10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

OR

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

For the transition period from              to           

Commission file number  000-09439

INTERNATIONAL BANCSHARES CORPORATION

(Exact name of registrant as specified in its charter)

Texas	74-2157138
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

1200 San Bernardo Avenue, Laredo, Texas 78042-1359

(Address of principal executive offices)

(Zip Code)

(956) 722-7611

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

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 “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date

Class	Shares Issued and Outstanding
Common Stock, $1.00 par value	67,204,987 shares outstanding at November 1, 2013

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Condition (Unaudited)

(Dollars in Thousands, except per share amounts)

	September 30,			December 31,
	2013			2012
Assets
Cash and due from banks	$	302,514		$	283,100
Investment securities:
Held-to-maturity (Market value of $2,400 on September 30, 2013 and $2,400 on December 31, 2012)	2,400			2,400
Available-for-sale (Amortized cost of $5,470,103 on September 30, 2013 and $5,423,189 on December 31, 2012)	5,448,750			5,525,015
Total investment securities	5,451,150			5,527,415
Loans	5,052,161			4,775,004
Less allowance for probable loan losses	(67,829		)	(58,193		)
Net loans	4,984,332			4,716,811
Bank premises and equipment, net	492,375			481,287
Accrued interest receivable	28,983			31,034
Other investments	386,302			372,739
Identified intangible assets, net	4,368			7,819
Goodwill	282,532			282,532
Other assets	144,102			179,936
Total assets	$	12,076,658		$	11,882,673

1

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Condition, continued (Unaudited)

(Dollars in Thousands, except per share amounts)

	September 30,			December 31,
	2013			2012
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Demand — non-interest bearing	$	2,651,632		$	2,465,750
Savings and interest bearing demand	2,759,122			2,867,151
Time	2,702,052			2,954,312
Total deposits	8,112,806			8,287,213
Securities sold under repurchase agreements	1,001,137			1,129,679
Other borrowed funds	1,289,493			749,027
Junior subordinated deferrable interest debentures	190,726			190,726
Other liabilities	67,145			90,320
Total liabilities	10,661,307			10,446,965
Shareholders’ equity:
Common shares of $1.00 par value. Authorized 275,000,000 shares; issued 95,736,255 shares on September 30, 2013 and 95,724,517 shares on December 31, 2012	95,736			95,725
Surplus	163,744			163,287
Retained earnings	1,428,057			1,369,543
Accumulated other comprehensive (loss) income (including $(5,991) and $(6,811) of comprehensive loss related to other- than-temporary impairment for non-credit related issues)	(13,677		)	65,662
	1,673,860			1,694,217
Less cost of shares in treasury, 28,537,180 shares on September 30, 2013 and 28,537,180 December 31, 2012	(258,509		)	(258,509		)
Total shareholders’ equity	1,415,351			1,435,708
Total liabilities and shareholders’ equity	$	12,076,658		$	11,882,673

See accompanying notes to consolidated financial statements.

2

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(Dollars in Thousands, except per share data)

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2013		2012		2013		2012
Interest income:
Loans, including fees	$	66,482	$	67,254	$	194,633	$	202,990
Investment securities:
Taxable	21,821		23,388		60,941		71,128
Tax-exempt	3,318		2,972		9,439		8,682
Other interest income	29		161		71		440
Total interest income	91,650		93,775		265,084		283,240
Interest expense:
Savings deposits	885		1,074		2,852		4,176
Time deposits	3,644		5,910		12,067		18,650
Securities sold under repurchase agreements	7,162		8,811		22,042		29,380
Other borrowings	454		195		1,033		541
Junior subordinated interest deferrable debentures	862		1,430		3,191		5,378
Total interest expense	13,007		17,420		41,185		58,125
Net interest income	78,643		76,355		223,899		225,115
Provision for probable loan losses	5,800		5,349		17,561		16,741
Net interest income after provision for probable loan losses	72,843		71,006		206,338		208,374
Non-interest income:
Service charges on deposit accounts	25,026		23,748		72,363		69,601
Other service charges, commissions and fees
Banking	11,327		9,492		31,362		28,980
Non-banking	2,092		2,038		4,668		4,971
Investment securities transactions, net	—		32,935		9,601		35,527
Other investments, net	3,871		3,650		19,503		11,431
Other income	2,165		2,144		6,941		7,493
Total non-interest income	44,481		74,007		144,438		158,003

3

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income, continued (Unaudited)

(Dollars in Thousands, except per share data)

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2013		2012		2013		2012
Non-interest expense:
Employee compensation and benefits	$	30,627	$	30,541	$	91,602	$	90,152
Occupancy	7,604		8,032		22,596		24,873
Depreciation of bank premises and equipment	6,433		6,618		19,677		20,335
Professional fees	3,669		4,279		11,344		11,820
Deposit insurance assessments	1,683		2,289		5,061		5,346
Net expense, other real estate owned	1,360		3,065		4,724		5,631
Amortization of identified intangible assets	1,156		1,163		3,451		3,463
Advertising	1,795		1,713		5,664		5,510
Early termination fee — securities sold under repurchase agreements	—		31,550		12,303		31,550
Impairment charges (Total other-than-temporary impairment losses, $(13), net of $(560), $(402), net of $(641), $(27), net of $(1,273), and $947, net of $300, included in other comprehensive loss)	573		239		1,300		647
Other	15,327		16,955		47,080		47,351
Total non-interest expense	70,227		106,444		224,802		246,678
Income before income taxes	47,097		38,569		125,974		119,699
Provision for income taxes	15,271		12,691		38,566		37,584
Net income	31,826		25,878		87,408		82,115
Preferred stock dividends	—		3,845		—		10,543
Net income available to common shareholders	$	31,826	$	22,033	$	87,408	$	71,572
Basic earnings per common share:
Weighted average number of shares outstanding:	67,197,847		67,225,701		67,192,112		67,246,793
Net income	$	.47	$	.33	$	1.30	$	1.06
Fully diluted earnings per common share:
Weighted average number of shares outstanding:	67,333,442		67,301,701		67,301,863		67,326,856
Net income	$	.47	$	.33	$	1.30	$	1.06

See accompanying notes to consolidated financial statements.

4

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands)

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2013		2012			2013			2012
Net income	$	31,826	$	25,878		$	87,408		$	82,115
Other comprehensive income, net of tax
Net unrealized holding gains (losses) on securities available for Sale arising during period (tax effects of $609, $10,897, $(39,816) and $11,292)	1,132		20,238			(73,943		)	20,971
Reclassification adjustment for gains on securities available for sale included in net income (tax effects of $0, $(11,527), $(3,360)and $(12,434))	—		(21,408		)	(6,241		)	(23,093		)
Reclassification adjustment for impairment charges on available for sale securities included in net income (tax effects of $201, $84, $455 and $226)	372		155			845			421
	1,504		(1,015		)	(79,339		)	(1,701		)
Comprehensive income	$	33,330	$	24,863		$	8,069		$	80,414

See accompanying notes to consolidated financial statements.

5

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)

	Nine Months EndedSeptember 30,
	2013			2012
Operating activities:
Net income	$	87,408		$	82,115
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for probable loan losses	17,561			16,741
Specific reserve, other real estate owned	478			2,032
Depreciation of bank premises and equipment	19,677			20,335
Gain on sale of bank premises and equipment	(626		)	(734		)
Gain on sale of other real estate owned	(201		)	(239		)
Accretion of investment securities discounts	(2,844		)	(2,346		)
Amortization of investment securities premiums	35,666			20,290
Investment securities transactions, net	(9,601		)	(35,527		)
Impairment charges on available-for-sale investment securities	1,300			647
Amortization of identified intangible assets	3,451			3,463
Stock based compensation expense	322			366
Earnings from affiliates and other investments	(16,085		)	(8,836		)
Deferred tax (benefit) expense	(2,325		)	2,267
Decrease in accrued interest receivable	2,051			1,516
Net decrease (increase) in other assets	16,624			(271		)
Net increase in other liabilities	7,535			16,793
Net cash provided by operating activities	160,391			118,612
Investing activities:
Proceeds from maturities of held-to-maturity securities	—			1,125
Proceeds from sales and calls of available for sale securities	178,124			1,279,963
Purchases of available for sale securities	(1,274,574		)	(2,383,774		)
Principal collected on mortgage-backed securities	1,025,015			955,550
Net (increase) decrease in loans	(285,453		)	86,501
Purchases of other investments	(1,637		)	(2,956		)
Distributions received on other investments	4,159			8,845
Purchases of bank premises and equipment	(30,792		)	(23,650		)
Proceeds from sales of other real estate owned	19,303			25,643
Proceeds from sale of bank premises and equipment	653			3,795
Net cash used in investing activities	(365,202		)	(48,958		)

6

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows, continued (Unaudited)

(Dollars in Thousands)

	Nine Months EndedSeptember 30,
	2013			2012
Financing activities:
Net increase in non-interest bearing demand deposits	$	185,882		$	182,477
Net decrease in savings and interest bearing demand deposits	(108,029		)	(22,938		)
Net decrease in time deposits	(252,260		)	(114,460		)
Net decrease in securities sold under repurchase agreements	(128,542		)	(175,017		)
Net increase in other borrowed funds	540,466			120,900
Purchase of treasury stock	—			(1,092		)
Redemption of senior preferred shares	—			(40,000		)
Proceeds from stock transactions	146			43
Payments of dividends on common stock	(13,438		)	(13,450		)
Payments of dividends on preferred stock	—			(7,911		)
Net cash provided by (used in) financing activities	224,225			(71,448		)
Increase (decrease) in cash and cash equivalents	19,414			(1,794		)
Cash and cash equivalents at beginning of period	283,100			261,885
Cash and cash equivalents at end of period	$	302,514		$	260,091
Supplemental cash flow information:
Interest paid	$	43,405		$	60,651
Income taxes paid	45,480			22,271
Non-cash investing and financing activities:
Accrued dividends, preferred shares	—			1,100
Dividends declared, not yet paid on common stock	15,456			13,445
Net transfer from loans to other real estate owned	(371		)	55,694
Purchases of available-for-sale securities not yet settled	—			442,240

See accompanying notes to consolidated financial statements.

7

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 - Basis of Presentation

The accounting and reporting policies of International Bancshares Corporation (“Corporation”) and Subsidiaries (the Corporation and Subsidiaries collectively referred to herein as the “Company”) conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.  The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries, International Bank of Commerce, Laredo (“IBC”), Commerce Bank, International Bank of Commerce, Zapata, International Bank of Commerce, Brownsville and the Corporation’s wholly-owned non-bank subsidiaries, IBC Subsidiary Corporation, IBC Life Insurance Company, IBC Trading Company, IBC Capital Corporation and Premier Tierra Holdings, Inc.  All significant inter-company balances and transactions have been eliminated in consolidation.  The consolidated financial statements are unaudited, but include all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the periods presented.  All such adjustments were of a normal and recurring nature.  It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto in the Company’s latest Annual Report on Form 10-K.  The consolidated statement of condition at December 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  Certain reclassifications have been made to make prior periods comparable.

The Company operates as one segment.  The operating information used by the Company’s chief executive officer for purposes of assessing performance and making operating decisions about the Company is the consolidated statements presented in this report.  The Company has four active operating subsidiaries, namely, the bank subsidiaries, otherwise known as International Bank of Commerce, Laredo, Commerce Bank, International Bank of Commerce, Zapata and International Bank of Commerce, Brownsville.

The Company has evaluated all events or transactions that occurred through the date the Company issued these financial statements. During this period, the Company did not have any material recognizable or non-recognizable subsequent events.

Note 2 — Fair Value Measurements

ASC Topic 820,”Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  ASC 820 applies to all financial instruments that are being measured and reported on a fair value basis.  ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; it also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies into the following three levels:

·Level 1 Inputs — Unadjusted quoted prices in active markets for identical assets or liabilities.

·Level 2 Inputs — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·Level 3 Inputs — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy is set forth below.

8

The following table represents assets and liabilities reported on the consolidated balance sheets at their fair value on a recurring basis as of September 30, 2013 by level within the fair value measurement hierarchy:

			Fair Value Measurements at Reporting Date Using
			(in thousands)
			Quoted Prices
	Assets/Liabilities		in Active
	Measured at Fair		Markets for		Significant Other		Significant
	Value		Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
	2013		(Level 1)		(Level 2)		(Level 3)
Measured on a recurring basis:
Assets:
Available for sale securities
Residential mortgage-backed securities	$	5,172,186	$	—	$	5,143,187	$	28,999
States and political subdivisions	247,731		—		247,731		—
Other	28,833		28,833		—		—
Total	$	5,448,750	$	28,833	$	5,390,918	$	28,999

The following table represents assets and liabilities reported on the consolidated balance sheets at their fair value on a recurring basis as of December 31, 2012 by level within the fair value measurement hierarchy:

			Fair Value Measurements at Reporting Date Using
			(in thousands)
			Quoted Prices
			in Active
	Assets/Liabilities		Markets for		Significant Other		Significant
	Measured at Fair		Identical		Observable		Unobservable
	Value		Assets		Inputs		Inputs
	December 31, 2012		(Level 1)		(Level 2)		(Level 3)
Measured on a recurring basis:
Assets:
Available for sale securities
Residential mortgage-backed securities	$	5,265,204	$	—	$	5,232,344	$	32,860
States and political subdivisions	238,675		—		238,675		—
Other	21,136		21,136		—		—
Total	$	5,525,015	$	21,136	$	5,471,019	$	32,860

Investment securities available-for-sale are classified within level 2 and level 3 of the valuation hierarchy, with the exception of certain equity investments that are classified within level 1.  For investments classified as level 2 in the fair value hierarchy, the Company obtains fair value measurements for investment securities from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.  Investment securities classified as level 3 are non-agency mortgage-backed securities.  The non-agency mortgage-backed securities held by the Company are traded in inactive markets and markets that have experienced significant decreases in volume and level of activity, as evidenced by few recent transactions, a significant decline or absence of new issuances, price quotations that are not based on comparable securities transactions and wide bid-ask spreads among other factors.  As a result of the inability to use quoted market prices to determine fair value for these securities, the Company determined that fair value, as determined by level 3 inputs in the fair value hierarchy, is more appropriate for financial reporting and more consistent with the expected performance of the investments.  For the investments classified within level 3 of the fair value hierarchy, the Company used a discounted cash flow model to determine fair value.  Inputs in the model included both historical performance and expected future performance based on information currently available.

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Assumptions used in the discounted cash flow model as of September 30, 2013 and December 31, 2012 were applied separately to those portions of the bond where the underlying residential mortgage loans had been performing under original contract terms for at least the prior 24 months and those where the underlying residential mortgages had not been meeting the original contractual obligation for the same period.  Unobservable inputs included in the model are estimates on future principal prepayment rates, and default and loss severity rates.  For that portion of the bond where the underlying residential mortgage had been meeting the original contract terms for at least 24 months, the Company used the following estimates in the model: (i) a voluntary prepayment rate of 7%, (ii) a 1% default rate, (iii) a loss severity rate of 25%, and (iv) a discount rate of 13%.  The assumptions used in the model for the rest of the bond included the following estimates:  (i) a voluntary prepayment rate of 2 %, (ii) a default rate of 4.5%, (iii) a loss severity rate that started at 60% for the first year (2012)  then declines by 5% for the following five years (2013, 2014, 2015, 2016 and 2017) and remains at 25% thereafter (2018 and beyond), and (iv) a discount rate of 13%.  The estimates used in the model to determine fair value are based on observable historical data of the underlying collateral.  The model anticipates that the housing market will gradually improve and that the underlying collateral will eventually all perform in accordance with the original contract terms on the bond.  Should the number of loans in the underlying collateral that default and go into foreclosure or the severity of the losses in the underlying collateral significantly change, the results of the model would be impacted.  The Company will continue to evaluate the actual historical performance of the underlying collateral and will modify the assumptions used in the model as necessary.

The following table presents a reconciliation of activity for such mortgage-backed securities on a net basis (Dollars in Thousands):

Balance at December 31, 2012	$	32,860
Principal paydowns	(3,833		)
Total unrealized gains (losses) included in:
Other comprehensive loss	1,272
Impairment realized in earnings	(1,300		)
Balance at September 30, 2013	$	28,999

Certain assets and liabilities are measured at fair value on a nonrecurring basis.  They are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

10

The following table represents assets measured at fair value on a non-recurring basis as of and for the period ended September 30, 2013 by level within the fair value measurement hierarchy:

			Fair Value Measurements at Reporting Date Using
			(in thousands)
			Quoted						Net Provision
			Prices in						During
	Assets/Liabilities		Active		Significant				Period
	Measured at Fair		Markets for		Other		Significant		Nine Months
	Value		Identical		Observable		Unobservable		ended
	September 30,		Assets		Inputs		Inputs		September 30,
	2013		(Level 1)		(Level 2)		(Level 3)		2013
Measured on a non-recurring basis:
Assets:
Impaired loans	$	29,159	$	—	$	—	$	29,159	$	11,048
Other real estate owned	11,656		—		—		11,656		478

The following table represents assets measured at fair value on a non-recurring basis as of and for the year ended December 31, 2012 by level within the fair value measurement hierarchy:

			Fair Value Measurements at Reporting Date Using
			(in thousands)
									Net
			Quoted						Provision
			Prices in						During
	Assets/Liabilities		Active		Significant				Period
	Measured at Fair		Markets for		Other		Significant		Twelve
	Value		Identical		Observable		Unobservable		Months ended
	December 31,		Assets		Inputs		Inputs		December 31,
	2012		(Level 1)		(Level 2)		(Level 3)		2012
Measured on a non-recurring basis:
Assets:
Impaired loans	$	11,981	$	—	$	—	$	11,981	$	295
Other real estate owned	18,749		—		—		18,749		—

The Company’s assets measured at fair value on a non-recurring basis are limited to impaired loans and other real estate owned.  Impaired loans are classified within level 3 of the valuation hierarchy.  The fair value of impaired loans is derived in accordance with FASB ASC 310, “Receivables”.  Impaired loans are primarily comprised of collateral-dependent commercial loans.   The fair value of impaired loans is based on the fair value of the collateral, as determined through an appraisal process.  The basis for the Company’s appraisal and appraisal review process is based on regulatory guidelines and strives to comply with all regulatory appraisal laws, regulations and the Uniform Standards of Professional Appraisal Practice.  Understanding that as the primary sources of loan repayments decline, the secondary repayment source comes into play and correctly evaluating the fair value of that secondary source, the collateral, becomes even more important.  New or

11

updated appraisals may be obtained as warranted after evaluation of any material deterioration in the performance of the project, the conditions for the geographic area where the property is located, the property type, differences between the current property conditions and the conditions assumed in prior appraisals or evaluations, or changes in project specifications.  All appraisals and evaluations are “as is” (the property’s highest and best use) valuations based on the current conditions of the property/project at that point in time.  The determination of the fair value of the collateral is based on the net realizable value, which is the appraised value less any closing costs, when applicable.  Impaired loans are remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for probable loan losses based upon the fair value of the underlying collateral.  As of September 30, 2013, the Company had $87,914,000 of impaired commercial collateral dependent loans, of which $70,548,000 had an appraisal or evaluation performed within the last twelve months.  As of December 31, 2012, the Company had $73,646,000 of impaired commercial collateral dependent loans, of which $48,856,000 had an appraisal or evaluation performed within the last twelve months.

Other real estate owned is comprised of real estate acquired by foreclosure and deeds in lieu of foreclosure. Other real estate owned is carried at the lower of the recorded investment in the property or its fair value less estimated costs to sell such property (as determined by independent appraisal) within level 3 of the fair value hierarchy.  Prior to foreclosure, the value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the allowance for probable loan losses, if necessary.  The fair value is reviewed periodically and subsequent write downs are made accordingly through a charge to operations.  Other real estate owned is included in other assets on the consolidated financial statements.  For the nine months ended September 30, 2013 and the twelve months ended December 31, 2012, respectively the Company recorded $237,000 and $10,450,000 in charges to the allowance for probable loan losses in connection with loans transferred to other real estate owned.  For the nine months ended September 30, 2013 and twelve months ended December 31, 2012, respectively, the Company recorded $ 478,000 and $0 in adjustments to fair value in connection with other real estate owned.

The fair value estimates, methods, and assumptions for the Company’s financial instruments at September 30, 2013 and December 31, 2012 are outlined below.

Cash and Due From Banks and Federal Funds Sold

For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Time Deposits with Banks

The carrying amounts of time deposits with banks approximate fair value.

Investment Securities Held-to-Maturity

The carrying amounts of investments held-to-maturity approximate fair value.

Investment Securities

For investment securities, which include U.S. Treasury securities, obligations of other U.S. government agencies, obligations of states and political subdivisions and mortgage pass through and related securities, fair values are from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.  See disclosures of fair value of investment securities in Note 6.

Loans

Fair values are estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as commercial, real estate and consumer loans as outlined by regulatory reporting guidelines.  Each category is segmented into fixed and variable interest rate terms and by performing and non-performing categories.

For variable rate performing loans, the carrying amount approximates the fair value.  For fixed rate performing loans, except residential mortgage loans, the fair value is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan.  For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources or the primary origination market.  Fixed rate performing loans are within Level 3 of the fair value hierarchy.  At September 30, 2013, and December 31, 2012, the carrying amount of

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fixed rate performing loans was $1,207,154,000 and $1,189,585,000 respectively, and the estimated fair value was $1,152,663,000 and $1,126,228,000, respectively.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Deposits

The fair value of deposits with no stated maturity, such as non-interest bearing demand deposit accounts, savings accounts and interest bearing demand deposit accounts, was equal to the amount payable on demand as of September 30, 2013 and December 31, 2012.  The fair value of time deposits is based on the discounted value of contractual cash flows.  The discount rate is based on currently offered rates.  Time deposits are within Level 3 of the fair value hierarchy.    At September 30, 2013 and December 31, 2012, the carrying amount of time deposits was $2,702,052,000 and $2,954,312,000, respectively, and the estimated fair value was $2,695,908,000 and $2,962,190,000, respectively.

Securities Sold Under Repurchase Agreements

Securities sold under repurchase agreements include both short and long-term maturities.  Due to the contractual terms of the short-term instruments, the carrying amounts approximated fair value at September 30, 2013 and December 31, 2012.  The fair value of the long-term instruments is based on established market spreads using option adjusted spread methodology.  Long-term repurchase agreements are within level 3 of the fair value hierarchy.  At September 30, 2013 and December 31, 2012, respectively, the carrying amount of long-term repurchase agreements was $710,000,000 and $800,000,000 and the estimated fair value was $799,005,000 and $932,007,000, respectively.

Junior Subordinated Deferrable Interest Debentures

The Company currently has floating rate junior subordinated deferrable interest debentures outstanding.  Due to the contractual terms of the floating rate junior subordinated deferrable interest debentures, the carrying amounts approximated fair value at September 30, 2013 and December 31, 2012.

Other Borrowed Funds

The company currently has short and long-term borrowings issued from the Federal Home Loan Bank (“FHLB”).  Due to the contractual terms of the short-term borrowings, the carrying amounts approximated fair value at September 30, 2013 and December 31, 2012.  The fair value of the long-term borrowings is based on established market spreads for similar types of borrowings.  The long-term borrowings are included in Level 2 of the fair value hierarchy.  At September 30, 2013 and December 31, 2012, the carrying amount of the long-term FHLB borrowings was $8,993,000, and $6,527,000, respectively, and the estimated fair value was $8,993,000 and $7,073,000, respectively.

Commitments to Extend Credit and Letters of Credit

Commitments to extend credit and fund letters of credit are principally at current interest rates, and, therefore, the carrying amount approximates fair value.

Limitations

Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors.  These estimates are

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subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on-and off-statement of condition financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.  Other significant assets and liabilities that are not considered financial assets or liabilities include the bank premises and equipment and core deposit value.  In addition, the tax ramifications related to the effect of fair value estimates have not been considered in the above estimates.

Note 3— Loans

A summary of loans, by loan type at September 30, 2013 and December 31, 2012 is as follows:

	September 30,		December 31,
	2013		2012
	(Dollars in Thousands)
Commercial, financial and agricultural	$	2,841,022	$	2,525,380
Real estate — mortgage	837,326		838,467
Real estate — construction	1,119,342		1,147,669
Consumer	67,422		74,514
Foreign	187,049		188,974
Total loans	$	5,052,161	$	4,775,004

Note 4 - Allowance for Probable Loan Losses

The allowance for probable loan losses primarily consists of the aggregate loan loss allowances of the bank subsidiaries.  The allowances are established through charges to operations in the form of provisions for probable loan losses.  Loan losses or recoveries are charged or credited directly to the allowances.  The allowance for probable loan losses of each bank subsidiary is maintained at a level considered appropriate by management, based on estimated probable losses in the loan portfolio.  The allowance for probable loan losses is derived from the following elements:  (i) allowances established on specific impaired loans, which are based on a review of the individual characteristics of each loan, including the customer’s ability to repay the loan, the underlying collateral values, and the industry in which the customer operates, (ii) allowances based on actual historical loss experience for similar types of loans in the Company’s loan portfolio, and (iii) allowances based on general economic conditions, changes in the mix of loans, company resources, border risk and credit quality indicators, among other things.  All segments of the loan portfolio continue to be impacted by the prolonged economic downturn.  Loans secured by real estate could be impacted negatively by the continued economic environment and resulting decrease in collateral values.  Consumer loans may be impacted by continued and prolonged unemployment rates.

The Company’s management continually reviews the allowance for loan losses of the bank subsidiaries using the amounts determined from the allowances established on specific impaired loans, the allowance established on quantitative historical loss percentages, and the allowance based on qualitative data to establish an appropriate amount to maintain in the Company’s allowance for loan losses.  Should any of the factors considered by management in evaluating the adequacy of the allowance for probable loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the level of future provisions for probable loan losses.  While the calculation of the allowance for probable loan losses utilizes management’s best judgment and all information available, the adequacy of the allowance is dependent on a variety of factors beyond the Company’s control, including, among other things, the performance of the entire loan portfolio, the economy, changes in interest rates and the view of regulatory authorities towards loan classifications.

The loan loss provision is determined using the following methods.  On a weekly basis, loan past due reports are reviewed by the credit quality committee to determine if a loan has any potential problems and if a loan should be placed on the Company’s internal classified report.  Additionally, the Company’s credit department reviews the majority of the Company’s loans for proper internal classification purposes regardless of whether they are past due and segregates any loans

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with potential problems for further review.  The credit department will discuss the potential problem loans with the servicing loan officers to determine any relevant issues that were not discovered in the evaluation.  Also, an analysis of loans that is provided through examinations by regulatory authorities is considered in the review process.  After the above analysis is completed, the Company will determine if a loan should be placed on an internal classified report because of issues related to the analysis of the credit, credit documents, collateral and/or payment history.

A summary of the transactions in the allowance for probable loan losses by loan class is as follows:

	Quarter ended September 30, 2013
	Domestic																			Foreign
				Commercial
				real estate:
				other			Commercial
				construction &			real estate:		Commercial
				land			farmland &		real estate:		Residential:			Residential:
	Commercial			development			commercial		multifamily		first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at June 30,	$	20,676		$	11,624		$	22,383	$	623	$	3,855		$	4,047		$	797		$	1,046		$	65,051
Losses charge to allowance	(3,540		)	(2		)	—		—		(22		)	(149		)	(130		)	(2		)	(3,845		)
Recoveries credited to allowance	658			10			9		—		45			80			21			—			823
Net losses charged to allowance	(2,882		)	8			9		—		23			(69		)	(109		)	(2		)	(3,022		)
Provision (credit) charged to operations	3,370			(10		)	1,549		112		186			404			124			65			5,800
Balance at September 30,	$	21,164		$	11,622		$	23,941	$	735	$	4,064		$	4,382		$	812		$	1,109		$	67,829

	Quarter ended September 30, 2012
	Domestic																					Foreign
				Commercial real estate: other construction & land			Commercial real estate: farmland &			Commercial real estate:			Residential:			Residential:
	Commercial			development			commercial			multifamily			first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at June 30,	$	24,688		$	13,242		$	20,551		$	803		$	3,987		$	4,410		$	1,476		$	1,221		$	70,378
Losses charge to allowance	(3,521		)	(3		)	(1		)	—			(63		)	(282		)	(159		)	(7		)	(4,036		)
Recoveries credited to allowance	821			13			32			—			4			62			58			—			990
Net losses charged to allowance	(2,700		)	10			31			—			(59		)	(220		)	(101		)	(7		)	(3,046		)
Provision (credit) charged to operations	3,312			44			1,138			(27		)	272			626			31			(47		)	5,349
Balance at September 30,	$	25,300		$	13,296		$	21,720		$	776		$	4,200		$	4,816		$	1,406		$	1,167		$	72,681

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	Nine Months Ended September 30, 2013
	Domestic																				Foreign
				Commercial real estate: other construction & land			Commercial real estate: farmland &			Commercial real estate:		Residential:			Residential:
	Commercial			development			commercial			multifamily		first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at December 31,	$	11,632		$	12,720		$	21,880		$	694	$	4,390		$	4,448		$	1,289		$	1,140		$	58,193
Losses charge to allowance	(8,866		)	(250		)	(61		)	—		(221		)	(544		)	(446		)	(22		)	(10,410		)
Recoveries credited to allowance	1,909			36			150			—		54			204			127			5			2,485
Net losses charged to allowance	(6,957		)	(214		)	89			—		(167		)	(340		)	(319		)	(17		)	(7,925		)
Provision (credit) charged to operations	16,489			(884		)	1,972			41		(159		)	274			(158		)	(14		)	17,561
Balance at September 30,	$	21,164		$	11,622		$	23,941		$	735	$	4,064		$	4,382		$	812		$	1,109		$	67,829

	Nine Months Ended September 30, 2012
	Domestic																					Foreign
				Commercial real estate: other construction & land			Commercial real estate: farmland &			Commercial real estate:			Residential:			Residential:
	Commercial			development			commercial			multifamily			first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at December 31,	$	26,617		$	19,940		$	24,227		$	1,003		$	4,562		$	4,760		$	1,724		$	1,359		$	84,192
Losses charge to allowance	(10,009		)	(7,574		)	(12,477		)	—			(129		)	(993		)	(595		)	(12		)	(31,789		)
Recoveries credited to allowance	2,823			225			163			—			7			168			151			—			3,537
Net losses charged to allowance	(7,186		)	(7,349		)	(12,314		)	—			(122		)	(825		)	(444		)	(12		)	(28,252		)
Provision (credit) charged to operations	5,869			705			9,807			(227		)	(240		)	881			126			(180		)	16,741
Balance at September 30,	$	25,300		$	13,296		$	21,720		$	776		$	4,200		$	4,816		$	1,406		$	1,167		$	72,681

The allowance for probable loan losses is a reserve established through a provision for probable loan losses charged to expense, which represents management’s best estimate of probable loan losses when evaluating loans (i) individually or (ii) collectively.

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The table below provides additional information on the balance of loans individually or collectively evaluated for impairment and their related allowance, by loan class as of September 30, 2013 and December 31, 2012:

	September 30, 2013
	Loans individually evaluated for impairment				Loans collectively evaluated for impairment
	(Dollars in Thousands)
	Recorded Investment		Allowance		Recorded Investment		Allowance
Domestic
Commercial	$	35,231	$	10,741	$	982,923	$	10,423
Commercial real estate: other construction & land development	36,304		852		1,083,038		10,770
Commercial real estate: farmland & commercial	17,038		3,404		1,705,918		20,537
Commercial real estate: multifamily	314		—		99,598		735
Residential: first lien	4,984		—		438,905		4,064
Residential: junior lien	3,219		—		390,218		4,382
Consumer	1,481		—		65,941		812
Foreign	455		—		186,594		1,109
Total	$	99,026	$	14,997	$	4,953,135	$	52,832

	December 31, 2012
	Loans individually evaluated for impairment				Loans collectively evaluated for impairment
	(Dollars in Thousands)
	Recorded Investment		Allowance		Recorded Investment		Allowance
Domestic
Commercial	$	32,768	$	1,477	$	736,342	$	10,155
Commercial real estate: other construction & land development	28,660		539		1,119,009		12,181
Commercial real estate: farmland & commercial	13,945		2,730		1,659,377		19,150
Commercial real estate: multifamily	353		—		82,595		694
Residential: first lien	3,656		—		453,075		4,390
Residential: junior lien	1,850		—		379,886		4,448
Consumer	1,326		—		73,188		1,289
Foreign	447		—		188,527		1,140
Total	$	83,005	$	4,746	$	4,691,999	$	53,447

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The table below provides additional information on loans accounted for on a non-accrual basis by loan class at September 30, 2013 and December 31, 2012:

	September 30, 2013		December 31, 2012
	(Dollars in Thousands)
Domestic
Commercial	$	34,450	$	31,929
Commercial real estate: other construction & land development	34,053		26,410
Commercial real estate: farmland & commercial	14,775		11,681
Commercial real estate: multifamily	314		353
Residential: first lien	1,234		1,175
Residential: junior lien	1,576		175
Consumer	37		45
Foreign	13		—
Total non-accrual loans	$	86,452	$	71,768

Impaired loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement will not be collected.  The Company has identified these loans through its normal loan review procedures.    Impaired loans are measured based on (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent.  Substantially all of the Company’s impaired loans are measured at the fair value of the collateral. In limited cases the Company may use other methods to determine the level of impairment of a loan if such loan is not collateral dependent.

The following tables detail key information regarding the Company’s impaired loans by loan class at September 30, 2013 and December 31, 2012:

	September 30, 2013
							Quarter to Date				Year to Date
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	17,880	$	17,880	$	10,741	$	17,884	$	9	$	17,898	$	29
Commercial real estate: other construction & land development	6,819		6,825		852		6,821		—		5,804		—
Commercial real estate: farmland & commercial	7,751		11,133		3,404		7,771		23		7,034		69
Total impaired loans with related allowance	$	32,450	$	35,838	$	14,997	$	32,476	$	32	$	30,736	$	98

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	September 30, 2013
					Quarter to Date				Year to Date
	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	17,351	$	17,993	$	17,238	$	—	$	16,915	$	—
Commercial real estate: other construction & land development	29,485		29,542		22,414		17		20,788		53
Commercial real estate: farmland & commercial	9,287		10,289		8,775		—		6,787		—
Commercial real estate: multifamily	314		314		316		—		330		—
Residential: first lien	4,984		5,117		4,878		45		4,441		117
Residential: junior lien	3,219		3,238		2,731		25		2,059		74
Consumer	1,481		1,486		1,458		—		1,313		—
Foreign	455		457		457		5		456		14
Total impaired loans with no related allowance	$	66,576	$	68,436	$	58,267	$	92	$	53,089	$	258

	December 31, 2012
							Year to Date
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	1,633	$	1,679	$	1,477	$	21,126	$	39
Commercial real estate: other construction & land development	3,671		3,671		539		6,608		—
Commercial real estate: farmland & commercial	6,678		9,923		2,730		7,342		92
Total impaired loans with related allowance	$	11,982	$	15,273	$	4,746	$	35,076	$	131

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	December 31, 2012
					Year to Date
	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	31,135	$	31,170	$	2,996	$	4
Commercial real estate: other construction & land development	24,989		25,160		39,449		141
Commercial real estate: farmland & commercial	7,267		9,340		16,536		8
Commercial real estate: multifamily	353		353		381		—
Residential: first lien	3,656		3,984		2,876		60
Residential: junior lien	1,850		1,944		1,939		104
Consumer	1,326		1,330		1,193		—
Foreign	447		447		166		6
Total impaired loans with no related allowance	$	71,023	$	73,728	$	65,536	$	323

The following tables detail key information regarding the Company’s average recorded investment in impaired loans and interest recognized on impaired loans by loan class at September 30, 2012:

	September 30, 2012
	Quarter to Date				Year to Date
	Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	22,729	$	10	$	22,517	$	29
Commercial real estate: other construction & land development	3,671		—		23,479		—
Commercial real estate: farmland & commercial	7,117		23		11,518		69
Residential: first lien	198		—		202		—
Total impaired loans with related allowance	$	33,715	$	33	$	57,716	$	98

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	September 30, 2012
	Quarter to Date				Year to Date
	Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	840	$	1	$	538	$	3
Commercial real estate: other construction & land development	26,689		23		27,632		122
Commercial real estate: farmland & commercial	14,069		—		14,850		8
Commercial real estate: multifamily	374		—		388		—
Residential: first lien	2,957		15		2,485		31
Residential: junior lien	1,836		25		1,958		79
Consumer	1,271		—		1,149		—
Foreign	92		—		61		1
Total impaired loans with no related allowance	$	48,128	$	64	$	49,061	$	244

A portion of the impaired loans have adequate collateral and credit enhancements not requiring a related allowance for loan loss.  The level of impaired loans is reflective of the economic weakness that has been created by the financial crisis and the subsequent economic downturn.  Management is confident the Company’s loss exposure regarding these credits will be significantly reduced due to the Company’s long-standing practices that emphasize secured lending with strong collateral positions and guarantor support.  Management is likewise confident the reserve for probable loan losses is adequate.  The Company has no direct exposure to sub-prime loans in its loan portfolio, but the sub-prime crisis has affected the credit markets on a national level, and as a result, the Company has experienced an increasing amount of impaired loans; however, management’s decision to place loans in this category does not necessarily mean that the Company will experience significant losses from these loans or significant increases in impaired loans from these levels.

Management of the Company recognizes the risks associated with these impaired loans.  However, management’s decision to place loans in this category does not necessarily mean that losses will occur. In the current environment, troubled loan management can be protracted because of the legal and process problems that delay the collection of an otherwise collectable loan.  Additionally, management believes that the collateral related to these impaired loans and/or the secondary support from guarantors mitigates the potential for losses from impaired loans.    It is also important to note that even though the economic conditions in Texas and Oklahoma are weakened, we believe these markets are improving and better positioned to recover than many other areas of the country.  Loans accounted for as “troubled debt restructuring,” which are included in impaired loans, were not significant and totaled $20,275,000 and $29,395,000 as of September 30, 2013 and December 31, 2012, respectively.

The bank subsidiaries charge off that portion of any loan which management considers to represent a loss as well as that portion of any other loan which is classified as a “loss” by bank examiners.  Commercial and industrial or real estate

21

loans are generally considered by management to represent a loss, in whole or part, when an exposure beyond any collateral coverage is apparent and when no further collection of the loss portion is anticipated based on the borrower’s financial condition and general economic conditions in the borrower’s industry. Generally, unsecured consumer loans are charged-off when 90 days past due.

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While management of the Company considers that it is generally able to identify borrowers with financial problems reasonably early and to monitor credit extended to such borrowers carefully, there is no precise method of predicting loan losses.  The determination that a loan is likely to be uncollectible and that it should be wholly or partially charged-off as a loss is an exercise of judgment.  Similarly, the determination of the adequacy of the allowance for probable loan losses can be made only on a subjective basis.  It is the judgment of the Company’s management that the allowance for probable loan losses at September 30, 2013 was adequate to absorb probable losses from loans in the portfolio at that date.

The following table presents information regarding the aging of past due loans by loan class at September 30, 2013 and December 31, 2012:

	September 30, 2013
	30 — 59 Days		60 — 89 Days		90 Days or Greater		90 Days or greater & still accruing		Total Past due		Current		Total Portfolio
	(Dollars in Thousands)
Domestic
Commercial	$	4,319	$	1,054	$	35,379	$	1,227	$	40,752	$	977,402	$	1,018,154
Commercial real estate: other construction & land development	1,916		292		32,593		38		34,801		1,084,541		1,119,342
Commercial real estate: farmland & commercial	7,436		297		9,122		1,728		16,855		1,706,101		1,722,956
Commercial real estate: multifamily	418		—		314		—		732		99,180		99,912
Residential: first lien	6,538		3,060		8,612		7,751		18,210		425,679		443,889
Residential: junior lien	1,060		175		1,758		216		2,993		390,444		393,437
Consumer	1,615		385		708		685		2,708		64,714		67,422
Foreign	1,912		148		215		202		2,275		184,774		187,049
Total past due loans	$	25,214	$	5,411	$	88,701	$	11,847	$	119,326	$	4,932,835	$	5,052,161

23

	December 31, 2012
	30 — 59 Days		60 — 89 Days		90 Days or Greater		90 Days or greater & still accruing		Total Past due		Current		Total Portfolio
	(Dollars in Thousands)
Domestic
Commercial	$	4,393	$	471	$	3,386	$	2,689	$	8,250	$	760,860	$	769,110
Commercial real estate: other construction & land development	1,107		2,300		24,225		497		27,632		1,120,037		1,147,669
Commercial real estate: farmland & commercial	3,127		21,272		2,310		929		26,709		1,646,613		1,673,322
Commercial real estate: multifamily	685		—		353		—		1,038		81,910		82,948
Residential: first lien	4,305		2,510		10,645		9,657		17,460		439,271		456,731
Residential: junior lien	2,035		410		259		115		2,704		379,032		381,736
Consumer	1,598		404		915		882		2,917		71,597		74,514
Foreign	2,257		1,005		264		264		3,526		185,448		188,974
Total past due loans	$	19,507	$	28,372	$	42,357	$	15,033	$	90,236	$	4,684,768	$	4,775,004

The Company’s internal classified report is segregated into the following categories:  (i) “Special Review Credits,” (ii) “Watch List - Pass Credits,” or (iii) “Watch List - Substandard Credits.”  The loans placed in the “Special Review Credits” category reflect the Company’s opinion that the loans reflect potential weakness which require monitoring on a more frequent basis.  The “Special Review Credits” are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted.  The loans placed in the “Watch List - Pass Credits” category reflect the Company’s opinion that the credit contains weaknesses which represent a greater degree of risk, which warrant “extra attention.”  The “Watch List — Pass Credits” are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted.  The loans placed in the “Watch List — Substandard Credits” classification are considered to be potentially inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral.  These credit obligations, even if apparently protected by collateral value, have shown defined weaknesses related to adverse financial, managerial, economic, market or political conditions which may jeopardize repayment of principal and interest.  Furthermore, there is the possibility that some future loss could be sustained by the Company if such weaknesses are not corrected.  For loans that are classified as impaired, management evaluates these credits ASC 310-10, “Receivables,” and, if deemed necessary, a specific reserve is allocated to the credit.  The specific reserve allocated under ASC 310-10, is based on (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral if the loan is collateral dependent.  Substantially all of the Company’s loans evaluated as impaired under ASC 310-10 are measured using the fair value of collateral method.  In limited cases, the Company may use other methods to determine the specific reserve of a loan under ASC 310-10 if such loan is not collateral dependent.

The allowance based on historical loss experience on the Company’s remaining loan portfolio, which includes the “Special Review Credits,” “Watch List - Pass Credits,” and “Watch List - Substandard Credits” is determined by segregating the remaining loan portfolio into certain categories such as commercial loans, installment loans, international loans, loan concentrations and overdrafts.  Installment loans are then further segregated by number of days past due.  A historical loss percentage, adjusted for (i) management’s evaluation of changes in lending policies and procedures, (ii) current economic conditions in the market area served by the Company, (iii) other risk factors, (iv) the effectiveness of the internal loan review function, (v) changes in loan portfolios, and (vi) the composition and concentration of credit volume is applied to each category.  Each category is then added together to determine the allowance allocated under ASC 450-20.

24

A summary of the loan portfolio by credit quality indicator by loan class at September 30, 2013 and December 31, 2012 is as follows:

			September 30, 2013
	Pass		Special Review		Watch List - Pass		Watch List - Substandard		Watch List - Impaired
			(Dollars in Thousands)
Domestic
Commercial	$	911,393	$	8,244	$	16,623	$	46,663	$	35,231
Commercial real estate: other construction & land development	1,044,439		25,064		9,164		4,371		36,304
Commercial real estate: farmland & commercial	1,558,965		101,674		19,698		25,581		17,038
Commercial real estate: multifamily	99,598		—		—		—		314
Residential: first lien	433,944		119		—		4,842		4,984
Residential: junior lien	389,920		—		—		298		3,219
Consumer	65,937		—		—		4		1,481
Foreign	183,900		2,080		—		614		455
Total	$	4,688,096	$	137,181	$	45,485	$	82,373	$	99,026

			December 31,2012
	Pass		Special Review		Watch List - Pass		Watch List - Substandard		Watch List - Impaired
			(Dollars in Thousands)
Domestic
Commercial	$	675,263	$	4,278	$	16,535	$	40,266	$	32,768
Commercial real estate: other construction & land development	1,038,749		55,079		2,614		22,567		28,660
Commercial real estate: farmland & commercial	1,486,572		109,144		46,316		17,345		13,945
Commercial real estate: multifamily	82,542		—		53		—		353
Residential: first lien	446,218		519		—		6,338		3,656
Residential: junior lien	378,000		77		309		1,500		1,850
Consumer	73,188		—		—		—		1,326
Foreign	188,499		—		28		—		447
Total	$	4,369,031	$	169,097	$	65,855	$	88,016	$	83,005

25

Note 5 — Stock Options

On April 5, 2012, the Board of Directors adopted the 2012 International Bancshares Corporation Stock Option Plan (the “2012 Plan”). There are 800,000 shares available for stock option grants under the 2012 Plan. Under the 2012 Plan, both qualified incentive stock options (“ISOs”) and non-qualified stock options (“NQSOs”) may be granted. Options granted may be exercisable for a period of up to 10 years from the date of grant, excluding ISOs granted to 10% shareholders, which may be exercisable for a period of up to only five years. As of September 30, 2013, 749,000 shares were available for future grants under the 2012 Plan.

A summary of option activity under the stock option plans for the nine months ended September 30, 2013 is as follows:

	Number of options	Weighted average exercise price		Weighted average remaining contractual term (years)	Aggregate intrinsic value ($)
					(Dollars in Thousands)
Options outstanding at December 31, 2012	794,877	$	19.03
Plus: Options granted	8,500	21.33
Less:
Options exercised	11,738	12.36
Options expired	22,343	23.50
Options forfeited	20,600	17.88
Options outstanding at September 30, 2013	748,969	19.06		3.18	$	3,386
Options fully vested and exercisable at September 30, 2013	426,476	22.74		1.34	991

Stock-based compensation expense included in the consolidated statements of income for the three and nine months ended September 30, 2013 was approximately $101,000 and $322,000, respectively.  Stock-based compensation expense included in the consolidated statements of income for the three and nine months ended September 30, 2012 was approximately $113,000 and $366,000, respectively.  As of September 30, 2013, there was approximately $900,000 of total unrecognized stock-based compensation cost related to non-vested options granted under the Company plans that will be recognized over a weighted average period of 1.85 years.

Note 6 - Investment Securities

The Company classifies debt and equity securities into one of three categories:  held-to maturity, available-for-sale, or trading.  Such securities are reassessed for appropriate classification at each reporting date.  Securities classified as “held-to-maturity” are carried at amortized cost for financial statement reporting, while securities classified as “available-for-sale” and “trading” are carried at their fair value.  Unrealized holding gains and losses are included in net income for those securities classified as “trading”, while unrealized holding gains and losses related to those securities classified as “available-for-sale” are excluded from net income and reported net of tax as other comprehensive income (loss) and accumulated other comprehensive income (loss) until realized, or in the case of losses, when deemed other than temporary.

The amortized cost and estimated fair value by type of investment security at September 30, 2013 are as follows:

	Held to Maturity
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Carrying value
	(Dollars in Thousands)
Other securities	$	2,400	$	—	$	—	$	2,400	$	2,400
Total investment securities	$	2,400	$	—	$	—	$	2,400	$	2,400

26

	Available for Sale
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Carrying value (1)
	(Dollars in Thousands)
Residential mortgage-backed securities	$	5,197,331	$	70,436	$	(95,581	)	$	5,172,186	$	5,172,186
Obligations of states and political subdivisions	244,697		9,758		(6,724		)	247,731		247,731
Equity securities	28,075		1,041		(283		)	28,833		28,833
Total investment securities	$	5,470,103	$	81,235	$	(102,588	)	$	5,448,750	$	5,448,750

(1)Included in the carrying value of residential mortgage-backed securities are $1,894,858 of mortgage-backed securities issued by Ginnie Mae, $3,248,329 of mortgage-backed securities issued by Fannie Mae and Freddie Mac and $28,999  issued by non-government entities

The amortized cost and estimated fair value by type of investment security at December 31, 2012 are as follows:

	Held to Maturity
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Carrying value
	(Dollars in Thousands)
Other securities	$	2,400	$	—	$	—	$	2,400	$	2,400
Total investment securities	$	2,400	$	—	$	—	$	2,400	$	2,400

	Available for Sale
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Carrying value (1)
	(Dollars in Thousands)
Residential mortgage-backed securities	$	5,186,652	$	94,585	$	(16,033	)	$	5,265,204	$	5,265,204
Obligations of states and political subdivisions	216,962		23,504		(1,791		)	238,675		238,675
Equity securities	19,575		1,581		(20		)	21,136		21,136
Total investment securities	$	5,423,189	$	119,670	$	(17,844	)	$	5,525,015	$	5,525,015

(1)Included in the carrying value of residential mortgage-backed securities are $2,035,742 of mortgage-backed securities issued by Ginnie Mae, $3,196,602 of mortgage-backed securities issued by Fannie Mae and Freddie Mac and $32,860  issued by non-government entities

The amortized cost and estimated fair value of investment securities at September 30, 2013, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

	Held to Maturity				Available for Sale
	Amortized Cost		Estimated fair value		Amortized Cost		Estimated fair value
	(Dollars in Thousands)
Due in one year or less	$	1,325	$	1,325	$	—	$	—
Due after one year through five years	1,075		1,075		—		—
Due after five years through ten years	—		—		697		744
Due after ten years	—		—		244,000		246,987
Residential mortgage-backed securities	—		—		5,197,331		5,172,186
Equity securities	—		—		28,075		28,833
Total investment securities	$	2,400	$	2,400	$	5,470,103	$	5,448,750

27

Residential mortgage-backed securities are securities issued by Freddie Mac, Fannie Mae, Ginnie Mae or non-government entities.  Investments in residential mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U.S. Government.  Investments in mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. Government, however, the Company believes that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008 and because securities issued by others that are collateralized by residential mortgage-backed securities issued by Fannie Mae or Freddie Mac are rated consistently as AAA rated securities.

The amortized cost and fair value of available for sale investment securities pledged to qualify for fiduciary powers, to secure public monies as required by law, repurchase agreements and short-term fixed borrowings was $2,070,772,000 and $2,106,076,000 at September 30, 2013.

Proceeds from the sale of securities available-for-sale were $0 and $178,124,000 for the three and nine months ended September 30, 2013, which included $0 and $177,623,000 of mortgage-backed securities. Gross gains of $0 and $9,601,000 and gross losses of $0 and $0 were realized on the sales for the three and nine months ended September 30, 2013, respectively.  Proceeds from the sale of securities available-for-sale were $1,207,581,000 and $1,279,963,000 for the three and nine months ended September 30, 2012, which included $1,205,556,000 and $1,237,071,000 of mortgage-backed securities. Gross gains of $32,935,000 and $35,528,000 and gross losses of $0 and $(1,000) were realized on the sales for the three and nine months ended September 30, 2012, respectively.

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2013 were as follows:

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available for sale:
Residential mortgage-backed securities	$	2,599,415	$	(84,205	)	$	94,376	$	(11,376	)	$	2,693,791	$	(95,581	)
Obligations of states and political subdivisions	51,800		(2,859		)	12,044		(3,865		)	63,844		(6,724		)
Other equity securities	10,470		(279		)	71		(4		)	10,541		(283		)
	$	2,661,685	$	(87,343	)	$	106,491	$	(15,245	)	$	2,768,176	$	(102,588	)

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2012 were as follows:

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available for sale:
Residential mortgage-backed securities	$	738,492	$	(5,476	)	$	32,860	$	(10,557	)	$	771,352	$	(16,033	)
Obligations of states and political subdivisions	5,117		(114		)	10,437		(1,677		)	15,554		(1,791		)
Equity securities	—		—			56		(20		)	56		(20		)
	$	743,609	$	(5,590	)	$	43,353	$	(12,254	)	$	786,962	$	(17,844	)

28

The unrealized losses on investments in residential mortgage-backed securities are primarily caused by changes in market interest rates.  Residential mortgage-backed securities are primarily securities issued by Freddie Mac, Fannie Mae and Ginnie Mae.  Investments in mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U.S. Government.  Investments in mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. Government, however, the Company believes that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008 and because securities issued by others that are collateralized by residential mortgage-backed securities issued by Fannie Mae or Freddie Mac are rated consistently as AAA rated securities.  The decrease in fair value on residential mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae is due to market interest rates.  The Company has no intent to sell such mortgage-backed securities, and will more than likely not be required to sell such securities before a market price recovery or maturity of the securities; therefore, it is the conclusion of the Company that the investments in residential mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae are not considered other-than-temporarily impaired.  In addition, the Company has a small investment in non-agency residential mortgage-backed securities that have strong credit backgrounds and include additional credit enhancements to protect the Company from losses arising from high foreclosure rates.  These securities have additional market volatility beyond economically induced interest rate events.  It is the conclusion of the Company that the investments in non-agency residential mortgage-backed securities are other-than-temporarily impaired due to both credit and other than credit issues.  Impairment charges of $573,000 ($372,000, after tax) and $1,300,000 ($845,000, after tax) were recorded for the three and nine months ended September 30, 2013. Impairment charges of $239,000 ($155,000, after tax) and $647,000 ($421,000, after tax) were recorded for the three and nine months ended September 30, 2012. The impairment charge represents the credit related impairment on the securities.

The unrealized losses on investments in other securities are caused by fluctuations in market interest rates.  The underlying cash obligations of the securities are guaranteed by the entity underwriting the debt instrument.  It is the belief of the Company that the entity issuing the debt will honor its interest payment schedule, as well as the full debt at maturity.  The securities are purchased by the Company for their economic value.  The decrease in fair value is primarily due to market interest rates and not other factors, and because the Company has no intent to sell and will more than likely not be required to sell before a market price recovery or maturity of the securities, it is the conclusion of the Company that the investments are not considered other-than-temporarily impaired.

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investments recognized in earnings for the three months ended September 30, 2013 (Dollars in Thousands):

Balance at June 30, 2013	$	11,159
Impairment charges recognized during period	573
Balance at September 30, 2013	$	11,732

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investments recognized in earnings for the nine months ended September 30, 2013 (Dollars in Thousands):

Balance at December 31, 2012	$	10,432
Impairment charges recognized during period	1,300
Balance at September 30, 2013	$	11,732

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investment recognized in earnings for the three months ended September 30, 2012 (Dollars in Thousands):

Balance at June 30, 2012	$	9,801
Impairment charges recognized during period	239
Balance at September 30, 2012	$	10,040

29

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investment recognized in earnings for the nine months ended September 30, 2012 (Dollars in Thousands):

Balance at December 31, 2011	$	9,393
Impairment charges recognized during period	647
Balance at September 30, 2012	$	10,040

Note 7 — Other Borrowed Funds

Other borrowed funds include Federal Home Loan Bank borrowings, which are short-term and long-term borrowings issued by the FHLB of Dallas at the market price offered at the time of funding.  These borrowings are secured by residential mortgage-backed investment securities and a portion of the Company’s loan portfolio.  At September 30, 2013, other borrowed funds totaled $1,289,493,000, an increase of 72.2% from $749,027,000 at December 31, 2012.  The increase in other borrowed funds is a result of purchases of available-for-sale securities.

Note 8 — Junior Subordinated Interest Deferrable Debentures

The Company has formed seven statutory business trusts under the laws of the State of Delaware, for the purpose of issuing trust preferred securities. The seven statutory business trusts formed by the Company (the “Trusts”) have each issued Capital and Common Securities and invested the proceeds thereof in an equivalent amount of junior subordinated debentures (the “Debentures”) issued by the Company. As of September 30, 2013 and December 31, 2012, the principal amount of debentures outstanding totaled $190,726,000.

The Debentures are subordinated and junior in right of payment to all present and future senior indebtedness (as defined in the respective indentures) of the Company, and are pari passu with one another. The interest rate payable on, and the payment terms of the Debentures are the same as the distribution rate and payment terms of the respective issues of Capital and Common Securities issued by the Trusts. The Company has fully and unconditionally guaranteed the obligations of each of the Trusts with respect to the Capital and Common Securities. The Company has the right, unless an Event of Default (as defined in the Indentures) has occurred and is continuing, to defer payment of interest on the Debentures for up to twenty consecutive quarterly periods on Trusts VI, VII, VIII, IX, X, XI and XII. If interest payments on any of the Debentures are deferred, distributions on both the Capital and Common Securities related to that Debenture would also be deferred. The redemption prior to maturity of any of the Debentures may require the prior approval of the Federal Reserve and/or other regulatory bodies.

For financial reporting purposes, the Trusts are treated as investments of the Company and not consolidated in the consolidated financial statements.  Although the Capital Securities issued by each of the Trusts are not included as a component of shareholders’ equity on the consolidated statement of condition, the Capital Securities are treated as capital for regulatory purposes.  Specifically, under applicable regulatory guidelines, the Capital Securities issued by the Trusts qualify as Tier 1 capital up to a maximum of 25% of Tier 1 capital on an aggregate basis.  Any amount that exceeds the 25% threshold would qualify as Tier 2 capital.  At September 30, 2013 and December 31, 2012, the total $190,726,000 of the Capital Securities outstanding qualified as Tier 1 capital.

30

The following table illustrates key information about each of the Capital and Common Securities and their interest rate at September 30, 2013:

	Junior Subordinated Deferrable Interest Debentures		Repricing Frequency	Interest Rate		Interest Rate Index	Maturity Date	Optional Redemption Date(1)
	(In Thousands)
Trust VI	$	25,774	Quarterly	3.71	%	LIBOR + 3.45	November 2032	February 2008
Trust VII	10,310		Quarterly	3.52	%	LIBOR + 3.25	April 2033	April 2008
Trust VIII	25,774		Quarterly	3.32	%	LIBOR + 3.05	October 2033	October 2008
Trust IX	41,238		Quarterly	1.89	%	LIBOR + 1.62	October 2036	October 2011
Trust X	34,021		Quarterly	1.92	%	LIBOR + 1.65	February 2037	February 2012
Trust XI	32,990		Quarterly	1.89	%	LIBOR + 1.62	July 2037	July 2012
Trust XII	20,619		Quarterly	1.71	%	LIBOR + 1.45	September 2037	September 2012
	$	190,726

(1) The Capital Securities may be redeemed in whole or in part on any interest payment date after the Optional Redemption Date.

Note 9 — Common Stock and Dividends

The Company had outstanding 216,000 shares of Series A cumulative perpetual preferred stock (the “Senior Preferred Stock”), issued to the US Treasury under the Company’s participation in the Troubled Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase Program”).  The Company redeemed all of the Senior Preferred Stock in 2012.  In conjunction with the purchase of the Senior Preferred Stock, the US 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 and was immediately exercisable.  The Warrant is included as a component of Tier 1 capital.  On June 12, 2013, the U. S. Treasury sold the Warrant to a third party.  As of September 30, 2013, none of the Warrant had been exercised.

The Company paid cash dividends to the common shareholders of $.20 per share on April 19, 2013 to all holders of record on April 1, 2013 and $.23 per share on October 15, 2013 to all holders of record on September 30, 2013.  Cash dividends of $.20 per share were paid to common shareholders on April 20, and October 15, 2012 to all holders of record on April 2 and September 28, 2012, respectively.

In April 2009, following receipt of the Treasury Department’s consent, the Board of Directors re-established a formal stock repurchase program that authorized the repurchase of up to $40 million of common stock within the following twelve months and on February 28, 2013, the Board of Directors extended the repurchase program and again authorized the repurchase of up to $40 million of common stock during the twelve month period commencing on April 9, 2013, which repurchase cap the Board is inclined to increase over time.  Stock repurchases may be made from time to time, on the open market or through private transactions.  Shares repurchased in this program will be held in treasury for reissue for various corporate purposes, including employee stock option plans.  As of November 1, 2013, a total of 7,843,293 shares had been repurchased under all programs at a cost of $237,536,000.

31

Note 10 - Commitments and Contingent Liabilities

The Company is involved in various legal proceedings that are in various stages of litigation.  Some of these actions allege “lender liability” claims on a variety of theories and claim substantial actual and punitive damages.  The Company has determined, based on discussions with its counsel that any material loss in such actions, individually or in the aggregate, is remote or the damages sought, even if fully recovered, would not be considered material to the consolidated financial position, results of operations or cash flows of the Company.  However, many of these matters are in various stages of proceedings and further developments could cause management to revise its assessment of these matters.

Note 11 — Capital Ratios

The Company had a Tier 1 capital to average total asset (leverage) ratio of 11.53% and 10.86%, risk-weighted Tier 1 capital ratio of 19.37% and 19.65% and risk-weighted total capital ratio of 20.40% and 20.60% at September 30, 2013 and December 31, 2012, respectively.  The identified intangibles and goodwill of $286,900,000 as of September 30, 2013, recorded in connection with the acquisitions made by the Company, are deducted from the sum of core capital elements when determining the capital ratios of the Company.  Under applicable regulatory guidelines, the Capital Securities issued by the Trusts qualify as Tier 1 capital up to a maximum of 25% of tier 1 capital on an aggregate basis.  Any amount that exceeds the 25% threshold qualifies as Tier 2 capital.  As of September 30, 2013, the total of $190,726,000 of the Capital Securities outstanding qualified as Tier 1 capital.  The Company actively monitors the regulatory capital ratios to ensure that the Company’s bank subsidiaries are well capitalized under the regulatory framework.

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year-ended December 31, 2012, included in the Company’s 2012 Form 10-K.  Operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results for the year ending December 31, 2013, or any future period.

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 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:

·Government intervention in the U.S. financial system, and the free enterprise system in general.

·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.

·The Company relies, in part, on external financing to fund the Company’s operations from the FHLB, the Fed and other sources and the unavailability of such funding sources in the future could adversely impact the Company’s growth strategy, prospects and performance.

·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, including, without limitation, the repeal of federal prohibitions on the payment of interest on demand deposits.

·Changes in the capital markets utilized by the Company and its subsidiaries, including changes in the interest rate environment that may reduce margins.

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·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, the impact of the Consumer Financial Protection Bureau as a new regulator of financial institutions, changes in the accounting, tax and regulatory treatment of trust preferred securities, as well as changes in banking, tax, securities, insurance, employment, environmental and immigration laws and regulations and the risk of litigation that may follow.

·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 reduction of deposits from nonresident alien individuals due to the new IRS rules requiring U.S. financial institutions to report to the IRS deposit interest payments made to nonresident alien individuals.

·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 Common Stock.

·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, including, without limitation, lower real estate values or environmental liability risks associated with foreclosed properties.

·Greater than expected costs or difficulties related to the development and integration of new products and lines of business.

·Increased labor costs and effects related to health care reform and other laws, regulations and legal developments impacting labor costs.

·Impairment of carrying value of goodwill could negatively impact our earnings and capital.

·Changes in the soundness of other financial institutions with which the Company interacts.

·Political instability in the United States or Mexico.

·Technological changes or system failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.

·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 costs and effects of regulatory developments, including the resolution of regulatory or other governmental inquiries and the results of regulatory examinations or reviews.

·The effect of final rules amending Regulation E that prohibit financial institutions from charging consumer fees for paying overdrafts on ATM and one-time debit card transactions, unless the consumer consents or opts-in to the overdraft service for those types of transactions, as well as the effect of any other regulatory or legal developments that limit overdraft services.

·The reduction of income and possible increase in required capital levels related to the adoption of new legislation, including, without limitation, the Dodd-Frank Regulatory Reform Act and the implementing rules and regulations, including the Federal Reserve’s rule that establishes debit card interchange fee standards and prohibits network exclusivity arrangements and routing restrictions that is negatively affecting interchange revenue from debit card transactions as well as revenue from consumer services.

·The possible increase in required capital and liquidity levels related to the implementation of capital and liquidity rules of the federal banking agencies that address or are impacted by the Basel III capital and liquidity standards.

·The enhanced due diligence burden imposed on banks related to the banks’ inability to rely on credit ratings under Dodd-Frank which may result in a limitation on the types of securities certain banks will be able to purchase as a result of the due diligence burden.

·The Company’s success at managing the risks involved in the foregoing items, or a failure or circumvention of the Company’s internal controls and risk management, policies and procedures.

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

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statement, unless required by law.

Overview

The Company, which is headquartered in Laredo, Texas, with 216 facilities and more than 315 ATMs, provides banking services for commercial, consumer and international customers of South, Central and Southeast Texas and the State of Oklahoma.  The Company is one of the largest independent commercial bank holding companies headquartered in Texas.  The Company, through its bank subsidiaries, is in the business of gathering funds from various sources and investing those funds in order to earn a return.  The Company either directly or through a bank subsidiary owns two insurance agencies, a liquidating subsidiary, a broker/dealer and a fifty percent interest in an investment banking unit that owns a broker/dealer.  The Company’s primary earnings come from the spread between the interest earned on interest-bearing assets and the interest paid on interest-bearing liabilities.  In addition, the Company generates income from fees on products offered to commercial, consumer and international customers.

The Company is very active in facilitating trade along the United States border with Mexico.  The Company does a large amount of business with customers domiciled in 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.  The Company also serves the growing Hispanic population through the Company’s facilities located throughout South, Central and Southeast Texas and the State of Oklahoma.

Expense control is an essential element in the Company’s long-term profitability.  As a result, the Company monitors the efficiency ratio, which is a measure of non-interest expense to net interest income plus non-interest income closely.  As the Company adjusts to regulatory changes related to Dodd-Frank, the Company’s efficiency ratio may suffer because the additional regulatory compliance costs are expected to increase non-interest expense.  The Company monitors this ratio over time to assess the Company’s efficiency relative to its peers.  The Company uses this measure as one factor in determining if the Company is accomplishing its long-term goals of providing superior returns to the Company’s shareholders.

Results of Operations

Summary

Consolidated Statements of Condition Information

	September 30, 2013		December 31, 2012		Percent Increase (Decrease)
	(Dollars in Thousands)
Assets	$	12,076,658	$	11,882,673	1.6	%
Net loans	4,984,332		4,716,811		5.7
Deposits	8,112,806		8,287,213		(2.1	)
Other borrowed funds	1,289,493		749,027		72.2
Junior subordinated deferrable interest debentures	190,726		190,726		—
Shareholders’ equity	1,415,351		1,435,708		(1.4	)%

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Consolidated Statements of Income Information

	Three Months Ended September 30,				Percent		Nine Months Ended September 30,					Percent
	(Dollars in Thousands)				Increase		(Dollars in Thousands)				Increase
	2013		2012		(Decrease)		2013		2012			(Decrease)
Interest income	$	91,650	$	93,775	(2.3	)%	$	265,084	$	283,240		(6.4	)%
Interest expense	13,007		17,420		(25.3	)	41,185		58,125			(29.1	)
Net interest income	78,643		76,355		3.0		223,899		225,115			(.5	)
Provision for probable loan losses	5,800		5,349		8.4		17,561		16,741			4.9
Non-interest income	44,481		74,007		(39.9	)	144,438		158,003			(8.6	)
Non-interest expense	70,227		106,444		(34.0	)	224,802		246,678			(8.9	)
Net income available to common shareholders	31,826		22,033		44.4		87,408		71,572			22.1
Per common share:
Basic	$	.47	$	.33	42.4	%	$	1.30	$	1.06		22.6	%
Diluted	.47		.33		42.4		1.30		1.06			22.6

Net Income

Net income available to common shareholders for the three months ended September 30, 2013 increased by 44.4% and net income available to common shareholders for the nine months ended September 30, 2013 increased by 22.1% when compared to the same period in 2012.  Net income for the nine months ended September 30, 2013 was positively affected by the repayment of the TARP funds in the fourth quarter of 2012 which eliminated the continued payment of dividends on the Senior Preferred Stock that had been held by the U.S. Treasury, as well as the sale of available-for-sale investment securities totaling $6.2 million, net of tax.  The securities sales were a result of the Company re-positioning a portion of the investment portfolio.  Net income for the same period was negatively impacted by a charge of $8.0 million, net of tax, as a result of the Company’s lead bank subsidiary’s early termination of a portion of its long-term repurchase agreements in order to help manage its long-term funding costs.  Net income was also negatively impacted by narrowing interest margins caused by slow loan demand, although loan demand is slightly improving, and declining yields in the bond markets.  Net income also continues to be negatively affected by the burden of increasing compliance costs arising from the Dodd-Frank Act and heightened regulatory oversight.

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Net Interest Income

	Three Months Ended September 30,				Percent		Nine Months Ended September 30,				Percent
	(in Thousands)				Increase		(in Thousands)				Increase
	2013		2012		(Decrease)		2013		2012		(Decrease)
Interest income:
Loans, including fees	$	66,482	$	67,254	(1.1	)%	$	194,633	$	202,990	(4.1	)%
Investment securities:
Taxable	21,821		23,388		(6.7	)	60,941		71,128		(14.3	)
Tax-exempt	3,318		2,972		11.6		9,439		8,682		8.7
Other interest income	29		161		(82.0	)	71		440		(83.9	)
Total interest income	91,650		93,775		(2.3	)	265,084		283,240		(6.4	)
Interest expense:
Savings deposits	885		1,074		(17.6	)	2,852		4,176		(31.7	)
Time deposits	3,644		5,910		(38.3	)	12,067		18,650		(35.3	)
Securities sold under repurchase agreements	7,162		8,811		(18.7	)	22,042		29,380		(25.0	)
Other borrowings	454		195		132.8		1,033		541		90.9
Junior subordinated interest deferrable debentures	862		1,430		(39.7	)	3,191		5,378		(40.7	)
Total interest expense	13,007		17,420		(25.3	)	41,185		58,125		(29.1	)
Net interest income	$	78,643	$	76,355	3.0	%	$	223,899	$	225,115	(.5	)%

Net interest income is the spread between income on interest earning assets, such as loans and securities, and the interest expense on liabilities used to fund those assets, such as deposits, repurchase agreements and funds borrowed.  As part of its strategy to manage interest rate risk, the Company strives to manage both assets and liabilities so that interest sensitivities match. One method of calculating interest rate sensitivity is through gap analysis.  A gap is the difference between the amount of interest rate sensitive assets and interest rate sensitive liabilities that re-price or mature in a given time period.  Positive gaps occur when interest rate sensitive assets exceed interest rate sensitive liabilities, and negative gaps occur when interest rate sensitive liabilities exceed interest rate sensitive assets.  A positive gap position in a period of rising interest rates should have a positive effect on net interest income as assets will re-price faster than liabilities.  Conversely, net interest income should contract somewhat in a period of falling interest rates.  Additionally, interest rate changes do not affect all categories of assets and liabilities equally or at the same time.  Analytical techniques employed by the Company to supplement gap analysis include simulation analysis to quantify interest rate risk exposure.  The gap analysis prepared by management is reviewed by the Investment Committee of the Company twice a year (see table on page 41 for the September 30, 2013 gap analysis).  Management currently believes that the Company is properly positioned for interest rate changes; however if management determines at any time that the Company is not properly positioned, it will strive to adjust the interest rate sensitive assets and liabilities in order to manage the effect of interest rate changes.

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Non-Interest Income

	Three Months Ended September 30,				Percent		Nine Months Ended September 30,				Percent
	(in Thousands)				Increase		(in Thousands)				Increase
	2013		2012		(Decrease)		2013		2012		(Decrease)
Service charges on deposit accounts	$	25,026	$	23,748	5.4	%	$	72,363	$	69,601	4.0	%
Other service charges, commissions and fees
Banking	11,327		9,492		19.3		31,362		28,980		8.2
Non-banking	2,092		2,038		2.6		4,668		4,971		(6.1	)
Investment securities transactions, net	—		32,935		(100.0	)	9,601		35,527		(73.0	)
Other investments, net	3,871		3,650		6.1		19,503		11,431		70.6
Other income	2,165		2,144		1.0		6,941		7,493		(7.4	)
Total non-interest income	$	44,481	$	74,007	(39.9	)%	$	144,438	$	158,003	(8.6	)%

Total non-interest income decreased 8.6% for the nine months ended September 30, 2013 from the same period of 2012.  Investment securities transactions increased for the nine months ended September 30, 2013 primarily due to the sale of residential mortgage-backed securities as a result of the Company re-positioning of a portion of its investment portfolio.  Other investments income for the nine months ended September 30, 2013 was positively impacted due to the sale of assets in a partnership where the holding company held an equity position resulting in income of $5.5 million.

Non-Interest Expense

	Three Months Ended September 30,				Percent		Nine Months Ended September 30,				Percent
	(in Thousands)				Increase		(in Thousands)				Increase
	2013		2012		(Decrease)		2013		2012		(Decrease)
Employee compensation and benefits	$	30,627	$	30,541	.3	%	$	91,602	$	90,152	1.6	%
Occupancy	7,604		8,032		(5.3	)	22,596		24,873		(9.2	)
Depreciation of bank premises and equipment	6,433		6,618		(2.8	)	19,677		20,335		(3.2	)
Professional fees	3,669		4,279		(14.3	)	11,344		11,820		(4.0	)
Deposit insurance assessments	1,683		2,289		(26.5	)	5,061		5,346		(5.3	)
Net expense, other real estate owned	1,360		3,065		(55.6	)	4,724		5,631		(16.1	)
Amortization of identified intangible assets	1,156		1,163		(0.6	)	3,451		3,463		(.3	)
Advertising	1,795		1,713		4.8		5,664		5,510		2.8
Early termination fee — securities sold under repurchase agreements	—		31,550		(100	)	12,303		31,550		(61.0	)
Impairment charges (Total other-than- temporary impairment losses, $(13), net of $(560), $(402), net of $(641), $(27), net of $(1,273) and $947, net of $300 included in other comprehensive income)	573		239		139.7		1,300		647		100.9
Other	15,327		16,955		(9.6	)	47,080		47,351		(.6	)
Total non-interest expense	$	70,227	$	106,444	(34.0	)%	$	224,802	$	246,678	(8.9	)%

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Non-interest expense decreased 34.0% for the three months ended September 30, 2013 and 8.9% for the nine months ended September 30, 2013 compared to the same periods of 2012.  Non-interest expense for the nine months ended September 30, 2013 was negatively impacted by a charge of $12.3 million recorded by the Company’s lead bank subsidiary.  The lead bank subsidiary terminated a portion of its long-term repurchase agreements outstanding in order to help manage its long-term funding costs.

Financial Condition

Allowance for Probable Loan Losses

The allowance for probable loan losses increased 16.6% to $67,829,000 at September 30, 2013 from $58,193,000 at December 31, 2012.  The change is primarily driven by the addition of a specific reserve of approximately $10,000,000 on a previously identified impaired commercial loan that further deteriorated during the nine months ended September 30, 2013, offset by a decrease in the general reserve due to the stability of general economic factors used in the calculation.  The provision for probable loan losses charged to expense increased 4.9% to $17,561,000 for the nine months ended September 30, 2013 from $16,741,000 for the same period in 2012.  The allowance for probable loan losses was 1.3% and 1.2% of total loans at September 30, 2013 and December 31, 2012, respectively.

Investment Securities

Mortgage-backed securities are securities primarily issued by the Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), and the Government National Mortgage Association (“Ginnie Mae”).  Investments in residential mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U.S. Government.  Investments in residential mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. Government, however, the Company believes that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008 and because securities issued by others that are collateralized by residential mortgage-backed securities issued by Fannie Mae or Freddie Mac are rated consistently as AAA rated securities.

Loans

Net loans increased 5.7% to $4,984,332,000 at September 30, 2013, from $4,716,811,000 at December 31, 2012.  The increase in loans can be attributed to improved opportunities for loan growth.

Deposits

Deposits decreased by 2.1% to $8,112,806,000 at September 30, 2013, from $8,287,213,000 at December 31, 2012.  The Company is still experiencing a substantial amount of competition for deposits at higher than market rates.  As a result, the Company has attempted to maintain certain deposit relationships but has allowed certain deposits to leave as the result of aggressive pricing.

Other Borrowed Funds

Other borrowed funds increased by 72.2% to $1,289,493,000 at September 30, 2013, from $749,027,000 at December 31, 2012.  The increase in other borrowed funds is a result of purchases of available-for-sale securities.

Foreign Operations

On September 30, 2013, the Company had $12,076,658,000 of consolidated assets, of which approximately $187,049,000, or 1.6%, was related to loans outstanding to borrowers domiciled in foreign countries, compared to $188,974,000, or 1.6%, at December 31, 2012.  Of the $187,049,000, 91.1 % is directly or indirectly secured by U.S. assets, certificates of deposits and real estate; 8.4% is secured by foreign real estate; and .5% is unsecured.

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Critical Accounting Policies

The Company has established various accounting policies which govern the application of accounting principles in the preparation of the Company’s consolidated financial statements.  The significant accounting policies are described in the notes to the consolidated financial statements.  Certain accounting policies involve significant subjective judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies.

The Company considers its Allowance for Probable Loan Losses as a policy critical to the sound operations of the bank subsidiaries.  The allowance for probable loan losses consists of the aggregate loan loss allowances of the bank subsidiaries.  The allowances are established through charges to operations in the form of provisions for probable loan losses.  Loan losses or recoveries are charged or credited directly to the allowances.  The allowance for probable loan losses of each bank subsidiary is maintained at a level considered appropriate by management, based on estimated probable losses in the loan portfolio.  The allowance is derived from the following elements:  (i) allowances established on specific impaired loans, which are based on a review of the individual characteristics of each loan, including the customer’s ability to repay the loan, the underlying collateral values, and the industry in which the customer operates (ii) allowances based on actual historical loss experience for similar types of loans in the Company’s loan portfolio and (iii) allowances based on general economic conditions, changes in the mix of loans, Company resources, border risk and credit quality indicators, among other things.   See also discussion regarding the allowance for probable loan losses and provision for probable loan losses included in the results of operations and “Provision and Allowance for Probable Loan Losses” included in Notes 1 and 4 of the notes to Consolidated Financial Statements in the Company’s latest Annual Report on Form 10-K for further information regarding the Company’s provision and allowance for probable loan losses policy.

Liquidity and Capital Resources

The maintenance of adequate liquidity provides the Company’s bank subsidiaries with the ability to meet potential depositor withdrawals, provide for customer credit needs, maintain adequate statutory reserve levels and take full advantage of high-yield investment opportunities as they arise.  Liquidity is afforded by access to financial markets and by holding appropriate amounts of liquid assets.  The Company’s bank subsidiaries derive their liquidity largely from deposits of individuals and business entities.  Deposits from persons and entities domiciled in Mexico comprise a stable portion of the deposit base of the Company’s bank subsidiaries. Other important funding sources for the Company’s bank subsidiaries during 2013 and 2012 were borrowings from FHLB, securities sold under repurchase agreements and large certificates of deposit, requiring management to closely monitor its asset/liability mix in terms of both rate sensitivity and maturity distribution.  Primary liquidity of the Company and its subsidiaries has been maintained by means of increased investment in shorter-term securities, certificates of deposit and repurchase agreements.  As in the past, the Company will continue to monitor the volatility and cost of funds in an attempt to match maturities of rate-sensitive assets and liabilities and respond accordingly to anticipated fluctuations in interest rates over reasonable periods of time.

The Company maintains an adequate level of capital as a margin of safety for its depositors and shareholders.  At September 30, 2013, shareholders’ equity was $1,415,351,000 compared to $1,435,708,000 at December 31, 2012, a decrease of $20,358,000, or 1.4%.  The decrease is primarily due to an increase in other comprehensive loss and the payment of cash dividends to shareholders, offset by the retention of earnings.

The Company had a leverage ratio of 11.53% and 10.86%, risk-weighted Tier 1 capital ratio of 19.37% and 19.65% and risk-weighted total capital ratio of 20.40% and 20.60% at September 30, 2013 and December 31, 2012, respectively.  The identified intangibles and goodwill of $286,900,000 as of September 30, 2013, recorded in connection with the Company’s acquisitions, are deducted from the sum of core capital elements when determining the capital ratios of the Company.

As in the past, the Company will continue to monitor the volatility and cost of funds in an attempt to match maturities of rate-sensitive assets and liabilities, and respond accordingly to anticipate fluctuations in interest rates by adjusting the balance between sources and uses of funds as deemed appropriate.  The net-interest rate sensitivity as of September 30, 2013 is illustrated in the table entitled “Interest Rate Sensitivity.”  This information reflects the balances of assets and liabilities for which rates are subject to change.  A mix of assets and liabilities that are roughly equal in volume and re-pricing characteristics represents a matched interest rate sensitivity position.  Any excess of assets or liabilities results in an interest rate sensitivity gap.

The Company undertakes an interest rate sensitivity analysis to monitor the potential risk on future earnings resulting from the impact of possible future changes in interest rates on currently existing net asset or net liability positions. However, this type of analysis is as of a point-in-time position, when in fact that position can quickly change as market

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conditions, customer needs, and management strategies change. Thus, interest rate changes do not affect all categories of asset and liabilities equally or at the same time.  As indicated in the table, the Company is liability sensitive during the early time periods and asset sensitive in the longer periods.  The Company’s Asset and Liability Committee semi-annually reviews the consolidated position along with simulation and duration models, and makes adjustments as needed to control the Company’s interest rate risk position.  The Company uses modeling of future events as a primary tool for monitoring interest rate risk.

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Interest Rate Sensitivity

(Dollars in Thousands)

	Rate/Maturity
September 30, 2013	3 Months or Less			Over 3 Months to 1 Year			Over 1 Year to 5 Years		Over 5 Years		Total
Rate sensitive assets
Investment securities	$	415,509		$	1,484,748		$	3,303,162	$	247,731	$	5,451,150
Loans, net of non-accruals	3,797,996			226,747			261,371		679,595		4,965,709
Total earning assets	$	4,213,505		$	1,711,495		$	3,564,533	$	927,326	$	10,416,859
Cumulative earning assets	$	4,213,505		$	5,925,000		$	9,489,533	$	10,416,859
Rate sensitive liabilities
Time deposits	$	1,133,718		$	1,266,363		$	301,915	$	56	$	2,702,052
Other interest bearing deposits	2,759,122			—			—		—		2,759,122
Securities sold under repurchase agreements	358,856			31,265			611,016		—		1,001,137
Other borrowed funds	1,280,500			—			—		8,993		1,289,493
Junior subordinated deferrable interest debentures	190,726			—			—		—		190,726
Total interest bearing liabilities	$	5,722,922		$	1,297,628		$	912,931	$	9,049	$	7,942,530
Cumulative sensitive liabilities	$	5,722,922		$	7,020,550		$	7,933,481	$	7,942,530
Repricing gap	$	(1,509,417	)	$	413,867		$	2,651,602	$	918,277	$	2,474,329
Cumulative repricing gap	(1,509,417		)	(1,095,550		)	1,556,052		2,474,329
Ratio of interest-sensitive assets to liabilities	.74			1.32			3.90		102.48		1.31
Ratio of cumulative, interest- sensitive assets to liabilities	.74			.84			1.20		1.31

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

During the first nine months of 2013, there were no material changes in market risk exposures that affected the quantitative and qualitative disclosures regarding market risk presented under the caption “Liquidity and Capital Resources” located on pages 18 through 24 of the Company’s 2012 Annual Report as filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2012.

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Item 4.  Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within specified time periods.  As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s principal executive officer and principal financial officer evaluated, with the participation of the Company’s management, the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)).  Based on the evaluation, which disclosed no material weaknesses, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is involved in various legal proceedings that are in various stages of litigation.  Some of these actions allege “lender liability” claims on a variety of theories and claim substantial actual and punitive damages.  The Company has determined, based on discussions with its counsel that any material loss in such actions, individually or in the aggregate, is remote or the damages sought, even if fully recovered, would not be considered material to the consolidated financial position or results of operations of the Company.  However, many of these matters are in various stages of proceedings and further developments could cause management to revise its assessment of these matters.

1A. Risk Factors

There were no material changes in the risk factors as previously disclosed in Item 1A to Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

From time to time, the Company’s Board of Directors has authorized stock repurchase plans.  In April 2009, the Board of Directors established a formal stock repurchase program that authorized the repurchase of up to $40 million of common stock within the following twelve months and on February 28, 2013, the Board of Directors extended the repurchase program and again authorized the repurchase of up to $40 million of common stock during the twelve month period commencing on April 9, 2013, which repurchase cap the Board is inclined to increase over time.  Stock repurchases may be made from time to time, on the open market or through private transactions.  During the second quarter, the Company’s Board of Directors adopted a Rule 10b5-1 plan and intends to adopt additional Rule 10b5-1 trading plans that will allow the Company to purchase its shares of common stock during certain trading blackout periods when the Company ordinarily would not be in the market due to trading restrictions in its internal trading policy.  Shares repurchased in this program will be held in treasury for reissue for various corporate purposes, including employee stock option plans.  As of November 1, 2013, a total of 7,843,293 shares had been repurchased under all repurchase programs at a cost of $237,536,000.  The Company is not obligated to repurchase shares under its stock purchase program or to enter into additional Rule 10b5-1 plans; however, during the term of a 10b5-1 Plan, purchases of common stock are automatic to the extent the conditions of the 10b5-1 Plan’s trading instructions are met.  The timing, actual number and value of shares purchased will depend on many factors, including the Company’s cash flow and the liquidity and price performance of its shares of common stock.

Except for repurchases in connection with the administration of an employee benefit plan in the ordinary course of business and consistent with past practices, common stock repurchases are only conducted under publicly announced repurchase programs approved by the Board of Directors.  The following table includes information about common stock share repurchases for the quarter ended September 30, 2013.

42

	Total Number of  Shares Purchased	Average Price  Paid Per Share	Shares Purchased as  Part of a Publicly- Announced  Program	Approximate Dollar Value of Shares Available for  Repurchase (1)
July 1 — July 31, 2013	—	—	—	$	40,000,000
August 1 — August 31, 2013	—	—	—	40,000,000
September 1 — September 30, 2013	—	—	—	40,000,000
	—	—	—

(1) The repurchase program was extended on February 28, 2013 and allows for the repurchase of up to an additional $40,000,000 of treasury stock through April 9, 2014.

43

Item 6.  Exhibits

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

31(a) —Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31(b) —Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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 2002

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

101++ — Interactive Data File

++ Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language):  (i) the Condensed Consolidated Statement of Earnings for the three and nine months ended September 30, 2013 and 2012, (ii) the Condensed Consolidated Balance Sheet as of September 30, 2013 and December 31, 2012, and (iii) the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2013 and 2012.  Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

44

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		INTERNATIONAL BANCSHARES CORPORATION
Date:	November 6, 2013	/s/ Dennis E. Nixon
		Dennis E. Nixon
		President
Date:	November 6, 2013	/s/ Imelda Navarro
		Imelda Navarro
		Treasurer

45

EX-31.A

Exhibit 31(a)

Certification of Chief Executive Officer

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dennis E. Nixon, certify that:

1.I have reviewed this report on form 10-Q of International Bancshares Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 6, 2013

/s/ Dennis E. Nixon

Dennis E. Nixon

President (Chief Executive Officer)

1

EX-31.B

Exhibit 31(b)

Certification of Chief Financial Officer

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Imelda Navarro, certify that:

1.I have reviewed this report on form 10-Q of International Bancshares Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 6, 2013

/s/ Imelda Navarro

Imelda Navarro

Treasurer (Chief Financial Officer)

1

EX-32.A

Exhibit 32(a)

CERTIFICATION PURSUANT TO

18 U.S.C. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of International Bancshares Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis E. Nixon, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)), as applicable; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Dennis E. Nixon
	Dennis E. Nixon
	President
Date:	November 6, 2013

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. 1350, and not being filed for purposes of Section 18 of the Securities Exchange Act, as amended, and is not to be incorporated by reference into any filing of the Company, whether on, before or after the date hereof, regardless of any general incorporation language in such filing.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

1

EX-32.B

Exhibit 32(b)

CERTIFICATION PURSUANT TO

18 U.S.C. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of International Bancshares Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Imelda Navarro, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)), as applicable; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/Imelda Navarro
	Imelda Navarro
	Treasurer
Date:	November 6, 2013

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. 1350, and not being filed for purposes of Section 18 of the Securities Exchange Act, as amended, and is not to be incorporated by reference into any filing of the Company, whether on, before or after the date hereof, regardless of any general incorporation language in such filing.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

1

XML

Common Stock and Dividends

9 Months Ended

Sep. 30, 2013

Common Stock and Dividends

Common Stock and Dividends

Note 9 — Common Stock and Dividends

The Company had outstanding 216,000 shares of Series A cumulative perpetual preferred stock (the “Senior Preferred Stock”), issued to the US Treasury under the Company’s participation in the Troubled Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase Program”).  The Company redeemed all of the Senior Preferred Stock in 2012.  In conjunction with the purchase of the Senior Preferred Stock, the US 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 and was immediately exercisable.  The Warrant is included as a component of Tier 1 capital.  On June 12, 2013, the U. S. Treasury sold the Warrant to a third party.  As of September 30, 2013, none of the Warrant had been exercised.

The Company paid cash dividends to the common shareholders of $.20 per share on April 19, 2013 to all holders of record on April 1, 2013 and $.23 per share on October 15, 2013 to all holders of record on September 30, 2013.  Cash dividends of $.20 per share were paid to common shareholders on April 20, and October 15, 2012 to all holders of record on April 2 and September 28, 2012, respectively.

In April 2009, following receipt of the Treasury Department’s consent, the Board of Directors re-established a formal stock repurchase program that authorized the repurchase of up to $40 million of common stock within the following twelve months and on February 28, 2013, the Board of Directors extended the repurchase program and again authorized the repurchase of up to $40 million of common stock during the twelve month period commencing on April 9, 2013, which repurchase cap the Board is inclined to increase over time.  Stock repurchases may be made from time to time, on the open market or through private transactions.  Shares repurchased in this program will be held in treasury for reissue for various corporate purposes, including employee stock option plans.  As of November 1, 2013, a total of 7,843,293 shares had been repurchased under all programs at a cost of $237,536,000.

XML

Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Interest income:
Loans, including fees	$ 66,482	$ 67,254	$ 194,633	$ 202,990
Investment securities:
Taxable	21,821	23,388	60,941	71,128
Tax-exempt	3,318	2,972	9,439	8,682
Other interest income	29	161	71	440
Total interest income	91,650	93,775	265,084	283,240
Interest expense:
Savings deposits	885	1,074	2,852	4,176
Time deposits	3,644	5,910	12,067	18,650
Securities sold under repurchase agreements	7,162	8,811	22,042	29,380
Other borrowings	454	195	1,033	541
Junior subordinated interest deferrable debentures	862	1,430	3,191	5,378
Total interest expense	13,007	17,420	41,185	58,125
Net interest income	78,643	76,355	223,899	225,115
Provision for probable loan losses	5,800	5,349	17,561	16,741
Net interest income after provision for probable loan losses	72,843	71,006	206,338	208,374
Non-interest income:
Service charges on deposit accounts	25,026	23,748	72,363	69,601
Other service charges, commissions and fees
Banking	11,327	9,492	31,362	28,980
Non-banking	2,092	2,038	4,668	4,971
Investment securities transactions, net		32,935	9,601	35,527
Other investments, net	3,871	3,650	19,503	11,431
Other income	2,165	2,144	6,941	7,493
Total non-interest income	44,481	74,007	144,438	158,003
Non-interest expense:
Employee compensation and benefits	30,627	30,541	91,602	90,152
Occupancy	7,604	8,032	22,596	24,873
Depreciation of bank premises and equipment	6,433	6,618	19,677	20,335
Professional fees	3,669	4,279	11,344	11,820
Deposit insurance assessments	1,683	2,289	5,061	5,346
Net expense, other real estate owned	1,360	3,065	4,724	5,631
Amortization of identified intangible assets	1,156	1,163	3,451	3,463
Advertising	1,795	1,713	5,664	5,510
Early termination fee - securities sold under repurchase agreements		31,550	12,303	31,550
Impairment charges (Total other-than-temporary impairment losses, $(13), net of $(560), $(402), net of $(641), $(27), net of $(1,273), and $947, net of $300, included in other comprehensive loss)	573	239	1,300	647
Other	15,327	16,955	47,080	47,351
Total non-interest expense	70,227	106,444	224,802	246,678
Income before income taxes	47,097	38,569	125,974	119,699
Provision for income taxes	15,271	12,691	38,566	37,584
Net income	31,826	25,878	87,408	82,115
Preferred stock dividends		3,845		10,543
Net income available to common shareholders	$ 31,826	$ 22,033	$ 87,408	$ 71,572
Basic earnings per common share:
Weighted average number of shares outstanding: (in shares)	67,197,847	67,225,701	67,192,112	67,246,793
Net income (in dollars per share)	$ 0.47	$ 0.33	$ 1.30	$ 1.06
Fully diluted earnings per common share:
Weighted average number of shares outstanding: (in shares)	67,333,442	67,301,701	67,301,863	67,326,856
Net income (in dollars per share)	$ 0.47	$ 0.33	$ 1.30	$ 1.06

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Measurements

Fair Value Measurements

Note 2 — Fair Value Measurements

ASC Topic 820,”Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  ASC 820 applies to all financial instruments that are being measured and reported on a fair value basis.  ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; it also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies into the following three levels:

· Level 1 Inputs — Unadjusted quoted prices in active markets for identical assets or liabilities.

· Level 2 Inputs — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3 Inputs — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy is set forth below.

The following table represents assets and liabilities reported on the consolidated balance sheets at their fair value on a recurring basis as of September 30, 2013 by level within the fair value measurement hierarchy:

			Fair Value Measurements at Reporting Date Using
			(in thousands)
			Quoted Prices
	Assets/Liabilities		in Active
	Measured at Fair		Markets for		Significant Other		Significant
	Value		Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
	2013		(Level 1)		(Level 2)		(Level 3)
Measured on a recurring basis:
Assets:
Available for sale securities
Residential mortgage-backed securities	$	5,172,186	$	—	$	5,143,187	$	28,999
States and political subdivisions	247,731		—		247,731		—
Other	28,833		28,833		—		—
Total	$	5,448,750	$	28,833	$	5,390,918	$	28,999

The following table represents assets and liabilities reported on the consolidated balance sheets at their fair value on a recurring basis as of December 31, 2012 by level within the fair value measurement hierarchy:

			Fair Value Measurements at Reporting Date Using
			(in thousands)
			Quoted Prices
			in Active
	Assets/Liabilities		Markets for		Significant Other		Significant
	Measured at Fair		Identical		Observable		Unobservable
	Value		Assets		Inputs		Inputs
	December 31, 2012		(Level 1)		(Level 2)		(Level 3)
Measured on a recurring basis:
Assets:
Available for sale securities
Residential mortgage-backed securities	$	5,265,204	$	—	$	5,232,344	$	32,860
States and political subdivisions	238,675		—		238,675		—
Other	21,136		21,136		—		—
Total	$	5,525,015	$	21,136	$	5,471,019	$	32,860

Investment securities available-for-sale are classified within level 2 and level 3 of the valuation hierarchy, with the exception of certain equity investments that are classified within level 1.  For investments classified as level 2 in the fair value hierarchy, the Company obtains fair value measurements for investment securities from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.  Investment securities classified as level 3 are non-agency mortgage-backed securities.  The non-agency mortgage-backed securities held by the Company are traded in inactive markets and markets that have experienced significant decreases in volume and level of activity, as evidenced by few recent transactions, a significant decline or absence of new issuances, price quotations that are not based on comparable securities transactions and wide bid-ask spreads among other factors.  As a result of the inability to use quoted market prices to determine fair value for these securities, the Company determined that fair value, as determined by level 3 inputs in the fair value hierarchy, is more appropriate for financial reporting and more consistent with the expected performance of the investments.  For the investments classified within level 3 of the fair value hierarchy, the Company used a discounted cash flow model to determine fair value.  Inputs in the model included both historical performance and expected future performance based on information currently available.

Assumptions used in the discounted cash flow model as of September 30, 2013 and December 31, 2012 were applied separately to those portions of the bond where the underlying residential mortgage loans had been performing under original contract terms for at least the prior 24 months and those where the underlying residential mortgages had not been meeting the original contractual obligation for the same period.  Unobservable inputs included in the model are estimates on future principal prepayment rates, and default and loss severity rates.  For that portion of the bond where the underlying residential mortgage had been meeting the original contract terms for at least 24 months, the Company used the following estimates in the model: (i) a voluntary prepayment rate of 7%, (ii) a 1% default rate, (iii) a loss severity rate of 25%, and (iv) a discount rate of 13%.  The assumptions used in the model for the rest of the bond included the following estimates:  (i) a voluntary prepayment rate of 2 %, (ii) a default rate of 4.5%, (iii) a loss severity rate that started at 60% for the first year (2012)  then declines by 5% for the following five years (2013, 2014, 2015, 2016 and 2017) and remains at 25% thereafter (2018 and beyond), and (iv) a discount rate of 13%.  The estimates used in the model to determine fair value are based on observable historical data of the underlying collateral.  The model anticipates that the housing market will gradually improve and that the underlying collateral will eventually all perform in accordance with the original contract terms on the bond.  Should the number of loans in the underlying collateral that default and go into foreclosure or the severity of the losses in the underlying collateral significantly change, the results of the model would be impacted.  The Company will continue to evaluate the actual historical performance of the underlying collateral and will modify the assumptions used in the model as necessary.

The following table presents a reconciliation of activity for such mortgage-backed securities on a net basis (Dollars in Thousands):

Balance at December 31, 2012	$	32,860
Principal paydowns	(3,833		)
Total unrealized gains (losses) included in:
Other comprehensive loss	1,272
Impairment realized in earnings	(1,300		)
Balance at September 30, 2013	$	28,999

Certain assets and liabilities are measured at fair value on a nonrecurring basis.  They are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

The following table represents assets measured at fair value on a non-recurring basis as of and for the period ended September 30, 2013 by level within the fair value measurement hierarchy:

			Fair Value Measurements at Reporting Date Using
			(in thousands)
			Quoted						Net Provision
			Prices in						During
	Assets/Liabilities		Active		Significant				Period
	Measured at Fair		Markets for		Other		Significant		Nine Months
	Value		Identical		Observable		Unobservable		ended
	September 30,		Assets		Inputs		Inputs		September 30,
	2013		(Level 1)		(Level 2)		(Level 3)		2013
Measured on a non-recurring basis:
Assets:
Impaired loans	$	29,159	$	—	$	—	$	29,159	$	11,048
Other real estate owned	11,656		—		—		11,656		478

The following table represents assets measured at fair value on a non-recurring basis as of and for the year ended December 31, 2012 by level within the fair value measurement hierarchy:

			Fair Value Measurements at Reporting Date Using
			(in thousands)
									Net
			Quoted						Provision
			Prices in						During
	Assets/Liabilities		Active		Significant				Period
	Measured at Fair		Markets for		Other		Significant		Twelve
	Value		Identical		Observable		Unobservable		Months ended
	December 31,		Assets		Inputs		Inputs		December 31,
	2012		(Level 1)		(Level 2)		(Level 3)		2012
Measured on a non-recurring basis:
Assets:
Impaired loans	$	11,981	$	—	$	—	$	11,981	$	295
Other real estate owned	18,749		—		—		18,749		—

The Company’s assets measured at fair value on a non-recurring basis are limited to impaired loans and other real estate owned.  Impaired loans are classified within level 3 of the valuation hierarchy.  The fair value of impaired loans is derived in accordance with FASB ASC 310, “Receivables”.  Impaired loans are primarily comprised of collateral-dependent commercial loans.   The fair value of impaired loans is based on the fair value of the collateral, as determined through an appraisal process.  The basis for the Company’s appraisal and appraisal review process is based on regulatory guidelines and strives to comply with all regulatory appraisal laws, regulations and the Uniform Standards of Professional Appraisal Practice.  Understanding that as the primary sources of loan repayments decline, the secondary repayment source comes into play and correctly evaluating the fair value of that secondary source, the collateral, becomes even more important.  New or updated appraisals may be obtained as warranted after evaluation of any material deterioration in the performance of the project, the conditions for the geographic area where the property is located, the property type, differences between the current property conditions and the conditions assumed in prior appraisals or evaluations, or changes in project specifications.  All appraisals and evaluations are “as is” (the property’s highest and best use) valuations based on the current conditions of the property/project at that point in time.  The determination of the fair value of the collateral is based on the net realizable value, which is the appraised value less any closing costs, when applicable.  Impaired loans are remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for probable loan losses based upon the fair value of the underlying collateral.  As of September 30, 2013, the Company had $87,914,000 of impaired commercial collateral dependent loans, of which $70,548,000 had an appraisal or evaluation performed within the last twelve months.  As of December 31, 2012, the Company had $73,646,000 of impaired commercial collateral dependent loans, of which $48,856,000 had an appraisal or evaluation performed within the last twelve months.

Other real estate owned is comprised of real estate acquired by foreclosure and deeds in lieu of foreclosure. Other real estate owned is carried at the lower of the recorded investment in the property or its fair value less estimated costs to sell such property (as determined by independent appraisal) within level 3 of the fair value hierarchy.  Prior to foreclosure, the value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the allowance for probable loan losses, if necessary.  The fair value is reviewed periodically and subsequent write downs are made accordingly through a charge to operations.  Other real estate owned is included in other assets on the consolidated financial statements.  For the nine months ended September 30, 2013 and the twelve months ended December 31, 2012, respectively the Company recorded $237,000 and $10,450,000 in charges to the allowance for probable loan losses in connection with loans transferred to other real estate owned.  For the nine months ended September 30, 2013 and twelve months ended December 31, 2012, respectively, the Company recorded $ 478,000 and $0 in adjustments to fair value in connection with other real estate owned.

The fair value estimates, methods, and assumptions for the Company’s financial instruments at September 30, 2013 and December 31, 2012 are outlined below.

Cash and Due From Banks and Federal Funds Sold

For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Time Deposits with Banks

The carrying amounts of time deposits with banks approximate fair value.

Investment Securities Held-to-Maturity

The carrying amounts of investments held-to-maturity approximate fair value.

Investment Securities

For investment securities, which include U.S. Treasury securities, obligations of other U.S. government agencies, obligations of states and political subdivisions and mortgage pass through and related securities, fair values are from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.  See disclosures of fair value of investment securities in Note 6.

Loans

Fair values are estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as commercial, real estate and consumer loans as outlined by regulatory reporting guidelines.  Each category is segmented into fixed and variable interest rate terms and by performing and non-performing categories.

For variable rate performing loans, the carrying amount approximates the fair value.  For fixed rate performing loans, except residential mortgage loans, the fair value is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan.  For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources or the primary origination market.  Fixed rate performing loans are within Level 3 of the fair value hierarchy.  At September 30, 2013, and December 31, 2012, the carrying amount of fixed rate performing loans was $1,207,154,000 and $1,189,585,000 respectively, and the estimated fair value was $1,152,663,000 and $1,126,228,000, respectively.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Deposits

The fair value of deposits with no stated maturity, such as non-interest bearing demand deposit accounts, savings accounts and interest bearing demand deposit accounts, was equal to the amount payable on demand as of September 30, 2013 and December 31, 2012.  The fair value of time deposits is based on the discounted value of contractual cash flows.  The discount rate is based on currently offered rates.  Time deposits are within Level 3 of the fair value hierarchy.    At September 30, 2013 and December 31, 2012, the carrying amount of time deposits was $2,702,052,000 and $2,954,312,000, respectively, and the estimated fair value was $2,695,908,000 and $2,962,190,000, respectively.

Securities Sold Under Repurchase Agreements

Securities sold under repurchase agreements include both short and long-term maturities.  Due to the contractual terms of the short-term instruments, the carrying amounts approximated fair value at September 30, 2013 and December 31, 2012.  The fair value of the long-term instruments is based on established market spreads using option adjusted spread methodology.  Long-term repurchase agreements are within level 3 of the fair value hierarchy.  At September 30, 2013 and December 31, 2012, respectively, the carrying amount of long-term repurchase agreements was $710,000,000 and $800,000,000 and the estimated fair value was $799,005,000 and $932,007,000, respectively.

Junior Subordinated Deferrable Interest Debentures

The Company currently has floating rate junior subordinated deferrable interest debentures outstanding.  Due to the contractual terms of the floating rate junior subordinated deferrable interest debentures, the carrying amounts approximated fair value at September 30, 2013 and December 31, 2012.

Other Borrowed Funds

The company currently has short and long-term borrowings issued from the Federal Home Loan Bank (“FHLB”).  Due to the contractual terms of the short-term borrowings, the carrying amounts approximated fair value at September 30, 2013 and December 31, 2012.  The fair value of the long-term borrowings is based on established market spreads for similar types of borrowings.  The long-term borrowings are included in Level 2 of the fair value hierarchy.  At September 30, 2013 and December 31, 2012, the carrying amount of the long-term FHLB borrowings was $8,993,000, and $6,527,000, respectively, and the estimated fair value was $8,993,000 and $7,073,000, respectively.

Commitments to Extend Credit and Letters of Credit

Commitments to extend credit and fund letters of credit are principally at current interest rates, and, therefore, the carrying amount approximates fair value.

Limitations

Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on-and off-statement of condition financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.  Other significant assets and liabilities that are not considered financial assets or liabilities include the bank premises and equipment and core deposit value.  In addition, the tax ramifications related to the effect of fair value estimates have not been considered in the above estimates.

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2013

Investment Securities

Amortized cost and estimated fair value by type of investment security

The amortized cost and estimated fair value by type of investment security at September 30, 2013 are as follows:

	Held to Maturity
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Carrying value
	(Dollars in Thousands)
Other securities	$	2,400	$	—	$	—	$	2,400	$	2,400
Total investment securities	$	2,400	$	—	$	—	$	2,400	$	2,400

	Available for Sale
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Carrying value (1)
	(Dollars in Thousands)
Residential mortgage-backed securities	$	5,197,331	$	70,436	$	(95,581	)	$	5,172,186	$	5,172,186
Obligations of states and political subdivisions	244,697		9,758		(6,724		)	247,731		247,731
Equity securities	28,075		1,041		(283		)	28,833		28,833
Total investment securities	$	5,470,103	$	81,235	$	(102,588	)	$	5,448,750	$	5,448,750

(1) Included in the carrying value of residential mortgage-backed securities are $1,894,858 of mortgage-backed securities issued by Ginnie Mae, $3,248,329 of mortgage-backed securities issued by Fannie Mae and Freddie Mac and $28,999  issued by non-government entities

The amortized cost and estimated fair value by type of investment security at December 31, 2012 are as follows:

	Held to Maturity
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Carrying value
	(Dollars in Thousands)
Other securities	$	2,400	$	—	$	—	$	2,400	$	2,400
Total investment securities	$	2,400	$	—	$	—	$	2,400	$	2,400

	Available for Sale
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Carrying value (1)
	(Dollars in Thousands)
Residential mortgage-backed securities	$	5,186,652	$	94,585	$	(16,033	)	$	5,265,204	$	5,265,204
Obligations of states and political subdivisions	216,962		23,504		(1,791		)	238,675		238,675
Equity securities	19,575		1,581		(20		)	21,136		21,136
Total investment securities	$	5,423,189	$	119,670	$	(17,844	)	$	5,525,015	$	5,525,015

(1) Included in the carrying value of residential mortgage-backed securities are $2,035,742 of mortgage-backed securities issued by Ginnie Mae, $3,196,602 of mortgage-backed securities issued by Fannie Mae and Freddie Mac and $32,860  issued by non-government entities

Amortized cost and fair value of investment securities, by contractual maturity

The amortized cost and estimated fair value of investment securities at September 30, 2013, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

	Held to Maturity				Available for Sale
	Amortized Cost		Estimated fair value		Amortized Cost		Estimated fair value
	(Dollars in Thousands)
Due in one year or less	$	1,325	$	1,325	$	—	$	—
Due after one year through five years	1,075		1,075		—		—
Due after five years through ten years	—		—		697		744
Due after ten years	—		—		244,000		246,987
Residential mortgage-backed securities	—		—		5,197,331		5,172,186
Equity securities	—		—		28,075		28,833
Total investment securities	$	2,400	$	2,400	$	5,470,103	$	5,448,750

Gross unrealized losses on investment securities and the related fair value

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2013 were as follows:

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available for sale:
Residential mortgage-backed securities	$	2,599,415	$	(84,205	)	$	94,376	$	(11,376	)	$	2,693,791	$	(95,581	)
Obligations of states and political subdivisions	51,800		(2,859		)	12,044		(3,865		)	63,844		(6,724		)
Other equity securities	10,470		(279		)	71		(4		)	10,541		(283		)
	$	2,661,685	$	(87,343	)	$	106,491	$	(15,245	)	$	2,768,176	$	(102,588	)

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2012 were as follows:

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available for sale:
Residential mortgage-backed securities	$	738,492	$	(5,476	)	$	32,860	$	(10,557	)	$	771,352	$	(16,033	)
Obligations of states and political subdivisions	5,117		(114		)	10,437		(1,677		)	15,554		(1,791		)
Equity securities	—		—			56		(20		)	56		(20		)
	$	743,609	$	(5,590	)	$	43,353	$	(12,254	)	$	786,962	$	(17,844	)

Reconciliation of credit-related impairment charges on available-for-sale investment

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investments recognized in earnings for the three months ended September 30, 2013 (Dollars in Thousands):

Balance at June 30, 2013	$	11,159
Impairment charges recognized during period	573
Balance at September 30, 2013	$	11,732

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investments recognized in earnings for the nine months ended September 30, 2013 (Dollars in Thousands):

Balance at December 31, 2012	$	10,432
Impairment charges recognized during period	1,300
Balance at September 30, 2013	$	11,732

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investment recognized in earnings for the three months ended September 30, 2012 (Dollars in Thousands):

Balance at June 30, 2012	$	9,801
Impairment charges recognized during period	239
Balance at September 30, 2012	$	10,040

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investment recognized in earnings for the nine months ended September 30, 2012 (Dollars in Thousands):

Balance at December 31, 2011	$	9,393
Impairment charges recognized during period	647
Balance at September 30, 2012	$	10,040

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Commitments and Contingent Liabilities

9 Months Ended

Sep. 30, 2013

Commitments and Contingent Liabilities

Commitments and Contingent Liabilities

Note 10 - Commitments and Contingent Liabilities

The Company is involved in various legal proceedings that are in various stages of litigation.  Some of these actions allege “lender liability” claims on a variety of theories and claim substantial actual and punitive damages.  The Company has determined, based on discussions with its counsel that any material loss in such actions, individually or in the aggregate, is remote or the damages sought, even if fully recovered, would not be considered material to the consolidated financial position, results of operations or cash flows of the Company.  However, many of these matters are in various stages of proceedings and further developments could cause management to revise its assessment of these matters.

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Stock Options (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Apr. 05, 2012
Stock options under 2012 Plan
Stock option details
Shares available for future grants	749,000		749,000		800,000
Maximum exercisable period for options granted			10 years
Stock option activity
Options outstanding at the beginning of the period (in shares)			794,877
Plus: Options granted (in shares)			8,500
Less:
Options exercised (in shares)			11,738
Options expired (in shares)			22,343
Options forfeited (in shares)			20,600
Options outstanding at the end of the period (in shares)	748,969		748,969
Options fully vested and exercisable at the end of the period (in shares)	426,476		426,476
Stock options, weighted average exercise price
Options outstanding at the beginning, weighted average exercise price (in dollars per share)			$ 19.03
Plus: Options granted, weighted average exercise price (in dollars per share)			$ 21.33
Less:
Options exercised, weighted average exercise price (in dollars per share)			$ 12.36
Options expired, weighted average exercise price (in dollars per share)			$ 23.50
Options forfeited, weighted average exercise price (in dollars per share)			$ 17.88
Options outstanding at the end, weighted average exercise price (in dollars per share)	$ 19.06		$ 19.06
Options fully vested and exercisable at the end, weighted average exercise price (in dollars per share)	$ 22.74		$ 22.74
Stock options, weighted average remaining contractual term
Options outstanding at the end, weighted average remaining contractual term			3 years 2 months 5 days
Options fully vested and exercisable at the end, weighted average remaining contractual term			1 year 4 months 2 days
Stock options, aggregate intrinsic value
Options outstanding at the end, aggregate intrinsic value	$ 3,386,000		$ 3,386,000
Options fully vested and exercisable at the end, aggregate intrinsic value	991,000		991,000
Stock-based compensation expense	101,000	113,000	322,000	366,000
Stock-based compensation cost, unrecognized, related to non-vested options	$ 900,000		$ 900,000
Stock-based compensation cost, unrecognized, related to non-vested options, weighted-average period of recognition			1 year 10 months 6 days
Incentive stock options granted to 10% shareholders
Stock option details
Maximum exercisable period for options granted			5 years

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets:
Available for sale securities	$ 5,448,750	$ 5,525,015
Measured on a recurring basis: | Assets/Liabilities Measured at Fair Value
Assets:
Available for sale securities	5,448,750	5,525,015
Measured on a recurring basis: | Assets/Liabilities Measured at Fair Value | Residential mortgage-backed securities
Assets:
Available for sale securities	5,172,186	5,265,204
Measured on a recurring basis: | Assets/Liabilities Measured at Fair Value | States and political subdivisions
Assets:
Available for sale securities	247,731	238,675
Measured on a recurring basis: | Assets/Liabilities Measured at Fair Value | Other
Assets:
Available for sale securities	28,833	21,136
Measured on a recurring basis: | Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets:
Available for sale securities	28,833	21,136
Measured on a recurring basis: | Quoted Prices in Active Markets for Identical Assets (Level 1) | Other
Assets:
Available for sale securities	28,833	21,136
Measured on a recurring basis: | Significant Other Observable Inputs (Level 2)
Assets:
Available for sale securities	5,390,918	5,471,019
Measured on a recurring basis: | Significant Other Observable Inputs (Level 2) | Residential mortgage-backed securities
Assets:
Available for sale securities	5,143,187	5,232,344
Measured on a recurring basis: | Significant Other Observable Inputs (Level 2) | States and political subdivisions
Assets:
Available for sale securities	247,731	238,675
Measured on a recurring basis: | Significant Unobservable Inputs (Level 3)
Assets:
Available for sale securities	28,999	32,860
Measured on a recurring basis: | Significant Unobservable Inputs (Level 3) | Residential mortgage-backed securities
Assets:
Available for sale securities	$ 28,999	$ 32,860

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Basis of Presentation (Details)	9 Months Ended
	Sep. 30, 2013 item
Basis of Presentation
Number of operating segments	1
Number of active operating bank subsidiaries	4

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Common Stock and Dividends (Details) (USD $)	0 Months Ended						1 Months Ended	9 Months Ended
	Oct. 15, 2013	Apr. 19, 2013	Apr. 09, 2013	Feb. 28, 2013	Oct. 15, 2012	Apr. 20, 2012	Apr. 30, 2009	Sep. 30, 2013	Nov. 01, 2013
Common Stock and Dividends
Series A cumulative perpetual preferred shares, outstanding								216,000
Warrants to purchase entity's common stock (in shares)								1,326,238
Warrants, exercise price (in dollars per share)								$ 24.43
Percentage of aggregate common stock investment on exercise of warrant to Senior Preferred Stock investment								15.00%
Warrants, term								10 years
Number of warrants exercised								0
Cash dividends paid to common shareholders (in dollars per share)	$ 0.23	$ 0.20			$ 0.20	$ 0.20
Repurchase of common stock, authorized amount				$ 40,000,000			$ 40,000,000
Period of repurchase of common stock			12 months				12 months
Cumulative number of shares repurchased under all stock repurchase programs									7,843,293
Cumulative cost of shares repurchased under all stock repurchase programs									$ 237,536,000

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Allowance for Probable Loan Losses (Details 3) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Loan loss allowances, financing receivable past due
Non-accrual loans, total	$ 86,452	$ 71,768
Commercial
Loan loss allowances, financing receivable past due
Non-accrual loans, total	34,450	31,929
Commercial real estate: other construction and land development
Loan loss allowances, financing receivable past due
Non-accrual loans, total	34,053	26,410
Commercial real estate: farmland and commercial
Loan loss allowances, financing receivable past due
Non-accrual loans, total	14,775	11,681
Commercial real estate: multifamily
Loan loss allowances, financing receivable past due
Non-accrual loans, total	314	353
Residential: first lien
Loan loss allowances, financing receivable past due
Non-accrual loans, total	1,234	1,175
Residential: junior lien
Loan loss allowances, financing receivable past due
Non-accrual loans, total	1,576	175
Consumer
Loan loss allowances, financing receivable past due
Non-accrual loans, total	37	45
Foreign
Loan loss allowances, financing receivable past due
Non-accrual loans, total	$ 13

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Investment Securities (Details 2) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Held-to-maturity debt securities amortized cost disclosures
Due in one year or less, held-to-maturity debt securities amortized cost	$ 1,325,000		$ 1,325,000
Due after one year through five years, held-to-maturity debt securities amortized cost	1,075,000		1,075,000
Amortized cost, held-to-maturity debt securities	2,400,000		2,400,000		2,400,000
Held-to-maturity debt securities, Estimated fair value disclosures
Due in one year or less, held-to-maturity debt securities, Estimated fair value	1,325,000		1,325,000
Due after one year through five years, held-to-maturity debt securities, Estimated fair value	1,075,000		1,075,000
Estimated fair value	2,400,000		2,400,000		2,400,000
Available-for-sale debt securities amortized cost disclosures
Due after five years through ten years, available-for-sale debt securities amortized cost	697,000		697,000
Due after ten years, available-for-sale debt securities amortized cost	244,000,000		244,000,000
Residential mortgage-backed securities, amortized cost	5,197,331,000		5,197,331,000
Equity securities, amortized cost	28,075,000		28,075,000
Amortized cost, Available for sale securities	5,470,103,000		5,470,103,000		5,423,189,000
Available for sale debt securities, Estimated Fair Value Disclosures
Due after five years through ten years, available-for-sale debt securities, Estimated Fair Value	744,000		744,000
Due after ten years, available-for-sale debt securities, Estimated Fair Value	246,987,000		246,987,000
Residential mortgage-backed securities, Estimated Fair Value	5,172,186,000		5,172,186,000
Equity securities, Estimated Fair Value	28,833,000		28,833,000
Estimated fair value, Available for sale securities	5,448,750,000		5,448,750,000		5,525,015,000
Amortized cost of available for sale investment securities pledged	2,070,772,000		2,070,772,000
Fair value of available for sale investment securities pledged	2,106,076,000		2,106,076,000
Proceeds from sales and calls of available for sale securities	0	1,207,581,000	178,124,000	1,279,963,000
Proceeds from sales of mortgage-backed securities	0	1,205,556,000	177,623,000	1,237,071,000
Gross gains realized on sales	0	32,935,000	9,601,000	35,528,000
Gross losses realized on sales	0	0	0	(1,000)
Impairment charges on available-for-sale investment securities	573,000	239,000	1,300,000	647,000
Impairment charges on available-for-sale investment securities, after tax	$ 372,000	$ 155,000	$ 845,000	$ 421,000

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Loans (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Summary of loans, by loan type
Total loans	$ 5,052,161	$ 4,775,004
Commercial, financial and agricultural
Summary of loans, by loan type
Total loans	2,841,022	2,525,380
Real estate - mortgage
Summary of loans, by loan type
Total loans	837,326	838,467
Real estate - construction
Summary of loans, by loan type
Total loans	1,119,342	1,147,669
Consumer
Summary of loans, by loan type
Total loans	67,422	74,514
Foreign
Summary of loans, by loan type
Total loans	$ 187,049	$ 188,974

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Other Borrowed Funds (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Other Borrowed Funds
Other borrowed funds	$ 1,289,493	$ 749,027
Percentage of increase in other borrowed funds	72.20%

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Junior Subordinated Interest Deferrable Debentures (Tables)

9 Months Ended

Sep. 30, 2013

Junior Subordinated Interest Deferrable Debentures

Junior subordinated deferrable interest debentures, major types of business trusts

The following table illustrates key information about each of the Capital and Common Securities and their interest rate at September 30, 2013:

	Junior Subordinated Deferrable Interest Debentures		Repricing Frequency	Interest Rate		Interest Rate Index	Maturity Date	Optional Redemption Date(1)
	(In Thousands)
Trust VI	$	25,774	Quarterly	3.71	%	LIBOR + 3.45	November 2032	February 2008
Trust VII	10,310		Quarterly	3.52	%	LIBOR + 3.25	April 2033	April 2008
Trust VIII	25,774		Quarterly	3.32	%	LIBOR + 3.05	October 2033	October 2008
Trust IX	41,238		Quarterly	1.89	%	LIBOR + 1.62	October 2036	October 2011
Trust X	34,021		Quarterly	1.92	%	LIBOR + 1.65	February 2037	February 2012
Trust XI	32,990		Quarterly	1.89	%	LIBOR + 1.62	July 2037	July 2012
Trust XII	20,619		Quarterly	1.71	%	LIBOR + 1.45	September 2037	September 2012
	$	190,726

(1) The Capital Securities may be redeemed in whole or in part on any interest payment date after the Optional Redemption Date.

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Consolidated Statements of Comprehensive Income
Net income	$ 31,826	$ 25,878	$ 87,408	$ 82,115
Other comprehensive income, net of tax
Net unrealized holding gains (losses) on securities available for Sale arising during period (tax effects of $609, $10,897, $(39,816) and $11,292)	1,132	20,238	(73,943)	20,971
Reclassification adjustment for gains on securities available for sale included in net income (tax effects of $0, $(11,527), $(3,360) and $(12,434))		(21,408)	(6,241)	(23,093)
Reclassification adjustment for impairment charges on available for sale securities included in net income (tax effects of $201, $84, $455 and $226)	372	155	845	421
Other comprehensive loss, net of tax	1,504	(1,015)	(79,339)	(1,701)
Comprehensive income	$ 33,330	$ 24,863	$ 8,069	$ 80,414

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Consolidated Statements of Cash Flows (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Operating activities:
Net income	$ 87,408,000	$ 82,115,000
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for probable loan losses	17,561,000	16,741,000
Specific reserve, other real estate owned	478,000	2,032,000
Depreciation of bank premises and equipment	19,677,000	20,335,000
Gain on sale of bank premises and equipment	(626,000)	(734,000)
Gain on sale of other real estate owned	(201,000)	(239,000)
Accretion of investment securities discounts	(2,844,000)	(2,346,000)
Amortization of investment securities premiums	35,666,000	20,290,000
Investment securities transactions, net	(9,601,000)	(35,527,000)
Impairment charges on available-for-sale investment securities	1,300,000	647,000
Amortization of identified intangible assets	3,451,000	3,463,000
Stock based compensation expense	322,000	366,000
Earnings from affiliates and other investments	(16,085,000)	(8,836,000)
Deferred tax (benefit) expense	(2,325,000)	2,267,000
Decrease in accrued interest receivable	2,051,000	1,516,000
Net decrease (increase) in other assets	16,624,000	(271,000)
Net increase in other liabilities	7,535,000	16,793,000
Net cash provided by operating activities	160,391,000	118,612,000
Investing activities:
Proceeds from maturities of held-to-maturity securities		1,125,000
Proceeds from sales and calls of available for sale securities	178,124,000	1,279,963,000
Purchases of available for sale securities	(1,274,574,000)	(2,383,774,000)
Principal collected on mortgage-backed securities	1,025,015,000	955,550,000
Net (increase) decrease in loans	(285,453,000)	86,501,000
Purchases of other investments	(1,637,000)	(2,956,000)
Distributions received on other investments	4,159,000	8,845,000
Purchases of bank premises and equipment	(30,792,000)	(23,650,000)
Proceeds from sales of other real estate owned	19,303,000	25,643,000
Proceeds from sale of bank premises and equipment	653,000	3,795,000
Net cash used in investing activities	(365,202,000)	(48,958,000)
Financing activities:
Net increase in non-interest bearing demand deposits	185,882,000	182,477,000
Net decrease in savings and interest bearing demand deposits	(108,029,000)	(22,938,000)
Net decrease in time deposits	(252,260,000)	(114,460,000)
Net decrease in securities sold under repurchase agreements	(128,542,000)	(175,017,000)
Net increase in other borrowed funds	540,466,000	120,900,000
Purchase of treasury stock		(1,092,000)
Redemption of senior preferred shares		(40,000,000)
Proceeds from stock transactions	146,000	43,000
Payments of dividends on common stock	(13,438,000)	(13,450,000)
Payments of dividends on preferred stock		(7,911,000)
Net cash provided by (used in) financing activities	224,225,000	(71,448,000)
Increase (decrease) in cash and cash equivalents	19,414,000	(1,794,000)
Cash and cash equivalents at beginning of period	283,100,000	261,885,000
Cash and cash equivalents at end of period	302,514,000	260,091,000
Supplemental cash flow information:
Interest paid	43,405,000	60,651,000
Income taxes paid	45,480,000	22,271,000
Non-cash investing and financing activities:
Accrued dividends, preferred shares		1,100,000
Dividends declared, not yet paid on common stock	15,456,000	13,445,000
Net transfer from loans to other real estate owned	(371,000)	55,694,000
Purchases of available-for-sale securities not yet settled		$ 442,240,000

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Loans

9 Months Ended

Sep. 30, 2013

Loans

Loans

Note 3— Loans

A summary of loans, by loan type at September 30, 2013 and December 31, 2012 is as follows:

	September 30,		December 31,
	2013		2012
	(Dollars in Thousands)
Commercial, financial and agricultural	$	2,841,022	$	2,525,380
Real estate — mortgage	837,326		838,467
Real estate — construction	1,119,342		1,147,669
Consumer	67,422		74,514
Foreign	187,049		188,974
Total loans	$	5,052,161	$	4,775,004

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Basis of Presentation

9 Months Ended

Sep. 30, 2013

Basis of Presentation

Basis of Presentation

Note 1 - Basis of Presentation

The accounting and reporting policies of International Bancshares Corporation (“Corporation”) and Subsidiaries (the Corporation and Subsidiaries collectively referred to herein as the “Company”) conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.  The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries, International Bank of Commerce, Laredo (“IBC”), Commerce Bank, International Bank of Commerce, Zapata, International Bank of Commerce, Brownsville and the Corporation’s wholly-owned non-bank subsidiaries, IBC Subsidiary Corporation, IBC Life Insurance Company, IBC Trading Company, IBC Capital Corporation and Premier Tierra Holdings, Inc.  All significant inter-company balances and transactions have been eliminated in consolidation.  The consolidated financial statements are unaudited, but include all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the periods presented.  All such adjustments were of a normal and recurring nature.  It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto in the Company’s latest Annual Report on Form 10-K.  The consolidated statement of condition at December 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  Certain reclassifications have been made to make prior periods comparable.

The Company operates as one segment.  The operating information used by the Company’s chief executive officer for purposes of assessing performance and making operating decisions about the Company is the consolidated statements presented in this report.  The Company has four active operating subsidiaries, namely, the bank subsidiaries, otherwise known as International Bank of Commerce, Laredo, Commerce Bank, International Bank of Commerce, Zapata and International Bank of Commerce, Brownsville.

The Company has evaluated all events or transactions that occurred through the date the Company issued these financial statements. During this period, the Company did not have any material recognizable or non-recognizable subsequent events.

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Investment Securities (Details 3) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Available for sale:
Fair value, less than 12 months	$ 2,661,685	$ 743,609
Unrealized losses, less than 12 months	(87,343)	(5,590)
Fair value, 12 months or more	106,491	43,353
Unrealized losses, 12 months or more	(15,245)	(12,254)
Fair value, total	2,768,176	786,962
Unrealized losses, total	(102,588)	(17,844)
Residential mortgage-backed securities
Available for sale:
Fair value, less than 12 months	2,599,415	738,492
Unrealized losses, less than 12 months	(84,205)	(5,476)
Fair value, 12 months or more	94,376	32,860
Unrealized losses, 12 months or more	(11,376)	(10,557)
Fair value, total	2,693,791	771,352
Unrealized losses, total	(95,581)	(16,033)
Obligations of states and political subdivisions
Available for sale:
Fair value, less than 12 months	51,800	5,117
Unrealized losses, less than 12 months	(2,859)	(114)
Fair value, 12 months or more	12,044	10,437
Unrealized losses, 12 months or more	(3,865)	(1,677)
Fair value, total	63,844	15,554
Unrealized losses, total	(6,724)	(1,791)
Equity Securities
Available for sale:
Fair value, less than 12 months	10,470
Unrealized losses, less than 12 months	(279)
Fair value, 12 months or more	71	56
Unrealized losses, 12 months or more	(4)	(20)
Fair value, total	10,541	56
Unrealized losses, total	$ (283)	$ (20)

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Fair Value Measurements (Details 2) (Residential mortgage-backed securities, USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Residential mortgage-backed securities
Reconciliation of activity for mortgage-backed securities on a net basis
Balance at the beginning of the period	$ 32,860
Principal paydowns	(3,833)
Total unrealized gains (losses) included in:
Other comprehensive loss	1,272
Impairment realized in earnings	(1,300)
Balance at the end of the period	$ 28,999

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Allowance for Probable Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Allowance for probable loan losses
Balance at the beginning of the period	$ 65,051	$ 70,378	$ 58,193	$ 84,192
Losses charged to allowance	(3,845)	(4,036)	(10,410)	(31,789)
Recoveries credited to allowance	823	990	2,485	3,537
Net losses charged to allowance	(3,022)	(3,046)	(7,925)	(28,252)
Provision (credit) charged to operations	5,800	5,349	17,561	16,741
Balance at the end of the period	67,829	72,681	67,829	72,681
Commercial
Allowance for probable loan losses
Balance at the beginning of the period	20,676	24,688	11,632	26,617
Losses charged to allowance	(3,540)	(3,521)	(8,866)	(10,009)
Recoveries credited to allowance	658	821	1,909	2,823
Net losses charged to allowance	(2,882)	(2,700)	(6,957)	(7,186)
Provision (credit) charged to operations	3,370	3,312	16,489	5,869
Balance at the end of the period	21,164	25,300	21,164	25,300
Commercial real estate: other construction and land development
Allowance for probable loan losses
Balance at the beginning of the period	11,624	13,242	12,720	19,940
Losses charged to allowance	(2)	(3)	(250)	(7,574)
Recoveries credited to allowance	10	13	36	225
Net losses charged to allowance	8	10	(214)	(7,349)
Provision (credit) charged to operations	(10)	44	(884)	705
Balance at the end of the period	11,622	13,296	11,622	13,296
Commercial real estate: farmland and commercial
Allowance for probable loan losses
Balance at the beginning of the period	22,383	20,551	21,880	24,227
Losses charged to allowance		(1)	(61)	(12,477)
Recoveries credited to allowance	9	32	150	163
Net losses charged to allowance	9	31	89	(12,314)
Provision (credit) charged to operations	1,549	1,138	1,972	9,807
Balance at the end of the period	23,941	21,720	23,941	21,720
Commercial real estate: multifamily
Allowance for probable loan losses
Balance at the beginning of the period	623	803	694	1,003
Provision (credit) charged to operations	112	(27)	41	(227)
Balance at the end of the period	735	776	735	776
Residential: first lien
Allowance for probable loan losses
Balance at the beginning of the period	3,855	3,987	4,390	4,562
Losses charged to allowance	(22)	(63)	(221)	(129)
Recoveries credited to allowance	45	4	54	7
Net losses charged to allowance	23	(59)	(167)	(122)
Provision (credit) charged to operations	186	272	(159)	(240)
Balance at the end of the period	4,064	4,200	4,064	4,200
Residential: junior lien
Allowance for probable loan losses
Balance at the beginning of the period	4,047	4,410	4,448	4,760
Losses charged to allowance	(149)	(282)	(544)	(993)
Recoveries credited to allowance	80	62	204	168
Net losses charged to allowance	(69)	(220)	(340)	(825)
Provision (credit) charged to operations	404	626	274	881
Balance at the end of the period	4,382	4,816	4,382	4,816
Consumer
Allowance for probable loan losses
Balance at the beginning of the period	797	1,476	1,289	1,724
Losses charged to allowance	(130)	(159)	(446)	(595)
Recoveries credited to allowance	21	58	127	151
Net losses charged to allowance	(109)	(101)	(319)	(444)
Provision (credit) charged to operations	124	31	(158)	126
Balance at the end of the period	812	1,406	812	1,406
Foreign
Allowance for probable loan losses
Balance at the beginning of the period	1,046	1,221	1,140	1,359
Losses charged to allowance	(2)	(7)	(22)	(12)
Recoveries credited to allowance			5
Net losses charged to allowance	(2)	(7)	(17)	(12)
Provision (credit) charged to operations	65	(47)	(14)	(180)
Balance at the end of the period	$ 1,109	$ 1,167	$ 1,109	$ 1,167

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Allowance for Probable Loan Losses (Details 6) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Loan portfolio by credit quality indicator
Portfolio, total	$ 5,052,161	$ 4,775,004
Pass
Loan portfolio by credit quality indicator
Portfolio, total	4,688,096	4,369,031
Special Review
Loan portfolio by credit quality indicator
Portfolio, total	137,181	169,097
Watch List - Pass
Loan portfolio by credit quality indicator
Portfolio, total	45,485	65,855
Watch List - Substandard
Loan portfolio by credit quality indicator
Portfolio, total	82,373	88,016
Watch List - Impaired
Loan portfolio by credit quality indicator
Portfolio, total	99,026	83,005
Commercial
Loan portfolio by credit quality indicator
Portfolio, total	1,018,154	769,110
Commercial | Pass
Loan portfolio by credit quality indicator
Portfolio, total	911,393	675,263
Commercial | Special Review
Loan portfolio by credit quality indicator
Portfolio, total	8,244	4,278
Commercial | Watch List - Pass
Loan portfolio by credit quality indicator
Portfolio, total	16,623	16,535
Commercial | Watch List - Substandard
Loan portfolio by credit quality indicator
Portfolio, total	46,663	40,266
Commercial | Watch List - Impaired
Loan portfolio by credit quality indicator
Portfolio, total	35,231	32,768
Commercial real estate: other construction and land development
Loan portfolio by credit quality indicator
Portfolio, total	1,119,342	1,147,669
Commercial real estate: other construction and land development | Pass
Loan portfolio by credit quality indicator
Portfolio, total	1,044,439	1,038,749
Commercial real estate: other construction and land development | Special Review
Loan portfolio by credit quality indicator
Portfolio, total	25,064	55,079
Commercial real estate: other construction and land development | Watch List - Pass
Loan portfolio by credit quality indicator
Portfolio, total	9,164	2,614
Commercial real estate: other construction and land development | Watch List - Substandard
Loan portfolio by credit quality indicator
Portfolio, total	4,371	22,567
Commercial real estate: other construction and land development | Watch List - Impaired
Loan portfolio by credit quality indicator
Portfolio, total	36,304	28,660
Commercial real estate: farmland and commercial
Loan portfolio by credit quality indicator
Portfolio, total	1,722,956	1,673,322
Commercial real estate: farmland and commercial | Pass
Loan portfolio by credit quality indicator
Portfolio, total	1,558,965	1,486,572
Commercial real estate: farmland and commercial | Special Review
Loan portfolio by credit quality indicator
Portfolio, total	101,674	109,144
Commercial real estate: farmland and commercial | Watch List - Pass
Loan portfolio by credit quality indicator
Portfolio, total	19,698	46,316
Commercial real estate: farmland and commercial | Watch List - Substandard
Loan portfolio by credit quality indicator
Portfolio, total	25,581	17,345
Commercial real estate: farmland and commercial | Watch List - Impaired
Loan portfolio by credit quality indicator
Portfolio, total	17,038	13,945
Commercial real estate: multifamily
Loan portfolio by credit quality indicator
Portfolio, total	99,912	82,948
Commercial real estate: multifamily | Pass
Loan portfolio by credit quality indicator
Portfolio, total	99,598	82,542
Commercial real estate: multifamily | Watch List - Pass
Loan portfolio by credit quality indicator
Portfolio, total		53
Commercial real estate: multifamily | Watch List - Impaired
Loan portfolio by credit quality indicator
Portfolio, total	314	353
Residential: first lien
Loan portfolio by credit quality indicator
Portfolio, total	443,889	456,731
Residential: first lien | Pass
Loan portfolio by credit quality indicator
Portfolio, total	433,944	446,218
Residential: first lien | Special Review
Loan portfolio by credit quality indicator
Portfolio, total	119	519
Residential: first lien | Watch List - Substandard
Loan portfolio by credit quality indicator
Portfolio, total	4,842	6,338
Residential: first lien | Watch List - Impaired
Loan portfolio by credit quality indicator
Portfolio, total	4,984	3,656
Residential: junior lien
Loan portfolio by credit quality indicator
Portfolio, total	393,437	381,736
Residential: junior lien | Pass
Loan portfolio by credit quality indicator
Portfolio, total	389,920	378,000
Residential: junior lien | Special Review
Loan portfolio by credit quality indicator
Portfolio, total		77
Residential: junior lien | Watch List - Pass
Loan portfolio by credit quality indicator
Portfolio, total		309
Residential: junior lien | Watch List - Substandard
Loan portfolio by credit quality indicator
Portfolio, total	298	1,500
Residential: junior lien | Watch List - Impaired
Loan portfolio by credit quality indicator
Portfolio, total	3,219	1,850
Consumer
Loan portfolio by credit quality indicator
Portfolio, total	67,422	74,514
Consumer | Pass
Loan portfolio by credit quality indicator
Portfolio, total	65,937	73,188
Consumer | Watch List - Substandard
Loan portfolio by credit quality indicator
Portfolio, total	4
Consumer | Watch List - Impaired
Loan portfolio by credit quality indicator
Portfolio, total	1,481	1,326
Foreign
Loan portfolio by credit quality indicator
Portfolio, total	187,049	188,974
Foreign | Pass
Loan portfolio by credit quality indicator
Portfolio, total	183,900	188,499
Foreign | Special Review
Loan portfolio by credit quality indicator
Portfolio, total	2,080
Foreign | Watch List - Pass
Loan portfolio by credit quality indicator
Portfolio, total		28
Foreign | Watch List - Substandard
Loan portfolio by credit quality indicator
Portfolio, total	614
Foreign | Watch List - Impaired
Loan portfolio by credit quality indicator
Portfolio, total	$ 455	$ 447

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Junior Subordinated Interest Deferrable Debentures (Details 2) (USD $) In Thousands, unless otherwise specified			9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2013 Trust VI	Sep. 30, 2013 Trust VII	Sep. 30, 2013 Trust VIII	Sep. 30, 2013 Trust IX	Sep. 30, 2013 Trust X	Sep. 30, 2013 Trust XI	Sep. 30, 2013 Trust XII
Junior subordinated deferrable interest debentures, major types of business trusts
Junior subordinated deferrable interest debentures	$ 190,726	$ 190,726	$ 25,774	$ 10,310	$ 25,774	$ 41,238	$ 34,021	$ 32,990	$ 20,619
Interest rate (as a percent)			3.71%	3.52%	3.32%	1.89%	1.92%	1.89%	1.71%
Interest rate index			LIBOR	LIBOR	LIBOR	LIBOR	LIBOR	LIBOR	LIBOR
Spread on interest rate index (as a percent)			3.45%	3.25%	3.05%	1.62%	1.65%	1.62%	1.45%

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Consolidated Statements of Condition (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Consolidated Statements of Condition
Held-to-maturity, Market value (in dollars)	$ 2,400	$ 2,400
Available-for-sale, Amortized cost (in dollars)	5,470,103	5,423,189
Common shares, par value (in dollars per share)	$ 1.00	$ 1.00
Common shares, Authorized shares	275,000,000	275,000,000
Common shares, issued shares	95,736,255	95,724,517
Accumulated other comprehensive (loss) income, comprehensive loss related to other-than-temporary impairment for non-credit related issues (in dollars)	$ (5,991)	$ (6,811)
Treasury, shares	28,537,180	28,537,180

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Investment Securities

9 Months Ended

Sep. 30, 2013

Investment Securities

Investment Securities

Note 6 - Investment Securities

The Company classifies debt and equity securities into one of three categories:  held-to maturity, available-for-sale, or trading.  Such securities are reassessed for appropriate classification at each reporting date.  Securities classified as “held-to-maturity” are carried at amortized cost for financial statement reporting, while securities classified as “available-for-sale” and “trading” are carried at their fair value.  Unrealized holding gains and losses are included in net income for those securities classified as “trading”, while unrealized holding gains and losses related to those securities classified as “available-for-sale” are excluded from net income and reported net of tax as other comprehensive income (loss) and accumulated other comprehensive income (loss) until realized, or in the case of losses, when deemed other than temporary.

The amortized cost and estimated fair value by type of investment security at September 30, 2013 are as follows:

	Held to Maturity
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Carrying value
	(Dollars in Thousands)
Other securities	$	2,400	$	—	$	—	$	2,400	$	2,400
Total investment securities	$	2,400	$	—	$	—	$	2,400	$	2,400

	Available for Sale
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Carrying value (1)
	(Dollars in Thousands)
Residential mortgage-backed securities	$	5,197,331	$	70,436	$	(95,581	)	$	5,172,186	$	5,172,186
Obligations of states and political subdivisions	244,697		9,758		(6,724		)	247,731		247,731
Equity securities	28,075		1,041		(283		)	28,833		28,833
Total investment securities	$	5,470,103	$	81,235	$	(102,588	)	$	5,448,750	$	5,448,750

(1) Included in the carrying value of residential mortgage-backed securities are $1,894,858 of mortgage-backed securities issued by Ginnie Mae, $3,248,329 of mortgage-backed securities issued by Fannie Mae and Freddie Mac and $28,999  issued by non-government entities

The amortized cost and estimated fair value by type of investment security at December 31, 2012 are as follows:

	Held to Maturity
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Carrying value
	(Dollars in Thousands)
Other securities	$	2,400	$	—	$	—	$	2,400	$	2,400
Total investment securities	$	2,400	$	—	$	—	$	2,400	$	2,400

	Available for Sale
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Carrying value (1)
	(Dollars in Thousands)
Residential mortgage-backed securities	$	5,186,652	$	94,585	$	(16,033	)	$	5,265,204	$	5,265,204
Obligations of states and political subdivisions	216,962		23,504		(1,791		)	238,675		238,675
Equity securities	19,575		1,581		(20		)	21,136		21,136
Total investment securities	$	5,423,189	$	119,670	$	(17,844	)	$	5,525,015	$	5,525,015

(1) Included in the carrying value of residential mortgage-backed securities are $2,035,742 of mortgage-backed securities issued by Ginnie Mae, $3,196,602 of mortgage-backed securities issued by Fannie Mae and Freddie Mac and $32,860  issued by non-government entities

The amortized cost and estimated fair value of investment securities at September 30, 2013, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

	Held to Maturity				Available for Sale
	Amortized Cost		Estimated fair value		Amortized Cost		Estimated fair value
	(Dollars in Thousands)
Due in one year or less	$	1,325	$	1,325	$	—	$	—
Due after one year through five years	1,075		1,075		—		—
Due after five years through ten years	—		—		697		744
Due after ten years	—		—		244,000		246,987
Residential mortgage-backed securities	—		—		5,197,331		5,172,186
Equity securities	—		—		28,075		28,833
Total investment securities	$	2,400	$	2,400	$	5,470,103	$	5,448,750

Residential mortgage-backed securities are securities issued by Freddie Mac, Fannie Mae, Ginnie Mae or non-government entities.  Investments in residential mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U.S. Government.  Investments in mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. Government, however, the Company believes that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008 and because securities issued by others that are collateralized by residential mortgage-backed securities issued by Fannie Mae or Freddie Mac are rated consistently as AAA rated securities.

The amortized cost and fair value of available for sale investment securities pledged to qualify for fiduciary powers, to secure public monies as required by law, repurchase agreements and short-term fixed borrowings was $2,070,772,000 and $2,106,076,000 at September 30, 2013.

Proceeds from the sale of securities available-for-sale were $0 and $178,124,000 for the three and nine months ended September 30, 2013, which included $0 and $177,623,000 of mortgage-backed securities. Gross gains of $0 and $9,601,000 and gross losses of $0 and $0 were realized on the sales for the three and nine months ended September 30, 2013, respectively.  Proceeds from the sale of securities available-for-sale were $1,207,581,000 and $1,279,963,000 for the three and nine months ended September 30, 2012, which included $1,205,556,000 and $1,237,071,000 of mortgage-backed securities. Gross gains of $32,935,000 and $35,528,000 and gross losses of $0 and $(1,000) were realized on the sales for the three and nine months ended September 30, 2012, respectively.

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2013 were as follows:

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available for sale:
Residential mortgage-backed securities	$	2,599,415	$	(84,205	)	$	94,376	$	(11,376	)	$	2,693,791	$	(95,581	)
Obligations of states and political subdivisions	51,800		(2,859		)	12,044		(3,865		)	63,844		(6,724		)
Other equity securities	10,470		(279		)	71		(4		)	10,541		(283		)
	$	2,661,685	$	(87,343	)	$	106,491	$	(15,245	)	$	2,768,176	$	(102,588	)

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2012 were as follows:

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available for sale:
Residential mortgage-backed securities	$	738,492	$	(5,476	)	$	32,860	$	(10,557	)	$	771,352	$	(16,033	)
Obligations of states and political subdivisions	5,117		(114		)	10,437		(1,677		)	15,554		(1,791		)
Equity securities	—		—			56		(20		)	56		(20		)
	$	743,609	$	(5,590	)	$	43,353	$	(12,254	)	$	786,962	$	(17,844	)

The unrealized losses on investments in residential mortgage-backed securities are primarily caused by changes in market interest rates.  Residential mortgage-backed securities are primarily securities issued by Freddie Mac, Fannie Mae and Ginnie Mae.  Investments in mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U.S. Government.  Investments in mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. Government, however, the Company believes that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008 and because securities issued by others that are collateralized by residential mortgage-backed securities issued by Fannie Mae or Freddie Mac are rated consistently as AAA rated securities.  The decrease in fair value on residential mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae is due to market interest rates.  The Company has no intent to sell such mortgage-backed securities, and will more than likely not be required to sell such securities before a market price recovery or maturity of the securities; therefore, it is the conclusion of the Company that the investments in residential mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae are not considered other-than-temporarily impaired.  In addition, the Company has a small investment in non-agency residential mortgage-backed securities that have strong credit backgrounds and include additional credit enhancements to protect the Company from losses arising from high foreclosure rates.  These securities have additional market volatility beyond economically induced interest rate events.  It is the conclusion of the Company that the investments in non-agency residential mortgage-backed securities are other-than-temporarily impaired due to both credit and other than credit issues.  Impairment charges of $573,000 ($372,000, after tax) and $1,300,000 ($845,000, after tax) were recorded for the three and nine months ended September 30, 2013. Impairment charges of $239,000 ($155,000, after tax) and $647,000 ($421,000, after tax) were recorded for the three and nine months ended September 30, 2012. The impairment charge represents the credit related impairment on the securities.

The unrealized losses on investments in other securities are caused by fluctuations in market interest rates.  The underlying cash obligations of the securities are guaranteed by the entity underwriting the debt instrument.  It is the belief of the Company that the entity issuing the debt will honor its interest payment schedule, as well as the full debt at maturity.  The securities are purchased by the Company for their economic value.  The decrease in fair value is primarily due to market interest rates and not other factors, and because the Company has no intent to sell and will more than likely not be required to sell before a market price recovery or maturity of the securities, it is the conclusion of the Company that the investments are not considered other-than-temporarily impaired.

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investments recognized in earnings for the three months ended September 30, 2013 (Dollars in Thousands):

Balance at June 30, 2013	$	11,159
Impairment charges recognized during period	573
Balance at September 30, 2013	$	11,732

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investments recognized in earnings for the nine months ended September 30, 2013 (Dollars in Thousands):

Balance at December 31, 2012	$	10,432
Impairment charges recognized during period	1,300
Balance at September 30, 2013	$	11,732

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investment recognized in earnings for the three months ended September 30, 2012 (Dollars in Thousands):

Balance at June 30, 2012	$	9,801
Impairment charges recognized during period	239
Balance at September 30, 2012	$	10,040

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investment recognized in earnings for the nine months ended September 30, 2012 (Dollars in Thousands):

Balance at December 31, 2011	$	9,393
Impairment charges recognized during period	647
Balance at September 30, 2012	$	10,040

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Consolidated Statements of Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Consolidated Statements of Income
Impairment charges, other-than-temporary impairment losses	$ (13)	$ (402)	$ (27)	$ 947
Impairment charges, other comprehensive income	$ (560)	$ (641)	$ (1,273)	$ 300

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Consolidated Statements of Condition (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets
Cash and due from banks	$ 302,514	$ 283,100
Investment securities:
Held-to-maturity (Market value of $2,400 on September 30, 2013 and $2,400 on December 31, 2012)	2,400	2,400
Available-for-sale (Amortized cost of $5,470,103 on September 30, 2013 and $5,423,189 on December 31, 2012)	5,448,750	5,525,015
Total investment securities	5,451,150	5,527,415
Loans	5,052,161	4,775,004
Less allowance for probable loan losses	(67,829)	(58,193)
Net loans	4,984,332	4,716,811
Bank premises and equipment, net	492,375	481,287
Accrued interest receivable	28,983	31,034
Other investments	386,302	372,739
Identified intangible assets, net	4,368	7,819
Goodwill	282,532	282,532
Other assets	144,102	179,936
Total assets	12,076,658	11,882,673
Deposits:
Demand - non-interest bearing	2,651,632	2,465,750
Savings and interest bearing demand	2,759,122	2,867,151
Time	2,702,052	2,954,312
Total deposits	8,112,806	8,287,213
Securities sold under repurchase agreements	1,001,137	1,129,679
Other borrowed funds	1,289,493	749,027
Junior subordinated deferrable interest debentures	190,726	190,726
Other liabilities	67,145	90,320
Total liabilities	10,661,307	10,446,965
Shareholders' equity:
Common shares of $1.00 par value. Authorized 275,000,000 shares; issued 95,736,255 shares on September 30, 2013 and 95,724,517 shares on December 31, 2012	95,736	95,725
Surplus	163,744	163,287
Retained earnings	1,428,057	1,369,543
Accumulated other comprehensive (loss) income (including $(5,991) and $(6,811) of comprehensive loss related to other-than-temporary impairment for non-credit related issues)	(13,677)	65,662
Total shareholders' equity before treasury stock	1,673,860	1,694,217
Less cost of shares in treasury, 28,537,180 shares on September 30, 2013 and 28,537,180 December 31, 2012	(258,509)	(258,509)
Total shareholders' equity	1,415,351	1,435,708
Total liabilities and shareholders' equity	$ 12,076,658	$ 11,882,673

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Fair Value Measurements (Details 3) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Assets:
Impaired Loans	$ 87,914,000	$ 73,646,000
Assumptions used in discounted cash flow model to determine fair value of investments classified within level 3
Charges to allowance for probable loan losses in connection with other real estate owned	237,000	10,450,000
Adjustment to fair value in connection with other real estate owned	478,000	0
Impaired commercial collateral dependent loans	87,914,000	73,646,000
Impaired commercial collateral dependent receivables appraisals to determine fair value within last twelve months	70,548,000	48,856,000
Significant Unobservable Inputs (Level 3) | Bond meeting the original contract terms
Assumptions used in discounted cash flow model to determine fair value of investments classified within level 3
Minimum period of residential mortgage loan performance under original contract terms	24 months	24 months
Estimated future principal prepayment rate assumption, low end of range (as a percent)	7.00%	7.00%
Default rate assumptions (as a percent)	1.00%	1.00%
Loss severity rate assumptions, first year (as a percent)	25.00%	25.00%
Estimated future principal prepayment rate assumption, discount rate (as a percent)	13.00%	13.00%
Significant Unobservable Inputs (Level 3) | Bond not meeting the original contract terms
Assumptions used in discounted cash flow model to determine fair value of investments classified within level 3
Estimated future principal prepayment rate assumption, low end of range (as a percent)	2.00%	2.00%
Default rate assumptions (as a percent)	4.50%	4.50%
Loss severity rate assumptions, first year (as a percent)	60.00%	60.00%
Decrease in loss severity rates, following five years (as a percent)	5.00%	5.00%
Loss severity rate, thereafter (as a percent)	25.00%	25.00%
Estimated future principal prepayment rate assumption, discount rate (as a percent)	13.00%	13.00%
Measured on a non-recurring basis:
Assumptions used in discounted cash flow model to determine fair value of investments classified within level 3
Change in net provision, impaired loans	11,048,000	295,000
Change in net provision, other real estate owned	478,000
Measured on a non-recurring basis: | Assets/Liabilities Measured at Fair Value
Assets:
Impaired Loans	29,159,000	11,981,000
Non-financial assets:
Other real estate owned	11,656,000	18,749,000
Assumptions used in discounted cash flow model to determine fair value of investments classified within level 3
Impaired commercial collateral dependent loans	29,159,000	11,981,000
Measured on a non-recurring basis: | Significant Unobservable Inputs (Level 3)
Assets:
Impaired Loans	29,159,000	11,981,000
Non-financial assets:
Other real estate owned	11,656,000	18,749,000
Assumptions used in discounted cash flow model to determine fair value of investments classified within level 3
Impaired commercial collateral dependent loans	$ 29,159,000	$ 11,981,000

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Stock Options (Tables)

9 Months Ended

Sep. 30, 2013

Stock Options

Summary of option activity under stock option plans

	Number of options	Weighted average exercise price		Weighted average remaining contractual term (years)	Aggregate intrinsic value ($)
					(Dollars in Thousands)
Options outstanding at December 31, 2012	794,877	$	19.03
Plus: Options granted	8,500	21.33
Less:
Options exercised	11,738	12.36
Options expired	22,343	23.50
Options forfeited	20,600	17.88
Options outstanding at September 30, 2013	748,969	19.06		3.18	$	3,386
Options fully vested and exercisable at September 30, 2013	426,476	22.74		1.34	991

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Junior Subordinated Interest Deferrable Debentures (Details) (USD $)	9 Months Ended
	Sep. 30, 2013 item	Dec. 31, 2012
Junior Subordinated Interest Deferrable Debentures
Number of statutory business trusts issuing trust preferred securities	7
Junior subordinated deferrable interest debentures	$ 190,726,000	$ 190,726,000
Maximum number of consecutive quarterly period available for deferral of interest payment on Trusts VI, VII, VIII, IX, X, XI and XII	20
Percentage of capital securities issued by trust qualifying as Tier I capital, maximum	25.00%
Percentage of capital securities issued by trust qualifying as Tier II capital, minimum	25.00%
Capital securities issued by the trust, qualifying as Tier I capital	$ 190,726,000	$ 190,726,000

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Investment Securities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Held-to-maturity securities
Amortized cost	$ 2,400	$ 2,400
Estimated fair value	2,400	2,400
Carrying value	2,400	2,400
Available-for-sale securities
Amortized cost	5,470,103	5,423,189
Gross unrealized gains	81,235	119,670
Gross unrealized losses	(102,588)	(17,844)
Total investment securities	5,448,750	5,525,015
Estimated fair value
Available-for-sale securities
Total investment securities	5,448,750	5,525,015
Carrying value
Available-for-sale securities
Total investment securities	5,448,750	5,525,015
Other securities
Held-to-maturity securities
Amortized cost	2,400	2,400
Estimated fair value	2,400	2,400
Carrying value	2,400	2,400
Residential mortgage-backed securities
Available-for-sale securities
Amortized cost	5,197,331	5,186,652
Gross unrealized gains	70,436	94,585
Gross unrealized losses	(95,581)	(16,033)
Residential mortgage-backed securities | Estimated fair value
Available-for-sale securities
Total investment securities	5,172,186	5,265,204
Residential mortgage-backed securities | Carrying value
Available-for-sale securities
Total investment securities	5,172,186	5,265,204
Mortgage-backed securities by Ginnie Mae
Available-for-sale securities
Total investment securities	1,894,858	2,035,742
Mortgage-backed securities by Fannie Mae and Freddie Mac
Available-for-sale securities
Total investment securities	3,248,329	3,196,602
Mortgage-backed securities by non-government entities
Available-for-sale securities
Total investment securities	28,999	32,860
Obligations of states and political subdivisions
Available-for-sale securities
Amortized cost	244,697	216,962
Gross unrealized gains	9,758	23,504
Gross unrealized losses	(6,724)	(1,791)
Obligations of states and political subdivisions | Estimated fair value
Available-for-sale securities
Total investment securities	247,731	238,675
Obligations of states and political subdivisions | Carrying value
Available-for-sale securities
Total investment securities	247,731	238,675
Equity Securities
Available-for-sale securities
Amortized cost	28,075	19,575
Gross unrealized gains	1,041	1,581
Gross unrealized losses	(283)	(20)
Equity Securities | Estimated fair value
Available-for-sale securities
Total investment securities	28,833	21,136
Equity Securities | Carrying value
Available-for-sale securities
Total investment securities	$ 28,833	$ 21,136

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Allowance for Probable Loan Losses (Details 4) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Interest Recognized
Loans accounted for as troubled debt restructuring	$ 20,275,000		$ 20,275,000		$ 29,395,000
Period of charge off for past due unsecured commercial loans			90 days
Class of financing receivable
Recorded investment:
Total impaired loans with related allowance	32,450,000		32,450,000		11,982,000
Total impaired loans with no related allowance	66,576,000		66,576,000		71,023,000
Unpaid principal balance:
Total impaired loans with an allowance recorded	35,838,000		35,838,000		15,273,000
Total impaired loans with no related allowance recorded	68,436,000		68,436,000		73,728,000
Related Allowance	14,997,000		14,997,000		4,746,000
Average recorded investment:
Total impaired loans with an allowance recorded	32,476,000	33,715,000	30,736,000	57,716,000	35,076,000
Total impaired loans with no related allowance recorded	58,267,000	48,128,000	53,089,000	49,061,000	65,536,000
Interest Recognized
Total impaired loans with an allowance recorded	32,000	33,000	98,000	98,000	131,000
Total impaired loans with no related allowance recorded	92,000	64,000	258,000	244,000	323,000
Commercial | Class of financing receivable
Recorded investment:
Total impaired loans with related allowance	17,880,000		17,880,000		1,633,000
Total impaired loans with no related allowance	17,351,000		17,351,000		31,135,000
Unpaid principal balance:
Total impaired loans with an allowance recorded	17,880,000		17,880,000		1,679,000
Total impaired loans with no related allowance recorded	17,993,000		17,993,000		31,170,000
Related Allowance	10,741,000		10,741,000		1,477,000
Average recorded investment:
Total impaired loans with an allowance recorded	17,884,000	22,729,000	17,898,000	22,517,000	21,126,000
Total impaired loans with no related allowance recorded	17,238,000	840,000	16,915,000	538,000	2,996,000
Interest Recognized
Total impaired loans with an allowance recorded	9,000	10,000	29,000	29,000	39,000
Total impaired loans with no related allowance recorded		1,000		3,000	4,000
Commercial real estate: other construction and land development | Class of financing receivable
Recorded investment:
Total impaired loans with related allowance	6,819,000		6,819,000		3,671,000
Total impaired loans with no related allowance	29,485,000		29,485,000		24,989,000
Unpaid principal balance:
Total impaired loans with an allowance recorded	6,825,000		6,825,000		3,671,000
Total impaired loans with no related allowance recorded	29,542,000		29,542,000		25,160,000
Related Allowance	852,000		852,000		539,000
Average recorded investment:
Total impaired loans with an allowance recorded	6,821,000	3,671,000	5,804,000	23,479,000	6,608,000
Total impaired loans with no related allowance recorded	22,414,000	26,689,000	20,788,000	27,632,000	39,449,000
Interest Recognized
Total impaired loans with no related allowance recorded	17,000	23,000	53,000	122,000	141,000
Commercial real estate: farmland and commercial | Class of financing receivable
Recorded investment:
Total impaired loans with related allowance	7,751,000		7,751,000		6,678,000
Total impaired loans with no related allowance	9,287,000		9,287,000		7,267,000
Unpaid principal balance:
Total impaired loans with an allowance recorded	11,133,000		11,133,000		9,923,000
Total impaired loans with no related allowance recorded	10,289,000		10,289,000		9,340,000
Related Allowance	3,404,000		3,404,000		2,730,000
Average recorded investment:
Total impaired loans with an allowance recorded	7,771,000	7,117,000	7,034,000	11,518,000	7,342,000
Total impaired loans with no related allowance recorded	8,775,000	14,069,000	6,787,000	14,850,000	16,536,000
Interest Recognized
Total impaired loans with an allowance recorded	23,000	23,000	69,000	69,000	92,000
Total impaired loans with no related allowance recorded				8,000	8,000
Commercial real estate: multifamily | Class of financing receivable
Recorded investment:
Total impaired loans with no related allowance	314,000		314,000		353,000
Unpaid principal balance:
Total impaired loans with no related allowance recorded	314,000		314,000		353,000
Average recorded investment:
Total impaired loans with no related allowance recorded	316,000	374,000	330,000	388,000	381,000
Residential: first lien | Class of financing receivable
Recorded investment:
Total impaired loans with no related allowance	4,984,000		4,984,000		3,656,000
Unpaid principal balance:
Total impaired loans with no related allowance recorded	5,117,000		5,117,000		3,984,000
Average recorded investment:
Total impaired loans with an allowance recorded		198,000		202,000
Total impaired loans with no related allowance recorded	4,878,000	2,957,000	4,441,000	2,485,000	2,876,000
Interest Recognized
Total impaired loans with no related allowance recorded	45,000	15,000	117,000	31,000	60,000
Residential: junior lien | Class of financing receivable
Recorded investment:
Total impaired loans with no related allowance	3,219,000		3,219,000		1,850,000
Unpaid principal balance:
Total impaired loans with no related allowance recorded	3,238,000		3,238,000		1,944,000
Average recorded investment:
Total impaired loans with no related allowance recorded	2,731,000	1,836,000	2,059,000	1,958,000	1,939,000
Interest Recognized
Total impaired loans with no related allowance recorded	25,000	25,000	74,000	79,000	104,000
Consumer | Class of financing receivable
Recorded investment:
Total impaired loans with no related allowance	1,481,000		1,481,000		1,326,000
Unpaid principal balance:
Total impaired loans with no related allowance recorded	1,486,000		1,486,000		1,330,000
Average recorded investment:
Total impaired loans with no related allowance recorded	1,458,000	1,271,000	1,313,000	1,149,000	1,193,000
Foreign | Class of financing receivable
Recorded investment:
Total impaired loans with no related allowance	455,000		455,000		447,000
Unpaid principal balance:
Total impaired loans with no related allowance recorded	457,000		457,000		447,000
Average recorded investment:
Total impaired loans with no related allowance recorded	457,000	92,000	456,000	61,000	166,000
Interest Recognized
Total impaired loans with no related allowance recorded	$ 5,000		$ 14,000	$ 1,000	$ 6,000

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Allowance for Probable Loan Losses (Details 5) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financing receivable recorded investment
Past due 30-59 days	$ 25,214	$ 19,507
Past due 60-89 days	5,411	28,372
Past due 90 days or greater	88,701	42,357
Past due 90 days or greater and still accruing	11,847	15,033
Past due, total	119,326	90,236
Loans, current	4,932,835	4,684,768
Total loans	5,052,161	4,775,004
Commercial
Financing receivable recorded investment
Past due 30-59 days	4,319	4,393
Past due 60-89 days	1,054	471
Past due 90 days or greater	35,379	3,386
Past due 90 days or greater and still accruing	1,227	2,689
Past due, total	40,752	8,250
Loans, current	977,402	760,860
Total loans	1,018,154	769,110
Commercial real estate: other construction and land development
Financing receivable recorded investment
Past due 30-59 days	1,916	1,107
Past due 60-89 days	292	2,300
Past due 90 days or greater	32,593	24,225
Past due 90 days or greater and still accruing	38	497
Past due, total	34,801	27,632
Loans, current	1,084,541	1,120,037
Total loans	1,119,342	1,147,669
Commercial real estate: farmland and commercial
Financing receivable recorded investment
Past due 30-59 days	7,436	3,127
Past due 60-89 days	297	21,272
Past due 90 days or greater	9,122	2,310
Past due 90 days or greater and still accruing	1,728	929
Past due, total	16,855	26,709
Loans, current	1,706,101	1,646,613
Total loans	1,722,956	1,673,322
Commercial real estate: multifamily
Financing receivable recorded investment
Past due 30-59 days	418	685
Past due 90 days or greater	314	353
Past due, total	732	1,038
Loans, current	99,180	81,910
Total loans	99,912	82,948
Residential: first lien
Financing receivable recorded investment
Past due 30-59 days	6,538	4,305
Past due 60-89 days	3,060	2,510
Past due 90 days or greater	8,612	10,645
Past due 90 days or greater and still accruing	7,751	9,657
Past due, total	18,210	17,460
Loans, current	425,679	439,271
Total loans	443,889	456,731
Residential: junior lien
Financing receivable recorded investment
Past due 30-59 days	1,060	2,035
Past due 60-89 days	175	410
Past due 90 days or greater	1,758	259
Past due 90 days or greater and still accruing	216	115
Past due, total	2,993	2,704
Loans, current	390,444	379,032
Total loans	393,437	381,736
Consumer
Financing receivable recorded investment
Past due 30-59 days	1,615	1,598
Past due 60-89 days	385	404
Past due 90 days or greater	708	915
Past due 90 days or greater and still accruing	685	882
Past due, total	2,708	2,917
Loans, current	64,714	71,597
Total loans	67,422	74,514
Foreign
Financing receivable recorded investment
Past due 30-59 days	1,912	2,257
Past due 60-89 days	148	1,005
Past due 90 days or greater	215	264
Past due 90 days or greater and still accruing	202	264
Past due, total	2,275	3,526
Loans, current	184,774	185,448
Total loans	$ 187,049	$ 188,974

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Stock Options

9 Months Ended

Sep. 30, 2013

Stock Options

Stock Options

Note 5 — Stock Options

On April 5, 2012, the Board of Directors adopted the 2012 International Bancshares Corporation Stock Option Plan (the “2012 Plan”). There are 800,000 shares available for stock option grants under the 2012 Plan. Under the 2012 Plan, both qualified incentive stock options (“ISOs”) and non-qualified stock options (“NQSOs”) may be granted. Options granted may be exercisable for a period of up to 10 years from the date of grant, excluding ISOs granted to 10% shareholders, which may be exercisable for a period of up to only five years. As of September 30, 2013, 749,000 shares were available for future grants under the 2012 Plan.

A summary of option activity under the stock option plans for the nine months ended September 30, 2013 is as follows:

	Number of options	Weighted average exercise price		Weighted average remaining contractual term (years)	Aggregate intrinsic value ($)
					(Dollars in Thousands)
Options outstanding at December 31, 2012	794,877	$	19.03
Plus: Options granted	8,500	21.33
Less:
Options exercised	11,738	12.36
Options expired	22,343	23.50
Options forfeited	20,600	17.88
Options outstanding at September 30, 2013	748,969	19.06		3.18	$	3,386
Options fully vested and exercisable at September 30, 2013	426,476	22.74		1.34	991

Stock-based compensation expense included in the consolidated statements of income for the three and nine months ended September 30, 2013 was approximately $101,000 and $322,000, respectively.  Stock-based compensation expense included in the consolidated statements of income for the three and nine months ended September 30, 2012 was approximately $113,000 and $366,000, respectively.  As of September 30, 2013, there was approximately $900,000 of total unrecognized stock-based compensation cost related to non-vested options granted under the Company plans that will be recognized over a weighted average period of 1.85 years.

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Fair Value Measurements (Details 4) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Deposits
Carrying amount of time deposits	$ 2,702,052,000	$ 2,954,312,000
Significant Unobservable Inputs (Level 3)
Assets and liabilities reported at fair value on recurring
Estimated fair value of fixed rate performing loans	1,152,663,000	1,126,228,000
Loans
Carrying amount of fixed rate performing loans	1,207,154,000	1,189,585,000
Deposits
Carrying amount of time deposits	2,702,052,000	2,954,312,000
Estimated fair value of time deposits	2,695,908,000	2,962,190,000
Securities Sold Under Repurchase Agreements
Carrying amount of long-term repurchase agreements	710,000,000	800,000,000
Estimated fair value of long-term repurchase agreements	799,005,000	932,007,000
Significant Other Observable Inputs (Level 2)
Other borrowed funds
Carrying amount of the long-term FHLB borrowings	8,993,000	6,527,000
Estimated fair value of long-term FHLB borrowings	$ 8,993,000	$ 7,073,000

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Investment Securities (Details 4) (Available for sale investments, USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Available for sale investments
Reconciliation of credit-related impairment charges on investments recognized in earnings
Balance at the beginning	$ 11,159	$ 9,801	$ 10,432	$ 9,393
Impairment charges recognized during period	573	239	1,300	647
Balance at the end	$ 11,732	$ 10,040	$ 11,732	$ 10,040

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Junior Subordinated Interest Deferrable Debentures

9 Months Ended

Sep. 30, 2013

Junior Subordinated Interest Deferrable Debentures

Junior Subordinated Interest Deferrable Debentures

Note 8 — Junior Subordinated Interest Deferrable Debentures

The Company has formed seven statutory business trusts under the laws of the State of Delaware, for the purpose of issuing trust preferred securities. The seven statutory business trusts formed by the Company (the “Trusts”) have each issued Capital and Common Securities and invested the proceeds thereof in an equivalent amount of junior subordinated debentures (the “Debentures”) issued by the Company. As of September 30, 2013 and December 31, 2012, the principal amount of debentures outstanding totaled $190,726,000.

The Debentures are subordinated and junior in right of payment to all present and future senior indebtedness (as defined in the respective indentures) of the Company, and are pari passu with one another. The interest rate payable on, and the payment terms of the Debentures are the same as the distribution rate and payment terms of the respective issues of Capital and Common Securities issued by the Trusts. The Company has fully and unconditionally guaranteed the obligations of each of the Trusts with respect to the Capital and Common Securities. The Company has the right, unless an Event of Default (as defined in the Indentures) has occurred and is continuing, to defer payment of interest on the Debentures for up to twenty consecutive quarterly periods on Trusts VI, VII, VIII, IX, X, XI and XII. If interest payments on any of the Debentures are deferred, distributions on both the Capital and Common Securities related to that Debenture would also be deferred. The redemption prior to maturity of any of the Debentures may require the prior approval of the Federal Reserve and/or other regulatory bodies.

For financial reporting purposes, the Trusts are treated as investments of the Company and not consolidated in the consolidated financial statements.  Although the Capital Securities issued by each of the Trusts are not included as a component of shareholders’ equity on the consolidated statement of condition, the Capital Securities are treated as capital for regulatory purposes.  Specifically, under applicable regulatory guidelines, the Capital Securities issued by the Trusts qualify as Tier 1 capital up to a maximum of 25% of Tier 1 capital on an aggregate basis.  Any amount that exceeds the 25% threshold would qualify as Tier 2 capital.  At September 30, 2013 and December 31, 2012, the total $190,726,000 of the Capital Securities outstanding qualified as Tier 1 capital.

The following table illustrates key information about each of the Capital and Common Securities and their interest rate at September 30, 2013:

	Junior Subordinated Deferrable Interest Debentures		Repricing Frequency	Interest Rate		Interest Rate Index	Maturity Date	Optional Redemption Date(1)
	(In Thousands)
Trust VI	$	25,774	Quarterly	3.71	%	LIBOR + 3.45	November 2032	February 2008
Trust VII	10,310		Quarterly	3.52	%	LIBOR + 3.25	April 2033	April 2008
Trust VIII	25,774		Quarterly	3.32	%	LIBOR + 3.05	October 2033	October 2008
Trust IX	41,238		Quarterly	1.89	%	LIBOR + 1.62	October 2036	October 2011
Trust X	34,021		Quarterly	1.92	%	LIBOR + 1.65	February 2037	February 2012
Trust XI	32,990		Quarterly	1.89	%	LIBOR + 1.62	July 2037	July 2012
Trust XII	20,619		Quarterly	1.71	%	LIBOR + 1.45	September 2037	September 2012
	$	190,726

(1) The Capital Securities may be redeemed in whole or in part on any interest payment date after the Optional Redemption Date.

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Allowance for Probable Loan Losses

9 Months Ended

Sep. 30, 2013

Allowance for Probable Loan Losses

Allowance for Probable Loan Losses

Note 4 - Allowance for Probable Loan Losses

The allowance for probable loan losses primarily consists of the aggregate loan loss allowances of the bank subsidiaries.  The allowances are established through charges to operations in the form of provisions for probable loan losses.  Loan losses or recoveries are charged or credited directly to the allowances.  The allowance for probable loan losses of each bank subsidiary is maintained at a level considered appropriate by management, based on estimated probable losses in the loan portfolio.  The allowance for probable loan losses is derived from the following elements:  (i) allowances established on specific impaired loans, which are based on a review of the individual characteristics of each loan, including the customer’s ability to repay the loan, the underlying collateral values, and the industry in which the customer operates, (ii) allowances based on actual historical loss experience for similar types of loans in the Company’s loan portfolio, and (iii) allowances based on general economic conditions, changes in the mix of loans, company resources, border risk and credit quality indicators, among other things.  All segments of the loan portfolio continue to be impacted by the prolonged economic downturn.  Loans secured by real estate could be impacted negatively by the continued economic environment and resulting decrease in collateral values.  Consumer loans may be impacted by continued and prolonged unemployment rates.

The Company’s management continually reviews the allowance for loan losses of the bank subsidiaries using the amounts determined from the allowances established on specific impaired loans, the allowance established on quantitative historical loss percentages, and the allowance based on qualitative data to establish an appropriate amount to maintain in the Company’s allowance for loan losses.  Should any of the factors considered by management in evaluating the adequacy of the allowance for probable loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the level of future provisions for probable loan losses.  While the calculation of the allowance for probable loan losses utilizes management’s best judgment and all information available, the adequacy of the allowance is dependent on a variety of factors beyond the Company’s control, including, among other things, the performance of the entire loan portfolio, the economy, changes in interest rates and the view of regulatory authorities towards loan classifications.

The loan loss provision is determined using the following methods.  On a weekly basis, loan past due reports are reviewed by the credit quality committee to determine if a loan has any potential problems and if a loan should be placed on the Company’s internal classified report.  Additionally, the Company’s credit department reviews the majority of the Company’s loans for proper internal classification purposes regardless of whether they are past due and segregates any loans with potential problems for further review.  The credit department will discuss the potential problem loans with the servicing loan officers to determine any relevant issues that were not discovered in the evaluation.  Also, an analysis of loans that is provided through examinations by regulatory authorities is considered in the review process.  After the above analysis is completed, the Company will determine if a loan should be placed on an internal classified report because of issues related to the analysis of the credit, credit documents, collateral and/or payment history.

A summary of the transactions in the allowance for probable loan losses by loan class is as follows:

	Quarter ended September 30, 2013
	Domestic																			Foreign
				Commercial
				real estate:
				other			Commercial
				construction &			real estate:		Commercial
				land			farmland &		real estate:		Residential:			Residential:
	Commercial			development			commercial		multifamily		first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at June 30,	$	20,676		$	11,624		$	22,383	$	623	$	3,855		$	4,047		$	797		$	1,046		$	65,051
Losses charge to allowance	(3,540		)	(2		)	—		—		(22		)	(149		)	(130		)	(2		)	(3,845		)
Recoveries credited to allowance	658			10			9		—		45			80			21			—			823
Net losses charged to allowance	(2,882		)	8			9		—		23			(69		)	(109		)	(2		)	(3,022		)
Provision (credit) charged to operations	3,370			(10		)	1,549		112		186			404			124			65			5,800
Balance at September 30,	$	21,164		$	11,622		$	23,941	$	735	$	4,064		$	4,382		$	812		$	1,109		$	67,829

	Quarter ended September 30, 2012
	Domestic																					Foreign
				Commercial real estate: other construction & land			Commercial real estate: farmland &			Commercial real estate:			Residential:			Residential:
	Commercial			development			commercial			multifamily			first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at June 30,	$	24,688		$	13,242		$	20,551		$	803		$	3,987		$	4,410		$	1,476		$	1,221		$	70,378
Losses charge to allowance	(3,521		)	(3		)	(1		)	—			(63		)	(282		)	(159		)	(7		)	(4,036		)
Recoveries credited to allowance	821			13			32			—			4			62			58			—			990
Net losses charged to allowance	(2,700		)	10			31			—			(59		)	(220		)	(101		)	(7		)	(3,046		)
Provision (credit) charged to operations	3,312			44			1,138			(27		)	272			626			31			(47		)	5,349
Balance at September 30,	$	25,300		$	13,296		$	21,720		$	776		$	4,200		$	4,816		$	1,406		$	1,167		$	72,681

	Nine Months Ended September 30, 2013
	Domestic																				Foreign
				Commercial real estate: other construction & land			Commercial real estate: farmland &			Commercial real estate:		Residential:			Residential:
	Commercial			development			commercial			multifamily		first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at December 31,	$	11,632		$	12,720		$	21,880		$	694	$	4,390		$	4,448		$	1,289		$	1,140		$	58,193
Losses charge to allowance	(8,866		)	(250		)	(61		)	—		(221		)	(544		)	(446		)	(22		)	(10,410		)
Recoveries credited to allowance	1,909			36			150			—		54			204			127			5			2,485
Net losses charged to allowance	(6,957		)	(214		)	89			—		(167		)	(340		)	(319		)	(17		)	(7,925		)
Provision (credit) charged to operations	16,489			(884		)	1,972			41		(159		)	274			(158		)	(14		)	17,561
Balance at September 30,	$	21,164		$	11,622		$	23,941		$	735	$	4,064		$	4,382		$	812		$	1,109		$	67,829

	Nine Months Ended September 30, 2012
	Domestic																					Foreign
				Commercial real estate: other construction & land			Commercial real estate: farmland &			Commercial real estate:			Residential:			Residential:
	Commercial			development			commercial			multifamily			first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at December 31,	$	26,617		$	19,940		$	24,227		$	1,003		$	4,562		$	4,760		$	1,724		$	1,359		$	84,192
Losses charge to allowance	(10,009		)	(7,574		)	(12,477		)	—			(129		)	(993		)	(595		)	(12		)	(31,789		)
Recoveries credited to allowance	2,823			225			163			—			7			168			151			—			3,537
Net losses charged to allowance	(7,186		)	(7,349		)	(12,314		)	—			(122		)	(825		)	(444		)	(12		)	(28,252		)
Provision (credit) charged to operations	5,869			705			9,807			(227		)	(240		)	881			126			(180		)	16,741
Balance at September 30,	$	25,300		$	13,296		$	21,720		$	776		$	4,200		$	4,816		$	1,406		$	1,167		$	72,681

The allowance for probable loan losses is a reserve established through a provision for probable loan losses charged to expense, which represents management’s best estimate of probable loan losses when evaluating loans (i) individually or (ii) collectively.

The table below provides additional information on the balance of loans individually or collectively evaluated for impairment and their related allowance, by loan class as of September 30, 2013 and December 31, 2012:

	September 30, 2013
	Loans individually evaluated for impairment				Loans collectively evaluated for impairment
	(Dollars in Thousands)
	Recorded Investment		Allowance		Recorded Investment		Allowance
Domestic
Commercial	$	35,231	$	10,741	$	982,923	$	10,423
Commercial real estate: other construction & land development	36,304		852		1,083,038		10,770
Commercial real estate: farmland & commercial	17,038		3,404		1,705,918		20,537
Commercial real estate: multifamily	314		—		99,598		735
Residential: first lien	4,984		—		438,905		4,064
Residential: junior lien	3,219		—		390,218		4,382
Consumer	1,481		—		65,941		812
Foreign	455		—		186,594		1,109
Total	$	99,026	$	14,997	$	4,953,135	$	52,832

	December 31, 2012
	Loans individually evaluated for impairment				Loans collectively evaluated for impairment
	(Dollars in Thousands)
	Recorded Investment		Allowance		Recorded Investment		Allowance
Domestic
Commercial	$	32,768	$	1,477	$	736,342	$	10,155
Commercial real estate: other construction & land development	28,660		539		1,119,009		12,181
Commercial real estate: farmland & commercial	13,945		2,730		1,659,377		19,150
Commercial real estate: multifamily	353		—		82,595		694
Residential: first lien	3,656		—		453,075		4,390
Residential: junior lien	1,850		—		379,886		4,448
Consumer	1,326		—		73,188		1,289
Foreign	447		—		188,527		1,140
Total	$	83,005	$	4,746	$	4,691,999	$	53,447

The table below provides additional information on loans accounted for on a non-accrual basis by loan class at September 30, 2013 and December 31, 2012:

	September 30, 2013		December 31, 2012
	(Dollars in Thousands)
Domestic
Commercial	$	34,450	$	31,929
Commercial real estate: other construction & land development	34,053		26,410
Commercial real estate: farmland & commercial	14,775		11,681
Commercial real estate: multifamily	314		353
Residential: first lien	1,234		1,175
Residential: junior lien	1,576		175
Consumer	37		45
Foreign	13		—
Total non-accrual loans	$	86,452	$	71,768

Impaired loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement will not be collected.  The Company has identified these loans through its normal loan review procedures.    Impaired loans are measured based on (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent.  Substantially all of the Company’s impaired loans are measured at the fair value of the collateral. In limited cases the Company may use other methods to determine the level of impairment of a loan if such loan is not collateral dependent.

The following tables detail key information regarding the Company’s impaired loans by loan class at September 30, 2013 and December 31, 2012:

	September 30, 2013
							Quarter to Date				Year to Date
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	17,880	$	17,880	$	10,741	$	17,884	$	9	$	17,898	$	29
Commercial real estate: other construction & land development	6,819		6,825		852		6,821		—		5,804		—
Commercial real estate: farmland & commercial	7,751		11,133		3,404		7,771		23		7,034		69
Total impaired loans with related allowance	$	32,450	$	35,838	$	14,997	$	32,476	$	32	$	30,736	$	98

	September 30, 2013
					Quarter to Date				Year to Date
	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	17,351	$	17,993	$	17,238	$	—	$	16,915	$	—
Commercial real estate: other construction & land development	29,485		29,542		22,414		17		20,788		53
Commercial real estate: farmland & commercial	9,287		10,289		8,775		—		6,787		—
Commercial real estate: multifamily	314		314		316		—		330		—
Residential: first lien	4,984		5,117		4,878		45		4,441		117
Residential: junior lien	3,219		3,238		2,731		25		2,059		74
Consumer	1,481		1,486		1,458		—		1,313		—
Foreign	455		457		457		5		456		14
Total impaired loans with no related allowance	$	66,576	$	68,436	$	58,267	$	92	$	53,089	$	258

	December 31, 2012
							Year to Date
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	1,633	$	1,679	$	1,477	$	21,126	$	39
Commercial real estate: other construction & land development	3,671		3,671		539		6,608		—
Commercial real estate: farmland & commercial	6,678		9,923		2,730		7,342		92
Total impaired loans with related allowance	$	11,982	$	15,273	$	4,746	$	35,076	$	131

	December 31, 2012
					Year to Date
	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	31,135	$	31,170	$	2,996	$	4
Commercial real estate: other construction & land development	24,989		25,160		39,449		141
Commercial real estate: farmland & commercial	7,267		9,340		16,536		8
Commercial real estate: multifamily	353		353		381		—
Residential: first lien	3,656		3,984		2,876		60
Residential: junior lien	1,850		1,944		1,939		104
Consumer	1,326		1,330		1,193		—
Foreign	447		447		166		6
Total impaired loans with no related allowance	$	71,023	$	73,728	$	65,536	$	323

The following tables detail key information regarding the Company’s average recorded investment in impaired loans and interest recognized on impaired loans by loan class at September 30, 2012:

	September 30, 2012
	Quarter to Date				Year to Date
	Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	22,729	$	10	$	22,517	$	29
Commercial real estate: other construction & land development	3,671		—		23,479		—
Commercial real estate: farmland & commercial	7,117		23		11,518		69
Residential: first lien	198		—		202		—
Total impaired loans with related allowance	$	33,715	$	33	$	57,716	$	98

	September 30, 2012
	Quarter to Date				Year to Date
	Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	840	$	1	$	538	$	3
Commercial real estate: other construction & land development	26,689		23		27,632		122
Commercial real estate: farmland & commercial	14,069		—		14,850		8
Commercial real estate: multifamily	374		—		388		—
Residential: first lien	2,957		15		2,485		31
Residential: junior lien	1,836		25		1,958		79
Consumer	1,271		—		1,149		—
Foreign	92		—		61		1
Total impaired loans with no related allowance	$	48,128	$	64	$	49,061	$	244

A portion of the impaired loans have adequate collateral and credit enhancements not requiring a related allowance for loan loss.  The level of impaired loans is reflective of the economic weakness that has been created by the financial crisis and the subsequent economic downturn.  Management is confident the Company’s loss exposure regarding these credits will be significantly reduced due to the Company’s long-standing practices that emphasize secured lending with strong collateral positions and guarantor support.  Management is likewise confident the reserve for probable loan losses is adequate.  The Company has no direct exposure to sub-prime loans in its loan portfolio, but the sub-prime crisis has affected the credit markets on a national level, and as a result, the Company has experienced an increasing amount of impaired loans; however, management’s decision to place loans in this category does not necessarily mean that the Company will experience significant losses from these loans or significant increases in impaired loans from these levels.

Management of the Company recognizes the risks associated with these impaired loans.  However, management’s decision to place loans in this category does not necessarily mean that losses will occur. In the current environment, troubled loan management can be protracted because of the legal and process problems that delay the collection of an otherwise collectable loan.  Additionally, management believes that the collateral related to these impaired loans and/or the secondary support from guarantors mitigates the potential for losses from impaired loans.    It is also important to note that even though the economic conditions in Texas and Oklahoma are weakened, we believe these markets are improving and better positioned to recover than many other areas of the country.  Loans accounted for as “troubled debt restructuring,” which are included in impaired loans, were not significant and totaled $20,275,000 and $29,395,000 as of September 30, 2013 and December 31, 2012, respectively.

The bank subsidiaries charge off that portion of any loan which management considers to represent a loss as well as that portion of any other loan which is classified as a “loss” by bank examiners.  Commercial and industrial or real estate loans are generally considered by management to represent a loss, in whole or part, when an exposure beyond any collateral coverage is apparent and when no further collection of the loss portion is anticipated based on the borrower’s financial condition and general economic conditions in the borrower’s industry. Generally, unsecured consumer loans are charged-off when 90 days past due.

While management of the Company considers that it is generally able to identify borrowers with financial problems reasonably early and to monitor credit extended to such borrowers carefully, there is no precise method of predicting loan losses.  The determination that a loan is likely to be uncollectible and that it should be wholly or partially charged-off as a loss is an exercise of judgment.  Similarly, the determination of the adequacy of the allowance for probable loan losses can be made only on a subjective basis.  It is the judgment of the Company’s management that the allowance for probable loan losses at September 30, 2013 was adequate to absorb probable losses from loans in the portfolio at that date.

The following table presents information regarding the aging of past due loans by loan class at September 30, 2013 and December 31, 2012:

	September 30, 2013
	30 — 59 Days		60 — 89 Days		90 Days or Greater		90 Days or greater & still accruing		Total Past due		Current		Total Portfolio
	(Dollars in Thousands)
Domestic
Commercial	$	4,319	$	1,054	$	35,379	$	1,227	$	40,752	$	977,402	$	1,018,154
Commercial real estate: other construction & land development	1,916		292		32,593		38		34,801		1,084,541		1,119,342
Commercial real estate: farmland & commercial	7,436		297		9,122		1,728		16,855		1,706,101		1,722,956
Commercial real estate: multifamily	418		—		314		—		732		99,180		99,912
Residential: first lien	6,538		3,060		8,612		7,751		18,210		425,679		443,889
Residential: junior lien	1,060		175		1,758		216		2,993		390,444		393,437
Consumer	1,615		385		708		685		2,708		64,714		67,422
Foreign	1,912		148		215		202		2,275		184,774		187,049
Total past due loans	$	25,214	$	5,411	$	88,701	$	11,847	$	119,326	$	4,932,835	$	5,052,161

	December 31, 2012
	30 — 59 Days		60 — 89 Days		90 Days or Greater		90 Days or greater & still accruing		Total Past due		Current		Total Portfolio
	(Dollars in Thousands)
Domestic
Commercial	$	4,393	$	471	$	3,386	$	2,689	$	8,250	$	760,860	$	769,110
Commercial real estate: other construction & land development	1,107		2,300		24,225		497		27,632		1,120,037		1,147,669
Commercial real estate: farmland & commercial	3,127		21,272		2,310		929		26,709		1,646,613		1,673,322
Commercial real estate: multifamily	685		—		353		—		1,038		81,910		82,948
Residential: first lien	4,305		2,510		10,645		9,657		17,460		439,271		456,731
Residential: junior lien	2,035		410		259		115		2,704		379,032		381,736
Consumer	1,598		404		915		882		2,917		71,597		74,514
Foreign	2,257		1,005		264		264		3,526		185,448		188,974
Total past due loans	$	19,507	$	28,372	$	42,357	$	15,033	$	90,236	$	4,684,768	$	4,775,004

The Company’s internal classified report is segregated into the following categories:  (i) “Special Review Credits,” (ii) “Watch List - Pass Credits,” or (iii) “Watch List - Substandard Credits.”  The loans placed in the “Special Review Credits” category reflect the Company’s opinion that the loans reflect potential weakness which require monitoring on a more frequent basis.  The “Special Review Credits” are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted.  The loans placed in the “Watch List - Pass Credits” category reflect the Company’s opinion that the credit contains weaknesses which represent a greater degree of risk, which warrant “extra attention.”  The “Watch List — Pass Credits” are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted.  The loans placed in the “Watch List — Substandard Credits” classification are considered to be potentially inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral.  These credit obligations, even if apparently protected by collateral value, have shown defined weaknesses related to adverse financial, managerial, economic, market or political conditions which may jeopardize repayment of principal and interest.  Furthermore, there is the possibility that some future loss could be sustained by the Company if such weaknesses are not corrected.  For loans that are classified as impaired, management evaluates these credits ASC 310-10, “Receivables,” and, if deemed necessary, a specific reserve is allocated to the credit.  The specific reserve allocated under ASC 310-10, is based on (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral if the loan is collateral dependent.  Substantially all of the Company’s loans evaluated as impaired under ASC 310-10 are measured using the fair value of collateral method.  In limited cases, the Company may use other methods to determine the specific reserve of a loan under ASC 310-10 if such loan is not collateral dependent.

The allowance based on historical loss experience on the Company’s remaining loan portfolio, which includes the “Special Review Credits,” “Watch List - Pass Credits,” and “Watch List - Substandard Credits” is determined by segregating the remaining loan portfolio into certain categories such as commercial loans, installment loans, international loans, loan concentrations and overdrafts.  Installment loans are then further segregated by number of days past due.  A historical loss percentage, adjusted for (i) management’s evaluation of changes in lending policies and procedures, (ii) current economic conditions in the market area served by the Company, (iii) other risk factors, (iv) the effectiveness of the internal loan review function, (v) changes in loan portfolios, and (vi) the composition and concentration of credit volume is applied to each category.  Each category is then added together to determine the allowance allocated under ASC 450-20.

A summary of the loan portfolio by credit quality indicator by loan class at September 30, 2013 and December 31, 2012 is as follows:

			September 30, 2013
	Pass		Special Review		Watch List - Pass		Watch List - Substandard		Watch List - Impaired
			(Dollars in Thousands)
Domestic
Commercial	$	911,393	$	8,244	$	16,623	$	46,663	$	35,231
Commercial real estate: other construction & land development	1,044,439		25,064		9,164		4,371		36,304
Commercial real estate: farmland & commercial	1,558,965		101,674		19,698		25,581		17,038
Commercial real estate: multifamily	99,598		—		—		—		314
Residential: first lien	433,944		119		—		4,842		4,984
Residential: junior lien	389,920		—		—		298		3,219
Consumer	65,937		—		—		4		1,481
Foreign	183,900		2,080		—		614		455
Total	$	4,688,096	$	137,181	$	45,485	$	82,373	$	99,026

			December 31,2012
	Pass		Special Review		Watch List - Pass		Watch List - Substandard		Watch List - Impaired
			(Dollars in Thousands)
Domestic
Commercial	$	675,263	$	4,278	$	16,535	$	40,266	$	32,768
Commercial real estate: other construction & land development	1,038,749		55,079		2,614		22,567		28,660
Commercial real estate: farmland & commercial	1,486,572		109,144		46,316		17,345		13,945
Commercial real estate: multifamily	82,542		—		53		—		353
Residential: first lien	446,218		519		—		6,338		3,656
Residential: junior lien	378,000		77		309		1,500		1,850
Consumer	73,188		—		—		—		1,326
Foreign	188,499		—		28		—		447
Total	$	4,369,031	$	169,097	$	65,855	$	88,016	$	83,005

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Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Consolidated Statements of Comprehensive Income
Net unrealized holding (losses) gains on securities available for sale arising during period, tax effects	$ 609	$ 10,897	$ (39,816)	$ 11,292
Reclassification adjustment for gains on securities available for sale included in net income, tax effects	0	(11,527)	(3,360)	(12,434)
Reclassification adjustment for impairment charges on available for sale securities included in net income, tax effects	$ 201	$ 84	$ 455	$ 226

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Capital Ratios (Details) (USD $)	9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Capital Ratios
Tier 1 Capital (to Average Assets), Actual Ratio (as a percent)	11.53%	10.86%
Tier 1 Capital (to Risk Weighted Assets), Actual Ratio (as a percent)	19.37%	19.65%
Total Capital (to Risk Weighted Assets), Actual Ratio (as a percent)	20.40%	20.60%
Identified intangibles and goodwill	$ 286,900,000
Percentage of capital securities issued by trust qualifying as Tier I capital, maximum	25.00%
Percentage of capital securities issued by trust qualifying as Tier II capital, minimum	25.00%
Capital securities issued by the trust, qualifying as Tier I capital	$ 190,726,000	$ 190,726,000

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Allowance for Probable Loan Losses (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Loan loss allowances, impaired financing receivable, evaluated individually or collectively
Loans individually evaluated for impairment, Recorded Investment	$ 99,026	$ 83,005
Loans individually evaluated for impairment, Allowance	14,997	4,746
Loans collectively evaluated for impairment, Recorded Investment	4,953,135	4,691,999
Loans collectively evaluated for impairment, Allowance	52,832	53,447
Commercial
Loan loss allowances, impaired financing receivable, evaluated individually or collectively
Loans individually evaluated for impairment, Recorded Investment	35,231	32,768
Loans individually evaluated for impairment, Allowance	10,741	1,477
Loans collectively evaluated for impairment, Recorded Investment	982,923	736,342
Loans collectively evaluated for impairment, Allowance	10,423	10,155
Commercial real estate: other construction and land development
Loan loss allowances, impaired financing receivable, evaluated individually or collectively
Loans individually evaluated for impairment, Recorded Investment	36,304	28,660
Loans individually evaluated for impairment, Allowance	852	539
Loans collectively evaluated for impairment, Recorded Investment	1,083,038	1,119,009
Loans collectively evaluated for impairment, Allowance	10,770	12,181
Commercial real estate: farmland and commercial
Loan loss allowances, impaired financing receivable, evaluated individually or collectively
Loans individually evaluated for impairment, Recorded Investment	17,038	13,945
Loans individually evaluated for impairment, Allowance	3,404	2,730
Loans collectively evaluated for impairment, Recorded Investment	1,705,918	1,659,377
Loans collectively evaluated for impairment, Allowance	20,537	19,150
Commercial real estate: multifamily
Loan loss allowances, impaired financing receivable, evaluated individually or collectively
Loans individually evaluated for impairment, Recorded Investment	314	353
Loans collectively evaluated for impairment, Recorded Investment	99,598	82,595
Loans collectively evaluated for impairment, Allowance	735	694
Residential: first lien
Loan loss allowances, impaired financing receivable, evaluated individually or collectively
Loans individually evaluated for impairment, Recorded Investment	4,984	3,656
Loans collectively evaluated for impairment, Recorded Investment	438,905	453,075
Loans collectively evaluated for impairment, Allowance	4,064	4,390
Residential: junior lien
Loan loss allowances, impaired financing receivable, evaluated individually or collectively
Loans individually evaluated for impairment, Recorded Investment	3,219	1,850
Loans collectively evaluated for impairment, Recorded Investment	390,218	379,886
Loans collectively evaluated for impairment, Allowance	4,382	4,448
Consumer
Loan loss allowances, impaired financing receivable, evaluated individually or collectively
Loans individually evaluated for impairment, Recorded Investment	1,481	1,326
Loans collectively evaluated for impairment, Recorded Investment	65,941	73,188
Loans collectively evaluated for impairment, Allowance	812	1,289
Foreign
Loan loss allowances, impaired financing receivable, evaluated individually or collectively
Loans individually evaluated for impairment, Recorded Investment	455	447
Loans collectively evaluated for impairment, Recorded Investment	186,594	188,527
Loans collectively evaluated for impairment, Allowance	$ 1,109	$ 1,140

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Capital Ratios

9 Months Ended

Sep. 30, 2013

Capital Ratios

Capital Ratios

Note 11 — Capital Ratios

The Company had a Tier 1 capital to average total asset (leverage) ratio of 11.53% and 10.86%, risk-weighted Tier 1 capital ratio of 19.37% and 19.65% and risk-weighted total capital ratio of 20.40% and 20.60% at September 30, 2013 and December 31, 2012, respectively.  The identified intangibles and goodwill of $286,900,000 as of September 30, 2013, recorded in connection with the acquisitions made by the Company, are deducted from the sum of core capital elements when determining the capital ratios of the Company.  Under applicable regulatory guidelines, the Capital Securities issued by the Trusts qualify as Tier 1 capital up to a maximum of 25% of tier 1 capital on an aggregate basis.  Any amount that exceeds the 25% threshold qualifies as Tier 2 capital.  As of September 30, 2013, the total of $190,726,000 of the Capital Securities outstanding qualified as Tier 1 capital.  The Company actively monitors the regulatory capital ratios to ensure that the Company’s bank subsidiaries are well capitalized under the regulatory framework.

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Other Borrowed Funds

9 Months Ended

Sep. 30, 2013

Other Borrowed Funds

Other Borrowed Funds

Note 7 — Other Borrowed Funds

Other borrowed funds include Federal Home Loan Bank borrowings, which are short-term and long-term borrowings issued by the FHLB of Dallas at the market price offered at the time of funding.  These borrowings are secured by residential mortgage-backed investment securities and a portion of the Company’s loan portfolio.  At September 30, 2013, other borrowed funds totaled $1,289,493,000, an increase of 72.2% from $749,027,000 at December 31, 2012.  The increase in other borrowed funds is a result of purchases of available-for-sale securities.

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Allowance for Probable Loan Losses (Tables)

9 Months Ended

Sep. 30, 2013

Allowance for Probable Loan Losses

Summary of the transactions in the allowance for probable loan losses, by loan class

	Quarter ended September 30, 2013
	Domestic																			Foreign
				Commercial
				real estate:
				other			Commercial
				construction &			real estate:		Commercial
				land			farmland &		real estate:		Residential:			Residential:
	Commercial			development			commercial		multifamily		first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at June 30,	$	20,676		$	11,624		$	22,383	$	623	$	3,855		$	4,047		$	797		$	1,046		$	65,051
Losses charge to allowance	(3,540		)	(2		)	—		—		(22		)	(149		)	(130		)	(2		)	(3,845		)
Recoveries credited to allowance	658			10			9		—		45			80			21			—			823
Net losses charged to allowance	(2,882		)	8			9		—		23			(69		)	(109		)	(2		)	(3,022		)
Provision (credit) charged to operations	3,370			(10		)	1,549		112		186			404			124			65			5,800
Balance at September 30,	$	21,164		$	11,622		$	23,941	$	735	$	4,064		$	4,382		$	812		$	1,109		$	67,829

	Quarter ended September 30, 2012
	Domestic																					Foreign
				Commercial real estate: other construction & land			Commercial real estate: farmland &			Commercial real estate:			Residential:			Residential:
	Commercial			development			commercial			multifamily			first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at June 30,	$	24,688		$	13,242		$	20,551		$	803		$	3,987		$	4,410		$	1,476		$	1,221		$	70,378
Losses charge to allowance	(3,521		)	(3		)	(1		)	—			(63		)	(282		)	(159		)	(7		)	(4,036		)
Recoveries credited to allowance	821			13			32			—			4			62			58			—			990
Net losses charged to allowance	(2,700		)	10			31			—			(59		)	(220		)	(101		)	(7		)	(3,046		)
Provision (credit) charged to operations	3,312			44			1,138			(27		)	272			626			31			(47		)	5,349
Balance at September 30,	$	25,300		$	13,296		$	21,720		$	776		$	4,200		$	4,816		$	1,406		$	1,167		$	72,681

	Nine Months Ended September 30, 2013
	Domestic																				Foreign
				Commercial real estate: other construction & land			Commercial real estate: farmland &			Commercial real estate:		Residential:			Residential:
	Commercial			development			commercial			multifamily		first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at December 31,	$	11,632		$	12,720		$	21,880		$	694	$	4,390		$	4,448		$	1,289		$	1,140		$	58,193
Losses charge to allowance	(8,866		)	(250		)	(61		)	—		(221		)	(544		)	(446		)	(22		)	(10,410		)
Recoveries credited to allowance	1,909			36			150			—		54			204			127			5			2,485
Net losses charged to allowance	(6,957		)	(214		)	89			—		(167		)	(340		)	(319		)	(17		)	(7,925		)
Provision (credit) charged to operations	16,489			(884		)	1,972			41		(159		)	274			(158		)	(14		)	17,561
Balance at September 30,	$	21,164		$	11,622		$	23,941		$	735	$	4,064		$	4,382		$	812		$	1,109		$	67,829

	Nine Months Ended September 30, 2012
	Domestic																					Foreign
				Commercial real estate: other construction & land			Commercial real estate: farmland &			Commercial real estate:			Residential:			Residential:
	Commercial			development			commercial			multifamily			first lien			junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at December 31,	$	26,617		$	19,940		$	24,227		$	1,003		$	4,562		$	4,760		$	1,724		$	1,359		$	84,192
Losses charge to allowance	(10,009		)	(7,574		)	(12,477		)	—			(129		)	(993		)	(595		)	(12		)	(31,789		)
Recoveries credited to allowance	2,823			225			163			—			7			168			151			—			3,537
Net losses charged to allowance	(7,186		)	(7,349		)	(12,314		)	—			(122		)	(825		)	(444		)	(12		)	(28,252		)
Provision (credit) charged to operations	5,869			705			9,807			(227		)	(240		)	881			126			(180		)	16,741
Balance at September 30,	$	25,300		$	13,296		$	21,720		$	776		$	4,200		$	4,816		$	1,406		$	1,167		$	72,681

Loans individually or collectively evaluated for impairment and related allowance, by loan class

	September 30, 2013
	Loans individually evaluated for impairment				Loans collectively evaluated for impairment
	(Dollars in Thousands)
	Recorded Investment		Allowance		Recorded Investment		Allowance
Domestic
Commercial	$	35,231	$	10,741	$	982,923	$	10,423
Commercial real estate: other construction & land development	36,304		852		1,083,038		10,770
Commercial real estate: farmland & commercial	17,038		3,404		1,705,918		20,537
Commercial real estate: multifamily	314		—		99,598		735
Residential: first lien	4,984		—		438,905		4,064
Residential: junior lien	3,219		—		390,218		4,382
Consumer	1,481		—		65,941		812
Foreign	455		—		186,594		1,109
Total	$	99,026	$	14,997	$	4,953,135	$	52,832

	December 31, 2012
	Loans individually evaluated for impairment				Loans collectively evaluated for impairment
	(Dollars in Thousands)
	Recorded Investment		Allowance		Recorded Investment		Allowance
Domestic
Commercial	$	32,768	$	1,477	$	736,342	$	10,155
Commercial real estate: other construction & land development	28,660		539		1,119,009		12,181
Commercial real estate: farmland & commercial	13,945		2,730		1,659,377		19,150
Commercial real estate: multifamily	353		—		82,595		694
Residential: first lien	3,656		—		453,075		4,390
Residential: junior lien	1,850		—		379,886		4,448
Consumer	1,326		—		73,188		1,289
Foreign	447		—		188,527		1,140
Total	$	83,005	$	4,746	$	4,691,999	$	53,447

Loans accounted on non-accrual basis, by loan class

	September 30, 2013		December 31, 2012
	(Dollars in Thousands)
Domestic
Commercial	$	34,450	$	31,929
Commercial real estate: other construction & land development	34,053		26,410
Commercial real estate: farmland & commercial	14,775		11,681
Commercial real estate: multifamily	314		353
Residential: first lien	1,234		1,175
Residential: junior lien	1,576		175
Consumer	37		45
Foreign	13		—
Total non-accrual loans	$	86,452	$	71,768

Impaired loans, by loan class

	September 30, 2013
							Quarter to Date				Year to Date
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	17,880	$	17,880	$	10,741	$	17,884	$	9	$	17,898	$	29
Commercial real estate: other construction & land development	6,819		6,825		852		6,821		—		5,804		—
Commercial real estate: farmland & commercial	7,751		11,133		3,404		7,771		23		7,034		69
Total impaired loans with related allowance	$	32,450	$	35,838	$	14,997	$	32,476	$	32	$	30,736	$	98

	September 30, 2013
					Quarter to Date				Year to Date
	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	17,351	$	17,993	$	17,238	$	—	$	16,915	$	—
Commercial real estate: other construction & land development	29,485		29,542		22,414		17		20,788		53
Commercial real estate: farmland & commercial	9,287		10,289		8,775		—		6,787		—
Commercial real estate: multifamily	314		314		316		—		330		—
Residential: first lien	4,984		5,117		4,878		45		4,441		117
Residential: junior lien	3,219		3,238		2,731		25		2,059		74
Consumer	1,481		1,486		1,458		—		1,313		—
Foreign	455		457		457		5		456		14
Total impaired loans with no related allowance	$	66,576	$	68,436	$	58,267	$	92	$	53,089	$	258

	December 31, 2012
							Year to Date
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	1,633	$	1,679	$	1,477	$	21,126	$	39
Commercial real estate: other construction & land development	3,671		3,671		539		6,608		—
Commercial real estate: farmland & commercial	6,678		9,923		2,730		7,342		92
Total impaired loans with related allowance	$	11,982	$	15,273	$	4,746	$	35,076	$	131

	December 31, 2012
					Year to Date
	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	31,135	$	31,170	$	2,996	$	4
Commercial real estate: other construction & land development	24,989		25,160		39,449		141
Commercial real estate: farmland & commercial	7,267		9,340		16,536		8
Commercial real estate: multifamily	353		353		381		—
Residential: first lien	3,656		3,984		2,876		60
Residential: junior lien	1,850		1,944		1,939		104
Consumer	1,326		1,330		1,193		—
Foreign	447		447		166		6
Total impaired loans with no related allowance	$	71,023	$	73,728	$	65,536	$	323

	September 30, 2012
	Quarter to Date				Year to Date
	Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	22,729	$	10	$	22,517	$	29
Commercial real estate: other construction & land development	3,671		—		23,479		—
Commercial real estate: farmland & commercial	7,117		23		11,518		69
Residential: first lien	198		—		202		—
Total impaired loans with related allowance	$	33,715	$	33	$	57,716	$	98

	September 30, 2012
	Quarter to Date				Year to Date
	Average Recorded Investment		Interest Recognized		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	840	$	1	$	538	$	3
Commercial real estate: other construction & land development	26,689		23		27,632		122
Commercial real estate: farmland & commercial	14,069		—		14,850		8
Commercial real estate: multifamily	374		—		388		—
Residential: first lien	2,957		15		2,485		31
Residential: junior lien	1,836		25		1,958		79
Consumer	1,271		—		1,149		—
Foreign	92		—		61		1
Total impaired loans with no related allowance	$	48,128	$	64	$	49,061	$	244

Information regarding the aging of past due loans, by loan class

	September 30, 2013
	30 — 59 Days		60 — 89 Days		90 Days or Greater		90 Days or greater & still accruing		Total Past due		Current		Total Portfolio
	(Dollars in Thousands)
Domestic
Commercial	$	4,319	$	1,054	$	35,379	$	1,227	$	40,752	$	977,402	$	1,018,154
Commercial real estate: other construction & land development	1,916		292		32,593		38		34,801		1,084,541		1,119,342
Commercial real estate: farmland & commercial	7,436		297		9,122		1,728		16,855		1,706,101		1,722,956
Commercial real estate: multifamily	418		—		314		—		732		99,180		99,912
Residential: first lien	6,538		3,060		8,612		7,751		18,210		425,679		443,889
Residential: junior lien	1,060		175		1,758		216		2,993		390,444		393,437
Consumer	1,615		385		708		685		2,708		64,714		67,422
Foreign	1,912		148		215		202		2,275		184,774		187,049
Total past due loans	$	25,214	$	5,411	$	88,701	$	11,847	$	119,326	$	4,932,835	$	5,052,161

	December 31, 2012
	30 — 59 Days		60 — 89 Days		90 Days or Greater		90 Days or greater & still accruing		Total Past due		Current		Total Portfolio
	(Dollars in Thousands)
Domestic
Commercial	$	4,393	$	471	$	3,386	$	2,689	$	8,250	$	760,860	$	769,110
Commercial real estate: other construction & land development	1,107		2,300		24,225		497		27,632		1,120,037		1,147,669
Commercial real estate: farmland & commercial	3,127		21,272		2,310		929		26,709		1,646,613		1,673,322
Commercial real estate: multifamily	685		—		353		—		1,038		81,910		82,948
Residential: first lien	4,305		2,510		10,645		9,657		17,460		439,271		456,731
Residential: junior lien	2,035		410		259		115		2,704		379,032		381,736
Consumer	1,598		404		915		882		2,917		71,597		74,514
Foreign	2,257		1,005		264		264		3,526		185,448		188,974
Total past due loans	$	19,507	$	28,372	$	42,357	$	15,033	$	90,236	$	4,684,768	$	4,775,004

Summary of the loan portfolio by credit quality indicator, by loan class

			September 30, 2013
	Pass		Special Review		Watch List - Pass		Watch List - Substandard		Watch List - Impaired
			(Dollars in Thousands)
Domestic
Commercial	$	911,393	$	8,244	$	16,623	$	46,663	$	35,231
Commercial real estate: other construction & land development	1,044,439		25,064		9,164		4,371		36,304
Commercial real estate: farmland & commercial	1,558,965		101,674		19,698		25,581		17,038
Commercial real estate: multifamily	99,598		—		—		—		314
Residential: first lien	433,944		119		—		4,842		4,984
Residential: junior lien	389,920		—		—		298		3,219
Consumer	65,937		—		—		4		1,481
Foreign	183,900		2,080		—		614		455
Total	$	4,688,096	$	137,181	$	45,485	$	82,373	$	99,026

			December 31,2012
	Pass		Special Review		Watch List - Pass		Watch List - Substandard		Watch List - Impaired
			(Dollars in Thousands)
Domestic
Commercial	$	675,263	$	4,278	$	16,535	$	40,266	$	32,768
Commercial real estate: other construction & land development	1,038,749		55,079		2,614		22,567		28,660
Commercial real estate: farmland & commercial	1,486,572		109,144		46,316		17,345		13,945
Commercial real estate: multifamily	82,542		—		53		—		353
Residential: first lien	446,218		519		—		6,338		3,656
Residential: junior lien	378,000		77		309		1,500		1,850
Consumer	73,188		—		—		—		1,326
Foreign	188,499		—		28		—		447
Total	$	4,369,031	$	169,097	$	65,855	$	88,016	$	83,005

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2013

Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis

			Fair Value Measurements at Reporting Date Using
			(in thousands)
			Quoted Prices
	Assets/Liabilities		in Active
	Measured at Fair		Markets for		Significant Other		Significant
	Value		Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
	2013		(Level 1)		(Level 2)		(Level 3)
Measured on a recurring basis:
Assets:
Available for sale securities
Residential mortgage-backed securities	$	5,172,186	$	—	$	5,143,187	$	28,999
States and political subdivisions	247,731		—		247,731		—
Other	28,833		28,833		—		—
Total	$	5,448,750	$	28,833	$	5,390,918	$	28,999

			Fair Value Measurements at Reporting Date Using
			(in thousands)
			Quoted Prices
			in Active
	Assets/Liabilities		Markets for		Significant Other		Significant
	Measured at Fair		Identical		Observable		Unobservable
	Value		Assets		Inputs		Inputs
	December 31, 2012		(Level 1)		(Level 2)		(Level 3)
Measured on a recurring basis:
Assets:
Available for sale securities
Residential mortgage-backed securities	$	5,265,204	$	—	$	5,232,344	$	32,860
States and political subdivisions	238,675		—		238,675		—
Other	21,136		21,136		—		—
Total	$	5,525,015	$	21,136	$	5,471,019	$	32,860

Reconciliation of activity for mortgage-backed securities on a net basis

The following table presents a reconciliation of activity for such mortgage-backed securities on a net basis (Dollars in Thousands):

Balance at December 31, 2012	$	32,860
Principal paydowns	(3,833		)
Total unrealized gains (losses) included in:
Other comprehensive loss	1,272
Impairment realized in earnings	(1,300		)
Balance at September 30, 2013	$	28,999

Assets measured at fair value on a non-recurring basis

			Fair Value Measurements at Reporting Date Using
			(in thousands)
			Quoted						Net Provision
			Prices in						During
	Assets/Liabilities		Active		Significant				Period
	Measured at Fair		Markets for		Other		Significant		Nine Months
	Value		Identical		Observable		Unobservable		ended
	September 30,		Assets		Inputs		Inputs		September 30,
	2013		(Level 1)		(Level 2)		(Level 3)		2013
Measured on a non-recurring basis:
Assets:
Impaired loans	$	29,159	$	—	$	—	$	29,159	$	11,048
Other real estate owned	11,656		—		—		11,656		478

			Fair Value Measurements at Reporting Date Using
			(in thousands)
									Net
			Quoted						Provision
			Prices in						During
	Assets/Liabilities		Active		Significant				Period
	Measured at Fair		Markets for		Other		Significant		Twelve
	Value		Identical		Observable		Unobservable		Months ended
	December 31,		Assets		Inputs		Inputs		December 31,
	2012		(Level 1)		(Level 2)		(Level 3)		2012
Measured on a non-recurring basis:
Assets:
Impaired loans	$	11,981	$	—	$	—	$	11,981	$	295
Other real estate owned	18,749		—		—		18,749		—

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 01, 2013
Document and Entity Information
Entity Registrant Name	INTERNATIONAL BANCSHARES CORP
Entity Central Index Key	0000315709
Document Type	10-Q
Document Period End Date	Sep. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		67,204,987
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3

XML

Loans (Tables)

9 Months Ended

Sep. 30, 2013

Loans

Summary of loans, by loan type

	September 30,		December 31,
	2013		2012
	(Dollars in Thousands)
Commercial, financial and agricultural	$	2,841,022	$	2,525,380
Real estate — mortgage	837,326		838,467
Real estate — construction	1,119,342		1,147,669
Consumer	67,422		74,514
Foreign	187,049		188,974
Total loans	$	5,052,161	$	4,775,004