James Tippit - Head, Corporate Responsibility David Brooks - Chairman and CEO Michelle Hickox - EVP and CFO.

Brett Rabatin - Piper Jaffray Brady Gailey - KBW Michael Young - SunTrust Michael Rose - Raymond James Brad Milsaps - Sandler O'Neil John Pancari - Evercore Matt Olney - Stevens.

Good day, ladies and gentlemen and welcome to the Independent Bank's Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to James Tippit, Head of Corporate Responsibility. Please go ahead..

Good morning, everyone. Welcome to the Independent Bank Group fourth quarter and year end 2016 earnings call. We appreciate you joining us on the call this morning. The related earnings press release and a slide presentation can be accessed on our website at Ibtx.com.

Before we get started, I would like to remind you that remarks made today may include forward-looking statements. Those statements are subject to risk and uncertainties that could cause actual and expected results to differ. We intend such statements to be covered by Safe Harbor provisions for forward-looking statements.

Please see Page 4 of the text in the release or Page 2 of the slide presentation for our Safe Harbor statement. All comments made during today's call are subject to that Safe Harbor statement.

Please also note that if we give guidance about future results, that guidance will be only a statement of management's beliefs at the time the statement is made 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 release. I am joined this morning by David Brooks, CEO, and Michelle Hickox, CFO. At the end of their remarks, we will be happy to address questions.

And with that, I will turn it over to David..

Thanks, James. Good morning, everyone, and thank you for joining us on the call this morning. As usual I will briefly touch on some highlights and then turn it over to Michelle to cover the operating results. 2016 was a great year for us.

We reported record earnings on an annual basis and once again we realized our highest reported quarterly net income to-date. Fourth quarter core earnings were $15.5 million and represented a 37% increase in core earnings from fourth quarter 2015. A quarterly earnings and annual trend chart is on Page 6 of the slide deck.

We have continued to benefit from the strong loan growth and work we did earlier this year to reduce our cost structure. Return on assets was again over 1% and the core efficiency ratio has trended below 51% in the fourth quarter.

Loan activity accelerated to 19.3% annualized for the quarter which put our annual loan growth for the year at 14.6% and this was on the high end of what we expected coming into the year. The Carlile Bancshares acquisition is another big step forward for our company.

This transaction will expand our footprint and is expected to be accretive across all important deal metrics on day one. Michelle is going to go over more details on fourth quarter operating results and then I will conclude with some of my final thoughts at the end.

Michelle?.

Thank you, David, and good morning, everyone. Please note that Slide 5 of the presentation includes selected financial data for the quarter.

Our fourth quarter core net income was $15.5 million or $0.83 per diluted share, compared to $11.4 million or $0.63 per diluted share for the fourth quarter of last year and to $14.8 million or $0.80 per diluted share for the linked quarter.

Net income available to common shareholders reported for the year ended December 31, 2016 increased 39% to $53.5 million compared to $38.5 million reported for 2015.

As you can see on Slide 7, net interest income increased to $46.5 million in the fourth quarter from $45.7 million in the third quarter and the net interest margin decreased 7 basis points from the third quarter and 37 basis points from the same quarter last year.

While we did see an increase in investment yields, average loan yields decreased 5 basis points and deposit cost continued to tick-up 2 basis points from third quarter 2016. The lower loan yields were influenced by higher percentage of variable rate loans funded in the second half of 2016 versus our historical mix.

In addition, our average earning assets held in cash equivalent increased from the third quarter due to the majority of the loan growth coming in December. Total non-interest income increased 970,000 compared to the fourth quarter last year and 292,000 compared to the prior quarter.

The increase from last year is primarily due to increased mortgage fee income, increased earnings on BOLI policies acquired earlier in 2016, and income recognized in connection with the change in bank card vendors.

For the linked quarter, an increase of approximately $95,000 in service charge income and the aforementioned bank card income was offset by $203,000 decrease in mortgage income. Total noninterest expense decreased $1.2 million from the fourth quarter last year and increased $474,000 from the prior quarter.

Salary and benefit decreases from the prior year are related to Grand Bank personnel held for the operational conversion in 2016, decreased bonus accruals and the leadership restructure that occurred in the second quarter of 2016.

We also experienced a decrease of $325,000 in legal expense compared to prior year as fourth quarter 2015 legal fees were elevated due to energy workouts and litigation. The decreases were offset by increased FDIC insurance expense and public relations expense.

The provision for loan loss expense was $2.2 million for the quarter which is comparable to the linked quarter at $2.1 million and a small increase of $227,000 from the prior year. Generally provision expense correlates with net loan growth and level of charge-offs.

Slide 12 in the slide deck illustrates how provision expense and charge-offs in each reported periods. Loan growth during the quarter was strong with loans held to investment growing 4.9% from September 30, 2016 or 19.3% on an annualized basis. We continue to see growth in all of our markets. See Slide 9 for annual loan growth comparisons.

Non-performing assets increased slightly due to additions of two commercial real estate loans settling $5.8 million in the fourth quarter that were subsequently paid off in January of 2017. Total non-performing assets represented 0.34% of total assets at December 31, 2016 compared to 0.23% at September 30, 2016 and 0.36% at December 31, 2015.

Charge-offs returned to a very low 0.2% annualized for the quarter. As illustrated on Slide 13, the energy portfolio remained stable at $125.3 million at December 31, 2016 versus $126.5 million as of September 30, 2016 at 2.7% of total loans. The energy related allowance is 4.6% of the energy portfolio at quarter end.

Deposit compensation and costs are illustrated on Slide 14. We experienced good deposit growth in the quarter with total deposits of $4.58 billion at December 31, 2016, compared to $4.42 billion at September 30, 2016.

The average cost of interest-bearing deposits was up two basis points from the third quarter at 51 basis points and eight basis points compared to the fourth quarter of prior year at 45 basis points. The increase in 2016 is primarily related to competitive pricing on public fund time deposits and higher rates on variable rate deposits.

Borrowing fees for liquidity and interest rate risk purposes as needed remains stable during the quarter. Note on Slide 15, our capital position as of December 31, 2016. We raised approximately $20 million in equity and a common stock offering to facilitate the pending acquisition.

Our TCE ratio increased to 7.17% and our total capital to risk-weighted assets was 11.38%. All regulatory ratios improved and remained in excess of well-capitalized levels. That concludes my comments this morning so I will turn it back over to David..

Thanks Michelle. 2016 ended on a very positive note for us. Earnings continue to improve, loan growth was strong it appears the energy concerned are behind us and we announced the transform of acquisition. Teams from both Independent and Carlile are working together for a smooth transition as we prepare to join the two companies.

We are excited about the new markets and team members the deal will bring to our bank. Regulatory applications and SEC forms have been filed and we believe we are on track to close early in the second quarter of this year.

We remain focused on consistent strong earnings performance enhancing shareholder value and we believe our 2016 results demonstrate our commitment to those goals. Thank you for joining us today and we will now open the call to questions.

Operator?.

[Operator Instructions] And our first question comes from the line of Brett Rabatin of Piper Jaffray. Your line is now open..

Hi, good morning everyone. I wanted to first ask, really impressive loan growth this quarter. As you look out next -- this year, David, there's some increased optimism.

How are you feeling about the pipeline? Can we hope for growth to be as good in 2017 as it was in 2016?.

No, we certainly exceeded on expectations as I mentioned in my comments earlier Brett for the year. We still believe that we're at low double-digit growth platform at this point given the size and especially given the prospects of having call out Northstar Bank to join us that's is going to get our overall loan portfolio up to about $6 billion.

And when you look at growth a 15% growth rate on a $6 billion portfolio you know is close to $1 billion. So that's net of all payoffs and everything that's hard to do. So we still think ourselves as a 12%, 13% growth on our platform and we see that you're going into 2017, the pipeline looks good.

Fourth quarter which is - we said before our loan growth can be a little lumpy at times. Just a little seasonal and what ended up happening we didn't expect that, that kind of growth, a number of the deals and not sure if we are really driven by the change in the political environment or what was driving it.

But a lot of the larger loans in the pipeline that we expected to close in January can of sped up and closed in right at the end of December, last week at December, so we had a lot of the growth, so it's reflected in our averages.

Our average loan's outstanding for the fourth quarter were up 19% over the third quarter, but with the rush we had at the end of the year that's what drove that final number and then also drove our - the overall loan growth of 14.6% for the year.

And probably without that rush at the end we would've been high 13s and again that would've been more consistent with where we thought. So long-winded answer Brett, but I think we still view it as a 12%, 13% growth for 2017..

Okay, I appreciate the color on that. I was just wondering, Michelle you talked about the increase in deposit costs and higher rates in public deposits, but can you walk through the thinking about margin here on a core basis going forward? It would seem like it should stabilize it at some point.

Then thoughts on if we do get any additional Fed action, how are you thinking about that in terms of your margin implications?.

Yes, as you guys know, we're still pretty neutral in our interest rate sensitivity and so in our projections for 2017 we're modeling that our margin is going to stay stable at this point.

We could get some benefit as fed rates has rise couple of times and then we're starting to get more benefit once we had Carlile, because we do become a bit more asset sensitive when we add them. But a lot of that will have to do with timing of when they come on Board and when we are able to close.

So, I'd say just Independent Bank only we are assuming stable margins at least in the near term..

From the fourth quarter?.

Yes..

Okay, great. Thanks for the color..

Thank you. And our next question comes from Brady Gailey of KBW. Your line is now open..

Good morning, guys. So David, one more question on the loan growth.

The 12% to 13%, does that change at all with Carlile in the mix, or is that unchanged with that acquisition?.

No, I think that's pretty consistent with their growth - the markets that they got that are more growthy, that's pretty consistent. And so I think on a consolidated basis we think we'll still be able to grow at that pace..

Okay. I remember one of the positives of the Carlile deal was that it lowered your CRE-to-capital ratio. I think you all alone were at over 400%.

Where did you all stand at year end, and what is that number with Carlile embedded?.

Yes, we were at still in the 420, 424 range which is where we were at the end of the third quarter at the end of the year. So we were basically flat in the fourth quarter.

Brady and then our - I don't know that we've updated our model for year-end, but our model when we announced the transaction had us going to about 360 to 370 on a consolidated basis once we rolled in the Carlile and I don’t think that's changed..

Okay. Then you all mentioned a lot of the loan growth coming in December. Texas Capital mentioned that exact same thing on their call last night.

Do you think that is related to the election, or is that completely independent of Trump winning?.

I just don't know I haven't spoken. We've been busy here the first part of the year, getting ready for earnings and Board meetings and all that, and haven't spoken to lot of our customers or senior lenders in the last couple of weeks about what their customers were thinking in terms of accelerating their closings on these deals.

I suspect it has to do with people just doing tax planning and personal estate planning and all that but I just don’t know. We've seen as you pointed out a number of our colleagues, I had mentioned the same things so..

Yes. Then, lastly, you all have allowed energy to shrink over the last couple years. With what we've seen in that market, it feels like we have stability here with oil in the $50s.

Is now the time to reverse and start growing your energy book?.

Yes, the answer to that is yes and we did book I believe two new credits in the fourth quarter, they were small-ish $4 million, $5 million credit size and is really kind of offset the pay downs we had.

And we will still have a few paydowns here in the first and second quarter as a few more of the deals that are substandard get resolved one way or the other. But that said we are actively looking and marketing and trying to grow that book of business.

We're obviously cautious and mindful of the pain that our industries experienced or at least in Texas - Oklahoma and Louisiana over the last couple of years.

So we are keeping that in mind but we are trying to grow and we intend to grow and expect to grow in the '17 and that will be a help as far as the loan growth goes because we grew 14.6% in 2016 in the face of probably 2% headwind on energy paydowns.

So it really would have been somewhere in the 16.5 range and so we think that's why we feel pretty confident that 12% or 13% even with the Carlile merger and a bigger base because we think will get some help from energy this year as opposed to a 2% headwind..

Got it. Thanks David..

Thank you. And our next question comes from Michael Young of SunTrust. Your line is now open..

Hi, good morning. David, just wanted to start off maybe with big-picture thoughts on Colorado, and your thoughts there that you've had a little more time to spend up there.

Do you think you'll want to fill in with more acquisitions in the future, or will that be a separate operation for now?.

Great question, Michael.

We have spent some time I have personally spent some time up in Colorado and lot of our senior folks have been up there since we announced the acquisition and - looking at the footprint, looking at the markets, evaluating the talent level and I will say we've been a positive on a couple of fronts in particular, one is the caliber of the people there, the officers, the lenders, the execs that that are in Colorado.

We think fit us culturally and understand our philosophy on the lending. So that's a positive get some time to us not the case when we go in.

And then also just the feel of that - particularly I25 corridor north of Denver down through Colorado Springs feels a lot like we thought it would, which is very growthy, and a lot of technology, a lot of medical, feels a lot like kind of Austin to us.

So that's all positive and we're now going through the process Michael of evaluating what the asset size there is, looking at it on a standalone basis and figuring out what we want to do. We haven't made a recommendation. I did update the Board yesterday - yesterday at our Board meeting.

I updated the Board but we haven't made a final recommendation on how we want to approach that market although we are possibly inclined in and - but we would look to grow up there more directly to your question Michael.

We were about 600 to 650 million assets there and we really need that to be a $1 billion pretty quickly for it to make sense for us to manage it, investment and all that. So that's what we’re trying to figure out is what the pathway toward that is and - but we're positive at this point about Colorado and think it's a good fit for us..

Okay, great. Switching gears a little bit over to the margin, I appreciate the outlook for next year. Maybe incorporated in that, how much fixed versus variable loans are you expecting as we move into 2017? I know that was a little higher in the back half of 2016.

Also, on the public fund side, what do you expect for a deposit beta on that portfolio of deposits?.

So I’ll speak to the loan piece and let Michelle speak to the funding side.

We did see an increase and you know it’s largely intentional on our part that we have been trying to shift toward more floating rate debt that did impact the margin in the fourth quarter and but I do think we’ll continue to see a larger percentage of floating rate loans versus fixed rate loans as we go forward that’s both intentional in our part related to the real estate loans we’re making but also you know a shift toward more as we get back into the energy lending as I was speaking about a minute ago those are generally floating rate loans.

And then as Michelle said earlier, Carlile has a larger book percentagewise of floating rate loans so that will also be a factor as we merge them in.

But so, I think you'll continue to see the trend toward more floating rate loans year in 2017 but Michelle can address the funding costs and then kind of how that affects the overall margin expectation..

Yes, so as it relates to public funds those are little more rate sensitive then the rest of our deposits portfolio, but one of the things that we’re actively trying to do is not have so much reliance on public phones I think we talk about in the past we’ve added a specialty treasury group, a guy that came out from Texas Capital that has gotten some transaction bringing in some broker dealer deposits correspondent account, those type of accounts and he has grown that book to little over $100 million at the end of the year.

And so what we’re really trying to do is not be as aggressive in bidding on our public funds and trading those more assets are break sensitive funds if the funds that he is able to bring in..

Okay. I was just trying to think through maybe the timing of when those re-price.

I don't know if it's pretty ratable throughout the year, or if there are certain times when those get re-bid? I don't know if you have any color there?.

Yes, not really they all - they come in over the year - it just kind of depends on and some of them have contracts and some of them don't and some of them will just have excess funding that they place with us for a while so it’s really - there is really not at the time of the year that you can take it to..

And that’s part of our business Michael that we’ve been in for 30 years now and these communities that we bank.

We are the primary you know bank for a lot of the public entities across our footprint and so it ebbs and flows we have so many entities and so many accounts now that it's pretty, pretty stable and the pricing and the funds flow is pretty - it’s not real lumpy given the breadth of the deposits..

Okay, great. Thank you for the color. Appreciate it..

Thank you. And our next question comes from Michael Rose of Raymond James. Your line is now open..

Hi, good morning guys, how are you?.

Good morning Michael..

Just wanted to - obviously pretty good expense control again this quarter, salaries down again.

Is $26 million to $27 million a quarter still good range as we move into next year? Then is there any other seasonal factors we should think about in first quarter - FICA taxes, bonus accruals, things like that, that might cause total expenses to go up a little bit?.

Yes, first quarter I think is always as far as efficiency and run rate on expense goes up a little bit primarily because that's when we do our salary adjustments for everybody, bonuses we do have additional payroll taxes.

A positive related to - our stock price is higher but that also creates additional expenses that relates to the grants that are granted in as bonuses in January. So I think really if you look at our run rate on expenses Q3 is probably a better base.

And then add about 3% probably on the comp line and it may be about 2% on everything else from there is probably a good way to look at it going into 2017..

Okay, that's helpful. Just moving on to fee income, you mentioned in the release and on the call today the increase in fees from the change in the bank card vendors.

Is that a one-time, or is that a permanent adjustment, and that income will recur?.

Yes, the 282 in the fourth quarter is kind of one-time hit but we will have some incremental income related to the changing bank card vendors that really we're not making that change until it probably will be end of first quarter and it won't be nearly as significant..

Okay. That’s all from me. Thanks for taking my questions..

Thank you. And our next question comes from the Brad Milsaps of Sandler O'Neil. Your line is now open..

Hi, good morning. You guys have addressed most of my questions. I did want to follow up on, Michelle, your NIM guidance. I know you mentioned that a lot of the loan growth came at the end of the quarter, and that pushed Fed funds sold up higher than normal. But it is about 8% of earning assets, which is double maybe what it has been historically.

Does your margin guidance involve bringing that number down, or should we expect that to stay stable?.

You were talking about our mix Brad I missed part of your question..

That one sold portion..

Yes, the Fed funds. I think it's about 8% of earning assets. You had this still if you're running maybe 4% or so - not huge numbers.

But I didn't know if your plans were to put the liquidity to work, and that's the mix change that would help stabilize the margin, or is it something beyond that?.

Yes, you're exactly right, that number as far as liquidity is higher than historical it’s higher than we would like for it to be and then we did use quite a bit of it rather at the end of the year in fact it was probably the last two days of the year. And so right now we’re really trying to manage our liquidity at a lower amount then that.

Some of that is a little bit of out of control depending on what some these deposits that we talked about earlier that are coming from the specialty treasury group come in. But I anticipate that that number will be lower this quarter than it was in fourth quarter..

I know you guys historically have not had a large investment portfolio, but with Carlile coming they have a lot more liquidity.

Do you anticipate using most of that liquidity for loans? How do you think about the balance sheet mix going forward?.

I think their investment portfolio is about the same the size as ours relatively. So that’s where it will be when we’re combined but just based on the way that our balance sheet normally works is that that will end up getting invested in loans and you’ll probably see our investment portfolio stay at around that 7% range just what I'm guessing..

Okay, great. That’s helpful. Thanks a lot guys..

Thank you. And our next question comes from John Pancari of Evercore. Your line is now open..

Good morning David, Michelle.

Just on the margin, quickly, how much did the loan yield benefit this quarter from the Fed hike in December?.

I mean you know that came in the middle of December and so really not much at all..

Okay.

Even though LIBOR moved ahead of it?.

Yes, but we don’t really have that many loans in our portfolio that are tied to LIBOR. Most of our variable rate loans are still tied to prime..

Okay, good.

What would be your expectation for next quarter's loan yield in isolation, in terms of the reaction to the Fed hike?.

I think you’re going to see our loan yield go up a few basis points may be five to eight basis points overall average yields..

Okay, got it. Then on the loan growth front, I know you mentioned a little bit of the timing factor that impacted the fourth quarter balances.

Can you give us an idea in terms of the trend in commitments, if you saw them pick up overall for the loan portfolio this quarter, and then line utilization as well?.

Very consistent with what we see in the past John we’re not, our C&I book is pretty small relative to our overall portfolio. And so when then you narrow that down to just lines of credit and funded versus unfunded we haven't seen any change really in utilization of our lines it's been pretty steady.

And we don't see anything or any indication for 2017 that that’s going to change either..

Okay, got it. And then just overall on that same topic, can you talk a little bit more about borrower sentiment? Have you seen a shift here post the election? In what areas would you say - is it on the commercial real estate side, as well as in C&I, or only in certain areas? Thanks..

I think John it has in Texas in particular which is where we’re at has been more positive maybe then than the nation as a whole about the political changes an optimistic about reduction and regulation and potential, corporate tax rate cuts.

And so I think you'll really sense November early November the election my sense is in talking with leaders around the state business leaders, business owners, wealthy families they're all generally optimistic going into 2017.

And I think they’re looking for opportunities to make investments and looking for opportunities we’re expecting to see you know just more investments in equipment and plant and we’ll see how that plays out. But yes generally more optimistic in Texas than it has been the last couple of years.

And so that should translate into opportunities but I can't specifically point to our pipeline picked up 10% after the election. It's just a little bit sentimental at this point and we'll see how that translates into business.

And I noticed John that you had commented about our nonperforming loans and I would just point a couple of folks mentioned that earlier this morning and wanted to just point to Slide 11 in our slide deck which shows where we are on non-performing loans.

We’re at historically low level at the end of the third quarter and we had one relationship $6 million, two loan $6 million of real estate that we expected to sell and pay off in late December it did not.

And so we put it on non-performing and that was $7 million of the $8 million of increase in our non-performing - I’m sorry $6 million of the $7 million of increase in our non-performing loans at the end of the quarter.

And that again coming off a extremely low base looks like a large percentage growth, but that $6 million relationship paid off in the first week of January. So it went away and so we really haven't seen any trends on the loan side or credit quality side that really different than what we've been communicating.

And if you look at our level of non-performing loans at the end of the year 0.39% we’re about a fourth what our Texas peers and what our national peers are at.

So - I didn’t - some type of percentages can be a little misleading when you say something went up 44%, when in fact 44% of a very low number a still a very low number and so just wanted to point that out because I saw couple of people mention it..

No, that's helpful. Thanks for clarifying. When the numbers are that low, you feel everything. Then lastly, if I could just go to - I guess this would be capital, but really overall in terms of your asset size.

As you - once you closed the Carlile deal and everything, sitting there around the $8 billion asset mark, can you give us your updated thoughts around crossing, or that $10 billion asset threshold post Trump? Are you less concerned about crossing that $10 billion, now that we've got potential clearing of the regulatory clouds in the Trump regime?.

That's a very good question John. I mentioned at the end of third quarter and then really that’s kind of become stronger in my view that you have to take the opportunity supported to you and right now the economy is positive and there is an opportunity for your M&A out there for acquisitions and of quality institutions and to grow your franchise.

And I think you have to do that when the sun shining so to speak. And so we do intend to grow and we have a evaluated the $10 million threshold it’s probably a $5 million cost to us per year to go through.

We don't - we don't ignore that, but we are building the systems and investing in infrastructure with a plan that we’re going to go through $10 billion either organically over the next couple years or with additional acquisitions behind Carlile.

Our current pro forma with Carlile's just under $8.5 billion when we closed in the second quarter hopefully so I don't - and so yes. And then we’re more optimistic about hopefully some regulatory relief and our release of leveling of the playing field from a regulatory standpoint and potential corporate tax relief.

We're a taxpayer at 33% so it's a big deal for us if the Congress and the administration are able to get through real corporate tax relief. But I don't expect - one of my colleagues yesterday mentioned, I don't expect the Durbin piece of the $10 billion threshold to really change.

And so that's not a big piece of ours anyway, it's probably a little under $2 million a year of the $5 million relates to Durbin. So I don't expect that any relief on that front, although we are hopeful to get it and we're certainly in there making the plug as a part of regulatory relief.

But I do expect a broadly more favorable regulatory environment in the next couple of years I should be helpful if we get through $10 billion..

Got it. Thank you, David..

[Operator Instructions] And our next question comes from Matt Olney of Stevens. Your line is now open..

Hi, thanks. Good morning, guys. Most of my questions have been addressed, but I wanted to ask you about the efficiency ratio. It looks like you achieved your goal of about 50% in the fourth quarter.

Can you speak to that efficiency ratio from here? Once you layer on Carlile, what does that mean for the rest of the year?.

I think as you said we kind of got to our goal of where we've said we've been trying to get and so I think that's where it will be as always happens in the first quarter you might see a tick-up a little bit just because with less days that always seems to happen with additional comp I talked about earlier.

But generally we expect it to be at that level through 2017..

And Michelle, directionally with Carlile, would you expect it to tick up before you get the cost saves, or do you expect to get those cost saves pretty quickly to where it's pretty steadily throughout the year?.

It may tickup if you look at fourth quarter this year, a lot of that depends on the timing of when we closed. But we look forward to 2018 I think that's where we are probably a pretty good run rate..

Okay, thanks. Then David, you've provided some really good disclosures in the past as far as the Houston market and where we are.

Could you give us another update as far as where you think we are in this cycle within Houston? What products at this point are still over-built that may need some time to absorb, and which products still have some good opportunity for growth in Houston for you guys?.

Thanks, Matt. We are very positive on Houston as we have been the last couple of years even through the downturn. We had our best year of growth in loans in Houston in 2016 that we had since we acquired Bank of Houston back in 2014 with the loan growth rate in the fourth quarter end.

For the year of 2016 be in high teens close to 20% in Houston which is back to kind of historical level. They have grown at prior acquisition of the bank and so we're very positive about that.

It's been really across a lot of different sectors, owner-occupied real estate office warehouse, a single-family and certain niches that we financed has been good and strong. Some retail, neighborhood retail type projects continue to be strong.

Related to the portfolio as it stands today we're somewhere around $1.2 billion in loans in Houston, 6% of that's in office. So not much office exposure but really spread across all of those product classes that I talked about and strong percentage of some 40% to 45% owner-occupied of that, so we've got the real estate.

So we feel good about that and then we think the opportunities there in 2017 continue to be strong as far as where we are on the cycle we think things are, you have stabilized with oil prices, you are being here in the low 50s.

And we're seeing opportunities, things are growing and our team down there - we make this comment across the whole state about our organic growth. We have the best most productive lending teams in Houston, Austin, North Texas, Dallas, McKinney that we've had in - we really ever had in the history of the company.

So that's the confidence that I have as we look for that that we really have a terrific high performing teams across the state. So I think that portends well as we look into 2017..

Okay. I appreciate the color..

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. David Brooks for closing remarks..

Perfect. Well, thanks for dialing in this morning. We feel good about where we are as we head into 2017. And I appreciate everyone calling in this morning and look forward to a really positive 2017 for ourselves and hopefully for everyone who called in. Thanks..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Have a great day everyone..