# International Bancshares Corp: Form 10-Q for the period ended Sep 30, 2024

- Company: [International Bancshares Corp](/companies/iboc.md) (CIK 315709)
- Form: 10-Q
- Filed: 2024-11-07
- Accepted by EDGAR: Nov 7, 2024, 20:29 ET
- Period: 2024-09-30
- Accession: 0001558370-24-014841
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/315709/000155837024014841/iboc-20240930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/315709/000155837024014841/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $27.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $81.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $99.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $294.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $1.60 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $4.72 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $1.60 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $4.73 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 62,309,574 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 62,289,708 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $359.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $15.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $82.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $742.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $779.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-09-30 | $15.89bn | us-gaap:Assets |
| Total liabilities | at 2024-09-30 | $13.14bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $2.75bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 57,951 characters.

The following discussion should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2023, which are included in our 2023 Annual Report. Operating results for the three months and nine months ended September 30, 2024 are not necessarily indicative of the results for the year ending December 31, 2024, or any future period.

### Special Cautionary Notice Regarding Forward Looking Information

Certain matters discussed in this report, excluding historical information, include forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by these sections. Although we believe such forward-looking statements are based on reasonable assumptions, no assurance can be given that every objective will be reached. The words “estimate,” “expect,” “intend,” “believe” and “project,” as well as other words or expressions of a similar meaning are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. Such statements are based on current expectations, are inherently uncertain, are subject to risks and should be viewed with caution. Actual results and experience may differ materially from the forward-looking statements as a result of many factors.

Risk factors that could cause actual results to differ materially from any results that we project, forecast, estimate or budget in forward-looking statements include those disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 26, 2024, and among others, the following:

- Local, regional, national and international economic business conditions and the impact they may have on us, our customers, and our customers’ ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral.
- Volatility and disruption in national and international financial markets.
- Government intervention in the U.S. financial system.
- The unavailability of funding from the FHLB, the Federal Reserve Bank or other sources in the future which could adversely impact our growth strategy, prospects and performance.
- Changes in consumer spending, borrowing and saving habits.
- Changes in interest rates and market prices, including, changes in federal regulations on the payment of interest on demand deposits.
- Changes in our ability to retain or access deposits due to changes in public confidence in the banking system and the potential threat of bank-run contagion fueled by, among other factors, economic instability, inflationary pressures, the public’s increased exposure to social media and the rapid speed at which communication and coordination via social media can occur.
- Changes in the capital markets we utilize, including changes in the interest rate environment that may reduce margins.
- Changes in state and/or federal laws and regulations, including the impact of the Consumer Financial Protection Bureau (“CFPB”) as a regulator of financial institutions, changes in the accounting, tax and regulatory treatment of trust preferred securities, as well as changes in banking, tax, securities, insurance, employment, environmental and immigration laws and regulations and the risk of litigation that may follow.
- Changes in U.S.—Mexico trade, including, reductions in border crossings and commerce, integration and implementation of the United States-Mexico-Canada Agreement and the possible imposition of tariffs on imported goods.
- Political instability in the United States or Mexico.
- General instability of economic and political conditions in the United States, including inflationary pressures, increased interest rates, economic slowdown or recession, and escalating geopolitical tensions.
- The reduction of deposits from nonresident alien individuals due to the Internal Revenue Service rules requiring U.S. financial institutions to report deposit interest payments made to such individuals.
- The loss of senior management or operating personnel.
- The timing, impact and other uncertainties of potential future acquisitions as well as our ability to maintain our current branch network and enter new markets to capitalize on growth opportunities.
- Changes in estimates of future reserve requirements based upon periodic review thereof under relevant regulatory and accounting requirements.
- Additions to our ACL as a result of changes in local, national or international conditions which adversely affect our customers.
- Greater than expected costs or difficulties related to the development and integration of new products and lines of business.
- Increased labor costs and effects related to health care reform and other laws, regulations and legal developments impacting labor costs.
- Impairment of carrying value of goodwill could negatively impact our earnings and capital.
- Changes in the soundness of other financial institutions with which we interact.
- Technological changes or system failures or breaches of our network security, as well as other cybersecurity risks that could subject us to increased operating costs, litigation and other liabilities.
- Acts of war or terrorism.
- Natural disasters or other adverse external events such as pandemics or endemics.
- Reduced earnings resulting from the write down of the carrying value of securities held in our securities available-for-sale portfolios.
- The effect of changes in accounting policies and practices by the Public Company Accounting Oversight Board (“PCAOB”), the FASB and other accounting standards setters.
- The costs and effects of regulatory developments or regulatory or other governmental inquiries or actions, the results of regulatory examinations or reviews, and the process of obtaining required regulatory approvals.
- The effect of any supervisory and enforcement efforts by the CFPB related to its authority to prohibit unfair, deceptive, or abusive acts or practices concerning fees charged by financial institutions and Regulation E, which prohibits financial institutions from charging certain consumer overdraft fees on ATM and one-time debit card transactions, as well as the effect of any other regulatory or legal developments that limit overdraft services or related fees.
- Monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the FRB.
- The reduction of income and possible increase in required capital levels related to the adoption of legislation and the implementing rules and regulations, including those that establish debit card interchange fee standards and prohibit network exclusivity arrangements and routing restrictions.
- The increase in required capital levels related to the implementation of capital and liquidity rules of the federal banking agencies that address or are impacted by the Basel III capital and liquidity standards.
- The enhanced due diligence burden imposed on banks related to their inability to rely on credit ratings under the Dodd-Frank Act.
- The failure or circumvention of our internal controls and risk management, policies and procedures.

Forward-looking statements speak only as of the date on which such statements are made. It is not possible to foresee or identify all such factors. We make no commitment to update any forward-looking statement, or to disclose any facts, events or circumstances after the date hereof that may affect the accuracy of any forward-looking statement, unless required by law.

### Overview

We are headquartered in Laredo, Texas with 166 facilities and 256 ATMs, and we provide banking services for commercial, consumer and international customers of North, South, Central and Southeast Texas and the State of Oklahoma. We are one of the largest independent commercial bank holding companies headquartered in Texas. We, through our Subsidiary Banks, are in the business of gathering funds from various sources and investing those funds in order to earn a return. We, either directly or through a Subsidiary Bank, own an insurance agency, a liquidating subsidiary, a fifty percent interest in an investment banking unit that owns a broker/dealer, a controlling interest in four merchant banking entities, and a majority ownership in a real-estate development partnership. Our primary earnings come from the spread between the interest earned on interest-bearing assets and the interest paid on interest-bearing liabilities. In addition, we generate income from fees on products offered to commercial, consumer and international customers. The sales team of each of our Subsidiary Banks aims to match the right mix of products and services to each customer to best serve the customer’s needs. That process entails spending time with customers to assess those needs and servicing the sales arising from those discussions on a long-term basis. The Subsidiary Banks have various compensation plans, including incentive-based compensation, for fairly compensating employees. The Subsidiary Banks also have a robust process in place to review sales that support the incentive-based compensation plan to monitor the quality of the sales and identify any significant irregularities, a process that has been in place for many years.

We are very active in facilitating trade along the United States border with Mexico. We do a large amount of business with customers domiciled in Mexico. Deposits from persons and entities domiciled in Mexico comprise a large and stable portion of the deposit base of our Subsidiary Banks. We also serve the growing Hispanic population through our facilities located throughout South, Central and Southeast Texas and the State of Oklahoma.

Future economic conditions remain uncertain and the impact of those conditions on our business also remains uncertain. Our business depends on the willingness and ability of our customers to conduct banking and other financial transactions. Our revenue streams including service charges on deposits and banking and non-banking service charges and fees (ATM and Interchange Income) have been impacted and may continue to be impacted in the future if economic conditions do not improve. Expense control has been a long-time focus and essential element to our long-term profitability. We have kept that focus in mind as we continue to look at operations and create efficiencies and institute cost-control protocols at all levels. We will continue to monitor our efficiency ratio, a measure of non-interest expense to net interest income plus non-interest income and our overhead burden ratio, a ratio of our operating expenses against total assets, closely. We use these measures in determining if we are accomplishing our long-term goals of controlling our costs in order to provide superior returns to our shareholders.

### Results of Operations

### Summary

### Consolidated Statements of Condition Information

*(Dollars in Thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ September 30, 2024 | ​ ​ | ​ ​ ​ December 31, 2023 | ​ ​ | ​ ​ ​ Percent Increase (Decrease) |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Assets | ​ | $15,892,312 | ​ | $15,066,189 | ​ | 5.5% |
| Net loans | ​ | 8,430,926 | ​ | 7,901,892 |  | 6.7 ​ |
| Deposits | ​ | 12,101,055 | ​ | 11,824,554 |  | 2.3 ​ |
| Securities sold under repurchase agreements | ​ | ​ 706,258 | ​ | ​ 530,416 | ​ | 33.2 ​ |
| Other borrowed funds | ​ | 10,593 | ​ | 10,745 |  | (1.4) ​ |
| Junior subordinated deferrable interest debentures | ​ | 108,868 | ​ | 108,868 |  | — ​ |
| Shareholders’ equity | ​ | 2,749,416 | ​ | 2,447,774 |  | 12.3 ​ |

### Consolidated Statements of Income Information

*(Dollars in Thousands)*

*(Dollars in Thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2024 | ​ | ​ ​ 2023 | ​ ​ ​ ​ | ​ ​ ​ ​ Percent ​ Increase ​ (Decrease) | ​ ​ Nine Months Ended September 30, 2024 | ​ | ​ ​ 2023 | ​ ​ ​ ​ | ​ ​ ​ ​ Percent Increase ​ (Decrease) |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: | --- | ---: | --- | ---: |
| Interest income | ​ | $222,657 | ​ | $204,175 |  | 9.1% | $650,418 | ​ | $590,448 |  | 10.2% |
| Interest expense | ​ | 54,715 | ​ | 36,847 |  | 48.5 ​ | 154,637 | ​ | 91,480 |  | 69.0 ​ |
| Net interest income | ​ | 167,942 | ​ | 167,328 |  | 0.4 ​ | 495,781 | ​ | 498,968 |  | (0.6) ​ |
| Provision for probable loan losses | ​ | 8,602 | ​ | 10,476 |  | (17.9) ​ | 30,351 | ​ | 27,879 |  | 8.9 ​ |
| Non-interest income | ​ | 43,842 | ​ | 45,385 |  | (3.4) ​ | 129,604 | ​ | 123,449 |  | 5.0 ​ |
| Non-interest expense | ​ | 76,215 | ​ | 71,200 |  | 7.0 ​ | 219,966 | ​ | 206,763 |  | 6.4 ​ |
| Net income | ​ | 99,772 | ​ | 103,264 |  | (3.4)% | 294,083 | ​ | 305,392 |  | (3.7)% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Per common share: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Basic | ​ | $1.60 | ​ | $1.66 |  | (3.6)% | $4.73 | ​ | $4.92 |  | (3.9)% |
| Diluted | ​ | 1.60 | ​ | 1.66 |  | (3.6) ​ | 4.72 | ​ | 4.91 |  | (3.9) ​ |

### Net Income

Net income for the three months ended September 30, 2024 decreased by 3.4% compared to the same period of 2023. Net income for the nine months ended September 30, 2024 decreased by 3.7% compared to the same period of 2023. Net income for the first nine months of 2024 continues to be positively impacted by an increase in interest income earned on our investment and loan portfolios driven primarily by both an increase in the size of our investment and loan portfolios, and the current rate environment, which remains elevated as a result of FRB actions to raise interest rates in 2022 and 2023. Net interest income has been negatively impacted by an increase in interest expense, primarily driven by increases on rates paid on deposits. We continue to closely monitor and adjust rates paid on deposits to remain competitive to grow and retain deposits. Net income for the nine months ended September 30, 2024 was negatively impacted by an increase in our non-interest expenses driven by inflation and increased salary and compensation costs in order to attract and retain staff.

### Net Interest Income

*(Dollars in Thousands)*

*(Dollars in Thousands)*

| ​ ​ ​ ​ ​ Interest Income: | ​ ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ Percent ​ Increase ​ (Decrease) ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ Percent ​ Increase ​ (Decrease) ​ ​ |
| --- | --- | --- | --- | --- | --- | ---: | --- | --- | --- | --- | --- | ---: |
| Loans, including fees | ​ | $175,532 | ​ | $158,534 | ​ | 10.7% | ​ | $512,225 | ​ | $453,700 | ​ | 12.9% |
| Investment securities: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Taxable |  | ​ 40,105 | ​ | ​ 34,598 | ​ | 15.9 ​ | ​ | ​ 113,505 | ​ | ​ 96,582 | ​ | 17.5 ​ |
| Tax-exempt |  | ​ 1,534 | ​ | ​ 1,561 | ​ | (1.7) ​ | ​ | ​ 4,619 | ​ | ​ 4,708 | ​ | (1.9) ​ |
| Other interest income | ​ | ​ 5,486 | ​ | ​ 9,482 | ​ | (42.1) ​ | ​ | ​ 20,069 | ​ | ​ 35,458 | ​ | (43.4) ​ |
| ​ |  | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Total interest income |  | ​ 222,657 | ​ | ​ 204,175 | ​ | 9.1 ​ | ​ | ​ 650,418 | ​ | ​ 590,448 | ​ | 10.2 ​ |
| ​ |  | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest expense: |  | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Savings deposits | ​ | ​ 20,869 | ​ | ​ 15,042 | ​ | 38.7 ​ | ​ | ​ 61,416 | ​ | ​ 41,514 | ​ | 47.9 ​ |
| Time deposits | ​ | ​ 25,607 | ​ | ​ 15,610 | ​ | 64.0 ​ | ​ | ​ 70,333 | ​ | ​ 34,067 | ​ | 106.5 ​ |
| Securities sold under Repurchase agreements |  | ​ 6,173 | ​ | ​ 4,143 | ​ | 49.0 ​ | ​ | ​ 16,732 | ​ | ​ 9,580 | ​ | 74.7 ​ |
| Other borrowings | ​ | ​ 74 | ​ | ​ 71 | ​ | 4.2 ​ | ​ | ​ 213 | ​ | ​ 213 | ​ | — ​ |
| Junior subordinated interest deferrable debentures |  | ​ 1,992 | ​ | ​ 1,981 | ​ | 0.6 ​ | ​ | ​ 5,943 | ​ | ​ 6,106 | ​ | (2.7) ​ |
| ​ |  | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Total interest expense |  | ​ 54,715 | ​ | ​ 36,847 | ​ | 48.5 ​ | ​ | ​ 154,637 | ​ | ​ 91,480 | ​ | 69.0 ​ |
| ​ |  | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Net interest income |  | $167,942 | ​ | $167,328 | ​ | 0.4% | ​ | $495,781 | ​ | $498,968 | ​ | (0.6)% |

The change in net interest income for the three and nine months ended September 30, 2024 can be attributed to an increase in interest income earned on our investment and loan portfolios. The increase in interest income is being driven by both an increase in the size of our investment and loan portfolios and the current rate environment, which remains elevated as a result of FRB actions to raise interest rates in 2022 and 2023. The recent small rate reduction in September 2024 is expected to have a minimal impact. The increase in interest income is being offset by an increase in interest expense as a result of changes in rates we are paying on deposits to remain competitive with rates offered by our competitors. Net interest income is the spread between income on interest earning assets, such as loans and securities, and the interest expense on liabilities used to fund those assets, such as deposits, repurchase agreements and funds borrowed. As part of our strategy to manage interest rate risk, we strive to manage both assets and liabilities so that interest sensitivities match. One method of calculating interest rate sensitivity is through gap analysis. A gap is the difference between the amount of interest rate sensitive assets and interest rate sensitive liabilities that re-price or mature in a given time period. Positive gaps occur when interest rate sensitive assets exceed interest rate sensitive liabilities, and negative gaps occur when interest rate sensitive liabilities exceed interest rate sensitive assets. A positive gap position in a period of rising interest rates should have a positive effect on net interest income as assets will re-price faster than liabilities. Conversely, net interest income should contract somewhat in a period of falling interest rates. Our management can quickly change our interest rate position at any given point in time as market conditions dictate. Additionally, interest rate changes do not affect all categories of assets and liabilities equally or at the same time. Analytical techniques we employ to supplement gap analysis include simulation analysis to quantify interest rate risk exposure. The gap analysis prepared by management is reviewed by our Investment Committee twice a year (see table on page 46 for the September 30, 2024 gap analysis). Our management currently believes that we are properly positioned for interest rate changes; however, if our management determines at any time that we are not properly positioned, we will strive to adjust the interest rate sensitive assets and liabilities in order to manage the effect of interest rate changes.

### Non-Interest Income

*(Dollars in Thousands)*

*(Dollars in Thousands)*

| ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ Three Months Ended September 30, 2024 ​ ​ | ​ ​ ​ | ​ ​ ​ ​ 2023 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Percent ​ Increase ​ (Decrease) ​ ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ Nine Months Ended September 30, 2024 ​ ​ | ​ ​ ​ | ​ ​ ​ ​ 2023 ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Percent ​ Increase ​ (Decrease) ​ ​ |
| --- | --- | --- | --- | --- | --- | ---: | --- | --- | --- | --- | --- | ---: |
| Service charges on deposit accounts | ​ | $18,660 | ​ | $19,311 | ​ | (3.4)% | ​ | $55,018 | ​ | $54,939 | ​ | 0.1% |
| Other service charges, commissions and fees | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Banking | ​ | ​ 14,762 | ​ | ​ 14,314 | ​ | 3.1 ​ | ​ | ​ 43,880 | ​ | ​ 42,761 | ​ | 2.6 ​ |
| Non-banking | ​ | ​ 2,308 | ​ | ​ 2,302 | ​ | 0.3 ​ | ​ | ​ 7,475 | ​ | ​ 6,837 | ​ | 9.3 ​ |
| Investment securities transactions, net | ​ | ​ (1) | ​ | ​ (3) | ​ | (66.7) ​ | ​ | ​ (1) | ​ | ​ (3) | ​ | (66.7) ​ |
| Other investment income (loss), net | ​ | ​ 4,180 | ​ | ​ 3,598 | ​ | 16.2 ​ | ​ | ​ 8,852 | ​ | ​ 3,653 | ​ | 142.3 ​ |
| Other income | ​ | ​ 3,933 | ​ | ​ 5,863 | ​ | (32.9) ​ | ​ | ​ 14,380 | ​ | ​ 15,262 | ​ | (5.8) ​ |
| Total non-interest income | ​ | $43,842 | ​ | $45,385 | ​ | (3.4)% | ​ | $129,604 | ​ | $123,449 | ​ | 5.0% |

Total non-interest income for the three months ended September 30, 2024 decreased by 3.4% compared to the same period of 2023 and increased 5.0% for the nine months ended September 30, 2024 compared to the same period of 2023. Non-interest income for the three and nine months ended September 30, 2023 was negatively impacted due to losses recorded on merchant banking investments and is reflected in other investments, net in the table above.

### Non-Interest Expense

*(Dollars in Thousands)*

*(Dollars in Thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Percent ​ Increase ​ (Decrease) ​ ​ | ​ ​ Nine Months Ended September 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ Percent ​ Increase ​ (Decrease) ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: | --- | ---: | --- | ---: |
| Employee compensation and benefits |  | $37,543 |  | $34,773 |  | 8.0% | $109,039 | ​ | $100,926 | ​ | 8.0% |
| Occupancy | ​ | 7,746 | ​ | 6,268 |  | 23.6 ​ | 20,109 | ​ | 18,598 | ​ | 8.1 ​ |
| Depreciation of bank premises and equipment | ​ | 5,594 | ​ | 5,488 |  | 1.9 ​ | 16,938 | ​ | 16,362 | ​ | 3.5 ​ |
| Professional fees | ​ | 4,131 | ​ | 4,123 |  | 0.2 ​ | 12,034 | ​ | 11,051 | ​ | 8.9 ​ |
| Deposit insurance assessments | ​ | 1,731 | ​ | 1,744 |  | (0.7) ​ | 5,126 | ​ | 7,575 | ​ | (32.3) ​ |
| Net operations, other real estate owned | ​ | 1,136 | ​ | (1,638) |  | (169.4) ​ | 1,463 | ​ | (3,278) | ​ | (144.6) ​ |
| Advertising | ​ | 1,397 | ​ | 1,360 |  | 2.7 ​ | 4,679 | ​ | 3,913 | ​ | 19.6 ​ |
| Software and software maintenance | ​ | ​ 4,820 | ​ | ​ 5,081 | ​ | (5.1) ​ | ​ 15,783 | ​ | ​ 14,978 | ​ | 5.4 ​ |
| Other | ​ | 12,117 | ​ | 14,001 |  | (13.5) ​ | 34,795 | ​ | 36,638 | ​ | (5.0) ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Total non-interest expense | ​ | $76,215 | ​ | $71,200 |  | 7.0% | $219,966 | ​ | $206,763 | ​ | 6.4% |

Non-interest expense increased by 7.0% for the three months ended September 30, 2024 compared to the same period of 2023 and increased by 6.4% for the nine months ended September 30, 2024 compared to the same period of 2023. Non-interest expense continues to be primarily impacted by an increase in our employee compensation and benefits as we continue to adjust our compensation programs to retain our workforce and remain competitive in the current employment market. We also continue to monitor and manage our controllable non-interest expenses through a variety of measures with the ultimate goal of ensuring we align non-interest expenses with our operations and revenue streams.

### Financial Condition

### Allowance for Credit Losses

The ACL decreased 0.6% to $156,099,000 at September 30, 2024 from $157,069,000 at December 31, 2023. The decrease is primarily due to a charge-down of a credit secured by assets in the oil and gas industry in the first quarter of 2024. The provision for credit losses charged to expense decreased 17.9% to $8,602,000 for the three months ended September 30, 2024 compared to $10,476,000 for the same period of 2023. The provision for credit losses charged to expense increased 8.9% for the nine months ended September 30, 2024 to $30,351,000 compared to $27,879,000 for the same period of 2023. The credit loss charged to expense for the nine months ended September 30, 2024 has increased from the same period of 2023 in order to absorb the impact of the charge-down. We reduced the severity of some of the qualitative loss factors in certain pools of the portfolio for the March 31, 2024 ACL to encompass a slight improvement in economic uncertainty, resulting in a decrease in the required ACL. Upon further evaluation, no further changes to the qualitative loss factors were made for the September 30, 2024 ACL. The ACL was 1.82% of total loans at September 30, 2024 and 1.95% of total loans at December 31, 2023.

### Investment Securities

Residential mortgage-backed debt securities are securities primarily issued by Freddie Mac, Fannie Mae, or Ginnie Mae. Investments in debt residential mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U.S. government. Investments in debt residential mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. Government, however, we believe that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008 and because securities issued by others that are collateralized by residential mortgage-backed securities issued by Fannie Mae or Freddie Mac are rated consistently as AAA rated securities.

### Loans

Total loans increased by 6.6% to $8,587,025,000 at September 30, 2024, from $8,058,961,000 at December 31, 2023. Commercial real estate loans have historically been the largest category in our loan portfolio and comprise approximately 66% and 65% of total loans at September 30, 2024 and December 31, 2023, respectively. The loans in this category primarily include owner- and non-owner-occupied commercial buildings such as shopping centers, warehouses, hotels and office buildings and are primarily geographically concentrated in central and south Texas and throughout Oklahoma. Commercial real estate loans generally carry a lower risk of loss; however, they may also be significantly more affected by changes in real estate markets or the general economy. We regularly monitor commercial real estate loan concentrations and also have processes and procedures in place to monitor economic conditions that may adversely affect our commercial real estate portfolio.

### Deposits

Deposits increased by 2.3% to $12,101,055,000 at September 30, 2024, compared to $11,824,554,000 at December 31, 2023. Deposits have continued to fluctuate as a result of increased general activities by customers, increased competition for deposits by the federal government, and aggressive competitors’ pricing. We have closely monitored the rates paid on deposits by competitors and have made changes to our pricing accordingly in order to remain competitive in an effort to retain deposits. The five separately charted banks within our holding company structure also allows us to work with customers to maximize their FDIC insurance levels and provide additional levels of insured deposits.

### Foreign Operations

On September 30, 2024, we had $15,892,312,000 of consolidated assets, of which approximately $175,361,000, or 1.1%, was related to loans outstanding to borrowers domiciled in foreign countries, compared to $180,695,000, or 1.2%, at December 31, 2023. Of the $175,361,000, 74.7% is directly or indirectly secured by U.S. assets, certificates of deposits and real estate; 6.6% is secured by foreign real estate or other assets; and 18.7% is unsecured.

### Critical Accounting Policies

We have established various accounting policies that govern the application of accounting principles in the preparation of our consolidated financial statements. The significant accounting policies are described in the notes to the consolidated financial statements. Certain accounting policies involve significant subjective judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies.

We consider our estimated ACL as a policy critical to the sound operations of our Subsidiary Banks. The ACL is deducted from the amortized cost of an instrument to present the net amount expected to be collected on the financial asset. Our ACL primarily consists of the aggregate ACL estimates of our Subsidiary Banks. The estimates are established through charges to operations in the form of charges to provisions for credit loss expense. Loan losses or recoveries are charged or credited directly to the ACL. The ACL of each Subsidiary Bank is maintained at a level considered appropriate by management, based on estimated current expected credit losses in the current loan portfolio, including information about past events, current conditions and reasonable and supportable forecasts.

The estimation of the ACL is based on a loss-rate methodology that measures lifetime losses on loan pools that have similar risk characteristics. Loans that do not have similar risk characteristics are evaluated on an individual basis. The segmentation of the loan portfolio into pools requires a balancing process between capturing similar risk characteristics and containing sufficient loss history to provide meaningful results. Our segmentation starts at the general loan category with further sub-segmentation based on collateral types that may be of meaningful size and/or may contain sufficient differences in risk characteristics based on management’s judgement that would warrant further segmentation. Risk management begins with a strong and conservative lending policy that specifies lending limits that are well below allowable regulatory limits, provides highly restrictive lending authority to lending officers, and promotes judicious lending terms and diversification. The general loan categories along with primary risk characteristics used in our calculation are as follows:

*Commercial and industrial loans.* This category includes loans extended to a diverse array of businesses for working capital or equipment purchases. These loans are mostly secured by the collateral pledged by a borrower that is directly related to the business activities of the borrower’s company such as equipment, accounts receivable and inventory. The borrower’s abilities to generate revenues from equipment purchases, collect accounts receivable, and turn inventory into sales are risk factors in the repayment of the loan. A small portion of this loan category is related to loans secured by oil and gas production and loans secured by aircraft.

*Construction and land development loans.* This category includes loans for the development of unimproved land to lot development for both residential and commercial use and vertical construction across residential and commercial real estate classes. These loans carry the risk of repayment when projects incur cost overruns, have an increase in the price of construction materials, encounter zoning, entitlement or environmental issues, or encounter other factors that may affect the completion of a project on time and on budget. Additionally, repayment risk may be negatively impacted when the market experiences a deterioration in the value of real estate. Risks specifically related to 1-4 family development loans also include mortgage rate risk and the practice by the mortgage industry of imposing more restrictive underwriting standards, which inhibits the buyer from obtaining long term financing, creating excessive housing and lot inventory in the market.

*Commercial real estate loans.* This category includes loans secured by farmland, multifamily properties, owner-occupied commercial properties, and non-owner-occupied commercial properties. Owner-occupied commercial properties include warehouses often along the U.S. border for import/export operations, office space where the borrower is the primary tenant, restaurants and other single-tenant retail spaces. Non-owner-occupied commercial properties include hotels, retail centers, office and professional buildings, and leased warehouses. These loans carry the risk of repayment when market values deteriorate, the business experiences turnover in key management, the business is unable to attract or maintain stable occupancy levels, or the market experiences an exit of a specific business type that is significant to the local economy, such as a manufacturing plant. Our primary risk management tool is internal monitoring measured against internal concentration limits significantly lower than regulatory thresholds that are segmented by low-risk and high-risk characteristics, such as the borrower’s equity, cash flow coverage, and non-amortizing versus amortizing status, further disaggregated by the length of time to pay in full. This monitoring is regularly reported to senior management and the board of directors. Risk management practices also extend to the management of the borrower’s relationship and are designed to recognize degradation in the borrower’s ability to repay under established terms well before the borrower may default. Loan and deposit activity by the borrower is monitored on a frequent basis, which may prompt a change in risk classification. Once a loan is moved to a more severe risk classification, the loan performance and, when applicable, a plan by the borrower to rectify issues are monitored and reviewed at least quarterly. Additionally, our credit administration team, who is independent from the lending team, reviews a substantial portion of the commercial lending portfolio annually, which includes a significant portion of the commercial real estate loan portfolio given the current mix of loans in our portfolio.

*1-4 family mortgages.* This category includes both first and second lien mortgages for the purposes of home purchases or refinancing existing mortgage loans. A small portion of this loan category is related to home equity lines of credits, lots purchases, and home construction. Loan repayments may be affected by unemployment or underemployment and deteriorating market values of real estate.

*Consumer loans.* This category includes deposit secured, vehicle secured, and unsecured loans, including overdrafts, made to individuals. Repayment is primarily affected by unemployment or underemployment.

The loan pools are further broken down using a risk-based segmentation based on internal classifications for commercial loans and past due status for consumer mortgage loans. Non-mortgage consumer loans are evaluated as one segment. On a weekly basis, commercial loan past due reports are reviewed by our credit quality committee to determine if a loan has any potential problems and should be placed on our internal Watch List report. Additionally, our credit department reviews the majority of our loans for proper internal classification purposes regardless of whether they are past due and segregates any loans with potential problems for further review. The credit department will discuss the potential problem loans with the servicing loan officers to determine any relevant issues that were not discovered in the evaluation. Also, an analysis of loans that is provided through examinations by regulatory authorities is considered in the review process. After the above analysis is completed, we determine if a loan should be placed on our internal Watch List report because of issues related to the analysis of the credit, credit documents, collateral and/or payment history.

Our internal Watch List report is segregated into the following categories: (i) Pass, (ii) Economic Monitoring, (iii) Special Review, (iv) Watch List—Pass, (v) Watch List—Substandard, and (vi) Watch List—Doubtful. Loans placed in the Economic Monitoring or Special Review categories reflect our opinion that the loans have potential weaknesses that require monitoring on a more frequent basis. Credits in those categories are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. Loans placed in the Watch List—Pass category and lower rated credits reflect our opinion that the credits contain weaknesses that represent a greater degree of risk, which warrants “extra attention.” Credits placed in those categories are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. Loans placed in the Watch List—Substandard category are considered to be potentially inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. Those credit obligations, even if apparently protected by collateral value, have shown defined weaknesses related to adverse financial, managerial, economic, market or political conditions that we believe may jeopardize repayment of principal and interest. Furthermore, there is a possibility that we may sustain some future loss if such weaknesses are not corrected. Loans placed in the Watch List—Doubtful category have shown defined weaknesses and reflect our belief that it is likely, based on current information and events, that we will be unable to collect all principal and/or interest amounts contractually due. Loans placed in the Watch List—Doubtful category are placed on non-accrual when they are moved to that category.

For the purposes of the ACL, in order to maintain segments with sufficient history for meaningful results, the credits in the Pass and Economic Monitoring categories are aggregated, the credits in the Special Review and Watch List—Pass credits are aggregated, and the credits in the Watch List—Substandard category remain in their own segment. For loans classified as Watch List—Doubtful, management evaluates these loans in accordance with FASB ASC Subtopic 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost,” and, if deemed necessary, a specific reserve is allocated to the loan. The analysis of the amount of the specific reserve to be allocated is based on a variety of factors, including the borrower’s ability to pay, the economic conditions impacting the borrower’s industry and any collateral deficiency. If it is a collateral-dependent loan, the net realizable fair value of collateral will be evaluated for any deficiencies. Substantially all of our loans evaluated as Watch List—Doubtful are measured using the fair value of collateral method. In rare cases, we may use other methods to determine the specific reserve of a loan if such loan is not collateral dependent.

Within each collectively evaluated pool, the robustness of the lifetime historical loss-rate is evaluated and, if needed, is supplemented with peer loss-rates through a model risk adjustment. Certain qualitative loss factors are then evaluated to incorporate management’s two-year reasonable and supportable forecast period followed by a reversion to the pool’s average lifetime loss-rate. Those qualitative loss factors are: (i) trends in portfolio volume and composition, (ii) volume and trends in classified loans, delinquencies and non-accruals, (iii) concentration risk, (iv) trends in underlying collateral value, (v) changes in policies, procedures, and strategies, and (vi) economic conditions. Qualitative factors also include potential losses stemming from operational risk factors arising from fraud, natural disasters, pandemics, geopolitical events, and large loans. The large loan operational risk factor was added to our ACL calculation beginning in the second quarter of 2023. Because of the magnitude of large loans, they pose a higher risk of default. Recognizing this risk, and establishing an operational risk factor to capture that risk, is prudent action in the current economic environment. Large loans are usually part of a larger relationship with collateral that is pledged across the relationship. Defaulting on a larger loan may therefore jeopardize an entire relationship. The current economic environment has created challenges for borrowers to service their debt. Increasing capitalization rates, elevated office vacancies, an upward trend in apartment vacancies and significant increases in interest rates are all contributing to the elevated risk in large loans. Should any of the factors considered by management in evaluating the adequacy of the ACL change, our estimate could also change, which could affect the level of our future credit loss expense.

We have elected to not measure an ACL for accrued interest receivable given our timely approach in identifying and writing off uncollectible accrued interest. An ACL for off-balance sheet exposure is derived from a projected usage rate of any unfunded commitment multiplied by the historical loss-rate, plus model risk adjustment, if any, of the on-balance sheet loan pools.

Our management continually reviews the ACL of the Subsidiary Banks using the amounts determined from the estimates established on specific doubtful loans, the estimate established on quantitative historical loss percentages, and the estimate based on qualitative current conditions and reasonable and supportable two-year forecasted data. Our methodology reverts to the average lifetime loss-rate beyond the forecast period when we can no longer develop reasonable and supportable forecasts. Should any of the factors considered by management in evaluating the adequacy of the estimate for current expected credit losses change, our estimate of current expected credit losses could also change, which could affect the level of future credit loss expense. While the calculation of our ACL utilizes management’s best judgment and all information reasonably available, the adequacy of the ACL is dependent on a variety of factors beyond our control, including, among other things, the performance of the entire loan portfolio, the economy, government actions, changes in interest rates and the view of regulatory authorities towards loan classifications.

### Liquidity and Capital Resources

The maintenance of adequate liquidity provides our Subsidiary Banks with the ability to meet potential depositor withdrawals, provide for customer credit needs, maintain adequate statutory reserve levels and take full advantage of high-yield investment opportunities as they arise. Liquidity is afforded by access to financial markets and by holding appropriate amounts of liquid assets. Our Subsidiary Banks derive their liquidity largely from deposits of individuals and business entities. Deposits from persons and entities domiciled in Mexico comprise a stable portion of the deposit base of our Subsidiary Banks. Other important funding sources for our Subsidiary Banks during 2024 and 2023 were securities sold under repurchase agreements and large certificates of deposit, requiring management to closely monitor our asset/liability mix in terms of both rate sensitivity and maturity distribution. Our Subsidiary Banks have had a long-standing relationship with the FHLB and keep open significant unused lines of credit in order to fund liquidity needs. We also maintain a sizable, high quality investment portfolio to provide significant liquidity. These securities can be pledged to the FHLB, sold, or sold under agreements to repurchase to provide immediate liquidity. The following table summarizes our short-term balancing capacities net of balances outstanding:

*(in Thousands)*

| ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ ​ 2024 ​ ​ | ​ ​ ​ |
| --- | --- |
| Unsecured fed funds lines available from commercial banks $50,000 | ​ |
| Unused borrowings capacity from FHLB (1) ​ $2,718,662 | ​ |
| Unused borrowings capacity under Federal Reserve discount window ​ $510,848 | ​ |
| Unpledged investment securities (2) ​ $3,476,049 | ​ |
| ​ ​ ​ ​ | ​ |
| (1) FHLB borrowings are collateralized by a blanket floating lien on certain real estate secured loans and mortgage finance assets | ​ |
| (2) Market value | ​ |

We maintain an adequate level of capital as a margin of safety for our depositors and shareholders. At September 30, 2024, shareholders’ equity was $2,749,416,000 compared to $2,447,774,000 at December 31, 2023. The increase in shareholders’ equity can be primarily attributed to the retention of earnings.

Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amount and classifications are also subject to qualitative judgements by regulators about components, risk-weighting and other factors.

In July 2013, the Federal Reserve Board (“FRB”) and the Federal Deposit Insurance Corporation (“FDIC”) established a new, comprehensive capital framework for U.S. banking organizations known as “Basel III,” consisting of minimum requirements that increase both the quantity and quality of capital held by banking organizations. The final rules are a result of the implementation of the Basel III capital reforms and various related capital provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which require bank holding companies and their subsidiary banks to maintain substantially more capital, with greater emphasis on common equity. The Basel III final capital framework requires a minimum ratio of Common Equity Tier 1 capital (“CET1”) to risk-weighted assets of 4.5% and a CET1 capital conservation buffer of 2.5% of risk-weighted assets, effectively resulting in a minimum ratio of CET1 capital to risk-weighted assets of at least 7% upon full implementation. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 capital to risk-weighted assets above the minimum 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). The rules also raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and include a minimum leverage ratio of 4% for all banking organizations. Regarding the quality of capital, the rules emphasize CET1 capital and implements strict eligibility criteria for regulatory capital instruments. The rules also improve the methodologies for calculating risk-weighted assets to enhance risk sensitivity. We believe that as of September 30, 2024, we continue to meet all fully phased-in capital adequacy requirements.

In November 2017, the Office of the Comptroller of the Currency, the FRB and the FDIC finalized a proposed rule that extends the current treatment under the regulatory capital rules for certain regulatory capital deductions and risk weights and certain minority interest requirements, as they apply to banking organizations that are not subject to the advanced approaches capital rules. Effective January 1, 2018, the rule also paused the full transition to the Basel III treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital of unconsolidated financial institutions and minority interests. The agencies are also considering whether to make adjustments to the capital rules in response to the FASB’s Current Expected Credit Loss (“CECL”) methodology (the FASB Standard relating to current expected credit loss) and its potential impact on regulatory capital. Pursuant to the rules issued by the federal bank regulatory agencies in February 2019 and March 2020, banking organizations were given options to phase in the adoption of CECL over a three-year transition period through December 31, 2022 or over a five-year transition period through December 31, 2024. Rather than electing to make one of the phase-in options, we immediately recognized the capital impact upon adopting CECL accounting standards on January 1, 2020, which resulted in an increase in our ACL and a one-time cumulative-effect adjustment to retained earnings upon adjustment.

In December 2017, the Basel Committee on Banking Supervision unveiled its final set of standards and reforms to its Basel III regulatory capital framework, commonly called “Basel III Endgame” or “Basel IV.” The Basel IV framework makes changes to the capital framework first introduced as “Basel III” in 2010 and aims to reduce excessive variability in banks’ calculations of risk-weighted capital ratios. Implementation of Basel IV began on January 1, 2023 and will continue over a five-year transition period by regulators in individual countries, including the U.S. federal bank regulatory agencies (after notice and comment).

As of September 30, 2024, our capital levels continue to exceed all capital adequacy requirements under the Basel III capital rules as currently applicable to us.

In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (“EGRRCPA”) was enacted, which, among other things, includes a simplified capital rule change that effectively exempts banks with assets of less than $10 billion that exceed the “community bank leverage ratio” from all risk-based capital requirements, including Basel III and its predecessors. The federal banking agencies must establish the “community bank leverage ratio” (a ratio of tangible equity to average consolidated assets) between 8% and 10% before community banks can begin to take advantage of this regulatory relief provision. Some of the Subsidiary Banks, with assets of less than $10 billion, may qualify for this exemption. Additionally, under the EGRRCPA, qualified bank holding companies with assets of up to $3 billion (currently $1 billion) will be eligible for the FRB’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (the “Small BHC Policy Statement”), which eases limitations on the issuance of debt by holding companies. In August 2018, the FRB issued an interim final rule expanding the applicability of its Small BHC Policy Statement. While holding companies that meet the conditions of the Small BHC Policy Statement are excluded from consolidated capital requirements, their depository institutions continue to be subject to minimum capital requirements. Finally, for banks that continue to be subject to Basel III’s risk-based capital rules (e.g., the required assignment of a 150% risk weight to certain exposures), certain commercial real estate loans that were formally classified as high volatility commercial real estate (“HVCRE”) will not be subject to heightened risk weights if they meet certain criteria. Also, while acquisition, development, and construction loans will generally be subject to heightened risk weights, certain exceptions will apply. In September 2018, the federal banking agencies issued a proposed rule modifying the agencies’ capital rules for HVCRE.

We had a CET1 to risk-weighted assets ratio of 22.18% on September 30, 2024 and 21.72% on December 31, 2023. We had a Tier 1 capital-to-average-total-asset (leverage) ratio of 18.33% and 17.46%, risk-weighted Tier 1 capital ratio of 22.85% and 22.39%, and risk-weighted total capital ratio of 24.10% and 23.65% at September 30, 2024 and December 31, 2023, respectively. Our CET1 capital consists of common stock and related surplus, net of treasury stock, and retained earnings. We and our Subsidiary Banks elected to opt-out of the requirement to include most components of accumulated other comprehensive income (loss) in the calculation of CET1 capital. CET1 is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions. Tier 1 capital includes CET1 capital and additional Tier 1 capital. Additional Tier 1 capital includes the Capital and Common Securities issued by the Trusts (see Note 8 above) up to a maximum of 25% of Tier 1 capital on an aggregate basis. Any amount that exceeds the 25% threshold qualifies as Tier 2 capital. As of September 30, 2024, the total of $108,868,000 of the Capital and Common Securities outstanding qualified as Tier 1 capital. We actively monitor the regulatory capital ratios to ensure that our Subsidiary Banks are well-capitalized under the regulatory framework.

The CET1, Tier 1 and total capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. Risk-weighted assets are calculated based on regulatory requirements and include total assets, excluding goodwill and other intangible assets, allocated by risk-weight category, and certain off-balance-sheet items, among other things. The leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, which exclude goodwill and other intangible assets, among other things.

We and our Subsidiary Banks are subject to the regulatory capital requirements administered by the Federal Reserve, and, for our Subsidiary Banks, the FDIC. Regulatory authorities can initiate certain mandatory actions if we or any of our Subsidiary Banks fail to meet the minimum capital requirements, which could have a direct material effect on our financial statements. Management believes, as of September 30, 2024, that we and each of our Subsidiary Banks continue to meet all capital adequacy requirements to which we are subject.

We will continue to monitor the volatility and cost of funds in an attempt to match maturities of rate-sensitive assets and liabilities and respond accordingly to anticipate fluctuations in interest rates by adjusting the balance between sources and uses of funds as deemed appropriate. The net-interest rate sensitivity as of September 30, 2024 is illustrated in the table entitled “Interest Rate Sensitivity,” below. This information reflects the balances of assets and liabilities for which rates are subject to change. A mix of assets and liabilities that are roughly equal in volume and re-pricing characteristics represents a matched interest rate sensitivity position. Any excess of assets or liabilities results in an interest rate sensitivity gap.

We undertake an interest rate sensitivity analysis to monitor the potential risk on future earnings resulting from the impact of possible future changes in interest rates on currently existing net asset or net liability positions. However, this type of analysis is as of a point-in-time position, when in fact that position can quickly change as market conditions, customer needs, and management strategies change. Thus, interest rate changes do not affect all categories of assets and liabilities equally or at the same time. As indicated in the table, we are asset sensitive in both the short- and long-term scenarios. Our Asset and Liability Committee semi-annually reviews the consolidated position along with simulation and duration models, and makes adjustments as needed to control our interest rate risk position. We use modeling of future events as a primary tool for monitoring interest rate risk.

### Interest Rate Sensitivity

### (Dollars in Thousands)

*(Dollars in Thousands)*

| ​ ​ ​ ​ September 30, 2024 ​ Rate sensitive assets | ​ ​ ​ ​ ​ ​ | ​ ​ Rate/Maturity ​ ​ 3 Months or Less ​ ​ | ​ ​ ​ ​ | ​ ​ Over 3 Months to 1 Year ​ ​ | ​ ​ ​ ​ | ​ ​ Over 1 Year to 5 Years ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Over 5 Years ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Total ​ ​ | ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | --- | --- |
| Investment securities | ​ | $252,711 | ​ | $661,701 | ​ | $3,951,133 | ​ | $156,977 | ​ | $5,022,522 | ​ |
| Loans, net of non-accruals | ​ | 7,117,702 | ​ | ​ 189,175 | ​ | 442,442 | ​ | 737,187 | ​ | 8,486,506 | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Total earning assets | ​ | $7,370,413 | ​ | $850,876 | ​ | $4,393,575 | ​ | $894,164 | ​ | $13,509,028 | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Cumulative earning assets | ​ | $7,370,413 | ​ | $8,221,289 | ​ | $12,614,864 | ​ | $13,509,028 | ​ | ​ ​ | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Rate sensitive liabilities | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Time deposits | ​ | $1,114,941 | ​ | $1,524,023 | ​ | $162,794 | ​ | $3 | ​ | $2,801,761 | ​ |
| Other interest bearing deposits | ​ | 4,577,367 | ​ | ​ — | ​ | — | ​ | — | ​ | 4,577,367 | ​ |
| Securities sold under repurchase agreements | ​ | 695,158 | ​ | ​ 11,100 | ​ | — | ​ | — | ​ | 706,258 | ​ |
| Other borrowed funds | ​ | — | ​ | — | ​ | — | ​ | ​ 10,593 | ​ | 10,593 | ​ |
| Junior subordinated deferrable interest debentures | ​ | 108,868 | ​ | — | ​ | — | ​ | — | ​ | 108,868 | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Total interest bearing liabilities | ​ | $6,496,334 | ​ | $1,535,123 | ​ | $162,794 | ​ | $10,596 | ​ | $8,204,847 | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Cumulative sensitive liabilities | ​ | $6,496,334 | ​ | $8,031,457 | ​ | $8,194,251 | ​ | $8,204,847 | ​ | ​ ​ | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Repricing gap | ​ | $874,079 | ​ | $(684,247) | ​ | $4,230,781 | ​ | $883,568 | ​ | $5,304,181 | ​ |
| Cumulative repricing gap | ​ | 874,079 | ​ | 189,832 | ​ | 4,420,613 | ​ | 5,304,181 | ​ | ​ ​ | ​ |
| Ratio of interest-sensitive assets to liabilities | ​ | 1.13 | ​ | 0.55 | ​ | 26.99 | ​ | 84.39 | ​ | 1.65 | ​ |
| Ratio of cumulative, interest-sensitive assets to liabilities | ​ | 1.13 | ​ | 1.02 | ​ | 1.54 | ​ | 1.65 | ​ | ​ ​ | ​ |

## Market risk

As filed, 305 characters.

During the nine months ended September 30, 2024, there were no material changes in market risk exposures that affected the quantitative and qualitative disclosures regarding market risk presented under the caption “Liquidity and Capital Resources” located on pages 15 through 19 of our 2023 Annual Report.

## Controls and procedures

As filed, 1,152 characters.

#### Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within specified time periods. As of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)). Based on the evaluation, which disclosed no material weaknesses, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

#### Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Filed Nov 7, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-014841. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.