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, 2000
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
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(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
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(Address of principal executive offices)
(Zip Code)
(956) 722-7611
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(Registrant's telephone number, including area code)
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(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 21,349,137 shares outstanding at
November 3, 2000
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------ ------------ -----------
Cash and due from banks .......................... $ 101,980 $ 121,695
Federal funds sold ............................... 23,500 13,300
----------- -----------
Total cash and cash equivalents ..... 125,480 134,995
Time deposits with banks ......................... 2,372 1,877
Investment securities:
Held to maturity
(Market value of $2,170 on September 30,
2000 and $2,405 on December 31, 1999) ........ 2,170 2,406
Available for sale
(Amortized cost of $3,199,521 on September 30,
2000 and $3,050,099 on December 31, 1999) .... 3,098,837 2,993,311
----------- -----------
Total investment securities ......... 3,101,007 2,995,717
Loans:
Commercial, financial and agricultural ........ 1,318,920 1,115,511
Real estate - mortgage ........................ 316,958 278,819
Real estate - construction .................... 157,737 129,813
Consumer ...................................... 164,782 171,104
Foreign ....................................... 263,813 216,632
----------- -----------
Total loans ......................... 2,222,210 1,911,879
Less unearned discounts ....................... (7,382) (8,355)
----------- -----------
Loans, net of unearned discounts .... 2,214,828 1,903,524
Less allowance for possible loan losses ....... (30,354) (26,770)
----------- -----------
Net loans ........................... 2,184,474 1,876,754
----------- -----------
Bank premises and equipment, net ................. 150,340 145,342
Accrued interest receivable ...................... 40,020 34,827
Other investments ................................ 131,884 130,089
Intangible assets ................................ 42,576 43,598
Other assets ..................................... 66,810 58,605
----------- -----------
Total assets ........................ $ 5,844,963 $ 5,421,804
=========== ===========
2
<PAGE>
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION, CONTINUED
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - non-interest bearing ...... $ 546,761 $ 499,369
Savings and interest bearing demand 915,933 928,455
Time ............................... 2,243,362 2,099,388
----------- -----------
Total deposits ............. 3,706,056 3,527,212
Federal funds purchased and securities
sold under repurchase agreements ... 124,381 123,752
Other borrowed funds ................. 1,609,000 1,380,000
Other liabilities .................... 50,153 37,404
----------- -----------
Total liabilities .......... 5,489,590 5,068,368
----------- -----------
Shareholders' equity:
Common stock of $1.00 par value.
Authorized 40,000,000 shares;
issued 26,457,515 shares in 2000
and 21,091,754 shares in 1999 ...... 26,458 21,092
Surplus .............................. 25,521 24,050
Retained earnings .................... 418,629 385,942
Accumulated other comprehensive loss . (65,445) (36,912)
----------- -----------
405,163 394,172
Less cost of shares in treasury,
5,098,725 shares in 2000 and
3,851,844 shares in 1999 ........... (49,790) (40,736)
----------- -----------
Total shareholders' equity . 355,373 353,436
----------- -----------
Total liabilities and
shareholders' equity .... $ 5,844,963 $ 5,421,804
=========== ===========
See accompanying notes to interim condensed 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees ................ $ 55,368 $ 40,702 $ 156,255 $ 117,235
Time deposits with banks ............. 43 24 111 75
Federal funds sold ................... 238 158 768 599
Investment securities:
Taxable ............................ 51,107 45,573 149,244 127,119
Tax-exempt ......................... 1,285 1,148 3,835 2,980
Other interest income ................ 74 75 247 269
--------- --------- --------- ---------
Total interest income ......... 108,115 87,680 310,460 248,277
--------- --------- --------- ---------
Interest expense:
Savings deposits ..................... 6,936 6,811 20,768 20,461
Time deposits ........................ 31,685 24,305 88,091 72,002
Federal funds purchased and securities
sold under repurchase agreements .... 1,935 1,499 5,540 4,441
Other borrowings ..................... 25,550 14,857 68,249 35,288
--------- --------- --------- ---------
Total interest expense ..... 66,106 47,472 182,648 132,192
--------- --------- --------- ---------
Net interest income ........ 42,009 40,208 127,812 116,085
Provision for possible loan losses ...... 1,756 636 5,090 5,150
--------- --------- --------- ---------
Net interest income after
provision for possible
loan losses ............. 40,253 39,572 122,722 110,935
--------- --------- --------- ---------
Non-interest income:
Service charges on deposit accounts .. 8,845 7,926 25,447 22,517
Other service charges, commissions
and fees ........................... 2,033 2,159 6,554 7,108
Investment securities transactions ... 410 (121) (884) (16)
Other investments .................... 1,941 1,419 5,736 4,285
Gain on sale of loans ................ 23 6,550 57 6,584
Other income ......................... 2,382 1,770 6,831 5,803
--------- --------- --------- ---------
Total non-interest income .. 15,634 19,703 43,741 46,281
--------- --------- --------- ---------
</TABLE>
4
<PAGE>
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Non-interest expense:
Employee compensation and benefits ... 12,375 10,835 35,050 31,672
Occupancy ............................ 2,674 1,755 6,512 5,009
Depreciation of premises and equipment 2,893 2,917 8,837 8,708
Professional fees .................... 1,161 1,434 3,260 3,739
Stationery and supplies .............. 749 699 2,229 2,130
Amortization of intangible assets .... 991 990 2,952 2,907
Other ................................ 7,812 9,778 21,662 24,586
----------- ----------- ----------- -----------
Total non-interest expense . 28,655 28,408 80,502 78,751
----------- ----------- ----------- -----------
Income before income taxes . 27,232 30,867 85,961 78,465
Income taxes ............................ 8,492 12,982 26,954 28,642
----------- ----------- ----------- -----------
Net Income ................. $ 18,740 $ 17,885 $ 59,007 $ 49,823
=========== =========== =========== ===========
Basic earnings per common share:
Net Income ........................... $ .88 $ .83 $ 3.06 $ 2.53
Weighted average number of shares
outstanding ........................ 21,368,869 21,670,939 19,287,045 19,676,293
Diluted earnings per common share:
Net Income ........................... $ .87 $ .81 $ 3.02 $ 2.48
Weighted average number of shares
outstanding ........................ 21,643,154 22,077,533 19,556,095 20,052,772
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.
5
<PAGE>
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income ............................ $ 18,740 $ 17,885 $ 59,007 $ 49,823
-------- -------- -------- --------
Other comprehensive income, net of tax:
Unrealized holding gains (losses)
on securities arising during
period, net of reclassification
adjustment for (gains) losses
included in net income ........... 10,525 (10,975) (28,533) (39,485)
-------- -------- -------- --------
Comprehensive income (loss) ........... $ 29,265 $ 6,910 $ 30,474 $ 10,338
======== ======== ======== ========
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.
6
<PAGE>
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net Income ........................................ $ 59,007 $ 49,823
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses ............ 5,090 5,150
Recoveries on charged-off loans ............... 751 932
Net cost of operations for other
real estate owned ........................... 75 132
Write down of credit card receivables to
net realizable value ........................ -- 2,766
Gain on sale of loans ......................... (57) (6,584)
Depreciation of bank premises and equipment ... 8,837 8,708
Depreciation and amortization of leasing assets 1,310 1,347
Accretion of investment securities discounts .. (13,640) (10,972)
Amortization of investment securities premiums 8,367 9,548
Realized loss on investment securities
transactions, net ........................... 884 16
Gain on sale of bank premises and equipment ... (94) (30)
Deferred tax expense .......................... 3,808 1,623
Increase in accrued interest receivable ....... (5,193) (2,189)
Increase in other liabilities ................. 12,749 10,493
----------- -----------
Net cash provided by operating activities 81,894 70,763
----------- -----------
Investing activities:
Cash acquired in purchase transaction ............. -- 20,320
Proceeds from maturities of securities ............ 1,572 2,350
Proceeds from sales of available
for sale securities ............................. 49,668 613,051
Purchases of available for sale securities ........ (439,844) (1,226,580)
Principal collected on mortgage-backed securities . 259,170 582,689
Proceeds from matured time deposits with banks .... 788 684
Purchases of time deposits with banks ............. (1,283) (1,089)
Net increase in loans ............................. (313,504) (150,116)
Net increase in other assets ...................... (14,171) (127,255)
Purchase of bank premises and equipment ........... (13,976) (14,012)
Proceeds from sale of bank premises and equipment . 235 54
----------- -----------
Net cash used in investing activities .... (471,345) (299,904)
----------- -----------
</TABLE>
7
<PAGE>
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
----------- -----------
Financing activities:
Net increase in non-interest
bearing demand deposits ........................ $ 47,392 $ 58,534
Net decrease in savings and interest
bearing demand deposits ........................ (12,522) (62,866)
Net increase in time deposits .................... 143,974 31,778
Net increase (decrease) in federal funds purchased
and securities sold under repurchase agreements 629 (4,019)
Proceeds from issuance of other borrowed funds ... 1,659,000 1,630,000
Principal payments on other borrowed funds ....... (1,430,000) (1,379,000)
Purchase of treasury stock ....................... (9,054) (20,565)
Proceeds from stock transactions ................. 1,557 1,508
Payments of cash dividends ....................... (21,016) (17,102)
Payments of cash dividends in lieu of
fractional shares .............................. (24) (26)
----------- -----------
Net cash provided by financing activities 379,936 238,242
----------- -----------
(Decrease) increase in cash and
cash equivalents ..................... (9,515) 9,101
Cash and cash equivalents
at beginning of year ........................... 134,995 120,594
----------- -----------
Cash and cash equivalents
at end of period ............................... $ 125,480 $ 129,695
=========== ===========
Supplemental cash flow information:
Interest paid .................................. $ 182,637 $ 133,895
Income taxes paid .............................. 22,767 23,320
Supplemental schedule of noncash investing
and financing activities relating to
the purchase transaction:
Loans acquired ............................... $ -- $ 4,503
Other assets acquired ........................ -- 3,112
Deposits and other liabilities assumed ....... -- 27,935
See accompanying notes to interim condensed consolidated financial statements.
8
<PAGE>
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 ("Corporation") and Subsidiaries (the Corporation and Subsidiaries
collectively referred to herein as the "Company") conform to generally accepted
accounting principles and to general practices within the banking industry. The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, International Bank of Commerce, Laredo ("IBC"),
Commerce Bank, International Bank of Commerce, Zapata, International Bank of
Commerce, Brownsville and the Corporation's wholly-owned non-bank subsidiaries,
IBC Subsidiary Corporation, IBC Life Insurance Company, IBC Trading Company and
IBC Capital Corporation. All significant intercompany balances and transactions
have been eliminated in consolidation. 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. The
balance sheet at December 31, 1999 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Certain reclassifications have been made to make prior
periods comparable.
All per share data presented has been restated to reflect the stock splits
effected through stock dividends.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as a "fair value hedge," a
"cash flow hedge," or a hedge of a foreign currency exposure of a net investment
in a foreign operation. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. In June 1999, the Financial Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of SFAS No. 133", which
deferred the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. The Company will adopt SFAS No. 133 on January 1, 2001. The Company
currently does not engage in hedging activities and does not hold any derivative
instruments. Although the Company is still evaluating its products for embedded
derivatives, management does not expect that the adoption of SFAS No. 133 will
have a material impact on the Company's consolidated financial position, results
of operation, or liquidity.
NOTE 2 - INVESTMENT SECURITIES
The Company classifies debt and equity securities into one of three
categories: held-to maturity, available-for-sale, or trading. Such
classifications are reassessed for appropriate classification at each reporting
date. Securities classified as "held-to-maturity" are carried at amortized cost
for financial statement reporting, while
9
<PAGE>
securities classified as "available-for-sale" and "trading" are 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 net of tax as other comprehensive income
and as a separate component of shareholders' equity until realized.
A summary of the investment securities held to maturity and securities
available for sale as reflected on the books of the Company is as follows:
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------- ----------
(Dollars in Thousands)
U. S. Treasury and federal agencies
Available for sale ............ $2,840,483 $2,752,943
States and political subdivisions
Held to maturity .............. 60 321
Available for sale ............ 92,452 90,416
Other
Held to maturity .............. 2,110 2,085
Available for sale ............ 165,902 149,952
---------- ----------
Total investment securities ... $3,101,007 $2,995,717
========== ==========
NOTE 3 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of the transactions in the allowance for possible loan losses is
as follows:
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------ ------------
(Dollars in Thousands)
Balance at January 1 ................. $ 26,770 $ 25,551
Losses charged to allowance .... (2,257) (4,825)
Recoveries credited to allowance 751 932
-------- --------
Net losses charged to allowance (1,506) (3,893)
Provisions charged to operations 5,090 5,150
-------- --------
Balance at September 30 .............. $ 30,354 $ 26,808
======== ========
The Company classifies as impaired those loans where it is probable that
all amounts due will not be collected according to contractual terms of the loan
agreement. 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 first to principal and
then to interest after all principal has been collected. The Company's impaired
loan balances at September 30, 2000 and 1999 were not material to the Company's
consolidated financial position.
10
<PAGE>
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, 2000, was adequate to absorb possible losses from loans
in the portfolio at that date.
NOTE 4 - STOCK AND CASH DIVIDENDS
All per share data presented has been restated to reflect the stock splits
effected through stock dividends which became effective May 20, 1999 and May 18,
2000 and were paid on June 11, 1999 and June 12, 2000, respectively. Such stock
dividends resulted in the issuance of 4,204,251 and 5,280,503 shares of Common
Stock in 1999 and 2000, respectively. A cash dividend of $.60 and $.50 per share
was paid to holders of record of Common Stock on April 15, 1999 and October 15,
1999, respectively. A cash dividend of $.60 and $.50 per share was paid to
holders of record of Common Stock on April 14, 2000 and October 16, 2000,
respectively.
The Company announced a new formal stock repurchase program on June 22,
1999 and announced it expanded the stock repurchase program on July 16, 1999 and
on January 11, 2000. Under the expanded stock repurchase program, the Company is
authorized to repurchase up to $35,000,000 of its common stock through December
2000. Stock repurchases may be made from time to time, on the open market or
through private transactions. Shares repurchased in this program will be held in
treasury for reissue for various corporate purposes, including employee stock
option plans. As of November 3, 2000, a total of 714,571 shares were repurchased
under this program at a cost of $29,535,000. Stock repurchases are presented
quarterly at the Company's Board of Directors meetings and the Board of
Directors has stated that the aggregate investment in treasury stock should not
exceed $60,000,000. In the past, the board has increased previous caps on
treasury stock once they were met, but there are no assurances that an increase
of the $60,000,000 cap will occur in the future. As of November 3, 2000, the
Company has approximately $50,509,000 invested in treasury shares, which amount
has been accumulated since the inception of the Company.
On April 3, 1996, the Board of Directors adopted the 1996 International
Bancshares Corporation Stock Option Plan. The Plan replaced the 1987
International Bancshares Corporation Key Contributor Stock Option Plan. Subject
to certain adjustments, the maximum number of shares of common stock which may
be made subject to options granted under the new Plan is 830,379 with 39,465
shares remaining available for the issuance of options under the new Plan. The
210,913 shares of common stock remaining available under the 1987 Plan will be
treated as authorized for issuance upon exercise of options granted under the
1987 Plan only. As of September 30, 2000, options to acquire 210,913 and 790,914
shares of common stock remain outstanding under the 1987 Plan and the new Plan,
respectively.
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<PAGE>
NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company and its bank subsidiaries are involved in various legal
proceedings that are in various stages of litigation. These actions allege
claims on a variety of theories and claim substantial actual and punitive
damages. The Company and its subsidiaries have determined, based on discussions
with their counsel, that any material loss in such actions, individually or in
the aggregate, is remote or the damages sought, even if fully recovered, would
not be considered material to the financial condition or results of operations
of the Company and its subsidiaries. However, many of these matters are in
various stages of proceedings and further developments could cause management to
revise its assessment of these matters.
The Company's lead bank subsidiary has invested in several lease financing
transactions. Two of the lease financing transactions have been examined by the
Internal Revenue Service ("IRS"). In both transactions, a subsidiary of the lead
bank is the owner of a ninety-nine percent (99%) limited partnership interest.
The IRS has issued a Notice of Proposed Adjustments to Affected Items of a
partnership for each of the transactions and the affected partnership has
submitted a Protest contesting the adjustments. No reliable prediction can be
made at this time as to the likely outcome of the Protests; however, if the
Protests are decided adversely to the partnerships, all or a portion of the $12
million in tax benefits previously recognized by the Company in connection with
these lease financing transactions would be in question. Management has
estimated the Company's exposure in connection with these transactions and has
reserved the estimated amount. Management intends to continue to evaluate the
merits of this matter and make appropriate revisions if warranted.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net income for the third quarter of 2000 was $18,740,000 or $.88 per share
- basic ($.87 per share - diluted) compared to $17,885,000 or $.83 per share -
basic ($.81 per share - diluted) in the corresponding 1999 period.
Historically, the Company's acquisitions have been accounted for using the
purchase method of accounting which results in the creation of goodwill. The
Company's goodwill is being amortized as a non-cash reduction of net income over
time periods from ten to twenty years. "Income before goodwill charges" reflects
the net income of the Company excluding goodwill amortization. In computing the
income tax adjustment, management has considered tax deductible goodwill
separately from non-tax deductible goodwill in making this calculation. The
income tax on tax deductible goodwill has been computed using the standard
corporate tax rate of 35%, and the non-tax deductible goodwill has been
grossed-up using the same 35% tax rate to reflect the earnings result. These two
calculations have been combined to reflect the net income tax adjustment
displayed in the income before goodwill charges table below. The table
reconciles reported earnings to net income excluding intangible amortization
("income before goodwill charges") to help facilitate peer group comparisons.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
(Dollars in Thousands, except per share data)
Reported net income ............. $ 18,740 $ 17,885 $ 59,007 $ 49,823
Amortization of intangible assets 991 990 2,952 2,907
Income tax adjustment ........... (83) (83) (241) (226)
-------- -------- -------- --------
Income before goodwill charges .. $ 19,648 $ 18,792 $ 61,718 $ 52,504
======== ======== ======== ========
Income before goodwill charges
per common share:
Basic ........................ $ .92 $ .87 $ 3.20 $ 2.67
Diluted ...................... $ .91 $ .85 $ 3.16 $ 2.62
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<PAGE>
Total assets at September 30, 2000 were $5,844,963,000 which represents an
11% increase over total assets of $5,274,885,000 at September 30, 1999 and an 8%
increase over total assets of $5,421,804,000 as of December 31, 1999. Deposits
at September 30, 2000 were $3,706,056,000 an increase of 8% over the
$3,424,956,000 amount reported at September 30, 1999, and an increase of 5% over
the $3,527,212,000 amount reported at December 31, 1999. Total loans at
September 30, 2000 increased 25% to $2,222,210,000 over $1,775,713,000 reported
at September 30, 1999 and increased 16% over the $1,911,879,000 amount reported
at December 31, 1999. The increase in assets and deposits during the first nine
months in 2000 reflects growth opportunities in the Company's market through its
branch system. The aggregate amount of certificates of indebtedness with the
Federal Home Bank of Dallas ("FHLB") increased to $1,609,000,000 at September
30, 2000 over the $1,380,000,000 at December 31, 1999. Certificates of
indebtedness and the deposits are used to fund the earning asset base of the
Company.
As part of its strategy to manage interest rate risk, 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 third quarter of
2000 increased $1,801,000 (4%) over the same period in 1999 and the increase is
the result of the Company's growth and efforts to manage interest rate risk.
Investment securities increased 3% to $3,101,007,000 at September 30, 2000
over $2,998,290,000 at September 30, 1999. Time deposits with other banks at
September 30, 2000 increased 33% to $2,372,000 over $1,778,000 at September 30,
1999. Total federal funds sold increased 9% to $23,500,000 at September 30, 2000
as compared to $21,500,000 at September 30, 1999.
Interest and fees on loans for the third quarter in 2000 increased
$14,666,000 (36%) over the same quarter in 1999 and increased $39,020,000 (33%)
for the nine month period ended September 30, 2000 as compared to the same
period in 1999. Interest income on taxable and tax exempt investment securities
for the third quarter in 2000 increased $5,671,000 (12%) over the same quarter
in 1999 and increased $22,980,000 (18%) for the nine month period ended
September 30, 2000 as compared to the same period in 1999. Interest income on
time deposits with banks for the third quarter in 2000 increased $19,000 (79%)
over the same quarter in 1999 and increased $36,000 (48%) for the nine month
period ended September 30, 2000 as compared to the same period in 1999. Interest
income on federal funds sold for the third quarter in 2000 increased $80,000
(51%) over the same quarter in 1999 and increased $169,000 (28%) for the nine
month period ended September 30, 2000 as compared to the same period in 1999.
Overall, total interest income from loans, time deposits, federal funds sold,
investment securities and other interest income for the third quarter in 2000
increased $20,435,000 (23%) over the same quarter in 1999 and increased
$62,183,000 (25%) for the nine month period ended September 30, 2000 as compared
to the same period in 1999. The increase in total interest income was primarily
due to the increase in the Company's loan and investment securities portfolio.
Total interest expense for savings deposit, time deposits and other
borrowings increased $18,634,000 (39%) for the third quarter of 2000 over the
same quarter in 1999 and increased $50,456,000 (38%) for the nine month period
ended September 30, 2000 over the same period in 1999. The increase in total
interest expense was primarily due to the higher interest rates and a larger
volume of borrowings. As a result, net interest income for the third quarter of
2000 increased $1,801,000 (4%) over the same period in 1999 and increased
$11,727,000 (10%) for the nine month period ended September 30, 2000 over the
corresponding period in 1999. This increase is attributed to the Company's
efforts to maintain an adequate interest rate spread between the cost of funds
and the investment of those funds.
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<PAGE>
Non-interest income decreased $4,069,000 (21%) to $15,634,000 in the third
quarter of 2000 as compared to $19,703,000 for the quarter ended September 30,
1999 and decreased $2,540,000 (5%) to $43,741,000 for the nine month period
ended September 30, 2000 as compared to $46,281,000 for the nine months ended
September 30, 1999. The decrease in non-interest income was primarily due to the
$6,530,000 gain recognition on the partial sale of credit card receivables
recorded in the corresponding period in 1999. The increase in service charges
was attributable to the amount of account transaction fees received as a result
of the deposit growth, new deposit products and increased collection efforts.
Investment securities losses of $884,000 was recorded in the nine month period
ended September 30, 2000 compared to losses of $16,000 for the corresponding
period in 1999.
Non-interest expense increased $247,000 (1%) to $28,655,000 for the third
quarter of 2000 as compared to $28,408,000 for the quarter ended September 30,
1999 and increased $1,751,000 (2%) to $80,502,000 for the nine month period
ended September 30, 2000 as compared to $78,751,000 for the nine months ended
September 30, 1999. Non-interest expense increased due to the Company's expanded
operations at the bank subsidiaries.
The efficiency ratio, a measure of non-interest expense to net interest
income plus non-interest income improved to 47% for the nine month period ended
September 30, 2000, compared to the year ago ratio of 49%. The strong efficiency
ratio is primarily due to the effective management of non-interest expense
relative to asset growth.
The allowance for possible loan losses increased 13% to $30,354,000 at the
end of the third quarter of 2000 over $26,808,000 for the corresponding date in
1999. The provision for possible loan losses charged to expense decreased 1% to
$5,090,000 for the first nine months of 2000 compared to $5,150,000 for the
first nine months of 1999. The increase in the allowance for possible loan
losses were largely due to the increase in the size of the loan portfolio. The
allowance for possible loan losses was 1.37% of total loans at September 30,
2000, compared to 1.51% at September 30, 1999 and 1.40% at December 31, 1999.
On September 30, 2000, the Company had $5,844,963,000 of consolidated
assets of which approximately $265,888,000 or 5% were related to loans
outstanding to borrowers domiciled in Mexico. Of the $265,888,000, 53% is
directly or indirectly secured by U.S. assets, principally certificates of
deposits and real estate; 32% is secured by Mexican real estate; 13% is secured
by Mexican real estate that is guaranteed under lease obligations primarily by
U.S. companies, many of which are on the Fortune 500 list of companies; 1% is
unsecured; and 1% represents accrued interest receivable on the portfolio.
LIQUIDITY AND CAPITAL RESOURCES
The maintenance of adequate liquidity provides the Company's bank
subsidiaries with the 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. Liquidity
is afforded by access to financial markets and by holding appropriate amounts of
liquid assets. The bank subsidiaries of the Company derive their liquidity
largely from deposits of individuals and business entities. Historically, the
Mexico based deposits of the Company's bank subsidiaries have been a stable
source of funding. Deposits from persons and entities domiciled in Mexico
comprise a significant and stable portion of the deposit base of the Company's
bank subsidiaries. Other important funding sources for the Company's bank
subsidiaries during 2000 and 1999 have been wholesale liabilities with FHLB,
FNMA, and FHLMC and large certificates of deposit, requiring management to
closely monitor its
14
<PAGE>
asset/liability mix in terms of both rate sensitivity and maturity distribution.
Primary liquidity of the Company and its subsidiaries has been maintained by
means of increased investment in shorter-term securities, certificates of
deposit and loans. 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 over reasonable periods of time.
Principal sources of liquidity and funding for the Company are dividends
from subsidiaries and borrowed funds, with such funds being used to finance the
Company's 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 in 2000 and expects to continue to fund during 2000
is a continuous effort to modernize and improve our existing facilities and
expand our bank branch network as well as the purchase through an operating
subsidiary of IBC of insurance agencies.
The Company maintains an adequate level of capital as a margin of safety
for its depositors and shareholders. At September 30, 2000, shareholders' equity
was $355,373,000 compared to $344,436,000 at September 30, 1999, an increase of
$10,937,000 or 3%. The fact that the increase in shareholders' equity is slight
is primarily due to the negative impact of comprehensive income and the stock
repurchase program. Comprehensive income includes unrealized losses on
securities held available for sale, net of tax, as deductions from shareholders'
equity; however, the unrealized losses on securities are not deducted from
capital in the calculation of regulatory capital requirements.
The Company had a leverage ratio of 6.62% and 6.58%, risk-weighted Tier 1
capital ratio of 13.08% and 13.41% and risk-weighted total capital ratio of
14.14% and 14.46% at September 30, 2000 and December 31, 1999, respectively. The
core deposit intangibles and goodwill of $41,730,000 at September 30, 2000,
recorded in connection with financial institution acquisitions of the Company,
are deducted from the sum of core capital elements when determining the capital
ratios of the Company.
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, 2000 is
illustrated in the table on page 16. 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 Company undertakes the 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.
15
<PAGE>
INTEREST RATE SENSITIVITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RATE/MATURITY RATE/MATURITY RATE/MATURITY RATE/MATURITY
SEPTEMBER 30, 2000 3 MONTHS OVER 3 MONTHS OVER 1 YEAR TOTAL
(DOLLARS IN THOUSANDS) OR LESS TO 1 YEAR TO 5 YEARS OVER 5 YEARS
=====================================================================================================
SECTION A
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS
FED FUNDS SOLD ................... 23,500 -- -- -- 23,500
DUE FROM BANK INT EARNING ........ 594 1,580 198 -- 2,372
INVESTMENT SECURITIES ............ 135,192 241,607 2,507,468 216,740 3,101,007
LOANS, NET OF NON-ACCRUALS ....... 1,565,624 157,787 292,760 199,187 2,215,358
-----------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS ............. 1,724,910 400,974 2,800,426 415,927 5,342,237
-----------------------------------------------------------------------------------------------------
CUMULATIVE EARNING ASSETS ........ 1,724,910 2,125,884 4,926,310 5,342,237
=====================================================================================================
SECTION B
-----------------------------------------------------------------------------------------------------
RATE SENSITIVE LIABILITIES
TIME DEPOSITS .................... 1,138,619 920,679 183,755 309 2,243,362
OTHER INT BEARING DEPOSITS ....... 915,933 -- -- -- 915,933
FED FUNDS PURCHASED & REPOS ...... 72,797 48,164 3,420 -- 124,381
OTHER BORROWINGS ................. 1,609,000 -- -- -- 1,609,000
-----------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES 3,736,349 968,843 187,175 309 4,892,676
-----------------------------------------------------------------------------------------------------
CUMULATIVE SENSITIVE LIABILITIES . 3,736,349 4,705,192 4,892,367 4,892,676
=====================================================================================================
SECTION C
-----------------------------------------------------------------------------------------------------
REPRICING GAP .................... (2,011,439) (567,869) 2,613,251 415,618 449,561
CUMULATIVE REPRICING GAP ......... (2,011,439) (2,579,308) 33,943 449,561
RATIO OF INTEREST-SENSITIVE ...... .46 .41 14.96 -- 1.09
ASSETS TO LIABILITIES
RATIO OF CUMULATIVE, INTEREST- ... .46 .45 1.01 1.09
SENSITIVE ASSETS TO LIABILITIES
=====================================================================================================
</TABLE>
FINANCIAL MODERNIZATION LEGISLATION
On November 12, 1999, the Gramm-Leach-Bliley Act of 1999 ("GLBA") was
enacted. This comprehensive legislation eliminates the barriers to affiliations
among banks, securities firms, insurance companies and other financial service
providers. GLBA provides for a new type of financial holding company structure
under which affiliations among these entities may occur. Under GLBA, a financial
holding company may engage in a broad list of financial activities and any
non-financial activity that the FRB determines is complementary to a financial
activity and poses no substantial risk to the safety and soundness of depository
institutions or the financial system. In addition, GLBA permits certain
non-banking financial and financially related activities to be conducted by
financial subsidiaries of a national bank. Additionally, GLBA imposes strict new
privacy disclosure and opt-out requirements regarding the ability of financial
institutions to share personal non-public customer information with third
parties.
Under the GLBA, a bank holding company may become certified as a financial
holding company by filing a declaration with the FRB, together with a
certification that each of its subsidiary banks is well capitalized, is well
managed, and has at least a satisfactory rating under the Community Reinvestment
Act of 1977 ("CRA"). The Company has elected to become a financial holding
company under GLBA and the election was made effectiveby the FRB as of March 13,
2000. Effective October 2, 2000, the Company acquired a controlling interest in
Gulf Star Group, a Houston-based investment banking firm serving middle-market
corporations primarily in Texas. The Gulf Star acquisition was the first
financial activity permitted by GLBA to be engaged in by the Company.
16
<PAGE>
FORWARD LOOKING INFORMATION
Certain matters discussed in this report, excluding historical
information, include forward-looking statements. Although the Company believes
such forward-looking statements are based on reasonable assumptions, no
assurance can be given that every objective will be reached. The words
"estimate," "expect," "intend" and "project," as well as other words or
expressions of similar meaning are intended to identify forward-looking
statements. Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date of this report. Such statements are
based on current expectations, are inherently uncertain, are subject to risks
and should be viewed with caution. Actual results and experience may differ
materially from the forward-looking statements as a result of many factors.
Factors that could cause actual results to differ materially from any
results that are projected, forecasted, estimated or budgeted by the Company in
forward-looking statements include, among others, the following possibilities:
(I) changes in local, state, national and international economic conditions,
(II) changes in the capital markets utilized by the Company and its
subsidiaries, including changes in the interest rate environment that may reduce
margins, (III) changes in state and/or federal laws and regulations to which the
Company and its subsidiaries, as well as their customers, competitors and
potential competitors, are subject, including, without limitation, banking, tax,
securities, insurance and employment laws and regulations, and (IV) the loss of
senior management or operating personnel, and (V) increased competition from
both within and without the banking industry. It is not possible to foresee or
identify all such factors. The Company makes no commitment to update any
forward-looking statement, or to disclose any facts, events or circumstances
after the date hereof that may affect the accuracy of any forward-looking
statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
During the first nine months of 2000, there were no material changes in
market risk exposures that affected the quantitative and qualitative disclosures
regarding market risk presented in the Company's Form 10-K for the year ended
December 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27. International Bancshares Corporation Financial Data Schedule
for the Period ended September 30, 2000.
(b) REPORTS ON FORM 8-K
Registrant filed a current report on Form 8-K on August 29, 2000, covering
Item 5 - Other Events and Item 7 - Financial Statements and Exhibits in
connection with the announcement of a cash dividend by the Company.
Registrant filed a current report on Form 8-K on October 3, 2000, covering
Item 5 - Other Events and Item 7 - Financial Statements and Exhibits in
connection with the announcement of the Company's acquisition of a controlling
interest in GulfStar Group, a Houston-based investment banking firm.
Registrant filed a current report on Form 8-K on November 2, 2000,
covering Item 5 - Other Events and Item 7 - Financial Statements and Exhibits in
connection with the announcement of the Company's Third Quarter 2000 Earnings.
17
<PAGE>
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 13, 2000 /s/ DENNIS E. NIXON
----------------- ------------------------------------
Dennis E. Nixon
President
Date: NOVEMBER 13, 2000 /s/ IMELDA NAVARRO
----------------- -------------------------------------
Imelda Navarro
Treasurer (Chief Accounting Officer)
18
