International Bancshares Corporation 2019 Form 10-K Summary
Business Context and Reporting Period
International Bancshares Corporation is a Texas-based registered financial holding company with five wholly owned subsidiary banks operating across Texas and Oklahoma. The Company provides commercial, retail, mortgage, consumer, international banking, foreign exchange and related financial services through 188 facilities and 284 ATMs serving 88 communities. The filing covers the fiscal year ended December 31, 2019 and was filed February 27, 2020.
The Company employed approximately 2,869 full-time and 445 part-time employees at year-end. Deposits from customers domiciled in Mexico represented approximately 29% of subsidiary-bank deposits in 2019, compared with 29% in 2018 and 27% in 2017.
Financial Metrics, Capital and Liquidity
- The filing text provided does not include clear consolidated values for 2019 revenue, net income, net interest income, operating expenses, net interest margin, earnings per share, total assets, deposits, loans, cash flow or return metrics. These amounts are incorporated by reference from the 2019 Annual Report to Shareholders.
- Holding-company leverage ratio at December 31, 2019 was 16.65%.
- The Company and each subsidiary bank were classified as “well-capitalized” under applicable regulatory requirements at December 31, 2019. Each subsidiary bank had a leverage ratio above 5%.
- Approximately $891.5 million was available for dividends from the subsidiary banks to the holding company under applicable capital rules, assuming continued well-capitalized status.
- Junior subordinated debentures outstanding at year-end totaled approximately $134 million. These obligations rank senior to common equity and must be paid before common-stock dividends.
- FDIC deposit insurance expense was $1.416 million in 2019, compared with $3.742 million in 2018 and $3.294 million in 2017.
- The Company relies primarily on deposits, repurchase agreements, Federal Home Loan Bank advances and other borrowings to meet liquidity needs.
Material Changes Versus Prior Comparable Period
- Deposit concentrations from Mexico remained stable at approximately 29% in both 2019 and 2018, while increasing from 27% in 2017.
- FDIC deposit insurance expense declined materially in 2019 from 2018.
- The Company completed its 2018 repurchase of the outstanding TARP-related warrant for an aggregate purchase price of $29.005 million, eliminating related restrictions on certain shareholder distributions.
- The Company stated that goodwill was not impaired based on its October 1, 2019 assessment.
- Adoption of the current expected credit loss standard, or CECL, became effective for the Company on January 1, 2020. Management estimated that adoption would increase the allowance for probable loan losses by approximately 2% to 6% and elected not to use the available three-year regulatory-capital phase-in.
Guidance, Outlook, Risks and Unusual Items
- No specific earnings, revenue, margin, loan-growth or other quantitative guidance was provided in the filing text.
- Key risks include loan-loss allowance estimation, real-estate collateral values, economic conditions in Texas, Oklahoma and Mexico, declining crude-oil prices, interest-rate and yield-curve changes, funding availability and competition from banks, nonbanks and fintech companies.
- The Company identified substantial exposure to the transition from LIBOR, including potential effects on loans, derivatives, borrowings, pricing, valuation and hedging practices.
- Regulatory, consumer-protection, cybersecurity, privacy, anti-money-laundering and data-breach requirements may increase costs or expose the Company to penalties, litigation and reputational damage.
- The holding company depends substantially on dividends from its subsidiary banks to fund common-stock dividends and debt service. Regulatory capital, earnings and source-of-strength requirements could limit those dividends.
- Legal proceedings were described as not expected to result in material losses based on management’s discussions with counsel, although developments could change that assessment.
- Management and the independent auditor concluded that internal control over financial reporting was effective as of December 31, 2019. The auditor issued an unqualified opinion.
Important Facts for Investors to Verify
- Review the incorporated 2019 Annual Report for consolidated income statements, balance sheets, cash flows, loan and deposit balances, allowance levels, asset-quality measures, margins and earnings per share.
- Verify the Company’s full regulatory capital ratios, including CET1, Tier 1 risk-based and total risk-based capital ratios.
- Assess the effect of CECL adoption on the allowance, retained earnings and regulatory capital beginning January 1, 2020.
- Review exposure to energy lending, commercial real estate, Mexico-related deposits and other concentrated markets.
- Evaluate liquidity sources, borrowing capacity, uninsured or non-core deposits and sensitivity to interest-rate changes.
- Review the Company’s LIBOR-transition plans and the contractual fallback provisions in affected instruments.
- Confirm dividend capacity, planned capital distributions and the seniority and terms of approximately $134 million of junior subordinated debentures.