UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the quarterly period ended
September 30, 2009
OR
o
|
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)
(956) 722-7611
(Registrants 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
o
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files). Yes
o
No
o
Indicate by check
mark if the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large
accelerated filer
x
|
|
Accelerated
filer
o
|
|
|
|
Non-accelerated
filer
o
|
|
Smaller
reporting company
o
|
(Do not check if a
smaller reporting company)
|
|
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes
o
No
x
Indicate the number of shares outstanding of each of
the issuers classes of common stock, as of the latest practicable date
Class
|
|
Shares
Issued and Outstanding
|
Common
Stock, $1.00 par value
|
|
68,237,749
shares outstanding at October 28, 2009
|
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,
|
|
|
|
2009
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due
from banks
|
|
$
|
252,345
|
|
$
|
298,720
|
|
|
|
|
|
|
|
Total cash and
cash equivalents
|
|
252,345
|
|
298,720
|
|
|
|
|
|
|
|
Time deposits
with banks
|
|
|
|
396
|
|
|
|
|
|
|
|
Investment
securities:
|
|
|
|
|
|
Held-to-maturity
(Market value of $2,450 on September 30,
2009 and $2,300 on December 31,
2008)
|
|
2,450
|
|
2,300
|
|
Available-for-sale
(Amortized cost of $4,416,779 on
September 30, 2009 and $5,043,703
on December 31, 2008)
|
|
4,505,909
|
|
5,071,880
|
|
|
|
|
|
|
|
Total investment
securities
|
|
4,508,359
|
|
5,074,180
|
|
|
|
|
|
|
|
Loans, net of
unearned discounts
|
|
5,742,356
|
|
5,872,833
|
|
Less allowance
for probable loan losses
|
|
(90,322
|
)
|
(73,461
|
)
|
|
|
|
|
|
|
Net loans
|
|
5,652,034
|
|
5,799,372
|
|
|
|
|
|
|
|
Bank premises
and equipment, net
|
|
491,382
|
|
466,371
|
|
Accrued interest
receivable
|
|
41,081
|
|
48,712
|
|
Other
investments
|
|
354,979
|
|
388,071
|
|
Identified
intangible assets, net
|
|
23,434
|
|
27,385
|
|
Goodwill, net
|
|
282,532
|
|
282,532
|
|
Other assets
|
|
79,438
|
|
53,602
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,685,584
|
|
$
|
12,439,341
|
|
1
INTERNATIONAL
BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Condition, continued (Unaudited)
(Dollars
in Thousands)
|
|
September 30,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Liabilities and Shareholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Demand
non-interest bearing
|
|
$
|
1,448,480
|
|
$
|
1,459,670
|
|
Savings and
interest bearing demand
|
|
2,130,067
|
|
2,081,602
|
|
Time
|
|
3,333,685
|
|
3,317,512
|
|
|
|
|
|
|
|
Total deposits
|
|
6,912,232
|
|
6,858,784
|
|
|
|
|
|
|
|
Securities sold
under repurchase agreements
|
|
1,500,230
|
|
1,441,131
|
|
Other borrowed
funds
|
|
1,128,575
|
|
2,522,986
|
|
Junior
subordinated deferrable interest debentures
|
|
201,074
|
|
201,048
|
|
Other
liabilities
|
|
565,125
|
|
158,095
|
|
|
|
|
|
|
|
Total
liabilities
|
|
10,307,236
|
|
11,182,044
|
|
|
|
|
|
|
|
Commitments, Contingent Liabilities and Other Tax Matters (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
equity:
|
|
|
|
|
|
|
|
|
|
|
|
Series A
Cumulative perpetual preferred shares, $.01 par value,
$1,000 per share liquidation value.
Authorized 25,000,000
shares; issued 216,000 shares on September 30,
2009, net of
discount of $10,817 and issued 216,000 shares on
December 31, 2008, net of discount
of $12,442
|
|
205,183
|
|
203,558
|
|
Common shares of
$1.00 par value. Authorized 275,000,000
shares; issued 95,685,734 shares on
September 30, 2009 and
95,499,339 shares on December 31, 2008
|
|
95,686
|
|
95,499
|
|
Surplus
|
|
160,784
|
|
158,110
|
|
Retained
earnings
|
|
1,100,041
|
|
1,016,004
|
|
Accumulated
other comprehensive income
|
|
57,439
|
|
18,189
|
|
|
|
1,619,133
|
|
1,491,360
|
|
|
|
|
|
|
|
Less cost of shares in treasury, 27,447,985 shares on
September 30,
2009 and 26,898,219 shares
on December 31, 2008
|
|
(240,785
|
)
|
(234,063
|
)
|
|
|
|
|
|
|
Total shareholders
equity
|
|
1,378,348
|
|
1,257,297
|
|
|
|
|
|
|
|
Total
liabilities and shareholders equity
|
|
$
|
11,685,584
|
|
$
|
12,439,341
|
|
See accompanying notes to
consolidated financial statements.
2
INTERNATIONAL
BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Income (Unaudited)
(Dollars
in Thousands, except per share data)
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
Loans, including
fees
|
|
$
|
84,263
|
|
$
|
91,020
|
|
$
|
252,105
|
|
$
|
281,569
|
|
Federal funds
sold
|
|
|
|
226
|
|
|
|
907
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
40,937
|
|
45,996
|
|
145,074
|
|
138,246
|
|
Tax-exempt
|
|
1,375
|
|
846
|
|
3,454
|
|
2,680
|
|
Other interest
income
|
|
129
|
|
106
|
|
465
|
|
383
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
income
|
|
126,704
|
|
138,194
|
|
401,098
|
|
423,785
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
2,563
|
|
6,807
|
|
8,182
|
|
22,609
|
|
Time deposits
|
|
14,757
|
|
24,093
|
|
48,650
|
|
85,360
|
|
Securities sold
under repurchase agreements
|
|
11,110
|
|
12,486
|
|
33,622
|
|
38,612
|
|
Other borrowings
|
|
732
|
|
7,133
|
|
9,041
|
|
24,546
|
|
Junior
subordinated interest deferrable debentures
|
|
3,095
|
|
3,461
|
|
9,483
|
|
10,586
|
|
Other interest
expense
|
|
|
|
96
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
expense
|
|
32,257
|
|
54,076
|
|
108,978
|
|
181,897
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
94,447
|
|
84,118
|
|
292,120
|
|
241,888
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
probable loan losses
|
|
10,346
|
|
7,037
|
|
45,429
|
|
12,690
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income after provision for probable loan losses
|
|
84,101
|
|
77,081
|
|
246,691
|
|
229,198
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
Service charges
on deposit accounts
|
|
25,425
|
|
25,354
|
|
73,753
|
|
74,596
|
|
Other service
charges, commissions and fees
|
|
|
|
|
|
|
|
|
|
Banking
|
|
10,513
|
|
10,437
|
|
31,781
|
|
30,599
|
|
Non-banking
|
|
5,485
|
|
2,267
|
|
9,203
|
|
5,412
|
|
Gain on
investment securities transactions, net
|
|
174
|
|
|
|
11,880
|
|
6,410
|
|
Other
investments, net
|
|
3,374
|
|
5,785
|
|
10,609
|
|
13,895
|
|
Other income
|
|
5,904
|
|
6,980
|
|
11,853
|
|
17,222
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest income
|
|
50,875
|
|
50,823
|
|
149,079
|
|
148,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Income, continued (Unaudited)
(Dollars
in Thousands, except per share data)
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
$
|
35,316
|
|
$
|
32,854
|
|
$
|
99,796
|
|
$
|
95,314
|
|
Occupancy
|
|
8,723
|
|
9,955
|
|
25,899
|
|
27,053
|
|
Depreciation of
bank premises and equipment
|
|
8,965
|
|
9,481
|
|
26,979
|
|
27,119
|
|
Professional
fees
|
|
4,958
|
|
2,557
|
|
16,735
|
|
8,442
|
|
Stationery and
supplies
|
|
1,109
|
|
1,540
|
|
2,925
|
|
4,134
|
|
Amortization of
identified intangible assets
|
|
1,320
|
|
1,299
|
|
3,950
|
|
3,897
|
|
Advertising
|
|
2,647
|
|
3,667
|
|
7,887
|
|
10,329
|
|
Other
|
|
15,708
|
|
15,238
|
|
49,982
|
|
47,682
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest expense
|
|
78,746
|
|
76,591
|
|
234,153
|
|
223,970
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes
|
|
56,230
|
|
51,313
|
|
161,617
|
|
153,362
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes
|
|
19,257
|
|
17,433
|
|
55,983
|
|
52,953
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,973
|
|
$
|
33,880
|
|
$
|
105,634
|
|
$
|
100,409
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
Dividends
|
|
3,250
|
|
|
|
9,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
available to common shareholders
|
|
$
|
33,723
|
|
$
|
33,880
|
|
$
|
95,909
|
|
$
|
100,409
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding:
|
|
68,192,647
|
|
68,571,661
|
|
68,437,023
|
|
68,573,318
|
|
Net income
|
|
$
|
.49
|
|
$
|
.49
|
|
$
|
1.40
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding:
|
|
68,207,682
|
|
68,727,949
|
|
68,447,067
|
|
68,715,082
|
|
Net income
|
|
$
|
.49
|
|
$
|
.49
|
|
$
|
1.40
|
|
$
|
1.46
|
|
See accompanying notes to
consolidated financial statements.
4
INTERNATIONAL
BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Comprehensive Income (Unaudited)
(Dollars
in Thousands)
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,973
|
|
$
|
33,880
|
|
$
|
105,634
|
|
$
|
100,409
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized
holding (losses) gains on securities available for sale
arising during period (tax effects of
$(431), $(3,270), $25,293
and $4,322)
|
|
(801
|
)
|
(6,073
|
)
|
46,972
|
|
8,027
|
|
Reclassification
adjustment for gains on securities available for
sale included in net income (tax
effects of $(61), $-,
$(4,158) and $(2,243))
|
|
(113
|
)
|
|
|
(7,722
|
)
|
(4,167
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
36,059
|
|
$
|
27,807
|
|
$
|
144,884
|
|
$
|
104,269
|
|
See accompanying notes to
consolidated financial statements.
5
INTERNATIONAL
BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Cash Flows (Unaudited)
(Dollars
in Thousands)
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
105,634
|
|
$
|
100,409
|
|
|
|
|
|
|
|
Adjustments to
reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
Provision for
probable loan losses
|
|
45,429
|
|
12,690
|
|
Amortization of
loan premiums
|
|
|
|
134
|
|
Accretion of
time deposits with banks
|
|
|
|
1
|
|
Accretion of
time deposit discounts
|
|
(10
|
)
|
(28
|
)
|
Depreciation of
bank premises and equipment
|
|
26,979
|
|
27,119
|
|
Gain on sale of
bank premises and equipment
|
|
(133
|
)
|
(44
|
)
|
Depreciation and
amortization of leased assets
|
|
300
|
|
760
|
|
Accretion of
investment securities discounts
|
|
(1,463
|
)
|
(858
|
)
|
Amortization of
investment securities premiums
|
|
4,768
|
|
4,787
|
|
Investment
securities transactions, net
|
|
(11,880
|
)
|
(6,410
|
)
|
Amortization of
junior subordinated debenture discounts
|
|
26
|
|
110
|
|
Amortization of
identified intangible assets
|
|
3,951
|
|
3,897
|
|
Stock based
compensation expense
|
|
502
|
|
550
|
|
Earnings from
affiliates and other investments
|
|
(9,778
|
)
|
(9,773
|
)
|
Deferred tax
benefit
|
|
(7,811
|
)
|
(7,727
|
)
|
Decrease in
accrued interest receivable
|
|
7,631
|
|
7,857
|
|
Net increase in
other assets
|
|
(24,854
|
)
|
(4,226
|
)
|
Net (decrease)
increase in other liabilities
|
|
(72,973
|
)
|
1,046
|
|
|
|
|
|
|
|
Net cash provided
by operating activities
|
|
66,318
|
|
130,294
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
maturities of securities
|
|
1,637
|
|
16,261
|
|
Proceeds from
sales of available for sale securities
|
|
571,814
|
|
8,359
|
|
Purchases of
available for sale securities
|
|
(419,614
|
)
|
(1,002,839
|
)
|
Principal
collected on mortgage-backed securities
|
|
944,989
|
|
981,679
|
|
Maturities of
time deposits with banks
|
|
396
|
|
4,457
|
|
Net decrease
(increase) in loans
|
|
101,911
|
|
(209,873
|
)
|
Purchases of
other investments
|
|
(10,425
|
)
|
(8,315
|
)
|
Distributions of
other investments
|
|
53,295
|
|
33
|
|
Purchases of
bank premises and equipment
|
|
(52,485
|
)
|
(47,415
|
)
|
Proceeds from
sale of bank premises and equipment
|
|
628
|
|
800
|
|
|
|
|
|
|
|
Net cash
provided by (used in) investing activities
|
|
1,192,146
|
|
(256,853
|
)
|
|
|
|
|
|
|
|
|
6
INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Cash Flows, continued (Unaudited)
(Dollars
in Thousands)
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in
non-interest bearing demand deposits
|
|
$
|
(11,190
|
)
|
$
|
(52,063
|
)
|
Net increase
(decrease) in savings and interest bearing demand deposits
|
|
48,465
|
|
(64,633
|
)
|
Net increase
(decrease) in time deposits
|
|
16,183
|
|
(39,526
|
)
|
Net increase in
securities sold under repurchase agreements
|
|
59,099
|
|
139,023
|
|
Net (decrease)
increase in other borrowed funds
|
|
(1,394,411
|
)
|
167,814
|
|
Purchase of
treasury stock
|
|
(6,722
|
)
|
(958
|
)
|
Proceeds from
stock transactions
|
|
2,359
|
|
560
|
|
Payment of
dividends on common stock
|
|
(11,662
|
)
|
(22,623
|
)
|
Payments of
dividends on preferred stock
|
|
(6,960
|
)
|
|
|
|
|
|
|
|
|
Net cash (used
in) provided by financing activities
|
|
(1,304,839
|
)
|
127,594
|
|
|
|
|
|
|
|
(Decrease)
increase in cash and cash equivalents
|
|
(46,375
|
)
|
1,035
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period
|
|
298,720
|
|
346,052
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
|
$
|
252,345
|
|
$
|
347,087
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
Interest paid
|
|
$
|
114,805
|
|
$
|
191,610
|
|
Income taxes
paid
|
|
56,918
|
|
51,711
|
|
Accrued
dividends, preferred shares
|
|
1,350
|
|
|
|
Dividends
declared, not yet paid
|
|
|
|
22,630
|
|
Sales of
available-for-sale securities not yet settled
|
|
1,282
|
|
|
|
Purchases of
available-for-sale securities not yet settled
|
|
464,760
|
|
149,351
|
|
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 (Corporation) and Subsidiaries (the Corporation and
Subsidiaries collectively referred to herein as the Company) conform to
accounting principles generally accepted in the United States of America and to
general practices within the banking industry.
The consolidated financial statements include the accounts of the
Corporation 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 Corporations wholly-owned
non-bank subsidiaries, IBC Subsidiary Corporation, IBC Life Insurance Company,
IBC Trading Company, IBC Capital Corporation and Premier Tierra Holdings, Inc. All significant inter-company 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 Companys latest Annual
Report on Form 10-K. The
consolidated statement of condition at December 31, 2008 has been derived
from the audited financial statements at that date but does not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. Certain reclassifications
have been made to make prior periods comparable.
The Company operates as one
segment. The operating information used
by the Companys chief executive officer for purposes of assessing performance
and making operating decisions about the Company is the consolidated statements
presented in this report. The Company
has four active operating subsidiaries, namely, the bank subsidiaries,
otherwise known as International Bank of Commerce, Laredo, Commerce Bank,
International Bank of Commerce, Zapata and International Bank of Commerce,
Brownsville. The Company applies the
provisions of Financial Accounting Standards Board (FASB) Accounting
Statement Codification (ASC), FASB ASC 280, Segment Reporting, in determining
its reportable segments and related disclosures.
On July 1, 2009, the
Financial Accounting Standards Board officially launched the FASB Accounting
Standards Codification, (Codification), which is now the single official
source of authoritative, non-governmental U.S. GAAP, in addition to guidance
issued by the Securities and Exchange Commission (SEC). The Codification supersedes all prior
accounting literature. With the launch
of the Codification, U.S. GAAP now consists of two levels authoritative
(Codification) and non-authoritative (anything not in the Codification). The Codification is effective for interim and
annual periods ending after September 15, 2009, and is organized into
approximately 90 accounting topics. The
FASB will no longer be issuing accounting standards in the form of Statements,
Staff Positions or Emerging Issues Task Force Abstracts. The FASB will instead amend the Codification
by issuing Accounting Standards Updates.
The adoption of the Codification did not have a significant impact to
the Companys consolidated financial statements.
Effective June 30, 2009, the Company adopted
Statement of Financial Accounting Standards No. 165 (SFAS No. 165),
Subsequent Events. SFAS No. 165 is currently included in the
Codification under ASC Topic 855, Subsequent Events (ASC 855). ASC 855 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or available to be issued. ASC 855 defines (i) the period after the
balance sheet date during which a reporting entitys management should evaluate
events or transactions that may occur for potential recognition or disclosure
in the financial statements (ii) the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date
in its financial statements and (iii) the disclosures an entity should
make about events or transactions that occurred after the balance sheet
date. The adoption of the accounting
standard did not have an impact on the Companys consolidated financial
statements. The Company has evaluated all events or transactions
that occurred after September 30, 2009 through November 2, 2009, the date
the Company issued these financial statements. During this period, the Company
did not have any material recognizable or non-recognizable subsequent events.
8
Note 2 Fair Value Measurements
Effective January 1, 2008, the Company adopted
Statement of Financial Accounting Standards No. 157 (SFAS No. 157),
Fair Value Measurements for financial assets and liabilities. Additionally, in accordance with Financial
Accounting Standards Board Staff Position No. 157-2, (FSP No 157-2),
Effective date of FASB Statement No. 157, the Company delayed
application of SFAS No. 157 for non-financial assets and non-financial
liabilities until January 1, 2009, except for those that are recognized or
disclosed at fair value on a recurring basis.
SFAS No. 157 and FSP No. 157-2 are now included in the
Accounting Standards Codification (ASC) in Topic 820, Fair Value
Measurements and Disclosures (ASC 820).
ASC 820 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures
about fair value measurements. ASC 820
applies to all financial instruments that are being measured and reported on a
fair value basis. ASC 820 defines fair
value as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date; it also establishes a fair value hierarchy that prioritizes
the inputs used in valuation methodologies into the following three levels:
·
Level 1 Inputs Unadjusted quoted prices in active
markets for identical assets or liabilities.
·
Level 2 Inputs Observable inputs other than Level 1
prices, such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities.
·
Level 3 Inputs Unobservable inputs that are
supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
Level 3 assets and liabilities include financial instruments whose value
is determined using pricing models, discounted cash flow methodologies, or other
valuation techniques, as well as instruments for which the determination of
fair value requires significant management judgment or estimation.
A description of the valuation methodologies used for
instruments measured at fair value, as well as the general classification of
such instruments pursuant to the valuation hierarchy is set forth below.
The following table represents assets and liabilities
reported on the consolidated balance sheets at their fair value as of September 30,
2009 by level within the fair value measurement hierarchy:
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
(in thousands)
|
|
|
|
Assets/Liabilities
Measured at Fair
Value
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
Significant Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
September 30, 2009
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
Measured
on a recurring basis:
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
securities Available-for-sale
|
|
$
|
1,327
|
|
$
|
|
|
$
|
1,327
|
|
$
|
|
|
Mortgage-backed
securities Available-for-sale
|
|
4,361,946
|
|
|
|
4,283,391
|
|
78,555
|
|
States and
political subdivisions Available-for-sale
|
|
128,472
|
|
|
|
128,472
|
|
|
|
Other Available-for-sale
|
|
14,164
|
|
664
|
|
13,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured
on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
88,407
|
|
|
|
|
|
88,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Investment securities available-for-sale are
classified within level 2 and level 3 of the valuation hierarchy, with the
exception of certain equity investments that are classified within level
1. For investments classified as level 2
in the fair value hierarchy, the Company obtains fair value measurements for
investment securities from an independent pricing service. The fair value measurements consider
observable data that may include dealer quotes, market spreads, cash flows, the
U.S. Treasury yield curve, live trading levels, trade execution data, market
consensus prepayment speeds, credit information and the bonds terms and
conditions, among other things.
Investment securities classified as level 3 are non-agency
mortgage-backed securities. The non-agency
mortgage-backed securities held by the Company are traded in in-active markets
and markets that have experienced significant decreases in volume and level of
activity, as exhibited by few recent transactions, a significant decline or
absence of new issuances, price quotations that are not based on comparable
securities transactions and wide bid-ask spreads among other factors. As a result of the inability to use quoted
market prices to determine fair value for these securities, the Company
determined that fair value, as determined by level 3 inputs in the fair value
hierarchy, is more appropriate for financial reporting and more consistent with
the expected performance of the investments.
For the investments classified within level 3 of the fair value
hierarchy, the Company evaluated the performance of the securities since the
time of purchase and determined that the securities have performed as expected
or better than expected. Therefore, the
Company applied the spread from the time of purchase against the current yield
curve to determine the fair value represented in the consolidated financial
statements since that spread represented an orderly, active market.
The following table presents a reconciliation of
activity for such mortgage-backed securities on a net basis (Dollars in
thousands):
Balance at
December 31, 2008
|
|
$
|
|
|
Principal paydowns, net of discount amortization
|
|
(4,010
|
)
|
Total unrealized gains included in:
|
|
|
|
Other comprehensive income
|
|
(6
|
)
|
Transfers into
level 3
|
|
82,571
|
|
|
|
|
|
Balance at
September 30, 2009
|
|
$
|
78,555
|
|
As of September 30, 2009, the Companys financial
instruments measured at fair value on a non-recurring basis are limited to
impaired loans. Impaired loans are
classified within level 3 of the valuation hierarchy. The fair value of impaired loans is derived
in accordance with FASB ASC 310, Receivables.
The fair value of impaired loans is based on the fair value of the
collateral, as determined through an external appraisal process, discounted
based on internal criteria. Impaired
loans are primarily comprised of collateral-dependent commercial loans.
Certain financial assets and financial liabilities are
measured at fair value on a nonrecurring basis.
The instruments are not measured at fair value on an ongoing basis but
are subject to fair value adjustments in certain circumstances (for example,
when there is evidence of impairment).
The
fair value estimates, methods, and assumptions for the Companys financial
instruments at September 30, 2009 and December 31, 2008 are outlined
below.
Cash and Due From Banks and Federal Funds Sold
For
these short-term instruments, the carrying amount is a reasonable estimate of
fair value.
Time Deposits with Banks
The carrying amounts of time
deposits with banks approximate fair value.
10
Investment securities
held-to-maturity
The carrying amounts of
investments held-to-maturity approximate fair value.
Loans
Fair
values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by
type such as commercial, real estate and consumer loans as outlined by
regulatory reporting guidelines. Each
category is segmented into fixed and variable interest rate terms and by
performing and non-performing categories.
For
variable rate performing loans, the carrying amount approximates the fair
value. For fixed rate performing loans,
except residential mortgage loans, the fair value is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in the
loan. For performing residential
mortgage loans, fair value is estimated by discounting contractual cash flows
adjusted for prepayment estimates using discount rates based on secondary
market sources or the primary origination market. At September 30, 2009, and December 31,
2008, the carrying amount of fixed rate performing loans was $1,272,210,000 and
$1,272,370,000 respectively, and the estimated fair value was $1,255,047,000
and $1,253,496,000, respectively.
Accrued Interest
The carrying amounts of accrued
interest approximate fair value.
Deposits
The
fair value of deposits with no stated maturity, such as non-interest bearing demand
deposit accounts, savings accounts and interest bearing demand deposit
accounts, was equal to the amount payable on demand as of September 30,
2009 and December 31, 2008. The
fair value of time deposits is based on the discounted value of contractual
cash flows. The discount rate is based
on currently offered rates. At September 30,
2009 and December 31, 2008, the carrying amount of time deposits was
$3,333,685,000 and $3,317,512,000, respectively, and the estimated fair value
was $3,350,874,000 and $3,343,150,000, respectively.
Securities Sold Under Repurchase
Agreements and Other Borrowed Funds
Securities sold under repurchase
agreements include both short and long-term maturities. Due to the contractual terms of the
short-term instruments, the carrying amounts approximated fair value at September 30,
2009 and December 31, 2008. The
fair value of the long-term instruments is based on established market
spreads. At September 30, 2009 and December 31,
2008, the carrying amount of long-term repurchase agreements was $1,000,000,000
and the estimated fair value was $1,114,056,000 and $1,158,873,000,
respectively. Other borrowed funds are
short-term Federal Home Loan Bank borrowings.
Due to the contractual terms of these financial instruments, the carrying
amounts approximated fair value at September 30, 2009 and December 31,
2008.
Junior Subordinated
Deferrable Interest Debentures
The Company currently has fixed and floating junior
subordinated deferrable interest debentures outstanding. Due to the contractual terms of the floating
rate junior subordinated deferrable interest debentures, the carrying amounts
approximated fair value at September 30, 2009 and December 31,
2008. The fair value of the fixed junior
subordinated deferrable interest debentures is based on established market
spreads to the debentures. At September 30,
2009 and December 31, 2008, the carrying amount of fixed junior
subordinated deferrable interest debentures was $139,216,000 and $139,190,000,
respectively, and the estimated fair value was $58,795,000 and $44,704,000,
respectively.
Commitments to Extend Credit and
Letters of Credit
Commitments
to extend credit and fund letters of credit are principally at current interest
rates and therefore the carrying amount approximates fair value.
11
Limitations
Fair
value estimates are made at a point in time, based on relevant market
information and information about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the Companys
entire holdings of a particular financial instrument. Because no market exists for a significant
portion of the Companys financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based
on existing on-and off-statement of condition financial instruments without
attempting to estimate the value of anticipated future business and the value
of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that
are not considered financial assets or liabilities include the bank premises and
equipment and core deposit value. In
addition, the tax ramifications related to the effect of fair value estimates
have not been considered in the above estimates.
Note 3 Loans
A summary of net loans, by loan
type at September 30, 2009 and December 31, 2008 is as follows:
|
|
September 30,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
Commercial,
financial and agricultural
|
|
$
|
2,705,704
|
|
$
|
2,574,247
|
|
Real estate
mortgage
|
|
953,978
|
|
888,095
|
|
Real estate
construction
|
|
1,657,685
|
|
1,911,954
|
|
Consumer
|
|
154,726
|
|
169,589
|
|
Foreign
|
|
270,263
|
|
328,948
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
5,742,356
|
|
$
|
5,872,833
|
|
Note 4 - Allowance for Probable Loan
Losses
A summary of the
transactions in the allowance for probable loan losses is as follows:
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
Balance at
December 31,
|
|
$
|
73,461
|
|
$
|
61,726
|
|
|
|
|
|
|
|
Losses charged
to allowance
|
|
(29,864
|
)
|
(6,345
|
)
|
Recoveries
credited to allowance
|
|
1,296
|
|
892
|
|
Net losses
charged to allowance
|
|
(28,568
|
)
|
(5,453
|
)
|
|
|
|
|
|
|
Provision
charged to operations
|
|
45,429
|
|
12,690
|
|
|
|
|
|
|
|
Balance at
September 30,
|
|
$
|
90,322
|
|
$
|
68,963
|
|
The losses charged
to the allowance increased by $23,519,000 for the nine months ended September 30,
2009 versus the same period of 2008.
The nationwide
recession and its consequences are being felt in the Companys markets, but not
to the extent being seen in the nation as a whole. These factors, as well
as other economic issues, have elevated the Companys provisions as well as
charge-offs.
12
Impaired loans are
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 are measured based on (1) the present value of
expected future cash flows discounted at the loans effective interest rate; (2) the
loans observable market price; or (3) the fair value of the collateral if
the loan is collateral dependent.
Substantially all of the Companys 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.
The following table details key
information regarding the Companys impaired loans:
|
|
September 30,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
Balance of impaired loans where there is a related allowance for loan
loss
|
|
$
|
118,407
|
|
$
|
137,153
|
|
Balance of impaired loans where there is no related allowance for loan
loss
|
|
12,314
|
|
27,786
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
130,721
|
|
$
|
164,939
|
|
|
|
|
|
|
|
Allowance allocated to impaired loans
|
|
$
|
30,000
|
|
$
|
20,671
|
|
The impaired loans included in
the table above are primarily comprised of collateral dependent commercial
loans, which have not been fully charged off.
The average recorded investment in impaired loans was $161,194,000 and
$93,654,000 for the nine months and year ended September 30, 2009 and December 31,
2008, respectively. The interest
recognized on impaired loans was not significant.
The
increase in the balance of impaired loans over historical levels can be
partially attributed to certain loans that filed for bankruptcy protection and
a few loan relationships that deteriorated during 2008 and 2009. A
substantial amount of the impaired loans have adequate collateral and credit
enhancements not requiring a related allowance for loan loss. The level
of impaired loans is reflective of the economic weakness that has been created
by the financial crisis and the subsequent economic downturn. While impaired loans have increased compared
to historical levels, they have decreased for the period ended September 30,
2009, compared to the period ending December 31, 2008. Management is confident the Companys loss
exposure regarding these credits will be significantly reduced due to the
Companys long-standing practices that emphasize secured lending with strong
collateral positions and guarantor support.
Management is likewise confident the reserve for probable loan losses is
adequate. The Company has no direct
exposure to sub-prime loans in its loan portfolio, but the sub-prime crisis has
affected the credit markets on a national level, and as a result, the Company
has experienced an increasing amount of impaired loans; however, managements
decision to place loans in this category does not necessarily mean that the
Company will experience significant losses from these loans or significant
increases in impaired loans from these levels.
Management
of the Company recognizes the risks associated with these impaired loans.
However, managements decision to place loans in this category does not necessarily
mean that losses will occur. In the current environment, troubled loan
management can be protracted because of the legal and process problems that
delay the collection of an otherwise collectable loan. Additionally, management believes that the collateral
related to these impaired loans and/or the secondary support from guarantors
mitigates the potential for losses from impaired loans. It is also important to note that even
though the economic conditions in Texas and Oklahoma are softening, we believe
these markets are stronger and better positioned to recover than many other
areas of the country.
The bank
subsidiaries 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 borrowers financial condition and general
economic conditions in the borrowers industry. Generally, unsecured consumer
loans are charged-off when 90 days past due.
13
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 probable loan losses can be made only on a subjective
basis. It is the judgment of the
Companys management that the allowance for probable loan losses at September 30,
2009 was adequate to absorb probable losses from loans in the portfolio at that
date.
Note 5 Stock Options
On April 1, 2005, the Board of Directors adopted
the 2005 International Bancshares Corporation Stock Option Plan (the 2005
Plan). Effective May 19, 2008, the
2005 Plan was amended to increase the number of shares available for stock
option grants under the 2005 Plan by 300,000 shares. The 2005 Plan replaced the 1996 International
Bancshares Corporation Key Contributor Stock Option Plan (the 1996
Plan). Under the 2005 Plan both
qualified incentive stock options (ISOs) and non-qualified stock options
(NQSOs) may be granted. Options
granted may be exercisable for a period of up to 10 years from the date of
grant, excluding ISOs granted to 10% shareholders, which may be exercisable for
a period of up to only five years. As of
September 30, 2009, 138,297 shares were available for future grants under
the 2005 Plan.
A summary of option activity under the stock option
plans for the nine months ended September 30, 2009 is as follows:
|
|
Number of
options
|
|
Weighted
average
exercise price
|
|
Weighted
average
remaining
contractual term
(years)
|
|
Aggregate
intrinsic
value ($)
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2008
|
|
833,597
|
|
$
|
21.43
|
|
|
|
|
|
Plus: Options granted
|
|
247,250
|
|
10.42
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
186,395
|
|
12.66
|
|
|
|
|
|
Options expired
|
|
15,052
|
|
12.66
|
|
|
|
|
|
Options
forfeited
|
|
24,088
|
|
17.26
|
|
|
|
|
|
Options
outstanding at September 30, 2009
|
|
855,312
|
|
$
|
20.35
|
|
4.93
|
|
$
|
1,499
|
|
|
|
|
|
|
|
|
|
|
|
Options fully
vested and exercisable at
September 30, 2009
|
|
275,032
|
|
$
|
22.47
|
|
2.81
|
|
$
|
70
|
|
Stock-based compensation expense included in the
consolidated statements of income for the three and nine months ended September 30,
2009 was approximately $185,400 and $502,000, respectively. As of September 30, 2009, there was
approximately $1,342,000 of total unrecognized stock-based compensation cost
related to non-vested options granted under the Company plans that will be
recognized over a weighted average period of 1.7 years.
Note 6 - Investment Securities
The Company classifies debt and equity securities into
one of three categories: held-to
maturity, available-for-sale, or trading.
Such securities 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 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 (loss)
and accumulated other comprehensive income (loss) until realized, or in the
case of losses, when deemed other than temporary.
14
The
amortized cost and estimated fair value by type of investment security at September 30,
2009 are as follows:
|
|
Held to Maturity
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Estimated fair
value
|
|
Carrying
value
|
|
|
|
(Dollars in Thousands)
|
|
Other securities
|
|
$
|
2,450
|
|
$
|
|
|
$
|
|
|
$
|
2,450
|
|
$
|
2,450
|
|
Total investment securities
|
|
$
|
2,450
|
|
$
|
|
|
$
|
|
|
$
|
2,450
|
|
$
|
2,450
|
|
|
|
Available for Sale
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Estimated fair
value
|
|
Carrying
value (1)
|
|
|
|
(Dollars in Thousands)
|
|
U.S. Treasury securities
|
|
$
|
1,327
|
|
$
|
|
|
$
|
|
|
$
|
1,327
|
|
$
|
1,327
|
|
Mortgage-backed securities
|
|
4,275,422
|
|
86,821
|
|
(297
|
)
|
4,361,946
|
|
4,361,946
|
|
Obligations of states and political subdivisions
|
|
126,205
|
|
2,429
|
|
(162
|
)
|
128,472
|
|
128,472
|
|
Equity securities
|
|
13,825
|
|
368
|
|
(29
|
)
|
14,164
|
|
14,164
|
|
Total investment securities
|
|
$
|
4,416,779
|
|
$
|
89,618
|
|
$
|
(488
|
)
|
$
|
4,505,909
|
|
$
|
4,505,909
|
|
(1)
Included in the carrying value of
mortgage-backed securities are $1,616,728 of mortgage-backed securities issued
by Ginnie Mae, $2,666,663 of mortgage-backed securities issued by Fannie Mae
and Freddie Mac and $78,555 issued by non-government entities
The
amortized cost and estimated fair value by type of investment security at December 31,
2008 are as follows:
|
|
Held to Maturity
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Estimated fair
value
|
|
Carrying
value
|
|
|
|
(Dollars in Thousands)
|
|
Other securities
|
|
$
|
2,300
|
|
$
|
|
|
$
|
|
|
$
|
2,300
|
|
$
|
2,300
|
|
Total investment securities
|
|
$
|
2,300
|
|
$
|
|
|
$
|
|
|
$
|
2,300
|
|
$
|
2,300
|
|
|
|
Available for Sale
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Estimated fair
value
|
|
Carrying
value (1)
|
|
|
|
(Dollars in Thousands)
|
|
U.S. Treasury securities
|
|
$
|
1,319
|
|
$
|
|
|
$
|
|
|
$
|
1,319
|
|
$
|
1,319
|
|
Mortgage-backed securities
|
|
4,947,351
|
|
59,915
|
|
(32,949
|
)
|
4,974,317
|
|
4,974,317
|
|
Obligations of states and political subdivisions
|
|
81,208
|
|
1,346
|
|
(340
|
)
|
82,214
|
|
82,214
|
|
Equity securities
|
|
13,825
|
|
205
|
|
|
|
14,030
|
|
14,030
|
|
Total investment securities
|
|
$
|
5,043,703
|
|
$
|
61,466
|
|
$
|
(33,289
|
)
|
$
|
5,071,880
|
|
$
|
5,071,880
|
|
(1)
Included in the carrying value of
mortgage-backed securities are $1,820,988 of mortgage-backed securities issued
by Ginnie Mae, $3,087,038 of mortgage-backed securities issued by Fannie Mae
and Freddie Mac and $66,291 issued by non-government entities
15
The
amortized cost and estimated fair value of investment securities at September 30,
2009, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to prepay obligations with or without prepayment
penalties.
|
|
Held to Maturity
|
|
Available for Sale
|
|
|
|
Amortized
Cost
|
|
Estimated
fair value
|
|
Amortized
Cost
|
|
Estimated
fair value
|
|
|
|
(Dollars in Thousands)
|
|
Due in one year or less
|
|
$
|
625
|
|
$
|
625
|
|
$
|
1,327
|
|
$
|
1,327
|
|
Due after one year through five years
|
|
1,825
|
|
1,825
|
|
|
|
|
|
Due after five years through ten years
|
|
|
|
|
|
11,225
|
|
11,303
|
|
Due after ten years
|
|
|
|
|
|
114,980
|
|
117,169
|
|
Mortgage-backed securities
|
|
|
|
|
|
4,275,422
|
|
4,361,946
|
|
Equity securities
|
|
|
|
|
|
13,825
|
|
14,164
|
|
Total investment securities
|
|
$
|
2,450
|
|
$
|
2,450
|
|
$
|
4,416,779
|
|
$
|
4,505,909
|
|
Mortgage-backed securities are securities issued by
the Freddie Mac, Fannie Mae, Ginnie Mae or non-government entities. Investments in mortgage-backed securities
issued by Ginnie Mae are fully guaranteed by the U.S. Government. Investments in mortgage-backed securities
issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S.
Government, but carry an implied AAA rating with limited credit risk,
particularly given the placement of Fannie Mae and Freddie Mac into
conservatorship by the federal government in early September 2008.
Proceeds from the sale of
securities available-for-sale were $35,135,000 and $571,814,000 for the three
and nine months ended September 30, 2009, respectively, which included
$29,946,000 and $555,674,000 of mortgage-backed securities. Gross gains of
$179,000 and $11,894,000 and gross losses of $(5,000) and $(14,000) were
realized on the sales for the quarter and nine months ended September 30,
2009, respectively.
Gross unrealized losses on
investment securities and the fair value of the related securities, aggregated
by investment category and length of time that individual securities have been
in a continuous unrealized loss position at September 30, 2009 were as
follows:
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
|
|
(Dollars in Thousands)
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
82,539
|
|
$
|
(214
|
)
|
$
|
63,621
|
|
$
|
(83
|
)
|
$
|
146,160
|
|
$
|
(297
|
)
|
Obligations of states and
political
subdivisions
|
|
17,851
|
|
(158
|
)
|
271
|
|
(4
|
)
|
18,122
|
|
(162
|
)
|
Other equity securities
|
|
47
|
|
(29
|
)
|
|
|
|
|
47
|
|
(29
|
)
|
|
|
$
|
100,437
|
|
$
|
(401
|
)
|
$
|
63,892
|
|
$
|
(87
|
)
|
$
|
164,329
|
|
$
|
(488
|
)
|
16
The unrealized losses on
investments in mortgage-backed securities are primarily caused by changes in
market interest rates. Mortgage-backed securities are primarily
securities issued by the Freddie Mac, Fannie Mae and Ginnie Mae. The
contractual cash obligations of the securities issued by Ginnie Mae are fully
guaranteed by the U.S. Government. The contractual cash obligations of
the securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by
the U.S. Government; however, the securities carry an implied AAA rating
with limited credit risk, particularly
given the placement of Fannie Mae and Freddie Mac into conservatorship by the
federal government in early September 2008. The decrease in fair value on mortgage-backed securities issued by
Freddie Mac, Fannie Mae and Ginnie Mae is due to market interest rates.
The Company has the ability and intent to hold these investments until a market
price recovery or maturity of the securities; therefore, it is the conclusion
of the Company that the investments in mortgage-backed securities issued by
Freddie Mac, Fannie Mae and Ginnie Mae are not considered
other-than-temporarily impaired. In addition, the Company has a small investment
in non-agency mortgage-backed securities that have strong credit backgrounds
and include additional credit enhancements to protect the Company from losses
arising from high foreclosure rates. These securities have additional
market volatility beyond economically induced interest rate events. The
Company has received principal and interest payments in line with expected cash
flows at the time of purchase. The Company has no intent to sell and will
not more likely than not be required to sell before recovery of amortized cost,
the non-agency mortgage-backed securities until a market price recovery or
maturity and has continued to receive cash as expected; therefore, it is the
conclusion of the Company that the investments in non-agency mortgage-backed
securities are not other-than-temporarily impaired.
The unrealized losses on
investments in other securities are caused by fluctuations in market interest
rates. The underlying cash obligations
of the securities are guaranteed by the entity underwriting the debt
instrument. It is the belief of the
Company that the entity issuing the debt will honor its interest payment
schedule, as well as the full debt at maturity.
The securities are purchased by the Company for their economic
value. The decrease in fair value is
primarily due to market interest rates and not other factors, and because the
Company has the ability and intent to hold these investments until a market
price recovery or maturity of the securities, it is the conclusion of the
Company that the investments are not considered other-than-temporarily
impaired.
Note 7 Other Borrowed Funds
Other borrowed funds
include Federal Home Loan Bank borrowings, which are short-term, variable-rate
borrowings issued by the Federal Home Loan Bank of Dallas at the market price
offered at the time of funding. These
borrowings are secured by mortgage-backed investment securities and a portion
of the Companys loan portfolio. At September 30,
2009, other borrowed funds totaled $1,128,575,000, a decrease of 55.3% from
$2,522,986,000 at December 31, 2008.
Note 8 Junior Subordinated Interest Deferrable
Debentures
The Company has formed twelve statutory business
trusts under the laws of the State of Delaware, for the purpose of issuing
trust preferred securities. As part of
the Local Financial Corporation (LFIN) acquisition, the Company acquired
three additional statutory business trusts previously formed by LFIN for the
purpose of issuing trust preferred securities.
The twelve statutory business trusts formed by the Company and the three
business trusts acquired in the LFIN transaction (the Trusts) have each
issued Capital and Common Securities and invested the proceeds thereof in an
equivalent amount of junior subordinated debentures (the Debentures) issued
by the Company or LFIN, as appropriate.
As of September 30, 2009, the Debentures issued by four of the
trusts formed by the Company and the Debentures issued by all three of the
trusts formed by LFIN have been redeemed by the Company. As of September 30, 2009, the principal
amount of debentures outstanding totaled $201,074,000. As a result of the participation in the TARP
Capital Purchase Program, the Company may not, without the consent of the
Treasury Department, redeem any of the Debentures until the earlier to occur of
December 23, 2011, or the date on which the Company has redeemed all of
the Series A Preferred Stock issued under the Capital Purchase Program or
the date on which the Treasury has transferred all of the Series A
Preferred Stock to third parties not affiliated with the Treasury.
17
The Debentures are subordinated and junior in right of
payment to all present and future senior indebtedness (as defined in the
respective indentures) of the Company, and are
pari passu
with one another. The interest rate
payable on, and the payment terms of the Debentures are the same as the
distribution rate and payment terms of the respective issues of Capital and
Common Securities issued by the Trusts.
The Company has fully and unconditionally guaranteed the obligations of
each of the Trusts with respect to the Capital and Common Securities. The Company has the right, unless an Event of
Default (as defined in the Indentures) has occurred and is continuing, to defer
payment of interest on the Debentures for up to ten consecutive semi-annual
periods on Trust I and for up to twenty consecutive quarterly periods on Trusts
VI, VII, VIII, IX, X, XI and XII. If interest
payments on any of the Debentures are deferred, distributions on both the
Capital and Common Securities related to that Debenture would also be
deferred. The redemption prior to
maturity of any of the Debentures may require the prior approval of the Federal
Reserve and/or other regulatory bodies.
For financial reporting purposes, the Trusts are
treated as investments of the Company and not consolidated in the consolidated
financial statements. Although the
Capital Securities issued by each of the Trusts are not included as a component
of shareholders equity on the consolidated statement of condition, the Capital
Securities are treated as capital for regulatory purposes. Specifically, under applicable regulatory
guidelines, the Capital Securities issued by the Trusts qualify as Tier 1 capital
up to a maximum of 25% of Tier 1 capital on an aggregate basis. Any amount that exceeds the 25% threshold
would qualify as Tier 2 capital. For September 30,
2009, the total $201,074,000, of the Capital Securities outstanding qualified
as Tier 1 capital.
In March 2005, the Federal Reserve Board issued a
final rule that allowed the inclusion of trust preferred securities in
Tier 1 capital, but placed stricter quantitative limits. Under the final rule, after a transition
period ending March 31, 2009, the aggregate amount of trust preferred
securities and certain other capital elements would be limited to 25% of Tier 1
capital, net of goodwill, less any associated deferred tax liability. The amount of trust preferred securities and
certain other elements in excess of the limit could be included in Tier 2
capital, subject to restrictions. On March 16,
2009, the Federal Reserve Board extended for two years the transition
period. The Company believes that
substantially all of the current trust preferred securities will be included in
Tier 1 capital after the transition period ending on March 31, 2011.
The following table illustrates key information about
each of the Capital and Common Securities and their interest rate at September 30,
2009:
|
|
Junior
Subordinated
Deferrable
Interest
Debentures
|
|
Repricing
Frequency
|
|
Interest Rate
|
|
Interest Rate
Index
|
|
Maturity Date
|
|
Optional
Redemption Date
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust I
|
|
$
|
10,348
|
|
Fixed
|
|
10.18
|
%
|
Fixed
|
|
June 2031
|
|
June 2011
|
|
Trust VI
|
|
$
|
25,774
|
|
Quarterly
|
|
3.89
|
%
|
LIBOR + 3.45
|
|
November 2032
|
|
February 2010
|
|
Trust VII
|
|
$
|
10,310
|
|
Quarterly
|
|
3.73
|
%
|
LIBOR + 3.25
|
|
April 2033
|
|
January 2010
|
|
Trust VIII
|
|
$
|
25,774
|
|
Quarterly
|
|
3.56
|
%
|
LIBOR + 3.05
|
|
October 2033
|
|
January 2010
|
|
Trust IX
|
|
$
|
41,238
|
|
Fixed
|
|
7.10
|
%
|
Fixed
|
|
October 2036
|
|
October 2011
|
|
Trust X
|
|
$
|
34,021
|
|
Fixed
|
|
6.66
|
%
|
Fixed
|
|
February 2037
|
|
February 2012
|
|
Trust XI
|
|
$
|
32,990
|
|
Fixed
|
|
6.82
|
%
|
Fixed
|
|
July 2037
|
|
July 2012
|
|
Trust XII
|
|
$
|
20,619
|
|
Fixed
|
|
6.85
|
%
|
Fixed
|
|
September 2037
|
|
September 2012
|
|
|
|
$
|
201,074
|
|
|
|
|
|
|
|
|
|
|
|
(1) Trust IX, X, XI and XII accrue
interest at a fixed rate for the first five years, then floating at LIBOR +
1.62%, 1.65%, 1.62% and 1.45% thereafter, respectively.
18
Note 9 Preferred Stock, Common
Stock and Dividends
The Company has outstanding 216,000 shares of Series A
cumulative perpetual preferred stock, issued to the US Treasury under the
Companys participation in the Troubled Asset Relief Program Capital Purchase
Program (the TARP Capital Purchase Program).
The Series A shares have a par value of $.01 per share (the Senior
Preferred Stock), and a liquidation preference of $1,000 per share, for a
total price of $216,000,000. The Senior
Preferred Stock will pay dividends at a rate of 5% per year for the first five
years and 9% per year thereafter. The
Senior Preferred Stock has no maturity date and ranks senior to the Companys
common stock with respect to the payment of dividends and distributions and
amounts payable upon liquidation, dissolution and winding up of the
Company. In conjunction with the
purchase of the Senior Preferred Stock, the US Treasury received a warrant (the
Warrant) to purchase 1,326,238 shares of the Companys common stock (the
Warrant Shares) at $24.43 per share, which would represent an aggregate
common stock investment in the Company on exercise of the warrant in full equal
to 15% of the Senior Preferred Stock investment. The term of the Warrant is ten years and was immediately
exercisable. The number of shares
issuable upon exercise of the Warrant is also subject to reduction in certain
limited events that involve the Company conducting Qualified Equity Offerings
on or prior to December 31, 2009.
Both the Senior Preferred Stock and Warrant are included as components
of Tier 1 capital. As of September 30,
2009, none of the Warrants had been exercised.
The Company paid dividends on the Senior Preferred Stock on February 16,
May 15, and August 2009, in the amounts of $1,560,000, $2,700,000,
and $2,700,000, respectively, and will pay a dividend on the Senior Preferred
Stock on November 15, 2009, in the amount of $2,700,000.
Upon issuance, the fair value of the Series A
shares and the associated warrants were computed as if the instruments were
issued on a stand-alone basis. The fair
value of the Series A shares were estimated based on discounted cash
flows, resulting in a stand-alone fair value of approximately $130.9
million. The Company used the
Black-Sholes-Merton option pricing model to estimate the fair value of the
warrants, resulting in a stand-alone fair value of approximately $8.0
million. The fair values of both were
then used to record the Series A shares and Warrants on a relative fair
value basis, with the warrants being recorded in Surplus as permanent equity
and the Series A shares being recorded at a discount of approximately
$12.4 million. Accretion of the discount
associated with the preferred stock is recognized as an increase to preferred
stock dividends in determining net income available to common
shareholders. The discount is being
amortized over a five year period from the respective issuance date using the
effective-yield method and totaled $550,000 and $1,625,000 for the three and
nine months ended September 30, 2009.
The Company paid cash dividends to the common
shareholders of $.17 per share on May 11, 2009 to all holders of record on
April 27, 2009. The Company will
pay cash dividends to the common shareholders of $.17 per share on November 2,
2009 to all holders of record on October 19, 2009. Cash dividends to common shareholders were
paid on April 18, and October 15, 2008 to all holders of record on March 31,
2008 and September 30, 2008, respectively.
The
Company terminated its stock repurchase program on December 19, 2008, in
connection with participating in the TARP Capital Purchase Program, which
program prohibited stock repurchases, except for repurchases made in connection
with the administration of an employee benefit plan in the ordinary course of
business and consistent with past practices.
On April 7, 2009, the Company obtained consent from the Treasury to
repurchase shares of the Companys common stock; provided, however, that in no
event will the aggregate amount of cash dividends and common stock repurchases
for a given semi-annual period exceed the aggregate amount that would be used
to pay the originally permitted semi-annual cash dividend of $.33 per
share. The Company also received consent
from the Treasury to pay quarterly dividends.
The Company will determine on an ongoing basis the best use of the funds
and whether a more frequent dividend program and expanded repurchase program
are warranted and beneficial to its shareholders. Under the new stock repurchase program, the
Company is authorized to repurchase up to $40,000,000 of its common stock
within twelve months from the adoption of the repurchase program on April 9,
2009. 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 October 28,
2009, a total of 6,754,098 shares had been repurchased under all programs at a
cost of $219,811,000.
Note 10 - Commitments and Contingent
Liabilities and Other Tax Matters
The Company is involved
in various legal proceedings that are in various stages of litigation. 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 to the
consolidated financial position or results of operations of the Company. However, many of these matters are in various
stages of proceedings and further developments could cause management to revise
its assessment of these matters.
19
The Companys lead bank subsidiary has invested in
partnerships, which have entered into several lease-financing transactions. The
Internal Revenue Service issued a Notice of Final Partnership Administrative
Adjustments (FPAA) on two of the partnerships. In both partnerships, the lead bank
subsidiary was the owner of a ninety-nine percent (99%) limited partnership
interest. In connection with the two partnerships through the first quarter of
2006, the Company expensed approximately $25.7 million, which amount represents
the total of the tax adjustments due and the interest due on such adjustments
for both FPAAs. Management will continue
to evaluate the correspondence with the IRS on the FPAAs and make any
appropriate revisions to the amounts as deemed necessary.
Note 11 Capital Ratios
The Company had a Tier 1 capital to average total
asset (leverage) ratio of 11.22% and 9.97%, risk-weighted Tier 1 capital ratio of
17.19% and 15.30% and risk-weighted total capital ratio of 18.44% and 16.35% at
September 30, 2009 and December 31, 2008, respectively. The identified intangibles and goodwill of
$305,966,000 as of September 30, 2009, recorded in connection with the
acquisitions made by the Company, are deducted from the sum of core capital
elements when determining the capital ratios of the Company. Under applicable regulatory guidelines, the
Capital Securities issued by the Trusts qualify as Tier 1 capital up to a
maximum of 25% of tier 1 capital on an aggregate basis. Any amount that exceeds the 25% threshold
qualifies as Tier 2 capital. As of September 30,
2009, the total of $201,074,000 of the Capital Securities outstanding qualified
as Tier 1 capital. The Company actively
monitors the regulatory capital ratios to ensure that the Companys bank
subsidiaries are well capitalized under the regulatory framework.
In March 2005, the Federal Reserve Board issued a
final rule that allowed the inclusion of trust preferred securities in
Tier 1 capital, but placed stricter quantitative limits. Under the final rule, after a transition
period ending March 31, 2009, the aggregate amount of trust preferred
securities and certain other capital elements would be limited to 25% of Tier 1
capital, net of goodwill, less any associated deferred tax liability. The amount of trust preferred securities and
certain other elements in excess of the limit could be included in Tier 2
capital, subject to restrictions. On March 16,
2009, the Federal Reserve Board extended for two years the transition
period. The Company believes that
substantially all of the current trust preferred securities will be included in
Tier 1 capital after the transition period ending on March 31, 2011.
20
Item 2 -
Managements Discussion
and Analysis of Financial Condition and Results of Operations
Special
Cautionary Notice Regarding Forward Looking Information
Certain matters
discussed in this report, excluding historical information, include
forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbor created by
these sections. 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,
believe and project, as well as other words or expressions of a 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.
Risk 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:
·
Local, regional, national and international economic business conditions
and the impact they may have on the Company, the Companys customers, and such
customers ability to transact profitable business with the Company, including
the ability of its borrowers to repay their loans according to their terms or a
change in the value of the related collateral.
·
Volatility and disruption in national and international financial
markets.
·
Government intervention in the U.S. financial system.
·
Changes in consumer spending, borrowings and savings habits.
·
Changes in interest rates and market prices, which could reduce the
Companys net interest margins, asset valuations and expense expectations.
·
Changes in the capital markets utilized by the Company and its
subsidiaries, including changes in the interest rate environment that may
reduce margins.
·
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, changes in
the accounting, tax and regulatory treatment of trust preferred securities, as
well as changes in banking, tax, securities, insurance and employment laws and
regulations.
·
Changes in U.S. Mexico trade, including, without limitation,
reductions in border crossings and commerce resulting from the Homeland
Security Programs called US-VISIT, which is derived from Section 110 of
the Illegal Immigration Reform and Immigrant Responsibility Act of 1996.
·
The loss of senior management or operating personnel.
·
Increased competition from both within and outside the banking
industry.
·
The timing, impact and other uncertainties of the Companys potential
future acquisitions including the Companys ability to identify suitable
potential future acquisition candidates, the success or failure in the
integration of their operations and the Companys ability to maintain its
current branch network and to enter new markets successfully and capitalize on
growth opportunities.
·
Changes in the Companys ability to pay dividends on its Preferred
Stock or Common Stock.
·
The effects of the proceedings pending with the Internal Revenue
Service regarding the Companys lease financing transactions.
·
Additions to the Companys loan loss allowance as a result of changes
in local, national or international conditions which adversely affect the
Companys customers.
·
Greater than expected costs or difficulties related to the development
and integration of new products and lines of business.
·
Changes in the soundness of other financial institutions with which the
Company interacts.
·
Political instability in the United States and Mexico.
·
Technological changes.
·
Acts of war or terrorism.
·
Natural disasters.
·
Reduced earnings resulting from the write down of the carrying value of
securities held in our securities available-for-sale portfolio following a
determination that the securities are other-than-temporarily impaired.
·
The effect of changes in accounting policies and practices as may be
adopted by the regulatory agencies, as well as the Public Company Accounting
Oversight Board, the Financial Accounting Standards Board and other accounting
standards setters.
21
·
The costs and effects of regulatory developments, including the
resolution of regulatory or other governmental inquiries and the results of
regulatory examinations or reviews.
·
The Companys success at managing the risks involved in the foregoing
items.
Forward-looking
statements speak only as of the date on which such statements are made. It is not probable 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, unless required by law.
Recent
Developments
On July 1, 2009, the
Financial Accounting Standards Board officially launched the FASB Accounting
Standards Codification, (Codification), which is now the single official
source of authoritative, non-governmental U.S. GAAP, in addition to guidance
issued by the Securities and Exchange Commission (SEC). The Codification supersedes all prior
accounting literature. With the launch
of the Codification, U.S. GAAP now consists of two levels authoritative
(Codification) and non-authoritative (anything not in the Codification). The Codification is effective for interim and
annual periods ending after September 15, 2009, and is organized into
approximately 90 accounting topics. The
FASB will no longer be issuing accounting standards in the form of Statements,
Staff Positions or Emerging Issues Task Force Abstracts. The FASB will instead amend the Codification
by issuing Accounting Standards Updates.
The adoption of the Codification did not have a significant impact to
the Companys consolidated financial statements.
Overview
The Company, which is
headquartered in Laredo, Texas, with 280 facilities and more than 440 ATMs,
provides banking services for commercial, consumer and international customers
of South, Central and Southeast Texas and the State of Oklahoma. The Company is one of the largest independent
commercial bank holding companies headquartered in Texas. The Company, through its bank subsidiaries,
is in the business of gathering funds from various sources and investing those
funds in order to earn a return. The
Company either directly or through a bank subsidiary owns two insurance
agencies, a liquidating subsidiary, a broker/dealer and a fifty percent
interest in an investment banking unit that owns a broker/dealer. The Companys primary earnings come from the
spread between the interest earned on interest-bearing assets and the interest
paid on interest-bearing liabilities. In
addition, the Company generates income from fees on products offered to
commercial, consumer and international customers.
The Company is very active in
facilitating trade along the United States border with Mexico. The Company does a large amount of business
with customers domiciled in Mexico.
Deposits from persons and entities domiciled in Mexico comprise a large
and stable portion of the deposit base of the Companys bank subsidiaries. The Company also serves the growing Hispanic population
through the Companys facilities located throughout South, Central and
Southeast Texas and the State of Oklahoma.
Expense control is an essential
element in the Companys long-term profitability. As a result, the Company monitors the
efficiency ratio, which is a measure of non-interest expense to net interest
income plus non-interest income closely.
The Companys efficiency ratio has been negatively impacted over the
last few years because of the Companys aggressive branch expansion which has
added a total of 34 branches during 2008 and 2009. During rapid expansion periods, the Companys
efficiency ratio will suffer but the long-term benefits of the expansion should
be realized in future periods and the benefits should positively impact the efficiency
ratio in future periods. The Company
monitors this ratio over time to assess the Companys efficiency relative to
its peers taking into account the Companys branch expansion. The Company uses this measure as one factor
in determining if the Company is accomplishing its long-term goals of providing
superior returns to the Companys shareholders.
22
Results of
Operations
Summary
Consolidated Statements of Condition Information
|
|
September 30, 2009
|
|
December 31, 2008
|
|
Percent Increase
(Decrease)
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
11,685,584
|
|
$
|
12,439,341
|
|
(6.1
|
)%
|
Net loans
|
|
5,652,034
|
|
5,799,372
|
|
(2.5
|
)
|
Deposits
|
|
6,912,232
|
|
6,858,784
|
|
.8
|
|
Other borrowed funds
|
|
1,128,575
|
|
2,522,986
|
|
(55.3
|
)
|
Junior subordinated deferrable interest
debentures
|
|
201,074
|
|
201,048
|
|
|
|
Shareholders equity
|
|
1,378,348
|
|
1,257,297
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Income Information
|
|
Three Months Ended
September 30,
|
|
Percent
Increase
(Decrease)
|
|
Nine Months Ended
September 30,
|
|
Percent
Increase
(Decrease)
|
|
|
|
(
Dollars
in Thousands)
|
|
|
|
(
Dollars
in Thousands)
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
2009
|
|
2008
|
|
|
|
Interest income
|
|
$
|
126,704
|
|
$
|
138,194
|
|
(8.3
|
)%
|
$
|
401,098
|
|
$
|
423,785
|
|
(5.4
|
)%
|
Interest expense
|
|
32,257
|
|
54,076
|
|
(40.3
|
)
|
108,978
|
|
181,897
|
|
(40.1
|
)
|
Net interest income
|
|
94,447
|
|
84,118
|
|
12.3
|
|
292,120
|
|
241,888
|
|
20.8
|
|
Provision for probable loan
losses
|
|
10,346
|
|
7,037
|
|
47.0
|
|
45,429
|
|
12,690
|
|
258.0
|
|
Non-interest income
|
|
50,875
|
|
50,823
|
|
.1
|
|
149,079
|
|
148,134
|
|
.6
|
|
Non-interest expense
|
|
78,746
|
|
76,274
|
|
3.2
|
|
234,153
|
|
223,970
|
|
4.5
|
|
Net income
|
|
33,723
|
|
33,880
|
|
(.5
|
)
|
95,909
|
|
100,409
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share (adjusted for stock dividends):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.49
|
|
$
|
.49
|
|
|
%
|
$
|
1.40
|
|
$
|
1.46
|
|
(4.1
|
)%
|
Diluted
|
|
.49
|
|
.49
|
|
|
|
1.40
|
|
1.46
|
|
(4.1
|
)
|
Net Income
Net income for the third quarter
of 2009 decreased by .5% compared to the same period in 2008 and decreased by
4.5% for the nine months ended September 30, 2009 as compared to the same
period in 2008 despite the $21.3 million, after tax, increase in the provision
for probable loan losses charged to expense during the first nine months of
2009. Additionally, an industry-wide
FDIC special assessment negatively impacted the Companys earnings by $3.3
million, after tax in the second quarter.
Net income for
the first nine months of 2009 was positively affected by the increasing net
interest margin of the Company. The
increase in the provision was prompted by the analysis of management regarding
the general weakness in the economy and the impact of that weakness on the
Companys loan portfolio and the related allowance for probable loan losses. While the
Texas and Oklahoma economies are doing better than other parts of the country,
Texas and Oklahoma are not immune to the problems associated with the U.S.
economy. The increase in the provision
for probable loan losses is not necessarily an indicator that more credits will
worsen to the point that the Company will have to continue to record provisions
for probable loan losses at the same level in future periods.
23
Net Interest Income
|
|
Three Months Ended
September 30,
|
|
Percent
Increase
(Decrease)
|
|
Nine Months Ended
September 30,
|
|
Percent
Increase
(Decrease)
|
|
|
|
(in Thousands)
|
|
|
|
(in Thousands)
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
2009
|
|
2008
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including
fees
|
|
$
|
84,263
|
|
$
|
91,020
|
|
(7.4
|
)%
|
$
|
252,105
|
|
$
|
281,569
|
|
(10.5
|
)%
|
Federal funds
sold
|
|
|
|
226
|
|
(100.0
|
)
|
|
|
907
|
|
(100.0
|
)
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
40,937
|
|
45,996
|
|
(11.0
|
)
|
145,074
|
|
138,246
|
|
4.9
|
|
Tax-exempt
|
|
1,375
|
|
846
|
|
62.5
|
|
3,454
|
|
2,680
|
|
28.9
|
|
Other interest
income
|
|
129
|
|
106
|
|
21.7
|
|
465
|
|
383
|
|
21.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
income
|
|
126,704
|
|
138,194
|
|
(8.3
|
)
|
401,098
|
|
423,785
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
2,563
|
|
6,807
|
|
(62.3
|
)
|
8,182
|
|
22,609
|
|
(63.8
|
)
|
Time deposits
|
|
14,757
|
|
24,093
|
|
(38.7
|
)
|
48,650
|
|
85,360
|
|
(43.0
|
)
|
Securities sold
under repurchase
agreements
|
|
11,110
|
|
12,486
|
|
(11.0
|
)
|
33,622
|
|
38,612
|
|
(12.9
|
)
|
Other borrowings
|
|
732
|
|
7,133
|
|
(89.7
|
)
|
9,041
|
|
24,546
|
|
(63.2
|
)
|
Junior
subordinated interest
deferrable debentures
|
|
3,095
|
|
3,461
|
|
(10.6
|
)
|
9,483
|
|
10,586
|
|
(10.4
|
)
|
Other interest
expense
|
|
|
|
96
|
|
(100.0
|
)
|
|
|
184
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
expense
|
|
32,257
|
|
54,076
|
|
(40.3
|
)
|
108,978
|
|
181,897
|
|
(40.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
$
|
94,447
|
|
$
|
84,118
|
|
12.3
|
%
|
$
|
292,120
|
|
$
|
241,888
|
|
20.8
|
%
|
Net
interest income is the spread between income on interest earning assets, such
as loans and securities, and the interest expense on liabilities used to fund
those assets, such as deposits, repurchase agreements and funds borrowed. Net interest income is the Companys largest
source of revenue and increased substantially because of the reduction in the
Federal Reserve prime interest rate. The
Federal Reserve Board influences the general market rates of interest,
including the deposit and loan rates offered by many financial
institutions. The Companys loan
portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate
that loan rates are indexed from, ended 2007 at 7.25%. During 2008, the prime interest rate
decreased 400 basis points to end the year at 3.25% where it has remained as of
September 30, 2009. The Companys
goal is to manage the net interest income in periods of rising and falling
rates. Net interest income increased
20.8% for the first nine months of 2009 as compared to the same period in 2008
because of the lower cost of funding incurred by 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. One
method of calculating interest rate sensitivity is through gap analysis. A gap is the difference between the amount of
interest rate sensitive assets and interest rate sensitive liabilities that
re-price or mature in a given time period.
Positive gaps occur when interest rate sensitive assets exceed interest
rate sensitive liabilities, and negative gaps occur when interest rate
sensitive liabilities exceed interest rate sensitive assets. A positive gap position in a period of rising
interest rates should have a positive effect on net interest income as assets
will re-price faster than liabilities.
Conversely, net interest income should contract somewhat in a period of
falling interest rates. Management can
quickly change the Companys interest rate position at any given point in time
as market conditions dictate.
Additionally, interest rate changes do not affect all categories of
assets and liabilities equally or at the same time. Analytical techniques employed by the Company
to supplement gap analysis include simulation analysis to quantify interest
rate risk exposure. The gap analysis
prepared by management is reviewed by the Investment Committee of the Company
twice a year (see table on page 29 for the September 30, 2009 gap
analysis). Management currently believes
that the Company is properly positioned for interest rate changes; however if
management determines at any time that the Company is not properly positioned,
it will strive to adjust the interest rate sensitive assets and liabilities in
order to manage the effect of interest rate changes.
24
Non-Interest Income
|
|
Three Months Ended
September 30,
|
|
Percent
Increase
(Decrease)
|
|
Nine Months Ended
September 30,
|
|
Percent
Increase
(Decrease)
|
|
|
|
(in Thousands)
|
|
|
|
(in Thousands)
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
$
|
25,425
|
|
$
|
25,354
|
|
.3
|
%
|
$
|
73,753
|
|
$
|
74,596
|
|
(1.1
|
)%
|
Other service charges, commissions and
fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
10,513
|
|
10,437
|
|
.7
|
|
31,781
|
|
30,599
|
|
3.9
|
|
Non-banking
|
|
5,485
|
|
2,267
|
|
141.9
|
|
9,203
|
|
5,412
|
|
70.0
|
|
Investment securities transactions, net
|
|
174
|
|
|
|
100.0
|
|
11,880
|
|
6,410
|
|
85.3
|
|
Other investments, net
|
|
3,374
|
|
5,785
|
|
(41.7
|
)
|
10,609
|
|
13,895
|
|
(23.6
|
)
|
Other income
|
|
5,904
|
|
6,980
|
|
(15.4
|
)
|
11,853
|
|
17,222
|
|
(31.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
50,875
|
|
$
|
50,823
|
|
.1
|
%
|
$
|
149,079
|
|
$
|
148,134
|
|
.6
|
%
|
The increase in investment
securities transactions for the nine months ended September 30, 2009 can
be attributed to the sale of investment securities. Non-banking service charges, commissions and
fees for the three and nine-months ended September 30, 2009 was positively
impacted by the results of a wholly owned insurance subsidiary of the Companys
lead bank. Other income for the nine
months ended September 30, 2008 was positively impacted by the sale of a
portion of the Companys majority interest of its investment services unit,
totaling $2.0 million, before tax. In
connection with the sale, the Company recorded a charge, included in other
expense of $841,000, before tax, to dispose of goodwill acquired as part of its
initial investment in the unit.
Non-Interest Expense
|
|
Three Months Ended
September 30,
|
|
Percent
Increase
(Decrease)
|
|
Nine Months Ended
September 30,
|
|
Percent
Increase
(Decrease)
|
|
|
|
(in Thousands)
|
|
|
|
(in Thousands)
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
35,316
|
|
$
|
32,854
|
|
7.5
|
%
|
$
|
99,796
|
|
$
|
95,314
|
|
4.7
|
%
|
Occupancy
|
|
8,723
|
|
9,955
|
|
(12.4
|
)
|
25,899
|
|
27,053
|
|
(4.3
|
)
|
Depreciation of bank premises and
equipment
|
|
8,965
|
|
9,481
|
|
(5.4
|
)
|
26,979
|
|
27,119
|
|
(.5
|
)
|
Professional fees
|
|
4,958
|
|
2,557
|
|
93.9
|
|
16,735
|
|
8,442
|
|
98.2
|
|
Stationery and supplies
|
|
1,109
|
|
1,540
|
|
(28.0
|
)
|
2,925
|
|
4,134
|
|
(29.2
|
)
|
Amortization of identified intangible assets
|
|
1,320
|
|
1,299
|
|
1.6
|
|
3,950
|
|
3,897
|
|
1.4
|
|
Advertising
|
|
2,647
|
|
3,667
|
|
(27.8
|
)
|
7,887
|
|
10,329
|
|
(23.6
|
)
|
Other
|
|
15,708
|
|
15,238
|
|
3.1
|
|
49,982
|
|
47,682
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
78,746
|
|
$
|
76,591
|
|
2.8
|
%
|
$
|
234,153
|
|
$
|
223,970
|
|
4.5
|
%
|
Non-interest expense was
affected by the aggressive de novo branching activity that has added 16 new
branches in 2009 and 18 branches in 2008.
As a result of the branch expansion, employee compensation increased due
to staffing of these branches. Professional fee expense for the nine months
ended September 30, 2009 was negatively impacted by the FDIC special
assessment. In May 2009, the FDIC
issued a final rule which levied a special assessment on all insured
depository institutions totaling five basis points of each institutions total
assets less Tier 1 capital as of June 30, 2009 that was collected on September 30,
2009. The special assessment is part of
the FDICs efforts to re-build the Deposit Insurance Fund (DIF). The Company accrued $5.1 million related to
the special assessment. The FDIC has
proposed that financial institutions prepay their quarterly assessments for the
next three years in an effort to shore up the DIF. The proposal would require banks to prepay
their quarterly risk-based assessments for the fourth quarter of 2009, and all
of 2010, 2011 and 2012
25
Financial Condition
Allowance for Probable Loan Losses
The allowance for probable
loan losses increased 23.0% to $90,322,000 at September 30, 2009 from
$73,461,000 at December 31, 2008.
The provision for probable loan losses charged to expense increased
258.0% to $45,429,000 for the nine months ended September 30, 2009 from
$12,690,000 for the same period in 2008.
The allowance for probable loan losses was 1.6% of total loans at September 30,
2009 and 1.3% at December 31, 2008, respectively. The increase in the provision was prompted by
the analysis of management regarding the general weakness in the economy and
the impact of that weakness on the Companys loan portfolio and the related
allowance for probable loan losses. The
increase is not necessarily an indicator that more credits will worsen to the
point that the Company will have to continue to record provisions for probable
loan losses at the same level in future periods.
Investment Securities
Mortgage-backed securities are securities primarily issued by the
Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National
Mortgage Association (Fannie Mae), and the Government National Mortgage
Association (Ginnie Mae). Investments
in mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the
U.S. Government. Investments in
mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully
guaranteed by the U.S. Government, but carry an implied AAA rating with limited
credit risk, particularly given the placement of Fannie Mae and Freddie Mac
into conservatorship by the federal government in early September 2008.
Loans
Loans decreased 2.2% to $5,742,356,000 at September 30,
2009, from $5,872,833,000 at December 31, 2008. The decrease in loans can be attributed to
the lack of demand for loans that the Company is experiencing as the result of
the negative economic conditions.
Deposits
Deposits increased by an insignificant amount to
$6,912,232,000 at September 30, 2009, from $6,858,784,000 at December 31,
2008. The slight increase in deposits is
the result of the increased demand for deposits and the aggregate pricing that
is occurring in the market for deposits.
Even though the Company increased its deposits, the Company is still
experiencing a substantial amount of demand for deposits at higher than market
rates. As a result, the Company has
attempted to maintain certain deposit relationships but has allowed certain
deposits to leave as the result of aggressive pricing.
Foreign Operations
On September 30, 2009,
the Company had $11,685,584,000 of consolidated assets, of which approximately
$270,263,000, or 2.3%, was related to loans outstanding to borrowers domiciled
in foreign countries, compared to $328,948,000, or 2.6%, at December 31,
2008. Of the $270,263,000, 79.2% is
directly or indirectly secured by U.S. assets, certificates of deposits and
real estate; 20.2% is secured by foreign real estate; and 0.6% is unsecured.
Critical Accounting Policies
The Company has established
various accounting policies which govern the application of accounting
principles in the preparation of the Companys consolidated financial
statements. The significant accounting
policies are described in the notes to the consolidated financial
statements. Certain accounting policies
involve significant subjective judgments and assumptions by management which
have a material impact on the carrying value of certain assets and liabilities;
management considers such accounting policies to be critical accounting
policies.
27
The Company considers its
Allowance for Probable Loan Losses as a policy critical to the sound operations
of the bank subsidiaries. The allowance
for probable loan losses consists of the aggregate loan loss allowances of the
bank subsidiaries. The allowances are
established through charges to operations in the form of provisions for
probable loan losses. Loan losses or
recoveries are charged or credited directly to the allowances. The allowance for probable loan losses of
each bank subsidiary is maintained at a level considered appropriate by
management, based on estimated probable losses in the loan portfolio. The allowance is derived from the following
elements: (i) allowances
established on specific loans and (ii) allowances based on historical loss
experience on the Companys remaining loan portfolio, which includes general
economic conditions and other qualitative risk factors both internal and
external to the Company. See also
discussion regarding the allowance for probable loan losses and provision for
probable loan losses included in the results of operations and Provision and
Allowance for Probable Loan Losses included in Notes 1 and 5 of the notes to
Consolidated Financial Statements in the Companys latest Annual Report on Form 10-K
for further information regarding the Companys provision and allowance for
probable loan losses policy.
Liquidity and Capital Resources
The maintenance of
adequate liquidity provides the Companys 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 Companys bank subsidiaries derive their
liquidity largely from deposits of individuals and business entities. Deposits from persons and entities domiciled
in Mexico comprise a stable portion of the deposit base of the Companys bank
subsidiaries. Other important funding sources for the Companys bank
subsidiaries during 2009 and 2008 were borrowings from FHLB, securities sold
under repurchase agreements and large certificates of deposit, requiring
management to closely monitor its 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 repurchase agreements. 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.
The Company maintains an adequate level of capital as
a margin of safety for its depositors and shareholders. At September 30, 2009, shareholders
equity was $1,378,348,000 compared to $1,257,297,000 at December 31, 2008,
an increase of $121,051,000, or 9.6%.
The increase is primarily due to the retention of earnings and an
increase in comprehensive income, offset by dividends paid to the preferred and
common shareholders.
The Company had a leverage ratio of 11.22% and 9.97%,
risk-weighted Tier 1 capital ratio of 17.19% and 15.30% and risk-weighted total
capital ratio of 18.44% and 16.35% at September 30, 2009 and December 31,
2008, respectively. The identified
intangibles and goodwill of $305,966,000 as of September 30, 2009,
recorded in connection with the Companys acquisitions, 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 anticipate 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,
2009 is illustrated in the table on the following page. This information reflects the balances of
assets and liabilities for which rates are subject to change. A mix of assets and liabilities that are
roughly equal in volume and re-pricing characteristics represents a matched
interest rate sensitivity position. Any
excess of assets or liabilities results in an interest rate sensitivity gap.
The Company undertakes an 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 asset sensitive in the
longer periods. The Companys Asset and
Liability Committee semi-annually reviews the consolidated position along with
simulation and duration models, and makes adjustments as needed to control the
Companys interest rate risk position.
The Company uses modeling of future events as a primary tool for
monitoring interest rate risk.
28
Interest
Rate Sensitivity
(Dollars
in Thousands)
|
|
Rate/Maturity
|
|
September 30, 2009
|
|
3 Months
or Less
|
|
Over 3 Months
to 1 Year
|
|
Over 1
Year to 5
Years
|
|
Over 5
Years
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate sensitive
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
with banks
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Investment
securities
|
|
667,777
|
|
1,622,401
|
|
2,218,181
|
|
|
|
4,508,359
|
|
Loans, net of
non-accruals
|
|
4,334,934
|
|
229,184
|
|
365,391
|
|
701,717
|
|
5,631,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning
assets
|
|
$
|
5,002,711
|
|
$
|
1,851,585
|
|
$
|
2,583,572
|
|
$
|
701,717
|
|
$
|
10,139,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
earning assets
|
|
$
|
5,002,711
|
|
$
|
6,854,296
|
|
$
|
9,437,868
|
|
$
|
10,139,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate sensitive
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
1,459,128
|
|
$
|
1,555,629
|
|
$
|
318,639
|
|
$
|
289
|
|
$
|
3,333,685
|
|
Other interest
bearing deposits
|
|
2,130,067
|
|
|
|
|
|
|
|
2,130,067
|
|
Securities sold
under repurchase
agreements
|
|
430,790
|
|
68,106
|
|
1,334
|
|
1,000,000
|
|
1,500,230
|
|
Other borrowed
funds
|
|
1,128,575
|
|
|
|
|
|
|
|
1,128,575
|
|
Junior
subordinated deferrable
interest debentures
|
|
61,858
|
|
|
|
128,868
|
|
10,348
|
|
201,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
bearing liabilities
|
|
$
|
5,210,418
|
|
$
|
1,623,735
|
|
$
|
448,841
|
|
$
|
1,010,637
|
|
$
|
8,293,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
sensitive liabilities
|
|
$
|
5,210,418
|
|
$
|
6,834,153
|
|
$
|
7,282,994
|
|
$
|
8,293,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repricing gap
|
|
$
|
(207,707
|
)
|
$
|
227,850
|
|
$
|
2,134,731
|
|
$
|
(308,920
|
)
|
$
|
1,845,954
|
|
Cumulative
repricing gap
|
|
(207,707
|
)
|
20,143
|
|
2,154,874
|
|
1,845,954
|
|
|
|
Ratio of
interest-sensitive assets
to liabilities
|
|
.96
|
|
1.14
|
|
5.76
|
|
.69
|
|
1.22
|
|
Ratio of
cumulative, interest-sensitive assets to liabilities
|
|
.96
|
|
1.00
|
|
1.30
|
|
1.22
|
|
|
|
Item 3.
Quantitative and Qualitative Disclosures
about Market Risk
During the first nine months of 2009, there were no
material changes in market risk exposures that affected the quantitative and
qualitative disclosures regarding market risk presented under the caption
Liquidity and Capital Resources located on pages 18 through 22 of the
Companys 2008 Annual Report as filed as an exhibit to the Companys Form 10-K
for the year ended December 31, 2008.
29
Item
4.
Controls and Procedures
Disclosure Controls and
Procedures
The Company maintains
disclosure controls and procedures designed to ensure that information required
to be disclosed in reports filed under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within specified time
periods. As of the end of the period
covered by this Quarterly Report on Form 10-Q, the Companys principal
executive officer and principal financial officer evaluated, with the participation
of the Companys management, the effectiveness of the Companys disclosure
controls and procedures (as defined in Exchange Act rules 13a-15(e) and
15d-15(e)). Based on the evaluation,
which disclosed no material weaknesses, the Companys principal executive
officer and principal financial officer concluded that the Companys disclosure
controls and procedures were effective as of the end of the period covered by
this report.
Internal
Control Over Financial Reporting
There were no changes in the
Companys internal control over financial reporting that occurred during the
Companys most recent fiscal quarter that have materially affected or are
reasonably likely to materially affect the Companys internal control over
financial reporting.
PART II
- OTHER INFORMATION
Item 1.
Legal
Proceedings
The Company is involved
in various legal proceedings that are in various stages of litigation. 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 to the
consolidated financial position or results of operations of the Company. 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 Companys lead bank subsidiary has invested in
partnerships, which have entered into several lease-financing transactions. The
Internal Revenue Service issued a Notice of Final Partnership Administrative
Adjustments (FPAA) on two of the partnerships. In both partnerships, the lead bank
subsidiary was the owner of a ninety-nine percent (99%) limited partnership
interest. In connection with the two partnerships through the first quarter of
2006, the Company expensed approximately $25.7 million, which amount represents
the total of the tax adjustments due and the interest due on such adjustments
for both FPAAs. Management will continue
to evaluate the correspondence with the IRS on the FPAAs and make any
appropriate revisions to the amounts as deemed necessary.
1A.
Risk Factors
There were no material changes in the risk factors as
previously disclosed in Item 1A to Part I of the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2008.
30
Item 2.
Unregistered
Sales of Equity Securities and Use of Proceeds
From
time to time, the Companys Board of Directors has authorized stock repurchase
plans. The Company terminated its stock
repurchase program on December 19, 2008, in connection with participating
in the TARP Capital Purchase Program, which program prohibited stock
repurchases, except for repurchases made in connection with the administration
of an employee benefit plan in the ordinary course of business and consistent
with past practices. On April 7,
2009, the Company obtained consent from the Treasury to repurchase shares of
the Companys common stock; provided, however, that in no event with the
aggregate amount of cash dividends and common stock repurchases for a given
semi-annual period exceed the aggregate amount that would be used to pay the
originally permitted semi-annual cash dividend of $.33 per share. The Company also received consent from the
Treasury to pay quarterly dividends. The
Company will determine on an ongoing basis the best use of the funds and
whether a more frequent dividend program and expanded repurchase program are
warranted and beneficial to its shareholders.
Under the new stock repurchase program, the Company is authorized to
repurchase up to $40,000,000 of its common stock within twelve months from the
adoption of the repurchase program on April 9, 2009. Stock repurchases may be made from time to
time, on the open market or through private transactions. During the third quarter, the Companys Board
of Directors adopted a Rule 10b5-1 trading plan and intends to adopt
additional Rule 10b5-1 trading plans that will allow the Company to
purchase its shares of common stock during certain trading blackout periods
when the Company ordinarily would not be in the market due to trading
restrictions in its internal trading policy.
Shares repurchased in this program will be held in treasury for reissue
for various corporate purposes, including employee stock option plans. As of October 28, 2009, a total of
6,754,098 shares had been repurchased under all programs at a cost of
$219,811,000. The Company is not
obligated to repurchase shares under its stock purchase program or to enter
into additional Rule 10b5-1 trading plans.
The timing, actual number and value of shares purchased will depend on
many factors, including the Companys cash flow and the liquidity and price
performance of its shares of common stock.
Except for repurchases in connection with the
administration of an employee benefit plan in the ordinary course of business
and consistent with past practices, common stock repurchases are only conducted
under publicly announced repurchase programs approved by the Board of
Directors. The following table includes
information about common stock share repurchases for the quarter ended September 30,
2009.
|
|
Total Number of
Shares Purchased
|
|
Average Price
Paid Per
Share
|
|
Shares Purchased as
Part of a Publicly-
Announced
Program
|
|
Approximate Dollar
Value of Shares
Available for
Repurchase
(1)
|
|
July 1
July 31, 2009
|
|
|
|
|
|
|
|
$
|
35,586,000
|
|
August 1
August 31, 2009
|
|
87,200
|
|
15.58
|
|
87,200
|
|
34,227,000
|
|
September 1
September 30, 2009
|
|
58,605
|
|
15.03
|
|
39,161
|
|
33,946,000
|
|
|
|
145,805
|
|
$
|
15.36
|
|
126,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The formal stock repurchase program
was initiated in 1999 and before it was terminated on December 19, 2008,
it had been expanded periodically. The
new repurchase program that was adopted on April 9, 2009 allows for the
repurchase of up to $40,000,000 of treasury stock through April 9, 2010.
31
Item 6.
Exhibits
The following exhibits are filed as a part of this Report:
31(a) Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31(b) Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32(a) Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32(b) Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32
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 2, 2009
|
|
/s/ Dennis E. Nixon
|
|
|
Dennis E. Nixon
|
|
|
President
|
|
|
|
|
|
|
Date:
|
November 2, 2009
|
|
/s/ Imelda Navarro
|
|
|
Imelda Navarro
|
|
|
Treasurer
|
33
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