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21MAR200523282374
INTERNATIONAL BANCSHARES CORPORATION
ALL BANKS MEMBER FDIC
MEMBER BANKS:
International Bank Of Commerce
1200 San Bernardo Avenue
Laredo, Texas 78040
(956) 722-7611
Laredo
7002 San Bernardo Ave.
(956) 728-0060
1002 Matamoros
(956) 726-6622
1300 Guadalupe
(956) 726-6601
2418 Jacaman Rd.
(956) 764-6161
5300 San Dario Ste. 440D
(956) 728-0063
5300 San Dario Ste. 202
(956) 790-6500
9710 Mines Road
(956) 728-0092
4501 San Bernardo
(956) 722-0485
7909 McPherson Ave.
(956) 728-0064
2442 San Isidro Pkwy
(956) 726-6611
2415 S. Zapata Hwy.
(956) 728-0061
5610 San Bernardo
(956) 726-6688
2320 Bob Bullock Lp 20
(956) 728-0062
4401 Highway 83 South
(956) 794-8140
1600 Water Street, Suite B520
(956) 794-8180
Administration Center
2418 Jacaman Rd. (Rear)
(956) 722-7611
San Antonio
130 East Travis
(210) 518-2500
5029 Broadway
(210) 518-2523
6630 Callaghan
(210) 518-2585
2201 NW Military Dr.
(210) 366-0617
12400 Hwy. 281 North
(210) 369-2900
16339 Huebner Rd.
(210) 369-2974
8650 Fredericksburg Rd.
(210) 930-9811
2310 SW Military Drive, Suite 216
(210) 518-2558
2200 S. 10th St. (La Plaza West)
(956) 688-3660
1500 NE Lp. 410
(210) 281-2400
18750 Stone Oak Pkwy
(210) 496-6111
5300 Walzem Rd.
(210) 564-2300
11831 Bandera Rd.
(210) 369-2980
3119 SE Military Drive
(210) 354-6980
327 SW Loop 410
(210) 930-9825
938 SE Military Dr.
(210) 930-9815
11002 Culebra
(210) 930-9850
Service Center
2416 Cee Gee
(210) 821-4700
8770 Tesoro
(210) 821-4700
Luling
200 S. Pecan St.
(830) 875-2445
Marble Falls
2401 Hwy. 281 North
(830) 693-4301
San Marcos
1081 Wonder World Dr.
(512) 353-1011
Shertz
3800 Hwy 3009
(210) 354-6982
McAllen
One S. Broadway
(956) 686-0263
7124 N. 23rd.
(956) 630-9310
301 S. 10th St.
(956) 688-3610
3600 N.10th. St.
(956) 688-3690
2200 S. 10th St. (La Plaza East)
(956) 688-3670
820 S. Jackson Road
(956) 630-9360
2225 Nolana
(956) 688-3600
1200 E. Jackson
(956) 688-3685
2800 Nolana
(956) 688-3620
2900 W. Exp 83
(956) 630-9350
Alamo
1421 West Frontage Rd.
(956) 688-3645
Alton
215 West Martin Ave.
(956) 630-9319
Edinburg
400 S. Closner
(956) 688-3640
4101 S. McColl
(956) 630-9337
1724 W. University Dr. Ste. B
(956) 688-3680
2205 W. University Dr.
(956) 630-9340
Mission
900 N. Bryan Rd.
(956) 688-3630
200 E. Griffin Pkwy
(956) 632-3512
2410 E. Expressway 83
(956) 688-3625
121 S. Shary Rd.
(956) 630-9365
Pharr
401 South Cage
(956) 688-3635
1007 North I Rd.
(956) 688-3655
Weslaco
606 S. Texas Blvd.
(956) 688-3605
1310 N. Texas
(956) 968-5551
Hidalgo
1023 S. Bridge
(956) 688-3665
San Juan
108 E. FM 495
(956) 630-9320
Palmhurst
215 E. Mile 3 Rd.
(956) 688-3675
Penitas
1705 Expressway 83
(956) 630-9347
Corpus Christi
221 S. Shoreline
(361) 888-4000
6130 S. Staples
(361) 991-4000
4622 Everhart
(361) 903-7265
14066 Northwest Blvd.
(361) 903-7285
Flour Bluff
1317 Waldron Road
(361) 886-9950
Sinton
301 West Sinton
(361) 364-1230
Rockport
2701 Hwy. 35 N.
(361) 729-0500
Aransas Pass
2501 W. Wheeler Ave.
(361) 729-0500
Portland
1800 US Hwy 181
(361) 886-9910
Port Lavaca
311 N. Virginia St.
(361) 552-9771
Bay City
1916 7th Street
(979) 245-5781
Victoria
6411 N. Navarro
(361) 575-8394
Houston
5615 Kirby Dr.
(713) 526-1211
8203 S. Kirkwood
(713) 285-2162
1001 McKinney Ste. 150
(713) 285-2140
3200 Woodridge, Ste. 1350
(713) 285-2266
3939 Montrose, Ste. W
(713) 285-2195
5085 Westheimer Dr. Ste. 4640,
Galleria II, Level 3
(713) 285-2224
1545 Eldridge Parkway
(713) 285-2042
Richmond
5250 FM 1460
(832) 595-0920
Sugarland
10570 State Hwy 6
(713) 285-2199
Katy
544 West Grand Parkway
(713) 285-2037
Lake Jackson
212 That Way
(979) 297-2466
Angleton
130 W. Mulberry
(979) 849-7711
Freeport
1208 N. Brazosport Blvd.
(979) 233-2677
Dickinson
2301 FM 646 West
(713) 285-2021
Eagle Pass
2395 E. Main Street
(830) 773-2313
2538 E. Main Street
(830) 773-2313
439 E. Main Street
(830) 773-2313
2305 Del Rio Blvd.
(830) 773-2313
455 S. Bibb Ave. Ste. 502
(830) 773-2313
2135 East Main Street
(830) 773-2313
Del Rio
2410 Dodson St.
(830) 775-4265
1507 Veterans Blvd
(830) 775-4265
2205 Veterans Blvd, Suite E9
(830) 775-4265
International Bank Of Commerce
1200 San Bernardo Avenue
Laredo, Texas 78040
(956) 722-7611
Round Rock
1850 Gattis School Rd.
(512) 320-9530
Leander
1695 US Hwy 183
(512) 320-9540
Uvalde
3100 E. Hwy. 90
(830) 278-8045
2065 E. Main St.
(830) 278-8045
First Equity
9606 N. Mopac Expressway Ste 100
(512) 346-8892
Bastrop
701 W. Hwy 71
(512) 308-9412
Cedar Park
301 W. Whitestone Blvd
(512) 397-4552
Austin
500 West 5th St., Ste. 100
(512) 397-4506
10405 FM 2222
(512) 397-4584
11400 Burnet Road Bldg. 46
(512) 397-4595
4025 Ranch Road 620 S.
(512) 320-9575
2817 E. Cesar Chavez
(512) 320-9650
12625 North IH 35 Bldg. D
(512) 397-4570
9900 South IH 35 Bldg. Y
(512) 397-4530
Commerce Bank
5800 San Dario
Laredo, Texas 78041
(956) 724-1616
2302 Blaine St.
(956) 724-1616
2120 Saunders
(956) 724-1616
1200 Welby Court
(956) 724-1616
International Bank of Commerce, Brownsville
1600 Ruben Torres Blvd
Brownsville, TX 78526-1831
(956) 547-1000
1623 Central Blvd.
(956) 547-1321
4520 E. 14th St.
(956) 547-1300
2370 N. Expressway
(956) 547-1380
630 E. Elizabeth St.
(956) 547-1353
79 E. Alton Gloor Blvd
(956) 547-1361
3600 W. Alton Gloor Blvd.
(956) 547-1390
South Padre Island
911 Padre Blvd.
(956) 761-6156
Port Isabel
1401 W. Hwy. 100
(956) 943-2108
Harlingen
501 S. Dixieland Rd.
(956) 428-6902
321 S. 77th Sunshine Strip
(956) 428-6454
1801 W. Lincoln
(956) 547-1432
International Bank of Commerce, Zapata
908 N. US Highway 83
Zapata, TX 78076
(956) 765-8361
Roma
1702 E. Grant St.
(956) 849-1047
Alice
2001 E. Main St.
(361) 661-1211
Rio Grande City
4015 E. Hwy. 83
(956) 487-5531
4534 E. Hwy. 83
(956) 487-5531
4031 E. Hwy 83
(956) 487-5535
Hebbronville
401 N. Smith Ave.
(361) 527-2645
Kingsville
1320 General Cavazos Blvd
(361) 516-1040
Beeville
802 E. Houston St.
(361) 358-8700
Freer
405 S. Norton
(361) 661-1211
International Bank of Commerce, Oklahoma
3817 NW Expressway, Suite 100
Oklahoma City, Ok
(405) 775-8001
Oklahoma Ardmore
2302 12th Ave.
(580) 223-0345
Broken Arrow
6412 S. Elm Pl.
(918) 497-2492
8112 Garnett Rd.
(918) 497-2840
Chickasha
628 W. Grand Ave.
(405) 775-8052
Claremore
1050 N. Lynn Riggs Blvd.
(918) 497-2456
Clinton
1002 W. Frisco Ave.
(580) 323-0730
Edmond
1812 SE 15th St.
(405) 775-8061
421 S. Santa Fe Ave.
(405) 775-8055
Duncan
3903 N. Hwy 81
(580) 255-9055
Tulsa
1951 S. Yale Ave.
(918) 497-2452
4202 S. Garnett
(918) 497-2880
2250 E. 73rd St
(918) 497-2400
1 E. 5th St.
(918) 497-2449
8202 E. 71st St
(918) 497-2454
5302 E. Skelly Dr.
(918) 497-2453
Chandler
3108 E. 1st St.
(405) 258-2351
Oklahoma City
100 W. Park Ave.
(405) 775-8093
5701 N. May Ave.
(405) 775-8056
10500 S. Pennsylvania Ave
(405) 775-8058
2301 N. Portland Ave.
(405) 775-8068
12241 N. May Ave.
(405) 775-0859
4902 N. Western Ave.
(405) 775-8054
14001 N. McArthur Blvd
(405) 775-1710
Lawton
2101 W. Gore
(580) 355-0253
6425 NW Cache Rd.
(580) 250-4311
Miami
2520 N. Main
(918) 542-4411
Midwest City
2200 S. Douglas Blvd.
(405) 775-8057
Sapulpa
911 E. Taft St.
(918) 497-2458
Shawnee
2512 N. Harrison Ave.
(405) 775-8067
Sulphur
2009 W. Broadway Ave.
(580) 622-3118
Weatherford
109 E. Franklin Ave.
(580) 772-7441
Bethany
7723 NW 23rd St.
(405) 775-8063
Guthrie
120 N. Division St.
(405) 775-8064
Moore
513 NE 12th St.
(405) 775-8066
901 SW 19th
(405) 775-1720
Pauls Valley
700 W. Grant Ave.
(405) 238-7318
Purcell
430 W. Lincoln St.
(405) 775-8094
Sand Springs
3402 State Hwy. 97
(918) 497-2459
Stillwater
1900 N. Perkins Rd.
(405) 372-0889
Owasso
9350 N. Garnett
(918) 497-2835
Elk City
1504 W. 3rd St.
(580) 225-7200
Norman
1461 24th Ave.
(405) 775-8069
Lindsay
209 E. Cherokee
(405) 756-4494
Bixby
11886 S. Memorial
(918) 497-2855
Dallas
3800 Maple Ave. Ste. 100
(469) 357-3805
As used in this report, the words “Company,” “we,” “us,” and “our” refer to International Bancshares
Corporation, a Texas corporation, its five wholly-owned subsidiary banks (“Subsidiary Banks”), and other subsidiaries.
The information that follows may contain forward-looking statements, which are qualified as indicated under “Cautionary
Notice Regarding Forward-Looking Statements” in Item 7 (Management’s Discussion and Analysis of Financial
Condition and Results of Operations) of this report. Our website address is www.ibc.com.
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
(Consolidated)
The following consolidated selected financial data is derived from our audited financial statements as of and for
the five years ended December 31, 2020. The following consolidated financial data should be read in conjunction with
Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial
Statements and related notes in this report.
SELECTED FINANCIAL DATA
2020
AS OF OR FOR THE YEARS ENDED DECEMBER 31,
2018
(Dollars in Thousands, Except Per Share Data)
2017
2019
2016
STATEMENT OF CONDITION
Assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,029,467 $ 12,112,894 $ 11,871,952
Investment securities available-for-
$ 12,184,698 $ 11,804,041
sale . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowed funds . . . . . . . . . . . .
Junior subordinated deferrable
interest debentures . . . . . . . . . . . . . .
Shareholders’ equity. . . . . . . . . . . . . .
INCOME STATEMENT
3,080,768
7,432,695
10,721,860
436,327
3,378,923
6,834,668
8,826,034
626,511
3,411,350
6,499,905
8,696,545
705,665
4,154,470
6,280,485
8,544,892
1,195,225
4,177,349
5,900,027
8,610,089
733,375
134,642
2,177,998
134,642
2,118,053
160,416
1,939,582
160,416
1,838,980
160,416
1,724,667
Interest income . . . . . . . . . . . . . . . . . . $
Interest expense . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . .
Provision for probable loan losses . .
Non-interest income . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . .
Income before income taxes . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . .
Net income available to common
427,008 $
39,119
387,889
45,379
150,579
281,331
211,757
44,439
167,319
492,401 $
58,629
433,772
18,843
154,826
309,801
259,954
54,850
205,104
465,822
52,668
413,154
6,112
165,042
299,501
272,583
56,652
215,931
shareholders . . . . . . . . . . . . . . . . . . . $
167,319 $
205,104 $
215,931
Per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . $
2.63 $
2.62 $
3.13 $
3.12 $
3.27
3.24
$
$
$
$
415,136 $
38,931
376,205
11,221
150,406
293,748
221,642
64,206
157,436
387,914
43,129
344,785
19,859
161,702
289,625
197,003
63,071
133,932
157,436 $
133,932
2.38 $
2.36 $
2.03
2.02
1
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis represents an explanation of significant changes in our financial position
and results of our operations on a consolidated basis for the three-year period ended December 31, 2020. The following
discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020,
and the Selected Financial Data and Consolidated Financial Statements included elsewhere herein.
Special Cautionary Notice Regarding Forward Looking Information
Certain matters discussed in this report, excluding historical information, include forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the safe harbor created by these sections. Although we believe such
forward-looking statements are based on reasonable assumptions, no assurance can be given that every objective will be
reached. The words “estimate,” “expect,” “intend,” “believe” and “project,” as well as other words or expressions of a
similar meaning, are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance
on forward-looking statements, which speak only as of the date of this report. Such statements are based on current
expectations, are inherently uncertain, are subject to risks and should be viewed with caution. Actual results and experience
may differ materially from the forward-looking statements as a result of many factors.
Risk factors that could cause actual results to differ materially from any results that we project, forecast, estimate
or budget in forward-looking statements include, among others, the following possibilities:
• Local, regional, national and international economic business conditions and the impact they may have on
us, our customers, and such customers’ ability to transact profitable business with us, including the ability of
our borrowers to repay their loans according to their terms or a change in the value of the related collateral.
• Volatility and disruption in national and international financial markets.
• Government intervention in the U.S. financial system.
• The unavailability of funding from the FHLB, the Fed or other sources in the future could adversely impact
our growth strategy, prospects and performance.
• Changes in consumer spending, borrowing and saving habits.
• Changes in interest rates and market prices, including, changes in federal regulations on the payment of
interest on demand deposits.
• Changes in the capital markets we utilize, including changes in the interest rate environment that may reduce
margins.
• Changes in state and/or federal laws and regulations, including, the impact of the Consumer Financial
Protection Bureau (“CFPB”) as a regulator of financial institutions, changes in the accounting, tax and
regulatory treatment of trust preferred securities, as well as changes in banking, tax, securities, insurance,
employment, environmental and immigration laws and regulations and the risk of litigation that may follow.
• Changes in U.S.—Mexico trade, including, reductions in border crossings and commerce, integration and
implementation of the United States-Mexico-Canada Agreement and the possible imposition of tariffs on
imported goods.
• The reduction of deposits from nonresident alien individuals due to the IRS rules requiring U.S. financial
institutions to report deposit interest payments made to such individuals.
• The loss of senior management or operating personnel.
• The timing, impact and other uncertainties of the potential future acquisitions, as well as our ability to
maintain our current branch network and enter new markets to capitalize on growth opportunities.
• Changes in estimates of future reserve requirements based upon periodic review thereof under relevant
regulatory and accounting requirements.
2
• Additions to our allowance for credit loss as a result of changes in local, national or international conditions
which adversely affect our customers.
• Greater than expected costs or difficulties related to the development and integration of new products and
lines of business.
•
•
Increased labor costs and effects related to health care reform and other laws, regulations and legal
developments impacting labor costs.
Impairment of carrying value of goodwill could negatively impact our earnings and capital.
• Changes in the soundness of other financial institutions with which we interact.
• Political instability in the United States or Mexico.
• Technological changes or system failures or breaches of our network security, as well as other cyber security
risks, could subject us to increased operating costs, litigation and other liabilities.
• Acts of war or terrorism.
• Natural disasters.
• Reduced earnings resulting from the write down of the carrying value of securities held in our securities
available-for-sale portfolios.
• The effect of changes in accounting policies and practices by the Public Company Accounting Oversight
Board, the Financial Accounting Standards Board and other accounting standards setters.
• The costs and effects of regulatory developments or regulatory or other governmental inquiries and the results
of regulatory examinations or reviews and obtaining regulatory approvals.
• The effect of final rules amending Regulation E that prohibit financial institutions from charging consumer
fees for paying overdrafts on ATM and one-time debit card transactions, as well as the effect of any other
regulatory or legal developments that limit overdraft services.
• The reduction of income and possible increase in required capital levels related to the adoption of legislation,
including and the implementing rules and regulations, including those that establish debit card interchange
fee standards and prohibit network exclusivity arrangements and routing restrictions.
• The increase in required capital levels related to the implementation of capital and liquidity rules of the
federal banking agencies that address or are impacted by the Basel III capital and liquidity standards.
• The enhanced due diligence burden imposed on banks related to the banks’ inability to rely on credit ratings
under Dodd-Frank.
• Our failure or circumvention of our internal controls and risk management, policies and procedures.
• Potential direct and indirect impacts, risks, and uncertainties associated with the novel Coronavirus Disease
2019 (“COVID-19”) or similar global pandemics.
Forward-looking statements speak only as of the date on which such statements are made. It is not possible to
foresee or identify all such factors. We make no commitment to update any forward-looking statement, or to disclose any
facts, events or circumstances after the date hereof that may affect the accuracy of any forward-looking statement, unless
required by law.
Overview
We are headquartered in Laredo, Texas, with 187 facilities and 282 ATMs, providing banking services for
commercial, consumer and international customers of north, south, central and southeast Texas and the State of Oklahoma.
We are one of the largest independent commercial bank holding companies headquartered in Texas. We, through our
Subsidiary Banks, are in the business of gathering funds from various sources and investing those funds in order to earn a
return. We, either directly or through a Subsidiary Bank, own one insurance agency, a liquidating subsidiary, a fifty percent
interest in an investment banking unit that owns a broker/dealer, a controlling interest in four merchant banking entities,
and a majority ownership in a real-estate development partnership. Our primary earnings come from the spread between
the interest earned on interest-bearing assets and the interest paid on interest-bearing liabilities. In addition, we generate
3
income from fees on products offered to commercial, consumer and international customers. The sales team of each of
our Subsidiary Banks aims to match the right mix of products and services to each customer to best serve the customer’s
needs. That process entails spending time with customers to assess those needs and servicing the sales arising from those
discussions on a long-term basis. Our Subsidiary Banks have various compensation plans, including incentive-based
compensation, for fairly compensating employees. Our Subsidiary Banks also have a robust process in place to review
sales that support the incentive-based compensation plan to monitor the quality of the sales and identify any significant
irregularities, a process that has been in place for many years.
One of our primary goals is to grow net interest income and non-interest income while adequately managing
credit risk, interest rate risk and expenses. Effective management of capital is one of our critical objectives. A key measure
of the performance of a banking institution is the return on average common equity (“ROE”). Our ROE for the year ended
December 31, 2020 was 7.86% as compared to 9.97% for the year ended December 31, 2019.
We are very active in facilitating trade along the United States border with Mexico. We do a large amount of
business with customers domiciled in Mexico and deposits from persons and entities domiciled in Mexico comprise a large
and stable portion of the deposit base of our Subsidiary Banks. We also serve the growing Hispanic population through
our facilities located throughout north, south, central and southeast Texas and the State of Oklahoma.
In March 2020, the World Health Organization recognized the outbreak of COVID-19 as a pandemic. The spread
of COVID-19 and resulting global health crisis has created extreme negative consequences and disruption in global
financial markets and has curtailed activity in the governmental, commercial and consumer sectors. Government responses
at all levels have included ordering non-essential businesses be closed, mandating that individuals not working in essential
businesses restrict their movement, requiring the observance of social distancing and sheltering in place, and, in many
communities, cancelling what remained of the school year. The consequences of these actions, and the responses by
individuals and businesses affected, has resulted in rapid decreases in consumer and commercial activity, rapid increases
in unemployment, disruption in global supply chains, market downturns and volatility, drastic changes in consumer
behavior, new legislation in response to the emergency and decreases in interest rates.
We have continued to work with our customers to assist them through these difficult times and we are capitalizing
on our strong capital position and strong liquidity to ensure that we are correctly positioned and have the financial strength
to navigate the crisis to protect our Company, our employees, our customers and our shareholders. In order to protect the
health of our employees and customers, while still filling the needs in the communities we serve as an essential business,
we have taken steps to ensure proper safety protocols are in place, including enforcing local ordinances, discontinuing
significant travel, ensuring social distancing, increasing disinfecting of facilities, establishing a human resources hotline
to address employee concerns and establishing a task force to ensure we are making good decisions. For our customers,
we are also working with them on a case-by-case basis on temporary deferrals of interest and/or principal payments on
loans and responding to other individual needs of those customers in distress.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. It
contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES
Act includes the Paycheck Protection Program (“PPP”), originally a nearly $350 billion program designed to aid small
businesses through federally guaranteed loans distributed through banks. These loans were originally intended to support
eight weeks of payroll and certain other costs to help those businesses remain viable and allow their employees to pay
their bills. Subsequently, on April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act
(“CARES Part II”) was signed into law. CARES Part II provided an additional funding of $320 billion for the PPP
program. Then, on June 5, 2020, the Paycheck Protection Program Flexibility Act (“PPPFA”) was signed into law. The
PPPFA, among other things, extended the period of time that businesses could spend PPP loan proceeds on payroll and
other eligible costs from eight weeks to the earlier of 24 weeks or December 31, 2020. On December 27, 2020, the
Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the “Economic Aid Act”) was enacted, which
among other things, reauthorized lending under the PPP to first-time borrowers and for second draws by certain borrowers
who have previously received PPP loans. The Economic Aid Act made available an additional $147 billion for PPP loans
requested by March 31, 2021. We have been active participants in helping our customers obtain PPP loans under all the
PPP programs, and as of February 22, 2021, have approximately 3,500 loans with an approximate value of $395,872,000
outstanding.
4
Future economic conditions remain uncertain and the impact of those conditions on our business also remains
uncertain. Our business depends on the willingness and ability of our customers to conduct banking and other financial
transactions. Our revenue streams including service charges on deposits and banking and non-banking service charges
and fees (ATM and interchange income) have been impacted and may continue to be impacted in the future if economic
conditions do not improve. Expense control has been a long-time focus and essential element to our long-term profitability.
We have kept that focus in mind as we continue to look at operations and create efficiencies and institute cost-control
protocols at all levels. We will continue to monitor our efficiency ratio, a measure of non-interest expense to net interest
income plus non-interest income and our overhead burden ratio, a ratio of our operating expenses against total assets,
closely. We use these measures in determining if we are accomplishing our long-term goals of controlling our costs in
order to provide superior returns to our shareholders.
Results of Operations
Summary
Consolidated Statements of Condition Information
December 31, 2020 December 31, 2019 Percent Increase (Decrease)
(Dollars in Thousands)
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under repurchase agreements . . . . . . . . .
Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated deferrable interest debentures . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,029,467 $ 12,112,894
6,834,668
8,826,034
236,536
626,511
134,642
2,118,053
7,432,695
10,721,860
428,148
436,327
134,642
2,177,998
15.8 %
8.7
21.5
81.0
(30.4)
—
2.8
Consolidated Statements of Income Information
Year Ended
December 31, December 31,
Year Ended
2020
Percent
Increase
(Decrease)
2020 vs. 2019
(Dollars in Thousands, Except Per Share Data)
Year Ended
December 31,
2018
2019
Percent
Increase
(Decrease)
2019 vs. 2018
Interest income . . . . . . . . . . . . . . . . . . . . . . . $
Interest expense . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . .
Provision for probable loan losses . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per common share:
427,008 $
39,119
387,889
45,379
150,579
281,331
167,319
492,401
58,629
433,772
18,843
154,826
309,801
205,104
(13.3)% $
(33.3)
(10.6)
140.8
(2.7)
(9.2)
(18.4)
465,822
52,668
413,154
6,112
165,042
299,501
215,931
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.63 $
2.62
3.13
3.12
(16.0)% $
(16.0)
3.27
3.24
5.7 %
11.3
5.0
208.3
(6.2)
3.4
(5.0)
(4.3)%
(3.7)
Net Income
Net income for the year ended December 31, 2020 decreased by 18.4% compared to the same period of 2019.
Net income for the year ended December 31, 2020 was primarily impacted by an increase in the provision for credit losses
due to the economic changes that occurred in 2020 as a result of COVID-19 and the impact of those changes on our
Allowance for Credit Losses (“ACL”) calculation for the period. We adopted the provisions of Accounting Standards
Update No. 2016-13, “Financial Instruments – Credit Losses: (“ASU 2016-13”) on January 1, 2020, resulting in a
transition from the long-standing incurred loss model to an expected credit loss model, which recognizes credit losses over
the life of a financial asset. Expected credit losses capture historical information, current conditions, and reasonable and
5
supportable forecasts of future conditions. The impact of the adoption resulted in a charge to capital of $8.3 million, net
of tax. The provision for credit losses for the year ended December 31, 2020 was approximately $35.8 million, after tax,
an increase of 140.8% compared to the same period of 2019. Net interest income for the year ended December 31, 2020
was also negatively impacted by the Federal Reserve Board (“FRB”) action to decrease interest rates in March 2020. Net
income for the year ended December 31, 2019 decreased by 5% compared to the same period of 2018. Net interest income
was positively affected by an increase in net interest income due to a higher volume of loans and an increase in the overall
yield on the portfolio. Interest expense increased for the year ended December 31, 2019 and can be primarily attributed
to an increase in the cost of borrowings, and an increase in the interest paid on savings and time deposit accounts, which
increased because of the FRB actions to increase interest rates in 2019. Net income for the year ended December 31, 2019
was negatively impacted by an increase in the provision for credit losses due to a charge-off of $7.5 million, net of tax, on
a relationship that was secured by real property on which car dealerships are operated.
Net Interest Income
Net interest income is the spread between income on interest-earning assets, such as loans and securities, and the
interest expense on liabilities used to fund those assets, such as deposits, repurchase agreements and funds borrowed. Net
interest income is our largest source of revenue. Net interest income is affected by both changes in the level of interest
rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. Tax-exempt
yields have not been adjusted to a tax-equivalent basis.
For the years ended December 31,
2020
Average
Rate/Cost
2019
Average
Rate/Cost
2018
Average
Rate/Cost
Assets
Interest earning assets:
Loan, net of unearned discounts:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.12 %
3.73
1.43
3.61
0.12
3.72 %
6.07 %
4.15
2.23
3.85
1.29
4.77 %
5.80 %
3.78
2.24
4.05
1.07
4.46 %
Liabilities
Interest bearing liabilities:
Savings and interest bearing demand deposits . . . . . . . . . . . . . . . . . .
Time deposits:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under repurchase agreements . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated deferrable interest debentures . . . . . . . . . . . . . .
Total interest bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.18 %
0.50 %
0.39 %
1.06
0.81
0.28
1.60
2.85
0.59 %
1.09
1.02
0.91
1.98
4.43
0.93 %
0.67
0.64
0.77
1.88
4.36
0.79 %
The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net
income and net interest margin. The yield on average interest-earning assets decreased 22.0% from 4.77% in 2019 to
3.72% in 2020, and the rates paid on average interest-bearing liabilities decreased 36.6% from 0.93% in 2019 to 0.59% in
2020. The yield on average interest-earning assets increased 7.0% from 4.46% in 2018 to 4.77% in 2019, and the rates
paid on average interest-bearing liabilities increased 17.7% from .79% in 2018 to .93% in 2019. The majority of our
taxable investment securities are invested in mortgage backed securities and, during rapid increases or reduction in interest
rates, the yield on these securities do not re-price as quickly as the loans.
6
The following table analyzes the changes in net interest income during 2020, 2019 and 2018 and the relative
effect of changes in interest rates and volumes for each major classification of interest-earning assets and interest-bearing
liabilities. Non-accrual loans have been included in assets for the purpose of this analysis, which reduces the resulting
yields:
2020 compared to 2019
Net increase (decrease) due to
Volume(1) Rate(1)
Total
2019 compared to 2018
Net increase (decrease) due to
Total
Volume(1) Rate(1)
(Dollars in Thousands)
(Dollars in Thousands)
Interest earned on:
Loans, net of unearned discounts:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,585
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(254)
Investment securities:
(69,848) $ (35,263) $
(515)
(769)
20,056 $
(441)
18,349 $ 38,405
33
474
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(692)
(2,285)
8,495
(25,698)
(166)
(9,015)
(26,390)
(2,451)
(520)
(8,778)
(3,005)
154
(221)
(251)
242
(8,999)
(3,256)
396
Total interest income . . . . . . . . . . . . . . . . . . . $ 39,849 $ (105,242) $ (65,393) $ 7,986 $
18,593 $ 26,579
Interest incurred on:
Savings and interest bearing demand
deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,287
(11,308) $ (10,021) $
59 $ 3,556 $
3,615
Time deposits:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under repurchase agreements .
Other borrowings . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated deferrable interest
955
33
626
(1,549)
(383)
(2,345)
(2,132)
(2,091)
572
(2,312)
(1,506)
(3,640)
(185)
87
(364)
(5,590)
3,891
4,081
381
599
3,706
4,168
17
(4,991)
debentures . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . $
(554)
5,961
Net interest income . . . . . . . . . . . . . . . . . . . . . . . $ 38,950 $ (84,833) $ (45,883) $ 14,640 $ 5,978 $ 20,618
(453)
899 $ (20,409) $ (19,510) $ (6,654) $ 12,615 $
(2,603)
(2,150)
(661)
107
(1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
As part of our strategy to manage interest rate risk, we strive to manage both assets and liabilities so that interest
sensitivities match. One method of calculating interest rate sensitivity is through gap analysis. A gap is the difference
between the amount of interest rate sensitive assets and interest rate sensitive liabilities that re-price or mature in a given
time period. Positive gaps occur when interest rate sensitive assets exceed interest rate sensitive liabilities, and negative
gaps occur when interest rate sensitive liabilities exceed interest rate sensitive assets. A positive gap position in a period
of rising interest rates should have a positive effect on net interest income as assets will re-price faster than liabilities.
Conversely, net interest income should contract somewhat in a period of falling interest rates. Our management can quickly
change our interest rate position at any given point in time as market conditions dictate. Additionally, interest rate changes
do not affect all categories of assets and liabilities equally or at the same time. Analytical techniques we employ to
supplement gap analysis include simulation analysis to quantify interest rate risk exposure. The gap analysis prepared by
management is reviewed by our Investment Committee at least twice a year. The Investment Committee is comprised of
certain members of the board of directors and senior managers of the various Subsidiary Banks. Management currently
believes that we are properly positioned for interest rate changes; however, if management determines at any time that we
are not properly positioned, we will strive to adjust the interest rate sensitive assets and liabilities in order to manage the
effect of interest rate changes.
We have established guidelines for acceptable volatility of projected net interest income on the income simulation
analysis and the guidelines are reviewed at least annually. As of December 31, 2020, in rising rate scenarios of +100,
+200, +300 and +400 basis points, the guidelines established by management require that the net interest income not vary
7
by more than minus 30%, 30%, 30%, and 40%, respectively. Given the current low interest rate environment, no downward
rate shifts were modeled in our income simulations. At December 31, 2020, the income simulations show that a rate shift
of +100, +200, +300 and +400 basis points in interest rates up will vary projected net interest income for the coming
12-month period by +11.59%, +24.98%, +37.86%, and +50.41%, respectively. The basis point shift in interest rates is a
hypothetical rate scenario used to calibrate risk and does not necessarily represent management’s current view of future
market developments. We believe that we are properly positioned for a potential interest rate increase or decrease.
Allowance for Credit Losses
The following table presents information concerning the aggregate amount of non-accrual, past due and
restructured domestic loans; certain loans may be classified in one or more categories:
Loans accounted for on a non-accrual basis . . . . . . $ 19,822 $
Accruing loans contractually past due ninety days
4,886 $ 15,791 $ 54,730 $ 36,858
or more as to interest or principal payments . . . . .
7,670
59,694
39,935
6,590
5,215
2020
2019
December 31,
2018
(Dollars in Thousands)
2017
2016
Domestic loans accounted for on a non-accrual basis increased at December 31, 2020 by 305.7% compared to
the same period of 2019. The increase can be primarily attributed to one relationship secured by commercial property.
Domestic loans contractually past due ninety days and still accruing decreased by 87.2% at December 31, 2020 compared
to the same period of 2019 and can be attributed to a relationship that is secured by real property on which education
centers are operated.
The ACL increased 80.9% to $109,059,000 at December 31, 2020 from $60,278,000 at December 31, 2019. The
ACL was 1.45% of total loans, net of unearned income at December 31, 2020 and .87% at December 31, 2019. The
provision for credit losses charged to expense increased $26,536,000 to $45,379,000 for the year ended December 31,
2020 from $18,843,000 for the same period in 2019. The increase in the ACL can be primarily attributed to the
deteriorating economic conditions occurring in those periods as a result of COVID-19 and the impact of those conditions
on certain segments of our calculation. We adopted the provisions of ASU 2016-13 on January 1, 2020, resulting in a
transition from the long-standing incurred loss model to an expected credit loss model, which recognizes credit losses over
the life of a financial asset.
8
The following table details loans accounted for as “troubled debt restructuring,” segregated by loan class. Loans
accounted for as troubled debt restructuring are included in doubtful loans (formerly “impaired loans”). See Note 1 to the
Consolidated Financial Statements.
December 31,
December 31,
2019
2020
(Dollars in Thousands)
Domestic
Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Residential: first lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential: junior lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total troubled debt restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
4,078
521
989
233
5,821 $
32
5,608
692
1,192
264
7,788
The following table presents information concerning the aggregate amount of non-accrual and past due foreign
loans extended to persons or entities in foreign countries. Certain loans may be classified in one or more categories:
Loans accounted for on a non-accrual basis . . . . . . . $
Accruing loans contractually past due ninety days
— $
2020
2019
December 31,
2018
(Dollars in Thousands)
— $
— $
2017
2016
— $
387
or more as to interest or principal payments . . . . . .
568
11
739
667
11
The gross income that would have been recorded during 2020, 2019 and 2018 on non-accrual loans in accordance
with their original contract terms was approximately $694,000, $340,000 and $1,119,000 on domestic loans and
approximately $0, $0, and $0 on foreign loans, respectively. The amount of interest income on such loans that was
recognized in 2020, 2019 and 2018 was approximately $0, $4,000, and $4,000 on domestic loans and $0, $0, and $0 for
foreign loans, respectively.
Generally, loans are placed on non-accrual status if principal or interest payments become 90 days past due and/or
management deems the collectability of the principal and/or interest to be in question, as well as when required by
applicable regulatory guidelines. Interest income on non-accrual loans is recognized only to the extent payments are
received or when, in management’s opinion, the creditor’s financial condition warrants reestablishment of interest accruals.
Under special circumstances, a loan may be more than 90 days delinquent as to interest or principal and not be placed on
non-accrual status. This situation generally results when a Subsidiary Bank has a borrower who is experiencing financial
difficulties, but not to the extent that requires a restructuring of indebtedness. The majority of this category is composed
of loans that are considered to be adequately secured and/or for which there has been a recent history of payments. When
a loan is placed on non-accrual status, any interest accrued, not paid, is reversed and charged to operations against interest
income.
Loan commitments, consisting of unused commitments to lend, letters of credit, credit card lines and other
approved loans, that have not been funded, were approximately $2,486,311,000 and $2,758,132,000 at December 31, 2020
and 2019, respectively. See Note 19 to the Consolidated Financial Statements.
9
The following table summarizes loan balances at the end of each year and average loans outstanding during the
year; changes in the ACL arising from loans charged-off and recoveries on loans previously charged-off by loan category;
and additions to the allowance for credit loss which have been charged to expense:
Loans, net of unearned discounts,
outstanding at December 31 . . . . . . . . $ 7,541,754 $ 6,894,946 $ 6,561,289 $ 6,348,172 $ 5,964,688
Average loans outstanding during
2020
2019
2018
2017
2016
(Dollars in Thousands)
the year (Note 1) . . . . . . . . . . . . . . . . . . $ 7,415,464 $ 6,852,121 $ 6,517,978 $ 6,183,864 $ 5,949,048
66,988
—
19,859
Balance of allowance at January 1 . . . . . . $
Adoption of ASU 2016-13 . . . . . . . . . . .
Provision charged to expense . . . . . . . . .
Loans charged off:
64,661 $
—
11,221
60,278 $
10,347
45,379
67,687 $
—
6,112
61,384 $
—
18,843
Domestic:
Commercial, financial and
agricultural . . . . . . . . . . . . . . . . . .
Real estate—mortgage . . . . . . . . . . .
Real estate—construction . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . .
Total loans charged off: . . . . . . . . . . . . .
Recoveries credited to allowance:
Domestic:
Commercial, financial and
(8,991)
(284)
(19)
(280)
—
(9,574)
(21,765)
(636)
(39)
(487)
(1)
(22,928)
(14,290)
(469)
(1)
(362)
(3)
(15,125)
(12,134)
(441)
(213)
(309)
(1)
(13,098)
(35,029)
(401)
(16)
(414)
(41)
(35,901)
agricultural . . . . . . . . . . . . . . . . . .
Real estate—mortgage . . . . . . . . . . .
Real estate—construction . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . .
Total recoveries . . . . . . . . . . . . . . . . . . . .
Net loans charged off . . . . . . . . . . . . . . .
Balance of allowance at December 31 . . $ 109,059 $
Ratio of net loans charged-off during
2,308
207
35
69
10
2,629
(6,945)
2,514
312
113
40
—
2,979
(19,949)
60,278 $
2,227
405
25
43
10
2,710
(12,415)
61,384 $
4,547
269
21
45
21
4,903
(8,195)
67,687 $
7,229
299
6,099
69
19
13,715
(22,186)
64,661
the year to average loans
outstanding during the year (Note 1) .
Ratio of allowance to loans, net of
unearned discounts, outstanding at
December 31 . . . . . . . . . . . . . . . . . . . . .
0.09 %
0.29 %
0.19 %
0.13 %
0.37 %
1.45 %
0.87 %
0.94 %
1.07 %
1.08 %
(1) The average balances for purposes of the above table are calculated on the basis of daily balances.
10
The ACL has been allocated based on the amount management has deemed to be reasonably necessary to provide
for the credit losses incurred within the following categories of loans at the dates indicated and the percentage of loans to
total loans in each category:
2020
2019
At December 31,
2018
2017
2016
Percent
Percent
Allowance of total Allowance of total Allowance of total Allowance of total Allowance of total
(Dollars in Thousands)
Percent
Percent
Percent
Commercial,
Financial and
Agricultural . . $ 66,075
Real estate—
59.9 % $ 29,753
49.1 % $ 31,197
50.4 % $ 35,885 52.3 % $ 32,928 50.2 %
Mortgage . . . .
14,618
13.3
10,039
16.5
11,073
17.9
12,242
17.9
11,355
17.3
Real estate—
Construction . .
Consumer . . . . .
Foreign . . . . . . .
27,019
594
753
$ 109,059
24.5
0.5
1.8
19,242
421
823
100.0 % $ 60,278
31.7
0.7
2.0
17,806
437
871
100.0 % $ 61,384
28.7
0.7
2.3
18,183
535
842
100.0 % $ 67,687
26.5
0.8
2.5
18,887
607
884
100.0 % $ 64,661
28.8
0.9
2.8
100.0 %
The ACL primarily consists of the aggregate ACL’s of the Subsidiary Banks. The ACL’s are established through
charges to operations in the form of provisions for credit losses.
The Subsidiary Banks charge-off that portion of any loan which management considers to represent a loss as well
as that portion of any other loan which is classified as a “loss” by bank examiners. Commercial, financial and agricultural
or real estate loans are generally considered by management to represent a loss, in whole or part, (i) when an exposure
beyond any collateral coverage is apparent, (ii) when no further collection of the portion of the loan so exposed is
anticipated based on actual results, (iii) when the credit enhancements, if any, are not adequate, and (iv) when the
borrower’s financial condition would so indicate. Generally, unsecured consumer loans are charged-off when 90 days past
due. The increase in charge-offs charged to the ACL for the year ended December 31, 2019 can be primarily attributed to
a relationship that is secured by multiple pieces of real property on which car dealerships are operated. The relationship
began deteriorating in the fourth quarter of 2018, triggered by significant fraud by a high-level insider of the car dealership
resulting in the dealerships unexpectedly filing for bankruptcy and creating an exposure for potential loss since the
operations of the dealerships were the source of repayment from the borrower. The relationship further deteriorated in the
first quarter of 2019 after the court approved debtor in possession plan sponsor discontinued its role in the process and
thus did not fulfill its obligation to assume full responsibility of the accrued and unpaid interest. Although the relationship
is secured by real property (the dealerships’ real estate), the real property has specialized use, contributing to the potential
exposure for probable loss. During the first quarter of 2019, in light of the circumstances and management’s evaluation
of the relationship, the decision was made to classify the relationship as doubtful (formerly “impaired” prior to the adoption
of ASU 2016-13), non-accrual status and place a specific reserve on the relationship in the amount of $9.5 million. During
the second quarter of 2019, management continued to evaluate the relationship and decided to foreclose on the underlying
real estate collateral, resulting in a charge-off of approximately $9.5 million, reflected in the tables above as part of the
Commercial and commercial real estate: farmland and commercial categories. As discussed in prior periods, charge-offs
for the twelve-months ended December 31, 2016 had increased due to the deterioration of one relationship that was secured
by multiple pieces of transportation equipment beginning in the fourth quarter of 2014. In March 2016, litigation against
the management of the borrower was filed in the State of Nevada, resulting in a going concern issue with the borrower’s
operations and the future use of the transportation equipment pledged as collateral on the relationship. As a result,
management, in accordance with its credit review procedures, re-evaluated the collateral values on the equipment in light
of the new circumstances and reduced the collateral values accordingly, resulting in a further charge-down of the
relationship of approximately $19.4 million, which is included in the losses charged to the allowance in the commercial
category in the table detailing the activity for the twelve months ended December 31, 2016. Two recoveries on loans
charged-off in prior years are included in the recoveries credited to the allowance in the table detailing activity for the year
ended December 31, 2016. The recoveries occurred in the first and third quarters of 2016 in the amounts of $4.4 million
and $6 million, respectively, and are included in the Commercial and commercial real estate: other construction and land
development categories.
11
The ACL is a reserve established through a provision for credit losses charged to expense, which represents
management’s best estimate of credit losses within the existing portfolio of loans based on our internal ACL calculation.
While our management considers that it is generally able to identify borrowers with financial problems reasonably early
and to monitor credit extended to such borrowers carefully, there is no precise method of predicting credit losses. The
determination that a loan is likely to be uncollectible and that it should be wholly or partially charged-off as a loss is an
exercise of judgment. Similarly, the determination of the adequacy of the ACL can be made only on a subjective basis.
Our management believes that the ACL at December 31, 2020 was adequate to absorb probable losses from loans and
other financial instruments in the portfolio at that date. See Critical Accounting Policies on page 22.
Non-Interest Income
Service charges on deposit accounts . . . . . . . . . $
Other service charges, commissions and fees
61,983 $
72,502
Year Ended
December 31, December 31,
Year Ended
2020
2019
Percent
Increase
(Decrease)
2020 vs. 2019
(Dollars in Thousands)
(14.5)% $
Year Ended
December 31,
2018
Percent
Increase
(Decrease)
2019 vs. 2018
72,433
0.1 %
Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-banking . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities transactions, net . . . . . . . .
Other investments, net. . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,996
7,832
(12)
5,985
17,523
Total non-interest income . . . . . . . . . . . . . . . $ 150,579 $ 154,826
48,986
7,822
(5)
4,920
26,873
46,685
(3.9)
7,801
(0.1)
(141)
(58.3)
19,897
(17.8)
53.4
18,367
(2.7)% $ 165,042
9.2
0.4
(91.5)
(69.9)
(4.6)
(6.2)%
Total non-interest income for the year ended December 31, 2020 decreased by 2.7% compared to the same period
of 2019. Income from service charges on deposit accounts for the year ended December 31, 2020 were negatively
impacted due to a decrease in customer activity as a result of the current economic environment and the continued impact
of the COVID-19 pandemic on day-to-day activities. Non-interest income for the year ended December 31, 2019
decreased by 6.2% compared to the same period of 2018. The decrease can be primarily attributed to a decrease in non-
interest income from other investments due to the impairment of an equity investment of $3.7 million, net of tax as a result
of a re-evaluation of the carrying value and losses on various equity investments in which we hold an ownership.
Non-Interest Expense
Year Ended Year Ended
December 31, December 31,
2020
2019
Percent
Increase
(Decrease)
2020 vs. 2019
(Dollars in Thousands)
Year Ended
December 31,
2018
Percent
Increase
(Decrease)
2019 vs. 2018
Employee compensation and benefits . . . . . . . . . $ 130,039 $ 145,929
28,635
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,270
Depreciation of bank premises and equipment . .
17,661
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . .
1,416
Deposit insurance assessments . . . . . . . . . . . . . . .
6,377
Net expense, other real estate owned . . . . . . . . . .
7,748
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,850
Software and software maintenance . . . . . . . . . . .
53,915
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-interest expense . . . . . . . . . . . . . . . . $ 281,331 $ 309,801
24,909
28,318
12,546
1,870
9,808
4,284
19,238
50,319
(10.9)% $ 138,532
29,097
(13.0)
25,873
0.2
12,601
(29.0)
3,742
32.1
4,413
53.8
7,695
(44.7)
17,516
(3.1)
53.4
60,032
(9.2)% $ 299,501
5.3 %
(1.6)
9.3
40.2
(62.2)
44.5
0.7
13.3
(10.2)
3.4 %
Non-interest expense for the year ended December 31, 2020 decreased by 9.2% compared to the same period of
2019. The decrease is primarily due to our employee compensation and benefit reductions, and is primarily being driven
by efforts to right-size and closely manage our workforce commensurate with decreased activities in our branches arising
12
from the COVID-19 pandemic, while ensuring that we are able to continue to serve our customers. Non-interest expense
for the year ended December 31, 2019 increased by 3.4% compared to the same period of 2018. Non-interest expense was
impacted by an increase in costs of our compensation and benefit plans as a result of our continued review of those plans
and necessary increases to remain competitive and compensate our staff based on their performance, as well as an increase
in depreciation expense as we continue to invest in our network infrastructure, equipment and facilities. Professional fees
increased in 2019 compared to the same period of 2018 primarily due to ongoing costs related to strategic projects across
our entities to enhance efficiencies and workflow.
Effects of Inflation
The principal component of earnings is net interest income, which is affected by changes in the level of interest
rates. Changes in rates of inflation affect interest rates. It is difficult to precisely measure the impact of inflation on net
interest income because it is not possible to accurately differentiate between increases in net interest income resulting from
inflation and increases resulting from increased business activity. Inflation also raises costs of operations, primarily those
of employment and services.
Financial Condition
Investment Securities
The following table sets forth the carrying value of investment securities as of December 31, 2020, 2019 and
2018:
Residential mortgage-backed securities
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,029,954 $ 3,223,010 $ 3,891,233
Obligations of states and political subdivisions
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities with readily determinable fair values . . . . . . . . . . . . .
Other securities
50,814
6,202
188,340
5,937
232,951
27,886
December 31,
2020
2019
2018
(Dollars in Thousands)
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,400
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,090,370 $ 3,418,487 $ 4,154,470
1,200
3,400
The following tables set forth the contractual maturities of investment securities, based on amortized cost, at
December 31, 2020 and the average yields of such securities, except for the totals, which reflect the weighted average
yields. Actual maturities will differ from contractual maturities because borrowers may have the right to prepay obligations
with or without prepayment penalties.
Within one
year
Adjusted
Available for Sale Maturing
After one but
within five years
Adjusted
After five but
within ten years
Adjusted
After ten years
Adjusted
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
(Dollars in Thousands)
Residential mortgage-backed
securities . . . . . . . . . . . . . . . . . . $
—
— %$ 82,378
3.43 % 620,518
2.59 %$ 2,303,696
2.33 %
Obligations of states and
political subdivisions . . . . . . . .
—
—
—
—
355 4.75 %
47,342 4.02 %
Equity securities with readily
determinable fair values . . . . . .
6,202
Total . . . . . . . . . . . . . . . . . . . . $ 6,202
1.54
1.54 %$ 82,378
— —
— %
3.43 %$ 620,873 2.59 %$ 2,351,038 2.36 %
—
—
—
13
Within one
year
Adjusted
Held to Maturity Maturing
After one but
within five years
Adjusted
After five but
within ten years
Adjusted
After ten years
Adjusted
Cost
Yield
Cost
Yield
(Dollars in Thousands)
Cost
Yield
Cost
Yield
Other securities . . . . . . . . . . . . $ 1,200
Total . . . . . . . . . . . . . . . . . . . . . $ 1,200
3.13 %$ 2,200
3.13 %$ 2,200
1.66 % $ — — %$ — — %
— %
1.66 % $ —
— %$ —
Mortgage-backed securities are securities primarily issued by the Federal Home Loan Mortgage Corporation
(“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), and the Government National Mortgage
Association (“Ginnie Mae”). Investments in mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the
U.S. government. Investments in mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully
guaranteed by the U.S. government; however, we believe that the quality of the bonds is similar to other AAA rated bonds
with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the
federal government in 2008 and because securities issued by others that are collateralized by residential mortgage-backed
securities issued by Fannie Mae or Freddie Mac are rated consistently as AAA rated securities.
Loans
The amounts of loans outstanding, by classification, at December 31, 2020, 2019, 2018, 2017 and 2016 are shown
in the following table:
2020
2019
2018
2017
2016
(Dollars in Thousands)
December 31,
Commercial, financial and agricultural . . . $ 4,516,288 $ 3,379,837 $ 3,305,124 $ 3,322,668 $ 2,993,203
1,032,222
Real estate—mortgage . . . . . . . . . . . . . . . .
1,716,875
Real estate—construction . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,168
167,220
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net of unearned discount . . . . . . $ 7,541,754 $ 6,894,946 $ 6,561,289 $ 6,348,172 $ 5,964,688
1,140,377
2,185,883
47,800
141,049
1,133,525
1,683,550
49,543
158,886
1,173,101
1,886,231
46,316
150,517
999,144
1,846,757
40,595
138,970
The following table shows the amounts of loans (excluding real estate mortgages and consumer loans) outstanding
as of December 31, 2020, which based on remaining scheduled repayments of principal are due in the years indicated.
Also, the amounts due after one year are classified according to the sensitivity to changes in interest rates:
Maturing
Within one
year
After one but
within five
years
After five
years
Total
(Dollars in Thousands)
Commercial, financial and agricultural . . . $
Real estate—construction . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,361,312 $
660,265
84,245
2,105,822
$
2,763,396 $
995,676
33,519
3,792,591 $
391,580 $
190,816
21,206
603,602 $
4,516,288
1,846,757
138,970
6,502,015
14
Due after one but within five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Due after five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
International Operations
Interest sensitivity
Fixed Rate
Variable Rate
(Dollars in Thousands)
539,854 $
187,211
727,065 $
3,252,737
416,391
3,669,128
On December 31, 2020, we had $138,970,000 (1.0% of total assets) in loans outstanding to borrowers domiciled
in foreign countries, which included primarily borrowers domiciled in Mexico. The loan policies of our Subsidiary Banks
generally require that loans to borrowers domiciled in foreign countries be primarily secured by assets located in the United
States or have credit enhancements in the form of guarantees from significant United States corporations. The composition
of such loans and the related amounts of allocated ACL as of December 31, 2020 and 2019 is presented below.
For the year ended December 31,
2020
2019
Amount of
Loans
Related
Allowance for
Credit Losses
Amount of
Loans
Related
Allowance for
Credit Losses
(Dollars in Thousands)
Secured by certificates of deposit in United States
banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Secured by United States real estate . . . . . . . . . . . . . . . . .
Secured by other United States collateral
(securities, gold, silver, etc.) . . . . . . . . . . . . . . . . . . . . . .
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (principally Mexico real estate) . . . . . . . . . . . . . . . .
$
85,085 $
33,135
45 $
427
89,734 $
33,008
7,888
8,008
4,854
138,970 $
85
117
79
753 $
10,483
155
7,669
141,049 $
386
291
92
2
52
823
The transactions for the years ended December 31, 2020, 2019 and 2018, in that portion of the ACL related to
foreign debt were as follows:
Balance at January 1, . . . . . . . . . . . . . . . . . . . . . . . . . $
Adoption of ASU 2016-13 . . . . . . . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charge (credit) to expense . . . . . . . . . . . . . . . . . . .
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . $
2020
2019
2018
(Dollars in Thousands)
871 $
—
(1)
—
(1)
(47)
823 $
823 $
(410)
—
10
10
330
753 $
842
—
(3)
10
7
22
871
15
Deposits
Deposits:
Demand—non-interest bearing
2020
2019
Average Balance Average Balance
(Dollars in Thousands)
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total demand non-interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings and interest bearing demand
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total savings and interest bearing demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time certificates of deposit
3,396,406 $
815,582
4,211,988
2,800,219
717,236
3,517,455
2,696,298
840,716
3,537,014
2,511,166
777,210
3,288,376
$100,000 or more:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
706,937
823,509
605,867
820,301
Less than $100,000:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total time, certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
296,284
245,398
2,072,128
9,821,130 $
312,678
248,352
1,987,198
8,793,029
Interest expense:
Savings and interest bearing demand
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total savings and interest bearing demand . . . . . . . . . . . . . . . . .
Time, certificates of deposit
$100,000 or more
2020
2019
(Dollars in Thousands)
2018
5,098 $
1,260
6,358
13,462 $
2,917
16,379
11,029
1,735
12,764
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,827
7,536
7,804
9,407
Less than $100,000
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total time, certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense on deposits . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,781
1,086
19,230
25,588 $
2,232
1,527
20,970
37,349 $
4,741
5,798
1,589
968
13,096
25,860
Scheduled maturities of time deposits in amounts of $100,000 or more at December 31, 2020, were as follows:
Due within 3 months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Due after 3 months and within 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 6 months and within 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
606,807
385,859
498,626
129,792
$ 1,621,084
We offer a variety of deposit accounts having a wide range of interest rates and terms. We rely primarily on our
high-quality customer service, sales programs, customer referrals and advertising to attract and retain these deposits.
Deposits provide the primary source of funding for our lending and investment activities, and the interest paid for deposits
must be managed carefully to control the level of interest expense. Deposits at December 31, 2020 were $10,721,860,000,
16
an increase of 21.5% from $8,826,034,000 at December 31, 2019. Deposits during the current economic environment
have increased as customers have received proceeds from CARES Act programs, such as stimulus payments and PPP loan
proceeds, and presumably decided to save and preserve cash instead of spending during these uncertain times.
Other Borrowed Funds
Other borrowed funds include FHLB borrowings which may be short-term and long-term borrowings issued by
the FHLB of Dallas and the FHLB of Topeka at the market price offered at the time of funding. These borrowings are
secured by residential mortgage-backed investment securities and a portion of our loan portfolio. At December 31, 2020,
other borrowed funds totaled $436,327,000, a decrease of 30.4% from $626,511,000 at December 31, 2019. The decrease
in borrowings can be attributed to an increase in cash arising from principal pay downs on available-for-sale debt securities
and deposits.
Return on Equity and Assets
Certain key ratios for the years ended December 31, 2020, 2019 and 2018 follow (1):
Years ended
December 31,
2019
2020
2018
Percentage of net income to:
Average shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of average shareholders’ equity to average total assets . . . .
Percentage of cash dividends per share to net income per share . . . . . .
7.86 %
1.27
16.20
41.60
9.97 %
1.71
17.17
33.38
11.22 %
1.79
15.96
22.79
(1) The average balances for purposes of the above table are calculated on the basis of daily balances.
Liquidity and Capital Resources
Liquidity
The maintenance of adequate liquidity provides our Subsidiary Banks with the ability to meet potential depositor
withdrawals, provide for customer credit needs, maintain adequate statutory reserve levels and take full advantage of
high-yield investment opportunities as they arise. Liquidity is afforded by access to financial markets and by holding
appropriate amounts of liquid assets. Our Subsidiary Banks derive their liquidity largely from deposits of individuals and
business entities. Other important funding sources for our Subsidiary Banks during 2020 and 2019 were borrowings from
the FHLB, securities sold under repurchase agreements and large certificates of deposit, requiring management to closely
monitor its asset/liability mix in terms of both rate sensitivity and maturity distribution. Our Subsidiary Banks have had a
long-standing relationship with the FHLB and keep open, unused, lines of credit in order to fund liquidity needs. In the
event that the FHLB indebtedness is not renewed, the repayment of the outstanding indebtedness would more than likely
be repaid through proceeds generated from the sales of unpledged available-for-sale securities. We maintain a sizable,
high quality investment portfolio to provide significant liquidity. These securities can be sold or sold under agreements to
repurchase, to provide immediate liquidity. As in the past, we will continue to monitor the volatility and cost of funds in
an attempt to match maturities of rate-sensitive assets and liabilities and respond accordingly to anticipated fluctuations in
interest rates over reasonable periods of time.
Asset/Liability Management
Our funds management policy has as its primary focus the measurement and management of the Subsidiary
Banks’ earnings at risk in the face of rising or falling interest rate forecasts. The earliest and most simplistic concept of
earnings at risk measurement is the gap report, which is used to generate a rough estimate of the vulnerability of net interest
income to changes in market rates as implied by the relative re-pricings of assets and liabilities. The gap report calculates
17
the difference between the amounts of assets and liabilities re-pricing across a series of intervals in time, with emphasis
typically placed on the one-year period. This difference, or gap, is usually expressed as a percentage of total assets.
If an excess of liabilities over assets matures or re-prices within the one-year period, the statement of condition
is said to be negatively gapped. This condition is sometimes interpreted to suggest that an institution is liability-sensitive,
indicating that earnings would suffer from rising rates and benefit from falling rates. If a surplus of assets over liabilities
occurs in the one-year time frame, the statement of condition is said to be positively gapped, suggesting a condition of
asset sensitivity in which earnings would benefit from rising rates and suffer from falling rates.
The gap report thus consists of an inventory of dollar amounts of assets and liabilities that have the potential to
mature or re-price within a particular period. The flaw in drawing conclusions about interest rate risk from the gap report
is that it takes no account of the probability that potential maturities or re-pricings of interest-rate-sensitive accounts will
occur, or at what relative magnitudes. Because simplicity, rather than utility, is the only virtue of gap analysis, financial
institutions increasingly have either abandoned gap analysis or accorded it a distinctly secondary role in managing their
interest-rate risk exposure.
The net interest rate sensitivity at December 31, 2020, is illustrated in the following table. This information
reflects the balances of assets and liabilities whose rates are subject to change. As indicated in the table below, we are
asset sensitive through all of the time periods illustrated. The table shows the sensitivity of the statement of condition at
one point in time and is not necessarily indicative of the position at future dates.
18
INTEREST RATE SENSITIVITY
(Dollars in Thousands)
December 31, 2020
Rate sensitive assets
Investment securities . . . . . . . . . . . . . . . . . . . . $
Loans, net of non-accruals . . . . . . . . . . . . . . .
3 Months
or Less
Over 3
Months to
Over 1
Year to 5
1 Year
Years
Rate/Maturity
(Dollars in Thousands)
535,351 $ 1,409,880 $ 1,094,325 $
5,750,102
205,924
591,315
Over 5
Years
Total
50,814 $ 3,090,370
7,521,932
974,591
Total earning assets . . . . . . . . . . . . . . . . . . . . . $ 6,285,453 $ 1,615,804 $ 1,685,640 $ 1,025,405 $ 10,612,302
Cumulative earning assets . . . . . . . . . . . . . . . $ 6,285,453 $ 7,901,257 $ 9,586,897 $ 10,612,302
Rate sensitive liabilities
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other interest bearing deposits . . . . . . . . . . . .
Securities sold under repurchase
865,945 $ 1,105,488 $
3,852,505
—
182,055 $
—
53 $ 2,153,541
3,852,505
—
agreements . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowed funds . . . . . . . . . . . . . . . . . . .
Junior subordinated deferrable interest
416,757
—
11,391
—
debentures . . . . . . . . . . . . . . . . . . . . . . . . . . .
134,642
—
—
—
—
—
436,327
428,148
436,327
—
134,642
Total interest bearing liabilities . . . . . . . . . . . $ 5,269,849 $ 1,116,879 $
182,055 $
436,380 $ 7,005,163
Cumulative sensitive liabilities. . . . . . . . . . . . $ 5,269,849 $ 6,386,728 $ 6,568,783 $ 7,005,163
Repricing gap . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,015,604 $
Cumulative repricing gap . . . . . . . . . . . . . . . .
Ratio of interest-sensitive assets to
1,015,604
498,925 $ 1,503,585 $
589,025 $ 3,607,139
1,514,529
3,018,114
3,607,139
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.19
1.45
9.26
Ratio of cumulative, interest-sensitive
assets to liabilities . . . . . . . . . . . . . . . . . . . . .
1.19
1.24
1.46
1.51
2.35
1.51
The detailed inventory of statement of condition items contained in gap reports is the starting point of income
simulation analysis. Income simulation analysis also focuses on the variability of net interest income and net income, but
without the limitations of gap analysis. In particular, the fundamental, but often unstated, assumption of the gap approach
that every statement of condition item that can re-price will do so to the full extent of any movement in market interest
rates is taken into consideration in income simulation analysis.
Accordingly, income simulation analysis captures not only the potential of assets and liabilities to mature or
re-price, but also the probability that they will do so. Moreover, income simulation analysis focuses on the relative
sensitivities of these balance sheet items and projects their behavior over an extended period of time in a motion picture
rather than snapshot fashion. Finally, income simulation analysis permits management to assess the probable effects on
balance sheet items not only of changes in market interest rates, but also of proposed strategies for responding to such
changes. We and many other institutions rely primarily upon income simulation analysis in measuring and managing
exposure to interest rate risk.
We have established guidelines for acceptable volatility of projected net interest income on the income simulation
analysis and the guidelines are reviewed at least annually. As of December 31, 2020, in rising rate scenarios of +100,
+200, +300 and +400 basis points, the guidelines established by management require that the net interest income not vary
19
by more than minus 30%, 30%, 30%, and 40%, respectively. Given the current low interest rate environment, no downward
rate shifts were modeled in our income simulations. At December 31, 2020, the income simulations show that a rate shift
of +100, +200, +300 and +400 basis points in interest rates up will vary projected net interest income for the coming
12-month period by +11.59%, +24.98%, +37.86%, and +50.41%, respectively. The basis point shift in interest rates is a
hypothetical rate scenario used to calibrate risk and does not necessarily represent management’s current view of future
market developments. We believe that we are properly positioned for a potential interest rate increase or decrease.
All the measurements of risk described above are made based upon our business mix and interest rate exposures
at the particular point in time. The exposure changes continuously as a result of our ongoing business and our risk
management initiatives. While management believes these measures provide a meaningful representation of our interest
rate sensitivity, they do not necessarily take into account all business developments that have an effect on net income, such
as changes in credit quality or the size and composition of the statement of condition.
Our principal sources of liquidity and funding dividends from subsidiaries and borrowed funds, with such funds
being used to finance our cash flow requirements. We closely monitor the dividend restrictions and availability from our
Subsidiary Banks as disclosed in Note 20 to the Consolidated Financial Statements. At December 31, 2020, the aggregate
amount legally available to be distributed to us from our Subsidiary Banks as dividends was approximately $948,000,000,
assuming that each Subsidiary Bank continues to be classified as “well-capitalized” under the applicable regulations in
effect at December 31, 2020. The restricted capital (capital and surplus) of our Subsidiary Banks was approximately
$1,200,185,000 as of December 31, 2020. The undivided profits of our Subsidiary Banks were approximately
$1,351,802,000 as of December 31, 2020.
At December 31, 2020, we had outstanding $436,327,000 in other borrowed funds and $134,642,000 in junior
subordinated deferrable interest debentures. In addition to borrowed funds and dividends, we have a number of other
available alternatives to finance the growth of our Subsidiary Banks as well as future growth and expansion.
Capital
We maintain an adequate level of capital as a margin of safety for our depositors and shareholders. At
December 31, 2020, shareholders’ equity was $2,177,998,000 compared to $2,118,053,000 at December 31, 2019, an
increase of $59,945,000, or 2.8%. Shareholders’ equity increased primarily due to the retention of earnings, offset by the
payment of cash dividends to shareholders and repurchases of our common stock in the form of treasury stock. The
accumulated other comprehensive income is not included in the calculation of regulatory capital ratios.
During 1990, the FRB adopted a minimum leverage ratio of 3% for the most highly rated bank holding companies
and at least 4% to 5% for all other bank holding companies. Our leverage ratio (defined as shareholders’ equity plus
eligible trust preferred securities issued and outstanding less goodwill and certain other intangibles divided by average
quarterly assets) was 14.92% at December 31, 2020 and 16.65% at December 31, 2019. The core deposit intangibles and
goodwill of $282,532,000 as of December 31, 2020, are deducted from the sum of core capital elements when determining
our capital ratios.
The FRB has adopted risk-based capital guidelines which assign risk weightings to assets and off-balance sheet
items. The guidelines also define and set minimum capital requirements (risk-based capital ratios). Under the final 1992
rules, all banks are required to have Tier 1 capital of at least 4.0% of risk-weighted assets and total capital of 8.0% of
risk-weighted assets. Tier 1 capital consists principally of shareholders’ equity plus trust preferred securities issued and
outstanding less goodwill and certain other intangibles, while total capital consists of Tier 1 capital, certain debt
instruments and a portion of the reserve for loan losses. In order to be deemed well-capitalized pursuant to the regulations,
an institution must have a total risk-weighted capital ratio of 10%, a Tier 1 risk-weighted ratio of 8% and a Tier 1 leverage
ratio of 5%. We had risk-weighted Tier 1 capital ratios of 20.25% and 19.80% and risk weighted total capital ratios of
21.40% and 20.46% as of December 31, 2020 and 2019, respectively, which are well above the minimum regulatory
requirements and exceed the well-capitalized ratios (see Note 20 to Notes to Consolidated Financial Statements).
In July 2013, the Federal Deposit Insurance Corporation (“FDIC”) and other regulatory bodies established a new,
comprehensive capital framework for U.S. banking organizations, consisting of minimum requirements that increase both
20
the quantity and quality of capital held by banking organizations. The final rules are a result of the implementation of the
BASEL III capital reforms and various Dodd-Frank related capital provisions. Consistent with the Basel international
framework, the rules include a minimum ratio of Common Equity Tier 1 (“CET1”) to risk-weighted assets of 4.5% and a
CET1 capital conservation buffer of 2.5% of risk-weighted assets. The capital conservation buffer began phasing-in on
January 1, 2016 at .625% and increased each year until January 1, 2019, when we were required to have a 2.5% capital
conservation buffer, effectively resulting in a minimum ratio of CET1 capital to risk-weighted assets of at least 7% upon
full implementation. The rules also raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and
include a minimum leverage ratio of 4% for all banking organizations. Regarding the quality of capital, the rules emphasize
CET1 capital and implements strict eligibility criteria for regulatory capital instruments. The rules also improve the
methodology for calculating risk-weighted assets to enhance risk sensitivity. The rules were subject to a four-year phase
in period for mandatory compliance and we were required to begin to phase in the rules beginning on January 1, 2015.
We believe that as of December 31, 2020, we meet all fully phased-in capital adequacy requirements.
On November 21, 2017, the OCC, the Federal Reserve and the FDIC finalized a proposed rule that extends the
current treatment under the regulatory capital rules for certain regulatory capital deductions and risk weights and certain
minority interest requirements, as they apply to banking organizations that are not subject to the advanced approaches
capital rules. Effective January 1, 2018, the rule also pauses the full transition to the Basel III treatment of mortgage
servicing assets, certain deferred tax assets, investments in the capital of unconsolidated financial institutions and minority
interests. The agencies are also considering whether to make adjustments to the capital rules in response to CECL (the
FASB Standard relating to current expected credit loss) and its potential impact on regulatory capital.
On December 7, 2017, the Basel Committee on Banking Supervision unveiled the latest round of its regulatory
capital framework, commonly called “Basel IV.” The framework makes changes to the capital framework first introduced
as “Basel III” in 2010. The committee targeted 2022-2027 as the timeframe for implementation by regulators in individual
countries, including the U.S. federal bank regulatory agencies (after notice and comment).
Junior Subordinated Deferrable Interest Debentures
We have formed five statutory business trusts under the laws of the State of Delaware, for the purpose of issuing
trust preferred securities. These statutory business trusts (the “Trusts”) have each issued Capital and Common Securities
and invested the proceeds thereof in an equivalent amount of junior subordinated debentures (the “Debentures”) that we
issued. As of December 31, 2020 and December 31, 2019, the principal amount of debentures outstanding totaled
$134,642,000.
The Debentures are subordinated and junior in right of payment to all of our present and future senior indebtedness
(as defined in the respective indentures), and are pari passu with one another. The interest rate payable on, and the payment
terms of the Debentures are the same as the distribution rate and payment terms of the respective issues of Capital and
Common Securities issued by the Trusts. We have fully and unconditionally guaranteed the obligations of each of the
Trusts with respect to the Capital and Common Securities. We have the right, unless an Event of Default (as defined in the
Indentures) has occurred and is continuing, to defer payment of interest on the Debentures for up to twenty consecutive
quarterly periods on Trusts VIII, IX, X, XI and XII. If interest payments on any of the Debentures are deferred, distributions
on both the Capital and Common Securities related to that Debenture would also be deferred. The redemption prior to
maturity of any of the Debentures may require the prior approval of the Federal Reserve and/or other regulatory bodies.
For financial reporting purposes, the Trusts are treated as investments and not consolidated in the consolidated
financial statements. Although the Capital Securities issued by each of the Trusts are not included as a component of
shareholders’ equity on the consolidated statement of condition, the Capital Securities are treated as capital for regulatory
purposes. Specifically, under applicable regulatory guidelines, the Capital Securities issued by the Trusts qualify as Tier 1
capital up to a maximum of 25% of Tier 1 capital on an aggregate basis. Any amount that exceeds the 25% threshold
would qualify as Tier 2 capital. At December 31, 2020 and December 31, 2019, the total $134,642,000 of the Capital
Securities outstanding qualified as Tier 1 capital.
21
The following table illustrates key information about each of the Debentures and their interest rates at
December 31, 2020:
Junior
Subordinated
Deferrable
Interest
Debentures
(in thousands)
Repricing
Frequency
Interest Rate
Interest Rate
Index
Maturity Date
Optional
Redemption Date(1)
Trust VIII . . . . . . . . . . . .
Trust IX . . . . . . . . . . . . .
Trust X . . . . . . . . . . . . . .
Trust XI . . . . . . . . . . . . .
Trust XII . . . . . . . . . . . .
25,774 Quarterly
41,238 Quarterly
21,021 Quarterly
25,990 Quarterly
20,619 Quarterly
$
134,642
October 2033
3.29 % LIBOR + 3.05
October 2036
1.85 % LIBOR + 1.62
February 2037
1.86 % LIBOR + 1.65
1.85 % LIBOR + 1.62
July 2037
1.68 % LIBOR + 1.45 September 2037
October 2008
October 2011
February 2012
July 2012
September 2012
(1) The Capital Securities may be redeemed in whole or in part on any interest payment date after the Optional Redemption Date.
Contractual Obligations and Commercial Commitments
The following table presents contractual cash obligations (other than deposit liabilities) as of December 31, 2020:
Contractual Cash Obligations
Securities sold under repurchase agreements . . $ 428,148 $ 416,757 $
Federal Home Loan Bank borrowings . . . . . . . .
Junior subordinated deferrable interest
436,327
—
Total
Payments due by Period
(Dollars in Thousands)
One to Three
Years
11,391 $
—
Less than
One Year
Three to
Five Years
After Five
Years
— $
—
—
436,327
debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . .
Total Contractual Cash Obligations . . . . . . . $ 1,008,590 $ 420,138 $
134,642
9,473
—
3,381
—
3,241
14,632 $
134,642
—
1,207
1,644
1,207 $ 572,613
The following table presents contractual commercial commitments (other than deposit liabilities) as of
December 31, 2020:
Commercial Commitments
Financial and Performance Standby Letters
Total
Amount of Commitment Expiration Per Period
(Dollars in Thousands)
One to Three
Years
Three to Five
Years
Less than
One Year
After Five
Years
of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 118,381 $
Commercial Letters of Credit . . . . . . . . . . . . . . .
Credit Card Lines . . . . . . . . . . . . . . . . . . . . . . . .
Other Commercial Commitments . . . . . . . . . . .
341
13,579
2,354,010
96,246 $
341
13,579
1,119,300
Total Commercial Commitments . . . . . . . . . $ 2,486,311 $ 1,229,466 $
22,135 $
—
—
667,911
690,046 $
—
— $
—
—
—
—
434,935
131,864
434,935 $ 131,864
Due to the nature of our commercial commitments, including unfunded loan commitments and lines of credit, the
amounts presented above do not necessarily reflect the amounts we anticipate funding in the periods presented above.
Critical Accounting Policies
We have established various accounting policies which govern the application of accounting principles in the
preparation of our consolidated financial statements. The significant accounting policies are described in the Notes to the
Consolidated Financial Statements. Certain accounting policies involve significant subjective judgments and assumptions
22
by management which have a material impact on the carrying value of certain assets and liabilities; management considers
such accounting policies to be critical accounting policies.
We consider our estimated ACL as a policy critical to the sound operations of our Subsidiary Banks. We adopted
the provisions of Accounting Standards Update No. 2016-13 to ASC 326, “Financial Instruments – Credit Losses,” on
January 1, 2020. ASU 2016-13 replaces the long-standing incurred loss model with an expected credit loss model that
recognizes credit losses over the life of a financial asset. Expected credit losses capture historical information, current
conditions, and reasonable and supportable forecasts of future conditions. The ACL is deducted from the amortized cost
of an instrument to present the net amount expected to be collected on the financial asset. Our ACL primarily consists of
the aggregate ACL estimates of our Subsidiary Banks. The estimates are established through charges to operations in the
form of charges to provisions for credit loss expense. Loan losses or recoveries are charged or credited directly to the
ACL. The ACL of each Subsidiary Bank is maintained at a level considered appropriate by management, based on
estimated current expected credit losses in the current loan portfolio, including information about past events, current
conditions and reasonable and supportable forecasts.
The estimation of the ACL is based on a loss-rate methodology that measures lifetime losses on loan pools that
have similar risk characteristics. Loans that do not have similar risk characteristics are evaluated on an individual basis.
The segmentation of the loan portfolio into pools requires a balancing process between capturing similar risk
characteristics and containing sufficient loss history to provide meaningful results. Our segmentation starts at the general
loan category with further sub-segmentation based on collateral types that may be of meaningful size and/or may contain
sufficient differences in risk characteristics based on management’s judgement that would warrant further segmentation.
The general loan categories along with primary risk characteristics used in our calculation are as follows:
Commercial and industrial loans. This category includes loans extended to a diverse array of businesses for working
capital or equipment purchases. These loans are mostly secured by the collateral pledged by the borrower that is
directly related to the business activities of the company such as equipment, accounts receivable and inventory. The
borrower’s abilities to generate revenues from equipment purchases, collect accounts receivable, and to turn inventory
into sales are risk factors in the repayment of the loan. A small portion of this loan category is related to loans secured
by oil & gas production and loans secured by aircraft.
Construction and land development loans. This category includes the development of land from unimproved land to
lot development for both residential and commercial use and vertical construction across residential and commercial
real estate classes. These loans carry risk of repayment when projects incur cost overruns, have an increase in the
price of construction materials, encounter zoning, entitlement and environmental issues, or encounter other factors
that may affect the completion of a project on time and on budget. Additionally, repayment risk may be negatively
impacted when the market experiences a deterioration in the value of real estate. Risks specifically related to 1-4
family development loans also include mortgage rate risk and the practice by the mortgage industry of more restrictive
underwriting standards, which inhibits the buyer from obtaining long term financing creating excessive housing and
lot inventory in the market.
Commercial real estate loans. This category includes loans secured by farmland, multifamily properties, owner
occupied commercial properties, and non-owner occupied commercial properties. Owner occupied commercial
properties include warehouses often along the border for import/export operations, office space where the borrower
is the primary tenant, restaurants and other single-tenant retail. Non-owner occupied commercial properties include
hotels, retail centers, office and professional buildings, and leased warehouses. These loans carry risk of repayment
when market values deteriorate, the business experiences turnover in key management, the business has an inability
to attract or keep occupancy levels stable, or when the market experiences an exit of a specific business type that is
significant to the local economy, such as a manufacturing plant.
1-4 family mortgages. This category includes both first and second lien mortgages for the purpose of home purchases
or refinancing of existing mortgage loans. A small portion of this loan category is related to home equity lines of
credits, lots purchases, and home construction. Loan repayments may be affected by unemployment or
underemployment and deteriorating market values of real estate.
23
Consumer loans. This category includes deposit secured, vehicle secured, and unsecured loans, including overdrafts,
made to individuals. Repayment is primarily affected by unemployment or underemployment.
The loan pools are further broken down using a risk-based segmentation based on internal classifications for
commercial loans and past due status for consumer mortgage loans. Non-mortgage consumer loans are evaluated as one
segment. On a weekly basis, commercial loan past due reports are reviewed by the credit quality committee to determine
if a loan has any potential problems and if a loan should be placed on our internal Watch List report. Additionally, our
credit department reviews the majority of our loans for proper internal classification purposes regardless of whether they
are past due and segregates any loans with potential problems for further review. The credit department will discuss the
potential problem loans with the servicing loan officers to determine any relevant issues that were not discovered in the
evaluation. Also, an analysis of loans that is provided through examinations by regulatory authorities is considered in the
review process. After the above analysis is completed, we will determine if a loan should be placed on an internal Watch
List report because of issues related to the analysis of the credit, credit documents, collateral and/or payment history.
Our internal Watch List report is segregated into the following categories: (i) Pass, (ii) Economic Monitoring,
(iii) Special Review, (iv) Watch List—Pass, or (v) Watch List—Substandard, and (vi) Watch List—Doubtful. The loans
placed in the Special Review category and lower rated credits reflect our opinion that the loans reflect potential weakness
which require monitoring on a more frequent basis. Credits in those categories are reviewed and discussed on a regular
basis, no less frequently than quarterly, with the credit department and the lending staff to determine if a change in category
is warranted. The loans placed in the Watch List—Pass category and lower rated credits reflect our opinion that the credit
contains weaknesses which represent a greater degree of risk, which warrant “extra attention.” Credits in this category are
reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in
category is warranted. The loans placed in the Watch List—Substandard category are considered to be potentially
inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral.
These credit obligations, even if apparently protected by collateral value, have shown defined weaknesses related to
adverse financial, managerial, economic, market or political conditions which may jeopardize repayment of principal and
interest. Furthermore, there is the possibility that we may sustain some future loss if such weaknesses are not corrected.
The loans placed in the Watch List—Doubtful category have shown defined weaknesses and it is likely, based on current
information and events, that we will be unable to collect all principal and/or interest amounts contractually due. Watch
List—Doubtful loans are placed on non-accrual when they are moved to that category.
For the purposes of the ACL, in order to maintain segments with sufficient history for meaningful results, the
credits in the Pass and Economic Monitoring categories are aggregated, the credits in the Special Review and Watch List—
Pass credits are aggregated, and the credits in the Watch List—Substandard category remain in their own segment. For
loans that are classified as Watch List—Doubtful, management evaluates these credits in accordance with ASC 310-10,
“Receivables,” and, if deemed necessary, a specific reserve is allocated to the loan. The specific reserve allocated under
ASC 310-10, is based on (i) the present value of expected future cash flows discounted at the loan’s effective interest rate;
(ii) the loan’s observable market price; or (iii) net realizable value of the fair value of the collateral if the loan is collateral
dependent. Substantially all of our loans evaluated as Watch List—Doubtful under ASC 310-10 are measured using the
fair value of collateral method. In rare cases, we may use other methods to determine the specific reserve of a loan under
ASC 310-10 if such loan is not collateral dependent.
Within each collectively evaluated pool, the robustness of the lifetime historical loss-rate is evaluated and, if
needed, is supplemented with peer loss rates through a model risk adjustment. Certain qualitative loss factors are then
evaluated to incorporate management’s two-year reasonable and supportable forecast period followed by a reversion to
the pool’s average lifetime loss-rate. Those qualitative loss factors are: (i) trends in portfolio volume and composition,
(ii) volume and trends in classified loans, delinquencies, non-accruals and TDR’s, (iii) concentration risk, (iv) trends in
underlying collateral value, (v) changes in policies, procedures, and strategies, and (vi) economic conditions. Qualitative
factors also include potential losses stemming from operational risk factors arising from fraud, natural disasters, pandemics
and geopolitical events. Should any of the factors considered by management in evaluating the adequacy of the ACL
change, our estimate could also change, which could affect the level of future credit loss expense.
We have elected to not measure an ACL for accrued interest receivable given our timely approach in identifying
and writing off uncollectible accrued interest. An ACL for off-balance sheet exposure is derived from a projected usage
24
rate of any unfunded commitment multiplied by the historical loss rate, plus model risk adjustment, if any, of the on-
balance sheet loan pools.
Our management continually reviews the ACL of the Subsidiary Banks using the amounts determined from the
estimates established on specific doubtful loans, the estimate established on quantitative historical loss percentages, and
the estimate based on qualitative current conditions and reasonable and supportable two-year forecasted data. Our
methodology reverts to the average lifetime loss-rate beyond the forecast period when we can no longer develop reasonable
and supportable forecasts. Should any of the factors considered by management in evaluating the adequacy of the estimate
for current expected credit losses change, our estimate of current expected credit losses could also change, which could
affect the level of future credit loss expense. While the calculation of our ACL utilizes management’s best judgment and
all information reasonably available, the adequacy of the ACL is dependent on a variety of factors beyond our control,
including, among other things, the performance of the entire loan portfolio, the economy, government actions, changes in
interest rates and the view of regulatory authorities towards loan classifications.
Recent Accounting Standards Issued
See Note 1—Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated
Financial Statements for details of recently issued and recently adopted accounting standards and their impact on our
consolidated financial statements.
Preferred Stock, Common Stock and Dividends
We have issued and outstanding 63,298,608 shares of $1.00 par value common stock held by approximately 1,877
holders of record at February 22, 2021. The book value of the common stock at December 31, 2020 was $36.14 per share
compared with $33.37 per share at December 31, 2019.
Our common stock is traded on the NASDAQ National Market under the symbol “IBOC.” The following table
sets forth the approximate high and low bid prices in our common stock during 2020 and 2019, as quoted on the NASDAQ
National Market for each of the quarters in the two-year period ended December 31, 2020. Some of the quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual
transactions. The closing sales price of our common stock was $43.50 per share at February 22, 2021.
2020: . . . . . . . . . . . . . . . First quarter
$
Second quarter
Third quarter
Fourth quarter
2019: . . . . . . . . . . . . . . . . First quarter
$
Second quarter
Third quarter
Fourth quarter
High
Low
43.60 $
35.22
35.60
38.73
43.11
23.35
25.21
25.44
High
Low
41.41 $
42.16
40.51
44.00
33.66
35.76
32.04
36.57
We paid cash dividends of $0.55 per share on April 3 and October 5, 2020 to record holders of our common stock
on April 1 and September 21, 2020. We paid cash dividends of $.50 and $0.55 per share on April 15 and October 15, 2019
to record holders of our common stock on April 1 and September 30, 2019, respectively.
Our principal source of funds to pay cash dividends on our common stock is cash dividends from our Subsidiary
Banks. For a discussion of the limitations, please see Note 20 of Notes to Consolidated Financial Statements.
25
Stock Repurchase Program
In April 2009, the Board of Directors re-established a formal stock repurchase program that authorized the
repurchase of up to $40 million of common stock within the following 12 months. Annually since then, including on
March 12, 2020, the Board of Directors extended the repurchase program and for the second year authorized an increase
to purchase up to $50 million of common stock during the 12 month period commencing on March 16, 2020 (previous
annual stock repurchase programs began on April 9). Shares of common stock may be purchased from time to time on the
open market or through privately negotiated transactions. Shares purchased under this program will be held in treasury for
reissue for various corporate purposes, including employee compensation plans. During the fourth quarter of 2020, the
Board of Directors adopted a Rule 10b5-1 trading plan, and intends to adopt additional Rule 10b5-1 trading plans, that
will allow us to purchase shares of our common stock during certain trading blackout periods when we ordinarily would
not be in the market due to trading restrictions in our insider trading policy. During the term of a Rule 10b5-1 trading plan,
purchases of common stock are automatic to the extent the conditions of the plan’s trading instructions are met. Shares
purchased under the Rule 10b5-1 trading plan will be held in treasury for reissue for various corporate purposes, including
employee stock compensation plans. As of February 22, 2021, a total of 12,267,531 shares had been repurchased under all
programs at a cost of $357,059,000. We are not obligated to purchase shares under our stock repurchase program outside
of its Rule 10b5-1 trading plan.
Except for repurchases in connection with the administration of an employee benefit plan in the ordinary course
of business and consistent with past practices, common stock repurchases are only conducted under publicly announced
repurchase programs approved by the Board of Directors. The following table includes information about common stock
share repurchases for the quarter ended December 31, 2020.
Total Number of
Shares
October 1 – October 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . .
November 1 – November 30, 2020 . . . . . . . . . . . . . . . . . . . . .
December 1 – December 31, 2020 . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— $
—
—
— $
—
—
—
—
Average
Total Number Price Paid
of Shares
Purchased
Per
Share
Purchased as
Part of a
Publicly-
Announced
Program
Approximate
Dollar Value of
Shares Available
for
Repurchase(1)
— $ 20,311,000
20,311,000
—
20,311,000
—
—
(1) The repurchase program was extended and increased on March 12, 2020 and allows for the repurchase of up to an additional $50,000,000 of
treasury stock through March 16, 2021.
26
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2020, with respect to our equity compensation
plans:
Plan Category
Equity Compensation plans approved by security
(A)
(B)
Number of securities to Weighted average
exercise price of
be issued upon exercise
of outstanding options, outstanding options, securities reflected in
warrants and rights
warrants and rights
column A)
(C)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
651,127 $
651,127 $
27.24
27.24
10,102 `
10,102
Stock Performance
COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN
COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN
$200
$150
$100
$50
2015
2016
2017
2018
2019
2020
International Bancshares Corporation
S&P MidCap 400 Index
S&P 400 Regional Banks
Total Return To Shareholders
(Includes reinvestment of dividends)
Base
Period
2015
2016
2017
INDEXED RETURNS
December 31,
2018
2019
2020
Company / Index
International Bancshares
Corporation . . . . . . . . . . . . . . . . . . . . . .
S&P 400 Index . . . . . . . . . . . . . . . . . . . . .
S&P 400 Banks . . . . . . . . . . . . . . . . . . . .
100
100
100
165.25
129.65
143.44
163.63
150.71
150.90
144.54
134.01
118.61
180.85
154.07
146.06
165.13
179.00
125.28
27
Report of Independent Registered Public Accounting Firm
Shareholders and the Board of Directors
International Bancshares Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of condition of International Bancshares
Corporation and its subsidiaries (the Company) as of December 31, 2020 and 2019, the related
consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2020, and the related notes to the consolidated
financial statements (collectively, the financial statements). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and
2019, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2020, in conformity with accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company’s internal control over financial reporting as of
December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated
February 25, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on
a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
28
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit
committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing
a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses
As described in Note 4 of the consolidated financial statements, the company established an allowance
for credit losses totaling $109,059,000 as of December 31, 2020. The allowance for credit losses is
derived from a loss-rate methodology that measures lifetime losses on loan pools that have similar risk
characteristics. Loans that do not have similar risk characteristics are evaluated on an individual basis.
The segmentation of the loan portfolio into pools requires a balancing process between capturing similar
risk characteristics and sufficient loss history to provide relevant results. Loan pools are further broken
down using a risk-based segmentation based on internal classifications of credit quality. Within each loan
pool, the lifetime historical loss-rate is evaluated and, if needed, is supplemented with peer loss rates
through a model risk adjustment. Certain qualitative factors are applied at the loan pool level to
incorporate management’s two-year forecast period followed by a reversion to the pool’s average lifetime
loss-rate. Those qualitative factors include: (i) trends in portfolio volume and composition, (ii) volume and
trends in classified loans, delinquencies, non-accruals and troubled debt restructurings (TDR’s), (iii)
concentration risk, (iv) trends in underlying collateral value, (v) changes in policies, procedures, and
strategies, (vi) economic conditions, and (vii) operational and other risk factors to capture potential losses
arising from fraud, natural disasters, pandemics, and geopolitical events.
We identified the qualitative factor component of the allowance for credit losses as a critical audit matter.
Auditing management’s estimate of the qualitative factors required a high degree of auditor judgment due
to the nature of the adjustments and the subjectivity in judgments applied by management in forming
them.
Our audit procedures related to the Company’s qualitative factors included, the following, among others:
We obtained an understanding of the relevant controls related to the allowance for credit losses,
including the qualitative factors, and tested such controls for design and operating effectiveness,
including controls related to management’s review of the qualitative factors and approval of the
allowance for credit losses calculation.
We evaluated the appropriateness and consistency of management’s methods and assumptions
used to determine qualitative factors by (1) evaluating management’s identification and quantification
of qualitative factors; (2) testing the completeness and accuracy of data and information used in
calculating the components of the qualitative factors; (3) evaluating the reasonableness, directional
consistency, and magnitude of the quantification of the qualitative factors; and (4) reviewing
subsequent events and considering their impact on judgments applied in forming the qualitative factor
component of the allowance for credit losses as of the consolidated balance sheet date.
We have served as the Company’s auditor since 2007.
Austin, Texas
February 25, 2021
29
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Condition
December 31, 2020 and 2019
(Dollars in Thousands, Except Per Share Amounts)
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,997,238 $
Investment securities:
256,820
Held to maturity debt securities (Market value of $3,400 on December 31, 2020
and $2,400 on December 31, 2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,400
2,400
Available for sale debt securities (Amortized cost of $3,054,289 on December 31,
December 31,
2020
December 31,
2019
2020 and $3,376,070 on December 31, 2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities with readily determinable fair values . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash surrender value of life insurance policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,378,923
6,095
3,387,418
6,894,946
(60,278)
6,834,668
506,595
36,620
318,427
289,693
282,532
200,121
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,029,467 $ 12,112,894
3,080,768
6,202
3,090,370
7,541,754
(109,059)
7,432,695
479,878
37,881
254,413
292,381
282,532
162,079
See accompanying notes to consolidated financial statements.
30
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Condition Continued
December 31, 2020 and 2019
(Dollars in Thousands, Except Per Share Amounts)
December 31,
2020
December 31,
2019
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Demand—non-interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,715,814 $ 3,545,905
3,267,829
Savings and interest bearing demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,012,300
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,826,034
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
236,536
Securities sold under repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
626,511
Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
134,642
Junior subordinated deferrable interest debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
171,118
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,994,841
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,852,505
2,153,541
10,721,860
428,148
436,327
134,642
130,492
11,851,469
Shareholders’ equity:
Common shares of $1.00 par value. Authorized 275,000,000 shares; issued
96,240,977 shares on December 31, 2020 and 96,214,967 shares on
December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96,241
149,334
2,289,626
20,825
2,556,026
96,215
148,075
2,200,568
2,345
2,447,203
Less cost of shares in treasury, 32,961,289 shares on December 31, 2020
(329,150)
and 31,015,061 on December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,118,053
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,029,467 $ 12,112,894
(378,028)
2,177,998
See accompanying notes to consolidated financial statements.
31
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2020, 2019 and 2018
(Dollars in Thousands, Except Per Share Amounts)
Interest income:
Loans, including fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Investment securities:
377,579 $
413,611 $ 375,173
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,095
2,434
900
427,008
72,485
4,885
1,420
492,401
81,484
8,141
1,024
465,822
2020
2019
2018
Interest expense:
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under repurchase agreements . . . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated deferrable interest debentures . . . . . . . . . . . . . . . . .
6,358
19,230
926
8,773
3,832
16,379
20,970
2,432
12,413
6,435
12,764
13,096
2,415
17,404
6,989
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,119
58,629
52,668
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
387,889
433,772
413,154
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,379
18,843
6,112
Net interest income after provision for credit losses . . . . . . . . . . . . . . .
342,510
414,929
407,042
Non-interest income:
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61,983
72,502
72,433
Other service charges, commissions and fees
Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities transactions, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48,986
7,822
(5)
4,920
26,873
50,996
7,832
(12)
5,985
17,523
46,685
7,801
(141)
19,897
18,367
Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150,579
154,826
165,042
See accompanying notes to consolidated financial statements.
32
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income, continued
Years ended December 31, 2020, 2019 and 2018
(Dollars in Thousands, Except Per Share Amounts)
2020
2019
2018
Non-interest expense:
Employee compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of bank premises and equipment . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit insurance assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net expense, other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software and software maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
130,039 $
24,909
28,318
12,546
1,870
9,808
4,284
19,238
50,319
145,929 $
28,635
28,270
17,661
1,416
6,377
7,748
19,850
53,915
138,532
29,097
25,873
12,601
3,742
4,413
7,695
17,516
60,032
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
281,331
309,801
299,501
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
211,758
259,954
272,583
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,439
54,850
56,652
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
167,319 $
205,104 $
215,931
Basic earnings per common share:
Weighted average number of shares outstanding . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fully diluted earnings per common share:
Weighted average number of shares outstanding . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63,725,819
$
2.63 $
65,476,606
66,106,580
3.27
3.13 $
63,853,135
$
2.62 $
65,685,684
66,633,820
3.24
3.12 $
See accompanying notes to consolidated financial statements.
33
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2020, 2019, and 2018
(Dollars in Thousands)
2020
2019
2018
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 167,319 $ 205,104 $ 215,931
Other comprehensive income, net of tax:
Net unrealized holding gains (losses) on securities available for sale
arising during period (net of tax effects of $4,911, $15,144, and $(7,004)) . . . .
18,476
56,970
(26,348)
Reclassification adjustment for losses on securities available for sale
included in net income (net of tax effects of $1, $3 and $30) . . . . . . . . . . . . .
4
18,480
9
56,979
111
(26,237)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 185,799 $ 262,083 $ 189,694
See accompanying notes to consolidated financial statements.
34
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
Years ended December 31, 2020, 2019 and 2018
(in Thousands, except per share amounts)
Preferred
Stock
Number
of
Common
Shares Stock
Surplus
Other
Retained
Earnings
Comprehensive Treasury
Income (Loss)
Stock
Total
— 96,019 96,019 171,816 1,891,805
215,931
—
—
—
—
(28,397) (292,263) $ 1,838,980
215,931
—
—
Balance at December 31, 2017 . . . . . . . . . $
Net Income . . . . . . . . . . . . . . . . . . . .
Dividends:
Cash ($.75 per share) . . . . . . . . . . .
Purchase of treasury (520,918
shares) . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . .
Stock compensation expense
recognized in earnings . . . . . . . . . . . . .
Repurchase of outstanding warrant . . . . .
Cumulative adjustment for adoption
of new accounting standards. . . . . . . . .
Other comprehensive (loss), net
of tax:
Net change in unrealized gains
and losses on available for sale
securities, net of reclassification
adjustment . . . . . . . . . . . . . . . . .
Balance at December 31, 2018 . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . .
Dividends:
Cash ($1.05 per share) . . . . . . . . . .
Purchase of treasury (468,918 shares) .
Exercise of stock options . . . . . . . . . . . . .
Stock compensation expense
recognized in earnings . . . . . . . . . . . . .
Other comprehensive (loss), net
of tax:
Net change in unrealized gains
and losses on available for sale
securities, net of reclassification
adjustments . . . . . . . . . . . . . . . . .
Balance at December 31, 2019 . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . .
Dividends:
Cash ($1.10 per share) . . . . . . . . . .
Purchase of treasury (1,946,228
shares) . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . .
Stock compensation expense
recognized in earnings . . . . . . . . . . . . .
Cumulative adjustment for adoption
of new accounting standards. . . . . . . . .
Other comprehensive income, net
of tax:
Net change in unrealized gains
and losses on available for sale
securities, net of reclassification
adjustments . . . . . . . . . . . . . . . . .
Balance at December 31, 2020 . . . . . . . . .
—
—
—
—
—
—
—
—
—
(49,599)
—
—
(49,599)
—
85
—
—
—
85
—
1,437
—
—
1,035
(29,005)
—
—
—
—
—
—
—
5,997
(5,997)
—
—
(19,042)
—
(19,042)
1,522
—
—
—
—
—
1,035
(29,005)
—
—
—
—
— 96,104 96,104 145,283 2,064,134
205,104
—
—
—
—
—
—
(20,240)
(20,240)
(54,634) (311,305) 1,939,582
205,104
—
—
—
—
—
—
—
—
—
111
—
—
111
—
—
1,812
(68,670)
—
—
—
—
980
—
—
—
—
—
—
(17,845)
—
(68,670)
(17,845)
1,923
—
980
—
—
— 96,215 $ 96,215 $ 148,075 $ 2,200,568 $
—
167,319
—
—
—
—
—
—
56,979
56,979
2,345 $ (329,150) $ 2,118,053
167,319
—
—
—
—
—
—
—
—
—
—
—
(69,928)
—
—
(69,928)
—
26
—
26
—
516
—
—
743
—
—
—
—
—
—
(8,333)
—
—
(48,878)
—
(48,878)
542
—
—
—
743
—
(8,333)
—
— 96,241 $ 96,241 $ 149,334 $ 2,289,626 $
—
—
—
—
18,480
18,480
20,825 $ (378,028) $ 2,177,998
—
See accompanying notes to consolidated financial statements.
35
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2020, 2019 and 2018
(Dollars in Thousands)
Operating activities:
2020
2019
2018
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
167,319 $
205,104 $ 215,931
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for credit loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specific reserve, other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of bank premises and equipment . . . . . . . . . . . . . . . . . . . . .
Gain on sale of bank premises and equipment . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion of investment securities discounts . . . . . . . . . . . . . . . . . . . . . . .
Amortization of investment securities premiums . . . . . . . . . . . . . . . . . . .
Investment securities transactions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on equity securities with readily determinable
fair values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses (earnings) from affiliates and other investments . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in accrued interest receivable . . . . . . . . . . . . . . . . . . .
Decrease (increase) in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,379
1,539
28,318
(40)
(892)
(500)
39,039
5
(107)
743
74
(3,122)
(1,261)
42,571
(13,932)
18,843
322
28,270
(237)
(1,470)
(428)
20,549
12
(158)
980
(3,914)
3,309
183
8,043
32,157
6,112
3,071
25,873
(1,456)
(1,465)
(271)
20,087
141
388
1,035
(15,484)
5,143
(2,347)
(51,827)
24,916
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . .
305,133
311,565
229,847
Investing activities:
Proceeds from maturities of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales and calls of available for sale securities . . . . . . . . . .
Proceeds from sales of equity securities with readily determinable
fair values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal collected on mortgage backed securities . . . . . . . . . . . . . . . . . .
Net increase in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions from other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of bank premises and equipment . . . . . . . . . . . . . . .
Proceeds from sales of other real estate owned . . . . . . . . . . . . . . . . . . . . .
1,075
42,350
—
94,585
2,275
38,175
—
(1,819,814)
2,058,626
(647,213)
(44,447)
64,860
(6,725)
904
6,679
—
(893,301)
882,479
(375,621)
(52,795)
44,919
(29,590)
1,861
9,405
21,607
(47,346)
675,304
(258,142)
(43,418)
3,668
(21,395)
4,533
4,179
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . .
(343,705)
(318,058)
379,440
See accompanying notes to consolidated financial statements.
36
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Years ended December 31, 2020, 2019 and 2018
(Dollars in Thousands)
Financing activities:
2020
2019
2018
Net increase in non-interest bearing demand deposits . . . . . . . . . . . . . . . . . .
Net increase (decrease) in savings and interest bearing demand deposits . .
Net increase (decrease) in time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in securities sold under repurchase agreements . . .
Net decrease in other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of outstanding common stock warrant . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,169,909 $
584,676
141,241
191,612
(190,184)
—
—
(48,878)
542
(69,928)
91,065 $ 211,585
23,106
(83,038)
(123,816)
(489,560)
—
(29,005)
(19,042)
1,522
(49,599)
(408)
38,832
6,547
(79,154)
(25,774)
—
(17,845)
1,923
(68,670)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . .
1,778,990
(53,484)
(557,847)
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
1,740,418
(59,977)
51,440
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . .
256,820
316,797
265,357
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,997,238 $
256,820 $ 316,797
Supplemental cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
41,975 $
34,826
56,728 $
44,089
50,623
40,565
Non-cash investing and financing activities:
Net transfers from loans to other real estate owned . . . . . . . . . . . . . . . . . . . .
Establishment of lease liability and right-of-use asset . . . . . . . . . . . . . . . . . .
Net transfers from bank premises and equipment to other assets . . . . . . . . .
4,526
—
4,260
22,015
6,171
—
32,610
—
—
See accompanying notes to consolidated financial statements.
37
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Our accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”) and
to general practices within the banking industry. The following is a description of the more significant of those policies.
Consolidation and Basis of Presentation
Our consolidated financial statements include the accounts of the International Bancshares Corporation, its
wholly-owned Subsidiary Banks and its wholly-owned non-bank subsidiaries, IBC Trading Company, Premier Tierra
Holdings, Inc., IBC Charitable and Community Development Corporation, and IBC Capital Corporation. All significant
inter-company balances and transactions have been eliminated in consolidation.
We, through our Subsidiary Banks, are primarily engaged in the business of banking, including the acceptance of
checking and savings deposits and the making of commercial, real estate, personal, home improvement, automobile and
other installment and term loans. Our primary markets are north, south, central, and southeast Texas and the state of
Oklahoma. Each of our Subsidiary Banks is very active in facilitating international trade along the United States border
with Mexico and elsewhere. Although our loan portfolio is diversified, the ability of our debtors to honor their contracts
is primarily dependent upon the economic conditions in our trade area. In addition, the investment portfolio is directly
impacted by fluctuations in market interest rates. We are subject to the regulations of certain federal agencies as well as
the Texas Department of Banking and the Oklahoma Department of Banking and undergo periodic examinations by those
regulatory authorities. Such agencies may require certain standards or impose certain limitations based on their judgments
or changes in law and regulations.
We own one insurance-related subsidiary, IBC Insurance Agency, Inc., a wholly owned subsidiary of our
Subsidiary Bank, International Bank of Commerce, Laredo. The insurance-related subsidiary does not conduct
underwriting activities.
The preparation of the consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the dates of the statement of condition and income and expenses for the periods.
Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to
significant changes in the near-term relate to the determination of ACL.
Subsequent Events
We have evaluated all events or transactions that occurred through the date we issued these financial statements.
During this period, we did not have any material recognizable or non-recognizable subsequent events.
Investment Securities
We classify debt securities into one of these categories: held-to-maturity, available-for-sale, or trading. Such
classifications are reassessed for appropriate classification at each reporting date. Securities that are intended and expected
to be held until maturity are classified as “held-to-maturity” and are carried at amortized cost for financial statement
reporting. Securities that are not positively expected to be held until maturity, but are intended to be held for an indefinite
period of time are classified as “available-for-sale” or “trading” and are carried at their fair value. Unrealized holding gains
and losses are included in net income for those securities classified as “trading”, while unrealized holding gains and losses
related to those securities classified as “available-for-sale” are excluded from net income and reported net of tax as other
comprehensive income and in shareholders’ equity as accumulated other comprehensive income (loss) until realized. In
accordance with ASU 2016-13, which we adopted on January 1, 2020, available-for-sale and held-to-maturity debt
securities in an unrealized loss position must be evaluated for the underlying cause of the loss. In the event that the
deterioration in value is attributable to credit related reasons, then the amount of credit-related impairment would be
recorded as a charge to our ACL with subsequent changes in the amount of impairment, up or down, also recorded through
our ACL. The exception to this process will occur if we intend to sell an impaired available-for-sale debt security or if we
38
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
will more likely than not be required to sell a credit impaired available-for-sale debt security prior to the value recovering
to the security’s amortized cost. In those situations, the entire credit-related impairment amount would be required to be
recognized in earnings. We have evaluated the debt securities classified as available-for-sale and held-to-maturity at
December 31, 2020 and have determined that no debt securities in an unrealized loss position are arising from credit related
reasons and have therefore not recorded any allowances for debt securities in our ACL for the period. Unrealized gains
and losses related to equity securities with readily determinable fair values are included in net income. We did not maintain
any trading securities during the three-year period ended December 31, 2020.
Mortgage-backed securities held at December 31, 2020 and 2019 represent participating interests in pools of
long-term first mortgage loans originated and serviced by the issuers of the securities. Mortgage-backed securities are
either issued or guaranteed by the U.S. government or its agencies including Freddie Mac, Fannie Mae, Ginnie Mae or
other non-government entities. Investments in residential mortgage-backed securities issued by Ginnie Mae are fully
guaranteed by the U. S. government. Investments in residential mortgage-backed securities issued by Freddie Mac and
Fannie Mae are not fully guaranteed by the U.S. government; however, we believe that the quality of the bonds is similar
to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into
conservatorship by the federal government in 2008 and because securities issued by others that are collateralized by
residential mortgage-backed securities issued by Fannie Mae or Freddie Mac are rated consistently as AAA rated
securities. Market interest rate fluctuations can affect the prepayment speed of principal and the yield on the security.
Premiums and discounts are amortized using the level yield or “interest method” over the terms of the securities.
Declines in the fair value of held-to-maturity and available-for sale-securities below their cost that are deemed to be other
than temporary are reflected in earnings as realized losses. In determining whether other-than-temporary impairment
exists, management considers many factors, including (i) the length of time and the extent to which the fair value has been
less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) our intent to hold and our
determination of whether we will more likely than not be required to sell the security prior to a recovery in fair value. If
we determine that (i) we intend to sell the security or (ii) it is more likely than not that we will be required to sell the
security before it’s anticipated recovery, the other-than-temporary impairment that is recognized in earnings is equal to
the difference between the fair value of the security and our amortized cost of the security. If we determine that we (i) do
not intend to sell the security and (ii) we will not be more likely than not required to sell the security before it’s anticipated
recovery, the other-than-temporary impairment is segregated into its two components (i) the amount of impairment related
to credit loss and (ii) the amount of impairment related to other factors. The difference between the present value of the
cash flows expected to be collected and the amortized cost is the credit loss recognized through earnings and an adjustment
to the cost basis of the security. The amount of impairment related to other factors is included in other comprehensive
income (loss). Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific
identification method.
Equity Securities
Prior to January 1, 2018, equity securities with readily determinable fair values were included in available-for-
sale securities, with the unrealized gain or loss recorded as a component of other comprehensive income (loss). Pursuant
to the adoption of ASU 2016-02, equity securities with readily determinable fair values are a separate component of our
balance sheet, with unrealized gains and losses recognized in net income. Equity securities with readily determinable fair
values at December 31, 2020 and December 31, 2019 consist primarily of Community Reinvestment Act funds.
Provision and Allowance for Credit Losses
We adopted the provisions of Accounting Standards Update No. 2016-13 to ASC 326, “Financial Instruments –
Credit Losses,” on January 1, 2020. ASU 2016-13 replaces the long-standing incurred loss model with an expected credit
loss model that recognizes credit losses over the life of a financial asset. Expected credit losses capture historical
information, current conditions, and reasonable and supportable forecasts of future conditions. The ACL is deducted from
the amortized cost of an instrument to present the net amount expected to be collected on the financial asset. Our ACL
primarily consists of the aggregate ACL estimates of our Subsidiary Banks. The estimates are established through charges
to operations in the form of charges to provisions for credit loss expense. Loan losses or recoveries are charged or credited
directly to the ACL. The ACL of each Subsidiary Bank is maintained at a level considered appropriate by management,
39
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
based on estimated current expected credit losses in the current loan portfolio, including information about past events,
current conditions and reasonable and supportable forecasts.
Our management continually reviews the ACL of the Subsidiary Banks using the amounts determined from the
estimates established on specific doubtful loans, the estimate established on quantitative historical loss percentages, and
the estimate based on qualitative current conditions and reasonable and supportable two-year forecasted data. Our
methodology reverts to the average lifetime loss-rate beyond the forecast period when we can no longer develop reasonable
and supportable forecasts. Should any of the factors considered by management in evaluating the adequacy of the estimate
for current expected credit losses change, our estimate of current expected credit losses could also change, which could
affect the level of future credit loss expense. While the calculation of our ACL utilizes management’s best judgment and
all information reasonably available, the adequacy of the ACL is dependent on a variety of factors beyond our control,
including, among other things, the performance of the entire loan portfolio, the economy, government actions, changes in
interest rates and the view of regulatory authorities towards loan classifications. We believe that the allowance for probable
loan losses is adequate.
The Subsidiary Banks charge-off that portion of any loan which management considers to represent a loss as well
as that portion of any other loan which is classified as a “loss” by bank examiners. Commercial, financial and agricultural
or real estate loans are generally considered by management to represent a loss, in whole or part, (i) when an exposure
beyond any collateral coverage is apparent, (ii) when no further collection of the portion of the loan so exposed is
anticipated based on actual results, (iii) when the credit enhancements, if any, are not adequate, and (iv) when the
borrower’s financial condition would indicate so. Generally, unsecured consumer loans are charged-off when 90 days past
due.
Loans
Loans are reported at the principal balance outstanding, net of unearned discounts. Interest income on loans is
reported on an accrual basis. Loan fees and costs associated with originating the loans are accreted or amortized over the
life of the loan using the interest method. We originate mortgage loans that may subsequently be sold to an unaffiliated
third party. The loans are not securitized and if sold, are sold without recourse. Loans held for sale are carried at cost and
the principal amount outstanding is not significant to the consolidated financial statements.
Doubtful Loans
Doubtful loans are those loans where it is probable that all amounts due according to contractual terms of the loan
agreement will not be collected. Doubtful loans are measured based on (1) the present value of expected future cash flows
discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral
if the loan is collateral dependent. Substantially all our doubtful loans are measured at the fair value of the collateral. In
limited cases, we may use other methods to determine the level of impairment of a loan if such loan is not collateral
dependent.
40
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Troubled Debt Restructured Loans
Troubled debt restructured loans (“TDR”) are those loans where, for reasons related to a borrower’s difficulty to
repay a loan, we grant a concession to the borrower that we would not normally consider in the normal course of business.
In accordance with interagency guidance issued in March 2020, certain short-term deferrals are not considered troubled
debt restructurings. The original terms of the loan are modified or restructured. The terms that may be modified include a
reduction in the original stated interest rate, an extension of the original maturity of the loan, a renewal of the loan at an
interest rate below current market rates, a reduction in the principal amount of debt outstanding, a reduction in accrued
interest or deferral of interest payments. A loan classified as a TDR is classified as a doubtful loan and included in the
doubtful loan totals. A TDR loan may be returned to accrual status when the loan is brought current, has performed in
accordance with the restructured terms for a reasonable period of time, is at the current market rate, and the ultimate
collectability of the outstanding principal and interest is no longer questionable, however, although those loans may be
placed back on accrual status, they will continue to be classified as doubtful. Consistent with regulatory guidance, a TDR
loan that is subsequently modified, but has shown sustained performance and classification as a TDR, will be removed
from TDR status provided that the modified terms were market-based at the time of modification.
Non-Accrual Loans
The non-accrual loan policy of our Subsidiary Banks is to discontinue the accrual of interest on loans when
management determines that it is probable that future interest accruals will be un-collectible. As it relates to consumer
loans, management charges-off those loans when the loan is contractually 90 days past due. Under special circumstances,
a consumer or non-consumer loan may be more than 90 days delinquent as to interest or principal and not be placed on
non-accrual status. This situation generally results when a Subsidiary Bank has a borrower who is experiencing financial
difficulties, but not to the extent that requires a restructuring of indebtedness. The majority of this category is composed
of loans that are considered to be adequately secured and/or for which there are expected future payments. When a loan is
placed on non-accrual status, any interest accrued, not paid is reversed and charged to operations against interest income.
As it relates to non-consumer loans that are not 90 days past due, management will evaluate each of these loans to
determine if placing the loan on non-accrual status is warranted. Interest income on non-accrual loans is recognized only
to the extent payments are received or when, in management’s opinion, the debtor’s financial condition warrants
reestablishment of interest accruals.
Other Real Estate Owned and Repossessed Assets
Other real estate owned is comprised of real estate acquired by foreclosure and deeds in lieu of foreclosure. Other
real estate is carried at the lower of the recorded investment in the property or its fair value less estimated costs to sell such
property (as determined by independent appraisal). Prior to foreclosure, the value of the underlying loan is written down
to the fair value of the real estate to be acquired by a charge to the ACL, if necessary. Any subsequent write-downs are
charged against other non-interest expense through a valuation allowance. Other real estate owned totaled approximately
$60,487,300 and $71,103,000 at December 31, 2020 and 2019, respectively. Other real estate owned is included in other
assets. Repossessed assets consist primarily of non-real estate assets acquired by foreclosure. Prior to foreclosure, the
value of the underlying loan is written down to the fair value of the asset to be repossessed by a charge to the ACL, if
necessary. Repossessed assets are included in other assets on the consolidated financial statements and totaled
approximately $5,779,000 and $7,137,000 at December 31, 2020 and 2019, respectively.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on
straight-line and accelerated methods over the estimated useful lives of the assets. Repairs and maintenance are charged
to operations as incurred and expenditures for renewals and betterments are capitalized. We primarily own all the property
we occupy, with the exception of certain branches operating in grocery store or retail shopping centers and certain ATM
locations, which are all under operating leases as classified under guidance prior to the issuance of ASU 2016-02, “Leases.”
We adopted the guidance in ASU 2016-02 on January 1, 2019 and recorded a right of use asset and a lease liability of
approximately $6.4 million. The right of use asset and lease liability are included in other assets and other liabilities,
respectively, in our consolidated financial statements.
41
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Other Investments
Other investments include equity investments in non-financial companies, as well as equity securities with no
readily determinable fair market value. Equity investments are accounted for using the equity method of accounting. Equity
securities with no readily determinable fair value are accounted for using the cost method.
Revenue Recognition
Since our revenue is primarily comprised of net interest income on financial assets and liabilities, which were
excluded from the scope of the update, the remaining non-interest revenue streams were identified and then analyzed under
the provisions of the update, to: (i) identify the contract, (ii) identify the performance obligation, (iii) determine the
transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when the
performance obligation was satisfied. Our non-interest revenue contracts with customers are primarily short term and our
performance obligation is satisfied at a single point in time, typically within a single period. No changes to our existing
methods for recognizing revenue were made as a result of the update.
Income Taxes
Deferred income tax assets and liabilities are determined using the asset and liability method. Under this method,
the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax
basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. We
file a consolidated federal income tax return with our subsidiaries.
Recognition of deferred tax assets is based on management’s assessment that the benefit related to certain
temporary differences, tax operating loss carry forwards, and tax credits are more likely than not to be realized. A valuation
allowance is recorded for the amount of the deferred tax items for which it is more likely than not that the tax benefits will
not be realized.
We evaluate uncertain tax positions at the end of each reporting period. We may recognize the tax benefit from
an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax benefit recognized in the financial statements from
any such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized
upon ultimate settlement. As of December 31, 2020 and 2019, respectively, after evaluating all uncertain tax positions, we
have recorded no liability for unrecognized tax benefits at the end of the reporting period. We would recognize any interest
accrued on unrecognized tax benefits as other interest expense and penalties as other non-interest expense. During the
years ended December 31, 2020, 2019 and 2018, we recognized no interest expense or penalties related to uncertain tax
positions.
We file consolidated tax returns in the U.S. Federal jurisdiction and various state jurisdictions. We are no longer
subject to U.S. federal or state income tax examinations by tax authorities for years before 2017.
Stock Options
Compensation expense for stock awards is based on the market price of the stock on the measurement date, which
is generally the date of grant, and is recognized ratably over the service period of the award. The fair value of stock options
granted was estimated using the Black-Sholes-Merton option-pricing model. This model was developed for use in
estimating the fair value of publicly traded options that have no vesting restrictions and are fully transferable. Additionally,
the model requires the input of highly subjective assumptions. Because our employee stock options have characteristics
significantly different from those of publicly traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management’s opinion, the Black-Scholes-Merton option-pricing model does
not necessarily provide a reliable single measure of the fair value of our stock options.
42
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Net Income Per Share
Basic Earnings Per Share (“EPS”) is calculated by dividing net income by the weighted average number of
common shares outstanding. The computation of diluted EPS assumes the issuance of common shares for all dilutive
potential common shares outstanding during the reporting period. The dilutive effect of stock options is considered in
earnings per share calculations, if dilutive, using the treasury stock method.
Goodwill and Identified Intangible Assets
Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill is tested for
impairment at least annually or on an interim basis if an event triggering impairment may have occurred. As of October 1,
2020, after completing goodwill testing, we have determined that no goodwill impairment exists.
Identified intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill
because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or
in combination with a related contract, asset, or liability. Our identified intangible assets relate to core deposits and contract
rights. As of December 31, 2020, we have determined that no impairment of identified intangibles exists. Identified
intangible assets with definite useful lives are amortized on an accelerated basis over their estimated life. See Note 6—
Goodwill and Other Intangible Assets.
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of the asset
to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying value of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying value of
the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the statement of
condition and reported at the lower of the carrying value or fair value less costs to sell, and are no longer depreciated. The
assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset
and liability sections of the statement of condition.
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, we consider all short-term investments with a maturity
at date of purchase of three months or less to be cash equivalents. Also, we report transactions related to deposits and loans
to customers on a net basis.
Accounting for Transfers and Servicing of Financial Assets
We account for transfers and servicing of financial assets and extinguishments of liabilities based on the
application of a financial-components approach that focuses on control. After a transfer of financial assets, we recognize
the financial and servicing assets we control and liabilities we have incurred, derecognize financial assets when control
has been surrendered and derecognize liabilities when extinguished. We have retained mortgage servicing rights in
connection with the sale of mortgage loans. Because we may not initially identify loans as originated for resale, all loans
are initially treated as held for investment. The value of the mortgage servicing rights are reviewed periodically for
impairment and are amortized in proportion to, and over the period of estimated net servicing income or net servicing
losses. The value of the mortgage servicing rights is not significant to the consolidated statements of condition.
Segments of an Enterprise and Related Information
We operate as one segment. The operating information used by our chief executive officer for purposes of
assessing performance and making operating decisions is the consolidated financial statements presented in this report.
43
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
We have five active operating subsidiaries, namely, the Subsidiary Banks. We apply the provisions of ASC Topic 280,
“Segment Reporting,” in determining our reportable segments and related disclosures.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other
comprehensive income (loss) includes unrealized gains and losses on securities available for sale.
Advertising
Advertising costs are expensed as incurred.
Reclassifications
Certain amounts in the prior year’s presentations have been reclassified to conform to the current presentation.
These reclassifications had no effect on previously reported net income or shareholders’ equity.
New Accounting Standards
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 to ASC 820, “Leases.” The
update amends existing standards for accounting for leases by lessees, with accounting for leases by lessors remaining
mainly unchanged from current guidance. The update requires that lessees recognize a lease liability and a right of use
asset for all leases (with the exception of short-term leases) at the commencement date of the lease and disclose key
information about leasing arrangements. The update is to be applied on a modified retrospective basis for leases existing
at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements.
The update is effective for interim and annual periods beginning after December 15, 2018. In January 2018, the FASB
issued a proposal that provides an additional transition method that would allow entities to not apply the guidance in the
update in the comparative periods presented in the consolidated financial statements, but instead recognize a cumulative-
effect adjustment to the opening balance of retained earnings in the period of adoption. On January 1, 2019, we adopted
the provisions of ASU 2016-02, “Leases.” As part of our business model, we primarily own all property we occupy, with
the exception of certain branches operating in grocery stores or shopping centers and certain ATM locations that were
classified as operating leases under previous guidance. The adoption of the standard did not have a significant impact on
our consolidated financial statements. As of the date of adoption, we recorded a right of use asset and a lease liability of
approximately $6.4 million. The right of use asset and lease liability are included in other assets and other liabilities,
respectively, on our consolidated statement of condition. Amortization of the right of use asset for the twelve months
ended December 31, 2020 and December 31, 2019 was approximately $1,357,000 and $1,019,000, respectively, and is
included as a part of occupancy expense in our consolidated income statement.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 to ASC 326, “Financial Instruments –
Credit Losses.” The update amends existing standards for accounting for credit losses for financial assets. The update
requires that the expected credit losses on the financial instruments held as of the end of the period being reported be
measured based on historical experience, current conditions, and reasonable and supportable forecasts. The update also
expands the required disclosures related to significant estimates and judgements used in estimating credit losses, as well
as the credit quality and underwriting standards of an organization’s financial assets. The update also amended the
accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.
The impact of the adoption of the standard is to be recorded as a cumulative-effect adjustment to retained earnings as of
the beginning of the first reporting period in which the guidance is adopted. The accounting standard was effective for us
on January 1, 2020. The task force formed last year, which includes key members of the teams that work with the
calculation of the allowance for probable loan losses plus members representing the corporate accounting and risk
management areas, has worked with the implementation of the update and validation to complete our model/tool. Based
on the composition of the portfolio at December 31, 2019 and after finalizing the methodology, the adoption of the update
increased our allowance for probable loan losses (referred to as the ACL under ASU 2016-13), by approximately 17.2%,
resulting in a cumulative-effect adjustment to retained earnings of approximately $8.3 million, net of tax. Please refer to
44
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 4 – Allowance for Credit Losses and the Critical Accounting Policies discussion in Management’s Discussion and
Analysis.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04 to ASC 350, “Intangibles –
Goodwill and Other.” The update amends existing guidance in evaluating goodwill for impairment. The update requires
that an entity perform its annual or interim goodwill test by comparing the fair value of a reporting unit with its carrying
amount, with any impairment charges being recognized as the difference between the fair value and carrying value. The
update is intended to standardize the impairment test for all business entities and also reduce the complexity and cost of
evaluating goodwill for impairment. The update is effective for any annual or interim goodwill impairment tests in fiscal
years beginning after December 15, 2019. The adoption of the update is not expected to have a significant impact to our
consolidated financial statements.
In March 2017, the FASB issued Accounting Standards Update No. 2017-08 to ASC 310, “Receivables –
Nonrefundable Fees and Other Costs.” The update amends existing guidance on the amortization period for certain
callable debt securities held at a premium. The update shortens the amortization period of the premium to the earliest call
date. The update is effective for fiscal years beginning after December 15, 2018. The update is to be applied on a modified
retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of
adoption. The adoption of the update did not have a significant impact to our consolidated financial statements.
In February 2018, the FASB issued Accounting Standards Update No. 2018-02 to ASC 220, “Income Statement –
Reporting Comprehensive Income.” The update amends current guidance surrounding the reclassification of certain tax
effects from accumulated other comprehensive income. The update is being issued as a result of the 2017 Tax Cuts and
Jobs Act and the related impact to comprehensive income as a result of the application of current guidance with respect to
changes in tax rates. Under current guidance, entities must re-evaluate the carrying value of deferred tax assets and
liabilities and adjust them for the tax effect of the rate change and record that change through earnings. The result is that
the tax effects for items that normally would only be recognized in comprehensive income will be recognized through
earnings and results in stranded tax effects in accumulated other comprehensive income (loss) for the impact of the rate
change. The update will allow a reclassification from accumulated other comprehensive income (loss) to retained earnings
for the stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act. The update is effective for all entities for fiscal
years beginning after December 31, 2018. We adopted the provisions of ASU 2018-02 to ASC 220 in the second quarter
of 2018. We recorded a one-time reclassification of $5,997,000 between accumulated comprehensive income (loss) and
retained earnings as a result of the adoption of the accounting standards update.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13 to ASC 820, “Fair Value
Measurement.” The update amends the existing guidance surrounding the disclosure of certain fair value measurements.
The update removes certain disclosures that are no longer considered cost beneficial, modifies and, in some instances
clarifies, the specific requirements of certain disclosures and adds disclosure requirements that are identified relevant. The
update is effective for fiscal years beginning after December 15, 2019. The adoption of the update is not expected to have
a significant impact on our consolidated financial statements.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, to ASC 740, “Income Taxes.”
The update amends existing guidance with the intention of simplifying the accounting for income taxes. Specifically, the
update removes some exceptions in existing guidance around intraperiod tax allocations, recognition of deferred tax
liabilities for certain changes in investments in foreign subsidiaries and to the general methodology for calculating taxes
on interim periods when year to date losses exceed the anticipated loss for the year. Additionally, the update clarifies and
provides more guidance with respect to the classification of franchise or similar taxes, requirements to evaluate when a
step up in the tax basis of goodwill should be considered, eliminates the requirement that a consolidated entity allocate a
portion of current and deferred tax expense to a legal entity that is not subject to tax, requires that an entity reflect the
effect of changes in tax laws and tax rates in the effective tax rate computed in the interim period that includes the
enactment date and makes minor changes for taxes related to employee stock ownership plans and investments in qualified
affordable housing projects accounted for using the equity method. The update is effective for fiscal years beginning after
December 15, 2020. The adoption of the update is not expected to have a significant impact on our consolidated financial
statements.
45
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The update provides optional
guidance for a limited period of time to ease the potential burden in accounting for and recognizing the effects of reference
rate reform on financial reporting. The practical expedients and exceptions in the update apply only to contracts, hedging
relationships and other transactions affected by reference rate reform if certain criteria are met. The update does not apply
to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for
hedging relationships existing as of December 31, 2022 that an entity has elected certain optional expedients for and that
are retained through the end of the hedging relationship. The update was effective as of the date of issuance and can be
applied through December 31, 2022. We have not adopted the provisions of the update and to not anticipate that the
adoption of the update will have a significant impact on our consolidated financial statements.
In January 20201, the FASB issued Accounting Standards Update No. 2021-01, “Reference Rate Reform (Topic
848): Scope.” The update clarifies the applicability of the practical expedients and exceptions issued in ASU 2020-04 to
derivative instruments that use an interest rate for margining, discounting or contract price alignment that is modified as a
result of reference rate reform. The update is intended to capture the incremental consequences of the scope clarification
and tailor the existing guidance to derivative instruments affected by the discounting transition. The update was effective
as of the date of issuance and can be applied through December 31, 2022. We have not adopted the provisions of the
update and to not anticipate that the adoption of the update will have a significant impact on our consolidated financial
statements.
(2) Investment Securities
In accordance with ASU 2016-13, which we adopted on January 1, 2020, available-for-sale and held-to-maturity
debt securities in an unrealized loss position must be evaluated for the underlying cause of the loss. In the event that the
deterioration in value is attributable to credit related reasons, then the amount of credit-related impairment would be
recorded as a charge to our ACL with subsequent changes in the amount of impairment, up or down, also recorded through
our ACL. The exception to this process will occur if we intend to sell an impaired available-for-sale debt security or if we
will more likely than not be required to sell a credit impaired available-for-sale debt security prior to the value recovering
to the security’s amortized cost. In those situations, the entire credit-related impairment amount would be required to be
recognized in earnings. We have evaluated the debt securities classified as available-for-sale and held-to-maturity at
December 31, 2020 and have determined that no debt securities in an unrealized loss position are arising from credit related
reasons and have therefore not recorded any allowances for debt securities in our ACL for the period. Unrealized gains
and losses related to equity securities with readily determinable fair values are included in net income.
The amortized cost and estimated fair value by type of investment security at December 31, 2020 are as follows:
Gross
Held to Maturity
Gross
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total investment securities . . . . . . . . . . . . . . . . . . . $
3,400 $
3,400 $
Amortized
unrealized
unrealized
cost
gains
Estimated
fair value
Carrying
value
losses
(Dollars in Thousands)
— $
— $
— $
— $
3,400 $
3,400 $
3,400
3,400
Available for Sale Debt Securities
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Estimated
fair value
Carrying
value(1)
(Dollars in Thousands)
Residential mortgage-backed securities . . . . . . . . . $ 3,006,592 $ 32,701 $ (9,339) $ 3,029,954 $ 3,029,954
Obligations of states and political subdivisions . .
50,814
Total investment securities . . . . . . . . . . . . . . . . . . . $ 3,054,289 $ 35,832 $ (9,353) $ 3,080,768 $ 3,080,768
3,131
47,697
50,814
(14)
(1)
Included in the carrying value of residential mortgage- backed securities are $371,407 of mortgage-backed securities issued by Ginnie Mae and
$2,658,547 of mortgage-backed securities issued by Fannie Mae and Freddie Mac
46
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The amortized cost and estimated fair value of investment securities at December 31, 2020, by contractual
maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the
right to prepay obligations with or without prepayment penalties.
Held to Maturity
Available for Sale
Amortized
Cost
Estimated
fair value
Amortized
Cost
Estimated
fair value
(Dollars in Thousands)
—
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,200 $ 1,200 $
—
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . .
356
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . . .
50,458
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,029,954
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . .
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,400 $ 3,400 $ 3,054,289 $ 3,080,768
— $
—
355
47,342
3,006,592
2,200
—
—
—
2,200
—
—
—
The amortized cost and estimated fair value by type of investment security at December 31, 2019 are as follows:
Held to Maturity
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Estimated
fair value
Carrying
value
(Dollars in Thousands)
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total investment securities . . . . . . . . . . . . . . . . . $
2,400 $
2,400 $
— $
— $
— $
— $
2,400 $
$
2,400
2,400
2,400
Available for Sale
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Estimated
fair
value
Carrying
value(1)
(Dollars in Thousands)
Residential mortgage-backed securities . . . . . . . . $ 3,285,623 $ 16,534 $ (16,609) $ 3,285,548 $ 3,285,548
Obligations of states and political subdivisions .
93,375
90,447
Total investment securities . . . . . . . . . . . . . . . . . . $ 3,376,070 $ 19,467 $ (16,614) $ 3,378,923 $ 3,378,923
93,375
2,933
(5)
(1)
Included in the carrying value of residential mortgage- backed securities are $571,247 of mortgage-backed securities issued by Ginnie Mae,
$2,714,301 of mortgage-backed securities issued by Fannie Mae and Freddie Mac
Residential mortgage-backed securities are securities issued by Freddie Mac, Fannie Mae, Ginnie Mae or
non-government entities. Investments in residential mortgage-backed securities issued by Ginnie Mae are fully guaranteed
by the U.S. government. Investments in mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully
guaranteed by the U.S. government; however, we believe that the quality of the bonds is similar to other AAA rated bonds
with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the
federal government in early September 2008 and because securities issued by others that are collateralized by residential
mortgage-backed securities issued by Fannie Mae and Freddie Mac are rated consistently as AAA rated securities.
The amortized cost and fair value of available for sale investment securities pledged to qualify for fiduciary
powers, to secure public monies as required by law, repurchase agreements and short-term fixed borrowings was
$1,220,400,000 and $1,224,268,000, respectively, at December 31, 2020.
Proceeds from the sale and call of securities available-for-sale were $42,350,000, $94,585,000 and $59,782,000
during 2020, 2019 and 2018, respectively, which amounts included $0, $0 and $0 of mortgage-backed securities. Gross
gains of $1,000, $3,000 and $3,000, and gross losses of $6,000, $15,000 and $144,000 were realized on the sales and calls
in 2020, 2019 and 2018, respectively.
47
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by
investment category and length of time that individual securities have been in a continuous unrealized loss position, at
December 31, 2020 were as follows:
Less than 12 months
12 months or more
Total
Fair Value
Fair Value Losses
Fair Value
Unrealized
Losses
Unrealized
Unrealized
Losses
Available for sale:
Residential mortgage-backed securities . . . . . . . . . . . . . . . . $ 1,462,232 $
Obligations of states and political subdivisions . . . . . . . . . .
—
(9,339) $
—
— $
757
— $ 1,462,232 $
(14)
757
$ 1,462,232 $
(9,339) $
757 $
(14) $ 1,462,989 $
(9,339)
(14)
(9,353)
(Dollars in Thousands)
Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by
investment category and length of time that individual securities have been in a continuous loss position, at December 31,
2019 were as follows:
Available for sale:
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value Losses
Fair Value Losses
Fair Value Losses
(Dollars in Thousands)
Residential mortgage-backed securities . . . . . . . . $ 523,031 $ (2,269) $ 1,448,109 $ (14,340) $ 1,971,140 $ (16,609)
Obligations of states and political subdivisions . .
(5)
$ 523,797 $ (2,274) $ 1,448,109 $ (14,340) $ 1,971,906 $ (16,614)
766
766
—
—
(5)
The unrealized losses on investments in residential mortgage-backed securities are primarily caused by changes
in market interest rates. We have no intent to sell and more likely than not be required to sell before a market price recovery
or maturity of the securities; therefore, it is our conclusion that the investments in residential mortgage-backed securities
issued by Freddie Mac, Fannie Mae and Ginnie Mae are not considered other-than-temporarily impaired.
Equity securities with readily determinable fair values consist primarily of Community Reinvestment Act funds.
At December 31, 2020 and December 31, 2019, the balance in equity securities with readily determinable fair values
recorded at fair value were $6,202,000 and $6,095,000, respectively. The following is a summary of unrealized and
realized gains and losses recognized in net income on equity securities during the twelve months ended December 31,
2020, December 31, 2019 and December 31, 2018:
Net gains recognized during the period on equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Net gains and (losses) recognized during the period on equity securities sold
during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains recognized during the reporting period on equity securities still held at
the reporting date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
107
—
107
Year Ended
December 31, 2020
(Dollars in Thousands)
48
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Year Ended
December 31, 2019
(Dollars in Thousands)
Net gains recognized during the period on equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Net gains and (losses) recognized during the period on equity securities sold
during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses recognized during the reporting period on equity securities still held at
the reporting date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
158
—
158
Year Ended
December 31, 2018
(Dollars in Thousands)
Net losses recognized during the period on equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(388)
Less: Net gains and (losses) recognized during the period on equity securities sold
during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Unrealized losses recognized during the reporting period on equity securities still held at
the reporting date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(388)
(3) Loans
A summary of loans, by loan type at December 31, 2020 and 2019 is as follows:
December 31,
December 31,
2020
2019
(Dollars in Thousands)
Commercial, financial and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,516,288 $ 3,379,837
1,140,377
Real estate - mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,185,883
Real estate - construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,800
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
141,049
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,541,754 $ 6,894,946
999,144
1,846,757
40,595
138,970
(4) Allowance for Credit Losses
We adopted the provisions of ASU 2016-13 on January 1, 2020 on a modified retrospective basis. Results and
information regarding our ACL included in this Note are calculated and presented in accordance with that accounting
standards update. Results and information prior to January 1, 2020 are calculated and presented in accordance with
previously applicable U.S. GAAP.
ASU 2016-13 replaces the long-standing incurred loss model with an expected credit loss model that recognizes
credit losses over the life of a financial asset. Expected credit losses capture historical information, current conditions,
and reasonable and supportable forecasts of future conditions. The ACL is deducted from the amortized cost of an
instrument to present the net amount expected to be collected on the financial asset. Our ACL primarily consists of the
aggregate ACL estimates of our Subsidiary Banks. The estimates are established through charges to operations in the form
of charges to provisions for credit loss expense. Loan losses or recoveries are charged or credited directly to the ACL.
The ACL of each Subsidiary Bank is maintained at a level considered appropriate by management, based on estimated
current expected credit losses in the current loan portfolio, including information about past events, current conditions and
reasonable and supportable forecasts.
49
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The estimation of the ACL is based on a loss-rate methodology that measures lifetime losses on loan pools that
have similar risk characteristics. Loans that do not have similar risk characteristics are evaluated on an individual basis.
The segmentation of the loan portfolio into pools requires a balancing process between capturing similar risk
characteristics and containing sufficient loss history to provide meaningful results. Our segmentation starts at the general
loan category with further sub-segmentation based on collateral types that may be of meaningful size and/or may contain
sufficient differences in risk characteristics based on management’s judgement that would warrant further segmentation.
The general loan categories along with primary risk characteristics used in our calculation are as follows:
Commercial and industrial loans. This category includes loans extended to a diverse array of businesses for working
capital or equipment purchases. These loans are mostly secured by the collateral pledged by the borrower that is
directly related to the business activities of the company such as equipment, accounts receivable and inventory. The
borrower’s abilities to generate revenues from equipment purchases, collect accounts receivable, and to turn inventory
into sales are risk factors in the repayment of the loan. A small portion of this loan category is related to loans secured
by oil & gas production and loans secured by aircraft.
Construction and land development loans. This category includes the development of land from unimproved land to
lot development for both residential and commercial use and vertical construction across residential and commercial
real estate classes. These loans carry risk of repayment when projects incur cost overruns, have an increase in the
price of construction materials, encounter zoning, entitlement and environmental issues, or encounter other factors
that may affect the completion of a project on time and on budget. Additionally, repayment risk may be negatively
impacted when the market experiences a deterioration in the value of real estate. Risks specifically related to 1-4
family development loans also include mortgage rate risk and the practice by the mortgage industry of more restrictive
underwriting standards, which inhibits the buyer from obtaining long term financing creating excessive housing and
lot inventory in the market.
Commercial real estate loans. This category includes loans secured by farmland, multifamily properties, owner
occupied commercial properties, and non-owner occupied commercial properties. Owner occupied commercial
properties include warehouses often along the border for import/export operations, office space where the borrower
is the primary tenant, restaurants and other single-tenant retail. Non-owner occupied commercial properties include
hotels, retail centers, office and professional buildings, and leased warehouses. These loans carry risk of repayment
when market values deteriorate, the business experiences turnover in key management, the business has an inability
to attract or keep occupancy levels stable, or when the market experiences an exit of a specific business type that is
significant to the local economy, such as a manufacturing plant.
1-4 family mortgages. This category includes both first and second lien mortgages for the purpose of home purchases
or refinancing of existing mortgage loans. A small portion of this loan category is related to home equity lines of
credits, lots purchases, and home construction. Loan repayments may be affected by unemployment or
underemployment and deteriorating market values of real estate.
Consumer loans. This category includes deposit secured, vehicle secured, and unsecured loans, including overdrafts,
made to individuals. Repayment is primarily affected by unemployment or underemployment.
The loan pools are further broken down using a risk-based segmentation based on internal classifications for
commercial loans and past due status for consumer mortgage loans. Non-mortgage consumer loans are evaluated as one
segment. On a weekly basis, commercial loan past due reports are reviewed by the credit quality committee to determine
if a loan has any potential problems and if a loan should be placed on our internal Watch List report. Additionally, our
credit department reviews the majority of our loans for proper internal classification purposes regardless of whether they
are past due and segregates any loans with potential problems for further review. The credit department will discuss the
potential problem loans with the servicing loan officers to determine any relevant issues that were not discovered in the
evaluation. Also, an analysis of loans that is provided through examinations by regulatory authorities is considered in the
review process. After the above analysis is completed, we will determine if a loan should be placed on an internal Watch
List report because of issues related to the analysis of the credit, credit documents, collateral and/or payment history.
50
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Our internal Watch List report is segregated into the following categories: (i) Pass, (ii) Economic Monitoring,
(iii) Special Review, (iv) Watch List—Pass, or (v) Watch List—Substandard, and (vi) Watch List—Doubtful. The loans
placed in the Special Review category and lower rated credits reflect our opinion that the loans reflect potential weakness
which require monitoring on a more frequent basis. Credits in those categories are reviewed and discussed on a regular
basis, no less frequently than quarterly, with the credit department and the lending staff to determine if a change in category
is warranted. The loans placed in the Watch List—Pass category and lower rated credits reflect our opinion that the credit
contains weaknesses which represent a greater degree of risk, which warrant “extra attention.” Credits in this category are
reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in
category is warranted. The loans placed in the Watch List—Substandard category are considered to be potentially
inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral.
These credit obligations, even if apparently protected by collateral value, have shown defined weaknesses related to
adverse financial, managerial, economic, market or political conditions which may jeopardize repayment of principal and
interest. Furthermore, there is the possibility that we may sustain some future loss if such weaknesses are not corrected.
The loans placed in the Watch List—Doubtful category have shown defined weaknesses and it is likely, based on current
information and events, that we will be unable to collect all principal and/or interest amounts contractually due. Watch
List—Doubtful loans are placed on non-accrual when they are moved to that category.
For the purposes of the ACL, in order to maintain segments with sufficient history for meaningful results, the
credits in the Pass and Economic Monitoring categories are aggregated, the credits in the Special Review and Watch List—
Pass credits are aggregated, and the credits in the Watch List—Substandard category remain in their own segment. For
loans that are classified as Watch List—Doubtful, management evaluates these credits in accordance with ASC 310-10,
“Receivables,” and, if deemed necessary, a specific reserve is allocated to the loan. The specific reserve allocated under
ASC 310-10, is based on (i) the present value of expected future cash flows discounted at the loan’s effective interest rate;
(ii) the loan’s observable market price; or (iii) net realizable value of the fair value of the collateral if the loan is collateral
dependent. Substantially all of our loans evaluated as Watch List—Doubtful under ASC 310-10 are measured using the
fair value of collateral method. In rare cases, we may use other methods to determine the specific reserve of a loan under
ASC 310-10 if such loan is not collateral dependent.
Within each collectively evaluated pool, the robustness of the lifetime historical loss-rate is evaluated and, if
needed, is supplemented with peer loss rates through a model risk adjustment. Certain qualitative loss factors are then
evaluated to incorporate management’s two-year reasonable and supportable forecast period followed by a reversion to
the pool’s average lifetime loss-rate. Those qualitative loss factors are: (i) trends in portfolio volume and composition,
(ii) volume and trends in classified loans, delinquencies, non-accruals and TDR’s, (iii) concentration risk, (iv) trends in
underlying collateral value, (v) changes in policies, procedures, and strategies, and (vi) economic conditions. Qualitative
factors also include potential losses stemming from operational risk factors arising from fraud, natural disasters, pandemics
and geopolitical events. Should any of the factors considered by management in evaluating the adequacy of the ACL
change, our estimate could also change, which could affect the level of future credit loss expense.
We have elected to not measure an ACL for accrued interest receivable given our timely approach in identifying
and writing off uncollectible accrued interest. An ACL for off-balance sheet exposure is derived from a projected usage
rate of any unfunded commitment multiplied by the historical loss rate, plus model risk adjustment, if any, of the on-
balance sheet loan pools.
Our management continually reviews the ACL of the Subsidiary Banks using the amounts determined from the
estimates established on specific doubtful loans, the estimate established on quantitative historical loss percentages, and
the estimate based on qualitative current conditions and reasonable and supportable two-year forecasted data. Our
methodology reverts to the average lifetime loss-rate beyond the forecast period when we can no longer develop reasonable
and supportable forecasts. Should any of the factors considered by management in evaluating the adequacy of the estimate
for current expected credit losses change, our estimate of current expected credit losses could also change, which could
affect the level of future credit loss expense. While the calculation of our ACL utilizes management’s best judgment and
all information reasonably available, the adequacy of the ACL is dependent on a variety of factors beyond our control,
including, among other things, the performance of the entire loan portfolio, the economy, government actions, changes in
interest rates and the view of regulatory authorities towards loan classifications.
51
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
A summary of the changes in the allowance for probable loan losses by loan class is as follows:
December 31, 2020
Domestic
Foreign
Commercial
real estate:
other
Commercial
construction & real estate: Commercial
land
farmland & real estate: Residential: Residential:
Commercial development commercial multifamily
first lien
junior lien Consumer Foreign Total
Balance at December 31, . . . . . . . . . . $
Adoption of ASU 2016-13 . . . . . . . . .
Losses charge to allowance . . . . . .
Recoveries credited to allowance . .
Net losses charged to allowance . .
11,145 $
4,247
(8,936)
2,191
(6,745)
18,152 $
13,391
(19)
35
16
16,533 $
(4,292)
(55)
117
62
Provision (credit) charged to
(Dollars in Thousands)
1,786 $
(355)
—
—
—
3,762 $
(1,580)
(160)
21
(139)
7,535 $
(429)
(124)
186
62
542 $
(225)
(280)
69
(211)
823 $ 60,278
10,347
(9,574)
2,629
(6,945)
(410)
—
10
10
operations . . . . . . . . . . . . . . . . . . .
Balance at December 31, . . . . . . . . . . $
13,261
21,908 $
6,053
37,612 $
17,697
30,000 $
3,620
5,051 $
1,831
3,874 $
2,402
9,570 $
185
291 $
330
45,379
753 $ 109,059
December 31, 2019
Domestic
Foreign
Commercial
real estate:
other
Commercial
construction & real estate: Commercial
Commercial development commercial multifamily
first lien
junior lien Consumer Foreign Total
land
farmland & real estate: Residential: Residential:
(Dollars in Thousands)
Balance at December 31, . . . . . . . . . . . $
Losses charge to allowance . . . . . . .
Recoveries credited to allowance . . .
Net losses charged to allowance . . .
12,596 $
(14,412)
2,196
(12,216)
15,123 $
(39)
113
74
19,353 $
(7,353)
318
(7,035)
1,808 $
—
—
—
3,467 $
(201)
26
(175)
7,719 $
(435)
286
(149)
447 $
(487)
40
(447)
871 $ 61,384
(22,928)
(1)
2,979
—
(19,949)
(1)
Provision (credit) charged to
operations . . . . . . . . . . . . . . . . . . . .
Balance at December 31, . . . . . . . . . . . $
10,765
11,145 $
2,955
18,152 $
4,215
16,533 $
(22)
1,786 $
470
3,762 $
(35)
7,535 $
542
542 $
(47)
18,843
823 $ 60,278
December 31, 2018
Domestic
Foreign
Commercial
real estate:
other
Commercial
construction & real estate:
Commercial
land
farmland & real estate:
Residential: Residential:
Commercial development commercial multifamily
first lien
(Dollars in Thousands)
junior lien Consumer Foreign Total
Balance at December 31,. . . . . . . . . . $
Losses charge to allowance . . . . .
Recoveries credited to allowance .
Net losses charged to allowance . .
27,905 $
(14,220)
1,981
(12,239)
11,675 $
(1)
25
24
16,663 $
(70)
246
176
1,109 $
—
—
—
2,950 $
(122)
36
(86)
6,103 $
(347)
369
22
440 $ 842 $ 67,687
(15,125)
(3)
2,710
10
(12,415)
7
(362)
43
(319)
Provision (credit) charged to
operations . . . . . . . . . . . . . . . . . .
Balance at December 31,. . . . . . . . . . $
(3,070)
12,596 $
3,424
15,123 $
2,514
19,353 $
699
1,808 $
603
3,467 $
1,594
7,719 $
6,112
22
326
447 $ 871 $ 61,384
The allowance for credit and probable loan losses is a reserve established through a provision for probable loan
losses charged to expense, which represents management’s best estimate of probable loan losses when evaluating loans
(i) individually or (ii) collectively. The increase in credit loss expense for the year ended December 31, 2020 can be
primarily attributed to the deteriorating economic conditions occurring in those periods as a result of COVID-19 and the
impact of those conditions on certain segments of our ACL calculation for those periods. We adopted the provisions of
ASU 2016-13 on January 1, 2020, resulting in a transition from the long-standing incurred loss model to an expected credit
loss model. The increase in provision for probable loan losses charged to expense and charge-offs charged to the allowance
for probable loan losses for the year ended December 31, 2019 can be primarily attributed to a relationship that is secured
by multiple pieces of real property on which car dealerships are operated. The relationship began deteriorating in the
fourth quarter of 2018, triggered by significant fraud by a high level insider of the car dealership resulting in the dealerships
52
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
unexpectedly filing for bankruptcy and creating an exposure for potential loss since the operations of the dealerships were
the source of repayment from the borrower. The relationship further deteriorated in the first quarter of 2019 after the
sponsor of the court approved debtor in possession plan discontinued its role in the process and thus did not fulfill its
obligation to assume full responsibility of the accrued and unpaid interest. Although the relationship is secured by real
property (the dealerships’ real estate), the real property has specialized use, contributing to the potential exposure for
probable loss. During the first quarter of 2019, in light of the circumstances and management’s evaluation of the
relationship, the decision was made to place the relationship on impaired, non-accrual status and place a specific reserve
on the relationship in the amount of $9.5 million. During the second quarter of 2019, management continued to evaluate
the relationship and decided to foreclose on the underlying real estate collateral, resulting in a charge-off of approximately
$9.5 million, reflected in the tables above as part of the Commercial and commercial real estate: farmland and commercial
categories. The decrease in the provision for probable loan losses charged to expense for the years ended December 31,
2018 can be attributed to a decrease in the historical loss experience in the commercial category of the calculation. As
discussed in prior periods, charge-offs increased from historical levels due to the deterioration of one relationship that was
secured by multiple pieces of transportation equipment beginning in the fourth quarter of 2014. We use a three-year
historical charge-off experience in the calculation, therefore, as those charge-offs were eliminated from the calculation,
the allowance for probable loan losses (now ACL) was impacted. As fluctuations occur in historical loss factors,
management evaluates the need to adjust the qualitative factors used in the calculation to properly reflect probable loan
losses.
The table below provides additional information on the balance of loans individually or collectively evaluated for
impairment and their related allowance, by loan class:
December 31, 2020
Loans Individually
Evaluated For
Impairment
Loans Collectively
Evaluated For
Impairment
Recorded
Investment Allowance
Recorded
Investment
(Dollars in Thousands)
Allowance
Domestic
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,189 $
Commercial real estate: other construction & land development . .
Commercial real estate: farmland & commercial . . . . . . . . . . . . . . .
Commercial real estate: multifamily . . . . . . . . . . . . . . . . . . . . . . . . .
Residential: first lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential: junior lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,496
439
134
151
38
—
—
209 $ 1,784,747 $ 21,699
37,542
30,000
5,051
3,874
9,570
291
753
1,829,261
2,288,869
440,910
404,968
593,987
40,595
138,970
70
—
—
—
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,447 $
279 $ 7,522,307 $ 108,780
53
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2019
Loans Individually
Evaluated For
Impairment
Loans Collectively
Evaluated For
Impairment
Recorded
Investment Allowance
Recorded
Investment
(Dollars in Thousands)
Allowance
Domestic
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,935 $
Commercial real estate: other construction & land development . . .
Commercial real estate: farmland & commercial . . . . . . . . . . . . . . . .
Commercial real estate: multifamily . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential: first lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential: junior lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
938
1,208
165
6,278
692
1,195
264
249 $ 1,290,725 $ 10,895
18,037
116
16,533
—
1,786
—
3,762
—
7,535
—
542
—
823
—
2,184,945
1,895,539
190,265
427,623
705,784
46,605
140,785
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,675 $
365 $ 6,882,271 $ 59,913
Loans accounted for on a non-accrual basis at December 31, 2020, 2019 and 2018 amounted to $19,822,000,
$4,886,000 and $15,791,000, respectively. The increase in non-accrual commercial loans at December 31, 2020 compared
to the same period of 2019 can be attributed to a relationship secured by commercial property. The decrease in non-accrual
commercial loans at December 31, 2019 compared to the same period of 2018 can be attributed to a relationship secured
by equipment and accounts receivable that has been upgraded to Watch-List Substandard. The effect of such non-accrual
loans reduced interest income by approximately $694,000, $340,000 and $1,119,000 for the years ended December 31,
2020, 2019 and 2018, respectively. Amounts received on non-accruals are applied, for financial accounting purposes, first
to principal and then to interest after all principal has been collected. Accruing loans contractually past due 90 days or
more as to principal or interest payments at December 31, 2020, 2019 and 2018 amounted to approximately $8,238,000,
$59,705,000 and $40,674,000, respectively. The increase at December 31, 2019 can be attributed to a relationship that is
secured by multiple pieces of real property on which car dealerships are operated.
The table below provides additional information on loans accounted for on a non-accrual basis by loan class:
December 31, 2020 December 31, 2019
(Dollars in Thousands)
Domestic
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Commercial real estate: other construction & land development . . . . . . . . . . . . .
Commercial real estate: farmland & commercial . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate: multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential: first lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential: junior lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-accrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,189 $
17,496
439
134
526
38
—
19,822 $
1,901
938
1,208
165
670
—
4
4,886
Doubtful loans are those loans where it is probable that all amounts due according to contractual terms of the loan
agreement will not be collected. We have identified these loans through our normal loan review procedures. Doubtful
loans are measured based on (i) the present value of expected future cash flows discounted at the loan’s effective interest
rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral if the loan is collateral dependent.
Substantially all of our doubtful loans are measured at the fair value of the collateral. In limited cases, we may use other
methods to determine the level of impairment of a loan if such loan is not collateral dependent.
54
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The following tables detail key information regarding our doubtful loans (formerly “impaired loans” prior to the
adoption of ASU 2016-13) by loan class at December 31, 2019, in accordance with ASC 310 prior to the adoption of ASU
2016-13:
December 31, 2019
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Recognized
(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Commercial real estate: other construction & land development . . . . . . . .
Total impaired loans with related allowance . . . . . . . . . . . . . . . . . . . . . $
510 $
126
636 $
516 $
169
685 $
249 $
116
365 $
514 $
131
645 $
—
—
—
Recorded
Investment
December 31, 2019
Unpaid
Principal
Balance
Average
Recorded
Investment
(Dollars in Thousands)
Interest
Recognized
Loans with No Related Allowance
Domestic
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Commercial real estate: other construction & land development . . . . . . . . . . . . . .
Commercial real estate: farmland & commercial . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate: multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential: first lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential: junior lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impaired loans with no related allowance . . . . . . . . . . . . . . . . . . . . . . . . . $
1,425 $
812
1,208
165
6,278
692
1,195
264
12,039 $
1,516 $
1,133
1,841
168
6,445
692
1,196
264
13,255 $
18,794 $
1,737
22,357
651
6,988
1,023
1,117
278
52,945 $
2
—
—
—
309
42
—
12
365
The following table details loans accounted for as “troubled debt restructuring,” segregated by loan class. Loans
accounted for as troubled debt restructuring are included in impaired loans.
December 31, 2020 December 31, 2019
(Dollars in Thousands)
Domestic
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Residential: first lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential: junior lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total troubled debt restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
4,078
521
989
233
5,821
$
32
5,608
692
1,192
264
7,788
We are actively working with our customers affected by the current economic crisis arising from COVID-19. We
have been offering and are prepared to continue to offer assistance in accordance with current regulatory guidance. That
includes continuously reaching out to our customers and, in some cases, offering short-term payment deferral plans. In
accordance with the Coronavirus Aid, Relief and Economic Security (“CARES”) Act or interagency regulatory guidance,
these short-term deferrals are not considered troubled debt restructurings. As of February 22, 2021, approximately
$1,011,570,000 in loans with some degree of payment deferrals were in our system. Approximately 78% of the loans
originally put into some sort of deferral program have resumed regular payments. The end of the deferral period on loans
that are in some sort of payment deferral program will be throughout the first and second quarters of 2021 and we anticipate
that approximately 13% of the loans still in a payment deferral program will request some degree of additional relief. The
loans that may be requesting additional relief will include some customers in the industries that have been significantly
impacted by the COVID-19 pandemic, including the hospitality sector, the oil and gas industry and retail developments.
The CARES Act was signed into law on March 27, 2020. It contains substantial tax and spending provisions
intended to address the impact of the COVID-19 pandemic. The CARES Act includes the Paycheck Protection Program
55
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(“PPP”), originally a nearly $350 billion program designed to aid small businesses through federally guaranteed loans
distributed through banks. These loans were originally intended to support eight weeks of payroll and certain other costs
to help those businesses remain viable and allow their employees to pay their bills. Subsequently, on April 24, 2020, the
Paycheck Protection Program and Health Care Enhancement Act (“CARES Part II”) was signed into law. CARES Part II
provided an additional funding of $320 billion for the PPP program. Then, on June 5, 2020, the Paycheck Protection
Program Flexibility Act (“PPPFA”) was signed into law. The PPPFA, among other things, extended the period of time
that businesses could spend PPP loan proceeds on payroll and other eligible costs from eight weeks to the earlier of 24
weeks or December 31, 2020. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and
Venues Act (the “Economic Aid Act”) was enacted, which among other things, reauthorized lending under the PPP to
first-time borrowers and for second draws by certain borrowers who have previously received PPP loans. The Economic
Aid Act made available an additional $147 billion for PPP loans requested by March 31, 2021. We have been active
participants in helping our customers obtain PPP loans under all the PPP programs and as of February 22, 2021 have
approximately 3,500 loans with an approximate value of $395,872,000 outstanding. The PPP loans are fully guaranteed
by the U.S. government through the SBA.
The Subsidiary Banks charge-off that portion of any loan which management considers to represent a loss as well
as that portion of any other loan which is classified as a “loss” by bank examiners. Commercial and industrial or real
estate loans are generally considered by management to represent a loss, in whole or part, when an exposure beyond any
collateral coverage is apparent and when no further collection of the loss portion is anticipated based on the borrower’s
financial condition and general economic conditions in the borrower’s industry. Generally, unsecured consumer loans are
charged-off when 90 days past due.
While management considers that it is generally able to identify borrowers with financial problems reasonably
early and to monitor credit extended to such borrowers carefully, there is no precise method of predicting loan losses. The
determination that a loan is likely to be uncollectible and that it should be wholly or partially charged-off as a loss is an
exercise of judgment. Similarly, the determination of the adequacy of the ACL (formerly allowance for probable loan
losses) can be made only on a subjective basis. It is the judgment of our management that the ACL at December 31, 2020
and December 31, 2019, was adequate to absorb probable losses from loans in the portfolio at that date.
The following table presents information regarding the aging of past due loans by loan class:
December 31, 2020
Domestic
30 - 59
Days
90 Days or
60 - 89 90 Days or greater &
Days
Total
Past
still accruing Due
(Dollars in Thousands)
Greater
Current
Portfolio
Total
563 $
318 $ 3,603 $ 1,782,333 $ 1,785,936
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,931 $ 1,109 $
Commercial real estate: other construction &
land development . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate: farmland & commercial . . . .
Commercial real estate: multifamily . . . . . . . . . . . . .
Residential: first lien . . . . . . . . . . . . . . . . . . . . . . . .
Residential: junior lien . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,059
2,435
126
2,399
561
318
478
854
219
—
926
247
71
180
16,587
186
—
6,165
1,197
79
568
Total past due loans. . . . . . . . . . . . . . . . . . . . . . . . $ 9,307 $ 3,606 $ 25,345 $
56
—
186
—
5,890
1,197
79
568
1,846,757
2,289,308
441,044
405,119
594,025
40,595
138,970
8,238 $ 38,258 $ 7,503,496 $ 7,541,754
1,828,257
2,286,468
440,918
395,629
592,020
40,127
137,744
18,500
2,840
126
9,490
2,005
468
1,226
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Domestic
30 - 59
Days
60 - 89
Days
December 31, 2019
90 Days or
90 Days or greater &
Greater
Total
Past
still accruing Due
(Dollars in Thousands)
Current
Total
Portfolio
1,292 $
421 $ 5,052 $ 1,287,608 $ 1,292,660
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,134 $ 626 $
Commercial real estate: other construction & land
development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate: farmland & commercial . . .
Commercial real estate: multifamily . . . . . . . . . . . .
Residential: first lien . . . . . . . . . . . . . . . . . . . . . . .
Residential: junior lien . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
509
8,058
313
3,229
1,112
467
1,347
55
2,031
—
1,670
477
75
3
—
54,928
165
3,660
1,200
88
11
Total past due loans . . . . . . . . . . . . . . . . . . . . . . . $ 18,169 $ 4,937 $ 61,344 $
—
54,878
—
3,107
1,200
88
11
2,185,883
1,896,747
190,430
433,901
706,476
47,800
141,049
59,705 $ 84,450 $ 6,810,496 $ 6,894,946
2,185,319
1,831,730
189,952
425,342
703,687
47,170
139,688
564
65,017
478
8,559
2,789
630
1,361
The decrease in commercial real estate: other construction & land development loans past due 90 days or greater
at December 31, 2020 compared to December 31, 2019 can be primarily attributed to a relationship secured by real estate
on which children’s learning centers are operated. Our internal classified report is segregated into the following categories:
(i) “Special Review Credits,” (ii) “Watch List—Pass Credits,” or (iii) “Watch List—Substandard Credits.” The loans
placed in the “Special Review Credits” category reflect our opinion that the loans reflect potential weakness which require
monitoring on a more frequent basis. The “Special Review Credits” are reviewed and discussed on a regular basis with
the credit department and the lending staff to determine if a change in category is warranted. The loans placed in the
“Watch List—Pass Credits” category reflect our opinion that the credit contains weaknesses which represent a greater
degree of risk, which warrant “extra attention.” The “Watch List—Pass Credits” are reviewed and discussed on a regular
basis with the credit department and the lending staff to determine if a change in category is warranted. The loans placed
in the “Watch List—Substandard Credits” classification are considered to be potentially inadequately protected by the
current sound worth and debt service capacity of the borrower or of any pledged collateral. These credit obligations, even
if apparently protected by collateral value, have shown defined weaknesses related to adverse financial, managerial,
economic, market or political conditions which may jeopardize repayment of principal and interest. Furthermore, there is
the possibility that we could sustain some future loss if such weaknesses are not corrected.
57
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
A summary of the loan portfolio by credit quality indicator by loan class is as follows:
Balance at December 31, 2020
Domestic
Commercial
2020
2019
2018
2017
2016
Prior
Total
(Dollars in Thousands)
Pass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,168,671 $ 240,869 $ 145,670 $ 85,434 $ 13,901 $ 10,000 $ 1,664,545
Special Review . . . . . . . . . . . . . . . . . . . . . . . . . .
75,638
Watch List - Pass . . . . . . . . . . . . . . . . . . . . . . . . .
39,917
4,647
Watch List - Substandard . . . . . . . . . . . . . . . . . . .
Watch List - Doubtful . . . . . . . . . . . . . . . . . . . . .
1,189
Total Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,288,332 $ 241,724 $ 146,051 $ 85,596 $ 14,216 $ 10,017 $ 1,785,936
Commercial real estate: other construction &
land development
75,638
39,886
3,360
777
—
11
683
161
—
—
289
92
—
3
—
159
—
—
315
—
—
17
—
—
Pass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 773,165 $ 576,707 $ 320,308 $ 78,174 $ 10,534 $
Special Review . . . . . . . . . . . . . . . . . . . . . . . . . .
Watch List - Pass . . . . . . . . . . . . . . . . . . . . . . . . .
Watch List - Doubtful . . . . . . . . . . . . . . . . . . . . .
21,650
1,451
794
20,828
23,101
16,702
—
—
—
—
—
—
—
—
—
Total Commercial real estate: other construction &
land development . . . . . . . . . . . . . . . . . . . . . . . . . . $ 833,796 $ 600,602 $ 320,308 $ 78,174 $ 10,534 $
Commercial real estate: farmland & commercial
3,343 $ 1,762,231
42,478
24,552
17,496
—
—
—
3,343 $ 1,846,757
Pass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 884,070 $ 373,993 $ 386,268 $ 189,639 $ 202,500 $ 116,729 $ 2,153,199
Special Review . . . . . . . . . . . . . . . . . . . . . . . . . .
11,194
Watch List - Pass . . . . . . . . . . . . . . . . . . . . . . . . .
62,936
61,540
Watch List - Substandard . . . . . . . . . . . . . . . . . . .
Watch List - Doubtful . . . . . . . . . . . . . . . . . . . . .
439
3,041
61,637
53,809
—
4,758
277
—
—
—
942
4,986
202
177
80
2,269
—
3,218
—
475
—
—
—
1
237
Total Commercial real estate: farmland &
commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,002,557 $ 380,123 $ 391,303 $ 192,165 $ 206,193 $ 116,967 $ 2,289,308
Commercial real estate: multifamily
Pass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Watch List - Doubtful . . . . . . . . . . . . . . . . . . . . .
Total Commercial real estate: multifamily . . . . . . . . $
Residential: first lien
Pass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Watch List - Pass . . . . . . . . . . . . . . . . . . . . . . . . .
Watch List - Substandard . . . . . . . . . . . . . . . . . . .
Watch List - Doubtful . . . . . . . . . . . . . . . . . . . . .
Total Residential: first lien . . . . . . . . . . . . . . . . . . . $
Residential: junior lien
74,577 $ 208,356 $
—
74,711 $ 208,356 $
134
82,818 $ 64,110 $
—
82,818 $ 64,110 $
—
6,801 $
—
6,801 $
4,248 $ 440,910
134
4,248 $ 441,044
—
81,004 $
—
—
86
81,090 $
62,165 $
14
—
—
62,179 $
72,299 $ 54,593 $ 29,250 $ 105,463 $ 404,774
145
—
49
49
151
—
72,430 $ 54,593 $ 29,299 $ 105,528 $ 405,119
131
—
—
—
—
—
—
—
65
Pass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196,308 $ 108,276 $
—
Special Review . . . . . . . . . . . . . . . . . . . . . . . . . .
Watch List- Doubtful . . . . . . . . . . . . . . . . . . . . . .
—
Total Residential: junior lien . . . . . . . . . . . . . . . . . . $ 197,048 $ 108,276 $
Consumer
740
—
Pass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . $
30,910 $
30,910 $
7,159 $
7,159 $
Foreign
61,636 $ 75,056 $ 56,705 $ 94,454 $ 592,435
1,552
—
38
—
61,674 $ 75,868 $ 56,705 $ 94,454 $ 594,025
812
—
—
38
—
—
875 $
875 $
225 $
225 $
55 $
55 $
1,371 $
1,371 $
40,595
40,595
5,345 $ 138,970
Pass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,345 $ 138,970
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,601,680 $ 1,627,511 $ 1,087,031 $ 556,923 $ 327,336 $ 341,273 $ 7,541,754
19,092 $
19,092 $
11,572 $
11,572 $
93,236 $
93,236 $
3,533 $
3,533 $
6,192 $
6,192 $
58
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2019
Pass
Special
Review
Watch
List—Pass
Watch List— Watch List—
Substandard
Impaired
(Dollars in Thousands)
Domestic
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,228,110 $
Commercial real estate: other construction & land
development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate: farmland & commercial . . . . . . . . .
Commercial real estate: multifamily . . . . . . . . . . . . . . . . . .
Residential: first lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential: junior lien . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,090,370
1,710,446
190,265
426,546
704,958
46,605
140,785
569 $
39 $
62,007 $
1,935
18,721
13,184
—
253
826
—
—
41,949
20,183
—
144
—
—
—
33,905
151,726
—
680
—
—
—
938
1,208
165
6,278
692
1,195
264
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,538,085 $
33,553 $
62,315 $
248,318 $
12,675
The increase in Special Review credits in the commercial loan category of the portfolio at December 31, 2020
compared to December 31, 2019 can be attributed to a relationship secured by oil and gas properties moved from Pass.
The increase in Special Review commercial real estate: other construction and land development loan category of the
portfolio for the same period can be attributed to a relationship secured by real estate planned for lot development.
The increase in Watch-List Pass credits in the commercial loan category of the portfolio at December 31, 2020
compared to December 31, 2019 can be attributed to two relationships moved from the Pass category. One is secured by
oil and gas properties and one is secured by accounts receivable and inventory. The decrease in Watch-List Pass credits
in the commercial real estate: other construction and land development category of the portfolio for the same period can
be attributed to one relationship moved to Special Review that is secured by real estate planned for lot development, one
relationship placed on non-accrual that is secured by commercial property and one relationship downgraded from Pass
that is secured by commercial real estate. The increase in commercial real estate: farmland and commercial category of
the portfolio for the period can be attributed to two relationships secured by commercial real estate moved from the Pass
category.
The decrease in Watch-List Substandard credits in the commercial loan category of the portfolio at December 31,
2020 compared to December 31, 2019 can be attributed to a relationship secured by aircraft that was moved to the Pass
category. The decrease in Watch-List Substandard credits in the commercial real estate: other construction and land
development category of the portfolio for the same period can be attributed to a relationship secured by real estate
development lots moved to the Pass category. The decrease Watch-List Substandard credits in the commercial real estate:
farmland and commercial category of the portfolio for the period can be attributed to a relationship secured by real estate
on which a golf resort is operated moved to Pass.
The increase in Watch-List Doubtful credits in the commercial real estate: other construction and land
development category of the portfolio at December 31, 2020 compared to the same period of 2019 can be attributed to a
relationship secured by commercial property that was placed on non-accrual and moved from Watch-List Pass.
59
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(5) Bank Premises and Equipment
A summary of bank premises and equipment, by asset classification, at December 31, 2020 and 2019 were as
follows:
Bank buildings and improvements . . . . . . . . . . . . . . . . . . . . .
Furniture, equipment and vehicles . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . .
Bank premises and equipment, net . . . . . . . . . . . . . . . . .
(6) Goodwill and Other Intangible Assets
Estimated
useful lives
5
1
-
-
39 years $
20 years
$
2020
2019
(Dollars in Thousands)
577,656 $
311,313
117,848
(526,939)
479,878
$
573,257
313,880
118,099
(498,641)
506,595
The majority of our identified intangibles are in the form of amortizable core deposit premium. A small portion
of the fully amortized identified intangibles represent identified intangibles in the acquisition of the rights to the insurance
agency contracts of InsCorp, Inc., acquired in 2008. Information on our identified intangible assets follows:
Carrying
Amount
Accumulated
Amortization
Net
(Dollars in Thousands)
December 31, 2020:
Core deposit premium . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identified intangible (contract rights) . . . . . . . . . . . . . . . .
Total identified intangibles . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2019:
Core deposit premium . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identified intangible (contract rights) . . . . . . . . . . . . . . . .
Total identified intangibles . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
58,675
2,022
60,697
58,675
2,022
60,697
$
$
$
$
58,675
2,022
60,697
58,675
2,022
60,697
$
$
$
$
—
—
—
—
—
—
Amortization expense of intangible assets was $0, $0 and $0 for the years ended December 31, 2020, 2019 and
2018.
There were no changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019.
60
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(7) Deposits
Deposits as of December 31, 2020 and 2019 and related interest expense for the years ended December 31, 2020,
2019 and 2018 were as follows:
2020
2019
(Dollars in Thousands)
Deposits:
Demand - non-interest bearing
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total demand non-interest bearing . . . . . . . . . . . . . . .
Savings and interest bearing demand
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total savings and interest bearing demand . . . . . . . .
Time, certificates of deposit $100,000 or more
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less than $100,000
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total time, certificates of deposit . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,781,277 $
934,537
4,715,814
2,815,835
730,070
3,545,905
2,919,314
933,191
3,852,505
797,692
822,387
291,473
241,989
2,153,541
10,721,860 $
2,477,668
790,161
3,267,829
636,005
827,031
302,620
246,644
2,012,300
8,826,034
Interest expense:
Savings and interest bearing demand
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total savings and interest bearing demand . . .
Time, certificates of deposit $100,000 or
more
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less than $100,000
2020
2019
2018
(Dollars in Thousands)
5,098 $
1,260
6,358
13,462 $
2,917
16,379
11,029
1,735
12,764
8,827
7,536
7,804
9,407
4,741
5,798
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total time, certificates of deposit . . . . . . . . . . .
Total interest expense on deposits . . . . . . . . . . . . . $
1,781
1,086
19,230
25,588 $
2,232
1,527
20,970
37,349 $
1,589
968
13,096
25,860
61
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Scheduled maturities of time deposits as of December 31, 2020 were as follows:
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Total
(in thousands)
1,971,433
141,388
28,781
11,205
681
53
2,153,541
Scheduled maturities of time deposits in amounts of $100,000 or more at December 31, 2020, were as follows:
Due within 3 months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Due after 3 months and within 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 6 months and within 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total
(in thousands)
606,807
385,859
498,626
129,792
1,621,084
Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2020 and December 31,
2019 were $1,085,404 and $929,860, in thousands, respectively.
(8) Securities Sold Under Repurchase Agreements
Our Subsidiary Banks have entered into repurchase agreements with individual customers of the Subsidiary
Banks. The purchasers have agreed to resell to the Subsidiary Banks identical securities upon the maturities of the
agreements. Securities sold under repurchase agreements were mortgage-backed securities and averaged $335,392,000
and $267,439,000 during 2020 and 2019, respectively, and the maximum amount outstanding at any month end during
2020 and 2019 was $428,148,000 and $299,827,000 respectively.
62
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Further information related to repurchase agreements at December 31, 2020 and 2019 is set forth in the following
table:
Collateral Securities
Book Value of Fair Value of
Securities Sold Securities Sold
Repurchase Borrowing
Balance of
Liability
Weighted Average
Interest Rate
December 31, 2020 term:
Overnight agreements . . . . . . . . . . . . . . . . . . . . . . . $
1 to 29 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30 to 90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
506,020 $
—
—
11,684
517,704 $
507,164 $ 416,757
—
—
—
—
11,641
11,391
518,805 $ 428,148
(Dollars in Thousands)
December 31, 2019 term:
Overnight agreements . . . . . . . . . . . . . . . . . . . . . . . $
1 to 29 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30 to 90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
317,107 $
—
—
11,564
328,671 $
318,397 $ 225,243
—
—
—
—
11,529
11,293
329,926 $ 236,536
0.13 %
—
—
0.43
0.14 %
0.87 %
—
—
1.28
0.89 %
The book value and fair value of securities sold includes the entire book value and fair value of securities partially
or fully pledged under repurchase agreements.
(9) Other Borrowed Funds
Other borrowed funds include Federal Home Loan Bank borrowings, which may be short and long-term fixed
borrowings issued by the Federal Home Loan Bank of Dallas and the Federal Home Loan Bank of Topeka at the market
price offered at the time of funding. These borrowings are secured by mortgage-backed investment securities and a portion
of our loan portfolio.
Further information regarding our other borrowed funds at December 31, 2020 and 2019 is set forth in the
following table:
December 31,
2020
2019
(Dollars in Thousands)
Federal Home Loan Bank advances—short-term
Balance at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Rate on balance outstanding at year end. . . . . . . . . . . . . .
Average daily balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Average rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum amount outstanding at any month end . . . . . . $
Federal Home Loan Bank advances—long-term(1)
Balance at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Rate on balance outstanding at year end. . . . . . . . . . . . . .
Average daily balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Average rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum amount outstanding at any month end . . . . . . $
110,776
—
$
— %
$
1.19 %
$
292,000
436,327
436,411
$
1.73 %
$
1.71 %
$
436,495
190,000
1.48 %
190,431
2.60 %
371,775
436,511
1.73 %
436,593
1.71 %
436,675
(1) Long-term advances at December 31, 2020 and December 31, 2019 consisted of both amortizing and non-amortizing advances. The non-
amortizing advances mature in the following increments: $75,000,000 in July 2028, $100,000,000 in March 2033 and $250,000,000 in
August 2033 and are callable by the FHLB on a quarterly basis. Two amortizing advances are outstanding at December 31, 2020 in the amounts
of $3,091,000 and $8,236,000 and mature in December 2033 and November 2033, respectively. The amortization on the amortizing long-term
advances totals approximately $189,000, $194,000, $199,000, $204,000 and $210,000 for the years ending December 31, 2021, December 31,
2022, December 31, 2023, December 31, 2024 and December 31, 2025, respectively.
63
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(10) Junior Subordinated Deferrable Interest Debentures
We have formed five statutory business trusts under the laws of the State of Delaware for the purpose of issuing
trust preferred securities. These statutory business trusts (the “Trusts”) have each issued Capital and Common Securities
and invested the proceeds thereof in an equivalent amount of junior subordinated debentures (the “Debentures”) we issued.
As of December 31, 2020 and December 31, 2019, the principal amount of debentures outstanding totaled $134,642,000.
The Debentures are subordinated and junior in right of payment to all our present and future senior indebtedness
(as defined in the respective indentures) and are pari passu with one another. The interest rate payable on, and the payment
terms of the Debentures are the same as the distribution rate and payment terms of the respective issues of Capital and
Common Securities issued by the Trusts. We have fully and unconditionally guaranteed the obligations of each of the
Trusts with respect to the Capital and Common Securities. We have the right, unless an Event of Default (as defined in the
Indentures) has occurred and is continuing, to defer payment of interest on the Debentures for up to twenty consecutive
quarterly periods on Trusts VIII, IX, X, XI and XII. If interest payments on any of the Debentures are deferred, distributions
on both the Capital and Common Securities related to that Debenture would also be deferred. The redemption prior to
maturity of any of the Debentures may require the prior approval of the Federal Reserve and/or other regulatory bodies.
For financial reporting purposes, the Trusts are treated as investments and not consolidated in the consolidated
financial statements. Although the Capital Securities issued by each of the Trusts are not included as a component of
shareholders’ equity on the consolidated statement of condition, the Capital Securities are treated as capital for regulatory
purposes. Specifically, under applicable regulatory guidelines, the Capital Securities issued by the Trusts qualify as Tier 1
capital up to a maximum of 25% of Tier 1 capital on an aggregate basis. Any amount that exceeds the 25% threshold
would qualify as Tier 2 capital. At December 31, 2020 and December 31, 2019, the total $134,642,000 of the Capital
Securities outstanding qualified as Tier 1 capital.
The following table illustrates key information about each of the Debentures and their interest rates at December 31, 2020:
Junior
Subordinated
Deferrable
Interest
Debentures
Repricing
Frequency
Interest
Rate
Interest
Rate Index(1)
Maturity Date
Optional
Redemption Date(1)
Trust VIII . . . . . . . . . . . . . .
Trust IX . . . . . . . . . . . . . . .
Trust X . . . . . . . . . . . . . . . .
Trust XI . . . . . . . . . . . . . . .
Trust XII . . . . . . . . . . . . . . .
(Dollars
in Thousands)
$
25,774 Quarterly
41,238 Quarterly
21,021 Quarterly
25,990 Quarterly
20,619 Quarterly
$
134,642
3.29 % LIBOR +
1.85 % LIBOR +
1.86 % LIBOR +
1.85 % LIBOR +
1.68 % LIBOR +
October 2033
3.05
October 2036
1.62
February 2037
1.65
1.62
July 2037
1.45 September 2037
October 2008
October 2011
February 2012
July 2012
September 2012
(1) The Capital Securities may be redeemed in whole or in part on any interest payment date after the Optional Redemption Date.
64
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(11) Earnings per Share (“EPS”)
Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding.
The computation of diluted EPS assumes the issuance of common shares for all dilutive potential common shares
outstanding during the reporting period. The calculation of the basic EPS and the diluted EPS for the years ended
December 31, 2020, 2019, and 2018 is set forth in the following table:
Net Income
(Numerator)
Shares
(Denominator)
(Dollars in Thousands,
Except Per Share Amounts)
Per Share
Amount
December 31, 2020:
Basic EPS
Net income available to common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . $
167,319
63,725,819 $
2.63
Potential dilutive common shares and
warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
December 31, 2019:
Basic EPS
Net income available to common
—
167,319
127,316
63,853,135 $
2.62
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . $
205,104
65,476,606 $
3.13
Potential dilutive common shares and
warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
December 31, 2018:
Basic EPS
Net income available to common
—
205,104
209,078
65,685,684 $
3.12
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . $
Potential dilutive common shares . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
215,931
—
215,931
66,106,580 $
527,240
66,633,820 $
3.27
3.24
(12) Employees’ Profit Sharing Plan
We have a deferred profit sharing plan for full-time employees with a minimum of one year of continuous
employment. Our annual contribution to the plan is based on a percentage, as determined by our Board of Directors, of
income before income taxes, as defined, for the year. Allocation of the contribution among officers and employees’
accounts is based on length of service and amount of salary earned. Profit sharing costs of $4,000,000, $4,200,000 and
$3,850,000 were charged to income for the years ended December 31, 2020, 2019, and 2018, respectively.
(13) International Operations
We provide international banking services for our customers through our Subsidiary Banks. Neither we nor our
Subsidiary Banks have facilities located outside the United States. International operations are distinguished from domestic
operations based upon the domicile of the customer.
Because the resources we employ are common to both international and domestic operations, it is not practical to
determine net income generated exclusively from international activities.
65
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
A summary of assets attributable to international operations at December 31, 2020 and 2019 are as follows:
Loans:
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for probable loan losses . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . $
2020
2019
(Dollars in Thousands)
90,177 $
48,793
138,970
(753)
138,217 $
605 $
88,979
52,070
141,049
(823)
140,226
743
At December 31, 2020, we had $118,722,000 in outstanding standby and commercial letters of credit to facilitate
trade activities.
Revenues directly attributable to international operations were approximately $4,676,000, $5,445,000 and
$5,412,000 for the years ended December 31, 2020, 2019 and 2018, respectively.
(14) Income Taxes
We file a consolidated U.S. Federal and State income tax return. The current and deferred portions of net income
tax expense included in the consolidated statements of income are presented below for the years ended December 31:
2020
2019
2018
(Dollars in Thousands)
Current
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current taxes . . . . . . . . . . . . . . . . . . . .
43,794 $
3,709
58
47,561
48,559 $
2,944
38
51,541
Deferred
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred taxes . . . . . . . . . . . . . . . . . . .
Total income taxes . . . . . . . . . . . . . . . . . . . . $
(2,733)
(389)
(3,122)
44,439 $
2,979
330
3,309
54,850 $
48,144
3,370
(5)
51,509
5,130
13
5,143
56,652
66
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Total income tax expense differs from the amount computed by applying the U.S. Federal income tax rate of 21%
for 2020, 2019 and 2018 to income before income taxes. The reasons for the differences for the years ended December 31
are as follows:
Computed expected tax expense . . . . . . . . . . . . . . . . . . . . . . . $ 45,218 $ 55,086 $ 57,831
Change in taxes resulting from:
2020
2019
2018
(Dollars in Thousands)
(2,709)
(2,550)
(3,101)
Tax-exempt interest income . . . . . . . . . . . . . . . . . . . . . . . .
State tax, net of federal income taxes, tax credit and
refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resolution of IRS exam . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investment income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax adjustment due to federal tax rate change . .
Net investment in low income housing investments . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,673
—
(1,561)
(1,618)
2,518
(90)
Actual tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,439 $ 54,850 $ 56,652
2,587
—
(1,480)
—
623
584
1,990
(477)
2,622
(2,205)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 2020 and 2019 are reflected below:
Deferred tax assets:
Loans receivable, principally due to the allowance for probable loan
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charges on available-for-sale securities . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Bank premises and equipment, principally due to differences on
depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gains on available for sale investment securities . . . . . . . .
Impairment charges on available-for-sale securities . . . . . . . . . . . . . . . . . .
Identified intangible assets and goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020
2019
(Dollars in Thousands)
21,921 $
1,183
—
81
5,649
28,834
(12,350)
(5,679)
(19)
(13,807)
(20,551)
(52,406)
(23,572) $
12,050
2,501
1,054
98
6,019
21,722
(12,478)
(508)
—
(13,649)
(18,849)
(45,484)
(23,762)
The net deferred tax liability of $23,572,000 at December 31, 2020 and $23,762,000 at December 31, 2019 is
included in other liabilities in the consolidated statements of condition.
(15) Stock Options
On April 5, 2012, the Board of Directors adopted the 2012 International Bancshares Corporation Stock Option
Plan (the “2012 Plan”). There are 800,000 shares available for stock option grants under the 2012 Plan. Under the 2012
Plan, both qualified incentive stock options (“ISOs”) and non-qualified stock options (“NQSOs”) may be granted. Options
granted may be exercisable for a period of up to 10 years from the date of grant, excluding ISOs granted to 10%
shareholders, which may be exercisable for a period of up to only five years. As of December 31, 2020, 10,102 shares
were available for future grants under the 2012 Plan.
67
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The fair value of each option award granted under the plan is estimated on the date of grant using a
Black-Scholes-Merton option valuation model that uses the assumptions noted in the following table. Expected volatility
is based on the historical volatility of the price of our stock. We use historical data to estimate the expected dividend yield
and employee termination rates within the valuation model. The expected term of options is derived from historical
exercise behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield
curve in effect at the time of grant.
Expected Life (Years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
2019
7.00
6.04 %
0.74 %
29.04 %
7.00
2.93 %
1.97 %
26.97 %
A summary of option activity under the stock option plans for the twelve months ended December 31, 2020 is as
follows:
Weighted
average
exercise
price
Number of
options
Weighted
average
remaining
contractual
term (years)
Aggregate
intrinsic
value ($)
(in Thousands)
Options outstanding at December 31, 2019 . . . . . . . . . . . . . . . . . . . . 658,588 $
Plus: Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
35,000
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,010
—
16,451
Options outstanding at December 31, 2020 . . . . . . . . . . . . . . . . . . . . 651,127
27.55
18.79
20.87
—
31.94
27.24
5.05 $
6,817
Options fully vested and exercisable at December 31, 2020 . . . . . . 409,782 $
22.98
3.61 $
5,953
Stock-based compensation expense included in the consolidated statements of income for the years ended
December 31, 2020, 2019 and 2018 was approximately $743,000, $980,000 and $1,035,000, respectively. As of
December 31, 2020, there was approximately $1,254,000 of total unrecognized stock-based compensation cost related to
non-vested options granted under our plans that will be recognized over a weighted average period of 1.7 years.
Other information pertaining to option activity during the twelve months ended December 31, 2020, 2019 and
2018 is as follows:
Twelve Months Ended December 31,
2020
2019
2018
Weighted average grant date fair value of stock
options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
11.78
Total fair value of stock options vested . . . . . . . . . . . $ 1,218,000 $ 1,333,000 $ 1,077,000
356,000 $ 2,373,000 $ 2,045,000
Total intrinsic value of stock options exercised . . . . $
2.46 $
7.38 $
68
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(16) Long Term Restricted Stock Units
As a former participant in the Troubled Asset Relief Program Capital Purchase Program (the “CPP”) we were
subject to certain compensation restrictions, including a prohibition on the payment or accrual of any bonuses to certain
officers and employees except for awards of CPP-compliant long- term restricted stock and stock units.
On December 18, 2009, our board of directors (the “Board”) adopted the 2009 International Bancshares
Corporation Long-Term Restricted Stock Unit Plan (the “Plan”) to give us additional flexibility in the compensation of
our officers, employees, consultants and advisors in compliance with all applicable laws and restrictions.
The Plan authorizes us to issue Restricted Stock Units (“RSUs”) to our officers, employees, consultants and
advisors. On December 18, 2009, pursuant to the Plan, the Board adopted resolutions creating the Long-Term Restricted
Stock Unit Plan Committee to administer the Plan. RSUs issued under the Plan are not equity and are payable only in cash.
The Plan provides for both the issuance of CPP-compliant long-term RSUs as well as RSUs that are not CPP-compliant.
No grants have been made under the Plan since December 2012 and there are currently no outstanding grants under the
Plan. The plan was terminated on August 6, 2019.
(17) Commitments, Contingent Liabilities and Other Matters
On March 15, 2020, the FRB announced that it had reduced regulatory reserve requirements to zero percent
effective on March 26, 2020. Cash of approximately $125,764,000 December 31, 2019 was maintained to satisfy
regulatory reserve requirements.
We are involved in various legal proceedings that are in various stages of litigation. We have determined, based
on discussions with our counsel that any material loss in such actions, individually or in the aggregate, is remote or the
damages sought, even if fully recovered, would not be considered material to our consolidated statements of condition and
related statements of income, comprehensive income, shareholders’ equity and cash flows. However, many of these
matters are in various stages of proceedings and further developments could cause management to revise its assessment of
these matters.
(18) Transactions with Related Parties
In the ordinary course of business, the Subsidiary Banks make loans to our directors and executive officers,
including their affiliates, families and companies in which they are principal owners. In the opinion of management, these
loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and do not involve more than normal risk of collectability or present other
unfavorable features. The aggregate amounts receivable from such related parties amounted to approximately $30,398,000
and $37,605,000 at December 31, 2020 and 2019, respectively.
(19) Financial Instruments with Off-Statement of Condition Risk and Concentrations of Credit Risk
In the normal course of business, the Subsidiary Banks are party to financial instruments with off-statement of
condition risk to meet the financing needs of their customers. These financial instruments include commitments to their
customers. These financial instruments involve, to varying degrees, elements of credit risk in excess of the amounts
recognized in the consolidated statement of condition. The contract amounts of these instruments reflect the extent of
involvement the Subsidiary Banks have in particular classes of financial instruments. At December 31, 2020, the following
financial amounts of instruments, whose contract amounts represent credit risks, were outstanding:
Commitments to extend credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Credit card lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,354,010,000
13,579,000
118,381,000
341,000
69
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
We enter into a standby letter of credit to guarantee performance of a customer to a third party. These guarantees
are primarily issued to support public and private borrowing arrangements. The credit risk involved is represented by the
contractual amounts of those instruments. Under the standby letters of credit, we are required to make payments to the
beneficiary of the letters of credit upon request by the beneficiary so long as all performance criteria have been met. At
December 31, 2020, the maximum potential amount of future payments is approximately $118,381,000. At December 31,
2020, the fair value of these guarantees is not significant. Unsecured letters of credit totaled approximately $39,487,000
and $49,965,000 at December 31, 2020 and 2019, respectively.
We enter into commercial letters of credit on behalf of our customers which authorize a third party to draw drafts
upon us up to a stipulated amount and with specific terms and conditions. A commercial letter of credit is a conditional
commitment on our part to provide payment on drafts drawn in accordance with the terms of the commercial letter of
credit.
The Subsidiary Banks’ exposure to credit loss in the event of nonperformance by the other party to the above
financial instruments is represented by the contractual amounts of the instruments. The Subsidiary Banks use the same
credit policies in making commitments and conditional obligations as they do for on-statement of condition instruments.
The Subsidiary Banks control the credit risk of these transactions through credit approvals, limits and monitoring
procedures. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates normally less than one year or
other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The
Subsidiary Banks evaluate each customer’s credit-worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Subsidiary Banks upon extension of credit, is based on management’s credit evaluation of the
customer. Collateral held varies, but may include residential and commercial real estate, bank certificates of deposit,
accounts receivable and inventory.
The Subsidiary Banks make commercial, real estate and consumer loans to customers principally located in South,
Central and Southeast Texas and the State of Oklahoma. Although the loan portfolio is diversified, a substantial portion
of its debtors’ ability to honor their contracts is dependent upon the economic conditions in these areas, especially in the
real estate and commercial business sectors.
(20) Capital Requirements
Bank regulatory agencies limit the amount of dividends, which the Subsidiary Banks can pay, without obtaining
prior approval from such agencies. At December 31, 2020, the Subsidiary Banks could pay dividends of up to
$948,000,000 without prior regulatory approval and without adversely affecting their “well-capitalized” status under
regulatory capital rules in effect at December 31, 2020. In addition to legal requirements, regulatory authorities also
consider the adequacy of the Subsidiary Banks’ total capital in relation to their deposits and other factors. These capital
adequacy considerations also limit amounts available for payment of dividends. We historically have not allowed any
Subsidiary Bank to pay dividends in such a manner as to impair its capital adequacy.
We and the Subsidiary Banks are subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet
specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-statement of condition
items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and other factors.
Current quantitative measures established by regulation to ensure capital adequacy require us to maintain
minimum amounts and ratios (set forth in the table on the following page) of Total and Tier 1 capital to risk-weighted
assets and of Tier 1 capital to average assets. Management believes, as of December 31, 2020, that we met all capital
adequacy requirements to which we are subject.
70
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
In July 2013, the FDIC and other regulatory bodies established a new, comprehensive capital framework for U.S.
banking organizations, consisting of minimum requirements that increase both the quantity and quality of capital held by
banking organizations. The final rules are a result of the implementation of the BASEL III capital reforms and various
Dodd-Frank related capital provisions. Consistent with the Basel international framework, the rules include a new
minimum ratio of Common Equity Tier 1 (“CET1”) to risk-weighted assets of 4.5% and a CET1 capital conservation
buffer of 2.5% of risk-weighted assets. The capital conservation buffer began phasing-in on January 1, 2016 at .625% and
increased each year until January 1, 2019, when we were required to have a 2.5% capital conservation buffer, effectively
resulting in a minimum ratio of CET1 capital to risk-weighted assets of at least 7% upon full implementation. The rules
also raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and include a minimum leverage
ratio of 4% for all banking organizations. Regarding the quality of capital, the rules emphasize CET1 capital and
implements strict eligibility criteria for regulatory capital instruments. The rules also improve the methodology for
calculating risk-weighted assets to enhance risk sensitivity. The rules were subject to a four-year phase-in period for
mandatory compliance and we were required to begin to phase-in the new rules beginning on January 1, 2015. We believe
that as of December 31, 2020, we meet all fully phased-in capital adequacy requirements.
On November 21, 2017, the OCC, the Federal Reserve and the FDIC finalized a proposed rule that extends the
current treatment under the regulatory capital rules for certain regulatory capital deductions and risk weights and certain
minority interest requirements, as they apply to banking organizations that are not subject to the advanced approaches
capital rules. Effective January 1, 2018, the rule also paused the full transition to the Basel III treatment of mortgage
servicing assets, certain deferred tax assets, investments in the capital of unconsolidated financial institutions and minority
interests. The agencies are also considering whether to make adjustments to the capital rules in response to CECL (the
FASB Standard relating to current expected credit loss) and its potential impact on regulatory capital.
On December 7, 2017, the Basel Committee on Banking Supervision unveiled the latest round of its regulatory
capital framework, commonly called “Basel IV.” The framework makes changes to the capital framework first introduced
as “Basel III” in 2010. The committee targeted 2022-2027 as the timeframe for implementation by regulators in individual
countries, including the U.S. federal bank regulatory agencies (after notice and comment).
The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress.
Banking institutions with a ratio of CET1 capital to risk-weighted assets above the minimum but below the conservation
buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.
As of December 31, 2019, our capital levels exceed all capital adequacy requirements under the Basel III Capital
Rules as currently applicable to us. Based on the ratios presented below, capital levels as of December 31, 2020 exceed
the minimum levels necessary to be considered “well-capitalized.”
On May 24, 2018, the EGRRCPA was enacted and, among other things, it includes a simplified capital rule
change which effectively exempts banks with assets of less than $10 billion that exceed the “community bank leverage
ratio,” from all risk-based capital requirements, including Basel III and its predecessors. The federal banking agencies
must establish the “community bank leverage ratio” (a ratio of tangible equity to average consolidated assets) between 8%
and 10% before community banks can begin to take advantage of this regulatory relief provision. Some of the Subsidiary
Banks, with assets of less than $10 billion, may qualify for this exemption. Additionally, under the EGRRCPA, qualified
bank holding companies with assets of up to $3 billion (currently $1 billion) will be eligible for the Federal Reserve’s
Small Bank Holding Company Policy Statement, which eases limitations on the issuance of debt by holding companies.
On August 28, 2018, the Federal Reserve issued an interim final rule expanding the applicability of its Small Bank Holding
Company Policy Statement. While holding companies that meet the conditions of the policy statement are excluded from
consolidated capital requirements, their depository institutions continue to be subject to minimum capital requirements.
Finally, for banks that continue to be subject to the risk-based capital rules of Basel III (e.g., 150%), certain commercial
real estate loans that were formally classified as high volatility commercial real estate 31 (“HVCRE”) will not be subject
to heightened risk weights if they meet certain criteria. Also, while acquisition, development, and construction (“ADC”)
loans will generally be subject to heightened risk weights, certain exceptions will apply. On September 18, 2018, the
federal banking agencies issued a proposed rule modifying the agencies’ capital rules for HVCRE.
71
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2020, the most recent notification from the FDIC categorized all the Subsidiary Banks as
well-capitalized under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” we
must maintain minimum Total risk-based, Tier 1 risk based, and Tier 1 leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes have changed our categorization as
well-capitalized.
In December 2018, the federal bank regulators issued a final rule that would provide an optional three-year phase-
in period for the day-one regulatory capital effects of the adoption of ASU 2016-13 to ASC 326 “Financial Instruments –
Credit Losses,” as amended, on January 1, 2020.
Our actual capital amounts and ratios for 2020 under current guidelines are presented in the following table:
Actual
Amount
Ratio
For Capital Adequacy
Purposes
Phase In Schedule
To Be Well-Capitalized
Under Prompt Corrective
Action Provisions
Amount
(greater than (greater than (greater than (greater than
or equal to)
or equal to)
or equal to)
or equal to)
Amount
Ratio
Ratio
(Dollars in Thousands)
As of December 31, 2020:
Common Equity Tier 1 (to Risk Weighted Assets):
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,874,641 19.05 % $
International Bank of Commerce, Laredo . . . . . . . .
International Bank of Commerce, Oklahoma . . . . .
International Bank of Commerce, Brownsville . . . .
International Bank of Commerce, Zapata . . . . . . . .
Commerce Bank . . . . . . . . . . . . . . . . . . . . . . . . . .
1,295,437 18.19
207,339 17.45
189,575 22.18
71,369 34.51
93,426 35.64
688,678
498,492
83,150
59,843
14,476
18,347
Total Capital (to Risk Weighted Assets):
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,105,360 21.40 % $ 1,033,017
747,737
International Bank of Commerce, Laredo . . . . . . . .
124,725
International Bank of Commerce, Oklahoma . . . . .
89,765
International Bank of Commerce, Brownsville . . . .
21,714
International Bank of Commerce, Zapata . . . . . . . .
27,521
Commerce Bank . . . . . . . . . . . . . . . . . . . . . . . . . .
1,380,685 19.39
218,657 18.41
200,269 23.43
73,510 35.55
96,240 36.72
Tier 1 Capital (to Risk Weighted Assets):
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,992,403 20.25 % $
International Bank of Commerce, Laredo . . . . . . . .
International Bank of Commerce, Oklahoma . . . . .
International Bank of Commerce, Brownsville . . . .
International Bank of Commerce, Zapata . . . . . . . .
Commerce Bank . . . . . . . . . . . . . . . . . . . . . . . . . .
1,295,437 18.19
207,339 17.45
189,575 22.18
71,369 34.51
93,426 35.64
Tier 1 Capital (to Average Assets):
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,992,403 14.92 % $
International Bank of Commerce, Laredo . . . . . . . .
International Bank of Commerce, Oklahoma . . . . .
International Bank of Commerce, Brownsville . . . .
International Bank of Commerce, Zapata . . . . . . . .
Commerce Bank . . . . . . . . . . . . . . . . . . . . . . . . . .
1,295,437 13.11
207,339 12.98
189,575 14.55
71,369 16.52
93,426 16.69
836,252
605,311
100,968
72,667
17,578
22,279
534,228
395,289
63,879
52,101
17,277
22,394
$
7.000 %
7.000
7.000
7.000
7.000
7.000
$
10.500 %
10.500
10.500
10.500
10.500
10.500
N/A
462,885
77,211
55,569
13,442
17,037
N/A
712,131
118,786
85,490
20,680
26,210
8.500 %
$
8.500
8.500
8.500
8.500
8.500
N/A
569,705
95,029
68,392
16,544
20,968
4.00 % $
4.00
4.00
4.00
4.00
4.00
N/A
494,112
79,848
65,127
21,596
27,993
N/A
6.50 %
6.50
6.50
6.50
6.50
N/A
10.00 %
10.00
10.00
10.00
10.00
N/A
8.00 %
8.00
8.00
8.00
8.00
N/A
5.00 %
5.00
5.00
5.00
5.00
72
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Our actual capital amounts and ratios for 2019 are also presented in the following table:
For Capital Adequacy
To Be Well-Capitalized
Under Prompt Corrective
Actual
Purposes
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
(greater than (greater than (greater than (greater than
or equal to)
or equal to)
or equal to)
or equal to)
(Dollars in Thousands)
As of December 31, 2019:
Common Equity Tier 1 (to Risk Weighted Assets):
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,833,174 18.58 % $
International Bank of Commerce, Laredo . . . . . . . .
International Bank of Commerce, Oklahoma . . . . .
International Bank of Commerce, Brownsville . . . .
International Bank of Commerce, Zapata . . . . . . . .
Commerce Bank . . . . . . . . . . . . . . . . . . . . . . . . . .
1,268,078 18.23
201,202 16.91
185,112 22.70
72,402 36.46
91,239 34.83
690,746
486,950
83,303
57,084
13,902
18,336
Total Capital (to Risk Weighted Assets):
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,018,488 20.46 % $ 1,036,118
730,425
International Bank of Commerce, Laredo . . . . . . . .
124,955
International Bank of Commerce, Oklahoma . . . . .
85,626
International Bank of Commerce, Brownsville . . . .
20,853
International Bank of Commerce, Zapata . . . . . . . .
27,504
Commerce Bank . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 Capital (to Risk Weighted Assets): . . . . . . . . . .
1,315,453 18.91
206,807 17.38
192,417 23.60
74,737 37.63
93,396 35.65
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,953,711 19.80 % $
International Bank of Commerce, Laredo . . . . . . . .
International Bank of Commerce, Oklahoma . . . . .
International Bank of Commerce, Brownsville . . . .
International Bank of Commerce, Zapata . . . . . . . .
Commerce Bank . . . . . . . . . . . . . . . . . . . . . . . . . .
1,268,078 18.23
201,202 16.91
185,112 22.70
72,402 36.46
91,239 34.83
838,762
591,296
101,154
69,316
16,881
22,265
Tier 1 Capital (to Average Assets):
$
7.000 %
7.000
7.000
7.000
7.000
7.000
$
10.500 %
10.500
10.500
10.500
10.500
10.500
$
8.500 %
8.500
8.500
8.500
8.500
8.500
N/A
452,168
77,353
53,006
12,909
17,026
N/A
695,643
119,004
81,548
19,860
26,195
N/A
556,514
95,203
65,239
15,888
20,956
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,953,711 16.65 % $
International Bank of Commerce, Laredo . . . . . . . .
1,268,078 15.21
469,267
333,576
4.00 % $
4.00
N/A
416,970
International Bank of Commerce, Oklahoma . . . . .
201,202 14.79
International Bank of Commerce, Brownsville . . . .
185,112 17.41
International Bank of Commerce, Zapata . . . . . . . .
72,402 19.08
Commerce Bank . . . . . . . . . . . . . . . . . . . . . . . . . .
91,239 18.18
54,406
42,529
15,179
20,073
4.00
4.00
4.00
4.00
68,007
53,161
18,974
25,091
N/A
6.50 %
6.50
6.50
6.50
6.50
N/A %
10.00
10.00
10.00
10.00
10.00
%
N/A
8.00
8.00
8.00
8.00
8.00 %
N/A
5.00
5.00
5.00
5.00
5.00
(21) Fair Value
ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value
measurements. ASC 820 applies to all financial instruments that are being measured and reported on a fair value basis.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date; it also establishes a fair value hierarchy that prioritizes
the inputs used in valuation methodologies into the following three levels:
• Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities.
• Level 2 Inputs—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
73
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
• Level 3 Inputs—Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose
value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques,
as well as instruments for which the determination of fair value requires significant management judgment
or estimation.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general
classification of such instruments pursuant to the valuation hierarchy is set forth below.
The following table represents financial instruments reported on the consolidated statements of condition at their
fair value as of December 31, 2020 by level within the fair value measurement hierarchy.
Fair Value Measurements at
Reporting Date Using
(in Thousands)
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Assets/Liabilities
Measured at
Fair Value
December 31, 2020
Significant
Other
Significant
Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Measured on a recurring basis:
Assets:
Available for sale debt securities
Residential mortgage-backed securities . . . . . . . . . . . . . . $
States and political subdivisions . . . . . . . . . . . . . . . . . . . .
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,029,954 $
50,814
6,202
3,086,970 $
— $ 3,029,954 $
—
6,202
6,202 $ 3,080,768 $
50,814
—
—
—
—
—
The following table represents financial instruments reported on the consolidated balance sheets at their fair value
as of December 31, 2019 by level within the fair value measurement hierarchy.
Fair Value Measurements at
Reporting Date Using
(in Thousands)
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Assets/Liabilities
Measured at
Fair Value
December 31, 2019
Significant
Unobservable
Inputs
(Level 3)
Measured on a recurring basis:
Assets:
Available for sale securities
Residential mortgage - backed securities . . . . . . . . . . . . . $
States and political subdivisions . . . . . . . . . . . . . . . . . . . .
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,285,548 $
93,375
6,095
3,385,018 $
— $ 3,285,548 $
—
6,095
6,095 $ 3,378,923 $
93,375
—
—
—
—
—
For the years ended December 31, 2020 and December 31, 2019, debt investment securities available-for-sale are
classified within Level 2 of the valuation hierarchy. Equity securities with readily determinable fair values are classified
within Level 1. For debt securities classified as Level 2 in the fair value hierarchy, we obtain fair value measurements
from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus
prepayment speeds, credit information and the bond’s terms and conditions, among other things.
74
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Certain financial instruments are measured at fair value on a nonrecurring basis. They are not measured at fair
value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is
evidence of impairment).
The following table represents financial instruments measured at fair value on a non-recurring basis as of and for
the period ended December 31, 2020 by level within the fair value measurement hierarchy:
Fair Value Measurements at Reporting
Date Using
(in thousands)
Quoted
Assets/Liabilities Prices in
Measured at
Active
Markets for
Fair Value
Identical
Assets
(Level 1)
Period ended
December 31,
2020
Significant
Other
Significant
Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Net Provision
(Credit)
During
Period
Measured on a non-recurring basis:
Assets:
Watch-List doubtful loans . . . . . . . . . . . . . . . . . . . . $
Other real estate owned . . . . . . . . . . . . . . . . . . . . . .
393 $
6,241
— $
—
— $
—
393 $
6,241
(86)
1,539
The following table represents financial instruments measured at fair value on a non-recurring basis as of and for
the year ended December 31, 2019 by level within the fair value measurement hierarchy:
Fair Value Measurements at Reporting
Date Using
(in thousands)
Quoted
Assets/Liabilities Prices in
Measured at
Active
Markets
Net (Credit)
Fair Value
for Identical Observable Unobservable Provision
Year ended
During
Period
Significant
Other
Assets
(Level 1)
Inputs
(Level 3)
Inputs
(Level 2)
December 31,
Significant
2019
Measured on a non-recurring basis:
Assets:
Impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . .
Equity investment without a readily determinable
fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
826 $
21,614
— $
—
— $
—
826 $
21,614
43
322
28,166
—
—
28,166
4,775
Our assets measured at fair value on a non-recurring basis are limited to loans classified as Watch List – Doubtful
and other real estate owned. At December 31, 2019, assets measured at fair value on a non-recurring basis also included
an equity investment without a readily determinable fair value. The fair value of Watch-List Doubtful loans is derived in
accordance with FASB ASC 310, “Receivables”. They are primarily comprised of collateral-dependent commercial loans.
As the primary sources of loan repayments decline, the secondary repayment source, the collateral, takes on greater
significance. Correctly evaluating the fair value becomes even more important. Re-measurement of the loan to fair value
is done through a specific valuation allowance included in the ACL. The fair value of the loan is based on the fair value
of the collateral, as determined through either an appraisal or evaluation process. The basis for our appraisal and appraisal
review process is based on regulatory guidelines and strives to comply with all regulatory appraisal laws, regulations, and
the Uniform Standards of Professional Appraisal Practice. All appraisals and evaluations are “as is” (the property’s highest
and best use) valuations based on the current conditions of the property/project at that point in time. The determination of
the fair value of the collateral is based on the net realizable value, which is the appraised value less any closing costs, when
applicable. As of December 31, 2020, we had approximately $18,361,000 of doubtful commercial collateral dependent
loans, of which approximately $16,587,000 had an appraisal performed within the immediately preceding twelve months
and of which approximately $1,283,000 had an evaluation performed within the immediately preceding twelve months.
As of December 31, 2019, we had approximately $2,955,000 of doubtful commercial collateral dependent loans, of which
75
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
approximately $1,426,000 had an appraisal performed within the immediately preceding twelve months and of which
approximately $847,000 had an evaluation performed within the immediately preceding twelve months.
The determination to either seek an appraisal or to perform an evaluation begins in weekly credit quality meetings,
where the committee analyzes the existing collateral values of the doubtful loans and where obsolete appraisals are
identified. In order to determine whether we would obtain a new appraisal or perform an internal evaluation to determine
the fair value of the collateral, the credit committee reviews the existing appraisal to determine if the collateral value is
reasonable in view of the current use of the collateral and the economic environment related to the collateral. If the analysis
of the existing appraisal does not find that the collateral value is reasonable under the current circumstances, we would
obtain a new appraisal on the collateral or perform an internal evaluation of the collateral. The ultimate decision to get a
new appraisal rests with the independent credit administration group. A new appraisal is not required if an internal
evaluation, as performed by in-house experts, is able to appropriately update the original appraisal assumptions to reflect
current market conditions and provide an estimate of the collateral’s market value for impairment analysis. The internal
evaluations must be in writing and contain sufficient information detailing the analysis, assumptions and conclusions and
they must support performing an evaluation in lieu of ordering a new appraisal.
Other real estate owned is comprised of real estate acquired by foreclosure and deeds in lieu of foreclosure. Other
real estate owned is carried at the lower of the recorded investment in the property or its fair value less estimated costs to
sell such property (as determined by independent appraisal) within Level 3 of the fair value hierarchy. Prior to foreclosure,
the value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the ACL
(formerly allowance for probable loan losses), if necessary. The fair value is reviewed periodically and subsequent write
downs are made accordingly through a charge to operations. Other real estate owned is included in other assets on the
consolidated financial statements. For the twelve months ended December 31, 2020, 2019 and 2018, we recorded
approximately $22,000, $9,611,000 and $170,000, respectively, in charges to the ACL in connection with loans transferred
to other real estate owned. For the twelve months ended December 31, 2020, 2019 and 2018, we recorded approximately
$1,539,000, $322,000 and $3,071,000, respectively, in adjustments to fair value in connection with other real estate owned.
The fair value estimates, methods, and assumptions for our financial instruments at December 31, 2020 and
December 31, 2019 are outlined below.
Cash and Cash Equivalents
For these short-term instruments, the carrying amount is a reasonable estimate of fair value.
Investment securities held-to-maturity
The carrying amounts of investments held-to-maturity approximate fair value.
Investment Securities
For debt investment securities, which include U.S. Treasury securities, obligations of other U.S. government
agencies, obligations of states and political subdivisions and mortgage pass through and related securities, fair values are
from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus
prepayment speeds, credit information and the bond’s terms and conditions, among other things. See disclosures of fair
value of investment securities in Note 2.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by
type such as commercial, real estate and consumer loans as outlined by regulatory reporting guidelines. Each category is
segmented into fixed and variable interest rate terms and by performing and non-performing categories.
76
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For variable rate performing loans, the carrying amount approximates the fair value. For fixed rate performing
loans, except residential mortgage loans, the fair value is calculated by discounting scheduled cash flows through the
estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan.
For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for
prepayment estimates using discount rates based on secondary market sources or the primary origination market. Fixed
rate performing loans are within Level 3 of the fair value hierarchy. At December 31, 2020 and December 31, 2019, the
carrying amount of fixed rate performing loans was $1,812,413,000 and $1,503,811,000, respectively, and the estimated
fair value was $1,747,257,000 and $1,481,239,000, respectively.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
Deposits
The fair value of deposits with no stated maturity, such as non-interest bearing demand deposit accounts, savings
accounts and interest-bearing demand deposit accounts, was equal to the amount payable on demand as of December 31,
2020 and December 31, 2019. The fair value of time deposits is based on the discounted value of contractual cash flows.
The discount rate is based on currently offered rates. Time deposits are within Level 3 of the fair value hierarchy. At
December 31, 2020 and December 31, 2019, the carrying amount of time deposits was $2,153,541,000 and
$2,012,300,000, respectively, and the estimated fair value was $2,148,976,000 and $2,011,950,000, respectively.
Securities Sold Under Repurchase Agreements
Securities sold under repurchase agreements are short-term maturities. Due to the contractual terms of the
instruments, the carrying amounts approximated fair value at December 31, 2020 and December 31, 2019.
Junior Subordinated Deferrable Interest Debentures
We currently have floating rate junior subordinated deferrable interest debentures outstanding. Due to the
contractual terms of the floating rate junior subordinated deferrable interest debentures, the carrying amounts approximated
fair value at December 31, 2020 and December 31, 2019.
Other Borrowed Funds
We currently have long-term borrowings issued from the Federal Home Loan Bank (“FHLB”). At December 31,
2019, we also held some also short-term borrowings. Due to the contractual terms of the short-term borrowings, the
carrying amounts approximated fair value at December 31, 2019. The long-term borrowings outstanding at December 31,
2020 and December 31, 2019 are fixed-rate borrowings and the fair value is based on established market spreads for similar
types of borrowings. The fixed-rate long-term borrowings are included in Level 2 of the fair value hierarchy. At
December 31, 2020, and December 31, 2019 the carrying amount of the fixed-rate long-term FHLB borrowings was
$436,372,000 and $436,511,000, respectively and the estimated fair value was $480,475,000 and $465,017,000
respectively.
Commitments to Extend Credit and Letters of Credit
Commitments to extend credit and fund letters of credit are principally at current interest rates and therefore the
carrying amount approximates fair value.
Limitations
Fair value estimates are made at a point in time, based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one
time of our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our
77
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and off-statement of condition financial instruments without
attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not considered financial assets or liabilities include
the bank premises and equipment and core deposit value. In addition, the tax ramifications related to the effect of fair value
estimates have not been considered in the above estimates.
78
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(22) International Bancshares Corporation (Parent Company Only) Financial Information
Statements of Condition
(Parent Company Only)
December 31, 2020 and 2019
(Dollars in Thousands)
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Junior subordinated deferrable interest debentures . . . . . . . . . . . . . .
Due to IBC Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Shareholders’ equity:
Common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . .
Less cost of shares in treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . .
$
2020
2019
66,252
77,661
11,950
2,167,516
3,365
—
2,326,744
134,642
21
14,083
148,746
96,241
149,334
2,289,626
20,825
2,556,026
(378,028)
2,177,998
2,326,744
$
$
$
$
24,290
106,284
12,100
2,120,391
3,365
264
2,266,694
134,642
21
13,978
148,641
96,215
148,075
2,200,568
2,345
2,447,203
(329,150)
2,118,053
2,266,694
79
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(23) International Bancshares Corporation (Parent Company Only) Financial Information
Statements of Income
(Parent Company Only)
Years ended December 31, 2020, 2019 and 2018
(Dollars in Thousands)
2020
2019
2018
Income:
Dividends from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest income on notes receivable . . . . . . . . . . . . . . . . . . .
Interest income on other investments . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
130,950 $
357
(1,126)
5
130,186
127,750 $
922
(514)
18
128,176
Expenses:
Interest expense (Debentures) . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before federal income taxes and equity in
undistributed net income of subsidiaries . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before equity in undistributed net income of
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in undistributed net income of subsidiaries . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,832
27
1,988
5,847
6,435
—
2,749
9,184
124,339
(1,339)
118,992
(1,878)
125,678
41,641
167,319 $
120,870
84,234
205,104 $
105,000
—
8,208
1,988
115,196
6,989
—
2,930
9,919
105,277
481
104,796
111,135
215,931
80
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(24) International Bancshares Corporation (Parent Company Only) Financial Information
Statements of Cash Flows
(Parent Company Only)
Years ended December 31, 2020, 2019 and 2018
(Dollars in Thousands)
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss (gain) on equity securities with readily
determinable fair values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . .
Equity in undistributed net income of subsidiaries . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . .
Investing activities:
Net increase in notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in other assets and other investments . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . .
Financing activities:
2020
2019
2018
167,319 $
205,104 $
215,931
27
—
—
22
743
2,467
(41,641)
128,937
—
31,289
31,289
(16)
980
(58)
(84,234)
121,776
(12,100)
5,915
(6,185)
Redemption of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock transactions . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of cash dividends - common . . . . . . . . . . . . . . . . . . . . .
Repurchase of outstanding common stock warrant . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . .
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
542
(69,928)
—
(48,878)
(118,264)
41,962
24,290
66,252 $
(25,774)
1,923
(68,670)
—
(17,845)
(110,366)
5,225
19,065
24,290 $
81
330
1,035
(1,479)
(111,135)
104,682
—
(7,891)
(7,891)
—
1,522
(49,599)
(29,005)
(19,042)
(96,124)
667
18,398
19,065
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Condensed Quarterly Income Statements
(Dollars in Thousands, Except Per Share Amounts)
2020
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for probable loan losses . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
96,763
7,384
89,379
8,784
41,736
60,388
99,983
8,170
91,813
8,770
40,117
70,053
113,650
9,796
103,854
10,989
33,596
73,908
116,612
13,769
102,843
16,836
35,130
76,982
Income before income taxes . . . . . . . . . . . . . . . . . . . . . .
61,943
53,107
52,553
44,155
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,713
10,365
11,044
9,317
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
48,230 $
42,742 $
41,509 $
34,838
Per common share:
Basic
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.76 $
0.67 $
0.66 $
0.54
Diluted
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.76 $
0.67 $
0.66 $
0.53
82
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Condensed Quarterly Income Statements
(Dollars in Thousands, Except Per Share Amounts)
2019
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for probable loan losses . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
117,359
13,996
103,363
3,480
41,584
76,171
124,119
14,901
109,218
5,278
42,697
81,066
126,860
15,078
111,782
2,665
34,416
79,613
124,063
14,654
109,409
7,420
36,129
72,951
Income before income taxes . . . . . . . . . . . . . . . . . . . . . .
65,296
65,571
63,920
65,167
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,562
14,127
13,900
13,261
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
51,734 $
51,444 $
50,020 $
51,906
Per common share:
Basic
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.79 $
0.79 $
0.76 $
0.79
Diluted
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.78 $
0.79 $
0.76 $
0.79
83
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Condensed Average Statements of Condition
(Dollars in Thousands)
(Unaudited)
Distribution of Assets, Liabilities and Shareholders’ Equity
The following table sets forth a comparative summary of average interest earning assets and average interest
bearing liabilities and related interest yields for the years ended December 31, 2020, 2019, and 2018. Tax-exempt income
has not been adjusted to a tax-equivalent basis:
2020
2019
2018
Average
Balance
Average
Interest Rate/Cost
Average
Balance
Average
Interest Rate/Cost
Average
Balance
Average
Interest Rate/Cost
(Dollars in Thousands)
Assets
Interest earning assets:
Loan, net of unearned discounts:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,290,230
125,234
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . .
372,903
4,676
5.12 % $ 6,720,765
131,356
3.73
408,166
5,445
6.07 % $
4.15
6,374,979 $ 369,761
5,412
142,999
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,213,039
67,487
767,837
46,095
2,434
900
1.43
3.61
0.12
3,244,021
126,792
109,965
72,485
4,885
1,420
2.23
3.85
1.29
3,635,675
200,978
95,559
81,484
8,141
1,024
Total interest-earning assets . . . . . . . . . . . . .
11,463,827
427,008
3.72 %
10,332,899
492,401
4.77 % 10,450,190
465,822
Non-interest earning assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . .
Bank premises and equipment, net . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for probable loan losses . . . . . . . .
174,557
465,267
1,118,561
(89,558)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $
13,132,654
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Savings and interest bearing demand deposits . . . . . $ 3,537,014
Time deposits:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under repurchase agreements. . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated interest deferrable debentures . .
Total interest bearing liabilities . . . . . . . . . . . .
1,003,221
1,068,907
335,392
547,283
134,642
6,626,459
Non-interest bearing liabilities:
Demand Deposits . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .
4,211,988
166,213
2,127,994
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
13,132,654
168,224
478,159
1,120,706
(63,328)
$ 12,036,660
178,873
485,978
1,073,534
(67,031)
$ 12,121,544
6,358
0.18 % $ 3,288,376
16,379
0.50 % $
3,273,355 $ 12,764
10,608
8,622
926
8,773
3,832
39,119
1.06
0.81
0.28
1.60
2.85
0.59 %
918,545
1,068,653
267,439
627,024
145,234
6,315,271
10,036
10,934
2,432
12,413
6,435
58,629
1.09
1.02
0.91
1.98
4.43
0.93 %
946,231
1,055,090
314,876
923,729
160,416
6,673,697
6,330
6,766
2,415
17,404
6,989
52,668
3,517,455
147,604
2,056,330
$
12,036,660
3,366,040
157,907
1,923,900
$ 12,121,544
5.80 %
3.78
2.24
4.05
1.07
4.46 %
0.39 %
0.67
0.64
0.77
1.88
4.36
0.79 %
Net interest income . . . . . . . . . . . . .
$ 387,889
$ 433,772
$ 413,154
Net yield on interest earning assets . . . . .
3.38 %
4.15 %
3.60 %
84
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INTERNATIONAL BANCSHARES CORPORATION
OFFICERS AND DIRECTORS
OFFICERS
DIRECTORS
DENNIS E. NIXON
Chairman of the Board and President
JULIE L. TARVIN
Vice President
JUDITH I. WAWROSKI
Treasurer
WILLIAM J. CUELLAR
Auditor
MARISA V. SANTOS
Secretary
HILDA V. TORRES
Assistant Secretary
DENNIS E. NIXON
Chairman of the Board
International Bank of Commerce
JAVIER DE ANDA
Senior Vice President
B.P. Newman Investment Company
IRVING GREENBLUM
International Investments/Real Estate
DOUG HOWLAND
Investments
RUDOLPH M. MILES
Investments
LARRY NORTON
Investments
ROBERTO R. RESENDEZ
Owner
Cattle Ranching and Investments
ANTONIO R. SANCHEZ, JR.
Chairman of the Board
Sanchez Oil & Gas Corporation
Investments
39638a1.qxp:22302_Cvr_ 3/27/19 8:11 PM Page 1
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