Welcome to the Second Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host, Mr. Craig Blunden. Please go ahead.

Thank you Joshua. Good morning everyone, this is Craig Blunden, Chairman and CEO of Provident Financial Holdings and on the call with me is Donavon Ternes, our President, Chief Operating and Chief Financial Officer. Before we begin, I have a brief administrative item to address. Our presentation today discusses the company's business outlook and will include forward-looking statements. Those statements include descriptions of management's plans, objectives or goals for future operations, products or services, forecasts of financial or other performance measures and statements about the company's general outlook for economic and business conditions. We also may make forward-looking statements during the question-and-answer period following management's presentation. These forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ from any forward-looking statements statement is available from earnings release that was distributed on January 26th, from the annual report on Form 10-K for the year ended June 30, 2014 and from the Form 10-Qs that are filed subsequent to the Form 10-K. Forward-looking statements are effective only as of the date they're made and the company assumes no obligation to update this information. To begin with, thank you for participating in our call. I hope that each of you has had an opportunity to review our earnings release which describes our second quarter results. You will note that this is the third consecutive quarter where our community banking and mortgage banking businesses are both profitable. Subsequent to the unfavorable mortgage banking environment which developed approximately 1.5 years ago, we're pleased that the actions we have taken to overcome the poor environment have resulted in our improving financial results. In fact, in comparison to the same quarter last year, net…

[Operator Instructions]. Our first question comes from Brian Zabora with KBW.

I had a question on the locked pipeline, you had the data as of the end of December I guess about a 122 million in net locked pipeline. Any sense of how much that may have improved with the increase or decrease in rates during the month of January?

It has improved Brian and in fact what we like to point out is that generally speaking the March quarter is the lowest volume quarter in a normal year if you will with respect to mortgage banking unless there is refinance activity for extraordinary market conditions if you will and it appears at this time that we do have increase in refinance activity. In fact we see it in the December quarter when refinance ballooned to 55% of total volumes and additionally I think the 10 year straight again, 1.7% today which is down from where December was so we would have an expectation that refinance activity will boast volumes and we continue to see that developed.

And also just on the paydowns, it looks like prepayments, looks like they were up from last quarter. Did you see any increase in pricing competition in your markets?

Yes, prepayments as Craig mentioned in his prepared remarks are difficult obviously to forecast and indeed they were up in the December quarter from the sequential quarter in September and again that’s largely a function of interest rates as well and as you can imagine since we have seen the 10 year break that 2% level and now 175, we’re seeing pretty good competition with respect to commercial real estate and multi-family rates as well and as a result I think we’re seeing elevated prepayment activity.

And our next question comes from Jason Stewart with Compass Point.

I wanted to ask first on margin given the sale margin, are index is sort of tracking actually substantially higher so far in the first quarter relative to the fourth calendar quarter and it sounds like your commentary is a little bit more cautious. Is it that you directionally don’t see it improving or do you think improvement is marginal? Maybe some more color on that would be helpful.

Well the interesting thing about mortgage banking as we see more demand for the product as we do today versus perhaps to start off the December quarter given interest rates, we’re actually able to execute on the better basis and we can see better loan sale margin because the competitors are not pricing this thinly [ph] as they were. So our expectation is that the 140 basis points we saw in the December quarter can certainly be replicated in the March quarter given the current circumstances and in fact could potentially go up. But I think the one thing to think about is when we were in the very good years of 2012 and 2013 we saw margins in the high 100 basis points range, 185 basis points, 190 basis points and I don’t think we will see margins rise to those levels in the current environment.

And then generically on the volume environment, there is discussion -- what -- I think still talking rate now about that potentially lowering the LLPA grid and some changes to it and perhaps on the MI pricing side from the private guys. Any sense from your standpoint, how meaningful these changes could be to volume, is it just on the margin? Are we still doing with reps and warrants as the big road block, anything there would be great. Thank you.

Well I think anytime the agencies are reducing their pricing or FHA for instance on Monday dropping the 50 basis points on the MI the insurance portion of that coupled with lower interest rates which we have today than we did say a year ago suggest that there is a universal borrowers out there who have recently originated mortgages and that could actually refinance and it would make some sense for them. So I think at the margin we should see a new universal borrowers coming in that could potentially refinance their mortgages.

I would say though just additionally that there is still issues with -- there is servicing, they are tough as ever, that hasn’t changed and we don’t expect that it will change any sooner. So again like Donavon said, I think the advantages is just on the margins because everybody is going to still be pretty careful on that product.

And next we will move on to [inaudible].

I just had one quick kind of mortgage question, do you -- is there any difference in pricing in terms of wholesale margin between loans for purchase and loans for refi?

The larger component is retail versus wholesale, so retail originated product has a much better margin than wholesale and we do see a smaller advantage in purchase money activity versus refinance activity and here is the other truism with respect to refinance versus purchase money. Remember purchase money transaction, you’ve a purchaser of a home that has an escrow to close and as they go down the timeline trying to meet those escrow requirements and close their loan and purchase their property, they are less apt to potentially shop the rate if the rate were to come down from where they were originally locked. That is not true for refinance borrower, a refinance borrower has the advantage of not being required to close the loan and so the refinance borrower will often [inaudible] much more so than purchase money and if the refinance borrowers find themselves in a position of being able to lock elsewhere as substantially lower rate. Our fall out ratio increases and if we get our fall out ratio wrong, our hedging costs increase. So that’s one of the reasons refinance are less profitable and maybe a larger reason than pure pricing as it relates in comparison to purchase money activity.

And then Craig, I want to circle back to the prepared comments in your section about non-interest expenses going forward. Were you indicating that you felt the need to increase staffing in order to increase the balance sheet?

Yes, we have talked about that in a number of different areas mainly in commercial real estate, multi-family and construction. We have had the increased staffing, to get loans we can actually put in our portfolio in those preferred loan categories, it's true.

Okay. All right, do you feel that you’re almost there in terms of being fully staffed up?

I think what we do is look at where it is we’re placing loans on our books to geographies and frankly if we find an originator that works with one of our geographies and we’re interested in expanding our volumes which we’re, we would make a serious effort to bring that originator on board. But that doesn’t mean that we have "openings" per say. We’re simply opportunistic as it relates to those originators that may be able to perform for us.

That’s also true on the mortgage banking side, Tim, and as we find a group of originators in a location we don’t have, we go after them, not even concerned as much about where that was, in other words we weren't looking for that particular region maybe but whenever you find a group of debt originators we try to hire them.

And our next question comes from Tim O'Brien with Sandler O'Neill and Partners.

Donavon, a question for you, reserve ratio guidance or you know indication still 1% to 125?

That’s still what we would argue and we’re at the lower end of that range so that suggest that reserve releases are -- and in fact you saw this quarter is 354,000 but half of that essentially came in as a result of recovery, so that the allowance really only went down by you know whenever the difference of that 354 and 159 is. So yes our guidance is still that 100 to 125 basis point range.

And chances are that won't be moved? More likely you will stop releasing reserves correct? If -- you know depending on conditions what happens with credit.

It always depends upon conditions and what happens with credit. Remember we have a legacy portfolio and precredit crisis portfolio that was originated under much different circumstances than today and the fact, the loss factor is associated with those precredit crisis originations or held for investment loans are higher than our newly originated loans for obvious reasons given underwriting characteristics. So if we were to see a large decline with our legacy balance loans, balance of legacy loans it may argue that that range could come down from the 100 to 125 basis point range we have given you but we think that that’s probably a pre-requisite for that to occur.

And then one other question that I have is with regard to liquidity for operating the mortgage banking business, can you give a little color on liquidity advocacy to cash advocacy to fund that business and you guys are comfortable there? Would you -- so possibly you might go out and bring in some deposits or FHA advances?

I think both of those are possibilities, it largely depends upon what our held for sale origination volume does. As you see that -- in December, our cash balances declined essentially through the quarter as a result of an increasing held for sale balance. As those held for sale turned to cash it obviously goes back in the cash. In the event we held elevated held for sale balances for an extended period of time, the cash balance that we had at December 31 is inadequate for us with respect to our liquidity requirements and we would then be interested in either pulling down short term advances or maybe some long term advances for interest rate risk purposes or also becoming a bit more aggressive with respect to deposit rates.

Can you give an indication of which of those markets are particularly compelling for props [ph] purposes these days? You know deposits versus FHLB?

Well FHLB rates are definitely more advantageous at this point than going against under the higher rate payers and the CD market in our area.

We have such a small balance of FHLB balances, I think it's $41 million and quite frankly longer term advances in this interest rate environment would be very helpful over a medium term if you will say 3 to 7 years in what we believe might be a rising rate environment so locking in a longer term FHLB advance that could be quite advantageous.

And then one last question on staffing, Craig would you characterize the mortgage banking unit as right sized at this point from a staffing standpoint and for at least for the foreseeable future you guys in the right place right?

I think we’re Tim, it took us a little bit of time but I think we’re right where we need to be and when we balance the fundings and our staffing.

And there are no further questions at this time, sir.

Well I want to thank everyone for joining us and look forward to speaking to each one of you at the next quarterly conference call. Thank you.