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

FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2024.
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from                 to                    .
Commission file number 001-35854
Independent Bank Group, Inc.
(Exact name of registrant as specified in its charter)
Texas13-4219346
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
7777 Henneman Way
McKinney,
Texas75070-1711
(Address of principal executive offices)(Zip Code)
(972) 562-9004
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Exchange on Which Registered
Common Stock, par value $0.01 per shareIBTXNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
Common Stock, Par Value $0.01 Per Share – 41,379,492 shares as of April 19, 2024.




INDEPENDENT BANK GROUP, INC. AND SUBSIDIARIES
Form 10-Q
March 31, 2024

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






PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Independent Bank Group, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2024 (unaudited) and December 31, 2023
(Dollars in thousands, except share information)
March 31,December 31,
Assets20242023
Cash and due from banks$80,599 $98,396 
Interest-bearing deposits in other banks649,399 623,593 
Cash and cash equivalents729,998 721,989 
Certificates of deposit held in other banks248 248 
Securities available for sale, at fair value1,543,247 1,593,751 
Securities held to maturity, net of allowance for credit losses of $0 and $0, respectively, fair value of $166,736 and $170,997, respectively
204,776 205,232 
Loans held for sale (includes $12,372 and $12,016 carried at fair value, respectively)
21,299 16,420 
Loans, net of allowance for credit losses of $148,437 and $151,861, respectively
14,465,456 14,558,681 
Premises and equipment, net352,325 355,833 
Other real estate owned8,685 9,490 
Federal Home Loan Bank (FHLB) of Dallas stock and other restricted stock11,493 34,915 
Bank-owned life insurance (BOLI)247,052 245,497 
Deferred tax asset95,063 92,665 
Goodwill994,021 994,021 
Other intangible assets, net47,485 50,560 
Other assets150,304 155,800 
Total assets$18,871,452 $19,035,102 
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing$3,300,773 $3,530,704 
Interest-bearing12,370,942 12,192,331 
Total deposits15,671,715 15,723,035 
FHLB advances 350,000 
Other borrowings496,975 271,821 
Junior subordinated debentures54,667 54,617 
Other liabilities247,288 233,036 
Total liabilities16,470,645 16,632,509 
Commitments and contingencies  
Stockholders’ equity:
Preferred stock (0 and 0 shares outstanding, respectively)
  
Common stock (41,377,745 and 41,281,919 shares outstanding, respectively)
414 413 
Additional paid-in capital1,969,291 1,966,686 
Retained earnings624,017 616,724 
Accumulated other comprehensive loss(192,915)(181,230)
Total stockholders’ equity2,400,807 2,402,593 
Total liabilities and stockholders’ equity$18,871,452 $19,035,102 
See Notes to Consolidated Financial Statements
1



Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Income (Loss)
Three Months Ended March 31, 2024 and 2023 (unaudited)
(Dollars in thousands, except per share information)
Three Months Ended March 31,
20242023
Interest income:
Interest and fees on loans$215,511 $184,294 
Interest on taxable securities7,645 7,858 
Interest on nontaxable securities2,518 2,603 
Interest on interest-bearing deposits and other9,531 6,421 
Total interest income235,205 201,176 
Interest expense:
Interest on deposits122,510 62,261 
Interest on FHLB advances2,855 5,824 
Interest on other borrowings5,582 4,079 
Interest on junior subordinated debentures1,227 1,090 
Total interest expense132,174 73,254 
Net interest income103,031 127,922 
Provision for credit losses(3,200)90 
Net interest income after provision for credit losses106,231 127,832 
Noninterest income:
Service charges on deposit accounts3,600 3,349 
Investment management fees2,644 2,301 
Mortgage banking revenue1,635 1,624 
Mortgage warehouse purchase program fees540 324 
Gain on sale of loans74  
Gain on sale of other real estate13  
Gain on sale and disposal of premises and equipment 47 
Increase in cash surrender value of BOLI1,555 1,377 
Other2,809 3,732 
Total noninterest income12,870 12,754 
Noninterest expense:
Salaries and employee benefits47,333 46,275 
Occupancy12,549 11,559 
Communications and technology7,685 7,090 
FDIC assessment6,142 2,712 
Advertising and public relations415 604 
Other real estate owned expenses (income), net65 (44)
Impairment of other real estate345 1,200 
Amortization of other intangible assets3,075 3,111 
Litigation settlement 102,500 
Professional fees1,809 3,065 
Other9,055 11,308 
Total noninterest expense88,473 189,380 
Income (loss) before taxes30,628 (48,794)
Income tax expense (benefit)6,478 (11,284)
Net income (loss)$24,150 $(37,510)
Basic earnings (loss) per share$0.58 $(0.91)
Diluted earnings (loss) per share$0.58 $(0.91)
See Notes to Consolidated Financial Statements
2



Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended March 31, 2024 and 2023 (unaudited)
(Dollars in thousands)
Three Months Ended March 31,
20242023
Net income (loss)$24,150 $(37,510)
Other comprehensive (loss) income before tax:
Unrealized (losses) gains on securities:
Unrealized (losses) gains arising during the period(13,942)20,771 
Tax effect(2,928)4,362 
Unrealized (losses) gains arising during the period, net of tax(11,014)16,409 
Change in net unamortized gains on available for sale securities reclassified into held to maturity securities(5)(5)
Tax effect(1)(1)
Change in net unamortized gains on available for sale securities reclassified into held to maturity securities, net of tax(4)(4)
Change in unrealized (losses) gains on securities, net of tax(11,018)16,405 
Unrealized (losses) gains on derivative financial instruments:
Unrealized holding (losses) gains arising during the period(1,966)940 
Tax effect(413)197 
Unrealized (losses) gains arising during the period, net of tax(1,553)743 
Reclassification of amount of losses recognized into income1,122 894 
Tax effect236 188 
Reclassification of amount of losses recognized into income, net of tax886 706 
Change in unrealized (losses) gains on derivative financial instruments(667)1,449 
Other comprehensive (loss) income, net of tax(11,685)17,854 
Comprehensive income (loss)$12,465 $(19,656)
See Notes to Consolidated Financial Statements
3




Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended March 31, 2024 and 2023 (unaudited)
(Dollars in thousands, except for par value, share and per share information)
Preferred Stock
$0.01 Par
Common Stock
$0.01 Par Value
Additional
Paid in Capital
Retained
Earnings
Accumulated Other Comprehensive LossTotal
Value
10 million shares authorized
100 million shares authorized
SharesAmount
Three Months Ended
Balance, December 31, 2023$ 41,281,919 $413 $1,966,686 $616,724 $(181,230)$2,402,593 
Net income— — — — 24,150 — 24,150 
Other comprehensive loss, net of tax— — — — — (11,685)(11,685)
Common stock repurchased — (24,354) — (1,129)— (1,129)
Restricted stock forfeited — (2,072) — — —  
Restricted stock granted— 122,252 1 (1)— —  
Stock based compensation expense— — — 2,606 — — 2,606 
Cash dividends ($0.38 per share)
— — — — (15,728)— (15,728)
Balance, March 31, 2024$ 41,377,745 $414 $1,969,291 $624,017 $(192,915)$2,400,807 
Three Months Ended
Balance, December 31, 2022$ 41,190,677 $412 $1,959,193 $638,354 $(212,576)$2,385,383 
Net loss— — — — (37,510)— (37,510)
Other comprehensive income, net of tax— — — — — 17,854 17,854 
Common stock repurchased— (26,777) — (1,617)— (1,617)
Restricted stock forfeited— (1,763)— — — — — 
Restricted stock granted— 119,767 1 (1)— —  
Stock based compensation expense— — — 2,445 — — 2,445 
Cash dividends ($0.38 per share)
— — — — (15,698)— (15,698)
Balance, March 31, 2023$ 41,281,904 $413 $1,961,637 $583,529 $(194,722)$2,350,857 
See Notes to Consolidated Financial Statements
4





Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2024 and 2023 (unaudited)
(Dollars in thousands) 
Three Months Ended March 31,
20242023
Cash flows from operating activities:
Net income (loss)$24,150 $(37,510)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense4,911 4,433 
Accretion income recognized on loans(773)(1,115)
Amortization of other intangibles assets3,075 3,111 
Amortization of premium on securities, net1,401 1,861 
Amortization of discount and origination costs on borrowings204 591 
Stock based compensation expense2,606 2,445 
Excess tax expense on restricted stock vested313 85 
FHLB stock dividends(483)(397)
Gain on sale and disposal of premises and equipment (47)
Gain on sale of loans(74) 
Gain on sale of other real estate owned(13) 
Impairment of other real estate345 1,200 
Impairment of other assets 802 
Deferred tax expense (benefit)708 (17,347)
Provision for credit losses(3,200)90 
Increase in cash surrender value of BOLI(1,555)(1,377)
Excess benefit claim on BOLI (318)
Net gain on mortgage loans held for sale(910)(1,209)
Originations of loans held for sale(57,971)(56,152)
Proceeds from sale of loans held for sale54,002 52,095 
Net change in other assets8,881 15,058 
Net change in other liabilities2,679 61,952 
Net cash provided by operating activities38,296 28,251 
Cash flows from investing activities:
Investment securities available for sale:
Proceeds from maturities, calls and paydowns1,335,366 35,731 
Purchases(1,299,754) 
Proceeds from benefit claim of BOLI 748 
Purchases of FHLB stock and other restricted stock(3,455)(61,575)
Proceeds from redemptions of FHLB stock and other restricted stock26,879  
Proceeds from sale of loans8,228  
Net loans paid (originated) held for investment101,440 (3,889)
Originations of mortgage warehouse purchase loans(3,305,227)(2,238,118)
Proceeds from pay-offs of mortgage warehouse purchase loans3,300,300 2,149,670 
Additions to premises and equipment(1,403)(3,746)
Proceeds from sale of premises and equipment 188 
Proceeds from sale of other real estate owned473  
Net cash provided by (used in) investing activities162,847 (120,991)
5





Independent Bank Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Three Months Ended March 31, 2024 and 2023 (unaudited)
(Dollars in thousands) 
Three Months Ended March 31,
20242023
Cash flows from financing activities:
Net decrease in demand deposits, money market and savings accounts(9,509)(1,500,907)
Net (decrease) increase in time deposits(41,811)435,177 
Proceeds from FHLB advances1,050,000 3,350,000 
Repayments of FHLB advances(1,400,000)(1,850,000)
Proceeds from other borrowings228,634 100,000 
Repayments of other borrowings(3,634)(30,000)
Repurchase of common stock(1,129)(1,617)
Dividends paid(15,685)(15,645)
Net cash (used in) provided by financing activities(193,134)487,008 
Net change in cash and cash equivalents8,009 394,268 
Cash and cash equivalents at beginning of period721,989 654,322 
Cash and cash equivalents at end of period$729,998 $1,048,590 
See Notes to Consolidated Financial Statements
6



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

Note 1. Summary of Significant Accounting Policies
Nature of operations: Independent Bank Group, Inc. (IBG) through its subsidiary, Independent Bank, a Texas state banking corporation, doing business as Independent Financial, (Bank) (collectively known as the Company), provides a full range of banking services to individual and corporate customers in the North, Central and Southeast Texas areas and along the Colorado Front Range, through its various branch locations in those areas. The Company is engaged in traditional community banking activities, which include commercial and retail lending, deposit gathering, and investment and liquidity management activities. The Company’s primary deposit products are demand deposits, money market accounts and certificates of deposit and its primary lending products are commercial business and real estate, real estate mortgage and consumer loans.
Basis of presentation: The accompanying consolidated financial statements include the accounts of IBG and all other entities in which IBG has controlling financial interest. All material intercompany transactions and balances have been eliminated in consolidation. In addition, the Company wholly-owns nine statutory business trusts that were formed for the purpose of issuing trust preferred securities and do not meet the criteria for consolidation.
The consolidated interim financial statements are unaudited, but include all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the periods presented. All such adjustments were of a normal and recurring nature. These financial statements should be read in conjunction with the financial statements and the notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. The consolidated balance sheet at December 31, 2023 has been derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
Accounting standards codification: The Financial Accounting Standards Board's (FASB) Accounting Standards Codification (ASC) is the officially recognized source of authoritative U.S. generally accepted accounting principles (GAAP) applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative.
Segment reporting: The Company has one reportable segment. The Company’s chief operating decision-maker uses consolidated results to make operating and strategic decisions.
Reclassifications: Certain prior period financial statement and disclosure amounts have been reclassified to conform to current period presentation. The reclassifications have no effect on net income or stockholders' equity as previously reported.
Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates. The material estimates included in the financial statements relate to the allowance for credit losses, the valuation of goodwill and valuation of assets and liabilities acquired in business combinations.
Goodwill assessment: The Company's policy is to test goodwill for impairment annually on December 31 or on an interim basis if an event triggering impairment may have occurred. During the three months ended March 31, 2024, continued market volatility resulted in a decline in the Company's stock price and market capitalization. Management evaluated current conditions and concluded there have been no significant changes in the economic environment or future projections since the annual goodwill impairment test performed as of December 31, 2023 and therefore, believes that there is no impairment as of March 31, 2024. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.
7



Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Earnings per share: Basic earnings per common share is calculated as net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. The unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under participating nonvested restricted stock awards as well as performance stock units (PSUs). The participating nonvested restricted stock awards were not included in dilutive shares as they were anti-dilutive for the three months ended March 31, 2024 and 2023. Proceeds from the assumed exercise of dilutive participating nonvested restricted stock awards and PSUs are assumed to be used to repurchase common stock at the average market price.
The following table presents a reconciliation of net income (loss) available to common shareholders and the number of shares used in the calculation of basic and diluted earnings (loss) per common share:
Three Months Ended March 31,
20242023
Basic earnings per share:
Net income (loss)$24,150 $(37,510)
Less:
Undistributed earnings (loss) allocated to participating securities24 (206)
Dividends paid on participating securities45 61 
Net income (loss) available to common shareholders$24,081 $(37,365)
Weighted average basic shares outstanding41,205,080 41,063,527 
Basic earnings (loss) per share$0.58 $(0.91)
Diluted earnings per share:
Net income (loss) available to common shareholders$24,081 $(37,365)
Total weighted average basic shares outstanding41,205,080 41,063,527 
Add dilutive performance stock units109,298 93,422 
Total weighted average diluted shares outstanding41,314,378 41,156,949 
Diluted earnings (loss) per share$0.58 $(0.91)
Anti-dilutive participating securities45,899 58,891 

Note 2. Statement of Cash Flows
As allowed by the accounting standards, the Company has chosen to report, on a net basis, its cash receipts and cash payments for time deposits accepted and repayments of those deposits, and loans made to customers and principal collections on those loans. The Company uses the indirect method to present cash flows from operating activities. Other supplemental cash flow information is presented below:
Three Months Ended March 31,
20242023
Cash transactions:
Interest expense paid$129,417 $72,029 
Income taxes paid$ $20 
Noncash transactions:
Deferred dividend equivalents$43 $53 
Right-of-use assets obtained in exchange for lease liabilities$2,909 $3,556 
Loans purchased, not yet settled$7,285 $4,987 
8



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

Note 3. Securities
Securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost of securities and their approximate fair values at March 31, 2024 and December 31, 2023 are as follows:
Amortized
Cost (1)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Securities Available for Sale
March 31, 2024
U.S. treasuries$212,895 $ $(14,346)$198,549 
Government agency securities467,694  (75,283)392,411 
Obligations of state and municipal subdivisions233,756 36 (11,306)222,486 
Corporate bonds43,000  (6,842)36,158 
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA 821,295 4 (128,156)693,143 
Other securities500   500 
$1,779,140 $40 $(235,933)$1,543,247 
December 31, 2023
U.S. treasuries$228,231 $ $(14,009)$214,222 
Government agency securities467,754  (71,648)396,106 
Obligations of state and municipal subdivisions237,146 122 (9,634)227,634 
Corporate bonds43,000  (7,180)35,820 
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA839,071 8 (119,610)719,469 
Other securities500   500 
$1,815,702 $130 $(222,081)$1,593,751 
Securities Held to Maturity
March 31, 2024
Obligations of state and municipal subdivisions$204,776 $82 $(38,122)$166,736 
December 31, 2023
Obligations of state and municipal subdivisions$205,232 $264 $(34,499)$170,997 
____________
(1)    Excludes accrued interest receivable of $6,381 and $7,129 on available for sale and $868 and $2,365 on held to maturity securities at March 31, 2024 and December 31, 2023, respectively, that is recorded in other assets on the accompanying consolidated balance sheets.
9



Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The amortized cost and estimated fair value of securities at March 31, 2024, by contractual maturity, are shown below. Maturities of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
March 31, 2024
Available for SaleHeld to Maturity
Amortized CostFair ValueAmortized CostFair Value
Due in one year or less$86,451 $85,299 $ $ 
Due from one year to five years329,293 304,189   
Due from five to ten years396,148 336,614   
Thereafter145,953 124,002 204,776 166,736 
957,845 850,104 204,776 166,736 
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA 821,295 693,143   
$1,779,140 $1,543,247 $204,776 $166,736 
Securities with a fair value of approximately $1,048,925 and $950,604 at March 31, 2024 and December 31, 2023, respectively, were pledged primarily to secure deposits.
There were no sales of securities during the three months ended March 31, 2024 and 2023.
The unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2024 and December 31, 2023, are summarized as follows for available for sale securities:
Less Than 12 MonthsGreater Than 12 MonthsTotal
Description of SecuritiesEstimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Securities Available for Sale
March 31, 2024
U.S. treasuries$ $ $198,549 $(14,346)$198,549 $(14,346)
Government agency securities  392,411 (75,283)392,411 (75,283)
Obligations of state and municipal subdivisions30,135 (158)176,063 (11,148)206,198 (11,306)
Corporate bonds  33,158 (6,842)33,158 (6,842)
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA8,684 (330)684,026 (127,826)692,710 (128,156)
$38,819 $(488)$1,484,207 $(235,445)$1,523,026 $(235,933)
December 31, 2023
U.S. treasuries$ $ $214,222 $(14,009)$214,222 $(14,009)
Government agency securities  396,106 (71,648)396,106 (71,648)
Obligations of state and municipal subdivisions40,864 (360)147,529 (9,274)188,393 (9,634)
Corporate bonds  32,820 (7,180)32,820 (7,180)
Mortgage-backed securities guaranteed by FHLMC, FNMA and GNMA8,724 (312)710,301 (119,298)719,025 (119,610)
$49,588 $(672)$1,500,978 $(221,409)$1,550,566 $(222,081)
10



Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The Company's securities classified as available for sale and held to maturity are evaluated for expected credit losses by applying the appropriate expected credit losses methodology in accordance with ASC Topic 326, Financial Instruments - Credit Losses. At March 31, 2024, management's review of all securities at an unrealized loss position determined that the losses resulted from factors not related to credit quality. This conclusion is based on management's analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors for each security type in our portfolio.
The unrealized losses on available for sale securities are generally due to increases in market interest rates. Furthermore, the Company has the intent to hold the available for sale securities until maturity or a forecasted recovery, and it is more likely than not that the Company will not have to sell the securities before the recovery of their cost basis. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. As such, there is no allowance for credit losses on available for sale securities recognized as of March 31, 2024.
The Company's held to maturity securities include taxable and tax-exempt municipal securities issued primarily by school districts but also may include utility districts or other municipalities. With regard to securities issued by state and municipal subdivisions, management considers issuer bond ratings, historical loss rates for given bond ratings, whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, internal forecasts and whether or not such securities are guaranteed. Substantially all of the Company's held to maturity securities are guaranteed by the Texas Permanent School Fund (PSF), which is a sovereign wealth fund that serves to provide revenues for funding of public primary and secondary education in the State of Texas. At March 31, 2024, all of the Company's held to maturity securities were rated AAA/Aaa by Moody's and/or Standard & Poor's bond rating services. Furthermore, as of March 31, 2024, there were no past due principal or interest payments associated with these securities. As such, no allowance for credit losses has been recorded on held to maturity securities as of March 31, 2024.

Note 4. Loans, Net and Allowance for Credit Losses on Loans
Loans, net, at March 31, 2024 and December 31, 2023, consisted of the following:
March 31,December 31,
20242023
Commercial$2,194,304 $2,266,851 
Mortgage warehouse purchase loans554,616 549,689 
Real estate:
Commercial8,356,403 8,289,124 
Commercial construction, land and land development1,169,555 1,231,484 
Residential1,690,004 1,669,786 
Single-family interim construction460,568 517,928 
Agricultural112,070 109,451 
Consumer76,373 76,229 
Total loans (1)
14,613,893 14,710,542 
Allowance for credit losses(148,437)(151,861)
Total loans, net (1)
$14,465,456 $14,558,681 
____________
(1)    Excludes accrued interest receivable of $55,293 and $54,563 at March 31, 2024 and December 31, 2023, respectively, that is recorded in other assets on the accompanying consolidated balance sheets.
Loans with carrying amounts of $8,221,272 and $8,109,607 at March 31, 2024 and December 31, 2023, respectively, were pledged to secure Federal Home Loan Bank borrowing capacity and Federal Reserve Bank discount window borrowing capacity.
11



Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans.
Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. The Company’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. These cash flows, however, may not be as expected and the value of collateral securing the loans may fluctuate. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis.
The commercial loan portfolio includes loans made to customers in the energy industry, which is a complex, technical and cyclical industry. Experienced bankers with specialized energy lending experience originate our energy loans. Companies in this industry produce, extract, develop, exploit and explore for oil and natural gas. Loans are primarily collateralized with proven producing oil and gas reserves based on a technical evaluation of these reserves. At March 31, 2024 and December 31, 2023, there were approximately $641,328 and $621,883, of energy related loans outstanding, respectively.
The Company has a mortgage warehouse purchase program providing mortgage inventory financing for residential mortgage loans originated by mortgage banker clients across a broad geographic scale. Proceeds from the sale of mortgages is the primary source of repayment for warehouse inventory financing via approved investor takeout commitments. These loans typically have a very short duration ranging between a few days to 15 days. In some cases, loans to larger mortgage originators may be financed for up to 60 days. Warehouse purchase program loans are collectively evaluated for impairment and are purchased under several contractual requirements, providing safeguards to the Company. To date, the Company has not experienced a loss on these loans and no allowance for credit losses has been allocated to them.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on the successful operation of the property or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location as well as granularity with moderate average loan sizes. Management monitors the diversification of the portfolio on a quarterly basis by type and geographic location. Management also tracks the level of owner occupied property versus non-owner occupied property. At March 31, 2024, the portfolio consisted of approximately 21% of owner occupied property.
Land and commercial land development loans are underwritten using feasibility studies, independent appraisal reviews and financial analysis of the developers or property owners. Generally, borrowers must have a proven track record of success. Commercial construction loans are generally based upon estimates of cost and value of the completed project. These estimates may not be accurate. Commercial construction loans often involve the disbursement of substantial funds with the repayment dependent on the success of the ultimate project. Sources of repayment for these loans may be pre-committed permanent financing or sale of the developed property. The loans in this portfolio are geographically diverse and due to the increased risk are monitored closely by management and the board of directors on a quarterly basis.
Residential real estate and single-family interim construction loans are underwritten primarily based on borrowers’ documented income and ability to repay the Bank and other creditors as well as minimum collateral values and credit scores. Relatively small loan amounts are spread across many individual borrowers, which minimizes risk in the residential portfolio. In addition, management evaluates trends in past dues and current economic factors on a regular basis.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
Agricultural loans are collateralized by real estate and/or agricultural-related assets. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Loan-to-value ratios on loans secured by farmland generally do not exceed 80% and have amortization periods limited to twenty years. Agricultural non-real estate loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines to grain farmers to plant and harvest corn and soybeans. Specific underwriting standards have been established for agricultural-related loans including the establishment of projections for each operating year based on industry developed estimates of farm input costs and expected commodity yields and prices. Operating lines are typically written for one year and secured by the crop and other farm assets as considered necessary.
Agricultural loans carry credit risks as they involve larger balances concentrated with single borrowers or groups of related borrowers. In addition, repayment of such loans depends on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized. Farming operations may be affected by adverse weather conditions such as drought, hail or floods that can severely limit crop yields.
Consumer loans represent less than 1% of the outstanding total loan portfolio. Collateral consists primarily of automobiles and other personal assets. Credit score analysis is used to supplement the underwriting process.
Most of the Company’s lending activity occurs within the state of Texas, primarily in the north, central and southeast Texas regions and the state of Colorado, specifically along the Front Range area. As of March 31, 2024, loans in the North Texas region represented about 35% of the total portfolio, followed by the Colorado Front Range region at about 27%, the Houston region at 25% and the Central Texas region at 13%. A large percentage of the Company’s portfolio consists of commercial and residential real estate loans. As of March 31, 2024 and December 31, 2023, there were no concentrations of loans related to a single industry in excess of 10% of total loans.
Under ASC 326, the allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged-off against the allowance when they are deemed uncollectible. Recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information relevant to assessing collectibility over the loans' contractual terms, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless the extension or renewal options are included in the borrower contract and are not unconditionally cancellable by the Company.
The Company's allowance balance is estimated using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, credit quality, or term as well as for changes in environmental conditions, such as changes in unemployment rates, gross domestic product, property values, various price indices, and/or other relevant factors. The Company utilizes Moody’s Analytics economic forecast scenarios and assigns probability weighting to those scenarios which best reflect management’s views on the economic forecast.
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Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. For determining the appropriate allowance for credit losses on a collective basis, the loan portfolio is segmented into pools based upon similar risk characteristics and a lifetime loss-rate model is utilized. For modeling purposes, loan pools include: commercial and industrial, commercial real estate - construction/land development, commercial real estate - owner occupied, commercial real estate - non-owner occupied, agricultural, residential real estate, HELOCs, single-family interim construction, and consumer. Management periodically reassesses each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Management has determined that they are reasonably able to forecast the macroeconomic variables used in the modeling processes with an acceptable degree of confidence for a total of two years then encompassing a reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean utilizing a rational, systematic basis. Management qualitatively adjusts model results for risk factors that are not considered within the modeling processes but are nonetheless relevant in assessing the expected credit losses within the loan pools. These qualitative factor (Q-Factor) adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk.
Loans exhibiting unique risk characteristics and requiring an individual evaluation are measured based on 1) the present value of expected future cash flows discounted at the loan's effective interest rate; 2) the loan's observable market price; or 3) the fair value of collateral if the loan is collateral dependent. The majority of the Company’s individually evaluated loans are measured at the fair value of the collateral.
Management continually evaluates the allowance for credit losses based upon the factors noted above. Should any of the factors considered by management change, the Company’s estimate of credit losses could also change and would affect the level of future provision for credit losses. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged-off. While the calculation of the allowance for credit losses utilizes management’s best judgment and all the information available, the adequacy of the allowance for credit losses is dependent on a variety of factors beyond the Company’s control, including, among other things, the performance of the entire loan portfolio, the economy, changes in interest rates and the view of regulatory authorities towards loan classifications.
Loans requiring an individual evaluation are generally identified at the servicing officer level based on review of weekly past due reports and/or the loan officer’s communication with borrowers. In addition, the status of past due loans are routinely discussed within each lending region as well as credit committee meetings to determine if classification is warranted. The Company’s internal loan review department has implemented an internal risk-based loan review process to identify potential internally classified loans that supplements the independent external loan review. Independent loan reviews cover a wide range of the loan portfolio, including large lending relationships, specifically targeted loan types, and if applicable recently acquired loan portfolios. These reviews include analysis of borrower’s financial condition, payment histories, review of loan documentation and collateral values to determine if a loan should be internally classified. Generally, once classified, an analysis is completed by the credit department to determine the amount of allocated allowance for credit loss required. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
14



Independent Bank Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(Dollars in thousands, except for share and per share information)
The following is a summary of the activity in the allowance for credit losses on loans by class for the three months ended March 31, 2024 and 2023:
CommercialCommercial Real EstateCommercial Construction,
Land and Land
Development
Residential
Real Estate
Single-Family
Interim
Construction
AgriculturalConsumerTotal
Three months ended March 31, 2024
Balance at beginning of period$34,793 $60,096 $31,494