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

Thank you, Doug. Good morning, and welcome to Washington Trust Bancorp, Inc.'s First Quarter 2018 Conference Call. Today's call will be hosted by Washington Trust executive team Ned Handy, Chairman and Chief Executive Officer; Mark Gim, President and Chief Operating Officer; and Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer. Please note today's presentation may contain forward-looking statements and actual results could differ materially from the statements made on today's call. Our complete Safe Harbor statement appears in our earnings press release and in other documents we filed with the SEC. Please visit our Investor Relations Web site at ir.washtrust.com to review the complete Safe Harbor statement and other documents. Washington Trust trades on NASDAQ under the symbol WASH. I'm now please to introduce Washington Trust's Chairman and Chief Executive Officer, Ned Handy.

Thank you, Beth. Good morning and thank you for joining us on today's conference call. We released our first quarter 2018 earnings last Friday afternoon. This morning Mark, Ron and I will review those results with you and answer any questions you may have about the quarter or the year ahead. Washington Trust started the year on a positive note with record quarterly earnings and earnings per share. Net income for the first quarter of 2018 amounted to $16.2 million or $0.93 per diluted share. Our first quarter earnings benefited from a lower corporate tax rate which was part of the Tax Cut and Jobs Act enacted in December 2017. Here are some highlights for the quarter. Company's profitability metrics were strong, we haven't seen levels like this since 2000. Net interest income also reached an all time high. Asset quality continued its favorable trend and capital levels were also strong and continued to exceed regulatory requirements. Let me take a few minutes to discuss our core business line activity. Total deposits reached $3.3 billion at March 31, up slightly from year end. We had a nice steady increase in local cost demand that now accounts over time and DDAs and NOW accounts are up almost 10% from a year ago. As we have mentioned in the past, we have had success in growing deposit market share by expanding our Rhode Island branch footprint. We opened the Coventry branch in the fourth quarter of 2017 and it is ramping up well. We will continue with our branch expansion strategy and have a secured a branch site in North Providence, Rhode Island. We expect that branch to open at the end of this year or in early 2019. Deposit generation has been an industry-wide challenge and we believe rising interest rates…

Yes. Thank you, Ned. Good morning, everyone and thank you for joining us on our call today. I will review our first quarter 2018 operating results and the financial position as described in our press release issued on Friday. Net income amounted to $6.2 million [ph] or $0.93 per diluted share for the first quarter compared to $8 million and $0.46 in the fourth quarter of 2017. We also reported return on equity for the quarter of 15.96%, return on assets of 1.45%. These reported results were affected by the enactment of tax reform in December, which as you know permanently lowered the corporate tax rate from 35% to 21% effective January 1. In the fourth quarter, we wrote down the value of our net deferred tax asset by $6.2 million with a corresponding increase to income tax expense. This write down reduced EPS in the fourth quarter by $0.36. Net income for the first quarter of 2018 benefited from a new lower corporate tax rate. Net interest income for the quarter rose by $963,000 or 3% and net interest margin was 3.03% up 8 basis points compared to the preceding quarter. The average balance of interest earning assets rose by $66 million on a linked quarter basis. The yield on average earning assets increased 14 basis points from the preceding quarter to 3.84%. On the funding side, average in-market deposits were up $1 million, while the average balance of wholesale funding sources which includes FHLB borrowings and wholesale brokered deposits was up $58 million from the fourth quarter. The cost of in-market deposits which includes all deposits less wholesale brokered deposits was 41 basis points, up 3 basis points in the quarter. Meanwhile, the cost of wholesale funding rose by 9 basis points. Non-interest income continues to be important…

Thank you, Ron. Washington Trust posted record earnings in the first quarter of 2018. We increased our dividend for the 25th time in 26 years. Our continued profitability, good asset quality and strong capital position provide a solid foundation for future growth. We have a terrific team and are excited about the opportunities in our markets to grow the bank. We are guided by a strong corporate culture and our team is dedicated to making our communities better places to live and work. Tomorrow we will host our annual meeting of shareholders. We look forward to presenting our 2017 results sharing our first quarter highlights and discussing our outlook for the year ahead. Thank you for your time. And now Mark, Ron and I are happy to answer your questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Mark Fitzgibbon with Sandler O'Neill. Please proceed with your question.

Hey guys, good morning.

Hey Mark.

I wondered if you could start by sharing with us here sort of outlook for the net interest margin over the next couple of quarters?

Sure. Mark, this is Ron. I'll take that one. So I guess I'll start by saying that we take any Fed rate hikes as they come. So we're not really forecasting any of that. So absent any rate hikes, we would expect margin to be stable to slightly up for the balance of the year. Having said that, we're definitely seeing some competitive pressure in deposits, but we remain disciplined with pricing on those. So stable to up slightly would be my guidance at this time.

Okay. And then, secondly, Ron should we assume the effective tax rate will bump up a little bit in the second quarter because you won't have the impact of the share-based awards in there?

Yes. We're sticking with 21.5% for the year at this point.

Okay, great. And then, sort of a broader question, over the last couple of years you guys have been growing loans at a reasonable clip and the reserve has been sort of coming down a little bit. I know credit is squeaky clean and but I guess I'm just curious given how late we are probably in the cycle, your thoughts on provisioning going forward?

Yes. I would say our provisioning will be a function of loan growth at this point. And we resolved two problem credits at the end of the quarter here. We don't have any commercial non-performing assets at this time. So it is pretty clean and we don't see anything in the immediate future that's going to change that. I understand your point about the lateness in the credit cycle. But for right now, things look -- they are good.

Okay. And then, lastly, I wondered if you could just discuss what happened with personnel leaving in the wealth management business. And was that at Halsey?

Mark, this is Mark Gim. I'll take that question. No, those were two -- three client facing personnel from Weston Financial Group in the Boston marketplace. And that happened in the middle of the first quarter. We think that substantially all the asset run-off that we would anticipate happening was included in Ron’s projection of lost revenues per quarter. Somewhat of an unusual occurrence and that the client facing personnel in question were not under non-solicit, non-compete agreements. We would consider that to be an unusual situation which isn't present elsewhere in the wealth franchise. So, in Weston rather than Halsey.

But generally, your client facing folks are under non-compete, non-solicitation?

That's correct for the acquired entities.

Okay.

Within the trust function of the core bank that finance was a non-compete -- unusual and that would not be the case.

Okay. Thank you.

Thanks Mark.

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, Damon.

Good morning. So, just to kind of follow up on the last question by Mark on the wealth management. I think you guys noted, you are expecting roughly $600,000 to $700,000 of loss revenues with the outflow of those assets under management. What can we expect, I mean, I guess if you annualize that in kind of tax effect that, that’smaybe like $0.10 a share of earnings for the year. So how can we kind of think about the offset on the expense side of that?

Yes. I'll take that Damon, it’s Mark Gim again. All in on a salary benefit and incentive basis, the salary expense for those personnel will be roughly $800,000 to $900,000. We will be looking to replace those personnel as time goes on, but you could probably view the marginal impact as being somewhere in the mid-six figure range for salary and benefit saves. Again, if we did add personnel, it would be with an eye towards acquiring either people with existing books of business or with synergy business generation capacity.

Okay. So, we may see a bigger hit in the next couple of quarters until you kind of address the personnel loss and get some more AUM back on the books to generate more revenues. Is that fair?

Well, no, I think that the revenue shortfall number we provided was really related to the foregone earnings on the assets under management. So that number that Ron provided, I think is a reasonable estimate of loss revenues not shown obviously would be any interim savings on the expense side

Or normal growth in the business, which we fully expect to recover some of that revenue.

Got you. Okay. All right. That's helpful. And then, with respect to your outlook for loan growth obviously some I think you mentioned some commercial prepayments or pay downs that weren't necessarily planned this quarter and just kind of some seasonal impacts. But as you look out for the duration of 2018 and you look at kind of an annualized basis, are you still comfortable in that maybe 6% to 7% range for the full year?

I would use sort of mid-single digits for growth which is what we've talked about and I think that still remains the case. First quarter is generally a little bit slow for us. We did have continuation of pay downs, pay offs that weren't expected. Credit formation in the first quarter was pretty strong, but outstripped by payouts. So the pipeline is healthy, so I expect that we'll be back to good numbers in the second quarter and beyond. So, I think we're still comfortable with sort of mid-single digit growth.

Okay, great. And then, I guess last question with relation to the margin. I think the yield on loans was 4.16% which was up from 4% last quarter. Is that attributable to more favorable pricing in the market and the impact of the Fed increases or was there any benefit from maybe some onetime payments in interest or anything like that?

No. It's all rate driven. We have large network.

Okay, perfect. That's all that I have. Thank you very much.

Thanks Damon.

Our next question comes from the line of Nicole Gulino with American Capital Partners. Please proceed with your question. Nicole, your line is live.

Hi, good morning.

Good morning, Nicole.

How are you?

Great.

I was just wondering if you could let me know that on a prepayment income was in the quarter, and what you calculated the core NIM at ?

Yes. Included in net income was prepayment income of $46,000 compared to $174,000 last quarter. So if we take that out net interest income was up by about a $1.1 million or 4%. The margin was 3.03%. So really -- it was pretty negligible.

Okay, perfect. Okay, great. That's all I had. Thank you so much.

You're welcome.

Thanks Nicole.

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

Yes. Hi, Ned, Mark, Ron and Beth, good morning.

Good morning, Laurie.

Just wanted to go back to your AUA, just want to make sure I'm thinking about this the right way. So when we look at share, your wealth management revenues that were 10.3 in round numbers those will be down at a run rate. And I'm just talking about the revenue line not the expense so appreciate the color in the expense. So round numbers those will be down about 800 or so per quarter. But I know that 2Q typically contain some tax prep around numbers of around 200. Was any of the outflows related to that or should we still think of that seasonally. In other words that revenue line will still be up and then down another 200 in September all else being equal.

Laurie, this is Mark. Just a couple of things. I don't think the 800 was the number that Ron…

6 to 7.

Six to seven was netting out, they were salary and benefits, correct?

No. That was not netting out.

Okay. So same question, so 600 to 700, if we're thinking about. Let me just ask maybe a different way. The 200,000 or so that has typically been into 2Q from tax prep are you still expecting that for the June quarter?

Yes. Tax prep was not affected by the departure of the assets.

Okay, great. And then, how many client facing personnel do you guys have?

Well, on the wealth management side of the business, there are roughly 100 employees of those, I would say probably 30% that have client facing responsibilities. It varies of course -- the customers varies based on business model and location. I would say in this particular case it was an unusual situation as I said earlier where the counters in question were at the time acquisition relatively junior and did not enter into non-solicit, non-compete as time went on. So I would not look at this and say this is something that we would expect to occur elsewhere in the franchise.

Okay. But, so then just to clarify of your 30 senior client facing individuals do they all have non-solicitation?

So again in the acquired entities of Western and Halsey there are non-solicit client facing personnel that would not be the case in the first company structure that's been in place since 1902 within Washington Trust.

Okay. And so again just to clarify, so these were more junior people that left under Western. But somehow they took the $400 million with them?

Well, they weren't juniors at that of acquisition in 2005.

Yes. They came with the acquisition and we were young at the time, so didn't have agreements in place and just we're not asked to sign agreements along the way unfortunately.

Well, economically.

Okay. And just again last question, does this make you think a refresh of going back and looking at your non solicitation. I mean presumably obviously markets go up, markets go down, but your AUA is absolutely unbelievable compared to other community banks. But it's such a big piece of your ROTC and so as we think about this, does it make you all rethink how you're approaching these people if you're going to go back and potentially think about putting in some additional contracts for them or how do you think about that?

Well, contracts are always already in place for the majority of employees. And as we advance people to positions to find contact authority, we also -- we do that. That's why would say this is kind of an unusual situation. One of the employees who departed was subject to an non-solicit, non-compete agreement and has not we believe participated in outrage. I think it affects the question, we are going forward with any future activity and we have plan for that again recall that this transaction was consummated in 2005.

Got it. Okay. That's helpful. Okay. And then just as we think about your approach going forward to adding RIA's, how are you thinking about that?

I would say we continue to remain alert and enthusiastic for opportunities that make financial and cultural sense as you are probably aware there has been a significant amount of focus in this business not just in the bank space, but in the non-bank financial M&A acquisition space as well. So we got to be prudent about price paid, what you can do with the franchise when its acquired, when you can be additive from the standpoint of adding Trust for example fiduciary services or financial planning services to an RIA that might not have those geography, price, value to shareholder and compatibility with the existing franchise tend to pass through a screen. So this doesn't -- our stance really has not changed very much on that. I would say that the competitive environment for M&A, again, primarily non-banks has become more pronounced during the equity market run up over the last couple of years. So we want to be as I said careful about price paid and value.

Okay. Okay, great. And then just shifting gears, your Coventry branch how much did that finish the quarter with in deposits or where does it staying currently?

A little over $3 million. So it's ramping up nicely, it on pace for what we would expect but it's been pretty busy. We're pretty bullish on it.

Okay, great. And then the cost of those deposits is in line with what you're currently running?

Yes.

Okay. Okay. And then, de novo plans you mentioned one more coming on end of '18 early '19, should we be thinking about kind of 1 de novo a year, give or take is that how you're thinking about things now?

I think that's a safe way to think we don't have another location even in our sites at this moment, but there's still $30 billion market for us to try and be successful in the Rhode Island. So that's one of the ways we intend to go by that.

Okay. All right. And then just last question kind of going back to your loan loss provisioning, which was zero and I know Mark touched on this briefly. But in other words if we're thinking, okay as we roll forward you said loan growth would be mid single digits if we assume something in the neighborhood of charge-off running to where you've been excluding some things that cleaned up this quarter that would kind of put our loan loss provision somewhere in that $1 million to $1.3 million per quarter run rate. Am I thinking about that the right way?

That could be in the ballpark. I mean it's really hard to say. Well, we had 600 some of charge offs that was related to the two homes that I mentioned that are gone. So prospectively we're not expecting a lot of charge offs for the balance of the year.

Okay. That's helpful. Thank you.

Thanks Laurie.

This does conclude our Q&A session. I'd like to now hand it back to Ned Handy for closing comments.

Well, thank you all for your time and for your interest in our company. We appreciate you joining the call. And wish you all well in the days and months a day. Thank you.