Annual report
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Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0-09439 INTERNATIONAL BANCSHARES CORPORATION (Exact Name of Registrant as Specified in its Charter) Texas (State or other Jurisdiction of Incorporation or Organization) 74-2157138 (I.R.S. Employer Identification No.) 1200 San Bernardo Avenue Laredo, Texas 78042 - 1359 (Address of Principal Executive Office and Zip Code) (956) 722-7611 (Registrant’s telephone number, including area code) Securities Registered Pursuant to Section 12(g) of the Act: Title of each class: Trading Symbol Name of each exchange on which registered: Common Stock, $1.00 par value IBOC The Nasdaq Stock Market Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No ◻ Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act. Yes ◻ No ⌧ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes ⌧ No ◻ Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant toRule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was requiredto submit such files). Yes ⌧ No ◻ Indicate by check mark if the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growthcompany,” in Rule 12b-2 of the Exchange Act. Large Accelerated filer ⌧ Emerging Growth Company ☐ Accelerated filer ◻ Non-accelerated filer ◻ Smaller reporting company ☐ If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complyingwith any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of itsinternal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the Registrantincluded in the filing reflect the correction of an error to previously issued financial statements. ☐Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-basedcompensation received by any of the Registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧ The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2025 was $4,136,750,000 based on theclosing sales price per share of the Registrant’s common stock on such date as reported by The Nasdaq Stock Market. As of February 23, 2026, there were 62,177,719 shares of the Registrant’s common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the designated parts of this Form 10-K: (a) Annual Report toShareholders for the fiscal year ended December 31, 2025 (in Parts I and II) and (b) Proxy Statement relating to the Company’s 2026 Annual Meeting ofShareholders (in Part III).
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Table of Contents 2 CONTENTS Page Part I Item 1. Business 3 Item 1A. Risk Factors 26 Item 1B. Unresolved Staff Comments 34 Item 1C. Cybersecurity 34 Item 2. Properties 39 Item 3. Legal Proceedings 39 Item 4. Mine Safety Disclosures 40 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 40 Item 6. [Reserved] 40 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 40 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 40 Item 8. Financial Statements and Supplementary Data 40 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 40 Item 9A. Controls and Procedures 40 Item 9B. Other Information 43 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 43 Part III Item 10. Directors, Executive Officers, and Corporate Governance 43 Item 11. Executive Compensation 43 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 44 Item 13. Certain Relationships and Related Transactions, and Director Independence 44 Item 14. Principal Accountant Fees and Services 44 Part IV Item 15. Exhibits, Financial Statement Schedules 45 Item 16. Form 10-K Summary 46
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Table of Contents 3 Part I As used in this report, the words “Company,” “we,” “us,” and “our” refer to International Bancshares Corporation, a Texas corporation, its five wholly owned subsidiary banks, and its other subsidiaries. The information that follows may contain forward-looking statements, which involve various risks and uncertainties, including those identified in Item 1A (Risk Factors) of this Annual Report on Form 10-K, and are qualified as indicated under “Special Cautionary Notice Regarding Forward-Looking Information” in Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of our 2025 Annual Report to Shareholders, which is filed as Exhibit 13 hereto and incorporated herein by reference. Our website address is www.ibc.com. Item 1. Business General We are a registered multibank financial holding company providing a diversified range of commercial and retail banking services in our main banking and branch facilities located in north, south, central, and southeast Texas and the State of Oklahoma. We were organized and we operate as a bank holding company within the meaning of the Bank Holding Company Act of 1956 (BHCA). As a bank holding company, we may own one or more banks and may engage in activities closely related to banking. 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, 2025, 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 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. We also own six 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; ● WCMH, LLC, a merchant banking entity formed under the laws of the State of Texas; ● 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.
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Table of Contents 4 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 five merchant banking entities; and a majority ownership interest in a real-estate development partnership. Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, as well as our Proxy Statements, are available free of charge on or through the Investors section of our website at www.ibc.com/investors and can be accessed via the “SEC Filings” hyperlink under the “Investors” heading as soon as reasonably practicable after being electronically filed with, or furnished to, the SEC. Those documents are also available on the SEC’s website at www.sec.gov. We have also posted on our website a Code of Ethics and Business Conduct, which applies to our directors, officers, and employees, and charters for our Audit Committee, Risk Committee, Compensation Committee, and Nominating Committee. Those documents can be accessed through the “Corporate Governance” hyperlink under the “Investors” heading of our website. The information found on our website is not incorporated by reference in this or any other report the Company files or furnishes to the SEC. Services, Human Capital, and Diversified Workplace Culture Our Subsidiary Banks have historically focused on providing commercial banking services to small- and medium-sized businesses located in their trade areas and select international banking services. In recent years, however, our Subsidiary Banks have emphasized consumer and retail banking, including mortgage lending, as well as opening branches in retail locations and shopping malls. Today, we have 166 facilities and 247 ATMs serving 75 communities in Texas and Oklahoma. Through the Subsidiary Banks, we are engaged in the business of accepting checking and savings deposits and the making of commercial, real estate, personal, home improvement, automobile and other installment and term loans. Some Subsidiary Banks are highly active in facilitating international trade along the United States border with Mexico and elsewhere. Our international banking business includes providing letters of credit, making commercial and industrial loans, and providing foreign-exchange services. Each Subsidiary Bank also offers other related services, such as credit cards, safety deposit boxes, collections, escrow services, drive-up and walk-up facilities, and other customary banking services. Each Subsidiary Bank makes available certain securities products through third-party providers and provides banking services during traditional and non-traditional banking hours through their ATM network and retail locations in shopping malls and other convenient places. Additionally, we offer IBC Bank Online, an Internet banking product that provides customers with online access to banking information and services 24 hours a day, as well as IBC Mobile Banking, which provides users with banking access from their mobile devices 24 hours a day. No material portion of our business may be deemed seasonal. As of December 31, 2025, we and our Subsidiary Banks employed approximately 2,126 people full time and 193 persons part time. As of December 31, 2025, approximately 66% of our approximately 300- person officer management team have been with us for more than 15 years, and approximately 79% 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. The most significant component of that mission is to attract, develop, and maintain employees and officers of the highest quality, who are committed to their job, conduct themselves with the highest level of professionalism, devote themselves to their community, and relentlessly pursue perfection in their performance. While senior management is certainly expected to lead by example, our objective is to instill our mission and cultural values throughout our entire organization. We are as dedicated to each other as “one team” moving in the same direction as we are to the communities we serve. We teach and train our employees to understand the reality of our customers’ everyday business, and to provide practical solutions based on extensive experience, ingenuity, continuity, balance, integrity, intelligence, and very strong work ethic and technical skills, including significant bilingual capabilities. Our team approach allows us to nurture excellence in our staff by developing superior valuation skills so that each of our staff members better understands the risks and returns of transactions better than our competitors. We provide extensive
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Table of Contents 5 training for our employees in an effort to ensure that our customers receive superior customer service. 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. 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. Compensation and benefits include market-competitive pay, retirement programs, broad- based bonuses, stock options, stock appreciation rights, health and welfare benefits, financial counseling, paid time off, and family leave. We are committed to attracting, hiring, and retaining a diverse workforce that is representative of the communities in which we live and serve. Our employment practices are designed to promote workforce development, professional growth, and fair opportunities for all applicants and employees in all of our employment practices, including but not limited to, hiring, promoting, transferring, and compensating employees without regard to any characteristic protected by law. We also conduct training programs on equal employment opportunities and provide coaching and development initiatives that support merit-based advancement, strengthen employee engagement, and help all employees grow and contribute to our success. We are committed to fostering a workplace culture that attracts, develops, and retains talented employees, provides meaningful opportunities for career advancement, and supports community involvement. In support of these efforts, we connect with and support community organizations, minority-and women-focused professional groups, and educational institutions to expand access to career pathways and build connections within the communities we serve. We are also committed to maintaining a safe and healthy work environment, free from work-related injuries and illnesses and where every team member is treated with dignity and respect, without the fear of the threat of discrimination or harassment. As stated in our Board-approved Code of Ethics and Business Conduct, we expect all of our officers, directors, and employees to practice fair dealing, honesty, and integrity in every aspect of their interactions with other IBC employees, our customers, vendors, shareholders, suppliers, competitors, and government authorities, and the communities we serve. None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement. We believe that we maintain positive employee relations. 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. Our primary market area also includes the State of Oklahoma. We compete for deposits and loans with other commercial banks, savings and loan associations, and credit unions in our primary market area. We have increased our market share in our primary market area in the past through strategic acquisitions. We also compete against non-bank entities, which serve as an alternative to traditional financial institutions. The percentage of bank-related services being provided by non-bank entities has increased during the last several years, driven by technological advancements and evolving consumer preferences. If the regulatory environment becomes more accommodating to non-bank financial services providers, we may face heightened competitive challenges. We do a large amount of business for customers domiciled in Mexico, with an emphasis in Northern Mexico. 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 32%, 31% and 29% of the Subsidiary Banks’ total deposits for the three years ended December 31, 2025, 2024 and 2023, respectively. The imposition of tariffs and trade restrictions by the United States on Mexico may weaken the Mexican economy, potentially leading to lower deposit balances or increased withdrawals from our depositors domiciled in Mexico. In turn, a decline in our deposit base and liquidity could strain our ability to compete with other financial institutions that are less reliant on cross-border deposits. Similarly, in response to any increase in geopolitical tensions or strained U.S.-Mexico relations, depositors from Mexico may seek
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Table of Contents 6 alternative financial institutions that are perceived as being more integrated within the Mexican financial industry, which could cause us to face increased competition. Under the Financial Services Modernization Act of 1999, which is otherwise known as the Gramm- Leach-Bliley Act (GLBA), banks, securities firms and insurance companies may affiliate under an entity known as a financial holding company, which may then serve its customers varied financial needs through a single corporate structure. The GLBA significantly changed the competitive environment in which we and our Subsidiary Banks conduct business. The financial services industry will become even more competitive as further technological advances enable more companies to provide financial services. These technological advances may reduce the necessity of depository institutions and other financial intermediaries in the transfer of funds between parties. Additionally, as use of cryptocurrencies, blockchain technologies, and decentralized financial services gain broader regulatory approval, become more widely adopted by consumers, and become integrated into mainstream financial systems, we may be subject to additional competitive pressures from these alternative financial providers, which could reduce demand for the traditional banking services that we provide and attract customers away from traditional banking institutions like ours. Supervision and Regulation Banking is a complex, highly regulated industry. In addition to the generally applicable state and federal laws governing businesses and employers, we and our Subsidiary Banks are further extensively regulated by special federal and state laws governing financial institutions. 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. 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. With few exceptions, state and federal banking laws have as their principal objective either the maintenance of the safety and soundness of the federal deposit insurance system or the protection of consumers, rather than the specific protection of our shareholders or creditors. Changes in the regulatory landscape that may accompany the recent change in presidential administration, including the potential restructuring or elimination of certain of the regulatory agencies that have historically regulated the banking industry, could create uncertainty regarding our compliance obligations and the rules by which our business operations will be governed. Further, our earnings are affected by the fiscal and monetary policies of the FRB, which regulates the national money supply in order to mitigate recessionary and inflationary pressures. These monetary policies significantly influence the overall growth of bank loans, investments, and deposits, as well as the interest rates charged on loans or paid on time and savings deposits. The nature of future monetary policies and the effect of such policies on our future earnings and business cannot be predicted. Interest Rate Reform Upon the Discontinuation of LIBOR The discontinuation of the benchmark interest rate known as U.S.-dollar London Interbank Offered Rate (LIBOR) was completed on June 30, 2023. Prior to that date, we had various loans, derivative contracts, borrowings, and other financial instruments with attributes that were either directly or indirectly dependent on LIBOR. Our completion of the transition from LIBOR during the second quarter of 2023 did not have any adverse impacts on our business, financial condition, or results of operations, and each of the loan documents, financial instruments, and other agreements related to
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Table of Contents 7 our LIBOR-based securities had fallback provisions that determined what reference rate would replace LIBOR upon its discontinuation. For example, on July 1, 2023, the interest-rate index on the capital and common securities issued by our four statutory business trusts transitioned from LIBOR to the Three-Month CME Term Secured Overnight Financing Rate with a spread adjustment of 26 basis points. The Dodd-Frank Act The “Dodd-Frank Wall Street Reform and Consumer Protection Act” (Dodd-Frank Act), which was enacted in 2010, represented a sweeping overhaul of many aspects of the regulation of the financial services industry. The Dodd-Frank Act created far-reaching changes across the financial regulatory landscape by addressing areas like systemic risk, capital adequacy, deposit insurance assessments, consumer financial protection, interchange fees, derivatives, lending limits, mortgage-lending practices, investment-advisor registration, and changes among the bank regulatory agencies. Some 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. Many provisions of the Dodd-Frank Act became effective upon enactment, while others were subject to further study, SEC rulemaking and discretion afforded to federal regulators. Some provisions have only recently taken effect or will take effect in the future, making it difficult to anticipate the overall financial impact on us, our customers, or the financial industry in general. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits and interchange fees are likely to increase the costs associated with deposits, as well as place limitations on certain revenues those deposits may generate. Provisions that require revisions to our capital requirements could require us to seek other sources of capital in the future.
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Table of Contents 8 FRB Approvals As a registered bank holding company, we are subject to supervision by, among others, the FRB. As such, we are required to file with the FRB annual reports and other information regarding our business operations and those of our Subsidiary Banks. We are also subject to periodic examination by the FRB. Under the BHCA, a bank holding company is prohibited from acquiring direct or indirect control of any company that is not a bank or bank holding company, and must engage only in the business of banking, managing, or controlling banks and furnishing services to or performing services for its subsidiary banks, except where the FRB has determined the ownership to be so closely related to banking, managing, or controlling banks as to be a proper incident thereto. The BHCA and the Change in Bank Control Act of 1978 require that either FRB approval must be obtained or notice must be furnished to the FRB and not disapproved prior to any person or company acquiring “control” of a bank holding company, subject to exception for certain transactions. Control is conclusively presumed to exist if any person acquires 25% or more of the voting securities of a bank holding company; control is a rebuttable presumption between 10% and 25% ownership. Ownership by affiliated persons, or persons acting in concert, is typically aggregated for these purposes. The FRB revised its control rules under the BHCA by expanding the number of presumptions used to determine whether control exists. Effective April 1, 2020, the FRB’s rule amended Regulation Y, the implementing regulation for the BHCA, to provide additional transparency regarding control determinations by implementing a tiered framework establishing factors and thresholds that are indicative of control. To date, the rule has not, and 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. As a bank holding company, we are required to obtain approval prior to merging or consolidating with any other bank holding company, acquiring all or substantially all of the assets of any bank, or acquiring ownership or control of shares of a bank or bank holding company if, after the acquisition, we would directly or indirectly own or control 5% or more of the voting shares of such bank or bank holding company. In approving acquisitions or the addition of activities, one of the issues the FRB considers is whether the acquisition or the additional activities can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh such possible adverse effects as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. 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. The implementing regulations impose obligations on financial institutions to maintain a risk-based anti-money laundering (AML) program that includes appropriate policies, procedures, and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. 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. AML regulations are continually evolving. In May 2018, regulatory updates were imposed that require U.S. financial institutions to ascertain and document the beneficial owners of legal entity customers opening new accounts. Those 2018 requirements were supplemented by the Anti-Money Laundering Act of 2020 (AMLA) and, as part of the AMLA, the Corporate Transparency Act (CTA). The AMLA streamlines and modernizes certain provisions of the Currency and Foreign Transactions Reporting Act of 1970, as amended (Bank Secrecy Act), by, for example, requiring most legal entities to register their beneficial-ownership information into a national registry maintained by the Financial Crimes Enforcement Network (FinCEN); modernizing and expanding the statutory definition of “financial institution” to include antiquities dealers and entities whose services involve cryptocurrency and other non- cash currency substitutes; enhancing the type and severity of fines and penalties that violators of the AMLA, the Bank Secrecy Act, and the PATRIOT Act may face; and enhancing whistleblower protections and awards. Certain implementing regulations that FinCEN has proposed in connection with the AMLA are still being finalized. For example, in June 2024, FinCEN issued a Notice of Proposed Rulemaking (NPR)
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Table of Contents 9 proposing to amend the Bank Secrecy Act’s AML program requirements to mandate effective, risk-based, and reasonably designated AML and countering the financing of terrorism (CFT) programs, including formalized risk-assessment processes and alignment with government-wide AML/CFT priorities. The proposal is still under consideration by FinCEN, and no final rule has been issued. In September 2022, FinCEN finalized its regime for reporting beneficial-ownership information (BOI) under the CTA, which took effect on January 1, 2024. The CTA aims to combat money laundering, securities and tax fraud, terrorism financing, human and drug trafficking, counterfeiting, and other corrupt, nefarious activities by preventing bad actors from concealing their ownership of U.S. entities to advance their illicit operations. As originally contemplated, the CTA’s reporting rule would have required corporations, limited liability companies, and similar entities operating in the U.S. to identify and report certain information concerning their beneficial owners, meaning the individuals who ultimately own or control them. Although FinCEN originally set a deadline of January 1, 2025, for entities to file BOI reports, on March 26, 2025, FinCEN issued an Interim Final Rule that removed the requirement for U.S. companies and U.S. persons to report BOI to FinCEN under the CTA, meaning only foreign entities formed outside the U.S. that are registered to do business in the U.S. are currently subject to the CTA’s BOI reporting obligations. On February 20, 2024, the CTA’s access rule, which implements the CTA’s access and safeguard provisions, took effect, under which a reporting company’s BOI is deemed confidential but can be disclosed by FinCEN to six categories of recipients, including financial institutions that are subject to customer due diligence obligations and have received the reporting company’s consent to access its BOI. As a result of the Interim Final Rule, while the CTA’s access rule remains in effect, its practical applicability is limited to BOI submitted to FinCEN by foreign reporting companies that continue to have reporting obligations under the CTA. Overall, the status of the CTA and related BOI reporting requirements remains in flux due to ongoing litigation and regulatory developments concerning the constitutionality and implementation of the CTA. Legislation to repeal the CTA has also been brought before Congress, and it is unclear the extent to which the CTA will be enforced. The Interim Final Rule stated that FinCEN was accepting comments to the Interim Final rule through May 27, 2025, would evaluate the rule Interim Final Rule’s exemptions to BOI reporting in light of the comments received, and expected to issue a final rule addressing BOI requirements under the CTA during 2025. However, as of December 2025, FinCEN was still in the process of reviewing comments to the Interim Final Rule, and no final rule has been issued by FinCEN to date. Although we are not currently subject to the CTA’s BOI reporting requirements as a result of the Interim Final Rule, we will continue to monitor FinCEN’s guidance, and any final rules or other regulatory developments relating to the CTA and will assess the applicability of any resulting reporting obligations. 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. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all the relevant laws or regulations, could have serious legal and reputational consequences for the institution. Nonresident Alien Deposits In 2013, the Internal Revenue Service (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. Foreign Account Tax Compliance Act On July 1, 2014, the Foreign Account Tax Compliance Act (FATCA) became effective. FATCA aims to curb offshore tax evasion by foreign financial institutions by requiring such institutions to identify any U.S. account holders. Moreover, FATCA requires U.S. withholding agents, including U.S. banks, to withhold a tax (30%) on U.S.-sourced income payable to foreign financial institutions that do not agree to report certain information to the IRS regarding their U.S. accounts, as well as on payments to nonfinancial foreign entities that do not provide information on their U.S. account owners to withholding agents.
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Table of Contents 10 Office of Foreign Assets Control Regulation The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals, and others. The Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC) publishes lists of specially designated countries and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, transnational criminal organizations, international cartels and narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. The OFAC-administered sanctions take many forms, including restrictions on trade or investment and the blocking of certain assets related to the designated foreign countries and nationals. Blocked assets, which may include bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. 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. Under the GLBA, a financial holding company may engage in a broad list of financial activities and any non-financial activity that the FRB determines is complementary to a financial activity and poses no substantial risk to the safety and soundness of depository institutions or the financial system. In addition, the GLBA permits certain non-banking financial and financially related activities to be conducted by financial subsidiaries of banks. Under the GLBA, a bank holding company may become certified as a financial holding company by filing a declaration with the FRB, together with a certification that each of its subsidiary banks is well capitalized, is well managed, and has at least a satisfactory rating under the Community Reinvestment Act of 1977 (CRA). We elected and were approved by the FRB to become a financial holding company under the GLBA in 2000 and the election was made effective by the FRB as of March 13, 2000. During the second quarter of 2000, IBC established an insurance agency subsidiary and acquired two insurance agencies. The investments that may be made under the GLBA are substantially broader in scope than the investment activities otherwise permissible for bank holding companies and are referred to as “merchant banking investments” in “portfolio companies.” The FRB and the Secretary of the Treasury have regulations governing the scope of permissible merchant banking investments. Before making a merchant banking investment, a financial holding company must either be or have a registered securities firm or a qualified insurance affiliate. The merchant banking investments may be made by the financial holding company or any of its subsidiaries, other than a depository institution or a subsidiary of a depository institution. The regulations place restrictions on the ability of a financial holding company to become involved in the routine management or operation of any portfolio company. The regulation also generally limits the ownership period of merchant banking investments to no more than ten years. The FRB, the Office of the Comptroller of the Currency (OCC), and the FDIC have rules governing the regulatory capital treatment of equity investments in non-financial companies held by banks, bank holding companies and financial holding companies. The rules apply a graduated capital charge on covered equity investments, which would increase as the proportion of such investments to Tier 1 capital increases. On September 8, 2016, the FRB published a report to Congress in which it recommended the repeal of the merchant banking authority granted to financial holding companies under the GLBA. Specifically, the FRB recommended that Congress repeal the statutory merchant banking authority and the grandfathering exemption for certain companies that became financial holding companies after 1999. The FRB also noted in its report that it is considering regulatory measures that would limit what it termed “safety and soundness risks of merchant banking investments.” Following this report, on September 30, 2016, the FRB published an NPR proposing to, among other things, amend the risk-based capital requirements to increase the requirements associated with a subset of merchant banking investments; specifically, merchant banking investments in companies engaged in physical commodities activities. The changes proposed in the NPR were significantly narrower than the FRB’s recommendations regarding merchant banking investments in its report to Congress.
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Table of Contents 11 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. 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. Pursuant to these rules, financial institutions must provide disclosure of privacy policies to consumers and allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party in some instances. Additional regulations were adopted to implement the provisions of the Fair Access to Credit Transactions Act (FACTA), which requires certain disclosures and consents to share certain information among bank affiliates. These privacy provisions affect how customer information is transmitted through diversified financial companies and conveyed to outside vendors. These privacy provisions also have the effect of increasing the length of the waiting period, after privacy disclosures are provided to new customers before information can be shared among different affiliated companies for the purpose of cross-selling products and services between those affiliated companies. On December 4, 2015, the Fixing America’s Surface Transportation Act (FAST Act) was signed into law. Part of the FAST Act amended the GLBA by providing financial institutions with an exception to the general requirement that those institutions deliver annual privacy notices. In late 2022, the CFPB issued an outline of proposed rules related to Section 1033 of Dodd-Frank, which requires the CFPB to implement regulations providing for the sharing of consumer financial information between financial institutions and consumer-authorized data recipients. In October 2023, the CFPB proposed a “Personal Financial Data Rights” rule (PFDR Rule), which aims to promote open, decentralized banking, protect consumers’ financial data from misuse, and foster competition in the banking industry. The CFPB published the final PFDR Rule in October 2024, which requires financial institutions to make financial data regarding consumers’ transactions and accounts more accessible for consumers and authorized third parties acting on their behalf; implement authorization procedures for third parties seeking to access consumer data, including requiring third parties to commit to data limitations and compliance with the GLBA Safeguards Framework; establish operational, performance, and security standards related to data access; and advance fair, open, and inclusive industry standards to facilitate an open banking system. Depository institutions with less than $10 billion in assets were originally required to comply with the final PFDR Rule by April 2028. However, in August 2025, the CFPB issued an Advanced Notice of Proposed Rulemaking announcing potential amendments to the PFDR Rule and its plans to extend the compliance dates for the final rule, and in October 2025, a federal district court stayed the compliance dates of the PFDR Rule and enjoined its enforcement pending the CFPB’s regulatory reconsideration. As a result, the ultimate requirements and compliance dates under the PFDR Rule remain subject to change. We will continue to monitor the CFPB’s rulemaking, guidance, and other regulatory developments relating to the PFDR Rule and assess potential compliance obligations. Nasdaq Listing Standards Shares of our common stock are listed and trade on The Nasdaq Stock Market (Nasdaq) under the symbol “IBOC.” As such, we must comply with the quantitative and qualitative listing standards of Nasdaq. In addition to other matters, the Nasdaq listing standards address disclosure requirements and establish standards relating to board independence and other corporate governance matters. Interstate Banking and Branching The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Interstate Banking Act) rewrote federal law governing the interstate expansion of banks in the United States. 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). 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. The anti-concentration limit
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Table of Contents applicable in each of Texas and Oklahoma is 20% of all federally insured deposits in the state. The Interstate Banking Act further expanded interstate banking by allowing banks to establish de novo branches in any state that opted in to the Interstate Banking Act’s branching provisions. However, the opt-in concept was eliminated by the Dodd-Frank Act, which permits de novo interstate branching if, under the laws of the state where the new branch is to be established, a state bank chartered in that state would be permitted to establish a branch. FRB Enforcement Powers The FRB has certain divestiture and other powers over bank holding companies and non-banking subsidiaries where their actions would constitute a serious threat to the safety, soundness, or stability of a subsidiary bank. These powers may be exercised through the issuance of cease-and-desist orders or other actions. In the event a Subsidiary Bank experiences either a significant loan loss or rapid growth of loans or deposits, we may be compelled by the FRB to invest additional capital in the Subsidiary Bank. Further, we would be required to guarantee performance of the capital restoration plan of any undercapitalized Subsidiary Bank. 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. Under certain circumstances the Texas Banking Commissioner may bring enforcement proceedings against a bank holding company in Texas. Company Dividends Our holding company is regarded as a legal entity separate and distinct from our Subsidiary Banks and is subject to regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The ability of our holding company to pay dividends is largely dependent on the amount of cash derived from dividends declared by our Subsidiary Banks. The payment of dividends by any bank or bank holding company is affected by the requirement to maintain adequate capital. Under FRB policy, bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if the prospective rate of earnings retention is consistent with the organization’s expected capital needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiaries. The FRB has historically discouraged dividend payment ratios that are at the maximum allowable levels unless both asset quality and capital are strong. The ability of the Subsidiary Banks to pay dividends is also restricted under Texas and Oklahoma law. A Texas bank generally may not pay a dividend reducing its capital and surplus without the prior approval of the Texas Banking Commissioner. An Oklahoma bank generally may not pay a dividend reducing its capital and surplus without the prior approval of the Oklahoma Department of Banking. The FDIC has the right to prohibit the payment of dividends by a bank where the payment is deemed to be an unsafe and unsound banking practice. At December 31, 2025, there was an aggregate of approximately $1,644,000,000 available for the payment of dividends to our holding company by our Subsidiary Banks under the capital rules applicable as of December 31, 2025, assuming that each of such banks continues to be classified as “well capitalized.” Further, we could expend the entire $1,644,000,000 and continue to be classified as “well capitalized” under the capital rules applicable as of December 31, 2025. Source of Strength Doctrine FRB policy has historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement. Under this requirement, we are expected to commit resources to support our Subsidiary Banks, including at times when we may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of
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Table of Contents 13 payment. 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, 2025, the FRB and other federal banking regulators have not yet issued such rules. Deposit Insurance All 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 FDIC may terminate deposit insurance upon a finding that an institution has engaged in unsafe and unsound practices, is in an unsafe or uninsured condition to continue operations, or has violated any applicable law, regulation, rule, or order of condition imposed by the FDIC. The FDIC uses a risk-based assessment system that imposes premiums based upon a matrix that considers a bank’s capital level and supervisory rating. Our FDIC deposit insurance expense totaled $7,151,000, $6,865,000, and $6,285,000 in 2025, 2024 and 2023, respectively. The FDIC requires insured depository institutions with at least two million deposit accounts to comply with specific recordkeeping standards and deposit insurance calculation requirements. The institutions also are required to ensure that their information technology (IT) systems are capable of calculating the amount of insured money for most depositors within 24 hours of a failure. In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate schedules uniformly by two basis points beginning with the first quarterly assessment period of 2023. The increased assessment is intended to improve the likelihood that the DIF ratio reaches the statutory minimum of 1.35% by September 30, 2028, the statutory deadline prescribed under the FDIC’s amended restoration plan, and to support the DIF’s growth to a reserve ratio of 2%, the minimum reserve ratio that the FDIC determined would be necessary to withstand a future banking crisis comparable to past crises. In November 2023, the FDIC issued a final rule to impose a special assessment meant to recover the losses to the DIF of roughly $16.3 billion that resulted from the FDIC invoking the systemic-risk exception in order to cover all of the uninsured deposits of two banks that failed in March 2023. The assessment base for the special assessment is equal to an insured depository institution’s estimated uninsured deposits reported for the quarter ended December 31, 2022, minus the first $5 billion in estimated insured deposits. The special assessment is collected by the FDIC at a quarterly rate of 3.36 basis points over a total of eight anticipated quarterly assessment periods, with the FDIC collecting the first quarterly assessment on June 28, 2024. Banks with total assets under $5 billion will not be subject to the special assessment. Under the final rule, the estimated loss pursuant to the systemic-risk determination will be periodically adjusted, and the FDIC may cease collection early, extend the collection period, and impose a final shortfall special assessment on a one- time basis. None of our Subsidiary Banks are subject to the special assessment. Capital Adequacy Our holding company and our Subsidiary Banks are required to meet certain minimum regulatory capital guidelines. The FRB has historically utilized a system based upon risk-based capital guidelines under a two-tier capital framework to evaluate the capital adequacy of bank holding companies. Tier 1 capital generally consists of common stockholders’ equity, retained earnings, a limited amount of qualifying perpetual preferred stock, qualifying trust preferred securities and non-controlling interests in the equity accounts of consolidated subsidiaries, less goodwill and certain intangibles. Tier 2 capital generally consists of certain hybrid capital instruments and perpetual debt, mandatory
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Table of Contents 14 convertible debt securities and a limited amount of subordinated debt, qualifying preferred stock, loan loss allowance, and unrealized holding gains on certain equity securities. The federal authorities’ risk-based capital guidelines utilize total capital to risk-weighted assets and Tier 1 capital elements. In this way, the guidelines make regulatory capital requirements more sensitive to differences in risk profiles among banking organizations, consider off-balance-sheet exposure in assessing capital adequacy and encourage the holding of liquid, low-risk assets. At least one half of the minimum total capital is required to be comprised of Core Capital or Tier 1 capital elements. 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. 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. All other bank holding companies will generally be required to maintain a leverage ratio of at least 4% - 5%. Our leverage ratio at December 31, 2025 was 19.86%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Each of our Subsidiary Banks is subject to similar capital requirements adopted by the FDIC and had a leverage ratio in excess of 5% as of December 31, 2025. The federal bank regulatory agencies adopted regulations that mandate a five-tier scheme of capital requirements and corresponding supervisory actions to implement the prompt corrective action provisions of the Federal Deposit Insurance Act, as amended (FDIA). The regulations include requirements for the capital categories that will serve as benchmarks for mandatory supervisory actions. Under the current regulations, as revised to reflect the Basel III capital rules discussed below, the highest of the five categories is a well- capitalized institution with a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 8%, a Common Equity Tier 1 capital ratio of at least 6.5%, and a Tier 1 leverage ratio of at least 5%. An institution is prohibited from declaring any dividends, making any other capital distribution, or paying a management fee if its capital ratios drop below the levels for an adequately capitalized institution, which under the current framework are 8%, 6%, 4.5%, and 4%, respectively. The corresponding provisions of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) mandate corrective actions be taken if a bank is undercapitalized. Based on our capital ratios as of December 31, 2025, our holding company and each of the Subsidiary Banks were classified as “well capitalized” under the applicable regulations. The risk-based standards that apply to bank holding companies and banks incorporate market and interest rate risk components. Applicable banking institutions are required to adjust their risk-based capital ratio to reflect market risk. Under the market risk capital guidelines, capital is allocated to support the amount of market risk related to a financial institution’s ongoing trading activities. Financial institutions are allowed to issue qualifying unsecured subordinated debt (Tier 3 capital) to meet a part of their market risks. We do not have any Tier 3 capital and did not need Tier 3 capital to offset market risks. 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. Basel III In July 2013, the FRB and the FDIC published the Basel III capital rules, which implemented a comprehensive capital framework for U.S. banking organizations known as “Basel III” along with certain provisions of the Dodd-Frank Act. The Basel III framework was developed by the Basel Committee on Banking Supervision, a college of central bankers and other financial regulators from the United States and other advanced economies, to strengthen international capital standards. Basel III requires bank holding companies and their subsidiary banks to maintain substantially more capital, with a greater emphasis on common equity.
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Table of Contents 15 The Basel III final capital framework, among other things, (i) establishes 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. Basel III also provides for a “countercyclical capital buffer,” generally to be imposed when national regulators determine that excess aggregate credit growth becomes associated with a buildup of systemic risk. The capital conservation buffer is designed to absorb losses during periods of economic stress. 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). The Basel III capital rules require most components of “Accumulated Other Comprehensive Income (Loss)” (AOCI) to be recognized in CET1, factoring into the calculation of CET1 all net unrealized gains (losses) on available for sale securities. The Basel III definition of CET1 also establishes the expectation that the majority of CET1 should be voting shares. Basel III strengthens the risk sensitivity of the regulatory capital treatment for various risk exposures, including a category of exposure created by Basel III known as “High Volatility Commercial Real Estate,” which has a risk weight of 150% and generally includes nonresidential real estate acquisition development or construction financing. 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. Securitized structures, such as private label mortgage-backed securities, may be risk weighted based on a gross-up approach considering underlying assets, or they default to the 1,250% risk weight. On the quality of capital side, the Basel III capital rules emphasize CET1 capital, the most loss absorbing form of capital, and implement strict eligibility criteria for regulatory capital instruments. The rules also improve the methodologies for calculating risk-weighted assets to enhance risk sensitivity. At the time that Basel III was implemented, the banking agencies made a number of changes in the final capital rules, in particular, to address concerns about regulatory burden on community banks. For example, the final rules are significantly different from the proposed rules in terms of risk weighting for residential mortgages and the regulatory capital treatment of certain unrealized gains and losses on trust preferred securities for common banking organizations. A key provision of the Basel III capital rules permitted banks to make a one-time irrevocable election to opt out of the Basel III requirement to recognize most items of AOCI in regulatory capital. For institutions like ours that chose to make the AOCI opt-out election, most AOCI items are not included in the calculation of CET1; institutions that do not opt out must include most AOCI items included in CET1 calculation, which affects the institution’s legal lending limit calculation. If a top-tier banking organization makes the AOCI opt- out election, all consolidated banking subsidiary organizations under it must make the same election. The Basel III capital rules require the following minimum capital ratios to be met: ● 4.5% CET1 to risk-weighted assets, plus a capital conservation buffer of at least 2.5% (resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7.0%); ● 6.0% Tier 1 capital to risk-weighted assets, plus a capital conservation buffer (resulting in a Tier 1 capital to risk-weighted assets ratio of at least 8.5%); ● 8.0% Total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets, plus the capital conservation buffer (resulting in a minimum total capital ratio of 10.5%); and ● 4.0% minimum leverage ratio, calculated as the ratio of Tier 1 capital to average assets.
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Table of Contents The Basel III capital rules prescribe a standardized approach for risk weightings that expand the risk- weighting categories from four categories (0%, 20%, 50% and 100%), to a much larger and more risk- sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities to 600% for certain equity exposures, resulting in higher risk weights for a variety of asset categories. Specific changes to the rules impacting our determination of risk-weighted assets include, among other things: ● Applying a 150% risk weight instead of a 100% risk weight for certain high volatility commercial real estate acquisition, development, and construction loans; ● Assigning a 150% risk weight to exposures (other than residential mortgage exposures) that are 90 days past due; ● Providing for a 20% credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable (currently set at 0%); ● Providing for a risk weight, generally not less than 20% with certain exceptions, for securities lending transactions based on the risk weight category of the underlying collateral securing the transaction; ● Providing for a 100% risk weight for claims on securities firms; and ● Eliminating the current 50% cap on the risk weight for OTC derivatives. In addition, the Basel III capital rules provide more advantageous risk weights for derivatives and repurchase-style transactions cleared through a qualifying central counterparty and increase the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation. In December 2017, the Basel Committee on Banking Supervision unveiled its final set of standards and reforms to the Basel III regulatory capital framework, commonly called “Basel III endgame” or “Basel IV.” The Basel IV standards make changes to the capital framework first introduced as “Basel III” in 2010 and aim to reduce excessive variability in banks’ calculations of risk-weighted assets and risk-weighted capital ratios. Implementation of Basel IV across the Basel Committee’s member jurisdictions 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. Although U.S. regulators originally targeted implementation of Basel IV to begin on July 1, 2025, subject to a three-year transition period with full compliance expected by July 1, 2028, the federal banking agencies indicated in September 2025 that they intend to unveil a re-proposal of the Basel IV capital rules by early 2026. Accordingly, the previously established implementation dates for Basel IV are no longer definitive, and the timing, scope, and final form of the re-proposed Basel IV framework remains uncertain. Basel III Prompt Corrective Action The FDIA requires the federal banking agencies to take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. The FDIA establishes 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 depends upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation. 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 and were phased in through January 1, 2019, are the total capital ratio, the CET1 capital ratio, the Tier 1 capital ratio, and the leverage ratio. 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
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Table of Contents 17 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. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes. The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan. The agencies may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The bank holding company must also provide appropriate assurances of performance. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5.0% of the depository institution’s total assets at the time it became undercapitalized, and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” The appropriate federal banking agency may, under certain circumstances, reclassify a well- capitalized insured depository institution as adequately capitalized. The FDIA provides that an institution may be reclassified if the appropriate federal banking agency determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice. As of December 31, 2025, 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 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 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. The federal bank regulatory agencies also issued a proposed rule that would implement qualitative liquidity requirements, including a liquidity coverage ratio (LCR), consistent with liquidity standards adopted by the Basel Committee, for certain banking organizations with more than $250 billion in total assets or subsidiary depository institutions of internationally active banking organizations with $10 billion or more in total consolidated assets. The FRB issued a separate proposed rule at the same time to apply a modified version of the LCR to certain depository institution holding companies with assets greater than $50 billion. The final version of the rule defines banks with between $50 billion and $250 billion in assets as “modified LCR companies,” which will be subjected to less rigorous requirements regarding the high-quality liquid assets calculations.
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Table of Contents 18 In July 2018, following the enactment of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, the FRB stated that it would no longer require bank holding companies with less than $100 billion in total consolidated assets to comply with the modified version of the LCR. In November 2019, the federal banking regulators adopted final rules 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 are generally not subject to any LCR or net stable funding ratio requirements. FASB CECL Accounting Standard In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amended the credit-loss accounting standards for financial assets and implemented the Current Expected Credit Losses (CECL) methodology. 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. Pursuant to rules issued by the federal bank regulatory agencies in February 2019 and March 2020, banking organizations were given the option 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. The impact of the adoption of the updated accounting standards was to be recorded as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance was adopted. Rather than electing a phase-in option, we immediately recognized the capital impact upon adopting the CECL accounting standards on January 1, 2020, which resulted in an increase in our allowance for probable loan losses and a one-time cumulative-effect adjustment to retained earnings upon adoption. Inflation Reduction Act of 2022 In August 2022, the Inflation Reduction Act of 2022 (IRA) was enacted. Among other things, the IRA imposes a 1% tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements. Final regulations implementing the stock repurchase excise tax were issued by the Treasury Department and the IRS and became effective in November 2025. 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. 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. 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. 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 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.
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Table of Contents 19 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. In May 2022, the federal bank regulators, including the FDIC, issued an NPR intended to revise the CRA’s implementing regulations in order to advance the CRA’s core purpose and adapt the CRA’s regulatory framework to reflect the modern banking industry. The focus of the revised rules, according to the regulators, is to (i) expand access to credit, investment, and basic banking services in low- and moderate-income communities, (ii) adapt to increased provision and use of Internet and mobile banking products and services, (iii) provide greater clarity, consistency, and transparency, (iv) tailor CRA evaluations and data collection to bank size and type, and (v) maintain a unified approach. In October 2023, the federal regulators adopted a joint final rule to strengthen and modernize the CRA regulations, (the 2023 CRA Rule), which was consistent with the 2022 proposed rule. Under the 2023 CRA Rule, most of the CRA changes would only affect “large” banks with assets of more than $2 billion while allowing small and mid-sized banks to elect to be evaluated based on certain of the new rules. 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 2023 CRA Rule included significant increases in data collection, testing, and evaluation metrics related to geography and assessment areas. The final 2023 CRA Rule was set to take effect on April 1, 2024, with staggered compliance dates of January 1, 2026 and January 1, 2027. However, on March 29, 2024, a federal court enjoined the enforcement of the 2023 CRA Rule, and its implementation and effective dates are stayed while the injunction remains in effect and pending the outcome of the litigation. On July 16, 2025, the OCC, the FRB, and the FDIC issued a joint NPR proposing to rescind the 2023 CRA Rule and replace it with regulations substantively identical to those in effect on March 29, 2024, as originally adopted by the agencies in 1995 and reinstated by the OCC in 2021. As a result, the previous CRA regulations continue to govern. Proposed legislation was introduced in September 2022 that would have further revised the CRA by adding several new substantive and procedural requirements. If enacted, the legislation would have broadened 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), required proof of impact for community service and charity efforts to receive CRA credit, and required large banks to collect and report even more information related to borrower demographics. The proposed legislation would have also required regulators to consider a bank’s partnerships with non-depository lenders and “small-dollar” first-lien mortgages as part of CRA examinations. Like the October 2023 final regulatory revisions, the proposed legislation focused on applying fair-lending concepts to CRA obligations and examinations. Ultimately, however, the proposed legislation did not advance through the legislative process and was never passed. Nevertheless, we will continue to monitor other legislative initiatives and their potential effect on the CRA regulations. The FDIC prepares a written evaluation of an institution’s record of meeting the credit needs of its entire community and assigns a rating. Federal banking agencies make public a rating of a bank’s performance under the CRA. The Subsidiary Banks conduct an award-winning financial literacy program in their communities as part of their community outreach. All of our Subsidiary Banks received a “Satisfactory” CRA rating in their most recently completed examinations. Financial institutions are evaluated under different CRA examinations procedures based upon their asset size classification, which asset thresholds are updated annually and were updated as of January 1, 2026. “Large bank” now means a bank with total assets equal to or greater than $1.649 billion for December 31 of both of the prior two calendar years, “small bank” means a bank with assets of less than $1.649 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 $412 million as of December 31 of both of the prior two calendar years and less than $1.649 billion as of December 31 of either of the prior two calendar years. 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.
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Table of Contents 20 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. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers. The Subsidiary Banks must comply with the applicable provisions of these consumer finance protection laws and regulations as part of their ongoing customer relations. The Dodd-Frank Act established comprehensive new rules regulating mortgage activities and created the CFPB with direct supervisory authority to enforce certain consumer finance protection laws over banks with assets of $10 billion or more and certain nonbank entities. The CFPB’s broad authority to issue, interpret, and enforce almost all federal consumer protection laws, and its issuance of applicable disclosure forms, may impact each of the Subsidiary Banks’ consumer compliance programs. 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. The CFPB also has broad authority, among other matters, to declare acts or practices to be “unfair, deceptive, or abusive,” and to develop and require new consumer disclosures. The CFPB has issued and continues to issue numerous regulations under which IBC and the Subsidiary Banks will continue to incur additional expenses in connection with ongoing compliance obligations. 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 governs responsibilities and obligations related to consumer 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. In October 2022, the United States Court of Appeals for the Fifth Circuit held that the mechanism for funding the CFPB was an unconstitutional violation of the Appropriations Clause. In 2024, the United States Supreme Court overturned the Fifth Circuit Court’s ruling and held that the mechanism for funding the CFPB is constitutional. While that ruling maintained the existence of the CFPB, it is unclear how active the CFPB will be under the current administration, what authority it will maintain given the significant legal challenges it has had and continues to face, and what, if any, priorities it will have under its new leadership. While the current administration signaled an intention to de-fund and ultimately shutter the CFPB, at least one court in late 2025 ordered the administration to continue to seek funding for and operating the CFPB. Several states have also joined a lawsuit to prevent the defunding of the CFPB. It is
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Table of Contents unclear to what extent the administration will be successful in defunding or otherwise terminating the CFPB. The new administration has appointed the Director of the Office of Management and Budget as acting director of the CFPB. Military Lending Act In 2015, the Department of Defense issued final amendments to the rule that implements the federal Military Lending Act. Under the amended rule, the Department of Defense expanded the definition of “consumer credit” to include a much broader range of credit products, including some credit products offered by depository institutions. The rule requires lenders to provide certain protections to borrowers who are covered under the rule. For instance, lenders must cap the Military Annual Percentage Rule for covered credit products provided to covered borrowers at 36%. Lenders must also provide certain disclosures and other protections to covered borrowers. Although a lender can use any method to determine a borrower’s military status, the lender can obtain a safe harbor by verifying the borrower’s military status either through the Department of Defense Manpower Data Center or by using a consumer credit report that contains military status. Electronic Banking and Cybersecurity The Federal Financial Institutions Examination Council (FFIEC) issued guidance in 2005 entitled “Authentication in an Internet Banking Environment” (2005 Guidance), followed by a 2011 supplement thereto (2011 Supplement). Together, the 2005 Guidance and the 2011 Supplement provided a risk- management framework for financial institutions offering Internet-based products and services to their customers and established the FDIC’s supervisory expectations regarding customer authentication, layered security, and other controls in an increasingly hostile online environment. In 2021, the FFIEC issued new guidance entitled “Authentication and Access to Financial Institution Services and Systems” (the 2021 Guidance), which replaced the 2005 Guidance and the 2011 Supplement. The 2021 Guidance addresses changes in the types and accessibility of online and mobile banking products and services, the increased use of new and emerging payment services, and the resulting risks associated with the cybersecurity-threat landscape. The primary objective of the 2021 Guidance is to provide effective risk management principles and practices related to identification, authentication, and access for consumer and business customers, employees, third parties, applications and devices that access and utilize digital banking services and information systems. 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. In late 2022, the FFIEC published an update to its 2018 Cybersecurity Resource Guide for Financial Institutions, which includes cyber-attack and ransomware resources and guidance, and focuses on responding to cyber incidents and monitoring vendors and service providers. In 2011, the Texas Banking Commissioner and the U.S. 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. 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. In February 2024, the NIST Cybersecurity Framework 2.0 was released, which updated the original framework by expanding its scope to help organizations of all sizes and across sectors manage and mitigate cybersecurity risks and by emphasizing the importance of governance and supply chains in managing cybersecurity risks. 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. 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 standards address cyber-risk governance, cyber-risk management, internal dependency management, external dependency management, incident response, cyber resilience, and situational awareness. The enhanced standards would be implemented in a tiered manner, imposing more stringent standards on the systems of those entities that are critical to the functioning of the financial sector. In 2021, the federal banking agencies adopted a rule governing computer security
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Table of Contents 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. The SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking laws and regulations. In July 2023, the SEC issued a final rule that, consistent with its rule proposal from March 2022, requires disclosure of material cybersecurity incidents and annual disclosure of material information concerning cybersecurity risk management, strategy, and governance. Under the final rule, registrants are required to disclose the occurrence of and key details about a material cybersecurity incident within four business days of determining that the incident is material and must provide periodic updates as to the status of the incident in subsequent filings. In October 2023, President Joe Biden issued an Executive Order (EO) on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence (AI), which set new standards for AI safety and security, established guidelines and processes for the equitable use of AI, called on Congress to pass bipartisan data-privacy legislation, and directed federal agencies to take various actions to advance the safety, security, and trustworthiness of AI systems and to mitigate AI risks. Several of the directives in the EO involved the financial-services industry. For example, the EO directed the Secretary of the Treasury to prepare a public report advising financial institutions on best practices for managing AI-specific cybersecurity risks, and encouraged regulatory agencies to consider rulemaking to address the risks to financial stability and other risks that may result from using AI. Although President Trump ultimately rescinded President Biden’s AI EO on January 20, 2025, the prior EO demonstrates the types of executive actions related to AI that may impact the banking industry in the future. On January 23, 2025, President Trump issued an EO entitled Removing Barriers to American Leadership in Artificial Intelligence, which encourages the development of AI systems that are void of ideological bias or social agendas and promotes American AI innovation. Although the EO does not include specific directives that impact the financial-services industry, the EO may encourage the development of AI technologies within the financial sector and cause financial institutions to evaluate whether existing AI systems adhere to the EO’s directive to be free from ideological bias or engineered social agendas. On December 11, 2025, President Trump issued an EO entitled Ensuring a National Policy Framework for Artificial Intelligence, which directs the development of a national policy framework for AI that is intended to be minimally burdensome, replace state-by-state regulatory regimes, and promote AI innovation and leadership in the United States. While the EO does not specifically impose requirements on financial institutions, it may inform future regulatory actions and policy developments related to the use of AI in the financial services industry, which could affect future compliance obligations. 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. 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. In May 2023, Texas further amended its data breach notification law to revise the timing and method of notifying the Texas Attorney General of a cybersecurity breach. Pursuant to the amendment, notification of a breach must be submitted electronically to the Texas Attorney General using a form accessible from the Attorney General’s website, and the Attorney General must be notified as soon as practicable, but not later than 30 days following discovery of the breach. We expect state- level activity to continue in this area and will continue monitoring legislative developments in Texas and Oklahoma. 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. These restrictions prevent a bank holding company from borrowing from any of its bank subsidiaries unless the loans are secured by specific obligations. 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.
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Table of Contents 23 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. 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. “Covered transactions” are defined to include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the FRB) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. While the Dodd-Frank Act’s changes to Sections 23A and 23B of the FRA became effective in 2012, the FRB has not amended Regulation W to reflect those changes. However, in March 2021, the FRB staff provided guidance (in the form of a memorandum and answers to frequently asked questions developed by the staff) indicating that Sections 23A and 23B of the FRA should be interpreted as having been amended by the Dodd-Frank Act and that the FRB is in the process of revising Regulation W to reflect the Dodd-Frank Act’s changes. Although no further amendments to Regulation W have been published to date, we will continue to monitor guidance and communication from the FRB for any future updates. Insider Loans 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. In general, any such extensions of credit must (i) not exceed certain dollar limitations, (ii) be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and (iii) not involve more than the normal risk of repayment or present other unfavorable features. Additional restrictions are imposed on extensions of credit to executive officers. Certain extensions of credit also require the approval of a bank’s board of directors. There is also an aggregate limitation on all loans to insiders and their related interests. These loans cannot exceed the institution’s total unimpaired capital and surplus, and the FDIC may determine that a lesser amount is appropriate. Insiders are subject to enforcement actions for knowingly accepting loans in violation of applicable restrictions. Mortgage Lending The CFPB and other federal regulatory agencies have issued various amendments and updated interpretive rules over the past decade to clarify and enhance mortgage-lending regulations, especially regarding mortgage servicing standards, consumer protections, and disclosure requirements. Key updates over the years have included: (i) the CFPB making multiple revisions to Regulation X and Regulation Z that have addressed force-placed insurance, early intervention, loss-mitigation requirements, and periodic statement requirements (ii) the CFPB issuing a final interpretive rule amending the mortgage servicing rules, clarifying the interaction of the Fair Debt Collection Practices Act (FDCPA), and addressing the insufficiency of hazard insurance; (iii) the CFPB, FRB, and OCC finalizing amendments to the official interpretations that implement special appraisal requirements for “higher-risk mortgages” or “higher-priced mortgages”; (iv) the CFPB modifying the TILA-RESPA Integrated Disclosure Rule implemented in Regulations X and Z to create tolerances for the total of payments and to provide guidance on sharing the integrated disclosures with various parties involved in the mortgage origination process; and (v) the CFPB issuing an interim final rule to give servicers more flexibility regarding when to communicate about foreclosure prevention options with borrowers who have requested a cease in communication under federal debt collection law and how to respond and communicate with potential successors in interest. The CFPB and other federal regulators continue to issue guidance and regulatory updates that affect mortgage lending, including updated guidelines and proposed regulatory revisions that signal an ongoing focus on redlining and discrimination in mortgage lending, revisions to the CRA and greater oversight of property appraisals, and related algorithms and machine learning tools that can be used in the appraisal process. The CFPB recently issued a proposed rule that would remove regulations regarding disparate impact under the Equal Credit Opportunity Act and would instead leave such determinations solely to the courts to interpret and apply. It is unclear whether or to what extent this rule will be implemented.
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Table of Contents 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. The Texas Banking Act includes a parity provision which establishes procedures for state banks to notify the Texas Banking Commissioner if the bank intends to conduct any activity permitted for a national bank that is otherwise denied to a state bank. The Texas Banking Commissioner has 30 days to prohibit the activity. Also, the Texas Finance Code includes a “super parity” provision with procedures for state banks to notify the Texas Banking Commissioner if the bank intends to conduct any activity permitted for any depository institution in the United States. The Texas Banking Commissioner has 30 days after receiving such notice to prohibit the activity. Similarly, under the Oklahoma Banking Code, Oklahoma state banks have the authority to exercise such incidental powers as may be necessary or desirable to carry on the banking business including, but not limited to, powers conferred upon national banks, unless otherwise prohibited or limited by the Oklahoma Banking Commissioner or the Oklahoma State Banking Board. Additionally, upon approval of the Oklahoma Banking Commissioner, and subject to all applicable federal and state laws, the operating subsidiaries or financial subsidiaries of an Oklahoma state bank may exercise any power and engage in any activity that is permitted for an operating subsidiary or financial subsidiary of a national bank, unless otherwise prohibited or limited by the Oklahoma Banking Commissioner or Oklahoma State Banking Board. Incentive Compensation In June 2010, the FRB, OCC, and FDIC issued the Interagency Guidance on Sound Incentive Compensation Policies, a comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. 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. Deficiencies are incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies. 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. In April 2011 and June 2016, the SEC and the federal banking agencies issued joint notices of proposed rulemaking that would prohibit a covered financial institution from establishing or maintaining any incentive-based compensation arrangements for covered persons that expose the financial institution to inappropriate risks by providing the covered person with excessive compensation that could lead to a material financial loss. A compensation arrangement would be considered too risky unless it appropriately balanced risk and reward, was compatible with effective risk management and controls, and was supported by effective governance. Compensation, fees, and benefits would be deemed excessive if the amounts paid were unreasonable or disproportionate to the value of the services performed by a covered person, taking into account an array of factors. The proposal would apply to financial institutions with more than $1 billion in assets. 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. In addition to the
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Table of Contents 25 provisions of the 2011 proposed rule, the 2016 proposed rule specified that an incentive-based compensation arrangement would only be deemed to have appropriately balanced risk and reward if it included financial and non-financial measures of performance, was designed to allow non-financial measures of performance to override financial measures of performance, and was subject to adjustment to reflect actual losses, inappropriate risks taken, compliance deficiencies, or other measures or aspects of financial and non-financial performance. As with the 2011 proposed rule, no final rule was adopted in connection with the 2016 rule proposal. In June 2023, the SEC included incentive-based compensation arrangements on its spring 2024 rulemaking agenda, signaling that a third round of proposed rulemaking on incentive-based compensation arrangements may occur. However, the SEC has not yet issued a new proposal. In May 2024, the OCC, the FDIC, the Federal Housing Finance Agency (FHFA), and the National Credit Union Administration (NCUA) re-proposed the 2016 proposed rule on incentive-based compensation arrangements. Once a final rule is developed, Section 956 of the Dodd-Frank Act requires the interagency rule to be approved by the FDIC, the OCC, the FHFA, the NCUA, the FRB, and the SEC. Given that the SEC and the FRB declined to join the other agencies in re-proposing the 2016 proposed rule, the likelihood of a final rule on incentive-based compensation arrangements being finalized and implemented remains uncertain. Regulation Z was amended in 2011 to restrict incentive compensation programs with regard to residential mortgage programs. Such limitations affect mortgage brokers as well as loan officers in the subsidiary banks. Compensation may be tied to volume, but not to terms or conditions of the transaction other than the amount of credit extended. Further amendments to Regulation Z relating to mortgage loan originator compensation were adopted on January 20, 2013, by the CFPB in accordance with the Dodd-Frank Act. In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including Nasdaq, to implement listing standards that required listed companies to adopt policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Nasdaq implemented the required listing standards under Rule 5608 of its listing rules, which became effective on October 2, 2023. Nasdaq-listed companies were required to adopt a compliant policy no later than December 1, 2023. Prior to that date, we amended and restated our Compensation Clawback Policy to meet the standards set forth in Rule 5608 and to be effective as of October 2, 2023. 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. Legislative and Regulatory Initiatives From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and our operating environment in substantial and unpredictable ways. Such changes could have a material effect on our business, including increasing our cost of doing business, affecting our compensation structure, or limiting or expanding permissible activities. We cannot predict whether any such changes will be adopted, and we cannot determine the ultimate effect that potential legislation, if enacted, or implementing regulations with respect thereto, would have upon our financial condition or results of our operations. The same uncertainty exists with respect to regulations authorized or required under the Dodd-Frank Act, but that have not yet been proposed or finalized. There is also the possibility that the Dodd-Frank Act or other federal laws may be revised by Congress in the future because certain bills have been introduced into Congress from time to time that would amend certain provisions of the Dodd-Frank Act, or other federal legislation relating to financial institutions. 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.
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Table of Contents 26 Item 1A. Risk Factors Risk Factors An investment in the Company’s common stock involves risks. The following is a description of the material risks and uncertainties that the Company believes affect its business and an investment in its common stock. If any of the risks described below were to occur, our financial condition, results of operations and cash flows could be materially and adversely affected. If this were to happen, the value of the common stock could decline significantly and all or part of an investment could be lost. Risks Related to Our Business Our allowance for probable loan losses may be insufficient. The determination of an appropriate level of loan loss allowance is an inherently complicated process and is based on numerous assumptions. This allowance represents management’s best estimate of probable losses that may exist within our existing loan portfolio. The determination of the appropriate level of the allowance for probable loan losses inherently involves a high degree of subjectivity and requires management to make significant estimates and assumptions regarding current credit risks and future trends, all of which may undergo material changes. In addition, if future charge-offs exceed the allowance for probable loan losses, we may need to increase the allowance for probable loan losses. Any increases in the allowance for probable loan losses will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations. Our 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. For additional information on the CECL methodology, see “Notes to Consolidated Financial Statements – (4) Allowance for Credit Losses” in our 2025 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. A significant portion of our loan portfolio consists of loans secured by real estate located in the markets we serve. An adverse change in the economy affecting real estate values generally or in our target markets could significantly impair the value of collateral underlying certain of our loans and our ability to sell the collateral at a profit or at all upon foreclosure. We operate in a highly competitive industry and market area. We face substantial competition from a variety of different competitors in our market areas, many of which are larger and may have more financial resources. These competitors include national, regional, and community banks within the various markets we serve. We also face competition from many other types of financial institutions, including credit unions, finance companies, brokerage firms, insurance companies, factoring companies, and other financial intermediaries. Many of our competitors have fewer regulatory constraints and lower cost structures, which may allow them to offer better pricing on a broader range of products and services. Further compounding the competition we face, technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative, non-banking methods. The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and related income. 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. 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. 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
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Table of Contents 27 and results of operations. In addition to the rise in fintechs, the financial-services industry has rapidly evolved with the rise of other alternative financial providers, including blockchain-based financial products and banking-as-a-service (BaaS) platforms, which offer digital banking products, mobile payment services, and decentralized financial services that compete with the services traditionally provided by banks. The regulatory landscape for cryptocurrencies, decentralized finance, and fintech services remains uncertain and may create additional competitive challenges for traditional banks like ours. The new presidential administration under President Donald Trump has embraced the adoption of digital assets and signaled more favorable federal regulation of cryptocurrencies and blockchain technologies aimed at ensuring the United States remains a global innovator in these areas. On January 23, 2025, President Trump signed an executive order entitled Strengthening American Leadership in Digital Financial Technology, which aims to “support the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy.” In alignment with the new executive order, the SEC announced a “Crypto 2.0” dedicated to developing a clear regulatory framework for crypto assets. Further signaling support for digital assets and cryptocurrency markets, on March 6, 2025, President Trump issued an executive order entitled Establishing of the Strategic Bitcoin Reserve and United States Digital Asset Stockpile, directing the Department of the Treasury to establish a Strategic Bitcoin Reserve and a federal stockpile of other digital assets held by the U.S. government. If new regulations favor alternative financial products, we may face operational challenges and increased costs to remain competitive. Furthermore, if BaaS models continue to be more widely utilized by fintech companies to allow non-bank entities to expand into financial-service offerings, the need for traditional banking institutions may be reduced, which could cause us to experience a decline in customer acquisition and retention and increased pricing pressure in the financial-services industry. Additionally, as use of cryptocurrencies, blockchain technologies, and decentralized financial services gain broader regulatory approval, become more widely adopted by consumers, and become integrated into mainstream financial systems, we may be subject to additional competitive pressures from these alternative financial providers. which could reduce demand for the traditional banking services that we provide and draw customers away from traditional banking institutions like ours. Customers, especially younger demographics, are increasingly embracing the use of digital wallets, crypto-based financial solutions, and peer-to-peer payment platforms as alternatives to traditional banking. A shift in customer preferences away from traditional deposit accounts and lending products may lead to a reduction in deposits, income generated through banking fees, and loan-origination opportunities, all of which could negatively impact our operations and ability to compete in the evolving financial-services industry. Failure to successfully invest in, adapt to, integrate, and compete with technological developments, including new services and products that incorporate artificial intelligence (“AI”) into banking services and products, could impair our competitive position and adversely affect our business, revenue, and profitability. The financial-services industry is experiencing rapid technological change driven by the advancement of AI. We may face a competitive disadvantage if we are unable to adopt and adapt to developing AI-driven technologies as quickly or effectively as our peers, larger financial institutions, and fintech companies, who are becoming increasingly involved in the banking and financial-services sectors. As customers grow to expect greater accessibility to AI banking solutions, including personalized financial- management tools, automated underwriting, and advanced fraud detection, failure to successfully invest in and incorporate AI into our banking offerings may cause us to fall short of meeting customer expectations for modernized, AI-powered financial services. To stay competitively relevant, we must leverage AI to enhance efficiency, risk management, and customer satisfaction. An inability to integrate AI solutions into our business and operations may make us unable to compete with institutions that can offer more sophisticated, technologically advanced financial products and services, which may hinder our rates of retaining and expanding our customer base. Furthermore, our revenue and profitability could be negatively impacted by the costs associated with enhancing our existing systems, upgrading our existing technologies and product offerings, and integrating AI tools into our business and operational structure.
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Table of Contents 28 The development, adoption, and integration of AI in our banking services, processes, and products may subject us to increased technological risks, costs, uncertainties, and unpredictable outcomes while increasing our compliance costs and exposing us to new operational challenges. AI-driven technologies are rapidly evolving and complex, and successfully integrating AI tools requires substantial investment, expertise, and continuous monitoring. Our adoption and implementation of AI tools into our banking services, processes, and products presents significant technological risks, uncertainties, and unpredictable outcomes that could result from errors or biases in AI models, data inconsistencies, compliance violations, unforeseen system failures, or operational disruptions. Flaws in our introduction and use of AI technologies could create unintended consequences, amplify our costs, and inadvertently expose us to security vulnerabilities and technological inefficiencies that could hamper the customer experience, negatively impact transaction processing, and undermine our risk-management processes. Furthermore, as the use of AI continues to evolve in the banking industry, so too will the AI-related regulations governing the banking and financial-services sectors. Regulators may impose new compliance requirements concerning AI governance, model validation, ethical use of AI, cybersecurity, data privacy, and automated decision-making, which may increase our costs and administrative burdens and restrict our ability to utilize AI for banking services, such as customer engagement, credit underwriting, fraud detection, and other banking functions. Our ability to adopt new forms of technologies and AI may be thwarted by the emergence of complex industry-wide standards, uncertainties in the legislative and regulatory environment governing AI in banking, and difficulties in establishing proper governance and controls related to new AI technologies that are compliant with evolving regulatory requirements. Incorporating AI solutions and complying with emerging regulatory frameworks may require significant resources, time, and technological investment. Additionally, any errors in AI-based models that generate biased or inaccurate results could cause us to make uninformed business decisions based on faulty data, potentially leading to financial losses and operational inefficiencies, and to face regulatory scrutiny, reputational damage, or legal liability. Failure to comply with AI-related regulations or to effectively manage AI-related risks could adversely affect our business, 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. Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. We rely on deposits, repurchase agreements, advances from the Federal Home Loan Bank (FHLB) of Dallas, the FHLB of Topeka and other borrowings to meet our liquidity demands. 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 ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry. Our earnings are subject to interest rate risk. 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. Changes in monetary policy, interest rates, the yield curve, or market-risk spreads, a prolonged inverted yield curve or instability in domestic or foreign financial markets could negatively influence the interest we receive on loans and securities, as well as the amount of interest we pay on deposits and borrowings. From March 2022 to July 2023, the Federal Reserve increased interest rates a total of eleven times, with the last hike occurring in July 2023 when target interest rates reached a range of 5.25% to 5.50%, with a benchmark rate at about 5.4%, the highest level in more than two decades. Although the Federal Reserve enacted six rate cuts in 2024 and 2025, reducing target interest rates to their current range of 3.50% to 3.75% by December 2025, the timing and extent of additional rate cuts remains uncertain. The Federal Reserve declined to implement additional rate cuts in January 2026. Volatility in interest rates may impact our net interest income and the valuation of our assets and liabilities. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the
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Table of Contents 29 interest rates paid on deposits and other borrowings. Any substantial, unexpected, or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of 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. 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. These changes and other changes to statutes and regulations, including changes in the interpretation or implementation of statutes, regulations, or policies, could affect our operations in substantial and unpredictable ways. Such changes could subject us 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. 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. Our potential future acquisitions and branch expansion could be adversely affected by a number of factors. Acquisitions of other financial institutions and branch expansion have been a key element of our growth in the past. There are a number of factors that may impact our ability to continue to grow through acquisition transactions, including strong competition from other financial institutions who are active or potential acquirers of financial institutions in our existing or future markets. 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. 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. Our products and services involve the gathering, storage, and transition of sensitive information regarding our customers and their accounts. While we conduct our own data processing, we are reliant on certain external vendors to provide products and services necessary to maintain our day-to-day operations. As a financial institution we are also subject to and examined for compliance with an array of data protection laws, regulations, and guidance, as well as our own internal privacy and information security policies and programs. If our information systems or infrastructure experience a significant disruption or breach, it could lead to unauthorized access to personal or confidential information of our customers in our possession and unauthorized access to our proprietary information, methodologies, and business secrets. Any failure, interruption, or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan, and other systems. In addition, if our partners, vendors, or other market participants experience a disruption or breach, it could lead to unauthorized transactions on our or our customer accounts, or unauthorized access to personal or confidential information maintained by those entities. The occurrence of any failures, interruptions, or security breaches of these information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations. Additional capital or funding to increase liquidity levels may not be available when needed or at all. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside our control, and our financial performance. We have historically had access to a
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Table of Contents 30 number of alternative sources of liquidity, but if there is an increase in volatility in the credit and liquidity markets, there is no assurance that we will be able to obtain such liquidity on terms that are favorable to us, or at all. 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. Our holding company receives substantially all of our revenue from dividends from our Subsidiary Banks. These dividends are the principal source of funds to pay dividends on our common stock to shareholders of our holding company, as well as interest and principal on our holding company’s debt. Various federal and/or state laws and regulations limit the amount of dividends that our Subsidiary Banks may pay to our holding company. Our Subsidiary Banks’ ability to pay dividends to us is subject to, among other thing, their earnings, financial condition and need for funds, as well as federal and state governmental policies and regulations applicable to our holding company and Subsidiary Banks which limit the amount that may be paid as dividends without prior regulatory approval, including a statutory requirement that our holding company serve as a source of financial strength for our Subsidiary Banks. Although our holding company has historically declared semi-annual cash dividends on our common stock, we are not required to do so and may reduce or cease to pay common stock dividends in the future. If we reduce or cease to pay common stock dividends, the market price of our common stock could be adversely affected. Severe weather, natural disasters, pandemics, acts of war or terrorism and other external events could significantly impact our business. Severe weather, natural disasters, pandemics, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business. These events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and cause us to incur additional expenses. 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. Goodwill is initially recorded at fair value and is not amortized, but is reviewed for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. 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, 2025. Based on our analyses, we concluded that the fair value of our reporting units exceeded the carrying value of our assets and liabilities and, therefore, goodwill was not considered impaired. Depending on the response of the financial industry to the legal, regulatory, and competitive changes related to interchange fees, overdraft services and interest on demand deposit accounts, financial institutions may need to change their policies, procedures, and operating plans in the future to compete more effectively. Such changes may require certain financial institutions to take a goodwill impairment charge to account for anticipated reduction in revenue related to such changes, which could have a material adverse effect on our financial condition and results of operation. We are subject to environmental liability risks as a result of certain lending activities. A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. There is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental remediation may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.
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Table of Contents 31 Our controls and procedures may fail or be circumvented. Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on its system of internal controls. 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. New lines of business or new products and services may subject us to additional risks. From time to time, we may implement new lines of business or offer new products and services within existing lines of business. In developing and marketing new lines of business and/or new products and services, we may invest considerable time and resources. Initial timetables for the introduction and development of new lines of business and/or new products may not be achieved, and price and profitability targets may not prove feasible. Compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and financial condition. Our accounting estimates and risk management processes rely on analytical and forecasting tools and models. The processes we use to estimate probable loan losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical tools and forecasting models. 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. Any such failure in our analytical or forecasting tools or models could have a material adverse effect on our business, financial condition, and results of operations. We may be adversely affected by declining crude oil prices. Decreased market oil prices compress margins for many U.S., Texas, and Oklahoma-based oil producers, particularly those that utilize higher-cost production technologies such as hydraulic fracking and horizontal drilling, as well as oilfield service providers, energy equipment manufacturers and transportation suppliers, among others. Energy production and related industries represent a large part of the economies in some of our primary markets. Furthermore, a prolonged period of low oil prices could also have a negative impact on the U.S. economy and, in particular, the economies of energy dominant states such as Texas and Oklahoma. Accordingly, a prolonged period of low oil prices could have a material adverse effect on our business, financial condition, and results of operation. Risks Related to the Company’s Industry Our success depends significantly on economic conditions in the local markets in which we operate. Our success depends, to a certain extent, on local, national, and international economic and political conditions and local, as well as governmental monetary policies. We are particularly affected by conditions in our primary market areas of south, central, and southeast Texas, including Austin, Dallas and Houston, the State of Oklahoma and Mexico. If economic conditions in these market areas weaken or worsen due to a decline in oil prices or other factors, or fail to improve or to continue to improve, we could experience an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, any of which could have a material adverse impact on our financial condition and results of operations.
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Table of Contents We depend on the accuracy and completeness of information about customers and counterparties as well as the soundness of other financial institutions. In deciding whether to extend credit or enter into other transactions, we may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. We also rely on representations of those customers, counterparties, financial institutions or other third parties, such as independent auditors, as to the accuracy and completeness of that information. 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. If we do not adjust to rapid changes in the financial services industry, our financial performance may suffer. Our ability to deliver strong financial performance and returns on investment to shareholders will depend in part on our ability to expand the scope of available financial services to meet the needs and demands of our customers and our ability to stay abreast of technological innovations and evaluate those technologies that will enable us to compete on a cost-effective basis. In addition to traditional banks, our competitors also include securities dealers, brokers, mortgage bankers, investment advisors, specialty finance and insurance companies who seek to offer one-stop financial services that may include services that banks have not been able or allowed to offer to their customers in the past. The continued competitive environment in our industry is primarily a result of changes in regulation, technology, and product delivery systems, and the accelerating pace of consolidation among financial service providers. Changes in the financial industry may result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. Further, the costs of new technology, including personnel, can be high in both absolute and relative terms. 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. Banking and other financial services companies, including us and our Subsidiary Banks, rely on technology companies to provide information technology products and services necessary to support our day- to-day operations. Technology companies frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. Such claims may increase in the future as the financial services sector becomes more reliant on information technology vendors. The plaintiffs in these actions frequently seek injunctions and substantial damages. Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, we may have to engage in protracted litigation. Such litigation is often expensive, time-consuming, disruptive to our operations, and distracting to management. If legal matters related to intellectual property claims were resolved against us, we could be required to make payments in amounts that could have a material adverse effect on its business, financial condition, and results of operations. 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, four more banks failed from 2024 to 2025, and one bank has failed thus far in 2026. 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. 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. 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. As a result, customers may choose to maintain deposits with larger financial institutions, to remove their deposits from the banking system altogether, or to
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Table of Contents 33 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. 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 from 2023 through 2025, culminating in the failures of multiple banks, prompted responses by the FDIC, the Federal Reserve, and the U.S. 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. 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. 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. 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. 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. 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. 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. 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. The imposition of new or increased international tariffs may have a material adverse effect on our business, financial condition, and results of operations. We do a significant amount of business for customers domiciled in Mexico, with an emphasis in Northern Mexico. Deposits from persons and entities domiciled in Mexico comprise a large and stable portion of the deposit base of our Subsidiary Banks, and some of our Subsidiary Banks are highly active in facilitating international trade along the United States border with Mexico and elsewhere. The imposition of tariffs and trade restrictions by the United States on Mexico may weaken the Mexican economy, reduce cross-border trade, and ultimately negatively impact the financial wellbeing of our customer base in Mexico, potentially leading to lower deposit balances or increased withdrawals from our depositors domiciled in Mexico. In turn, a decline in our deposit base and liquidity could strain our ability to compete with other financial institutions that are less reliant on cross-border deposits. Furthermore, in response to any increase in geopolitical tensions or strained U.S.–Mexico relations, depositors from Mexico may seek alternative financial institutions that they consider to be more integrated within the Mexican financial industry, which could cause us to face increased competition. Declined economic activity in Mexico and cross-border trade resulting from the imposition of tariffs and trade restrictions may lead to lower deposit balances, increase the likelihood of loan defaults, and reduce the demand for the banking products and services that our Subsidiary Banks provide to customers domiciled in Mexico, reducing the circulating of money in our border communities as well as the major cities in Texas.
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Table of Contents 34 Macroeconomic conditions could have a material adverse effect on our business, results of operations, and financial condition. Unfavorable macroeconomic conditions, including low productivity growth, declining business investment, inflationary pressures, fluctuating interests rates, concerns regarding the imposition of tariffs (including retaliatory tariffs in response to tariffs imposed by the United States), concerns regarding the level of U.S. debt, shifts in monetary and fiscal policy, strained international trade relations, and heightened geopolitical pressures, could negatively impact our business, results of operations, and financial condition. Economic downturns may cause reduced consumer and business banking activity, lower loan demand, increased credit risk, and higher loan deficiencies. Trade policies like tariffs and retaliatory measures, as well as geopolitical tensions in the U.S. and global markets, may cause disruptions to economic stability, affect businesses that participate in international trade, and increase market volatility. Economic and inflationary pressure on consumers and prolonged uncertainty in the macroeconomic environment could result in changes in the spending, borrowing, and savings habits of consumers and businesses and may also weaken investor confidence, reduce capital markets activity, and increase regulatory scrutiny, all of which could have a material adverse effect on our business, financial condition, and results of operations. Risks Related to the Company’s Stock The trading price of our common stock may be volatile. 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. Moreover, general market price declines or market volatility in the future could adversely affect the trading price of our common stock. The holders of our junior subordinated debentures have rights that are senior to those of our shareholders. As of December 31, 2025, 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. Payments of the principal and interest on the trust preferred securities are conditionally guaranteed by us to the extent not paid or made by each trust. We must make payments on the junior subordinated debentures (and the related trust preferred securities) before any dividends can be paid on our common stock. While we have the right to defer interest payments on the junior subordinated debentures at any time no dividends may be paid to holders of our common stock during any such deferral, which could cause the trading price of our stock to decline. Item 1B. Unresolved Staff Comments N/A Item 1C. Cybersecurity Risk Management and Strategy As a financial institution in today’s digital landscape, we understand that cybersecurity and data protection are of paramount importance to our business, our customers, and our reputation. With the proliferation of online banking and the digitalization of financial services, we recognize that our policies and procedures for safeguarding sensitive customer data must be as sophisticated as the cyber threats we are defending against. Accordingly, cybersecurity is a high-priority component of our overall risk-management system and risk-control infrastructure. We have implemented robust, multi-layer security procedures and defense strategies that aim to proactively mitigate cyber risks, enable our early detection and
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Table of Contents prevention of security incidents, minimize our vulnerability to attacks, and protect us from both internal and external cybersecurity threats. Commensurate with the risks we face and the sensitivity of the data and systems we are protecting, our Information Systems Security Program (ISSP) includes layers of administrative and technical safeguards designed to protect the confidentiality and integrity of sensitive information belonging to us and our employees, partners, and customers, to guard against the unauthorized access, alteration, disclosure, or destruction of that information, and to defend that information from potential, known, emerging, and evolving security risks. Our ISSP also applies to cybersecurity and data protection risks associated with artificial intelligence, including generative artificial intelligence whether those risks arise from our use of AI solutions or from AI-enabled threats and attack techniques used by malicious actors. We have established multiple control points within our security infrastructure to reduce the risks associated with embedded technologies that could fail or be manipulated by nefarious actors, to prevent the intentional and unintentional infiltration of cybersecurity threats, and to maximize their separation from our sensitive information systems and assets. In developing our ISSP, our policies, standards, and procedures were heavily informed by and incorporated provisions from various sources of statutory and regulatory guidance as well as numerous leading industry frameworks, including the NIST Cybersecurity Framework, various NIST special publications, the Fair Information Practice Principles established by the Federal Privacy Council, the Privacy Management Framework developed by the American Institute of Certified Public Accountants, and the Center for Internet Security’s Critical Security Controls. As part of our ISSP and strategy for managing cybersecurity risks, we have adopted the following cybersecurity policies: · Enterprise Information Systems Security Policy, which, among other objectives, prescribes a comprehensive framework for creating a practice-based Information Security Management System; protecting the confidentiality, integrity, and availability of our data and systems; providing for the development, review, maintenance, and ability to ensure the effectiveness of minimum security controls required to protect our data and systems; and recognizing the highly-networked nature of the current computing environment to provide effective company-wide management and oversight of related cybersecurity risks; · Corporate Account Takeover Policy, which serves to mitigate the risks of corporate account takeover crimes and to document our compliance with the Texas Department of Banking’s Supervisory Memorandum 1029 on “Risk Management of Account Takeovers,” dated September 30, 2019, and the FFIEC’s guidance on “Authentication and Access to Financial Institution Services and Systems,” dated August 11, 2021; · Vendor Management Policy, which provides a risk-based process for identifying, measuring, monitoring, and managing third-party relationships with new and existing vendors by requiring an assessment, categorization, and ranking of the risks associated with each third-party vendor and implements a third-party risk-management process that focuses on risk assessment, due diligence in selecting third-party vendors, contract structuring and review, and ongoing oversight of the operational and financial performance of the third-party vendor’s products and services; · Service Center Physical Security for Data and Computing Equipment Policy, which provides directives for implementing appropriate physical security controls to protect the hardware, infrastructure, and systems that store and transmit our sensitive information and data from damage, unauthorized access, and loss of availability; to monitor, analyze, and properly disclose security alerts and information; and to administer other administrative and technical operational security procedures; · Security Incident Response Policy, which establishes the steps necessary to ensure a timely and adequate response to security incidents impacting our security systems or infrastructure; and ● Artificial Intelligence Ethics & Governance Policy, which integrates AI-specific security requirements into our ISSP and incident response processes. Some of the steps we have taken and processes we have implemented to assess, identify, and manage material risks from cybersecurity threats include the following:
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Table of Contents 36 · Forming a Security Council Committee (SCC), which consists primarily of members of our management team and IT department, to develop and oversee our cybersecurity policies and infrastructure and establishing a multi-tiered reporting and governance system pursuant to which our SCC reports to our Service Center Board, which reports to our Risk Committee, which reports to our Board; · Implementing heightened safety measures, physical-security controls, and controlled-access requirements to protect the Service Center that houses the hardware and infrastructure used to store and transmit sensitive and confidential bank, customer, and employee information in accordance with the FFIEC IT Examination Handbook on Information Security and designating a specialized Service Center Board within the Service Center Department to oversee the protection of the Service Center’s physical integrity; · Maintaining a clearly defined ISSP, which prescribes measures to establish and enforce our security program, addresses each component of our information security (IS) position, and advances our objectives of protecting and managing risks to our data and security systems by establishing policies, standards, controls, procedures, and guidelines that address topics such as security and privacy governance, statutory, regulatory, and contractual compliance, business and disaster recovery, change management, identification and authentication processes, expectations for continuous monitoring, asset management, third-party provider management, endpoint security, and incident responses, among others; ● Conducting an annual self-assessment using the Cyber Risk Institute (based on the NIST Cybersecurity Framework) to review our cyber risk-management strategy and framework, assess the effectiveness and legal and regulatory compliance of our organizational cybersecurity policy, and evaluate our policies and procedures for identifying risks, protecting information, detecting security threats, responding to cyber incidents, executing recovery plans, and managing levels of external dependence and resiliency; · Conducting regular cybersecurity training for our employees regarding security awareness, the proper use and handling of sensitive information, and the protocols in place to identify, assess, and manage any cybersecurity threats and periodically testing employees’ cybersecurity knowledge, policy compliance, and response rates by engaging with third-party providers to conduct internal social engineering campaigns; · Engaging in security-incident preparedness simulations and completing disaster recovery and resilience tests designed to test and strengthen any vulnerabilities in our cybersecurity infrastructure; · Employing robust encryption and anonymization technologies and other cybersecurity monitoring and auditing systems to fortify our cybersecurity framework, including through our Online Banking Enhanced Security Program, which requires the authorized users on a customer’s account to be validated and employs multi-factor authentication (MFA), which requires each of our retail and commercial customers to authenticate their identities by entering a secure access code that our MFA system automatically generates and sends to the customer each time there is an attempted login to the customer’s online banking account; · Implementing MFA protections for our treasury customers by prohibiting their initiation of ACH transactions or wire transfers until they authenticate their identities using a security token that is generated and sent by our online-banking MFA system; ● Communicating awareness and education of security risks, social engineering and scams affecting our customers through targeted marketing and social media messaging strategies and campaigns; ● Monitoring electronic mail and other network intrusion attempts with various tools to identify and stop intrusion and malware threats; ● Scanning and assessing vulnerabilities arising from software and hardware on our network infrastructure, ATMs, software applications, computers, copiers and other electronic assets to ensure that vulnerabilities are identified and resolved timely;
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Table of Contents 37 · Establishing a risk-appetite profile, which we review at least annually to regularly assess our cybersecurity infrastructure and software systems in a manner that ensures we capture their current state and identify emerging risks that would require changes in our cyber environment; · Leveraging internal and external auditors as well as security consultants to review the procedures, systems, and controls that comprise our ISSP to evaluate their design and operational effectiveness and to address any operational deficiencies or security weaknesses; and · Maintaining an Incident Response Plan that establishes our procedures and standards for responding to actual or potential cybersecurity threats or incidents, which we review at least annually. Furthermore, our IT security infrastructure and cybersecurity policies are designed to monitor and manage security risks associated with any third-party service providers, suppliers, software and hardware vendors, contractors, and consultants we collaborate with (hereinafter, collectively, Vendors) who might store, process, collect, share, create, transmit, destroy, or access any of our sensitive data. Our Vendor Management Policy establishes clearly defined requirements of engagements with Vendors and requires them to uphold similar security standards to those we internally require. Depending on their risk level, we may subject certain Vendors to heightened security requirements, such as enhanced risk assessments, ongoing monitoring, or additional contractual controls to restrict their levels of information access. Governance Security Council Committee. As part of our cybersecurity governance framework and for purposes of establishing and maintaining our ISSP, we have established an SCC, which consists of members of our management team and IT department. The SCC is subject to oversight by the Service Center Board, the Risk Committee, and the Board. The Risk Committee of the Board works directly with the SCC to develop and implement our policies and procedures concerning cybersecurity and data protection. As stated in the Risk Committee Charter, our Risk Committee reviews management reports on the adequacy of our data- governance activities and IT security program; evaluates risks related to customer information, significant outsourcing with third parties or Vendors, and operational outsourcing arrangements; reviews, evaluates, and updates our data-governance framework, processes, and systems for identifying, assessing, and managing data risks that impact critical business operations; and reviews and evaluates our overall risk-management framework. The SCC meets at least quarterly to discuss its oversight of our cybersecurity policies and procedures, risk-management practices and controls, and efforts to mitigate and prevent cybersecurity risks. The SCC may meet more frequently if required by our Incident Response Plan to facilitate timely response, monitoring, risk-management, and recovery efforts. The SCC is also charged with periodically reporting to management, the Board, and the Risk Committee, the status, and results of our compliance with our security program, results of security assessments, and effectiveness of remediation activities. Other Committees. In addition to the SCC and Risk Committees, we have established a Technology Committee, a Senior Management Committee, and a Business Continuity and Disaster Recovery (BC/DR) Committee. Each oversees aspects of our ISSP and coordinates with the SCC to implement various cybersecurity procedures. We have also implemented an enterprise AI governance framework, which provides cross-functional oversight of AI solutions across the Company, including the IT and Vendor Management Departments. Chief Information Security Officer. In addition to establishing the SCC and other committees, we designated a Chief Information Security Officer (CISO) to oversee all aspects of our IS policies, procedures, and controls. Our CISO reports to our Senior and Executive Management Committee, the SCC, the Risk Committee, and the Chairman of the Board. At least annually, the CISO presents all of our IS policies to the Board. The CISO is also tasked with maintaining an effective Security Awareness Program and providing training to our management, Board, and employees on an annual basis. Additionally, the CISO meets with our Audit Committee on a quarterly basis to inform them of material cybersecurity-related regulatory updates and with our full Board on a monthly basis to discuss and provide pertinent regulatory information.
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Table of Contents 38 Procedures Governing our Cybersecurity Incident Responses. Our multi-layered, cross-functional approach to cybersecurity governance provides adequate checks and balances on the implementation of our cybersecurity protocols, enables us to effectively monitor both internal and external cyber risks, and allows for the swift escalation of any potential cybersecurity incidents to the appropriate levels of management so that assessments concerning materiality, potential disclosure, and possible responsive actions can be timely made. Our approach to cybersecurity governance is modeled in the Incident Response Team (IRT) that we have established to timely address cybersecurity incidents and minimize any disruptions to our business operations and customer activities caused by cyber threats or attacks. Designated IRT personnel are available 24 hours per day, seven days per week to respond to potential incidents. Having an integrated team for incident response facilitates information sharing, which allows organizational personnel, including developers, implementers, and operators, to leverage the team knowledge of the threat in order to implement defensive measures that will deter intrusions more effectively. In the event of a potential cybersecurity incident, our IRT is responsible for implementing our Security Incident Response Policy, in accordance with which the following steps occur: · After becoming aware of a potential cybersecurity incident, our IT Service Desk reports the incident and any pertinent information to our CISO. Our IT Service Desk is the central point of contact for reporting computer incidents or intrusions. · The CISO then conducts a preliminary analysis of the incident and determines whether activating the full IRT is warranted. Types of incidents that would generally require the activation of our IRT include but are not limited to a breach of personal information, a denial-of-service (DoS) or distributed DoS attack, excessive port scans, a firewall breach, or a virus or malware outbreak. · If the type of incident or the threat created by the incident necessitates a full-scale response by the IRT, the CISO notifies a team of network and security engineers, security analysts, and Windows / Unix / Linux systems administrators (collectively, the IT Security and Engineering Teams). · At the CISO’s direction, the IT Security and Engineering Teams gather intel regarding the incident and take pre-planned steps to mitigate harm, address system weaknesses, and block ongoing threats. For example, our network engineers analyze network traffic for external attacks, search for signs of a firewall breach, and take action to block a suspected intruder’s network traffic; our security analysts and engineers look for indications of an attack or suspicious activity by monitoring and reviewing the network activity of our business applications and the audit logs of our mission-critical servers; and our systems administrators examine system logs of our critical systems for any abnormal activity, confirm our mission-critical computers are up to date on all service packs and patches, and ensure backups have been created for our critical systems. · The CISO reports the incident to our executive management team, Service Center Board, and SCC. · Our CISO, executive management team, Service Center Board, and SCC evaluate the type and severity of the incident, review applicable legal and regulatory requirements for disclosing cybersecurity incidents, and determine whether, when, and to whom the incident must be reported. Procedures Governing our Third-Party Vendor Relationships. Similar to our governance approach with respect to responding to cybersecurity incidents, we have implemented a layered, collaborative governance system to manage our third-party vendor relationships and to implement our Vendor Management Policy. Prior to working with any vendor, we conduct a comprehensive security screening to evaluate the vendor’s security protocols and identify any potential vulnerabilities that could compromise our sensitive data. At least annually, we also perform a security assessment of the vendor to identify any change in the vendor’s security posture that may negatively impact the security of our information systems. Our CISO or other designated IS personnel oversees and makes a final recommendation regarding the vendor security assessments, determines the necessity of vendor site visits, and coordinates and provides a final report on any site visit that occurs. Our vendor relationships are monitored by our Vendor Management Department, the day-to-day operations of which are led by our Vendor Manager. In coordination with the applicable Business Unit Manager, the Vendor Manager categorizes and ranks the risks presented by our vendors, performs vendor due diligence, and provides periodic reports to our Board and Risk Committee concerning vendor risk management. Before entering into any vendor contract, the Business Unit Manager that will be contracting for the vendor’s service or product must perform a thorough
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Table of Contents 39 risk evaluation. In addition to working alongside the Vendor Manager to categorize and rank vendor risks, the Business Unit Manager participates in contract review and negotiations, establishes performance-monitoring controls, and completes vendor reviews. The CISO or other designated IS personnel may participate with the Business Unit Manager in contract negotiations as needed. Procedures Governing our Corporate Account Takeover Responses. Like our approaches to responding to cybersecurity incidents and managing our vendor relationships, our strategy for managing corporate account takeover (CATO) threats integrates organizational operations at multiple governance levels involving our Board, executive management team, members of our Senior Management of Electronic Banking Services (EBS Management Team), an Electronic Banking Services Manager (EBS Manager), and our CISO. Our Board reviews our CATO Policy for compliance with the Texas Department of Banking standards for the risk management of CATOs and charges our EBS Management Team with the responsibility of determining necessary courses of action to ensure adherence to applicable guidance and regulations. Our EBS Management Team also ensures that our CATO Policy is understood and complied with across all of our operational divisions. Some of the responsibilities of our EBS Manager include developing, implementing, and maintaining policies and procedures to comply with our CATO Policy, coordinating the performance of period risk assessments of IBC Link, our online banking product, establishing trainings for IBC Link customers regarding security controls that mitigate CATO risks, reporting CATO incidents to executive management, and coordinating with our management team and IBC Link customers if an actual or threatened CATO attack is identified. Our CISO is responsible for ensuring appropriate security controls are implemented to prevent, detect, and respond to CATOs, establishing incident-response procedures to be employed if a CATO threat is in progress, and timely notifying our primary federal regulator of any CATO incidents that are required to be disclosed to comply with applicable laws, regulations, and CATO Policy procedures. Notwithstanding the robust nature of our defensive measures and security processes and the multi- layered governance system that we have established to mitigate, monitor, analyze, and respond to incidents, cybersecurity threats are increasingly difficult to detect, and the risk of a data breach or cyber-attack is pervasive and severe. While we do not believe our business strategy, results of operations, or financial condition have been materially adversely affected by any cybersecurity threats or incidents, there is no assurance that we will not be materially affected by such threats or incidents in the future. We will continue to monitor cybersecurity risks, stay apprised of changes in the cyber environment, and invest in strengthening our cybersecurity infrastructure. For additional information on our risks related to cybersecurity, please see “Risk Factors—Risks Related to Our Business—Our information systems may experience an interruption or breach in security.” Item 2. Properties Our principal offices are located at 1200 San Bernardo Avenue, Laredo, Texas and 2418 Jacaman Road, Laredo, Texas in buildings we own and completely occupy and containing approximately 147,000 square feet. The Subsidiary Banks have main banking and branch facilities. All the facilities are customary to the banking industry. The Subsidiary Banks own most of their banking facilities and the remainder are leased. The facilities are located in the regions of Laredo, San Antonio, Austin, Dallas, Houston, Zapata, Eagle Pass, the Rio Grande Valley of Texas, the Coastal Bend area of Texas, and throughout the State of Oklahoma. None of our Texas state chartered Subsidiary Banks, without the prior written consent of the Texas Banking Commissioner, may invest in an amount in excess of its Tier 1 capital in bank facilities, furniture, fixtures and equipment. Our Oklahoma state chartered Subsidiary Bank, without the prior written consent of the Oklahoma Banking Commissioner, may not invest in an amount in excess of its Tier 1 and Tier 2 capital in bank facilities, furniture, fixtures and equipment. None of the Subsidiary Banks exceeds such applicable limitation. Item 3. Legal Proceedings We and our subsidiaries are involved in various legal proceedings that are in various stages of litigation. We and our subsidiaries have determined, based on discussions with our counsel that any material loss in such actions, individually or in the aggregate, is remote or the damages sought, even if fully recovered, would not be considered material to our consolidated financial position or results of operations. Many of these matters are in various stages of proceedings and
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Table of Contents 40 further developments could cause management to revise our assessment of these matters. Further information regarding legal proceedings has been provided in Note 15 of the Notes to Consolidated Financial Statements located on page 65 of the 2025 Annual Report to Shareholders, which is filed as Exhibit 13 hereto and incorporated herein by reference. Item 4. Mine Safety Disclosures None Part II Item 5. Market for 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 23 and 25 of our 2025 Annual Report is incorporated herein by reference. Item 6. [Reserved] Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located on pages 2 through 23 of our 2025 Annual Report is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The information set forth under the caption “Liquidity and Capital Resources” located on pages 15 through 20 of our 2025 Annual Report is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The consolidated financial statements located on pages 27 through 78 of our 2025 Annual Report are incorporated herein by reference. The condensed quarterly income statements located on pages 79 and 80 of our 2025 Annual Report are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures As of the end of the period covered by this Annual Report on Form 10-K, an evaluation was carried out by our management with the participation of our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Accounting Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. Additionally, there were no changes in our internal control over financial reporting (as defined in Rule 13a15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Table of Contents 41 Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined under Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. As of December 31, 2025, management assessed the effectiveness of the design and operation of our internal controls over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control—Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on the assessment, management determined that we maintained effective internal control over financial reporting as of December 31, 2025, based on those criteria. RSM US LLP, the independent registered public accounting firm that audited our 2025 consolidated financial statements included in this Annual Report on Form 10-K, has audited the effectiveness of our internal controls over financial reporting as of December 31, 2025. Their report, which expresses an unqualified opinion, on the effectiveness of our internal controls over financial reporting as of December 31, 2025 is included in this Item under the heading “Report of Independent Registered Public Accounting Firm.”
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Table of Contents 42 Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors International Bancshares Corporation Opinion on the Internal Control Over Financial Reporting We have audited International Bancshares Corporation and its subsidiaries' (the Company) internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of condition as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes to the consolidated financial statements of the Company and our report dated February 26, 2026 expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ RSM US LLP Austin, Texas February 26, 2026
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Table of Contents 43 Item 9B. Other Information During the quarter ended December 31, 2025, none of the Company’s directors or officers adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408(a) of Regulation S-K. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. Part III Item 10. Directors, Executive Officers, and Corporate Governance Certain information is set forth in the following table concerning the executive officers of the Company, each of whom has been elected to serve until the 2026 Annual Meeting of Shareholders and until his or her successor is duly elected and qualified. Name Age Position of Office Officer of the Company Since Dennis E. Nixon 83 Chairman of the Board of the Company since 1992, President of the Company since 1979, Chief Executive Officer and Director of IBC 1979 Dalia F. Martinez 65 Vice President of the Company since 2021, Co-President of IBC Service Center, Executive Vice President of IBC 2021 Judith I. Wawroski 51 Treasurer of the Company since 2017, Principal Financial Officer of the Company since 2017, Chief Financial Officer of the Company since 2025, Executive Vice President of IBC 2017 There are no family relationships among any of the named persons. Each executive officer has held the same position or another executive position with our holding company, or our lead Subsidiary Bank, IBC Laredo during the past five years. There is also incorporated in this Item 10 by reference to our definitive proxy statement relating to our 2026 Annual Meeting of Shareholders those portions entitled (i) “ELECTION OF DIRECTORS,” (ii) “Audit Committee” in the portion entitled “MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS,” (iii) “Code of Ethics,” in the portion entitled “CORPORATE GOVERNANCE,” and (iv) “DELINQUENT SECTION 16(a) REPORTS.” The Company has adopted a Statement of Company Policy on Securities Trades by Directors, Officers and Employees of the Company, which promotes compliance with insider trading laws, rules, and regulations, and the listing standards applicable to the Company. A copy of our policy is attached as Exhibit 19 hereto. Item 11. Executive Compensation There is incorporated in this Item 11 by reference to our definitive proxy statement relating to our 2026 Annual Meeting of Shareholders (i) that portion entitled “EXECUTIVE COMPENSATION,” and (ii) that portion entitled “Compensation Committee and Stock Option Plan Committee Interlocks and Insider Participation” in the portion entitled “MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS.”
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Table of Contents 44 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters There are incorporated in this Item 12 by reference those portions of our definitive proxy statement relating to the Company’s 2026 Annual Meeting of Shareholders entitled “PRINCIPAL SHAREHOLDERS,” “SECURITY OWNERSHIP OF MANAGEMENT,” and “Equity Compensation Plan Information” in the portion entitled “EXECUTIVE COMPENSATION.” Item 13. Certain Relationships and Related Transactions, and Director Independence There is incorporated in this Item 13 by reference to our definitive proxy statement relating to our 2026 Annual Meeting of Shareholders (i) that portion entitled “INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS” and (ii) that portion entitled “Director Independence” in the portion entitled “CORPORATE GOVERNANCE.” Item 14. Principal Accountant Fees and Services There is incorporated in this Item 14 by reference that portion of our definitive proxy statement relating to our 2026 Annual Meeting of Shareholders entitled “PRINCIPAL ACCOUNTANT FEES AND SERVICES.”
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Table of Contents 45 Part IV Item 15. Exhibits, Financial Statement Schedules (a) Documents 1. Our consolidated financial statements are incorporated into Item 8 of this report by reference from the 2025 Annual Report to Shareholders filed as Exhibit 13 hereto and they include: Reports of Independent Registered Public Accounting Firm (PCAOB ID: 49) Consolidated: Statements of Condition as of December 31, 2025 and 2024 Statements of Income for the years ended December 31, 2025, 2024 and 2023 Statements of Comprehensive Income for the years ended December 31, 2025, 2024 and 2023 Statements of Shareholders’ Equity for the years ended December 31, 2025, 2024 and 2023 Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023 Notes to Consolidated Financial Statements 2. All Financial Statement Schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. 3. The following exhibits have previously been filed or are included in this report following the Index to Exhibits: (3a)* —Articles of Incorporation of International Bancshares Corporation. (3b)* —Articles of Amendment to the Articles of Incorporation of International Bancshares Corporation dated May 22, 1998. (3c)* —Articles of Amendment to the Articles of Incorporation of International Bancshares Corporation dated May 21, 2002. (3d)* —Articles of Amendment to the Articles of Incorporation of International Bancshares Corporation filed with the Secretary of State of the State of Texas on May 17, 2005. (3e)* —Articles of Amendment to the Articles of Incorporation of International Bancshares Corporation filed with the Secretary of State of the State of Texas on December 22, 2008. (3f)* —Second Amended and Restated By-Laws of International Bancshares Corporation as of August 6, 2025. (3g)* —Certificate of Amendment to Articles of Incorporation of International Bancshares Corporation filed with the Secretary of State of Texas on May 21, 2013. (4) —Description of the Registrant’s Securities. (10a)*+ —The 1996 International Bancshares Corporation Stock Option Plan. (10b)*+ —2005 International Bancshares Corporation Stock Option Plan. (10c)*+ —International Bancshares Corporation 2006 Executive Incentive Compensation Plan. (10d)*+ —International Bancshares Corporation Long-Term Restricted Stock Unit Plan. (10e)*+ —2012 International Bancshares Corporation Stock Option Plan. (10f)*+ —International Bancshares Corporation 2013 Management Incentive Plan. (13)** (19)* —International Bancshares Corporation 2025 Annual Report —Statement of Company Policy on Securities Trades by Director’s Officers and Employees (21) —List of Subsidiaries of International Bancshares Corporation as of February 23, 2026 (23) —Consent of Independent Registered Public Accounting Firm (31a) —Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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Table of Contents 46 (31b) —Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (32a) —Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (32b) —Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (97)* —International Bancshares Corporation Compensation Clawback Policy 101++ —Interactive Data File 104++ —Cover Page Interactive Data File * Previously filed + Executive Compensation Plans and Arrangements ** Deemed filed only with respect to those portions thereof incorporated herein by reference ++ Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statement of Earnings for the years ended December 31, 2025, 2024 and 2023 (ii) the Condensed Consolidated Balance Sheet as of December 31, 2025 and 2024, (iii) the Condensed Consolidated Statement of Cash Flows for the years ended December 31, 2025, 2024 and 2023, and (iv) Cover Page interactive data. Item 16. Form 10-K Summary None Exhibit Index Exhibit 4— Description of Registrant’s Securities Exhibit 13— International Bancshares Corporation 2025 Annual Report, Exhibit 13, page 1 Exhibit 21— List of Subsidiaries of International Bancshares Corporation as of February 23, 2026 Exhibit 23— Consent of Independent Registered Public Accounting Firm Exhibit 31a— Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 31b— Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 32a— Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 32b— Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 101— Interactive Inline Data File Exhibit 104— Cover Page Inline Interactive Data File
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Table of Contents 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL BANCSHARES CORPORATION (Registrant) By: /s/ D ENNIS E. N IXON Dennis E. Nixon President Date: February 26, 2026 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signatures Title Date /s/ D ENNIS E. N IXON Dennis E. Nixon President and Director (Principal Executive Officer) February 26, 2026 /s/ J UDITH I. W AWROSKI Judith I. Wawroski Treasurer (Principal Financial Officer) February 26, 2026 /s/ J AVIER DE ANDA Javier de Anda Director February 26, 2026 /s/ D OUG H OWLAND Doug Howland Director February 26, 2026 /s/ R UDOLPH M. M ILES Rudolph M. Miles Director February 26, 2026 /s/ L ARRY N ORTON Larry Norton Director February 26, 2026 /s/ R OBERTO RESENDEZ Roberto Resendez Director February 26, 2026 /s/ A NTONIO R. S ANCHEZ , J R . Antonio R. Sanchez, Jr. Director February 26, 2026 /s/ D IANA G. Z UNIGA Diana G. Zuniga Director February 26, 2026
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Exhibit 4 DESCRIPTION OF SECURITIES REGISTERED UNDER SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 The following is a summary of International Bancshares Corporation’s (“IBC”, “we”, “us”, or “our”) classes of securities registered under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”). We have two classes of securities registered under the Exchange Act: (i) our common stock, par value $1.00 per share (the “Common Stock”); and (ii) 216,000 shares of preferred stock designated as Series A preferred stock and 24,784,000 unissued shares of preferred stock referred to as “Blank Check” preferred stock (collectively, the “Preferred Stock”). DESCRIPTION OF COMMON STOCK The following description of our Common Stock is a summary and does not describe every right, term, or condition of owning our Common Stock. It is subject to and qualified in its entirety by reference to our amended articles of incorporation (the “Articles of Incorporation”) and amended and restated by- laws (the “By-laws”). For a complete description, refer to the Articles of Incorporation and the By-laws and any applicable provisions of relevant law, including the applicable provisions of the Texas Business Organizations Code and federal law governing bank holding companies. General Pursuant to the Articles of Incorporation, we are authorized to issue 275,000,000 shares of our Common Stock, par value $1.00 per share. Our Common Stock is listed on the NASDAQ Stock Market under the ticker symbol “IBOC.” Outstanding shares of our Common Stock are validly issued, fully paid, and non-assessable. Holders of our Common Stock are not, and will not be, subject to any liability as shareholders. Dividends Holders of our Common Stock are entitled to receive dividends if, as, and when declared by our board of directors out of any funds legally available for the payment of dividends. We will pay dividends on our Common Stock only if we have paid or provided for the payment of all dividends on our then outstanding series of Preferred Stock entitled to preference in the receipt of dividends, for the then current period and, in the case of any cumulative Preferred Stock, all prior periods. Our Preferred Stock also has such other preferences over our Common Stock as currently, or as may be, fixed by our board of directors. We are subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The Board of Governors of the Federal Reserve System, which is also referred to as the Federal Reserve Board, is authorized under applicable law and regulations to determine, under certain circumstances relating to the financial condition of a bank holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In addition, we are subject to Texas state laws relating to the payment of dividends. Voting Rights Holders of our Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. Holders of shares of Common Stock are not entitled to cumulative voting rights in the election of directors. Preemptive Rights Holders of our Common Stock have no subscription, conversion, or preemptive rights to acquire any additional shares of Common Stock and the Common Stock is not redeemable.
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Liquidation Rights Holders of our Common Stock are also entitled, upon our liquidation, and after payment of all valid claims of creditors and the preferences of Preferred Stock outstanding at the time of liquidation, to receive pro rata distributions of our net assets. Classification of the Board Our board of directors is not classified. DESCRIPTION OF THE PREFERRED STOCK The following description of the Preferred Stock is a summary and does not describe every right, term, or condition of owning the Preferred Stock. It is subject to and qualified in its entirety by reference to the pertinent sections of our Articles of Incorporation and By-Laws, including the certificate of designations creating the Preferred Stock, and any applicable provisions of relevant law, including the applicable provisions of the Texas Business Organizations Code and federal law governing bank holding companies. General Our Articles of Incorporation authorize us to issue 216,000 shares of Series A Preferred Stock and 24,784,000 shares of preferred stock typically referred to as “Blank Check” preferred stock. The Blank Check preferred stock refers to stock for which the rights and restrictions are determined by our board of directors. We currently have no Series A Preferred Stock outstanding. In limited circumstances, our Articles of Incorporation authorize our board of directors to issue new shares of Common Stock or Preferred Stock without further shareholder action. Dividend Rights The issuance of Preferred Stock may be viewed as having adverse effects upon the dividend rights of holders of our Common Stock. Preemptive and Conversion Rights Holders of our Common Stock do not have any preemptive rights with respect to any newly issued Preferred Stock Our board of directors could adversely affect the voting power of holders of our Common Stock by issuing shares of Preferred Stock with certain voting, conversion, and/or redemption rights. Certain Anti-Takeover Matters In the event of a proposed merger, tender offer, or other attempt to gain control of the Company, which the board of directors does not believe to be in the best interests of its shareholders, the board of directors can issue Preferred Stock which could make any such takeover attempt more difficult to complete. Blank Check Preferred Stock may also be used in connection with the issuance of a shareholder rights plan, sometimes called a poison pill. Our board of directors has not approved any plan to issue Preferred Stock for this purpose. Our board of directors does not intend to issue any Preferred Stock except on terms that the board deems to be in the best interests of IBC and its shareholders. DESCRIPTION OF THE ANTI-TAKEOVER PROVISIONS General The provisions of our Articles of Incorporation and By-Laws, which we summarize below, may have an anti-takeover effect and may delay, defer, or prevent a tender offer or takeover attempt that a shareholder might consider in his or her best interest, including those attempts that might result in a premium over the market price for the Common Stock.
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Advance Notice Procedure for Shareholder Proposals. Our By-laws establish an advance notice procedure for the nomination of candidates for election as directors as well as for shareholder proposals to be considered at annual meetings of shareholders. In general, notice of intent to nominate a director must contain specific information concerning the person to be nominated and must be delivered to or mailed and received at our principal executive offices as follows: With respect to an election to be held at a special meeting of shareholders for the election of directors, not earlier than the 90th day prior to the special meeting and not later than the close of business on the later of the 60th day prior to the special meeting or the 10th day following the day on which public disclosure is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. Shareholders may not nominate persons for election to the board of directors at any special meeting of shareholders unless the business to be transacted at the special meeting, as set forth in the notice of the special meeting, includes the election of directors. Notice of shareholders’ intent to raise business at an annual meeting, including a nomination of candidate for election as director, must be delivered to or mailed and received at our principal executive offices not later than 60 days nor more than 90 days prior to the first anniversary of the date of the preceding year’s annual meeting. Proposals from shareholders which are intended to be included in the proxy statement relating to an annual meeting of shareholders must comply with Rule 14a-8 under the Exchange Act, which requires that the proposal be received not less than 120 calendar days before the date of IBC’s proxy statement released to shareholders in connection with the previous year’s annual meeting. These procedures may operate to limit the ability of shareholders to bring business before a shareholders meeting, including with respect to the nomination of directors or considering any transaction that could result in a change of control. Limitation of Liability of Directors. Our Articles of Incorporation and By-laws provide for indemnification of our directors to the fullest extent permitted by applicable law. Article 2.02-1 of the Texas Business Organizations Code provides that a Texas corporation may indemnify its directors and officers against expenses, judgments, fines, and amounts paid in settlement actually and reasonably incurred by them in connection with any suit or proceeding, whether civil, criminal, administrative or investigative if, in connection with the matters in issue, they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation and, in connection with any criminal suit or proceeding, if in connection with the matters in issue, they had no reasonable cause to believe their conduct was unlawful. These provisions may have the practical effect in certain cases of eliminating the ability of our shareholders to collect monetary damages from directors and executive officers. We believe that the provisions in our Articles of Incorporation and By-laws are necessary to attract and retain qualified persons as directors and executive officers. Regulatory Restrictions on Ownership The Bank Holding Company Act requires any “bank holding company,” as defined in the Bank Holding Company Act, to obtain the approval of the Federal Reserve Board prior to the acquisition of 5% or more of our Common Stock. Any person, other than a bank holding company, is required to obtain prior approval of the Federal Reserve Board to acquire 10% or more of our Common Stock under the Change in Bank Control Act. Any holder of 25% or more of our Common Stock, or a holder of 5% or more if such holder otherwise exercises a “controlling influence” over us, may be subject to regulation as a bank holding company under the Bank Holding Company Act.
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1 Exhibit 13 As used in this report, the words “Company,” “we,” “us,” and “our” refer to International Bancshares Corporation, a Texas corporation, its five wholly owned subsidiary banks (“Subsidiary Banks”), and its other subsidiaries. The information that follows may contain forward-looking statements, which involve various risks and uncertainties, including those identified in Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, 2025, and are qualified as indicated under “Cautionary Notice Regarding Forward-Looking Information” in Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of this report. Our website address is www.ibc.com. INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES (Consolidated) The following consolidated selected financial data is derived from our audited financial statements as of and for the five years ended December 31, 2025. The following consolidated financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes in this report. SELECTED FINANCIAL DATA AS OF OR FOR THE YEARS ENDED DECEMBER 31, 2025 2024 2023 2022 2021 (Dollars in Thousands, Except Per Share Data) STATEMENT OF CONDITION Assets $ 16,576,335 $ 15,738,852 $ 15,066,189 $ 15,501,476 $ 16,046,236 Investment securities available-for-sale 4,966,268 4,987,916 4,822,341 4,417,796 4,213,920 Net loans 9,301,248 8,653,289 7,901,892 7,304,631 7,098,777 Deposits 12,436,506 12,111,844 11,824,554 12,660,007 12,617,877 Other borrowed funds 10,332 10,541 10,745 10,944 436,138 Junior subordinated deferrable interest debentures 108,868 108,868 108,868 134,642 134,642 Shareholders’ equity 3,251,638 2,796,707 2,447,774 2,044,759 2,308,481 INCOME STATEMENT Interest income $ 886,274 $ 865,982 $ 800,162 $ 525,781 $ 398,103 Interest expense 213,852 209,263 136,661 38,156 26,831 Net interest income 672,422 656,719 663,501 487,625 371,272 Provision for probable credit losses 15,092 31,802 34,576 21,651 7,955 Non-interest income 169,750 176,922 169,941 187,134 222,326 Non-interest expense 306,718 293,119 275,354 270,469 263,316 Income before income taxes 520,362 508,720 523,512 382,639 322,327 Income taxes 108,069 99,553 111,744 82,407 68,405 Net income 412,293 409,167 411,768 300,232 253,922 Net income available to common shareholders $ 412,293 $ 409,167 $ 411,768 $ 300,232 $ 253,922 Per common share: Basic $ 6.63 $ 6.58 $ 6.63 $ 4.79 $ 4.01 Diluted $ 6.62 $ 6.57 $ 6.62 $ 4.78 $ 4.00
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2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations represents an explanation of significant changes in our financial position and results of our operations on a consolidated basis for the three-year period ended December 31, 2025. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025, and the Selected Financial Data and Consolidated Financial Statements included elsewhere herein. Special Cautionary Notice Regarding Forward-Looking Information Certain matters discussed in this report, excluding historical information, include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. Although we believe such forward-looking statements are based on reasonable assumptions, no assurance can be given that every objective will be reached. The words “estimate,” “expect,” “intend,” “believe” and “project,” as well as other words or expressions of a similar meaning, are intended to identify forward- looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. Such statements are based on current expectations, are inherently uncertain, are subject to risks and should be viewed with caution. Actual results and experience may differ materially from the forward-looking statements as a result of many factors. Risk factors that could cause actual results to differ materially from any results that we project, forecast, estimate, or budget in forward-looking statements include, among others, the following possibilities: ● Local, regional, national, and international economic business conditions and the impact they may have on us, our customers, and such customers’ ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral. ● Volatility and disruption in national and international financial markets. ● The imposition of new or increased international tariffs and the impact of potential retaliatory tariffs, which may impact our subsidiary banks’ business and operations with Mexico. ● Government intervention in the U.S. financial system. ● The unavailability of funding from the FHLB, the Federal Reserve Bank (“FRB”) or other sources in the future could adversely impact our growth strategy, prospects, and performance. ● Changes in consumer spending, borrowing, and saving habits. ● Changes in interest rates and market prices, including changes in federal regulations on the payment of interest on demand deposits. ● Changes in 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, the possible imposition of tariffs on
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3 imported goods from Mexico, and the potential retaliatory tariffs that Mexico may impose on the United States. ● Political instability in, and strained geopolitical relations between, the United States and Mexico. ● General instability of economic and political conditions in the United States, including inflationary pressures, prolonged elevated interest rates and slower than expected rate reductions, economic slowdown or recession, low productivity growth, declining business investment, concerns regarding the level of U.S. debt, 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 the potential future acquisitions, as well as our ability to maintain our current branch network and enter new markets to capitalize on growth opportunities. ● Additions to our allowance for credit loss (“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, could subject us to increased operating costs, litigation, and other liabilities. ● Potential loss of revenue streams and reduction of lower cost deposits as a source of funds resulting from the rise in bank-like products and services from financial technology companies and other alternative financial providers, including blockchain-based financial products and banking-as-a-service platforms. ● Changes in the regulatory landscape for cryptocurrencies, decentralized finance, and fintech services that favor alternative financial products, which may subject us to additional competitive pressures and reduce the demand for traditional banking services. ● Increased compliance and operational costs associated with investing in, adapting to, integrating, and competing with technological developments that incorporate artificial intelligence (“AI”) into banking services and products. ● Flaws in our introduction and use of AI technologies, which could result in increased exposure to security vulnerabilities, data inconsistencies, operational disruptions, and technological inefficiencies that could hamper customer experience, negatively impact transaction processing, and undermine our risk-management processes. ● Increased cybersecurity and fraud risks resulting from threat actors’ use of AI and other advanced technologies to conduct more sophisticated phishing schemes, social engineering, deepfake impersonation, and other cyberattacks, which could lead to unauthorized access to customer accounts, financial losses, and operational disruptions. ● Acts of war or terrorism. ● Natural disasters or other adverse external events such as pandemics or epidemics. ● 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 Financial Accounting Standards Board (“FASB”) and other accounting standards setters.
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4 ● The costs and effects of regulatory developments or regulatory or other governmental inquiries and the results of regulatory examinations or reviews and obtaining regulatory approvals. ● The effect of any supervisory and enforcement efforts by the CFPB related to its unfair, deceptive, or abusive acts or practices authority concerning fees charged by financial institutions including late, non-sufficient funds, and overdraft fees, as well as the effect of any other regulatory or legal developments that limit fees and/or overdraft services. ● 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 the banks’ 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 247 ATMs, providing banking services for commercial, consumer, and international customers of north, south, central and southeast Texas and the State of Oklahoma. We are one of the largest independent commercial bank holding companies headquartered in Texas. We, through our Subsidiary Banks, are in the business of gathering funds from various sources and investing those funds in order to earn a return. We, either directly or through a Subsidiary Bank, own one insurance agency, a liquidating subsidiary; a fifty-percent interest in an investment banking unit that owns a broker/dealer; a controlling interest in five merchant banking entities; and a majority ownership interest 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 their needs and servicing the sales arising from those discussions on a long-term basis. Our Subsidiary Banks have various compensation plans, including incentive-based compensation, for fairly compensating employees. Our Subsidiary Banks also have a robust process in place to review sales that support the incentive-based compensation plan to monitor the quality of the sales and identify any significant irregularities, a process that has been in place for many years. One of our primary goals is to grow net interest income and non-interest income while adequately managing credit risk, interest rate risk and expenses. Effective management of capital is one of our critical objectives. A key measure of the performance of a banking institution is the return on average common equity (“ROE”). Our ROE for the year ended December 31, 2025 was 12.40% as compared to 13.66% for the year ended December 31, 2024. We are highly active in facilitating trade along the United States border with Mexico. We do a significant amount of business with customers domiciled in Mexico and deposits from persons and entities domiciled in Mexico comprise a large and stable portion of the deposit base of our Subsidiary Banks. We also serve the growing Hispanic population through our facilities located throughout north, south, central, and southeast Texas and the State of Oklahoma. 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
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5 transactions. Our revenue streams, including service charges on deposits and banking and non-banking service charges and fees (ATM and interchange income), may be impacted in the future if economic conditions deteriorate. Expense control is an essential element of our long-term profitability. It has been a constant focus of ours for many years and is especially critical during periods of economic uncertainty. We have kept that focus in mind as we continue to look at operations, create efficiencies, and institute cost- control protocols at all levels. We will continue to closely 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. We use these measures in determining if we are accomplishing our long-term goals of controlling our costs in order to provide superior returns to our shareholders. Results of Operations Summary Consolidated Statements of Condition Information December 31,2025 December 31,2024 PercentIncrease(Decrease) (Dollars in Thousands) Assets $ 16,576,335 $ 15,738,852 5.3% Net loans 9,301,248 8,653,289 7.5 Deposits 12,436,506 12,111,844 2.7 Securities sold under repurchase agreements 585,544 535,322 9.4 Other borrowed funds 10,332 10,541 (2.0) Junior subordinated deferrable interest debentures 108,868 108,868 — Shareholders’ equity 3,251,638 2,796,707 16.3 Consolidated Statements of Income Information Percent Percent Year Ended Year Ended Increase Year Ended Increase December 31, December 31, (Decrease) December 31, (Decrease) 2025 2024 2025 vs. 2024 2023 2024 vs. 2023 (Dollars in Thousands, Except Per Share Data) Interest income $ 886,274 $ 865,982 2.3% $ 800,162 8.2% Interest expense 213,852 209,263 2.2 136,661 53.1 Net interest income 672,422 656,719 2.4 663,501 (1.0) Provision for probable credit losses 15,092 31,802 (52.5) 34,576 (8.0) Non-interest income 169,750 176,922 (4.1) 169,941 4.1 Non-interest expense 306,718 293,119 4.6 275,354 6.5 Net income 412,293 409,167 0.8 411,768 (0.6) Per common share: Basic $ 6.63 $ 6.58 0.8% $ 6.63 (0.8)% Diluted 6.62 6.57 0.8 6.62 (0.8) Net Income Net income for the year ended December 31, 2025 increased by approximately .8% compared to the same period of 2024 and net income for the year ended December 31, 2024 decreased by approximately 0.6% compared to the same period of 2023. Net income for the year ended December 31, 2025 and the year ended December 31, 2024 was 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 the portfolios and the rate environment, which remains elevated as a result of FRB actions. Net interest income for the same periods has been negatively impacted by an increase in interest expense, primarily driven by increases on rates paid on deposits. We closely monitor rates paid on deposits to remain competitive in the current economic environment and retain deposits. Net income for the year ended December 31, 2025 was also positively
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6 impacted by a decrease in our provision for credit loss expense. The provision for credit loss expense recorded for the year ended December 31, 2024 was primarily impacted by a charge-down of an impaired credit after the results of a bankruptcy related foreclosure. Net Interest Income Net interest income is the spread between income on interest-earning assets, such as loans and securities, and the interest expense on liabilities used to fund those assets, such as deposits, repurchase agreements and funds borrowed. Net interest income is our largest source of revenue. Net interest income is affected by both changes in the level of interest rates and changes in the amount and composition of interest- earning assets and interest-bearing liabilities. Tax-exempt yields have not been adjusted to a tax-equivalent basis. For the years ended December 31, 2025 2024 2023 Average Average Average Rate/Cost Rate/Cost Rate/Cost Assets Interest earning assets: Loan, net of unearned discounts: Domestic 7.64% 8.18% 8.13% Foreign 6.66 6.58 5.57 Investment securities: Taxable 3.13 2.93 2.56 Tax-exempt 3.98 3.88 3.86 Other 3.85 4.91 4.80 Total interest-earning assets 5.91% 6.07% 5.77% Liabilities Interest bearing liabilities: Savings and interest bearing demand deposits 1.77% 1.82% 1.34% Time deposits: Domestic 3.37 3.62 2.35 Foreign 3.42 3.67 2.37 Securities sold under repurchase agreements 3.08 3.63 3.15 Other borrowings 4.25 2.62 2.61 Junior subordinated deferrable interest debentures 6.19 7.13 7.01 Total interest bearing liabilities 2.52% 2.65% 1.86% The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net income and net interest margin. The yield on average interest-earning assets decreased 2.6% from 6.07% in 2024 to 5.91% in 2025, and the rates paid on average interest-bearing liabilities decreased 4.9% from 2.65% in 2024 to 2.52% in 2025. The yield on average interest-earning assets increased 5.2% from 5.77% in 2023 to 6.07% in 2024, and the rates paid on average interest-bearing liabilities increased 42.5% from 1.86% in 2023 to 2.65% in 2024.
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7 The following table analyzes the changes in net interest income during 2025, 2024, and 2023 and the relative effect of changes in interest rates and volumes for each major classification of interest-earning assets and interest-bearing liabilities. Non-accrual loans have been included in assets for the purpose of this analysis, which reduces the resulting yields: 2025 compared to 2024 2024 compared to 2023 Net increase (decrease) due to Net increase (decrease) due to Volume(1) Rate(1) Total Volume(1) Rate(1) Total (Dollars in Thousands) (Dollars in Thousands) Interest earned on: Loans, net of unearned discounts: Domestic $ 64,870 (48,603) $ 16,267 $ 56,762 4,013 $ 60,775 Foreign 2,200 124 2,324 (879) 1,336 457 Investment securities: Taxable 429 10,657 11,086 1,827 19,508 21,335 Tax-exempt (341) 150 (191) (146) 33 (113) Other (4,838) (4,356) (9,194) (17,208) 574 (16,634) Total interest income $ 62,320 $ (42,028) $ 20,292 $ 40,356 $ 25,464 $ 65,820 Interest incurred on: Savings and interest bearing demand deposits $ 3,621 (2,613) $ 1,008 $ 319 21,256 $ 21,575 Time deposits: Domestic 3,841 (3,191) 650 3,595 14,247 17,842 Foreign 10,045 (4,747) 5,298 6,295 19,673 25,968 Securities sold under repurchase agreements 12 (3,388) (3,376) 4,680 2,900 7,580 Other borrowings 1,161 888 2,049 (2) — (2) Junior subordinated deferrable interest debentures — (1,040) (1,040) (469) 108 (361) Total interest expense $ 18,680 $ (14,091) $ 4,589 $ 14,418 $ 58,184 $ 72,602 Net interest income $ 43,640 $ (27,937) $ 15,703 $ 25,938 $ (32,720) $ (6,782) (1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. The increase in net interest income for the years ended December 31, 2025 and December 31, 2024 is primarily attributable to an increase in interest income earned on our investment and loan portfolios, driven by both an increase in the size of such portfolios and the current rate environment, which remains elevated due to FRB actions on rates in recent years. The increase in interest income is being offset by an increase in interest expense due to changes in rates we pay on deposits to remain competitive with our competitors. Net interest income is the spread between income on interest earning assets (e.g. loans and securities) and the interest expense on liabilities used to fund those assets (e.g. 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 as market conditions dictate. Additionally, interest rate changes do not affect all categories of assets and liabilities equally or at the same time. Analytical techniques we employ to supplement gap analysis include simulation analysis to quantify interest rate risk exposure. The gap analysis prepared by management is reviewed by our Investment Committee at least twice a year. The Investment Committee is comprised of certain members of the board of directors and senior managers of the various Subsidiary Banks. Management currently believes that we are properly positioned for interest rate changes; however, management may adjust the interest rate sensitive assets and liabilities in order to manage the effect of interest rate changes, as needed.
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8 Allowance for Credit Losses The ACL increased 1.7% to $159,174,000 at December 31, 2025 from $156,537,000 at December 31, 2024. The provision for credit losses charged to expense decreased $16,710,000 to $15,092,000 for the year ended December 31, 2025 from $31,802,000 for the same period in 2024. The following table summarizes loan balances at the end of each year and average loans outstanding during the year and the following ratios: nonaccrual loans to total loans, nonaccrual loans to the ACL, charge-offs to average loans, by loan type, and total charge-off to average total loans: 2025 2024 2023 (Dollars in Thousands) Allowance for credit losses to total loans outstanding 1.68% 1.78% 1.95% Allowance for credit losses $ 159,174 $ 156,537 $ 157,069 Loans, net of unearned discounts $ 9,460,422 $ 8,809,826 $ 8,058,961 Nonaccrual loans to total loans outstanding 1.48% 1.92% 0.59% Nonaccrual loans $ 140,302 $ 169,136 $ 47,170 Loans, net of unearned discounts $ 9,460,422 $ 8,809,826 $ 8,058,961 Allowance for credit losses to nonaccrual loans 113.45% 92.55% 332.98% Allowance for credit losses $ 159,174 $ 156,537 $ 157,069 Nonaccrual loans $ 140,302 $ 169,136 $ 47,170 Net charge-offs during the period to average loans outstanding: Commercial 0.42% 2.07% 0.64% Net charge-offs during the period $ 7,673 $ 34,149 $ 9,664 Average amount outstanding $ 1,820,833 $ 1,648,339 $ 1,498,990 Commercial real estate: other construction and land development 0.33% 0.10% —% Net charge-offs during the period $ 8,122 $ 2,228 $ — Average amount outstanding $ 2,461,096 $ 2,312,978 $ 2,143,245 Commercial real estate: farmland and commercial —% —% —% Net charge-offs during the period $ — $ — $ — Average amount outstanding $ 3,135,929 $ 2,865,358 $ 2,604,677 Commercial real estate: multifamily —% —% —% Net charge-offs during the period $ — $ — $ — Average amount outstanding $ 452,321 $ 329,480 $ 318,307 Residential: first lien 0.02% 0.01% 0.01% Net charge-offs during the period $ 104 $ 46 $ 43 Average amount outstanding $ 680,852 $ 583,742 $ 492,305 Residential: junior lien 0.06% —% 0.07% Net charge-offs during the period $ 260 $ — $ 298 Average amount outstanding $ 415,958 $ 437,882 $ 423,690 Consumer 0.40% 0.40% 0.42% Net charge-offs during the period $ 200 $ 185 $ 179 Average amount outstanding $ 50,557 $ 46,570 $ 42,917 Foreign —% —% —% Net charge-offs during the period $ — $ — $ — Average amount outstanding $ 165,117 $ 131,701 $ 149,478 Total loans 0.18% 0.44% 0.13% Net charge-offs during the period $ 16,359 $ 36,608 $ 10,184 Average amount outstanding $ 9,182,663 $ 8,356,050 $ 7,673,609 (1) The average balances for purposes of the above table are calculated on the basis of daily balances.
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9 The ACL has been allocated based on the amount management has deemed to be reasonably necessary to provide for the credit losses incurred within the following categories of loans at the dates indicated and the percentage of loans to total loans in each category: At December 31, 2025 2024 2023 Percent Percent PercentAllowance of total Allowance of total Allowance of total (Dollars in Thousands) Commercial $ 27,929 18.3% $ 29,853 21.0% $ 35,550 20.2% Commercial real estate: other construction and land development 48,907 24.7 60,639 28.2 55,291 26.0 Commercial real estate: farmland & commercial 46,413 33.7 43,990 33.3 42,703 34.7 Commercial real estate: multifamily 14,713 7.2 4,869 3.5 5,088 4.7 Residential : first lien 6,725 6.7 5,528 6.0 5,812 5.9 Residential: junior lien 9,420 4.7 10,031 5.3 11,024 5.7 Consumer 279 0.5 281 0.6 318 0.6 Foreign 4,788 4.2 1,346 2.1 1,283 2.2 $ 159,174 100.0% $ 156,537 100.0% $ 157,069 100.0% The ACL primarily consists of the aggregate ACLs of the Subsidiary Banks. The ACLs are established through charges to operations in the form of provisions for credit losses. The Subsidiary Banks charge-off that portion of any loan which management considers to represent a loss as well as that portion of any other loan which is classified as a “loss” by bank examiners. Commercial, financial, and agricultural or real estate loans are generally considered by management to represent a loss, in whole or part, (i) when an exposure beyond any collateral coverage is apparent, (ii) when no further collection of the portion of the loan so exposed is anticipated based on actual results, (iii) when the credit enhancements, if any, are not adequate, and (iv) when the borrower’s financial condition would so indicate. Generally, unsecured consumer loans are charged-off when 90 days past due. The ACL is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of credit losses within the existing portfolio of loans based on our internal ACL calculation. While our management considers that it is generally able to identify borrowers with financial problems reasonably early and to monitor credit extended to such borrowers carefully, there is no precise method of predicting credit losses. The determination that a loan is likely to be uncollectible and that it should be wholly or partially charged-off as a loss is an exercise of judgment. Similarly, the determination of the adequacy of the ACL can be made only on a subjective basis. Our management believes that the ACL at December 31, 2025 was adequate to absorb expected losses from loans and other financial instruments in the portfolio at that date. See Critical Accounting Policies on page 20.
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10 Non-Interest Income Percent Percent Year Ended Year Ended Increase Year Ended Increase December 31, December 31, (Decrease) December 31, (Decrease) 2025 2024 2025 vs. 2024 2023 2024 vs. 2023 (Dollars in Thousands) Service charges on deposit accounts $ 74,316 $ 73,714 0.8% $ 73,933 (0.3)% Other service charges, commissions and fees Banking 58,987 58,682 0.5 57,923 1.3 Non-banking 10,458 10,352 1.0 9,546 8.4 Investment securities transactions, net (1) (1) — (3) (100.0) Other investments, net 6,910 13,133 (47.4) 9,601 36.8 Other income 19,080 21,042 (9.3) 18,941 11.1 Total non-interest income $ 169,750 $ 176,922 (4.1)% $ 169,941 4.1% Total non-interest income for the year ended December 31, 2025 decreased by 4.1% compared to the same period of 2024. The decrease can primarily be attributed to losses recorded on merchant banking investments and reflected in other investments, net in the table above. Non-interest income for the year ended December 31, 2024 increased by 4.1% compared to the same period of 2023. The increase can be primarily attributed to an increase in other investment income when compared to the same period of 2023. The decrease in 2023 was primarily attributed to losses recorded on certain merchant banking investments. Non-Interest Expense Percent Percent Year Ended Year Ended Increase Year Ended Increase December 31, December 31, (Decrease) December 31, (Decrease) 2025 2024 2025 vs. 2024 2023 2024 vs. 2023 (Dollars in Thousands) Employee compensation and benefits $ 153,342 $ 145,944 5.1%$ 134,441 8.6% Occupancy 29,705 27,012 10.0 25,832 4.6 Depreciation of bank premises and equipment 23,349 22,524 3.7 21,944 2.6 Professional fees 13,577 15,726 (13.7) 14,000 12.3 Deposit insurance assessments 7,151 6,865 4.2 6,285 9.2 Net expense, other real estate owned 2,389 1,298 84.1 (3,983) (132.6) Advertising 5,311 6,289 (15.6) 5,010 25.5 Software and software maintenance 22,614 21,093 7.2 20,046 5.2 Other 49,280 46,368 6.3 51,779 (10.5) Total non-interest expense $ 306,718 $ 293,119 4.6%$ 275,354 6.5% Non-interest expense for the year ended December 31, 2025 increased by 4.6% compared to 2024 and increased by 6.5% for the year ended December 31, 2024 compared to 2023. The increase in both years can primarily be attributed to continued increases in our employee compensation and benefit costs as we continue to review and adjust our compensation and benefits programs to recognize performance and retain our workforce. We 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. Effects of Inflation The principal component of earnings is net interest income, which is affected by changes in the level of interest rates. Changes in rates of inflation affect interest rates. It is difficult to precisely measure the impact of inflation on net interest income because it is not possible to accurately differentiate between increases in net interest income resulting from inflation and increases resulting from increased business activity. Inflation also raises costs of operations, primarily those of employment and services.
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11 Financial Condition Investment Securities The following tables set forth the average yield, by contractual maturities of debt investment securities, at December 31, 2025, except for the totals, which reflect the weighted average yields. Actual maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties. Available for Sale Maturing Within one After one but After five but year within five years within ten years After ten years Adjusted Adjusted Adjusted Adjusted Yield Yield Yield Yield (Dollars in Thousands) Residential mortgage-backed securities 3.26% 2.46% 4.11% 3.20% Obligations of states and political subdivisions — — 4.02 4.13 Total 3.26% 2.46% 4.11% 3.22% Held to Maturity Maturing Within one After one but After five but year within five years within ten years After ten years Adjusted Adjusted Adjusted Adjusted Yield Yield Yield Yield (Dollars in Thousands) Other securities 4.96% 4.71% —% —% Total 4.96% 4.71% —% —% Residential mortgage-backed securities are securities issued by Freddie Mac, Fannie Mae, Ginnie Mae or non-government entities. Investments in residential mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U.S. government. Investments in mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. government; however, we believe that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008 and because securities issued by others that are collateralized by residential mortgage-backed securities issued by Fannie Mae and Freddie Mac are rated consistently as AAA rated securities. Obligations of states and political subdivisions are securities issued by public school districts and are guaranteed by the Permanent School Fund (PSF) of the State of Texas under the Texas Education Code. The PSF guarantee provides an unconditional and irrevocable guarantee of principal and interest payments.
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12 Loans The following table shows the amounts of loans outstanding as of December 31, 2025, which based on remaining scheduled repayments of principal are due in the years indicated. Also, the amounts due after one year are classified according to the sensitivity to changes in interest rates: Maturing After one but After five but Within one within five within fifteen After fifteen year years years years Total (Dollars in Thousands) Commercial $ 856,591 $ 696,677 $ 182,474 $ — $ 1,735,742 Commercial real estate: other construction & land development 763,729 1,437,770 137,094 — 2,338,593 Commercial real estate: farmland & commercial 950,430 2,038,102 194,438 — 3,182,970 Commercial real estate: multifamily 226,211 450,527 7,107 948 684,793 Residential: first lien 208,986 140,945 30,168 249,335 629,434 Residential: junior lien 29,633 23,731 285,813 105,899 445,076 Consumer 34,375 16,496 104 28 51,003 Foreign 211,649 89,383 37,309 54,470 392,811 Total $ 3,281,604 $ 4,893,631 $ 874,507 $ 410,680 $ 9,460,422 Interest sensitivity Fixed Rate Variable Rate (Dollars in Thousands) Amount due after one year: Commercial $ 104,337 $ 774,814 Commercial real estate: other construction & land development 4,993 1,569,871 Commercial real estate: farmland & commercial 185,387 2,047,153 Commercial real estate: multifamily 1,654 456,928 Residential: first lien 83,991 336,457 Residential: junior lien 407,194 8,249 Consumer 16,628 — Foreign 12,549 168,613 Total $ 816,733 $ 5,362,085 International Operations On December 31, 2025, we had $392,811,000 (2.4% of total assets) in loans outstanding to borrowers domiciled in foreign countries, which included primarily borrowers domiciled in Mexico. The loan policies of our Subsidiary Banks generally require that loans to borrowers domiciled in foreign countries be primarily secured by assets located in the United
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13 States or have credit enhancements in the form of guarantees from significant United States corporations. The composition of such loans as of December 31, 2025 and 2024 is presented below. For the year ended December 31, 2025 2024 Amount of Amount of Loans Loans (Dollars in Thousands) Secured by certificates of deposit in United States banks $ 77,794 $ 79,317 Secured by United States real estate 67,462 63,785 Secured by other United States collateral (securities, gold, silver, etc.) 8,286 6,145 Unsecured 35,760 32,730 Other (principally Mexico real estate) 203,509 4,584 $ 392,811 $ 186,561 Deposits The following table illustrates the average amounts of deposits for the twelve months ended December 31, 2025 and December 31, 2024. Included in the table is our estimate of the amount of total uninsured deposits as of December 31, 2025 and December 31, 2024. 2025 2024 Average Balance Average Balance (Dollars in Thousands) Deposits: Demand—non-interest bearing Domestic $ 3,808,679 $ 3,932,432 Foreign 803,994 867,670 Total demand non-interest bearing 4,612,673 4,800,102 Savings and interest bearing demand Domestic 3,403,296 3,252,588 Foreign 1,294,110 1,245,966 Total savings and interest bearing demand 4,697,406 4,498,554 Time certificates of deposit Domestic 1,241,058 1,134,834 Foreign 1,797,471 1,523,829 Total time, certificates of deposit 3,038,529 2,658,663 Total deposits $ 12,348,608 $ 11,957,319 Uninsured Deposits: $ 4,294,801 $ 4,131,638
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14 Scheduled maturities of time deposits in amounts of $250,000 or more at December 31, 2025 and an estimate of uninsured time deposits, were as follows: Due within 3 months or less $ 774,138 Due after 3 months and within 6 months 603,797 Due after 6 months and within 12 months 274,555 Due after 12 months 49,709 $ 1,702,199 Portion of time deposits that are uninsured $ 1,095,699 We offer a variety of deposit accounts having a wide range of interest rates and terms. We rely primarily on our high-quality customer service, sales programs, customer referrals, and advertising to attract and retain these deposits. Deposits provide the primary source of funding for our lending and investment activities, and the interest paid for deposits must be managed carefully to control the level of interest expense. Deposits at December 31, 2025 were $12,436,506,000, an increase of 2.7% from $12,111,844,000 at December 31, 2024. Deposit balances increased for the twelve months ended December 31, 2025 compared to the same period of 2024, however, they have continued to fluctuate as a result of increased general activities by customers and increased competition for deposits as a result of aggressive pricing by competitors. 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 chartered Subsidiary Banks within our holding company structure also allows us to work with customers to maximize their FDIC deposit insurance levels and provide additional levels of insured deposits. Other Borrowed Funds Other borrowed funds include FHLB borrowings, which are long-term borrowings issued by the FHLB of Dallas at the market price offered at the time of funding. These borrowings are secured by residential mortgage-backed investment securities and a portion of our loan portfolio. At December 31, 2025, other borrowed funds totaled $10,332,000, a decrease of 2.0% from $10,541,000 at December 31, 2024. Return on Equity and Assets Certain key ratios for the years ended December 31, 2025, 2024, and 2023 follow (1): Years ended December 31, 2025 2024 2023 Percentage of net income to: Average shareholders’ equity 12.40% 13.66% 15.41% Average total assets 2.46 2.56 2.64 Percentage of average shareholders’ equity to average total assets 19.87 18.76 17.13 Percentage of cash dividends per share to net income per share 21.11 20.07 19.00 (1) The average balances for purposes of the above table are calculated on the basis of daily balances.
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15 Liquidity and Capital Resources Liquidity The maintenance of adequate liquidity provides our Subsidiary Banks with the ability to meet potential depositor withdrawals, provide for customer credit needs, maintain adequate statutory reserve levels and take full advantage of high-yield investment opportunities as they arise. Liquidity is afforded by access to financial markets and by holding appropriate amounts of liquid assets. Our Subsidiary Banks derive their liquidity largely from deposits of individuals and business entities. 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 2025 and 2024 were securities sold under repurchase agreements and large certificates of deposit, requiring management to closely monitor its asset/liability mix in terms of both rate sensitivity and maturity distribution. Our Subsidiary Banks have had a long-standing relationship with the FHLB and keep open, unused, lines of credit in order to fund liquidity needs. We maintain a sizable, high quality investment portfolio to provide significant liquidity. These securities can be sold or sold under agreements to repurchase, to provide immediate liquidity. The following table summarizes our short-term borrowing capacities, net of balances outstanding: December 31, 2025 (in Thousands) Unsecured fed funds lines available from commercial banks $ 50,000 Unused borrowings capacity from FHLB (1) 3,613,663 Unused borrowings capacity under Federal Reserve discount window 520,748 Unpledged investment securities (2) 3,294,552 $ 7,478,963 (1) FHLB borrowings are collateralized by a blanket floating lien on certain real estate secured loans and mortgage finance assets (2) Market value Asset/Liability Management Our funds management policy has as its primary focus the measurement and management of the Subsidiary Banks’ earnings at risk in the face of rising or falling interest rate forecasts. The earliest and most simplistic concept of earnings at risk measurement is the gap report, which is used to generate a rough estimate of the vulnerability of net interest income to changes in market rates as implied by the relative re- pricings of assets and liabilities. The gap report calculates the difference between the amounts of assets and liabilities re-pricing across a series of intervals in time, with emphasis typically placed on the one-year period. This difference, or gap, is usually expressed as a percentage of total assets. If an excess of liabilities over assets matures or re-prices within the one-year period, the statement of condition is said to be negatively gapped. This condition is sometimes interpreted to suggest that an institution is liability-sensitive, indicating that earnings would suffer from rising rates and benefit from falling rates. If a surplus of assets over liabilities occurs in the one-year time frame, the statement of condition is said to be positively gapped, suggesting a condition of asset sensitivity in which earnings would benefit from rising rates and suffer from falling rates. The gap report thus consists of an inventory of dollar amounts of assets and liabilities that have the potential to mature or re-price within a particular period. The flaw in drawing conclusions about interest rate risk from the gap report is that it takes no account of the probability that potential maturities or re-pricings of interest-rate-sensitive accounts will occur, or at what relative magnitudes. Because simplicity, rather than utility, is the only virtue of gap analysis, financial institutions increasingly have either abandoned gap analysis or accorded it a distinctly secondary role in managing their interest-rate risk exposure.
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16 The net interest rate sensitivity at December 31, 2025, is illustrated in the following table. This information reflects the balances of assets and liabilities whose rates are subject to change. As indicated in the table below, we are asset sensitive through all of the time periods illustrated. The table shows the sensitivity of the statement of condition at one point in time and is not necessarily indicative of the position at future dates. INTEREST RATE SENSITIVITY (Dollars in Thousands) Rate/Maturity Over 3 Over 13 Months Months to Year to 5 Over 5December 31, 2025 or Less 1 Year Years Years Total (Dollars in Thousands) Rate sensitive assets Investment securities $ 287,273 $ 800,122 $ 3,753,165 $ 135,681 $ 4,976,241 Loans, net of non-accruals 7,937,763 162,474 488,826 731,057 9,320,120 Total earning assets $ 8,225,036 $ 962,596 $ 4,241,991 $ 866,738 $ 14,296,361 Cumulative earning assets $ 8,225,036 $ 9,187,632 $ 13,429,623 $ 14,296,361 Rate sensitive liabilities Time deposits $ 1,434,637 $ 1,638,218 $ 128,465 $ — $ 3,201,320 Other interest bearing deposits 4,748,978 — — — 4,748,978 Securities sold under repurchase agreements 584,474 1,070 — — 585,544 Other borrowed funds — — — 10,332 10,332 Junior subordinated deferrable interest debentures 108,868 — — — 108,868 Total interest bearing liabilities $ 6,876,957 $ 1,639,288 $ 128,465 $ 10,332 $ 8,655,042 Cumulative sensitive liabilities $ 6,876,957 $ 8,516,245 $ 8,644,710 $ 8,655,042 Repricing gap $ 1,348,079 $ (676,692) $ 4,113,526 $ 856,406 $ 5,641,319 Cumulative repricing gap 1,348,079 671,387 4,784,913 5,641,319 Ratio of interest-sensitive assets to liabilities 1.20 0.59 33.02 83.89 1.65 Ratio of cumulative, interest- sensitive assets to liabilities 1.20 1.08 1.55 1.65 The detailed inventory of statement of condition items contained in gap reports is the starting point of income simulation analysis. Income simulation analysis also focuses on the variability of net interest income and net income, but without the limitations of gap analysis. In particular, the fundamental, but often unstated, assumption of the gap approach that every statement of condition item that can re-price will do so to the full extent of any movement in market interest rates is taken into consideration in income simulation analysis. Accordingly, income simulation analysis captures not only the potential of assets and liabilities to mature or re-price, but also the probability that they will do so. Moreover, income simulation analysis focuses on the relative sensitivities of these balance sheet items and projects their behavior over an extended period of time in a motion picture rather than snapshot fashion. Finally, income simulation analysis permits management to assess the probable effects on balance sheet items not only of changes in market interest rates, but also of proposed strategies for responding to such
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17 changes. We and many other institutions rely primarily upon income simulation analysis in measuring and managing exposure to interest rate risk. We have established guidelines for acceptable volatility of projected net interest income on the income simulation analysis and the guidelines are reviewed at least annually. As of December 31, 2025, in decreasing rate scenarios of -100, -200, -300 and -400 basis points and in rising rate scenarios of +100, +200, +300 and +400 basis points, the guidelines established by management require that the net interest income not vary by more than minus 15%, 15%, 15%, and 20%, respectively, for the first 12-month period projected. At December 31, 2025, the most recent income simulations show that a rate shift of -100, -200, -300, -400, +100, +200, +300 and +400 basis points in interest rates up will vary projected net interest income for the coming 12-month period by -2.71%, -4.88%, -6.55%, -7.75% +3.56%, +7.31%, +11.01% and +14.67%, respectively. The basis point shift in interest rates is a hypothetical rate scenario used to calibrate risk and does not necessarily represent management’s current view of future market developments. We believe that we are properly positioned for a potential interest rate increase or decrease. All the measurements of risk described above are made based upon our business mix and interest rate exposures at the particular point in time. The exposure changes continuously as a result of our ongoing business and our risk management initiatives. While management believes these measures provide a meaningful representation of our interest rate sensitivity, they do not necessarily take into account all business developments that have an effect on net income, such as changes in credit quality or the size and composition of the statement of condition. Our principal sources of liquidity and funding dividends from subsidiaries and borrowed funds, with such funds being used to finance our cash flow requirements. We closely monitor the dividend restrictions and availability from our Subsidiary Banks as disclosed in Note 18 of the Notes to Consolidated Financial Statements. At December 31, 2025, the aggregate amount legally available to be distributed to us from our Subsidiary Banks as dividends was approximately $1,644,000,000, assuming that each Subsidiary Bank continues to be classified as “well capitalized” under the applicable regulations in effect at December 31, 2024. The restricted capital (capital and surplus) of our Subsidiary Banks was approximately $1,506,627,000 as of December 31, 2025. The undivided profits of our Subsidiary Banks were approximately $2,254,243,000 as of December 31, 2025. At December 31, 2025, we had outstanding $10,332,000 in other borrowed funds and $108,868,000 in junior subordinated deferrable interest debentures. In addition to borrowed funds and dividends, we have a number of other available alternatives to finance the growth of our Subsidiary Banks as well as future growth and expansion. Capital We maintain an adequate level of capital as a margin of safety for our depositors and shareholders. At December 31, 2025, shareholders’ equity was $3,251,638,000 compared to $2,796,707,000 at December 31, 2024, an increase of $454,931,000, or 16.3%. Shareholders’ equity increased primarily due to an increase in retained earnings. The accumulated other comprehensive loss is not included in the calculation of regulatory capital ratios. 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. The FRB has adopted risk-based capital guidelines which assign risk weightings to assets and off- balance sheet items. The guidelines also define and set minimum capital requirements (risk-based capital ratios). All banks are required to have Tier 1 capital of at least 4 % of risk-weighted assets and total capital of 8% of risk-weighted assets. Tier 1 capital consists principally of shareholders’ equity plus trust preferred securities issued and outstanding less goodwill and certain other intangibles, while total capital consists of Tier 1 capital, certain debt instruments and a portion of the reserve for loan losses. In order to be deemed well capitalized pursuant to the regulations, an institution must have a total risk-weighted capital ratio of 10%, a Tier 1 risk-weighted ratio of 8% and a Tier 1 leverage ratio of 5%. We had risk-weighted Tier 1 capital ratios of 23.91% and 23.06% and risk-weighted total capital ratios of 25.09% and 24.31% as of December 31, 2025
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18 and 2024, respectively, which are well above the minimum regulatory requirements and exceed the well- capitalized ratios (see Note 18 of our Notes to Consolidated Financial Statements). In July 2013, the FDIC and other regulatory bodies established a new, comprehensive capital framework for U.S. banking organizations, consisting of minimum requirements that increase both the quantity and quality of capital held by banking organizations. The final rules are a result of the implementation of the Basel III capital reforms and various related capital provisions of the Dodd-Frank Act. Consistent with the Basel international framework, the rules include a minimum ratio of Common Equity Tier 1 (“CET1”) capital 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 but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The rules also raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and include a minimum leverage ratio of 4% for all banking organizations. Regarding the quality of capital, the rules emphasize CET1 capital and implements strict eligibility criteria for regulatory capital instruments. The rules also improve the methodology for calculating risk-weighted assets to enhance risk sensitivity. We believe that as of December 31, 2025, we meet all fully phased-in capital adequacy requirements. In November 2017, the OCC, 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 pauses the full transition to the Basel III treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital of unconsolidated financial institutions and minority interests. The agencies are also considering whether to make adjustments to the capital rules in response to Current Expected Credit Losses (“CECL”) (the FASB Standard relating to current expected credit loss) and its potential impact on regulatory capital. Pursuant to 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 the CECL accounting standards on January 1, 2020, which resulted in an increase in our allowance for probable loan losses and a one-time cumulative-effect adjustment to retained earnings upon adoption. In December 2017, the Basel Committee on Banking Supervision unveiled its final set of standards and reforms to the Basel III regulatory capital framework, commonly called “Basel III Endgame” or “Basel IV.” The Basel IV standards make changes to the capital framework first introduced as “Basel III” in 2010 and aim to reduce excessive variability in banks’ calculations of risk-weighted assets and risk-weighted capital ratios. Implementation of Basel IV across the Basel Committee’s member jurisdictions 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. Although the U.S. regulators originally targeted implementation of Basel IV to begin on July 1, 2025, subject to a three-year transition period with full compliance expected by July 1, 2028, the federal banking agencies indicated in September 2025 that they intend to unveil a re-proposal of the Basel IV capital rules by early 2026. Accordingly, the previously established implementation dates for Basel IV are no longer definitive, and the timing, scope and final form of the re-proposed Basel IV framework remains uncertain. Junior Subordinated Deferrable Interest Debentures We currently have four statutory business trusts, Trusts IX, X, XI and XII (the “Trusts”) under the laws of the State of Delaware for the purpose of issuing trust preferred securities. The Trusts each issued capital and common securities (“Capital and Common Securities”) and invested the proceeds thereof in an equivalent amount of junior subordinated debentures (the “Debentures”) that we issued. As of December 31, 2025 and December 31, 2024, the principal amount of Debentures outstanding totaled $108,868,000. The Debentures are subordinated and junior in right of payment to all of our present and future senior indebtedness (as defined in the respective indentures) and are pari passu with one another. The interest rate payable on, and the payment
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19 terms of the Debentures are the same as the distribution rate and payment terms of the respective issues of Capital and Common Securities issued by the Trusts. We have fully and unconditionally guaranteed the obligations of each of the Trusts with respect to the Capital and Common Securities. We have the right, unless an Event of Default (as defined in the Indentures) has occurred and is continuing, to defer payment of interest on the Debentures for up to twenty consecutive quarterly periods on each of the Trusts. If interest payments on any of the Debentures are deferred, distributions on both the Capital and Common Securities related to that Debenture would also be deferred. The redemption prior to maturity of any of the Debentures may require the prior approval of the Federal Reserve and/or other regulatory bodies. For financial reporting purposes, the Trusts are treated as investments and not consolidated in the consolidated financial statements. Although the Capital and Common Securities issued by each of the Trusts are not included as a component of shareholders’ equity on the consolidated statement of condition, the Capital and Common Securities are treated as capital for regulatory purposes. Specifically, under applicable regulatory guidelines, the Capital and Common Securities issued by the Trusts qualify as Tier 1 capital up to a maximum of 25% of Tier 1 capital on an aggregate basis. Any amount that exceeds the 25% threshold would qualify as Tier 2 capital. At December 31, 2025 and December 31, 2024, the total $108,868,000, respectively, of the Capital and Common Securities outstanding qualified as Tier 1 capital. The following table illustrates key information about each of the Debentures and their interest rates at December 31, 2025: Junior Subordinated Deferrable Interest Repricing Interest Rate Optional Debentures Frequency Interest Rate Index(1) Maturity Date Redemption Date(2) (in thousands) Trust IX 41,238 Quarterly 5.87% SOFR + 1.62 October 2036 October 2011 Trust X 21,021 Quarterly 5.77% SOFR + 1.65 February 2037 February 2012 Trust XI 25,990 Quarterly 5.87% SOFR + 1.62 July 2037 July 2012 Trust XII 20,619 Quarterly 5.50% SOFR + 1.45 September 2037 September 2012 $ 108,868 (1) The Capital and Common Securities may be redeemed in whole or in part on any interest payment date after the Optional Redemption Date. Contractual Obligations and Commercial Commitments The following table presents contractual cash obligations (other than deposit liabilities) as of December 31, 2025: Payments due by Period (Dollars in Thousands) Less than One to Three Three to After Five Contractual Cash Obligations Total One Year Years Five Years Years Securities sold under repurchase agreements $ 585,544 $ 585,544 $ — $ — $ — Federal Home Loan Bank borrowings 10,332 — — — 10,332 Junior subordinated deferrable interest debentures 108,868 108,868 — — — Operating leases 9,745 2,530 4,371 1,754 1,090 Total Contractual Cash Obligations $ 714,489 $ 696,942 $ 4,371 $ 1,754 $ 11,422
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20 The following table presents contractual commercial commitments (other than deposit liabilities) as of December 31, 2025: Amount of Commitment Expiration Per Period (Dollars in Thousands) Less than One to Three Three to Five After Five Commercial Commitments Total One Year Years Years Years Financial and Performance Standby Letters of Credit $ 134,581 $ 121,586 $ 12,856 $ 139 $ — Commercial Letters of Credit 1,000 — — 1,000 — Credit Card Lines 13,356 13,356 — — — Other Commercial Commitments 3,546,508 1,818,322 1,232,024 300,153 196,009 Total Commercial Commitments $ 3,695,445 $ 1,953,264 $ 1,244,880 $ 301,292 $ 196,009 Due to the nature of our commercial commitments, including unfunded loan commitments and lines of credit, the amounts presented above do not necessarily reflect the amounts we anticipate funding in the periods above. Critical Accounting Policies We have established various accounting policies which govern the application of accounting principles in the preparation of our consolidated financial statements. The significant accounting policies are described in the Notes to the Consolidated Financial Statements. Certain accounting policies involve significant subjective judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. We consider our estimated ACL as a policy critical to the sound operations of our Subsidiary Banks. 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 the 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 to turn inventory into sales are risk factors in the repayment of the loan. A 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 the development of land from unimproved land to lot development for both residential and commercial use and vertical construction across residential and commercial real estate classes. These loans carry risk of repayment when projects incur cost overruns, have an increase in the price of construction materials, encounter zoning, entitlement, and environmental issues, or encounter other factors that
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21 may affect the completion of a project on time and on budget. Additionally, repayment risk may be negatively impacted when the market experiences a deterioration in the value of real estate. Risks specifically related to 1-4 family development loans also include mortgage rate risk and the practice by the mortgage industry of more restrictive underwriting standards, which inhibits the buyer from obtaining long term financing creating excessive housing and lot inventory in the market. Commercial real estate loans. This category includes loans secured by farmland, multifamily properties, owner-occupied commercial properties, and non-owner-occupied commercial properties. Owner- occupied commercial properties include warehouses often along the U.S./Mexico 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 that are significantly lower than regulatory thresholds and 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 managing the borrower’s relationship with us 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. The table below summarizes the commercial real estate loan portfolio disaggregated by the type of real estate securing the credit as of December 31, 2025 and December 31, 2024: December 31, 2025 December 31, 2024 (Dollars in Thousands) (Dollars in Thousands) Amount Percentof Total Amount Percentof Total Commercial real estate: Commercial real estate construction development $ 1,170,201 18.8%$ 1,313,984 23.0% Hotel 1,074,069 17.3 1,080,706 18.9 Multi-family 685,212 11.0 310,115 5.4 Lot development: residential and commercial lots 618,209 9.9 513,760 9.0 Retail multi-tenant 528,793 8.5 738,874 12.9 Warehouse 455,265 7.3 435,783 7.6 Office/Professional buildings 440,909 7.1 416,014 7.3 1 - 4 family construction 398,320 6.4 338,832 5.9 Owner occupied real estate 372,333 6.0 270,584 4.7 Commercial leased properties 339,397 5.5 194,023 3.4 Farmland 137,945 2.2 109,697 1.9 Total commercial real estate $ 6,220,653 100.0%$ 5,722,372 100.0% 1-4 family mortgages. This category includes both first and second lien mortgages for the purpose of home purchases or refinancing of existing mortgage loans. A small portion of this loan category is related to home equity lines of credits, lots purchases, and home construction. Loan repayments may be affected by unemployment or underemployment and deteriorating market values of real estate.
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22 Consumer loans. This category includes deposit secured, vehicle secured, and unsecured loans, including overdrafts, made to individuals. Repayment is primarily affected by unemployment or underemployment. The loan pools are further broken down using a risk-based segmentation based on internal classifications for commercial loans and past due status for consumer mortgage loans. Non-mortgage consumer loans are evaluated as one segment. On a weekly basis, commercial loan past due reports are reviewed by the credit quality committee to determine if a loan has any potential problems and if a loan should be placed on our internal Watch List report. Additionally, our credit department reviews the majority of our loans for proper internal classification purposes regardless of whether they are past due and segregates any loans with potential problems for further review. The credit department will discuss the potential problem loans with the servicing loan officers to determine any relevant issues that were not discovered in the evaluation. Also, an analysis of loans that is provided through examinations by regulatory authorities is considered in the review process. After the above analysis is completed, we will determine if a loan should be placed on an internal Watch List report because of issues related to the analysis of the credit, credit documents, collateral, and/or payment history. Our internal Watch List report is segregated into the following categories: (i) Pass, (ii) Economic Monitoring, (iii) Special Review, (iv) Watch List—Pass, (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 reflect our opinion that the credit contains weaknesses that represent a greater degree of risk, which warrants “extra attention.” Credits placed in this category are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. 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 which may jeopardize repayment of principal under contractual terms. 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 category 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 credits in accordance 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 specific reserve 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 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
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23 therefore jeopardize an entire collateral relationship. The current economic environment has created challenges for borrowers to service their debt. Increasing cap 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 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. Recent Accounting Standards Issued See Note 1—Summary of Significant Accounting Policies in our accompanying Notes to Consolidated Financial Statements for details of recently issued and recently adopted accounting standards and their impact on our consolidated financial statements. Common Stock and Dividends We have issued and outstanding 62,177,719 shares of $1.00 par value common stock held by approximately 1,689 holders of record at February 23, 2026. The book value of the common stock at December 31, 2025 was $54.86 per share compared with $47.47 per share at December 31, 2024. Our common stock is traded on the Nasdaq National Market under the symbol “IBOC.” The following table sets forth the approximate high and low bid prices in our common stock during 2025 and 2024, as quoted on the Nasdaq National Market for each of the quarters in the two-year period ended December 31, 2025. Some of the quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The closing sales price of our common stock was $68.34 per share at February 23, 2026. High Low 2025: First quarter $ 68.09 $ 60.23 Second quarter 67.25 54.11 Third quarter 73.58 66.12 Fourth quarter 73.66 63.20 High Low 2024: First quarter $ 56.51 $ 48.85 Second quarter 61.46 51.80 Third quarter 69.87 55.69 Fourth quarter 76.91 56.75 We paid cash dividends of $.70 per share on February 28 and August 29, 2025, respectively, to all record holders of our common stock on February 14 and August 15, 2025, respectively. We paid cash dividends of $.66 per share on
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24 February 28 and August 28, 2024, respectively, to all record holders of our common stock on February 15 and August 14, 2024, respectively. Our principal source of funds to pay cash dividends on our common stock is cash dividends from our Subsidiary Banks. For a discussion of the limitations, please see Note 18 of our Notes to Consolidated Financial Statements. Stock Repurchase Program In April 2009, the Board of Directors re-established a formal stock repurchase program that authorized the repurchase of up to $40 million of common stock within the following 12 months. Annually since then, including on March 12, 2025, the Board of Directors extended and increased the repurchase program to purchase up to $150 million of common stock during the 12-month period commencing on March 15, 2025. On February 17, 2026, our Board of Directors authorized the renewal and increase of the repurchase program to purchase up to $150 million of common stock during the 12-month period commencing on March 15, 2026 upon the expiration of our current repurchase program on that date. Shares of common stock may be purchased from time to time on the open market or through privately negotiated transactions. Shares purchased in this program will be held in treasury for reissue for various corporate purposes, including employee compensation plans. During the fourth quarter of 2025, the Board of Directors adopted a Rule 10b- 18 trading plan and a Rule 10b5-1 trading plan and intends to adopt additional Rule 10b-18 and Rule 10b5-1 trading plans, which will allow us to purchase shares of our common stock during certain open and blackout periods when we ordinarily would not be in the market due to trading restrictions in our insider trading policy. During the terms of both a Rule 10b-18 and a Rule 10b5-1 trading plan, purchases of common stock are automatic to the extent the conditions of the plan’s trading instructions are met. Shares purchased under these trading plans will be held in treasury for reissue for various corporate purposes, including employee stock compensation plans. As of February 23, 2026, a total of 13,796,988 shares had been repurchased under all programs at a cost of $420,060,000. We are not obligated to purchase shares under our stock repurchase program outside of the Rule 10b-18 and Rule 10b5-1 trading plans. Except for repurchases in connection with the administration of an employee benefit plan in the ordinary course of business and consistent with past practices, common stock repurchases are only conducted under publicly announced repurchase programs approved by the Board of Directors. The following table includes information about common stock share repurchases for the quarter ended December 31, 2025. Total Number of SharesPurchased as ApproximateAverage Part of a Dollar Value ofTotal Number Price Paid Publicly- Shares Availableof Shares Per Announced forPurchased Share Program Repurchase(1) October 1 – October 31, 2025 — $ — — $ 144,453,000 November 1 – November 30, 2025 — — — 144,453,000 October 1 – October 31, 2025 842 72.58 842 145,392,000 Total 842 $ — 842 (1) The repurchase program was extended on March 12, 2025 and allows for the repurchase of up to an additional $150,000,000 of treasury stock through March 15, 2026.
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25 Equity Compensation Plan Information The following table sets forth information as of December 31, 2025, with respect to our equity compensation plans: (C) Number of securities remaining available for (A) (B) future issuance under Number of securities to Weighted average equity compensation be issued upon exercise exercise price of plans (excluding of outstanding options, outstanding options, securities reflected in Plan Category warrants and rights warrants and rights column A) Equity Compensation plans approved by security holders 164,884 $ 35.42 — Total 164,884 $ 35.42 —
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26 Stock Performance COMPARISON OF CUMULATIVE FIVE-YEAR TOTAL RETURN Total Return To Shareholders (Includes reinvestment of dividends) Base INDEXED RETURNS Period December 31, Company / Index 2020 2021 2022 2023 2024 2025 International Bancshares Corporation 100 135.66 150.50 183.56 169.92 201.68 S&P 400 Index 100 178.95 155.58 181.15 163.54 154.68 S&P 400 Banks 100 161.36 154.69 153.23 143.88 169.39
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27 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of International Bancshares Corporation and its Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated statements of condition of International Bancshares Corporation and its Subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 26, 2026 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses As described in Note 4 of the consolidated financial statements, the Company established an allowance for credit losses totaling $159,174,000 as of December 31, 2025. The allowance for credit losses is derived from 1) a loss-rate methodology that measures lifetime losses on loan pools that have similar risk characteristics; and 2) estimated losses on individually evaluated loans that do not have similar risk characteristics. The segmentation of the loan portfolio into pools requires a balancing process between capturing similar risk characteristics and sufficient loss history to provide relevant results. Loan pools are further broken down using a risk-based segmentation based on internal classifications of credit
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28 quality. Within each loan pool, the lifetime historical loss-rate is evaluated and, if needed, is supplemented with peer loss rates through a model risk adjustment. Certain qualitative factors are applied at the loan pool level to incorporate management’s two-year forecast period followed by a reversion to the pool’s average lifetime loss-rate. Those qualitative factors include: (i) trends in portfolio volume and composition, (ii) volume and trends in classified loans, delinquencies, non-accruals and troubled loan modifications (TLM’s), (iii) concentration risk, (iv) trends in underlying collateral value, (v) changes in policies, procedures, and strategies, (vi) economic conditions, and (vii) operational and other risk factors to capture potential losses arising from fraud, natural disasters, pandemics, geopolitical events and large loans. We identified the qualitative factor component of the allowance for credit losses as a critical audit matter. Auditing management’s estimate of the qualitative factors required a high degree of auditor judgment due to the nature of the adjustments and the subjectivity in judgments applied by management in forming them. Our audit procedures related to the Company’s qualitative factors included, the following, among others: ● We obtained an understanding of the relevant controls related to the allowance for credit losses, including the qualitative factors, and tested such controls for design and operating effectiveness, including controls related to management’s review of the qualitative factors and approval of the allowance for credit losses calculation. ● We evaluated the appropriateness and consistency of management’s methods and assumptions used to determine qualitative factors by (1) evaluating management’s identification and quantification of qualitative factors; (2) testing the completeness and accuracy of data and information used in calculating the components of the qualitative factors; (3) evaluating the reasonableness, directional consistency, and magnitude of the quantification of the qualitative factors; and (4) reviewing subsequent events and considering their impact on judgments applied in forming the qualitative factor component of the allowance for credit losses as of the consolidated balance sheet date. /s/ RSM US LLP We have served as the Company's auditor since 2007. Austin, Texas February 26, 2026
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29 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Condition December 31, 2025 and 2024 (Dollars in Thousands, Except Per Share Amounts) December 31, December 31, 2025 2024 Assets Cash and cash equivalents $ 536,487 $ 352,652 Investment securities: Held to maturity debt securities (Market value of $4,400 on December 31, 2025 and $4,400 on December 31, 2024) 4,400 4,400 Available for sale debt securities (Amortized cost of $5,281,090 on December 31, 2025 and $5,472,310 on December 31, 2024) 4,966,268 4,987,916 Equity securities with readily determinable fair values 5,573 5,394 Total investment securities 4,976,241 4,997,710 Loans 9,460,422 8,809,826 Less allowance for credit losses (159,174) (156,537) Net loans 9,301,248 8,653,289 Bank premises and equipment, net 422,993 428,221 Accrued interest receivable 72,430 72,175 Other investments 448,327 356,735 Cash surrender value of life insurance policies 309,627 303,042 Goodwill 282,532 282,532 Other assets 226,450 292,496 Total assets $16,576,335 $15,738,852 See accompanying notes to consolidated financial statements.
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30 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Condition Continued December 31, 2025 and 2024 (Dollars in Thousands, Except Per Share Amounts) December 31, December 31, 2025 2024 Liabilities and Shareholders’ Equity Liabilities: Deposits: Demand—non-interest bearing $ 4,486,208 $ 4,612,344 Savings and interest bearing demand 4,748,978 4,599,957 Time 3,201,320 2,899,543 Total deposits 12,436,506 12,111,844 Securities sold under repurchase agreements 585,544 535,322 Other borrowed funds 10,332 10,541 Junior subordinated deferrable interest debentures 108,868 108,868 Other liabilities 183,447 175,570 Total liabilities 13,324,697 12,942,145 Shareholders’ equity: Common shares of $1.00 par value. Authorized 275,000,000 shares; issued 96,658,794 shares on December 31, 2025 and 96,616,673 shares on December 31, 2024 96,659 96,617 Surplus 160,861 159,333 Retained earnings 3,681,408 3,356,177 Accumulated other comprehensive loss (246,316) (379,054) 3,692,612 3,233,073 Less cost of shares in treasury, 34,490,048 shares on December 31, 2025 and 34,407,674 on December 31, 2024 (440,974) (436,366) Total shareholders’ equity 3,251,638 2,796,707 Total liabilities and shareholders’ equity $16,576,335 $15,738,852 See accompanying notes to consolidated financial statements.
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31 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 2025, 2024 and 2023 (Dollars in Thousands, Except Per Share Amounts) 2025 2024 2023 Interest income: Loans, including fees $699,871 $681,280 $620,048 Investment securities: Taxable 164,572 153,486 132,151 Tax-exempt 5,955 6,146 6,259 Other interest income 15,876 25,070 41,704 Total interest income 886,274 865,982 800,162 Interest expense: Savings deposits 82,920 81,912 60,337 Time deposits 102,916 96,968 53,158 Securities sold under repurchase agreements 18,964 22,340 14,760 Other borrowings 2,330 281 283 Junior subordinated deferrable interest debentures 6,722 7,762 8,123 Total interest expense 213,852 209,263 136,661 Net interest income 672,422 656,719 663,501 Credit loss expense 15,092 31,802 34,576 Net interest income after provision for credit losses 657,330 624,917 628,925 Non-interest income: Service charges on deposit accounts 74,316 73,714 73,933 Other service charges, commissions and fees Banking 58,987 58,682 57,923 Non-banking 10,458 10,352 9,546 Investment securities transactions, net (1) (1) (3) Other investments income, net 6,910 13,133 9,601 Other income 19,080 21,042 18,941 Total non-interest income $169,750 $176,922 $169,941 See accompanying notes to consolidated financial statements.
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32 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Income, continued Years ended December 31, 2025, 2024 and 2023 (Dollars in Thousands, Except Per Share Amounts) 2025 2024 2023 Non-interest expense: Employee compensation and benefits $ 153,342 $ 145,944 $ 134,441 Occupancy 29,705 27,012 25,832 Depreciation of bank premises and equipment 23,349 22,524 21,944 Professional fees 13,577 15,726 14,000 Deposit insurance assessments 7,151 6,865 6,285 Net operations, other real estate owned 2,389 1,298 (3,983) Advertising 5,311 6,289 5,010 Software and software maintenance 22,614 21,093 20,046 Other 49,280 46,368 51,779 Total non-interest expense 306,718 293,119 275,354 Income before income taxes 520,362 508,720 523,512 Provision for income taxes 108,069 99,553 111,744 Net income $ 412,293 $ 409,167 $ 411,768 Basic earnings per common share: Weighted average number of shares outstanding 62,171,914 62,180,448 62,082,827 Net income per common share $ 6.63 $ 6.58 $ 6.63 Fully diluted earnings per common share: Weighted average number of shares outstanding 62,256,907 62,298,278 62,221,601 Net income per common share $ 6.62 $ 6.57 $ 6.62 See accompanying notes to consolidated financial statements.
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33 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Years ended December 31, 2025, 2024 and 2023 (Dollars in Thousands) 2025 2024 2023 Net income $412,293 $409,167 $411,768 Other comprehensive income, net of tax: Net change in unrealized holding gains on securities available for sale arising during period (net of tax effects of $35,285, $5,007 and $19,300) 132,737 18,834 72,606 Reclassification adjustment for losses on securities available for sale included in net income (net of tax effects of $0, $0 and $1) 1 1 2 Total other comprehensive income, net of tax 132,738 18,835 72,608 Comprehensive income $545,031 $428,002 $484,376 See accompanying notes to consolidated financial statements.
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34 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Shareholders’ Equity Years ended December 31, 2025, 2024 and 2023 (in Thousands, except per share amounts) Number Other Preferred of Common Retained Comprehensive Treasury Stock Shares Stock Surplus Earnings Income (Loss) Stock Total Balance at December 31, 2022 $ — 96,420 $96,420 $154,061 $2,695,567 $ (470,497) $(430,792) $2,044,759Net Income — — — — 411,768 — — 411,768Dividends:Cash ($1.26 per share) — — — — (78,247) — — (78,247)Purchase of treasury(112,567 shares) — — — — — — (4,611) (4,611)Exercise of stock options — 47 47 1,120 — — — 1,167Stock compensation expenserecognized in earnings — — — 330 — — — 330Other comprehensive loss,net of tax:Net change in unrealizedgains and losses onavailable for salesecurities, net ofreclassificationadjustment — — — — — 72,608 — 72,608 Balance at December 31, 2023 — 96,467 $96,467 $155,511 $3,029,088 $ (397,889) $(435,403) $2,447,774Net Income — — — — 409,167 — — 409,167Dividends:Cash ($1.32 per share) — — — — (82,078) — — (82,078)Purchase of treasury(16,490 shares) — — — — — — (963) (963)Exercise of stock options — 150 150 3,608 — — — 3,758Stock compensation expenserecognized in earnings — — — 214 — — — 214Other comprehensiveincome, net of tax:Net change in unrealizedgains and losses onavailable for salesecurities, net ofreclassificationadjustments — — — — — 18,835 — 18,835 Balance at December 31, 2024 — 96,617 $96,617 $159,333 $3,356,177 $ (379,054) $(436,366) $2,796,707Net Income — — — — 412,293 — — 412,293Dividends:Cash ($1.40 per share) — — — — (87,062) — — (87,062)Purchase of treasury(82,374 shares) — — — — — — (4,608) (4,608)Exercise of stock options — 42 42 1,424 — — — 1,466Stock compensation expenserecognized in earnings — — — 104 — — — 104Other comprehensiveincome, net of tax:Net change in unrealizedgains and losses onavailable for salesecurities, net ofreclassificationadjustments — — — — — 132,738 — 132,738 Balance at December 31, 2025 — 96,659 $96,659 $160,861 $3,681,408 $ (246,316) $(440,974) $3,251,638 See accompanying notes to consolidated financial statements.
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35 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2025, 2024 and 2023 (Dollars in Thousands) 2025 2024 2023 Operating activities: Net income $ 412,293 $ 409,167 $ 411,768 Adjustments to reconcile net income to net cash provided by operating activities: Credit loss expense 15,092 31,802 34,576 Specific reserve, other real estate owned 1,296 632 2,538 Depreciation of bank premises and equipment 23,349 22,524 21,944 Gain on sale of bank premises and equipment (23) (378) (198) Loss (gain) on sale of other real estate owned 518 182 (7,370) Accretion of investment securities discounts (4,536) (3,022) (1,913) Amortization of investment securities premiums 4,475 5,553 6,901 Investment securities transactions, net 1 1 3 Unrealized (gain) loss on equity securities with readily determinable fair values (180) 24 (59) Stock based compensation expense 104 214 330 Earnings from affiliates and other investments (5,504) (7,360) (983) Deferred tax expense (benefit) 14,066 (11,466) 22,950 Increase in accrued interest receivable (255) (6,873) (19,515) Decrease (increase) in other assets 34,619 (8,067) (7,297) (Decrease) increase in other liabilities (4,258) 41,015 10,757 Net cash provided by operating activities 491,057 473,948 474,432 Investing activities: Proceeds from maturities of securities 1,325 2,075 51,167 Proceeds from sales and calls of available for sale securities 15,490 3,750 2,045 Purchases of available for sale securities (813,002) (984,543) (1,079,215) Principal collected on mortgage backed securities 987,467 833,690 629,194 Net increase in loans (664,746) (812,477) (632,976) Purchases of other investments (131,062) (48,052) (31,256) Distributions from other investments 21,898 32,007 12,175 Purchases of bank premises and equipment (18,121) (14,147) (27,497) Proceeds from sales of bank premises and equipment 23 874 269 Proceeds from sales of other real estate owned 9,035 1,760 8,888 Net cash used in investing activities (591,693) (985,063) (1,067,206) See accompanying notes to consolidated financial statements.
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36 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued) Years ended December 31, 2025, 2024 and 2023 (Dollars in Thousands) 2025 2024 2023 Financing activities: Net decrease in non-interest bearing demand deposits $(126,136) $(418,501) $ (815,210) Net increase (decrease) in savings and interest bearing demand deposits 149,021 231,425 (377,236) Net increase in time deposits 301,777 474,366 356,993 Net increase in securities sold under repurchase agreements 50,222 4,906 99,225 Paydowns on long-term other borrowed funds (209) (204) (199) Redemption of long-term debt — — (25,774) Purchase of treasury stock (4,608) (963) (4,611) Proceeds from stock transactions 1,466 3,758 1,167 Payments of cash dividends (87,062) (82,078) (78,247) Net cash provided by (used in) financing activities 284,471 212,709 (843,892) Increase (decrease) in cash and cash equivalents 183,835 (298,406) (1,436,666) Cash and cash equivalents at beginning of period 352,652 651,058 2,087,724 Cash and cash equivalents at end of period $ 536,487 $ 352,652 $ 651,058 Supplemental cash flow information: Interest paid $ 216,598 $ 201,827 $ 117,936 U.S. federal income taxes paid 64,901 43,479 69,799 State income/franchise taxes paid (refunded): Texas 4,769 5,500 2,305 Other states — 2,125 (1,468) Non-cash investing and financing activities: Net transfers from loans to other real estate owned $ 15,092 $ 3,727 $ 600 Net transfers from loans to other investments — 25,551 — See accompanying notes to consolidated financial statements.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 37 (1) Summary of Significant Accounting Policies Our accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”) and to general practices within the banking industry. The following is a description of the more significant of those policies. Consolidation and Basis of Presentation Our consolidated financial statements include the accounts of the International Bancshares Corporation, its wholly owned Subsidiary Banks and its wholly owned non-bank subsidiaries, IBC Trading Company, Premier Tierra Holdings, Inc., IBC Charitable and Community Development Corporation, IBC Capital Corporation, WCMH, LLC, and Diamond Beach Holdings, LLC. All significant inter-company balances and transactions have been eliminated in consolidation. We, through our Subsidiary Banks, are primarily engaged in the business of banking, including the acceptance of checking and savings deposits and the making of commercial, real estate, personal, home improvement, automobile, and other installment and term loans. Our primary markets are north, south, central, and southeast Texas and the state of Oklahoma. Each of our Subsidiary Banks is highly active in facilitating international trade along the United States border with Mexico and elsewhere. Although our loan portfolio is diversified, the ability of our debtors to honor their contracts is primarily dependent upon the economic conditions in our trade area. In addition, the investment portfolio is directly impacted by fluctuations in market interest rates. We are subject to the regulations of certain federal agencies as well as the Texas Department of Banking and the Oklahoma Department of Banking and undergo periodic examinations by those regulatory authorities. Such agencies may require certain standards or impose certain limitations based on their judgments or changes in law and regulations. We own one insurance-related subsidiary, IBC Insurance Agency, Inc., a wholly owned subsidiary of our Subsidiary Bank, International Bank of Commerce, Laredo. The insurance-related subsidiary does not conduct underwriting activities. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the statement of condition and income and expenses for the periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for credit losses (“ACL”). Subsequent Events We have evaluated all events or transactions that occurred through the date we issued these financial statements. During this period, we did not have any material recognizable or non-recognizable subsequent events. Investment Securities We classify debt securities into one of these categories: held-to-maturity, available-for-sale, or trading. Such classifications are reassessed for appropriate classification at each reporting date. Securities that are intended and expected to be held until maturity are classified as “held-to-maturity” and are carried at amortized cost for financial statement reporting. Securities that are not positively expected to be held until maturity but are intended to be held for an indefinite period of time are classified as “available-for-sale” or “trading” and are carried at their fair value. Unrealized holding gains and losses are included in net income for those securities classified as “trading,” while unrealized holding gains and losses related to those securities classified as “available-for-sale” are excluded from net income and reported net of tax as other comprehensive income (loss) and in shareholders’ equity as accumulated other comprehensive income (loss) until realized. Unrealized gains and losses related to equity securities with readily determinable fair values are included in net income. Available-for-sale and held-to-maturity debt securities in an unrealized loss position are evaluated for the underlying cause of the loss. In the event that the deterioration in value is attributable to credit related reasons, then the amount of credit- related impairment would be recorded as a charge to our ACL with subsequent changes in the amount of impairment,
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 38 up or down, also recorded through our ACL. The exception to this process will occur if we intend to sell an impaired available- for-sale debt security or if we will more likely than not be required to sell a credit impaired available-for-sale debt security prior to the value recovering to the security’s amortized cost. In those situations, the entire credit-related impairment amount would be required to be recognized in earnings. We have evaluated the debt securities classified as available-for-sale and held-to-maturity at December 31, 2025 and have determined that no debt securities in an unrealized loss position are arising from credit related reasons and have therefore not recorded any allowances for debt securities in our ACL for the periods. We did not maintain any trading securities during the three-year period ended December 31, 2025. Mortgage-backed securities held at December 31, 2025 and December 31, 2024 represent participating interests in pools of long-term first mortgage loans originated and serviced by the issuers of the securities. Mortgage-backed securities are either issued or guaranteed by the U.S. government or its agencies including Freddie Mac, Fannie Mae, Ginnie Mae or other non-government entities. Investments in residential mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U. S. government. Investments in residential mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. government; however, we believe that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in 2008 and because securities issued by others that are collateralized by residential mortgage-backed securities issued by Fannie Mae or Freddie Mac are rated consistently as AAA rated securities. Market interest rate fluctuations can affect the prepayment speed of principal and the yield on the security. Premiums and discounts are amortized using the level yield or “interest method” over the terms of the securities. Declines in the fair value of held-to-maturity and available-for sale-securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In determining whether other-than-temporary impairment exists, management considers many factors, including (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) our intent to hold and our determination of whether we will more likely than not be required to sell the security prior to a recovery in fair value. If we determine that (i) we intend to sell the security or (ii) it is more likely than not that we will be required to sell the security before it’s anticipated recovery, the other-than-temporary impairment that is recognized in earnings is equal to the difference between the fair value of the security and our amortized cost of the security. If we determine that we (i) do not intend to sell the security and (ii) we will not be more likely than not required to sell the security before it’s anticipated recovery, the other-than-temporary impairment is segregated into its two components (i) the amount of impairment related to credit loss and (ii) the amount of impairment related to other factors. The difference between the present value of the cash flows expected to be collected and the amortized cost is the credit loss recognized through earnings and an adjustment to the cost basis of the security. The amount of impairment related to other factors is included in other comprehensive income (loss). Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. Equity Securities Equity securities with readily determinable fair values at December 31, 2025 and December 31, 2024 consist primarily of Community Reinvestment Act funds. Unrealized gains and losses on the equity securities are recognized in net income. Provision and Allowance for Credit Losses Our ACL is based on an expected credit loss model that recognizes credit losses over the life of a financial asset. Expected credit losses capture historical information, current conditions, and reasonable and supportable forecasts of future conditions. The ACL is deducted from the amortized cost of an instrument to present the net amount expected to be collected on the financial asset. Our ACL primarily consists of the aggregate ACL estimates of our Subsidiary Banks. The estimates are established through charges to operations in the form of charges to provisions for credit loss expense. Loan losses or recoveries are charged or credited directly to the ACL. The ACL of each Subsidiary Bank is maintained at a level considered appropriate by management, based on estimated current expected credit losses in the current loan portfolio, including information about past events, current conditions, and reasonable and supportable forecasts.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 39 Our management continually reviews the ACL of the Subsidiary Banks using the amounts determined from the estimates established on specific doubtful loans, the estimate established on quantitative historical loss percentages, and the estimate based on qualitative current conditions and reasonable and supportable two-year forecasted data. Our methodology reverts to the average lifetime loss-rate beyond the forecast period when we can no longer develop reasonable and supportable forecasts. Should any of the factors considered by management in evaluating the adequacy of the estimate for current expected credit losses change, our estimate of current expected credit losses could also change, which could affect the level of future credit loss expense. While the calculation of our ACL utilizes management’s best judgment and all information reasonably available, the adequacy of the ACL is dependent on a variety of factors beyond our control, including, among other things, the performance of the entire loan portfolio, the economy, government actions, changes in interest rates, and the view of regulatory authorities towards loan classifications. We believe that the allowance for probable loan losses is adequate. The Subsidiary Banks charge-off that portion of any loan which management considers to represent a loss as well as that portion of any other loan which is classified as a “loss” by bank examiners. Commercial, financial, and agricultural or real estate loans are generally considered by management to represent a loss, in whole or part, (i) when an exposure beyond any collateral coverage is apparent, (ii) when no further collection of the portion of the loan so exposed is anticipated based on actual results, (iii) when the credit enhancements, if any, are not adequate, and (iv) when the borrower’s financial condition would indicate so. Generally, unsecured consumer loans are charged-off when 90 days past due. Loans Loans are reported at the principal balance outstanding, net of unearned discounts. Interest income on loans is reported on an accrual basis. Loan fees and costs associated with originating the loans are accreted or amortized over the life of the loan using the interest method. We originate mortgage loans that may subsequently be sold to an unaffiliated third party. The loans are not securitized and if sold, are sold without recourse. Loans held for sale are carried at cost and the principal amount outstanding is not significant to the consolidated financial statements. Doubtful Loans Doubtful loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement will not be collected. Doubtful loans are measured based on (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral if the loan is collateral dependent. Substantially all our doubtful loans are measured at the fair value of the collateral. In limited cases, we may use other methods to determine the level of impairment of a loan if such loan is not collateral dependent. Troubled Loan Modifications We occasionally provide modifications to borrowers experiencing financial difficulties. Modifications may include certain concessions that we must evaluate under current accounting standards to determine the need for disclosure. Concessions to borrowers experiencing financial difficulties that would require disclosure include principal forgiveness, a term extension, an other-than-insignificant payment delay, an interest rate reduction, or a combination of these concessions. Non-Accrual Loans The non-accrual loan policy of our Subsidiary Banks is to discontinue the accrual of interest on loans when management determines that it is probable that future interest accruals will be un-collectible. As it relates to consumer loans, management charges-off those loans when the loan is contractually 90 days past due. Under special circumstances, a consumer or non-consumer loan may be more than 90 days delinquent as to interest or principal and not be placed on non-accrual status. This situation generally results when a Subsidiary Bank has a borrower who is experiencing financial difficulties, but not to the extent that requires a restructuring of indebtedness. The majority of this category is composed
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 40 of loans that are considered to be adequately secured and/or for which there are expected future payments. When a loan is placed on non-accrual status, any interest accrued, not paid is reversed and charged to operations against interest income. As it relates to non-consumer loans that are not 90 days past due, management will evaluate each of these loans to determine if placing the loan on non-accrual status is warranted. Interest income on non-accrual loans is recognized only to the extent payments are received or when, in management’s opinion, the debtor’s financial condition warrants reestablishment of interest accruals. Other Real Estate Owned and Repossessed Assets Other real estate owned is comprised of real estate acquired by foreclosure and deeds in lieu of foreclosure. Other real estate is carried at the lower of the recorded investment in the property or its fair value less estimated costs to sell such property (as determined by independent appraisal). Prior to foreclosure, the value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the ACL, if necessary. Any subsequent write-downs are charged against other non-interest expense through a valuation allowance. Other real estate owned totaled approximately $19,368,000 and $28,193,000 at December 31, 2025 and 2024, respectively. Other real estate owned is included in other assets. Repossessed assets consist primarily of non-real estate assets acquired by foreclosure. Prior to foreclosure, the value of the underlying loan is written down to the fair value of the asset to be repossessed by a charge to the ACL, if necessary. Repossessed assets are included in other assets on the consolidated financial statements and totaled approximately $288,000 and $358,000 at December 31, 2025 and December 31, 2024, respectively. Bank Premises and Equipment Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on straight-line and accelerated methods over the estimated useful lives of the assets. Repairs and maintenance are charged to operations as incurred and expenditures for renewals and betterments are capitalized. We primarily own all the property we occupy, with the exception of certain branches operating in grocery store or retail shopping centers and certain ATM locations, which are all under operating leases as classified under guidance prior to the issuance of ASU 2016-02, “Leases (Topic 842).” Other Investments Other investments include equity investments in non-financial companies, as well as equity securities with no readily determinable fair market value. Equity investments are accounted for using the equity method of accounting. Due to timing issues in the accounting by some of the non-financial companies in which we hold an investment, activity recorded to our books is recorded one quarter in arrears. Equity securities with no readily determinable fair value are accounted for using the cost method. Revenue Recognition Our revenue is primarily comprised of net interest income on financial assets and liabilities, which are excluded from the scope of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The remaining non-interest revenue streams were identified and then analyzed under the provisions of the update, to: (i) identify the contract, (ii) identify the performance obligation, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when the performance obligation was satisfied. Our non-interest revenue contracts with customers are primarily short term and our performance obligation is satisfied at a single point in time, typically within a single period. Income Taxes Deferred income tax assets and liabilities are determined using the asset and liability method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. We file a consolidated federal income tax return with our subsidiaries.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 41 Recognition of deferred tax assets is based on management’s assessment that the benefit related to certain temporary differences, tax operating loss carry forwards, and tax credits are more likely than not to be realized. A valuation allowance is recorded for the amount of the deferred tax items for which it is more likely than not that the tax benefits will not be realized. We evaluate uncertain tax positions at the end of each reporting period. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit recognized in the financial statements from any such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of December 31, 2025 and December 31, 2024, respectively, after evaluating all uncertain tax positions, we have recorded no liability for unrecognized tax benefits at the end of the reporting period. We would recognize any interest accrued on unrecognized tax benefits as other interest expense and penalties as other non-interest expense. During the years ended December 31, 2025, 2024, and 2023, we recognized no interest expense or penalties related to uncertain tax positions. We file consolidated tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2022. Stock Options and Stock Appreciation Rights Compensation expense for stock-based awards is based on the market price of the stock on the measurement date, which is generally the date of grant, and is recognized ratably over the service period of the award. The fair value of stock options and stock appreciation rights granted was estimated using a Black- Scholes-Merton pricing model. These models were developed for use in estimating the fair value of publicly traded options and stock appreciation rights that have no vesting restrictions and are fully transferable. Additionally, these models require the input of highly subjective assumptions. Because our employee stock options and stock appreciation rights have characteristics significantly different from those of publicly traded options and appreciation rights, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the Black-Scholes-Merton pricing models do not necessarily provide a reliable single measure of the fair value of our stock options and stock appreciation rights. Net Income Per Share Basic Earnings Per Share (“EPS”) is calculated by dividing net income by the weighted average number of common shares outstanding. The computation of diluted EPS assumes the issuance of common shares for all dilutive potential common shares outstanding during the reporting period. The dilutive effect of stock options is considered in earnings per share calculations, if dilutive, using the treasury stock method. Goodwill and Identified Intangible Assets Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill is tested for impairment at least annually or on an interim basis if an event triggering impairment may have occurred. As of October 1, 2025, after completing goodwill testing, we have determined that no goodwill impairment exists. There were no changes in the carrying amount of goodwill for the years ended December 31, 2025 and December 31, 2024. Identified intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. Impairment of Long-Lived Assets Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of the asset
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 42 to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying value of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying value of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the statement of condition and reported at the lower of the carrying value or fair value less costs to sell and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the statement of condition. Consolidated Statements of Cash Flows For purposes of the consolidated statements of cash flows, we consider all short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. Also, we report transactions related to deposits and loans to customers on a net basis. Accounting for Transfers and Servicing of Financial Assets We account for transfers and servicing of financial assets and extinguishments of liabilities based on the application of a financial-components approach that focuses on control. After a transfer of financial assets, we recognize the financial and servicing assets we control and liabilities we have incurred, derecognize financial assets when control has been surrendered and derecognize liabilities when extinguished. We have retained mortgage servicing rights in connection with the sale of mortgage loans. Because we may not initially identify loans as originated for resale, all loans are initially treated as held for investment. The value of the mortgage servicing rights is reviewed periodically for impairment and are amortized in proportion to, and over the period of estimated net servicing income or net servicing losses. The value of the mortgage servicing rights is not significant to the consolidated statements of condition. Segments of an Enterprise and Related Information We operate as one segment, banking. The chief operating decision maker (“CODM”) is our chief executive officer. The operating information used by our CODM for purposes of assessing performance and making operating decisions is the consolidated financial statements presented in this report. We have five active operating subsidiaries, namely, the Subsidiary Banks. Our Subsidiary Banks offer all products and services on the same basis and on the same terms and operate in the same regulatory environment. We apply the provisions of ASC Topic 280, “Segment Reporting,” in determining our reportable segments and related disclosures. Comprehensive Income (Loss) Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale. Advertising Advertising costs are expensed as incurred. Reclassifications Certain amounts in the prior year’s presentations have been reclassified to conform to the current presentation. These reclassifications had no effect on previously reported net income or shareholders’ equity. New Accounting Standards In December 2023, the FASB issued Accounting Standards Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, an Amendment. ASU 2023-09 is intended to enhance transparency and decisions usefulness of income tax disclosures. ASU 2023-09 requires that public entities disclose specific categories in the annual rate reconciliation and provides additional guidance for reconciling items that meet a quantitative threshold.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 43 Explanation of individual reconciling items is also required. ASU 2023-09 also requires certain disclosures regarding income taxes paid, including disaggregation of taxes paid (net of refunds) by federal, state and foreign taxes, including disaggregation by individual jurisdictions in which taxes paid (net of refunds), exceed a quantitative threshold. The provisions of ASU 2023-09 are effective for annual periods beginning after December 15, 2024. The adoption of ASU 2023-09 impacted the disclosures included in Note 13 – Income Taxes and did not have an impact on the measurement of the amounts reported in the consolidated financial statements. We chose to apply the disclosure requirements of ASU 2023-09 retrospectively to all periods reported in the consolidated financial statements. In November 2024, the FASB issued Accounting Standards Update No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosure (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 requires new tabular disclosures of certain prescribed income statement expenses, including among other things, employee compensation and depreciation. Additionally, ASU 2024-03 requires disclosure of selling expenses based upon an entity’s own definition. The provisions of ASU 2024-03 are effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027. The adoption of ASU 2024-03 is not expected to have a significant impact on our consolidated financial statements. In January 2025, the FASB issued Accounting Standards Update No. 2025-01, Income Statements-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40) to clarify the initial effective dates for non-calendar year entities. The adoption of ASU 2025-01 is not expected to have a significant impact on our consolidated financial statements. In September 2025, the FASB issued Accounting Standards Update No. 2025-06 Intangibles— Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. ASU 2025-06 modernizes current accounting guidelines by aligning the accounting for internal-use software costs with current, iterative development methods (such as agile) rather than prescriptive project “stages.” The update removes references to development stages and requires entities to begin capitalizing software development costs when (1) management has authorized and committed to funding the project and (2) it is probable the software will be completed and used as intended, while also relocating website development guidance into existing guidance and clarifying related disclosure requirements. The provisions of ASU 2025-06 are effective for annual periods beginning after December 15, 2027, and interim periods within those annual periods. The adoption of ASU 2025-06 is not expected to have a significant impact on our consolidated financial statements. In November 2025, the FASB issued Accounting Standards Update No. 2025-08, Financial Instruments-Credit Losses (Topic 326): Purchased Loans. ASU 2025-08 simplifies and improves the accounting for acquired loans by expanding the use of the “gross-up” approach at acquisition. Certain acquired loans (excluding credit cards) that qualify as purchased seasoned loans, including all non-purchased financial assets with credit deterioration (PCD) loans acquired in a business combination and other non-PCD loans purchased at least 90 days after origination when the acquirer was not involved in origination, are recognized at purchase price plus an allowance for expected credit losses, aligning the accounting with that of PCD assets and eliminating a Day one credit loss expense and perceived double counting under prior guidance. ASU 2025-08 leaves existing PCD guidance otherwise unchanged. The provisions of ASU 2025-08 are effective for annual periods beginning after December 15, 2026, and interim periods within those annual periods. The adoption of ASU 2025-08 is not expected to have a significant impact on our consolidated financial statements. In December 2025, the FASB issued Accounting Standards Update No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. ASU 2025-11 clarifies when and how interim reporting guidance applies and improves the organization and navigability of ASC 270 without changing the fundamental nature or overall volume of interim disclosure requirements. The update specifies that ASC 270 applies to all entities that provide interim financial statements and accompanying notes in accordance with U.S. GAAP, clarifies form and content requirements (including guidance for non-SEC registrants), compiles a comprehensive list of interim disclosures required by other Codification topics, and introduces a principle requiring disclosure of events occurring since the most recent annual reporting period that have a material impact on the entity. The provisions of ASU 2025-11 are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. The adoption of ASU 2025 is not expected to have a significant impact on our consolidated financial statements.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 44 (2) Investment Securities, Equity Securities with Readily Determinable Fair Values and Other Investments Available-for-sale and held-to-maturity debt securities in an unrealized loss position are evaluated for the underlying cause of the loss. In the event that the deterioration in value is attributable to credit related reasons, then the amount of credit-related impairment would be recorded as a charge to our ACL with subsequent changes in the amount of impairment, up or down, also recorded through our ACL. The exception to this process will occur if we intend to sell an impaired available-for-sale debt security or if we will more likely than not be required to sell a credit impaired available-for-sale debt security prior to the value recovering to the security’s amortized cost. In those situations, the entire credit-related impairment amount would be required to be recognized in earnings. We have evaluated the debt securities classified as available- for-sale and held-to-maturity at December 31, 2025 and December 31, 2024, and have determined that no debt securities in an unrealized loss position are arising from credit related reasons, and have therefore not recorded any allowances for debt securities in our ACL for the period. Unrealized gains and losses related to equity securities with readily determinable fair values are included in net income. The amortized cost and estimated fair value by type of investment security at December 31, 2025 are as follows: Held to Maturity Gross GrossAmortized unrealized unrealized Estimated Carryingcost gains losses fair value value (Dollars in Thousands) Other securities $ 4,400 $ — $ — $ 4,400 $ 4,400 Total investment securities $ 4,400 $ — $ — $ 4,400 $ 4,400 Available for Sale Debt Securities Gross GrossAmortized unrealized unrealized Estimated Carryingcost gains losses fair value value(1) (Dollars in Thousands) Residential mortgage-backed securities $5,140,013 $ 22,759 $(332,184) $4,830,588 $4,830,588 Obligations of states and political subdivisions 141,077 86 (5,483) 135,680 135,680 Total investment securities $5,281,090 $ 22,845 $(337,667) $4,966,268 $4,966,268 (1) Included in the carrying value of residential mortgage- backed securities are $854,726 of mortgage-backed securities issued byGinnie Mae and $3,975,862 of mortgage-backed securities issued by Fannie Mae and Freddie Mac The amortized cost and estimated fair value of investment securities at December 31, 2025, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties. Held to Maturity Available for Sale Amortized Estimated Amortized EstimatedCost fair value Cost fair value (Dollars in Thousands) Due in one year or less $ 3,075 $ 3,075 $ — $ — Due after one year through five years 1,325 1,325 — — Due after five years through ten years — — 2,240 2,240 Due after ten years — — 138,837 133,440 Residential mortgage-backed securities — — 5,140,013 4,830,588 Total investment securities $ 4,400 $ 4,400 $5,281,090 $4,966,268
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 45 The amortized cost and estimated fair value by type of investment security at December 31, 2024 are as follows: Held to Maturity Gross GrossAmortized unrealized unrealized Estimated Carryingcost gains losses fair value value (Dollars in Thousands) Other securities $ 4,400 $ — $ — $ 4,400 $ 4,400 Total investment securities $ 4,400 $ — $ — $ 4,400 $ 4,400 Available for Sale Gross Gross EstimatedAmortized unrealized unrealized fair Carryingcost gains losses value value(1) (Dollars in Thousands) Residential mortgage-backed securities $5,315,488 $ 8,858 $(489,170) 4,835,176 4,835,176 Obligations of states and political subdivisions 156,822 331 (4,413) 152,740 152,740 Total investment securities $5,472,310 $ 9,189 $(493,583) $4,987,916 $4,987,916 (1) Included in the carrying value of residential mortgage- backed securities are $1,001,184 of mortgage-backed securities issued byGinnie Mae, $3,833,992 of mortgage-backed securities issued by Fannie Mae and Freddie Mac Residential mortgage-backed securities are securities issued by Freddie Mac, Fannie Mae, Ginnie Mae or non-government entities. Investments in residential mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U.S. government. Investments in mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. government; however, we believe that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008 and because securities issued by others that are collateralized by residential mortgage-backed securities issued by Fannie Mae and Freddie Mac are rated consistently as AAA rated securities. Obligations of states and political subdivisions are securities issued by public school districts and are guaranteed by the Permanent School Fund (PSF) of the State of Texas under the Texas Education Code. The PSF guarantee provides an unconditional and irrevocable guarantee of principal and interest payments. The amortized cost and fair value of available for sale investment securities pledged to qualify for fiduciary powers, to secure public monies as required by law, repurchase agreements and short-term fixed borrowings was $1,780,145,000 and $1,619,467,000, respectively, at December 31, 2025. Proceeds from the sale and call of securities available-for-sale were $15,490,000, $3,750,000, and $2,045,000 during 2025, 2024 and 2023, respectively, which amounts included $0, $0 and $0 of mortgage- backed securities. Gross gains of $0, $0 and $0, and gross losses of $1,000, $1,000 and $3,000 were realized on the sales and calls in 2025, 2024 and 2023, respectively. Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2025 were as follows: Less than 12 months 12 months or more Total Unrealized Unrealized UnrealizedFair Value Losses Fair Value Losses Fair Value Losses (Dollars in Thousands) Available for sale: Residential mortgage-backed securities $ 130,561 $ (81) $3,002,781 $(332,103) $3,133,342 $(332,184) Obligations of states and political subdivisions 4,361 (59) 105,263 (5,424) 109,624 (5,483) $ 134,922 $ (140) $3,108,044 $(337,527) $3,242,966 $(337,667)
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 46 Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous loss position, at December 31, 2024 were as follows: Less than 12 months 12 months or more Total Unrealized Unrealized UnrealizedFair Value Losses Fair Value Losses Fair Value Losses (Dollars in Thousands)Available for sale: Residential mortgage-backed securities $ 544,375 $ (4,126) $3,358,586 $(485,044) $3,902,961 $(489,170)Obligations of states and political subdivisions 66,450 (2,389) 57,551 (2,024) 124,001 (4,413) $ 610,825 $ (6,515) $3,416,137 $(487,068) $4,026,962 $(493,583) The unrealized losses on investments in residential mortgage-backed securities and obligations of states and political subdivision securities are primarily caused by changes in market interest rates. We have no intent to sell and more likely than not be required to sell before a market price recovery or maturity of the securities; therefore, it is our conclusion that the investments in residential mortgage-backed securities issued by Freddie Mac, Fannie Mae, and Ginnie Mae and the obligations of states and political subdivisions guaranteed by the PSF are not considered other-than-temporarily impaired. Equity securities with readily determinable fair values consist primarily of Community Reinvestment Act funds. At December 31, 2025 and December 31, 2024, the balance in equity securities with readily determinable fair values recorded at fair value were $5,573,000 and $5,394,000, respectively. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities for the twelve months ended December 31, 2025, 2024, and 2023: Year EndedDecember 31, 2025 (Dollars in Thousands) Net gains recognized during the period on equity securities $ 180 Less: Net gains and (losses) recognized during the period on equity securities sold during the period — Unrealized gains recognized during the reporting period on equity securities still held at the reporting date $ 180 Year Ended December 31, 2024 (Dollars in Thousands) Net losses recognized during the period on equity securities $ (24) Less: Net gains and (losses) recognized during the period on equity securities sold during the period — Unrealized losses recognized during the reporting period on equity securities still held at the reporting date $ (24)
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 47 Year EndedDecember 31, 2023 (Dollars in Thousands) Net gains recognized during the period on equity securities $ 59 Less: Net gains and (losses) recognized during the period on equity securities sold during the period — Unrealized gains recognized during the reporting period on equity securities still held at the reporting date $ 59 Other investments include equity and merchant banking investments held by our subsidiary banks and non-banking entities. We hold ownership interests in limited partnerships for the purpose of investing in low-income housing tax credit (“LIHTC”) projects. The partnerships may acquire, construct, or rehabilitate housing for low- and moderate-income individuals. We realize a return primarily from federal tax credits and other federal tax deductions associated with the underlying projects. We are a limited partner in the partnerships, and not required to consolidate the entities in our consolidated financial statements. Investments in LIHTC projects totaled $261,128,000 at December 31, 2025 and $186,369,000 at December 31, 2024 and are included in other investments on the consolidated financial statements. Unfunded commitments to LIHTC projects totaled $37,200,000 at December 31, 2025 and $25,064,000 at December 31, 2024 and are included in other liabilities on the consolidated financial statements. Tax credits and other tax benefits, as well as amortization expense associated with investments in qualified low-income housing partnerships, are accounted for using the proportional amortization method of accounting. There was a total of $32,996,000 and $28,310,000 in estimated tax credits related to these investments recorded for the twelve months ended December 31, 2025 and December 31, 2024, respectively. There was a total of $28,627,000 and $26,615,000 in estimated amortization related to these investments for the twelve months ended December 31, 2025 and December 31, 2024, respectively. There were no impairment losses recorded on tax equity investments during the twelve months ended December 31, 2025 or December 31, 2024. (3) Loans A summary of loans, by loan type at December 31, 2025 and 2024 is as follows: December 31, December 31,2025 2024 (Dollars in Thousands) Commercial, financial and agricultural $ 5,603,505 $ 5,089,721 Real estate - mortgage 1,074,510 999,313 Real estate - construction 2,338,593 2,484,454 Consumer 51,003 49,777 Foreign 392,811 186,561 Total loans $ 9,460,422 $ 8,809,826 (4) Allowance for Credit Losses 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:
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 48 Commercial and industrial loans. This category includes loans extended to a diverse array of businesses for working capital or equipment purchases. These loans are mostly secured by the collateral pledged by the borrower that is directly related to the business activities of the borrower’s company such as equipment, accounts receivable, and inventory. The borrower’s abilities to generate revenues from equipment purchases, collect accounts receivable, and to turn inventory into sales are risk factors in the repayment of the loan. A 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 the development of land from unimproved land to lot development for both residential and commercial use and vertical construction across residential and commercial real estate classes. These loans carry risk of repayment when projects incur cost overruns, have an increase in the price of construction materials, encounter zoning, entitlement and environmental issues, or encounter other factors that may affect the completion of a project on time and on budget. Additionally, repayment risk may be negatively impacted when the market experiences a deterioration in the value of real estate. Risks specifically related to 1-4 family development loans also include mortgage rate risk and the practice by the mortgage industry of more restrictive underwriting standards, which inhibits the buyer from obtaining long term financing creating excessive housing and lot inventory in the market. Commercial real estate loans. This category includes loans secured by farmland, multifamily properties, owner-occupied commercial properties, and non-owner-occupied commercial properties. Owner- occupied commercial properties include warehouses, often along the 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 that are significantly lower than regulatory thresholds and 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 managing the borrower’s relationship with us 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.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 49 The table below summarizes the commercial real estate loan portfolio disaggregated by the type of real estate securing the credit as of December 31, 2025 and December 31, 2024: December 31, 2025 December 31, 2024 (Dollars in Thousands) (Dollars in Thousands) Amount Percentof Total Amount Percentof Total Commercial real estate: Commercial real estate construction development $1,170,201 18.8%$1,313,984 23.0% Hotel 1,074,069 17.3 1,080,706 18.9 Multi-family 685,212 11.0 310,115 5.4 Lot development: residential and commercial lots 618,209 9.9 513,760 9.0 Retail multi-tenant 528,793 8.5 738,874 12.9 Warehouse 455,265 7.3 435,783 7.6 Office/Professional buildings 440,909 7.1 416,014 7.3 1 - 4 family construction 398,320 6.4 338,832 5.9 Owner occupied real estate 372,333 6.0 270,584 4.7 Commercial leased properties 339,397 5.5 194,023 3.4 Farmland 137,945 2.2 109,697 1.9 Total commercial real estate $6,220,653 100.0%$5,722,372 100.0% 1-4 family mortgages. This category includes both first and second lien mortgages for the purpose of home purchases or refinancing of existing mortgage loans. A small portion of this loan category is related to home equity lines of credits, lots purchases, and home construction. Loan repayments may be affected by unemployment or underemployment and deteriorating market values of real estate. Consumer loans. This category includes deposit secured, vehicle secured, and unsecured loans, including overdrafts, made to individuals. Repayment is primarily affected by unemployment or underemployment. The loan pools are further broken down using a risk-based segmentation based on internal classifications for commercial loans and past due status for consumer mortgage loans. Non-mortgage consumer loans are evaluated as one segment. On a weekly basis, commercial loan past due reports are reviewed by the credit quality committee to determine if a loan has any potential problems and if a loan should be placed on our internal Watch List report. Additionally, our credit department reviews the majority of our loans for proper internal classification purposes regardless of whether they are past due and segregates any loans with potential problems for further review. The credit department will discuss the potential problem loans with the servicing loan officers to determine any relevant issues that were not discovered in the evaluation. Also, an analysis of loans that is provided through examinations by regulatory authorities is considered in the review process. After the above analysis is completed, we will determine if a loan should be placed on an internal Watch List report because of issues related to the analysis of the credit, credit documents, collateral, and/or payment history. 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 reflect our opinion that the credit contains weaknesses that represent a greater degree of risk, which warrants “extra attention.” Credits placed in this category are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. 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
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 50 value, have shown defined weaknesses related to adverse financial, managerial, economic, market, or political conditions which may jeopardize repayment of principal under contractual terms. 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 category 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 credits in accordance 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 specific reserve 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 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 collateral 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 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.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 51 A summary of the changes in the allowance for probable loan losses by loan class is as follows: December 31, 2025 Domestic Foreign Commercial real estate: other Commercial construction & real estate: Commercial land farmland & real estate: Residential: Residential: Commercial development commercial multifamily first lien junior lien Consumer Foreign Total (Dollars in Thousands) Balance at December 31, 2024 $ 29,853 $ 60,639 $ 43,990 $ 4,869 $ 5,528 $ 10,031 $ 281 $ 1,346 $156,537 Losses charged to allowance (7,673) (8,122) — — (104) (260) (200) — (16,359) Recoveries credited to allowance 3,539 — 183 — 27 133 22 — 3,904 Net losses charged to allowance (4,134) (8,122) 183 — (77) (127) (178) — (12,455) Provision (credit) charged to operations 2,210 (3,610) 2,240 9,844 1,274 (484) 176 3,442 15,092 Balance at December 31, 2025 $ 27,929 $ 48,907 $ 46,413 $ 14,713 $ 6,725 $ 9,420 $ 279 $ 4,788 $159,174 December 31, 2024 Domestic Foreign Commercial real estate: other Commercial construction & real estate: Commercial land farmland & real estate: Residential: Residential: Commercial development commercial multifamily first lien junior lien Consumer Foreign Total (Dollars in Thousands) Balance at December 31, 2023 $ 35,550 $ 55,291 $ 42,703 $ 5,088 $ 5,812 $ 11,024 $ 318 $ 1,283 $157,069 Losses charged to allowance (34,149) (2,228) — — (46) — (185) — (36,608) Recoveries credited to allowance 4,079 — 20 — 38 123 13 1 4,274 Net losses charged to allowance (30,070) (2,228) 20 — (8) 123 (172) 1 (32,334) Provision (credit) charged to operations 24,373 7,576 1,267 (219) (276) (1,116) 135 62 31,802 Balance at December 31, 2024 $ 29,853 $ 60,639 $ 43,990 $ 4,869 $ 5,528 $ 10,031 $ 281 $ 1,346 $156,537 December 31, 2023 Domestic Foreign Commercial real estate: other Commercial construction & real estate: Commercial land farmland & real estate: Residential: Residential: Commercial development commercial multifamily first lien junior lien Consumer Foreign Total (Dollars in Thousands) Balance at December 31, 2022 $ 26,728 $ 44,684 $ 36,474 $ 3,794 $ 4,759 $ 8,284 $ 281 $ 968 $125,972 Losses charged to allowance (9,664) — — — (43) (298) (179) — (10,184) Recoveries credited to allowance 5,433 837 143 — 16 260 16 — 6,705 Net losses charged to allowance (4,231) 837 143 — (27) (38) (163) — (3,479) Provision (credit) charged to operations 13,053 9,770 6,086 1,294 1,080 2,778 200 315 34,576 Balance at December 31, 2023 $ 35,550 $ 55,291 $ 42,703 $ 5,088 $ 5,812 $ 11,024 $ 318 $ 1,283 $157,069 The decrease in losses charged to the ACL for the year ended December 31, 2025 in the Commercial category can be attributed to a charge-down on one loan secured primarily by equipment and pipeline infrastructure used in the oil and gas industry that occurred in 2024. The credit had been classified as Watch- List Doubtful since the end of 2022 at which time, and going forward, we have evaluated our loss exposure and adjusted reserves accordingly. We also continued to attempt to work with our customer during that period; however, those negotiations came to a halt late in the third quarter of 2023 when the customer declared bankruptcy. In March 2024, the bankruptcy court awarded the winning bid at foreclosure for the assets collateralizing the loan to a principal owner of the business. The bid was not for the full carrying value of the loan and resulted in a charge-down of approximately $25.6 million. The pool specific qualitative loss factors management deemed appropriate for the ACL calculation at December 31, 2024 remained constant in the December 31, 2025 calculation.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 52 The table below provides additional information on the balance of loans individually or collectively evaluated for impairment and their related allowance, by loan class: December 31, 2025 Loans Individually Loans CollectivelyEvaluated For Evaluated ForImpairment Impairment Recorded RecordedInvestment Allowance Investment Allowance (Dollars in Thousands) Domestic Commercial $ 52,397 $ 500 $1,683,346 $ 27,429 Commercial real estate: other construction & land development — — 2,338,593 48,907 Commercial real estate: farmland & commercial 45,066 7,000 3,137,903 39,413 Commercial real estate: multifamily 42,787 7,600 642,006 7,113 Residential: first lien 31 — 629,403 6,725 Residential: junior lien — — 445,076 9,420 Consumer — — 51,003 279 Foreign — — 392,811 4,788 Total $140,281 $15,100 $9,320,141 $144,074 December 31, 2024 Loans Individually Loans CollectivelyEvaluated For Evaluated ForImpairment Impairment Recorded RecordedInvestment Allowance Investment Allowance (Dollars in Thousands) Domestic Commercial $ 52,110 $ 400 $1,799,693 $ 29,453 Commercial real estate: other construction & land development 8,195 8,122 2,476,259 52,517 Commercial real estate: farmland & commercial 65,733 8,228 2,862,070 35,762 Commercial real estate: multifamily 42,964 1,882 267,151 2,987 Residential: first lien 45 — 530,039 5,528 Residential: junior lien 141 — 469,088 10,031 Consumer — — 49,777 281 Foreign — — 186,561 1,346 Total $169,188 $18,632 $8,640,638 $137,905 Loans accounted for on a non-accrual basis at December 31, 2025, 2024, and 2023 amounted to $140,302,000, $169,136,000, and $47,170,000, respectively. The effect of such non-accrual loans reduced interest income by approximately $10,580,000, $12,661,000, and $6,614,000 for the years ended December 31, 2025, 2024, and 2023, respectively. Amounts received on non-accruals are applied, for financial accounting purposes, first to principal and then to interest after all principal has been collected. Accruing loans contractually past due 90 days or more as to principal or interest payments at December 31, 2025, 2024, and 2023 amounted to approximately $9,826,000, $6,693,000, and $5,597,000, respectively.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 53 The table below provides additional information on loans accounted for on a non-accrual basis by loan class: December 31, 2025 December 31, 2024 (Dollars in Thousands) Total Non-AccrualLoans Non-AccrualLoanswith NoCreditAllowance Total Non-AccrualLoans Non-AccrualLoanswith NoCreditAllowance Domestic Commercial $ 52,397 $ 51,513 $ 52,110 $ 51,276 Commercial real estate: other construction & land development — — 8,195 73 Commercial real estate: farmland & commercial 45,066 22,003 65,733 24,757 Commercial real estate: multifamily 42,787 5,086 42,964 73 Residential: first lien 52 52 134 134 Total non-accrual loans $140,302 $ 78,654 $169,136 $ 76,313 Doubtful loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement will not be collected. We have identified these loans through our normal loan review procedures. Doubtful loans are measured based on (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral if the loan is collateral dependent. Substantially all of our doubtful loans are measured at the fair value of the collateral. In limited cases, we may use other methods to determine the level of impairment of a loan if such loan is not collateral dependent. We occasionally provide modifications to borrowers experiencing financial difficulties. Modifications may include certain concessions that we must evaluate under ASU 2022-02 to determine the need for disclosure. Concessions to borrowers experiencing financial difficulties that would require disclosure include principal forgiveness, term extension, an other-than-insignificant payment delay, an interest rate reduction or a combination of these concessions. For the twelve months ended December 31, 2025, we did not provide any material modifications under these circumstances to any borrower experiencing financial difficulty that would require disclosure. The Subsidiary Banks charge-off that portion of any loan which management considers to represent a loss as well as that portion of any other loan which is classified as a “loss” by bank examiners. Commercial and industrial or real estate loans are generally considered by management to represent a loss, in whole or part, when an exposure beyond any collateral coverage is apparent and when no further collection of the loss portion is anticipated based on the borrower’s financial condition and general economic conditions in the borrower’s industry. Generally, unsecured consumer loans are charged-off when 90 days past due. While management considers that it is generally able to identify borrowers with financial problems reasonably early and to monitor credit extended to such borrowers carefully, there is no precise method of predicting loan losses. The determination that a loan is likely to be uncollectible and that it should be wholly or partially charged-off as a loss is an exercise of judgment. Similarly, the determination of the adequacy of the ACL (formerly allowance for probable loan losses) can be made only on a subjective basis. It is the judgment of our management that the ACL at December 31, 2025 and December 31, 2024 was adequate to absorb expected losses from loans in the portfolio at that date.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 54 The following table presents information regarding the aging of past due loans by loan class: December 31, 2025 90 Days or Total30 - 59 60 - 89 90 Days or greater & Past TotalDays Days Greater still accruing Due Current Portfolio (Dollars in Thousands) Domestic Commercial $ 5,988 $ 795 $ 47,509 $ 515 $ 54,292 $1,681,450 $1,735,742Commercial real estate: otherconstruction & land development 836 — 721 721 1,557 2,337,036 2,338,593Commercial real estate: farmland &commercial 567 23,923 — — 24,490 3,158,480 3,182,970 Commercial real estate: multifamily 33,684 — 12,637 — 46,321 638,472 684,793 Residential: first lien 5,898 3,093 5,787 5,766 14,778 614,656 629,434 Residential: junior lien 1,766 945 2,190 2,190 4,901 440,175 445,076 Consumer 250 31 8 8 289 50,714 51,003 Foreign 1,296 2,771 626 626 4,693 388,118 392,811 Total past due loans $50,285 $31,558 $ 69,478 $ 9,826 $151,321 $9,309,101 $9,460,422 December 31, 2024 90 Days or Total30 - 59 60 - 89 90 Days or greater & Past TotalDays Days Greater still accruing Due Current Portfolio (Dollars in Thousands) Domestic Commercial $ 4,070 $51,577 $ 579 $ 534 $ 56,226 $1,795,577 $1,851,803Commercial real estate: otherconstruction & land development 2,421 15 8,122 — 10,558 2,473,896 2,484,454Commercial real estate: farmland &commercial 1,221 — 26,416 262 27,637 2,900,166 2,927,803 Commercial real estate: multifamily — 270 25,064 — 25,334 284,781 310,115 Residential: first lien 4,763 1,337 3,631 3,542 9,731 520,353 530,084 Residential: junior lien 2,599 1,544 2,000 2,000 6,143 463,086 469,229 Consumer 122 32 16 16 170 49,607 49,777 Foreign 816 1,992 339 339 3,147 183,414 186,561 Total past due loans $16,012 $56,767 $ 66,167 $ 6,693 $138,946 $8,670,880 $8,809,826 The increase in Commercial real estate: multifamily loans past due 30 – 59 days at December 31, 2025 can be attributed to a loan secured by multifamily affordable apartments. The decrease in Commercial loans past due 60 - 89 days at December 31, 2025 can be primarily attributed to a loan secured by a multifamily affordable housing community that is past due 90 days or greater and on non-accrual. The increase in Commercial real estate: farmland & commercial loans past due 60 – 89 days at December 31, 2025 can be attributed to a loan secured by real estate for future development. The decrease in Commercial real estate: farmland and commercial loans past due 90 days or greater at December 31, 2025 can be attributed to two loans, one is a hotel that was paid off by the borrower in the fourth quarter of 2025 and one is a commercial building, which was placed on non-accrual. Our internal classified report is segregated into the following categories: (i) “Special Review Credits,” (ii) “Watch List—Pass Credits,” or (iii) “Watch List— Substandard Credits.” The loans placed in the “Special Review Credits” category reflect our opinion that the loans reflect potential weakness which require monitoring on a more frequent basis. The “Special Review Credits” are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. The loans placed in the “Watch List—Pass Credits” category reflect our opinion that the credit contains weaknesses which represent a greater degree of risk, which warrant “extra attention.” The “Watch List—Pass Credits” are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. The loans placed in the “Watch List—Substandard Credits” classification are considered to be potentially inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These credit obligations, even if apparently protected by collateral value, have shown defined weaknesses related to adverse financial, managerial, economic, market, or political conditions which may jeopardize repayment of principal and interest. Furthermore, there is the possibility that we could sustain some future loss if such weaknesses are not corrected.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 55 A summary of the loan portfolio by credit quality indicator by loan class is as follows: 2025 2024 2023 2022 2021 Prior Total (Dollars in Thousands)Balance at December 31, 2025DomesticCommercial Pass $ 952,495 $ 172,120 $ 204,095 $ 84,301 $169,430 $ 89,567 $1,672,008Watch List - Pass 10,358 — — — — — 10,358Watch List - Substandard 705 55 183 — — 36 979Watch List - Doubtful 4,735 702 46,885 10 65 — 52,397 Total Commercial $ 968,293 $ 172,877 $ 251,163 $ 84,311 $169,495 $ 89,603 $1,735,742 CommercialCurrent-period gross writeoffs $ 5,659 $ 2,001 $ 12 $ — $ — $ 1 $ 7,673Commercial real estate: otherconstruction & land developmentPass $1,232,753 $ 535,289 $ 497,267 $ 37,432 $ 32,409 $ 3,313 $2,338,463Watch List - Substandard — 130 — — — — 130Total Commercial real estate: otherconstruction & land development $1,232,753 $ 535,419 $ 497,267 $ 37,432 $ 32,409 $ 3,313 $2,338,593Commercial real estate: otherconstruction & land developmentCurrent-period gross writeoffs $ — $ — $ — $ 8,122 $ — $ — $ 8,122Commercial real estate: farmland &commercial Pass $ 880,871 $ 576,080 $ 582,532 $628,474 $176,016 $245,564 $3,089,537Special Review 18,417 — — — — — 18,417Watch List - Pass 27,378 184 — — — — 27,562Watch List - Substandard 1,918 — 237 233 — — 2,388 Watch List - Doubtful 45,066 — — — — — 45,066 Total Commercial real estate:farmland & commercial $ 973,650 $ 576,264 $ 582,769 $628,707 $176,016 $245,564 $3,182,970 Commercial real estate: multifamily Pass $ 217,455 $ 79,833 $ 254,234 $ 49,276 $ 12,419 $ 28,789 $ 642,006 Watch List - Doubtful 12,694 30,093 — — — — 42,787 Total Commercial real estate:multifamily $ 230,149 $ 109,926 $ 254,234 $ 49,276 $ 12,419 $ 28,789 $ 684,793 Residential: first lienPass $ 257,052 $ 84,549 $ 98,590 $ 71,410 $ 45,734 $ 71,704 $ 629,039Watch List - Substandard — 90 — — 274 — 364 Watch List - Doubtful 20 — — 11 — — 31 Total Residential: first lien $ 257,072 $ 84,639 $ 98,590 $ 71,421 $ 46,008 $ 71,704 $ 629,434 Residential: first lienCurrent-period gross writeoffs $ — $ 101 $ — $ — $ — $ 3 $ 104Residential: junior lien Pass $ 55,556 $ 76,596 $ 58,790 $ 56,080 $ 59,089 $138,965 $ 445,076 Total Residential: junior lien $ 55,556 $ 76,596 $ 58,790 $ 56,080 $ 59,089 $138,965 $ 445,076 Residential: junior lienCurrent-period gross writeoffs $ — $ 120 $ — $ — $ 56 $ 84 $ 260Consumer Pass $ 39,920 $ 8,417 $ 664 $ 421 $ 128 $ 1,453 $ 51,003 Total Consumer $ 39,920 $ 8,417 $ 664 $ 421 $ 128 $ 1,453 $ 51,003 ConsumerCurrent-period gross writeoffs $ 76 $ 99 $ 24 $ — $ — $ 1 $ 200Foreign Pass $ 276,180 $ 53,392 $ 35,700 $ 12,535 $ 10,454 $ 4,550 $ 392,811 Total Foreign $ 276,180 $ 53,392 $ 35,700 $ 12,535 $ 10,454 $ 4,550 $ 392,811 Total Loans $4,033,573 $1,617,530 $1,779,177 $940,183 $506,018 $583,941 $9,460,422
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 56 2024 2023 2022 2021 2020 Prior Total (Dollars in Thousands)Balance at December 31, 2024DomesticCommercial Pass $ 993,045 $ 343,212 $ 135,057 $214,702 $ 37,670 $ 63,030 $1,786,716Special Review — — — — — — —Watch List - Pass — 11,113 — — — — 11,113Watch List - Substandard 1,341 327 74 122 — — 1,864Watch List - Doubtful 881 51,184 45 — — — 52,110 Total Commercial $ 995,267 $ 405,836 $ 135,176 $214,824 $ 37,670 $ 63,030 $1,851,803 CommercialCurrent-period gross writeoffs $ 5,711 $ 2,689 $ 25,686 $ 44 $ 14 $ 5 $ 34,149Commercial real estate: otherconstruction & land developmentPass $1,029,399 $ 921,180 $ 322,348 $144,221 $ 39,908 $ 2,925 $2,459,981Special Review — 16,000 — — — — 16,000Watch List - Substandard 278 — — — — — 278Watch List - Doubtful 73 — 8,122 — — — 8,195Total Commercial real estate: otherconstruction & land development $1,029,750 $ 937,180 $ 330,470 $144,221 $ 39,908 $ 2,925 $2,484,454Commercial real estate: otherconstruction & land developmentCurrent-period gross writeoffs $ — $ 1,146 $ 1,082 $ — $ — $ — $ 2,228Commercial real estate: farmland &commercial Pass $ 814,273 $ 631,806 $ 531,035 $312,757 $220,510 $245,334 $2,755,715Special Review 643 67,567 — — — — 68,210Watch List - Pass 16,490 — — — — — 16,490Watch List - Substandard 18,934 242 2,122 — 357 — 21,655 Watch List - Doubtful 52,973 115 12,645 — — — 65,733 Total Commercial real estate:farmland & commercial $ 903,313 $ 699,730 $ 545,802 $312,757 $220,867 $245,334 $2,927,803 Commercial real estate: farmland &commercialCommercial real estate: multifamily Pass $ 90,092 $ 11,538 $ 108,830 $ 18,621 $ 8,198 $ 29,871 $ 267,150Watch List - Doubtful 17,901 25,064 — — — — 42,965Total Commercial real estate:multifamily $ 107,993 $ 36,602 $ 108,830 $ 18,621 $ 8,198 $ 29,871 $ 310,115 Commercial real estate: multifamilyResidential: first lienPass $ 180,743 $ 107,100 $ 81,618 $ 57,503 $ 29,316 $ 73,390 $ 529,670Watch List - Substandard 95 — — 274 — — 369Watch List - Doubtful 23 — 22 — — — 45 Total Residential: first lien $ 180,861 $ 107,100 $ 81,640 $ 57,777 $ 29,316 $ 73,390 $ 530,084 Residential: first lienCurrent-period gross writeoffs $ — $ — $ — $ — $ — $ 46 $ 46Residential: junior lienPass $ 91,202 $ 73,740 $ 65,144 $ 70,969 $ 65,799 $102,234 $ 469,088Watch List- Doubtful 141 — — — — — 141 Total Residential: junior lien $ 91,343 $ 73,740 $ 65,144 $ 70,969 $ 65,799 $102,234 $ 469,229 Residential: junior lienConsumerPass $ 38,778 $ 8,137 $ 904 $ 422 $ 22 $ 1,514 $ 49,777 Total Consumer $ 38,778 $ 8,137 $ 904 $ 422 $ 22 $ 1,514 $ 49,777 ConsumerCurrent-period gross writeoffs $ 43 $ 120 $ 22 $ — $ — $ — $ 185Foreign Pass $ 124,716 $ 30,648 $ 16,877 $ 6,962 $ 2,879 $ 4,479 $ 186,561 Total Foreign $ 124,716 $ 30,648 $ 16,877 $ 6,962 $ 2,879 $ 4,479 $ 186,561 Foreign Total Loans $3,472,021 $2,298,973 $1,284,843 $826,553 $404,659 $522,777 $8,809,826 The decrease in Commercial real estate: other construction and land development Special Review loans at December 31, 2025 can be attributed to a loan secured by commercial real estate that was upgraded to economic monitoring. The change in Commercial real estate: farmland & commercial Special Review loans at December 31, 2025
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 57 can be attributed to one loan secured by a retail center that was upgraded to economic monitoring and two loans secured by hotels that were upgraded from Watch List - Substandard to Special Review. The increase in Commercial real estate: farmland & commercial Watch List-Pass loans at December 31, 2025 can be attributed to a loan secured by a retirement home and a loan secured by an industrial warehouse, both of which were downgraded from Economic Monitoring. The decrease in Commercial real estate: farmland & commercial Watch List – Substandard loans at December 31, 2025 can be attributed to two loans secured by hotels that were upgraded to Special Review as previously noted, and one loan secured by a convenience store that was upgraded to Pass. The decrease in Commercial real estate: farmland & commercial Doubtful loans at December 31, 2025 can be attributed to a partial paydown on a relationship secured by commercial buildings on which childcare centers are operated and a loan secured by a hotel, which was paid off in the fourth quarter of 2025. (5) Bank Premises and Equipment A summary of bank premises and equipment, by asset classification, at December 31, 2025 and 2024 were as follows: Estimated useful lives 2025 2024 (Dollars in Thousands) Bank buildings and improvements 5 - 39 years $ 594,932 $ 588,093 Furniture, equipment and vehicles 1 - 20 years 332,712 331,200 Land 112,170 110,919 Less: accumulated depreciation (616,821) (601,991) Bank premises and equipment, net $ 422,993 $ 428,221 (6) Deposits Deposits as of December 31, 2025 and 2024 and related interest expense for the years ended December 31, 2025, 2024, and 2023 were as follows: 2025 2024 (Dollars in Thousands) Deposits: Demand - non-interest bearing Domestic $ 3,727,802 $ 3,790,875 Foreign 758,406 821,469 Total demand non-interest bearing 4,486,208 4,612,344 Savings and interest bearing demand Domestic 3,427,721 3,317,461 Foreign 1,321,257 1,282,496 Total savings and interest bearing demand 4,748,978 4,599,957 Time, certificates of deposit $100,000 or more Domestic 967,848 876,254 Foreign 1,577,823 1,390,566 Less than $100,000 Domestic 327,741 317,220 Foreign 327,908 315,503 Total time, certificates of deposit 3,201,320 2,899,543 Total deposits $ 12,436,506 $ 12,111,844
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 58 2025 2024 2023 (Dollars in Thousands) Interest expense: Savings and interest bearing demand Domestic $ 57,594 $ 56,759 $ 42,148 Foreign 25,326 25,153 18,189 Total savings and interest bearing demand 82,920 81,912 60,337 Time, certificates of deposit $100,000 or more Domestic 32,337 32,283 18,597 Foreign 52,134 47,420 25,471 Less than $100,000 Domestic 9,344 8,748 4,592 Foreign 9,101 8,517 4,498 Total time, certificates of deposit 102,916 96,968 53,158 Total interest expense on deposits $ 185,836 $ 178,880 $ 113,495 Scheduled maturities of time deposits as of December 31, 2025 were as follows: Total (in thousands) 2026 $ 3,072,855 2027 94,969 2028 25,054 2029 8,139 2030 302 Thereafter 1 Total $ 3,201,320 Scheduled maturities of time deposits in amounts of $100,000 or more at December 31, 2025, were as follows: Total (in thousands) Due within 3 months or less $ 1,132,341 Due after 3 months and within 6 months 854,833 Due after 6 months and within 12 months 469,068 Due after 12 months 89,429 $ 2,545,671 Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2025 and December 31, 2024 were $1,702,199,000 and $1,494,267,000, respectively. (7) Securities Sold Under Repurchase Agreements Our Subsidiary Banks have entered into repurchase agreements with individual customers of the Subsidiary Banks. The purchasers have agreed to resell to the Subsidiary Banks identical securities upon the maturities of the agreements. Securities sold under repurchase agreements were mortgage-backed securities and averaged $616,547,000 and $616,208,000 during 2025 and 2024, respectively, and the maximum amount outstanding at any month end during 2025 and 2024 was $670,596,000 and $713,772,000, respectively.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 59 Further information related to repurchase agreements at December 31, 2025 and 2024 is set forth in the following table: Collateral Securities Repurchase Borrowing Book Value of Fair Value of Balance of Weighted Average Securities Sold Securities Sold Liability Interest Rate (Dollars in Thousands) December 31, 2025 term: Overnight agreements $ 772,719 $ 705,788 $ 572,895 3.02% 1 to 29 days 17,150 15,778 11,579 3.85 30 to 90 days — — — — Over 90 days 2,084 2,066 1,070 2.75 Total $ 791,953 $ 723,632 $ 585,544 3.03% December 31, 2024 term: Overnight agreements $ 775,760 $ 687,091 $ 523,152 3.09% 1 to 29 days 15,872 13,604 11,100 4.75 30 to 90 days — — — — Over 90 days 1,914 1,871 1,070 4.00 Total $ 793,546 $ 702,566 $ 535,322 3.12% The book value and fair value of securities sold includes the entire book value and fair value of securities partially or fully pledged under repurchase agreements. (8) Other Borrowed Funds Other borrowed funds include Federal Home Loan Bank borrowings, which may be short, and long- term fixed borrowings issued by the Federal Home Loan Bank of Dallas and the Federal Home Loan Bank of Topeka at the market price offered at the time of funding. These borrowings are secured by mortgage-backed investment securities and a portion of our loan portfolio. Further information regarding our other borrowed funds at December 31, 2025 and 2024 is set forth in the following table: December 31, 2025 2024 (Dollars in Thousands) Federal Home Loan Bank advances—short-term Average daily balance $ 44,575 $ — Average rate 3.11% —% Maximum amount outstanding at any month end $ 250,000 $ — Federal Home Loan Bank advances—long- term(1) Balance at year end $ 10,332 $ 10,541 Rate on balance outstanding at year end 2.61% 2.61% Average daily balance $ 10,428 $ 10,635 Average rate 2.61% 2.61% Maximum amount outstanding at any month end $ 10,524 $ 10,729 (1) Long-term advances at December 31, 2025 and December 31, 2024 consisted of amortizing advances. Two amortizing advancesare outstanding at December 31, 2025 in the amounts of $2,788,000 and $7,544,000 and mature in December 2033 and November2033, respectively. The amortization on the amortizing long-term advances totals approximately $215,000, $221,000, $227,000,$233,000 and $239,000 for the years ending December 31, 2026, 2027, 2028, 2029 and December 31, 2030, respectively.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 60 (9) Junior Subordinated Deferrable Interest Debentures We currently have four statutory business trusts, Trusts IX, X, XI and XII (the “Trusts”), formed under the laws of the State of Delaware for the purpose of issuing trust preferred securities. The Trusts each issued capital and common securities (“Capital and Common Securities”) and invested the proceeds thereof in an equivalent amount of junior subordinated debentures (the “Debentures”) we issued. As of December 31, 2025 and December 31, 2024, the principal amount of Debentures outstanding totaled $108,868,000, respectively. The Debentures are subordinated and junior in right of payment to all our present and future senior indebtedness (as defined in the respective indentures) and are pari passu with one another. The interest rate payable on, and the payment terms of the Debentures are the same as the distribution rate and payment terms of the respective issues of Capital and Common Securities issued by the Trusts. We have fully and unconditionally guaranteed the obligations of each of the Trusts with respect to the Capital and Common Securities. We have the right, unless an Event of Default (as defined in the Indentures) has occurred and is continuing, to defer payment of interest on the Debentures for up to twenty consecutive quarterly periods on each of the Trusts. If interest payments on any of the Debentures are deferred, distributions on both the Capital and Common Securities related to that Debenture would also be deferred. The redemption prior to maturity of any of the Debentures may require the prior approval of the Federal Reserve and/or other regulatory bodies. For financial reporting purposes, the Trusts are treated as investments and not consolidated in the consolidated financial statements. Although the Capital and Common Securities issued by each of the Trusts are not included as a component of shareholders’ equity on the consolidated statement of condition, the Capital and Common Securities are treated as capital for regulatory purposes. Specifically, under applicable regulatory guidelines, the Capital and Common Securities issued by the Trusts qualify as Tier 1 capital up to a maximum of 25% of Tier 1 capital on an aggregate basis. Any amount that exceeds the 25% threshold would qualify as Tier 2 capital. At December 31, 2025 and December 31, 2024, the total $108,868,000, respectively, of the Capital and Common Securities outstanding qualified as Tier 1 capital. The following table illustrates key information about each of the Debentures and their interest rates at December 31, 2025: Junior SubordinatedDeferrableInterest Repricing Interest Interest Optional Debentures Frequency Rate Rate Index(1) Maturity Date Redemption Date(2) (Dollarsin Thousands) Trust IX $ 41,238 Quarterly 5.87 %SOFR + 1.62 October 2036 October 2011 Trust X 21,021 Quarterly 5.77 %SOFR + 1.65 February 2037 February 2012 Trust XI 25,990 Quarterly 5.87 %SOFR + 1.62 July 2037 July 2012 Trust XII 20,619 Quarterly 5.50 %SOFR + 1.45 September 2037 September 2012 $ 108,868 (1) The Capital and Common Securities may be redeemed in whole or in part on any interest payment date after the OptionalRedemption Date. (10) Earnings per Share (“EPS”) Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding. The computation of diluted EPS assumes the issuance of common shares for all dilutive potential common shares
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 61 outstanding during the reporting period. The calculation of the basic EPS and the diluted EPS for the years ended December 31, 2025, 2024, and 2023 is set forth in the following table: Net Income Shares Per Share (Numerator) (Denominator) Amount (Dollars in Thousands, Except Per Share Amounts) December 31, 2025: Basic EPS Net income available to common shareholders $ 412,293 62,171,914 $ 6.63 Potential dilutive common shares — 84,993 Diluted EPS $ 412,293 62,256,907 $ 6.62 December 31, 2024: Basic EPS Net income available to common shareholders $ 409,167 62,180,448 $ 6.58 Potential dilutive common shares — 117,830 Diluted EPS $ 409,167 62,298,278 $ 6.57 December 31, 2023: Basic EPS Net income available to common shareholders $ 411,768 62,082,827 $ 6.63 Potential dilutive common shares — 138,774 Diluted EPS $ 411,768 62,221,601 $ 6.62 (11) Employees’ Profit-Sharing Plan We have a deferred profit-sharing plan for full-time employees with a minimum of one year of continuous employment. Our annual contribution to the plan is based on a percentage, as determined by our Board of Directors, of income before income taxes, as defined, for the year. Allocation of the contribution among officers and employees’ accounts is based on length of service and amount of salary earned. Profit sharing costs of $4,655,000, $4,460,000, and $4,011,000 were charged to income for the years ended December 31, 2025, 2024, and 2023, respectively. (12) International Operations We provide international banking services for our customers through our Subsidiary Banks. Neither we nor our Subsidiary Banks have facilities located outside the United States. International operations are distinguished from domestic operations based upon the domicile of the customer. Because the resources we employ are common to both international and domestic operations, it is not practical to determine net income generated exclusively from international activities.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 62 A summary of assets attributable to international operations at December 31, 2025 and 2024 are as follows: 2025 2024 (Dollars in Thousands) Loans: Commercial $ 300,079 $ 99,836 Others 92,732 86,725 392,811 186,561 Less allowance for probable credit losses (4,788) (1,346) Net loans $ 388,023 $ 185,215 Accrued interest receivable $ 1,844 $ 991 At December 31, 2025 and December 31, 2024, we had $135,581,000 and $149,543,000, respectively, in outstanding standby and commercial letters of credit to facilitate trade activities. Revenues directly attributable to international operations were approximately $10,993,000, $8,669,000, and $8,212,000 for the years ended December 31, 2025, 2024, and 2023, respectively. (13) Income Taxes We file a consolidated U.S. Federal and State income tax return. The current and deferred portions of net income tax expense included in the consolidated statements of income are presented below for the years ended December 31: 2025 2024 2023 (Dollars in Thousands) Current U.S. $ 88,333 $ 105,114 $ 82,657 State 5,670 5,905 6,137 Total current taxes 94,003 111,019 88,794 Deferred U.S. 13,421 (11,430) 23,001 State 645 (36) (51) Total deferred taxes 14,066 (11,466) 22,950 Total income taxes $ 108,069 $ 99,553 $ 111,744 The income tax expense differs from the amount computed by applying the U.S. Federal income tax rate of 21% for 2025, 2024, and 2023 to income before income taxes. There were no activities or transactions that had foreign income taxes or cross-border tax effects during 2025, 2024, or 2023. State income/franchise taxes are primarily related to the States of Texas and Oklahoma. Included in the table below is the net tax benefit related to investments in LIHTC projects. Additional information on LIHTC investments can be found in Note 2 – Investment Securities, Equity Securities with
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 63 Readily Determinable Fair Values and Other Investments. The reasons for the differences for the years ended December 31 are as follows (Dollars in Thousands): 2025 2024 2023 Dollars Percent Dollars Percent Dollars Percent U.S. federal income tax expense computed at the statutory rate $109,276 21.0% $106,831 21.0% $109,938 21.0% State income/franchise taxes, net of U.S. federal income tax effects (1) 4,989 1.0 4,636 0.9 4,808 0.9 Net investment in low income housing investments (3,451) (0.7) (2,531) (0.5) 1,974 0.4 Non-taxable or non-deductible items (2,745) (0.5) (9,383) (1.9) (4,976) (1.0) Actual tax expense $108,069 20.8% $ 99,553 19.5% $111,744 21.4% (1) State income/franchise taxes, net of U.S. federal income tax effects are related to taxes paid in the States of Texas and Oklahoma The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2025 and 2024 are reflected below: 2025 2024 (Dollars in Thousands) Deferred tax assets: Loans receivable, principally due to the allowance for probable loan losses $ 41,405 $ 40,883 Other real estate owned 1,770 1,443 Accrued expenses 273 539 Net unrealized losses on available for sale investment securities 68,506 105,339 Other 2,022 1,480 Total deferred tax assets 113,976 149,684 Deferred tax liabilities: Bank premises and equipment, principally due to differences on depreciation (13,477) (14,648) Impairment charges on available-for-sale securities (19) (19) Identified intangible assets and goodwill (14,151) (14,151) Partnership investment pass through (70,529) (55,117) Other (5,139) (4,189) Total deferred tax liabilities (103,315) (88,124) Net deferred tax asset $ 10,661 $ 61,560 The net deferred tax asset of $10,661,000 and $61,560,000 at December 31, 2025 and December 31, 2024, respectively, is included in other assets in the consolidated statements of condition. (14) Stock Options and Stock Appreciation Rights On April 5, 2012, the Board of Directors adopted the 2012 International Bancshares Corporation Stock Option Plan (the “2012 Plan”). There were 800,000 shares of common stock available for stock option grants under the 2012 Plan, which were qualified incentive stock options (“ISOs”) or non-qualified stock options. Options granted may be exercisable for a period of up to 10 years from the date of grant, excluding ISOs granted to 10% shareholders, which may be exercisable for a period of up to only five years. On April 4, 2022, the 2012 Plan expired and was not renewed. The fair value of each option award granted under the plan was estimated on the date of grant using a Black-Scholes-Merton option valuation model that uses the assumptions noted in the following table. Expected volatility
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 64 was based on the historical volatility of the price of our stock. We used historical data to estimate the expected dividend yield and employee termination rates within the valuation model. The expected term of options was derived from historical exercise behavior. The risk-free rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of grant. A summary of option activity under the stock option plans for the twelve months ended December 31, 2025 is as follows: Weighted Weighted averageaverage remaining AggregateNumber of exercise contractual intrinsicoptions price term (years) value ($) (in Thousands) Options outstanding at December 31, 2024 212,155 $ 35.27 Plus: Options granted — — Less: Options exercised (42,121) 34.81 Options expired — — Options forfeited (5,150) 34.03 Options outstanding at December 31, 2025 164,884 35.42 3.37 $ 5,115 Options fully vested and exercisable at December 31, 2025 122,733 $ 36.20 2.65 $ 3,711 Stock-based compensation expense included in the consolidated statements of income for the years ended December 31, 2025, 2024, and 2023 was approximately $104,000, $214,000, and $330,000, respectively. As of December 31, 2025, there was approximately $113,000 of total unrecognized stock-based compensation cost related to non-vested options granted under our plans that will be recognized over a weighted average period of 1.2 years. Other information pertaining to option activity during the twelve months ended December 31, 2025, 2024, and 2023 is as follows: Twelve Months Ended December 31, 2025 2024 2023 Weighted average grant date fair value of stock options granted $ — $ — $ — Total fair value of stock options vested $ 478,000 $ 616,286 $ 514,000 Total intrinsic value of stock options exercised $1,314,000 $4,640,000 $1,060,000 On April 18, 2022, the Board of Directors adopted the 2022 International Bancshares Stock Appreciation Rights Plan (the “SAR Plan”). There are 750,000 shares of underlying common stock that may be used for stock appreciation right (“SAR”) grants under the plan, however, no actual shares will be granted. Upon exercise, the SAR will be settled in cash. SARs granted may be exercisable for a period of up to 10 years from the date of grant and may vest over an eight-year period. As of December 31, 2025, a total of 426,743 SARS had been issued under the SAR Plan.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 65 A summary of activity under the SAR Plan for the twelve months ended December 31, 2025 is as follows: Weighted Weighted averageNumber of average remaining Aggregatestock appreciation exercise contractual intrinsicrights price term (years) value ($) (in Thousands) SARs outstanding at December 31, 2024 456,702 $39.61 Plus: SARs granted — Less: SARs exercised (11,583) 39.33 SARs expired — — SARs forfeited (18,376) 39.33 SARs outstanding at December 31, 2025 426,743 39.63 6.54 $ 11,443 SARs fully vested and exercisable at December 31, 2025 62,811 $39.35 6.50 $ 1,701 The fair value of the liability for payments due to stock appreciation rights holders at December 31, 2025 and December 31, 2024 is approximately $6,620,000 and $4,540,000, respectively, as calculated using a Black-Scholes-Merton model, and is included in other liabilities on the consolidated statements of condition. The expense recorded in connection with all grants under the SAR Plan totaled $2,131,000, $3,144,000, and $918,000, respectively, for the twelve months ended December 31, 2025, 2024, and 2023. As of December 31, 2025, there was approximately $6,810,000 in unrecognized liability related to non-vested SARs granted under the plan that will be recognized over a weighted average period of 6.5 years. (15) Commitments, Contingent Liabilities and Other Matters On March 15, 2020, the FRB announced that it had reduced regulatory reserve requirements to zero percent effective on March 26, 2020; therefore, no cash is required to be maintained to satisfy regulatory reserve requirements. We are involved in various legal proceedings that are in various stages of litigation. We have determined, based on discussions with our counsel that any material loss in such actions, individually or in the aggregate, is remote or the damages sought, even if fully recovered, would not be considered material to our consolidated statements of condition and related statements of income, comprehensive income, shareholders’ equity, and cash flows. However, many of these matters are in various stages of proceedings and further developments could cause management to revise its assessment of these matters. (16) Transactions with Related Parties In the ordinary course of business, the Subsidiary Banks make loans to our directors and executive officers, including their affiliates, families, and companies in which they are principal owners. In the opinion of management, these loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collectability or present other unfavorable features. The aggregate amounts receivable from such related parties amounted to approximately $14,020,000 and $6,669,000 at December 31, 2025 and 2024, respectively. We are a financial holding company and under current regulatory authority, are allowed to make certain equity investments in non-financial companies. We hold interests in several non-financial companies in various industries including oil and gas operations, hotel development, and aviation. Our ownership interests range from less than approximately 5% to approximately 44%, and none of the investments are significant to our overall financial position. We account for ownership interests under either the cost or equity method of accounting, depending on our ownership level. For equity method investments, the net income (loss) is recorded as other investment income on our consolidated income statement, and the invested amount is included in other investments on our consolidated statement of
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 66 condition. We are a limited partner in all the investments, and do not exert significant control over the day- to-day operations of the investee. Our Subsidiary Banks have outstanding loans to some of the entities in which we hold an equity investment, and loans outstanding to entities in which we hold a greater than 20% equity interest totaled $289,161,000 and $269,013,000 at December 31, 2025 and December 31, 2024, respectively. The terms of those credits are extended at arms-length under the same terms and conditions available to all customers for that type of industry, creditworthiness, collateral position and ability to repay. Deposit liabilities related to the same investees are not significant at December 31, 2025 or December 31, 2024. (17) Financial Instruments with Off-Statement of Condition Risk and Concentrations of Credit Risk In the normal course of business, the Subsidiary Banks are party to financial instruments with off- statement of condition risk to meet the financing needs of their customers. These financial instruments include commitments to their customers. These financial instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated statement of condition. The contract amounts of these instruments reflect the extent of involvement the Subsidiary Banks have in particular classes of financial instruments. At December 31, 2025, the following financial amounts of instruments, whose contract amounts represent credit risks, were outstanding (in thousands): Commitments to extend credit $ 3,546,508 Credit card lines $ 13,356 Standby letters of credit $ 134,581 Commercial letters of credit $ 1,000 We enter into a standby letter of credit to guarantee performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved is represented by the contractual amounts of those instruments. Under the standby letters of credit, we are required to make payments to the beneficiary of the letters of credit upon request by the beneficiary so long as all performance criteria have been met. At December 31, 2025, the maximum potential amount of future payments is approximately $134,581,000. At December 31, 2025, the fair value of these guarantees is not significant. Unsecured letters of credit totaled approximately $29,406,000 and $23,334,000 at December 31, 2025 and 2024, respectively. We enter into commercial letters of credit on behalf of our customers which authorize a third party to draw drafts upon us up to a stipulated amount and with specific terms and conditions. A commercial letter of credit is a conditional commitment on our part to provide payment on drafts drawn in accordance with the terms of the commercial letter of credit. The Subsidiary Banks’ exposure to credit loss in the event of nonperformance by the other party to the above financial instruments is represented by the contractual amounts of the instruments. The Subsidiary Banks use the same credit policies in making commitments and conditional obligations as they do for on- statement of condition instruments. The Subsidiary Banks control the credit risk of these transactions through credit approvals, limits, and monitoring procedures. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates normally less than one year or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Subsidiary Banks evaluate each customer’s credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Subsidiary Banks upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include residential and commercial real estate, bank certificates of deposit, accounts receivable, and inventory. The Subsidiary Banks make commercial, real estate and consumer loans to customers principally located in south, central and southeast Texas and the State of Oklahoma. Although the loan portfolio is diversified, a substantial portion of its debtors’ ability to honor their contracts is dependent upon the economic conditions in these areas, especially in the real estate and commercial business sectors.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (18) Capital Requirements Bank regulatory agencies limit the amount of dividends, which the Subsidiary Banks can pay, without obtaining prior approval from such agencies. At December 31, 2025, the Subsidiary Banks could pay dividends of up to $1,644,000,000 without prior regulatory approval and without adversely affecting their “well-capitalized” status under regulatory capital rules in effect at December 31, 2025. In addition to legal requirements, regulatory authorities also consider the adequacy of the Subsidiary Banks’ total capital in relation to their deposits and other factors. These capital adequacy considerations also limit amounts available for payment of dividends. We historically have not allowed any Subsidiary Bank to pay dividends in such a manner as to impair its capital adequacy. We and the Subsidiary Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-statement of condition items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Current quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table on the following page) of Total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Management believes, as of December 31, 2025, that we met all capital adequacy requirements to which we are subject. In July 2013, the FDIC and other regulatory bodies established a new, comprehensive capital framework for U.S. banking organizations, consisting of minimum requirements that increase both the quantity and quality of capital held by banking organizations. The final rules are a result of the implementation of the Basel III capital reforms and various related capital provisions of the Dodd-Frank Act. Consistent with the Basel international framework, the rules include a new minimum ratio of Common Equity Tier 1 (“CET1”) capital 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 but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The rules also raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and include a minimum leverage ratio of 4% for all banking organizations. Regarding the quality of capital, the rules emphasize CET1 capital and implements strict eligibility criteria for regulatory capital instruments. The rules also improve the methodology for calculating risk-weighted assets to enhance risk sensitivity. The rules were subject to a four-year phase-in period for mandatory compliance, and we were required to begin to phase-in the new rules beginning on January 1, 2015. We believe that as of December 31, 2025, we meet all fully phased-in capital adequacy requirements. In November 2017, the OCC, 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 CECL (the FASB Standard relating to current expected credit loss) and its potential impact on regulatory capital. Pursuant to 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, 2025. 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 allowance for probable loan losses and a one-time cumulative-effect adjustment to retained earnings upon adoption. 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
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 68 framework makes changes to the capital framework first introduced as “Basel III” in 2010 and aim to reduce excessive variability in banks’ calculations of risk-weighted capital ratios. Implementation of Basel IV across the Basel Committee’s member jurisdictions 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. The U.S. regulators originally targeted implementation of Basel IV to begin on July 1, 2025, subject to a three-year transition period with full compliance expected by July 1, 2028. However, the future implementation of Basel IV remains unclear, as the Federal Reserve continues to review the Basel IV rules and has indicated that it may craft a new risk-based capital rule that would be less onerous for banks and require less stringent capital requirements. Most recently, in September 2025, the federal banking agencies indicated that they intend to unveil a re-proposal of the Basel IV capital rules by early 2026. Accordingly, the previously established implementation dates for Basel IV are no longer definitive, and the timing, scope, and final form of the re-proposed Basel IV framework remains uncertain. As of December 31, 2025, our capital levels continue to exceed all capital adequacy requirements under the Basel III Capital Rules as currently applicable to us. On May 24, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (“EGRRCPA”) was enacted, and, among other things, it includes a simplified capital rule change which effectively exempts banks with assets of less than $10 billion that exceed the “community bank leverage ratio,” from all risk-based capital requirements, including Basel III and its predecessors. The federal banking agencies established the “community bank leverage ratio” (a ratio of tangible equity to average consolidated assets) at 9%, which became effective on January 1, 2020, and qualifying community banks may elect to take advantage of this regulatory relief provision. Some of our 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 will be eligible for the FRB’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, which eases limitations on the issuance of debt by holding companies. On August 28, 2018, the FRB issued an interim final rule expanding the applicability of its Small Bank Holding Company Policy Statement. While holding companies that meet the conditions of the policy statement are excluded from consolidated capital requirements, their depository institutions continue to be subject to minimum capital requirements. Finally, for banks that continue to be subject to the Basel III’s risk- based capital rules (e.g., 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”) are not subject to heightened risk weights if they meet certain criteria. Also, while acquisition, development, and construction loans are generally subject to heightened risk weights, certain exceptions apply. In November 2019, the federal banking agencies issued a final rule modifying the agencies’ capital rules for HVCRE, which became effective on April 1, 2020. As of December 31, 2025, the most recent notification from the FDIC categorized all our Subsidiary Banks as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” we must maintain minimum Total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed our categorization as well-capitalized.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 69 Our actual capital amounts and ratios for 2025 under current guidelines are presented in the following table: For Capital Adequacy To Be Well-Capitalized Purposes Under Prompt Corrective Actual Phase In Schedule Action Provisions Amount Ratio Amount Ratio Amount Ratio (greater than (greater than (greater than (greater than or equal to) or equal to) or equal to) or equal to) (Dollars in Thousands) As of December 31, 2025: Common Equity Tier 1 (to Risk WeightedAssets):Consolidated $3,215,422 23.36 % $ 963,331 7.000 % N/A N/AInternational Bank of Commerce,Laredo 1,823,239 20.87 611,605 7.000 $ 567,919 6.50 %International Bank of Commerce,Brownsville 633,425 28.78 154,089 7.000 143,083 6.50International Bank of Commerce,Oklahoma 243,414 20.69 82,360 7.000 76,477 6.50Commerce Bank 86,658 31.63 19,180 7.000 17,810 6.50International Bank of Commerce,Zapata 70,163 32.63 15,051 7.000 13,976 6.50Total Capital (to Risk Weighted Assets):Consolidated $3,452,837 25.09 % $ 1,444,997 10.500 % N/A N/AInternational Bank of Commerce,Laredo 1,932,526 22.12 917,407 10.500 $ 873,721 10.00 %International Bank of Commerce,Brownsville 660,969 30.03 231,134 10.500 220,127 10.00International Bank of Commerce,Oklahoma 254,835 21.66 123,539 10.500 117,657 10.00Commerce Bank 89,515 32.67 28,769 10.500 27,399 10.00International Bank of Commerce,Zapata 72,573 33.75 22,577 10.500 21,502 10.00Tier 1 Capital (to Risk Weighted Assets):Consolidated $3,289,921 23.91 % $ 1,169,760 8.500 % N/A N/AInternational Bank of Commerce,Laredo 1,823,239 20.87 742,663 8.500 $ 698,977 8.00 %International Bank of Commerce,Brownsville 633,425 28.78 187,108 8.500 176,102 8.00International Bank of Commerce,Oklahoma 243,414 20.69 100,008 8.500 94,125 8.00Commerce Bank 86,658 31.63 23,289 8.500 21,920 8.00International Bank of Commerce,Zapata 70,163 32.63 18,277 8.500 17,202 8.00Tier 1 Capital (to Average Assets):Consolidated $3,289,921 19.86 % $ 662,702 4.00 % $ N/A N/AInternational Bank of Commerce,Laredo 1,823,239 18.58 392,594 4.00 490,743 5.00 %International Bank of Commerce,Brownsville 633,425 14.17 178,829 4.00 223,536 5.00International Bank of Commerce,Oklahoma 243,414 14.68 66,316 4.00 82,896 5.00Commerce Bank 86,658 11.54 30,039 4.00 37,549 5.00International Bank of Commerce,Zapata 70,163 13.43 20,898 4.00 26,123 5.00
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Our actual capital amounts and ratios for 2024 are also presented in the following table: To Be Well-Capitalized For Capital Adequacy Under Prompt Corrective Actual Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio (greater than (greater than (greater than (greater than or equal to) or equal to) or equal to) or equal to) (Dollars in Thousands) As of December 31, 2024: Common Equity Tier 1 (to Risk WeightedAssets):Consolidated $2,893,228 22.42 % $ 903,203 7.000 % N/A N/AInternational Bank of Commerce,Laredo 1,638,720 19.46 589,359 7.000 $ 547,262 6.50 %International Bank of Commerce,Oklahoma 554,879 26.11 148,761 7.000 138,136 6.50International Bank of Commerce,Brownsville 240,023 20.57 81,679 7.000 75,845 6.50International Bank of Commerce,Zapata 102,200 37.50 19,077 7.000 17,714 6.50Commerce Bank 66,932 32.74 14,310 7.000 13,287 6.50Total Capital (to Risk Weighted Assets):Consolidated $3,136,215 24.31 % $ 1,354,805 10.500 % N/A N/A%International Bank of Commerce,Laredo 1,744,057 20.71 884,039 10.500 $ 841,942 10.00International Bank of Commerce,Oklahoma 578,515 27.22 223,142 10.500 212,516 10.00International Bank of Commerce,Brownsville 254,659 21.82 122,519 10.500 116,685 10.00International Bank of Commerce,Zapata 105,090 38.56 28,616 10.500 27,253 10.00Commerce Bank 69,278 33.89 21,464 10.500 20,442 10.00Tier 1 Capital (to Risk Weighted Assets): %Consolidated $2,974,881 23.06 % $ 1,096,747 8.500 % N/A N/AInternational Bank of Commerce,Laredo 1,638,720 19.46 715,651 8.500 $ 673,554 8.00International Bank of Commerce,Oklahoma 554,879 26.11 180,639 8.500 170,013 8.00International Bank of Commerce,Brownsville 240,023 20.57 99,182 8.500 93,348 8.00International Bank of Commerce,Zapata 102,200 37.50 23,165 8.500 21,802 8.00Commerce Bank 66,932 32.74 17,376 8.500 16,354 8.00 %Tier 1 Capital (to Average Assets):Consolidated $2,974,881 18.84 % $ 631,755 4.00 % $ N/A N/AInternational Bank of Commerce,Laredo 1,638,720 17.67 370,911 4.00 463,639 5.00International Bank of Commerce,Oklahoma 554,879 13.08 169,680 4.00 212,100 5.00International Bank of Commerce,Brownsville 240,023 14.47 66,341 4.00 82,926 5.00International Bank of Commerce,Zapata 102,200 13.53 30,219 4.00 37,774 5.00 Commerce Bank 66,932 13.44 19,917 4.00 24,896 5.00 (19) Fair Value ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 applies to all financial instruments that are being measured and reported on a fair value basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; it also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies into the following three levels: ● Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities. ● Level 2 Inputs—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. ● Level 3 Inputs—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques,
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 71 as well as instruments for which the determination of fair value requires significant management judgment or estimation. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy is set forth below. The following table represents financial instruments reported on the consolidated statements of condition at their fair value as of December 31, 2025 by level within the fair value measurement hierarchy. Fair Value Measurements atReporting Date Using (in Thousands)QuotedPrices inActive SignificantAssets/Liabilities Markets for Other SignificantMeasured at Identical Observable UnobservableFair Value Assets Inputs InputsDecember 31, 2025 (Level 1) (Level 2) (Level 3) Measured on a recurring basis: Assets: Available for sale debt securities Residential mortgage-backed securities $ 4,830,588 $ — $4,830,588 $ — States and political subdivisions 135,680 — 135,680 — Equity Securities 5,573 5,573 — — $ 4,971,841 $ 5,573 $4,966,268 $ — The following table represents financial instruments reported on the consolidated balance sheets at their fair value as of December 31, 2024 by level within the fair value measurement hierarchy. Fair Value Measurements atReporting Date Using (in Thousands)QuotedPrices inActive SignificantAssets/Liabilities Markets for Other SignificantMeasured at Identical Observable UnobservableFair Value Assets Inputs InputsDecember 31, 2024 (Level 1) (Level 2) (Level 3) Measured on a recurring basis: Assets: Available for sale securities Residential mortgage-backed securities $ 4,835,176 $ — $4,835,176 $ — States and political subdivisions 152,741 — 152,741 — Equity Securities 5,394 5,394 — — $ 4,993,311 $ 5,394 $4,987,917 $ — For the years ended December 31, 2025 and December 31, 2024, debt investment securities available-for-sale are classified within Level 2 of the valuation hierarchy. Equity securities with readily determinable fair values are classified within Level 1. For debt securities classified as Level 2 in the fair value hierarchy, we obtain fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 72 Certain financial instruments are measured at fair value on a nonrecurring basis. They are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table represents financial instruments measured at fair value on a non-recurring basis as of and for the period ended December 31, 2025 by level within the fair value measurement hierarchy: Fair Value Measurements at ReportingDate Using (in thousands)QuotedAssets/Liabilities Prices inMeasured at Active SignificantFair Value Markets for Other Significant NetPeriod ended Identical Observable Unobservable ProvisionDecember 31, Assets Inputs Inputs During2025 (Level 1) (Level 2) (Level 3) Period Measured on a non-recurring basis: Assets: Watch List—Doubtful loans $ 75,573 $ — $ — $ 75,573 $4,590 Other real estate owned 1,692 — — 1,692 1,296 The following table represents financial instruments measured at fair value on a non-recurring basis as of and for the year ended December 31, 2024 by level within the fair value measurement hierarchy: Fair Value Measurements at ReportingDate Using (in thousands)QuotedAssets/Liabilities Prices inMeasured at Active SignificantFair Value Markets Other Significant NetYear ended for Identical Observable Unobservable ProvisionDecember 31, Assets Inputs Inputs During2024 (Level 1) (Level 2) (Level 3) Period Measured on a non-recurring basis: Assets: Watch List—Doubtful loans $ 169,246 $ — $ — $ 169,246 $14,662 Other real estate owned 11,537 — — 11,537 632 Our assets measured at fair value on a non-recurring basis are limited to loans classified as Watch List—Doubtful and other real estate owned. The tabular disclosures above include only those loans or other real estate owned that had a change in the provision for credit loss during the reporting period or for which a new specific provision for credit loss was established during the reporting period. The fair value of Watch List—Doubtful loans is derived in accordance with FASB ASC Subtopic 326-10, “Financial Instruments – Credit Losses - Overall”. They are primarily comprised of collateral-dependent commercial loans. As the primary sources of loan repayments decline, the secondary repayment source, the collateral, takes on greater significance. Correctly evaluating the fair value becomes even more important. Re-measurement of the loan to fair value is done through a specific valuation allowance included in the allowance for credit losses (“ACL”). The fair value of the loan is based on the fair value of the collateral, as determined through either an appraisal or internal evaluation process. The basis for our appraisal and appraisal review process are applicable regulatory guidelines, including regulatory appraisal laws and the Uniform Standards of Professional Appraisal Practice, which are incorporated into our lending policy. All collateral dependent loans are evaluated in accordance with our lending policy to assess if a third-party appraisal is required to be obtained as part of our credit underwriting and monitoring process. Collateral dependent loans that do not meet the requirements for a third-party appraisal are required to undergo an internal evaluation by our in- house independent appraisal staff. Our determination to either seek an appraisal or to perform an internal evaluation is performed by our credit quality committee, which analyzes the existing collateral values of the doubtful loans and identifies obsolete appraisals or
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 73 internal evaluations. The credit quality committee reviews the existing appraisal to determine if the collateral value is reasonable in view of the current use of the collateral and the economic environment related to the collateral. The ultimate decision on the appropriate action is made by our independent credit administration team. A new appraisal is not required if an internal evaluation, as performed by our in-house independent appraisal staff, is able to appropriately update the original appraisal assumptions to reflect current market conditions and provide an estimate of the collateral’s market value for analysis of the doubtful loan. The internal evaluations must be in writing and contain sufficient information detailing the analysis, assumptions and conclusions, and they must support performing an evaluation in lieu of ordering a new appraisal. As of December 31, 2025, we had $139,643,000 of doubtful commercial collateral-dependent loans, of which $0 had an appraisal performed within the immediately preceding rolling twelve-month period, and of which $139,643,000 had an internal evaluation performed within the immediately preceding rolling twelve-month period. As of December 31, 2024, we had approximately $168,621,000 of doubtful commercial collateral-dependent loans, of which $110,583,000 had an appraisal performed within the immediately preceding rolling twelve-month period and of which $0 had an internal evaluation performed within the immediately preceding rolling twelve-month period. Other real estate owned is comprised of real estate acquired by foreclosure and deeds in lieu of foreclosure. Other real estate owned is carried at the lower of the recorded investment in the property or its fair value less estimated costs to sell such property (as determined by independent appraisal) within Level 3 of the fair value hierarchy. Prior to foreclosure, the value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the ACL (formerly allowance for probable loan losses), if necessary. The fair value is reviewed periodically, and subsequent write downs are made accordingly through a charge to operations. Other real estate owned is included in other assets on the consolidated financial statements. For the twelve months ended December 31, 2025, 2024, and 2023, we recorded approximately $101,000, $2,228,000, and $0, respectively, in charges to the ACL in connection with loans transferred to other real estate owned. For the twelve months ended December 31, 2025, 2024, and 2023, we recorded approximately $1,296,000, $632,000, and $2,538,000, respectively, in adjustments to fair value in connection with other real estate owned. The fair value estimates, methods, and assumptions for our financial instruments at December 31, 2025 and December 31, 2024 are outlined below. Cash and Cash Equivalents For these short-term instruments, the carrying amount is a reasonable estimate of fair value. Investment securities held-to-maturity The carrying amounts of investments held-to-maturity approximate fair value. Investment Securities For debt investment securities, which may include U.S. Treasury securities, obligations of other U.S. government agencies, obligations of states and political subdivisions and mortgage pass through and related securities, fair values are from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. See disclosures of fair value of investment securities in Note 2 – Investment Securities, Equity Securities with Readily Determinable Fair Values and Other Investments. Loans Fair values are estimated for portfolios of loans with similar financial characteristics.
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 74 For variable rate performing loans, the carrying amount approximates the fair value. For fixed rate performing loans, the fair value is calculated by discounting scheduled cash flows using current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality. Fixed rate performing loans are within Level 3 of the fair value hierarchy. At December 31, 2025 and December 31, 2024, the carrying amount of fixed rate performing loans was $1,200,539,000 and $1,216,156,000, respectively, and the estimated fair value was $1,166,537,000 and $1,154,862,000, respectively. Accrued Interest The carrying amounts of accrued interest approximate fair value. Deposits The fair value of deposits with no stated maturity, such as non-interest bearing demand deposit accounts, savings accounts and interest-bearing demand deposit accounts, was equal to the amount payable on demand as of December 31, 2025 and December 31, 2024. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is based on currently offered rates. Time deposits are within Level 3 of the fair value hierarchy. At December 31, 2025 and December 31, 2024, the carrying amount of time deposits was $3,201,320,000 and $2,899,543,000, respectively, and the estimated fair value was $3,196,649,000 and $2,895,245,000, respectively. Securities Sold Under Repurchase Agreements Securities sold under repurchase agreements are short-term maturities. Due to the contractual terms of the instruments, the carrying amounts approximated fair value at December 31, 2025 and December 31, 2024. Junior Subordinated Deferrable Interest Debentures We currently have floating rate junior subordinated deferrable interest debentures outstanding. Due to the contractual terms of the floating rate junior subordinated deferrable interest debentures, the carrying amounts approximated fair value at December 31, 2025 and December 31, 2024. Other Borrowed Funds We currently have long-term borrowings issued from the Federal Home Loan Bank (“FHLB”). The long-term borrowings outstanding at December 31, 2025 and December 31, 2024 are fixed-rate borrowings and the fair value is based on established market spreads for similar types of borrowings. The fixed-rate long- term borrowings are included in Level 2 of the fair value hierarchy. At December 31, 2025 and December 31, 2024, the carrying amount of the fixed-rate long-term FHLB borrowings was $10,332,000 and $10,541,000, respectively, and the estimated fair value was $10,332,000 and $10,541,000, respectively. Commitments to Extend Credit and Letters of Credit Commitments to extend credit and fund letters of credit are principally at current interest rates and therefore the carrying amount approximates fair value. Limitations Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time of our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 75 in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and off-statement of condition financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets or liabilities include the bank premises and equipment and core deposit value. In addition, the tax ramifications related to the effect of fair value estimates have not been considered in the above estimates. (20) International Bancshares Corporation (Parent Company Only) Financial Information Statements of Condition (Parent Company Only) December 31, 2025 and 2024 (Dollars in Thousands) 2025 2024 ASSETS Cash $ 72,285 $ 65,858 Other investments 169,606 155,416 Net loans 86,205 60,502 Investment in subsidiaries 3,026,533 2,622,447 Goodwill 3,365 3,365 Other assets 29,935 12,744 Total assets $ 3,387,929 $ 2,920,332 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Junior subordinated deferrable interest debentures $ 108,868 $ 108,868 Due to IBC Trading 21 21 Other liabilities 27,402 14,736 Total liabilities 136,291 123,625 Shareholders’ equity: Common shares 96,659 96,617 Surplus 160,861 159,333 Retained earnings 3,681,408 3,356,177 Accumulated other comprehensive loss (246,316) (379,054) 3,692,612 3,233,073 Less cost of shares in treasury (440,974) (436,366) Total shareholders’ equity 3,251,638 2,796,707 Total liabilities and shareholders’ equity $ 3,387,929 $ 2,920,332
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 76 (21) International Bancshares Corporation (Parent Company Only) Financial Information Statements of Income (Parent Company Only) Years ended December 31, 2025, 2024 and 2023 (Dollars in Thousands) 2025 2024 2023 Income: Dividends from subsidiaries $ 167,100 $ 130,000 $ 179,000 Interest income on notes receivable 6,951 7,602 5,769 Loss on other investments (4,386) (3,356) (6,150) Other 413 1,059 4 Total income 170,078 135,305 178,623 Expenses: Interest expense (Debentures) 6,722 7,762 8,122 Credit loss expense — 625 500 Other 5,413 6,252 252 Total expenses 12,135 14,639 8,874 Income before federal income taxes and equity in undistributed net income of subsidiaries 157,943 120,666 169,749 Income tax benefit (584) (833) (1,365) Income before equity in undistributed net income of subsidiaries 158,527 121,499 171,114 Equity in undistributed net income of subsidiaries 253,766 287,668 240,654 Net income $ 412,293 $ 409,167 $ 411,768
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INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 77 (22) International Bancshares Corporation (Parent Company Only) Financial Information Statements of Cash Flows (Parent Company Only) Years ended December 31, 2025, 2024 and 2023 (Dollars in Thousands) 2025 2024 2023 Operating activities: Net income $ 412,293 $ 409,167 $ 411,768 Adjustments to reconcile net income to net cash provided by operating activities: Credit loss expense — 625 500 Unrealized gain on equity securities with readily determinable fair values (11) (27) (14) Increase in accrued interest receivable (2,221) (5,948) (2,630) Stock compensation expense 104 214 330 Increase (decrease) in other liabilities 12,664 (1,251) 4,911 Equity in undistributed net income of subsidiaries (253,766) (287,668) (240,654) Net cash provided by operating activities 169,063 115,112 174,211 Investing activities: Net increase in loans (25,703) (24,528) (20,170) Increase in other assets and other investments (46,732) (50,627) (30,655) Net cash used in investing activities (72,435) (75,155) (50,825) Financing activities: Redemption of long-term debt — — (25,774) Proceeds from stock transactions 1,466 3,758 1,167 Payments of cash dividends - common (87,061) (82,078) (78,247) Purchase of treasury stock (4,606) (963) (4,611) Net cash used in financing activities (90,201) (79,283) (107,465) Increase (decrease) in cash 6,427 (39,326) 15,921 Cash at beginning of year 65,858 105,184 89,263 Cash at end of year $ 72,285 $ 65,858 $ 105,184 Non-cash investing activities: Net transfers from loans to other investments $ — $ 25,551 $ —
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78 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Condensed Quarterly Income Statements (Dollars in Thousands, Except Per Share Amounts) (Unaudited) Fourth Third Second First Quarter Quarter Quarter Quarter 2025 Interest income $ 223,890 226,778 220,967 214,639 Interest expense 52,415 54,547 53,470 53,420 Net interest income 171,475 172,231 167,497 161,219 Provision for probable loan losses 5,538 1,827 4,398 3,329 Non-interest income 46,232 45,851 40,664 37,003 Non-interest expense 75,379 79,763 77,801 73,775 Income before income taxes 136,790 136,492 125,962 121,118 Income taxes 29,906 28,117 25,820 24,226 Net income $ 106,884 $ 108,375 $ 100,142 $ 96,892 Per common share: Basic Net income $ 1.72 $ 1.74 $ 1.61 $ 1.56 Diluted Net income $ 1.71 $ 1.74 $ 1.61 $ 1.56
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79 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Condensed Quarterly Income Statements (Dollars in Thousands, Except Per Share Amounts) (Unaudited) Fourth Third Second First Quarter Quarter Quarter Quarter 2024 Interest income $ 215,564 222,657 215,672 212,089 Interest expense 54,646 54,715 51,441 48,481 Net interest income 160,918 167,942 164,231 163,608 Provision for probable loan losses 1,451 8,602 8,771 12,978 Non-interest income 47,318 43,842 43,520 42,242 Non-interest expense 73,153 76,215 74,108 69,643 Income before income taxes 133,632 126,967 124,872 123,229 Income taxes 18,548 27,195 27,892 25,898 Net income $ 115,084 $ 99,772 $ 96,980 $ 97,331 Per common share: Basic Net income $ 1.85 $ 1.60 $ 1.56 $ 1.57 Diluted Net income $ 1.85 $ 1.60 $ 1.56 $ 1.56
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80 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Condensed Average Statements of Condition (Dollars in Thousands) (Unaudited) Distribution of Assets, Liabilities and Shareholders’ Equity The following table sets forth a comparative summary of average interest earning assets and average interest-bearing liabilities and related interest yields for the years ended December 31, 2025, 2024, and 2023. Tax-exempt income has not been adjusted to a tax-equivalent basis: 2025 2024 2023 Average Average Average Average Average Average Balance Interest Rate/Cost Balance Interest Rate/Cost Balance Interest Rate/Cost (Dollars in Thousands) Assets Interest earning assets: Loan, net of unearned discounts: Domestic $ 9,017,546 688,878 7.64% $ 8,224,350 672,611 8.18% $ 7,526,132 611,836 8.13% Foreign 165,117 10,993 6.66 131,700 8,669 6.58 147,477 8,212 5.57 Investment securities: Taxable 5,253,563 164,572 3.13 5,238,923 153,486 2.93 5,167,485 132,151 2.56 Tax-exempt 149,740 5,955 3.98 158,526 6,146 3.88 162,300 6,259 3.86 Other 412,171 15,876 3.85 510,722 25,070 4.91 869,497 41,704 4.80 Total interest-earning assets 14,998,137 886,274 5.91% 14,264,221 865,982 6.07% 13,872,891 800,162 5.77% Non-interest earning assets: Cash and cash equivalents 120,757 140,757 141,365 Bank premises and equipment, net 405,843 414,631 412,678 Other assets 1,371,246 1,303,411 1,350,722 Less allowance for probable loan losses (159,485) (153,940) (141,016) Total $ 16,736,498 $ 15,969,080 $ 15,636,640 Liabilities and Shareholders’ Equity Interest bearing liabilities: Savings and interest bearing demand deposits $ 4,697,406 82,920 1.77% $ 4,498,554 81,912 1.82% $ 4,487,192 60,337 1.34% Time deposits: Domestic 1,241,058 41,681 3.37 1,134,834 41,031 3.62 985,189 23,189 2.35 Foreign 1,797,471 61,235 3.42 1,523,829 55,937 3.67 1,262,762 29,969 2.37 Securities sold under repurchase agreements 616,547 18,964 3.08 616,208 22,340 3.63 469,152 14,760 3.15 Other borrowings 55,004 2,330 4.25 10,718 281 2.62 10,839 283 2.61 Junior subordinated interest deferrable debentures 108,868 6,722 6.19 108,868 7,782 7.13 115,859 8,123 7.01 Total interest bearing liabilities 8,516,354 213,852 2.52% 7,893,011 209,283 2.65% 7,330,993 136,661 1.86% Non-interest bearing liabilities: Demand Deposits 4,612,673 4,800,102 5,299,865 Other liabilities 282,750 279,972 333,299 Shareholders’ equity 3,324,721 2,995,995 2,672,483 Total $ 16,736,498 $ 15,969,080 $ 15,636,640 Net interest income $ 672,422 $ 656,699 $ 663,501 Net yield on interest earning assets 4.50% 4.60% 4.78%
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81 INTERNATIONAL BANCSHARES CORPORATION OFFICERS AND DIRECTORS OFFICERS DIRECTORS DENNIS E. NIXON DENNIS E. NIXON Chairman of the Board and President Chairman of the Board International Bank of Commerce JUDITH I. WAWROSKI Chief Financial Officer and Treasurer JAVIER DE ANDA Senior Vice President DALIA F. MARTINEZ B.P. Newman Investment Company Vice President DOUG HOWLAND MIRTA SALCEDO Investments Auditor RUDOLPH M. MILES MARISA V. SANTOS Investments Secretary LARRY NORTON HILDA V. TORRES Investments Assistant Secretary ROBERTO R. RESENDEZ Investments ANTONIO R. SANCHEZ, JR. Chairman of the Board Sanchez Oil & Gas Corporation Investments DIANA G. ZUNIGA President and Owner Investors Alliance, Inc.
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Exhibit 21 List of Subsidiaries Subsidiaries of International Bancshares Corporation Name State of Incorporation or Organization Business % of Ownership IBC Trading Company Texas Export Trading 100 % IBC Capital Corporation Delaware Investments 100 % IBC Charitable and Community Development Corporation Texas Community Development 100 % Premier Tierra Holdings, Inc. Texas Liquidating Subsidiary 100 % International Bank of Commerce Texas State Bank 100 % Commerce Bank Texas State Bank 100 % International Bank of Commerce, Zapata Texas State Bank 100 % International Bank of Commerce, Brownsville Texas State Bank 100 % International Bank of Commerce, Oklahoma Oklahoma State Bank 100 % WCMH, LLC Texas Merchant Banking 100 % Diamond Beach Holdings, LLC Texas Merchant Banking 100 % Gulfstar Merchant Banking I, Ltd. Texas Merchant Banking 70 % Gulfstar Merchant Banking II, Ltd. Texas Merchant Banking 70 % Gulfstar Merchant Banking III, Ltd. Texas Merchant Banking 50 % Gulfstar Merchant Banking IV, Ltd. Texas Merchant Banking 50 %
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EXHIBIT 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement (No. 333-183958) on Form S-8 of International Bancshares Corporation of our reports dated February 26, 2026, relating to the consolidated financial statements and to the effectiveness of internal control over financial reporting, appearing in the Annual Report on Form 10-K of International Bancshares Corporation for the year ended December 31, 2025. /s/ RSM US LLP Austin, Texas February 26, 2026
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Exhibit 31a Certification I, Dennis E. Nixon, certify that: 1. I have reviewed this Annual Report on Form 10-K of International Bancshares Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 26, 2026 By: /s/ D ENNIS E. N IXON Dennis E. Nixon President (Chief Executive Officer)
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Exhibit 31b Certification I, Judith I. Wawroski, certify that: 1. I have reviewed this Annual Report on Form 10-K of International Bancshares Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 26, 2026 By: /s/ JUDITH I. W AWROSKI Judith I. Wawroski Treasurer (Principal Financial Officer)
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Exhibit 32a CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of International Bancshares Corporation (the “Company”) on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis E. Nixon, President and Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), as applicable; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ D ENNIS E. N IXON Dennis E. Nixon President Date: February 26, 2026 The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and not being filed for purposes of Section 18 of the Securities Exchange Act, as amended, and is not to be incorporated by reference into any filing of the Company, whether on and before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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Exhibit 32b CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of International Bancshares Corporation (the “Company”) on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Judith I. Wawroski, Treasurer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), as applicable; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ J UDITH I. W AWROSKI Judith I. Wawroski Treasurer Date: February 26, 2026 The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and not being filed for purposes of Section 18 of the Securities Exchange Act, as amended, and is not to be incorporated by reference into any filing of the Company, whether on and before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.