(20) Capital Requirements

On December 23, 2008, as part of the Troubled Asset Relief Program Capital Purchase Program of the United States Department of the Treasury (“Treasury”), the Company issued to the Treasury a warrant to purchase 1,326,238 shares of the Company’s common stock at a price per share of $24.43 and with a term of ten years (the “Warrant”).

On June 12, 2013, the U.S. Treasury sold the Warrant to a third party. As of February 20, 2016, the Warrant is still outstanding. Adjustments to the $24.43 per share Exercise Price of the Warrant will be made if the Company pays cash dividends in excess of 33 cents per semi-annual period or makes certain other shareholder distributions before the Warrants expires on December 23, 2018.

Bank regulatory agencies limit the amount of dividends, which the bank subsidiaries can pay the Corporation, through IBC Subsidiary Corporation, without obtaining prior approval from such agencies. At December 31, 2017, the subsidiary banks could pay dividends of up to $731,850,000 to the Corporation without prior regulatory approval and without adversely affecting their “well‑capitalized” status under regulatory capital rules in effect at December 31, 2017. In addition to legal requirements, regulatory authorities also consider the adequacy of the bank subsidiaries’ total capital in relation to their deposits and other factors. These capital adequacy considerations also limit amounts available for payment of dividends. The Company historically has not allowed any subsidiary bank to pay dividends in such a manner as to impair its capital adequacy.

The Company and the bank subsidiaries 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 the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off‑statement of condition items as calculated under regulatory accounting practices. The Company’s 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 the Company 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, 2017, that the Company and each of the bank subsidiaries met all capital adequacy requirements to which they are subject.

In July 2013, the Federal Deposit Insurance Corporation (“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 Dodd-Frank Act related capital provisions. Consistent with the Basel international framework, the rules include a new minimum ratio of Common Equity Tier 1 (“CET1”) to risk-weighted assets of 4.5% and a CET1 capital conservation buffer of 2.5% of risk-weighted assets. The capital conservation buffer began phasing-in on January 1, 2016 at .625% and increases each year until January 1, 2019, when the Company will be required to have a 2.5% capital conservation buffer, effectively resulting in a minimum ratio of CET1 capital to risk-weighted assets of at least 7% upon full implementation. 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 new rules emphasize CET1 capital and implements strict eligibility criteria for regulatory capital instruments. The new rules also improve the methodology for calculating risk-weighted assets to enhance risk sensitivity. The new rules are subject to a four year phase in period for mandatory compliance and the Company was required to begin to phase in the new rules beginning on January 1, 2015. Management believes, as of December 31, 2017, that the Company and each of the bank subsidiaries will meet all capital adequacy requirements once the capital conservation is fully phased-in.

On November 21, 2017, the OCC, the Federal Reserve 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 CECL (the FASB Standard relating to current expected credit loss) and its potential impact on regulatory capital.

On December 7, 2017, the Basel Committee on Banking Supervision unveiled the latest round of its regulatory capital framework, commonly called “Basel IV.” The framework makes changes to the capital framework first introduced as “Basel III” in 2010. The committee targeted 2022-2027 as the timeframe for implementation by regulators in individual countries, including the U.S. federal bank regulatory agencies (after notice and comment).

The aforementioned 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.

As of December 31, 2017, capital levels at the Company exceed all capital adequacy requirements under the Basel III Capital Rules as currently applicable to the Company. Based on the ratios presented below, capital levels as of December 31, 2017 at the Company exceed the minimum levels necessary to be considered “well capitalized.”

As of December 31, 2017, the most recent notification from the Federal Deposit Insurance Corporation categorized all the bank subsidiaries as well‑capitalized under the regulatory framework for prompt corrective action. To be categorized as “well‑capitalized,” the Company and the bank subsidiaries 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 the categorization of the Company or any of the bank subsidiaries as well‑capitalized.

The Company’s and the bank subsidiaries’ actual capital amounts and ratios for 2017 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, 2017:
Common Equity Tier 1 (to Risk Weighted Assets):
Consolidated	$	1,584,665	17.11	%	$	532,579	5.750	%		N/A	N/A
International Bank of Commerce, Laredo		1,119,173	17.10			376,245	5.750		$	425,320	6.50	%
International Bank of Commerce, Oklahoma		169,279	13.41			72,586	5.750			82,054	6.50
International Bank of Commerce, Brownsville		165,034	25.94			36,583	5.750			41,355	6.50
International Bank of Commerce, Zapata		66,406	30.58			12,487	5.750			14,116	6.50
Commerce Bank		79,330	33.22			13,733	5.750			15,524	6.50
Total Capital (to Risk Weighted Assets):
Consolidated	$	1,807,107	19.51	%	$	856,757	9.250	%		N/A	N/A
International Bank of Commerce, Laredo		1,173,068	17.93			605,263	9.250		$	654,339	10.00	%
International Bank of Commerce, Oklahoma		178,057	14.11			116,769	9.250			126,237	10.00
International Bank of Commerce, Brownsville		170,613	26.82			58,851	9.250			63,623	10.00
International Bank of Commerce, Zapata		68,718	31.64			20,088	9.250			21,717	10.00
Commerce Bank		81,278	34.03			22,092	9.250			23,884	10.00
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	1,734,595	18.73	%	$	671,512	7.250	%		N/A	N/A
International Bank of Commerce, Laredo		1,119,173	17.10			474,395	7.250		$	523,471	8.00	%
International Bank of Commerce, Oklahoma		169,279	13.41			91,521	7.250			100,989	8.00
International Bank of Commerce, Brownsville		165,034	25.94			46,127	7.250			50,899	8.00
International Bank of Commerce, Zapata		66,406	30.58			15,745	7.250			17,374	8.00
Commerce Bank		79,330	33.22			17,316	7.250			19,107	8.00
Tier 1 Capital (to Average Assets):
Consolidated	$	1,734,595	14.62	%	$	474,675	4.00	%	$	N/A	N/A
International Bank of Commerce, Laredo		1,119,173	13.44			333,166	4.00			416,458	5.00	%
International Bank of Commerce, Oklahoma		169,279	11.31			59,854	4.00			74,818	5.00
International Bank of Commerce, Brownsville		165,034	17.17			38,440	4.00			48,050	5.00
International Bank of Commerce, Zapata		66,406	14.20			18,701	4.00			23,376	5.00
Commerce Bank		79,330	14.56			21,789	4.00			27,236	5.00

The Company’s and the bank subsidiaries’ actual capital amounts and ratios for 2016 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, 2016:
Common Equity Tier 1 (to Risk Weighted Assets):
Consolidated	$	1,468,662	16.95	%	$	444,190	5.125	%		N/A	N/A
International Bank of Commerce, Laredo		1,201,527	16.63			370,342	5.125		$	469,701	6.50	%
International Bank of Commerce, Brownsville		158,533	25.61			31,720	5.125			40,230	6.50
International Bank of Commerce, Zapata		65,989	34.09			9,922	5.125			12,584	6.50
Commerce Bank		73,765	31.84			11,872	5.125			15,058	6.50
Total Capital (to Risk Weighted Assets):
Consolidated	$	1,687,501	19.47	%	$	747,540	8.625	%		N/A	N/A
International Bank of Commerce, Laredo		1,260,886	17.45			623,258	8.625		$	722,618	10.00	%
International Bank of Commerce, Brownsville		163,937	26.49			53,382	8.625			61,892	10.00
International Bank of Commerce, Zapata		67,464	34.85			16,698	8.625			19,360	10.00
Commerce Bank		76,093	32.85			19,980	8.625			23,166	10.00
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	1,618,935	18.68	%	$	574,197	6.625	%		N/A	N/A
International Bank of Commerce, Laredo		1,201,527	16.63			478,734	6.625		$	578,094	8.00	%
International Bank of Commerce, Brownsville		158,533	25.61			41,004	6.625			49,514	8.00
International Bank of Commerce, Zapata		65,989	34.09			12,826	6.625			15,488	8.00
Commerce Bank		73,765	31.84			15,347	6.625			18,532	8.00
Tier 1 Capital (to Average Assets):
Consolidated	$	1,618,935	13.91	%	$	465,438	4.00	%	$	N/A	N/A
International Bank of Commerce, Laredo		1,201,527	12.50			384,342	4.00			480,427	5.00	%
International Bank of Commerce, Brownsville		158,533	16.91			37,509	4.00			46,886	5.00
International Bank of Commerce, Zapata		65,989	13.87			19,029	4.00			23,786	5.00
Commerce Bank		73,765	13.05			22,607	4.00			28,259	5.00