Independent Bank Group Inc (IBTX) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Independent Bank fourth quarter 2016 earnings conference call.

(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 risks 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 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. 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. 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 the 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%. 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 the 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. 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 yield, average loan yields decreased 5 basis points, and deposit costs continue to tick up 2 basis points from third quarter 2016. The lower loan yields were influenced by a higher percentage of variable rate loans funded in the second half 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 Bolle policies acquired earlier in 2016, and income recognized in connection with a 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 a $203,000 decrease in mortgage income. Total non-interest 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 to the operational conversion in 2016, decreased bonus accruals, and the leadership restructure that occurred in the second order 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 work-outs 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 our provision expense and charge-offs in each reported period.

Loan growth during the quarter was strong, with loans held for 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 totaling $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 0.02% annualized for the quarter.

As illustrated on slide 13, the energy portfolio remains 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 composition 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 8 basis points compared to the fourth quarter 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. Borrowings used for liquidity and interest rate risk purposes as needed remained stable during the quarter.

Note on slide 15 our capital position as of December 31, 2016. We raised approximately $20 million in equity in 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 remain 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 concerns are behind us, and we announced a transformative 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. We believe we are on track to close early in the second quarter of this year.

We remain focused on consistent strong earnings performance and enhancing shareholder value. 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?

Thank you.

(Operator Instructions)

Brett Rabatin, Piper Jaffray.

Hi, good morning everyone.

Hi, good morning, Brett.

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?

Yes. No, we certainly exceeded our own expectations, as I mentioned in my comments earlier, Brett, for the year. We still believe that we're a low-double-digit growth platform at this point, given the size and especially given the prospect of having Carlile [and] Northstar banks join us. That's going to get our overall loan portfolio up to about $6 billion.

When you look at growth, a 15% growth rate on a $6 million portfolio is close to $1 billion. That's net of all pay-offs and everything. That's hard to do. We still think of ourselves as a 12%, 13% growth on our current platform, and we see that here going into 2017. The pipeline looks good.

Fourth quarter was just -- we have said before, our loan growth can be a little bit lumpy at times, a little seasonal. What ended up happening, we didn't expect that kind of growth. A number of the deals -- and not sure if it was really driven by 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 sped up and closed in the end of -- right at the end of December -- last week of December. We had a lot of the growth.

It's reflected in our averages. Our average loans outstanding for the fourth order weren't up 19% over the third quarter, but with the kind of rush we had at the end of the year, that's what drove that final number, and then also drove our overall loan growth to 14.6% for the year. Probably without that rush at the end, we would've been in the high 13%s. Again, that would have been more consistent with where we thought. Long-winded answer, Brett, but I think we're still -- 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?

As you guys know, we are still pretty neutral in our interest rate sensitivity. In our projections for 2017, we are modeling that are margin is going to stay stable at this point. We could get some benefit if Fed raises rates a couple times.

We'll certainly get more benefit once we add Carlile, because we do become a bit more asset sensitive when we add them. A lot of that will have to do with timing of when they come on board and when we're able to close. I would say just Independent Bank only, we are assuming a stable margin, at least in the near term.

From the fourth quarter?

Yes.

Okay, great. Thanks for all the color.

Thanks, Brett.

Brady Gailey, KBW.

Hi, good morning, guys.

Good morning, Brady.

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 have got that are more growthy, that's pretty consistent. I think on a consolidated basis, we think we will 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 third quarter at the end of the year. We were basically flat in the fourth quarter, Brady. Then 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. 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 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 a lot of our customers or our 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 of that, but I just don't know.

All right, and then last --

I'll make a comment on -- we've seen, as you pointed out, a number of our colleagues have mentioned the same thing.

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 smallish, $4 million, $5 million credit size, and really offset the pay-downs we had. We will still have a few pay-downs here in the first and second quarter, as a few more of the deals that are sub-standard get resolved one way or the other.

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 industry has experienced -- or at least in Texas and Oklahoma and Louisiana over the last couple of years.

We're keeping that in mind, but we are trying to grow. We intend to grow and expect to grow in 2017. That will be a help as far as the loan growth goes, because we grew 14.6% in 2016, in the face of probably a 2% head wind on energy pay-downs. Really it would have been somewhere in the 16.5% range. We think -- that's why we feel pretty confident in that 12% or 13%, even with the Carlile merger and a bigger base, because we think we'll get some help from energy this year, as opposed to a 2% head wind.

Got it. Thanks, David.

Thanks, Brady.

Michael Young, SunTrust.

Hi, good morning.

Good morning, Michael.

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 a lot of our senior folks have been up there since we announced the acquisition, looking at the footprint, looking at the markets, evaluating the talent level. I will say we've been positive on a couple of fronts in particular. One is the caliber of the people there, the officers, the lenders, the execs that are in Colorado, we think fit us culturally and understand our philosophy on lending, so that's a positive. Sometimes that's not the case when we go in.

Then also, the feel of that particularly I-25 corridor north of Denver down through Colorado Springs, it feels a lot like we thought it would, which is very growthy, and a lot of technology, a lot of medical. It feels a lot like Austin to us. That's all positive.

We're now going through the process, Michael, of evaluating what the asset size there is, looking at it on a stand-alone basis, and figuring out what we want to do. We haven't made a recommendation. I did update the Board yesterday -- I'm trying to, days running together here -- 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 positively inclined.

We would look to grow up there, more directly to your question, Michael. We're about $600 million to $650 million in assets there, and we'd really need that to be $1 billion pretty quickly for us to make sense for us to manage it and invest in it and all that. That's what we're trying to figure out is what the pathway toward that is. 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?

I will speak to the loan piece, and let Michelle speak to the funding side. We did see an increase. It was 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.

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 on our part related to the real estate loans we're making, but also 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.

Then as Michelle said earlier, Carlile has a larger book percentage-wise of floating-rate loans, so that will also be a factor as we merge them in. I think you will continue to see the trend toward more floating-rate loans here in 2017, but Michelle can address the funding costs, and then how that affects the overall margin expectation.

As it relates to public funds, those are a little more rate sensitive than the rest of our deposit portfolio. One of the things we're actively trying to do is not have so much reliance on public funds.

I think we've talked about in the past we've added a specialty treasury group. A guy that came over from Texas Capital that has gotten some traction, bringing in some broker-dealer deposits, correspondent accounts, those type of accounts. He's grown that book to a little over $100 million at the end of the year. What we're really trying to do is not be as aggressive in bidding on our public funds, and trading those more rate-sensitive funds with 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?

No, not really. They all come in over the year. It just depends on -- some of them have contracts and some of them don't. Some of them are just -- have excess funding that they place with us for a while. It's really -- there's really not a time of year that you can peg it to.

That's a part of our business, Michael, that we have been in for 30 years now. These communities that we bank, we are the primary bank for a lot of the public entities across our footprint. It ebbs and flows, but we have so many entities and so many accounts now that it's pretty stable. 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.

Michael Rose, Raymond James.

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. It relates to the grants that are granted as bonuses in January.

I think really if you look at our run rate on expenses, Q3 is probably a better base. Then add about 3% probably on the comp line, and then maybe about 2% on everything else from there, is probably a good way to look at it going into 2017.

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

Okay, that's all for me. Thanks for taking my questions.

Okay, thanks.

Brad Milsaps, Sandler O'Neill.

Hi, good morning.

Good morning, Brad.

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're talking about our mix, Brad? I missed part of your question?

The Fed funds 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. We did use quite a bit of it right at the end of the year. In fact, if was probably the last two days of the year.

Right now, we're really trying to manage our liquidity at a lower amount than that. Some of that is a little bit out of our control, depending on when some of these deposits that we talked about earlier that are coming from the Specialty Treasury Group come in. But I anticipate 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 size as ours, relatively. That's where it will be when we're combined. Just based on the way that our balance sheet normally works, that will end up getting invested in loans. You'll probably see our investment portfolio stay at around that 7% range, is what I'm guessing.

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

Thanks, Brad.

John Pancari, Evercore.

Good morning, David and Michelle.

Good morning, John.

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

That came in the middle of December, 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, maybe 5 to 8 basis points overall average yield.

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've seen in the past, John, we're not -- our C&I book is pretty small relative to our overall portfolio. Then when you narrow that down to lines of credit and funded versus un-funded, we haven't seen any change really in utilization of our lines. It's been pretty steady. We don't see anything or any indication for 2017 that's going to change, either.

Okay, got it. Then 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. Texas in particular, which is where we're at, it has been more positive maybe than the nation as a whole about the political changes, and optimistic about reduction in regulation and potential corporate tax rate cuts. I think really since November -- early November, the election, my sense is in talking with leaders around the state, business leaders, business owners, wealthy families, they are all generally optimistic going into 2017.

I think they're looking for opportunities to make investments and looking for opportunities -- we're expecting to see more investments in equipment and plants. We'll see how that plays out, but yes, generally more optimistic in Texas than it has been the last couple years. That should translate into opportunities, but I can't specifically point to, oh, our pipeline picked up 10% after the election. It's a little bit sentimental at this point, and we'll see how that translates into business.

I noticed, John, that you had commented about our non-performing loans. I would just point a couple of folks mentioned that earlier this morning, and wanted to point to slide 11 in our slide deck, which shows where we are on non-performing loans. We're at a historically low level at the end of the third quarter, and we had one relationship, $6 million, two loans, $6 million of real estate that we expected to sell and pay off in late December.

It did not, so we put it on non-performing, and that was $7 million of the $8 million of the 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. That, again, coming off of an 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.

We really haven't seen any trends on the loan side or credit quality side that are any different than what we have been communicating. If you look at our level of non-performing loans at the end of the year, at 0.39% we're about 25% what our Texas peers and what our national peers are at. Sometimes percentages can be a little misleading when you say something went up 44%, when in fact 44% of a very low number is still a very low number. I just wanted to point that out, because I saw a couple 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 close 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 the third quarter and really have become stronger in my view that you have to take the opportunities afforded to you. Right now the economy is positive, and there's an opportunity for M&A out there for acquisitions and of quality institutions and to grow your franchise. I think you have to do that when the sun's shining, so to speak.

We do intend to grow, and we have evaluated the $10 billion threshold. It's probably a $5 million cost to us per year to go through. 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 close in the second quarter, hopefully. I don't -- yes, then we're more optimistic about hopefully some regulatory relief, or at least the leveling of the playing field from a regulatory standpoint, and then potential corporate tax relief. We're a taxpayer at 33%, so it's a big deal to us if the Congress and the administration are able to get through real corporate tax relief.

I don't expect -- I heard one of my colleagues yesterday mention -- I don't expect the Durban piece of the $10 billion threshold to really change. 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 Durban. I don't expect any relief on that front, although we are hopeful to get it.

We're certainly in there making the plug as a part of regulatory relief. But I do expect a broadly more favorable regulatory environment the next couple years. That should be helpful if we get through $10 billion.

Got it. Thank you, David.

Thanks, John.

Thank you.

(Operator Instructions)

Matt Olney, Stephens.

Good morning, guys.

Good morning, Matt.

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 got to our goal of where we've said we've been trying to get. I think that's where we'll be. As always happens in the first quarter, you might see it tick up a little bit, just because with less days that always seems to happen with the additional comp I talked about earlier. But generally, we expect it to be at that level through 2017.

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 tick up. If you look at fourth quarter this year, a lot of that depends on the timing of when we close. If you look forward to 2018, I think that where we are is 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're very positive on Houston, as we have been the last couple years, even through the down-turn. We had our best year of growth in loans in Houston in 2016 than we've had since we acquired Bank of Houston back in 2014, With a loan growth rate in the fourth quarter and for the year of 2016 being a high teens, close to 20% in Houston, which is back to the historical level they had grown at prior to our acquisition of the bank.

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

Related to the portfolio as it stands today, we are 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 products classes that I talked about. A strong percentage, some 40% to 45% owner-occupied of that, of the real estate. We feel good about that.

We think the opportunities there in 2017 continue to be strong. As far as where we are in the cycle, we think things are -- have stabilized with oil prices being here in the low $50s. We're seeing opportunities, things are growing, and our team down there -- let me 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 -- we've really ever had in the history of the Company. That's the confidence that I have as we look forward that we really have a terrific high-performing team, teams across the state. I think that portends well as we look into 2017.

Okay. I appreciate the color.

Thanks, Matt.

Thank you. 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. I appreciate everyone calling in this morning, and look forward to a really positive 2017 for our sales 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.