KBRA Releases Surveillance Report for Independent Bank Group, Inc.

On May 12, 2023, KBRA affirmed the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for McKinney, Texas-based Independent Bank Group, Inc. (NASDAQ: IBTX) (“the company”). In addition, KBRA affirmed the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for its subsidiary, Independent Bank. The Outlook for all long-term ratings is Stable.

The ratings are supported by a highly experienced management team with a solid banking franchise, operating in some of the fastest growing MSAs in the country. Although IBTX has a concentration in CRE, the company’s asset quality performance has been positive throughout multiple credit cycles including the GFC, and most recently, the pandemic. The recent focus on loan growth has pushed the risk weighted density above 80%, straining the core capital position (9.7% CET1 ratio at 1Q23). The 1Q23 net loss related to the $100 million Stanford settlement broadly impacted regulatory capital measurements by ~30 bps. KBRA expects IBTX to rebuild capital levels to be consistent with the average capital ratios of the rated peer group, particularly due to the concentrated CRE position and C&D exposure. The company experienced deposit outflows of $1.0 billion (7%), partially due to a strategic remixing of non-brokered specialty treasury deposits following the March 2023 liquidity event, relatively consistent with much of the industry. IBTX maintains a core deposit funding base that represents 83% of total funding and has ample access to primary and secondary liquidity accounting for 49% of total assets. Uninsured deposits net of collateralized public funds represented 37% of total deposits at the end of 1Q23. However, the company’s loan-to-deposit ratio was 100%, providing limited flexibility in competing for deposits in the interest rate pressured market. KBRA considers IBTX’s credit quality to be better than peer averages driven by its conservative credit underwriting as loss experience has been well contained peaking at 7 bps in the last five years despite its heavy investor CRE and C&D concentration. Additionally, the solid credit quality metrics are reflective of the benign credit environment (pre-COVID) and strong underlying markets, combined with the depth of management’s systems and processes.

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