INTERNATIONAL BANCSHARES CORP (IBOC) stock intrinsic value fair value estimate & owner earnings analysis

International Bancshares (IBC) is a Laredo, Texas bank holding company with five subsidiary banks serving the Texas border, South and Central Texas, Oklahoma and customers in northern Mexico. About $9.5 billion of loans are funded by $12.4 billion of deposits, and about 36 percent of those deposits (about $4.5 billion at year-end 2025) pay no interest. Deposits from people and companies in Mexico are about 32 percent of the total, up from 29 percent in 2023. That deposit base, plus an unusually lean cost structure, is the source of the bank's earnings. Earnings. We measure a bank's owner earnings as net income less stock-based pay (for a lender, interest is an operating cost and the cash-flow statement is distorted by loan activity). That figure was about $2.00 per share in 2016, $3.2 in 2018-2019, $2.61 in 2020 (near-zero rates and pandemic provisions), $3.99 in 2021, $4.77 in 2022, and then $6.60, $6.51 and $6.59 in 2023-2025. The step up came when rates rose in 2022-2023: net interest income went from $371 million in 2021 to $664 million in 2023 and $672 million in 2025. For the level we use the 2023-2025 median, $6.59, because that is the earning power under the rate and deposit-cost structure the bank has actually operated in for three years. Last year earnings grew 1.2 percent. The first half of 2026 shows net income of $198.0 million versus $197.0 million a year earlier, net interest income up about 2 percent, but second-quarter net income was about 4 percent lower than a year earlier ($95.8 million versus $100.1 million). We therefore start the base case slightly below the trailing rate, not above it. Equipment depreciation and capital spending are small relative to earnings (capex $14 million in 2024) and roughly offset, so no separate adjustment was made. Because this lender's borrowing is the raw material of its business, no debt is subtracted from any case; the $109 million of junior subordinated debentures is part of its funding. Balance sheet. Shareholders' equity is $3.25 billion, about 20 percent of assets, or about $52 per share ($47.8 per share excluding $283 million of goodwill). Securities are carried at market value, so the $246 million after-tax unrealized loss is already deducted from that equity and unwinds as bonds mature. Loans are only about 76 percent of deposits. Dividends are about $1.40 per share ($87 million in 2025), roughly a fifth of earnings; buybacks are now negligible ($4.6 million in 2025, $0.2 million in the first half of 2026) even though a $150 million authorization exists, and the share count has been flat near 62.2 million since 2022. Our earlier view assumed continued repurchases; the filings do not support that, so no share shrinkage is credited. The surplus capital is simply accumulating. Credit. Commercial real estate, including construction and land development, is the largest and riskiest part of the loan book. Non-accrual loans rose from $47 million in 2023 to $169 million in 2024 and then fell to $140 million in 2025; the allowance for credit losses is $159 million, about 1.7 percent of loans, and construction and land loans had net charge-offs of $8.1 million in 2025. So problem loans have stopped rising, though they remain about three times the 2023 level, and a sizeable share of the allowance is held against property loans. Base case: about $112 per share. Earnings dip 1 percent in 2026 to about $6.52 (second-quarter weakness and a slow drift in deposit mix: non-interest-bearing deposits fell from $4.61 billion to $4.49 billion in 2025 while time deposits rose from $2.90 billion to $3.20 billion), then grow only 0.5 percent a year as loan growth (up 7.4 percent in 2025) is largely funded by moving money out of securities and a small deposit gain, to about $6.82 by 2035, and are then held flat. We left out buybacks, share gains, acquisitions and any rate view, since none is secured. This is the value of the bank, about $112 per share; it owes no debt that would be deducted, so business value and equity value are the same. Bear case: about $66 per share. Two things happen that this bank has actually lived through: rates return to something like the 2020-2021 environment, when owner earnings were $2.61-$3.99 (on a smaller loan book), and a property downturn forces losses on the large commercial real estate book. We assume net interest income falls by roughly a quarter and cumulative net charge-offs of about 4 percent of loans (about $380 million versus the $159 million already reserved), spread over 2027-2029. Earnings go to about $5.90 in 2026, $4.30, $3.40 and $3.40 in 2027-2029, then recover only to about $3.90 because roughly 10 percent of deposits are replaced by costlier funding after outflows by Mexico-domiciled depositors (a named risk in the filing given tariffs and U.S.-Mexico tensions). The bank stays well above regulatory capital, so no new shares are needed. The bear value is above tangible book because even in this case the franchise still earns roughly 8 percent on tangible equity, with a cost base and a one-third non-interest-bearing deposit franchise that earn their keep through the cycle. Bull case: about $136 per share. Earnings keep rising 3 percent a year after 2026 (to about $8.70) because loans, still only 76 percent of deposits, continue growing about as fast as they did in 2025 and replace lower-yielding securities, and net interest income keeps growing at the 2 percent pace seen in the first half of 2026. We do not assume a rate windfall. What would make this wrong: a deeper or faster property loss cycle than 4 percent, a sustained loss of Mexican deposits, or deposit costs rising faster than the loan yield. Each of these is a named, disclosed exposure. If the bank cannot lend out its surplus capital, earnings may stay flat while book value keeps building. Margin-of-safety price. The earnings level is fairly reliable for the next few years: three consecutive years of $6.51-$6.60 under stable conditions, and net interest income still growing. But the level depends on rates and a deposit base that is a third foreign and a third non-interest-bearing, and the earnings are close to double their level just four years ago. The worst plausible outcome, a combined rate drop, a property cycle and a Mexican deposit pullback, would cut earnings to the $3.40-$4 range for years, yet the bank would still be solidly profitable and over-capitalized, with $5 billion of securities and $536 million of cash to meet withdrawals. If we are wrong about the property book or the earnings level, the shares are worth about what the bank's tangible equity is worth, $48 per share plus the roughly $4 per share of unrealized bond losses that unwind as securities mature. The business pays about $1.40 a year in dividends during the holding period, only about 2 to 3 percent, with most of the cash building capital, so a return of 20 percent a year depends on the shares eventually reflecting that capital and earning power; the price assumes a three-to-five-year holding period. A price of about $50 is roughly tangible book value, about 7.7 times 2025 earnings, and is supported by the capital even if the bear case plays out; a higher price is not supported because the dividend does not carry the return and buybacks are not providing it. The margin-of-safety price is therefore $50.