International Bancshares Corporation — FY2022 Form 10-K Summary
Business context and reporting period
International Bancshares Corporation is a Texas-based multibank financial holding company serving 75 communities in Texas and Oklahoma through five wholly owned subsidiary banks. Its services include commercial and retail banking, consumer and mortgage lending, international trade finance, foreign exchange, deposits, payment services and related banking products. The filing covers the fiscal year ended December 31, 2022, although the request metadata identifies 2022 Q4.
The company operated 167 facilities and 257 ATMs and employed approximately 1,974 full-time and 195 part-time employees at year-end. Deposits from customers domiciled in Mexico represented approximately 28% of subsidiary-bank deposits in 2022, compared with 25% in 2021 and 27% in 2020.
Financial metrics and condition
- The filing text provided does not include clear values for 2022 revenue, net income, earnings per share, total assets, loans, deposits, net interest margin or operating cash flow; these amounts are incorporated by reference to the 2022 Annual Report.
- The holding company reported a 14.59% leverage ratio at December 31, 2022. The company and each subsidiary bank were classified as “well-capitalized.”
- Approximately $961 million was available for subsidiary-bank dividends to the holding company under applicable capital rules, assuming the banks remained well-capitalized.
- Junior subordinated debentures totaled approximately $134 million at year-end. These obligations rank senior to common stock and must be serviced before common dividends, subject to permitted interest deferrals.
- FDIC deposit-insurance expense was $6.987 million in 2022, compared with $4.389 million in 2021 and $1.870 million in 2020.
- The company relies primarily on subsidiary-bank dividends to fund holding-company expenses, common-stock dividends and debt service.
- The company stated that it relies on deposits, repurchase agreements, Federal Home Loan Bank advances and other borrowings for liquidity. The filing text does not provide clear year-end liquidity balances or cash-flow totals.
Material changes versus comparable periods
- FDIC deposit-insurance expense increased approximately 59% in 2022 versus 2021 and approximately 274% versus 2020.
- Mexico-domiciled deposits increased to approximately 28% of total subsidiary-bank deposits in 2022 from 25% in 2021, but remained near the 2020 level of 27%.
- The FDIC adopted a rule increasing initial base deposit-insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023, potentially increasing future operating costs.
- The filing states that goodwill was not impaired based on the October 1, 2022 assessment.
- The company did not elect the three-year regulatory-capital phase-in available upon adoption of CECL and recognized the capital impact immediately in 2020. CECL adoption increased the allowance for credit losses by approximately 17.2% and reduced retained earnings by approximately $8.3 million after tax at adoption.
Outlook, risks and unusual items
The filing does not provide quantitative earnings or revenue guidance. Management identifies interest-rate movements, deposit pricing, an inverted yield curve, credit losses, real-estate values, energy-sector conditions, liquidity access and economic conditions in Texas, Oklahoma and Mexico as significant variables affecting results.
- Credit risk: A substantial portion of the loan portfolio is secured by real estate, and deterioration in property values or local economic conditions could increase delinquencies, charge-offs and the allowance for credit losses.
- Interest-rate risk: Deposit and borrowing costs could rise faster than yields on loans and investments, reducing net interest income and earnings.
- Liquidity and funding risk: Disruptions in financial markets or adverse industry conditions could limit access to deposits, FHLB advances, repurchase agreements or other funding sources.
- Regulatory risk: The company is subject to extensive federal and state banking, consumer-protection, capital, privacy, anti-money-laundering and Community Reinvestment Act requirements. Proposed or changing rules could increase costs or restrict activities.
- LIBOR transition: The company has loans, derivatives, borrowings and other instruments tied directly or indirectly to LIBOR. The filing states that the ultimate financial and operational effects of the transition cannot yet be assessed clearly.
- Technology and cybersecurity: System interruptions, cyberattacks or vendor breaches could cause operational disruption, regulatory scrutiny, litigation, financial losses and reputational damage.
- Concentration and market risk: Energy-related weakness, declining crude-oil prices, severe weather, natural disasters, pandemics, geopolitical events or economic weakness in core markets could impair borrowers and collateral.
- Management succession: The company identifies substantial reliance on Chief Executive Officer and President Dennis E. Nixon, who did not have an employment agreement.
- Legal proceedings: The company and subsidiaries are involved in various proceedings, but management concluded that material losses were remote or not material based on information available at filing. Further developments could change that assessment.
Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022. RSM US LLP issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Important facts for investors to verify
- Obtain the incorporated 2022 Annual Report tables for net income, revenue, diluted EPS, net interest margin, total assets, loans, deposits, allowance for credit losses and operating cash flow.
- Review the year-end liquidity composition, uninsured or concentrated deposits, FHLB and other borrowings, pledged collateral and deposit outflow sensitivity.
- Examine loan concentrations by commercial real estate, residential real estate, energy, geography and Mexico-related exposure, together with nonperforming assets, charge-offs and allowance coverage.
- Confirm all regulatory capital ratios, including CET1, Tier 1 risk-based and total risk-based capital ratios for the holding company and each subsidiary bank.
- Assess the effect of higher FDIC assessments, deposit-rate competition, monetary-policy changes and the company’s interest-rate sensitivity.
- Review the $134 million of junior subordinated debentures, maturity and interest-deferral provisions, and the capacity and restrictions governing common dividends.
- Review pending litigation, regulatory examinations, cybersecurity disclosures and the status of LIBOR contract remediation.