Funding costs are finally turning for IBOC
- IBOC makes most of its money from net interest income, the spread between what it earns on loans and securities and what it pays on deposits.
- Q1 2026 net income rose to $102.2 million from $96.9 million a year earlier.
- Interest expense fell to $49.0 million, marking the third straight quarterly decline from the Q3 2025 peak.
- The stock still carries a price question because growth and performance look only moderate, even as funding pressure improves.
- The biggest company-specific risk is its exposure to the U.S.-Mexico border economy.
The rate headwind is easing
The case for IBOC has turned more positive. The key reason is simple: the bank is paying less to fund itself. Interest expense fell to $49.0 million in Q1 2026, down for the third quarter in a row from a Q3 2025 peak of $54.5 million.
That matters because banks live on spread. Net interest margin means the gap between what a bank earns on loans and securities and what it pays for deposits and other funding. When funding costs fall, that spread can improve, which can lift earnings even without fast loan growth.
The bull case is now cleaner. Q1 2026 net income was $102.2 million, up 5.5% from $96.9 million in the same quarter of 2025. If the Federal Reserve cuts rates, and if deposit costs keep falling, IBOC could see a stronger earnings tailwind.
The bear case has not gone away. A new jump in deposit competition could push interest expense back up. A weak economy in IBOC's border markets could also hurt loan quality. The page view is positive, but not priced as a free win.
A spread bank with fee add-ons
IBOC is a bank holding company. It takes deposits from customers, then uses that money to make loans and buy investment securities. The bank earns interest on those assets and pays interest on many deposits.
Most revenue comes from interest income. For the six months ended June 30, 2024, interest income made up about 87% of total revenue, while non-interest income made up about 13%. That mix shows how much the business depends on rates, deposit costs, and loan demand.
The funding base is central. As of June 30, 2024, total deposits were $12.0 billion, including non-interest-bearing demand deposits, savings and interest-bearing demand accounts, and time deposits. Cheap and sticky deposits are a major advantage when rates move lower.
The model breaks when depositors demand higher rates faster than asset yields rise, or when borrowers stop paying. That is why the current fall in interest expense is so important to the thesis.
Loans, securities, deposits, fees
Loan portfolio
Loans are the largest earning asset class. They produce interest income, but they also carry credit risk if borrowers weaken.
Investment securities
The securities portfolio is mainly debt securities. It adds interest income and liquidity, but its value and yield move with rates.
Non-interest-bearing demand deposits
These deposits are valuable because the bank does not pay interest on them. They help protect margins when funding costs rise elsewhere.
Savings, interest-bearing demand, and time deposits
These accounts fund loans and securities, but they can become more expensive when customers shop for higher rates.
Service fees and financial product income
Fees are a smaller revenue stream than interest income. They still help diversify the bank away from pure spread income.
No formal segment split
IBOC reports consolidated results rather than formal operating segments. The mix shown uses the six months ended June 30, 2024, when interest income was about 87% of total revenue and non-interest income was about 13%.
What could still break
Deposit costs rise again
High impact · Medium oddsThe bull case depends on lower funding costs. Interest expense has fallen for three straight quarters, but that can reverse if depositors demand higher rates or competitors bid hard for money.
Border economy credit shock
High impact · Medium oddsIBOC has meaningful exposure to the U.S.-Mexico border economy. A local slowdown, trade shock, or borrower stress could raise credit losses and slow loan growth.
Loan growth stays soft
Medium impact · Medium oddsLower deposit costs help margins, but earnings can still stall if loan balances do not grow. The best version of the bull case needs cheaper funding to support more profitable lending.
AI and fintech gap
Medium impact · Medium oddsIBOC says it could fall behind if it cannot adopt AI-driven technology as fast as peers, larger banks, or fintech companies. That risk matters because customers may expect faster, smarter digital banking tools.
Crypto and blockchain disruption
Medium impact · Low oddsThe company warns that friendlier rules for digital assets could reduce demand for some traditional banking services. This is a longer-term risk, but it is now named by management.
Price outruns earnings
Medium impact · Medium oddsThe thesis has improved, but growth is still not explosive. If investors price in a full margin recovery before earnings prove it, the stock could disappoint even if the bank performs reasonably well.
In one breath
What does International Bancshares Corporation do?
IBOC owns banks that take deposits, make loans, buy securities, and collect service fees. Most of its revenue comes from interest earned on loans and securities.
Why does interest expense matter so much for IBOC?
Interest expense is what the bank pays to fund itself, mainly through deposits. When that cost falls, the bank can keep more of the interest it earns on loans and securities.
What is the main bull case for IBOC?
The bull case is that funding costs have peaked and are now falling. If that trend continues, IBOC's net interest margin and earnings power could improve.
What is the biggest risk for IBOC?
The biggest near-term risk is a reversal in deposit costs or a credit shock in its U.S.-Mexico border markets. Longer term, the bank also faces technology, fintech, and digital asset competition.