International Bancshares Corporation — Q1 2024 Form 10-Q Summary
Business context and reporting period
International Bancshares Corporation is a Texas-based bank holding company headquartered in Laredo, Texas. Through five subsidiary banks, it provides commercial, consumer and international banking services across Texas and Oklahoma, with substantial activity involving customers domiciled in Mexico. The company operates as one reportable segment and had 166 facilities and 256 ATMs at March 31, 2024. The filing covers the unaudited three months ended March 31, 2024, compared primarily with the three months ended March 31, 2023 and, for balance-sheet items, December 31, 2023.
Financial performance and key metrics
| Metric | Q1 2024 | Comparable period or prior date | Change |
|---|---|---|---|
| Total interest income | $212.1 million | $188.1 million | 12.7% increase |
| Interest expense | $48.5 million | $23.0 million | 111.1% increase |
| Net interest income | $163.6 million | $165.2 million | 1.0% decrease |
| Provision for credit losses | $13.0 million | $8.6 million | 51.1% increase |
| Non-interest income | $42.2 million | $40.4 million | 4.7% increase |
| Non-interest expense | $69.6 million | $68.0 million | 2.4% increase |
| Net income | $97.3 million | $101.6 million | 4.2% decrease |
| Basic EPS | $1.57 | $1.64 | 4.3% decrease |
| Diluted EPS | $1.56 | $1.63 | 4.3% decrease |
- Loans, including fees, generated $168.3 million of interest income, up 18.3% year over year. Taxable investment-securities interest income increased 21.7%, while other interest income declined 58.9%.
- Higher deposit and repurchase-agreement costs offset asset-yield benefits. Savings-deposit expense rose 70.3%, time-deposit expense rose 211.6%, and repurchase-agreement expense rose 144.6%.
- Approximate revenue-based net margin was 38.3%, calculated as net income divided by interest income plus non-interest income. The filing does not provide a clear net interest margin, return on average assets or efficiency ratio for the quarter.
- Operating cash flow was $135.4 million, compared with $142.7 million in Q1 2023. Investing activities used $83.6 million, compared with $568.3 million used in the prior-year period. Financing activities provided $206.1 million, compared with $467.1 million used in Q1 2023.
- Cash and cash equivalents increased to $909.0 million from $651.1 million at December 31, 2023, but remained below $1.195 billion at March 31, 2023.
- Total assets were $15.36 billion, up 2.0% from year-end 2023. Total loans were $8.11 billion, up 0.7%, and net loans were $7.97 billion, up 0.9%.
- Deposits were $12.02 billion, up 1.6%. Non-interest-bearing demand deposits declined $46.3 million, while savings and interest-bearing demand deposits increased $144.3 million and time deposits increased $92.9 million during the quarter.
- Securities sold under repurchase agreements increased 10.3% to $585.0 million. Other borrowed funds were $10.7 million and junior subordinated deferrable-interest debentures were $108.9 million, both essentially unchanged from year-end.
- Shareholders’ equity increased 1.5% to $2.48 billion. The company paid a $0.66-per-share dividend and repurchased 9,284 shares for approximately $0.5 million during the quarter.
Material changes versus prior comparable period
- Net income declined despite higher interest income because funding costs and credit-loss expense increased materially.
- The company recorded a significant charge-down related to an impaired oil-and-gas-industry credit after a bankruptcy-related foreclosure. The charge-down was approximately $25.6 million and increased first-quarter credit-loss expense by approximately $4.4 million before taxes compared with Q1 2023. Management expects to pursue partial recovery from the guarantor through binding arbitration.
- Gross commercial-loan charge-offs were $27.7 million, including the $25.6 million charge-down. Total credit-loss expense was $13.0 million, while the allowance for credit losses declined to $142.8 million from $157.1 million at year-end. The allowance-to-loans ratio declined to 1.76% from 1.95%.
- Non-accrual loans decreased modestly to $46.3 million from $47.2 million at year-end. However, $25.2 million of multifamily loans were 30 to 59 days past due at March 31, 2024, compared with $0.4 million at year-end, primarily reflecting an apartment-secured loan placed on non-accrual.
- Available-for-sale securities declined to $4.77 billion from $4.82 billion. Unrealized losses on those securities increased to $541.0 million from $519.6 million, contributing to a $22.1 million other comprehensive loss in Q1 2024.
- Non-interest income increased, although it was negatively affected by a loss on a merchant-banking investment. Non-interest expense increased primarily because of higher employee compensation and benefits, partially offset by lower deposit-insurance assessments.
Guidance, outlook, commentary, risks and unusual items
- The filing provides no formal earnings or revenue guidance. Management states that Q1 results are not necessarily indicative of full-year 2024 results.
- Management expects to continue monitoring deposit pricing, funding costs, interest-rate sensitivity, liquidity and operating expenses. The company reported an asset-sensitive interest-rate position and stated that it believes it is properly positioned for interest-rate changes.
- Liquidity sources include deposits, securities sold under repurchase agreements, large certificates of deposit, access to Federal Home Loan Bank funding and a high-quality investment portfolio that can be pledged, sold or financed.
- Management stated that the allowance for credit losses was adequate at March 31, 2024, but acknowledged sensitivity to economic conditions, interest rates, collateral values, loan classifications, regulatory views and borrower performance.
- Key portfolio risks include commercial real estate, construction and land development, multifamily real estate, large commercial credits, elevated interest rates, apartment vacancies, office vacancies, higher capitalization rates and economic deterioration.
- Other disclosed risks include deposit outflows or loss of public confidence in the banking system, funding availability, U.S.-Mexico trade and political conditions, inflation, cybersecurity and system failures, regulatory changes, litigation, loss of personnel, acquisitions and goodwill impairment.
- The company had strong reported regulatory capital ratios at March 31, 2024: CET1 ratio of 22.00%, Tier 1 leverage ratio of 17.85%, risk-weighted Tier 1 capital ratio of 22.65% and total risk-weighted capital ratio of 23.90%. Management stated that it and its subsidiary banks met applicable capital requirements.
- Management reported no material subsequent events, no material changes in market-risk exposures, no material weaknesses in disclosure controls, and no material changes in internal control over financial reporting. Legal proceedings were assessed as remote or immaterial based on current information.
- The board extended and increased the stock-repurchase authorization to $150 million for the period beginning March 15, 2024 through March 15, 2025. As of April 29, 2024, cumulative repurchases under all programs totaled 13,706,581 shares costing $414.9 million.
Most important facts for an investor to verify
- Whether the oil-and-gas credit charge-down and anticipated guarantor arbitration recovery produce additional gains, losses or cash recoveries.
- Whether multifamily and other commercial real estate delinquencies, non-accruals and criticized loans continue to increase.
- Whether deposit pricing and higher funding costs continue to compress net interest income and margins.
- Whether the $541.0 million unrealized loss position in available-for-sale securities changes materially as interest rates move.
- Whether the $142.8 million allowance for credit losses remains adequate relative to portfolio growth, credit migration and economic conditions.
- Future deposit trends, liquidity availability from the FHLB and repurchase markets, and the effect of potential banking-system stress on funding.
- The pace and valuation of share repurchases and the sustainability of the $0.66-per-share dividend.
- Any changes to capital regulations, Basel III Endgame implementation, U.S.-Mexico trade conditions or other regulatory and geopolitical factors affecting the company’s markets.