Independent Bank Group, Inc. - Annual Report: 2019 (Form 10-K)

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•	finding suitable markets for expansion;

•	finding suitable candidates for acquisition;

•	attracting funding to support additional growth;

•	maintaining asset quality;

•	attracting and retaining qualified management; and

•	maintaining adequate regulatory capital.

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•	actual or anticipated variations in quarterly results of operations;

•	recommendations by securities analysts;

•	operating and stock price performance of other companies that investors deem comparable to the Company;

•	new reports relating to trends, concerns and other issues in the financial services industry;

•	perceptions in the marketplace regarding the Company and/or its competitors;

•	new technology used, or services offered, by competitors;

•	significant acquisitions or business combinations involving the Company or its competitors;

•	the public float and trading volumes for the Company’s common stock;

•	changes in government regulations, including tax laws; and

•	volatility in economic conditions, including changes in interest rates, disruption in energy markets and changes in the global economy.

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•	staggered terms for directors;

•	a provision that directors cannot be removed except for cause;

•	a provision that any special meeting of the Company’s shareholders may be called only by a majority of the Company’s board of directors, the Chairman or a holder or group of holders of at least 20% of the Company’s shares entitled to vote at such special meeting; and

•	a provision establishing certain advance notice procedures for nomination of candidates for election as directors and for shareholder proposals to be considered only at an annual or special meeting of shareholders.

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•	$180 million of aggregate principal amount of subordinated indebtedness; and

•	$57.3 million of subordinated debentures issued in connection with trust preferred securities

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

(1)	Includes 55,106 shares purchased in connection with the vesting of restricted stock replacement awards acquired with the Guaranty merger. These transactions are not considered part of the Corporation's repurchase program.

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(2)

Book value per share equals the Company’s total common stockholders’ equity (excludes preferred stock) as of the date presented divided by the number of shares of its common stock outstanding as of the date presented. The number of shares of its common stock outstanding as of December 31, 2019, 2018, 2017, 2016 and 2015 was 42,950,228 shares, 30,600,582 shares, 28,254,893 shares, 18,870,312 shares and 18,399,194 shares, respectively.

(3)

Each of nine wholly owned, but nonconsolidated, subsidiaries of the Company holds a series of the Company’s junior subordinated debentures purchased by the subsidiary in connection with, and paid for with the proceeds of, the issuance of trust issued preferred securities by that subsidiary. The Company has guaranteed the payment of the amounts payable under each of those issues of trust preferred securities. During 2019 the Company assumed two trusts with the acquisition of Guaranty and during 2017 the Company assumed two trusts with the Carlile acquisition.

(4)

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

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

(6)	Efficiency ratio for a period represents noninterest expenses, excluding the amortization of other intangible assets, for that period divided by the sum of net interest income and noninterest income for that period.

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

(8)	Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest, and accruing loans modified under troubled debt restructurings, excludes loans acquired with deteriorated credit quality.

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

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

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•	our ability to sustain our current internal growth rate and total growth rate;

•	changes in geopolitical, business and economic events, occurrences and conditions, including changes in rates of inflation or deflation, nationally, regionally and in our target markets, particularly in Texas and Colorado;

•	worsening business and economic conditions nationally, regionally and in our target markets, particularly in Texas and Colorado, and the geographic areas in those states in which we operate;

•	our dependence on our management team and our ability to attract, motivate and retain qualified personnel;

•	the concentration of our business within our geographic areas of operation in Texas and Colorado;

•	changes in asset quality, including increases in default rates on loans and higher levels of nonperforming loans and loan charge-offs;

•	concentration of the loan portfolio of Independent Bank, before and after the completion of acquisitions of financial institutions, in commercial and residential real estate loans and changes in the prices, values and sales volumes of commercial and residential real estate;

•	the ability of Independent Bank to make loans with acceptable net interest margins and levels of risk of repayment and to otherwise invest in assets at acceptable yields and presenting acceptable investment risks;

•	inaccuracy of the assumptions and estimates that the managements of our Company and the financial institutions that we acquire make in establishing reserves for probable loan losses and other estimates;

•	lack of liquidity, including as a result of a reduction in the amount of sources of liquidity we currently have;

•	material increases or decreases in the amount of deposits held by Independent Bank or other financial institutions that we acquire and the cost of those deposits;

•	our access to the debt and equity markets and the overall cost of funding our operations;

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•	regulatory requirements to maintain minimum capital levels or maintenance of capital at levels sufficient to support our anticipated growth;

•	changes in market interest rates that affect the pricing of the loans and deposits of each of Independent Bank and the financial institutions that we acquire and that affect the net interest income, other future cash flows, or the market value of the assets of each of Independent Bank and the financial institutions that we acquire, including investment securities;

•	fluctuations in the market value and liquidity of the securities we hold for sale, including as a result of changes in market interest rates;

•	effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;

•	changes in economic and market conditions that affect the amount and value of the assets of Independent Bank and of financial institutions that we acquire;

•	the institution and outcome of, and costs associated with, litigation and other legal proceedings against one of more of the Company, Independent Bank and financial institutions that we acquire or to which any of such entities is subject;

•	the occurrence of market conditions adversely affecting the financial industry generally;

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the impact of recent and future legislative regulatory changes, including changes in banking, securities, and tax laws and regulations and their application by the Company’s regulators, and changes in federal government policies, as well as regulatory requirements applicable to, and resulting from regulatory supervision of, the Company and Independent Bank as a financial institution with total assets greater than $10 billion;

•	changes in accounting policies, practices, principles and guidelines, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board, as the case may be;

•	governmental monetary and fiscal policies, including changes resulting from the implementation of the new Current Expected Credit Loss accounting standard;

•	changes in the scope and cost of FDIC insurance and other coverage;

•	the effects of war or other conflicts, acts of terrorism (including cyber attacks) or other catastrophic events, including natural disasters such as storms, droughts, tornadoes, hurricanes and flooding, that may affect general economic conditions;

•	our actual cost savings resulting from previous or future acquisitions are less than expected, we are unable to realize those cost savings as soon as expected, or we incur additional or unexpected costs;

•	our revenues after previous or future acquisitions are less than expected;

•	the liquidity of, and changes in the amounts and sources of liquidity available to, us, before and after the acquisition of any financial institutions that we acquire;

•	deposit attrition, operating costs, customer loss and business disruption before and after our completed acquisitions, including, without limitation, difficulties in maintaining relationships with employees, may be greater than we expected;

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the effects of the combination of the operations of financial institutions that we have acquired in the recent past or may acquire in the future with our operations and the operations of Independent Bank, the effects of the integration of such operations being unsuccessful, and the effects of such integration being more difficult, time-consuming or costly than expected or not yielding the cost savings that we expect, including but not limited to those identified below for the merger between the Company and TCBI;

•	the impact of investments that the Company or Independent Bank may have made or may make and the changes in the value of those investments;

•	the quality of the assets of financial institutions and companies that we have acquired in the recent past or may acquire in the future being different than we determined or determine in our due diligence investigation in connection with the acquisition of such financial institutions and any inadequacy of loan loss reserves relating to, and exposure to unrecoverable losses on, loans acquired;

•	our ability to continue to identify acquisition targets and successfully acquire desirable financial institutions to sustain our growth, to expand our presence in our markets and to enter new markets;

•	general business and economic conditions in our markets change or are less favorable than expected;

•	changes occur in business conditions and inflation;

•	an increase in the rate of personal or commercial customers’ bankruptcies;

•	technology-related changes are harder to make or are more expensive than expected;

•	attacks on the security of, and breaches of, the Company's and Independent Bank's digital information systems, the costs the Company or Independent Bank incur to provide security against such attacks and any costs and liability we or Independent Bank incurs in connection with any breach of those systems;

•	the potential impact of technology and “FinTech” entities on the banking industry generally;

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•	the other factors that are described or referenced in Part I, Item 1A. of this Annual Report on Form 10-K under the caption “Risk Factors.” and

•	other economic, competitive, governmental, regulatory, technological and geopolitical factors affecting the Company’s operations, pricing and services.

•	the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement;

•	the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;

•	delays in completing the transaction;

•	the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction) and shareholder approvals or to satisfy any of the other conditions to the closing of the merger on a timely basis or at all;

•	the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where the Company and TCBI do business;

•	the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

•	the impact of purchase accounting with respect to the merger, or any change in assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;

•	diversion of management’s attention from ongoing business operations and opportunities;

•	potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transition;

•	the ability to complete the transaction and integration of the Company and TCBI successfully, which may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to the Company or TCBI’s existing businesses;

•	the challenges of integrating, retaining, and hiring key personnel;

•	failure to attract new customers and retain existing customers in the manner anticipated;

•	any interruption or breach of security as a result of systems integration, resulting in failures or disruption in customer account management, general ledger, deposit, loan or other systems;

•	changes in the Company’s stock price before closing, including as a result of the financial performance of TCBI prior to closing;

•	the dilution caused by the Company’s issuance of additional shares of its capital stock in connections with the transaction;

•	operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which the Company and TCBI are highly dependent; and

•	changes in the Company’s credit ratings or in the Company's ability to access the capital markets.

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(1)	Average loan balances include nonaccrual loans.

(2)	Net interest margins for the periods presented represent: (i) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest-earning assets for the period.

(3)	A tax-equivalent adjustment has been computed using a federal income tax rate of 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017.

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(1)	Includes mortgage warehouse purchase loans of $687.3 million, $170.3 million $164.7 million, $0 and $0 at December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(2)	Includes loans held for sale of $35.6 million, $32.7 million, $39.2 million, $9.8 million and $12.3 million at December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

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(1)	Nonaccrual loans include troubled debt restructurings of $668 thousand, $506 thousand, $1.0 million, $209 thousand and $621 thousand as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively and excludes loans acquired with deteriorated credit quality of $10.9 million, $7.0 million $7.9 million, $1.0 million and $0 as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(2)	Excluding mortgage warehouse purchase loans of $687.3 million, $170.3 million, $164.7 million, $0 and $0 as of December 31, 2019, 2018 and 2017, 2016 and 2015, respectively.

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

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

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(1)	Chair, Strategic Planning Committee

(2)	Chair, Risk Oversight Committee

(3)	Chair, Compensation Committee and Member, Strategic Planning Committee

(4)	Member, Corporate Governance & Nominating Committee

(5)	Chair, Audit Committee and Member, Risk Oversight Committee

(6)	Member, Audit Committee and Member, Compensation Committee

(7)	Member, Strategic Planning Committee

(8)	Member, Corporate Governance & Nominating Committee

(9)	Member, Audit Committee; Member, Compensation Committee; Chair, Corporate Governance & Nominating Committee; and Member, Strategic Planning Committee

(10)	Member, Corporate Governance & Nominating Committee and Member, Risk Oversight Committee

*	Brian E. Hobart, the former Vice Chairman and Chief Lending Officer, resigned on November 11, 2019, and former directors Douglas A. Cifu and Mark K. Gormley, resigned on July 25, 2019 and January 20, 2020, respectively.

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•	The Class I directors are Daniel W. Brooks, Craig E. Holmes, Tom C. Nichols, and G. Stacy Smith, and their terms will expire at the annual meeting of shareholders to be held in 2020;

•	The Class II directors are William E. Fair, Donald L. Poarch and Michael T. Viola, and their terms will expire at the annual meeting of shareholders to be held in 2021; and

•	The Class III directors are David R. Brooks, Alicia K. Harrison and J. Webb Jennings, III, and their terms will expire at the annual meeting of shareholders to be held in 2022.

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•	Reviewing, monitoring and approving the Company’s overall compensation structure, policies and programs (including benefit plans) and assessing whether the compensation structure establishes appropriate incentives for the Company’s executive officers and other employees and meets the Company’s corporate objectives;

•	Determining the annual compensation of the Company’s named executive officers as noted in “Executive Compensation and Other Matters”

•	Reviewing the Company’s executive officer compensation program and determining if:

◦	Such program is appropriately linked to the Company’s short-term and long-term financial and other performance;

◦	The interests of the Company’s executive officers are appropriately aligned with the interests of the Company’s shareholders or can be more appropriately aligned through greater equity ownership by the Company’s executive officers and by having a greater proportion of executive officer compensation tied to the Company’s financial and other performance; and

◦	The base salaries and incentive compensation opportunities provided to the Company’s executive officers are competitive with those packages offered by other similarly situated and similarly performing financial institutions;

•	Addressing such other matters relating to the Company’s executive compensation program as it deems appropriate;

•	Reviewing the compensation decisions made by the Company’s named executive officers with respect to the Company’s other executive officers;

•	Overseeing the administration of the Company’s equity plans and other incentive compensation plans and programs and preparing recommendations and periodic reports to the Company’s board of directors relating to these matters; and

•	Handling such other matters that are specifically delegated to the Compensation Committee by the Company’s board of directors from time to time.

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recommending persons to be selected by the Company’s board of directors as nominees for election as directors and to fill any vacancies on the Company’s board of directors; provided that if this Committee is not comprised solely of independent directors under the Nasdaq Global Select Market rules, the Committee shall make its recommendations to the independent members of the Company’s board of directors, who, in turn, shall nominate persons to be selected by the Company’s board of directors as nominees for election as directors and to fill any vacancies on the Company’s board of directors;

•	monitoring the function of the Company’s standing committees and recommending any changes, including the creation or elimination of any committee;

•	developing, reviewing and monitoring compliance with the Company’s corporate governance guidelines;

•	reviewing and approving all related person transactions for potential conflicts of interest situations on an ongoing basis;

•	reviewing annually the composition of the Company’s board of directors as a whole and making recommendations; and

•	handling such other matters that are specifically delegated to the Corporate Governance and Nominating Committee by the Company’s board of directors from time to time.

•	integrity and high ethical standards in the nominee’s professional life;

•	sufficient educational and professional experience, business experience or comparable service on other boards of directors to qualify the nominee for service on the Company’s board of directors;

•	evidence of leadership and sound judgment in the nominee’s professional life;

•	whether the nominee is well recognized in the community and has a demonstrated record of service to the community;

•	diversity of viewpoints, background, experience, race, gender, ethnicity and other demographic factors, as more fully set forth in the Board Diversity Policy adopted by the Corporate Governance and Nominating Committee in 2017;

•	a willingness to abide by any published code of conduct or ethics for the Company; and

•	a willingness and ability to devote sufficient time to carrying out the duties and responsibilities required as a member of the Company’s board of directors.

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•	attendance and performance at meetings of the Company’s board of directors and the committees on which such director serves;

•	length of service on the Company’s board of directors;

•	experience, skills and contributions that the existing director brings to the Company’s board of directors;

•	independence and any conflicts of interest; and

•	any significant change in the director’s status, including the attributes considered for initial membership on the Company’s board of directors.

(i)	the name and residence address of the shareholder of the Company who intends to make a nomination or bring up any other matter;

(ii)	a representation that the shareholder is a holder of the Company’s voting stock (indicating the class and number of shares owned) and intends to appear in person or by proxy at the meeting to make the nomination or bring up the matter specified in the notice;

(iii)	with respect to notice of an intent to make a nomination for the election of a person as a director of the Company, a description of all arrangements or understandings among the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; and

(iv)	with respect to an intent to make a nomination, such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated by the board of directors of the Company.

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•	selecting and reviewing the performance of the Company’s independent auditors and approving, in advance, all engagements and fee arrangements;

•	oversee the Company’s Internal Audit Department;

•	reviewing the independence of the Company’s independent auditors;

•	reviewing actions by management on recommendations of the independent auditors and internal auditors;

•	meeting with management, the internal auditors and the independent auditors to review the effectiveness of the Company’s system of internal controls and internal audit procedures;

•	reviewing the Company’s earnings releases and reports filed with the SEC;

•	reviewing reports of bank regulatory agencies and monitoring management’s compliance with recommendations contained in those reports; and

•	handling such other matters that are specifically delegated to the Audit Committee by the Company’s board of directors from time to time.

•	establishing plans for the growth of the Company, including organic growth plans and strategic acquisitions;

•	identifying new market areas;

•	identifying new management candidates to enhance product and geographic expansion;

•	identifying acquisition targets and developing plans to pursue acquisitions of such identified targets; and

•	reviewing capital and financing levels, financial partners, and ensuring continued access to capital and financing.

•	overseeing the Company’s risk management infrastructure, including annual review and approval of the Enterprise Risk Management Policy, which such policy describes the Company’s risk tolerance and strategies for managing risk in the context of the overall business plan;

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•	overseeing the Company’s financial risk management, capital management, financial performance and compliance, and corporate development, including annual review and approval of the Company’s Capital Management Policy, and its Comprehensive Strategic Plan, which describe the Company’s capital risk tolerances and strategies for strategic management risk related to capital;

•	receiving regular reports from management which: (i) enable the committee to assess the risks involved in the business and how risks are monitored and controlled by management; and (ii) give clear and explicit information on current and forward-looking aspects of risk exposure;

•	assessing of compliance with the Company’s risk limit structure and policies and procedures relating to risk governance, practices, and risk controls across the enterprise;

•	assessing the adequacy of staffing at the Company to ensure the availability of adequate staffing to carry out the objectives of the Enterprise Risk Management Policy, the Capital Management Policy, and the Strategic Plan;

•	consulting, as deemed appropriate by the committee, with external experts to review information on emerging practices and risks;

•	assessing Management’s success in communicating the Company’s risk culture to employees, regulators, and shareholders as appropriate;

•	preparing reports to the Boards of the Company and the Bank on the overall risk profile of the Company (including risk related to capital management), the Committee’s assessment of management’s programs for managing enterprise risk and capital, and information concerning current and prospective macroeconomic and financial factors that may affect the Company’s financial stability;

•	retaining, at its discretion, outside advisors to consider from time to time any other matters that the committee believes are required of it in keeping with its responsibilities;

•	seeking such assurance as it may deem appropriate that Company employs a Chief Risk Officer responsible for enterprise risk oversight and management, and which such officer possesses risk management expertise that is commensurate with the Company’s capital structure, risk profile, complexity, activities, size, and other risk-related factors that are appropriate, and that the Chief Risk Officer:

(i)	participates in the risk management and oversight process at the highest level on an enterprise-wide basis; and

(ii)	operates independently from individual business units by reporting administratively to the Chief Executive Officer and functionally to the committee as prescribed by the committee charter; and

•	performing any other duties or responsibilities expressly delegated to the committee by the Board of Directors from time to time.

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•	Filing made by Alicia K. Harrison in connection with common stock ownership upon her appointment to the Board of Directors on May 23, 2019. The Form 3 was filed with the SEC on June 13, 2019.

•	Filing made by Alicia K. Harrison in connection with common stock acquired on May 29, 2019. The Form 4 was filed with the SEC on June 13, 2019.

•	Reported robust organic deposit growth of 10.4% and disciplined organic loan growth of 4.8% for the year;

•	Strong credit quality metrics remained at low levels;

•	Returned capital to shareholders by increasing quarterly dividend to $0.25 per share from $0.14 per share and repurchasing $49.0 million of Company stock through share repurchase program;

•	Successfully closed, converted and integrated the Guaranty Bancorp acquisition, expanding the Company’s presence in the fast-growing Colorado Front Range market; and,

•	Announced a transformational all-stock merger of equals with Texas Capital Bancshares, Inc. (“TCBI”) to create a premier Texas-based bank and position the Company for future growth.

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•	each named executive officer’s scope of responsibility;

•	each named executive officer’s years of experience;

•	the Company’s financial performance and performance with respect to other aspects of the Company’s operations, such as the Company’s growth, asset quality, profitability and other matters, including the status of the Company’s relationship with banking regulatory agencies; and

•	each named executive officer’s individual performance and contributions to the Company’s performance, including leadership, team work and community service.

*	Mr. Hobart resigned as an executive officer on November 11, 2019.

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(1)	Non-GAAP measure. Adjusted for extraordinary items such as unexpected income recognized on credit impaired acquired loans; gain/loss on sale of loans, branch and Trust, OREO, securities, and premises and equipment; recoveries on loans charged off prior to an acquisition; separation expenses; OREO and other asset impairment; and acquisition expenses.

(2)	Non-GAAP measure. Adjusted for amortization of core deposit intangibles and extraordinary items such as noted in (1).

•	the Company’s overall performance in executing the Company’s key strategic initiatives;

•	the overall financial soundness of the Company (asset quality, risk controls, balance sheet/capital management);

•	the Company’s organic growth and growth through strategic acquisitions;

•	the Company’s profitability (earnings growth and operating efficiencies);

•	the executive’s role in the Company’s achievement of target percentage increases in growth and profitability;

•	the executive’s role in specific strategic and operational functions, such as successful implementation of the Company’s acquisition strategy, overall management of financial reporting, and supervision of the Company’s credit function;

•	the personal performance of the executive officer and contributions to the Company’s performance for the year, including leadership, team work and community service; and

•	market data on peer performance and compensation levels.

(1)	A portion of these payments were paid in 2019. See "Tax Planning Strategies" on page 91.

(2)	Restricted stock for 2019 performance was granted on January 31, 2020. Based on a market price of $53.52 as of the grant date.

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•	Prorated Bonus. A prorated target bonus for the year in which his termination occurs.

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Cash Severance. A cash severance payment equal to the product of (a) a severance multiple (for Mr. David Brooks, three; or for the other named executive officers, one prior to a change in control and two within two years following a change in control), multiplied by (b) the sum of his base salary and the greater of his target annual bonus and his average annual bonus during the three completed years prior to the date of his termination.

•	Ancillary Benefits. Continued participation in the Independent Bank Survivor Benefit Plan through age 65 and a cash payment equal to 18 months of COBRA premiums.

•	Long-Term Incentive Awards. Full vesting of his long-term incentive compensation (other than the sign-on RSU award), subject to the satisfaction of applicable performance goals, with stock options or stock appreciation rights remaining exercisable for the full remaining term, and continued vesting of his sign-on RSU award on the regularly scheduled vesting dates.

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•	Shares owned outright by the Executive Officer or Director and his or her immediate family members residing in the same household;

•	Shares credited to the Executive Officer’s or Director’s account under the Company’s 401(k) Profit Sharing Plan;

•	Shares held in trust for the benefit of the Executive Officer or Director;

•	Shares acquired upon net exercise of vested stock options; and

•	Unvested shares of restricted Company common stock or restricted stock units held by the Executive Officer or Director.

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*	Mr. Hobart resigned as an executive officer on November 11, 2019.

(1)	The amounts shown in this column represent salaries earned during the fiscal year shown.

(2)	The amounts of bonuses and nonequity incentive plan compensation for each year shown were cash bonuses earned for that year, but that were paid in the following fiscal year, except for nonequity incentive plan compensation paid to Mr. David Brooks, Mr. Haynie and Mr. Tippit as discussed in "Tax Planning Strategies" on page 91.

(3)

The amounts of stock awards for each year shown were awards actually received in that year for the prior year’s performance. The market values of the outstanding stock awards presented as of December 31, 2019, 2018 and 2017, are based on the market value of the Company’s common stock on the date of the grant which was $52.78 on January 25, 2019, $71.75 on January 31, 2018 and $62.15 on January 31, 2017. The grants awarded for each year shown were based upon the Company’s and the executive’s performance for the prior year.

(4)

Includes 401(k) contributions, health and welfare benefits, restricted stock related payments, insurance premiums and certain perquisites and other benefits. During 2019, the Company made transaction award payments to Mr. Haynie ($246,490) and Mr. Tippit ($555,307) as described in "Tax Planning Strategies" on page 91. None of these individual components of All Other Compensation exceeded $25,000 in 2018. In 2017, the Company made payments related to payroll taxes on restricted stock vesting under a legacy program for Daniel W. Brooks ($68,876), Brian E. Hobart ($68,033) and Michelle S. Hickox ($60,011).

(5)	The market value of the outstanding stock awards presented for Mr. Haynie as of December 31, 2018 is based on the market value of the Company's common stock on the date of grant which was $71.20 on March 1, 2018.

(6)	The market value of the outstanding stock awards presented for Mr. Tippit as of December 31, 2017 are based on the market values of the Company's common stock on the date of grant which was $62.15 on January 31, 2017 for 1,000 shares of common stock, and $57.40 on August 16, 2017 for 5,000 shares of common stock.

(7)	Mr. Hobart received payments pursuant to a Separation Agreement as described in "Executive Employment Agreements, Award Agreements & Potential Payments upon Change in Control" on page 89.

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*	Mr. Hobart resigned as an executive officer on November 11, 2019.

(1)	Represents the cash portion at target and maximum of the total incentive opportunity approved for each named executive officer for 2019 performance.

(2)	Represents awards under the Equity Incentive Plan. Each award vests one-third at the end of one year, an additional one-third at the end of two years and the remaining one-third at the end of three years.

(3)	Calculated by multiplying the restricted stock grant shares by the grant date fair value of $52.78 on January 25, 2019.

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(1)	The following table shows the dates on which the shares of restricted stock shown in the table above vest, i.e., the date on which the forfeiture provisions expire as to the shares of restricted stock held by each of the Company’s named executive officers:

(2)	The market values for the outstanding stock awards presented as of December 31, 2019, are based on a fair market value of the Company’s common stock of $55.44 per share as of December 31, 2019, which was the closing sale price of the Company’s common stock on the Nasdaq Global Select Market on such date.

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*	Mr. Hobart resigned as an executive officer on November 11, 2019.

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the acquisition by any person or entity of beneficial ownership of 50% or more of either (a) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, that the following shall not constitute a Change of Control: (w) any acquisition directly from the Company, (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries, or (z) any acquisition by any corporation pursuant to a transaction which complies with the Change in Control Exceptions (defined below);

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during any period of two consecutive years (not including any period prior to February 21, 2013) individuals who constituted the Board of Directors on February 21, 2013 (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to February 21, 2013 whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person or entity other than the Board of Directors;

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consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its Subsidiaries (each a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote

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•	approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

•	material act of self-dealing between the Company and the employee which is not disclosed in full to, and approved by, the Board of Directors;

•	deliberate falsification by the employee of any records or reports;

•	fraud on the part of the employee against the Company or any of its subsidiaries or affiliates;

•	theft, embezzlement or misappropriation by the employee of any funds of the Company, or conviction of any felony;

•	execution of any document transferring, or creating any material lien or encumbrance on, any material property of the Company, not in the ordinary course of business, without authorization of the Board of Directors;

•	engagement by the employee in inappropriate behavior which is found by the Company after due investigation to be sexual harassment or assault;

•	declaration by an independent medical authority that the employee is addicted to drugs or alcohol; or

•	any recommendation or suggestion by any bank regulatory authority that the employee’s employment must be terminated.

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the assignment to the employee of any duties or responsibilities, other than in connection with a promotion, inconsistent in any material respect with employees position (including status, offices, titles and reporting relationships), authority, duties or responsibilities in effect immediately prior to a Change in Control, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly following receipt of notice thereof given by the employee;

•	a reduction in the executive’s compensation and benefits which were in effect immediately prior to a Change of Control;

•	the material breach by the Company of any provision of the Change in Control Agreement applicable to the employee; or

•	the requirement that the employee’s principal place of employment be based at a location further than 30 miles from the Company’s principal office immediately prior to the Change in Control.

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(1)	Cash amounts that would be paid under the Company’s existing change in control agreements upon a change in control and a qualifying termination or termination for Good Reason using base salary information for 2019 and the amount of the named executive officers’ 2019 annual incentive bonus.

(2)

Estimates of the value that would have been recognized by our executive officers as result of the accelerated vesting of the shares of restricted stock held by such executive officers assuming a change in control occurred on December 31, 2019. The estimated value was calculated by multiplying the number of unvested shares of restricted stock held by the applicable executive officer by the closing price of our common shares on December 31, 2019, which was $55.44. The actual amounts to be paid out can only be determined at the time of such change in control.

(3)

Other benefits for each executive officer include continued participation in Independent Bank’s BOLI Plan. Under this plan, if (i) an executive dies before reaching age 65 and (ii) Independent Bank actually receives sufficient proceeds from a life insurance policy insuring the life of such executive, then Independent Bank shall pay to such executive’s designated beneficiary, as a survivor benefit, a single lump sum cash payment equal to such executive’s annual base salary in effect on the date of the termination of such executive’s employment with Independent Bank within 30 days after such executive’s death.

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(1)	Reflects awards granted in 2019 calculated by multiplying the restricted stock grant shares by the grant date fair value of $52.78 on January 25, 2019 for 1,048 shares of common stock and on June 11, 2019 for 1,036 shares of common stock.

(2)	Douglas A. Cifu resigned as director on July 25, 2019. Mr. Cifu's resignation was not a result of a disagreement between the Company or its management and Mr. Cifu related to the Company's operations, policies or practices.

(3)	Mark K. Gormley resigned as director on January 20, 2020. Mr. Gormley's resignation was not a result of a disagreement between the Company or its management and Mr. Gormley related to the Company's operations, policies or practices.

(4)	Alicia K. Harrison was elected as a director on May 23, 2019.

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•	Determined the eligible employee population by taking a population of all employees of the Company as of December 31, 2019, including full-time, part-time and seasonal or temporary workers, employed by the Company or its subsidiaries, but excluding the CEO.

•	Identified the median employee by calculating total calendar year taxable wages for each employee as of December 31, 2019. This yielded an even number of employees, and the median employee was determined from the population of two employees at the median.

•	Calculated CEO Pay Ratio by calculating the median employee’s total compensation for 2019 according to instructions for preparing the Summary Compensation Table, including employer health insurance contributions and the value of other benefits. The Company then calculated the CEO’s annual total compensation using the same approach to determine the pay ratio shown above.

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*	Indicates ownership that does not exceed 1%.

(1)

The address of the persons shown in the foregoing table who are beneficial owners of more than 5% of the common stock are as follows: Vincent J. Viola, 7777 Henneman Way, McKinney, Texas 75070; BlackRock, Inc., 55 East 52nd Street, New York, New York 10055; The Vanguard Group, 100 Vanguard Boulevard, Malvern, Pennsylvania 19355; T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, Maryland 21202; Dimensional Fund Advisors LP, Building One, 6300 Bee Cave Road, Austin, Texas 78746.

(2)	The percentages are based upon 43,040,776 shares issued and outstanding as of February 27, 2020.

(3)	Of these shares, 809,877 are held of record by David R. Brooks and 120,000 shares are held of record by trusts for his children of which he and his wife are trustees. Included in Mr. Brooks total shares are 150,000 shares pledged as security for bank loans.

(4)	Includes 40,000 shares pledged as security for bank loans.

(5)	Includes 29,370 shares held of record by Michelle S. Hickox and 339 shares held of record by Independent Bank 401(k) Profit Sharing Plan, of which Ms. Hickox is beneficiary.

(6)	Includes 8,576 shares held of record by James P. Tippit and 403 shares held of record by Independent Bank 401(k) Profit Sharing Plan, of which Mr. Tippit is beneficiary.

(7)	Includes 210,110 shares held of record by William E. Fair and 7,547 shares held of record by an IRA of which he is beneficiary, and 1,100 shares held of record by Fair Title, Inc. dbd Hatco Investments, of which Mr. Fair is President. Included in his total shares are 130,476 shares pledged as security for bank loans.

(8)	Includes 1,036 shares held of record by Alicia K. Harrison, 100 shares and 275 shares held of record by a revocable living trust and a revocable living trust IRA, respectively, of which Ms. Harrison is beneficiary.

(9)	Includes 207,436 shares held of record by Tom C. Nichols and 1,381 shares held of record by his wife, Lynda Nichols.

(10)	Of these shares, 125,000 shares are held of record by Poarch Family Limited Partnership, of which Mr. Poarch is the President of its General Partner, Donald L. Poarch, Inc., and 16,435 shares are held of record by Donald Poarch.

(11)	According to Schedule 13G/A as filed with the SEC on February 5, 2020, by BlackRock, Inc., on behalf of itself and certain of its subsidiaries. BlackRock, Inc. has sole voting power over 2,972,323 shares, and sole dispositive power over 3,134,780 shares.

(12)	According to Schedule 13G/A filed with the SEC on February 12, 2020, by The Vanguard Group, on behalf of itself and certain of its subsidiaries. The Vanguard Group has sole voting power over 45,179 shares, shared voting power over 5,641 shares, sole dispositive power over 3,084,230 shares, and

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(13)	According to a Schedule 13G/A filed with the SEC on February 14, 2020, by T. Rowe Price Associates, Inc., on behalf of itself and certain of its subsidiaries. T. Rowe Price Associates, Inc. has sole voting power over 598,111 shares, and sole dispositive power over 2,902,989 shares.

(14)	According to a Schedule 13G/A filed with the SEC on February 12, 2020, by Dimensional Fund Advisors LP, on behalf of itself and certain of its subsidiaries. Dimensional Fund Advisors LP has sole voting power over 2,461,165 shares, and sole dispositive power over 2,512,520 shares.

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

•	We tested the completeness and accuracy of the groups of loans used in the qualitative factor assessment based on the relevant risks associated with such groups of loans.

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•	We tested management’s process for establishing and monitoring qualitative factors including:

•	Evaluating the reasonableness of management’s judgments by validating the source of information used by management with the relevant internal or external information from which it was derived, as well as evaluating the estimated correlation to potential losses.

•	Evaluating the reasonableness of qualitative factor adjustments assessed by management as compared to the underlying internal or external source information.

•	We obtained an understanding of the relevant controls related to the fair value of acquired loans and core deposits and tested such controls for design and operating effectiveness, including controls over management’s establishment and determination of assumptions utilized in the loans and core deposit intangibles valuations.

•	We evaluated the valuation approach used by the Company to calculate the fair value of loans and core deposit intangibles.

•	We performed, with the assistance of our valuation specialists, the following procedures:

◦	Compared management’s assumptions to publicly available market data.

◦	Evaluated the reasonableness of the core deposit intangible valuation by calculating the value using a reduction to the reserve requirement assumption, alternative cost of funding assumptions from a published source, disregarding insurance costs and float assumptions, and adjusting retention rates downward and comparing our results to management’s calculation.

◦	Tested the completeness and accuracy of the underlying data used in the valuation model.

•	We evaluated estimated run-off rates for reasonableness by comparing to actual data observed subsequent to the acquisition. We tested the completeness and accuracy of the actual data observed.

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

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

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

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

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(1)	At December 31, 2019 and 2018, other borrowings included amounts owed to related parties of $50.

(2)	The permissible portion of qualified subordinated notes decreases 20% per year during the final five years of the term of the notes.

(3)	Assumed on January 1, 2019 with the Guaranty acquisition (see Note 22, Business Combinations).

(4)	Subsequent to December 31, 2019, the Company renewed the line (see Note 24, Subsequent Events).

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(1)	Assumed on January 1, 2019 with the Guaranty acquisition (see Note 22, Business Combinations).

(2)	Assumed in 2017 with a recorded fair value discount of $3,500 remaining as of December 31, 2019.

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(1)	At December 31, 2019 and 2018, loans held for sale for which the fair value option was elected had an aggregate outstanding principal balance of $28,166 and $26,594, respectively. There were no mortgage loans held for sale under the fair value option that were 90 days or greater past due or on nonaccrual at December 31, 2019.

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(1)	Excludes nonrecurring costs attributable to the acquisition including advisory, legal, other professional fees, and, integration costs, incurred by the Company and Guaranty of $1,560 and $2,034, and the related tax effects, respectively.

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