Prosperity Bancshares Inc
NYSE:PB
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Prosperity Bancshares Inc
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Good morning, and welcome to the Prosperity Bancshares Incorporated Fourth Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note today’s event is being recorded.
I would now like to turn the conference over to Charlotte Rasche. Please go ahead.
Thank you. Good morning, ladies and gentlemen. And welcome to Prosperity Bancshares’ Fourth Quarter 2017 Earnings Conference Call. This call is being broadcast live over the Internet at www.prosperitybankusa.com, and will be available for replay at the same location for the next two weeks.
I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bancshares. And here with me today is David Zalman, Chairman and Chief Executive Officer; H.E. Tim Timanus Jr., Vice Chairman; David Hollaway, Chief Financial Officer; Eddie Safady, President; Randy Hester, Chief Lending Officer; Mike Epps, EVP for Financial Operations and Administration; Merle Karnes, Chief Credit Officer; and Bob Benter, Executive Vice President.
David Zalman will lead off with a review of the highlights for the recent quarter. He will be followed by David Hollaway, who will review some of our recent financial statistics, and Tim Timanus, who will discuss our lending activities, including asset quality. Finally, we will open the call for questions. During the call, interested parties may participate live by following the instructions that will be provided by our call moderator, Brian.
Before we begin, let me make the usual disclaimers. Certain of the matters discussed in this presentation may constitute forward-looking statements for purposes of the federal securities laws. And as such, may involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Prosperity Bancshares to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
Additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bancshares’ filings with the Securities and Exchange Commission, including Forms 10-Q and 10-K, and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements.
Now let me turn the call over to David Zalman.
Thank you, Charlotte. I would like to welcome and thank everyone for listening to our fourth quarter 2017 conference call. For the year-ended December 31, 2017, we had an impressive annualized return on average tangible common equity of 15.06% and on average assets, of 1.22%.
Our net income was $272 million for the third year-ending December 31, 2017 compared with $274 million for the same period in 2016. Net income per diluted common share was $392 million for the year-ending December 31, 2017 compared with $394 million for the same period in 2016. The income was affected in 2017 by a number of things. First, there was a decrease in loan discount accretion and non-core earnings the way we look at it of $17 million in 2017 compared with 2016. We also made an additional provision for loan losses of %3 million in the third quarter related to Hurricane Harvey and also lost income from the waiver of late charges and over drafting during and for specified periods after the storm. Lastly, income was affected by a tax charge of $1.4 million relating to the tax cuts and jobs acts.
On loans, loans at December 31, 2017 were $10.21 billion, an increase of $398 million or 4.1% compared with $9.622 billion at December 31, 2016.
Our linked quarter loans increased $109 million or 1.1%, 4.4% annualized from the $9.911 billion at September 30, 2017. Our customers are optimistic because of the reduced regulatory restrictions and the expected positive financial benefit from the reduced tax rates. Business activity is robust and business owners have been actively pursuing new opportunities. Our asset quality in 2017, we saw a 22.5% decrease in non-performing assets compared with our level at December 31, 2016.
Our non-performing assets totaled $37.4 million or 19 basis points of quarterly average interest earning assets at December 31, 2017 compared with $48 million or 25 basis points of quarterly average interest earning assets at December 31, 2016, and $45.8 million or 24 basis points of quarterly average earning assets at September 30, 2017.
Our deposits at December 31, 2017 were $17.8 billion, an increase of $514 million or 3% compared with $17.3 billion at December 31, 2016. Our linked-quarter deposits increased $913 million or 5.4% from $16.900 billion at September 30, 2017. As mentioned in pervious earnings calls, our deposits generally increase significantly in the fourth quarter. The increase to do primarily to municipalities storm and ranch customers, we’ve received payment from their crops and business owners and others preparing to pay their estimated taxes coming due. More significant is the growth we experienced in our non-interest bearing deposits. Our non-interest bearing deposits increased $432 million or 8.3% in 2017 compared with 2016.
With regard to acquisitions, as we've indicated in prior quarters, we continue to have active conversations with other bankers regarding potential acquisition opportunities. We remain ready to enter into a deal when it is right for all parties, and is appropriately accretive to our existing shareholders.
With regard to the economy, Texas survived hurricane Harvey and bounced back to a robust growth of 2.6%, adding 286,000 jobs through November of 2017. The unemployment rate in Texas of 3.8% is the lowest since 1970, and higher oil prices continue to improve the energy sector. Oklahoma's economy experienced a solid recovery in 2017. The state's energy sector led the initial stages in the recovery, but most other sectors also improved in 2017. Oklahoma's unemployment rate in November of 2017was 4.2%, down seven tenths of a percent from 2016. The outlook in Oklahoma for 2018 is positive. We were excited going into the 2018. We expect employment growth to shift into high gear in 2018 with healthy manufacturing and service sectors.
In closing, on December 22, 2017, the Tax Cuts and Jobs Act was enacted which reduces the corporate tax rate from 35% to 21%. The act is expected to allow companies, such as Prosperity, to be more competitive, improve the lives of their associates and increase shareholder value. At Prosperity, we communicate to our associates that they will be rewarded when the company does well.
Accordingly, given the expected financial benefits of the lower tax rate, we are pleased to announce that we will provide the borrowing to all associates at Prosperity Bank, other than members of the Bank’s executive committee whose compensation is reviewed and approved by Prosperity's compensation committee. We’re giving a 5% salary or pay rate increase, effective March 1, 2018 and an increase in the pay rate for all associates to amendment of $11 per hour. We were excited that we were able to reward our associates for the many contributions they have made to Prosperity success. I would also like to thank our whole team once again for a job well done. Thanks again for your support of our company.
Let me turn over our discussion to David Hollaway, our Chief Financial Officer, to discuss some of the specific financial results we achieved. Dave?
Thank you, David. Net interest income before provision for credit losses for the three months ended December 31, 2017, was $156 million compared to $153.8 million for the three months ended December 31, 2016. This change was impacted by a decrease in loan discount accretion of $2.8 million. For the full year 2017, net interest income was $616.9 million compared to $632.6 million for 2016. Again, this change was impacted by a decrease in the loan discount accretion of $17.1 million. I would note that going forward we project loan discount accretion to run about $2 million to $2.5 million per quarter.
The net interest margin on a tax-equivalent basis was 3.20% for the quarter ended December 31, 2017 compared to 3.26% for the same period in 2016, and 3.22% for the quarter ended September 30, 2017. Excluding purchase accounting adjustments, the net interest margin on a tax-equivalent basis for the quarter ended December 31, 2017 was 3.12% compared to 3.12% for the same period in ’16 and 3.07% for the quarter ended September 30, 2017.
Non-interest income was $29.2 million for the three months ended December 31, 2017 compared to $29.5 million for the same period in 2016. For the full-year 2017, non-interest income was $116.6 million compared to $118.4 million for the full-year 2016. Non-interest expense for the three months ended December 31, 2017, was $81.1 million compared to $79.2 million for the same period in 2016. For the full-year 2017, non-interest expense was $313.1 million compared to $318.4 million for 2016.
The fourth quarter 2017 expense included $3 million write-down of other real estate, which took the quarterly expense out of our predicted range of $78 million to $80 million. And I would that because of the positive impact from the Tax Cuts and Job Act for 2018, we’ll be reinvesting some of that savings back into the company, which will move our quarterly projected non-interest expense total to approximately $81 million per quarter.
The efficiency ratio was 43.8% for the three months ended December 31, 2017 compared to 43.3% for the same period last year and 41.9% for the three months ended September 30, 2017. For the full year 2017, the efficiency ratio was 42.8% compared to 42.5% in 2016. The bond portfolio metrics at 12/31/17 showed a weighted average life of 3.97 years, an effective duration of 3.6 years and projected annual cash flows of approximately $1.6 billion. Finally, our effective tax rate for 2018 is projected to be approximately 21%.
And with that, let me turn over the presentation to Tim Timanus for some detail on loans and asset quality. Tim?
Thank you, Mr. Hollaway. Our non-performing assets at quarter-end December 31, 2017 totaled $37.455 million or 37 basis points of loans and other real estate, as compared to $45.823 million or 46 basis points at the end of the third quarter 2017. This represents an 18.26% decrease from September 30, 2017. The December 31, 2017, non-performing asset total was comprised of $26,268,000 in loans, $35,000 in repossessed assets and $11.152 million in other real estate. Of the $37.455 million in non-performing assets, $14.150 million or 38% are energy credits.
This is broken down between $8.861 million production credits and $5.259 million service company credits. Since December 31, 2017, $522,000 in other real estate has been sold and $588,000 in loans have been removed from the non-performing assets list. This is a total of $1.110 million in December 31, 2017 non-performing assets that have been removed.
Net charge-offs for the three months ended December 31, 2017, were $4.771 million compared to net charge-offs of $3.871 million for the three months ended September 30, 2017. $2 million was added to the allowance for credit losses during the quarter ended December 31, 2017 compared to $6.900 million for the quarter ended September 30, 2017. The average monthly new loan production for the quarter ended December 31, 2017, was $314 million compared to $241 million for the quarter ended September 30, 2017. This is a 30% increase.
Loans outstanding at December 31, 2017, were $10.21 billion compared to $9.911 billion at September 30, 2017, representing 4.4% annualized growth. The December 31, 2017 loan total is made up of 40% fixed rate loans, 36% floating rate loans and 24% resetting at specific intervals, unchanged from September 30, 2017.
I'll now turn it over to Charlotte Rasche.
Thank you, Tim. At this time, we are prepared to answer your questions. Brian, can you please assist us with questions?
We’ll now begin the question-and-answer session [Operator Instructions]. Our first question comes from Dave Rochester with Deutsche Bank. Please go ahead.
On expenses, appreciated the updated guidance of $81 million there. Can you just talk about some of the things we’ll be targeting for additional investment outside of the salary increases that you mentioned?
It will be more of a general thing. I don’t think it will be anything major; it will be, as we mentioned before, some salaries; it will be a few things addressing some of our building needs; it will be some things revolving IT, but nothing so significant; it would just be small amounts that we’ll add up to the guidance that we gave you.
And just switching to the NIM, you guys have some nice upside this quarter ex-accretion. And it look like you got a little bit of help from stable cost of deposits and the run-off to some borrowings, which is good to see. Have you had to raise deposit rates much more post the rate hike, and how are you thinking about the NIM for the next quarter?
We did raise rates a little bit. Mike, do you remember how much we've raised rates this time on CDs. I mean it was…
We raised it on a few select CDs, total of perhaps 10 basis points was the most we raised and we didn’t do -- did very little on the now accounts or money market accounts.
Yes, I don’t think we did much on the money market and now accounts did raise CDs, maybe 10 basis points to 15 basis points, but not a whole lot. I mean, if we really want to -- if you are really shopping for a CD right, there is a lot of deals out there right now that we’re not there with.
And I think on regards to the margin, we look over the next few quarters just with that the way everything is setting up, it looks good. It will have a stable margin and maybe modestly positive. But again, it stretch up the way the balance sheet did here in the fourth quarter and with rates going up, I think that's a very positive thing for us.
And where are you guys seeing securities reinvestment rates these days?
That’s the good news today. The tenure is finally moving in and the product that we buy were probably getting around 2.7% or little bit better right now.
And how about new money yields on the loan side, where loan yields coming in?
I would say, we're trying to shoot closer to the 4% to 5%, sometimes when the things becomes very competitive, we may drop down a little bit. But we're still shooting around 4.75% to 5% base in here.
And I’d say, if you don’t average, you’re at 4.80%, 4.85% easily.
And just one last one if I could on M&A, I appreciate your comments there. I was just wondering if you're feeling any better about bank valuations as you look for potential opportunities out there, just given tax reform and the upward earnings provisions that we're seeing in the space. I think you commented that some potential opportunities we're trading inline we'll take out valuations. So just curious if you’d updated that thought at this point.
I would say, Dave, that every deal is different. We look at some smaller deals at their end market. But then again as we look at the bigger deals, as mentioned earlier, a lot of the deals they are trading, I think the deals that you would look that are doing probably on a larger scale. There may be some upside, especially with the new tax fee and everything. But for the most part, it’s really makes two taking -- two things in making one thing better. So I mean both sides have to look at what to do for both sides and that’s the deals we're looking at right now. I mean there is -- always on a take at, you can’t say there’s not going to be some upside. But for the most part, we all know that prices are pretty high right now and two deals together, especially on a larger scale, it has to make sense when it improves both banks basically.
Next question comes from Ebrahim Poonawala with Bank of America Merrill Lynch. Please go ahead.
I was wondering if you can just touch upon loan growth. Obviously, last year the hurricane derailed some of the growth in the third quarter. It seems like production volumes were pretty strong in the fourth quarter. How we're thinking about loan growth in '18 relative to like 4% to 6% outlook we had for '17 a year ago?
I think what we're looking at right now, and Tim may want to jump in and give you just some what we're doing and what production we're doing. But we're shooting between 5% and 6% for 2018 on loan growth. And again, we had a very strong fourth quarter, some bigger loans that we approved, that might not have gotten funding yet. So, on the other hand, January always the first couple of weeks, its real code and banks slowed down. So we still feel pretty good that with the economy is strong as it is and all of our customers, I would say, for the majority of them really I think, we see animal spirits out there right now. So we're hoping with job increases and people having more money in their pockets that people going to be willing to do more and we're hoping for around 5% or 6% growth. Tim, do you want to jump in?
That’s exactly right. I mean, we see reason for optimism on loan growth. There is just nothing that we see out there that appears to be negative in terms of loan growth. We have some loans that we've approved that we're being told by the customers we're going to fund. You never know until it happens, but we’ve been told that we are. And those have yet to fund. So we feel like to pipeline is good. Our lenders are out there working hard. They are brining business in. So we are optimistic about that.
And just a follow-up on the expense guide on the $81 million, Dave. Is that $81 million, should we view that as first quarter expense run rate and from that on that incrementally goes up as full quarter impact of the wage increase takes effect in 2Q? Or is $81 million where you expected to bounce around for all of 2018?
Yes, I think, we’re looking at it as a more consistent where it should be around $81 million for each quarter going forward.
And any thoughts on the $3 million we reserved for the Hurricane last quarter, any chance that comes back in the next quarter or two?
I think it's probably premature to say that. I mean we haven't seen the losses and again I think we said that when we did this that in the prior hurricanes, we didn’t see losses. We’re still not seeing the losses. But again, I don’t know that it ever hurts to have money, extra money and provision for loan loss…
The model we drive that, but I would also think if we continue to have that significant loan growth that model will account for some of that problem versus bringing it back.
That’s a good point. That's right. It will be absorbed, the growth will pick it in.
And Dave, you mentioned on M&A in terms of the larger deals, both parties need to come to the table. When you think about those deals, do you see opportunities in Texas, Oklahoma? Or do you think you need to think beyond your footprint when you’re looking at larger size deals today, given what's out there in terms of possible merger partners?
Again, we've always said that Texas is our primary market and Oklahoma is our primary market. On the other hand, we’re not opposed -- once you go out of state, it's not that big of a deal. So we’re looking at deals in Texas, we’re looking at deals in surrounding sites around us, also it's not just Texas or Oklahoma, we're looking at another states as well.
The next question comes from Brady Gailey with KBW. Please go ahead.
So the 5% buyback authorization that you all now class, should we read that as just re-upping a previous plan that expired. Or you guys seriously thinking about buying back stock, just given the higher capital ratios that are coming this year with the lower tax rate?
Again, our capital is building and people ask us about that. But primarily the reason we put the stock purchase plan in place is a couple of years ago when everybody thought that Texas is going to fall into the Gulf of Mexico with oil prices going down, we weren’t ready and it took us a while to get ready. So that we're still just getting ready that if something ever happens that we have it all in place, and we can move real quickly. Last time, it took us a while by the time we started buying. We missed out on a lot of opportunity, because our stock price went down. But our goal and our objective and our mission is always been the same. We really don’t want to -- we want to use our money and our excess capital to grow the bank, and to buy other banks that's what we’re still looking for.
And then I know you all talked about it, but funding cost really -- the increase in 2017 was fairly low, only up about 10 basis points. Do you think you will see more pressure to increase funding cost as we continue to progress in 2018?
I think the more interest rates that you have. I’ve never seen the beta that we're using right now. I mean with interest rates that have gone up as much as they have and us only going to may be 10 basis points on money market and some stuff like that, kind of a little unusual, I think as interest rates go up and if they are core increases this year, you’ll see a higher beta for the deposit. You will have to go up on some of that so.
But again, I think a lot of that’s going to be -- we’re excited when we see our reinvestments of loans and bonds. We’re getting a much better right with on the books right now. So all-in-all, I think that looks pretty good. But to answer your question, yes, I think we’ll increase faster as more interest rates come on board.
Our next question comes from Ken Zerbe with Morgan Stanley. Please go ahead.
Just in terms of the purchase accounting accretion, I heard right it’s about $2.5 million this quarter. Last quarter, the guidance was closer to $4 million. Can you just tell what the difference was, what drove that for persistent downward accretion? Thanks.
I think, Ken, it's just the nature of the beast. I mean this is all -- this is set amount that is loans, cash flows and pay-off. This comes back to us in terms of accretion and we've gotten to a point now where the remaining balance is not that material. And so the income that you get back is tracking cash flow, and I'm assuming we haven't looked at it at loan level, but these loans probably have longer maturities and it’s just beginning to slow down dramatically for us. And I would just think we would run $4 million a quarter, going forward, I think would be overly optimistic. There’s only about $20 million of the actual discount accretion, yes its $20 million on the book. So I mean, if you’re running $5 million, it’d be gone pretty quickly. But it has slowed down just based on cash flow, that’s the mathematics.
And Ken, we’ve said that accretion accounting is brutal accounting to begin with. I mean, it’s not really core -- it's not core earnings. And really I think when you’re looking at a bank, if they’re growing earnings organically you have to take those numbers out sometimes. And I think we’ve done a pretty good job growing our bank organically when you exclude those -- the accretion number, in my opinion. Even if we bought another bank, and we will one day, we’re pretty well committed that we're breaking out when we report on the income statement, what's accretion and what's core income. Because I think there are two -- to make long-term decisions based on accretion income, in my opinion, is not very prudent for people to buy base, a stop on accretion number is just not prudent in my opinion.
And then last question. Just in terms of technology, I mean I’ll admit, it’s been a long time in Texas, so I don’t know you're like your banks technology from a consumer aspect, certainly not from business aspect. You did mentioned you spent a little more on IT as part of the $81 million expense run rate. But how do you more broadly feel about your where you stand from a tech, mobile, online platform? And does that system or that user interface need to be improved in any meaningful way?
I need to set you down with our Head of IT geeks, because it’s a fight every day. We spent probably more money on technology than anything else right now, sometimes its $500,000 to $600,000 a month. But to answer to your question is, yes we feel technology is everything in banking in today's world. You're seeing more and more stuff, especially younger people millennials leaning more toward technology. So you have to keep up with it. We’ve entered into some new contracts that provide us even greater technology with regard to -- debit cards to alerts to getting alerts even when you’re buying something. And we’re really staying on top of it. I mean, Dave do you…
It's absolutely right. We have to stay on the cutting edge of technology, in those words, we made some of those investment decisions a year ago that are already in play, and we started making sure that we come up to speed on the mobile applications, the peer-to-peer payments, so when you want to pay somebody some money as you see on the advertising on TV, all that those or things that as David said, we entered into new agreements and had begun to already make those investments, but that's been 12 months ago. So we’ll continue to make those investments as we’re going forward.
I think going forward it’s some of the most important banks any bank can do. I mean bank says you build new banks going forward. People still want a banking center. I mean, it's kind of like the Apple Stores when something really goes wrong, they want to be able to walk into it but more and more people are doing more and more online all the time.
But it sounds like there is no big expense spend, or technology spend on the way. It's just something you’re constantly doing.
We're constantly doing it, it’s one of our biggest expense as always.
Our next question comes from Brad Milsaps with Sander O' Neill. Please go ahead.
This is actually Peter Ruiz on for Brad. Most of my questions have already been answered. Just maybe if you guys give a little bit of color around the two C&I credit that there were charge off this quarter and anything systemic there or just what were the moving parts?
It was just oil and gas related to -- the company is finally sold from assets and we’re probably valued less than they were when the loans originally made as an acquired -- a couple of acquired loans. So it's just still clean up of an acquisition.
Yes, I think that all of our stuff is not new stuff. I mean, we made an acquisition and again the acquisition had a lot of oil and gas stuff. And again, we've been nursing it for a long time and I think finally some of the stuff is just coming to a close basically. And then we had a ORE charge to the -- and it was another participation that one of the banks we bought have with another bank, and it got reappraised and we wrote that down too. So I think it's just -- I think it's really just some clean-up and that's most that I can say about it really.
And maybe just back to M&A asking a different way. Have seller expectations changed in any way over the last six months as multiples have expanded? Both on the private and the public, have seller expectations changed at all?
Yes, they want more. It's really hard right now, because a year ago or longer back, there was a real bank staffs were suffering. And so there was a ton of regulatory burden that was put on banks, and so all of those dynamics were working in there. Today, with regulatory environment, the new administration, it looks like we really have a friendly business partner. So I think most bankers are feeling better where they’re at, most of their stock prices are -- they are very high. We probably -- if a bank is not publicly traded, you might be able to do a little bit better but the stock prices are -- it's just high and right now. You’re going to pay if you’re buying a bank right now you’re going to be on the higher side right now.
The next question comes from Peter Winter with Wedbush Securities. Please go ahead.
I want to just follow up on the core margin outlook, where you said it was stable to slightly up. And I'm just thinking with the outlook for better loan growth and better yields on securities reinvestment. Why it want to be stronger going forward?
Peter, its Dave Hollaway. I think it will be. But again remember our balance sheet, to take full advantage of this, it’s just takes us a little while to get all that cash flow reinvest back in at these higher rates. So it’s just mathematics. I mean if the cash flow coming off the -- if we're putting it back in the securities portfolio, you’re getting $1.5 billion cash flow coming back that you will reinvest. Well, this doesn’t change overnight it takes it a little while to get there, and the same thing with the loans. I mean, I think the average life of the loan portfolio, somebody correct if I am wrong, but that’s three years, three and half years so the cash flow coming off of that is also significant. So all positive dynamics, but it's just not like having a loan -- that you’re 100% up everything is based on prime and all repricing the next day, our just take some time. But that’s been our story.
We’ve always use the analogy, Peter, that it's like trying to turn a clear Merry around out in the park and lot, it just doesn’t happen overnight, it takes a period of time. Again, if more of the loans were just floating constantly, then it would -- looking forward, 18 months two year down the row, it looks extremely positive for us. And I think that it just takes us longer to get there.
And if I could just ask a follow up question. Could you just give some guidance in terms of the outlook on fee income in ’18?
I guess, I could take a shot at that. I don’t know that we would see anything significant. We’ve been running, it’s on off the top of my head. I think, we're running about $29 million a quarter. I think that will increase a little bit. I don’t know if it would be significant. We're making some major investments in terms of fee income. If you’re looking at the detail numbers, you see that our trust area income has increased nicely and you can see that we're beginning to turn the corner on our other lines of business being, what we call, brokerage and I guess we're still calling it some home loans in our mortgage area. We’ve had to make some changes in terms of -- because of the regulatory expectations. But now we’ve come over that hurdle, those will probably tend to go up. But I want to predict anything significant. I mean, David do you want to make a call on that.
Maybe Adidas is using charge of that.
I think what David said is accurate. We've had some major rebranding of our platforms to be more efficient and that took away from some of the production that we’ve historically had. But we’re re-doing and hoping to see that to stabilize or even increase into the latter part of the year.
We’ve really gone to more of a platform it’s more centralized for everybody that’s just follow on platform and more automated. So hopefully, we’ll see some good stuff from that.
We continue to evaluate our service charges and hopefully we’ll hover on in that area too.
Next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.
Wanted to ask -- just looking at deposits, you talked about how the fourth quarter is usually a little stronger and definitely was this quarter maybe more so than usual. Can you give us any color on what you’re expecting for deposits and in one queue the interest bearing DDA that's drew in 4Q, if that was mostly concentrated. And as well deposits or maybe a little more color around the growth in the fourth quarter?
Well, there is really not -- there is a non-interest deposits, there is no even small deposits in that. So basically that came from probably a couple of banks in our loan portfolio growing new customers. And we thinking and again we don’t have a hard number on this, but some of the insurance money that came in from Hurricane Harvey, we said our deposits would increase. And Dave, you want to take a shot at $100 million, we just don’t know on…
Just trying to estimate it, I think as David is right, it could be in that $100 million range whether it's related to the Hurricane and what they are doing and then some of this is going to be related to the municipalities, not the non-interest bearing but just overall if you’re looking that way. And then part of it's just your general business, the relationships that we brought to the table.
And I think with the municipalities, generally that does run up over a period of time even we had a better handle on it this year, we lost a lot of municipal money throughout the year because we just didn’t pay the rates that some of the investment rates, they could get another place for themselves a lot of that money. Normally, we try on the municipalities already just have their day-to-day operating accounts that they use their money for checking and paying employees and stuff like that. But because rates were so low perceptual on period of time, they started building up. It didn’t really make a difference, so they put it here or some investment from and they left a lot of their money here.
But again, as rates went up this year, a lot of that money left and went to other places. So again how much -- again, all I could probably say is that January as well the fourth quarter and the first quarter are always good, probably starting in the third quarter and the summer, they are starting to using most of their operating funds and then they rebuild. I mean, it's just something that we had.
Yes, I would, big picture just a little bit. Again, when we get to the end of the year, every year when you look at us, we’ll have grown 4% or 5%. This year, we were a little light at 3%. But I think David is exactly right, these funds will -- most of these funds will hold in a bank through the -- basically through the end of the first quarter. And I'll also throw this idea at you. Part of what we saw on these numbers had to be due to the new tax rules. I think a lot of people ran in or were paying their taxes by December 31st where they usually might have wait until January in our world. So I think that had some impact. But I think these deposits will hold at least through the first quarter.
Yes, I mean at our deposits today are actually or yesterday when I look for higher yesterday than they were at year-end. But again, that will -- some of that will flow back out. But as David said, if you’re looking at it on a year-to-year basis, we generally always grow 3% or 4% a year in deposits.
Well, I was just going to say, we probably should emphasize something that David said. As we work with our loan officers on improving our loan production, we always try to do that with a view to a relationship. And bringing deposits in with those loans is something that we really focus on and concentrate on. And we've seen pretty good traction build-up on that. So I'm optimistic that as our loan officers bring additional loan business in that deposit business will come in with that. That's what we've been seeing.
And then as it relates to that, and I know you’re being pretty conservative on your funding cost, you’re pretty core funded, you haven’t increased your deposit rates that much. But with a little better investment yield in the securities book potential, if M&A doesn’t play out, would you be more aggressive with deposits to fund some more securities purchases to potentially deploying some extra capital. Any thoughts on the capital deployment aside from obviously loan growth and M&A?
Again, I would probably emphasize that we’ll probably never change our model. I think again I don’t know that we really buying the stock with the stock purchase. But you probably will see probably increase dividends to our shareholders at some point in time. But again, we still want to use our access capital to grow the bank organically and do M&A. I mean, that’s still our goal. But probably again our capital is building up pretty good so you will probably see little bit better. Again, everything -- nothing changes, you will probably see some increases in shareholder dividends as well.
Next question comes from Geoffrey Elliott with Autonomous Research. Please go ahead.
On the 5% to 6% loan growth you’re targeting. Could you give us a bit more color around that? Where would you be hoping comes in over the 5% to 6%, what might come in on the -- just a bit more granularity on what’s going to drive the loan growth?
I wish I could give you more granularity but the bottom line is it’s in all areas. I think that the economy coming probably in all areas. You’ll see us probably picking up a little bit more oil and gas lending probably, because prices up a little bit in some of our big customers that were really going backwards now are starting to do some deals. So we’re looking at that. I think you’ll see more. We're focused on trying to build C&I commercial real estate in the Huston market. With regard to multifamily, it’s not something. It’s still a little overbuilt, so you may see more CRE in the Dallas market maybe. But again, we have to be careful there in all markets. But all-in-all, I think that we're in all areas, in ad lending, energy lending, C&I, commercial real estate, retail real estate. I mean, it’s everywhere. I think that all of our customers are doing really good right now.
[Operator Instructions] Our next question comes from Bryce Rowe with Robert Baird. Please go ahead.
Just a real quick one on the securities portfolio, with the recent run-up in the 10 year yield and in rates on the opportunities you’re seeing in the securities portfolio. Have you pre-bought any securities like you have may be in the past?
As announced, when rates are going up, it’s probably not something you want to pre-buy. So again, if we think rates are going up, we're probably not pre-buying right now. As we need product, we are buying. We still think rates are going to continue to rise as more needing it. I don’t know that we're changing our model or anything like that as it grows up and we can’t put into loan side. We are buying the bond as we need them.
So your outlook David is that the rates are more likely to go -- to continue to go up than to stay here or go lower?
The fairest forecast and that there will be at least three rate increases during this year. Some people now are saying that if the economy continues to hum even more before for -- the thing that that’s really a little bit unusual. As the interest rates went up last year, say 100 basis points or not, your short term rates went up but your tenure didn’t go up. And so my gut feeling is you’re seeing more of a tenure rate increase, probably now moving faster.
And I think it may move faster and catch-up a little bit, because it didn’t do it last year. So that's just our gut feel that probably that we might see more movement than you did last year, because it just didn’t move. I mean again short-term interest rates went up three times or four times and your tenure until a few months ago was probably the same as it was a year before or lower. So you might see more of an increase in that area. I think, this is just me, and nothing else. But you may see a bigger increase there going forward probably to catch-up.
Our next question comes from Jennifer Demba with SunTrust.
Just curious David, conceptually, do you think you'll see a point where you maybe rationalizing a few of your branches overtime as online and digital use continues to grow for banking customers. Or how you look at that in the context of no M&A, just on its own?
Well, first part, I don’t want to say no M&A. I know everybody is always disappointed. But again, we still have to point out that we've done 40 deals or so throughout building a company and we probably done more M&A than probably all the others banks combined in the state of Texas. So I don’t want to get that there won't be M&A. We’re still working on that. But having said that, we look at our banking centers all the time and we feel that we can consolidate those or they’re not growing or that they’re not making up money. So we look at that all the time, I don’t know. Mike, how many this year did we actually consolidate the bank, two, three…
Yes, more than that for a total of four and two are in process now.
Mike, that’s my guess. And again we did four propose last year in consolidating two this year. So I think you will continue to see that. I think as we do a bigger transaction, you'll even see more consolidation for the most part. But banking centers are changing. I think you’re going to see banking centers are still be important as I mentioned earlier.
I think they will be smaller, but I think they would be still be an important part of the bank. Because we need still when you do -- when you do the surveys today and think you ask somebody why they bank somewhere, the number one reason is not technology, it's number four or five, it's how close their banking center is to themselves. They still play a very important role. But the long and the short of the answer is we constantly look it. We did four last year and are looking at two, right now.
Next question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Just one follow-up for Tim. The average monthly production number being up 30% over the prior quarter. Is that just -- would you just say was depressed last quarter. Is there anything that you could point to? It's just such a big increase.
It is. It was a good increase. Jon, not really anything that I would call specific, the prior quarter was like as you said, some of that was Hurricane related some of that was related to we don’t know what. All I can say is our loan officer pool is optimistic. We're getting a chance to look in lot of loan business. We're proving a fair amount to that. We’re booking a fair amount of that. So the machine seems to be working well and headed in the right direction. As David had said at least once in this call, the economy -- our economies where we operate are decent right now. And we see it across the board. We're even looking at some increase energy lending on a careful basis. So I just think it's coming from every direction. And I don’t see any reason why it's going to fall off. I mean, there are always surprises in life, but I think it's across the board.
And it's been consistent in 2018 thus far.
It has been, yes. Of course, we’re very into 2018. The toe is just barely in the water. But yes, it has been.
And you mentioned energy lending a bit. But I'm just curious we asked a lot of these questions two years ago, but the flip side would be some of the areas that you acquired into West Texas and some of the energy heavy regions of Oklahoma, talk a little bit about what's happening in those regions right now.
Well, things are a lot better, that goes without saying. When I say that we're looking at increased opportunities, we’re not out there necessary calling on new people to the business. But the existing customers that have been in the business for a long time that have proven records through good times and bad times, we're starting to see a few more opportunities through those kinds of customers. The Permian Basin is really strong right now in terms of its production; it has set a new record this last year in terms of barrels of oil produced. So things are just looking up pretty well in that area.
As you know, most of our energy lending has come through acquisitions. So if you look at our energy lending on a historical basis, we have not been a strong energy lender. We’ve primarily gotten into it through our acquisitions. And yes, there were some problems, so we knew those were problem loans when we brought them in. So the portfolio has cleaned itself up a bit. And I don’t think we’re going to see huge increases in energy lending, but I do think it's positive and I think we're going to see some increases. I hope that answer your question.
At this time, this will conclude our question-and-answer session. I would now like to turn the conference back over to Charlotte Rasche for any closing remarks.
Thank you, Brian. Thank you, ladies and gentlemen for taking the time to participate in our call today. We appreciate the support that we get for our company, and we will continue to work on building shareholder value. Thank you.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect.