ibtx-20211231

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.

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.


Acquired Institution/Market	Date of Acquisition	Fair Value of Total Assets Acquired
		(dollars in thousands)
Town Center Bank Dallas/North Texas	July 31, 2010	$37,451
Farmersville Bancshares, Inc. Dallas/North Texas	September 30, 2010	99,420
I Bank Holding Company, Inc. Austin/Central Texas	April 1, 2012	172,587
The Community Group, Inc. Dallas/North Texas	October 1, 2012	110,967
Collin Bank Dallas/North Texas	November 30, 2013	168,320
Live Oak Financial Corp. Dallas/North Texas	January 1, 2014	131,008
BOH Holdings, Inc. Houston, Texas	April 15, 2014	1,188,893
Houston City Bancshares, Inc. Houston, Texas	October 1, 2014	350,747
Grand Bank Dallas, Texas	November 1, 2015	620,196
Carlile Bancshares, Inc. Dallas/North Texas, Central Texas, Colorado Front Range	April 1, 2017	2,444,155
Integrity Bancshares, Inc. Houston, Texas	June 1, 2018	851,875
Guaranty Bancorp Denver, Colorado and Colorado Front Range	January 1, 2019	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.

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, consumer loans, and energy 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 40%), the Company’s Houston region (approximately 23%), the Company’s Austin/Central Texas region (approximately 13%) 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, including online account opening, 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.

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.

The Company continues to manage the dynamic challenges presented by the endurance of the COVID-19 pandemic, first declared in March of 2020. With respect to protecting the health and safety of the Company’s employees and customers, throughout 2021 the Company maintained a nimble approach to its COVID-19 protocols. As new variants emerged and more was learned about the virus, the Center for Disease Control (CDC) modified masking and quarantine protocols, which the Company utilized to guide its pandemic response. The Company's response includes masking requirements, maintaining social distance efforts where practicable, creating and implementing a quarantine and contact tracing plan, offering flexible work accommodations, including remote work and 50/50 staff rotation schedules when necessary, routine sanitization practices at all facilities and enhancing programs to promote and encourage employees’ mental and physical wellness. While there have been limited occasions in which the Company has had to temporarily close financial centers or modify operations due to employee absences related to COVID-19, the Company’s operations and delivery of financial services to its customers has not materially suffered as a result of the pandemic.

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 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 staff incentive plan. The Company paid 100% of its 2021 staff incentive plan to its eligible employees, despite the challenges presented by the continuation of the COVID-19 pandemic.

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 the 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.

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 the 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.

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 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.

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, credit 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.

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.

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 8.0%, a ratio of total capital to risk-weighted assets of 10.0%, and a leverage ratio of 5.0%; 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, 2021, 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. See Note 20. Regulatory Matters for more information on regulatory capital requirements.

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 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.

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.

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. The Company became subject to the Volcker Rule on January 1, 2021 and has confirmed that its investment practices conform to the Volcker Rule.

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.

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.

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.

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.

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 the FDIC & the TDB. The Company is subject to continuous regulation, supervision and examination by the FDIC and the TDB concerning all areas of operation of the Company. Areas monitored by the FDIC and the TDB, include, but are not limited to, lending practices, corporate governance, investments, borrowings, payment of dividends, training of employees, reserve methodology, BSA/AML compliance, management of risk related to interest rate, liquidity, capital and operations, overall enterprise risk management, internal audit program, financial accounting practices, security procedures, information technology and other related matters. The Company devotes a significant amount of time and resources to align the Company's practices and procedures with examiners' expectations and federal and state regulation.

Examinations by the 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%. See Note 20. Regulatory Matters for more information on regulatory capital requirements.

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) (ASC 326), Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 along with several other subsequent codification updates related to accounting for credit losses, required 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 required 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 amended 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 are immediately recognized through net income; the amount recognized is based on the current estimate of contractual cash flows not expected to be collected over the financial asset’s contractual term. ASC 326 became effective for the Bank and Company on January 1, 2020, however management delayed adoption under the March 27, 2020 CARES Act, in response to the COVID-19 pandemic. Under the Consolidated Appropriations Act signed into law on December 27, 2020, companies are required to adopt and implement the new CECL model by no later than January 1, 2022. The Bank and Company elected to adopt and implement CECL January 1, 2021. Additional discussion of the impact of this decision is provided below under Item 1A. Risk Factors and Item 7. Management Discussion and Analysis, Overview.

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.

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.

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 Financial Institutions Reform, Recovery and Enforcement Act ( 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 changed 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. In May 2020, the OCC issued its final CRA rule, effective October 1, 2020, but, effective January 1, 2022, rescinded it and replaced it with the OCC’s prior CRA rule. The FDIC has not finalized the revisions to its CRA rule. The Federal Reserve has so far only issued an Advance Notice of Proposed Rulemaking on its CRA rules.

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. Recently, in November 2021, the federal banking agencies adopted a Final Rule, with compliance required by May 1, 2022, that requires banking organizations to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability of the United States.

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, 2021, 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 (“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 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 U.S. Department of the Treasury to promulgate priorities for anti-money laundering and countering the financing of terrorism policy; requires the development of standards for testing technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations; and expands BSA whistleblower incentives and protections. Many of the statutory provisions in the AMLA will require additional rulemakings, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance. In June 2021, the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, issued the priorities for anti-money laundering and countering the financing of terrorism policy required under the AMLA. The priorities include: corruption, cybercrime, terrorist financing, fraud, transnational crime, drug trafficking, human trafficking and proliferation financing.

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.

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.

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.

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.

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, as discussed above, the Company may be unable to attract and retain new talent, 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.

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 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.

The Company’s business and growth strategies depend significantly on the Company’s ability to recruit and retain management and employees with expertise, experience and business relationships within the Company's market areas. The Company’s ability to attract and retain key management and employees is dependent upon its compensation, incentive and benefits programs, its response to emerging workplace trends and practices, such as the current demand for flexible work schedules and remote work options that have arisen from the pandemic, its reputation for rewarding and promoting qualified employees, and its implementation of diversity and inclusion initiatives. The hyper competitive nature of the current labor market could increase the Company's noninterest expense, as well as cause significant difficulty and delay in replacing departed management and employees with qualified candidates, 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 productivity and growth. This in turn makes the Company's success dependent upon the strength of its recruitment efforts, as well as its succession plans and procedures.

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 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, ransomware 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. Cybersecurity concerns are also further heightened by Russia's recent invasion of the Ukraine. 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.

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, mobile banking 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.

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.

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.

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.

By way of example, the Company uses forecasting and analytical models to estimate its expected credit losses and to measure the fair value of financial instruments. It also uses models to estimate the effects of changing interest rates and other market measures on the Company’s financial condition and results of operations. 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 expected 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.

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 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, 2021, the Company 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.

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 and 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 credit losses, which would cause the Company’s net income and return on equity to decrease.

As of December 31, 2021, approximately 76.3% 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 credit losses, which could adversely affect the Company’s financial condition, results of operations and cash flows.

In addition, the COVID-19 pandemic has increased demand for remote work opportunities and continues to cause supply chain disruption, which could have a particularly adverse impact on the Company's office and retail portfolios. As of December 31, 2021, office and retail loans collectively accounted for 51.3% of the Company's commercial real estate portfolio. The Company's retail portfolio, which alone accounted for 29.0% of the Company's commercial real estate portfolio may also decline in credit quality in the event that the COVID-19 pandemic worsens such that mandatory shelter-in-place orders and restrictions on business capacity are re-instated, along with reductions in consumer disposable income from workforce reductions.

As of December 31, 2021, approximately 2.9% of the Company’s loans held for investment 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. While oil prices have since recovered and the Company's energy portfolio remains well managed, the decline and volatility in oil prices could have an impact on other segments of the economy generally, including real estate, and particularly for the Texas economy. The Houston market economy specifically could be adversely affected given its high concentration of energy related businesses. 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 energy industry. The Company's energy portfolio is also more susceptible to operational and environmental related disruption, such as on the job injuries, oil spills, explosions, severe weather, and heightened pressure to implement environmental, social and governance driven initiatives, and particularly initiatives that align with the Biden Administration's goals to reduce greenhouse gas emissions.

As discussed under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Provision for Credit Losses, the Bank adopted the CECL accounting standard for calculating allowances for credit losses on financial assets carried at amortized cost, including loans, securities and off-balance sheet credit exposures, on January 1, 2021. CECL requires the application of greater management judgment that is supported by new models and more data elements than the previous allowance methodology. 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's amount of each allowance account represents management's best estimate of current expected credit losses on such financial instruments at each balance sheet date using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The allowance for credit losses on loans is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. The actual amount of credit 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 a result, the determination of the appropriate level of allowance for credit losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates related to current and expected future credit risks and trends, all of which may undergo material changes. The Company’s adoption of the CECL model has increased 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.

As of December 31, 2021, the Company’s allowance for credit losses on loans as a percentage of total loans held for investment was 1.28% and as a percentage of total nonperforming loans was 259.35%. Additional credit 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 credit losses in the future to further supplement the allowance for credit 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 credit 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 credit losses is inaccurate, or if economic and market conditions materially deteriorate as a result of occurrences like the continuation of the COVID-19 pandemic, other global pandemics, natural disasters, or if anticipated climate change regulations impact the Company's CECL model, then the Company may need to increase or decrease its allowance for credits losses, which, in turn, will increase or decrease the Company’s reported income, and introduce additional volatility into its reported earnings. See also Item 7. Management’s Discussion and Analysis of Financial Condition - Allowance for Credit Losses for additional discussion of financial impact of the allowance for credit losses.

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 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.

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.

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.

Rising interest rates in prior periods have increased interest expense, which in turn has adversely affected net interest income, and may do so in the future if the Federal Reserve raises rates as anticipated. In a rising interest rate environment, competition for cost-effective deposits increases, making it more costly to fund loan growth. In addition, a rising rate environment could cause mortgage and mortgage warehouse lending volumes to substantially decline. Any rapid and unexpected volatility in interest rates creates uncertainty and potential for unexpected material adverse effects. The Company actively monitors and manages the balances of maturing and repricing assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurances that the Company can avoid all material adverse effects that such interest rate changes may have on the Company's net interest margin and overall financial condition.

Because the United Kingdom's Financial Conduct Authority and the administrator of LIBOR announced that it will cease publication of U.S. dollar London Interbank Offered Rate ("LIBOR") settings by June 30, 2023, and because U.S. regulator guidance strongly encouraged banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts by no later than December 31, 2021, the Company discontinued offering LIBOR-based products on October 31, 2021. The Company also required all LIBOR-based loans and renewals entered into on or prior to October 31, 2021 to close and fund by no later than December 31, 2021. Beginning November 1, 2021, the Company now negotiates loans and loan renewals that would have been tied to LIBOR using the Wall Street Journal's U.S. Prime Rate ("WSJ Prime"), which is the base rate on corporate loans posted by at least 70% of the 10 largest U.S. banks, or CME Term Secured Overnight Financing Rates ("SOFR"), which are administered by CME Group Benchmark Administration Limited and provide an indication of the forward-looking measurement of overnight SOFR, based on market expectations implied from derivatives markets. For swap transactions, the Company follows ISDA 2020 LIBOR Fallback Protocol published on October 23, 2020 and uses Fallback Rate (SOFR).

As of December 31, 2021, approximately $969 million of the Company's outstanding loans, and, in addition, certain derivative contracts, borrowings and other financial instruments have attributes associated with the LIBOR transition. The transition to LIBOR has resulted in and could continue to result in added costs and employee efforts and could present additional risk, including, but not limited to, litigation and reputational risks if the Company is unable to successfully renegotiate rates or if challenges are made to LIBOR fallback language within existing contracts. In addition, there continues to be uncertainty as to the ultimate effects of the LIBOR transition, including variations in the replacement benchmark rate designated and accepted by financial institutions. These variations also inject potential for greater competition with financial institutions whose LIBOR replacement rates and procedures may be more favorable or flexible than those adopted by the Company. Further, since CME Term SOFR and WSJ Prime are calculated differently, payments under contracts referencing the new rates will differ from those referencing LIBOR, which may lead to increased volatility as compared to LIBOR. The transition has also required changes to the Company's risk and pricing models, valuation tools, product design and hedging strategies. Failures to adequately manage the transition process also poses greater operational and reputational risks that could create material adverse effects on the Company's business, financial condition and results of operations.

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.

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.

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.

For example, the Company and the Bank are 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 $0.21 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.

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.

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 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.

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.

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.

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, 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.

Also, the rise of “FinTech" and popular derivations arising from the "FinTech" boom, such as cryptocurrency, have created both competitive and operational challenges. 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 invest in and effectively implement new technology, procedures and methodology that promote the security of financial transactions in a digital world. If the Company's operations are unable to keep pace with customers' evolving financial needs and demands, then 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.

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, 2021, approximately $909.7 million, or 5.8%, of the Company’s deposits consisted of brokered deposits.

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, like Russia's recent invasion of the Ukraine, 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.

The Company is subject to growing risk from changing environmental conditions. 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. Governmental policy 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, given that a significant portion of the Company’s loan portfolio is secured by real property, the Company has sensitivity to other environmental risks. 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.

While reputational risk has always been inherent in the financial services sector, the emergence of the concept of environmental, social and governance (ESG) initiatives has heightened reputational risk for many industries, and particularly for publicly traded entities, like the Company. Pressure to conform operations and practices around ESG factors could have pervasive impact on the Company's lending practices, branching strategy, product and service offerings, corporate governance, mergers and acquisition strategy, and disclosures. The lack of formalized requirements framing how entities should implement ESG and to what degree creates uncertainty that could have materially adverse effects on the Company's business, financial condition and 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 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 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.

Collectively, as of February 23, 2022, 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 10.4% of the Company’s outstanding common stock, and David Brooks, the Company’s Chairman of the Board and Chief Executive Officer, currently owns 1.5% 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 1.8% of the Company’s outstanding common stock. These individuals have historically, and currently, exert controlling influence in the Company’s management and policies.

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.

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.

The presence and unpredictable future of the COVID-19 pandemic continues to pose potential operational and financial risks. The Company's operational risks may increase, particularly in the way of increased employee absences, increased costs to implement COVID-19 protocols to address ever-changing COVID-19 federal and state mandates and requirements, and retention and recruitment challenges. The Company's vendors and business partners may not be able to deliver products and services to the Company as a result of similar operational challenges and continued supply chain disruptions resulting from COVID-19. The Company may be required by government regulations and ordinances to take additional measures in the interest of protecting the health and safety of its employees, customers and the communities the Company serves. Impairments to business operations arising from COVID-19 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.

To date, COVID-19 has not materially impaired the Company’s ability to support employees, conduct business and serve its customers, but there is no assurance that efforts take by the Company to address the adverse impacts of COVID-19 will be effective, or that the Company's operations and financial condition will not be materially impacted by future developments, which cannot be predicted. Many of these future developments are also beyond the Company's control, such as severity and duration of the pandemic, the emergence of new viral variants and vaccinations, the efficacy, availability and acceptance of treatments and vaccinations, state and federal mandates relating to COVID-19 protocols, exacerbated supply chain disruption, action or inaction by governmental authorities and other third-parties in response to the pandemic, and the response of clients, investors, commodities (including oil and gas) and other markets to future COVID-19 impact. Because the COVID-19 pandemic remains dynamic, it is not possible to accurately predict the extent, severity or duration of these conditions or when normal economic and operating conditions will resume. For this reason, the extent to which the COVID-19 pandemic affects the Company's business, operations and financial condition, as well as its regulatory capital and liquidity ratios and credit ratings, is highly uncertain and unpredictable. The adverse impact on the markets in which the Company operates and on the Company's business, operations and financial condition is expected to remain elevated until the pandemic subsides.

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 August 23, 2009 in Texas state court, alleging, among other things, that the plaintiffs were victims of fraud by SIBL and other Stanford Entities and seeks to recover damages and alleged fraudulent transfers by the defendant banks.

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. The Defendants have filed a motion to remand the case. The Bank also filed its motion for summary judgment on February 12, 2021. On the same day, the Bank also joined in on an omnibus motion for summary judgment based on procedural issues common to all Defendants. On March 19, 2021, the Plaintiffs filed a notice of abandonment of five of the seven causes of action against the Bank. On March 11, 2021, the Defendants filed a motion to amend the scheduling order, which was granted, effectively vacating the May 6, 2021 trial date, with a new trial date to be determined upon remand. On January 20, 2022 the Court issued an opinion and order denying the motion for summary judgment by the Bank and the other defendants. Also, on January 20, 2022, the Court issued a suggestion of remand of the case to the Southern District of Texas. The Company has experienced an increase in legal fees associated with the defense of this claim and expects to continue to incur significant legal fees in connection with this matter for the foreseeable future.

Stock Repurchase Program: From time to time, the Company's board of directors has authorized stock repurchase programs which allows the Company to purchase its common stock in the open market or in privately negotiated transactions. In general, the share repurchase program allows the Company to proactively manage its capital position and return excess capital to shareholders. 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. On August 26, 2021, the Company extended the stock repurchase program through December 31, 2021. Under this program, the Company repurchased 419,098 shares at a total cost of $29.2 million through December 31, 2021 and 109,548 shares of Company stock at a total cost of $5.7 million through 2020. Under a prior stock repurchase program, the Company repurchased 897,738 shares of Company stock at a total cost of $49.0 million during 2019. In December 2021, upon expiration of the current plan, the Company's Board established the 2022 Stock Repurchase Plan, which provides for the repurchase of up to $160.0 million of common stock through December 31, 2022. Through February 23, 2022, no shares have been repurchased under the 2022 Plan.

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 credit losses, our future capital structure or changes therein, the plan and objectives of management for future operations, our future or proposed acquisitions, the future or expected effect of acquisitions on our operations, results of operations and financial condition, our future economic performance and the statements of the assumptions underlying any such statement. Such statements are typically, but not exclusively, identified by the use in the statements of words or phrases such as “aim,” “anticipate,” “estimate,” “expect,” “goal,” “guidance,” “intend,” “is anticipated,” “is estimated,” “is expected,” “is intended,” “objective,” “plan,” “projected,” “projection,” “will affect,” “will be,” “will continue,” “will decrease,” “will grow,” “will impact,” “will increase,” “will incur,” “will reduce,” “will remain,” “will result,” “would be,” variations of such words or phrases (including where the word “could,” “may” or “would” is used rather than the word “will” in a phrase) and similar words and phrases indicating that the statement addresses some future result, occurrence, plan or objective. The forward-looking statements that we make are based on the Company’s current expectations and assumptions regarding its business, the economy, and other future conditions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. The Company’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Many possible events or factors could affect our future financial results and performance and could cause those results or performance to differ materially from those expressed in the forward-looking statements. These possible events or factors include, but are not limited to:

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.

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 noninterest 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 credit 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, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019, and the accompanying notes, appearing elsewhere in this Annual Report on Form 10-K. The Company’s fiscal year ends on December 31. The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2021 and 2020 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 2020 Annual Report on Form 10-K, filed with the SEC on March 1, 2021 for discussion of our results of operations for the years ended December 31, 2020 and 2019.

As discussed in Note 2. Recent Accounting Standards, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) (ASC 326): Measurement of Credit Losses on Financial Instruments on January 1, 2021, pursuant to the delayed adoption allowable under the CARES Act. Upon adoption of CECL, the Company recorded an increase of $80.9 million to the allowance for credit losses for loans and $1.1 million to the allowance for credit losses for unfunded commitments. In addition, the Company recognized a cumulative effect reduction to retained earnings totaling $53.9 million, net of a recorded deferred tax asset of $15.1 million, and reclassified $13.0 million of allowance for credit losses related to purchase credit deteriorated (PCD) loans that were previously classified as purchase credit impaired (PCI) under prior accounting guidance. See discussion in Note 1. Summary of Significant Accounting Policies, Note 2. Recent Accounting Standards and Note 5. Loans, net and Allowance for Credit Losses for more details on the impact of CECL, including related accounting policies.

As a result of the economic environment caused by the COVID-19 outbreak during 2021 and 2020, the Company 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 provided 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 the applicable accounting and regulatory guidance, such modifications were not considered troubled debt restructurings. It is possible that the Company’s asset quality measures could worsen and/or the deferred interest is reversed at future measurement periods if the effects of COVID-19 continue for a prolonged period or worsen and/or the borrower is not able to fully recover as the economy continues to rebound.


	As of and for the Years Ended December 31,
(dollars in thousands except per share data)	2021			2020			2019
Selected Income Statement Data
Net interest income	$	520,322		$	516,446		$	504,757
Provision for credit losses	(9,000)			42,993			14,805
Noninterest income	66,517			85,063			78,176
Noninterest expense	313,606			306,134			321,864
Income tax expense	57,483			51,173			53,528
Net income available to common shareholders	224,750			201,209			192,736
Per Share Data (Common Stock)
Earnings per common share:
Basic	$	5.22		$	4.67		$	4.46
Diluted	5.21			4.67			4.46
Dividends	1.32			1.05			1.00
Selected Performance Metrics
Return on average assets	1.21		%	1.23		%	1.32		%
Return on average equity	8.86			8.26			8.50
Net interest margin	3.10			3.55			3.95
Efficiency ratio	51.30			48.79			53.01
Dividend payout ratio	25.29			22.48			22.42

The Company’s net income available to common shareholders increased by $23.5 million, or 11.7%, to $224.8 million ($5.21 per common share on a diluted basis) for the year ended December 31, 2021, from $201.2 million ($4.67 per common share on a diluted basis) for the year ended December 31, 2020. The increase in net income for 2021 over 2020 was primarily due to the $52.0 million decrease in provision for credit losses, as well as the $3.9 million increase in net interest income, offset by an $18.5 million decrease in noninterest income, a $7.5 million increase in noninterest expense and a $6.3 million increase in income tax expense. Provision was elevated in the prior year due the economic uncertainty related to the COVID-19 pandemic, while the current year provision reflects improvements in the economic forecast, as well as credit quality and past dues trends during 2021. The Company posted returns on average common equity of 8.86% and 8.26%, returns on average assets of 1.21% and 1.23%, and efficiency ratios of 51.30% and 48.79% for the years ended December 31, 2021 and 2020, respectively. The efficiency ratio is calculated by dividing total noninterest expense (which does not include the provision for credit losses and the amortization of core deposits intangibles) by net interest income plus noninterest income. The Company’s dividend payout ratio was 25.29% and 22.48% for the years ended December 31, 2021 and 2020, respectively due to the increase in dividends paid from $1.05 per share in 2020 to $1.32 per share in 2021 .

The Company’s net interest income is its interest income, net of interest expenses. Changes in the balances of the Company’s interest-earning assets and its interest-bearing liabilities, as well as changes in the market interest rates, affect the Company’s net interest income. The difference between the Company’s average yield on earning assets and its average rate paid for interest-bearing liabilities is its net interest spread. Noninterest-bearing sources of funds, such as demand deposits and stockholders’ equity, also support the Company’s earning assets. The impact of the noninterest-bearing sources of funds is reflected in the Company’s net interest margin, which is calculated as annualized net interest income divided by average earning assets.

The Company earned net interest income of $520.3 million for the year ended December 31, 2021, an increase of $3.9 million, or 0.8%, from $516.4 million for the year ended December 31, 2020. The slight increase in net interest income from the previous year was driven by overall decreased funding costs for the year, offset by decreased earnings on assets due to lower yields and accretion, but also due to a shift in the mix of interest-earning assets to lower yielding securities and interest-bearing cash balances. The Company’s net interest margin for 2021 decreased to 3.10% from 3.55% in 2020, and the Company’s interest rate spread for 2021 decreased to 2.92% from the 3.26% interest rate spread for 2020. The average balance of interest-earning assets for 2021 increased by $2.2 billion, or 15.1%, to $16.8 billion from an average balance of $14.6 billion for 2020. The increase from the prior year was primarily related to increased average interest-bearing deposits with correspondent banks and average taxable securities due primarily due to excess liquidity during 2021. Average interest-bearing liabilities increased $1.2 billion, or 11.4% primarily due to increased average deposit balances, offset by lower average FHLB advances and other borrowings. The Company’s net interest margin for the year ended December 31, 2021 was negatively impacted by a 72 basis point decrease in the weighted-average yield on interest-earning assets to 3.48% for the year ended December 31, 2021, from 4.20% for the year ended December 31, 2020. The decrease from the prior year is due primarily to overall lower yields on all interest-earning assets due to the declining rate environment but also the shift in mix mentioned above, as well as decreased loan accretion. The year ended December 31, 2021 includes $21.2 million of loan accretion compared to $30.4 million for the year ended December 31, 2020. The cost of interest bearing liabilities, including borrowings, was 0.56% for the year ended December 31, 2021 compared to 0.94% for the year ended December 31, 2020. The decrease from the prior year is primarily due to lower rates offered on deposit products, as well as rate decreases on short-term FHLB advances and other borrowings.


	For the Years Ended December 31,
	2021						2020						2019
(dollars in thousands)	Average Outstanding Balance		Interest		Yield/ Rate		Average Outstanding Balance		Interest		Yield/ Rate		Average Outstanding Balance		Interest		Yield/ Rate
Interest-earning assets:
Loans (1)	$	12,501,641	$	547,931	4.38	%	$	12,329,965	$	579,085	4.70	%	$	11,179,161	$	611,589	5.47	%
Taxable securities	1,204,153		22,754		1.89		749,273		19,150		2.56		770,927		21,324		2.77
Nontaxable securities	358,261		8,344		2.33		344,609		8,472		2.46		329,687		8,482		2.57
Interest bearing deposits and other	2,693,812		4,533		0.17		1,141,164		4,799		0.42		504,309		11,537		2.29
Total interest-earning assets	16,757,867		$	583,562	3.48		14,565,011		$	611,506	4.20		12,784,084		$	652,932	5.11
Noninterest-earning assets	1,800,301						1,792,725						1,771,231
Total assets	$	18,558,168					$	16,357,736					$	14,555,315
Interest-bearing liabilities:
Checking accounts	$	5,967,655	$	22,615	0.38	%	$	4,577,137	$	28,244	0.62	%	$	3,953,986	$	44,171	1.12	%
Savings accounts	711,401		1,034		0.15		607,996		1,067		0.18		540,741		1,335		0.25
Money market accounts	2,584,386		13,580		0.53		2,368,980		21,089		0.89		2,047,554		40,837		1.99
Certificates of deposit	1,269,736		6,970		0.55		1,645,014		25,866		1.57		1,795,391		37,041		2.06
Total deposits	10,533,178		44,199		0.42		9,199,127		76,266		0.83		8,337,672		123,384		1.48
FHLB advances	362,192		2,038		0.56		613,251		4,170		0.68		464,404		10,173		2.19
Other borrowings - short-term	6,278		118		1.88		8,862		161		1.82		23,515		893		3.80
Other borrowings - long-term	287,860		15,129		5.26		215,627		12,301		5.70		177,551		10,697		6.02
Junior subordinated debentures	54,130		1,756		3.24		53,931		2,162		4.01		53,733		3,028		5.64
Total interest-bearing liabilities	11,243,638		63,240		0.56		10,090,798		95,060		0.94		9,056,875		148,175		1.64
Noninterest-bearing checking accounts	4,675,667						3,736,230						3,139,805
Noninterest-bearing liabilities	102,205						95,234						91,532
Stockholders’ equity	2,536,658						2,435,474						2,267,103
Total liabilities and equity	$	18,558,168					$	16,357,736					$	14,555,315
Net interest income			$	520,322					$	516,446					$	504,757
Interest rate spread					2.92	%					3.26	%					3.47	%
Net interest margin (2)					3.10						3.55						3.95
Net interest income and margin (tax equivalent basis) (3)			$	524,260	3.13				$	520,274	3.57				$	508,498	3.98
Average interest earning assets to interest bearing liabilities					149.04						144.34						141.15

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.


	For the Year Ended December 31, 2021 v. 2020						For the Year Ended December 31, 2020 v. 2019
	Increase (Decrease) Due to				Total Increase (Decrease)		Increase (Decrease) Due to				Total Increase (Decrease)
(dollars in thousands)	Volume		Rate				Volume		Rate
Interest-earning assets
Loans	$	8,109	$	(39,263)	$	(31,154)	$	58,990	$	(91,494)	$	(32,504)
Taxable securities	9,534		(5,930)		3,604		(588)		(1,586)		(2,174)
Nontaxable securities	329		(457)		(128)		368		(378)		(10)
Interest bearing deposits and other	3,784		(4,050)		(266)		7,363		(14,101)		(6,738)
Total interest-earning assets	$	21,756	$	(49,700)	$	(27,944)	$	66,133	$	(107,559)	$	(41,426)
Interest-bearing liabilities
Checking accounts	$	7,185	$	(12,814)	$	(5,629)	$	6,161	$	(22,088)	$	(15,927)
Savings accounts	167		(200)		(33)		150		(418)		(268)
Money market accounts	1,752		(9,261)		(7,509)		5,595		(25,343)		(19,748)
Certificates of deposit	(4,911)		(13,985)		(18,896)		(2,910)		(8,265)		(11,175)
Total deposits	4,193		(36,260)		(32,067)		8,996		(56,114)		(47,118)
FHLB advances	(1,490)		(642)		(2,132)		2,546		(8,549)		(6,003)
Other borrowings - short-term	(48)		5		(43)		(399)		(333)		(732)
Other borrowings - long-term	3,841		(1,013)		2,828		2,196		(592)		1,604
Junior subordinated debentures	8		(414)		(406)		11		(877)		(866)
Total interest-bearing liabilities	6,504		(38,324)		(31,820)		13,350		(66,465)		(53,115)
Net interest income	$	15,252	$	(11,376)	$	3,876	$	52,783	$	(41,094)	$	11,689

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost. Provision for credit losses is determined by management as the amount to be added to the allowance for credit loss accounts for various types of financial instruments including loans, held to maturity debt securities and off-balance sheet credit exposures, after net charge-offs have been deducted, to bring the allowance to a level deemed appropriate by management to absorb expected credit losses over the lives of the respective financial instruments. Management actively monitors the Company’s asset quality and provides appropriate provisions based on such factors as historical loss experience, current conditions and reasonable and supportable forecasts.

The Company recorded a negative provision for credit losses on loans totaling $12.6 million during the year ended December 31, 2021. This is a decrease of $55.6 million, or 129.3% compared to the $43.0 million provision for credit losses on loans recorded in 2020. Provision expense for loans is generally reflective of organic loan growth as well as charge-offs or specific reserves taken during the respective period. Provision expense is also impacted by the economic outlook and changes in macroeconomic variables. The negative provision recorded for the year ended December 31, 2021 was primarily related to improvements in the economic forecast, while the prior year provision was elevated due to general provision expense incurred due to the economic uncertainty related to the COVID-19 crisis.


	For the Years Ended December 31,						Variance				Variance
(dollars in thousands)	2021		2020		2019		2021 v. 2020				2020 v. 2019
Noninterest income:
Service charges on deposit accounts	$	9,842	$	9,303	$	12,145	$	539	5.8	%	$	(2,842)	(23.4)	%
Investment management fees	8,586		7,546		9,330		1,040		13.8		(1,784)		(19.1)
Mortgage banking revenue	23,157		36,491		15,461		(13,334)		(36.5)		21,030		136.0
Mortgage warehouse purchase program fees	6,908		6,088		3,287		820		13.5		2,801		85.2
Gain on sale of loans	56		356		6,779		(300)		N/M		(6,423)		N/M
Gain on sale of branches	—		—		1,549		—		N/M		(1,549)		N/M
Gain on sale of trust business	—		—		1,319		—		N/M		(1,319)		N/M
Gain (loss) on sale of other real estate	63		(36)		875		99		N/M		(911)		N/M

Gain on sale of securities available for sale	13		382		275		(369)		N/M		107		N/M
(Loss) gain on sale and disposal of premises and equipment	(304)		370		(585)		(674)		N/M		955		N/M
Increase in cash surrender value of BOLI	5,209		5,347		5,525		(138)		(2.6)		(178)		(3.2)
Other	12,987		19,216		22,216		(6,229)		(32.4)		(3,000)		(13.5)
Total noninterest income	$	66,517	$	85,063	$	78,176	$	(18,546)	(21.8)	%	$	6,887	8.8	%


	For the Years Ended December 31,						Variance				Variance
(dollars in thousands)	2021		2020		2019		2021 v. 2020				2020 v. 2019
Noninterest expense:
Salaries and employee benefits	$	180,336	$	157,540	$	162,683	$	22,796	14.5	%	$	(5,143)	(3.2)	%
Occupancy	40,688		39,210		37,654		1,478		3.8		1,556		4.1
Communications and technology	22,355		23,113		22,248		(758)		(3.3)		865		3.9
FDIC assessment	5,865		6,912		1,065		(1,047)		(15.1)		5,847		N/M
Advertising and public relations	1,097		2,416		2,527		(1,319)		(54.6)		(111)		(4.4)
Other real estate owned expenses, net	4		487		418		(483)		(99.2)		69		16.5
Impairment of other real estate	—		784		1,801		(784)		(100.0)		(1,017)		(56.5)
Amortization of other intangible assets	12,580		12,671		12,880		(91)		(0.7)		(209)		(1.6)
Professional fees	15,530		12,630		7,936		2,900		23.0		4,694		59.1
Acquisition expense, including legal	—		16,225		33,445		(16,225)		(100.0)		(17,220)		(51.5)
Other	35,151		34,146		39,207		1,005		2.9		(5,061)		(12.9)
Total noninterest expense	$	313,606	$	306,134	$	321,864	$	7,472	2.4	%	$	(15,730)	(4.9)	%

Salaries and employee benefits. Salaries and employee benefits expense, which historically has been the largest component of the Company’s noninterest expense, increased $22.8 million, or 14.5%, for the year ended December 31, 2021, compared to the year ended December 31, 2020. The change is primarily due to $16.1 million in higher salaries, bonus, payroll taxes, insurance expense, 401(k) match and stock grant amortization related to additional headcount, including executive and senior positions added during the year. Contract labor costs increased $2.6 million due to PPP resources and various bankwide infrastructure projects. Deferred salaries costs, which reduces overall expense, was $6.3 million lower in the current year as prior year loan originations were elevated due to PPP activity. Offsetting these changes was a decrease of $1.6 million for mortgage commissions and incentives due to decreased volumes and margins resulting from rate increases in 2021, and a decrease of $1.8 million in severance expenses, which primarily related to departmental and business line restructurings that occurred in 2020.

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 Paycheck Protection Program (PPP) loans originated under the CARES Act and shared national credits (SNC).

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.

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.


	Within One Year				One Year to Five Years				After Five Years to Fifteen Years				After Fifteen Years				Total
(dollars in thousands)	Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate
Commercial	$	119,719	$	296,847	$	336,112	$	890,270	$	115,226	$	181,635	$	43,760	$	317	$	614,817	$	1,369,069
Mortgage warehouse purchase loans	788,848		—		—		—		—		—		—		—		788,848		—
Real estate:
Commercial real estate	508,058		224,695		2,574,032		805,625		636,061		1,602,774		4,419		261,791		3,722,570		2,894,885
Commercial construction, land and land development	112,533		198,344		393,502		229,230		39,097		153,104		190		54,181		545,322		634,859
Residential real estate	84,215		29,855		425,037		40,074		149,219		154,324		277,300		172,222		935,771		396,475
Single-family interim construction	43,436		185,131		16,389		41,290		51,832		26,021		—		16,528		111,657		268,970
Agricultural	10,652		19,810		38,314		7,240		4,492		20,175		633		5,196		54,091		52,421
Consumer	10,015		40,598		10,355		17,261		111		3,475		—		—		20,481		61,334
Total loans	$	1,677,476	$	995,280	$	3,793,741	$	2,030,990	$	996,038	$	2,141,508	$	326,302	$	510,235	$	6,793,557	$	5,678,013

At December 31, 2021, the average duration of the Company's loan portfolio was 2.2 years. The Company generally structures certain loans, like commercial and commercial real estate, with shorter-term loan maturities in order to match funding sources that will enable the Company to effectively manage the portfolio by providing the flexibility to respond to liquidity needs, changes in interest rates and changes in underwriting standards and loan structures, among other things. Due to the shorter-term nature of such loans, from time to time in the ordinary course of business and without any contractual obligation, the Company will renew or extend maturing lines of credit or refinance existing loans at their maturity dates based on customer practice and need. These renewals, extensions and refinancings are made in the ordinary course of business for customers that meet the normal level of credit standards. These requests are typically made by the customer to support their working capital needs for operations. Such borrowers are generally not experiencing financial difficulties and could obtain similar financing elsewhere. In connection with each renewal, extension or refinancing, the Company may require a principal reduction or an adjustment to the terms and structure to reflect the current market pricing/structuring for such loans or to remain competitive with other financial institutions.

Nonperforming Assets. The Company has established procedures to assist the Company in maintaining the overall quality of the Company’s loan portfolio. In addition, the Company has adopted underwriting guidelines to be followed by the Company’s lending officers and require significant senior management review of proposed extensions of credit exceeding certain thresholds. When delinquencies exist, the Company rigorously monitors the levels of such delinquencies for any negative or adverse trends. The Company’s loan review procedures include approval of lending policies and underwriting guidelines by the Company’s board of directors, an annual independent loan review, approval of large credit relationships by the Bank’s Executive Loan Committee and loan quality documentation procedures. The Company, like other financial institutions, is subject to the risk that its loan portfolio will be subject to increasing pressures from deteriorating borrower credit due to general economic conditions.


	As of December 31,
(dollars in thousands)	2021			2020
Nonaccrual loans
Commercial	$	36,802		$	25,898

Commercial real estate	15,218			20,040
Commercial construction, land and land development	23			32
Residential real estate	1,592			2,372

Agricultural	—			613
Consumer	38			42
Total nonaccrual loans (1)	53,673			48,997









Total loans delinquent 90 days or more and still accruing	1,790			433









Total troubled debt restructurings, not included in nonaccrual loans	1,875			1,986
Total nonperforming loans (2)	57,338			51,416









Total other real estate owned and other repossessed assets	114			589
Total nonperforming assets	$	57,452		$	52,005

Total allowance for credit losses on loans	$	148,706		$	87,820
Total loans held for investment (3)	$	11,650,598		$	11,622,298
Total assets	$	18,732,648		$	17,753,476

Credit Ratios
Ratio of nonperforming loans to total loans held for investment	0.49		%	0.44		%
Ratio of nonperforming assets to total assets	0.31			0.29
Ratio of nonaccrual loans to total loans held for investment	0.46			0.42
Ratio of allowance for credit losses on loans to total loans held for investment	1.28			0.76
Ratio of allowance for credit losses on loans to nonaccrual loans	277.06			179.24
Ratio of allowance for credit losses on loans to total nonperforming loans	259.35			170.80

The Company had $53.7 million and $49.0 million in loans on nonaccrual status as of December 31, 2021 and 2020, respectively. The increase from December 31, 2020 to December 31, 2021 was primarily due to additions of one $13.0 million commercial loan, one $11.7 million commercial real estate loan as well as $3.8 million in remaining PCD loans that were added related to the January 1, 2021 CECL adoption, offset by a $15.2 million commercial real estate loan removed from nonaccrual during the year in addition to charge-offs of $1.6 million. The remainder of the change is due to individually smaller net payoffs/paydowns totaling $7.0 million during 2021. Loans delinquent 90 days or more and still accruing increased to $1.8 million as of December 31, 2021. The increase was primarily due to four residential real estate loans totaling $1.6 million.

As discussed elsewhere in Item 7. MDA, Overview and Note 2. Recent Accounting Standards, the Company adopted the CECL accounting standard on January 1, 2021 and has accounted for the allowance for credit losses under the CECL model for the year ended December 31, 2021. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables, held to maturity debt securities and off-balance-sheet credit exposures. The CECL model requires the measurement of all expected credit losses on applicable financial assets based on historical experience, current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance accounts is dependent upon a variety of factors beyond the Company's control, including the performance of the portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. The Company applied the incurred loss methodology for estimating the allowance and applicable provision in all years prior to 2021.

The allowance for credit losses on loans as a percentage of nonperforming loans increased from 170.80% at December 31, 2020, to 259.35% at December 31, 2021, due primarily to the adoption of CECL offset by the increase in nonperforming loans. As of December 31, 2021, the Company had specific credit loss allocations of $18.1 million on individually evaluated loans totaling $64.9 million, compared with specific credit loss allocations of $8.5 million on individually evaluated loans totaling $64.4 million as of December 31, 2020. The increase in specific credit loss allocations was due primarily to the addition of two commercial loan relationships that added an additional $4.6 million in specific credit loss and a commercial real estate relationship with a $1.6 million specific credit loss. Additionally, the specific credit losses on two energy credits increased by $3.4 million during 2021.


	Net Charge-offs (Recoveries)		Average Loans		Ratio of Annualized Net Charge-offs (Recoveries) to Average Loans
2021
Commercial	$	6,797	$	2,178,362	0.31	%
Mortgage warehouse	—		906,675		—
Real estate:
Commercial	375		6,374,508		0.01
Commercial construction, land and land development	126		1,190,934		0.01
Residential	(7)		1,340,382		—
Single family interim construction	—		345,397		—
Agricultural	—		85,316		—
Consumer	129		80,067		0.16
Total	$	7,420	$	12,501,641	0.06	%
2020
Commercial	$	5,558	$	2,297,372	0.24	%
Mortgage warehouse	—		819,049		—
Real estate:
Commercial	731		5,931,040		0.01
Commercial construction, land and land development	—		1,278,162		—
Residential	—		1,506,257		—
Single family interim construction	82		347,954		0.02
Agricultural	—		90,483		—
Consumer	263		59,648		0.44
Total	$	6,634	$	12,329,965	0.05	%
2019
Commercial	$	7,619	$	1,854,282	0.41	%
Mortgage warehouse	—		354,313		—
Real estate:
Commercial	(1)		5,778,668		—
Commercial construction, land and land development	—		1,139,327		—
Residential	140		1,528,974		0.01
Single family interim construction	3		371,527		—
Agricultural	—		100,038		—
Consumer	385		52,032		0.74
Total	$	8,146	$	11,179,161	0.07	%

The allowance for credit losses on off-balance sheet credit exposures is calculated under the CECL model, representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. Off-balance sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in Note 14. Off -Balance Sheet Arrangements , Commitments and Contingencies. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur based on historical utilization rates. At December 31, 2021, the allowance for credit losses on off-balance sheet credit exposures was $4.7 million. There was no allowance for credit losses on off-balance sheet exposures as of December 31, 2020 under the Company's prior loss methodology.

Certain investment securities are valued at less than their amortized cost. At December 31, 2021, the Company's review of all available for sale securities at an unrealized loss position determined that the losses resulted from factors not related to credit quality. This conclusion is based on the Company's analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors for each security type in the portfolio. The unrealized losses are generally due to increases in market interest rates. Furthermore, the Company has the intent to hold these securities until maturity or a forecasted recovery, and it is more likely than not that the Company will not have to sell the securities before the recovery of their cost basis. The fair value is expected to recover as the securities approach their maturity date. As such, there is no allowance for credit losses on available for sale securities recognized as of December 31, 2021.

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.


(dollars in thousands)	Amount		Weighted Average Yield (1)
U.S. treasury securities
Maturing within one year	$	—	—	%
Maturing in one to five years	98,521		1.44
Maturing in five to ten years	76,475		1.24
Maturing after ten years	—		—
Total U.S. treasury securities	$	174,996	1.35	%

Government agency securities
Maturing within one year	$	14,302	2.13	%
Maturing in one to five years	21,300		1.69
Maturing in five to ten years	264,750		1.45
Maturing after ten years	144,323		1.83
Total government agency securities	$	444,675	1.61	%

Obligations of state and municipal subdivisions
Maturing within one year	$	13,149	2.82	%
Maturing in one to five years	81,807		2.92
Maturing in five to ten years	86,971		2.93
Maturing after ten years	250,833		2.48
Total obligations of state and municipal subdivisions	$	432,760	2.67	%

Corporate bonds
Maturing within one year	$	4,075	3.81	%
Maturing in one to five years	—		—
Maturing in five to ten years	30,721		4.16
Maturing after ten years	—		—
Total corporate bonds	$	34,796	4.12	%

Residential pass through securities
Maturing within one year	$	5,075	2.95	%
Maturing in one to five years	30,400		2.62
Maturing in five to ten years	86,323		2.02
Maturing after ten years	796,752		1.78
Total residential pass through securities	$	918,550	1.84	%

Other securities
Maturing within one year	$	—	—	%
Maturing in one to five years	850		2.29
Maturing in five to ten years	100		2.00
Maturing after ten years	—		—
Total other securities	$	950	2.21	%
Total investment securities	$	2,006,727	1.95	%

As of December 31, 2021 and 2020, the Company had $266.4 million and $305.7 million, respectively, of long-term indebtedness (other than FHLB advances and junior subordinated debentures) outstanding, which included subordinated debentures. The decrease from December 31, 2020 to December 31, 2021 was due to the Company redeeming $40.0 million of subordinated debentures during third quarter 2021. In addition, the Company had $17.0 million and $6.5 million of short-term borrowings outstanding on its $100.0 million revolving line of credit as of December 31, 2021 and 2020, respectively. The line was subsequently paid off in 2022 and there are no borrowings outstanding as of February 25, 2022. See Note 10. Other Borrowings for further details of the Company's other borrowings.

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. During 2021, the Company repurchased 419,098 shares at a total cost of $29.2 million and 109,548 shares of Company stock at a total cost of $5.7 million during 2020. In December 2021, upon the expiration of the current plan, the Company's board established the 2022 Stock Repurchase Plan, which provides for the repurchase of up to $160.0 million of common stock through December 31, 2022. No shares have been repurchased under the 2022 Plan through February 23, 2022. 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.

Liquidity refers to the measure of the Company’s ability to meet current and future cash flow requirements as they become due, while at the same time meeting the Company’s operating, capital and strategic cash flow needs, all at a reasonable cost. The Company’s asset and liability management policy is intended to maintain adequate liquidity and, therefore, enhance the Company’s ability to raise funds to support asset growth, meet deposit withdrawals and lending needs, maintain reserve requirements, and otherwise sustain operations. The Company accomplishes this through management of the maturities of 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.

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.

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. The Company's $100.0 million line of credit also provides an additional source of liquidity. Under this agreement, the Company is required to meet certain financial covenants on a quarterly basis, which includes maintaining $5.0 million in cash at Independent Bank Group and meeting minimum capital ratios. The line also bears a non-usage fee of 0.30% per year on the unused commitment at the end of each fiscal quarter. See Note 10. Other Borrowings for more d etails of the Company's borrowings.

In the ordinary course of the Company’s operations, the Company has entered into certain contractual obligations and has made other commitments to make future payments. The Company believes that it will be able to meet its contractual obligations as they come due through the maintenance of adequate cash levels. The Company expects to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. The Company has in place various borrowing mechanisms for both short-term and long-term liquidity needs. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such obligations as of December 31, 2021. These include payments related to (a) time deposits with stated maturity dates (Note 8. Deposits), (b) short and long term borrowings (Note 9. Federal Home Loan Bank Advances, Note 10. Other Borrowings and Note 11. Junior Subordinated Deb entures), (c) operating leases (Note 12. Leases) and (d) commitments to extend credit and standby letters of credit (Note 14. Off-Balance Sheet Arrangements, Commitments and Contingencies).

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 has deemed the accounting policy and estimate discussed below as most critical and require the Company to make difficult, subjective or complex judgments about matters that are inherently uncertain. Changes in these estimates, 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. The Company has other significant accounting policies and continues to evaluate the materiality of their impact on its consolidated financial statements, but management believes these other policies either do not generally require them to make estimates and judgments that are difficult or subjective, or it is less likely they would have a material impact on the Company's reported results for a given period.

Allowance For Credit Losses. Management considers policies related to the allowance for credit losses on financial instruments, including loans and off-balance sheet credit exposures, to be critical to the financial statements. As discussed in Note 2. Recent Accounting Standards, the Company's policies related to allowance for credit losses changed on January 1, 2021 in connection with the adoption of a new accounting standard ASC 326, Financial Instruments - Credit Losses. In accordance with ASC 326, the allowance for credit losses on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans are charged against the allowance for credit losses when management believes that collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance is increased (decreased) by provisions (or reversals of) reported in the income statement as a component of provisions for credit loss. Under the new guidance, the allowance for credit losses on off-balance sheet credit exposures is a liability account representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit.

The amount of each allowance account represents management's best estimate of current expected credit losses on such financial instruments using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, credit quality, or term as well as for changes in environmental conditions, such as changes in unemployment rates, gross domestic product, property values or other relevant factors. The Company utilizes Moody’s Analytics economic forecast scenarios and assigns probability weighting to those scenarios which best reflect management’s views on the economic forecast.

The allowance for credit losses for loans is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. For determining the appropriate allowance for credit losses on a collective basis, the loan portfolio is segmented into pools based upon similar risk characteristics and a lifetime loss-rate model is utilized. The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Management has determined that they are reasonably able to forecast the macroeconomic variables used in the modeling processes with an acceptable degree of confidence for a total of two years then encompassing a reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean utilizing a rational, systematic basis. Management qualitatively adjusts model results for risk factors that are not considered within the modeling processes but are nonetheless relevant in assessing the expected credit losses within the loan pools. These qualitative factor (Q-Factor) adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk.

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 Risk Oversight Committee of the Board of Directors has oversight of the asset and liability management function, which is managed by the Company’s Treasurer. The Treasurer meets with the Company’s Chief Financial Officer and senior executive management team regularly to review, among other things, the sensitivity of the Company’s assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That Committee also reviews the liquidity, capital, deposit mix, loan mix and investment positions of the Company.

These are good faith estimates and assume that the composition of the Company’s interest sensitive assets and liabilities existing at each year-end and is based on future maturities and market pricing 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 our future results will likely be different from the foregoing estimates, and such differences could be material.

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 just over two years. The Company’s strategy with respect to liabilities has been to emphasize transaction accounts, particularly noninterest or low interest-bearing non-maturing deposit accounts, which are less sensitive to changes in interest rates. In response to this strategy, non-maturing deposit accounts have been a large portion of total deposits and totaled 93.2% and 90.2% of total deposits as of December 31, 2021 and 2020, respectively. The Company had brokered deposits, including CDARS totaling $909.7 million and $1.5 billion, at December 31, 2021 and 2020, respectively. The Company intends to focus on the strategy of increasing noninterest or low interest-bearing non-maturing deposit accounts, but may consider the use of brokered deposits as a stable source of lower cost funding.

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.

As of December 31, 2021, 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, 2021, 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.

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.

In addition, on February 24, 2022, the Company's Board of Directors determined that its 2022 Annual Meeting of Shareholders (the "2022 Annual Meeting") will be held on May 26, 2022 at 2:30 p.m. Central Time. The 2022 Annual Meeting will be held in a virtual format. The Board has established the record date for the 2022 Annual Meeting of April 8, 2022. Shareholder proposals intended to be presented under Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) for inclusion in the Company’s proxy statement and accompanying proxy for the 2022 Annual Meeting must be received by the Corporate Secretary of the Company, at 7777 Henneman Way, McKinney, Texas 75070; fax (972) 562-5496; e-mail nmetcalf@ibtx.com, on or before the close of business on March 12, 2022, which the Company has determined to be a reasonable time before it expects to begin to print and send its proxy materials. Any such proposal must also meet the requirements set forth in the rules and regulations of the Securities and Exchange Commission in order to be eligible for inclusion in the proxy materials for the 2022 Annual Meeting. The March 12, 2022 deadline also will apply in determining whether notice of a shareholder proposal is timely for purposes of exercising discretionary voting authority with respect to proxies under Rule 14a-4(c) of the Exchange Act. In addition, shareholders of the Company who wish to bring business before the 2022 Annual Meeting outside of Rule 14a-8 of the Exchange Act or to nominate a person for election as a director must ensure that written notice of such proposal or nomination is received by the Company’s Corporate Secretary at the address specified above no later than the close of business on March 12, 2022. Any such proposal or nomination must meet the requirements set forth in the Company’s bylaws in order to be brought before the 2022 Annual Meeting.

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 2022 Annual Meeting of Shareholders (the “2022 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.

We have audited the accompanying consolidated balance sheets of Independent Bank Group, Inc. and its subsidiaries (the Company) as of December 31, 2021, and 2020, 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, 2021, 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, 2021, and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

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.

As described in Notes 1 and 5 of the consolidated financial statements, the Company’s allowance for credit losses on loans totaled $148.7 million as of December 31, 2021. The allowance for credit losses on loans is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. For determining the appropriate allowance for credit losses on a collective basis, the loan portfolio is segmented into pools based upon similar risk characteristics and a lifetime loss-rate model is utilized. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, credit quality, or term as well as changes in environmental conditions, such as changes in unemployment rates, gross domestic product, property values or other relevant factors. Management has determined that they are reasonably able to forecast the macroeconomic variables used in the modeling processes with an acceptable degree of confidence for a total of two years then encompassing a reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean utilizing a rational, systematic basis. Management qualitatively adjusts model results for risk factors that are not considered within the modeling processes but are nonetheless relevant in assessing the expected credit losses within the loan pools. These qualitative factor adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The determination of the forecasts and qualitative factors requires a significant amount of judgment by management and the estimate is highly sensitive to changes in significant assumptions.


	December 31,
Assets	2021		2020
Cash and due from banks	$	243,926	$	250,485
Interest-bearing deposits in other banks	2,364,518		1,563,502

Cash and cash equivalents	2,608,444		1,813,987
Certificates of deposit held in other banks	3,245		4,482
Securities available for sale, at fair value	2,006,727		1,153,693
Loans held for sale (includes $28,249 and $71,769 carried at fair value, respectively)	32,124		82,647
Loans, net of allowance for credit losses of $148,706 and $87,820, respectively	12,290,740		12,978,238
Premises and equipment, net	308,023		249,467
Other real estate owned	—		475
Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock	21,573		20,305
Bank-owned life insurance (BOLI)	235,637		220,428
Deferred tax asset	26,178		3,933
Goodwill	994,021		994,021
Other intangible assets, net	75,490		88,070
Other assets	130,446		143,730
Total assets	$	18,732,648	$	17,753,476

Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing	$	5,066,588	$	4,164,800
Interest-bearing	10,487,320		10,234,127
Total deposits	15,553,908		14,398,927
FHLB advances	150,000		375,000

Other borrowings	283,371		312,175

Junior subordinated debentures	54,221		54,023
Other liabilities	114,498		97,980
Total liabilities	16,155,998		15,238,105
Commitments and contingencies
Stockholders’ equity:
Preferred stock (0 and 0 shares outstanding, respectively)	—		—
Common stock (42,756,234 and 43,137,104 shares outstanding, respectively)	428		431
Additional paid-in capital	1,945,497		1,934,807
Retained earnings	625,484		543,800

Accumulated other comprehensive income	5,241		36,333
Total stockholders’ equity	2,576,650		2,515,371
Total liabilities and stockholders’ equity	$	18,732,648	$	17,753,476


	Years Ended December 31,
	2021		2020		2019
Interest income:
Interest and fees on loans	$	547,931	$	579,085	$	611,589
Interest on taxable securities	22,754		19,150		21,324
Interest on nontaxable securities	8,344		8,472		8,482
Interest on interest-bearing deposits and other	4,533		4,799		11,537
Total interest income	583,562		611,506		652,932
Interest expense:
Interest on deposits	44,199		76,266		123,384
Interest on FHLB advances	2,038		4,170		10,173
Interest on other borrowings	15,247		12,462		11,590
Interest on junior subordinated debentures	1,756		2,162		3,028
Total interest expense	63,240		95,060		148,175
Net interest income	520,322		516,446		504,757
Provision for credit losses	(9,000)		42,993		14,805
Net interest income after provision for credit losses	529,322		473,453		489,952
Noninterest income:
Service charges on deposit accounts	9,842		9,303		12,145
Investment management fees	8,586		7,546		9,330
Mortgage banking revenue	23,157		36,491		15,461
Mortgage warehouse purchase program fees	6,908		6,088		3,287
Gain on sale of loans	56		356		6,779
Gain on sale of branches	—		—		1,549
Gain on sale of trust business	—		—		1,319
Gain (loss) on sale of other real estate	63		(36)		875

Gain on sale of securities available for sale	13		382		275
(Loss) gain on sale and disposal of premises and equipment	(304)		370		(585)
Increase in cash surrender value of BOLI	5,209		5,347		5,525
Other	12,987		19,216		22,216
Total noninterest income	66,517		85,063		78,176
Noninterest expense:
Salaries and employee benefits	180,336		157,540		162,683
Occupancy	40,688		39,210		37,654
Communications and technology	22,355		23,113		22,248
FDIC assessment	5,865		6,912		1,065
Advertising and public relations	1,097		2,416		2,527
Other real estate owned expenses, net	4		487		418
Impairment of other real estate	—		784		1,801
Amortization of other intangible assets	12,580		12,671		12,880
Professional fees	15,530		12,630		7,936
Acquisition expense, including legal	—		16,225		33,445
Other	35,151		34,146		39,207
Total noninterest expense	313,606		306,134		321,864
Income before taxes	282,233		252,382		246,264
Income tax expense	57,483		51,173		53,528
Net income	$	224,750	$	201,209	$	192,736
Basic earnings per share	$	5.22	$	4.67	$	4.46
Diluted earnings per share	$	5.21	$	4.67	$	4.46


	Years Ended December 31,
	2021		2020		2019
Net income	$	224,750	$	201,209	$	192,736
Other comprehensive (loss) income:
Unrealized (losses) gains on securities:
Unrealized (losses) gains arising during the period	(38,292)		21,540		35,620
Tax effect	(8,041)		4,210		7,790
Unrealized (losses) gains arising during the period, net of taxes	(30,251)		17,330		27,830
Reclassification of amount of gains realized through sale of securities	(13)		(382)		(275)
Tax effect	(3)		(75)		(60)
Reclassification of amount of gains realized through sale of securities, net of tax	(10)		(307)		(215)
Change in unrealized (losses) gains on securities, net of tax	(30,261)		17,023		27,615

Unrealized losses on derivative financial instruments:
Unrealized holding losses arising during the period	(455)		—		—
Tax effect	(96)		—		—
Unrealized losses arising during the period, net of tax	(359)		—		—
Reclassification of amount of gains recognized into income	(597)		—		—
Tax effect	(125)		—		—
Reclassification of amount of gains recognized into income, net of tax	(472)		—		—
Change in unrealized losses on derivative financial instruments	(831)		—		—
Total other comprehensive (loss) income	(31,092)		17,023		27,615
Comprehensive income	$	193,658	$	218,232	$	220,351


	Preferred Stock $0.01 Par Value 10 million shares authorized		Common Stock $0.01 Par Value 100 million shares authorized			Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total
			Shares	Amount
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	—		—	—		—		(926)		—		(926)
Adjusted beginning balance	—		30,600,582	306		1,317,616		295,890		(8,305)		1,605,507
Net income	—		—	—		—		192,736		—		192,736
Other comprehensive income, net of tax	—		—	—		—		—		27,615		27,615
Stock issued for acquisition of bank, net of offering costs of $804	—		13,179,748	132		600,936		—		—		601,068
Common stock repurchased	—		(952,844)	(9)		—		(51,650)		—		(51,659)
Restricted stock forfeited	—		(15,866)	—		—		—		—		—
Restricted stock granted	—		138,608	1		(1)		—		—		—
Stock based compensation expense	—		—	—		7,808		—		—		7,808

Cash dividends ($1.00 per share)	—		—	—		—		(43,302)		—		(43,302)
Balance, December 31, 2019	$	—	42,950,228	$	430	$	1,926,359	$	393,674	$	19,310	$	2,339,773


Net income	—		—	—		—		201,209		—		201,209
Other comprehensive income, net of tax	—		—	—		—		—		17,023		17,023

Common stock repurchased	—		(112,499)	(1)		—		(5,818)		—		(5,819)
Restricted stock forfeited	—		(10,915)	—		—		—		—		—
Restricted stock granted	—		310,290	2		(2)		—		—		—
Stock based compensation expense	—		—	—		8,450		—		—		8,450

Cash dividends ($1.05 per share)	—		—	—		—		(45,265)		—		(45,265)
Balance, December 31, 2020	$	—	43,137,104	$	431	$	1,934,807	$	543,800	$	36,333	$	2,515,371
Cumulative effect of change in accounting principle	—		—	—		—		(53,880)		—		(53,880)
Adjusted beginning balance	—		43,137,104	431		1,934,807		489,920		36,333		2,461,491
Net income	—		—	—		—		224,750		—		224,750
Other comprehensive loss, net of tax	—		—	—		—		—		(31,092)		(31,092)

Common stock repurchased	—		(461,068)	(4)		—		(32,128)		—		(32,132)
Restricted stock forfeited	—		(35,265)	—		—		—		—		—
Restricted stock granted	—		115,463	1		(1)		—		—		—
Stock based compensation expense	—		—	—		10,691		—		—		10,691

Cash dividends ($1.32 per share)	—		—	—		—		(57,058)		—		(57,058)
Balance, December 31, 2021	$	—	42,756,234	$	428	$	1,945,497	$	625,484	$	5,241	$	2,576,650


	Years Ended December 31,
	2021		2020		2019
Cash flows from operating activities:
Net income	$	224,750	$	201,209	$	192,736
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	12,385		12,728		11,783
Accretion income recognized on acquired loans	(21,174)		(30,378)		(46,071)
Amortization of other intangibles assets	12,580		12,671		12,880
Amortization of premium on securities, net	5,226		2,892		2,671
Amortization of discount and origination costs on borrowings	894		720		633
Stock based compensation expense	10,691		8,450		7,808
Excess tax (benefit) expense on restricted stock vested	(691)		243		21
FHLB stock dividends	(128)		(567)		(854)
Loss (gain) on sale and disposal of premises and equipment	304		(370)		585
Gain on sale of loans	(56)		(356)		(6,779)
Gain on sale of branch	—		—		(1,549)
Gain on sale of trust business	—		—		(1,319)
Gain on sale of securities available for sale	(13)		(382)		(275)
(Gain) loss on sale of other real estate owned	(63)		36		(875)

Impairment of other real estate	—		784		1,801
Impairment of other assets	124		462		1,173
Deferred tax expense (benefit)	5,353		(1,633)		14,102
Provision for credit losses	(9,000)		42,993		14,805
Increase in cash surrender value of BOLI	(5,209)		(5,347)		(5,525)
Net gain on mortgage loans held for sale	(21,799)		(38,175)		(15,133)
Originations of loans held for sale	(659,536)		(901,163)		(435,076)
Proceeds from sale of loans held for sale	731,858		892,336		447,291
Net change in other assets	14,293		(35,025)		(5,878)
Net change in other liabilities	(23,356)		(7,833)		(15,636)
Net cash provided by operating activities	277,433		154,295		173,319
Cash flows from investing activities:
Proceeds from maturities, calls and paydowns of securities available for sale	7,403,109		5,507,844		5,400,634
Proceeds from sale of securities available for sale	9,294		13,862		192,417
Purchases of securities available for sale	(8,308,955)		(5,570,815)		(5,390,543)
Purchases of certificates of deposit held in other banks	—		—		(5,705)
Proceeds from maturities of certificates of deposit held in other banks	1,237		1,237		1,473
Proceeds from surrender of bank owned life insurance contracts	—		—		802
Purchase of bank owned life insurance contracts	(10,000)		—		—
Purchases of FHLB stock and other restricted stock	(1,190)		(27,037)		(9,397)
Proceeds from redemptions of FHLB stock and other restricted stock	50		37,351		34,863
Proceeds from sale of loans	3,034		19,181		90,025
Net loans originated held for investment	14,805		(674,142)		(469,023)
Originations of mortgage warehouse purchase loans	(30,418,842)		(25,833,339)		(12,835,522)
Proceeds from pay-offs of mortgage warehouse purchase loans	31,083,791		25,066,859		12,318,495
Additions to premises and equipment	(71,356)		(21,135)		(31,680)
Proceeds from sale of premises and equipment	21		2,022		2,100
Proceeds from sale of other real estate owned	538		6,724		8,207


Cash acquired in connection with acquisition	—		—		39,913
Cash paid in connection with acquisition	—		—		(9)
Selling costs paid in connection with branch sale	—		—		(144)
Net cash transferred in branch sale	—		—		(25,163)
Proceeds from sale of trust business	—		—		4,269
Net cash used in investing activities	(294,464)		(1,471,388)		(673,988)


	Years Ended December 31,
	2021		2020		2019
Cash flows from financing activities:
Net increase in demand deposits, money market and savings accounts	1,508,335		2,871,869		876,842
Net (decrease) increase in time deposits	(353,354)		(414,278)		237,136
Repayments of FHLB advances	(225,000)		(1,550,000)		(1,807,653)
Proceeds from FHLB advances	—		1,600,000		1,700,000

Proceeds from other borrowings	75,000		156,489		65,000
Repayments of other borrowings	(104,500)		(47,086)		(40,500)

Offering costs paid in connection with acquired bank	—		—		(804)

Repurchase of common stock	(32,132)		(5,819)		(51,659)
Dividends paid	(56,861)		(45,265)		(43,302)
Net cash provided by financing activities	811,488		2,565,910		935,060
Net change in cash and cash equivalents	794,457		1,248,817		434,391
Cash and cash equivalents at beginning of period	1,813,987		565,170		130,779
Cash and cash equivalents at end of period	$	2,608,444	$	1,813,987	$	565,170

ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. This ASU simplified 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 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 eliminated the prior requirement to calculate a goodwill impairment charge using Step 2, which required 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 2016-02, Leases (Topic 842) and subsequent updates. ASU 2016-02 among other things, required 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. This ASU became effective 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.

At December 31, 2021, management's review of all available for sale securities at an unrealized loss position determined that the losses resulted from factors not related to credit quality. This conclusion is based on management's analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors for each security type in our portfolio. The unrealized losses are generally due to increases in market interest rates. Furthermore, the Company has the intent to hold these securities until maturity or a forecasted recovery, and it is more likely than not that the Company will not have to sell the securities before the recovery of their cost basis. As such, there is no allowance for credit losses on available for sale securities recognized as of December 31, 2021.


															Revolving Loans Converted to Term Loans
	Term Loans by Year of Origination or Renewal												Revolving Loans
December 31, 2021	2021		2020		2019		2018		2017		Prior						Total
Commercial construction, land and land development
Pass	$	618,288	$	262,136	$	98,007	$	85,596	$	13,751	$	14,939	$	18,586	$	—	$	1,111,303
Pass/Watch	17,899		10,459		6,869		—		—		84		—		—		35,311
Special Mention	3,780		—		—		—		1,909		—		—		—		5,689
Substandard	11,601		—		387		14,489		28		1,373		—		—		27,878
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial construction, land and land development	$	651,568	$	272,595	$	105,263	$	100,085	$	15,688	$	16,396	$	18,586	$	—	$	1,180,181

Residential real estate
Pass	$	408,402	$	267,147	$	190,890	$	114,616	$	88,295	$	149,871	$	60,212	$	2,344	$	1,281,777
Pass/Watch	1,019		487		1,270		405		2,331		4,179		169		—		9,860
Special Mention	657		—		568		129		250		1,043		126		—		2,773
Substandard	640		369		384		519		774		2,974		52		—		5,712
Doubtful	—		—		—		—		—		—		—		—		—
Total residential real estate	$	410,718	$	268,003	$	193,112	$	115,669	$	91,650	$	158,067	$	60,559	$	2,344	$	1,300,122

Single-family interim construction
Pass	$	305,267	$	59,584	$	2,801	$	312	$	—	$	—	$	12,663	$	—	$	380,627
Pass/Watch	—		—		—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total single-family interim construction	$	305,267	$	59,584	$	2,801	$	312	$	—	$	—	$	12,663	$	—	$	380,627

Agricultural
Pass	$	36,442	$	15,005	$	4,454	$	8,033	$	12,229	$	4,773	$	18,993	$	—	$	99,929
Pass/Watch	—		526		1,462		52		1,035		—		3,502		—		6,577
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		6		—		—		6
Doubtful	—		—		—		—		—		—		—		—		—
Total agricultural	$	36,442	$	15,531	$	5,916	$	8,085	$	13,264	$	4,779	$	22,495	$	—	$	106,512

Consumer
Pass	$	10,568	$	9,496	$	2,706	$	710	$	308	$	181	$	57,744	$	43	$	81,756
Pass/Watch	—		—		—		—		1		—		—		—		1
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	30		2		—		—		9		17		—		—		58
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer	$	10,598	$	9,498	$	2,706	$	710	$	318	$	198	$	57,744	$	43	$	81,815

The Company has a 401(k) profit sharing plan (Plan) which covers employees over the age of eighteen who have completed thirty 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 2021). Contributions by the Company and by participants are immediately fully vested. The Company makes 401(k) matching contributions of 100% up to 6% of the participant's eligible compensation for the Plan year. The Plan also provides for the Company to make additional discretionary contributions to the Plan. The Company made contributions of approximately $7,011, $6,534 and $6,343 for the years ended December 31, 2021, 2020 and 2019, respectively.


Statements of Income
	Years Ended December 31,
	2021		2020		2019
Interest expense:
Interest on other borrowings	$	15,247	$	12,446	$	11,561
Interest on junior subordinated debentures	1,756		2,162		3,028
Total interest expense	17,003		14,608		14,589

Noninterest income:
Dividends from subsidiaries	134,547		83,314		105,877
Other	61		—		1
Total noninterest income	134,608		83,314		105,878
Noninterest expense:
Salaries and employee benefits	10,546		8,346		7,653
Professional fees	126		202		264
Acquisition expense, including legal	—		16,225		33,445
Other	2,510		2,424		2,562
Total noninterest expense	13,182		27,197		43,924
Income before income tax benefit and equity in undistributed income of subsidiaries	104,423		41,509		47,365
Income tax benefit	7,131		9,410		11,066
Income before equity in undistributed income of subsidiaries	111,554		50,919		58,431
Equity in undistributed income of subsidiaries	113,196		150,290		134,305
Net income	$	224,750	$	201,209	$	192,736


Statements of Cash Flows
	Years Ended December 31,
	2021		2020		2019
Cash flows from operating activities:
Net income	$	224,750	$	201,209	$	192,736
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of subsidiaries	(113,196)		(150,290)		(134,305)
Amortization of discount and origination costs on borrowings	894		720		633
Stock based compensation expense	10,691		8,450		7,808
Excess tax (benefit) expense on restricted stock vested	(691)		243		21
Deferred tax (benefit) expense	(210)		96		2,165
Net change in other assets	1,020		(590)		1,863
Net change in other liabilities	500		(952)		(64)
Net cash provided by operating activities	123,758		58,886		70,857

Cash flows from investing activities:
Capital investment in subsidiaries	—		(120,000)		—

Cash acquired in connection with acquisition	—		—		339
Cash paid in connection with acquisition	—		—		(9)
Net cash (used in) provided by investing activities	—		(120,000)		330

Cash flows from financing activities:
Proceeds from other borrowings	75,000		148,653		65,000
Repayments of other borrowings	(104,500)		(39,250)		(40,500)


Offering costs paid in connection with acquired bank	—		—		(804)

Repurchase of common stock	(32,132)		(5,819)		(51,659)
Dividends paid	(56,861)		(45,265)		(43,302)
Net cash (used in) provided by financing activities	(118,493)		58,319		(71,265)
Net change in cash and cash equivalents	5,265		(2,795)		(78)
Cash and cash equivalents at beginning of year	5,482		8,277		8,355
Cash and cash equivalents at end of year	$	10,747	$	5,482	$	8,277


Signature	Title	Date
/s/ David R. Brooks	Chairman, Chief Executive Officer and Director (Principal Executive Officer)	February 25, 2022
David R. Brooks

/s/ Michelle S. Hickox	Executive Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer)	February 25, 2022
Michelle S. Hickox

/s/ Daniel W. Brooks	Vice Chairman and Director	February 25, 2022
Daniel W. Brooks

/s/ William E. Fair	Director	February 25, 2022
William E. Fair

/s/ Alicia K. Harrison	Director	February 25, 2022
Alicia K. Harrison

/s/ Craig E. Holmes	Director	February 25, 2022
Craig E. Holmes

/s/ J. Webb Jennings III	Director	February 25, 2022
J. Webb Jennings III

/s/ Donald L. Poarch	Director	February 25, 2022
Donald L. Poarch

/s/ G. Stacy Smith	Director	February 25, 2022
G. Stacy Smith

/s/ Michael T. Viola	Director	February 25, 2022
Michael T. Viola

/s/ Paul E. Washington	Director	February 25, 2022
Paul E. Washington


Texas						13-4219346
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

7777 Henneman Way
McKinney,
Texas						75070-1711
(Address of principal executive offices)						(Zip Code)


PART I

Item 1.	Business	1

Item 1A.	Risk Factors	16

Item 1B.	Unresolved Staff Comments	35

Item 2.	Properties	35

Item 3.	Legal Proceedings	36

Item 4.	Mine Safety Disclosures	37

PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	37

Item 6.	[Reserved]	40

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	66

Item 8.	Financial Statements and Supplementary Data	67

Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	67

Item 9A.	Controls and Procedures	67

Item 9B.	Other Information	70

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	70

Item 11.	Executive Compensation	70

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	70

Item 13.	Certain Relationships and Related Transactions, and Director Independence	70

Item 14.	Principal Accountant Fees and Services	71

PART IV

Item 15.	Exhibits and Financial Statement Schedules	72

Item 16.	Form 10-K Summary	137

Signatures


	Total Number of Shares Purchased (1)	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)



Total first quarter 2021	22,835	$	65.17	—	$	144,344



Total second quarter 2021	2,376	$	74.77	—	$	144,344



Total third quarter 2021	232,069	$	70.02	217,772	$	129,143
October 2021	64,256	$	69.41	64,000	$	124,702
November 2021	51,600	69.84		51,358	121,116
December 2021	87,932	69.84		85,968	115,115
Total fourth quarter 2021	203,788	$	69.71	201,326	$	115,115
Total 2021 year-to-date	461,068	$	69.66	419,098	$	115,115


	December 31, 2016	December 31, 2017	December 31, 2018	December 31, 2019	December 31, 2020	December 31, 2021
Independent Bank Group, Inc.	100.00	109.03	74.42	91.81	106.15	124.76
Russell 2000 Index	100.00	114.65	102.02	128.06	153.62	176.39
KBW Nasdaq Bank Index	100.00	118.59	97.58	132.84	119.14	164.80


	Maturity within:
(dollars in thousands)	Three Months		Three to Six Months		Six to Twelve Months		After Twelve Months		Total
Individual retirement accounts	$	475	$	1,533	$	3,974	$	1,118	$	7,100
Certificates of deposit (excluding CDARS)	150,863		157,512		160,041		46,757		515,173

Total	$	151,338	$	159,045	$	164,015	$	47,875	$	522,273


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


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


Hypothetical Shift in Interest Rates (in bps)						% Change in Projected Net Interest Income
200						13.16%
100						6.36
(100)						(4.18)


Report of Independent Registered Public Accounting Firm			76

Consolidated Balance Sheets as of December 31, 2021 and 2020			78

Consolidated Statements of Income for the Years Ended December 31, 2021, 2020 and 2019			79

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019			80

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019			81

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019			82

Notes to Consolidated Financial Statements			84


Exhibit Number			Description
3.1			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”))
3.2			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)
3.3			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)
3.4			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 )
3.5			Fifth Amended and Restated Bylaws of Independent Bank Group, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 10-Q filed with the SEC on October 28, 2021 )
3.6			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”))
3.7			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)
3.8			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)
3.9			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)
3.10			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)
3.11			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)
3.12			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)
4.1			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)
4.2			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)
4.3			First Supplemental Indenture, dated as of July 17, 2014, between Independent Bank Group, Inc. and Wells Fargo Bank, National Association, in its capacity as Indenture Trustee (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, dated July 17, 2014)
4.4			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)
4.5			Third Supplemental Indenture, dated as of September 10, 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)


4.6			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)
4.7			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)
4.8			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)
4.9			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)
4.10			Description of Registrant’s Securities (incorporated by reference to Exhibit 4.1 4 to the Company's Annual Report on Form 10-K for the Year ended December 31, 2020 filed with the SEC on March 1, 2021)
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.

4.11			Fifth Amendment to Independent Bank 401(k) Profit Sharing Plan ((incorporated by reference to Exhibit 4.1 5 to the Company's Annual Report on Form 10-K for the Year ended December 31, 2020 filed with the SEC on March 1, 2021)
4.12			Amendment (Final Hardship Law Changes) to Independent Bank 401(k) Profit Sharing Plan, dated April 28, 2021 (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2021 filed with the SEC on July 28, 2021)
10.1			Form of Indemnification Agreement for directors and officers (incorporated herein by reference to Exhibit 10.16 to the Form S-1 Registration Statement)
10.2			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)
10.3(a)			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)
10.3(b)			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)
10.3(c)			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)
10.3(d)			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)
10.3(e)			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)
10.3(f)			Form of Performance Restricted Stock Unit Agreement for performance based restricted stock units granted to executive officers on January 28, 2021 (incorporated by the reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2021 filed with the SEC on April 29, 2021)
10.3(g)			Form of Restricted Stock Agreement for Directors under the Independent Bank Group 2013 Equity Incentive Plan for grants made to directors on June 3, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2021, filed with the SEC on July 28, 2021)
10.4(a)			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)
10.4(b)			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)


10.4(c)			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)
10.4(d)			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)
10.4(e)			Second Amendment to Credit Agreement between Independent Bank Group, Inc. and U.S. Bank National Association, dated January 17, 2021 (incorporated by reference to Exhibit 10.4(e) to the Company’s Annual Report on Form 10-K for the Year ended December 31, 2020 filed with the SEC on March 1, 2021)
10.4(f)			Third Amendment to Credit Agreement between Independent Bank Group, Inc. and U.S. Bank National Association, dated January 17, 2022*
10.4(g)			Fourth Amendment to Credit Agreement between Independent Bank Group, Inc. and U.S Bank National Associated, dated February 16, 2022*
10.5			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)
10.6(a)			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)
10.6(b)			Schedule of Executive Officers who have executed a Change in Control Agreement *
10.7			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)
10.8			Employment Agreement by and between Independent Bank Group, Inc. and John G. Turpen dated July 15, 2021(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2021 filed with the SEC on October 28, 2021)
21.1			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)
23.1			Consent of RSM US LLP, Independent Registered Public Accounting Firm of Independent Bank Group, Inc.*
31.1			Chief Executive Officer Section 302 Certification*
31.2			Chief Financial Officer Section 302 Certification*
32.1			Chief Executive Officer Section 906 Certification***
32.2			Chief Financial Officer Section 906 Certification***
101.INS			XBRL Instance Document*
101.SCH			XBRL Taxonomy Extension Schema Document*
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB			XBRL Taxonomy Extension Label Linkbase Document*
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document*
104			Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)


	January 1, 2021
	Pre-Adoption Allowance		Impact of Adoption		Initial allowance on loans purchased with credit deterioration		Post-Adoption Allowance
Assets:
Allowance for credit losses on Loans:
Commercial	$	27,311	$	12,775	$	4,328	$	44,414
Commercial real estate	36,698		29,108		7,640		73,446
Commercial construction, land and land development	13,425		22,008		927		36,360
Residential real estate	6,786		(2,255)		140		4,671
Single-family interim construction	2,156		7,179		—		9,335
Agricultural	337		(178)		—		159
Consumer	684		(334)		—		350
Unallocated	423		(423)		—		—
	$	87,820	$	67,880	$	13,035	$	168,735
Liabilities:
Allowance for credit losses on off-balance sheet credit exposures	$	—	$	1,113	$	—	$	1,113


	Year ended December 31,
	2019
Noncash assets transferred:
Loans, including accrued interest	$	796
Premises and equipment	94

Other assets	2
Total assets	$	892
Noncash liabilities transferred:
Deposits, including interest	$	27,721
Other liabilities	27
Total liabilities	$	27,748
Cash and cash equivalents transferred in branch sales	$	206
Deposit premium received	$	1,386
Cash paid to buyer, net of deposit premium	$	24,957


	Year ended December 31,
	2019
Noncash assets acquired
Certificates of deposit held in other banks	$	262
Securities available for sale	561,052
Restricted stock	27,794
Loans	2,789,868
Premises and equipment	65,786
Other real estate owned	1,829
Goodwill	272,224
Other intangible assets	71,518
Bank owned life insurance	80,837
Other assets	31,987
Total assets acquired	$	3,903,157
Noncash liabilities assumed:
Deposits	$	3,108,810
Repurchase agreements	8,475
FHLB advances	142,653
Other borrowings	40,000
Junior subordinated debentures	25,774
Other liabilities	15,477
Total liabilities assumed	$	3,341,189
Cash and cash equivalents acquired from acquisitions	$	39,913
Cash paid to shareholders of acquired banks	$	9

Fair value of common stock issued to shareholders of acquired banks	$	601,872


	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Available for Sale
December 31, 2021
U.S. treasuries	$	174,950	$	724	$	(678)	$	174,996
Government agency securities	453,402		1,221		(9,948)		444,675
Obligations of state and municipal subdivisions	418,554		15,440		(1,234)		432,760
Corporate bonds	33,994		862		(60)		34,796
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA	917,942		10,757		(10,149)		918,550
Other securities	950		—		—		950
	$	1,999,792	$	29,004	$	(22,069)	$	2,006,727
December 31, 2020
U.S. treasuries	$	43,060	$	1,648	$	—	$	44,708
Government agency securities	247,764		3,169		(1,916)		249,017
Obligations of state and municipal subdivisions	373,017		20,168		(20)		393,165
Corporate bonds	21,496		608		(2)		22,102
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA	421,916		21,678		(93)		443,501
Other securities	1,200		—		—		1,200
	$	1,108,453	$	47,271	$	(2,031)	$	1,153,693


	Less Than 12 Months					Greater Than 12 Months					Total
Description of Securities	Number of Securities	Estimated Fair Value		Unrealized Losses		Number of Securities	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Securities Available for Sale
December 31, 2021
U.S. treasuries	22	$	144,172	$	(678)	—	$	—	$	—	$	144,172	$	(678)
Government agency securities	38	258,334		(4,622)		22	119,963		(5,326)		378,297		(9,948)
Obligations of state and municipal subdivisions	14	47,200		(988)		2	3,555		(246)		50,755		(1,234)
Corporate bonds	3	13,440		(60)		—	—		—		13,440		(60)
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA	115	621,717		(8,471)		11	44,620		(1,678)		666,337		(10,149)

	192	$	1,084,863	$	(14,819)	35	$	168,138	$	(7,250)	$	1,253,001	$	(22,069)

December 31, 2020

Government agency securities	20	112,897		(1,916)		—	—		—		112,897		(1,916)
Obligations of state and municipal subdivisions	2	3,786		(20)		—	—		—		3,786		(20)
Corporate bonds	1	998		(2)		—	—		—		998		(2)
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA	10	41,344		(93)		—	—		—		41,344		(93)

	33	$	159,025	$	(2,031)	—	$	—	$	—	$	159,025	$	(2,031)


	Commercial		Commercial Real Estate		Commercial Construction, Land and Land Development		Residential Real Estate		Single-Family Interim Construction		Agricultural		Consumer		Unallocated		Total
Year ended December 31, 2021
Balance at beginning of year	$	27,311	$	36,698	$	13,425	$	6,786	$	2,156	$	337	$	684	$	423	$	87,820
Impact of adopting ASC 326	12,775		29,108		22,008		(2,255)		7,179		(178)		(334)		(423)		67,880
Initial allowance on loans purchased with credit deterioration	4,328		7,640		927		140		—		—		—		—		13,035
Provision for credit losses	12,130		(7,961)		(12,373)		(2,486)		(2,113)		(53)		247		—		(12,609)
Charge-offs	(6,856)		(375)		(126)		—		—		—		(174)		—		(7,531)
Recoveries	59		—		—		7		—		—		45		—		111
Balance at end of year	$	49,747	$	65,110	$	23,861	$	2,192	$	7,222	$	106	$	468	$	—	$	148,706

Year ended December 31, 2020
Balance at beginning of year	$	12,844	$	24,371	$	8,714	$	3,678	$	1,606	$	332	$	231	$	(315)	$	51,461
Provision for credit losses	20,025		13,058		4,711		3,108		632		5		716		738		42,993
Charge-offs	(5,670)		(735)		—		—		(82)		—		(386)		—		(6,873)
Recoveries	112		4		—		—		—		—		123		—		239
Balance at end of year	$	27,311	$	36,698	$	13,425	$	6,786	$	2,156	$	337	$	684	$	423	$	87,820

Year ended December 31, 2019
Balance at beginning of year	$	11,793	$	21,343	$	6,452	$	3,320	$	1,402	$	241	$	189	$	62	$	44,802
Provision for credit losses	8,670		3,027		2,262		498		207		91		427		(377)		14,805
Charge-offs	(7,709)		(3)		—		(140)		(3)		—		(509)		—		(8,364)
Recoveries	90		4		—		—		—		—		124		—		218
Balance at end of year	$	12,844	$	24,371	$	8,714	$	3,678	$	1,606	$	332	$	231	$	(315)	$	51,461


	December 31, 2021				December 31, 2020
	Loan Balance - Amortized Cost Basis		Specific Allocations		Loan Balance - Recorded Investment		Specific Allocations
Commercial	$	38,911	$	15,958	$	39,298	$	8,281
Commercial real estate	24,683		1,553		21,848		243
Commercial construction, land and land development	1,350		562		32		—
Residential real estate	—		—		2,550		—
Single-family Interim construction	—		—		—		—
Agricultural	—		—		613		—
Consumer	—		—		42		—

	$	64,944	$	18,073	$	64,383	$	8,524


	Commercial		Commercial Real Estate		Construction, Land and Land Development		Residential Real Estate		Single-Family Interim Construction		Agricultural		Consumer		Total
December 31, 2021
Nonaccrual loans (1)	$	36,802	$	15,218	$	23	$	1,592	$	—	$	—	$	38	$	53,673
Loans past due 90 days and still accruing	187		—		—		1,603		—		—		—		1,790
Troubled debt restructurings (not included in nonaccrual or loans past due and still accruing)	—		1,714		—		161		—		—		—		1,875
	$	36,989	$	16,932	$	23	$	3,356	$	—	$	—	$	38	$	57,338
December 31, 2020 (2)
Nonaccrual loans	$	25,898	$	20,040	$	32	$	2,372	$	—	$	613	$	42	$	48,997
Loans past due 90 days and still accruing	433		—		—		—		—		—		—		433
Troubled debt restructurings (not included in nonaccrual or loans past due and still accruing)	—		1,808		—		178		—		—		—		1,986
	$	26,331	$	21,848	$	32	$	2,550	$	—	$	613	$	42	$	51,416


	Loans 30-89 Days Past Due		Loans 90 Days or More Past Due		Total Past Due Loans		Current Loans		Total Loans
December 31, 2021
Commercial	$	1,041	$	11,056	$	12,097	$	1,971,789	$	1,983,886
Mortgage warehouse	—		—		—		788,848		788,848
Commercial real estate	2,861		11,784		14,645		6,602,810		6,617,455
Commercial construction, land and land development	—		—		—		1,180,181		1,180,181
Residential real estate	3,838		1,913		5,751		1,294,371		1,300,122
Single-family interim construction	1,290		—		1,290		379,337		380,627
Agricultural	16		—		16		106,496		106,512
Consumer	216		9		225		81,590		81,815

	$	9,262	$	24,762	$	34,024	$	12,405,422	$	12,439,446


December 31, 2020 (1)
Commercial	$	3,243	$	13,227	$	16,470	$	2,393,013	$	2,409,483
Mortgage warehouse	—		—		—		1,453,797		1,453,797
Commercial real estate	2,434		16,790		19,224		5,921,723		5,940,947
Commercial construction, land and land development	19		—		19		1,230,524		1,230,543
Residential real estate	5,169		1,028		6,197		1,341,587		1,347,784
Single-family interim construction	—		—		—		326,575		326,575
Agricultural	—		1		1		84,896		84,897
Consumer	86		41		127		67,156		67,283

	10,951		31,087		42,038		12,819,271		12,861,309
Acquired with deteriorated credit quality	624		3,219		3,843		210,943		214,786
	$	11,575	$	34,306	$	45,881	$	13,030,214	$	13,076,095


	Pass		Pass/ Watch		Special Mention		Substandard		Doubtful		Total









December 31, 2020
Commercial	$	2,247,059	$	55,960	$	38,186	$	97,403	$	10,091	$	2,448,699
Mortgage warehouse	1,453,797		—		—		—		—		1,453,797
Commercial real estate	5,379,801		306,884		317,580		92,411		—		6,096,676
Construction, land and land development	1,125,132		46,026		43,383		31,260		—		1,245,801
Residential real estate	1,332,757		6,296		5,726		7,686		—		1,352,465
Single-family interim construction	323,800		2,775		—		—		—		326,575
Agricultural	76,951		6,194		1,205		664		—		85,014
Consumer	66,970		8		—		90		—		67,068

	$	12,006,267	$	424,143	$	406,080	$	229,514	$	10,091	$	13,076,095


First year	$	12,491
Second year	12,439
Third year	11,752
Fourth year	11,238
Fifth year	10,801
Thereafter	16,769
	$	75,490


First year	$	928,258
Second year	101,081
Third year	12,432
Fourth year	10,709
Fifth year	9,804

	$	1,062,284


	Trust Preferred Securities Issued		Debentures Carrying Value		Repricing Frequency	Interest Rate	Interest Rate Index	Maturity Date
IB Trust I	$	5,155	$	5,155	Quarterly	3.38%	LIBOR + 3.25%	March 2033
Guaranty Trust III	10,310		10,310		Quarterly	3.22	LIBOR + 3.10	July 2033
IB Trust II	3,093		3,093		Quarterly	2.97	LIBOR + 2.85	March 2034
Cenbank Trust III	15,464		15,464		Quarterly	2.77	LIBOR + 2.65	April 2034
IB Trust III	3,712		3,712		Quarterly	2.56	LIBOR +2.40	December 2035
IB Centex Trust I	2,578		2,578		Quarterly	3.41	LIBOR + 3.25	February 2035
Community Group Statutory Trust I	3,609		3,609		Quarterly	1.80	LIBOR + 1.60	June 2037
Northstar Trust II (1)	5,155		3,969		Quarterly	1.87	LIBOR + 1.67	June 2037
Northstar Trust III (1)	8,248		6,331		Quarterly	1.87	LIBOR + 1.67	September 2037
	$	57,324	$	54,221


2022	$	5,308
2023	4,704
2024	4,109
2025	3,328
2026	1,882
Thereafter	6,921
Total lease payments	26,252
Less imputed interest	(2,679)
	$	23,573


Balance at beginning of year	$	32,471
New loan originations	30,977
Repayments	(21,596)
Changes in affiliated persons	(7,225)
Balance at end of year	$	34,627


			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, 2021
Assets:
Investment securities available for sale:
U.S. treasuries	$	174,996	$	—	$	174,996	$	—
Government agency securities	444,675		—		444,675		—
Obligations of state and municipal subdivisions	432,760		—		432,760		—
Corporate bonds	34,796		—		34,796		—
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA	918,550		—		918,550		—
Other securities	950		—		950		—

Loans held for sale, fair value option elected (1)	28,249		—		28,249		—
Derivative financial instruments:

Interest rate lock commitments	1,029		—		1,029		—
Forward mortgage-backed securities trades	27		—		27		—
Loan customer counterparty	6,459		—		6,459		—
Financial institution counterparty	1,078		—		1,078		—
Liabilities:
Derivative financial instruments:
Interest rate swaps - cash flow hedge	1,158		—		1,158		—
Interest rate lock commitments	4		—		4		—
Forward mortgage-backed securities trades	21		—		21		—
Loan customer counterparty	1,073		—		1,073		—
Financial institution counterparty	6,772		—		6,772		—
December 31, 2020
Assets:
Investment securities available for sale:
U.S. treasuries	$	44,708	$	—	$	44,708	$	—
Government agency securities	249,017		—		249,017		—
Obligations of state and municipal subdivisions	393,165		—		393,165		—
Corporate bonds	22,102		—		22,102		—
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA	443,501		—		443,501		—
Other securities	1,200		—		1,200		—

Loans held for sale, fair value option elected (1)	71,769		—		71,769		—
Derivative financial instruments:
Interest rate lock commitments	3,515		—		3,515		—

Loan customer counterparty	20,159		—		20,159		—

Liabilities:
Derivative financial instruments:
Forward mortgage-backed securities trades	568		—		568		—

Financial institution counterparty	21,306		—		21,306		—


			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
December 31, 2021
Assets:
Individually evaluated loans	$	11,204	$	—	$	—	$	11,204	$	3,526


December 31, 2020
Assets:
Individually evaluated loans	$	16,903	$	—	$	—	$	16,903	$	13,041


					Fair Value Measurements at Reporting Date Using
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2021
Financial assets:
Cash and cash equivalents	$	2,608,444	$	2,608,444	$	2,608,444	$	—	$	—
Certificates of deposit held in other banks	3,245		3,246		—		3,246		—
Loans held for sale, at cost	3,875		3,982		—		3,982		—
Loans, net	12,290,740		12,415,366		—		—		12,415,366
FHLB of Dallas stock and other restricted stock	21,573		21,573		—		21,573		—
Accrued interest receivable	49,636		49,636		—		49,636		—
Financial liabilities:
Deposits	15,553,908		15,553,645		—		15,553,645		—
Accrued interest payable	5,301		5,301		—		5,301		—
FHLB advances	150,000		128,555		—		128,555		—

Other borrowings	283,371		303,250		—		303,250		—
Junior subordinated debentures	54,221		45,501		—		45,501		—
Off-balance sheet assets (liabilities):
Commitments to extend credit	—		—		—		—		—
Standby letters of credit	—		—		—		—		—
December 31, 2020
Financial assets:
Cash and cash equivalents	$	1,813,987	$	1,813,987	$	1,813,987	$	—	$	—
Certificates of deposit held in other banks	4,482		4,595		—		4,595		—
Loans held for sale, at cost	10,878		11,138		—		11,138		—
Loans, net	12,978,238		13,093,698		—		—		13,093,698
FHLB of Dallas stock and other restricted stock	20,305		20,305		—		20,305		—
Accrued interest receivable	60,581		60,581		—		60,581		—
Financial liabilities:
Deposits	14,398,927		14,407,596		—		14,407,596		—
Accrued interest payable	7,397		7,397		—		7,397		—
FHLB advances	375,000		371,175		—		371,175		—

Other borrowings	312,175		327,150		—		327,150		—
Junior subordinated debentures	54,023		42,624		—		42,624		—

Off-balance sheet assets (liabilities):
Commitments to extend credit	—		—		—		—		—
Standby letters of credit	—		—		—		—		—



	Outstanding Notional Balance		Asset Derivative Fair Value		Liability Derivative Fair Value
December 31, 2021
Derivatives designated as hedging instruments:
Interest rate swaps - cash flow hedge	$	100,000	$	—	$	1,158
Derivatives not designated as hedging instruments:
Interest rate lock commitments	34,064		1,029		4
Forward mortgage-backed securities trades	30,500		27		21
Commercial loan interest rate swaps:
Loan customer counterparty	254,935		6,459		1,073
Financial institution counterparty	254,935		1,078		6,772

December 31, 2020
Derivatives not designated as hedging instruments:
Interest rate lock commitments	$	116,795	$	3,515	$	—
Forward mortgage-backed securities trades	104,000		—		568
Commercial loan interest rate swaps:
Loan customer counterparty	335,370		20,159		—
Financial institution counterparty	335,370		—		21,306


	Weighted Average Interest Rate
	December 31, 2021				December 31, 2020
	Received		Paid		Received		Paid
Loan customer counterparty	4.12	%	2.40	%	4.08	%	2.32	%


	Income Statement Location	Years Ended December 31,
		2021		2020		2019
Derivatives designated as hedging instruments
Interest rate swaps - cash flow hedges	Interest and fees on loans	$	584	$	—	$	—
Derivatives not designated as hedging instruments
Interest rate lock commitments	Mortgage banking revenue	(2,490)		2,668		25
Forward mortgage-backed securities trades	Mortgage banking revenue	574		(505)		163


Restricted Stock Awards	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested shares, December 31, 2020	468,800	$	49.01

Granted during the period	115,463	66.10
Vested during the period	(185,447)	51.18
Forfeited during the period	(35,265)	50.23
Nonvested shares, December 31, 2021	363,551	$	53.14

Nonvested shares, December 31, 2019	284,861	$	58.63

Granted during the period	310,290	43.54
Vested during the period	(115,436)	58.08
Forfeited during the period	(10,915)	48.37
Nonvested shares, December 31, 2020	468,800	$	49.01


						Number of Shares
First year						158,463
Second year						118,975
Third year						77,350
Fourth year						8,763

Total nonvested shares						363,551