-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GGrUKwhXmrmImWEtN8qOSczuW1slsbe7AcjBCz8T1jf61+73a+m9w499cpeSO1bt XW7OsPCVqPxjnbLi7LRcnA== 0000890566-96-001154.txt : 19960816 0000890566-96-001154.hdr.sgml : 19960816 ACCESSION NUMBER: 0000890566-96-001154 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL BANCSHARES CORP CENTRAL INDEX KEY: 0000315709 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 742157138 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09439 FILM NUMBER: 96614479 BUSINESS ADDRESS: STREET 1: 12OO SAN BERNARDO AVE STREET 2: PO BOX 1359 CITY: LAREDO STATE: TX ZIP: 78040-1359 BUSINESS PHONE: 2107227611 MAIL ADDRESS: STREET 1: P O BOX 1359 STREET 2: 1200 SAN BERNARDO CITY: LAREDO STATE: TX ZIP: 78040 10-Q 1 FORM 10-Q 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, 1996 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 8,744,952 shares outstanding at August 12, 1996 -1- 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 1996 1995 - ------------------------------------------------- ----------- ---------- Cash and due from banks ......................... $ 92,403 86,827 Federal funds sold .............................. 69,000 37,000 ----------- ---------- Total cash and cash equivalents .... 161,403 123,827 Time deposits with banks ........................ 11 1,800 Investment securities: Held to maturity (Market value of $2,875 on June 30, 1996 and $2,895 on December 31, 1995 ............. 2,885 2,909 Available for sale (Amortized cost of $1,418,851 on June 30, 1996 and $1,439,823 on December 31, 1995 .... 1,418,673 1,460,432 ----------- ---------- Total investment securities ........ 1,421,558 1,463,341 Loans: Commercial, financial and agricultural ....... 690,208 718,364 Lease financing receivables, net ............. 3,910 3,910 Real estate - mortgage ....................... 200,358 200,998 Real estate - construction ................... 39,701 39,527 Consumer ..................................... 138,185 124,843 Foreign ...................................... 128,456 120,748 ----------- ---------- Total loans ........................ 1,200,818 1,208,390 Less unearned discounts ...................... (3,388) (3,479) ----------- ---------- Loans, net of unearned discounts ... 1,197,430 1,204,911 Less allowance for possible loan losses ...... (19,753) (18,455) ----------- ---------- Net loans .......................... 1,177,677 1,186,456 ----------- ---------- Bank premises and equipment, net ................ 86,938 80,410 Accrued interest receivable ..................... 21,831 22,204 Other assets .................................... 72,747 57,568 ----------- ---------- Total assets ....................... $ 2,942,165 2,935,606 ----------- ---------- (Continued)
2 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Condition, continued (Dollars in Thousands)
June 30, December 31, 1996 1995 ----------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits: Demand - non-interest bearing .............. $ 295,701 295,301 Savings and interest bearing demand ........ 632,474 576,878 Time ....................................... 1,412,389 1,271,167 ----------- ---------- Total deposits ..................... 2,340,564 2,143,346 Federal funds purchased and securities sold under repurchase agreements ........... 167,941 462,602 Other borrowed funds ......................... 162,000 66,500 Other liabilities ............................ 20,982 17,397 ----------- ---------- Total liabilities .................. 2,691,487 2,689,845 ----------- ---------- Shareholders' equity: Common stock of $1.00 par value .............. Authorized 15,000,000 shares; issued 10,312,821 shares in 1996 and 8,159,814 shares in 1995 ............... 10,313 8,160 Surplus ...................................... 11,232 10,637 Retained earnings ............................ 238,393 221,350 Net unrealized holding (losses) gains on available for sale securities, net of deferred income taxes ............... (116) 13,396 ----------- ---------- 259,822 253,543 Less cost of shares in treasury, 1,576,696 shares in 1996 and 1,229,332 shares in 1995 ................... (9,144) (7,782) ----------- ---------- Total shareholders' equity ......... 250,678 245,761 ----------- ---------- Total liabilities and shareholders' equity ............ $ 2,942,165 2,935,606 =========== ==========
See accompanying notes to consolidated financial statements. 3 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in Thousands, except per share data)
Three Months Ended Six Months Ended JUNE 30, JUNE 30, ------------------- ----------------- 1996 1995 1996 1995 -------- ------- ------- ------- Interest income: Loans, including fees ................ $ 29,286 31,092 59,023 61,292 Time deposits with banks ............. 74 10 85 16 Federal funds sold ................... 312 188 592 360 Investment securities: Taxable ............................ 22,847 22,749 46,519 42,903 Tax-exempt ......................... 408 445 814 932 Other interest income ................ 80 105 200 210 -------- ------- ------- ------- Total interest income ...... 53,007 54,589 107,233 105,713 -------- ------- ------- ------- Interest expense: Savings deposits ..................... 4,451 4,134 8,747 8,351 Time deposits ........................ 16,365 15,526 32,487 29,847 Federal funds purchased and securities sold under repurchase agreements .... 3,197 7,010 8,838 12,033 Other borrowings ..................... 1,204 1,923 1,760 3,790 -------- ------- ------- ------- Total interest expense ..... 25,217 28,593 51,832 54,021 -------- ------- ------- ------- Net interest income ........ 27,790 25,996 55,401 51,692 Provision for possible loan losses ...... 1,713 1,238 3,272 2,457 -------- ------- ------- ------- Net interest income after provision for possible loan losses ............. 26,077 24,758 52,129 49,235 -------- ------- ------- ------- Non-interest income: Service charges on deposit accounts .. 3,616 3,274 7,128 6,590 Other service charges, commissions and fees ........................... 1,650 1,366 3,271 3,068 Insurance premiums earned ............ 177 145 395 283 Investment securities transactions ... (500) (180) 390 18 Net profit of operations for other real estate owned .................. -- (19) -- -- Other income ......................... 2,348 1,563 4,376 3,158 -------- ------- ------- ------- Total non-interest income .. 7,291 6,149 15,560 13,117 -------- ------- ------- -------
4 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - continued (Dollars in Thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, ---------------- -------------- 1996 1995 1996 1995 ---- ---- ---- ---- Non-interest expense: Employee compensation and benefits 7,044 6,311 13,785 12,461 Occupancy 1,275 809 2,410 1,593 Depreciation of premises and equipment 1,644 1,656 3,188 3,327 Professional fees 1,670 1,916 3,245 3,569 Net cost of operations for other real estate owned 21 68 97 68 Other 6,232 6,431 11,874 11,040 ------ ------ ------ ------ Total non-interest expense 17,886 17,191 34,599 32,058 ------ ------ ------ ------ Income before income taxes 15,482 13,716 33,090 30,294 Income taxes 4,861 4,529 10,480 9,915 ------ ------ ------ ------ Net Income $ 10,621 9,187 22,610 20,379 ------ ------ ------ ------ Net income per share (Note 5) $ 1.17 1.01 2.50 2.25 Weighted average number of shares outstanding 9,059,232 9,064,347 9,059,232 9,064,347
See accompanying notes to consolidated financial statements. 5 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands)
Six Months Ended June 30 --------------------- 1996 1995 --------- -------- Operating activities: Net Income .......................................................... $ 22,610 20,379 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses .............................. 3,272 2,457 Recoveries on charged-off loans ................................. 280 309 Net cost of operations for other real estate owned ......................................................... 97 68 Depreciation of bank premises and equipment ..................... 3,188 3,327 Accretion of investment securities discounts .................... (930) (781) Amortization of investment securities premiums .................. 3,534 6,276 Realized gain on investment securities transactions, net ............................................. (390) (18) Gain on sale of bank premises and equipment ..................... (110) (46) Decrease (increase) in accrued interest receivable .................................................... 373 (789) Increase in other liabilities ................................... 4,720 3,820 --------- -------- Net cash provided by operating activities .................. 36,644 35,002 Investing activities: Cash acquired in purchase transaction ............................... 99,747 6,007 Proceeds from maturities of securities .............................. 47 25,548 Proceeds from sales of available for sale securities ............................................... 276,552 71,502 Purchases of available for sale securities .......................... (418,267) (295,292) Principal collected on mortgage-backed securities ................... 160,512 82,269 Proceeds from matured time deposits with banks ...................... 2,284 297 Purchases of time deposits with banks ............................... (495) (198) Net decrease (increase) in loans .................................... 26,635 (40,183) Net increase in other assets ........................................ (1,612) (2,274) Purchase of bank premises and equipment ............................. (6,712) (5,465) Proceeds from sale of bank premises and equipment ................... 498 74 --------- -------- Net cash provided by (used in) investing activities ..................................... 139,189 (157,715) --------- --------
(Continued) 6 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows, continued (Dollars in Thousands)
Six Months Ended June 30 -------------------- 1996 1995 --------- -------- Financing activities: Net decrease in non-interest bearing demand deposits ................................................................. $ (554) (14,447) Net increase (decrease) in savings and interest bearing demand deposits .................................................. 14,562 (88,295) Net increase (decrease) in time deposits ................................... 51,077 (25,960) Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements .......................... (294,661) 249,824 Proceeds from issuance of other borrowed funds ............................. 464,000 -- Principal payments on other borrowed funds ................................. (368,500) (500) Purchase of treasury stock ................................................. (1,362) (428) Proceeds from exercise of stock options .................................... 688 320 Payments of cash dividends ................................................. (3,489) (2,762) Payments of cash dividends in lieu of fractional shares ................................................................... (18) (3) --------- -------- Net cash (used in) provided by financing activities ............................................ (138,257) 117,749 --------- -------- Increase (decrease) in cash and cash equivalents ..................................................... 37,576 (4,964) Cash and cash equivalents at beginning of year ..................................................... 123,827 90,200 --------- -------- Cash and cash equivalents at end of period ......................................................... $ 161,403 85,236 ========= ======== Supplemental cash flow information: Interest paid ............................................................ $ 51,936 55,175 Income taxes paid ........................................................ 11,121 11,425 Supplemental schedule of noncash investing and financing activities relating to the purchase transaction: Loans acquired ......................................................... 21,408 28,501 Investment securities acquired ......................................... -- 36,259 Other assets acquired .................................................. 11,009 9,276 Deposits and other liabilities assumed ................................. 132,164 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. The Company adopted Statement of Financial Accounting Standards No.114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure" effective January 1, 1995. These Statements are applicable to all creditors and to all loans, uncollateralized as well as collateralized, except consumer loans. These Statements require that impaired loans be measured based on (1) the present value of expected future cash flows discounted at the loan's effective interest rate; (2) the loan's observable market price; or, (3) the fair value of the collateral if the loan is collateral dependent. 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 non-performing loans were consistent with the accounting requirements for impaired loans. On January 1, 1996, the Company adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights". This Statement requires that a mortgage banking enterprise assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights that are capitalized after the adoption of this Statement based on one or more of the predominant risk characteristics of the underlying loans. Impairment should be recognized through a valuation allowance for each impaired stratum. The adoption of this accounting standard did not have a material effect on the Company's financial position or results of operations. Note 2 - Acquisitions On July 30, 1996, the Company entered into a purchase of assets and liability assumption agreement whereby IBC will purchase certain assets and will assume certain liabilities of Home Savings of America F.S.B., Irwindale, California. This agreement is subject to regulatory approval. IBC will purchase loans of approximately $625,000 and assume deposits of approximately $216,000,000 and will receive cash or other assets in the amount of approximately $203,000,000. Effective June 27, 1996, the Company purchased certain assets and assumed certain liabilities of River Valley Bank, F.S.B., in Weslaco, Texas, ("RVB"), a federal savings bank organized under the laws of the United States. At the date of closing, total loans acquired were approximately $21,408,000, deposits assumed of approximately $132,133,000 and received cash and other assets in the amount of approximately $110,756,000. The acquisition was accounted for as a purchase transaction. IBC recorded intangible assets, goodwill and core deposit premium totaling $6,599,000. These assets are being amortized on a straight line basis over a fifteen year period. 8 Effective September 8, 1995, Stone Oak National Bank, in San Antonio, Texas, ("SONB") a national banking association organized under the laws of the United States, was merged with and into IBC. At the date of closing, total assets acquired were approximately $18,000,000. The acquisition was accounted for as a purchase transaction. IBC recorded intangible assets, goodwill and core deposit premium totaling $1,387,000. These assets are being amortized on a straight line basis over a fifteen year period. Effective February 1, 1995, The Bank of Corpus Christi, Corpus Christi, Texas ("BCC") a state bank organized under the laws of the state of Texas, was merged with and into IBC. At the date of closing, total assets acquired were approximately $80,000,000. The acquisition was accounted for as a purchase transaction. IBC recorded intangible assets, goodwill and core deposit premium totaling $4,042,000. These assets are being amortized on a straight line basis over a fifteen year period. 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, 1996 1995 --------- ------- (Dollars in Thousands) U. S. Treasury and federal agencies Held to maturity $ - 584,661 Available for sale 1,372,889 839,765 States and political subdivisions Held to maturity 895 8,624 Available for sale 29,807 24,919 Other Held to maturity 1,990 3,640 Available for sale 15,977 14,215 ------- ------- Total investment securities $ 1,421,558 1,475,824 ========= ========= The Company may invest in collateralized mortgage obligations and structured notes. However, at June 30, 1996 the Company did not have outstanding investments in these type of securities. At June 30, 1995 such investments in the portfolio were not significant to the financial position of the Company. 9 Note 4 - Allowance for Possible Loan Losses A summary of the allowance for possible loan losses follows: Six Months Ended June 30, -------------------- 1996 1995 ---- ---- (Dollars in Thousands) Balance at January 1 $ 18,455 17,025 Losses charged to allowance (2,254) (1,354) Recoveries credited to allowance 280 309 ------ ------ Net losses charged to allowance (1,974) (1,045) Provisions charged to operations 3,272 2,457 ------ ------ Allowances acquired in purchase transactions - 332 ------ ------ Balance at June 30 $ 19,753 18,769 ====== ====== 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. Management of the Company recognizes the risks associated with 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's impaired loan balances at the end of the six month period of both 1996 and 1995 was not material to the Company's consolidated financial position. 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, 1996, was adequate to absorb possible losses from loans in the portfolio at that date. 10 Note 5 - Stock and Cash Dividends Per share data for 1995 has been restated to reflect the stock split-up effected through a stock dividend which became effective May 19, 1995 which resulted in the issuance of 1,625,716 shares of Common Stock. A special cash dividend of a $.50 per share was paid to holders of record of Common Stock on April 3, 1995. A special cash dividend of $.50 per share and a 25% stock split-up effected through a stock dividend was declared on March 28, 1996 for all holders of Common Stock of record on April 3, 1996 and May 17, 1996, respectively, said dividends were paid on April 15, 1996 and June 7, 1996, respectively. The Company does not have a formal stock repurchase program; however, the Company occasionally repurchases shares of Common Stock, which repurchases are usually related to the exercise of stock options through the surrender of other shares of Common Stock of the Company owned by the option holders. 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 $10,000,000 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 $10,000,000 cap will occur in the future. 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 300,000. The 598,522 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 June 30, 1996 options to acquire 581,020 shares of common stock remain outstanding, all of which options were granted under the 1987 Plan. 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 actions, 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 1996 was $10,621,000 or $1.17 per share -primary ($1.17 per share - fully diluted) compared to $9,187,000 or $1.01 per share - primary ($1.01 per share - fully diluted) in the corresponding 1995 period. Total assets at June 30, 1996 were $2,942,165,000 which represents a 1% increase over total assets of $2,907,274,000 at June 30, 1995 and a .22% increase over total assets of $2,935,606,000 as of December 31, 1995. Deposits at June 30, 1996 were $2,340,564,000 an increase of 17% over the $2,003,843,000 amount reported at June 30, 1995, and an increase of 9% over the $2,143,346,000 amount reported at December 31, 1995. Total loans at June 30, 1996 decreased 1% to $1,200,818,000 from $1,213,881,000 reported at June 30, 1995 and decreased 1% from the $1,208,390,000 amount reported at December 31, 1995. The decrease in total loans is primarily attributable to the slow down of the local economy caused by the Mexican peso devaluation. Total asset growth basically remained flat during the first six months of 1996. There was a decrease in the aggregate amount of repurchase agreements, short term fixed borrowings and certificate of indebtedness with the Federal Home Bank of Dallas (FHLB"), Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") to $220,000,000 at June 30, 1996 compared to $359,500,000 reflected at December 31, 1995. The primary changes noted during this period were changes to the asset and liability mix of the Company. The increase to total deposits and federal funds sold during this first six months can be partially attributed to the acquisition of RVB, (see note 2 of notes to consolidated financial statements). The decrease in wholesale liabilities, repurchase agreements, short term fixed borrowings and certificates of indebtedness related to the Company's contraction of its earning asset base in anticipation of the acquisition of RVB. 11 In order to achieve a net yield that is relatively immune to major swings in market rates, the Company strives to manage both assets and liabilities so that interest sensitivities match. In this way both earning assets and funding sources of the Company respond to changes in a similar time frame. Net interest income for the second quarter of 1996 increased $1,794,000 (7%) over the same period in 1995. The Company's average balances of domestic and foreign loans for the six month period of 1996 to $1,204,027,000 compared to $1,143,466,000 for the same period in 1995. Interest and fees on loans for the six month period in 1996 decreased $2,269,000 (4%) compared to the same period in 1995. Investment securities decreased 4% to $1,421,558,000 at June 30, 1996 from $1,475,824,000 at June 30, 1995. Time deposits with other banks decreased to $11,000 at June 30, 1996, representing a 97% decrease from $396,000 at June 30, 1995. Total federal funds sold increased to $69,000,000 at June 30, 1996 from $3,500,000 for the second quarter of 1995. The decreased investment in investment securities and time deposits with other banks was largely due to a decline in the use of wholesale liabilities, repurchase agreements and short term fixed borrowings. 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 1996 increased $61,000 over the same quarter in 1995 and increased $3,498,000 (8%) for the six month period ended June 30, 1996 as compared to the same period in 1995. Interest income on time deposits with banks and federal funds sold for the second quarter in 1996 increased $188,000 (95%) from the same quarter in 1995 and increased $301,000 (8%) for the six month period ended June 30, 1996 as compared to the same period in 1995. Overall, total interest income from loans, time deposits, federal funds sold, investment securities and other interest income for the second quarter in 1996 increased $1,520,000 (1%) from the same quarter in 1995. The increase in total interest income was primarily due to the increase in the volume of earning assets of the Company. Total interest expense for savings deposit, time deposits and other borrowings decreased $3,376,000 (12%) for the second quarter of 1996 from the same quarter in 1995 and decreased $2,189,000 (4%) for the six month period ended June 30, 1996 over the same period in 1995. The decrease in total interest expense was largely due to a decline in the use of wholesale liabilities, repurchase agreements and short term fixed borrowings. As a result, net interest income for the second quarter of 1996 increased $1,794,000 or 7% over the same period in 1995 and increased $3,709,000 (7%) for the six month period ended June 30, 1996 over the corresponding period in 1995. 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. Non-interest income increased $1,142,000 to $7,291,000 in the second quarter of 1996 as compared to $6,149,000 for the quarter ended June 30, 1995 and increased $2,443,000 (19%) to $15,560,000 for the six month period ended June 30, 1996 as compared to $13,117,000 for the six months ended June 30, 1995. The overall increase is due to the Company's efforts to improve non-interest income. Non-interest expense increased $695,000 (4%) to $17,886,000 for the second quarter of 1996 as compared to $17,191,000 for the quarter ended June 30, 1995 and increased $2,541,000 (8%) to $34,599,000 for the six month period ended June 30, 1996 as compared to $32,058,000 for the six months ended June 30, 1995. The increase is largely due to the increased operations at each of the subsidiary banks. The allowance for possible loan losses increased $541,000 in the second quarter of 1996 as compared to the $295,000 increase in the second quarter of 1995. For the first six months of 1996, the provision for possible loan losses was $3,272,000 compared to $2,457,000 for the first six months of 1995. 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 $1,279,000 against the allowance for possible loan losses during the second quarter of 1996 compared to $1,105,000 in the second quarter for the prior year. For the six month period ending June 30, 1996 net losses charged against the allowance for possible loan losses amounted to $1,974,000 compared to net losses charged against the allowance for possible loan losses of $1,045,000 for the six months ended June 30, 1995. The allowance for possible loan losses was 1.65% of June 30, 1996 loans, net of unearned income, compared to 1.55% of the corresponding period in 1995 and 1.53% at December 31, 1995. 12 On June 30 1996, the Company had $2,942,165,000 of consolidated assets of which approximately $129,843,000 or 4% were related to loans outstanding to borrowers from Mexico. Of the $129,843,000, $105,388,000 or 81% is directly or indirectly secured by U. S. assets, principally certificates of deposits and real estate; 14% is secured by Mexican real estate, 1% is Mexican sovereign debt extended to Mexican banks; 2% is unsecured; 1% consists of direct unsecured Mexican sovereign debt (principally former FICORCA debt) and 1% represents accrued interest receivable on the portfolio. To date, the Company has not experienced a material adverse impact related to the recent devaluation of the peso in Mexico. The Company will continue to monitor the effect of the peso devaluation. LIQUIDITY AND CAPITAL RESOURCES Liquidity is the Company's ability to meet potential depositor withdrawals, provide for customer credit needs, maintain adequate statutory reserve levels and take full advantage of high yield investment opportunities as they arise. The subsidiary banks of the Company derive their liquidity largely from deposits of individuals and business entities; however, the deposits are not growing at as high a rate as they did in the past. Consequently, the Company is relying more on other funding sources. Other important funding sources for the Company's bank subsidiaries during 1995 and 1996 have been securities sold under agreement to repurchase, FHLB certificates of indebtedness and large time certificates of deposit requiring management to closely monitor its asset/liability mix in terms of both rate sensitivity and maturity distributions. Primary liquidity of the Company has been maintained by means of increased investment in shorter-term securities, certificates of deposit and loans. The Company had a leverage ratio of 7.86% and 6.84%, risk-weighted Tier 1 capital ratio of 15.55% and 13.41% and risk-weighted total capital ratio of 16.77% and 14.57% for June 30, 1996 and December 31, 1995, respectively, which ratios reflect the deduction of the goodwill and core deposit intangible booked of approximately $12,028,000 in connection with the RVB, BCC and SONB transactions (see note 2 of notes to consolidated financial statements). 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, 1996 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 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 issued a final rule on the interest rate component of risk based capital, which requires the banking agencies to take into account the effect interest rates can have on a bank's capital. On July 12, 1996, the federal banking agencies adopted an interagency policy statement which establishes a uniform framework for evaluating the adequacy and effectiveness of a bank's interest rate risk management. Adjustments to the Company's interest rate risk management will be considered in conjunction with the new policy statement. The Company will depend upon earnings of subsidiaries, in addition to borrowed funds, to finance its future cash flow requirements. The Company has a number of available alternatives to finance the growth of its existing banks as well as future growth and expansion. Among the 13 activities and commitments the Company funded during the first six months of 1996 and expects to continue to fund during 1996 is a continuous effort to modernize and improve our existing facilities and expand our bank branch network. 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. These forward-looking statements involve certain risks and uncertainties. Such statements are made in reliance on the "safe harbor" protection provided under the Private Securities Litigation Reform Act of 1995. Factors that could cause actual results to differ materially from any results 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 customers, competitors and potential competitors, are subject, including banking, tax, securities, insurance and employment laws and regulations, and (IV) increased competition from both within and without the banking industry. 14 PART II - OTHER INFORMATION 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 ............................ 4,960,739 627 NONE R. David Guerra ........................... 4,961,246 120 NONE Irving Greenblum .......................... 4,961,246 120 NONE Richard E. Haynes ......................... 4,960,949 417 NONE Roy Jennings, Jr .......................... 4,961,246 120 NONE Sioma Neiman .............................. 4,960,739 627 NONE Dennis E. Nixon ........................... 4,961,246 120 NONE Leonardo Salinas .......................... 4,949,436 11,930 NONE A.R. Sanchez Jr ........................... 4,960,794 572 NONE Alberto A. Santos ......................... 4,961,246 120 NONE 2) To approve of the appointment independent auditors for the 1996 fiscal year ............................... 4,958,930 NONE 2,436 3) To consider and vote upon a proposal to approve the 1996 International Bancshares Corporation Stock Option Plan adopted by the Board of Directors on April 3, 1996 ................ 4,930,431 24,716 6,219 4) To transact such other business as may lawfully come before the meeting or any adjournment thereof ................ 4,961,366 NONE NONE Proxies were solicited pursuant to Schedule 14A under the Securities Exchange Act of 1934 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 27. International Bancshares Corporation Financial Data Schedule for the period ended June 30, 1996. (b) Registrant filed a current report on Form 8-K dated April 3, 1996, covering Item 5 - Other Events and Item 7 - Financial Statements and Exhibits in connection with the Registrants'cash dividend and 25% stock split-up effected through a stock dividend. 15 INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES INTEREST RATE SENSITIVITY (Dollars in Thousands)
RATE/MATURITY RATE/MATURITY RATE/MATURITY RATE/MATURITY June 30, 1996 3 MNTHS OVER 3 MNTHS OVER 1 YR TOTAL (Dollars in Thousands) OR LESS TO 1 YR TO 5 YRS OVER 5 YRS ============================================================================================================= SECTION A - ------------------------------------------------------------------------------------------------------------- RATE SENSITIVE ASSETS FED FUNDS SOLD ................... 69,000 -- -- -- 69,000 DUE FROM BANK INT EARNING ........ _ 11 -- -- 11 INVESTMENT SECURITIES ............ 94,579 272,534 1,052,964 1,481 1,421,558 LOANS, NET OF NON-ACCRUALS ....... 929,997 103,207 91,083 70,760 1,195,047 - ------------------------------------------------------------------------------------------------------------- TOTAL EARNING ASSETS ............. 1,093,576 375,752 1,144,047 72,241 2,685,616 - ------------------------------------------------------------------------------------------------------------- CUMULATIVE EARNING ASSETS ........ 1,093,576 1,469,328 2,613,375 2,685,616 -- ============================================================================================================= SECTION B - ------------------------------------------------------------------------------------------------------------- RATE SENSITIVE LIABILITIES TIME DEPOSITS .................... 644,734 600,868 166,479 308 1,412,389 OTHER INT BEARING DEPOSITS ....... 632,474 -- -- -- 632,474 FED FUNDS PURCHASED & REPOS ...... 109,837 41,478 16,626 -- 167,941 OTHER BORROWINGS ................. 160,000 2,000 -- -- 162,000 - ------------------------------------------------------------------------------------------------------------- TOTAL INTEREST BEARING LIABILITIES 1,547,045 644,346 183,105 308 2,374,804 - ------------------------------------------------------------------------------------------------------------- CUMULATIVE SENSITIVE LIABILITIES . 1,547,045 2,191,391 2,374,496 2,374,804 -- ============================================================================================================= SECTION C - ------------------------------------------------------------------------------------------------------------- REPRICING GAP .................... (453,469) (268,594) 960,942 71,933 310,812 CUMULATIVE REPRICING GAP ......... (453,469) (722,063) 238,879 310,812 RATIO OF INTEREST-SENSITIVE ...... .71 .58 6.25 -- 1.13 ASSETS TO LIABILITIES RATIO OF CUMULATIVE, INTEREST- ... .71 .67 1.10 1.13 SENSITIVE ASSETS TO LIABILITIES =============================================================================================================
16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERNATIONAL BANCSHARES CORPORATION ------------------------------------ Date: AUGUST 14, 1996 /s/ DENNIS E. NIXON ---------------- -------------------- Dennis E. Nixon President Date: AUGUST 14, 1996 /s/ ARNOLDO CISNEROS ---------------- --------------------- Arnoldo Cisneros Secretary-Treasurer (Chief Accounting Officer) 17 EX-27 2 FINANCIAL DATA SCHEDULE
9 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM________________________________________________________________________ [Identify specific financial statements] AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1996 JUN-30-1996 92,403 2,044,863 69,000 0 1,418,673 2,875 2,885 1,200,818 19,753 2,942,165 2,340,564 162,000 20,982 0 0 0 10,313 240,365 2,942,165 59,023 48,010 200 107,233 41,234 51,832 55,401 3,272 390 34,599 33,090 33,090 0 0 22,610 2.50 2.50 0 0 0 0 0 0 0 0 0 0 0 0
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