UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐

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 000-09439

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)

(956) 722-7611

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, $1.00 par value	IBOC	NASDAQ

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 ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company, in Rule 12b-2 of the Exchange Act.


Large accelerated filer ⌧		Accelerated filer ◻

Non-accelerated filer ◻		Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ 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		65,195,349 shares outstanding at November 1, 2019

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,
	2019		2018
Assets
Cash and cash equivalents	$	286,519	$	316,797
Investment securities:
Held to maturity debt securities (Market value of $2,400 on September 30, 2019 and 1,200 on December 31, 2018)		2,400		1,200
Available for sale debt securities (Amortized cost of $3,187,248 on September 30, 2019 and $3,481,165 on December 31, 2018)		3,192,872		3,411,350
Equity securities with readily determinable fair values		6,172		5,937
Total investment securities		3,201,444		3,418,487
Loans		6,895,142		6,561,289
Less allowance for probable loan losses		(59,860)		(61,384)
Net loans		6,835,282		6,499,905
Bank premises and equipment, net		507,945		506,899
Accrued interest receivable		35,359		36,803
Other investments		307,010		337,507
Cash surrender value of life insurance policies		287,871		282,646
Goodwill		282,532		282,532
Other assets		222,073		190,376
Total assets	$	11,966,035	$	11,871,952

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Condition, continued (Unaudited)

(Dollars in Thousands)


	September 30,		December 31,
	2019		2018
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Demand—non-interest bearing	$	3,575,930	$	3,454,840
Savings and interest bearing demand		3,254,762		3,268,237
Time		1,981,369		1,973,468
Total deposits		8,812,061		8,696,545
Securities sold under repurchase agreements		289,334		229,989
Other borrowed funds		456,556		705,665
Junior subordinated deferrable interest debentures		134,642		160,416
Other liabilities		205,518		139,755
Total liabilities		9,898,111		9,932,370
Shareholders’ equity:
Common shares of $1.00 par value. Authorized 275,000,000 shares; issued 96,191,692 shares on September 30, 2019 and 96,104,029 shares on December 31, 2018		96,192		96,104
Surplus		147,456		145,283
Retained earnings		2,148,835		2,064,134
Accumulated other comprehensive income (loss)		4,563		(54,634)
		2,397,046		2,250,887
Less cost of shares in treasury, 31,014,374 shares on September 30, 2019 and 30,494,143 on December 31, 2018		(329,122)		(311,305)
Total shareholders’ equity		2,067,924		1,939,582
Total liabilities and shareholders’ equity	$	11,966,035	$	11,871,952

See accompanying notes to consolidated financial statements.

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(Dollars in Thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Interest income:
Loans, including fees	$	104,688	$	95,828	$	313,057	$	275,744
Investment securities:
Taxable		18,040		20,213		56,942		62,121
Tax-exempt		1,019		1,981		4,045		6,263
Other interest income		372		352		998		719
Total interest income		124,119		118,374		375,042		344,847

Interest expense:
Savings deposits		4,023		3,353		12,515		8,872
Time deposits		5,680		3,493		15,102		9,172
Securities sold under repurchase agreements		640		468		1,820		1,839
Other borrowings		3,144		4,358		10,151		13,426
Junior subordinated deferrable interest debentures		1,414		1,828		5,045		5,119

Total interest expense		14,901		13,500		44,633		38,428

Net interest income		109,218		104,874		330,409		306,419

Provision for probable loan losses		5,278		4,280		15,363		3,212

Net interest income after provision for probable loan losses		103,940		100,594		315,046		303,207

Non-interest income:
Service charges on deposit accounts		18,723		18,391		53,593		53,658
Other service charges, commissions and fees
Banking		14,708		13,100		37,348		35,374
Non-banking		2,015		1,885		5,762		5,273
Investment securities transactions, net		(2)		(141)		(12)		(141)
Other investments, net		2,440		5,625		4,685		16,192
Other income		4,813		3,643		11,866		13,425

Total non-interest income	$	42,697	$	42,503	$	113,242	$	123,781

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income, continued (Unaudited)

(Dollars in Thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Non-interest expense:
Employee compensation and benefits	$	37,038	$	35,360	$	110,693	$	104,670
Occupancy		7,294		6,839		20,251		20,077
Depreciation of bank premises and equipment		7,127		6,460		21,140		19,097
Professional fees		4,744		4,063		12,081		10,010
Deposit insurance assessments		829		928		2,471		2,902
Net expense, other real estate owned		1,578		911		3,776		3,289
Advertising		1,987		2,020		6,150		5,667
Software and software maintenance		4,691		4,481		14,191		12,943
Other		15,778		17,005		42,877		48,922

Total non-interest expense		81,066		78,067		233,630		227,577

Income before income taxes		65,571		65,030		194,658		199,411

Provision for income taxes		14,127		13,935		41,288		42,009

Net income	$	51,444	$	51,095	$	153,370	$	157,402

Basic earnings per common share:

Weighted average number of shares outstanding		65,449,159		66,136,091		65,571,124		66,114,482
Net income	$	0.79	$	.77	$	2.34	$	2.38

Fully diluted earnings per common share:

Weighted average number of shares outstanding		65,636,116		66,423,209		65,777,552		66,739,899
Net income	$	0.78	$	.77	$	2.33	$	2.36

See accompanying notes to consolidated financial statements

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018

Net income	$	51,444	$	51,095	$	153,370	$	157,402
Other comprehensive income, net of tax:

Net unrealized holding gains (losses) on securities available for sale arising during period (net of tax effects of $2,343, $(4,193), $15,733, and $(17,787))		8,813		(15,772)		59,188		(66,912)
Reclassification adjustment for losses on securities available for sale included in net income (net of tax effects of $0, $30, $3 and $30)		2		111		9		111
		8,815		(15,661)		59,197		(66,801)

Comprehensive income	$	60,259	$	35,434	$	212,567	$	90,601

See accompanying notes to consolidated financial statements.

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

Three Months ended September 30, 2019 and 2018

(in Thousands, except per share amounts)


	Number							Other
	of	Common				Retained		Comprehensive		Treasury
	Shares	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance at June 30, 2019	96,151	$	96,151	$	146,614	$	2,133,239	$	(4,252)	$	(311,433)	$	2,060,319
Net Income	—		—		—		51,444		—		—		51,444
Dividends:
Payable ($.55 per share)	—		—		—		(35,848)		—		—		(35,848)
Purchase of treasury (516,973 shares)	—		—		—		—		—		(17,689)		(17,689)
Exercise of stock options	41		41		602		—		—		—		643
Stock compensation expense recognized in earnings	—		—		240		—		—		—		240
Other comprehensive income, net of tax:
Net change in unrealized gains and losses on available for sale securities, net of reclassification adjustments	—		—		—		—		8,815		—		8,815
Balance at September 30, 2019	96,192	$	96,192	$	147,456	$	2,148,835	$	4,563	$	(329,122)	$	2,067,924


	Number							Other
	of	Common				Retained		Comprehensive		Treasury
	Shares	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance at June 30, 2018	96,066	$	96,066	$	173,057	$	1,982,464	$	(79,537)	$	(292,320)	$	1,879,730
Net income	—		—		—		51,095		—		—		51,095
Dividends:
Payable ($.42 per share)	—		—		—		(27,783)		—		—		(27,783)
Exercise of stock options	17		17		323		—		—		—		340
Stock compensation expense recognized in earnings	—		—		285		—		—		—		285
Repurchase of outstanding warrant	—		—		(29,005)		—		—		—		(29,005)
Cumulative adjustment for adoption of new accounting standards	—		—		—		(170)		170		—		—
Other comprehensive income, net of tax:
Net change in unrealized gains and losses on available for sale securities, net of reclassification adjustments	—		—		—		—		(15,817)		—		(15,817)
Balance at September 30, 2018	96,083	$	96,083	$	144,660	$	2,005,606	$	(95,184)	$	(292,320)	$	1,858,845

See accompanying notes to consolidated financial statements.

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

Nine Months ended September 30, 2019 and 2018

(in Thousands, except per share amounts)


	Number							Other
	of	Common				Retained		Comprehensive		Treasury
	Shares	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance at December 31, 2018	96,104	$	96,104	$	145,283	$	2,064,134	$	(54,634)	$	(311,305)	$	1,939,582
Net Income	—		—		—		153,370		—		—		153,370
Dividends:
Cash ($1.05 per share)	—		—		—		(68,669)		—		—		(68,669)
Purchase of treasury (3,258 shares)	—		—		—		—		—		(17,817)		(17,817)
Exercise of stock options	88		88		1,429		—		—		—		1,517
Stock compensation expense recognized in earnings	—		—		744		—		—		—		744
Other comprehensive income, net of tax:
Net change in unrealized gains and losses on available for sale securities, net of reclassification adjustments	—		—		—		—		59,197		—		59,197
Balance at September 30, 2019	96,192	$	96,192	$	147,456	$	2,148,835	$	4,563	$	(329,122)	$	2,067,924

Number

Other

Common

Retained

Comprehensive

Treasury