FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number 0-9439
INTERNATIONAL BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 74-2157138
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1200 SAN BERNARDO AVENUE, LAREDO, TEXAS 78042-1359
(Address of principal executive offices)
(Zip Code)
(210) 722-7611
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS SHARES ISSUED AND OUTSTANDING
Common Stock, $1.00 par value 6,923,664 shares outstanding at
November 9, 1995
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in Thousands)
September 30, December 31,
ASSETS 1995 1994
------ ------------- ------------
(Unaudited)
Cash and due from banks $ 87,230 86,200
Federal funds sold 21,000 4,000
--------- ---------
Total cash and cash equivalents 108,230 90,200
Time deposits with banks 689 495
Investment securities:
Held to maturity at amortized cost
(Market value of $574,302 on September 30, 1995
and $612,420 on December 31, 1994) 574,079 647,832
Available for sale at market value
(Amortized cost of $894,731 on September 30, 1995
and $671,957 on December 31, 1994) 906,870 646,402
--------- ---------
Total investment securities 1,480,949 1,294,234
Loans:
Commercial, financial and agricultural 733,573 664,449
Lease financing receivable, net 3,910 3,910
Real estate - mortgage 205,719 201,998
Real estate - construction 39,777 46,584
Consumer 124,439 122,751
Foreign 121,429 106,707
--------- ---------
Total loans 1,228,847 1,146,399
Less unearned discounts (3,691) (3,885)
--------- ---------
Loans, net of unearned discounts 1,225,156 1,142,514
Less allowance for possible loan losses (19,668) (17,025)
--------- ---------
Net loans 1,205,488 1,125,489
--------- ---------
Bank premises and equipment, net 77,889 70,686
Accrued interest receivable 23,714 20,941
Other assets 57,238 57,347
--------- ---------
Total assets $ 2,954,197 2,659,392
========= =========
(Continued)
2
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Condition, continued
(Dollars in Thousands)
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - non-interest bearing $ 275,494 274,563
Savings and interest bearing demand 554,307 562,824
Time 1,232,744 1,224,251
--------- ---------
Total deposits 2,062,545 2,061,638
Federal funds purchased and securities
sold under repurchase agreements 459,776 284,113
Other borrowed funds 181,250 123,500
Other liabilities 19,660 11,605
--------- ---------
Total liabilities 2,723,231 2,480,856
--------- ---------
Shareholders' equity:
Common stock of $1.00 par value
Authorized 15,000,000 shares;
issued 8,144,768 shares at
September 30, 1995 and 6,466,307
shares at December 31, 1994 8,145 6,466
Surplus 10,519 10,154
Retained earnings 212,037 185,685
Net unrealized holding gains (losses) on
available for sale securities, net of
Federal Income Taxes 7,890 (16,611)
--------- ---------
238,591 185,694
Less cost of shares in treasury
(1,225,612 shares at September 30, 1995 and
971,257 shares at December 31, 1994) (7,625) (7,158)
--------- ---------
Total shareholders' equity 230,966 178,536
--------- ---------
Total liabilities and
shareholders' equity $ 2,954,197 2,659,392
========== =========
See accompanying notes to consolidated financial statements.
3
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, except per share data)
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
Interest income:
Loans, including fees $ 31,487 25,471 92,779 69,333
Time deposits with banks 6 9 22 30
Federal funds sold 214 223 574 777
Investment securities:
Taxable 24,399 15,854 67,302 39,990
Tax-exempt 459 487 1,391 1,201
Other interest income 104 127 314 422
------ ------ ------ ------
Total interest income 56,669 42,171 162,382 111,753
------ ------ ------- -------
Interest expense:
Savings deposits 4,077 2,708 12,428 7,211
Time deposits 16,033 11,387 45,880 29,958
Federal funds purchased and securities
sold under repurchase agreements 7,329 3,399 19,362 7,170
Other borrowings 2,472 514 6,262 646
Subordinated debt - - - 29
------ ------ ------ ------
Total interest expense 29,911 18,008 83,932 45,014
------ ------ ------ ------
Net interest income 26,758 24,163 78,450 66,739
Provision for possible loan losses 1,278 917 3,735 2,742
------ ------ ------ ------
Net interest income after
provision for possible
loan losses 25,480 23,246 74,715 63,997
------ ------ ------ ------
Non-interest income:
Service charges on deposit accounts 1,251 1,145 3,647 3,386
Other service charges, commissions
and fees 3,026 3,091 8,892 8,792
Insurance premiums earned 152 135 435 411
Investment securities transactions (127) (237) (109) (793)
Net profit of operations for other
real estate owned - 204 - 821
Other income 2,337 1,671 7,205 4,489
------ ------ ------ ------
Total non-interest income 6,639 6,009 20,070 17,106
------ ------ ------ ------
(Continued)
4
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - continued
(Dollars in Thousands, except per share data)
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
Non-interest expense:
Employee compensation and benefits 6,367 5,618 18,828 15,801
Occupancy 1,698 1,131 3,291 2,684
Depreciation of premises and equipment 1,640 1,501 4,967 4,407
Regulatory and deposit insurance fees 1,307 1,250 4,026 3,415
Professional fees 582 433 1,432 1,023
Net cost of operations for other real
estate owned 53 - 121 -
Other 5,189 4,619 16,543 14,010
------ ------ ------ ------
Total non-interest expense 16,836 14,552 49,208 41,340
------ ------ ------ ------
Income before income taxes 15,283 14,703 45,577 39,763
Income taxes 4,914 4,866 14,829 12,281
------- ------ ------ ------
Net Income $ 10,369 9,837 30,748 27,482
------ ------ ------ ------
Per share (Note 5):
Net income - primary $ 1.51 1.40 4.49 3.91
Net income - fully diluted $ 1.51 1.40 4.49 3.91
Weighted average number of shares
outstanding 6,854,310 7,038,235 6,854,310 7,038,235
See accompanying notes to consolidated financial statements.
5
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Nine Months Ended
SEPTEMBER 30,
-----------------
1995 1994
---- ----
Operating activities:
Net income $ 30,748 27,482
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 3,735 2,742
Recoveries on charged-off loans 487 1,479
Net cost (profit) of operations for other
real estate owned 121 (821)
Depreciation of bank premises and equipment 4,967 4,407
Accretion of investment security discounts (1,349) (367)
Amortization of investment security premiums 8,773 10,887
Realized loss on investment securities
transactions, net 109 793
Gain on sale of bank premises and equipment (46) (20)
Increase in accrued interest receivable (1,843) (3,633)
Increase (decrease) in other liabilities 7,747 (23,471)
-------- --------
Net cash provided by operating activities 53,449 19,478
------- -------
Investing activities:
Cash acquired in purchase transactions 7,123 21,938
Proceeds from maturities of securities 25,588 3,567
Purchases of held to maturity securities - (196,889)
Proceeds from sales of available for sale securities 84,117 291,020
Purchases of available for sale securities (371,902) (497,148)
Principal collected on mortgage-backed securities 144,080 210,513
Principal collected on other investment securities - 15
Proceeds from matured time deposits with banks 297 695
Purchases of time deposits with banks (491) (198)
Net increase in loans (47,178) (57,986)
Net increase in other assets (2,142) (11,467)
Purchase of bank premises and equipment (8,546) (9,553)
Proceeds from sale of bank premises and equipment 79 70
------- --------
Net cash used in investing activities (168,975) (245,423)
-------- --------
(Continued)
6
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(Dollars in Thousands)
Nine Months Ended
SEPTEMBER 30,
-----------------
1995 1994
Financing activities:
Net (decrease) increase in non-interest bearing
demand deposits $ (16,321) 16,344
Net (decrease) increase in savings and interest
bearing demand deposits (57,283) 11,046
Net (decrease) increase in time deposits (13,809) 69,319
Net increase in federal funds purchased and
securities sold under repurchase agreements 166,038 90,914
Proceeds from issuance of other borrowed funds 94,500 120,000
Principal payments on other borrowed funds (36,750) (750)
Principal payments on subordinated debt - (1,451)
Purchase of treasury stock (467) (459)
Proceeds from exercise of stock options 419 580
Payments of cash dividends (2,762) (6,013)
Payments of cash in lieu of fractional shares (9) -
------- -------
Net cash provided by financing activities 133,556 299,530
------- -------
Increase in cash and cash equivalents 18,030 73,585
Cash and cash equivalents
at beginning of year 90,200 59,554
------- -------
Cash and cash equivalents
at end of period $ 108,230 133,139
======= =======
Supplemental cash flow information:
Interest paid $ 88,609 46,351
Income taxes paid 14,046 15,077
Supplemental schedule of noncash investing and
financing activities relating to the purchase
transactions:
Loans acquired $ 37,043 48,991
Investment securities and other assets acquired 54,087 183,030
Deposit liabilities assumed 98,253 253,959
See accompanying notes to consolidated financial statements.
7
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accounting and reporting policies of International Bancshares
Corporation ("Company") and Subsidiaries conform to generally accepted
accounting principles and to general practice within the banking industry. The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, International Bank of Commerce ("IBC"), Commerce
Bank, International Bank of Commerce, Zapata, International Bank of Commerce,
Brownsville and its wholly-owned non-bank subsidiaries, IBC Subsidiary
Corporation, IBC Life Insurance Company and IBC Trading Company. All significant
intercompany balances and transactions have been eliminated. The consolidated
financial statements are unaudited, but include all adjustments which, in the
opinion of management, are necessary for a fair presentation of the results of
the periods presented. All such adjustments were of a normal and recurring
nature. It is suggested that these financial statements be read in conjunction
with the financial statements and the notes thereto in the Company's latest
Annual Report on Form 10K.
On January 1, 1995, the Company's adopted Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for Impairment of a Loan" ("SFAS
114"), as amended by Statement of Financial Accounting Standards No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure" ("SFAS 118"). Together, these standards require that when a loan is
impaired, a creditor shall measure impairment based on the present value of
expected future cash flows discounted at the loan's effective interest rate, the
fair value of the collateral if the loan is collateral dependent or the loan's
observable market price. A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. The
adoption of this accounting standard did not have a material effect on the
Company's financial position or results of operations since the Company's
previous recognition and measurement policies regarding nonperforming loans were
consistent with the accounting requirements for impaired loans.
Note 2 - Acquisitions
Effective September 8, 1995, Stone Oak National Bank, in San Antonio,
Texas ("SONB") a national banking association organized under the laws of the
United States, was merged with and into IBC. At the date of closing, total
assets acquired were approximately $18,000,000. The acquisition was accounted
for as a purchase transaction. IBC recorded intangible assets, goodwill and core
deposit premium totaling $1,387,000. These assets are being amortized on a
straight line basis over a fifteen year period.
Effective February 1, 1995, The Bank of Corpus Christi, Corpus Christi,
Texas ("BCC") a state bank organized under the laws of the state of Texas, was
merged with and into IBC. At the date of closing, total assets acquired were
approximately $80,000,000. The acquisition was accounted for as a purchase
transaction. IBC recorded intangible assets, goodwill and core deposit premium
totaling $4,179,000. These assets are being amortized on a straight line basis
over a fifteen year period.
Effective as of the close of business on August 31, 1994, First State
Bank and Trust Company, Port Lavaca, Texas ("LAVACA"), a wholly-owned subsidiary
of Michigan National Corporation ("MNC"), was merged with IBC. At the date of
closing, total assets acquired were approximately $254,000,000. The acquisition
was accounted for as a purchase. IBC recorded intangible assets, goodwill and
core deposit premium, totaling approximately $8,300,000. These assets are being
amortized on a straight line basis over a fifteen year period.
8
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Investment Securities
The Financial Accounting Standard Board's ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", requires that an enterprise classify
debt and equity securities into one of these categories: held-to-maturity,
available-for-sale, or trading. SFAS No. 115 also states that these
classifications need to be reassessed for appropriate classification at each
reporting date. Securities classified as "held-to-maturity" are to be carried at
amortized cost for financial statement reporting, while securities classified as
"available for sale" and "trading" are to be carried at their fair value.
Unrealized holding gains and losses are included in net income for those
securities classified as "trading", while unrealized holding gains and losses
related to those securities classified as "available- for-sale" are excluded
from net income and reported at a net amount as a separate component of
shareholders' equity until realized. The Company adopted SFAS No. 115 on January
1, 1994. A summary of the investment securities held to maturity and securities
available for sale is as follows:
September 30, September 30,
1995 1994
------------- -------------
(Dollars in Thousands)
U. S. Treasury and federal agencies
Held to maturity $ 561,651 503,176
Available for sale 866,826 735,833
States and political subdivisions
Held to maturity 8,635 10,688
Available for sale 25,273 26,214
Other
Held to maturity 3,793 715
Available for sale 14,771 12,261
------- -------
Total investment securities $ 1,480,949 1,288,887
========= =========
The Company may invest in collateralized mortgage obligations and structured
notes however, such investments in the portfolio at September 30, 1995 are not
significant to the financial position of the Company.
Note 4 - Allowance for Possible Loan Losses
A summary of the allowance for possible loan losses follows:
Nine Months Ended
SEPTEMBER 30,
-----------------
1995 1994
---- ----
(Dollars in Thousands)
Balance at January 1 $ 17,025 13,831
Losses charged to allowance (2,014) (999)
Recoveries credited to allowance 487 1,479
----- -----
Net (losses) recoveries charged to allowance (1,527) 480
Provisions charged to operations 3,735 2,742
Allowance acquired in purchase transaction 435 444
----- -----
Balance at September 30 $ 19,668 17,497
====== ======
9
On January 1, 1995, the Company adopted SFAS 114 as amended by SFAS
118. The Company classifies as impaired those loans where it is probable that
all amounts due according to contractual terms of the loan agreement will not be
collected. The Company has identified these loans through its normal loan review
procedures. Impaired loans included 1) all non-accrual loans, 2) loans which are
90 days or over past due unless they are well secured (the collateral value is
sufficient to cover principal and accrued interest) and are in the process of
collection, and 3) other loans which management believes are impaired.
Substantially all of the Company's impaired loans are measured at the fair value
of the collateral. In limited cases the Company may use other methods to
determine the level of impairment of a loan if such loan is not collateral
dependent. Amounts received on non- accruals are applied, for financial
accounting purposes, first to principal and then to interest after all principal
has been collected.
At September 30, 1995, the recorded investment in loans considered
impaired was approximately $14,740,000, including three trouble debt
restructured loans in the amount of approximately $1,944,000. The allowance for
possible loan losses related to impaired loans totaled approximately $2,269,000.
The average recorded investment in impaired loans during the nine months ended
September 30, 1995 (using December 31, 1994, June 30, 1995 and September 30,
1995 balances), was approximately $14,038,000.
The following table shows, for those loans accounted for as impaired
loans, the gross interest that would have been recorded if the loans had been
current in accordance with their original terms, and the amount of interest
income that was included in net income for the period.
For the Nine months ended
September 30, 1995
(Dollars in Thousands)
Principal amount at September 30, 1995 $ 14,740
======
Interest income in accordance with original terms 1,241
Interest income recognized 659
---
Net impact on interest income $ 582
===
Management of the Company recognizes the risks associated with these
impaired loans. However, management's decision to place loans in this category
does not necessarily mean that the Company expects losses to occur.
The Company had previously measured the allowance for credit losses
using methods similar to the prescribed method in SFAS 114. As a result, no
additional provision was required by the adoption of SFAS 114. The subsidiary
banks charge off that portion of any loan which management considers to
represent a loss as well as that portion of any other loan which is classified
as a "loss" by bank examiners. Commercial and industrial or real estate loans
are generally considered by management to represent a loss, in whole or part,
when an exposure beyond any collateral coverage is apparent and when no further
collection of the loss portion is anticipated based on the borrower's financial
condition and general economic conditions in the borrower's industry. Generally,
unsecured consumer loans are charged-off when 90 days past due.
While management of the Company considers that it is generally able to
identify borrowers with financial problems reasonably early and to monitor
credit extended to such borrowers carefully, there is no precise method of
predicting loan losses. The determination that a loan is likely to be
uncollectible and that it should be wholly or partially charged-off as a loss,
is an exercise of judgment. Similarly, the determination of the adequacy of the
allowance for possible loan losses, can be made only on a subjective basis. It
is the judgment of the Company's management that the allowance for possible loan
losses at September 30, 1995, was adequate to absorb possible losses from loans
in the portfolio at that date.
10
Note 5 - Stock and Cash Dividends and Stock Options
Per share data for 1994 has been restated to reflect the stock split-up
effected through a stock dividend which became effective May 19, 1994 which
resulted in the issuance of 1,286,752 shares of Common Stock. A special cash
dividend of a $1.10 per share was paid to holders of record of Common Stock on
March 24, 1994. A special cash dividend of $.50 per share and a 25% stock
split-up effected through a stock dividend was declared on April 3, 1995 for all
holders of Common Stock of record on May 18,1995 and May 19,1995, respectively,
and said dividends were paid on June 12, 1995.
The Company does not have a formal stock repurchase program. However, the
Company may occasionally repurchase additional shares. Stock repurchases are
presented quarterly at the Company's Board of Director meetings and the Board of
Directors has stated that they will not permit purchases of more than a total of
$8,000,000 of stock. In the past, the board has increased previous caps once
they were met, but there are no assurances that an increase of the $8,000,000
cap will occur in the future.
The Company maintains a stock option plan, pursuant to which a total of
587,728 shares of the Company's common stock has been reserved for issuance. As
of September 30, 1995 options to acquire 570,226 shares of common stock remain
outstanding. The options did not have a material dilutive effect upon the
calculations of earnings per share and were, therefore, not included in such
calculation.
Note 6 - Legal Proceedings
The Company is involved in various legal proceedings that are in various
stages of litigation by the Company and its legal counsel. Some of these actions
allege "lender liability" claims on a variety of theories and claim substantial
actual and punitive damages. The Company has determined, based on discussions
with its counsel, that any material loss in such action, individually or in the
aggregate, is remote or the damages sought, even if fully recovered, would not
be considered material. However, many of these matters are in various stages of
proceedings and further developments could cause Management to revise its
assessment of these matters.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net income for the third quarter of 1995 was $10,369,000 or $1.51 per share
- -primary (and $1.51 per share - fully diluted) compared to $9,837,000 or $1.40
per share - primary (and $1.40 per share - fully diluted) in the corresponding
1994 period. Net income for the nine month period was $30,748,000 or $4.49 per
share-primary (and $4.49 per share - fully diluted) compared with $27,482,000 or
$3.91 per share-primary (and $3.91 per share fully diluted) for the first nine
month ended September 30, 1994.
At the end of September 30, 1995, the Company's total assets were
$2,954,197,000, which represents a $294,805,000 (11%) increase over total assets
of $2,659,392,000 as of December 31, 1994 and a $290,952,000 (11%) increase over
total assets of $2,663,245,000 September 30, 1994. Deposits at September 30,
1995 were $2,062,545,000 an increase of $907,000 a less than one percent change
over the $2,061,638,000 amount reported at December 31, 1994, and a $16,051,000
(1%) increase over the $2,046,494,000 amount reported at September 30, 1994.
Total loans at September 30, 1995 were $1,228,847,000 an increase of $82,448,000
(7%) over the $1,146,399,000 amount reported for December 31, 1994 and a
$106,826,000 (10%) increase over the $l,122,021,000 amount reported at September
30, 1994. The increase in assets and deposits during the first nine months of
1995, is partially the result of the acquisitions of The Bank of Corpus Christi,
Corpus Christi, Texas, ("BCC") and the Stone Oak National Bank, San Antonio,
Texas, ("SONB"), (see note 2 of notes to consolidated financial statements).
During the third quarter the Company reflects in total assets $178,500,000 of
certificates of indebtedness with the Federal Home Loan Bank of Dallas ("FHLB").
Also, reflected in total assets is the increase in repurchase agreements with
the Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC") to $355,000,000 at September 30, 1995, from
$180,000,000 of repurchase agreements with FHLB at December 31, 1994, which
funds were used to expand the earning asset base of the Company.
11
In order to achieve a net yield that is relatively immune to major swings
in market rates, the Company strives to manage both assets and liabilities so
that interest sensitivities match. In this way both earning assets and funding
sources of the Company respond to changes in a similar time frame. In spite of
volatile interest rates and an uncertain economy, net interest income, the
difference between the cost of funds and the income earned through the
investment of those funds, continues to grow each quarter. Net interest income
for the third quarter of 1995 increased $2,595,000 (11%) over the same period in
1994 and increased $11,711,000 (18%) for the first nine months of 1995 over the
corresponding period in 1994. The Company's average balances of domestic and
foreign loans increased to $1,184,288,000 at September 30, 1995 compared to
$1,028,709,000 for the same period in 1994. Interest and fees on loans for the
third quarter in 1995 increased $6,016,000 (24%) compared to the third quarter
in 1994, and the nine month period ended September 30, 1995 reflects an increase
in interest and fees on loans of $23,446,000 (34%) compared to the same period
in 1994.
Investment securities increased 15% to $1,480,949,000 at September 30, 1995
from $1,288,887,000 at September 30, 1994. Time deposits with other banks
decreased to $689,000 at September 30, 1995, representing an 13% decrease from
$792,000 compared to September 30, 1994. Total federal funds sold decreased to
$21,000,000 (63%) at September 30, 1995 from $56,000,000 for the first nine
months of 1994. The decreased investment in time deposits with other banks and
federal funds sold was largely due to alternative investment opportunities, as
evidenced by the Company's increase in investment securities and loan portfolio.
Unrealized gains and losses created by changes in the market values of available
for sale securities are recognized as an adjustment to stockholders' equity, net
of tax.
Interest income on taxable and tax exempt investment securities for the
third quarter in 1995 increased $8,517,000 (52%) from the same quarter in 1994
and increased $27,502,000 (67%) for the nine month period ended September 30,
1995 as compared to the same period in 1994. Interest income on federal funds
sold for the third quarter in 1995 decreased $9,000 (4%) from the same quarter
in 1994 and decreased $203,000 (26%) for the third month period ended September
30, 1995 as compared to the same period in 1994. Interest income on time
deposits with banks decreased $3,000 (33%) for the third quarter of 1995 as
compared to the same quarter in 1994 and decreased $8,000 (27%) for the nine
month period ended September 30, 1995, as compared to the same period in 1994.
Overall, total interest income from loans, time deposits, federal funds sold,
investment securities and other interest income for the third quarter of 1995
increased $14,498,000 (34%) from the same quarter in 1994 and increased
$50,629,000 (45%) for the nine month period ended September 30, 1995 from the
same period in 1994. The increase in total interest income was primarily due to
the increase in the volume of earning assets relating to the 1995 and 1994
acquisitions ( see note 2 of notes to the consolidated financial statements),
the expansion of assets funded by repurchase agreements with the FNMA and FHLMC
and certificates of indebtedness with the FHLB as well as higher interest rates.
Total interest expense for savings deposits, time deposits and other
borrowings increased $11,903,000 (66%) for the third quarter of 1995 over the
same quarter in 1994 and increased $38,918,000 (86%) for the nine month period
ended September 30, 1995 over the same period in 1994. This increase in total
interest expense was largely due to the increase in the repurchase agreements
and higher interest rates. Net interest income for the third quarter in 1995
increased $2,595,000 (11%) over the same period in 1994 and increased
$11,711,000 (18%) for the nine month period ended September 30, 1995 over the
corresponding period in 1994. This increase is attributed to the Company's
investments in earning assets, particularly in the loans and investment
securities portfolio, which has resulted in the maintenance of an adequate
interest rate spread between the cost of funds and the investment of those
funds.
Non-interest income increased $630,000 (10%) to $6,639,000 for the third
quarter of 1995 as compared to $6,009,000 for the quarter ended September 30,
1994 and increased $2,964,000 (17%) to $20,070,000 for the nine month period
ended September 30, 1995 as compared to $17,106,000 for the nine months ended
September 30, 1994. The overall increase is due to the Company's efforts to
improve non-interest income.
Non-interest expense increased $2,284,000 (16%) to $16,836,000 for the
third quarter of 1995 as compared to $14,552,000 for the quarter ended September
30, 1994 and increased $7,868,000 (19%) to $49,208,000 for the nine month period
ended September 30, 1995 as
12
compared to $41,340,000 for the nine months ended September 30, 1994. This
increase in non-interest expense is primarily due to the increased operations at
each of the subsidiary banks.
The allowance for possible loan losses increased $899,000 in the third
quarter of 1995 as compared to the $1,368,000 increase in the third quarter of
1994. For the first nine months of 1995, provision for possible loan losses was
$3,735,000 compared to $2,742,000 for the first nine months of 1994. The Company
continues to maintain an aggressive loan loss provision due to the increase in
the size of the loan portfolio and an uncertain economy. The Company charged off
$660,000 against the allowance for possible loan losses during the third quarter
of 1995 compared to $298,000 in the third quarter for the prior year. For the
nine month period ending September 30, 1995 net losses charged against the
allowance for possible loan losses amount to $1,527,000 compared to net
recoveries charged against the allowance for possible loan losses of $480,000
for the nine months ended September 30, 1994. The allowance for possible loan
losses was 1.61 % of September 30, 1995 loans, net of unearned income, compared
to 1.56% at September 30, 1994 and 1.49% at December 31, 1994.
On September 30, 1995, the Company had $2,954,197,000 of consolidated
outstanding assets of which approximately $123,208,000 or 4% were related to
Mexico. Of the $123,208,000, 84% is directly or indirectly secured by U. S.
assets, principally certificates of deposits and real estate; 1% is Mexican
sovereign debt extended to Mexican banks; 10% is secured by Mexican real estate,
2% are unsecured; 2% consists of direct unsecured Mexican sovereign debt
(principally former FICORCA debt) and 1% represents accrued interest receivable
on the portfolio. To date, the Company has not experienced a material adverse
impact related to the recent devaluation of the peso in Mexico. The Company will
continue to monitor the effect of the peso devaluation.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the Company's ability to meet potential depositor withdrawals,
provide for customer credit needs, maintain adequate statutory reserve levels
and take full advantage of high yield investment opportunities as they arise.
The subsidiary banks of the Company derive their liquidity largely from deposits
of individuals and business entities; however, the deposits are not growing at
as high a rate as they did in the past. Consequently, the Company is relying
more on other funding sources. Other important funding sources for the Company's
bank subsidiaries during 1994 and 1995 have been securities sold under agreement
to repurchase, FHLB certificates of indebtedness and large time certificates of
deposit requiring management to closely monitor its asset/liability mix in terms
of both rate sensitivity and maturity distributions. Primary liquidity of the
Company has been maintained by means of increased investment in shorter-term
securities, certificates of deposit and loans.
The Company had a leverage ratio of 7.11% and 7%, risk-weighted Tier 1
capital ratio of 13.95% and 13.19% and risk-weighted total capital ratio of
15.17% and 14.30% for September 30, 1995 and December 31, 1994, respectively,
which September 30, 1995 ratio reflects the deduction of the goodwill and core
deposit intangible booked of approximately $5,566,000 in connection with the BCC
and SONB transactions. The amounts are well above the minimum regulatory
requirements.
As in the past, the Company will continue to monitor the volatility and
cost of funds in an attempt to match maturities of rate-sensitive assets and
liabilities, and respond accordingly to anticipated fluctuations in interest
rates by adjusting the balance between sources and uses of funds as deemed
appropriate. The net-interest rate sensitivity as of September 30, 1995 is
illustrated in the table on page 15. This information reflects the balances of
assets and liabilities whose rates are subject to change. A mix of assets and
liabilities that are roughly equal in volume and repricing characteristics
represents a matched interest rate sensitivity position. Any excess of assets or
liabilities results in an interest rate sensitivity gap. The purpose of this
analysis is to be aware of the potential risk to future earnings resulting from
the impact of possible future changes in interest rates on currently existing
net asset or net liability positions. The Company
13
undertakes this interest rate sensitivity analysis to monitor the potential risk
on future earnings resulting from the impact of possible future changes in
interest rates on currently existing net asset or net liability positions.
However, this type of analysis is as of a point-in-time position, when in fact
that position can quickly change as market conditions, customer needs, and
management strategies change. Thus, interest rate changes do not affect all
categories of asset and liabilities equally or at the same time. As indicated in
the table, the Company is liability sensitive during the early time periods and
becomes asset sensitive in the longer periods.
The Company's Asset and Liability Committee reviews semi-annually the
consolidated position along with simulation and duration models, and makes
adjustments as needed to control the Company's interest rate risk position. The
Company uses modeling of future events as a primary tool for monitoring interest
rate risk. The Federal banking agencies issued a final rule on the interest rate
component of risk based capital, which requires the banking agencies to take
into account the effect interest rates can have on a bank's capital. The federal
banking agencies have proposed an interagency supervisory policy to establish a
uniform framework for measuring banks' interest rate exposures. Adjustments to
the Company's interest rate risk position will be considered in conjunction with
the new rule and the policy statement.
The Company will depend upon earnings of subsidiaries, in addition to
borrowed funds, to finance its future cash flow requirements. The Company has a
number of available alternatives to finance the growth of its existing banks as
well as future growth and expansion. Among the activities and commitments the
Company funded during the first nine months of 1995 and expects to continue to
fund during 1995 is a continuous effort to modernize and improve our existing
facilities and expand our bank branch network.
14
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
INTEREST RATE SENSITIVITY
(Dollars in Thousands)
RATE/MATURITY RATE/MATURITY RATE/MATURITY RATE/MATURITY
September 30, 1995 3 MNTHS OVER 3 MNTHS OVER 1 YR TOTAL
(Dollars in Thousands) OR LESS TO 1 YR TO 5 YRS OVER 5 YRS
==========================================================================================================
SECTION A
----------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS
FED FUNDS SOLD 21,000 - - - 21,000
DUE FROM BANK INT EARNING - 689 - - 689
INVESTMENT SECURITIES 123,664 222,344 1,133,898 1,043 1,480,949
LOANS, NET OF NON-ACCRUALS 947,259 98,793 85,342 87,244 1,218,638
----------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 1,091,923 321,826 1,219,240 88,287 2,721,276
----------------------------------------------------------------------------------------------------------
CUMULATIVE EARNING ASSETS 1,091,923 1,413,749 2,632,989 2,721,276 2,721,276
==========================================================================================================
SECTION B
----------------------------------------------------------------------------------------------------------
RATE SENSITIVE LIABILITIES
TIME DEPOSITS 556,777 539,130 136,643 194 1,232,744
OTHER INT BEARING DEPOSITS 554,307 - - - 554,307
FED FUNDS PURCHASED & REPOS 442,898 16,878 - - 459,776
OTHER BORROWINGS 181,250 - - - 181,250
----------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES 1,735,232 556,008 136,643 194 2,428,077
----------------------------------------------------------------------------------------------------------
TOTAL SENSITIVE LIABILITIES 1,735,232 2,291,240 2,427,883 2,428,077 2,428,077
==========================================================================================================
SECTION C
----------------------------------------------------------------------------------------------------------
REPRICING GAP (643,309) (234,182) 1,082,597 88,093 293,199
CUMULATIVE REPRICING GAP (643,309) (877,491) 205,106 293,199 293,199
RATIO OF INTEREST-SENSITIVE .629 .579 8.923 - 1.121
ASSETS TO LIABILITIES
RATIO OF CUMULATIVE, INTEREST- .629 .617 1.084 1.121 1.121
SENSITIVE ASSETS TO LIABILITIES
==========================================================================================================
15
ITEM 5. OTHER MATTERS
On August 28, 1995, the common stock of the Company began to trade on the
OTC Bulletin Board. The Company's trading symbol is IBNC.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL BANCSHARES CORPORATION
Date: NOVEMBER 10, 1995 /S/ DENNIS E. NIXON
----------------- --------------------
Dennis E. Nixon
President
Date: NOVEMBER 10, 1995 /S/ ARNOLDO CISNEROS
----------------- ---------------------
Arnoldo Cisneros
Secretary-Treasurer
17