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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
☒
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2023.
or
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from                 to                    .
Commission file number 001-35854
Independent Bank Group, Inc.
(Exact name of registrant as specified in its charter)
Texas13-4219346
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
7777 Henneman Way
McKinney,
Texas75070-1711
(Address of principal executive offices)(Zip Code)
(972) 562-9004
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Exchange on Which Registered
Common Stock, par value $0.01 per shareIBTXNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☒Accelerated Filer☐
Non-Accelerated Filer☐(Do not check if a smaller reporting company)
Smaller Reporting Company☐
Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
Common Stock, Par Value $0.01 Per Share – 41,281,499 shares as of April 21, 2023.



INDEPENDENT BANK GROUP, INC. AND SUBSIDIARIES
Form 10-Q
March 31, 2023

PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2
Item 3.
Item 4.
Item 5.
Item 6.
***




Table of Contents

PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Independent Bank Group, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2023 (unaudited) and December 31, 2022
(Dollars in thousands, except share information)
March 31,December 31,
Assets20232022
Cash and due from banks$108,178 $134,183 
Interest-bearing deposits in other banks940,412 520,139 
Cash and cash equivalents1,048,590 654,322 
Certificates of deposit held in other banks496 496 
Securities available for sale, at fair value1,675,415 1,691,784 
Securities held to maturity, net of allowance for credit losses of $0 and $0, respectively
206,602 207,059 
Loans held for sale (includes $12,989 and $10,612 carried at fair value, respectively)
16,576 11,310 
Loans, net of allowance for credit losses of $146,850 and $148,787, respectively
13,859,736 13,760,576 
Premises and equipment, net354,540 355,368 
Other real estate owned22,700 23,900 
Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock85,408 23,436 
Bank-owned life insurance (BOLI)241,395 240,448 
Deferred tax asset91,269 78,669 
Goodwill994,021 994,021 
Other intangible assets, net59,888 62,999 
Other assets141,718 154,026 
Total assets$18,798,354 $18,258,414 
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing$4,148,360 $4,736,830 
Interest-bearing9,907,327 10,384,587 
Total deposits14,055,687 15,121,417 
FHLB advances1,800,000 300,000 
Other borrowings337,607 267,066 
Junior subordinated debentures54,469 54,419 
Other liabilities199,734 130,129 
Total liabilities16,447,497 15,873,031 
Commitments and contingencies— — 
Stockholders’ equity:
Preferred stock (0 and 0 shares outstanding, respectively)
— — 
Common stock (41,281,904 and 41,190,677 shares outstanding, respectively)
413 412 
Additional paid-in capital1,961,637 1,959,193 
Retained earnings583,529 638,354 
Accumulated other comprehensive loss(194,722)(212,576)
Total stockholders’ equity2,350,857 2,385,383 
Total liabilities and stockholders’ equity$18,798,354 $18,258,414 
See Notes to Consolidated Financial Statements
1

Table of Contents

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months Ended March 31, 2023 and 2022 (unaudited)
(Dollars in thousands, except per share information)
Three Months Ended March 31,
20232022
Interest income:
Interest and fees on loans$184,294 $129,179 
Interest on taxable securities7,858 8,359 
Interest on nontaxable securities2,603 2,333 
Interest on interest-bearing deposits and other6,421 994 
Total interest income201,176 140,865 
Interest expense:
Interest on deposits62,261 5,610 
Interest on FHLB advances5,824 179 
Interest on other borrowings4,079 3,482 
Interest on junior subordinated debentures1,090 446 
Total interest expense73,254 9,717 
Net interest income127,922 131,148 
Provision for credit losses90 (1,443)
Net interest income after provision for credit losses127,832 132,591 
Noninterest income:
Service charges on deposit accounts3,349 2,752 
Investment management fees2,301 2,451 
Mortgage banking revenue1,624 3,026 
Mortgage warehouse purchase program fees324 958 
Loss on sale of loans— (1,484)
Gain (loss) on sale and disposal of premises and equipment47 (163)
Increase in cash surrender value of BOLI1,377 1,310 
Other3,732 4,035 
Total noninterest income12,754 12,885 
Noninterest expense:
Salaries and employee benefits46,275 49,555 
Occupancy11,559 10,000 
Communications and technology7,090 5,901 
FDIC assessment2,712 1,493 
Advertising and public relations604 456 
Other real estate owned expenses, net(44)— 
Impairment of other real estate1,200 — 
Amortization of other intangible assets3,111 3,145 
Litigation settlement102,500 — 
Professional fees3,065 3,439 
Other11,308 8,468 
Total noninterest expense189,380 82,457 
(Loss) income before taxes(48,794)63,019 
Income tax (benefit) expense(11,284)12,279 
Net (loss) income$(37,510)$50,740 
Basic (loss) earnings per share$(0.91)$1.19 
Diluted (loss) earnings per share$(0.91)$1.18 
See Notes to Consolidated Financial Statements
2

Table of Contents

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended March 31, 2023 and 2022 (unaudited)
(Dollars in thousands)
Three Months Ended March 31,
20232022
Net (loss) income$(37,510)$50,740 
Other comprehensive income (loss) before tax:
Unrealized gains (losses) on securities:
Unrealized gains (losses) arising during the period, excluding the change attributable to available for sale securities reclassified to held to maturity20,771 (106,564)
Tax effect4,362 (22,378)
Unrealized gains (losses) arising during the period, net of tax, excluding the change attributable to available for sale securities reclassified to held to maturity16,409 (84,186)
Change in net unamortized gains on available for sale securities reclassified into held to maturity securities(5)(5)
Tax effect(1)(1)
Change in net unamortized gains on available for sale securities reclassified into held to maturity securities, net of tax(4)(4)
Change in unrealized gains (losses) on securities, net of tax16,405 (84,190)
Unrealized gains (losses) on derivative financial instruments:
Unrealized holding gains (losses) arising during the period940 (4,965)
Tax effect197 (1,043)
Unrealized gains (losses) arising during the period, net of tax743 (3,922)
Reclassification of amount of losses (gains) recognized into income894 (202)
Tax effect188 (42)
Reclassification of amount of losses (gains) recognized into income, net of tax706 (160)
Change in unrealized gains (losses) on derivative financial instruments1,449 (4,082)
Other comprehensive income (loss), net of tax17,854 (88,272)
Comprehensive loss$(19,656)$(37,532)
See Notes to Consolidated Financial Statements
3



Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended March 31, 2023 and 2022 (unaudited)
(Dollars in thousands, except for par value, share and per share information)
Preferred Stock
$0.01 Par
Common Stock
$0.01 Par Value
Additional
Paid in Capital		Retained
Earnings		Accumulated Other Comprehensive (Loss) IncomeTotal
Value
10 million shares authorized
100 million shares authorized
SharesAmount
Three Months Ended
Balance, December 31, 2022$— 41,190,677 $412 $1,959,193 $638,354 $(212,576)$2,385,383 
Net loss— — — — (37,510)— (37,510)
Other comprehensive income, net of tax— — — — — 17,854 17,854 
Common stock repurchased — (26,777)— — (1,617)— (1,617)
Restricted stock forfeited — (1,763)— — — — — 
Restricted stock granted— 119,767 1 (1)— — — 
Stock based compensation expense— — — 2,445 — — 2,445 
Cash dividends ($0.38 per share)
— — — — (15,698)— (15,698)
Balance, March 31, 2023$— 41,281,904 $413 $1,961,637 $583,529 $(194,722)$2,350,857 
Three Months Ended
Balance, December 31, 2021$— 42,756,234 $428 $1,945,497 $625,484 $5,241 $2,576,650 
Net income— — — — 50,740 — 50,740 
Other comprehensive loss, net of tax— — — — — (88,272)(88,272)
Common stock repurchased— (37,575)— — (2,789)— (2,789)
Restricted stock forfeited— (715)— — — — — 
Restricted stock granted— 77,284 — — — — — 
Stock based compensation expense— — — 2,412 — — 2,412 
Cash dividends ($0.38 per share)
— — — — (16,281)— (16,281)
Balance, March 31, 2022$— 42,795,228 $428 $1,947,909 $657,154 $(83,031)$2,522,460 
See Notes to Consolidated Financial Statements
4




Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2023 and 2022 (unaudited)
(Dollars in thousands) 
Three Months Ended March 31,
20232022
Cash flows from operating activities:
Net (loss) income$(37,510)$50,740 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation expense4,433 3,292 
Accretion income recognized on loans(1,115)(4,081)
Amortization of other intangibles assets3,111 3,145 
Amortization of premium on securities, net1,861 1,645 
Amortization of discount and origination costs on borrowings591 223 
Stock based compensation expense2,445 2,412 
Excess tax expense (benefit) on restricted stock vested85 (354)
FHLB stock dividends(397)(31)
(Gain) loss on sale and disposal of premises and equipment(47)163 
Loss on sale of loans— 1,484 
Impairment of other real estate1,200 — 
Impairment of other assets802 — 
Deferred tax (benefit) expense(17,347)4,203 
Provision for credit losses90 (1,443)
Increase in cash surrender value of BOLI(1,377)(1,310)
Excess benefit claim on BOLI(318)(784)
Net gain on mortgage loans held for sale(1,209)(1,407)
Originations of loans held for sale(56,152)(90,828)
Proceeds from sale of loans held for sale52,095 101,616 
Net change in other assets15,058 3,325 
Net change in other liabilities61,952 (50,696)
Net cash provided by operating activities28,251 21,314 
Cash flows from investing activities:
Investment securities available for sale:
Proceeds from maturities, calls and paydowns35,731 3,061,183 
Purchases— (3,211,644)
Investment securities held to maturity:
Purchases— (70,773)
Proceeds from maturities of certificates of deposit held in other banks— 248 
Proceeds from benefit claim of BOLI748 1,344 
Purchases of FHLB stock and other restricted stock(61,575)— 
Proceeds from redemptions of FHLB stock and other restricted stock— 33 
Proceeds from sale of loans— 17,506 
Net loans originated held for investment(3,889)(286,598)
Originations of mortgage warehouse purchase loans(2,238,118)(4,600,627)
Proceeds from pay-offs of mortgage warehouse purchase loans2,149,670 4,819,921 
Additions to premises and equipment(3,746)(19,441)
Proceeds from sale of premises and equipment188 9 
Net cash used in investing activities(120,991)(288,839)
5




Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Three Months Ended March 31, 2023 and 2022 (unaudited)
(Dollars in thousands) 
Three Months Ended March 31,
20232022
Cash flows from financing activities:
Net decrease in demand deposits, money market and savings accounts(1,500,907)(550,396)
Net increase (decrease) in time deposits435,177 (153,241)
Proceeds from FHLB advances3,350,000 — 
Repayments of FHLB advances(1,850,000)— 
Proceeds from other borrowings100,000 3,000 
Repayments of other borrowings(30,000)(17,000)
Repurchase of common stock(1,617)(2,789)
Dividends paid(15,645)(16,237)
Net cash provided by (used in) financing activities487,008 (736,663)
Net change in cash and cash equivalents394,268 (1,004,188)
Cash and cash equivalents at beginning of period654,322 2,608,444 
Cash and cash equivalents at end of period$1,048,590 $1,604,256 
See Notes to Consolidated Financial Statements
6


Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)

Note 1. Summary of Significant Accounting Policies
Nature of operations: Independent Bank Group, Inc. (IBG) through its subsidiary, Independent Bank, a Texas state banking corporation, doing business as Independent Financial, (Bank) (collectively known as the Company), provides a full range of banking services to individual and corporate customers in the North, Central and Southeast Texas areas and along the Colorado Front Range, through its various branch locations in those areas. The Company is engaged in traditional community banking activities, which include commercial and retail lending, deposit gathering, and investment and liquidity management activities. The Company’s primary deposit products are demand deposits, money market accounts and certificates of deposit and its primary lending products are commercial business and real estate, real estate mortgage and consumer loans.
Basis of presentation: The accompanying consolidated financial statements include the accounts of IBG and all other entities in which IBG has controlling financial interest. All material intercompany transactions and balances have been eliminated in consolidation. In addition, the Company wholly-owns nine statutory business trusts that were formed for the purpose of issuing trust preferred securities and do not meet the criteria for consolidation.
The consolidated interim financial statements are unaudited, but include all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the periods presented. All such adjustments were of a normal and recurring nature. These financial statements should be read in conjunction with the financial statements and the notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. The consolidated balance sheet at December 31, 2022 has been derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
Accounting standards codification: The Financial Accounting Standards Board's (FASB) Accounting Standards Codification (ASC) is the officially recognized source of authoritative U.S. generally accepted accounting principles (GAAP) applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative.
Segment reporting: The Company has one reportable segment. The Company’s chief operating decision-maker uses consolidated results to make operating and strategic decisions.
Reclassifications: Certain prior period financial statement and disclosure amounts have been reclassified to conform to current period presentation. The reclassifications have no effect on net income or stockholders' equity as previously reported.
Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates. The material estimates included in the financial statements relate to the allowance for credit losses, the valuation of goodwill and valuation of assets and liabilities acquired in business combinations.
Goodwill assessment: The Company's policy is to test goodwill for impairment annually on December 31 or on an interim basis if an event triggering impairment may have occurred. During the period ended March 31, 2023, the economic uncertainty and market volatility resulting from the rising interest rate environment and the recent banking crisis resulted in a decrease in the Company's stock price and market capitalization. Management believed such decrease was a triggering indicator requiring an interim goodwill impairment quantitative analysis. Based on an analysis performed, the Company's estimated fair value to a market participant as of March 31, 2023, exceeded its carrying amount resulting in no impairment charge for the period. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.


7


Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Adoption of new accounting standards: ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method. Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 expands the last-of-layer method, which permits only one hedge layer, to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU 2022-01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. The Company adopted ASU 2022-01 on January 1, 2023 and the adoption did not have a significant impact on the financial statements.

ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in ASC Subtopic 310-40, Receivables -Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. The Company adopted ASU 2022-02 on a modified retrospective basis on January 1, 2023. The adoption did not have a significant impact on the financial statements.
Subsequent events: Companies are required to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued. They must recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial statement preparation process. Entities shall not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. The Company has evaluated subsequent events through the date of filing these financial statements with the Securities and Exchange Commission (SEC) and noted no subsequent events requiring financial statement recognition or disclosure, except as disclosed in Note 13. Subsequent Events.
Earnings (loss) per share: Basic earnings (loss) per common share is calculated as net income (loss) available to common shareholders divided by the weighted average number of common shares outstanding during the period. The unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation. Diluted earnings (loss) per common share includes the dilutive effect of additional potential common shares issuable under participating nonvested restricted stock awards as well as performance stock units (PSUs). The participating nonvested restricted stock awards were not included in dilutive shares as they were anti-dilutive for the three months ended March 31, 2023 and 2022. Proceeds from the assumed exercise of dilutive participating nonvested restricted stock awards and PSUs are assumed to be used to repurchase common stock at the average market price.
8


Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The following table presents a reconciliation of net (loss) income available to common shareholders and the number of shares used in the calculation of basic and diluted (loss) earnings per common share:
Three Months Ended March 31,
20232022
Basic (loss) earnings per share:
Net (loss) income$(37,510)$50,740 
Less:
Undistributed (loss) earnings allocated to participating securities(206)266 
Dividends paid on participating securities61 125 
Net (loss) income available to common shareholders$(37,365)$50,349 
Weighted average basic shares outstanding41,063,527 42,438,857 
Basic (loss) earnings per share$(0.91)$1.19 
Diluted (loss) earnings per share:
Net (loss) income available to common shareholders$(37,365)$50,349 
Total weighted average basic shares outstanding41,063,527 42,438,857 
Add dilutive performance stock units93,422 73,392 
Total weighted average diluted shares outstanding41,156,949 42,512,249 
Diluted (loss) earnings per share$(0.91)$1.18 
Anti-dilutive participating securities58,891 145,219 

Note 2. Statement of Cash Flows
As allowed by the accounting standards, the Company has chosen to report, on a net basis, its cash receipts and cash payments for time deposits accepted and repayments of those deposits, and loans made to customers and principal collections on those loans. The Company uses the indirect method to present cash flows from operating activities. Other supplemental cash flow information is presented below:
Three Months Ended March 31,
20232022
Cash transactions:
Interest expense paid$72,029 $12,457 
Income taxes paid$20 $30 
Noncash transactions:
Deferred dividend equivalents$53 $44 
Transfer of securities available for sale to held to maturity$— $117,583 
Securities purchased, not yet settled$— $7,026 
Right-of-use assets obtained in exchange for lease liabilities$3,556 $3,882 
Loans purchased, not yet settled$4,987 $36,383 

9

Table of Contents

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Note 3. Securities
Securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost of securities and their approximate fair values at March 31, 2023 and December 31, 2022 are as follows:
Amortized
Cost (1)
Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
Securities Available for Sale
March 31, 2023
U.S. treasuries$249,309 $— $(17,260)$232,049 
Government agency securities468,934 — (80,457)388,477 
Obligations of state and municipal subdivisions257,409 317 (10,152)247,574 
Corporate bonds43,000 — (6,239)36,761 
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA 893,934 7 (124,087)769,854 
Other securities700 — — 700 
$1,913,286 $324 $(238,195)$1,675,415 
December 31, 2022
U.S. treasuries$259,675 $— $(20,265)$239,410 
Government agency securities468,994 — (84,479)384,515 
Obligations of state and municipal subdivisions264,419 106 (13,294)251,231 
Corporate bonds43,000 — (5,795)37,205 
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA913,388 9 (134,924)778,473 
Other securities950 — — 950 
$1,950,426 $115 $(258,757)$1,691,784 
Securities Held to Maturity
March 31, 2023
Obligations of state and municipal subdivisions$206,602 $143 $(38,994)$167,751 
December 31, 2022
Obligations of state and municipal subdivisions$207,059 $— $(44,820)$162,239 
____________
(1)    Excludes accrued interest receivable of $6,759 and $7,702 on available for sale and $914 and $2,697 on held to maturity securities at March 31, 2023 and December 31, 2022, respectively, that is recorded in other assets on the accompanying consolidated balance sheets.
During 2022, the Company reclassified, at fair value, approximately $117,583 in available for sale obligations of state and municipal subdivisions to the held to maturity category, primarily to limit future volatility in equity due to potential increases in interest rates. The related net unrealized pre-tax gains of approximately $26 remained in accumulated other comprehensive income (loss) and will be amortized over the remaining life of the securities, as an adjustment of the yield on the transferred securities. There have been no transfers of securities in 2023.

10

Table of Contents

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The amortized cost and estimated fair value of securities at March 31, 2023, by contractual maturity, are shown below. Maturities of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
March 31, 2023
Available for SaleHeld to Maturity
Amortized Cost (1)
Fair Value
Amortized Cost (1)
Fair Value
Due in one year or less$53,976 $53,208 $— $— 
Due from one year to five years313,724 296,280 — — 
Due from five to ten years467,003 399,742 — — 
Thereafter184,649 156,331 206,602 167,751 
1,019,352 905,561 206,602 167,751 
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA 893,934 769,854 — — 
$1,913,286 $1,675,415 $206,602 $167,751 
____________
(1)    Excludes accrued interest receivable of $6,759 on available for sale and $914 on held to maturity securities at March 31, 2023, that is recorded in other assets on the accompanying consolidated balance sheets.
Securities with a fair value of approximately $876,379 and $1,168,006 at March 31, 2023 and December 31, 2022, respectively, were pledged primarily to secure deposits.
There were no sales of securities during the three months ended March 31, 2023 and 2022.
11

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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The number of securities, unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2023 and December 31, 2022, are summarized as follows:
Less Than 12 MonthsGreater Than 12 MonthsTotal
Description of SecuritiesNumber of SecuritiesEstimated
Fair Value		Unrealized
Losses		Number of SecuritiesEstimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses
Securities Available for Sale
March 31, 2023
U.S. treasuries2$17,031 $(502)33$215,018 $(16,758)$232,049 $(17,260)
Government agency securities14,877 (135)74383,600 (80,322)388,477 (80,457)
Obligations of state and municipal subdivisions11981,043 (487)186117,227 (9,665)198,270 (10,152)
Corporate bonds311,885 (3,115)821,876 (3,124)33,761 (6,239)
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA2947,406 (2,151)324721,961 (121,936)769,367 (124,087)
154$162,242 $(6,390)625$1,459,682 $(231,805)$1,621,924 $(238,195)
December 31, 2022
U.S. treasuries13$106,849 $(3,923)23$132,561 $(16,342)$239,410 $(20,265)
Government agency securities1363,451 (7,533)62321,064 (76,946)384,515 (84,479)
Obligations of state and municipal subdivisions339209,395 (9,068)917,034 (4,226)226,429 (13,294)
Corporate bonds823,584 (4,416)310,621 (1,379)34,205 (5,795)
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA226266,756 (25,377)129511,207 (109,547)777,963 (134,924)
599$670,035 $(50,317)226$992,487 $(208,440)$1,662,522 $(258,757)
Securities Held to Maturity
March 31, 2023
Obligations of state and municipal subdivisions3$12,816 $(385)39$147,723 $(38,609)$160,539 $(38,994)
December 31, 2022
Obligations of state and municipal subdivisions22$98,475 $(21,210)21$63,764 $(23,610)$162,239 $(44,820)
The Company's securities classified as available for sale and held to maturity are evaluated for expected credit losses by applying the appropriate expected credit losses methodology in accordance with ASC Topic 326, "Financial Instruments - Credit Losses." At March 31, 2023, management's review of all securities at an unrealized loss position determined that the losses resulted from factors not related to credit quality. This conclusion is based on management's analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors for each security type in our portfolio.
The unrealized losses on available for sale securities are generally due to increases in market interest rates. Furthermore, the Company has the intent to hold the available for sale securities until maturity or a forecasted recovery, and it is more likely than not that the Company will not have to sell the securities before the recovery of their cost basis. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. As such, there is no allowance for credit losses on available for sale securities recognized as of March 31, 2023.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The Company's held to maturity securities include taxable and tax-exempt municipal securities issued primarily by school districts, utility districts and municipalities. With regard to securities issued by state and municipal subdivisions, management considers issuer bond ratings, historical loss rates for given bond ratings, whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, internal forecasts and whether or not such securities are guaranteed. A significant portion of the Company's held to maturity securities are guaranteed or insured. Furthermore, as of March 31, 2023, there were no past due principal or interest payments associated with these securities. As such, no allowance for credit losses has been recorded on held to maturity securities as of March 31, 2023.

Note 4. Loans, Net and Allowance for Credit Losses on Loans
Loans, net, at March 31, 2023 and December 31, 2022, consisted of the following:
March 31,December 31,
20232022
Commercial$2,171,635 $2,240,959 
Mortgage warehouse purchase loans400,547 312,099 
Real estate:
Commercial7,950,480 7,817,447 
Commercial construction, land and land development1,178,525 1,231,071 
Residential1,611,908 1,592,859 
Single-family interim construction487,421 508,839 
Agricultural121,958 124,422 
Consumer84,112 81,667 
Total loans (1)
14,006,586 13,909,363 
Allowance for credit losses(146,850)(148,787)
Total loans, net (1)
$13,859,736 $13,760,576 
____________
(1)    Excludes accrued interest receivable of $47,170 and $48,815 at March 31, 2023 and December 31, 2022, respectively, that is recorded in other assets on the accompanying consolidated balance sheets.
Loans with carrying amounts of $7,432,017 and $7,246,087 at March 31, 2023 and December 31, 2022, respectively, were pledged to secure Federal Home Loan Bank borrowing capacity and Federal Reserve Bank discount window borrowing capacity.
The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans.
Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. The Company’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. These cash flows, however, may not be as expected and the value of collateral securing the loans may fluctuate. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The commercial loan portfolio includes loans made to customers in the energy industry, which is a complex, technical and cyclical industry. Experienced bankers with specialized energy lending experience originate our energy loans. Companies in this industry produce, extract, develop, exploit and explore for oil and natural gas. Loans are primarily collateralized with proven producing oil and gas reserves based on a technical evaluation of these reserves. At March 31, 2023 and December 31, 2022, there were approximately $549,895 and $574,698, of energy related loans outstanding, respectively.
Under the CARES Act Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA), the Company originated loans to its customers through the program. PPP loans have terms of two to five years and earn interest at 1%. In return for processing and funding the loans, the SBA paid the lenders a processing fee tiered by the size of the loan. At March 31, 2023 and December 31, 2022, there were approximately $3,542 and $4,958 in PPP loans outstanding included in the commercial loan portfolio, respectively. In addition, the Company has recorded net deferred fees associated with PPP loans of $86 and $101 as of March 31, 2023 and December 31, 2022, respectively. Based on published program guidelines, these loans funded through the PPP are fully guaranteed by the U.S. government. Management believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program with any remaining balances, after the forgiveness of any amounts, still fully guaranteed by the SBA.
The Company has a mortgage warehouse purchase program providing mortgage inventory financing for residential mortgage loans originated by mortgage banker clients across a broad geographic scale. Proceeds from the sale of mortgages is the primary source of repayment for warehouse inventory financing via approved investor takeout commitments. These loans typically have a very short duration ranging between a few days to 15 days. In some cases, loans to larger mortgage originators may be financed for up to 60 days. Warehouse purchase program loans are collectively evaluated for impairment and are purchased under several contractual requirements, providing safeguards to the Company. To date, the Company has not experienced a loss on these loans and no allowance for credit losses has been allocated to them.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on the successful operation of the property or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. Management monitors the diversification of the portfolio on a quarterly basis by type and geographic location. Management also tracks the level of owner occupied property versus non-owner occupied property. At March 31, 2023, the portfolio consisted of approximately 23% of owner occupied property.
Land and commercial land development loans are underwritten using feasibility studies, independent appraisal reviews and financial analysis of the developers or property owners. Generally, borrowers must have a proven track record of success. Commercial construction loans are generally based upon estimates of cost and value of the completed project. These estimates may not be accurate. Commercial construction loans often involve the disbursement of substantial funds with the repayment dependent on the success of the ultimate project. Sources of repayment for these loans may be pre-committed permanent financing or sale of the developed property. The loans in this portfolio are geographically diverse and due to the increased risk are monitored closely by management and the board of directors on a quarterly basis.
Residential real estate and single-family interim construction loans are underwritten primarily based on borrowers’ documented income and ability to repay the Bank and other creditors as well as minimum collateral values and credit scores. Relatively small loan amounts are spread across many individual borrowers, which minimizes risk in the residential portfolio. In addition, management evaluates trends in past dues and current economic factors on a regular basis.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Agricultural loans are collateralized by real estate and/or agricultural-related assets. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Loan-to-value ratios on loans secured by farmland generally do not exceed 80% and have amortization periods limited to twenty years. Agricultural non-real estate loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines to grain farmers to plant and harvest corn and soybeans. Specific underwriting standards have been established for agricultural-related loans including the establishment of projections for each operating year based on industry developed estimates of farm input costs and expected commodity yields and prices. Operating lines are typically written for one year and secured by the crop and other farm assets as considered necessary.
Agricultural loans carry credit risks as they involve larger balances concentrated with single borrowers or groups of related borrowers. In addition, repayment of such loans depends on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized. Farming operations may be affected by adverse weather conditions such as drought, hail or floods that can severely limit crop yields.
Consumer loans represent less than 1% of the outstanding total loan portfolio. Collateral consists primarily of automobiles and other personal assets. Credit score analysis is used to supplement the underwriting process.
Most of the Company’s lending activity occurs within the state of Texas, primarily in the north, central and southeast Texas regions and the state of Colorado, specifically along the Front Range area. As of March 31, 2023, loans in the Colorado region represented about 25% of the total portfolio. A large percentage of the Company’s portfolio consists of commercial and residential real estate loans. As of March 31, 2023 and December 31, 2022, there were no concentrations of loans related to a single industry in excess of 10% of total loans.
Under ASC 326, the allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged-off against the allowance when they are deemed uncollectible. Recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information relevant to assessing collectibility over the loans' contractual terms, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation that a restructuring will be executed with an individual borrower, or the extension or renewal options are included in the borrower contract and are not unconditionally cancellable by the Company.
The Company's allowance balance is estimated using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, credit quality, or term as well as for changes in environmental conditions, such as changes in unemployment rates, gross domestic product, property values or other relevant factors. The Company utilizes Moody’s Analytics economic forecast scenarios and assigns probability weighting to those scenarios which best reflect management’s views on the economic forecast.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. For determining the appropriate allowance for credit losses on a collective basis, the loan portfolio is segmented into pools based upon similar risk characteristics and a lifetime loss-rate model is utilized. For modeling purposes, loan pools include: commercial and industrial, energy, commercial real estate - construction/land development, commercial real estate - owner occupied, commercial real estate - non-owner occupied, agricultural, residential real estate, HELOCs, single-family interim construction, and consumer. Management periodically reassesses each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Management has determined that they are reasonably able to forecast the macroeconomic variables used in the modeling processes with an acceptable degree of confidence for a total of two years then encompassing a reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean utilizing a rational, systematic basis. Management qualitatively adjusts model results for risk factors that are not considered within the modeling processes but are nonetheless relevant in assessing the expected credit losses within the loan pools. These qualitative factor (Q-Factor) adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk.
Loans exhibiting unique risk characteristics and requiring an individual evaluation are measured based on 1) the present value of expected future cash flows discounted at the loan's effective interest rate; 2) the loan's observable market price; or 3) the fair value of collateral if the loan is collateral dependent. Substantially all of the Company’s individually evaluated loans are measured at the fair value of the collateral.

Management continually evaluates the allowance for credit losses based upon the factors noted above. Should any of the factors considered by management change, the Company’s estimate of credit losses could also change and would affect the level of future provision for credit losses. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged-off. While the calculation of the allowance for credit losses utilizes management’s best judgment and all the information available, the adequacy of the allowance for credit losses is dependent on a variety of factors beyond the Company’s control, including, among other things, the performance of the entire loan portfolio, the economy, changes in interest rates and the view of regulatory authorities towards loan classifications.
Loans requiring an individual evaluation are generally identified at the servicing officer level based on review of weekly past due reports and/or the loan officer’s communication with borrowers. In addition, the status of past due loans are routinely discussed within each lending region as well as credit committee meetings to determine if classification is warranted. The Company’s internal loan review department has implemented an internal risk-based loan review process to identify potential internally classified loans that supplements the independent external loan review. External loan reviews cover a wide range of the loan portfolio, including large lending relationships, specifically targeted loan types, and if applicable recently acquired loan portfolios. These reviews include analysis of borrower’s financial condition, payment histories, review of loan documentation and collateral values to determine if a loan should be internally classified. Generally, once classified, an analysis is completed by the credit department to determine the amount of allocated allowance for credit loss required. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
Following unprecedented declines caused by the pandemic and volatile energy prices, the Texas economy, specifically in the Company’s lending areas of north, central and southeast Texas, continued to expand modestly through the first quarter of 2023. The Colorado economy fell slightly. Growth picked up slightly in the service sector. Retail sales, home sales and manufacturing output and demand declined. Rising interest rates further weakens loan demand, including renewals of existing loans. Agricultural conditions and housing market activity improved. Outlooks are mostly negative, and uncertainty remains high amid concerns of weakening demand, inflation and high interest rates. The implications for the U.S. economy are highly uncertain, and the war in Ukraine and related events have created additional upward pressure on inflation and are weighing on economic activity. Inflation remains elevated, reflecting supply and demand imbalances, higher food and energy prices and broader price pressures. The risk of loss associated with all segments of the portfolio could increase due to these factors.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The economy and other risk factors are minimized by the Company’s underwriting standards, which include the following principles: 1) financial strength of the borrower including strong earnings, high net worth, significant liquidity and acceptable debt to worth ratio, 2) managerial business competence, 3) ability to repay, 4) loan to value, 5) projected cash flow and 6) guarantor financial statements, as applicable. The following is a summary of the activity in the allowance for credit losses on loans by class for the three months ended March 31, 2023 and 2022:
CommercialCommercial Real EstateCommercial Construction,
Land and Land
Development		Residential
Real Estate		Single-Family
Interim
Construction		AgriculturalConsumerTotal
Three months ended March 31, 2023
Balance at beginning of period$54,037 $61,078 $17,696 $3,450 $11,817 $207 $502 $148,787 
Provision for credit losses(895)(1,969)831 1,330 (5)24 (37)(721)
Charge-offs(48)— (1,196)— — — — (1,244)
Recoveries28 — — — — — — 28 
Balance at end of period$53,122 $59,109 $17,331 $4,780 $11,812 $231 $465 $146,850 
Three months ended March 31, 2022
Balance at beginning of period$49,747 $65,110 $23,861 $2,192 $7,222 $106 $468 $148,706 
Provision for credit losses915 (5,411)1,243 584 527 26 (84)(2,200)
Charge-offs(441)— — (6)— — (10)(457)
Recoveries264 — — — — — — 264 
Balance at end of period$50,485 $59,699 $25,104 $2,770 $7,749 $132 $374 $146,313 
The Company will charge-off that portion of any loan which management considers a loss. Commercial and real estate loans are generally considered for charge-off when exposure beyond collateral coverage is apparent and when no further collection of the loss portion is anticipated based on the borrower’s financial condition.
The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific credit loss allocations, by loan class as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
Loan BalanceSpecific AllocationsLoan BalanceSpecific Allocations
Commercial$22,244 $8,767 $21,981 $8,378 
Commercial real estate12,303 1,209 12,303 1,209 
Commercial construction, land and land development— — — — 
Residential real estate— — — — 
Single-family interim construction189 60 189 43 
Agricultural— — — — 
Consumer— — — — 
$34,736 $10,036 $34,473 $9,630 
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Nonperforming loans by loan class at March 31, 2023 and December 31, 2022 are summarized as follows:
CommercialCommercial
Real Estate		Commercial Construction,
Land and Land
Development		Residential Real EstateSingle-Family
Interim
Construction		AgriculturalConsumerTotal
March 31, 2023
Nonaccrual loans (1)
$22,274 $13,340 $13 $1,431 $189 $— $7 $37,254 
Loans past due 90 days and still accruing26 — — 1 — 20 — 47 
Total nonperforming loans (2)
$22,300 $13,340 $13 $1,432 $189 $20 $7 $37,301 
December 31, 2022
Nonaccrual loans (1)
$22,565 $13,393 $15 $1,582 $189 $— $8 $37,752 
Loans past due 90 days and still accruing5 — — 838 — — — 843 
Troubled debt restructurings (not included in nonaccrual or loans past due and still accruing)— 1,435 — 59 — — — 1,494 
Total nonperforming loans$22,570 $14,828 $15 $2,479 $189 $— $8 $40,089 
____________
(1)    There are $2,696 and $125 in loans on nonaccrual without an allowance for credit loss as of March 31, 2023 and December 31, 2022, respectively. Additionally, no interest income was recognized on nonaccrual loans. No significant amounts of accrued interest was reversed during the three months ended March 31, 2023 and 2022.
(2)    With the adoption of ASU 2022-02, effective January 1, 2023, TDR accounting has been eliminated.
The accrual of interest is discontinued on a loan when management believes that, after considering collection efforts and other factors, the borrower's financial condition is such that collection of interest is doubtful, as well as when required by regulatory provisions. Regulatory provisions would typically require the placement of a loan on non-accrual status if 1) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or 2) full payment of principal and interest is not expected. All interest accrued but not collected for loans that are placed on nonaccrual status or charged-off is reversed against interest income. Cash collections on nonaccrual loans are generally credited to the loan receivable balance, and no interest income is recognized on those loans until the principal balance has been collected. Loans are generally returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Occasionally, the Company modifies loans to borrowers in financial distress by providing certain concessions, such as principal forgiveness, term extension, an other-than-insignificant payment delay, an interest rate reduction, or a combination of such concessions. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. During the three months ended March 31, 2023, the Company did not provide any modifications under these circumstances to borrowers experiencing financial difficulty.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following table presents information regarding the aging of past due loans by loan class as of March 31, 2023 and as of December 31, 2022: 
Loans
30-89 Days
Past Due		Loans
90 Days
or More
Past Due		Total Past
Due Loans		Current
Loans		Total
Loans
March 31, 2023
Commercial$5,196 $868 $6,064 $2,165,571 $2,171,635 
Mortgage warehouse purchase loans— — — 400,547 400,547 
Commercial real estate5,055 12,312 17,367 7,933,113 7,950,480 
Commercial construction, land and land development3 — 3 1,178,522 1,178,525 
Residential real estate5,551 213 5,764 1,606,144 1,611,908 
Single-family interim construction232 189 421 487,000 487,421 
Agricultural2 20 22 121,936 121,958 
Consumer166 4 170 83,942 84,112 
$16,205 $13,606 $29,811 $13,976,775 $14,006,586 
December 31, 2022
Commercial$1,005 $5,629 $6,634 $2,234,325 $2,240,959 
Mortgage warehouse purchase loans— — — 312,099 312,099 
Commercial real estate13,093 449 13,542 7,803,905 7,817,447 
Commercial construction, land and land development2,820 — 2,820 1,228,251 1,231,071 
Residential real estate4,702 1,346 6,048 1,586,811 1,592,859 
Single-family interim construction— 189 189 508,650 508,839 
Agricultural— — — 124,422 124,422 
Consumer214 8 222 81,445 81,667 
$21,834 $7,621 $29,455 $13,879,908 $13,909,363 
The Company’s internal classified report is segregated into the following categories: 1) Pass/Watch, 2) Special Mention, 3) Substandard, 4) Doubtful and 5) Loss. The loans placed in the Pass/Watch category reflect the Company’s opinion that the loans reflect potential weakness that requires monitoring on a more frequent basis. The loans in the Special Mention category reflect the Company’s opinion that the credit contains weaknesses which represent a greater degree of risk and warrant extra attention. These loans are reviewed monthly by officers and senior management to determine if a change in category is warranted. The loans placed in the Substandard category are considered to be potentially inadequately protected by the current debt service capacity of the borrower and/or the pledged collateral. These credits, even if apparently protected by collateral value, have shown weakness related to adverse financial, managerial, economic, market or political conditions, which may jeopardize repayment of principal and interest and may be considered impaired. There is a possibility that some future loss could be sustained by the Company if such weakness is not corrected. The Doubtful category includes loans that are in default or principal exposure is probable and the possibility of loss is extremely high. The Loss category includes loans that are considered uncollectible, with little chance of turnaround.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Management considers the guidance in ASC 310-20 when determining whether a modification, extension or renewal of a loan constitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. The following summarizes the amortized cost basis of loans by year of origination/renewal and credit quality indicator by class of loan as of March 31, 2023 and December 31, 2022:
Revolving Loans Converted to Term Loans
Term Loans by Year of Origination or RenewalRevolving Loans
March 31, 202320232022202120202019PriorTotal
Commercial
Pass$26,447 $287,208 $324,143 $116,966 $97,533 $187,813 $1,003,086 $117 $2,043,313 
Pass/Watch20 323 17,588 146 95 9,657 21,777 — 49,606 
Special Mention— 275 4,390 97 1,387 4,954 7,696 — 18,799 
Substandard7,883 8,289 25,699 369 3,420 2,298 7,674 3,784 59,416 
Doubtful— — 501 — — — — — 501 
Loss— — — — — — — — — 
Total commercial$34,350 $296,095 $372,321 $117,578 $102,435 $204,722 $1,040,233 $3,901 $2,171,635 
Current period gross write-offs$— $— $39 $5 $4 $— $— $— $48 
Mortgage warehouse purchase loans
Pass$400,547 $— $— $— $— $— $— $— $400,547 
Pass/Watch— — — — — — — — — 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total mortgage warehouse purchase loans$400,547 $— $— $— $— $— $— $— $400,547 
Current period gross write-offs$— $— $— $— $— $— $— $— $— 
Commercial real estate
Pass$215,732 $2,663,274 $2,025,047 $960,129 $587,065 $1,008,798 $66,531 $1,468 $7,528,044 
Pass/Watch7,478 92,496 21,993 35,838 20,436 71,606 139 — 249,986 
Special Mention3,742 15,740 38,119 — 10,804 25,514 360 — 94,279 
Substandard903 3,482 39,879 8,481 3,150 22,276 — — 78,171 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total commercial real estate$227,855 $2,774,992 $2,125,038 $1,004,448 $621,455 $1,128,194 $67,030 $1,468 $7,950,480 
Current period gross write-offs$— $— $— $— $— $— $— $— $— 
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Revolving Loans Converted to Term Loans
Term Loans by Year of Origination or RenewalRevolving Loans
March 31, 202320232022202120202019PriorTotal
Commercial construction, land and land development
Pass$76,061 $546,078 $383,235 $111,534 $7,920 $29,430 $14,670 $— $1,168,928 
Pass/Watch14 1,872 40 6,972 — 68 — — 8,966 
Special Mention— 588 — — — — — — 588 
Substandard— 27 — — 3 13 — — 43 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total commercial construction, land and land development$76,075 $548,565 $383,275 $118,506 $7,923 $29,511 $14,670 $— $1,178,525 
Current period gross write-offs$— $— $1,196 $— $— $— $— $— $1,196 
Residential real estate
Pass$33,820 $527,494 $368,984 $234,064 $151,146 $215,597 $62,483 $202 $1,593,790 
Pass/Watch757 370 892 2,822 1,531 1,987 387 — 8,746 
Special Mention— 2,239 — — 698 1,399 127 — 4,463 
Substandard— 1,152 — 528 219 2,924 86 — 4,909 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total residential real estate$34,577 $531,255 $369,876 $237,414 $153,594 $221,907 $63,083 $202 $1,611,908 
Current period gross write-offs$— $— $— $— $— $— $— $— $— 
Single-family interim construction
Pass$76,183 $319,555 $78,071 $— $— $— $13,423 $— $487,232 
Pass/Watch— — — — — — — — — 
Special Mention— — — — — — — — — 
Substandard— — 189 — — — — — 189 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total single-family interim construction$76,183 $319,555 $78,260 $— $— $— $13,423 $— $487,421 
Current period gross write-offs$— $— $— $— $— $— $— $— $— 
Agricultural
Pass$7,312 $49,992 $24,157 $12,560 $3,643 $12,772 $9,040 $— $119,476 
Pass/Watch— 2,463 — — — — — — 2,463 
Special Mention— — — — — — — — — 
Substandard— — — — — 19 — — 19 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total agricultural$7,312 $52,455 $24,157 $12,560 $3,643 $12,791 $9,040 $— $121,958 
Current period gross write-offs$— $— $— $— $— $— $— $— $— 
21

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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Revolving Loans Converted to Term Loans
Term Loans by Year of Origination or RenewalRevolving Loans
March 31, 202320232022202120202019PriorTotal
Consumer
Pass$2,660 $6,512 $3,983 $8,839 $1,446 $270 $60,353 $40 $84,103 
Pass/Watch— — — — — — — — — 
Special Mention— — — — — — — — — 
Substandard— — 3 — — 6 — — 9 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total consumer$2,660 $6,512 $3,986 $8,839 $1,446 $276 $60,353 $40 $84,112 
Current period gross write-offs$— $— $— $— $— $— $— $— $— 
Total loans
Pass$838,762 $4,400,113 $3,207,620 $1,444,092 $848,753 $1,454,680 $1,229,586 $1,827 $13,425,433 
Pass/Watch8,269 97,524 40,513 45,778 22,062 83,318 22,303 — 319,767 
Special Mention3,742 18,842 42,509 97 12,889 31,867 8,183 — 118,129 
Substandard8,786 12,950 65,770 9,378 6,792 27,536 7,760 3,784 142,756 
Doubtful— — 501 — — — — — 501 
Loss— — — — — — — — — 
Total loans$859,559 $4,529,429 $3,356,913 $1,499,345 $890,496 $1,597,401 $1,267,832 $5,611 $14,006,586 
Current period gross write-offs$— $— $1,235 $5 $4 $— $— $— $1,244 

Revolving Loans Converted to Term Loans
Term Loans by Year of OriginationRevolving Loans
December 31, 202220222021202020192018PriorTotal
Commercial
Pass$297,800 $347,801 $126,390 $112,887 $51,623 $153,435 $1,031,483 $1,173 $2,122,592 
Pass/Watch8 14,790 155 188 1,812 7,934 8,216 5,907 39,010 
Special Mention234 4,821 101 1,485 — 144 8,646 20 15,451 
Substandard394 35,950 398 9,191 55 7,037 10,840 41 63,906 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total commercial$298,436 $403,362 $127,044 $123,751 $53,490 $168,550 $1,059,185 $7,141 $2,240,959 
Mortgage warehouse purchase loans
Pass$312,099 $— $— $— $— $— $— $— $312,099 
Pass/Watch— — — — — — — — — 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total mortgage warehouse purchase loans$312,099 $— $— $— $— $— $— $— $312,099 
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Revolving Loans Converted to Term Loans
Term Loans by Year of OriginationRevolving Loans
December 31, 202220222021202020192018PriorTotal
Commercial real estate
Pass$2,652,298 $1,980,631 $998,910 $617,664 $448,758 $640,275 $59,184 $9,222 $7,406,942 
Pass/Watch90,313 25,954 33,664 18,678 53,469 25,831 — — 247,909 
Special Mention10,180 41,193 — 10,870 8,722 10,735 — 26 81,726 
Substandard3,513 40,001 8,574 3,178 8,268 17,336 — — 80,870 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total commercial real estate$2,756,304 $2,087,779 $1,041,148 $650,390 $519,217 $694,177 $59,184 $9,248 $7,817,447 
Commercial construction, land and land development
Pass$553,376 $465,272 $126,704 $10,477 $23,073 $12,188 $12,705 $4,018 $1,207,813 
Pass/Watch8,036 43 10,297 — — 72 — — 18,448 
Special Mention1,313 674 — — — — — — 1,987 
Substandard28 2,771 — 10 — 14 — — 2,823 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total commercial construction, land and land development$562,753 $468,760 $137,001 $10,487 $23,073 $12,274 $12,705 $4,018 $1,231,071 
Residential real estate
Pass$525,631 $379,789 $220,077 $155,460 $79,437 $154,875 $59,332 $1,238 $1,575,839 
Pass/Watch373 918 642 1,743 76 3,312 302 — 7,366 
Special Mention2,267 — — 700 227 1,224 126 — 4,544 
Substandard708 455 538 219 — 2,997 193 — 5,110 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total residential real estate$528,979 $381,162 $221,257 $158,122 $79,740 $162,408 $59,953 $1,238 $1,592,859 
Single-family interim construction
Pass$351,031 $105,573 $18,885 $— $241 $— $16,447 $— $492,177 
Pass/Watch16,471 — — — — — 2 — 16,473 
Special Mention— — — — — — — — — 
Substandard— 189 — — — — — — 189 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total single-family interim construction$367,502 $105,762 $18,885 $— $241 $— $16,449 $— $508,839 
Agricultural
Pass$52,525 $24,743 $13,875 $3,705 $5,847 $8,872 $10,588 $— $120,155 
Pass/Watch2,700 — — — — — 1,547 — 4,247 
Special Mention— — — — — — — — — 
Substandard— — — — — 20 — — 20 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total agricultural$55,225 $24,743 $13,875 $3,705 $5,847 $8,892 $12,135 $— $124,422 
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Revolving Loans Converted to Term Loans
Term Loans by Year of OriginationRevolving Loans
December 31, 202220222021202020192018PriorTotal
Consumer
Pass$7,715 $4,909 $7,959 $1,576 $300 $81 $59,113 $— $81,653 
Pass/Watch— — — — — — — — — 
Special Mention— — — — — — — — — 
Substandard— 4 — — — 10 — — 14 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total consumer$7,715 $4,913 $7,959 $1,576 $300 $91 $59,113 $— $81,667 
Total loans
Pass$4,752,475 $3,308,718 $1,512,800 $901,769 $609,279 $969,726 $1,248,852 $15,651 $13,319,270 
Pass/Watch117,901 41,705 44,758 20,609 55,357 37,149 10,067 5,907 333,453 
Special Mention13,994 46,688 101 13,055 8,949 12,103 8,772 46 103,708 
Substandard4,643 79,370 9,510 12,598 8,323 27,414 11,033 41 152,932 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total loans$4,889,013 $3,476,481 $1,567,169 $948,031 $681,908 $1,046,392 $1,278,724 $21,645 $13,909,363 

Note 5. Federal Home Loan Bank Advances
At March 31, 2023, the Company has advances from the FHLB of Dallas under note payable arrangements with maturities ranging from April 2023 to September 2032. Interest payments on these notes are made monthly. The weighted average interest rate of all notes was 4.98% and 2.42% at March 31, 2023 and December 31, 2022, respectively. The balances outstanding on these advances were $1,800,000 and $300,000 at March 31, 2023 and December 31, 2022, respectively.
Contractual maturities of FHLB advances at March 31, 2023 were as follows:
First year$1,725,000 
Second year— 
Third year— 
Fourth year— 
Fifth year— 
Thereafter75,000 
$1,800,000 
The advances are secured by $82,156 of FHLB stock owned by the Company and a blanket lien on certain loans along with specific listed loans for an aggregate available carrying value of $6,103,264 at March 31, 2023. The Company had remaining credit available under the FHLB advance program of $2,938,693 at March 31, 2023.
At March 31, 2023, the Company had $1,354,265 in undisbursed advance commitments (letters of credit) with the FHLB. As of March 31, 2023, these commitments mature on various dates from April 2023 through February 2025. The FHLB letters of credit were obtained in lieu of pledging securities to secure public fund deposits that are over the FDIC insurance limit. At March 31, 2023, there were no disbursements against the advance commitments.

24

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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Note 6. Other Borrowings
Other borrowings totaled $337,607 and $267,066 at March 31, 2023 and December 31, 2022, respectively.
On March 31, 2023, the Company redeemed $30,000 of its outstanding 5.00% fixed-to-floating rate subordinated debentures due December 31, 2027.
There were $100,000 borrowings outstanding as of March 31, 2023 and no borrowings outstanding as of December 31, 2022 against the Company's revolving line of credit.

Note 7. Off-Balance Sheet Arrangements, Commitments and Contingencies
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of this instrument. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
At March 31, 2023 and December 31, 2022, the approximate amounts of these financial instruments were as follows:
March 31,December 31,
20232022
Commitments to extend credit$3,138,593 $3,291,409 
Standby letters of credit24,148 24,135 
$3,162,741 $3,315,544 
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, farm crops, property, plant and equipment and income-producing commercial properties.
Letters of credit are written conditional commitments used by the Company to guarantee the performance of a customer to a third party. The Company’s policies generally require that letter of credit arrangements contain security and debt covenants similar to those contained in loan arrangements. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the table above. If the commitment is funded, the Company would be entitled to seek recovery from the customer.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Allowance For Credit Losses on Off-Balance Sheet Credit Exposures
The allowance for credit losses on off-balance-sheet credit exposures is calculated under ASC 326, representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. Off-balance sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur based on historical utilization rates. The allowance is included in other liabilities on the Company’s consolidated balance sheets.
The allowance for credit losses on off-balance sheet commitments was as follows:
Three Months Ended March 31,
20232022
Balance at beginning of period$3,944 $4,722 
Provision for off-balance sheet credit exposure811 757 
Balance at end of period$4,755 $5,479 
Litigation
The Bank is a party to a legal proceeding inherited in connection with its acquisition of BOH Holdings, Inc. and its subsidiary, Bank of Houston (BOH). On February 27, 2023, the Bank entered into a settlement in principle with the plaintiffs and executed a settlement agreement on March 7, 2023. Pending court approval, including entry of certain bar orders as described in the settlement agreement, the Bank will make a one-time cash payment of $100,000 to the court appointed receiver to settle the case and to resolve all current and potential future claims. Such settlement, which is expected to be paid in third quarter 2023, is recognized as litigation settlement expense on the accompanying income statement as well as $2,500 in contingent legal and other fees associated with the litigation and settlement.
In addition, the Company is involved in other legal actions arising from normal business activities. Management believes that the outcome of such proceedings will not materially affect the financial position, results of operations or cash flows of the Company.

Note 8. Income Taxes
Income tax (benefit) expense for the three months ended March 31, 2023 and 2022 was as follows:
Three Months Ended March 31,
20232022
Income tax (benefit) expense for the period$(11,284)$12,279 
Effective tax rate23.1 %19.5 %
The effective tax rates for 2023 and 2022 differ from the statutory federal tax rate of 21% largely due to tax exempt interest income earned on certain investment securities and loans, the nontaxable earnings on bank owned life insurance, nondeductible compensation, and state income tax. In addition, the 2023 rate is higher due to the Company being in a net loss position related to the litigation settlement.
26

Table of Contents

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Note 9. Fair Value Measurements
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
The Company elected the fair value option for certain residential mortgage loans held for sale in accordance with ASC 825, Financial Instruments. This election allows for a more effective offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting under ASC 815, Derivatives and Hedging. The Company has not elected the fair value option for other residential mortgage loans held for sale primarily because they are not economically hedged using derivative instruments. See below and Note 10. Derivative Financial Instruments, for additional information.
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Table of Contents

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Assets and Liabilities Measured on a Recurring Basis
The following table represents assets and liabilities reported on the consolidated balance sheets at their fair value on a recurring basis as of March 31, 2023 and December 31, 2022 by level within the ASC Topic 820 fair value measurement hierarchy:
Fair Value Measurements at Reporting Date Using
Assets/
Liabilities
Measured at
Fair Value		Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
March 31, 2023
Assets:
Investment securities available for sale:
U.S. treasuries$232,049 $— $232,049 $— 
Government agency securities388,477 — 388,477 — 
Obligations of state and municipal subdivisions247,574 — 247,574 — 
Corporate bonds36,761 — 36,761 — 
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA 769,854 — 769,854 — 
Other securities700 — 700 — 
Loans held for sale, fair value option elected (1)
12,989 — 12,989 — 
Derivative financial instruments:
Interest rate lock commitments471 — 471 — 
Forward mortgage-backed securities trades5 — 5 — 
Loan customer counterparty81 — 81 — 
Financial institution counterparty10,938 — 10,938 — 
Liabilities:
Derivative financial instruments:
Interest rate swaps - cash flow hedge9,444 — 9,444 — 
Interest rate lock commitments1 — 1 — 
Forward mortgage-backed securities trades122 — 122 — 
Loan customer counterparty10,821 — 10,821 — 
Financial institution counterparty90 — 90 — 
December 31, 2022
Assets:
Investment securities available for sale:
U.S. treasuries$239,410 $— $239,410 $— 
Government agency securities384,515 — 384,515 — 
Obligations of state and municipal subdivisions251,231 — 251,231 — 
Corporate bonds37,205 — 37,205 — 
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA778,473 — 778,473 — 
Other securities950 — 950 — 
Loans held for sale, fair value option elected (1)
10,612 — 10,612 — 
Derivative financial instruments:
Interest rate lock commitments294 — 294 — 
Forward mortgage-backed securities trades98 — 98 — 
Financial institution counterparty13,968 — 13,968 — 
Liabilities:
Derivative financial instruments:
Interest rate swaps - cash flow hedge11,283 — 11,283 — 
Interest rate lock commitments6 — 6 — 
Forward mortgage-backed securities trades11 — 11 — 
Loan customer counterparty13,788 — 13,788 — 
__________
(1)    At March 31, 2023 and December 31, 2022, loans held for sale for which the fair value option was elected had an aggregate outstanding principal balance of $12,604 and $10,330, respectively. There were no mortgage loans held for sale under the fair value option that were 90 days or greater past due or on nonaccrual at March 31, 2023.
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Table of Contents

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Investment securities available for sale
Securities classified as available for sale are reported at fair value utilizing Level 1 and Level 2 inputs. Securities are classified within Level 1 when quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. For securities utilizing Level 2 inputs, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury and other yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.
Loans held for sale
Certain mortgage loans held for sale are measured at fair value on a recurring basis due to the Company's election to adopt fair value accounting treatment for those loans originated for which the Company has entered into certain derivative financial instruments as part of its mortgage banking and related risk management activities. These instruments include interest rate lock commitments and mandatory forward commitments to sell these loans to investors known as forward mortgage-backed securities trades. This election allows for a more effective offset of the changes in fair values of the assets and the mortgage related derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting under ASC 815, Derivatives and Hedging. Mortgage loans held for sale, for which the fair value option was elected, which are sold on a servicing released basis, are valued using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted to credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, the Company classifies these valuations as Level 2 in the fair value disclosures. For mortgage loans held for sale for which the fair value option was elected, the earned current contractual interest payment is recognized in interest income, loan origination costs and fees on fair value option loans are recognized in earnings as incurred and not deferred. The Company has no continuing involvement in any residential mortgage loans sold.
Derivatives
The Company utilizes interest rate swaps to hedge exposure to interest rate risk and variability of cash flows associated to changes in the underlying interest rate of the hedged item. These hedging interest rate swaps are classified as a cash flow hedge. The Company utilizes a third-party vendor for derivative valuation purposes. These vendors determine the appropriate fair value based on a net present value calculation of the cash flows related to the interest rate swaps using primarily observable market inputs such as interest rate yield curves (Level 2 inputs).
The estimated fair values of interest rate lock commitments utilize current secondary market prices for underlying loans and estimated servicing value with similar coupons, maturity and credit quality, subject to the anticipated loan funding probability (pull-through rate). The fair value of interest rate lock commitments is subject to change primarily due to changes in interest rates and the estimated pull-through rate. These commitments are classified as Level 2 in the fair value disclosures, as the valuations are based on observable market inputs.
Forward mortgage-backed securities trades are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilized the exchange price or dealer market price for the particular derivative contract; therefore these contracts are classified as Level 2. The estimated fair values are subject to change primarily due to changes in interest rates.
The Company also enters into certain interest rate derivative positions. The estimated fair value of these commercial loan interest rate swaps are obtained from a pricing service that provides the swaps' unwind value (Level 2 inputs). See Note 10, Derivative Financial Instruments, for more information.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Assets and Liabilities Measured on a Nonrecurring Basis
In accordance with ASC Topic 820, certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the assets carried on the consolidated balance sheet by caption and by level in the fair value hierarchy at March 31, 2023 and December 31, 2022, for which a nonrecurring change in fair value has been recorded: 
Fair Value Measurements at Reporting Date Using
Assets
Measured
at Fair Value		Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs (Level 3)		Period Ended
Total (Gains) Losses
March 31, 2023
Assets:
Individually evaluated loans$86 $— $— $86 $18 
Other real estate owned22,700 — — 22,700 1,200 
December 31, 2022
Assets:
Individually evaluated loans$8,527 $— $— $8,527 $3,505 
Other real estate owned23,900 — — 23,900 3,548 
Individually evaluated loans are measured at an observable market price (if available) or at the fair value of the loan’s underlying collateral (if collateral dependent). Fair value of the loan’s collateral is determined by appraisals or independent valuation, which is then adjusted for the estimated costs related to liquidation of the collateral. Management’s ongoing review of appraisal information may result in additional discounts or adjustments to valuation based upon more recent market sales activity or more current appraisal information derived from properties of similar type and/or locale. In addition, management's discounting criteria may vary for loans secured by non-real estate collateral such as inventory, oil and gas reserves, accounts receivable, equipment or other business assets. Management reviews the appraisals or valuations for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 5% to 8% of the appraised value. Therefore, the Company has categorized its individually evaluated loans as Level 3.
Other real estate owned is measured at fair value on a nonrecurring basis (upon initial recognition or subsequent impairment). Other real estate owned is classified within Level 3 of the valuation hierarchy. When transferred from the loan portfolio, other real estate owned is adjusted to fair value less estimated selling costs and is subsequently carried at the lower of carrying value or fair value less estimated selling costs. The fair value is determined using an external appraisal process, discounted based on internal criteria. Management reviews the external appraisals for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 5% to 8% of the appraised value. Therefore, the Company has categorized its other real estate as Level 3.
In addition, mortgage loans held for sale not recorded under the fair value option are required to be measured at the lower of cost or fair value. The fair value of these loans is based upon binding quotes or bids from third party investors. As of March 31, 2023 and December 31, 2022, all mortgage loans held for sale not recorded under the fair value option were recorded at cost.

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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Fair Value of Financial Instruments not Recorded at Fair Value
The carrying amount, estimated fair value and the level of the fair value hierarchy of the Company’s financial instruments that are reported at amortized cost on the Company's consolidated balance sheets were as follows at March 31, 2023 and December 31, 2022:
Fair Value Measurements at Reporting Date Using
Carrying
Amount		Estimated
Fair Value		Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
March 31, 2023
Financial assets:
Cash and cash equivalents$1,048,590 $1,048,590 $1,048,590 $— $— 
Certificates of deposit held in other banks496 486 — 486 — 
Investment securities held to maturity206,602 167,751 — 167,751 — 
Loans held for sale, at cost3,587 3,649 — 3,649 — 
Loans, net13,859,736 13,632,771 — — 13,632,771 
FHLB of Dallas stock and other restricted stock85,408 85,408 — 85,408 — 
Accrued interest receivable55,882 55,882 — 55,882 — 
Financial liabilities:
Deposits14,055,687 14,007,690 — 14,007,690 — 
Accrued interest payable10,829 10,829 — 10,829 — 
FHLB advances1,800,000 1,788,372 — 1,788,372 — 
Other borrowings337,607 323,500 — 323,500 — 
Junior subordinated debentures54,469 59,761 — 59,761 — 
Off-balance sheet assets (liabilities):
Commitments to extend credit— — — — — 
Standby letters of credit— — — — — 
December 31, 2022
Financial assets:
Cash and cash equivalents$654,322 $654,322 $654,322 $— $— 
Certificates of deposit held in other banks496 486 — 486 — 
Investment securities held to maturity207,059 162,239 — 162,239 — 
Loans held for sale, at cost698 710 — 710 — 
Loans, net13,760,576 13,450,582 — — 13,450,582 
FHLB of Dallas stock and other restricted stock23,436 23,436 — 23,436 — 
Accrued interest receivable59,214 59,214 — 59,214 — 
Financial liabilities:
Deposits15,121,417 15,063,025 — 15,063,025 — 
Accrued interest payable9,604 9,604 — 9,604 — 
FHLB advances300,000 246,519 — 246,519 — 
Other borrowings267,066 258,800 — 258,800 — 
Junior subordinated debentures54,419 53,969 — 53,969 — 
Off-balance sheet assets (liabilities):
Commitments to extend credit— — — — — 
Standby letters of credit— — — — — 
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The methods and assumptions used by the Company in estimating fair values of financial instruments as disclosed herein in accordance with ASC Topic 825, Financial Instruments, other than for those measured at fair value on a recurring and nonrecurring basis discussed above, are as follows:
Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate their fair value.
Certificates of deposit held in other banks: The fair value of certificates of deposit held in other banks is based upon current market rates.
Investment securities held to maturity: For investment securities held to maturity, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury and other yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security's terms and conditions, among other things.
Loans held for sale, at cost: The fair value of loans held for sale is determined based upon commitments on hand from investors.
Loans: A discounted cash flow model is used to estimate the fair value of the loans. The discounted cash flow approach models the credit losses directly in the projected cash flows, applying various assumptions regarding credit, interest and prepayment risks for the loans based on loan types, payment types and fixed or variable classifications.
Federal Home Loan Bank of Dallas and other restricted stock: The carrying value of restricted securities such as stock in the Federal Home Loan Bank of Dallas and Independent Bankers Financial Corporation approximates fair value.
Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is their carrying amounts). The carrying amounts of variable-rate certificates of deposit (CDs) approximate their fair values at the reporting date. Fair values for fixed-rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Federal Home Loan Bank advances, line of credit and federal funds purchased: The fair value of advances maturing within 90 days approximates carrying value. Fair value of other advances is based on the Company’s current borrowing rate for similar arrangements.
Other borrowings: The estimated fair value approximates carrying value for short-term borrowings. The fair value of private subordinated debentures are based upon prevailing rates on similar debt in the market place. The subordinated debentures that are publicly traded are valued based on indicative bid prices based upon market pricing observations in the current market.
Junior subordinated debentures: The fair value of junior subordinated debentures is estimated using discounted cash flow analyses based on the published Bloomberg US Financials BB rated corporate bond index yield.
Accrued interest: The carrying amounts of accrued interest approximate their fair values.
Off-balance sheet instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The fair value of commitments is not material.

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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Note 10. Derivative Financial Instruments
The Company accounts for its derivative financial instruments in accordance with ASC Topic 815 which requires all derivative instruments to be carried at fair value on the balance sheet. The Company has designated certain derivative instruments used to manage interest rate risk as hedge relationships with certain assets, liabilities or cash flows being hedged. Certain derivatives used for interest rate risk management are not designated in a hedge relationship and are used for asset and liability management related to the Company's mortgage banking activities and commercial customers' financing needs. All derivatives are carried at fair value in either other assets or other liabilities.
Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedge relationship. This documentation includes linking the fair value for cash flow hedges to the specific assets and liabilities on the balance sheet or the specific firm commitments or forecasted transaction. The Company assesses, both at the hedge's inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.
The Company's objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company has two interest rate swap derivatives with an aggregated notional amount of $100,000 that were designated as cash flow hedges. The derivatives are intended to hedge the variable cash flows associated with certain existing variable-interest rate loans and were determined to be effective during the three months ended March 31, 2023.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest income in the same period that the hedged transaction affects earnings. Amounts of gains recognized in accumulated other comprehensive income related to derivatives was $743, net of tax, and the amounts of losses that were reclassified to interest income as interest payments were made on the Company’s variable-rate loans was $706, net of tax, during and for the three months ended March 31, 2023. Amounts of losses recognized in accumulated other comprehensive income related to derivatives was $3,922, net of tax, and the amounts of gains that were reclassified to interest income as interest payments were received on the Company’s variable-rate loans was $160, net of tax, during and for the three months ended March 31, 2022. During the next twelve months, the Company estimates that $3,696 will be reclassified as a decrease to interest income.
Through its mortgage banking division, the Company enters into interest rate lock commitments with consumers to originate mortgage loans at a specified interest rate. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by the Company. The Company manages the changes in fair value associated with changes in interest rates related to interest rate lock commitments by using forward sold commitments known as forward mortgage-backed securities trades. These instruments are typically entered into at the time the interest rate lock commitment is made.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The Company offers certain derivatives products, primarily interest rate swaps, directly to qualified commercial banking customers to facilitate their risk management strategies. The interest rate swap derivative positions relate to transactions in which the Company enters into an interest rate swap with a customer, while at the same time entering into an offsetting interest rate swap with another financial institution. An interest rate swap transaction allows customers to effectively convert a variable rate loan to a fixed rate. In connection with each swap, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount.
The following table provides the outstanding notional balances and fair values of outstanding derivative positions at March 31, 2023 and December 31, 2022:
Outstanding Notional BalanceAsset Derivative
Fair Value		Liability Derivative
Fair Value
March 31, 2023
Derivatives designated as hedging instruments:
Interest rate swaps - cash flow hedge$100,000 $— $9,444 
Derivatives not designated as hedging instruments:
Interest rate lock commitments19,836 471 1 
Forward mortgage-backed securities trades21,750 5 122 
Commercial loan interest rate swaps:
Loan customer counterparty182,305 81 10,821 
Financial institution counterparty182,305 10,938 90 
December 31, 2022
Derivatives designated as hedging instruments:
Interest rate swaps - cash flow hedge$100,000 $— $11,283 
Derivatives not designated as hedging instruments:
Interest rate lock commitments15,476 294 6 
Forward mortgage-backed securities trades18,500 98 11 
Commercial loan interest rate swaps:
Loan customer counterparty183,183 — 13,788 
Financial institution counterparty183,183 13,968 — 
The commercial loan customer counterparty weighted average received and paid interest rates for interest rate swaps outstanding were as follows:
Weighted Average Interest Rate
March 31, 2023December 31, 2022
ReceivedPaidReceivedPaid
Loan customer counterparty4.21 %7.14 %4.12 %6.72 %
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The credit exposure related to interest rate swaps is limited to the net favorable value of all swaps by each counterparty, which was approximately $11,019 and $13,968 at March 31, 2023 and December 31, 2022, respectively. In some cases, collateral may be required from the counterparties involved if the net value of the derivative instruments exceeds a nominal amount. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values. At March 31, 2023 and December 31, 2022, cash of $10,909 and $10,394 and securities of $486 and $509 were pledged as collateral for these derivatives, respectively, and counterparties had deposited $2,730 of cash with the Company as of March 31, 2023.
The Company has entered into credit risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which the Company is either a participant or a lead bank. Risk participation agreements entered into as a participant bank provide credit protection to the financial institution counterparty should the borrower fail to perform on its interest rate derivative contract with that financial institution. The Company is party to no risk participation agreements as a participant bank at March 31, 2023. Risk participation agreements entered into as the lead bank provide credit protection to the Company should the borrower fail to perform on its interest rate derivative contract. The Company is party to one risk participation agreement as the lead bank having a notional amount of $9,014 at March 31, 2023.
The changes in the fair value of interest rate lock commitments and the forward sales of mortgage-backed securities are recorded in mortgage banking revenue. These gains and losses were not attributable to instrument-specific credit risk. For commercial interest rate swaps, because the Company acts as an intermediary for our customer, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on the results of operations.
A summary of derivative activity and the related impact on the consolidated statements of income for the three months ended March 31, 2023 and 2022 is as follows:
Income Statement LocationThree Months Ended March 31,
20232022
Derivatives designated as hedging instruments
Interest rate swaps - cash flow hedgesInterest and fees on loans$(899)$197 
Derivatives not designated as hedging instruments
Interest rate lock commitmentsMortgage banking revenue182 (381)
Forward mortgage-backed securities tradesMortgage banking revenue(204)447 

Note 11. Stock Awards
The Company grants common stock awards to certain employees of the Company. In May 2022, the shareholders of the Company approved a new 2022 Equity Incentive Plan (2022 Plan). Under this plan, the Compensation Committee may grant awards to certain employees of the Company in the form of restricted stock, restricted stock units, stock appreciation rights, qualified and nonqualified stock options, performance share awards and other equity-based awards. Effective with the adoption of the 2022 Plan, no further awards will be granted under the prior 2013 Equity Incentive Plan (2013 Plan). Awards outstanding under the 2013 Plan will remain in effect under the prior plan according to their respective terms and any terminated 2013 Plan awards will be available for awards under the 2022 Plan in accordance with the 2022 Plan's provisions. The 2022 Plan has 1,500,000 reserved shares of common stock to be awarded by the Company’s Compensation Committee. As of March 31, 2023, there were 1,367,851 shares remaining available for grant for future awards.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Shares issued under these plans are restricted stock awards and performance stock units at target award level. Restricted stock awarded to employees generally vest evenly over the required employment period and range from one to five years. Performance stock units awarded have a three to four year cliff vesting period. Restricted stock awards granted are issued at the date of grant and receive dividends. Performance stock units are eligible to receive dividend equivalents as such dividends are declared on the Company's common stock during the performance period. Equivalent dividend payments are based upon the number of shares issued under each performance award and are deferred until such time that the units vest and the shares are issued.
Restricted Stock Awards
The following table summarizes the activity in nonvested restricted stock awards for the three months ended March 31, 2023 and 2022:
Restricted Stock AwardsNumber of
Shares		Weighted Average
Grant Date
Fair Value
Nonvested shares, December 31, 2022309,015 $60.12 
Granted during the period119,767 60.21 
Vested during the period(92,830)64.55 
Forfeited during the period(1,763)63.23 
Nonvested shares, March 31, 2023334,189 $58.91 
Nonvested shares, December 31, 2021363,551 $53.14 
Granted during the period77,284 73.94 
Vested during the period(91,224)57.55 
Forfeited during the period(715)67.56 
Nonvested shares, March 31, 2022348,896 $56.57 
Compensation expense related to these awards is recorded based on the fair value of the award at the date of grant and totaled $1,959 and $2,026 for the three months ended March 31, 2023 and 2022, respectively. Compensation expense is recorded in salaries and employee benefits in the accompanying consolidated statements of income. At March 31, 2023, future compensation expense is estimated to be $16,800 and will be recognized over a remaining weighted average period of 2.46 years.
The fair value of common stock awards that vested during the three months ended March 31, 2023 and 2022 was $5,605 and $6,903, respectively. The Company has recorded $85 and $(354) in excess tax expense (benefit) on vested restricted stock to income tax expense for the three months ended March 31, 2023 and 2022, respectively.
There were no modifications of stock agreements during the three months ended March 31, 2023 and 2022 that resulted in significant additional incremental compensation costs.
At March 31, 2023, the future vesting schedule of the nonvested restricted stock awards is as follows:
First year145,054 
Second year116,105 
Third year59,490 
Fourth year13,540 
Total nonvested shares334,189 
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Performance Stock Units
Performance stock units represent shares potentially issuable in the future. The number of shares issued is based upon the measure of the Company's achievement of its relative adjusted return on average tangible common equity, as defined by the Company, over the award's performance period as compared to an identified peer group's achievement over the same performance period. The number of shares issuable under each performance award is the product of the award target and the award payout percentage for the given level of achievement which ranges from 0% to 150% of the target.
The following table summarizes the activity in nonvested performance stock units at target award level for the three months ended March 31, 2023 and 2022:
Performance-Based Restricted Stock UnitsNumber of
Shares		Weighted Average
Grant Date
Fair Value
Nonvested shares, December 31, 2022140,240 $49.20 
Granted during the period37,938 60.21 
Nonvested shares, March 31, 2023178,178 $51.55 
Nonvested shares, December 31, 2021114,498 $43.93 
Granted during the period20,742 73.94 
Nonvested shares, March 31, 2022135,240 $48.53 
Compensation expense related to performance stock units is estimated each period based on the fair value of the target stock unit at the grant date and the most probable level of achievement of the performance condition, adjusted for the passage of time within the vesting periods of the awards. Compensation expense related to these awards was $486 and $386 for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, the unrecognized compensation expense assuming the target attainment is estimated to be $4,685, while the estimated maximum payout is $9,545. The remaining performance period over which the expense will be recognized is 2.31 years.

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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Note 12. Regulatory Matters
Under banking law, there are legal restrictions limiting the amount of dividends the Bank can declare. Approval of the regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. For state banks, subject to regulatory capital requirements, payment of dividends is generally allowed to the extent of net profits.
The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Tier 2 capital for the Company includes permissible portions of the Company's subordinated notes. The permissible portion of qualified subordinated notes decreases 20% per year during the final five years of the term of the notes.
The Company is subject to the Basel III regulatory capital framework (the Basel III Capital Rules). The Basel III Capital Rules require that the Company maintain a 2.5% capital conservation buffer above the minimum risk-based capital adequacy requirements. The capital conservation buffer is designed to absorb losses during periods of economic stress and requires increased capital levels for the purpose of capital distributions and other payments. Failure to meet the full amount of the buffer will result in restrictions on the Company's ability to make capital distributions, including dividend payments and stock repurchases and to pay discretionary bonuses to executive officers.
In February 2019, the federal bank regulatory agencies issued a final rule that revised certain capital regulations under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and included a transition option that allows banking organizations to phase in, over a three year period, the day one adverse effects of adoption on their regulatory capital ratios (three year transition option). In connection with the adoption of ASC 326 on January 1, 2021, the Company recognized an after-tax cumulative effect reduction to retained earnings. The Company elected to adopt the three year transition option and the deferral has been applied in capital ratios presented below.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Common Equity Tier 1 (CET1) and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of March 31, 2023 and December 31, 2022, the Company and the Bank meet all capital adequacy requirements to which they are subject, including the capital buffer requirement.
As of March 31, 2023 and December 31, 2022, the Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” the Bank must maintain minimum total risk based, CET1, Tier 1 risk based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events that management believes have changed the Bank’s category.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The following table presents actual and required capital ratios under Basel III Capital Rules for the Company and Bank as of March 31, 2023 and December 31, 2022. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended, to reflect the changes under the Basel III Capital Rules.
ActualMinimum Capital
Required Plus Capital
Conservation Buffer
Required To Be
Considered Well
Capitalized (1)
AmountRatioAmountRatioAmountRatio
March 31, 2023
Total capital to risk weighted assets:
Consolidated$1,857,290 11.88 %$1,641,617 10.50 %$1,563,445 10.00 %
Bank2,032,009 13.00 1,641,162 10.50 1,563,011 10.00 
Tier 1 capital to risk weighted assets:
Consolidated1,571,885 10.05 1,328,928 8.50 938,067 6.00 
Bank1,898,604 12.15 1,328,559 8.50 1,250,409 8.00 
Common equity tier 1 to risk weighted assets:
Consolidated1,516,285 9.70 1,094,411 7.00  N/A  N/A
Bank1,898,604 12.15 1,094,108 7.00 1,015,957 6.50 
Tier 1 capital to average assets:
Consolidated1,571,885 9.01 697,990 4.00  N/A  N/A
Bank1,898,604 10.88 697,805 4.00 872,256 5.00 
December 31, 2022
Total capital to risk weighted assets:
Consolidated$1,936,363 12.35 %$1,645,772 10.50 %$1,567,402 10.00 %
Bank2,013,874 12.85 1,645,236 10.50 1,566,891 10.00 
Tier 1 capital to risk weighted assets:
Consolidated1,637,191 10.45 1,332,291 8.50 940,441 6.00 
Bank1,896,702 12.10 1,331,858 8.50 1,253,513 8.00 
Common equity tier 1 to risk weighted assets:
Consolidated1,581,591 10.09 1,097,181 7.00 N/AN/A
Bank1,896,702 12.10 1,096,824 7.00 1,018,479 6.50 
Tier 1 capital to average assets:
Consolidated1,637,191 9.49 690,309 4.00 N/AN/A
Bank1,896,702 10.99 690,130 4.00 862,663 5.00 
_____________
(1)    “Well-capitalized” Common Equity Tier 1 to Risk-Weighted Assets and Tier 1 to Average Assets are not formally defined under applicable banking regulations for bank holding companies. However, the Federal Reserve Board and the FDIC may require the Company to maintain a Tier 1 to Average Assets Ratio above the required minimum.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Stock repurchase program: From time to time, the Company's Board of Directors has authorized stock repurchase programs which allow the Company to purchase its common stock generally over a one-year period at various prices in the open market or in privately negotiated transactions. In January 2023, the Company's Board established the 2023 Stock Repurchase Plan (2023 Plan), which provided for the repurchase of up to $125,000 of common stock through December 31, 2023. There were no shares repurchased under the 2023 Plan during the three months ended March 31, 2023. The Company repurchased 11,444 shares at a total cost of $813 for the three months ended March 31, 2022 under the prior plan. Federal bank regulators have adopted final rules that, among other things, eliminated the standalone prior approval requirement for any repurchase of common stock. However, the Company remains subject to a Federal Reserve Board guideline that requires consultation with the Federal Reserve Board regarding plans for share repurchases. The Company’s repurchases of its common stock may be subject to a prior approval or notice requirement under other regulations, policies or supervisory expectations of the Federal Reserve Board.
Company stock repurchased to settle employee tax withholding related to vesting of stock awards totaled 26,777 and 26,131 shares at a total cost of $1,617 and $1,976 for the three months ended March 31, 2023 and March 31, 2022, respectively, and were not included under the repurchase program.

Note 13. Subsequent Events
Declaration of Dividends
On April 20, 2023, the Company declared a quarterly cash dividend in the amount of $0.38 per share of common stock to the stockholders of record on May 4, 2023. The dividend will be paid on May 18, 2023.

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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward Looking Statements
The Quarterly Report on Form 10-Q, our other filings with the SEC, and other press releases, documents, reports and announcements that we make, issue or publish may contain statements that we believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and other related federal security laws. These forward-looking statements include information about our possible or assumed future results of operations, including our future revenues, income, expenses, provision for taxes, effective tax rate, earnings (loss) per share and cash flows, our future capital expenditures and dividends, our future financial condition and changes therein, including changes in our loan portfolio and allowance for credit losses, our future capital structure or changes therein, the plan and objectives of management for future operations, our future or proposed acquisitions, the future or expected effect of acquisitions on our operations, results of operations and financial condition, our future economic performance and the statements of the assumptions underlying any such statement. Such statements are typically, but not exclusively, identified by the use in the statements of words or phrases such as “aim,” “anticipate,” “estimate,” “expect,” “goal,” “guidance,” “intend,” “is anticipated,” “is estimated,” “is expected,” “is intended,” “objective,” “plan,” “projected,” “projection,” “will affect,” “will be,” “will continue,” “will decrease,” “will grow,” “will impact,” “will increase,” “will incur,” “will reduce,” “will remain,” “will result,” “would be,” variations of such words or phrases (including where the word “could,” “may” or “would” is used rather than the word “will” in a phrase) and similar words and phrases indicating that the statement addresses some future result, occurrence, plan or objective. The forward-looking statements that we make are based on the Company's current expectations and assumptions regarding its business, the economy, and other future conditions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. The Company’s actual results may differ materially from those contemplated by the forward looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Many possible events or factors could affect our future financial results and performance and could cause those results or performance to differ materially from those expressed in the forward-looking statements. These possible events or factors include, but are not limited to:
•our ability to sustain our current internal growth rate and total growth rate;
•changes in geopolitical, business and economic events, occurrences and conditions, including changes in rates of inflation or deflation, nationally, regionally and in our target markets, particularly in Texas and Colorado;
•worsening business and economic conditions nationally, regionally and in our target markets, particularly in Texas and Colorado, and the geographic areas in those states in which we operate;
•our dependence on our management team and our ability to attract, motivate and retain qualified personnel;
•the concentration of our business within our geographic areas of operation in Texas and Colorado;
•changes in asset quality, including increases in default rates on loans and higher levels of nonperforming loans and loan charge-offs generally;
•concentration of the loan portfolio of the Bank, before and after the completion of acquisitions of financial institutions, in commercial and residential real estate loans and changes in the prices, values and sales volumes of commercial and residential real estate;
•the ability of the Bank to make loans with acceptable net interest margins and levels of risk of repayment and to otherwise invest in assets at acceptable yields and that present acceptable investment risks;
•inaccuracy of the assumptions and estimates that the management of our Company and the financial institutions that we acquire make in establishing reserves for credit losses and other estimates generally;
•lack of liquidity, including as a result of a reduction in the amount of sources of liquidity we currently have;
•material increases or decreases in the amount of deposits held by the Bank or other financial institutions that we acquire and the cost of those deposits;
•our access to the debt and equity markets and the overall cost of funding our operations;
•regulatory requirements to maintain minimum capital levels or maintenance of capital at levels sufficient to support our anticipated growth;
•changes in market interest rates that affect the pricing of the loans and deposits of each of the Bank and the financial institutions that we acquire and that affect the net interest income, other future cash flows, or the market value of the assets of each of the Bank and the financial institutions that we acquire, including investment securities;
•fluctuations in the market value and liquidity of the securities we hold for sale, including as a result of changes in market interest rates;
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•effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;
•the effects of infectious disease outbreaks, including COVID-19, and the significant impact and associated efforts to limit such spread has had or may have on economic conditions and the Company's business, employees, customers, asset quality and financial performance;
•changes in economic and market conditions that affect the amount and value of the assets of the Bank and of financial institutions that we acquire;
•the institution and outcome of, and costs associated with, litigation and other legal proceedings against one or more of the Company, the Bank and financial institutions that we acquire or to which any of such entities is subject;
•the occurrence of market conditions adversely affecting the financial industry generally;
•the impact of recent and future legislative regulatory changes, including changes in banking, securities, and tax laws and regulations and their application by the Company’s regulators, and changes in federal government policies, as well as regulatory requirements applicable to, and resulting from regulatory supervision of, the Company and the Bank as a financial institution with total assets greater than $10 billion;
•changes in accounting policies, practices, principles and guidelines, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board, as the case may be;
•governmental monetary and fiscal policies;
•changes in the scope and cost of FDIC insurance and other coverage;
•the effects of war or other conflicts, including, but not limited to, the current conflict between Russia and the Ukraine, acts of terrorism (including cyber attacks) or other catastrophic events, including natural disasters such as storms, droughts, tornadoes, hurricanes and flooding, that may affect general economic conditions;
•our actual cost savings resulting from previous or future acquisitions are less than expected, we are unable to realize those cost savings as soon as expected, or we incur additional or unexpected costs;
•our revenues after previous or future acquisitions are less than expected;
•the liquidity of, and changes in the amounts and sources of liquidity available to us, before and after the acquisition of any financial institutions that we acquire;
•deposit attrition, operating costs, customer loss and business disruption during the normal course of business, and before and after any completed acquisitions, including, without limitation, difficulties in maintaining relationships with employees, may be greater than we expected;
•the effects of the combination of the operations of financial institutions that we have acquired in the recent past or may acquire in the future with our operations and the operations of the Bank, the effects of the integration of such operations being unsuccessful, and the effects of such integration being more difficult, time consuming, or costly than expected or not yielding the cost savings we expect;
•the impact of investments that the Company may have made or may make and the changes in the value of those investments;
•the quality of the assets of financial institutions and companies that we have acquired in the recent past or may acquire in the future being different than we determined or determine in our due diligence investigation in connection with the acquisition of such financial institutions and any inadequacy of credit loss reserves relating to, and exposure to unrecoverable losses on, loans acquired;
•our ability to continue to identify acquisition targets and successfully acquire desirable financial institutions to sustain our growth, to expand our presence in our markets and to enter new markets;
•changes in general business and economic conditions in the markets in which we currently operate and may operate in the future;
•changes occur in business conditions and inflation generally;
•an increase in the rate of personal or commercial customers’ bankruptcies generally;
•technology-related changes are harder to make or are more expensive than expected;
•physical or cyber attacks on the security of, and breaches of, the Company's digital information systems, the costs we or the Bank incur to provide security against such attacks and any costs and liability the Company or the Bank incurs in connection with any breach of those systems;
•the potential impact of technology and “FinTech” entities on the banking industry generally;
•the potential impact of climate change and related government regulation on the Company and its customers;
•other economic, competitive, governmental, regulatory, technological and geopolitical factors affecting the Company’s operations, pricing and services; and
•the other factors that are described or referenced in Part I, Item 1A, of the Company’s Annual Report on Form 10-K filed with the SEC on February 21, 2023, under the caption “Risk Factors”.

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We urge you to consider all of these risks, uncertainties and other factors carefully in evaluating all such forward-looking statements made by us. As a result of these and other matters, including changes in facts and assumptions not being realized or other factors, the actual results relating to the subject matter of any forward-looking statement may differ materially from the anticipated results expressed or implied in that forward-looking statement. Any forward-looking statement made in this filing or made by us in any report, prospectus, document or information incorporated by reference in this filing, speaks only as of the date on which it is made. The Company undertakes no obligation to update any such forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. The Company believes that these assumptions or bases have been chosen in good faith and that they are reasonable. However, the Company cautions you that assumptions as to future occurrences or results almost always vary from actual future occurrences or results, and the differences between assumptions and actual occurrences and results can be material. Therefore, the Company cautions you not to place undue reliance on the forward-looking statements contained in this filing or incorporated by reference herein.

Overview
This Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations analyzes the major elements of the Company’s financial condition and results of operation as reflected in the interim consolidated financial statements and accompanying notes appearing in this Quarterly Report on Form 10-Q. This section should be read in conjunction with the Company’s interim consolidated financial statements and accompanying notes included elsewhere in this report and with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022.
The Company was organized as a bank holding company in 2002 and, since that time, has pursued a strategy to create long-term shareholder value through organic growth of our community banking franchise in our market areas and through selective acquisitions of complementary banking institutions with operations in the Company’s market areas or in new market areas. On April 8, 2013, the Company consummated the initial public offering, or IPO, of its common stock which is traded on the Nasdaq Global Select Market.
As of March 31, 2023, the Company operated 93 full service banking locations in north, central and southeast Texas regions, and along the Colorado Front Range region, with 61 Texas locations and 32 Colorado locations.
The Company’s headquarters are located at 7777 Henneman Way, McKinney, Texas 75070 and its telephone number is (972) 562-9004. The Company’s website address is www.ifinancial.com. Information contained on the Company’s website is not incorporated by reference into this Quarterly Report on Form 10-Q and is not part of this or any other report.
The Company’s principal business is lending to and accepting deposits from businesses, professionals and individuals. The Company conducts all of the Company’s banking operations through its principal bank subsidiary. The Company derives its income principally from interest earned on loans and, to a lesser extent, income from securities available for sale and securities held to maturity. The Company also derives income from non-interest sources, such as fees received in connection with various deposit services, mortgage banking operations and investment advisory services. From time to time, the Company also realizes gains or losses on the sale of assets. The Company’s principal expenses include interest expense on interest-bearing customer deposits, advances from the Federal Home Loan Bank of Dallas (FHLB) and other borrowings, operating expenses such as salaries and employee benefits, occupancy costs, communication and technology costs, expenses associated with other real estate owned, other administrative expenses, amortization of intangibles, acquisition expenses, provisions for credit losses and the Company’s assessment for FDIC deposit insurance.
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Recent Developments
Stanford Litigation
As more fully discussed in Part II, Item 1. Legal Proceedings, in first quarter 2023, the Bank entered into a settlement agreement with the plaintiffs to settle all claims of the ongoing lawsuit (Stanford litigation) and pending court approval expected in third quarter 2023, will pay $100.0 million under the terms of the settlement. While the Company denies any liability or wrongdoing with respect to this matter, it believes the settlement is in the best interest of the Company and its shareholders as it eliminates risk, ongoing expense and uncertainty. The $100.0 million settlement, along with $2.5 million in estimated legal and other fees, is recorded to litigation settlement expense in the consolidated income statement. The recognition of this settlement has negatively affected the Company's earnings for the three months ended March 31, 2023, reducing net income by $80.1 million or $1.94 per diluted share.
Recent Banking Crisis
In light of recent events in the banking sector, including recent bank failures, continuing interest rate hikes and recessionary concerns, the Company has proactively positioned the balance sheet to mitigate the risks affecting the Company and the overall banking industry in order to serve its clients and communities.
•Liquidity remains strong, with cash and available for sale securities representing approximately 14.5% of assets at March 31, 2023. The Company maintains the ability to access considerable sources of contingent liquidity at the Federal Home Loan Bank and the Federal Reserve Bank. Management considers the Company's current liquidity position to be adequate to meet both short-term and long-term liquidity needs. Refer to the section Liquidity Management for additional information.
•Capital remains strong, with ratios of the Company, and its subsidiary bank, well above the standards to be considered well-capitalized under regulatory requirements. Refer to Note 12. Regulatory Matters, included elsewhere in this report for additional details.
•Asset quality remains solid, with a non-performing asset ratio of 0.32% of total assets as of March 31, 2023 and net charge-offs of 0.04% annualized for the period, reflecting the Company's disciplined underwriting and conservative lending philosophy which has supported the Company's strong credit performance during prior financial crises. Refer to the section Asset Quality for additional information.
The duration of this crisis has been short but impactful to the Company. The Company will continue its safe and sound banking practices, but the continuing impact of the crisis and further extent on the Company's operations and financial results for the remainder of 2023 is uncertain and cannot be predicted.

Discussion and Analysis of Results of Operations for the Three Months Ended March 31, 2023 and 2022
The following discussion and analysis of the Company's results of operations compares the operations for the three months ended March 31, 2023 with the three months ended March 31, 2022. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations that may be expected for all of the year ending December 31, 2023.
Results of Operations
For the three months ended March 31, 2023, the Company had a net loss of $37.5 million ($(0.91) per common share on a diluted basis) compared with net income of $50.7 million ($1.18 per common share on a diluted basis) for the three months ended March 31, 2022. The Company posted annualized returns on average equity of (6.39)% and 7.99%, returns on average assets of (0.83)% and 1.12% and efficiency ratios of 132.41% and 55.07% for the three months ended March 31, 2023 and 2022, respectively. The efficiency ratio is calculated by dividing total noninterest expense (which excludes the provision for credit losses and the amortization of other intangible assets) by net interest income plus noninterest income.
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Net Interest Income
The Company’s net interest income is its interest income, net of interest expenses. Changes in the balances of the Company’s interest-earning assets and its interest-bearing liabilities, as well as changes in the market interest rates, affect the Company’s net interest income. The difference between the Company’s average yield on earning assets and its average rate paid for interest-bearing liabilities is its net interest spread. Noninterest-bearing sources of funds, such as demand deposits and stockholders’ equity, also support the Company’s earning assets. The impact of the noninterest-bearing sources of funds is reflected in the Company’s net interest margin, which is calculated as annualized net interest income divided by average earning assets.
Net interest income was $127.9 million for the three months ended March 31, 2023, a decrease of $3.2 million, or 2.5%, from $131.1 million for the three months ended March 31, 2022. This decrease in net interest income was primarily driven by the increased funding costs on our deposit products and FHLB advances as a result of the continued Fed rate increases offset to a lesser extent by increased earnings on interest earning assets, primarily loans and interest-bearing cash accounts. The decrease also reflects lower acquired loan accretion and PPP fees earned for the year over year period. Average interest earning assets decreased $163.7 million or 1.0%, to $16.4 billion for the three months ended March 31, 2023 compared to $16.5 billion for the three months ended March 31, 2022. The decrease is primarily due to lower average interest-bearing cash balances, which decreased approximately $1.6 billion, and decreases in average securities of $212.4 million, offset by increases in average loan balances of $1.6 billion. The yield on average interest earning assets increased 152 basis points from 3.46% for the three months ended March 31, 2022 to 4.98% for the three months ended March 31, 2023. The increase in asset yield from the prior year is a primarily a result of increases in the Fed Funds rate and also a result of the shift in earning assets from lower yielding interest-bearing deposit balances to higher yielding loans due to the strong loan growth for the year over year period. The average cost of interest-bearing liabilities increased 227 basis points to 2.63% for the three months ended March 31, 2023 compared to 0.36% for the three months ended March 31, 2022. The increase is reflective of higher funding costs, primarily on deposit products and FHLB advances as a result of Fed Funds rate increases. The aforementioned changes resulted in a 5 basis point decrease in the net interest margin for the three months ended March 31, 2023 at 3.17% compared to 3.22% for the three months ended March 31, 2022. The decrease was primarily due to increased funding costs on deposits and short-term advances resulting from continued Fed rate increases over the year, offset to a lesser extent by higher earnings on loans due to organic growth and rate increases and higher earnings on interest-bearing cash balances due to rate increases.

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Average Balance Sheet Amounts, Interest Earned and Yield Analysis. The following table presents average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three months ended March 31, 2023 and 2022. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances.
Three Months Ended March 31,
20232022
(dollars in thousands)Average
Outstanding
Balance 		Interest
Yield/
Rate (4)
Average
Outstanding
Balance		Interest
Yield/
Rate (4)
Interest-earning assets:
Loans (1)
$13,931,726 $184,294 5.36 %$12,319,734 $129,179 4.25 %
Taxable securities1,464,977 7,858 2.18 1,689,214 8,359 2.01 
Nontaxable securities423,557 2,603 2.49 411,761 2,333 2.30 
Interest-bearing deposits and other550,963 6,421 4.73 2,114,246 994 0.19 
Total interest-earning assets16,371,223 201,176 4.98 16,534,955 140,865 3.46 
Noninterest-earning assets1,857,298 1,904,397 
Total assets$18,228,521 $18,439,352 
Interest-bearing liabilities:
Checking accounts$6,273,149 $38,893 2.51 %$6,237,403 $3,082 0.20 %
Savings accounts728,851 90 0.05 780,380 94 0.05 
Money market accounts1,777,249 12,434 2.84 2,337,951 1,703 0.30 
Certificates of deposit1,611,259 10,844 2.73 973,494 731 0.30 
Total deposits10,390,508 62,261 2.43 10,329,228 5,610 0.22 
FHLB advances576,944 5,824 4.09 150,000 179 0.48 
Other borrowings - short-term4,456 53 4.82 3,478 17 1.98 
Other borrowings - long-term266,519 4,026 6.13 266,483 3,465 5.27 
Junior subordinated debentures54,451 1,090 8.12 54,253 446 3.33 
Total interest-bearing liabilities11,292,878 73,254 2.63 10,803,442 9,717 0.36 
Noninterest-bearing checking accounts4,404,814 4,959,264 
Noninterest-bearing liabilities150,408 100,862 
Stockholders’ equity2,380,421 2,575,784 
Total liabilities and equity$18,228,521 $18,439,352 
Net interest income$127,922 $131,148 
Interest rate spread2.35 %3.10 %
Net interest margin (2)
3.17 3.22 
Net interest income and margin (tax equivalent basis) (3)
$128,962 3.19 $132,179 3.24 
Average interest-earning assets to interest-bearing liabilities144.97 153.05 
___________
(1)    Average loan balances include nonaccrual loans.
(2)    Net interest margins for the periods presented represent: (i) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest-earning assets for the period.
(3)    A tax-equivalent adjustment has been computed using a federal income tax rate of 21%.
(4)    Yield and rates for the three month periods are annualized.

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Provision for Credit Losses
The measurement of expected credit losses under CECL methodology is applicable to financial assets measured at amortized cost. Provision for credit losses is determined by management as the amount to be added to the allowance for credit loss accounts for various types of financial instruments including loans, held to maturity debt securities and off-balance sheet credit exposure, after net charge-offs have been deducted, to bring the allowance to a level deemed appropriate by management to absorb expected credit losses over the lives of the respective financial instruments. Management actively monitors the Company’s asset quality and provides appropriate provisions based on such factors as historical loss experience, current conditions and reasonable and supportable forecasts.
Financial instruments are charged-off against the allowance for credit losses when appropriate. Although management believes it uses the best information available to make determinations with respect to the provision for credit losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the determination.
The following table presents the components of provision for credit losses:
Three Months Ended March 31,
20232022
Provision for credit losses related to:
Loans$(721)$(2,200)
Held to maturity securities— — 
Off-balance sheet credit exposures811 757 
Total provision for credit losses$90 $(1,443)
Provision expense for loans is generally reflective of organic loan growth as well as charge-offs or specific reserves taken during the respective period. Provision expense is also impacted by the economic outlook and changes in macroeconomic variables. The negative provision expense recorded for the three months ended March 31, 2023 primarily reflects improvement in risk-rated loans, while the negative provision recorded for the three months ended March 31, 2022 was primarily reflective of improvements in the economic outlook and diminished pandemic uncertainty over the period.
As discussed in Note 3. Securities, the Company reclassified a portion of its available for sale state and municipal portfolio to held to maturity during 2022 to limit future volatility due to expected increases in interest rates. The majority of securities in the held to maturity portfolio are guaranteed or insured. Therefore, there was no provision for credit losses on held to maturity securities recorded during the respective periods.
Changes in the allowance for unfunded commitments are generally driven by the remaining unfunded amount and the expected utilization rate of a given loan segment.
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Noninterest Income
The following table sets forth the major components of noninterest income for the three months ended March 31, 2023 and 2022 and the period-over-period variations in such categories of noninterest income:
Three Months Ended March 31,Variance
(dollars in thousands)202320222023 v. 2022
Noninterest Income
Service charges on deposit accounts$3,349 $2,752 $597 21.7 %
Investment management fees2,301 2,451 (150)(6.1)
Mortgage banking revenue1,624 3,026 (1,402)(46.3)
Mortgage warehouse purchase program fees324 958 (634)(66.2)
Loss on sale of loans— (1,484)1,484 N/M
Gain (loss) on sale and disposal of premises and equipment47 (163)210 N/M
Increase in cash surrender value of BOLI1,377 1,310 67 5.1 
Other3,732 4,035 (303)(7.5)
Total noninterest income$12,754 $12,885 $(131)(1.0)%
____________
N/M - not meaningful
Total noninterest income decreased $131 thousand, or 1.0% for the three months ended March 31, 2023 over same period in 2022. Significant changes in the components of noninterest income are discussed below.
Service charges on deposits. Service charges on deposits increased $597 thousand, or 21.7% for the three months ended March 31, 2023 as compared to the same period in 2022. The increase was due to higher account analysis charges on our commercial treasury products.
Mortgage banking revenue. Mortgage banking revenue decreased $1.4 million, or 46.3% for the three months ended March 31, 2023 as compared to the same period in 2022. The decrease was primarily due to decreased demand and lower volumes, as well as narrower margins resulting from rate increases over the year. Also included in mortgage banking revenue was a fair value gain on our derivative hedging instruments of $75 thousand for the three months ended March 31, 2023 compared to a fair value gain of $320 thousand for the same period in 2022.
Mortgage warehouse purchase program fees. Mortgage warehouse purchase program fees decreased $634 thousand, or 66.2% for the three months ended March 31, 2023 as compared to the same period in 2022. The decrease was primarily market driven with lower volumes due to mortgage loan rate increases over the year.
Loss on sale of loans. The Company recognized a $1.5 million loss on sale of loans in 2022 primarily due to one commercial real estate loan, which was sold at a discount.
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Noninterest Expense
The following table sets forth the major components of noninterest expense for the three months ended March 31, 2023 and 2022 and the period-over-period variations in such categories of noninterest expense:
Three Months Ended March 31,Variance
(dollars in thousands)202320222023 v. 2022
Noninterest Expense
Salaries and employee benefits$46,275 $49,555 $(3,280)(6.6)%
Occupancy11,559 10,000 1,559 15.6 
Communications and technology7,090 5,901 1,189 20.1 
FDIC assessment2,712 1,493 1,219 81.6 
Advertising and public relations604 456 148 32.5 
Other real estate owned expenses, net(44)— (44)N/M
Impairment of other real estate1,200 — 1,200 N/M
Amortization of other intangible assets3,111 3,145 (34)(1.1)
Litigation settlement102,500 — 102,500 N/M
Professional fees3,065 3,439 (374)(10.9)
Other11,308 8,468 2,840 33.5 
Total noninterest expense$189,380 $82,457 $106,923 129.7 %
____________
N/M - not meaningful
Noninterest expense increased $106.9 million, or 129.7% for the three months ended March 31, 2023 as compared to the same period in 2022. The significant change in the components of noninterest expense is discussed below.
Salaries and employee benefits. Salaries and employee benefits decreased $3.3 million, or (6.6)% for the three months ended March 31, 2023 compared to the same period in 2022. The decrease was primarily due to $2.0 million in lower combined salaries, bonus, payroll taxes and 401(k) expenses due to the fourth quarter 2022 reduction-in-force and overall strategic efforts to reduce costs, as well as lower contract labor costs of $954 thousand, $1.0 million of mortgage commissions and incentives and $953 thousand in employee medical insurance. In addition, deferred salaries expense, which reduces overall expense, was $1.4 million lower compared the prior year quarter due to lower loan origination activity.
Occupancy. Occupancy increased $1.6 million, or 15.6% for the three months ended March 31, 2023 compared to the same period in 2022. The increase was primarily due to higher depreciation and property tax expense related to the opening of the second phase of the Company's headquarters campus in second quarter 2022.
Communications and technology. Communications and technology increased $1.2 million, or 20.1% for the three months ended March 31, 2023 compared to the same period in 2022. The increase was primarily due to higher data processing costs and software expense related to various technology improvements.
FDIC assessment. FDIC assessment increased $1.2 million, or 81.6% for the three months ended March 31, 2023 compared to the same period in 2022. The increase was due to an increase in assessment rates charged by the FDIC.
Impairment of other real estate. The Company recognized a $1.2 million impairment on one other real estate property during the first quarter of 2023, compared to none for the same period in 2022.
Litigation settlement. Litigation settlement of $102.5 million was recognized in first quarter 2023 due to the settlement of the ongoing litigation that was acquired by the Company in 2014, as discussed elsewhere in this report.
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Other noninterest expense. Other noninterest expense increased $2.8 million, or 33.5% for the three months ended March 31, 2023 compared to the same period in 2022. The increase for the three month period was primarily due to asset impairment charges of $802 thousand related to the write-down of a branch that will be closed during second quarter 2023 and increases of $538 thousand in loan-related costs, $682 thousand in deposit-related costs, and increases in various other miscellaneous expense accounts.
Income Tax Expense
Income tax benefit was $11.3 million for the three months ended March 31, 2023 compared to income tax expense of $12.3 million for the same period in 2022. The effective tax rates were 23.1% for the three months ended March 31, 2023 compared to 19.5% for the same period in 2022. The higher effective rate for three months ended March 31, 2023 is due to the Company being in a loss position as a result of the settlement of the Stanford litigation. The lower effective tax rate for the three months ended March 31, 2022 reflects a favorable permanent tax item related to a donation of real property as well as overall lower state tax rates.
Discussion and Analysis of Financial Condition
The following discussion and analysis summarizes the financial condition of the Company as of March 31, 2023 and December 31, 2022 and details certain changes between those periods.
Assets
The Company’s total assets increased by $539.9 million, or 3.0%, to $18.8 billion as of March 31, 2023 from $18.3 billion at December 31, 2022. The increase is due primarily to an increase in cash and cash equivalents during the period but also due in part to organic loan growth and increased FHLB stock holdings during the period.
Loan Portfolio
The Company’s loan portfolio is the largest category of the Company’s earning assets. The following table presents the balance and associated percentage of each major category in the Company's loan portfolio as of March 31, 2023 and December 31, 2022:
(dollars in thousands)March 31, 2023December 31, 2022
Amount % of TotalAmount% of Total
Commercial (1)
$2,171,635 15.5 %$2,240,959 16.1 %
Mortgage warehouse purchase loans400,547 2.8 312,099 2.2 
Real estate:
Commercial7,950,480 56.7 7,817,447 56.2 
Commercial construction, land and land development1,178,525 8.4 1,231,071 8.8 
Residential (2)
1,628,484 11.6 1,604,169 11.5 
Single-family interim construction487,421 3.5 508,839 3.7 
Agricultural121,958 0.9 124,422 0.9 
Consumer84,112 0.6 81,667 0.6 
Total gross loans14,023,162 100.0 %13,920,673 100.0 %
____________
(1)    Includes SBA PPP loans of $3.5 million net of deferred loan fees of $86 thousand at March 31, 2023 and $5.0 million net of deferred fees of $101 thousand at December 31, 2022.
(2)    Includes loans held for sale of $16.6 million and $11.3 million at March 31, 2023 and December 31, 2022, respectively.
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As of March 31, 2023 and December 31, 2022, the Company's loan portfolio, before the allowance for credit losses, totaled $14.0 billion and $13.9 billion, respectively, which is an increase of 0.7% between the two periods. Loans held for investment, excluding mortgage warehouse purchase loans, loans held for sale and PPP loans, increased $8.5 million, or 0.2% annualized for the three month period. See Note 4. Loans, Net and Allowance for Credit Losses on Loans for more details on the Company's loan portfolio.
Asset Quality
Nonperforming Assets. The Company has established procedures to assist the Company in maintaining the overall quality of the Company’s loan portfolio. In addition, the Company has adopted underwriting guidelines to be followed by the Company’s lending officers and require significant senior management review of proposed extensions of credit exceeding certain thresholds. When delinquencies exist, the Company rigorously monitors the levels of such delinquencies for any negative or adverse trends. The Company’s loan review procedures include approval of lending policies and underwriting guidelines by the Company’s board of directors, an annual independent loan review, approval of large credit relationships by the Bank’s Executive Loan Committee and loan quality documentation procedures. The Company, like other financial institutions, is subject to the risk that its loan portfolio will be subject to increasing pressures from deteriorating borrower credit due to general economic conditions.
The Company classifies nonperforming loans as nonaccrual loans or loans past due 90 days or more and still accruing interest. Further information regarding the Company's accounting policies related to past due loans, nonaccrual loans and collateral dependent loans is presented in Note 4 - Loans, Net and Allowance for Credit Losses on Loans.
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The following table sets forth the allocation of the Company’s nonperforming assets among the Company’s different asset categories and key credit-related metrics as of the dates indicated. The balances of nonperforming loans reflect the net investment in these assets.
(dollars in thousands)March 31, 2023December 31, 2022
Nonaccrual loans
Commercial$22,274 $22,565 
Commercial real estate13,340 13,393 
Commercial construction, land and land development13 15 
Residential real estate1,431 1,582 
Single-family interim construction189 189 
Consumer7 8 
Total nonaccrual loans (1)
37,254 37,752 
Total loans delinquent 90 days or more and still accruing47 843 
Total troubled debt restructurings, not included in nonaccrual loans (1)
— 1,494 
Total nonperforming loans (1)
37,301 40,089 
Total other real estate owned and other repossessed assets22,814 24,020 
Total nonperforming assets$60,115 $64,109 
Total allowance for credit losses on loans$146,850 $148,787 
Total loans held for investment (2)
$13,606,039 $13,597,264 
Total assets$18,798,354 $18,258,414 
Credit Ratios
Ratio of nonperforming loans to total loans held for investment0.27 %0.29 %
Ratio of nonperforming assets to total assets0.32 0.35 
Ratio of nonaccrual loans to total loans held for investment0.27 0.28 
Ratio of allowance for credit losses on loans to total loans held for investment1.08 1.09 
Ratio of allowance for credit losses on loans to nonaccrual loans394.19 394.12 
Ratio of allowance for credit losses on loans to total nonperforming loans393.69 371.14 
____________
(1)     Nonaccrual loans include troubled debt restructurings of $929 thousand as of December 31, 2022. With the adoption of ASU 2022-02, effective January 1, 2023, TDR accounting has been eliminated.    
(2)    Excluding mortgage warehouse purchase loans of $400.5 million and $312.1 million and loans held for sale of $16.6 million and $11.3 million as of March 31, 2023 and December 31, 2022, respectively.
Nonaccrual loans decreased slightly to $37.3 million as of March 31, 2023 from $37.8 million as of December 31, 2022. The decrease in nonaccrual loans was primarily due to net paydowns during the period.
Other real estate owned and other repossessed assets decreased from $24.0 million as of December 31, 2022 to $22.8 million as of March 31, 2023 due to a $1.2 million write down on a property due to a new appraisal.
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Allowance for Credit Losses
The measurement of expected credit losses under CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables, held to maturity debt securities and off-balance sheet credit exposures. The CECL model requires the measurement of all expected credit losses on applicable financial assets based on historical experience, current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance accounts is dependent upon a variety of factors beyond the Company's control, including the performance of the portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets.
Analysis of the Allowance for Credit Losses - Loans
The following table sets forth the allowance for credit losses by category of loans:
March 31, 2023December 31, 2022
(dollars in thousands)Amount
% of
Total Loans(1)
Amount
% of
Total Loans(1)
Commercial loans$53,122 15.5 %$54,037 16.1 %
Mortgage warehouse purchase loans— 2.8 — 2.2 
Real estate:
Commercial real estate59,109 56.7 61,078 56.2 
Construction, land and land development17,331 8.4 17,696 8.8 
Residential real estate4,780 11.6 3,450 11.5 
Single-family interim construction11,812 3.5 11,817 3.7 
Agricultural231 0.9 207 0.9 
Consumer465 0.6 502 0.6 
Total allowance for credit losses$146,850 100.0 %$148,787 100.0 %
____________
(1)    Represents the percentage of the Company’s total loans included in each loan category.
As of March 31, 2023, the allowance for credit losses on loans amounted to $146.9 million, or 1.08%, of total loans held for investment, excluding mortgage warehouse purchase loans, compared with $148.8 million, or 1.09%, as of December 31, 2022. The dollar and percentage decrease during 2023 is primarily due to net charge-offs of $1.2 million taken during the quarter.
As of March 31, 2023, the Company had specific credit loss allocations of $10.0 million on individually evaluated loans totaling $34.7 million, compared with specific credit loss allocations of $9.6 million on individually evaluated loans totaling $34.5 million as of December 31, 2022. The increase in specific credit loss allocations was due primarily to a doubtful commercial nonaccrual loan being added with a $501 thousand specific credit loss.
The factors driving significant changes in credit loss allocations by segment over the year are discussed below.
The allowance allocated to commercial loans totaled $53.1 million, or 2.4% of total commercial loans as of March 31, 2023, compared to $54.0 million, or 2.4% of commercial loans as of December 31, 2022. The allowance for credit losses decreased $915 thousand, or 1.7% for the period. Modeled expected credit losses increased $2.9 million while qualitative factors related to commercial loans decreased $4.2 million. The increase in modeled losses was primarily related to changes in Moody's macroeconomic variables used in our model related to elevated risks within the portfolio including economic uncertainty, such as inflationary pressures, elevated interest rates, weakening demand and labor challenges among other factors. The decrease in qualitative factors was primarily due to continued improvement in past due loans and lower overall balances in this portfolio segment. Specific allocations for commercial loans that were evaluated for expected credit losses on an individual basis increased $389 thousand from $8.4 million at December 31, 2022 to $8.8 million at March 31, 2023. The increase in specific allocations for commercial loans was primarily related to the addition of a $501 thousand nonaccrual loan downgraded to doubtful and fully reserved during the period offset by net principal reductions on other commercial loans.
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The allowance allocated to commercial real estate loans totaled $59.1 million, or 0.7% of total commercial real estate loans as of March 31, 2023, compared to $61.1 million, or 0.8% of commercial real estate loans as of December 31, 2022. The allowance for credit losses decreased $2.0 million, or 3.2% despite a $133.0 million increase in the commercial real estate portfolio. Modeled expected credit losses decreased $2.9 million while qualitative factors related to commercial real estate loans increased $915 thousand. The decrease in modeled losses was primarily related to the maturity mix of the portfolio as well as revisions in Moody's macroeconomic variables for commercial real estate. The increase in qualitative factors was due primarily to the increased balance of the portfolio and changes in risk ratings. Specific allocations for commercial real estate loans that were evaluated for expected credit losses on an individual basis remained at $1.2 million from December 31, 2022 to March 31, 2023.
The allowance allocated to residential real estate loans totaled $4.8 million, or 0.3% of total residential real estate loans as of March 31, 2023, compared to $3.5 million, or 0.2% of residential real estate loans as of December 31, 2022. The allowance for credit losses increased $1.3 million, or 38.6% for the period. Modeled expected credit losses increased $410 thousand while qualitative factors related to residential real estate loans increased $920 thousand. The increase in modeled losses was primarily related to changes in Moody's macroeconomic variables used in our model related to elevated risks within the portfolio including economic uncertainty, such as inflationary pressures, elevated interest rates, weakening demand and labor challenges among other factors. The increase in qualitative factors was due primarily to the increased balance of the portfolio. There were no specific allocations for residential real estate loans that were evaluated for expected credit losses on a individual basis at December 31, 2022 or March 31, 2023.
Refer to Note 4 - Loans, Net and Allowance for Credit Losses on Loans, in the notes to the consolidated financial statements included elsewhere in this report for additional details of the allowance for credit losses on loans.
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Additional information related to net charge-offs (recoveries) by loan type is presented in the table below for the three months ended March 31, 2023 and 2022:
Net Charge-offs (Recoveries)Average LoansRatio of Annualized Net Charge-offs (Recoveries) to Average Loans
March 31, 2023
Commercial$20 $2,209,237 — %
Mortgage warehouse purchase loans— 297,980 — 
Real estate:
Commercial— 7,894,473 — 
Commercial construction, land and land development1,196 1,206,395 0.40 
Residential— 1,618,487 — 
Single-family interim construction— 498,802 — 
Agricultural— 123,353 — 
Consumer— 82,999 — 
Total$1,216 $13,931,726 0.04 %
March 31, 2022
Commercial$177 $1,968,349 0.04 %
Mortgage warehouse purchase loans— 546,860 — 
Real estate:
Commercial— 6,697,005 — 
Commercial construction, land and land development— 1,185,806 — 
Residential6 1,345,151 — 
Single-family interim construction— 387,280 — 
Agricultural— 108,290 — 
Consumer10 80,993 0.05 
Total$193 $12,319,734 0.01 %

For the three months ended March 31, 2023, net charge-offs totaled $1.2 million, which is 0.04% (annualized) of the Company's average loans outstanding during the period, compared to net charge-offs of $193 thousand, or 0.01% (annualized) of average loans for the three months ended March 31, 2022. The majority of the 2023 charge-offs is due to one charge-off of a construction loan totaling $1.2 million.
Allowance for Credit Losses - Off-Balance Sheet Credit Exposures
The allowance for credit losses on off-balance sheet credit exposures is calculated under the CECL model, representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. Off-balance sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in Note 7. Off-Balance Sheet Arrangements, Commitments and Contingencies. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur based on historical utilization rates. At March 31, 2023 and December 31, 2022, the allowance for credit losses on off-balance sheet credit exposures was $4.8 million and $3.9 million, respectively.
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Securities
The Company’s investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit, interest rate and duration risk. The types and maturities of securities purchased are primarily based on the Company’s current and projected liquidity and interest rate sensitivity positions. Refer to Note 3. Securities for more details on the Company's security portfolio.
The fair value of the Company's available for sale securities decreased $16.4 million, or 1.0%, to $1.7 billion at March 31, 2023 from $1.7 billion at December 31, 2022. The decrease was primarily due to paydowns, maturities and calls during the quarter offset by a slight improvement in unrealized loss from December 31, 2022. The amortized cost of held to maturity securities decreased $457 thousand, or 0.2%, to $206.6 million as of March 31, 2023 from $207.1 million as of December 31, 2022.
Total securities represented 10.0% and 10.4% of the Company’s total assets at March 31, 2023 and December 31, 2022, respectively.
There were no gains or losses on the sale of securities for the three months ended March 31, 2023 and March 31, 2022.
Certain investment securities are valued at less than their amortized cost. At March 31, 2023, the Company's review of all securities at an unrealized loss position determined that the losses resulted from factors not related to credit quality. This conclusion is based on the Company's analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors for each security type in the portfolio. The unrealized losses are generally due to increases in market interest rates. Furthermore, the Company has the intent to hold these securities until maturity or a forecasted recovery, and it is more likely than not that the Company will not have to sell the securities before the recovery of their cost basis. The fair value is expected to recover as the securities approach their maturity date. As such, there is no allowance for credit losses on available for sale or held to maturity securities recognized as of March 31, 2023. Refer to Note 3. Securities for more information on the Company's analysis of credit losses on securities available for sale and held to maturity.
Liabilities
The Company’s total liabilities increased $574.5 million, or 3.6%, to $16.4 billion at March 31, 2023 from $15.9 billion at December 31, 2022 due to the changes detailed below.
Deposits
Total deposits decreased $1.1 billion, or 7.0%, to $14.1 billion at March 31, 2023 from $15.1 billion at December 31, 2022. The decrease in deposit balances during the quarter was due to a strategic remixing of non-brokered specialty treasury deposits late in the quarter in response to the liquidity environment in March as well as to a gradual decline in noninterest-bearing deposits throughout the quarter. Estimated uninsured deposits, excluding public funds deposits totaled $5.3 billion, or 37.4% of total deposits as of March 31, 2023.
FHLB Advances
FHLB advances increased $1.5 billion, or 500.0%, to $1.8 billion at March 31, 2023 from $300.0 million at December 31, 2022. The increase was due to short term advances taken for additional liquidity sources due to the decreased deposit balances.
Other Borrowings
Other borrowings increased $70.5 million, or 26.4%, to $337.6 million at March 31, 2023 from $267.1 million at December 31, 2022. The increase is due to the $100.0 million draw on the Company's unsecured line of credit offset by the $30.0 million redemption of subordinated debentures during the quarter.

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Capital Resources and Liquidity Management
Capital Resources
Total stockholders' equity was $2.4 billion at March 31, 2023, a decrease of approximately $34.5 million from December 31, 2022. The net decrease was a result of a net loss of $37.5 million, common stock repurchased of $1.6 million and dividends of $15.7 million offset by an increase of $17.9 million in other comprehensive income and stock based compensation of $2.4 million.
Regulatory Capital Requirements
The Company’s capital management consists of providing equity to support the Company’s current and future operations. The Company is subject to various regulatory capital requirements administered by state and federal banking agencies, including the TDB, Federal Reserve and the FDIC. Failure to meet minimum capital requirements may prompt certain actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s financial condition and results of operations. Please refer to Note 12. Regulatory Matters, in the notes to the Company's audited consolidated financial statements included elsewhere in this report for additional details.
Stock Repurchase Program
In January 2023, the Company's Board approved the 2023 Stock Repurchase Plan, which provides for the repurchase of common stock up to $125.0 million through December 31, 2023. No shares have been repurchased under the 2023 Plan through April 21, 2023.
See Part II, Item 2 - Unregistered Sales of Equity and Use of Proceeds, in this report for additional information.
Liquidity Management
Liquidity refers to the measure of the Company’s ability to meet current and future cash flow requirements as they become due, while at the same time meeting the Company’s operating, capital and strategic cash flow needs, all at a reasonable cost. The Company’s asset and liability management policy is intended to maintain adequate liquidity and, therefore, enhance the Company’s ability to raise funds to support asset growth, meet deposit withdrawals and lending needs, maintain reserve requirements, and otherwise sustain operations. The Company accomplishes this through management of the maturities of its interest-earning assets and interest-bearing liabilities. The Company believes that its present position is adequate to meet the current and future liquidity needs.
The Company continuously monitors its liquidity position to ensure that assets and liabilities are managed in a manner that will meet all of the Company’s short-term and long-term cash requirements. The Company manages its liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of the Company’s shareholders. The Company also monitors its liquidity requirements in light of interest rate trends, changes in the economy and the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits.
Liquidity risk management is an important element in the Company’s asset/liability management process. The Company’s short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers, capital expenditures and shareholder dividends. These liquidity requirements are met primarily through cash flow from operations, redeployment of pre-paid and maturing balances in the Company’s loan and investment portfolios, debt financing and increases in customer deposits. The Company’s liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash, interest-bearing deposits in banks, federal funds sold, securities available for sale and maturing or prepaying balances in the Company’s investment and loan portfolios. Liquid liabilities include core deposits, brokered deposits, federal funds purchased and other borrowings. Other sources of liquidity include the sale of loans, the ability to acquire additional national market non-core deposits, the issuance of additional collateralized borrowings such as FHLB advances, the issuance of debt securities, borrowings through the Federal Reserve’s discount window and newly established Bank Term Funding Program and the issuance of equity securities. For additional information regarding the Company’s operating, investing and financing cash flows, see the Consolidated Statements of Cash Flows provided in the Company’s consolidated financial statements.
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Deposits represent the Company’s primary source of funds. The Company continues to focus on growing core deposits through the Company’s relationship driven banking philosophy and community-focused marketing programs. In addition to deposits, the Company utilizes FHLB advances either as a short-term funding source or a longer-term funding source and to manage the Company’s interest rate risk on the Company’s loan portfolio. FHLB advances can be particularly attractive as a longer-term funding source to balance interest rate sensitivity and reduce interest rate risk.
In addition to the liquidity provided by the sources described above, the Company maintains correspondent relationships with other banks in order to sell loans or purchase overnight funds should additional liquidity be needed. As of March 31, 2023, the Company had established federal funds lines of credit with 11 unaffiliated banks totaling $545.0 million with no borrowings against the lines at that time. Three of the lines totaling $115.0 million have stated maturity dates in May, September and December 2023 and the remaining lines have no stated maturity dates and the lenders may terminate the lines at any time without notice. The Company also participates in an exchange that provides direct overnight borrowings with other financial institutions with a borrowing capacity of $699.0 million with none outstanding as of March 31, 2023. The Company has an unsecured line of credit totaling $100.0 million with an unrelated commercial bank with $100.0 million borrowings against the line as of March 31, 2023. As of April 24, 2023, borrowings outstanding on the line of credit totaled $67.5 million.
Based on the values of stock, securities, and loans pledged as collateral, as of March 31, 2023, the Company had additional borrowing capacity with the FHLB of $2.9 billion. In addition, the Company maintains a secured line of credit through the Federal Reserve Bank discount window with availability to borrow $1.1 billion at March 31, 2023. Also starting in first quarter 2023, the Company is eligible to borrow from the Federal Reserve's Bank Term Funding Program (BTFP), which provides additional contingent liquidity through the pledging of certain qualifying securities and other assets. The BTFP is a one year program ending March 11, 2024 and the Company can borrow any time during the term and can repay the obligation at any time without penalty. Although the Company does not plan to access the BTFP, additional liquidity of $116.3 million was available as of March 31, 2023 based on the par-value of qualifying securities.
In the ordinary course of the Company’s operations, the Company has entered into certain contractual obligations and has made other commitments to make future payments. The Company believes that it will be able to meet its contractual obligations as they come due through the maintenance of adequate cash levels. The Company expects to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. The Company has in place various borrowing mechanisms for both short-term and long-term liquidity needs. These include payments related to (a) time deposits with stated maturity dates, (b) short and long term borrowings, (c) operating leases and (d) commitments to extend credit and standby letters of credit.
As discussed elsewhere in this report, the Company has accrued $100.0 million in connection with the settlement of the Stanford lawsuit, as well as $2.5 million in contingent legal fees associated with the lawsuit. Pending court approval and the entry of certain bar orders as required by the agreement, the Company expects to pay the obligation in third quarter 2023.
Other than the matter noted above and normal changes in the ordinary course of business, there have been no significant changes in the types of contractual obligations or amounts due since December 31, 2022.
The Company is a corporation separate and apart from the Bank and, therefore, the Company must provide for the Company’s own liquidity. The Company’s main source of funding is dividends declared and paid to the Company by the Bank. Statutory and regulatory limitations exist that affect the ability of the Bank to pay dividends to the Company. Management believes that these limitations will not impact the Company’s ability to meet the Company’s ongoing short-term cash obligations.
Critical Accounting Policies and Estimates
The preparation of the Company’s consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, requires the Company to make estimates and judgments that affect the Company’s reported amounts of assets, liabilities, income and expenses and related disclosure of contingent assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. The Company evaluates its estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
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Accounting policies, as described in detail in the notes to the Company’s audited consolidated financial statements are an integral part of the Company’s financial statements. A thorough understanding of these accounting policies is essential when reviewing the Company’s reported results of operations and the Company’s financial position. The Company has deemed the accounting policy and estimate discussed below as most critical and require the Company to make difficult, subjective or complex judgments about matters that are inherently uncertain. Changes in these estimates, which are likely to occur from period to period, or the use of different estimates that the Company could have reasonably used in the current period, would have a material impact on the Company’s financial position, results of operations or liquidity. The Company has other significant accounting policies and continues to evaluate the materiality of their impact on its consolidated financial statements, but management believes these other policies either do not generally require them to make estimates and judgments that are difficult or subjective, or it is less likely they would have a material impact on the Company's reported results for a given period.
Allowance For Credit Losses. Management considers policies related to the allowance for credit losses on financial instruments for loans and off-balance sheet credit exposures to be critical to the financial statements. The Company's policies for the allowance for credit losses are accounted for under ASC 326, Financial Instruments - Credit Losses. In accordance with ASC 326, the allowance for credit losses on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans are charged against the allowance for credit losses when management believes that collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance is increased (decreased) by provisions (or reversals of) reported in the income statement as a component of provisions for credit loss. Under the new guidance, the allowance for credit losses on off-balance sheet credit exposures is a liability account representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit.
The amount of each allowance account represents management's best estimate of current expected credit losses on such financial instruments using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, credit quality, or term as well as for changes in environmental conditions, such as changes in unemployment rates, gross domestic product, property values or other relevant factors. The Company utilizes Moody’s Analytics economic forecast scenarios and assigns probability weighting to those scenarios which best reflect management’s views on the economic forecast.
The allowance for credit losses for loans is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. For determining the appropriate allowance for credit losses on a collective basis, the loan portfolio is segmented into pools based upon similar risk characteristics and a lifetime loss-rate model is utilized. The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Management has determined that they are reasonably able to forecast the macroeconomic variables used in the modeling processes with an acceptable degree of confidence for a total of two years then encompassing a reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean utilizing a rational, systematic basis. Management qualitatively adjusts model results for risk factors that are not considered within the modeling processes but are nonetheless relevant in assessing the expected credit losses within the loan pools. These qualitative factor (Q-Factor) adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk.
Due to the subjective nature of these estimates in general and more so due to the multiple, complex variables used in the calculation, the estimate for determining current expected credit losses is subject to uncertainty. The various components of the calculation require significant management judgement and certain assumptions are highly subjective. Volatility in certain credit metrics and variations between expected and actual outcomes are likely.
Further information regarding Company policies and methodology used to estimate the allowance for credit losses is presented in Note 4. Loans, Net and Allowance for Credit Losses on Loans and Note 7. Off-Balance Sheet Arrangements, Commitments and Contingencies.
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Recently Issued Accounting Standards
The Company has evaluated new accounting standards that have recently been issued and have determined that there are no new accounting standards that should be described in this section that will materially impact the Company’s operations, financial condition or liquidity in future periods.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk refers to the risk of loss arising from adverse changes in interest rates, foreign currency exchange rates, commodity prices, and other relevant market rates and prices, such as equity prices. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows, and future earnings. Due to the nature of our operations, we are primarily exposed to interest rate risk.
Asset/Liability Management and Interest Rate Risk
The principal objective of the Company’s asset and liability management function is to measure, monitor and control the interest rate risk within the balance sheet and a neutral interest rate risk position while maximizing net income and preserving adequate levels of liquidity and capital. The Risk Oversight Committee of the Board of Directors has oversight of the asset and liability management function, which is managed by the Company's Treasurer. The Treasurer meets with the Company's Chief Financial Officer and senior executive management team regularly to review, among other things, the sensitivity of the Company’s assets and liabilities to interest rate changes, as well as local and national market conditions. That group also reviews the liquidity, deposit mix, loan mix and investment positions of the Company.
The Company's management and the Board of Directors are responsible for employing risk management policies that monitor and limit the Company's exposure to interest rate risk. Interest rate risk is measured using net interest income simulations and market value of equity analyses. These analyses use various assumptions, including the magnitude and timing of interest rate changes, yield curve shape, prepayments on loans and securities and deposits, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows.
Instantaneous parallel rate shift scenarios, known as rate shock, are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in net interest margin.
The Company also analyzes the economic value of equity as an additional measure of interest rate risk. This is a complementary measure to net interest income where the calculated value is the result of the market value of assets less the market value of liabilities. The economic value of equity is a longer term view of interest rate risk because it measures the present value of the future cash flows. The impact of changes in interest rates on this calculation is analyzed for the risk to the Company's future earnings and is used in conjunction with the analyses on net interest income. The Company also runs customized scenarios to aid in decision making as well as stress test assumptions to confirm that the outputs are reasonable.
The Company conducts periodic analyses of its sensitivity to interest rate risk through the use of a third-party proprietary interest-rate sensitivity model that is run internally and has been customized to the Company's specifications. The analyses conducted by use of that model are based on current information regarding the Company's actual interest-earnings assets, interest-bearing liabilities, capital and other financial information that it supplies. The Company uses the information in the model to aid in its risk management framework surrounding the net interest margin.
The Company's asset liability management model indicated that it was in a liability sensitive position in terms of its income simulation as of March 31, 2023. The table below illustrates the impact of an immediate and sustained 200 and 100 basis point increase and a 100 basis point decrease in interest rates on net interest income over twelve months based on the interest rate risk model as of March 31, 2023:
Hypothetical Shift in
Interest Rates (in bps)		% Change in Projected
Net Interest Income
200(0.79)%
100(0.07)
(100)(0.27)
The Company's model indicates that its projected balance sheet at March 31, 2023 has shifted to a liability sensitive position in comparison to an asset sensitive balance sheet as of December 31, 2022. The shift was primarily due to the increase in short-term FHLB advances that were added to increase the Company's on-balance sheet liquidity in response to market events at the end of the quarter but also due to slowing prepayments on loans during the quarter.
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These are good faith estimates and assume that the composition of the Company's interest sensitive assets and liabilities existing at each period-end is held consistent. Additionally, the forecast takes into consideration the future maturities and contractual interest rate repricing over the relevant twelve month measurement period. Lastly, the model assumes that changes in market interest rates are instantaneous and sustained across the yield curve regardless of duration of pricing characteristics of specific assets or liabilities. This analysis does not contemplate any actions that the Company might undertake in response to changes in market interest rates. As a result, the Company believes these estimates are not necessarily indicative of what actually could occur in the event of immediate interest rate increases or decreases of this magnitude. As interest-bearing assets and liabilities re-price in different time frames and proportions to market interest rate movements, various assumptions must be made based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive and market conditions, the Company anticipates that future results will likely be different from the foregoing estimates, and such differences could be material.

ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q was performed under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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PART II
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, the Company and the Bank are named as defendants in various lawsuits. Management of the Company and the Bank, following consultation with legal counsel, do not expect the ultimate disposition of any, or a combination, of these matters to have a material adverse effect on the business of the Company or the Bank.
The Bank is a party to a legal proceeding inherited in connection with the Company's acquisition of BOH Holdings, Inc. and its subsidiary, Bank of Houston, or BOH, that was completed on April 15, 2014. Several entities related to R.A. Stanford, or the Stanford Entities, including Stanford International Bank, Ltd., or SIBL, had deposit accounts at BOH. Certain individuals who had purchased certificates of deposit from SIBL filed a class action lawsuit against several banks, including BOH, on August 23, 2009 in Texas state court, alleging, among other things, that the plaintiffs were victims of fraud by SIBL and other Stanford Entities and seeks to recover damages and alleged fraudulent transfers by the defendant banks.
The plaintiffs seek recovery from the Bank and other defendants for their losses. On May 1, 2015, the plaintiffs filed a motion requesting permission to file a Second Amended Class Action Complaint in this case, which motion was subsequently granted. The Second Amended Class Action Complaint presents previously unasserted claims, including aiding and abetting or participation in a fraudulent scheme based upon the large amount of deposits that the Stanford Entities held at BOH and the alleged knowledge of certain BOH officers. The case was then inactive due to a Court-ordered discovery stay issued March 2, 2015 pending the Court’s ruling on plaintiff’s motion for class certificate and designation of class representatives and counsel. On November 7, 2017, the Court issued an order denying the plaintiff’s motion. In addition, the Court lifted the previously ordered discovery stay. On January 11, 2018, the Court entered a scheduling order providing that the case be ready for trial on January 27, 2020. Due to agreed upon extensions of discovery on July 25, 2019, the Court amended the scheduling order to provide that the case be ready for trial on January 11, 2021. In light of additional agreed upon extensions of discovery deadlines, the Court entered a new scheduling order on March 9, 2020, which provided that the case be ready for trial March 15, 2021. In light of delays in discovery associated with the COVID-19 pandemic, the parties agreed to amend the scheduling order with new ready for trial date of May 6, 2021. The Defendants filed a motion to remand the case. The Bank also filed its motion for summary judgment on February 12, 2021. On the same day, the Bank also joined in on an omnibus motion for summary judgment based on procedural issues common to all Defendants. On March 19, 2021, the Plaintiffs filed a notice of abandonment of five of the seven causes of action against the Bank. On March 11, 2021, the Defendants filed a motion to amend the scheduling order, which was granted, effectively vacating the May 6, 2021 trial date. On January 20, 2022 the Court issued an opinion and order denying the motion for summary judgment by the Bank and the other defendants. On the same date, the Court issued a suggestion of remand of the case to the Southern District of Texas. As of March 11, 2022, the case has been officially remanded to the Southern District of Texas. On January 2-3, 2023, the Bank attended court-ordered mediation which did not result in resolution. Trial was scheduled to begin on February 27, 2023.
As disclosed in the Company's Current Report on Form 8-K dated February 27, 2023, the Bank entered into a settlement in principle with the Plaintiffs. A settlement agreement was subsequently executed by the parties on March 7, 2023. Pursuant to the settlement, the parties agreed to settle and dismiss the Stanford litigation and to seek the entry of bar orders from the U.S. District Court for the Northern District of Texas prohibiting any continued or future claims against the Bank and its related parties relating to Stanford, whether asserted to date or not. If the settlement, including the bar orders described in the preceding sentence is approved by the Court at a hearing set for August 8, 2023, and is not subject to further appeal, the Bank will make a one-time cash payment of $100 million to Ralph S. Janvey, in his capacity as the Court-appointed receiver for the Stanford litigation. The Bank is relieved of the trial setting subject to final Court approval of the settlement agreement reflecting the terms of the settlement and entry of the bar orders.
The settlement does not include any admission of liability of wrongdoing by the Bank, and the Bank expressly denied any liability or wrongdoing with respect to any matter alleged in the Stanford litigation. The Bank has agreed to the settlement to avoid the cost, risks, and distraction of continued litigation. The Company believes the settlement is in the best interests of the Company and its shareholders.
This is complex litigation involving a number of procedural matters and issues and the Company has experienced an increase in legal fees associated with the defense of this claim and expects to continue to incur legal fees in connection with this matter until this matter is fully resolved.
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If the settlement or entry of the bar orders is not approved by the Court for any reason, the Bank will continue to vigorously defend the lawsuit.
The Bank notified its insurance carriers of the claims made in the Second Amended Complaint. The insurance carriers have initially indicated that the claims are not covered by the policies or that a “loss” has not yet occurred. The Bank pursued insurance coverage as well as reimbursement of defense costs through the initiation of litigation and other means. On November 6, 2018, the Company settled claims under its Financial Institutions Select Policy pursuant to which the Company received payment of an amount which is not material to the operations of the Company. The Company did not settle any claims under its Financial Institution Bond Policy.
ITEM 1A. RISK FACTORS
In evaluating an investment in the Company's common stock, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, and in the information contained in this Quarterly Report on Form 10-Q and our other reports and registration statements.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Share Repurchase Program. From time to time, the Company's Board of Directors has authorized stock repurchase programs, which allow the Company to purchase its common stock in the open market or in privately negotiated transactions. In general, the share repurchase program allows the Company to proactively manage its capital position and return excess capital to shareholders. In January 2023, the Company's Board established the 2023 Stock Repurchase Plan, which provides for the repurchase of up to $125.0 million of common stock through December 31, 2023. No shares were repurchased by the Company during the three months ended March 31, 2023.
The following table summarizes the Company's repurchase activity during the three months ended March 31, 2023:
Total Number of Shares Purchased (1)
Average Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Repurchase PlanMaximum Dollar Value of Shares that May Yet Be Purchased Under the Plan (thousands)
January 202319,988 $60.40 — $125,000 
February 20236,423 60.55 — 125,000 
March 2023366 57.36 — 125,000 
Total first quarter 202326,777 $60.39 — $125,000 
Total 2023 year-to-date26,777 $60.39 — $125,000 
____________
(1)    Includes 26,777 shares purchased to settle employee tax withholding related to vesting of restricted stock awards. These transactions are not considered part of the Company's repurchase program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None

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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable

ITEM 5. OTHER INFORMATION

None
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ITEM 6. EXHIBITS
The following documents are filed as exhibits to this Quarterly Report on Form 10-Q: 
Exhibit 10.1
Exhibit 10.2*
Exhibit 31.1*
Exhibit 31.2*
Exhibit 32.1**
Exhibit 32.2**
Exhibit 99.1*
Exhibit 101.INS *XBRL Instance Document-the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH *XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL *XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF *XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB *XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE *XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104
Cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 is formatted as Inline XBRL and contained within Inline XBRL Instance Document in Exhibit 101.
*Filed herewith.
**Furnished herewith (such certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference)

66

Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Independent Bank Group, Inc.
Date:April 25, 2023By: /s/ David R. Brooks
David R. Brooks
Chairman and Chief Executive Officer

Date:April 25, 2023By: /s/ Paul B. Langdale
Paul B. Langdale
Executive Vice President
Chief Financial Officer

67
Exhibit 10.2
SIXTH AMENDMENT TO
CREDIT AGREEMENT
This SIXTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is dated as of March 16, 2023 and is between INDEPENDENT BANK GROUP, INC., a Texas corporation (the “Borrower”), and U.S. BANK NATIONAL ASSOCIATION (“U.S. Bank”), a national banking association, as the Lender (the “Lender”) and as Administrative Agent.
RECITALS
A.    Borrower, the Lender and the Administrative Agent are party to a Credit Agreement dated as of January 17, 2019 (as amended, restated or otherwise modified, the “Credit Agreement”). Capitalized terms not otherwise defined in this Sixth Amendment shall have the meanings respectively ascribed to them in the Credit Agreement.
B.    The parties hereto desire to amend and modify the Credit Agreement in accordance with the terms and subject to the conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements herein contained, the parties hereto hereby agree as follows:
AGREEMENT
SECTION 1.AMENDMENT TO THE CREDIT AGREEMENT. Section 6.9 (d) of the Credit Agreement is amended in its entirety to read as follows:
“(d)    Minimum Return on Average Assets. With respect to the Consolidated Bank Subsidiaries, maintain as at the end of any Fiscal Quarter a Return on Average Assets of at least equal to 0.90%; provided, however, for purposes of determining Return of Average Assets for the period commencing March 31, 2023 and continuing until March 31, 2024, the Borrower’s non-interest expenses up to $100,000,000 for a settlement that occurred on or about February 27, 2023 related to a receivership litigation involving Stanford International Bank, Ltd., shall be excluded for purposes of determining Net Income.”
SECTION 2.REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Lender and the Administrative Agent as of the date hereof as follows:
(i)    No Default or Event of Default has occurred or is continuing under the Credit Agreement, and no Default or Event of Default would result from the amendment contemplated hereby.
(ii)    The execution, delivery and performance by Borrower of this Amendment have been duly authorized by all necessary and proper corporate and other proceedings and do not and will not require any registration with, consent or approval of, or notice to or action by any Person (including any Governmental Authority) in order to be effective and enforceable.
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(iii)    This Amendment and the other Loan Documents (as amended by this Amendment) constitute the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.
(iv)    The representations and warranties contained in Article V of the Credit Agreement are (x) with respect to any representations or warranties that contain a materiality qualifier, true and correct in all respects as of the date hereof (upon giving effect to this Amendment), except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct in all respects on and as of such earlier date and (y) with respect to any representations or warranties that do not contain a materiality qualifier, true and correct in all material respects as of such Borrowing Date, except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct in all material respects on and as of such earlier date.
(v)    Borrower is in compliance with all of the covenants contained in the Credit Agreement.
(vi)    Borrower’s Obligations under the Credit Agreement and under the other Loan Documents are not subject to any defense, counterclaim, set-off, right to recoupment, abatement or other claim.
SECTION 3.ADDITIONAL TERMS.
3.1Acknowledgement of Indebtedness under Credit Agreement. Borrower acknowledges and confirms that, as of the date hereof, Borrower is indebted to the Lender, without defense, setoff, or counterclaim, in the aggregate principal amount of $0.00 under the Credit Agreement.
3.2The Credit Agreement. On and after the Effective Date: (i) each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of like import shall mean and be a reference to the Credit Agreement as amended hereby, (ii) each reference to the Credit Agreement in all Loan Documents shall mean and be a reference to the Credit Agreement, as amended hereby, and (iii) this Amendment shall be deemed a “Loan Document” for the purposes of the Credit Agreement.
3.3 Amendment and Credit Agreement to be Read Together. This Amendment supplements and is hereby made a part of the Credit Agreement, and the Credit Agreement and this Amendment shall from and after the Effective Date be read together and shall constitute one agreement. Except as otherwise set forth herein, the Credit Agreement shall remain in full force and effect.
3.4Acknowledgements. Borrower acknowledges that (i) it has been advised by counsel of its choice of law with respect to this Amendment, the Credit Agreement, the other Loan Documents and the transactions contemplated hereby and thereby, (ii) any waiver of Borrower set forth herein has been knowingly and voluntarily made, and (iii) the obligations of the Lender and the Administrative Agent hereunder shall be strictly construed and shall be expressly subject to Borrower’s compliance in all respects with the terms and conditions of the Credit Agreement.
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3.5No Waiver. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any Event of Default (including without limitation any Event of Default existing on the date hereof), nor operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent (including without limitation any rights, powers or remedies of a Lender or the Administrative Agent with respect to any Event of Default existing on the date hereof), nor constitute a waiver of, or consent to any departure from, any provision of the Credit Agreement, or any of the other Loan Documents.
3.6No Novation. The terms and conditions of the Credit Agreement are amended as set forth in this Amendment. It is expressly understood and acknowledged that nothing in this Amendment shall be deemed to cause or otherwise give rise to a novation of the indebtedness contemplated in the Credit Agreement. All of Borrower’s “Obligations” under the Credit Agreement shall in all respects be continuing and this Amendment shall not be deemed to evidence or result in a novation or repayment and re-borrowing of such “Obligations.”
SECTION 4.CONDITIONS PRECEDENT. The amendments set forth in SECTION 1 above shall become effective as of the date (the “Effective Date”) on which each of the following conditions shall have been satisfied: (i) Administrative Agent shall have received a fully executed Amendment and any other documents to be executed, delivered, or performed in connection with this Amendment (the “Amendment Documents”); and (ii) the Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date.
SECTION 5.RELEASE. BORROWER, FOR ITSELF AND ITS SUCCESSORS AND ASSIGNS, DOES HEREBY FULLY, FINALLY AND UNCONDITIONALLY RELEASE AND FOREVER DISCHARGE, AND AGREES TO HOLD HARMLESS, THE LENDER, THE ADMINISTRATIVE AGENT AND EACH OF THEIR RESPECTIVE EQUITY HOLDERS AND AFFILIATES, AND THEIR RESPECTIVE AGENTS, ADVISORS, MANAGERS, PARENTS, SUBSIDIARIES, ATTORNEYS, REPRESENTATIVES, EMPLOYEES, OFFICERS AND DIRECTORS, AND THE SUCCESSORS, ASSIGNS, HEIRS AND REPRESENTATIVES OF EACH OF THE FOREGOING, FROM ANY AND ALL DEBTS, CLAIMS, COUNTERCLAIMS, SETOFFS, OBLIGATIONS, DAMAGES, COSTS, ATTORNEYS’ FEES AND EXPENSES, SUITS, DEMANDS, LIABILITIES, ACTIONS, PROCEEDINGS AND CAUSES OF ACTION, IN EACH CASE WHETHER KNOWN OR UNKNOWN, CONTINGENT OR FIXED, DIRECT OR INDIRECT AND OF WHATEVER KIND, NATURE OR DESCRIPTION, AND WHETHER IN LAW OR IN EQUITY, UNDER CONTRACT, TORT, STATUTE OR OTHERWISE, THAT BORROWER HAS HERETOFORE HAD OR NOW OR HEREAFTER CAN, SHALL OR MAY HAVE BY REASON OF ANY ACT, OMISSION OR THING WHATSOEVER DONE OR OMITTED TO BE DONE ON OR PRIOR TO THE EFFECTIVE DATE ARISING OUT OF, CONNECTED WITH OR RELATED IN ANY WAY TO THIS AMENDMENT, THE CREDIT AGREEMENT, THE OTHER LOAN DOCUMENTS, THE TRANSACTIONS DESCRIBED THEREIN, THE REVOLVING LOANS, THE LENDER’S AND THE ADMINISTRATIVE AGENT’S ADMINISTRATION THEREOF, OR THE FINANCING OR BANKING RELATIONSHIPS OF BORROWER WITH THE LENDER AND THE ADMINISTRATIVE AGENT.
SECTION 6.MISCELLANEOUS.
6.1Entire Agreement; Successors. This Amendment (i) constitutes the entire understanding of the parties with respect to the subject matter hereof, and any other
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prior or contemporaneous agreements, whether written or oral, with respect hereto or thereto are expressly superseded hereby; and (ii) shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto permitted pursuant to Article XIII of the Credit Agreement.
6.2Counterparts. This Amendment may be executed in any number of counterparts (which taken together shall constitute one and the same instrument) and by facsimile or electronic (.pdf) transmission, which facsimile or electronic (.pdf) signatures shall be considered original executed counterparts.
6.3GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
6.4CONSENT TO JURISDICTION. BORROWER HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT AND BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY BORROWER AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AMENDMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK.
6.5WAIVER OF JURY TRIAL. BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AMENDMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER.
6.6SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 14.1 (OTHER THAN TRANSMISSION BY FACSIMILE) OF THE CREDIT AGREEMENT WITH RESPECT TO THE MATTERS SET FORTH IN THIS AMENDMENT. NOTHING IN THIS WAIVER WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Borrower, the Lender, and the Administrative Agent have executed this Amendment as of the date first above written.

INDEPENDENT BANK GROUP, INC.
By: /s/ David R. Brooks
Name: David R. Brooks
Title: Chairman of the Board, CEO
Signature Page to Sixth Amendment to Credit Agreement
4880-2663-0484\3

IN WITNESS WHEREOF, Borrower, the Lender, and the Administrative Agent have executed this Amendment as of the date first above written.

U.S. BANK NATIONAL ASSOCIATION
By: /s/ Michael R. Point
Name: Michael R. Point
Title: Senior Vice President


Signature Page to Sixth Amendment to Credit Agreement
4880-2663-0484\3

Exhibit 31.1

I, David R. Brooks, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Independent Bank Group, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information related to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:April 25, 2023/s/ David R. Brooks
   David R. Brooks
Chairman and Chief Executive Officer
   

Exhibit 31.2
   
I, Paul B. Langdale, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Independent Bank Group, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information related to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:April 25, 2023/s/ Paul B. Langdale
   Paul B. Langdale
Executive Vice President and Chief Financial Officer

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350 (AS ADOPTED
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002)

In connection with the Quarterly Report of Independent Bank Group, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David R. Brooks, Chairman and Chief Executive Officer of the Company, certify to my knowledge and in my capacity as an officer of the Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
IN WITNESS WHEREOF, the undersigned has executed this Certificate, effective as of April 25, 2023.
   

/s/ David R. Brooks
   
David R. Brooks
Chairman and Chief Executive Officer

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350 (AS ADOPTED
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002)


In connection with the Quarterly Report of Independent Bank Group, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul B. Langdale, Executive Vice President and Chief Financial Officer of the Company, certify to my knowledge and in my capacity as an officer of the Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
IN WITNESS WHEREOF, the undersigned has executed this Certificate, effective as of April 25, 2023.
   
      
/s/ Paul B. Langdale
   
Paul B. Langdale
Executive Vice President and Chief Financial Officer
Exhibit 99.1
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (the “Settlement Agreement”) is made and entered into between and among, on the one hand, (i) Ralph S. Janvey, solely in his capacity as the court-appointed receiver for the Stanford Receivership Estate (the “Receiver”); (ii) the Official Stanford Investors Committee (the “Committee”); (iii) individual plaintiffs Guthrie Abbott, Steven Queyrouze, Sarah Elson-Rogers, Salim Estefenn Uribe, Ruth Alfille de Penhos, and Diana Suarez (collectively, the “Rotstain Investor Plaintiffs”); and, on the other hand, (iv) Independent Bank, a Texas banking association, formerly known as Bank of Houston, (“Independent”). The Receiver, the Committee, and the Rotstain Investor Plaintiffs are collectively referred to as the “Plaintiffs.” Plaintiffs, on the one hand, and Independent, on the other hand, are referred to in this Agreement individually as a “Party” and together as the “Parties.”
WHEREAS, on February 16, 2009, the United States Securities and Exchange Commission (the “SEC”) initiated SEC v. Stanford International Bank, Ltd., Civil Action No. 3:09-cv-00298-N (N.D. Tex.) (the “SEC Action”), alleging that Robert Allen Stanford, James M. Davis, Laura Pendergest-Holt, Stanford International Bank, Ltd. (“SIBL”), Stanford Group Company, and Stanford Capital Management, LLC (collectively, the “Stanford SEC Defendants”) had engaged in a fraudulent scheme affecting tens of thousands of customers from over one hundred countries;
WHEREAS, in an order dated February 16, 2009, in the SEC Action (ECF No. 10), the United States District Court for the Northern District of Texas assumed exclusive jurisdiction and took possession of (i) the assets, and other tangible and intangible monies and property, as further set forth in that order, of the Stanford SEC Defendants and all entities they owned or
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controlled as of February 16, 2009, including but not limited to Stanford Financial Group Limited (“SFGL”), Bank of Antigua Limited, and Stanford Bank (Panama), S.A.1 (all such entities are collectively, with the Stanford SEC Defendants, the “Stanford Entities”), which comprise the “Receivership Assets,” and (ii) the books and records, client lists, account statements, financial and accounting documents, computers, computer hard drives, computer disks, internet exchange servers, telephones, personal digital devices, and other informational resources of or in possession of the Stanford SEC Defendants, or issued by the Stanford SEC Defendants and in possession of any agent or employee of the Stanford SEC Defendants (collectively, the “Receivership Records”);
WHEREAS, in that same order (ECF No. 10), Ralph S. Janvey was appointed Receiver for the Receivership Assets and the Receivership Records (collectively, the “Receivership Estate”) with the full power of an equity receiver under common law as well as such powers as are enumerated in that order, as amended by orders in that same matter dated March 12, 2009 (ECF No. 157, Case No. 3:09-cv-00298-N (N.D. Tex.)) and dated July 19, 2010 (ECF No. 1130, Case No. 3:09-cv-00298-N (N.D. Tex.)) (collectively, the “Receivership Orders”);
WHEREAS, in the Receivership Orders the Court “empowered and directed the Receiver to, among other things . . . devise a mechanism for addressing outstanding claims and liabilities and satisfying valid investor/creditor claims” (ECF No. 96, Case No. 3:09-cv-02384-N-BQ (N.D. Tex.)), and “to [i]nstitute, prosecute, compromise, adjust, intervene in, or become party to such actions or proceedings in state, federal, or foreign courts that the Receiver deems necessary and advisable to preserve the value of the Receivership Estate.” ECF No. 1130, ⁋ 5(h), Case No. 3:09-cv-00298-N (N.D. Tex.);
1     The full list of entities that the Stanford SEC Defendants owned or controlled as of February 16, 2009 is attached as Exhibit C.
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WHEREAS, Ralph S. Janvey has served as Receiver continuously since his appointment and continues to so serve;
WHEREAS, John J. Little was appointed to serve as examiner (the “Examiner”) by an order entered in the SEC Action, dated April 20, 2009 (ECF No. 322, Case No. 3:09-cv-00298-N (N.D. Tex.)), to assist the United States District Court for the Northern District of Texas in considering the interests of the worldwide investors in any financial products, accounts, vehicles, or ventures sponsored, promoted, or sold by any defendants in the SEC Action;
WHEREAS, John J. Little has served as Examiner continuously since his appointment and continues to so serve;
WHEREAS, the Committee was created pursuant to an order entered in the SEC Action dated August 10, 2010 (ECF No. 1149, Case No. 3:09-cv-00298-N (N.D. Tex.)) (the “Committee Order”), to represent “the customers of SIBL, who, as of February 16, 2009, had funds on deposit at SIBL, and/or were holding certificates of deposit (“CDs”) issued by SIBL” (the “Stanford Investors”) “in [the SEC Action] and related matters,” and was “authorized and approved” by the United States District Court for the Northern District of Texas “to generally represent the interests of Stanford investors in these proceedings and, under certain circumstances, to bring and take legal actions for the benefit of the Stanford investors, and on behalf of the Receiver and the Receivership Estate.” (ECF No. 735, ⁋ 13, Case No. 3:09-cv-02384-N-BQ (N.D. Tex.));
WHEREAS, by the Committee Order, the Examiner was named as the initial Chairperson of the Committee;
WHEREAS, the Examiner has served as Chairperson of the Committee continuously since his appointment and continues to so serve;
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WHEREAS, on August 23, 2009, Guthrie Abbott, Steven Queyrouze, Peggy Roif Rotstain, Juan Olano, Catherine Burnell, and Jamie Alexis Arroyo Bornstein (the latter four of whom were later replaced by substitute plaintiffs Sarah Elson-Rogers, Salim Estefenn Uribe, Ruth Alfille de Penhos, and Diana Suarez) filed a petition in Harris County District Court—a putative class action captioned Rotstain, et al. v. Trustmark National Bank, et al. (the “Rotstain Litigation”)—naming five banks, including Independent, as defendants. (The bank defendants named as defendants in the Rotstain Litigation are referred to collectively as the “Bank Defendants”);
WHEREAS, on November 13, 2009, the Rotstain Litigation was removed to the United States District Court for the Southern District of Texas (the “Transferor Court”) where it was assigned Civil Action No. 4:09-cv-03673 and then transferred to and consolidated with the Stanford multidistrict litigation proceeding in the United States District Court for the Northern District of Texas (the “MDL Court”) and assigned Civil Action No. 3:09-cv-02384-N;
WHEREAS, on December 5, 2011, the Committee moved to intervene in the Rotstain Litigation to “represent[] the interests of all Stanford investors,” (ECF No. 96, Case No. 3:09-cv-02384-N-BQ (N.D. Tex.)), which motion the MDL Court granted on December 6, 2012 (ECF No. 129, Case No. 3:09-cv-02384-N-BQ (N.D. Tex.));
WHEREAS, on June 23, 2015, the Rotstain Investor Plaintiffs filed Plaintiffs’ Second Amended Class Action Complaint (ECF No. 279, Case No. 3:09-cv-02384-N-BQ (N.D. Tex.)) and on June 15, 2020, the Committee filed the Second Amended Intervenor Complaint against Independent (ECF No. 735, Case No. 3:09-cv-02384-N-BQ (N.D. Tex.)) (collectively with Plaintiffs’ Second Amended Class Action Complaint, the “Complaints”);
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WHEREAS, “[c]onsistent with his authority under Orders of [the United States District Court for the Northern District of Texas], the Receiver unconditionally assigned his claims against the [Bank] Defendants to the Committee, and further granted the Committee a power of attorney to pursue claims against the [Bank] Defendants on his behalf, including, without limitation, claims for [the Bank] Defendants’ participation in and assistance to Stanford’s fraudulent scheme, and seeking the return of fraudulent transfers made directly to or otherwise facilitated by the [Bank] Defendants.” (ECF No. 735, ⁋ 15, Case No. 3:09-cv-02384-N-BQ (N.D. Tex.));
WHEREAS, on November 1, 2019, plaintiffs Paul Blaine Smith, Carolyn Bass Smith, and a group of 1,286 Stanford Investors, filed a petition in Harris County, Texas, District Court against Trustmark National Bank, Independent Bank f/k/a Bank of Houston, The Toronto-Dominion Bank, HSBC Bank PLC, SG Suisse, and Blaise Friedli, which was thereafter removed to the United States District Court for the Southern District of Texas (the “Smith Court”), where it was captioned Smith, et al. v. Independent Bank, et al., CA No. 4-20-CV-00675 (S.D. Tex.) (the “Smith Litigation”);
WHEREAS, on January 28, 2022, the MDL Court transferred the Rotstain Litigation back to the Transferor Court where it was re-captioned Abbott, et al. v. Trustmark National Bank, et al., Case No. 4:22-cv-00800 (S.D. Tex.);
WHEREAS, on November 10, 2022, the Transferor Court entered the Fifth and Final Amended Scheduling Order, which set the Rotstain Litigation for trial on February 27, 2023 (ECF No. 1326, Case No. 4:22-cv-00800 (S.D. Tex.));
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WHEREAS, Independent expressly denies any and all allegations of wrongdoing, fault, liability, or damages whatsoever and is entering into this Settlement Agreement solely to avoid the burden, very substantial expense, and risks of litigation;
WHEREAS, the Plaintiffs have conducted an investigation into the facts and the law relating to the Rotstain Litigation and after considering the results of that investigation, litigation of the claims against Independent, and the benefits of this Settlement Agreement, as well as the burden, expense, and risks of litigation, have concluded that a settlement with Independent under the terms set forth below is fair, reasonable, adequate, and in the best interests of the Plaintiffs, the Interested Parties (defined below), and all Persons (defined below) affected by the Stanford Entities or entitled to make claims against the Receivership Assets, and have agreed to enter into the Settlement and this Settlement Agreement and to use their best efforts to effectuate the Settlement and this Settlement Agreement;
WHEREAS, the Parties desire to fully, finally, and forever compromise and effect a global settlement and discharge of all claims against Independent arising from or in any way related to Robert Allen Stanford and the Stanford Entities (the “Stanford-Related Claims”);
WHEREAS, the Parties have engaged in extensive, good-faith, and arm’s-length negotiations leading to this Settlement Agreement;
WHEREAS, absent approval of this Settlement, the Rotstain Litigation and other Stanford-Related Claims against Independent will likely take many more years and cost millions of dollars to litigate to final judgment and through appeals, and the outcome of all such litigation would have been uncertain;
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WHEREAS, in Zacarias v. Stanford Int'l Bank, Ltd., 931 F.3d 382, 387 (5th Cir. 2019), the Fifth Circuit confirmed approval of a settlement that was conditioned on the entry of bar orders enjoining Stanford-related suits filed against the defendants in that litigation;
WHEREAS, the Examiner, both in his capacity as Chairperson of the Committee and in his capacity as the Court-appointed Examiner, participated in the negotiation of the Settlement;
WHEREAS, the Committee has approved this Settlement Agreement and the terms of the Settlement, as evidenced by the signature hereon of the Examiner in his capacity as Chairperson of the Committee;
WHEREAS, the Examiner, in his capacity as Examiner, has reviewed this Settlement Agreement and the terms of the Settlement and, as evidenced by his signature hereon, has approved this Settlement Agreement and the terms of the Settlement and will recommend that this Settlement Agreement and the terms of the Settlement be approved by the MDL Court and implemented;2
WHEREAS, the Receiver has reviewed and approved this Settlement Agreement and the terms of the Settlement, as evidenced by his signature hereon; and
WHEREAS, the Rotstain Investor Plaintiffs have reviewed and approved this Settlement Agreement and the terms of the Settlement, as evidenced by their counsel’s signature on their behalf hereon.
NOW, THEREFORE, in consideration of the agreements, covenants, and releases set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
2 The Examiner has also executed this Settlement Agreement to confirm his obligation to post Notice (defined below) on his website, as required herein, but is not otherwise individually a party to the Settlement or the Litigation.
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I.Agreement Date
1.This Settlement Agreement shall take effect once all Parties have signed the Settlement Agreement as of the date of the last signature to the Settlement Agreement (the “Agreement Date”).
II.Terms Used in this Settlement Agreement
The following terms, as used in this Settlement Agreement and the Bar Order (defined below), have the following meanings:
2.“Attorneys’ Fees” means those fees awarded by the MDL Court to Plaintiffs’ counsel from the Settlement Amount pursuant to the terms of the applicable engagement agreements.
3.“Bar Order” means an order entered in the SEC Action including findings under Federal Rule of Civil Procedure 54(b) and in substantially the form attached hereto as Exhibit B.
4.“Claim” means a Person’s potential or asserted right to receive funds from the Receivership Estate or the funds and assets subject to the authority of the Joint Liquidators (defined below).
5.“Claimant” means any Person who has submitted a Claim to the Receiver or to the Joint Liquidators. Where a Claim has been transferred to a third party and such transfer has been acknowledged by the Receiver or the Joint Liquidators, the transferee is a Claimant, and the transferor is not a Claimant unless the transferor has retained a Claim that has not been transferred. Where the Receiver or the Joint Liquidators have disallowed a Claim and the disallowance has become Final, then the submission of the disallowed Claim does not make the Person who submitted it a Claimant.
6.“Confidential Information” means the communications and discussions in connection with the negotiations and mediations that led to the Settlement and this Settlement
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Agreement. Confidential Information also includes the existence and terms of the Settlement and this Settlement Agreement, but only until the filing of this Settlement Agreement and related documents with the MDL Court.
7.“Distribution Plan” means the plan hereafter approved by the MDL Court for the distribution of the Settlement Amount (net of any attorneys’ fees or costs that are awarded by the MDL Court) to Stanford Investors who have had their Claims allowed by the Receiver.
8.“Final” means unmodified after the conclusion of, or expiration of any right of any Person to pursue, any and all possible forms and levels of appeal, reconsideration, or review, judicial or otherwise, including by a court or Forum of last resort, wherever located, whether automatic or discretionary, whether by appeal or otherwise. The Bar Order shall include findings under Federal Rule of Civil Procedure 54(b) and will become Final as set forth in this paragraph as though such order was entered as a judgment at the end of a case, and the continuing pendency of the SEC Action, the Rotstain Litigation, or any other litigation or other dispute shall not be construed as preventing such Bar Order from becoming Final.
9.“Forum” means any court, adjudicative body, tribunal, or jurisdiction, whether its nature is federal, foreign, state, administrative, regulatory, arbitral, local, or otherwise.
10.“Hearing” means a formal proceeding in open court before the MDL Court.
11.“Interested Parties” means the Receiver; the Receivership Estate; the Committee; the members of the Committee; the Rotstain Investor Plaintiffs; the Stanford Investors; the Claimants; the Examiner; the Joint Liquidators; or any Person or Persons alleged by the Receiver, the Committee, or other Person or entity on behalf of the Receivership Estate to be liable to the Receivership Estate, whether or not a formal proceeding has been initiated.
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12.“Joint Liquidators” means Hugh Dickson and Mark McDonald, in their capacities as the joint liquidators appointed by the Eastern Caribbean Supreme Court in Antigua and Barbuda to take control of and manage the affairs and assets of SIBL or any of their successors or predecessors.
13.“Notice” means a communication, in substantially the form attached hereto as Exhibit A, describing (a) the material terms of the Settlement; (b) the material terms of this Settlement Agreement; (c) the rights and obligations of the Interested Parties with regard to the Settlement and this Settlement Agreement; (d) the deadline for the filing of objections to the Settlement, the Settlement Agreement, and the Bar Order; and (e) the date, time, and location of the Hearing to consider final approval of the Settlement, this Settlement Agreement, and the Bar Order.
14.“Person” means any individual, entity, governmental authority, agency or quasi-governmental person or entity, worldwide, of any type, including, without limitation, any individual, partnership, corporation, limited liability company, estate, trust, committee, fiduciary, association, proprietorship, organization, or business, regardless of location, residence, or nationality.
15.“Plaintiffs Released Parties” means the Plaintiffs and each of their counsel. Plaintiffs Released Parties also includes each of the foregoing persons’ respective past, present, and future directors, officers, legal and equitable owners, shareholders, members, managers, principals, employees, associates, representatives, distributees, agents, attorneys, trustees, general and limited partners, lenders, insurers and reinsurers, direct and indirect parents, subsidiaries, affiliates, related entities, divisions, partnerships, corporations, executors,
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administrators, heirs, beneficiaries, assigns, predecessors, predecessors in interest, successors, and successors in interest.
16.“Releasor” means any Person granting a release of any Settled Claim.
17.“Settled Claim” means any action, cause of action, suit, liability, claim, right of action, right of levy or attachment, or demand whatsoever, whether or not currently asserted, known, suspected, existing, or discoverable, and whether based on federal law, state law, foreign law, common law, or otherwise, and whether based on contract, tort, statute, law, equity or otherwise, that a Releasor ever had, now has, or hereafter can, shall, or may have, directly, representatively, derivatively, or in any other capacity, for, upon, arising from, relating to, or by reason of any matter, cause, or thing whatsoever, that, in full or in part, concerns, relates to, arises out of, or is in any manner connected with (i) the Stanford Entities; (ii) any CD, depository account, or investment of any type associated with any of the Stanford Entities; (iii) Independent’s relationships with any of the Stanford Entities and/or any of their personnel; (iv) Independent’s provision of services to or for the benefit of or on behalf of any of the Stanford Entities; or (v) any matter that was asserted in, could have been asserted in, or relates to the subject matter of the SEC Action, the Rotstain Litigation, the Smith Litigation, or any proceeding concerning the Stanford Entities pending or commenced in any Forum. “Settled Claims” specifically includes, without limitation, all claims each Releasor does not know or suspect to exist in his, her, or its favor at the time of release, which, if known by that Person, might have affected their decisions with respect to this Settlement Agreement and the Settlement (“Unknown Claims”). Each Releasor expressly waives, releases, and relinquishes any and all provisions, rights, and benefits conferred by any law or principle, in the United States or elsewhere, that
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governs or limits the release of unknown or unsuspected claims, including, without limitation, California Civil Code § 1542, which provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.
Each Releasor acknowledges that he, she, or it may hereafter discover facts different from, or in addition to, those which such Releasor now knows or believes to be true with respect to the Settled Claims, but nonetheless agrees that this Settlement Agreement, including the releases granted herein, will remain binding and effective in all respects notwithstanding such discovery. Unknown Claims include contingent and non-contingent claims, whether or not concealed or hidden, without regard to the subsequent discovery or existence of different or additional facts. These provisions concerning unknown and unsuspected claims and the inclusion of Unknown Claims in the definition of Settled Claims were separately bargained for and are an essential element of this Settlement Agreement and the Settlement.
18.“Settlement” means the agreed resolution of the Settled Claims in the manner set forth in this Settlement Agreement.
19.“Settlement Amount” means One Hundred Million Dollars ($100,000,000.00) in United States currency.
20.“Settlement Effective Date” means the date on which the last of all of the following has occurred: (i) the Bar Order becomes Final; (ii) the Transferor Court dismisses with prejudice the claims against Independent in the Rotstain Litigation; and (iii) the Smith Court dismisses with prejudice the claims against Independent in the Smith Litigation.
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21.“Stanford Entities” means Robert Allen Stanford; James M. Davis; Laura Pendergest-Holt; Gilbert Lopez; Mark Kuhrt; SIB; Stanford Group Company; Stanford Capital Management, LLC; Stanford Financial Group; the Stanford Financial Bldg Inc.; the entities listed in Exhibit C to this Agreement; and any entity of any type that was owned, controlled by, or affiliated with Robert Allen Stanford, James M. Davis, Laura Pendergest-Holt, Gilbert Lopez, Mark Kuhrt, SIB, Stanford Group Company, Stanford Capital Management, LLC, Stanford Financial Group, or the Stanford Financial Bldg Inc., on or before February 16, 2009.
22.“Independent Released Parties” means Independent and its counsel. Independent Released Parties also includes each of the foregoing persons’ respective past, present, and future directors, officers, legal and equitable owners, shareholders, members, managers, principals, employees, associates, representatives, distributees, agents, attorneys, trustees, general and limited partners, lenders, insurers and reinsurers, direct and indirect parents, subsidiaries, affiliates, related entities, divisions, partnerships, corporations, executors, administrators, heirs, beneficiaries, assigns, predecessors, predecessors in interest, successors, and successors in interest. Notwithstanding the foregoing, “Independent Released Parties” shall not include (a) any Person, other than Independent, who is, as of the Agreement Date, a party to the Rotstain Litigation; (b) any Person, other than Independent, who is a party to and has been served, or who has waived service and appeared, in one or more of the actions or proceedings listed in Exhibit F and (i) against whom, on the Agreement Date, the Receiver or the Committee is asserting claims or causes of action in any such action or proceeding, or (ii) with whom, as of the Agreement Date, the Receiver or the Committee has entered into a settlement agreement relating to any such action or proceeding and such Person’s obligations to the Receiver or the Committee remain outstanding in whole or in part; (c) any Person, other than Independent, against whom the
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Receiver or Committee holds a judgment or other court award that remains unsatisfied in whole or in part as of the Agreement Date; or (d) any Person who is, as of the Agreement Date, a party to one or more of the proceedings identified in Exhibit G.
23.“Taxes” means any and all taxes, whether federal, state, local, or other taxes related to the Settlement or the Settlement Amount, and costs incurred in connection with such taxation including, without limitation, the fees and expenses of tax attorneys and accountants.
III.Delivery of Settlement Amount
24.Stay of Rotstain Litigation as to Independent: Within three (3) business days of the Agreement Date, the Rotstain Investor Plaintiffs, the Committee, and Independent shall file a joint motion in the Rotstain Litigation to stay the Rotstain Litigation as to Independent, including a request to vacate all pretrial deadlines and the trial setting as to Independent, pending a final determination concerning approval of the Settlement and the Bar Order.
25.Dismissal of Rotstain Litigation: Within five business (5) days after the Bar Order becomes Final, the Committee and the Rotstain Investor Plaintiffs shall file with the Transferor Court an agreed motion to fully and finally dismiss with prejudice without costs or attorneys’ fees all claims against Independent in the Rotstain Litigation. It being agreed that there would be no just reason for delay, if claims by the Committee and the Rotstain Investor Plaintiffs against parties other than Independent remain pending in the Rotstain Litigation at the time the agreed motion is to be filed, the judgment that is requested by the agreed motion and required under this paragraph will be a final judgment under Federal Rule of Civil Procedure 54(b).
26.Dismissal of Smith Litigation: Within five business (5) days after the Bar Order becomes Final, the Receiver and the Committee shall file in the Smith Litigation a motion to enforce the Bar Order and to dismiss with prejudice without costs or attorneys’ fees all claims
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against Independent in the Smith Litigation. It being agreed that there would be no just reason for delay, if claims by the Smith Investor Plaintiffs against parties other than Independent remain pending in the Smith Litigation at the time the agreed motion is to be filed, the judgment that is requested by the motion and required by this paragraph will be a final judgment under Federal Rule of Civil Procedure 54(b).
27.Delivery of Settlement Amount: Within five (5) business days after the Settlement Effective Date, the Receiver shall provide to Independent’s counsel wiring instructions for payment of the Settlement Amount to the Receiver. Thereafter, if and to the extent Independent needs additional information to allow Independent to execute the wire transfer of the Settlement Amount to the Receiver, then the Receiver agrees to make reasonable efforts to provide such information. Within thirty (30) days after the later of the Settlement Effective Date or receipt of the wiring instructions for payment of the Settlement Amount to the Receiver, Independent shall deliver or cause to be delivered the Settlement Amount to the Receiver.
IV.Use and Management of Settlement Amount
28.Management and Distribution of Settlement Amount: If and when the Settlement Amount is delivered to the Receiver pursuant to the terms of this Settlement Agreement, the Receiver shall receive and take custody of the Settlement Amount and shall maintain, manage, and distribute the Settlement Amount in accordance with the Distribution Plan and under the supervision and direction and with the approval of the MDL Court. The Receiver shall be responsible for all Taxes, fees, and expenses that may be due with respect to the Settlement Amount or the management, use, administration, or distribution of the Settlement Amount.
29.No Liability: Independent and the Independent Released Parties shall have no liability, obligation, or responsibility whatsoever with respect to the investment, management,
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use, administration, or distribution of the Settlement Amount or any portion thereof, including, but not limited to, the costs and expenses of such investment, management, use, administration, or distribution of the Settlement Amount, and any Taxes, fees, and expenses arising therefrom or relating thereto. Nothing in this paragraph shall alter Independent’s obligations to deliver the Settlement Amount to the Receiver pursuant to the terms of this Settlement Agreement.
V.Motion for Scheduling Order and Bar Order, and Form and Procedure for Notice
30.Motion: On a date mutually acceptable to the Parties that is not more than twenty (20) days from the Agreement Date, unless otherwise agreed by the Parties in writing, via e-mail or otherwise, the Plaintiffs shall submit to the MDL Court a motion requesting entry of a scheduling order substantially in the form attached as Exhibit D (a) preliminarily approving the Settlement; (b) approving the content and plan for publication and dissemination of Notice; (c) setting the date by which any objection to the Settlement or this Settlement Agreement must be filed; and (d) scheduling a Hearing to consider final approval of the Settlement and entry of the Bar Order required by Paragraph 20 of this Settlement Agreement. With respect to the content and plan for publication and dissemination of Notice, the Plaintiffs will propose that Notice be sent via electronic mail, first-class mail or international delivery service to all Interested Parties; sent via electronic service to all counsel of record for any Person who is, at the time of Notice, a party in any case included in the MDL (In re Stanford Entities Sec. Litig., Case No. 3:09-md-02099-N-BQ (N.D. Tex. Oct. 6, 2009)), the SEC Action, the Rotstain Litigation, or the Smith Litigation, each of whom is deemed to have consented to electronic service through the CM/ECF System; sent via electronic mail, first-class mail or international delivery service, to any other counsel of record for any other Person who is, at the time of service, a party in any case included in the MDL (In re Stanford Entities Sec. Litig., Case No. 3:09-md-02099-N-BQ
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(N.D. Tex. Oct. 6, 2009)), the SEC Action, the Rotstain Litigation, or the Smith Litigation; and posted on the websites of the Receiver and the Examiner along with complete copies of this Settlement Agreement and all filings with the MDL Court relating to the Settlement, this Settlement Agreement, and approval of the Settlement. The Plaintiffs will further propose that Notice in substantially the form attached hereto as Exhibit E be published once in the national edition of The Wall Street Journal and once in the international edition of The New York Times. In advance of filing the motion papers to accomplish the foregoing, the Plaintiffs shall provide Independent with a reasonable opportunity to review and comment on such motion papers.
31.Notice Preparation and Dissemination: The Receiver shall be solely responsible for the preparation and dissemination of the Notice pursuant to this Settlement Agreement and as directed by the MDL Court. In the absence of intentional refusal by the Receiver to prepare and disseminate Notice pursuant to this Settlement Agreement or a court order, no Interested Party or any other Person shall have any recourse against the Receiver with respect to any claims that may arise from or relate to the Notice process. In the case of intentional refusal by the Receiver to prepare and disseminate Notice pursuant to this Settlement Agreement or a court order, Independent shall not have any claim against the Receiver other than the ability to seek specific performance. The Parties do not intend to give any other Person any right or recourse against the Receiver in connection with the Notice process.
32.No Recourse Against Independent: No Interested Party or any other Person shall have any recourse against Independent or the Independent Released Parties with respect to any claims that may arise from or relate to the Notice process.
33.Motion Contents: In the motion papers referenced in Paragraph 29 above, the Plaintiffs shall request that the MDL Court, inter alia:
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a.approve the Settlement and its terms as set out in this Settlement Agreement;
b.enter an order finding that this Settlement Agreement and the releases set forth herein are final and binding on the Parties; and
c.enter in the SEC Action the Bar Order.
34.Parties to Advocate: The Parties shall take all reasonable steps to advocate for and encourage the MDL Court to approve the terms of this Settlement Agreement and to advocate for and encourage the MDL Court to apply the releases and Bar Order to as broad a population as possible.
35.No Challenge: No Party shall challenge the approval of the Settlement, and no Party will encourage or assist any Interested Party in challenging the Settlement.
VI.Rescission if the Settlement is Not Finally Approved, or the Bar Order or Judgments of Dismissal in the Rotstain or Smith Litigation are Not Entered
36.Right to Withdraw: The Parties represent and acknowledge each of the following terms was necessary to the Parties’ agreement to this Settlement, are each an essential term of the Settlement and this Settlement Agreement, and that the Settlement would not have been reached in the absence of these terms: (a) MDL Court approval of the Settlement and the terms of this Settlement Agreement without material modification or limitation; (b) entry by the MDL Court of the Bar Order in the SEC Action in substantially the form attached hereto as Exhibit B; (c) all such approvals and orders becoming Final, pursuant to Paragraphs 8, 20, 25, and 26 of this Settlement Agreement; and (d) the subsequent Final dismissal with prejudice of all claims against Independent in the Rotstain Litigation and the Smith Litigation. If the MDL Court refuses to provide the approvals described in (a); if the MDL Court refuses to enter the Bar Order described in (b) without material modification; if the final result of any appeal from the
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approvals and order described in (a) or (b) is that any of the approvals or order are not affirmed in their entirety and without material modification or limitation; or if the claims against Independent in the Rotstain Litigation or the Smith Litigation are not fully and finally dismissed with prejudice, then any of the Receiver, the Committee and Independent has the right to withdraw its agreement to the Settlement and to this Settlement Agreement by providing to all other Parties written notice of such withdrawal within fourteen (14) days of the order or judicial determination giving rise to the right to withdraw. The effective date of the withdrawal will be twenty-one (21) days after the notice of same, during which time the Parties agree to work together in good faith to attempt to negotiate an alternative settlement.
37.In the event that any Party withdraws its agreement to the Settlement or this Settlement Agreement pursuant to Paragraph 36, this Settlement Agreement will be null and void and of no further effect whatsoever, shall not be admissible in any ongoing or future proceedings for any purpose whatsoever (except for the provisions of Paragraph 38 and this paragraph, which shall survive), and shall not be the subject or basis for any claims or defenses by any Party against any other Party other than to enforce the surviving terms of this Settlement Agreement. If any Party withdraws from this Settlement Agreement pursuant to the terms of Paragraph 36, then each Party shall be returned to such Party’s respective position immediately prior to such Party’s execution of the Settlement Agreement except as set forth in the surviving terms of this Settlement Agreement listed in Paragraph 38.
38.The Parties do not have the right to withdraw from, or otherwise terminate, the Settlement Agreement for any reason other than the reasons identified in Paragraph 36. The following paragraphs of this Settlement Agreement shall survive termination due to withdrawal of the Settlement Agreement: 36, 37, 38, 49 and 50.
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VII.Distribution Plan
39.Duties: The Receiver, with the approval and guidance of the MDL Court, shall be solely responsible for preparing, filing a motion seeking approval of, and implementing the Distribution Plan including, without limitation, receiving, managing, and disbursing the Settlement Amount. The Receiver owes no duties to Independent or the Independent Released Parties in connection with the distribution of the Settlement Amount or the Distribution Plan, and if the Receiver complies with this Settlement Agreement and all orders issued by the MDL Court relating to the Distribution Plan neither Independent nor the Independent Released Parties may assert any claim or cause of action against the Receiver in connection with the distribution of the Settlement Amount or the Distribution Plan. In no event will the Receiver or the Receivership Estate be liable for damages or the payment or re-payment of funds of any kind as a result of any deficiency associated with the distribution of the Settlement Amount or the Distribution Plan.
40.Distribution by Check: The Receiver will make all payments to Claimants pursuant to the Distribution Plan by check where reasonably possible to do so. The Receiver must include the following statement, without alteration (except that additional releasees may be included if the Receiver includes in the distribution check funds from settlements with such other releasees), on the reverse of all checks sent to Claimants pursuant to the Distribution Plan, above where the endorser will sign:
BY ENDORSING THIS CHECK, I RELEASE ALL CLAIMS, KNOWN OR NOT, AGAINST INDEPENDENT BANK, FORMERLY KNOWN AS BANK OF HOUSTON, ITS AGENTS, HEIRS, ASSIGNS, AND EMPLOYEES (WHETHER CURRENT OR PAST), AND THE INDEPENDENT RELEASED PARTIES ARISING FROM OR RELATING TO STANFORD INTERNATIONAL BANK, LTD. OR ANY OF ITS RELATED ENTITIES AND ACCEPT THIS PAYMENT IN FULL SATISFACTION THEREOF.
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The Receiver will use commercially reasonable efforts to cause distributions paid electronically to be conditioned on agreement to the same language.
41.No Responsibility: Independent and the Independent Released Parties shall have no responsibility, obligation, or liability whatsoever with respect to the terms, interpretation, or implementation of the Distribution Plan; the administration of the Settlement; the management, investment, or distribution of the Settlement Amount or any other funds paid or received in connection with the Settlement; the payment or withholding of Taxes that may be due or owing by the Receiver or any recipient of funds from the Settlement Amount; the determination, administration, calculation, review, or challenge of claims to the Settlement Amount, any portion of the Settlement Amount, or any other funds paid or received in connection with the Settlement or this Settlement Agreement; or any losses, attorneys’ fees, expenses, vendor payments, expert payments, or other costs incurred in connection with any of the foregoing matters. As of the Settlement Effective Date, the Plaintiffs, the Plaintiffs Released Parties, the Interested Parties, and all other individuals, persons, or entities Plaintiffs represent or on whose behalf Plaintiffs have been empowered to act by any court fully, finally, and forever release, relinquish, and discharge Independent and the Independent Released Parties from any and all such responsibility, obligation, and liability.
VIII.Releases and Covenant Not to Sue
42.Release of the Independent Released Parties: As of the Settlement Effective Date, each of the Plaintiffs, including, without limitation, the Receiver on behalf of the Receivership Estate (including the Stanford Entities), fully, finally, and forever release, relinquish, and discharge, with prejudice, all Settled Claims against Independent and the Independent Released Parties.
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43.Release of Plaintiffs Released Parties: As of the Settlement Effective Date, Independent fully, finally, and forever releases, relinquishes, and discharges, with prejudice, all Settled Claims against the Plaintiffs Released Parties.
44.No Release of Obligations Under Settlement Agreement: Notwithstanding anything to the contrary in this Settlement Agreement, the releases and covenants contained in this Settlement Agreement do not release the Parties’ rights and obligations under this Settlement Agreement or the Settlement, nor do they bar the Parties from enforcing or effectuating this Settlement Agreement or the Settlement.
45.Covenant Not to Sue: Effective as of the Agreement Date, the Plaintiffs, including, without limitation, the Receiver on behalf of the Receivership Estate (including the Stanford Entities), covenant not to, directly or indirectly, or through a third party, institute, reinstitute, initiate, commence, maintain, continue, file, encourage, solicit, support, participate in, collaborate in, or otherwise prosecute against any of the Independent Released Parties any action, lawsuit, cause of action, claim, investigation, demand, complaint, or proceeding, whether individually, derivatively, on behalf of a class, as a member of a class, or in any other capacity whatsoever, concerning or relating to the Settled Claims, whether in a court or any other Forum. Effective as of the Agreement Date, Independent covenants not to, directly or indirectly, or through a third party, institute, reinstitute, initiate, commence, maintain, continue, file, encourage, solicit, support, participate in, collaborate in, or otherwise prosecute against any of the Plaintiffs Released Parties any action, lawsuit, cause of action, claim, investigation, demand, complaint, or proceeding, whether individually, derivatively, on behalf of a class, as a member of a class, or in any other capacity whatsoever, concerning or relating to the Settled Claims,
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whether in a court or any other Forum. Notwithstanding the foregoing, however, the Parties retain the right to sue for alleged breaches of this Settlement Agreement.
IX.Representations and Warranties
46.No Assignment, Encumbrance, or Transfer: The Plaintiffs, other than the Receiver, represent and warrant that they are the owners of the Settled Claims that they are releasing under this Settlement Agreement and that they have not, in whole or in part, assigned, encumbered, sold, pledged as security, or in any manner transferred or compromised any of the Settled Claims that they are releasing under this Settlement Agreement. The Receiver represents and warrants that he is the owner of the Settled Claims that he is releasing under this Settlement Agreement and that, other than the assignment of the Settled Claims against Independent that the Receiver transferred to the Committee, he has not, in whole or in part, assigned, encumbered, sold, pledged as security, or in any manner transferred or compromised any of the Settled Claims that he is releasing under this Settlement Agreement. Independent represents that it is the owner of the Settled Claims that it is releasing under this Settlement Agreement and that it has not, in whole or in part, assigned, encumbered, sold, pledged as security, or in any manner transferred or compromised any of the Settled Claims that it is releasing under this Settlement Agreement.
47.No Additional Claims. The Parties represent and warrant to each other that, other than the Rotstain Litigation and the Smith Litigation, and any claims by any Stanford Investors filed with the Joint Liquidators or the Receiver, they are not presently aware of (a) any undismissed or otherwise extant claim or action against Independent or any of the Independent Released Parties concerning (i) the Settled Claims or (ii) the wrongdoing of the Stanford Entities that was the subject of the Complaints, or (b) any person or entity intending to file such an
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action. The Parties further represent and warrant to each other that they are not aware of a current decision of the Fifth Circuit or Supreme Court invalidating the Bar Order.
48.Authority: Each person executing this Settlement Agreement or any related documents represents and warrants that he or she has the full authority to execute the documents on behalf of the Person each represents and that each has the authority to take appropriate action required or permitted to be taken pursuant to this Settlement Agreement to effectuate its terms. The Committee represents and warrants that the Committee has approved this Settlement Agreement in accordance with the by-laws of the Committee.
X.No Admission of Fault or Wrongdoing
49.The Settlement, this Settlement Agreement, and the negotiation and mediation thereof shall in no way constitute, be construed as, or be evidence of an admission or concession of any violation of any statute or law; of any fault, liability, or wrongdoing; or of any infirmity in the claims or defenses of the Parties with regard to any of the Complaints, claims, allegations, or defenses asserted or that could have been asserted in the Rotstain Litigation, the SEC Action, the Smith Litigation, or any other proceeding relating to any Settled Claim, or any other proceeding in any Forum. The Settlement and this Settlement Agreement are a resolution of disputed claims in order to avoid the risk and very substantial expense of protracted litigation. The Settlement, this Settlement Agreement, and evidence thereof shall not be used, directly or indirectly, in any way, in the Rotstain Litigation, the SEC Action, the Smith Litigation, or in any other proceeding, other than to enforce the terms and/or intent of the Settlement and this Settlement Agreement or to defend against or facilitate a dismissal of any other proceeding against Independent.
XI.Confidentiality
50.Confidentiality: Except as necessary to obtain MDL Court approval of this Settlement Agreement, to provide the Notices as required by this Settlement Agreement, to
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enforce the terms of the Settlement and this Settlement Agreement, the Parties and their counsel will keep confidential and shall not publish, communicate, or otherwise disclose, directly or indirectly, in any manner whatsoever, Confidential Information to any Person except that (i) a Party may disclose Confidential Information to a person or entity to whom disclosure is required pursuant to law or regulation, but only after providing prompt notice to the other Parties; (ii) Independent shall be permitted to disclose to its own officers, shareholders, employees, affiliates, current and potential insurers, insurance brokers, regulators, lawyers, auditors, or accountants, on a confidential or attorney-client basis, the Settlement, the Settlement Agreement, its terms, the amount of the Settlement, and information about the Settlement negotiations; and (iii) a Party may disclose Confidential Information to a person or entity if the Party has obtained prior written consent from all other Parties. Notwithstanding anything else in this Settlement Agreement or otherwise, such consent may be transmitted by e-mail. Notwithstanding any provision to the contrary in the foregoing, the Parties agree that the Independent and the Independent Released Parties may make public disclosures regarding the Settlement and the Settlement Agreement as required by applicable securities and other laws and regulations, as well as conduct ancillary stakeholder communications, and they need not meet and confer with or provide notice to Plaintiffs before making such disclosure(s).
XII.Non-Disparagement
51.In connection with the Settlement and this Settlement Agreement, the Plaintiffs and their counsel shall not make, disseminate, or publish any statement outside of court, including a statement in the press, that would denigrate or embarrass the Independent Released Parties, or that is otherwise negative or derogatory towards the Independent Released Parties. Nothing in this paragraph shall prevent the Receiver or his counsel from reporting the Receiver’s
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activities to the MDL Court, the Examiner, or the SEC; from responding as necessary to inquiries from the MDL Court or other governmental authorities; or from carrying out any of the Receiver’s duties under any order addressing the scope of the Receiver’s duties, including but not limited to the Second Amended Receivership Order (SEC Action, ECF No. 1130) or other order addressing the scope of the Receiver’s duties.
52.In connection with the Settlement and this Settlement Agreement, the named Executive Officers of Independent3 shall not make, disseminate, or publish any statement outside of court, including a statement in the press, which would denigrate or embarrass the Plaintiffs. Nothing in this paragraph shall prevent Independent from reporting its activities to the Transferor Court or the MDL Court; from responding as necessary to inquiries from the Transferor Court or the MDL Court or other governmental authorities; from taking any step it believes, in its sole and absolute discretion, is necessary to enforce the Settlement or this Settlement Agreement; from responding to any request by the Plaintiffs or any other person for discovery from Independent in any other litigation related to the Stanford Entities or any subpoena or request for production; or from discussing the Settled Claims, the Settlement, and this Settlement Agreement with its own officers, shareholders, employees, affiliates, current and potential insurers, insurance brokers, regulators, lawyers, auditors or accountants. Notwithstanding the foregoing, however, Independent does not have a duty to cooperate in responding to discovery requests and/or trial subpoenas (except as required by law) in the Rotstain Litigation, the SEC Action, the Smith Litigation, or in any other action relating to the Stanford Ponzi scheme. Any violation of the terms of this paragraph shall not be a basis to withdraw from the Settlement Agreement. The relief available for any violation of the terms of this paragraph shall be limited to money damages.
3 See https://www.independent-bank.com/our-company/leadership.html
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XIII.Miscellaneous
53.Final and Complete Resolution: The Parties intend this Settlement Agreement and the Settlement to be and constitute, to the greatest extent possible, a final, complete, and worldwide resolution of all matters and disputes between (1) the Plaintiffs Released Parties, and the Interested Parties, on the one hand, and (2) the Independent Released Parties on the other hand, and this Settlement Agreement, including its exhibits, shall be interpreted to effectuate this purpose.
54.Binding Agreement: As of the Agreement Date, this Settlement Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective heirs, executors, administrators, successors, and assigns. No Party may assign any of its rights or obligations under this Settlement Agreement without the express written consent of the other Parties.
55.Incorporation of Recitals: The Recitals (i.e., “whereas” clauses) contained in this Settlement Agreement are essential terms of this Settlement Agreement and are incorporated herein for all purposes.
56.Disclaimer of Reliance: In executing this Settlement Agreement, the Parties unequivocally represent, acknowledge, and state that they were represented by counsel in the negotiation and formation of this Settlement Agreement, which negotiation was conducted by the Parties at arm’s length, and the Parties are relying solely upon each Party’s own independent knowledge, understanding, and investigation of the matters pertinent hereto and have not seen, heard, or relied upon any promises, statements, representations, covenants, or warranties, whether written or oral, express or implied, made by one another or by any representative or other Person or entity and that no such Party had any duty to make any disclosures, except to the extent that a matter is expressly stated in this Settlement Agreement. The Parties hereby waive,
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release, and disclaim any right or ability to seek to revoke, rescind, vacate, or otherwise avoid the operation and effect of this Settlement Agreement on the basis of any alleged fraudulent inducement, misrepresentation, or material omission by any of the undersigned or their representatives, or on the basis of mutual or unilateral mistake of fact or law, or newly discovered information, and acknowledge that they are completely satisfied with this settlement, as reflected in this Settlement Agreement.
57.Third-Party Beneficiaries: This Settlement Agreement is not intended to and does not create rights enforceable by any Person other than the Parties (or their respective heirs, executors, administrators, successors, and assigns, as provided in Paragraph 54 of this Settlement Agreement), except that the Independent Released Parties and the Plaintiffs Released Parties are third-party beneficiaries of and may enforce the release or covenant not to sue in Section VIII of this Settlement Agreement as it relates to said Person.
58.Negotiation, Drafting, and Construction: The Parties agree and acknowledge that they each have reviewed and cooperated in the preparation of this Settlement Agreement, that no Party should or shall be deemed the drafter of this Settlement Agreement or any provision hereof, and that any rule, presumption, or burden of proof that would construe this Settlement Agreement, any ambiguity, or any other matter, against the drafter shall not apply and is waived. The Parties are entering into this Settlement Agreement freely, after good-faith, arm’s-length negotiation, with the advice of counsel, and in the absence of coercion, duress, and undue influence. The titles and headings in this Settlement Agreement are for convenience only, are not part of this Settlement Agreement, and shall not bear on the meaning of this Settlement Agreement. The words “include,” “includes,” or “including” shall be deemed to be followed by the words “without limitation.” The words “and” and “or” shall be interpreted broadly to have
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the most inclusive meaning, regardless of any conjunctive or disjunctive tense. Words in the masculine, feminine, or neuter gender shall include any gender. The singular shall include the plural and vice versa. “Any” shall be understood to include and encompass “all,” and “all” shall be understood to include and encompass “any.”
59.Cooperation: The Parties agree to execute any additional documents reasonably necessary to finalize and carry out the terms of this Settlement Agreement. In the event a third party or any Person other than a Party at any time challenges any term of this Settlement Agreement or the Settlement, including the Bar Order, the Parties agree to cooperate with each other, including using reasonable efforts to make documents or personnel available as needed to defend any such challenge. Further, the Parties shall reasonably cooperate to defend and enforce the Bar Order required under Paragraph 20 of this Settlement Agreement.
60.Notice: Any notices, documents, or correspondence of any nature required to be sent pursuant to this Settlement Agreement shall be transmitted by both e-mail and overnight delivery to the following recipients, and will be deemed transmitted upon receipt by the overnight delivery service.
To Independent:
Independent Bank
Ankita Puri
EVP, Chief Legal Officer
7777 Henneman Way
McKinney, TX 75070
E-mail: Ankita.Puri@iFinancial.com
Telephone: (214) 307-7610


And

Charles L. Babcock
Jackson Walker, LLP
1401 McKinney Street, Ste. 1900
Houston, Texas 77010
E-mail: cbabcock@jw.com
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713-752-4210

To the Committee and Rotstain Investor Plaintiffs:

Edward C. Snyder
One Riverwalk Place
700 N. St. Mary’s, Suite 405
San Antonio, TX 78205
Telephone: (210) 630-4200
Fax: (210) 630-4210
E-mail: esnyder@casnlaw.com

and
James R. Swanson
Fishman Haygood, LLP
201 St. Charles Avenue, 46th Floor
New Orleans, LA 70170-4600
Telephone: (504) 586-5252
Fax: (504) 586-5250
E-mail: jswanson@fishmanhaygood.com

and

John J. Little
John J. Little Law, PLLC
8150 N. Central Expressway, 10th Floor
Dallas, TX 75206
Telephone: (214) 989-4180
Cell: (214) 573.2307
Fax: (214) 367-6001
E-mail: john@johnjlittlelaw.com
and

Kevin Sadler
Baker Botts LLP
1001 Page Mill Road
Building One, Suite 200
Palo Alto, CA 94304-1007
Telephone: 650.739.7518
Fax: 650.739.7618
E-mail: kevin.sadler@bakerbotts.com
To Receiver:

Ralph S. Janvey
Krage & Janvey, L.L.P.
2100 Ross Ave
Suite 2600
Dallas, TX 75201
Telephone: 214.397.1912
Fax: 214.220.0230
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E-mail: rjanvey@kjllp.com

Each Party shall provide notice of any change to the service information set forth above to all other Parties by the means set forth in this paragraph.
61.Choice of Law: This Settlement Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without regard to the choice-of-law principles of Texas or any other jurisdiction.
62.Mandatory, Exclusive Forum Selection Clause: Any dispute, controversy, or claim arising out of or related to the Settlement or this Settlement Agreement, including breach, interpretation, effect, or validity of this Settlement Agreement, whether arising in contract, tort, or otherwise, shall be brought exclusively in the United States District Court for the Northern District of Texas. Solely with respect to any such action, the Parties irrevocably stipulate and consent to personal and subject matter jurisdiction and venue in such court, and waive any argument that such court is inconvenient, improper, or otherwise an inappropriate forum.
63.Costs to Enforce Settlement Agreement: Each Party shall bear its own costs and fees for any action to enforce the Settlement or this Settlement Agreement.
64.United States Currency: All dollar amounts in this Settlement Agreement are expressed in United States dollars.
65.Timing: If any deadline imposed by this Settlement Agreement falls on a non-business day, then the deadline is extended until the next business day.
66.Waiver: The waiver by a Party of any right or breach of this Settlement Agreement by another Party shall not be deemed a waiver of any other right or prior or subsequent breach of this Settlement Agreement. Any waiver by a Party of any right or breach of this Settlement Agreement by another Party must be in writing and signed by all Parties.
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67.Exhibits: The exhibits annexed to this Settlement Agreement are incorporated by reference as though fully set forth in this Settlement Agreement.
68.Integration and Modification: This Settlement Agreement sets forth the entire understanding and agreement of the Parties with respect to the subject matter of this Agreement and supersedes all prior agreements, understandings, negotiations, and communications, whether oral or written, with respect to such subject matter. Neither this Settlement Agreement, nor any provision or term of this Settlement Agreement, may be amended, modified, revoked, supplemented, waived, or otherwise changed except by a writing signed by all of the Parties.
69.Counterparts and Signatures: This Settlement Agreement may be executed in one or more counterparts, each of which for all purposes shall be deemed an original but all of which taken together shall constitute one and the same instrument. A signature delivered by fax or other electronic means shall be deemed to be, and shall have the same binding effect as, a handwritten, original signature.
IN WITNESS HEREOF, the Parties have executed this Settlement Agreement signifying their agreement to the foregoing terms.













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Ralph S. Janvey, in his capacity as the Receiver for the Stanford Receivership Estate

 /s/ Ralph S. Janvey
Date: 3/6/2023
John J. Little, in his capacity as Examiner

/s/ John J. Little
Date: March 7, 2023
Official Stanford Investors Committee


By: /s/ John J. Little     
John J. Little, Chairperson

Date: March 7, 2023
Guthrie Abbott


By: /s/ James R. Swanson     
James R. Swanson, Counsel

Date: March 7, 2023
Steven Queyrouze


By: /s/ James R. Swanson
James R. Swanson, Counsel

Date: March 7, 2023
Sarah Elson-Rogers


By: /s/ James R. Swanson
James R. Swanson, Counsel

Date: March 7, 2023
Salim Estefenn Uribe


By: /s/ James R. Swanson
James R. Swanson, Counsel

Date: March 7, 2023
Ruth Alfille de Penhos


By: /s/ James R. Swanson
James R. Swanson, Counsel
Date: March 7, 2023
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Diana Suarez


By: /s/ James R. Swanson
James R. Swanson, Counsel

Date: March 7, 2023
Independent Bank


By: _/s/ Mark Haynie     
Mark Haynie        
Title: EVP Special Counsel/Corporate Secretary
Date: March 7, 2023












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