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What changed in INTERNATIONAL BANCSHARES CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of INTERNATIONAL BANCSHARES CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+235 added−217 removedSource: 10-K (2024-02-26) vs 10-K (2023-02-23)

Top changes in INTERNATIONAL BANCSHARES CORP's 2023 10-K

235 paragraphs added · 217 removed · 175 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

149 edited+46 added−33 removed96 unchanged
Biggest changeThese far-reaching changes across the financial regulatory landscape include provisions that, among other things, have or will: ● Centralize responsibility for consumer financial protection in a new agency named the Bureau of Consumer Financial Protection (CFPB); ● Restrict the preemption of state law by federal law; ● Apply the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies; ● Require financial holding companies, to be well capitalized and well managed in order to acquire banks located outside their home state; ● Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of the Deposit Insurance Fund (DIF) and increase the floor of the size of the DIF; ● Impose comprehensive regulation of over the counter derivatives market, which would include certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institution itself; 6 Table of Contents ● Require publicly traded bank holding companies with at least $10 billion in assets to create a risk committee to be chaired by an independent director, with at least one member with risk management expertise. ● Require annual stress testing of certain financial institutions with consolidated assets greater than $10 billion, but, at this time, none of the Subsidiary Banks meets the $10 billion asset threshold required to conduct the bank stress tests; ● Implement corporate governance revisions, including an advisory shareholder vote on executive compensation and proxy access by shareholders; ● Make permanent the $250,000 limit for federal deposit insurance and increase the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000; ● Repeal the federal prohibitions on the payment of interest on demand deposits; ● Amend the Electronic Fund Transfer Act to give the FRB authority to establish rules regarding interchange fees, which must be reasonable and proportional to the actual cost of a transaction to the issuer; ● Increase the authority of the FRB to examine us and our Subsidiary Banks; ● Permit interstate de novo branching without the need to acquire an existing bank; ● Require extensive new restrictions relating to residential mortgage transactions to increase compliance for financial institutions that originate mortgage loans; ● Establish a Whistleblower Incentives and Protection Program for public company employees; ● Require each agency to establish an Office of Minority and Women Inclusion and to develop diversity assessment standards for all the entities regulated by the agencies; ● Require the federal financial regulatory agencies to adopt rules that prohibit banks and their affiliates from engaging in short term proprietary trading and investing in and sponsoring certain unregistered investment companies; and ● Authorize the FRB to adopt enhanced supervision and prudential standards for bank holding companies with total consolidated assets of $250 billion (as modified by EGRRCPA) or more (often referred to as “systemically important financial institutions” or “SIFI”).
Biggest changeSome of the most notable reforms under the Dodd-Frank Act have included: ● Establishing the Consumer Financial Protection Bureau (CFPB) as the central regulator for consumer financial protection; ● Subjecting bank holding companies to the same leverage and risk-based capital requirements that apply to insured depository institutions; ● Changing the assessment base for federal deposit insurance from the amount of insured deposits to the amount of consolidated assets less tangible capital and eliminating the ceiling on the size of the Deposit Insurance Fund (DIF); ● Requiring certain financial institutions with consolidated assets of more than $10 billion, to undergo financial stress tests (which none of our Subsidiary Banks are subject to at this time due to not meeting the $10 billion asset threshold); ● Making permanent the $250,000 limit for federal deposit insurance while increasing the cash limit for Securities Investor Protection Corporation protection to $250,000; ● Repealing the federal prohibitions on the payment of interest on demand deposits; ● Amending the Electronic Fund Transfer Act to authorize the FRB to establish rules regarding interchange fees, which must be reasonable and proportional to the actual cost of a transaction to the issuer; ● Permitting interstate de novo branching without the need to acquire an existing bank; ● Imposing extensive restrictions relating to residential mortgage transactions; ● Implementing corporate-governance requirements aimed at risk management and shareholder protection; ● Establishing a whistleblower program for employees of public companies to report fraud; ● Requiring federal financial regulatory agencies to adopt rules that prohibit banks and their affiliates from engaging in short-term proprietary trading and from investing in and sponsoring certain unregistered investment companies; and ● Authorizing the FRB to examine bank holding companies and their subsidiaries and to adopt enhanced supervision and prudential standards for bank holding companies with total consolidated assets of $250 billion or more (often referred to as “systemically important financial institutions” or “SIFIs”), subject to certain modifications by the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018.
We believe that our relations with our employees are good. ​ Competition We are one of the largest independent financial bank holding companies in the State of Texas. Our primary market area is bordered on the east by the Galveston area, the northwest by Dallas, the southwest by Del Rio and to the southeast by Brownsville.
We believe that our relations with our employees are good. ​ Competition We are one of the largest independent financial bank holding companies in the State of Texas. Our primary market area in Texas is bordered on the east by the Galveston area, the northwest by Dallas, the southwest by Del Rio and to the southeast by Brownsville.
In October 2018, the federal banking regulators further proposed to revise their liquidity requirements so that banking organizations that are not globally systemic important banks and have less than $250 billion in total consolidated assets and less than $75 billion in each of off-balance sheet exposures, nonbank assets, cross-jurisdictional activity and short-term wholesale funding would not be subject to any LCR or net stable funding ratio requirements.
In October 2018, the federal banking regulators further proposed to revise their liquidity requirements so that banking organizations that are not globally systemic important banks, have less than $250 billion in total consolidated assets and have less than $75 billion in each of off-balance sheet exposures, nonbank assets, cross-jurisdictional activity and short-term wholesale funding would not be subject to any LCR or net stable funding ratio requirements.
The applicable consumer financial protection laws include, in part, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Procedures Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Practices Act, various state law counterparts, and the Consumer Financial Protection Act of 2010, which is part of Dodd-Frank.
The applicable consumer financial protection laws include, in part, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Procedures Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Practices Act, various state law counterparts, and the Consumer Financial Protection Act of 2010, which is part of the Dodd-Frank-Act.
Significant recent CFPB developments that may affect operations and compliance costs include: ● positions taken by the CFPB on fair lending, including applying the disparate impact theory which could make it more difficult for lenders to charge different rates or to apply different terms to loans to different customers; ​ ● the CFPB's final rule amending Regulation C, which implements the Home Mortgage Disclosure Act, requiring most lenders to report expanded information in order for the CFPB to more effectively monitor fair lending concerns and other information shortcomings identified by the CFPB; ​ ● positions taken by the CFPB regarding the Electronic Fund Transfer Act and Regulation E, which require companies to obtain consumer authorizations before automatically debiting a consumer’s account for pre-authorized electronic funds transfers; ​ ● focused efforts on enforcing certain compliance obligations the CFPB deems a priority, such as automobile loan servicing, debt collection, mortgage origination and servicing, remittances, and fair lending, among others. ​ ● the CFPB’s proposed Dodd-Frank Section 1033 consumer financial data sharing rule, which will require financial institutions to provide consumers and their authorized parties access to certain consumer financial obtained and maintained by the financial institution; and ​ ● the CFPB’s continued focus on bank fees and charges, including supervision and enforcement actions and bulletins related to overdraft and non-sufficient funds fees. ​ In light of the current political climate in Washington, DC and changes in CFPB leadership in recent years, we cannot predict what additional actions may be taken by the CFPB with respect to its previous regulations, rulings and decisions and any impact on our operations.
Significant recent CFPB developments that may affect operations and compliance costs include: ● positions taken by the CFPB on fair lending, including applying the disparate impact theory which could make it more difficult for lenders to charge different rates or to apply different terms to loans to different customers; ​ ● the CFPB’s final rule amending Regulation C, which implements the Home Mortgage Disclosure Act, requiring most lenders to report expanded information in order for the CFPB to more effectively monitor fair lending concerns and other information shortcomings identified by the CFPB; ​ ● positions taken by the CFPB regarding the Electronic Fund Transfer Act and Regulation E, which require companies to obtain consumer authorizations before automatically debiting a consumer’s account for pre-authorized electronic funds transfers; ​ ● focused efforts on enforcing certain compliance obligations the CFPB deems a priority, such as automobile loan servicing, debt collection, mortgage origination and servicing, remittances, and fair lending, among others. ​ ● the CFPB’s proposed Dodd-Frank Section 1033 consumer financial data sharing rule, which will require financial institutions to provide consumers and their authorized parties access to certain consumer financial data obtained and maintained by the financial institution; and ​ ● the CFPB’s continued focus on bank fees and charges, including supervision and enforcement actions and bulletins related to overdraft and non-sufficient funds fees. ​ In light of the current political climate in Washington, DC and changes in CFPB leadership in recent years, we cannot predict what additional actions may be taken by the CFPB with respect to its previous regulations, rulings, and decisions and any impact on our operations.
The CFPB’s final rules also addresses insufficiency of hazard insurance which may lead to new requirements for lender-placed insurance, and early intervention with delinquent buyers will be governed by new contract obligations.
The CFPB’s final rules also addresses insufficiency of hazard insurance which may lead to new requirements for lender-placed insurance, and early intervention with delinquent buyers, which will be governed by new contract obligations.
Powers As a result of FDICIA, the authority of the FDIC over state-chartered banks was expanded. The FDICIA limits state chartered banks to only those principal activities permissible for national banks, except for other activities specifically approved by the FDIC.
Powers As a result of the FDICIA, the authority of the FDIC over state-chartered banks was expanded. The FDICIA limits state chartered banks to only those principal activities permissible for national banks, except for other activities specifically approved by the FDIC.
Affiliate Transactions Our holding company and Subsidiary Banks are “affiliates” within the meaning of Section 23A of the Federal Reserve Act, which sets forth certain restrictions on (i) loans and extensions of credit between a bank subsidiary and affiliates, (ii) on investments in an affiliate’s stock or other securities, and (iii) on acceptance of such stock or other securities as collateral for loans.
Affiliate Transactions Our holding company and Subsidiary Banks are “affiliates” within the meaning of Section 23A of the Federal Reserve Act (FRA), which sets forth certain restrictions on (i) loans and extensions of credit between a bank subsidiary and affiliates, (ii) investments in an affiliate’s stock or other securities, and (iii) acceptance of such stock or other securities as collateral for loans.
Failure to comply with the OFAC sanctions could have serious legal and reputational consequences. Gramm Leach Bliley The GLBA eliminates the barriers to affiliations among banks, securities firms, insurance companies and other financial service providers. The GLBA provides for a new type of financial holding company structure under which affiliations among these entities may occur.
Failure to comply with the OFAC sanctions could have serious legal and reputational consequences. Gramm-Leach-Bliley Act The GLBA eliminates the barriers to affiliations among banks, securities firms, insurance companies and other financial service providers. The GLBA provides for a new type of financial holding company structure under which affiliations among these entities may occur.
Banking institutions with a ratio of CET1 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 and the institution’s “eligible retained income” (meaning, four quarter trailing income, net of distributions and tax effects not reflected in net income).
Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum requirement, but below the conservation buffer, will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall and the institution’s “eligible retained income” (meaning, four quarter trailing income, net of distributions and tax effects not reflected in net income).
Secret Service formed the Bankers Electronic Crimes Task Force and issued guidance entitled “Best Practices: Reducing the Risks of Corporate Account Takeovers.” This guidance sets forth nineteen best practices to reduce the risk of corporate account takeover thefts. Our Subsidiary Banks are required to comply with these guidelines and best practices.
Secret Service formed the Bankers Electronic Crimes Task Force and issued guidance entitled “Best Practices for Banks: Reducing the Risks of Corporate Account Takeovers.” This guidance sets forth nineteen best practices to reduce the risk of corporate account takeover thefts. Our Subsidiary Banks are required to comply with these guidelines and best practices.
In this regard, we are subject to supervision and regulation by the Board of Governors of the Federal Reserve System (FRB). In addition, all of our wholly-owned banking subsidiaries are members of and subject to regulation by the Federal Deposit Insurance Corporation (FDIC). Our principal corporate offices are located in Laredo, Texas.
In this regard, we are subject to supervision and regulation by the Board of Governors of the Federal Reserve System (FRB). In addition, all five of our wholly-owned banking subsidiaries are members of and subject to regulation by the Federal Deposit Insurance Corporation (FDIC). Our principal corporate offices are located in Laredo, Texas.
Our principal assets at December 31, 2022, consisted of all the outstanding capital stock of four Texas state banking associations and one Oklahoma state banking corporation as follows: ● International Bank of Commerce, located in Laredo, Texas (IBC); ● Commerce Bank, located in Laredo, Texas (Commerce Bank); ● International Bank of Commerce, located in Brownsville, Texas (IBC Brownsville); ● International Bank of Commerce, located in Zapata, Texas (IBC Zapata); and ● International Bank of Commerce, located in Oklahoma City, Oklahoma (IBC-Oklahoma). ​ These five subsidiary banks are collectively referred to in this report as our “Subsidiary Banks.” Our philosophy focuses on customer service as represented by the motto, “We Do More.” Our Subsidiary Banks maintain a strong commitment to their local communities by, among other things, appointing selected community members to local advisory boards (local boards).
Our principal assets at December 31, 2023, consisted of all the outstanding capital stock of four Texas state banking associations and one Oklahoma state banking corporation as follows: ● International Bank of Commerce, located in Laredo, Texas (IBC); ● Commerce Bank, located in Laredo, Texas (Commerce Bank); ● International Bank of Commerce, located in Brownsville, Texas (IBC Brownsville); ● International Bank of Commerce, located in Zapata, Texas (IBC Zapata); and ● International Bank of Commerce, located in Oklahoma City, Oklahoma (IBC-Oklahoma). ​ These five subsidiary banks are collectively referred to in this report as our “Subsidiary Banks.” Our philosophy focuses on customer service as represented by the motto, “We Do More.” Our Subsidiary Banks maintain a strong commitment to their local communities by, among other things, appointing selected community members to local advisory boards.
These laws comprehensively regulate the operations of the Subsidiary Banks and include, among other matters: ● requirements to maintain reserves against deposits; ● restrictions on the nature and amount of loans that may be made and the interest that may be charged thereon; ● restrictions on the amounts, terms and conditions of loans to directors, officers, large shareholders and their affiliates; ● restrictions related to investments in activities other than banking; and ● minimum capital requirements. ​ Furthermore, Congress, state legislatures and applicable federal and state regulatory agencies are continually reviewing such statutes, regulations and policies.
These laws comprehensively regulate the operations of our Subsidiary Banks and include, among other matters: ● requirements to maintain reserves against deposits; ● restrictions on the nature and amount of loans that may be made and the interest that may be charged thereon; ● restrictions on the amounts, terms, and conditions of loans to directors, officers, large shareholders and their affiliates; ● restrictions related to investments in activities other than banking; and ● minimum capital requirements. ​ Congress, state legislatures and applicable federal and state regulatory agencies are continually reviewing such statutes, regulations, and policies.
We also conduct training programs on equal employment opportunities, diversity and inclusion in the workplace, as well as training sessions that coach and develop talent in order to retain a diverse workforce.
We also conduct training programs on equal employment opportunities and diversity and inclusion in the workplace as well as training sessions that coach and develop talent in order to promote and retain a diverse workforce.
The legislation would broaden the types of legal violations that affect CRA scores, require banks to form community advisory committees in each market they serve (based on metropolitan statistical areas), require proof of impact for community service and charity efforts to receive CRA credit, and require large banks to collect and report even more information related to borrower demographics.
If enacted, the legislation would broaden the types of legal violations that affect CRA scores, require banks to form community advisory committees in each market they serve (based on metropolitan statistical areas), require proof of impact for community service and charity efforts to receive CRA credit, and require large banks to collect and report even more information related to borrower demographics.
We are committed to providing equal opportunity for applicants and employees in all of our employment practices, including but not limited to, hiring, promoting, transferring, and compensating without regard to sex, race, color, national origin, genetic information, citizenship status, age, religion, veteran, disability or any other characteristic protected by law.
We are committed to providing equal opportunities for applicants and employees in all of our employment practices, including but not limited to, hiring, promoting, transferring, and compensating without regard to sex, race, color, national origin, genetic information, citizenship status, age, religion, veteran, disability, or any other characteristic protected by law.
This final rule clarifies, revises, or amends provisions regarding force-placed insurance notices, policies and procedures, early intervention, and loss mitigation requirements under Regulation X’s servicing provisions; and prompt crediting and periodic statement requirements under Regulation Z’s servicing provisions. The final rule also addresses compliance when a consumer is in bankruptcy and makes technical corrections to several other provisions.
The final rule clarifies, revises, or amends provisions regarding force-placed insurance notices, policies, and procedures, early intervention, and loss-mitigation requirements under Regulation X’s servicing provisions, and imposes prompt crediting and periodic statement requirements under Regulation Z’s servicing provisions. The final rule also addresses compliance when a consumer is in bankruptcy and makes technical corrections to several other provisions.
A bank will be considered: ● “well-capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a CET1 capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any order or written directive by an such regulatory authority to meet and maintain a specific capital level for any capital measure; ● “adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a CET1 capital ratio of 4.5% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 4.0% or greater and is not “well capitalized”; ● “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a CET1 capital ratio less than 4.5%, a Tier 1 risk-based capital ratio of less than 6.0% or a leverage ratio of less than 4.0%; ● “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a CET1 15 Table of Contents capital ratio less than 3%, a Tier 1 risk-based capital ratio of less than 4.0% or a leverage ratio of less than 3.0%; and ● “critically undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets. ​ An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.
A bank will be considered: ● “well capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a CET1 capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any order or written directive by any regulatory authority to meet and maintain a specific capital level for any capital measure; ● “adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a CET1 capital ratio of 4.5% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 4.0% or greater and is not “well capitalized”; ● “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a CET1 capital ratio less than 4.5%, a Tier 1 risk-based capital ratio of less than 6.0% or a leverage ratio of less than 4.0%; ● “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a CET1 capital ratio less than 3%, a Tier 1 risk-based capital ratio of less than 4.0% or a leverage ratio of less than 3.0%; and ● “critically undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets. ​ An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.
Effective January 1, 2020, Texas amended its data breach notification law, limiting the time frame for notifying individuals whose data has been compromised and requiring notice to the Texas Attorney General in certain circumstances. We expect state-level activity to continue in this area and will monitor legislative developments in Texas and Oklahoma.
Effective January 1, 2020, Texas amended its data breach notification law, limiting the time frame for notifying individuals whose data has been compromised and requiring notice to the Texas Attorney General in certain circumstances. We expect state-level activity to continue in this area and will continue monitoring legislative developments in Texas and Oklahoma.
Community Reinvestment Act Under the CRA, the FDIC is required to assess the record of each Subsidiary Bank to determine if the bank meets the credit needs of its entire community, including low and moderate-income neighborhoods served by the institution, and to take that record into account in its evaluation of any application made by the bank for, among other things, approval of the acquisition or establishment of a branch or other deposit facility, an office relocation, a merger, or the acquisition of 17 Table of Contents shares of capital stock of another financial institution.
Community Reinvestment Act Under the CRA, the FDIC is required to assess the record of each Subsidiary Bank to determine if the bank meets the credit needs of its entire community, including low- and moderate-income neighborhoods served by the bank, and to take that record into account in its evaluation of any application made by the bank for, among other things, approval of the acquisition or establishment of a branch or other deposit facility, an office relocation, a merger, or the acquisition of shares of capital stock of another financial institution.
The USA PATRIOT Act Combating money laundering and terrorist financing is a major focus of financial institution regulatory policy. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (PATRIOT Act), substantially expanded the responsibilities of U.S. financial institutions with respect to countering money laundering and terrorist activities.
Anti-Money Laundering Combating money laundering and terrorist financing is a major focus of financial institution regulatory policy. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (PATRIOT Act), substantially expanded the responsibilities of U.S. financial institutions with respect to countering money laundering and terrorist activities.
As of December 31, 2022, each of our Subsidiary Banks are “well-capitalized” based on the aforementioned ratios pursuant to the Basel III capital rules. Liquidity Requirements Historically, regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, without required formulaic measures.
As of December 31, 2023, each of our Subsidiary Banks are “well capitalized” based on the aforementioned ratios pursuant to the Basel III capital rules. Liquidity Requirements Historically, regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, without required formulaic measures.
The Dodd-Frank Act requires the federal banking agencies and the SEC to jointly prescribe regulations or guidelines that require financial institutions with $1 billion or more in assets to disclose to the appropriate federal regulator, the structure of all incentive-based compensation arrangements sufficient to determine whether the compensation structure provides an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits, or could lead to material financial loss to the financial institutions.
The Dodd-Frank Act requires the federal banking agencies and the SEC to jointly prescribe regulations or guidelines that require financial institutions with $1 billion or more in assets to disclose to the appropriate federal regulator, the structure of all incentive-based compensation arrangements sufficient to determine whether the compensation structure provides an executive officer, employee, director, or principal shareholder (collectively, “covered persons”) with excessive compensation, fees, or benefits, or could lead to material financial loss to the financial institutions.
The FRB is also empowered to assess civil money penalties against companies or individuals who violate the BHCA in amounts up to $1,000,000 per day, order termination of non-banking activities of non-banking subsidiaries and order termination of ownership and control of a non-banking subsidiary.
The FRB is also empowered to assess civil money penalties against companies or individuals who violate the BHCA in amounts up to $25,000 per day, order termination of non-banking activities of non-banking subsidiaries and order termination of ownership and control of a non-banking subsidiary.
Further, such secured loans and investments by a bank subsidiary are limited in amount, as to a bank holding company or any other affiliate, to 10% of such bank subsidiary’s 20 Table of Contents capital and surplus and, as to the bank holding company and its affiliates, to an aggregate of 20% of such bank subsidiary’s capital and surplus.
Further, such secured loans and investments by a bank subsidiary are limited in amount, as to a bank holding company or any other affiliate, to 10% of such bank subsidiary’s capital and surplus and, as to the bank holding company and its affiliates, to an aggregate of 20% of such bank subsidiary’s capital and surplus.
In addition to the foregoing requirements, the Dodd-Frank Act’s provisions authorize the FRB and other federal banking regulators to require a company that directly or indirectly controls a bank to submit reports that are designed both 11 Table of Contents to assess the ability of such company to comply with its “source of strength” obligations and to enforce the company’s compliance with these obligations.
In addition to the foregoing requirements, the Dodd-Frank Act’s provisions authorize the FRB and other federal banking regulators to require a company that directly or indirectly controls a bank to submit reports that are designed both to assess the ability of such company to comply with its “source of strength” obligations and to enforce the company’s compliance with these obligations.
The Dodd-Frank Act requires the federal banking agencies to jointly issue rules implementing the “source of strength” doctrine, but as of December 31, 2022, the FRB and other federal banking regulators have not yet issued such rules.
The Dodd-Frank Act requires the federal banking agencies to jointly issue rules implementing the “source of strength” doctrine, but as of December 31, 2023, the FRB and other federal banking regulators have not yet issued such rules.
The CFPB and other federal regulators, including the Federal Housing Administration, have issued several updated guidelines and proposed regulatory revisions that signal an ongoing focus on redlining and discrimination in mortgage lending, including revisions to the CRA and greater oversight of property appraisals, including related algorithms and machine learning tools that can be used in the appraisal process.
The CFPB and other federal regulators, including the Federal Housing Administration, have issued several updated guidelines and proposed regulatory revisions that signal an ongoing focus on redlining and discrimination in 22 Table of Contents mortgage lending, including revisions to the CRA and greater oversight of property appraisals, including related algorithms and machine learning tools that can be used in the appraisal process.
Financial Privacy In accordance with the GLBA, the federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties.
Financial Privacy and Data Protection In accordance with the GLBA, the federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties.
The Texas Department of Banking and Oklahoma State Banking Department also have broad enforcement powers over the Subsidiary Banks, as applicable, including the power to impose orders, remove officers and directors, impose fines and appoint supervisors and conservators.
The Texas Department of Banking and Oklahoma State Banking Department have broad enforcement powers over our Subsidiary Banks, as applicable, including the power to impose orders, remove officers and directors, impose fines and appoint supervisors and conservators.
In 2021, the federal banking agencies adopted a rule governing computer security incidents and, in part, the rule requires notification by a regulated institution to its primary federal regulator in the event of certain cybersecurity-related incidents. In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.
In 2021, the federal banking agencies adopted a rule governing computer security incidents and, in part, the rule requires notification by a regulated institution to its primary federal regulator in the event of certain cybersecurity-related incidents. 20 Table of Contents In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.
Our Tier 1 capital is comprised of common shareholders’ equity and permissible amounts related to the trust preferred securities. The deductible core deposit intangibles and goodwill booked in connection with all our financial institution acquisitions after February 1992 are deducted from the sum of core capital elements when determining our capital ratios.
Our Tier 1 capital is comprised of common shareholders’ equity and permissible amounts related to the trust preferred securities. The deductible core deposit intangibles and goodwill booked in connection with all our financial institution acquisitions are deducted from the sum of core capital elements when determining our capital ratios.
Among other things, the Dodd-Frank Act expands the limitations on affiliate transactions by expanding the definitions of “affiliate” and “covered transactions,” including debt obligations of an affiliate utilized as collateral. The Dodd-Frank Act also requires that the 10% of capital limit on covered transactions begin to apply to non-bank financial subsidiaries.
Among other things, the Dodd-Frank Act expands the limitations on affiliate transactions by expanding the definitions of “affiliate” and of “covered transactions,” which include debt obligations of an affiliate utilized as collateral. The Dodd-Frank Act also requires that the 10% of capital limit on covered transactions begin to apply to non-bank financial subsidiaries.
The Basel III liquidity coverage ratio was published in 2013 and uses international liquidity standards that serve to reconcile the differences of the liquidity standards of countries. The Basel Committee is expected to address the net stable funding ratio in the future. These new standards are subject to further rulemaking and their terms may well change before implementation.
The Basel III liquidity coverage ratio uses international liquidity standards that serve to reconcile the differences of the liquidity standards of countries. The Basel Committee is expected to address the net stable funding ratio in the future. These new standards are subject to further rulemaking and their terms may well change before implementation.
We also own five direct non-banking subsidiaries: ● IBC Trading Company, an export trading company which is currently inactive; ● IBC Charitable and Community Development Corporation, a Texas nonprofit corporation formed to conduct charitable and community development activities; ● IBC Capital Corporation, a company incorporated in the State of Delaware for the purpose of holding certain investments; and ● Premier Tierra Holdings, Inc., a liquidating subsidiary formed under the laws of the State of Texas. ● Diamond Beach Holdings, LLC, a merchant banking entity formed under the laws of the State of Texas. ​ 3 Table of Contents We also own a fifty percent interest in Gulfstar Group I and II, Ltd. and related entities, which are involved in investment banking activities, a controlling interest in four merchant banking entities, and a majority ownership in a real-estate development partnership.
We also own five direct, non-banking subsidiaries: ● IBC Trading Company, an export trading company that is currently inactive; ● IBC Charitable and Community Development Corporation, a nonprofit corporation formed under the laws of the State of Texas to conduct charitable and community development activities; ● IBC Capital Corporation, a company incorporated in the State of Delaware for the purpose of holding certain investments; ● Premier Tierra Holdings, Inc., a liquidating subsidiary formed under the laws of the State of Texas; and ● Diamond Beach Holdings, LLC, a merchant banking entity formed under the laws of the State of Texas. ​ 3 Table of Contents We also own fifty-percent interests in Gulfstar Group I, Ltd. and Gulfstar Group II, Ltd., together with their related entities, all of which are involved in investment banking activities; a controlling interest in four merchant banking entities; and a majority ownership interest in a real-estate development partnership.
State Enforcement Powers The Banking Commissioners of Texas and Oklahoma may determine to close a Texas or Oklahoma state bank, respectively, when such Commissioner finds that the interests of depositors and creditors of a state bank are jeopardized through its insolvency or imminent insolvency and that it is in the best interest of such depositors and creditors that the bank be closed.
State Enforcement Powers The Banking Commissioners of Texas and Oklahoma may determine to close a Texas or Oklahoma state bank, respectively, if such Commissioner finds that the interests of depositors and creditors of the state bank are jeopardized through its current or imminent insolvency and that it is in the best interest of such depositors and creditors that the bank be closed.
We seek to develop superior skills at the transaction level, using a bottom-up approach to management. The use of pods, roundtables, and team huddles are fundamental to our approach. ​ 4 Table of Contents We use compensation plans coupled with a complete evaluation program to reward and direct the development of our employees.
We seek to develop superior skills at the transaction level, using a bottom-up approach to management. The use of pods, roundtables, and team huddles are fundamental to our approach. ​ We use compensation plans coupled with a complete evaluation program to reward and direct the development of our employees.
Similarly, it is possible that the legislatures of the State of Texas or the State of Oklahoma would amend applicable state laws relating to us or our Subsidiary Banks. 23 Table of Contents
Similarly, it is possible that the legislatures of the State of Texas or the State of Oklahoma would amend applicable state laws relating to us or our Subsidiary Banks. 24 Table of Contents
Our compensation systems are reflective of the need to retain and develop a superior workforce, recognizing that unique and innovative programs need to be developed and maintained to retain highly qualified employees. We strive to provide pay, benefits, and services that help meet the varying needs of our employees.
Our compensation systems reflect the need to retain and develop a superior workforce, recognizing that unique and innovative programs need to be developed and maintained to retain highly qualified employees. We strive to provide pay, benefits, and services that help meet the varying needs of our employees.
We have a program in place to monitor and enforce our policies on money laundering, corruption and bribery, as well as our policies on prohibiting the use of Company assets to finance or otherwise aid alleged terrorist groups.
We have a program in place to monitor and enforce our policies on money laundering, corruption, and bribery, as well as policies that prohibit the use of Company assets to finance or otherwise aid alleged terrorist groups.
The Dodd-Frank Act directed the banking agencies to issue capital requirements for banking institutions that are countercyclical. These will require a higher level of capital to be maintained in times of economic expansion and a lower level of capital during times of economic contraction.
The Dodd-Frank Act directs the banking agencies to issue capital requirements for banking institutions that are countercyclical. These require a higher level of capital to be maintained in times of economic expansion and a lower level of capital during times of economic contraction.
The changes proposed in the NPR were significantly narrower than the FRB’s recommendations regarding merchant banking 9 Table of Contents investments in its report to Congress. To date, a final rule implementing the changes put forth in the NPR has not been issued and it is uncertain what action, if any, will be taken regarding the FRB’s report.
The changes proposed in the NPR were significantly narrower than the FRB’s recommendations regarding merchant banking investments in its report to Congress. To date, a final rule implementing the changes put forth in the NPR has not been issued and it is uncertain what action, if any, will be taken regarding the FRB’s report.
Each Subsidiary Bank makes available certain securities products through third party providers, as well as banking services during traditional and nontraditional banking hours through their ATM network and retail locations in shopping malls and other convenient places.
Each Subsidiary Bank makes available certain securities products through third-party providers and provides banking services during traditional and nontraditional banking hours through their ATM network and retail locations in shopping malls and other convenient places.
The Basel III final framework requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward will be required by regulation.
The Basel III final framework requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity 16 Table of Contents measures historically applied by banks and regulators for management and supervisory purposes, going forward will be required by regulation.
In addition, the GLBA permitted certain non-banking financial and financially related activities to be conducted by financial subsidiaries of banks.
In addition, the GLBA permits certain non-banking financial and financially related activities to be conducted by financial subsidiaries of banks.
The update required 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.
Among other things, the update required that the expected credit losses on 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.
Certain restrictions do not apply to 80% or more owned sister banks of bank holding companies. Each Subsidiary Bank is wholly-owned by our holding company. Section 23B of the Federal Reserve Act requires that the terms of affiliate transactions be comparable to terms of similar non-affiliate transactions.
Certain restrictions do not apply to 80% or more owned sister banks of bank holding companies. Each Subsidiary Bank is wholly-owned by our holding company. Section 23B of the FRA requires that the terms of affiliate transactions be comparable to terms of similar non-affiliate transactions.
Deposits from persons and entities domiciled in Mexico comprise a large and stable portion of the deposit base of the Subsidiary Banks. These deposits comprised approximately 28%, 25% and 27% of the Subsidiary Banks total deposits for the three years ended December 31, 2022, 2021 and 2020, respectively.
Deposits from persons and entities domiciled in Mexico comprise a large and stable portion of the deposit base of the Subsidiary Banks. These deposits comprised approximately 29%, 28% and 25% of the Subsidiary Banks total deposits for the three years ended December 31, 2023, 2022 and 2021, respectively.
As of December 31, 2022, over 65% of our approximately 300-person officer management team have been with us for more than 15 years, and approximately 70% of those have been with us for more than 20 years. ​ Our mission is to develop a banking culture that builds genuine, personal relationships with our customers and the communities we serve.
As of December 31, 2023, approximately 68% of our approximately 300-person officer management team have been with us for more than 15 years, and approximately 70% of those have been with us for more than 20 years. ​ Our mission is to develop a banking culture that builds genuine, personal relationships with our customers and the communities we serve.
Nonresident Alien Deposits In 2013, the IRS published a rule requiring U.S. banks to report on the interest they pay to nonresident alien individuals, and the IRS will share the information with tax authorities in other countries with whom the United States has an agreement regarding the exchange of tax information.
Nonresident Alien Deposits In 2013, the IRS published a rule requiring U.S. banks to report on the interest they pay to nonresident alien individuals. The IRS shares that information with tax authorities in other countries with whom the United States has an agreement regarding the exchange of tax information.
Two of our Subsidiary Banks are considered “intermediate small institutions” and IBC, IBC Brownsville and IBC Oklahoma are considered “large institutions” under the new asset thresholds. Consumer Laws In addition to the laws and regulations discussed herein, the Subsidiary Banks are also subject to numerous consumer laws and regulations that are designed to protect consumers in transactions with banks.
Two of our Subsidiary Banks are considered “intermediate small banks” and IBC, IBC Brownsville and IBC Oklahoma are considered “large banks” under the new asset thresholds. ​ 18 Table of Contents Consumer Laws In addition to the laws and regulations discussed herein, the Subsidiary Banks are also subject to numerous consumer laws and regulations that are designed to protect consumers in transactions with banks.
We do not anticipate that the rule will have a significant detrimental effect on us given that it is generally consistent with the FRB’s historical practices in making control determinations.
To date, the rule has not, as we do not anticipate that it will, have a significant detrimental effect on us given that it is generally consistent with the FRB’s historical practices in making control determinations.
Deposit Insurance All of the Subsidiary Banks are examined by the FDIC, which currently insures the deposits of each member bank up to applicable limits.
Deposit Insurance All of the Subsidiary Banks are examined by the FDIC, which currently insures the deposits of each Subsidiary Bank up to the applicable limits provided by law.
The FRB will review, as part of the regular, risk focused examination process, the incentive compensation arrangements of banking organizations. These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination.
As part of its regular, risk-focused examination process, the FRB reviews the incentive compensation arrangements of banking organizations. These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives are included in reports of examination.
The TILA-RESPA Rule was amended again in 2018 to make amendments regarding when a creditor may use a Closing Disclosure to reset tolerances. 21 Table of Contents On October 4, 2017, the CFPB issued an interim final rule and a proposed rule to provide mortgage servicers more flexibility and certainty around requirements to communicate with certain borrowers under the CFPB’s 2016 mortgage servicing amendments.
The TILA-RESPA Rule was amended again in 2018 to revise when a creditor may use a Closing Disclosure to reset tolerances. On October 4, 2017, the CFPB issued an interim final rule and a proposed rule to provide mortgage servicers more flexibility and certainty around requirements to communicate with certain borrowers under the CFPB’s 2016 mortgage servicing amendments.
Our team approach allows us to nurture excellence in our staff in order to develop superior valuation skills so that each individual may better understand the risks and returns of transactions better than our competitors. We provide extensive training to our employees in an effort to ensure that our customers receive superior customer service.
Our team approach allows us to nurture excellence in our staff in order to develop superior valuation skills so that each of our staff members better understand the risks and returns of transactions better than our competitors. We provide extensive 4 Table of Contents training to our employees in an effort to ensure that our customers receive superior customer service.
The Basel III final capital framework, among other things, (i) introduces as a new capital measure “Common Equity Tier 1” (CET1), (ii) specifies that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) defines CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expands the scope of the adjustments as compared to existing regulations.
The Basel III final capital framework, among other things, (i) a minimum ratio for “Common Equity Tier 1” capital (CET1), (ii) specifies that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) defines CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expands the scope of the adjustments as compared to pre-Basel III regulations.
Depositor Preference Because our holding company is a legal entity separate and distinct from our Subsidiary Banks, it’s our holding company’s right to participate in the distribution of assets of any subsidiary upon the subsidiary’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors.
Depositor Preference Because our holding company is a legal entity separate and distinct from our Subsidiary Banks, our holding company has the right to participate in the distribution of assets of any Subsidiary Bank upon the subsidiary’s liquidation or reorganization, but it will be subject to the prior claims of the subsidiary’s creditors.
Under the Interstate Banking Act, adequately capitalized, well managed bank holding companies with FRB approval may acquire banks located in any state in the United States, provided that the target bank meets the minimum age established by the host state (maximum of five years in Texas).
Under the Interstate Banking Act, adequately capitalized, well-managed bank holding companies with FRB approval may acquire banks located in any other state in the United States, provided that the target bank meets the minimum age established by the state in which the target bank is located (five years in Texas).
Also, the PATRIOT Act requires the bank regulatory agencies to consider the record of a bank or bank holding company in combating money laundering activities in their evaluation of bank and bank holding company merger or acquisition transactions.
The PATRIOT Act also requires the bank regulatory agencies to consider the record of a bank or bank holding company in combating money laundering activities in their evaluation of bank and bank holding company merger or acquisition transactions. Anti-money laundering regulations are continually evolving.
As of December 31, 2022, over 74% of our workforce self-identified as Latino or Hispanic, and over 66% self-identified as women.
As of December 31, 2023, approximately 74% of our workforce self-identified as Latino or Hispanic, and over 66% self-identified as women.
The rule also includes heightened standards for financial institutions with $50 billion or more in total consolidated assets that requires at least 50 percent of incentive based payments for designated executives to be deferred for a minimum of three years.
The rule also included heightened standards for financial institutions with $50 billion or more in total consolidated assets, requiring at least 50% of incentive-based payments for designated executives to be deferred for a minimum of three years.
If a top tier banking organization makes the AOCI opt out election, all consolidated banking subsidiary organizations under it must make the same election. We made the AOCI opt out election in 2015.
If a top-tier banking organization makes the AOCI opt-out election, all consolidated banking subsidiary organizations under it must make the same election.
In 2016, the federal banking agencies proposed enhanced cyber risk management standards for large interconnected entities and their service providers. The proposal establishes enhanced standards to increase the operational resilience of these entities and reduce the impact on the financial system in case of a cyber event experienced by one of these entities.
In 2016, the federal banking agencies proposed enhanced cyber-risk management standards for large interconnected entities and their service providers. The proposal established enhanced standards to increase the operational resilience of those entities and reduce the impact on the financial system in case of a cyber event experienced by any of them.
The 2021 Guidance includes support for multi-factor authentication in nearly every facet of banking services and highlights the importance of banks’ internet and cybersecurity risk assessment in addressing and preventing unauthorized access to accounts, services and information and cyber-crime.
The 2021 Guidance supports the use of multi-factor authentication in nearly every facet of banking services and highlights the importance of banks’ Internet and cybersecurity risk assessment in addressing and preventing unauthorized access to accounts, services and information and other cyber-crime.
The relevant capital measures which reflect changes under the Basel III capital rules that became effective on January 1, 2015, are the total capital ratio, the CET1 capital ratio, the Tier 1 capital ratio and the leverage ratio.
The relevant capital measures, which reflect the standards for assessing capital adequacy under the Basel III capital rules that became effective on January 1, 2015, are the total capital ratio, the CET1 capital ratio, the Tier 1 capital ratio, and the leverage ratio.
In addition, the FRB has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum leverage ratio of Tier 1 capital to adjusted average quarterly assets (“leverage ratio”) equal to three percent for bank holding companies that meet certain specified criteria, including having the highest 12 Table of Contents regulatory rating.
In addition, the FRB has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum leverage ratio of Tier 1 capital to adjusted average quarterly assets (leverage ratio) equal to 3% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating.
The National Institute of Standards and Technology (NIST) released a preliminary Framework for Approving Critical Infrastructure Cybersecurity in 2014, and an update to that Framework in 2018. Our Subsidiary Banks are expected to incorporate the NIST Cybersecurity Framework into their security frameworks, which are also governed by FFIEC guidelines.
The National Institute of Standards and Technology (NIST) released a preliminary Framework for Improving Critical Infrastructure Cybersecurity (NIST Cybersecurity Framework) in 2014, and an update to that framework in 2018. Our Subsidiary Banks are expected to incorporate the NIST Cybersecurity Framework into their infrastructures and risk-management systems, which are also governed by FFIEC guidelines.
These local advisory boards help to direct the operations of the branches, under the supervision of the Subsidiary Bank’s board of directors. These local boards also assist in developing or modifying our products and services to meet local customer needs, as well as introducing prospective customers to our many products and services.
These local advisory boards help to direct the operations of the branches of each Subsidiary Bank under the supervision of the Subsidiary Bank’s board of directors, assist in developing or modifying our products and services to meet local customer needs, and introduce prospective customers to our many products and services.
“Large institution” now means a bank with total assets equal to or greater than $1.503 billion for December 31 of both of the prior two calendar years, “small institution” means an institution with assets less than $1.503 billion as of December 31 of either of the prior two calendar years, and “intermediate small institution” means an institution with assets of at least $376 million as of December 31 of both of the prior two calendar years and less than $1.503 billion as of December 31 of either of the prior two calendar years.
“Large bank” now means a bank with total assets equal to or greater than $1.564 billion for December 31 of both of the prior two calendar years, “small bank” means a bank with assets of less than $1.564 billion as of December 31 of either of the prior two calendar years, and “intermediate small bank” means a bank with assets of at least $391 million as of December 31 of both of the prior two calendar years and less than $1.564 billion as of December 31 of either of the prior two calendar years.
Any change in such laws or policies applicable to us and our subsidiaries could have a material adverse effect on our business, financial condition or our results of operations. Recent political developments, including the change in the United States’ administration, have increased uncertainty with respect to the implementation, scope and timing of regulatory reforms.
Any change in such laws or policies applicable to us and our subsidiaries could have a material adverse effect on our business, financial condition or results of operations. Recent challenges to the scope of agencies’ regulatory authority have increased uncertainty with respect to the implementation, scope, and timing of regulatory reforms.
The scope and content of the U.S. regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving. It cannot be determined at this time whether compliance with such policies will adversely affect our ability to hire, retain and motivate our key employees.
A copy of our clawback policy is attached as Exhibit 97 hereto. ​ The scope and content of the U.S. regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving. It cannot be determined at this time whether compliance with such policies will adversely affect our ability to hire, retain, and motivate our key employees.
The FDIA includes the following five capital tiers: (i) “well-capitalized;” (ii) “adequately capitalized;” (iii) “undercapitalized;” (iv) “significantly undercapitalized;” and (v) “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation.
The FDIA establishes the following five capital tiers: (i) “well capitalized;” (ii) “adequately capitalized;” (iii) “undercapitalized;” (iv) “significantly undercapitalized;” and (v) “critically 15 Table of Contents undercapitalized.” A depository institution’s capital tier depends upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation.
In the event of a liquidation or other resolution of a Subsidiary Bank, the claims of depositors and other general or subordinated creditors of the bank are entitled to a priority of payment over the claims of holders of any obligation of the institution to its shareholders, including any depository institution holding company or any shareholder or creditor.
In the event of a liquidation or other resolution of an insured depository institution like any of our Subsidiary Banks, the claims of depositors and other 17 Table of Contents general or subordinated creditors of the bank are entitled to a priority of payment over the claims of holders of any obligation of the bank to its shareholders, including any depository institution holding company (like us) or any shareholder or creditor thereof.
While updates to the CRA’s implementing regulations are necessary to address the changes in the banking industry and the increase in online and mobile banking, the proposed changes include significant increases in data collection, testing, and evaluation metrics related to geography and assessment areas.
Although updates to the CRA’s implementing regulations were necessary to address the changes in the banking industry and the increase in online and mobile banking, the changes under the final rule include significant increases in data collection, testing, and evaluation metrics related to geography and assessment areas.
Recently, several states adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements for such programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.
Increasingly, state regulators are implementing additional privacy and cybersecurity standards and regulations. Recently, several states adopted regulations requiring certain financial institutions to implement cybersecurity programs and provide detailed requirements for such programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.
Insider Loans The restrictions on loans to directors, executive officers, principal shareholders and their related interests contained in the Federal Reserve Act and Regulation O apply to all insured institutions and their subsidiaries and holding companies.
Insider Loans 21 Table of Contents The restrictions on loans to directors, executive officers, principal shareholders, and their related interests contained in the FRA and Regulation O apply to all insured institutions and their subsidiaries and holding companies.
Further, the Basel III capital rules establish calculations for risk-weighted assets using alternatives to credit ratings that would be based on either the weighted average of the underlying collateral or a formula based on subordination position and delinquencies or the use of a 1,250% risk rating, which would be the default rating if requisite standards of a comprehensive understanding and levels of the due diligence are not met.
Further, the Basel III capital rules establish calculations for risk-weighted assets using alternatives to credit ratings that are based on either the weighted average of the underlying collateral or a formula based on subordination position and delinquencies or the use of a 1,250% risk rating, which is be the default rating that a banking organization must apply to a securitization exposure if it does not meet certain requisite due diligence standards and does not demonstrate a comprehensive understanding of the exposure.
Under the Interstate Banking Act, an anti-concentration limit will bar interstate acquisitions that would give a bank holding company control of more than ten percent of all deposits nationwide or thirty percent of any one state’s deposits, or such higher or lower percentage established by the host state.
The Interstate Banking Act imposes an anti-concentration limit, which prohibits interstate acquisitions that would give a bank holding company control of more than 10% of all deposits nationwide or 30% of any one state’s deposits, or such higher or lower percentage established by the host state.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

21 edited+14 added−9 removed66 unchanged
Biggest changeThe adoption of the update increased our allowance for probable loan losses (referred to as the allowance for credit losses under ASU 2016-13), by approximately 17.2%, resulting in a one-time cumulative-effect adjustment to retained earnings of approximately $8.3 million, net of tax, upon adoption. If real estate values in our target markets decline, the loan portfolio would be impaired.
Biggest changeOur adoption of ASU 2016-13, as amended, on January 1, 2020 impacted our methodology for estimating the allowance for credit losses. Adopting the CECL methodology pursuant to ASU 2016-03 increased our allowance for probable loan losses and resulted in a one-time cumulative-effect adjustment to retained earnings upon adoption.
The trading price of our common stock has fluctuated over time due in part to actual or anticipated variations in our earnings, changes in government regulations, policies and guidance, news reports of trends, concerns and other issues related to the financial services industry, operating and stock performance of our peer companies, new technology used or services offered by traditional and non-traditional competitors, continued low trading volume in our common stock, the impact of short selling activity in our common stock and reports of trends, concerns and other issues related to the financial services industry.
The trading price of our common stock has fluctuated over time due in part to actual or anticipated variations in our earnings, changes in government regulations, policies and guidance, news reports of trends, concerns and other issues related to the financial services industry, operating and stock performance of our peer companies, new technology used or services offered by traditional and non-traditional competitors, continued low trading volume in our common stock and the impact of short-selling activity in our common stock.
If we experience disruption in our business, unexpected significant declines in our operating results, or sustained market capitalization declines, it could result in goodwill impairment charges in the future, which would be recorded as charges against earnings. We performed an annual goodwill impairment assessment as of October 1, 2022.
If we experience disruption in our business, unexpected significant declines in our operating results, or sustained market capitalization declines, it could result in goodwill impairment charges in the future, which would be recorded as charges against earnings. We performed an annual goodwill impairment assessment as of October 1, 2023.
Technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and traditionally offered by banks. In particular, the activity of financial technology companies (“fintechs”) has grown significantly over recent years and is expected to continue to grow.
Technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and traditionally offered by banks. In particular, the activity of financial technology companies (fintechs) has grown significantly over recent years and is expected to continue to grow.
If we were unable to access any of these funding sources when needed, we might be unable to meet customers’ needs, which could adversely impact our financial condition, results of operations, cash flows and liquidity, and level of regulatory-qualifying capital. ​ ​ 26 Table of Contents Our holding company relies on dividends from our Subsidiary Banks for most of our revenue.
If we were unable to access any of these funding sources when needed, we might be unable to meet customers’ needs, which could adversely impact our financial condition, results of operations, cash flows and liquidity, and level of regulatory-qualifying capital. Our holding company relies on dividends from our Subsidiary Banks for most of our revenue.
The loss of revenue streams and the reduction of lower cost deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. External funding which we rely on, in part, to provide liquidity may not be available to us on favorable terms or at all.
The loss of revenue streams and the reduction of lower cost deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. 25 Table of Contents External funding which we rely on, in part, to provide liquidity may not be available to us on favorable terms or at all.
We do not have an employment agreement with Mr. Nixon and the loss of his services could have a material adverse effect on our business and prospects. Our information systems may experience an interruption or breach in security. We rely heavily on communications and information systems to conduct our business.
Nixon became our President in 1979. We do not have an employment agreement with Mr. Nixon and the loss of his services could have a material adverse effect on our business and prospects. Our information systems may experience an interruption or breach in security. We rely heavily on communications and information systems to conduct our business.
Although we have established disaster recovery policies and procedures, any such event(s) in, near or affecting the markets we serve could have a material adverse effect on our business. An impairment in the carrying value of our goodwill could negatively impact our earnings and capital.
Although we have established disaster 27 Table of Contents recovery policies and procedures, any such event(s) in, near, or affecting the markets we serve could have a material adverse effect on our business. An impairment in the carrying value of our goodwill could negatively impact our earnings and capital.
While management regularly reviews and updates our 27 Table of Contents internal controls, disclosure controls and procedures, and corporate governance policies and procedures, any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
While management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures, any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
These tools and models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the tools or models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation.
These tools and models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen 28 Table of Contents circumstances. Even if these assumptions are adequate, the tools or models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation.
Reliance on inaccurate or misleading 28 Table of Contents financial statements, credit reports or other financial information or problems with the soundness of other financial institutions with which we interact could have a material adverse impact on our business and our financial condition and results of operations.
Reliance on inaccurate or misleading financial statements, credit reports or other financial information or problems with the soundness of other financial institutions with which we interact could have a material adverse impact on our business and our financial condition and results of operations.
There can be no assurance, given the fast pace of change and innovation, that our technology will meet or continue to meet our operational needs and the needs of our customers. We are subject to claims and litigation pertaining to intellectual property.
There can be no assurance, given the fast pace of change and innovation, that our technology will meet or continue to meet our operational needs and the needs of our customers. 29 Table of Contents We are subject to claims and litigation pertaining to intellectual property.
Fintechs have and may continue to offer bank or bank-like products and a number of fintechs have applied to bank or industrial loan charters. In addition, other fintechs have 24 Table of Contents partnered with existing banks to allow them to offer deposit products to their customers.
Fintechs have and may continue to offer bank or bank-like products and a number of fintechs have applied to bank or industrial loan charters. In addition, other fintechs have partnered with existing banks to allow them to offer deposit products to their customers.
These regulations affect our lending practices, capital structure, investment practices, dividend policy, data 25 Table of Contents and privacy protection policies and growth, among other things. The statutory and regulatory framework under which we operate has changed substantially over the years, and will likely continue to do so.
These regulations affect our lending practices, capital structure, investment practices, dividend policy, data and privacy protection policies, and growth, among other things. The statutory and regulatory framework under which we operate has changed substantially over the years, and will likely continue to do so.
As of December 31, 2022, we had approximately $134 million in junior subordinated debentures outstanding that were purchased by our statutory trusts using the proceeds from the sale of trust preferred securities to third party investors. The junior subordinated debentures are senior to our shares of common stock.
As of December 31, 2023, we had approximately $108 million in junior subordinated debentures outstanding that were purchased by our statutory trusts using the proceeds from the sale of trust preferred securities to third party investors. The junior subordinated debentures are senior to our shares of common stock.
Acquisitions of other financial institutions and new branches must be approved by bank regulators and such approvals are dependent on many factors, including the results of regulatory examinations and CRA ratings. We rely heavily on our chief executive officer. We have experienced substantial growth in assets and deposits, particularly since Dennis E. Nixon became our President in 1979.
Acquisitions of other financial institutions and new branches must be approved by bank regulators and such approvals are dependent on many factors, including the results of regulatory examinations and CRA ratings. 26 Table of Contents We rely heavily on our chief executive officer. We have experienced substantial growth in assets and deposits, particularly since Dennis E.
Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations.
We are subject to or may become subject to extensive government regulation and supervision. Our operations are subject to extensive regulation by federal, state, and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations.
The Dodd-Frank Act, the powers of the CFPB, and the FDIC Overdraft Payment Supervisory Guidance may increase the likelihood of lawsuits against financial institutions. The Dodd-Frank Act provides that courts must make preemption determinations on a case-by-case basis with the respect to particular state laws and can no longer rely on blanket preemption determinations.
The Dodd-Frank Act provides that courts must make preemption determinations on a case-by-case basis with the respect to particular state laws and can no longer rely on blanket preemption determinations. Also, the CFPB is authorized to protect consumers from “unfair,” “deceptive” and “abusive” acts and practices.
Also, the CFPB is authorized to protect consumers from “unfair,” “deceptive” and “abusive” acts and practices. Depending on the future actions of the CFPB, the likelihood of lawsuits against financial institutions related to allegedly “unfair,” “deceptive” and “abusive” acts and practices could increase.
Depending on the future actions of the CFPB, the likelihood of lawsuits against financial institutions related to allegedly “unfair,” “deceptive” and “abusive” acts and practices could increase. Moreover, the costs related to such lawsuits would be significantly increased if the CFPB restricts the use of arbitration and/or class action waivers in consumer banking contracts.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the FRB.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions such as inflation and unemployment rates, market forces like geopolitical tensions and investor sentiment, and policy decisions made by the Federal Reserve and other governmental and regulatory agencies.
Moreover, the costs related to such lawsuits would be significantly increased if the CFPB restricts the use of arbitration and/or class action waivers in consumer banking contracts. 29 Table of Contents Risks Related to the Company’s Stock The trading price of our common stock may be volatile.
Risks Related to the Company’s Stock The trading price of our common stock may be volatile.
Removed
The adoption of ASU 2016-13, as amended, on January 1, 2020 impacted our methodology for estimating the allowance for credit losses. 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.
Added
For additional information on the CECL methodology, see “Notes to Consolidated Financial Statements – (4) Allowance for Credit Losses” in our 2023 Annual Report to Shareholders, which is filed as Exhibit 13 hereto. If real estate values in our target markets decline, the loan portfolio would be impaired.
Removed
The update also expanded 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.
Added
Since March 2022, the Federal Reserve has increased interest rates a total of eleven times, with the last hike occurring in July 2023 when target interest rates reached their current range of 5.25% to 5.50%, with a benchmark rate at about 5.4%, the highest level in more than two decades.
Removed
We may be adversely impacted by the transition from LIBOR as a reference rate The United Kingdom’s Financial Conduct Authority announced that after 2021 it will no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”).
Added
Although the Federal Reserve has held rates steady since then and indicated that rate reductions would occur sometime in 2024, the timing and extent of those rate cuts are uncertain. Volatility in interest rates may impact our net interest income and the valuation of our assets and liabilities.
Removed
This means that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021, however, certain USD LIBOR rates will continue to be published until June 30, 2023.
Added
Our financial condition, results of operation and stock price may be negatively impacted by negative publicity risk, diminished depositor confidence in depository institutions, and the increased threat of bank-run contagion. ​ A total of five FDIC-insured banks failed between March to November 2023, three of which occurred during a less than two-month period from March to May 2023.
Removed
The Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace U.S. dollar LIBOR with a benchmark rate based on the Secured Overnight Financing Rate for contracts governed by U.S. law that have no or ineffective fallbacks, and in December 2022, the FRB adopted related implementing rules.
Added
The collapse of those banks, coupled with lingering fears of an economic downturn and market instability, have eroded customer confidence in the banking system and caused widespread market volatility among publicly traded bank holding companies.
Removed
Although governmental authorities have endeavored to facilitate an orderly discontinuation of LIBOR, no assurance can be provided that this aim will be achieved or that the use, level and volatility of LIBOR or other interest rates or the value of LIBOR-based securities will not be adversely affected.
Added
The collapse of those banks, the resulting coverage by media organizations, and the rapid spread through social media of negative sentiments concerning the banking industry have caused customers to doubt the safety and soundness of financial institutions, especially regional and community banks, and created a threat of bank-run contagion.
Removed
We have various loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and additional risk, even though our loan documents contain mitigating language around rates in the event LIBOR is phased out.
Added
Our reputation and the confidence our customers have in our business may be damaged by adverse publicity and negative information regarding the wider financial-services industry generally.
Removed
Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.
Added
As a result, customers may choose to maintain deposits with larger financial institutions, to remove their deposits from the banking system altogether, or to invest in higher yielding, short-term fixed-income securities, which could adversely impact our liquidity, loan funding capacity, net interest margin, and results of operations.
Removed
Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations. We are subject to or may become subject to extensive government regulation and supervision.
Added
Although we have amplified our efforts to promote deposit insurance coverage with our customers, to proactively communicate with our customers in order to address any depository fears they may be experiencing as a result of the unrelated bank failures, and to implement policies for effectively managing our liquidity, deposit portfolio retention and other related matters, our financial condition, results of operation and stock price may be adversely affected by future negative events within the banking industry and negative customer or investor responses to such events. ​ Recent volatility in the banking industry could prompt new legislation, regulations, and policy changes that could cause us to be subjected to additional regulatory oversight and supervision. ​ Negative developments in the banking industry during the past year, culminating in the failures of five banks, have prompted responses by the FDIC, the Federal Reserve, and the U.S.
Added
Treasury Secretary to protect the depositors of those failed institutions and to attempt to reinstate diminished public confidence in depository institutions. Congress and federal banking regulators have also intervened by initiating investigations into the root causes of the failures in an attempt to both understand and hold accountable the parties and policies responsible for the rapid banking crisis.
Added
Ultimately, congressional and regulatory oversight and supervision may result in the imposition of new legislation, regulations, and policy changes aimed at tightening risk-management practices, heightening standards for managing interest rate and liquidity risks, and minimizing financial contagion.
Added
While we cannot predict with certainty what interventions and initiatives legislators and regulatory agencies may pursue, any of the changes described above could affect our operations in substantial and unpredictable ways.
Added
Such changes could be subject to additional costs, limit the types of financial services and products we may offer, and/or increase the ability of non-banks to offer competing financial services and products.
Added
Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition, and results of operations. 30 Table of Contents ​ The Dodd-Frank Act, the powers of the CFPB, and the FDIC Overdraft Payment Supervisory Guidance may increase the likelihood of lawsuits against financial institutions.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFurther information regarding legal proceedings has been provided in Note 16 of the Notes to consolidated financial statements located on page 63 of the 2022 Annual Report to Shareholders which is Exhibit 13 hereto and incorporated herein by reference. 30 Table of Contents Item 4. Mine Safety Disclosures None
Biggest changeFurther information regarding legal proceedings has been provided in Note 16 of the Notes to Consolidated Financial Statements located on page 65 of the 2023 Annual Report to Shareholders, which is filed as Exhibit 13 hereto and incorporated herein by reference. Item 4. Mine Safety Disclosures None 36 Table of Contents

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 31 Item 4A. Executive Officers of the Registrant 31 Part II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 31 Item 6. Selected Financial Data 31 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31 Item 7A.
Biggest changeItem 4. Mine Safety Disclosures 36 Item 4A. Executive Officers of the Registrant 37 Part II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 37 Item 6. Selected Financial Data 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A.
Quantitative and Qualitative Disclosures about Market Risk 31 Item 8. Financial Statements and Supplementary Data 32
Quantitative and Qualitative Disclosures about Market Risk 37 Item 8. Financial Statements and Supplementary Data 37

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The information set forth under the caption “Common Stock and Dividends,” “Stock Repurchase Program,” and “Equity Compensation Plan Information” located on pages 22 and 23 of our 2022 Annual Report is incorporated herein by reference.
Biggest changeItem 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The information set forth under the caption “Common Stock and Dividends,” “Stock Repurchase Program,” and “Equity Compensation Plan Information” located on pages 22 and 23 of our 2023 Annual Report is incorporated herein by reference.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation s The information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located on pages 2 through 24 of our 2022 Annual Report is incorporated herein by reference.
Biggest changeItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation s The information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located on pages 2 through 24 of our 2023 Annual Report is incorporated herein by reference.

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