Below is transcript of the CVB Financial Corp. (NASDAQ:CVBF)’s Fourth Quarter and Year End Earnings Conference Call, held on January 22, 2015, at 10:30 a.m. EST. Mckinley Capital Management, Pdt Partners and Visium Asset Management was among CVB Financial Corp. (NASDAQ:CVBF) shareholders at the end of the third quarter.
CVB Financial Corp. (NASDAQ:CVBF) is a bank holding company of Citizens Business Bank (the Bank). The Company’s primary operations are related to banking activities, including the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides automobile and equipment leasing to customers through its Citizens Financial Services Group and trust and investment-related services to customers through its CitizensTrust Division.
Company Representatives:
Christina Carrabino – Investor Relations
Chris Myers – President & Chief Executive Officer
Rich Thomas – Executive Vice President & Chief Financial Officer.
Analysts:
Julianna Balicka – KBW
Aaron Deer – Sandler O’Neill
Matthew Clark – Sterne Agee
Gary Tenner – D.A. Davidson
Operator
Good morning, ladies and gentlemen, and welcome to the Fourth Quarter and Year end 2014 CVB Financial Corp. and its subsidiary, Citizens Business Bank, Earnings Conference Call. My name is Mike, and I’m your operator for today. At this time, all participants are in a listen only mode. Later we will conduct a question and answer period. I would now like to turn the presentation over to your host for today’s call, Christina Carrabino. Ms. Carrabino, you may proceed, ma’am.
Christina Carrabino – Investor Relations
Thank you, Mike, and good morning, everyone. Thank you for joining us today to review our financial results for the fourth quarter and year end 2014. Joining me this morning are Chris Myers, President and Chief Executive Officer; and Rich Thomas, Executive Vice President and Chief Financial Officer. Our comments today will refer to the financial information that was included in the earnings announcement released yesterday. To obtain a copy, please visit our website at www.cbbank.com and click on the investor’s tab.
Before we get started, let me remind you that today’s conference call will include some forward-looking statements. These forward-looking statements relate to, among other things, current plans, expectations, events and industry trends that may affect the company’s future operating results and financial position. Such statements involve risks and uncertainties, and future activities and results may differ materially from these expectations.
The speakers on this call claim the protection of the Safe Harbor provisions contained in the Private Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements, please see the company’s annual report on form 10-K for the year ended December 31st, 2013, and in particular, the information set forth in item 1A, risk factors therein. Now I will turn the call over to Chris Myers.
Chris Myers – President & Chief Executive Officer
Thank you, Christina. Good morning, everyone, and thank you for joining us again this quarter. Yesterday, we reported earnings of $104 million for the year ended 2014, the first time in history that we have earned over $100 million in a fiscal year. This compares to net earnings of $95.6 million for 2013 and $77.3 million for 2012. Diluted earnings per share were $0.98 for 2014. We earned $25.6 million for the fourth quarter of 2014 compared with $24.3 million for the third quarter of 2014 and $25.3 million for the year ago quarter.
During the fourth quarter of 2014, we grew net loans by $110.8 million or about 2.99%, approximately $85 million of this growth with seasonable as is typical with our dairy and livestock loan portfolio. Most of this seasonal growth in dairy loans was repaid shortly after year end. Earnings per share were $0.24 for the fourth quarter compared with $0.23 for the third quarter and $0.24 for the year ago quarter.
The fourth quarter represented our 151st consecutive quarter of profitability and 101st consecutive quarter of paying a cash dividend to our shareholders. The FDIC indemnification of assets better known as loss sharing resulting from the San Joaquin Bank acquisition in 2009 expired on October 16, 2014. The $126.4 million caring value of these loans was transferred from covered loans to non covered loans as we no longer have loss sharing indemnification from the FDIC.
If we exclude the yield adjustment on covered loans our tax exempt net interest margin was 3.50% for the fourth quarter compared with 3.53% for the third quarter and 3.47% for the year ago quarter. If we include the yield adjustment on formally covered loans as we will report going forward for future quarters, our tax exempt net interest margin was 3.58% for the fourth quarter of 2014.
During the fourth quarter, our commercial real estate loans increased by $14.4 million, our agribusiness loans increased by $2.3 million and our dairy and livestock loan portfolio increased by $85.6 million. Dairy and livestock loans typically increased significantly during the fourth quarter as many dairy owners choose to defer their milk checks into the first quarter of the following year or prepay their fee expense.
In terms of loan quality, nonperforming assets defined as nonaccrual loans plus OREO were $37.8 million for the fourth quarter of 2014 compared with $43.3 million for the prior quarter. The decrease was primarily due to reductions of $1.9 million in non-performing commercial and industrial loans, $1.4 million in dairy and livestock and agribusiness loans and $1.1 million in commercial real estate loans.
The allowance for loan and lease losses was $59.8 million or 1.57% of total loans at December 31st, 2014, compared with $59.6 million or 1.67% of non-covered loans at September 30, 2014. Net recoveries for the fourth quarter were $243,000 compared with net charge-offs of $392,000 for the third quarter of 2014. Net recoveries for 2014 totaled $690,000, this represents the first year of net recoveries since 2006.
At December 31st, 2014, we had loans delinquent 30 to 89 days of $1.7 million or 0.04% of total loans. Classified loans for the fourth quarter were $160.7 million. This included $21.2 million of formally covered loans. Classified loans totaled $147.2 million for the prior quarter. We will have more detailed information on classified loans available in our year end form 10-Q.
Now I would like to discuss deposits. For the fourth quarter of 2014, our noninterest bearing deposits decreased to $2.87 billion compared with $3.04 billion for the prior quarter. Noninterest bearing deposits were up $303 million from the same quarter a year ago. This represents an 11.8% increase year over year. Noninterest bearing deposits represent 51.14% of our total deposits. We believe the decrease in quarter over quarter noninterest bearing deposits was result of timing. We experienced a substantial decline in our total natural deposits at year end primary due to the volume of real estate closings. For the most part these deposits have rebounded to where they were before.
Average noninterest bearing deposits were $2.96 billion for the fourth quarter of 2014 compared with $2.92 billion for the third quarter of 2014. Our total cost of deposits and customer repurchase agreements for the fourth quarter was 11 basis points compared with 10 basis points for the prior quarter. At December 31st, 2014, our total deposits and customers repurchase agreements were $6.17 billion compared with $5.53 billion for the same period a year ago and $6.29 billion at September 30, 2014. Our ongoing objective remains to maintain a low cost stable source of funding for our loans and securities.
Interest income, for the fourth quarter of 2014 totaled $65.3 million consistent with the third quarter of 2014. The $65.3 million for the fourth quarter included $1.3 million of discount accretion from principal reductions and payoffs. This compares to $1.4 million of discount accretion for the prior quarter. Total investment income of $18.3 million increased $575,000 or 3.25% from $17.7 million for the third quarter of 2014. Noninterest income was $9.9 million for the fourth quarter of 2014 compared with $8 million for the third quarter.
Now expenses, we continue to closely monitor and manage our expenses. Noninterest expense for the fourth quarter was $31.3 million compared with $32.5 million for the third quarter. Noninterest expense represented 1.67% of average assets for the quarter compared with 1.75% for the third quarter. The quarter over quarter decrease in expenses was partially due to the cost synergies we achieved related to the acquisition and integration of American Security Bank. Noninterest expense increased by $12.2 million in 2014, the year over year increase was partially due to expenses related to the acquisition of American Security Bank. This included nonrecurring acquisition related cost of $2 million.
Now I’d like to turn the call over to Rich Thomas, our CFO, to discuss our effective tax rate, investment portfolio and overall capital position. Rich?
Rich Thomas – Executive Vice President & Chief Financial Officer
Thanks, Chris, good morning, everyone. Our effective tax rate was 35.7% for the fourth quarter. The overall tax rate for 2014 was 36.1%. Now to our investment portfolio. During the fourth quarter of 2014, we sold an average of approximately $100.7 million in overnight funds to the Federal Reserve and received a yield of approximately 25 basis points on collective balances. We also maintained an average of $19.9 million in short term CDs with other financial institutions, yielding approximately 80 basis points. At December 31st, 2014, investment securities totaled $3.14billion, up $23 million from the third quarter of 2014. Investment securities represented 42.54% of our total assets at quarter end.
At December 31st, 2014, we had an unrealized gain of $53.6 million in our total investment portfolio compared to an unrealized gain of $31.2 million for the prior quarter. Virtually all of our mortgage backed securities are issued by Freddie Mac or Fannie Mae, which have the implied guarantee of the U.S. Government.
We have been strategically reinvesting our cash flow runoff from our investment portfolio, carefully weighing current rates and overall interest rate risk. During the fourth quarter, we purchased $59.7 million in mortgage backed securities with an average yield of 2.09% and an average duration of approximately 4 years. We also purchased $6.3 million in municipal securities during the fourth quarter, with an average tax equivalent yield of about 3.82%. Prepayment speeds in our investment portfolio have been somewhat stabilized. And based upon current interest rates, we anticipate receiving approximately $35 million in monthly cash flow from our portfolio. If interest rates remain low we may see faster prepayment speeds which could increase our estimated monthly cash flow.
Now turning to our capital position. Our capital ratios are well above regulatory standards, and we believe they still remain above our peer group average. Our December 31st, 2014, capital ratios will be released soon, concurrently with year end form 10-K.
Shareholders’ equity increased a $106.2 million in 2014. The year over year increase was due to $104 million in net earnings, a $40.4 million increase in unrealized gain on available for sale investment securities and $4.2 million of various stock based compensation items. This was offset by $42.4 million in cash dividends. I will now turn the call back to Chris for some closing remarks.
Chris Myers – President & Chief Executive Officer
Thanks, Rich. Now let’s talk about economic conditions. In terms of the dairy industry, milk future prices are decreasing and profit margins appear to be narrowing. Notwithstanding 2014 with a highly profitable year for the dairy industry. According to the California Department of Food and Agriculture, the CDFA, feed costs in California represented 62.2% of total milk production costs for the third quarter of 2014 down from 65.4% of total milk production costs for the second quarter.
Thanks to a reported bumper corn crop for the past two years dairy farmers saw significant drop in corn prices. It remains difficult however to project the future cost of feed as feed costs continue to be dependent upon many factors one of which is weather.
Turning to other items related to the California economy according to various economic reports. California’s employment development division reported the unemployment rate was 7.2% in November 2014 compared with 7.3% in October and 8.4% back in November 2013. Virtually every sector in California posted job growth over the past year with solid growth in both lower wage industries such as administrative support, leisure and hospitality as well as higher wage industries such as information, management and professional scientific technical.
Plummeting oil prices brining relief at fuel pumps may soon have the opposite effect on a portion of California central valley economy. Many oil executives are now tough decisions about whether to go forward with expensive projects such as new drilling. While layouts have been limited so far economists [inaudible] of major work force reductions if prices fall below and stay below producer’s breakeven points.
Employment growth as it’s still expected to increase 2.5% over the next year and the unemployment rate is expected to dip to the low 6% range by 2016. Home prices are forecast to taper to an annual growth rate of 3% to 5% over the next few years. California’s chronic under supply of housing is a major driver of increasing prices. New residential construction is expected to continue on its upward trend although the additional stock is not expected to be enough to completely offset demand.
California’s healthcare industry is headed for job growth as aging baby-boomers, the Affordable Care Act and over 3 million Californians signing up for health insurance will help boost jobs in healthcare services and social assistance.
In closing, we are very pleased with our 2014 financial results. I would like to thank our employees for their continued hard work and dedication, our customers for their loyalty, our shareholders for their continued support and our Board of Directors for their ongoing guidance.
As we move into 2015, we remain focused on quality loan growth, fee income expansion, stronger core deposits and overall operating efficiency. Our strategic plan is to achieve growth through three means, first we’re determined and focused on increasing our market share client by client, second we seek to accelerate growth through the hiring of new banking teams to expand our footprint, and third we remain focused on acquiring community banks in or adjacent to our geographic footprint. And that conclude today’s presentation, and now Rich and I will be happy to take any questions that you might have.
Operator
Thank you, sir. We will now begin the question and answer session. To ask a question you may press * then 1 on your phone. If using a speaker phone please pick up the headset before pressing the keys. If any [inaudible] question has been addressed and you’d like to withdraw your question please press * then 2. As a courtesy we please ask that you limit yourself to one question and a single follow-up. If you have further questions you may re-enter the question queue. Again, it is * then 1 to ask a question. At this time we will just pause momentarily to [inaudible]. The first question we have comes from Julianna Balicka of KBW. Please go ahead.
Julianna Balicka – KBW
Good morning. Well, I have several questions one kind of given you current pipeline, what kind of loan growth expectations are you thinking about for 2015, just kind of ballpark of where you’d want to hit it high single digits, low double digits?
Chris Myers – President & Chief Executive Officer
On the loan growth side, it’s tough to project what we’re going to see forward, a lot of its depended on the economy, competition, interest rates all those different things. And as we look forward, certainly we are doing everything we can to grow loans but in the loans that we want to grow and the type of customers that we want to bring in to the bank, and so we’ve established our target focus on certain types of clients and certain types of business and don’t want to get too much outside of our comfort zone in terms of what we’re doing especially in a market that’s getting more and more aggressive all the time both on structure and pricing.
So having said all that, we certainly, I think we’re looking at, our objective would be to try to grow 2% per quarter in loans and I don’t know if we can get there or not, a lot of that’s going to be depended on economy. The first quarter is our most challenging quarter due to the fact that our seasonal dairy loans are, they bump up in the fourth quarter and then they come down in the first quarter. And the fact that seasonally the first quarter has been the softest loan quarter for us over the last few years; however, having said all that our loan pipeline is significantly stronger than it was a year ago at this time.
Julianna Balicka – KBW
Very good that makes sense. And a housekeeping question and I want other follow-up, what was prepayment fee for 4Q, sorry?
Chris Myers – President & Chief Executive Officer
Prepayment fees, it’s a great question because we’ve been anticipating that prepayment fees are going to go down quarter over quarter, but with interest rates dropping, they actually went up from the third quarter to fourth quarter. They were $742,000 in the third quarter and they were $866,000 for the fourth quarter. So, a lot of these loans have been prepaid over the last few years because of the ongoing low interest rate cycle, but with the dip down in the loan interest rates we’ve seen actually more refinancings going on. A lot of that stuff we’re keeping on our books but some of that we’re seeing, some of these properties we’re seeing sold, so even though our loan pipeline is pretty solid we’re seeing some runoff of loans due to either refinancings which we hope to keep or property sales.
Rich Thomas – Executive Vice President & Chief Financial Officer
Generally we lose the loan and that happens.
Julianna Balicka – KBW
Right, ok, that makes sense and then since you’ve brought up energy and oil in your remarks, could you quantify what is CVBF’s exposure to the energy industry in general?
Chris Myers – President & Chief Executive Officer
Well, I mean in terms of direct exposure, we have a low eight figure exposure in terms of our total loans to companies that are oil or gas or fit into those SIC codes so to speak. So it’s not, I mean its maybe $10 million to $20 million somewhere in that range. So we’re not really concerned about that and we’ve already gone through and looked at those different companies and are tracking them very closely, but peripherally that’s going to affect the central values of economy if oil prices stay low for an extended period of time and that could have effect on other businesses that are not directly in the oil and gas business but are related in some fashion. So we’re watching that carefully. So far we really haven’t seen anything dramatic, but we’ll see as oil prices continue.
Julianna Balicka – KBW
And I will step back but the follow up to that, are you seeing any areas where you might see a benefit from the lower oils, I mean like the transportation in the [inaudible] Empire etcetera are there any verticals where you see potential for stronger loan growth as a result?
Chris Myers – President & Chief Executive Officer
I don’t know if we’ve seen that yet, because the oil prices haven’t been down for long enough to really get financials and start to see that transportation costs are going, are down and that’s contributing to greater profitability from some of our transportation companies that we bank and those related industries which could be very positive.
But I would also say that the, as we look at those prices, at oil and gas prices, I think we’re pretty well positioned from a defensive standpoint. I do think consumer spending is going to be bolstered. We are hearing from our car dealers that we’re getting more and more demand for bigger vehicles, which is kind of interesting. It’s like hey gas prices go down and now everybody wants to get a big deal going again, it’s interesting.
Julianna Balicka – KBW
Ok, interesting. Very good. Thank you very much.
Operator
The next question we have comes from Aaron Deer, Sandler O’Neill.
Aaron Deer – Sandler O’Neill
Just a quick follow up question on something you mentioned Chris about the structure and pricing getting tougher in the market, can you maybe give us some specifics on what you’re seeing other banks do that that you guys are seeking to avoid?
Chris Myers – President & Chief Executive Officer
Well I think stuff that we, where we really feel that we get that out of our strike zone is when inappropriately banks will release guarantees of private business owners on loans. That doesn’t mean we don’t have loans in the bank that we have, we don’t have a guarantee for, but the vast majority of our loans we do have a personal guarantee for.
But we’ve seen a little bit of irrationality in that area, so I’d say that’s one area where we get stretched, in fact over the last year we lost a $5 million loan to that very reason. We refused to give up the guarantee and another bank gave up the guarantee and this is on our books, so it came off of our books, we lost that customer.
But sometimes we choose not to play if it’s not appropriate and then I think the other side sometimes we’re seeing on properties in transition, commercial real estate in transition, we’re seeing aggressive loan to values on some of that that we feel meaning in transition is a property that is it is needs some restructuring, needs some refurbishment, needs something to change on it. And we’re seeing some aggressive loan to values on that. The mini perm stuff that, of income producing properties we’re able to compete on that pretty well especially if we have good guarantors behind it.
Aaron Deer – Sandler O’Neill
That’s helpful. And then it looks like you guys took down some short-term borrowings in the quarter, just curious if those have paid down subsequently and how you guys are thinking in general about liquidity given that you guys have a lot of great core deposits and just kind of given your loan outlook and how you’re thinking about using borrowings in alternative funding to fund securities growth versus loan growth?
Chris Myers – President & Chief Executive Officer
We were a little surprised that we had borrowings at the end of the year. I think it was 46 million, is that right?
Rich Thomas – Executive Vice President & Chief Financial Officer
That’s correct, Chris.
Chris Myers – President & Chief Executive Officer
46 million and I think it was just for a day or two that we were borrowing money, one day.
Rich Thomas – Executive Vice President & Chief Financial Officer
One day.
Chris Myers – President & Chief Executive Officer
One day, it was the last day of the year ironically, but that occurred because of as I said in the script, in our call is that occurred because we saw a lot of year end real estate closings literally on the last day or two of the year. And also remember our dairy loans are all advanced up on the last day of the year to the, to wherever they going to be. Since then our normal deposits, the title and escrow deposits that I referred to is dropping down or back to their normal levels. And in turn our dairy, a lot of these dairy loans have now been repaid, because they’ve got their milk cheques in. So we’re now sitting on in excess of well over $100 million in providing overnight money to the fed, is that right?
Rich Thomas – Executive Vice President & Chief Financial Officer
That’s correct.
Chris Myers – President & Chief Executive Officer
We’re well over $100 million right now. So as we look at that and feel there’s permanence to that number, we can look at other alternatives such as do we consider prepaying FHLB debt which is an option. We haven’t made that decision yet, but there’s a large coupon on that which is 4.52%. The prepayment has gone down quite a bit and now but now their prepayment penalty is below $14 million and so, and probably going down about at the rate of $700,000 a month just because of the duration it expires in November 2016. So that’s the potential option, but really the best option for those deposits is for us to grow loans. And that’s what we’re hopeful we’re going to be able to do.
Aaron Deer – Sandler O’Neill
Ok, that’s helpful. Thank you, Chris.
Operator
The next question we have comes from Matthew Clark of Sterne Agee. Please go ahead.
Matthew Clark – Sterne Agee
Good morning. Just a follow up to pricing, can you just talk to whether or not you’ve seen any change in competitive pricing or within your own shop based on what the [inaudible] here year to date and I guess can you talk through the implications for your margin going forward?
Chris Myers – President & Chief Executive Officer
We are seeing more competition on pricing. I think it’s interesting because we hadn’t done an interest rate swap in probably well over 20 months. And in December we closed two interest rate swaps, so as rates go down we’ll probably put more, we’ll take some of these 10 year fixed rates that we might have put on our books as a fixed rate whatever that number is in the high 4s maybe 5% on a 10 year basis, now those loans we maybe swapping. And as we do that we will be swapping that and we will be getting a variable rate most likely somewhere in the high 2s on that variable for those same loans. So that will affect our pricing but it’s also going to affect our, positively affect our interest rate sensitivity and we should be able to drive more fee income to the swaps. So, I think the key to us maintaining our margin going forward which is kind of what I think your question relates to is going to be loan growth and making sure that we continue to keep our funding of cost as low as possible.
Matthew Clark – Sterne Agee
Ok. Great. It sounds like the prepaid in your securities portfolio have remained fairly steady but is that true here in the first quarter, just trying to think about the risk of higher premium amortization and the lag effect there?
Chris Myers – President & Chief Executive Officer
Yes, I don’t know what’s going to happen for the first quarter as far as prepayment but loan rates are down. We saw a lot of the prepayments in December because I think when people are really driving the closed real estate deals and any deals in December, it really is busy as we’ve seen it in terms of transactions going on. So a lot of our prepayment fees that we received on loans were achieved in December not necessarily in October or November, so it’s still a little bit of a new phenomenon for us to comment on.
And is that aligned with the 10 year treasury that’s now below 2%, is that the reason or is it just a lot of year end closings that we saw, I am not sure yet. So I do think that in general prepayment fees will be lower in 2015 than they were in 2014 because I think we’ve already refinanced a lot of these loans. But we were surprised by the amount of volume of prepayments in the fourth quarter.
Matthew Clark – Sterne Agee
Ok. And then lastly if I may, just on capital management your priorities there, just an update on the M&A front?
Chris Myers – President & Chief Executive Officer
Yes, absolutely M&A and we want to certainly maintain our dividend and as our profitability goes up we consider increasing that dividend overtime. M&A is I mean, I would say also we are very actively recruiting new banking teams and we’re seeing some movement there, so we’re excited about that. As you guys are well aware we formed a new office in San Diego and we recruited another team into the Downtown Los Angeles area that we just hired here in the last couple of weeks. And we feel confident that we’re going to be hiring a new team or two here very shortly in the first quarter. So that’s another deployment I know it’s not directly capital but usually in your first year that will be a little bit of an expense rain until they can map over some business.
On the other side I think the M&A, I think with the rates coming down like this it puts more and more pressure on these smaller banks, it puts more and more pressure on our margins as well. But I think it’s more impactful for smaller banks if they don’t have the economies of scale that we do.
Matthew Clark – Sterne Agee
Got it. Thanks, Chris.
Operator
The next question we have comes from Gary Tenner, D.A. Davidson. Please go ahead.
Gary Tenner – D.A. Davidson
Thanks, good morning. Just a couple of questions I guess first sight I was a little confused on the expense commentary you mentioned that expenses were lower partially attributable to lower salary and benefit expense. But it looks like sequentially that line item was actually higher, so was there something embedded in the salary and benefit line in third quarter or fourth quarter that kind of offset some savings from the ASB acquisition?
Chris Myers – President & Chief Executive Officer
Quarter over quarter our expense were down but there is certainly elevated year over year. I think a lot of the acquisition related expenses were pushed through late in the third quarter and some of those carried over into the fourth quarter in terms of creating all of our efficiencies but really for 98% of those expenses related to the acquisition of American Security Bank and the ongoing costs that we consider temporary costs are really extracted out and were, they’ve been fully integrated so to speak and we’re ready to roll in 2015. So I think from an expense standpoint we’re pretty well positioned there.
But also, I want to mention expenses and looking forward to 2015 we are investing in new bankers and that is going to, so salaries and benefits I think will still stay somewhat elevated. And that’s really one of the big changes year over year from 2014 to 2013 was our expenses are up but it’s really most of its salary related and the other thing is it’s related to technology and just infrastructure related to cyber security and all those kinds of things.
Gary Tenner – D.A. Davidson
And secondly on, for the San Diego branch maybe because you just talked about progress there and kind of where your loan footings have gotten to at this point in that franchisee?
Chris Myers – President & Chief Executive Officer
And we haven’t announced what their loan totals are at this point. But they are gaining good momentum, I think we got some really good people there. We’ve brought on some new clients. I think so far I would say it’s on track. And we hope to be able to build that to footings of close to a $100 million over the next 12 months to 18 months in terms of loans and deposit totals together.
Gary Tenner – D.A. Davidson
So, I am sorry a $100 million loan and deposits combined over the next to 12 months to 18 months?
Chris Myers – President & Chief Executive Officer
Yes. I would hope that we’re sitting here in June of 2016 and they have got $100 million between loans and deposits in that office.
Gary Tenner – D.A. Davidson
Ok.
Chris Myers – President & Chief Executive Officer
It’s not going to move the needle for the company but it’s a good, we’re counting on to be an important long term market for us.
Gary Tenner – D.A. Davidson
Ok. Thank you.
Operator
As a reminder, if you would like to participate in today’s Q&A, please press * then 1 on your phone. Again, it is * then 1 to ask a question. Our next question comes from Julianna Balicka of KBW.
Julianna Balicka – KBW
Hi, I have a follow-up, when you’re thinking about reserves and on the moving parts around that, how much more reserve leverage do you think you have in terms of supporting earnings versus and when do you think you’ll start to get some kind of normalization of credit cost?
Chris Myers – President & Chief Executive Officer
Well, if you look at our reserve, we reported at 1.57% for the quarter, but what’s a little different from previous quarters is that we no longer have loss sharing on our San Joaquin Bank loans, so the actual, if the actual reserve and remember the San Joaquin Bank loans have, they’re accreted, they have accretion that’s related to them as well.
So that accretion somewhat is, the reserves already built into them, so if we took out those loans our reserve is about 1.62% for the fourth quarter and that’s what we’ve been reporting all the way along, so you saw it a little dip down in our reserve going down to 1.57% from the previous quarter which was, I don’t 5 or 10 basis points higher I think. I believe that it’s interesting it’s a very complicated process to determine our reserve and we’re getting more and more interface with our accounts on the stuff all the time how to handle this and all the metrics and information that goes into that.
So, it’s not straightforward by any means but it’s a very involved process, but all the different factors that go into that could affect our reserve, and one of the things that also affects our reserve is that we have a rolling 20 quarter loss, we look at losses on a rolling 20 quarter basis. And so in 2010 was the largest year for loan losses for us CVBF in our history, so quarter by quarter in 2015 those losses will rollout out of database and really inherently create a reason to almost lower our reserves because we don’t have that loan loss history. But I think that will be offset by other factors that go into this, so it’s hard to, I guess I am not giving a very good answer but it’s hard to project what’s going to happen, but I do think this that we would, there will sometime where we’re going to need to reserve again, I don’t know if I am going to see that in the next few quarters but I think it’s coming somewhere down in the line and that will be a good thing because that means we’re growing loan.
Julianna Balicka – KBW
Got it. Makes sense. Thank you very much.
Operator
Again, as a reminder if you’d like to participate in today’s Q&A, please press * then 1 on your phone, again that is * then 1 to ask a question. Again, we will just pause momentarily to [inaudible]. At this time there are no further questions, I would now like to turn the conference back over to Mr. Myers for any closing remarks. Sir?
Chris Myers – President & Chief Executive Officer
Well, thank you everyone for joining us on our call today and we appreciate your interest and look forward to speaking with you again in our first quarter 2015 earnings conference call in April. In the meantime feel free to contact me or Rich Thomas, if you have any further questions. Have a great day and thank you very much.
Operator
And we thank you sir for your time today and to the reset of the management team. The conference call has now concluded, again, we thank you all for attending today’s presentation. At this time, you may disconnect your lines. Thank you, and have a great day everyone.
