International Bancshares (US:IBOC)2021-11-04 19:03Loan Loss Allowance and Credit Quality - International Bancshares Corporation's 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 [35]. - The allowance for credit losses (ACL) recorded charges of $2,065,000 for the nine months ended September 30, 2021, compared to $1,539,000 for the twelve months ended December 31, 2020, indicating an increase of approximately 34% [43]. - The total balance of the allowance for credit loan losses as of September 30, 2021, was $109,325,000, reflecting an increase from $108,281,000 at June 30, 2021 [74]. - Credit loss expense for the three months ended September 30, 2021, was $2,801,000, compared to a net recovery of $1,757,000 charged to the allowance [74]. - The company recorded net losses charged to the allowance of $1,757,000 for the three months ended September 30, 2021 [74]. - The balance of the allowance for commercial loans increased to $23,204,000 from $23,063,000 during the same period [74]. - The foreign loan allowance balance was $3,745,000 as of September 30, 2021, down from $3,916,000 at June 30, 2021 [74]. - The company experienced recoveries credited to the allowance totaling $673,000 for the three months ended September 30, 2021 [74]. - The company’s methodology for estimating ACL includes a reversion to the average lifetime loss rate beyond the forecast period [73]. - Changes in economic conditions, government actions, and interest rates could impact the adequacy of the ACL and future credit loss expenses [73]. - The credit loss expense charged to operations increased throughout 2020 due to deteriorating economic conditions caused by COVID-19, impacting certain segments of the loan portfolio [77]. - Economic conditions during the first nine months of 2021 have stabilized and improved in some segments, leading to a decrease in credit loss expense for the three and nine months ended September 30, 2021 compared to the same period in 2020 [77]. - The allowance for credit losses (ACL) calculation at December 31, 2020 remained constant in the September 30, 2021 ACL calculation, positively impacting the credit loss expense [77]. - The balance at September 30, 2020 was $102,165,000, with significant components including $22,144,000 in domestic commercial and $38,083,000 in foreign commercial [75]. - For the nine months ended September 30, 2021, the balance increased to $109,325,000, reflecting growth in various segments [75]. - Losses charged to the allowance for the nine months ended September 30, 2021 totaled $6,631,000, indicating a significant impact from economic conditions [75]. - Recoveries credited to the allowance for the nine months ended September 30, 2021 amounted to $1,760,000, showing some recovery in the loan portfolio [75]. - The net losses charged to the allowance for the nine months ended September 30, 2021 were $4,871,000, reflecting ongoing challenges in the economic environment [75]. - The credit loss expense for the nine months ended September 30, 2020 was $36,595,000, highlighting the financial strain during that period [75]. - As of September 30, 2021, total loans individually evaluated for impairment amounted to $1,650,000, while loans collectively evaluated for impairment totaled $7,402,508, resulting in an overall allowance of $109,226,000 [78]. - The total non-accrual loans as of September 30, 2021 were $1,903,000, a significant decrease from $19,822,000 as of December 31, 2020 [79]. - The total troubled debt restructuring loans decreased to $2,919,000 as of September 30, 2021, down from $5,821,000 at the end of 2020 [80]. - The company continues to monitor credit extended to borrowers and is actively working with customers affected by the economic crisis due to COVID-19 [80]. Loan Portfolio and Growth - As of September 30, 2021, total loans amounted to $7,404,158,000, a decrease from $7,541,754,000 as of December 31, 2020, representing a decline of approximately 1.8% [61]. - Total loans increased to $2,623,804,000 at September 30, 2021, up from $2,065,068,000 in 2020, representing a growth of approximately 27% [86]. - The commercial loan segment showed a total balance of $814,350,000 in 2021, compared to $473,912,000 in 2020, indicating a significant increase of about 72% [86]. - The balance of commercial real estate loans reached $1,671,212,000 in 2021, up from $1,615,727,000 in 2020, reflecting a growth of approximately 3.4% [86]. - The residential first lien loans totaled $385,633,000 in 2021, compared to $385,260,000 in 2020, showing a slight increase of about 0.1% [86]. - The total balance of foreign loans was $135,843,000 in 2021, up from $37,503,000 in 2020, marking a substantial increase of approximately 262% [86]. - The pass category for commercial loans increased to $775,702,000 in 2021 from $398,790,000 in 2020, a growth of about 94.5% [86]. - Special review loans in the commercial segment decreased to $1,517,000 in 2021 from $74,691,000 in 2020, indicating a decline of approximately 98% [86]. - The total balance of residential junior lien loans was $490,680,000 in 2021, compared to $141,401,000 in 2020, reflecting a significant increase of about 247% [86]. - The watch list for commercial loans showed a total of $33,803,000 in 2021, compared to $8,408,000 in 2020, representing an increase of approximately 302% [86]. - The total balance of consumer loans was $40,699,000 in 2021, up from $10,196,000 in 2020, indicating a growth of about 299% [86]. - Total Commercial loans reached $1,288,332, a significant increase from the previous year [88]. - Total Commercial real estate loans were reported at $1,846,757, showing growth in this sector [88]. - The company reported a total of $2,289,308 in farmland and commercial loans, highlighting its diverse portfolio [88]. - Consumer loans reached $30,910, demonstrating a stable consumer lending environment [88]. - The company has a total of $441,044 in loans under special review, indicating proactive risk assessment measures [88]. - Watch List - Doubtful loans were recorded at $134, suggesting potential concerns in this category [88]. Financial Instruments and Securities - As of September 30, 2021, the fair value of residential mortgage-backed securities was $4,509,643,000, while available-for-sale debt securities totaled $4,560,446,000 [37]. - The fair value of Watch-List doubtful loans as of September 30, 2021, was $57,000, with a net provision for credit during the period of $209,000 [39]. - The fair value of other real estate owned as of September 30, 2021, was $1,685,000, with a net provision for credit during the period of $2,065,000 [39]. - As of December 31, 2020, the fair value of residential mortgage-backed securities was $3,029,954,000, and total available-for-sale securities amounted to $3,086,970,000 [38]. - The fair value measurements hierarchy includes Level 1, Level 2, and Level 3 inputs, with specific classifications for financial instruments [36]. - The estimated fair value of fixed-rate performing loans was $1,451,592,000 as of September 30, 2021, compared to $1,747,257,000 as of December 31, 2020, reflecting a decline of approximately 17% [50]. - The estimated fair value of time deposits was $2,184,386,000 as of September 30, 2021, compared to $2,148,976,000 as of December 31, 2020, showing an increase of approximately 1.6% [53]. - The fair value of long-term fixed-rate borrowings from the Federal Home Loan Bank was estimated at $466,315,000 as of September 30, 2021, compared to $480,475,000 as of December 31, 2020, indicating a decrease of about 2.9% [56]. - The company evaluated debt securities classified as available-for-sale and held-to-maturity and determined no allowances for debt securities in an unrealized loss position were necessary [91]. - As of September 30, 2021, unrealized losses on equity securities amounted to $5,000 for the three months and $70,000 for the nine months ended September 30, 2021 [102]. - The total investment securities at September 30, 2021, included $4,540,752,000 in available-for-sale debt securities, with an estimated fair value of $4,554,314,000 [92]. - Gross unrealized losses on available-for-sale residential mortgage-backed securities totaled $11,243,000 as of September 30, 2021 [99]. - The amortized cost of held-to-maturity investment securities was $3,400,000, with an estimated fair value of $3,400,000 [92]. - The company had $1,442,729,000 in available-for-sale debt investment securities pledged for fiduciary powers as of September 30, 2021 [97]. - Proceeds from the sale and calls of debt securities available-for-sale were $5,890,000 for the nine months ended September 30, 2021, with gross losses of $16,000 [98]. Capital Adequacy and Regulatory Compliance - The company continues to meet all fully phased-in capital adequacy requirements as of September 30, 2021, under the Basel III Capital Rules [117]. - The capital conservation buffer requires a minimum ratio of Common Equity Tier 1 (CET1) capital to risk-weighted assets of at least 7% [114]. - As of September 30, 2021, the CET1 to risk-weighted assets ratio was 19.64%, up from 19.05% on December 31, 2020 [120]. - The Tier 1 capital-to-average-total-assets (leverage) ratio was 13.89% as of September 30, 2021, compared to 14.92% on December 31, 2020 [120]. - The risk-weighted Tier 1 capital ratio stood at 20.76% on September 30, 2021, an increase from 20.25% on December 31, 2020 [120]. - The risk-weighted total capital ratio was 21.86% as of September 30, 2021, compared to 21.40% on December 31, 2020 [120]. - Total outstanding Capital and Common Securities qualified as Tier 1 capital amounted to $134,642,000 as of September 30, 2021 [120]. - Regulatory capital ratios are actively monitored to ensure that the subsidiary banks are well-capitalized under the regulatory framework [120]. - The company and its subsidiary banks believe they meet all capital adequacy requirements as of September 30, 2021 [122]. - The leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, excluding goodwill and other intangible assets [121]. - Regulatory authorities can initiate mandatory actions if minimum capital requirements are not met, which could materially affect financial statements [122]. Corporate Governance and Legal Matters - The company is involved in various legal proceedings, but any material loss is considered remote or not material to its consolidated financial position [111]. - The company did not have any material recognizable or non-recognizable subsequent events through the date of issuing the financial statements [33]. - The company has five wholly-owned subsidiary banks contributing to its consolidated financial statements [31]. - The company operates as one segment, with performance assessed through consolidated statements presented in the report [32]. - The implementation of the FASB Accounting Standards Update No. 2016-13 was effective for the company on January 1, 2020, impacting the accounting for credit losses [34]. - The company has opted not to measure an Allowance for Credit Losses (ACL) for accrued interest receivable due to its timely approach in identifying and writing off uncollectible accrued interest [72]. - The company continues to monitor credit extended to borrowers and is actively working with customers affected by the economic crisis due to COVID-19 [80]. - The company is focusing on market expansion and new product development to enhance growth prospects [88]. - Future guidance indicates a commitment to maintaining loan quality while pursuing strategic growth initiatives [88].