Though its name may suggest otherwise, International Bancshares Corp. in Laredo, Tex., is chiefly focused these days on making a bigger name for itself in its home state.
The $11 billion-asset multibank holding company has added 73 branches in Texas since the beginning of 2003. This year it plans to add another 40, including 20 in stores of the fast-growing upscale chain H.E. Butt Grocery Co. International Bancshares already has roughly 180 branches in Texas, and Dennis Nixon, its president, chairman, and chief executive officer, said it is aiming to have 300 within two years.
Its four subsidiaries - International Bank of Commerce in Laredo, International Bank of Commerce in Brownsville, International Bank of Commerce in Zapata, and Commerce Bank in Laredo - are headquartered along the Mexican border, and courting businesses customers on both sides of the border remains critical to the company's business strategy.
But branch growth is helping to diversify the portfolio, which critics had said was too focused on the volatile international market. Mr. Nixon said that competition for business customers focused on international trade can be fierce, and that the loss of a single large customer could mean a significant loss of deposits.
"It was one of the shortcomings people saw in us - as a company, we were too focused on the border," he said. Branching, along with some strategic acquisitions, including one in Oklahoma in 2004, "has increased our opportunities to do more business banking and more retail and consumer banking."
The branching strategy also has added tens of millions of low-cost deposits, which have helped International Bancshares achieve a net interest margin above the average for commercial banking companies of its size the last two years, according to Federal Deposit Insurance Corp. data. (In previous years its margin consistently had been below the average.)
Demand deposits have increased at an enviable compounded annual rate of 32% since 2002, according to Sheshunoff & Co. Investment Banking in Austin.
John Blaylock, the associate director with Sheshunoff & Co., said that International Bancshares needed to develop a substantial core deposit base, and that he expects its success in gathering deposits to continue, because it is expanding in the healthiest markets. "There are a lot of people moving here, and funds continue to come into the state," he said. "You want to be out there getting your share."
Though International Bancshares has set no specific branching targets, Mr. Nixon said that it would continue to expand as much as possible, especially in the state's fastest-growing markets. For example, he said he could envision having 120 branches in five or six years in the Houston area, where it currently has about 30.
Of course, International Bancshares has plenty of competition in the race to blanket the state with branches. Since the beginning of 2003 Texas has added about 1,500 branches, which is more than any other state.
Mr. Nixon said his company is aware of the competition, so it is trying to set itself apart by stressing convenience. Many of its branches are open seven days a week and have extended weekday hours.
"Most banks have a short-day mentality, as opposed to other retailers," he said. "We are embracing the idea that we are in the retail business. It's something we've studied thoroughly over the years."
Many of the branches open seven day a week are in grocery stores.
Since the 1990s many banks have looked to in-store branching as a way to add inexpensive deposits and increase fee income. One bank that is especially committed to the model is the $2.2 billion-asset Woodforest National Bank in Houston, which has been adding dozens a year in Wal-Mart Stores Inc. locations throughout the country and is aiming to be in 350 stores by the end of 2009.
One difference in the strategies of International Bancshares and Woodforest is that their retail partners likely will draw different sets of customers, industry watchers said. International Bancshares' new in-store branches will go in H.E. Butt's 140,000-square-foot stores, which offer specialty products like sushi, olives, and other ready-made foods that attract higher-earning customers.
International Bancshares typically adds in-store branches in areas where it already has traditional branches.
Tom Tucker, the executive vice president of sales and marketing at IBT Enterprises LLC, an in-store branch consulting firm in Atlanta, said banks incorporating in-store branching have found that the "hub-and-spoke" strategy tends to work best.
In-store branches are best for gathering retail deposits, Mr. Tucker said, but "everybody who walks in that store has a day job, and at some point you get that person that may need a small-business loan" that can be referred to a commercial lender at a nearby branch.
"You don't build" in-store branches "for commercial purposes by and large, but the byproduct of getting to know that retail customer can result in a commercial opportunity," he said.
