Good day and welcome to the HomeStreet Incorporated First Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Mr. Mark Mason, CEO. Please go ahead.

Hello and thank you for joining us for our first quarter earnings call. Before we begin, I’d like to remind you that our 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, a recording of this call will be available today at the same address. For those of you who read our earnings release on any news wire services, may have noticed for the first time we published a summary press release with the short description of the results of the first quarter and we referenced to the full detailed description of our results of operations and financial condition filed as a part of our Form 8-K on the subject. We made this change to save the expense and time involved in wiring a longer press release. We expect to announce earnings in this manner going forward. On today’s call, we will make some forward-looking statements. Any statement that is in a description of historical fact is probably forward-looking and these statements are subject to many risks and uncertainties. Our actual performance may fall short of our expectations or we may take actions different than those that we currently anticipate. Factors that may cause actual results to differ from expectations or that may cause us to deviate from our current plans are detailed in our SEC filings, including our quarterly reports on Form 10-Q and our annual report on Form 10-K 2013 as well as our various other SEC reports. Additional 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. Today, I’d like to share a few thoughts about current market…

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Paul Miller with FBR. Please go ahead.

Hey, thanks a lot. Hey Mark, can you talk a little bit about the margin, the margin I think came up in that mid 3 level. Have we seen most of the improvement or can we still see some improvement with lower NPAs?

We believe we're still going to experience some improvement, though not on the funding side. We expect our funding costs are going to remain pretty stable to slightly down as we draw our non-interest deposits. Most of the changes are likely to come on the loan yield side over the next several quarters. Having said that, we think that the opportunity to expand the margins substantially and quickly, really isn’t there for most of us in this market. We may get expansion by next year of perhaps 10 basis points to 15 basis points, but that will be dependent upon relatively stable interest rates.

And then you've grown, in your loan portfolio one of the areas has grown very nicely that construction land development. Can you add some color to that, that's growing at a very fast clip; it's really the main driver of the loan growth especially in the commercial loan book?

Sure. Most of that is commercial real estate today. Our residential construction has been a little slower than we booked to-date. We in Seattle are experiencing an explosion in apartment growth. So we’ve done a fair amount of apartment construction lending and mini-perm lending. But we have also lent on the line of other property types, we have two new retail projects down in the Portland area and some other mixed use projects as well. Those balances, the commitments of course have grown faster than balances and those projects are going to be built over the next 18 to 30 months. We have a growing opportunity in residential construction. We complain about the lack of housing inventory as it relates to our mortgage business, well that’s also true in the residential construction business, housing starts have been slower than we expect. And we're rebuilding that part of our business, a much safer business than it was during the recession. So I would expect to see continued growth in these line items in our portfolio as in our region both of these businesses are growing faster than the nation as a whole.

What the -- I know you’ve hired some teams out in California, is this loan growth coming in footprint or is some of this coming out some of the areas in California?

On the commercial side, substantially all of our loan growth is in Puget Sound area. We’re just now starting to look at business in California and in Utah, and I wouldn’t expect that to be significant for some time.

Okay. And Mark, thanks a lot.

Thank you, Paul.

(Operator Instructions). And our next question comes from Tim Coffey of FIG Partners. Please go ahead.

Hey good, morning Mark.

Hi Tim.

As far as on one of your comments about capital, are you concerned at all about the level of capital you have given the aggressive organic growth rate that you envision for the company?

Well, we are likely to be challenged, not this year but after this year if we grow at the current pace and we don’t reduce our level of mortgage servicing rights. The Basel III related capital requirements are effective for HomeStreet January 1 of next year. And given the level of mortgage servicing rights we carry today and other currently off balance sheet items like our Fannie Mae delegated underwriter and servicing portfolio which is a recourse portfolio, what have you bought back on balance sheet for capital purposes. And so those two changes reduce our regulatory capital in a meaningful way. And so we have to be more careful about planning for the effectiveness of that change. And so, we are seeking to mitigate that through balance sheet management and sales and servicing. And hopefully between those two items and the recovery of earnings, we will be able avoid capital raising. If we begin growing faster and we are profitable enough to support the capital raising, we might consider a capital raising next year but it would have to be supported by a strong earnings pace.

Okay. You mentioned the 823 in M&A expenses this quarter, anything anticipated in forward quarters from these…

No, nothing material. And in fact what we didn’t mention is we have the number of personnel that we kept only through the conversion dates of the systems during the quarter. We have few those folks love to transition out here in April and then all of the cost savings from a personnel standpoint will also be completed. So our efficiency related to those acquisitions is going to go up very significantly in the second quarter and then going forward.

Okay. And then you mentioned briefly in the press release, could you walk me through the tax rate for the quarter?

It's artificially low in the quarter, as a consequence of an adoption of new accounting guidance for really geographically where you recognize aspects of municipal bond interest. Maybe I better have Cory Stewart, our Executive Vice President In-Charge of Finance and Accounting speak to that one. (inaudible)?

Hey, Jim. So yes, I mean the biggest difference between the rate for the quarter and the fully effective rate of approximately 33% relates to the adoption of the new accounting for the low income housing tax credits. And so the difference between what we had amortized on those investments under the previous method and what we would amortize under the new method as related to prior periods, flow through our income taxes as a discrete item. So as a result of that four hundred and some odd thousand dollars of discrete tax expense or tax benefit, excuse me, they resulted in a quarterly rate of 18.6%. But what you would expect going forward is closer to the approximately 33%.

So subsequence to this quarter for the remainder of the year, you should assume something approximately 33% effectively.

Right.

Okay, that’s helpful. And do you have any plans for additional loan sales out of the single family residential portfolio held for investment?

No, not at this time. We do expect to close that portion of those loans which are in held for sale at the end of the quarter here in April and early part of May, most of those sales have been closed to-date. And there will be little bit of fall out as always are from these sales and will likely to transfer some minority amount of those loans back to the held for investment portfolio, and that has been concluded.

Okay. Well, thanks. Those were all my questions.

Thanks, Tim.

(Operator Instructions). At this time, I see no questions. So this will conclude our question and answer session. I would now like to turn the conference back over to Mr. Mark Mason for any closing remarks.

Again we appreciate you joining our call and patiently listening to our remarks. And during the call, we appreciate your question today, look forward to talking to you next quarter. Thank you, operator.

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