David Brooks - Chairman and CEO Torry Berntsen - President, COO Michelle Hickox - CFO and EVP.

Kevin Fitzsimmons - Hovde Group Steve Moss - Evercore ISI Brett Robinson - Piper Jaffray Brad Milsaps - Sandler O'Neill & Partners Matt Olney - Stephens Inc. John Moran - Macquarie Capital Michael Young - SunTrust Robinson Humphrey Adam France - 1492 Capital Management, LLC. *.

Good day, ladies and gentlemen, and welcome to the Independent Bank Second Quarter 2015 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, this call is being recorded.

I’d like to introduce your host for today’s conference, Torry Berntsen, President and Chief Operating Officer. Please go ahead..

Thank you and good morning. Welcome to the Independent Bank Group conference call to discuss financial results for the second quarter 2015. I’d like to thank you for joining us this morning. I’ll go over a few housekeeping items and then hand it over to David Brooks, our Chairman and CEO to lead the presentation.

We issued our earnings release yesterday evening and a copy is posted on our Web site, www.ibtx.com. We will be going over much of the release on this call. If you are having trouble accessing it, please call Robb Temple 214-544-4777 and we will email you a copy.

Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We intend such statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the act.

Please see the text in this morning’s release for additional information about the risks associated with these statements. Please also note that if we give guidance about future results, that guidance will only be a statement of management’s beliefs at the time the statement is made.

Predictions that we make may not continue to reflect management’s belief and we do not publicly update guidance. We will discuss a number of financial measures considered to be non-GAAP under the SEC’s rules.

Reconciliations of these financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in our earnings release. At the conclusion of our remarks, we will open the telephone lines for questions. At that time, we will provide instructions for submitting your questions.

With those reminders out of the way, I’d like to outline the agenda for this call. David Brooks will open with his thoughts regarding our recent acquisition and the second quarter results. Michelle Hickox, our Chief Financial Officer, will lead you through the quarter’s operating results and some balance sheet highlights.

David will then close the presentation and open the phone lines for questions. I’ll now turn it over to David..

Thanks, Torry. Good morning, and welcome to our second quarter earnings conference call. As you’re aware, last week we announced the execution of definitive agreement to acquire Grand Bank located in Dallas with assets of $609 million as of June 30.

On a pro-forma basis, at closing, combined assets for Independent Bank are expected to be north of $5 billion. Grand has two well positioned locations. One in Preston Center and the other along the North Dallas Tollway.

These locations provide branch coverage in areas with attractive demographics and vibrant economic activity and add to our presence in the Dallas community. Grand has a very strong balance sheet in terms of asset quality and on a pro-forma basis will improve our loan to deposit ratio to approximately 92%.

It also has a very strong deposit base with over 40% noninterest bearing demand deposits and a cost of fund of 14 basis points. Importantly, we believe that there is a real opportunity to reallocate Grand’s un-invested liquidity to increase profitability.

Under the terms of the agreement, the total consideration is valued at $80.1 million, $24.1 million in cash and the remainder in IBG stock. We anticipate that the acquisition will be accretive to earnings immediately and slightly dilutive to a tangible book value at closing with the dilution earn back in less than three years.

We anticipate closing in the fourth quarter with the operational conversion in the first quarter of 2016. We’ve entered into agreements with Grand’s leadership and key producers and are excited about them being a part of the Independent Bank family.

Overall, after this acquisition we will be the 11th largest Texas bank and will rank 9th among Texas based banks for in-state deposits. We issued a press release and presentation on July 23 last week, which includes the details of the transaction. Both documents are available on our Web site in case you’ve not seen them.

With respect to the second quarter, organic loan growth was approximately 9% on an annualized basis with total assets reaching $4.38 billion at quarter end compared to $3.65 billion at the end of the second quarter last year. We did experience high pay-offs in the quarter and in addition our energy portfolio saw some reduction.

Most of our second quarter growth was focused in the commercial real estate and non-energy CNI portfolios. Our core earnings were $10.5 million or $0.61 per diluted share. Earnings reflect continued growth in earning assets. We remain very focused on asset quality and our metrics for the second quarter remain strong.

The credit team continues to work -- to closely supervise underwriting, monitor quality and maintain effective credit administration. Regarding our energy portfolio, as mentioned, we did see an overall reduction of $12.4 million in its size, since the previous quarter through sales, capital infusions and MCRs.

Three of our credits totaling $36.1 million were moved to criticized, but we did not have any addition to the classified category. To date, we have one classified loan totaling $4.2 million and we continue to make specific provisions against it.

Aggregate credit size and classified credits in the energy book totaled $52.3 million or approximately 1.5% of the total loan book. While there could be additional migration in energy portfolio over the balance of the year, we don’t foresee material losses in the portfolio at this time.

With that, I’d like to ask Michelle to go over our 2015 second quarter operating results.

Michelle?.

Thank you, David and good morning everyone. As noted in the earnings release, our second quarter core net income was $10.5 million or $0.61 per diluted share, compared to $9 million or $0.57 per diluted share for the second quarter of 2014 and to $10.2 million or $0.60 per diluted share for the quarter ended March 31, 2015.

Net interest income was $37.8 million for the second quarter of 2015, compared to $31.4 million for the second quarter of 2014 and $36.1 million for the first quarter of 2015. The increase from the previous year resulted from our organic growth and loans acquired in our two Houston acquisitions.

The increase on a sequential basis is due to higher average loan balances and an increase in accretion income compared to the first quarter. Our net interest margin was 4.10% for the second quarter, compared to 4.26% for the prior year quarter, and compared to 4.07% for the first quarter.

The decrease from last year is primarily due to reduced loan yields, and the interest paid on our subordinated debt which was issued in July of 2014. The increase from the prior quarter is primarily due to increased accretion income on acquired loans.

Our core net interest margin which excludes accretion income was 4.04% for the second quarter compared to 4.20% in the prior year quarter and 4.05% in the linked quarter. Total non-interest income increased $990,000 compared to the second quarter 2014 and increased $143,000 compared to the first quarter of 2015.

The increase year-over-year and on a linked quarter basis is a result of enhanced fees for deposit accounts and greater mortgage fee income. Total non-interest expense decreased $888,000 compared to second quarter 2014 and increased $69,000 compared to first quarter of 2015.

The decrease from the prior year is primarily the result of the non-recurring compensation of approximately $4 million paid in connection with the Bank of Houston acquisition partially offset by increased salaries, occupancy, data processing, communication and other non-interest expenses due to increased employees and locations added in the two Houston acquisitions in 2014.

On a linked quarter basis the increase is related to slightly higher operating expenses given our growth offset by a reduced acquisition expense. The provision for loan loss expense was $1.7 million for the quarter, an increase of $280,000 from the second quarter of 2014 and a small decrease of $11,000 from the first quarter.

The provision is directly related to our organic loan growth in recognition of the current energy environment including an additional specific allocation to the classified energy loan that was placed on non-accrual in the first quarter.

As it relates to loans, for the first quarter organic loans held for investment grew 2.2% from March 31, 2015 or 8.8% on an annualized basis. The compensation of the overall loan portfolio remains comparable to previous quarters. C&I represented 20% of the portfolio, which is a slight decrease from last quarter due to energy pay downs.

Energy, E&P outstandings at the end of the second quarter were $226.6 million comprised of 28 borrowers representing 6.7% of the entire loan portfolio. Virtually all of our E&P customers have hedges in place for 2015 with the average hedge price for oil about $70 per barrel. We’ve also increased the number of outstanding hedges for 2016.

Oil field service related balances continue to represent less than 1% of total loan balances at June 30, 2015 and decreased slightly to $23.3 million. With respect to overall asset quality, total non-performing assets represented 0.37% of total assets at June 30, 2015 compared to 0.35% of total assets at June 30, 2014 and 0.43% at March 31, 2015.

The increase in the ratio from the prior year is primarily related to the addition of the previously mentioned energy credit. The decrease from the linked quarter is primarily related to the sale of other real estate during the second quarter of 2015.

With respect to funding, total deposits were $3.47 billion at June 30, 2015 compared to $2.85 billion at June 30, 2014 and $3.39 billion at March 31, 2015. We continue to look for ways to grow our core deposit base while keeping costs low.

The average cost of interest bearing deposits decreased to 47 basis points for the quarter compared to 49 basis points for the second quarter of 2014 and was slightly higher from the first quarter of 2015. Our year-to-date total cost of deposits was 36 basis points.

25.6% of our deposits were non-interest bearing up from 24.9% a year-ago and 23.8% at March 31. Total borrowings decreased by $25.8 million from March 31, 2015. The decrease is primarily related to maturities of FHLB advances.

As it relates to capital, our tangible common equity to tangible assets ratio increased to 7.11% at June 30, 2015 compared to 7.10% for the first quarter. Our total risk weighted capital ratio increased to 12.03% at June 30, 2015 compared to 11.88% as of March 31, 2015.

Tangible book value per share continued to increase to $17.18 at June 30, 2015 compared to $16.65 at March 31, 2015. As we discussed in the first quarter, we were very conservative in our risk weightings of assets from March 31, 2015.

After more detailed review, we were able to adjust some assets in commitments to lower weightings as of June 30, which help to improve our risk weighted capital ratios. That concludes my outline of the highlights for our financial statements. I’ll turn it back over to David..

Thanks, Michelle. Growth continues to cross our franchise. The Grand Bank transaction represents continued execution of our targeted acquisition strategy. We will also continue to grow organically. Even though we experienced high pay-offs and we add some closings to get push to the third quarter, our loan pipeline remains sound.

We took time during the quarter to continue to build our lending team by hiring three new lenders, all in Austin. We currently have the highest headcount and strongest debt that we’ve ever had in that market. Earnings remains solid and asset quality remained strong despite the energy market.

In addition to the Grand acquisition, I remain very involved M&A conversations and we intend to build out our footprint as opportunities arise. We will continue to remain disciplined in our approach to acquisitions with respect to both strategic fit and valuation metrics.

We believe that our strong financial position, excellent credit quality and commitment to our proven business model will yield positive results, differentiate us and enhance shareholder value. And with that, we will open the call to questions.

Operator?.

Thank you. [Operator Instructions] And our first question comes from Kevin Fitzsimmons from Hovde Group. Your line is now open. Please go ahead..

Hey, it’s Hovde Group. Good morning, everyone..

Good morning, Kevin..

Hey, Kevin..

I appreciate the detail on credit and the energy book, but David one thing if you could just touch on, how you’re looking going forward? I’m sure much of the work in the re-determination process on the borrowing base has been focused on where we stood in most of the first half of the year, which was relatively stable at a little above or below $60 oil and now we wake up and we’re in kind of mid to high 40s oil and just -- if you could describe what the process going forward is? Are we -- do we wait -- is it the fall where we’ve another borrowing base assessment that we go through and what your outlook on risk rating downgrades might be with where oil stands today? Thanks..

Thanks, Kevin. One of the advantages to the higher oil price is during May and June is that a number of our borrowers were able to go out and hedge at higher prices out into 16, so over half of our portfolio is now hedged out into 16 at strong prices in that $60 plus range. So that helps a lot.

And answer to your question, there will -- we’ve a continual monitoring process going on, we got 28 borrowers, 30 credits; we’re continually in contact with the monitoring, running stress test, looking at the effect of the oil prices.

I think we said in our release, Kevin, that if oil prices stay down, continue to go down depending what they do, we could continue to see a migration of credits from pass to criticized to classified. But at this time we think our portfolio is in good shape, is marked properly, has been looked at a number of different ways and different angles.

And at this point we think we’ve correctly identified and reserved and everything in portfolio and we don’t see any signs that oil prices getting back down here in the mid to upper 40s is going to change anything dramatically, but clearly the borrowers in better shape when oil is $60 than they’re when its $45.

But we’re continuing to execute our plans that we put in place and a lot of those plans were put in place when oil was in the 40s..

The one thing, Kevin -- this is Torry. The one thing is and David has alluded to it, is we’re the lead on 25 of the 28 credits that we are in. So we have got that much more constant dialogue. Again, it's so important to be at the -- in the top of those 25 of the 28 relationships that we’ve. So as David pointed out there is constant monitoring of those..

Got it. That makes sense. It makes sense.

Just one quick follow-up, if you could just give a few more comments about the M&A environment? David, you mentioned that you’re still involved in conversations and the Grand Bank obviously looks like a good deal based on all the metrics and the opportunity, but with the lower oil prices the decline we have seen, what is that due to the M&A environment? Because I seem to remember when you have -- when we had the initial shock down in oil prices, a lot of bankers talked about the M&A environment being a bit frozen where sellers were kind of frozen in their tracks wanting to see what happened.

And so, did things start to fall in the first half of the year with oil prices stabilizing and then what do you think happens with this decline we’ve seen now? Thanks..

Thanks, Kevin. The primary thing that froze the M&A discussions was the bank stock prices trading along lockstep with the oil prices. So we have seen quite a recovery -- had seen quite a recovery in oil prices and likewise strong recovery in the Texas bank prices. So that's been the most helpful thing.

I haven't seen any indication that this recent dip in the oil prices has cooled anything down. Clearly, it revolves primarily around what the bank stock prices do and -- but we’re quite encouraged, continue to be involved in a number of discussions.

I think as I had mentioned earlier and as you just said, Kevin, we really saw the sellers took a pause as well, not only because of the stock prices, but concern about who they wanted to partner with and who -- if anybody really had a lot of energy, credit related problems and I think most of that concern is past time and earnings and examinations and the SNC credit examinations, all those things have gotten the sellers comfortable that, that the information is out there now and if anybody who is going to have a major problem, we’d be seeing signs of it by now.

And so, I think the sellers are still anxious to find a good partner and I think there is a little bit of price discovery going on right now just to see what -- what is the market here now coming out of the oil price decline and the bank stock declined in subsequent recovery, what are the valuations going to look like and we felt good about the Grand deal, feel very, very good about the Grand Bank acquisition that we announced and hopeful that we can find some more fits like that in the months to come..

Okay, great. Thanks. Thanks..

Thanks, Kevin..

Thank you. And your next question comes from Steve Moss from Evercore ISI. Your line is now open. Please go ahead..

Hi. Good morning, guys..

Good morning, Steve..

I was wondering, just following up one thing on the energy portfolio; do you have any color as to what or how much it could decline over the next year or so?.

That's a good question. We really went into the year thinking that we would be able to hold our own, Steve. Obviously, we didn't have. We were just in the process of discovering where all our borrowers were.

We had a couple of loans pay off, we put a number of our borrowers as I mentioned in past calls have been placed on monthly commitment reductions or repayment schedules, if you will. And that's adding about $12 million a quarter to the -- through the pay down rate in the energy portfolio right now.

And then we are expecting a couple of other significant relationships in the process of selling assets, marketing some or all of their assets in an attempt to deleveraging retire debt. So we booked one significant credit, energy credit in the second quarter.

We booked one in the first quarter, but for us anyway finding new business in the energy sector has been challenging here. Part of it I think is just our focus has been on working with the current borrowers and working plans and looking at borrowing rates for determinations and engineering et cetera.

And so we probably haven't spent as much time on marketing as we had in the couple of years previous to that. That said, we also see a lot of caution on the energy companies’ part in terms of not wanting to add leverage right now.

So our hope is and we think its still should be the case that in the second half of the year that have some of these assets sell and trade hands that we'll get an opportunity to finance some of those transactions. That said, we just didn't see a lot of that opportunity the first of the year and consequently we are down.

So I don’t know that we’ve done a specific forecast, Steve, at this point in terms of what we think over the next 12 months. I'm sure a lot of that will have to do with what oil prices do and everything, but for us to have a similar drop in our energy portfolio in the next two or three quarters wouldn’t surprise us at this point..

Okay.

And then, the construction loan portfolio also continues to decline, just wondering if you can give some updated thoughts there?.

We continue to improve a lot of construction loans.

Steve, I’m not -- is there a specific are you talking about, retail or residential or commercial?.

The construction development land -- I got a little cross-eyed, maybe. Yes, commercial construction and land development was down from December 31st..

Got it.

And I think a number of our large construction projects, Steve, completed in the first half of the year that we were funding larger commercial and construct a CRE retail and office projects completed and rolled into permanent financing, so we got paid off of some of those, some of them converted into permanents on our loan and on our books and -- but we have got a huge pipeline of construction loans that we have approved that are going to be funding up and so I expect that trend to reverse and you'll see increases in the construction portfolio here in the second half of the year..

Steve, sometimes it’s just a question on timing on that when fundings actually take place..

Okay.

And I guess looking at the overall total loan portfolio, I know you thought about loan growth in terms of the mid-teens or so, is that still your view at this point?.

Well, we were surprised a little bit in the second quarter.

Frankly, our pay-offs not only energy, but we had a number of our commercial real estate loans that paid off during the second quarter and purely as a result and I think we may have spoken about this phenomenon in the past, but purely the result of we financed a lot of real estate asset acquisitions in ’09 to 2012 when prices were depressed.

And now that cap rates are very low and prices very high, and some might call a little bit frothy on the prices of real estate, commercial real estate, a lot of our borrowers have taken their gains and sold those properties and then we just haven’t been as aggressive in financing those acquisitions, because they just obviously tend to be at aggressive prices and sometimes we can’t get enough equity to get comfortable with the -- with those particular transaction.

So we’ve a little more hesitant to -- we were very happy financing the acquisition of the property that stress priced in 2011, but maybe not as excited about financing 70% of that price when its doubled or tripled since 2011. So that's been a bit of a challenge for us.

So going forward, our year-to-date annualized loan growth organically held for investment is about 11%. I think we still see low to mid teens growth in the second half of the year. We got a great pipeline looking out and we did get some of our credits that we had counted on closing in the second quarter, got pushed into the third quarter.

But that said, whether if I'm looking at it now for the year just the way we think about it. For 11% in the first half of the year and mid teens in the second half of the year then that blends together for a total ’15, we’re now thinking a low -- more of a low teens growth rate for this year.

And then it’s a little early to think about ’16 yet and how we see that, but I think we’re still more of a low to mid teens, probably low teens for the entire year of ’15 and then we hope to be a mid teens grower in ’16 and beyond, but we’ll see. A lot of that depends on how energy comes around and….

Okay. Thank you very much..

You bet..

Thank you. And your next question comes from Brett Robinson from Piper Jaffray. Your line is now open. Please go ahead..

Hi, guys, good morning. Congrats on the Grand deal..

Thanks, Brett. Good morning..

I wanted to -- I guess first, just go back to talking about the loan portfolio and I’m curious you obviously had an increase in accretion income in the first quarter.

Did the loan payoffs that you experienced in 2Q, did that benefit the margin? Did you have some pre-payment fees that kind of boosted the loan yields and just, any kind of color around where you guys are kind of originating loans today and if the margin can continue to hold up here at pretty nice levels..

We may answer the last question first. I think we still feel good and Michelle can address in a more detail if you want. But we still feel good about out margin and picked up a little bit for the quarter as you mentioned because of some accretion income and some of that was a result of some payoffs or payments on loans that we had acquired.

But we still feel good.

I think our guidance was and the core NIM went from 4.05 to 4.04 first quarter to second quarter and I think we’ve guided to about a one basis point decline per quarter for the next few quarters until or unless rates go up, and we do think our - it will be a positive from an asset liability standpoint, Grand is asset sensitive, Grand Bank is asset sensitive.

So when we blend them in, in their 40 plus percent DDA balances into our balance sheet that will help and make us a little bit more asset sensitive although we still remain pretty neutral and they’re a significant bank but on a $5 billion balance sheet they’ll be 10% or so of our -- 10% to 12% of our balance sheet.

So it won't be a, the dramatic shift but it will push us a little bit more toward the asset sensitive side. Loan rates tend to look stabilized to us, floating rates and coming all and at similar rates that they have been three to five year fixed rate CRE loans in the 4% to 4.5% range.

So pretty similar, we’re not seeing a lot of downward pressure on rates.

We’re seeing more pressure Brett on the structure, just people wanting to stretch out their -- stretch out their fixed rate period now that they are concerned about rates going up, people -- like I mentioned a moment ago buying real estate that pretty significantly increased prices than where they were a couple of years ago and wanting to put a lot of leverage on those transaction.

So we’re just -- we’re being cautious around that. So it’s more of the -- it’s been more of a structural issue than it has been a pricing issue. Torry..

Right on the -- just across the deposits, the Grand acquisition really helps as well as David pointed out just on deposits. But their cost of deposits was 14 basis points. So that when you blend that in with us that’s a real benefit to us, because we’re in the mid 30s. So you put there 14, so that brings out cost down which is a real asset..

All right. Okay. And then, I appreciate that color.

And then the other thing I was just hoping for some clarity on was just, expenses moved up a little more maybe than I was expecting in 2Q, is this sort of a good run rate going forward or can you talk maybe about the growth of the expense levels in 2Q and kind of what drove that?.

Yes, I think it’s the good run rate. There were a few things that caused expenses to go up in Q2. We have added six lenders this year. So salary expenses have increased there just because of that which we talked about in the past as we add groups of lenders that is going to make our expenses and our efficiency ratio a little lumpy.

We also, if you notice mortgage is having a really good year, so that causes increases in their commission and bonus expenses because as we talked about before there, the revenue we get from mortgage really to the bottom line is not that significant simply because of the comp agreements that we have with those guys.

But I think going forward this should be a good quarter to use as a run rate..

Okay. Great. Thanks I appreciate the color..

Thanks, Brett..

Thank you. And your next question comes from Brad Milsaps from Sandler O'Neill. Your line is now open. Please go ahead..

Hi. Good morning..

Hi. Good morning, Brad..

David, you guys have covered almost everything. But I just want to verify a couple of numbers.

Did you mention that the classified number of energy loans was $52.3 million, is that correct?.

No. The only classified loan we have is the $4.2 million loan that we’ve moved to non-accrual and been making provisions for. We have moved up few of our credits from past over into OEM or mentioned credits or watch credits somehow, different terminology people use.

But we call those criticized but not, they’re not classified substandard, then so the picture categories OEM, loans from regulatory standpoint.

And so, they are -- they kind of straddle the fence, I guess, between past and the classified credit and so we have seen a migration from the past credits over into that category just watching them a little more closely. Some of them are in the process of selling assets or refinancing which I mentioned earlier.

So credits that are in that category, credit we’re working to help them either improve or pay down or pay off..

Okay. Got it. So that’s the criticized bucket. Okay, perfect..

Yes. The $52.3 million, it includes criticized and classified, so it includes the one classified. So criticized would be about $48 million classified at $4.2 million..

And I think that number was around $17 million last quarter and I guess, obviously the increase just reflects you guys, continue to go through the book and kind of what's happening with energy prices et cetera..

Exactly right.

So in some cases Brad, we put a plan in place and they were executing a plan to maybe raise capital and if they didn’t get that capital raise done in the time that we agreed for them to get it done and that could have caused them to move over into, we better watch this a little more closely and in a lot of cases those borrowers as I mentioned have plans to raise equity, sell assets, do whatever so until they get those plans executed we may put them in that category and keep a close eye on it..

Great. And then just kind of one housekeeping thing as it relates to Grand. I appreciate all the disclosure there in the slide deck.

Did you guys, when you -- your accretion assumptions, did you build those off of the consensus expectations that are out there for you guys or was it more of an internal type forecast?.

It was completely off the consensus of all the eight analysts to cover us and have numbers out there..

Perfect. Thank you very much..

Thanks, Brad..

Thank you. And your next question comes from Matt Olney from Stephens. Your line is now open. Please go ahead..

Hi. Thanks. Good morning, guys..

Good morning, Matt..

On the efficiency ratio, I believe the previous commentary you are targeting a low 50s number in the back half of the year. And since then you guys have announced the Grand deal and reported 2Q results.

So, any incremental commentary on the efficiency ratio in the back half of the year, end of 2016?.

No, I think the efficiency ratio will continue to come down Matt. As Michelle mentioned, we did hire six lenders in the first half, three in the second quarter in that, in addition to the mortgage increase in volume and revenues, revenues and expenses related with mortgage have kind of pushed that expense run rate up a bit.

But we think that’s a pretty good run rate for the balance of the year and obviously we expect revenues to continue to improve. So the efficiency ratio will naturally come down.

We’ll get a big boost in that or a big drop in the efficiency ratio but a big boost in our quest to get our efficiency ratio down, I guess is the right way to say it with the Grand acquisition.

And one of the things we said Matt is, drive our efficiency ratio down into the low 50s or upper 40s, I mean its going to take this, this continue to leverage our infrastructure meaning growing and this acquisition puts us -- will put us through $5 billion -- $5 billion to $5.2 billion by the end of the year.

And then our organic growth and other possible transactions we think over the next 12 to 18 months will get us in that $6 billion to $7 billion range. And at that level is where we really get our maximum efficiency down in that 50% range..

Okay. Thanks helpful. And then as far as the M&A commentary, Grand obviously gives you more metro Dallas scale. What's the strategic parterre now in terms of geography so for future M&As.

Is it still additional metro Dallas or is it elsewhere?.

Well we’re -- I’ll say, what I always say, Matt to that question which is we’re going to go where the best opportunities are. That said I think given where we’re in Dallas-Fort Worth, Austin, San Antonio would be all markets that we’re very interested in, in expanding our presence and our footprint. Houston is still a great opportunity.

We’re still I would say to be completely transparent, we’re still putting our franchises together down there. We made two significant acquisitions there in 2014, and we just want to make sure we get that right before we add to that franchise. And so we’re more focused I would say on Central and Northern Texas right now in our M&A discussions.

But we continue to have banks we really admire in the Houston market as well. And so I think opportunities could be anywhere but from priority standpoint, North and Central Texas would be a higher priority for us right now..

All right. That’s helpful. Thank you much..

Thanks, Matt..

Thank you. And your next question comes from John Moran from Macquarie Capital. Your line is now open. Please go ahead..

Hi. Good morning..

Good morning, John..

How is it going? I’ve got a couple of ticky-tacky questions on energy. I think you guys mentioned that 50% is hedged into -- or 50% plus hedged into ’16.

What's that out for ’15?.

73%, right now is hedged in, for the second half of ’15..

Okay.

And second half of ’15 you mentioned was north of $70 a barrel, the ’16 hedges that came in that got layered in, where is that at in terms of pricing?.

In that range where the pricing was in May, June right in the range of low 60s, I think the average was about $62 a barrel..

Got it. So everybody just kind of ran for it as the commodity recovered. Okay..

Stayed, ran for it or we let them to the table..

Got you..

You got to remember John, when a lot of those hedges were in place, the prices were lower over an overall basis for, when you put ’16 and then when you initially put the ’15s in so..

Okay. Got it. That’s helpful. And then, if you could give us an update on how many out of the 28 credits or so are in MCR today.

I think guys of the first quarter call, it was close to half?.

Yes. Now with a few more borrowing base determinations and completions everything were close, two-thirds of our credits are now on monthly reductions..

Okay.

And where are the advance rates on the book, overall today?.

Our policy remained 65% and the majority of our credits are within that band. The ones that are not would be the ones that are in that criticized area as we’re working with them to get those advance rates down.

But they’re not materially different where we’ve been but there are almost, most are in compliance, the ones that are on in the 65% to 75% range. So we still feel fine about especially when you put the hedges in place..

Okay. All right. And then the kind of ticky-tacky one on the energy book for me.

How many -- and I know that this is a little bit different than other banks where the vast majority of the book is SNC, but how many of these count as Shared National Credits and are the 2Q SNC exams incorporated in this set of results for you guys?.

We have four of our 28 relationships are considered SNCs. Two that we participate in with other Texas banks, and they all have been subject to the SNC review and none are criticized or classified at this time..

Perfect. And then, I’ve actually got two others not energy related.

The hires in Austin, it sounds like all three were in Austin, is that C&I folks or CRE folks?.

A combination. I believe two of them were real estate and one was C&I lender. And all that been in the Austin all having followings there in the Austin market, so we really like that addition. Austin was our most production region loan growth wise in the first half of the year.

So we want to put people where the activity is, and so we’ve been focused on hiring people in Austin for the last year and really brought that to conclusion if you will in the second quarter by adding those three..

That’s helpful. And that actually leads well into my last question, which is in terms of kind of pipelining growth by geography it sounds like, so obviously you just said Austin has been the most productive. Can you give us some color on the other markets? And I think a lot of investors are kind of concerned about Houston slowing.

So maybe any color that you can give with respect to that market would be helpful..

Well, I will say our Bank of Houston, Houston broadly was positive in the first half of the year. They were, I guess the recipients of a number of the pay downs I spoke about earlier, some very nice real estate deals that they had on their books when we acquired the bank in 2014 some of those paid off here in ’15, first half of ’15.

They have done a great job of generating new business. So our pipeline in Houston looks really good. We’ve just been battling that headwind of the pay downs there.

In addition to that in our Houston community acquisition there were a couple of lines of business that we chose not to continue in and so we have either seized those lines of business or sold off those lines of business. So that also resulted in some decline in their overall total book in Houston. So we’re seeing good activity down there.

But in terms of this, the net growth, net of payoffs Austin was the strongest market followed by Dallas and then Houston would be third in that. One of the third we’re really encouraged about is not only our pipeline John, that I mentioned earlier from our existing banks but, we really have a lot of synergy with the Grand Bank.

Our current Dallas presence has done a good job with locating and generating a lot of business in C&I as well as real estate. But Grand has almost another whole group of customer base that have been somewhat limited by their smaller borrowing base and where we really see a lot of opportunity there.

In fact I know our officers are already working with their leadership on a couple of opportunities even since the announcement, last Thursday. So there’s going to be a lot of opportunity there and that’s one of the reasons we’re encouraging it. It won't necessarily have to wait until after they close the acquisition towards the end of the year.

So while we think it will be very helpful in 2016, we actually think there’ll be some nice opportunities here in the second half of ’15..

Terrific. I appreciate all the color. Thanks..

Thank you, John..

Thank you. And your next question comes from Michael Young from SunTrust. Your line is now open. Please go ahead..

Hi. Good morning..

Good morning, Michael..

I just wanted to check on one thing. I thought you had hired six lenders in the first quarter, and then you’re mentioning three this quarter. But you were saying six for the full year. I was just trying to make sure I understood that..

Yes, you’re correct. I think Michelle may have misspoke. Yes, we hired six in the first quarter and three follow-on in the second quarter, so a total of nine year-to-date. I apologize..

Okay.

And six total in the Austin market thus far?.

Correct. That’s right..

And can you just give an update on maybe how much of the growth this quarter came from Austin?.

I don’t know that I have a dollar amount; year-to-date let me look here. Year-to-date, it’s $56 million of net growth and about $40 million in Dallas. So, between just our Austin proper and our downtown Dallas location about a $100 million of the growth..

Okay. Thanks great. And just one last one on the energy portfolio, I just want to make sure I understand.

The hedge percentages that you’re talking about, that’s number of customers hedged or is that percentage of production?.

Yes, it’s a percentage of a production, so that’s the number of barrels that we have financed, that are hedged..

Okay. That’s great. Thanks..

Thanks, Michael..

Thank you. [Operator Instructions] And your next question comes from Brett Robinson from Piper Jaffray. Your line is now open. Please go ahead..

My follow up has been answered. Thank you..

Hi, Brett..

Thank you. And our next question comes from Adam France from 1492 Capital. Your line is now open. Please go ahead..

Good morning, guys. Thanks for squeezing me in.

Just a quick clarification point, you talked about low teens loan growth for this year, was that including Grand or excluding Grand?.

Well, of course we won't have Grand until we’re targeting a November 30 close on Grand. So, yes I’m talking just purely organic growth that we’re projecting to be -- we were 11% in the first half of the year, project still to be low mid teens, 14%, 15% kind of a number in the second half which will blend to a 13’ish kind of number for the year.

So we consider that to be low teens for the year just purely organically. When I mentioned the Grand opportunities that would be organic to the extent that we can generate some joint opportunities here between now and the end of the year and that would be plus and on top of that if we can do that..

Very good. Thank you..

Thank you. I’m not showing any further questions at this time..

Okay. If there are no further questions in that, we will conclude our second quarter 2015 earnings call. We appreciate your attendance and thank you for your interest in Independent Bank Group. Have a great day..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day..