Table of Contents  
  UNITED STATES SECURITIES
AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-K  x
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
  THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
  December 31, 2008oro
  TRANSITION REPORT PURSUANT TO SECTION 13 OR
  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from
                           
to  Commission file number: 0-9439  INTERNATIONAL
BANCSHARES CORPORATION (Exact Name of Registrant as Specified in its Charter)  Texas
  
  74-2157138(State or other
  jurisdiction of Incorporation or
  
  (I.R.S. Employer
  Identification No.)organization)1200 San Bernardo AvenueLaredo, Texas 78042 - 1359
  
  (956) 722-7611(Address of principal
  executive office and Zip Code)
  
  (Registrants telephone
  number, including area code)
  Securities registered pursuant to Section 12(b) of the Act:  Name of Each Exchange onTitle of Each Class
  
  Which RegisteredNone
  
  None
  Securities Registered Pursuant to Section 12(g) of the Act: Common Stock ($1.00 par value) (Title of Class)  Indicate by check mark if the Registrant is a well known seasoned
issuer, as defined in Rule 405 of the Securities Act.  Yesx No o  IndicatebycheckmarkiftheRegistrantisnotrequiredtofilereportspursuanttoSection13or15(d)oftheSecuritiesAct.YesoNox  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. Yesx No o  Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K Section 229.405 of this chapter is not
contained herein, and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.x  Indicate by check mark if the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of large
accelerated filer, accelerated filer and small reporting company in
Rule 12b-2 of the Exchange Act. Large
  Accelerated filerx
  
  
  
  Accelerated
  fileroNon-accelerated
  filero
  
  (Do not check
  if a smaller reporting company)
  
  Smaller
  reporting companyo  Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).  Yeso No x  The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of June 30, 2008 was $1,465,284,000 based on the closing
sales price per share of the Registrants common stock on such date as reported
by NASDAQ.  As
of February 20, 2009, there were 68,603,091 shares of the Registrants
Common Stock outstanding.  DOCUMENTS INCORPORATED BY REFERENCE  Portions of the following documents are incorporated by reference into
the designated parts of this Form 10-K: (a) Annual Report to security
holders for the fiscal year ended December 31, 2008 (in Parts I and II)
and (b) Proxy Statement relating to the Companys 2009 Annual Meeting of
Shareholders (in Part III).


Table of Contents  CONTENTS  PagePART IItem 1.
  Business
  
  5Item 1A.
  Risk Factors
  
  18Item 1B.
  Unresolved Staff
  Comments
  
  22Item 2.
  Properties
  
  22Item 3.
  Legal Proceedings
  
  23Item 4.
  Submission of Matters
  to a Vote of Security Holders
  
  23Item 4A.
  Executive
  Officers of the Registrant
  
  24PART II
  24Item 5.
  Market for the
  Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
  of Equity Securities
  
  24Item 6.
  Selected Financial Data
  
  24Item 7.
  Managements
  Discussion and Analysis of Financial Condition and Results of Operations
  
  24Item 7A.
  Quantitative and
  Qualitative Disclosures about Market Risk
  
  25Item 8.
  Financial
  Statements and Supplementary Data
  
  25Item 9.
  Changes In and
  Disagreements with Accountants on Accounting and Financial Disclosure
  
  25Item 9A.
  Controls and
  Procedures
  
  26Item 9B.
  Other Information
  
  29PART III
  29Item 10.
  Directors,
  Executive Officers and Corporate Governance
  
  29Item 11.
  Executive Compensation
  
  29Item 12.
  Security
  Ownership of Certain Beneficial Owners and Management and Related Stockholder
  Matters
  
  29Item 13.
  Certain
  Relationships and Related Transactions, and Director Independence
  
  29Item 14.
  Principal
  Accounting Fees and Services
  
  29PART IV
  30Item 15.
  Exhibits,
  Financial Statement Schedules
  
  30  2


Table of Contents  Special Cautionary Notice Regarding Forward Looking
Information  Certain matters discussed in this report, excluding historical
information, include forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are
subject to the safe harbor created by these sections.  Although the International Bancshares
Corporation (the Company) believes such forward-looking statements are based
on reasonable assumptions, no assurance can be given that every objective will
be reached.  The words estimate,
expect, intend, believe and project, as well as other words or
expressions of a similar meaning are intended to identify forward-looking
statements.  Readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as of the
date of this report.  Such statements are
based on current expectations, are inherently uncertain, are subject to risks
and should be viewed with caution. 
Actual results and experience may differ materially from the
forward-looking statements as a result of many factors.  Risk factors that could cause actual results to differ materially from
any results that are projected, forecasted, estimated or budgeted by the
Company in forward-looking statements include, among others, the following
possibilities: ·
  Local, regional, national and international economic business
  conditions and the impact they may have on the Company, the Companys
  customers, and such customers ability to transact profitable business with
  the Company, including the ability of its borrowers to repay their loans according
  to their terms or a change in the value of the related collateral.·
  Volatility and disruption in national and international financial
  markets.·
  Government intervention in the U.S. financial system.·
  Changes in consumer spending, borrowings and savings habits.·
  Changes in interest rates and market prices, which could reduce the
  Companys net interest margins, asset valuations and expense expectations.·
  Changes in the capital markets utilized by the Company and its
  subsidiaries, including changes in the interest rate environment that may
  reduce margins.·
  Changes in state and/or federal laws and regulations to which the
  Company and its subsidiaries, as well as their customers, competitors and
  potential competitors, are subject, including, without limitation, changes in
  the accounting, tax and regulatory treatment of trust preferred securities,
  as well as changes in banking, tax, securities, insurance and employment laws
  and regulations.·
  Changes in U.S.  Mexico trade, including, without limitation,
  reductions in border crossings and commerce resulting from the Homeland
  Security Programs called US-VISIT, which is derived from Section 110
  of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996.·
  The loss of senior management or operating personnel.·
  Increased competition from both within and outside the banking
  industry.·
  The timing, impact and other uncertainties of the Companys potential
  future acquisitions including the Companys ability to identify suitable
  potential future acquisition candidates, the success or failure in the
  integration of their operations and the Companys ability to maintain its
  current branch network and to enter new markets successfully and capitalize
  on growth opportunities.·
  Changes in the Companys ability to pay dividends on its Preferred
  Stock or Common Stock.·
  The effects of the proceedings pending with the Internal Revenue
  Service regarding the Companys lease financing transactions.·
  Additions to the Companys loan loss allowance as a result of changes
  in local, national or international conditions which adversely affect the
  Companys customers.·
  Greater than expected costs or difficulties related to the
  development and integration of new products and lines of business.·
  Changes in the soundness of other financial institutions with which
  the Company interacts.·
  Political instability in the United States and Mexico.  3


Table of Contents  ·
  Technological changes.·
  Acts of war or terrorism.·
  Natural disasters.·
  Reduced earnings resulting from the write down of the carrying value
  of securities held in our securities available-for-sale portfolio following a
  determination that the securities are other-than-temporarily impaired.·
  The effect of changes in accounting policies and practices as may be
  adopted by the regulatory agencies, as well as the Public Company Accounting
  Oversight Board, the Financial Accounting Standards Board and other
  accounting standards setters.·
  The Companys success at managing the risks involved in the foregoing
  items.  Forward-looking statements speak only as of the date on which such
statements are made.  It is not possible
to foresee or identify all such factors. 
The Company makes no commitment to update any forward-looking statement,
or to disclose any facts, events or circumstances after the date hereof that
may affect the accuracy of any forward-looking statement, unless required by
law.  Recent
Developments  On December 23, 2008, as part of the Capital Purchase Program (the
CPP) established by the United States Department of the Treasury (the
Treasury) under the Emergency Economic Stabilization Act (the EESA), the
Company entered into a Letter Agreement incorporating an attached Securities
Purchase Agreement  Standard Terms (collectively, the Securities Purchase
Agreement), with the Treasury.  The
closing of the transactions contemplated in the Securities Purchase Agreement
occurred on December 23, 2008.  Under the Securities Purchase Agreement, the Company agreed to sell
216,000 shares of the Companys fixed-rate cumulative perpetual preferred
stock, Series A, par value $.01 per share (the Senior Preferred Stock),
having a liquidation preference of $1,000 per share, for a total price of
$216,000,000.  The Senior Preferred Stock
will pay dividends at the rate of 5% per year for the first five years and 9%
per year thereafter.  The Senior
Preferred Stock has no maturity date and ranks senior to the Companys common
stock with respect to the payment of dividends and distributions and amounts
payable upon liquidation, dissolution and winding up of the Company.  The Senior Preferred Stock generally is
non-voting except for class voting rights on matters that would adversely
affect the rights of the holders of the Senior Preferred Stock.  Pursuant to the Securities Purchase Agreement, the Company may redeem
the Senior Preferred Stock in whole or in part at par after three years from
the date of the investment.  Prior to
such date, the Company may redeem the Senior Preferred Stock in whole or in
part, at par if (i) the Company has raised aggregate gross proceeds in one
or more Qualified Equity Offerings (as defined in the Securities Purchase
Agreement) in excess of $54 million and (ii) the aggregate redemption is
subject to the consent of the Federal Reserve Bank of Dallas, which is the
Companys primary Federal banking regulator.  In conjunction with the purchase of the Senior Preferred Stock, the
Treasury received a warrant (the Warrant) to purchase 1,326,238 shares of the
Companys common stock (the Warrant Shares) at $24.43 per share, which would
represent an aggregate common stock investment in the Company on exercise of
the warrant in full equal to 15% of the Senior Preferred Stock investment.  The term of the Warrant is ten years.  The per share exercise price and the number
of shares issuable upon exercise of the Warrant is subject to adjustment
pursuant to customary anti-dilutive provisions in certain events, such as stock
splits, certain distributions of securities or other assets to holders of the
Companys common stock, and upon certain issuances of the Companys common
stock at or below specified prices relative to the initial price per share
exercise price of the Warrant.  The
Warrant is immediately exercisable.  The
number of shares issuable upon exercise of the Warrant is also subject to
reduction in certain limited events that involve the Company conducting
Qualified Equity Offerings on or prior to December 31, 2009.  Both the Senior Preferred Stock and Warrant
will be accounted for as components of Tier 1 capital.  The Companys intention is to utilize the extra capital provided by the
TARP funds to support its efforts to prudently and transparently provide
lending and liquidity.  4


Table of Contents  Item 1.  Business  General  The Company is a financial holding company with its principal corporate
offices in Laredo, Texas. Four bank subsidiaries provide commercial and retail
banking services through 265 main banking and branch facilities located in 101
communities in South, Central and Southeast Texas and the State of
Oklahoma.  The Company was originally
incorporated under the General Corporation Law of the State of Delaware in
1979.  Effective June 7, 1995, the
Companys state of incorporation was changed from Delaware to Texas.  The Company was organized for the purpose of
operating as a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the BHCA), and as such, is subject to
supervision and regulation by the Board of Governors of the Federal Reserve
System (the FRB).  As a registered bank
holding company, the Company may own one or more banks and may engage directly,
or through subsidiary corporations, in those activities closely related to
banking which are specifically permitted under the BHCA and by the FRB.  Effective March 13, 2000, the Company
became certified as a financial holding company.  As a financial holding company, the Company
may engage in a broad list of financial and non-financial activities.  The Companys principal assets at
December 31, 2008 consisted of all the outstanding capital stock of four
Texas state banking associations (the Banks or bank subsidiaries).  All of the Companys bank subsidiaries are
members of the Federal Deposit Insurance Corporation (the FDIC).  The bank subsidiaries are in the business of gathering funds from
various sources and investing these funds in order to earn a return.  Funds gathering primarily takes the form of
accepting demand and time deposits from individuals, partnerships, corporations
and public entities.  Investments
principally are made in loans to various individuals and entities as well as in
debt securities of the U.S. Government and various other entities whose
payments are guaranteed by the U.S. Government. 
Historically, the bank subsidiaries have primarily focused on providing
commercial banking services to small and medium sized businesses located in
their trade areas and international banking services.  In recent years, the bank subsidiaries have
also emphasized consumer and retail banking, including mortgage lending, as
well as branches situated in retail locations and shopping malls.  The Companys philosophy focuses on customer service as represented by
its motto, We Do More.  The Banks
maintain a strong commitment to their local communities by, among other things,
appointing selected members of the communities in which the Banks branches are
located to local advisory boards (the local boards). The local boards direct
the operations of the branches, with the supervision of the lead Banks board
of directors, and assist in introducing prospective customers to the Banks as
well as developing or modifying products and services to meet customer
needs.  The Banks function largely on a
decentralized basis and the Company believes that such decentralized structure
enhances the commitment of the Banks to the communities in which their branches
are located.  In contrast to many of
their principal competitors, the credit decisions of the Banks are made locally
and promptly.  The Company believes that
the knowledge and expertise afforded by the local boards are key components to
sound credit decisions.  Expense control
is an essential element in the Companys profitability.  The Company has centralized virtually all of
the Banks back office support and investment functions in order to achieve
consistency and cost efficiencies in the delivery of products and services.  On July 28, 1980, the Company acquired all of the outstanding
shares of its predecessor, International Bank of Commerce (IBC), which is
today the flagship bank of the Company, representing the majority of the
Companys banking assets.  IBC was
chartered under the banking laws of Texas in 1966 and has its principal place of
business at 1200 San Bernardo Avenue, Laredo, Webb County, Texas.  It is a wholly-owned subsidiary of the
Company.  Since the acquisition of the
flagship bank in 1980, the Company has formed three banks: (i) Commerce
Bank, a Texas state banking association which commenced operations in 1982, located
in Laredo, Texas (Commerce Bank); (ii) International Bank of Commerce,
Brownsville, a Texas state banking association which commenced operations in
1984, located in Brownsville, Texas (IBC-Brownsville); and
(iii) International Bank of Commerce,  5


Table of Contents  Zapata, a Texas state banking association which commenced operations in
1984, located in Zapata, Texas (IBC-Zapata).  During the last several years, the Company has acquired various
financial institutions and banking assets in its trade area and expanded its
trade area to the State of Oklahoma.  The
community-focus of the subsidiary banks and the involvement of the local boards
has resulted in the Company becoming aware of acquisition possibilities in the
ordinary course of its business and in many instances before other potential
purchasers.  The Companys decision to
pursue an acquisition is based on a multitude of factors, including the ability
to efficiently assimilate the operations and assets of the acquired entity, the
cost efficiencies to be attained and the growth potential of the market.  On December 4, 2008, the Company completed its acquisition of certain
rights to InsCorp, Inc. insurance contracts for $1,074,000. InsCorp, Inc. is a
multi-line independently owned insurance agency, which insures oil operators,
merchants and industrial businesses.  On March 16, 2007, the Company completed its
acquisition of Southwest First Community, Inc. (Southwest Community), a
bank holding company with approximately $133 million in assets that owned State
Bank & Trust in Beeville, Texas and Commercial State Bank in Sinton,
Texas.  The transaction was pursuant to
the Agreement and Plan of Merger dated December 1, 2006 (the Merger
Agreement).  The Company paid
consideration totaling $23.5 million in cash.  The Company also has five direct non-banking subsidiaries.  They are (i) IBC Life Insurance Company,
a Texas chartered subsidiary which reinsures a small percentage of credit life
and accident and health risks related to loans made by bank subsidiaries, (ii)
IBC Trading Company, an export trading company which is currently inactive,
(iii) IBC Subsidiary Corporation, a second-tier bank holding company
incorporated in the State of Delaware, (iv) IBC Capital Corporation, a
company incorporated in the State of Delaware for the purpose of holding
certain investments of the Company and (v) Premier Tierra Holdings, Inc.,
a liquidating subsidiary formed under the laws of the State of Texas.  The Company owns a fifty percent interest in
Gulfstar Group I, Ltd. and related entities, which are involved in investment
banking activities.  The Company also
owns a controlling interest in three merchant banking entities.  6


Table of Contents  Website Access to Reports  The Company makes its annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports, filed or furnished pursuant to section 13(a) or
15(d) of the Securities Exchange Act of 1934 available free of charge on
or through the Companys internet website, www.ibc.com, as soon as reasonably
practicable after such materials are electronically filed with, or furnished
to, the Securities and Exchange Commission (SEC).  Additionally, the Company has posted on its
website a code of ethics that applies to its directors and executive officers
(including the Companys chief executive officer and financial officer).  The Companys website also includes the
charter for its Audit Committee.  The
Companys website will also include the Proxy Statement relating to the
Companys 2009 Annual Meeting of Shareholders upon filing of the definitive
Proxy Statement with the SEC.  Services and Employees  The Company, through its bank subsidiaries, IBC, Commerce Bank,
IBC-Zapata and IBC-Brownsville, is engaged in the business of banking,
including the acceptance of checking and savings deposits and the making of
commercial, real estate, personal, home improvement, automobile and other
installment and term loans.  Certain of
the bank subsidiaries are very active in facilitating international trade along
the United States border with Mexico and elsewhere.  The international banking business of the
Company includes providing letters of credit, making commercial and industrial
loans, and providing a nominal amount of currency exchange.  Each bank subsidiary also offers other
related services, such as credit cards, travelers checks, safety deposit,
collection, notary public, escrow, drive-up and walk-up facilities and other
customary banking services. 
Additionally, each bank subsidiary makes available certain securities
products through third party providers. 
The bank subsidiaries also make banking services available during
traditional and nontraditional banking hours through their network of over 420
automated teller machines, and through their 265 branches situated in retail
locations and shopping malls. 
Additionally, IBC introduced IBC Bank Online, an Internet banking
product, in order to provide customers online access to banking information and
services 24 hours a day.  The Company owns U.S. service mark registrations for INTERNATIONAL
BANK OF COMMERCE, WALL STREET INTERNATIONAL, INTERNATIONAL BANK OF COMMERCE
CENTRE, OVERDRAFT COURTESY, IBC, IBC CONNECTION, IBC ELITE, IBC ELITE
ADVANTAGE, IBC BANK, IBC OVERDRAFT COURTESY, BIZ RITE CHECKING, GOT YOU
COVERED, OVERDRAFT COURTESY GOT YOU COVERED, FREEBEE and a design mark
depicting a bee character and ITS A BRIGHTER CHRISTMAS as well as a design
mark depicting the United States and Mexico, a design mark depicting IBC with
the United States and Mexico, and a design mark depicting WALL STREET
INTERNATIONAL. In addition, the Company owns Texas service mark registrations
for RITE CHECK, THE CLUB, WALL STREET INTERNATIONAL, INTERNATIONAL BANK
OF COMMERCE, WE DO MORE, and design marks depicting CHECKN SAVE and WALL
STREET INTERNATIONAL, as well as a design mark depicting the United States and
Mexico.  The Company also owns Oklahoma
service mark registrations for CHECK N SAVE, RITE CHECKING, THE CLUB,
and WE DO MORE.  Also, IBC owns certain
pending applications for federal registrations of other proprietary service
marks and is regularly investigating the availability of service mark
registrations related to certain proprietary products.  No material portion of the business of the Company may be deemed
seasonal and the deposit and loan base of the Companys bank subsidiaries is
diverse in nature. There has been no material effect upon the Companys capital
expenditures, earnings or competitive position as a result of Federal, State or
local environmental regulation.  As of December 31, 2008, the Company and its subsidiaries employed
approximately 3,053 persons full-time and 779 persons part-time.  7


Table
of Contents  Competition  The Company is the third largest independent
Texas bank holding company.  The primary
market area of the Company is South, Central and Southeast Texas, an area
bordered on the east by the Galveston area, to the northwest by Roundrock, to
the southwest by Del Rio and to the southeast by Brownsville, as well as the
State of Oklahoma.  The Company has increased
its market share in its primary market area over the last several years through
strategic acquisitions.  The Company,
through its bank subsidiaries, competes for deposits and loans with other
commercial banks, savings and loan associations, credit unions and non-bank
entities, which non-bank entities serve as an alternative to traditional
financial institutions and are considered to be formidable competitors.  The percentage of bank-related services being
provided by non-bank entities has increased dramatically during the last
several years.  The Company and its bank subsidiaries do a
large amount of business for customers domiciled in Mexico, with an emphasis in
Northern Mexico. Deposits from persons and entities domiciled in Mexico
comprise a large and stable portion of the deposit base of the Companys bank
subsidiaries.  Such deposits comprised
approximately 30% of the bank subsidiaries total deposits for the three years
ended December 31, 2008, 2007 and 2006.  Under the Gramm-Leach-Bliley Act (GLBA),
effective March 11, 2000, banks, securities firms and insurance companies
may affiliate under an entity known as a financial holding company which may
then serve its customers varied financial needs through a single corporate
structure.  GLBA has significantly
changed the competitive environment in which the Company and its subsidiaries
conduct business. The financial services industry is also likely to become even
more competitive as further technological advances enable more companies to
provide financial services.  These
technological advances may diminish the importance of depository institutions
and other financial intermediaries in the transfer of funds between parties.  Supervision and Regulation  GENERAL-THE COMPANY.  In addition to the generally applicable state
and Federal laws governing businesses and employers, the Company and its bank
subsidiaries are further extensively regulated by special Federal and state
laws governing financial institutions. 
These laws comprehensively regulate the operations of the Companys bank
subsidiaries and include, among other matters, requirements to maintain
reserves against deposits; restrictions on the nature and amount of loans that
may be made and the interest that may be charged thereon; restrictions on the
amounts, terms and conditions of loans to directors, officers, large
shareholders and their affiliates; restrictions related to investments in
activities other than banking; and minimum capital requirements. The
descriptions are qualified in their entirety by reference to the full text of the
applicable statutes, regulations and policies. 
With few exceptions, state and Federal banking laws have as their
principal objective either the maintenance of the safety and soundness of the
Federal deposit insurance system or the protection of consumers, rather than
the specific protection of shareholders of the Company.  Further, the earnings of the Company are
affected by the fiscal and monetary policies of the Federal Reserve System,
which regulates the national money supply in order to mitigate recessionary and
inflationary pressures.  These monetary
policies influence to a significant extent the overall growth of bank loans,
investments and deposits and the interest rates charged on loans or paid on
time and savings deposits.  The nature of
future monetary policies and the effect of such policies on the future earnings
and business of the Company cannot be predicted.   8


Table
of Contents  RECENT LEGISLATION.  On October 3, 2008, the President signed
into law the Emergency Economic Stabilization Act of 2008 or (EESA), which,
among other measures, authorized the Secretary of the Treasury to establish the
Troubled Asset Relief Program (TARP). 
Pursuant to TARP, the U.S. Treasury has the authority to, among other
things, purchase up to $700 billion of mortgages, mortgage-backed securities
and certain other financial instruments from financial institutions for the
purpose of stabilizing and providing liquidity to the U.S. financial
markets.  In addition, under TARP, the
Treasury created a capital purchase program (CPP), pursuant to which it
provides access to capital that will serve as Tier 1 capital to financial
institutions through a standardized program to acquire preferred stock
(accompanied by warrants) from eligible financial institutions.  On December 23, 2008, the Company sold
$216 million of Series A Preferred Stock to the Treasury under the CPP. On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the ARRA).  ARRA is
intended to provide a stimulus to the U.S. economy in the wake of the economic
downturn brought about by the subprime mortgage crisis and the resulting credit
crunch.  The bill includes federal tax
cuts, expansion of unemployment benefits and other social welfare provisions,
and domestic spending in education, healthcare, and infrastructure, including
the energy structure.  The new law also
includes numerous non-economic recovery related items, including a limitation
on executive compensation of certain of the most highly-compensated employees
and executive officers of financial institutions, such as the Company, that
participated in the TARP Capital Purchase Program.  The restrictions in the new law, which will
be further described in rules to be adopted by the Commission and
standards to be established by the Treasury Department, include the following:  ·      Limits on compensation incentives for risk taking by senior
executive officers. ·      Requirement of recovery of any compensation paid based on
inaccurate financial information. ·      Prohibition on Golden Parachute Payments. ·      Prohibition on compensation plans that would encourage
manipulation of reported earnings to enhance the compensation of employees. ·      Publicly registered CPP recipients must establish a board
compensation committee comprised entirely of independent directors, for the
purpose of reviewing employee compensation plans. ·      Prohibition on bonus, retention award, or incentive
compensation, except for limited payments of long term restricted stock. ·      Limitation on luxury expenditures. ·      CPP recipients are required to permit a separate non-binding
shareholder vote to approve the compensation of executives, as disclosed
pursuant to the SECs compensation disclosure rules. ·      The chief executive officer and chief financial officer of each
CPP recipient will be required to provide a written certification of compliance
with these standards to the SEC.  Pursuant to the ARRA, subject to consultation
with the appropriate Federal banking agency, the Treasury Secretary shall
permit a CPP participant to repay the CPP funds that they received without
regard to whether the financial institution has replaced such funds from any
other source, and when such CPP funds are repaid, the Treasury Secretary shall
liquidate warrants associated with the CPP funds at the current market
price.  The Treasury Secretary has not,
yet, promulgated regulations to implement this section.  There can be no assurance as to the actual
impact that EESA and ARRA and such related measures undertaken to alleviate the
credit crisis will have generally on the financial markets, including the
extreme levels of volatility currently being experienced.  The failure of such measures to help
stabilize the financial markets and a continuation or worsening of current
financial market conditions could materially and adversely affect our business,
financial condition, results of operations, access to credit or the trading
price of our common stock.  FRB APPROVALS.  The Company is a registered bank holding
company within the meaning of the BHCA, and is subject to supervision by the
FRB and to a certain extent the Texas Department of Banking (the DOB).  The Company is required to file with the FRB
annual reports and other information regarding the business operations of
itself and its subsidiaries.  It is also
subject to examination by the FRB.  Under
the BHCA, a bank holding company is, with limited exceptions, prohibited from
acquiring direct or indirect ownership or control of any voting stock of any
company which is not a bank or bank holding company, and must engage only in
the business of banking, managing, controlling banks, and furnishing services to
or performing services for its subsidiary banks.  One of the exceptions to this prohibition is
the ownership of shares of any company provided such shares do not constitute
more than 5% of the outstanding voting shares of the company and so long as the
FRB does not disapprove such ownership. 
Another exception to this prohibition is the ownership of shares of a
company the activities of which the FRB has specifically determined to be so
closely related to banking, managing or controlling banks as to be a proper
incident thereto.  The BHCA and the Change in Bank Control Act
of 1978 require that, depending on the circumstances, either FRB approval must
be obtained or notice must be furnished to the FRB and not disapproved prior to
any person or company acquiring control of a bank holding company, such as
the Company, subject to certain exceptions for certain transactions.  Control is conclusively presumed to exist if
an individual or company acquires 25% or more of any class of voting securities
of the bank holding company.  Control is
rebuttably presumed to exist if a person acquires 10% or more but less than 25%
of any class of voting securities where the bank holding company, such as the
Company, has registered Securities under Section 12 of the Securities
Exchange Act of 1934 (the Exchange Act).  As a bank holding company, the Company is
required to obtain approval prior to merging or consolidating with any other
bank holding company, acquiring all or substantially all of the assets of any
bank or acquiring ownership or control of shares of a bank or bank holding
company if, after the acquisition, the Company would directly or indirectly own
or control 5% or more of the voting shares of such bank or bank holding
company.  THE USA PATRIOT ACT.  On October 26, 2001, the President
signed into law a comprehensive anti-terrorism legislation entitled Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (USA PATRIOT) Act of 2001 (the Act).  Title III of the Act constitutes the USA
PATRIOT ACT.  The USA PATRIOT ACT and the
regulations promulgated thereunder substantially expand and change the
responsibilities of U.S. financial institutions with respect to countering money
laundering and terrorist activities. The implementing regulations impose
obligations on financial institutions to maintain appropriate policies,
procedures and controls to detect, prevent and report money laundering and
terrorist financing and to verify the identity of their customers.  Also, the Act requires the bank regulatory
agencies to consider the  9


Table
of Contents  record of a bank or bank holding company in combating
money laundering activities in their evaluation of bank and bank holding
company merger or acquisition transactions. 
In recent years, money laundering and the Bank Secrecy Act compliance
emerged as bank regulatory enforcement priorities.  The Company has a program in place to monitor
and enforce its policies on money laundering, corruption and bribery as well as
its policies on prohibiting the use of Company assets to finance or otherwise
aid alleged terrorist groups.  Failure of
a financial institution to maintain and implement adequate programs to combat
money laundering and terrorist financing, or to comply with all the relevant
laws or regulations, could have serious legal and reputational consequences for
the institution.  OFFICE OF FOREIGN ASSETS CONTROL
REGULATION.  The United States has
imposed economic sanctions that affect transactions with designated foreign
countries, nationals and others.  These
are typically known as the OFAC rules based on their administration by
the U.S. Treasury Department Office of Foreign Assets Control (OFAC).  The OFAC administered sanctions take many
forms, including without limitation, 
restrictions on trade or investment and the blocking of certain assets
related to the designated foreign countries and nationals.  Blocked assets, which may include bank
deposits, cannot be paid out, withdrawn, set off or transferred in any manner
without a license from OFAC.  Failure to
comply with the OFAC sanctions could have serious legal and reputational
consequences.  FINANCIAL MODERNIZATION.  On November 12, 1999, the
Gramm-Leach-Bliley Act of 1999 (GLBA) was enacted.  This comprehensive legislation eliminates the
barriers to affiliations among banks, securities firms, insurance companies and
other financial service providers.  GLBA
provides for a new type of financial holding company structure under which
affiliations among these entities may occur. 
Under GLBA, a financial holding company may engage in a broad list of
financial activities and any non-financial activity that the FRB determines is
complementary to a financial activity and poses no substantial risk to the
safety and soundness of depository institutions or the financial system.  In addition, GLBA permits certain non-banking
financial and financially related activities to be conducted by financial
subsidiaries of banks.  Under GLBA, a bank holding company may become
certified as a financial holding company by filing a declaration with the FRB,
together with a certification that each of its subsidiary banks is well
capitalized, is well managed, and has at least a satisfactory rating under the
Community Reinvestment Act of 1977 (CRA). 
The Company has elected to become a financial holding company under GLBA
and the election was made effective by the FRB as of March 13, 2000.  During the second quarter of 2000, IBC
established an insurance agency subsidiary which acquired two insurance
agencies.  As part of the Local Financial
Corporation (LFIN) acquisition in 2004, the Company acquired a securities
firm registered under the Exchange Act, IBC Investments, Inc.  A financial holding company that has a
securities affiliate registered under the Act or a qualified insurance
affiliate may make permissible merchant banking investments.  As of December 31, 2008, the Company has
made 20 merchant banking investments.  In January 2001, the FRB and the
Secretary of the Treasury promulgated final regulations governing the scope of
permissible merchant banking investments. 
The investments that may be made under this new authority are
substantially broader in scope than the investment activities otherwise
permissible for bank holding companies, and are referred to as merchant
banking investments in portfolio companies. Before making a merchant banking
investment, a financial holding company must either be or have a securities
affiliate registered under the Exchange Act or a qualified insurance
affiliate.  The merchant banking
investments may be made by the financial holding company or any of its
subsidiaries, other than a depository institution or subsidiary of a depository
institution.  The regulations place
restrictions on the ability of a financial holding company to become involved
in the routine management or operation of any of its portfolio companies.  The regulation also generally limits the
ownership period of merchant banking investments to no more than ten years.  10


Table
of Contents  The FRB, the Office of the Comptroller of the
Currency (the OCC), and the FDIC have adopted final rules governing the
regulatory capital treatment of equity investments in non-financial companies
held by banks, bank holding companies and financial holding companies.  The final rule was effective April 1,
2002 and applies a graduated capital charge on covered equity investments which
would increase as the proportion of such investments to Tier 1 Capital
increases.  PREEMPTION. 
At the beginning of 2004, the OCC issued final rules clarifying
when federal law overrides state law for national banks and their operating
subsidiaries and confirming that only the OCC has the right to examine and take
enforcement action against those institutions.  FINANCIAL PRIVACY.  Additionally under the GLBA, federal banking
regulators adopted rules that limit the ability of banks and other
financial institutions to disclose non-public information about consumers to
non-affiliated third parties.  Pursuant
to the rules, financial institutions must provide: (i) initial notices to
customers about their privacy policies, describing the conditions under which
they may disclose non-public personal information to non-affiliated third
parties and affiliates;  (ii) annual
notices of their privacy policies to current customers; and (iii) a
reasonable method for customers to opt out of disclosures to non-affiliated
third parties.  These privacy provisions
affect how customer information is transmitted through diversified financial
companies and conveyed to outside vendors. 
The Fair and Accurate Credit Transactions Act amended the Fair Credit
Reporting Act and provided limitations on information sharing among
affiliates.  In order to share
transaction and experience information, affiliates must provide consumers with
a notice and opt out opportunity.  SARBANES-OXLEY ACT OF 2002.  On July 30, 2002, President Bush signed
into law the Sarbanes-Oxley Act of 2002. 
The Sarbanes-Oxley Act represents a comprehensive revision of laws
affecting corporate governance, accounting obligations and corporate
reporting.  The Sarbanes-Oxley Act is
applicable to all companies with equity securities registered or that file
reports under the Securities Exchange Act of 1934.  In particular, the Sarbanes-Oxley Act establishes:
(i) new requirements for audit committees, including independence,
expertise, and responsibilities; (ii) additional responsibilities
regarding certification of financial statements by the Chief Executive Officer
and Chief Financial Officer of the reporting company; (iii) new standards
for auditors and regulation of audits; (iv) increased disclosure and
reporting obligations for the reporting company and its directors and executive
officers; and (v) new and increased civil and criminal penalties for violations
of the securities laws.  NASDAQ LISTING STANDARDS.  The Company is traded on the NASDAQ Stock
Market.  On November 4, 2003, the
SEC approved the revised listing standards of the NASDAQ Stock Market.  The new listing standards address disclosure requirements
and standards relating to board independence and other corporate governance
matters.  The standards relating to board
independence were slightly revised during 2007.  INTERSTATE BANKING.  In 1994, Congress enacted the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (Interstate Banking
Act), which rewrote federal law governing the interstate expansion of banks in
the United States. Under the Interstate Banking Act, adequately capitalized,
well managed bank holding companies with FRB approval may acquire banks located
in any State in the United States, provided that the target bank meets the
minimum age (up to a maximum of five years, which is the maximum Texas has
adopted) established by the host State. 
Under the Interstate Banking Act, an anti-concentration limit will bar
interstate acquisitions that would give a bank holding company control of more
than ten percent (10%) of all deposits nationwide or thirty percent (30%) of
any one States deposits, or such higher or lower percentage established by the
host State. The anti-concentration limit in Texas has been set at twenty
percent (20%) of all federally insured deposits in Texas.  As allowed by the Interstate Banking Act, the
Company acquired LFIN, including its Oklahoma financial institution, during
2004.  11


Table
of Contents  FRB ENFORCEMENT POWERS.  The FRB has certain cease-and-desist and
divestiture powers over bank holding companies and non-banking subsidiaries
where their actions would constitute a serious threat to the safety, soundness
or stability of a subsidiary bank.  These
powers may be exercised through the issuance of cease-and-desist orders or
other actions.  In the event a bank
subsidiary experiences either a significant loan loss or rapid growth of loans
or deposits, the Company may be compelled by the FRB to invest additional
capital in the bank subsidiary.  Further,
the Company would be required to guaranty performance of the capital
restoration plan of any undercapitalized bank subsidiary.  The FRB is also empowered to assess civil
money penalties against companies or individuals who violate the BHCA in
amounts up to $1,000,000 per day, to order termination of non-banking
activities of non-banking subsidiaries of bank holding companies and to order
termination of ownership and control of a non-banking subsidiary.  Under certain circumstances the Texas Banking
Commissioner may bring enforcement proceedings against a bank holding company
in Texas.  COMPANY DIVIDENDS.  The FRBs policy discourages the payment of
dividends from borrowed funds and discourages payments that would affect
capital adequacy.  The FRB has issued policy
statements which generally state that bank holding companies should serve as a
source of financial and managerial strength to their bank subsidiaries,
generally should not pay dividends except out of current earnings, and should
not borrow to pay dividends if the bank holding company is experiencing capital
or other financial problems.  CROSS-GUARANTEE PROVISIONS.  The Financial Institutions Reform Recovery
and Enforcement Act of 1989 (FIRREA) contains a cross-guarantee provision
which generally makes commonly controlled insured depository institutions
liable to the FDIC for any losses incurred in connection with the failure of a
commonly controlled depository institution.  AUDIT REPORTS.  Insured institutions with total assets of $1
billion or more must submit annual audit reports prepared by independent
auditors to federal and state regulators, as well as certain internal control
assessments.  In some instances, the
audit report of the institutions holding company can be used to satisfy this
requirement.  Auditors must receive
examination reports and examination related correspondence.  In addition, financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America, managements certifications concerning responsibility for the
financial statements, internal controls and compliance with legal requirements
designated by the FDIC, and an audit by the independent auditor regarding the
internal controls must be submitted to federal and state regulators.  The Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) requires that independent audit committees
be formed, consisting of outside directors only.  The committees of such institutions must
include members with experience in banking or financial management, must have
access to outside counsel, and must not include representatives of large
customers.  During 1999, the SEC and the National
Association of Securities Dealers adopted new rules, which became effective
during 2000, to improve the function of corporate audit committees. The new rules require,
among other things, that the audit committee review and assess the adequacy of
its charter on an annual basis, that independent auditors review public
companies interim financial information prior to filing with the SEC and that
companies include in their proxy statements certain information about their
audit committees.  The bank subsidiaries
of the Company satisfy the annual audit requirement by relying on the audit of
the Company.  The Company is also subject
to the enhanced audit committee requirements set forth in the Sarbanes-Oxley
Act of 2002.  GENERAL - BANK SUBSIDIARIES.  All of the bank subsidiaries of the Company
are state banks subject to regulation by, and supervision of, the Texas DOB and
the FDIC.  12


Table
of Contents  DEPOSIT INSURANCE.  All of the bank subsidiaries of the Company
are examined by the FDIC, which currently insures the deposits of each member
bank up to applicable limits.  Deposits
of each of the bank subsidiaries are insured by the FDIC through the Deposit
Insurance Fund (DIF) to the extent provided by law.  The FDIC uses a risk-based assessment system
that imposes premiums based upon a matrix that takes into account a banks
capital level and supervisory rating.  As
of January 1, 2007, the previous nine risk categories utilized in the risk
matrix were condensed into four risk categories which continue to be
distinguished by capital levels and supervisory rating.  During 2007, the bank subsidiaries of the
Company were required to pay deposit insurance premiums.  Under the Federal Deposit Insurance Reform
Act of 2005, which became law in 2006, the bank subsidiaries of the Company
received a one-time assessment credit that can be applied against future
premiums, subject to certain limitations. 
During 2008, the credit was used to offset all the deposit insurance premiums
owed by the bank subsidiaries of the Company and the remaining amount of the
offset credit will be used against future deposit insurance premiums.  During 2008, the bank subsidiaries of the
Company paid Financing Corporation (FICO) assessments related to outstanding
FICO bonds to the FDIC as a collection agent. 
The FICO is a mixed-ownership government corporation whose sole purpose
was to serve as a financing vehicle for the defunct Federal Savings &
Loan Insurance Corporation.  In an effort to restore capitalization levels
and to ensure the DIF will adequately cover projected losses from future bank
failures, the FDIC, in October 2008, proposed a rule to alter the way
in which it differentiates for risk in the risk-based assessment system, and to
revise deposit insurance assessment rates, including base assessment
rates.  For Risk Category 1, institutions
such as the Company that do not have long-term debt issuer ratings, the FDIC
proposes (i) to determine the initial base assessment rate using a
combination of weighted-average CAMELS component ratings and the financial
ratios method assessment rate (as defined), each equally weighted and (ii) to
revise the uniform amount and the pricing multipliers.  The FDIC also proposes to introduce three
adjustments that could be made to an institutions initial base assessment
rate, including (i) a potential decrease of up to 2 basis points for
long-term unsecured debt, including senior and subordinated debt, (ii) a
potential increase for secured liabilities in excess of 15% of domestic
deposits and (iii) for non-Risk Category 1 institutions, a potential
increase for brokered deposits in excess of 10% of domestic deposits.  In addition, the FDIC proposed raising the
current rates uniformly by 7 basis points for the assessment for the first
quarter of 2009 resulting in annualized assessment rates for Risk Category 1
institutions ranging from 12 to 14 basis points.  The proposal for first quarter 2009
assessment rates was adopted as a final rule in December 2008.  The FDIC also proposed effective April 1,
2009, initial base assessment rates for Risk Category 1 institutions of 10  14
basis points.  After the effect of
potential base-rate adjustments, the annualized assessment rate for Risk
Category 1 institutions would range from 8 to 21 basis points.  A final rule related to this proposal is
expected to be issued during the first quarter of 2009.  The Company cannot provide any assurance as
to the amount of any proposed increase in its deposit insurance premium rate,
should such an increase occur, as such changes are dependent upon a variety of
factors, some of which are beyond the Companys control.  Under the FDIA, the FDIC may terminate
deposit insurance upon a finding that the institution has engaged in unsafe and
unsound practices, is in an unsafe or uninsured condition to continue
operations, or has violated any applicable law, regulation, rule or order
or condition imposed by the FDIC.  On November 21, 2008, the Board of
Directors of the FDIC adopted a final rule relating to the Temporary
Liquidity Guarantee Program (TLG Program). 
Under the TLG Program, the FDIC will (i) guarantee, through the
earlier of maturity or June 30, 2012, certain newly issued senior
unsecured debt issued by participating institutions on or after October 14,
2008, and before June 30, 2009 and (ii) provide full FDIC deposit
insurance coverage for non-interest bearing transaction deposit accounts.  Negotiable Order of Withdrawal (NOW)
accounts paying less than 0.5% interest per annum and Interest on Lawyers Trust
Accounts held at participating FDIC-insured institutions through December 31,
2009.  Coverage under the TLG Program was
available for the first 30 days without charge. 
The fee assessment for coverage of senior unsecured debt ranges from 50
basis points to 100 basis points per annum, depending on the initial maturity
of the debt.  The fee assessment for
deposit insurance coverage is 10 basis points per quarter on amounts in covered
accounts exceeding $250,000.  The Company
elected to  13


Table
of Contents  participate in the broader FDIC insurance
program, but opted out of the debt guarantee program.  On February 2, 2009, the FDIC adopted a
final rule clarifying the processing of deposit accounts in the event of
an insured depository institution failure, which rule made it clear that
Repo sweep account customers are protected because they will receive ownership
of the underlying assets in the event of a bank failure.  CAPITAL ADEQUACY.  The Company and its bank subsidiaries are
currently required to meet certain minimum regulatory capital guidelines
utilizing total capital-to-risk-weighted assets and Tier 1 Capital elements.  At December 31, 2008, the Companys
ratio of total capital-to-risk-weighted assets was 16.35%.  The guidelines make regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations, consider off-balance sheet exposure in assessing capital
adequacy, and encourage the holding of liquid, low-risk assets.  At least one-half of the minimum total
capital must be comprised of Core Capital or Tier 1 Capital elements.  Tier 1 Capital of the Company is comprised of
common shareholders equity and permissible amounts related to the trust
preferred securities.  The deductible
core deposit intangibles and goodwill of $309,917,000 booked in connection with
all the financial institution acquisitions of the Company after February 1992
are deducted from the sum of core capital elements when determining the capital
ratios of the Company.  In addition, the FRB has established minimum
leverage ratio guidelines for bank holding companies.  These guidelines provide for a minimum
leverage ratio of Tier 1 capital to adjusted average quarterly assets
(leverage ratio) equal to three percent for bank holding companies that meet
certain specified criteria, including having the highest regulatory
rating.  All other bank holding companies
will generally be required to maintain a leverage ratio of at least four to
five percent. The Companys leverage ratio at December 31, 2008 was
9.97%.  The guidelines also provide that
bank holding companies experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible
assets.  Furthermore, the guidelines
indicate that the FRB will continue to consider a tangible tier 1 leverage
ratio (deducting all intangibles) in evaluating proposals for expansion or new
activity.  The FRB has not advised the
Company of any specific minimum leverage ratio or tangible Tier 1 leverage
ratio applicable to it.  For a bank
holding company to be considered well-capitalized under the regulatory
framework for prompt corrective action, its leverage ratio must be at least
5.0%.  In March 2005, the Federal Reserve Board
issued a final rule that would continue to allow the inclusion of trust
preferred securities in Tier 1 capital, but with stricter quantitative
limits.  Under the final rule, after a
five-year transition period ending March 31, 2009, the aggregate amount of
trust preferred securities and certain other capital elements would be limited
to 25% of Tier 1 capital elements, net of goodwill, less any associated
deferred tax liability.  The amount of
trust preferred securities and certain other elements in excess of the limit
could be included in Supplementary Capital or Tier 2 capital, subject to
restrictions.  Tier 2 capital includes
among other things, perpetual preferred stock, qualifying mandatory convertible
debt securities, qualifying subordinated debt, and allowances for probable loan
and lease losses, subject to limitations. 
Bank holding companies with significant international operations will be
expected to limit trust preferred securities to 15% of Tier 1 capital elements,
net of goodwill; however, they may include qualifying mandatory convertible
preferred securities up to the 25% limit. 
After the transition period, the Company believes that substantially all
of the trust preferred securities issued by the Company will qualify as Tier 1
capital.  Each of the Companys bank subsidiaries is
subject to similar capital requirements adopted by the FDIC.  Each of the Companys bank subsidiaries had a
leverage ratio in excess of five percent as of December 31, 2008.  As of that date, the federal banking agencies
had not advised any of the bank subsidiaries of any specific minimum leverage
ratio applicable to it.  Effective December 19, 1992, the federal
bank regulatory agencies adopted regulations which mandate a five-tier scheme
of capital requirements and corresponding supervisory actions to implement the
prompt corrective action provisions of FDICIA. 
The regulations include requirements for the capital categories that
will serve as benchmarks for mandatory supervisory actions.  Under the regulations, the highest of the five
categories would be  14


Table
of Contents  a well capitalized institution with a total
risk-based capital ratio of 10%, a Tier 1 risk-based capital ratio of 6% and a
Tier 1 leverage ratio of 5%.  An
institution would be prohibited from declaring any dividends, making any other
capital distribution or paying a management fee if the capital ratios drop
below the levels for an adequately capitalized institution, which are 8%, 4%
and 4%, respectively.  The corresponding
provisions of FDICIA mandate corrective actions are taken if a bank is
undercapitalized.  Based on the Companys
and each of the bank subsidiaries capital ratios as of December 31, 2008,
the Company and each of the bank subsidiaries were classified as well capitalized
under the applicable regulations.  The risk-based standards that apply to bank
holding companies and banks incorporate market and interest rate risk
components.  Applicable banking
institutions are required to adjust their risk-based capital ratio to reflect
market risk.  Under the market risk
capital guidelines, capital is allocated to support the amount of market risk
related to a financial institutions ongoing trading activities.  Financial institutions are allowed to issue
qualifying unsecured subordinated debt (Tier 3 capital) to meet a part of their
market risks.  The Company does not have
any Tier 3 capital and did not need Tier 3 capital to offset market risks.  The federal regulatory authorities
risk-based capital guidelines are based upon the 1988 capital accord of the
Basel Committee on Banking Supervision (the BIS).  The BIS is a committee of central banks and
bank supervisors/regulators from the major industrialized countries that
develops broad policy guidelines for use by each countrys supervisors in
determining the supervisory policies they apply.  In June 2004, the BIS released a new
capital accord to replace the 1988 capital accord with an update in November 2005
(BIS II).  BIS II would set capital
requirements for operational risk, and refine the existing capital requirements
for credit risk and market risk exposures. 
The United States federal banking agencies are developing proposed
revisions to their existing capital adequacy regulations and standards based on
BIS II.  A definitive final rule for
implementing BIS II in the United States that would apply only to
internationally active banking organizations, or core banks  defined as
those with consolidated total assets of $250 billion or more or consolidated
on-balance sheet foreign exposures of $10 billion or more became effective as
of April 1, 2008.  Other U.S.
banking organizations may elect to adopt the requirements of this rule (if
they meet applicable qualification requirements), but they will not be required
to apply them.  The rule also allows
a banking organizations primary federal supervisor to determine that the
application of the rule would not be appropriate in light of the banks
asset size, level of complexity, risk profile, or scope of operations.  The Company is not required to comply with
Basel II at this time.  In July 2008, the banking agencies
issued a proposed rule that would give banking organizations that are not
required to comply with Basel II the option to implement a new risk-based
capital framework.  This framework would
adopt the standardized approach of Basel II for credit risk, the basic
indicator approach of Basel II for operational risk, and related disclosure
requirements.  While this proposed rule generally
parallels the relevant approaches under Basel II, it diverges where United
States markets have unique characteristics and risk profiles, most notably with
respect to risk weighting residential mortgage exposures.  Comments on the proposed rule were due
to the agencies by October 27, 2008, but a definitive final rule has
not been issued.  The proposed rule, if
adopted, would replace the agencies earlier proposed amendments to existing
risk-based capital guidelines to make them more risk sensitive (formerly
referred to as the Basel I-A approach).  STATE ENFORCEMENT POWERS.  The Banking Commissioner of Texas may
determine to close a Texas state bank when he finds that the interests of
depositors and creditors of a state bank are jeopardized through its insolvency
or imminent insolvency and that it is in the best interest of such depositors
and creditors that the bank be closed. 
The Texas DOB also has broad enforcement powers over the bank
subsidiaries, including the power to impose orders, remove officers and
directors, impose fines and appoint supervisors and conservators.  DEPOSITOR PREFERENCE.  Because the Company is a legal entity
separate and distinct from its bank subsidiaries, its right to participate in
the distribution of assets of any subsidiary upon the subsidiarys liquidation
or reorganization will be subject to the prior claims of the subsidiarys
creditors.  In the event of a liquidation
or other resolution of a subsidiary bank, the claims of depositors and other
general or subordinated creditors of the  15


Table
of Contents  bank are entitled to a priority of payment
over the claims of holders of any obligation of the institution to its
shareholders, including any depository institution holding company (such as the
Company) or any shareholder or creditor thereof.  CRA. 
Under the CRA, the FDIC is required to assess the record of each bank
subsidiary to determine if the bank meets the credit needs of its entire
community, including low and moderate-income neighborhoods served by the
institution, and to take that record into account in its evaluation of any
application made by the bank for, among other things, approval of the
acquisition or establishment of a branch or other deposit facility, an office
relocation, a merger, or the acquisition of shares of capital stock of another
financial institution.  The FDIC prepares
a written evaluation of an institutions record of meeting the credit needs of
its entire community and assigns a rating. 
The FIRREA requires federal banking agencies to make public a rating of
a banks performance under the CRA.  Each
bank subsidiary received a satisfactory CRA rating in its most recently
completed examination.  The Companys bank
subsidiaries conduct an award-winning financial literacy program in their
communities as part of their community outreach.  Further, there are fair lending laws,
including the Equal Credit Opportunity Act and the Fair Housing Act, which
prohibit discrimination in connection with lending decisions.  The board periodically conducts fair lending
evaluations of banks and IBC is currently undergoing such an evaluation.  CONSUMER LAWS.  In addition to the laws and regulations
discussed herein, the Bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with
banks.  While the list set forth herein
is not exhaustive, these laws and regulations include the Truth in Lending Act,
the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited
Funds Availability Act, the Real Estate Settlement Procedures Act and the Fair
Credit Reporting Act, among others.  In
the residential real estate lending area, each subsidiary bank is required to
comply with the Home Ownership Equity and Protection Act, which is implemented
by Regulation Z, as well as certain state laws. 
These laws and regulations mandate certain disclosure requirements and
regulate the manner in which financial institutions must deal with customers
when taking deposits or making loans to such customers.  The Bank must comply with the applicable
provisions of these consumer protection laws and regulations as part of their
ongoing customer relations.  AFFILIATE TRANSACTIONS.  The Company, IBC and the other bank
subsidiaries of the Company are affiliates within the meaning of Section 23A
of the Federal Reserve Act which sets forth certain restrictions on loans and
extensions of credit between a bank subsidiary and affiliates, on investments in
an affiliates stock or other securities, and on acceptance of such stock or
other securities as collateral for loans. 
Such restrictions prevent a bank holding company from borrowing from any
of its bank subsidiaries unless the loans are secured by specific
obligations.  Further, such secured loans
and investments by a bank subsidiary are limited in amount, as to a bank
holding company or any other affiliate, to 10% of such bank subsidiarys
capital and surplus and, as to the bank holding company and its affiliates, to
an aggregate of 20% of such bank subsidiarys capital and surplus.  Certain restrictions do not apply to 80% or
more owned sister banks of bank holding companies.  Each bank subsidiary of the Company is
wholly-owned by the Company. Section 23B of the Federal Reserve Act
requires that the terms of affiliate transactions be comparable to terms of
similar non-affiliate transactions.  On October 31,
2002, the Board of Governors of the Federal Reserve System adopted a final rule (Regulation
W) to implement comprehensively sections 23A and 23B of the Federal Reserve Act
and provides several new exemptions consistent with the purposes of the
statute.  The final rule combines
statutory restrictions on transactions between a member bank and its affiliates
with numerous Board interpretations and exemptions in an effort to simplify
compliance with sections 23A and 23B.  INSIDER LOANS.  The restrictions on loans to directors,
executive officers, principal shareholders and their related interests (collectively
referred to herein as insiders) contained in the Federal Reserve Act and
Regulation O apply to all insured institutions and their subsidiaries and
holding companies.  These restrictions
include limits on loans to one borrower, prohibition on preferential terms, and
other conditions that must be met before such a loan can be made.  There is also an aggregate limitation on all
loans to insiders and their related interests. 
These loans cannot exceed the institutions total unimpaired capital and
surplus, and the FDIC may  16


Table
of Contents  determine that a lesser amount is
appropriate.  Insiders are subject to
enforcement actions for knowingly accepting loans in violation of applicable
restrictions.  LENDING RESTRICTIONS.  The operations of the Banks are also subject
to lending limit restrictions pertaining to the extension of credit and making
of loans to one borrower.  Further, under
the BHCA and the regulations of the FRB thereunder, the Company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements with
respect to any extension of credit or provision of property or services;
however, the FRB adopted a rule relaxing tying restrictions by permitting
a bank holding company to offer a discount on products or services if a
customer obtains other products or services from such company.  In February 2005, the banking agencies
issued best practices guidelines on overdraft protection programs which state
that overdraft protection programs are an extension of credit, but are not
subject to Truth-in-Lending disclosure requirements.  DIVIDENDS. 
The ability of the Company to pay dividends is largely dependent on the
amount of cash derived from dividends declared by its bank subsidiaries.  The payment of dividends by any bank or bank
holding company is affected by the requirement to maintain adequate capital as
discussed above.  The ability of the
Banks, as Texas banking associations, to pay dividends is restricted under
Texas law.  A Texas bank generally may
not pay a dividend reducing its capital and surplus without the prior approval
of the Texas Banking Commissioner.  The
FDIC has the right to prohibit the payment of dividends by a bank where the
payment is deemed to be an unsafe and unsound banking practice.  Additionally, as a result of the Companys
participation in the CPP, the Company is restricted in the payment of dividends
and may not without the Treasury Departments consent, declare or pay any
dividend on the Company Common Stock other than a regular semi-annual cash
dividend of not more than $.33 per share, as adjusted for any stock dividend or
stock split.  The restriction ceases to
exist only on the earlier to occur of December 23, 2011 or the date on
which the Company has redeemed all of the Preferred Stock issued as part of the
CPP program or the date on which the Treasury has transferred all of the
Preferred Stock to third parties not affiliated with the Treasury.  At December 31, 2008, there was an
aggregate of approximately $237,000,000 available for the payment of dividends
to the Company by IBC, Commerce Bank, IBC-Zapata and IBC-Brownsville under the
applicable restrictions, assuming that each of such banks continues to be
classified as well capitalized.  Further, the Company could expend the entire
$237,000,000 and continue to be classified as well capitalized.  Note 20 of Notes to Consolidated Financial
Statements of the Company in the 2008 Annual Report is incorporated herein by
reference.  POWERS. 
As a result of FDICIA, the authority of the FDIC over state-chartered
banks was expanded.  FDICIA limits
state-chartered banks to only those principal activities permissible for
national banks, except for other activities specifically approved by the
FDIC.  The new Texas Banking Act includes
a parity provision which establishes procedures for state banks to notify the
Banking Commissioner if the bank intends to conduct any activity permitted for
a national bank that is otherwise denied to a state bank.  The Banking Commissioner has thirty (30) days
to prohibit the activity.  Also, the
Texas Finance Code includes, a super parity provision with procedures for state
banks to notify the Banking Commissioner if the bank intends to conduct any
activity permitted for any depository institution in the United States.  The Banking Commissioner has thirty (30) days
to prohibit the activity.  FINANCIAL SUBSIDIARIES.  Under GLBA, a national bank may establish a financial
subsidiary and engage, subject to limitations on investment, in activities that
are financial in nature, other than insurance underwriting as principal,
insurance company portfolio investment, real estate development, real estate
investment and annuity issuance.  To do
so, a bank must be well capitalized, well managed and have a CRA rating of
satisfactory or better.  Subsidiary banks
of a financial holding company or national banks with financial subsidiaries
must remain well capitalized and well managed in order to continue to engage in
activities that are financial in nature without regulatory actions or
restrictions, which could include divestiture of the financial subsidiary or
subsidiaries.  In addition, a bank may
not acquire a company that is engaged in activities that are financial in
nature unless the bank and each affiliated bank has a CRA rating of
satisfactory or better.  17


Table
of Contents  The powers of state-chartered banks that are
not members of the Federal Reserve System were not directly addressed by
GLBA.  However, Texas state nonmember
banks should indirectly benefit from the enhanced powers made available to
financial subsidiaries of national banks by GLBA through the Texas parity
statute, which authorizes state-chartered banks to engage in powers available
for national banks, subject to certain state and federal law restrictions.  INSTABILITY OF REGULATORY STRUCTURE.  New legislation could be adopted which would
change banking statutes and the operating environment of the Company and the
bank subsidiaries in substantial and unpredictable ways.  Such changes could have a material effect on
the business of the Company.  The Company
cannot predict whether any such legislation will be adopted and the Company
cannot determine the ultimate effect that potential legislation, if enacted, or
implementing regulations with respect thereto, would have upon the financial
condition or results of operations of the Company or its subsidiaries.  Item 1A.  Risk Factors  Risk Factors  You should carefully consider the risks and
uncertainties the Company describes below and the other information in this
Annual Report or incorporated by reference before deciding to invest in, or
retain, shares of the Companys common stock. 
These are not the only risks and uncertainties that the Company
faces.  Additional risks and
uncertainties that the Company does not know about or that the Company
currently believes are immaterial, or that the Company has not predicted, may
also harm the Companys business operations or adversely affect the
Company.  If any of these risks or
uncertainties actually occurs, the Companys business, financial condition,
operating results or liquidity could be materially harmed.  Risks Related to the Companys Business  Losses from loan
defaults may exceed the allowance the Company establishes for that purpose,
which could have an adverse effect on the Companys business.  Losses from loan defaults may exceed the
allowance the Company establishes for that purpose.  Like all financial institutions, the Company
maintains an allowance for probable loan losses to provide for losses inherent
in the loan portfolio.  The allowance for
probable loan losses reflects managements best estimate of probable loan
losses in the loan portfolio at the relevant balance sheet date.  This evaluation is primarily based upon a
review of the Company and the Companys historical loan loss experience, known
risks contained in the loan portfolio, composition and growth of the loan
portfolio, and economic factors.  The
determination of an appropriate level of loan loss allowance is an inherently
difficult process and is based on numerous assumptions.  As a result, the Companys allowance for loan
losses may not be adequate to cover actual losses, and future provisions for
loan losses may adversely affect the Companys earnings.  The Company believes its allowance for probable
loan losses is adequate at December 31, 2008.  If real estate
values in the Companys target markets decline, the loan portfolio would be
impaired.  A significant portion of the Companys loan
portfolio consists of loans secured by real estate located in the markets
served by the Company.  Real estate
values and real estate markets are generally affected by, among other things,
changes in national, regional, or local economic conditions;  fluctuations in interest rates and the
availability of loans to potential purchases, changes in the tax laws and other
governmental statutes, regulations, and policies;  and acts of nature.  If real estate prices decline significantly
in any of these markets, the value of the real estate collateral securing the
Companys loans would be reduced.  Such a
reduction in the value of the Companys collateral could increase the number of
impaired loans and adversely affect the Companys financial performance.  18


Table
of Contents  The Companys
subsidiary banks face strong competition in their market areas, which may limit
their asset growth and profitability.  The Companys primary market areas are South,
Central and Southeast Texas, including Austin and Houston, and the State of
Oklahoma.  The banking business in these
areas is extremely competitive, and the level of competition facing the Company
may increase further, which may limit the growth and profitability of the Company.  Each of the Companys subsidiary banks
experience competition in both lending and attracting funds from other banks,
savings institutions, credit unions and non-bank financial institutions located
within its market area, many of which are significantly larger
institutions.  Non-bank competitors
competing for deposits and deposit type accounts include mortgage bankers and
brokers, finance companies, credit unions, securities firms, money market
funds, life insurance companies, and mutual funds.  For loans, the Company encounters competition
from other banks, savings associations, finance companies, mortgage bankers and
brokers, insurance companies, small loan and credit card companies, credit
unions, pension trusts, and securities firms.  The Company relies,
in part, on external financing to fund the Companys operations and the
unavailability of such funds in the future could adversely impact the Companys
growth strategy and prospects.  The Company relies on deposits, repurchase
agreements, advances from the Federal Home Loan Bank (FHLB) of Dallas and
other borrowings to fund its operations. 
The subsidiary banks have also historically relied on certificates of
deposit.  While the Company has reduced
its reliance on certificates of deposit and has been successful in promoting
its transaction and non-transaction deposit products (demand deposit accounts,
money market, savings and checking), jumbo deposits nevertheless constituted a
large portion of total deposits at December 31, 2008.  Jumbo deposits tend to be a more volatile
source of funding.  Although management
has historically been able to replace such deposits on maturity if desired, no
assurance can be given that the Company would be able to replace such funds at
any given point in time.  The Companys
business is subject to interest rate risk and variations in interest rates may
negatively affect the Companys financial performance.  The Company is unable to predict fluctuations
of market interest rates, which are affected by many factors, including:  ·Inflation; ·Recession; ·A rise in unemployment; ·Tightening of the money
supply; and ·Domestic and international
disorder and instability in domestic and foreign financial markets.  Changes in the interest rate environment may
reduce the Companys profits.  The
Company expects that the bank subsidiaries will continue to realize income from
the differential or spread between the interest earned on loans, securities
and other interest-earning assets, and the interest paid on deposits,
borrowings and other interest-bearing liabilities.  Net interest spreads are affected by the
difference between the maturities and repricing characteristics of
interest-earning assets and interest-bearing liabilities.  19


Table of Contents  The Company is
subject to extensive regulation which could adversely affect the Company
including changes in U.S.  Mexico trade and travel along the Texas border.  The Companys operations are subject to
extensive regulation by federal, state and local governmental authorities and
are subject to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of the Companys operations.  Because the Companys business is highly
regulated, the laws, rules and regulations applicable to the Company are
subject to regular modification and change. 
There can be no assurance that there will be no laws, rules or
regulations adopted in the future, which could make compliance more difficult
or expensive, or otherwise adversely affect the Companys business, financial
condition or prospects.  Additionally,
any reductions in border crossings and commerce resulting from the Homeland Security
Programs called US-VISIT, which is derived from Section 110 of the
Illegal Immigration Reform and Immigration Responsibility Act of 1996 could
affect the Company negatively, and any possible negative consequences from an
adverse immigration law could also have a negative affect on the Companys
operations.  The effects of the
proceedings pending with the Internal Revenue Service regarding the Companys
lease financing transactions could adversely affect the Company.  The Company was involved in lawsuits with the
IRS relating to two lease-financing transactions that the Company entered into
through two subsidiary partnerships.  In
2006, the trial court rendered a judgment against the Company on one of the
lawsuits, which judgment was affirmed by the appellate court in the third
quarter of 2007 and became non-appealable in the third quarter of 2007.  The other partnership tax case was stayed by
the same trial court pending the appeal. 
Following the resolution of the first case, the trial court reopened the
second case and set it for trial on September 2, 2008.  Subsequently, the Company settled the second
case.  Under the terms of the settlement,
the Company conceded the entire amount in dispute based upon the similarity of
the facts of the case to the first case and the likelihood of an unfavorable
outcome of the litigation based upon the Court rulings in the first case.  The Company has expensed approximately
$25,700,000 in connection with the lawsuits, which amount is the total of tax
adjustments due and the interest due on such adjustments for both
lawsuits.  Management continues to
evaluate the proceedings with the IRS on the Final Partnership Administrative
Adjustments.  The Companys
potential future acquisitions could be adversely affected by a number of
factors.  Acquisitions of other financial institutions
have been a key element of the Companys growth.  There are a number of factors that may impact
the ability of the Company to continue to grow through acquisition transactions,
including strong competition from other financial institutions who are active
or potential acquirors of financial institutions in the existing or future
markets of the Company.  The Company relies
heavily on its chief executive officer.  The Company has experienced substantial
growth in assets and deposits during the past, particularly since Dennis E.
Nixon became our President in 1979. 
Although Mr. Nixon is the chief executive officer and one of the
substantial shareholders, the Company does not have an employment agreement
with Mr. Nixon and the loss of his services could have a material adverse
effect on the Companys business and prospects.  System failure or breaches of our network
security could subject us to increased operating costs as well as litigation
and other liabilities.  The computer systems and network
infrastructure our Company uses could be vulnerable to unforeseen problems. Our
operations are dependent upon our ability to protect our computer equipment
against damage from fire, power loss, telecommunications failure or a similar
catastrophic event. Any damage or failure that causes an interruption in our
operations could have an adverse effect on our customers. In addition, we must
be able to protect the computer systems and network infrastructure utilitized
by us against physical damage, security breaches and service disruption caused
by the Internet or other users. Such computer break-ins and other disruptions
would jeopardize the security of information stored in and transmitted through
our computer systems and network infrastructure, which may result in
significant liability to us.  Risks Related to the Companys Industry  Changes in economic
and political conditions could adversely affect the Companys earnings, as our
borrowers ability to repay loans and the value of the collateral securing our
loans decline.  The Companys success depends, to a certain
extent, upon economic and political conditions, local, national and
international with respect to Mexico, as well as governmental monetary
policies.  Conditions such as inflation,
recession, unemployment, changes in interest rates, changes in capital markets,
money supply, political issues, legislative and regulatory changes and other
factors beyond the Companys control may adversely affect the Companys asset
quality, deposit levels and loan demand and, therefore, the Companys
earnings.  The Company is particularly
affected by conditions in its primary market areas of South, Central and
Southeast Texas, including  20


Table
of Contents  Austin and Houston, and the State of
Oklahoma.  The Company depends
on the accuracy and completeness of information about customers and counterparties.  In deciding whether to extend credit or enter
into other transactions, the Company may rely on information furnished by or on
behalf of customers and counterparties, including financial statements, credit
reports and other financial information. 
The Company may also rely on representations of those customers,
counterparties or other third parties, such as independent auditors, as to the
accuracy and completeness of that information. 
Reliance on inaccurate or misleading financial statements, credit reports
or other financial information could have a material adverse impact on the
Companys business and, in turn, the Companys financial condition and results
of operations.  If the Company does
not adjust to rapid changes in the financial services industry, its financial
performance may suffer.  The Companys ability to deliver strong
financial performance and returns on investment to shareholders will depend in
part on its ability to expand the scope of available financial services to meet
the needs and demands of its customers and its ability to stay abreast of
technological innovations and evaluate those technologies that will enable it
to compete on a cost-effective basis.  In addition to the challenge of competing
against other banks in attracting and retaining customers for traditional
banking services, the Companys competitors also include securities dealers,
brokers, mortgage bankers, investment advisors, specialty finance and insurance
companies who seek to offer one-stop financial services that may include
services that banks have not been able or allowed to offer to their customers
in the past.  The increasingly
competitive environment is primarily a result of changes in regulation, changes
in technology and product delivery systems and the accelerating pace of
consolidation among financial service providers.  Such changes in the financial industry may
result in the loss of fee income, as well as the loss of customer deposits and
the related income generated from those deposits.  The loss of these revenue streams and the
lower cost deposits as a source of funds could have a material adverse effect
on the Companys financial condition and results of operations.  Further, the costs of new technology,
including personnel, can be high in both absolute and relative terms.  There can be no assurance, given the fast
pace of change and innovation, that the Companys technology, either purchased
or developed internally, will meet or continue to meet the needs of the Company
and the needs of our customers.  Risks Related to the Companys Stock  The Companys stock
price may be volatile.  Several factors could cause the Companys
stock price to fluctuate substantially in the future.  These factors include:  ·Actual or anticipated
variations in earnings; ·The Companys announcements
of developments related to its businesses; ·Operating and stock
performance of other companies deemed to be peers; ·New technology used or
services offered by traditional and non-traditional competitors; ·News reports of trends,
concerns and other issues related to the financial services industry; and ·Changes in the Companys
ability to pay dividends.  The Companys stock price may fluctuate
significantly in the future, and these fluctuations may be unrelated to  21


Table
of Contents  the Companys performance.  General market price declines or market volatility
in the future could adversely affect the price of its common stock, and the
current market price may not be indicative of future market prices.  The holders of our junior subordinated
debentures have rights that are senior to those of our shareholders.  As of December 31, 2008, we had $201 million
in junior subordinated debentures outstanding that were issued to our statutory
trusts. The trusts purchased the junior subordinated debentures from us using
the proceeds from the sale of trust preferred securities to third party
investors. Payments of the principal and interest on the trust preferred
securities are conditionally guaranteed by us to the extent not paid or made by
each trust, provided the trust has funds available for such obligations.  The junior subordinated debentures are senior
to our shares of common stock and the Senior Preferred Stock. As a result, we
must make payments on the junior subordinated debentures (and the related trust
preferred securities) before any dividends can be paid on our common stock or
preferred stock and, in the event of our bankruptcy, dissolution or
liquidation, the holders of the debentures must be satisfied before any
distributions can be made to our shareholders. If certain conditions are met,
we have the right to defer interest payments on the junior subordinated
debentures (and the related trust preferred securities) at any time or from
time to time for a period not to exceed 10 consecutive semi-annual periods on
one of the trusts and up to 20 consecutive quarters in a deferral period on the
other seven trusts, during which time no dividends may be paid to holders of
our common stock or preferred stock.  Risks Related to Participation in the CPP  We may be adversely affected as a result of
the CPP.  In connection with our sale of Senior
Preferred Stock to the Treasury Department under the CPP, the company also
issued to the Treasury Department a warrant to purchase 1,326,238 shares of our
common stock.  The terms of the transaction
with the Treasury will result in limitations on our ability to pay dividends
and repurchase our shares.  Until December 23,
2011 or until Treasury no longer holds any shares of the Series A
Preferred Stock, the Company will not be able to increase cash dividends above
current levels ($.33 per share of common stock on a semi-annual basis) nor
repurchase any of our shares without the Treasurys approval, with limited
exceptions, most significantly repurchases in connection with benefit
plans.  In addition, we will not be able
to pay any dividends at all on our common stock unless we are current on our
dividend payments on the Senior Preferred Stock.  These restrictions, as well as the dilutive
impact of the warrant, may have a negative effect on the market price of our
common stock.  Unless the Company is able to redeem the
Senior Preferred Stock prior to February 15, 2014, the cost of this
capital will increase substantially on that date, from 5.00% on the liquidation
preference of $1,000 per share of Senior Preferred Stock (approximately
$10,800,000 million annually) to 9.00% on the liquidation preference of $1,000
per share of Senior Preferred Stock (approximately $19,440,000 million
annually).  Depending on our financial
condition at the time, this increase in dividends on the Series A Preferred
Stock could have a negative effect on our liquidity.  The programs established or to be established
under the EESA and Capital Purchase Program may have adverse effects upon the
Company.  The Company may face increased
regulation of the financial services industry. 
Compliance with such regulation may increase the Companys costs and
limit its ability to pursue business opportunities. The affects of such
recently enacted legislation and regulatory programs on the Company cannot
reliably be determined at this time.  You may not receive
dividends on the common stock.  Holders of our common stock are entitled to
receive dividends only when, as and if declared by our Board of Directors.  Although we have historically declared cash
dividends on our common stock, we are not required to do so and our Board of
Directors may reduce or eliminate our common stock dividend in the future.  Further, the terms of the Senior Preferred
Stock limit our payment of dividends on common stock, as described above.  This could adversely affect the market price
of our common stock.  We may experience
increases in the cost of compensation programs.  In addition, pursuant to the Securities
Purchase Agreement we adopted Treasurys standards for executive compensation
for the period during which the Treasury holds the equity issued pursuant to
the Securities Purchase Agreement, including the common stock that may be
issued pursuant to the warrant.  These
standards include an agreement not to deduct for tax purposes executive compensation
in excess of $500,000 for each applicable senior executive.  This change to the deductibility limit on
executive compensation will likely increase the overall cost of our
compensation programs in future periods if such compensation exceeds the deductibility
limit.  We may lose members of our management team
due to compensation restrictions.  The Companys ability to retain key officers
and employees may be negatively impacted by recent legislation and regulation
affecting the financial services industry. 
On February 17, 2009, the American Recovery and Reinvestment Act of
2009 (the ARRA) was signed into law. 
While the U.S. Treasury must promulgate regulations to implement the
restrictions and standards set forth in the new law, the ARRA, among other
things, significantly expands the executive compensation restrictions
previously imposed by the Emergency Economic Stabilization Act of 2008.  Such restrictions apply to any entity that
has received or will receive funds under the TARP Capital Purchase Program, and
shall generally continue to apply for as long as any securities issued under
TARP, including preferred stock issued under the Capital Purchase Program,
remain outstanding.  These ARRA
restrictions shall not apply to any TARP recipient during such time when the
federal government (i) only holds any warrants to purchase common stock of
such recipient or (ii) does not hold any preferred stock or warrants to
purchase common stock of such recipient. 
As a result of our participation in the TARP Capital Purchase Program,
the restrictions and standards set forth in the ARRA shall be applicable to the
Company, subject to regulations promulgated by the U.S. Treasury.  Such restrictions and standards may further
impact managements ability to retain key officers and employees as well as the
Companys ability to compete with financial institutions that are not subject
to the same limitations as the Company under the ARRA.  Item 1B.  Unresolved Staff
Comments  N/A  Item 2.  Properties  The principal offices of the Company and IBC
are located at 1200 San Bernardo Avenue, Laredo, Texas and 2418 Jacaman Road,
Laredo, Texas in buildings owned and completely occupied by the Company and IBC
and containing approximately 147,000 square feet.  The bank subsidiaries of IBC have 265 main
banking and branch facilities.  All the
facilities are customary to the banking industry.  The bank subsidiaries own most of their
banking  22


Table
of Contents  facilities and the remainder are leased.  The facilities are located in the regions of
Laredo, San Antonio, Houston, Zapata, Eagle Pass, the Rio Grande Valley of
Texas, the Coastal Bend area of Texas, and throughout the State of Oklahoma.  As Texas state-chartered banks, no bank
subsidiary of the Company may, without the prior written consent of the Banking
Commissioner, invest an amount in excess of its Tier 1 capital in bank
facilities, furniture, fixtures and equipment. 
None of the Companys bank subsidiaries exceeds such limitation.  Item 3.  Legal Proceedings  The Company and its bank subsidiaries are
involved in various legal proceedings that are in various stages of
litigation.  Some of these actions allege
lender liability claims on a variety of theories and claim substantial actual
and punitive damages.  The Company and
its subsidiaries have determined, based on discussions with their counsel that
any material loss in such actions, individually or in the aggregate, is remote
or the damages sought, even if fully recovered, would not be considered
material to the consolidated financial position or results of operations of the
Company and its subsidiaries.  However,
many of these matters are in various stages of proceedings and further
developments could cause management to revise its assessment of these
matters.  Further information regarding
legal proceedings has been provided in Note 17 of the Notes to consolidated
financial statements located on page 66 of the 2008 Annual Report to
Shareholders which is incorporated herein by reference.  Item 4.  Submission of Matters
to a Vote of Security Holders  The Special
Meeting of Shareholders of the Company was held on December 19, 2008 for
the consideration of the following items, each of which was approved by the
number of votes set forth below:  Votes
  
  VotesFor
  
  Against1.
  To act on a proposed amendment to the
  Companys Articles of Incorporation to authorize issuance of up to 25,000,000
  shares of preferred stock.
  
  41,669,485
  
  10,109,698Abstentions :
  7,913
  Broker Non-Votes:
  13,322,932Votes
  
  VotesFor
  
  Against2.
  To grant management the authority to
  adjourn, postpone or continue the special meeting.
  
  43,037,171
  
  8,677,288Abstentions :
  72,636
  Broker Non-Votes:
  13,322,933  23


Table of Contents  Item 4A.  Executive Officers of
the Registrant  Certain information is set forth in the
following table concerning the executive officers of the Company, each of whom
has been elected to serve until the 2009 Annual Meeting of Shareholders and
until his successor is duly elected and qualified.  Name
  
  Age
  
  Position of Office
  
  Officer of
  the
  Company
  SinceDennis E. Nixon
  
  66
  
  Chairman of the Board of the Company since
  1992 and President of the Company since 1979, Chief Executive Officer and
  Director of IBC
  
  1979R. David Guerra
  
  56
  
  Vice President of the Company since 1986
  and President of IBC McAllen Branch and Director of IBC
  
  1986Imelda Navarro
  
  51
  
  Treasurer of the Company since 1982 and
  Senior Executive Vice President of IBC and Director of IBC since 2002
  
  1982  There are no family relationships among any
of the named persons.  Each executive
officer has held the same position or another executive position with the
Company during the past five years.  PART II  Item 5.  Market for the
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities  The information set forth under the caption Preferred
Stock, Common Stock and Dividends, Stock Repurchase Program, and Equity
Compensation Plan Information located on pages 27 through 29 of
Registrants 2008 Annual Report is incorporated herein by reference.  Item 6.  Selected Financial Data  The information set forth under the caption
Selected Financial Data located on page 1 of Registrants 2008 Annual
Report is incorporated herein by reference.  Item 7.  Managements Discussion
and Analysis of Financial Condition and Results of Operations  The information set forth under the caption
Managements Discussion and Analysis of Financial Condition and Results of
Operations located on pages 2 through 30 of Registrants 2008 Annual
Report is incorporated herein by reference.  24


Table
of Contents  Item 7A.  Quantitative and
Qualitative Disclosures about Market Risk  The information set forth under the caption
Liquidity and Capital Resources located on pages 20 through 24 of
Registrants 2008 Annual Report is incorporated herein by reference.  Item 8.  Financial Statements
and Supplementary Data  The consolidated financial statements located
on pages 33 through 80 of Registrants 2008 Annual Report are incorporated
herein by reference.  The condensed quarterly income statements
located on pages 81 and 82 of Registrants 2008 Annual Report are
incorporated herein by reference.  Item 9.  Changes In and
Disagreements with Accountants on Accounting and Financial Disclosure  As noted in the form 8-K filed on August 30,
2007, the Board of Directors of International Bancshares Corporation issued
a press release stating that on August 24, 2007, the Audit Committee,
with the approval of the Board of Directors, dismissed KPMG LLP (KPMG) as the
principal accountants for the Company and engaged the accounting firm of
McGladrey & Pullen, LLP as the Companys independent
registered accounting firm.  The reports of KPMG on the Companys
financial statements as of and for the years ended December 31,
2006 and 2005 did not contain any adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principles, except as follows:  KPMGs report on the consolidated financial
statements of the Company as of and for the year ended December 31, 2006,
contained a separate paragraph stating that As discussed in Note 1 to the
Consolidated Financial Statements, effective January 1, 2006, the Company
adopted Statement of Financial Accounting Standards No. 123R, Share-based Payment,to account for
stock-based compensation.  KPMGs report on the consolidated financial
statements of the Company as of and for the year ended December 31, 2005,
contained a separate paragraph stating that As discussed in note 1 to the
consolidated financial statements, effective December 31, 2003, the
Company changed the method of accounting for its investment in
its statutory business trusts.  The audit reports of KPMG on managements assessment of the
effectiveness of internal control over financial reporting and the
effectiveness of internal control over financial reporting as of December 31,
2006 and 2005 did not contain any adverse opinion or disclaimer of opinion, and
were not qualified or modified as to uncertainty, audit scope or accounting
principles.  During the fiscal years ended December 31, 2006 and 2005, and the
subsequent interim period through August 24, 2007, there were no: (1) disagreements
with KPMG on any matter of accounting principles, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved to
the satisfaction of KPMG, would have caused KPMG to make reference in
connection with their opinion to the subject matter of the disagreement, or (2) reportable
events (as defined in paragraphs (A) through (D) of Regulation
S-K Item 304(a)(1)(v)).  The Company has agreed to indemnify and hold KPMG harmless against and
from any and all legal costs and expenses incurred by KPMG in successful
defense of any legal action or proceeding that arises as a result of KPMGs
consent to the inclusion (or incorporation by reference) of its audit report on
the Companys past financial statements included (or incorporated by reference)
in this Form 10-K.  25


Table of Contents  Item 9A.  Controls and
Procedures  As of the end of the period covered by this Annual Report on Form 10-K,
an evaluation was carried out by the management of International Bancshares
Corporation, (the Corporation) with the participation of its Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the Corporations
disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934). 
Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures were
effective as of the end of the period covered by this report. Additionally,
there were no changes in the Corporations internal control over financial
reporting that occurred during the quarter ended December 31, 2008 that
have materially affected, or are reasonably likely to materially affect, the
Corporations internal control over financial reporting.  Managements Report on Internal Control Over
Financial Reporting  The management of the Company is responsible for establishing and
maintaining adequate internal controls over financial reporting, as defined
under Rules 13a-15(f) and 15d-15(f ) of the Securities Exchange Act
of 1934.   The Companys internal control over financial reporting is
a process designed under the supervision of the Companys Chief Executive
Officer and Chief Financial Officer to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of the Companys
financial statements for external purposes in accordance with generally
accepted accounting principles.  As of December 31, 2008, management assessed the effectiveness of
the design and operation of the Companys internal controls over financial
reporting based on the criteria for effective internal control over financial
reporting established in Internal Control  Integrated Framework, issued
by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.
Based on the assessment, management determined that the Company maintained
effective internal control over financial reporting as of December 31,
2008, based on those criteria.  McGladrey & Pullen, LLP, the independent registered public
accounting firm that audited the 2008 consolidated financial statements of the
Company included in this Annual Report on Form 10-K, has audited the
effectiveness of the Companys internal control over financial reporting as of December 31,
2008. Their report, which expresses an unqualified opinion, on the
effectiveness of the Companys internal control over financial reporting as of December 31,
2008 is included in this Item under the heading Report of Independent
Registered Public Accounting Firm.  26


Table of Contents  Report
of Independent Registered Public Accounting Firm  The
Board of Directors and Shareholders International
Bancshares Corporation:  We
have audited International Bancshares Corporation and subsidiaries (the
Company) internal control over financial reporting as of December 31,
2008, based on criteria established in Internal
Control-Integrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission.  The Companys management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Report on Internal Control over
Financial Reporting.  Our responsibility
is to express an opinion on the Companys internal control over financial
reporting based on our audit.  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects.  Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control, based on the assessed risk.  Our audit also included performing such other
procedures as we considered necessary in the circumstances.  We believe that our audit provides a
reasonable basis for our opinion.  A
companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. 
A companys internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; 
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorization of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the
financial statements.  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.  In
our opinion, International Bancshares Corporation and subsidiaries maintained,
in all material respects, effective internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal Control-Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.  27


Table of Contents  We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial statements
of International Bancshares Corporation and subsidiaries as of and for the
years ended December 31, 2008, and our report dated February 24, 2009
expressed an unqualified opinion on those consolidated financial statements.  /s/
McGladrey & Pullen, LLP   Dallas,
TX February 24,
2009  28


Table of Contents  Item 9B.  Other Information  None.  PART III  Item 10.  Directors, Executive Officers
and Corporate Governance  There is incorporated in this Item 10 by reference (i) that
portion of the Companys definitive proxy statement relating to the Companys
2009 Annual Meeting of Shareholders entitled ELECTION OF DIRECTORS,
(ii) the portion entitled Audit Committee in the portion entitled
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS, (iii) the portion
entitled Code of Ethics, in the portion entitled CORPORATE GOVERNANCE,
(iv) that portion entitled SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE, (v) Item 4A of this report entitled Executive
Officers of the Registrant, and (vi) the portion entitled CORPORATE
GOVERNANCE.  Item 11.  Executive Compensation  There is incorporated in this Item 11 by reference (i) that
portion of the Companys definitive proxy statement relating to the Companys
2009 Annual Meeting of Shareholders entitled EXECUTIVE COMPENSATION, which
includes, without limitation, the compensation committee certification required
under the CPP, and (ii) that portion entitled Salary and Steering
Committee and Stock Option Plan Committee Interlocks and Insider Participation
in the portion entitled MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS.  Item 12.  Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters  There are incorporated in this Item 12 by reference those portions of
the Companys definitive proxy statement relating to the Companys 2009 Annual
Meeting of Shareholders entitled PRINCIPAL SHAREHOLDERS, SECURITY OWNERSHIP
OF MANAGEMENT, and Equity Compensation Plan Information in the portion
entitled EXECUTIVE COMPENSATION.  Item 13.  Certain Relationships and
Related Transactions, and Director Independence  There is incorporated in this Item 13 by reference (i) that
portion of the Companys definitive proxy statement relating to the Companys
2009 Annual Meeting of Shareholders entitled INTEREST OF MANAGEMENT IN CERTAIN
TRANSACTIONS and (ii) that portion entitled Director Independence in
the portion entitled CORPORATE GOVERNANCE.  Item 14.  Principal Accounting Fees and
Services  There is incorporated in this Item 14 by reference that portion of the
Companys definitive proxy statement relating to the Companys 2009 Annual
Meeting of Shareholders entitled PRINCIPAL ACCOUNTANT FEES AND SERVICES.  29


Table of Contents  PART IV  Item 15.  Exhibits, Financial Statement
Schedules  (a)
  Documents1.
  The consolidated financial statements of the Company and subsidiaries
  are incorporated into Item 8 of this report by reference from the 2008 Annual
  Report to Shareholders filed as an exhibit hereto and they include:Reports of Independent Registered Public Accounting FirmConsolidated:Statements of Condition as of December 31, 2008 and 2007Statements of Income for the years ended December 31, 2008, 2007
  and 2006Statements of Comprehensive Income for the years ended
  December 31, 2008, 2007 and 2006Statements of Shareholders Equity for the years ended
  December 31, 2008, 2007 and 2006Statements of Cash Flows for the years ended December 31, 2008,
  2007 and 2006Notes to Consolidated Financial Statements2.
  All Financial Statement Schedules are omitted as the required
  information is inapplicable or the information is presented in the
  consolidated financial statements or related notes.3.
  The following exhibits have previously been filed by the Registrant
  or are included in this report following the Index to Exhibits:(3)(a)*-Articles of Incorporation of International Bancshares
  Corporation incorporated herein as an exhibit by reference to the Current
  Report, Exhibit 3.1 therein, under the Securities Exchange Act of 1934,
  filed by Registrant on Form 8-K with the Securities and Exchange
  Commission on June 20, 1995, SEC File No. 09439.(3)(b)*-Articles of Amendment to the Articles of Incorporation of
  International Bancshares Corporation dated May 22, 1998 incorporated
  herein by reference to Exhibit 3(c) of the Registrants Annual
  Report on Form 10-K filed with the Securities and Exchange Commission on
  March 31, 1999, SEC file No. 09439.(3)(c)* -Articles of Amendment to the Articles of Incorporation of
  International Bancshares Corporation dated May 21, 2002 incorporated
  herein by reference to Exhibit 3(d) of the Registrants Annual
  Report on form 10-K filed with the Securities and Exchange Commission on
  March 12, 2004, SEC File No. 09439.(3)(d)* - Articles of Amendment to the Articles of Incorporation of
  International Bancshares Corporation filed with the Secretary of State of the
  State of Texas on May 17, 2005, incorporated herein as an exhibit by
  reference to the Current Report, Exhibit 3.1 therein, under the
  Securities Exchange Act of 1934, filed by Registrant on Form 8-K with
  the Securities and Exchange Commission on May 20, 2005, SEC File
  No. 09439.(3)(e)* - Restated By-Laws of International Bancshares Corporation
  incorporated herein by reference to Exhibit 3(b) of the
  Registrants Annual Report on Form 10-K filed with the Securities and
  Exchange Commission on March 12, 2004, SEC File No. 09439.  30


Table
of Contents  (3)(f)*  Articles of Amendment to the Articles of
  Incorporation of International Bancshares Corporation filed with the
  Secretary of State of the State of Texas on December 22, 2008,
  incorporated herein as an exhibit by reference to the Current Report,
  Exhibit 3.1 therein, filed by registrant on Form 8-K with the
  Commission on December 23, 2008, Commission File No. 09439.
  
  (3)(g)*  Certificate of Designations for 216,000
  shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, of
  International Bancshares Corporation, filed with the Secretary of State of
  the State of Texas on December 22, 2008, incorporated herein as an
  exhibit by reference to the Current Report, Exhibit 3.2 therein, filed
  by registrant on Form 8-K with the Commission on December 23, 2008,
  Commission File No. 09439.
  
  (3)(h)*  Amended and Restated By-Laws of
  International Bancshares Corporation, incorporated herein as an exhibit by
  reference to the Current Report, Exhibit 3.3 therein, filed by
  registrant on Form 8-K with the Commission on December 23, 2008,
  Commission File No. 09439.
  
  (4)(a)* Warrant, dated
  December 23, 2008, to purchase shares of common stock of International
  Bancshares Corporation, incorporated herein as an exhibit by reference to the
  Current Report, Exhibit 4.1 therein, filed by registrant on
  Form 8-K with the Commission on December 23, 2008, Commission File
  No. 09439.
  
  (4)(b)* Form of
  Certificate for the Fixed Rate Cumulative Perpetual Preferred Stock,
  Series A, par value $0.01 per share incorporated herein as an exhibit by
  reference to the Current Report, Exhibit 4.2 therein, filed by
  registrant on Form 8-K with the Commission on December 23, 2008,
  Commission File No. 09439.
  
  (10a)*+-Letter Agreement, dated as of December 23, 2008, and the
  Securities Purchase Agreement  Standard Terms, which the Letter Agreement
  incorporates by reference, between International Bancshares Corporation and
  the United States Department of the Treasury, incorporated herein as an
  exhibit by reference to the Current Report, Exhibit 10.1 therein, filed
  by registrant on Form 8-K with the Commission on December 23, 2008,
  Commission File No. 09439.
  
  (10b)*+-The 1996 International Bancshares Corporation Stock Option
  Plan incorporated herein by reference to Exhibit 99.1 to the Post
  Effective Amendment No. 1 to Form S-8 filed with the Securities and
  Exchange Commission on March 21, 1997, SEC File No. 333-11689.
  
  (10c)*+-2005 International Bancshares Corporation Stock Option Plan
  incorporated herein as an exhibit by reference to the Current Report,
  Exhibit 10.1 therein, under the Securities Exchange Act of 1934, filed
  by the Company on Form 8-K with the Securities and Exchange Commission
  on April 1, 2005, SEC File No. 09439.
  
  (10d)* - Agreement and Plan of Merger dated as of January 22,
  2004, among International Bancshares Corporation, LFC Acquisitions Corp. and
  Local Financial Corporation incorporated herein as an exhibit by reference to
  the Current Report, under the Securities Exchange Act of 1934, filed by
  Registrant on Form 8-K with the Securities and Exchange Commission on
  January 22, 2004, SEC File No. 09439.
  
  (10e)*+-International Bancshares Corporation 2006 Executive Incentive
  Compensation Plan, filed by Registrant on Form DEF 14A with the
  Securities and Exchange Commission on April 17, 2008, SEC File
  No. 09439.   31


Table of Contents  (13)**
  
  -International Bancshares Corporation 2008 Annual Report(21)
  
  -List of Subsidiaries of International Bancshares Corporation as of
  February 20, 2009(23)
  
  -Consents of Independent Registered Public Accounting Firms(31a)
  
  -Certification of Chief Executive Officer pursuant to
  Section 302 of the Sarbanes-Oxley Act of 2002(31b)
  
  -Certification of Chief Financial Officer pursuant to
  Section 302 of the Sarbanes-Oxley Act of 2002  (32a)++-Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  (32b)++-Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  
 *
  Previously filed+
  Executive Compensation Plans and Arrangements**
  Deemed filed only with respect to those portions thereof incorporated
  herein by reference++ This exhibit shall not be deemed filed for purposes of
  Section 18 of the Securities Exchange Act of 1934 or otherwise subject
  to liability of that section, and shall not be deemed to be incorporated by
  reference into any filing under the Securities Act of 1933 or the Securities
  Exchange Act of 1934.  32


Table of Contents  SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.  INTERNATIONAL BANCSHARES CORPORATION(Registrant)By:
  /s/ Dennis E. NixonDennis E. NixonPresidentDate:
  February 25, 2009  Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.  Signatures
  
  Title
  
  Date/s/ Dennis E. Nixon
  
  President and Director
  
  February 25, 2009Dennis E. Nixon
  
  (Principal
  Executive Officer)/s/ Imelda Navarro
  
  Treasurer
  
  February 25, 2009Imelda Navarro
  
  (Principal
  Financial Officer andPrincipal
  Accounting Officer)/s/ Irving Greenblum
  
  Director
  
  February 25, 2009Irving Greenblum/s/ R. David Guerra
  
  Director
  
  February 25, 2009R. David Guerra/s/ Daniel B. Hastings, Jr.
  
  Director
  
  February 25, 2009Daniel B. Hastings, Jr./s/ Richard E. Haynes
  
  Director
  
  February 25, 2009Richard E. Haynes/s/ Sioma Neiman
  
  Director
  
  February 25, 2009Sioma Neiman/s/ Peggy J. Newman
  
  Director
  
  February 25, 2009Peggy J.
  Newman/s/ Leonardo
  Salinas
  
  Director
  
  February 25, 2009Leonardo
  Salinas/s/ Antonio
  R. Sanchez, Jr.
  
  Director
  
  February 25, 2009Antonio R. Sanchez, Jr.  33


Table of Contents  Exhibit Index  Exhibit 13 -
  
  International Bancshares Corporation 2008 Annual Report,
  Exhibit 13, page 1Exhibit 21 -
  
  List of Subsidiaries of International Bancshares Corporation as of
  February 20, 2009Exhibit 23 -
  
  Consents of Independent Registered Public Accounting FirmsExhibit 31(a) -
  
  Certification of Chief Executive Officer pursuant to Section 302
  of the Sarbanes-Oxley Act of 2002Exhibit 31(b) -
  
  Certification of Chief Financial Officer pursuant to Section 302
  of the Sarbanes-Oxley Act of 2002Exhibit 32(a) -
  
  Certification of Chief Executive Officer pursuant to 18 U.S.C.
  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
  Act of 2002Exhibit 32(b) -
  
  Certification of Chief Financial Officer pursuant to 18 U.S.C.
  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
  Act of 2002  34