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Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0001104659-01-501891.txt : 20010815
<SEC-HEADER>0001104659-01-501891.hdr.sgml : 20010815
ACCESSION NUMBER:		0001104659-01-501891
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010630
FILED AS OF DATE:		20010814

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-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-09439
		FILM NUMBER:		1712391

	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-Q
<SEQUENCE>1
<FILENAME>j1349_10q.htm
<DESCRIPTION>10-Q
<TEXT>
<html>

<head>
<title>Prepared by MerrillDirect</title>
</head>

<body>

<div>




<hr size=2 width="100%" noshade color=black align=right>






<hr size=1 width="100%" noshade color=black align=right>


<p align=center><b><font size=5>FORM
10-Q</font></b></p>

<p align=center><b><font size=5>SECURITIES AND EXCHANGE
COMMISSION<br>
</font></b><b><font size=2>Washington, D.C. 20549</font></b></p>

<p><b><font size=2>(Mark One)</font></b></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width=40 valign=top><font size=3   face=Wingdings>&#253;</font></td>
  <td width=695 valign=top><b><font size=3>QUARTERLY
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</font></b></td>
 </tr>
</table>

<p align=center><b><font size=2>For the quarterly period ended <u>June
30, 2001</u></font></b></p>

<p align=center><b><font size=2>or</font></b></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width=33 valign=top><font size=3   face=Wingdings>o</font></td>
  <td width=699 valign=top><b><font size=3>TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</font></b></td>
 </tr>
</table>

<p align=center><b><font size=2>For the transition period from
&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>&nbsp;
to &nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>&nbsp;</font></b></p>

<p align=center><b><font size=2>Commission file number <u>0-9439</u></font></b></p>

<div align=center>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td  align=center width="100%" colspan=2 valign=top><b><font size=5>INTERNATIONAL BANCSHARES CORPORATION</font></b></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top>
<hr size=1 width="80%" noshade color=black align=center></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top><font size=2>(Exact
  name of registrant as specified in its charter)</font></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr height=1>
  <td  align=center width="50%" height=1 valign=bottom><b><font size=2>Texas</font></b></td>
  <td  align=center width="50%" height=1 valign=bottom><b><font size=2>74-2157138</font></b></td>
 </tr>
 <tr height=1>
  <td  align=center width="50%" height=1 valign=bottom>
<hr size=1 width="80%" noshade color=black align=center></td>
  <td  align=center width="50%" height=1 valign=bottom>
<hr size=1 width="80%" noshade color=black align=center></td>
 </tr>
 <tr height=24>
  <td  align=center width="50%" height=24 valign=bottom><font size=2>(State
  or other jurisdiction of<br>
  incorporation or organization)</font></td>
  <td  align=center width="50%" height=24 valign=bottom><font size=2>(I.R.S.
  Employer<br>
  Identification No.)</font></td>
 </tr>
 <tr height=24>
  <td  align=center width="50%" height=24 valign=bottom>&nbsp;</td>
  <td  align=center width="50%" height=24 valign=bottom>&nbsp;</td>
 </tr>
 <tr height=24>
  <td  align=center width="50%" height=24 valign=bottom><b><font size=2>1200 San Bernardo Avenue, Laredo, Texas</font></b></td>
  <td  align=center width="50%" height=24 valign=bottom><b><font size=2>78042-1359</font></b></td>
 </tr>
 <tr height=24>
  <td  align=center width="50%" height=24 valign=bottom>
<hr size=1 width="80%" noshade color=black align=center></td>
  <td  align=center width="50%" height=24 valign=bottom>
<hr size=1 width="80%" noshade color=black align=center></td>
 </tr>
 <tr height=24>
  <td  align=center width="50%" height=24 valign=bottom><font size=2>(Address
  of principal executive offices)</font></td>
  <td  align=center width="50%" height=24 valign=bottom><font size=2>(Zip
  Code)</font></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top><b><font size=2>(956) 722-7611</font></b></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top>
<hr size=1 width="80%" noshade color=black align=center></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top><font size=2>(Registrant's
  telephone number, including area code)</font></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top><b><font size=2>None</font></b></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top>
<hr size=1 width="80%" noshade color=black align=center></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top><font size=2>(Former
  name, former address and former fiscal year, if changed since last report)</font></td>
 </tr>
</table>

</div>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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.&nbsp; Yes&nbsp; </font><font size=2 face=Wingdings>&#253;</font><font size=2>&nbsp;
No&nbsp; </font><font size=2 face=Wingdings>o</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.</font></p>

<div align=center>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td  align=center width="50%" valign=top><font size=2>Class</font></td>
  <td  align=center width="50%" valign=top><font size=2>Shares
  Issued and Outstanding</font></td>
 </tr>
 <tr>
  <td  align=center width="50%" valign=top>
<hr size=1 width="80%" noshade color=black align=center></td>
  <td  align=center width="50%" valign=top>
<hr size=1 width="80%" noshade color=black align=center></td>
 </tr>
 <tr>
  <td  align=center width="50%" valign=top><font size=2>Common
  Stock, $1.00 par value</font></td>
  <td  align=center width="50%" valign=top><font size=2>26,281,577
  shares outstanding at August 10, 2001</font></td>
 </tr>
</table>

</div>

<p><font size=2>&nbsp;</font></p>





<hr size=1 width="100%" noshade color=black align=right>






<hr size=2 width="100%" noshade color=black align=right>


</div>

<page>


<div>

<p align=center><b><font size=2>PART
I - FINANCIAL INFORMATION</font></b></p>

<p><b><font size=2>Item 1. <u>Financial Statements</u></font></b></p>

<p align=center><b><font size=2>INTERNATIONAL
BANCSHARES CORPORATION AND SUBSIDIARIES</font></b></p>

<p align=center><b><font size=2>Consolidated
Statements of Condition (Dollars in Thousands)</font></b></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width="71%" colspan=4 valign=bottom><u><font size=2>Assets</font></u></td>
  <td  align=center width="13%" colspan=2 valign=bottom><font   size=2>June 30,<br>
  2001</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="12%" colspan=2 valign=bottom><font   size=2>December 31,<br>
  2000</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=center width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=center width="13%" colspan=2 valign=bottom><font   size=2>(Unaudited)<br><br></font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="12%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2>Cash
  and due from banks</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom bgcolor="#cceeff"><font   size=2>122,620</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom bgcolor="#cceeff"><font   size=2>125,628</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom><font size=2>Federal
  funds sold</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>15,700</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>500</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="65%" valign=bottom bgcolor="#cceeff"><font size=2>Total
  cash and cash equivalents</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>138,320</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>126,128</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom><font size=2>Time
  deposits with banks</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>2,570</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>2,471</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Investment securities:</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Held
  to maturity</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="67%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(Market
  value of $2,135 on June 30, 2001 and $2,220 on December 31, 2000)</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,135</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,220</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Available
  for sale</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="67%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(Amortized
  cost of $2,920,188 on June 30, 2001 and $3,126,107 on December 31, 2000)</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,946,505</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>3,096,626</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom>&nbsp;</td>
  <td width="65%" valign=bottom><font size=2>Total
  investment securities</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>2,948,640</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>3,098,846</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Loans:</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Commercial,
  financial and agricultural</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>1,320,332</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>1,286,576</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Real
  estate - mortgage</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>315,947</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>287,319</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Real
  estate - construction</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>258,052</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>232,589</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Consumer</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>157,356</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>165,875</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Foreign</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>266,553</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>278,119</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="65%" valign=bottom bgcolor="#cceeff"><font size=2>Total
  loans</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,318,240</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,250,478</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Less
  unearned discounts</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>(6,497</font></td>
  <td width="1%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>(7,199</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2>Loans,
  net of unearned discounts</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,311,743</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,243,279</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Less
  allowance for possible loan losses</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>(33,887</font></td>
  <td width="1%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>(30,812</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="65%" valign=bottom bgcolor="#cceeff"><font size=2>Net
  loans</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,277,856</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,212,467</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom><font size=2><br>
  Bank premises and equipment, net</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>163,798</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>155,523</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2>Accrued
  interest receivable</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>38,287</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>40,159</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom><font size=2>Other
  investments</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>143,576</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>133,171</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2>Intangible
  assets</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>59,233</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>55,580</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom><font size=2>Other
  assets</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>39,672</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>36,369</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="65%" valign=bottom bgcolor="#cceeff"><font size=2>Total
  assets</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom bgcolor="#cceeff"><font   size=2>5,811,952</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom bgcolor="#cceeff"><font   size=2>5,860,714</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>

<!-- DO NOT remove the following table row. It is needed for  .               the proper rendering of tables containing misaligned cells.-->
 <tr height=0>
  <td width=13></td>
  <td width=13></td>
  <td width=13></td>
  <td width=473></td>
  <td width=7></td>
  <td width=94></td>
  <td width=11></td>
  <td width=6></td>
  <td width=87></td>
  <td width=4></td>
 </tr>
</table>

<page>


<p>&nbsp;</p>

<p align=center><b><font size=2>INTERNATIONAL BANCSHARES
CORPORATION AND SUBSIDIARIES</font></b></p>

<p align=center><b><font size=2>Consolidated Statements of
Condition, continued</font></b></p>

<p align=center><b><font size=2>(Dollars in Thousands)</font></b></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=center width="14%" colspan=2 valign=bottom><font   size=2>June 30,</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="12%" colspan=2 valign=bottom><font   size=2>December 31,</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="71%" colspan=4 valign=bottom><u><font   size=2>Liabilities and Shareholders' Equity</font></u></td>
  <td  align=center width="14%" colspan=2 valign=bottom><font   size=2>2001</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="12%" colspan=2 valign=bottom><font   size=2>2000</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=center width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=center width="14%" colspan=2 valign=bottom><font   size=2>(Unaudited)<br><br></font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=center width="12%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="0%" valign=bottom><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2>Liabilities:</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Deposits:</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="67%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Demand
  - non-interest bearing</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom bgcolor="#cceeff"><font   size=2>580,867</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>573,681</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="67%" colspan=2 valign=bottom><font size=2>Savings
  and interest bearing demand</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>934,544</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>913,894</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="67%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Time</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,303,250</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,257,023</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="67%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom>&nbsp;</td>
  <td width="65%" valign=bottom><font size=2>Total
  deposits</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>3,818,661</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>3,744,598</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Federal funds purchased and securities<br>
  sold under repurchase agreements</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>444,613</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>230,108</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Other
  borrowed funds</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>997,114</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>1,432,500</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Other
  liabilities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>74,135</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>36,616</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom>&nbsp;</td>
  <td width="65%" valign=bottom><font size=2>Total
  liabilities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>5,334,523</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>5,443,822</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom>&nbsp;</td>
  <td width="65%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Shareholders' equity:</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Common
  stock of $1.00 par value.</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="67%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Authorized
  40,000,000 shares; <br>
  issued 33,156,607 shares in 2001 and 26,481,211 shares in 2000</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>33,157</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>26,481</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Surplus</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>26,719</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>25,933</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Retained
  earnings</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>458,993</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>434,796</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom><font size=2>Accumulated
  other comprehensive income (loss)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>17,105</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>(19,163</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="69%" colspan=3 valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="71%" colspan=4 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>535,974</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>468,047</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="67%" colspan=2 valign=bottom><font size=2><br>
  Less cost of shares in treasury, <br>
  6,642,088 shares in 2001 and 5,139,863 shares in 2000</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(58,545</font></td>
  <td width="1%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>(51,155</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="67%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="65%" valign=bottom bgcolor="#cceeff"><font size=2><br>
  Total shareholders' equity</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>477,429</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>416,892</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom>&nbsp;</td>
  <td width="65%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom>&nbsp;</td>
  <td width="65%" valign=bottom><font size=2><br>
  Total liabilities and shareholders' equity</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom><font   size=2>5,811,952</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>5,860,714</font></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom>&nbsp;</td>
  <td width="65%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>

<!-- DO NOT remove the following table row. It is needed for  .               the proper rendering of tables containing misaligned cells.-->
 <tr height=0>
  <td width=13></td>
  <td width=13></td>
  <td width=13></td>
  <td width=473></td>
  <td width=7></td>
  <td width=95></td>
  <td width=11></td>
  <td width=7></td>
  <td width=84></td>
  <td width=6></td>
 </tr>
</table>

<p align=center><font size=2>See accompanying notes to interim condensed
consolidated financial statements.</font></p>

<page>


<p align=center>&nbsp;</p>

<p align=center><b><font size=2>INTERNATIONAL BANCSHARES
CORPORATION AND SUBSIDIARIES</font></b></p>

<p align=center><b><font size=2>Consolidated Statements of Income (Unaudited)</font></b></p>

<p align=center><b><font size=2>(Dollars in Thousands, except per share data)</font></b></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width="49%" colspan=6 rowspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 rowspan=2 valign=bottom><font   size=2>Three Months Ended<br>
  June 30,</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 rowspan=2 valign=bottom><font   size=2>Six Months Ended<br>
  June 30,</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=6 valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=6 valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2001</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2000</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2001</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2000</font></td>
  <td  align=center width="0%" valign=bottom><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="49%" colspan=6 valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=6 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Interest income:</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=center width="0%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom><font size=2>Loans,
  including fees</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>51,059</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>53,514</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>106,124</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>100,887</font></td>
  <td  align=center width="0%" valign=bottom><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom bgcolor="#cceeff"><font size=2>Time
  deposits with banks</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>58</font></td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>37</font></td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>106</font></td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>68</font></td>
  <td  align=center width="0%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom><font size=2>Federal
  funds sold</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>265</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>154</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>503</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>530</font></td>
  <td  align=center width="0%" valign=bottom><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom bgcolor="#cceeff"><font size=2>Investment
  securities:</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=center width="0%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="46%" colspan=4 valign=bottom><font size=2>Taxable</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>49,266</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>49,961</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>101,832</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>98,137</font></td>
  <td  align=center width="0%" valign=bottom><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="46%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2>Tax-exempt</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,213</font></td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,252</font></td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,505</font></td>
  <td  align=center width="1%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,550</font></td>
  <td  align=center width="0%" valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom><font size=2>Other
  interest income</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>75</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>75</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>438</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>173</font></td>
  <td  align=center width="0%" valign=bottom><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="4%" colspan=3 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="44%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Total
  interest income</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>101,936</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>104,993</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>211,508</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>202,345</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="4%" colspan=3 valign=bottom>&nbsp;</td>
  <td width="44%" colspan=3 valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=6 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Interest expense:</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom><font size=2>Savings
  deposits</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>6,312</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>6,863</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>13,523</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>13,832</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom bgcolor="#cceeff"><font size=2>Time
  deposits</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>28,935</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>29,187</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>60,991</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>56,406</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom><font size=2>Federal
  funds purchased and securities sold under repurchase agreements</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>5,845</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>1,958</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>11,662</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>3,605</font></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom bgcolor="#cceeff"><font size=2>Other
  borrowings</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>13,790</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>22,538</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>31,740</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>42,699</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="49%" colspan=6 valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="5%" colspan=4 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="44%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Total
  interest expense</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>54,882</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>60,546</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>117,916</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>116,542</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="5%" colspan=4 valign=bottom>&nbsp;</td>
  <td width="44%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=4 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="44%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Net
  interest income</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>47,054</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>44,447</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>93,592</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>85,803</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="49%" colspan=6 valign=bottom><font size=2><br>
  Provision for possible loan losses</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>2,428</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>1,758</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>4,555</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>3,334</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="49%" colspan=6 valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=4 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="44%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Net
  interest income after provision for possible loan losses</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>44,626</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>42,689</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>89,037</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>82,469</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=4 valign=bottom>&nbsp;</td>
  <td width="44%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=6 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Non-interest income:</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom><font size=2>Service
  charges on deposit accounts</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>10,533</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>8,756</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>20,354</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>16,602</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom bgcolor="#cceeff"><font size=2>Other
  service charges, commissions and fees</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,137</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,963</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>4,622</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>4,521</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom><font size=2>Investment
  securities transactions</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>(614</font></td>
  <td width="1%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>25</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>(1,076</font></td>
  <td width="1%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>(1,294</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom bgcolor="#cceeff"><font size=2>Other
  investments</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,321</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,869</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>4,262</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>3,832</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom><font size=2>Other
  income</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>4,433</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>2,275</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>9,402</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>4,446</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=5 valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=5 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="44%" valign=bottom bgcolor="#cceeff"><font size=2>Total
  non-interest income</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>18,810</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>14,888</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>37,564</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>28,107</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="5%" colspan=5 valign=bottom>&nbsp;</td>
  <td width="44%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>

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  <td width=2></td>
  <td width=2></td>
  <td width=321></td>
  <td width=7></td>
  <td width=76></td>
  <td width=8></td>
  <td width=7></td>
  <td width=76></td>
  <td width=8></td>
  <td width=7></td>
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</table>

<page>


<p>&nbsp;</p>

<p align=center><b><font size=2>INTERNATIONAL BANCSHARES
CORPORATION AND SUBSIDIARIES</font></b></p>

<p align=center><b><font size=2>Consolidated Statements of Income - continued</font></b></p>

<p align=center><b><font size=2>(Dollars in Thousands, except
per share data)</font></b></p>

<p align=center><font size=2>&nbsp;</font></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width="49%" colspan=3 valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 valign=bottom><font   size=2>Three Months Ended<br>
  June 30,</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 valign=bottom><font   size=2>Six Months Ended<br>
  June 30,</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=3 valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=3 valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2001</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2000</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2001</font></td>
  <td  align=center width="1%" valign=bottom><font   size=2>&nbsp;</font></td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2000</font></td>
  <td  align=center width="0%" valign=bottom><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="49%" colspan=3 valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Non-interest expense:</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom><font size=2>Employee
  compensation and benefits</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>14,063</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>11,488</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>27,579</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>22,675</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Occupancy</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,532</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,911</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>5,112</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>3,838</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom><font size=2>Depreciation
  of premises and equipment</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>3,274</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>2,978</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>6,588</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>5,944</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Professional
  fees</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,192</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,072</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,272</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,099</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom><font size=2>Stationery
  and supplies</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>907</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>780</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>1,756</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>1,480</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Amortization
  of intangible assets</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,342</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>979</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,610</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,961</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom><font size=2>Other</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>10,339</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>7,522</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>18,464</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>13,850</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="44%" valign=bottom bgcolor="#cceeff"><font size=2>Total
  non-interest expense</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>33,649</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>26,730</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>64,381</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>51,847</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="5%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="44%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="44%" valign=bottom><font size=2>Income
  before provision for income taxes and minority interest</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>29,787</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>30,847</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>62,220</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>58,729</font></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Provision
  for income taxes</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>10,048</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>9,760</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>20,782</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>18,462</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom><font size=2>Minority
  interest in consolidated income</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>(161</font></td>
  <td width="1%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>-</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>(67</font></td>
  <td width="1%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>-</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="44%" valign=bottom bgcolor="#cceeff"><font size=2>Net
  Income</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>19,900</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>21,087</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>41,505</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>40,267</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="5%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="44%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=3 valign=bottom><font size=2><br>
  Basic earnings per common:</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Net Income</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>.75</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>.79</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>1.56</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>1.50</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom><font size=2><br>
  Weighted average number of shares outstanding</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>26,627,731</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>26,808,902</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>26,635,044</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>26,875,593</font></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Diluted earnings per common share:</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom><font size=2><br>
  Net Income</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>.73</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>.78</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>1.54</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>1.49</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Weighted average number of shares outstanding</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>27,239,833</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>27,174,951</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>27,010,416</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>27,114,930</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>

<!-- DO NOT remove the following table row. It is needed for  .               the proper rendering of tables containing misaligned cells.-->
 <tr height=0>
  <td width=13></td>
  <td width=26></td>
  <td width=321></td>
  <td width=7></td>
  <td width=76></td>
  <td width=8></td>
  <td width=7></td>
  <td width=76></td>
  <td width=8></td>
  <td width=7></td>
  <td width=76></td>
  <td width=8></td>
  <td width=7></td>
  <td width=76></td>
  <td width=7></td>
 </tr>
</table>

<p align=center><font size=2>See accompanying notes to interim condensed
consolidated financial statements.</font></p>

</div>

<page>


<div>

<p align=center><b><font size=2>INTERNATIONAL
BANCSHARES CORPORATION AND SUBSIDIARIES</font></b></p>

<p align=center><b><font size=2>Consolidated Statement of Comprehensive Income (Unaudited)</font></b></p>

<p align=center><b><font size=2>(Dollars
in Thousands)</font></b></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td  align=center width="49%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 valign=bottom><font   size=2>Three Months Ended<br>
  June 30,</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 valign=bottom><font   size=2>Six Months Ended<br>
  June 30,</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="49%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="24%" colspan=5 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="49%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2001</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2000</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2001</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2000</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="49%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Net
  Income</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>19,900</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>21,087</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>41,505</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom bgcolor="#cceeff"><font   size=2>40,267</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="49%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=2 valign=bottom><font size=2><br>
  Other comprehensive income, net of tax:</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="48%" valign=bottom bgcolor="#cceeff"><font size=2><br>
  Unrealized holding gains (losses) on securities arising during period, net of
  reclassification adjustment for (gains) losses included in net income</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(1,712</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(26,592</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>36,268</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(39,058</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="48%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="49%" colspan=2 valign=bottom><font size=2><br>
  Comprehensive income (loss)</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>18,188</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>(5,505</font></td>
  <td width="1%" valign=bottom><font size=2>)</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>77,773</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="10%" valign=bottom><font   size=2>1,209</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="49%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
</table>

<p align=center><font size=2>See accompanying notes to interim condensed
consolidated financial statements.</font></p>

<page>


<p align=center>&nbsp;</p>

<p align=center><b><font size=2>INTERNATIONAL
BANCSHARES CORPORATION AND SUBSIDIARIES</font></b></p>

<p align=center><b><font size=2>Consolidated
Statements of Cash Flows (Unaudited)</font></b></p>

<p align=center><b><font size=2>(Dollars
in Thousands)</font></b></p>


<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width="68%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=center width="30%" colspan=5 valign=bottom><font   size=2>Six Months Ended<br>
  June 30,</font></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=center width="30%" colspan=5 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="68%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=center width="14%" colspan=2 valign=bottom><font   size=2>2001</font></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=center width="14%" colspan=2 valign=bottom><font   size=2>2000</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="68%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=center width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=center width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Operating activities:</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2><br>
  Net Income</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom><font   size=2>41,505</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom><font   size=2>40,267</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Adjustments to reconcile net income to net cash provided by operating
  activities:</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom><font size=2>Provision
  for possible loan losses</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>4,555</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>3,334</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Recoveries
  on charged-off loans</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>504</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>538</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom><font size=2>Net
  expense from operations of other&nbsp; real
  estate owned</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>45</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>45</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Gain
  on sale of loans</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(101</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(34</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom><font size=2>Depreciation
  of bank premises and equipment</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>6,588</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>5,944</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Depreciation
  and amortization of leasing assets</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,535</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>873</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom><font size=2>Accretion
  of investment securities discounts</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(6,398</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(9,089</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Amortization
  of investment securities premiums</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>3,975</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>5,887</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom><font size=2>Realized
  loss on investment securities transactions, net</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>1,076</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>1,294</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Gain
  on sale of bank premises and equipment</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(35</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(85</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom><font size=2>Deferred
  tax expense</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>204</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>158</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Decrease
  (increase) in accrued interest receivable</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,872</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(1,579</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom><font size=2>Increase
  in other liabilities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>37,519</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>5,223</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="3%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="65%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="63%" valign=bottom bgcolor="#cceeff"><font size=2><br>
  Net cash provided by operating activities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>92,844</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>52,776</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom>&nbsp;</td>
  <td width="63%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=bottom><font size=2><br>
  Investing activities:</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Proceeds from maturities of securities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,060</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>760</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2>Proceeds
  from sales of available for sale securities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>373,495</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>48,241</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Purchases
  of available for sale securities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(610,851</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(258,306</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2>Principal
  collected on mortgage-backed securities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>424,117</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>165,924</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Proceeds
  from matured time deposits with banks</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>495</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>392</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2>Purchases
  of time deposits with banks</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(594</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(590</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Net
  increase in loans</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(70,347</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(219,875</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2>Net
  increase in other assets</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(19,145</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(19,601</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Purchase
  of bank premises and equipment</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(14,900</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(9,089</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2>Proceeds
  from sale of bank premises and equipment</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>72</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>211</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="63%" valign=bottom bgcolor="#cceeff"><font size=2><br>
  Net cash provided by (used in) investing activities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>83,402</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(291,933</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom>&nbsp;</td>
  <td width="63%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=bottom><font size=2><br>
  Financing activities:</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Net increase in non-interest bearing demand deposits</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom bgcolor="#cceeff"><font   size=2>7,186</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom bgcolor="#cceeff"><font   size=2>21,192</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2>Net
  increase (decrease) in savings and interest bearing demand deposits</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>20,650</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(46,647</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Net
  increase in time deposits</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>46,227</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>103,725</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2>Net
  increase in federal funds purchased and securities sold under repurchase
  agreements</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>214,505</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>11,942</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Proceeds
  from other borrowed funds</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>587,379</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>655,000</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2>Principal
  payments on other borrowed funds</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(1,022,765</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(495,000</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Purchase
  of treasury stock</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(7,390</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(7,222</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2>Proceeds
  from stock transactions</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>834</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>1,100</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Payments
  of cash dividends</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(10,656</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(10,337</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2>Payments
  of cash dividends in lieu of fractional shares</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(24</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(24</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="63%" valign=bottom bgcolor="#cceeff"><font size=2><br>
  Net cash (used in) provided by financing activities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(164,054</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>233,729</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="5%" colspan=3 valign=bottom>&nbsp;</td>
  <td width="63%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=bottom><font size=2><br>
  Increase (decrease) in cash and cash equivalents</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>12,192</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(5,428</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Cash and cash equivalents at beginning of year</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>126,128</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>134,995</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=bottom><font size=2><br>
  Cash and cash equivalents at end of period</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom><font   size=2>138,320</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom><font   size=2>129,567</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Supplemental cash flow information:</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom><font size=2>Interest
  paid</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom><font   size=2>119,295</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom><font   size=2>120,780</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=bottom bgcolor="#cceeff"><font size=2>Income
  taxes paid</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>16,561</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>17,191</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>

<!-- DO NOT remove the following table row. It is needed for  .               the proper rendering of tables containing misaligned cells.-->
 <tr height=0>
  <td width=13></td>
  <td width=13></td>
  <td width=13></td>
  <td width=456></td>
  <td width=7></td>
  <td width=100></td>
  <td width=6></td>
  <td width=7></td>
  <td width=100></td>
  <td width=5></td>
 </tr>
</table>


<p align=center><font size=2>See accompanying notes to interim condensed
consolidated financial statements.</font></p>

<page>


<p align=center>&nbsp;</p>

<p align=center><b><font size=2>INTERNATIONAL
BANCSHARES CORPORATION AND SUBSIDIARIES</font></b></p>

<p align=center><b><font size=2>Notes
to Consolidated Financial Statements</font></b></p>

<p align=center><b><font size=2>(Unaudited)</font></b></p>

<p><b><font size=2>Note 1 - Basis of Presentation</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The accounting and reporting
policies of International Bancshares Corporation (&#147;Corporation&#148;) and
Subsidiaries (the Corporation and Subsidiaries collectively referred to herein as
the &#147;Company&#148;) conform to generally accepted accounting principles and to
general practices within the banking industry.&nbsp;
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, International Bank of Commerce,
Laredo (&quot;IBC&quot;), Commerce Bank, International Bank of Commerce,
Zapata, International Bank of Commerce, Brownsville and the Corporation&#146;s
wholly-owned non-bank subsidiaries, IBC Subsidiary Corporation, IBC Life
Insurance Company, IBC Trading Company, IBC Capital Corporation, and
International Bancshares Capital Trust I as well as the GulfStar Group in which
the company owns a controlling interest.&nbsp;
All significant intercompany balances and transactions have been
eliminated in consolidation.&nbsp; The consolidated
financial statements are unaudited, but include all adjustments which, in the
opinion of management, are necessary for a fair presentation of the results of
the periods presented.&nbsp; All such
adjustments were of a normal and recurring nature.&nbsp; It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto in the
Company's latest Annual Report on Form 10K.&nbsp;
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.&nbsp; Certain
reclassifications have been made to make prior periods comparable.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; All per share data presented has
been restated to reflect the stock splits effected through stock dividends.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, &#147;Accounting for Derivative
Instruments and Hedging Activities.&#148; 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.&nbsp; If certain conditions are met, a
derivative may be specifically designated as a &#147;fair value hedge,&#148; a &#147;cash flow
hedge,&#148; or a hedge of a foreign currency exposure of a net investment in a
foreign operation.&nbsp; 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.&nbsp; In June 1999, the Financial Accounting Standards
Board issued SFAS No. 138, &#147;Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of SFAS No. 133&#148;, which deferred the
effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000.&nbsp; The Company currently does not engage in
hedging activities and does not hold any derivative instruments or embedded
derivatives.&nbsp; The Company adopted SFAS
No. 133 on January 1, 2001 and the adoption did not have any impact on its
consolidated financial statements.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In September 2000, the Financial
Accounting Standards Board issued SFAS No. 140, &#147;Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities&#148;, which
replaces the Financial Accounting Standards Board&#146;s Statement No. 125, &#147;Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities&#148;, but carries over most of SFAS No. 125&#146;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.&nbsp; This statement should be applied
prospectively and is effective for transactions occurring after March 31,
2001.&nbsp; Disclosure requirements of this
statement and any changes in accounting for collateral are effective for fiscal
years ending after December 15, 2000.&nbsp;
The Company has adopted the disclosure requirements and does not expect
that the adoption of the remaining provision of SFAS No. 140 will have a
material impact on its consolidated financial statements.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In July 2001, the Financial
Accounting Standards Board issued SFAS No. 141, &#147;Business Combinations&#148;, and
SFAS No. 142, &#147;Goodwill and Other Intangible Assets.&#148;&nbsp; SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after June 30, 2001.&nbsp; SFAS No. 141 also specifies criteria
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported apart from goodwill, noting that any purchase
price allocable to an assembled workforce may not be accounted for
separately.&nbsp; SFAS No. 142 will require
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS No. 142.&nbsp;
SFAS No. 142 will also require that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, &#147;Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.&#148;</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company is required to adopt
the provisions of SFAS No. 141 immediately and SFAS No. 142 effective January
1, 2002.&nbsp;&nbsp; Furthermore, any goodwill and
any intangible asset determined to have an indefinite useful life that are
acquired in a purchase business combination completed after June 30, 2001 will
not be amortized, but will continue to be evaluated for impairment in
accordance with the appropriate pre-SFAS No. 142 accounting literature.&nbsp; Goodwill and intangible assets acquired in
business combinations completed before July 1, 2001 will continue to be
amortized prior to the adoption of SFAS No. 142.</font></p>

<page>


<p>&nbsp;</p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; SFAS No. 141 will require upon
adoption of SFAS No. 142, that the Company evaluate its existing intangible
assets and goodwill that were acquired in a prior purchase business
combination, and to make any necessary reclassifications in order to conform
with the new criteria in SFAS No. 141 for recognition apart from goodwill.&nbsp; Upon adoption of SFAS No. 142, the Company
will be required to reassess the useful lives and residual values of all
intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the first interim period
after adoption.&nbsp; In addition, to the
extent an intangible asset is identified as having an indefinite useful life,
the Company will be required to test the intangible asset for impairment in
accordance with the provisions of SFAS No. 142 within the first interim
period.&nbsp; Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of
a change in accounting principle in the first interim period.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In connection with the transitional
goodwill impairment evaluation, SFAS No. 142 will require the Company to
perform an assessment of whether there is an indication that goodwill is
impaired as of the date of adoption.&nbsp; To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption.&nbsp; The Company
will then have up to six months from the date of adoption to determine the fair
value of each reporting unit and compare it to the reporting unit&#146;s carrying
amount.&nbsp; To the extent a reporting
unit&#146;s carrying amount exceeds its fair value, an indication exists that the
reporting unit&#146;s goodwill may be impaired and the Company must perform the
second step of the transitional impairment test.&nbsp; In the second step, the Company must compare the implied fair
value of the reporting unit&#146;s goodwill, determined by allocating the reporting
unit&#146;s fair value to all of it assets (recognized and unrecognized) and
liabilities in a manner similar to a purchase price allocation in accordance
with SFAS No. 141, to its carrying amount, both of which would be measured as
of the date of adoption.&nbsp;&nbsp; This second
step is required to be completed as soon as possible, but no later than the end
of the year of adoption.&nbsp; Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in the Company&#146;s statement of earnings.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As of the date of adoption, the
Company expects to have unamortized goodwill in the amount of $21,510,000,
unamortized identifiable intangible assets in the amount of $37,723,000, all of
which will be subject to the transition provisions of SFAS Nos. 141 and 142.
Amortization expense related to goodwill was $298,000 and $657,000 for the year
ended December 31, 2000 and the six months ended June 30, 2001,
respectively.&nbsp; Because of the extensive
effort needed to comply with adopting SFAS Nos. 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements on
the Company&#146;s financial statements at the date of this report, including
whether any transitional impairment losses will be required to be recognized as
the cumulative effect of a change in accounting principle.</font></p>

<p><b><font size=2>Note 2 - Acquisitions</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effective April 1, 2001, IBC
through its insurance subsidiary, acquired the assets of Grove Agency
Insurance, Inc., of Corpus Christi, Texas.&nbsp;
The acquisition was accounted for as a purchase transaction. In connection
with the acquisition, IBC recorded goodwill totaling $1,575,000 which is being
amortized on a straight-line basis over a fifteen year period.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effective February 16, 2001, IBC
acquired the assets of First Equity Corporation, an Austin, Texas based
mortgage company.&nbsp; The acquisition was
accounted for as a purchase transaction.&nbsp;
In connection with the acquisition, IBC recorded goodwill totaling
$4,864,000 which is being amortized on a straight-line basis over a fifteen
year period.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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.&nbsp; The acquisition was accounted
for as a purchase transaction.&nbsp; 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.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; During 2000, IBC established an
insurance subsidiary and acquired the assets of two insurance agencies in
Texas.&nbsp; The acquisitions were accounted
for as a purchase transaction.&nbsp; 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.</font></p>

<page>


<p>&nbsp;</p>

<p><b><font size=2>Note 3 - Investment Securities</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company classifies debt and
equity securities into one of three categories: held-to maturity,
available-for-sale, or trading.&nbsp; Such
classifications are reassessed for appropriate classification at each reporting
date.&nbsp; Securities classified as
&#147;held-to-maturity&#148; are carried at amortized cost for financial statement
reporting, while securities classified as &#147;available-for-sale&#148; and &#147;trading&#148;
are carried at their fair value.&nbsp;
Unrealized holding gains and losses are included in net income for those
securities classified as &#147;trading&#148;, while unrealized holding gains and losses
related to those securities classified as &#147;available-for-sale&#148; are excluded
from net income and reported net of tax as other comprehensive income and as a
separate component of shareholders&#146; equity until realized.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; A summary of the investment
securities held to maturity and securities available for sale as reflected on
the books of the Company is as follows:</font></p>

<dir><dir>
<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td  align=center width=388 colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width=141 colspan=2 valign=bottom><font   size=2>June 30,<br>
  2001</font></td>
  <td  align=center width=8 valign=bottom>&nbsp;</td>
  <td  align=center width=141 colspan=2 valign=bottom><font   size=2>December 31,<br>
  2000</font></td>
  <td  align=center width=8 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width=388 colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width=141 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width=8 valign=bottom>&nbsp;</td>
  <td  align=center width=141 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width=8 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=388 colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width=289 colspan=5 valign=bottom><font   size=2>(Dollars in Thousands)</font></td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=388 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>U.
  S. Treasury and federal agencies</font></td>
  <td  align=right width=141 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=141 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=13 valign=bottom>&nbsp;</td>
  <td width=375 valign=bottom><font size=2>Available
  for sale</font></td>
  <td width=7 valign=bottom><font size=2>$</font></td>
  <td  align=right width=134 valign=bottom><font   size=2>2,722,897</font></td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
  <td width=7 valign=bottom><font size=2>$</font></td>
  <td  align=right width=134 valign=bottom><font   size=2>2,828,134</font></td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=388 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>States
  and political subdivisions</font></td>
  <td  align=right width=141 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=141 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=13 valign=bottom>&nbsp;</td>
  <td width=375 valign=bottom><font size=2>Held
  to maturity</font></td>
  <td  align=right width=141 colspan=2 valign=bottom><font   size=2>-</font></td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=141 colspan=2 valign=bottom><font   size=2>60</font></td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=13 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=375 valign=bottom bgcolor="#cceeff"><font size=2>Available
  for sale</font></td>
  <td  align=right width=141 colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>93,997</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=141 colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>96,791</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=388 colspan=2 valign=bottom><font size=2>Other</font></td>
  <td  align=right width=141 colspan=2 valign=bottom>&nbsp;</td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=141 colspan=2 valign=bottom>&nbsp;</td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=13 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=375 valign=bottom bgcolor="#cceeff"><font size=2>Held
  to maturity</font></td>
  <td  align=right width=141 colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,135</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=141 colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>2,160</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=13 valign=bottom>&nbsp;</td>
  <td width=375 valign=bottom><font size=2>Available
  for sale</font></td>
  <td  align=right width=141 colspan=2 valign=bottom><font   size=2>129,611</font></td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=141 colspan=2 valign=bottom><font   size=2>171,701</font></td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=388 colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width=141 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width=8 valign=bottom>&nbsp;</td>
  <td  align=right width=141 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width=8 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=13 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=375 valign=bottom bgcolor="#cceeff"><font size=2>Total
  investment securities</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width=134 valign=bottom bgcolor="#cceeff"><font   size=2>2,948,640</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width=134 valign=bottom bgcolor="#cceeff"><font   size=2>3,098,846</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=13 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=375 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=141 colspan=2 valign=bottom bgcolor="#cceeff">
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=8 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=141 colspan=2 valign=bottom bgcolor="#cceeff">
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=8 valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>
</table>
</dir></dir>

<p><b><font size=2>Note 4 - Allowance for Possible
Loan Losses</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; A summary of the transactions in
the allowance for possible loan losses is as follows:</font></p>

<dir><dir>
<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td  align=center width=384 colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width=143 colspan=2 valign=bottom><font   size=2>June 30,<br>
  2001</font></td>
  <td  align=center width=8 valign=bottom>&nbsp;</td>
  <td  align=center width=143 colspan=2 valign=bottom><font   size=2>June 30,<br>
  2000</font></td>
  <td  align=center width=8 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width=384 colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width=143 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width=8 valign=bottom>&nbsp;</td>
  <td  align=center width=143 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width=8 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=384 colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width=294 colspan=5 valign=bottom><font   size=2>(Dollars in Thousands)</font></td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=384 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Balance at January 1</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width=136 valign=bottom bgcolor="#cceeff"><font   size=2>30,812</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width=136 valign=bottom bgcolor="#cceeff"><font   size=2>26,770</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=13 valign=bottom>&nbsp;</td>
  <td width=371 valign=bottom><font size=2><br>
  Losses charged to allowance</font></td>
  <td  align=right width=143 colspan=2 valign=bottom><font   size=2>(1,984</font></td>
  <td width=8 valign=bottom><font size=2>)</font></td>
  <td  align=right width=143 colspan=2 valign=bottom><font   size=2>(1,275</font></td>
  <td width=8 valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width=13 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=371 valign=bottom bgcolor="#cceeff"><font size=2>Recoveries
  credited to allowance</font></td>
  <td  align=right width=143 colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>504</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=143 colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>538</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=13 valign=bottom>&nbsp;</td>
  <td width=371 valign=bottom>&nbsp;</td>
  <td  align=right width=143 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width=8 valign=bottom>&nbsp;</td>
  <td  align=right width=143 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width=8 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=13 valign=bottom>&nbsp;</td>
  <td width=371 valign=bottom><font size=2><br>
  Net losses charged to allowance</font></td>
  <td  align=right width=143 colspan=2 valign=bottom><font   size=2>(1,480</font></td>
  <td width=8 valign=bottom><font size=2>)</font></td>
  <td  align=right width=143 colspan=2 valign=bottom><font   size=2>(737</font></td>
  <td width=8 valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width=13 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=371 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Provisions charged to operations</font></td>
  <td  align=right width=143 colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>4,555</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=143 colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>3,334</font></td>
  <td width=8 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=384 colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width=143 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width=8 valign=bottom>&nbsp;</td>
  <td  align=right width=143 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width=8 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=384 colspan=2 valign=bottom><font size=2><br>
  Balance at June 30</font></td>
  <td width=7 valign=bottom><font size=2>$</font></td>
  <td  align=right width=136 valign=bottom><font   size=2>33,887</font></td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
  <td width=7 valign=bottom><font size=2>$</font></td>
  <td  align=right width=136 valign=bottom><font   size=2>29,367</font></td>
  <td width=8 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=384 colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width=143 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=8 valign=bottom>&nbsp;</td>
  <td  align=right width=143 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=8 valign=bottom>&nbsp;</td>
 </tr>
</table>
</dir></dir>

<p><font size=2>&nbsp;</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company classifies as impaired
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.&nbsp; Impaired loans included 1) all non-accrual
loans, 2) loans which are 90 days or over past due unless they are well secured
(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.&nbsp; Substantially
all of the Company's impaired loans are measured based on 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.&nbsp; Amounts received on non-accruals loans are
normally applied, for financial accounting purposes, first to principal and
then to interest after all principal has been collected.<page></font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Management of the Company
recognizes the risks associated with impaired loans.&nbsp; However, management's decision to place loans in this category
does not necessarily mean that the Company expects losses to occur.&nbsp; The Company&#146;s impaired loan balance at the
end of the six month period of both 2001 and 2000 was not material to the
Company&#146;s consolidated financial position.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The subsidiary banks 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 &#147;loss&#148; by bank
examiners.&nbsp; 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.&nbsp; Generally,
unsecured consumer loans are charged-off when 90 days past due.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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.&nbsp; 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.&nbsp;
Similarly, the determination of the adequacy of the allowance for possible
loan losses, can be made only on a subjective basis.&nbsp; It is the judgment of the Company's management that the allowance
for possible loan losses at June 30, 2001, was adequate to absorb possible
losses from loans in the portfolio at that date.</font></p>

<p><b><font size=2>Note 5 - Stock and Cash
Dividends</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; All per share data presented has
been restated to reflect the stock splits effected through stock dividends
which became effective May 18, 2000 and May 17, 2001 and were paid on June 12,
2000 and June 15, 2001, respectively.&nbsp;
Such stock dividends resulted in the issuance of 5,280,503 and 6,627,539
shares of Common Stock in 2000 and 2001, respectively.&nbsp; A cash dividend of $.60 and $.50 per share
was paid to holders of record of Common Stock on April 14, 2000 and October 16,
2000, respectively.&nbsp; A cash dividend of
$.50 per share was paid to all holders of record of Common Stock on April 16,
2001.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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, December 21, 2000, and
on July 24, 2001.&nbsp; Under the formal
stock repurchase program, the Company is authorized to repurchase up to
$60,000,000 of its common stock through December 2002.&nbsp; Stock repurchases may be made from time to
time, on the open market or through private transactions.&nbsp; Shares repurchased in this program will be
held in treasury for reissue for various corporate purposes, including employee
stock option plans.&nbsp; As of August 10,
2001, a total of 1,176,490 shares were repurchased under this program at a cost
of $47,346,000 which shares are now reflected as 1,553,526 shares of treasury
stock as adjusted for stock dividends.&nbsp;
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 $80,793,000.&nbsp; 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 $80,793,000 cap will occur in the future.&nbsp; As of August 10, 2001, the Company has
acquired approximately&nbsp;&nbsp; 6,887,985
shares of treasury stock at a cost of approximately $68,319,000, which amount
has been accumulated since the inception of the Company.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On April 3, 1996, the Board of
Directors adopted the 1996 International Bancshares Corporation Stock Option
Plan.&nbsp; The Plan replaced the 1987
International Bancshares Corporation Key Contributor Stock Option Plan.&nbsp; Subject to certain adjustments, the maximum
number of shares of common stock which may be made subject to options granted
under the new Plan is 1,371,087, including 469,910 shares remaining available
for the issuance of options under the new Plan.&nbsp; The 219,348 shares of common stock remaining available under the
1987 Plan will be treated as authorized for issuance upon exercise of options
granted under the 1987 Plan only.&nbsp; As of
June 30, 2001, options to acquire 219,348 and 901,177 shares of common stock
remain outstanding under the 1987 Plan and the new Plan, respectively.<page></font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On October 2, 2000, the Company
granted nonqualified stock options exercisable for a total of 150,000 shares of
Common Stock to certain employees of the GulfStar Group.&nbsp; The grants were not made under either the
1987 Plan or the 1996 Plan.&nbsp; As of June
30, 2001, options to acquire 150,000 shares of common stock remain outstanding
to certain employees of the GulfStar Group.</font></p>

<p><b><font size=2>Note 6 - Commitments and
Contingent Liabilities</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company and its bank
subsidiaries are involved in various legal proceedings that are in various
stages of litigation.&nbsp; Some of these
actions allege &#147;lender liability&#148; claims on a variety of theories and claim
substantial actual and punitive damages.&nbsp;
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.&nbsp;
However, many of these matters are in various stages of proceedings and
further developments could cause management to revise its assessment of these
matters.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company&#146;s lead bank subsidiary
has invested in several lease financing transactions.&nbsp; Two of the lease financing transactions have been examined by the
Internal Revenue Service (&#147;IRS&#148;).&nbsp; In
both transactions, a subsidiary of the lead bank is the owner of a ninety-nine
percent (99%) limited partnership interest.&nbsp;
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.&nbsp; In one of the matters, the IRS has issued a Notice of Final
Partnership Administrative Adjustment and the Company is currently assessing
its alternatives with respect to this matter.&nbsp;
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.&nbsp; Management has estimated the Company&#146;s
exposure in connection with these transactions and has reserved the estimated
amount.&nbsp; Management intends to continue
to evaluate the merits of this matter and make appropriate revisions if
warranted.</font></p>

<p><font size=2>&nbsp;</font></p>

<p><b><font size=2>Item 2 - <u>Management's
Discussion and Analysis of Financial Condition and Results of Operations</u></font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net income for the second quarter
of 2001 was $19,900,000 or $.75 per share - basic ($.73 per share - diluted)
compared to $21,087,000 or $.79 per share - basic ($.78 per share - diluted) in
the second quarter of 2000, which represents a 6% decrease from the
corresponding 2000 period.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Historically, the Company&#146;s
acquisitions have been accounted for using the purchase method of accounting
which results in the creation of goodwill and other intangibles.&nbsp; These amounts are being amortized as a
non-cash reduction of net income over time periods from ten to twenty
years.&nbsp; &#147;Income before intangible
charges&#148; reflects the net income of the Company excluding this amortization.&nbsp; In computing the income tax adjustment,
Management has considered the tax deductible amount separately from non-tax
deductible amount in making this calculation.&nbsp;
The income tax on tax deductible goodwill and other intangibles has been
computed using the standard corporate tax rate of 35%, and the non-tax
deductible goodwill and other intangibles have been grossed-up using the same
35% tax rate to reflect the earnings result.&nbsp;
These two calculations have been combined to reflect the net income tax
adjustment displayed in the cash earnings table below.&nbsp; The table reconciles reported earnings to
net income excluding intangible amortization (&#147;income before intangible
charges&#148;) to help facilitate peer group comparisons.</font></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td  align=center width="42%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="27%" colspan=5 valign=bottom><font   size=2>Three Months Ended<br>
  June 30,</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="28%" colspan=5 valign=bottom><font   size=2>Six Months Ended<br>
  June 30,</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="42%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="27%" colspan=5 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="28%" colspan=5 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="42%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="13%" colspan=2 valign=bottom><font   size=2>2001</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="13%" colspan=2 valign=bottom><font   size=2>2000</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="13%" colspan=2 valign=bottom><font   size=2>2001</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="13%" colspan=2 valign=bottom><font   size=2>2000</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="42%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="42%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=center width="57%" colspan=11 valign=bottom><font   size=2>(Dollars in Thousands, except per share
  data)</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="42%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Reported net income</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom bgcolor="#cceeff"><font   size=2>19,900</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom bgcolor="#cceeff"><font   size=2>21,087</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom bgcolor="#cceeff"><font   size=2>41,505</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom bgcolor="#cceeff"><font   size=2>40,267</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="42%" colspan=2 valign=bottom><font size=2>Amortization
  of intangible assets</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>1,342</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>979</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>2,610</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom><font   size=2>1,961</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="42%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>Income
  tax adjustment</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(206</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(79</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(386</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(159</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="42%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="42%" colspan=2 valign=bottom><font size=2>Income
  before <font color=black>intangible</font>
  charges</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom><font   size=2>21,036</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom><font   size=2>21,987</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom><font   size=2>43,729</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom><font   size=2>42,069</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="42%" colspan=2 valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="13%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="42%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2><br>
  Income before <font color=black>intangible</font>
  charges per common share:</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="13%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="40%" valign=bottom><font size=2>Basic</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom><font   size=2>.79</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom><font   size=2>.82</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom><font   size=2>1.64</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom><font   size=2>1.57</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="40%" valign=bottom bgcolor="#cceeff"><font size=2>Diluted</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom bgcolor="#cceeff"><font   size=2>.77</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom bgcolor="#cceeff"><font   size=2>.81</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom bgcolor="#cceeff"><font   size=2>1.62</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="12%" valign=bottom bgcolor="#cceeff"><font   size=2>1.55</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
</table>

<p><font size=2>&nbsp;</font></p>

<page>


<p>&nbsp;</p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total assets at June 30, 2001 were
$5,811,952,000 which represents a 3% increase over total assets of
$5,661,965,000 at June 30, 2000 and a 1% decrease from total assets of
$5,860,714,000 as of December 31, 2000.&nbsp;
Deposits at June 30, 2001 were $3,818,661,000 an increase of 6% over the
$3,605,482,000 amount reported at June 30, 2000, and an increase of 2% over the
$3,744,598,000 amount reported at December 31, 2000.&nbsp; Total loans at June 30, 2001 increased 9% to $2,318,240,000 over
the $2,129,378,000 reported at June 30, 2000 and an increase of 3% over the
$2,250,478,000 amount reported at December 31, 2000.&nbsp; The slight decrease in total assets&nbsp; during the first six months in 2001 can be attributable primarily
to the contraction of the Company&#146;s earning asset base caused by a decline to
the Company&#146;s short-term fixed borrowings.&nbsp;
The aggregate amount of certificates of indebtedness with the Federal
Home Bank of Dallas (&#147;FHLB&#148;) decreased to $997,000,000 at June 30, 2001 from
the $1,432,500,000 at December 31, 2000.&nbsp;
The certificates of indebtedness and the deposits are used to fund the
earning asset base of the Company.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As part of its strategy to manage
interest rate risk, the Company strives to manage both assets and liabilities
so that interest sensitivities match.&nbsp;
In this way both earning assets and funding sources of the Company
respond to interest rate changes in a similar time frame.&nbsp; Net interest income for the second quarter
of 2001 increased $2,607,000 (6%) over the same period in 2000 and the increase
is the result of the Company&#146;s growth and efforts to manage interest rate risk.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Investment securities decreased 2%
to $2,948,640,000 at June 30, 2001 from $3,001,948,000 as of June 30, 2000 and
a 5% decrease from investment securities of $3,098,846,000 at December 31,
2000. &nbsp;Time deposits with other banks at
June 30, 2001 increased 24% to $2,570,000 over $2,075,000 at June 30, 2000 and
increased 4% over time deposits of $2,471,000 at December 31, 2000.&nbsp; Total federal funds sold decreased 61% to
$15,700,000 at June 30, 2001 as compared to $39,900,000 at June 30, 2000 and
increased from $500,000 at December 31, 2000.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Interest and fees on loans for the
second quarter of 2001 decreased $2,455,000 (5%) from the same quarter in 2000
and increased $5,237,000 (5%) for the six month period ended June 30, 2001 as
compared to the same period in 2000.&nbsp;
Interest income on taxable and tax exempt investment securities for the
second quarter in 2001 decreased $734,000 (1%) from the same quarter in 2000
and increased $3,650,000 (4%) for the six month period ended June 30, 2001 as
compared to the same period in 2000.&nbsp;
Interest income on time deposits with banks for the second quarter in
2001 increased $21,000 (57%) over the same quarter in 2000 and increased
$38,000 (56%) for the six month period ended June 30, 2001 as compared to the
same period in 2000.&nbsp; Interest income on
federal funds sold for the second quarter in 2001 decreased $111,000 (72%) from
the same quarter in 2000 and decreased $27,000 (5%) for the six month period
ended June 30, 2001 as compared to the same period in 2000.&nbsp; Overall, total interest income from loans,
time deposits, federal funds sold, investment securities and other interest
income for the second quarter in 2001 decreased $3,057,000 (3%) from the same
quarter in 2000 and increased $9,163,000 (5%) for the six month period ended
June 30, 2001 as compared to the same period in 2000.&nbsp; The decrease in total interest income for the second quarter was
primarily due to lower market interest rates and the increase for the six month
period is due to the growth in the Company&#146;s balance sheet.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total interest expense for savings
deposits, time deposits and other borrowings decreased $5,664,000 (9%) for the
second quarter of 2001 from the same quarter in 2000 and increased $1,374,000
(1%) for the six month period ended June 30, 2001 over the same period in
2000.&nbsp; The increase in total interest
expense was primarily due to&nbsp; a larger
amount of interest bearing liabilities.&nbsp;
As a result, net interest income for the second quarter of 2001
increased $2,607,000 (6%) over the same period in 2000 and increased $7,789,000
(9%) for the six month period ended June 30, 2001 over the corresponding period
in 2000.&nbsp; This increase is attributed to
the Company's efforts to maintain an adequate interest rate spread between the
cost of funds and the investment of those funds.<page></font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-interest income increased
$3,922,000 (26%) to $18,810,000 in the second quarter of 2001 as compared to
$14,888,000 for the quarter ended June 30, 2000 and increased $9,457,000 (34%)
to $37,564,000 for the six month period ended June 30, 2000 as compared to
$28,107,000 for the six months ended June 30, 2000.&nbsp; The increases in non-interest income were primarily due to the
increases in service charges and the increase in other income.&nbsp; The increase in service charges were
attributable to the amount of account transaction fees received as a result of
the deposit growth, new deposit products and increased collection efforts.&nbsp; The increase in other income was due to the
activities of the GulfStar Group affiliate of the Company as well as the
activities of IBC&#146;s insurance subsidiary.&nbsp;
Investment securities losses of $1,076,000 were recorded in the first
six months of 2001 compared to losses of $1,294,000 for the corresponding
period in 2000.&nbsp; These losses occurred
due to a bond program initiated by management in 2000 to reposition a portion
of the Company&#146;s bond portfolio and take advantage of higher bond yields.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-interest expense increased
$6,919,000 (26%) to $33,649,000 for the second quarter of 2001 as compared to
$26,730,000 for the quarter ended June 30, 2000 and increased $12,534,000 (24%)
to $64,381,000 for the six month period ended June 30, 2001 as compared to
$51,847,000 for the six months ended June 30, 2000.&nbsp; Non-interest expense increased due to the Company&#146;s expanded
operations at the bank subsidiaries.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The efficiency ratio, a measure of
non-interest expense to net interest income plus non-interest income was 49%
for the six month period ended June 30, 2001, compared to the year ago ratio of
46%.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The allowance for possible loan
losses increased 15% to $33,887,000 at the end of the second quarter of 2001
from $29,367,000 for the corresponding date in 2000.&nbsp; The provision for possible loan losses charged to expense increased
37% to $4,555,000 for the first six months of 2001 compared to $3,334,000 for
the first six months of 2000. The increase in the allowance for possible loan
losses was largely due to the increase in the size of the loan portfolio and
allowance allocations related to Management&#146;s evaluation of current economic
conditions.&nbsp; The allowance for possible
loan losses was 1.47% of total loans, net of unearned income, at June 30, 2001,
compared to 1.38% at June 30, 2000 and 1.37% at December 31, 2000.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On June 30, 2001, the Company had
$5,811,952,000 of consolidated assets of which approximately $268,002,000 or 5%
were related to loans outstanding to borrowers domiciled in Mexico compared to
$240,708,000 or 4% at June 30, 2000. Of the $268,002,000, 63% is directly or
indirectly secured by U.S. assets, principally certificates of deposits and
real estate; 29% is secured by Mexican real estate; 6% is secured by Mexican
real estate, related to maquiladora plants, guaranteed under lease obligations
primarily by U.S. companies, many of which are on the Fortune 500 list of
companies; 1% is unsecured; and 1% represents accrued interest receivable on
the portfolio.</font></p>

<p><b><u><font size=2>Liquidity and Capital Resources</font></u></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The maintenance of adequate
liquidity provides the Company&#146;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.&nbsp;
Liquidity is afforded by access to financial markets and by holding
appropriate amounts of liquid assets.&nbsp;
The bank subsidiaries of the Company derive their liquidity largely from
deposits of individuals and business entities.&nbsp;
Deposits from persons and entities domiciled in Mexico comprise a significant
and stable portion of the deposit base of the Company&#146;s bank subsidiaries.
Other important funding sources for the Company&#146;s bank subsidiaries during 2001
and 2000 have been borrowings from FHLB, securities sold under repurchase
agreements and large certificates of deposit, requiring management to closely
monitor its asset/liability mix in terms of both rate sensitivity and maturity
distribution.&nbsp; 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.&nbsp; 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.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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&#146;s cash flow requirements.&nbsp; The Company has a number of available
alternatives to finance the growth of its existing banks as well as future
growth and expansion.&nbsp; Among the
activities and commitments the Company funded during the first six months in
2001 and expects to continue to fund during 2001 is a continuous effort to
modernize and improve our existing facilities and expand our bank branch
network.<page></font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company maintains an adequate
level of capital as a margin of safety for its depositors and
shareholders.&nbsp; At June 30, 2001,
shareholders&#146; equity was $477,429,000 compared to $338,162,000 at June 30,
2000, an increase of 41% and at December 31, 2000, shareholders&#146; equity was
$416,892,000, representing an increase of 15%.&nbsp;
The increase in shareholders equity resulted from the retention of
earnings and the effects of comprehensive income.&nbsp; Comprehensive income includes unrealized gains or losses on
securities held available for sale, net of tax.&nbsp; The net unrealized gains or losses on securities are not included
in the calculation of regulatory capital requirements.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company had a leverage ratio of
6.94% and 6.54%, risk-weighted Tier 1 capital ratio of 14.01% and 13.23% and
risk-weighted total capital ratio of 15.17% and 14.29% at June 30, 2001 and
December 31, 2000, respectively.&nbsp; The
core deposit intangibles and goodwill of $58,562,000 as of June 30, 2001,
recorded in connection with the acquisitions of the Company, are deducted from
the sum of core capital elements when determining the capital ratios of the
Company.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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 by adjusting the balance between
sources and uses of funds as deemed appropriate.&nbsp; The net-interest rate sensitivity as of June 30, 2001 is
illustrated in the table on page 17.&nbsp;
This information reflects the balances of assets and liabilities for
which rates are subject to change.&nbsp; A
mix of assets and liabilities that are roughly equal in volume and repricing
characteristics represents a matched interest rate sensitivity position.&nbsp; Any excess of assets or liabilities results
in an interest rate sensitivity gap.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company undertakes the interest
rate sensitivity analysis to monitor the potential risk on future earnings
resulting from the impact of possible future changes in interest rates on
currently existing net asset or net liability positions.&nbsp; However, this type of analysis is as of a
point-in-time position, when in fact that position can quickly change as market
conditions, customer needs, and management strategies change. Thus, interest
rate changes do not affect all categories of asset and liabilities equally or
at the same time.&nbsp; As indicated in the
table, the Company is liability sensitive during the early time periods and
asset sensitive in the longer periods.&nbsp;
The Company's Asset and Liability Committee semi-annually reviews the
consolidated position along with simulation and duration models, and makes
adjustments as needed to control the Company's interest rate risk
position.&nbsp; The Company uses modeling of
future events as a primary tool for monitoring interest rate risk.</font></p>

<page>


<p>&nbsp;</p>

<p align=center><b><font size=2>INTEREST
RATE SENSITIVITY</font></b></p>

<p align=center><font size=2>(Dollars in Thousands)</font></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td  align=center width="37%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" valign=bottom><font   size=2>RATE/<br>
  MATURITY</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" valign=bottom><font   size=2>RATE/<br>
  MATURITY</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" valign=bottom><font   size=2>RATE/<br>
  MATURITY</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" valign=bottom><font   size=2>RATE/<br>
  MATURITY</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" valign=bottom>&nbsp;</td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="37%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" valign=bottom><font   size=2>3 MONTHS<br>
  OR LESS</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" valign=bottom><font   size=2>OVER<br>
  3 MONTHS <br>
  TO 1 YEAR</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" valign=bottom><font   size=2>OVER<br>
  1 YEAR<br>
  TO 5 YEARS</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" valign=top><font   size=2>OVER<br>
  5 YEARS</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="11%" valign=bottom><font   size=2>TOTAL</font></td>
  <td  align=center width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom>&nbsp;</td>
  <td  align=center width="61%" colspan=9 valign=bottom><font   size=2>(Dollars in Thousands)</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom><font size=2>June
  30, 2001</font></td>
  <td  align=center width="61%" colspan=9 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="98%" colspan=10 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom bgcolor="#cceeff"><font size=2>SECTION
  A</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td  align=right width="98%" colspan=10 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom><font size=2>RATE
  SENSITIVE ASSETS</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="37%" valign=bottom bgcolor="#cceeff"><font size=2><br>
  FED FUNDS SOLD</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>15,700</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>-</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>-</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>-</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>15,700</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="37%" valign=bottom><font size=2><br>
  DUE FROM BANK INT EARNING</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>1.085</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>1,386</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>99</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>-</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>2,570</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="37%" valign=bottom bgcolor="#cceeff"><font size=2><br>
  INVESTMENT SECURITIES</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>339,308</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>294,300</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>1,987,253</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>327,778</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>2,948,639</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="37%" valign=bottom><font size=2><br>
  LOANS, NET OF NON-ACCRUALS</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>1,651,642</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>189,687</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>277,705</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>195,724</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>2,314,758</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td  align=right width="98%" colspan=10 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom bgcolor="#cceeff"><font size=2>TOTAL
  EARNING ASSETS</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>2,007,735</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>485,373</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>2,265,057</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>523,502</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>5,281,667</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td  align=right width="98%" colspan=10 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom><font size=2>CUMULATIVE
  EARNING ASSETS</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>2,007,735</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>2,493,108</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>4,758,165</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>5,281,667</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td  align=right width="98%" colspan=10 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom bgcolor="#cceeff"><font size=2>SECTION
  B</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td  align=right width="98%" colspan=10 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom><font size=2>RATE
  SENSITIVE LIABILITIES</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="37%" valign=bottom bgcolor="#cceeff"><font size=2>TIME
  DEPOSITS</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>1,165,857</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>991,294</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>145,889</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>210</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>2,303,250</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="37%" valign=bottom><font size=2>OTHER
  INT BEARING DEPOSITS</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>934,544</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>-</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>-</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>-</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>934,544</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="37%" valign=bottom bgcolor="#cceeff"><font size=2>FED
  FUNDS PURCHASED &amp; REPOS</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>385,066</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>59,547</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>-</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>-</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>444,613</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="37%" valign=bottom><font size=2>OTHER
  BORROWINGS</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>997,000</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>-</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>114</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>-</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>997,114</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td  align=right width="98%" colspan=10 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom bgcolor="#cceeff"><font size=2>TOTAL
  INTEREST BEARING LIABILITIES</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>3,482,467</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>1,050,841</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>146,003</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>210</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>4,679,521</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td  align=right width="98%" colspan=10 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom><font size=2>CUMULATIVE
  SENSITIVE LIABILITIES</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>3,482,467</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>4,533,308</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>4,679,311</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>4,679,521</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td  align=right width="98%" colspan=10 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom bgcolor="#cceeff"><font size=2>SECTION
  C</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td  align=right width="98%" colspan=10 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom><font size=2>REPRICING
  GAP</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>(1,474,731</font></td>
  <td width="1%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>(565,468</font></td>
  <td width="1%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>2,119,054</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>523,292</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>602,147</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="37%" valign=bottom bgcolor="#cceeff"><font size=2>CUMULATIVE
  REPRICING GAP</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>(1,474,731</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>(2,040,199</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>78,855</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>602,147</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="37%" valign=bottom><font size=2>RATIO
  OF INTEREST-SENSITIVE ASSETS TO LIABILITIES</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>.58</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" valign=bottom><font   size=2>.46</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" valign=bottom><font   size=2>15.51</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" valign=bottom><font   size=2>-</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" valign=bottom><font   size=2>1.13</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="37%" valign=bottom bgcolor="#cceeff"><font size=2>RATIO
  OF CUMULATIVE, INTEREST- SENSITIVE ASSETS TO LIABILITIES</font></td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>.58</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>.55</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>1.02</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff"><font   size=2>1.13</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>
 <tr>
  <td  align=right width="98%" colspan=10 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
 </tr>
</table>

<page>


<p>&nbsp;</p>

<p><b><u><font size=2>Financial Modernization
Legislation</font></u></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On November 12, 1999, the
Gramm-Leach-Bliley Act of 1999 (&#147;GLBA&#148;) was enacted.&nbsp; This comprehensive legislation eliminates the barriers to
affiliations among banks, securities firms, insurance companies and other
financial service providers.&nbsp; GLBA
provides for a new type of financial holding company structure under which
affiliations among these entities may occur.&nbsp;
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.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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 (&#147;CRA&#148;).&nbsp; 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.&nbsp; Effective
October 2, 2000, the Company acquired a controlling interest in the GulfStar
Group, a Houston-based investment banking firm serving middle-market
corporations primarily in Texas.&nbsp; The
GulfStar acquisition was the first financial activity permitted by GLBA to be
engaged in by the Company.&nbsp; The Company
announced on July 23, 2001 that GulfStar expanded and opened an office in
Dallas, Texas.</font></p>

<p><b><u><font size=2>Forward Looking Information</font></u></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Certain matters discussed in this
report, excluding historical information, include forward-looking
statements.&nbsp; Although the Company
believes such forward-looking statements are based on reasonable assumptions,
no assurance can be given that every objective will be reached.&nbsp; The words &#147;estimate,&#148; &#147;expect,&#148; &#147;intend&#148; and
&#147;project,&#148; as well as other words or expressions of similar meaning are
intended to identify forward-looking statements.&nbsp; Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date of this
report.&nbsp; Such statements are based on
current expectations, are inherently uncertain, are subject to risks and should
be viewed with caution.&nbsp; Actual results
and experience may differ materially from the forward-looking statements as a
result of many factors.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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:&nbsp;
(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 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.&nbsp; It is not possible to foresee or identify all such factors.&nbsp; 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.</font></p>

<page>


<p><b><font size=2>Item 3.&nbsp; <u>Quantitative and Qualitative Disclosure
about Market Risk</u></font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; During the first six months of
2001, there were no material changes in market risk exposures that affected the
quantitative and qualitative disclosures regarding market risk presented in the
Company&#146;s Form 10-K for the year ended December 31, 2000.</font></p>

<p align=center><b><font size=2>PART
II - OTHER INFORMATION</font></b></p>

<p><b><font size=2>Item 4.&nbsp; <u>Submission of Matters to a Vote of
Security Holders</u></font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Annual Meeting of Shareholders
of the Company was held May 17, 2001 for the consideration of the following
items which were approved by the number of votes set forth:</font></p>

<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td  align=center width=25 valign=bottom>&nbsp;</td>
  <td  align=center width=296 valign=bottom>&nbsp;</td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
  <td  align=center width=119 valign=bottom><font   size=2>Votes<br>
  For</font></td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
  <td  align=center width=119 valign=bottom><font   size=2>Votes<br>
  Withheld</font></td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width=25 valign=bottom>&nbsp;</td>
  <td  align=center width=296 valign=bottom>&nbsp;</td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
  <td  align=center width=119 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
  <td  align=center width=119 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=25 valign=top bgcolor="#cceeff"><font size=2>1)</font></td>
  <td width=296 valign=bottom bgcolor="#cceeff"><font size=2>To
  elect ten (10) directors of the Company until the next Annual Meeting of
  Shareholders and until their successors are elected and qualified; The
  following directors, constituting the entire board of directors, were
  elected:</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=25 valign=top>&nbsp;</td>
  <td width=296 valign=bottom><font size=2><br>
  Lester Avigael</font></td>
  <td width=11 valign=bottom>&nbsp;</td>
  <td  align=right width=119 valign=bottom><font   size=2>17,743,919</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom><font   size=2>0</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=25 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=296 valign=bottom bgcolor="#cceeff"><font size=2>R.
  David Guerra</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>17,724,458</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>19,461</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=25 valign=top>&nbsp;</td>
  <td width=296 valign=bottom><font size=2>Irving
  Greenblum</font></td>
  <td width=11 valign=bottom>&nbsp;</td>
  <td  align=right width=119 valign=bottom><font   size=2>17,743,919</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom><font   size=2>0</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=25 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=296 valign=bottom bgcolor="#cceeff"><font size=2>Daniel
  B. Hastings, Jr.</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>17,419,995</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>323,924</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=25 valign=top>&nbsp;</td>
  <td width=296 valign=bottom><font size=2>Richard
  E. Haynes</font></td>
  <td width=11 valign=bottom>&nbsp;</td>
  <td  align=right width=119 valign=bottom><font   size=2>17,738,919</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom><font   size=2>5,000</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=25 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=296 valign=bottom bgcolor="#cceeff"><font size=2>Sioma
  Neiman</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>17,416,195</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>327,724</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=25 valign=top>&nbsp;</td>
  <td width=296 valign=bottom><font size=2>Peggy
  J. Newman</font></td>
  <td width=11 valign=bottom>&nbsp;</td>
  <td  align=right width=119 valign=bottom><font   size=2>17,419,995</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom><font   size=2>323,924</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=25 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=296 valign=bottom bgcolor="#cceeff"><font size=2>Dennis
  E. Nixon</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>17,740,636</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>3,283</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=25 valign=top>&nbsp;</td>
  <td width=296 valign=bottom><font size=2>Leonardo
  Salinas</font></td>
  <td width=11 valign=bottom>&nbsp;</td>
  <td  align=right width=119 valign=bottom><font   size=2>17,743,919</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom><font   size=2>0</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=25 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=296 valign=bottom bgcolor="#cceeff"><font size=2>A.R.
  Sanchez, Jr.</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>17,416,195</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>327,724</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
</table>

<p><font size=3 face=Times>&nbsp;</font></p>

<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td width=25 valign=top>&nbsp;</td>
  <td  align=center width=296 valign=bottom>&nbsp;</td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
  <td  align=center width=119 valign=bottom><font   size=2>Votes<br>
  For</font></td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
  <td  align=center width=119 valign=bottom><font   size=2>Votes<br>
  Against</font></td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
  <td  align=center width=119 valign=bottom><font   size=2>Votes<br>
  Abstained</font></td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=25 valign=top>&nbsp;</td>
  <td  align=center width=296 valign=bottom>&nbsp;</td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
  <td  align=center width=119 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
  <td  align=center width=119 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
  <td  align=center width=119 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width=11 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=25 valign=top bgcolor="#cceeff"><font size=2>2)</font></td>
  <td width=296 valign=bottom bgcolor="#cceeff"><font size=2>To
  approve the appointment of independent auditors for the 2001 fiscal year<br><br></font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>17,683,952</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>58,698</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom bgcolor="#cceeff"><font   size=2>1,269</font></td>
  <td width=11 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=25 valign=top><font size=2>3)</font></td>
  <td width=296 valign=bottom><font size=2>To
  consider and vote on a proposal to approve an amendment to add 300,000
  additional shares to the 1996 International Bancshares Corporation Stock
  Option Plan</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom><font   size=2>16,878,034</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom><font   size=2>787,008</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=119 valign=bottom><font   size=2>78,877</font></td>
  <td width=11 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
</table>

<p><font size=2>&nbsp;</font></p>

<page>


<p>&nbsp;</p>

<p><b><font size=2>Item
5.&nbsp; <u>Other Information</u></font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Registrant announced that it has
agreed with San Antonio-based National Bancshares Corporation of Texas (&#147;NBT&#148;)
to acquire all of the issued and outstanding shares of common stock of National
Bancshares pursuant to a cash tender offer (the &quot;Tender Offer&quot;).&nbsp; The Boards of both companies have approved
the transaction.&nbsp; The Tender Offer was
commenced on August 9, 2001.&nbsp; Assuming
successful completion of the Tender Offer and receipt of necessary approvals,
thereafter National Bancshares would be merged with a subsidiary of IBC, and
all of the remaining National Bancshares shareholders (other than those who
perfect their dissenters' rights under Texas law) would receive the same price
paid in the Tender Offer in cash.&nbsp; The
Tender Offer and the merger are subject to regulatory approvals and to other
customary conditions, including the tender of at least two-thirds of the shares
of National Bancshares in the Tender Offer and the approval of the merger by
the shareholders of NBT.</font></p>

<p><b><font size=2>Item
6.&nbsp; <u>Exhibits and Reports on Form 8-K</u></font></b></p>

<p><font size=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Exhibits</u></font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; None.</font></p>

<p><font size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Reports
on Form 8-K</u></font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Registrant
filed a current report on Form 8-K on July 24, 2001, covering Item 5 &#150; Other
Events and Item 7 &#150; Financial Statements and Exhibits in connection with the
announcement of the expansion of the
Company&#146;s stock repurchase program.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Registrant
filed a current report on Form 8-K on August 9, 2001, covering Item 5 &#150; Other
Events and Item 7 &#150; Financial Statements and Exhibits in connection with the
announcement of the Company&#146;s Second Quarter
Earnings.</font></p>

<page>


<p>&nbsp;</p>

<p><u><font size=2>SIGNATURES</font></u><font size=2>&nbsp;
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.</font></p>

<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td width=41 valign=top>&nbsp;</td>
  <td width=265 colspan=2 valign=top>&nbsp;</td>
  <td width=318 colspan=2 valign=top><font size=2>INTERNATIONAL
  BANCSHARES CORPORATION</font></td>
 </tr>
 <tr>
  <td width=41 valign=top>&nbsp;</td>
  <td width=265 colspan=2 valign=top>&nbsp;</td>
  <td width=318 colspan=2 valign=top>
<hr size=1 width="100%" noshade color=black align=right></td>
 </tr>
 <tr>
  <td width=41 valign=top>&nbsp;</td>
  <td width=265 colspan=2 valign=top>&nbsp;</td>
  <td width=318 colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width=41 valign=top>&nbsp;</td>
  <td width=265 colspan=2 valign=top>&nbsp;</td>
  <td width=318 colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr height=19>
  <td width=41 height=19 valign=top><font size=2>Date:</font></td>
  <td width=102 height=19 valign=top><font size=2>August
  14, 2001</font></td>
  <td width=163 height=19 valign=top>&nbsp;</td>
  <td width=15 height=19 valign=top><font size=2>/s/</font></td>
  <td width=303 height=19 valign=top><font size=2>Dennis
  E. Nixon</font></td>
 </tr>
 <tr height=19>
  <td width=41 height=19 valign=top>&nbsp;</td>
  <td width=102 height=19 valign=top>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width=163 height=19 valign=top>&nbsp;</td>
  <td width=15 height=19 valign=top>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width=303 height=19 valign=top>
<hr size=1 width="100%" noshade color=black align=right></td>
 </tr>
 <tr height=19>
  <td width=41 height=19 valign=top>&nbsp;</td>
  <td width=265 colspan=2 height=19 valign=top>&nbsp;</td>
  <td width=15 height=19 valign=top>&nbsp;</td>
  <td width=303 height=19 valign=top><font size=2>Dennis
  E. Nixon</font></td>
 </tr>
 <tr height=19>
  <td width=41 height=19 valign=top>&nbsp;</td>
  <td width=265 colspan=2 height=19 valign=top>&nbsp;</td>
  <td width=15 height=19 valign=top>&nbsp;</td>
  <td width=303 height=19 valign=top><font size=2>President</font></td>
 </tr>
 <tr height=19>
  <td width=41 height=19 valign=top>&nbsp;</td>
  <td width=265 colspan=2 height=19 valign=top>&nbsp;</td>
  <td width=15 height=19 valign=top>&nbsp;</td>
  <td width=303 height=19 valign=top>&nbsp;</td>
 </tr>
 <tr height=19>
  <td width=41 height=19 valign=top>&nbsp;</td>
  <td width=265 colspan=2 height=19 valign=top>&nbsp;</td>
  <td width=15 height=19 valign=top>&nbsp;</td>
  <td width=303 height=19 valign=top>&nbsp;</td>
 </tr>
 <tr height=19>
  <td width=41 height=19 valign=top><font size=2>Date:</font></td>
  <td width=102 height=19 valign=top><font size=2>August
  14, 2001</font></td>
  <td width=163 height=19 valign=top>&nbsp;</td>
  <td width=15 height=19 valign=top><font size=2>/s/
  </font></td>
  <td width=303 height=19 valign=top><font size=2>Imelda
  Navarro</font></td>
 </tr>
 <tr height=19>
  <td width=41 height=19 valign=top>&nbsp;</td>
  <td width=102 height=19 valign=top>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width=163 height=19 valign=top>&nbsp;</td>
  <td width=15 height=19 valign=top>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width=303 height=19 valign=top>
<hr size=1 width="100%" noshade color=black align=right></td>
 </tr>
 <tr height=19>
  <td width=41 height=19 valign=top>&nbsp;</td>
  <td width=265 colspan=2 height=19 valign=top>&nbsp;</td>
  <td width=15 height=19 valign=top>&nbsp;</td>
  <td width=303 height=19 valign=top><font size=2>Imelda
  Navarro</font></td>
 </tr>
 <tr>
  <td width=41 valign=top>&nbsp;</td>
  <td width=265 colspan=2 valign=top>&nbsp;</td>
  <td width=15 valign=top>&nbsp;</td>
  <td width=303 valign=top><font size=2>Treasurer (Chief Accounting Officer)</font></td>
 </tr>
</table>


<p><font size=2>&nbsp;</font></p>


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