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<SEC-DOCUMENT>0000912057-01-008582.txt : 20010329
<SEC-HEADER>0000912057-01-008582.hdr.sgml : 20010329
ACCESSION NUMBER:		0000912057-01-008582
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20001231
FILED AS OF DATE:		20010328

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INTERNATIONAL BANCSHARES CORP
		CENTRAL INDEX KEY:			0000315709
		STANDARD INDUSTRIAL CLASSIFICATION:	STATE COMMERCIAL BANKS [6022]
		IRS NUMBER:				742157138
		STATE OF INCORPORATION:			TX
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		
		SEC FILE NUMBER:	000-09439
		FILM NUMBER:		1582579

	BUSINESS ADDRESS:	
		STREET 1:		12OO SAN BERNARDO AVE
		STREET 2:		PO BOX 1359
		CITY:			LAREDO
		STATE:			TX
		ZIP:			78040-1359
		BUSINESS PHONE:		9567227611

	MAIL ADDRESS:	
		STREET 1:		P O BOX 1359
		STREET 2:		1200 SAN BERNARDO
		CITY:			LAREDO
		STATE:			TX
		ZIP:			78040
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a2042604z10-k.txt
<DESCRIPTION>10-K
<TEXT>

<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

          For the fiscal year ended                  Commission file number
               DECEMBER 31, 2000                             0-9439

                      INTERNATIONAL BANCSHARES CORPORATION
- --------------------------------------------------------------------------------
              (Exact Name of Registrant as Specified in its Charter)

              TEXAS                                      74-2157138
- -------------------------------------     -------------------------------------
      (State of Incorporation)              (I.R.S. Employer Identification No.)

      1200 SAN BERNARDO AVENUE
      LAREDO, TEXAS 78042-1359                   AREA CODE (956) 722-7611
- -------------------------------------     -------------------------------------
  (Address of principal executive             (Registrant's telephone number)
   office and Zip Code)

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

                                                    Name of Each Exchange on
       Title of Each Class                              Which Registered
- -------------------------------------     -------------------------------------
              NONE                                            NONE

           Securities Registered Pursuant to Section 12(g) of the Act:
                         COMMON STOCK ($1.00 PAR VALUE)
                        -------------------------------
                                (Title of Class)

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 / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 20, 2001 was $519,768,833 based on the closing sales
price of the stock on such date.

As of March 20, 2001, there were 21,307,510 shares of the Registrant's Common
Stock outstanding.

Portions of the following documents are incorporated by reference into the
designated parts of this Form 10-K: (a) Annual Report to security holders for
the fiscal year ended December 31, 2000 (in Parts I and II) and (b) Proxy
Statement dated April 16, 2001 (in Part III).

<PAGE>

                                    CONTENTS

                                     PART I
<TABLE>
<CAPTION>
                                                                               Page
                                                                               ----
<S>                                                                            <C>
Item 1.   Business...........................................................    3
Item 2.   Properties.........................................................   23
Item 3.   Legal Proceedings..................................................   23
Item 4.   Submission of Matters to a Vote of Security Holders................   24
Item 4A.  Executive Officers of the Registrant...............................   24

                                     PART II

Item 5.   Market for the Registrant's Common Stock
            and Related Security Holder Matters..............................   24
Item 6.   Selected Financial Data............................................   24
Item 7.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations..............................   24
Item 7A.  Quantitative and Qualitative Disclosure about Market Risk..........   24
Item 8.   Financial Statements and Supplementary Data........................   25
Item 9.   Changes In and Disagreements with Accountants on
            Accounting and Financial Disclosure..............................   25

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.................   25
Item 11.  Executive Compensation.............................................   25
Item 12.  Security Ownership of Certain Beneficial Owners and Management.....   25
Item 13.  Certain Relationships and Related Transactions.....................   25

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K....   25
</TABLE>

FORWARD LOOKING INFORMATION

         Certain matters discussed in this report, excluding historical
information, include forward-looking statements. 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" and "project," as well as other words or
expressions of 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 annual
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.

         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.

                                       2
<PAGE>

ITEM 1. BUSINESS

GENERAL

      International Bancshares Corporation (the "Company") is a financial
holding company with four bank subsidiaries providing commercial and retail
banking services through over 100 main banking and branch facilities located
in 30 communities in South and Southeast Texas. The Company was incorporated
under the General Corporation Law of the State of Delaware in 1979 and has its
principal corporate offices in Laredo, Texas. Effective June 7, 1995, the
Company's state of incorporation was changed from Delaware to Texas. The
Company was organized for the purpose of operating as a bank holding company
within the meaning of the Bank Holding Company Act of 1956, as amended, and as
such, is subject to supervision and regulation by the Board of Governors of
the Federal Reserve System (the "FRB"). As a registered bank holding company,
the Company may own one or more banks and may engage directly, or through
subsidiary corporations, in those activities closely related to banking which
are specifically permitted under the Bank Holding Company Act and by the FRB.
Effective March 13, 2000, the Company became certified as a financial holding
company. As a financial holding company, the company may engage in a broad
list of financial and non-financial activities. The Company's principal assets
at December 31, 2000 consisted of all the outstanding capital stock of four
Texas state banking associations (the "Banks" or "bank subsidiaries"). All of
the Company's bank subsidiaries are members of the Federal Deposit Insurance
Corporation.

     The bank subsidiaries are in the business of gathering funds from various
sources and investing these funds in order to earn a return. Funds gathering
primarily takes the form of accepting demand and time deposits from
individuals, partnerships, corporations and public entities. Investments
principally are made in loans to various individuals and entities as well as
in debt securities of the U.S. Government and various other entities whose
payments are guaranteed by the U.S. Government. Historically, the bank
subsidiaries have primarily focused on providing commercial banking services
to small and medium sized businesses located in its trade area and
international banking services. In recent years, the bank subsidiaries have
also emphasized consumer and retail banking, including mortgage lending, as
well as branches situated in retail locations and grocery stores.

         The Company's philosophy focuses on customer service as represented
by its motto, "We Do More." The Banks maintain a strong commitment to their
local communities by, among other things, appointing selected members of the
communities in which the Banks branches are located to local advisory boards
(the "local boards"). The local boards direct the operations of the branches,
with the supervision of the lead Bank's board of directors, and assist in
introducing prospective customers to the Banks as well as developing or
modifying products and services to meet customer needs. The Banks function
largely on a delegated basis, and the Company believes that such decentralized
structure enhances the commitment of the Banks to the communities in which
their branches are located. In contrast to many of its principal competitors,
the credit decisions of the Banks are made locally and promptly. The Company
believes that the knowledge and expertise afforded by the local boards are key
components to sound credit decisions.

         Expense control is an essential element in the Company's
profitability. The Company has centralized virtually all of the Banks' back
office support and investment functions in order to achieve consistency and
cost efficiencies in the delivery of products and services. The Company's
efficiency ratio (other operating expenses divided by net interest income and
other operating income) for the year ended December 31, 2000 stands at 49% and
has been under 53% for each of the last five years, which the Company believes
is well below national peer group ratios. One of the benefits derived from
such operating efficiencies is that the Company is not subjected to undue
pressure to generate interest income from high-risk loans. Accordingly, the
Company believes it is able to be more selective and conservative with respect
to its credit decisions. Despite this lack of economic pressure, the Banks
aggressively pursue, with the help of the local boards, quality credits with
an emphasis on loans to small and medium sized businesses. During 2000, net
loans increased 18% over the corresponding 1999 period.

                                       3
<PAGE>

         During the last several years, IBC, the Company's lead bank, has been
an acquiror of financial institutions and banking assets in its trade area.
The community focus of IBC and the involvement of the local boards has
resulted in IBC becoming aware of acquisition possibilities in the ordinary
course of its business and in many instances before other potential
purchasers. IBC's decision to pursue an acquisition is based on a multitude of
factors, including the ability to efficiently assimilate the operations and
assets of the acquired entity, the cost efficiencies to be attained and the
growth potential of the market.

      On July 28, 1980, the Company acquired all of the outstanding shares of
its predecessor, International Bank of Commerce ("IBC"), which is today the
flagship bank of the Company, representing 83% of the Company's banking
assets. IBC was chartered under the banking laws of Texas in 1966 and has its
principal place of business at 1200 San Bernardo Avenue, Laredo, Webb County,
Texas. It is a wholly-owned subsidiary of the Company. Since the acquisition
of the flagship bank in 1980, the Company formed three banks and acquired
$1,845,971,000 in assets and assumed $1,762,051,000 of deposits in numerous
acquisition transactions, which totals are as of the acquisition date and do
not take into account any runoff or other subsequent events. In addition to
the acquisitions, IBC has also focused on deposit growth from its traditional
banking activities.

         Effective February 19, 1999, IBC purchased certain assets and assumed
certain liabilities of the Laredo branch of Pacific Southwest Bank, Corpus
Christi, Texas. IBC purchased loans of approximately $4,503,000 and assumed
deposits of approximately $27,873,000 and received cash and other assets in
the amount of approximately $23,432,000. The acquisition was accounted for as
a purchase transaction. IBC recorded core deposit premium totaling $2,525,000
which is being amortized on a straight line basis over a fifteen year period.

         During 2000, IBC established an insurance subsidiary and acquired the
assets of two insurance agencies in Texas. The acquisitions were accounted for
as a purchase transaction. In connection with the acquisitions, IBC recorded
goodwill totaling $3,003,000 which is being amortized on a straight line basis
over a fifteen year period.

         Effective October 2, 2000, the Company purchased a controlling
interest in the GulfStar Group, a Houston-based investment banking firm
serving middle-market corporations primarily in Texas. The acquisition was
accounted for as a purchase transaction. In connection with the acquisition,
the Company recorded goodwill totaling $13,199,000 which is being amortized on
a straight line basis over a fifteen year period.

         Effective February 16, 2001, IBC acquired the assets of First Equity
Corporation, an Austin-based mortgage banker. The acquisition was accounted
for as a purchase transaction. In connection with the acquisition, IBC
recorded goodwill totaling $5,304,000 which is being amortized on a straight
line basis over a fifteen year period.

         In addition to IBC, the Company has three other bank subsidiaries.
The three additional banks are (i) Commerce Bank, a Texas state banking
association which commenced operations in 1982, located in Laredo, Texas
("Commerce Bank"); (ii) International Bank of Commerce, a Texas state banking
association which commenced operations in 1984, located in Brownsville, Texas
("IBC-Brownsville"); and (iii) International Bank of Commerce, a Texas state
banking association which commenced operations in 1984, located in Zapata,
Texas ("IBC-Zapata").

         The Company also has four non-banking subsidiaries. They are (i) IBC
Life Insurance Company, a Texas chartered subsidiary which reinsures a small
percentage of credit life and accident and health risks related to loans made
by bank subsidiaries, (ii) IBC Trading Company, an export trading company
which is currently inactive, (iii) IBC Subsidiary Corporation, a second-tier
bank holding company incorporated in the State of Delaware, and (iv) IBC
Capital Corporation, a company incorporated in the State of Delaware for the
purpose of holding certain investments of the Company.

                                       4
<PAGE>

SERVICES AND EMPLOYEES

         The Company, through its bank subsidiaries, IBC, Commerce Bank, IBC
Zapata and IBC Brownsville, is engaged in the business of banking, including
the acceptance of checking and savings deposits and the making of commercial,
real estate, personal, home improvement, automobile and other installment and
term loans. Certain of the bank subsidiaries are very active in facilitating
international trade along the United States border with Mexico and elsewhere.
The international banking business of the Company includes providing letters
of credit, making commercial and industrial loans, and a nominal amount of
currency exchange. As part of its international strategy the Company also aims
to provide a full array of banking services to "maquiladoras," including
account and payroll services. A "maquiladora" is a type of assembly or
manufacturing plant under Mexican law, which is typically owned by a United
States company and located on Mexico's northern border for the purpose of
temporarily importing materials to be assembled in Mexico and re-exported to
the United States. Each bank subsidiary also offers other related services,
such as credit cards, travelers' checks, safety deposit, collection, notary
public, escrow, drive-up and walk-up facilities and other customary banking
services. Additionally, each bank subsidiary makes available certain
securities products through third party providers. The bank subsidiaries also
make banking services available during traditional and nontraditional banking
hours through their network of 205 automated teller machines, and through
their branches situated in retail locations and grocery stores. To date, as
part of the Company's expansion of its retail banking services, 47 grocery
store branches have been opened. Currently, IBC is in the process of
installing software in order to provide customers online access to banking
information and services 24 hours a day.

         The Company owns U.S. service mark registrations for "INTERNATIONAL
BANK OF COMMERCE," "WALL STREET INTERNATIONAL," "INTERNATIONAL BANK OF
COMMERCE CENTRE," "OVERDRAFT COURTESY," "IBC," "IBC CONNECTION," "IBC ELITE,"
"BIZ RITE CHECKING," and "IT'S A BRIGHTER CHRISTMAS" as well as the design
mark depicting the United States and Mexico and the design mark depicting
"WALL STREET INTERNATIONAL." In addition, the Company owns Texas service mark
registrations for "RITE CHECK," "THE CLUB," "WALL STREET INTERNATIONAL,"
"INTERNATIONAL BANK OF COMMERCE" and the design marks depicting "CHECK'N SAVE"
and "WALL STREET INTERNATIONAL," as well as the design mark depicting the
United States and Mexico. Also, IBC owns certain pending applications for
federal registrations of other proprietary service marks and is regularly
investigating the availability of service mark registrations related to
certain proprietary products.

         No material portion of the business of the Company may be deemed
seasonal and the deposit and loan base of the Company's bank subsidiaries is
diverse in nature. There has been no material effect upon the Company's
capital expenditures, earnings or competitive position as a result of Federal,
State or local environmental regulation.

         As of December 31, 2000 the Company and its subsidiaries employed
approximately 1,390 persons full-time and 244 persons part-time.

COMPETITION

         The Company is the largest minority-owned bank holding company in the
United States, with more than a majority of its common stock being held by
Hispanic shareholders. The Company is the second largest independent Texas
bank holding company. The primary market area of the Company is South and
Southeast Texas, an area bordered on the east by the Houston area, to the
northwest by San Antonio, to the southwest by Laredo and to the southeast by
Brownsville. The Company has increased its market share in its primary market
area over the last seven years through strategic acquisitions. The Company,
through its bank subsidiaries, competes for deposits and loans with other
commercial banks, savings and loan associations, credit unions and nonbank
entities, which nonbank entities serve as an alternative to traditional
financial institutions and are considered to be formidable competitors.

                                       5
<PAGE>

         The Company and its bank subsidiaries do a significant amount of
business for customers domiciled in Mexico, with an emphasis in Northern
Mexico. Deposits from persons and entities domiciled in Mexico comprise a
significant and stable portion of the deposit base of the Company's bank
subsidiaries. Such deposits comprised approximately 42%, 41% and 38% of the
Company's bank subsidiaries' total deposits as of December 31, 2000, 1999 and
1998, respectively.

         Under the Gramm-Leach-Bliley Act ("GLBA"), effective March 11, 2000,
banks, securities firms and insurance companies may affiliate under an entity
to be known as a financial holding company which could then serve its
customers' varied financial needs through a single corporate structure. The
GLBA may significantly change the competitive environment in which the Company
and its subsidiaries conduct business. The financial services industry is also
likely to become even more competitive as further technological advances
enable more companies to provide financial services. These technological
advances may diminish the importance of depository institutions and other
financial intermediaries in the transfer of funds between parties.

SUPERVISION AND REGULATION

         GENERAL-THE COMPANY. In addition to the generally applicable state
and Federal laws governing businesses and employers, the Company and its bank
subsidiaries are further extensively regulated by special Federal and state
laws governing financial institutions. These laws comprehensively regulate the
operations of the Company's bank subsidiaries and include, among other
matters, requirements to maintain reserves against deposits; restrictions on
the nature and amount of loans that may be made and the interest that may be
charged thereon; restrictions on the amounts, terms and conditions of loans to
directors, officers, large shareholders and their affiliates; restrictions
related to investments in activities other than banking; and minimum capital
requirements. With few exceptions, state and Federal banking laws have as
their principal objective either the maintenance of the safety and soundness
of the Federal deposit insurance system or the protection of consumers, rather
than the specific protection of shareholders of the Company. Further, the
earnings of the Company are affected by the fiscal and monetary policies of
the Federal Reserve System, which regulates the national money supply in order
to mitigate recessionary and inflationary pressures. These monetary policies
influence to a significant extent the overall growth of bank loans,
investments and deposits and the interest rates charged on loans or paid on
time and savings deposits. The nature of future monetary policies and the
effect of such policies on the future earnings and business of the Company
cannot be predicted.

         FRB APPROVALS. The Company is a registered bank holding company
within the meaning of the Bank Holding Company Act of 1956, as amended
("BHCA"), and is subject to supervision by the FRB and to a certain extent the
Texas Department of Banking (the "DOB"). The Company is required to file with
the FRB annual reports and other information regarding the business operations
of itself and its subsidiaries. It is also subject to examination by the FRB.
Under the BHCA, a bank holding company is, with limited exceptions, prohibited
from acquiring direct or indirect ownership or control of any voting stock of
any company which is not a bank or bank holding company, and must engage only
in the business of banking, managing, controlling banks, and furnishing
services to or performing services for its subsidiary banks. One of the
exceptions to this prohibition is the ownership of shares of any company
provided such shares do not constitute more than 5% of the outstanding voting
shares of the company and so long as the FRB does not disapprove such
ownership. Another exception to this prohibition is the ownership of shares of
a company the activities of which the FRB has specifically determined to be so
closely related to banking, managing or controlling banks as to be a proper
incident thereto.

         The BHCA and the Change in Bank Control Act of 1978 require that,
depending on the circumstances, either FRB approval must be obtained or notice
must be furnished to the FRB and not disapproved prior to any person or
company acquiring "control" of a bank holding company, such as the Company,
subject to certain exceptions for certain transactions. Control is
conclusively presumed to exist if an individual or company acquires 25% or
more of any class of voting securities of the bank holding company. Control is
rebuttably presumed to exist if a person acquires 10% or more but less than
25% of any class of voting securities where the bank holding company,

                                       6
<PAGE>

such as the Company, has registered Securities under Section 12 of the
Securities Exchange Act of 1934 (the "Exchange Act").

         As a bank holding company, the Company is required to obtain approval
prior to merging or consolidating with any other bank holding company,
acquiring all or substantially all of the assets of any bank or acquiring
ownership or control of shares of a bank or bank holding company if, after the
acquisition, the Company would directly or indirectly own or control 5% or
more of the voting shares of such bank or bank holding company.

         FINANCIAL MODERNIZATION. On November 12, 1999, the Gramm-Leach-Bliley
Act of 1999 ("GLBA") was enacted. This comprehensive legislation eliminates
the barriers to affiliations among banks, securities firms, insurance
companies and other financial service providers. GLBA provides for a new type
of financial holding company structure under which affiliations among these
entities may occur. Under GLBA, a financial holding company may engage in a
broad list of financial activities and any non-financial activity that the FRB
determines is complementary to a financial activity and poses no substantial
risk to the safety and soundness of depository institutions or the financial
system. In addition, GLBA permits certain non-banking financial and
financially related activities to be conducted by financial subsidiaries of a
national bank. Additionally, GLBA imposes strict new privacy disclosure and
opt-out requirements regarding the ability of financial institutions to share
personal non-public customer information with third parties.

         Under the GLBA, a bank holding company may become certified as a
financial holding company by filing a declaration with the FRB, together with
a certification that each of its subsidiary banks is well capitalized, is well
managed, and has at least a satisfactory rating under the Community
Reinvestment Act of 1977 ("CRA"). The Company has elected to become a
financial holding company under GLBA and the election was made effective by
the FRB as of March 13, 2000. During the second quarter of 2000, IBC
established an insurance agency subsidiary which acquired two insurance
agencies. As a result of GLBA, the Texas Department of Insurance issued
Commissioner's Bulletin No. B-0005-00 indicating that bank insurance agency
activities could be conducted without geographic limitations. Effective
October 2, 2000, the Company acquired a controlling interest in GulfStar
Group, a Houston-based investment banking firm with a securities affiliate
registered under the Securities Exchange Act of 1934. A financial holding
company that has a securities affiliate registered under the Securities Act of
1934 or a qualified insurance affiliate may make permissible merchant banking
investments. As of December 31, 2000, the Company had not made any merchant
banking investments.

         In January 2001, the Federal Reserve Board and the Secretary of the
Treasury promulgated final regulations governing the scope of permissible
merchant banking investments. The investments that may be made under this new
authority are substantially broader in scope than the investment activities
otherwise permissible for bank holding companies, and are referred to as
"merchant banking investments" in "portfolio companies." The merchant banking
investments may be made by the financial holding company or any of its
subsidiaries, other than a depository institution or subsidiary of a
depository institution. The regulation places restrictions on the ability of a
financial holding company to become involved in the routine management or
operation of any of its portfolio companies. The regulation also generally
limits the ownership period of merchant banking investments to no more than
ten years.

         The Federal Reserve Board, the OCC, and the FDIC have proposed for
comment a rule which would establish special regulatory capital charges for
equity investments in non-financial companies. The proposed capital treatment
would apply a graduated capital charge on covered equity investments which
would increase as the proportion of such investments to Tier 1 Capital
increases. This is the second proposal the agencies have made of this nature
and the Company cannot predict what final form the regulation may take.

         The Federal Reserve Board and Secretary of Treasury have also
requested public comment on the issue of whether to add the activities of real
estate brokerage and real estate management to the list of permissible
activities for financial holding

                                       7
<PAGE>

companies and financial subsidiaries of national banks. The Company cannot
predict whether the proposal will be adopted or the form any final rule might
take.

         INTERSTATE BANKING. In 1994, Congress enacted the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Banking
Act"), which rewrote federal law governing the interstate expansion of banks
in the United States. Effective as of September 29, 1995, adequately
capitalized, well managed bank holding companies with FRB approval may acquire
banks located in any State in the United States, provided that the target bank
meets the minimum age (up to a maximum of five years, which is the maximum
Texas has adopted) established by the host State. Under the Interstate Banking
Act, an anti-concentration limit will bar interstate acquisitions that would
give a bank holding company control of more than ten percent (10%) of all
deposits nationwide or thirty percent (30%) of any one State's deposits, or
such higher or lower percentage established by the host State. The
anti-concentration limit in Texas has been set at twenty percent (20%) of all
federally insured deposits in Texas.

         In addition to providing for interstate acquisitions of banks by bank
holding companies, the Interstate Banking Act provides for interstate
branching by permitting mergers between banks domiciled in different States
beginning June 1, 1997. The Interstate Banking Act provides that States may
opt out of interstate branching by enacting non-discriminatory legislation
prohibiting interstate bank mergers before June 1, 1997. In 1995, Texas passed
legislation opting out of the interstate branching provisions of The
Interstate Banking Act until September 1999. In May 1998, the Texas DOB
determined that the Texas opt-out statute was not effective and the Texas DOB
began accepting applications for interstate branching transactions. During
1999, legislation implementing interstate branching was adopted by the Texas
legislature.

         FRB ENFORCEMENT POWERS. The FRB has certain cease-and-desist and
divestiture powers over bank holding companies and non-banking subsidiaries
where their actions would constitute a serious threat to the safety, soundness
or stability of a subsidiary bank. These powers may be exercised through the
issuance of cease-and-desist orders or other actions. In the event a bank
subsidiary experiences either a significant loan loss or rapid growth of loans
or deposits, the Company may be compelled by the FRB to invest additional
capital in the bank subsidiary. Further, the Company would be required to
guaranty performance of the capital restoration plan of any undercapitalized
bank subsidiary. The FRB is also empowered to assess civil money penalties
against companies or individuals who violate the BHCA in amounts up to
$1,000,000 per day, to order termination of non-banking activities of
non-banking subsidiaries of bank holding companies and to order termination of
ownership and control of a non-banking subsidiary. Under certain circumstances
the Texas Banking Commissioner may bring enforcement proceedings against a
bank holding company in Texas.

         COMPANY DIVIDENDS. The FRB's policy discourages the payment of
dividends from borrowed funds and discourages payments that would affect
capital adequacy. The FRB has issued policy statements which generally state
that bank holding companies should serve as a source of financial and
managerial strength to their bank subsidiaries, and generally should not pay
dividends except out of current earnings, and should not borrow to pay
dividends if the bank holding company is experiencing capital or other
financial problems.

         CROSS-GUARANTEE PROVISIONS. The Financial Institutions Reform
Recovery and Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee"
provision which generally makes commonly controlled insured depository
institutions liable to the FDIC for any losses incurred in connection with the
failure of a commonly controlled depository institution.

         AUDIT REPORTS. Insured institutions with total assets of $500 million
or more must submit annual audit reports prepared by independent auditors to
federal and state regulators. In some instances, the audit report of the
institution's holding company can be used to satisfy this requirement.
Auditors must receive examination reports and examination related
correspondence. In addition, financial statements prepared in accordance with
generally accepted accounting principles, management's

                                       8
<PAGE>

certifications concerning responsibility for the financial statements,
internal controls and compliance with legal requirements designated by the
FDIC, and an attestation by the auditor regarding the statements of management
relating to the internal controls must be submitted to federal and state
regulators. For institutions with total assets of more than $3 billion,
independent auditors may be required to review quarterly financial statements.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires that independent audit committees be formed, consisting of outside
directors only. The committees of such institutions must include members with
experience in banking or financial management, must have access to outside
counsel, and must not include representatives of large customers. During 1999,
the Securities and Exchange Commission ("SEC") and the National Association of
Securities Dealers adopted new rules, which became effective during 2000, to
improve the function of corporate audit committees. The new rules require,
among other things, that the audit committee review and assess the adequacy of
its charter on an annual basis, that independent auditors review public
companies' interim financial information prior to filing with the SEC and that
companies include in their proxy statements certain information about their
audit committees.

         GENERAL - BANK SUBSIDIARIES. All of the bank subsidiaries of the
Company are state banks subject to regulation by, and supervision of, the
Texas DOB and the FDIC. All of the bank subsidiaries of the Company are
members of the FDIC, which currently insures the deposits of each member bank
to a maximum of $100,000 per depositor. For this protection, each member bank
pays a statutory assessment and is subject to the rules and regulations of the
FDIC. The assessments increase incrementally based on the rating of the member
bank.

         DEPOSIT INSURANCE. The deposits of the Bank are insured by the FDIC
through the Bank Insurance Fund ("BIF") to the extent provided by law. Under
the FDIC's risk-based insurance system, BIF-insured institutions are currently
assessed premiums of between zero and twenty seven cents per $100 of eligible
deposits, depending upon the institution's capital position and other
supervisory factors. During 1996, Congress enacted legislation that, among
other things, provides for assessments against BIF-insured institutions that
will be used to pay certain Financing Corporation ("FICO") obligations. BIF
and Savings Association Insurance Fund payers are assessed pro rata for the
FICO bond obligations.

         CAPITAL ADEQUACY. The Company and its bank subsidiaries are currently
required to meet certain minimum regulatory capital guidelines utilizing total
capital-to-risk-weighted assets and Tier 1 Capital elements. At December 31,
2000, the Company's ratio of total capital-to-risk-weighted assets was 14.29%.
The guidelines make regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations, consider off-balance
sheet exposure in assessing capital adequacy, and encourage the holding of
liquid, low-risk assets. At least one-half of the minimum total capital must
be comprised of Tier 1 Capital elements. Tier 1 Capital of the Company is
comprised of common shareholders' equity. The core deposit intangibles and
goodwill of $54,795,000 booked in connection with all the financial
institution acquisitions of the Company are deducted from the sum of core
capital elements when determining the capital ratios of the Company.

         In addition, the FRB has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
leverage ratio of Tier 1 capital to adjusted average quarterly assets
("leverage ratio") equal to three percent for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating.
All other bank holding companies will generally be required to maintain a
leverage ratio of at least four to five percent. The Company's leverage ratio
at December 31, 2000 was 6.54%. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the FRB will continue to consider a
"tangible tier 1 leverage ratio" (deducting all intangibles) in evaluating
proposals for expansion or new activity. The FRB has not advised the Company
of any specific minimum leverage ratio or tangible tier 1 leverage ratio
applicable to it.

                                       9
<PAGE>

         Each of the Company's bank subsidiaries is subject to similar capital
requirements adopted by the FDIC. Each of the Company's bank subsidiaries had
a leverage ratio in excess of five percent as of December 31, 2000. As of that
date, the federal banking agencies had not advised any of the bank
subsidiaries of any specific minimum leverage ratio applicable to it.

         Effective December 19, 1992, the federal bank regulatory agencies
adopted regulations which mandate a five-tier scheme of capital requirements
and corresponding supervisory actions to implement the prompt corrective
action provisions of FDICIA. The regulations include requirements for the
capital categories that will serve as benchmarks for mandatory supervisory
actions. Under the regulations, the highest of the five categories would be a
well capitalized institution with a total risk-based capital ratio of 10%, a
Tier 1 risk-based capital ratio of 6% and a Tier 1 leverage ratio of 5%. An
institution would be prohibited from declaring any dividends, making any other
capital distribution or paying a management fee if the capital ratios drop
below the levels for an adequately capitalized institution, which are 8%, 4%
and 4%, respectively. The corresponding provisions of FDICIA mandate
corrective actions be taken if a bank is undercapitalized. Based on the
Company and each of the bank subsidiaries capital ratios as of December 31,
2000, the Company and each of the bank subsidiaries were classified as "well
capitalized" under the applicable regulations.

         In 1995, in accordance with FDICIA, the FDIC modified its risk-based
capital adequacy guidelines to explicitly include a bank's exposure to
declines in the economic value of its capital due to changes in interest rates
as a factor that it will consider in evaluating a bank's capital adequacy. In
1996 the bank regulatory agencies introduced risk-based examination
procedures. Effective January 1, 1997, the federal banking agencies jointly
adopted regulations that amend the risk-based capital standards to incorporate
measures for market risk. Applicable banking institutions will be required to
adjust their risk-based capital ratio to reflect market risk. On December 19,
1996, the FFIEC revised the Uniform Financial Institutions Rating System
commonly referred to as the CAMEL rating system. A sixth component addressing
sensitivity to market risk was added. Sensitivity to market risk reflects the
degree to which changes in interest rates, foreign exchange rates, commodity
prices or equity prices can adversely affect a financial institution's
earnings or economic capital.

         STATE ENFORCEMENT POWERS. The Banking Commissioner of Texas may
determine to close a Texas state bank when he finds that the interests of
depositors and creditors of a state bank are jeopardized through its
insolvency or imminent insolvency and that it is in the best interest of such
depositors and creditors that the bank be closed. The Texas DOB also has broad
enforcement powers over the Bank, including the power to impose orders, remove
officers and directors, impose fines and appoint supervisors and conservators.

         DEPOSITOR PREFERENCE. Because the Company is a legal entity separate
and distinct from its bank subsidiaries, its right to participate in the
distribution of assets of any subsidiary upon the subsidiary's liquidation or
reorganization will be subject to the prior claims of the subsidiary's
creditors. In the event of a liquidation or other resolution of a subsidiary
bank, the claims of depositors and other general or subordinated creditors of
the bank are entitled to a priority of payment over the claims of holders of
any obligation of the institution to its shareholders, including any
depository institution holding company (such as the Company) or any
shareholder or creditor thereof.

         TEXAS LAW. Effective September 1, 1995, the new Texas Banking Act
("Act") became effective and the Texas Banking Code of 1943 was repealed. The
purpose of the Act was to modernize and streamline the Texas banking laws. One
of the many significant provisions of the Act adopts by reference the Texas
Business Corporation Act, subject to modification by the Banking Commissioner.
Among other matters, these corporate provisions will permit Texas state banks
to merge with non-banking business entities, while national banks are only
permitted to merge with banking entities. During 1997, the Texas Constitution
was amended to permit home equity lending in Texas effective January 1, 1998
and the Company's bank subsidiaries are currently offering home equity loans.

                                       10
<PAGE>

         CRA. Under the Community Reinvestment Act ("CRA"), the FDIC is
required to assess the record of each bank subsidiary to determine if the bank
meets the credit needs of its entire community, including low and
moderate-income neighborhoods served by the institution, and to take that
record into account in its evaluation of any application made by the bank for,
among other things, approval of the acquisition or establishment of a branch
or other deposit facility, an office relocation, a merger, or the acquisition
of shares of capital stock of another financial institution. The FDIC prepares
a written evaluation of an institution's record of meeting the credit needs of
its entire community and assigns a rating. FIRREA requires federal banking
agencies to make public a rating of a bank's performance under the CRA. Each
bank subsidiary received a "satisfactory" CRA rating in its most recently
completed examination. Further, there are fair lending laws which prohibit
discrimination in connection with lending decisions.

         CONSUMER LAWS. In addition to the laws and regulations discussed
herein, the Bank is also subject to certain consumer laws and regulations that
are designed to protect consumers in transactions with banks. While the list
set forth herein is not exhaustive, these laws and regulations include the
Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer
Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act,
and the Fair Housing Act, among others. These laws and regulations mandate
certain disclosure requirements and regulate the manner in which financial
institutions must deal with customers when taking deposits or making loans to
such customers. The Bank must comply with the applicable provisions of these
consumer protection laws and regulations as part of their ongoing customer
relations.

         AFFILIATE TRANSACTIONS. The Company, IBC and the other bank
subsidiaries of the Company are "affiliates" within the meaning of Section 23A
of the Federal Reserve Act which sets forth certain restrictions on loans and
extensions of credit between a bank subsidiary and affiliates, on investments
in an affiliate's stock or other securities, and on acceptance of such stock
or other securities as collateral for loans. Such restrictions prevent a bank
holding company from borrowing from any of its bank subsidiaries unless the
loans are secured by specific obligations. Further, such secured loans and
investments by a bank subsidiary are limited in amount, as to a bank holding
company or any other affiliate, to 10% of such bank subsidiary's capital and
surplus and, as to the bank holding company and its affiliates, to an
aggregate of 20% of such bank subsidiary's capital and surplus. Certain
restrictions do not apply to 80% or more owned sister banks of bank holding
companies. Each bank subsidiary of the Company is wholly-owned by the Company.
Section 23B of the Federal Reserve Act requires that the terms of affiliate
transactions be comparable to terms of similar non-affiliate transactions.

         INSIDER LOANS. The restrictions on loans to directors, executive
officers, principal shareholders and their related interests (collectively
referred to herein as "insiders") contained in the Federal Reserve Act and
Regulation O apply to all insured institutions and their subsidiaries and
holding companies. These restrictions include limits on loans to one borrower
and conditions that must be met before such a loan can be made. There is also
an aggregate limitation on all loans to insiders and their related interests.
These loans cannot exceed the institution's total unimpaired capital and
surplus, and the FDIC may determine that a lesser amount is appropriate.
Insiders are subject to enforcement actions for knowingly accepting loans in
violation of applicable restrictions.

         LENDING RESTRICTIONS. The operations of the Banks are also subject to
lending limit restrictions pertaining to the extension of credit and making of
loans to one borrower. Further, under the BHCA and the regulations of the FRB
thereunder, the Company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements with respect to any extension of credit or
provision of property or services; however, the FRB adopted a rule relaxing
tying restrictions by permitting a bank holding company to offer a discount on
products or services if a customer obtains other products or services from
such company.

         DIVIDENDS. The ability of the Company to pay dividends is largely
dependent on the amount of cash derived from dividends declared by its bank
subsidiaries. The

                                       11
<PAGE>

payment of dividends by any bank or bank holding company is affected by the
requirement to maintain adequate capital as discussed above. At December 31,
2000 there was an aggregate of approximately $68,119,000 available for the
payment of dividends to the Company by IBC, Commerce Bank, IBC Zapata and IBC
Brownsville under the applicable restrictions, assuming that each of such
banks continues to be classified as "well capitalized". Further, the Company
could expend the entire $68,119,000 and continue to be classified as "well
capitalized". Note 17 of notes to Consolidated Financial Statements of the
Company located on page 32 of the 2000 Annual Report is incorporated herein by
reference.

         POWERS. As a result of FDICIA, the authority of the FDIC over
state-chartered banks was expanded. FDICIA limits state-chartered banks to
only those principal activities permissible for national banks, except for
other activities specifically approved by the FDIC. The new Texas Banking Act
includes a parity provision which establishes procedures for state banks to
notify the Banking Commissioner if the bank intends to conduct any activity
permitted for a national bank that is otherwise denied to a state bank. The
Banking Commissioner has thirty (30) days to prohibit the activity. During
1999, a super parity provision was added to the Texas Finance Code which
established procedures for state banks to notify the Banking Commissioner if
the bank intends to conduct any activity permitted for any depository
institution in the United States. The Banking Commissioner has thirty (30)
days to prohibit the activity.

         FINANCIAL SUBSIDIARIES. Under GLBA, a national bank may establish a
financial subsidiary and engage, subject to limitations on investment, in
activities that are financial in nature, other than insurance underwriting as
principal, insurance company portfolio investment, real estate development,
real estate investment and annuity issuance. To do so, a bank must be well
capitalized, well managed and have a CRA rating of satisfactory or better.
Subsidiary banks of a financial holding company or national banks with
financial subsidiaries must remain well capitalized and well managed in order
to continue to engage in activities that are financial in nature without
regulatory actions or restrictions, which could include divestiture of the
financial subsidiary or subsidiaries. In addition, a bank may not acquire a
company that is engaged in activities that are financial in nature unless the
bank and each affiliated bank has a CRA rating of satisfactory or better.

         The powers of state-chartered banks that are not members of the
Federal Reserve System were not directly addressed by GLBA. However, Texas
state nonmember banks should indirectly benefit from the enhanced powers made
available to financial subsidiaries of national banks by GLBA through the
Texas parity statute, which authorizes state-chartered banks to engage in
powers available for national banks, subject to certain state and federal law
restrictions.

         INSTABILITY OF REGULATORY STRUCTURE. New legislation could be adopted
which would change banking statutes and the operating environment of the
Company and the bank subsidiaries in substantial and unpredictable ways. The
Company cannot determine the ultimate effect that GLBA will have or the effect
that potential legislation, if enacted, or implementing regulations with
respect thereto, would have upon the financial condition or results of
operations of the Company or its subsidiaries.

                                       12
<PAGE>

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY

         The main areas in which the Company has directed its lendable assets
are (i) commercial, financial and industrial loans; (ii) real estate loans;
and (iii) loans to individuals for household, family and other consumer
expenditures. The relationship that these three categories of loans bear to
the total assets of the Company and other detailed statistical information
about the business of the Company are presented on the following pages.

         The following table sets forth a comparative summary of average
interest earning assets and average interest bearing liabilities and related
interest yields for the years ended December 31, 2000, 1999 and 1998 (Dollars
in Thousands) (Note 1). Nonaccrual loans have been included in assets for the
purpose of this analysis:
<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                  -------------------------------------------------------------------------------------------------
                                                 2000                           1999                           1998
                                  -------------------------------------------------------------------------------------------------
                                      AVERAGE             AVERAGE    AVERAGE             AVERAGE    AVERAGE             AVERAGE
                                      BALANCE  INTEREST  RATE/COST   BALANCE  INTEREST  RATE/COST   BALANCE  INTEREST  RATE/COST
                                      -------  --------  ---------   -------  --------  ---------   -------  --------  ---------
   ASSETS
   ------
<S>                                <C>         <C>       <C>       <C>        <C>       <C>        <C>       <C>       <C>
INTEREST EARNING ASSETS:
   LOANS, NET OF UNEARNED DISCOUNTS:
     DOMESTIC                      $ 1,856,462  $189,696   10.22%  $ 1,540,536  $144,788    9.40%  $ 1,351,796  $133,221    9.86%
     FOREIGN                           247,130    22,826    9.24       191,105    15,317    8.01       141,869    11,795    8.31
   INVESTMENT SECURITIES:
     TAXABLE                         2,932,778   202,579    6.91     2,762,895   175,042    6.34     2,771,927   179,030    6.46
     TAX-EXEMPT                         91,236     5,119    5.61        87,744     4,432    5.05         4,824       241    5.00
   TIME DEPOSITS WITH BANKS              2,135       157    7.35         1,640       104    6.34         1,005        89    8.86
   FEDERAL FUNDS SOLD                   15,180       929    6.12        14,148       710    5.02        22,738     1,462    6.43
   OTHER                                 2,568       321   12.50         2,744       343   12.50         2,686       336   12.51
                                   -----------  --------   -----   -----------  --------   -----   -----------  --------   -----
     TOTAL INTEREST-EARNING ASSETS $ 5,147,489  $421,627    8.19   $ 4,600,812  $340,736    7.41   $ 4,296,845  $326,174    7.59

NON-INTEREST EARNING ASSETS:
   CASH AND DUE FROM BANKS         $   110,843                     $   110,704                     $   131,539
   BANK PREMISES AND EQUIPMENT, NET    148,579                         142,098                         134,152
   OTHER ASSETS                        276,178                         219,041                         132,620
   LESS ALLOWANCE FOR POSSIBLE
     LOAN LOSSES                       (29,201)                        (26,797)                        (25,837)
                                   -----------                     -----------                     -----------
     TOTAL                         $ 5,653,888                     $ 5,045,858                     $ 4,669,319
                                   ===========                     ===========                     ===========
   LIABILITIES AND
   ---------------
   SHAREHOLDERS' EQUITY
   --------------------

INTEREST BEARING LIABILITIES:
   SAVINGS AND INTEREST BEARING
     DEMAND DEPOSITS               $   907,402  $ 27,945    3.08%  $   937,322  $ 27,182    2.90%  $   867,594 $ 26,419    3.05%
   TIME DEPOSITS:
     DOMESTIC                          966,670    53,115    5.49       929,627    46,948    5.05     1,009,000   53,230    5.28
     FOREIGN                         1,228,445    67,628    5.51     1,134,484    50,678    4.47       964,459   48,593    5.04
   SECURITIES SOLD UNDER
     REPURCHASE AGREEMENTS AND
     FEDERAL FUNDS PURCHASED           149,802     8,160    5.45       105,039     6,047    5.76       257,589   13,396    5.20
   OTHER BORROWINGS                  1,467,692    94,908    6.47     1,064,307    54,340    5.11       751,628   39,969    5.32
   OTHER                                  -         -        -            -           10     -           2,664      302   11.34
                                   -----------  --------   -----   -----------  --------   -----   -----------  --------   -----
     TOTAL INTEREST BEARING
       LIABILITIES                 $ 4,720,011  $251,756    5.33   $ 4,170,779  $185,205    4.44   $ 3,852,934 $181,909    4.72

NON-INTEREST BEARING LIABILITIES:
   DEMAND DEPOSITS                     532,434                         462,510                         433,863
   OTHER LIABILITIES                    42,093                          42,016                          35,532
SHAREHOLDERS' EQUITY                   359,350                         370,553                         346,990
                                   -----------                     -----------                     -----------
     TOTAL                         $ 5,653,888                     $ 5,045,858                     $ 4,669,319
                                   ===========                     ===========                     ===========

          NET INTEREST INCOME                   $169,871                        $155,531                       $144,265
                                                ========                        ========                       ========
          NET YIELD ON INTEREST
            EARNING ASSETS                                  3.30%                           3.38%                          3.36%
                                                            ====                            ====                           ====
</TABLE>

(NOTE 1) THE AVERAGE BALANCES FOR PURPOSES OF THE ABOVE TABLE ARE CALCULATED ON
THE BASIS OF MONTH-END BALANCES.


                                       13
<PAGE>

                    INTEREST RATES AND INTEREST DIFFERENTIAL

     The following table analyzes the changes in net interest income during 2000
and 1999 and the relative effect of changes in interest rates and volumes for
each major classification of interest earning assets and interest-bearing
liabilities. Nonaccrual loans have been included in assets for the purpose of
this analysis, which reduces the resulting yields (Note 1):
<TABLE>
<CAPTION>
                               2000 COMPARED TO 1999        1999 COMPARED TO 1998
                             -------------------------    -------------------------
                              NET INCREASE (DECREASE)      NET INCREASE (DECREASE)
                                       DUE TO                       DUE TO
                             -------------------------    -------------------------
                             VOLUME     RATE     TOTAL    VOLUME     RATE     TOTAL
                             ------     ----     -----    ------     ----     -----
                               (DOLLARS IN THOUSANDS)       (DOLLARS IN THOUSANDS)
<S>                         <C>       <C>      <C>       <C>      <C>       <C>
Interest earned on:
  Loans, net of unearned discounts:
    Domestic                $31,506   $13,402  $44,908   $17,992  $ (6,425) $11,567
    Foreign                   4,928     2,581    7,509     3,961      (439)   3,522
  Investment securities:
    Taxable                  11,184    16,353   27,537      (595)   (3,393)  (3,988)
    Tax-exempt                  181       506      687     4,189         2    4,191
  Time deposits with banks       35        18       53        45       (30)      15
  Federal funds sold             55       164      219      (476)     (276)    (752)
  Other                         (22)      -        (22)        7       -          7
                            -------   -------  -------   -------  --------  -------
  Total interest income     $47,867   $33,024  $80,891   $25,123  $(10,561) $14,562
                            -------   -------  -------   -------  --------  -------

Interest incurred on:
  Savings and interest
    bearing demand deposits $  (887)  $ 1,650      763   $ 2,088  $ (1,325) $   763
  Time deposits:
    Domestic                  1,935     4,232    6,167    (4,043)   (2,239)  (6,282)
    Foreign                   4,450    12,500   16,950     7,968    (5,883)   2,085
  Securities sold under
    repurchase agreements and
    federal funds purchased   2,454      (341)   2,113    (8,659)    1,310   (7,349)
  Other borrowings           23,833    16,735   40,568    16,009    (1,638)  14,371
  Other                        -         -        -         (292)      -       (292)
                            -------   -------  -------   -------  --------  -------
  Total interest expense    $31,785   $34,776  $66,561   $13,071  $ (9,775) $ 3,296
                            -------   -------  -------   -------  --------  -------
Net interest income         $16,082   $(1,752) $14,330   $12,052  $   (786) $11,266
                            =======   =======  =======   =======  ========  =======
</TABLE>

(Note 1) The change in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.


                                       14
<PAGE>

                            INTEREST RATE SENSITIVITY

     The net interest rate sensitivity as of December 31, 2000 is illustrated in
the following table. This information reflects the balances of assets and
liabilities whose rates are subject to change. As indicated in the table, the
Company is liability sensitive during the early time periods and is asset
sensitive in the longer periods. The table shows the sensitivity of the balance
sheet at one point in time and is not necessarily indicative of the position at
future dates.
<TABLE>
<CAPTION>
                                          RATE/MATURITY  RATE/MATURITY  RATE/MATURITY  RATE/MATURITY
     DECEMBER 31, 2000                       3 MONTHS    OVER 3 MONTHS    OVER 1 YEAR      OVER
     (DOLLARS IN THOUSANDS)                  OR LESS       TO 1 YEAR      TO 5 YEARS      5 YEARS     TOTAL
     =========================================================================================================
<S>                                     <C>           <C>           <C>              <C>           <C>
     SECTION A
     ---------------------------------------------------------------------------------------------------------
     RATE SENSITIVE ASSETS

     FEDERAL FUNDS SOLD                 $       500           -              -               -     $       500
     DUE FROM BANK INTEREST EARNING             590         1,782             99             -           2,471
     INVESTMENT SECURITIES                  180,225       230,277      2,479,729         208,615     3,098,846
     LOANS, NET OF NON-ACCRUALS           1,608,983       182,262        263,671         189,289     2,244,205
     ---------------------------------------------------------------------------------------------------------
     TOTAL EARNING ASSETS               $ 1,790,298   $   414,321    $ 2,743,499     $   397,904   $ 5,346,022
     ---------------------------------------------------------------------------------------------------------
     CUMULATIVE EARNING ASSETS          $ 1,790,298   $ 2,204,619    $ 4,948,118     $ 5,346,022
     =========================================================================================================
     SECTION B
     ---------------------------------------------------------------------------------------------------------
     RATE SENSITIVE LIABILITIES

     TIME DEPOSITS                      $ 1,127,572   $   954,858    $   174,350     $       243   $ 2,257,023
     OTHER INTEREST BEARING DEPOSITS        913,894           -              -               -         913,894
     FED FUNDS PURCHASED AND REPOS           82,743       147,365            -               -         230,108
     OTHER BORROWINGS                     1,432,500           -              -               -       1,432,500
     ---------------------------------------------------------------------------------------------------------
     TOTAL INTEREST BEARING LIABILITIES $ 3,556,709   $ 1,102,223    $   174,350     $       243   $ 4,833,525
     ---------------------------------------------------------------------------------------------------------
     CUMULATIVE SENSITIVE LIABILITIES   $ 3,556,709   $ 4,658,932    $ 4,833,282     $ 4,833,525
     =========================================================================================================
     SECTION C
     ---------------------------------------------------------------------------------------------------------
     REPRICING GAP                      $(1,766,411)  $ (687,902)    $ 2,569,149     $   397,661   $   512,497
     CUMULATIVE REPRICING GAP            (1,766,411)  (2,454,313)        114,836         512,497       512,497
     RATIO OF INTEREST-SENSITIVE
        ASSETS TO LIABILITIES                   .50          .38           15.74             -            1.11
     RATIO OF CUMULATIVE, INTEREST-
        SENSITIVE ASSETS TO LIABILITIES         .50          .47            1.02           1.11
     =========================================================================================================
</TABLE>

                                       15
<PAGE>

                              INVESTMENT SECURITIES

     The following table sets forth the carrying value of investment securities
as of December 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
                                         YEARS ENDED DECEMBER 31,
                                     ----------------------------------
                                      2000          1999          1998
                                     ----------------------------------
                                         (DOLLARS IN THOUSANDS)
<S>                              <C>           <C>           <C>
     U.S. Treasury securities
       Available for sale        $   244,811   $   260,980   $   207,688
     Mortgage-backed securities
       Available for sale          2,583,323     2,491,963     2,551,395
     Obligations of states and
      political subdivisions
       Held to maturity                   60           321           518
       Available for sale             96,791        90,416        28,200
     Equity securities
       Available for sale             85,978        75,798        62,995
     Other securities
       Held to maturity                2,160         2,085         1,990
       Available for sale             85,723        74,154       155,091
                                 -----------   -----------   -----------
           Total                 $ 3,098,846   $ 2,995,717   $ 3,007,877
                                 ===========   ===========   ===========
</TABLE>

     The following tables set forth the contractual maturities of investment
securities at December 31, 2000 and the average yields of such securities,
except for the totals which reflect the weighted average yields. Actual
maturities will differ from contractual maturities because borrowers may have
the right to prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
                                            AVAILABLE FOR SALE
                                                MATURING
                                     ----------------------------------
                                       AFTER ONE      AFTER FIVE
                        WITHIN        BUT WITHIN      BUT WITHIN           AFTER
                       ONE YEAR       FIVE YEARS      TEN YEARS          TEN YEARS
                       --------       ----------      ---------          ---------
                       ADJUSTED        ADJUSTED        ADJUSTED          ADJUSTED
                     COST   YIELD    COST   YIELD    COST   YIELD      COST   YIELD
                     ----   -----    ----   -----    ----   -----      ----   -----
                                          (DOLLARS IN THOUSANDS)
<S>                  <C>    <C>    <C>      <C>    <C>      <C>    <C>        <C>
U.S. Treasury and
  obligations of
  other U.S. Govern-
  agencies          $  743  5.55%  $   -     -  %  $ 20,000 7.00%  $  258,142 6.78%
Mortgage-backed
  securities         9,298  6.92    181,766 6.81    173,215 7.54    2,201,363 7.15
Obligations of states
  and political
  subdivisions        -      -          537 7.50       -     -        101,851 4.47
Other securities      -      -         -     -         -     -         93,232 7.56
Equity securities   85,960  5.75       -     -         -     -           -     -
                  --------         --------        --------        ----------
          Total   $ 96,001  5.86%  $182,303 6.81%  $193,215 7.49%  $2,654,588 7.02%
                  ========         ========        ========        ==========
</TABLE>

                                       16
<PAGE>
<TABLE>
<CAPTION>
                                            HELD TO MATURITY
                                                MATURING
                      -------------------------------------------------------------
                                       AFTER ONE      AFTER FIVE
                        WITHIN        BUT WITHIN      BUT WITHIN           AFTER
                       ONE YEAR       FIVE YEARS      TEN YEARS          TEN YEARS
                       --------       ----------      ---------          ---------
                       ADJUSTED        ADJUSTED        ADJUSTED          ADJUSTED
                     COST   YIELD    COST   YIELD    COST   YIELD      COST   YIELD
                     ----   -----    ----   -----    ----   -----      ----   -----
                                          (DOLLARS IN THOUSANDS)
<S>                  <C>    <C>      <C>    <C>      <C>    <C>        <C>    <C>
Obligations of states
  and political
  subdivisions       $    60 7.70%   $  -     -  %     $  -   -  %     $  -     -  %
Other securities       1,550 8.00       485  7.82        125 6.95         -     -
                     -------         ------            -----           -----
         Total       $ 1,610 7.99%   $  485  7.82%     $ 125 6.95%     $  -     -  %
                     =======         ======            =====           =====
</TABLE>

Mortgage-backed securities are primarily securities issued by the Federal Home
Loan Mortgage Corporation ("Freddie Mac") and Federal National Mortgage
Association ("Fannie Mae").

                                 LOAN PORTFOLIO

     The amounts of loans outstanding, by classification, at December 31, 2000,
1999, 1998, 1997 and 1996 are shown in the following table:
<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                               -----------------------------------------------------
                               2000        1999        1998        1997        1996
                               ----        ----        ----        ----        ----
                                                 (DOLLARS IN THOUSANDS)
<S>                       <C>         <C>         <C>          <C>        <C>
Commercial, financial
  and agricultural        $1,286,576  $1,115,511  $  896,060   $ 800,964  $  723,061
Real estate-mortgage         287,319     278,819     215,689     188,122     193,101
Real estate-construction     232,589     129,813      94,374      59,239      32,610
Consumer                     165,875     171,104     250,917     272,478     161,594
Foreign                      278,119     216,632     166,324     130,401     128,932
                          ----------  ----------  ----------  ----------  ----------
     Total loans           2,250,478   1,911,879   1,623,364   1,451,204   1,239,298

Unearned discount             (7,199)     (8,355)     (8,025)     (6,508)     (3,303)
                          ----------  ----------  ----------  ----------  ----------
     Loans, net of
     unearned discount    $2,243,279  $1,903,524  $1,615,339  $1,444,696  $1,235,995
                          ==========  ==========  ==========  ==========  ==========
</TABLE>

     The table on the following page shows the amounts of loans (excluding real
estate mortgages and consumer loans) outstanding as of December 31, 2000 which,
based on remaining scheduled repayments of principal, are due in the years
indicated. Also, the amounts due after one year are classified according to the
sensitivity to changes in interest rates:


                                       17
<PAGE>
<TABLE>
<CAPTION>
                                                      MATURING
                                  -------------------------------------------------
                                               AFTER ONE
                                   WITHIN     BUT WITHIN       AFTER
                                  ONE YEAR    FIVE YEARS     FIVE YEARS     TOTAL
                                  --------    ----------     ----------     -----
                                                (DOLLARS IN THOUSANDS)
<S>                              <C>          <C>           <C>         <C>
Commercial, financial and
  agricultural                   $ 449,932    $ 705,005     $ 131,639   $ 1,286,576
Real estate - construction         159,378       65,314         7,897       232,589
Foreign                            119,326      147,467        11,326       278,119
                                 ---------    ---------     ---------   -----------
          Total                  $ 728,636    $ 917,786     $ 150,862   $ 1,797,284
                                 =========    =========     =========   ===========
</TABLE>
<TABLE>
<CAPTION>
                                                INTEREST SENSITIVITY
                                                --------------------
                                                 FIXED      VARIABLE
                                                 RATE         RATE
                                                 ----         ----
                                               (DOLLARS IN THOUSANDS)
<S>                                           <C>           <C>
Due after one but within five years           $ 198,241     $ 719,545
Due after five years                             83,308        67,554
                                              ---------     ---------
          Total                               $ 281,549     $ 787,099
                                              =========     =========
</TABLE>

     The following table presents information concerning the aggregate amount of
non-accrual, past due and restructured domestic loans; certain loans may be
classified in one or more category:
<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
                            --------------------------------------------------------
                               2000        1999        1998       1997        1996
                               ----        ----        ----       ----        ----
                                             (DOLLARS IN THOUSANDS)
<S>                         <C>         <C>         <C>         <C>        <C>
Loans accounted for on
  a non-accrual basis       $ 6,191     $ 7,234     $ 4,868     $ 5,014    $ 3,363
Loans contractually
  past due ninety days
  or more as to interest
  or principal payments       7,064      13,758       8,543       9,700      5,075
Loans accounted for
  as "troubled debt
  restructuring"                491         543         592         363      1,462
</TABLE>

     The following table presents information concerning the aggregate amount of
non-accrual and past due foreign loans extended to persons or entities in Mexico
or to the Mexican Government, certain loans may be classified in one or more
category:
<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
                             ------------------------------------------------------
                               2000        1999        1998       1997        1996
                               ----        ----        ----       ----        ----
                                              (DOLLARS IN THOUSANDS)
<S>                         <C>         <C>         <C>         <C>        <C>
Loans accounted for on
  a non-accrual basis       $    82     $   428     $   670     $   728    $ 1,062
Loans contractually
  past due ninety days
  or more as to interest
  or principal payments         258         490         242       2,096      1,321
</TABLE>

         The gross income that would have been recorded during 2000 on
non-accrual and restructured loans in accordance with their original contract
terms was $722,000 on domestic loans and $120,000 on foreign loans. The amount
of interest income on such loans that was recognized in 2000 was $10,000 on
domestic loans and none for foreign loans.


                                       18
<PAGE>

     The non-accrual loan policy of the bank subsidiaries is to discontinue the
accrual of interest on loans when management determines that it is probable that
future interest accruals will be uncollectible. Interest income on non-accrual
loans is recognized only to the extent payments are received or when, in
management's opinion, the creditor's financial condition warrants
reestablishment of interest accruals. Under special circumstances, a loan may be
more than 90 days delinquent as to interest or principal and not be placed on
non-accrual status. When any of the above occurs, loan officers are required to
recommend placing a loan on non-accrual status by sending a memo to the senior
loan officer who gives instructions to the commercial note teller that the loan
is on non-accrual status. When a loan is placed on non-accrual status, any
interest accrued but not paid is reversed and charged to operations against
interest income.

     The preceding tables indicate that there are certain loans technically past
due 90 days or more on performing status. This situation generally results when
a bank subsidiary has a borrower who is experiencing financial difficulties but
not to the extent that requires a restructuring of indebtedness. The majority of
this category is composed of loans that are considered to be adequately secured
and/or for which there has been a recent payment.

     The Company believes, after reviewing each bank subsidiary's loan
portfolio, that the majority of the loans with a loss potential have been
included under the categories of past due and non-accrual. Adjustments to the
loan loss allowance have been made for other credits that may have
characteristics indicating a potential for future non-performing status and some
possible loss.

     The following table presents certain information about cross-border
outstanding loans, acceptances, and accrued interest thereon, related to Mexico:
<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                                          ------------------------------------
                                          2000           1999           1998
                                          ----           ----           ----
                                                (DOLLARS IN THOUSANDS)
<S>                                   <C>            <C>            <C>
Loans:
  Commercial, financial and
    agricultural                      $ 242,450      $ 184,129      $ 135,328
  Real estate-mortgage                    8,674          9,388          8,133
  Consumer                               26,995         23,115         22,863
                                      ---------      ---------      ---------
                                        278,119        216,632        166,324
  Less allowance for possible
    loan losses                          (1,831)        (1,322)        (1,124)
                                      ---------      ---------      ---------
           Net loans                  $ 276,288      $ 215,310      $ 165,200
                                      =========      =========      =========

Accrued interest receivable           $   2,630      $   1,725      $   1,327
                                      =========      =========      =========
</TABLE>

                                       19
<PAGE>

                         SUMMARY OF LOAN LOSS EXPERIENCE

     The following table summarizes loan balances at the end of each year and
average loans outstanding during the year; changes in the allowance for possible
loan losses arising from loans charged-off and recoveries on loans previously
charged-off by loan category; and additions to the allowance which have been
charged to expense:
<TABLE>
<CAPTION>
                                                    AT YEARS ENDED DECEMBER 31,
                                      --------------------------------------------------------
                                        2000        1999        1998        1997        1996
                                        ----        ----        ----        ----        ----
                                                   (DOLLARS IN THOUSANDS)
<S>                                <C>         <C>         <C>         <C>         <C>
Loans, net of unearned discounts,
  outstanding at December 31,      $2,243,279  $1,903,524  $1,615,339  $1,444,696  $1,235,995
                                   ==========  ==========  ==========  ==========  ==========
Average loans outstanding during
  the year (Note 1)                $2,103,593  $1,731,640  $1,493,664  $1,281,489  $1,199,591
                                   ==========  ==========  ==========  ==========  ==========
Balance of allowance

  at January 1,                      $ 26,770    $ 25,551    $ 24,516    $ 21,036    $ 18,455
Provision charged to expense            6,824       6,379       8,571       7,740       6,630
                                   ----------  ----------  ----------  ----------  ----------
Loans charged-off:
  Domestic:
  Commercial, financial
   and agricultural                    (1,161)     (1,634)     (2,180)     (1,503)     (1,518)
  Real estate-mortgage                   (176)       (227)       (157)       (279)       (261)
  Consumer                             (2,323)     (4,688)     (6,483)     (4,552)     (3,363)
  Foreign                                 (22)        -           (65)         (2)        (23)
                                          ---                     ---          --         ---
Total loans charged-off                (3,682)     (6,549)     (8,885)     (6,336)     (5,165)
                                   ----------  ----------  ----------  ----------  ----------
Recoveries credited to allowance:
  Domestic:
  Commercial, financial
    and agricultural                      502         735         795         270         305
  Real estate mortgage                     69          89          18         382          51
  Consumer                                327         564         531         250         755
  Foreign                                   2           1           5          95           5
                                   ----------  ----------  ----------  ----------  ----------
Total recoveries                          900       1,389       1,349         997       1,116
                                   ----------  ----------  ----------  ----------  ----------

Net loans charged-off:                 (2,782)     (5,160)     (7,536)     (5,339)     (4,049)
                                   ----------  ----------  ----------  ----------  ----------
Allowance acquired in purchase
  transactions                            -           -           -         1,079         -
                                   ----------  ----------  ----------  ----------  ----------
Balance of allowance
  at December 31,                    $ 30,812    $ 26,770    $ 25,551    $ 24,516    $ 21,036
                                   ==========  ==========  ==========  ==========  ==========

Ratio of net loans charged-off
  during the year to average
  loans outstanding during
  the year (Note 1)                       .13%       .30%        .50%        .42%        .34%
                                   ==========  ==========  ==========  ==========  ==========
Ratio of allowance to loans, net
  of unearned discounts, out-
  standing at December 31,               1.37%      1.41%       1.58%       1.70%       1.70%
                                   ==========  ==========  ==========  ==========  ==========
</TABLE>

(Note 1) The average balances for purposes of the above table are calculated on
the basis of month-end balances.


                                       20
<PAGE>

         Each bank subsidiary has always provided an amount for possible loan
losses sufficient both to cover net loan losses sustained and to maintain an
appropriate balance in the allowance for possible loan losses that considers the
element of risk which is estimated to be present in outstanding loans. The
aggregate allowance for possible loan losses of all bank subsidiaries
approximated 1.37% and 1.41% of total loans of bank subsidiaries, net of
unearned income, for December 31, 2000 and 1999, respectively.

         The amount charged against 2000 earnings and the other years presented
as a provision for possible loan losses was the sum required to bring the
allowance to the point which management of each bank subsidiary considers
adequate to cover potential loan losses. Such a determination is based on a
continual and conservative review process of the loan portfolio performed by
senior officers of each bank subsidiary who consider certain factors, including
but not limited to, previous loss experience in portfolio segments and
assessment of current economic conditions.

         The allowance for possible loan losses has been allocated based on the
amount management has deemed to be reasonably necessary to provide for the
possibility of losses being incurred within the following categories of loans at
the dates indicated and the percentage of loans to total loans in each category:
<TABLE>
<CAPTION>
                                                                   AT DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------------
                           2000                    1999                   1998                  1997                 1996
                    -------------------     -------------------    -------------------   -------------------  -------------------
                                PERCENT                 PERCENT                PERCENT               PERCENT              PERCENT
                    ALLOWANCE  OF LOANS     ALLOWANCE  OF LOANS    ALLOWANCE  OF LOANS   ALLOWANCE  OF LOANS  ALLOWANCE  OF LOANS
                    ---------  --------     ---------  --------    ---------  -------    ---------  --------  ---------  --------
                                                              (DOLLARS IN THOUSANDS)
<S>                 <C>        <C>          <C>        <C>         <C>         <C>      <C>         <C>       <C>        <C>
COMMERCIAL,
  FINANCIAL AND
  AGRICULTURAL       $ 18,904    57.2%      $ 16,745    58.4%      $ 15,022    55.2%      $ 14,149    55.2%  $ 12,981    58.3%
REAL ESTATE
  MORTGAGE              4,222    12.8          4,185    14.6          3,616    13.3          3,323     12.9     3,467    15.6
REAL ESTATE
  CONSTRUCTION          3,418    10.3          1,949     6.8          1,582     5.8          1,047      4.1       586     2.6
CONSUMER                2,437     7.4          2,569     8.9          4,207    15.5          4,813     18.8     2,901    13.1
FOREIGN                 1,831    12.3          1,322    11.3          1,124    10.2          1,184      9.0     1,101    10.4
                     --------   -----       --------   -----       --------   -----       --------   ------  --------   -----
                     $ 30,812   100.0%      $ 26,770   100.0%      $ 25,551   100.0%      $ 24,516   100.0%  $ 21,036   100.0%
                     ========   =====       ========   =====       ========   =====       ========   =====   ========   =====
</TABLE>

                                       21
<PAGE>

                                    DEPOSITS

     The average amount of deposits, based on month-end balances and interest
expense is summarized for the years indicated in the following table:
<TABLE>
<CAPTION>
                                                  FOR THE YEARS ENDED DECEMBER 31,
                                             ------------------------------------------
                                                 2000           1999           1998
                                                 ----           ----           ----
                                                       (DOLLARS IN THOUSANDS)
<S>                                          <C>            <C>            <C>
   Deposits:
          Demand - non-interest bearing
                 Domestic                    $ 463,964      $ 402,738      $ 377,084
                 Foreign                        68,470         59,772         56,779
                                             ---------      ---------      ---------
                 Total demand non-interest
                   bearing                     532,434        462,510        433,863
                                             ---------      ---------      ---------
          Savings and interest bearing demand
                 Domestic                      683,636        724,321        660,870
                 Foreign                       223,766        213,001        206,724
                                             ---------      ---------      ---------
                 Total savings and interest
                   bearing demand              907,402        937,322        867,594
                                             ---------      ---------      ---------

          Time certificates of deposit $100,000 or more:

                 Domestic                      506,929        466,384        465,789
                 Foreign                       919,050        840,059        713,060

            Less than $100,000:
                 Domestic                      459,741        463,243        543,211
                 Foreign                       309,395        294,425        251,399
                                             ---------      ---------      ---------
          Total time, certificates of
              deposit                        2,195,115      2,064,111      1,973,459
                                             ---------      ---------      ---------

          Total deposits                   $ 3,634,951    $ 3,463,943    $ 3,274,916
                                           ===========    ===========    ===========
<CAPTION>
                                                  FOR THE YEARS ENDED DECEMBER 31,
                                             ------------------------------------------
                                                 2000           1999           1998
                                                 ----           ----           ----
                                                       (DOLLARS IN THOUSANDS)
<S>                                          <C>            <C>            <C>
       Interest Expense:
          Savings and interest bearing demand
                 Domestic                     $ 21,756       $ 21,678       $ 21,580
                 Foreign                         6,189          5,504          4,839
                                             ---------      ---------      ---------
          Total savings and interest
            bearing demand                    $ 27,945       $ 27,182       $ 26,419
                                             ---------      ---------      ---------

          Time, certificates of deposit
            $100,000 or more
                 Domestic                     $ 28,359       $ 22,790       $ 24,484
                 Foreign                        51,675         38,497         36,865
            Less than $100,000
                 Domestic                       24,756         24,158         28,746
                 Foreign                        15,953         12,181         11,728
                                             ---------      ---------      ---------
          Total time, certificates
                   of deposit                 $120,743       $ 97,626       $101,823
                                             ---------      ---------      ---------

          Total interest expense on deposits  $148,688       $124,808       $128,242
                                             =========      =========      =========
</TABLE>

                                       22
<PAGE>

     Maturities of time certificates of deposit outstanding at December 31, 2000
are summarized as follows:
<TABLE>
<CAPTION>
                                                    DECEMBER 31, 2000
                                                    ------------------
                                         $100,000 OR MORE       LESS THAN $100,000
                                         ----------------       ------------------
                                                  (DOLLARS IN THOUSANDS)
<S>                                      <C>                    <C>
      3 months or less                    $   724,615             $   402,956
      Over 3 but through 12 months            646,585                 308,273
      Over 12 months                           95,831                  78,763
                                          -----------             -----------

           Total                          $ 1,467,031             $   789,992
                                          ===========             ===========
</TABLE>

                           RETURN ON EQUITY AND ASSETS

     Certain key ratios for the Company for the years ended December 31, 2000,
1999 and 1998 follows (Note 1):
<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                                            -------------------------------
                                             2000         1999        1998
                                             ----         ----        ----
<S>                                         <C>          <C>         <C>
Percentage of net income to:
   Average shareholders' equity             20.92%       17.88%      15.48%
   Average total assets                      1.33         1.31        1.15
Percentage of average shareholders'
   equity to average total assets            6.36         7.34        7.43
Percentage of cash dividends per share
   to net income per share                  31.23        28.63       23.65
</TABLE>

(Note 1) The average balances for purposes of the above table are calculated on
the basis of month-end balances.

                               FOREIGN ACTIVITIES

     Information regarding foreign activities has been provided in the
preceding sections and Note 11 of notes to consolidated financial statements
located on page 27 of the 2000 Annual Report to Shareholders which is
incorporated herein by reference.

ITEM 2.  PROPERTIES

     The principal offices of the Company and IBC are located at 1200 San
Bernardo Avenue, Laredo, Texas in a modern building owned and completely
occupied by the Company and IBC and containing approximately 97,000 square
feet. The bank subsidiaries of IBC have over 100 main banking and branch
facilities. All the facilities are customary to the banking industry. Most of
the bank subsidiaries own their banking facilities and the remainder are
leased. The facilities are located in Laredo, San Antonio, Houston, Zapata,
the Rio Grande Valley of Texas and the Coastal Bend area of Texas.

     As Texas state-chartered banks, no bank subsidiary of the Company may,
without the prior written consent of the Banking Commissioner, invest an
amount in excess of its capital and certified surplus in bank facilities,
furniture, fixtures and equipment. None of the Company's bank subsidiaries
exceed such limitation.

ITEM 3.  LEGAL PROCEEDINGS

     The Company and its bank subsidiaries are 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 and its subsidiaries have
determined, based on discussions with their 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
financial condition or results of operations of the Company and its
subsidiaries. However, many of these matters are in various stages

                                       23
<PAGE>

of proceedings and further developments could cause management to revise its
assessment of these matters. Further information regarding legal proceedings
has been provided in Note 14 of the notes to consolidated financial statements
located on page 31 of the 2000 Annual Report to Shareholders which is
incorporated herein by reference.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Since the 2000 Annual Meeting of Shareholders of the Company held on May
18, 2000, no matter was submitted to a vote of Registrant's security holders
through the solicitation of proxies or otherwise.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

     Certain information is set forth in the following table concerning the
executive officers of the Company, each of whom has been elected to serve
until the 2000 Annual Meeting of shareholders and until his successor is duly
elected and qualified.
<TABLE>
<CAPTION>
                                                               OFFICER OF THE
     NAME             AGE     POSITION OF OFFICE                COMPANY SINCE
     ----             ---     ------------------                -------------
<S>                   <C>     <C>                              <C>
Dennis E. Nixon        58     Chairman of the Board and             1979
                              President of the Company,
                              Chief Executive Officer of IBC

Leonardo Salinas       67     Vice President of the Company         1982 (Note 1)

R. David Guerra        48     Vice President of the Company         1986
                              and President of IBC McAllen
                              Branch

Imelda Navarro         43     Treasurer of the Company              1982
                              and Senior Executive Vice
                              President of IBC
</TABLE>
- ------------------
(Note 1) Retired as an Officer of the Company and IBC in June 2000 however he
         still serves as a Director.

There are no family relationships among any of the named persons. Each
executive officer has held the same position or another executive position
with the Company or IBC during the past five years.

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
         MATTERS

     The information set forth under the caption "Common Stock and Dividends"
located on page 9 of Registrant's 2000 Annual Report is incorporated herein by
reference.

ITEM 6.  SELECTED FINANCIAL DATA

     The information set forth under the caption "Selected Financial Data"
located on page 1 of Registrant's 2000 Annual Report is incorporated herein by
reference.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

     The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" located on pages 2
through 10 of Registrant's 2000 Annual Report is incorporated herein by
reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The information set forth under the caption "Liquidity and Capital
Resources" located on pages 6 through 8 of the Registrant's 2000 Annual Report
is incorporated herein by reference.

                                       24
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements located on pages 12 through 40 of
Registrant's 2000 Annual Report are incorporated herein by reference.

     The condensed quarterly income statements located on page 41 of
Registrant's 2000 Annual Report are incorporated herein by reference.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     There is incorporated in this Item 10 by reference (i) that portion of
the Company's definitive proxy statement dated April 16, 2001 entitled
"Election of Directors" and (ii) Item 4A of this report entitled "Executive
Officers of the Registrant."

ITEM 11. EXECUTIVE COMPENSATION

     There are incorporated in this Item 11 by reference those portions of the
Company's definitive proxy statement dated April 16, 2001 entitled "Executive
Compensation"; provided, however, that such incorporation by reference shall
not include the information referred to in item 402(a)(8) of Securities and
Exchange Commission Regulation S-K.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     There are incorporated in this Item 12 by reference those portions of the
Company's definitive proxy statement dated April 16, 2001 entitled "Principal
Shareholders" and "Security Ownership of Management."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     There is incorporated in this Item 13 by reference that portion of the
Company's definitive proxy statement dated April 16, 2001 entitled "Interest
of Management in Certain Transactions."

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  DOCUMENTS

     1.       The consolidated financial statements of the Company and
              subsidiaries are incorporated into Item 8 of this report by
              reference from the 2000 Annual Report to Shareholders filed as an
              exhibit hereto and they include:

              Independent Auditors' Report

              Consolidated:
              Statements of Condition as of December 31, 2000 and 1999
              Statements of Income for the years ended December 31, 2000, 1999
                and 1998
              Statements of Comprehensive Income for the years ended December
                31, 2000, 1999 and 1998
              Statements of Shareholders' Equity for the years ended December
                31, 2000, 1999 and 1998
              Statements of Cash Flows for the years ended December 31, 2000,
               1999 and 1998
              Notes to Financial Statements


                                       25
<PAGE>

     2.       All Financial Statement Schedules are omitted as the required
              information is inapplicable or the information is presented in the
              financial statements or related notes.

     3.       The following exhibits are filed as a part of this Report:

      (3)(a)*-Articles of Incorporation of International Bancshares Corporation
              incorporated herein as an exhibit by reference to the Current
              Report, Exhibit 3.1 therein, under the Securities Exchange
              Act of 1934, filed by Registrant on Form 8-K with the Securities
              and Exchange Commission on June 20, 1995, SEC File No. 09439.

      (3)(b)*-By-Laws of International Bancshares Corporation incorporated
              herein as an exhibit by reference to the Current Report,
              Exhibit 3.2 therein, under the Securities Exchange Act of
              1934, filed by Registrant on Form 8-K with the Securities and
              Exchange Commission on June 20, 1995, SEC File No. 0-9439.

      (3)(c)*-Articles of Amendment to the Articles of Incorporation of
              International Bancshares Corporation dated May 22, 1998.

     (10)*   -Sublease between Commerce Bank and Americity Federal Savings
              Bank incorporated herein as an exhibit by reference to the Annual
              Report, Exhibit 11(b) therein, under the Securities Exchange Act
              of 1934, filed by Registrant on Form 10-K with the Securities and
              Exchange Commission on March 23, 1982, SEC File No. 0-9439.

     (10a)*  -Purchase and Assumption Agreement dated June 29, 1990 by
              and between the Resolution Trust Corporation, receiver of Valley
              Federal Savings Association and New Valley Federal Savings
              Association incorporated herein as an exhibit by reference to the
              Annual Report, Exhibit 10(a) therein, under the Securities
              Exchange Act of 1934, filed by Registrant on Form 10-K with the
              Securities and Exchange Commission on March 30, 1992, SEC File No.
              0-9439.

     (10b)*  -Purchase and Assumption Agreement for Oakar transaction
              dated June 29, 1990 between New Valley Federal Savings
              Association, International Bancshares Corporation and
              International Bank of Commerce incorporated herein as an exhibit
              by reference to the Annual Report, Exhibit 10(b) therein, under
              the Securities Exchange Act of 1934, filed by Registrant on Form
              10-K with the Securities and Exchange Commission on March 30,
              1991, SEC File No. 0-9439.

     (10c)*  -Purchase and Assumption Agreement dated June 21, 1991 by
              and between the Resolution Trust Corporation, receiver of Travis
              Federal Savings and Loan Association and New Travis Federal
              Savings Association incorporated herein as an exhibit by reference
              to the Annual Report, Exhibit 108 therein, under the Securities
              Exchange Act of 1934, filed by Registrant on Form 10-K with the
              Securities and Exchange Commission on March 30, 1992, SEC File No.
              0-9439.

     (10d)*  -Oakar Agreement dated June 21, 1991 between New Travis
              Federal Savings Association and International Bank of Commerce
              incorporated herein as an exhibit by reference to the Annual
              Report, Exhibit 10(d) therein, under the Securities Exchange Act
              of 1934, filed by Registrant on Form 10-K with the Securities and
              Exchange Commission on March 30, 1992, SEC File No. 0-9439.

     (10e)*+ -The 1987 International Bancshares Corporation Key Contributor
              Stock Option Plan as amended and restated (formerly the
              International Bancshares Corporation 1981 Incentive Stock
              Option Plan) incorporated herein as an exhibit by reference to
              Exhibit 28 to the Registration Statement on Form S-8 filed with
              the Securities and Exchange Commission on July 13, 1987, SEC File
              No. 33-15655.


                                       26
<PAGE>

      (10f)* -Merger Agreement by and between International Bank of
              Commerce, Michigan National Corporation and First State Bank and
              Trust Company, dated May 5, 1994 incorporated herein by reference
              to Exhibit 10(f) of the Form 10Q filed with the Securities and
              Exchange Commission on August 15, 1994, SEC File No. 0-9439.

      (10g)* -Merger Agreement by and between International Bank of
              Commerce, and The Bank of Corpus Christi, dated August 19, 1994
              incorporated herein by reference to Exhibit 10(g) of Form 10-Q
              filed with the Securities and Exchange Commission on November 14,
              1994, SEC File No. 0-9439.

      (10h)* -Merger Agreement by and between International Bank of
              Commerce, and Stone Oak National Bank, dated February 28, 1995,
              incorporated by reference to Exhibit 10(h) of the Registrant's
              Quarterly Report on Form 10Q for the period ended March 31, 1995,
              filed with the Securities and Exchange Commission on May 15, 1995,
              SEC File No. 0-9439.

      (10i)* -Agreement and Plan of Merger dated as of June 7, 1995, by
              and between International Bancshares Corporation, a Delaware
              corporation, and International Bancshares Corporation, a Texas
              corporation, incorporated herein by reference to Exhibit 2 of the
              Current Report on Form 8-K filed with the Securities and Exchange
              Commission on June 20, 1995, SEC File No. 0-9439.

      (10j)* -Purchase and Assumption Agreement dated as of February 27,
              1996, by and between International Bank of Commerce, River Valley
              Bank, F.S.B. and Western Capital Holdings, Inc. incorporated
              herein, by reference to Exhibit 10(j) of the Registrant's Annual
              Report on Form 10-K filed with the Securities and Exchange
              Commission on April 1, 1996, SEC File No. 09439.

      (10k)* -Purchase of Asset and Liability Agreement dated as of July
              30, 1996, by and between International Bank of Commerce and Home
              Savings of America F.S.B. incorporated herein by reference to
              Exhibit 10(k) of the Registrant's Quarterly Report on Form 10-Q
              filed with the Securities and Exchange Commission on November 13,
              1996.

      (10l)*+-The 1996 International Bancshares Corporation Stock Option
              Plan incorporated herein by reference to Exhibit 99.1 to the Post
              Effective Amendment No. 1 to Form S-8 filed with the Securities
              and Exchange Commission on March 21, 1997, SEC File No. 33-15655.

      (10m)*+-Executive Incentive Compensation Plan of the Registrant
              incorporated herein by reference to exhibit "A" of the
              Registrant's Proxy Statement filed with the Securities Exchange
              Commission on April 15, 1997, SEC File No. 09439.

      (10n)* -Agreement and Plan of Merger by and among International
              Bancshares Corporation, University Bancshares, Inc., Joe L.
              Allbritton and Robert L. Allbritton, dated as of August 15, 1997.

      (13)** -International Bancshares Corporation 2000 Annual Report

      (21)   -List of Subsidiaries of International Bancshares Corporation
              as of March 30, 2001

      (23)   -Accountants' Consent

      (27)   -Financial Data Schedule

      *  Previously filed
      ** Deemed filed only with respect to those portions thereof
         incorporated herein by reference
      +  Executive Compensation Plans and Arrangements


                                       27
<PAGE>

(b)  REPORTS ON FORM 8-K

     Registrant filed a current report on Form 8-K on December 21, 2000,
     covering Item 5 - Other Events and Item 7 - Financial Statements and
     Exhibits in connection with the announcement of the expansion of the
     Company's stock repurchase program.

     Registrant filed a current report on Form 8-K on February 22, 2001,
     covering Item 5 - Other Events and Item 7 - Financial Statements and
     Exhibits in connection with the announcement of the acquisition of First
     Equity Corporation, an Austin based mortgage banker.

     Registrant filed a current report on Form 8-K on March 2, 2001, covering
     Item 5 - Other Events and Item 7 - Financial Statements and Exhibits in
     connection with the announcement of the Company's Annual 2000 Earnings.

     Registrant filed a current report on Form 8-K on March 2, 2001, covering
     Item 5 - Other Events and Item 7 - Financial Statements and Exhibits in
     connection with the announcement of a cash dividend by the Company.


                                       28
<PAGE>

                                   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
                                                       (Registrant)

                                      By:    /s/       DENNIS E. NIXON
                                            --------------------------------
                                                       Dennis E. Nixon
                                                       President

                                      Date:  MARCH 28, 2001
                                            --------------------------------


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.

        SIGNATURES                     TITLE                      DATE


 /s/ DENNIS E. NIXON           President and Director          March 28, 2001
- ---------------------------    (Principal Executive Officer)  ----------------
 Dennis E. Nixon

 /s/ IMELDA NAVARRO            Treasurer                       March 28, 2001
- ---------------------------    (Principal Financial Officer)  ----------------
 Imelda Navarro

 /s/ LEONARDO SALINAS          Director                        March 28, 2001
- ---------------------------                                   ----------------
 Leonardo Salinas

 /s/ LESTER AVIGAEL            Director                        March 28, 2001
- ---------------------------                                   ----------------
 Lester Avigael

 /s/ IRVING GREENBLUM          Director                        March 28, 2001
- ---------------------------                                   ----------------
 Irving Greenblum

 /s/ R. DAVID GUERRA           Director                        March 28, 2001
- ---------------------------                                   ----------------
 R. David Guerra

 /s/ RICHARD E. HAYNES         Director                        March 28, 2001
- ---------------------------                                   ----------------
 Richard E. Haynes

                               Director
- ---------------------------
 Sioma Neiman

 /s/ ANTONIO R. SANCHEZ, JR.   Director                        March 28, 2001
- ---------------------------                                   ----------------
 Antonio R. Sanchez Jr.

 /s/ PEGGY J. NEWMAN           Director                        March 28, 2001
- ---------------------------                                   ----------------
 Peggy J. Newman

/s/ DANIEL B. HASTINGS, JR.    Director                        March 28, 2001
- ---------------------------                                   ----------------
 Daniel B. Hastings, Jr.


                                       29
<PAGE>

                                  EXHIBIT INDEX

Exhibit 13 -  International Bancshares Corporation 2000 Annual Report, Exhibit
              13, page 1

Exhibit 21 -  List of Subsidiaries of International Bancshares Corporation as of
              March 30, 2001

Exhibit 23 -  Accountants' Consent


                                       30
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>2
<FILENAME>a2042604zex-13.txt
<DESCRIPTION>EXHIBIT 13
<TEXT>

<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
                                 (CONSOLIDATED)

                            SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                 AT OR FOR THE YEARS ENDED DECEMBER 31,
                                     --------------------------------------------------------------
                                        2000         1999         1998         1997         1996
                                     ----------   ----------   ----------   ----------   ----------
                                             (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                  <C>          <C>          <C>          <C>          <C>
BALANCE SHEET

  Assets...........................  $5,860,714   $5,421,804   $4,987,877   $4,517,846   $3,351,231
  Net loans........................   2,212,467    1,876,754    1,589,788    1,420,180    1,214,959
  Deposits.........................   3,744,598    3,527,212    3,369,637    3,175,560    2,662,153
  Other borrowed funds.............   1,432,500    1,380,000    1,074,000      490,000      239,000
  Shareholders' equity.............     416,892      353,436      370,283      341,244      283,767

INCOME STATEMENT

  Interest income..................  $  421,627   $  340,736   $  326,174   $  275,732   $  221,779
  Interest expense.................     251,756      185,205      181,909      145,371      107,372
                                     ----------   ----------   ----------   ----------   ----------
  Net interest income..............     169,871      155,531      144,265      130,361      114,407
  Provision for possible loan
    losses.........................       6,824        6,379        8,571        7,740        6,630
  Non-interest income..............      57,501       60,966       41,698       36,776       30,194
  Non-interest expense.............     111,957      106,983       99,047       85,745       73,457
                                     ----------   ----------   ----------   ----------   ----------
  Income before income taxes.......     108,591      103,135       78,345       73,652       64,514
  Income taxes.....................      33,417       36,887       24,620       24,771       20,164
                                     ----------   ----------   ----------   ----------   ----------
  Net income.......................  $   75,174   $   66,248   $   53,725   $   48,881   $   44,350
                                     ==========   ==========   ==========   ==========   ==========
  Per common share:
    Basic..........................  $     3.51   $     3.03   $     2.44   $     2.28   $     2.08
    Diluted........................  $     3.46   $     2.98   $     2.38   $     2.20   $     2.02
  Cash dividends per share.........  $     1.10   $     1.10   $      .90   $      .50   $      .50
</TABLE>

    Note 1:  See note 2 of notes to the consolidated financial statements
regarding the acquisitions made by International Bancshares Corporation and its
subsidiaries in 2000 and 1999.

    Note 2:  See note 8 of notes to the consolidated financial statements
regarding the other borrowed funds of the Company and its subsidiaries.

                                       1
<PAGE>
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    Management's discussion and analysis represents an explanation of
significant changes in the financial position and results of operations of
International Bancshares Corporation (the "Company") on a consolidated basis for
the three year period ended December 31, 2000. The Company is a financial
holding company with four bank subsidiaries operating in over 100 main banking
and branch facilities in South and Southeast Texas, and four non-bank
subsidiaries. The following discussion should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 2000, and
the Selected Financial Data and Consolidated Financial Statements included
elsewhere herein.

RESULTS OF OPERATIONS

    Net income for 2000 was $75,174,000 or $3.51 per share--basic ($3.46 per
share--diluted) compared with $66,248,000 or $3.03 per share--basic ($2.98 per
share--diluted) in 1999 and $53,725,000 or $2.44 per share--basic ($2.38 per
share--diluted) in 1998.

    Historically, the Company's acquisitions have been accounted for using the
purchase method of accounting which results in the creation of goodwill. The
Company's goodwill is being amortized as a non-cash reduction of net income over
time periods from ten to twenty years. "Income before goodwill charges" reflects
the net income of the Company excluding goodwill amortization. In computing the
income tax adjustment, management has considered tax deductible goodwill
separately from non-tax deductible goodwill in making this calculation. The
income tax on tax deductible goodwill has been computed using the standard
corporate tax rate of 35%, and the non-tax deductible goodwill has been
grossed-up using the same 35% tax rate to reflect the earnings result. These two
calculations have been combined to reflect the net income tax adjustment
displayed in the income before goodwill charges table below. The table
reconciles reported earnings to net income excluding intangible amortization
("income before goodwill charges") to help facilitate peer group comparisons.

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                                   ------------------------------
                                                     2000       1999       1998
                                                   --------   --------   --------
                                                   (DOLLARS IN THOUSANDS, EXCEPT
                                                          PER SHARE DATA)
<S>                                                <C>        <C>        <C>
Reported net income..............................  $75,174    $66,248    $53,725
Amortization of intangible assets................    4,219      3,898      3,936
Income tax adjustment............................     (421)      (309)      (322)
                                                   -------    -------    -------
Income before goodwill charges...................  $78,972    $69,837    $57,339
                                                   =======    =======    =======
Income before goodwill charges per common share:
  Basic..........................................  $  3.69    $  3.20    $  2.60
  Diluted........................................     3.64       3.14       2.54
</TABLE>

    Total assets at December 31, 2000 grew 8% to $5,860,714,000 from
$5,421,804,000 at December 31, 1999 while net loans increased 18% to
$2,212,467,000 at December 31, 2000 from $1,876,754,000 at December 31, 1999.
Deposits at December 31, 2000 were $3,744,598,000, an increase of 6% over the
$3,527,212,000 at December 31, 1999, an increase of 5% over the $3,369,637,000
at December 31, 1998. Total assets at December 31, 1999 grew 9% to
$5,421,804,000 from $4,987,877,000 at December 31, 1998 while net loans
increased 18% to $1,876,574,000 at December 31, 1999 from $1,589,788,000 at
December 31, 1998. The increase in assets and deposits during 2000 reflects
growth opportunities in the Company's market through its branch system. The
aggregate amount of certificates of indebtedness with the Federal Home Loan Bank
of Dallas ("FHLB") increased to $1,432,500,000 at December 31, 2000 from the
$1,380,000,000 at December 31, 1999. Certificates of indebtedness and the
deposits are used to fund the earning asset base of the Company.

                                       2
<PAGE>
    Net interest income in 2000 increased by $14,340,000, or 9%, over that in
1999. The net yield on average interest earning assets decreased by .08% from
3.38% in 1999 to 3.30% in 2000. The net yield on average interest earning assets
increased by .02% in 1999 to 3.38% from 3.36% in 1998 while net interest income
increased by $11,266,000 or 8% over 1998. Average interest earning assets
increased 12% from $4,600,812,000 in 1999 to $5,147,489,000 in 2000 and a 7%
increase from $4,296,845,000 in 1998 to $4,600,812,000 in 1999 which contributed
to the growth in net interest income for 2000 and 1999, respectively. The
Company experienced a .78% increase in the yield on average interest earning
assets to 8.19% in 2000 from 7.41% in 1999 and a .89% increase was reflected on
the rates paid on average interest bearing liabilities to 5.33% in 2000 from
4.44% in 1999. In 1999 a .18% decrease was reflected in the yield on average
interest earning assets to 7.41% from 7.59% in 1998 and a .28% decrease on the
rates paid on average interest bearing liabilities to 4.44% in 1999 from 4.72%
in 1998.

    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 affected by both changes in the level of interest rates
and changes in the amount and composition of interest earning assets and
interest bearing liabilities.

    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 reprice 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 reprice faster than liabilities. Conversely, net interest
income should contract somewhat in a period of falling interest rates.
Management can quickly change the Company's 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. 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 minimize the effect
of interest rate changes.

    Non-interest income decreased 6% in 2000 to $57,501,000 from $60,966,000 in
1999 which increased 46% over $41,698,000 in 1998. The 2000 decrease and 1999
increase in non-interest income were primarily due to a $6,530,000 gain
recognition on the partial sale of credit card receivables recorded in 1999.
Excluding the gain related to the sale of the credit card receivables in 1999,
the non-interest income would have increased by $3,065,000 in 2000 due to the
increases in service charges. The increase in service charges was attributable
to the amount of account transaction fees received as a result of the deposit
growth, new deposit products and increased collection efforts. Investment
securities losses of $4,248,000 were recorded in 2000 compared to gains of
$13,000 for 1999. These losses occurred due to a bond program initiated by
management in 2000 to reposition a portion of the Company's bond portfolio and
take advantage of higher bond yields.

    Expense control is an essential element in the Company's profitability. This
is achieved through maintaining optimum staffing levels, an effective budgeting
process, and internal consolidation of bank functions. Non-interest expense
includes such items as salaries and wages and employee benefits, net occupancy
expenses, equipment expenses and other operating expenses such as FDIC
insurance. Non-interest expense increased 5% in 2000 to $111,957,000 from
$106,983,000 in 1999 which increased 8% from $99,047,000 in 1998. The 2000 and
1999 increases in non-interest expense increased due to the Company's expanded
operations at the bank subsidiaries.

                                       3
<PAGE>
    The efficiency ratio, a measure of non-interest expense to net interest
income plus non-interest income was 49.24% for the year ended December 31, 2000,
compared to the year ago ratio of 49.42%. The Company's efficiency ratio has
been under 53% for each of the last five years, which the Company believes is
below national peer group ratios.

    Most of the Company's lending activities involve commercial (domestic and
foreign), consumer and real estate mortgage financing. In 2000, the Company's
efforts to increase its loan volume resulted in an increase of 21% in average
domestic loans and an increase of 29% in average foreign loans for an increase
in total average loans of 21% over 1999. The average yield for these loans
increased .82% for domestic loans and increased by 1.23% for foreign loans in
2000 as compared to 1999. The Company experienced an increase of 14% in average
domestic loans and a 35% increase in average foreign loans in 1999 as compared
to 1998. The yield for these loans decreased .46% for domestic loans and
decreased by .30% for foreign loans in 1999 as compared to 1998.

    The Company experienced an increase of 6% in average balances of taxable
investment securities from $2,762,895,000 for 1999 to $2,932,778,000 for 2000
and a decrease of .33% from $2,771,927,000 for 1998 to $2,762,985,000 for 1999.
The changes reflected during 2000 and 1999 were primarily from the results of
continued increases in deposits, repurchase agreements and borrowings, which
provide the Company with available funds for investments. The slight decrease in
1999 is primarily from the impact of carrying the available for sale securities
at fair value.

    The allowance for possible loan losses increased 15% from $26,770,000 at
December 31, 1999 to $30,812,000 at December 31, 2000 and increased 5% from
$25,551,000 at December 31, 1998 to $26,770,000 at December 31, 1999. The
provision for possible loan losses charged to expense increased 7% from
$6,379,000 in 1999 to $6,824,000 in 2000 and decreased 26% from $8,571,000 in
1998 to $6,379,000 in 1999. The increase in the allowance for possible loan
losses was largely due to the increase in the size of the loan portfolio. The
allowance for possible loan losses was 1.37% of total loans, net of unearned
income, at December 31, 2000 compared to 1.41% at 1999 and 1.58% at 1998.
Non-performing assets as a percentage of total loans and total assets were .63%
and .24%, respectively, at December 31, 2000, and 1.17% and .41% at
December 31, 1999, respectively. Loans accounted for on a non-accrual basis
decreased 18% from $7,662,000 at December 31, 1999 to $6,273,000 at
December 31, 2000. As loans are placed on non-accrual status, interest
previously accrued and recorded is reversed unless the loan is well secured and
in the process of collection. Foreclosed assets decreased 19% from $2,285,000 at
December 31, 1999 to $1,854,000 at December 31, 2000. The decreases in the
non-performing loans and foreclosed assets were primarily due to improving
conditions in the Company's loan portfolio as economic conditions have improved,
as well as the sale of foreclosed assets. In 1999, non-accruals increased 38%
from $5,538,000 at December 31, 1998 to $7,662,000 at December 31, 1999 and
foreclosed assets decreased 27% from $3,129,000 at December 31, 1998 to
$2,285,000 at December 31, 1999.

    The allowance for possible 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 possible loan losses. Loan
losses (or recoveries) are charged (or credited) directly to the allowances. The
provision for possible loan losses of each bank subsidiary is determined by
management of each bank upon consideration of several factors such as loss
experience in relation to outstanding loans and the existing level of its
allowance; independent appraisals for significant properties; a continuing
review and appraisal of its loan portfolio with particular emphasis on problem
loans by management and the credit department staff of International Bank of
Commerce, Laredo, Texas ("IBC"), the Company's largest bank subsidiary; results
of examinations by bank examiners and continuous review of current and
anticipated economic conditions in the market area served by the bank
subsidiaries. Management of each of the bank subsidiaries, along with management
of the Company, continually review the allowances to determine whether
additional provisions should be made after considering the preceding factors.

                                       4
<PAGE>
    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, financial and agricultural
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 portion of the loan so exposed is
anticipated based on the borrower's financial condition and general economic
conditions in the borrower's industry. Generally, unsecured consumer loans are
charged off when 90 days past due.

    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 possible loan losses can be made only on a subjective basis. It is
the judgment of the Company's management that the allowance for possible loan
losses at December 31, 2000 was adequate to absorb possible losses from loans in
the portfolio at that date.

    On December 31, 2000, the Company had $5,860,714,000 of consolidated assets
of which approximately $278,119,000 or 5% were related to loans outstanding to
borrowers domiciled in Mexico. The loan policies of the Company's bank
subsidiaries generally require that loans to borrowers domiciled in Mexico be
primarily secured by assets located in the United States or have credit
enhancements, in the form of guarantees, from significant United States
corporations. The composition of such loans and the related amounts of allocated
allowance for possible loan losses as of December 31, 2000 is presented below.

<TABLE>
<CAPTION>
                                                                       RELATED
                                                       AMOUNT OF    ALLOWANCE FOR
                                                         LOANS     POSSIBLE LOSSES
                                                       ---------   ---------------
                                                         (DOLLARS IN THOUSANDS)
<S>                                                    <C>         <C>
Secured by certificates of deposit in United States
  banks..............................................  $109,191          $   55
Secured by United States real estate.................    30,336             376
Secured by other United States collateral
  (securities, gold, silver, etc.)...................     9,782             118
Foreign real estate guaranteed under lease
  obligations primarily by U.S. companies............    41,233             367
Direct unsecured Mexican sovereign debt (principally
  former FICORCA debt)...............................     1,074              18
Other (principally Mexico real estate)...............    86,503             897
                                                       --------          ------
                                                       $278,119          $1,831
                                                       ========          ======
</TABLE>

    The transactions for the year ended December 31, 2000 in that portion of the
allowance for possible loan losses related to Mexican debt were as follows:

<TABLE>
<CAPTION>
                                                           (DOLLARS IN THOUSANDS)
                                                           ----------------------
<S>                                                        <C>
Balance at January 1, 2000...............................          $1,322
  Charge-offs............................................             (49)
  Recoveries.............................................              49
                                                                   ------
  Net charge-offs........................................               0
  Provision charged to operations........................             509
                                                                   ------
Balance at December 31, 2000.............................          $1,831
                                                                   ======
</TABLE>

                                       5
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

    The maintenance of adequate liquidity provides the Company's 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 bank subsidiaries of the Company derive their liquidity
largely from deposits of individuals and business entities. Historically, the
Mexico based deposits of the Company's bank subsidiaries have been a stable
source of funding. Deposits from persons and entities domiciled in Mexico
comprise a significant and stable portion of the deposit base of the Company's
bank subsidiaries. Such deposits comprised approximately 42%, 41% and 38% of the
Company's bank subsidiaries' total deposits as of December 31, 2000, 1999 and
1998, respectively. Other important funding sources for the Company's bank
subsidiaries during 2000 and 1999 have been wholesale liabilities with FHLB,
FNMA, FHLMC 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 loans. 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's funds management policy has as its primary focus the
measurement and management of the banks' earnings at risk in the face of rising
and falling interest rate forecasts. The earliest and most simplistic concept of
earnings at risk measurement is the gap report, which is used to generate a
rough estimate of the vulnerability of net interest income to changes in market
rates as implied by the relative repricings of assets and liabilities. The gap
report calculates the difference between the amounts of assets and liabilities
repricing across a series of intervals in time, with emphasis typically placed
on the one-year period. This difference, or gap, is usually expressed as a
percentage of total assets.

    If an excess of liabilities over assets matures or reprices within the
one-year period, the balance sheet is said to be negatively gapped. This
condition is sometimes interpreted to suggest that an institution is
liability-sensitive, indicating that earnings would suffer from rising rates and
benefit from falling rates. If a surplus of assets over liabilities occurs in
the one-year time frame, the balance sheet is said to be positively gapped,
suggesting a condition of asset sensitivity in which earnings would benefit from
rising rates and suffer from falling rates.

    The gap report thus consists of an inventory of dollar amounts of assets and
liabilities that have the potential to mature or reprice within a particular
period. The flaw in drawing conclusions about interest rate risk from the gap
report is that it takes no account of the probability that potential maturities
or repricings of interest-rate-sensitive accounts will occur, or at what
relative magnitudes. Because simplicity, rather than utility, is the only virtue
of gap analysis, financial institutions increasingly have either abandoned gap
analysis or accorded it a distinctly secondary role in managing their
interest-rate risk exposure. See page 15 of the Company's Form 10-K for the
table that summarizes interest rate sensitive assets and liabilities by their
repricing dates at December 31, 2000.

    The detailed inventory of balance sheet items contained in gap reports is
the starting point of income simulation analysis. Income simulation analysis
also focuses on the variability of net interest income and net income, but
without the limitations of gap analysis. In particular, gone is the fundamental,
but often unstated, assumption of the gap approach that every balance sheet item
that can reprice will do so to the full extent of any movement in market
interest rates.

                                       6
<PAGE>
    Accordingly, income simulation analysis captures not only the potential of
assets and liabilities to mature or reprice but also the probability that they
will do so. Moreover, income simulation analysis focuses on the relative
sensitivities of these balance sheet items and projects their behavior over an
extended period of time in a motion picture rather than snapshot fashion.
Finally, income simulation analysis permits management to assess the probable
effects on balance sheet items not only of changes in market interest rates but
also of proposed strategies for responding to such changes. The Company and many
other institutions rely primarily upon income simulation analysis in measuring
and managing exposure to interest rate risk.

    At December 31, 2000, based on these simulations, a rate shift of 200 basis
points in interest rates either up or down will not vary earnings by more than
7 percent of projected 2001 after-tax net income. A 200 basis point shift in
interest rates is a hypothetical rate scenario used to calibrate risk, and does
not necessarily represent management's current view of future market
developments.

    All the measurements of risk described above are made based upon the
Company's business mix and interest rate exposures at the particular point in
time. The exposure changes continuously as a result of the Company's ongoing
business and its risk management initiatives. While management believes these
measures provide a meaningful representation of the Company's interest rate
sensitivity, they do not necessarily take into account all business developments
that have an affect on net income, such as changes in credit quality or the size
and composition of the balance sheet.

    Principal sources of liquidity and funding for the Company are dividends
from subsidiaries and borrowed funds, with such funds being used to finance the
Company's cash flow requirements. The Company closely monitors the dividend
restrictions and availability from the bank subsidiaries as disclosed in
Note 17 to the Consolidated Financial Statements. At December 31, 2000, the
aggregate amount legally available to be distributed to the Company from bank
subsidiaries as dividends was approximately $68,119,000, assuming that each bank
subsidiary continues to be classified as "well capitalized" under the applicable
regulations. The restricted capital of the bank subsidiaries was approximately
$335,481,000 as of December 31, 2000. The undivided profits of the bank
subsidiaries were approximately $187,211,000 as of December 31, 2000.

    As of December 31, 2000, the Company has outstanding $1,432,500,000 in
short-term and long-term borrowed funds. In addition to borrowed funds and
dividends, the Company has a number of other available alternatives to finance
the growth of its existing banks as well as future growth and expansion.

    The Company maintains an adequate level of capital as a margin of safety for
its depositors and shareholders. At December 31, 2000, shareholders' equity was
$416,892,000 compared to $353,436,000 at December 31, 1999, an increase of
$63,456,000 or 18%. The increase in shareholders equity resulted from the
retention of earnings and comprehensive income. Comprehensive income includes
unrealized gains or losses on securities held available for sale, net of tax.
The net unrealized gains or losses on securities are not included in the
calculation of regulatory capital requirements.

    During 1990, the Federal Reserve Board ("FRB") adopted a minimum leverage
ratio of 3% for the most highly-rated bank holding companies and at least 4% to
5% for all other bank holding companies. The Company's leverage ratio (defined
as stockholders' equity less goodwill and certain other intangibles divided by
average quarterly assets) was 6.54% at December 31, 2000 and 6.58% at
December 31, 1999. The core deposit intangibles and goodwill of $54,795,000 as
of December 31, 2000, recorded in connection with financial institution
acquisitions of the Company, are deducted from the sum of core capital elements
when determining the capital ratios of the Company.

    The FRB has adopted risk-based capital guidelines which assign risk
weightings to assets and off-balance sheet items. The guidelines also define and
set minimum capital requirements (risk-based capital ratios). Under the final
1992 rules, all banks are required to have core capital (Tier 1) of at least
4.0% of risk-weighted assets and total capital of 8.0% of risk-weighted assets.
Tier 1 capital consists

                                       7
<PAGE>
principally of shareholders' equity less goodwill and certain other intangibles,
while total capital consists of core capital, certain debt instruments and a
portion of the reserve for loan losses. In order to be deemed well capitalized
pursuant to the regulations, an institution must have a total risk-weighted
capital ratio of 10%, a Tier 1 risk-weighted ratio of 6% and a Tier 1 leverage
ratio of 5%. The Company had risk-weighted Tier 1 capital ratios of 13.23% and
13.41% and risk weighted total capital ratios of 14.29% and 14.46% for
December 31, 2000 and 1999, respectively, which are well above the minimum
regulatory requirements and exceed the well capitalized ratios (see note 17 to
notes to Consolidated Financial Statements).

    The Company announced a new formal stock repurchase program on June 22, 1999
and announced it expanded the stock repurchase program on July 16, 1999,
January 11, 2000 and on December 21, 2000. Under the stock repurchase program,
the Company is authorized to repurchase up to $45,000,000 of its common stock
through December 2001. 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 March 20, 2001, a total of 781,794 shares
were repurchased under this program at a cost of $31,968,000. Stock repurchases
are presented quarterly at the Company's Board of Directors meetings and the
Board of Directors has stated that the aggregate investment in treasury stock
should not exceed $70,000,000. In the past, the board has increased previous
caps on treasury stock once they were met, but there are no assurances that an
increase of the $70,000,000 cap will occur in the future. As of March 20, 2001,
the Company has approximately $52,941,000 invested in treasury shares, which
amount has been accumulated since the inception of the Company.

    During the past few years the Company has expanded its banking facilities.
Among the activities and commitments the Company funded during 2000 and 1999
were certain capital expenditures relating to the modernization and improvement
of several existing bank facilities and the expansion of the bank branch
network.

EFFECTS OF INFLATION

    The principal component of earnings is net interest income, which is
affected by changes in the level of interest rates. Changes in rates of
inflation affect interest rates. It is difficult to precisely measure the impact
of inflation on net interest income because it is not possible to accurately
differentiate between increases in net interest income resulting from inflation
and increases resulting from increased business activity. Inflation also raises
costs of operation, primarily those of employment and services.

FORWARD LOOKING INFORMATION

    Certain matters discussed in this report, excluding historical information,
include forward-looking statements. 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" and "project," as well as other words or expressions of 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.

    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:
(I) changes in local, state, national and international economic conditions,
(II) changes in the capital markets utilized by the Company and its
subsidiaries, including changes in the interest rate environment that may reduce
margins, (III) changes in state and/or federal laws and regulations to which the
Company and its subsidiaries, as well as their customers, competitors and

                                       8
<PAGE>
potential competitors, are subject, including, without limitation, banking, tax,
securities, insurance and employment laws and regulations, and (IV) the loss of
senior management or operating personnel, and (V) increased competition from
both within and without the banking industry. It is not possible 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.

ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as a "fair value hedge," a
"cash flow hedge," or a hedge of a foreign currency exposure of a net investment
in a foreign operation. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. In June 1999, the Financial Accounting
Standards Board issued SFAS No. 138, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of SFAS No. 133", which
deferred the effective date of SFAS No. 133 to fiscal years beginning after
June 15, 2000. The Company currently does not engage in hedging activities and
does not hold any derivative instruments or embedded derivatives. The Company
adopted SFAS No. 133 on January 1, 2001 and the adoption did not have any impact
on its consolidated financial statements.

    In September 2000, the Financial Accounting Standards Board's issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", which replaces the Financial Accounting
Standards Board's Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", but carries over most of
SFAS No. 125's provisions without change. SFAS No. 140 elaborates on the
qualifications necessary for a special-purpose entity, clarifies sales
accounting criteria in certain circumstances, refines accounting for collateral,
and adds disclosures for collateral, securitizations, and retained interests in
securitized assets. This statement should be applied prospectively and is
effective for transactions occurring after March 31, 2001. Disclosure
requirements of this statement and any changes in accounting for collateral are
effective for fiscal years ending after December 15, 2000. The Company has
adopted the disclosure requirements and does not expect that the adoption of the
remaining provisions of SFAS No. 140 will have a material impact on its
consolidated financial statements.

COMMON STOCK AND DIVIDENDS

    The Company had issued and outstanding 21,307,510 shares of $1.00 par value
Common Stock held by approximately 2,000 holders of record at March 20, 2001.
The book value of the stock at December 31, 2000 was $20.98 per share compared
with $17.64 per share, adjusted for stock dividends, one year ago.

    On August 28, 1995, the Common Stock began to trade on the OTC Bulletin
Board under the trading symbol IBNC; however, trading in the Common Stock of the
Company was not extensive and such trades could not be characterized as
amounting to an active trading market. As of March 4, 1998, the Common Stock was
listed on the NASDAQ National Market under the trading symbol IBOC.

                                       9
<PAGE>
    The following table sets forth the approximate high and low bid prices in
the Company's Common Stock, adjusted for stock dividends during 1999 and 2000,
as quoted on the NASDAQ National Market for each of the quarters in the two year
period ended December 31, 2000. Some of the quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. The closing sales price of the Company's Common
Stock was $36.50 per share at March 20, 2001.

<TABLE>
<CAPTION>
                                                                HIGH       LOW
                                                              --------   --------
<S>    <C>                                                    <C>        <C>
2000:  First quarter........................................   $35.40     $29.40
       Second quarter.......................................    39.00      30.00
       Third quarter........................................    34.94      30.00
       Fourth quarter.......................................    35.94      30.00
</TABLE>

<TABLE>
<CAPTION>
                                                                HIGH       LOW
                                                              --------   --------
<S>    <C>                                                    <C>        <C>
1999:  First quarter........................................   $33.44     $27.36
       Second quarter.......................................    34.00      28.32
       Third quarter........................................    38.00      32.95
       Fourth quarter.......................................    38.40      33.27
</TABLE>

    The Company paid cash dividends to the shareholders in 2000 of $1.10 per
share or $21,040,000 and in 1999 paid cash dividends of $1.10 per share or
$17,127,000. In addition, the Company has issued stock dividends during the last
five year period as follows:

<TABLE>
<CAPTION>
DATE                                                          STOCK DIVIDEND
- ----                                                          --------------
<S>                                                           <C>
May 17, 1996................................................        25%
May 16, 1997................................................        25
May 22, 1998................................................        25
May 20, 1999................................................        25
May 18, 2000................................................        25
</TABLE>

    The Company's principal source of funds to pay cash dividends on its Common
Stock is cash dividends from the bank subsidiaries. There are certain statutory
limitations on the payment of dividends from the subsidiary banks. For a
discussion of the limitations, please see Note 17 of notes to consolidated
financial statements.

RECENT SALES OF UNREGISTERED SECURITIES

    No securities were sold by the Company during the fiscal year ended
December 31, 2000 that were not registered under the Securities Act of 1933.

                                       10
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
International Bancshares Corporation:

    We have audited the consolidated statements of condition of International
Bancshares Corporation and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of income, comprehensive income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
International Bancshares Corporation and subsidiaries as of December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.

                                          /s/ KPMG LLP

San Antonio, Texas
February 23, 2001

                                       11
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CONDITION

                           DECEMBER 31, 2000 AND 1999

                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                 2000         1999
                                                              ----------   ----------
<S>                                                           <C>          <C>
                                       ASSETS

Cash and due from banks.....................................  $  125,628   $  121,695
Federal funds sold..........................................         500       13,300
                                                              ----------   ----------
      Total cash and cash equivalents.......................     126,128      134,995
Time deposits with banks....................................       2,471        1,877
Investment securities:
Held to maturity (Market value of $2,220 on December 31,
  2000 and $2,405 on December 31, 1999).....................       2,220        2,406
Available for sale (Amortized cost of $3,126,107 on
  December 31, 2000 and $3,050,099 on December 31, 1999)....   3,096,626    2,993,311
                                                              ----------   ----------
      Total investment securities...........................   3,098,846    2,995,717
Loans:
  Commercial, financial and agricultural....................   1,286,576    1,115,511
  Real estate--mortgage.....................................     287,319      278,819
  Real estate--construction.................................     232,589      129,813
  Consumer..................................................     165,875      171,104
  Foreign...................................................     278,119      216,632
                                                              ----------   ----------
      Total loans...........................................   2,250,478    1,911,879
  Less unearned discounts...................................      (7,199)      (8,355)
                                                              ----------   ----------
      Loans, net of unearned discounts......................   2,243,279    1,903,524
  Less allowance for possible loan losses...................     (30,812)     (26,770)
                                                              ----------   ----------
      Net loans.............................................   2,212,467    1,876,754
Bank premises and equipment, net............................     155,523      145,342
Accrued interest receivable.................................      40,159       34,827
Other investments...........................................     132,848      130,089
Intangible assets...........................................      55,580       43,598
Other assets................................................      36,692       58,605
                                                              ----------   ----------
      Total assets..........................................  $5,860,714   $5,421,804
                                                              ==========   ==========

                        LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Deposits:
    Demand--non-interest bearing............................     573,681   $  499,369
    Savings and interest bearing demand.....................     913,894      928,455
    Time....................................................   2,257,023    2,099,388
                                                              ----------   ----------
      Total deposits........................................   3,744,598    3,527,212
  Securities sold under repurchase agreements...............     230,108      123,752
  Other borrowed funds......................................   1,432,500    1,380,000
  Other liabilities.........................................      36,616       37,404
                                                              ----------   ----------
      Total liabilities.....................................   5,443,822    5,068,368
                                                              ----------   ----------
Shareholders' equity:
  Common stock of $1.00 par value. Authorized 40,000,000
    shares; issued 26,481,211 shares in 2000 and 21,091,754
    shares in 1999..........................................      26,481       21,092
  Surplus...................................................      25,933       24,050
  Retained earnings.........................................     434,796      385,942
  Accumulated other comprehensive loss......................     (19,163)     (36,912)
                                                              ----------   ----------
                                                                 468,047      394,172
  Less cost of shares in treasury, 5,139,863 shares in 2000
    and 3,851,844 shares in 1999............................     (51,155)     (40,736)
                                                              ----------   ----------
      Total shareholders' equity............................     416,892      353,436
                                                              ----------   ----------
      Total liabilities and shareholders' equity............  $5,860,714   $5,421,804
                                                              ==========   ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       12
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                 2000          1999          1998
                                                              -----------   -----------   -----------
<S>                                                           <C>           <C>           <C>
Interest income:
  Loans, including fees.....................................  $   212,522   $   160,105   $   145,016
  Time deposits with banks..................................          157           104            89
  Federal funds sold........................................          929           710         1,462
  Investment securities:
    Taxable.................................................      202,579       175,042       179,030
    Tax-exempt                                                      5,119         4,432           241
  Other.....................................................          321           343           336
                                                              -----------   -----------   -----------
      Total interest income.................................      421,627       340,736       326,174
                                                              -----------   -----------   -----------
Interest expense:
  Savings and interest bearing demand deposits..............       27,945        27,182        26,419
  Time deposits.............................................      120,743        97,626       101,823
  Federal funds purchased and securities sold under
    repurchase agreements...................................        8,160         6,047        13,396
  Other borrowings..........................................       94,908        54,340        39,969
  Other.....................................................           --            10           302
                                                              -----------   -----------   -----------
      Total interest expense................................      251,756       185,205       181,909
                                                              -----------   -----------   -----------
      Net interest income...................................      169,871       155,531       144,265
Provision for possible loan losses..........................        6,824         6,379         8,571
                                                              -----------   -----------   -----------
      Net interest income after provision for possible loan
        losses..............................................      163,047       149,152       135,694
                                                              -----------   -----------   -----------
Non-interest income:
  Service charges on deposit accounts.......................       35,348        30,629        21,679
  Other service charges, commissions and fees...............        8,423         9,129         9,352
  Investment securities transactions, net...................       (4,248)           13         3,893
  Other investments.........................................        7,646         6,441        (1,391)
  Gain on sale of loans.....................................           51         6,449           178
  Other income..............................................       10,281         8,305         7,987
                                                              -----------   -----------   -----------
      Total non-interest income.............................       57,501        60,966        41,698
                                                              -----------   -----------   -----------
Non-interest expense:
  Employee compensation and benefits........................       47,900        42,857        39,733
  Occupancy.................................................        9,204         7,537         7,675
  Depreciation of bank premises and equipment...............       12,220        11,700        10,388
  Professional fees.........................................        4,565         4,953         3,461
  Stationery and supplies...................................        3,268         3,157         3,186
  Amortization of intangible assets.........................        4,219         3,898         3,936
  Other.....................................................       30,581        32,881        30,668
                                                              -----------   -----------   -----------
      Total non-interest expense............................      111,957       106,983        99,047
                                                              -----------   -----------   -----------
      Income before income taxes............................      108,591       103,135        78,345
Income taxes................................................       33,417        36,887        24,620
                                                              -----------   -----------   -----------
      Net income............................................  $    75,174   $    66,248   $    53,725
                                                              ===========   ===========   ===========
Basic earnings per common share:
  Net Income................................................  $      3.51   $      3.03   $      2.44
                                                              ===========   ===========   ===========
  Weighted average number of shares outstanding.............   21,428,764    21,828,496    22,055,944
Diluted earnings per common share:
  Net Income................................................  $      3.46   $      2.98   $      2.38
                                                              ===========   ===========   ===========
  Weighted average number of shares outstanding.............   21,699,549    22,208,637    22,581,395
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       13
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                 YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net Income..................................................  $75,174    $ 66,248   $53,725
                                                              -------    --------   -------
Other comprehensive income, net of tax:
  Unrealized holding gains (losses) on securities available
    for sale arising during the year........................   11,902     (48,751)   (9,021)
  Reclassification adjustment for (gains) losses on
    securities available for sale included in net income....    5,847       3,042    (3,764)
                                                              -------    --------   -------
Comprehensive income........................................  $92,923    $ 20,539   $40,940
                                                              =======    ========   =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       14
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                             ACCUMULATED
                                                                                                OTHER
                                                NUMBER      COMMON               RETAINED   COMPREHENSIVE    TREASURY
                                               OF SHARES    STOCK     SURPLUS    EARNINGS       INCOME        STOCK      TOTAL
                                               ---------   --------   --------   --------   --------------   --------   --------
<S>                                            <C>         <C>        <C>        <C>        <C>              <C>        <C>
Balances at January 1, 1998..................   13,196     $13,196    $19,012    $301,988      $ 21,582      $(14,534)  $341,244
  Net income.................................       --          --         --     53,725             --           --      53,725
  Stock dividends:
    Shares issued............................    3,350       3,350         --     (3,350)            --           --          --
    Cash dividends...........................       --          --         --    (11,338)            --           --     (11,338)
  Purchase of treasury stock.................       --          --         --         --             --       (4,046)     (4,046)
  Exercise of stock options..................      245         245      2,520         --             --           --       2,765
  Tax effect of non-qualified stock options
    exercised................................       --          --        718         --             --           --         718
  Other comprehensive income, net of tax:
    Net change in unrealized gains (losses)
      on available for sale securities, net
      of reclassification adjustment.........       --          --         --         --        (12,785)          --     (12,785)
                                                ------     -------    -------    --------      --------      --------   --------
Balances at December 31, 1998................   16,791     $16,791    $22,250    $341,025      $  8,797      $(18,580)  $370,283
                                                ======     =======    =======    ========      ========      ========   ========
  Net income.................................       --          --         --     66,248             --           --      66,248
  Stock dividends:
    Shares issued............................    4,204       4,204         --     (4,204)            --           --          --
    Cash dividends...........................       --          --         --    (17,127)            --           --     (17,127)
  Purchase of treasury stock.................       --          --         --         --             --      (22,156)    (22,156)
  Exercise of stock options..................       97          97      1,800         --             --           --       1,897
  Other comprehensive income, net of tax:
    Net change in unrealized gains (losses)
      on available for sale securities, net
      of reclassification adjustment.........       --          --         --         --        (45,709)          --     (45,709)
                                                ------     -------    -------    --------      --------      --------   --------
Balances at December 31, 1999................   21,092     $21,092    $24,050    $385,942      $(36,912)     $(40,736)  $353,436
                                                ======     =======    =======    ========      ========      ========   ========
  Net income.................................       --          --         --     75,174             --           --      75,174
  Stock dividends:
    Shares issued............................    5,280       5,280         --     (5,280)            --           --          --
    Cash dividends...........................       --          --         --    (21,040)            --           --     (21,040)
  Purchase of treasury stock.................       --          --         --         --             --      (10,419)    (10,419)
  Exercise of stock options..................      109         109      1,883         --             --           --       1,992
  Other comprehensive income, net of tax:
    Net change in unrealized gains (losses)
      on available for sale securities, net
      of reclassification adjustment.........       --          --         --         --         17,749           --      17,749
                                                ------     -------    -------    --------      --------      --------   --------
Balances at December 31, 2000................   26,481     $26,481    $25,933    $434,796      $(19,163)     $(51,155)  $416,892
                                                ======     =======    =======    ========      ========      ========   ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       15
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 2000          1999          1998
                                                              -----------   -----------   -----------
<S>                                                           <C>           <C>           <C>
Operating activities:
  Net income................................................  $    75,174   $    66,248   $    53,725
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Provision for possible loan losses......................        6,824         6,379         8,571
    Recoveries on charged-off loans.........................          900         1,389         1,349
    Net cost of operations of other real estate owned.......           36           509           106
    Write down of credit card receivables to net realizable
      value.................................................           --         2,766            --
    Gain on sale of loans...................................          (51)       (6,449)         (178)
    Depreciation of bank premises and equipment.............       12,220        11,700        10,388
    Depreciation and amortization of leasing assets.........        1,747         1,796           948
    Accretion of investment securities discounts............      (18,371)      (15,460)      (10,708)
    Amortization of investment securities premiums..........       10,313        12,611        14,260
    Realized loss (gain) on investment securities
      transactions, net.....................................        4,248           (13)       (3,893)
    Gain on sale of bank premises and equipment.............         (171)          (45)       (1,715)
    Deferred tax expense....................................        7,592         4,372         2,122
    Increase in accrued interest receivable.................       (5,332)       (3,261)         (271)
    (Decrease) increase other liabilities...................         (788)       (5,287)       11,831
                                                              -----------   -----------   -----------
      Net cash provided by operating activities.............       94,341        77,255        86,535
                                                              -----------   -----------   -----------
Investing activities:
  Cash acquired in purchase transactions....................           --        20,320            --
  Proceeds from maturities of securities....................        1,572         2,350           975
  Proceeds from sales of available for sale securities......      163,085       616,080       541,362
  Purchases of available for sale securities................     (599,926)   (1,325,652)   (1,967,527)
  Principal collected on mortgage-backed securities.........      353,699       676,535       976,706
  Proceeds from matured time deposits with banks............        1,184           684         1,290
  Purchases of time deposits with banks.....................       (1,778)       (1,188)       (1,076)
  Net increase in loans.....................................     (343,386)     (286,548)     (179,350)
  Net (increase) decrease in other assets...................       (2,203)     (132,896)       17,787
  Purchases of bank premises and equipment..................      (22,676)      (18,983)      (19,193)
  Proceeds from sale of bank premise and equipment..........          446            76         2,573
                                                              -----------   -----------   -----------
      Net cash used in investing activities.................     (449,983)     (449,222)     (626,453)
                                                              -----------   -----------   -----------
Financing activities:
  Net increase (decrease) in non-interest bearing demand
    deposits................................................       74,312        84,031       (36,125)
  Net (decrease) increase in savings and interest bearing
    demand deposits.........................................      (14,561)      (27,177)      127,649
  Net increase in time deposits.............................      157,635        72,848       102,553
  Net increase (decrease) in federal funds purchased and
    securities sold under repurchase agreements.............      106,356       (11,948)     (342,709)
  Proceeds from issuance of other borrowed funds............    2,365,500     2,045,000     2,440,000
  Principal payments on other borrowed funds................   (2,313,000)   (1,739,000)   (1,856,000)
  Purchase of treasury stock................................      (10,419)      (22,156)       (4,046)
  Proceeds from stock transactions..........................        1,992         1,897         2,765
  Payments of cash dividends................................      (21,016)      (17,101)      (11,297)
  Payments of cash dividends in lieu of fractional shares...          (24)          (26)          (41)
                                                              -----------   -----------   -----------
      Net cash provided by financing activities.............      346,775       386,368       422,749
                                                              -----------   -----------   -----------
(Decrease) increase in cash and cash equivalents............       (8,867)       14,401      (117,169)
Cash and cash equivalents at beginning of year..............      134,995       120,594       237,763
                                                              -----------   -----------   -----------
Cash and cash equivalents at end of year....................  $   126,128   $   134,995   $   120,594
                                                              ===========   ===========   ===========
Supplemental cash flow information:
  Interest paid.............................................  $   247,699   $   189,137   $   185,402
  Income taxes paid.........................................       26,520        26,753        21,691
Supplemental schedule of noncash investing and financing
  activities relating to various purchase transactions:
  Loans acquired............................................  $        --   $     4,503   $        --
  Investment securities and other assets acquired...........           --         3,112            --
  Deposit and other liabilities assumed.....................           --        27,935            --
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       16
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    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 generally accepted
accounting principles and to general practices within the banking industry. The
following is a description of the more significant of those policies.

CONSOLIDATION AND BASIS OF PRESENTATION

    The consolidated financial statements include the accounts of the
Corporation and its wholly-owned bank subsidiaries, International Bank of
Commerce, Laredo ("IBC"), Commerce Bank, International Bank of Commerce, Zapata,
International Bank of Commerce, Brownsville, and the Corporation's wholly-owned
non-bank subsidiaries, IBC Subsidiary Corporation, IBC Life Insurance Company,
IBC Trading Company and IBC Capital Corporation. All significant intercompany
balances and transactions have been eliminated in consolidation.

    The Company, through its subsidiaries, is primarily engaged in the business
of banking, including the acceptance of checking and savings deposits and the
making of commercial, real estate, personal, home improvement, automobile and
other installment and term loans. The primary markets of the Company are South
and Southeast Texas. Each bank subsidiary is very active in facilitating
international trade along the United States border with Mexico and elsewhere.
Although the Company's loan portfolio is diversified, the ability of the
Company's debtors to honor their contracts is primarily dependent upon the
economic conditions in the Company's trade area. In addition, the investment
portfolio is directly impacted by fluctuations in market interest rates. The
Company and its bank subsidiaries are subject to the regulations of certain
Federal agencies as well as the Texas Department of Banking and undergo periodic
examinations by those regulatory authorities. Such agencies may require certain
standards or impose certain limitations based on their judgments or changes in
law and regulations.

    The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the balance sheets
and income and expenses for the periods. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant changes in the near-term relate to the determination
of the allowance for possible loan losses.

PER SHARE DATA

    All share and per share information has been restated giving retroactive
effect to stock dividends distributed.

INVESTMENT SECURITIES

    The Company classifies debt and equity securities into one of these
categories: held-to-maturity, available-for-sale, or trading. Such
classifications 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 and as a separate
component of shareholders' equity until realized. The Company did not maintain
any trading securities during the three year period ending December 31, 2000.

                                       17
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Mortgage-backed securities held at December 31, 2000 and 1999 represent
participating interests in pools of long-term first mortgage loans originated
and serviced by the issuers of the securities. Premiums and discounts are
amortized using the straight-line method over the contractual maturity of the
loans adjusted for anticipated prepayments. Income recognized under the
straight-line method is not materially different from income that would be
recognized under the level yield or "interest method". Mortgage-backed
securities are either issued or guaranteed by the U.S. Government or its
agencies. Market interest rate fluctuations can affect the prepayment speed of
principal and the yield on the security.

UNEARNED DISCOUNTS

    Consumer loans are frequently made on a discount basis. The amount of the
discount is subsequently included in interest income ratably over the term of
the related loans to approximate the effective interest method.

PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES

    The allowance for possible loan losses is maintained at a level considered
adequate by management to provide for potential loan losses. The allowance is
increased by provisions charged to operating expense and reduced by net
charge-offs. The provision for possible loan losses is the amount which, in the
judgment of management, is necessary to establish the allowance for possible
loan losses at a level that is adequate to absorb known and inherent risks in
the loan portfolio.

    Management believes that the allowance for possible loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's bank subsidiaries
allowances for possible loan losses. Such agencies may require the Company's
bank subsidiaries to recognize additions or reductions to their allowances based
on their judgments of information available to them at the time of their
examination.

NON-ACCRUAL LOANS

    The non-accrual loan policy of the Company's bank subsidiaries is to
discontinue the accrual of interest on loans when management determines that it
is probable that future interest accruals will be uncollectible. Interest income
on non-accrual loans is recognized only to the extent payments are received or
when, in management's opinion, the creditor's financial condition warrants
reestablishment of interest accruals.

OTHER REAL ESTATE OWNED

    Other real estate owned is comprised of real estate acquired by foreclosure
and deeds in lieu of foreclosure. Other real estate is carried at the lower of
the recorded investment in the property or its fair value less estimated costs
to sell such property (as determined by independent appraisal). Prior to
foreclosure, the value of the underlying loan is written down to the fair value
of the real estate to be acquired by a charge to the allowance for loan losses
if necessary. Any subsequent write-downs are charged against other non-interest
expenses. Operating expenses of such properties and gains and losses on their
disposition are included in other non-interest expenses.

                                       18
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BANK PREMISES AND EQUIPMENT

    Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on straight-line and accelerated methods
over the estimated useful lives of the assets. Repairs and maintenance are
charged to operations as incurred and expenditures for renewals and betterments
are capitalized.

INCOME TAXES

    The Company recognizes certain income and expenses in different time periods
for financial reporting and income tax purposes. The provision for deferred
income taxes is based on the asset and liability method and represents the
change in the deferred income tax accounts during the year, including the effect
of enacted tax rate changes.

STOCK OPTIONS

    Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. In
October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants
made in 1995 and subsequent years as if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.

NET INCOME PER SHARE

    Per share amounts are computed in accordance with SFAS No. 128, "Earnings
per Share." Basic EPS is calculated by dividing net income available to common
shareholders, by the weighted average number of common shares outstanding. The
computation of diluted EPS assumes the issuance of common shares for all
dilutive potential common shares outstanding during the reporting period. The
dilutive effect of stock options is considered in earnings per share
calculations if dilutive, using the treasury stock method.

ACQUISITIONS AND AMORTIZATION OF INTANGIBLES

    Operations of companies acquired in purchase transactions are included in
the consolidated statements of income from the respective dates of acquisition.
The excess of the purchase price over net identifiable assets acquired
(goodwill) and core deposit intangibles are included in other assets and are
being amortized over varying lives not exceeding 15 years.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

    Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate the carrying value may not be recoverable. If the sum of
the expected undiscounted cash flows is less than the carrying amount of the
assets, a loss is recognized for the difference between the fair value and the
carrying value of the asset. Long-lived assets and certain identifiable
intangibles to be disposed of are reported at the lower of carrying amount or
fair value less cost to sell, except for assets that are covered by APB Opinion
No. 30.

                                       19
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS

    For purposes of the statement of cash flows, the Company considers all
short-term investments with a maturity at date of purchase of three months or
less to be cash equivalents. Also, the Company reports transactions related to
deposits with other financial institutions, customer time deposits and loans to
customers on a net basis.

ENVIRONMENTAL REMEDIATION

    Environmental remediation liabilities are accrued when the criteria of SFAS
No. 5, "Accounting for Contingencies," have been met.

ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS

    The Company accounts for transfers and servicing of financial assets and
extinguishments of liabilities based on the application of a
financial-components approach that focuses on control. After a transfer of
financial assets, the Company recognizes the financial and servicing assets it
controls and liabilities it has incurred, derecognizes financial assets when
control has been surrendered and derecognizes liabilities when extinguished.

COMPREHENSIVE INCOME

    The Company reports comprehensive income in accordance with SFAS No. 130.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.

SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

    The Company applies the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," in determining it's
reportable segments and related disclosures. Management of the Company believes
that it does not have separate reportable operating segments under the provision
of SFAS No. 131.

(2) ACQUISITIONS

    Effective February 16, 2001, IBC acquired the assets of First Equity
Corporation, an Austin-based mortgage banker. The acquisition was accounted for
as a purchase transaction. In connection with the acquisition, IBC recorded
goodwill totaling $5,304,000 which is being amortized on a straight line basis
over a fifteen year period.

    Effective October 2, 2000, the Company purchased a controlling interest in
the GulfStar Group, a Houston-based investment banking firm serving
middle-market corporations primarily in Texas. The acquisition was accounted for
as a purchase transaction. In connection with the acquisition, the Company
recorded goodwill totaling $13,199,000 which is being amortized on a straight
line basis over a fifteen year period.

    During 2000, IBC established an insurance subsidiary and acquired the assets
of two insurance agencies in Texas. The acquisitions were accounted for as a
purchase transaction. In connection with the acquisitions, IBC recorded goodwill
totaling $3,003,000 which is being amortized on a straight line basis over a
fifteen year period.

                                       20
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2) ACQUISITIONS (CONTINUED)
    Effective February 19, 1999, IBC purchased certain assets and assumed
certain liabilities of the Laredo branch of Pacific Southwest Bank, Corpus
Christi, Texas. IBC purchased loans of approximately $4,503,000 and assumed
deposits of approximately $27,873,000 and received cash and other assets in the
amount of approximately $23,432,000. The acquisition was accounted for as a
purchase transaction. IBC recorded core deposit premium totaling $2,525,000
which is being amortized on a straight line basis over a fifteen year period.

(3) INVESTMENT SECURITIES

    The amortized cost and estimated market value by type of investment security
at December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                               HELD TO MATURITY
                                        --------------------------------------------------------------
                                                       GROSS        GROSS      ESTIMATED
                                        AMORTIZED    UNREALIZED   UNREALIZED     MARKET      CARRYING
                                           COST        GAINS        LOSSES       VALUE        VALUE
                                        ----------   ----------   ----------   ----------   ----------
                                                            (DOLLARS IN THOUSANDS)
<S>                                     <C>          <C>          <C>          <C>          <C>
Obligations of states and political
  subdivisions........................  $       60     $    --     $           $       60   $       60
Other securities......................       2,160          --           --         2,160        2,160
                                        ----------     -------     --------    ----------   ----------
Total investment securities...........  $    2,220     $    --     $           $    2,220   $    2,220
                                        ==========     =======     ========    ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                              AVAILABLE FOR SALE
                                        --------------------------------------------------------------
                                                       GROSS        GROSS      ESTIMATED
                                        AMORTIZED    UNREALIZED   UNREALIZED     MARKET      CARRYING
                                           COST        GAINS        LOSSES       VALUE        VALUE
                                        ----------   ----------   ----------   ----------   ----------
                                                            (DOLLARS IN THOUSANDS)
<S>                                     <C>          <C>          <C>          <C>          <C>
U.S. Treasury securities..............  $  278,885     $    --     $(34,074)   $  244,811   $  244,811
Mortgage-backed securities............   2,565,642      19,895       (2,214)    2,583,323    2,583,323
Obligations of states and political
  subdivisions........................     102,388           2       (5,599)       96,791       96,791
Other securities......................      93,232          --       (7,509)       85,723       85,723
Equity securities.....................      85,960         108          (90)       85,978       85,978
                                        ----------     -------     --------    ----------   ----------
Total investment securities...........  $3,126,107     $20,005     $(49,486)   $3,096,626   $3,096,626
                                        ==========     =======     ========    ==========   ==========
</TABLE>

    The amortized cost and estimated market value of investment securities at
December 31, 2000, 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.

<TABLE>
<CAPTION>
                                                      HELD TO MATURITY        AVAILABLE FOR SALE
                                                    ---------------------   -----------------------
                                                                ESTIMATED                ESTIMATED
                                                    AMORTIZED    MARKET     AMORTIZED      MARKET
                                                      COST        VALUE        COST        VALUE
                                                    ---------   ---------   ----------   ----------
                                                                (DOLLARS IN THOUSANDS)
<S>                                                 <C>         <C>         <C>          <C>
Due in one year or less...........................   $1,610      $1,610     $      743   $      743
Due after one year through five years.............      485         485            537          530
Due after five years through ten years............      125         125         20,000       19,900
Due after ten years...............................       --          --        453,225      406,152
Mortgage-backed securities........................       --          --      2,565,642    2,583,323
Equity securities.................................       --          --         85,960       85,978
                                                     ------      ------     ----------   ----------
Total investment securities.......................   $2,220      $2,220     $3,126,107   $3,096,626
                                                     ======      ======     ==========   ==========
</TABLE>

                                       21
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3) INVESTMENT SECURITIES (CONTINUED)
    The amortized cost and estimated market value by type of investment security
at December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                               HELD TO MATURITY
                                        --------------------------------------------------------------
                                                       GROSS        GROSS      ESTIMATED
                                        AMORTIZED    UNREALIZED   UNREALIZED     MARKET      CARRYING
                                           COST        GAINS        LOSSES       VALUE        VALUE
                                        ----------   ----------   ----------   ----------   ----------
                                                            (DOLLARS IN THOUSANDS)
<S>                                     <C>          <C>          <C>          <C>          <C>
Obligations of states and political
  subdivisions........................  $      321     $   --      $     (1)   $      320   $      321
Other securities......................       2,085         --            --         2,085        2,085
                                        ----------     ------      --------    ----------   ----------
Total investment securities...........  $    2,406     $   --      $     (1)   $    2,405   $    2,406
                                        ==========     ======      ========    ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                              AVAILABLE FOR SALE
                                        --------------------------------------------------------------
                                                       GROSS        GROSS      ESTIMATED
                                        AMORTIZED    UNREALIZED   UNREALIZED     MARKET      CARRYING
                                           COST        GAINS        LOSSES       VALUE        VALUE
                                        ----------   ----------   ----------   ----------   ----------
                                                            (DOLLARS IN THOUSANDS)
<S>                                     <C>          <C>          <C>          <C>          <C>
U.S. Treasury securities..............  $  261,980     $   --      $ (1,000)   $  260,980   $  260,980
Mortgage-backed securities............   2,534,461      4,695       (47,193)    2,491,963    2,491,963
Obligations of states and political
  subdivisions........................     102,210          2       (11,796)       90,416       90,416
Other securities......................      76,212         45        (2,103)       74,154       74,154
Equity securities.....................      75,236        603           (41)       75,798       75,798
                                        ----------     ------      --------    ----------   ----------
Total investment securities...........  $3,050,099     $5,345      $(62,133)   $2,993,311   $2,993,311
                                        ==========     ======      ========    ==========   ==========
</TABLE>

    Mortgage-backed securities are primarily securities issued by the Federal
Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage
Association ("Fannie Mae").

    The amortized cost and fair market value of investment securities pledged to
qualify for fiduciary powers, to secure public monies as required by law,
repurchase agreements and short-term fixed borrowings was $2,190,700,000 and
$2,172,637,000, respectively, at December 31, 2000.

    Proceeds from the sale of securities available-for-sale were $163,085,000,
$616,080,000 and $541,362,000 during 2000, 1999 and 1998, respectively. Gross
gains of $434,000 and gross losses of $4,682,000 were realized in 2000 primarily
from the sale of available-for-sale mortgage-backed securities. Gross gains and
losses of $2,639,000 and $2,626,000 and $4,374,000 and $481,000 were realized in
1999 and 1998, respectively.

    The Company maintains the required level of stock at the Federal Home Loan
Bank of Dallas, Texas (the "FHLB"). The FHLB stock is included in equity
securities and is recorded at cost and totaled $85,550,000 at December 31, 2000.

                                       22
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(4) ALLOWANCE FOR POSSIBLE LOAN LOSSES

    A summary of the transactions in the allowance for possible loan losses for
the years ended December 31, 2000, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Balance at January 1, 2000..................................  $26,770    $25,551    $24,516
                                                              -------    -------    -------
  Losses charged to allowance...............................   (3,682)    (6,549)    (8,885)
  Recoveries credited to allowance..........................      900      1,389      1,349
                                                              -------    -------    -------
  Net losses charged to allowance...........................   (2,782)    (5,160)    (7,536)
  Provision charged to operations...........................    6,824      6,379      8,571
                                                              -------    -------    -------
Balance at December 31, 2000                                  $30,812    $26,770    $25,551
                                                              =======    =======    =======
</TABLE>

    Loans accounted for on a non-accrual basis at December 31, 2000, 1999 and
1998 amounted to $6,273,000, $7,662,000 and $5,538,000, respectively. The effect
of such non-accrual loans reduced interest income by $842,000, $874,000 and
$708,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
Amounts received on non-accruals are applied, for financial accounting purposes,
first to principal and then to interest after all principal has been collected.

    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 include (1) all non-accrual loans, (2) loans which are 90 days or
more past due, unless they are well secured (i.e. the collateral value is
sufficient to cover principal and accrued interest) and are in the process of
collection, and (3) other loans which management believes are impaired. Impaired
loans are measured based on (1) the present value of expected future cash flows
discounted at the loan's effective interest rate; (2) the loan's observable
market price; or (3) the fair value of the collateral if the loan is collateral
dependent. Substantially all of the Company's 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.

    Impaired loans were $5,226,000 at December 31, 2000, $7,738,000 at
December 31, 1999 and $8,440,000 at December 31, 1998. The average recorded
investment in impaired loans during 2000, 1999, and 1998 was $6,064,000,
$8,028,000 and $8,962,000, respectively. The total allowance for possible loan
losses related to these loans was $1,722,000, $882,000 and $1,384,000 at
December 31, 2000, 1999 and 1998, respectively. Interest income on impaired
loans of $279,000, $371,000 and $443,000 was recognized for cash payments
received in 2000, 1999 and 1998, respectively.

    Management of the Company recognizes the risks associated with these
impaired loans. However, management's decision to place loans in this category
does not necessarily mean that the Company expects losses to occur.

    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
borrower's financial condition and general economic conditions in the borrower's
industry. Generally, unsecured consumer loans are charged-off when 90 days past
due.

                                       23
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(4) ALLOWANCE FOR POSSIBLE LOAN LOSSES (CONTINUED)
    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 possible loan losses can be made only on a subjective basis. It is
the judgment of the Company's management that the allowance for possible loan
losses at December 31, 2000 was adequate to absorb possible losses from loans in
the portfolio at that date.

(5) BANK PREMISES AND EQUIPMENT

    A summary of bank premises and equipment, by asset classification, at
December 31, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
                                                              ESTIMATED
                                                             USEFUL LIVES     2000         1999
                                                             ------------  ----------   ----------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                                          <C>           <C>          <C>
Bank buildings and improvements............................  5 - 40 years   $119,682     $108,165
Furniture, equipment and vehicles..........................  1 - 20 years     86,758       76,199
Land.......................................................                   27,499       27,270
Real estate held for future expansion:
  Land, building, furniture, fixture and equipment.........  7 - 27 years      1,174        2,215
Less: accumulated depreciation.............................                  (79,590)     (68,507)
                                                                            --------     --------
    Bank premises and equipment, net.......................                 $155,523     $145,342
                                                                            ========     ========
</TABLE>

                                       24
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(6) DEPOSITS

    Deposits as of December 31, 2000 and 1999 and related interest expense for
the years ended December 31, 2000, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                                                                 2000         1999
                                                              ----------   ----------
                                                              (DOLLARS IN THOUSANDS)
<S>                                                           <C>          <C>
Deposits:
  Demand--non-interest bearing
      Domestic..............................................  $  503,863   $  438,028
      Foreign...............................................      69,818       61,341
                                                              ----------   ----------
  Total demand non-interest bearing                              573,681      499,369
                                                              ----------   ----------
  Savings and interest bearing demand
      Domestic..............................................     692,513      709,104
      Foreign...............................................     221,381      219,351
                                                              ----------   ----------
  Total savings and interest bearing demand.................     913,894      928,455
                                                              ----------   ----------
  Time, certificates of deposit
    $100,000 or more
      Domestic..............................................     504,293      469,607
      Foreign...............................................     961,902      859,164
  Less than $100,000
      Domestic..............................................     464,290      472,217
      Foreign...............................................     326,538      298,400
                                                              ----------   ----------
  Total time, certificates of deposit.......................   2,257,023    2,099,388
                                                              ----------   ----------
  Total deposits............................................  $3,744,598   $3,527,212
                                                              ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Interest Expense:
  Savings and interest bearing demand
      Domestic..............................................  $ 21,756   $ 21,678   $ 21,580
      Foreign...............................................     6,189      5,504      4,839
                                                              --------   --------   --------
  Total savings and interest bearing demand.................    27,945     27,182     26,419
                                                              --------   --------   --------
  Time, certificates of deposit
    $100,000 or more
      Domestic..............................................    28,359     22,790     24,484
      Foreign...............................................    51,675     38,497     36,865
  Less than $100,000
      Domestic..............................................    24,756     24,158     28,746
      Foreign...............................................    15,953     12,181     11,728
                                                              --------   --------   --------
  Total time, certificates of deposit.......................   120,743     97,626    101,823
                                                              --------   --------   --------
  Total interest expense on deposits........................  $148,688   $124,808   $128,242
                                                              ========   ========   ========
</TABLE>

                                       25
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

    The Company's bank subsidiaries have entered into repurchase agreements with
the FHLB and individual customers of the bank subsidiaries. The purchasers have
agreed to resell to the bank subsidiaries identical securities upon the
maturities of the agreements. Securities sold under repurchase agreements were
mortgage-backed book entry securities and averaged $145,096,000, $124,276,000
and $257,589,000 during 2000, 1999 and 1998, respectively, and the maximum
amount outstanding at any month end during 2000, 1999 and 1998 was $231,663,000,
$136,066,000 and $518,450,000, respectively.

    Further information related to repurchase agreements at December 31, 2000
and 1999 is set forth in the following table:

<TABLE>
<CAPTION>
                                                COLLATERAL SECURITIES             REPURCHASE BORROWING
                                          ---------------------------------   -----------------------------
                                           BOOK VALUE OF    MARKET VALUE OF   BALANCE OF   WEIGHTED AVERAGE
                                          SECURITIES SOLD   SECURITIES SOLD   LIABILITY     INTEREST RATE
                                          ---------------   ---------------   ----------   ----------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                       <C>               <C>               <C>          <C>
December 31, 2000 Term:
  Overnight agreements..................       $ 16,214        $ 16,252        $  8,161          5.70%
  1 to 29 days..........................         36,400          36,381          29,664          6.15%
  30 to 90 days.........................         75,938          76,129          50,072          6.17%
  Over 90 days                                  173,224         175,514         142,211          5.87%
                                               --------        --------        --------         -----
  Total.................................       $301,776        $304,276        $230,108          5.96%
                                               ========        ========        ========         =====
December 31, 1999 Term:
  Overnight agreements..................       $ 37,091        $ 36,040        $ 21,799          4.65%
  1 to 29 days..........................          8,776           8,173           6,249          4.77%
  30 to 90 days.........................         37,370          35,439          34,469          5.03%
  Over 90 days..........................         62,178          57,219          61,235          5.30%
                                               --------        --------        --------         -----
  Total.................................       $145,415        $136,871        $123,752          5.09%
                                               ========        ========        ========         =====
</TABLE>

    The book value and market value of securities sold includes the entire book
value and market value of securities partially or fully pledged under repurchase
agreements.

(8) OTHER BORROWED FUNDS

    Other borrowed funds at December 31, 2000 and 1999 were $1,232,500,000 and
$1,330,000,000, respectively, of short-term fixed borrowings with 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. The
weighted average interest rate on the short-term fixed borrowings outstanding at
December 31, 2000 and 1999 was 6.56% and 5.86%, respectively, and the weighted
average interest rate for the year 2000 and 1999 was 6.46% and 5.27%,
respectively. The average daily balance on short-term fixed borrowings was
$1,396,537,000 and $948,446,000 during 2000 and 1999, respectively, and the
maximum amount outstanding at any month end during 2000 and 1999 was
$1,609,000,000 and $1,335,000,000, respectively.

    At December 31, 2000, the Company had a $200,000,000 long-term certificate
of indebtedness outstanding payable to the FHLB at a three month Libor rate
minus ten basis points which resets quarterly, maturing October 18, 2002. At
December 31, 1999, the Company had a $50,000,000 long-term fixed rate
certificate of indebtedness outstanding payable to the FHLB at a ten year
Treasury rate minus forty-five basis points, maturing December 8, 2009. These
borrowings are secured by a blanket lien of 1-4 family first lien mortgage
loans.

                                       26
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) EARNINGS PER SHARE

    Basic EPS is calculated by dividing net income available to common
shareholders by the weighted average number of common shares outstanding. The
computation of diluted EPS assumes the issuance of common shares for all
dilutive potential common shares outstanding during the reporting period. The
calculation of the basic EPS and the diluted EPS at December 31, 2000, 1999, and
1998 is set forth in the following table:

<TABLE>
<CAPTION>
                                                              INCOME         SHARES       PER-SHARE
                                                            (NUMERATOR)   (DENOMINATOR)    AMOUNT
                                                            -----------   -------------   ---------
                                                            (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
                                                                           AMOUNTS)
<S>                                                         <C>           <C>             <C>
December 31, 2000:
Basic EPS
  Income available to common stockholders.................    $75,174       21,428,764      $3.51
  Potential dilutive common shares........................                     270,785
                                                              -------       ----------
Diluted EPS...............................................    $75,174       21,699,549      $3.46
                                                              =======       ==========
December 31, 1999:
Basic EPS
  Income available to common stockholders.................    $66,248       21,828,496      $3.03
  Potential dilutive common shares........................                     380,141
                                                              -------       ----------
Diluted EPS...............................................    $66,248       22,208,637      $2.98
                                                              =======       ==========
December 31, 1998:
Basic EPS
  Income available to common stockholders.................    $53,725       22,055,944      $2.44
  Potential dilutive common shares........................                     525,451
                                                              -------       ----------
Diluted EPS...............................................    $53,725       22,581,395      $2.38
                                                              =======       ==========
</TABLE>

(10) EMPLOYEES' PROFIT SHARING PLAN

    The Company has a deferred profit sharing plan for full-time employees with
a minimum of one year of continuous employment. The Company's annual
contribution to the plan is based on a percentage, as determined by the Board of
Directors, of income before income taxes, as defined, for the year. Allocation
of the contribution among officers' and employees' accounts is based on length
of service and amount of salary earned. Profit sharing costs of $1,844,878,
$1,722,600 and $1,546,700 were charged to income for the years ended
December 31, 2000, 1999, and 1998, respectively.

(11) INTERNATIONAL OPERATIONS

    The Company provides international banking services for its customers
through its bank subsidiaries. Neither the Company nor its bank subsidiaries
have facilities located outside the United States. International operations are
distinguished from domestic operations based upon the domicile of the customer.

    Because the resources employed by the Company are common to both
international and domestic operations, it is not practical to determine net
income generated exclusively from international activities.

                                       27
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(11) INTERNATIONAL OPERATIONS (CONTINUED)
    A summary of assets attributable to international operations at
December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                             2000         1999
                                                          ----------   ----------
                                                          (DOLLARS IN THOUSANDS)
<S>                                                       <C>          <C>
Loans:
  Commercial............................................   $242,450     $184,129
  Others................................................     35,669       32,503
                                                           --------     --------
                                                            278,119      216,632
  Less allowance for possible loan losses...............     (1,831)      (1,322)
                                                           --------     --------
    Net loans...........................................   $276,288     $215,310
                                                           ========     ========
  Accrued interest receivable...........................   $  2,630     $  1,725
                                                           --------     --------
</TABLE>

    At December 31, 2000, the Company had $7,100,000 in outstanding
international commercial letters of credit to facilitate trade activities. The
letters of credit are issued primarily in conjunction with credit facilities
which are available to various Mexican banks doing business with the Company.

    Income directly attributable to international operations was $22,826,000,
$15,317,000 and $11,795,000 for the years ended December 31, 2000, 1999 and
1998, respectively.

(12) INCOME TAXES

    The Company files a consolidated U.S. Federal income tax return. The current
and deferred portions of income tax expense (benefit) included in the
consolidated statements of income are presented below for the years ended
December 31:

<TABLE>
<CAPTION>
                                                     2000       1999       1998
                                                   --------   --------   --------
                                                       (DOLLARS IN THOUSANDS)
<S>                                                <C>        <C>        <C>
Current
  U.S............................................  $25,702    $32,413    $22,443
  Foreign........................................      123        102         55
                                                   -------    -------    -------
    Total current taxes..........................   25,825     32,515     22,498
  Deferred.......................................    7,592      4,372      2,122
                                                   -------    -------    -------
    Total income taxes...........................  $33,417    $36,887    $24,620
                                                   =======    =======    =======
</TABLE>

    Total income tax expense differs from the amount computed by applying the
U.S. Federal income tax rate of 35% for 2000, 1999 and 1998 to income before
income taxes. The reasons for the differences for the years ended December 31
are as follows:

<TABLE>
<CAPTION>
                                                     2000       1999       1998
                                                   --------   --------   --------
                                                       (DOLLARS IN THOUSANDS)
<S>                                                <C>        <C>        <C>
Computed expected tax expense....................  $38,007    $36,097    $27,416
Change in taxes resulting from:
  Tax-exempt interest income.....................   (1,596)    (1,397)      (151)
  Lease financing................................   (1,386)     3,193     (2,309)
  Employee benefits..............................   (1,994)    (1,609)        --
  Other..........................................      386        603       (336)
                                                   -------    -------    -------
    Actual tax expense...........................  $33,417    $36,887    $24,620
                                                   =======    =======    =======
</TABLE>

                                       28
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(12) INCOME TAXES (CONTINUED)
    The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2000 and 1999 are reflected below:

<TABLE>
<CAPTION>
                                                              2000       1999
                                                            --------   --------
                                                                (DOLLARS IN
                                                                THOUSANDS)
<S>                                                         <C>        <C>
Deferred tax assets:
  Loans receivable, principally due to the allowance for
    possible loan losses..................................  $10,144    $ 8,561
  Other real estate owned.................................      251        766
  Accrued expenses........................................       42      1,466
  Net unrealized losses on available for sale investment
    securities............................................   10,318     19,876
  Other...................................................      236        284
                                                            -------    -------
  Total deferred tax assets...............................   20,991     30,953
Deferred tax liabilities:
  Lease financing receivable..............................  (12,951)    (8,772)
  Bank premises and equipment, principally due to
    differences in depreciation...........................   (2,146)    (1,684)
  FHLB stock..............................................   (5,040)    (2,842)
  Other...................................................     (616)      (267)
                                                            -------    -------
  Total deferred tax liabilities..........................  (20,753)   (13,565)
                                                            -------    -------
    Net deferred tax asset (liability)....................  $   238    $17,388
                                                            =======    =======
</TABLE>

    The Company did not record a valuation allowance against deferred tax assets
at December 31, 2000 and 1999 because management has concluded it is more likely
than not the Company will have future taxable earnings in excess of future tax
deductions.

(13) STOCK OPTIONS

    On April 3, 1996, the Board of Directors adopted the 1996 International
Bancshares Corporation Stock Option Plan (the "1996 Plan"). The 1996 Plan
replaced the 1987 International Bancshares Corporation Key Contributor Stock
Option Plan (the "1987 Plan"). Under the 1987 Plan and the 1996 Plan both
qualified incentive stock options ("ISOs") and nonqualified 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.

    The Company granted nonqualified stock options exercisable for a total of
120,000 shares of Common Stock to certain employees of the GulfStar Group. The
grants were not made under either the 1987 Plan or the 1996 Plan. The options
are exercisable for a period of seven years and vest in equal increments over a
period of five years. All options granted to the GulfStar Group employees had an
option price of not less than the fair market value of the Common Stock on or
about the date of grant.

                                       29
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(13) STOCK OPTIONS (CONTINUED)
    The schedule on the following page summarizes the pertinent information
(adjusted for stock distributions) with regard to stock.

<TABLE>
<CAPTION>
                                                     OPTION PRICE      OPTIONS
                                                      PER SHARE      OUTSTANDING
                                                    --------------   -----------
<S>                                                 <C>              <C>
Balance at January 1, 1998........................                    1,297,213
  Terminated......................................  $6.83 - 37.82       (40,445)
  Granted.........................................  30.72 - 31.84        17,813
  Exercised.......................................  6.83 - 37.82       (244,753)
                                                                     ----------
Balance at December 31, 1998......................                    1,029,828
  Terminated......................................  $15.00 - 43.00      (50,610)
  Granted.........................................  29.44 - 34.40       193,900
  Exercised.......................................  15.74 - 30.23       (96,504)
                                                                     ----------
Balance at December 31, 1999......................                    1,076,614
  Terminated......................................  $        30.40         (750)
  Granted.........................................  31.00 - 32.87       133,000
  Exercised.......................................  12.58 - 34.40      (108,954)
                                                                     ----------
Balance at December 31, 2000......................                    1,099,910
                                                                     ==========
</TABLE>

    At December 31, 2000 and 1999, 534,004 and 316,698 options were exercisable,
respectively, and as of December 31, 2000, 37,465 shares were available for
future grants under the 1996 Plan. All options granted under the 1987 Plan and
the 1996 Plan had an option price of not less than the fair market value of the
Company's common stock at the date of grant and a vesting period of five years.

    The following table summarizes information about stock options outstanding
at December 31, 2000:

<TABLE>
<CAPTION>
                                                    OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                                           -------------------------------------   -----------------------
                                                          WEIGHTED-
                                                           AVERAGE     WEIGHTED-                 WEIGHTED-
                                             NUMBER       REMAINING     AVERAGE      NUMBER       AVERAGE
RANGE OF                                   OUTSTANDING   CONTRACTUAL   EXERCISE    EXERCISABLE   EXERCISE
EXERCISE PRICES                            AT 12/31/00      LIFE         PRICE     AT 12/31/00     PRICE
- ---------------                            -----------   -----------   ---------   -----------   ---------
<S>                                        <C>           <C>           <C>         <C>           <C>
$12.58...................................     197,922     2.5 years     $12.58       197,922      $12.58
 15.57...................................         492     3.8 years      15.57           492       15.57
 24.17 - 33.28...........................     510,516     4.4 years      24.44       282,855       24.44
 30.72 - 31.84...........................      23,047     6.1 years      30.88         8,900       30.88
 29.44 - 34.40...........................     234,933     7.3 years      30.51        43,835       30.51
 31.00 - 32.87...........................     133,000     6.8 years      31.81            --       31.81
                                            ---------                                -------
$12.58 - 34.40...........................   1,099,910                                534,004
                                            =========                                =======
</TABLE>

    The Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the following pro forma disclosure required by SFAS No. 123.

    The fair values of options at date of grant was estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                           2000       1999       1998
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
Expected life (years)..................................       5          6          6
Interest rate..........................................    5.81%      5.54%      4.46%
Volatility.............................................   35.54%     33.68%     36.40%
</TABLE>

                                       30
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(13) STOCK OPTIONS (CONTINUED)
    The following schedule shows total net income as reported and the pro forma
results:

<TABLE>
<CAPTION>
                                                      2000       1999       1998
                                                    --------   --------   --------
<S>                       <C>                       <C>        <C>        <C>
Net income                As reported.............  $75,174    $66,248    $53,725
                          Pro forma...............   73,199     64,478     52,123
Basic earnings            As reported.............  $  3.51    $  3.03    $  2.44
                          Pro forma...............     3.42       2.95       2.36
Diluted earnings          As reported.............  $  3.46    $  2.98    $  2.38
                          Pro forma...............     3.37       2.90       2.31
</TABLE>

    The Company has a formal stock repurchase program and as part of the
program, the Company occasionally repurchases shares of Common Stock related to
the exercise of stock options through the surrender of other shares of Common
Stock of the Company owned by the option holders.

(14) COMMITMENTS AND CONTINGENT LIABILITIES

    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. 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 Company leases portions of its banking premises and equipment under
operating leases. Total rental expense for the years ended December 31, 2000,
1999 and 1998 and noncancellable lease commitments at December 31, 2000 were not
significant.

    Cash of approximately $28,480,000 and $29,171,000 at December 31, 2000 and
1999, respectively, was maintained to satisfy regulatory reserve requirements.

    The Company's lead bank subsidiary has invested in several lease financing
transactions. Two of the lease financing transactions have been examined by the
Internal Revenue Service ("IRS"). In both transactions, a subsidiary of the lead
bank is the owner of a ninety-nine percent (99%) limited partnership interest.
The IRS has issued a Notice of Proposed Adjustments to Affected Items of a
partnership for each of the transactions and the affected partnership has
submitted a Protest contesting the adjustments. No reliable prediction can be
made at this time as to the likely outcome of the IRS proceedings regarding the
lease transactions; however, if the IRS proceedings are decided adversely to the
partnerships, all or a portion of the $12 million in tax benefits previously
recognized by the Company in connection with these lease financing transactions
would be in question. Management has estimated the Company's exposure in
connection with these transactions and has reserved the estimated amount.
Management intends to continue to evaluate the merits of this matter and make
appropriate revisions if warranted.

(15) TRANSACTIONS WITH RELATED PARTIES

    In the ordinary course of business, the Corporation and its subsidiaries
make loans to directors and executive officers of the Corporation, including
their affiliates, families and companies in which they are principal owners. In
the opinion of management, these loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and do not involve more than normal
risk of collectibility or present other unfavorable features. The aggregate
amounts receivable from such related parties amounted to approximately
$37,959,000 and $42,115,000 at December 31, 2000 and 1999, respectively. During
2000, $10,053,000 of new loans were made and repayments totaled $14,209,000.

                                       31
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(16) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
     CREDIT RISK

    In the normal course of business, the bank subsidiaries are party to
financial instruments with off-balance sheet risk to meet the financing needs of
their customers. These financial instruments include commitments to their
customers. These financial instruments involve, to varying degrees, elements of
credit risk in excess of the amounts recognized in the balance sheet. The
contract amounts of these instruments reflect the extent of involvement the bank
subsidiaries have in particular classes of financial instruments. At
December 31, 2000, the following financial instruments, whose contract amounts
represent credit risks, were outstanding:

<TABLE>
<S>                                                           <C>
Commitments to extend credit................................  $610,923,000
Credit card lines...........................................    39,299,000
Letters of credit...........................................    50,878,000
</TABLE>

    The bank subsidiaries' exposure to credit loss in the event of
nonperformance by the other party to the above financial instruments is
represented by the contractual amounts of the instruments. The bank subsidiaries
use the same credit policies in making commitments and conditional obligations
as they do for on-balance sheet instruments. The bank subsidiaries control the
credit risk of these transactions through credit approvals, limits and
monitoring procedures. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates normally less than
one year or other termination clauses and may require the payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The bank subsidiaries evaluate each customer's credit-worthiness
on a case-by-case basis. The amount of collateral obtained, if deemed necessary
by the subsidiary banks upon extension of credit, is based on management's
credit evaluation of the customer. Collateral held varies, but may include
residential and commercial real estate, bank certificates of deposit, accounts
receivable and inventory.

    Letters of credit are written conditional commitments issued by the bank
subsidiaries to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.

    The bank subsidiaries make commercial, real estate and consumer loans to
customers principally located in Webb, Bexar, Hidalgo, Cameron, Starr and Zapata
counties in South Texas as well as Matagorda, Brazoria, Galveston, Fort Bend,
Calhoun, and Harris counties in Southeast Texas. Although the loan portfolio is
diversified, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the economic conditions in these areas, especially
in the real estate and commercial business sectors.

(17) DIVIDEND RESTRICTIONS AND CAPITAL REQUIREMENTS

    Bank regulatory agencies limit the amount of dividends which the bank
subsidiaries can pay the Corporation, through IBC Subsidiary Corporation,
without obtaining prior approval from such agencies. At December 31, 2000, the
aggregate amount legally available to be distributed to the Company from bank
subsidiaries as dividends was approximately $68,119,000, assuming that each
subsidiary bank continues to be classified as "well capitalized" pursuant to the
applicable regulations. The restricted capital of the bank subsidiaries was
approximately $335,481,000. The undivided profits of the bank subsidiaries was
$187,211,000. In addition to legal requirements, regulatory authorities also
consider the adequacy of the bank subsidiaries' total capital in relation to
their deposits and other factors. These capital adequacy considerations also
limit amounts available for payment of dividends. The Company historically has
not allowed any subsidiary bank to pay dividends in such a manner as to impair
its capital adequacy.

                                       32
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(17) DIVIDEND RESTRICTIONS AND CAPITAL REQUIREMENTS (CONTINUED)
    The Company and the bank subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Company's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.

    Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table on the following page) of Total and Tier 1 capital to risk-weighted assets
and of Tier 1 capital to average assets. Management believes, as of
December 31, 2000, that the Company and each of the bank subsidiaries met all
capital adequacy requirements to which it is subject.

    As of December 31, 2000, the most recent notification from the Federal
Deposit Insurance Corporation categorized all the bank subsidiaries as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as "well capitalized" the Company and the bank subsidiaries must
maintain minimum Total risk-based, Tier 1 risk based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the categorization of the
Company or any of the bank subsidiaries as well capitalized.

                                       33
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(17) DIVIDEND RESTRICTIONS AND CAPITAL REQUIREMENTS (CONTINUED)
    The Company's and the bank subsidiaries' actual capital amounts and ratios
for 2000 are also presented in the following table:

<TABLE>
<CAPTION>
                                                                                                          TO BE WELL
                                                                                                       CAPITALIZED UNDER
                                                                                  FOR CAPITAL          PROMPT CORRECTIVE
                                                             ACTUAL            ADEQUACY PURPOSES       ACTION PROVISIONS
                                                       -------------------   ---------------------   ---------------------
                                                        AMOUNT     RATIO      AMOUNT       RATIO      AMOUNT       RATIO
                                                       --------   --------   ---------   ---------   ---------   ---------
                                                                             (GREATER    (GREATER    (GREATER    (GREATER
                                                                              THAN OR     THAN OR     THAN OR     THAN OR
                                                                             EQUAL TO)   EQUAL TO)   EQUAL TO)   EQUAL TO)
                                                                             (DOLLARS IN THOUSANDS)
<S>                                                    <C>        <C>        <C>         <C>         <C>         <C>
As of December 31, 2000:
Total Capital (to Risk Weighted Assets):
  Consolidated.......................................  $412,080    14.29%    $230,631      8.00%     $288,288      10.00%
  International Bank of Commerce, Laredo.............   310,379    12.51      198,414      8.00       248,018      10.00
  International Bank of Commerce, Brownsville........    44,738    19.32       18,522      8.00        23,153      10.00
  International Bank of Commerce, Zapata.............    16,846    25.96        5,192      8.00         6,490      10.00
  Commerce Bank......................................    19,736    19.98        7,902      8.00         9,877      10.00
Tier 1 Capital (to Risk Weighted Assets):
  Consolidated.......................................  $381,260    13.23%    $115,315      4.00%     $172,973       6.00%
  International Bank of Commerce, Laredo.............   283,885    11.45       99,207      4.00       148,811       6.00
  International Bank of Commerce, Brownsville........    42,333    18.28        9,261      4.00        13,892       6.00
  International Bank of Commerce, Zapata.............    16,279    25.08        2,596      4.00         3,894       6.00
  Commerce Bank......................................    18,500    18.73        3,951      4.00         5,926       6.00
Tier 1 Capital (to Average Assets):
  Consolidated.......................................  $381,260     6.54%    $233,028      4.00%     $291,286       5.00%
  International Bank of Commerce, Laredo.............   283,885     5.86      193,687      4.00       242,109       5.00
  International Bank of Commerce, Brownsville........    42,333     8.01       21,152      4.00        26,440       5.00
  International Bank of Commerce, Zapata.............    16,279     7.05        9,235      4.00        11,544       5.00
  Commerce Bank......................................    18,500     7.49        9,878      4.00        12,347       5.00
</TABLE>

                                       34
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(17) DIVIDEND RESTRICTIONS AND CAPITAL REQUIREMENTS (CONTINUED)
    The Company's and the bank subsidiaries' actual capital amounts and ratios
for 1999 are also presented in the following table:

<TABLE>
<CAPTION>
                                                                                                          TO BE WELL
                                                                                                       CAPITALIZED UNDER
                                                                                  FOR CAPITAL          PROMPT CORRECTIVE
                                                             ACTUAL            ADEQUACY PURPOSES       ACTION PROVISIONS
                                                       -------------------   ---------------------   ---------------------
                                                        AMOUNT     RATIO      AMOUNT       RATIO      AMOUNT       RATIO
                                                       --------   --------   ---------   ---------   ---------   ---------
                                                                             (GREATER    (GREATER    (GREATER    (GREATER
                                                                              THAN OR     THAN OR     THAN OR     THAN OR
                                                                             EQUAL TO)   EQUAL TO)   EQUAL TO)   EQUAL TO)
                                                                             (DOLLARS IN THOUSANDS)
<S>                                                    <C>        <C>        <C>         <C>         <C>         <C>
As of December 31, 1999:
Total Capital (to Risk Weighted Assets):
  Consolidated.......................................  $374,803    14.46%    $207,412      8.00%     $259,266      10.00%
  International Bank of Commerce, Laredo.............   274,551    12.29      178,752      8.00       223,441      10.00
  International Bank of Commerce, Brownsville........    36,833    19.37       15,211      8.00        19,014      10.00
  International Bank of Commerce, Zapata.............    16,835    27.20        4,951      8.00         6,189      10.00
  Commerce Bank......................................    19,705    21.47        7,343      8.00         9,178      10.00
Tier 1 Capital (to Risk Weighted Assets):
  Consolidated.......................................  $347,780    13.41%    $103,706      4.00%     $155,559       6.00%
  International Bank of Commerce, Laredo.............   251,450    11.25       89,376      4.00       134,064       6.00
  International Bank of Commerce, Brownsville........    34,982    18.40        7,605      4.00        11,408       6.00
  International Bank of Commerce, Zapata.............    16,315    26.36        2,476      4.00         3,713       6.00
  Commerce Bank......................................    18,556    20.22        3,671      4.00         5,507       6.00
Tier 1 Capital (to Average Assets):
  Consolidated.......................................  $347,780     6.58%    $211,527      4.00%     $264,409       5.00%
  International Bank of Commerce, Laredo.............   251,450     5.70      176,321      4.00       220,401       5.00
  International Bank of Commerce, Brownsville........    34,982     8.18       17,110      4.00        21,387       5.00
  International Bank of Commerce, Zapata.............    16,315     8.18        7,983      4.00         9,978       5.00
  Commerce Bank......................................    18,556     8.52        8,715      4.00        10,894       5.00
</TABLE>

                                       35
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(18) FAIR VALUE OF FINANCIAL INSTRUMENTS

   The fair value estimates, methods, and assumptions for the Company's
financial instruments at December 31, 2000 and 1999 are outlined below.

    CASH, 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

    As the contract interest rates are comparable to current market rates, the
carrying amount approximates fair market value.

    INVESTMENT SECURITIES

    For investment securities, which include U. S. Treasury securities,
obligations of other U. S. government agencies, obligations of states and
political subdivisions and mortgage pass through and related securities, fair
values are based on quoted market prices or dealer quotes. Fair values are based
on the value of one unit without regard to any premium or discount that may
result from concentrations of ownership of a financial instrument, possible tax
ramifications, or estimated transaction costs. See disclosures of fair value of
investment securities in Note 3.

    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 December 31, 2000 and 1999, the carrying
amount of fixed rate performing loans was $789,028,000 and $677,616,000
respectively, and the estimated fair value was $788,619,000 and $673,973,000,
respectively.

    Fair value for significant non-performing loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are discounted
using a rate commensurate with the risk associated with the estimated cash
flows. Assumptions regarding credit risk, cash flows and discount rates are
judgmentally determined using available market and specific borrower
information. As of December 31, 2000 and 1999, the net carrying amount of
non-performing loans was a reasonable estimate of the fair value.

                                       36
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(18) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
    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 December 31,
2000 and 1999. 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 December 31, 2000 and 1999, the carrying amount of time deposits was
$2,257,023,000 and $2,099,388,000, respectively, and the estimated fair value
was $2,259,960,000 and $2,109,599,000, respectively.

   FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS,
   OTHER BORROWED FUNDS AND SUBORDINATED DEBT

    Due to the contractual terms of these financial instruments, the carrying
amounts approximated fair value at December 31, 2000 and 1999.

    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.

    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 Company's entire holdings of a particular financial instrument.
Because no market exists for a significant portion of the Company's 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-balance sheet
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.

                                       37
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(19) INTERNATIONAL BANCSHARES CORPORATION (PARENT COMPANY ONLY) FINANCIAL
INFORMATION

                            STATEMENTS OF CONDITION
                             (PARENT COMPANY ONLY)
                           DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                 2000         1999
                                                              ----------   ----------
                                                              (DOLLARS IN THOUSANDS)
<S>                                                           <C>          <C>
                                 ASSETS
Cash........................................................   $    733     $    227
Other investments...........................................      5,788        8,390
Notes receivable............................................     35,381       42,374
Investment in subsidiaries..................................    369,217      292,284
Other assets................................................      6,270       10,196
                                                               --------     --------
      Total assets..........................................   $417,389     $353,471
                                                               ========     ========
                  LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Other liabilities.........................................        497           35
                                                               --------     --------
      Total liabilities.....................................        497           35
                                                               --------     --------
Shareholders' equity:
  Common stock..............................................     26,481       21,092
  Surplus...................................................     25,933       24,050
  Retained earnings.........................................    434,796      385,942
  Accumulated other comprehensive loss......................    (19,163)     (36,912)
                                                               --------     --------
                                                                468,047      394,172
  Less cost of shares in treasury...........................    (51,155)     (40,736)
                                                               --------     --------
      Total shareholders' equity............................    416,892      353,436
                                                               --------     --------
      Total liabilities and shareholders' equity............   $417,389     $353,471
                                                               ========     ========
</TABLE>

                                       38
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(19) INTERNATIONAL BANCSHARES CORPORATION (PARENT COMPANY ONLY) FINANCIAL
INFORMATION (CONTINUED)
                              STATEMENTS OF INCOME
                             (PARENT COMPANY ONLY)
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Income:
  Dividends from subsidiaries...............................  $22,000    $30,500    $ 3,455
  Interest income on notes receivable.......................    3,771      4,463      5,202
  Interest income on investments............................      399        506        745
  Other interest income.....................................      321        343        289
  Gain on sale of other securities..........................      386         --         --
  Other.....................................................      904      1,316     (1,377)
                                                              -------    -------    -------
      Total income..........................................   27,781     37,128      8,314
                                                              -------    -------    -------
Expenses:
  Other.....................................................      476        382        695
                                                              -------    -------    -------
      Total expenses........................................      476        382        695
                                                              -------    -------    -------
      Income before federal income taxes and equity in
        undistributed net income of subsidiaries............   27,305     36,746      7,619
Federal income tax expense..................................      663        873       (277)
                                                              -------    -------    -------
      Income before equity in undistributed net income of
        subsidiaries........................................   26,642     35,873      7,896
Equity in undistributed net income of subsidiaries..........   48,532     30,375     45,829
                                                              -------    -------    -------
      Net income............................................  $75,174    $66,248    $53,725
                                                              =======    =======    =======
</TABLE>

                                       39
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(19) INTERNATIONAL BANCSHARES CORPORATION (PARENT COMPANY ONLY) FINANCIAL
INFORMATION (CONTINUED)
                            STATEMENTS OF CASH FLOWS
                             (PARENT COMPANY ONLY)
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Operating activities:
  Net income................................................  $ 75,174   $ 66,248   $ 53,725
  Adjustments to reconcile net income to net cash provided
    by operating activities:
      Gain on sale of other investments.....................      (386)        --         --
      Increase (decrease) in other liabilities..............       462       (678)       482
      Equity in undistributed net income of subsidiaries....   (48,532)   (30,375)   (45,829)
                                                              --------   --------   --------
      Net cash provided by operating activities.............    26,718     35,195      8,378
                                                              --------   --------   --------
Investing activities:
  Contributions to subsidiaries.............................   (10,494)   (10,965)   (11,648)
  Purchase of repurchase agreement with banks...............        --     (2,500)    (3,550)
  Proceeds from repurchase agreement with banks.............        --      4,100      9,450
  Proceeds from sales of available for sale securities......     1,404         --         --
  Purchase of available for sale other securities...........        --         --    (10,036)
  Principal collected on mortgage-backed securities.........     1,426      2,087      1,339
  Net decrease in notes receivable..........................     6,993      7,551      7,284
  Decrease in other assets..................................     3,926      2,048     11,149
                                                              --------   --------   --------
  Net cash provided in investing activities.................     3,255      2,321      3,988
                                                              --------   --------   --------
Financing activities:
  Proceeds from stock transactions..........................     1,992      1,898      2,765
  Payments of cash dividends................................   (21,016)   (17,102)   (11,297)
  Payments of cash dividends in lieu of fractional shares...       (24)       (26)       (41)
  Purchase of treasury stock................................   (10,419)   (22,156)    (4,046)
                                                              --------   --------   --------
  Net cash used in financing activities.....................   (29,467)   (37,386)   (12,619)
                                                              --------   --------   --------
  Increase (decrease) in cash and cash equivalents..........       506        130       (253)
Cash at beginning of year...................................       227         97        350
                                                              --------   --------   --------
Cash at end of year.........................................  $    733   $    227   $     97
                                                              ========   ========   ========
</TABLE>

                                       40
<PAGE>
             INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES
                     CONDENSED QUARTERLY INCOME STATEMENTS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                        FOURTH     THIRD      SECOND     FIRST
                                                       QUARTER    QUARTER    QUARTER    QUARTER
                                                       --------   --------   --------   --------
<S>                                                    <C>        <C>        <C>        <C>
2000
  Interest income....................................  $111,167   $108,115   $104,993   $97,352
  Interest expense...................................    69,108     66,106     60,546    55,996
                                                       --------   --------   --------   -------
  Net interest income................................    42,059     42,009     44,447    41,356
  Provision for possible loan losses.................     1,734      1,756      1,758     1,576
  Non-interest income................................    13,760     15,634     14,888    13,219
  Non-interest expense...............................    31,455     28,655     26,730    25,117
                                                       --------   --------   --------   -------
  Income before income taxes.........................    22,630     27,232     30,847    27,882
  Income taxes.......................................     6,463      8,492      9,760     8,702
                                                       --------   --------   --------   -------
  Net income.........................................  $ 16,167   $ 18,740   $ 21,087   $19,180
                                                       ========   ========   ========   =======
  Per common share:
    Basic............................................  $    .76   $    .88   $    .98   $   .89
    Diluted..........................................  $    .75   $    .87   $    .97   $   .87

1999
  Interest income....................................  $ 92,459   $ 87,680   $ 79,423   $81,174
  Interest expense...................................    53,013     47,472     40,984    43,736
                                                       --------   --------   --------   -------
  Net interest income................................    39,446     40,208     38,439    37,438
  Provision for possible loan losses.................     1,229        636      2,327     2,187
  Non-interest income................................    14,685     19,703     13,877    12,701
  Non-interest expense...............................    28,232     28,408     26,325    24,018
  Income before income taxes.........................    24,670     30,867     23,664    23,934
  Income taxes.......................................     8,245     12,982      7,621     8,039
                                                       --------   --------   --------   -------
  Net income.........................................  $ 16,425   $ 17,885   $ 16,043   $15,895
                                                       ========   ========   ========   =======
  Per common share:
    Basic............................................  $    .76   $    .82   $    .73   $   .72
    Diluted..........................................  $    .75   $    .81   $    .71   $   .71
</TABLE>

                                       41
<PAGE>
                      INTERNATIONAL BANCSHARES CORPORATION
                             OFFICERS AND DIRECTORS

OFFICERS
DENNIS E. NIXON
Chairman of the Board and President

R. DAVID GUERRA
Vice President

EDUARDO J. FARIAS
Vice President

RICHARD CAPPS
Vice President

IMELDA NAVARRO
Treasurer

WILLIAM CUELLAR
Auditor

LUISA D. BENAVIDES
Secretary

MARISA V. SANTOS
Assistant Secretary

DIRECTORS

DENNIS E. NIXON
President
International Bank of Commerce

R. DAVID GUERRA
President
International Bank of Commerce
Branch in McAllen, Texas

LEONARDO SALINAS
Investments

LESTER AVIGAEL
Retail Merchant
Chairman of the Board
International Bank of Commerce

IRVING GREENBLUM
Retail Merchant

RICHARD E. HAYNES
Attorney at Law
Real Estate Investments

SIOMA NEIMAN
An International Entrepreneur

ANTONIO R. SANCHEZ, JR.
Chairman of the Board
Sanchez Oil & Gas Corporation;
Investments

PEGGY J. NEWMAN
Investments

DANIEL B. HASTINGS, JR.
Licensed U.S. Custom Broker
President
Daniel B. Hastings, Inc.

                                       42
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>3
<FILENAME>a2042604zex-21.txt
<DESCRIPTION>EXHIBIT 21
<TEXT>

<PAGE>

                                  "EXHIBIT 21"

                              LIST OF SUBSIDIARIES
                              --------------------

              Subsidiaries of International Bancshares Corporation
<TABLE>
<CAPTION>
        NAME                         BUSINESS                 % OF OWNERSHIP
        ----                         --------                 --------------
<S>                                  <C>                      <C>
IBC Subsidiary Corporation           Bank Holding Company          100%
IBC Life Insurance Company           Credit Life Insurance         100%
IBC Trading Company                  Export Trading                100%
IBC Capital Corporation              Investments                   100%



                   Subsidiaries of IBC Subsidiary Corporation
<CAPTION>
        NAME                         BUSINESS                 % OF OWNERSHIP
        ----                         --------                 --------------
<S>                                  <C>                      <C>
International Bank of Commerce       State Bank                    100%
Commerce Bank                        State Bank                    100%
International Bank of Commerce,
  Zapata                             State Bank                    100%
International Bank of Commerce,
  Brownsville                        State Bank                    100%
</TABLE>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>a2042604zex-23.txt
<DESCRIPTION>EXHIBIT 23
<TEXT>

<PAGE>

                                  "EXHIBIT 23"

                              ACCOUNTANTS' CONSENT
                              --------------------

The Board of Directors
International Bancshares Corporation:

We consent to incorporation by reference in Registration Statement No.
33-15655 on Form S-8 of International Bancshares Corporation of our report
dated February 23, 2001 relating to the consolidated statements of condition
of International Bancshares Corporation and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of income,
comprehensive income, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 2000, which report is
incorporated by reference in the December 31, 2000 annual report on Form 10-K
of International Bancshares Corporation.

/s/ KPMG LLP




San Antonio, Texas
March 28, 2001


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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