Independent Bank Group Inc (IBTX) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Independent Bank fourth-quarter 2014 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded.

I would like to hand the conference over to Torry Berntsen. Please go ahead.

Thank you and good morning. Welcome to the Independent Bank Group conference call to discuss financial results for the fourth quarter 2014. I would like to thank you for joining us this morning. I will go over a few housekeeping items and then hand it over to David Brooks, our Chairman and CEO, to lead the presentation.

We issued our earnings release this morning and a copy is posted on our website, www.ibtx.com. We will be going over much of the release on this call. If you are having trouble accessing it, please call Eileen Ponce, 469-742-9437 and we will email or fax you a copy.

Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We intend such statements to be covered by the safe harbor provisions for forward-looking statements contained in the Act. Please see page 4 of the text in this morning's release for additional information about the risks associated with these statements.

Please also note that if we give guidance about future results, that guidance will only be a statement of management's beliefs at the time the statement is made. Predictions that we make may not continue to reflect management's belief and we do not publicly update guidance.

In this call, we will discuss a number of financial measures considered to be non-GAAP under the SEC's rules. Reconciliations of these financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in our earnings release.

At the conclusion of our remarks, we will open the telephone lines for questions. At that time, we will provide instructions for submitting your questions.

With those reminders out of the way, I would like to outline the agenda for the call. David will open with his thoughts regarding the fourth-quarter results. Michelle Hickox, our Chief Financial Officer, will lead you through the quarter's operating results and some balance sheet highlights. David will then close the presentation and open the phone lines for questions.

I will now turn it over to David.

Thanks, Torry. Good morning, everyone, and welcome to Independent Bank's fourth-quarter and year-end 2014 earnings conference call. We are pleased with our results for the quarter as we continue to execute our strategies in the midst of rapidly changing market conditions.

Our organic loan growth accelerated from the third quarter to 16% on an annualized basis, primarily in the commercial real estate and non-energy C&I portfolios. This organic growth, along with the Houston Community acquisition, increased total assets to $4.1 billion compared to $2.2 billion for December 31, 2013, and compared to total assets of $1.8 billion as of our IPO in 2013.

Core earnings continue to grow, increasing sequentially and on a year-over-year basis, fueled by our organic growth and acquisition loan growth. On a sequential basis, core earnings grew 14.7%.

For the year, after-tax net income was $28.8 million compared to pro forma after-tax income of $16.2 million for 2013, an increase of 78%. Our margin improved compared to the third quarter.

On a core basis, our net interest margin was 4.17% in the fourth quarter versus 4.02% in the third quarter. Also, our efficiency ratio continues to get better. On a core basis, it was 55.85% for the fourth quarter.

We completed the operational conversion of Houston Community to our core system in early December. This quick transition allows us to go into 2015 with most of our projected cost saves in place.

We remain very focused on asset quality. Maintaining our credit quality and limiting our exposure to loss has historically been a hallmark of our culture for 27 years. It has served us well over the years, especially during challenging economic times.

We fully understand that a superior credit culture is a key component to our overall operations. The credit team continues to closely supervised underwriting, monitor asset quality, and maintain effective credit administration.

This is especially true of our energy portfolio. As of year end, our production portfolio was $232 million, approximately 7% of total loans, made up of 28 relationships. We have evaluated and shock tested all of our credits that are most challenged by lower prices to cover the majority of the risk.

Virtually all of our E&P producers are hedged in position to manage through the current price environment. Our price decks are dynamic and we retain the right to require monthly commitment reductions as needed.

With respect to oil field-related services at year end, outstandings were $27 million or 0.8% of the portfolio. These loans were part of our recent acquisitions and Houston primarily represented long-time clients and are primarily limited to existing oil and gas production, not to drilling or completion-type activities.

Our energy team is very experienced, with our senior bankers having over 30 years' experience and having functioned through numerous cycles. They are also regularly in touch with our resourceful and experienced customers, who are making the necessary adjustments in their business models to deal with the lower pricing levels.

Michelle will provide some further detail of the portfolio in her comments. As I will summarize at the end of the call, we believe that 2014 was a successful year on numerous fronts.

With that, I would like to ask Michelle to go over our 2014 fourth-quarter operating results.

Thank you, David, and good morning, everyone. As noted in the earnings release, our fourth-quarter core net income was $10.9 million or $0.64 per diluted share compared with third-quarter core net income of $9.5 million or $0.58 per diluted share.

Net interest income increased during the fourth quarter to $38.2 million compared to $32.4 million for the third quarter. The increase in net interest income reflects increased average loan balances resulting from organic loan growth and loans acquired in the Houston Community acquisition.

Our net interest margin was 4.28% for the fourth quarter compared to 4.04% for the third quarter. The increase in the quarter is reflective of the higher yields on the Houston Community portfolio, an increase in unfunded and prepayment fees recognized compared to the linked quarter, and an increase in accretion income related to pay offs of some acquired loans as well as a slight decrease in the cost of interest-bearing liabilities.

Our core net interest margin, which does not include accretion, was 4.17% compared to 4.02% in the third quarter. Total noninterest income decreased $249,000 compared to the third quarter. The decrease is primarily attributable to the sale of the SBA portfolio in the third quarter, which resulted in a nonrecurring gain of $1.1 million.

As previously mentioned, Independent Bank has not been an active SBA lender. The decrease was offset by a gain on sale of securities of $362,000 and an increase in service charge income of $263,000 for the fourth quarter.

Total noninterest expense increased $2.8 million in the fourth quarter. The increase is primarily related to increases in salaries and benefits, occupancy, data processing, and the FDIC assessment and acquisition-related cost, all associated with the Houston Community transaction and integration. Total acquisition expense recognized during the quarter, including compensation-related expenses, totaled $1.8 million.

The provision for loan loss expense was $1.8 million for the quarter, an increase of $775,000 from the third quarter. The additional provision reflects increased loan growth compared to the prior quarter as well as a prudent increase in recognition of the current energy environment.

As it relates to loans, for the fourth quarter, organic loans held for investment grew 4.0% from September 30, 2014, or 15.8% on an annualized basis. Additionally, we added $194.5 million in loans through the Houston Community acquisition. The composition of the overall loan portfolio is comparable to the third quarter. C&I represented 21% of the portfolio.

As David mentioned, energy E&P outstandings at the end of the fourth quarter were $231.7 million, comprised of 28 borrowers. This represented 7.2% of the entire loan portfolio.

We have a strong energy credit policy with a major focus on engineering review, well and field diversity, and hedging requirements. All of our credits are secured and only one is classified as of December 31.

Approximately 90% of our facilities are self-originated and the portfolio is predominantly Texas-based with experienced management teams. 62% of the portfolio is oil and 38% is gas. Virtually all of our E&P customers have hedges in place through 2015, with the average hedge price for oil at $80 per barrel.

Oil field service-related balances represented an additional $26.8 million or 0.8% of total Bank outstandings as of December 31, 2014. These facilities were obtained through acquisitions and represent 30 borrowers with whom the acquired banks have long-standing relationships.

With respect to overall asset quality, total nonperforming assets represented 0.36% of total assets at December 31, 2014, compared to 0.33% of total assets at September 30, 2014, and 0.58% at December 31, 2013. The slight increase compared to the linked quarter was due to the closing of two branches acquired in the Houston Community transaction with a value of $2 million and which were transferred to other real estate in December.

They are currently being marketed for sale. This increase was partially offset by $1.4 million of sales of ORE in the fourth quarter. Additionally, total nonperforming loans represented 0.32% of total loans at December 31 compared to 0.29% at the end of September and 0.53% a year ago.

With respect to funding, total deposits were $3.25 billion at December 31, 2014, compared to $2.81 billion at September 30, 2014. $303 million of the increase was a result of the Houston Community acquisition.

Growing our core deposit base continues to be a focus while keeping our costs low. The average cost of interest-bearing deposits decreased to 0.45% for the quarter compared to 0.49% for the third quarter and decreased by 9 basis points compared to 0.54% during fourth quarter 2013. Our year-to-date rate on total deposits dropped 0.37%.

25.2% of our deposits are non-interest-bearing, up from 17.7% at the end of 2013. Total borrowings decreased by $96.2 million from September 30, 2014. We used some excess liquidity assumed in the Houston Community transaction to pay off $75 million in short-term advances that we acquired in the Bank of Houston transaction and two other longer-term advances to FHLB that matured during the quarter.

As it relates to capital, our tangible common equity to tangible assets ratio decreased to 7.07% at December 31, 2014, compared to 7.32% for the third quarter. Our total risk-weighted capital ratio decreased to 12.59% at December 31 compared to 13.36% as of September 30, 2014 due to organic growth in the Houston Community acquisition.

I would like to point out that tangible book value per share increased to $16.19 at December 31, 2014, compared to $15.89 at December 31, 2013, despite us having completed three acquisitions during the year.

That concludes my outline of the highlights from our financial statement. I will turn it back over to David.

Thanks, Michelle. As noted in my earlier remarks, we feel like we accomplished a lot during 2014. We continue to believe in our fundamental business, the strength of our asset quality, and our ability to continue to execute our growth strategies.

Our recently announced stock repurchase program gives us the ability to invest in our Company by purchasing our stock when it is advantageous to the Company and our shareholders.

Growth continues across our franchise. Our loan pipeline remains strong, even with the slowdown in energy lending. And we believe our organic loan growth rate in the fourth quarter is a good proxy for our 2015 expectation.

As has been mentioned, we continue to monitor our energy portfolio very carefully. We are confident in our staff and borrowers and feel that the portfolio is well structured and hedged. Our energy leadership has significant experience over many cycles and is proactively managing the portfolio.

There continue to be M&A discussions in Texas. I remain involved in conversations with banks located in the identified markets where we envision our growth. We intend to build out our footprint as opportunities arise.

That said, we will remain disciplined in our approach to acquisitions and we will only proceed with an acquisition when the valuation metrics are appropriate.

In conclusion, we know that there are challenges ahead, but we believe that our strong financial position, excellent credit quality, and commitment to our proven business model will yield positive results and enhance shareholder value.

With that said, we will open it to questions.

(Operator Instructions) Brady Gailey, KBW.

I was just wondering if you look at 2014 and if you look at the organic loan growth, it is around $425 million. How much of that was related to the energy portfolio growth?

That is a great question. My -- about $120 million, about 25% of it was related to energy growth.

Okay. And then it sounds like if we take the loan growth rate in Q4 of 16%, the organic loan growth, and put that -- you're basically saying that is a good run rate for 2015. I mean, that would kind of back in to about $500 million of loan growth.

So are you all -- how do you look at the energy portfolio into 2015? Do you think that will be -- have stable balances or will that still grow a little bit? Or will we see shrinkage?

That is obviously a great question. A lot of that depends, Brady, on prices of oil and a lot of assumptions. But as we think about it, we are thinking that the portfolio should be fairly stable here through the first half of the year. And then we will see as people -- opportunities to acquire assets and if our customers begin to make good, solid acquisitions, we will certainly be in the business of financing those.

We are committed to the energy business long term and so we are about building relationships and creating relationships. But we do not see a lot of growth in that portfolio. We also don't see a lot of runoff in that portfolio in the first half of the year. So as we think about it, kind of stable first half and then maybe with some opportunities to grow in select cases in the second half.

Okay. And then it seems like most of your energy customers are pretty well hedged this year, in 2015. How many of them are hedged once we get to 2016? Does that drop off pretty dramatically or are most of them still hedged in 2016 as well?

Yes. A large percentage of the hedges go away in the first half. They carry out pretty consistently into the first half of 2016, but they drop off pretty dramatically at that point.

Yes. Okay.

Brady, we have also seen some of the customers who have added hedges, even with the run up in the price the last couple of days, have added some hedges into 2016 as well.

Okay. Okay. And then lastly, if you look at where your stock is now at $32, it's at 2 times tangible, I mean, I remember about a year ago, it was at 3.5 to 4 times tangible.

Let's not exaggerate.

So how does that play into the -- I mean, you all have done a lot of great acquisitions since you have gone public, but with the currency now at two times tangible, how does that play into your excitement about doing acquisitions going forward?

Obviously, the math, when you work on the models and the math behind the deals, it gets more difficult, clearly, as the price comes down. We have -- it has been interesting. A lot of conversations going on across the state and a lot of -- I think a lot of sellers are concerned they don't want to miss this window, whatever the perceived window is.

And so a lot of price discovery, a lot of discussions like that going on. So it is probably too early to tell exactly how that is all going to shake out and what the deal level is going to be in the first half of the year.

But we clearly believe there is going to be deal activity this year. We think on a relative basis, we are still positioned quite well related to our competitors here in Texas and as well as those in surrounding states who want to be in Texas. So we think we are still in good shape and we are still optimistic about the opportunity to use our currency this year.

And as we noted in our press release and in our call a few minutes ago, we put the stock repurchase plan in place to give the Board some options and another tool. To the extent that if energy prices, oil prices were to fall off the table again here to a much lower level and there was pressure on Bank stocks, we want to be in a position to act accordingly and use the same type of analysis on our own stock as we do on other banks.

But we're -- I'm still cautiously optimistic about the year in M&A. I just think it is slow right now because people are just watching to see. There is uncertainty on the seller's part as well, as you might imagine, about the energy prices and what -- if they are going to take currency, be it in our Bank or any of the banks that have energy portfolios, they are cautious about, gosh, what if there is another dip in oil price and what is that going to do if I make a deal when prices are where they are today and they go down 10% or 20% more, is that -- do I really want to take that risk right now.

So we have seen the sellers just -- a lot of discussion, but cautious about when to pull the trigger.

Okay. Great, thanks for the color.

Matt Olney, Stephens.

Going back to your loan growth comments, you have obviously done a number of acquisitions over the last few years. And with that, sometimes you can acquire some loan or certain loan types that may not be strategic longer term.

So I'm trying to get a feel for are there any loan categories or loans that you have that may not be considered core or kind of strategic longer term that could be a headwind of that loan growth in 2015?

Good question, Matt. That is exactly right that when we make acquisitions, we generally try to buy banks that fit us culturally and from a lending standpoint. But invariably, as Michelle pointed out on the SBA portfolio we sold in the fourth quarter, that -- there are -- or third quarter, I guess, we sold it. There are certain segments at times of portfolios that we choose strategically not to keep.

That said, I think most of that is out of the way on both of the Houston banks that we acquired. The other two banks we acquired late 2013, early 2014 didn't have -- they are small enough, they didn't really move the needle. But there is not a significant amount of additional runoff that we expect here going into 2015.

As I mentioned earlier, we feel pretty good about having made all the conversions and gotten most of the cost saves out of even the Houston Community acquisition in the fourth quarter. We think we're going to see a good run rate here, both from an expense standpoint and a loan growth standpoint. We don't expect a lot of headwind from any lines of business we intend to exit.

Actually, Matt, it is Torry. We have actually seen on the Houston Community side some nice opportunities already come through our executive loan committee. So that deal closed in December -- I mean, in October. It converted in December and those guys are functioning well within the system. And again, some nice opportunities have come through.

Okay. That is great to hear. And then, on the core loan yields, can you give us a better idea of what types of coupons you have putting on with your organic loan growth over the last few months?

Yes. The floating rates tend to be prime base plus the quarter to 25 bps to 100 bps. And the floating rates 3 to 5 years in the 4.25% average range, so.

And is there any change that you can think of, David, over the last few quarters?

A little bit of pressure. If you went -- look at from third to fourth quarter, Matt, probably 10 bps, 20 bps additional pressure. But things seem to have leveled out here early in the first quarter. The pricing we are seeing, I would say, the last 60 days has been pretty steady. We haven't seen a lot of continued pressure there.

Okay, okay. All right, that's it for me. Thanks, guys.

Brad Milsaps, Sandler O'Neill.

Just to follow up on a NIM question, you guys did a good job of calling out the accretion income this quarter. And then it didn't sound like loan fees were maybe 2 basis points.

Just to tail off your comments on the loan yields you are getting on new production, what do you guys see for the NIM as you kind of move through the next few quarters? Looked like you were also sitting on a little bit higher liquidity than you have maybe previously, so just kind of curious your thoughts on putting that to work and how that plays out.

Michelle, would you?

Yes. There was some noise in our NIM this quarter, Brad. And as we talked about in the press release, we did have kind of outside accretion income.

We also had some significant prepayment penalties. That probably was 5 to 7 basis points. So we expect our NIM will drop in the 10 basis points range on a core basis going forward, first quarter.

Okay. So the 4 -- I think the 4.17% number you gave, that didn't include any of the prepayment penalties you just talked about?

Right. That is correct.

Okay. Great. No, that is very helpful. And then, on expenses, you guys back out the merger costs. But the last couple quarters, that has also included some bonus expense, I believe.

Can you talk about to the extent how recurring that piece of it might be? And then just how to think about expenses as we move into 2015. I know you probably have got some cost saves to still get out of Houston City.

You guys thinking about it more of on a pure efficiency ratio type rate or expenses to average assets? How are you thinking about those as you move through the year?

I think you are going to see we pretty much have all of our cost saves out going into 2015, as David talked about on the call. So I think we are going to see a little bit of benefit.

I wouldn't expect to see our noninterest expenses go down significantly, but they should be steady. We expect our efficiency ratio to continue to drop through 2015, closer to the low 50%s range.

And those bonuses that typically have paid in the acquisitions as a part of keeping the team together and all that, Brad, have all been paid for all the acquisitions. So we don't expect any of that expense going into 2015.

Okay. No, that is great. And then final question, David, just on capital. I know you have talked in the past about one measure you look at being kind of a 6.5% to 7% TCU ratio. You are on the very upper end of that at this point.

Based on your growth assumption that you guys are earning kind of a mid-teen ROT right now, it seems like you can fund yourself pretty well. But just kind of curious, any thoughts around capital and growth rate?

Yes. We see it the same way, Brad, that without any other acquisitions, without any significant stock repurchases, our earnings generate the capital we need to grow the Bank at the rate we see here for the near-term future. So with that said, we don't expect at this point any capital movement or any offerings or sub-debt or anything like that the first half of the year.

Great. Thank you.

Or in the foreseeable future, really.

Brett Rabatin, Sterne, Agee.

Wanted to -- most of my questions have been asked. I wanted to go back to the M&A question. And maybe you can just give a little color, David, around your thoughts about the relative geographies, Dallas versus Houston, going forward.

And within that, just kind of thinking about those two different MSAs, kind of how you are seeing -- maybe if you have any anecdotes, how you are seeing those two different markets react differently to kind of what has been going on with the declined oil prices.

No. From an M&A standpoint, we have not seen much difference in the conversations between Houston and Dallas/Fort Worth, as an example. Most of the opportunities, most of the banks in the size range that we are interested in -- say, $400 million to $500 million on the low side to $1.5 billion, $2 billion on the high end. Most of those banks are in Houston or Dallas/Fort Worth.

There are not as many opportunities as we have, I think, said before in Central Texas -- you know, Austin, San Antonio. While there are some, it is just by pure volume. The biggest number would be in Houston and then followed in Dallas/Fort Worth.

But no difference in those discussions. Everyone is -- even if it is a Dallas/Fort Worth bank, they still obviously understand what has happened with Texas bank stocks relative to their energy exposure. And so it is still the same conversation with the north Texas banks as it is with the south Texas banks.

Okay. And would the preference be to continue to build in Houston -- I mean, obviously, there is more banks in Houston that are in that size range.

No. I wouldn't say that at this point. We are very pleased with our Houston presence. We think we have got a good footprint there. We will certainly continue to look at good opportunities there.

But all things being equal, we would love to continue to build out our Dallas/Fort Worth footprint as well. And so I would say equal weight in terms of likelihood of a deal in Dallas/Fort Worth versus Houston.

Okay. And then just the other thing I wanted to ask was just around the loan growth guidance. Was wondering if -- kind of thinking about you moving that concentration in C&I up, which has been happening, would it make sense to expect C&I to be a bigger piece of the loan growth in 2015 and you guys continue to have stronger growth in the C&I book on a relative basis?

Yes. Obviously, the headwind there will be a lot of the growth from 10% when we went public to 21% now has been on the energy portfolio. But -- which we said we expect that to be flat in the first half.

But we do expect just the core C&I non-energy book to grow and increase as a percentage. We hired three new C&I lenders in the fourth quarter, so I think that would be, to your point, Brett, that we are going to see some good opportunities. And those lenders already have had a good start to the year.

Okay, great. Thanks for all the color.

John Pancari, Evercore ISI.

It is actually Steve Moss for John. Just circling back to energy here, wondering what your allocated reserves are to the energy portfolio?

We don't break it down by loan type, Steve, but we have got, we believe, strong reserves at this point against our entire portfolio. Obviously, purchase accounting affects the optics of our numbers, given all the acquisitions we have done in some specific reserves and mark to market that we have done on all the loans that we have booked.

Our total -- this might be helpful. Our total reserve to originated loans, which is one of the things we really look at, is about just a hair under 1%. About 90 bps of reserve to our total portfolio.

We did add -- and I think we mentioned this in the call earlier. We did add some additional reserve in the fourth quarter, focused on the energy and uncertainty there. And we will continue to watch that here in the quarters ahead. But right now, we think we are appropriately reserved for our total portfolio and especially for energy.

Okay. Could you give how much the amount was for energy in the provision this quarter? If you could break it out.

I think we put in an additional just under $1 million or so over and above what it took to grow. Michelle, if you could --

I think that -- again, as David said, we don't -- our calculation is pretty complicated, so there is quite a few qualitative factors that are used, with just the change in energy prices being one of those.

So I am not sure we can give you a quantification of that exactly. It is probably around, I would guess, $300,000 additional just for qualitative factors on energy. There are no specific reserves on any energy loans as of year end.

And again, we increased our reserve by $775,000 for the quarter.

Yes. That was the number I was thinking of, Steve, is we put in an additional $700,000, almost $800,000 over and above what we put in in the third quarter. And as Michelle said, in the formula, I think the changing oil prices actually accounted for an additional $300,000, $350,000.

But we look at the formula, obviously, and that drives a lot of it. But also just we take a look and try to use some common sense as well to go this is a time of uncertainty. And so we had a strong earnings quarter and we felt like we wanted to acknowledge the fact that there is more risk than there was three months ago or six months ago in the energy portfolio.

Okay. That's helpful. And then with regard to the margin guidance, you indicated in the first quarter expect the margin to compress 10 basis points. If I -- am I thinking about it correctly that it sounds like it is three to five basis points, perhaps, in terms of quarterly margin compression, if I exclude the amount of benefit from the prepayment fees?

Well, I mean, like we said earlier, I think our margin will drop up to 10 basis points on a core basis for first quarter.

From the 4.17%.

Yes. From the 4.17%.

Right. But then beyond the first quarter, would you expect like three to five basis points going?

That is probably -- I would say that is a little high. It is probably going to be closer to two basis points, I would guess, for the rest of the year.

Okay.

You know, we have had that benefit of, in the last quarter, with Houston Community coming on board and they have a high rate on their loans, which will tend to subside over time.

Great. All right, thank you very much.

(Operator Instructions) John Moran, Macquarie.

Just wanted to follow back up on the buyback. Have you guys been active in there since announcing it? And is there a level where you get more aggressive in terms of deploying capital that way?

We have been under the blackout because we haven't announced earnings. So the Company has to play by the same rules that the executives and Board members and insiders do. So we have not been able to use the stock repurchase at all up until this point. And so it would be, I guess, this Friday, 72 hours after today, before we could be in the market active with that.

Yes. We have models and we have been doing a lot of work on that, John. I don't think there is a specific price. I think a lot of it would depend on momentum one way or the other and kind of what is going on in the macro economy that might be affecting our price.

But we will look at it and we will be very disciplined with it, given our capital ratio, and Brad asked about that earlier. Given that our tangible equity capital ratio is down around 7% now, it is not my intention or my desire to give back capital that we have obtained to grow.

So our first choice is to continue to grow the Bank and deploy the capital that way, but as we have seen in the last 90 days, 180 days, that isn't always in our control. So we can execute our strategy, but the market treats the stock -- we are a part of a group of Texas banks and we get treated accordingly.

But we know our Company and we are very confident in our ability to grow and execute our strategy. So there is a price level in there where we think our best expenditure of capital would be to buyback our own stock.

Okay. Got it. And then the other sort of strategy question that I had was -- it has come up on other quarterly calls. But loans to deposits, that ratio kind of ticked down a little bit this quarter with the acquisition --

Right.

Just under 100%. Could you talk a little bit about the deposit strategy and how that might tie into your thoughts on M&A?

Yes. Torrey's team in treasury has been doing a good job. We hired another senior treasury officer in the fourth quarter as well. And so we have staffed up our treasury, really, from Houston to Central Texas to North Texas well. And that has been a real focus.

As our C&I book as increased, that is also enabled a lot of strong core deposit growth. You have seen our DDA base continue to grow and non-interest-bearing DDA is over 25% at the end of the year. And so we will continue to see some help there.

As you pointed out, the acquisition helped Houston Community was about 70% loan to deposit ratio, I believe, when we closed. And we continue -- part of the M&A discussion we are having is with some banks that have very low loan to deposit ratios and very strong core deposit franchises, in and around major urban areas.

So that is a lever we will continue to look at. But we do -- are optimistic based upon the fourth quarter and early this year that we are going to be able to grow our core deposits as we grow our loans.

Perfect. Thanks. And then one quick follow-up on the energy stuff. You guys, I think, in the prepared remarks had mentioned that obviously, the price deck is dynamic and you are keeping an eye on things.

We had heard from really only one of the larger competitors in banks that is in the space out there, they are actually initiating some interim redeterminations and kind of getting in t line for additional collateral. Are you guys doing that with any of your borrowers or is it kind of more of a sort of wait and see approach? And have you heard of others starting to get in front of the April redetermination?

That is a very insightful question. Glad you asked it, John, because I think our portfolio is a bit unique and we think in a positive way that we have got, as I mentioned, all the information -- 30 credits and 28 relationships.

Of those 28 relationships, 9 are syndicated credits we agent. 6 of those 9 credits were participants in 3 purchase credits and we purchased those from [Frosp], Prosperity, and Legacy. But the other 25 relationships, 6 of which, as I mentioned, are syndications or club credits that we are the lead on, and then the other 19 relationships that are generally under $20 million each, we control. So as the only lender -- sole senior lender.

So we have a lot of visibility and a lot of ability to do these price redeterminations. We have implemented new decks on a monthly basis here the last few months as prices have fallen so dramatically. Before that, it was generally quarterly.

But with a constant review and as we planned when prices started falling, we started changing our price decks down immediately. And then we are able to go to our borrowers and our credit guys are doing a terrific job. Our senior energy leadership is doing a terrific job of talking to our borrowers on a daily basis.

We are doing borrowing base redeterminations. We are talking about a number of our borrowers are selling off non-core assets and reducing leverage. We were able to go in and get new engineering updated, a look at the engineering that we had, based upon current price decks, for almost all the credits that were the most leveraged of the credits.

So obviously, that is where you look first, is where companies have the most debt for their balance sheet or in relation to their cash flows. And we have been very active, really, since late in the third quarter managing those on a day in and day out basis.

And it really just fits. It is a cultural thing. There is not any virtue, necessarily, one way or the other, but our culture, having grown up from a smaller community bank, is that we want to know our borrowers. We want to have that relationship and we want to be able to pick up the phone or go across town and see them.

And most -- the vast majority of the assets that we have got are in Texas, in the Permian and the Eagle Ford shale areas. And our borrowers are almost all in Texas or mostly in Texas. And experienced teams that we have had relationships with our senior energy lenders have had relationships with, in many cases, for 10 years-plus.

So we feel great about where we are relative to the fact that we understand there is exposure. We understand there is a lot of work to do, but our guys are doing the work. And in 25 of the 28 credits, we are not waiting on someone else to give us information or to wait for the next borrowing base determination. We are working those credits ourselves on a daily basis.

That is very, very helpful. Thank you very much, guys.

Joe [Steven], [Steven] Capital.

First of all, good quarter.

Thank you, Joe. Good morning. How are things in St. Louis?

Just fine. No more fundamental questions. I will ask you a little bit more of a cultural of a question. With the transactions you guys have done and whenever you guys do a deal, I am sure there are other banks sort of trying to target some of your key people. And you guys are obviously trying to keep people.

How have you -- have you lost any, let's say, key people from your transactions or from the core organization through sort of this pretty -- very healthy expansion process you guys have been on? And that's it. Thanks, guys.

Great. Thanks, Joe. We have not lost anyone from the organizations that we have acquired. We have done a good job, I think, of creating agreements with the key rainmakers, if you will, of business developers in each organization.

We have lost -- and this has been a lesson for us. We have lost a couple of people from some of our early smaller deals in Dallas. We have lost a couple of people that we had under agreement and they stayed for a transition period, but the change from $150 million bank rolling into a $4 billion bank and the credit process and the expectations for writing your credits up and documenting and all that has been difficult, I think, on some bankers that came over from very small community banks.

The other side of that question, I think, is in this rapid expansion, have we lost any of our other key people? We lost one of our location CEOs down in the Austin area in 2014. We lost a young lender here in North Texas just in the last couple of weeks. Two people who -- in both of those cases, they have gone over to banks where there was a more senior position and a lot more compensation.

And there are some times when good folks, but it is just there is an opportunity in another company that they believe is better than the opportunity they have with us. That said, we rarely lose people that we want -- that we want to keep and we work hard at that.

One of our cultural things, to your question, Joe, is that the vast majority of our lenders and senior producing lenders are shareholders, either via their own purchases or via our grant program. And so we have a lot of buy in and a lot of belief in where we are going with the Company. And so we have been able to hang on to our talent. And we feel very fortunate about that.

Okay. Thank you. Good to hear.

Thank you. That concludes our question and answer session for today. I would like to turn the conference back to management for any closing comments.

Thank you. Appreciate it and we feel like we had a great quarter. Appreciate everyone's attention on the call today. We are optimistic about 2015 and Texas. And I know that is not necessarily a popular sentiment, but we feel great about where we are going and we are going to stick to the things we control, which is growing a great bank. And appreciate your support. Hope everyone has a great day. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a good day.