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 June 30, 2020

☐

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		63,267,539 shares outstanding at August 4, 2020

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Condition (Unaudited)

(Dollars in Thousands)


	June 30,		December 31,
	2020		2019
Assets
Cash and cash equivalents	$	1,198,206	$	256,820
Investment securities:
Held to maturity debt securities (Market value of $3,400 on June 30, 2020 and 2,400 on December 31, 2019)		3,400		2,400
Available for sale debt securities (Amortized cost of $3,045,135 on June 30, 2020 and $3,376,070 on December 31, 2019)		3,097,734		3,378,923
Equity securities with readily determinable fair values		6,194		6,095
Total investment securities		3,107,328		3,387,418
Loans		7,501,807		6,894,946
Less allowance for credit losses		(94,554)		(60,278)
Net loans		7,407,253		6,834,668
Bank premises and equipment, net		491,998		506,595
Accrued interest receivable		47,684		36,620
Other investments		298,558		318,427
Cash surrender value of life insurance policies		293,234		289,693
Goodwill		282,532		282,532
Other assets		197,729		200,121
Total assets	$	13,324,522	$	12,112,894

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Condition, continued (Unaudited)

(Dollars in Thousands)


	June 30,		December 31,
	2020		2019
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Demand—non-interest bearing	$	4,416,744	$	3,545,905
Savings and interest bearing demand		3,557,934		3,267,829
Time		2,061,045		2,012,300
Total deposits		10,035,723		8,826,034
Securities sold under repurchase agreements		387,095		236,536
Other borrowed funds		436,419		626,511
Junior subordinated deferrable interest debentures		134,642		134,642
Other liabilities		188,783		171,118
Total liabilities		11,182,662		9,994,841
Shareholders’ equity:
Common shares of $1.00 par value. Authorized 275,000,000 shares; issued 96,228,578 shares on June 30, 2020 and 96,214,967 shares on December 31, 2019		96,229		96,215
Surplus		148,744		148,075
Retained earnings		2,233,455		2,200,568
Accumulated other comprehensive income		41,319		2,345
		2,519,747		2,447,203
Less cost of shares in treasury, 32,956,273 shares on June 30, 2020 and 31,015,061 on December 31, 2019		(377,887)		(329,150)
Total shareholders’ equity		2,141,860		2,118,053
Total liabilities and shareholders’ equity	$	13,324,522	$	12,112,894

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				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Interest income:
Loans, including fees	$	97,764	$	105,564	$	196,994	$	208,369
Investment securities:
Taxable		15,092		19,602		31,580		38,902
Tax-exempt		653		1,377		1,419		3,026
Other interest income		141		317		269		626
Total interest income		113,650		126,860		230,262		250,923

Interest expense:
Savings deposits		1,161		4,249		4,396		8,492
Time deposits		5,319		5,044		11,289		9,422
Securities sold under repurchase agreements		148		591		613		1,180
Other borrowings		2,088		3,513		4,914		7,007
Junior subordinated deferrable interest debentures		1,080		1,681		2,353		3,631

Total interest expense		9,796		15,078		23,565		29,732

Net interest income		103,854		111,782		206,697		221,191

Provision for credit losses		10,989		2,665		27,825		10,085

Net interest income after provision for probable loan losses		92,865		109,117		178,872		211,106

Non-interest income:
Service charges on deposit accounts		12,880		17,610		30,517		34,870
Other service charges, commissions and fees
Banking		11,229		11,764		22,395		22,640
Non-banking		2,030		2,238		3,784		3,747
Investment securities transactions, net		—		(6)		(5)		(10)
Other investments, net		617		(1,703)		386		2,245
Other income		6,840		4,513		11,649		7,053

Total non-interest income	$	33,596	$	34,416	$	68,726	$	70,545

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income, continued (Unaudited)

(Dollars in Thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Non-interest expense:
Employee compensation and benefits	$	32,319	$	37,246	$	68,649	$	73,655
Occupancy		5,770		6,580		12,669		12,957
Depreciation of bank premises and equipment		7,190		7,032		14,299		14,013
Professional fees		3,913		3,745		7,883		7,337
Deposit insurance assessments		202		859		202		1,642
Net expense, other real estate owned		2,835		1,203		5,837		2,198
Advertising		1,892		2,081		3,876		4,163
Software and software maintenance		5,257		5,003		9,748		9,500
Other		14,530		15,864		27,726		27,099

Total non-interest expense		73,908		79,613		150,889		152,564

Income before income taxes		52,553		63,920		96,709		129,087

Provision for income taxes		11,044		13,900		20,361		27,161

Net income	$	41,509	$	50,020	$	76,348	$	101,926

Basic earnings per common share:

Weighted average number of shares outstanding		63,295,597		65,648,090		64,183,093		65,633,117
Net income	$	0.66	$	0.76	$	1.19	$	1.55

Fully diluted earnings per common share:

Weighted average number of shares outstanding		63,397,199		65,867,234		64,313,011		65,849,281
Net income	$	0.65	$	0.76	$	1.19	$	1.55

See accompanying notes to consolidated financial statements

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019

Net income	$	41,509	$	50,020	$	76,348	$	101,926
Other comprehensive income, net of tax:

Net unrealized holding (losses) gains on securities available for sale arising during period (net of tax effects of $(6,123), $6,685, $10,359 and $13,391)		(23,033)		25,148		38,970		50,374
Reclassification adjustment for losses on securities available for sale included in net income (net of tax effects of $0, $1, $1 and $2)		—		5		4		8
		(23,033)		25,153		38,974		50,382

Comprehensive income	$	18,476	$	75,173	$	115,322	$	152,308

See accompanying notes to consolidated financial statements.

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

Three and Six Months ended June 30, 2020 and 2019

(in Thousands, except per share amounts)


	Number							Other
	of	Common				Retained		Comprehensive		Treasury
	Shares	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance at March 31, 2020	96,226	$	96,226	$	148,508	$	2,191,946	$	64,352	$	(358,521)	$	2,142,511
Net income	—		—		—		41,509		—		—		41,509
Dividends:
Purchase of treasury stock (740,598 shares)	—		—		—		—		—		(19,366)		(19,366)
Exercise of stock options	3		3		59		—		—		—		62
Stock compensation expense recognized in earnings	—		—		177		—		—		—		176
Other comprehensive income, net of tax:
Net change in unrealized gains and losses on available for sale securities, net of reclassification adjustments	—		—		—		—		(23,033)		—		(23,033)
Balance at June 30, 2020	96,229	$	96,229	$	148,744	$	2,233,455	$	41,319	$	(377,887)	$	2,141,860


		Number							Other
		of	Common				Retained		Comprehensive		Treasury
		Shares	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance at March 31, 2019		96,137	$	96,137	$	146,113	$	2,083,219	$	(29,405)	$	(311,359)	$	1,984,705
Net income		—		—		—		50,020		—		—		50,020
Purchase of treasury (1,953 shares)	—		—		—		—		—			(74)		(74)
Exercise of stock options		14		14		262		—		—		—		276
Stock compensation expense recognized in earnings		—		—		239		—		—		—		239
Other comprehensive income, net of tax:
Net change in unrealized gains and losses on available for sale securities, net of reclassification adjustments		—		—		—		—		25,153		—		25,153
Balance at June 30, 2019		96,151	$	96,151	$	146,614	$	2,133,239	$	(4,252)	$	(311,433)	$	2,060,319

See accompanying notes to consolidated financial statements.


	Number							Other
	of	Common				Retained		Comprehensive		Treasury
	Shares	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance at December 31, 2019	96,215	$	96,215	$	148,075	$	2,200,568	$	2,345	$	(329,150)	$	2,118,053
Net income	—		—		—		76,348		—		—		76,348
Dividends:
Cash ($.55 per share)	—		—		—		(35,128)		—		—		(35,128)
Purchase of treasury stock (1,941,212 shares)	—		—		—		—		—		(48,737)		(48,737)
Exercise of stock options	14		14		274		—		—		—		288
Stock compensation expense