Independent Bank Group

2020

ANNUAL REPORT

LETTER TO SHAREHOLDERS

FELLOW SHAREHOLDERS:

2020 was a year of significant challenges, and for Independent Bank Group it was also a year of opportunity to step
forward to help our customers and communities weather the storm. Our company’s strong financial performance in
the face of last year’s economic uncertainty stands as a testament to the strength of our culture and reflects our
longstanding commitment to operating a granular, regional community banking model in resilient markets.

The sudden onset of lockdowns and social distancing presented a tremendous challenge to all relationship
businesses, and it was no different for our bank. Many of our employees are used to seeing familiar faces walk into a
branch or make regular calls on their customers at their offices. Fortunately, by leveraging our long history of
fostering meaningful customer relationships, we were able to quickly pivot to virtual calls and socially distant
face-to-face meetings.

Throughout the course of the year, our teams remained actively engaged in providing a lifeline to those who needed
it most. Following the passage of the CARES Act, our company provided relief to our existing small business
customers by rapidly originating over 6,300 Paycheck Protection Program loans for an aggregate $824 million
across our footprint. In addition, our officers worked with relationship borrowers to provide payment deferrals for
customers impacted by the pandemic. We also donated over $190,000 to food banks and other support services
across our footprint, and we celebrated the opening of the new facility for the Family Health Center on Virginia,
which has proven to be an important addition to the public health infrastructure in North Texas since its creation in
2018.

This collective focus on taking care of our customers and communities led our company to post solid full-year
adjusted earnings of $4.87 per share, record tangible book value of $33.23 per share at year-end, and resilient credit
metrics that continue to outperform both the Texas and broader U.S. banking industry aggregates. Due to our
strong capital levels and healthy balance sheet, we were able to deliver continued returns for shareholders by
increasing our quarterly dividend and reauthorizing our share repurchase program.

Maintaining strong customer relationships is the cornerstone of what we do – it allowed us to best serve the
individuals and small businesses across Texas and Colorado who needed us most in the darkest days of the
pandemic, and it enabled us to continue to post strong results for our shareholders each quarter during a
challenging year.

Looking ahead, we remain committed to building on our strong foundation and finding new opportunities to serve
our markets across Texas and Colorado as the economic recovery accelerates. We are adding new team members
and product sets to ensure we are prepared to serve the entire range of our customers’ needs. We are also
continuing to enhance our technology suite to ensure we’re providing our customers with a superior digital
experience. In 2021 and beyond, we remain focused on continuing to roll up our sleeves and do the hard work to
create sustainable, long-term value for all our stakeholders.

Warmest regards,

David R. Brooks
Chairman, Chief Executive Officer and President

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)

☒

☐

ANNUAL REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For The Fiscal Year Ended December 31, 2020.

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)

Texas
(State or other jurisdiction of incorporation or organization)

13-4219346
(I.R.S. Employer Identification No.)

7777 Henneman Way

McKinney,
Texas

(Address of principal executive offices)

75070-1711

(Zip Code)

(972) 562-9004
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on which Registered

Common Stock, par value $0.01 per share

IBTX

NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 for such shorter period 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, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

Non-Accelerated Filer

☒

☐

Accelerated Filer

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 provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report.

Yes ☒ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the shares of common stock held by non-affiliates based on the closing price of the common stock on the Nasdaq Global Select
Market on June 30, 2020 was approximately $1,494,273,058.

At February 25, 2021, the Company had outstanding 43,192,020 shares of common stock, par value $.01 per share.

Portions of the Company’s Proxy Statement relating to the 2021 Annual Meeting of Shareholders, which will be filed within 120 days after
December 31, 2020, are incorporated by reference into Part III, Items 10 - 14 of this Annual Report on Form 10-K.

Documents Incorporated By Reference:

INDEPENDENT BANK GROUP, INC. AND SUBSIDIARIES
Annual Report on Form 10-K
December 31, 2020

Business

Risk Factors

Unresolved Staff Comments

Properties

Legal Proceedings

Mine Safety Disclosures

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

PART I

Item 1.

Item 1A.

Item 1B.

Item 2.

Item 3.

Item 4.

PART II

Item 5.

Item 6.

Item 7.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Item 8.

Item 9.

Item 9A.

Item 9B.

PART III

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

PART IV

Item 15.

Item 16.

Signatures

Financial Statements and Supplementary Data

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Controls and Procedures

Other Information

Directors, Executive Officers and Corporate Governance

Executive Compensation

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Certain Relationships and Related Transactions, and Director Independence

Principal Accountant Fees and Services

Exhibits and Financial Statement Schedules

Form 10-K Summary

1

17

36

36

37

38

38

41

43

79

79

79

79

82

82

82

82

82

82

83

150

PART I

ITEM 1. BUSINESS

The disclosures set forth in this item are qualified by Item 1A. Risk Factors, and the section captioned “Forward-Looking
Statements” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report
and other cautionary statements set forth elsewhere in this report.

General

Independent Bank Group, Inc. (the “Company”) is a registered bank holding company headquartered in McKinney, Texas,
which is located in the northern portion of the Dallas-Fort Worth metropolitan area. The Company was organized as a Texas
corporation on September 20, 2002. Through the Company’s wholly owned subsidiary, Independent Bank, a Texas state
chartered bank, doing business as Independent Financial (the “Bank”), the Company provides a wide range of relationship-
driven commercial banking products and services tailored to meet the needs of businesses, professionals and individuals. The
Company operates through its branch banking offices in the Dallas/North Texas area, including McKinney, Dallas, Fort Worth,
and Sherman/Denison, the Austin/Central Texas area, including Austin and Waco, the Houston Texas metropolitan area and
along the Colorado Front Range area, including Denver, Colorado Springs and Fort Collins.

As of December 31, 2020, the Company had consolidated total assets of approximately $17.8 billion, total loans of
approximately $13.0 billion, total deposits of approximately $14.4 billion and total stockholders’ equity of approximately $2.5
billion.

The Company’s primary function is to own all of the stock of the Bank. The Bank is a locally managed community bank that
seeks to provide personal attention and professional assistance to its customer base, which consists principally of small to
medium sized businesses, professionals and individuals. The Bank’s philosophy includes offering direct access to its officers
and personnel, providing friendly, informed and courteous service, local and timely decision making, flexible and reasonable
operating procedures, and consistently applied credit policies.

The Company’s common stock is traded on the Nasdaq Global Select Market under the symbol "IBTX."

Business Strategy

The Company operates based upon the following core strategies, which the Company designed to enhance shareholder value by
growing strategically while preserving asset quality, improving efficiency and increasing profitability:

Grow Organically. The Company focuses on continued organic growth through the Company’s existing footprint and business
lines. The Company utilizes a community-focused, relationship-driven customer strategy to increase loans and deposits through
the Company’s existing locations. Preserving the safety and soundness of the Company’s loan portfolio is a fundamental
element of the Company’s organic growth strategy. The Company has a strong and conservative credit culture, which allows
the Company to maintain its asset quality as the Company grows. In addition, the Company has an enterprise risk management
function to identify and mitigate risk on a Company wide basis to support continued growth.

1

Grow Through Acquisitions. The Company plans to continue to take advantage of opportunities to acquire or strategically
partner with other banking franchises both within and outside the Company’s current footprint. Since mid-2010, the Company
has completed twelve acquisitions that the Company believes have enhanced shareholder value and the Company’s market
presence. The following table summarizes each of the acquisitions completed since 2010.

Acquired Institution/Market

Date of Acquisition

Fair Value of Total Assets
Acquired

(dollars in thousands)

Town Center Bank
Dallas/North Texas

Farmersville Bancshares, Inc.
Dallas/North Texas

I Bank Holding Company, Inc.
Austin/Central Texas

The Community Group, Inc.
Dallas/North Texas

Collin Bank
Dallas/North Texas

Live Oak Financial Corp.
Dallas/North Texas

BOH Holdings, Inc.
Houston, Texas

Houston City Bancshares, Inc.
Houston, Texas

Grand Bank
Dallas, Texas

Carlile Bancshares, Inc.
Dallas/North Texas, Central Texas, Colorado Front Range

Integrity Bancshares, Inc.
Houston, Texas

Guaranty Bancorp
Denver, Colorado and Colorado Front Range

The Company's Community Banking Services

July 31, 2010

September 30, 2010

April 1, 2012

October 1, 2012

November 30, 2013

January 1, 2014

$37,451

99,420

172,587

110,967

168,320

131,008

April 15, 2014

1,188,893

October 1, 2014

November 1, 2015

April 1, 2017

June 1, 2018

January 1, 2019

350,747

620,196

2,444,155

851,875

3,943,070

The Independent Way. Nearly a century after the Bank’s beginning, the Bank’s dedication to serving the needs of businesses
and individuals in the Bank’s communities remains stronger than ever. Through the Bank, the Company strives to provide
customers with innovative financial products and services, local decision making and a level of service and responsiveness that
is second to none. The Company’s innovative and independent spirit is balanced by adherence to fundamental banking
principles that have enabled the Company to remain strong, sound and financially secure even during challenging economic
times. The Company is also steeped in a tradition of civic pride as evidenced by the investment of the Company’s time, energies
and financial resources in many local community development initiatives and organizations to improve and benefit the
Company’s communities.

Lending Operations. Through the Bank, the Company offers a broad range of commercial and retail lending products to
businesses, professionals and individuals. Commercial lending products include owner-occupied commercial real estate loans,
interim construction loans, commercial loans (such as SBA guaranteed loans, business term loans, equipment lease financing,
lines of credit and energy related loans) to a diversified mix of small and midsized businesses, and loans to professionals,
including medical practices. Retail lending products include residential first and second mortgage loans and consumer
installment loans, such as loans to purchase cars, boats and other recreational vehicles.

2

The Company’s strategy is to maintain a broadly diversified loan portfolio by type and location. The Company’s loan portfolio
consists of real estate loans, commercial and industrial loans, residential mortgage loans, residential construction loans,
agricultural loans and consumer loans. Real estate secured loans are spread among a variety of types of borrowers, including
owner-occupied offices for small businesses, medical practices and offices, retail operations and multi-family properties. The
Company’s loans are diversified geographically throughout the Company’s Dallas/North Texas region (approximately 45%),
the Company’s Houston region (approximately 20%), the Company’s Austin/Central Texas region (approximately 11%) and
the Company's Colorado Front Range region (approximately 24%). See “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Loan Portfolio" for a more detailed description of the Company’s lending
operations.

Deposits. Through the Bank, the Company provides a full range of deposit products and services, including a variety of
checking and savings accounts, debit cards, online banking, mobile banking, eStatements and bank-by-mail and direct deposit
services. Deposits are the Company’s principal source of funds for use in lending and other general banking purposes. The
Company also offers business accounts and management services, including analyzed business checking, business savings, and
treasury management services. The Company solicits deposits through its relationship-driven team of dedicated and accessible
bankers and through community focused marketing. The Company also utilizes an experienced Treasury Management team to
solicit and manage large deposit relationships.

Other Services. In connection with our relationship driven approach to our customers, the Company, through the Bank, offers
residential mortgages through the mortgage brokerage division. As a mortgage broker, the Company originates residential
mortgages which are sold into the secondary market shortly after closing. The Company also supports residential mortgage
operations through a mortgage warehouse program. The Company provides wealth management services to its customers
through Private Capital Management, LLC, a registered investment advisory firm, which is a wholly owned subsidiary of the
Bank.

The Company has recently initiated a retail banking strategy designed to enhance products and services to consumers. Through
this strategy, the Company intends to provide personalized and consumer focused services to retail customers through the
Company’s branch structure.

Competition

The Company competes in the commercial banking industry solely through the Bank and firmly believes that the Bank’s long-
standing presence in the community and personal service philosophy enhance the Company’s ability to attract and retain
customers. This industry is highly competitive, and the Bank faces strong direct competition for deposits, loans and other
financial-related services. The Company competes with other commercial banks, thrifts and credit unions. An emerging source
of competition is banking through digital channels offered by large, money center banking organizations, as well as “FinTech”
businesses. Although some of these competitors are situated locally, others have statewide or nationwide presence. In addition,
the Company competes with large banks in major financial centers and other financial intermediaries, such as consumer finance
companies, brokerage firms, mortgage banking companies, insurance companies, securities firms, mutual funds and certain
government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial
services. The Company believes that its banking professionals, the range and quality of products that the Company offers, its
market presence, and its emphasis on building long-lasting relationships distinguishes the Bank from its competitors.

According to S&P Global Market Intelligence, as of June 30, 2020, the Company had the 13th largest deposit market share in
Texas and the 13th largest deposit market share in Colorado. We believe that our strong market share is a reflection of the
Company’s ability to compete with more prominent banking franchises in our markets.

3

COVID-19 Impact and Response

COVID-19 Impact and Legislative Response. In December of 2019, a novel strain of coronavirus, COVID-19, was reported in
Wuhan China. COVID-19 virus rapidly spread to many other countries, including the United States, and the World Health
Organization formally declared the coronavirus outbreak a pandemic in March of 2020. In response, federal and many state
governments, including Colorado and Texas, implemented measures, including “stay at home” orders, restricting the operations
of businesses and the activities of individuals. These orders and other effects of COVID-19 have had significant and
widespread impact on the macroeconomic environment, leading to lower interest rates, depressed market valuations, heightened
unemployment, heightened volatility in the financial, commodities (including oil and gas) and other markets, and significant
disruption in banking and other financial activity in the areas in which the Company operates. COVID-19 also had a significant
economic impact on a broad range of industries in which the customers of the Company operate.

In March of 2020, the Coronavirus Aid, Relief and Economic Security (“CARES Act”) took effect to address the impact of
COVID-19. The CARES Act included the Paycheck Protection Program (“PPP”), a nearly $350 billion program designed to
aid small and medium sized businesses through federally guaranteed loans distributed through banks (“PPP Round 1”). The
PPP loans carried with them certain requirements for use of funds to pay for payroll costs, as well as certain other operational
costs, to help businesses remain viable in the face of the economic uncertainty created by the COVID-19 pandemic. In April of
2020, Congress passed another bill to provide additional PPP loan funding and authority.
Protection Program Flexibility Act (the “Flexibility Act”) increased flexibility in the PPP loan program to address pervasive
issues experienced by small businesses, such as hiring and continued operational constraints negatively impacting their
businesses. Among other modifications, the Flexibility Act extended the period of time businesses had to use PPP loan funds
from 8 weeks to 24 weeks, relaxed measures to qualify for PPP loan forgiveness, and extended deferral periods for PPP loans.
In July of 2020, Congress again responded to small business needs by extending the deadline to apply for PPP Round 1 funding
to August of 2020. In December of 2020, Congress enacted the Economic Aid to Hard-Hit Small Business, Nonprofits, and
Venues Act, which allocated an additional $284 billion for PPP loans, extended authority to make PPP loans to March 31, 2021,
modified provisions related to making PPP loans and forgiveness of PPP loans, and set forth requirements to obtain a second
draw loan (“PPP Round 2”).

In June of 2020, the Paycheck

In addition to providing stimulus packages to maintain the viability of U.S. businesses, the CARES Act, and subsequent
amendments thereto, also permitted financial institutions to delay adoption of the new accounting measure for estimating
allowances for loan losses and provision known as the current expected credit loss model or CECL. Further discussion of the
impact of these legislative measures on the Bank is addressed below under “Supervision and Regulation, Regulation of the
Bank, Measurement for Loan Allowances and Provision” and under Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations - “Recent Development: COVID-19”.

Our Company’s COVID-19 Response. In the face of the challenges presented by COVID-19, our team and our customers have
continued to demonstrate resilience, creativity and flexibility. Our team swept into action to close over 6,300 PPP loans during
PPP Round 1. As of February 25, 2021, our team has originated over 1,600 loans for PPP Round 2. Aside from PPP loans, our
teams have actively worked with our customers on a one-on-one basis to provide payment relief through prudent loan
modifications, including deferrals and payment reductions. Refer to Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations - “Recent Developments: COVID-19” for additional discussion of the impact of
the pandemic on the Company’s financial condition.

In addition, the Company’s business continuity team instituted measures to maintain the health and safety of our employees and
the customers we serve. We adjusted operating hours, instituted 50/50 staff rotation schedules and modified branch lobby
configurations to promote social distancing and installed plexi-glass shields where appropriate to provide additional protections.
Employees are required to wear face coverings, particularly when team members are engaging with customers. Surfaces are
routinely cleaned and sanitized, work-from-home measures are in place, with cybersecurity protocols heightened to
accommodate those measures, and protocols are in place to track and address exposures and potential exposures to COVID-19.
We distribute routine communication to employees pertaining to pandemic related resources, updates and protocol reminders.
Business travel also remains limited. Aside from these safety measures, the Company did not lay off or furlough any of its
workforce and provided Special Circumstance Pay to employees impacted by COVID-19 so they are not required to exhaust
Personal Time Off to deal with the challenges the pandemic has created in their daily lives. These measures have allowed us to
successfully sustain operations in an incredibly challenging environment. However, as more thoroughly discussed under Item
1A, Risk Factors, Other Risk Affecting Our Business, the prolonged nature of the pandemic and its impact on the economy
could lengthen, exacerbate, and prolong the risks identified in the Company’s 10-K.

4

Our Company also focused on the needs of the greater community in these difficult times by providing over $100,000 in
donations to support food banks across Texas and Colorado. This investment contributed to the delivery of over 300,000 meals
to families in need, and provided meaningful paid employment to unemployed shift workers. In addition, the Bank provided
more than $95,000 in additional donations to non-profits focused on small business support, housing and shelter, employment,
remote learning technology, childcare and health care.

Human Capital Management

As of December 31, 2020, we employed 1,513 employees. The average tenure of senior executives within the Company is 13
years, and the attrition rate for all employees in 2020 was 16.1%. None of the Company’s employees are represented by any
collective bargaining unit nor are they parties to any collective bargaining agreement. We believe our employee relations to be
good.

We are a high performing company that provides meaningful and engaging employee experience while serving as a powerful
force for positive change in the communities we serve. We believe in a corporate culture where all people are empowered to
reach their full potential. The Company’s Board of Directors fosters this belief by ensuring that senior management adopt
strategies that result in the Company keeping a continuous pulse on both employee performance and satisfaction at every level.
One of these strategies includes developing measures that focus on recruitment, retention and advancement of a diverse
workforce. To that end, the Company launched a new Diversity and Inclusion Program in the fourth quarter of 2020 built upon
the three core principles of people, culture and community. The Company’s Diversity Council, comprised of 18 cross-
functional leaders diverse in gender, race and ethnicity, was created as part of this initiative. The Company has also adopted and
enforces codes of conduct that establish principles of integrity, respect, and excellence at all levels of the Company.

To attract and retain talent, the Company offers competitive compensation and benefits to our employees, and is heavily
invested in the health, safety and welfare of each employee. Aside from the measures taken by the Company to protect our
employee’s health and financial well-being in the midst of the COVID-19 pandemic described above, the Company’s standard
benefits package includes an active health and wellness program that engages employees throughout the year with the goal of
generating positive health outcomes for our team members. The program includes access to telemedicine, health savings
accounts, flexible spending accounts, insurance premium reductions for those who complete certain health and fitness tasks in
the year, and an Employee Assistance Program offering confidential emotional support, work-life solutions, and legal and
financial planning resources. The Company also empowers employees to plan for their financial futures by matching 100% of
the first 6% of contributions made to the Company’s 401-K plan. The Company also offers a competitive employee bonus
incentive plan. In 2020, the Company paid 100% of the employee bonus incentive plan to its employees, despite the challenges
presented by the COVID-19 pandemic.

The Company also encourages every employee to effect positive change in the communities we serve throughout Texas and
Colorado. Senior management has designed programs that encourage and celebrate community service by providing additional
paid time off to employees to accommodate participation in service related activities and by highlighting contributions made by
our team throughout the year. In 2020, our employees volunteered over 6,500 hours for a volunteer value of over $178,000.

The Company firmly believes that one of its greatest assets is its employees. We strive year after year to build and enhance our
corporate culture so that our workforce continues to feel valued, understood, appreciated, encouraged and empowered to
professionally thrive and make a difference within the Company and the communities we serve.

Available Information

The Company files reports, proxy statements and other information with the Securities and Exchange Commission, or SEC,
under the Securities Exchange Act of 1934, as amended. You may read and copy this information at the SEC’s Public
Reference Room, 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy
and information statements and other information about issuers, like the Company, who file electronically with the SEC. The
address of that site is http://www.sec.gov.

5

Documents filed by the Company with the SEC are available from the Company without charge (except for exhibits to the
documents). You may obtain documents filed by the Company with the SEC by requesting them in writing or by telephone
from the Company at the following address:

Independent Bank Group, Inc.
7777 Henneman Way
McKinney, Texas 75070-1711
Attention: Paul Langdale
Senior Vice President, Director of Corporate Development
Telephone: (972) 562-9004
www.ibtx.com

Documents filed by the Company with the SEC are also available on the Company’s website, www.ibtx.com. Information
furnished by the Company and information on, or accessible through, the SEC’s or the Company’s website is not part of this
Annual Report on Form 10-K.

Supervision and Regulation

General. The U.S. banking industry is highly regulated under federal and state law. Consequently, the growth and earnings
performance of the Company and its subsidiaries will be affected not only by management decisions and general and local
economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental
regulatory authorities. These authorities include the Board of Governors of the Federal Reserve System, or Federal Reserve, the
Federal Deposit Insurance Corporation, or the FDIC, the Office of the Comptroller of the Currency, or the OCC, the Texas
Department of Banking, or TDB, the Consumer Financial Protection Bureau, or the CFPB, the SEC, the Internal Revenue
Service and state taxing authorities. The effect of these statutes, regulations and policies, and any changes to such statutes,
regulations and policies, can be significant and cannot be predicted.

The primary goals of the bank regulatory scheme are to maintain a safe and sound banking system and to facilitate the conduct
of sound monetary policy. The system of supervision and regulation applicable to the Company and its subsidiaries establishes
a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC’s deposit
insurance fund, the banks’ depositors and the public, rather than the Company’s shareholders or creditors. The description
below summarizes certain elements of the applicable bank regulatory framework. This description is not intended to describe all
laws and regulations applicable to the Company and its subsidiaries, and the description is qualified in its entirety by reference
to the full text of the statutes, regulations, policies, interpretive letters and other written guidance that are described herein.

Independent Bank Group as a Bank Holding Company

As a bank holding company, the Company is subject to regulation under the Bank Holding Company Act of 1956, or the BHC
Act, and to supervision, examination and enforcement by the Federal Reserve. The BHC Act and other federal laws subject
bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of
supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations. The
Federal Reserve’s jurisdiction also extends to any company that the Company directly or indirectly controls, such as the
Company’s nonbank subsidiaries.

Regulatory Restrictions on Dividends; Source of Strength. The Company is regarded as a legal entity separate and distinct
from the Bank. The principal source of the Company’s revenues is dividends received from the Bank. As described in more
detail below, Texas state law places limitations on the amount that state banks may pay in dividends, which Independent Bank
must adhere to when paying dividends to the Company. The Federal Reserve has issued a policy statement that provides that a
bank holding company should not pay dividends unless (a) its net income over the last four quarters (net of dividends paid) has
been sufficient to fully fund the dividends, (b) the prospective rate of earnings retention appears to be consistent with the capital
needs, asset quality and overall financial condition of the bank holding company and its subsidiaries and (c) the bank holding
company will continue to meet minimum required capital adequacy ratios. Accordingly, the Company should not pay cash
dividends that exceed its net income in any year or that can only be funded in ways that weaken its ability to serve as a source
of financial strength for its banking subsidiaries, including by borrowing money to pay dividends.

6

Under Federal Reserve policy, bank holding companies have historically been required to act as a source of financial and
managerial strength to each of its banking subsidiaries, and the Dodd-Frank Wall Street Reform and Consumer Protection Act,
(the “Dodd-Frank Act”) codified this policy as a statutory requirement. Under this requirement, the Company is expected to
commit resources to support the Bank, including at times when the Company may not be in a financial position to provide such
resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to
deposits and to certain other indebtedness of such subsidiary banks. As discussed below, a bank holding company, in certain
circumstances, could be required to guarantee the capital restoration plan of an undercapitalized banking subsidiary. If the
capital of the Bank were to become impaired, the Federal Reserve could assess the Company for the deficiency. If the Company
failed to pay the assessment within three months, the Federal Reserve could order the sale of the Company’s stock in the Bank
to cover the deficiency.

Scope of Permissible Activities. Under the BHC Act, the Company is prohibited from acquiring a direct or indirect interest in or
control of more than 5% of the voting shares of any company that is not a bank or financial holding company and from
engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to
or performing services for its subsidiary banks, except that the Company may engage in, directly or indirectly, and may own
shares of companies engaged in, certain activities found by the Federal Reserve to be so closely related to banking or managing
and controlling banks as to be a proper. These activities include, among others, operating a mortgage, finance, credit card or
factoring company; performing certain data processing operations; providing investment and financial advice; acting as an
insurance agent for certain types of credit-related insurance; leasing personal property on a full-payout, nonoperating basis; and
providing certain stock brokerage and investment advisory services. In approving acquisitions or the addition of activities, the
Federal Reserve considers, among other things, whether the acquisition or the additional activities can reasonably be expected
to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh such
possible adverse effects as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices.

Notwithstanding the foregoing, the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999,
effective March 11, 2000, or the GLB Act, amended the BHC Act and eliminated the barriers to affiliations among banks,
securities firms, insurance companies and other financial service providers. The GLB Act permits bank holding companies to
become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature. The GLB Act defines “financial in nature” to include securities underwriting, dealing and
market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking
activities; and activities that the Federal Reserve has determined to be closely related to banking. No regulatory approval will be
required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities
that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve.

Safe and Sound Banking Practices. Bank holding companies are not permitted to engage in unsafe and unsound banking
practices. The Federal Reserve’s capital regulations and Regulation Y, for example, generally requires a bank holding company
to receive prior approval of and/or provide the Federal Reserve with prior notice of any redemption or repurchase of its own
equity securities. The Federal Reserve may oppose the transaction if it believes that the transaction would constitute an unsafe
or unsound practice or would violate any law or regulation. In certain circumstances, the Federal Reserve could take the
position that paying a dividend would constitute an unsafe or unsound banking practice.

The Federal Reserve has broad authority to prohibit activities of bank holding companies and their nonbanking subsidiaries
which represent unsafe and unsound banking practices or which constitute violations of laws or regulations, and can assess civil
money penalties for certain activities conducted on a knowing and reckless basis, if those activities caused a substantial loss to a
depository institution. The penalties can be as high as one million dollars ($1,000,000) for each day the activity continues.

Anti-Tying Restrictions. Bank holding companies and their affiliates are prohibited from tying the provision of certain services,
such as extensions of credit, to other nonbanking services offered by a bank holding company or its affiliates.

7

Capital Adequacy Requirements. The Federal Reserve utilizes a system based upon risk-based capital guidelines under a two-
tier capital framework to evaluate the capital adequacy of bank holding companies. Tier 1 capital generally consists of common
stockholders’ equity, retained earnings, a limited amount of qualifying perpetual preferred stock, qualifying trust preferred
securities and noncontrolling interests in the equity accounts of consolidated subsidiaries, less goodwill and certain intangibles.
Tier 2 capital generally consists of certain hybrid capital instruments and perpetual debt, mandatory convertible debt securities
and a limited amount of subordinated debt, qualifying preferred stock, loan loss allowance, and unrealized holding gains on
certain equity securities. The regulatory capital requirements are applicable to the Company because its total consolidated assets
equal more than $1 billion. The Bank is subject to the capital requirements of the FDIC.

Under the guidelines, specific categories of assets are assigned different risk weights, based generally on the perceived credit
risk of the asset. These risk weights are multiplied by corresponding asset balances to determine a “risk-weighted” asset base.
The guidelines required a minimum ratio to be well capitalized of total capital to total risk-weighted assets of 8.0% (of which at
least 6.0% was required to consist of Tier 1 capital elements). Total capital is the sum of Tier 1 and Tier 2 capital. Risk-
weighted assets exclude intangible assets such as goodwill and core deposit intangibles.

In addition to the risk-based capital guidelines, the Federal Reserve uses a leverage ratio as an additional tool to evaluate the
capital adequacy of bank holding companies. The leverage ratio is a company’s Tier 1 capital divided by its average total
consolidated assets. In general, bank holding companies are required to maintain a leverage ratio of at least 4.0%. Further,
under what is known as the “Basel III” requirements, the Company is subject to a capital measure known as “Common Equity
Tier 1”, or CET1, which emphasizes the common equity component of capital adequacy.

The federal banking agencies’ risk-based and leverage capital ratios are minimum supervisory ratios generally applicable to
banking organizations that meet certain specified criteria. Banking organizations not meeting these criteria are expected to
operate with capital positions well above the minimum ratios. The federal bank regulatory agencies may set capital
requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant. Federal
Reserve guidelines also provide that banking organizations experiencing internal growth or making acquisitions must maintain
strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.

In addition to the minimum CET1, Tier 1 and total risk-based capital ratios, the Company and the Bank must maintain a capital
conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required
minimum levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.

Under the Federal Reserve's and FDIC’s prompt corrective action standards, in order to be considered well-capitalized, the
Company and the Bank must have a ratio of CET1 capital to risk-weighted assets of 6.5%, a ratio of Tier 1 capital to risk-
weighted assets of 8%, a ratio of total capital to risk-weighted assets of 10%, and a leverage ratio of 5%; and must not be
subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific
capital level for any capital measure. In order to be considered adequately capitalized, an institution must have the minimum
capital ratios described above. As of December 31, 2020, the Company and the Bank each were “well-capitalized.” An
institution that is not well capitalized is subject to certain restrictions on brokered deposits and interest rates on deposits.

The Federal Reserve’s capital regulations and Regulation Y generally require a bank holding company to receive the prior
approval of and/or provide the Federal Reserve with prior notice of any redemption or repurchase of its own equity securities.

Interchange Fees. The Durbin Amendment to the Dodd-Frank Act limits the amount of interchange fees that banks with assets
of $10 billion or more may charge to process electronic debit transactions. An issuer must begin complying with the Durbin
Amendment no later than July 1 of the next calendar year after the issuer crosses the $10 billion threshold. The Company and
the Bank exceeded $10 billion in total consolidated assets upon consummation of the merger of the Company with Guaranty
Bancorp and the merger of the Bank with Guaranty Bank and Trust Company, both on January 1, 2019. Thus, the Bank became
subject to the rule on July 1, 2020. Under the Durbin Amendment and the Federal Reserve’s implementing regulations, bank
issuers who are not exempt may only receive an interchange fee from merchants that is reasonable and proportional to the cost
of clearing the transaction. The maximum permissible interchange fee is equal to no more than $0.21 plus 5 basis points of the
transaction value for many types of debit interchange transactions. A debit card issuer may also recover $0.01 per transaction
for fraud prevention purposes if the issuer complies with certain fraud-related requirements required by the Federal Reserve. In
addition, the Federal Reserve has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks
for routing transactions on each debit or prepaid product.

8

Imposition of Liability for Undercapitalized Subsidiaries. Bank regulators are required to take prompt corrective action to
resolve problems associated with insured depository institutions whose capital declines below certain levels. In the event an
institution becomes undercapitalized, it must submit a capital restoration plan. The capital restoration plan will not be accepted
by the regulators unless each company having control of the undercapitalized institution guarantees the subsidiary’s compliance
with the capital restoration plan up to a certain specified amount. Any such guarantee from a depository institution’s holding
company is entitled to a priority of payment in bankruptcy.

The aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5.0% of the institution’s
assets at the time it became undercapitalized or the amount necessary to cause the institution to be adequately capitalized. The
bank regulators have greater power in situations where an institution becomes significantly or critically undercapitalized or fails
to submit a capital restoration plan. For example, a bank holding company controlling such an institution can be required to
obtain prior Federal Reserve approval of proposed dividends, or might be required to consent to a consolidation or to divest the
troubled institution or other affiliates.

Acquisitions by Bank Holding Companies. The BHC Act requires every bank holding company to obtain the prior approval of
the Federal Reserve before it acquires all or substantially all of the assets of any bank, or ownership or control of any voting
shares of any bank if after such acquisition it would own or control, directly or indirectly, more than 5% of the voting shares of
such bank. In approving bank acquisitions by bank holding companies, the Federal Reserve is required to consider, among other
things, the effect of the acquisition on competition, the financial condition, managerial resources and future prospects of the
bank holding company and the banks concerned, the convenience and needs of the communities to be served (including the
record of performance under the Community Reinvestment Act, or CRA), the effectiveness of the applicant in combating
money laundering activities and the extent to which the proposed acquisition would result in greater or more concentrated risks
to the stability of the U.S. banking or financial system. The Company’s ability to make future acquisitions will depend on its
ability to obtain approval for such acquisitions from the Federal Reserve. The Federal Reserve could deny the Company’s
application based on the above criteria or other considerations. For example, the Company could be required to sell banking
centers as a condition to receiving regulatory approval, which condition may not be acceptable to the Company or, if
acceptable, may reduce the benefit of a proposed acquisition.

Control Acquisitions. Federal and state laws, including the BHCA and the Change in Bank Control Act, or the CBCA, impose
additional prior notice or approval requirements and ongoing regulatory requirements on any investor that seeks to acquire
direct or indirect “control” of an FDIC-insured depository institution or bank holding company. Whether an investor “controls”
a depository institution is based on all of the facts and circumstances surrounding the investment. As a general matter, an
investor is deemed to control a depository institution or other company if the investor owns or controls 25% or more of any
class of voting securities. Subject to rebuttal, an investor is presumed to control a depository institution or other company if the
investor owns or controls 10% or more of any class of voting securities and either the depository institution or company is a
public company or no other person will hold a greater percentage of that class of voting securities after the acquisition. If an
investor’s ownership of the Company’s voting securities were to exceed certain thresholds, the investor could be deemed to
“control” the Company for regulatory purposes, which could subject such investor to regulatory filings or other regulatory
consequences.

On January 30, 2020, the Federal Reserve finalized a rule that simplifies and increases transparency of its rules for determining
when one company controls another company for purposes of the BHC Act. The rule became effective September 30, 2020.
The rule has and will likely continue to have a meaningful impact on control determinations related to investments in banks and
bank holding companies and investments by bank holding companies in nonbank companies.

Volcker Rule. Section 619 of the Dodd-Frank Act, known as the Volcker Rule, prohibits any bank, bank holding company, or
affiliate (referred to collectively as “banking entities”) from engaging in two types of activities: “proprietary trading” and the
ownership or sponsorship of private equity or hedge funds that are referred to as “covered funds.” Proprietary trading is, in
general, trading in securities on a short-term basis for a banking entity's own account. In December 2013, the federal banking
agencies, the SEC and the Commodity Futures Trading Commission, finalized a regulation to implement the Volcker Rule.
After the enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act in May 2018, Volcker Rule
limitations apply to banking entities with $10 billion or more in total consolidated assets. Under the Volcker Rule implementing
regulations, banking entities have two years to conform its investments and implement the required compliance plan or in the
case of the Company, January 1, 2021.

9

Federal Securities Laws. The common stock of the Company is registered with the SEC under the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Therefore, the Company is subject to the reporting, information disclosure, proxy
solicitation, insider trading limits and other requirements imposed on public companies by the SEC under the Exchange Act.
This includes limits on sales of stock by certain insiders and the filing of insider ownership reports with the SEC. The SEC and
Nasdaq have adopted regulations under the Sarbanes-Oxley Act of 2002 and the Dodd Frank Act that apply to the Company as
a Nasdaq-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial
reporting improprieties and improve the reliability of disclosures in SEC filings.

Regulation of the Bank

The Bank is a Texas-chartered banking association, the deposits of which are insured by the deposit insurance fund of the
FDIC. The Bank is not a member of the Federal Reserve System; therefore, the Bank is subject to supervision and regulation by
the FDIC, the TDB and CFPB. Such supervision and regulation subject the Bank to special restrictions, requirements, potential
enforcement actions and periodic examination by the FDIC, the TDB and the CFPB. Because the Federal Reserve regulates the
Company, the Federal Reserve also has supervisory authority that directly affects the Bank.

Equivalence to National Bank Powers. The Texas Constitution, as amended in 1986, provides that a Texas-chartered bank has
the same rights and privileges that are or may be granted to national banks domiciled in Texas. To the extent that the Texas
laws and regulations may have allowed state-chartered banks to engage in a broader range of activities than national banks, the
Federal Deposit Insurance Corporation Improvement Act of 1991, or the FDICIA, has operated to limit this authority. The
FDICIA provides that no state bank or subsidiary thereof may engage as a principal in any activity not permitted for national
banks, unless the institution complies with applicable capital requirements and the FDIC determines that the activity poses no
significant risk to the deposit insurance fund of the FDIC. In general, statutory restrictions on the activities of banks are aimed
at protecting the safety and soundness of depository institutions.

Financial Modernization. Under the GLB Act, a national bank may establish a financial subsidiary and engage, subject to
limitations on investment, in activities that are financial in nature, other than insurance underwriting as principal, insurance
company portfolio investment, real estate development, real estate investment, annuity issuance and merchant banking
activities. To do so, a bank must be well capitalized, well managed and have a Community Reinvestment Act, or CRA, rating
from the FDIC of satisfactory or better. Subsidiary banks of a financial holding company or national banks with financial
subsidiaries must remain well capitalized and well managed in order to continue to engage in activities that are financial in
nature without regulatory actions or restrictions. Such actions or restrictions could include divestiture of the “financial in
nature” subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is
engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the
bank has a CRA rating of satisfactory of better.

Although the powers of state chartered banks are not specifically addressed in the GLB Act, Texas-chartered banks such as the
Bank will have the same if not greater powers as national banks through the parity provisions contained in the Texas
Constitution and other Texas statutes.

Branching. Texas law provides that a Texas-chartered bank can establish a branch anywhere in Texas provided that the branch
is approved in advance by the TDB. The branch must also be approved by the FDIC, which considers a number of factors,
including financial history, capital adequacy, earnings prospects, character of management, needs of the community and
consistency with corporate powers. The Dodd-Frank Act permits insured state banks to engage in de novo interstate branching
if the laws of the state where the new branch is to be established would permit the establishment of the branch if it were
chartered by such state.

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Restrictions on Transactions with Affiliates and Insiders. Transactions between the Bank and its nonbanking subsidiaries and/
or affiliates, including the Company, are subject to Section 23A of the Federal Reserve Act. In general, Section 23A of the
Federal Reserve Act imposes limits on the amount of such transactions, and also requires certain levels of collateral for loans to
affiliated parties. It also limits the amount of advances to third parties that are collateralized by the securities or obligations of
the Company or its subsidiaries. Covered transactions with any single affiliate may not exceed 10% of the capital stock and
surplus of the Bank, and covered transactions with all affiliates may not exceed, in the aggregate, 20% of the Bank’s capital and
surplus. For a bank, capital stock and surplus refers to the bank’s Tier 1 and Tier 2 capital, as calculated under the risk-based
capital guidelines, plus the balance of the allowance for credit losses excluded from Tier 2 capital. The Bank’s transactions with
all of its affiliates in the aggregate are limited to 20% of the foregoing capital. “Covered transactions” are defined by statute to
include a loan or extension of credit to an affiliate, as well as a purchase of securities issued by an affiliate, a purchase of assets
(unless otherwise exempted by the Federal Reserve) from the affiliate, the acceptance of securities issued by the affiliate as
collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. In addition, in
connection with covered transactions that are extensions of credit, the Bank may be required to hold collateral to provide added
security to the Bank, and the types of permissible collateral may be limited. The Dodd-Frank Act generally enhances the
restrictions on transactions with affiliates.

Affiliate transactions are also subject to Section 23B of the Federal Reserve Act, which generally requires that certain
transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those
prevailing at the time for comparable transactions with or involving other nonaffiliated persons.

The restrictions on loans to directors, executive officers, principal shareholders and their related interests (collectively referred
to herein as “insiders”) contained in the Federal Reserve Act and in Regulation O promulgated by the Federal Reserve apply to
all insured institutions and their subsidiaries and bank holding companies. These restrictions include limits on loans to one
borrower and conditions that must be met before such a loan can be made. There is also an aggregate limitation on all loans to
insiders and their related interests. Generally, these loans cannot exceed the institution’s total unimpaired capital and surplus,
and the FDIC may determine that a lesser amount is appropriate. Loans to senior executive officers of a bank are even further
restricted, generally limited to $100,000 per senior executive officer. Insiders are subject to enforcement actions for knowingly
accepting loans in violation of applicable restrictions.

Restrictions on Dividends. Dividends paid by the Bank have provided a substantial part of the Company’s operating funds, and
for the foreseeable future, it is anticipated that dividends paid by the Bank to the Company will continue to be the Company’s
principal source of operating funds. However, capital adequacy requirements serve to limit the amount of dividends that may be
paid by the Bank. Under federal law, the Bank cannot pay a dividend if, after paying the dividend, it would be undercapitalized.
The FDIC may declare a dividend payment to be unsafe and unsound even though the Bank would continue to meet its capital
requirements after payment of the dividend.

Because the Company is a legal entity separate and distinct from its subsidiaries, its right to participate in the distribution of
assets of any subsidiary upon the subsidiary’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s
creditors. The Federal Deposit Insurance Act, or the FDI Act, provides that, in the event of a “liquidation or other resolution” of
an insured depository institution, the claims of depositors of the institution (including the claims of the FDIC as subrogee of
insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have priority over other
general unsecured claims against the institution. If the Bank fails, insured and uninsured depositors, along with the FDIC, will
have priority in payment ahead of unsecured, nondeposit creditors, including the Company, with respect to any extensions of
credit it has made to the Bank.

Examinations by FDIC & TDB. The Company is subject to a continuous program of examination by the FDIC and TDB
concerning, among other things, lending practices, reserve methodology, compliance with regulations, BSA/AML compliance,
and management of risk related to interest rate, liquidity, capital and operations, overall enterprise risk management, internal
audit program, financial accounting practice, and other related matters. The Company devotes a significant amount of time and
resources to the compliance function.

11

Examinations by CFPB. The Bank is subject to supervision and examination by the CFPB. The CFPB maintains authority
over the Bank with respect to substantially all federal statutes and regulations protecting the interests of consumers of financial
services, including but not limited to the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act,
the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the
Truth in Savings Act, the Right to Financial Privacy Act and the Electronic Funds Transfer Act and their respective related
regulations. Violation of these laws and regulations could subject the Bank to lawsuits and administrative penalties, including
civil monetary penalties, payments to affected consumers, and orders to halt or materially change our consumer banking
activities. The CFPB has broad authority to pursue enforcement actions, including investigations, civil actions and cease and
desist proceedings and can refer civil and criminal findings to the Department of Justice for prosecution. The Bank is also
subject to other federal and state consumer protection laws that, among other things, prohibit unfair, deceptive and abusive,
corrupt or fraudulent business practices, untrue or misleading advertising and unfair competition.

Audit Reports. Insured institutions with total assets of $500 million or more must submit annual audit reports prepared by
independent auditors to federal and state regulators. In some instances, the audit report of the institution’s holding company can
be used to satisfy this requirement. Auditors of an insured institution must receive examination reports, supervisory agreements
and reports of enforcement actions. For institutions with total assets of $1 billion or more, financial statements prepared in
accordance with GAAP, management’s certifications signed by the Company’s and the Bank’s chief executive officer and chief
accounting or financial officer concerning management’s responsibility for the financial statements, and an attestation by the
auditors regarding the Bank’s internal controls must also be submitted. For institutions with total assets of more than $3 billion,
independent auditors may be required to review quarterly financial statements. The FDICIA requires that the Bank have an
independent audit committee, consisting only of outside directors, or that the Company has an audit committee that is entirely
independent. The committees of such institutions must include members with experience in banking or financial management,
must have access to outside counsel, and must not include representatives of large customers.

Capital Adequacy Requirements. The FDIC has adopted regulations establishing minimum requirements for the capital
adequacy of insured institutions and may establish higher minimum requirements if, for example, a bank has previously
received special attention or has a high susceptibility to interest rate risk. The FDIC’s risk-based capital guidelines, under the
fully phased-in Basel III Capital Rules, generally require state banks to have a minimum ratio of Tier 1 capital to total risk-
weighted assets of 8.5% and a ratio of total capital to total risk-weighted assets of 10.5%. The capital categories have the same
definitions for the Bank as for the Company. The FDIC’s leverage guidelines require state banks to maintain Tier 1 capital of
no less than 4.0% of average total assets, except in the case of certain highly rated banks for which the requirement is 3.0% of
average total assets. The TDB has issued a policy which generally requires state chartered banks to maintain a leverage ratio
(defined in accordance with federal capital guidelines) of 5.0%.

Measurement for Loan Allowances and Provision. The Bank is subject to accounting standards updates (ASU) set forth by the
Financial Accounting Standards Board (FASB). In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments - Credit
Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 along with several other
subsequent codification updates related to accounting for credit losses, requires the measurement of all expected credit losses
for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable
forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses,
as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the
credit loss measurement guidance for available for sale debt securities and purchased financial assets with credit deterioration.
Under prior US GAAP, companies generally recognized credit losses when it was probable that the loss has been incurred
(Incurred Loss Model). ASU 2016-13 requires a new credit loss methodology, the current expected credit loss model (CECL),
which requires the recognition of an allowance for lifetime expected credit losses on loans, held-to-maturity debt securities and
other receivables measured at amortized cost at the time the financial asset is originated or acquired. Under CECL, credit losses
will be immediately recognized through net income; the amount recognized will be based on the current estimate of contractual
cash flows not expected to be collected over the financial asset’s contractual term. ASU 2016-13 initially became effective for
the Company on January 1, 2020.

On March 27, 2020, the CARES Act was enacted, which included an option for financial institutions to delay the
implementation of ASU 2016-13 until the earlier of the termination date of the national emergency declaration relating to the
COVID-19 pandemic or December 31, 2020. Due to the uncertainty of the economic forecast resulting from COVID-19 and the
potential impact of future government economic stimulus measures, the Company delayed adoption of CECL under ASU
2016-13 and continued to calculate and record its provision for loan losses under the Incurred Loss Model.

12

The CARES Act was furthered amended by the Consolidated Appropriations Act, 2021 signed into law on December 27, 2020,
which permitted companies to further delay the adoption of CECL until as late as January 1, 2022. The Company elected to
adopt CECL as of January 1, 2021 and utilized the Incurred Loss Model for 2020. Item 1A, Risk Factors and Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations - "Recent Development: COVID-19,
Credit and Asset Quality" contain additional discussion of the impact resulting from this decision.

Corrective Measures for Capital Deficiencies. The federal banking regulators are required by the FDI Act to take “prompt
corrective action” with respect to capital-deficient institutions that are FDIC-insured. Agency regulations define, for each
capital category, the levels at which institutions are “well capitalized,” “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized” and “critically undercapitalized.” A “well capitalized” bank has a total risk-based capital ratio
of 10.0% or higher, a Tier 1 risk-based capital ratio of 8.0% or higher, a leverage ratio of 5.0% or higher, and is not subject to
any written agreement, order or directive requiring it to maintain a specific capital level for any capital measure. An
“adequately capitalized” bank has a total risk-based capital ratio of 8.0% or higher, a Tier 1 risk-based capital ratio of 4.0% or
higher, a leverage ratio of 4.0% or higher (3.0% or higher if the bank was rated a composite 1 in its most recent examination
report and is not experiencing significant growth), and does not meet the criteria for a well-capitalized bank. A bank is
“undercapitalized” if it fails to meet any one of the ratios required to be adequately capitalized.

In addition to requiring undercapitalized institutions to submit a capital restoration plan, agency regulations contain broad
restrictions on certain activities of undercapitalized institutions, including asset growth, acquisitions, branch establishment and
expansion into new lines of business. With certain exceptions, an insured depository institution is prohibited from making
capital distributions, including dividends, and is prohibited from paying management fees to control persons if the institution
would be undercapitalized after any such distribution or payment.

As an institution’s capital decreases, the FDIC’s enforcement powers become more severe. A significantly undercapitalized
institution is subject to mandated capital raising activities, restrictions on interest rates paid and transactions with affiliates,
removal of management and other restrictions. The FDIC has only very limited discretion in dealing with a critically
undercapitalized institution and is virtually required to appoint a receiver or conservator.

Banks with risk-based capital and leverage ratios below the required minimums may also be subject to certain administrative
actions, including the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance without
a hearing in the event the institution has no tangible capital.

Deposit Insurance Assessments. Substantially all of the deposits of the Bank are insured up to applicable limits by the deposit
insurance fund of the FDIC, and the Bank must pay annual deposit insurance assessments to the FDIC for such deposit
insurance protection. The FDIC maintains the deposit insurance fund by designating a required reserve ratio. If the reserve ratio
falls below the designated level, the FDIC must adopt a restoration plan that provides that the deposit insurance fund will return
to an acceptable level generally within five years.

On December 20, 2010, the FDIC raised the minimum designated reserve ratio of the deposit insurance fund to 2.00%, which
exceeds the 1.35% reserve ratio that is required by the Dodd-Frank Act. The FDIC has the discretion to set the price for deposit
insurance according to the risk for all insured institutions regardless of the level of the reserve ratio.

The deposit insurance fund reserve ratio is maintained by assessing depository institutions and establishing an insurance
premium based upon statutory factors. Under its current regulations, the FDIC imposes assessments for deposit insurance
according to a depository institution’s ranking in one of four risk categories based upon supervisory and capital evaluations.

On February 7, 2012, the FDIC approved a final rule that amends its existing deposit insurance funds restoration plan and
implements certain provisions of the Dodd-Frank Act. Effective as of July 1, 2012, the assessment base is determined using
average consolidated total assets minus average tangible equity rather than the current assessment base of adjusted domestic
deposits. Because the change resulted in a much larger assessment base, the final rule also lowered the assessment rates in order
to keep the total amount collected from financial institutions relatively unchanged from the amounts previously being collected.
After the effect of potential base-rate adjustments, the total base assessment rate for the Bank could range from 2.5 to 45 basis
points on an annualized basis.

13

Under the Dodd-Frank Act, for institutions with $10 billion or more in assets, the FDIC uses a performance score and a loss-
severity score that are used to calculate an initial assessment rate. In calculating these scores, the FDIC uses a bank’s capital
level and regulatory supervisory ratings and certain financial measures to assess an institution’s ability to withstand asset-
related stress and funding-related stress. The FDIC also has the ability to make discretionary adjustments to the total score
based upon significant risk factors that are not adequately captured in the calculations. The FDIC deposit assessment began use
of this new calculation in the first quarter of 2020.

On June 22, 2020, the FDIC issued a rule that mitigates the deposit insurance assessment effects of participating in the PPP loan
program first enacted under the CARES Act. Pursuant to the final rule, the FDIC will generally remove the effect of PPP
lending in calculating an institution’s deposit insurance assessment. The final rule also provides an offset to an institution’s
total assessment amount for the increase in its assessment base attributable to participation in the PPP loan program. Further,
on October 20, 2020, the FDIC issued a final rule to allow institutions that experienced temporary growth from participation in
the PPP loan program to determine whether they are subject to the requirements of Part 363 of the FDIC’s regulations (which
imposes annual audit and reporting requirements on insured deposit institutions with $500 million or more in consolidated total
assets) for fiscal years ending in 2021 based on the consolidated assets of December 31, 2019.

Brokered Deposit Restrictions. Adequately capitalized institutions cannot accept, renew or roll over brokered deposits, without
receiving a waiver from the FDIC, and are subject to restrictions on the interest rates that can be paid on any deposits.
Undercapitalized institutions may not accept, renew or roll over brokered deposits. In December 2020, the FDIC finalized a rule
that is intended to bring the brokered deposit regulations in line with modern deposit taking methods, which may result in a
reduction in the amount of deposits that would be classified as brokered.

Concentrated Commercial Real Estate Lending Regulations. The federal banking agencies have promulgated guidance
governing financial institutions with concentrations in commercial real estate lending. The guidance provides that a bank has a
concentration in commercial real estate lending if (i) total reported loans for construction, land development and other land
represent 100% or more of total capital or (ii) total reported loans secured by multifamily and nonfarm residential properties
and loans for construction, land development and other land represent 300% or more of total capital and the bank’s commercial
real estate loan portfolio has increased 50% or more during the prior 36 months. Owner-occupied loans are excluded from this
second category. If a concentration is present, management must employ heightened risk management practices that address the
following key elements: board and management oversight and strategic planning, portfolio management, development of
underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of
increased capital levels as needed to support the level of commercial real estate lending.

Community Reinvestment Act. The CRA and the regulations issued thereunder are intended to encourage banks to help meet
the credit needs of their entire service area, including low and moderate income neighborhoods, consistent with the safe and
sound operations of such banks. These regulations also provide for regulatory assessment of a bank’s record in meeting the
needs of its service area when considering applications to establish branches, merger applications and applications to acquire
the assets and assume the liabilities of another bank. The FIRREA requires federal banking agencies to make public a rating of
a bank’s performance under the CRA. In the case of a bank holding company, the CRA performance record of the banks
involved in the transaction are reviewed in connection with the filing of an application to acquire ownership or control of shares
or assets of a bank or to merge with any other bank holding company. An unsatisfactory CRA record could substantially delay
approval or result in denial of an application. In December 2019, the FDIC and the OCC jointly proposed rules that change the
existing regulations in four key ways: (i) clarifying what activities will qualify for CRA credit; (ii) updating where activities
count for CRA credit; (iii) providing a more transparent and objective method for measuring CRA performance; and (iv)
revising CRA-related data collection, record keeping, and reporting. While the OCC issued its final rule, which took effect
October 1, 2020, the FDIC has not yet finalized revisions to its CRA rules.

Privacy and Cybersecurity. In addition to expanding the activities in which banks and bank holding companies may engage, the
GLB Act also imposed new requirements on financial institutions with respect to customer privacy. The GLB Act generally
prohibits disclosure of customer information to nonaffiliated third parties unless the customer has been given the opportunity to
object and has not objected to such disclosure. Financial institutions are further required to disclose their privacy policies to
customers annually. Financial institutions, however, are required to comply with state law if it is more protective of customer
privacy than the GLB Act.

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Federal regulators have issued advisory statements regarding cybersecurity. Generally, federal regulators expect that financial
institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk
management processes also address the risk posed by compromised customer credentials, including security measures to
reliably authenticate customers accessing internet-based services of the financial institution. In addition, a financial institution’s
management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption
and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also
expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network
capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If the
Company fails to observe the regulatory guidance, the Company could be subject to various regulatory sanctions, including
financial penalties. In December of 2020, federal banking agencies issued a Notice of Proposed Rulemaking that would require
banking organizations to notify their primary federal regulator within 36 hours of becoming aware of a “computer-security
incident” or a “notification incident.” The Notice of Proposed Rulemaking also would require specific and immediate
notifications by bank service providers that become aware of similar incidents.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.
Recently, several states, have adopted regulations requiring certain financial institutions to implement cybersecurity programs
and providing detailed requirements with respect to these programs, including data encryption requirements. Many states,
including Texas and Colorado, have implemented or modified their data breach notification and data privacy requirements. The
Texas banks are required to promptly report material cybersecurity incidents to the Texas Banking Commissioner.

The Company expects this trend of both federal and state-level attention to cybersecurity to continue, and is continually
monitoring developments at the federal level and in the states in which its customers are located.

Limits on Compensation. The Federal Reserve, OCC and FDIC in 2010 issued comprehensive final guidance on incentive
compensation policies for executive management of banks and bank holding companies. This guidance was intended to ensure
that the incentive compensation policies of banking organizations do not undermine their safety and soundness by encouraging
excessive risk-taking. The objective of the guidance is to assure that incentive compensation arrangements (i) provide
incentives that do not encourage excessive risk-taking, (ii) are compatible with effective internal controls and risk management
and (iii) are supported by strong corporate governance, including oversight by the board of directors. In 2016, the Federal
Reserve and the FDIC proposed rules that would, depending upon the assets of the institution, directly regulate incentive
compensation arrangements and would require enhanced oversight and recordkeeping. As of December 31, 2020, these rules
have not been implemented.

Anti-Money Laundering and Anti-Terrorism Legislation. A major focus of governmental policy on financial institutions in
recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001, or the
USA Patriot Act, substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant
new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction
of the United States. The U.S. Treasury Department has issued and, in some cases, proposed a number of regulations that apply
various requirements of the USA Patriot Act to financial institutions. These regulations impose obligations on financial
institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and
terrorist financing and to verify the identity of their customers. The USA Patriot Act requires, among other things, financial
institutions to comply with certain due diligence requirements in connection with correspondent or private banking
relationships with non-U.S. financial institutions or persons, establish an anti-money laundering program that includes
employee training and an independent audit, follow minimum standards for identifying customers and maintaining records of
the identification information and make regular comparisons of customers against agency lists of suspected terrorists, their
organizations and money launderers. Failure of a financial institution to maintain and implement adequate programs to combat
money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and
reputational consequences for the institution.

The Anti-Money Laundering Act of 2020 (the “AMLA”), which amends the Bank Secrecy Act of 1970 (BSA), was enacted in
January 2021. The AMLA is intended to be a comprehensive reform and modernization to the U.S. bank secrecy and anti-
money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for
financial institutions, requires the development of standards for evaluating technology and internal process for BSA
compliance, and expands enforcement and investigation-related authority, including increasing available sanctions for certain
BSA violations and instituting BSA whistleblower incentives and protections.

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Office of Foreign Assets Control Regulation. The United States has imposed economic sanctions that affect transactions with
designated foreign countries, nationals and others. These are typically known as the “OFAC” rules based on their
administration by the U.S. Treasury Department Office of Foreign Assets Control, or OFAC. The OFAC-administered
sanctions targeting certain countries take many different forms. Generally, however, they contain one or more of the following
elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect
imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial transactions relating
to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of
assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting
transfers of property subject to a U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked
assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license
from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.

Changes in Laws, Regulations or Policies

In general, regulators have increased their focus on the regulation of financial institutions. From time to time, various legislative
and regulatory initiatives are introduced in Congress and state legislatures. Such initiatives may change banking statutes and the
operating environment of the Company and the Bank in substantial and unpredictable ways. The Company cannot determine
the ultimate effect that any potential legislation, if enacted, or implementing regulations with respect thereto, would have, upon
the financial condition or results of operations of the Company or the Bank. A change in statutes, regulations or regulatory
policies applicable to the Company or the Bank could have a material effect on the financial condition, results of operations or
business of the Company and the Bank.

Enforcement Powers of Federal and State Banking Agencies

The federal banking agencies have broad enforcement powers, including the power to terminate deposit insurance, impose
substantial fines and other civil and criminal penalties, and appoint a conservator or receiver. Failure to comply with applicable
laws, regulations and supervisory agreements could subject the Company or the Bank and their subsidiaries, as well as their
respective officers, directors, and other institution-affiliated parties, to administrative sanctions and potentially substantial civil
money penalties. In addition to the grounds discussed above under “Corrective Measures for Capital Deficiencies,” the
appropriate federal banking agency may appoint the FDIC as conservator or receiver for a banking institution (or the FDIC may
appoint itself, under certain circumstances) if any one or more of a number of circumstances exist. The TDB also has broad
enforcement powers over the Bank, including the power to impose orders, remove officers and directors, impose fines and
appoint supervisors and conservators.

Effect on Economic Environment

The policies of regulatory authorities, including the monetary policy of the Federal Reserve, have a significant effect on the
operating results of bank holding companies and their subsidiaries. Among the means available to the Federal Reserve to affect
the money supply are open market operations in U.S. government securities, changes in the discount rate on member bank
borrowings, and changes in reserve requirements against member bank deposits. These means are used in varying combinations
to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid for deposits.

Federal Reserve monetary policies have materially affected the operating results of commercial banks in the past and are
expected to continue to do so in the future. The Company cannot predict the nature of future monetary policies and the effect of
such policies on the business and earnings of it and its subsidiaries.

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ITEM 1A. RISK FACTORS

An investment in the Company’s common stock involves risks. The following is a description of the material risks and
uncertainties that the Company believes affect its business and an investment in the common stock. Additional risks and
uncertainties that the Company is unaware of, or that it currently deems immaterial, also may become important factors that
affect the Company and its business. If any of the risks described in this Annual Report on Form 10-K were to occur, the
Company’s financial condition, results of operations and cash flows could be materially and adversely affected. If this were to
happen, the value of the common stock could decline significantly and you could lose all or part of your investment.

Summarized below are the most significant risks and uncertainties that we believe could adversely affect our business, financial
condition or results of operations. Following this summary, we discuss each risk in greater detail under each risk’s respective
headings, organized by Risks Related to the Company’s Business and Risks Related to an Investment in the Company’s
Common Stock. We also separately discuss how COVID-19 has heightened certain of these risks and any new risks directly
resulting from the pandemic. You should read both the summary and the detailed descriptions of each risk before investing in
the Company’s securities.

RISKS RELATED TO THE COMPANY’S BUSINESS

Operational Risk

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•
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•
•
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•

The Company must effectively manage the need for technological change.
The Company may experience system failure or cybersecurity breaches.
The Company’s success depends significantly on its management team.
The Company is reliant on third party service providers.
The Company is subject to data processing failures, control failures and fraud.
New lines of business or new products and services subject the Company to additional risks.
The Company’s accounting estimates and risk management programs rely on analytical and forecasting models.
The Company is subject to counterparty risk.
The value of the Company’s goodwill could become impaired.

Strategic Risk

•
•
•
•

The Company may not be able to continue to grow.
The Company may not be able to continue its acquisition strategy.
The Company must effectively manage risk associated with its acquisition strategy.
The Company has a geographic concentration in Texas and Colorado.

Credit Risk

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•

The Company must manage credit risk.
The Company has a significant concentration in commercial real estate loans.
The Company has exposure to credit risk related to the energy industry.
The Company’s Allowance for Loan Losses may be insufficient to absorb loan losses.
The adoption of CECL may impact future loan loss provisions.
The Company’s mortgage business subjects the Company to additional risk.

Interest Rate Risk

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•

The Company must manage interest rate risk.
The replacement of LIBOR may subject the Company to additional risk.
The Company could experience losses on its investment securities in volatile rate environments.

Liquidity and Capital Risk

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•

The Company is subject to liquidity risk.
The Company must maintain adequate capital.
The Federal Reserve may require the Company to commit capital resources to support the Bank.

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Legal, Regulatory and Compliance Risk

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•

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•

•

The Company is subject to legal and regulatory risk.
The Company operates in a highly regulated environment and, as a result, is subject to extensive regulation and
supervision.
The Company must devote significant resources to compliance.
The Company is subject to continuous examination.
The Company may be required to pay significantly higher FDIC deposit insurance assessments in the future.
The Company faces a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money
laundering statutes and regulations.
There are substantial regulatory limitations on changes of control of bank holding companies.

Other Risks Affecting Our Business

•

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Volatile market conditions and macro economic trends, including the impact of the COVID-19 pandemic, could
adversely affect the Company.
The Company operates in a competitive environment.
The Company is reliant on deposits as a significant source of funding.
The Company may be adversely impacted by natural disasters, health pandemics, and other local and worldwide
events beyond the Company’s control.
The Company could be subject to environmental risk.

•
• Monetary policies and regulations of the Federal Reserve could adversely affect the Company’s business, financial

condition and results of operations.

RISKS RELATED TO AN INVESTMENT IN THE COMPANY’S COMMON STOCK

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•

•

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The Company’s stock price can be volatile.
The Company is dependent upon the Bank for cash flow, and the Bank’s ability to make cash distributions is restricted.
The Company’s dividend policy may change without notice, and the Company’s future ability to pay dividends is
subject to restrictions.
The Company’s largest shareholder and board of directors have historically, and currently, exert a controlling
influence on the Company.
The Company’s corporate organizational documents and the provisions of Texas law make it more difficult or prevent
an attempted acquisition of the Company that you may favor.
Other debt and equity instruments have priority over the Company’s common stock.
An investment in the Company’s common stock is not an insured deposit.

RISKS RELATED TO THE COVID-19 PANDEMIC

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The pandemic has heightened credit risk.
The pandemic has increased interest rate risk.
The pandemic has heightened operational risk, particularly with respect to cybersecurity.
The pandemic has increased legal and regulatory risk.
The full extent of impact from the pandemic is uncertain.

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RISKS RELATED TO THE COMPANY’S BUSINESS

Operational Risk

The Company must effectively manage the need for technological change.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven
products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables
financial institutions to reduce costs. The Company’s future success will depend in part upon the Company’s ability to address
the needs of the Company’s customers by using technology to provide products and services that will satisfy customer demands
for convenience as well as to create additional efficiencies in the Company’s operations as it continues to grow and expand the
Company’s market area. The Company may experience operational challenges as it implements these new technology
enhancements or products, which could result in the Company not fully realizing the anticipated benefits from such new
technology or require the Company to incur significant costs to remedy any such challenges in a timely manner.

The Company may experience system failure or cybersecurity breaches.

The Company is highly dependent on its computer systems and network infrastructure to conduct its operations, including the
secure processing, storage and transmission of vital and sensitive data, exposing the Company to potential cyber incidents
resulting from deliberate attacks or unintentional events. As a financial institution, the Company processes, stores and transmits
a significant amount of personal customer information. The Company also maintains important internal data such as personally
identifiable information about employees and information relating to the Company’s operations. The Company relies on third-
party service providers for significant portions of its computer systems, network infrastructure and information security, and
failure or misconduct by any of those third parties or their systems could have a material adverse effect on the Company. The
secure maintenance and transmission of confidential information, as well as execution of transactions over the Company’s
computer systems, are essential to protect the Company and its customers against fraud and cybersecurity breaches and for the
Company to maintain customer confidence. The computer systems and network infrastructure the Company uses could fail or
be subject to unforeseen problems. The Company’s operations are dependent upon its ability to protect its computer systems
and network against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as
well as from cybersecurity breaches, cyberattacks, denial of service attacks, viruses, worms, and other unauthorized or hostile
acts which are becoming increasingly diverse and sophisticated. Any action, damage or failure that causes or results in
breakdowns, disruptions, or unauthorized activities in the Company’s computer systems or network infrastructure, including
customer relationship management, general ledger, deposit, loan or other systems, could disrupt the Company’s ability to
properly operate its business, damage the Company’s reputation, result in a loss of customer business, subject the Company to
additional regulatory scrutiny, investigations or fines, violate privacy or other applicable laws or expose the Company to civil
litigation and possible financial liability, any of which could have a material adverse effect on the Company. External or
internal actors could obtain unauthorized access to the Company’s computer systems or network infrastructure or information
stored in and transmitted through the Company’s computer systems and network infrastructure, which may result in the theft or
unauthorized use of personal information, which could cause significant liability to the Company and may cause existing and
potential customers to refrain from doing business with the Company. The pervasiveness of cybersecurity incidents in general
and the risks of cybersecurity breaches are complex and continue to evolve as technology and reliance on these systems
continue to evolve. In addition, advances in computer capabilities and the increased sophistication of fraudsters and hackers
could result in a compromise or breach of the systems the Company and the Company’s third-party service providers use to
encrypt and protect customer data and transactions. A failure or compromise of such security measures could have a material
adverse effect on the Company’s financial condition and results of operations.

As of March 1, 2021, the Company has not discovered any material cybersecurity incidents.

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The Company’s success depends significantly on its management team.

The Company’s success depends significantly on the continued service and skills of the Company’s existing executive
management team. The implementation of the Company’s business and growth strategies also depends significantly on the
Company’s ability to retain officers and employees with experience and business relationships within their respective market
areas. The Company’s ability to attract and retain key employees is dependent upon its compensation and benefits programs,
continued growth and profitability, and reputation for rewarding and promoting qualified employees, as well as having
appropriate levels of diversity and inclusion in its workforce. The cost of employee compensation constitutes a significant
portion of the Company’s non-interest expense and can materially impact results of operations. The Company could have
difficulty replacing departed officers and employees with persons who are experienced in the specialized aspects of the
Company’s business or who have ties to the communities within the Company’s market areas. The unexpected loss of any of
the Company’s key personnel could therefore have an adverse impact on the Company’s business and growth. The Company’s
continued success is dependent upon the ability of its executive management and the development of an appropriate succession
plan for key officers.

The Company is reliant on third party service providers.

The Company depends on a number of relationships with third-party service providers. Specifically, the Company receives core
systems processing, essential web hosting and other Internet systems, cloud technologies, deposit processing and other
processing services from third-party service providers. If these third-party service providers experience difficulties, or terminate
their services, and the Company is unable to replace them with other service providers, particularly on a timely basis, the
Company’s operations could be interrupted. If an interruption were to continue for a significant period of time, the Company’s
business, financial condition and results of operations could be adversely affected, perhaps materially. Even if the Company is
able to replace third party service providers, it may be at a higher cost to the Company, which could adversely affect the
Company’s business, financial condition and results of operations.

The Company is subject to data processing failures, control failures and fraud.

Employee errors and employee and customer fraud or misconduct could subject the Company to financial losses or regulatory
sanctions and seriously harm the Company’s reputation. Misconduct by the Company’s employees could include hiding
unauthorized activities from the Company, improper or unauthorized activities on behalf of the Company’s customers, or
improper use of, or unauthorized access to confidential information. Customers are also subject to financial crimes, including
fraud, wire fraud, and cyber-crimes, which could adversely impact their ability to pay loans or result in a fraudulent removal of
funds from their deposit accounts or other unauthorized activities. It is not always possible to prevent employee errors and
misconduct, or fraudulent and other criminal schemes impacting customers, and the precautions the Company takes to prevent
and detect this activity may not be effective in all cases. Employee errors could also subject the Company to financial claims for
negligence.

The Company maintains a system of internal controls and insurance coverage to mitigate against operational risks, including
data processing system failures and errors, cybersecurity breaches, and employee, customer, or third party fraud. However, if
the Company’s internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds
applicable insurance limits, it could have a material adverse effect on the Company’s business, financial condition and results of
operations.

In addition, the Company relies heavily upon information supplied by third parties, including the information contained in
credit applications, property appraisals, title information, equipment pricing and valuation and employment and income
documentation, in deciding which loans the Company will originate, as well as the terms of those loans. If any of the
information upon which the Company relies is misrepresented, either fraudulently or inadvertently, and the misrepresentation is
not detected prior to asset funding, the value of the asset may be significantly lower than expected, or the Company may fund a
loan that the Company would not have funded or on terms the Company would not have extended. Whether a misrepresentation
is made by the applicant or another third party, the Company generally bears the risk of loss associated with the
misrepresentation. A loan subject to a material misrepresentation is typically unsellable or subject to repurchase if it is sold
prior to detection of the misrepresentation. The sources of the misrepresentations are often difficult to locate, and it is often
difficult to recover any of the monetary losses that the Company may suffer.

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New lines of business or new products and services subject the Company to additional risks.

From time to time, the Company may implement or may acquire new lines of business or offer new products and services
within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in
instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products
and services, the Company may invest significant time and resources. Initial timetables for the introduction and development of
new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove
feasible. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may
also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of
business and/or new product or service could have a significant impact on the effectiveness of the Company’s system of
internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or
new products or services could have a material adverse effect on the Company’s business, financial condition and results of
operations.

The Company’s accounting estimate and risk management programs rely on analytical and forecasting models.

The processes the Company uses to estimate its probable credit losses and to measure the fair value of financial instruments, as
well as the processes used to estimate the effects of changing interest rates and other market measures on the Company’s
financial condition and results of operations, depend upon the use of analytical and forecasting models. These models reflect
assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these
assumptions are accurate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their
implementation.

If the models the Company uses for interest rate risk and asset-liability management are inadequate, the Company may incur
increased or unexpected losses upon changes in market interest rates or other market measures. If the models the Company uses
for determining its probable credit losses are inadequate, the allowance for credit losses may not be sufficient to support future
charge-offs. If the models the Company uses to measure the fair value of financial instruments is inadequate, the fair value of
such financial instruments may fluctuate unexpectedly or may not accurately reflect what the Company could realize upon sale
or settlement of such financial instruments. Any such failure in the Company’s analytical or forecasting models could have a
material adverse effect on the Company’s business, financial condition and results of operations.

The Company is subject to counterparty risk.

Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. The Company
has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the
financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional
customers. Many of these transactions expose the Company to credit risk in the event of a default by a counterparty or
customer. In addition, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be
realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the
Company. Any such losses could have a material adverse effect on the Company.

The value of the Company’s goodwill could become impaired.

Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets that the Company
acquired in connection with the purchase of another financial institution. The Company reviews goodwill for impairment at
least annually, or more frequently if events or changes in circumstances indicate that the carrying value of the asset might be
impaired. Significant and sustained decline in the Company’s stock price and material adverse changes in economic conditions
may result in taking future write downs related to the impairment of goodwill.

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The Company determines impairment by comparing the implied fair value of the reporting unit goodwill with the carrying
amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in the Company’s
results of operations in the periods in which they become known. As of December 31, 2020, we had $1.1 billion of goodwill
and other intangible assets. While the Company has not recorded any such impairment charges since the Company initially
recorded the goodwill, there can be no assurance that the Company’s future evaluations of goodwill will not result in findings
of impairment and related write-downs, which may have a material adverse effect on the Company’s financial condition and
results of operations. Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations
- "Critical Accounting Policies and Estimates" for further discussions of goodwill valuation.

Strategic Risk

The Company may not be able to continue to grow.

To achieve its past levels of growth, the Company has focused on both internal growth and acquisitions. The Company may not
be able to sustain its historical rate of growth or may not be able to grow at all. More specifically, the Company may not be able
to grow earning assets, specifically loans, and the Company may not be able to find suitable acquisition candidates. Various
factors, such as economic conditions and competition, may impede or prohibit loan growth and the completion of acquisitions.
Further, the Company may be unable to attract and retain experienced bankers, which could adversely affect its internal growth.
If the Company is not able to continue its historical levels of growth, it may not be able to maintain its historical earnings
trends. If the Company does not manage the Company’s growth effectively, the Company’s business, financial condition,
results of operations and future prospects could be negatively affected, and the Company may not be able to continue to
implement the Company’s business strategy and successfully conduct the Company’s operations.

The Company may not be able to continue its acquisition strategy.

The Company has been pursuing a growth strategy that includes the acquisition of other financial institutions in target markets.
The Company has completed several acquisitions since 2010, most recently completing the acquisition of Guaranty Bancorp on
January 1, 2019. The Company intends to continue its acquisition strategy. Such an acquisition strategy, involves significant
risks, including the following:

finding suitable markets for expansion;
finding suitable candidates for acquisition;
attracting funding to support additional growth;

•
•
•
• maintaining asset quality;
•
• maintaining adequate regulatory capital.

attracting and retaining qualified management; and

Accordingly, the Company may be unable to find suitable acquisition candidates in the future that fit its acquisition and growth
strategy. In addition, the Company’s previous acquisitions may make it more difficult for investors to evaluate historical trends
in the Company’s financial results and operating performance, as the impact of such acquisitions make it more difficult to
identify organic trends that would be reflected absent such acquisitions. If the Company is unable to continue to grow through
acquisitions, the Company’s business, financial condition, results of operation and future prospects could be negatively
impacted.

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The Company must effectively manage risk associated with its acquisition strategy.

Acquisitions of financial institutions also involve operational risks and uncertainties, and acquired companies may have
unknown or contingent liabilities with no available manner of recourse, exposure to unexpected asset quality problems, key
employee and customer retention problems and other problems that could negatively affect the Company’s organization. The
Company may not be able to complete future acquisitions or, if completed, the Company may not be able to successfully
integrate the operations, management, products and services of the entities that the Company acquires and eliminate
redundancies. Acquisition activities and the integration process may also require significant time and attention from the
Company’s management that they would otherwise direct toward servicing existing business and developing new business.
Further, the integration process could result in the loss of key employees, disruption of the combined entity’s ongoing business,
or inconsistencies in standards, controls, procedures and policies that adversely affect the Company’s ability to maintain
relationships with customers or employees or to achieve the anticipated benefits of the transaction. Failure to successfully
integrate the entities the Company acquires into the Company’s existing operations may increase the Company’s operating
costs significantly and adversely affect the Company’s business and earnings. Acquisitions typically involve the payment of a
premium over book and market values and, therefore, some dilution of the Company’s tangible book value and net income per
common share may occur in connection with any future transaction.

The Company has a geographic concentration in Texas and Colorado.

The Company conducts its operations almost exclusively in Texas and Colorado. This geographic concentration imposes risks
from lack of geographic diversification. The economic conditions in Texas and Colorado affect the Company’s business,
financial condition, results of operations, and future prospects, where adverse economic developments, among other things,
could affect the volume of loan originations, increase the level of nonperforming assets, increase the rate of foreclosure losses
on loans and reduce the value of the Company’s loans and loan servicing portfolio. Moreover, if the population or income
growth in the Company’s market areas is slower than projected, income levels, deposits and housing starts could be adversely
affected and could result in a reduction of the Company’s expansion, growth and profitability. Any regional or local economic
downturn that affects Texas or Colorado, or existing or prospective borrowers or property values in such areas, may affect the
Company and the Company’s profitability more significantly and more adversely than the Company’s competitors whose
operations are less geographically concentrated.

Credit Risk

The Company must manage credit risk.

Making any loan involves risk, including risks inherent in dealing with individual borrowers, risks of nonpayment, risks
resulting from uncertainties as to the future value of collateral and cash flows available to service debt, and risks resulting from
changes in economic and market conditions. The Company’s credit risk approval and monitoring procedures may fail to
identify or reduce these credit risks, and they cannot completely eliminate all credit risks related to the Company’s loan
portfolio. The Company faces a variety of risk related to its types of loans. Adverse developments affecting commercial real
estate values in the Company’s market areas could increase the credit risk associated with commercial real estate loans, impair
the value of the property pledged as collateral for these loans, and affect the Company’s ability to sell the collateral upon
foreclosure without a loss. Further, due to the larger average size of commercial real estate loans, the Company faces risk that
losses incurred on a small number of commercial real estate loans could have a material adverse effect on the Company’s
financial condition and results of operations. The Company’s commercial real estate loans also have the risk that repayment is
subject to the ongoing business operations of the borrower. The Company’s commercial loans also have the risk that repayment
is subject to the ongoing business operations of the borrower. Commercial loans are often secured by personal property, such as
inventory, and intangible property, such as accounts receivable, which if the business is unsuccessful, typically have values
insufficient to satisfy the loan without a loss. If the overall economic climate in the United States, generally, or the Company’s
market areas in Texas and Colorado, specifically, experience material disruption, the Company’s borrowers may experience
difficulties in repaying their loans, the collateral the Company holds may decrease in value or become illiquid, and the level of
nonperforming loans, charge-offs and delinquencies could rise and require additional provisions for loan losses, which would
cause the Company’s net income and return on equity to decrease.

23

The Company has a significant concentration in commercial real estate loans.

As of December 31, 2020, approximately 51% of the Company’s loan portfolio was comprised of loans with real estate as a
primary or secondary component of collateral, excluding agricultural loans secured by real estate. As a result, adverse
developments affecting real estate values in the Company’s market areas could increase the credit risk associated with the
Company’s real estate loan portfolio. The market value of real estate can fluctuate significantly in a short period of time as a
result of market conditions in the area in which the real estate is located. Adverse changes affecting real estate values and the
liquidity of real estate in one or more of the Company’s markets could increase the credit risk associated with the Company’s
loan portfolio, and could result in losses that would adversely affect credit quality, financial condition, and results of operation.
Negative changes in the economy affecting real estate values and liquidity in the Company’s market areas could significantly
impair the value of property pledged as collateral on loans and affect the Company’s ability to sell the collateral upon
foreclosure without a loss or additional losses. Collateral may have to be sold for less than the outstanding balance of the loan,
which could result in losses on such loans. Such declines and losses would have a material adverse impact on the Company’s
business, results of operations and growth prospects. If real estate values decline, it is also more likely that the Company would
be required to increase the Company’s allowance for loan losses, which could adversely affect the Company’s financial
condition, results of operations and cash flows.

The Company has exposure to credit risk related to the energy industry.

As of December 31, 2020, approximately 1.8% of the Company’s loan portfolio was composed of loans made to companies
engaged in oil production and oilfield services. The significant decline in oil prices during 2020 adversely effected some of
these borrowers’ ability to repay these loans and impaired the value of collateral securing some of these loans. Further, because
energy is a material segment of the overall Texas economy, the decline and volatility in oil prices could have an impact on other
segments of the Texas economy, including real estate. The Houston market economy in particular could be adversely affected.
The Company’s asset quality and results of operations could be adversely impacted by the direct and indirect effects of current
and future conditions in the Texas energy industry.

The Company’s Allowance for Loan Losses may be insufficient to absorb losses.

The Company establishes its allowance for loan losses and maintains it at a level considered adequate by management to absorb
probable loan losses based on the Company’s analysis of its portfolio and market environment. The allowance for loan losses
represents the Company’s estimate of probable losses in the portfolio at each balance sheet date and is based upon relevant
information available to the Company. The allowance contains provisions for probable losses that have been identified relating
to specific borrowing relationships, as well as probable losses inherent in the loan portfolio and credit undertakings that are not
specifically identified. Additions to the allowance for loan losses, which are charged to earnings through the provision for loan
losses, are determined based on a variety of factors, including an analysis of the loan portfolio, historical loss experience and an
evaluation of current economic conditions in the Company’s market areas. The actual amount of loan losses is affected by
changes in economic, operating and other conditions within the Company’s markets, as well as changes in the financial
condition, cash flows, and operations of the Company’s borrowers, all of which are beyond the Company’s control, and such
losses may exceed current estimates.

As of December 31, 2020, the Company’s allowance for loan losses as a percentage of total loans was 0.76% and as a
percentage of total nonperforming loans was 170.80%. Additional loan losses will likely occur in the future and may occur at a
rate greater than the Company has previously experienced. The Company may be required to take additional provisions for loan
losses in the future to further supplement the allowance for loan losses, either due to management’s decision to do so or
requirements by the Company’s banking regulators. In addition, bank regulatory agencies will periodically review the
Company’s allowance for loan losses and the value attributed to nonaccrual loans or to real estate acquired through foreclosure.
Such regulatory agencies may require the Company to recognize future charge-offs. If the assessment of loan losses is
inaccurate, or if economic and market conditions experience material unanticipated changes, including as a result of the
COVID-19 pandemic, then the Company will need to make provisions to increase the allowance, which will adversely impact
earnings. See also Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations -
Provision for Loan Losses for additional discussion of financial impact of the allowance for loan losses. These adjustments may
adversely affect the Company’s business, financial condition and results of operations.

24

The adoption of CECL may impact future loan loss provisions.

As discussed under Item 1,Business - "Supervision and Regulation-Regulation of the Bank", the Bank adopted CECL effective
January 1, 2021. As a result of the implementation of CECL, the Company has implemented controls and procedures to
measure and estimate the lifetime expected credit loss at the time a financial asset is initially added to the balance sheet and
periodically thereafter.

The Company has determined that the implementation of CECL will result in an increase in its combined allowance for loan
losses and reserves for unfunded commitments (the "ALLL"). The Company’s current estimate of the range of expected
increase in the ALLL resulting from the implementation of CECL is further discussed at "Part IV Item 15, Exhibits and
Financial Statements - Note 2, Recent Accounting Pronouncements - ASU 2016-13, Financial Instruments-Credit Losses
(Topic 326: Measurement of Credit Losses on Financial Instruments”. The ultimate impact of the implementation of CECL
could differ from the expectation.

The impact of CECL in future periods will be significantly influenced by the composition, characteristics and quality of the
Company’s loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Should these factors materially
change, the Company may be required to increase or decrease its allowance for credit losses, decreasing or increasing the
Company’s reported income, and introducing additional volatility into its reported earnings. In addition, CECL requires the
application of greater management judgment that is supported by new models and more data elements than the previous
allowance standard. The Company’s adoption of the CECL model is expected to increase the complexity, and associated risk,
of the analysis and processes relying on management judgment, which could negatively impact the Company’s financial
condition and results of operations.

The Company’s mortgage business subjects the Company to additional risk.

The Company originates and sells residential mortgage loans through the Bank’s mortgage division and purchases and sells
residential mortgages through its mortgage warehouse business. As of December 31, 2020, mortgage warehouse purchase loans
totaled $1.5 billion, or 11.1% of total loans held for investment, which represents a significant increase in this line of business.
Mortgage lending and mortgage warehouse purchase lending include credit risk associated with commercial bank lending. This
line of business is also subject to market volatility, changes in interest rates, volume volatility and changing appetite of
investors for certain mortgage products.

Through its mortgage warehouse business, the Company provides guidance lines of credit to mortgage companies that originate
and sell residential mortgages. As part of this process, the Bank funds and purchases the mortgage at closing, the mortgage
company sells the mortgage to an institutional buyer, and the proceeds from that sale are the primary source of repurchase of
the mortgage from the Bank. This process exposes the Bank to market and interest rate risk in the event that the mortgage is not
sold. The Bank is also subject to risk of fraud by mortgage company employees and customers. While the Company has
insurance against fraud in the mortgage process, fraud loss in excess of insurance limits or which is not covered by insurance
could have an adverse effect on the Company’s business, financial condition and results of operation.

The Company has entered into loan purchase commitments and forward sales commitments to mitigate the interest rate risk
related to mortgage origination activities. While the Company believes that its hedging strategies will be successful in
mitigating exposure to interest rate risk associated with the origination and purchase of mortgage loans, no hedging strategy can
completely mitigate risk. Poorly designed strategies, improperly executed transactions, or inaccurate assumptions regarding
future interest rates or market conditions could have a material adverse effect on the Company’s financial condition and results
of operations.

Mortgage lending and mortgage warehouse purchase lending is subject to counterparty risk. The Company is from time to time
required to hold or repurchase mortgage loans or reimburse investors as a result of breaches in contractual representations and
warranties under the agreements pursuant to which it purchases and sells mortgage loans. While agreements with the originators
and sellers of mortgage loans provide legal recourse that may allow the Company to recover some or all of losses, these
companies are frequently not financially capable of paying large amounts of damages and as a result the Company can offer no
assurance that it will not suffer loss as a result of these arrangements.

25

The Company may incur other costs and losses as a result of actual or alleged violations of regulations related to the origination
and purchase of residential mortgage loans. The origination of residential mortgage loans is governed by a variety of federal
and state laws and regulations, which are frequently changing. The Company sells residential mortgage loans that it has
purchased or that it originated to various parties, including Ginnie Mae and GSEs such as Fannie Mae or Freddie Mac and other
financial institutions that purchase mortgage loans for investment or private label securitization. These types of costs and losses
arising from the Company’s mortgage business would negatively impact the Company’s business, financial condition and
results of operation.

Interest Rate Risk

The Company must manage interest rate risk.

The majority of the Company’s banking assets are monetary in nature and subject to risk from changes in interest rates. Like
most financial institutions, the Company’s earnings are significantly dependent on the Company’s net interest income, the
principal component of the Company’s earnings, which is the difference between interest earned by the Company from the
Company’s interest-earning assets, such as loans and investment securities, and interest paid by the Company on the
Company’s interest-bearing liabilities, such as deposits and borrowings. The Company expects that it will periodically
experience “gaps” in the interest rate sensitivities of the Company’s assets and liabilities, meaning that either its interest-bearing
liabilities will be more sensitive to changes in market interest rates than the Company’s interest-earning assets, or vice versa. In
either event, if market interest rates should move contrary to the Company’s position, this “gap” will negatively impact the
Company’s earnings. The impact on earnings is more adverse when the slope of the yield curve flattens, that is, when short-
term interest rates increase more than long-term interest rates or when long-term interest rates decrease more than short-term
interest rates. Many factors impact interest rates, including governmental monetary policies, inflation, recession, changes in
unemployment, the money supply, and international disorder and instability in domestic and foreign financial markets.

Interest rate increases often result in larger payment requirements for the Company’s borrowers, which increase the potential
for default. At the same time, the marketability of the property securing a loan may be adversely affected by any reduced
demand resulting from higher interest rates. In a declining interest rate environment, there may be an increase in prepayments
on loans as borrowers refinance their loans at lower rates.

Changes in interest rates also can affect the value of loans, securities and other assets. An increase in interest rates that
adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming
assets and a reduction of income recognized, which could have a material adverse effect on the Company’s results of operations
and cash flows. Further, when the Company places a loan on nonaccrual status, the Company reverses any accrued but unpaid
interest receivable, which decreases interest income. At the same time, the Company continues to have a cost to fund the loan,
which is reflected as interest expense, without any interest income to offset the associated funding expense. Thus, an increase in
the amount of nonperforming assets would have an adverse impact on net interest income.

If short-term interest rates remain at their historically low levels for a prolonged period, and assuming longer term interest rates
fall further, the Company could experience net interest margin compression as the Company’s interest earning assets would
continue to reprice downward while the Company’s interest-bearing liability rates could fail to decline in tandem. Such an
occurrence would have a material adverse effect on the Company’s net interest income and the Company’s results of
operations.

26

The replacement of LIBOR may subject the Company to additional risk.

In 2017, the U.K. Financial Conduct Authority announced that it would no longer compel banks to submit rates for the
calculation of LIBOR after 2021. The administrator of LIBOR has proposed to extend publication of the most commonly used
U.S. Dollar LIBOR settings to June 23, 2023 and to cease publishing other LIBOR settings on December 31, 2021. The U.S.
federal banking agencies have issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as
a reference rate in new contracts as soon as practicable, and in any event, by December 31, 2021.It is not possible to predict
whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, use LIBOR as a reference rate or
what rate will be viewed as an acceptable reference rate. Although the Company has established a working group to address the
LIBOR transition, the full extent of impact of these developments on the Company’s business and financial results is not yet
known. The transition from LIBOR may cause the Company to incur increased costs and additional risk. Uncertainty as to the
nature of alternative reference rates and as to potential changes in or other reforms to LIBOR may adversely affect LIBOR rates
and the value of LIBOR-based loans originated prior to 2021. If LIBOR rates are no longer available, any successor or
replacement interest rates may perform differently, which may affect net interest income, change market risk profile and require
changes to risk, pricing and hedging strategies. Any failure to adequately manage this transition could adversely affect impact
the Company’s reputation.

The Company could experience losses on its investment securities in volatile rate environments.

While the Company attempts to invest a significant percentage of its assets in loans (the Company’s loan to deposit ratio was
90.8% as of December 31, 2020), the Company invests a percentage of its total assets (approximately 6.5% as of December 31,
2020) in investment securities as part of its overall liquidity strategy. As of December 31, 2020, the fair value of the Company’s
securities portfolio was approximately $1.2 billion.

Factors beyond the Company’s control can significantly influence the fair value of securities in its portfolio and can cause
potential adverse changes to the fair value of these securities. For example, fixed-rate securities are generally subject to
decreases in market value when market interest rates rise. Additional factors include, but are not limited to, rating agency
downgrades of the securities, defaults by the issuer or individual borrowers with respect to the underlying securities, and
continued instability in the credit markets. Any of the foregoing factors could cause an other-than-temporary impairment in
future periods and result in realized losses. The process for determining whether impairment is other-than-temporary usually
requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the
security in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of
changing economic and market conditions affecting market interest rates, the financial condition of issuers of the securities and
the performance of the underlying collateral, the Company may recognize realized and/or unrealized losses in future periods,
which could have an adverse effect on the Company’s financial condition and results of operations.

Liquidity and Capital Risk

The Company is subject to liquidity risk.

Liquidity is essential to the Company’s business. The Company relies on its ability to generate deposits and effectively manage
the repayment and maturity schedules of the Company’s loans and investment securities, respectively, to ensure that the
Company has adequate liquidity to fund the Company’s operations. An inability to raise funds through deposits, borrowings,
the sale of the Company’s investment securities, Federal Home Loan Bank advances, the sale of loans, and other sources could
have a substantial negative effect on the Company’s liquidity. The Company’s most important source of funds consists of
deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk/return
tradeoff. If customers move money out of bank deposits and into other investments, the Company would lose a relatively low-
cost source of funds, increasing the Company’s funding costs and reducing the Company’s net interest income and net income.

Other primary sources of funds consist of cash flows from operations, investment maturities and sales of investment securities,
and proceeds from the issuance and sale of the Company’s equity and debt securities to investors. Additional liquidity is
provided by the ability to borrow from the Federal Reserve Bank and the Federal Home Loan Bank. The Company also may
borrow funds from third-party lenders, such as other financial institutions. The Company’s access to funding sources in
amounts adequate to finance or capitalize the Company’s activities, or on terms that are acceptable to the Company, could be
impaired by factors that affect the Company directly or the financial services industry or economy in general, such as
disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.

27

Any decline in available funding could adversely impact the Company’s ability to originate loans, invest in securities, meet the
Company’s expenses, pay dividends to the Company’s shareholders, or to fulfill obligations such as repaying the Company’s
borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on the Company’s
liquidity, business, financial condition and results of operations.

The Company must maintain adequate capital.

The Company faces significant capital and other regulatory requirements as a financial institution. The Company may need to
raise additional capital in the future to provide the Company with sufficient capital resources and liquidity to meet the
Company’s commitments and business needs, which could include the possibility of financing acquisitions. In addition, the
Company, on a consolidated basis, and the Bank, on a stand-alone basis, must meet certain regulatory capital requirements and
maintain sufficient liquidity. The Company faces significant capital and other regulatory requirements as a financial institution.
The Company’s ability to raise additional capital depends on conditions in the capital markets, economic conditions and a
number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental
activities, and on the Company’s financial condition and performance. In the future, the Company may not be able to raise
additional capital if needed or on terms acceptable to the Company. If the Company fails to maintain capital to meet regulatory
requirements, the Company’s financial condition, liquidity and results of operations would be materially and adversely affected.

The Federal Reserve may require the Company to commit capital resources to support the Bank.

The Federal Reserve, which examines the Company and the Bank, requires a bank holding company to act as a source of
financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank. Under the
“source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections into a
troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for failure
to commit resources to such a subsidiary bank. In addition, the Dodd-Frank Act directs the federal bank regulators to require
that all companies that directly or indirectly control an insured depository institution serve as a source of strength for the
institution. Under these requirements, in the future, the Company could be required to provide financial assistance to the Bank
if it experiences financial distress.

A capital injection may be required at times when the Company does not have the resources to provide it, and therefore the
Company may be required to borrow the funds. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee
will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of
payment over the claims of the holding company’s general unsecured creditors, including the holders of its note obligations.
Thus, any borrowing that must be done by the holding company in order to make the required capital injection becomes more
difficult and expensive and will adversely impact the holding company’s cash flows, financial condition, results of operations
and prospects.

Legal, Regulatory and Compliance Risk

The Company is subject to legal and regulatory risk.

The Company, like all financial institutions, has been and may in the future become involved in legal and regulatory
proceedings. Litigation arises in a variety of contexts, including lending and deposit operations, intellectual property claims
related to the technology used in business operations, employment practices, operating activities, fiduciary responsibilities, and
other general business matters. The Company considers most of these proceedings to be in the normal course of business or
typical for the industry. However, it is inherently difficult to assess the outcome of these matters. Any material legal or
regulatory proceeding could impose substantial cost and cause management to divert its attention from the Company’s business
and operations. Any adverse determination in a legal or regulatory proceeding could have a material adverse effect on the
Company’s business, financial condition and results of operations. See Item 3, Legal Proceedings for a description of a legal
proceeding which could have a material adverse effect on the Company’s financial condition.

28

The Company operates in a highly regulated environment and, as a result, is subject to extensive regulation and supervision.

The Company and the Bank are subject to extensive federal and state regulation and supervision. Banking regulations are
primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not the
Company’s shareholders. These regulations affect the Company’s lending practices, capital structure, investment practices,
dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws,
regulations and policies for possible changes. Any change in applicable regulations or federal or state legislation could have a
substantial impact on the Company, The Bank and their respective operations.

The Dodd-Frank Act, enacted in July 2010, instituted major changes to the banking and financial institutions regulatory regimes
in light of the recent performance of and government intervention in the financial services sector. Additional legislation and
regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies,
could significantly affect the Company’s powers, authority and operations, or the powers, authority and operations of the Bank
in substantial and unpredictable ways. The Dodd-Frank Act created the Consumer Financial Protection Bureau, or the CFPB,
with broad powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority, including
the authority to prohibit unfair, deceptive, and abusive acts and practices. These rules may result in increased regulatory
compliance costs and subject the Company to increased potential liabilities related to its consumer banking business and
residential mortgage lending activities.

Regulators have significant discretion and power to prevent or remedy unsafe or unsound practices or violations of laws by
banks and bank holding companies in the performance of their supervisory and enforcement duties. The exercise of this
regulatory discretion and power could have a negative impact on the Company. Failure to comply with laws, regulations or
policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a
material adverse effect on the Company’s business, financial condition and results of operations.

The Company must devote significant resources to compliance.

Various federal banking laws and regulations, including rules adopted by the Federal Reserve Board pursuant to the
requirements of the Dodd-Frank Act, impose heightened requirements on certain large banks and bank holding companies.
Most of these rules apply primarily to bank holding companies with at least $50 billion in total consolidated assets, but certain
rules also apply to banks and bank holding companies with at least $10 billion in total consolidated assets.

The Company and the Bank exceeded $10 billion in total consolidated assets (a) calculates FDIC deposits assessment base
using a performance score and loss-severity score system; and (b) is subject to supervision and enforcement by the CFPB in
connection with compliance with federal consumer protection laws.

In addition, the Company and the Bank is subject to the Durbin Amendment to the Dodd-Frank Act regarding limits on debit
card interchange fees. The Durbin Amendment gives the Federal Reserve Board the authority to establish rules regarding
interchange fees charged for electronic debit transactions by a payment card issuer that, together with its affiliates, has assets of
$10 billion or more and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost
of a transaction to the issuer. The Federal Reserve Board has adopted rules under this provision that limit the swipe fees that a
debit card issuer can charge a merchant for a transaction to the sum of 21 cents and five basis points times the value of the
transaction, plus up to one cent for fraud prevention costs. Accordingly, deposit insurance assessments and expenses related to
regulatory compliance may increase, while any decrease in the amount of interchange fees that the Company receives would
reduce the Company’s revenue.

The imposition of these regulatory requirements and increased supervision has and will continue to require commitment of
additional financial resources for regulatory compliance, which has increased the Company’s cost of operations, and has and
will continue to otherwise have an impact on the Company’s financial condition and results of operations.

29

The Company is subject to continuous examination.

Texas and federal banking agencies periodically conduct examinations of the Company’s business, including compliance with
laws and regulations. If, as a result of an examination, a Texas or federal banking agency were to determine that the financial
condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of the Company’s
operations had become unsatisfactory, or that the Company or its management was in violation of any law or regulation, it may
take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or
unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an
administrative order that can be judicially enforced, to direct an increase in the Company’s capital, to restrict the Company’s
growth, to assess civil monetary penalties against the Bank, the Company’s officers or directors, to remove officers and
directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to
terminate the Company’s deposit insurance. If the Company becomes subject to such regulatory actions, the Company could be
materially and adversely affected.

The Company may be required to pay significantly higher FDIC deposit insurance assessments in the future.

Previous economic conditions and the Dodd-Frank Act caused the FDIC to increase deposit insurance assessments and may
result in increased assessments in the future. On February 7, 2011, the FDIC approved a final rule that amended the Deposit
Insurance Fund restoration plan and implemented certain provisions of the Dodd-Frank Act. Effective April 1, 2011, the
assessment base is determined using average consolidated total assets minus average tangible equity rather than the previous
assessment base of adjusted domestic deposits. The final rule also provides the FDIC’s board with the flexibility to adopt actual
rates that are higher or lower than the total base assessment rates adopted on February 7, 2011 without notice and comment, if
certain conditions are met. An increase in the assessment rates could materially and adversely affect the Company.

The Company faces a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money
laundering statutes and regulations.

The federal Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001, or Patriot Act, and other laws and regulations require financial institutions, among other
duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction
reports as appropriate. The federal Financial Crimes Enforcement Network, established by the Treasury to administer the Bank
Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has recently
engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of
Justice, Drug Enforcement Administration and Internal Revenue Service. There is also increased scrutiny of compliance with
the rules enforced by the Office of Foreign Assets Control. If the Company’s policies, procedures and systems are deemed
deficient or the policies, procedures and systems of the financial institutions that the Company has already acquired or may
acquire in the future are deficient, the Company would be subject to liability, including fines and regulatory actions such as
restrictions on the Company’s ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain
aspects of the Company’s business plan (including the Company’s acquisition plans), which would negatively impact the
Company’s business, financial condition and results of operations. Failure to maintain and implement adequate programs to
combat money laundering and terrorist financing could also have serious reputational consequences for the Company.

There are substantial regulatory limitations on changes of control of bank holding companies.

With certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in
concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of
the Company’s voting stock or obtaining the ability to control in any manner the election of a majority of the Company’s
directors or otherwise direct the management or policies of the Company without prior notice or application to and the approval
of the Federal Reserve. Accordingly, prospective investors need to be aware of and comply with these requirements, if
applicable, in connection with any such purchase of shares of the Company’s common stock. These provisions effectively
inhibit certain mergers or other business combinations, which, in turn, could adversely affect the market price of the Company’s
common stock.

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Other Risks Affecting Our Business

Volatile market conditions and macro economic trends, including the impact of the COVID-19 pandemic, could adversely affect
the Company.

The Company is operating in a dynamic and challenging economic environment, including uncertain global, national and local
market conditions. In particular, Texas and Colorado based financial institutions are affected by volatility in the energy markets
and the potential impact of that volatility on real estate and other markets. The Company is also subject to uncertain interest rate
conditions. These volatile economic conditions could adversely affect borrowers and their businesses as well as the value of
collateral (particularly real estate collateral) securing loans, which could adversely affect the Company’s business, financial
condition and results of operation.

Furthermore, as more fully discussed above under Item 1, Business - COVID Impact & Response and below under Risks
Related to the COVID-19 Pandemic, the pandemic has created increased market volatility and impacted the Company’s
business, financial condition and operations in a number of ways. If the COVID-19 pandemic continues to impact national,
state, and local economies, the Company could experience credit and operating losses.

The Company operates in a competitive environment.

The Company conducts its operations almost exclusively in Texas and Colorado. Many of the Company’s competitors offer the
same, or a wider variety of, banking services within the Company’s market areas. These competitors include banks with
nationwide operations, regional banks and other community banks. The Company also faces competition from many other types
of financial institutions, including savings and loan institutions, finance companies, brokerage firms, insurance companies,
credit unions, mortgage banks and other financial intermediaries. In addition, a number of out-of-state financial intermediaries
have opened production offices, or otherwise solicit deposits, in the Company’s market areas. Furthermore, many of the
Company’s larger competitors have substantially greater resources to invest in technological improvement, resulting in
additional or superior product offerings not offered by the Company. Also, the rise of “FinTech” entities presents an additional
group of competitors which provide financial services through new electronic delivery systems. The Company’s ability to
successfully compete will depend on a number of factors, including its ability to maintain long-term customer relationships and
customer satisfaction with the Company’s products and services, the scope, relevance and pricing of the products and services
the Company offers, industry and general economic trends, and the Company’s ability to keep pace with technological
advances and to invest in new technology. Ultimately, the Company may not be able to compete successfully against current
and future competitors. If the Company is unable to attract and retain banking customers, the Company may be unable to
continue to grow its loan and deposit portfolios, or may be required to increase the rates the Company pays on deposits or lower
the rates it offers on loans, which could reduce the Company’s profitability. Failure to successfully keep pace with
technological change affecting the financial services industry could have a negative effect on the Company’s business, financial
condition and results of operations.

The Company is reliant on deposits as a significant source of funding.

The Company relies on customer deposits as a significant source of funding. Competition among U.S. banks for customer
deposits is intense, and may increase the cost of deposits or prevent new deposits, and may otherwise negatively affect the
Company’s ability to grow its deposit base. The Company’s deposit accounts may decrease in the future, and any such decrease
could have an adverse impact on the Company’s sources of funding, which impact could be material. Any changes the
Company makes to the rates offered on its deposit products to remain competitive with other financial institutions may
adversely affect the Company’s profitability and liquidity. The demand for the deposit products the Company offers may also
be reduced due to a variety of factors, such as digital banking technology, demographic patterns, changes in customer
preferences, reductions in consumers’ disposable income, regulatory actions that decrease customer access to particular
products or the availability of competing products. In addition, a portion of the Company’s deposits are brokered deposits and
FDIC uninsured deposits. The levels of these types of deposits that the Company holds may be more volatile during changing
economic conditions. As of December 31, 2020, approximately $1.5 billion, or 10.56%, of the Company’s deposits consisted of
brokered deposits.

31

The Company may be adversely impacted by natural disasters, health pandemics, and other local and worldwide events beyond
the Company’s control.

Natural disasters, health pandemics, severe weather events, including those prominent in Texas and Colorado and those
prominent in the geographic areas of vendors and business partners, together with worldwide hostilities, including terrorist
attacks, and other external events could have a significant impact on the Company’s ability to conduct business. These events
could also affect the stability of the Company’s deposit base, borrowers’ ability to repay loans, impair collateral, result in a loss
of revenue or an increase in expenses. Although the Company has established disaster recovery and business continuity
procedures and plans, the occurrence of any such event may adversely affect the Company’s business, which in turn could have
a material adverse effect on the Company’s financial condition and results of operations.

Hurricanes, tornadoes, wildfires, earthquakes and other natural disasters and severe weather events have caused, and in the
future may cause, widespread property damage and significantly and negatively affect the local economies in which the
Company operates. The effect of catastrophic weather events if they were to occur, could have a materially adverse impact on
the Company’s financial condition, results of operations and business, as well as potentially increase the Company’s exposure
to credit losses and liquidity risks.

The Company could be subject to environmental risks.

The Company is subject to growing risk from climate change. Among the risks associated with climate change are more
frequent severe weather events. As discussed in the previous factors, severe weather events subject the Company to significant
risks and more frequent severe weather events magnify those risks. Actions to address climate change, such as efforts to reduce
reliance on fossil fuels and green energy initiatives, could have a significant impact on the Texas economy, in particular. While
the Texas economy is more diversified than in the past and energy companies are working to adapt to climate change initiatives,
the oil and gas industry has had, and continues to have, a significant impact on the overall Texas economy. Further, banking
regulators are beginning to consider the risk presented by climate change on the financial system and may pass new regulations,
such as climate related stress testing, to address this risk. The potential losses and costs associated with climate change related
risks could have a material adverse effect upon the Company’s business, financial condition and results of operation.

In addition, a significant portion of the Company’s loan portfolio is secured by real property. During the ordinary course of
business, the Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that
hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Company may
be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require the
Company to incur substantial expenses and may materially reduce the affected property’s value or limit the Company’s ability
to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with
respect to existing laws may increase the Company’s exposure to environmental liability. Although the Company has policies
and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may
not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities
associated with an environmental hazard could have a material adverse effect on the Company’s financial condition and results
of operations.

Monetary policies and regulations of the Federal Reserve could adversely affect the Company’s business, financial condition
and results of operations.

In addition to being affected by general economic conditions, the Company’s earnings and growth are affected by the policies
of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions.
Among the instruments used by the Federal Reserve to implement these objectives are open market operations in U.S.
government securities, adjustments of the discount rate and changes in reserve requirements against bank deposits. These
instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans,
investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the future. The Company cannot predict the effects of
such policies upon the Company’s business, financial condition and results of operations.

32

RISKS RELATED TO AN INVESTMENT IN THE COMPANY’S COMMON STOCK

The Company’s stock price can be volatile.

Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find
attractive. The Company’s stock price can fluctuate significantly in response to a variety of factors including, among other
things:

•
•
•
•
•
•
•
•
•
•

actual or anticipated variations in quarterly results of operations;
recommendations by securities analysts;
operating and stock price performance of other companies that investors deem comparable to the Company;
new reports relating to trends, concerns and other issues in the financial services industry;
perceptions in the marketplace regarding the Company and/or its competitors;
new technology used, or services offered, by competitors;
significant acquisitions or business combinations involving the Company or its competitors;
the public float and trading volumes for the Company’s common stock;
changes in government regulations, including tax laws; and
volatility in economic conditions, including changes in interest rates, disruption in energy markets and changes in
the global economy.

In addition, although the Company’s common stock is listed for trading on the Nasdaq Global Select Market, the trading
volume of the Company’s common stock is less than that of other, larger financial institutions. Given the lower trading volume,
significant sales of Company common stock, or the expectation of such sales, could cause the stock price to fall.

The Company is dependent upon the Bank for cash flow, and the Bank’s ability to make cash distributions is restricted.

The Company’s primary tangible asset is the Bank. As such, the Company depends upon the Bank for cash distributions
(through dividends on the Bank’s stock) that the Company uses to pay the Company’s operating expenses, satisfy the
Company’s obligations (including the Company’s senior indebtedness, subordinated debentures, and junior subordinated
indebtedness issued in connection with trust preferred securities), and to pay dividends on the Company’s common stock. There
are numerous laws and banking regulations that limit the Bank’s ability to pay dividends to the Company. If the Bank is unable
to pay dividends to the Company, the Company will not be able to satisfy the Company’s obligations or pay dividends on the
Company’s common stock. Federal and state statutes and regulations restrict the Bank’s ability to make cash distributions to the
Company. These statutes and regulations require, among other things, that the Bank maintain certain levels of capital in order to
pay a dividend. Further, state and federal banking authorities have the ability to restrict the payment of dividends by
supervisory action.

The Company’s dividend policy may change without notice, and the Company’s future ability to pay dividends is subject to
restrictions.

The Company may change its dividend policy at any time without notice to the Company’s shareholders. Holders of the
Company’s common stock are entitled to receive only such dividends as the Company’s board of directors may declare out of
funds legally available for such payments. Any declaration and payment of dividends on common stock will depend upon the
Company’s earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate,
the Company’s ability to service any equity or debt obligations senior to the common stock and other factors deemed relevant
by its board of directors. Furthermore, consistent with the Company’s strategic plans, growth initiatives, capital availability,
projected liquidity needs, and other factors, the Company has made, and will continue to make, capital management decisions
and policies that could adversely impact the amount of dividends, if any, paid to the Company’s common shareholders.

The Federal Reserve has indicated that bank holding companies should carefully review their dividend policy in relation to the
organization’s overall asset quality, level of current and prospective earnings and level, composition and quality of capital. The
guidance provides that the Company inform and consult with the Federal Reserve prior to declaring and paying a dividend that
exceeds earnings for the period for which the dividend is being paid or that could result in an adverse change to the Company’s
capital structure, including interest on senior debt, subordinated debt and the subordinated debentures underlying the
Company’s trust preferred securities. If required payments on the Company’s outstanding senior debt, subordinated debt and
junior subordinated debentures, held by its unconsolidated subsidiary trusts, are not made or are suspended, the Company
would be prohibited from paying dividends on its common stock.

33

The Company’s largest shareholder and board of directors have historically, and currently, exert a controlling influence on the
Company.

Collectively, as of February 25, 2021, Messrs. Vincent Viola and David Brooks owned 11.9% of the Company’s outstanding
common stock on a fully diluted basis. Vincent Viola, the largest shareholder of the Company, currently owns 10.3% of the
Company’s outstanding common stock, and David Brooks, the Company’s Chairman of the Board and Chief Executive Officer,
currently owns 1.6% of the Company’s common stock, each calculated on a fully diluted basis. Further, as of the date hereof,
the Company’s other directors and executive officers currently own collectively approximately 1.9% of the Company’s
outstanding common stock. These individuals have historically, and currently, exert controlling influence in the Company’s
management and policies.

In addition, Michael Viola, a director of the Company, is the son of Vincent Viola. Further, David Brooks, the Company’s
Chairman and Chief Executive Officer, has a 33 year history of ownership and operation of the Bank with Vincent Viola; and
he has a joint investment with Mr. Viola outside of the Company. Given these close relationships, even though he does not
serve on the Company’s board, Mr. Viola has and will continue to have an influence over the direction and operation of the
Company.

The Company’s corporate organizational documents and the provisions of Texas law make more difficult or prevent an
attempted acquisition of the Company that you may favor.

The Company’s certificate of formation and bylaws contain various provisions that could have an anti-takeover effect and may
delay, discourage or prevent an attempted acquisition or change in control of the Company. These provisions include the
following:

•
•
•

•

staggered terms for directors;
a provision that directors cannot be removed except for cause;
a provision that any special meeting of the Company’s shareholders may be called only by a majority of the
Company’s board of directors, the Chairman or a holder or group of holders of at least 20% of the Company’s
shares entitled to vote at such special meeting; and
a provision establishing certain advance notice procedures for nomination of candidates for election as directors
and for shareholder proposals to be considered only at an annual or special meeting of shareholders.

The Company’s certificate of formation provides for noncumulative voting for directors and authorizes the board of directors to
issue shares of its preferred stock without shareholder approval and upon such terms as the board of directors may determine.
The issuance of the Company’s preferred stock, while providing desirable flexibility in connection with possible acquisitions,
financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a controlling interest in the Company. In addition, certain provisions of Texas law,
including a requirement that two-thirds of the shares outstanding must approve major corporate actions, such as an amendment
to the Company’s certificate of formation or the approval of a merger, and a provision which restricts certain business
combinations between a Texas corporation and certain affiliated shareholders, may delay, discourage or prevent an attempted
acquisition or change in control of the Company. Also, the Company’s certificate of formation prohibits shareholder action by
written consent.

Other debt and equity instruments have priority over the Company’s common stock.

In the event of any winding up and termination of the Company, the Company common stock would rank below all claims of
the holders of the Company’s debt and any preferred stock then outstanding. The Company has a senior, revolving credit
facility under which the Company may borrow up to $100 million. As of December 31, 2020, the Company had $6.5 million
drawn upon this credit facility, which was subsequently paid down and has no borrowings as of March 1, 2021. Further, as of
December 31, 2020, the Company had outstanding

•
•

$310 million of aggregate principal amount of subordinated indebtedness; and
$57.3 million of subordinated debentures issued in connection with trust preferred securities

34

Upon the winding up and termination of the Company, holders of the Company’s common stock will not be entitled to receive
any payment or other distribution of assets until after all of the Company’s obligations to the Company’s debt holders have
been satisfied and holders of the Company’s senior debt, subordinated debt, and junior subordinated debentures issued in
connection with trust preferred securities have received any payments and other distributions due to them. In addition, the
Company is required to pay interest on the Company’s senior debt, subordinated debt and subordinated debentures and junior
subordinated debentures issued in connection with the Company’s trust preferred securities before the Company pays any
dividends on the Company’s common stock. Furthermore, the Company’s board of directors may also, in its sole discretion,
designate and issue one or more series of preferred stock from the Company’s authorized and unissued preferred stock, which
may have preferences with respect to common stock in dissolution, dividends, liquidation or otherwise.

An investment in the Company’s common stock is not an insured deposit.

An investment in the Company’s common stock is not a bank deposit and, therefore, is not insured against loss or guaranteed
by the FDIC, any other deposit insurance fund or by any other public or private entity. An investment in the Company’s
common stock is inherently risky for the reasons described in this report and shareholders who acquire the Company’s common
stock could lose some or all of their investment.

RISKS RELATED TO THE COVID-19 PANDEMIC

The pandemic has heightened credit risk.

The pandemic has heightened the credit risks described above, particularly with respect to loans made to businesses in the
hospitality and retail sectors, which have been hardest hit by the economic dislocation caused by the COVID-19 pandemic. As
of December 31, 2020, 3.8% and 15.4% of the Company’s total loans held for investment (excluding mortgage warehouse
purchase loans) were loans made to companies engaged in the hospitality business and companies that own and operate retail
real estate, respectively. The financial performance of the Company is dependent upon the ability of borrowers to repay their
loans and the value of the collateral supporting loans. The pandemic has caused and is likely to cause significant disruption in
the business of our customers. Continued unfavorable market conditions and uncertainty due to the COVID-19 pandemic has
caused and is likely to continue to cause a deterioration in the credit quality of borrowers, an increase in the number of loan
delinquencies, defaults and charge-offs, additional provisions for loan losses, adverse asset values of the collateral securing
loans and an overall material adverse effect on the quality of the loan portfolio of the Company. Various state governments and
federal agencies are requiring lenders to provide forbearance and other relief to borrowers. Regulatory programs and
governmental policies, including the PPP loan program as discussed under Item 1, Business - COVID-19 Impact and Response,
may impact the Company’s ability to resolve credit delinquencies and risk of holding unforgiven PPP loans at unfavorable
interest rates.

The pandemic has increased interest rate risk.

Following the outbreak of the pandemic, market interest rates declined significantly to historic lows. The reductions in interest
rates, and continued fluctuations in the interest rate environment as a result of changes in monetary policies of the Federal
Reserve Board, including in connection with efforts to address the economic fallout from the COVID-19 pandemic, could have
significant adverse effects on the yields received by the Company on its earning assets and otherwise compress the Company’s
net interest margin which is an important component of the Company’s earnings. Continued volatility in interest rates could
have a significant adverse effect on the Company’s earnings, financial condition and results of operations.

35

The pandemic has heightened operational risk, particularly with respect to cybersecurity.

The pandemic has also heightened the operational risks described above. As discussed under Item 1, Business - COVID-19
Impact and Response, COVID-19 has caused the Company to change its business operations in a number of ways to protect the
health and safety of its customers and employees, and to comply with governmental directives. These changes may have
detrimental impacts on the Company’s business due to reduced effectiveness of operations and unavailability of personnel. In
addition, there is heightened sensitivity and exposure to cybersecurity risks resulting from the Company’s increased use of and
dependence on remote working technology. The Company may take further action that it determines is in the best interest of
employees, customers and the communities the Company serves, or as may be required by government regulations and
ordinances. To date, the measures taken by the Company have not materially impaired the Company’s ability to support
employees, conduct business and serve its customers, but there is no assurance that these measures will mitigate all risk
associated with COVID-19, or that the Company's ability to operate will not be materially impacted in the future. Similarly, if
any of the Company’s vendors or business partners upon which it relies are unable to deliver their products and services as a
result of limitations on operations imposed by COVID-19, the Company’s ability to serve customers could be impaired.

The change in business operations and continued market uncertainty could also have a detrimental effect on the Company’s
relationship with its customers as well as reduce demand for loans and other products and services offered by the Company
upon which it relies to drive growth.

The pandemic has increased legal and regulatory risk.

The PPP loan program, as discussed under Item 1 COVID-19 Impact and Response, including but not limited to PPP Round 2,
was launched within a significantly compressed timeframe, with updates and guidance rapidly changing and emerging. In
addition, the health and safety measures required by federal, state and local governments is unprecedented. Litigation related to
banks’ implementation of the PPP loan program, as well as companies health and safety practices instituted to address the
pandemic has already begun to emerge. Litigation arising out of pandemic related issues could have a material adverse effect on
the Company’s business, financial condition and results of operations.

The full extent of impact from the pandemic in uncertain.

The full extent to which the pandemic impacts the Company's business will depend on future developments, which are highly
uncertain and cannot be predicted, including new information which may emerge concerning the severity of the pandemic and
the actions required to contain and treat it, including but not limited to the effectiveness and availability of vaccinations,
reactions by companies, clients, investors, governmental entities and financial, commodities (including oil and gas) and other
markets to such actions, and the effect of the pandemic on short- and long-term general economic conditions, among other
factors. There can be no assurance that efforts by the Company to address the adverse impacts of COVID-19 will be effective.
If the significant effects of the pandemic are prolonged and if the Company is unable to recover from this business disruption
on a timely basis, the Company’s business, financial condition and results of operations may be significantly adversely affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company owns its corporate headquarters, which is an approximately 165,000 square foot, six story office building located
at 7777 Henneman Way, McKinney, Texas 75070, and serves as the Bank’s home office.

On January 19, 2021, the Company announced that construction had begun on phase two of the corporate headquarters located
on a 10.4 acre parcel of land at State Highway 121 and Grand Ranch Parkway at the entrance to the McKinney Corporate
Center Craig Ranch in McKinney, Texas. The approximately 198,000 square-foot, six story facility will allow space for the
Company’s continued growth. The building is expected to be completed in 2022, although delays could occur.

36

As of December 31, 2020, the Company had 93 full-service branches. The Company believes that its facilities are in good
condition and are adequate to meet the Company’s operating needs for the foreseeable future. At December 31, 2020, the
Company owns 72 of the branches, and leases the remaining facilities. Our branches are located in the Dallas/North Texas area,
including McKinney, Dallas, Fort Worth, and Sherman/Denison, the Austin/Central Texas area, including Austin and Waco, the
Houston Texas metropolitan area and along the Colorado Front Range area, including Denver, Colorado Springs and Fort
Collins.

For more information about premises and equipment and lease commitments, see Note 7, Premises and Equipment, Net, and
Note 13, Leases, respectively, to the Company's audited consolidated financial statements included elsewhere in this report.

ITEM 3. 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. A legal proceeding
that the Company believes could become material is described below.

The Bank is a party to a legal proceeding inherited by the Bank 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 November 11, 2009 in the U.S. District Court Northern District of Texas, Dallas Division, in a case styled
Peggy Roif Rotstain, et al. on behalf of themselves and all others similarly situated, v. Trustmark National Bank, et al., Civil
Action No. 3:09-CV-02384-N-BG. The suit alleges, 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.

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 plaintiffs seek recovery from the Bank
and other defendants for their losses. The case has been 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. Defendants have filed a motion to remand the case to the Southern District of Texas and are
awaiting a ruling. It is anticipated that the schedule will change upon remand. The Bank also filed its motion for summary
judgment on February 12, 2021 individually, and joined in on an omnibus motion for summary judgment based on procedural
issues common to all Defendants in this matter. The Company has experienced an increase in legal fees associated with the
defense of this claim and anticipates further increases in legal fees as the case proceeds to trial.

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.

The Bank believes that the claims are without merit and is vigorously defending the lawsuit. This is complex litigation
involving a number of procedural matters and issues. As such, we are unable to predict when this matter may be resolved and,
given the uncertainty of litigation, the ultimate outcome of, or the range of potential costs or damages arising from, this case.

37

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Stock

Since January 2, 2014, the Company's common stock has traded on the Nasdaq Global Select Market under the symbol
“IBTX.” Quotations of the sales volume and the closing sales prices of the common stock of the Company are listed daily in
the Nasdaq Global Select Market’s listings. As of February 25, 2021, there were 559 holders of record for the Company's
common stock.

Recent Sales of Unregistered Securities

In 2020, the Company issued an aggregate of 363,814 shares of its common stock to certain employees under its 2013 Equity
Incentive Plan and 401(k) Plan in reliance upon the private placement exemption in Section 4(a)(2) of the Securities Act, as
transactions not involving a public offering. No consideration was received by the Company for the grants of 310,290 shares of
common stock under the 2013 Equity Incentive Plan and $2.0 million in consideration was paid by employee participants for
53,524 shares of common stock purchased under the 401k Plan. The recipients of shares in such transactions acquired the
shares for investment purposes only and without a view to or for the sale in connection with any distribution thereof. All
recipients had adequate access, through their relationship with the Company, to information regarding the Company.

The following table provides information as of December 31, 2020, regarding the Company’s equity compensation plans under
which the Company’s equity securities are authorized for issuance:

Plan Category

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

____________

Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
(a)

Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)

Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))
(c)

—

—

N/A

N/A

1,150,617 (1)

—

(1) Constitutes shares of the Company’s common stock issuable under the 2013 Equity Incentive Plan, as amended, which shares may be awarded as

restricted stock grants.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

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. On October 22, 2020, the Company's board of directors authorized a $150.0 million
stock repurchase program allowing the Company to purchase shares of its common stock through October 31, 2021. Under this
program, the Company repurchased 109,548 shares at a total cost of $5.7 million through December 31, 2020. Under prior
stock repurchase programs, the Company repurchased 897,738 shares of Company stock at a total cost of $49.0 million during
2019 and none during 2018.

38

The following table summarizes the Corporation's repurchase activity during the fourth quarter 2020.

Total Number of Shares
Purchased

Average Price Paid
Per Share

Total Number of Shares
Purchased as Part of Publicly
Announced Repurchase Plan

Maximum Dollar Value of Shares
that May Yet Be Purchased Under
the Plan (thousands)

October 2020

November 2020

December 2020

Total fourth quarter 2020

36,000

$

73,548

—

109,548

$

50.51

52.18

—

51.63

36,000

$

73,548

—

109,548

$

148,182

144,344

144,344

144,344

39

Performance Graph

The following Performance Graph compares the cumulative total shareholder return on the Company’s common stock for the
period December 31, 2015 through December 31, 2020, with the cumulative total return of the S&P 500 Total Return Index and
the KBW Nasdaq Regional Banking Index for the same period. Dividend reinvestment has been assumed. The Performance
Graph assumes $100 invested on December 31, 2015, in the Company’s common stock, the S&P 500 Total Return Index and
KBW Nasdaq Regional Banking Index. The historical stock price performance for the Company’s common stock shown on the
graph below is not necessarily indicative of future stock performance.

Comparison of Cumulative Total Return

Among Independent Bank Group, Inc., the S&P 500 Index and the KBW Nasdaq Regional Banking Index

Comparison of Cumulative Total Return

e
u
l
a
V
x
e
d
n
I

250

200

150

100

50

12/31/15

12/31/16

12/31/17

12/31/18

12/31/19

12/31/20

Period Ending

Independent Bank Group, Inc.
KBW Nasdaq Regional Banking Index

S&P 500 Index

December 31,
2015

December 31,
2016

December 31,
2017

December 31,
2018

December 31,
2019

December 31,
2020

Independent Bank Group, Inc.

S&P 500 Index

KBW Nasdaq Regional Banking Index

100.00

100.00

100.00

196.78

111.96

102.42

214.55

136.40

108.48

146.45

130.42

150.80

180.66

171.49

153.45

208.88

203.04

126.59

(Source: S&P Global, Inc. )

40

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data of the Company for, and as of, the end of each of the years in the five-year
period ended December 31, 2020, is derived from and should be read in conjunction with the Company’s consolidated financial
statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K.

You should read the following financial information relating to the Company in conjunction with other information contained
in this Annual Report on Form 10-K, including the information set forth in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” under Part II, Item 7, beginning on page 43 and the consolidated financial
statements of the Company and related accompanying notes included elsewhere in this Annual Report on Form 10-K. The
Company’s historical results for any prior period are not necessarily indicative of results to be expected in any future period. As
described elsewhere in this Annual Report on Form 10-K, the Company has consummated several acquisitions in recent fiscal
periods. The results and other financial information of those acquired operations are not included in the information below for
the periods prior to their respective acquisition dates and, therefore, the results for these prior periods are not comparable in all
respects and may not be predictive of the Company’s future results.

(dollars in thousands except per share data)

2020

2019

2018

2017

2016

As of and for the Year Ended December 31,

Selected Income Statement Data

Interest income

Interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Noninterest income

Noninterest expense

Income tax expense

Net income

Preferred stock dividends

Net income available to common shareholders

Per Share Data (Common Stock)

Earnings:

Basic
Diluted (1)

Dividends
Book value (2)

Selected Period End Balance Sheet Data

Total assets

Cash and cash equivalents

Securities available for sale

Loans, held for sale

Loans, held for investment, excluding mortgage warehouse
purchase (3)
Mortgage warehouse purchase loans

Allowance for loan losses

Goodwill and other intangible assets

Other real estate owned

Noninterest-bearing deposits

Interest-bearing deposits

Borrowings (other than junior subordinated debentures)
Junior subordinated debentures (4)
Total stockholders’ equity

Selected Performance Metrics
Return on average assets (5)
Return on average equity (5)
Return on average common equity (5)
Net interest margin (6)

$

611,506

$

652,932

$

407,290

$

307,914

$

210,049

95,060

516,446

42,993

473,453

85,063

306,134

51,173

201,209

—

201,209

148,175

504,757

14,805

489,952

78,176

321,864

53,528

192,736

—

192,736

81,038

326,252

9,860

316,392

42,224

198,619

31,738

128,259

—

128,259

42,436

265,478

8,265

257,213

41,287

176,813

45,175

76,512

—

76,512

26,243

183,806

9,440

174,366

19,555

113,790

26,591

53,540

8

53,532

$

$

4.67

4.67

1.05

58.31

$

4.46

4.46

1.00

54.48

$

4.33

4.33

0.54

52.50

$

2.98

2.97

0.40

47.28

2.89

2.88

0.34

35.63

$ 17,753,476

$ 14,958,207

$ 9,849,965

$ 8,684,463

$ 5,852,801

1,813,987

1,153,693

82,647

565,170

1,085,936

35,645

130,779

685,350

32,727

431,102

763,002

39,202

505,027

316,435

9,795

11,622,298

10,928,653

7,717,510

6,309,549

4,572,771

1,453,797

87,820

687,317

51,461

1,082,091

1,094,762

475

4,164,800

10,234,127

687,175

54,023

4,819

3,240,185

8,701,151

527,251

53,824

170,290

44,802

766,839

4,200

2,145,930

5,591,864

427,316

27,852

164,694

39,402

664,702

7,126

1,907,770

4,725,052

667,578

27,654

2,515,371

2,339,773

1,606,433

1,336,018

—

31,591

272,496

1,972

1,117,927

3,459,182

568,045

18,147

672,365

1.23 %

1.32 %

1.35 %

0.96 %

0.98 %

8.50

8.50

3.95

8.69

8.69

3.97

6.71

6.71

3.84

8.42

8.42

3.81

8.26

8.26

3.55

41

(dollars in thousands except per share data)

Efficiency ratio (6)
Dividend payout ratio (8)
Credit Quality Ratios (9)(10)(11)

As of and for the Year Ended December 31,

2020

48.79

22.48

2019

53.01

22.42

2018

52.35

12.47

2017

56.13

13.42

2016

54.99

11.76

Nonperforming assets to total assets

Nonperforming loans to total loans held for investment

Allowance for loan losses to nonperforming loans

Allowance for loan losses to total loans held for investment

Net charge-offs to average loans outstanding (unaudited)

0.29 %

0.44

170.80

0.76

0.05

0.21 %

0.24

193.35

0.47

0.07

0.17 %

0.16

354.73

0.58

0.06

0.26 %

0.24

255.62

0.62

0.01

0.34 %

0.39

177.06

0.69

0.12

Capital Ratios

Common equity tier 1 capital to risk-weighted assets

10.33 %

9.76 %

10.05 %

9.61 %

8.20 %

Tier 1 capital to average assets

Tier 1 capital to risk-weighted assets

Total capital to risk-weighted assets

Total stockholders’ equity to total assets
Total common equity to total assets (12)

____________

9.12

10.74

13.32

14.17

14.17

9.32

10.19

11.83

15.64

15.64

9.57

10.41

12.58

16.31

16.31

8.92

10.05

12.56

15.38

15.38

7.82

8.55

11.38

11.49

11.49

(1) The Company calculates its diluted earnings per share for each period shown as its net income divided by the weighted-average number of its common

shares outstanding during the relevant period adjusted for the dilutive effect of its outstanding warrants to purchase shares of common stock. The increase
in 2016 relates to the weighted effect of the shares issued in November 2015 along with shares issued in a private offering during 2016, the increase in
2017 relates to shares issued in the acquisition completed in April 2017 along with shares issued in a public offering during 2017, the increase in 2018
relates to the shares issued in the acquisition completed June 1, 2018 and the increase in 2019 relates to the shares issued in the acquisition completed
January 1, 2019. See Note 1, Summary of Significant Accounting Policies, to the Company’s consolidated financial statements appearing elsewhere in
this Annual Report on Form 10 K for more information regarding the dilutive effect of its outstanding warrants and regarding certain nonvested shares of
common stock, the effect of which is anti-dilutive. The Company's outstanding warrants were all exercised prior to December 31, 2018. Earnings per
share on a basic and diluted basis were calculated using the following outstanding share amounts, which includes participating shares (those shares with
dividend rights):

Weighted average shares outstanding-basic

Weighted average shares outstanding-diluted

For the Year Ended December 31,

2020

43,116,965

43,116,965

2019

43,245,418

43,245,418

2018

29,599,119

29,599,119

2017

25,636,292

25,742,362

2016

18,501,663

18,588,309

(2) Book value per share equals the Company’s total common stockholders’ equity (excludes preferred stock) as of the date presented divided by the number
of shares of its common stock outstanding as of the date presented. The number of shares of its common stock outstanding as of December 31, 2020,
2019, 2018, 2017 and 2016 was 43,137,104 shares, 42,950,228 shares, 30,600,582 shares, 28,254,893 shares and 18,870,312 shares, respectively.

(3)

Loans held for investment includes SBA PPP loans of $804,397 at December 31, 2020

(4) Each of nine wholly owned, but nonconsolidated, subsidiaries of the Company holds a series of the Company’s junior subordinated debentures purchased

by the subsidiary in connection with, and paid for with the proceeds of, the issuance of trust issued preferred securities by that subsidiary. The Company
has guaranteed the payment of the amounts payable under each of those issues of trust preferred securities. During 2019 the Company assumed two trusts
with the acquisition of Guaranty and during 2017 the Company assumed two trusts with the Carlile acquisition.

(5) The Company has calculated its return on average assets and return on average equity for a period by dividing net income for that period by its average
assets and average equity, as the case may be, for that period. The Company calculates its average assets and average equity for a period by dividing the
sum of its total asset balance or total stockholder’s equity balance, as the case may be, as of the close of business on each day in the relevant period and
dividing by the number of days in the period. The Company calculates its return on average common equity by excluding the preferred stock dividends to
derive at net income available to common shareholders and excluding the average balance of its Series A preferred stock from the total average equity to
derive at common average equity.

(6) Net interest margin for a period represents net interest income for that period divided by average interest-earning assets for that period.

(7) Efficiency ratio for a period represents noninterest expenses, excluding the amortization of other intangible assets, for that period divided by the sum of

net interest income and noninterest income for that period.

(8) The Company calculates its dividend payout ratio for each period presented as the dividends paid per share for such period divided by its basic earnings

per share for such period.

(9) Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest, and accruing loans modified under troubled

debt restructurings, excludes loans acquired with deteriorated credit quality.

(10) Loans held for investment excludes mortgage warehouse purchase loans.

(11) Nonperforming loans and assets excludes loans acquired with deteriorated credit quality.

(12) The Company calculates common equity as of the end of the period as total stockholders' equity less the preferred stock at period end.

42

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

This discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with
the Company’s consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on
Form 10-K. Certain risks, uncertainties and other factors, including those set forth under “Risk Factors” in Part I, Item 1A, and
elsewhere in this Annual Report on Form 10-K, may cause actual results to differ materially from those projected results
discussed in the forward-looking statements appearing in this discussion and analysis.

Cautionary Note Regarding Forward Looking Statements
This Annual Report on Form 10-K, 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 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 loan 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:

•

•
•

•

•
•
•

•

•

•

•

the disruption to local, regional, national and global economic activity caused by infectious disease outbreaks,
including the recent outbreak of coronavirus, or COVID-19 and the significant impact that such outbreak has had and
may have on our growth, operations, earnings and asset quality;
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, and specifically resulting from the economic dislocation caused by the COVID-19
pandemic;
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 presenting acceptable investment risks;
inaccuracy of the assumptions and estimates that the managements of our Company and the financial institutions that
we acquire make in establishing reserves for probable loan losses and other estimates, generally, and specifically as a
result of the effect of the COVID-19 pandemic;
lack of liquidity, including as a result of a reduction in the amount of sources of liquidity we currently have;

43

• 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;
effects of competition from a wide variety of local, regional, national and other providers of financial, investment and
insurance services;
changes in economic and market conditions, including the economic dislocation resulting from the COVID-19
pandemic, 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 of 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, including the economic
dislocation resulting from the COVID-19 pandemic;
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, including changes resulting from the implementation of the new Current
Expected Credit Loss accounting standard;
changes in the scope and cost of FDIC insurance and other coverage;
the effects of war or other conflicts, 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 before and after our 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 or the Bank 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 loan 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;
general business and economic conditions in our markets change or are less favorable than expected, generally, and
specifically as a result of the COVID-19 pandemic;
changes occur in business conditions and inflation, generally, and specifically as a result of the COVID-19 pandemic;
an increase in the rate of personal or commercial customers’ bankruptcies, generally, and specifically as a result of the
COVID-19 pandemic;
technology-related changes are harder to make or are more expensive than expected;

•
•

•

•

•

•

•

•

•

•

•

•
•

•

•
•

•

•

•

•

•

•

•
•

•

44

•

•
•

•

attacks on the security of, and breaches of, the Company's and the Bank'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 other factors that are described or referenced in Part I, Item 1A. of this Annual Report on Form 10-K under the
caption “Risk Factors”; and
other economic, competitive, governmental, regulatory, technological and geopolitical factors affecting the Company’s
operations, pricing and services.

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 10-K or
made by us in any report, filing, document, or information incorporated by reference in this 10-K 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 10-K or incorporated
by reference herein.

Overview

The Company was organized as a bank holding company in 2002. On January 1, 2009, the Company was merged with
Independent Bank Group Central Texas, Inc., 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.

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. 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 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, 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 loan losses and the Company’s assessment for FDIC deposit
insurance.

The Company intends for this discussion and analysis to provide the reader with information that will assist in understanding
the Company’s financial statements, the changes in certain key items in those financial statements from period to period and the
primary factors that accounted for those changes. This discussion relates to the Company and its consolidated subsidiaries and
should be read in conjunction with the Company’s consolidated financial statements as of December 31, 2020 and 2019 and for
the years ended December 31, 2020, 2019 and 2018, and the accompanying notes, appearing elsewhere in this Annual Report
on Form 10-K. The Company’s year ends on December 31. The following discussion and analysis presents the more significant
factors that affected our financial condition as of December 31, 2020 and 2019 and results of operations for each of the years
then ended. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019
and 2018 Annual Reports on Form 10-K, as amended, filed with the SEC on March 6, 2020 and February 28, 2019,
respectively, for discussion of our results of operations for the years ended December 31, 2019 and 2018.

45

Recent Developments: COVID-19

In March 2020, the outbreak of the Coronavirus Disease 2019 (COVID-19) was recognized as a pandemic by the World Health
Organization and almost all public commerce and related business activities have been curtailed, to varying degrees. As a result
of the shelter-at-home mandate that was in force early in the second quarter of 2020, commercial activity throughout the state of
Texas and Colorado, as well as nationally, decreased significantly. As of December 31, 2020, many of the more restrictive
government orders eased on a national level and more specifically in the Company's markets of Texas and Colorado, allowing
businesses to reopen at varying capacity levels, which has improved commercial and consumer activity but has not returned to
pre-pandemic levels. In addition, the risk of a resurgence in infections and possible reimplementation of restrictions remains
significant.

In response to the COVID-19 pandemic, the Company has taken several actions to offer various forms of support to our
employees, customers, and communities that have experienced impacts during this unprecedented time. For discussion related
to the impact of COVID-19 on the Company's business operations, legislative measures and the Company's response, refer to
Item 1, Business - "COVID-19 Impact and Response".

In addition, the Company continues to take deliberate actions to ensure the continued health and strength of its balance sheet in
order to serve its clients and communities, including increases in liquidity and managing our assets and liabilities in order to
maintain a strong capital position.

Impact on our Financial Condition and Results of Operations

The Company's business has been, and continues to be, impacted by the recent and ongoing outbreak of COVID-19. The
Company continues to monitor developments related to the pandemic and its impact on the Company's business, customers,
employees, counterparties, vendors, and service providers. Refer to Item 1A, Risk Factors - "RISKS RELATED TO THE
COVID-19 PANDEMIC" for additional discussion.

During the twelve months ended December 31, 2020, the most notable financial impact to the Company's results of operations
include a higher provision for loan losses primarily as a result of deterioration in macroeconomic variables, as well as lower
service charge income and deposit and loan related expenses, as more fully discussed throughout the various sections of this
discussion and analysis.

Lending Operations and Accommodations to Borrowers

The Company has participated in the CARES Act PPP as discussed in Item 1, Business - "COVID-19 Impact and Response".
As of December 31, 2020, the Company has outstanding balances of $804.4 million to 5,003 customers. Management believes
that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program.

The Company continues to actively work with its borrowers on an individual, one-on-one basis to assess and understand the
impact of pandemic-related economic hardships and provide prudent modifications allowing for payment deferrals or payment
relief where appropriate. Through December 31, 2020, the Company has granted temporary COVID-19 modifications on over
2,100 loans totaling approximately $2.6 billion. The number of loans on active payment deferral has significantly declined since
the beginning of the pandemic, and the vast majority of borrowers who were provided temporary payment relief have returned
to paying as originally agreed. As of December 31, 2020, 79 loans with a total outstanding balance of $223.4 million remain in
deferral status, of which $159.3 million are on second deferrals and $54.0 million are on third deferrals. Under current
guidance, such modifications are currently exempt from the accounting guidance for TDRs (Refer to Note 6, Loans, Net and
Allowance for Loan Losses, to the Company's consolidated financial statements included elsewhere in this report). As of
January 15, 2021, the amount of loans with active deferrals declined to $205.7 million across 74 accounts, which represents
1.7% of the Company’s outstanding total loans held for investment balances, excluding PPP loans, as of fourth quarter end and
0.37% of the Company’s outstanding total loan accounts at fourth quarter end. The $205.7 million in active deferrals, of which
$126.1 million are second deferrals and $68.0 million are third deferrals, include $127.3 million, or 61.9%, in hotel and motel;
$5.0 million, or 2.4%, in retail; $763 thousand, or 0.4%, in office; $22.8 million, or 11.1%, in other commercial real estate
(CRE) and construction and development (C&D); and $45.2 million, or 22.0% in general C&I, with the remainder spread
throughout other portfolios.

46

Capital and Liquidity

The Company's 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 the section captioned "Regulatory Capital Requirements"
elsewhere in this discussion for additional information related to the Company's regulatory capital.

The Company's liquidity remains strong and continues to reflect excess balances, with cash and securities representing
approximately 16.7% of total assets as of December 31, 2020. The Company maintains the ability to access considerable
sources of contingent liquidity at the Federal Home Loan Bank and the Federal Reserve. Management considers the Company's
current liquidity position to be adequate to meet short-term and long-term liquidity needs. Refer to the section captioned
"Liquidity Management" elsewhere in this discussion for additional information regarding the Company's liquidity position.

Credit and Asset Quality

Under the CARES Act, the Company elected to defer the adoption of the CECL accounting standard and has continued its
consistent application of the incurred loss method for estimating the allowance for loan losses and applicable provision for
2020. Refer to Note 1, Summary of Significant Accounting Policies, to the Company's consolidated financial statements
included elsewhere in this report for additional discussion of the impact resulting from this discussion. Due to the
macroeconomic environment brought on by the pandemic and energy price volatility, the Company recorded a provision of
$43.0 million during 2020, increasing the allowance for loan losses to $87.8 million as of December 31, 2020. Management
believes that the allowance adequately supports inherent credit losses within the loan portfolio. Refer to Note 6, Loans, Net and
Allowance for Loan Losses as well as, the sections captioned "Provision for Loan Losses" and "Asset Quality" elsewhere in this
discussion for additional information related to the factors considered by management in estimating the necessary level of
allowance for loan losses.

During third and fourth quarter 2020, the Company adjusted the risk grades of several of its loans as the pandemic’s impacts on
borrowers became clearer. Classified loans have increased year to date by $115.2 million to $229.5 million, or 2.0% of loans
held for investment, net of mortgage warehouse purchase loans, as of December 31, 2020. Loans on special mention also
increased by $318.6 million during the year. These increases are mainly due to the migration of several hotel loans as well as a
few loans in the office and senior living portfolios. This prudent adjustment of risk grades is reflective of the Company's
longstanding credit culture with a lender focus to continue to facilitate constructive engagement with borrowers through these
challenging times. Overall, asset quality remains solid, reflecting the Company's disciplined underwriting and conservative
lending philosophy which has supported strong credit performance during prior financial crises. Refer to Note 6, Loans, Net
and Allowance for Loan Losses, to the Company's consolidated financial statements included elsewhere in this report and to the
section captioned "Asset Quality" elsewhere in this discussion for additional disclosures related to asset quality of the
Company's loan portfolio.

While all industries could experience adverse impacts as a result of the COVID-19 pandemic, the Company has an increased
level of COVID-19 industry exposure risk in the following loan categories as of December 31, 2020:

◦
◦

◦

◦

◦

Commercial real estate (CRE) loans were $6.1 billion with an average loan size in the CRE portfolio is $1.2 million.
Construction and Development (C&D) loans were $1.6 billion. The average loan size in the C&D portfolio was
$639.2 thousand and the average loan-to-value was 58.6%. Construction activity continues across Texas and
Colorado, and 98.4% of the Company’s C&D loans are located within these states. Of the Company’s C&D loans,
39.4% are for owner-occupied properties.
The Company's Retail CRE loans were approximately $1.8 billion, with the average loan size of $1.8 million. The
mix of the portfolio consists of loans secured by 73.5% in strip centers properties, 13.9% in free standing/single
tenant properties, 10.6% in mixed use properties, and 2.0% in big box properties.
The Company has approximately $438.3 million of loans secured by hotel and motel properties, with the average
loan size of $5.7 million and the average loan-to-value of 53.1%. The mix of the portfolio consists of 62.1% of loans
secured by limited service properties, 15.8% secured by full-service properties, 13.8% secured by extended stay
properties, and 8.3% secured by boutique/independent properties.
Energy loans were $205.5 million, or 1.8% of total loans held for investment, excluding mortgage warehouse
purchase loans. Energy loans are secured 92.6% by exploration and production of oil and gas, and 7.4% by energy
services companies. Energy allowance for loan losses represents 5.8% of the total energy loan portfolio.

47

This pandemic crisis has been impactful and the timing and magnitude of recovery cannot be predicted. The Company
continues to closely monitor the impact of COVID-19 on its customers, the communities it serves and the economy as a whole;
however, the extent to which the pandemic will continue to impact operations and financial results in 2021 is uncertain.

Certain Events Affect Year-over-Year Comparability

Acquisitions

There were no acquisitions completed in 2020. The Company completed an acquisition in 2019 and 2018. These acquisitions
increased total assets, gross loans and deposits on their respective acquisition date as detailed below.

(dollars in millions)

Integrity Bancshares, Inc.

Guaranty Bancorp

Acquisition Date

Total Assets

Gross Loans

Deposits

June 1, 2018

January 1, 2019

$852

3,943

$652

2,790

$593

3,109

The Company issued an aggregate 15,251,729 shares of common stock in connection with these acquisitions. The
comparability of the Company’s consolidated results of operations for the years ended December 31, 2020, 2019 and 2018 are
affected by these acquisitions.

During 2019, the Company successfully completed the rebalancing of its retail footprint, by consolidating eight branches in
Colorado and four branches in Texas. This consolidation reduced overlapping locations designed to improve efficiency, while
keeping the Bank well-positioned to support existing customers and future growth.

Termination of proposed merger with Texas Capital Bancshares, Inc.: On December 9, 2019, the Company and Texas
Capital Bancshares, Inc. (TCBI) and its subsidiary, Texas Capital Bank, had entered into an Agreement and Plan of Merger
(Merger Agreement) providing for the merger of TCBI with and into the Company. On May 22, 2020, the Company and TCBI
entered into a mutual agreement to terminate the Merger Agreement. The termination was approved by each company's board
of directors after careful consideration of the significant impact of the COVID-19 pandemic on global markets and on the
companies' ability to fully realize the benefits expected to be achieved through the merger. Neither party paid a termination fee
in connection with the termination of the Merger Agreement. Refer to Note 22, Business Combinations, to the Company's
consolidated financial statements included elsewhere in this report for additional information on the termination.

Discussion and Analysis of Results of Operations

The following discussion and analysis of the Company’s results of operations compares its results of operations for the years
ended December 31, 2020 and 2019.

Results of Operations

The Company’s net income available to common shareholders increased by $8.5 million, or 4.4%, to $201.2 million ($4.67 per
common share on a diluted basis) for the year ended December 31, 2020, from $192.7 million ($4.46 per common share on a
diluted basis) for the year ended December 31, 2019. The increase in net income for 2020 over 2019 was primarily due to
growth in net interest income and noninterest income as well as a reduction in acquisition related expenses. Net income in 2020
also included a provision for credit losses of $43.0 million compared to $14.8 million in 2019. The increased provision reflects
the stress on the loan portfolio from the economic impact of the Covid 19 pandemic. The Company posted returns on average
common equity of 8.26% and 8.50%, returns on average assets of 1.23% and 1.32%, and efficiency ratios of 48.79% and
53.01% for the years ended December 31, 2020 and 2019, respectively. The efficiency ratio is calculated by dividing total
noninterest expense (which does not include the provision for loan losses and the amortization of core deposits intangibles) by
net interest income plus noninterest income. The Company’s dividend payout ratio was 22.48% and 22.42% and the equity to
assets ratio was 14.17% and 15.64% for the years ended December 31, 2020 and 2019, respectively.

48

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
earning assets and its deposits, FHLB advances and other borrowings, 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.

The Company earned net interest income of $516.4 million for the year ended December 31, 2020, an increase of $11.7 million,
or 2.3%, from $504.8 million for the year ended December 31, 2019. The increase in net interest income from the previous year
was primarily due to decreased funding costs due to a declining rate environment which more than offset decreased purchase
accounting accretion. The Company’s net interest margin for 2020 decreased to 3.55% from 3.95% in 2019, and the Company’s
interest rate spread for 2020 decreased to 3.26% from the 3.47% interest rate spread for 2019. The average balance of interest-
earning assets for 2020 increased by $1.8 billion, or 13.9%, to $14.6 billion from an average balance of $12.8 billion for 2019.
The increase from the prior year was primarily related to increased average loan balances including PPP loans and mortgage
warehouse loans, as well as an increase in average interest-bearing deposits with correspondent banks due to significant deposit
growth during 2020. The Company’s net interest margin for the year ended December 31, 2020 was negatively impacted by a
91 basis point decrease in the weighted-average yield on interest-earning assets to 4.20% for the year ended December 31,
2020, from 5.11% for the year ended December 31, 2019. The decrease from the prior year is due primarily to an increase in
average interest-bearing deposits, decreased loan accretion, and the addition of lower yielding PPP loans to the portfolio. The
year ended December 31, 2020 includes $30.4 of loan accretion compared to $46.1 million for the year ended December 31,
2019. The cost of interest bearing liabilities, including borrowings, was 0.94% for the year ended December 31, 2020 compared
to 1.64% for the year ended December 31, 2019. The decrease from the prior year is primarily due to lower rates offered on our
deposit products, as well as rate decreases on short-term FHLB advances and other debt. In response to the unprecedented Fed
Funds rate decrease to combat the effects of COVID-19 on the economy, during first quarter 2020, the Company strategically
lowered rates on certain deposit products and purchased lower rate advances to compensate for higher priced advances rolling
off early second quarter 2020.

49

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 years ended
December 31, 2020, 2019 and 2018. The average balances are principally daily averages and, for loans, include both
performing and nonperforming balances.

Total interest-earning assets

14,565,011

$ 611,506

2020

2019

2018

For the Years Ended December 31,

Average
Outstanding
Balance

Interest

Yield/
Rate

Average
Outstanding
Balance

Interest

Yield/
Rate

Average
Outstanding
Balance

Interest

Yield/
Rate

$ 12,329,965

$ 579,085

4.70 % $ 11,179,161

$ 611,589

5.47 % $ 7,254,635

$ 384,791

5.30 %

749,273

344,609

1,141,164

19,150

8,472

4,799

2.56

2.46

0.42

4.20

770,927

329,687

504,309

21,324

8,482

11,537

12,784,084

$ 652,932

2.77

2.57

2.29

5.11

603,474

177,348

179,411

14,007

4,580

3,912

8,214,868

$ 407,290

2.32

2.58

2.18

4.96

1,792,725

$ 16,357,736

1,771,231

$ 14,555,315

1,264,066

$ 9,478,934

$ 4,577,137

$ 28,244

0.62 % $ 3,953,986

$ 44,171

1.12 % $ 2,943,519

$ 26,593

0.90 %

607,996

2,368,980

1,645,014

9,199,127

613,251

224,489

53,931

10,090,798

3,736,230

95,234

2,435,474

1,067

21,089

25,866

76,266

4,170

12,462

2,162

95,060

0.18

0.89

1.57

0.83

0.68

5.55

4.01

0.94

540,741

2,047,554

1,795,391

1,335

40,837

37,041

8,337,672

123,384

464,404

201,066

53,733

10,173

11,590

3,028

9,056,875

148,175

0.25

1.99

2.06

1.48

2.19

5.76

5.64

1.64

290,325

998,916

1,009,644

5,242,404

515,479

137,549

27,761

703

19,043

14,428

60,767

10,264

8,398

1,609

5,923,193

81,038

0.24

1.91

1.43

1.16

1.99

6.11

5.80

1.37

3,139,805

91,532

2,267,103

$ 14,555,315

2,052,675

26,378

1,476,688

$ 9,478,934

$ 516,446

$ 504,757

$ 326,252

3.26 %

3.55

3.47 %

3.95

3.59 %

3.97

$ 520,274

3.57

$ 508,498

3.98

$ 328,090

3.99

144.34

141.15

138.69

(dollars in thousands)

Interest-earning assets:

Loans (1)

Taxable securities

Nontaxable securities

Interest bearing deposits and other

Noninterest-earning assets

Total assets

Interest-bearing liabilities:

Checking accounts

Savings accounts

Money market accounts

Certificates of deposit

Total deposits

FHLB advances

Other borrowings and repurchase agreements

Junior subordinated debentures

Total interest-bearing liabilities

Noninterest-bearing checking accounts

Noninterest-bearing liabilities

Stockholders’ equity

Total liabilities and equity

$ 16,357,736

Net interest income

Interest rate spread

Net interest margin (2)

Net interest income and margin (tax
equivalent basis) (3)

Average interest earning assets to interest
bearing liabilities

____________

(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%.

50

Interest Rates and Operating Interest Differential. Increases and decreases in interest income and interest expense result from
changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average
interest rates. The following table shows the effect that these factors had on the interest earned on the Company’s interest-
earning assets and the interest incurred on the Company’s interest-bearing liabilities. The effect of changes in volume is
determined by multiplying the change in volume by the previous year’s average rate. Similarly, the effect of rate changes is
calculated by multiplying the change in average rate by the prior year’s volume. For purpose of the following table, changes
attributable to both volume and rate, which cannot be segregated, have been allocated to the changes due to volume and the
changes due to rate in proportion to the relationship of the absolute dollar amount of change in each.

$

$

$

(dollars in thousands)

Interest-earning assets

Loans

Taxable securities

Nontaxable securities

Interest bearing deposits and other

Total interest-earning assets

Interest-bearing liabilities

Checking accounts

Savings accounts

Limited access money market accounts

Certificates of deposit

Total deposits

FHLB advances

Other borrowings and repurchase
agreements

Junior subordinated debentures

Total interest-bearing liabilities

For the Year Ended December 31, 2020 v. 2019

For the Year Ended December 31, 2019 v. 2018

Increase (Decrease) Due to

Volume

Rate

Total Increase
(Decrease)

Increase (Decrease) Due to

Volume

Rate

Total Increase
(Decrease)

58,990

$

(91,494) $

(32,504) $

214,103

$

12,695

$

226,798

$

$

(588)

368

7,363

66,133

6,161

150

5,595

(2,910)

8,996

2,546

1,307

11

12,860

$

$

(1,586)

(378)

(14,101)

(2,174)

(10)

(6,738)

4,306

3,920

7,419

(107,559) $

(41,426) $

229,748

(22,088) $

(15,927) $

(418)

(25,343)

(8,265)

(56,114)

(8,549)

(435)

(877)

(268)

(19,748)

(11,175)

(47,118)

(6,003)

872

(866)

(65,975)

(53,115)

10,267

603

20,958

14,439

46,267

(1,069)

3,696

1,464

50,358

$

$

3,011

(18)

206

15,894

7,311

29

836

8,174

16,350

978

(504)

(45)

16,779

7,317

3,902

7,625

245,642

17,578

632

21,794

22,613

62,617

(91)

3,192

1,419

67,137

178,505

Net interest income

$

53,273

$

(41,584) $

11,689

$

179,390

$

(885) $

Interest Income. The Company’s total interest income decreased $41.4 million, or 6.3%, to $611.5 million for the year ended
December 31, 2020, from $652.9 million for the year ended December 31, 2019. The following tables set forth the major
components of the Company’s interest income for the years ended December 31, 2020 and 2019 and the period-over-period
variations in such categories of interest income:

(dollars in thousands)

Interest income

Interest and fees on loans

Interest on taxable securities

Interest on nontaxable securities

Interest on interest-bearing deposits and other

For the Years Ended
December 31,

Variance

For the Years Ended
December 31,

2020

2019

2020 v. 2019

2019

2018

Variance

2019 v. 2018

$ 579,085

$ 611,589

$ (32,504)

(5.3)% $ 611,589

$ 384,791

$ 226,798

58.9 %

19,150

8,472

4,799

21,324

8,482

11,537

(2,174)

(10)

(6,738)

(10.2)

(0.1)

(58.4)

21,324

8,482

11,537

14,007

4,580

3,912

7,317

3,902

7,625

52.2

85.2

194.9

Total interest income

$ 611,506

$ 652,932

$ (41,426)

(6.3)% $ 652,932

$ 407,290

$ 245,642

60.3 %

The Company’s interest and fees on loans decreased 5.3% for the year ended December 31, 2020, compared to the year ended
December 31, 2019, and was primarily attributable to $15.7 million less purchase accounting loan accretion and reductions in
loan rates as a result of decreases in the Fed Funds rate directly related to combating the pandemic during the first half of 2020.
The average balance on loans increased $1.2 billion to $12.3 billion during the year ended 2020 as compared with the average
balance of $11.2 billion for the year ended 2019. The increase primarily resulted from the addition of PPP loans and increased
volume of mortgage warehouse purchased loans.

51

The interest the Company earned on taxable securities, which consists primarily of government agencies, municipals and
residential pass-through securities, decreased 10.2% for the year ended December 31, 2020 from the year ended December 31,
2019 as a result of a decrease in the average portfolio balance from $770.9 million for the year ended December 31, 2019 to
$749.3 million for the year ended December 31, 2020. This decrease was primarily related to maturities during the year not
being reinvested due to uncertainties within the market.

The interest the Company earned on nontaxable securities slightly decreased 0.1% for the year ended December 31, 2020 while
there was a 4.5% increase in the average balance of nontaxable securities from $329.7 million for the year ended December 31,
2019 to $344.6 million for the year ended December 31, 2020.

The 58.4% decrease in the Company's interest on interest-bearing deposits and other for the year ended December 31, 2020,
from the year ended December 31, 2019 was primarily attributable to lower rates being offered due to the decrease in the Fed
Funds rate as a direct result of the pandemic. The average balance of interest-bearing deposits increased 126.3% from $504.3
million for the year ended December 31, 2019 to $1.1 billion for the year ended December 31, 2020. The higher average
balance in 2020 primarily resulted from slower loan growth and substantial organic deposit growth after the pandemic started in
March 2020.

Interest Expense. Total interest expense on the Company’s interest-bearing liabilities decreased $53.1 million, or 35.8%, to
$95.1 million for the year ended December 31, 2020, from $148.2 million in the prior year. The following table sets forth the
major components of the Company’s interest expense for the years ended December 31, 2020 and 2019 and the period-over-
period variations in such categories of interest expense:

(dollars in thousands)

Interest Expense

Interest on deposits

For the Years Ended
December 31,

Variance

For the Years Ended
December 31,

Variance

2020

2019

2020 v. 2019

2019

2018

2019 v. 2018

$ 76,266

$ 123,384

$ (47,118)

(38.2)% $ 123,384

$ 60,767

$ 62,617

103.0 %

Interest of FHLB advances

Interest on other borrowings

Interest on junior subordinated debentures

4,170

12,462

2,162

10,173

11,590

3,028

(6,003)

(59.0)

872

(866)

7.5

(28.6)

10,173

11,590

3,028

10,264

8,398

1,609

(91)

3,192

1,419

(0.9)

38.0

88.2

Total interest expense

$ 95,060

$ 148,175

$ (53,115)

(35.8)% $ 148,175

$ 81,038

$ 67,137

82.8 %

Interest expense on deposits decreased by $47.1 million, or 38.2% for the year over year period, primarily due to the declining
rate environment during 2020. Average interest-bearing deposit balances increased 10.3% year-over-year from $8.3 billion in
2019 to $9.2 billion in 2020 primarily due to robust organic growth of $2.1 billion, or 17.3%, for the year over year period. The
average rate on the Company’s deposits decreased by 65 basis points to 0.83% for 2020 compared to 1.48% for 2019. This
decrease in cost of funds primarily resulted from lower rates offered on promotional certificates of deposit and money market
accounts during the majority of 2020 due to decreased interest rates on deposit products tied to Fed Funds rates.

Interest expense on FHLB advances for 2020 decreased by $6.0 million, or 59.0%, due primarily to rate decreases on short-term
FHLB advances. The increase in average balance of such advances over the period, from $464.4 million in 2019 to $613.3
million in 2020, is a result of management strategically purchasing lower rate advances during first quarter 2020 to compensate
for higher priced advances rolling off in early second quarter 2020, as well as, borrowings during second quarter to provide
additional liquidity in light of economic uncertainty and to facilitate funding for the PPP loan program.

Interest expense on other borrowings for 2020 increased by $872 thousand, or 7.5% from 2019, primarily as a result of the
interest expense recognized on a $130.0 million of subordinated debentures issued in third quarter 2020, offset by a reduction of
interest expense related to borrowings against the Company's unsecured revolving line of credit and Federal Reserve's PPP
Liquidity Facility with a total average year to date outstanding balance of $7.8 million for 2020 compared to a $21.6 million
average year to date outstanding line of credit balance for 2019.

Interest expense on junior subordinated debentures decreased $866 thousand, or 28.6% from the prior year due to decreased
interest rates from the year over year period.

52

Provision for Loan Losses

Under the CARES Act and as amended, the Company elected to defer the adoption of the CECL accounting standard and has
continued its consistent application of the incurred loss method for estimating its allowance for loan losses and provision for
2020. The Company adopted the CECL accounting standard as of January 1, 2021.

Management actively monitors the Company’s asset quality and provides specific loss provisions when necessary. Provisions
for loan losses are charged to income to bring the total allowance for loan losses to a level deemed appropriate by management
based on such factors as historical loss experience, trends in classified loans and past dues, the volume, concentrations and
growth in the loan portfolio, current economic conditions and the value of collateral.

Loans are charged-off against the allowance for loan losses when appropriate. Although management believes it uses the best
information available to make determinations with respect to the provision for loan losses, future adjustments may be necessary
if economic conditions differ from the assumptions used in making the determination.

The Company increased its allowance for loan losses to $87.8 million at December 31, 2020, by making provisions for loan
losses totaling $43.0 million during the year ended December 31, 2020. This is an increase of $28.2 million, or 190.4% in
provision expense compared to total provision expense of $14.8 million made by the Company in 2019. Provision expense is
elevated primarily due to general provision expense for economic factors related to COVID-19 and energy price volatility as
well as charge-offs and specific reserves taken during the year. The 2020 provision is also reflective of net charge-offs totaling
$6.6 million, which is 0.05% of the Company's average loans outstanding during the period. The 2020 charge-offs were
primarily related to partial charge-offs of two energy credit relationships totaling $4.1 million and a commercial credit
relationship totaling $1.1 million.

The balance of the provision for loan losses was made based on the Company’s assessment of the credit quality of the
Company’s loan portfolio and in view of the amount of the Company’s net charge-offs in that period. The Company did not
make any material provision for loan losses with respect to the loans acquired in the Guaranty acquisition completed on January
1, 2019 because, in accordance with acquisition accounting standards, the Company recorded the loans acquired in the
acquisition at fair value without a reserve and determined that the Company’s fair value adjustments appropriately reflected the
probability of losses on those loans as of the acquisition date. The Company does not believe there has been any material
deterioration of credit of these acquired loans since the acquisition. As of December 31, 2020, the discount on acquired loans
totaled $59.3 million.

See Note 1, Summary of Significant Accounting Policies, and Note 6, Loans, net and Allowance for Loan Losses, in the
accompanying notes to the consolidated financial statements included elsewhere in this report.

53

Noninterest Income

The following table sets forth the major components of noninterest income for the years ended December 31, 2020 and 2019
and the period-over-period variations in such categories of noninterest income:

(dollars in thousands)

Noninterest income:

For the Years Ended
December 31,

Variance

For the Years Ended
December 31,

Variance

2020

2019

2020 v. 2019

2019

2018

2019 v. 2018

Service charges on deposit accounts

$

9,303

$ 12,145

$

(2,842)

(23.4)% $ 12,145

$

7,039

$

Investment management and trust

Mortgage banking revenue

Gain on sale of loans

Gain on sale of branches

Gain on sale of trust business

(Loss) gain on sale of other real estate

Gain (loss) on sale of securities available for sale

Gain (loss) on sale and disposal of premises and
equipment

Increase in cash surrender value of BOLI

Other

7,546

36,491

356

—

—

(36)

382

370

5,347

25,304

9,330

15,461

6,779

1,549

1,319

875

275

(585)

5,525

25,503

(1,784)

21,030

(6,423)

(1,549)

(1,319)

(911)

107

955

(178)

(199)

(19.1)

136.0

N/M

N/M

N/M

N/M

N/M

N/M

(3.2)

(0.8)

9,330

15,461

6,779

1,549

1,319

875

275

(585)

5,525

25,503

—

15,512

—

—

—

269

(581)

123

3,170

16,692

5,106

9,330

(51)

6,779

1,549

1,319

606

856

(708)

2,355

8,811

72.5 %

100.0

(0.3)

N/M

N/M

N/M

N/M

N/M

N/M

74.3

52.8

Total noninterest income

$ 85,063

$ 78,176

$

6,887

8.8 % $ 78,176

$ 42,224

$ 35,952

85.1 %

____________

N/M - Not meaningful

Noninterest income increased $6.9 million, or 8.8%, to $85.1 million for the year ended 2020 from $78.2 million for the year
ended 2019. Significant changes in the components of noninterest income are discussed below.

Service charges on deposit accounts. Service charges on deposit accounts decreased $2.8 million, or 23.4%, for the year ended
December 31, 2020, as compared to the same period in 2019. The decrease in service charges on deposit accounts reflects
decreased income related to transaction volumes such as non-sufficient funds and service charge fees that have been adversely
impacted by the pandemic during 2020.

Investment management and trust. Investment management and trust decreased $1.8 million, or 19.1%, for the year ended
December 31, 2020, as compared to the same period in 2019. The decrease was primarily a result of the sale of the trust
business in October 2019 coupled with a decline in assets under management, resulting from the market decline during 2020.

Mortgage banking revenue. Mortgage banking revenue increased $21.0 million, or 136.0% for the year ended December 31,
2020, as compared to the same period in 2019. The increase was reflective of increased mortgage origination and refinance
activity resulting from the low interest rate environment during 2020.

Noninterest Expense

Noninterest expense decreased $15.7 million, or 4.9%, to $306.1 million for the year ended 2020 from $321.9 million for the
year ended 2019. Significant changes in the components of noninterest expense are discussed below.

54

The following table sets forth the major components of the Company’s noninterest expense for the years ended December 31,
2020 and 2019 and the period-over-period variations in such categories of noninterest expense:

(dollars in thousands)

Noninterest expense:

For the Years Ended
December 31,

Variance

For the Years Ended
December 31,

Variance

2020

2019

2020 v. 2019

2019

2018

2019 v. 2018

Salaries and employee benefits

$ 157,540

$ 162,683

$

(5,143)

(3.2)% $ 162,683

$ 111,697

$ 50,986

45.6 %

Occupancy

Communications and technology

FDIC assessment

Advertising and public relations

Other real estate owned expenses, net

Impairment of other real estate

Amortization of other intangible assets

Professional fees

Acquisition expense, including legal

Other

39,210

23,113

6,912

2,416

487

784

12,671

12,630

16,225

34,146

37,654

22,248

1,065

2,527

418

1,801

12,880

7,936

33,445

39,207

1,556

865

5,847

(111)

69

4.1

3.9

N/M

(4.4)

16.5

(1,017)

(56.5)

(209)

4,694

(17,220)

(5,061)

(1.6)

59.1

(51.5)

(12.9)

37,654

22,248

1,065

2,527

418

1,801

12,880

7,936

33,445

39,207

24,786

14,107

3,306

1,907

318

85

5,739

4,556

6,157

25,961

12,868

8,141

51.9

57.7

(2,241)

(67.8)

620

100

1,716

7,141

3,380

27,288

13,246

32.5

31.4

N/M

124.4

74.2

443.2

51.0

Total noninterest expense

$ 306,134

$ 321,864

$ (15,730)

(4.9)% $ 321,864

$ 198,619

$ 123,245

62.1 %

____________

N/M - not meaningful

Salaries and employee benefits. Salaries and employee benefits expense, which historically has been the largest component of
the Company’s noninterest expense, decreased $5.1 million, or 3.2%, for the year ended December 31, 2020, compared to the
year ended December 31, 2019. The change is primarily due to increased salary cost deferrals of $9.8 million primarily related
to the origination of the PPP loans and other COVID-related loan modifications/deferrals during second quarter 2020.
Severance and retention expense of $5.7 million was recognized in 2019 primarily due to payments made to employees not
retained from the Guaranty acquisition as well as the 2019 branch restructuring and also a $3.0 million separation agreement
with a former executive officer in 2019. Offsetting these decreases were increases of $2.4 million in overall salaries expense
due to increased headcount, $5.3 million in commission and mortgage incentive expense due to higher mortgage and refinance
activity and $1.9 million in contract labor costs due to various infrastructure projects and PPP resources, as well $2.8 million in
severance and accelerated stock grant amortization related to departmental and business line restructurings in 2020, $1.4 million
in bonus and overtime costs related to the Company's participation in the PPP, $996 thousand in COVID-related hazard pay and
$550 thousand in employee paid time off.

FDIC assessment. FDIC assessment expense increased $5.8 million for the year ended December 31, 2020, compared to the
same period in 2019. The Company recorded a $3.2 million Small Bank Assessment Credit in third quarter 2019. In addition,
the FDIC assessment was impacted by the Company becoming a large institution under regulatory guidelines, effective January
1, 2020, which resulted in higher assessment costs for the year over year period.

Professional fees. Professional fees increased $4.7 million, or 59.1%, for the year ended December 31, 2020 compared to the
same period in 2019. The increase is primarily due to higher legal expenses related to ongoing acquired litigation and increased
consulting expenses related to a compliance project and new system implementations.

Acquisition expense. Acquisition expense is primarily legal, advisory and accounting fees associated with services to facilitate
the acquisition of other banks. Acquisition expenses also include data processing conversion costs and contract termination
costs. Total acquisition expenses for the year ended December 31, 2020, decreased $17.2 million, or 51.5% over the same
period in 2019. The decrease in acquisition expense is primarily due to elevated expenses in 2019 related to the Guaranty
transaction including $8.7 million in change in control payments to Guaranty executives as well as an increase in professional
fees, conversion-related expenses and contract termination fees, including $6.9 million related to Guaranty's debit card provider
expensed in the third quarter of 2019. Off-setting these decreases are elevated expense in 2020 for the terminated merger
including $8.8 million in integration costs and $6.0 million in legal and advisory fees.

55

Other. Other noninterest expense for the year ended December 31, 2020 decreased by $5.1 million, or 12.9%, compared to the
same period in 2019. The decrease in noninterest expense is primarily due to lower deposit-related expenses and auto and travel
expenses due to the pandemic disruption in 2020. In addition, the decrease is reflective of an operations loss recognized in
second quarter 2019 which was partially recovered in second quarter 2020, resulting in a net total loss of $974 thousand for the
year over year period.

Income Tax Expense

Income tax expense was $51.2 million for the year ended December 31, 2020, which is an effective tax rate of 20.3%. Income
tax expense was $53.5 million for the year ended December 31, 2019, which is an effective tax rate of 21.7%. The lower
effective tax rate compared to prior year is primarily a result of the 2019 provision to return adjustment related to state income
tax and an adjustment to the Company's estimated 2020 state income tax rates recorded in second quarter 2020, as well as an
$856 thousand tax benefit recorded in first quarter 2020 due to the net operating loss carryback provision allowed through the
enactment of the CARES Act. In addition, the change in the year over year period is reflective of a higher effective tax rate in
2019 due to $1.4 million in deductibility limitations related to the change in control payments made to Guaranty employees and
nondeductible acquisition expenses in addition to increased state income tax expense for the period.

No valuation allowance for deferred tax assets was recorded at December 31, 2020 and 2019, as management believes it is
more likely than not that all of the deferred tax assets will be realized.

56

Quarterly Financial Information

The following table presents certain unaudited consolidated quarterly financial information regarding the Company’s results of
operations for the quarters ended December 31, September 30, June 30 and March 31 in the years ended December 31, 2020
and 2019. This information should be read in conjunction with the Company’s consolidated financial statements as of and for
the years ended December 31, 2020 and 2019 appearing elsewhere in this Annual Report on Form 10-K.

(dollars in thousands, except per share data)

(unaudited)

December 31

September 30

June 30

March 31

Quarter Ended 2020

Interest income

Interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Noninterest income

Noninterest expense

Income before income taxes

Provision for income taxes

Net income

Comprehensive income

Basic earnings per share

Diluted earnings per share

$

152,062

$

151,798

$

151,241

$

19,236

132,826

3,871

128,955

19,912

75,227

73,640

15,366

58,274

55,491

1.35

1.35

$

$

$

19,791

132,007

7,620

124,387

25,165

73,409

76,143

16,068

60,075

60,261

1.39

1.39

$

$

$

22,869

128,372

23,121

105,251

25,414

83,069

47,596

8,903

38,693

46,951

0.90

0.90

$

$

$

$

$

$

156,405

33,164

123,241

8,381

114,860

14,572

74,429

55,003

10,836

44,167

55,529

1.03

1.03

December 31

September 30

June 30

March 31

Quarter Ended 2019

(dollars in thousands, except per share data)

(unaudited)

Interest income

Interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Noninterest income

Noninterest expense

Income before income taxes

Provision for income taxes

Net income

Comprehensive income

Basic earnings per share

Diluted earnings per share

$

164,386

$

165,307

$

167,663

$

36,317

128,069

1,609

126,460

18,229

80,343

64,346
14,110

50,236

49,606

1.17

1.17

$

$

$

39,914

125,393

5,233

120,160

27,324

76,948

70,536
14,903

55,633

58,450

1.30

1.30

$

$

$

38,020

129,643

4,739

124,904

16,199

77,978

63,125
13,389

49,736

63,388

1.15

1.15

$

$

$

$

$

$

155,576

33,924

121,652

3,224

118,428

16,424

86,595

48,257
11,126

37,131

48,907

0.85

0.85

57

Discussion and Analysis of Financial Condition

The following discussion and analysis of the Company’s financial condition discusses and analyzes the financial condition of
the Company as of December 31, 2020 and 2019 and certain changes in that financial condition from December 31, 2019 to
December 31, 2020.

Assets

The Company's total assets increased by $2.8 billion, or 18.7%, to $17.8 billion as of December 31, 2020 from $15.0 billion at
December 31, 2019. The increase is due primarily to deposit organic growth in addition to loan and deposit growth related to
the PPP program.

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 December 31, 2020, 2019, 2018, 2017
and 2016:

(dollars in thousands)

Amount

% of
Total

Amount

% of
Total

Amount

% of
Total

Amount

% of
Total

Amount

% of
Total

2020

2019

2018

2017

2016

$ 3,902,266

29.7 % $ 2,482,356

21.3 % $ 1,361,104

17.2 % $ 1,059,984

16.3 % $

630,805

13.7 %

Commercial (1)(2)

Real estate:

Commercial

Commercial construction, land and
land development

Residential (3)

6,096,676

1,245,801

1,435,112

Single-family interim construction

326,575

Agricultural

Consumer

Other

85,014

66,952

346

46.3

9.5

10.9

2.5

0.6

0.5

—

5,872,653

1,236,623

1,550,872

378,120

97,767

32,603

621

50.4

10.6

13.3

3.2

0.9

0.3

—

4,141,356

905,421

1,082,248

331,748

66,638

31,759

253

52.3

11.4

13.7

4.2

0.8

0.4

—

3,369,892

744,868

931,495

289,680

82,583

34,639

304

51.7

11.5

14.3

4.4

1.3

0.5

—

2,459,221

531,481

644,340

235,475

53,548

27,530

166

53.7

11.6

14.1

5.1

1.2

0.6

—

13,158,742

100.0 %

11,651,615

100.0 %

7,920,527

100.0 %

6,513,445

100.0 %

4,582,566

100.0 %

Deferred loan fees(2)

Allowance for loan losses

(10,037)

(87,820)

(1,695)

(51,461)

(3,303)

(44,802)

(2,568)

(39,402)

(2,117)

(31,591)

Total loans, net

$ 13,060,885

$ 11,598,459

$ 7,872,422

$ 6,471,475

$ 4,548,858

____________

(1)

(2)

(3)

Includes mortgage warehouse purchase loans of $1.5 billion, $687.3 million, $170.3 million, $164.7 million and $0 at December 31, 2020, 2019, 2018,
2017 and 2016, respectively.

Includes SBA PPP loans of $804.4 million with net deferred loan fees of $9.8 million at December 31, 2020.

Includes loans held for sale of $82.6 million, $35.6 million, $32.7 million, $39.2 million and $9.8 million at December 31, 2020, 2019, 2018, 2017 and
2016, respectively.

As of December 31, 2020, the Company's loan portfolio, net of the allowance for loan losses and deferred fees, totaled $13.1
billion, which is an increase of 12.6% over total net loans as of December 31, 2019. The majority of the increase was due to the
addition of $804.4 million in PPP loans funded during second quarter as well as an increase of $766.5 million year over year in
the volume of mortgage warehouse purchase loans.

58

The principal categories of the Company’s loan portfolio are discussed below:

Commercial loans. The Company provides a mix of variable and fixed rate commercial loans. The loans are typically made to
small-and medium-sized manufacturing, wholesale, retail, energy related service businesses and medical practices for working
capital needs and business expansions. Commercial loans generally include lines of credit and loans with maturities of five
years or less. The loans are generally made with operating cash flows as the primary source of repayment, but may also include
collateralization by inventory, accounts receivable, equipment and/or personal guarantees. Additionally, our 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. 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 are reported as commercial loans since the loans are secured
by notes receivable, not real estate.

With the passage of the CARES Act PPP, administered by the Small Business Administration (SBA), the Company has
participated in originating 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. 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 loan balances, after the forgiveness of any amounts, still fully guaranteed by the SBA.

The Company’s commercial loan portfolio increased $1.4 billion, or 57.2%, to $3.9 billion as of December 31, 2020, from $2.5
billion as of December 31, 2019. The increase in this portfolio type for the current year is primarily due to the addition of PPP
loans as well as an increase in the warehouse portfolio for the year over year period.

Commercial real estate loans (CRE). The Company’s commercial real estate loans generally are used by customers to finance
their purchase of office buildings, retail centers, medical facilities and mixed-use buildings. Approximately 29% and 30% of the
Company’s commercial real estate loans as of December 31, 2020 and 2019, respectively, were owner-occupied. Such loans
generally involve less risk than loans on investment property. The Company expects that commercial real estate loans will
continue to be a significant portion of the Company’s total loan portfolio and an area of emphasis in the Company’s lending
operations.

Commercial real estate loans increased $224.0 million, or 3.8%, to $6.1 billion as of December 31, 2020 from $5.9 billion as of
December 31, 2019. The increase was due to organic loan growth in this loan type during the year.

Commercial construction, land and land development loans. The Company’s commercial construction, land and land
development loans comprise loans to fund commercial construction, land acquisition and real estate development construction.
Although the Company continues to make commercial construction loans, land acquisition and land development loans on a
selective basis, the Company does not expect the Company’s lending in this area to result in this category of loans being a
significantly greater portion of the Company’s total loan portfolio.

Commercial construction, land and land development loans increased $9.2 million, or 0.7% to $1.2 billion at December 31,
2020 from $1.2 billion at December 31, 2019, through organic loan growth in this type of loan.

59

Residential Real Estate Loans. The Company’s residential real estate loans, excluding mortgage loans held for sale, are
primarily made with respect to and secured by single-family homes, which are both owner-occupied and investor owned and
include a limited amount of home equity loans, with a relatively small average loan balance spread across many individual
borrowers. The Company offers a variety of mortgage loan portfolio products which generally are amortized over five to thirty
years. Loans collateralized by 1-4 family residential real estate generally have been originated in amounts of no more than 80%
of appraised value. The Company requires mortgage title insurance and hazard insurance. The Company retains the majority of
these portfolio loans for its own account rather than selling them into the secondary market. By doing so, the Company incurs
interest rate risk as well as the risks associated with nonpayments on such loans. The Company’s loan portfolio also includes a
number of multi-family housing real estate loans. The Company expects that the Company will continue to make residential
real estate loans, with an emphasis on single-family housing loans, so long as housing values in the Company’s markets do not
deteriorate from current prevailing levels and the Company is able to make such loans consistent with the Company’s current
credit and underwriting standards.

The Company’s residential real estate loan portfolio declined by $115.8 million, or 7.5%, to a balance of $1.4 billion as of
December 31, 2020 from $1.6 billion as of December 31, 2019. The decrease in this category was primarily a result of higher
than normal payoffs due to refinancings because of the historically low mortgage rate environment.

Single-Family Interim Construction Loans. The Company makes single-family interim construction loans to home builders
and individuals to fund the construction of single-family residences with the understanding that such loans will be repaid from
the proceeds of the sale of the homes by builders or, in the case of individuals building their own homes, with the proceeds of a
permanent mortgage loan. Such loans are secured by the real property being built and are made based on the Company’s
assessment of the value of the property on an as-completed basis. The Company expects to continue to make single-family
interim construction loans so long as demand for such loans continues and the market for single-family housing and the values
of such properties remain stable or continue to improve in the Company’s markets.

The balance of single-family interim construction loans in the Company’s loan portfolio decreased by $51.5 million, or 13.6%,
to $326.6 million as of December 31, 2020 from $378.1 million as of December 31, 2019. The decrease in this category was
due to more borrowers opting for a one time close product rather than traditional interim construction loans because of low
mortgage rates.

Other Categories of Loans. Other categories of loans included in the Company’s loan portfolio include agricultural loans made
to farmers and ranchers relating to their operations and consumer loans made to individuals for personal purposes, including
automobile purchase loans and personal loans. None of these categories of loans represents more than 1% of the Company’s
total loan portfolio as of December 31, 2020 and 2019 and such categories continue to be a very small percentage of the
Company's total loan portfolio.

The following table sets forth the contractual maturities, including scheduled principal repayments, of the Company’s loan
portfolio (which includes balloon notes) and the distribution between fixed and adjustable interest rate loans as of December 31,
2020:

(dollars in thousands)
Commercial
Real estate:

Commercial real estate

Commercial construction, land and
land development
Residential real estate
Single-family interim construction

Agricultural
Consumer
Other
Total loans

Within One Year

Fixed Rate

Adjustable
Rate

One Year to Five Years
Adjustable
Rate

Fixed Rate

After Five Years

Total

Fixed Rate

Adjustable
Rate

Fixed Rate

Adjustable
Rate

$

1,563,540

$

308,933

$

1,111,926

$

590,984

$

174,057

$

152,826

$

2,849,523

$

1,052,743

532,461

273,206

2,328,535

645,916

591,928

1,724,630

3,452,924

2,643,752

132,286

90,329

50,933

11,387

10,619

346

199,777

37,132

143,683

10,896

27,038

—

338,044

481,025

11,368

29,192

11,142

—

363,310

49,338

39,805

5,591

13,452

—

32,383

414,099

41,525

5,743

2,177

—

180,001

363,189

39,261

22,205

2,524

—

502,713

985,453

103,826

46,322

23,938

346

743,088

449,659

222,749

38,692

43,014

—

$

2,391,901

$

1,000,665

$

4,311,232

$

1,708,396

$

1,261,912

$

2,484,636

$

7,965,045

$

5,193,697

60

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
Independent Bank’s board of directors, an annual independent loan review, approval of large credit relationships by
Independent 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 discontinues accruing interest on a loan when management of the Company believes, after considering the
Company’s collection efforts and other factors, that the borrower’s financial condition is such that collection of interest of that
loan is doubtful. Loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is
considered doubtful. All interest accrued but not collected for loans, including troubled debt restructurings, 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 returned to accrual status when all the principal and interest amounts contractually due are brought current
and future payments are reasonably assured. The Company did not make any changes in the Company’s nonaccrual policy
during the years of 2020 or 2019.

Placing a loan on nonaccrual status has a two-fold impact on net interest earnings. First, it may cause a charge against earnings
for the interest which had been accrued in the current year but not yet collected on the loan. Second, it eliminates future interest
income with respect to that particular loan from the Company’s revenues. Interest on such loans are not recognized until the
entire principal is collected or until the loan is returned to performing status.

Real estate the Company has acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate
owned until sold. The Company’s policy is to initially record other real estate owned at fair value less estimated costs to sell at
the date of foreclosure. After foreclosure, other real estate is carried at the lower of the initial carrying amount (fair value less
estimated costs to sell or lease), or at the value determined by subsequent appraisals or internal valuations of the other real
estate.

The Company obtains appraisals of real property that secure loans and may update such appraisals of real property securing
loans categorized as nonperforming loans and potential problem loans, in each case as required by regulatory guidelines. In
instances where updated appraisals reflect reduced collateral values, an evaluation of the borrower’s overall financial condition
is made to determine the need, if any, for possible write-downs or appropriate additions to the allowance for loan losses.

The Company periodically modifies loans to extend the term or make other concessions to help a borrower with a deteriorating
financial condition stay current on their loan and to avoid foreclosure. The Company generally does not forgive principal or
interest on loans or modify the interest rates on loans to rates that are below market rates. Under applicable accounting
standards, such loan modifications are generally classified as troubled debt restructurings.

As a result of the current economic environment caused by the COVID-19 outbreak, the Company has worked with its
borrowers on an individual, one-on-one basis to assess and understand the impact of pandemic-related economic hardship on
the borrowers and provide prudent modifications allowing for short-term payment deferrals or other payment relief where
appropriate. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity
date. Under applicable accounting and regulatory guidance, such modifications are not considered troubled debt restructurings.
It is possible that the Company’s asset quality measures could worsen at future measurement periods if the effects of
COVID-19 are prolonged. Refer to the above discussion under "Recent Developments: COVID-19, Lending Operations and
Accommodations to Borrowers" and Note 6, Loans, Net and Allowance for Loan Losses, in the accompanying notes to the
consolidated financial statements included elsewhere in this report for additional discussion related to COVID-19 loan
modifications.

61

The following table sets forth the allocation of the Company’s nonperforming assets among the Company’s different asset
categories as of the dates indicated. The Company classifies nonperforming loans (excluding loans acquired with deteriorated
credit quality) as nonaccrual loans, loans past due 90 days or more and still accruing interest or loans modified under
restructurings as a result of the borrower experiencing financial difficulties. The balances of nonperforming loans reflect the net
investment in these assets, including deductions for purchase discounts.

(dollars in thousands)

Nonaccrual loans

Commercial

Real estate:

Commercial real estate, construction, land and land development

Residential real estate

Single-family interim construction

Agricultural

Consumer

As of December 31,

2020

2019

2018

2017

2016

$ 25,898

$ 3,130

$ 5,224

$ 10,304

$ 7,718

20,072

2,372

—

613

42

6,461

1,820

—

114

22

1,329

1,775

3,578

—

32

2,716

998

—

—

55

5,885

866

884

—

273

Total nonaccrual loans (1)

48,997

11,547

11,938

14,073

15,626

Loans delinquent 90 days or more and still accruing

Commercial

Real estate:

Commercial real estate, construction, land and land development

Residential real estate

Consumer

433

14,529

—
—

—

—
—

—

Total loans delinquent 90 days or more and still accruing

433

14,529

Troubled debt restructurings, not included in nonaccrual loans

Commercial

Real estate:

Commercial real estate, construction, land and land development

Residential real estate

Consumer

Total troubled debt restructurings, not included in nonaccrual loans

Total nonperforming loans

Other real estate owned and other repossessed assets (Bank only):

Commercial real estate, construction, land and land development

Residential real estate

Single-family interim construction

Consumer

Total other real estate owned and other repossessed assets

—

1,808

178

—

1,986

51,416

—

—

475

114

589

—

—
—

5

5

114

405

168

—

687

8

120
8

—

136

—

455

730

20

1,205

15,414

764

963

114

—

—
—

—

—

1

1,204

1,011

—

2,216

17,842

783

1,189

—

4

4,819

4,200

5,400

26,616

12,630

—

—

114

4,933

—

—

114

4,314

7,241

1,976

—

352

188

—

540

Total nonperforming assets

$ 52,005

$ 31,549

$ 16,944

$ 22,655

$ 19,818

Ratio of nonperforming loans to total loans held for investment (2)

0.44 %

0.24 %

0.16 %

0.24 %

0.39 %

Ratio of nonperforming assets to total assets

0.29

0.21

0.17

0.26

0.34

____________

(1) Nonaccrual loans include troubled debt restructurings of $578 thousand, $668 thousand, $506 thousand, $1.0 million and $209 thousand as of December
31, 2020, 2019, 2018, 2017 and 2016, respectively and excludes loans acquired with deteriorated credit quality of $6.7 million, $10.9 million, $7.0
million, $7.9 million and $1.0 million as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

(2) Excluding mortgage warehouse purchase loans of $1.5 billion, $687.3 million, $170.3 million, $164.7 million and $0 as of December 31, 2020, 2019 and

2018, 2017 and 2016, respectively.

62

The Company had $49.0 million and $11.5 million in loans on nonaccrual status (excluding loans acquired with deteriorated
credit quality) as of December 31, 2020 and 2019, respectively. The increase from December 31, 2019 to December 31, 2020
was primarily due to additions of two energy credits totaling $22.8 million, two CRE credits totaling $15.9 million and a
commercial loan totaling $1.7 million, offset by $2.2 million in charge-offs and a $1.9 million CRE loan that moved to OREO.
The increase in troubled debt restructurings was primarily due to a $1.5 million CRE loan modified during first quarter 2020.
Loans delinquent 90 days or more and still accruing decreased to $433 thousand as of December 31, 2020. The decrease was
due to a $14.1 million energy loan that was moved to nonaccrual during first quarter 2020 with a subsequent charge-off of $3.5
million during fourth quarter 2020.

As of December 31, 2020, the Company had other real estate owned and other repossessed assets of $589 thousand, which is a
decrease from the balance of $4.9 million for prior year. The decrease is primarily due to sales of $4.8 million.

The Company did not recognize any interest income on nonaccrual loans during 2020 or 2019 while the loans were in
nonaccrual status. The amount of interest the Company included in the Company’s net interest income for the years ended 2020
and 2019 with respect to nonperforming loans was $1.2 million and $901 thousand, respectively. Additional interest income
that the Company would have recognized on these nonperforming loans had they been current in accordance with their original
terms was $356 thousand and $481 thousand during the years ended 2020 and 2019, respectively.

As of December 31, 2020, the Company had a total of 115 substandard and doubtful loans with an aggregate principal balance
of $158.2 million that were not currently impaired loans or purchase credit impaired loans, nonaccrual loans, 90 days past due
loans or troubled debt restructurings, but where the Company had information about possible credit problems of the borrowers
that caused the Company’s management to have serious concerns as to the ability of the borrowers to comply with present loan
repayment terms and that could result in those loans becoming nonaccrual loans, 90 days past due loans or troubled debt
restructurings in the future.

The Company generally continues to use the classification of acquired loans classified as nonaccrual or 90 days and accruing as
of the acquisition date. The Company does not classify acquired loans as troubled debt restructurings, or TDRs, unless the
Company modifies an acquired loan subsequent to acquisition that meets the TDR criteria. Reported delinquency of the
Company’s purchased loan portfolio is based upon the contractual terms of the loans.

The Company utilizes an asset risk classification system in compliance with guidelines established by the state and federal
banking regulatory agencies as part of the Company’s efforts to improve asset quality. In connection with examinations of
insured institutions, examiners have the authority to identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: “substandard,” “doubtful,” and “loss.” Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies
are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing
facts, conditions and values. An asset classified as loss is not considered collectible and is of such little value that continuance
as an asset is not warranted. The Company produces a problem asset report that is reviewed by Independent Bank’s board of
directors monthly. That report also includes “pass/watch” loans and special mention. Pass/watch loans have a potential
weakness that requires more frequent monitoring. Special mention credits have weaknesses that require attention. Officers and
senior management review these loans monthly to determine if a more severe rating is warranted.

Allowance for Loan Losses. As discussed elsewhere in this discussion and analysis, the Company elected to defer the adoption
of the CECL accounting standard and has continued its consistent application of the incurred loss method for estimating the
allowance for loan losses and applicable provision in 2020. The allowance for loan losses is established through charges to
earnings in the form of a provision for loan losses. The Company’s allowance for loan losses represents the Company’s
estimate of probable and reasonably estimable loan losses inherent in loans held for investment as of the respective balance
sheet date. The Company’s methodology for assessing the adequacy of the allowance for loan losses includes a general
allowance for performing loans, which are grouped based on similar characteristics, and an allocated allowance for individual
impaired loans. Actual credit losses or recoveries are charged or credited directly to the allowance.

63

The Company establishes a general allowance for loan losses that the Company believes to be adequate for the losses the
Company estimates to be inherent in the Company’s loan portfolio. In making the Company’s evaluation of the credit risk of
the loan portfolio, the Company considers factors such as the volume, growth and composition of the loan portfolio, the effect
of changes in the local real estate market on collateral values, trends in past dues, the experience of the lender, changes in
lending policy, the effects on the loan portfolio of current economic indicators and their probable impact on borrowers,
historical loan loss experience, the amount of nonperforming loans and related collateral and the evaluation of the Company’s
loan portfolio by the loan review function.

The Company may assign a specific allowance to individual loans based on an impairment analysis. Loans are considered
impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of
the loan agreement. The amount of impairment is based on an analysis of the most probable source of repayment, including the
present value of the loan’s expected future cash flows, the estimated market value or the fair value of the underlying collateral.
Loans evaluated for impairment include all commercial, real estate, agricultural loans and TDRs.

The Company follows a loan review program to evaluate the credit risk in the loan portfolio. Throughout the loan review
process, the Company maintains an internally classified loan watch list, which, along with a delinquency list of loans, helps
management assess the overall quality of the Company’s loan portfolio and the adequacy of the allowance for loan losses.
Charge-offs occur when the Company deems a loan to be uncollectible.

Analysis of the Allowance for Loan Losses. The following table sets forth the allowance for loan losses by category of loan:

(dollars in thousands)
Commercial loans

Real estate:

Commercial real estate,
construction, land and land
development

Residential real estate

Single-family interim
construction

Agricultural

Consumer

Other

Unallocated

As of December 31,

2020

2019

2018

2017

2016

Amount
$ 27,311

% of
Total
Loans(1)

Amount
29.7 % $ 12,844

% of
Total
Loans(1)

Amount
21.3 % $ 11,793

% of
Total
Loans(1)

Amount
17.2 % $ 10,599

% of
Total
Loans(1)

Amount
16.3 % $ 8,593

% of
Total
Loans(1)

13.7 %

50,123

6,786

2,156

337

442

242

423

55.8

10.9

2.5

0.6

0.5

—

—

33,085

3,678

61.0

13.3

1,606

332

226

5

(315)

3.2

0.9

0.3

—

—

27,795

3,320

1,402

241

186

3

62

63.7

13.7

4.2

0.8

0.4

—

—

23,301

3,447

1,583

250

205

(32)

49

63.2

14.3

4.4

1.3

0.5

—

—

18,399

2,760

1,301

207

242

29

60

65.3

14.1

5.1

1.2

0.6

—

—

Total allowance for loan losses

$ 87,820

100.0 % $ 51,461

100.0 % $ 44,802

100.0 % $ 39,402

100.0 % $ 31,591

100.0 %

____________

(1) Represents the percentage of Independent’s total loans included in each loan category.

As of December 31, 2020, the allowance for loan losses amounted to $87.8 million, or 0.76%, of total loans held for
investment, excluding mortgage warehouse purchase loans, compared with $51.5 million, or 0.47%, as of December 31, 2019.
The dollar and percentage increase during 2020 is primarily due to added reserves for economic concerns related to the
pandemic as well as increases in specific reserves and charge-offs in the year over year period. As of December 31, 2020, the
discount on acquired loans totaled $59.3 million compared to $93.6 million as of December 31, 2019.

The allowance for loan losses as a percentage of nonperforming loans decreased from 193.35% at December 31, 2019, to
170.80% at December 31, 2020, due to increase in total nonperforming loans primarily resulting from additions to nonaccrual
for energy credits totaling $22.8 million and CRE credits totaling $15.9 million as discussed above under the nonperforming
asset section. As of December 31, 2020, the Company had made a specific allowance for loan losses of $8.5 million for
impaired loans totaling $64.4 million, compared with a specific allowance of $358 thousand for impaired loans totaling $12.1
million as of December 31, 2019. The increase in specific reserves was due primarily to additions of $7.2 million on two
energy credits and $1.1 million on a commercial loan that were added to the impaired listing during 2020. The increase in
impaired loans during 2020 was primarily due to the $38.7 million additions in nonaccrual loans noted above, offset by a $1.9
million commercial real estate loan moved to other real estate and subsequently sold during 2020.

64

Although the allowance for loan losses to nonperforming loans has decreased over the periods presented in the Company’s
consolidated financial statements appearing in this Annual Report on Form 10-K, the Company believes the allowance is
appropriate and has been derived from consistent application of its methodology. The allowance is primarily related to loans
evaluated collectively and will continue to increase as the Company’s loan portfolio grows. Additional provision expense will
vary depending on future credit quality trends within the portfolio. Refer to Note 1, Summary of Significant Accounting
Policies, and Note 6, Loans, Net and Allowance for Loan Losses, in the notes to the Company's audited consolidated financial
statements included elsewhere in this report for additional details of the allowance for loan losses.

The following table provides an analysis of the provisions for loan losses, net charge-offs and recoveries for the years ended
December 31, 2020, 2019, 2018, 2017 and 2016 and the effects of those items on the Company’s allowance for loan losses:

(dollars in thousands)

2020

2019

2018

2017

2016

Allowance for loan losses-balance at beginning of year

$ 51,461

$ 44,802

$ 39,402

$ 31,591

$ 27,043

As of and for the Years Ended December 31,

Charge-offs

Commercial

Real estate:

Commercial real estate, construction, land and land
development

Residential real estate

Single-family interim construction

Consumer
Other

Total charge-offs

Recoveries

Commercial

Real estate:

Commercial real estate, construction, land and land
development

Residential real estate

Consumer
Other

Total recoveries

Net charge-offs

Provision for loan losses

(5,670)

(7,709)

(3,863)

(81)

(4,384)

(735)

—

(82)

(44)
(342)

(3)

(140)

(3)

(79)
(430)

(435)

(6)

—

(93)
(228)

(6,873)

(8,364)

(4,625)

112

4

—

37
86

90

4

—

48
76

84

20

3

5
53

(15)

—

(134)

(182)
(190)

(602)

28

31

4

46
39

239

(6,634)

42,993

218

(8,146)

14,805

165

(4,460)

9,860

148

(454)

8,265

(54)

(401)

—

(27)
(104)

(4,970)

13

10

12

8
35

78

(4,892)

9,440

Allowance for loan losses-balance at end of year

$ 87,820

$ 51,461

$ 44,802

$ 39,402

$ 31,591

Ratios

Net charge-offs to average loans outstanding

0.05 %

0.07 %

0.06 %

0.01 %

0.12 %

Allowance for loan losses to nonperforming loans at end of
year
Allowance for loan losses to total loans at end of year (1)

170.80

0.76

193.35

0.47

354.73

0.58

255.62

0.62

177.06

0.69

____________

(1) Calculation excludes loans held for sale and mortgage warehouse purchase loans from total loans.

The Company’s ratio of allowance to loan losses to total loans as of December 31, 2020 was 0.76%, increasing from 0.47% at
December 31, 2019. The increase in the allowance for loan losses as a percentage of loans from prior year reflects increases in
reserves due to the pandemic as well as increased specific reserves. The ratio of net charge-offs to average loans outstanding
during the year ended December 31, 2020 decreased to 0.05% from 0.07% for the year ended December 31, 2019. The decrease
in charge-offs during 2020 was primarily related to elevated energy charge-offs during 2019.

65

Securities Available for Sale

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. The following table sets forth the book value, which is equal to fair
market value because all investment securities the Company held were classified as available for sale as of the applicable date,
and the percentage of each category of securities as of December 31, 2020, 2019 and 2018:

2020

As of December 31,

2019

2018

(dollars in thousands)

Book Value

% of Total

Book Value

% of Total

Book Value

% of Total

Securities available for sale

U.S. Treasury securities

Government agency securities

Obligations of state and municipal subdivisions

Corporate bonds

Residential pass-through securities

Other securities

$

44,708

3.9 % $

48,796

4.5 % $

29,643

4.3 %

249,017

393,165

22,102

443,501

1,200

21.6

34.1

1.9

38.4

0.1

179,296

343,859

7,218

505,567

1,200

16.5 %

31.7 %

0.7 %

46.5 %

0.1 %

150,230

185,007

—

320,470

—

21.9

27.0

—

46.8

—

Total securities available for sale

$

1,153,693

100.0 % $

1,085,936

100.0 % $

685,350

100.0 %

The Company recognized net gains on the sale of securities of $382 thousand for the year ended December 31, 2020 and net
gains on the sale of securities of $275 thousand for the year ended December 31, 2019. Securities represented 6.5% and 7.3% of
the Company’s total assets at December 31, 2020 and 2019, respectively.

Certain investment securities are valued at less than their historical cost. Management evaluates securities for other-than-
temporary impairment (OTTI) on at least a quarterly basis and more frequently when economic or market conditions warrant
such an evaluation. Management does not intend to sell any debt securities it holds and believes the Company more likely than
not will not be required to sell any debt securities it holds before their anticipated recovery, at which time the Company will
receive full value for the securities. Management has the ability and intent to hold the securities classified as available for sale
that were in a loss position as of December 31, 2020 for a period of time sufficient for an entire recovery of the cost basis of the
securities. For those securities that are impaired, the unrealized losses are largely due to interest rate changes. The fair value is
expected to recover as the securities approach their maturity date. Management believes any impairment in the Company’s
securities at December 31, 2020 is temporary and no other-than-temporary impairment has been realized in the Company’s
consolidated financial statements.

66

The following table sets forth the book value, scheduled maturities and weighted average yields for the Company’s investment
portfolio as of December 31, 2020:

(dollars in thousands)

U.S. Treasury securities

Maturing within one year

Maturing in one to five years

Maturing in five to ten years

Maturing after ten years

Total U.S. Treasury securities

Government agency securities

Maturing within one year

Maturing in one to five years

Maturing in five to ten years

Maturing after ten years

Total government agency securities

Obligations of state and municipal subdivisions

Maturing within one year

Maturing in one to five years

Maturing in five to ten years

Maturing after ten years

Total obligations of state and municipal subdivisions

Corporate bonds

Maturing within one year

Maturing in one to five years

Maturing in five to ten years

Maturing after ten years

Total corporate bonds

Residential pass through securities

Maturing within one year

Maturing in one to five years

Maturing in five to ten years

Maturing after ten years

Total residential pass through securities

Other securities

Maturing within one year

Maturing in one to five years

Maturing in five to ten years

Maturing after ten years

Total other securities

Total investment securities

Book Value

% of Total
Investment
Securities

Weighted
Average Yield

18,153

26,555

—

—

1.6 %

2.3

—

—

2.15 %

2.41

—

—

44,708

3.9 %

2.30 %

6,507

21,304

96,187

125,019

249,017

14,254

82,526

95,822

200,563

393,165

1,029

4,186

16,887

—

22,102

11,784

15,721

90,414

325,582

443,501

—

700

500

—

1,200

1,153,693

0.6 %

2.21 %

1.8

8.3

10.8

2.33

1.70

1.79

21.5 %

1.81 %

1.2 %

2.26 %

7.3

8.3

17.4

2.36

2.48

2.66

34.2 %

2.54 %

0.1 %

3.85 %

0.4

1.5

—

3.82

4.51

—

2.0 %

4.35 %

1.0 %

2.96 %

1.3

7.8

28.2

2.90

2.62

2.73

38.3 %

2.96 %

— %

— %

0.1

—

—

0.1 %

100.0 %

2.29

2.10

—

2.25 %

2.73 %

$

$

$

$

$

$

$

$

$

$

$

$

$

67

The following table summarizes the amortized cost of securities classified as available for sale and their approximate fair values
as of the dates shown:

(dollars in thousands)

Securities available for sale

As of December 31, 2020

U.S. treasuries

Government agency securities

Obligations of state and municipal subdivisions

Corporate bonds

Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA

Other securities

As of December 31, 2019

U.S. treasuries

Government agency securities

Obligations of state and municipal subdivisions

Corporate bonds

Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA

Other securities

As of December 31, 2018

U.S. treasuries

Government agency securities

Obligations of state and municipal subdivisions

Residential pass through securities guaranteed by FNMA, GNMA and FHLMC

Amortized Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

$

43,060

$

1,648

$

— $

247,764

373,017

21,496

421,916

1,200

1,108,453

48,060

178,953

332,715

7,011

493,915

1,200

1,061,854

30,110

152,969

187,366

326,168

$

$

$

$

696,613

$

$

$

$

$

$

3,169

20,168

608

21,678

—

47,271

743

926

11,150

207

11,981

—

$

$

(1,916)

(20)

(2)

(93)

—

44,708

249,017

393,165

22,102

443,501

1,200

(2,031)

$

1,153,693

(7)

$

(583)

(6)

—

(329)

—

48,796

179,296

343,859

7,218

505,567

1,200

25,007

$

(925)

$

1,085,936

— $

80

727

128

935

(467)

(2,819)

(3,086)

(5,826)

$

$

$

$

$

29,643

150,230

185,007

320,470

685,350

$

(12,198)

The Company’s available for sale securities, carried at fair value, increased $67.8 million, or 6.2%, during 2020. The increase
in 2020 was primarily due to investing excess liquidity balances.

Residential pass-through securities (mortgage backed securities) are securities that have been developed by pooling a number of
real estate mortgages that are principally issued by federal agencies. These securities are deemed to have high credit ratings, and
minimum regular monthly cash flows of principal and interest are guaranteed by the issuing agencies. Unlike U.S. Treasury and
U.S. government agency securities, which have a lump sum payment at maturity, mortgage-backed securities provide cash
flows from regular principal and interest payments and principal prepayments throughout the lives of the securities. Premiums
and discounts on mortgage-backed securities are amortized over the expected life of the security and may be impacted by
prepayments. As such, mortgage-backed securities which are purchased at a premium will generally suffer decreasing net yields
as interest rates drop because home owners tend to refinance their mortgages resulting in prepayments and an acceleration of
premium amortization, Securities purchased at a discount will generally obtain higher net yields in a decreasing interest rate
environment as prepayments result in acceleration of discount accretion.

Cash and Cash Equivalents

Cash and cash equivalents increased by $1.2 billion, or 221.0% to $1.8 billion at December 31, 2020 from $565.2 million at
December 31, 2019, of which $1.1 billion was held with the Federal Reserve Bank at year end 2020. Cash and cash equivalent
balances can vary due to cash needs and volatility of several large title company and commercial accounts. Balances as of
December 31, 2020 is due to significantly increased organic deposit growth during the year over year period.

Goodwill

Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired. The Company’s total
goodwill was $994.0 million as of December 31, 2020 and December 31, 2019.

68

Liabilities

Total liabilities increased $2.6 billion, or 20.8%, to $15.2 billion as of December 31, 2020, from $12.6 billion as of December
31, 2019, primarily due to increased deposits of $2.5 billion mainly as a result of organic growth and $127.5 million, net of
issuance costs, related to subordinated debentures issued in third quarter 2020.

Deposits

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.

Total deposits increased $2.5 billion, or 20.6%, to $14.4 billion as of December 31, 2020 from $11.9 billion as of December 31,
2019. The increase is primarily due to organic growth as well as approximately $395 million of commercial deposits related to
PPP loans that were funded by the Company in the second quarter and remain on deposit at year end 2020. Brokered deposits
totaled $1.5 billion and $894.1 million at December 31, 2020 and 2019, respectively. As of December 31, 2020 and 2019,
noninterest-bearing demand, interest-bearing checking, savings deposits and limited access money market accounts accounted
for 90.2% and 84.7%, respectively, of the Company’s total deposits, while individual retirement accounts and certificates of
deposit made up 9.8% and 15.3%, respectively, of total deposits. Noninterest-bearing demand deposits totaled $4.2 billion, or
28.9% of total deposits, as of December 31, 2020, compared with $3.2 billion, or 27.1% of total deposits, as of December 31,
2019. The total cost of deposits decreased 49 basis points from 1.08% at December 31, 2019 to 0.59% at December 31, 2020.
The average cost of interest-bearing deposits was 0.83% per annum for 2020 compared with 1.48% for 2019. The decrease in
cost of funds is primarily due to rate cuts on the Company's deposit products after the Federal Reserve reduced the target rate to
zero (0) to 25 basis points.

The following table summarizes the Company’s average deposit balances and weighted average rates for the periods presented:

(dollars in thousands)

Deposit Type

Noninterest-bearing demand accounts

Interest-bearing checking accounts

Savings accounts

Limited access money market accounts

As of December 31,

2020

2019

2018

Average
Balance

Weighted
Average
Rate

Average
Balance

Weighted
Average
Rate

Average
Balance

Weighted
Average
Rate

$ 3,736,230

— % $ 3,139,805

— % $ 2,052,675

— %

4,577,137

607,996

2,368,980

0.62

0.18

0.89

3,953,986

540,741

2,047,554

1.12

0.25

1.99

2,943,519

290,325

998,916

0.90

0.24

1.91

Certificates of deposit, including individual retirement accounts
(IRA)

Total deposits

1,645,014

1.57

1,795,391

2.06

1,009,644

1.43

$ 12,935,357

0.59 % $ 11,477,477

1.08 % $ 7,295,079

0.83 %

The following table sets forth the maturity of time deposits (including IRA deposits) of $100,000 or more as of December 31,
2020:

(dollars in thousands)

Individual retirement accounts

Certificates of deposit (excluding CDARS)

CDARS

Total

Short-Term Borrowings

Maturity within:

Three Months

Three to Six
Months

Six to Twelve
Months

After Twelve
Months

Total

$

$

5,724

$

6,327

$

13,955

$

8,103

$

34,109

322,351

29,592

256,269

7,626

391,919

6,652

88,900

3,359

1,059,439

47,229

357,667

$

270,222

$

412,526

$

100,362

$

1,140,777

The Company’s deposits have historically provided the Company with a major source of funds to meet the daily liquidity needs
of the Company’s customers and fund growth in earning assets. However, from time to time the Company may also engage in
short-term borrowings. At December 31, 2020 and 2019, the Company had $31.5 million and $124.5 million, respectively, in
short-term borrowings outstanding, of which $25.0 million and $100.0 million were short-term FHLB advances and $6.5
million and $24.5 million were borrowings against its revolving line of credit at December 31, 2020 and 2019, respectively.

69

These were recorded on the balance sheet under FHLB advances and other borrowings. The Company has not historically
needed to engage in significant short-term borrowing through sources such as federal funds purchased, securities sold under
agreements to repurchase or Federal Reserve Discount Window advances to meet the daily liquidity needs of the Company’s
customers or fund growth in earning assets.

FHLB Advances

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.

The Company’s FHLB borrowings totaled $375.0 million as of December 31, 2020, compared with $325.0 million as of
December 31, 2019. The change in FHLB borrowings from prior year reflects the use of short-term FHLB advances as needed
for liquidity and to fund mortgage warehouse purchase loans. As of December 31, 2020 and 2019, the Company had $4.1
billion and $3.7 billion, respectively, in unused and available advances from the FHLB. At December 31, 2020, the Company’s
FHLB advances are collateralized by assets, including a blanket lien on certain loans along with specific listed loans for an
aggregate available carrying value of $5.7 billion and FHLB stock. As of December 31, 2020 and 2019, the Company had $1.2
billion and $1.1 billion, respectively, in undisbursed advance commitments (letters of credit) with the FHLB. The FHLB letters
of credit were obtained in lieu of pledging securities to secure public fund deposits that are over the FDIC insurance limit.
There were no disbursements against the advance commitments as of December 31, 2020 or 2019.

The following table provides a summary of the Company’s FHLB advances at the dates indicated:

(dollars in thousands)

As of December 31,

2020

2019

2018

Fixed-rate, fixed term, at rates from 0.27% to 1.33%, with a weighted-average of 0.62% (maturing
July 2021 through February 2035)

$

375,000

$

— $

Fixed-rate, fixed term, at rates from 1.33% to 2.59%, with a weighted-average of 2.17% (maturing
January 2020 through July 2021)

Fixed-rate, fixed term, at rates from 1.02% to 2.59%, with a weighted-average of 2.17% (maturing
January 2019 through July 2021)

—

—

—

—

325,000

—

290,000

As of December 31, 2020, the scheduled maturities of the Company’s FHLB advances were as follows (dollars in thousands):

Maturing Within

First Year

Second Year

Third Year

Fourth Year

Fifth Year

Thereafter

Other Long-Term Indebtedness

Principal Amount to Mature

As of December 31, 2020

$

$

25,000

—

200,000

—

—

150,000

375,000

As of December 31, 2020 and 2019, the Company had $305.7 million and $177.8 million, respectively, of long-term
indebtedness (other than FHLB advances and junior subordinated debentures) outstanding, which included subordinated
debentures. The increase from December 31, 2019 to December 31, 2020 was due to $127.5 million, net of issuance costs, of
subordinated debentures issued during third quarter 2020 as well as the discount accretion and fee amortization on the
debentures.

As of December 31, 2020, the Company’s long-term gross indebtedness of $110.0 million, $30.0 million, $40.0 million and
$130.0 million will mature on August 1, 2024, December 31, 2027, July 20, 2026, and September 15, 2030, respectively, with
the $30.0 million, $40.0 million and $130.0 million debentures having an optional redemption date of December 31, 2022, July
20, 2021 and September 15, 2025, respectively.

70

Junior Subordinated Debentures

As of December 31, 2020 and 2019, the Company had outstanding an aggregate principal amount of $57.3 million of nine
series of junior subordinated securities issued to nine unconsolidated subsidiary trusts. Each series of debentures was purchased
by one of the trusts with the net proceeds of the issuance by such trust of floating rate trust preferred securities. These junior
subordinated debentures are unsecured and will mature between March 2033 and September 2037. Each of the series of
debentures bears interest at a per annum rate equal to three-month LIBOR plus a spread that ranges from 1.60% to 3.25%, with
a weighted average rate of 2.74%. Interest on each series of these debentures is payable quarterly, although the Company may,
from time to time defer the payment of interest on any series of these debentures. A deferral of interest payments would,
however, restrict the Company’s right to declare and pay cash distributions, including dividends on the Company’s common
stock, or making distributions with respect to any of the Company’s future debt instruments that rank equally or are junior to
such debentures. The Company may redeem the debentures, which are intended to qualify as Tier 1 capital, at the Company’s
option, subject to approval of the Federal Reserve.

Capital Resources and Liquidity Management

Capital Resources

The Company’s stockholders’ equity is influenced by the Company’s earnings, the sales and redemptions of common stock that
the Company makes, stock based compensation expense, the dividends the Company pays on its common stock, and, to a lesser
extent, any changes in unrealized holding gains or losses occurring with respect to the Company’s securities available for sale.

Total stockholder’s equity was $2.5 billion at December 31, 2020, compared with $2.3 billion at December 31, 2019, an
increase of approximately $175.6 million. The increase was primarily due to net income earned for the year totaling $201.2
million, stock based compensation of $8.5 million and an increase of $17.0 million in unrealized gain on available for sale
securities offset by stock repurchased by the Company totaling $5.8 million and dividends paid of $45.3 million.

Liquidity Management

Liquidity refers to the measure of the Company’s ability to meet the cash flow requirements of depositors and borrowers, 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 the
Company’s interest-earning assets and interest-bearing liabilities. The Company believes that the Company’s present position is
adequate to meet the Company’s current and future liquidity needs.

The Company continuously monitors the Company’s 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 the
Company’s 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, securities sold under repurchase agreements 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 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.

71

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 December 31, 2020
and 2019 the Company had established federal funds lines of credit with various unaffiliated banks totaling $365 million and
$375 million, respectively. Based on the values of stock, securities, and loans pledged as collateral, as of December 31, 2020
and 2019, the Company had additional borrowing capacity with the FHLB of $4.1 billion and $3.7 billion, respectively.

The Company also maintains a secured line of credit with the Federal Reserve Bank with an availability to borrow
approximately $716.7 million and $895.1 million at December 31, 2020 and 2019, respectively. Approximately $1.0 billion and
$1.2 billion of commercial loans were pledged as collateral at December 31, 2020 and 2019, respectively. There were no
borrowings against this line as of December 31, 2020 or 2019.

The Company also participates in an exchange that provides direct overnight borrowings with other financial institutions. The
funds are provided on an unsecured basis. Borrowing availability totaled $694.0 million and $484.0 million at December 31,
2020 and 2019, respectively. There were no borrowings as of December 31, 2020 and 2019.

The Company has a $100 million unsecured revolving line of credit with an unrelated commercial bank. The line bears interest
at LIBOR plus 1.75% and matured on January 17, 2021. As of December 31, 2020 and 2019, the line had $6.5 million and
$24.5 million outstanding, respectively. The Company is required to meet certain financial covenants on a quarterly basis,
which includes maintaining $5 million in cash at Independent Bank Group and meeting minimum capital ratios and bears a
non-usage fee of 0.30% per year on the unused commitment at the end of each fiscal quarter. On January 17, 2020, the line of
credit was renewed. As of March 1, 2021, the Company had no borrowings outstanding against this line.

In April 2020, the Company began originating loans to qualified small businesses under the CARES Act PPP administered by
the SBA. During April 2020, the Company borrowed a $300.0 million advance from the FHLB that provided supplemental
funding for the PPP loan originations. The short-term, full-recourse advance bore interest at an annualized rate of 0.35% and
expired on July 15, 2020. During second quarter 2020, the Company participated in the Federal Reserve's PPP Facility, which,
through March 31, 2021, extends loans to banks who were loaning money to small businesses under the PPP. The amounts
borrowed under the facility during second quarter 2020 totaled $7.6 million, bore interest at a rate of 0.35% and matured at the
same time as the maturity date of the PPP loan pledged to secure the borrowing. As of the end of third quarter 2020, the
Company had repaid all borrowings under the PPP Facility. Federal bank regulatory agencies issued an interim final rule that
permits banks to neutralize the regulatory capital effects of participating in the PPP and the PPP Facility. Specifically, all PPP
loans have a zero percent risk weight under applicable risk-based capital rules. Additionally, a bank may exclude all PPP loans
pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage
ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included.

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. For
additional information regarding dividend restrictions, see “Risk Factors-Risks Related to the Company’s Business” in Part I,
Item 1A, and “Supervision and Regulation” under Part I, Item 1, “Business.”

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.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific
capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Company’s 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.

72

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 connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most
components of accumulated other comprehensive income in regulatory capital. Accordingly, amounts reported as accumulated
other comprehensive income/loss related to securities available for sale do not increase or reduce regulatory capital and are not
included in the calculation of risk-based capital and leverage ratios. Regulatory agencies for banks and bank holding companies
utilize capital guidelines designed to measure capital and take into consideration the risk inherent in both on-balance sheet and
off-balance sheet items. Please refer to Note 21, Regulatory Matters, in the notes to the Company's audited consolidated
financial statements included elsewhere in this report for additional details.

The FDIC has promulgated regulations setting the levels at which an insured institution such as the Bank would be considered
well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The
Bank is considered well-capitalized for purposes of the applicable prompt corrective action regulations.

As of December 31, 2020 and 2019, the Company and Bank exceeded the Basel III capital requirements under prompt
corrective action and other regulatory requirements, as detailed in the table below.

Tier 1 capital to average assets ratio
Common equity tier 1 to risk-weighted assets ratio
Tier 1 capital to risk-weighted assets ratio
Total capital to risk-weighted assets ratio

Tier 1 capital to average assets ratio
Common equity tier 1 to risk-weighted assets ratio

Tier 1 capital to risk-weighted assets ratio

Total capital to risk-weighted assets ratio

As of December 31, 2020

Actual
Bank

Ratio

11.01%
12.97
12.97
13.61

Required
Minimum
Capital -
Basel III

Ratio

4.00%
7.00
8.50
10.50

As of December 31, 2019

Actual
Bank

Ratio

10.70%
11.70

11.70

12.11

Required
Minimum
Capital -
Basel III

Ratio

4.00%
7.00

8.50

10.50

Required to be
Considered
Well
Capitalized
(Bank Only)

Ratio

≥5.00%
≥6.50
≥8.00
≥10.00

Required to be
Considered
Well
Capitalized
(Bank Only)

Ratio

≥5.00%
≥6.50

≥8.00

≥10.00

Actual
Consolidated

Ratio

9.12%
10.33
10.74
13.32

Actual
Consolidated

Ratio

9.32%
9.76

10.19

11.83

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. On October 22, 2020, the Company's board of directors authorized a $150.0 million
stock repurchase program allowing the Company to purchase shares of its common stock through October 31, 2021. Under this
program, the Company repurchased 109,548 shares at a total cost of $5.7 million through March 1, 2021. Under prior stock
repurchase programs, the Company repurchased 897,738 shares of Company stock at a total cost of $49.0 million during 2019
and none during 2018. In July 2019, the federal bank regulators 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 regarding plans for share repurchases on a
quarterly basis. 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. Any redemption or repurchase of
preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve Board. See Part II, Item 5 -
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, in this report
for additional information.

73

Contractual Obligations

In the ordinary course of the Company’s operations, the Company enters into certain contractual obligations, such as
obligations for operating leases and other arrangements with respect to deposit liabilities, FHLB advances and other borrowed
funds. 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.

The following table contains supplemental information regarding the Company’s total contractual obligations as of
December 31, 2020:

(dollars in thousands)

Deposits without a stated maturity

Time deposits

FHLB advances

Subordinated debt

Junior subordinated debentures

Operating leases

Total contractual obligations

Payments Due

Within One
Year

One to Three
Years

Three to Five
Years

After Five
Years

Total

$

12,983,289

$

— $

— $

— $

12,983,289

1,263,633

25,000

—

—

5,615

136,883

200,000

—

—

8,930

15,117

—

110,000

—

6,192

5

1,415,638

150,000

200,000

57,324

5,700

375,000

310,000

57,324

26,437

$

14,277,537

$

345,813

$

131,309

$

413,029

$

15,167,688

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.

Other than normal changes in the ordinary course of business and the items mentioned above, there have been no significant
changes in the types of contractual obligations or amounts due since December 31, 2019.

Off-Balance Sheet Arrangements

In the normal course of business, the Company enters into various transactions, which, in accordance with accounting principles
generally accepted in the United States, are not included in the Company’s consolidated balance sheets. However, the Company
has only limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on
the Company’s financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
Independent Bank enters into these transactions to meet the financing needs of the Company’s customers. These transactions
include commitments to extend credit and issue standby letters of credit, which involve, to varying degrees, elements of credit
risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

Commitments to Extend Credit. Independent Bank enters into contractual commitments to extend credit, normally with fixed
expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of Independent Bank’s
commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding.
Independent Bank minimizes its exposure to loss under these commitments by subjecting them to credit approval and
monitoring procedures.

Standby Letters of Credit. Standby letters of credit are written conditional commitments that Independent Bank issues to
guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the
terms of the agreement with the third party, Independent Bank would be required to fund the commitment. The maximum
potential amount of future payments Independent Bank could be required to make is represented by the contractual amount of
the commitment. If the commitment is funded, the customer is obligated to reimburse Independent Bank for the amount paid
under this standby letter of credit.

74

Commitments to extend credit were $2.3 billion as of December 31, 2020 and 2019. Outstanding standby letters of credit were
$25.9 million and $23.4 million, as of December 31, 2020 and 2019, respectively. Since commitments associated with letters of
credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash
funding requirements. The Company manages the Company’s liquidity in light of the aggregate amounts of commitments to
extend credit and outstanding standby letters of credit in effect from time to time to ensure that the Company will have adequate
sources of liquidity to fund such commitments and honor drafts under such letters of credit.

The Company guarantees the distributions and payments for redemption or liquidation of the trust preferred securities issued by
the Company’s wholly owned subsidiary trusts to the extent of funds held by the trusts. Although this guarantee is not
separately recorded, the obligation underlying the guarantee is fully reflected on the Company’s consolidated balance sheets as
junior subordinated debentures, which debentures are held by the Company’s subsidiary trusts. The junior subordinated
debentures currently qualify as Tier 1 capital under the Federal Reserve capital adequacy guidelines. Refer to Note 12, Junior
Subordinated Debentures, in the notes to the Company's audited consolidated financial statements included elsewhere in this
report for additional details.

Asset/Liability Management and Interest Rate Risk

The principal objective of the Company’s asset and liability management function is to evaluate the interest rate risk within the
balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate
levels of liquidity and capital. The Investment Committee of Independent Bank’s Board of Directors has oversight of
Independent Bank’s 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 market interest rate changes, local and national market
conditions and market interest rates. That group also reviews the liquidity, capital, deposit mix, loan mix and investment
positions of the Company.

The Company’s management and the Board of Directors are responsible for managing interest rate risk and 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 portfolio equity analyses. These analyses use various assumptions, including
the nature and timing of interest rate changes, yield curve shape, prepayments on loans, 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 are modeled and utilized to evaluate risk and establish exposure limits for acceptable
changes in net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and
use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing
decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows.

The Company also analyzes the economic value of equity as a secondary 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 conducts periodic analyses of its sensitivity to interest rate risks through the use of a third-party proprietary
interest-rate sensitivity model. That model 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 estimate
the its sensitivity to interest rate risk.

75

The Company’s interest rate risk model indicated that it was in an asset sensitive position in terms of interest rate sensitivity as
of December 31, 2020. 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 based on the interest rate risk model as of December 31,
2020:

Hypothetical Shift in Interest Rates (in bps)

% Change in Projected Net Interest Income

200

100

(100)

5.16%

2.08

(4.37)

The Company's model indicates that its projected balance sheet at December 31, 2020 is more asset sensitive in comparison to
its balance sheet as of December 31, 2019. The shift to a more asset sensitive position was primarily due to an increase in the
relative proportion of interest bearing deposits (primarily amounts held in an interest-bearing account at the Federal Reserve).
Interest-bearing deposits are more immediately impacted by changes in interest rates in comparison to our other categories of
earning assets.

These are good faith estimates and assume that the composition of the Company’s interest sensitive assets and liabilities
existing at each year-end will remain constant over the relevant twelve-month measurement period and 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. Also, this analysis does not contemplate any actions that the Company might undertake in response to
changes in market interest rates. 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 its future results will likely be different from the foregoing estimates, and such
differences could be material.

Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different
than the Company’s projections due to several factors, including the timing and frequency of rate changes, market conditions
and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that the Company’s
management may undertake to manage the risks in response to anticipated changes in interest rates and actual results may also
differ due to any actions taken in response to the changing rates.

As part of the Company’s asset/liability management strategy, the Company’s management has emphasized the origination of
shorter duration loans to limit the negative exposure to rate changes. The average duration of the loan portfolio is less than four
years. The Company’s strategy with respect to liabilities has been to emphasize transaction accounts, particularly noninterest or
low interest-bearing nonmaturing deposit accounts, which are less sensitive to changes in interest rates. In response to this
strategy, nonmaturing deposit accounts have been a large portion of total deposits and totaled 90.2% and 84.7% of total deposits
as of December 31, 2020 and 2019, respectively. The Company had brokered deposits, including CDARS totaling $1.5 billion
and $894.1 million, at December 31, 2020 and 2019, respectively. The Company intends to focus on the Company’s strategy of
increasing noninterest or low interest-bearing nonmaturing deposit accounts, but may consider the use brokered deposits as a
stable source of lower cost funding.

76

Inflation and Changing Prices

The largest component of earnings for the Company is net interest income, which is affected by changes in interest rates.
Changes in interest rates are also influenced by changes in the rate of inflation, although not necessarily at the same rate or in
the same magnitude. In management's opinion, changes in interest rates have a more significant impact to the Company's
operations than do changes in inflation. However, inflation, does impact the operating costs of the Company, primarily
employment costs and other services.

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.

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 believes that the
critical accounting policies and estimates discussed below require the Company to make difficult, subjective or complex
judgments about matters that are inherently uncertain. Changes in these estimates, that 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.

Acquired Loans. The Company’s accounting policies require that the Company evaluates all acquired loans for evidence of
deterioration in credit quality since origination and to evaluate whether it is probable that the Company will collect all
contractually required payments from the borrower.

Acquired loans from the transactions accounted for as a business combination include both loans with evidence of credit
deterioration since their origination date and performing loans. The Company accounts for performing loans under ASC
Paragraph 310-20, Nonrefundable Fees and Other Costs, with the related difference in the initial fair value and unpaid principal
balance (the discount) recognized as interest income on a level yield basis over the life of the loan. The Company accounts for
the nonperforming loans acquired in accordance with ASC Paragraph 310-30, Loans and Debt Securities Acquired with
Deteriorated Credit Quality. At the date of the acquisition, acquired loans are recorded at their fair value with no valuation
allowance.

For purchase credit impaired loans, the Company recognizes the difference between the undiscounted cash flows the Company
expects (at the time the Company acquires the loan) to be collected and the investment in the loan, or the “accretable yield,” as
interest income using the interest method over the life of the loan. The Company does not recognize contractually required
payments for interest and principal that exceed undiscounted cash flows expected at acquisition, or the “nonaccretable
difference,” as a yield adjustment, loss accrual or valuation allowance. Increases in the expected cash flows subsequent to the
initial investment are recognized prospectively through adjustment of the yield on the loan over the loan’s remaining life, while
decreases in expected cash flows are recognized as impairment. Valuation allowances on these impaired loans reflect only
losses incurred after the acquisition.

Upon an acquisition, the Company generally continues to use the classification of acquired loans classified nonaccrual or 90
days and still accruing. The Company does not classify acquired loans as TDRs unless the Company modifies an acquired loan
subsequent to acquisition that meets the TDR criteria. Reported delinquency of the Company’s purchased loan portfolio is
based upon the contractual terms of the loans.

77

Allowance for Loan Losses. ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments, which requires a new credit loss methodology, the current expected credit loss (CECL) model,
became effective for the Company on January 1, 2020. As provided to financial institutions under the CARES Act enacted on
March 27, 2020 and as amended by the Consolidated Appropriations Act, 2021 signed into law on December 27, 2020, the
Company elected to defer the adoption of the current expected credit loss (CECL) accounting standard and has continued its
consistent application of the incurred loss method for estimating its allowance for loan losses and provision for 2020. The
Company adopted the CECL accounting standard as of January 1, 2021. Refer to Note 2, Recent Accounting Pronouncements,
in the notes to the Company's consolidated financial statements included elsewhere in this report for additional information.

The allowance for loan losses represents management’s estimate of probable and reasonably estimable credit losses inherent in
the loan portfolio. In determining the allowance, the Company estimates losses on individual impaired loans, or groups of loans
which are not impaired, where the probable loss can be identified and reasonably estimated. On a quarterly basis, the Company
assesses the risk inherent in the Company’s loan portfolio based on qualitative and quantitative trends in the portfolio, including
the internal risk classification of loans, historical loss rates, changes in the nature and volume of the loan portfolio, industry or
borrower concentrations, delinquency trends, detailed reviews of significant loans with identified weaknesses and the impacts
of local, regional and national economic factors on the quality of the loan portfolio. Based on this analysis, the Company
records a provision for loan losses in order to maintain the allowance at appropriate levels.

Determining the amount of the allowance is considered a critical accounting estimate, as it requires significant judgment and the
use of subjective measurements, including management’s assessment of overall portfolio quality. The Company maintains the
allowance at an amount the Company believes is sufficient to provide for estimated losses inherent in the Company’s loan
portfolio at each balance sheet date, and fluctuations in the provision for loan losses may result from management’s assessment
of the adequacy of the allowance. Changes in these estimates and assumptions are possible and may have a material impact on
the Company’s allowance, and therefore the Company’s financial position, liquidity or results of operations.

Goodwill and Other Intangible Assets. The excess purchase price over the fair value of net assets from acquisitions, or
goodwill, is evaluated for impairment at least annually and on an interim basis if an event or circumstance indicates that it is
likely an impairment has occurred. The Company first assesses qualitative factors to determine whether the existence of events
or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is not more likely than
not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative impairment test is
unnecessary. If the Company concludes otherwise, then it is required to perform an impairment test by calculating the fair value
of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. The Company performs its
impairment test annually as of December 31. During the period ended March 31, 2020, the economic turmoil and market
volatility resulting from the COVID-19 pandemic crisis resulted in a substantial 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 which resulted in no impairment charge for the period ended March 31, 2020. Subsequently, the
Company's stock price and market capitalization has seen continued improvement through December 31, 2020. Refer to Note 1,
Summary of Significant Accounting Policies, in the notes to the Company's consolidated financial statements included
elsewhere in this report for additional information.

Determining the fair value of goodwill is considered a critical accounting estimate because the allocation of the fair value of
goodwill to assets and liabilities requires significant management judgment and the use of subjective measurements. Variability
in the market and changes in assumptions or subjective measurements used to allocate fair value are reasonably possible and
may have a material impact on the Company’s financial position, liquidity or results of operations.

Core deposit intangibles and other acquired customer relationship intangibles lack physical substance but can be distinguished
from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on
its own or in combination with a related contract, asset, or liability. Other intangible assets are being amortized on a straight-
line basis over their estimated useful lives ranging from ten to thirteen years. Other intangible assets are tested for impairment
whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future
undiscounted cash flows. If impaired, the assets are recorded at fair value.

78

Recently Issued Accounting Pronouncements

The Company has evaluated new accounting pronouncements that have recently been issued and have determined that there are
no new accounting pronouncements that should be described in this section that will materially impact the Company’s
operations, financial condition or liquidity in future periods. Refer to Note 2, Recent Accounting Pronouncements, of the
Company’s audited consolidated financial statements for a discussion of recent accounting pronouncements that have been
adopted by the Company or that will require enhanced disclosures in the Company’s financial statements in future periods.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding the market risk of the Company's financial instruments, see Part II, Item. 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation--Financial Condition--Asset/Liability Management
and Interest Rate Risk. The Company's principal market risk exposure is to changes in interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements, the reports thereon, the notes thereto and supplementary data commence at page 89 of this Annual
Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. As of the end of the period covered by this Annual Report on Form 10-K, the
Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and
procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, and management was required to apply judgment in evaluating its disclosure controls and procedures. Based on this
evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) were effective as
of the end of the period covered by this report.

Management’s report on internal control over financial reporting. The management, including the Chief Executive Officer and
Chief Financial Officer, of the Company is responsible for establishing and maintaining an effective system of internal control
over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external
purposes in accordance with generally accepted accounting principles. Internal control over financial reporting is defined in
Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act.

As of December 31, 2020, management, including the Chief Executive Officer and Chief Financial Officer, assessed the
effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over
financial reporting established in “Internal Control-Integrated Framework,” issued by the Committee of Sponsoring
Organizations, or COSO, of the Treadway Commission (2013 framework). Based on the assessment, management determined
that the Company maintained effective internal control over financial reporting, as of December 31, 2020, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external
purposes in accordance with U.S. generally accepted accounting principles.

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.

79

Attestation report of the registered public accounting firm. The Company’s independent registered public accounting firm that
audited the Company's consolidated financial statements included in this Annual Report on Form 10-K has issued an attestation
report on the Company’s internal control over financial reporting. The attestation report of RSM US LLP, which expresses an
unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2020, appears
below.

80

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Independent Bank Group, Inc.

Opinion on the Internal Control Over Financial Reporting
We have audited Independent Bank Group, Inc. 's (the Company) internal control over financial reporting as of December 31,
2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, and the related statements of
income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended
December 31, 2020, and our report dated March 1, 2021 expressed an unqualified opinion.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

RSM US LLP

Dallas, Texas
March 1, 2021

81

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item 10 is incorporated herein by reference to the information under the captions “Election of
Directors,” “Our Board of Directors,” “Identification & Evaluation of Director Candidates,” “Nominee for Election,”
“Continuing Directors,” “Executive Officers,” “Board Governance,” “Stock Ownership of Directors, Nominees, Executive
Officers and Principal Shareholders,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s
definitive Proxy Statement for its 2021 Annual Meeting of Shareholders (the “2021 Proxy Statement”) to be filed with the
Commission pursuant to Regulation 14A under the Exchange Act within 120 days of the Company’s fiscal year end.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated herein by reference to the information under the caption
"Compensation Discussion & Analysis” in the 2021 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED SHAREHOLDER MATTERS

Certain information required by this Item 12 is included under “Securities Authorized for Issuance under Equity Compensation
Plans” in Part II, Item 5 of this Annual Report on Form 10-K. The other information required by this Item is incorporated herein
by reference to the information under the caption “Stock Ownership of Directors, Nominees, Executive Officers and Principal
Shareholders” in the 2021 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this Item 13 is incorporated herein by reference to the information under the captions “Election of
Directors,” “Board Governance-Director Independence” and “Related Person and Certain Other Transactions” in the 2021
Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item 14 is incorporated herein by reference to the information under the caption “Fees Paid to
Independent Registered Public Accounting Firm” and “Audit Committee Pre-Approval Policies and Procedures” in the 2021
Proxy Statement.

82

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Annual Report on Form 10-K:

PART IV

1. Consolidated Financial Statements. Reference is made to the Consolidated Financial Statements, the report thereon and the
notes thereto commencing at page 89 of this Annual Report on Form 10-K. Set forth below is an index of such Consolidated
Financial Statements:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Income for the Years Ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018

Notes to Consolidated Financial Statements

87

89

90

91

92

93

95

2. Financial Statement Schedules. All supplemental schedules are omitted as inapplicable or because the required information is
included in the Consolidated Financial Statements or notes thereto.

3. The exhibits to this Annual Report on Form 10-K listed below have been included only with the copy of this report filed with
the SEC. The Company will furnish a copy of any exhibit to shareholders upon written request to the Company and payment of
a reasonable fee not to exceed the Company’s reasonable expense.

Each exhibit marked with an asterisk is filed or furnished with this Annual Report on Form 10-K as noted below.

83

EXHIBIT LIST

Exhibit Number
3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

3.10

3.11

3.12

4.1

4.2

4.3

4.4

4.5

Description

Amended and Restated Certificate of Formation of the Company (incorporated herein by reference to
Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed with the SEC on February 27,
2013 (Registration No. 333-186912) (the “Form S-1 Registration Statement”))

Certificate of Amendment to Amended and Restated Certificate of Formation of the Company
(incorporated herein by reference to Exhibit 3.3 to Amendment No. 2 to the Form S-1 Registration
Statement filed with SEC on April 1, 2013)

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Independent
Bank Group, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report
on Form 8-K filed with the SEC on May 28, 2019)

Statement of Designations of Senior Non-Cumulative Perpetual Preferred Stock, Series A of
Independent Bank Group, Inc., as filed with the Office of the Secretary of State of the State of Texas
on April 15, 2014 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report
on Form 8-K filed with the SEC on April 17, 2014)

Fourth Amended and Restated Bylaws of Independent Bank Group, Inc. (incorporated herein by
reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on
May 28, 2019)

Certificate of Merger, dated January 2, 2014, of Live Oak Financial Corp. with and into Independent
Bank Group, Inc. (incorporated herein by reference to Exhibit 3.5 to Amendment No. 1 to the
Company’s Registration Statement on Form S-3 (Registration No. 333-196627 filed with the SEC on
June 25, 2014 (the “Form S-3 Registration Statement”))

Certificate of Merger, dated April 15, 2014, of BOH Holdings, Inc. with and into Independent Bank
Group, Inc. (incorporated herein by reference to Exhibit 3.6 to Amendment No. 1 to the Form S-3
Registration Statement filed with the SEC on June 25, 2014)

Certificate of Merger, dated September 30, 2014, of Houston City Bancshares, Inc. with and into
Independent Bank Group, Inc. (incorporated by reference to Exhibit 3.7 to the Company’s Quarterly
Report on Form 10-Q, for the quarter ended June 30, 2015, filed with the SEC on July 31, 2015)

Certificate of Merger, dated March 31, 2017, of Carlile Bancshares, Inc. with and into Independent
Bank Group, Inc. (incorporated by reference to Exhibit 3.8 to the Company’s Quarterly Report on
Form 10-Q, for the quarter ended March 31, 2017 filed with the SEC on April 27, 2017)

Certificate of Merger, dated October 23, 2017, of Washington Investment Company with and into
Independent Bank Group, Inc. (incorporated by reference to Exhibit 3.9 to the Registrant’s Current
Report on Form 10-Q filed with the SEC on July 26, 2018)

Certificate of Merger, dated May 31, 2018, of Integrity Bancshares, Inc. with and into Independent
Bank Group, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on
Form 10-Q filed with the SEC on July 26, 2018)

Certificate of Merger, dated December 27, 2018, but effective January 1, 2019, of Guaranty Bancorp
with and into Independent Bank Group, Inc. (incorporated herein by reference to Exhibit 3.10 to the
Company’s Annual Report on Form 10-K for the year December 31, 2018, filed with the SEC on
February 28, 2019)

Form of certificate representing shares of the Company’s common stock (incorporated herein by
reference to Exhibit 4.1 to Amendment No. 1 to the Form S-1 Registration Statement filed with the
SEC on March 18, 2013)

Subordinated Debt Indenture, dated as of June 25, 2014, between Independent Bank Group, Inc. and
Wells Fargo Bank, National Association, in its capacity as Indenture Trustee (incorporated herein by
reference to Exhibit 4.6 to Amendment No. 1 to the S-3 Registration Statement filed with the SEC on
June 25, 2014)

First Supplemental Indenture, dated as of July 17, 2014, between Independent Bank Group, Inc. and
Wells Fargo Bank Shareowner Services, in its capacity as Indenture Trustee (incorporated herein by
reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, dated July 17, 2014)

Second Supplemental Indenture, dated as of December 19, 2017, between Independent Bank Group,
Inc. and Wells Fargo Bank, National Association, as trustee (incorporated herein by reference to
Exhibit 4.2 to the Company’s Current Report on Form 8-K, dated December 19, 2017)

Third Supplemental Indenture, dated as of September 15, 2020, between Independent Bank Group,
Inc. and Wells Fargo Bank, National Association, as trustee (incorporated herein by reference to
Exhibit 1.1 to the Company’s Current Report on Form 8-K dated September 15, 2020)

84

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13
4.14

Form of Global Note to represent the 5.875% Subordinated Notes due August 1, 2024, of the
Company (incorporated herein by reference to Exhibit 4.5 in the Company’s Quarterly Report on
Form 10-Q, for the quarter ended September 30, 2017, filed with the SEC on October 26, 2017)

Form of Global Note to represent the 5.875% Subordinated Notes due August 1, 2024, of the
Company (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form
8-K, dated June 22, 2016)

Form of 5.00% Fixed-to-Floating Rate Subordinated Note due December 31, 2027 (incorporated by
reference to Exhibit 4.2 to Independent Bank Group, Inc.’s Current Report on Form 8-K dated
December 19, 2017)

Form of 4.00% Fixed-to-Floating Rate Subordinated Notes due 2030 (incorporated by reference to
Exhibit 4.3 (included in exhibit 4.2) to the Company’s Current Report on Form 8-K dated September
15, 2020)
Indenture, dated July 18, 2016, between Guaranty Bancorp and Wells Fargo Bank, National
Association, in its capacity of Trustee*
First Supplemental Indenture, dated July 16, 2016, between Guaranty Bancorp and Wells Fargo
Bank, National Association, in its capacity as Trustee, Paying Agent and Registrar*
Second Supplemental Indenture, dated July 16, 2016, between Guaranty Bancorp and Wells Fargo
Bank, National Association, in its capacity as Trustee, Paying Agent and Registrar*

Form of 5.75% Fixed-to-Floating Rate Subordinated Note due July 20, 2026*

Description of Registrant’s Securities*

The other instruments defining the rights of holders of the long-term debt securities of the Company and its subsidiaries are
omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company hereby agrees to furnish copies of
these instruments to the SEC upon request.

4.15

10.1

10.2

10.3(a)

10.3(b)

10.3(c)

10.3(d)

10.3(e)

10.4(a)

10.4(b)

10.4(c)

10.4(d)

10.4(e)

Fifth Amendment to Independent Bank 401(k) Profit Sharing Plan*
Form of Indemnification Agreement for directors and officers (incorporated herein by reference to
Exhibit 10.16 to the Form S-1 Registration Statement)
2015 Performance Award Plan (incorporated herein by reference to Annex A of the Company’s
definitive Proxy Statement for its 2015 Annual Meeting of Shareholders, dated April 13, 2015)
2013 Equity Incentive Plan, with form of Restricted Stock Award Agreement (incorporated herein by
reference to Exhibit 10.20 to the Form S-1 Registration Statement)

First Amendment to the 2013 Equity Incentive Plan (incorporated by reference to Appendix A to the
Company’s proxy statement for its 2018 Annual Meeting of Shareholders filed with the SEC on
April 26, 2018)
Second Amendment to the 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.3(c)
to the Company’s Annual Report on Form 10-K/A dated March 6, 2020)

Form of Performance Restricted Stock Unit Agreement for performance based restricted stock units
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
Quarter ended September 30, 2020, filed with the SEC on October 29, 2020)

Form of Restricted Stock Agreement for restricted stock grants with ratable vesting (incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended
September 30, 2020, filed with the SEC on October 29, 2020)

Credit Agreement, dated as of January 17, 2019, between Independent Bank Group, Inc., in favor of
U.S. Bank National Association (incorporated herein by reference to Exhibit 10.1(a) to the
Company’s Current Report on Form 8-K, dated January 17, 2019)

Revolving Credit Note, dated January 17, 2019, by Independent Bank Group, Inc. in favor of U.S.
Bank National Association (incorporated herein by reference to Exhibit 10.1(b) to the Company’s
Current Report on Form 8-K, dated January 17, 2019)

Negative Pledge Agreement, dated as of January 17, 2019, by the Company, in favor of U.S. Bank
National Association (incorporated herein by reference to Exhibit 10.1(c) to the Company’s Current
Report on Form 8-K, dated January 17, 2019)

First Amendment to Credit Agreement between Independent Bank Group, Inc. and U.S. Bank
National Association, dated January 17, 2020 (incorporated by reference to Exhibit 10.4(d) to the
Company’s Annual Report on Form 10-K/A dated March 6, 2020)
Second Amendment to Credit Agreement between Independent Bank Group, Inc. and U.S. Bank
National Association, dated January 17, 2021*

85

10.5

10.6(a)

10.6(b)

10.7

21.1

23.1

31.1

31.2

32.1
32.2

101.INS

101.SCH

101.CAL

101.DEF

101.LAB

101.PRE

104

Employment Agreement, dated March 25, 2016, between Independent Bank and James C. White and
joined in by the Company (incorporated herein by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the Quarter ended June 30, 2016, filed with the SEC on July 27,
2016)

Form of Change in Control Agreement, dated July 26, 2016, between the Company and certain
Executive Officers (incorporated herein by reference to Exhibit 10.1(a) to the Company’s Quarterly
Report on Form 10-Q for the Quarter ended September 30, 2016, filed with the SEC on October 27,
2016)

Schedule of Executive Officers who have executed a Change in Control Agreement*

Separation Agreement between Brian Hobart, Independent Bank and Independent Bank Group, Inc.,
dated November 11, 2019 (incorporated herein by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K, dated November 11, 2019)
Subsidiaries of Independent Bank Group, Inc. (incorporated by reference to Exhibit 21.1 to the
Company’s Annual Report on Form 10-K/A dated March 6, 2020)
Consent of RSM US LLP, Independent Registered Public Accounting Firm of Independent Bank
Group, Inc.*

Chief Executive Officer Section 302 Certification*

Chief Financial Officer Section 302 Certification*

Chief Executive Officer Section 906 Certification***

Chief Financial Officer Section 906 Certification***

XBRL Instance Document*

XBRL Taxonomy Extension Schema Document*

XBRL Taxonomy Extension Calculation Linkbase Document*

XBRL Taxonomy Extension Definition Linkbase Document*

XBRL Taxonomy Extension Label Linkbase Document*

XBRL Taxonomy Extension Presentation Linkbase Document*
Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL
document)

*
**

***

(b)

(c)

Filed herewith as an Exhibit
Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules and similar attachments have been omitted. The
registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.
Furnished herewith as an Exhibit

Exhibits. See the exhibit list included in Item 15(a)3 of this Annual Report on Form 10-K.

Financial Statement Schedules. See Item 15(a)2 of this Annual Report on Form 10-K.

86

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Independent Bank Group, Inc.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Independent Bank Group, Inc. and its subsidiaries (the
Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes
in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes
to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting
principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
in 2013, and our report dated March 1, 2021 expressed an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.

Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.

Allowance for Loan Losses
As described in Note 6 of the consolidated financial statements, the Company’s allowance for loan losses totaled $87.8 million
as of December 31, 2020, including $79.1 million allocated to the collectively evaluated loans and $8.7 million allocated to
individually evaluated loans. The Company determines the allowance for loan losses by estimating probable and reasonably
estimable loan losses inherent in loans held for investment as of the balance sheet date. The allowance for loan losses contains
provisions for probable losses that have been identified relating to specifically identified loans (reserve for loans individually
evaluated), as well as probable losses inherent in the loan portfolio and credit undertakings that are not specifically identified
(reserve for loans collectively evaluated). The reserve for loans individually evaluated is established utilizing either the present
value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair
value of collateral if the loan is collateral dependent. The reserve for loans collectively evaluated is established through
historical loss experience adjusted for qualitative factors. Qualitative factors used by the Company include considerations such
as changes in the lending policies and procedures; collection, charge-off and recovery practices; nature and volume of the loan
portfolio; change in value of underlying collateral; volume and severity of nonperforming loans; existence and effect of any
concentrations of credit and the level of such concentrations; and current, national and local economic and business conditions.
The measurement of the qualitative factors considered in the allowance for loans collectively evaluated requires a significant
amount of judgment by management and the estimate is highly sensitive to changes in significant assumptions.

87

We identified the determination of qualitative factors applied to the collectively evaluated reserve of the allowance for loan
losses as a critical audit matter because auditing the qualitative factors of the allowance required a high degree of auditor
judgment, as the assumptions determined by management are highly subjective and the estimate is highly sensitive to changes
in significant assumptions.

Our audit procedures related to the qualitative factors applied to loans collectively evaluated included the following, among
others:

• We obtained an understanding of the relevant controls related to the development of qualitative factors and tested such
controls for design and operating effectiveness, including controls over management’s establishment, review and
approval of the qualitative factors and data used in determining the qualitative factors.

• We tested management’s process and evaluated the reasonableness of their judgements and assumptions to develop the

qualitative factors, which included:

◦

◦

Testing the accuracy of the data inputs used by management as a basis for the adjustments for qualitative
factors by comparing to internal and external source data and assessing the reasonableness of the magnitude
and directional consistency of the adjustments.
Evaluating whether management’s conclusions were consistent with Company-provided internal data or
independently sourced data and agreeing the impact to the allowance calculation.

Goodwill
As described in Notes 1 and 8 of the consolidated financial statements, the Company’s recorded goodwill was $994.0 million as
of December 31, 2020. The Company tests goodwill of a reporting unit for impairment annually on December 31 or on an
interim basis if an event or circumstance indicates it is more likely than not that the fair value of the reporting unit is less than
its carrying amount. During the quarter ended March 31, 2020, the economic turmoil and market volatility resulting from the
COVID-19 crisis resulted in a substantial decrease in the Company’s stock price and market capitalization. Management
determined such decrease was a triggering event requiring an interim quantitative impairment test. The Company estimates the
fair value of the reporting unit by making significant estimates and assumptions related to the specific circumstances of the
reporting unit such as net interest income and net income projections, based on historical results and industry data, and the
selection of an appropriate discount rate and control premium as well as consideration of transactions involving banks similar to
the Company and related multiples. The application of these valuation methodologies and necessary assumptions requires a
significant amount of judgment by management and the estimate is highly sensitive to changes in significant assumptions.

We identified the interim goodwill impairment assessment as a critical audit matter because of the complexity of the analysis
and certain significant assumptions, including the projected cash flows, effective discount rate, control premium and
comparable market companies. Auditing management’s assumptions required significant auditor judgment and increased audit
effort, including the use of our internal valuation specialists.

Our audit procedures related to the interim goodwill impairment assessment included the following, among others:

• We obtained an understanding of the relevant controls related to the interim goodwill impairment assessment and

tested such controls for design and operating effectiveness, including controls over management’s preparation of cash
flow projections, review of the significant assumptions such as discount rate, control premium and price multiples of
comparable market companies and review of the computations made within the assessment.

• We evaluated the reasonableness of management’s cash flow projections by comparing prior forecasts to historical
data and by comparison of operating ratios such as return on assets, loan to deposit ratios and net interest margin to
historical and peer group results.

• We utilized our internal valuation specialists to assist in:

◦

◦

◦

Evaluating the reasonableness of the control premium used by comparing to premiums paid in transactions
where similar companies were acquired.
Evaluating the price multiples of comparable market companies by comparing management’s assumptions to
information publicly available.
Evaluating the effective discount rate by comparing to publicly available market data.

RSM US LLP

We have served as the Company's auditor since 2001.

Dallas, Texas
March 1, 2021

88

Independent Bank Group, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2020 and 2019
(Dollars in thousands, except share information)

Assets

Cash and due from banks

Interest-bearing deposits in other banks

Cash and cash equivalents

Certificates of deposit held in other banks

Securities available for sale, at fair value

December 31,

2020

2019

$

250,485

$

1,563,502

1,813,987

4,482

186,299

378,871

565,170

5,719

1,153,693

1,085,936

Loans held for sale (includes $71,769 and $29,204 carried at fair value, respectively)

82,647

35,645

Loans, net

Premises and equipment, net

Other real estate owned

Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock

Bank-owned life insurance (BOLI)

Deferred tax asset

Goodwill

Other intangible assets, net

Other assets

Total assets

Liabilities and Stockholders’ Equity

Deposits:

Noninterest-bearing

Interest-bearing

Total deposits

FHLB advances

Other borrowings

Junior subordinated debentures

Other liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity:

Preferred stock (0 and 0 shares outstanding, respectively)

Common stock (43,137,104 and 42,950,228 shares outstanding, respectively)

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income

Total stockholders’ equity

Total liabilities and stockholders’ equity

See Notes to Consolidated Financial Statements

89

12,978,238

11,562,814

249,467

475

20,305

220,428

3,933

994,021

88,070

143,730

242,874

4,819

30,052

215,081

6,943

994,021

100,741

108,392

$ 17,753,476

$ 14,958,207

$

4,164,800

$

3,240,185

10,234,127

14,398,927

8,701,151

11,941,336

375,000

312,175

54,023

97,980

325,000

202,251

53,824

96,023

15,238,105

12,618,434

—

431

—

430

1,934,807

1,926,359

543,800

36,333

393,674

19,310

2,515,371

2,339,773

$ 17,753,476

$ 14,958,207

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 2020, 2019 and 2018
(Dollars in thousands, except per share information)

Interest income:

Interest and fees on loans

Interest on taxable securities

Interest on nontaxable securities

Interest on interest-bearing deposits and other

Total interest income
Interest expense:

Interest on deposits
Interest on FHLB advances
Interest on other borrowings
Interest on junior subordinated debentures

Total interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Noninterest income:

Service charges on deposit accounts

Investment management and trust

Mortgage banking revenue

Gain on sale of loans

Gain on sale of branches

Gain on sale of trust business

(Loss) gain on sale of other real estate

Gain (loss) on sale of securities available for sale

Gain (loss) on sale and disposal of premises and equipment

Increase in cash surrender value of BOLI

Other

Total noninterest income

Noninterest expense:

Salaries and employee benefits
Occupancy
Communications and technology
FDIC assessment
Advertising and public relations
Other real estate owned expenses, net
Impairment of other real estate
Amortization of other intangible assets
Professional fees
Acquisition expense, including legal
Other

Total noninterest expense

Income before taxes

Income tax expense

Net income

Basic earnings per share

Diluted earnings per share

See Notes to Consolidated Financial Statements

Years Ended December 31,

2020

2019

2018

384,791

14,007

4,580

3,912

407,290

60,767
10,264
8,398
1,609
81,038

326,252

9,860

316,392

7,039

—

15,512

—

—

—

269

(581)

123

3,170

16,692

42,224

111,697
24,786
14,107
3,306
1,907
318
85
5,739
4,556
6,157
25,961
198,619

159,997
31,738

128,259

4.33

4.33

$

579,085

$

611,589

$

19,150

8,472

4,799

611,506

76,266
4,170
12,462
2,162
95,060

516,446

42,993

473,453

9,303

7,546

36,491

356

—

—

(36)

382

370

5,347

25,304

85,063

157,540
39,210
23,113
6,912
2,416
487
784
12,671
12,630
16,225
34,146
306,134

252,382
51,173

201,209

4.67

4.67

$

$

$

21,324

8,482

11,537

652,932

123,384
10,173
11,590
3,028
148,175

504,757

14,805

489,952

12,145

9,330

15,461

6,779

1,549

1,319

875

275

(585)

5,525

25,503

78,176

162,683
37,654
22,248
1,065
2,527
418
1,801
12,880
7,936
33,445
39,207
321,864

246,264
53,528

192,736

4.46

4.46

$

$

$

$

$

$

90

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2020, 2019 and 2018
(Dollars in thousands)

Net income

Other comprehensive income (loss) before tax:

Change in net unrealized gains (losses) on available for sale securities during
the year
Reclassification for amount realized through sales of securities
available for sale included in net income

Other comprehensive income (loss) before tax

Income tax expense (benefit)

Other comprehensive income (loss), net of tax

Comprehensive income

See Notes to Consolidated Financial Statements

Years Ended December 31,

2020

2019

2018

$

201,209

$

192,736

$

128,259

21,540

35,620

(10,182)

(382)

21,158

4,135

17,023

(275)

35,345

7,730

27,615

581

(9,601)

(2,016)

(7,585)

$

218,232

$

220,351

$

120,674

91

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
Years Ended December 31, 2020, 2019 and 2018
(Dollars in thousands, except for par value, share and per share information)

Preferred Stock
$0.01 Par Value
10 million shares
authorized

Common Stock
$0.01 Par Value
100 million shares
authorized

Shares

Amount

Additional
Paid in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss) Income

Total

Balance, December 31, 2017

$

— 28,254,893

$

283

$

1,151,990

$ 184,232

$

(487) $ 1,336,018

Cumulative effect of change in
accounting principles

Adjusted beginning balance

Net income

Other comprehensive loss, net of tax

Stock issued for acquisition of bank, net
of offering costs of $209

Restricted stock forfeited

Restricted stock granted

Stock based compensation expense

Exercise of warrants

Cash dividends ($0.54 per share)

—

—

— 28,254,893

—

—

—

—

—

—

—

—

—

—

2,071,981

(3,845)

130,212

—

147,341

—

—

283

—

—

21

—

1

—

1

—

—

1,151,990

—

—

157,033

—

(1)

6,062

2,532

233

184,465

128,259

—

—

—

—

—

—

—

(15,908)

(233)

(720)

—

—

1,336,018

128,259

(7,585)

(7,585)

—

—

—

—

—

—

157,054

—

—

6,062

2,533

(15,908)

Balance, December 31, 2018

$

— 30,600,582

$

306

$

1,317,616

$ 296,816

$

(8,305) $ 1,606,433

Cumulative effect of change in
accounting principles

Adjusted beginning balance

Net income

Other comprehensive income, net of tax

Stock issued for acquisition of bank, net
of offering costs of $804

Common stock repurchased

Restricted stock forfeited

Restricted stock granted

Stock based compensation expense

Cash dividends ($1.00 per share)

—

—

— 30,600,582

—

—

—

—

— 13,179,748

—

—

—

—

—

(952,844)

(15,866)

138,608

—

—

—

306

—

—

132

(9)

—

1

—

—

—

(926)

—

(926)

1,317,616

—

—

600,936

—

—

(1)

7,808

295,890

192,736

—

—

(51,650)

—

—

—

—

(43,302)

(8,305)

1,605,507

—

27,615

—

—

—

—

—

—

192,736

27,615

601,068

(51,659)

—

—

7,808

(43,302)

Balance, December 31, 2019

$

— 42,950,228

$

430

$

1,926,359

$ 393,674

$

19,310

$ 2,339,773

Net income

Other comprehensive income, net of tax

Common stock repurchased

Restricted stock forfeited

Restricted stock granted

Stock based compensation expense

Cash dividends ($1.05 per share)

—

—

—

—

—

—

—

—

—

(112,499)

(10,915)

310,290

—

—

—

—

(1)

—

2

—

—

—

—

—

—

(2)

8,450

201,209

—

(5,818)

—

—

—

—

(45,265)

—

201,209

17,023

—

—

—

—

—

17,023

(5,819)

—

—

8,450

(45,265)

Balance, December 31, 2020

$

— 43,137,104

$

431

$

1,934,807

$ 543,800

$

36,333

$ 2,515,371

See Notes to Consolidated Financial Statements

92

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2020, 2019 and 2018
(Dollars in thousands)

Cash flows from operating activities:

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation expense

Accretion of income recognized on acquired loans

Amortization of other intangibles assets

Amortization of premium on securities, net

Amortization of discount and origination costs on borrowings

Stock based compensation expense

Excess tax expense (benefit) on restricted stock vested

FHLB stock dividends

(Gain) loss on sale and disposal of premises and equipment

Gain on sale of loans

Gain on sale of branch

Gain on sale of trust business

(Gain) loss on sale of securities available for sale

Loss (gain) on sale of other real estate owned

Impairment of other real estate

Impairment of other assets

Deferred tax (benefit) expense

Provision for loan losses

Increase in cash surrender value of BOLI

Net gain on mortgage loans held for sale

Originations of loans held for sale

Proceeds from sale of loans held for sale

Net change in other assets

Net change in other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Proceeds from maturities, calls and pay downs of securities available for sale

Proceeds from sale of securities available for sale

Purchases of securities available for sale

Purchases of certificates of deposit held in other banks

Proceeds from maturities of certificates of deposit held in other banks

Proceeds from surrender of bank owned life insurance contracts

Purchase of bank owned life insurance contracts

Purchases of FHLB stock and other restricted stock

Proceeds from redemptions of FHLB stock and other restricted stock

Proceeds from sale of loans

Net loans originated held for investment

Originations of mortgage warehouse purchase loans

Proceeds from pay-offs of mortgage warehouse purchase loans

Additions to premises and equipment

Proceeds from sale of premises and equipment

Proceeds from sale of other real estate owned

Cash acquired in connection with acquisition

Cash paid in connection with acquisition

Selling costs paid in connection with branch sale

Net cash transferred in branch sale

Proceeds from sale of trust business

Net cash used in investing activities

93

Years Ended December 31,

2020

2019

2018

$

201,209

$

192,736

$

128,259

12,728

(30,378)

12,671

2,892

720

8,450

243

(567)

(370)

(356)

—

—

(382)

36

784

462

(1,633)

42,993

(5,347)

(38,175)

(901,163)

892,336

(35,025)

(7,833)

154,295

11,783

(46,071)

12,880

2,671

633

7,808

21

(854)

585

(6,779)

(1,549)

(1,319)

(275)

(875)

1,801

1,173

14,102

14,805

(5,525)

(15,133)

(435,076)

447,291

(5,878)

(15,636)

173,319

8,391

(13,523)

5,739

3,316

633

6,062

(646)

(791)

(123)

—

—

—

581

(269)

85

—

1,937

9,860

(3,170)

(13,794)

(384,178)

404,447

(14,352)

20,277

158,741

5,507,844

13,862

5,400,634

192,417

3,660,624

102,647

(5,570,815)

(5,390,543)

(3,674,396)

—

1,237

—

—

(27,037)

37,351

19,181

(674,142)

(5,705)

1,473

802

—

(9,397)

34,863

90,025

(469,023)

(25,833,339)

(12,835,522)

25,066,859

12,318,495

(21,135)

2,022

6,724

—

—

—

—

—

(1,471,388)

(31,680)

2,100

8,207

39,913

(9)

(144)

(25,163)

4,269

(673,988)

—

11,760

—

(5,000)

(6,144)

12,606

—

(746,804)

(5,128,767)

5,123,171

(38,110)

14,479

3,520

44,723

(31,016)

—

—

—

(656,707)

Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2020, 2019 and 2018
(Dollars in thousands)

Cash flows from financing activities:

Net increase in demand deposits, money market and savings accounts

Net (decrease) increase in time deposits

Repayments of FHLB advances

Proceeds from FHLB advances

Proceeds from other borrowings

Repayments of other borrowings

Proceeds from exercise of common stock warrants

Offering costs paid in connection with acquired bank

Repurchase of common stock

Dividends paid

Net cash provided by financing activities

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

See Notes to Consolidated Financial Statements

Years Ended December 31,

2020

2019

2018

2,871,869

(414,278)

(1,550,000)

1,600,000

156,489

(47,086)

—

—

(5,819)

(45,265)

2,565,910

1,248,817

565,170

876,842

237,136

(1,807,653)

1,700,000

65,000

(40,500)

—

(804)

(51,659)

(43,302)

935,060

434,391

130,779

$

1,813,987

$

565,170

$

363,003

148,891

(1,985,667)

1,685,000

—

—

2,533

(209)

—

(15,908)

197,643

(300,323)

431,102

130,779

94

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(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, 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.

On January 1, 2019, the Company acquired Guaranty Bancorp (Guaranty) and its wholly owned subsidiary, Guaranty Bank and
Trust Company (Guaranty Bank) and its wholly owned subsidiary, Private Capital Management, LLC. Guaranty was merged
into the Company and dissolved and Guaranty Bank and its subsidiary was merged with the Bank as of acquisition date. The
Company also acquired two statutory business trusts in connection with the acquisition as disclosed in Note 12, Junior
Subordinated Debentures. See Note 22, Business Combinations, for more details of the Guaranty acquisition.

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 (See Note 12, Junior Subordinated Debentures).

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. Citing particular content in the ASC involves specifying the unique numeric path to the content through the
Topic, Subtopic, Section and Paragraph structure.

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 U.S. generally accepted accounting principles
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 loan losses, the valuation of goodwill and valuation of assets and
liabilities acquired in business combinations.

Cash and cash equivalents: For the purposes of reporting cash flows, cash and cash equivalents include cash on hand,
amounts due from banks and federal funds sold. All highly liquid investments with an initial maturity of less than ninety days
are considered to be cash equivalents. The Company maintains deposits with other financial institutions in amounts that exceed
FDIC insurance coverage. The Company's management monitors the balance in these accounts and periodically assesses the
financial condition of the other financial institutions. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risks on cash or cash equivalents.

Certificates of deposit: Certificates of deposit are FDIC insured deposits in other financial institutions that mature within 18
months and are carried at cost.

95

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

Securities: Securities classified as available for sale are those debt securities that the Company intends to hold for an indefinite
period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on
various factors, including significant movements in interest rates, changes in the maturity mix of the Company's assets and
liabilities, liquidity needs, regulatory capital considerations and other similar factors.

Securities available for sale are reported at fair value with unrealized gains or losses reported as a separate component of other
comprehensive income, net of tax. The amortization of premiums and accretion of discounts, computed by the interest method
generally over their contractual lives, are recognized in interest income. Premiums on callable securities are amortized to their
earliest call date. Prior to the adoption of a new accounting standard in 2019, as further discussed in Note 2, Recent Accounting
Pronouncements, premiums on callable securities were amortized to their respective maturity dates unless such securities were
included in pools for the purposes of assessing prepayment expectations.

Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings on the trade
date.

In estimating other than temporary impairment losses, management considers (1) the length of time and the extent to which the
fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the
Company to retain its investment and whether it is more likely than not the Company will be required to sell its investment
before its anticipated recovery in fair value. When the Company does not intend to sell the security, and it is more likely than
not that it will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other
than temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.

Loans held for sale: The Company originates residential mortgage loans that may subsequently be sold to unaffiliated third
parties. The Company elected the fair value option for certain residential mortgage loans held for sale originated after July 1,
2018 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. Mortgage loans originated and intended for sale not recorded under the fair value option are carried at the lower of
aggregate cost or fair value, as determined by aggregate outstanding commitments from investors. Net unrealized losses, if any,
are recognized through a valuation allowance by charges to income. All mortgage loans held for sale are sold without servicing
rights retained. Gains and losses on sales of loans are recognized in noninterest income at settlement dates and are determined
by the difference between the sales proceeds and the carrying value of the loans.

Acquired loans: Acquired loans from the transactions accounted for as a business combination include both nonperforming
loans with evidence of credit deterioration since their origination date and performing loans. The Company is accounting for the
nonperforming loans acquired in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit
Quality. The performing loans are being accounted for under ASC 310-20, Nonrefundable Fees and Other Costs, with the
related difference in the initial fair value and unpaid principal balance (the discount) recognized as interest income on a level
yield basis over the life of the loan. At the date of the acquisition, the acquired loans are recorded at their fair value with no
valuation allowance.

Purchased credit impaired loans are accounted for individually or aggregated into pools of loans based on common risk. The
Company estimates the amount and timing of undiscounted expected cash flows for each loan, and the expected cash flows in
excess of fair value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan's
contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan, expected cash flows continue to be estimated. If the expected cash flows decrease, an impairment loss
is recorded. If the expected cash flows increase, it is recognized as part of future interest income.

96

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

Loans, net: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal balance, net of unearned interest, purchase premiums and discounts, deferred loan fees or
costs and an allowance for loan losses. Loan origination fees, net of direct origination costs, are deferred and recognized as an
adjustment to the related loan yield using the effective interest method without anticipating prepayments. Prior to the year
ended December 31, 2019, fees and costs associated with originating loans were generally recognized in the period they were
incurred. Management believes that not deferring such fees and costs did not materially affect the financial position or results of
operations of the Company.

Allowance for loan losses: The allowance for loan losses is maintained at a level considered adequate by management to
provide for probable loan losses. The allowance is increased by provisions charged to expense. Loans are charged against the
allowance for loan losses when management believes that collectability of the principal is unlikely. Subsequent recoveries, if
any, are credited to the allowance. The provision for loan losses is the amount, which, in the judgment of management, is
necessary to establish the allowance for loan losses at a level that is adequate to absorb known and inherent risks in the loan
portfolio. See Note 6, Loans, Net and Allowance for Loan Losses, for further information on the Company's policies and
methodology used to estimate the allowance for loan losses.

Premises and equipment, net: Land is carried at cost. Bank premises, furniture and equipment and aircraft are carried at cost,
less accumulated depreciation computed principally by the straight-line method over the estimated useful lives of the assets,
which range from three to thirty years. Real property acquired after January 1, 2019, accounts for depreciation using the
straight-line method over the estimated useful lives of the assets considering the salvage value of the real property.

Leasehold improvements are carried at cost and are depreciated over the shorter of the estimated useful life or the lease period.

Software: Costs incurred in connection with development or purchase of internal use software and cloud computing
arrangements, including in-substance software licenses, are capitalized. Amortization is computed on a straight-line basis over
the estimated useful life of the asset, which generally ranges from one to five years. Capitalized software is included in other
assets in the consolidated balance sheets.

Leases: On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), as further explained below and in Note
2, Recent Accounting Pronouncements.

For operating leases with a term greater than one year, the Company recognizes operating right-of-use (ROU) lease assets and
operating lease liabilities, which are recorded in other assets and other liabilities, respectively, in the consolidated balance
sheets. The Company determines if an arrangement is a lease at inception. Operating ROU lease assets and related liabilities
are recognized at commencement date based on the present value of lease payments over the lease term. As the Company's
leases do not provide an implicit rate, the Company uses its incremental borrowing rate referenced to the Federal Home Loan
Bank Secure Connect advance rates for borrowings of similar terms in determining the present value of lease payments. The
operating ROU lease asset also includes any lease pre-payments made and excludes lease incentives. The Company's lease
terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that
option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease
agreements with lease and non-lease components, which the Company has elected to account for separately as the non-lease
component amounts are readily determinable under most leases.

Long-term assets: Premises and equipment and other long-term assets are reviewed for impairment when events indicate that
their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair
value.

Other real estate owned: Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at fair
value less estimated selling costs at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to
sell.

97

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

Revenue and expenses from operations of other real estate owned and impairment charges on other real estate are included in
noninterest expense. Gains and losses on sale of other real estate are included in noninterest income.

Goodwill and other intangible assets, net: Goodwill represents the excess of costs over fair value of net assets of businesses
acquired. Goodwill is tested for impairment annually on December 31 or on an interim basis if an event triggering impairment
may have occurred. On January 1, 2020, ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for
Goodwill Impairment became effective for the Company as further explained in Note 2, Recent Accounting Pronouncements.
Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge
based on that difference. During the period ended March 31, 2020, the economic turmoil and market volatility resulting from
the COVID-19 crisis resulted in a substantial 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. Under the
new simplified guidance, the Company's estimated fair value to a market participant as of March 31, 2020, exceeded its
carrying amount resulting in no impairment charge for the period. Over subsequent periods, the Company's stock price and
market capitalization has continued to increase and management's future projections have not materially changed. As of
December 31, 2020, the fair value of the Company’s stock price and calculated market capitalization exceeds its carrying value.

Core deposit intangibles and other acquired customer relationship intangibles arising from bank acquisitions are amortized on a
straight-line basis over their estimated useful lives of ten years and thirteen years, respectively. Other intangible assets are
tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be
recoverable from future undiscounted cash flows.

Restricted stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on
the level of borrowings and other factors, and may invest in additional amounts. FHLB of Dallas and other restricted stock do
not have readily determinable fair values as ownership is restricted and they lack a ready market. As a result, these stocks are
carried at cost and evaluated periodically by management for impairment. Both cash and stock dividends are reported as
income.

Bank-owned life insurance: Bank-owned life insurance is recorded at the amount that can be realized under the insurance
contracts at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are
probable at settlement. Changes in the net cash surrender value of the policies, as well as insurance proceeds received are
reflected in noninterest income.

Income taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax
assets and liabilities (excluding deferred tax assets and liabilities related to business combinations or components of other
comprehensive income). Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences
between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. The effect of a change in tax
rates on deferred assets and liabilities is recognized in income taxes during the period that includes the enactment date. A
valuation allowance, if needed, reduces deferred tax assets to the expected amount more likely than not to be realized.
Realization of deferred tax assets is dependent upon the level of historical income, prudent and feasible tax planning strategies,
reversals of deferred tax liabilities and estimates of future taxable income.

The Company evaluates uncertain tax positions at the end of each reporting period. The Company may recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax benefit recognized in the financial statements from any
such position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon
ultimate settlement. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. Any interest and/or
penalties related to income taxes are reported as a component of income tax expense.

Loan commitments and related financial instruments: In the ordinary course of business, the Company has entered into
certain off-balance-sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and
standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees
are incurred or received.

98

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

Management estimates losses on off-balance-sheet financial instruments using the same methodology as for portfolio loans.
Estimated losses on off-balance-sheet financial instruments are recorded by charges to the provision for losses and credits to
other liabilities in the Company's consolidated balance sheet. There were no estimated losses on off-balance sheet financial
instruments as of December 31, 2020 or 2019.

Stock based compensation: Compensation cost is recognized for restricted stock awards/stock units issued to employees based
on the market price of the Company's common stock on the grant date. Stock-based compensation expense is generally
recognized using the straight-line method over the requisite service period for time-based awards. Compensation expense for
performance stock units is recognized over the service period of the award based upon the probable number of units expected to
vest. The impact of forfeitures of stock-based payment awards on compensation expense is recognized as forfeitures occur.

Transfers of financial assets: Transfers of financial assets are accounted for as sales, when control over the assets has been
relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company,
the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity.

Advertising costs: Advertising costs are expensed as incurred.

Business combinations: The Company applies the acquisition method of accounting for business combinations. Under the
acquisition method, the acquiring entity in a business combination recognizes 100% of the assets acquired and liabilities
assumed at their acquisition date fair values. Management utilizes valuation techniques appropriate for the asset or liability
being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired,
including identifiable intangible assets, and liabilities assumed is recorded as goodwill. Where amounts allocated to assets
acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Adjustments
identified during the measurement period are recognized in the reporting period in which the adjustment amounts are
determined. Acquisition-related costs are expensed as incurred.

Comprehensive income: Accounting principles generally require that recognized revenue, expenses, gains and losses be
included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for
sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net
income, are components of comprehensive income. Gains and losses on available for sale securities are reclassified to net
income as the gains or losses are realized upon sale of the securities. The credit component of other than temporary impairment
charges are reclassified to net income at the time of the charge.

Fair values of financial instruments: Accounting standards define fair value, establish a framework for measuring fair value
in U.S. generally accepted accounting principles, and require certain disclosures about fair value measurements (see Note 18,
Fair Value Measurements). In general, fair values of financial instruments are based upon quoted market prices, where
available. If such quoted market prices are not available, fair value is based upon models that primarily use, as inputs,
observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at
fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company's creditworthiness,
among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.

Derivative financial instruments: The Company enters into certain derivative financial instruments: interest rate lock
commitments, forward mortgage-backed securities trades and interest rate swaps. These financial instruments are not
designated as hedging instruments 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 (see Note 19, Derivative Financial Instruments).

Mortgage banking: This revenue category reflects the Company's mortgage production revenue, including fees and income
derived from mortgages originated with the intent to sell, gains on sales of mortgage loans and the initial and subsequent
changes in the fair value of the mortgage derivatives. Interest earned on mortgage loans is recorded in interest income.

99

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

Revenue recognition: ASC Topic 606, Revenue from Contracts with Customers (ASC 606), establishes principles for reporting
information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to
provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of
goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange
for those goods or services recognized as performance obligations are satisfied.

The majority of the Company's revenue-generating transactions are not subject to ASC 606, including revenue generated from
financial instruments, such as loans, letters of credit, and investment securities, as well as revenue related to mortgage banking
activities, and BOLI, as these activities are subject to other accounting guidance. Descriptions of revenue-generating activities
that are within the scope of ASC 606, and are presented in the accompanying Consolidated Statements of Income as
components of noninterest income, are as follows:

•

•

•

•

Service charges on deposit accounts - these represent general service fees for monthly account maintenance and
activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-
based revenue or some other individual attribute-based revenue. Revenue is recognized when the performance
obligation is completed which is generally monthly for account maintenance services or when a transaction has been
completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the
performance obligations are satisfied.

Investment management and trust - includes income related to providing investment management and trust services to
customers under investment management and trust contracts. Also included are fees received from a third party broker-
dealer as part of a revenue-sharing agreement for fees earned from customers that are referred to a third party. The
investment management fees and referral fees are billed and paid on a quarterly basis and recognized ratably
throughout the quarter as performance obligations are satisfied.

Gains/losses on the sale of other real estate owned - generally recognized when the performance obligation is complete
which is typically at delivery of control over the property to the buyer at time of each real estate closing.

Other noninterest income - includes the Company's correspondent bank earnings credit, mortgage warehouse purchase
program fees, acquired loan recoveries, other deposit fees, and merchant interchange income. The majority of these
fees in other noninterest income are not subject to the requirements of ASC 606. The other deposit fees and merchant
interchange income are in the scope of ASC 606, and payment for such performance obligations are generally received
at the time the performance obligations are satisfied.

The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the
determination of the amount and timing of revenue from the above-described contracts with customers.

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 24.

Earnings per share: Basic earnings per common share is calculated as net income 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 nonforfeitable dividends are considered participating securities for this calculation. The participating
nonvested common stock was not included in dilutive shares as it was anti-dilutive for the years ended December 31, 2020,
2019 and 2018.

100

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

The following table presents a reconciliation of net income available to common shareholders and the number of shares used in
the calculation of basic and diluted earnings per common share.

Basic earnings per share:

Net income

Less:

Undistributed earnings allocated to participating securities

Dividends paid on participating securities

Net income available to common shareholders

Weighted average basic shares outstanding

Basic earnings per share

Diluted earnings per share:

Net income available to common shareholders

Total weighted average basic shares outstanding

Total weighted average diluted shares outstanding

Diluted earnings per share

Anti-dilutive participating securities

Note 2. Recent Accounting Pronouncements

Adoption of new accounting standards

Years Ended December 31,

2020

2019

2018

$

201,209

$

192,736

$

128,259

1,311

380

199,518

42,754,606

4.67

199,518

42,754,606

42,754,606

$

$

$

971

281

191,484

42,964,393

4.46

191,484

42,964,393

42,964,393

$

$

$

4.67

$

4.46

$

58,359

73,546

976

139

127,144

29,341,843

4.33

127,144

29,341,843

29,341,843

4.33

114,087

$

$

$

$

Delayed implementation of new accounting standard: ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments and subsequent updates. ASU 2016-13 requires a new credit loss
methodology, the current expected credit loss (CECL) model, which requires the recognition of an allowance for lifetime
expected credit losses on loans, held-to-maturity debt securities and other receivables measured at amortized cost at the time the
financial asset is originated or acquired. Credit losses will be immediately recognized through net income; the amount
recognized will be based on the current estimate of contractual cash flows not expected to be collected over the financial asset’s
contractual term. ASU 2016-13 became effective for the Company on January 1, 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed by the President of the
United States that included an option for financial institutions to delay the implementation of ASU 2016-13 until the earlier of
the termination date of the national emergency declaration by the President or December 31, 2020. Due to the uncertainty of
the economic forecast resulting from the coronavirus (COVID-19) pandemic and the potential impact of the government
economic stimulus measures, the Company delayed its implementation of ASU 2016-13. On December 27, 2020, the
Consolidated Appropriations Act, 2021 (Act 2021), was signed into law which further extended the implementation date of
CECL to the earlier of the first day of the entity’s fiscal year that begins after the date on which the COVID-19 national
emergency terminates or January 1, 2022. With regard to Act 2021 amendments, the SEC staff indicated it would not object to
a registrant early adopting on December 31, 2020, retrospective to January 1, 2020, or January 1, 2021, effective as of January
1, 2021. Under this guidance, the Company is electing to adopt ASU 2016-13 with an effective implementation date of January
1, 2021. As a result, for 2020, the Company has calculated and recorded its provision for loan losses under the incurred loss
model that existed prior to ASU 2016-13.

101

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

Upon adoption, the Company expects to increase its combined allowance for loan losses and reserves for unfunded
commitments by approximately $68,000 to $84,000, of which approximately $13,000 is attributable to purchase credit
deteriorated loans. The Company will apply the standard's provisions as a cumulative-effect adjustment to retained earnings.
The expected increase in the allowance for loan losses is a result of changing from an incurred loss model, which encompasses
allowances for current known and inherent losses within the portfolio, to a CECL model, which encompasses allowances for
losses expected to be incurred over the life of the portfolio. The majority of the increase is attributable to applying the CECL
model to the Company's acquired loans, which, under prior guidance, were recorded at fair value without an allowance at
acquisition date. Furthermore, ASU 2016-13 necessitates that the Company establish an allowance for expected credit losses
for certain debt securities and other financial assets; however, such allowances, if any, are not expected to be significant.

ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. This ASU
simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step
in today’s two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an
entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of
goodwill allocated to that reporting unit. The standard eliminates today’s requirement to calculate a goodwill impairment charge
using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with
its carrying amount. ASU 2017-04 became effective for the Company on January 1, 2020, and did not have a significant impact
on its financial statements.

ASU 2018-13, Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement.
This ASU modifies the disclosure requirements on fair value measurements by requiring that Level 3 fair value disclosures
include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For
certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity
determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of
unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 became effective for the Company on
January 1, 2020 and did not have a significant impact on its financial statements and disclosures.

ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the
requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting
arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement
that is a service contract is not affected by these amendments. This ASU became effective for the Company on January 1, 2020
and did not have a significant impact on its financial statements and disclosures.

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
and subsequent updates. This ASU provides temporary optional guidance to ease the potential burden in accounting for
reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted
accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference
LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global
market-wide reference rate transition period. This ASU became effective upon issuance and generally can be applied through
December 31, 2022. The Company anticipates this ASU will simplify any modifications it executes and is not expected to have
a significant impact on its financial statements and disclosures.

102

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

ASU 2016-02, Leases (Topic 842) and subsequent updates. This ASU, among other things, requires lessees to recognize a lease
liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a
right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. Under this guidance, lessor accounting is largely unchanged. This ASU became effective for annual and interim periods
for the Company on January 1, 2019. The Company adopted the standard by applying the alternative transition method whereby
comparative periods were not restated, and an immaterial cumulative effect adjustment to the opening balance of retained
earnings was recognized as of January 1, 2019. The Company also elected the ASU’s package of three practical expedients,
which allowed the Company to forego a reassessment of (i) whether any expired or existing contracts are or contain leases, (ii)
the lease classification for any expired or existing leases and (iii) the initial direct costs for any existing leases. The Company
also elected not to apply the recognition requirements of the ASU to any short-term leases (as defined by related accounting
guidance) and will account for lease and non-lease components separately. The adoption of this standard resulted in the
Company recognizing lease right-of-use assets and related lease liabilities totaling $38,812 and $33,953, respectively, as of
January 1, 2019. The difference between the lease assets and the lease liabilities was $4,949 of prepaid rent, which was
reclassified to lease assets, and the remainder, net of the deferred tax impact, was recorded as an adjustment reducing retained
earnings in the amount of $70. The adoption of this ASU did not have a significant impact on the Company’s consolidated
statement of income. See Note 1, Summary of Significant Accounting Policies, and Note 13, Leases, for required disclosures.

ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased
Callable Debt Securities. This ASU requires certain premiums on callable debt securities to be amortized to the earliest call
date. The amortization period for callable debt securities purchased at a discount is not impacted. Under current GAAP,
premiums on callable debt securities are generally amortized over the contractual life of the security. ASU 2017-08 became
effective for the Company on January 1, 2019 and, upon adoption, the Company recognized a cumulative effect adjustment
reducing retained earnings by $856, net of the deferred tax impact, but otherwise did not have a significant impact to the
Company's consolidated financial statements and disclosures.

ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income. The amendments in this update allow reclassification from accumulated other
comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (TCJA) which
was signed into law on December 22, 2017. The Company elected to early adopt ASU 2018-02 in the first quarter of 2018 and
apply the guidance to the beginning of the period, effective January 1, 2018. The impact of adopting the amendment resulted in
a cumulative effect adjustment to the consolidated balance sheet as of January 1, 2018 to reclassify approximately $233 of tax
expense from accumulated other comprehensive loss to retained earnings as reflected in the accompanying Consolidated
Statements of Changes in Stockholders' Equity.

Newly issued but not yet effective accounting standards

ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance issued in this update
simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach
for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for
deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes
and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of
goodwill. ASU 2019-12 will be effective for the Company on January 1, 2021, with early adoption permitted, and is not
expected to have a significant impact on our financial statements.

103

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

Note 3. Restrictions on Cash and Due From Banks

On March 15, 2020, in response to COVID-19 pandemic, the Federal Reserve reduced the reserve requirement ratio to zero
effective March 26, 2020 and continuing through December 31, 2020. At December 31, 2019, the Company had a required
reserve balance of $63,739 with the Federal Reserve. Additionally, as of December 31, 2020 and 2019, the Company had
$23,829 and $4,350, respectively, in cash collateral on deposit with other financial institution counterparties to interest rate
swap transactions.

Note 4. 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:

Cash transactions:

Interest expense paid

Income taxes paid

Noncash transactions:

Transfers of loans to other real estate owned

Loans to facilitate the sale of other real estate owned

Securities purchased, not yet settled

Transfers of loans held for investment to loans held for sale

Right-of-use assets obtained in exchange for lease liabilities

Loans purchased, not yet settled

Transfer of bank premises to other real estate

Transfer of repurchase agreements to deposits

Years Ended December 31,

2020

2019

2018

$

$

$

$

$

$

$

$

$

$

97,246

54,842

5,239

2,039

$

$

$

$

— $

— $

105

9,442

$

$

— $

— $

144,775

40,504

544

517

9,975

83,526

35,553

$

$

$

$

$

$

$

— $

7,896

8,475

$

$

79,509

25,109

410

—

—

—

—

—

—

—

104

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

Supplemental schedule of noncash investing activities from a branch sale during 2019 is as follows:

Noncash assets transferred:

Loans, including accrued interest

Premises and equipment

Other assets

Total assets

Noncash liabilities transferred:

Deposits, including interest

Other liabilities

Total liabilities

Cash and cash equivalents transferred in branch sales

Deposit premium received

Cash paid to buyer, net of deposit premium

Supplemental schedule of noncash investing activities from sale of trust business during 2019 is as follows:

Noncash assets transferred:

Customer relationship intangible assets, net

Other assets

Total assets

Net cash received from sale

Year ended
December 31,

2019

$

$

$

$

$

$

$

796

94

2

892

27,721

27

27,748

206

1,386

24,957

Year ended
December 31,

2019

$

$

$

2,939

11

2,950

4,269

105

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

Supplemental schedule of noncash investing activities from acquisitions is as follows:

Years ended December 31,

2020

2019

2018

Noncash assets acquired

Certificates of deposit held in other banks

$

— $

262

$

Securities available for sale

Restricted stock

Loans

Premises and equipment

Other real estate owned

Goodwill

Other intangible assets

Bank owned life insurance

Other assets

Total assets acquired

Noncash liabilities assumed:

Deposits

Repurchase agreements

FHLB advances

Other borrowings

Junior subordinated debentures

Other liabilities

Total liabilities assumed

Cash and cash equivalents acquired from acquisitions

Cash paid to shareholders of acquired banks

Fair value of common stock issued to shareholders of acquired banks

—

—

—

—

—

—

—

—

—

561,052

27,794

2,789,868

65,786

1,829

272,224

71,518

80,837

31,987

— $ 3,903,157

— $ 3,108,810

—

—

—

—

—

8,475

142,653

40,000

25,774

15,477

— $ 3,341,189

— $

— $

— $

39,913

9

601,872

$

$

$

$

$

$

$

$

$

$

$

$

—

24,721

3,357

651,769

4,863

—

100,339

7,537

8,181

6,385

807,152

593,078

—

60,000

—

—

10,518

663,596

44,723

31,016

157,263

106

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

Note 5. Securities Available for Sale

Securities available for sale have been classified in the consolidated balance sheets according to management’s intent. The
amortized cost of securities and their approximate fair values at December 31, 2020 and 2019, are as follows:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

$

43,060

$

1,648

$

— $

44,708

Securities Available for Sale

December 31, 2020

U.S. treasuries

Government agency securities

Obligations of state and municipal subdivisions

Corporate bonds
Mortgage-backed securities guaranteed by FHLMC, FNMA
and GNMA

Other securities

December 31, 2019

U.S. treasuries

247,764

373,017

21,496

421,916

1,200

$ 1,108,453

$

48,060

$

$

Government agency securities

Obligations of state and municipal subdivisions

Corporate bonds
Mortgage-backed securities guaranteed by FHLMC, FNMA
and GNMA

Other securities

178,953

332,715

7,011

493,915

1,200

3,169

20,168

608

21,678

—

47,271

743

926

11,150

207

11,981

—

(1,916)

(20)

(2)

(93)

—

249,017

393,165

22,102

443,501

1,200

$

$

(2,031) $ 1,153,693

(7) $

48,796

(583)

(6)

—

(329)

—

179,296

343,859

7,218

505,567

1,200

$ 1,061,854

$

25,007

$

(925) $ 1,085,936

Securities with a carrying amount of approximately $738,519 and $571,843 at December 31, 2020 and 2019, respectively, were
pledged primarily to secure deposits.

Proceeds from sale of securities available for sale and gross gains and gross losses for the years ended December 31, 2020,
2019 and 2018 were as follows:

Proceeds from sale

Gross gains

Gross losses

Years Ended December 31,

2020

13,862

385

3

$

$

$

2019

192,417

306

31

$

$

$

2018

102,647

268

849

$

$

$

107

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

The amortized cost and estimated fair value of securities available for sale at December 31, 2020, 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.

Due in one year or less

Due from one year to five years

Due from five to ten years

Thereafter

Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA

December 31, 2020

Securities Available for Sale
Amortized
Cost

Fair
Value

$

39,579

$

128,804

203,387

314,767

686,537

421,916

39,943

135,272

209,396

325,581

710,192

443,501

$

1,108,453

$

1,153,693

108

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(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 December 31, 2020 and 2019, are summarized as follows:

Less Than 12 Months

Greater Than 12 Months

Total

Number
of
Securities

Estimated
Fair Value

Unrealized
Losses

Number
of
Securities

Estimated
Fair Value

Unrealized
Losses

Estimated
Fair Value

Unrealized
Losses

Description of Securities

Securities Available for Sale

December 31, 2020

Government agency securities

20

$ 112,897

$

(1,916)

Obligations of state and
municipal subdivisions

Corporate bonds

Mortgage-backed securities
guaranteed by FHLMC, FNMA
and GNMA

December 31, 2019

U.S. treasuries

Government agency securities

Obligations of state and
municipal subdivisions

Mortgage-backed securities
guaranteed by FHLMC, FNMA
and GNMA

2

1

10

33

—

13

5

13

31

3,786

998

(20)

(2)

41,344

(93)

$ 159,025

$

(2,031)

$

— $

52,790

2,793

46,512

$ 102,095

$

—

(495)

(1)

(317)

(813)

—

—

—

—

—

2

6

1

1

10

$

— $

— $ 112,897

$

(1,916)

—

—

—

—

—

—

3,786

998

(20)

(2)

41,344

(93)

$

— $

— $ 159,025

$

(2,031)

$

8,097

$

(7) $

8,097

$

15,911

(88)

68,701

423

(5)

3,216

1,193

(12)

47,705

$ 25,624

$

(112) $ 127,719

$

(7)

(583)

(6)

(329)

(925)

Unrealized losses are generally due to changes in interest rates. 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. As such, the losses are deemed to be temporary.

109

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

Note 6. Loans, Net and Allowance for Loan Losses

Loans, net at December 31, 2020 and 2019, consisted of the following:

Commercial
Real estate:

Commercial
Commercial construction, land and land development
Residential
Single-family interim construction

Agricultural
Consumer
Other

Total loans

Deferred loan fees, net
Allowance for loan losses

Total loans, net

December 31,

2020

2019

$

3,902,266

$

2,482,356

6,096,676
1,245,801
1,352,465
326,575
85,014
66,952
346
13,076,095
(10,037)
(87,820)
12,978,238

$

5,872,653
1,236,623
1,515,227
378,120
97,767
32,603
621
11,615,970
(1,695)
(51,461)
11,562,814

$

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. Additionally, our 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 December 31, 2020 and 2019, there were approximately $205,496 and $189,781 of energy-
related loans outstanding, respectively. 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. These loans are reported as commercial loans
since the loans are secured by notes receivable, not real estate. As of December 31, 2020 and 2019, mortgage warehouse
purchase loans outstanding totaled $1,453,797 and $687,317, respectively.

110

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

With the passage of the CARES Act Paycheck Protection Program (PPP), administered by the Small Business Administration
(SBA), the Company has participated in originating 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 December 31, 2020, there were approximately $804,397 in PPP loans outstanding included in
the commercial loan portfolio. In addition, the Company has recorded net deferred fees associated with PPP loans of $9,770 as
of December 31, 2020. 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 loan balances, after the forgiveness of any amounts, still fully guaranteed by
the SBA.

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 December 31, 2020, the portfolio consisted of approximately 29%
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’ credit
scores, documented income and minimum collateral values. 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.

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 significant 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.

111

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

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 December 31, 2020, loans in the Colorado
region represented about 24% of the total portfolio. A large percentage of the Company’s portfolio consists of commercial and
residential real estate loans. As of December 31, 2020 and 2019, there were no concentrations of loans related to a single
industry in excess of 10% of total loans.

The allowance for loan losses is an amount that management believes will be adequate to absorb estimated losses relating to
specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio.

The allowance is derived from the following two components: 1) allowances established on individual impaired loans, which
are based on a review of the individual characteristics of each loan, including the customer’s ability to repay the loan, the
underlying collateral values and the industry the customer operates and 2) allowances based on actual historical loss experience
for the last three years for similar types of loans in the Company’s loan portfolio adjusted for primarily changes in the lending
policies and procedures; collection, charge-off and recovery practices; nature and volume of the loan portfolio; change in value
of underlying collateral; volume and severity of nonperforming loans; existence and effect of any concentrations of credit and
the level of such concentrations and current, national and local economic and business conditions. This second component also
includes an unallocated allowance to cover uncertainties that could affect management’s estimate of probable losses. The
unallocated allowance reflects the imprecision inherent in the underlying assumptions used in the methodologies for estimating
this component.

The Company’s management continually evaluates the allowance for loan losses determined from the allowances established on
individual loans and the amounts determined from historical loss percentages adjusted for the qualitative factors above. Should
any of the factors considered by management change, the Company’s estimate of loan losses could also change and would
affect the level of future provision expense. While the calculation of the allowance for loan losses utilizes management’s best
judgment and all the information available, the adequacy of the allowance for loan 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.

In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for
loan losses, and may require the Bank to make additions to the allowance based on their judgment about information available
to them at the time of their examinations.

Loans requiring an allocated loan loss provision 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 and recently acquired loan portfolios. As such, the external loan review
generally covers loans exceeding $3,500. These reviews include analysis of borrower’s financial condition, payment histories
and collateral values to determine if a loan should be internally classified. Generally, once classified, an impaired loan analysis
is completed by the credit department to determine if the loan is impaired and the amount of allocated allowance required.

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, and the Colorado economy expanded at a moderate pace by the
end of the fourth quarter of 2020. Activity in the manufacturing and service sectors picked up while the retail sector activity
remained weak. Energy activity showed mounting signs of improvement after a prolonged contraction. Loan volume increased
during the year, driven by a sharp rise in residential real estate lending. Loan pricing fell further, and credit standards and terms
continue to tighten with expectations for future loan demand turning slightly negative. Outlooks are generally positive, but
uncertainty remains high with continued concerns about rising COVID-19 infection rates impacting the overall economic
recovery mitigated slightly by optimism about the vaccine paving the way to a resumption of normal economic activity in 2021.
The pandemic crisis has been impactful and the timing and magnitude of recovery cannot be predicted. The risk of loss
associated with all segments of the portfolio could increase due to these factors.

112

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(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 loan losses by loan
class for the years ended December 31, 2020, 2019 and 2018:

Commercial
Real Estate,
Construction,
Land and
Land
Development

Residential
Real Estate

Single-
Family
Interim

Construction Agricultural Consumer Other Unallocated

Total

Year ended December 31, 2020

Commercial

Balance at beginning of year $

12,844

$

33,085

$

3,678

$

1,606

$

332

$

Provision for loan losses

Charge-offs

Recoveries

20,025

(5,670)

112

17,769

3,108

(735)

4

—

—

632

(82)

—

5

—

—

226

223

(44)

37

$

5

$

(315) $

51,461

493

(342)

86

738

—

—

42,993

(6,873)

239

Balance at end of year

$

27,311

$

50,123

$

6,786

$

2,156

$

337

$

442

$ 242

$

423

$

87,820

Year ended December 31, 2019

Balance at beginning of year $

11,793

$

27,795

$

3,320

$

1,402

$

241

$

186

$

3

$

62

$

44,802

Provision for loan losses

Charge-offs

Recoveries

8,670

(7,709)

90

5,289

(3)

4

498

(140)

—

207

(3)

—

91

—

—

71

(79)

48

Balance at end of year

$

12,844

$

33,085

$

3,678

$

1,606

$

332

$

226

$

356

(430)

76

5

(377)

—

—

14,805

(8,364)

218

$

(315) $

51,461

Year ended December 31, 2018

Balance at beginning of year $

10,599

$

23,301

$

3,447

$

1,583

$

250

$

205

$ (32) $

Provision for loan losses

Charge-offs

Recoveries

4,973

(3,863)

84

4,909

(435)

20

(124)

(6)

3

(181)

—

—

(9)

—

—

69

(93)

5

Balance at end of year

$

11,793

$

27,795

$

3,320

$

1,402

$

241

$

186

$

210

(228)

53

3

$

49

13

—

—

62

$

39,402

9,860

(4,625)

165

$

44,802

113

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

The following table details the amount of the allowance for loan losses and recorded investment in loans by class as of
December 31, 2020 and 2019:

Commercial
Real Estate,
Construction,
Land and
Land
Development

Residential
Real Estate

Commercial

Single-
Family
Interim

Construction Agricultural Consumer Other Unallocated

Total

December 31, 2020

Allowance for losses:

Individually evaluated
for impairment

Collectively evaluated
for impairment

Loans acquired with
deteriorated credit
quality

$

8,281

$

243

$

— $

— $

— $

— $ — $

— $

8,524

18,836

49,880

6,786

2,156

337

442

242

423

79,102

194

—

—

—

—

—

—

—

194

Ending balance

$

27,311

$

50,123

$

6,786

$

2,156

$

337

$

442

$ 242

$

423

$

87,820

Loans:

Individually evaluated
for impairment

Collectively evaluated
for impairment

Acquired with
deteriorated credit
quality

$

39,298

$

21,880

$

2,550

$

— $

613

$

42

$ — $

— $

64,383

3,823,982

7,149,610

1,345,234

326,575

84,284

66,895

346

— 12,796,926

38,986

170,987

4,681

—

117

15

—

—

214,786

Ending balance

$ 3,902,266

$

7,342,477

$1,352,465

$

326,575

$

85,014

$ 66,952

$ 346

$

— $ 13,076,095

December 31, 2019

Allowance for losses:

Individually evaluated
for impairment

Collectively evaluated
for impairment

Loans acquired with
deteriorated credit
quality

$

357

$

— $

— $

— $

— $

1

$ — $

— $

358

12,108

32,615

3,678

1,606

332

225

379

470

—

—

—

—

5

—

5

(315)

50,254

—

849

$

(315) $

51,461

Ending balance

$

12,844

$

33,085

$

3,678

$

1,606

$

332

$

226

$

Loans:

Individually evaluated
for impairment

Collectively evaluated
for impairment

Acquired with
deteriorated credit
quality

$

3,130

$

6,813

$

2,008

$

— $

114

$

22

$ — $

— $

12,087

2,416,569

6,883,639

1,505,896

378,120

93,837

32,556

621

— 11,311,238

62,657

218,824

7,323

—

3,816

25

—

—

292,645

Ending balance

$ 2,482,356

$

7,109,276

$1,515,227

$

378,120

$

97,767

$ 32,603

$ 621

$

— $ 11,615,970

114

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

Nonperforming loans by loan class (excluding loans acquired with deteriorated credit quality) at December 31, 2020 and 2019,
are summarized as follows:

Commercial
Real Estate,
Construction,
Land and
Land
Development

Residential
Real Estate

Commercial

Single-
Family
Interim

Construction Agricultural

Consumer

Other

Total

December 31, 2020

Nonaccrual loans

$

25,898

$

20,072

$

2,372

$

— $

613

$

42

$

— $

48,997

Loans past due 90 days and
still accruing

Troubled debt
restructurings (not included
in nonaccrual or loans past
due and still accruing)

December 31, 2019

Nonaccrual loans

Loans past due 90 days and
still accruing

Troubled debt
restructurings (not included
in nonaccrual or loans past
due and still accruing)

433

—

—

—

—

—

—

433

$

$

—

26,331

3,130

14,529

1,808

21,880

6,461

$

$

178

2,550

1,820

$

$

$

$

—

— $

—

613

— $

114

$

$

—

—

—

—

—

352

188

—

—

$

17,659

$

6,813

$

2,008

$

— $

114

$

—

42

22

—

—

22

$

$

—

1,986

— $

51,416

— $

11,547

—

14,529

—

540

$

— $

26,616

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. 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 returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably assured.

Impaired loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement
will not be collected. The Company has identified these loans through its normal loan review procedures. Impaired loans 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 impaired loans are measured at the fair value of the collateral. In limited cases, the Company may use other
methods to determine the level of impairment of a loan if such loan is not collateral dependent.

All commercial, real estate, agricultural loans and troubled debt restructurings are considered for individual impairment
analysis. Smaller balance consumer loans are collectively evaluated for impairment.

115

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

Impaired loans by loan class (excluding loans acquired with deteriorated credit quality) at December 31, 2020 and 2019 and for
the years ended December 31, 2020, 2019 and 2018, are summarized as follows:

December 31, 2020

Recorded investment in impaired loans:

Impaired loans with an
allowance for loan losses

Impaired loans with no
allowance for loan losses

Total

Unpaid principal balance of impaired
loans

Allowance for loan losses on impaired
loans

December 31, 2019

Recorded investment in impaired loans:

Impaired loans with an
allowance for loan losses

Impaired loans with no
allowance for loan losses

Total

Unpaid principal balance of impaired
loans

Allowance for loan losses on impaired
loans

For the year ended December 31, 2020

Average recorded investment in impaired
loans

$ 21,559

Interest income recognized on impaired
loans

For the year ended December 31, 2019

Average recorded investment in impaired
loans

Interest income recognized on impaired
loans

For the year ended December 31, 2018

Average recorded investment in impaired
loans

Interest income recognized on impaired
loans

$

$

$

$

$

168

6,266

30

8,919

119

Commercial
Real Estate,
Construction,
Land and
Land
Development

Residential
Real Estate

Commercial

Single-
Family
Interim

Construction Agricultural

Consumer

Other

Total

$ 24,540

$

475

$

— $

— $

— $

— $ — $ 25,015

14,758

$ 39,298

$ 63,817

$

8,281

$

$

$

21,405

21,880

22,543

243

$

$

$

2,550

2,550

2,742

$

$

—

— $

— $

613

613

650

$

$

42

42

—

39,368

$ — $ 64,383

44

$ — $ 89,796

— $

— $

— $

— $ — $ 8,524

$

1,580

$

— $

— $

— $

— $

1

$ — $ 1,581

1,550

3,130

8,580

357

$

$

$

6,813

6,813

6,967

$

$

2,008

2,008

2,197

$

$

—

— $

— $

114

114

123

$

$

21

22

—

10,506

$ — $ 12,087

24

$ — $ 17,891

— $

— $

— $

— $

1

$ — $

358

9,497

139

3,979

39

2,667

65

$

$

$

$

$

$

2,362

208

1,746

39

2,033

81

$

$

$

$

$

$

— $

442

$

30

$ — $ 33,890

— $

— $

— $ — $

515

716

119

716

1

$

$

$

$

57

$

30

$ — $ 12,794

— $

6

$ — $

233

— $

46

$ — $ 14,381

— $

2

$ — $

268

$

$

$

$

$

$

$

$

$

Certain impaired loans have adequate collateral and do not require a related allowance for loan loss.

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 restructuring of a loan is considered a “troubled debt restructuring” (TDR) if both 1) the borrower is experiencing financial
difficulties and 2) the creditor has granted a concession. Concessions may include interest rate reductions or below market
interest rates, principal forgiveness, extending amortization and other actions intended to minimize potential losses.

116

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

A TDR loan is identified as impaired and measured for credit impairment as of each reporting period in accordance with the
guidance in Accounting Standards Codification ASC 310-10-35. Modifications primarily relate to extending the amortization
periods of the loans and interest rate concessions. The majority of these loans were identified as impaired prior to restructuring;
therefore, the modifications did not materially impact the Company’s determination of the allowance for loan losses. The
recorded investment in troubled debt restructurings, including those on nonaccrual, was $2,564 and $1,208 as of December 31,
2020 and 2019, respectively.

Following is a summary of loans modified under troubled debt restructurings during the years ended December 31, 2020 and
2019:

Commercial
Real Estate,
Construction,
Land and Land
Development

Residential
Real Estate

Commercial

Single-
Family
Interim

Construction Agricultural

Consumer

Other

Total

Troubled debt restructurings
during the year ended
December 31, 2020

Number of contracts

Pre-restructuring
outstanding recorded
investment

Post-restructuring
outstanding recorded
investment

Troubled debt restructurings
during the year ended
December 31, 2019

Number of contracts

Pre-restructuring
outstanding recorded
investment

Post-restructuring
outstanding recorded
investment

$

$

$

$

—

1

—

—

—

—

—

1

— $

1,517

$

— $

— $

— $

— $

— $

1,517

— $

1,517

$

— $

— $

— $

— $

— $

1,517

—

—

1

—

—

—

—

1

— $

— $

29

$

— $

— $

— $

— $

29

— $

— $

29

$

— $

— $

— $

— $

29

At December 31, 2020 and 2019, there were no loans modified under troubled debt restructurings during the previous twelve
month period that subsequently defaulted during the years ended December 31, 2020 and 2019.

At December 31, 2020 and 2019, the Company had no commitments to lend additional funds to any borrowers with loans
whose terms have been modified under troubled debt restructurings.

Under ASC Subtopic 310-40 and federal banking agencies interagency guidance, certain short-term loan modifications made on
a good faith basis in response to COVID-19 (as defined by the guidance) are not considered TDRs. Additionally, under section
4013 of the CARES Act, banks may elect to suspend the requirement for certain loan modifications to be categorized as a TDR.
In response to the COVID-19 pandemic, the Company has implemented prudent modifications allowing for primarily short-
term payment deferrals or other payment relief to borrowers with pandemic-related economic hardships, where appropriate, that
complies with the above guidance. As such, the Company's TDR loans noted above do not include loans that are modifications
to borrowers impacted by COVID-19. Deferred payments along with any interest accrued during the deferral period are due and
payable on the maturity date. As of December 31, 2020, the Company has 1,298 loans with outstanding deferred accrued
interest of $22,128 on balances of $1,651,376.

117

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(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
December 31, 2020 and 2019:

December 31, 2020

Commercial
Commercial real estate, construction,
land and land development

Residential real estate

Single-family interim construction

Agricultural

Consumer

Other

Acquired with deteriorated credit quality

December 31, 2019

Commercial
Commercial real estate, construction,
land and land development

Residential real estate

Single-family interim construction

$

$

Agricultural

Consumer

Other

Acquired with deteriorated credit quality

Loans
30-89 Days
Past Due

Loans
90 Days or
More
Past Due

Total Past
Due Loans

Current
Loans

Total
Loans

$

3,243

$

13,227

$

16,470

$ 3,846,810

$ 3,863,280

2,453

5,169

—

—

86

—

10,951

624

11,575

4,512

9,153

3,242

2,836

22

167

—

19,932

2,556

$

$

16,790

1,028

—

1

41

—

31,087

3,219

34,306

17,656

2,905

642

—

114

22

—

21,339

6,766

$

$

19,243

6,197

—

1

127

—

7,152,247

1,341,587

326,575

84,896

66,810

346

7,171,490

1,347,784

326,575

84,897

66,937

346

42,038

3,843

12,819,271

12,861,309

210,943

214,786

45,881

$ 13,030,214

$ 13,076,095

22,168

$ 2,397,531

$ 2,419,699

12,058

3,884

2,836

136

189

—

41,271

9,322

6,878,394

1,504,020

375,284

93,815

32,389

621

6,890,452

1,507,904

378,120

93,951

32,578

621

11,282,054

11,323,325

283,323

292,645

$

22,488

$

28,105

$

50,593

$ 11,565,377

$ 11,615,970

The Company’s internal classified report is segregated into the following categories: 1) Pass/Watch, 2) Special Mention, 3)
Substandard and 4) Doubtful. 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. 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.
Substandard and Doubtful loans are individually evaluated to determine if they should be classified as impaired and an
allowance is allocated if deemed necessary under ASC 310-10.

118

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

The loans that are not impaired are included with the remaining “pass” credits in determining the portion of the allowance for
loan loss based on historical loss experience and other qualitative factors. The portfolio is segmented into categories including:
commercial loans, consumer loans, commercial real estate loans, residential real estate loans and agricultural loans. The
adjusted historical loss percentage is applied to each category. Each category is then added together to determine the allowance
allocated under ASC 450-20.

A summary of loans by credit quality indicator by class as of December 31, 2020 and 2019, is as follows:

December 31, 2020

Commercial
Commercial real estate, construction,
land and land development

Residential real estate

Single-family interim construction

Agricultural

Consumer

Other

December 31, 2019

Commercial
Commercial real estate, construction,
land and land development

Residential real estate

Single-family interim construction

Agricultural

Consumer

Other

Pass

Pass/
Watch

Special
Mention

Substandard Doubtful

Total

$ 3,700,626

$ 55,960

$ 38,186

$

97,403

$ 10,091

$ 3,902,266

6,504,933

352,910

360,963

1,332,757

323,800

76,951

66,854

346

6,296

2,775

6,194

8

—

5,726

—

1,205

—

—

$ 12,006,267

$ 424,143

$ 406,080

$ 2,332,611

$ 71,642

$ 37,739

123,671

7,686

—

664

90

—

—

—

—

—

—

—

7,342,477

1,352,465

326,575

85,014

66,952

346

$

$

229,514

$ 10,091

$ 13,076,095

40,364

$

— $ 2,482,356

6,814,780

184,720

46,889

1,501,019

376,887

88,044

32,459

621

4,850

1,233

5,287

33

—

994

—

1,864

2

—

62,887

8,364

—

2,572

109

—

—

—

—

—

—

—

7,109,276

1,515,227

378,120

97,767

32,603

621

$ 11,146,421

$ 267,765

$ 87,488

$

114,296

$

— $ 11,615,970

The Company has acquired certain loans which experienced credit deterioration since origination (purchased credit impaired
(PCI) loans).

The Company has included PCI loans in the above grading tables. The following provides additional detail on the grades
applied to those loans at December 31, 2020 and 2019:

December 31, 2020

December 31, 2019

Pass

Pass/
Watch

Special
Mention

Substandard Doubtful

Total

$

117,896

$ 45,672

$ 32,557

$

18,661

$

— $

214,786

232,095

21,284

4,502

34,764

—

292,645

PCI loans may remain on accrual status to the extent the company can reasonably estimate the amount and timing of expected
future cash flows. At December 31, 2020 and 2019, nonaccrual PCI loans were $6,699 and $10,850, respectively.

119

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

Accretion on PCI loans is based on estimated future cash flows, regardless of contractual maturity. The following table
summarizes the outstanding balance and related carrying amount of PCI loans by acquired bank as of the acquisition date for
the acquisition occurring in 2019.

Outstanding balance

Nonaccretable difference

Accretable yield

Carrying amount

Acquisition Date

January 1, 2019

Guaranty Bancorp

$

$

341,645

(16,622)

(13,299)

311,724

The carrying amount of all acquired PCI loans included in the consolidated balance sheet and the related outstanding balance at
December 31, 2020 and 2019, were as follows:

Outstanding balance

Carrying amount

December 31,

2020

2019

$

237,786

$

214,786

326,077

292,645

There was an allocation of $194 and $849 established in the allowance for loan losses relating to PCI loans at December 31,
2020 and 2019, respectively.

The changes in accretable yield during the years ended December 31, 2020 and 2019 in regard to loans transferred at
acquisition for which it was probable that all contractually required payments would not be collected are presented in the table
below.

Balance at January 1

Additions

Accretion

Transfers from nonaccretable

Balance at December 31

2020

2019

8,905

$

—

(3,287)

—

5,618

$

1,436

13,299

(5,830)

—

8,905

$

$

120

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

Note 7. Premises and Equipment, Net

Premises and equipment, net at December 31, 2020 and 2019 consisted of the following:

Land
Building
Furniture, fixtures and equipment
Aircraft
Leasehold and tenant improvements
Construction in progress

Less accumulated depreciation

December 31,

2020

2019

$

$

65,103
191,940
39,282
8,947
5,798
915
311,985
(62,518)
249,467

$

$

58,643
184,589
39,855
8,947
5,466
834
298,334
(55,460)
242,874

Depreciation expense amounted to $12,728, $11,783 and $8,391 for the years ended December 31, 2020, 2019 and 2018,
respectively.

121

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

Note 8. Goodwill and Other Intangible Assets, Net

At December 31, 2020 and 2019, goodwill totaled $994,021. The Company recorded goodwill of $272,224 relating to the
Guaranty Bancorp acquisition in 2019 (see Note 22, Business Combinations).

The following is a summary of other intangible assets activity:

December 31,

2020

2019

Core deposit intangible:

Balance at beginning of the year

Additions: Guaranty acquisition

Balance at end of the year

Less accumulated amortization
Total core deposit intangible, net

Customer relationship intangible:
Balance at beginning of the year

Additions: Guaranty acquisition
Deletions: sale of trust business

Balance at end of the year

Less accumulated amortization

Total customer relationship intangible, net

Total other intangible assets, net

$

$

$

$

63,891
61,993
125,884
(31,057)
94,827

—
9,525
(3,118)
6,407
(493)
5,914

$ 125,884
—
125,884
(43,235)
82,649

$

6,407
—
—
6,407
(986)
5,421

$

$

$

88,070

$ 100,741

Amortization expense related to intangible assets amounted to $12,671, $12,880 and $5,739 for the years ended December 31,
2020, 2019 and 2018, respectively. The remaining weighted average amortization period for intangible assets is 7.4 years as of
December 31, 2020.

The future amortization expense related to other intangible assets remaining at December 31, 2020 is as follows:

First year
Second year
Third year
Fourth year
Fifth year
Thereafter

$

$

12,580
12,491
12,439
11,752
11,238
27,570
88,070

122

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

Note 9. Deposits

Deposits at December 31, 2020 and 2019 consisted of the following:

Noninterest-bearing demand accounts
Interest-bearing checking accounts
Savings accounts
Limited access money market accounts
Certificates of deposit and individual retirement accounts (IRA),
less than $250,000
Certificates of deposit and individual retirement accounts (IRA),
$250,000 and greater

December 31,

2020

2019

Amount
$ 4,164,800
5,420,548
654,733
2,743,208

Percent

Amount

Percent

28.9 % $ 3,240,185
4,198,772
37.6
552,585
4.6
2,119,878
19.1

27.1 %
35.2
4.6
17.8

675,329

4.7

892,639

7.5

740,309
$ 14,398,927

5.1

937,277
100.0 % $ 11,941,336

7.8
100.0 %

At December 31, 2020, the scheduled maturities of certificates of deposit, including IRAs, were as follows:

First year
Second year
Third year
Fourth year
Fifth year
Thereafter

$

$

1,263,633
117,521
19,362
5,058
10,059
5
1,415,638

Brokered deposits at December 31, 2020 and 2019 totaled $1,521,129 and $894,131, respectively.

Note 10. Federal Home Loan Bank Advances

At December 31, 2020, the Company has advances from the FHLB of Dallas under note payable arrangements with
maturities which range from July 2021 to February 2035. Interest payments on these notes are made monthly. The weighted
average interest rate of all notes was 0.57% and 2.17% at December 31, 2020 and 2019, respectively. The balances
outstanding on these advances were $375,000 and $325,000 at December 31, 2020 and 2019, respectively.

Contractual maturities of FHLB advances at December 31, 2020 were as follows:

First year
Second year
Third year
Fourth year
Fifth year
Thereafter

$

$

25,000
—
200,000
—
—
150,000
375,000

123

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

The advances are secured by $17,156 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 $5,708,883 at December 31, 2020. The Company
had remaining credit available under the FHLB advance program of $4,091,643 at December 31, 2020.

At December 31, 2020, the Company had $1,240,851 in undisbursed advance commitments (letters of credit) with the FHLB.
As of December 31, 2020, these commitments mature on various dates from January 2021 through June 2022. 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 December 31, 2020, there were no disbursements against the advance commitments.

Note 11. Other Borrowings

Other borrowings at December 31, 2020 and 2019 consisted of the following:

Unsecured fixed rate subordinated debentures in the amount of $110,000. The balance of

borrowings at December 31, 2020 and 2019 is net of discount and origination costs of $1,271
and $1,628, respectively. Interest payments of 5.875% are made semiannually on February 1
and August 1. The maturity date is August 1, 2024. The notes may not be redeemed prior to
maturity and meet the criteria to be recognized as Tier 2 capital for regulatory purposes. (1)(2)
Unsecured fixed-to-floating subordinated debentures in the original amount of $40,000. Interest
payments initially of 5.75% are made semiannually on January 20 and July 20 through July
20, 2021. Thereafter, floating rate payments of 3 month LIBOR plus 4.73% are made
quarterly in arrears beginning on October 20, 2021. The maturity date is July 20, 2026 with
an optional redemption at July 20, 2021. The notes meet the criteria to be recognized as Tier 2
capital for regulatory purposes. (2)(3)

Unsecured fixed-to-floating subordinated debentures in the amount of $30,000. The balance of
borrowings at December 31, 2020 and 2019 is net of origination costs of $543 and $621,
respectively. Interest payments initially of 5.00% fixed rate are made semiannually on June
30 and December 31 through December 31, 2022. Thereafter, floating rate payments of 3
month LIBOR plus 2.83% are made quarterly in arrears beginning on March 31, 2023. The
maturity date is December 31, 2027 with an optional redemption at December 31, 2022. The
notes meet the criteria to be recognized as Tier 2 capital for regulatory purposes. (2)

Unsecured fixed-to-floating subordinated debentures in the amount of $130,000. The balance of
borrowings at December 31, 2020 is net of origination costs of $2,511. Interest payments
initially of 4.00% fixed rate are made semiannually on March 15 and September 15 through
September 15, 2025. Thereafter, floating rate payments equal to a benchmark rate (which is
expected to be 3 month Secured Overnight Financing Rate (SOFR)) plus 3.885% payable
quarterly in arrears beginning on December 15, 2025. The maturity date is September 15,
2030 with an optional redemption at September 15, 2025. The notes meet the criteria to be
recognized as Tier 2 capital for regulatory purposes. (2)

Unsecured revolving line of credit with an unrelated commercial bank in the amount of

$100,000. The line bears interest at LIBOR plus 1.75% and matures January 17, 2021. The
Company is required to meet certain financial covenants on a quarterly basis, which includes
certain restrictions on cash at IBG and meeting minimum capital ratios. (4)

December 31,

2020

2019

$

108,729

$

108,372

40,000

40,000

29,457

29,379

127,489

—

6,500

24,500

$

312,175

$

202,251

____________

(1) At December 31, 2020 and 2019, other borrowings included amounts owed to related parties of $50.
(2) The permissible portion of qualified subordinated notes decreases 20% per year during the final five years of the term of the notes.
(3) Assumed on January 1, 2019 with the Guaranty acquisition (see Note 22, Business Combinations).
(4) Subsequent to December 31, 2020, the Company renewed the line (see Note 24, Subsequent Events).

124

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

The Company has established federal funds lines of credit notes with nine unaffiliated banks totaling $365,000 of borrowing
capacity at December 31, 2020 and ten unaffiliated banks totaling $375,000 of borrowing capacity at December 31, 2019. At
December 31, 2020, two of the lines totaling $30,000 have stated maturity dates in August and September 2021. The remaining
lines have no stated maturity dates and the lenders may terminate the lines at any time without notice. The lines are provided on
an unsecured basis and must be repaid the following business day from when the funds are borrowed. There were no
borrowings against the lines at December 31, 2020 and 2019.

In addition, the Company maintains a secured line of credit with the Federal Reserve Bank with an availability to borrow
approximately $716,700 and $895,110 at December 31, 2020 and 2019, respectively. Approximately $1,034,467 and
$1,196,491 of commercial loans were pledged as collateral at December 31, 2020 and 2019, respectively. There were no
borrowings against this line as of December 31, 2020 and 2019.

The Company also participates in an exchange that provides direct overnight borrowings with other financial institutions. The
funds are provided on an unsecured basis. Borrowing availability totaled $694,000 and $484,000 at December 31, 2020 and
2019, respectively. There were no borrowings as of December 31, 2020 and 2019.

Note 12. Junior Subordinated Debentures

The Company has formed or acquired nine statutory business trusts (the Trusts) for the purpose of issuing trust preferred
securities. Each of the Trusts have issued capital and common securities and invested the proceeds thereof in an equivalent
amount of junior subordinated debentures (the Debentures) issued by the Company. The interest rate payable on, and the
payment terms of the Debentures are the same as the distribution rate and payment terms of the respective issues of capital and
common securities issued by the Trusts. The Debentures are subordinated and junior in right of payment to all present and
future senior indebtedness. The Company has fully and unconditionally guaranteed the obligations of each of the Trusts with
respect to the capital and common securities. Except under certain circumstances, the common securities issued to the
Company by the trusts possess sole voting rights with respect to matters involving those entities. Under certain circumstances,
the Company may, from time to time, defer the debentures' interest payments, which would result in a deferral of distribution
payments on the related trust preferred securities and, with certain exceptions, prevent the Company from declaring or paying
cash distributions on the Company's common stock and any other future debt ranking equally with or junior to the debentures.
The Company may redeem the debentures, which are intended to qualify as Tier 1 capital, at the Company’s option, subject to
approval of the Federal Reserve.

125

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

As of December 31, 2020 and 2019, the carrying amount of debentures outstanding totaled $54,023 and $53,824, respectively.
Information regarding the Debentures as of December 31, 2020 are summarized in the table below:

IB Trust I
Guaranty Trust III (1)

IB Trust II
Cenbank Trust III (1)

IB Trust III

IB Centex Trust I

Community Group Statutory Trust I
Northstar Trust II (2)
Northstar Trust III (2)

____________

Trust Preferred
Securities Issued

Debentures
Carrying
Value

Repricing
Frequency

Interest
Rate

Interest Rate
Index

Maturity Date

$

5,155

$

5,155

Quarterly

3.46%

LIBOR + 3.25%

March 2033

10,310

3,093

15,464

3,712

2,578

3,609

5,155

8,248

10,310

Quarterly

3,093

Quarterly

15,464

Quarterly

3,712

2,578

3,609

3,892

6,210

Quarterly

Quarterly

Quarterly

Quarterly

Quarterly

3.34

3.09

2.89

2.61

3.46

1.82

1.89

1.89

LIBOR + 3.10

July 2033

LIBOR + 2.85

March 2034

LIBOR + 2.65

April 2034

LIBOR +2.40

December 2035

LIBOR + 3.25

February 2035

LIBOR + 1.60

LIBOR + 1.67

June 2037

June 2037

LIBOR + 1.67

September 2037

$

57,324

$

54,023

(1) Assumed on January 1, 2019 with the Guaranty acquisition (see Note 22, Business Combinations).
(2) Assumed in 2017 with a recorded fair value discount of $3,301 remaining as of December 31, 2020.

Note 13. Leases

The Company’s primary leasing activities relate to certain real estate operating leases entered into in support of the Company’s
branch operations and back office operations. The Company leases 21 of its 93 branches. The Company’s branch locations
operated under lease agreements have all been designated as operating leases. In addition, the Company leases certain
equipment under operating leases. The Company does not have leases designated as finance leases.

As of December 31, 2020 and 2019 the Company’s lease ROU assets were $24,841 and $38,813, respectively, and related lease
liabilities were $23,413 and $28,978, respectively. Leases have remaining terms ranging from 1 to 30 years, including extension
options that the Company is reasonably certain will be exercised.

126

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

The table below summarizes net lease cost:

Operating lease cost

Short term lease cost

Variable lease cost

Sublease income

Net lease cost

Year Ended December 31,

2020

2019

6,937 $

124

1,631

(221)

8,471 $

7,025

103

1,829

(228)

8,729

$

$

Rent expense for the year ended December 31, 2018, prior to the adoption of ASU 2016-2, was $3,758.

The table below summarizes other information related to operating leases:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$

Weighted average remaining lease term - operating leases, in years

Weighted average discount rate - operating leases

Year Ended December 31,

2020

2019

$

6,091

7.23

3.47 %

6,965

7.58

3.35 %

The following table outlines lease payment obligations as outlined in the Company’s lease agreements for each of the next five
years and thereafter in addition to a reconcilement to the Company’s current lease liability as of December 31, 2020.

2021

2022

2023

2024

2025

Thereafter

Total lease payments

Less imputed interest

$

$

5,615

4,876

4,054

3,438

2,754

5,700

26,437

(3,024)

23,413

As of December 31, 2020, the Company had not entered into any material leases that have not yet commenced.

127

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

Note 14. Income Taxes

Income tax expense for the years ended December 31, 2020, 2019 and 2018 was as follows:

Current income tax expense

Deferred income tax (benefit) expense

Deferred income tax benefit related to remeasurement of deferred taxes

Income tax expense, as reported

Years Ended December 31,

2020

2019

2018

$

$

52,806

$

39,426

$

(1,633)

—

14,102

—

29,801

2,000

(63)

51,173

$

53,528

$

31,738

A reconciliation between reported income tax expense and the amounts computed by applying the U.S. federal statutory income
tax rate of 21% for the years ended December 31, 2020, 2019 and 2018 to income before income taxes is presented below:

Years Ended December 31,

2020

2019

2018

Income tax expense computed at the statutory rate

$

53,000

$

51,715

$

33,599

Tax-exempt interest income from municipal securities

Tax-exempt loan income

Bank owned life insurance income

Non-deductible acquisition expenses

State taxes, net of federal benefit

Non-deductible compensation

Net tax expense (benefit) from stock based compensation
Deferred tax adjustment related to reduction in U.S. Federal statutory
income tax rate

Other

(1,779)

(1,245)

(1,123)

—

2,660

—

243

—

(583)

(1,781)

(1,174)

(1,288)

281

3,455

2,017

21

—

282

(962)

(490)

(666)

142

375

—

(646)

(63)

449

$

51,173

$

53,528

$

31,738

128

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

Components of deferred tax assets and liabilities are presented in the table below. Deferred taxes as of December 31, 2020 and
2019 are based on the U.S. statutory federal income tax rate of 21%.

Deferred tax assets:

Allowance for loan losses

Lease liabilities under operating leases

NOL and tax credit carryforwards from acquisitions

Acquired loan fair market value adjustments

Stock-based compensation

Reserve for bonuses and other accrued expenses

Acquisition costs

Acquired securities

Acquired intangibles

Start up costs

Other real estate owned

Unearned income

Deferred compensation

Noncompete agreements

Nonaccrual loans

Other

Deferred tax liabilities:

Premises and equipment

Right-of-use assets under operating leases

Net unrealized gain on available for sale securities

Intangible assets

Acquired junior subordinated debentures fair value adjustment

PPP deferred loan costs

FHLB and other restricted stocks

Acquired tax goodwill

Other

Net deferred tax asset

December 31,

2020

2019

$

19,238

$

5,129

3,718

12,986

1,567

3,409

—

2,095

1,369

171

—

715

857

597

550

727

11,466

6,457

4,209

21,645

1,218

2,773

416

2,529

1,546

230

362

774

1,101

663

390

785

53,128

56,564

(12,392)

(4,911)

(9,501)

(19,293)

(723)

(952)

(308)

(572)

(543)

(13,170)

(6,233)

(5,367)

(22,447)

(780)

—

(673)

(413)

(538)

$

(49,195)

3,933

$

(49,621)

6,943

At December 31, 2020, the Company had federal net operating loss carryforwards of approximately $15,765 which expire in
various years from 2023 to 2032 and state net operating loss carryforwards of approximately $11,150 which expire in various
years from 2025 to 2027. Deferred tax assets are recognized for net operating losses because the benefit is more likely than not
to be realized. No valuation allowance for deferred tax assets was recorded at December 31, 2020 or 2019 as management
believes it is more likely than not that all of the deferred tax assets will be realized.

129

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

The Company does not have any material uncertain tax positions and does not have any interest and penalties recorded in the
income statement for the years ended December 31, 2020, 2019 and 2018. The Company files a consolidated income tax return
in the US federal tax jurisdiction. The Company is no longer subject to examination by the US federal tax jurisdiction for years
prior to 2017.

Note 15. 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 December 31, 2020
and 2019, the approximate amounts of these financial instruments were as follows:

Commitments to extend credit

Standby letters of credit

December 31,

2020

2,268,216

25,917

2,294,133

$

$

2019

2,337,385

23,406

2,360,791

$

$

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. As of December 31, 2020 and
2019, no amounts have been recorded as liabilities for the Company’s potential obligations under these guarantees.

Litigation

The Company is involved in certain 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. A legal proceeding that the Company believes could become material is described below.

130

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

Independent Bank is a party to a legal proceeding inherited by Independent Bank in connection with its acquisition of BOH
Holdings, Inc. and its subsidiary, Bank of Houston (BOH). The plaintiffs in the case are alleging that Independent Bank aided
and abetted or participated in a fraudulent scheme. Independent Bank is pursuing insurance coverage for these claims, including
reimbursement for defense costs. The Company believes the claims made in this lawsuit are without merit and is vigorously
defending the lawsuit. The Company is unable to predict when the matter will be resolved, the ultimate outcome or potential
costs or damages to be incurred.

Note 16. Related Party Transactions

In the ordinary course of business, the Company has and expects to continue to have transactions, including loans to its officers,
directors and their affiliates. In the opinion of management, such transactions are on the same terms as those prevailing at the
time for comparable transactions with unaffiliated persons. Loan activity for officers, directors and their affiliates for the year
ended December 31, 2020 is as follows:

Balance at beginning of year

New loans
Repayments
Changes in affiliated persons

Balance at end of year

See Note 11, Other Borrowings, for related party borrowings.

Note 17. Employee Benefit Plans

$

$

38,796
30,912
(38,570)
1,333
32,471

The Company has a 401(k) profit sharing plan (Plan) which covers employees over the age of eighteen who have completed
ninety days of credited service, as defined by the Plan. The Plan provides for “before tax” employee contributions through
salary reduction contributions under Section 401(k) of the Internal Revenue Code. A participant may choose a salary reduction
not to exceed the dollar limit set by law each year ($19.5 in 2020). Contributions by the Company and by participants are
immediately fully vested. In July 2018, the Plan was modified to provide for the Company to make 401(k) matching
contributions of 100%, but limited to 6% of the participant's eligible salary. Previously, the Plan provided for the Company to
make 401(k) matching contributions ranging from 50% to 100% depending upon the employee's years of service, but limited to
6% of the participant's eligible salary. The Plan also provides for the Company to make additional discretionary contributions to
the Plan. The Company made contributions of approximately $6,534, $6,343 and $3,280 for the years ended December 31,
2020, 2019 and 2018, respectively.

131

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

Note 18. 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 19, Derivative Financial Instruments, for additional information.

132

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(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 December 31, 2020 and 2019 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)

December 31, 2020

Assets:

Investment securities available for sale:

U.S. treasuries

Government agency securities

Obligations of state and municipal subdivisions

Corporate bonds

Mortgage-backed securities guaranteed by FHLMC, FNMA and
GNMA

Other securities

Loans held for sale, fair value option elected (1)
Derivative financial instruments:

Interest rate lock commitments

Loan customer counterparty

Liabilities:

Derivative financial instruments:

Forward mortgage-backed securities trades

Financial institution counterparty

December 31, 2019

Assets:

Investment securities available for sale:

U.S. treasuries

Government agency securities

Obligations of state and municipal subdivisions

Corporate bonds

Mortgage-backed securities guaranteed by FHLMC, FNMA and
GNMA

Other securities

Loans held for sale, fair value option elected (1)
Derivative financial instruments:

Interest rate lock commitments

Forward mortgage-backed securities trades

Loan customer counterparty

Liabilities:

Derivative financial instruments:

Forward mortgage-backed securities trades

Financial institution counterparty

____________

$

44,708

$

— $

44,708

$

249,017

393,165

22,102

443,501

1,200

71,769

3,515

20,159

568

21,306

—

—

—

—

—

—

—

—

—

—

249,017

393,165

22,102

443,501

1,200

71,769

3,515

20,159

568

21,306

$

48,796

$

— $

48,796

$

179,296

343,859

7,218

505,567

1,200

29,204

847

6

6,104

69

6,566

—

—

—

—

—

—

—

—

—

—

—

179,296

343,859

7,218

505,567

1,200

29,204

847

6

6,104

69

6,566

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

(1) At December 31, 2020 and 2019, loans held for sale for which the fair value option was elected had an aggregate outstanding principal balance of $68,670
and $28,166, 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
December 31, 2020.

133

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(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

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 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 that are not designated as hedging instruments. 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 19, Derivative Financial Instruments, for more information.

134

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(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 December 31, 2020 and 2019, 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 Losses

16,903

$

— $

— $

16,903

$

13,041

2,276

$

4,618

— $

—

— $

—

2,276

$

4,618

1,806

749

December 31, 2020

Assets:

Impaired loans

December 31, 2019

Assets:

Impaired loans

Other real estate owned

$

$

Impaired loans (loans which are not expected to repay all principal and interest amounts due in accordance with the original
contractual terms) are measured at an observable market price (if available) or at the fair value of the loan’s 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. Therefore, the Company has categorized its
impaired loans as Level 3.

Other real estate is measured at fair value on a nonrecurring basis (upon initial recognition or subsequent impairment). Other
real estate is classified within Level 3 of the valuation hierarchy. When transferred from the loan portfolio, other real estate 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.
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
December 31, 2020 and 2019, all mortgage loans held for sale not recorded under the fair value option were recorded at cost.

135

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(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 December 31, 2020 and 2019:

Fair Value Measurements at Reporting Date
Using

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Amount

Estimated
Fair Value

December 31, 2020

Financial assets:

Cash and cash equivalents

$

1,813,987

$

1,813,987

$

1,813,987

$

— $

—

13,093,698

Certificates of deposit held in other banks

Loans held for sale, at cost

Loans, net

FHLB of Dallas stock and other restricted stock

Accrued interest receivable

Financial liabilities:

Deposits

Accrued interest payable

FHLB advances

Other borrowings

Junior subordinated debentures

Off-balance sheet assets (liabilities):

Commitments to extend credit

Standby letters of credit

December 31, 2019

Financial assets:

4,482

10,878

4,595

11,138

12,978,238

13,093,698

20,305

60,581

20,305

60,581

14,398,927

14,407,596

7,397

375,000

312,175

54,023

—

—

7,397

371,175

327,150

42,624

—

—

—

—

—

—

—

—

—

—

—

—

—

—

4,595

11,138

20,305

60,581

14,407,596

7,397

371,175

327,150

42,624

—

—

Cash and cash equivalents

$

565,170

$

565,170

$

565,170

$

— $

Certificates of deposit held in other banks

Loans held for sale, at cost

Loans, net

FHLB of Dallas stock and other restricted stock

Accrued interest receivable

Financial liabilities:

Deposits

Accrued interest payable

FHLB advances

Other borrowings

Junior subordinated debentures

Off-balance sheet assets (liabilities):

Commitments to extend credit

Standby letters of credit

5,719

6,441

5,951

6,554

11,562,814

11,689,672

30,052

35,860

30,052

35,860

11,941,336

11,958,939

9,583

325,210

209,050

48,879

—

—

9,583

325,000

202,251

53,824

—

—

136

—

—

—

—

—

—

—

—

—

—

—

—

5,951

6,554

—

11,689,672

30,052

35,860

11,958,939

9,583

325,210

209,050

48,879

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(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.

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.

137

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

Note 19. Derivative Financial Instruments

The Company enters into certain derivative financial instruments as part of its hedging strategy. These financial instruments are
not designated as hedging instruments 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.

Through the normal course of business, 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.

The Company also 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
December 31, 2020 and 2019:

Outstanding
Notional
Balance

Asset
Derivative
Fair Value

Liability
Derivative
Fair Value

December 31, 2020

Interest rate lock commitments

Forward mortgage-backed securities trades

Commercial loan interest rate swaps:

Loan customer counterparty

Financial institution counterparty

December 31, 2019

Interest rate lock commitments

Forward mortgage-backed securities trades

Commercial loan interest rate swaps:

Loan customer counterparty

Financial institution counterparty

$

116,795

$

3,515

$

104,000

—

335,370

335,370

20,159

—

21,306

—

568

—

$

28,434

$

847

$

42,500

6

280,751

280,751

6,104

—

—

69

—

6,566

138

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

The commercial loan customer counterparty weighted average received and paid interest rates for interest rate swaps
outstanding were as follows:

Loan customer counterparty

Weighted Average Interest Rate

December 31, 2020

December 31, 2019

Received

Paid

Received

Paid

4.08 %

2.32 %

4.23 %

3.77 %

The credit exposure related to interest rate swaps is limited to the net favorable value of all swaps by each counterparty, which
was approximately $20,159 at December 31, 2020. 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 December 31, 2020, cash of $23,829 and securities of $6,494 were pledged as
collateral for these derivatives.

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 one risk participation agreement as a
participant bank having a notional amount of $5,597 at December 31, 2020. 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 $9,604 at December 31,
2020.

The changes in the fair value of interest rate lock commitments and the forward sales of mortgage-back securities are recorded
in mortgage banking revenue. These gains and losses were not attributable to instrument-specific credit risk. For 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.

Income (loss) for the years ended December 31, 2020 and 2019 was as follows:

Derivatives not designated as hedging instruments

Interest rate lock commitments

Forward mortgage-backed securities trades

Note 20. Stock Awards

Years Ended December 31,

2020

2019

$

2,668

$

(505)

25

163

The Company grants common stock awards to certain employees of the Company. In connection with the Company's initial
public offering in April 2013, the Board of Directors adopted the 2013 Equity Incentive Plan (2013 Plan). All stock awards
issued under expired plans prior to 2013 are fully vested. Under the 2013 Plan, the Compensation Committee may grant awards
to certain employees of the Company in the form of restricted stock, restricted stock rights, restricted stock units, qualified and
nonqualified stock options, performance share awards and other equity-based awards. The 2013 Plan, as amended, has
2,300,000 reserved shares of common stock to be awarded by the Company's compensation committee. As of December 31,
2020, there were 1,150,617 shares remaining available for grant for future awards.

139

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

The shares currently issued under the 2013 Plan are restricted stock awards and performance stock units. Restricted stock
awarded to employees vest evenly over the required employment period, generally ranging from one to five years. Performance
stock units awarded generally have a three to four years cliff vesting period. As defined in the plan, outstanding awards may
immediately vest upon a change-in-control in the Company. Restricted stock granted under the 2013 Plan 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.

In connection with the acquisition of Guaranty, as further described in Note 22, Business Combinations, unvested awards of
restricted Guaranty common stock granted under Guaranty’s 2015 Long-Term Incentive Plan (Guaranty 2015 RSA), as
amended, that were outstanding as of January 1, 2019, the acquisition date, were converted into awards of restricted shares of
IBG common stock (Replacement RSA) with the same terms and conditions as were applicable under such Guaranty 2015
RSA, except with respect to any performance-vesting Guaranty 2015 RSA, which became a service-vesting RSA only. The
Replacement RSA will vest over the remaining service period, through May 2021, and do not receive dividends.

Restricted Stock Awards

The following table summarizes the activity in nonvested restricted stock awards for the years ended December 31, 2020 and
2019:

Restricted Stock Awards

Nonvested shares, December 31, 2019

Granted during the period

Vested during the period

Forfeited during the period

Nonvested shares, December 31, 2020

Nonvested shares, December 31, 2018

Acquired awards replaced during the period

Granted during the period

Vested during the period

Forfeited during the period

Nonvested shares, December 31, 2019

Number of
Shares

284,861

$

$

$

310,290

(115,436)

(10,915)

468,800

252,903

70,248

138,608

(161,032)

(15,866)

284,861

$

Weighted Average
Grant Date
Fair Value

58.63

43.54

58.08

48.37

49.01

62.81

45.77

51.14

54.76

46.95

58.63

Compensation expense related to these awards is recorded based on the fair value of the award at the date of grant and totaled
$8,450, $7,808 and $6,062 for the years ended December 31, 2020, 2019 and 2018, respectively. Compensation expense is
recorded in salaries and employee benefits in the accompanying consolidated statements of income. At December 31, 2020,
future compensation expense is estimated to be $15,823 and will be recognized over a remaining weighted average period of
2.57 years.

The fair value of common stock awards that vested during the years ended December 31, 2020, 2019 and 2018 was $5,602,
$8,725 and $8,206, respectively. The Company has recorded $243, $21 and $(646) in excess tax expense (benefit) on vested
restricted stock to income tax expense for the years ended December 31, 2020, 2019 and 2018, respectively.

There were no modifications of stock agreements during 2020, 2019 and 2018 that resulted in significant additional incremental
compensation costs.

140

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

At December 31, 2020, the future vesting schedule of the nonvested restricted stock awards is as follows:

First year

Second year

Third year

Fourth year

Fifth year

Total nonvested shares

Performance Stock Units

177,431

139,009

99,604

52,356

400

468,800

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 year ended
December 31, 2020:

Performance-based Restricted Stock Units

Nonvested shares, December 31, 2019

Granted during the period

Vested during the period

Forfeited during the period

Nonvested shares, December 31, 2020

Number of
Shares

Weighted Average
Grant Date
Fair Value

— $

89,300

—

—

89,300

$

—

38.29

—

—

38.29

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. As of December 31, 2020, the unrecognized compensation expense assuming the
attainment of the maximum payout rate was $5,129 and the remaining performance period over which the expense could be
recognized was 3.5 years. No compensation expense was recorded during the year ended December 31, 2020.

141

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

Note 21. 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.

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 December 31, 2020 and 2019, the Company and the Bank meet all capital adequacy requirements
to which they are subject, including the capital buffer requirement.

As of December 31, 2020 and 2019, 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.

142

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

The following table presents actual capital amounts and required ratios under Basel III Capital Rules for the Company and Bank
as of December 31, 2020 and December 31, 2019.

Actual

Minimum Capital
Required - Basel III

To Be Well
Capitalized Under
Prompt Corrective
Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

December 31, 2020
Total capital to risk weighted assets:

Consolidated
Bank

$ 1,825,661
1,864,240

13.32 % $ 1,438,939
1,438,385
13.61

10.50 %
10.50

N/A
$ 1,369,891

N/A
10.00 %

Tier 1 capital to risk weighted assets:

Consolidated
Bank

Common equity tier 1 to risk weighted assets:

Consolidated
Bank

Tier 1 capital to average assets:
Consolidated
Bank

December 31, 2019
Total capital to risk weighted assets:

1,471,841
1,776,420

1,416,241
1,776,420

1,471,841
1,776,420

10.74
12.97

10.33
12.97

9.12
11.01

1,164,855
1,164,407

959,293
958,924

645,730
645,539

8.50
8.50

7.00
7.00

4.00
4.00

N/A
1,095,913

N/A
890,429

N/A
806,924

N/A

8.00

N/A

6.50

N/A

5.00

Consolidated
Bank

$ 1,513,209
1,548,103

11.83 % $ 1,343,114
1,342,595
12.11

10.50 %
10.50

N/A
$ 1,278,662

N/A
10.00 %

Tier 1 capital to risk weighted assets:

Consolidated
Bank

Common equity tier 1 to risk weighted assets:

Consolidated
Bank

Tier 1 capital to average assets:
Consolidated
Bank

1,303,748
1,496,642

1,248,148
1,496,642

1,303,748
1,496,642

10.19
11.70

9.76
11.70

9.32
10.70

1,087,282
1,086,863

895,409
895,064

559,758
559,584

8.50
8.50

7.00
7.00

4.00
4.00

N/A
1,022,930

N/A
831,130

N/A
699,480

N/A

8.00

N/A

6.50

N/A

5.00

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. On October 22, 2020, the Company's board of directors authorized a $150,000 stock
repurchase program allowing the Company to purchase shares of its common stock through October 31, 2021. Under this
program, the Company repurchased 109,548 shares at a total cost of $5,660 as of December 31, 2020. Under prior stock
repurchase programs, the Company repurchased 897,738 at a total cost of $49,048 during 2019 and none during 2018. In July
2019, the federal bank regulators 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 regarding plans for share repurchases on a quarterly basis. 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. Any redemption or repurchase of preferred stock or
subordinated debt remains subject to the prior approval of the Federal Reserve Board.

143

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

Company stock repurchased to settle employee tax withholding related to vesting of stock awards totaled 2,951 shares at a total
cost of $159, and 55,106 shares at a total cost of $2,611 for the periods ended December 31, 2020 and 2019, respectively, and
were not included under the repurchase program.

Note 22. Business Combinations

Termination of proposed merger with Texas Capital Bancshares, Inc.: The Company and Texas Capital Bancshares, Inc.
(TCBI) and its subsidiary, Texas Capital Bank, entered into an Agreement and Plan of Merger (Merger Agreement), as of
December 9, 2019, providing for the merger of TCBI with and into the Company (the Merger), with the Company as the
surviving entity in the Merger. On May 22, 2020, the Company and TCBI entered into a mutual agreement (Agreement) to
terminate the Merger Agreement. All costs and expenses incurred in connection with the Agreement were paid by the party
incurring such expense. The Agreement provided that the Company make a payment to TCBI, in an amount agreed between the
parties, such that the costs and expenses incurred by the parties related to integration planning, including consulting fees and
related expenses, would be borne equally by the parties. Neither party paid a termination fee in connection with the termination
of the merger agreement. The Company incurred TCBI costs of approximately $15,605 and $5,022 for the years ended
December 31, 2020 and 2019, respectively, which is included in acquisition expense in the consolidated statements of income.

Guaranty Bancorp

On January 1, 2019, the Company acquired 100% of the outstanding stock of Guaranty Bancorp (Guaranty) and its subsidiary,
Guaranty Bank and Trust Company (Guaranty Bank), Denver, Colorado. As a result of the acquisition, the Company added 32
full service branch locations along the Colorado Front Range, including locations throughout the Denver metropolitan area and
along I-25 to Fort Collins expanding the Company's footprint in Colorado. The Company issued 13,179,748 shares of Company
stock for the outstanding shares of Guaranty common stock, including restricted stock replacement awards.

The Company has recognized total goodwill of $272,224 which is calculated as the excess of both the consideration exchanged
and liabilities assumed compared to the estimated fair market value of identifiable assets acquired. The goodwill in this
acquisition resulted from a combination of expected synergies and expansion into desirable Colorado markets. None of the
goodwill recognized is expected to be deductible for income tax purposes.

The Company has incurred expenses related to the acquisition of approximately $33,622 for the year ended December 31, 2019,
of which $5,328 is included in salaries and benefits and $28,294 is included in acquisition expense in the consolidated
statements of income. The Company incurred expense of $1,560 during the year ended December 31, 2018. In addition, for the
year ended December 31, 2019, the Company paid offering costs totaling $804 which were recorded as a reduction to stock
issuance proceeds through additional paid in capital.

144

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

The following table summarizes the final fair values of the assets acquired and liabilities assumed in this transaction:

Assets of acquired bank:

Cash and cash equivalents

Certificates of deposit held in other banks

Securities available for sale

Restricted stock

Loans

Premises and equipment

Other real estate owned

Goodwill

Other intangible assets

Bank owned life insurance

Other assets

Total assets acquired

Liabilities of acquired bank:

Deposits

Repurchase agreements

FHLB advances

Other borrowings

Junior subordinated debentures

Other liabilities

Total liabilities assumed

Common stock of 13,109,500 issued at $45.77 per share

Consideration attributable to 70,248 shares of restricted stock replacement awards

Cash paid

Final Value as Reported at
December 31, 2019

$

$

$

$

$

$

$

39,913

262

561,052

27,794

2,789,868

65,786

1,829

272,224

71,518

80,837

31,987

3,943,070

3,108,810

8,475

142,653

40,000

25,774

15,477

3,341,189

600,022

1,850

9

Non-credit impaired loans had a fair value of $2,478,144 at acquisition date and contractual balance of $2,573,355. As of
acquisition date, the Company expects that an insignificant amount of the contractual balance of these loans will be
uncollectible. The difference of $95,211 is recognized into interest income as an adjustment to yield over the life of the loans.

145

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

Note 23. Parent Company Only Financial Statements

The following balance sheets, statements of income and statements of cash flows for Independent Bank Group, Inc. should be
read in conjunction with the consolidated financial statements and the notes thereto.

Balance Sheets

Assets

Cash and cash equivalents
Investment in subsidiaries
Investment in trusts
Other assets

Total assets

Liabilities and Stockholders' Equity

Other borrowings
Junior subordinated debentures
Other liabilities

Total liabilities

Stockholders' equity:
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income

Total stockholders' equity
Total liabilities and stockholders' equity

December 31,

2020

5,482
2,876,171
1,724
3,849
2,887,226

312,175
54,023
5,657
371,855

—
431
1,934,807
543,800
36,333
2,515,371
2,887,226

$

$

$

$

2019

8,277
2,588,857
1,724
3,355
2,602,213

202,251
53,824
6,365
262,440

—
430
1,926,359
393,674
19,310
2,339,773
2,602,213

$

$

$

$

146

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

Statements of Income

$

Interest expense:

Interest on other borrowings
Interest on junior subordinated debentures

Total interest expense
Noninterest income:

Dividends from subsidiaries
Other

Total noninterest income
Noninterest expense:

Salaries and employee benefits
Professional fees
Acquisition expense, including legal
Other

Total noninterest expense
Income before income tax benefit and equity in undistributed income
of subsidiaries

Income tax benefit

Income before equity in undistributed income of subsidiaries

Equity in undistributed income of subsidiaries

Years Ended December 31,
2019

2018

2020

12,446
2,162
14,608

83,314
—
83,314

8,346
202
16,225
2,424
27,197

41,509

9,410

50,919

150,290

$

$

11,561
3,028
14,589

105,877
1
105,878

7,653
264
33,445
2,562
43,924

47,365

11,066

58,431

134,305

8,390
1,609
9,999

39,841
14
39,855

6,318
332
6,157
1,611
14,418

15,438

5,541

20,979

107,280

128,259

Net income

$

201,209

$

192,736

$

147

Years Ended December 31,
2019

2018

2020

$

201,209

$

192,736

$

128,259

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

Statements of Cash Flows

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash provided by
operating activities:

Equity in undistributed net income of subsidiaries
Amortization of discount and origination costs on borrowings
Stock based compensation expense
Excess tax expense on restricted stock vested
Deferred tax expense
Net change in other assets
Net change in other liabilities

Net cash provided by operating activities

Cash flows from investing activities:
Capital investment in subsidiaries
Cash acquired in connection with acquisition
Cash paid in connection with acquisition

Net cash provided by (used in) financing activities

(150,290)
720
8,450
243
96
(590)
(952)
58,886

(120,000)
—
—
(120,000)

(134,305)
633
7,808
21
2,165
1,863
(64)
70,857

—
339
(9)
330

Cash flows from financing activities:
Proceeds from other borrowings
Repayments of other borrowings
Proceeds from exercise of common stock warrants
Offering costs paid in connection with acquired bank
Repurchase of common stock
Dividends paid

Net cash provided by (used in) financing activities
Net change in cash and cash equivalents

Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

$

148,653
(39,250)
—
—
(5,819)
(45,265)
58,319
(2,795)
8,277
5,482

$

65,000
(40,500)
—
(804)
(51,659)
(43,302)
(71,265)
(78)
8,355
8,277

$

148

(107,280)
633
6,062
(646)
1,054
6,918
1,130
36,130

—
7,425
(31,016)
(23,591)

—
—
2,533
(209)
—
(15,908)
(13,584)
(1,045)
9,400
8,355

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

Note 24. Subsequent Events

Line of credit agreement

On January 17, 2021, the Company's $100,000 unsecured revolving line of credit was renewed and matures on January 17,
2022. As of March 1, 2021, the Company has no borrowings against its revolving line of credit.

Declaration of dividends

On January 28, 2021, the Company declared a quarterly cash dividend in the amount of $0.30 per share of common stock to the
stockholders of record on February 11, 2021. The dividend totaling $12,954 was paid on February 25, 2021.

149

ITEM 16. FORM 10-K SUMMARY

The Company has not elected to include a summary of the information required in this Annual Report on Form 10-K.

150

Pursuant to the requirements of Section 13 or 15(d) 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, in the city of McKinney, Texas, on March 1,
2021.

SIGNATURES

Date: March 1, 2021

By: /s/ David R. Brooks

Independent Bank Group, Inc. (Registrant)

David R. Brooks
Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.

Signature

/s/ David R. Brooks

David R. Brooks

/s/ Michelle S. Hickox

Michelle S. Hickox

/s/ Daniel W. Brooks

Daniel W. Brooks

/s/ William E. Fair

William E. Fair

/s/ Alicia K. Harrison

Alicia K. Harrison

/s/ Craig E. Holmes

Craig E. Holmes

/s/ J. Webb Jennings III

J. Webb Jennings III

/s/ Donald L. Poarch

Donald L. Poarch

/s/ G. Stacy Smith

G. Stacy Smith

/s/ Michael T. Viola

Michael T. Viola

Title
Chairman, Chief Executive Officer, President, and Director
(Principal Executive Officer)

Date

March 1, 2021

Executive Vice President and Chief Financial Officer
(Principal Financial and Principal Accounting Officer)

March 1, 2021

Vice Chairman, Chief Risk Officer and Director

March 1, 2021

Director

Director

Director

Director

Director

Director

Director

March 1, 2021

March 1, 2021

March 1, 2021

March 1, 2021

March 1, 2021

March 1, 2021

March 1, 2021

PURPOSE

Build strong healthy communities - one person, one family, one organization at a time.

VISION

Be the premier regional community bank of choice for individuals and businesses so that we can
invest even more back into the communities we serve.

MISSION

Delight our customers with personalized financial solutions, uplift our communities with financial
and leadership support, and empower employees with positive professional growth opportunities.