this I think validates that we’ve been doing business with good developers and strong borrowers who have built properties and they’re able to market them. So we use the loan, but that’s been a good business for us. And total originations in CRE or additions were about $62 million, which was also higher than the previous quarter by quite a bit.

That’s actually funded dollars. Originations were more like $120 million.

Right funded.

Yes.

Got it.

So a little bit construction in that new volume in the second quarter but…

Okay. And if you were to think about what’s your overall CRE would do this year in just percentage growth terms, what are you thinking?

I’m sorry, loan growth, Laurie?

Yes overall loan growth, but specifically growth, but specifically within CRE. If you were thinking about overall how your CRE book would look in terms of growth for full year '17 what are you thinking? Factoring in obviously when you have the dip here.

We're looking at all commercial loans being up probably around 5% for the full year, that's combined C&I and CRE would be our best estimate at this time.

Okay. And then I mean your C&I just this quarter was tracking in 11% that's very strong. Was this an anomaly or? That 11% run rate would…

No, very strong quarter and the good news is it was new credit formation, new originations not just planned utilization which we've seen in prior quarters. The pipeline remains strong; the pipeline is definitely weighted towards CRE. But there is a fair amount of C&I for the balance of the year. So I don't -- we will not sustain that kind of growth rate for the year certainly, but we have good opportunities in the pipeline still.

Okay, great. And then just one last question for you Joe and Ned, just generally more macro how you're thinking about M&A? I think last quarter, you said maybe you would think about something that it would be $1 billion or under. Are you still thinking that, has anything changed in the last quarter?

Laurie, I think we'd be -- it's Joe. I think we'd be consistent with what we said last quarter in regard to what we would look at. One of the things that would be nice is something that had really good deposit growth opportunities that would be helpful. I think that would be helpful to a lot of banks in the Northeast. We would also be very interested in looking at the right wealth management acquisitions. We're very happy with the results of the all the acquisitions that we did in 2015. Things like that within a reasonable distance of where we're located today. And I'd say that's probably 100 mile circle. I think even one of those things would make a lot of sense for us it did work.

Okay. And then just one last question to follow-up, your loan to deposits did uptick this quarter 106 which is kind of top of where you've been in a while. How do you think about where you cap that out?

Well, because of the seasonal business cycle decline in deposits that we experienced in the latest quarter that's going to drive that up typically at this time of the year. And as I said earlier in my comments, our experience over last several years has been that the inflows in the third and fourth quarter have more than exceed the outflows in the second quarter or even year-to-date outflows of the first half of the year. So that's something we're watching very closely. We have ample liquidity in both on balance sheet and off balance sheet sources. So high loan to deposit ratios are characteristic of many New England and Northeast banks. Not all of them, but that's something that we're managing through.

Right, okay. Thank you.

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

Well, I just like to thank everyone on the call. We appreciate your interest in the company. We feel good about the quarter and we entered the third quarter with a relative level of confidence. And look forward to speaking to you at the end of the third quarter. Thank you.

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