International Bancshares (US:IBOC)2021-08-05 19:41Loan Losses and Credit Risk - The allowance for probable loan losses increased by approximately 17.2%, resulting in a cumulative-effect adjustment to retained earnings of approximately $8.3 million, net of tax [33][34]. - The allowance for credit losses (ACL) methodology measures lifetime losses on loan pools with similar risk characteristics, ensuring a comprehensive evaluation of credit risk [62]. - The company has a structured internal Watch List report to monitor loans with potential weaknesses, categorized into various risk levels [68]. - The company emphasizes the importance of qualitative loss factors in evaluating the adequacy of the ACL, which may affect future credit loss expense estimates [70]. - The ACL for the Subsidiary Banks is reviewed based on specific doubtful loans, historical loss percentages, and qualitative current conditions, with future estimates potentially affecting credit loss expenses [73]. - The total balance of the allowance for credit loan losses as of June 30, 2020, was $94,554,000, indicating a year-over-year increase [75]. - The credit loss expense charged to operations increased throughout 2020 due to deteriorating economic conditions from COVID-19, but stabilized in the first half of 2021, resulting in a decrease in credit loss expense for the three and six months ended June 30, 2021 compared to the same period in 2020 [78]. - The total balance of the allowance for credit loan losses was $108,281,000, showing a slight decrease from $108,408,000 at March 31, 2021 [74]. - The credit loss expense for the three months ended June 30, 2021, was $1,144,000, compared to a credit loss expense of $10,989,000 for the same period in 2020 [75]. - The company recorded net losses charged to the allowance of $1,271,000 for the three months ended June 30, 2021 [74]. - The company experienced recoveries credited to the allowance totaling $577,000 for the three months ended June 30, 2021 [74]. - The total non-accrual loans as of June 30, 2021 were $2,232,000, a significant decrease from $19,822,000 as of December 31, 2020 [80]. - The total troubled debt restructuring as of June 30, 2021 was $3,322,000, down from $5,821,000 as of December 31, 2020 [81]. - The company continues to monitor credit extended to borrowers carefully, although there is no precise method for predicting loan losses [84]. Loan Portfolio and Securities - As of June 30, 2021, total loans amounted to $7,387,537,000, a decrease from $7,541,754,000 as of December 31, 2020, representing a decline of approximately 2.04% [61]. - The total loan portfolio was reported at $7,387,537,000 as of June 30, 2021, reflecting a slight decrease from $7,541,754,000 at the end of 2020 [87]. - The commercial loan segment showed a total balance of $1,707,424,000 as of June 30, 2021, down from $1,785,936,000 at the end of 2020 [87]. - The residential first lien loans reported a total of $399,171,000 as of June 30, 2021, compared to $405,119,000 at the end of 2020, a decrease of approximately 1.9% [87]. - The commercial real estate segment, specifically construction and land development loans, saw a total of $1,618,493,000 as of June 30, 2021, down from $1,846,757,000 at the end of 2020 [87]. - The total balance of foreign loans was $141,218,000 as of June 30, 2021, consistent with the previous period [87]. - The total balance of consumer loans remained stable at $40,505,000 as of June 30, 2021, compared to $40,595,000 at the end of 2020 [87]. - The total recorded investment for commercial loans individually evaluated for impairment was $567,000 as of June 30, 2021 [79]. - The total balance of the allowance for credit loan losses for commercial loans was $23,063,000 as of June 30, 2021 [74]. - The company has no intent to sell residential mortgage-backed securities, which are primarily affected by changes in market interest rates [102]. - As of June 30, 2021, the total investment securities amounted to $4,171,881,000, with a carrying value of $4,148,673,000 for available-for-sale debt securities [94]. - Residential mortgage-backed securities had an amortized cost of $4,103,989,000 and an estimated fair value of $4,123,636,000, reflecting unrealized losses of $6,684,000 [96]. - The gross unrealized losses on available-for-sale residential mortgage-backed securities totaled $6,684,000, with $1,672,076,000 in fair value for securities held less than 12 months [100]. - The company evaluated its debt securities and determined no impairments were necessary as of June 30, 2021 [92]. Capital and Financial Position - The company operates as one segment, with performance assessed through consolidated statements presented in the report [31]. - The company has five wholly-owned subsidiary banks contributing to its consolidated financial statements [30]. - The company continues to meet all fully phased-in capital adequacy requirements as of June 30, 2021, under the Basel III Capital Rules [119]. - The company actively monitors regulatory capital ratios to ensure that its subsidiary banks are well-capitalized [122]. - The Common Equity Tier 1 (CET1) to risk-weighted assets ratio was 19.53% on June 30, 2021, compared to 19.05% on December 31, 2020 [122]. - The Tier 1 capital-to-average-total-assets (leverage) ratio was 14.15% as of June 30, 2021, down from 14.92% on December 31, 2020 [122]. - The risk-weighted Tier 1 capital ratio was 20.66% on June 30, 2021, compared to 20.25% on December 31, 2020 [122]. - The risk-weighted total capital ratio was 21.75% as of June 30, 2021, up from 21.40% on December 31, 2020 [122]. - A cash dividend of $0.55 per share was paid on February 17, 2021, to record holders of common stock [111]. - The company has repurchased a total of 12,268,401 shares at a cost of $357,102,000 under its stock repurchase programs as of August 2, 2021 [112]. - The company is involved in various legal proceedings, but any material loss is considered remote and not material to its financial position [113][114]. Fair Value Measurements - The fair value measurements hierarchy includes Level 1, Level 2, and Level 3 inputs, with specific classifications for financial instruments [37]. - The fair value of residential mortgage-backed securities was $4,123,636,000, while available-for-sale debt securities totaled $4,178,017,000 [36]. - The fair value of Watch List-Doubtful loans as of June 30, 2021 was $144,000, with a net provision (credit) during the period of $29,000 [39]. - The fair value of other real estate owned as of June 30, 2021 was $1,980,000, with a net provision (credit) during the period of $2,065,000 [39]. - The carrying amount of fixed-rate performing loans was $1,664,177,000 as of June 30, 2021, down from $1,812,413,000 as of December 31, 2020, indicating a decrease of about 8.15% [50]. - The estimated fair value of fixed-rate performing loans was $1,610,401,000 as of June 30, 2021, compared to $1,747,257,000 as of December 31, 2020, reflecting a decline of approximately 7.83% [50]. - The carrying amount of time deposits was $2,143,987,000 as of June 30, 2021, slightly down from $2,153,541,000 as of December 31, 2020, a decrease of about 0.44% [53]. - The estimated fair value of time deposits was $2,141,515,000 as of June 30, 2021, compared to $2,148,976,000 as of December 31, 2020, indicating a decline of approximately 0.34% [53]. - The fair value of fixed-rate long-term borrowings from the Federal Home Loan Bank was estimated at $475,671,000 as of June 30, 2021, compared to $480,475,000 as of December 31, 2020, reflecting a decrease of about 1.68% [56]. - The company recognized net gains of $11,000 on equity securities during the three months ended June 30, 2021, but reported net losses of $65,000 for the six months ended June 30, 2021 [103]. - The total unrecognized stock-based compensation cost related to non-vested options was approximately $982,000, expected to be recognized over a weighted average period of 1.6 years [91]. - The aggregate intrinsic value of options outstanding at June 30, 2021, was $8,066,000 [91]. - No debt securities in an unrealized loss position were attributed to credit-related reasons, resulting in no allowances recorded for the period [92]. - The company recorded $1,915,000 in adjustments to fair value in connection with other real estate owned for the three months ended June 30, 2021 [43].