Dennis E. Nixon of International Bancshares in Laredo, Tex., was a big booster of the North American Free Trade Agreement, and it's easy to see why.

His $2.7 billion-asset, multibank holding company has grown up along the U.S.-Mexico border, helping to facilitate trade between the two countries and beyond.

While the recent collapse of the Mexican peso has dampened spirits and brought new economic worries to the border, Mr. Nixon remains confident in the border region's long-term economic health.

"Normally when we have these peso devaluations we see a very quick reduction in retail sales in the border area," which lasts until the sticker shock wears off, said Mr. Nixon, International Bancshares' chairman and chief executive.

The current crisis is different, he noted, because the floating of the Mexican exchange rate caused a greater degree of unpredictability than in previous devaluations. Further, it's not clear that the Mexican government's plans to stabilize the economy will succeed.

"Hopefully (the Mexican government) will get a program to again attract foreign capital," the banker said.

While he doesn't expect the Mexican situation to have an impact on his bank's earnings, Mr. Nixon conceded the devaluation "has created a big bump in the road."

Still, International Bancshares isn't planning to back off its plan to open a bank in Monterrey, Mexico, about 150 miles south of Laredo. It has received approval from American regulators and is awaiting a decision from Mexico.

Nafta makes this move possible, Mr. Nixon said.

"Trade between Mexico and the United States had been growing rapidly over the last decade," he said. "And if we didn't recognize it and memorialize it in a proper agreement, I don't think it would have been able to continue moving forward at the level we all hoped it would be."

Down the road, International Bancshares - the largest bank headquartered along the Rio Grande and the second-largest banking company based in Texas - is poised to benefit from freer trade. Mr. Nixon said some 750 of the bank's 800 employees speak Spanish as well as English. The company, which is closely held by predominately Hispanic-American investors, is also the largest minority-owned bank in the U.S.

"The rate of growth in Latin America far exceeds the rate of growth in, say, Europe. It's more in line with the rate in Asia," he said. "Why would we want to go to trade in Asia when we've got an opportunity right here on our doorstep?"

"People will be able to access and piggyback, for lack of a better word, off of our resource base, our experience, our skills, and our people network," he said. "If somebody comes in from McAllen or Brownsville or San Antonio and needs help (in the Mexican marketplace), our staff and facilities can make that happen."

If his bank's history is any indication, Mr. Nixon has reason to be optimistic. In 1975, when he was 33 years old, Mr. Nixon was named CEO of International Bank of Commerce, at the time a nine-year-old institution with about $40 million of assets. Since then, he has guided the bank through a rapid expansion marked by de novo openings in the 1980s and a string of acquisitions in the first half of the 1990s.

Today, the company has four bank subsidaries with 34 branches as well as a life insurance company and an export trading unit. About 70% of its business is with commercial customers; the remaining 30% are consumers.

International Bancshares has earned kind words from other bankers. Robert S. McClane, president of Cullen/Frost Bankers Inc., San Antonio, and Glen Roney, chairman of Texas Regional Bancshares, McAllen, both spoke of it as an effective, aggressive competitor.

Between 1983 and 1993, net income after taxes grew steadily from $3.8 million to $32.1 million. For the first nine months of 1994, the bank posted a return on assets of 1.64% and a return on equity of 21.68%, about the same as yearend 1993.

And this in a state whose banks were hit hard by the collapse of oil prices in the 1980s and the real estate debacles that followed.

"It's been a challenging and difficult 10 or 12 years - more so probably in Texas than any other part of the country," said Mr. Nixon. Still, the company has never suffered a year of losses and went through the 1980s without a decline in earnings.

Other banks in the state weren't so resilient. The travails of the 1980s, and the general consolidation of the banking industry, left Texas with few headquarters of nationally ranked banking companies, in terms of size.

"We were expected to be one of the dominant banking states in the nation," noted Mr. Nixon. "Most of the large banks that were mainstays around the state . . . are gone. It's been a shocking change in dynasties."

In addition to Texas-based banks like Cullen/Frost, IBC competes against affiliates of NationsBank Corp., Chemical Banking Corp., and Banc One Corp., among others.

But just when things appeared to have settled down, along came the turmoil in Mexico. Bankers and analysts said the short-term effects are hard to gauge but they don't expect the region to suffer in the long run.

Mr. McClane of Cullen/Frost likened the situation to the Federal Reserve's initial moves to raise interest rates last year. "A good part of this is probably an adjustment" that needed to be made, he said.

Despite the current problems, David S. Berry, director of research at Keefe, Bruyette & Woods Inc., New York, noted that in south Texas, which has tended to be a high growth market, there has been "considerable excitement" about prospects for Mexican-American trade.

Mr. Nixon said the change in the Texas banking landscape should provide marketing opportunities for his bank, which bills itself as a homegrown institution.

"The people in Texas are prideful folks," said Mr. Nixon. "I think the idea of doing business with out-of-state banks probably hits a more negative chord in Texas than it does in other states."

So International Bancshares has become what Mr. Nixon calls an "international community bank."

"We've got a heavy emphasis on international but our roots are basically as a community bank," he said. "We naturally drifted to towards international . . . because our community extended across the border.

"Mexico is a big importing country, a big exporting country. We do a lot of letters of credit transactions that involve not only commerce from Mexico but commerce from all over the world."

He noted that Laredo is a major trade crossing and that Mexico is also a major importer from countries in Asia and Europe.

At the same time, International Bancshares works at maintaining the traditions of a community bank. The presidents of the subsidiary banks, Mr. Nixon said, appeal to local business people who don't want to work with young managers at superregional banks itching to make the move to a bigger market.

"When I hired the president of our bank in Brownsville, I asked him if he wants to leave Brownsville. (If yes), I didn't want to hire him," recalled Mr. Nixon. He added that he told the man, "We want you to stay there and spend your life there. You are a Brownsville guy."

Mr. Nixon noted there are challenges in managing such a far-flung bank. "You're talking about an area that's probably as big as the state of Connecticut," he said. "How many square miles? - I guess we never measured it."

Actually, what the bank regards as its market area - beginning along the Mexican border in Laredo and extending in an arc north and east through San Antonio and down to Bay City on the Gulf of Mexico - is as large as Connecticut, Massachusetts, Rhode Island, Vermont, and New Hampshire combined.

International Bancshares maintains a corporate airplane to carry top executives to its banks in Zapata (south of Laredo), San Antonio, and Brownsville, as well as other communities where it does business. Mr. Nixon, who spends about half of his time traveling, noted that while it takes five hours to drive from Laredo to Brownsville, the trip is just 40 minutes on the plane.

"Mexico is even worse," he added. "Getting around in Mexico in an automobile is dangerous, number one, because the roads are not that great."

The bank is also tied together by high-speed telecommunications circuits and electronic mail.

"We have a fairly high level of technology," said Mr. Nixon. For example, the bank consolidated back-office functions in San Antonio years ago.

More recently, the company has begun to upgrade its local area and wide area communications networks. As the bank plans to expand into Mexico, it expects to need to convert a mainframe to work in Spanish. It is also introducing a system for new accounts and deposits from Formation Technologies.

"We've got platform automation in certain elements of our bank - had it for some time," said Mr. Nixon. "Now, we're looking for an even more generic system we can apply to all our branches and bring it into more areas of the bank."

Mr. Nixon said there was little demand in many communities for the newer delivery channels. Customers in Pleasanton, he said, might be more impressed with personal service than with the latest delivery channel.

"The technology is moving faster than the people," he said.

That understanding underpins the bank's technology strategy.

While it operates a 24-hour-a day call center, like countless other banks, it doesn't plan on offering home banking by PC or screen phone anytime soon.

Indeed, Mr. Nixon said he expects the big growth in consumer banking to be driven by credit cards and their progeny.

"I think you'll see that credit card as the principal mechanism for consumer financing," he said. "Maybe you'll have five different types of credit on your credit card. When you get your credit card bill, you'll have on the bill your car payment and your regular revolving credit."

The focus on international markets and maintaining ties to local communities is also a plus when the bank looks to make an acquisition. Mr. Nixon observed that when a community bank is sold, the owners, whether the bank president or key investors, often remain in town. "They want to be able to say, 'Hey, we put our bank in the hands of somebody who is going to have the same kind of community interest,"' said Mr. Nixon.

He said the bank will continue its search to acquire community banks with assets in the $50 million to $200 million range. "Our main goal is to fully mature our marketplace," he said. "There is more to do there than I have a lifetime left."

Mr. Nixon also sees opportunity in the International Bank of Commerce- San Antonio subsidiary, which is on the city's Riverwalk in a building once called RepublicBank Centre.

Noting that San Antonio is the largest city in south Texas, Mr. Nixon said he hoped it would become a major trade center like Miami.

Indeed, International Bancshares' future is tied to the future of cross- border trade and the economic growth expected to come with it.

"There is a tremendous opportunity for us to enlarge our base of business," said Mr. Nixon. "We didn't look at Nafta as just being an agreement between the United States and Mexico. We looked at it as being the seed to spawn agreements through Central and South America."

Despite all the opportunities in Texas and south of the border, Mr. Nixon sees challenges at home. The regulatory environment tops his list.

"Merrill Lynch basically is a damn bank and they are allowed to do anything they want, and we're still being confined," he said. "Our government is way behind the eight ball. That stuff has got to be cleared off the deck."

Still, smaller banks like International Bancshares will continue to face stiff competition down the road.

"From our standpoint as an intermediary, the large banks certainly have a head up on us in terms of specialized products" such as capital markets services, consulting services, and other areas that produce noninterest income, he said.

But in his view, technology has the potential over the long haul to make smaller institutions more competitive. "We don't know who these global providers will be in the future, but I think I will be able to access them through a disk on our roof," he said. Smaller banks "may not be the proprietary holder of the product, but they will be able access that through other competitive providers."

In the nearer term, Mr. Nixon sees shrinking net interest margins that will take some of the sparkle out of the bank's steller earnings.

"I grew up in the business when 1.00% return on assets was a tremendous benchmark," he said. "I'm not sure that we're heading back to something like that. Probably 1.20% to 1.25% is going to be an awfully good return."

In general, Mr. Nixon is bullish on the bank's future. "We have a good management structure and a good long-term plan," he said.

And the investors - 250 shareholders own 90% of the bank - have no desire to sell.

Noting that shares in the bank are among their principal assets, Mr. Nixon said, "We believe it is a vital part of our business futures to be involved with this company."

He continued, "If the government gets off our back and if Newt Gingrich and all his boys up there can pull back the regulatory burden and let us operate our businesses as businesses again, it's probably a good long-term asset."

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