IBOC 10-K & 10-Q changes, risk factors and insider trading

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. InOn hisJanuary first23, week in office,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.

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 three consecutivesix rate cuts in late2024 2024,and 2025, reducing target interest rates to their current range of 4.25%3.50% to 4.50%3.75% by December 2024,2025, the timing and extent of additional rate cuts remains uncertain. The Federal Reserve declined to implement additional rate cuts in January 2025 and tempered rate-cut expectations by lowering the projected number of rate cuts anticipated in 2025 from four to two rate cuts.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 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.

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, and twofour more banks failed from 2024 to 2025, and one bank has failed thus far in 2024.2026. 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 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.

Negative developments in the banking industry duringfrom 2023 andthrough 2024,2025, culminating in the failures of sevenmultiple 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 following discussion should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2025, which are included in our 2025 Annual Report. Operating results for the three and six months ended MarchJune 31,30, 2026 are not necessarily indicative of the results for the year ending December 31, 2026, or any future period.

Net income for the three and six months ended MarchJune 31,30, 20262026, decreased by 4.3% and increased by 5.5%0.5%, respectively, compared to the same periodperiods of 2025. Net income for the first quartersix months of 2026 continued to be positively affected by interest income earned on our investment and loan portfolios driven primarily by both an increase in the size of our investment and loan portfolios and the current rate environment. Net interest income was also positively affected by a decrease in interest expense, primarily driven by a redistribution in rates paid on deposits. We continue to closely monitor rates paid on deposits to remain competitive to grow and retain deposits. Net income for the threesame months ended March 31, 2026period was also positivelynegatively impacted by aan decreaseincrease in our provision for credit loss expense.expense, driven primarily by a change in non-accrual loan balances and the reevaluation of specific reserves on those non-accrual loans.

The change in net interest income for the three and six months ended MarchJune 31,30, 2026 can be attributed to interest income, which continues to be positively impacted by 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 interest rates in recent years.years, and a decrease in interest expense, primarily driven by a redistribution in rates paid on deposits. We continue to closely monitor rates paid on deposits. Net interest income is the spread between income on interest earning assets, such as loans and securities, and the interest expense on liabilities used to fund those assets, such as deposits, repurchase agreements and funds borrowed. As part of our strategy to manage interest rate risk, we strive to manage both assets and liabilities so that interest sensitivities match. One method of calculating interest rate sensitivity is through gap analysis. A gap is the difference between the amount of interest rate sensitive assets and interest rate sensitive liabilities that re-price or mature in a given time period. Positive gaps occur when interest rate sensitive assets exceed interest rate sensitive liabilities, and negative gaps occur when interest rate sensitive liabilities exceed interest rate sensitive assets. A positive gap position in a period of rising interest rates should have a positive effect on net interest income as assets will re-price faster than liabilities. Conversely, net interest income should contract somewhat in a period of falling interest rates. Our management can quickly change our interest rate position at any given point in time as market conditions dictate. Additionally, interest rate changes do not affect all categories of assets and liabilities equally or at the same time. Analytical techniques we employ to supplement gap analysis include simulation analysis to quantify interest rate risk exposure. The gap analysis prepared by management is reviewed by our Investment Committee twice a year (see table on page 4447 for the MarchJune 31,30, 2026 gap analysis). Our management currently believes that we are properly positioned for interest rate changes; however, if our management determines at any time that we are not properly positioned, we will strive to adjust the interest rate sensitive assets and liabilities in order to manage the effect of interest rate changes.

Total non-interest income for the three and six months ended MarchJune 31,30, 2026 increased by 15.7%7.5% and 11.4%, respectively, compared to the same periodperiods of 2025. Non-interest income for the three and six months ended MarchJune 31,30, 2025 was negatively impacted due to losses recorded on merchant banking investments and is reflected in other investments, net in the table above.

Non-interest expense increased by 3.1%6.2% and 4.7% for the three and six months ended MarchJune 31,30, 20262026, respectively, compared to the same periodperiods of 2025. Non-interest expense continues to be primarily impacted by an increase in our employee compensation and benefits as we continue to adjust our compensation programs to retain our workforce and remain competitive in the current employment market. We also continue to monitor and manage our controllable non-interest expenses through a variety of measures with the ultimate goal of ensuring we align non-interest expenses with our operations and revenue streams.

The ACL increased 0.86.8 % to $160,443,000$170,014,000 at MarchJune 31,30, 2026 from $159,174,000 at December 31,2025.31, 2025. The provision for credit losses charged to expense decreasedincreased 9.2%152.5% to $3,024,000$11,105,000 for the three months ended MarchJune 31,30, 2026 compared to $3,329,000$4,398,000 for the same period of 2025. The provision for credit losses charged to expense increased 82.9% to $14,129,000 for the six months ended June 30, 2026 compared to $7,727,000 for the same period of 2025. The increase in our provision for credit loss expense was driven primarily by a change in non-accrual loan balances and the reevaluation of specific reserves on those non-accrual loans. The ACL was 1.66%1.72% of total loans at MarchJune 31,30, 2026 and 1.68% of total loans at December 31, 2025.

Total loans increased by 2.0%4.3% to $9,648,544,000$9,863,199,000 at MarchJune 31,30, 2026, from $9,460,422,000 at December 31, 2025. Commercial real estate loans have historically been the largest category in our loan portfolio and comprise approximately 66% and 67% of total loans at MarchJune 31,30, 2026 and December 31, 2025, respectively. The loans in this category primarily include owner- and non-owner-occupied commercial buildings such as shopping centers, warehouses, hotels and office buildings and are primarily geographically concentrated in central and south Texas and throughout Oklahoma. Commercial real estate loans generally carry a lower risk of loss; however, they may also be significantly more affected by changes in real estate markets or the general economy. We regularly monitor commercial real estate loan concentrations and also have processes and procedures in place to monitor economic conditions that may adversely affect our commercial real estate portfolio.

Deposits increased by 1.5%2.4% to $12,622,726,000$12,736,044,000 at MarchJune 31,30, 2026, compared to $12,436,506,000 at December 31, 2025. Deposits have continued to fluctuate as a result of increased general activities by customers, increased competition for deposits by the federal government, and aggressive competitors’ pricing. We have closely monitored the rates paid on deposits by competitors and have made changes to our pricing accordingly in order to remain competitive in an effort to retain deposits. The five separately charted banks within our holding company structure also allow us to work with customers to maximize their FDIC insurance levels and provide additional levels of insured deposits.

On MarchJune 31,30, 2026, we had $16,826,407,000$17,021,950,000 of consolidated assets, of which approximately $395,977,000,$401,801,000, or 2.4%, was related to loans outstanding to borrowers domiciled in foreign countries, compared to $392,811,000, or 2.4%, at December 31, 2025. Of the $395,977,000,$401,801,000, 89.0%88.2% is directly or indirectly secured by U.S. assets, certificates of deposits and real estate; 2.3%2.8% is secured by foreign real estate or other assets; and 8.7%9.0% is unsecured.

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, which 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 MarchJune 31,30, 2026 and December 31, 2025:

We maintain an adequate level of capital as a margin of safety for our depositors and shareholders. At MarchJune 31,30, 2026, shareholders’ equity was $3,288,041,000$3,375,304,000 compared to $3,251,638,000 at December 31, 2025. The increase in shareholders’ equity can be primarily attributed to the retention of earnings offset by shareholder dividends paid.

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 Wall Street Reform and Consumer Protection Act (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. We believe that as of MarchJune 31,30, 2026, we meet all fully phased-in capital adequacy requirements.

In December 2017, the Basel Committee on Banking Supervision unveiled its final set of standards and reforms to its Basel III regulatory capital framework, commonly called “Basel III Endgame” or “Basel IV.” The Basel IV framework makes changes to the capital framework first introduced as “Basel III” in 2010 and aims to reduce excessive variability in banks’ calculations of risk-weighted capital ratios. Implementation of Basel IV across the Basel Committee’s member jurisdictions began on January 1, 2023 and was intended to continue over a five-year transition period by regulators in individual countries, including the U.S. federal bank regulatory agencies. In July 2023, U.S. regulators issued initial proposals for implementing the Basel IV framework (the “2023 Proposals”), which 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 previously established implementation dates for Basel IV are no longer definitive, and the future implementation of Basel IV remains unclear, as the federal banking agencies continue to review the Basel IV rules. Most recently, on March 19, 2026, the Federal Reserve Board, the FDIC and the OCC jointly rescinded the 2023 Proposals and unveiled a set of re-proposed capital rules (the “2026 Proposals”) that are intended to streamline and modernize certain aspects of the Basel IV framework and be less onerous for banks than the 2023 Proposals, including based on agency estimates, due to anticipated reductions in certain CET1 capital requirements for banking organizations. The 2026 Proposals include: (i) an expanded risk-based capital framework for large banking organizations; (ii) revisions to the standardized approach for calculating risk-weighted assets; and (iii) revisions to the capital surcharge applicable to global systemically important bank holding companies. The 2026 Proposals arewere subject to public comment through June 18, 2026. Accordingly, the timing, scope, and final form of the U.S. implementation of the Basel IV framework remains uncertain.

As of MarchJune 31,30, 2026, our capital levels continue to exceed all capital adequacy requirements under the Basel III capital rules as currently applicable to us.

We had a CET1 to risk-weighted assets ratio of 23.15%23.56% on MarchJune 31,30, 2026 and 23.36% on December 31, 2025. We had a Tier 1 capital-to-average-total-asset (leverage) ratio of 20.13%20.27% and 19.86%, risk-weighted Tier 1 capital ratio of 23.68%24.09% and 23.91%, and risk-weighted total capital ratio of 24.84%25.30% and 25.09% at MarchJune 31,30, 2026 and December 31, 2025, respectively. Our CET1 capital consists of common stock and related surplus, net of treasury stock, and retained earnings. We and our Subsidiary Banks elected to opt-out of the requirement to include most components of accumulated other comprehensive income (loss) in the calculation of CET1 capital. CET1 is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions. Tier 1 capital includes CET1 capital and additional Tier 1 capital. Additional Tier 1 capital includes the Capital and Common Securities issued by the Trusts (see Note 8 above) up to a maximum of 25% of Tier 1 capital on an aggregate basis. Any amount that exceeds the 25% threshold qualifies as Tier 2 capital. As of MarchJune 31,30, 2026 and December 31, 2025, the total of $108,868,000 of the Capital and Common Securities outstanding qualified as Tier 1 capital. We actively monitor the regulatory capital ratios to ensure that our Subsidiary Banks are well-capitalized under the regulatory framework.

We and our Subsidiary Banks are subject to the regulatory capital requirements administered by the Federal Reserve, and, for our Subsidiary Banks, the FDIC. Regulatory authorities can initiate certain mandatory actions if we or any of our Subsidiary Banks fail to meet the minimum capital requirements, which could have a direct material effect on our financial statements. Management believes, as of MarchJune 31,30, 2026, that we and each of our Subsidiary Banks meet all capital adequacy requirements to which we are subject We will continue to monitor the volatility and cost of funds in an attempt to match maturities of rate-sensitive assets and liabilities and respond accordingly to anticipate fluctuations in interest rates by adjusting the balance between sources and uses of funds as deemed appropriate. The net-interest rate sensitivity as of MarchJune 31,30, 2026 is illustrated in the table entitled “Interest Rate Sensitivity,” below. This information reflects the balances of assets and liabilities for which rates are subject to change. A mix of assets and liabilities that are roughly equal in volume and re-pricing characteristics represents a matched interest rate sensitivity position. Any excess of assets or liabilities results in an interest rate sensitivity gap.