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 JUNE 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 6,909,910 shares outstanding at
August 8, 1995
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in Thousands)
June 30, December 31,
ASSETS 1995 1994
------- ----------- -----------
(Unaudited)
Cash and due from banks .......................... $ 81,736 86,200
Federal funds sold ............................... 3,500 4,000
----------- -----------
Total cash and cash equivalents ..... 85,236 90,200
Time deposits with banks ......................... 396 495
Investment securities:
Held to maturity at amortized cost
(Market value of $597,928 on June 30, 1995 and
$612,420 on December 31, 1994) ............... 596,925 647,832
Available for sale at market value
(Amortized cost of $864,621 on June 30, 1995
and $671,957 on December 31, 1994) ........... 878,899 646,402
----------- -----------
Total investment securities ......... 1,475,824 1,294,234
Loans:
Commercial, financial and agricultural ......... 718,305 664,449
Lease financing receivable, net ................ 3,910 3,910
Real estate - mortgage ......................... 204,195 201,998
Real estate - construction ..................... 46,456 46,584
Consumer ....................................... 126,342 122,751
Foreign ........................................ 114,673 106,707
----------- -----------
Total loans ......................... 1,213,881 1,146,399
Less unearned discounts ........................ (3,705) (3,885)
----------- -----------
Loans, net of unearned discounts .... 1,210,176 1,142,514
Less allowance for possible loan losses ........ (18,769) (17,025)
----------- -----------
Net loans ........................... 1,191,407 1,125,489
----------- -----------
Bank premises and equipment, net ................. 76,292 70,686
Accrued interest receivable ...................... 22,465 20,941
Other assets ..................................... 55,654 57,347
----------- -----------
Total assets ........................ $ 2,907,274 2,659,392
=========== ===========
(Continued)
2
<PAGE>
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Condition, continued
(Dollars in Thousands)
June 30, December 31,
1995 1994
----------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - non-interest bearing ............. $ 272,736 274,563
Savings and interest bearing demand ....... 514,282 562,824
Time ...................................... 1,216,825 1,224,251
----------- -----------
Total deposits .................... 2,003,843 2,061,638
Federal funds purchased and securities
sold under repurchase agreements .......... 542,812 284,113
Other borrowed funds ........................ 123,000 123,500
Other liabilities ........................... 15,686 11,605
----------- -----------
Total liabilities ................. 2,685,341 2,480,856
----------- -----------
Shareholders' equity:
Common stock of $1.00 par value
Authorized 15,000,000 shares;
issued 8,131,101 shares at
June 30, 1995 and 6,466,307 shares
at December 31, 1994 ...................... 8,131 6,466
Surplus ..................................... 10,435 10,154
Retained earnings ........................... 201,673 185,685
Net unrealized holding gains (losses) on
available for sale securities, net of
Federal Income Taxes ...................... 9,280 (16,611)
----------- -----------
229,519 185,694
Less cost of shares in treasury
(1,224,651 shares at June 30, 1995 and
971,257 shares at December 31, 1994) ...... (7,586) (7,158)
----------- -----------
Total shareholders' equity ........ 221,933 178,536
----------- -----------
Total liabilities and
shareholders' equity ........... $ 2,907,274 2,659,392
=========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees ................................. $ 31,092 22,957 61,292 43,862
Time deposits with banks .............................. 10 10 16 21
Federal funds sold .................................... 188 169 360 554
Investment securities:
Taxable ............................................. 22,749 12,756 42,903 24,136
Tax-exempt .......................................... 445 312 932 714
Other interest income ................................. 105 208 210 295
-------- -------- -------- --------
Total interest income ....................... 54,589 36,412 105,713 69,582
-------- -------- -------- --------
Interest expense:
Savings deposits ...................................... 4,134 2,275 8,351 4,503
Time deposits ......................................... 15,526 9,635 29,847 18,571
Federal funds purchased and securities
sold under repurchase agreements ..................... 7,010 2,219 12,033 3,771
Other borrowings ...................................... 1,923 69 3,790 132
Subordinated debt ..................................... -- 8 -- 29
-------- -------- -------- --------
Total interest expense ...................... 28,593 14,206 54,021 27,006
-------- -------- -------- --------
Net interest income ......................... 25,996 22,206 51,692 42,576
Provision for possible loan losses ....................... 1,238 896 2,457 1,825
-------- -------- -------- --------
Net interest income after
provision for possible
loan losses .............................. 24,758 21,310 49,235 40,751
-------- -------- -------- --------
Non-interest income:
Service charges on deposit accounts ................... 1,142 1,134 2,396 2,241
Other service charges, commissions
and fees ............................................ 2,898 2,797 5,866 5,701
Insurance premiums earned ............................. 145 156 283 276
Investment securities transactions .................... (180) 42 18 (556)
Net profit of operations for other
real estate owned ................................... (19) 617 -- 617
Other income .......................................... 2,146 1,407 4,868 2,818
-------- -------- -------- --------
Total non-interest income ................... 6,132 6,153 13,431 11,097
-------- -------- -------- --------
</TABLE>
(Continued)
4
<PAGE>
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - continued
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Non-interest expense:
Employee compensation and benefits ..................... 6,311 5,079 12,461 10,183
Occupancy .............................................. 809 711 1,593 1,553
Depreciation of premises and equipment ................. 1,656 1,459 3,327 2,906
Regulatory and deposit insurance fees .................. 1,428 1,070 2,719 2,165
Professional fees ...................................... 488 305 850 590
Net cost of operations for other real
estate owned ......................................... 68 (48) 68 --
Other .................................................. 6,414 5,296 11,354 9,391
---------- ---------- ---------- ----------
Total non-interest expense ................... 17,174 13,872 32,372 26,788
---------- ---------- ---------- ----------
Income before income taxes ................... 13,716 13,591 30,294 25,060
Income taxes .............................................. 4,529 4,043 9,915 7,415
---------- ---------- ---------- ----------
Net Income ................................... $ 9,187 9,548 20,379 17,645
---------- ---------- ---------- ----------
Net income per share (Note 5 and 6) .................... $ 1.33 1.36 2.94 2.51
Weighted average number of shares
outstanding .......................................... 6,925,643 7,018,200 6,925,643 7,018,200
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
Six Months Ended
June 30
----------------------
1995 1994
--------- ---------
Operating activities:
Net Income ......................................... $ 20,379 17,645
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses ............. 2,457 1,825
Recoveries on charged-off loans ................ 309 1,174
Net cost (profit) of operations for other real
estate owned ................................. 68 (617)
Depreciation of bank premises and equipment .... 3,327 2,906
Accretion of investment securities discounts ... (781) (199)
Amortization of investment securities premiums . 6,276 7,252
Realized (gain) loss on investment securities
transactions, net ............................ (18) 556
Gain on sale of bank premises and equipment .... (46) (20)
Increase in accrued interest receivable ........ (789) (753)
Increase in other liabilities .................. 3,820 916
--------- ---------
Net cash provided by operating activities . 35,002 30,685
--------- ---------
Investing activities:
Cash acquired in purchase transaction .............. 6,007 --
Proceeds from maturities of securities ............. 25,548 3,267
Purchases of held to maturity securities ........... -- (184,585)
Proceeds from sales of available
for sale securities .............................. 71,502 260,884
Purchases of available for sale securities ......... (295,292) (350,744)
Principal collected on mortgage-backed securities .. 82,269 160,736
Principal collected on other investment securities . -- 15
Proceeds from matured time deposits with banks ..... 297 596
Purchases of time deposits with banks .............. (198) (198)
Net increase in loans .............................. (40,183) (19,507)
Net increase in other assets ....................... (2,274) (8,789)
Purchase of bank premises and equipment ............ (5,465) (6,193)
Proceeds from sale of bank premises and equipment .. 74 70
--------- ---------
Net cash used in investing activities .... (157,715) (144,448)
--------- ---------
(Continued)
6
<PAGE>
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
(Dollars in Thousands)
Six Months Ended
June 30
----------------------
1995 1994
--------- --------
Financing activities:
Net (decrease) increase in non-interest bearing
demand deposits .................................. $ (14,447) 12,344
Net (decrease) increase in savings and interest
bearing demand deposits .......................... (88,295) 9,069
Net (decrease) increase in time deposits ........... (25,960) 24,144
Net increase in federal funds purchased and
securities sold under repurchase agreements ...... 249,824 92,937
Principal payments on other borrowed funds ......... (500) (500)
Principal payments on subordinated debt ............ -- (1,451)
Purchase of treasury stock ......................... (428) (386)
Proceeds from exercise of stock options ............ 320 393
Payments of cash dividends ......................... (2,762) (6,013)
Payments of cash in lieu of fractional shares ...... (3) --
--------- ---------
Net cash provided in financing activities 117,749 130,537
--------- ---------
(Decrease) increase in cash and cash
equivalents ............................ (4,964) 16,774
Cash and cash equivalents
at beginning of year ............................. 90,200 59,554
--------- ---------
Cash and cash equivalents
at end of period ................................. $ 85,236 76,328
========= =========
Supplemental cash flow information:
Interest paid .................................... $ 55,175 27,350
Income taxes paid ................................ 11,425 8,900
Supplemental schedule of noncash investing and
financing activities relating to the purchase
transaction:
Loans acquired ................................. 28,501 --
Investment securities and other assets acquired 45,535 --
Deposit liabilities assumed .................... 80,043 --
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
On February 28, 1995, the Company entered into an agreement to merge Stone
Oak National Bank, in San Antonio, Texas, with and into IBC, subject to
regulatory and shareholder approvals and certain other conditions set forth in
the merger agreement. Stone Oak National Bank has assets of approximately
$20,000,000 and deposits of approximately $18,000,000.
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
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 for investment and
securities available for sale is as follows:
June 30, June 30,
1995 1994
---------- ----------
(Dollars in Thousands)
U. S. Treasury and federal agencies
Held to maturity .......................... $ 584,661 488,967
Available for sale ........................ 839,765 512,714
States and political subdivisions
Held to maturity .......................... 8,624 9,111
Available for sale ........................ 24,919 23,492
Other
Held to maturity .......................... 3,640 715
Available for sale ........................ 14,215 11,547
---------- ----------
Total investment securities ....... $1,475,824 1,046,546
========== ==========
The Company may invest in collateralized mortgage obligations and structured
notes however, such investments in the portfolio at June 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:
Six Months Ended
June 30,
-----------------------
1995 1994
-------- --------
(Dollars in Thousands)
Balance at January 1 ........................... $ 17,025 13,831
Losses charged to allowance ............... (1,354) (701)
Recoveries credited to allowance .......... 309 1,174
-------- --------
Net (losses) recoveries charged
to allowance ............................ (1,045) 473
Provisions charged to operations .......... 2,457 1,825
-------- --------
Allowances acquired in purchase
transactions ............................ 332 --
-------- --------
Balance at June 30 ............................. $ 18,769 16,129
======== ========
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 June 30, 1995, the recorded investment in loans considered impaired
was approximately $15,374,000, 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 $2,105,000. The average
recorded investment in impaired loans during the six months ended June 30, 1995
(using December 31, 1994 and June 30, 1995 balances), was approximately
$13,687,000.
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 Six
Months Ended
June 30, 1995
----------------------
(Dollars in Thousands)
Principal amount at June 30, 1995 ....................... $15,374
=======
Interest income in accordance with original terms ....... 861
Interest income recognized .............................. 563
-------
Net impact on interest income ........................... $ 298
-------
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 June 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
601,395 shares of the Company's common stock has been reserved for issuance. As
of June 30, 1995 options to acquire 584,518 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 second quarter of 1995 was $9,187,000 or $1.33 per share
compared to $9,548,000 or $1.36 per share in the corresponding 1994 period.
Total assets at June 30, 1995 were $2,907,274,000 which represents a 29%
increase over total assets of $2,257,560,000 at June 30, 1994 and a 9% increase
over total assets of $2,659,392,000 as of December 31, 1994. Deposits at June
30, 1995 were $2,003,843,000 an increase of 13% over the $1,769,476,000 amount
reported at June 30, 1994, and a decrease of 3% from the $2,061,638,000 amount
reported at December 31, 1994. Total loans at June 30, 1995 increased 17% to
$1,213,881,000 from $1,033,344,000 reported at June 30, 1994 and increased 6%
over the $1,146,399,000 amount reported at December 31, 1994. The increase in
assets during the first six months of 1995, is partially the result of the
acquisition of The Bank of Corpus Christi, Corpus Christi, Texas, ("BCC"), (see
note 2 of notes to consolidated financial statements). Also, reflected in total
assets is the increase in repurchase agreements with the Federal Home Loan Bank
of Dallas ("FHLB") from $180,000,000 at December 31, 1994 to $410,000,000 at
June 30, 1995, which funds were used to expand the earning asset base of the
Company.
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. Net interest
income for the second quarter of 1995 increased $3,790,000 (17%) over the same
period in 1994. The Company's average balances of domestic and foreign loans
increased for the second quarter of 1995 to $1,143,466,000 compared to
$994,076,000 for the same period in 1994. Interest and fees on
11
loans for the second quarter in 1995 increased $8,135,000 (35%) compared to the
second quarter in 1994, and the six month period ended June 30, 1995 reflects an
increase in interest and fees on loans of $17,430,000 (4%) compared to the same
period in 1994.
Investment securities increased 41% to $1,475,824,000 at June 30, 1995 from
$1,046,546,000 at June 30, 1994. Time deposits with other banks decreased to
$396,000 at June 30, 1995, representing a 56% decrease from $891,000 compared to
June 30, 1994. Total federal funds sold increased to $3,500,000 (17%) at June
30, 1995 from $3,000,000 for the second quarter of 1994. 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
second quarter in 1995 increased $10,126,000 (77%) over the same quarter in 1994
and increased $18,985,000 (76%) for the six month period ended June 30, 1995 as
compared to the same period in 1994. Interest income on time deposits with banks
and federal funds sold for the second quarter in 1995 increased $19,000 (11%)
from the same quarter in 1994 and decreased $199,000 (35%) for the six month
period ended June 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 second quarter in 1995 increased
$18,177,000 (50%) over the same quarter 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 and certificates of indebtedness with the FHLB as well as higher
interest rates.
Total interest expense for savings deposit, time deposits and other
borrowings increased $14,387,000 (101%) for the second quarter of 1995 over the
same quarter in 1994 and increased $27,015,000 (100%) for the six month period
ended June 30, 1995 over the same period in 1994. The increase in total interest
expense was largely due to the increase in the repurchase agreements and higher
interest rates. As a result, net interest income for the second quarter of 1995
increased $3,790,000 or 17% over the same period in 1994 and increased
$9,116,000 (21%) for the six month period ended June 30, 1995 over the
corresponding period in 1994. This increase is attributed to the Company's
continued growth in earning assets, particularly in investment securities and
loans, 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 decreased $21,000 to $6,132,000 in the second quarter
of 1995 as compared to $6,153,000 for the quarter ended June 30, 1994 and
increased $2,334,000 (21%) to $13,431,000 for the six month period ended June
30, 1995 as compared to $11,097,000 for the six months ended June 30, 1994. The
overall increase is due to the Company's efforts to improve non-interest income.
Non-interest expense increased $3,302,000 (24%) to $17,174,000 for the
second quarter of 1995 as compared to $13,872,000 for the quarter ended June 30,
1994 and increased $5,584,000 (21%) to $32,372,000 for the six month period
ended June 30, 1995 as compared to $26,788,000 for the six months ended June 30,
1994. The increase is largely due to the increased operations at each of the
subsidiary banks.
The allowance for possible loan losses increased $295,000 in the second
quarter of 1995 as compared to the $1,230,000 increase in the second quarter of
1994. For the first six months of 1995, provision for possible loan losses was
$2,457,000 compared to $1,825,000 for the first six 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
$1,105,000 against the allowance for possible loan losses during the second
quarter of 1995 compared to $653,000 in the second quarter for the prior year.
For the six month period ending June 30, 1995 net losses charged against the
allowance for possible loan losses amounted to $1,045,000 compared to net
recoveries charged against the allowance for possible loan losses of $473,000
for the six months ended June 30, 1994. The allowance for possible loan losses
was 1.55% of June 30, 1995 loans, net of unearned income, compared to 1.57% of
the corresponding period in 1994 and 1.49% at December 31, 1994.
12
On June 30, 1995, the Company had $2,907,274,000 of consolidated assets of
which approximately $116,063,000 or 4% were related to loans outstanding to
borrowers from Mexico. Of the $116,063,000, 85% is directly or indirectly
secured by U. S. assets, principally certificates of deposits and real estate;
9% is secured by Mexican real estate, 1% is Mexican sovereign debt extended to
Mexican banks; 2% is 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. 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 6.84% and 7%, risk-weighted Tier 1
capital ratio of 13.41% and 13.19% and risk-weighted total capital ratio of
14.57% and 14.30% for June 30, 1995 and December 31, 1994, respectively, which
June 30, 1995 ratio reflects the deduction of the goodwill and core deposit
intangible booked of approximately $4,062,000 in connection with the BCC
transaction. 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 June 30, 1995 is
illustrated in the table on page 14. 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 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 are preparing to issue a final rule on
the interest rate component of risk based capital, which will require the
banking agencies to take into account the effect interest rates can have on a
bank's capital. Adjustments to the Company's interest rate risk position will be
considered when the new rule takes effect.
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 six 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.
13
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
INTEREST RATE SENSITIVITY (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
RATE/MATURITY RATE/MATURITY RATE/MATURITY
June 30, 1995 3 MNTHS OVER 3 MNTHS OVER 1 YR RATE/MATURITY
(Dollars in Thousands) OR LESS TO 1 YR TO 5 YRS OVER 5 YRS TOTAL
------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
SECTION A
RATE SENSITIVE ASSETS
FED FUNDS SOLD .............................. 3,500 -- -- -- 3,500
DUE FROM BANK INT EARNING ................... 99 297 -- -- 396
INVESTMENT SECURITIES ....................... 89,830 237,928 1,146,958 1,108 1,475,824
LOANS, NET OF NON-ACCRUALS .................. 934,507 94,064 87,322 92,312 1,208,205
--------- --------- --------- --------- ---------
TOTAL EARNING ASSETS ........................ 1,027,936 332,289 1,234,280 93,420 2,687,925
--------- --------- --------- --------- ---------
CUMULATIVE EARNING ASSETS ................... 1,027,936 1,360,225 2,594,505 2,687,925
========= ========= ========= ========= =========
SECTION B
RATE SENSITIVE LIABILITIES
TIME DEPOSITS ............................... 574,138 505,989 136,497 201 1,216,825
OTHER INT BEARING DEPOSITS .................. 514,282 -- -- -- 514,282
FED FUNDS PURCHASED & REPOS ................. 507,612 33,531 1,669 -- 542,812
OTHER BORROWINGS ............................ 123,000 -- -- -- 123,000
--------- --------- --------- --------- ---------
TOTAL INTEREST BEARING LIABILITIES .......... 1,719,032 539,520 138,166 201 2,396,919
--------- --------- --------- --------- ---------
TOTAL SENSITIVE LIABILITIES ............ 1,719,032 2,258,552 2,396,718 2,396,919
========= ========= ========= ========= =========
SECTION C
REPRICING GAP ............................... (691,096) (207,231) 1,096,114 93,219 291,006
CUMULATIVE REPRICING GAP .................... (691,096) (898,327) 197,787 291,006
RATIO OF INTEREST-SENSITIVE
ASSETS TO LIABILITIES ..................... .60 .62 8.93 -- 1.12
RATIO OF CUMULATIVE, INTEREST-SENSITIVE
ASSETS TO LIABILITIES ..................... .60 .60 1.08 1.12
</TABLE>
14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held May 18, 1995 for
the consideration of the following items which were approved by the number of
votes set forth:
Votes Votes Votes
For Against Abstained
--------- ------- ---------
1) To elect ten (10) directors of the
Company until the next Annual
Meeting of Shareholders and until
their successors are elected and
qualified; The following directors,
constituting the entire board of
directors, were elected:
Lester Avigael ...................... 4,158,008 NONE NONE
R. David Guerra ..................... 4,158,008 NONE NONE
Irving Greenblum .................... 4,158,008 NONE NONE
Richard E. Haynes ................... 4,157,908 100 NONE
Roy Jennings, Jr .................... 4,158,008 NONE NONE
Sioma Neiman ........................ 4,158,008 NONE NONE
Dennis E. Nixon ..................... 4,157,146 862 NONE
Leonardo Salinas .................... 4,147,582 10,426 NONE
A.R. Sanchez Jr ..................... 4,158,008 NONE NONE
Alberto A. Santos ................... 4,158,008 NONE NONE
2) To approve the appointment of
independent auditors for the 1995
fiscal year ......................... 4,157,237 187 584
3) To consider and vote upon a proposal
to amend the Certificate of
Incorporation of the Company to
increase the number of authorized
shares of Common Stock of the
Company ............................. 4,122,282 27,531 8,195
4) To approve and adopt an Agreement
and Plan of Merger providing for the
merger of the Company into a
wholly-owned Texas subsidiary for
purposes of changing the state of
incorporation of the Company from
Delaware to Texas and effecting
certain changes in the Certificate
of Incorporation and the By-Laws
of the Company ...................... 4,151,163 1,222 5,623
5) To transact such other business as
may lawfully come before the meeting
or any adjournment thereof. Proxies
were solicited pursuant to Schedule
14A under the Securities Exchange
Act of 1934 ......................... NONE NONE NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(b) REPORT ON FORM 8K
A report on Form 8-K was filed on June 20, 1995, reporting the
reincorporation of the Company from Delaware to Texas.
15
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: August 9, 1995 /S/ DENNIS E. NIXON
Dennis E. Nixon
President
Date: August 9, 1995 /S/ ARNOLDO CISNEROS
Arnoldo Cisneros
Secretary-Treasurer (Chief Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 9
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 81,736
<INT-BEARING-DEPOSITS> 1,731,107
<FED-FUNDS-SOLD> 3,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 878,899
<INVESTMENTS-CARRYING> 596,925
<INVESTMENTS-MARKET> 597,928
<LOANS> 1,213,881
<ALLOWANCE> 18,769
<TOTAL-ASSETS> 2,907,274
<DEPOSITS> 2,003,843
<SHORT-TERM> 0
<LIABILITIES-OTHER> 15,686
<LONG-TERM> 123,000
<COMMON> 8,131
0
0
<OTHER-SE> 213,802
<TOTAL-LIABILITIES-AND-EQUITY> 2,907,274
<INTEREST-LOAN> 61,292
<INTEREST-INVEST> 44,211
<INTEREST-OTHER> 210
<INTEREST-TOTAL> 105,713
<INTEREST-DEPOSIT> 38,198
<INTEREST-EXPENSE> 54,021
<INTEREST-INCOME-NET> 51,692
<LOAN-LOSSES> 2,457
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 32,372
<INCOME-PRETAX> 30,294
<INCOME-PRE-EXTRAORDINARY> 30,294
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,379
<EPS-PRIMARY> 2.94
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<PAGE>
</TABLE>
