Good afternoon and welcome to the HomeStreet, Q1 2013 earnings conference call. All participants will be in listen-only mode. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to HomeStreet’s CEO, Mark Mason. Please go ahead.

Hello and thank you for joining us today for our second quarter 2013 earnings call. Before we begin I’d like to remind you that our second quarter earnings release was furnished this morning with the SEC on Form 8-K and is available on our website at ir.homestreet.com. In addition, the recording will be available at the same address approximately one hour after this call. On our call, we will make some forward-looking statements. Any statement that -- a description of historical fact is probably forward-looking and these statements are subject to many risks and uncertainties. Actual performance may fall short of our expectations or we make take actions different from those we currently anticipate. Factors that may cause actual results to different materially from expectations or that may cause us to deviate from our plans are detailed in our SEC filings, including our quarterly report on Form 10-Q for the first quarter and our Annual Report on 10-K for 2012 as well as our various other SEC reports. Additionally information on any non-GAAP financial measures referenced in today’s call, including a reconciliation of those measures to GAAP measures may be found in our SEC filings and in the earnings release available on our website. Our second quarter earnings improved from the first quarter this year despite the negative impact of sharply rising interest rates in our mortgage banking business. HomeStreet report net income of $12.1 million or $0.82 per diluted share for the quarter. Our pretax income was $17.9 million or a 9% increase over the prior quarter. Our return on average common shareholder’s equity was 17.2% and return on average assets as 1.86% for the quarter. In the quarter we made solid progress toward our goal of diversifying our business. Our commercial and consumer-banking segment achieved profitability in the…

Thank you, Mark. Thank you. We're real excited about this merger. We’ll have more products to sell to our customers and we can fully utilize our experienced people to develop a deeper relationships. We can sell more products to the existing customers. All of our relationship officers have over 10 years of experience, most of them many more than that and they're used to dealing with larger deals and we’ll be able to do that as soon as we close the merger. We’ve been, so they’ve been a little limited, you know, and they feel like now they’ll be able to do more. Mark and I have been working on this deal for a little while and we’ve developed a great relationship. I think that together with Jeff Newgard here at Yakima National Bank we can continue to build a great business banking group or commercial banking group at HomeStreet. When we founded Fortune Bank it was the biggest Seattle based bank for business. This accelerates our vision and will promise more opportunity for our people. HomeStreet is large enough to service most businesses and small enough to do it in a customized, friendly way. Well, back to you, Mark.

Thanks Dave. Maybe one question, many of your people have been with you for a long time through a number of institutions. Maybe you can make a couple of comments.

Yes, we have quite a few people that go back to the Pacific Northwest Bank. And then I have people that go back as far as First Interstate and Home National Bank, other places where I’ve worked. So all of the people that we have are people I’ve known pretty well. There is a few, like there is one or two I’ve picked up at Wells Fargo when I was there for 10.5 years. So it’s a good group of people and very experienced on the commercial side and like I said, they're all excited that they can make bigger deals now and have more products to sell.

Thanks Dave. Jeff?

Yes. We are excited to become a part of the HomeStreet organization. I’m confident that our team will be a great fit for the HomeStreet team. The increased lending limits will be very beneficial. We grew loans 14% in 2012 and already 14% year-to-date and this is with the $1.5 million lending limit. I am excited by the prospect by what we can do with limits exceeding $20 million. My team is excited. They have more vast and robust product offering. And as I look at the potential, I am personally excited by not only what my team can handle with organic growth but the acquisition opportunities that exist on the east side of the state. I expect all of these activities to be translate to increased earnings and accretive earnings.

Thanks Jeff. Jeff is quite an accomplished young man. He currently serves as a Chairman of the Committee Bankers of Washington, a trade association here and we're happy to have him. In summary, we are as a company where we're expected to be you know when we took The Company public early last year. We knew at the time that historically low interest rates and high profit margins in the mortgage origination business would not last forever. And that we would have to work quickly to rebuild the historically strong profitability in our commercial and our consumer banking businesses. During this time we’ve been opportunistic and utilizing a portion of our excess earnings to invest in new lending personnel, new branches and marketing. We’ll also grow the origination passage on mortgage banking business. The investment and growth in our mortgage banking business is already provided a substantial return. We're just now beginning to see the benefits of our investment in our commercial and consumer banking businesses. We're now in transition from a company whose earnings are dominated by mortgage banking earnings to a diversified company with significant contributions from mortgage banking and traditional commercial and consumer banking. This transition will take some time; however, transactions like the acquisitions recently announced will accelerate this process. Given these conditions, we anticipate that the third quarter will be a transitional quarter for us and hopefully will be a low point for earnings based upon what we know today with lower mortgage gain on sell margins not yet offset by increases in commercial and consumer banking. Going forward we anticipate that over the coming quarters the growth of our commercial and consumer loan portfolio and seasoned new deposit branches will produce the expected levels of bank earnings consistent with our peers in these businesses.…

(Operator Instructions) Our first question comes from Paul Miller of FBR. Paul Miller – FBR Capital Markets: Yes, thank you very much. Mark, on your asset quality, can you actually color, I mean your ratios or your, you know your total cost for the assets dropped 18%. Your REO dropped almost by 50%. Was that one or two properties you were able to clear out? Is there any other big property that could be moved out over the next quarter?

The drop in classified assets is in part REO, but in part seasoning of modifications that we’ve been able to upgrade. That’s a more substantial impact on classified assets. Our non-performers combination of things mostly getting foreclosures through the single family pipeline and into REO and sold. Once we get a hold of them today, they don’t last very long. They average about 90 days in inventory, and we were able to sell a few of the remaining more significant commercial properties. Our last remaining properties and we only have three commercial properties left, two of which are under contract for sale this quarter. The third is a piece of commercial real estate that -- undeveloped commercial land that we have been processing some entitlement changes to. Those were just approved by the city that the land is in, and we have that property now on our marketing plan, not sure we can liquidate it this quarter, but in any event we expect to move that by the end of this year. So we expect to see the non-performing numbers fall well below 1% by year end and classified assets perhaps to below 2%. Paul Miller – FBR Capital Markets: And then on the acquisition front, the cash deal, is that – when you do deals this size, I mean is that going to be your primary form of paying for in cash?

Where we can, because we do still have pretty substantial capital cushions. Even assuming the Basel III standards, we have pretty substantial cushion still even with the negative impact on those standards on our ratios. So where possible, the best use of our capital is to reinvest in those things that we think will have a substantial return. We hope to continue paying a dividend and some day to increase it hopefully, but we think it’s – the capital is better used more efficiently by doing deals like this-. Paul Miller – FBR Capital Markets: Is it just for – if you are looking for banks –you are looking mainly the commercial banks, you’re not just looking for depositories or branches like you’ve seeing some of the companies in your market go after just branches?

We’ve looked at some of the branch deals, and we’ve made offers on some of them. For us – if we can find a branch like the last two that – these two that we were buying from AmericanWest Bank, that exists in markets that we’re going to be opening de novo in any way, it is a great jump start because we miss that whole loss period of getting to breakeven. It’s also an opportunity – there was a large branch sale recently near us that had we been able to participate in that would have opened a new market. And so, if we have an opportunity to buy quality deposits in a market that we will ultimately look to have banking in where we already have a large mortgage presence, that’s a potential for us to simply form our own bank in operation. So, we would look at it definitely, but we would sure prefer getting assets other than cash at the same time. Paul Miller – FBR Capital Markets: And then on the mortgage bank, you talked about – I know -- everybody knows rates are going up, refis are down, purchases are still not recovering as fast as we would like to see. Could you just add some color – I mean we are hearing that some people are qualified for mortgage before the rate hike, don’t qualify in the purchase market which has been somewhat disruptive?

That can happen. If they didn’t lock their rate, right – if they didn’t [apply] (ph) or lock their rate, but I think we have to look at the absolute level of interest rates. Rates today are approximately where they were in the first half of 2011, and we were pretty happy with those rates. And we didn’t think they could go lower. So when you look at the (inaudible) affordability, it’s much higher than it was prior to the recession. And from a debt ratio standpoint, the problem is that the underwriting has -- for many people -- taken people with inconsistent incomes or non-W2 earners or people that for whom the underwriting has gotten substantially stricter, it’s harder to get a loan. For people who are marginal on the very lows to the interest rates, of course, they won’t qualify today. But that’s not the largest part of the reality. Paul Miller – FBR Capital Markets: Just on shortage, I don’t know if you mentioned in the call and you usually do, is there still a shortage of homes holding back the market?

They are, though the shortage is not quite as acute. Today in greater Seattle, we have about two months of inventory. Normal equilibrium is about six months, and I think the last quarter we spoke about having only one month of inventory. So, while the relative inventory has doubled, it’s only a third of what you might like to see in a normal liquid market, so still tight.

Our next question comes from [Marian Zakaria at Stan].

Just a question on the $43 million of non-interest expense, does the 92% of combined variable and semi-variable expenses kind of still hold with that number?

Yeah, it does, though I think the semi-variable costs in the near term are almost fixed in that we are growing, right. So as we grow originations, we are still hiring even in the semi-variable area, the fulfilment area. So for months that we might have lower volume or higher volume, those semi-variable costs will have larger or lesser impact on margins. And so, this would be much more finite once the new growth is a smaller percentage of the total, and each period that we grow the total head count and total originations, our incremental efficiency becomes less. Maybe that’s a better way to think about it. Right now, we have a certain amount of inefficiency in those numbers as the consequence of going into new markets both on the completely variable side when you are paying guarantees and commissions, right... fixed costs for that four-month period. And on the fulfilment side, when you are hiring – opening new fulfilment offices and hiring new underwriters, process, and funders, it takes some a couple months to get up to speed to full efficiency on, our program or software or workflow and things like that. So, recently those (inaudible) have been more fixed.

And so, how much of the $43 million do you think was related to the guarantees?

We think it was about 4%, 5% of the total compensation in the quarter.

And how much of the $43 million is related to the servicing segment?

I don’t have that number in front of me. But we can follow up on that with you.

Okay. And then just on the accretion numbers on the transaction, are those relative to your internal estimates for 2014 or the Street estimates?

Those are based upon our internal estimates.

And what are composite margins looking like through July?

Actually stronger than the numbers I quoted for a range for the quarter. All of the originators, including us, got caught with a structure that didn’t work when we refinances fell so quickly, and it has taken three or four weeks for everyone to readjust margins, put more profit margin back in the purchase mortgages, and so that the total revenue can make more sense. So they are running above that 325 to 350 number by a little bit. But we think that at least from what we see today in this quarter we expect to be in that 325, 350 composite range.

And just back to the acquisitions, what’s the phase-in on the cost savings, I am not sure if you provided that?

Over the first six months, the one-time costs are going to occur nearly almost evenly between the two quarters, between the fourth quarter and the first quarter, and the cost savings should happen really in the first half of next year.

And our next question comes from Tim Coffey at FIG Partners.

Hey, can you give an idea on kind of what the trends you’re seeing in fall-out rates and how that’s impacting – might it impact your production activities in the coming quarter?

We really haven’t seen much variation in our fall-out rates. They are pretty consistent. I mean they are different between refinancing loans and purchase loans. Purchase loans with property have a relatively low fall-out rate. Once we qualified the borrowers, if they are committed to the transactions. Fall-out rates on refinancing loans are higher because periodically you have taken application and expect to close and a competitor will offer a better deal and when they close that loan, all rates will rise and the loan doesn’t lock and then you have qualification problems. But I actually expect our fall-out rates to decline with an increase in purchase volume. That is to say decline from lock date. Before the lock date when you have pre-qualifications and you have people shopping for properties, those closing rates are much lower because many times in today’s market people can’t find a property they like.

And then – I missed this, is there a carryover from the drop in application experience –

There is. I mean clearly for refinancing, that volume is substantially down. I think I quoted a month to date lock number of 18% for purchases so far this month. So you can the volume of refinance activity is falling off very sharply.

And then wondering what went on with multi-family lending this quarter? (inaudible) a big drop there.

We have some pay-offs in the quarter unfortunately so that our origination activity didn’t kick pay-offs. You will see that activity grow materially in the third quarter. In the second quarter we did enter into a number of commitments on the multi-family side on construction. So quality projects here in Seattle Metro area and of course, those loans, the draw pattern is much slower than a permit loan or refinancing loan. So over the third and fourth quarters we will see those balances come back pretty strongly. There is a very active multi-family construction market here in Seattle, and while we worry a little bit about a potential bubble forming given the strength of employment here, they just look to be imbalanced at the current time.

(Operator Instructions) We have a follow-up question from Paul Miller at FBR. Paul Miller – FBR Capital Markets: Hey Mark, the DUS license, I got a couple questions about that this morning. Where we would – I know you did some revamping of the product. Are you still enthusiastic about that product adding value down the road?

We believe so. Of course, the uncertainty surrounding Fannie and Freddie and their franchises doesn’t help the forward look. Hopefully if those entities are restructured that, that business would be spun out privately but we don’t know yet. We still see that as a great product line and fortunately, on the smaller end, the small balance loan many of the national banks have more competitive products, five-year range. And in the 10-year level on the insurance companies have been really significant competition. So the sweet spot for Fannie today is really around the 7-year range, maybe the 10-year as well. We have been trying to add personnel that are specialists in that business for some time and we hope to be able to announce some of that going forward. But we haven’t yet hit our strike there, I could hope but the general commercial business is great and a lot of these construction, or bridge loans that we’ve committed to in the last couple of quarters they will ultimately become Fannie Mae loans. These are borrowers who today are Fannie Mae borrowers and we projected this position of those projects post construction or post repositioning is Fannie Mae. So we are still looking forward to materially increasing this. We just haven’t been able to produce it yet.

(Operator Instructions) We show no further questions at this time. Would you like to make any closing remarks?

I would. Thank you. Appreciate the patience, for being on the call today and the great questions. We look forward to talking to you again next quarter. Thank you.

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